What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-12-18 compared with 2022-12-19 · 561 added, 606 removed, 1630 unchanged (42% of the section changed)

18 unchanged sentences

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 21, 2024, 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.

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

Executive Vice President, Chief Financial Officer and Director of the Company

O’Connor

Senior Vice President, Treasurer and Chief Accounting Officer

Chief Financial Officer and Treasurer

Hovnanian has been Chief Executive Officer since July 1997 after being appointed President in 1988 and Executive Vice President in 1983.

2 unchanged sentences

Hovnanian, the chairman and founder of the Company and the father of Mr.

Sorsby has been Chief Financial Officer of Hovnanian Enterprises, Inc.

since 1996, and Executive Vice President since November 2000.

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.

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.

O’Connor was appointed Chief Financial Officer in November 2023 and Senior Vice President and Treasurer in April 2020. 

He held the position of Chief Accounting Officer from May 2011 until October 2023. 

He joined the Company as Vice President, Associate Corporate Controller in May 2004, and was promoted to Corporate Controller in December 2007.

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.

O’Connor was the Corporate Controller for Amershem Biosciences, a global biotech company, and was 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.

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, principal 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.

1 unchanged sentence

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.”

2 unchanged sentences

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.

EXECUTIVE COMPENSATION

1 unchanged sentence

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of October 31, 2022 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.

Number of Class A common stock securities to be issued upon exercise of outstanding options, warrants and rights (1)(4)

Number of Class B common stock securities to be issued upon exercise of outstanding options, warrants and rights (1)(4)

Weighted average exercise price of outstanding Class A common stock options, warrants and rights (2)

Weighted average exercise price of outstanding Class B common stock options, warrants and rights (3)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in columns (a)) (5)

Plan Category

Equity compensation plans approved by security holders:

Equity compensation plans not approved by security holders:

(1) Includes the maximum number of shares that are potentially issuable under the market share units granted in fiscal years 2018 and 2019 under the Company's 2012 Amended and Restated Stock Incentive Plan, subject to vesting.

Also includes the maximum number of shares that are potentially issuable under the performance share units granted in fiscal years 2020 through  

2022 and the maximum number of shares that are potentially issuable under the 2021  and 2022  Long-Term Incentive program s  

unde r the Amended and Restated 2020 Hovnanian Enterprises, Inc.

Stock Incentive Plan.

(2) Does not take into account 476,869 shares that may be issued upon the vesting of restricted stock and performance-based awards discussed in (1) above, nor 28,549 shares of restricted stock vested  but not yet issued  nor  

118,983 shares of restricted stock deferred due to mandatory hold requirements, in each case, because they have no exercise price.

(3) Does not take into account 493,088 shares that may be issued upon the vesting of the performance-based awards discussed in (1) above nor 18,744 shares of restricted stock vested but not yet issued nor  

47,500 shares of restricted stock deferred due to mandatory hold requirements, in each case, because they have no exercise price.

(4) These shares include 6,399 shares of Class A common stock and 12,000 shares of Class B common stock  

that may be issued upon exercise of outstanding options with exercise prices greater than $150.00 per share.

(5) Under the Company ’

s equity compensation plans, securities may be issued in either Class A common stock or Class B common stock.

EQUITY COMPENSATION PLAN INFORMATION   

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 21, 2024.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

3 unchanged sentences

Further 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 21, 2024.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS:

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at October 31, 2022 and 2021

Consolidated Statements of Operations for the years ended October 31, 2022, 2021 and 2020

Consolidated Statements of Changes in Equity (Deficit) for the years ended October 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended October 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 

(a) The following documents are filed as part of this report:

(1) Consolidated Financial Statements

See the "Index" to the Consolidated Financial Statements commencing on page 50 of this Form 10-K.

(2) Financial Statement Schedules

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.

See the "Exhibit Index" beginning on page 44 of this Form 10-K.

Exhibits: 

19 unchanged sentences

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

Indenture, dated as of 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).

Eighteenth Supplemental Indenture, dated as of October 17, 2019, relating to the 8.000% Senior Notes due 2027, among K.

Nineteenth Supplemental Indenture, dated as of October 31, 2019, relating to the 8.000% Senior Notes due 2027, among K.

Twentieth Supplemental Indenture, dated as of November 1, 2019, relating to 8.000% Senior Notes due 2027, among K.

Indenture, dated as of October 5, 2023, relating to the 8.0% Senior Secured 1.125 Lien Notes due 2028, 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).

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).

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).

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, including the form of 8.0% Senior Secured 1.125 Lien Notes due 2028 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on September 25, 2023).

Indenture, dated as of October 5, 2023, relating to the 11.75% Senior Secured 1.25 Lien Notes due 2029, 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).

First Supplemental Indenture, dated as of November 27, 2019, relating to the 11.25% Senior Secured 1.5 Lien Notes due 2026, among K.

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).

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 11.75% Senior Secured 1.25 Lien Notes due 2029 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on September 25, 2023).

Description of the Registrant’s securities.

4(w) 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).

Second Amendment, dated as of August 19, 2022, to the Credit Agreement, dated as of October 31, 2019, 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 on August 22, 2022).

Third Amendment, dated as of September 25, 2023, to the Credit Agreement, dated as of October 31, 2019, among K.

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

13 unchanged sentences

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).

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).

Management Agreement dated August 12, 1983, for the management of properties by K. Hovnanian Investment Properties, Inc.

5 unchanged sentences

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).

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).

Form of Change in Control Severance Protection Agreement entered into with Brad G.

12 unchanged sentences

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).

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).

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).

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).

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).

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).

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).

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).

5 unchanged sentences

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).

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).

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).

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).

Trademark Security Agreement, dated as of October 5, 2023, by K.

HOV IP, II, Inc., in favor of Wilmington Trust, National Association, as Administrative Agent and as Joint First Lien Collateral Agent.

1.125 Lien Security Agreement, dated as of October 5, 2023, relating to the 8.0% Senior Secured 1.125 Lien Notes due 2028, 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).

and the other guarantors party thereto in favor of Wilmington Trust, National Association, as 1.125 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.125 Lien Pledge Agreement, dated as of October 5, 2023, relating to the 8.0% Senior Secured 1.125 Lien Notes due 2028, 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).

and the other guarantors party thereto in favor of Wilmington Trust, National Association, as 1.125 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.125 Lien Trademark Security Agreement, dated as of October 5, 2023, 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).

HOV IP, II, Inc., in favor of Wilmington Trust, National Association, as 1.125 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.125 Lien Copyright Security Agreement, dated as of October 5, 2023, by K.

HOV IP, II, Inc., in favor of Wilmington Trust, National Association, as 1.125 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.25 Lien Security Agreement, dated as of October 5, 2023, relating to the 11.75% Senior Secured 1.25 Lien Notes due 2029, 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).

and the other guarantors party thereto in favor of Wilmington Trust, National Association, as 1.25 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.25 Lien Pledge Agreement, dated as of October 5, 2023, relating to the 11.75% Senior Secured 1.25 Lien Notes due 2029, 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).

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).

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).

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).

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).

and the other guarantors party thereto in favor of Wilmington Trust, National Association, as 1.25 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.25 Lien Trademark Security Agreement, dated as of October 5, 2023, by K.

HOV IP, II, Inc., in favor of Wilmington Trust, National Association, as 1.25 Lien Collateral Agent and as Joint First Lien Collateral Agent.

1.25 Lien Copyright Security Agreement, dated as of October 5, 2023, by K.

HOV IP, II, Inc., in favor of Wilmington Trust, National Association, as 1.25 Lien Collateral Agent and as Joint First Lien Collateral Agent.

First Lien Collateral Agency Agreement, dated as of October 31, 2019, among K.

4 unchanged sentences

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(aaa)* 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(bbb)* 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(ccc)* 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(ddd)* 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(eee)* 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(fff)* 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(ggg)* 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(hhh)* 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(iii)* 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(jjj)* 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(kkk)* 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(lll)* 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).

10(mmm)* Form of 2022 Long-Term Incentive Program Award Agreement (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2022 of the Registrant).

10(nnn)* Form of 2022 Long-Term Incentive Program Award Agreement (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2022 of the Registrant).

10(ooo)* Second Amended and Restated 2020 Hovnanian Enterprises, Inc.

10(qq) Joinder No.

3, dated as of October 5, 2023, 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 1.125 Lien Trustee and 1.125 Lien Collateral Agent, with acknowledged receipt by the Senior Credit Agreement Collateral Agent, 1.25 Lien Trustee, 1.25 Lien Collateral Agent, 1.75 Lien Trustee, 1.75 Lien Collateral Agent and Joint First Lien Collateral Agent.

10(rr) Joinder No.

4, dated as of October 5, 2023, 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 1.25 Lien Trustee and 1.25 Lien Collateral Agent, with acknowledged receipt by the Senior Credit Agreement Collateral Agent, 1.125 Lien Trustee, 1.125 Lien Collateral Agent, 1.75 Lien Trustee, 1.75 Lien Collateral Agent and Joint First Lien Collateral Agent.

10(ss)* 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(tt)* 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(uu)* 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(vv)* 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(ww)* 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(xx)* 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(yy)* 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(zz)* 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(aaa)* 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(bbb)* 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(ccc)* 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(ddd)* 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).

10(eee)* Form of 2022 Long-Term Incentive Program Award Agreement (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2022 of the Registrant).

10(fff)* Form of 2022 Long-Term Incentive Program Award Agreement (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended January 31, 2022 of the Registrant).

10(ggg)* Second Amended and Restated 2020 Hovnanian Enterprises, Inc.

Stock Incentive Plan (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on March 29, 2022).

10(ppp)* Form of 2022 Performance Share Unit Agreement –

10(hhh)* Form of 2022 Performance Share Unit Agreement –

EBIT (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(qqq)* Form of 2022 Performance Share Unit Agreement –

10(iii)* Form of 2022 Performance Share Unit Agreement –

EBIT (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(rrr)* Form of 2022 Performance Share Unit Agreement –

10(jjj)* Form of 2022 Performance Share Unit Agreement –

EBIT ROI (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(sss)* Form of 2022 Performance Share Unit Agreement –

10(kkk)* Form of 2022 Performance Share Unit Agreement –

EBIT ROI (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(ttt)* Form of 2022 Performance Share Unit Agreement –

10(lll)* Form of 2022 Performance Share Unit Agreement –

Land Light Performance Vesting (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(uuu)* Form of 2022 Performance Share Unit Agreement –

10(mmm)* Form of 2022 Performance Share Unit Agreement –

National Contracts Savings Performance Vesting (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(vvv)* Form of 2022 Performance Share Unit Agreement –

10(nnn)* Form of 2022 Performance Share Unit Agreement –

KHDS Savings Performance Vesting (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(www)* Restricted Share Unit Agreement Class A (2022 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(xxx)* Director Restricted Share Unit Agreement Class A (2022 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(yyy)* Form of 2019 Associate Market Share Unit Agreement (Class A).

10(zzz)* Form of 2019 Associate Market Share Unit Agreement (Class A).

10(aaaa)* Form of 2019 Associate Market Share Unit Agreement - Pre-tax Profit Performance Vesting (Class A).

10(bbbb)* Form of 2019 Associate Market Share Unit Agreement - Pre-tax Profit Performance Vesting (Class B).

10(cccc)* Form of 2019 Associate Market Share Unit Agreement –

Community Count Performance Vesting (Class A).

10(dddd)* Form of 2019 Associate Market Share Unit Agreement –

Community Count Performance Vesting (Class B).

10(eeee)* Form of 2019 Associate Incentive Stock Option Agreement –

Premium Priced (Class A).

10(ffff)* Form of 2019 Associate Non-Qualified Stock Option Agreement –

Premium Priced (Class B).

10(gggg)* Form of 2019 Associate Incentive Stock Option Agreement (Class A).

10(hhhh)* Form of 2019 Associate Non-Qualified Stock Option Agreement (Class B).

10(iiii)* Form of 2019 Restricted Share Unit Agreement (Class A).

10(jjjj)* Form of 2019 Director Restricted Share Unit Agreement (Class A).

10(kkkk)* Form of 2016 Non-Qualified Stock Option Agreement (Class B).

10(llll)* Form of 2021 Associate Restricted Share Unit Agreement (Class A).

10(ooo)* Restricted Share Unit Agreement Class A (2022 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(ppp)* Director Restricted Share Unit Agreement Class A (2022 grants and thereafter) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 of the Registrant).

