HOVNANIAN ENTERPRISES INC 10-K

ITEM 9A CONTROLS AND PROCEDURES   The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of October 31, 2021. Based upon that evaluation and subject to the foregoing, the Company’s chief executive officer and chief financial officer concluded that the design and operation of the Company’s disclosure controls and procedures are effective to accomplish their objectives.   Changes in Internal Control Over Financial Reporting   There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended October 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.   Management’s Report on Internal Control Over Financial Reporting   Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).   All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.   Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of October 31, 2021.   The effectiveness of the Company’s internal control over financial reporting as of October 31, 2021 has been audited by Deloitte & Touche LLP, the Company’s independent registered public accounting firm, as stated in their report below.     ITEM 9B OTHER INFORMATION   None.   ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDITIONS THAT PREVENT INSPECTIONS   None.   43 Table of Contents   PART III   ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE   The information called for by Item 10, except as set forth in this Item 10, is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 29, 2022, which will involve the election of directors.   Information About Our Executive Officers    Our executive officers are listed below and brief summaries of their business experience and certain other information with respect to them are set forth following the table. Each executive officer holds such office for a one-year term.               Year             Started             With Name   Age   Position   Company Ara K. Hovnanian   64   Chairman of the Board, Chief Executive Officer, President and Director of the Company   1979 J. Larry Sorsby   66   Executive Vice President, Chief Financial Officer and Director of the Company   1988 Brad G. O’Connor   51   Senior Vice President, Treasurer and Chief Accounting Officer   2004   Mr. Hovnanian has been Chief Executive Officer since July 1997 after being appointed President in 1988 and Executive Vice President in 1983. Mr. Hovnanian joined the Company in 1979 and has been a Director of the Company since 1981 and was Vice Chairman from 1998 through November 2009. In November 2009, he was elected Chairman of the Board following the death of Kevork S. Hovnanian, the chairman and founder of the Company and the father of Mr. Hovnanian.   Mr. Sorsby has been Chief Financial Officer of Hovnanian Enterprises, Inc. since 1996, and Executive Vice President since November 2000. Mr. Sorsby was also Senior Vice President from March 1991 to November 2000 and was elected as a Director of the Company in 1997. He is Chairman of the Board of Visitors for Urology at The Children’s Hospital of Philadelphia (“CHOP”) and also serves on the Foundation Board of Overseers at CHOP.   Mr. O’Connor joined the Company in April 2004 as Vice President and Associate Corporate Controller. In December 2007, he was promoted to Vice President, Corporate Controller and in May 2011, he also became Vice President, Chief Accounting Officer. In April 2020, Mr. O'Connor was promoted to Senior Vice President and Treasurer and continues in his role of Chief Accounting Officer. Prior to joining the Company, Mr. O’Connor was the Corporate Controller for Amershem Biosciences, and prior to that a Senior Manager in the audit practice of PricewaterhouseCoopers LLP.    Code of Ethics and Corporate Governance Guidelines   In more than 60 years of doing business, we have been committed to enhancing our shareholders’ investment through conduct that is in accordance with the highest levels of integrity. Our Code of Ethics is a set of guidelines and policies that govern broad principles of ethical conduct and integrity embraced by our Company. Our Code of Ethics applies to our principal executive officer, principal financial officer, chief accounting officer, and all other associates of our Company, including our directors and other officers.   We also remain committed to fostering sound corporate governance principles. The Company’s Corporate Governance Guidelines assist the Board of Directors of the Company (the “Board”) in fulfilling its responsibilities related to corporate governance conduct. These guidelines serve as a framework, addressing the function, structure, and operations of the Board, for purposes of promoting consistency of the Board’s role in overseeing the work of management.    We have posted our Code of Ethics on our web site at www.khov.com under “Investor Relations/Corporate Governance.” We have also posted our Corporate Governance Guidelines on our web site at www.khov.com under “Investor Relations/Corporate Governance.” A printed copy of the Code of Ethics and Guidelines is also available to the public at no charge by writing to: Hovnanian Enterprises, Inc., Attn: Human Resources Department, 90 Matawan Road, Fifth Floor, Matawan, NJ 07747 or calling corporate headquarters at 732-747-7800. We will post amendments to or waivers from our Code of Ethics that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange (the “NYSE”) on our web site at www.khov.com under “Investor Relations/Corporate Governance.”   Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee Charters   We have adopted charters that apply to the Company’s Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. We have posted the text of these charters on our web site at www.khov.com under “Investor Relations/Corporate Governance.” A printed copy of each charter is available at no charge to any shareholder who requests it by writing to: Hovnanian Enterprises, Inc., Attn: Human Resources Department, 90 Matawan Road, Fifth Floor, Matawan, NJ 07747 or calling corporate headquarters at 732-747-7800.    44 Table of Contents   ITEM 11 EXECUTIVE COMPENSATION   The information called for by Item 11 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 29, 2022.   ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   The information called for by Item 12, is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 29, 2022.   ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE   The information called for by Item 13 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 29, 2022.   ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES   The information called for by Item 14 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 29, 2022.     PART IV ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES      Page FINANCIAL STATEMENTS:     Index to Consolidated Financial Statements   53 Report of Independent Registered Public Accounting Firm   54 Consolidated Balance Sheets at October 31, 2021 and 2020   56 Consolidated Statements of Operations for the years ended October 31, 2021, 2020 and 2019   57 Consolidated Statements of Changes in Equity Deficit for the years ended October 31, 2021, 2020 and 2019   58 Consolidated Statements of Cash Flows for the years ended October 31, 2021, 2020 and 2019   59 Notes to Consolidated Financial Statements   61   No schedules have been prepared because the required information of such schedules is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and notes thereto.   45 Table of Contents   Exhibits:   3(a) Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibits to Current Report of the Registrant on Form 8-K filed on March 29, 2019). 3(b) Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 3, 2018). 4(a) Specimen Class A Common Stock Certificate (Incorporated by reference to Exhibits to Current Report of the Registrant on Form 8-K filed on March 29, 2019). 4(b) Specimen Class B Common Stock Certificate (Incorporated by reference to Exhibits to Current Report of the Registrant on Form 8-K filed on March 29, 2019). 4(c) Certificate of Designations, Powers, Preferences and Rights of the 7.625% Series A Preferred Stock of Hovnanian Enterprises, Inc., dated July 12, 2005 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on July 13, 2005). 4(d) Certificate of Designations of the Series B Junior Preferred Stock of Hovnanian Enterprises, Inc., dated August 14, 2008 (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2008 of the Registrant). 4(e) Rights Agreement, dated as of August 14, 2008, between Hovnanian Enterprises, Inc. and National City Bank, as Rights Agent, which includes the Form of Certificate of Designation as Exhibit A, Form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C (Incorporated by reference to Exhibits to the Registration Statement on Form 8-A of the Registrant filed August 14, 2008). 4(f) Amendment No. 1 to Rights Agreement, dated as of January 11, 2018, between Hovnanian Enterprises, Inc. 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). 4(g) Amendment No. 2 to Rights Agreement, dated as of January 18, 2021, between Hovnanian Enterprises, Inc. 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 19, 2021). 4(h) 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. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Trustee, including the forms of 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed February 2, 2018). 4(i) Second Supplemental Indenture, dated as of May 30, 2018, relating to the 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040, among K. 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 May 30, 2018). 4(j) Sixth Supplemental Indenture, dated as of October 31, 2019, relating to the 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040, among K. 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). 4(k) Indenture, dated as of November 5, 2014, relating to the 8.000% Senior Notes due 2027, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Trustee, including the form of 8.000% Senior Notes (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed November 5, 2014). 4(l) Eighteenth Supplemental Indenture, dated as of October 17, 2019, relating to the 8.000% Senior Notes due 2027, among K. 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). 4(m) Nineteenth Supplemental Indenture, dated as of October 31, 2019, relating to the 8.000% Senior Notes due 2027, among K. 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). 4(n) Twentieth Supplemental Indenture, dated as of November 1, 2019, relating to 8.000% Senior Notes due 2027, among K. 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 November 5, 2019). 4(o) Indenture, dated as of October 31, 2019, relating to the 7.75% Senior Secured 1.125 Lien Notes due 2026, 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 form of 7.75% Senior Secured 1.125 Lien Notes due 2026 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 4(p) First Supplemental Indenture, dated as of November 27, 2019, relating to the 7.75% Senior Secured 1.125 Lien Notes due 2026, 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 December 3, 2019).   46 Table of Contents   4(q) Indenture, dated as of October 31, 2019, relating to the 10.5% Senior Secured 1.25 Lien Notes due 2026, 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 form of 10.5% Senior Secured 1.25 Lien Notes due 2026 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 4(r) First Supplemental Indenture, dated as of November 27, 2019, relating to the 10.5% Senior Secured 1.25 Lien Notes due 2026, 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 December 3, 2019). 4(s) Tenth Supplemental Indenture, dated as of December 6, 2019, 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 December 6, 2019). 4(t) Indenture, dated as of October 31, 2019, relating to the 11.25% Senior Secured 1.5 Lien Notes due 2026, 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 form of 11.25% Senior Secured 1.5 Lien Notes due 2026 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 4(u) First Supplemental Indenture, dated as of November 27, 2019, relating to the 11.25% Senior Secured 1.5 Lien Notes due 2026, 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 December 3, 2019). 4(v) Indenture, dated as of December 10, 2019, relating to the 10.000% Senior Secured 1.75 Lien Notes due 2025, 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 form of 10.000% Senior Secured 1.75 Lien Notes due 2025 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019). 4(w) Description of the Registrant’s securities.(Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2019 of the Registrant). 4(x) Fourth Supplemental Indenture, dated as of March 25, 2020, relating to the additional 11.25% Senior Secured 1.5 Lien Notes due 2026, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors named therein and Wilmington Trust, National Association, as Trustee and Collateral Agent, including the form of the additional 11.25% Senior Secured 1.5 Lien Notes due 2026 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant field on March 26, 2020). 10(a) Credit Agreement, dated as of October 31, 2019, by and among K. Hovnanian Enterprises Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto, 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 on October 31, 2019). 10(b) First Amendment, dated as of November 27, 2019, to the Credit Agreement, dated as of October 31, 2019, among Hovnanian Enterprises, Inc., K. 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 Current Report on Form 8-K of the Registrant filed December 3, 2019). 10(c) $212,500,000 Credit Agreement, dated as of January 29, 2018, by and among K. Hovnanian Enterprises Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto, 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 February 2, 2018). 10(d) First Amendment, dated as of May 14, 2018, to the $212,500,000 Credit Agreement, dated as of January 29, 2018, among Hovnanian Enterprises, Inc., K. 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 Current Report on Form 8-K of the Registrant filed May 14, 2018). 10(e) Second Amendment, dated as of October 31, 2019, to the $212,500,000 Credit Agreement, dated as of January 29, 2018, among Hovnanian Enterprises, Inc., K. 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). 10(f) 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). 10(g) 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).   47 Table of Contents   10(h)* 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). 10(i)* Form of Non-Qualified Stock Option Agreement (2012) for Ara K. Hovnanian (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2012 the Registrant). 10(j)* Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan (Incorporated by reference to Appendix A to the Registrant’s definitive Proxy Statement on Schedule 14A of the Registrant filed on February 1, 2010). 10(k)* Management Agreement dated August 12, 1983, for the management of properties by K. Hovnanian Investment Properties, Inc (Incorporated by reference to Exhibits to Registration Statement (No. 2-85198) on Form S-1 of the Registrant). 10(l)* Management Agreement dated December 15, 1985, for the management of properties by K. Hovnanian Investment Properties, Inc (Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2003 of the Registrant). 10(m)* Executive Deferred Compensation Plan as amended and restated on January 1, 2014 (Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2018 of the Registrant). 10(n)* Death and Disability Agreement between the Registrant and Ara K. Hovnanian, dated February 2, 2006 (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2006 of the Registrant). 10(o)* Form of Nonqualified Stock Option Agreement (Class B shares) (Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2008 of the Registrant). 10(p)* Form of Stock Option Agreement for Directors (Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2008 of the Registrant). 10(q)* Form of 2018 Long-Term Incentive Program Award Agreement (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2018 of the Registrant). 10(r)* Form of 2016 Long Term Incentive Program Award Agreement (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2016 of the Registrant). 10(s)* Form of Change in Control Severance Protection Agreement entered into with Brad G. O’Connor (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2012 of the Registrant). 10(t)* Form of Amendment to Outstanding Stock Option Grants (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended April 30, 2012 of the Registrant.). 10(u)* Form of Amendment to 2011 Non-Qualified Stock Option Agreement for Ara K. Hovnanian (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended April 30, 2012 of the Registrant.). 10(v)* Form of Amendment to 2011 Incentive Stock Option Agreement for J. Larry Sorsby (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended April 30, 2012 of the Registrant.). 10(w)* Form of Incentive Stock Option Agreement (2012) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2012 of the Registrant). 10(x)* Form of Stock Option Agreement (2012) for Directors (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2012 of the Registrant). 