10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended APRIL 30, 2018

OR

[    ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-8551

Hovnanian Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)

22-1851059 (I.R.S. Employer Identification No.)

90 Matawan Road, 5^th Floor, Matawan, NJ 07747 (Address of Principal Executive Offices)

732-747-7800 (Registrant's Telephone Number, Including Area Code)

N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ]    No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ X ]  No [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [   ]  Accelerated Filer  [ X ]

Non-Accelerated Filer  [   ]  (Do not check if smaller reporting company)   Smaller Reporting Company [   ]     Emerging Growth Company [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [    ]  No [ X ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 132,643,015 shares of Class A Common Stock and 15,470,482 shares of Class B Common Stock were outstanding as of June 1, 2018.

1

HOVNANIAN ENTERPRISES, INC.  

FORM 10-Q  

INDEX	PAGE NUMBER
PART I.  Financial Information
Item l.  Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) as of April 30, 2018 and October 31, 2017	3
Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended April 30, 2018 and 2017	4
Condensed Consolidated Statement of Equity (unaudited) for the six months ended April 30, 2018	5
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended April 30, 2018 and 2017	6
Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.  Controls and Procedures	54
PART II.  Other Information
Item 1.  Legal Proceedings	54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.  Exhibits	55
Signatures	56

2

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

	April 30, 2018			October 31, 2017
	(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents	$	248,815		$	463,697
Restricted cash and cash equivalents		13,957			2,077
Inventories:
Sold and unsold homes and lots under development		856,620			744,119
Land and land options held for future development or sale		104,518			140,924
Consolidated inventory not owned		78,907			124,784
Total inventories		1,040,045			1,009,827
Investments in and advances to unconsolidated joint ventures		88,344			115,090
Receivables, deposits and notes, net		70,168			58,149
Property, plant and equipment, net		19,944			52,919
Prepaid expenses and other assets		40,529			37,026
Total homebuilding		1,521,802			1,738,785
Financial services cash and cash equivalents		4,960			5,623
Financial services other assets		115,729			156,490
Total assets	$	1,642,491		$	1,900,898
LIABILITIES AND EQUITY
Homebuilding:
Nonrecourse mortgages secured by inventory, net of debt issuance costs	$	70,644		$	64,512
Accounts payable and other liabilities		288,120			335,057
Customers’ deposits		30,997			33,772
Nonrecourse mortgages secured by operating properties		-			13,012
Liabilities from inventory not owned, net of debt issuance costs		53,515			91,101
Revolving and term loan credit facilities, net of debt issuance costs		257,129			124,987
Notes payable (net of discount, premium and debt issuance costs) and accrued interest		1,340,246			1,554,687
Total homebuilding		2,040,651			2,217,128
Financial services		99,914			141,914
Income taxes payable		1,902			2,227
Total liabilities		2,142,467			2,361,269
Stockholders’ equity deficit:
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at April 30, 2018 and at October 31, 2017		135,299			135,299
Common stock, Class A, $0.01 par value – authorized 400,000,000 shares; issued 144,403,778 shares at April 30, 2018 and 144,046,073 shares at October 31, 2017		1,444			1,440
Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) – authorized 60,000,000 shares; issued 16,162,230 shares at April 30, 2018 and 15,999,355 shares at October 31, 2017		162			160
Paid in capital – common stock		707,487			706,466
Accumulated deficit		(1,229,008	)		(1,188,376	)
Treasury stock – at cost – 11,760,763 shares of Class A common stock and 691,748 shares of Class B common stock at April 30, 2018 and October 31, 2017		(115,360	)		(115,360	)
Total stockholders’ equity deficit		(499,976	)		(460,371	)
Total liabilities and equity	$	1,642,491		$	1,900,898

See notes to condensed consolidated financial statements (unaudited).

3

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Data)

(Unaudited)

	Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017
Revenues:
Homebuilding:
Sale of homes	$	468,117		$	567,553		$	869,694		$	1,098,968
Land sales and other revenues		21,373			3,888			26,074			11,633
Total homebuilding		489,490			571,441			895,768			1,110,601
Financial services		13,054			14,494			23,942			27,343
Total revenues		502,544			585,935			919,710			1,137,944
Expenses:
Homebuilding:
Cost of sales, excluding interest		393,012			475,440			722,539			920,467
Cost of sales interest		19,364			20,337			31,656			38,659
Inventory impairment loss and land option write-offs		2,673			1,953			3,087			5,137
Total cost of sales		415,049			497,730			757,282			964,263
Selling, general and administrative		45,544			45,467			88,775			89,875
Total homebuilding expenses		460,593			543,197			846,057			1,054,138
Financial services		8,798			7,360			17,139			14,215
Corporate general and administrative		16,144			16,071			35,279			31,727
Other interest		26,088			22,297			55,219			44,924
Other operations		402			(95	)		792			1,492
Total expenses		512,025			588,830			954,486			1,146,496
(Loss) gain on extinguishment of debt		(1,440	)		(242	)		(1,440	)		7,404
Income (loss) from unconsolidated joint ventures		1,343			(4,562	)		(3,833	)		(6,228	)
Loss before income taxes		(9,578	)		(7,699	)		(40,049	)		(7,376	)
State and federal income tax provision (benefit):
State		245			2,292			583			2,274
Federal		-			(3,309	)		-			(2,825	)
Total income taxes		245			(1,017	)		583			(551	)
Net (loss)	$	(9,823	)	$	(6,682	)	$	(40,632	)	$	(6,825	)
Per share data:
Basic:
Net (loss) per common share	$	(0.07	)	$	(0.05	)	$	(0.27	)	$	(0.05	)
Weighted-average number of common shares outstanding		148,435			147,558			148,228			147,556
Assuming dilution:
Net (loss) per common share	$	(0.07	)	$	(0.05	)	$	(0.27	)	$	(0.05	)
Weighted-average number of common shares outstanding		148,435			147,558			148,228			147,556

See notes to condensed consolidated financial statements (unaudited).

4

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(In Thousands Except Share Amounts)

(Unaudited)

	A Common Stock				B Common Stock					Preferred Stock
	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding			Amount		Shares Issued and Outstanding		Amount		Paid-In Capital		Accumulated Deficit			Treasury Stock			Total
Balance, October 31, 2017		132,285,310	$	1,440		15,307,607		$	160		5,600	$	135,299	$	706,466	$	(1,188,376	)	$	(115,360	)	$	(460,371	)
Stock options, amortization and issuances		24,000													302								302
Restricted stock amortization, issuances and forfeitures		332,264		4		164,316			2						719								725
Conversion of Class B to Class A common stock		1,441				(1,441	)																-
Net (loss)																	(40,632	)					(40,632	)
Balance, April 30, 2018		132,643,015	$	1,444		15,470,482		$	162		5,600	$	135,299	$	707,487	$	(1,229,008	)	$	(115,360	)	$	(499,976	)

See notes to condensed consolidated financial statements (unaudited). 

5

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Six Months Ended
	April 30,
	2018			2017
Cash flows from operating activities:
Net (loss)	$	(40,632	)	$	(6,825	)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation		1,509			2,083
Compensation from stock options and awards		2,075			1,500
Amortization of bond discounts, premiums and deferred financing costs		4,150			9,348
Gain on sale and retirement of property and assets		(3,592	)		(78	)
Loss from unconsolidated joint ventures		3,833			6,228
Distributions of earnings from unconsolidated joint ventures		-			203
Loss (gain) on extinguishment of debt		1,440			(7,404	)
Inventory impairment and land option write-offs		3,087			5,137
Deferred income tax benefit		-			(1,419	)
(Increase) decrease in assets:
Origination of mortgage loans		(456,828	)		(476,845	)
Sale of mortgage loans		501,227			553,827
Restricted cash, receivables, prepaids, deposits and other assets		(18,972	)		16,672
Inventories		(20,267	)		68,735
(Decrease) increase in liabilities:
State income tax payable		(325	)		600
Customers’ deposits		(2,775	)		2,892
Accounts payable, accrued interest and other accrued liabilities		(46,511	)		(57,436	)
Net cash (used in) provided by operating activities		(72,581	)		117,218
Cash flows from investing activities:
Proceeds from sale of property and assets		38,273			86
Purchase of property, equipment and other fixed assets and acquisitions		(3,208	)		(4,500	)
Decrease (increase) in restricted cash related to mortgage company		53			(2,715	)
(Increase) decrease in restricted cash related to letters of credit and bonds		(12,124	)		1
Investments in and advances to unconsolidated joint ventures		(18,879	)		(23,368	)
Distributions of capital from unconsolidated joint ventures		28,754			10,735
Net cash provided by (used in) investing activities		32,869			(19,761	)
Cash flows from financing activities:
Proceeds from mortgages and notes		75,962			103,620
Payments related to mortgages and notes		(82,121	)		(119,860	)
Proceeds from model sale leaseback financing programs		746			9,113
Payments related to model sale leaseback financing programs		(22,741	)		(10,931	)
Proceeds from land bank financing programs		3,766			8,643
Payments related to land bank financing programs		(19,890	)		(41,617	)
Proceeds from senior unsecured term loan facility		132,500			-
Payments related to senior notes and senior amortizing notes		(215,093	)		(33,327	)
Net payments related to mortgage warehouse lines of credit		(43,439	)		(75,471	)
Deferred financing costs from land bank financing programs and note issuances		(5,523	)		(3,605	)
Net cash used in financing activities		(175,833	)		(163,435	)
Net decrease in cash and cash equivalents		(215,545	)		(65,978	)
Cash and cash equivalents balance, beginning of period		469,320			346,765
Cash and cash equivalents balance, end of period	$	253,775		$	280,787

6

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands - Unaudited)

(Continued)

	Six Months Ended
	April 30,
	2018		2017
Supplemental disclosure of cash flow:
Cash paid during the period for:
Interest, net of capitalized interest (see Note 3 to the Condensed Consolidated Financial Statements)	$	59,707	$	47,362
Income taxes	$	909	$	267

See notes to condensed consolidated financial statements (unaudited).

Supplemental disclosure of noncash investing activities:

In the first quarter of fiscal 2018, we acquired the remaining assets of one of our joint ventures, resulting in a $13.6 million reduction in our investment in the joint venture and a corresponding increase to inventory.

Supplemental disclosure of noncash financing activities:

In the second quarter of fiscal 2018, we completed a debt for debt exchange of existing 8.0% Senior Notes due November 1, 2019 for newly issued 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040. See Note 11 for further information.

7

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

1. Basis of Presentation

Hovnanian Enterprises, Inc. and Subsidiaries (the “Company”, “we”, “us” or “our”) has reportable segments consisting of six Homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and the Financial Services segment (see Note 16).

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

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017. In the opinion of management, all adjustments for interim periods presented have been made, which include normal recurring accruals and deferrals necessary for a fair presentation of our condensed consolidated financial position, results of operations and cash flows. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the Condensed Consolidated Financial Statements. Results for interim periods are not necessarily indicative of the results which might be expected for a full year. 

Reclassifications - In the second quarter of fiscal 2018, we reclassified our Senior Secured Term Loan due 2019 on the Condensed Consolidated Balance Sheets from the line item “Notes payable (net of discount, premium and debt issuance costs) and accrued interest” to “Revolving and term loan credit facilities, net of debt issuance costs”, resulting in a reclassification of the October 31, 2017 balance of $73.0 million.

2. Stock Compensation

The Company’s total stock-based compensation expense was $1.0 million and $2.1 million for the three and six months ended April 30, 2018, respectively, and $1.0 million and $1.5 million ($0.9 million and $1.4 million net of tax) for the three and six months ended April 30, 2017, respectively. Included in this total stock-based compensation expense was the vesting of stock options of $0.1 million and $0.3 million for the three and six months ended April 30, 2018, respectively, and $0.1 million and $0.2 million for the three and six months ended April 30, 2017, respectively.

3. Interest

Interest costs incurred, expensed and capitalized were:

	Three Months Ended April 30,				Six Months Ended April 30,
(In thousands)	2018		2017		2018		2017
Interest capitalized at beginning of period	$	70,793	$	94,438	$	71,051	$	96,688
Plus interest incurred (1)		40,014		39,156		81,179		77,855
Less cost of sales interest expensed		19,364		20,337		31,656		38,659
Less other interest expensed (2)(3)		26,088		22,297		55,219		44,924
Interest capitalized at end of period (4)	$	65,355	$	90,960	$	65,355	$	90,960

(1)	Data does not include interest incurred by our mortgage and finance subsidiaries.
(2)	Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.
(3)	Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows:

8

	Three Months Ended April 30,					Six Months Ended April 30,
(In thousands)	2018			2017		2018		2017
Other interest expensed	$	26,088		$	22,297	$	55,219	$	44,924
Interest paid by our mortgage and finance subsidiaries		585			455		1,186		1,084
(Increase) decrease in accrued interest		(23,448	)		591		3,302		1,354
Cash paid for interest, net of capitalized interest	$	3,225		$	23,343	$	59,707	$	47,362

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

4. Reduction of Inventory to Fair Value

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the six months ended April 30, 2018, our discount rate used for the impairments recorded ranged from 16.8% to 19.8%. For the six months ended April 30, 2017, our discount rate used for the impairments recorded ranged from 18.3% to 19.8%. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments. 

During the six months ended April 30, 2018 and 2017 we evaluated inventories of all 377 and 381 communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed detailed impairment calculations during the six months ended April 30, 2018 and 2017 for five and nine of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of $11.2 million and $66.9 million, respectively. As a result of our impairment analysis, we recorded aggregate impairment losses of $2.1 million in all five communities (which had an aggregate pre-impairment value of $11.2 million) for both the three and six months ended April 30, 2018. We also recorded aggregate impairment losses of $1.5 million and $4.2 million, in one and six communities, respectively (which had aggregate pre-impairment values of $8.5 million and $21.1 million, respectively) for the three and six months ended April 30, 2017, respectively. These impairment losses are included in the Condensed Consolidated Statements of Operations on the line entitled “Homebuilding: Inventory impairment loss and land option write-offs” and deducted from inventory. The pre-impairment value represents the carrying value, net of prior period impairments, if any, at the time of recording the impairment. Of those communities tested for impairment during the six months ended April 30, 2017, three communities with an aggregate carrying value of $45.8 million had undiscounted future cash flows that exceeded the carrying amount by less than 20%. During the six months ended April 30, 2018, none of the five communities tested for impairment had undiscounted future cash flows that exceeded the carrying amount by less than 20%.

The Condensed Consolidated Statements of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” also includes write-offs of options and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do not exercise options in various locations because the communities' pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. Total aggregate write-offs related to these items were $0.6 million and $0.4 million for the three months ended April 30, 2018 and 2017, respectively, and $1.0 million and $0.9 million for the six months ended April 30, 2018 and 2017, respectively. Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have not been significant in comparison to the total costs written off. The number of lots walked away from during the three months ended April 30, 2018 and 2017 were 714 and 478, respectively, and 1,341 and 1,539 during the six months ended April 30, 2018 and 2017, respectively.

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 Condensed Consolidated Balance Sheets from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale.” During the first half of fiscal 2018, we did not mothball any additional communities, but we sold two previously mothballed communities and re-activated one previously mothballed community. As of April 30, 2018 and October 31, 2017, the net book value associated with our 19 and 22 total mothballed communities was $24.4 million and $36.7 million, respectively, which was net of impairment charges recorded in prior periods of $186.1 million and $214.1 million, respectively.

9

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with Accounting Standards Codification (“ASC”) 360-20-40-38, we are required to record this inventory on our Condensed Consolidated Balance Sheets. As of April 30, 2018 and October 31, 2017, we had no specific performance options.

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 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Condensed Consolidated Balance Sheets, at April 30, 2018 and October 31, 2017, inventory of $33.5 million and $58.5 million, respectively, was recorded to “Consolidated inventory not owned,” with a corresponding amount of $30.0 million and $51.8 million (net of debt issuance costs), 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 bankers 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 360-20-40-38, these transactions are considered a financing rather than a sale. For purposes of our Condensed Consolidated Balance Sheets, at April 30, 2018 and October 31, 2017, inventory of $45.4 million and $66.3 million, respectively, was recorded as “Consolidated inventory not owned,” with a corresponding amount of $23.5 million and $39.3 million (net of debt issuance costs), respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

5. Variable Interest Entities

The Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are not refundable at the Company's discretion. Under the requirements of ASC 810, certain option purchase contracts may result in the creation of a variable interest in the entity (“VIE”) that owns the land parcel under option.

In compliance with ASC 810, the Company analyzes its option purchase contracts to determine whether the corresponding land sellers are VIEs and, if so, whether the Company is the primary beneficiary. Although the Company does not have legal title to the underlying land, ASC 810 requires the Company to consolidate a VIE if the Company is determined to be the primary beneficiary. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. As a result of its analyses, the Company determined that as of April 30, 2018 and October 31, 2017, it was not the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

We will continue to secure land and lots using options, some of which are with VIEs. Including deposits on our unconsolidated VIEs, at April 30, 2018, we had total cash deposits amounting to $52.5 million to purchase land and lots with a total purchase price of $1.0 billion. The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions are not met.

6. Warranty Costs

General liability insurance for homebuilding companies and their suppliers and subcontractors is very difficult to obtain. The availability of general liability insurance is limited due to a decreased number of insurance companies willing to underwrite for the industry. In addition, those few insurers willing to underwrite liability insurance have significantly increased the premium costs. To date, we have been able to obtain general liability insurance but at higher premium costs with higher deductibles. Our subcontractors and suppliers have advised us that they have also had difficulty obtaining insurance that also provides us coverage. As a result, we have an owner controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance at no additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the six months ended April 30, 2018 and 2017, we received $1.9 million and $1.8 million, respectively, from subcontractors related to the owner controlled insurance program, which we accounted for as a reduction to inventory.

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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 2018 and 2017, our deductible under our general liability insurance is a $20 million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2018 and 2017 is $0.25 million, up to a $5 million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is $20 million for fiscal 2018 and $21 million for fiscal 2017. In addition, we establish a warranty accrual for lower cost related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the three and six months ended April 30, 2018 and 2017 were as follows:

	Three Months Ended April 30,						Six Months Ended April 30,
(In thousands)	2018			2017			2018			2017
Balance, beginning of period	$	129,314		$	118,013		$	127,702		$	121,144
Additions – Selling, general and administrative		2,169			2,856			4,338			5,764
Additions – Cost of sales		4,154			3,515			9,899			7,002
Charges incurred during the period		(19,862	)		(7,177	)		(26,164	)		(16,703	)
Changes to pre-existing reserves		-			-			-			-
Balance, end of period	$	115,775		$	117,207		$	115,775		$	117,207

Warranty accruals are based upon historical experience. We engage a third-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. The majority of the charges incurred during the second quarter of fiscal 2018 represented a payment for construction defect reserves related to the settlement of the Grandview II litigation as discussed in Note 7.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, for prior year deliveries were less than $0.1 million and $0.2 million for the three months ended April 30, 2018 and 2017, respectively, and less than $0.1 million and $0.2 million for the six months ended April 30, 2018 and 2017, respectively.

7. Commitments and Contingent Liabilities

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

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

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 We anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. For example, for a number of years, the EPA and U.S. Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a June 2015 rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation, a proposal in June 2017 to formally rescind the June 2015 rule and reinstate the rule scheme previously in place while the agencies initiate a new substantive rulemaking on the issue and a February 2018 rule delaying the effective date of the June 2015 rule until February 2020 (which is being challenged in federal court by a number of states). It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In March 2013, we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the 1990s. We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company. The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests. On May 2, 2018 the EPA sent a letter to the Company entity demanding reimbursement for 100% of the EPA’s costs to clean-up the site in the amount of $2.7 million. The Company has requested a 15 day extension to reply to the EPA’s demand letter which extends the time to respond until June 15, 2018. We believe that we have adequate reserves for any potential loss.

The Grandview at Riverwalk Port Imperial Condominium Association, Inc. (the “Grandview Plaintiff”) filed a construction defect lawsuit against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal II, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Enterprises, Inc., K. Hovnanian North East, Inc. aka and/or dba K. Hovnanian Companies North East, Inc., K. Hovnanian Construction II, Inc., K. Hovnanian Cooperative, Inc., K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Holdings NJ, LLC, as well as the project architect, the geotechnical engineers and various construction contractors for the project alleging various construction defects, design defects and geotechnical issues totaling approximately $41.3 million. The lawsuit included claims against the geotechnical engineers for differential soil settlement under the building, against the architects for failing to design the correct type of structure allowable under the New Jersey Building Code, and against the Hovnanian-affiliated developer entity (K. Hovnanian at Port Imperial Urban Renewal II, LLC ) alleging that it: (1) had knowledge of and failed to disclose the improper building classification to unit purchasers and was therefore liable for treble damages under the New Jersey Consumer Fraud Act; and (2) breached an express warranty set forth in the Public Offering Statements that the common elements at the building were fit for their intended purpose. The Grandview Plaintiff further alleged that Hovnanian Enterprises, Inc., K. Hovnanian Holdings NJ, LLC, K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Developments of New Jersey II, Inc. were jointly liable for any damages owed by the Hovnanian development entity under a veil piercing theory.

The parties reached a settlement on the construction defect issues prior to trial, but attempts to settle the subsidence, building classification issue and Consumer Fraud Act claims were unsuccessful. The trial commenced on April 17, 2017 in Hudson County, New Jersey. In the third week of the trial, all of the Hovnanian defendants resolved the geotechnical claims for an amount immaterial to the Company, but the balance of the case continued to be tried before the jury. On June 1, 2017, the jury rendered a verdict against K. Hovnanian at Port Imperial Urban Renewal II, LLC on the breach of warranty and New Jersey Consumer Fraud claims in the total amount of $3 million, which resulted in a total verdict of $9 million against that entity due to statutory trebling, plus a to-be-determined portion of Grandview Plaintiff’s counsel fees, per the statute. The jury also found in favor of Grandview Plaintiff on its veil piercing theory. Certain Hovnanian-affiliated defendants filed post-trial motions on three issues: (1) a motion for a judgment notwithstanding the verdict or a new trial; (2) a motion addressing whether any of the Hovnanian-affiliated entities could be jointly liable under a veil piercing theory for the damages awarded against K. Hovnanian at Port Imperial Urban Renewal II, LLC; and (3) a motion for contractual indemnification against the project architect. On October 27, 2017, the Court addressed a number of post-trial motions. The Court denied the motion for a judgment notwithstanding the verdict or a new trial, and held that Hovnanian Enterprises, Inc. and its affiliate, K. Hovnanian Developments of New Jersey, Inc., are jointly liable for the damages awarded against K. Hovnanian at Port Imperial Urban Renewal II, LLC. On November 18, 2017, the Court awarded approximately $1.8 million in attorney fees and costs to Grandview Plaintiff out of the approximately $4.8 million it had sought. Certain Hovnanian-affiliated defendants filed a motion for reconsideration of the Court’s decision on attorney fees and costs. In an order dated December 15, 2017, the Court granted the motion for reconsideration and reduced its award of attorney fees and costs to approximately $1.4 million. Final judgement in the amount of approximately $10.4 million was entered on January 12, 2018.

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On January 24, 2018, the relevant Hovnanian-affiliated defendants filed a notice of appeal of all aspects of the verdict against them and a motion seeking a stay of execution of the judgement pending appeal. On February 16, 2018, the Court entered an order staying execution of the judgement provided that the Hovnanian-affiliated defendants post a bond in the amount of approximately $11.1 million. On March 9, 2018, the Hovnanian affiliated defendants filed the Court approved bond. On May 23, 2018, the Hovnanian affiliated defendants filed their opening appellate brief. With respect to this case, depending on the outcome of all appeals, the range of loss is between $0 and $11.1 million, inclusive of attorney fees and costs. Management believes that a loss is probable and reasonably estimable and that the Company has reserved for its estimated probable loss amount in its construction defect reserves. However, our assessment of the probable loss may differ from the ultimate resolution of this matter.

In 2014, the condominium association of the Grandview II at Riverwalk Port Imperial condominium building (the “Grandview II Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Hudson County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the building along with a claim for piercing the corporate veil as to certain defendants. The operative complaint (“Complaint”) brought claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal III, LLC, PI Investments I, LLC, K. Hovnanian Investments, LLC, K. Hovnanian Homes (not a legal entity but named as a defendant), K. Hovnanian Shore Acquisitions, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Northeast, Inc., K. Hovnanian Enterprises, Inc., K. Hovnanian Construction III, Inc. and K. Hovnanian Cooperative, Inc. The Complaint also brought claims against various other design professionals and contractors. Grandview II Plaintiff asserted damages of approximately $69 million to $79 million, which amount was potentially subject to treble damages. On December 7, 2017, the Court issued orders adjudicating various parties’ motions for summary judgment. The Court issued an order that granted Grandview II Plaintiff’s motion for partial summary judgment on the claim seeking to pierce the corporate veil of K. Hovnanian at Port Imperial Urban Renewal III, LLC and ordered that Hovnanian Enterprises, Inc. shall be jointly and severally liable for any damages awarded against K. Hovnanian at Port Imperial Urban Renewal III, LLC, including any treble damages and attorney fees and costs. The Court also issued an order dismissing Grandview II Plaintiff’s claims for negligence and breach of implied warranties against certain Hovnanian-affiliated defendants. On December 14, 2017, the Hovnanian-affiliated defendants reached a settlement with Grandview II Plaintiff that resolved all claims in the case involving the Hovnanian-affiliated defendants. As of October 31, 2017, the Company had fully reserved for this settlement amount. On December 15, 2017, the Court issued an order dismissing the action. The settlement was paid on March 5, 2018.

On December 21, 2016, the members of the Company’s Board were named as defendants in a derivative and class action lawsuit filed in the Delaware Court of Chancery by Plaintiff Joseph Hong (“Plaintiff Hong”). Plaintiff Hong had previously made a demand for inspection of the books and records of the Company pursuant to Delaware law. The Company had provided certain company documents in response to Plaintiff Hong’s demand. The complaint related to the Board of Directors’ decisions to grant Ara K. Hovnanian equity awards in the form of Class B Common Stock, alleging that the defendants breached their fiduciary duties to the Company and its stockholders; that the equity awards granted in Class B Common Stock amounted to corporate waste; and that Ara. K Hovnanian was unjustly enriched by equity awards granted to him in Class B Common Stock. The complaint sought a declaration that the equity awards granted to Ara K. Hovnanian in Class B Common Stock between June 13, 2014 and June 10, 2016 were ultra vires, invalidation or rescission of those awards, injunctive relief, and unspecified damages. 

On December 18, 2017, the parties finalized a settlement agreement to resolve the litigation. Pursuant to the settlement agreement, the Company submitted for stockholder approval a resolution to amend the Company’s Certificate of Incorporation to affirm that in the event of a merger, consolidation, acquisition, tender offer, recapitalization, reorganization or other business combination, the same consideration will be provided for shares of Class A Common Stock and Class B Common Stock unless different treatment of the shares of each such class is approved separately by a majority of each class. The amendment was approved by the Company's shareholders at its Annual Meeting held on March 13, 2018. The Company has also agreed to implement certain operational and corporate governance measures regarding the granting of equity awards in Class B Common Stock. The Court approved the settlement on May 4, 2018 and the Company paid the Plaintiff’s attorney fees in the amount of $275,000 on May 10, 2018.

On January 11, 2018, Solus Alternative Asset Management LP (“Solus”) filed a complaint in the United States District Court for the Southern District of New York against GSO Capital Partners L.P., Hovnanian Enterprises, Inc. (“Hovnanian”), K. Hovnanian Enterprises, Inc. (“K. Hovnanian”), K. Hovnanian at Sunrise Trail III, LLC (“Sunrise Trail”), Ara K. Hovnanian and J. Larry Sorsby. The complaint related to K. Hovnanian’s offer to exchange up to $185.0 million aggregate principal amount of its 8.0% Senior Notes due 2019 for a combination of (i) cash, (ii) K. Hovnanian’s newly issued 13.5% Senior Notes due 2026 and (iii) K. Hovnanian’s newly issued 5.0% Senior Notes due 2040 and related transactions that were previously disclosed in Hovnanian’s Current Report on Form 8-K filed on December 28, 2017. The complaint alleged, among other things, inadequate disclosure in the exchange offer documents, improper and fraudulent structuring of the transactions to impact the credit default swap market, violations of Sections 10(b), 14(e) and 20(a) of the Securities Exchange Act of 1934, and tortious interference with prospective economic advantage. Solus sought, among other things, additional disclosures regarding the transactions, compensatory and punitive damages, and a preliminary and permanent injunction to stop the transactions from going forward. The court held a hearing on Solus’ motion for a preliminary injunction on January 25, 2018. On January 29, 2018, the court denied the motion, finding that Solus failed to show that it would be irreparably harmed in the absence of an injunction. 

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Solus filed an amended complaint on February 1, 2018, against the same defendants. Like the initial complaint, the amended complaint alleges improper and fraudulent structuring of the transactions to impact the credit default swap market, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and tortious interference with prospective economic advantage. Solus no longer asserts inadequate disclosure claims under Sections 10(b) and 14(e). In place of injunctive relief, Solus sought a declaratory judgment that Sunrise Trail III, LLC has waived its entitlement to interest payments under the indenture governing the 8.0% Senior Notes due 2019 and that the exchange offer breached this indenture. The defendants moved to dismiss the amended complaint on March 2, 2018. On May 30, 2018, the parties signed a stipulation of dismissal of all claims with prejudice.  As part of the case resolution, on May 30, 2018, K. Hovnanian paid the overdue interest on the 8.0% Senior Notes due 2019 held by Sunrise Trail that was originally due on May 1, 2018.  The case resolution does not involve any settlement payment or admission of wrongdoing by any of the Hovnanian-related parties.  On May 31, 2018, the Court so-ordered the stipulation and closed the case.

Hovnanian is actively seeking insurance coverage for the litigation costs related to the Solus claims.

8. Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Customer's Deposits

Cash represents cash deposited in checking accounts. Cash equivalents include certificates of deposit, Treasury bills and government money–market funds with maturities of 90 days or less when purchased. Our cash balances are held at a few financial institutions and may, at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At April 30, 2018 and October 31, 2017, $11.9 million and $13.3 million, respectively, of the total cash and cash equivalents was in cash equivalents, the book value of which approximates fair value.

Homebuilding - Restricted cash and cash equivalents on the Condensed Consolidated Balance Sheets totaled $14.0 million and $2.1 million as of April 30, 2018 and October 31, 2017, respectively, which included cash collateralizing our letter of credit agreements and facilities as discussed in Note 11. Also included in these balances were homebuilding customers’ deposits of $0.2 million and $0.4 million at April 30, 2018 and October 31, 2017, respectively, which are subject to restrictions on our use. The April 30, 2018 balance also included cash collateral of $11.1 million for a bond related to the Grandview litigation as discussed in Note 7.

Financial services restricted cash and cash equivalents, which are included in Financial services other assets on the Condensed Consolidated Balance Sheets, totaled $25.2 million and $22.3 million as of April 30, 2018 and October 31, 2017, respectively. Included in these balances were (1) financial services customers’ deposits of $23.2 million at April 30, 2018 and $20.0 million as of October 31, 2017, which are subject to restrictions on our use, and (2) $2.0 million at April 30, 2018 and $2.3 million at October 31, 2017, respectively, of restricted cash under the terms of our mortgage warehouse lines of credit.

Total Homebuilding Customers’ deposits are shown as a liability on the Condensed Consolidated Balance Sheets. These liabilities are significantly more than the applicable periods’ restricted cash balances because in some states the deposits are not restricted from use and, in other states, we are able to release the majority of these customer deposits to cash by pledging letters of credit and surety bonds.

9. Mortgage Loans Held for Sale

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”) originates mortgage loans, primarily from the sale of our homes. Such mortgage loans are sold in the secondary mortgage market within a short period of time of origination. Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. We have elected the fair value option to record loans held for sale and therefore these loans are recorded at fair value with the changes in the value recognized in the Condensed Consolidated Statements of Operations in “Revenues: Financial services.” We currently use forward sales of mortgage-backed securities (“MBS”), interest rate commitments from borrowers and mandatory and/or best efforts forward commitments to sell loans to third-party purchasers to protect us from interest rate fluctuations. These short-term instruments, which do not require any payments to be made to the counterparty or purchaser in connection with the execution of the commitments, are recorded at fair value. Gains and losses on changes in the fair value are recognized in the Condensed Consolidated Statements of Operations in “Revenues: Financial services.”

At April 30, 2018 and October 31, 2017, $72.7 million and $119.6 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 10). We may incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are not covered by mortgage insurance or resale value of the home. The reserves for these estimated losses are included in the “Financial services” liability balances on the Condensed Consolidated Balance Sheets. As of April 30, 2018 and 2017, we had reserves specifically for 45 and 94 identified mortgage loans, respectively, as well as reserves for an estimate for future losses on mortgages sold but not yet identified to us. In fiscal 2017, the adjustment to pre-existing provisions for losses from changes in estimates is primarily due to the settlement of a dispute for significantly less than the amount that had been previously reserved.

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The activity in our loan origination reserves during the three and six months ended April 30, 2018 and 2017 was as follows:

	Three Months Ended April 30,					Six Months Ended April 30,
(In thousands)	2018		2017			2018		2017
Loan origination reserves, beginning of period	$	3,188	$	5,077		$	3,158	$	8,137
Provisions for losses during the period		38		45			68		79
Adjustments to pre-existing provisions for losses from changes in estimates		45		(1,340	)		45		(4,434	)
Loan origination reserves, end of period	$	3,271	$	3,782		$	3,271	$	3,782

10. Mortgages

We have nonrecourse mortgage loans for certain communities totaling $70.6 million and $64.5 million (net of debt issuance costs) at April 30, 2018 and October 31, 2017, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $179.1 million and $157.8 million, respectively. The weighted-average interest rate on these obligations was 5.5% and 5.3% at April 30, 2018 and October 31, 2017, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries. We also had nonrecourse mortgage loans on our corporate headquarters totaling $13.0 million at October 31, 2017. On November 1, 2017, these loans were paid in full in connection with the sale of our corporate headquarters building.

K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in financial services liabilities on the Condensed Consolidated Balance Sheets.

Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A. (“Chase Master Repurchase Agreement”), is a short-term borrowing facility that provides up to $50.0 million through its maturity on January 31, 2019. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted LIBOR rate, which was 1.91% at April 30, 2018, plus the applicable margin of 2.5% or 2.63% based upon type of loan. As of April 30, 2018 and October 31, 2017, the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was $29.2 million and $41.5 million, respectively.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”), which was amended on February 16, 2018. The Customers Master Repurchase Agreement is a short-term borrowing facility that provides up to $50.0 million through its maturity on February 15, 2019. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable daily or as loans are sold to permanent investors on outstanding advances at the current LIBOR rate, plus the applicable margin ranging from 2.375% to 5.125% based on the type of loan and the number of days outstanding on the warehouse line. As of April 30, 2018 and October 31, 2017, the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was $23.9 million and $40.7 million, respectively.

K. Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”), which is a short-term borrowing facility that provides up to $50.0 million through December 20, 2018. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly at the current LIBOR rate, subject to a floor of .25%, plus the applicable margin of 2.375%. As of April 30, 2018 and October 31, 2017, the aggregate principal amount of all borrowings outstanding under the Comerica Master Repurchase Agreement was $18.0 million and $32.4 million, respectively.

The Chase Master Repurchase Agreement, Customers Master Repurchase Agreement and Comerica Master Repurchase Agreement (together, the “Master Repurchase Agreements”) require K. Hovnanian Mortgage to satisfy and maintain specified financial ratios and other financial condition tests. Because of the extremely short period of time mortgages are held by K. Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis of the size of the Master Repurchase Agreements, the levels required by these financial covenants, our ability based on our immediately available resources to contribute sufficient capital to cure any default, were such conditions to occur, and our right to cure any conditions of default based on the terms of the applicable agreement, we do not consider any of these covenants to be substantive or material. As of April 30, 2018, we believe we were in compliance with the covenants under the Master Repurchase Agreements.

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11. Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of April 30, 2018 and October 31, 2017, were as follows:

(In thousands)	April 30, 2018(1)(2)		October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$	73,562	$	72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$	74,456	$	74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)		53,076		53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)		134,638		133,732
10.0% Senior Secured Notes due July 15, 2022		434,855		434,543
10.5% Senior Secured Notes due July 15, 2024		394,278		394,953
Total Senior Secured Notes, net of debt issuance costs	$	1,091,303	$	1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$	-	$	131,957
8.0% Senior Notes due November 1, 2019		65,386		234,293
13.5% Senior Notes due February 1, 2026 (including premium)		101,829		-
5.0% Senior Notes due February 1, 2040 (net of discount)		43,193		-
Total Senior Notes, net of debt issuance costs	$	210,408	$	366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$	-	$	2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$	-	$	53,919
Senior Unsecured Term Loan Credit Facility due 2027, net of debt issuance costs	$	131,567	$	-
Unsecured Revolving Credit Facility	$	52,000	$	52,000

(1) “Notes payable” on our Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 consists of the total senior secured, senior and senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $38.5 million and $41.8 million, respectively.

(2) Unamortized debt issuance costs at April 30, 2018 and October 31, 2017 were $16.6 million and $16.1 million, respectively.

General

Except for K. Hovnanian, the issuer of the notes and borrower under our credit facilities, our home mortgage subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the Secured Term Loan Facility (as defined below), the Unsecured Term Loan Facility (as defined below), the Unsecured Revolving Credit Facility (as defined below) and the senior secured notes and senior notes outstanding at April 30, 2018 (collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the 5.0% Senior Secured Notes due 2021 (the “5.0% 2021 Notes”), the 2.0% Senior Secured Notes due 2021 (the “2.0% 2021 Notes” and together with the 5.0% 2021 Notes, the “2021 Notes”) and the 9.5% 2020 Notes (defined below) collectively with the 2021 Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries, except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do not guarantee K. Hovnanian's other indebtedness.