10(qqq)* Form of 2019 Associate Market Share Unit Agreement (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(rrr)* Form of 2019 Associate Market Share Unit Agreement (Class B) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(sss)* Form of 2019 Associate Market Share Unit Agreement - Pre-tax Profit Performance Vesting (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(ttt)* Form of 2019 Associate Market Share Unit Agreement - Pre-tax Profit Performance Vesting (Class B) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(uuu)* Form of 2019 Associate Market Share Unit Agreement –

Community Count Performance Vesting (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(vvv)* Form of 2019 Associate Market Share Unit Agreement –

Community Count Performance Vesting (Class B) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(www)* Form of 2019 Associate Incentive Stock Option Agreement –

Premium Priced (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(xxx)* Form of 2019 Associate Non-Qualified Stock Option Agreement –

Premium Priced (Class B) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(yyy)* Form of 2019 Associate Incentive Stock Option Agreement (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(zzz)* Form of 2019 Associate Non-Qualified Stock Option Agreement (Class B) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(aaaa)* Form of 2019 Restricted Share Unit Agreement (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(bbbb)* Form of 2019 Director Restricted Share Unit Agreement (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(cccc)* Form of 2016 Non-Qualified Stock Option Agreement (Class B) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(dddd)* Form of 2021 Associate Restricted Share Unit Agreement (Class A) (Incorporated by reference to Exhibits to Annual Report on Form 10-K of the Registrant for the year ended October 31, 2022 of the Registrant).

10(eeee)* Form of 2023 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 January 31, 2023 of the Registrant).

10(ffff)* Form of 2023 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 January 31, 2023 of the Registrant).

10(gggg)* Form of 2023 Long-Term Incentive Program Phantom Share Agreement (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended January 31, 2023 of the Registrant).

10(hhhh)* Form of 2023 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, 2023 of the Registrant).

10(iiii)* Form of 2023 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, 2023 of the Registrant).

10(jjjj)* Form of 2023 Performance Share Unit Agreement 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, 2023 of the Registrant).

10(kkkk)* Form of 2023 Performance Share Unit Agreement 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, 2023 of the Registrant).

Subsidiaries of the Registrant.

2 unchanged sentences

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

Section 1350 Certification of Chief Executive Officer.

Section 1350 Certification of Chief Financial Officer.

Section 1350 Certification of Chief Executive Officer (furnished herewith).

Section 1350 Certification of Chief Financial Officer (furnished herewith).

97(a) Incentive Compensation Clawback Policy.

The following financial information from our Annual Report on Form 10-K for the year ended October 31, 2023, formatted in inline Extensible Business Reporting Language (Inline XBRL):

14 unchanged sentences

(Principal Executive Officer)

LARRY SORSBY 

Executive Vice President, Chief Financial Officer and Director

(Principal Financial Officer)

O’CONNOR 

Senior Vice President, Treasurer and Chief Accounting Officer 

Chief Financial Officer and Treasurer

O’Connor

(Principal Accounting Officer)  

(Principal Financial Officer and Principal Accounting Officer) 

/s/ EDWARD A.

20 unchanged sentences

We have audited the accompanying consolidated balance sheets of Hovnanian Enterprises Inc.

and subsidiaries (the "Company") as of October 31, 2022 and 2021, the related consolidated statements of operations, equity (deficit), and cash flows, for each of the three years in the period ended October 31, 2022, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of October 31, 2023, and 2022, the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended October 31, 2023, 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, 2023, 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, 2022 and 2021, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2023, 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, 2023, based on criteria established in Internal Control —

23 unchanged sentences

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.

Valuation of inventory:

sold and unsold homes and lots under development and land held for future development or sale –

Refer to Notes 3 and 12 in the financial statements

Warranty Costs and Construction Defect Reserves –

Refer to Notes 3 and Note 16 to the financial statements

Critical Audit Matter Description

Sold and unsold homes and lots under development includes all construction, land, capitalized interest and land development costs related to started homes and land under development in the Company’s active communities.

Land held for future development or sale includes all costs related to land in the Company’s communities in planning or mothballed communities.

Inventories are recorded at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value.

Management assesses inventory for indicators of impairment at the individual community level on a quarterly basis.

In conducting the review for impairment indicators, management evaluates certain qualitative and quantitative factors at the community levels.

This includes, but is not limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sale price net of sale incentives), or actual or projected operating or cash flow losses.

Given the subjectivity in determining whether further impairment analysis is required for a community, management exercises significant judgment when evaluating indicators of impairment and the undiscounted cash flow analyses, as applicable.

Accordingly, auditing management’s judgments regarding the identification of impairment indicators and the key assumptions used in the undiscounted cash flow analyses involved especially subjective auditor judgment.

The Company accrues for warranty costs that are covered under its general liability and construction defect policy as part of its general liability insurance deductible.

Reserves for estimated losses for construction defects, warranty and bodily injury claims are established using the assistance of a third-party actuary.

The third-party actuary uses the Company’s historical warranty and construction defect data to assist management in estimating the unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that the Company is assuming under the general liability and construction defect programs.

We identified the estimation of the reserves for warranty costs and construction defects as a critical audit matter because of the complexity and judgment involved in the determination of the estimated liability amount. 

This liability requires the Company to make significant assumptions about trends in construction defect claims, claim settlement patterns, insurance industry practices and legal interpretations with respect to homes built by the Company. 

Auditing the reserves for estimated losses for construction defects required a high degree of auditor judgment and increased effort, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s identification of impairment indicators and undiscounted cash flows analyses included the following, among others:

We tested the effectiveness of controls over management’s evaluation of the impairment indicator analysis, including controls over key inputs into the analysis such as management’s forecast, and controls over management’s review of any undiscounted cash flows analyses for communities identified with impairment indicators, if applicable.

We evaluated management's process for identifying qualitative and quantitative impairment indicators by community and whether management appropriately considered such indicators.

We conducted a completeness assessment to determine whether additional impairment indicators were present during the period that were not identified by management.

We evaluated the reasonableness of the key assumptions and estimates used in management’s undiscounted cash flow analyses by comparing the assumptions to historical information, if applicable.

For any communities without historical information available, we compared management’s estimates to historical estimates for similar communities, taking into consideration factors such as location, size, and type of community.

We evaluated the significant assumptions used in the Company’s evaluation of impairment by comparing the assumptions to actual recent home sales and closings in that community along with external analyst and industry reports for the respective geography.

Our audit procedures related to the construction defect reserves, included the following, among others:

We tested the operating effectiveness of controls over the Company’s process for estimating the reserve for warranty and construction defects, including those over the projection of settlement value of reported and unreported claims.

We evaluated the methods and assumptions used by management to estimate the warranty and construction defects by:

- Reading the Company’s insurance policies and comparing the coverage and terms to the assumptions used by management.

- Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were accurate and complete.

- Comparing management’s prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of the self-insurance reserves.

With the assistance of our actuarial specialists, we evaluated the reasonableness of the actuarial methodology applied in estimating the warranty and construction defect reserves and developed independent estimates of the warranty and construction defect reserve, including loss data and industry claim development factors, and compared those to the reserve estimate recorded by management.

/s/ DELOITTE & TOUCHE LLP

5 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

Homebuilding:

4 unchanged sentences

13,382  

16,089  

Sold and unsold homes and lots under development

153 unchanged sentences

77,716  

Other expenses, net

Total expenses

Other (income) expenses, net (1)

( 17,148 )  

Total expenses

2,517,587  

2,624,716  

(Loss) gain on extinguishment of debt, net

2,598,097  

Loss on extinguishment of debt, net

( 25,638 )  

11 unchanged sentences

60,064  

( 335,608 )  

Total income taxes

6 unchanged sentences

10,675  

Net income available to common stockholders

14 unchanged sentences

Weighted-average number of common shares outstanding

(1) Includes gain on consolidation of a joint venture of $19.1 million for the year ended October 31, 2023 (see Note 20).

See notes to consolidated financial statements .

16 unchanged sentences

Stock options, amortization and issuances

42,204  

( 41 )  

Restricted stock amortization, issuances and forfeitures

33,564  

31,708  

Conversion of Class B to Class A common stock

3 unchanged sentences

607,817  

Balance, October 31, 2021

5 unchanged sentences

$ ( 115,360 )  

$ ( 436,094 )

Stock options, amortization and issuances

$ 175,384  

Stock options, amortization and issuances

Preferred dividend declared ($ 476.56 per share)

( 10,675 )  

6 unchanged sentences

( 472 )  

Share repurchases

( 312,471 )  

( 12,222 )  

225,490  

Balance, October 31, 2022

15 unchanged sentences

Changes in noncontrolling interest in consolidated joint ventures

( 472 )  

Share repurchases

15 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:

$ 205,891  

$ 225,490  

$ 607,817  

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation

14,227  

10,276  

Amortization of debt discounts, premiums and deferred financing costs

(Gain) loss on sale of property and assets

( 1,106 )  

( 34 )  

Gain on consolidation of joint venture

( 19,102 )  

Income from unconsolidated joint ventures

Distributions of earnings from unconsolidated joint venture

Loss (gain) on extinguishment of debt

( 43,160 )  

( 29,033 )  

Distributions of earnings from unconsolidated joint ventures

18,650  

Loss on extinguishment of debt

25,638  

Noncontrolling interest in consolidated joint ventures

Inventory impairments and land option write-offs

(Increase) decrease in assets:

14,076  

Decrease (increase) in assets:

278,672  

( 279,000 )  

Receivables, deposits and notes

11,296  

( 2,632 )  

Origination of mortgage loans

( 1,216,923 )  

( 1,205,604 )  

( 1,490,099 )

Sale of mortgage loans

1,197,988  

1,245,408  

1,443,355  

Deferred tax assets

Increase (decrease) in liabilities:

41,960  

80,885  

(Decrease) increase in liabilities:

Accounts payable, accrued interest and other liabilities

( 59,554 )  

71,370  

Customers’

( 29,913 )  

20,009  

State income tax payable

( 1,306 )  

( 684 )  

Net cash provided by operating activities

435,275  

89,466  

210,213  

Cash flows from investing activities:

1 unchanged sentence

Purchase of property, equipment, and other fixed assets

( 18,821 )  

( 12,592 )  

Investment in and advances to unconsolidated joint ventures, net of reimbursements

( 77,822 )  

Distributions of capital from unconsolidated joint ventures

16,447  

10,342  

31,456  

Net cash (used in) provided by investing activities

( 2,152 )  

Cash flows from financing activities:

Proceeds from mortgages and notes

324,849  

438,883  

252,930  

Payments related to mortgages and notes

( 382,933 )  

( 418,383 )  

Proceeds from model sale leaseback financing programs

12,412  

35,030  

Payments related to model sale leaseback financing programs

( 21,875 )  

( 14,857 )  

Proceeds from land bank financing programs

53,115  

189,952  

35,282  

Payments related to land bank financing programs

( 123,109 )  

( 68,746 )  

Proceeds from partner distributions to consolidated joint venture

Payments for partner distributions to consolidated joint venture

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

Net borrowings from senior secured credit facility

Payments related to senior secured credit facility

( 782 )  

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

16,432  

( 40,618 )  

47,744  

Net borrowings from senior secured notes

640,925  

Payments related to senior secured notes

( 752,182 )  

( 103,875 )  

Preferred dividends paid

Repurchases of common stock

Deferred financing costs from land banking financing programs and note issuances

( 10,675 )  

Treasury stock purchases

( 4,800 )  

( 12,222 )  

Deferred financing costs from note issuances and land banking financing programs

( 13,870 )  

( 10,267 )  

Net cash used in financing activities

( 261,711 )  

( 16,520 )  

Net increase in cash and cash equivalents, and restricted cash and cash equivalents

95,329  

70,794  

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

382,190  

311,396  

309,460  

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

$ 477,519  

$ 382,190  

$ 311,396  

Supplemental disclosures of cash flows:

1 unchanged sentence

Interest, net of capitalized interest (see Note 3 to the Consolidated Financial Statements)

$ 62,576  

$ 44,872  

$ 87,227  

$ 9,407  

$ 14,062  

$ 7,669  

Reconciliation of Cash, cash equivalents and restricted cash

1 unchanged sentence

Cash and cash equivalents

$ 434,119  

$ 326,198  

$ 245,970  

Homebuilding:

Restricted cash and cash equivalents

13,382  

16,089  

Financial Services:

2 unchanged sentences

Restricted cash and cash equivalents, included in financial services assets

30,450  

36,142  

43,518  

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

$ 477,519  

$ 382,190  

$ 311,396  

See notes to consolidated financial statements.