10(y)* Form of Letter Agreement entered into with Lucian Theon Smith III (Incorporated by reference to Annual Report on Form 10-K for the year ended October 31, 2017 of the Registrant). 10(z)* Amendment to Form of Letter Agreement entered into with Lucian Theon Smith III (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2018 of the Registrant). 10(aa)* Form of Incentive Stock Option Agreement (2014 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014 of the Registrant). 10(bb)* Form of Restricted Share Unit Agreement (2014 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014 of the Registrant). 10(cc)* Form of Stock Option Agreement for Directors (2014 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2014 of the Registrant). 10(dd)* 2012 Hovnanian Enterprises, Inc. Amended and Restated Stock Incentive Plan (Incorporated by reference to Appendix A to the Registrant’s definitive Proxy Statement on Schedule 14A filed on February 4, 2019). 10(ee)* Form of 2020 Long-Term Incentive Program Award Agreement (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). 10(ff)* Form of Letter Agreement Relating to Change in Control Severance Protection Agreement entered into with Brad G. O’Connor (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2015 of the Registrant). 10(gg)* Market Share Unit Agreement Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(hh)* Market Share Unit Agreement Class B (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(ii)* Market Share Unit Agreement (Gross Margin Performance Vesting) Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(jj)* Market Share Unit Agreement (Gross Margin Performance Vesting) Class B (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(kk)* Market Share Unit Agreement (Debt Reduction Performance Vesting) Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(ll)* Market Share Unit Agreement (Debt Reduction Performance Vesting) Class B (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(mm)* Premium-Priced Incentive Stock Option Agreement Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(nn)* Premium-Priced Non-qualified Stock Option Agreement Class B (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant).   48 Table of Contents   10(oo)* Incentive Stock Option Agreement Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(pp)* Restricted Share Unit Agreement Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(qq)* Director Restricted Share Unit Agreement Class A (2016 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2016 of the Registrant). 10(rr)* Market Share Unit Agreement (Pre-tax Profit performance Vesting) Class A (2017 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 of the Registrant). 10(ss)* Market Share Unit Agreement (Pre-tax Profit performance Vesting) Class B (2017 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 of the Registrant). 10(tt)* Market Share Unit Agreement (Gross Margin Improvement Performance Vesting) Class A (2017 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 of the Registrant). 10(uu)* Market Share Unit Agreement (Gross Margin Improvement Performance Vesting) Class B (2017 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2017 of the Registrant). 10(vv)* Market Share Unit Agreement Class A (Pre-tax Profit Performance Vesting) (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(ww)* Market Share Unit Agreement Class B (Pre-tax Profit Performance Vesting) (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(xx)* Market Share Unit Agreement Class A (Stock Multiplier Performance Vesting) (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(yy)* Market Share Unit Agreement Class B (Stock Multiplier Performance Vesting) (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(zz)* Market Share Unit Agreement Class A (Community Count Performance Vesting) (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(aaa)* Market Share Unit Agreement Class B (Community Count Performance Vesting) (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(bbb)* Premium-Priced Incentive Stock Option Agreement Class A (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(ccc)* Premium-Priced Non-Qualified Stock Option Agreement Class B (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(ddd)* Incentive Stock Option Agreement Class A (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(eee)* Non-Qualified Stock Option Agreement Class B (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(fff)* Director Stock Option Agreement Class A (2018 grants and thereafter) (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended July 31, 2018 of the Registrant). 10(ggg)* Retirement Agreement, dated as of May 18, 2020, between Hovnanian Enterprises, Inc. and Lucian T. 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). 10(hhh)* 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). 10(iii) Security Agreement, dated as of October 31, 2019, relating to Senior Secured Revolving Credit Facility, made by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto in favor of Wilmington Trust, National Association, as Administrative Agent and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(jjj) Pledge Agreement, dated as of October 31, 2019, relating to Senior Secured Revolving Credit Facility, given by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto to Wilmington Trust, National Association, as Administrative Agent and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(kkk) Trademark Security Agreement, dated as of October 31, 2019, relating to Senior Secured Revolving Credit Facility, made by K. HOV IP II, Inc. in favor of Wilmington Trust, National Association, as Administrative Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(lll) 1.125 Lien Security Agreement, dated as of October 31, 2019, relating to the 7.75% Senior Secured 1.125 Lien Notes due 2026, made by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto in favor of Wilmington Trust, National Association, as 1.125 Lien Collateral Agent and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(mmm) 1.125 Lien Pledge Agreement, dated as of October 31, 2019, relating to the 7.75% Senior Secured 1.125 Lien Notes due 2026, given by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto to Wilmington Trust, National Association, as 1.125 Lien Collateral Agent and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(nnn) 1.125 Lien Trademark Security Agreement, dated as of October 31, 2019, made by K. HOV IP II, Inc. in favor of Wilmington Trust, National Association, as 1.125 Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(ooo) 1.25 Lien Security Agreement, dated as of October 31, 2019, relating to the 10.5% Senior Secured 1.25 Lien Notes due 2026, made by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto in favor of Wilmington Trust, National Association, as 1.25 Lien Collateral Agent and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(ppp) 1.25 Lien Pledge Agreement, dated as of October 31, 2019, relating to the 10.5% Senior Secured 1.25 Lien Notes due 2026, given by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto to Wilmington Trust, National Association, as the 1.25 Lien Collateral Agent and the Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(qqq) 1.25 Lien Trademark Security Agreement, dated as of October 31, 2019, by K. HOV IP II, Inc. in favor of Wilmington Trust, National Association, as 1.25 Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019).   49 Table of Contents   10(rrr) 1.5 Lien Security Agreement, dated as of October 31, 2019, relating to the 11.25% Senior Secured 1.5 Lien Notes due 2026, made by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto in favor of Wilmington Trust, National Association, as the 1.5 Lien Collateral Agent and the Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(sss) 1.5 Lien Pledge Agreement, dated as of October 31, 2019, relating to the 11.25% Senior Secured 1.5 Lien Notes due 2026, given by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto to Wilmington Trust, National Association, as the 1.5 Lien Collateral Agent and the Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(ttt) 1.5 Lien Trademark Security Agreement, dated as of October 31, 2019, made by K. HOV IP II, Inc. in favor of Wilmington Trust, National Association, as 1.5 Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(uuu) 1.75 Lien Security Agreement, dated as of December 10, 2019, relating to the 10.000% Senior Secured 1.75 Lien Notes due 2025 and the 1.75 Lien Term Loans, made by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto in favor of Wilmington Trust, National Association, as the 1.75 Lien Pari Passu Collateral Agent, the Joint First Lien Collateral Agent, Administrative Agent and 1.75 Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019). 10(vvv) 1.75 Lien Pledge Agreement, dated as of December 10, 2019, relating to the 10.000% Senior Secured 1.75 Lien Notes due 2025 and the 1.75 Lien Term Loans, given by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and the other guarantors party thereto in favor of Wilmington Trust, National Association, as the 1.75 Lien Pari Passu Collateral Agent and the Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019). 10(www) 1.75 Lien Trademark Security Agreement, dated as of December 10, 2019, made by K. HOV IP II, Inc. in favor of Wilmington Trust, National Association, as 1.75 Lien Pari Passu Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019). 10(xxx) First Lien 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 Administrative Agent, 1.125 Lien Collateral Agent, 1.25 Lien Collateral Agent, 1.5 Lien Collateral Agent and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(yyy) First Lien 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 and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019). 10(zzz) Joinder No. 1, dated as of December 10, 2019, to the First Lien Intercreditor Agreement and First Lien Collateral Agency Agreement, each dated as of October 31, 2019, among Wilmington Trust, National Association, as 1.75 Lien Trustee and 1.75 Pari Passu Lien Collateral Agent, and acknowledged by Wilmington Trust, National Association, as 1.75 Lien Collateral Agent, with acknowledged receipt by Wilmington Trust, National Association, as Senior Credit Agreement 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 and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019). 10(aaaa) Joinder No. 2, dated as of December 10, 2019, to the First Lien Intercreditor Agreement and First Lien Collateral Agency Agreement, each dated as of October 31, 2019, among Wilmington Trust, National Association, as Administrative Agent and 1.75 Pari Passu Lien Collateral Agent, with acknowledged receipt by the Senior Credit Agreement 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 and Joint First Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019). 10(bbbb)* Form of 2020 Performance 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). 10(cccc)* Form of 2020 Performance Share Unit Agreement (Class B) (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). 10(dddd)* Form of 2020 Associate 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). 10(eeee)* Form of 2020 Associate Restricted Share Unit Agreement (Class B) (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). 10(ffff)* 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). 10(gggg)* 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). 10(hhhh)* 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). 10(iiii)* 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). 10(jjjj)* 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). 10(kkkk)* 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, 2021 of the Registrant). 10(llll)* 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). 10(mmmm)* 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). 50 Table of Contents   21 Subsidiaries of the Registrant. 23(a) Consent of Deloitte & Touche LLP. 23(b) Consent of Deloitte & Touche LLP. 23(c) Consent of Deloitte & Touche LLP. 31(a) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 31(b) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 32(a) Section 1350 Certification of Chief Executive Officer. 32(b) Section 1350 Certification of Chief Financial Officer. 99(a) Financial Statements of GTIS – HOV Holdings V, L.L.C. 99(b) Financial Statements of GTIS – HOV Holdings VI, L.L.C. 101 The following financial information from our Annual Report on Form 10-K for the year ended October 31, 2021, formatted in inline Extensible Business Reporting Language (Inline XBRL): (i) the Consolidated Balance Sheets at October 31, 2021 and October 31, 2020, (ii) the Consolidated Statements of Operations for the years ended October 31, 2021, 2020 and 2019, (iii) the Consolidated Statements of Changes in Equity Deficit for years ended October 31, 2021, 2020 and 2019 (iv) the Consolidated Statements of Cash Flows for the years ended October 31, 2021, 2020 and 2019, and (v) the Notes to Consolidated Financial Statements. 104 Cover page from our Annual Report on Form 10-K for the year ended October 31, 2021, formatted in Inline XBRL (and contained in Exhibit 101).   * Management contracts or compensatory plans or arrangements.   The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time.   ITEM 16 Form 10-K Summary    None.   51 Table of Contents   SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.     HOVNANIAN ENTERPRISES, INC.             By: /s/ ARA K. HOVNANIAN       Ara K. Hovnanian       Chairman of the Board, Chief Executive Officer and President       January  4, 2022        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.   /s/ ARA K. HOVNANIAN   Chairman of the Board, Chief Executive Officer, President and Director Ara K. Hovnanian   (Principal Executive Officer)         /s/ J. LARRY SORSBY    Executive Vice President, Chief Financial Officer and Director J. Larry Sorsby   (Principal Financial Officer)         /s/ BRAD G. O’CONNOR    Senior Vice President, Treasurer and Chief Accounting Officer  Brad G. O’Connor   (Principal Accounting Officer)           /s/ EDWARD A. KANGAS   Chairman of Audit Committee and Director Edward A. Kangas             /s/ JOSEPH A. MARENGI   Chairman of Compensation Committee and Director Joseph A. Marengi             /s/ VINCENT PAGANO JR.   Chairman of Corporate Governance and Nominating Committee and Director Vincent Pagano Jr.       52 Table of Contents   HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   Financial Statements: Page Report of Independent Registered Public Accounting Firm   54 Consolidated Balance Sheets at October 31, 2021 and 2020   56 Consolidated Statements of Operations for the years ended October 31, 2021, 2020 and 2019   57 Consolidated Statements of Changes in Equity Deficit for the years ended October 31, 2021, 2020 and 2019   58 Consolidated Statements of Cash Flows for the years ended October 31, 2021, 2020 and 2019   59 Notes to Consolidated Financial Statements   61   No schedules have been prepared because the required information of such schedules is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and notes thereto.   53 Table of Contents   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Board of Directors and Stockholders of Hovnanian Enterprises Inc.   Opinions on the Financial Statements and Internal Control over Financial Reporting   We have audited the accompanying consolidated balance sheets of Hovnanian Enterprises Inc. and subsidiaries (the "Company") as of October 31, 2021 and 2020, the related consolidated statements of operations, equity deficit, and cash flows, for each of the three years in the period ended October 31, 2021, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).   In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2021 and 2020, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.   Basis for Opinions   The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.   Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.   Definition and Limitations of Internal Control over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.   54 Table of Contents   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:     o Internal budgets.     o Historical taxable income, as adjusted for nonrecurring items.     o Internal communications to management and the Board of Directors.     o Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.     o 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 January 4, 2022   We have served as the Company's auditor since 2009.   