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The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility, the Unsecured Revolving Credit Facility (collectively, the “credit facilities”) and the indentures governing the notes outstanding at April 30, 2018 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the Secured Term Loans (as defined below) and the 9.5% 2020 Notes, any new or refinancing indebtedness may not be scheduled to mature earlier than January 15, 2021 (so long as no member of the JV Holdings Secured Group is an obligor thereon), or February 15, 2021 (if otherwise), and under the 10.0% Senior Secured Notes due 2022 (the “10.0% 2022 Notes”), any refinancing indebtedness of the 7.0% Senior Notes due 2019 (the “7.0% Notes”) (which includes the Unsecured Term Loans (as defined below)) and 8.0% Senior Notes due 2019 (the “8.0% Notes” and together with the 7.0% Notes, the “2019 Notes”) (which includes the New Notes (as defined below) and the Unsecured Term Loans) may not be scheduled to mature earlier than July 16, 2024 (such restrictive covenant in respect of the 10.5% Senior Secured Notes due 2024 (the “10.5% 2024 Notes”) was eliminated as described below under “—Fiscal 2018”)), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness (with respect to the credit facilities and certain of the senior secured and senior notes) and 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 assets, enter into certain transactions with affiliates and make cash repayments of the 2019 Notes and refinancing indebtedness in respect thereof  (with respect to the 10.0% 2022 Notes). The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility and the Unsecured Revolving Credit Facility and the indentures governing the notes also contain events of default which would permit the lenders/holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Secured Term Loan Facility (the “Secured Term Loans”), loans made under the Unsecured Term Loan Facility (the “Unsecured Term Loans”) and loans made under the Unsecured Revolving Credit Facility (the “Unsecured Loans”)/notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Secured Term Loans, the Unsecured Term Loans or Unsecured Loans/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 Secured Term Loans, the Unsecured Term Loans and the Unsecured Loans, material inaccuracy of representations and warranties and with respect to the Secured Term Loans and the Unsecured Term Loans, a change of control, and, with respect to the Secured Term Loans and senior secured notes, the failure of the documents granting security for the Secured Term Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Secured Term Loans and senior secured notes to be valid and perfected. As of April 30, 2018, we believe we were in compliance with the covenants of the credit facilities and the indentures governing our outstanding notes.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, is less than 2.0 to 1.0, we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are not cumulative, on our 7.625% Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will not result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

Under the terms of our debt agreements, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions, may do so from time to time. We also continue to evaluate our capital structure and may also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

Any liquidity-enhancing transaction will depend on identifying counterparties, negotiation of documentation and applicable closing conditions and any required approvals. Due to covenant restrictions in our debt instruments, we are currently limited in the amount of debt we can incur that does not qualify as refinancing indebtedness with certain maturity requirements as discussed above (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business.

Fiscal 2018

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

On December 28, 2017, the Company and K. Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with GSO Capital Partners LP on its own behalf and on behalf of one or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”), and had commenced a private offer to exchange with respect to the 8.0% Notes (the “Exchange Offer”).

Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following: (i) a senior unsecured term loan credit facility (the “Unsecured Term Loan Facility”) to be borrowed by K. Hovnanian and guaranteed by the Company and the Notes Guarantors, pursuant to which the GSO Entities committed to lend K. Hovnanian Unsecured Term Loans consisting of $132.5 million of initial term loans (the “Initial Term Loans”) on the settlement date of the Exchange Offer for purposes of refinancing K. Hovnanian’s 7.0% Notes, and up to $80.0 million of delayed draw term loans (the “Delayed Draw Term Loans”) for purposes of refinancing certain of K. Hovnanian’s 8.0% Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured first lien credit facility (the “New Secured Credit Facility” and together with the Unsecured Term Loan Facility, the “New Credit Facilities”) to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, pursuant to which the GSO Entities have committed to lend to K. Hovnanian up to $125.0 million of senior secured first priority loans (the “New Secured Loans”) to fund the repayment of K. Hovnanian’s Secured Term Loans and for general corporate purposes, upon the terms and subject to the conditions set forth therein. In addition, pursuant to the Commitment Letter, the GSO Entities have committed to purchase, and K. Hovnanian has agreed to issue and sell, on January 15, 2019 (or such later date within five business days as mutually agreed by the parties working in good faith), $25.0 million in aggregate principal amount of additional 10.5% 2024 Notes (the “Additional 10.5% 2024 Notes”) at a purchase price, for each $1,000 principal amount of Additional 10.5% 2024 Notes, that would imply a yield equal to (a) the volume weighted average yield to maturity (calculated based on the yield to maturity during the 30 calendar day period ending on one business day prior to January 15, 2019) for the 10.5% 2024 Notes, minus (b) 0.50%, upon the terms and subject to conditions set forth therein.

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On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Unsecured Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on February 1, 2018 to fund, together with cash on hand, the redemption on February 1, 2018 of all $132.5 million aggregate principal amount of 7.0% Notes, which resulted in a loss on extinguishment of debt of $0.5 million. The New Term Loans bear interest at a rate equal to 5.0% per annum and interest will be payable in arrears, on the last business day of each fiscal quarter. The New Term Loans will mature on February 1, 2027, which is the ninth anniversary of the first closing date of the Unsecured Term Loan Facility.

On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent (the “Secured Administrative Agent”), and the GSO Entities entered into the New Secured Credit Facility. Availability under the New Secured Credit Facility will terminate on December 28, 2019 and any outstanding New Secured Loans on such date shall convert to secured term loans maturing on December 28, 2022. When available to be drawn, the New Secured Loans and the guarantees thereof will be secured by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a first lien basis relative to the liens securing K. Hovnanian’s 10.0% 2022 Notes and 10.5% 2024 Notes pursuant to an existing intercreditor agreement to which the collateral agent for the New Secured Credit Facility shall become a party.

 The Secured Loans will bear interest at a rate per annum equal to the lesser of (a) 10.0% per annum and (b) (i) the volume weighted average yield (calculated based on the yield to maturity during the 30 calendar day period ending on the business day before the closing date of the first borrowings under the New Secured Credit Facility (the “Applicable Period”)) of the 10.5% 2024 Notes, if available, or if such rate is not available for the 10.5% 2024 Notes, such rate in respect of K. Hovnanian’s secured debt securities having the largest traded volume during the Applicable Period (the “VWAY Rate”), minus (ii) 0.50%, and interest will be payable in arrears, on the last business day of each fiscal quarter. If adequate and reasonable means do not exist for ascertaining the VWAY Rate as set forth in the preceding sentence, it shall instead be the rate calculated using the average of three quotations for the 10.5% 2024 Notes provided by three brokers of recognized standing.

The New Secured Credit Facility contains representations and warranties, with the accuracy of certain specified representations and warranties being a condition to the funding of the New Secured Loans on each date of funding, and affirmative and restrictive covenants that limit, among other things, and in each case subject to certain exceptions, the ability of the Company and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness and common and preferred stock, make other restricted payments, including investments, sell certain assets, incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets and enter into certain transactions with affiliates. The New Secured Credit Facility also contains customary events of default which would permit the Secured Administrative Agent thereunder to exercise remedies with respect to the collateral securing the New Secured Loans and declare New Secured Loans to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the New Secured Loans, including any interest and fees due in connection therewith, or other material indebtedness, the failure to satisfy covenants, the material inaccuracy of representations or warranties made, cross acceleration to other material indebtedness, and specified events of bankruptcy and insolvency.

The terms and covenants of the New Secured Credit Facility are effective as of January 29, 2018, the date of execution of the New Secured Credit Facility. However, the obligations of the lenders thereunder to make New Secured Loans under the New Secured Credit Facility on the applicable borrowing dates are subject to the satisfaction of certain terms and conditions precedent set forth therein, including requiring K. Hovnanian to use the net cash proceeds therefrom to repay K. Hovnanian’s Secured Term Loan Facility.

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On February 1, 2018, K. Hovnanian accepted all of the $170.2 million aggregate principal amount of 8.0% Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14% of the aggregate principal amount of 8.0% Notes outstanding prior to the Exchange Offer) and issued $90.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 (the “New 2026 Notes”) and $90.1 million aggregate principal amount of its 5.0% Senior Notes due 2040 (the “New 2040 Notes” and together with the New 2026 Notes, the “New Notes”) under a new Indenture. Also, as part of the Exchange Offer, on February 1, 2018, K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for $26.5 million in cash an aggregate of $26.0 million in principal amount of the 8.0% Notes (the “Purchased 8.0% Notes”). The New Notes are issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does not guarantee the New Notes. The New 2026 Notes bear interest at 13.5% per annum and mature on February 1, 2026. The New 2040 Notes bear interest at 5.0% per annum and mature on February 1, 2040. Interest on the New Notes is payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2018, to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date. The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled $103.0 million for the New 2026 Notes and $44.0 million for the New 2040 Notes, resulting in a premium on the New 2026 Notes and a discount on the New 2040 Notes, and a loss on extinguishment of debt of $0.9 million for the three and six months ended April 30, 2018.

On May 30, 2018, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of May 30, 2018 (the “Supplemental Indenture”), to the Indenture governing the New Notes.  The Supplemental Indenture eliminates the covenant restricting certain actions with respect to the Purchased 8.0% Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would not, (i) prior to June 6, 2018, redeem, cancel or otherwise retire, purchase or acquire any Purchased 8.0% Notes or (ii) make any interest payments on the Purchased 8.0% Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would not, and would not permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased 8.0% Notes other than to any subsidiary of the Company that is not K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased 8.0% Notes or the indenture under which they were issued with respect to the Purchased 8.0% Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminates events of default related to the eliminated covenant.  On May 30, 2018, K. Hovnanian paid the overdue interest on the Purchased 8.0% Notes that was originally due on May 1, 2018 and as a result of such payment, the “Default” under the Indenture governing the 8.0% Notes was cured.

On January 16, 2018, K. Hovnanian, Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, executed the Second Supplemental Indenture, dated as of January 16, 2018, to the indenture governing the 10.0% 2022 Notes and 10.5% 2024 Notes, dated as of July 27, 2017 (as supplemented, amended or otherwise modified), among K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, giving effect to the proposed amendments to such indenture solely with respect to the 10.5% 2024 Notes, which were obtained in a consent solicitation of the holders of the 10.5% 2024 Notes, and which eliminated the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value the 2019 Notes and refinancing or replacement indebtedness in respect thereof.

Secured Obligations

Our $75.0 million Secured Term Loan Facility (the “Secured Term Loan Facility”) has a maturity of August 1, 2019 and bears interest at a rate equal to LIBOR plus an applicable margin of 7.0% or, at K. Hovnanian’s option, a base rate plus an applicable margin of 6.0%, payable monthly. At any time from and after September 8, 2018, K. Hovnanian may voluntarily repay outstanding Secured Term Loans, provided that voluntary prepayments of Eurodollar loans made on a date other than the last day of an interest period applicable thereto are subject to customary breakage costs and voluntary prepayments made prior to February 1, 2019 are subject to a premium equal to 1.0% of the aggregate principal amount of the Secured Term Loans so prepaid (any prepayment of the Secured Term Loans made on or after February 1, 2019 are without any prepayment premium).

The 10.0% 2022 Notes have a maturity of July 15, 2022 and bear interest at a rate of 10.0% per annum payable semi-annually on January 15 and July 15 of each year, to holders of record at the close of business on January 1 and July 1, as the case may be, immediately preceding such interest payment dates. The 10.0% 2022 Notes are redeemable in whole or in part at our option at any time prior to July 15, 2019 at 100.0% of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian may also redeem some or all of the 10.0% 2022 Notes at 105.0% of principal commencing July 15, 2019, at 102.50% of principal commencing July 15, 2020 and at 100.0% of principal commencing July 15, 2021. In addition, K. Hovnanian may also redeem up to 35.0% of the aggregate principal amount of the 10.0% 2022 Notes prior to July 15, 2019 with the net cash proceeds from certain equity offerings at 110.0% of principal.

The 10.5% 2024 Notes have a maturity of July 15, 2024 and bear interest at a rate of 10.5% per annum payable semi-annually on January 15 and July 15 of each year, to holders of record at the close of business on January 1 and July 1, as the case may be, immediately preceding such interest payment dates. The 10.5% 2024 Notes are redeemable in whole or in part at our option at any time prior to July 15, 2020 at 100.0% of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian may also redeem some or all of the 10.5% 2024 Notes at 105.25% of principal commencing July 15, 2020, at 102.625% of principal commencing July 15, 2021 and at 100.0% of principal commencing July 15, 2022. In addition, K. Hovnanian may also redeem up to 35.0% of the aggregate principal amount of the 10.5% 2024 Notes prior to July 15, 2020 with the net cash proceeds from certain equity offerings at 110.50% of principal.

All of K. Hovnanian’s obligations under the Secured Term Loan Facility are guaranteed by the Notes Guarantors. The Secured Term Loan Facility and the guarantees thereof are secured, subject to permitted liens and other exceptions, on a first lien priority basis relative to the 10.0% 2022 Notes and the 10.5% 2024 Notes (and on a first lien super priority basis relative to future first lien indebtedness). At April 30, 2018, the aggregate book value of the real property that constituted collateral securing the Secured Term Loans was $483.4 million, 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. Cash and cash equivalents collateral that secured the Secured Term Loans was $164.8 million as of April 30, 2018, which included $12.8 million of restricted cash collateralizing a bond and 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. In addition, collateral securing the Secured Term Loans includes equity interest in K Hovnanian and the subsidiary Notes Guarantors.

All of K. Hovnanian’s obligations under the 10.0% 2022 Notes and the 10.5% 2024 Notes are guaranteed by the Notes Guarantors. In addition to pledges of the equity interests in K. Hovnanian and the subsidiary Notes Guarantors which secure the 10.0% 2022 Notes and the 10.5% 2024 Notes, the 10.0% 2022 Notes and the 10.5% 2024 Notes and the guarantees thereof are also secured in accordance with the terms of the indenture and security documents governing such Notes by pari passu liens on substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, in each case subject to permitted liens and certain exceptions (the collateral securing the 10.0% 2022 Notes and the 10.5% 2024 Notes is the same as that securing the Secured Term Loans). The liens securing the 10.0% 2022 Notes and the 10.5% 2024 Notes rank junior to the liens securing the Secured Term Loans and any other future secured obligations that are senior in priority with respect to the assets securing the 10.0% 2022 Notes and the 10.5% 2024 Notes.

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Our 9.5% Senior Secured Notes (the “9.5% 2020 Notes”) have a maturity of November 15, 2020, and bear interest at a rate of 9.5% per annum, payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates. The 9.5% 2020 Notes are redeemable in whole or in part at our option at any time prior to November 15, 2018 at 100% of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after November 15, 2018, K. Hovnanian may also redeem some or all of the 9.5% 2020 Notes at a redemption price equal to 100% of their principal amount. In addition, we may also redeem up to 35% of the aggregate principal amount of the 9.5% 2020 Notes prior to November 15, 2018 with the net cash proceeds from certain equity offerings at 109.5% of principal.

The 5.0% 2021 Notes and the 2.0% 2021 Notes were issued as separate series under an indenture, but have substantially the same terms other than with respect to interest rate and related redemption provisions, and vote together as a single class. The 5.0% 2021 Notes bear interest at a rate of 5.0% per annum and mature on November 1, 2021 and the 2.0% 2021 Notes bear interest at a rate of 2.0% per annum and mature on November 1, 2021. Interest on the 2021 Notes is payable semi-annually on May 1 and November 1 of each year, to holders of record at the close of business on April 15 and October 15, as the case may be, immediately preceding such interest payment dates. The 2021 Notes are redeemable in whole or in part at our option at any time, at 100.0% of the principal amount plus the greater of 1% of the principal amount and an applicable “Make-Whole Amount.”

The 9.5% 2020 Notes and the 2021 Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group. The guarantees of the JV Holdings Secured Group with respect to the 2021 Notes and the 9.50% 2020 Notes are secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of the assets of the members of the JV Holdings Secured Group. As of April 30, 2018, the collateral securing the guarantees included (1) $97.9 million of cash and cash equivalents, which included $1.0 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) $139.3 million aggregate book value of real property of the JV Holdings Secured Group, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised; and (3) equity interests owned by guarantors that are members of the JV Holdings Secured Group. Members of the JV Holdings Secured Group also own equity in joint ventures, either directly or indirectly through ownership of joint venture holding companies, with a book value of $79.2 million as of April 30, 2018; this equity is not pledged to secure, and is not collateral for, the 2021 Notes. Members of the JV Holdings Secured Group are “unrestricted subsidiaries” under K. Hovnanian's other senior secured notes and senior notes, the Unsecured Revolving Credit Facility, the Unsecured Term Loan Facility and the Secured Term Loan Facility, and thus have not guaranteed such indebtedness. 

Senior Notes

On February 1, 2018, K. Hovnanian borrowed the Initial Term Loans in the amount of $132.5 million under the Unsecured Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of its outstanding $132.5 million aggregate principal amount of 7.0% Notes (upon redemption, all 7.0% Notes were cancelled).  

K. Hovnanian’s 8.0% Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to August 1, 2019 at a redemption price equal to 100.0% of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after August 1, 2019, K. Hovnanian may also redeem some or all of the 8.0% Notes at a redemption price equal to 100.0% of their principal amount. As discussed above, the 8.0% Notes were the subject of the Exchange Offer that closed on February 1, 2018 and, as discussed in Note 21, K. Hovnanian called for redemption on May 28, 2018, $65.7 million aggregate principal amount of the 8.0% Notes, which redemption was funded with borrowings of the Delayed Draw Term Loans under the Unsecured Term Loan Facility (upon redemption, such redeemed 8.0% Notes were cancelled). Following the redemption, the outstanding 8.0% Notes consist of the Purchased 8.0% Notes.

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Unsecured Revolving Credit Facility

In June 2013, K. Hovnanian, as borrower, and we and certain of our subsidiaries, as guarantors, entered into a five-year, $75.0 million unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. The Unsecured Revolving Credit Facility is available for both letters of credit and general corporate purposes. Outstanding borrowings under the Unsecured Revolving Credit Facility accrue interest at an annual rate equal to either, as selected by K. Hovnanian, (i) the alternate base rate plus the applicable spread determined on the date of such borrowing or (ii) an adjusted London Interbank Offered Rate (“LIBOR”) rate plus the applicable spread determined as of the date two business days prior to the first day of the interest period for such borrowing. As of April 30, 2018, there were $52.0 million of borrowings and $11.6 million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of October 31, 2017, there were $52.0 million of borrowings and $14.6 million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of April 30, 2018, we believe we were in compliance with the covenants under the Unsecured Revolving Credit Facility.

In addition to the Unsecured Revolving Credit Facility, we have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of $2.7 million and $1.7 million letters of credit outstanding at April 30, 2018 and October 31, 2017, 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 April 30, 2018 and October 31, 2017, the amount of cash collateral in these segregated accounts was $2.7 million and $1.7 million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Condensed Consolidated Balance Sheets.

12. Per Share Calculation

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, and, for the first half of fiscal 2017, common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our 6.0% Exchangeable Note Units. Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.   

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods when we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Incremental shares attributed to nonvested stock and outstanding options to purchase common stock of 3.3 million and 3.5 million for the three and six months ended April 30, 2018, respectively, and 4.6 million for both the three and six months ended April 30, 2017 were excluded from the computation of diluted earnings per share because we had a net loss for the periods. Also, 1.7 million shares for the six months ended April 30, 2018, 10.0 million and 10.1 million shares for the three and six months ended April 30, 2017, respectively, of common stock issuable upon the exchange of our senior exchangeable notes (which were issued in fiscal 2012) were excluded from the computation of diluted earnings per share because the Company had a net loss for the periods.

In addition, shares related to out-of-the money stock options that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share were 5.6 million and 4.6 million for the three and six months ended April 30, 2018, respectively, and 4.7 million for both the three and six months ended April 30, 2017 because to do so would have been anti-dilutive for the periods presented.

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13. Preferred Stock

On July 12, 2005, we issued 5,600 shares of 7.625% Series A Preferred Stock, with a liquidation preference of $25,000 per share. Dividends on the Series A Preferred Stock are not cumulative and are payable at an annual rate of 7.625%. The Series A Preferred Stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A Preferred Stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A Preferred Stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” During the three and six months ended April 30, 2018 and 2017, we did not pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments. We anticipate that we will continue to be restricted from paying dividends, which are not cumulative, for the foreseeable future.

14. Common Stock

Each share of Class A Common Stock entitles its holder to one vote per share, and each share of Class B Common Stock generally entitles its holder to ten votes per share. The amount of any regular cash dividend payable on a share of Class A Common Stock will be an amount equal to 110% of the corresponding regular cash dividend payable on a share of Class B Common Stock. If a shareholder desires to sell shares of Class B Common Stock, such stock must be converted into shares of Class A Common Stock at a one to one conversion rate.

On August 4, 2008, our Board of Directors adopted a shareholder rights plan (the “Rights Plan”), which was amended on January 11, 2018, designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss (NOL) carryforwards and built-in losses under Section 382 of the Internal Revenue Code. Our ability to use NOLs and built-in losses would be limited if there was an “ownership change” under Section 382. This would occur if shareholders owning (or deemed under Section 382 to own) 5% or more of our stock increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a defined period of time. The Rights Plan was adopted to reduce the likelihood of an “ownership change” occurring as defined by Section 382. Under the Rights Plan, one right was distributed for each share of Class A Common Stock and Class B Common Stock outstanding as of the close of business on August 15, 2008. Effective August 15, 2008, if any person or group acquires 4.9% or more of the outstanding shares of Class A Common Stock without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power of such person or group. However, existing stockholders who owned, at the time of the Rights Plan’s initial adoption on August 4, 2008, 4.9% or more of the outstanding shares of Class A Common Stock will trigger a dilutive event only if they acquire additional shares. The approval of the Board of Directors’ decision to adopt the Rights Plan may be terminated by the Board of Directors at any time, prior to the Rights being triggered. The Rights Plan will continue in effect until August 14, 2021, unless it expires earlier in accordance with its terms. The approval of the Board of Directors’ decision to initially adopt the Rights Plan was approved by shareholders at a special meeting of stockholders held on December 5, 2008 and the amendment to the Rights Plan adopted by the Board on January 11, 2018 was approved by shareholders at the Company's annual meeting of shareholders held on March 13, 2018. Also at the special meeting on December 5, 2008, our stockholders approved an amendment to our Certificate of Incorporation to restrict certain transfers of Class A Common Stock in order to preserve the tax treatment of our NOLs and built-in losses under Section 382 of the Internal Revenue Code. Subject to certain exceptions pertaining to pre-existing 5% stockholders and Class B stockholders, the transfer restrictions in the amended Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than 5% to 5% or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own 5% or more of our common stock; or (iii) create a new public group. Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the 5% thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.

On July 3, 2001, our Board of Directors authorized a stock repurchase program to purchase up to 4 million shares of Class A Common Stock. There were no shares purchased during the three and six months ended April 30, 2018. As of April 30, 2018, the maximum number of shares of Class A Common Stock that may yet be purchased under this program is 0.5 million.

15. Income Taxes

The total income tax expense of $0.3 million and $0.6 million recognized for the three and six months ended April 30, 2018, respectively, was primarily related to state tax expense from income generated that was not offset by tax benefits in states where we fully reserve the tax benefit from net operating losses.

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The total income tax benefit of $1.1 million and $0.6 million for the three and six months ended April 30, 2017, respectively, was primarily due to the federal tax benefit on the pre-tax loss for the periods, partially offset by state tax expense from income generated in some states, which was not offset by tax benefits in other states that had losses for which we fully reserve the net operating losses.

Our federal net operating losses of $1.7 billion expire between 2028 and 2037. Our state NOLs of $2.6 billion expire between 2018 and 2037. Of the total state amount, $247.1 million will expire between 2018 through 2022; $463.1 million will expire between 2023 through 2027; $1.5 billion will expire between 2028 through 2032; and $348.7 million will expire between 2033 through 2037.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the “Act”). Effective January 1, 2018, the comprehensive U.S. tax reform package, among other things, lowered the corporate tax rate from 35% to 21%. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The effects of the Act on the Company include one major category which is the remeasurement of deferred taxes. Our accounting for the U.S. federal corporate tax rate is complete. Consequently, we have recorded a decrease related to deferred tax assets and liabilities of $298.5 million and $12.2 million, respectively, with a corresponding net adjustment to the valuation allowance in fiscal 2018, therefore there was no income tax expense or benefit as a result of the tax law changes. We will continue to evaluate the impact of the tax reform as additional regulatory guidance is obtained. The ultimate impact of tax reform may differ from our interpretations and assumptions due to additional regulatory guidance that may be issued.

Deferred federal and state income tax assets (“DTAs”) primarily represent the deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. If the combination of future years’ income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years. In accordance with ASC 740, we evaluate our DTAs quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard.  

As of April 30, 2018, we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our DTAs was appropriate in accordance with ASC 740. Listed below, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than not that all of our DTAs will not be realized. In analyzing these factors, overall the negative evidence, both objective and subjective, outweighed the positive evidence. Based on this analysis, we determined that the current valuation allowance for deferred taxes of $661.8 million as of April 30, 2018, which fully reserves for our DTAs, is appropriate.

1. Fiscal 2017 financial results, especially the $50.2 million pre-tax loss in the third quarter of 2017 primarily from the $42.3 million loss on extinguishment of debt during the quarter, that put us in a cumulative three-year loss position as of July 31, 2017. We are still in a cumulative three-year loss position as of April 30, 2018. Per ASC 740, cumulative losses are one of the most objectively verifiable forms of negative evidence. (Negative Objective Evidence)

2. In the third quarter of fiscal 2017 and second quarter of fiscal 2018, we completed debt refinancing/restructuring transactions which, by extending our debt maturities, will enable us to allocate cash to invest in new communities and grow our community count to get back to sustained profitability. (Positive Objective Evidence)

3. The refinancing in the third quarter of fiscal 2017 discussed in item 2 above will increase our interest incurred in fiscal 2018 and future years (based on our longer term modeling) by $23.4 million per year. (Negative Objective Evidence)

4. Recent financial results of $40.0 million pre-tax loss for the first half of 2018. (Negative Objective Evidence)

5. We incurred pre-tax losses during the housing market decline and the slower than expected housing market recovery. (Negative Objective Evidence)

6. We exited two geographic markets in fiscal 2016, one in fiscal 2017, and completed the wind down of operations in one other market in the second quarter of fiscal 2018, that have historically had losses. By exiting these underperforming markets, the Company will be able to redeploy capital to better performing markets, which over time should improve our profitability. (Positive Subjective Evidence)

7. Evidence of a sustained recovery in the housing markets in which we operate, supported by economic data showing housing starts, homebuilding volume and prices all increasing and forecasted to continue to increase. (Positive Subjective Evidence)

8. The historical cyclicality of the U.S. housing market, a more restrictive mortgage lending environment compared to before the housing downturn, the uncertainty of the overall US economy and government policies and consumer confidence, all or any of which could continue to hamper a faster, stronger recovery of the housing market. (Negative Subjective Evidence)

16. Operating and Reporting Segments

Our operating segments are components of our business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance and make operating decisions. Based on this criteria, each of our communities qualifies as an operating segment, and therefore, it is impractical to provide segment disclosures for this many segments. As such, we have aggregated the homebuilding operating segments into six reportable segments.

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Our homebuilding operating segments are aggregated into reportable segments based primarily upon geographic proximity, similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes. Our reportable segments consist of the following six homebuilding segments and a financial services segment noted below.

Homebuilding:

(1)	Northeast (New Jersey and Pennsylvania)
(2)	Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia)
(3)	Midwest (Illinois and Ohio)
(4)	Southeast (Florida, Georgia and South Carolina)
(5)	Southwest (Arizona and Texas)
(6)	West (California)

Financial Services

Operations of the Company’s 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 Company’s Financial Services segment include mortgage banking and title services provided to the homebuilding operations’ customers. We do not typically retain or service mortgages that we originate but rather sell the mortgages and related servicing rights to investors. 

Corporate and unallocated primarily represents operations at our headquarters in New Jersey. This includes our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services, and administration of insurance, quality and safety. It also includes interest income and interest expense resulting from interest incurred that cannot be capitalized in inventory in the Homebuilding segments, as well as the gains or losses on extinguishment of debt from any debt repurchases or exchanges.  

Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes (“Income (loss) before income taxes”). Income (loss) before income taxes for the Homebuilding segments consist of revenues generated from the sales of homes and land, income (loss) from unconsolidated entities, management fees and other income, less the cost of homes and land sold, selling, general and administrative expenses and interest expense. Income (loss) before income taxes for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and selling, general and administrative expenses incurred by the Financial Services segment. 

Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent stand-alone entity during the periods presented.  

Financial information relating to the Company’s segment operations was as follows:

	Three Months Ended April 30,						Six Months Ended April 30,
(In thousands)	2018			2017			2018			2017
Revenues:
Northeast	$	43,771		$	45,950		$	63,970		$	104,525
Mid-Atlantic		104,160			100,600			175,457			200,826
Midwest		42,938			42,019			83,517			85,721
Southeast		60,901			56,635			117,569			113,219
Southwest		159,147			225,255			287,452			408,664
West		78,098			100,843			163,148			197,374
Total homebuilding		489,015			571,302			891,113			1,110,329
Financial services		13,054			14,494			23,942			27,343
Corporate and unallocated (1)		475			139			4,655			272
Total revenues	$	502,544		$	585,935		$	919,710		$	1,137,944
Income (loss) before income taxes:
Northeast	$	5,960		$	(2,722	)	$	(3,741	)	$	(1,816	)
Mid-Atlantic		6,700			918			8,652			4,800
Midwest		(1,110	)		(3,170	)		(3,454	)		(2,458	)
Southeast		(5,286	)		428			(6,947	)		134
Southwest		10,047			19,785			15,558			31,708
West		7,172			2,317			15,239			1,563
Homebuilding income before income taxes		23,483			17,556			25,307			33,931
Financial services		4,256			7,134			6,803			13,128
Corporate and unallocated (1)		(37,317	)		(32,389	)		(72,159	)		(54,435	)
Loss before income taxes	$	(9,578	)	$	(7,699	)	$	(40,049	)	$	(7,376	)

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(1)  Corporate and unallocated for the three months ended April 30, 2018 included corporate general and administrative costs of $16.2 million, interest expense of $19.9 million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of $1.4 million and $(0.1) million of other income and expenses primarily related to interest income and gain on the sale of our corporate headquarters building. Corporate and unallocated for the six months ended April 30, 2018 included corporate general and administrative costs of $35.3 million, interest expense of $39.5 million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of $1.4 million and $(4.0) million of other income and expenses primarily related to interest income and gain on the sale of our corporate headquarters building. Corporate and unallocated for the three months ended April 30, 2017 included corporate general and administrative costs of $16.1 million, interest expense of $16.0 million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of $0.2 million and $0.1 million of other income and expenses primarily related to rental income. Corporate and unallocated for the six months ended April 30, 2017 included corporate general and administrative costs of $31.7 million, interest expense of $29.3 million (a component of Other interest on our Condensed Consolidated Statements of Operations), gain on extinguishment of debt of $7.4 million and $0.8 million of other income and expenses primarily related to bond amortization and rental income.  

(In thousands)	April 30, 2018		October 31, 2017
Assets:
Northeast	$	168,640	$	180,545
Mid-Atlantic		210,238		224,398
Midwest		83,412		84,960
Southeast		244,337		231,644
Southwest		328,521		294,337
West		189,806		175,347
Total homebuilding		1,224,954		1,191,231
Financial services		120,689		162,113
Corporate and unallocated		296,848		547,554
Total assets	$	1,642,491	$	1,900,898

17. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with third-party investors to develop land and construct homes that are sold directly to third-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other third parties.

In the first quarter of fiscal 2018, we acquired the remaining assets of one of our joint ventures, resulting in a $13.6 million reduction in our investment in the joint venture and a corresponding increase to inventory.

During the first quarter of fiscal 2017, we transferred one community we owned and our option to buy three communities to an existing joint venture, resulting in the receipt of $11.2 million of net cash.

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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.

(Dollars in thousands)	April 30, 2018
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	31,166		$	2,414		$	33,580
Inventories		651,968			6,923			658,891
Other assets		29,695			-			29,695
Total assets	$	712,829		$	9,337		$	722,166
Liabilities and equity:
Accounts payable and accrued liabilities	$	96,770		$	504		$	97,274
Notes payable		371,382			-			371,382
Total liabilities		468,152			504			468,656
Equity of:
Hovnanian Enterprises, Inc.		79,690			3,914			83,604
Others		164,987			4,919			169,906
Total equity		244,677			8,833			253,510
Total liabilities and equity	$	712,829		$	9,337		$	722,166
Debt to capitalization ratio		60	%		0	%		59	%

(Dollars in thousands)	October 31, 2017
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	60,580		$	194		$	60,774
Inventories		666,017			9,162			675,179
Other assets		36,026			-			36,026
Total assets	$	762,623		$	9,356		$	771,979
Liabilities and equity:
Accounts payable and accrued liabilities	$	121,646		$	429		$	122,075
Notes payable		330,642			-			330,642
Total liabilities		452,288			429			452,717
Equity of:
Hovnanian Enterprises, Inc.		88,884			3,746			92,630
Others		221,451			5,181			226,632
Total equity		310,335			8,927			319,262
Total liabilities and equity	$	762,623		$	9,356		$	771,979
Debt to capitalization ratio		52	%		0	%		51	%

As of April 30, 2018 and October 31, 2017, we had advances and a note receivable outstanding of $5.2 million and $22.4 million, respectively, to these unconsolidated joint ventures. These amounts were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to $88.3 million and $115.1 million at April 30, 2018 and October 31, 2017, respectively. In some cases our net investment in these 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 joint venture investments and any impairments recorded in the applicable joint venture. Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During the six months ended April 30, 2018, we did not write-down any of our joint venture investments; however, one of our joint ventures in the Northeast recorded an asset impairment. We recorded our proportionate share of this impairment charge of $0.7 million as part of our share of the net loss of the venture.

	For the Three Months Ended April 30, 2018
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	96,931		$	2,343		$	99,274
Cost of sales and expenses		(102,230	)		(2,123	)		(104,353	)
Joint venture net (loss) income	$	(5,299	)	$	220		$	(5,079	)
Our share of net income	$	1,296		$	109		$	1,405

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	For the Three Months Ended April 30, 2017
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	86,556		$	1,658		$	88,214
Cost of sales and expenses		(87,957	)		(1,841	)		(89,798	)
Joint venture net loss	$	(1,401	)	$	(183	)	$	(1,584	)
Our share of net loss	$	(4,583	)	$	(92	)	$	(4,675	)

	For the Six Months Ended April 30, 2018
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	155,496		$	3,618		$	159,114
Cost of sales and expenses		(174,366	)		(3,281	)		(177,647	)
Joint venture net (loss) income	$	(18,870	)	$	337		$	(18,533	)
Our share of net (loss) income	$	(3,903	)	$	168		$	(3,735	)

	For the Six Months Ended April 30, 2017
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	151,493		$	2,860		$	154,353
Cost of sales and expenses		(155,183	)		(2,823	)		(158,006	)
Joint venture net (loss) income	$	(3,690	)	$	37		$	(3,653	)
Our share of net (loss) income	$	(6,264	)	$	18		$	(6,246	)

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Condensed Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures and the deferral of income for lots purchased by us from certain joint ventures. To compensate us for the administrative services we provide as the manager of certain joint ventures we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled $2.9 million and $3.0 million for the three months ended April 30, 2018 and 2017, respectively, and $4.9 million and $5.1 million for the six months ended April 30, 2018 and 2017, respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Condensed Consolidated Statements of Operations.

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

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently 59%. Any 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 joint venture entity is considered a VIE under ASC 810-10 “Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities. 

18. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. In August 2015, the FASB issued ASU 2015-14 on this same topic, which defers for one year the effective date of ASU 2014-09, therefore making the guidance effective for the Company beginning November 1, 2018. Additionally, the FASB also decided to permit entities to early adopt the standard, which allows for either full retrospective or modified retrospective methods of adoption, for reporting periods beginning after December 15, 2016. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements, and have been involved in industry-specific discussions with the FASB on the treatment of certain items. However, due to the nature of our operations, we expect to identify similar performance obligations in our contracts under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our recognition of revenues to remain generally the same. Nonetheless, we are still evaluating the impact of specific parts of this ASU, and expect our revenue-related disclosures to change upon its adoption.

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In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 is effective for the Company beginning November 1, 2019. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Condensed Consolidated Financial Statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Condensed Consolidated Financial Statements.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 provides guidance for the accounting of income taxes related to intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for the Company’s fiscal year beginning November 1, 2018. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Condensed Consolidated Financial Statements.

19. Fair Value of Financial Instruments

ASC 820, “Fair Value Measurements and Disclosures,” provides a framework for measuring fair value, expands disclosures about fair-value measurements and establishes a fair-value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level 1: Fair value determined based on quoted prices in active markets for identical assets.

Level 2: Fair value determined using significant other observable inputs.

Level 3: Fair value determined using significant unobservable inputs.

Our financial instruments measured at fair value on a recurring basis are summarized below:

(In thousands)	Fair Value Hierarchy	Fair Value at April 30, 2018			Fair Value at October 31, 2017
Mortgage loans held for sale (1)	Level 2	$	87,971		$	132,424
Interest rate lock commitments	Level 2		(70	)		(14	)
Forward contracts	Level 2		125			15
Total		$	88,026		$	132,425

(1)  The aggregate unpaid principal balance was $85.6 million and $128.4 million at April 30, 2018 and October 31, 2017, respectively.