Supplemental disclosure of noncash investing and financing activities:

In the second quarter of fiscal 2023, we consolidated the remaining assets of one of our unconsolidated joint ventures, resulting in a $ 10.8 million reduction in our investment in the joint venture, and increases of $ 14.9 million and $ 5.3 million to inventory and accounts payable, respectively.

In the third quarter of fiscal 2023, we consolidated the remaining assets of one of our unconsolidated joint ventures, resulting in a $ 53.4 million reduction in our investment in the joint venture, and increases of $ 95.3 million to inventory, $ 3.8 million to other assets, $ 14.5 million to accounts payable, $ 7.3 million to customer deposits and $ 4.8 million to nonrecourse mortgages and notes.

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 Accounting Standards Codification ("ASC") 842, "Leases" ("ASC 842" ), in the first quarter of fiscal 2020, we recorded a beginning operating right-of-use lease asset ("ROU asset") of $ 23.3 million and an operating 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.

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 ).

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 ).

HOVNANIAN ENTERPRISES, INC.

3 unchanged sentences

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.

HEI’s fiscal year ends on October 31.

Noncontrolling interest represents the proportionate equity interest in a consolidated joint venture that is not 100% owned by HEI, directly or indirectly.

One of HEI's subsidiaries owned a 99 % controlling interest in a consolidated joint venture and therefore HEI was required to consolidate the joint venture within its Consolidated Financial Statements.

The 1 % that we did not own was accounted for as a noncontrolling interest.

On October 31, 2022, HEI purchased the 1 % interest from the equity partner, resulting in 100 % ownership as of October 31, 2022.

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 HEI does not own is accounted for as a noncontrolling interest. 

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

4 unchanged sentences

Our operations consist of homebuilding, financial services and corporate.

Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment.

During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof.

In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina and Tampa markets and is currently in the process of exiting the Chicago market.

Applying the principles set forth under ASC 280 "Segment Reporting", including that our business trends are reflective of economic conditions in markets with general geographic proximity, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now had three reportable homebuilding segments comprised of ( 1 ) Northeast, ( 2 ) Southeast and ( 3 ) West.

All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.

Homebuilding operations comprise the substantial part of our business, representing approximately 98 % of consolidated revenues for the year ended October 31, 2022 and 97 % for each of the years ended October 31, 2021 and 2020.

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 and West Virginia, including in 121 consolidated active selling communities at October 31, 2022 . 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 homebuilding operations are made up of three reportable segments defined as Northeast, Southeast and West.

Homebuilding operations comprise the substantial part of our business, representing approximately 98 % of consolidated revenues for both the years ended October 31, 2023  and 2022, and 

97 % for the year ended October 31, 2021.

HEI is a Delaware corporation, which through its subsidiaries, was building and selling homes in Arizona, California, Delaware, Florida, Georgia, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia, across 113  consolidated active selling communities at October 31, 2023 . 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’

10 unchanged sentences

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.

From time to time, as market conditions warrant, we offer 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.

8 unchanged sentences

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, 2022 and 2021 , $ 13.4  million and $ 15.7 million, respectively, of the total cash and cash equivalents was in cash equivalents and restricted cash equivalents.

At October 31, 2023 and 2022 , $ 11.4  million and $ 13.4  million, respectively, of the total cash and cash equivalents was in cash equivalents and restricted cash equivalents.

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.

8 unchanged sentences

and ( 3 ) consolidated inventory not owned, which consists 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 2022, we re-activated four previously mothballed communities. As of October 31, 2022 and 2021 , the net book value associated with our two  and six total mothballed communities were $ 1.4  million and $ 4.3 million, respectively, which was net of impairment charges recorded in prior periods of $ 20.3  million and $ 57.5 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, these sale and leaseback transactions are considered a financing rather than a sale.

Our Consolidated Balance Sheets, at October 31, 2022 and 2021 , included inventory of $ 48.5  million and $ 32.5 million, respectively, recorded to “Consolidated inventory not owned”

with a corresponding amount of $ 51.2  million and $ 31.5 million, respectively, recorded to “Liabilities from inventory not owned”

Our Consolidated Balance Sheets, at October 31, 2023 and 2022 , included inventory of $ 41.7 million and $ 48.5  million, respectively, recorded to “Consolidated inventory not owned”

with a corresponding amount of $ 42.0  million and $ 51.2  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.

We have land banking arrangements, whereby we sell our land parcels to a 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, these transactions are considered a financing rather than a sale.

Our Consolidated Balance Sheets, at October 31, 2022 and 2021 , included inventory of $ 260.1  million and $ 66.2 million, respectively, recorded to “Consolidated inventory not owned”

with a corresponding amount of $ 151.3  million (net of debt issuance costs) and $ 31.3 million, respectively, recorded to “Liabilities from inventory not owned”

Our Consolidated Balance Sheets, at October 31, 2023 and 2022 , included inventory of $ 183.1  million and $ 260.1  million, respectively, recorded to “Consolidated inventory not owned”

with a corresponding amount of $ 82.3  million (net of debt issuance costs) and $ 151.3  million, respectively, recorded to “Liabilities from inventory not owned”

for the amount of net cash received from the transactions.

40 unchanged sentences

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 the land.

Land held for sale is recorded at the lower of carrying amount or fair value less costs to sell.

There were no inventories held for sale at 

October 31, 2022 and 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 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 2022 and 2021 , our deductible under our general liability insurance was $ 25.0 million and $ 20.0 million, respectively, aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2022 and 2021  was $ 0.5 million, up to a $ 5.0 million limit in California and $ 0.25 million, up to a $ 5.0 million limit in all other states. Our aggregate retention for construction defect, warranty and bodily injury claims was $ 25.0 million for fiscal 2022 and $ 20.0 million for fiscal 2021 . We do not have a deductible on our worker's compensation insurance.

Warranty Costs and Construction Defect Reserves  - We accrue 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 2023 and previously delivered in 2022 , our deductible under our general liability insurance was $ 25.0 million in aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2023 and 2022  was $ 0.5 million, up to a $ 5.0 million limit in California and $ 0.25 million, up to a $ 5.0 million limit in all other states. Our aggregate retention for construction defect, warranty and bodily injury claims was $ 25.0 million for fiscal 2023 and 2022 . 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.

The third -party actuary uses our historical warranty and construction defect data to assist 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.

The estimates consider 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.

2 unchanged sentences

We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and control is transferred to the buyer.

Interest - Interest attributable to properties under development during the land development and home construction period is capitalized and then expensed in cost of sales as the related inventories are sold.

Interest - Interest attributable to properties under development during the land development and home construction period is capitalized and then expensed to cost of sales as the related inventories are sold.

Interest that does not qualify for capitalization is expensed as incurred in “Other interest.”

15 unchanged sentences

( 47,343 )  

Less interest contributed to unconsolidated joint venture(4)

Less interest contributed to unconsolidated joint ventures(3)

( 9,456 )  

Plus interest acquired from unconsolidated joint venture(5)

Plus interest acquired from unconsolidated joint ventures(4)

Interest capitalized at end of year(5)

2 unchanged sentences

$ 58,159  

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

Does not include interest incurred by our mortgage and finance subsidiaries.

Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $ 17.7 million, $ 28.6 million and $ 57.1 million for the years ended October 31, 2023, 2022 and 2021 , respectively.

1 unchanged sentence

This component of other interest was $ 36.4 million, $ 18.8 million and $ 20.6 million for the years ended October 31, 2023, 2022 and 2021 , respectively.

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

(In thousands)

Other interest expensed

$ 47,343  

$ 77,716  

$ 103,801  

Interest paid by our mortgage and finance subsidiaries

(Increase) decrease in accrued interest

( 4,261 )  

Cash paid for interest, net of capitalized interest

$ 44,872  

$ 87,227  

$ 89,484  

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

3 unchanged sentences

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.

Land Options - We have access to land and lots through option contracts.

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 and land option write-offs”

if we determine we will not exercise the option.

We record costs associated with options on the Consolidated Balance Sheets under “Land and land options held for future development or sale.”

In accordance with ASC 810, “Consolidation,”

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 ("VIEs") and we are the primary beneficiary or the options have terms that require us to record it as financing, then we record the land under option on the Consolidated Balance Sheets under “Consolidated inventory not owned”

we evaluate option contracts for land to determine whether they are with variable interest entities ("VIEs")  and, if so, whether we are the primary beneficiary.

A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.

VIEs are consolidated when we have a controlling financial interest.

A controlling financial interest will have both of the following characteristics:

(a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

If land and lot options are determined to be with VIEs and we are the primary beneficiary or the options have terms that require us to record it as financing, then we record the land and lots under 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.

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.

We perform on-going re-assessments of VIEs based on subsequent events, such as the modification of contracts or other changes in facts and circumstances, which could cause our consolidation conclusions to change.

Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated entities in which the Company has significant influence over the operating and financial decisions of the entity, but holds less than a controlling financial interest, are accounted for by the equity method.

Our investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method.

Under the equity method, we recognize our proportionate share of income and loss earned by the joint venture upon the delivery of lots or homes to third parties.

Our ownership interests in joint ventures vary but our voting equity interests held are generally 20 % to 50 %.

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.

5 unchanged sentences

There were no write-downs for any periods presented.

Debt 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.

2 unchanged sentences

Advertising Costs - Advertising costs are expensed as incurred, primarily to "Selling, general and administrative" homebuilding expense in the Consolidated Statements of Operations.

During the years ended October 31, 2022, 2021 and 2020 , advertising expenses totaled $ 10.6  million, $ 9.8 million and $ 12.9 million, respectively.

During the years ended October 31, 2023, 2022 and 2021 , advertising expenses totaled $ 15.4  million, $ 10.6  million and $ 9.8  million, respectively.

Deferred Income Taxes - Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and income tax purposes.

3 unchanged sentences

we evaluate our deferred tax assets quarterly to determine if valuation allowances are required.

ASC 740 requires an assessment of whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than- not”

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC 740, 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 the 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.

We assess whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than- not”

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities for more-likely-than- not exposures 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 expense in the period in which an uncertain tax position is effectively settled, 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 taxes" in the Consolidated Statement of Operations for the period in which they are determined.

In addition, we record interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Accrued interest and penalties are included within "Income taxes payable" on the Consolidated Balance Sheets. 

Prepaid Expenses - Prepaid expenses that relate to specific housing communities (model setup, architectural fees, homeowner warranty program fees, interest rate buydowns, etc.) are amortized to cost of sales as the applicable inventories are sold.

1 unchanged sentence

Allowance for Credit Losses –

We regularly review our receivable balances, which are included in "Receivables, deposits and notes" on the Consolidated Balance Sheets, for collectability.

We regularly review our receivable balances, which are included in "Receivables, deposits and notes, net" on the Consolidated Balance Sheets, for collectability.

These receivables include receivables from our insurance carriers, receivables from municipalities related to the development of utilities or other infrastructure, and other miscellaneous receivables.

Allowances are maintained for potential credit losses based on historical experience, present economic conditions and other factors considered relevant by the Company.

The allowance for credit losses were $ 12.7  million and $ 10.5 million at October 31, 2022 and 2021 , respectively, which primarily related to allowances for receivables from municipalities and an allowance for a receivable for a prior year land sale.

During fiscal 2022 and 2021 , we recorded $ 0.3  million and $ 1.5 million, respectively, in recoveries.

During fiscal 2022, we recorded $ 2.5 million of additional reserves.

There were no additional reserves recorded in fiscal 2021.

 There were no write-offs in fiscal 2022  and 2021.

Allowances are maintained for potential credit losses based on historical experience, present economic conditions and other factors considered relevant.

The allowance for credit losses were $ 12.8  million and $ 12.7  million at October 31, 2023 and 2022 , respectively, which primarily related to allowances for receivables from municipalities and an allowance for a receivable for a prior year land sale.

During fiscal 2023 and 2022, we recorded $ 0.4 million and $ 2.5 million of additional reserves. During fiscal 2023 and 2022 , we recorded $ 0.2  million and $ 0.3  million, respectively, in recoveries.