55 Table of Contents       HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS       October 31,     October 31,       2021     2020                     ASSETS                 Homebuilding:                 Cash and cash equivalents   $ 245,970     $ 262,489   Restricted cash and cash equivalents     16,089       14,731   Inventories:                 Sold and unsold homes and lots under development     1,019,541       921,594   Land and land options held for future development or sale     135,992       91,957   Consolidated inventory not owned     98,727       182,224   Total inventories     1,254,260       1,195,775   Investments in and advances to unconsolidated joint ventures     60,897       103,164   Receivables, deposits and notes, net     39,934       33,686   Property, plant and equipment, net     18,736       18,185   Prepaid expenses and other assets     56,186       58,705   Total homebuilding     1,692,072       1,686,735                     Financial services     202,758       140,607                     Deferred tax assets, net     425,678       -   Total assets   $ 2,320,508     $ 1,827,342                     LIABILITIES AND EQUITY                 Homebuilding:                 Nonrecourse mortgages secured by inventory, net of debt issuance costs   $ 125,089     $ 135,122   Accounts payable and other liabilities     426,381       359,274   Customers’ deposits     68,295       48,286   Liabilities from inventory not owned, net of debt issuance costs     62,762       131,204   Senior notes and credit facilities (net of discounts, premiums and debt issuance costs)     1,248,373       1,431,110   Accrued interest     28,154       35,563   Total homebuilding     1,959,054       2,140,559                     Financial services     182,219       119,045   Income taxes payable     3,851       3,832   Total liabilities     2,145,124       2,263,436                     Equity:                 Hovnanian Enterprises, Inc. stockholders' equity deficit:                 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, 2021 and October 31, 2020     135,299       135,299   Common stock, Class A, $ 0.01 par value - authorized 16,000,000 shares; issued 6,066,164 shares at October 31, 2021 and 5,990,310 shares at October 31, 2020     61       60   Common stock, Class B, $ 0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 686,876 shares at October 31, 2021 and 649,886 shares at October 31, 2020     7       7   Paid in capital - common stock     722,118       718,110   Accumulated deficit     ( 567,228 )     ( 1,175,045 ) Treasury stock - at cost – 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 )     ( 115,360 ) Total Hovnanian Enterprises, Inc. stockholders’ equity (deficit)     174,897       ( 436,929 ) Noncontrolling interest in consolidated joint ventures     487       835   Total equity (deficit)     175,384       ( 436,094 ) Total liabilities and equity   $ 2,320,508     $ 1,827,342     See notes to consolidated financial statements .   56 Table of Contents     HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS       Year Ended       October 31,     October 31,     October 31,   (In thousands except per share data)   2021     2020     2019   Revenues:                         Homebuilding:                         Sale of homes   $ 2,673,710     $ 2,252,029     $ 1,949,682   Land sales and other revenues     27,455       19,710       13,082   Total homebuilding     2,701,165       2,271,739       1,962,764   Financial services     81,692       72,162       54,152   Total revenues     2,782,857       2,343,901       2,016,916                             Expenses:                         Homebuilding:                         Cost of sales, excluding interest     2,110,196       1,848,486       1,604,777   Cost of sales interest     84,100       74,330       70,725   Inventory impairment loss and land option write-offs     3,630       8,813       6,288   Total cost of sales     2,197,926       1,931,629       1,681,790   Selling, general and administrative     169,892       161,261       166,784   Total homebuilding expenses     2,367,818       2,092,890       1,848,574                             Financial services     44,129       40,060       36,525   Corporate general and administrative     106,694       80,553       66,364   Other interest     77,716       103,801       90,056   Other operations     1,740       1,096       1,561   Total expenses     2,598,097       2,318,400       2,043,080   (Loss) gain on extinguishment of debt     ( 3,748 )     13,337       ( 42,436 ) Income from unconsolidated joint ventures     8,849       16,565       28,932   Income (loss) before income taxes     189,861       55,403       ( 39,668 ) State and federal income tax (benefit) provision:                         State     ( 82,348 )     4,475       2,449   Federal     ( 335,608 )     -       -   Total income taxes     ( 417,956 )     4,475       2,449   Net income (loss)   $ 607,817     $ 50,928     $ ( 42,117 )                           Per share data:                         Basic:                         Net income (loss) per common share   $ 87.50     $ 7.48     $ ( 7.06 ) Weighted-average number of common shares outstanding     6,287       6,189       5,968   Assuming dilution:                         Net income (loss) per common share   $ 85.86     $ 7.03     $ ( 7.06 ) Weighted-average number of common shares outstanding     6,395       6,584       5,968     See notes to consolidated financial statements .   57 Table of Contents     HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY DEFICIT       A Common Stock     B Common Stock     Preferred Stock                                           (Dollars In thousands)   Shares             Shares             Shares                                                       Issued and             Issued and             Issued and             Paid-In     Accumulated     Treasury     Noncontrolling               Outstanding     Amount     Outstanding     Amount     Outstanding     Amount     Capital     Deficit     Stock     Interest     Total   Balance, October 31, 2018     5,313,428     $ 58       622,004     $ 6       5,600     $ 135,299     $ 710,349     $ ( 1,183,856 )   $ ( 115,360 )   $ -     $ ( 453,504 ) Stock options, amortization and issuances                                         808                         808   Restricted stock amortization, issuances and forfeitures     11,210             922       1                   ( 126 )                       ( 125 ) Issuance of shares for debt     178,427       2                               4,473                         4,475   Conversion of Class B to Class A common stock     232             ( 232 )                                               -   Changes in noncontrolling interest in consolidated joint ventures                                                                 687       687   Net (loss)                                                     ( 42,117 )                 ( 42,117 ) Balance, October 31, 2019     5,503,297     $ 60       622,694     $ 7       5,600     $ 135,299     $ 715,504     $ ( 1,225,973 )   $ ( 115,360 )   $ 687     $ ( 489,776 ) Stock options, amortization and issuances                                         387                         387   Restricted stock amortization, issuances and forfeitures     14,310             1,796                         2,219                         2,219   Conversion of Class B to Class A common stock     2,273             ( 2,273 )                                               -   Changes in noncontrolling interest in consolidated joint ventures                                                                 148       148   Net income                                                     50,928                   50,928   Balance, October 31, 2020     5,519,880     $ 60       622,217     $ 7       5,600     $ 135,299     $ 718,110     $ ( 1,175,045 )   $ ( 115,360 )   $ 835     $ ( 436,094 ) Stock options, amortization and issuances     42,204             5,368                         ( 41 )                       ( 41 ) Restricted stock amortization, issuances and forfeitures     33,564       1       31,708                         4,049                         4,050   Conversion of Class B to Class A common stock     86             ( 86 )                                               -   Changes in noncontrolling interest in consolidated joint ventures                                                                 ( 348 )     ( 348 ) Net income                                                     607,817                   607,817   Balance, October 31, 2021     5,595,734     $ 61       659,207     $ 7       5,600     $ 135,299     $ 722,118     $ ( 567,228 )   $ ( 115,360 )   $ 487     $ 175,384     See notes to consolidated financial statements .   58 Table of Contents     HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS       Year Ended       October 31,     October 31,     October 31,       2021     2020     2019   Cash flows from operating activities:                         Net income (loss)   $ 607,817     $ 50,928     $ ( 42,117 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities:                         Depreciation     5,280       5,304       4,172   Compensation from stock options and awards     7,668       2,779       721   Amortization of bond discounts, premiums and deferred financing costs     242       1,891       8,128   Loss (gain) on sale and retirement of property and assets     92       ( 81 )     ( 25 ) Income from unconsolidated joint ventures     ( 8,849 )     ( 16,565 )     ( 28,932 ) Distributions of earnings from unconsolidated joint venture     9,709       35,387       29,919   Loss (gain) on extinguishment of debt     3,748       ( 13,337 )     42,436   Noncontrolling interest in consolidated joint ventures     430       148       4   Inventory impairment and land option write-offs     3,630       8,813       6,288   (Increase) decrease in assets:                         Origination of mortgage loans     ( 1,490,099 )     ( 1,306,279 )     ( 1,089,825 ) Sale of mortgage loans     1,443,355       1,367,903       1,054,535   Receivables, prepaids, deposits and other assets     ( 3,016 )     20,519       ( 15,911 ) Inventories     ( 35,514 )     87,897       ( 220,608 ) Deferred tax assets     ( 425,678 )     -       -   Increase (decrease) in liabilities:                         State income tax payable     19       1,531       ( 1,033 ) Customers’ deposits     20,009       12,414       5,786   Accounts payable, accrued interest and other accrued liabilities     71,370       33,576       ( 2,665 ) Net cash provided by (used in) operating activities     210,213       292,828       ( 249,127 ) Cash flows from investing activities:                         Proceeds from sale of property and assets     32       112       29   Purchase of property, equipment, and other fixed assets and acquisitions     ( 5,942 )     ( 3,380 )     ( 4,005 ) Investment in and advances to unconsolidated joint ventures     ( 16,550 )     ( 19,924 )     ( 13,256 ) Distributions of capital from unconsolidated joint ventures     31,456       25,332       8,925   Net cash provided by (used in) investing activities     8,996       2,140       ( 8,307 ) Cash flows from financing activities:                         Proceeds from mortgages and notes     252,930       278,577       318,462   Payments related to mortgages and notes     ( 262,609 )     ( 348,371 )     ( 209,445 ) Proceeds from model sale leaseback financing programs     7,606       19,200       33,188   Payments related to model sale leaseback financing programs     ( 23,677 )     ( 23,646 )     ( 25,791 ) Proceeds from land bank financing programs     35,282       68,060       104,961   Payments related to land bank financing programs     ( 88,458 )     ( 73,999 )     ( 33,902 ) Proceeds from partner distributions to consolidated joint venture     40       -       683   Payments for partner distributions to consolidated joint venture     ( 818 )     -       -   Net proceeds (payments) related to mortgage warehouse lines of credit     47,744       ( 53,077 )     27,101   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 notes, net of discount     ( 182,726 )     ( 21,240 )     ( 570,032 ) Deferred financing costs from land banking financing programs and note issuances     ( 2,587 )     ( 13,278 )     ( 16,748 ) Net cash (used in) provided by financing activities     ( 217,273 )     ( 167,774 )     206,708   Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents     1,936       127,194       ( 50,726 ) Cash and cash equivalents, and restricted cash and cash equivalents balance, beginning of period     309,460       182,266       232,992   Cash and cash equivalents, and restricted cash and cash equivalents balance, end of period   $ 311,396     $ 309,460     $ 182,266                             Supplemental disclosures of cash flows:                         Cash paid during the period for:                         Interest, net of capitalized interest (see Note 3 to the Consolidated Financial Statements)   $ 87,227     $ 89,484     $ 109,107   Income taxes   $ 7,669     $ 3,013     $ 3,483                             Reconciliation of Cash, cash equivalents and restricted cash                         Homebuilding: Cash and cash equivalents   $ 245,970     $ 262,489     $ 130,976   Homebuilding: Restricted cash and cash equivalents     16,089       14,731       20,905   Financial Services: Cash and cash equivalents, included in Financial services assets     5,819       4,854       5,578   Financial Services: Restricted cash and cash equivalents, included in Financial services assets     43,518       27,386       24,807   Total cash, cash equivalents and restricted cash shown in the statement of cash flows   $ 311,396     $ 309,460     $ 182,266     See notes to consolidated financial statements.      59 Table of Contents     Supplemental disclosure of noncash investing and financing activities:   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.    In the first quarter of fiscal 2020, K. Hovnanian, the issuer of our notes, completed a debt for debt exchange whereby it issued $ 158.5 million aggregate principal amount of 10.0 % 1.75 Lien Notes due 2025 in exchange for $ 23.2 million in aggregate principal amount of its outstanding 10.0 % Senior Secured Notes due 2022 and $ 141.7 million in aggregate principal amount of its outstanding 10.5 % Senior Secured Notes due 2024. K. 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.   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.   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.   60 Table of Contents   HOVNANIAN ENTERPRISES, INC. Notes to Consolidated Financial Statements     1. Basis of Presentation   Basis of Presentation - The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and include Hovnanian Enterprises, Inc.’s (“HEI”) accounts and those of all its consolidated subsidiaries, after elimination of all intercompany balances and transactions. HEI’s fiscal year ends October 31. Noncontrolling interest represents the proportionate equity interest in a consolidated joint venture that is not 100% owned by the Company. One of HEI's subsidiaries owns a 99 % controlling interest in the consolidated joint venture and therefore HEI is required to consolidate the joint venture within its Consolidated Financial Statements. The 1 % that we do not own is accounted for as noncontrolling interest. 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.      2. Business   HEI conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company”, “we”, “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). Our operations consist of homebuilding, financial services and corporate. 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, 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’ customers. Our financial services subsidiaries do not typically retain or service the mortgages that they originate but rather sell the mortgages and related servicing rights to investors. Corporate primarily includes the operations of our corporate office whose primary purpose is to provide executive services, accounting, information services, human resources, management reporting, training, cash management, internal audit, risk management, and administration of process redesign, quality, and safety.   See Note 10 “Operating and Reporting Segments” for further disclosure of our reportable segments.      3. Summary of Significant Accounting Policies   Use of Estimates - The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and these differences could have a significant impact on the financial statements.   Income Recognition from Home and Land Sales - We are primarily engaged in the development, construction, marketing and sale of residential single-family and multi-family homes where the planned construction cycle is less than 12  months. For these homes, in accordance with Accounting Standards Codification (“ASC”) 606 - 10, “ 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.     Income Recognition from Mortgage Loans - Our Financial Services segment originates mortgages, primarily for our homebuilding customers. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans.   We elected the fair value option for our mortgage loans held for sale in accordance with ASC 825, “Financial Instruments,” which permits us to measure our loans held for sale at fair value. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.    Substantially all of the mortgage loans originated are sold within a short period of time in the secondary mortgage market on a servicing released, nonrecourse basis, although the Company remains liable for certain limited representations, such as fraud, and warranties related to loan sales. Mortgage investors could seek to have us buy back loans or compensate them from losses incurred on mortgages we have sold based on claims that we breached our limited representations and warranties. We have established reserves for probable losses.      61 Table of Contents   Cash and Cash Equivalents - Cash represents cash deposited in checking accounts. Cash equivalents include certificates of deposit, Treasury bills and government money–market funds with maturities of 90 days or less when purchased. Our cash balances are held at a few financial institutions and may, at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At October 31, 2021 and 2020 , $ 15.7  million and $ 15.5  million, respectively, of the total cash and cash equivalents was in cash equivalents and restricted cash equivalents, the book value of which approximates fair value.   Fair Value of Financial Instruments - The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Our financial instruments consist of cash and cash equivalents, restricted cash and cash equivalents, receivables, deposits and notes, accounts payable and other liabilities, customer deposits, mortgage loans held for sale, nonrecourse mortgages, mortgage warehouse lines of credit, senior secured revolving credit facility, accrued interest, senior secured term loan, senior unsecured term loan credit facility, senior secured notes and senior notes. The fair value of the senior secured credit facility, senior secured term loan, senior unsecured term loan credit facility, senior secured notes and senior notes is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities or when not available, are estimated based on third -party broker quotes or management's estimate of the fair value based on available trades for similar debt instruments. The fair value of all of our other financial instruments approximates their carrying amounts.   Inventories - Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under specific identification methods. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.   We record inventories in our consolidated balance sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following three components: ( 1 ) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; ( 2 ) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and ( 3 ) consolidated inventory not owned, which includes all costs related to variable interest entities, and other options, which consists primarily of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.   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 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. As a result of our continued involvement, for accounting purposes in accordance with ASC 606 - 10 - 55 - 68, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Consolidated Balance Sheets, at October 31, 2021 and 2020 , inventory of $ 32.5  million and $ 48.8  million, respectively, was recorded to “Consolidated inventory not owned,” with a corresponding amount of $ 31.5  million and $ 47.2  million, respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.    We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes, in accordance with ASC 606 - 10 - 55 - 70, these transactions are considered a financing rather than a sale. For purposes of our Consolidated Balance Sheets, at October 31, 2021 and 2020 , inventory of $ 66.2  million and $ 133.4  million, respectively, was recorded to “Consolidated inventory not owned,” with a corresponding amount of $ 31.3  million and $ 84.0  million, respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.   The recoverability of inventories and other long-lived assets is assessed in accordance with the provisions of ASC 360 - 10, “Property, Plant and Equipment – Overall.” ASC 360 - 10 requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. As such, we evaluate inventories for impairment at the individual community level, the lowest level of discrete cash flows that we measure.   We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indication of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.   The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:     ● future base selling prices;   ● future home sales incentives;   ● future home construction and land development costs; and   ● future sales absorption pace and cancellation rates.   62 Table of Contents   These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact our estimates for a community include:     ● the intensity of competition within a market, including available home sales prices and home sales incentives offered by our competitors;   ● the current sales absorption pace for both our communities and competitor communities;   ● community-specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our community, and the size and style of homes currently being offered;   ● potential for alternative product offerings to respond to local market conditions;   ● changes by management in the sales strategy of the community;   ● current local market economic and demographic conditions and related trends and forecasts; and   ● existing home inventory supplies, including foreclosures and short sales.    These and other local market-specific conditions that may be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community may lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one community that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, absorption pace and selling strategies, could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.    If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and no impairment adjustment is required. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. 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, 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. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we may be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.   From time to time, we write off deposits and approval, engineering and capitalized interest costs when we determine that it is no longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding not to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed not probable that the optioned property will be acquired. In certain instances, we have been able to recover deposits and other pre-acquisition costs that were previously written off. These recoveries have not been significant in comparison to the total costs written off.   Inventories held for sale are land parcels ready for sale in their current condition, where we have decided not to build homes but are instead actively marketing for sale. These land parcels represented $ 2.0  million of our total inventories at  October 31, 2020  and are reported at the lower of carrying amount or fair value less costs to sell. There were no inventories held for sale at  October 31, 2021 . In determining fair value for land held for sale, management considers, among other things, 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.   Warranty Costs and Construction Defect Reserves  - We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal 2021 and 2020 , our deductible under our general liability insurance was a $ 20 million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2021 and 2020  was $ 0.25 million, up to a $ 5 million limit. Our aggregate retention for construction defect, warranty and bodily injury claims was $ 20 million for fiscal 2021 and 2020 . We do not have a deductible on our worker's compensation insurance. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a third -party actuary. We engage a third -party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. See Note 16 for additional information on the amount of warranty costs recognized in cost of goods sold and administrative expenses.    63 Table of Contents   Interest - Interest attributable to properties under development during the land development and home construction period is capitalized and expensed along with the associated cost of sales as the related inventories are sold. Interest incurred in excess of interest capitalized, which occurs when assets qualifying for interest capitalization are less than our outstanding debt balances, is expensed as incurred in “Other interest.”    Interest costs incurred, expensed and capitalized were:       Year Ended       October 31,     October 31,     October 31,   (In thousands)   2021     2020     2019   Interest capitalized at beginning of year   $ 65,010     $ 71,264     $ 68,117   Plus interest incurred(1)     155,514       176,457       165,906   Less cost of sales interest expensed     84,100       74,330       70,725   Less other interest expensed(2)(3)     77,716       103,801       90,056   Less interest contributed to unconsolidated joint venture(4)     3,667       4,580       1,978   Plus interest acquired from unconsolidated joint venture(5)     3,118       -       -   Interest capitalized at end of year(6)   $ 58,159     $ 65,010     $ 71,264     ( 1 ) Data does not include interest incurred by our mortgage and finance subsidiaries.   ( 2 ) 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 $ 20.6 million, $ 41.9 million and $ 33.2 million for the years ended October 31, 2021, 2020 and 2019 , respectively.   ( 3 ) 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:       Year Ended       October 31,     October 31,     October 31,   (In thousands)   2021     2020     2019   Other interest expensed   $ 77,716     $ 103,801     $ 90,056   Interest paid by our mortgage and finance subsidiaries     2,102       2,165       2,536   Decrease (increase) in accrued interest     7,409       ( 16,482 )     16,515   Cash paid for interest, net of capitalized interest   $ 87,227     $ 89,484     $ 109,107     ( 4 ) 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.   ( 5 ) 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.   ( 6 ) Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.   Land Options - Costs incurred to obtain options to acquire improved or unimproved home sites are capitalized. Such amounts are either included as part of the purchase price if the land is acquired or charged to “Inventory impairments loss and land option write-offs” if we determine we will not exercise the option. In accordance with ASC 810 - 10 “Consolidation – Overall,” we record costs associated with other options on the Consolidated Balance Sheets under “Land and land options held for future development or sale.” If the options are with variable interest entities and we are the primary beneficiary, we record the land under option on the Consolidated Balance Sheets under “Consolidated inventory not owned” with an offset under “Liabilities from inventory not owned.” If the option has terms that require us to record it as financing, then we record the option on the Consolidated Balance Sheets under “Consolidated inventory not owned” with an offset under “Liabilities from inventory not owned.”   Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to third parties. Our ownership interests in the joint ventures vary but our voting interests are generally 50 % or less. In determining whether or not we must consolidate joint ventures where we are the managing member of the joint venture, 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 significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business. The evaluation of whether or not we control a venture can require significant judgment. In accordance with ASC 323 - 10, “Investments - Equity Method and Joint Ventures – Overall,” we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates. 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.      64 Table of Contents   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.   Advertising Costs - Advertising costs are expensed as incurred. During the years ended October 31, 2021, 2020 and 2019 , advertising costs expensed totaled $ 9.8  million, $ 12.9  million and $ 17.1  million, respectively.   Deferred Income Taxes - Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and for income tax purposes. 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 forward to future years to recover the deferred tax assets. In accordance with ASC 740 - 10, “Income Taxes – Overall,” we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 - 10 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.   In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC 740 - 10, for more likely than not exposures. We re-evaluate the exposures associated with our tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years may elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and income tax provision in the period in which an uncertain tax position is effectively settled, or the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to income tax expense in the period in which they are determined.   Prepaid Expenses - Prepaid expenses which relate to specific housing communities (model setup, architectural fees, homeowner warranty program fees, etc.) are amortized to cost of sales as the applicable inventories are sold. All other prepaid expenses are amortized over a specific time period or as used and charged to overhead expense.   Allowance for Doubtful Accounts – We regularly review our receivable balances, which are included in Receivables, deposits and notes on the Consolidated Balance Sheets, for collectability and record an allowance against a receivable when it is deemed that collectability is uncertain. These receivables include receivables from our insurance carriers, receivables from municipalities related to the development of utilities or other infrastructure, and other miscellaneous receivables. The balance for allowance for doubtful accounts was $ 10.5  million and $ 12.0  million at October 31, 2021 and 2020 , respectively, which primarily related to allowances for receivables from municipalities and an allowance for a receivable for a prior year land sale. During fiscal 2021 and 2020 , we recorded $ 1.5  million and $ 0.2  million, respectively, in recoveries. 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 – Overall,” which requires the fair-value based method of accounting for stock awards granted to employees and measures and records the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.   Compensation cost arising from nonvested stock granted to employees and from nonemployee stock awards is based on the fair value of the awards at the grant date recognized as expense using the straight-line method over the vesting period.   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. 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. The two -class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods where we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.   Recent Accounting Pronouncements     In March 2020, the FASB issued ASU 2020 - 04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020 - 04” ). ASU 2020 - 04 provides companies with optional guidance to ease the potential accounting burden associated with reference rate reform on financial reporting. This guidance was effective for the Company beginning on March 12, 2020, and we may elect to apply the amendments prospectively from now through December 31, 2022. The Company has not yet adopted this guidance and is currently evaluating the potential impact of adoption on our Consolidated Financial Statements.     65 Table of Contents     4. Leases   We lease certain office space for use in our operations. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842 “Leases” ("ASC 842" ). In order to meet the definition of a lease under ASC 842, the contractual arrangement must convey to us the right to control the use of an identifiable asset for a period of time in exchange for consideration. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Our office lease terms are generally from three to five years and generally contain renewal options. In accordance with ASC 842, our lease terms include those renewals only to the extent that they are reasonably certain to be exercised. The exercise of these lease renewal options is generally at our discretion. In accordance with ASC 842, the lease liability is equal to the present value of the remaining lease payments while the ROU asset is based on the lease liability, subject to adjustment, such as for lease incentives. Our leases do not provide a readily determinable implicit interest rate and therefore, we must estimate our incremental borrowing rate. In determining the incremental borrowing rate, we consider the lease period and our collateralized borrowing rates.   