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We elected the fair value option for our loans held for sale for mortgage loans originated subsequent to October 31, 2008, in accordance with ASC 825, “Financial Instruments,” which permits us to measure financial instruments at fair value on a contract-by-contract basis. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Fair value of loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The Financial Services segment had a pipeline of loan applications in process of $593.5 million at April 30, 2018. Loans in process for which interest rates were committed to the borrowers totaled $50.3 million as of April 30, 2018. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements.

The Financial Services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At April 30, 2018, the segment had open commitments amounting to $21.5 million to sell MBS with varying settlement dates through June 20, 2018.

The assets accounted for using the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in the Condensed Consolidated Financial Statements in “Revenues: Financial services.” The fair values that are included in income are shown, by financial instrument and financial statement line item, below: 

	Three Months Ended April 30, 2018
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	127	$	178	$	(143	)

	Three Months Ended April 30, 2017
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	645	$	109	$	(422	)

	Six Months Ended April 30, 2018
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments			Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	2,541	$	(70	)	$	125

	Six Months Ended April 30, 2017
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	3,214	$	99	$	(305	)

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The Company's assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the three and six months ended April 30, 2018 and 2017. The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:

Nonfinancial Assets

		Three Months Ended
		April 30, 2018
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	11,170	$	(2,117	)	$	9,053
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Three Months Ended
		April 30, 2017
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	8,474	$	(1,549	)	$	6,925
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Six Months Ended
		April 30, 2018
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	11,170	$	(2,117	)	$	9,053
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Six Months Ended
		April 30, 2017
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	14,776	$	(4,136	)	$	10,640
Land and land options held for future development or sale	Level 3	$	6,326	$	(81	)	$	6,245

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may be required to recognize additional impairments. We recorded inventory impairments, which are included in the Condensed Consolidated Statements of Operations as “Inventory impairment loss and land option write-offs” and deducted from inventory of $2.1 million for both the three and six months ended April 30, 2018, and $1.5 million and $4.2 million for the three and six months ended April 30, 2017, respectively. See Note 4 for further detail of the communities evaluated for impairment.

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 our borrowings under the revolving credit and term loan facilities approximates their carrying amount based on Level 2 inputs. The fair value of each series of the senior unsecured notes (other than the 13.5% senior unsecured notes due 2026 at April 30, 2018, and the senior exchangeable notes and the senior amortizing notes outstanding at October 31, 2017) is 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, which are Level 2 measurements. The fair value of the senior unsecured notes (all series in the aggregate), other than the 13.5% senior notes due 2026 at April 30, 2018 and the senior exchangeable notes and senior amortizing notes outstanding at October 31, 2017, was estimated at $109.6 million and $383.7 million as of April 30, 2018 and October 31, 2017, respectively.

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The fair value of each of the 13.5% senior unsecured notes due 2026 at April 30, 2018 and the senior secured notes (all series in the aggregate), and the senior amortizing notes and the senior exchangeable notes outstanding at October 31, 2017 are estimated based on third party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments, which are Level 3 measurements. The fair value of the 13.5% senior unsecured notes due 2026 and the senior secured notes (all series in the aggregate) were estimated at $91.7 million and $1.1 billion, respectively, as of April 30, 2018. As of October 31, 2017, the fair value of the senior secured notes (all series in the aggregate), the senior amortizing notes and the senior exchangeable notes were estimated at $1.2 billion, $2.1 million and $54.2 million, respectively. 

20. Transactions with Related Parties

During both the three months ended April 30, 2018 and 2017, an engineering firm owned by Tavit Najarian, a relative of Ara K. Hovnanian, our Chairman of the Board of Directors and our Chief Executive Officer, provided services to the Company totaling $0.2 million. During the six months ended April 30, 2018 and 2017, the services provided by such engineering firm to the Company totaled $0.3 million and $0.4 million, respectively. Neither the Company nor Mr. Hovnanian has a financial interest in the relative’s company from whom the services were provided.

21. Subsequent events

On May 29, 2018, K. Hovnanian completed the redemption of $65.7 million aggregate principal amount of the 8.0% Notes with borrowings of the Delayed Draw Term Loans under the Unsecured Term Loan Facility. See Note 11 for further information.

On May 30, 2018, the parties to the Solus litigation signed a stipulation of dismissal of all claims with prejudice. As part of the case resolution, on May 30, 2018, K. Hovnanian paid the overdue interest on the 8.0% Notes held by Sunrise Trail that was originally due on May 1, 2018, and as a result of such payment, the “Default” under the Indenture governing the 8.0% Notes was cured. The case resolution does not involve any settlement payment or admission of wrongdoing by any of the Hovnanian-related parties. On May 31, 2018, the Court so-ordered the stipulation and closed the case. See Note 7 for further information.

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

As we have discussed for the past several quarters, our inability to buy land in fiscal 2016 and 2017, as a result of paying off $320 million of debt maturities from October 2015 through May 2016 has led to a reduction in community count and revenues, which impacts our overall profitability. Our total number of lots controlled increased in the quarter ended April 30, 2018, as compared to the same period of the prior year. This is the second consecutive quarter in which we have experienced a year over year quarterly increase. We believe continued growth in lots controlled should ultimately lead to community count growth and our recent refinancing transactions (discussed further below) provide much needed stability to our capital structure.

Our cash position during the first half of fiscal 2018 allowed us to spend $284.8 million on land purchases and land development during the period and still have $248.8 million of homebuilding cash and cash equivalents as of April 30, 2018. This cash and our recent refinancing transactions, by extending our debt maturities, will enable us to allocate additional cash to further grow our business. We continue to see opportunities to purchase land at prices that make economic sense in light of our current sales prices and sales pace and plan to continue actively pursuing such land acquisitions. New land purchases at pricing that we believe will generate appropriate investment returns and drive greater operating efficiencies are needed to return to sustained profitability.

The factors discussed above for fiscal 2016 and 2017 led to a 9.6% decline in our community count over last year’s second quarter, and as a result, for the first half of fiscal 2018 we experienced mixed operating results compared to the prior year. Net contracts per average active selling community decreased slightly to 10.6 for the three months ended April 30, 2018 compared to 10.9 in the same period in the prior year, but increased slightly to 18.1 for the six months ended April 30, 2018 compared to 17.6 in the same period in the prior year. Active selling communities decreased from 146 at April 30, 2017 to 132 at April 30, 2018, and net contracts decreased 11.7% and 12.0%, respectively, for the three and six months ended April 30, 2018, compared to the same periods of the prior year. For the three and six months ended April 30, 2018, sale of homes revenues decreased 17.5% and 20.9%, respectively, as compared to the same periods of the prior year, as a result of a 10.5% and 15.4% decrease in deliveries, respectively, along with our decreased community count. Gross margin percentage increased from 12.6% and 13.0% for the three and six months ended April 30, 2017, respectively, to 13.8% and 14.3% for the three and six months ended April 30, 2018, respectively. Gross margin percentage, before cost of sales interest expense and land charges, increased from 16.5% and 16.8% for the three and six months ended April 30, 2017, respectively, to 17.7% and 17.8% for the three and six months ended April 30, 2018. The improvements in both gross margin percentage and gross margin percentage, before cost of sales interest expense and land charges, are primarily the result of the mix of communities delivering. The improvement in gross margin percentage for the six months ended April 30, 2018 is also due to decreased land charges compared to the same period of the prior year. Selling, general and administrative costs (including corporate general and administrative expenses) were approximately flat for the three months ended April 30, 2018 and increased $2.5 million for the six months ended April 30, 2018 as compared to the same periods of the prior year. As a percentage of total revenue, such costs increased from 10.5% for the three months ended April 30, 2017 to 12.3% for the three months ended April 30, 2018 and increased from 10.7% for the six months ended April 30, 2017 to 13.5% for the six months ended April 30, 2018. The increase in the three months ended April 30, 2018 was mainly due to the decrease in total revenues, while the increase in the six months ended April 30, 2018 was also due to legal (including litigation) fees incurred related to our recent financing transactions. We are actively seeking insurance coverage for the litigation costs. Also contributing to the increase for the six months ended April 30, 2018 were higher stock compensation costs and rent expense related to (i) the sale and leaseback of our former corporate headquarters building for the period from November 2017 to February 2018 and (ii) rent on our new headquarters building.

When comparing sequentially from the first quarter of fiscal 2018 to the second quarter of fiscal 2018, our gross margin percentage decreased from 14.8% to 13.8%, and our gross margin percentage, before cost of sales interest expense and land charges, decreased slightly from 17.9% to 17.7%. Our gross margin percentage decreased primarily as a result of increased land charges. Selling, general and administrative costs (including corporate general and administrative expenses) as a percentage of total revenues decreased from 14.9% to 12.3%, as compared to the first quarter of fiscal 2018 primarily due to the increase in total revenues. Additionally in the first quarter of fiscal 2018, we incurred higher legal (including litigation) fees with respect to our recent financing transactions. Improving the efficiency of our selling, general and administrative expenses will continue to be a significant area of focus.

We had 2,193 homes in backlog with a dollar value of $900.7 million at April 30, 2018 (a decrease of 17.6% in dollar value compared to the same period in the prior year). As discussed above, we have invested $284.8 million in land purchases and land development during first half of fiscal 2018, which along with continued land acquisitions, is expected to lead to future community count growth. However, there is typically a significant time lag from when we first control lots until the time that we open a community for sale. This timeline can vary significantly from a few months (in a market such as Houston) to three to five years (in a market such as New Jersey). Although our community count increased sequentially in the first quarter of fiscal 2018 from the fourth quarter of fiscal 2017, as expected, our community count decreased from the first quarter of fiscal 2018 to the second quarter of fiscal 2018. Given the mix of land that we currently control and the land investment we currently anticipate, we believe substantial community count growth will begin in the early part of fiscal 2019. Once our community count grows, absent adverse market factors, we expect delivery and revenue growth will follow.

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CRITICAL ACCOUNTING POLICIES

As disclosed in our annual report on Form 10-K for the fiscal year ended October 31, 2017, our most critical accounting policies relate to income recognition from mortgage loans; inventories; unconsolidated joint ventures; post-development completion, warranty and insurance reserves; and deferred income taxes. Since October 31, 2017, there have been no significant changes to those critical accounting policies.

CAPITAL RESOURCES AND LIQUIDITY

Our operations consist primarily of residential housing development and sales in the Northeast (New Jersey and Pennsylvania), the Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia), the Midwest (Illinois and Ohio), the Southeast (Florida, Georgia and South Carolina), the Southwest (Arizona and Texas) and the West (California). In addition, we provide certain financial services to our homebuilding customers.

We have historically funded our homebuilding and financial services operations with cash flows from operating activities, borrowings under our credit facilities, the issuance of new debt and equity securities and other financing activities. Due to covenant restrictions in our debt instruments, we are currently limited in the amount of debt we can incur that does not qualify as refinancing indebtedness with certain maturity requirements (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business. 

Operating, Investing and Financing Activities – Overview

Our homebuilding cash balance at April 30, 2018 decreased $214.9 million from October 31, 2017. In addition to using $82.6 million to pay down debt during the period, we spent $284.8 million on land and land development. After considering this land and land development and all other operating activities, including revenue received from deliveries, we used $72.6 million of cash from operations. During the first half of fiscal 2018, cash provided by investing activities was $32.9 million, primarily related to the sale of our corporate headquarters building, along with distributions from a joint venture. Cash used in financing activities was $175.8 million during the first half of fiscal 2018 which included payments for debt maturities, $13.0 million to pay-off nonrecourse mortgage loans on our corporate headquarters, $42.6 million for land banking and model sale leaseback programs and a $43.4 million reduction in mortgage warehouse lines of credit. We intend to continue to use nonrecourse mortgage financings, model sale leaseback, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

Our cash uses during the six months ended April 30, 2018 and 2017 were for operating expenses, land purchases, land deposits, land development, construction spending, debt payments, state income taxes, interest payments and investments in joint ventures. During these periods, we provided for our cash requirements from available cash on hand, housing and land sales, model sale leasebacks, land banking transactions, joint ventures, financial service revenues and other revenues. We believe that these sources of cash taken together with the refinancing transactions discussed below will be sufficient through fiscal 2018 to finance our working capital requirements.

Our net income (loss) historically does not approximate cash flow from operating activities. The difference between net income (loss) and cash flow from operating activities is primarily caused by changes in inventory levels together with changes in receivables, prepaid and other assets, mortgage loans held for sale, interest and other accrued liabilities, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, stock compensation awards and impairment losses for inventory. When we are expanding our operations, inventory levels, prepaids and other assets increase causing cash flow from operating activities to decrease. Certain liabilities also increase as operations expand and partially offset the negative effect on cash flow from operations caused by the increase in inventory levels, prepaids and other assets. Similarly, as our mortgage operations expand, net income from these operations increases, but for cash flow purposes net income is partially offset by the net change in mortgage assets and liabilities. The opposite is true as our investment in new land purchases and development of new communities decrease (which happened in fiscal 2016 and 2017), causing us to generate positive cash flow from operations. In fiscal 2018, we used cash from operations due to increased spending on land purchases and land development compared to the past several quarters. As we continue to increase spending on land purchases and land development, cash flow from operations will decrease. As we continue to actively seek land investment opportunities, we will also remain focused on liquidity.

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Debt Transactions

As of April 30, 2018, we had a $75.0 million outstanding senior secured term loan facility (the “Secured Term Loan Facility”) ($73.6 million net of debt issuance costs), and $1,110.0 million of outstanding senior secured notes ($1,091.3 million, net of discount and debt issuance costs), comprised of $53.2 million 2.0% 2021 Notes (defined below), $141.8 million 5.0% 2021 Notes (defined below), $75.0 million 9.5% 2020 Notes (defined below), $440.0 million 10.0% Senior Secured Notes due 2022 and $400.0 million 10.5% Senior Secured Notes due 2024. As of April 30, 2018, we also had $246.4 million of outstanding senior notes ($210.4 million net of discount, premium and debt issuance costs), comprised of $90.1 million 5.0% Senior Notes due 2040, $90.6 million 13.5% Senior Notes due 2026 and $65.7 million 8.0% Senior Notes due 2019. In addition, as of April 30, 2018, there were $132.5 million ($131.6 million net of debt issuance costs) of borrowings on our senior unsecured term loan facility (“Unsecured Term Loan Facility”) and $52.0 million of borrowings and $11.6 million of letters of credit outstanding under our unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”).

Except for K. Hovnanian, the issuer of the notes and borrower under our credit facilities, our home mortgage subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the Secured Term Loan Facility (as defined below), the Unsecured Term Loan Facility (as defined below), the Unsecured Revolving Credit Facility (as defined below) and the senior secured notes and senior notes outstanding at April 30, 2018 (collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the 5.0% Senior Secured Notes due 2021 (the “5.0% 2021 Notes”), the 2.0% Senior Secured Notes due 2021 (the “2.0% 2021 Notes” and together with the 5.0% 2021 Notes, the “2021 Notes”) and the 9.5% 2020 Notes (defined below) collectively with the 2021 Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries, except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do not guarantee K. Hovnanian's other indebtedness.

The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility, the Unsecured Revolving Credit Facility (collectively, the “credit facilities”) and the indentures governing the notes outstanding at April 30, 2018 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the Secured Term Loans (as defined below) and the 9.5% 2020 Notes, any new or refinancing indebtedness may not be scheduled to mature earlier than January 15, 2021 (so long as no member of the JV Holdings Secured Group is an obligor thereon), or February 15, 2021 (if otherwise), and under the 10.0% Senior Secured Notes due 2022 (the “10.0% 2022 Notes”), any refinancing indebtedness of the 7.0% Senior Notes due 2019 (the “7.0% Notes”) (which includes the Unsecured Term Loans (as defined below)) and 8.0% Senior Notes due 2019 (the “8.0% Notes” and together with the 7.0% Notes, the “2019 Notes”) (which includes the New Notes (as defined below) and the Unsecured Term Loans) may not be scheduled to mature earlier than July 16, 2024 (such restrictive covenant in respect of the 10.5% Senior Secured Notes due 2024 (the “10.5% 2024 Notes”) was eliminated as described below), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness (with respect to the credit facilities and certain of the senior secured and senior notes) and 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 assets, enter into certain transactions with affiliates and make cash repayments of the 2019 Notes and refinancing indebtedness in respect thereof  (with respect to the 10.0% 2022 Notes). The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility and the Unsecured Revolving Credit Facility and the indentures governing the notes also contain events of default which would permit the lenders/holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Secured Term Loan Facility (the “Secured Term Loans”), loans made under the Unsecured Term Loan Facility (the “Unsecured Term Loans”) and loans made under the Unsecured Revolving Credit Facility (the “Unsecured Loans”)/notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Secured Term Loans, the Unsecured Term Loans or Unsecured Loans/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 Secured Term Loans, the Unsecured Term Loans and the Unsecured Loans, material inaccuracy of representations and warranties and with respect to the Secured Term Loans and the Unsecured Term Loans, a change of control, and, with respect to the Secured Term Loans and senior secured notes, the failure of the documents granting security for the Secured Term Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Secured Term Loans and senior secured notes to be valid and perfected. As of April 30, 2018, we believe we were in compliance with the covenants of the credit facilities and the indentures governing our outstanding notes.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, is less than 2.0 to 1.0, we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are not cumulative, on our 7.625% Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will not result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

Under the terms of our debt agreements, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions, may do so from time to time. We also continue to evaluate our capital structure and may also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

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On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Unsecured Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on February 1, 2018 to fund, together with cash on hand, the redemption on February 1, 2018 of all $132.5 million aggregate principal amount of 7.0% Notes, which resulted in a loss on extinguishment of debt of $0.5 million. The Unsecured Term Loans bear interest at a rate equal to 5.0% per annum and interest will be payable in arrears, on the last business day of each fiscal quarter. The Unsecured Term Loans will mature on February 1, 2027, which is the ninth anniversary of the first closing date of the Unsecured Term Loan Facility. K. Hovnanian called for redemption on May 28, 2018, $65.7 million aggregate principal amount of the 8.0% Notes, which redemption was funded with borrowings of the Delayed Draw Term Loans under the Unsecured Term Loan Facility (upon redemption, such redeemed 8.0% Notes were cancelled). Following the redemption, the outstanding 8.0% Notes consist of the Purchased 8.0% Notes (as defined below).

On January 29, 2018, K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent (the “Secured Administrative Agent”), and the GSO Entities entered into the New Secured Credit Facility. Availability under the New Secured Credit Facility will terminate on December 28, 2019 and any outstanding New Secured Loans on such date shall convert to secured term loans maturing on December 28, 2022. When available to be drawn, the New Secured Loans and the guarantees thereof will be secured by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a first lien basis relative to the liens securing K. Hovnanian’s 10.0% 2022 Notes and 10.5% 2024 Notes pursuant to an existing intercreditor agreement to which the collateral agent for the New Secured Credit Facility shall become a party.

On February 1, 2018, K. Hovnanian closed certain of the previously announced financing transactions as follows: (i) K. Hovnanian borrowed the Initial Term Loans in the amount of $132.5 million under the Unsecured Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of K. Hovnanian’s outstanding $132.5 million aggregate principal amount of 7.0% Notes (upon redemption, all 7.0% Notes were cancelled); and (ii) K. Hovnanian accepted all of the $170.2 million aggregate principal amount of 8.0% Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14% of the aggregate principal amount of 8.0% Notes outstanding prior to the exchange offer), and in connection therewith, K. Hovnanian issued $90.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 (the “New 2026 Notes”) and $90.1 million aggregate principal amount of its 5.0% Senior Notes due 2040 (the “New 2040 Notes,” and together with the New 2026 Notes, the “New Notes”) under a new indenture, and as part of the Exchange Offer, K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for $26.5 million in cash an aggregate of $26.0 million in principal amount of the 8.0% Notes (the “Purchased 8.0% Notes”). The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled $103.0 million for the New 2026 Notes and $44.0 million for the New 2040 Notes, resulting in a premium on the New 2026 Notes and a discount on the New 2040 Notes, and a loss on extinguishment of debt of $0.9 million for the three and six months ended April 30, 2018.

The New Notes are issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does not guarantee the New Notes. The New 2026 Notes bear interest at 13.5% per annum and mature on February 1, 2026. The New 2040 Notes bear interest at 5.0% per annum and mature on February 1, 2040. Interest on the New Notes is payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2018, to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date.

On May 30, 2018, K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of May 30, 2018 (the “Supplemental Indenture”), to the Indenture governing the New Notes.  The Supplemental Indenture eliminates the covenant restricting certain actions with respect to the Purchased 8.0% Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would not, (i) prior to June 6, 2018, redeem, cancel or otherwise retire, purchase or acquire any Purchased 8.0% Notes or (ii) make any interest payments on the Purchased 8.0% Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would not, and would not permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased 8.0% Notes other than to any subsidiary of the Company that is not K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased 8.0% Notes or the indenture under which they were issued with respect to the Purchased 8.0% Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminates events of default related to the eliminated covenant.  On May 30, 2018, K. Hovnanian paid the overdue interest on the Purchased 8.0% Notes that was originally due on May 1, 2018 and as a result of such payment, the “Default” under the Indenture governing the 8.0% Notes was cured.

In June 2013, K. Hovnanian, as borrower, and we and certain of our subsidiaries, as guarantors, entered into a five-year, $75.0 million unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. The Unsecured Revolving Credit Facility is available for both letters of credit and general corporate purposes. Outstanding borrowings under the Unsecured Revolving Credit Facility accrue interest at an annual rate equal to either, as selected by K. Hovnanian, (i) the alternate base rate plus the applicable spread determined on the date of such borrowing or (ii) an adjusted London Interbank Offered Rate (“LIBOR”) rate plus the applicable spread determined as of the date two business days prior to the first day of the interest period for such borrowing. As of April 30, 2018, there were $52.0 million of borrowings and $11.6 million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of October 31, 2017, there were $52.0 million of borrowings and $14.6 million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of April 30, 2018, we believe we were in compliance with the covenants under the Unsecured Revolving Credit Facility.

In addition to the Unsecured Revolving Credit Facility, we have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of $2.7 million and $1.7 million letters of credit outstanding at April 30, 2018 and October 31, 2017, 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 April 30, 2018 and October 31, 2017, the amount of cash collateral in these segregated accounts was $2.7 million and $1.7 million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Condensed Consolidated Balance Sheets.

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See Note 11 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of K. Hovnanian's credit facilities and senior secured notes and senior notes and the recently completed financing transactions.

Mortgages and Notes Payable

We have nonrecourse mortgage loans for certain communities totaling $70.6 million and $64.5 million (net of debt issuance costs) at April 30, 2018 and October 31, 2017, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $179.1 million and $157.8 million, respectively. The weighted-average interest rate on these obligations was 5.5% and 5.3% at April 30, 2018 and October 31, 2017, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries. We also had nonrecourse mortgage loans on our corporate headquarters totaling $13.0 million at October 31, 2017. On November 1, 2017, these loans were paid in full in connection with the sale of our corporate headquarters building.

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”), originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. The loans are secured by the mortgages held for sale and repaid when we sell the underlying mortgage loans to permanent investors. As of April 30, 2018 and October 31, 2017, we had an aggregate of $71.1 million and $114.6 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

See Note 10 to the Condensed Consolidated Financial Statements for a discussion of these agreements.

Ratings Actions

On April 6, 2018, S&P Global Ratings took certain rating actions as follows:

● Corporate Credit Rating, downgraded to CC

Downgrades in our credit ratings do not accelerate the scheduled maturity dates of our debt or affect the interest rates charged on any of our debt issues or our debt covenant requirements or cause any other operating issue. A potential risk from negative changes in our credit ratings is that they may make it more difficult or costly for us to access capital. 

Inventory Activities

Total inventory, excluding consolidated inventory not owned, increased $76.1 million during the six months ended April 30, 2018 from October 31, 2017. Total inventory, excluding consolidated inventory not owned, increased in the Mid-Atlantic by $6.0 million, in the Midwest by $3.0 million, in the Southeast by $6.2 million, in the Southwest by $49.1 million and in the West by $25.1 million. These increases were offset by a decrease in the Northeast of $13.3 million. The increases were primarily attributable to new land purchases and land development, partially offset by home deliveries during the period. During the six months ended April 30, 2018, we had impairments in the amount of $2.1 million. We wrote-off costs in the amount of $1.0 million during the six months ended April 30, 2018 related to land options that expired or that we terminated, as the communities’ forecasted profitability was not projected to produce adequate returns on investment commensurate with the risk. In the last few years, we have been able to acquire new land parcels at prices that we believe will generate reasonable returns under current homebuilding market conditions. There can be no assurances that this trend will continue in the near term. Substantially all homes under construction or completed and included in inventory at April 30, 2018 are expected to be delivered during the next six to nine months.  

Consolidated inventory not owned decreased $45.9 million. Consolidated inventory not owned consists of options related to land banking and model financing transactions that were added to our Condensed Consolidated Balance Sheets in accordance with US GAAP. The decrease from October 31, 2017 to April 30, 2018 was primarily due to a decrease in land banking transactions along with a decrease in the sale and leaseback of certain model homes during the period. We have land banking arrangements, whereby we sell land parcels to the land bankers 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 360-20-40-38, these transactions are considered a financing rather than a sale. For purposes of our Condensed Consolidated Balance Sheets, at April 30, 2018, inventory of $45.4 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of $23.5 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. In addition, 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 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Condensed Consolidated Balance Sheets, at April 30, 2018, inventory of $33.5 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of $30.0 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. From time to time, we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with ASC 360-20-40-38, we are required to record this inventory on our Condensed Consolidated Balance Sheets. As of April 30, 2018, we had no specific performance options.

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When possible, we option property for development prior to acquisition. By optioning property, we are only subject to the loss of the cost of the option and predevelopment costs if we choose not to exercise the option (other than with respect to specific performance options discussed above). As a result, our commitment for major land acquisitions is reduced. The costs associated with optioned properties are included in “Land and land options held for future development or sale” on the Condensed Consolidated Balance Sheets. Also included in “Land and land options held for future development or sale” are amounts associated with inventory in mothballed communities. We mothball (or stop development on) certain communities when we determine the current performance does not justify further investment at the time. That is, we believe we will generate higher returns if we decide against spending money to improve land today and save the raw land until such time as the markets improve or we determine to sell the property. As of April 30, 2018, we had mothballed land in 19 communities. The book value associated with these communities at April 30, 2018 was $24.4 million, which was net of impairment charges recorded in prior periods of $186.1 million. We continually review communities to determine if mothballing is appropriate. During the first half of fiscal 2018, we did not mothball any additional communities, but we sold two previously mothballed communities and re-activated one previously mothballed community.

Inventories held for sale, which are land parcels where we have decided not to build homes and are actively marketing the land for sale, represented $7.2 million and $23.6 million, respectively, of our total inventories at April 30, 2018 and October 31, 2017, and are reported at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from outside third parties.

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The following tables summarize home sites included in our total residential real estate.

	Active Communities(1)		Active Communities Homes		Proposed Developable Homes		Total Homes
April 30, 2018:
Northeast		4		708		3,684		4,392
Mid-Atlantic		24		1,853		2,375		4,228
Midwest		15		1,684		1,917		3,601
Southeast		15		2,059		1,871		3,930
Southwest		63		4,075		1,665		5,740
West		11		1,405		3,483		4,888
Consolidated total		132		11,784		14,995		26,779
Unconsolidated joint ventures(2)		21		3,157		1,073		4,230
Owned				7,651		4,937		12,588
Optioned				3,891		10,058		13,949
Controlled lots				11,542		14,995		26,537
Construction to permanent financing lots				242		-		242
Consolidated total				11,784		14,995		26,779

(1)  Active communities are open for sale communities with ten or more home sites available.

(2) Represents active communities and home sites for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 17 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures. 

	Active Communities(1)		Active Communities Homes		Proposed Developable Homes		Total Homes
October 31, 2017:
Northeast		3		319		4,208		4,527
Mid-Atlantic		24		1,488		2,753		4,241
Midwest		15		1,654		1,738		3,392
Southeast		15		1,972		1,384		3,356
Southwest		59		3,233		2,200		5,433
West		14		1,306		3,294		4,600
Consolidated total		130		9,972		15,577		25,549
Unconsolidated joint ventures(2)		27		3,667		2,103		5,770
Owned				5,675		5,747		11,422
Optioned				4,077		9,830		13,907
Controlled lots				9,752		15,577		25,329
Construction to permanent financing lots				220		-		220
Consolidated total				9,972		15,577		25,549

(1)  Active communities are open for sale communities with ten or more home sites available.

(2) Represents active communities and home sites for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 17 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.  

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The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in active and substantially completed communities.

	April 30, 2018						October 31, 2017
	Unsold Homes		Models		Total		Unsold Homes		Models		Total
Northeast		7		6		13		11		6		17
Mid-Atlantic		42		15		57		81		11		92
Midwest		18		12		30		21		13		34
Southeast		96		29		125		118		28		146
Southwest		346		38		384		348		15		363
West		50		25		75		23		10		33
Total		559		125		684		602		83		685
Started or completed unsold homes and models per active selling communities (1)		4.2		1.0		5.2		4.6		0.7		5.3

(1) Active selling communities (which are communities that are open for sale with ten or more home sites available) were 132 and 130 at April 30, 2018 and October 31, 2017, respectively. Ratio does not include substantially completed communities, which are communities with less than ten home sites available.

Other Balance Sheet Activities

Homebuilding – Restricted cash and cash equivalents increased $11.9 million from October 31, 2017 to $14.0 million at April 30, 2018. The increase was primarily due to cash collateral for a bond related to the Grandview litigation discussed in Note 7 to the Condensed Consolidated Financial Statements.

Investments in and advances to unconsolidated joint ventures decreased $26.7 million to $88.3 million at April 30, 2018 compared to October 31, 2017. The decrease was primarily due to the acquisition of the remaining assets of one of our joint ventures in the first quarter of fiscal 2018, along with partner distributions on another joint venture during the period. As of April 30, 2018 and October 31, 2017, we had investments in eight and ten homebuilding joint ventures, respectively, and one land development joint venture for both periods. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited only to performance and completion of development, environmental indemnification and standard warranty and representation against fraud misrepresentation and similar actions, including a voluntary bankruptcy.

Receivables, deposits and notes, net increased $12.0 million from October 31, 2017 to $70.2 million at April 30, 2018. The increase was primarily due to a receivable related to a land sale in the second quarter of fiscal 2018, partially offset by decreases primarily related to the timing of home closings during the period, along with a decrease in certain insurance receivables.

Property, Plant, and Equipment decreased $33.0 million from October 31, 2017 to April 30, 2018. The decrease was primarily due to our sale of our corporate headquarters building on November 1, 2017, totaling $34.7 million, net of accumulated depreciation. The decrease was slightly offset by an increase for software costs capitalized during the period.

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Prepaid expenses and other assets were as follows as of:

	April 30,		October 31,		Dollar
(In thousands)	2018		2017		Change
Prepaid insurance	$	2,318	$	1,893	$	425
Prepaid project costs		30,700		30,360		340
Other prepaids		6,959		4,245		2,714
Other assets		552		528		24
Total	$	40,529	$	37,026	$	3,503

Prepaid insurance increased slightly during the six months ended April 30, 2018 due to the timing of premium payments. These costs are amortized over the life of the associated insurance policy, which can be one to three years. Prepaid project costs consist of community specific expenditures that are used over the life of the community. Such prepaids are expensed as homes are delivered. Other prepaids increased primarily due to costs related to our recent refinancing transactions, partially offset by amortization of various prepaid costs, including annual software licenses.

Financial services (other assets) consist primarily of residential mortgages receivable held for sale of which $86.4 million and $131.5 million at April 30, 2018 and October 31, 2017, respectively, were being temporarily warehoused and are awaiting sale in the secondary mortgage market. The decrease in mortgage loans held for sale from October 31, 2017 is related to a decrease in the volume of loans originated during the second quarter of 2018 compared to the fourth quarter of 2017, partially due to the decrease in deliveries, along with a decrease in the average loan value.

Nonrecourse mortgages increased to $70.6 million at April 30, 2018 from $64.5 million at October 31, 2017. The increase was primarily due to new mortgages for communities in all segments obtained during the six months ended April 30, 2018, along with additional loan draws on existing mortgages, partially offset by the payment of existing mortgages, including a mortgage on a community which was transferred to a joint venture.

Accounts payable and other liabilities are as follows as of:

	April 30,		October 31,		Dollar
(In thousands)	2018		2017		Change
Accounts payable	$	116,740	$	128,844	$	(12,104	)
Reserves		121,481		134,089		(12,608	)
Accrued expenses		11,933		12,900		(967	)
Accrued compensation		29,149		47,209		(18,060	)
Other liabilities		8,817		12,015		(3,198	)
Total	$	288,120	$	335,057	$	(46,937	)

The decrease in accounts payable was primarily due to the lower volume of deliveries in the second quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017. Reserves decreased during the period as payments for construction defect claims exceeded new accruals primarily due to the settlement of the Grandview litigation discussed in Note 7 to the Condensed Consolidated Financial Statements. The decrease in accrued expenses was primarily due to decreases in accrued property tax. The decrease in accrued compensation was primarily due to the payment of our fiscal year 2017 bonuses during the first quarter of fiscal 2018, partially offset by the new accruals for bonuses for six months of fiscal 2018. Other liabilities decreased due to deferred income recognized during the period for home closings that had been previously delayed in connection with the remediation of the Weyerhaeuser-manufacture I-joist issue disclosed in our Form 10-K for the fiscal year ended October 31, 2017.

Customers’ deposits decreased $2.8 million to $31.0 million at April 30, 2018. The decrease was primarily due to a deposit for a land sale that was recognized as revenue when the land sale was completed during the period.

Nonrecourse mortgages secured by operating properties decreased $13.0 million from October 31, 2017 to April 30, 2018. The decrease was due to the payoff of our mortgage loans on our corporate headquarters building, which was sold on November 1, 2017.

Liabilities from inventory not owned decreased $37.6 million to $53.5 million at April 30, 2018. The decrease was primarily due to a decrease in land banking activity during the period, along with a decrease in the sale and leaseback of certain model homes, both accounted for as financing transactions as described above.     

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Financial Services (liabilities) decreased $42.0 million from $141.9 million at October 31, 2017, to $99.9 million at April 30, 2018. The decrease is primarily due to a decrease in our mortgage warehouse lines of credit, and correlates to the decrease in the volume of mortgage loans held for sale during the period.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2018 COMPARED TO THE THREE AND SIX MONTHS ENDED APRIL 30, 2017

Total revenues

Compared to the same prior period, revenues decreased as follows:

	Three Months Ended
(Dollars in thousands)	April 30, 2018		April 30, 2017		Dollar Change			Percentage Change
Homebuilding:
Sale of homes	$	468,117	$	567,553	$	(99,436	)		(17.5	)%
Land sales and other revenues		21,373		3,888		17,485			449.7	%
Financial services		13,054		14,494		(1,440	)		(9.9	)%
Total revenues	$	502,544	$	585,935	$	(83,391	)		(14.2	)%

	Six Months Ended
(Dollars in thousands)	April 30, 2018		April 30, 2017		Dollar Change			Percentage Change
Homebuilding:
Sale of homes	$	869,694	$	1,098,968	$	(229,274	)		(20.9	)%
Land sales and other revenues		26,074		11,633		14,441			124.1	%
Financial services		23,942		27,343		(3,401	)		(12.4	)%
Total revenues	$	919,710	$	1,137,944	$	(218,234	)		(19.2	)%

Homebuilding

For the three and six months ended April 30, 2018, sale of homes revenues decreased $99.4 million, or 17.5%, and $229.3 million or 20.9%, respectively, as compared to the same periods of the prior year. These decreases were primarily due to the number of home deliveries decreasing 10.5% and 15.4% for the three and six months ended April 30, 2018, respectively, as compared to the prior year periods. The average price per home decreased to $385,281 in the three months ended April 30, 2018 from $417,933 in the three months ended April 30, 2017. The average price per home decreased to $388,256 in the six months ended April 30, 2018 from $415,018 in the six months ended April 30, 2017. The decrease in average price was primarily the result of the geographic and community mix of our deliveries, as opposed to home price decreases (which we increase or decrease in communities depending on the respective community’s performance). Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may significantly fluctuate up or down. For further details on the changes in segment revenues, see “Homebuilding Operations by Segment” below. For further details on the increase in land sales and other revenues, see the section titled “Land Sales and Other Revenues” below.

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Information on homes delivered by segment is set forth below:

	Three Months Ended April 30,							Six Months Ended April 30,
(Dollars in thousands)	2018		2017		% Change			2018		2017		% Change
Northeast:
Dollars	$	23,513	$	45,917		(48.8	)%	$	43,705	$	98,824		(55.8	)%
Homes		47		99		(52.5	)%		87		203		(57.1	)%
Mid-Atlantic:
Dollars	$	104,058	$	100,120		3.9	%	$	175,067	$	200,279		(12.6	)%
Homes		206		202		2.0	%		341		406		(16.0	)%
Midwest:
Dollars	$	42,816	$	41,794		2.4	%	$	83,333	$	85,445		(2.5	)%
Homes		143		134		6.7	%		283		284		(0.4	)%
Southeast:
Dollars	$	60,974	$	54,005		12.9	%	$	117,648	$	110,391		6.6	%
Homes		158		127		24.4	%		290		265		9.4	%
Southwest:
Dollars	$	158,958	$	224,898		(29.3	)%	$	287,162	$	408,158		(29.6	)%
Homes		466		639		(27.1	)%		850		1,170		(27.4	)%
West:
Dollars	$	77,798	$	100,819		(22.8	)%	$	162,779	$	195,871		(16.9	)%
Homes		195		157		24.2	%		389		320		21.6	%
Consolidated total:
Dollars	$	468,117	$	567,553		(17.5	)%	$	869,694	$	1,098,968		(20.9	)%
Homes		1,215		1,358		(10.5	)%		2,240		2,648		(15.4	)%
Unconsolidated joint ventures(1)
Dollars	$	96,296	$	86,215		11.7	%	$	154,395	$	150,856		2.3	%
Homes		208		139		49.6	%		324		247		31.2	%

(1) Represents housing revenues and home deliveries for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 17 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

As discussed above, the overall decrease in consolidated housing revenues during the three and six months ended April 30, 2018 as compared to the same periods of the prior year was primarily attributed to a decrease in deliveries as our community count has decreased year over year.