During fiscal 2023 we recorded $ 0.1 million in write-offs and there were no write-offs in fiscal 2022.

Property and Equipment - Property and equipment are recorded at cost.

Maintenance and repair costs are expensed as incurred.

Depreciation is computed by the straight-line method based upon estimated useful lives, generally as follows:

Building and building improvements - 39 years or life of the lease;

Furniture - 5 - 7 years;

Equipment - 5 - 7 years;

Capitalized Software - 3 - 5 years.

Stock-Based Compensation - We account for our stock-based awards under ASC 718, “Compensation - Stock Compensation”

8 unchanged sentences

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.

Recent Accounting Pronouncements - In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020 - 04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020 - 04”

Recent Accounting Pronouncements - In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020 - 04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020 - 04”

ASU 2020 - 04 provides companies with optional expedients to ease the potential accounting burden on contracts affected by the discontinuation of the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued.

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 is currently evaluating the potential impact, but we do not expect the adoption of this guidance to have material impact on our Consolidated Financial Statements.

This guidance was effective for the Company beginning on March 12, 2020, and we may elect to apply the amendments prospectively.

In December 2022, the FASB issued ASU 2022 - 06, “Reference Rate Reform (Topic 848 ):

Deferral of the Sunset Date of Topic 848”, to extend the temporary accounting rules under ASC 848 from December 31, 2022 to December 31, 2024.

We are applying this guidance as we enter into transactions that are within the scope of the optional expedients allowed, and the application has not had a material impact on our Consolidated Financial Statements.

In August 2023, the FASB issued ASU 2023 - 05,  “Business Combinations - Joint Venture Formations” (“ASU 

2023 - 05”

), which addresses the accounting for contributions made to a joint venture.

2023 - 05  requires joint ventures to measure all assets and liabilities upon formation at fair value.

This guidance will be applied prospectively to all joint venture formations with a formation date on or after January 1, 2025.

We are currently evaluating the potential impact, but we do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In November 2023, the FASB issued ASU 2023 - 07,  “Improvements to Reportable Segment Disclosures” (“ASU 

2023 - 07”

ASU 2023 - 07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within the segment measure of profit or loss.

This guidance will be applied retrospectively and is effective for annual reporting periods in fiscal years beginning after December 15, 2023, and interim reporting periods in fiscal years beginning after December 31, 2024.

We are currently evaluating the potential impact, but we do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

We rent certain office space for use in our operations.

10 unchanged sentences

As allowed by ASC 842, we made an accounting policy election to not record leases with an initial term of 12 months or less on our Consolidated Balance Sheets. 

Lease costs are included in our Consolidated Statements of Operations, primarily in "Selling, general and administrative" homebuilding 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,

8 unchanged sentences

$ 9,598  

ROU assets are classified within "Prepaid expenses and other assets" on our Consolidated Balance Sheets, while lease liabilities are classified within "Accounts payable and other liabilities." The Company recorded a net increase to both its ROU assets and lease liabilities of $ 9.9  million as a result of new leases and lease renewals that commenced during the year ended October 31, 2022 .

ROU assets are classified within "Prepaid expenses and other assets" on our Consolidated Balance Sheets, while lease liabilities are classified within "Accounts payable and other liabilities." We recorded a net increase to both ROU assets and lease liabilities of $ 19.8  million as a result of new leases and lease renewals that commenced during the year ended October 31, 2023 .

The following table contains additional information about our leases:

7 unchanged sentences

Weighted-average discount rate

10.0 %  

Maturities of our operating lease liabilities as of October 31, 2023 are as follows:

Fiscal Year Ended October 31,

Fiscal Year Ending October 31,

(In thousands)

$ 8,491  

2027 and thereafter

Total operating lease payments (1)

3 unchanged sentences

$ 26,470  

( 1 ) Lease payments exclude $ 13.7 million of legally binding minimum lease payments for office leases signed but not yet commenced as of October 31, 2022.

The related ROU asset and operating lease liability are not reflected on the Company's balance sheet as of October 31, 2022.

( 1 ) Lease payments exclude $ 3.2  million of legally binding minimum lease payments for office leases signed but not yet commenced as of October 31, 2023.

The related ROU asset and operating lease liability are not reflected on the Company's Consolidated Balance Sheet as of October 31, 2023.

Property and Equipment

8 unchanged sentences

22,220  

Equipment, including capitalized software

10,124  

10,739  

Capitalized software

29,263  

Property and equipment

2 unchanged sentences

accumulated depreciation

( 51,902 )  

Property and equipment, net

5 unchanged sentences

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

deposits of $ 29.7  million and $ 40.7 million as of October 31, 2022 and 2021, respectively, which are subject to restrictions on our use, and ( 2 ) restricted cash under the terms of our mortgage warehouse lines of credit of $ 6.4  million and $ 2.8 million as of October 31, 2022  and 2021, respectively.

deposits of $ 28.1  million and $ 29.7  million as of October 31, 2023 and 2022, respectively, which are subject to restrictions on our use, and ( 2 ) restricted cash under the terms of our mortgage warehouse lines of credit of $ 2.4  million and $ 6.4  million as of October 31, 2023  and 2022, respectively.

Homebuilding "Customers’

16 unchanged sentences

liabilities on the Consolidated Balance Sheets.

At both 

October 31, 2022 and 2021 , we had reserves specifically for 14  identified mortgage loans, as well as reserves for an estimate of future losses on mortgages sold but not yet identified to us. 

October 31, 2023 and 2022 , we had reserves specifically for 10 and 14  identified mortgage loans, respectively, as well as reserves for an estimate of future losses on mortgages sold but not yet identified to us. 

The activity in our loan origination reserves in fiscal 2023 and 2022 was as follows:

5 unchanged sentences

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

( 18 )  

Loan origination reserves, end of period

1 unchanged sentence

$ 1,795  

We have nonrecourse mortgage loans for certain communities totaling $ 144.8  million and $ 125.1  million, net of debt issuance costs, at October 31, 2022 and 2021 , respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $ 418.9  million and $ 448.5  million, respectively.

We have nonrecourse mortgage loans for certain communities totaling $ 91.5  million and $ 144.8  million, net of debt issuance costs, at October 31, 2023 and 2022 , respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $ 331.6 million and $ 418.9  million, respectively.

The weighted-average interest rate on these obligations was 8.5 % and 6.7 % at October 31, 2023 and 2022 , respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

5 unchanged sentences

(“Chase Master Repurchase Agreement”) is a short-term borrowing facility that provides up to $ 75.0 million through its maturity on July 31, 2024.

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 Secured Overnight Financing Rate ("SOFR"), which was 3.81 % at October 31, 2022 , plus the applicable margin of 2.25 % to 2.375 %.

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 Secured Overnight Financing Rate ("SOFR rate"), plus the applicable margin of 2.125 % to 2.375 %.

As of October 31, 2023 and 2022 , the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was $ 31.4  million and $ 14.1  million, respectively.

3 unchanged sentences

As of October 31, 2023 and 2022 , the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was $ 41.1  million and $ 43.1  million, respectively.

Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”) which was amended on August 8, 2022 to extend the maturity date and is a short-term borrowing facility through its maturity on July 7, 2023.

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 January 10, 2024.

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.

4 unchanged sentences

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, 2022 , we believe we were in compliance with the covenants under the Master Repurchase Agreements.

Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis, 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, 2023 , we believe we were in compliance with the covenants under the Master Repurchase Agreements.

  Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of October 31, 2022 and October 31, 2021 , were as follows:

Senior secured notes, senior notes and credit facilities balances as of October 31, 2023 and October 31, 2022 , were as follows:

(In thousands)

5 unchanged sentences

250,000  

350,000  

10.5 % Senior Secured 1.25 Lien Notes due February 15, 2026

282,322  

11.25 % Senior Secured 1.5 Lien Notes due February 15, 2026

162,269  

8.0 % Senior Secured 1.125 Lien Notes due September 30, 2028

225,000  

11.75 % Senior Secured 1.25 Lien Notes due September 30, 2029

430,000  

Total Senior Secured Notes

30 unchanged sentences

$ 1,146,547  

( 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.

( 1 ) On November 15, 2023, K.

Hovnanian redeemed all of its $ 113.5 million aggregate principal amount of 10.0 % Senior Secured 1.75 Lien Notes due November 15, 2025.

( 2 ) At October 31, 2022, $ 26.0 million of 8.0 % Senior Notes due 2027 (the “

8.0% 2027 Notes ”

) were owned by a wholly owned consolidated subsidiary of HEI.

Therefore, in accordance with U.S.

GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI.

( 2 ) At October 31, 2022 , provides for up to $ 125.0 million in aggregate senior secured first lien revolving loans.

In the fourth quarter of fiscal 2022, we amended our Secured Credit Facility, which amendments became effective in the first quarter of fiscal 2023.

As amended, the revolving loans thereunder have a maturity of June 30, 2024 and borrowings bear interest, at K.

GAAP, such notes were not reflected on the Consolidated Balance Sheets of HEI.

On October 31, 2023, K.

Hovnanian redeemed all of the $ 26.0 million aggregate principal amount of its 8.0 % 2027 Notes .

( 3 ) At October 31, 2023 , provides for up to $ 125.0 million in aggregate amount of senior secured first lien revolving loans.

The revolving loans thereunder have a maturity of June 30, 2026 and borrowings bear interest, at K.

Hovnanian ’

s option, at either (i) a term secured overnight financing rate (subject to a floor of 1.00 %) plus an applicable margin of 4.50 % or (ii) an alternate base rate plus an applicable margin of 3.50 %.

s option, at either (i) a term secured overnight financing rate (subject to a floor of 3.00 %) plus an applicable margin of 4.50 % or (ii) an alternate base rate (subject to a floor of 4.00 %) plus an applicable margin of 3.50 %.

In addition, K.

1 unchanged sentence

As of October 31, 2023 , future maturities of our borrowings were as follows (in thousands):

Fiscal Year Ended October 31, (1)

Fiscal Year Ending October 31, (1)

204,092  

2 unchanged sentences

520,120  

$ 1,070,261  

( 1 ) Does not include our $ 125.0 million Senior Secured Revolving Credit Facility under which there were no borrowings outstanding as of October 31, 2023 .

( 2 ) On November 15, 2023, K.

Hovnanian redeemed all of its $ 113.5 million aggregate principal amount of 10.0 % Senior Secured 1.75 Lien Notes due November 15, 2025 .

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, 2022 ( 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, 2022 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, 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 at October 31, 2023 ( collectively, the “Notes Guarantors”).

The credit agreements governing the term loans and revolving credit facilities (collectively, the “Credit Facilities”) and the indentures governing the senior secured and senior notes (together, the “Debt Instruments”) outstanding at October 31, 2023 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, 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.

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 (the “Unsecured Term Loans”) made under the Senior Unsecured Term Loan Credit Facility due February 1, 2027 ( the “Unsecured Term Loan Facility”), loans (the “Secured Term Loans”) made under the Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028 ( the “Secured Term Loan Facility”) and loans (the “Secured Revolving Loans”) made under the Senior Secured Revolving Credit Agreement due June 30, 2026 ( the “Secured Credit Agreement”) 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, 2023, 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 each 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 an d nonrecourse indebtedness.

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 the case of each such payment, our secured debt leverage ratio must also be less than 4.0 to 1.0 ), and from incurring indebtedness other than certain permitted indebtedness and nonrecourse indebtedness.

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

As such, we made dividend payments of $ 2.7 million to preferred shareholders in each quarter of fiscal 2022.

As such, we made dividend payments of $ 2.7 million to preferred shareholders in every quarter since the first quarter of fiscal 2022.

Dividends on the Series A preferred stock are not cumulative and, accordingly, if for any reason we do not declare a dividend on the Series A preferred stock for a quarterly dividend period (regardless of our availability of funds), holders of the Series A Preferred Stock will have no right to receive a dividend for that period, and we will have no obligation to pay a dividend for that period.

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 lev erage, 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.

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

On May 30, 2023, K.

Hovnanian redeemed $ 100.0 million aggregate principal amount of its 7.75 % Senior Secured 1.125 Lien Notes due 2026 (the “Existing 1.125 Lien Notes”).

The aggregate purchase price for this redemption was $ 104.2 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 $ 4.1 million for the fiscal year ended October 31, 2023, including the write-off of unamortized debt issuance costs and fees.