Our lease population at October  31, 2021 is comprised of operating leases where we are the lessee and these leases are primarily real estate for office space for our corporate office, division offices and design centers. As allowed by ASC 842, we adopted an accounting policy election to not record leases with lease terms of twelve months or less on our Consolidated Balance Sheets.    Lease cost included in our Consolidated Statements of Operations in Selling, general and administrative expenses and payments on our lease liabilities are presented in the table below. Our short-term lease costs and sublease income are de minimis.       Year Ended October 31,     Year Ended October 31,   (In thousands)   2021     2020   Operating lease cost   $ 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 $ 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:   (In thousands)   At October 31, 2021     At October 31, 2020   ROU assets   $ 17,844     $ 20,016   Lease liabilities   $ 18,952     $ 21,049   Weighted-average remaining lease term (in years)     3.1       3.5   Weighted-average discount rate (incremental borrowing rate)     9.4 %     9.6 %   Maturities of our operating lease liabilities as of October 31, 2021 are as follows:   Year ending October 31,   (in thousands)   2022   $ 9,000   2023     5,942   2024     3,201   2025     2,435   2026 and Thereafter     1,403   Total payments     21,981   Less: imputed interest     ( 3,029 ) Present value of lease liabilities   $ 18,952         66 Table of Contents     5. Property, Plant and Equipment   Homebuilding property, plant, and equipment consists of land, land improvements, buildings, building improvements, furniture and equipment used to conduct day-to-day business and are recorded at cost less accumulated depreciation.   Property, plant, and equipment balances as of October 31, 2021 and 2020 were as follows:       October 31,   (In thousands)   2021     2020                     Land and land improvements   $ 1,639     $ 1,639   Buildings     9,497       9,497   Building improvements     15,478       13,281   Furniture     4,214       4,363   Equipment, including capitalized software     36,467       35,763   Total     67,295       64,543   Less accumulated depreciation     48,559       46,358   Total   $ 18,736     $ 18,185        6. Restricted Cash and Deposits   Homebuilding - Restricted cash and cash equivalents on the Consolidated Balance Sheets totaled $ 16.1  million and $ 14.7  million as of October 31, 2021 and 2020 , respectively, which primarily consists of cash collateralizing our letter of credit agreements and facilities as discussed in Note 9.   Financial services restricted cash and cash equivalents, which are included in Financial services other assets on the Consolidated Balance Sheets, totaled $ 43.5  million and $ 27.4  million as of October 31, 2021 and 2020 , respectively. Included in these balances were ( 1 ) financial services customers’ 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’ deposits are shown as a liability on the Consolidated Balance Sheets. These liabilities are significantly more than the applicable periods’ restricted cash balances because in some states the deposits are not restricted from use and, in other states, we are able to release the majority of these customer deposits to cash by pledging letters of credit and surety bonds.     7. Mortgage Loans Held for Sale   Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”) originates mortgage loans, primarily from the sale of our homes. Such mortgage loans are sold in the secondary mortgage market within a short period of time of origination. Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. We have elected the fair value option to record loans held for sale and therefore these loans are recorded at fair value with the changes in the value recognized in the Consolidated Statements of Operations in “Revenues: Financial services.” We currently use forward sales of mortgage-backed securities (“MBS”), interest rate commitments from borrowers and mandatory and/or best efforts forward commitments to sell loans to third -party purchasers to protect us from interest rate fluctuations. These short-term instruments, which do not require any payments to be made to the counterparty or purchaser in connection with the execution of the commitments, are recorded at fair value. Gains and losses on changes in the fair value are recognized in the Consolidated Statements of Operations in “Revenues: Financial services.”    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. The reserves for these estimated losses are included in the “Financial services” balances on the Consolidated Balance Sheets. As of October 31, 2021 and 2020 , we had reserves specifically for 14  and 15  identified mortgage loans, respectively, as well as reserves for an estimate for future losses on mortgages sold but not yet identified to us.    The activity in our loan origination reserves in fiscal 2021 and 2020 was as follows:       Year Ended       October 31,   (In thousands)   2021     2020                     Loan origination reserves, beginning of period   $ 1,458     $ 1,268   Provisions for losses during the period     228       196   Adjustments to pre-existing provisions for losses from changes in estimates     ( 54 )     ( 6 ) Payments/settlements     -       -   Loan origination reserves, end of period   $ 1,632     $ 1,458     67 Table of Contents     8. Mortgages   Nonrecourse . 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.   Mortgage Loans. K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in financial services liabilities on the Consolidated Balance Sheets.   Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A. (“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 %. As of October 31, 2021 and 2020 , the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was $ 45.7  million and $ 23.5  million, respectively.     K. 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 March 9, 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 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. As of October 31, 2021 and 2020 , the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was $ 40.5  million and $ 31.1  million, respectively.   K. Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”) which is a short-term borrowing facility through its maturity on June 28, 2022. The Comerica Master Repurchase Agreement provides up to $ 60.0 million on the 15th day of the last month of the Company's fiscal quarters, and reverts back to up to $ 50.0 million 30 days thereafter. 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 at the current LIBOR rate, subject to a floor of 0.25 %, plus the applicable margin of 1.875 % or 3.25 % based upon the type of loan. As of October 31, 2021 and 2020 , the aggregate principal amount of all borrowings outstanding under the Comerica Master Repurchase Agreement was $ 48.7  million and $ 32.6  million, respectively.    The Chase Master Repurchase Agreement, Customers Master Repurchase Agreement and Comerica Master Repurchase Agreement (together, the “Master Repurchase Agreements”) require K. Hovnanian Mortgage to satisfy and maintain specified financial ratios and other financial condition tests. Because of the extremely short period of time mortgages are held by K. Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis of the size of the Master Repurchase Agreements, the levels required by these financial covenants, our ability based on our immediately available resources to contribute sufficient capital to cure any default, were such conditions to occur, and our right to cure any conditions of default based on the terms of the applicable agreement, we do not consider any of these covenants to be substantive or material. As of October 31, 2021 , we believe we were in compliance with the covenants under the Master Repurchase Agreements.   68 Table of Contents     9.   Senior Notes and Credit Facilities   Senior notes and credit facilities balances as of October 31, 2021 and October 31, 2020 , were as follows:       October 31,     October 31,   (In thousands)     2021       2020   Senior Secured Notes:                 10.0 % Senior Secured Notes due July 15, 2022   $ -     $ 111,214   10.5 % Senior Secured Notes due July 15, 2024     -       69,683   10.0 % Senior Secured 1.75 Lien Notes due November 15, 2025     158,502       158,502   7.75 % Senior Secured 1.125 Lien Notes due February 15, 2026     350,000       350,000   10.5 % Senior Secured 1.25 Lien Notes due February 15, 2026     282,322       282,322   11.25 % Senior Secured 1.5 Lien Notes due February 15, 2026     162,269       162,269   Total Senior Secured Notes   $ 953,093     $ 1,133,990   Senior Notes:                 8.0 % Senior Notes due November 1, 2027 (1)   $ -     $ -   13.5 % Senior Notes due February 1, 2026     90,590       90,590   5.0 % Senior Notes due February 1, 2040     90,120       90,120   Total Senior Notes   $ 180,710     $ 180,710   Senior Unsecured Term Loan Credit Facility due February 1, 2027   $ 39,551     $ 39,551   Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028   $ 81,498     $ 81,498   Senior Secured Revolving Credit Facility (2)   $ -     $ -   Subtotal notes payable   $ 1,254,852     $ 1,435,749   Net (discounts) premiums   $ 10,769     $ 17,521   Net debt issuance costs   $ ( 17,248 )   $ ( 22,160 ) Total notes payable, net of discounts, premiums and debt issuance costs   $ 1,248,373     $ 1,431,110     ( 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% 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. Availability thereunder will terminate on December 28, 2022.   As of October 31, 2021 , future maturities of our borrowings were as follows ( in thousands ):   Fiscal Year Ended October 31, (1)         2022   $ -   2023     -   2024     -   2025     -   2026     1,043,683   Thereafter     211,169   Total   $ 1,254,852     ( 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 .   69 Table of Contents   General   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  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/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 (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.   Fiscal 2021   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".   Fiscal 2020   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 % 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”). K. 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”). There was no cash consideration in these exchanges. These secured notes and term loan exchanges were accounted for in accordance with ASC 470 - 60, resulting in a carrying value of $ 164.9 million and $ 148.8 million, respectively, for the $158.5 million of 1.75 Lien Notes and $81.5 million of Secured Term Loans, respectively, and a net gain on extinguishment of debt of $ 9.2  million, which is included in “Gain on extinguishment of debt” on the Consolidated Statement of Operations. 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 were fully reserved by a valuation allowance.   70 Table of Contents   The 1.75 Lien Notes were issued under an Indenture, dated as of December 10, 2019, among HEI, K. Hovnanian, the guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent. The 1.75 Lien Notes are guaranteed by HEI and the Notes Guarantors and are secured by substantially all of the assets owned by K. 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, 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.   The 1.75 Lien Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to November 15, 2021 at a redemption price equal to 100.0 % of their principal amount plus an applicable “Make-Whole Amount”. At any time and from time to time on or after November 15, 2021 and prior to November 15, 2022, K. Hovnanian may redeem some or all of the 1.75 Lien Notes at a redemption price equal to 105.00 % of their principal amount, at any time and from time to time after November 15, 2022 and prior to November 15, 2023, K. Hovnanian may redeem some or all of the 1.75 Lien Notes at a redemption price equal to 102.50 % of their principal amount and at any time and from time to time after November 15, 2023, K. Hovnanian may redeem some or all of the 1.75 Lien Notes at a redemption price equal to 100.0 % of their principal amount. In addition, K. Hovnanian may also redeem up to 35.0 % of the aggregate principal amount of the 1.75 Lien Notes prior to November 15, 2021 with the net cash proceeds from certain equity offerings at 110.00 % of principal.   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, 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. Hovnanian’s option at any time prior to November 15, 2021 at a prepayment price equal to 100.0 % of their principal amount plus any applicable “Make-Whole Amount”. At any time and from time to time on or after November 15, 2021 and prior to November 15, 2022, K. Hovnanian may voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 105.00 % of their principal amount, at any time and from time to time after November 15, 2022 and prior to November 15, 2023, K. Hovnanian may voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 102.50 % of their principal amount and at any time and from time to time after November 15, 2023, K. Hovnanian may voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 100.0 % of their principal amount.   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 $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”). In connection therewith, the Consenting Holders provided their consents (the “Consents”) under the Indenture under which the 1.5 Lien Notes were issued to permit the issuance of the Additional 1.5 Lien Notes.   The Additional 1.5 Lien Notes were issued as additional notes of the same series as the $ 103.1 million aggregate principal amount of K. Hovnanian’s 11.25 % Senior Secured 1.5 Lien Notes due 2026 issued on October 31, 2019 ( the “Initial 1.5 Lien Notes” and, together with the Additional 1.5 Lien Notes, the “1.5 Lien Notes”). In connection with the issuance of the Additional 1.5 Lien Notes in the Exchange, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as trustee (the “Trustee”) and collateral agent (the “Collateral Agent”), entered into the Fourth Supplemental Indenture, dated as of March 25, 2020 ( the “Supplemental Indenture”), to the Indenture, dated as of October 31, 2019 ( as amended and supplemented prior to the Supplemental Indenture, the “Indenture”), among the K. Hovnanian, the Notes Guarantors, the Trustee and the Collateral Agent. The Supplemental Indenture also amends the Indenture in accordance with the Consents to permit K. Hovnanian and the Notes Guarantors to secure up to $ 162.3 million of 1.5 Lien Obligations (as defined in the Indenture). As of March 25, 2020, after giving effect to the issuance of the Additional 1.5 Lien Notes, $ 162.3 million aggregate principal amount of 1.5 Lien Obligations, which consist of the 1.5 Lien Notes, were outstanding.  For a discussion of the 1.5 Lien Notes see “—Secured Obligations” below.   During the year ended October 31, 2020, the Company repurchased in open market transactions $ 25.5 million aggregate principal amount of the 10.0 % 2022  Notes. The aggregate purchase price for these repurchases was $ 21.4 million, which included accrued and unpaid interest. These repurchases resulted in a gain on extinguishment of debt of $ 4.1 million for the year ended October 31, 2020, net of the write-off of unamortized financing costs and fees. The gains from the repurchases are included in the Consolidated Statement of Operations as "Gain on extinguishment of debt".   Fiscal 2019   On January 15, 2019,  K. Hovnanian issued $ 25.0 million in aggregate principal amount of additional 10.5 % 2024 Notes to GSO Capital Partners LP (“GSO”) or one or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”) at a discount for a purchase price of $ 21.3 million in cash. The additional 10.5% 2024 Notes were issued as additional notes of the same series as the 10.5% 2024 Notes.   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 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. In connection with the entering into of the Secured Credit Agreement, K. Hovnanian terminated the 2018 Secured Credit Facility (as defined under "- Fiscal 2018" ).    71 Table of Contents   On October 31, 2019, K. Hovnanian completed private placements of senior secured notes as follows: (i) K. Hovnanian issued an aggregate of $ 350.0 million of 7.75 % Senior Secured 1.125 Lien Notes due 2026 (the “1.125 Lien Notes”) in part pursuant to a Note Purchase Agreement, dated October 31, 2019, among K. Hovnanian, the Notes Guarantors and certain Investors as purchasers thereof (the “1.125 Lien Notes Purchase Agreement”) and in part pursuant to the Exchange Agreement (as defined below), with the proceeds from the sale of 1.125 Lien Notes under the 1.125 Lien Notes Purchase Agreement used to fund the cash payments to certain Exchanging Holders (as defined below) under the Exchange Agreement; and (ii) K. Hovnanian issued an aggregate of $ 282.3 million of 10.5 % Senior Secured 1.25 Lien Notes due 2026 (the “1.25 Lien Notes”), pursuant to a Note Purchase Agreement (the “1.25 Lien Notes Purchase Agreement”), dated October 31, 2019, among K. Hovnanian, the Notes Guarantors and certain Investors as purchasers thereof (the “1.25 Lien Notes Purchasers”), the proceeds of which were used to fund the Satisfaction and Discharge (as defined below).   