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An important indicator of our future results are recently signed contracts and our home contract backlog for future deliveries. Our sales contracts and homes in contract backlog by segment are set forth below:

	Net Contracts (1) for the				Net Contracts (1) for the
	Three Months Ended April 30,				Six Months Ended April 30,				Contract Backlog as of April 30,
(Dollars in thousands)	2018		2017		2018		2017		2018		2017
Northeast:
Dollars	$	15,278	$	29,918	$	40,641	$	67,963	$	48,715	$	68,650
Homes		26		66		72		149		83		150
Mid-Atlantic:
Dollars	$	117,399	$	123,045	$	180,612	$	225,291	$	199,279	$	273,986
Homes		212		226		337		416		324		440
Midwest:
Dollars	$	67,308	$	61,489	$	116,724	$	107,055	$	132,360	$	126,138
Homes		220		196		385		341		484		431
Southeast:
Dollars	$	62,741	$	55,577	$	113,196	$	102,028	$	115,930	$	136,807
Homes		154		141		281		249		276		316
Southwest:
Dollars	$	198,487	$	227,500	$	339,945	$	398,384	$	230,600	$	275,870
Homes		587		671		998		1,156		657		749
West:
Dollars	$	93,213	$	142,522	$	162,610	$	226,945	$	173,794	$	211,215
Homes		205		290		358		452		369		418
Consolidated total:
Dollars	$	554,426	$	640,051	$	953,728	$	1,127,666	$	900,678	$	1,092,666
Homes		1,404		1,590		2,431		2,763		2,193		2,504
Unconsolidated joint ventures(2)
Dollars	$	178,973	$	87,317	$	316,194	$	167,617	$	436,715	$	174,325
Homes		302		158		525		297		636		310

(1)  Net contracts are defined as new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period.

(2) Represents net contract dollars, net contract homes and contract backlog dollars and homes for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 17 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

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In the first half of 2018, our open for sale community count increased to 132 from 130 at October 31, 2017, which is the net result of opening 33 new communities, closing 33 communities and purchasing two communities from an existing joint venture since the beginning of fiscal 2018. However, our community count of 132 at April 30, 2018 is down from 146 at April 30, 2017. Our reported level of sales contracts (net of cancellations) decreased as a result of our lower community count for the six months ended April 30, 2018 as compared to the same period of the prior year. However, as a sign of improvement in our sales absorption, net contracts per average active selling community for the six months ended April 30, 2018 was 18.1 compared to 17.6 for the same period of the prior year. Net contracts per average active selling community was 10.6 for the three months ended April 30, 2018 compared to 10.9 for the three months ended April 30, 2017.

Cancellation rates represent the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter. For comparison, the following are historical cancellation rates, excluding unconsolidated joint ventures:

Quarter	2018		2017		2016		2015		2014
First		18%		19%		20%		16%		18%
Second		17%		18%		19%		16%		17%
Third				19%		21%		20%		22%
Fourth				22%		20%		20%		22%

Another common and meaningful way to analyze our cancellation trends is to compare the number of contract cancellations as a percentage of beginning backlog. The following table provides this historical comparison, excluding unconsolidated joint ventures:

Quarter	2018		2017		2016		2015		2014
First		12%		12%		13%		11%		11%
Second		15%		16%		14%		14%		17%
Third				13%		12%		13%		13%
Fourth				12%		11%		12%		14%

Most cancellations occur within the legal rescission period, which varies by state but is generally less than two weeks after the signing of the contract. Cancellations also occur as a result of a buyer’s failure to qualify for a mortgage, which generally occurs during the first few weeks after signing. As shown in the tables above, contract cancellations over the past several years have been within what we believe to be a normal range. However, market conditions are uncertain and it is difficult to predict what cancellation rates will be in the future.

Total cost of sales on our Condensed Consolidated Statements of Operations includes expenses for consolidated housing and land and lot sales, including inventory impairment loss and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for housing sales and homebuilding gross margin is set forth below.

Homebuilding gross margin before cost of sales interest expense and land charges is a non-GAAP financial measure. This measure should not be considered as an alternative to homebuilding gross margin determined in accordance with GAAP as an indicator of operating performance.

Management believes this non-GAAP measure enables investors to better understand our operating performance. This measure is also useful internally, helping management evaluate our operating results on a consolidated basis and relative to other companies in our industry. In particular, the magnitude and volatility of land charges for the Company, and for other homebuilders, have been significant and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding land charges, as well as interest amortized to cost of sales, and other similar presentations prepared by analysts and other companies are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies’ respective level of impairments and levels of debt.

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	Three Months Ended April 30,						Six Months Ended April 30,
(Dollars in thousands)	2018			2017			2018			2017
Sale of homes	$	468,117		$	567,553		$	869,694		$	1,098,968
Cost of sales, excluding interest expense and land charges		385,302			473,980			714,829			913,897
Homebuilding gross margin, before cost of sales interest expense and land charges		82,815			93,573			154,865			185,071
Cost of sales interest expense, excluding land sales interest expense		15,309			20,313			27,601			36,887
Homebuilding gross margin, after cost of sales interest expense and before land charges		67,506			73,260			127,264			148,184
Land charges		2,673			1,953			3,087			5,137
Homebuilding gross margin	$	64,833		$	71,307		$	124,177		$	143,047
Gross margin percentage		13.8	%		12.6	%		14.3	%		13.0	%
Gross margin percentage, before cost of sales interest expense and land charges		17.7	%		16.5	%		17.8	%		16.8	%
Gross margin percentage, after cost of sales interest expense and before land charges		14.4	%		12.9	%		14.6	%		13.5	%

Cost of sales expenses as a percentage of consolidated home sales revenues are presented below:

	Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017
Sale of homes		100	%		100	%		100	%		100	%
Cost of sales, excluding interest expense and land charges:
Housing, land and development costs		72.5	%		73.6	%		72.1	%		73.1	%
Commissions		3.5	%		3.5	%		3.5	%		3.4	%
Financing concessions		1.3	%		1.1	%		1.3	%		1.2	%
Overheads		5.0	%		5.3	%		5.3	%		5.5	%
Total cost of sales, before interest expense and land charges		82.3	%		83.5	%		82.2	%		83.2	%
Cost of sales interest		3.3	%		3.6	%		3.2	%		3.3	%
Land charges		0.6	%		0.3	%		0.3	%		0.5	%
Gross margin percentage		13.8	%		12.6	%		14.3	%		13.0	%
Gross margin percentage, before cost of sales interest expense and land charges		17.7	%		16.5	%		17.8	%		16.8	%
Gross margin percentage, after cost of sales interest expense and before land charges		14.4	%		12.9	%		14.6	%		13.5	%

We sell a variety of home types in various communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate up or down. Total homebuilding gross margin percentage increased to 13.8% during the three months ended April 30, 2018 compared to 12.6% for the same period last year and increased to 14.3% during the six months ended April 30, 2018 compared to 13.0% for the same period last year. The increase in gross margin percentage for the three and six months ended April 30, 2018 is primarily due to the mix of communities delivering compared to the same periods of the prior year, and, with respect to the six months ended April 30, 2018 was also due to decreased land charges. For the six months ended April 30, 2018 and 2017, gross margin was favorably impacted by the reversal of prior period inventory impairments of $33.5 million and $28.2 million, respectively, which represented 3.9% and 2.6%, respectively, of “Sale of homes” revenue. Gross margin percentage, before cost of sales interest expense and land charges, increased from 16.5% for the three months ended April 30, 2017 to 17.7% for the three months ended April 30, 2018, and increased from 16.8% for the six months ended April 30, 2017 to 17.8% for the six months ended April 30, 2018, primarily due to the mix of communities delivering homes in each period.

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Reflected as inventory impairment loss and land option write-offs in cost of sales, we have written-off or written-down certain inventories totaling $2.7 million and $1.9 million during the three months ended April 30, 2018 and 2017, respectively, and $3.1 million and $5.1 million during the six months ended April 30, 2018 and 2017, respectively, to their estimated fair value. During the three and six months ended April 30, 2018, we wrote-off residential land options and approval and engineering costs amounting to $0.6 million and $1.0 million compared to $0.4 million and $0.9 million for the three and six months ended April 30, 2017, which are included in the total land charges discussed above. When a community is redesigned or abandoned, engineering costs are written-off. Option, approval and engineering costs are written-off when a community’s pro forma profitability is not projected to produce adequate returns on the investment commensurate with the risk and we believe it is probable we will cancel the option. Such write-offs were located in all of our segments except the Southeast for the first half of fiscal 2018, and in our Midwest and Southeast segments for the first half of fiscal 2017. We recorded $2.1 million and $1.5 million of inventory impairments during the three months ended April 30, 2018 and April 30, 2017, respectively, and $2.1 million and $4.2 million in inventory impairments during the six months ended April 30, 2018 and April 30, 2017, respectively. The impairments recorded in the first half of fiscal 2018 were primarily related to three communities in the Southeast. The impairments recorded in the first half of fiscal 2017 were primarily related to two communities in the West and one community in the Mid-Atlantic. It is difficult to predict whether impairment levels will remain low. Should it become necessary to further lower prices, or should the estimates or expectations used in determining estimated cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments. 

Land Sales and Other Revenues:

Land sales and other revenues consist primarily of land and lot sales. A breakout of land and lot sales is set forth below:

	Three Months Ended				Six Months Ended
	April 30,				April 30,
(In thousands)	2018		2017		2018		2017
Land and lot sales	$	20,505	$	2,711	$	20,505	$	9,712
Cost of sales, excluding interest		7,710		1,460		7,710		6,570
Land and lot sales gross margin, excluding interest		12,795		1,251		12,795		3,142
Land and lot sales interest expense		4,055		24		4,055		1,772
Land and lot sales gross margin, including interest	$	8,740	$	1,227	$	8,740	$	1,370

Land sales are ancillary to our residential homebuilding operations and are expected to continue in the future but may significantly fluctuate up or down. Although we budget land sales, they are often dependent upon receiving approvals and entitlements, the timing of which can be uncertain. As a result, projecting the amount and timing of land sales is difficult. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There were two land sales in the three months ended April 30, 2018 compared to three in the same period of the prior year. There were two land sales in the six months ended April 30, 2018 compared to five in the same period of the prior year. The increases in revenues for both the three and six month periods of fiscal 2018 occurred despite the decrease in the number of land sales, demonstrating the impact the mix of land sales can have on land sale revenues.

Land sales and other revenues increased $17.5 million and $14.4 million for the three and six months ended April 30, 2018, respectively, compared to the same period in the prior year. Other revenues include income from contract cancellations, where the deposit has been forfeited due to contract terminations, interest income, cash discounts and miscellaneous one-time receipts. For the three and six months ended April 30, 2018, compared to the three and six months ended April 30, 2017, the increase was mainly due to the fluctuation in land sales revenues noted above. The increase for the six months ended April 30, 2018 was also partially due to the $3.6 million gain recognized from the sale of our corporate headquarters building in the first quarter of fiscal 2018.

Homebuilding Selling, General and Administrative

Homebuilding selling, general and administrative (“SGA”) expenses were approximately flat with a $0.1 million increase for the three months ended April 30, 2018 and a decrease of $1.1 million for the six months ended April 30, 2018, respectively, compared to the same periods last year. The decrease for the six months ended April 30, 2018 was attributed to the reduction of our community count and a decrease in insurance costs. SGA expenses as a percentage of homebuilding revenues increased to 9.3% and 9.9% for the three and six months ended April 30, 2018, respectively, compared to 8.0% and 8.1% for the three and six months ended April 30, 2017, respectively, as a result of the 14.3% and 19.3% decline in homebuilding revenue for the same periods, respectively.

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HOMEBUILDING OPERATIONS BY SEGMENT

Segment Analysis

	Three Months Ended April 30,
(Dollars in thousands, except average sales price)	2018			2017			Variance			Variance %
Northeast
Homebuilding revenue	$	43,771		$	45,950		$	(2,179	)		(4.7	)%
Income (loss) before income taxes	$	5,960		$	(2,722	)	$	8,682			319.0	%
Homes delivered		47			99			(52	)		(52.5	)%
Average sales price	$	500,265		$	463,805		$	36,460			7.9	%
Mid-Atlantic
Homebuilding revenue	$	104,160		$	100,600		$	3,560			3.5	%
Income before income taxes	$	6,700		$	918		$	5,782			629.8	%
Homes delivered		206			202			4			2.0	%
Average sales price	$	505,139		$	495,647		$	9,492			1.9	%
Midwest
Homebuilding revenue	$	42,938		$	42,019		$	919			2.2	%
Loss before income taxes	$	(1,110	)	$	(3,170	)	$	2,060			65.0	%
Homes delivered		143			134			9			6.7	%
Average sales price	$	299,415		$	311,896		$	(12,481	)		(4.0	)%
Southeast
Homebuilding revenue	$	60,901		$	56,635		$	4,266			7.5	%
(Loss) income before income taxes	$	(5,286	)	$	428		$	(5,714	)		(1,335.0	)%
Homes delivered		158			127			31			24.4	%
Average sales price	$	385,908		$	425,235		$	(39,327	)		(9.2	)%
Southwest
Homebuilding revenue	$	159,147		$	225,255		$	(66,108	)		(29.3	)%
Income before income taxes	$	10,047		$	19,785		$	(9,738	)		(49.2	)%
Homes delivered		466			639			(173	)		(27.1	)%
Average sales price	$	341,112		$	351,954		$	(10,842	)		(3.1	)%
West
Homebuilding revenue	$	78,098		$	100,843		$	(22,745	)		(22.6	)%
Income before income taxes	$	7,172		$	2,317		$	4,855			(209.5	)%
Homes delivered		195			157			38			24.2	%
Average sales price	$	398,962		$	642,158		$	(243,196	)		(37.9	)%

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	Six Months Ended April 30,
(Dollars in thousands, except average sales price)	2018			2017			Variance			Variance %
Northeast
Homebuilding revenue	$	63,970		$	104,525		$	(40,555	)		(38.8	)%
Loss before income taxes	$	(3,741	)	$	(1,816	)	$	(1,925	)		(106.0	)%
Homes delivered		87			203			(116	)		(57.1	)%
Average sales price	$	502,354		$	486,819		$	15,535			3.2	%
Mid-Atlantic
Homebuilding revenue	$	175,457		$	200,826		$	(25,369	)		(12.6	)%
Income before income taxes	$	8,652		$	4,800		$	3,852			80.3	%
Homes delivered		341			406			(65	)		(16.0	)%
Average sales price	$	513,393		$	493,297		$	20,096			4.1	%
Midwest
Homebuilding revenue	$	83,517		$	85,721		$	(2,204	)		(2.6	)%
Loss before income taxes	$	(3,454	)	$	(2,458	)	$	(996	)		(40.5	)%
Homes delivered		283			284			(1	)		(0.4	)%
Average sales price	$	294,463		$	300,863		$	(6,400	)		(2.1	)%
Southeast
Homebuilding revenue	$	117,569		$	113,219		$	4,350			3.8	%
(Loss) income before income taxes	$	(6,947	)	$	134		$	(7,081	)		(5,284.3	)%
Homes delivered		290			265			25			9.4	%
Average sales price	$	405,682		$	416,569		$	(10,887	)		(2.6	)%
Southwest
Homebuilding revenue	$	287,452		$	408,664		$	(121,212	)		(29.7	)%
Income before income taxes	$	15,558		$	31,708		$	(16,150	)		(50.9	)%
Homes delivered		850			1,170			(320	)		(27.4	)%
Average sales price	$	337,838		$	348,854		$	(11,016	)		(3.2	)%
West
Homebuilding revenue	$	163,148		$	197,374		$	(34,226	)		(17.3	)%
Income before income taxes	$	15,239		$	1,563		$	13,676			875.0	%
Homes delivered		389			320			69			21.6	%
Average sales price	$	418,454		$	612,096		$	(193,642	)		(31.6	)%

Homebuilding Results by Segment 

Northeast - Homebuilding revenues decreased 4.7% for the three months ended April 30, 2018 compared to the same period of the prior year. The decrease for the three months ended April 30, 2018 was attributed to a 52.5% decrease in homes delivered partially offset by a 7.9% increase in average sales price. The increase in average sales price was the result of delivering higher priced, single family homes in higher-end submarkets of the segment in the three months ended April 30, 2018 compared to communities delivering lower priced, single family homes and townhomes in lower-end submarkets of the segment in the three months ended April 30, 2017. 

Loss before income taxes improved $8.7 million compared to the prior year to income of $6.0 million for the three months ended April 30, 2018. The improvement was mainly due to a $20.2 million increase in land sales and other revenue and a $6.1 million improvement in loss from unconsolidated joint ventures to income, while gross margin percentage before interest expense for the period decreased compared to the same period of the prior year.

Homebuilding revenues decreased 38.8% for the six months ended April 30, 2018 compared to the same period of the prior year. The decrease was attributed to a 57.1% decrease in homes delivered partially offset by a 3.2% increase in average sales price. The increase in average sales price was the result of delivering higher priced, single family homes in higher-end submarkets of the segment in the six months ended April 30, 2018 compared to communities delivering lower priced, single family homes and townhomes in lower-end submarkets of the segment in the six months ended April 30, 2017. 

Loss before income taxes increased $1.9 million compared to the prior year to $3.7 million for the six months ended April 30, 2018. The increase in the loss was mainly due to the decrease in homebuilding revenues discussed above, a $0.6 million increase in inventory impairment loss and land option write-offs, a $0.5 million increase in selling, general and administrative costs and a decrease in gross margin percentage before interest expense.

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Mid-Atlantic - Homebuilding revenues increased 3.5% for the three months ended April 30, 2018 compared to the same period in the prior year. The increase was primarily due to a 2.0% increase in homes delivered and a 1.9% increase in average sales price for the three months ended April 30, 2018 compared to the same period in the prior year. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in the three months ended April 30, 2018 compared to some communities delivering in the three months ended April 30, 2017 that are no longer delivering and which had lower priced, entry-level single family homes and townhomes in lower-end submarkets of the segment.

Income before income taxes increased $5.8 million compared to the prior year to $6.7 million for the three months ended April 30, 2018, which was primarily due to the increase in homebuilding revenues discussed above, a $1.4 million decrease in inventory impairment loss and land option write-offs, a $0.6 million decrease in selling, general and administrative costs and an increase in gross margin percentage before interest expense.

Homebuilding revenues decreased 12.6% for the six months ended April 30, 2018 compared to the same period in the prior year. The decrease was primarily due to a 16.0% decrease in homes delivered partially offset by a 4.1% increase in average sales price for the six months ended April 30, 2018. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in the six months ended April 30, 2018 compared to some communities delivering in the six months ended April 30, 2017 that are no longer delivering and which had lower priced, entry-level single family homes and townhomes in lower-end submarkets of the segment.

Income before income taxes increased $3.9 million compared to the prior year to $8.7 million for the six months ended April 30, 2018 due primarily to a $1.3 million decrease in inventory impairment loss and land option write-offs, a $0.5 million decrease in selling, general and administrative costs and an increase in gross margin percentage before interest expense.

Midwest - Homebuilding revenues increased 2.2% for the three months ended April 30, 2018 compared to the same period in the prior year. The increase was primarily due to a 6.7% increase in homes delivered partially offset by a 4.0% decrease in average sales price for the three months ended April 30, 2018. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in the three months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes in higher-end submarkets of the segment in the three months ended April 30, 2017.

Loss before income taxes improved $2.1 million to a loss of $1.1 million for the three months ended April 30, 2018 compared to the same period in the prior year. The decrease in the loss for the three months ended April 30, 2018 was primarily due to the increase in homebuilding revenue discussed above, a $0.9 million decrease in selling, general and administrative costs and a slight increase in gross margin percentage before interest expense for the period.

Homebuilding revenues decreased 2.6% for the six months ended April 30, 2018 compared to the same period in the prior year. The decrease was primarily due to a 2.1% decrease in average sales price for the six months ended April 30, 2018, while the numbers of homes delivered was flat. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in the six months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes in higher-end submarkets of the segment in the six months ended April 30, 2017.

Loss before income taxes increased $1.0 million compared to the prior year to a loss of $3.5 million for the six months ended April 30, 2018, primarily due to the decrease in homebuilding revenue discussed above and a decrease in gross margin percentage before interest expense for the period.

Southeast - Homebuilding revenues increased 7.5% for the three months ended April 30, 2018 compared to the same period in the prior year. The increase for the three months ended April 30, 2018 was attributed a 24.4% increase in homes delivered partially offset by a 9.2% decrease in average sales price and a $2.7 million decrease in land sales and other revenue. The decrease in average sales price was the result of new communities delivering lower priced, single family homes and townhomes in lower-end submarkets of the segment in the three months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in the three months ended April 30, 2017.

Income before income taxes decreased $5.7 million to a loss of $5.3 million for the three months ended April 30, 2018 primarily due to a $1.3 million increase in inventory impairment loss and land option write-offs, a $1.1 million increase in selling, general and administrative costs and a $2.1 million decrease in income from unconsolidated joint ventures to a loss, while gross margin percentage before interest expense slightly increased compared to the same period of the prior year.  

Homebuilding revenues increased 3.8% for the six months ended April 30, 2018 compared to the same period in the prior year. The increase for the six months ended April 30, 2018 was attributed to the 9.4% increase in homes delivered, partially offset by a 2.6% decrease in average sales price and a $2.9 million decrease in land sales and other revenue. The decrease in average sales price was the result of new communities delivering lower priced, single family homes and townhomes in lower-end submarkets of the segment in the six months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in the six months ended April 30, 2017.

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Income before income taxes decreased $7.1 million to a loss of $6.9 million for the six months ended April 30, 2018 primarily due to a $3.0 million decrease in income from unconsolidated joint ventures to a loss, a $0.3 million increase in inventory impairment loss and land option write-offs, a $0.4 million increase in selling, general and administrative costs, and a slight decrease in gross margin percentage before interest expense.

Southwest - Homebuilding revenues decreased 29.3% for the three months ended April 30, 2018 compared to the same period in the prior year. The decrease in homebuilding revenues was primarily due to a 27.1% decrease in homes delivered and a 3.1% decrease in average sales price for the three months ended April 30, 2018. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in the three months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes and townhomes in higher-end submarkets of the segment in the three months ended April 30, 2017.

Income before income taxes decreased $9.7 million to $10.0 million for the three months ended April 30, 2018. The decrease was primarily due to the decrease in homebuilding revenue discussed above and a slight decrease in gross margin percentage before interest expense.

Homebuilding revenues decreased 29.7% for the six months ended April 30, 2018 compared to the same period in the prior year. The decrease was primarily due to a 27.4% decrease in homes delivered and a 3.2% decrease in average sales price for the six months ended April 30, 2018. The decrease in average sales price was the result of new communities delivering lower priced, smaller single family homes in lower-end submarkets of the segment in the six months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, larger single family homes in higher-end submarkets of the segment in the six months ended April 30, 2017.

Income before income taxes decreased $16.2 million compared to the prior year to $15.6 million for the six months ended April 30, 2018. The decrease was due to the decrease in homebuilding revenues discussed above. Partially offsetting the decrease in income before income taxes is a $2.4 million decrease in selling, general and administrative costs, while gross margin percentage before interest expense for the six months ended April 30, 2018 compared to the same period of the prior year remained flat.

West - Homebuilding revenues decreased 22.6% for the three months ended April 30, 2018 compared to the same period in the prior year. The decrease for the three months ended April 30, 2018 was primarily attributed to a 37.9% decrease average sales price, partially offset by a 24.2% increase in homes delivered. The decrease in average sales price was the result of new communities delivering lower priced, single family homes in lower-end submarkets of the segment in the three months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, single family homes in higher-end submarkets of the segment in the three months ended April 30, 2017.

Income before income taxes increased $4.9 million to $7.2 million for the three months ended April 30, 2018. The increase was primarily due to a $1.5 million improvement in the loss from unconsolidated joint ventures and an increase in gross margin percentage before interest expense for the three months ended April 30, 2018 compared to the same period in the prior year.

Homebuilding revenues decreased 17.3% for the six months ended April 30, 2018 compared to the same period in the prior year. The decrease for the six months ended April 30, 2018 was primarily attributed to a 31.6% decrease in average sales price, partially offset by a 21.6% increase in homes delivered. The decrease in average sales price was the result of new communities delivering lower priced, single family homes in lower-end submarkets of the segment in the six months ended April 30, 2018 compared to some communities that are no longer delivering and which had higher priced, single family homes in higher-end submarkets of the segment in the six months ended April 30, 2017.

Income before income taxes increased $13.7 million to $15.2 million for the six months ended April 30, 2018. The increase was due to a $1.8 million decrease in inventory impairments and land option write-offs, a $1.5 million improvement in the loss from unconsolidated joint ventures to income and an increase in gross margin percentage before interest expense for the six months ended April 30, 2018 compared to the same period in the prior year.

Financial Services

Financial services consist primarily of originating mortgages from our homebuyers, selling such mortgages in the secondary market, and title insurance activities. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. 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. For the first half of fiscal 2018 and 2017, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 25.3% and 26.2%, respectively, of our total loans. The origination of FHA/VA loans have decreased slightly from the first half of fiscal 2017 to the first half of fiscal 2018 and our conforming conventional loan originations as a percentage of our total loans increased from 65.3% to 69.9% for these periods, respectively. The origination of loans which exceed conforming conventions have decreased from 8.4% for the first half of fiscal 2017 to 4.7% for the first half of fiscal 2018. Profits and losses relating to the sale of mortgage loans are recognized when legal control passes to the buyer of the mortgage and the sales price is collected.

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During the three and six months ended April 30, 2018, financial services provided $4.3 million and $6.8 million of pretax profit compared to $7.1 million and $13.1 million of pretax profit for the same periods of fiscal 2017. Revenues were down 9.9% and 12.4% and costs were up 19.5% and 20.6% for the three and six months ended April 30, 2018 compared to the three and six months ended April 30, 2017, respectively. Due to the competitive financial services market and recent increases in mortgage rates, the basis point spread between the loans originated and the implied rate from the sale of the loans has decreased for the three and six months ended April 30, 2018 compared to the same periods in the prior year, which resulted in a decrease in financial services revenue. The increase in costs in the three and six months ended April 30, 2018 was attributed to the reversal of a reserve in the first half of fiscal 2017 due to the settlement of a dispute for significantly less than the amount that had been previously reserved, which did not recur in the current fiscal year. In the market areas served by our wholly owned mortgage banking subsidiaries, 72.7% and 68.1% of our noncash homebuyers obtained mortgages originated by these subsidiaries during the three months ended April 30, 2018 and 2017, respectively, and 70.9% and 67.0% of our noncash homebuyers obtained mortgages originated by these subsidiaries for the six months ended April 30, 2018 and 2017, respectively. Servicing rights on new mortgages originated by us are sold with the loans.

Corporate General and Administrative

Corporate general and administrative expenses include the operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, legal expenses, rent and facility costs and other costs associated with our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses were flat at $16.1 million for the three months ended April 30, 2018 and 2017, and increased to $35.3 million for the six months ended April 30, 2018 compared to $31.7 million for the six months ended April 30, 2017. The increase in the six months ended April 30, 2018 from the prior year period was primarily due to increased legal (including litigation) fees related to our recent financing transactions and higher costs for ongoing litigations involving the Company. Additionally, there was an increase in stock compensation expense, as a result of higher stock prices for grants that are currently being expensed, along with lower expense in the first half of fiscal 2017, resulting from the forfeiture of compensation under our long-term incentive plan as a result of the retirement of a senior executive. Also contributing to the increase in corporate general and administrative expenses was rent expense incurred during the six months ended April 30, 2018, related to (i) the sale and leaseback of our former corporate headquarters building for the period from November 2017 to February 2018, and (ii) our new corporate headquarters building which we moved into in February 2018.

Other Interest

Other interest increased $3.8 million for the three months ended April 30, 2018 compared to the three months ended April 30, 2017 and increased $10.3 million for the six months ended April 30, 2018 compared to the six months ended April 30, 2017. Our assets that qualify for interest capitalization (inventory under development) are less than our debt, and therefore a portion of interest not covered by qualifying assets must be directly expensed. The increase for the three and six months ended April 30, 2018 was attributed to more interest incurred as a result of the senior secured notes issued in July 2017 that have a higher interest rate than the senior secured notes which they refinanced. In addition, our qualifying assets for interest capitalization decreased by more than our debt, therefore directly expensed interest increased for the three and six months ended April 30, 2018 compared to the same period in the prior year.

(Loss) Gain on Extinguishment of Debt

On February 1, 2018, K. Hovnanian closed certain of the previously announced financing transactions as follows: (i) K. Hovnanian borrowed the Initial Term Loans in the amount of $132.5 million under the Unsecured Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of K. Hovnanian’s outstanding $132.5 million aggregate principal amount of 7.0% Notes (upon redemption, all 7.0% Notes were cancelled); and (ii) K. Hovnanian accepted all of the $170.2 million aggregate principal amount of 8.0% Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14% of the aggregate principal amount of 8.0% Notes outstanding prior to the exchange offer), and in connection therewith, K. Hovnanian issued $90.6 million aggregate principal amount of New 2026 Notes and $90.1 million aggregate principal amount of New 2040 Notes, under the New Indenture and as part of the Exchange Offer, the Subsidiary Purchaser, purchased for $26.5 million in cash the Purchased 8.0% Notes. See Note 11 to the Condensed Consolidated Financial Statements. These transactions resulted in a loss on extinguishment of debt of $1.4 million for the three and six months ended April 30, 2018, which is included in “(Loss) gain on extinguishment of debt” on the Condensed Consolidated Statements of Operations.

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During the six months ended April 30, 2017, we repurchased in open market transactions $17.5 million aggregate principal amount of 7.0% Notes, $14.0 million aggregate principal amount of 8.0% Notes and 6,925 6.0% Senior Exchangeable Note Units representing $6.9 million stated amount of Units. The aggregate purchase price for these transactions was $30.8 million, plus accrued and unpaid interest. These transactions resulted in a gain on extinguishment of debt of $7.8 million. This gain was slightly offset by $0.4 million of additional costs associated with the 9.5% Senior Secured Notes issued during the fourth quarter of fiscal 2016.

Income (loss) from Unconsolidated Joint Ventures

Income (loss) from unconsolidated joint ventures consists of our share of the earnings or losses of our joint ventures. Loss from unconsolidated joint ventures improved by $5.9 million to income of $1.3 million for the three months ended April 30, 2018 compared to the same period of the prior year. Loss from unconsolidated joint ventures decreased $2.4 million to a loss of $3.8 million for the six months ended April 30, 2018. The improvement for both the three and six months is due to the recognition of our share of income from certain of our joint ventures delivering more homes and increased profits in the current fiscal year as compared to the prior fiscal year when they reported losses primarily due to startup costs. 

Total Taxes

The total income tax expense of $0.3 million and $0.6 million recognized for the three and six months ended April 30, 2018, respectively, was primarily related to state tax expense from income generated that was not offset by tax benefits in states where we fully reserve the tax benefit from net operating losses. The total income tax benefit of $1.1 million and $0.6 million for the three and six months ended April 30, 2017, respectively, was primarily due to the federal tax benefit on the pre-tax loss for the periods, partially offset by state tax expense from income generated in some states, which was not offset by tax benefits in other states that had losses for which we fully reserve the net operating losses.

Contractual Obligations

On August 25, 2017, we entered into an operating lease for our new headquarters building, which expires on June 30, 2023. Annual lease obligations for each of the fiscal years ending October 31 are as follows: $0.6 million in 2018, $1.1 million in 2019, $1.2 million in 2020, $1.2 million in 2021, $1.3 million in 2022 and $0.9 million in 2023.

Inflation

Inflation has a long-term effect, because increasing costs of land, materials and labor result in increasing sale prices of our homes. In general, these price increases have been commensurate with the general rate of inflation in our housing markets and have not had a significant adverse effect on the sale of our homes. A significant risk faced by the housing industry generally is that rising house construction costs, including land and interest costs, will substantially outpace increases in the income of potential purchasers and therefore limit our ability to raise home sale prices, which may result in lower gross margins.

Inflation has a lesser short-term effect, because we generally negotiate fixed price contracts with many, but not all, of our subcontractors and material suppliers for the construction of our homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between three to twelve months. Construction costs for residential buildings represent approximately 54.2% of our homebuilding cost of sales for the six months ended April 30, 2018.

Safe Harbor Statement

All statements in this Quarterly report on Form 10-Q that are not historical facts should be considered as “Forward-Looking Statements” within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company’s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to:

● Changes in general and local economic, industry and business conditions and impacts of a sustained homebuilding downturn;

● Adverse weather and other environmental conditions and natural disasters;

● Levels of indebtedness and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness;

● The Company’s sources of liquidity;

● Changes in credit ratings;

● Changes in market conditions and seasonality of the Company’s business;

52

●  The availability and cost of suitable land and improved lots;

● Shortages in, and price fluctuations of, raw materials and labor;

●  Regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes;

● Fluctuations in interest rates and the availability of mortgage financing;

● Changes in tax laws affecting the after-tax costs of owning a home;

● Operations through joint ventures with third parties;

● Government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment;

● Product liability litigation, warranty claims and claims made by mortgage investors;

●  Levels of competition;

● Availability and terms of financing to the Company;

●  Successful identification and integration of acquisitions;

●  Significant influence of the Company’s controlling stockholders; 

● Availability of net operating loss carryforwards;

●  Utility shortages and outages or rate fluctuations;

●  Geopolitical risks, terrorist acts and other acts of war;

● Increases in cancellations of agreements of sale;

● Loss of key management personnel or failure to attract qualified personnel;

● Information technology failures and data security breaches; and

● Legal claims brought against us and not resolved in our favor.

Certain risks, uncertainties and other factors are described in detail in Part I, Item 1 “Business” and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Quarterly Report on Form 10-Q.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A primary market risk facing us is interest rate risk on our long term debt, including debt instruments at variable interest rates. In connection with our mortgage operations, mortgage loans held for sale and the associated mortgage warehouse lines of credit under our Master Repurchase Agreements are subject to interest rate risk; however, such obligations reprice frequently and are short-term in duration. In addition, we hedge the interest rate risk on mortgage loans by obtaining forward commitments from private investors. Accordingly, the interest rate risk from mortgage loans is not material. We do not use financial instruments to hedge interest rate risk except with respect to mortgage loans. We are also subject to foreign currency risk but we do not believe this risk is material. The following table sets forth as of April 30, 2018, our principal cash payment obligations on our long-term debt obligations by scheduled maturity, weighted average interest rates and estimated fair value (“FV”).

	Long Term Debt as of April 30, 2018 by Fiscal Year of Expected Maturity Date
(Dollars in thousands)	2018			2019			2020			2021			2022			Thereafter			Total			FV at 4/30/18
Long term debt(1)(2):
Fixed rate	$	52,000		$	75,000		$	65,735		$	75,000		$	635,000		$	713,210		$	1,615,945		$	1,586,193
Weighted average interest rate		2.32	%		8.88	%		8.00	%		9.50	%		8.21	%		9.16	%		8.53	%

(1)	Does not include the mortgage warehouse lines of credit made under our Master Repurchase Agreements. Also, does not include $11.6 million of letters of credit issued as of April 30, 2018 under our $75.0 million Unsecured Revolving Credit Facility.
(2)	Does not include $70.6 million of nonrecourse mortgages secured by inventory. These mortgages have various maturities spread over the next two to three years and are paid as homes are delivered.

53

Item 4.  CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of April 30, 2018. Based upon that evaluation and subject to the foregoing, the Company’s chief executive officer and chief financial officer concluded that the design and operation of the Company’s disclosure controls and procedures are effective to accomplish their objectives.

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended April 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Information with respect to legal proceedings is incorporated into this Part II, Item 1 from Note 7 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Equity Securities

None.

Issuer Purchases of Equity Securities

No shares of our Class A Common Stock or Class B Common Stock were purchased by or on behalf of the Company or any affiliated purchaser during the fiscal second quarter of 2018. The maximum number of shares that may be purchased under the Company’s repurchase plans or programs is 0.5 million.

Dividends

Certain debt agreements to which we are a party contain restrictions on the payment of cash dividends. As a result of the most restrictive of these provisions, we are not currently able to pay any cash dividends. We have never paid a cash dividend to our common stockholders.