The loss from the redemption is included in the Consolidated Statement of Operations as “Loss on extinguishment of debt, net.”

 On August 29, 2023, K.

Hovnanian redeemed an additional $ 100.0 million aggregate principal amount of the Existing 1.125 Lien Notes.

The aggregate purchase price for this redemption was $ 102.2 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 $ 3.8 million for the fiscal year ended October 31, 2023, including the write-off of unamortized debt issuance costs and fees.

The loss from the redemption is included in the Consolidated Statement of Operations as “Loss on extinguishment of debt, net”.

On September 7, 2023, K.

Hovnanian repurchased in the open market $ 45.0 million aggregate principal amount of its 10.0 % 1.75 Lien Notes due 2025 (the “1.75 Lien Notes”).

The aggregate purchase price for this repurchase  was $ 46.7 million, which included accrued and unpaid interest and which was funded with cash on hand.

This repurchase resulted in a gain on extinguishment of debt of $ 0.2 million for the fiscal year ended October 31, 2023, including the write-off of unamortized debt issuance costs and fees.

The gain from the repurchase is included in the Consolidated Statement of Operations as “Loss on extinguishment of debt, net”.

On September 25, 2023, HEI, K.

Hovnanian and the Notes Guarantors entered into the Third Amendment (the “Third Amendment”) to the Secured Credit Agreement, dated as of October 31, 2019 ( as amended by the First Amendment to the Credit Agreement, dated as of November 27, 2019, and by the Second Amendment to the Credit Agreement, dated as of August 19, 2022), by and among K.

Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto, which provides for up to $ 125.0 million in aggregate amount of senior secured first lien revolving loans. The Third Amendment (i) extended the final scheduled maturity of the Revolving Credit Facility from June 30, 2024 to June 30, 2026, ( ii) increased the interest rate floor applicable to term secured overnight financing loans from 1.0 % to 3.0 % and (iii) provided for certain other amendments.

Borrowings under the Revolving Credit Facility bear interest, at K.

Hovnanian’s option, at either (a) a term secured overnight financing rate (subject to a floor of 3.0 %) plus an applicable margin of 4.5 % or (b) an alternate base rate (subject to a floor of 4.0 %) plus an applicable margin of 3.5 %.

In addition, K.

Hovnanian pays an unused commitment fee on the undrawn revolving commitments at a rate of 1.0 % per annum.

The foregoing amendments took effect on October 5, 2023.

On October 5, 2023, K.

Hovnanian issued and sold to investment funds, separate accounts and/or other entities owned (in whole or in part), controlled, managed and/or advised by Angelo, Gordon & Co., L.P.

(collectively, "Angelo Gordon"), investment funds, separate accounts and/or other entities owned (in whole or in part), controlled, managed and/or advised by Apollo Capital Management, L.P.

(collectively, "Apollo" and, together with Angelo Gordon, the "Specified Persons"), and certain other institutional purchasers , in a private placement, $ 225.0 million aggregate principal amount of 8.0 % Senior Secured 1.125 Lien Notes due 2028 (the “New 1.125 Lien Notes”) and $ 430.0 million aggregate principal amount of 11.75 % Senior Secured 1.25 Lien Notes due 2029 (the “New 1.25 Lien Notes”).

Under the terms of the indentures governing the New 1.125 Lien Notes and the 1.25 Lien Notes, K.

Hovnanian will have the ability to issue additional notes under the indenture that governs the New 1.25 Lien Notes (the “Additional 1.25 Lien Notes”) in exchange for Specified Junior Debt (as defined below) or to purchase certain Specified Junior Debt.

Hovnanian has agreed that the Specified Persons may, at their option from time to time, exchange junior lien and/or unsecured indebtedness of K.

Hovnanian (the “Specified Junior Debt”) into a principal amount of Additional 1.25 Lien Notes not to exceed $ 150.0 million in the aggregate.

In any such exchange, K.

Hovnanian will be required to issue a principal amount of Additional 1.25 Lien Notes equal to (i) the price at which the Specified Persons acquired such Specified Junior Debt (the “Specified Person Purchase Price”) plus (ii) 20 % of the difference between the principal amount of such Specified Junior Debt and the Specified Person Purchase Price (such sum, the “Company Acquisition Price”), provided that, the Company Acquisition Price shall be reduced, if applicable, such that the per annum interest expense on the applicable issuance of Additional 1.25 Lien Notes does not exceed the per annum interest expense on the applicable Specified Junior Debt being exchanged.

In addition, K.

Hovnanian will have the option to purchase such Specified Junior Debt in cash at the Company Acquisition Price in lieu of consummating any such exchange.

On October 5, 2023, K.

Hovnanian redeemed with the proceeds from the issuances of the New 1.125 Lien Notes and the New 1.25 Lien Notes all of the remaining (i) $ 50.0 million aggregate principal amount of its Existing 1.125 Lien Notes for a redemption price of $ 51.5 million, which included accrued and unpaid interest, 

(ii) $ 282.3 million aggregate principal amount of its 10.5 % Senior Secured 1.25 Lien Notes due 2026 (the “Existing 1.25 Lien Notes”) for a redemption price of $ 293.9 million, which included accrued and unpaid interest, and (iii) $ 162.3 million aggregate principal amount of its 11.25 % Senior Secured 1.5 Lien Notes due 2026 (the “1.5 Lien Notes”) for a redemption price of $ 164.8 million, which included accrued and unpaid interest.

These redemptions resulted in a loss on extinguishment of debt of $ 17.9 million for the fiscal year ended October 31, 2023, including the write-off of unamortized debt issuance costs and fees.

The loss from the redemptions is included in the Consolidated Statement of Operations as “Loss on extinguishment of debt, net”.

On October 31, 2023, K.

Hovnanian redeemed in full all of the $ 26.0 million aggregate principal amount of its 8.0 % 2027 Notes for a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest.

On April 29, 2022, K.

Hovnanian redeemed $ 100.0 million aggregate principal amount of its 7.75 % Senior Secured 1.125 Lien Notes due 2026 (the "1.125 Lien Notes").

Hovnanian redeemed $ 100.0 million aggregate principal amount of its Existing 1.125 Lien Notes.

The aggregate purchase price for this redemption was $ 105.5 million, which included accrued and unpaid interest and which was funded with cash on hand.

This redemption resulted in a loss on exting uishment of debt of $ 6.8 million for the year ended October 31, 2022, net of the write-off of unamortized financing costs and fees.

The loss from the redemption is included in the Consolida ted Statement of Operations as "(Loss) gain on extinguishment of debt, net".

On August 19, 2022, the Company, K.

Hovnanian, and other subsidiaries of the Company as guarantors entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement, dated as of October 31, 2019, as amended by the First Amendment, dated as of November 27, 2019, by and among K.

The Second Amendment became effective in the first quarter of fiscal 2023 and (i) extends the final scheduled maturity of the Revolving Credit Facility from December 28, 2022 to June 30, 2024, ( ii) replaces the 7.75 % fixed interest rate with a floating interest rate based on the SOFR and (iii) provides for certain technical and clarifying amendments.

Borrowings under the Revolving Credit Facility will bear interest, at K.

Hovnanian’s option, at either (i) a term SOFR rate (subject to a floor of 1.00 %) plus an applicable margin of 4.50 % or (ii) an alternate base rate plus an applicable margin of 3.50 %.

This redemption resulted in a loss on extinguishment of debt of $ 6.8 million for the fiscal year ended October 31, 2022, including the write-off of unamortized debt issuance costs and fees.

The loss from the redemption is included in the Consolidated Statement of Operations as “Loss on extinguishment of debt, net”.

Secured Obligations

The Secured Credit Agreement provides 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.

The revolving loans under the Secured Credit Agreement have a maturity of June 30, 2026 and borrowings bear interest, at K.

Hovnanian’s option, at either (i) SOFR rate (subject to a floor of 3.00 %) plus an applicable margin of 4.5 % or (ii) an alternate base rate (subject to a floor of 4.0 %) plus an applicable margin of 3.5 %.

In addition, K.

Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00 % per annum.

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 that 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) gain on extinguishment of debt, net".

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 that 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) gain on extinguishment of debt, net".

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 certain of its then outstanding second lien notes.

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

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 “(Loss) gain on extinguishment of debt, net”

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.

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.

At any time and from time to time after November 15, 2022 and prior to November 15, 2023, K.

Hovnanian pays an unused commitment fee on the undrawn revolving commitments at a rate of 1.0 % per annum

The New 1.125 Lien Notes have a maturity of September 30, 2028 and bear interest at a rate of 8.0 % per annum payable semi-annually on March 30 and September 30 of each year to holders of record at the close of business on March 15 and September 15, as the case may be, immediately preceding such interest payment dates.

The New 1.125 Lien Notes are redeemable in whole or in part at K.

Hovnanian’s option at any time prior to September 30, 2025 at a redemption price equal to 100 % of their principal amount plus an applicable “Make Whole Amount”.

Hovnanian may also redeem some or all of the New 1.125 Lien Notes at 104.0 % of their principal amount commencing on September 30, 2025, at 102.0 % of their principal amount commencing on September 30, 2026 and at 100.0 % of their principal amount commencing September 30, 2027.

In addition, K.

Hovnanian may also redeem up to 35.0 % of the aggregate principal amount of New 1.125 Lien Notes prior to September 30, 2025 with the net cash proceeds from certain equity offerings at 108.0 % of their principal amount.

The New 1.25 Lien Notes have a maturity of September 30, 2029 and bear interest at a rate of 11.75 % per annum payable semi-annually on March 30 and September 30 of each year to holders of record at the close of business on March 15 and September 15, as the case may be, immediately preceding such interest payment dates.

The New 1.25 Lien Notes are redeemable in whole or in part at K.

Hovnanian’s option at any time prior to March 30, 2026 at a redemption price equal to 100 % of their principal amount plus an applicable “Make Whole Amount”.

Hovnanian may also redeem some or all of the New 1.25 Lien Notes at 105.875 % of their principal amount commencing on March 30, 2026, at 102.9375 % of their principal amount commencing on September 30, 2027 and at 100.0 % of their principal amount commencing on September 30, 2028.

In addition, K.

Hovnanian may also redeem up to 35.0 % of the aggregate principal amount of New 1.25 Lien Notes prior to March 30, 2026 with the net cash proceeds from certain equity offerings at 111.75 % of their principal amount.

The 1.75 Lien Notes have a maturity of November 15, 2025 and bear interest at a rate of 10.0 % per annum 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.

At any time and from time to time 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.

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.

At any time and from time to time after November 15, 2022 and prior to November 15, 2023, K.

On November 15, 2023, K.

Hovnanian redeemed in full all of its $ 113.5 million aggregate principal amount of 10.0 % Senior Secured 1.75 Lien Notes due November 15, 2025.

On December 10, 2019, K.

Hovnanian entered into the Secured Term Loan Facility.

The secured term loans under the Secured Term Loan Facility (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.

At any time and from time to time prior to November 15, 2023, K.

Hovnanian may voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 102.5 % 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 second lien notes held by certain participating bondholders (the “Exchange Holders”) pursuant to an Exchange Agreement, dated March 25, 2020 ( the “Exchange Agreement”), among 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 amended 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).

For a discussion of the 1.5 Lien Notes see “Secured Obligations”

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 "(Loss) gain on extinguishment of debt, net".

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.

In the fourth quarter of fiscal 2022, we amended our Secured Credit Facility, which amendments became effective in the first quarter of fiscal 2023.

As amended, the revolving loans thereunder have a maturity of June 30, 2024 and borrowings bear interest, at K.

Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 1.00 %) plus an applicable margin of 4.50 % or (ii) an alternate base rate plus an applicable margin of 3.50 %.

In addition, K.

Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00 % per annum.

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.

Hovnanian may 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.

Hovnanian may 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 Loan.

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.

1 unchanged sentence

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 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, 2022, the collateral securing the Secured Credit Agreement, the Secured Term Loan Facility and the secured notes included ( 1 ) $ 333.2 million of cash and cash equivalents, which included $ 6.1 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);

The liens securing the New 1.125 Lien Notes are senior to the liens securing the New 1.25 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 New 1.125 Lien Notes, the liens securing the New 1.25 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 New 1.25 Lien Notes and 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, 2023, the collateral securing the Secured Credit Agreement, the Secured Term Loan Facility and the senior secured notes included ( 1 ) $ 441.2 million of cash and cash equivalents, which included $ 5.1 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 ) $ 470.0 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;

13 unchanged sentences

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

We have certain stand-alone cash collateralized letter of credit agreements and facilities under which there was a total of $ 6.0 million and $ 9.3 million letters of credit outstanding at October 31, 2022 and October 31, 2021, respectively.