In addition, on October 31, 2019, K. Hovnanian completed private exchanges of (i) approximately $ 221.0 million aggregate principal amount of its 10.0 % 2022 Notes and approximately $ 114.0 million aggregate principal amount of its 10.5% 2024 Notes held by certain participating bondholders (the “Exchanging Holders”) for a portion of the $350.0 million aggregate principal amount of 1.125 Lien Notes described above and/or cash, and (ii) approximately $ 99.6 million aggregate principal amount of its 10.5% 2024 Notes held by certain of the Exchanging Holders for approximately $ 103.1 million aggregate principal amount of 1.5 Lien Notes (the 1.5 Lien Notes together with the 1.125 Lien Notes and the 1.25 Lien Notes, the “New Secured Notes”), pursuant to an Exchange Agreement, dated October 30, 2019 ( the “Exchange Agreement”), among K. Hovnanian, the Notes Guarantors and the Exchanging Holders.     On October 31, 2019, K. Hovnanian issued notices of redemption for all of its outstanding 9.50 % Senior Secured Notes due 2020 (the “9.50% Notes”), 2.000 % Senior Secured Notes due 2021 (the “2.000% Notes”) and 5.000 % Senior Secured Notes due 2021 (the “5.000% Notes”) and deposited with Wilmington Trust, National Association, as trustee under the indenture (the “9.50% Notes Indenture”) governing the 9.50% Notes and as trustee under the indenture (the “5.000%/2.000% Notes Indenture”) governing the 5.000% Notes and the 2.000% Notes sufficient funds to satisfy and discharge (collectively, the “Satisfaction and Discharge”) (i) the 9.50% Indenture and to fund the redemption of all outstanding 9.50% Notes and to pay accrued and unpaid interest on the redeemed notes to, but not including, the November 10, 2019 redemption date and (ii) the 5.000%/2.000% Indenture and to fund the redemption of all outstanding 5.000% Notes and 2.000% Notes and to pay accrued and unpaid interest on the redeemed notes to, but not including, the November 30, 2019 redemption date. Proceeds from the issuance of the 1.25 Lien Notes together with cash on hand were used to fund the Satisfaction and Discharge. Upon the Satisfaction and Discharge of the 9.50% Notes Indenture, all of the collateral securing the 9.50% Notes was released and the restrictive covenants and events of default contained therein ceased to have effect and upon the Satisfaction and Discharge of the 5.000%/2.000% Notes Indenture, all of the collateral securing the 5.000% Notes and the 2.000% Notes was released and the restrictive covenants and events of default contained therein ceased to have effect as to both such series of Notes.   HEI and K. Hovnanian obtained the consent of certain lenders/holders under its existing debt instruments to amend such debt instruments in connection with the issuance of the New Secured Notes and the execution of the indentures governing the New Secured Notes and the Secured Credit Agreement. HEI, K. 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 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.   Secured Obligations   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.” In addition, up to 35 % of the original aggregate principal amount of the 1.125 Lien Notes may be redeemed with the net cash proceeds from certain equity offerings at 107.75 % of principal at any time prior to February 15, 2022. K. 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 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.” In addition, up to 35 % of the original aggregate principal amount of the 1.25 Lien Notes may be redeemed with the net cash proceeds from certain equity offerings at 110.5 % of principal at any time prior to February 15, 2022. K. 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 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.   See “— Fiscal 2020 ” for a discussion of the 1.75 Lien Notes and the Secured Term Loans.   72 Table of Contents   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 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.   Other   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, 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.       10. Operating and Reporting Segments   HEI’s operating segments are components of the Company’s business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance and make operating decisions. Based on this criteria, each of the Company's communities qualifies as an operating segment, and therefore, it is impractical to provide segment disclosures for this many segments. As such, HEI has aggregated the homebuilding operating segments into six reportable segments.   HEI’s homebuilding operating segments are aggregated into reportable segments based primarily upon geographic proximity, similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes. HEI’s reportable segments consist of the following six homebuilding segments and a financial services segment noted below.   Homebuilding:   ( 1 ) Northeast (New Jersey and Pennsylvania)   ( 2 ) Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia)   ( 3 ) Midwest (Illinois and Ohio)   ( 4 ) Southeast (Florida, Georgia and South Carolina)   ( 5 ) Southwest (Arizona and Texas)   ( 6 ) West (California)    73 Table of Contents   Financial Services   Operations of the Homebuilding segments primarily include the sale and construction of single-family attached and detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. In addition, from time to time, operations of the homebuilding segments include sales of land. Operations of the Financial Services segment include mortgage banking and title services provided to the homebuilding operations’ customers. Our financial services subsidiaries do not typically retain or service mortgages that we originate but rather sell the mortgages and related servicing rights to investors.    Corporate and unallocated primarily represents operations at our headquarters in New Jersey. This includes our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services, and administration of insurance, quality and safety. It also includes interest income and interest expense resulting from interest incurred that cannot be capitalized in inventory in the Homebuilding segments, as well as the gains or losses on extinguishment of debt from any debt repurchases or exchanges.     Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes (“Income (loss) before income taxes”). Income (loss) before income taxes for the Homebuilding segments consist of revenues generated from the sales of homes and land, income (loss) from unconsolidated entities, management fees and other income, less the cost of homes and land sold, selling, general and administrative expenses and interest expense. Income (loss) before income taxes for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and selling, general and administrative expenses incurred by the Financial Services segment.    Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent stand-alone entity during the periods presented.     Financial information relating to HEI’s segment operations was as follows:         Year Ended October 31,   (In thousands)   2021     2020     2019   Revenues:                         Northeast   $ 142,445     $ 192,069     $ 124,372   Mid-Atlantic     465,876       403,669       357,247   Midwest     262,770       225,718       204,461   Southeast     285,658       232,730       220,082   Southwest     903,178       744,197       629,344   West     641,219       472,889       425,516   Total homebuilding     2,701,146       2,271,272       1,961,022   Financial services     81,692       72,162       54,152   Corporate and unallocated     19       467       1,742   Total revenues   $ 2,782,857     $ 2,343,901     $ 2,016,916   Income (loss) before income taxes:                         Northeast   $ 22,922     $ 30,371     $ 20,954   Mid-Atlantic     61,567       34,570       14,327   Midwest     18,407       ( 1,805 )     ( 649 ) Southeast     17,764       1,355       ( 10,060 ) Southwest     115,840       68,184       33,459   West     82,503       16,415       40,018   Total homebuilding     319,003       149,090       98,049   Financial services     37,563       32,102       17,627   Corporate and unallocated (1)     ( 166,705 )     ( 125,789 )     ( 155,344 ) Income (loss) before income taxes   $ 189,861     $ 55,403     $ ( 39,668 )   ( 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.      74 Table of Contents       October 31,   (In thousands)   2021     2020   Assets:                 Northeast   $ 133,390     $ 107,748   Mid-Atlantic     273,073       271,867   Midwest     85,044       106,774   Southeast     257,044       248,506   Southwest     413,532       357,444   West     229,810       278,811   Total homebuilding     1,391,893       1,371,150   Financial services     202,758       140,607   Corporate and unallocated     725,857       315,585   Total assets   $ 2,320,508     $ 1,827,342         October 31,   (In thousands)   2021     2020   Investments in and advances to unconsolidated joint ventures:                 Northeast   $ 10,259     $ 14,646   Mid-Atlantic     8,660       11,055   Midwest     1       498   Southeast     40,563       66,234   Southwest     -       9,965   West     268       64   Total homebuilding     59,751       102,462   Corporate and unallocated     1,146       702   Total investments in and advances to unconsolidated joint ventures   $ 60,897     $ 103,164         Year Ended October 31,   (In thousands)   2021     2020     2019   Homebuilding interest expense:                         Northeast   $ 8,156     $ 13,636     $ 10,011   Mid-Atlantic     14,416       16,076       18,563   Midwest     7,640       9,377       7,121   Southeast     19,490       17,005       18,798   Southwest     28,899       29,898       27,731   West     26,130       30,222       23,051   Total homebuilding     104,731       116,214       105,275   Corporate and unallocated     57,085       61,917       55,506   Financial services interest expense (1)     ( 35 )     ( 35 )     334   Total interest expense, net   $ 161,781     $ 178,096     $ 161,115       ( 1 ) Financial services interest expenses are included in the Financial services lines on the Consolidated Statements of Operations in the respective revenues and expenses sections.        Year Ended October 31,   (In thousands)   2021     2020     2019   Depreciation:                         Northeast   $ 111     $ 229     $ 188   Mid-Atlantic     205       264       209   Midwest     1,143       1,112       1,097   Southeast     214       327       230   Southwest     870       699       331   West     941       801       326   Total homebuilding     3,484       3,432       2,381   Financial services     13       13       14   Corporate and unallocated     1,783       1,859       1,777   Total depreciation   $ 5,280     $ 5,304     $ 4,172     75 Table of Contents       Year Ended October 31,   (In thousands)   2021     2020     2019   Net additions to operating properties and equipment:                         Northeast   $ 96     $ 43     $ 107   Mid-Atlantic     118       165       168   Midwest     1,057       861       237   Southeast     256       102       221   Southwest     782       776       741   West     392       846       921   Total homebuilding     2,701       2,793       2,395   Financial services     -       -       -   Corporate and unallocated     3,241       587       1,610   Total net additions to operating properties and equipment   $ 5,942     $ 3,380     $ 4,005         Year Ended October 31,   (In thousands)   2021     2020     2019   Equity in earnings (losses) from unconsolidated joint ventures:                         Northeast   $ 3,681     $ 11,039     $ 19,242   Mid-Atlantic     ( 774 )     ( 292 )     3,404   Midwest     51       ( 103 )     ( 432 ) Southeast     2,061       820       1,310   Southwest     3,780       5,111       7,951   West     50       ( 10 )     ( 2,543 ) Total equity in earnings from unconsolidated joint ventures   $ 8,849     $ 16,565     $ 28,932       11. Income Taxes   Income taxes (receivable) payable, including deferred benefits, consists of the following:       Year Ended October 31,   (In thousands)   2021     2020   State income taxes:                 Current   $ 3,851     $ 3,832   Deferred     ( 90,070 )     -   Federal income taxes:                 Current     -       -   Deferred     ( 335,608 )     -   Total   $ ( 421,827 )   $ 3,832      The (benefit) provision for income taxes is composed of the following charges:       Year Ended October 31,   (In thousands)   2021     2020     2019   Current income tax expense:                         Federal (1)   $ -     $ -     $ -   State (2)     7,722       4,475       2,449   Total current income tax expense:     7,722       4,475       2,449   Federal     ( 335,608 )     -       -   State     ( 90,070 )     -       -   Total deferred income tax expense:     ( 425,678 )     -       -   Total   $ ( 417,956 )   $ 4,475     $ 2,449     ( 1 ) 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.   ( 2 ) 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.   76 Table of Contents   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. Of our $ 2.4 billion of state NOLs, $ 229.8 million expire between 2022 through 2026; $ 1.5 billion expire between 2027 through 2031; $ 397.2 million expire between 2032 through 2036; $ 169.8  million expire between 2037 through 2041; and $ 53.9  million have an indefinite carryforward period.   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.   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.   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.       1. 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. On a U.S. 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)   2. 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)    3. 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)   4. 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)   5. We exited several geographic markets over the last few years that have historically had losses. By exiting these underperforming markets, the Company has been able to redeploy capital to better performing markets, which over time should improve our profitability. (Positive Subjective Evidence)   6. 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 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.   77 Table of Contents   The deferred tax assets and liabilities have been recognized in the Consolidated Balance Sheets as follows:       Year Ended October 31,   (In thousands)   2021     2020   Deferred tax assets:                 Inventory impairment loss   $ 34,973     $ 42,120   Uniform capitalization of overhead     4,483       3,870   Warranty and legal reserves     5,671       4,848   Compensation     12,464       9,554   Deferred Income     1,420       3,793   Interest Expense     2,582       3,930   Restricted stock bonus     1,159       1,644   Stock options     1,009       4,026   Provision for losses     17,064       16,566   Joint venture loss     743       3,020   Federal net operating losses     263,366       299,854   State net operating losses     177,163       181,050   Other     5,136       3,259   Total deferred tax assets     527,233       577,534   Total deferred tax liabilities     -       -   Valuation allowance     ( 101,555 )     ( 577,534 ) Net deferred income taxes   $ 425,678     $ -      The effective tax rate varied from the statutory federal income tax rate. The effective tax rate is affected by a number of factors, the most significant of which has been the valuation allowance related to our deferred tax assets. Due to the effects of these factors, our effective tax rates for 2021 ,  2020 and 2019 are not correlated to the amount of our income or loss before income taxes. The sources of these factors were as follows:       Year Ended October 31,       2021     2020     2019   Federal statutory income tax rate     21.0 %     21.0 %     21.0 % State income taxes, net of federal income tax benefit     4.0       10.6       ( 5.0 ) Permanent differences, net     3.6       53.2       ( 42.4 ) Deferred tax asset valuation allowance impact     ( 248.5 )     ( 83.3 )     20.8   Tax contingencies     ( 0.2 )     ( 0.5 )     0.5   Adjustments to prior years’ tax accruals     0.0       7.0       ( 1.0 ) Effective tax rate     ( 220.1 )%     8.0 %     ( 6.1 )%   ASC 740 - 10 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.   Income tax positions must meet a more-likely-than- not recognition threshold at the effective date to be recognized upon the adoption of ASC 740 - 10 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.   