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Item 6.  EXHIBITS

3(a)	Restated Certificate of Incorporation of the Registrant.(2)
3(b)	Certificate of Amendment of the Restated Certificate of Incorporation of Hovnanian Enterprises, Inc., dated March 13, 2018. (7)
3(c)	Amended and Restated Bylaws of the Registrant.(3)
4(a)	Specimen Class A Common Stock Certificate.(6)
4(b)	Specimen Class B Common Stock Certificate.(6)
4(c)	Certificate of Designations, Powers, Preferences and Rights of the 7.625% Series A Preferred Stock of Hovnanian Enterprises, Inc., dated January 12, 2005.(4)
4(d)	Certificate of Designations of the Series B Junior Preferred Stock of Hovnanian Enterprises, Inc., dated August 14, 2008.(1)
4(e)	Rights Agreement, dated as of August 14, 2008, between Hovnanian Enterprises, Inc. and National City Bank, as Rights Agent, which includes the Form of Certificate of Designation as Exhibit A, Form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C.(5)
4(f)	Amendment No. 1 to Rights Agreement, dated as of January 11, 2018, between Hovnanian Enterprises, Inc. and Computershare Trust Company, N.A. (as successor to National City Bank), as Rights Agent, which includes the amended and restated Form of Rights Certificate as Exhibit 1 and the amended and restated Summary of Rights as Exhibit 2. (8)
4(g)	Indenture, dated as of February 1, 2018, relating to the 13.5% Senior Notes due 2026 and 5.0% Senior Note due 2040, by and among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Trustee, including the forms of 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040.(9)
10(a)	First Amendment, dated as of May 14, 2018, to the $212,500,000 Credit Agreement, dated as of January 29, 2018, among Hovnanian Enterprises, Inc., K. Hovnanian Enterprises Inc., the subsidiary guarantors party thereto, the lenders party thereto and Wilmington Trust, National Association, as administrative agent. (10)
10(b)	First Amendment, dated as of May 14, 2018, to the $125,000,000 Credit Agreement, dated as of January 29, 2018, among Hovnanian Enterprises, Inc., K. Hovnanian Enterprises Inc., the subsidiary guarantors party thereto, the lenders party thereto and Wilmington Trust, National Association, as administrative agent. (10)
31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32(a)	Section 1350 Certification of Chief Executive Officer.
32(b)	Section 1350 Certification of Chief Financial Officer.
101	The following financial information from our Quarterly Report on Form 10-Q for the quarter ended April 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets at April 30, 2018 and October 31, 2017, (ii) the Condensed Consolidated Statements of Operations for the three and six months ended April 30, 2018 and 2017, (iii) the Condensed Consolidated Statement of Equity for the six months ended April 30, 2018, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2018 and 2017, and (v) the Notes to Condensed Consolidated Financial Statements.

(1) Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q (001-08551) of the Registrant for the quarter ended July 31, 2008.

(2) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed March 15, 2013.

(3) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed March 11, 2015.

(4) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed on July 13, 2005.

(5) Incorporated by reference to Exhibits to the Registration Statement on Form 8-A (001-08551) of the Registrant filed August 14, 2008.

(6) Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q (001-08551) of the Registrant for the quarter ended January 31, 2009.

(7) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed March 14, 2018.

(8) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed January 11, 2018.

(9) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed February 2, 2018.

(10) Incorporated by reference to Exhibits to Current Report on Form 8-K (001-08551) of the Registrant filed May 14, 2018.

55

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HOVNANIAN ENTERPRISES, INC.

(Registrant)

DATE:	June 7, 2018
	/S/J. LARRY SORSBY
	J. Larry Sorsby
	Executive Vice President and
	Chief Financial Officer
DATE:	June 7, 2018
	/S/BRAD G. O’CONNOR
	Brad G. O’Connor
	Vice President/Chief Accounting Officer/Corporate Controller

56

EX-31.A

CERTIFICATIONS

Exhibit 31(a)

I, Ara K. Hovnanian, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q for the period ended April 30, 2018 of Hovnanian Enterprises, Inc. (the “registrant”);

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 7, 2018

/s/ARA K. HOVNANIAN
Ara K. Hovnanian
Chairman, President and Chief Executive Officer

EX-31.B

CERTIFICATIONS

Exhibit 31(b)

I, J. Larry Sorsby, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q for the period ended April 30, 2018 of Hovnanian Enterprises, Inc. (the “registrant”);

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 7, 2018

/s/J. LARRY SORSBY
J. Larry Sorsby
Executive Vice President and Chief Financial Officer

EX-32.A

Exhibit 32(a)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hovnanian Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended April 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ara K. Hovnanian, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 7, 2018

/s/ARA K. HOVNANIAN
Ara K. Hovnanian
Chairman, President and Chief Executive Officer

EX-32.B

Exhibit 32(b)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hovnanian Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended April 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Larry Sorsby, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 7, 2018

/s/J. LARRY SORSBY
J. Larry Sorsby
Executive Vice President and Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Apr. 30, 2018	Jun. 01, 2018
Document Information [Line Items]
Entity Registrant Name	HOVNANIAN ENTERPRISES INC
Entity Central Index Key	0000357294
Trading Symbol	hov
Current Fiscal Year End Date	--10-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Type	10-Q
Document Period End Date	Apr. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		132,643,015
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		15,470,482

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Apr. 30, 2018	Oct. 31, 2017
Cash and cash equivalents	$ 253,775	$ 469,320
Assets	1,642,491	1,900,898
Liabilities	2,142,467	2,361,269
Income taxes payable	1,902	2,227
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at April 30, 2018 and at October 31, 2017	135,299	135,299
Paid in capital – common stock	707,487	706,466
Accumulated deficit	(1,229,008)	(1,188,376)
Treasury stock – at cost – 11,760,763 shares of Class A common stock and 691,748 shares of Class B common stock at April 30, 2018 and October 31, 2017	(115,360)	(115,360)
Total stockholders’ equity deficit	(499,976)	(460,371)
Total liabilities and equity	1,642,491	1,900,898
Common Class A [Member]
Common stock	1,444	1,440
Common Class B [Member]
Common stock	162	160
Homebuilding [Member]
Cash and cash equivalents	248,815	463,697
Restricted cash and cash equivalents	13,957	2,077
Sold and unsold homes and lots under development	856,620	744,119
Land and land options held for future development or sale	104,518	140,924
Consolidated inventory not owned	78,907	124,784
Total inventories	1,040,045	1,009,827
Investments in and advances to unconsolidated joint ventures	88,344	115,090
Receivables, deposits and notes, net	70,168	58,149
Property, plant and equipment, net	19,944	52,919
Prepaid expenses and other assets	40,529	37,026
Assets	1,521,802	1,738,785
Accounts payable and other liabilities	288,120	335,057
Customers’ deposits	30,997	33,772
Liabilities from inventory not owned, net of debt issuance costs	53,515	91,101
Revolving and term loan credit facilities, net of debt issuance costs	257,129	124,987
Notes payable (net of discount, premium and debt issuance costs) and accrued interest	1,340,246	1,554,687
Liabilities	2,040,651	2,217,128
Homebuilding [Member] | Nonrecourse Mortgages Secured By Inventory [Member] | Mortgages [Member]
Nonrecourse mortgages secured by inventory, net of debt issuance costs	70,644	64,512
Homebuilding [Member] | Nonrecourse Mortgages Secured by Operating Properties [Member] | Mortgages [Member]
Nonrecourse mortgages secured by inventory, net of debt issuance costs		13,012
Financial Services [Member]
Cash and cash equivalents	4,960	5,623
Restricted cash and cash equivalents	25,200	22,300
Other assets	115,729	156,490
Liabilities	$ 99,914	$ 141,914

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Millions	Apr. 30, 2018	Oct. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	100,000	100,000
Preferred stock, shares issued (in shares)	5,600	5,600
Preferred stock, shares outstanding (in shares)	5,600	5,600
Preferred stock, liquidation preference	$ 140	$ 140
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	400,000,000	400,000,000
Common stock, shares issued (in shares)	144,403,778	144,046,073
Common stock, shares held in Treasury (in shares)	11,760,763	11,760,763
Common Class B [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	60,000,000	60,000,000
Common stock, shares issued (in shares)	16,162,230	15,999,355
Common stock, shares held in Treasury (in shares)	691,748	691,748

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Revenues		$ 502,544	$ 585,935	$ 919,710	$ 1,137,944
Inventory impairment loss and land option write-offs				3,087	5,137
Total expenses		512,025	588,830	954,486	1,146,496
Corporate general and administrative		16,144	16,071	35,279	31,727
Other interest	[1],[2]	26,088	22,297	55,219	44,924
Other operations		402	(95)	792	1,492
(Loss) gain on extinguishment of debt		(1,440)	(242)	(1,440)	7,404
Income (loss) from unconsolidated joint ventures		1,343	(4,562)	(3,833)	(6,228)
Loss before income taxes		(9,578)	(7,699)	(40,049)	(7,376)
Tax provision (benefit)		245	(1,017)	583	(551)
Net (loss)		$ (9,823)	$ (6,682)	$ (40,632)	$ (6,825)
Net (loss) per common share, basic (in dollars per share)		$ (0.07)	$ (0.05)	$ (0.27)	$ (0.05)
Weighted-average number of common shares outstanding, basic (in shares)		148,435	147,558	148,228	147,556
Net (loss) per common share, assuming dilution (in dollars per share)		$ (0.07)	$ (0.05)	$ (0.27)	$ (0.05)
Weighted-average number of common shares outstanding, assuming dilution (in shares)		148,435	147,558	148,228	147,556
State and Local Jurisdiction [Member]
Tax provision (benefit)		$ 245	$ 2,292	$ 583	$ 2,274
Domestic Tax Authority [Member]
Tax provision (benefit)			(3,309)		(2,825)
Homebuilding [Member]
Revenues		489,490	571,441	895,768	1,110,601
Cost of sales, excluding interest		393,012	475,440	722,539	920,467
Cost of sales interest		19,364	20,337	31,656	38,659
Inventory impairment loss and land option write-offs		2,673	1,953	3,087	5,137
Total cost of sales		415,049	497,730	757,282	964,263
Selling, general and administrative		45,544	45,467	88,775	89,875
Total expenses		460,593	543,197	846,057	1,054,138
Homebuilding [Member] | Home Building [Member]
Revenues		468,117	567,553	869,694	1,098,968
Homebuilding [Member] | Land Sales and Other Revenues [Member]
Revenues		21,373	3,888	26,074	11,633
Financial Services [Member]
Revenues		13,054	14,494	23,942	27,343
Total expenses		$ 8,798	$ 7,360	$ 17,139	$ 14,215

[1] 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: 8 Table of Contents Three Months Ended April 30, Six Months Ended April 30, (In thousands) 2018 2017 2018 2017 Other interest expensed $ 26,088 $ 22,297 $ 55,219 $ 44,924 Interest paid by our mortgage and finance subsidiaries 585 455 1,186 1,084 (Increase) decrease in accrued interest (23,448 ) 591 3,302 1,354 Cash paid for interest, net of capitalized interest $ 3,225 $ 23,343 $ 59,707 $ 47,362

[2] Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.

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Condensed Consolidated Statement of Equity (Unaudited) - 6 months ended Apr. 30, 2018 - USD ($) $ in Thousands	Common Stock [Member] Common Class A [Member]	Common Stock [Member] Common Class B [Member]	Preferred Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Oct. 31, 2017	132,285,310	15,307,607	5,600
Balance at Oct. 31, 2017	$ 1,440	$ 160	$ 135,299	$ 706,466	$ (1,188,376)	$ (115,360)	$ (460,371)
Stock options, amortization and issuances (in shares)	24,000
Stock options, amortization and issuances				302			302
Restricted stock amortization, issuances and forfeitures (in shares)	332,264	164,316
Restricted stock amortization, issuances and forfeitures	$ 4	$ 2		719			725
Conversion of Class B to Class A common stock (in shares)	1,441	(1,441)
Net (loss)					(40,632)		(40,632)
Balance (in shares) at Apr. 30, 2018	132,643,015	15,470,482	5,600
Balance at Apr. 30, 2018	$ 1,444	$ 162	$ 135,299	$ 707,487	$ (1,229,008)	$ (115,360)	$ (499,976)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017
Cash flows from operating activities:
Net (loss)	$ (40,632)	$ (6,825)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation	1,509	2,083
Compensation from stock options and awards	2,075	1,500
Amortization of bond discounts, premiums and deferred financing costs	4,150	9,348
Gain on sale and retirement of property and assets	(3,592)	(78)
Loss from unconsolidated joint ventures	3,833	6,228
Distributions of earnings from unconsolidated joint ventures		203
Loss (gain) on extinguishment of debt	1,440	(7,404)
Inventory impairment and land option write-offs	3,087	5,137
Deferred income tax benefit		(1,419)
(Increase) decrease in assets:
Origination of mortgage loans	(456,828)	(476,845)
Sale of mortgage loans	501,227	553,827
Restricted cash, receivables, prepaids, deposits and other assets	(18,972)	16,672
Inventories	(20,267)	68,735
State income tax payable	(325)	600
Customers’ deposits	(2,775)	2,892
Accounts payable, accrued interest and other accrued liabilities	(46,511)	(57,436)
Net cash (used in) provided by operating activities	(72,581)	117,218
Cash flows from investing activities:
Proceeds from sale of property and assets	38,273	86
Purchase of property, equipment and other fixed assets and acquisitions	(3,208)	(4,500)
Investments in and advances to unconsolidated joint ventures	(18,879)	(23,368)
Distributions of capital from unconsolidated joint ventures	28,754	10,735
Net cash provided by (used in) investing activities	32,869	(19,761)
Cash flows from financing activities:
Proceeds from mortgages and notes	75,962	103,620
Payments related to mortgages and notes	(82,121)	(119,860)
Proceeds from model sale leaseback financing programs	746	9,113
Payments related to model sale leaseback financing programs	(22,741)	(10,931)
Proceeds from land bank financing programs	3,766	8,643
Payments related to land bank financing programs	(19,890)	(41,617)
Proceeds from senior unsecured term loan facility	132,500
Payments related to senior notes and senior amortizing notes	(215,093)	(33,327)
Net payments related to mortgage warehouse lines of credit	(43,439)	(75,471)
Deferred financing costs from land bank financing programs and note issuances	(5,523)	(3,605)
Net cash used in financing activities	(175,833)	(163,435)
Net decrease in cash and cash equivalents	(215,545)	(65,978)
Cash and cash equivalents balance, beginning of period	469,320	346,765
Cash and cash equivalents balance, end of period	253,775	280,787
Supplemental disclosure of cash flow:
Interest, net of capitalized interest (see Note 3 to the Condensed Consolidated Financial Statements)	59,707	47,362
Income taxes	909	267
Related to Mortgage Company [Member]
Cash flows from investing activities:
Increase (decrease) in restricted cash	53	(2,715)
Related to Letters of Credit [Member]
Cash flows from investing activities:
Increase (decrease) in restricted cash	$ (12,124)	$ 1

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (Parentheticals) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jan. 31, 2018	Apr. 30, 2018
Investment in and advances to unconsolidated joint ventures, reduction in investment	$ 13.6	$ 13.6

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Note 1 - Basis of Presentation

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

1. Basis of Presentation

Hovnanian Enterprises, Inc. and Subsidiaries (the “Company”, “we”, “us” or “our”) has reportable segments consisting of

six

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

16

).

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

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X

and accordingly, they do

not

include all of the information and footnotes required by GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form

10

-K for the fiscal year ended

October 31, 2017. 

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

not

necessarily indicative of the results which might be expected for a full year. 

Reclassifications - In the

second

quarter of fiscal

2018,

we reclassified our Senior Secured Term Loan due

2019

on the Condensed Consolidated Balance Sheets from the line item “Notes payable (net of discount, premium and debt issuance costs) and accrued interest” to “Revolving and term loan credit facilities, net of debt issuance costs”, resulting in a reclassification of the

October 31, 2017

balance of

$73.0

 million.

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Note 2 - Stock Compensation

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

2. Stock Compensation

The Company’s total stock-based compensation expense was

$1.0

million and

$2.1

million for the

three

and

six

months ended

April 30, 2018,

respectively, and

$1.0

million and

$1.5

million (

$0.9

million and

$1.4

million net of tax) for the

three

and

six

months ended

April 30, 2017,

respectively. Included in this total stock-based compensation expense was the vesting of stock options of

$0.1

million and

$0.3

million for the

three

and

six

months ended

April 30, 2018,

respectively, and

$0.1

million and

$0.2

million for the

three

and

six

months ended

April 30, 2017,

respectively.

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Note 3 - Interest

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Home Building Interest [Text Block]

3. Interest

Interest costs incurred, expensed and capitalized were:

	Three Months Ended April 30,				Six Months Ended April 30,
(In thousands)	2018		2017		2018		2017
Interest capitalized at beginning of period	$	70,793	$	94,438	$	71,051	$	96,688
Plus interest incurred (1)		40,014		39,156		81,179		77,855
Less cost of sales interest expensed		19,364		20,337		31,656		38,659
Less other interest expensed (2)(3)		26,088		22,297		55,219		44,924
Interest capitalized at end of period (4)	$	65,355	$	90,960	$	65,355	$	90,960

( 1 )	Data does not include interest incurred by our mortgage and finance subsidiaries.
( 2 )	Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.
( 3 )	Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows:

	Three Months Ended April 30,					Six Months Ended April 30,
(In thousands)	2018			2017		2018		2017
Other interest expensed	$	26,088		$	22,297	$	55,219	$	44,924
Interest paid by our mortgage and finance subsidiaries		585			455		1,186		1,084
(Increase) decrease in accrued interest		(23,448	)		591		3,302		1,354
Cash paid for interest, net of capitalized interest	$	3,225		$	23,343	$	59,707	$	47,362

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

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Note 4 - Reduction of Inventory to Fair Value

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Inventory Impairments and Land Option Cost Write-offs [Text Block]

4. Reduction of Inventory to Fair Value

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they

may

be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the

six

months ended

April 30, 2018,

our discount rate used for the impairments recorded ranged from

16.8%

to

19.8%.

For the

six

months ended

April 30, 2017,

our discount rate used for the impairments recorded ranged from

18.3%

to

19.8%.

Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we

may

need to recognize additional impairments. 

During the

six

months ended

April 30, 2018

and

2017

we evaluated inventories of all

377

and

381

communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed detailed impairment calculations during the

six

months ended

April 30, 2018

and

2017

for

five

and

nine

of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of

$11.2

million and

$66.9

million, respectively. As a result of our impairment analysis, we recorded aggregate impairment losses of

$2.1

million in all

five

 communities (which had an aggregate pre-impairment value of

$11.2

million) for both the

three

and

six

months ended

April 30, 2018. 

We also recorded aggregate impairment losses of

$1.5

million and

$4.2

million, in

one

and

six

communities, respectively (which had aggregate pre-impairment values of

$8.5

million and

$21.1

million, respectively) for the

three

and

six

months ended

April 30, 2017,

respectively. These impairment losses are included in the Condensed Consolidated Statements of Operations on the line entitled “Homebuilding: Inventory impairment loss and land option write-offs” and deducted from inventory. The pre-impairment value represents the carrying value, net of prior period impairments, if any, at the time of recording the impairment. Of those communities tested for impairment during the

six

months ended

April 30, 2017,

three

communities with an aggregate carrying value of

$45.8

million had undiscounted future cash flows that exceeded the carrying amount by less than

20%.

During the

six

months ended

April 30, 2018,

none

of the

five

communities tested for impairment had undiscounted future cash flows that exceeded the carrying amount by less than

20%.

The Condensed Consolidated Statements of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” also includes write-offs of options and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do

not

exercise options in various locations because the communities' pro forma profitability is

not

projected to produce adequate returns on investment commensurate with the risk. Total aggregate write-offs related to these items were

$0.6

million and

$0.4

million for the

three

months ended

April 30, 2018

and

2017,

respectively, and

$1.0

million and

$0.9

million for the

six

months ended

April 30, 2018

and

2017,

respectively. Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have

not

been significant in comparison to the total costs written off. The number of lots walked away from during the

three

months ended

April 30, 2018

and

2017

were

714

and

478,

respectively, and

1,341

and

1,539

during the

six

months ended

April 30, 2018

and

2017,

respectively.

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 Condensed Consolidated Balance Sheets from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale.” During the

first

half of fiscal

2018,

we did

not

mothball any additional communities, but we sold

two

previously mothballed communities and re-activated

one

previously mothballed community. As of

April 30, 2018

and

October 31, 2017,

the net book value associated with our

19

and

22

total mothballed communities was

$24.4

million and

$36.7

million, respectively, which was net of impairment charges recorded in prior periods of

$186.1

million and

$214.1

million, respectively.

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with Accounting Standards Codification (“ASC”)

360

-

20

-

40

-

38,

we are required to record this inventory on our Condensed Consolidated Balance Sheets. As of

April 30, 2018

and

October 31, 2017,

we had

no

specific performance options.

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

360

-

20

-

40

-

38,

these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Condensed Consolidated Balance Sheets, at

April 30, 2018

and

October 31, 2017,

inventory of

$33.5

million and

$58.5

million, respectively, was recorded to “Consolidated inventory

not

owned,” with a corresponding amount of

$30.0

million and

$51.8

million (net of debt issuance costs), 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 bankers 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

360

-

20

-

40

-

38,

these transactions are considered a financing rather than a sale. For purposes of our Condensed Consolidated Balance Sheets, at

April 30, 2018

and

October 31, 2017,

inventory of

$45.4

million and

$66.3

million, respectively, was recorded as “Consolidated inventory

not

owned,” with a corresponding amount of

$23.5

million and

$39.3

million (net of debt issuance costs), respectively, recorded to “Liabilities from inventory

not

owned” for the amount of net cash received from the transactions.

XML

Note 5 - Variable Interest Entities

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Variable Interest Entity Disclosure [Text Block]

5. Variable Interest Entities

The Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but

not

the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are

not

refundable at the Company's discretion. Under the requirements of ASC 

810,

certain option purchase contracts

may

result in the creation of a variable interest in the entity (“VIE”) that owns the land parcel under option.

In compliance with ASC 

810,

the Company analyzes its option purchase contracts to determine whether the corresponding land sellers are VIEs and, if so, whether the Company is the primary beneficiary. Although the Company does

not

have legal title to the underlying land, ASC 

810

requires the Company to consolidate a VIE if the Company is determined to be the primary beneficiary. In determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. As a result of its analyses, the Company determined that as of

April 30, 2018

and

October 31, 2017,

it was

not

the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

We will continue to secure land and lots using options, some of which are with VIEs. Including deposits on our unconsolidated VIEs, at

April 30, 2018,

we had total cash deposits amounting to

$52.5

million to purchase land and lots with a total purchase price of

$1.0

billion. The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions are

not

met.

XML

Note 6 - Warranty Costs

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

6. Warranty Costs

General liability insurance for homebuilding companies and their suppliers and subcontractors is very difficult to obtain. The availability of general liability insurance is limited due to a decreased number of insurance companies willing to underwrite for the industry. In addition, those few insurers willing to underwrite liability insurance have significantly increased the premium costs. To date, we have been able to obtain general liability insurance but at higher premium costs with higher deductibles. Our subcontractors and suppliers have advised us that they have also had difficulty obtaining insurance that also provides us coverage. As a result, we have an owner controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance at

no

additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the

six

months ended

April 30, 2018

and

2017,

we received

$1.9

million and

$1.8

million, respectively, from subcontractors related to the owner controlled insurance program, which we accounted for as a reduction to inventory.

We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general and administrative costs. For homes delivered in fiscal

2018

and

2017,

our deductible under our general liability insurance is a

$20

million aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal

2018

and

2017

is

$0.25

million, up to a

$5

million limit. Our aggregate retention for construction defect, warranty and bodily injury claims is

$20

million for fiscal

2018

and 

$21

million for fiscal

2017.

In addition, we establish a warranty accrual for lower cost related issues to cover home repairs, community amenities and land development infrastructure that are

not

covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the

three

and

six

months ended

April 30, 2018

and

2017

were as follows:

	Three Months Ended April 30,						Six Months Ended April 30,
(In thousands)	2018			2017			2018			2017
Balance, beginning of period	$	129,314		$	118,013		$	127,702		$	121,144
Additions – Selling, general and administrative		2,169			2,856			4,338			5,764
Additions – Cost of sales		4,154			3,515			9,899			7,002
Charges incurred during the period		(19,862	)		(7,177	)		(26,164	)		(16,703	)
Changes to pre-existing reserves		-			-			-			-
Balance, end of period	$	115,775		$	117,207		$	115,775		$	117,207

Warranty accruals are based upon historical experience. We engage a

third

-party actuary that uses our historical warranty and construction defect data to assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but

not

reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates include provisions for inflation, claims handling and legal fees. The majority of the charges incurred during the

second

quarter of fiscal

2018

represented a payment for construction defect reserves related to the settlement of the Grandview II litigation as discussed in Note

7.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, for prior year deliveries were less than

$0.1

million and

$0.2

million for the

three

months ended

April 30, 2018

and

2017,

respectively, and less than

$0.1

million and

$0.2

million for the

six

months ended

April 30, 2018

and

2017,

respectively.

XML

Note 7 - Commitments and Contingent Liabilities

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

7. Commitments and Contingent Liabilities

We are involved in litigation arising in the ordinary course of business,

none

of which is expected to have a material adverse effect on our financial position, results of operations or cash flows, and we are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding.

We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site

may

vary greatly according to the community site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws

may

result in delays,

may

cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments

may

result in claims against us for personal injury, property damage or other losses.

 We anticipate that increasingly stringent requirements will be imposed on developers and homebuilders in the future. For example, for a number of years, the EPA and U.S. Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a

June 2015

rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation, a proposal in

June 2017

to formally rescind the

June 2015

rule and reinstate the rule scheme previously in place while the agencies initiate a new substantive rulemaking on the issue and a

February 2018

rule delaying the effective date of the

June 2015

rule until

February 2020 (

which is being challenged in federal court by a number of states). It is unclear how these and related developments, including at the state or local level, ultimately

may

affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that

may

take effect

may

have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In

March 2013,

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

1990s.

We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In

August 

2013,

we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution but do

not

know the scope or extent of the Company’s obligations, if any, that

may

arise from the site and therefore cannot provide any assurance that this matter will

not

have a material impact on the Company. The EPA requested additional information in

April 2014

and again in

March 2017

and the Company responded to the information requests. On

May 2, 2018

the EPA sent a letter to the Company entity demanding reimbursement for

100%

of the EPA’s costs to clean-up the site in the amount of

$2.7

million. The Company has requested a

15

day extension to reply to the EPA’s demand letter which extends the time to respond until

June 15, 2018.

We believe that we have adequate reserves for any potential loss.

The Grandview at Riverwalk Port Imperial Condominium Association, Inc. (the “Grandview Plaintiff”) filed a construction defect lawsuit against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal II, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Enterprises, Inc., K. Hovnanian North East, Inc. aka and/or dba K. Hovnanian Companies North East, Inc., K. Hovnanian Construction II, Inc., K. Hovnanian Cooperative, Inc., K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Holdings NJ, LLC, as well as the project architect, the geotechnical engineers and various construction contractors for the project alleging various construction defects, design defects and geotechnical issues totaling approximately

$41.3

million. The lawsuit included claims against the geotechnical engineers for differential soil settlement under the building, against the architects for failing to design the correct type of structure allowable under the New Jersey Building Code, and against the Hovnanian-affiliated developer entity (K. Hovnanian at Port Imperial Urban Renewal II, LLC ) alleging that it: (

1

) had knowledge of and failed to disclose the improper building classification to unit purchasers and was therefore liable for treble damages under the New Jersey Consumer Fraud Act; and (

2

) breached an express warranty set forth in the Public Offering Statements that the common elements at the building were fit for their intended purpose. The Grandview Plaintiff further alleged that Hovnanian Enterprises, Inc., K. Hovnanian Holdings NJ, LLC, K. Hovnanian Developments of New Jersey, Inc., and K. Hovnanian Developments of New Jersey II, Inc. were jointly liable for any damages owed by the Hovnanian development entity under a veil piercing theory.

The parties reached a settlement on the construction defect issues prior to trial, but attempts to settle the subsidence, building classification issue and Consumer Fraud Act claims were unsuccessful. The trial commenced on

April 17, 2017

in Hudson County, New Jersey. In the

third

week of the trial, all of the Hovnanian defendants resolved the geotechnical claims for an amount immaterial to the Company, but the balance of the case continued to be tried before the jury. On

June 1, 2017,

the jury rendered a verdict against K. Hovnanian at Port Imperial Urban Renewal II, LLC on the breach of warranty and New Jersey Consumer Fraud claims in the total amount of

$3

million, which resulted in a total verdict of

$9

million against that entity due to statutory trebling, plus a to-be-determined portion of Grandview Plaintiff’s counsel fees, per the statute. The jury also found in favor of Grandview Plaintiff on its veil piercing theory. Certain Hovnanian-affiliated defendants filed post-trial motions on

three

issues: (

1

) a motion for a judgment notwithstanding the verdict or a new trial; (

2

) a motion addressing whether any of the Hovnanian-affiliated entities could be jointly liable under a veil piercing theory for the damages awarded against K. Hovnanian at Port Imperial Urban Renewal II, LLC; and (

3

) a motion for contractual indemnification against the project architect. On

October 27, 2017,

the Court addressed a number of post-trial motions. The Court denied the motion for a judgment notwithstanding the verdict or a new trial, and held that Hovnanian Enterprises, Inc. and its affiliate, K. Hovnanian Developments of New Jersey, Inc., are jointly liable for the damages awarded against K. Hovnanian at Port Imperial Urban Renewal II, LLC. On

November 18, 2017,

the Court awarded approximately

$1.8

million in attorney fees and costs to Grandview Plaintiff out of the approximately

$4.8

million it had sought. Certain Hovnanian-affiliated defendants filed a motion for reconsideration of the Court’s decision on attorney fees and costs. In an order dated

December 15, 2017,

the Court granted the motion for reconsideration and reduced its award of attorney fees and costs to approximately

$1.4

million. Final judgement in the amount of approximately

$10.4

million was entered on

January 12, 2018.

On

January 24, 2018, 

the relevant Hovnanian-affiliated defendants filed a notice of appeal of all aspects of the verdict against them and a motion seeking a stay of execution of the judgement pending appeal. On

February 16, 2018,

the Court entered an order staying execution of the judgement provided that the Hovnanian-affiliated defendants post a bond in the amount of approximately

$11.1

million. On

March 9, 2018,

the Hovnanian affiliated defendants filed the Court approved bond. On

May 23, 2018,

the Hovnanian affiliated defendants filed their opening appellate brief. With respect to this case, depending on the outcome of all appeals, the range of loss is between

$0

and

$11.1

 million, inclusive of attorney fees and costs. Management believes that a loss is probable and reasonably estimable and that the Company has reserved for its estimated probable loss amount in its construction defect reserves. However, our assessment of the probable loss

may

differ from the ultimate resolution of this matter.

In

2014,

the condominium association of the Grandview II at Riverwalk Port Imperial condominium building (the “Grandview II Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Hudson County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the building along with a claim for piercing the corporate veil as to certain defendants. The operative complaint (“Complaint”) brought claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Port Imperial Urban Renewal III, LLC, PI Investments I, LLC, K. Hovnanian Investments, LLC, K. Hovnanian Homes (

not

a legal entity but named as a defendant), K. Hovnanian Shore Acquisitions, LLC, K. Hovnanian Construction Management, Inc., K. Hovnanian Companies, LLC, K. Hovnanian Northeast, Inc., K. Hovnanian Enterprises, Inc., K. Hovnanian Construction III, Inc. and K. Hovnanian Cooperative, Inc. The Complaint also brought claims against various other design professionals and contractors. Grandview II Plaintiff asserted damages of approximately

$69

million to

$79

million, which amount was potentially subject to treble damages. On

December 7, 2017,

the Court issued orders adjudicating various parties’ motions for summary judgment. The Court issued an order that granted Grandview II Plaintiff’s motion for partial summary judgment on the claim seeking to pierce the corporate veil of K. Hovnanian at Port Imperial Urban Renewal III, LLC and ordered that Hovnanian Enterprises, Inc. shall be jointly and severally liable for any damages awarded against K. Hovnanian at Port Imperial Urban Renewal III, LLC, including any treble damages and attorney fees and costs. The Court also issued an order dismissing Grandview II Plaintiff’s claims for negligence and breach of implied warranties against certain Hovnanian-affiliated defendants. On

December 14, 2017,

the Hovnanian-affiliated defendants reached a settlement with Grandview II Plaintiff that resolved all claims in the case involving the Hovnanian-affiliated defendants. As of

October 31, 2017,

the Company had fully reserved for this settlement amount. On

December 15, 2017,

the Court issued an order dismissing the action. The settlement was paid on

March 5, 2018.

On

December 21, 2016,

the members of the Company’s Board were named as defendants in a derivative and class action lawsuit filed in the Delaware Court of Chancery by Plaintiff Joseph Hong (“Plaintiff Hong”). Plaintiff Hong had previously made a demand for inspection of the books and records of the Company pursuant to Delaware law. The Company had provided certain company documents in response to Plaintiff Hong’s demand. The complaint related to the Board of Directors’ decisions to grant Ara K. Hovnanian equity awards in the form of Class B Common Stock, alleging that the defendants breached their fiduciary duties to the Company and its stockholders; that the equity awards granted in Class B Common Stock amounted to corporate waste; and that Ara. K Hovnanian was unjustly enriched by equity awards granted to him in Class B Common Stock. The complaint sought a declaration that the equity awards granted to Ara K. Hovnanian in Class B Common Stock between

June 13, 2014

and

June 10, 2016

were ultra vires, invalidation or rescission of those awards, injunctive relief, and unspecified damages. 

On

December 18, 2017,

the parties finalized a settlement agreement to resolve the litigation. Pursuant to the settlement agreement, the Company submitted for stockholder approval a resolution to amend the Company’s Certificate of Incorporation to affirm that in the event of a merger, consolidation, acquisition, tender offer, recapitalization, reorganization or other business combination, the same consideration will be provided for shares of Class A Common Stock and Class B Common Stock unless different treatment of the shares of each such class is approved separately by a majority of each class. The amendment was approved by the Company's shareholders at its Annual Meeting held on

March 13, 2018.

The Company has also agreed to implement certain operational and corporate governance measures regarding the granting of equity awards in Class B Common Stock. The Court approved the settlement on

May 4, 2018

and the Company paid the Plaintiff’s attorney fees in the amount of

$275,000

on

May 10, 2018.

On

January 11, 2018,

Solus Alternative Asset Management LP (“Solus”) filed a complaint in the United States District Court for the Southern District of New York against GSO Capital Partners L.P., Hovnanian Enterprises, Inc. (“Hovnanian”), K. Hovnanian Enterprises, Inc. (“K. Hovnanian”), K. Hovnanian at Sunrise Trail III, LLC (“Sunrise Trail”), Ara K. Hovnanian and J. Larry Sorsby. The complaint related to K. Hovnanian’s offer to exchange up to

$185.0

million aggregate principal amount of its

8.0%

Senior Notes due

2019

for a combination of (i) cash, (ii) K. Hovnanian’s newly issued

13.5%

Senior Notes due

2026

and (iii) K. Hovnanian’s newly issued

5.0%

Senior Notes due

2040

and related transactions that were previously disclosed in Hovnanian’s Current Report on Form

8

-K filed on

December 28, 2017.

The complaint alleged, among other things, inadequate disclosure in the exchange offer documents, improper and fraudulent structuring of the transactions to impact the credit default swap market, violations of Sections

10

(b),

14

(e) and

20

(a) of the Securities Exchange Act of

1934,

and tortious interference with prospective economic advantage. Solus sought, among other things, additional disclosures regarding the transactions, compensatory and punitive damages, and a preliminary and permanent injunction to stop the transactions from going forward. The court held a hearing on Solus’ motion for a preliminary injunction on

January 25, 2018.

On

January 29, 2018,

the court denied the motion, finding that Solus failed to show that it would be irreparably harmed in the absence of an injunction. 

Solus filed an amended complaint on

February 1, 2018,

against the same defendants. Like the initial complaint, the amended complaint alleges improper and fraudulent structuring of the transactions to impact the credit default swap market, violations of Sections

10

(b) and

20

(a) of the Securities Exchange Act of

1934,

and tortious interference with prospective economic advantage. Solus

no

longer asserts inadequate disclosure claims under Sections

10

(b) and

14

(e). In place of injunctive relief, Solus sought a declaratory judgment that Sunrise Trail III, LLC has waived its entitlement to interest payments under the indenture governing the

8.0%

Senior Notes due

2019

and that the exchange offer breached this indenture. The defendants moved to dismiss the amended complaint on 

March 2, 2018.

On

May 30, 2018,

the parties signed a stipulation of dismissal of all claims with prejudice.  As part of the case resolution, on

May 30, 2018,

K. Hovnanian paid the overdue interest on the

8.0%

Senior Notes due

2019

held by Sunrise Trail that was originally due on

May 1, 2018. 

The case resolution does

not

involve any settlement payment or admission of wrongdoing by any of the Hovnanian-related parties.  On

May 31, 2018,

the Court so-ordered the stipulation and closed the case.

Hovnanian is actively seeking insurance coverage for the litigation costs related to the Solus claims.

XML

Note 8 - Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Customer's Deposits

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

8. Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Customer's Deposits

Cash represents cash deposited in checking accounts. Cash equivalents include certificates of deposit, Treasury bills and government money–market funds with maturities of

90

days or less when purchased. Our cash balances are held at a few financial institutions and

may,

at times, exceed insurable amounts. We believe we help to mitigate this risk by depositing our cash in major financial institutions. At

April 30, 2018

and

October 31, 2017,

$11.9

million and

$13.3

million, respectively, of the total cash and cash equivalents was in cash equivalents, the book value of which approximates fair value.

Homebuilding - Restricted cash and cash equivalents on the Condensed Consolidated Balance Sheets totaled

$14.0

million and

$2.1

million as of

April 30, 2018

and

October 31, 2017,

respectively, which included cash collateralizing our letter of credit agreements and facilities as discussed in Note

11.

Also included in these balances were homebuilding customers’ deposits of

$0.2

million and

$0.4

million at

April 30, 2018

and

October 31, 2017,

respectively, which are subject to restrictions on our use. The

April 30, 2018

balance also included cash collateral of

$11.1

million for a bond related to the Grandview litigation as discussed in Note

7.