We have certain stand-alone cash collateralized letter of credit agreements and facilities under which there was a total of $ 4.9 million and $ 6.0 million letters of credit outstanding at October 31, 2023 

and October 31, 2022, 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, 2022 and October 31, 2021, the amount of cash collateral in these segregated accounts was $ 6.1 million and $ 9.9 million, respectively, which is included in “Restricted cash and cash equivalents”

on the Consolidated Balance Sheets.  

At October 31, 2023 

and October 31, 2022, the amount of cash collateral in these segregated accounts was $ 5.1 million and $ 6.1 million, respectively, which is reflected in “Restricted cash and cash equivalents”

on the Consolidated Balance Sheets.

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 resource allocations.

We currently have homebuilding operations in 14  states that are aggregated into reportable segments based primarily upon geographic proximity.

Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment.

During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof.

Applying the principles set forth under ASC 280, including that our business trends are reflective of economic conditions in markets with general geographic proximity, we realigned our homebuilding operating segments.

HEI’s reportable segments now consist of the following three homebuilding segments and a financial services segment.

We currently have homebuilding operations in 13 states that are aggregated into reportable segments based primarily upon geographic proximity.

HEI’s reportable segments consist of the following three homebuilding segments and a financial services segment.

Homebuilding:

Northeast (Delaware, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia)

Northeast (Delaware, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia)

Southeast (Florida, Georgia and South Carolina)

West (Arizona, California and Texas)

All prior period amounts related to the segment change have been retrospectively reclassified throughout to conform to the new presentation.

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’

24 unchanged sentences

Corporate and unallocated

10,789  

Total revenues

11 unchanged sentences

207,519  

198,343  

Total homebuilding

13 unchanged sentences

$ 189,861  

( 1 ) Corporate and unallocated for the year ended October 31, 2022 included corporate general and administrative expenses of $ 102.6 million, interest expense of $ 28.6 million (a component of Other interest in our Consolidated Statements of Operations), loss on extinguishment of debt of $ 6.8 million and $ 6.5  million of other expenses.

Corporate and unallocated for the year ended October 31, 2021 included corporate general and administrative expenses of $ 106.7  million, interest expense of $ 57.1  million, loss on extinguishment of debt of $ 3.7 million and $ 0.8  million of other income.

Corporate and unallocated for the year ended October 31, 2020 included corporate general and administrative expenses of $ 80.5  million, interest expense of $ 61.9  million, gain on extinguishment of debt of $ 13.3  million and $ 3.3  million of other income.

( 1 ) Corporate and unallocated for the year ended October 31, 2023 included corporate general and administrative expenses of $ 103.2  million, interest expense of $ 17.7  million (a component of Other interest in our Consolidated Statements of Operations), loss on extinguishment of debt of $ 25.6  million and $( 12.7 ) million of other (income) expenses, net.

Corporate and unallocated for the year ended October 31, 2022 included corporate general and administrative expenses of $ 102.6  million, interest expense of $ 28.6  million, loss on extinguishment of debt of $ 6.8  million and $ 6.5  million of other (income) expenses, net.

Corporate and unallocated for the year ended October 31, 2021 included corporate general and administrative expenses of $ 106.7  million, interest expense of $ 57.1  million, loss on extinguishment of debt of $ 3.7  million and $( 0.8 ) million of other (income) expenses, net.

(In thousands)

51 unchanged sentences

( 213 )  

( 35 )  

Total interest expense, net

25 unchanged sentences

Corporate and unallocated

14,241  

Total net additions to property and equipment

9 unchanged sentences

15,696  

16,359  

Total equity in earnings from unconsolidated joint ventures

12 unchanged sentences

$ ( 341,626 )

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

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

Year Ended October 31,

13 unchanged sentences

$ 94,263  

$ 4,475  

$ ( 417,956 )

The current federal income tax expense is net of the use of federal net operating losses totaling $ 221.2 million (tax effected $ 46.4 million), $ 306.0 million (tax effected $ 64.3 million) and $ 173.8 million (tax effected $ 36.5 million) for the years ended 

October 31, 2023, 2022 and 2021 , respectively.

The current state income tax expense is net of the use of state net operating losses totaling $ 80.1 million, $ 55.7 million and $ 72.5 million for the years ended October 31, 2022, 2021 and 2020 , respectively.

The total income tax expense for the year ended October 31, 2022 was $ 94.3 million.

The expense was primarily due to federal and state tax expense recorded as a result of our income before income taxes.

The current state income tax expense is net of the use of state net operating losses totaling $ 113.3 million (tax effected $ 8.3 million), $ 80.1 million (tax effected $ 5.8 million) and $ 55.7 million (tax effected $ 3.9 million) for the years ended October 31, 2023, 2022 and 2021 , respectively.

The total income tax expense of $ 50.1 million and $ 94.3 million for the years ended October 31, 2023 and 2022, respectively, was primarily due to federal and state tax expense recorded as a result of our income before income taxes.

Income tax expense for fiscal 2023 was partially offset by the benefits of releasing state valuation allowances and qualifying for energy efficient home tax credits.

The federal tax expense is not paid in cash as it is offset by the use of our existing net operating loss (“NOL”) carryforwards.

The total income tax 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 (“DTAs”).

The total income tax expense of $ 4.5 million for the year ended October 31, 2020 was primarily related to state tax expense from income generated in states where we do not have NOL 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 U.S.

GAAP purposes, creating a permanent difference.

Our federal net operating losses of $ 909.6 million expire between 2029 and 2038, and $ 15.7 million have an indefinite carryforward period.

Of our $ 2.3 billion of state NOLs, $ 411.4 million expire between 2023 through 2027;

$ 1.4 billion expire between 2028 through 2032;

$ 369.7 million expire between 2033 through 2037;

$ 73.7 million expire between 2038 through 2042;

and $ 51.5 million have an indefinite carryforward period.

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 DTAs if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized.

Future realization of DTAs 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 DTAs except for a portion related to state DTAs.

As of October 31, 2020, we had a valuation allowance of $ 396.5 million of federal DTAs related to NOLs, as well as other matters, all of which was reversed during the year ended October 31, 2021.

We also had a valuation allowance of $ 181.0 million of DTAs related to state NOLs as of October 31, 2020, of which $ 78.1 million was reversed during the year ended October 31, 2021.

As of October 31, 2022, we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our DTAs was appropriate in accordance with ASC 740.

The total income tax benefit for the year ended October 31, 2021 was $ 418.0 million, primarily due to the reversal of a substantial portion of our valuation allowance previously recorded against our deferred tax assets (“DTAs”).

We have remaining federal NOL carryforwards of $ 688.3 million that expire between 2030 and 2038, and $ 15.7 million have an indefinite carryforward period.

Our total remaining state NOL carryforwards are $ 2.1 billion:

$ 586.1 million that expire between 2024 through 2028;

$ 1.1 billion that expire between 2029 through 2033;

$ 348.8 million that expire between 2034 through 2038;

$ 8.7 million that expire between 2039 through 2043;

and $ 52.1 million that have an indefinite carryforward period.

We recognize deferred tax assets, net of deferred tax liabilities, related to NOL carryforwards, tax credits and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income.

Our deferred tax assets, net as of October 31, 2023 were $ 302.8 million compared to $ 344.8 million at October 31, 2022.

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

We had a valuation allowance of $ 71.9 million as of October 31, 2023 compared to $ 95.7 million as of October 31, 2022 related to DTAs for tax credits and state NOL carryforwards that are expected to expire before they can be used.

We considered all available positive and negative evidence to determine whether, based on the weight of that evidence, the valuation allowance for our DTAs was appropriate.

Overall, the positive evidence, both objective and subjective, outweighed the negative evidence.

The significant positive improvement in our operations in the last three years, coupled with our contract backlog of $ 1.3 billion as of October 31, 2022 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.

Based on this analysis, we determined that the current valuation allowance for our DTAs of $ 95.7 million as of October 31, 2022 is appropriate.

As of October 31, 2022, on a tax basis, the Company had adjusted pre-tax income, which is income before income taxes excluding land-related charges and loss (gain) on extinguishment of debt, on a three -year cumulative basis.

GAAP basis, the Company had generated $ 565.0 million of cumulative income before income taxes in the three years ended October 31, 2022.

We believe these positive results will continue given the strength of our contract backlog and recent homebuilding market conditions.

(Positive Objective Evidence)

Over the last several years, we have completed a number of debt refinancing/restructuring transactions to extend our debt maturities, which will allow us to allocate cash to opportunistically grow our community count and potentially generate additional income.

(Positive Objective Evidence)

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

Additionally, in April 2022 we redeemed $ 100.0 million in principal of our 7.75 % Senior Secured 1.125 Lien Notes due 2026.

These actions reduced our annual interest incurred by approximately $23 million, which will enhance our profitability going forward.

(Positive Objective Evidence)

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

Given our improved but still highly leveraged Consolidated Balance Sheet, another sustained 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 us to avoid future losses, given our high interest expenses.

(Negative Objective Evidence) 

We exited several geographic markets over the last few years that have historically had pre-tax 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) 

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, government policies and consumer confidence, all could adversely impact the housing market.

(Negative Subjective Evidence)

The significant improvement in our profitability over the last three years, coupled with our current contract backlog, provided positive evidence to support the conclusion that sufficient taxable income will be generated in the future and a full valuation allowance is not necessary.

Deferred tax assets and liabilities have been recognized on the Consolidated Balance Sheets as follows:

15 unchanged sentences

17,700  

Joint venture loss

Federal net operating losses

State net operating losses

136,257  

150,832  

State net operating losses

Tax credit carryforwards

21,260  

14 unchanged sentences

Our 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 DTAs. Due to the effects of these factors, our effective tax rates for 2022 , 

2021 and 2020 are not correlated to the amount of our income before income taxes.

The effective tax rate is affected by a number of factors, the most significant of which has been the valuation allowance related to our DTAs.

The sources of these factors were as follows:

10 unchanged sentences

( 0.1 )  

( 2.2 )  

Adjustments to prior years’

3 unchanged sentences

29.5 %  

ASC 740 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.

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 tax liabilities.

These differences will be reflected as increases or decreases to income tax (benefit) provision in the period in which they are determined.

We recognize interest and penalties related to unrecognized tax benefits within income taxes in the Consolidated Statement of Operations. Accrued interest and penalties are included within "Income taxes payable" line on the Consolidated Balance Sheets. 

The following is a tabular reconciliation of the total amount of unrecognized tax benefits, excluding interest and penalties:

5 unchanged sentences

Unrecognized tax benefit—October 31,

Related to the unrecognized tax benefits noted above, as of October 31, 2022 and 2021, we recognized a liability for interest and penalties of $ 0.1 million and $0.3 million, respectively. For the years ended October 31, 2022, 2021 and 2020, we recognized $ 128 thousand, $ 84  thousand and $ 60 thousand, respectively, of interest and penalties in income taxes (benefits).

It is likely that, within the next 12 months, the amount of the Company's unrecognized tax benefits will decrease by $ 0.2 million, excluding interest and penalties. This reduction is expected primarily due to the expiration of certain 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 $ 0.2 million and $ 0.5 million for the years ended October 31, 2022 and 2021.

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

Related to the unrecognized tax benefits noted above, there was no liability for interest and penalties as of October 31, 2023.

As of October 31, 2022, we recognized a liability for interest and penalties of $ 0.1 million. For the years ended October 31, 2023, 2022 and 2021, we recognized $ 131 thousand, $ 128  thousand and $ 84 thousand, respectively, of interest and penalties in income taxes provision (benefit).

The consolidated federal tax returns have been audited through October 31, 2022 and these years are closed.

3 unchanged sentences

  Reduction of Inventory to Fair Value

We had 374 communities under development and held for future development or sale at both October 31, 2022 and 2021, and 354 communities under development and held for future development or sale at October 31, 2020, which we evaluated for impairment indicators.

We had an indicator of impairment on one community during the year ended October 31, 2022, with a carrying value of $ 10.6 million.

We performed an impairment analysis on the community which included increased land development costs from previous projections.