We recognize tax liabilities in accordance with ASC 740 - 10 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.   We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.    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,       2021     2020   Unrecognized tax benefit—November 1,   $ 0.7     $ 0.9   Gross increases—tax positions in current period     -       -   Lapse of statute of limitations     ( 0.2 )     ( 0.2 ) Unrecognized tax benefit—October 31,   $ 0.5     $ 0.7      78 Table of Contents   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.   The consolidated federal tax returns have been audited through October 31, 2020 and these years are closed. We are also subject to various income tax examinations in the states in which we do business. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit, appeal, and in some cases, litigation process. As each audit is concluded, adjustments, if any, are appropriately recorded in the period determined. To provide for potential exposures, tax reserves are recorded, if applicable, based on reasonable estimates of potential audit results. However, if the reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position and results of operations. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 2017 – 2020.       12.   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, 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. 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. Our aggregate impairment losses are included in the Consolidated Statement of Operations on the line entitled “Homebuilding: Inventory impairment loss and land option write-offs” and deducted from inventory.   The following table represents impairments by segment for fiscal 2021 ,  2020 and 2019 :   (Dollars in millions)   Year Ended October 31, 2021               Dollar     Pre-       Number of     Amount of     Impairment       Communities     Impairment     Value (1)   Northeast     -     $ -     $ -   Mid-Atlantic     -       -       -   Midwest     -       -       -   Southeast     2       1.2       9.2   Southwest     -       -       -   West     1       0.8       2.3   Total     3     $ 2.0     $ 11.5     (Dollars in millions)   Year Ended October 31, 2020               Dollar     Pre-       Number of     Amount of     Impairment       Communities     Impairment     Value (1)   Northeast     -     $ -     $ -   Mid-Atlantic     -       -       -   Midwest     2       2.0       4.8   Southeast     -       -       -   Southwest     -       -       -   West     -       -       -   Total     2     $ 2.0     $ 4.8     79 Table of Contents   (Dollars in millions)   Year Ended October 31, 2019               Dollar     Pre-       Number of     Amount of     Impairment       Communities     Impairment     Value (1)   Northeast     2     $ 0.2     $ 7.8   Mid-Atlantic     1       0.3       1.7   Midwest     1       1.4       4.6   Southeast     1       0.7       2.2   Southwest     1       0.1       1.2   West     -       -       -   Total     6     $ 2.7     $ 17.5     ( 1 ) Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.   The Consolidated Statements of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” 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 $ 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.   The following table represents write-offs of such costs by segment for fiscal 2021 ,  2020 and 2019 :       Year Ended October 31,   (In millions)   2021     2020     2019   Northeast   $ -     $ 1.5     $ 0.6   Mid-Atlantic     0.3       -       0.5   Midwest     -       3.5       0.9   Southeast     0.2       0.8       0.3   Southwest     0.2       0.6       0.6   West     0.9       0.4       0.7   Total   $ 1.6     $ 6.8     $ 3.6       13. 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. 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. The two -class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods when we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.     Basic and diluted earnings per share for the periods presented below were calculated as follows:       Year Ended October 31,   (In thousands, except per share data)   2021     2020     2019                             Numerator:                         Net earnings (loss) attributable to Hovnanian   $ 607,817     $ 50,928     $ ( 42,117 ) Less: undistributed earnings allocated to nonvested shares     ( 57,676 )     ( 4,652 )     -   Numerator for basic earnings (loss) per share   $ 550,141     $ 46,276     $ ( 42,117 ) Plus: undistributed earnings allocated to nonvested shares     57,676       4,652       -   Less: undistributed earnings reallocated to nonvested shares     ( 58,687 )     ( 4,652 )     -   Numerator for diluted earnings (loss) per share   $ 549,130     $ 46,276     $ ( 42,117 ) Denominator:                         Denominator for basic earnings per share     6,287       6,189       5,968   Effect of dilutive securities:                         Share-based payments     108       395       -   Denominator for diluted earnings per share – weighted-average shares outstanding     6,395       6,584       5,968   Basic earnings (loss) per share   $ 87.50     $ 7.48     $ ( 7.06 ) Diluted earnings (loss) per share   $ 85.86     $ 7.03     $ ( 7.06 )   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.   80 Table of Contents     14. Capital Stock   Common Stock - Each share of Class A Common Stock entitles its holder to one vote per share, and each share of Class B Common Stock generally entitles its holder to ten votes per share. The amount of any regular cash dividend payable on a share of Class A Common Stock will be an amount equal to 110 % of the corresponding regular cash dividend payable on a share of Class B Common Stock. 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.   On August  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. Our ability to use NOLs and built-in losses would be limited if there was an “ownership change” under Section  382. This would occur if shareholders owning (or deemed under Section  382 to own) 5 % or more of our stock increase their collective ownership of the aggregate amount of our outstanding shares by more than 50  percentage points over a defined period of time. The Rights Plan was adopted to reduce the likelihood of an “ownership change” occurring as defined by Section  382. Under the Rights Plan, one right was distributed for each share of Class A Common Stock and Class B Common Stock outstanding as of the close of business on August  15, 2008. Effective August  15, 2008, if any person or group acquires 4.9 % or more of the outstanding shares of Class A Common Stock without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power of such person or group. However, existing stockholders who owned, at the time of the Rights Plan’s initial adoption on August 4, 2008, 4.9 % or more of the outstanding shares of Class A Common Stock will trigger a dilutive event only if they acquire additional shares. The approval of the Board of Directors’ decision to adopt the Rights Plan may be terminated by the Board of Directors at any time, prior to the Rights being triggered. The Rights Plan will continue in effect until August  14, 2024, unless it expires earlier in accordance with its terms. The approval of the Board of Directors’ 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  382 of the Internal Revenue Code. Subject to certain exceptions pertaining to pre-existing 5% stockholders and Class B stockholders, the transfer restrictions in our Restated Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than 5 % to 5 % or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own 5 % or more of our common stock; or (iii) create a new “public group” (as defined in the applicable United States Treasury regulations). Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the 5 % thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.   On July 3, 2001, our Board of Directors authorized a stock repurchase program to purchase up to 0.2 million shares of Class A Common Stock. There were no shares purchased during the year ended October 31, 2021 . As of October 31, 2021 , the maximum number of shares of Class A Common Stock that may yet be purchased under this program is 22 thousand.   On October 31, 2020 , in connection with the issuance of the 7.75 % Senior Secured 1.25 Lien Notes due 2026, we issued and sold an aggregate of 178,427 shares of Class A Common Stock, par value $ 0.01 per share (and associated Preferred Stock Purchase Rights), to the purchasers of such Notes for an aggregate purchase price of $ 1,784.27 . The issuance was exempt from registration under Section 4 (a)( 2 ) of the Securities Act of 1933.   Preferred Stock - On July  12, 2005, we issued 5,600 shares of 7.625 % Series A Preferred Stock, with a liquidation preference of $ 25,000 per share. Dividends on the Series A Preferred Stock are not cumulative and are payable at an annual rate of 7.625 %. The Series A Preferred Stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A Preferred Stock is traded as depositary shares, with each depositary share representing 1/1000th  of a share of Series A Preferred Stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” In fiscal 2021 ,  2020 and 2019 , we did not pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments.   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.     15. Stock Plans   There were no stock option grants during the years ended October 31, 2021 or  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 year ended October 31, 2019: risk free interest rate of  1.99%; dividend yield of zero; historical volatility factor of the expected market price of our common stock of  0.56; a weighted-average expected life of the option of 7.98 years; and an estimated forfeiture rate of 7.84 %.    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.    81 Table of Contents   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 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. The exercise price of all stock options must be at least equal to the fair market value of the underlying shares on the date of the grant. Stock options granted to officers and associates generally vest in four equal installments on the second, third, fourth and fifth anniversaries of the date of the grant. All options expire 10 years after the date of the grant. Non-employee directors’ stock options and restricted stock units vest in three equal installments on the first, second and third anniversaries of the date of the grant. Stock option transactions are summarized as follows:         October 31,     Weighted-Average     October 31,     Weighted-Average     October 31,     Weighted-Average       2021     Exercise Price     2020     Exercise Price     2019     Exercise Price   Options outstanding at beginning of period     289,391     $ 47.02       331,481     $ 53.93       278,569     $ 73.76   Granted     -     $ -       -     $ -       110,975     $ 9.44   Exercised     77,607     $ 35.30       -     $ -       -     $ -   Forfeited     1,650     $ 14.80       6,560     $ 26.24       2,038     $ 53.96   Expired     3,900     $ 48.03       35,530     $ 115.28       56,025     $ 64.41   Options outstanding at end of period     206,234     $ 51.67       289,391     $ 47.02       331,481     $ 53.93   Options exercisable at end of period     125,528               145,553               147,019             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. There were no options exercised in fiscal 2020 or fiscal  2019.     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 :                       Weighted-                       Average               Weighted-     Remaining       Number     Average     Contractual   Range of Exercise Prices   Outstanding     Exercise Price     Life   $7.85 – $38.75     74,387     $ 9.51       7.56   $42.50 – $63.75     74,701     $ 54.14       5.07   $66.75 – $100.25     32,500     $ 71.60       0.74   $110.25 – $157.00     24,646     $ 145.15       1.83         206,234     $ 51.67       4.90     The following table summarizes the exercise price range and related number of exercisable options at October 31, 2021 :                       Weighted-                       Average               Weighted-     Remaining       Number     Average     Contractual   Range of Exercise Prices   Exercisable     Exercise Price     Life   $7.85 – $38.75     19,464     $ 9.52       7.39   $42.50 – $63.75     48,918     $ 51.74       4.30   $66.75 – $100.25     32,500     $ 71.60       0.74   $110.25 – $157.00     24,646     $ 145.15       1.83         125,528     $ 68.68       3.37     Officers and key associates who are eligible to receive equity grants are granted shares of restricted stock units. 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, 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.    82 Table of Contents   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  31, 2021 ,  2020 , and 2019 are as follows:       October 31,     Weighted-Average Grant Date     October 31,     Weighted-Average Grant Date     October 31,     Weighted-Average Grant Date       2021     Fair Value     2020     Fair Value     2019     Fair Value   Nonvested Time-Based at beginning of period     288,865     $ 19.88       231,210     $ 23.01       105,594     $ 61.77   Granted     50,187     $ 85.72       142,231     $ 19.48       164,050     $ 7.66   Vested     104,253     $ 24.33       62,309     $ 17.04       21,329     $ 45.52   Forfeited     4,875     $ 26.84       22,267     $ 57.81       17,106     $ 86.96   Nonvested Time-Based at end of period     229,924     $ 26.51       288,865     $ 19.88       231,210     $ 23.01     A summary of the Company’s nonvested Performance-Based share awards for the years ended October  31, 2021 ,  2020 , and 2019 are as follows:       October 31,     Weighted-Average Grant Date     October 31,     Weighted-Average Grant Date     October 31,     Weighted-Average Grant Date       2021     Fair Value     2020     Fair Value     2019     Fair Value   Nonvested Performance-Based at beginning of period     294,472     $ 24.64       136,316     $ 44.22       101,407     $ 69.28   Granted     104,467     $ 72.68       183,825     $ 15.11       56,400     $ 10.10   Vested     47,002     $ 68.52       4,284     $ 57.22       8,655     $ 42.69   Forfeited     954     $ 67.00       21,385     $ 70.44       12,836     $ 93.31   Nonvested Performance-Based at end of period     350,983     $ 35.60       294,472     $ 24.64       136,316     $ 44.22       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.    The fair value of the PSU grants is determined using the Finnerty model, which uses an arithmetic average strike, put option. The strike price is based on the predetermined period average value of the underlying asset. 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 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. Fifty percent of the MSUs will vest in four equal annual installments, commencing on the second anniversary of the grant date subject to stock price performance conditions, pursuant to which the actual number of shares issuable with respect to vested MSUs may range from 0 % to 200 % of the target number of shares covered by the MSU awards, generally depending on the growth in the 60 -day average trading price of the Company’s shares during the period between the grant date and the relevant vesting dates. The remaining fifty percent of the MSUs are also subject to financial performance conditions in addition to the stock price performance conditions applicable to all MSUs. These additional performance-based MSUs vest in four equal installments with the first installment vesting on January 1, three years after the MSU grant date (for example, January 1, 2022 for the 2019 MSU grant) and the remaining annual installments commencing on the third anniversary of the grant date, except that no portion of the award will vest unless the Committee determines that the Company achieved ( 1 ) for the 2019 MSU grants, specified community count improvement (as to 25% of the MSU amount) and pre-tax profit (as to 25% of the MSU amount) goals comparing the fiscal year of the grant date and the second fiscal year following the grant date (fiscal 2020 compared to fiscal 2019 ), ( 2 ) for the 2017 and 2016 MSU grants, specified gross margin improvement (as to 25% of the MSU amount) and debt reduction (as to 25% of the MSU amount) goals comparing the fiscal year of the grant date and the second fiscal year following the grant date (fiscal 2020 compared to fiscal 2018 ).   83 Table of Contents   The fair value of the MSU grants is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average closing trading price of the Company’s Class A Common Stock on the New York Stock Exchange over the 60 -calendar day period ending on the grant date. This model also incorporates the following ranges of assumptions:     ● The expected volatility is based on our stock’s historical volatility commensurate with the life 2 years, 2.6 years, 3 years, 4 years and 5 years.   ● The risk-free interest rate is based on the U.S. Treasury rate assumption ranging from 2 - 5 years.   ● The expected dividend yield is not applicable since we do not currently pay dividends.   The following assumptions were used for 2019 MSU grants: historical volatility factor of the expected market price of our common stock of  62.51 %, 59.60 %, 57.04 %, 60.03 % and 56.86 % for the 2 year, 2.6 year, 3 year, 4 year and 5 year vesting tranches, respectively and the concluded risk free rate assumptions of  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.     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, 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.      16. Warranty Costs   General liability insurance for homebuilding companies and their suppliers and subcontractors is very difficult to obtain. The availability of general liability insurance is limited due to a decreased number of insurance companies willing to underwrite for the industry. In addition, those few insurers willing to underwrite liability insurance have significantly increased the premium costs. To date, we have been able to obtain general liability insurance but at higher premium costs with higher deductibles. Our subcontractors and suppliers have advised us that they have also had difficulty obtaining insurance that also provides us coverage. As a result, we have an owner controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance at no additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the fiscal years ended October 31, 2021 and 2020 , we received $ 5.5  million and $ 4.4  million, respectively, from subcontractors related to the owner controlled insurance program, which we accounted for as reductions to inventory.    We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal 2021 and 2020 , our deductible under our general liability insurance was a $ 20 million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2021 and 2020  was $ 0.25 million, up to a $ 5 million limit. Our aggregate retention for construction defect, warranty and bodily injury claims was $ 20 million for fiscal 2021  and  2020 . In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the fiscal years ended October 31, 2021 and 2020 were as follows:       Year Ended October 31,   (In thousands)   2021     2020                     Balance, beginning of period   $ 86,417     $ 89,371   Additions – Selling, general and administrative     10,419       9,587   Additions – Cost of sales     13,410       10,273   Charges incurred during the period     ( 14,342 )     ( 20,163 ) Changes to pre-existing reserves     ( 988 )     ( 2,651 ) Balance, end of period   $ 94,916     $ 86,417      Warranty accruals are based upon historical experience. We engage a third -party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. As a result of reductions in our construction defect claims in recent years and the impact of these reductions on the actuarial analysis on our total reserves, we recorded reductions in our construction defect reserves of $ 1.6  million in the fourth quarter of fiscal 2021 and $ 2.5  million in the fourth quarter of fiscal 2020 . 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 $ 0.1 million and less than $ 0.1  million for the fiscal years ended October 31, 2021 and 2020 , respectively, for prior year deliveries.   84 Table of Contents     17. Transactions with Related Parties   During the years ended October 31, 2021, 2020 and 2019 , an engineering firm owned by Tavit Najarian, a relative of Ara K. Hovnanian, our Chairman of the Board of Directors and our Chief Executive Officer, provided services to the Company totaling $ 0.6  million, $ 0.7  million and $ 0.9  million, respectively. Neither the Company nor Mr. Hovnanian has a financial interest in the relative’s company from whom the services were provided.   Mr. 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. Mr. 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.     18. 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. 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; 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. 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.                               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 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  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. 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. 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 ("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 April 20, 2022. 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. and several of its affiliates, including K. Hovnanian at Great Notch, LLC, K. Hovnanian Construction Management, Inc., and K. 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 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.   85 Table of Contents         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.        19. Variable Interest Entities   The Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are not refundable at the Company's discretion. Under the requirements of ASC  810, certain option purchase contracts may result in the creation of a variable interest in the entity (“VIE”) that owns the land parcel under option.    In compliance with ASC  810, the Company analyzes its option purchase contracts to determine whether the corresponding land sellers are VIEs and, if so, whether the Company is the primary beneficiary. Although the Company does not have legal title to the underlying land, ASC  810 requires the Company to consolidate a VIE if the Company is determined to be the primary beneficiary. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. 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 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, 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.     20. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures   We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with third -party investors to develop land and construct homes that are sold directly to third -party home buyers. 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 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.   86 Table of Contents   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.       October 31, 2021               Land           (Dollars in thousands)   Homebuilding     Development     Total   Assets:                         Cash and cash equivalents   $ 132,963     $ 1,972     $ 134,935   Inventories     442,347       -       442,347   Other assets     34,551       -       34,551   Total assets   $ 609,861     $ 1,972     $ 611,833   Liabilities and equity:                         Accounts payable and accrued liabilities   $ 386,117     $ 1,681     $ 387,798   Notes payable     73,994       -       73,994   Total liabilities     460,111       1,681       461,792   Equity of:                         Hovnanian Enterprises, Inc.     58,460       254       58,714   Others     91,290       37       91,327   Total equity     149,750       291       150,041   Total liabilities and equity   $ 609,861     $ 1,972     $ 611,833   Debt to capitalization ratio     33 %     0 %     33 %       October 31, 2020               Land           (Dollars in thousands)   Homebuilding     Development     Total   Assets:                         Cash and cash equivalents   $ 120,107     $ 3,454     $ 123,561   Inventories     389,001       91       389,092   Other assets     27,062       488       27,550   Total assets   $ 536,170     $ 4,033     $ 540,203   Liabilities and equity:                         Accounts payable and accrued liabilities   $ 207,277     $ 2,152     $ 209,429   Notes payable     117,179       -       117,179   Total liabilities     324,456       2,152       326,608   Equity of:                         Hovnanian Enterprises, Inc.     102,908       1,340       104,248   Others     108,806       541       109,347   Total equity     211,714       1,881       213,595   Total liabilities and equity   $ 536,170     $ 4,033     $ 540,203   Debt to capitalization ratio     36 %     0 %     35 %   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 $ 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 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               Land           (Dollars in thousands)   Homebuilding     Development     Total   Revenues   $ 347,898     $ 691     $ 348,589   Cost of sales and expenses     ( 335,077 )     ( 209 )     ( 335,286 ) Joint venture net income   $ 12,821     $ 482     $ 13,303   Our share of net income   $ 8,754     $ 195     $ 8,949       87 Table of Contents       For The Year Ended October 31, 2020               Land           (Dollars in thousands)   Homebuilding     Development     Total   Revenues   $ 435,077     $ 13,024     $ 448,101   Cost of sales and expenses     ( 420,977 )     ( 11,225 )     ( 432,202 ) Joint venture net income   $ 14,100     $ 1,799     $ 15,899   Our share of net income   $ 16,904     $ 17     $ 16,921         For The Year Ended October 31, 2019               Land           (Dollars in thousands)   Homebuilding     Development     Total   Revenues   $ 488,914     $ 8,704     $ 497,618   Cost of sales and expenses     ( 456,563 )     ( 7,948 )     ( 464,511 ) Joint venture net income   $ 32,351     $ 756     $ 33,107   Our share of net income   $ 28,761     $ 378     $ 29,139     “Income (loss) from unconsolidated joint ventures” 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 $ 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” on the Consolidated Statements of Operations.      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 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. In some instances, the unconsolidated joint venture entity is considered a VIE under ASC 810 - 10 “Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities.        88 Table of Contents     21. Fair Value of Financial Instruments   ASC 820, "Fair Value Measurements and Disclosures," provides a framework for measuring fair value, expands disclosures about fair-value measurements and establishes a fair-value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:   Level 1:                       Fair value determined based on quoted prices in active markets for identical assets.   Level 2:                       Fair value determined using significant other observable inputs.   Level 3:                       Fair value determined using significant unobservable inputs.    Our financial instruments measured at fair value on a recurring basis are summarized below:         Fair Value at     Fair Value at     Fair Value   October 31,     October 31,   (In thousands) Hierarchy   2021     2020                       Mortgage loans held for sale (1) Level 2   $ 151,059     $ 104,378   Forward contracts Level 2     ( 107 )     ( 28 ) Total   $ 150,952     $ 104,350   Interest rate lock commitments Level 3     152       11   Total   $ 151,104     $ 104,361     ( 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,” which permits us to measure financial instruments at fair value on a contract-by-contract basis. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. 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 $ 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. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements.    The Financial Services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. 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, 2021 , the segment had open commitments amounting to $ 24.0 million to sell MBS with varying settlement dates through November 18, 2021.    89 Table of Contents   The assets accounted for using the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in the Consolidated Financial Statements in “Revenues: Financial services.” The fair values that are included in income are shown, by financial instrument and financial statement line item, below:        Year Ended October 31, 2021       Mortgage     Interest Rate               Loans Held     Lock     Forward   (In thousands)   for Sale     Commitments     Contracts                             Fair value included in net income all reflected in financial services revenues   $ 4,580     $ 152     $ ( 107 )        Year Ended October 31, 2020       Mortgage     Interest Rate               Loans Held     Lock     Forward   (In thousands)   for Sale     Commitments     Contracts                             Fair value included in net income all reflected in financial services revenues   $ 3,928     $ 11     $ ( 28 )       Year Ended October 31, 2019       Mortgage     Interest Rate               Loans Held     Lock     Forward   (In thousands)   for Sale     Commitments     Contracts                             Fair value included in net loss all reflected in financial services revenues   $ 4,869     $ 42     $ ( 64 )    The Company's assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the fiscal years ended October 31, 2021 and 2020 . The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:   Nonfinancial Assets     Year Ended     October 31, 2021   (In thousands) Fair   Pre-                     Value   Impairment                     Hierarchy   Amount     Total Losses     Fair Value                               Sold and unsold homes and lots under development Level 3   $ 11,522     $ ( 2,009 )   $ 9,513   Land and land options held for future development or sale Level 3   $ -     $ -     $ -       Year Ended     October 31, 2020   (In thousands) Fair   Pre-                     Value   Impairment                     Hierarchy   Amount     Total Losses     Fair Value                               Sold and unsold homes and lots under development Level 3   $ 691     $ ( 276 )   $ 415   Land and land options held for future development or sale Level 3   $ 4,089     $ ( 1,741 )   $ 2,348     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 its estimated future cash flows at a discount rate commensurate with the risk of the respective community. 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, $ 2.0 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.   90 Table of Contents   The fair value of our cash equivalents, restricted cash and cash equivalents and customer’s deposits approximates their carrying amount, based on Level 1 inputs.   The fair value of each series of our Notes and Credit Facilities are listed below. Level 2 measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. Level 3 measurements are estimated based on third -party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments.   Fair Value as of October 31, 2021 (In thousands)   Level 1     Level 2     Level 3     Total   Senior Secured Notes:                                 10.0% Senior Secured 1.75 Lien Notes due November 15, 2025     -       -       167,348       167,348   7.75% Senior Secured 1.125 Lien Notes due February 15, 2026     -       -       366,426       366,426   10.5% Senior Secured 1.25 Lien Notes due February 15, 2026`     -       -       300,913       300,913   11.25% Senior Secured 1.5 Lien `Notes due February 15, 2026     -       -       162,548       162,548   Senior Notes:                                 13.5% Senior Notes due February 1, 2026     -       -       92,331       92,331   5.0% Senior Notes due February 1, 2040     -       -       63,084       63,084   Senior Credit Facilities:                                 Senior Unsecured Term Loan Credit Facility due February 1, 2027     -       -       28,196       28,196   Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028     -       -       86,046       86,046   Total fair value   $ -     $ -     $ 1,266,892     $ 1,266,892     Fair Value as of October 31, 2020 (In thousands)   Level 1     Level 2     Level 3     Total   Senior Secured Notes:                                 10.0% Senior Secured Notes due July 15, 2022   $ -     $ 107,878     $ -     $ 107,878   10.5% Senior Secured Notes due July 15, 2024     -       -       67,941       67,941   10.0% Senior Secured 1.75 Lien Notes due November 15, 2025     -       -       132,246       132,246   7.75% Senior Secured 1.125 Lien Notes due February 15, 2026     -       -       353,500       353,500   10.5% Senior Secured 1.25 Lien Notes due February 15, 2026     -       -       274,558       274,558   11.25% Senior Secured 1.5 Lien Notes due February 15, 2026     -       -       162,723       162,723   Senior Notes:                                 13.5% Senior Notes due February 1, 2026     -       54,354       -       54,354   5.0% Senior Notes due February 1, 2040     -       10,814       -       10,814   Senior Credit Facilities:                                 Senior Unsecured Term Loan Credit Facility due February 1, 2027     -       -       13,091       13,091   Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028     -       -       64,465       64,465   Total fair value   $ -     $ 173,046     $ 1,068,524     $ 1,241,570     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 .   91