Financial services restricted cash and cash equivalents, which are included in Financial services other assets on the Condensed Consolidated Balance Sheets, totaled

$25.2

million and

$22.3

million as of

April 30, 2018

and

October 31, 2017,

respectively. Included in these balances were (

1

) financial services customers’ deposits of

$23.2

million at

April 30, 2018

and

$20.0

million as of

October 31, 2017,

which are subject to restrictions on our use, and (

2

)

$2.0

million at

April 30, 2018

and

$2.3

million at

October 31, 2017,

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

Total Homebuilding Customers’ deposits are shown as a liability on the Condensed Consolidated Balance Sheets. These liabilities are significantly more than the applicable periods’ restricted cash balances because in some states the deposits are

not

restricted from use and, in other states, we are able to release the majority of these customer deposits to cash by pledging letters of credit and surety bonds.

XML

Note 9 - Mortgage Loans Held for Sale

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

9. Mortgage Loans Held for Sale

Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage, LLC (“K. Hovnanian Mortgage”) originates mortgage loans, primarily from the sale of our homes. Such mortgage loans are sold in the secondary mortgage market within a short period of time of origination. Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. We have elected the fair value option to record loans held for sale and therefore these loans are recorded at fair value with the changes in the value recognized in the Condensed Consolidated Statements of Operations in “Revenues: Financial services.” We currently use forward sales of mortgage-backed securities (“MBS”), interest rate commitments from borrowers and mandatory and/or best efforts forward commitments to sell loans to

third

-party purchasers to protect us from interest rate fluctuations. These short-term instruments, which do

not

require any payments to be made to the counterparty or purchaser in connection with the execution of the commitments, are recorded at fair value. Gains and losses on changes in the fair value are recognized in the Condensed Consolidated Statements of Operations in “Revenues: Financial services.”

At

April 30, 2018

and

October 31, 2017,

$72.7

million and

$119.6

million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note

10

). We

may

incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are

not

covered by mortgage insurance or resale value of the home. The reserves for these estimated losses are included in the “Financial services” liability balances on the Condensed Consolidated Balance Sheets. As of

April 30, 2018

and

2017,

we had reserves specifically for

45

and

94

identified mortgage loans, respectively, as well as reserves for an estimate for future losses on mortgages sold but

not

yet identified to us. In fiscal

2017,

the adjustment to pre-existing provisions for losses from changes in estimates is primarily due to the settlement of a dispute for significantly less than the amount that had been previously reserved.

The activity in our loan origination reserves during the

three

and

six

months ended

April 30, 2018

and

2017

was as follows:

	Three Months Ended April 30,					Six Months Ended April 30,
(In thousands)	2018		2017			2018		2017
Loan origination reserves, beginning of period	$	3,188	$	5,077		$	3,158	$	8,137
Provisions for losses during the period		38		45			68		79
Adjustments to pre-existing provisions for losses from changes in estimates		45		(1,340	)		45		(4,434	)
Loan origination reserves, end of period	$	3,271	$	3,782		$	3,271	$	3,782

XML

Note 10 - Mortgages

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Line of Credit [Text Block]

10. Mortgages

We have nonrecourse mortgage loans for certain communities totaling

$70.6

million and

$64.5

million (net of debt issuance costs) at

April 30, 2018

and

October 31, 2017,

respectively, which are secured by the related real property, including any improvements, with an aggregate book value of

$179.1

 million and

$157.8

million, respectively. The weighted-average interest rate on these obligations was

5.5%

and

5.3%

at

April 30, 2018

and

October 31, 2017,

respectively, and the mortgage loan payments on each community primarily correspond to home deliveries. We also had nonrecourse mortgage loans on our corporate headquarters totaling

$13.0

million at

October 31, 2017.

On

November 1, 2017,

these loans were paid in full in connection with the sale of our corporate headquarters building.

K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are sold in the secondary mortgage market within a short period of time. In certain instances, we retain the servicing rights for a small amount of loans. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in financial services liabilities on the Condensed Consolidated Balance Sheets.

Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A. (“Chase Master Repurchase Agreement”), is a short-term borrowing facility that provides up to

$50.0

million through its maturity on

January 31, 2019.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted LIBOR rate, which was

1.91%

at

April 30, 2018,

plus the applicable margin of

2.5%

or

2.63%

based upon type of loan. As of

April 30, 2018

and

October 31, 2017,

the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was

$29.2

million and

$41.5

million, respectively.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”), which was amended on

February 16, 2018.

The Customers Master Repurchase Agreement is a short-term borrowing facility that provides up to

$50.0

million through its maturity on

February 15, 2019.

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

2.375%

to

5.125%

based on the type of loan and the number of days outstanding on the warehouse line. As of

April 30, 2018

and

October 31, 2017,

the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was

$23.9

million and

$40.7

million, respectively.

K. Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”), which is a short-term borrowing facility that provides up to

$50.0

million through

December 20, 2018.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly at the current LIBOR rate, subject to a floor of

.25%,

plus the applicable margin of

2.375%.

As of

April 30, 2018

and

October 31, 2017,

the aggregate principal amount of all borrowings outstanding under the Comerica Master Repurchase Agreement was

$18.0

million and

$32.4

million, respectively.

The Chase Master Repurchase Agreement, Customers Master Repurchase Agreement and Comerica Master Repurchase Agreement (together, the “Master Repurchase Agreements”) require K. Hovnanian Mortgage to satisfy and maintain specified financial ratios and other financial condition tests. Because of the extremely short period of time mortgages are held by K. Hovnanian Mortgage before the mortgages are sold to investors (generally a period of a few weeks), the immateriality to us on a consolidated basis of the size of the Master Repurchase Agreements, the levels required by these financial covenants, our ability based on our immediately available resources to contribute sufficient capital to cure any default, were such conditions to occur, and our right to cure any conditions of default based on the terms of the applicable agreement, we do

not

consider any of these covenants to be substantive or material. As of

April 30, 2018,

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

XML

Note 11 - Senior Notes and Credit Facilities

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Long-term Debt [Text Block]

11. Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of

April 30, 2018

and

October 

31,

2017,

were as follows:

(In thousands)	April 30, 2018(1)(2)		October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$	73,562	$	72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$	74,456	$	74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)		53,076		53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)		134,638		133,732
10.0% Senior Secured Notes due July 15, 2022		434,855		434,543
10.5% Senior Secured Notes due July 15, 2024		394,278		394,953
Total Senior Secured Notes, net of debt issuance costs	$	1,091,303	$	1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$	-	$	131,957
8.0% Senior Notes due November 1, 2019		65,386		234,293
13.5% Senior Notes due February 1, 2026 (including premium)		101,829		-
5.0% Senior Notes due February 1, 2040 (net of discount)		43,193		-
Total Senior Notes, net of debt issuance costs	$	210,408	$	366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$	-	$	2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$	-	$	53,919
Senior Unsecured Term Loan Credit Facility due 2027, net of debt issuance costs	$	131,567	$	-
Unsecured Revolving Credit Facility	$	52,000	$	52,000

(

1

) “Notes payable” on our Condensed Consolidated Balance Sheets as of

April 30, 2018

and

October 31, 2017

consists of the total senior secured, senior and senior amortizing and senior exchangeable notes shown above, as well as accrued interest of

$38.5

million and

$41.8

million, respectively.

(

2

) Unamortized debt issuance costs at

April 30, 2018

and

October 31, 2017

were

$16.6

million and

$16.1

million, respectively.

General

Except for K. Hovnanian, the issuer of the notes and borrower under our credit facilities, our home mortgage subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the Secured Term Loan Facility (as defined below), the Unsecured Term Loan Facility (as defined below), the Unsecured Revolving Credit Facility (as defined below) and the senior secured notes and senior notes outstanding at

April 30, 2018 (

collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the

5.0%

Senior Secured Notes due

2021

(the

“5.0%

2021

Notes”), the

2.0%

Senior Secured Notes due

2021

(the

“2.0%

2021

Notes” and together with the

5.0%

2021

Notes, the

“2021

Notes”) and the

9.5%

2020

Notes (defined below) collectively with the

2021

Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries, except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do

not

guarantee K. Hovnanian's other indebtedness.

The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility, the Unsecured Revolving Credit Facility (collectively, the “credit facilities”) and the indentures governing the notes outstanding at

April 30, 2018

do

not

contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the Secured Term Loans (as defined below) and the

9.5%

2020

Notes, any new or refinancing indebtedness

may

not

be scheduled to mature earlier than

January 15, 2021 (

so long as

no

member of the JV Holdings Secured Group is an obligor thereon), or

February 15, 2021 (

if otherwise), and under the

10.0%

Senior Secured Notes due

2022

(the

“10.0%

2022

Notes”), any refinancing indebtedness of the

7.0%

Senior Notes due

2019

(the

“7.0%

Notes”) (which includes the Unsecured Term Loans (as defined below)) and

8.0%

Senior Notes due

2019

(the

“8.0%

Notes” and together with the

7.0%

Notes, the

“2019

Notes”) (which includes the New Notes (as defined below) and the Unsecured Term Loans)

may

not

be scheduled to mature earlier than

July 16, 2024 (

such restrictive covenant in respect of the

10.5%

Senior Secured Notes due

2024

(the

“10.5%

2024

Notes”) was eliminated as described below under “—Fiscal

2018”

)), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness (with respect to the credit facilities and certain of the senior secured and senior notes) and 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 assets, enter into certain transactions with affiliates and make cash repayments of the

2019

Notes and refinancing indebtedness in respect thereof  (with respect to the

10.0%

2022

Notes). The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility and the Unsecured Revolving Credit Facility and the indentures governing the notes also contain events of default which would permit the lenders/holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Secured Term Loan Facility (the “Secured Term Loans”), loans made under the Unsecured Term Loan Facility (the “Unsecured Term Loans”) and loans made under the Unsecured Revolving Credit Facility (the “Unsecured Loans”)/notes to be immediately due and payable if

not

cured within applicable grace periods, including the failure to make timely payments on the Secured Term Loans, the Unsecured Term Loans or Unsecured Loans/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 Secured Term Loans, the Unsecured Term Loans and the Unsecured Loans, material inaccuracy of representations and warranties and with respect to the Secured Term Loans and the Unsecured Term Loans, a change of control, and, with respect to the Secured Term Loans and senior secured notes, the failure of the documents granting security for the Secured Term Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Secured Term Loans and senior secured notes to be valid and perfected. As of

April 30, 2018,

we believe we were in compliance with the covenants of the credit facilities and the indentures governing our outstanding notes.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, is less than

2.0

to

1.0,

we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are

not

cumulative, on our

7.625%

Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will

not

result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

Under the terms of our debt agreements, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions,

may

do so from time to time. We also continue to evaluate our capital structure and

may

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

Any liquidity-enhancing transaction will depend on identifying counterparties, negotiation of documentation and applicable closing conditions and any required approvals. Due to covenant restrictions in our debt instruments, we are currently limited in the amount of debt we can incur that does

not

qualify as refinancing indebtedness with certain maturity requirements as discussed above (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business.

Fiscal

2018

On

December 1, 2017,

our

6.0%

Senior Exchangeable Note Units were paid in full, which units consisted of 

$53.9

million principal amount of our Senior Exchangeable Notes that matured and the final installment payment of 

$2.1

million on our

11.0%

Senior Amortizing Notes.

On

December 28, 2017,

the Company and K. Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with GSO Capital Partners LP on its own behalf and on behalf of

one

or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”), and had commenced a private offer to exchange with respect to the

8.0%

Notes (the “Exchange Offer”).

Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following: (i) a senior unsecured term loan credit facility (the “Unsecured Term Loan Facility”) to be borrowed by K. Hovnanian and guaranteed by the Company and the Notes Guarantors, pursuant to which the GSO Entities committed to lend K. Hovnanian Unsecured Term Loans consisting of

$132.5

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

7.0%

Notes, and up to

$80.0

million of delayed draw term loans (the “Delayed Draw Term Loans”) for purposes of refinancing certain of K. Hovnanian’s

8.0%

Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured

first

lien credit facility (the “New Secured Credit Facility” and together with the Unsecured Term Loan Facility, the “New Credit Facilities”) to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, pursuant to which the GSO Entities have committed to lend to K. Hovnanian up to

$125.0

million of senior secured

first

priority loans (the “New Secured Loans”) to fund the repayment of K. Hovnanian’s Secured Term Loans and for general corporate purposes, upon the terms and subject to the conditions set forth therein. In addition, pursuant to the Commitment Letter, the GSO Entities have committed to purchase, and K. Hovnanian has agreed to issue and sell, on

January 15, 2019 (

or such later date within

five

business days as mutually agreed by the parties working in good faith),

$25.0

million in aggregate principal amount of additional

10.5%

2024

Notes (the “Additional

10.5%

2024

Notes”) at a purchase price, for each

$1,000

principal amount of Additional

10.5%

2024

Notes, that would imply a yield equal to (a) the volume weighted average yield to maturity (calculated based on the yield to maturity during the

30

calendar day period ending on

one

business day prior to

January 15, 2019)

for the

10.5%

2024

Notes, minus (b)

0.50%,

upon the terms and subject to conditions set forth therein.

On

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Unsecured Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on

February 1, 2018

to fund, together with cash on hand, the redemption on

February 1, 2018

of all

$132.5

million aggregate principal amount of

7.0%

Notes, which resulted in a loss on extinguishment of debt of

$0.5

million. The New Term Loans bear interest at a rate equal to

5.0%

per annum and interest will be payable in arrears, on the last business day of each fiscal quarter. The New Term Loans will mature on

February 1, 2027,

which is the

ninth

anniversary of the

first

closing date of the Unsecured Term Loan Facility.

On

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent (the “Secured Administrative Agent”), and the GSO Entities entered into the New Secured Credit Facility. Availability under the New Secured Credit Facility will terminate on

December 28, 2019

and any outstanding New Secured Loans on such date shall convert to secured term loans maturing on

December 28, 2022.

When available to be drawn, the New Secured Loans and the guarantees thereof will be secured by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a

first

lien basis relative to the liens securing K. Hovnanian’s

10.0%

2022

Notes and

10.5%

2024

Notes pursuant to an existing intercreditor agreement to which the collateral agent for the New Secured Credit Facility shall become a party.

 The Secured Loans will bear interest at a rate per annum equal to the lesser of (a)

10.0%

per annum and (b) (i) the volume weighted average yield (calculated based on the yield to maturity during the

30

calendar day period ending on the business day before the closing date of the

first

borrowings under the New Secured Credit Facility (the “Applicable Period”)) of the

10.5%

2024

Notes, if available, or if such rate is

not

available for the

10.5%

2024

Notes, such rate in respect of K. Hovnanian’s secured debt securities having the largest traded volume during the Applicable Period (the “VWAY Rate”), minus (ii)

0.50%,

and interest will be payable in arrears, on the last business day of each fiscal quarter. If adequate and reasonable means do

not

exist for ascertaining the VWAY Rate as set forth in the preceding sentence, it shall instead be the rate calculated using the average of

three

quotations for the

10.5%

2024

Notes provided by

three

brokers of recognized standing.

The New Secured Credit Facility contains representations and warranties, with the accuracy of certain specified representations and warranties being a condition to the funding of the New Secured Loans on each date of funding, and affirmative and restrictive covenants that limit, among other things, and in each case subject to certain exceptions, the ability of the Company and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness and common and preferred stock, make other restricted payments, including investments, sell certain assets, incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets and enter into certain transactions with affiliates. The New Secured Credit Facility also contains customary events of default which would permit the Secured Administrative Agent thereunder to exercise remedies with respect to the collateral securing the New Secured Loans and declare New Secured Loans to be immediately due and payable if

not

cured within applicable grace periods, including the failure to make timely payments on the New Secured Loans, including any interest and fees due in connection therewith, or other material indebtedness, the failure to satisfy covenants, the material inaccuracy of representations or warranties made, cross acceleration to other material indebtedness, and specified events of bankruptcy and insolvency.

The terms and covenants of the New Secured Credit Facility are effective as of

January 29, 2018,

the date of execution of the New Secured Credit Facility. However, the obligations of the lenders thereunder to make New Secured Loans under the New Secured Credit Facility on the applicable borrowing dates are subject to the satisfaction of certain terms and conditions precedent set forth therein, including requiring K. Hovnanian to use the net cash proceeds therefrom to repay K. Hovnanian’s Secured Term Loan Facility.

On

February 1, 2018,

K. Hovnanian accepted all of the

$170.2

million aggregate principal amount of

8.0%

Notes validly tendered and

not

validly withdrawn in the Exchange Offer (representing

72.14%

of the aggregate principal amount of

8.0%

Notes outstanding prior to the Exchange Offer) and issued

$90.6

million aggregate principal amount of its

13.5%

Senior Notes due

2026

(the “New

2026

Notes”) and

$90.1

million aggregate principal amount of its

5.0%

Senior Notes due

2040

(the “New

2040

Notes” and together with the New

2026

Notes, the “New Notes”) under a new Indenture. Also, as part of the Exchange Offer, on

February 1, 2018,

K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for

$26.5

million in cash an aggregate of

$26.0

million in principal amount of the

8.0%

Notes (the “Purchased

8.0%

Notes”). The New Notes are issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does

not

guarantee the New Notes. The New

2026

Notes bear interest at

13.5%

per annum and mature on

February 1, 2026.

The New

2040

Notes bear interest at

5.0%

per annum and mature on

February 1, 2040.

Interest on the New Notes is payable semi-annually on

February 1

and

August 1

of each year, beginning on

August 1, 2018,

to holders of record at the close of business on

January 15

or

July 15,

as the case

may

be, immediately preceding each such interest payment date. The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled

$103.0

 million for the New

2026

Notes and

$44.0

 million for the New

2040

Notes, resulting in a premium on the New

2026

Notes and a discount on the New

2040

Notes, and a loss on extinguishment of debt of

$0.9

million for the

three

and

six

months ended

April 30, 2018.

On

May 30, 2018,

K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of

May 30, 2018 (

the “Supplemental Indenture”), to the Indenture governing the New Notes.  The Supplemental Indenture eliminates the covenant restricting certain actions with respect to the Purchased

8.0%

Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would

not,

(i) prior to

June 6, 2018,

redeem, cancel or otherwise retire, purchase or acquire any Purchased

8.0%

Notes or (ii) make any interest payments on the Purchased

8.0%

Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would

not,

and would

not

permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased

8.0%

Notes other than to any subsidiary of the Company that is

not

K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased

8.0%

Notes or the indenture under which they were issued with respect to the Purchased

8.0%

Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminates events of default related to the eliminated covenant.  On

May 30, 2018,

K. Hovnanian paid the overdue interest on the Purchased

8.0%

Notes that was originally due on

May 1, 2018

and as a result of such payment, the “Default” under the Indenture governing the

8.0%

Notes was cured.

On

January 16, 2018,

K. Hovnanian, Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, executed the Second Supplemental Indenture, dated as of

January 16, 2018,

to the indenture governing the

10.0%

2022

Notes and

10.5%

2024

Notes, dated as of

July 27, 2017 (

as supplemented, amended or otherwise modified), among K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, giving effect to the proposed amendments to such indenture solely with respect to the

10.5%

2024

Notes, which were obtained in a consent solicitation of the holders of the

10.5%

2024

Notes, and which eliminated the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value the

2019

 Notes and refinancing or replacement indebtedness in respect thereof.

Secured Obligations

Our

$75.0

million Secured Term Loan Facility (the “Secured Term Loan Facility”) has a maturity of

August 1, 2019 

and bears interest at a rate equal to LIBOR plus an applicable margin of

7.0%

or, at K. Hovnanian’s option, a base rate plus an applicable margin of

6.0%,

payable monthly. At any time from and after

September 8, 2018,

K. Hovnanian

may

voluntarily repay outstanding Secured Term Loans, provided that voluntary prepayments of Eurodollar loans made on a date other than the last day of an interest period applicable thereto are subject to customary breakage costs and voluntary prepayments made prior to

February 1, 2019

are subject to a premium equal to

1.0%

of the aggregate principal amount of the Secured Term Loans so prepaid (any prepayment of the Secured Term Loans made on or after

February 1, 2019

are without any prepayment premium).

The 

10.0%

2022

Notes have a maturity of

July 15, 2022

and bear interest at a rate of

10.0%

per annum payable semi-annually on

January 15

and

July 15

of each year, to holders of record at the close of business on

January 1

and

July 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.0%

2022

Notes are redeemable in whole or in part at our option at any time prior to

July 15, 2019

at

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian

may

also redeem some or all of the

10.0%

2022

Notes at

105.0%

of principal commencing

July 15, 2019,

at

102.50%

of principal commencing

July 15, 2020

and at

100.0%

of principal commencing

July 15, 2021.

In addition, K. Hovnanian

may

also redeem up to

35.0%

of the aggregate principal amount of the

10.0%

2022

Notes prior to

July 15, 2019

with the net cash proceeds from certain equity offerings at

110.0%

of principal.

The 

10.5%

2024

Notes have a maturity of

July 15, 2024

and bear interest at a rate of

10.5%

per annum payable semi-annually on

January 15

and

July 15

of each year, to holders of record at the close of business on

January 1

and

July 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.5%

2024

Notes are redeemable in whole or in part at our option at any time prior to

July 15, 2020

at

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian

may

also redeem some or all of the

10.5%

2024

Notes at

105.25%

of principal commencing

July 15, 2020,

at

102.625%

of principal commencing

July 15, 2021

and at

100.0%

of principal commencing

July 15, 2022.

In addition, K. Hovnanian

may

also redeem up to

35.0%

of the aggregate principal amount of the

10.5%

2024

Notes prior to

July 15, 2020

with the net cash proceeds from certain equity offerings at

110.50%

of principal.

All of K. Hovnanian’s obligations under the Secured Term Loan Facility are guaranteed by the Notes Guarantors. The Secured Term Loan Facility and the guarantees thereof are secured, subject to permitted liens and other exceptions, on a

first

lien priority basis relative to the

10.0%

2022

Notes and the

10.5%

2024

Notes (and on a

first

lien super priority basis relative to future

first

lien indebtedness). At

April 30, 2018,

the aggregate book value of the real property that constituted collateral securing the Secured Term Loans was

$483.4

 million, 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. Cash and cash equivalents collateral that secured the Secured Term Loans was

$164.8

million as of

April 30, 2018,

which included

$12.8

million of restricted cash collateralizing a bond and 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. In addition, collateral securing the Secured Term Loans includes equity interest in K Hovnanian and the subsidiary Notes Guarantors.

All of K. Hovnanian’s obligations under the

10.0%

2022

Notes and the

10.5%

2024

Notes are guaranteed by the Notes Guarantors. In addition to pledges of the equity interests in K. Hovnanian and the subsidiary Notes Guarantors which secure the

10.0%

2022

Notes and the

10.5%

2024

Notes, the

10.0%

2022

Notes and the

10.5%

2024

Notes and the guarantees thereof are also secured in accordance with the terms of the indenture and security documents governing such Notes by pari passu liens on substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, in each case subject to permitted liens and certain exceptions (the collateral securing the

10.0%

2022

Notes and the

10.5%

2024

Notes is the same as that securing the Secured Term Loans). The liens securing the

10.0%

2022

Notes and the

10.5%

2024

Notes rank junior to the liens securing the Secured Term Loans and any other future secured obligations that are senior in priority with respect to the assets securing the

10.0%

2022

Notes and the

10.5%

2024

Notes.

Our

9.5%

Senior Secured Notes (the

“9.5%

2020

Notes”) have a maturity of

November 15, 2020,

and bear interest at a rate of

9.5%

per annum, payable semi-annually on 

February 15

and 

August 15

of each year, to holders of record at the close of business on 

February 1

and

August 1,

as the case

may

be, immediately preceding such interest payment dates. The

9.5%

2020

Notes are redeemable in whole or in part at our option at any time prior to

November 15, 2018

at

100%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

November 15, 2018,

K. Hovnanian

may

also redeem some or all of the

9.5%

2020

Notes at a redemption price equal to

100%

of their principal amount. In addition, we

may

also redeem up to

35%

of the aggregate principal amount of the

9.5%

2020

Notes prior to

November 15, 2018

with the net cash proceeds from certain equity offerings at

109.5%

of principal.

The

5.0%

2021

Notes and the

2.0%

2021

Notes were issued as separate series under an indenture, but have substantially the same terms other than with respect to interest rate and related redemption provisions, and vote together as a single class. The

5.0%

2021

Notes bear interest at a rate of

5.0%

per annum and mature on

November 1, 2021

and the

2.0%

2021

Notes bear interest at a rate of

2.0%

per annum and mature on

November 1, 2021.

Interest on the

2021

Notes is payable semi-annually on

May 1

and

November 1

of each year, to holders of record at the close of business on

April 15

and

October 15,

as the case

may

be, immediately preceding such interest payment dates. The

2021

Notes are redeemable in whole or in part at our option at any time, at

100.0%

of the principal amount plus the greater of

1%

of the principal amount and an applicable “Make-Whole Amount.”

The

9.5%

2020

Notes and the

2021

Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group. The guarantees of the JV Holdings Secured Group with respect to the

2021

Notes and the

9.50%

2020

Notes are secured, subject to permitted liens and other exceptions, by a

first

-priority lien on substantially all of the assets of the members of the JV Holdings Secured Group. As of

April 30, 2018,

the collateral securing the guarantees included (

1

)

$97.9

million of cash and cash equivalents, which included

$1.0

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

)

$139.3

 million aggregate book value of real property of the JV Holdings Secured Group, which does

not

include the impact of inventory investments, home deliveries or impairments thereafter and which

may

differ from the value if it were appraised; and (

3

) equity interests owned by guarantors that are members of the JV Holdings Secured Group. Members of the JV Holdings Secured Group also own equity in joint ventures, either directly or indirectly through ownership of joint venture holding companies, with a book value of

$79.2

million as of

April 30, 2018;

this equity is

not

pledged to secure, and is

not

collateral for, the

2021

Notes. Members of the JV Holdings Secured Group are “unrestricted subsidiaries” under K. Hovnanian's other senior secured notes and senior notes, the Unsecured Revolving Credit Facility, the Unsecured Term Loan Facility and the Secured Term Loan Facility, and thus have

not

guaranteed such indebtedness. 

Senior Notes

On

February 1, 2018,

K. Hovnanian borrowed the Initial Term Loans in the amount of

$132.5

million under the Unsecured Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of its outstanding

$132.5

million aggregate principal amount of

7.0%

Notes (upon redemption, all

7.0%

Notes were cancelled).  

K. Hovnanian’s

8.0%

Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to

August 1, 2019

at a redemption price equal to

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

August 1, 2019,

K. Hovnanian

may

also redeem some or all of the

8.0%

Notes at a redemption price equal to

100.0%

of their principal amount. As discussed above, the

8.0%

Notes were the subject of the Exchange Offer that closed on

February 1, 2018

and, as discussed in Note

21,

 K. Hovnanian called for redemption on

May 28, 2018,

$65.7

million aggregate principal amount of the

8.0%

Notes, which redemption was funded with borrowings of the Delayed Draw Term Loans under the Unsecured Term Loan Facility (upon redemption, such redeemed

8.0%

Notes were cancelled). Following the redemption, the outstanding

8.0%

Notes consist of the Purchased

8.0%

Notes.

Unsecured Revolving Credit Facility

In

June 2013,

K. Hovnanian, as borrower, and we and certain of our subsidiaries, as guarantors, entered into a

five

-year,

$75.0

million unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. The Unsecured Revolving Credit Facility is available for both letters of credit and general corporate purposes. Outstanding borrowings under the Unsecured Revolving Credit Facility accrue interest at an annual rate equal to either, as selected by K. Hovnanian, (i) the alternate base rate plus the applicable spread determined on the date of such borrowing or (ii) an adjusted London Interbank Offered Rate (“LIBOR”) rate plus the applicable spread determined as of the date

two

business days prior to the

first

day of the interest period for such borrowing. As of

April 30, 2018,

there were

$52.0

million of borrowings and

$11.6

million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of

October 31, 2017,

there were

$52.0

million of borrowings and

$14.6

million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of

April 30, 2018,

we believe we were in compliance with the covenants under the Unsecured Revolving Credit Facility.

In addition to the Unsecured Revolving Credit Facility, we have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of

$2.7

million and

$1.7

million letters of credit outstanding at

April 30, 2018

and

October 31, 2017,

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

April 30, 2018

and

October 31, 2017,

the amount of cash collateral in these segregated accounts was

$2.7

million and

$1.7

million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Condensed Consolidated Balance Sheets.

XML

Note 12 - Per Share Calculation

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

12. Per Share Calculation

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, and, for the

first

half of fiscal

2017,

 common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our

6.0%

Exchangeable Note Units. Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.   

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

two

-class method. The

two

-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings in periods when we have net income. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Incremental shares attributed to nonvested stock and outstanding options to purchase common stock of

3.3

million and

3.5

million for the

three

and

six

months ended

April 30, 2018,

respectively, and

4.6

million for both the

three

and

six

months ended

April 30, 2017

were excluded from the computation of diluted earnings per share because we had a net loss for the periods. Also,

1.7

million shares for the

six

months ended

April 30, 2018,

10.0

million and

10.1

million shares for the

three

and

six

months ended

April 30, 2017,

respectively, of common stock issuable upon the exchange of our senior exchangeable notes (which were issued in fiscal

2012

) were excluded from the computation of diluted earnings per share because the Company had a net loss for the periods.

In addition, shares related to out-of-the money stock options that could potentially dilute basic earnings per share in the future that were

not

included in the computation of diluted earnings per share were

5.6

million and

4.6

million for the

three

and

six

months ended

April 30, 2018,

respectively, and

4.7

million for both the

three

and

six

months ended

April 30, 2017

because to do so would have been anti-dilutive for the periods presented.

XML

Note 13 - Preferred Stock

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Preferred Stock [Text Block]

13. Preferred Stock

On

July 

12,

2005,

we issued

5,600

shares of

7.625%

Series A Preferred Stock, with a liquidation preference of

$25,000

per share. Dividends on the Series A Preferred Stock are

not

cumulative and are payable at an annual rate of

7.625%.

The Series A Preferred Stock is

not

convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A Preferred Stock is traded as depositary shares, with each depositary share representing

1/1000th

 of a share of Series A Preferred Stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” During the

three

and

six

months ended

April 30, 2018

and

2017,

we did

no

t

pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments. We anticipate that we will continue to be restricted from paying dividends, which are

not

cumulative, for the foreseeable future.

XML

Note 14 - Common Stock

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Common Stock [Text Block]

14. Common Stock

Each share of Class A Common Stock entitles its holder to

one

vote per share, and each share of Class B Common Stock generally entitles its holder to

ten

votes per share. The amount of any regular cash dividend payable on a share of Class A Common Stock will be an amount equal to

110%

of the corresponding regular cash dividend payable on a share of Class B Common Stock. If a shareholder desires to sell shares of Class B Common Stock, such stock must be converted into shares of Class A Common Stock at a

one

to

one

conversion rate.

On

August 

4,

2008,

our Board of Directors adopted a shareholder rights plan (the “Rights Plan”), which was amended on

January 11, 2018,

designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss (NOL) carryforwards and built-in losses under Section 

382

of the Internal Revenue Code. Our ability to use NOLs and built-in losses would be limited if there was an “ownership change” under Section 

382.

This would occur if shareholders owning (or deemed under Section 

382

to own)

5%

or more of our stock increase their collective ownership of the aggregate amount of our outstanding shares by more than

50

 percentage points over a defined period of time. The Rights Plan was adopted to reduce the likelihood of an “ownership change” occurring as defined by Section 

382.

Under the Rights Plan,

one

right was distributed for each share of Class A Common Stock and Class B Common Stock outstanding as of the close of business on

August 

15,

2008.

Effective

August 

15,

2008,

if any person or group acquires

4.9%

or more of the outstanding shares of Class A Common Stock without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power of such person or group. However, existing stockholders who owned, at the time of the Rights Plan’s initial adoption on

August 4, 2008,

4.9%

or more of the outstanding shares of Class A Common Stock will trigger a dilutive event only if they acquire additional shares. The approval of the Board of Directors’ decision to adopt the Rights Plan

may

be terminated by the Board of Directors at any time, prior to the Rights being triggered. The Rights Plan will continue in effect until

August 

14,

2021,

unless it expires earlier in accordance with its terms. The approval of the Board of Directors’ decision to initially adopt the Rights Plan was approved by shareholders at a special meeting of stockholders held on

December 

5,

2008

and the amendment to the Rights Plan adopted by the Board on

January 11, 2018

was approved by shareholders at the Company's annual meeting of shareholders held on

March 13, 2018.

Also at the special meeting on

December 

5,

2008,

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

382

of the Internal Revenue Code. Subject to certain exceptions pertaining to pre-existing

5%

stockholders and Class B stockholders, the transfer restrictions in the amended Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than

5%

to

5%

or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own

5%

or more of our common stock; or (iii) create a new public group. Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the

5%

thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.

On

July 3, 2001,

our Board of Directors authorized a stock repurchase program to purchase up to

4

million shares of Class A Common Stock. There were

no

shares purchased during the

three

and

six

months ended

April 30, 2018. 

As of

April 30, 2018,

the maximum number of shares of Class A Common Stock that

may

yet be purchased under this program is

0.5

million.

XML

Note 15 - Income Taxes

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. Income Taxes

The total income tax expense of

$0.3

million and

$0.6

million recognized for the

three

and

six

months ended

April 30, 2018,

respectively, was primarily related to state tax expense from income generated that was

not

offset by tax benefits in states where we fully reserve the tax benefit from net operating losses.

The total income tax benefit of

$1.1

million and

$0.6

million for the

three

and

six

months ended

April 30, 2017,

respectively, was primarily due to the federal tax benefit on the pre-tax loss for the periods, partially offset by state tax expense from income generated in some states, which was

not

offset by tax benefits in other states that had losses for which we fully reserve the net operating losses.

Our federal net operating losses of

$1.7

billion expire between

2028

and

2037.

Our state NOLs of

$2.6

billion expire between

2018

and

2037.

Of the total state amount,

$247.1

million will expire between

2018

through

2022;

$463.1

million will expire between

2023

through

2027;

$1.5

billion will expire between

2028

through

2032;

and

$348.7

million will expire between

2033

through

2037.

On

December 22, 2017,

the President of the United States signed into law the Tax Cuts and Jobs Act of

2017

(the “Act”). Effective

January 1, 2018,

the comprehensive U.S. tax reform package, among other things, lowered the corporate tax rate from

35%

to

21%.

Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The effects of the Act on the Company include

one

major category which is the remeasurement of deferred taxes. Our accounting for the U.S. federal corporate tax rate is complete. Consequently, we have recorded a decrease related to deferred tax assets and liabilities of

$298.5

million and

$12.2

million, respectively, with a corresponding net adjustment to the valuation allowance in fiscal 

2018,

therefore there was

no

income tax expense or benefit as a result of the tax law changes. We will continue to evaluate the impact of the tax reform as additional regulatory guidance is obtained. The ultimate impact of tax reform

may

differ from our interpretations and assumptions due to additional regulatory guidance that

may

be issued.

Deferred federal and state income tax assets (“DTAs”) primarily represent the deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. If the combination of future years’ income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years. In accordance with ASC

740,

we evaluate our DTAs quarterly to determine if valuation allowances are required. ASC

740

requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than

not”

standard.  

As of

April 30, 2018,

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

740.

Listed below, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than

not

that all of our DTAs will

not

be realized. In analyzing these factors, overall the negative evidence, both objective and subjective, outweighed the positive evidence. Based on this analysis, we determined that the current valuation allowance for deferred taxes of

$661.8

million as of

April 30, 2018,

which fully reserves for our DTAs, is appropriate.

1. Fiscal 2017 financial results, especially the $50.2 million pre-tax loss in the third quarter of 2017 primarily from the $42.3 million loss on extinguishment of debt during the quarter, that put us in a cumulative three -year loss position as of July 31, 2017. We are still in a cumulative three -year loss position as of April 30, 2018. Per ASC 740, cumulative losses are one of the most objectively verifiable forms of negative evidence. (Negative Objective Evidence)

2. In the third quarter of fiscal 2017 and second quarter of fiscal 2018, we completed debt refinancing/restructuring transactions which, by extending our debt maturities, will enable us to allocate cash to invest in new communities and grow our community count to get back to sustained profitability. (Positive Objective Evidence)

3. The refinancing in the third quarter of fiscal 2017 discussed in item 2 above will increase our interest incurred in fiscal 2018  and future years (based on our longer term modeling) by $23.4 million per year. (Negative Objective Evidence)

4. Recent financial results of $40.0 million pre-tax loss for the first half of 2018. (Negative Objective Evidence)

5. We incurred pre-tax losses during the housing market decline and the slower than expected housing market recovery. (Negative Objective Evidence)

6. We exited two geographic markets in fiscal 2016, one in fiscal 2017, and completed the wind down of operations in one other market in the second quarter of fiscal 2018, that have historically had losses. By exiting these underperforming markets, the Company will be able to redeploy capital to better performing markets, which over time should improve our profitability. (Positive Subjective Evidence)

7. Evidence of a sustained recovery in the housing markets in which we operate, supported by economic data showing housing starts, homebuilding volume and prices all increasing and forecasted to continue to increase. (Positive Subjective Evidence)

8. The historical cyclicality of the U.S. housing market, a more restrictive mortgage lending environment compared to before the housing downturn, the uncertainty of the overall US economy and government policies and consumer confidence, all or any of which could continue to hamper a faster, stronger recovery of the housing market. (Negative Subjective Evidence)

XML

Note 16 - Operating and Reporting Segments

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

16. Operating and Reporting Segments

Our operating segments are components of our business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance and make operating decisions. Based on this criteria, each of our communities qualifies as an operating segment, and therefore, it is impractical to provide segment disclosures for this many segments. As such, we have aggregated the homebuilding operating segments into

six

reportable segments.