The increased land development costs, along with the recent downturn in the market, resulted in an impairment of $ 8.4 million for the year ended October 31, 2022.

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

As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for all three of those communities, resulting in impairments of $ 2.0 million.

We performed undiscounted future cash flow analyses for three communities during the year ended October 31, 2020, with an aggregate carrying value of $ 5.4 million.

As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for two of those communities, resulting in impairments 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 %.

Our discount rates used for all impairments recorded during fiscal 2021 and fiscal 2020 ranged from 

17.3 % to 19.3 %.

We had 380 communities under development and held for future development or sale at October 31, 2023 and 374 communities under development and held for future development or sale at both October 31, 2022 and 2021, which we evaluated for impairment indicators (i.e., those with a projected operating loss).

We performed an undiscounted future cash flow analysis for one community during the year ended October 31, 2023, which we had recorded an impairment for in the prior year.

As a result of such analysis, we did not identify any additional impairment for the community.

During the year ended October 31, 2022, one community, with a carrying value of $ 10.6 million, had an impairment indicator.

The impairment analysis on the community included increased land development costs from previous projections, along with a downturn in the local market, resulting in an impairment of $ 8.4 million.

During the year ended October 31, 2021, we performed undiscounted future cash flow analyses for three communities with an aggregate carrying value of $ 11.5 million.

Based on the results of our undiscounted future cash flow analyses, we performed discounted cash flow analyses on all three communities, resulting in impairments of $ 2.0 million.

Our aggregate impairment charges are included within "Inventory impairments and land option write-offs" in the Consolidated Statement of Operations and deducted from inventory.

The following table represents impairments by segment for fiscal 2022 , 

2021 and 2020 :

The following table represents impairments by segment for fiscal 2022 and 2021 :

(Dollars in millions)

4 unchanged sentences

$ 11.5  

(Dollars in millions)

Year Ended October 31, 2020

Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.

14 unchanged sentences

( 10,675 )  

undistributed earnings allocated to participating securities

8 unchanged sentences

19,702  

57,676  

undistributed earnings reallocated to participating securities

19 unchanged sentences

$ 85.86  

In addition, 26 thousand, 25 thousand and 0.2 million shares related to out-of-the money stock options, which could potentially dilute basic earnings per share in the future, were not included in the computation of diluted earnings per share for the years ended October 31, 2022, 2021 and 2020, respectively, because to do so would have been anti-dilutive for each period.

In addition, 6  thousand, 26 thousand and 25 thousand shares related to out-of-the money stock options, which could potentially dilute basic earnings per share in the future, were not included in the computation of diluted earnings per share for the years ended October 31, 2023, 2022 and 2021, respectively, because to do so would have been anti-dilutive for each period.

Capital Stock

31 unchanged sentences

The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

As of October 31, 2022, $ 37.8  million of our Class A common stock is available to repurchase under the stock repurchase program.

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.

As of October 31, 2023, $ 33.0  million of our Class A common stock is available for repurchase under the stock repurchase program.

Preferred Stock

5 unchanged sentences

The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.”

In fiscal 2022 we paid dividends of $ 10.7  million on the Series A preferred stock.

In fiscal 2021 and 2020 , we did not pay any dividends on the Series A preferred stock due to covenant restrictions in our debt instruments.

In both fiscal 2023 and 2022 we paid dividends of $ 10.7 million on the Series A preferred stock.

In fiscal 

2021 , 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.

We have established a tax-qualified, defined contribution savings and investment retirement plan ( "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.

401 (k) plan expenses were $ 8.2  million, $ 8.3 million and $ 7.0 million for the years ended October 31, 2023, 2022 and 2021 , respectively.

Treasury Stock

During the year ended October 31, 2023, we repurchased 118,478  shares under the new stock repurchase program, with a market value of $ 4.8  million, or $ 40.51  per share, which were added to "Treasury stock" on our Consolidated Balance Sheets as of October 

During the year ended October 31, 2022, we repurchased 312,471 shares under the new stock repurchase program, with a market value of $ 12.2  million, or $ 39.12 per share, which were added to "Treasury stock" on our Consolidated Balance Sheets as of October 

There were no shares repurchased during the years ended October 31, 2021 or 2020.

There were no shares repurchased during the year ended October 31, 2021. 

Stock-Based Compensation Plans

1 unchanged sentence

As of October 31, 2023, we had 

0.6 million shares authorized and remaining for future issuance under our stock incentive plans.

0.3  million shares authorized and remaining for future issuance under our stock incentive plans.

Based on the terms of our stock incentive plans, awards that are forfeited become available to us for future grants.

11 unchanged sentences

Exercise Price

Intrinsic Value

Stock options outstanding at beginning of period

5 unchanged sentences

$ 7.85  

Stock options outstanding at end of period

( 18,399 )  

$ 157.00  

Stock options exercisable at end of period

127,780  

The total intrinsic value of stock options exercised during fiscal 2022 and 2021  was $ 0.2 million and $ 4.8 million, respectively.

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

There were no stock options exercised in fiscal 2020.

Based on the fair value at the time of grant, the per share weighted-average fair value of stock options vested in fiscal 2022, 2021 and 2020 was $ 16.46 , $ 8.82 and $ 25.34 , respectively.

The following table summarizes the exercise price range and related number of outstanding stock options at October 31, 2022 :

Range of Exercise Prices

Exercise Price

$7.85 –

73,174  

$ 9.54  

$42.50 –

67,439  

$ 54.16  

$66.75 –

$ 66.75  

$110.25 –

24,246  

$ 145.73  

166,559  

$ 48.02  

The following table summarizes the exercise price range and related number of exercisable stock options at October 31, 2022 :

Range of Exercise Prices

Exercise Price

$7.85 –

36,578  

$ 9.58  

$42.50 –

65,256  

Stock options outstanding at end of period

143,547  

$66.75 –

$ 34.63  

$110.25 –

$ 5,231,933  

Stock options exercisable at end of period

132,903  

1 unchanged sentence

$ 4,590,643  

The total intrinsic value of stock options exercised during both fiscal 2023 and 2022  was $ 0.2  million, and in 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. 

Based on the fair value at the time of grant, the per share weighted-average fair value of stock options vested in fiscal 2023, 2022 and 2021 was $ 6.29 , $ 16.46 and $ 8.82 , respectively.

RSUs and Performance Units

2 unchanged sentences

2023, each of our six existing non-employee directors were granted RSUs subject to a two -year post-vesting holding period.

Generally, participants aged 60 years or older, or aged 58 with 15  years of service, are eligible to vest in their awards on an accelerated basis upon their retirement (which in the case of RSUs granted prior to 2019 only applies to a retirement that is at least one year after the date of grant).

Generally, participants aged 60 years or older, or aged 58 with 15  years of service, are eligible to vest in their awards on an accelerated basis upon their retirement.

Grants of market share units ("MSUs"), performance share units ("PSUs") and the stock portion of the long-term incentive plans ("LTIPs") (each discussed below), are also awarded as compensation.

29 unchanged sentences

( 1 ) Includes 49,484 time-based vested share awards and 116,785 performance-based vested share awards which were deferred and not yet issued at October 31, 2022.

( 1 ) Includes 27,686  time-based vested share awards and 149,693  performance-based vested share awards which were deferred and not yet issued at October 31, 2023.

LTIP awards include share adjustments for the difference between target performance metrics at the time of grant and the final performance outcome. Share adjustments are reflected in the “Granted”

2 unchanged sentences

The 2023 LTIP is subject to cliff vesting at the end of the performance period.

The fair value of LTIP and PSUs (discussed below) 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 the 2023  LTIP grants:

historical volatility factor of 75.29 % based on the expected market price of our Class A common stock for the two -year period ending on the valuation date, concluded stock price assumption of 4.19 % equal to the continuously compounded two -year yield and a dividend yield of zero.

The following assumptions were used for the 2022  LTIP grants:

historical volatility factor of 104.16 % based on the expected market price of our Class A common stock for the two -year period ending on the valuation date, concluded stock price assumption of 0.67 % equal to the continuously compounded two -year yield and a dividend yield of zero.

The following assumptions were used for the 2021  LTIP grants:

historical volatility factor of 112.92 % based on the expected market price of our Class A common stock for the two -year period ending on the valuation date, concluded stock price assumption of 0.16 % equal to the continuously compounded two -year yield and a dividend yield of zero.

PSUs granted in fiscal 2020 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 Board determines that the Company achieved specified earnings goals.

Fiscal 2023, 2022 and 2021 PSUs are subject to cliff vesting on the third year after the grant date.

The fair value of PSUs 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 the 2023  PSU grants:

historical volatility factor of 66.66 % based on the expected market price of our Class A common stock for the two -year period ending on the valuation date, concluded stock price assumption of 4.54 % equal to the continuously compounded two -year yield and a dividend yield of zero .

The following assumptions were used for the 2022  PSU grants:

historical volatility factor of 78.82 % based on the expected market price of our Class A common stock for the two -year period ending on the valuation date, concluded stock price assumption of 3.04 % equal to the continuously compounded two -year yield and a dividend yield of zero .

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 . 

There were no MSUs granted in fiscal 2023, 2022 and 2021.

3 unchanged sentences

These remaining MSUs vest in four equal installments with the first installment vesting on the third January 1st after the grant date, and the remaining annual installments commencing on the third anniversary from the date of grant, except that no portion of the award will vest unless the Board determines the Company achieved certain specified performance goals.

During the year-ended October 31, 2022 we issued 60,751 RSUs, 60,130 MSUs and 17,023 LTIP shares.

As of October 31, 2022 , there was $ 15.4 million of unrecognized stock-based compensation, which is primarily comprised of unrecognized expenses for RSUs, MSUs, PSUs, and the stock portion of LTIPs.

The total grant date fair value of RSU and performance unit awards granted during fiscal 2023, 2022 and 2021 was $ 10.4 million, $ 9.6 million and $ 9.2 million, respectively.

The total fair value of these awards vested during fiscal 2023, 2022 and 2021 was $ 25.2 million, $ 15.6 million and $ 13.7 million, respectively.

During the year-ended October 31, 2023 we issued 51,296  RSUs, 43,268  MSUs and 32,671 LTIP shares.

As of October 31, 2023 , there was $ 16.2  million of unrecognized stock-based compensation, which is primarily comprised of unrecognized expenses for RSUs, MSUs, PSUs, and the stock portion of LTIPs.

The cost is expected to be recognized over a weighted-average period of 1.6  years. 

1 unchanged sentence

For the years ended October 31, 2023, 2022 and 2021, stock-based compensation expense was $ 14.2  million ($ 11.4  million post tax), $ 10.3 million ($ 7.3 million post tax) and $ 7.7 million ($ 5.2 million post tax), respectively.

Stock-based compensation for RSUs, MSUs, PSUs, and the stock portion of LTIPs was $ 10.2  million, $ 7.4  million and $ 2.4  million for fiscal 2022, 2021 and 2020, respectively. In addition, stock option compensation expense was $ 0.1  million, $ 0.2 million and $ 0.4 million for the years ended October 31, 2022, 2021 and 2020, respectively.

Stock-based compensation expense for the year ended October 31, 2020 included income of $ 2.4 million from previously recognized expense for certain time and performance-based awards where the performance metrics were not  satisfied.

Stock-based compensation for RSUs, MSUs, PSUs, and the stock portion of LTIPs was $ 14.2  million, $ 10.2 million and $ 7.4  million for fiscal 2023, 2022 and 2021, respectively. In addition, stock option compensation expense was $ 27 thousand, $ 0.1 million and $ 0.2 million for the years ended October 31, 2023, 2022 and 2021, respectively.

Warranty Costs

6 unchanged sentences

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 years ended October 31, 2022 and 2021 , we received $ 6.0  million and $ 5.5 million, respectively, from subcontractors related to the owner controlled-insurance program, which we accounted for as reductions to inventory.

For the years ended October 31, 2023 and 2022 , we received $ 4.3 million and $ 6.0 million, respectively, from subcontractors related to the owner controlled-insurance program, which we accounted for as reductions to inventory.

Additions and charges in the warranty reserve and general liability reserve for the years ended October 31, 2023 and 2022 were as follows:

5 unchanged sentences

Selling, general and administrative

10,419  

Cost of sales

13,410  

Charges incurred during the period

6 unchanged sentences

In fiscal 

2022 , we recorded an increase of $ 4.3 million to our construction defect reserves related to specific claims.

These changes 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 $ 0.2  million and $ 0.1  million for the years ended October 31, 2022 and 2021 , respectively, for prior year deliveries.

2023 , we recorded an increase of $ 10.1 million to our construction defect reserves as a result of our claims history.

This increase is reflected in the changes to pre-existing reserves in the table above.

The majority of the charges incurred during fiscal 2023 represented payments for construction defects related to the settlement of four litigation matters.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were $ 0.2 million for each of the years ended October 31, 2023 and 2022 , for prior year deliveries.

Transactions with Related Parties

5 unchanged sentences

Hovnanian, is employed by the Company.

Alexander Hovnanian holds the position of Executive Vice President - National Homebuilding Operations. For fiscal 2022, he received cash compensation of approximately $1,684,000 and equity awards with an aggregate grant date fair value of approximately $ 531,000 .

Alexander Hovnanian holds the position of Executive Vice President - National Homebuilding Operations. For fiscal 2023, he received cash compensation of approximately $ 1,008,000  and equity awards with an aggregate grant date fair value of approximately $ 825,000 .

For fiscal 2022, he received cash compensation of approximately $ 1,684,000 and equity awards with an aggregate grant date fair value of approximately $ 531,000 .

For fiscal 2020, his total compensation was approximately $ 1,152,000 .

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 .

Carson Sorsby, the son of J.

Larry Sorsby one of our Board directors and our Chief Financial Officer, is employed by the Company.

Larry Sorsby, a member of the Board and our former Chief Financial Officer (retired as of October 31, 2023), is employed by the Company.

Carson Sorsby holds the position of Account Manager in the Company’s mortgage subsidiary.

His compensation is commensurate with that of similarly situated employees in his position.

Commitments and Contingent Liabilities

12 unchanged sentences

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 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 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.

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 began negotiations with the EPA and preliminary negotiations with the Company regarding the site.

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

In June 2022, the Company and one of the other PRPs reached an agreement with the EPA for a total settlement of $ 1.5 million (plus accrued interest), with the Company contributing approximately $ 0.8 million to the settlement, slightly below the amount we had previously accrued.

The consent decree entered into by the settling parties was submitted to the United States District Court for the District of New Jersey (where the EPA has filed a complaint seeking reimbursement of response costs) on June 14, 2022 and was signed and filed by such Court on August 9, 2022.

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.

6 unchanged sentences

Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it, and (b) further stated that the Great Notch Plaintiff is not permitted to pursue that claim until after any trial on the underlying liability claims.

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 April 17, 2023.

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

In December 2023, the parties reached a settlement through mediation subject to the execution of a final confidential settlement agreement.

The settlement amount was not materially different than what we had reserved for this case.

In December 2020, the New Jersey Department of Environmental Protection ("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.

12 unchanged sentences

810, certain option purchase contracts may result in the creation of a 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 our analyses, we have concluded, the Company is 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, 2022 , we had total cash deposits amounting to $ 180.8 million to purchase land and lots with a total purchase price of $ 1.9 billion.

Although the Company does not have legal title to the underlying land, in compliance with ASC 

810, we analyze our option purchase contracts to determine whether the corresponding land and lot sellers are VIEs and, if so, whether we are the primary beneficiary.

The significant factors we consider in determining if the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared include, among other things, our ability in determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, changing the terms of the contract or arranging financing for the VIE.

As a result of our analyses, we have concluded, there are no  VIEs that required consolidation at either December 

31, 2023 or 2022 because we are not the primary beneficiary of the land or lots under option purchase contracts.

We will continue to secure land and lots using options, some of which are with VIEs where we have determined power is shared among the partners and we do not have a controlling financial interest.

Including deposits on our unconsolidated VIEs, at October 31, 2023 and 2022, we had total cash deposits amounting to $ 192.3  million and $ 180.8 million, respectively, to purchase land and lots with a total purchase price of $ 2.2  billion and $ 1.9 billion, respectively.

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.

1 unchanged sentence

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.

Our investments in homebuilding and land development joint ventures consist of equity interests that, in total, provide us with partner investment returns and management fees.

During the first  quarter of fiscal 2023, we contributed four communities we owned, including one active selling community, to one new unconsolidated joint venture for $ 41.1  million of net cash.

During the second quarter of fiscal 2023, one of the Company's unconsolidated joint ventures was dissolved, and we assumed control of the remaining assets and liabilities.

During the third quarter of fiscal 2023, we contributed 16 communities we owned, including eight active selling communities, to one new unconsolidated joint venture for $ 75.7 million of net cash.

Also, during the third quarter of fiscal 2023, we assumed control of one of our unconsolidated joint ventures after the partner received their final cash distribution.

We consolidated the remaining assets and liabilities that were in the unconsolidated joint venture at fair value on the date of distribution.

Upon consolidation, we recorded a gain of $ 19.1 million in "Other (income) expense, net." Subsequent to consolidation, we contributed the same three active selling communities to an unconsolidated joint venture for $ 48.0 million of net cash.

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

42 unchanged sentences

$ 615,221  

$ 1,972  

$ 611,833  

Liabilities and equity:

2 unchanged sentences

$ 472,464  

$ 387,798  

Notes payable

14 unchanged sentences

$ 615,221  

$ 611,833  

Debt to capitalization ratio

As of October 31, 2022 and 2021, we had advances outstanding of $ 1.6 million and $ 2.2 million, respectively, to these unconsolidated joint ventures.

As of October 31, 2023 and 2022, we had outstanding advances to unconsolidated joint ventures of $ 1.4 million and $ 1.6 million, respectively.

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

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

amounted to $ 74.9 million and $ 60.9 million at October 31, 2022 and 2021, 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.

in the tables above.

In some cases, our net investment in 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.

During the years ended October 31, 2023 and 2022, we did not write-down any of our unconsolidated joint venture investments.

5 unchanged sentences

( 654,217 )  

( 37 )  

Joint venture net income

4 unchanged sentences

$ 43,160  

For The Year Ended October 31, 2022

15 unchanged sentences

$ 348,589  

$ 448,101  

Cost of sales and expenses

4 unchanged sentences

$ 13,303  

$ 15,899  

Our share of net income

1 unchanged sentence

$ 8,949  

“Income (loss) from unconsolidated joint ventures”

in the Consolidated Statements of Operations reflects our proportionate share of income or loss from 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, 2022 and 2021, respectively, is because we have varying ownership percentages, ranging from 20 % to over 50% , in our seven and ten unconsolidated joint ventures for both periods, respectively.

in the tables above is a result of our varying ownership percentages in each investment.

For the years ended October 31, 2023 and 2022, we had investments in eight and seven unconsolidated joint ventures, respectively, and our ownership in these joint ventures ranged from 20 % to over 50% for both periods.

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, 2022, "Our share of net income" was lower than the "Joint venture net income" due to increased income on two of our newer unconsolidated joint ventures during the year for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements, a third unconsolidated joint venture which we recognize a lower profit-sharing percentage having higher profit in the current peri od, and a fourth unconsolidated joint venture that generated profit that we did not recognize due to the fact that we had previously written off our investment balance in the unconsolidated joint venture. 

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 year ended October 31, 2022, we had written off our investment in one of our unconsolidated joint ventures that was generating losses and therefore we currently do not recognize those losses.

For the year ended October 31, 2021, we had written off our investment in two of our unconsolidated joint ventures that were generating losses and therefore we did not recognize those losses.

Had we not fully written off our investment, our share of the net loss in this unconsolidated joint venture 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 venture losses significantly reduce the profit when looking at all seven and ten of our 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.

For the year ended October 31, 2023, "Our share of net income" was lower than the "Joint venture net income" due to four unconsolidated joint ventures with increased income during the period for which we currently recognize a lower profit-sharing percentage as well as a fifth newly formed unconsolidated joint venture for which we are currently recognizing all of the net loss.

For the year ended October 31, 2022, "Our share of net income" was lowe r than the "Joint venture net income" due to increased income on two of our newer unconsolidated joint ventures during the year for which we currently recognize a lower profit-sharing percentage based on the joint venture agreements, a third unconsolidated joint venture which we recognize a lower profit-sharing percentage having higher profit in the current peri od, and a fourth unconsolidated joint venture that generated profit that we did not recognize due to the fact that we had previously written off our investment balance in the unconsolidated joint venture.

In addition, for the year ended October 31, 2022, we had written off our investment in one of our unconsolidated joint ventures that was generating losses and therefore we did not recognize those losses.

These management fees, which totaled $ 16.3 million, $ 12.5 million and $ 11.6 million for the years ended October 31, 2023, 2022 and 2021, are recorded in “Selling, general and administrative”

4 unchanged sentences

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 due to the returns being capped to the equity holders;

In some instances, the unconsolidated joint venture entity is considered a VIE 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. 

15 unchanged sentences

$ 111,300  

Interest rate lock commitments

$ 111,300  

$ 151,104  

( 1 )  The aggregate unpaid principal balance was $ 130.4 million and $ 110.2 million at October 31, 2023 and 2022 , respectively.

8 unchanged sentences

Our 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, 2022 , we had open commitments amounting to $ 4.0 million to sell MBS with varying settlement dates through December 13, 2022.

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

Subsequent changes in fair value are recognized in the Consolidated Statements of Operations in “Financial services”

At October 31, 2023 , we had no open mandatory investor commitments to sell MBS.

Changes in fair value that are included in income are shown, by financial instrument and financial statement line item, below: 

3 unchanged sentences

Change in fair value included in financial services revenue

$ ( 177 )  

Year Ended October 31, 2022

2 unchanged sentences

Change in fair value included in financial services revenue

$ 4,580  

Year Ended October 31, 2021

3 unchanged sentences

$ 4,580  

Assets measured at fair value on a nonrecurring basis are those assets for which we have recorded valuation adjustments and write-offs during the years ended October 31, 2022 and 2021 . The assets measured at fair value on a nonrecurring basis are all within our homebuilding operations and are summarized below:

Assets measured at fair value on a nonrecurring basis are those assets for which we have recorded valuation adjustments and write-offs. We did not have assets measured at fair value on a nonrecurring basis during the year ended October 31, 2023 .

The assets measured at fair value on a nonrecurring basis during the year ended October 31, 2022 are all within our homebuilding operations and are summarized below:

October 31, 2022

4 unchanged sentences

$ 2,184  

October 31, 2021

(In thousands)

Sold and unsold homes and lots under development

$ 11,522  

$ ( 2,009 )  

$ 9,513  

We recorded inventory impairments, which are included in the Consolidated Statements of Operations as “Inventory impairments and land option write-offs”

and deducted from inventory of $ 8.4 million, $ 2.0 million and $ 2.0 million for the years ended October 31, 2022, 2021 and 2020 , respectively (see Note 12 ).

and deducted from inventory of $ 8.4 million and $ 2.0 million for the years ended October 2022 and 2021, respectively.

We did not have any assets measured at fair value on a nonrecurring basis during the year ended October 31, 2023 (see Note 12 ).

The fair value of our cash equivalents, restricted cash and cash equivalents and customers' 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.

As shown in the table below, our 10.0 % Senior Secured 1.75 Lien Notes due 2025 and 11.75 % Senior Secured 1.25 Lien Notes due 2029 were a Level 2 measurement at October 31, 2023 due to recent trades for the same notes.

Fair Value as of October 31, 2023

4 unchanged sentences

113,843  

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

240,393  

10.5% Senior Secured 1.25 Lien Notes due February 15, 2026

8.0 % Senior Secured 1.125 Lien Notes due September 30, 2028

230,690  

11.25% Senior Secured 1.5 Lien Notes due February 15, 2026

11.75 % Senior Secured 1.25 Lien Notes due September 30, 2029

476,655  

17 unchanged sentences

$ 487,371  

$ 1,077,869  

Fair Value as of October 31, 2022

31 unchanged sentences

The Senior Secured Revolving Credit Facility is not included in the above tables because there were no borrowings outstanding thereunder as of October 31, 2023 and 2022 .

Subsequent Events

On November 15, 2023, K.

Hovnanian redeemed in full all of the $ 113.5 million aggregate principal amount of its 10.0 % Senior Secured 1.75 Lien Notes due 2025 for a redemption price of $ 119.2 million, which included accrued and unpaid interest.

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

What changed 10-K

Item 9A. Controls and Procedures