Our homebuilding operating segments are aggregated into reportable segments based primarily upon geographic proximity, similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes. Our reportable segments consist of the following

six

homebuilding segments and a financial services segment noted below.

Homebuilding:

( 1 )	Northeast (New Jersey and Pennsylvania)
( 2 )	Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia)
( 3 )	Midwest (Illinois and Ohio)
( 4 )	Southeast (Florida, Georgia and South Carolina)
( 5 )	Southwest (Arizona and Texas)
( 6 )	West (California)

Financial Services

Operations of the Company’s 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 Company’s Financial Services segment include mortgage banking and title services provided to the homebuilding operations’ customers. We do

not

typically retain or service mortgages that we originate but rather sell the mortgages and related servicing rights to investors. 

Corporate and unallocated primarily represents operations at our headquarters in New Jersey. This includes our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services, and administration of insurance, quality and safety. It also includes interest income and interest expense resulting from interest incurred that cannot be capitalized in inventory in the Homebuilding segments, as well as the gains or losses on extinguishment of debt from any debt repurchases or exchanges.  

Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes (“Income (loss) before income taxes”). Income (loss) before income taxes for the Homebuilding segments consist of revenues generated from the sales of homes and land, income (loss) from unconsolidated entities, management fees and other income, less the cost of homes and land sold, selling, general and administrative expenses and interest expense. Income (loss) before income taxes for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and selling, general and administrative expenses incurred by the Financial Services segment. 

Operational results of each segment are

not

necessarily indicative of the results that would have occurred had the segment been an independent stand-alone entity during the periods presented.  

Financial information relating to the Company’s segment operations was as follows:

	Three Months Ended April 30,						Six Months Ended April 30,
(In thousands)	2018			2017			2018			2017
Revenues:
Northeast	$	43,771		$	45,950		$	63,970		$	104,525
Mid-Atlantic		104,160			100,600			175,457			200,826
Midwest		42,938			42,019			83,517			85,721
Southeast		60,901			56,635			117,569			113,219
Southwest		159,147			225,255			287,452			408,664
West		78,098			100,843			163,148			197,374
Total homebuilding		489,015			571,302			891,113			1,110,329
Financial services		13,054			14,494			23,942			27,343
Corporate and unallocated (1)		475			139			4,655			272
Total revenues	$	502,544		$	585,935		$	919,710		$	1,137,944
Income (loss) before income taxes:
Northeast	$	5,960		$	(2,722	)	$	(3,741	)	$	(1,816	)
Mid-Atlantic		6,700			918			8,652			4,800
Midwest		(1,110	)		(3,170	)		(3,454	)		(2,458	)
Southeast		(5,286	)		428			(6,947	)		134
Southwest		10,047			19,785			15,558			31,708
West		7,172			2,317			15,239			1,563
Homebuilding income before income taxes		23,483			17,556			25,307			33,931
Financial services		4,256			7,134			6,803			13,128
Corporate and unallocated (1)		(37,317	)		(32,389	)		(72,159	)		(54,435	)
Loss before income taxes	$	(9,578	)	$	(7,699	)	$	(40,049	)	$	(7,376	)

(

1

)  Corporate and unallocated for the

three

months ended

April 30, 2018

included corporate general and administrative costs of

$16.2

million, interest expense of

$19.9

million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of

$1.4

million and $(

0.1

) million of other income and expenses primarily related to interest income and gain on the sale of our corporate headquarters building. Corporate and unallocated for the

six

months ended

April 30, 2018

included corporate general and administrative costs of

$35.3

million, interest expense of

$39.5

million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of

$1.4

million and $(

4.0

) million of other income and expenses primarily related to interest income and gain on the sale of our corporate headquarters building. Corporate and unallocated for the

three

months ended

April 30, 2017

included corporate general and administrative costs of

$16.1

million, interest expense of

$16.0

million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of

$0.2

million and

$0.1

million of other income and expenses primarily related to rental income. Corporate and unallocated for the

six

months ended

April 30, 2017

included corporate general and administrative costs of

$31.7

million, interest expense of

$29.3

million (a component of Other interest on our Condensed Consolidated Statements of Operations), gain on extinguishment of debt of

$7.4

million and

$0.8

million of other income and expenses primarily related to bond amortization and rental income.  

(In thousands)	April 30, 2018		October 31, 2017
Assets:
Northeast	$	168,640	$	180,545
Mid-Atlantic		210,238		224,398
Midwest		83,412		84,960
Southeast		244,337		231,644
Southwest		328,521		294,337
West		189,806		175,347
Total homebuilding		1,224,954		1,191,231
Financial services		120,689		162,113
Corporate and unallocated		296,848		547,554
Total assets	$	1,642,491	$	1,900,898

XML

Note 17 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

17. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with

third

-party investors to develop land and construct homes that are sold directly to

third

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

third

parties.

In the

first

quarter of fiscal

2018,

we acquired the remaining assets of

one

of our joint ventures, resulting in a

$13.6

 million reduction in our investment in the joint venture and a corresponding increase to inventory.

During the

first

quarter of fiscal

2017,

we transferred

one

community we owned and our option to buy

three

communities to an existing joint venture, resulting in the receipt of

$11.2

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.

(Dollars in thousands)	April 30, 2018
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	31,166		$	2,414		$	33,580
Inventories		651,968			6,923			658,891
Other assets		29,695			-			29,695
Total assets	$	712,829		$	9,337		$	722,166
Liabilities and equity:
Accounts payable and accrued liabilities	$	96,770		$	504		$	97,274
Notes payable		371,382			-			371,382
Total liabilities		468,152			504			468,656
Equity of:
Hovnanian Enterprises, Inc.		79,690			3,914			83,604
Others		164,987			4,919			169,906
Total equity		244,677			8,833			253,510
Total liabilities and equity	$	712,829		$	9,337		$	722,166
Debt to capitalization ratio		60	%		0	%		59	%

(Dollars in thousands)	October 31, 2017
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	60,580		$	194		$	60,774
Inventories		666,017			9,162			675,179
Other assets		36,026			-			36,026
Total assets	$	762,623		$	9,356		$	771,979
Liabilities and equity:
Accounts payable and accrued liabilities	$	121,646		$	429		$	122,075
Notes payable		330,642			-			330,642
Total liabilities		452,288			429			452,717
Equity of:
Hovnanian Enterprises, Inc.		88,884			3,746			92,630
Others		221,451			5,181			226,632
Total equity		310,335			8,927			319,262
Total liabilities and equity	$	762,623		$	9,356		$	771,979
Debt to capitalization ratio		52	%		0	%		51	%

As of

April 30, 2018

and

October 31, 2017,

we had advances and a note receivable outstanding of

$5.2

million and

$22.4

million, respectively, to these unconsolidated joint ventures. These amounts were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to

$88.3

million and

$115.1

million at

April 30, 2018

and

October 31, 2017,

respectively. In some cases our net investment in these 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 joint venture investments and any impairments recorded in the applicable joint venture. Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During the

six

months ended

April 30, 2018,

we did

not

write-down any of our joint venture investments; however,

one

of our joint ventures in the Northeast recorded an asset impairment. We recorded our proportionate share of this impairment charge of

$0.7

million as part of our share of the net loss of the venture.

	For the Three Months Ended April 30, 2018
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	96,931		$	2,343		$	99,274
Cost of sales and expenses		(102,230	)		(2,123	)		(104,353	)
Joint venture net (loss) income	$	(5,299	)	$	220		$	(5,079	)
Our share of net income	$	1,296		$	109		$	1,405

	For the Three Months Ended April 30, 2017
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	86,556		$	1,658		$	88,214
Cost of sales and expenses		(87,957	)		(1,841	)		(89,798	)
Joint venture net loss	$	(1,401	)	$	(183	)	$	(1,584	)
Our share of net loss	$	(4,583	)	$	(92	)	$	(4,675	)

	For the Six Months Ended April 30, 2018
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	155,496		$	3,618		$	159,114
Cost of sales and expenses		(174,366	)		(3,281	)		(177,647	)
Joint venture net (loss) income	$	(18,870	)	$	337		$	(18,533	)
Our share of net (loss) income	$	(3,903	)	$	168		$	(3,735	)

	For the Six Months Ended April 30, 2017
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	151,493		$	2,860		$	154,353
Cost of sales and expenses		(155,183	)		(2,823	)		(158,006	)
Joint venture net (loss) income	$	(3,690	)	$	37		$	(3,653	)
Our share of net (loss) income	$	(6,264	)	$	18		$	(6,246	)

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Condensed Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures and the deferral of income for lots purchased by us from certain joint ventures. To compensate us for the administrative services we provide as the manager of certain joint ventures we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled

$2.9

million and

$3.0

million for the

three

months ended

April 30, 2018

and

2017,

respectively, and

$4.9

million and

$5.1

million for the

six

months ended

April 30, 2018

and

2017,

respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Condensed Consolidated Statements of Operations.

In determining whether or

not

we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently

59%.

 Any 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 joint venture entity is considered a VIE under ASC

810

-

10

“Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are

not

the primary beneficiary, and therefore we do

not

consolidate these entities. 

XML

Note 18 - Recent Accounting Pronouncements

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

18. Recent Accounting Pronouncements

In

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2014

-

09,

“Revenue from Contracts with Customers” (Topic

606

), (“ASU

2014

-

09”

). ASU

2014

-

09

requires entities to recognize revenue that represents the transfer of promised goods or services to customers in an amount equivalent to the consideration to which the entity expects to be entitled to in exchange for those goods or services. The following steps should be applied to determine this amount: (

1

) identify the contract(s) with a customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

) allocate the transaction price to the performance obligations in the contract; and (

5

) recognize revenue when (or as) the entity satisfies a performance obligation. ASU

2014

-

09

supersedes the revenue recognition requirements in ASC

605,

“Revenue Recognition,” and most industry-specific guidance in the Accounting Standards Codification. In

August 2015,

the FASB issued ASU

2015

-

14

on this same topic, which defers for

one

year the effective date of ASU

2014

-

09,

therefore making the guidance effective for the Company beginning

November 1, 2018.

Additionally, the FASB also decided to permit entities to early adopt the standard, which allows for either full retrospective or modified retrospective methods of adoption, for reporting periods beginning after

December 15, 2016.

We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements, and have been involved in industry-specific discussions with the FASB on the treatment of certain items. However, due to the nature of our operations, we expect to identify similar performance obligations in our contracts under ASU

2014

-

09

compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our recognition of revenues to remain generally the same. Nonetheless, we are still evaluating the impact of specific parts of this ASU, and expect our revenue-related disclosures to change upon its adoption.

In

February 2016,

the FASB issued ASU

2016

-

02,

“Leases (Topic

842

)” (“ASU

2016

-

02”

), which provides guidance for accounting for leases. ASU

2016

-

02

requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than

12

months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU

2016

-

02

is effective for the Company beginning

November 1, 2019.

Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our Condensed Consolidated Financial Statements.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments” (“ASU

2016

-

15”

). ASU

2016

-

15

provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU

2016

-

15

is effective for the Company’s fiscal year beginning

November 1, 2018.

Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Condensed Consolidated Financial Statements.

In

November 2016,

the FASB issued ASU

No.

2016

-

18,

“Statement of Cash Flows (Topic

230

): Restricted Cash” (“ASU

2016

-

18”

). ASU

2016

-

18

amends the classification and presentation of changes in restricted cash or restricted cash equivalents in the statement of cash flows. ASU

2016

-

18

is effective for the Company’s fiscal year beginning

November 1, 2018.

Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Condensed Consolidated Financial Statements.

In

October 2016,

the FASB issued ASU

No.

2016

-

16,

“Income Taxes (Topic

740

): Intra-Entity Transfers of Assets Other Than Inventory” (“ASU

2016

-

16”

). ASU

2016

-

16

provides guidance for the accounting of income taxes related to intra-entity transfers of assets other than inventory. ASU

2016

-

16

is effective for the Company’s fiscal year beginning

November 1, 2018.

Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our Condensed Consolidated Financial Statements.

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Note 19 - Fair Value of Financial Instruments

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

19. Fair Value of Financial Instruments

ASC

820,

“Fair Value Measurements and Disclosures,” provides a framework for measuring fair value, expands disclosures about fair-value measurements and establishes a fair-value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level 1: Fair value determined based on quoted prices in active markets for identical assets.

Level 2: Fair value determined using significant other observable inputs.

Level 3: Fair value determined using significant unobservable inputs.

Our financial instruments measured at fair value on a recurring basis are summarized below:

(In thousands)	Fair Value Hierarchy	Fair Value at April 30, 2018			Fair Value at October 31, 2017
Mortgage loans held for sale (1)	Level 2	$	87,971		$	132,424
Interest rate lock commitments	Level 2		(70	)		(14	)
Forward contracts	Level 2		125			15
Total		$	88,026		$	132,425

(

1

)  The aggregate unpaid principal balance was

$85.6

million and

$128.4

million at

April 30, 2018

and

October 31, 2017,

respectively.

We elected the fair value option for our loans held for sale for mortgage loans originated subsequent to

October 31, 2008,

in accordance with ASC

825,

“Financial Instruments,” which permits us to measure financial instruments at fair value on a contract-by-contract basis. Management believes that the election of the fair value option for loans held for sale improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. Fair value of loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The Financial Services segment had a pipeline of loan applications in process of

$593.5

million at

April 30, 2018.

Loans in process for which interest rates were committed to the borrowers totaled

$50.3

million as of

April 30, 2018.

Substantially all of these commitments were for periods of

60

days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do

not

necessarily represent future cash requirements.

The Financial Services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments, option contracts with investment banks, federally regulated bank affiliates and loan sales transactions with permanent investors meeting the segment’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At

April 30, 2018,

the segment had open commitments amounting to

$21.5

million to sell MBS with varying settlement dates through

June 20, 2018.

The assets accounted for using the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in the Condensed Consolidated Financial Statements in “Revenues: Financial services.” The fair values that are included in income are shown, by financial instrument and financial statement line item, below: 

	Three Months Ended April 30, 2018
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	127	$	178	$	(143	)

	Three Months Ended April 30, 2017
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	645	$	109	$	(422	)

	Six Months Ended April 30, 2018
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments			Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	2,541	$	(70	)	$	125

	Six Months Ended April 30, 2017
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	3,214	$	99	$	(305	)

The Company's assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the

three

and

six

months ended

April 30, 2018

and

2017.

 The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:

Nonfinancial Assets

		Three Months Ended
		April 30, 2018
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	11,170	$	(2,117	)	$	9,053
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Three Months Ended
		April 30, 2017
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	8,474	$	(1,549	)	$	6,925
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Six Months Ended
		April 30, 2018
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	11,170	$	(2,117	)	$	9,053
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Six Months Ended
		April 30, 2017
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	14,776	$	(4,136	)	$	10,640
Land and land options held for future development or sale	Level 3	$	6,326	$	(81	)	$	6,245

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they

may

be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we

may

be required to recognize additional impairments. We recorded inventory impairments, which are included in the Condensed Consolidated Statements of Operations as “Inventory impairment loss and land option write-offs” and deducted from inventory of

$2.1

million for both the

three

and

six

months ended

April 30, 2018,

and

$1.5

million and

$4.2

million for the

three

and

six

months ended

April 30, 2017,

respectively. See Note

4

for further detail of the communities evaluated for impairment.

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 our borrowings under the revolving credit and term loan facilities approximates their carrying amount based on Level

2

inputs. The fair value of each series of the senior unsecured notes (other than the

13.5%

senior unsecured notes due

2026

at

April 30, 2018,

and the senior exchangeable notes and the senior amortizing notes outstanding at 

October 31, 2017)

is 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, which are Level

2

measurements. The fair value of the senior unsecured notes (all series in the aggregate), other than the

13.5%

senior notes due

2026

at

April 30, 2018

and the senior exchangeable notes and senior amortizing notes outstanding at

October 31, 2017,

was estimated at

$109.6

 million and

$383.7

million as of

April 30, 2018

and

October 31, 2017,

respectively.

The fair value of each of the

13.5%

senior unsecured notes due

2026

at

April 30, 2018

and the senior secured notes (all series in the aggregate), and the senior amortizing notes and the senior exchangeable notes outstanding at

October 31, 2017

are estimated based on

third

party broker quotes or management’s estimate of the fair value based on available trades for similar debt instruments, which are Level

3

measurements. The fair value of the

13.5%

senior unsecured notes due

2026

and the senior secured notes (all series in the aggregate) were estimated at

$91.7

 million and

$1.1

 billion, respectively, as of

April 30, 2018. 

As of

October 31, 2017,

the fair value of the senior secured notes (all series in the aggregate), the senior amortizing notes and the senior exchangeable notes were estimated at

$1.2

billion,

$2.1

million and

$54.2

million, respectively. 

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Note 20 - Transactions With Related Parties

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

2 0 . Transactions with Related Parties

During both the

three

months ended

April 30, 2018

and

2017,

an engineering firm owned by Tavit Najarian, a relative of Ara K. Hovnanian, our Chairman of the Board of Directors and our Chief Executive Officer, provided services to the Company totaling

$0.2

million. During the

six

months ended

April 30, 2018

and

2017,

the services provided by such engineering firm to the Company totaled

$0.3

million and

$0.4

million, respectively. Neither the Company nor Mr. Hovnanian has a financial interest in the relative’s company from whom the services were provided.

XML

Note 21 - Subsequent Events

6 Months Ended

Apr. 30, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

21 . Subsequent events

On

May 29, 2018,

K. Hovnanian completed the redemption of

$65.7

million aggregate principal amount of the

8.0%

Notes with borrowings of the Delayed Draw Term Loans under the Unsecured Term Loan Facility. See Note

11

for further information.

On

May 30, 2018,

the parties to the Solus litigation signed a stipulation of dismissal of all claims with prejudice. As part of the case resolution, on

May 30, 2018,

K. Hovnanian paid the overdue interest on the

8.0%

Notes held by Sunrise Trail that was originally due on

May 1, 2018,

and as a result of such payment, the “Default” under the Indenture governing the

8.0%

Notes was cured. The case resolution does

not

involve any settlement payment or admission of wrongdoing by any of the Hovnanian-related parties. On

May 31, 2018,

the Court so-ordered the stipulation and closed the case. See Note

7

for further information.

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Note 3 - Interest (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Schedule of Real Estate Inventory, Capitalized Interest Costs [Table Text Block]

	Three Months Ended April 30,				Six Months Ended April 30,
(In thousands)	2018		2017		2018		2017
Interest capitalized at beginning of period	$	70,793	$	94,438	$	71,051	$	96,688
Plus interest incurred (1)		40,014		39,156		81,179		77,855
Less cost of sales interest expensed		19,364		20,337		31,656		38,659
Less other interest expensed (2)(3)		26,088		22,297		55,219		44,924
Interest capitalized at end of period (4)	$	65,355	$	90,960	$	65,355	$	90,960

Cash Paid for Interest Net of Capitalized Interest [Table Text Block]

	Three Months Ended April 30,					Six Months Ended April 30,
(In thousands)	2018			2017		2018		2017
Other interest expensed	$	26,088		$	22,297	$	55,219	$	44,924
Interest paid by our mortgage and finance subsidiaries		585			455		1,186		1,084
(Increase) decrease in accrued interest		(23,448	)		591		3,302		1,354
Cash paid for interest, net of capitalized interest	$	3,225		$	23,343	$	59,707	$	47,362

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Note 6 - Warranty Costs (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	Three Months Ended April 30,						Six Months Ended April 30,
(In thousands)	2018			2017			2018			2017
Balance, beginning of period	$	129,314		$	118,013		$	127,702		$	121,144
Additions – Selling, general and administrative		2,169			2,856			4,338			5,764
Additions – Cost of sales		4,154			3,515			9,899			7,002
Charges incurred during the period		(19,862	)		(7,177	)		(26,164	)		(16,703	)
Changes to pre-existing reserves		-			-			-			-
Balance, end of period	$	115,775		$	117,207		$	115,775		$	117,207

XML

Note 9 - Mortgage Loans Held for Sale (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	Three Months Ended April 30,					Six Months Ended April 30,
(In thousands)	2018		2017			2018		2017
Loan origination reserves, beginning of period	$	3,188	$	5,077		$	3,158	$	8,137
Provisions for losses during the period		38		45			68		79
Adjustments to pre-existing provisions for losses from changes in estimates		45		(1,340	)		45		(4,434	)
Loan origination reserves, end of period	$	3,271	$	3,782		$	3,271	$	3,782

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Note 11 - Senior Notes and Credit Facilities (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

(In thousands)	April 30, 2018(1)(2)		October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$	73,562	$	72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$	74,456	$	74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)		53,076		53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)		134,638		133,732
10.0% Senior Secured Notes due July 15, 2022		434,855		434,543
10.5% Senior Secured Notes due July 15, 2024		394,278		394,953
Total Senior Secured Notes, net of debt issuance costs	$	1,091,303	$	1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$	-	$	131,957
8.0% Senior Notes due November 1, 2019		65,386		234,293
13.5% Senior Notes due February 1, 2026 (including premium)		101,829		-
5.0% Senior Notes due February 1, 2040 (net of discount)		43,193		-
Total Senior Notes, net of debt issuance costs	$	210,408	$	366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$	-	$	2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$	-	$	53,919
Senior Unsecured Term Loan Credit Facility due 2027, net of debt issuance costs	$	131,567	$	-
Unsecured Revolving Credit Facility	$	52,000	$	52,000

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Note 16 - Operating and Reporting Segments (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

(In thousands)	April 30, 2018		October 31, 2017
Assets:
Northeast	$	168,640	$	180,545
Mid-Atlantic		210,238		224,398
Midwest		83,412		84,960
Southeast		244,337		231,644
Southwest		328,521		294,337
West		189,806		175,347
Total homebuilding		1,224,954		1,191,231
Financial services		120,689		162,113
Corporate and unallocated		296,848		547,554
Total assets	$	1,642,491	$	1,900,898

Operating Segments [Member]

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended April 30,						Six Months Ended April 30,
(In thousands)	2018			2017			2018			2017
Revenues:
Northeast	$	43,771		$	45,950		$	63,970		$	104,525
Mid-Atlantic		104,160			100,600			175,457			200,826
Midwest		42,938			42,019			83,517			85,721
Southeast		60,901			56,635			117,569			113,219
Southwest		159,147			225,255			287,452			408,664
West		78,098			100,843			163,148			197,374
Total homebuilding		489,015			571,302			891,113			1,110,329
Financial services		13,054			14,494			23,942			27,343
Corporate and unallocated (1)		475			139			4,655			272
Total revenues	$	502,544		$	585,935		$	919,710		$	1,137,944
Income (loss) before income taxes:
Northeast	$	5,960		$	(2,722	)	$	(3,741	)	$	(1,816	)
Mid-Atlantic		6,700			918			8,652			4,800
Midwest		(1,110	)		(3,170	)		(3,454	)		(2,458	)
Southeast		(5,286	)		428			(6,947	)		134
Southwest		10,047			19,785			15,558			31,708
West		7,172			2,317			15,239			1,563
Homebuilding income before income taxes		23,483			17,556			25,307			33,931
Financial services		4,256			7,134			6,803			13,128
Corporate and unallocated (1)		(37,317	)		(32,389	)		(72,159	)		(54,435	)
Loss before income taxes	$	(9,578	)	$	(7,699	)	$	(40,049	)	$	(7,376	)

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Note 17 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Equity Method Investments [Table Text Block]

(Dollars in thousands)	April 30, 2018
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	31,166		$	2,414		$	33,580
Inventories		651,968			6,923			658,891
Other assets		29,695			-			29,695
Total assets	$	712,829		$	9,337		$	722,166
Liabilities and equity:
Accounts payable and accrued liabilities	$	96,770		$	504		$	97,274
Notes payable		371,382			-			371,382
Total liabilities		468,152			504			468,656
Equity of:
Hovnanian Enterprises, Inc.		79,690			3,914			83,604
Others		164,987			4,919			169,906
Total equity		244,677			8,833			253,510
Total liabilities and equity	$	712,829		$	9,337		$	722,166
Debt to capitalization ratio		60	%		0	%		59	%

(Dollars in thousands)	October 31, 2017
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	60,580		$	194		$	60,774
Inventories		666,017			9,162			675,179
Other assets		36,026			-			36,026
Total assets	$	762,623		$	9,356		$	771,979
Liabilities and equity:
Accounts payable and accrued liabilities	$	121,646		$	429		$	122,075
Notes payable		330,642			-			330,642
Total liabilities		452,288			429			452,717
Equity of:
Hovnanian Enterprises, Inc.		88,884			3,746			92,630
Others		221,451			5,181			226,632
Total equity		310,335			8,927			319,262
Total liabilities and equity	$	762,623		$	9,356		$	771,979
Debt to capitalization ratio		52	%		0	%		51	%

	For the Three Months Ended April 30, 2018
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	96,931		$	2,343		$	99,274
Cost of sales and expenses		(102,230	)		(2,123	)		(104,353	)
Joint venture net (loss) income	$	(5,299	)	$	220		$	(5,079	)
Our share of net income	$	1,296		$	109		$	1,405

	For the Three Months Ended April 30, 2017
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	86,556		$	1,658		$	88,214
Cost of sales and expenses		(87,957	)		(1,841	)		(89,798	)
Joint venture net loss	$	(1,401	)	$	(183	)	$	(1,584	)
Our share of net loss	$	(4,583	)	$	(92	)	$	(4,675	)

	For the Six Months Ended April 30, 2018
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	155,496		$	3,618		$	159,114
Cost of sales and expenses		(174,366	)		(3,281	)		(177,647	)
Joint venture net (loss) income	$	(18,870	)	$	337		$	(18,533	)
Our share of net (loss) income	$	(3,903	)	$	168		$	(3,735	)

	For the Six Months Ended April 30, 2017
(In thousands)	Homebuilding			Land Development			Total
Revenues	$	151,493		$	2,860		$	154,353
Cost of sales and expenses		(155,183	)		(2,823	)		(158,006	)
Joint venture net (loss) income	$	(3,690	)	$	37		$	(3,653	)
Our share of net (loss) income	$	(6,264	)	$	18		$	(6,246	)

XML

Note 19 - Fair Value of Financial Instruments (Tables)

6 Months Ended

Apr. 30, 2018

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

(In thousands)	Fair Value Hierarchy	Fair Value at April 30, 2018			Fair Value at October 31, 2017
Mortgage loans held for sale (1)	Level 2	$	87,971		$	132,424
Interest rate lock commitments	Level 2		(70	)		(14	)
Forward contracts	Level 2		125			15
Total		$	88,026		$	132,425

Fair Value Option, Disclosures [Table Text Block]

	Three Months Ended April 30, 2018
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	127	$	178	$	(143	)

	Three Months Ended April 30, 2017
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	645	$	109	$	(422	)

	Six Months Ended April 30, 2018
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments			Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	2,541	$	(70	)	$	125

	Six Months Ended April 30, 2017
(In thousands)	Mortgage Loans Held For Sale		Interest Rate Lock Commitments		Forward Contracts
Fair value included in net loss all reflected in financial services revenues	$	3,214	$	99	$	(305	)

Fair Value Measurements, Nonrecurring [Table Text Block]

		Three Months Ended
		April 30, 2018
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	11,170	$	(2,117	)	$	9,053
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Three Months Ended
		April 30, 2017
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	8,474	$	(1,549	)	$	6,925
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Six Months Ended
		April 30, 2018
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	11,170	$	(2,117	)	$	9,053
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Six Months Ended
		April 30, 2017
(In thousands)	Fair Value Hierarchy	Pre-Impairment Amount		Total Losses			Fair Value
Sold and unsold homes and lots under development	Level 3	$	14,776	$	(4,136	)	$	10,640
Land and land options held for future development or sale	Level 3	$	6,326	$	(81	)	$	6,245

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Note 1 - Basis of Presentation (Details Textual) $ in Millions	6 Months Ended
	Apr. 30, 2018 USD ($)
Reclassification from Notes Payable, Net of Discount, Premium and Debt Issuance Costs and Accrued Interest to Revolving and Term Loan Credit Facilities, Net of Debt Issuance Costs [Member] | As of October 31, 2017 [Member]
Prior Period Reclassification Adjustment	$ 73
Homebuilding [Member]
Number of Reportable Segments	6

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Note 2 - Stock Compensation (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Allocated Share-based Compensation Expense, Total	$ 1.0	$ 1.0	$ 2.1	$ 1.5
Allocated Share-based Compensation Expense, Net of Tax		0.9		1.4
Employee Stock Option [Member]
Allocated Share-based Compensation Expense, Total	$ 0.1	$ 0.1	$ 0.3	$ 0.2

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Note 3 - Interest (Details Textual) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Real Estate Inventory Expense Not Eligible for Capitalization	[1],[2]	$ 26,088	$ 22,297	$ 55,219	$ 44,924
Qualifying Assets Not Exceeding Debt [Member]
Real Estate Inventory Expense Not Eligible for Capitalization		19,900	16,000	39,500	29,300
Completed Homes, Land in Planning and Fully Developed Lots without Homes under Construction [Member]
Real Estate Inventory Expense Not Eligible for Capitalization		$ 6,200	$ 6,300	$ 15,800	$ 15,600

[1] 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: 8 Table of Contents Three Months Ended April 30, Six Months Ended April 30, (In thousands) 2018 2017 2018 2017 Other interest expensed $ 26,088 $ 22,297 $ 55,219 $ 44,924 Interest paid by our mortgage and finance subsidiaries 585 455 1,186 1,084 (Increase) decrease in accrued interest (23,448 ) 591 3,302 1,354 Cash paid for interest, net of capitalized interest $ 3,225 $ 23,343 $ 59,707 $ 47,362

[2] Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.

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Note 3 - Interest - Interest Costs Incurred, Expensed and Capitalized (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Interest capitalized at beginning of period		$ 70,793	$ 94,438	$ 71,051	$ 96,688
Plus interest incurred	[1]	40,014	39,156	81,179	77,855
Less cost of sales interest expensed		19,364	20,337	31,656	38,659
Other interest expensed	[2],[3]	26,088	22,297	55,219	44,924
Interest capitalized at end of period	[4]	$ 65,355	$ 90,960	$ 65,355	$ 90,960

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

[2] 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: 8 Table of Contents Three Months Ended April 30, Six Months Ended April 30, (In thousands) 2018 2017 2018 2017 Other interest expensed $ 26,088 $ 22,297 $ 55,219 $ 44,924 Interest paid by our mortgage and finance subsidiaries 585 455 1,186 1,084 (Increase) decrease in accrued interest (23,448 ) 591 3,302 1,354 Cash paid for interest, net of capitalized interest $ 3,225 $ 23,343 $ 59,707 $ 47,362

[3] 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 $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.

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

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Note 3 - Interest - Cash Paid for Interest, Net of Capitalized Interest (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Other interest expensed	[1],[2]	$ 26,088	$ 22,297	$ 55,219	$ 44,924
Interest paid by our mortgage and finance subsidiaries		585	455	1,186	1,084
(Increase) decrease in accrued interest		(23,448)	591	3,302	1,354
Cash paid for interest, net of capitalized interest		$ 3,225	$ 23,343	$ 59,707	$ 47,362

[1] 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: 8 Table of Contents Three Months Ended April 30, Six Months Ended April 30, (In thousands) 2018 2017 2018 2017 Other interest expensed $ 26,088 $ 22,297 $ 55,219 $ 44,924 Interest paid by our mortgage and finance subsidiaries 585 455 1,186 1,084 (Increase) decrease in accrued interest (23,448 ) 591 3,302 1,354 Cash paid for interest, net of capitalized interest $ 3,225 $ 23,343 $ 59,707 $ 47,362

[2] Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.

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Note 4 - Reduction of Inventory to Fair Value (Details Textual) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018 USD ($)	Apr. 30, 2017 USD ($)	Apr. 30, 2018 USD ($)	Apr. 30, 2017 USD ($)	Oct. 31, 2017 USD ($)
Number of Communities Evaluated for Impairment			377	381
Number of Communities Performed Detailed Impairment Calculations			5	9
Carrying Value of Communities Tested for Impairment			$ 11,200	$ 66,900
Impairment of Real Estate	$ 2,100	$ 1,500	2,100	4,200
Homebuilding [Member]
Impairment of Real Estate	$ 2,100	$ 1,500	$ 2,100	$ 4,200
Number of Communities Impaired	5	1	5	6
PreImpairment Value	$ 11,200	$ 8,500	$ 11,200	$ 21,100
Number of Communities Tested for Impairment for Which Undiscounted Future Cash Flow Only Exceeded Carrying Amount By Less Than 20 Percent			0	3
Carrying Value of Communities Tested for Impairment for Which Undiscounted Future Cash Flow Only Exceeded Carrying Amount by Less than 20 Percent				$ 45,800
Percentage Undiscounted Cash Flow Exceeds Carrying Amount			20.00%	20.00%
Land Option Write Offs	$ 600	$ 400	$ 1,000	$ 900
Number of Walk Away Lots	714	478	1,341	1,539
Number of Communities Mothballed During the Period			0
Number of Previously Mothballed Communities Sold During the Period			2
Number of Mothballed Communities Reactivated			1
Number of Communities Mothballed	19		19		22
Inventory Real Estate Mothballed Communities	$ 24,400		$ 24,400		$ 36,700
Inventory Real Estate Mothballed Communities Accumulated Impairment Charges	186,100		186,100		214,100
Liabilities from Inventory Real Estate Not Owned	53,515		53,515		91,101
Homebuilding [Member] | Model Sale Leaseback Financing Arrangements [Member]
Inventory Real Estate, Other Options	33,500		33,500		58,500
Liabilities from Inventory Real Estate Not Owned	30,000		30,000		51,800
Homebuilding [Member] | Land Banking Arrangement [Member]
Inventory Real Estate, Other Options	45,400		45,400		66,300
Liabilities from Inventory Real Estate Not Owned	$ 23,500		$ 23,500		$ 39,300
Homebuilding [Member] | Minimum [Member] | Measurement Input, Discount Rate [Member]
Inventory, Measurement Input			16.8	18.3
Homebuilding [Member] | Maximum [Member] | Measurement Input, Discount Rate [Member]
Inventory, Measurement Input			19.8	19.8

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Note 5 - Variable Interest Entities (Details Textual) $ in Millions	Apr. 30, 2018 USD ($)
Deposits Associated with Land and Lot Options of Unconsolidated Variable Interest Entities	$ 52.5
Purchase Price Associated with Land and Lot Options of Unconsolidated Variable Interest Entities	$ 1,000.0

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Note 6 - Warranty Costs (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017	Oct. 31, 2017
Cash Received from Subcontractors for Owner Controlled Insurance Program			$ 1,900	$ 1,800
General Liability Insurance Deductible	$ 20,000		20,000		$ 20,000
Bodily Injury Insurance Deductible	250		250		250
Bodily Injury Insurance Limit	5,000		5,000		5,000
Aggregate Retention for Construction Defects Warranty and Bodily Injury Claims	20,000		20,000		$ 21,000
Payments by Insurance Companies for Claims	$ 100	$ 200	$ 100	$ 200

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Note 6 - Warranty Costs - Warranty and General Liability Reserve (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Balance, beginning of period	$ 129,314	$ 118,013	$ 127,702	$ 121,144
Charges incurred during the period	(19,862)	(7,177)	(26,164)	(16,703)
Changes to pre-existing reserves
Balance, end of period	115,775	117,207	115,775	117,207
Selling, General and Administrative Expenses [Member]
Additions	2,169	2,856	4,338	5,764
Cost of Sales [Member]
Additions	$ 4,154	$ 3,515	$ 9,899	$ 7,002

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Note 7 - Commitments and Contingent Liabilities (Details Textual) - USD ($)							3 Months Ended	6 Months Ended
	May 10, 2018	May 02, 2018	Jan. 12, 2018	Dec. 15, 2017	Nov. 18, 2017	Jun. 01, 2017	Oct. 31, 2017	Apr. 30, 2018	Feb. 16, 2018	Feb. 01, 2018	Jan. 11, 2018
8.0% Senior Notes due 2019, 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040 [Member]
Debt Instrument, Face Amount											$ 185,000,000
8.0% Senior Notes Due 2019 [Member]
Debt Instrument, Face Amount										$ 170,200,000
Debt Instrument, Interest Rate, Stated Percentage								8.00%		8.00%	8.00%
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Face Amount										$ 90,600,000
Debt Instrument, Interest Rate, Stated Percentage								13.50%		13.50%	13.50%
Five Percent Senior Notes due 2040 [Member]
Debt Instrument, Face Amount										$ 90,100,000
Debt Instrument, Interest Rate, Stated Percentage										5.00%	5.00%
EPA Case Involving a Housing Redevelopment Project in Newark, New Jersey [Member] | Subsequent Event [Member]
Loss Contingency, Percentage of Plaintiff's Costs for Which Reimbursement is Demanded		100.00%
Loss Contingency, Damages Sought, Value		$ 2,700,000
Litigation Case, Extension Period Requested		15 days
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member]
Loss Contingency, Damages Sought, Value								$ 41,300,000
Loss Contingency, Damages Awarded, Value						$ 9,000,000
Litigation Settlement, Amount Awarded to Other Party			$ 10,400,000
Loss Contingency, Supersedeas Bond									$ 11,100,000
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member] | Minimum [Member]
Loss Contingency, Estimate of Possible Loss								0
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member] | Maximum [Member]
Loss Contingency, Estimate of Possible Loss								$ 11,100,000
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member] | Breach of Warranty and New Jersey Fraud Claims Prior to Statutory Trebling [Member]
Loss Contingency, Damages Awarded, Value						$ 3,000,000
Grandview at Riverwalk Port Imperial Condominium Association Construction Defect Lawsuit [Member] | Attorney Fees and Costs [Member]
Litigation Settlement, Amount Awarded to Other Party				$ 1,400,000	$ 1,800,000
Litigation Settlement, Amount Sought from Other Party					$ 4,800,000
Construction and Design Defects Lawsuit from Second Condominium Association [Member] | Minimum [Member]
Loss Contingency, Damages Sought, Value							$ 69,000,000
Construction and Design Defects Lawsuit from Second Condominium Association [Member] | Maximum [Member]
Loss Contingency, Damages Sought, Value							$ 79,000,000
Class Action Lawsuit Filed by Plaintiff Joseph Hong [Member] | Subsequent Event [Member]
Payments for Legal Settlements	$ 275,000

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Note 8 - Cash and Cash Equivalents, Restricted Cash and Cash Equivalents and Customer's Deposits (Details Textual) - USD ($) $ in Thousands	Apr. 30, 2018	Oct. 31, 2017
Cash Equivalents, at Carrying Value, Total	$ 11,900	$ 13,300
Mortgage Warehouse Lines of Credit [Member]
Restricted Cash and Cash Equivalents, Total	2,000	2,300
Homebuilding [Member]
Restricted Cash and Cash Equivalents, Total	13,957	2,077
Homebuilding [Member] | Customer Deposits [Member]
Restricted Cash and Cash Equivalents, Total	200	400
Homebuilding [Member] | Cash Collateral for a Bond Related to the Grandview Litigation [Member]
Restricted Cash and Cash Equivalents, Total	11,100
Financial Services [Member]
Restricted Cash and Cash Equivalents, Total	25,200	22,300
Financial Services [Member] | Customer Deposits [Member]
Restricted Cash and Cash Equivalents, Total	$ 23,200	$ 20,000

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Note 9 - Mortgage Loans Held for Sale (Details Textual) $ in Millions	Apr. 30, 2018 USD ($)	Oct. 31, 2017 USD ($)	Apr. 30, 2017
Loans Pledged as Collateral	$ 72.7	$ 119.6
Number of Loans Reserved For	45		94

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Note 9 - Mortgage Loans Held for Sale - Loan Origination Reserves (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Loan origination reserves, beginning of period	$ 3,188	$ 5,077	$ 3,158	$ 8,137
Provisions for losses during the period	38	45	68	79
Adjustments to pre-existing provisions for losses from changes in estimates	45	(1,340)	45	(4,434)
Loan origination reserves, end of period	$ 3,271	$ 3,782	$ 3,271	$ 3,782

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Note 10 - Mortgages (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Apr. 30, 2018	Oct. 31, 2017
JP Morgan Chase Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000
Warehouse Agreement Borrowings, Total	$ 29,200	$ 41,500
JP Morgan Chase Bank [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument Variable Rate Basis Adjusted London Interbank Offered Rate LIBOR	1.91%
JP Morgan Chase Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.50%
JP Morgan Chase Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.63%
Customers Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000
Warehouse Agreement Borrowings, Total	$ 23,900	40,700
Customers Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member]
Debt Instrument, Basis Spread on Variable Rate	2.375%
Customers Bank [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member]
Debt Instrument, Basis Spread on Variable Rate	5.125%
Nonrecourse Mortgages Secured By Inventory [Member] | Mortgages [Member] | Homebuilding [Member]
Secured Debt, Total	$ 70,644	64,512
Debt Instrument, Collateral Amount	$ 179,100	$ 157,800
Debt, Weighted Average Interest Rate	5.50%	5.30%
Nonrecourse Mortgages Secured by Operating Properties [Member] | Mortgages [Member] | Corporate, Non-Segment [Member]
Secured Debt, Total		$ 13,000
Nonrecourse Mortgages Secured by Operating Properties [Member] | Mortgages [Member] | Homebuilding [Member]
Secured Debt, Total		13,012
Comerica Master Repurchase Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity	50,000
Warehouse Agreement Borrowings, Total	$ 18,000	$ 32,400
Comerica Master Repurchase Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	2.375%
Debt Instrument Variable Rate Basis Floor Rate	0.25%

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Note 11 - Senior Notes and Credit Facilities (Details Textual)						1 Months Ended	3 Months Ended				6 Months Ended
		Jan. 15, 2019 USD ($)	May 29, 2018 USD ($)	Feb. 01, 2018 USD ($)	Dec. 01, 2017 USD ($)	Jun. 30, 2013 USD ($)	Apr. 30, 2018 USD ($)		Jul. 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Apr. 30, 2018 USD ($)		Apr. 30, 2017 USD ($)	Jan. 29, 2018 USD ($)	Jan. 11, 2018	Oct. 31, 2017 USD ($)
Interest Payable							$ 38,500,000				$ 38,500,000					$ 41,800,000
Debt Issuance Costs, Net, Total							$ 16,600,000				$ 16,600,000					16,100,000
Debt Covenant Fixed Charge Coverage Ratio Minimum							2				2
Repayments of Senior Debt, Total											$ 215,093,000		$ 33,327,000
Gain (Loss) on Extinguishment of Debt, Total							$ (1,440,000)		$ (42,300,000)	$ (242,000)	(1,440,000)		$ 7,404,000
The 7% 2019 Notes [Member]
Gain (Loss) on Extinguishment of Debt, Total							(500,000)				(500,000)
8.0% Senior Notes Due 2019 [Member]
Gain (Loss) on Extinguishment of Debt, Total							(900,000)				(900,000)
Stand-alone Cash Collateralized Letter of Credit Agreements and Facilities [Member]
Letters of Credit Outstanding, Amount							2,700,000				2,700,000					1,700,000
Stand-alone Cash Collateralized Letter of Credit Agreements and Facilities [Member] | Restricted Cash [Member]
Debt Instrument, Collateral Amount							2,700,000				2,700,000					1,700,000
GSO [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity														$ 125,000,000
Citi Bank [Member] | Unsecured Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity						$ 75,000,000
Debt Instrument, Term						5 years
Long-term Line of Credit, Total							52,000,000				52,000,000					52,000,000
Letters of Credit Outstanding, Amount							$ 11,600,000				$ 11,600,000					$ 14,600,000
Series A Preferred Stock [Member]
Preferred Stock, Dividend Rate, Percentage											7.625%
Senior Secured Notes [Member]
Debt Instrument, Voluntary Prepayment Premium, Aggregate Principal Amount, Percentage							1.00%				1.00%
Senior Secured Notes [Member] | Base Rate [Member]
Debt Instrument, Basis Spread on Variable Rate											6.00%
Senior Exchangeable Notes [Member]
Repayments of Senior Debt, Total					$ 53,900,000
Unsecured Senior Notes [Member] | GSO [Member]
Debt Instrument, Face Amount				$ 132,500,000										132,500,000
Delayed Draw Term Loans [Member] | GSO [Member]
Debt Agreement Maximum Borrowing Capacity														$ 80,000,000
The 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						5.00%				5.00%					5.00%
The 2.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						2.00%				2.00%					2.00%
The 9.50% 2020 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						9.50%				9.50%					9.50%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						10.00%				10.00%					10.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage											100.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Two [Member]
Debt Instrument, Redemption Price, Percentage											105.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Three [Member]
Debt Instrument, Redemption Price, Percentage											102.50%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Four [Member]
Debt Instrument, Redemption Price, Percentage											100.00%
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member] | Redemption with Net Cash Proceeds from Certain Equity Offerings [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage											110.00%
Debt Instrument, Redemption Price, Percentage of Principal Amount Redeemed											35.00%
The 7.0% 2019 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage				7.00%
The 7.0% 2019 Notes [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate											7.00%
The 7.0% 2019 Notes [Member] | Senior Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage							7.00%				7.00%
The 7.0% 2019 Notes [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						7.00%				7.00%					7.00%
Repayments of Senior Debt, Total				$ 132,500,000
8.0% Senior Notes Due 2019 [Member]
Debt Instrument, Interest Rate, Stated Percentage				8.00%			8.00%				8.00%				8.00%
Debt Instrument, Face Amount				$ 170,200,000
Debt Instrument, Redemption Price, Percentage				100.00%
8.0% Senior Notes Due 2019 [Member] | Subsequent Event [Member]
Repayments of Long-term Debt, Total			$ 65,700,000
8.0% Senior Notes Due 2019 [Member] | K. Hovnanian at Sunrise Trail III, LLC [Member]
Repayments of Senior Debt, Total				$ 26,500,000
8.0% Senior Notes Due 2019 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage				8.00%
The 11.0% 2017 Amortizing Note [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage					11.00%		11.00%	[1],[2]			11.00%	[1],[2]				11.00%	[1],[2]
Repayments of Senior Debt, Total					$ 2,100,000
The 10.5% 2024 Notes [Member] | GSO [Member] | Scenario, Forecast [Member]
Debt Instrument, Interest Rate, Stated Percentage		10.50%
Debt Instrument, Face Amount		$ 25,000,000
Debt Instrument, Purchase Price		$ 1,000
Increase (Decrease) in Stated Rate Due to Terms		0.50%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						10.50%				10.50%					10.50%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Interest Rate, Stated Percentage							10.00%				10.00%
Increase (Decrease) in Stated Rate Due to Terms											0.50%
Debt Instrument, Redemption Price, Percentage											100.00%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Two [Member]
Debt Instrument, Redemption Price, Percentage											105.25%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Three [Member]
Debt Instrument, Redemption Price, Percentage											102.625%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period Four [Member]
Debt Instrument, Redemption Price, Percentage											100.00%
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member] | Redemption with Net Cash Proceeds from Certain Equity Offerings [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage											110.50%
Debt Instrument, Redemption Price, Percentage of Principal Amount Redeemed											35.00%
The 7% 2019 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage				7.00%
The 5.0% Notes Due 2027 [Member]
Debt Instrument, Interest Rate, Stated Percentage				5.00%
The 8.0% Senior Notes Due 2019 [Member]
Debt Instrument, Aggregate Principal Outstanding, Percentage				72.14%
The 8.0% Senior Notes Due 2019 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						8.00%				8.00%					8.00%
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Interest Rate, Stated Percentage				13.50%			13.50%				13.50%				13.50%
Debt Instrument, Face Amount				$ 90,600,000
Debt Instrument, Fair Value Disclosure, Total				$ 103,000,000
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						13.50%				13.50%
Five Percent Senior Notes due 2040 [Member]
Debt Instrument, Interest Rate, Stated Percentage				5.00%											5.00%
Debt Instrument, Face Amount				$ 90,100,000
Debt Instrument, Fair Value Disclosure, Total				$ 44,000,000
Five Percent Senior Notes due 2040 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]						5.00%				5.00%
The Purchased 8% Notes [Member] | K. Hovnanian at Sunrise Trail III, LLC [Member]
Debt Instrument, Interest Rate, Stated Percentage				8.00%
Debt Instrument, Repurchased Face Amount				$ 26,000,000
Senior Secured Term Loan [Member]
Debt Instrument, Face Amount							$ 75,000,000				$ 75,000,000
Senior Secured Term Loan [Member] | Real Estate Inventory [Member]
Debt Instrument, Collateral Amount							483,400,000				483,400,000
Senior Secured Term Loan [Member] | Cash and Cash Equivalents Collateral [Member]
Debt Instrument, Collateral Amount							164,800,000				164,800,000
Senior Secured Term Loan [Member] | Restricted Cash [Member]
Debt Instrument, Collateral Amount							$ 12,800,000				$ 12,800,000
9.5% Senior Secured Notes Due 2020 [Member] | Senior Secured Notes [Member]
Debt Instrument, Redemption Price, Percentage											100.00%
9.5% Senior Secured Notes Due 2020 [Member] | Senior Secured Notes [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage											100.00%
9.5% Senior Secured Notes Due 2020 [Member] | Senior Secured Notes [Member] | Redemption with Net Cash Proceeds from Certain Equity Offerings [Member] | Debt Instrument, Redemption, Period One [Member]
Debt Instrument, Redemption Price, Percentage											109.50%
Debt Instrument, Redemption Price, Percentage of Principal Amount Redeemed											35.00%
The 2.0% 2021 Notes Member and 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Voluntary Prepayment Premium, Aggregate Principal Amount, Percentage							1.00%				1.00%
Debt Instrument, Redemption Price, Percentage											100.00%
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Real Estate Inventory [Member]
Debt Instrument, Collateral Amount							$ 139,300,000				$ 139,300,000
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Cash and Cash Equivalents Collateral [Member]
Debt Instrument, Collateral Amount							97,900,000				97,900,000
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Restricted Cash [Member]
Debt Instrument, Collateral Amount							1,000,000				1,000,000
The 2021 Notes and 9.5% 2020 Notes [Member] | Senior Secured Notes [Member] | Secured Group [Member] | Investment in Joint Ventures [Member]
Debt Instrument, Collateral Amount							$ 79,200,000				$ 79,200,000

[1] "Notes payable" on our Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 consists of the total senior secured, senior and senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $38.5 million and $41.8 million, respectively.

[2] Unamortized debt issuance costs at April 30, 2018 and October 31, 2017 were $16.6 million and $16.1 million, respectively.

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Note 11 - Senior Notes and Credit Facilities - Senior Notes and Credit Facilities Balances (Details) - USD ($) $ in Thousands		Apr. 30, 2018	Oct. 31, 2017
Senior Secured Term Loan [Member]
Long-term Line of Credit, Total	[1],[2]	$ 73,562	$ 72,987
Senior Secured Notes [Member]
Senior debt	[1],[2]	1,091,303	1,090,636
Senior Secured Notes [Member] | The 9.50% 2020 Notes [Member]
Senior debt	[1],[2]	74,456	74,350
Senior Secured Notes [Member] | The 2.0% 2021 Notes [Member]
Senior debt	[1],[2]	53,076	53,058
Senior Secured Notes [Member] | The 5.0% 2021 Notes [Member]
Senior debt	[1],[2]	134,638	133,732
Senior Secured Notes [Member] | The 10.0% 2022 Notes [Member]
Senior debt	[1],[2]	434,855	434,543
Senior Secured Notes [Member] | The 10.5% 2024 Notes [Member]
Senior debt	[1],[2]	394,278	394,953
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Senior debt	[1],[2]	210,408	366,250
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | The 7.0% 2019 Notes [Member]
Senior debt	[1],[2]		131,957
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | The 8.0% Senior Notes Due 2019 [Member]
Senior debt	[1],[2]	65,386	234,293
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Senior debt	[1],[2]	101,829
Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member] | Five Percent Senior Notes due 2040 [Member]
Senior debt	[1],[2]	43,193
Senior Amortizing Notes [Member] | The 11.0% 2017 Amortizing Note [Member]
Senior debt	[1],[2]		2,045
Senior Amortizing Notes [Member] | Senior Exchangeable Notes Due 2017 [Member]
Senior debt	[1],[2]		53,919
Senior Unsecured Term Loan Credit Facility [Member] | Senior Unsecured Term Loan Credit Facility Due 2027 [Member]
Long-term Line of Credit, Total	[1],[2]	131,567
Unsecured Revolving Credit Facility [Member]
Long-term Line of Credit, Total		$ 52,000	$ 52,000

[1] "Notes payable" on our Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 consists of the total senior secured, senior and senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $38.5 million and $41.8 million, respectively.

[2] Unamortized debt issuance costs at April 30, 2018 and October 31, 2017 were $16.6 million and $16.1 million, respectively.

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Note 11 - Senior Notes and Credit Facilities - Senior Notes and Credit Facilities Balances (Details) (Parentheticals)		6 Months Ended		12 Months Ended
		Apr. 30, 2018		Oct. 31, 2017		Feb. 01, 2018	Jan. 11, 2018	Dec. 01, 2017
The 9.50% 2020 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	9.50%		9.50%
Debt Instrument, Maturity Date	[1],[2]	Nov. 15, 2020		Nov. 15, 2020
The 2.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	2.00%		2.00%
Debt Instrument, Maturity Date	[1],[2]	Nov. 01, 2021		Nov. 01, 2021
The 5.0% 2021 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	5.00%		5.00%
Debt Instrument, Maturity Date	[1],[2]	Nov. 01, 2021		Nov. 01, 2021
The 10.0% 2022 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	10.00%		10.00%
Debt Instrument, Maturity Date	[1],[2]	Jul. 15, 2022		Jul. 15, 2022
The 10.5% 2024 Notes [Member] | Senior Secured Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	10.50%		10.50%
Debt Instrument, Maturity Date	[1],[2]	Jul. 15, 2024		Jul. 15, 2024
The 7.0% 2019 Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage						7.00%
The 7.0% 2019 Notes [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	7.00%		7.00%
Debt Instrument, Maturity Date	[1],[2]	Jan. 15, 2019		Jan. 15, 2019
The 8.0% Senior Notes Due 2019 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	8.00%		8.00%
Debt Instrument, Maturity Date	[1],[2]	Nov. 01, 2019		Nov. 01, 2019
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Interest Rate, Stated Percentage		13.50%				13.50%	13.50%
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	13.50%
Debt Instrument, Maturity Date	[1],[2]	Feb. 01, 2026
Five Percent Senior Notes due 2040 [Member]
Debt Instrument, Interest Rate, Stated Percentage						5.00%	5.00%
Five Percent Senior Notes due 2040 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	5.00%
Debt Instrument, Maturity Date	[1],[2]	Feb. 01, 2040
The 11.0% 2017 Amortizing Note [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage		11.00%	[1],[2]	11.00%	[1],[2]			11.00%
Debt Instrument, Maturity Date	[1],[2]	Dec. 01, 2017		Dec. 01, 2017
Senior Exchangeable Notes Due 2017 [Member] | Senior Amortizing Notes [Member]
Debt Instrument, Maturity Date	[1],[2]	Dec. 01, 2017		Dec. 01, 2017
Senior Unsecured Term Loan Credit Facility Due 2027 [Member] | Senior Unsecured Term Loan Credit Facility [Member]
Debt Instrument, Maturity Date	[1],[2]	Feb. 01, 2027

[1] "Notes payable" on our Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 consists of the total senior secured, senior and senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $38.5 million and $41.8 million, respectively.

[2] Unamortized debt issuance costs at April 30, 2018 and October 31, 2017 were $16.6 million and $16.1 million, respectively.

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Note 12 - Per Share Calculation (Details Textual) - shares shares in Millions	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Exchangeable Note Unit Rate Stated Percentage	6.00%		6.00%
Non Vested Stock and Outstanding Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	3.3	4.6	3.5	4.6
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		10.0	1.7	10.1
Out of the Money Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	5.6	4.7	4.6	4.7

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Note 13 - Preferred Stock (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
	Jul. 12, 2005	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017	Oct. 31, 2017
Preferred Stock, Shares Issued, Total		5,600		5,600		5,600
Preferred Class A [Member]
Preferred Stock, Shares Issued, Total	5,600
Preferred Stock, Dividend Rate, Percentage	7.625%
Preferred Stock, Liquidation Preference Per Share	$ 25,000
Preferred Stock, Depositary Shares, Number of Shares of Preferred Stock in Each Depositary Share	0.001
Payments of Dividends, Total		$ 0	$ 0	$ 0	$ 0

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Note 14 - Common Stock (Details Textual) shares in Thousands	3 Months Ended	6 Months Ended
	Apr. 30, 2018 shares	Apr. 30, 2018 shares	Dec. 05, 2008	Aug. 15, 2008	Aug. 04, 2008	Jul. 03, 2001 shares
Common Stock Dividends Percent of Increase from Class A to Class B	110.00%	110.00%
Conversion of Stock From Class B to Class A Conversion Ratio		1
Shareholder Ownership Percentage of Increase					50.00%
Minimum [Member]
Shareholder Ownership Percentage					5.00%
Common Class A [Member]
Common Stock Voting Rights Votes per Share Number		1
Shareholder Ownership Percentage				4.90%
Number of Rights				1
Shareholders Pre Existing Ownership Percentage			5.00%
Shareholders Current Ownership Percentage			5.00%
Shareholders Ownership Percentage on Transfers			5.00%
Shareholders Ownership Percentage Threshold			5.00%
Stock Repurchase Program, Number of Shares Authorized to be Repurchased						4,000
Stock Repurchased During Period, Shares	0	0
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased	500	500
Common Class B [Member]
Common Stock Voting Rights Votes per Share Number		10

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Note 15 - Income Taxes (Details Textual) - USD ($) $ in Thousands		3 Months Ended			6 Months Ended		10 Months Ended
	Dec. 22, 2017	Apr. 30, 2018	Jul. 31, 2017	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017	Oct. 31, 2018
Income Tax Expense (Benefit), Total		$ 245		$ (1,017)	$ 583	$ (551)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	35.00%
Revaluation of Deferred Tax Asset, Decrease					298,500
Revaluation of Deferred Tax Liabilities, Decrease					12,200
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability					0
Deferred Tax Assets, Valuation Allowance, Total		661,800			661,800
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		(9,578)	$ (50,200)	(7,699)	(40,049)	(7,376)
Gain (Loss) on Extinguishment of Debt, Total		(1,440)	$ (42,300)	(242)	(1,440)	7,404
Increase in Interest Incurred Per Year, Amount					23,400
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent							21.00%
Domestic Tax Authority [Member]
Income Tax Expense (Benefit), Total				(3,309)		(2,825)
Operating Loss Carryforwards, Total		1,700,000			1,700,000
State and Local Jurisdiction [Member]
Income Tax Expense (Benefit), Total		245		$ 2,292	583	$ 2,274
Operating Loss Carryforwards, Total		2,600,000			2,600,000
State and Local Jurisdiction [Member] | Between 2018 and 2022 [Member]
Operating Loss Carryforwards, Total		247,100			247,100
State and Local Jurisdiction [Member] | Between 2023 and 2027 [Member]
Operating Loss Carryforwards, Total		463,100			463,100
State and Local Jurisdiction [Member] | Between 2028 and 2032 [Member]
Operating Loss Carryforwards, Total		1,500,000			1,500,000
State and Local Jurisdiction [Member] | Between 2033 and 2037 [Member]
Operating Loss Carryforwards, Total		$ 348,700			$ 348,700

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Note 16 - Operating and Reporting Segments (Details Textual) $ in Thousands		3 Months Ended			6 Months Ended
		Apr. 30, 2018 USD ($)	Jul. 31, 2017 USD ($)	Apr. 30, 2017 USD ($)	Apr. 30, 2018 USD ($)	Apr. 30, 2017 USD ($)
Real Estate Inventory Expense Not Eligible for Capitalization	[1],[2]	$ 26,088		$ 22,297	$ 55,219	$ 44,924
Gain (Loss) on Extinguishment of Debt, Total		(1,440)	$ (42,300)	(242)	(1,440)	7,404
Qualifying Assets Not Exceeding Debt [Member]
Real Estate Inventory Expense Not Eligible for Capitalization		19,900		16,000	39,500	29,300
Corporate, Non-Segment [Member]
General and Administrative Expense, Total		16,200		16,100	35,300	31,700
Gain (Loss) on Extinguishment of Debt, Total		(1,400)		(200)	(1,400)	7,400
Other Nonoperating Income (Expense), Total		(100)		100	(4,000)	800
Corporate, Non-Segment [Member] | Qualifying Assets Not Exceeding Debt [Member]
Real Estate Inventory Expense Not Eligible for Capitalization		$ 19,900		$ 16,000	$ 39,500	$ 29,300
Homebuilding [Member]
Number of Reportable Segments					6

[1] 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: 8 Table of Contents Three Months Ended April 30, Six Months Ended April 30, (In thousands) 2018 2017 2018 2017 Other interest expensed $ 26,088 $ 22,297 $ 55,219 $ 44,924 Interest paid by our mortgage and finance subsidiaries 585 455 1,186 1,084 (Increase) decrease in accrued interest (23,448 ) 591 3,302 1,354 Cash paid for interest, net of capitalized interest $ 3,225 $ 23,343 $ 59,707 $ 47,362

[2] Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $19.9 million and $16.0 million for the three months ended April 30, 2018 and 2017, respectively, and $39.5 million and $29.3 million for the six months ended April 30, 2018 and 2017, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed. This component of other interest was $6.2 million and $6.3 million for the three months ended April 30, 2018 and 2017, respectively, and $15.8 million and $15.6 million for the six months ended April 30, 2018 and 2017, respectively.

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Note 16 - Operating and Reporting Segments - Financial Information Relating to Segment Operations (Details) - USD ($) $ in Thousands		3 Months Ended			6 Months Ended
		Apr. 30, 2018	Jul. 31, 2017	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Revenues, Total		$ 502,544		$ 585,935	$ 919,710	$ 1,137,944
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		(9,578)	$ (50,200)	(7,699)	(40,049)	(7,376)
Corporate, Non-Segment [Member]
Revenues, Total	[1]	475		139	4,655	272
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total	[1]	(37,317)		(32,389)	(72,159)	(54,435)
Homebuilding [Member]
Revenues, Total		489,490		571,441	895,768	1,110,601
Homebuilding [Member] | Operating Segments [Member]
Revenues, Total		489,015		571,302	891,113	1,110,329
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		23,483		17,556	25,307	33,931
Homebuilding [Member] | Northeast [Member] | Operating Segments [Member]
Revenues, Total		43,771		45,950	63,970	104,525
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		5,960		(2,722)	(3,741)	(1,816)
Homebuilding [Member] | Mid-Atlantic [Member] | Operating Segments [Member]
Revenues, Total		104,160		100,600	175,457	200,826
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		6,700		918	8,652	4,800
Homebuilding [Member] | Midwest [Member] | Operating Segments [Member]
Revenues, Total		42,938		42,019	83,517	85,721
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		(1,110)		(3,170)	(3,454)	(2,458)
Homebuilding [Member] | Southeast [Member] | Operating Segments [Member]
Revenues, Total		60,901		56,635	117,569	113,219
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		(5,286)		428	(6,947)	134
Homebuilding [Member] | Southwest [Member] | Operating Segments [Member]
Revenues, Total		159,147		225,255	287,452	408,664
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		10,047		19,785	15,558	31,708
Homebuilding [Member] | West [Member] | Operating Segments [Member]
Revenues, Total		78,098		100,843	163,148	197,374
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		7,172		2,317	15,239	1,563
Financial Services [Member]
Revenues, Total		13,054		14,494	23,942	27,343
Financial Services [Member] | Operating Segments [Member]
Revenues, Total		13,054		14,494	23,942	27,343
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total		$ 4,256		$ 7,134	$ 6,803	$ 13,128

[1] Corporate and unallocated for the three months ended April 30, 2018 included corporate general and administrative costs of $16.2 million, interest expense of $19.9 million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of $1.4 million and $(0.1) million of other income and expenses primarily related to interest income and gain on the sale of our corporate headquarters building. Corporate and unallocated for the six months ended April 30, 2018 included corporate general and administrative costs of $35.3 million, interest expense of $39.5 million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of $1.4 million and $(4.0) million of other income and expenses primarily related to interest income and gain on the sale of our corporate headquarters building. Corporate and unallocated for the three months ended April 30, 2017 included corporate general and administrative costs of $16.1 million, interest expense of $16.0 million (a component of Other interest on our Condensed Consolidated Statements of Operations), loss on extinguishment of debt of $0.2 million and $0.1 million of other income and expenses primarily related to rental income. Corporate and unallocated for the six months ended April 30, 2017 included corporate general and administrative costs of $31.7 million, interest expense of $29.3 million (a component of Other interest on our Condensed Consolidated Statements of Operations), gain on extinguishment of debt of $7.4 million and $0.8 million of other income and expenses primarily related to bond amortization and rental income.

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Note 16 - Operating and Reporting Segments - Financial Information Relating to Segment Financial Position (Details) - USD ($) $ in Thousands	Apr. 30, 2018	Oct. 31, 2017
Assets	$ 1,642,491	$ 1,900,898
Corporate, Non-Segment [Member]
Assets	296,848	547,554
Homebuilding [Member]
Assets	1,521,802	1,738,785
Homebuilding [Member] | Operating Segments [Member]
Assets	1,224,954	1,191,231
Homebuilding [Member] | Northeast [Member] | Operating Segments [Member]
Assets	168,640	180,545
Homebuilding [Member] | Mid-Atlantic [Member] | Operating Segments [Member]
Assets	210,238	224,398
Homebuilding [Member] | Midwest [Member] | Operating Segments [Member]
Assets	83,412	84,960
Homebuilding [Member] | Southeast [Member] | Operating Segments [Member]
Assets	244,337	231,644
Homebuilding [Member] | Southwest [Member] | Operating Segments [Member]
Assets	328,521	294,337
Homebuilding [Member] | West [Member] | Operating Segments [Member]
Assets	189,806	175,347
Financial Services [Member] | Operating Segments [Member]
Assets	$ 120,689	$ 162,113

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Note 17 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures (Details Textual) $ in Thousands	3 Months Ended				6 Months Ended
	Apr. 30, 2018 USD ($)	Jan. 31, 2018 USD ($)	Apr. 30, 2017 USD ($)	Jan. 31, 2017 USD ($)	Apr. 30, 2018 USD ($)	Apr. 30, 2017 USD ($)	Oct. 31, 2017 USD ($)
Fair Value of Assets Acquired		$ 13,600			$ 13,600
Number of Owned Communities Transferred to the Joint Venture				1
Number of Optioned Communities Transferred to the Joint Venture				3
Proceeds from Transfer of Land to Joint Venture				$ 11,200
Revenues, Total	$ 502,544		$ 585,935		$ 919,710	$ 1,137,944
Joint Venture Total Debt to Capitalization Ratio	59.00%				59.00%
Homebuilding [Member]
Investments in and Advance to Affiliates, Subsidiaries, Associates, and Joint Ventures, Total	$ 88,344				$ 88,344		$ 115,090
Revenues, Total	489,490		571,441		895,768	1,110,601
Homebuilding [Member] | Management Fees [Member]
Revenues, Total	2,900		$ 3,000		4,900	$ 5,100
Corporate Joint Venture [Member]
Advances to Affiliate	$ 5,200				$ 5,200		$ 22,400
Joint Venture Total Debt to Capitalization Ratio	59.00%				59.00%		51.00%
Corporate Joint Venture [Member] | Homebuilding [Member]
Joint Venture Impairment Charge					$ 700

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Note 17 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures - Unconsolidated Homebuilding and Land Development Joint Ventures (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017	Oct. 31, 2017
Debt to capitalization ratio	59.00%		59.00%
Our share of net income	$ 1,343	$ (4,562)	$ (3,833)	$ (6,228)
Corporate Joint Venture [Member]
Cash and cash equivalents	33,580		33,580		$ 60,774
Inventories	658,891		658,891		675,179
Other assets	29,695		29,695		36,026
Total assets	722,166		722,166		771,979
Accounts payable and accrued liabilities	97,274		97,274		122,075
Notes payable	371,382		371,382		330,642
Total liabilities	468,656		468,656		452,717
Hovnanian Enterprises, Inc.	83,604		83,604		92,630
Others	169,906		169,906		226,632
Total equity	253,510		253,510		319,262
Total liabilities and equity	$ 722,166		$ 722,166		$ 771,979
Debt to capitalization ratio	59.00%		59.00%		51.00%
Revenues	$ 99,274	88,214	$ 159,114	154,353
Cost of sales and expenses	(104,353)	(89,798)	(177,647)	(158,006)
Joint venture net (loss) income	(5,079)	(1,584)	(18,533)	(3,653)
Our share of net income	1,405	(4,675)	(3,735)	(6,246)
Homebuilding Joint Venture [Member] | Corporate Joint Venture [Member]
Cash and cash equivalents	31,166		31,166		$ 60,580
Inventories	651,968		651,968		666,017
Other assets	29,695		29,695		36,026
Total assets	712,829		712,829		762,623
Accounts payable and accrued liabilities	96,770		96,770		121,646
Notes payable	371,382		371,382		330,642
Total liabilities	468,152		468,152		452,288
Hovnanian Enterprises, Inc.	79,690		79,690		88,884
Others	164,987		164,987		221,451
Total equity	244,677		244,677		310,335
Total liabilities and equity	$ 712,829		$ 712,829		$ 762,623
Debt to capitalization ratio	60.00%		60.00%		52.00%
Revenues	$ 96,931	86,556	$ 155,496	151,493
Cost of sales and expenses	(102,230)	(87,957)	(174,366)	(155,183)
Joint venture net (loss) income	(5,299)	(1,401)	(18,870)	(3,690)
Our share of net income	1,296	(4,583)	(3,903)	(6,264)
Land Development Joint Venture [Member] | Corporate Joint Venture [Member]
Cash and cash equivalents	2,414		2,414		$ 194
Inventories	6,923		6,923		9,162
Other assets
Total assets	9,337		9,337		9,356
Accounts payable and accrued liabilities	504		504		429
Notes payable
Total liabilities	504		504		429
Hovnanian Enterprises, Inc.	3,914		3,914		3,746
Others	4,919		4,919		5,181
Total equity	8,833		8,833		8,927
Total liabilities and equity	$ 9,337		$ 9,337		$ 9,356
Debt to capitalization ratio	0.00%		0.00%		0.00%
Revenues	$ 2,343	1,658	$ 3,618	2,860
Cost of sales and expenses	(2,123)	(1,841)	(3,281)	(2,823)
Joint venture net (loss) income	220	(183)	337	37
Our share of net income	$ 109	$ (92)	$ 168	$ 18

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Note 19 - Fair Value of Financial Instruments (Details Textual) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
		Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017	Feb. 01, 2018	Jan. 11, 2018	Oct. 31, 2017
Loans Held for Sale Mortgages Unpaid Principal		$ 85.6		$ 85.6				$ 128.4
Other Commitment, Total		21.5		21.5
Impairment of Real Estate		2.1	$ 1.5	2.1	$ 4.2
Fair Value, Inputs, Level 2 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Notes Payable, Fair Value Disclosure		109.6		109.6				383.7
Fair Value, Inputs, Level 3 [Member] | The 2026 Notes [Member]
Notes Payable, Fair Value Disclosure		91.7		91.7
Fair Value, Inputs, Level 3 [Member] | Senior Secured Notes [Member]
Notes Payable, Fair Value Disclosure		$ 1,100.0		$ 1,100.0				1,200.0
Fair Value, Inputs, Level 3 [Member] | Senior Amortizing Notes [Member]
Notes Payable, Fair Value Disclosure								2.1
Fair Value, Inputs, Level 3 [Member] | Senior Exchangeable Notes [Member]
Notes Payable, Fair Value Disclosure								$ 54.2
Thirteen and a Half Percent Senior Notes Due 2026 [Member]
Debt Instrument, Interest Rate, Stated Percentage		13.50%		13.50%		13.50%	13.50%
Thirteen and a Half Percent Senior Notes Due 2026 [Member] | Unsecured Senior Notes Excluding Senior Amortizing Notes and Senior Exchangeable Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage	[1],[2]	13.50%		13.50%
Loan Origination Commitments [Member]
Loan Applications in Process		$ 593.5		$ 593.5
Loan Origination Commitments [Member] | Maximum [Member]
Number of Days in Committment				60 days
Interest Rate Committed Loan Applications [Member]
Interest Rate Committed Loan Applications		$ 50.3		$ 50.3

[1] "Notes payable" on our Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 consists of the total senior secured, senior and senior amortizing and senior exchangeable notes shown above, as well as accrued interest of $38.5 million and $41.8 million, respectively.

[2] Unamortized debt issuance costs at April 30, 2018 and October 31, 2017 were $16.6 million and $16.1 million, respectively.

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Note 19 - Fair Value of Financial Instruments - Financial Instruments Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands		Apr. 30, 2018	Oct. 31, 2017
Total		$ 88,026	$ 132,425
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Mortgage loans held for sale	[1]	87,971	132,424
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Interest Rate Lock Commitments [Member]
Derivative Fair Value		(70)	(14)
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Forward Contracts [Member]
Derivative Fair Value		$ 125	$ 15

[1] The aggregate unpaid principal balance was $85.6 million and $128.4 million at April 30, 2018 and October 31, 2017, respectively.

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Note 19 - Fair Value of Financial Instruments - Changes in Fair Values Included in Income (Loss) (Details) - Financial Services Revenue Line Item [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Loans Held for Sale [Member]
Fair value included in net loss all reflected in financial services revenues	$ 127	$ 645	$ 2,541	$ 3,214
Interest Rate Lock Commitments [Member]
Fair value included in net loss all reflected in financial services revenues	178	109	(70)	99
Forward Contracts [Member]
Fair value included in net loss all reflected in financial services revenues	$ (143)	$ (422)	$ 125	$ (305)

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Note 19 - Fair Value of Financial Instruments - Assets Measured at Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Total Losses	$ (2,100)	$ (1,500)	$ (2,100)	$ (4,200)
Sold and Unsold Homes and Lots Under Development [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Pre-Impairment Amount	11,170	8,474	11,170	14,776
Total Losses	(2,117)	(1,549)	(2,117)	(4,136)
Fair Value of Inventory	9,053	6,925	9,053	10,640
Land and Land Options Held for Future Development or Sale [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Pre-Impairment Amount				6,326
Total Losses				(81)
Fair Value of Inventory				$ 6,245

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Note 20 - Transactions With Related Parties (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Apr. 30, 2018	Apr. 30, 2017	Apr. 30, 2018	Apr. 30, 2017
Tavit Najarian [Member]
Related Party Transaction, Amounts of Transaction	$ 0.2	$ 0.2	$ 0.3	$ 0.4

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Note 21 - Subsequent Events (Details Textual)	May 29, 2018 USD ($)
8.0% Senior Notes Due 2019 [Member] | Subsequent Event [Member]
Repayments of Long-term Debt, Total	$ 65,700,000