UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~July~~January 31, ~~2022~~2023

☐	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, 5th 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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share	HOV	New York Stock Exchange
Preferred Stock Purchase Rights(1)	N/A	New York Stock Exchange
Depositary Shares each representing 1/1,000th of a share of 7.625% Series A Preferred Stock	HOVNP	The Nasdaq Stock Market LLC

(1) Each share of Common Stock includes an associated Preferred Stock Purchase Right. Each Preferred Stock Purchase Right initially represents the right, if such Preferred Stock Purchase Right becomes exercisable, to purchase from the Company one ten-thousandth of a share of its Series B Junior Preferred Stock for each share of Common Stock. The Preferred Stock Purchase Rights currently cannot trade separately from the underlying Common Stock.

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 ☒

Nonaccelerated Filer ☐

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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. ~~5,689,054~~5,276,785 shares of Class A Common Stock and ~~705,726~~720,307 shares of Class B Common Stock were outstanding as of ~~August 31, 2022.~~March 1, 2023.

Table of Contents

true

	July 31,			October 31,			January 31,			October 31,
	2022			2021			2023			2022
		(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents	$	225,089		$	245,970		$	234,929		$	326,198
Restricted cash and cash equivalents		15,505			16,089			8,154			13,382
Inventories:
Sold and unsold homes and lots under development		1,130,304			1,019,541			1,066,455			1,058,183
Land and land options held for future development or sale		174,067			135,992			125,561			152,406
Consolidated inventory not owned		280,910			98,727			315,022			308,595
Total inventories		1,585,281			1,254,260			1,507,038			1,519,184
Investments in and advances to unconsolidated joint ventures		74,739			60,897			101,013			74,940
Receivables, deposits and notes, net		45,011			39,934			37,577			37,837
Property, plant and equipment, net		23,312			18,736
Property and equipment, net								28,089			25,819
Prepaid expenses and other assets		64,346			56,186			58,260			63,884
Total homebuilding		2,033,283			1,692,072			1,975,060			2,061,244

Financial services		127,651			202,758			112,756			155,993

Deferred tax assets, net		376,570			425,678			347,369			344,793
Total assets	$	2,537,504		$	2,320,508		$	2,435,185		$	2,562,030

LIABILITIES AND EQUITY
Homebuilding:
Nonrecourse mortgages secured by inventory, net of debt issuance costs	$	187,754		$	125,089		$	133,886		$	144,805
Accounts payable and other liabilities		424,508			426,381			331,314			439,952
Customers’ deposits		99,521			68,295			71,243			74,020
Liabilities from inventory not owned, net of debt issuance costs		178,454			62,762			209,579			202,492
Senior notes and credit facilities (net of discounts, premiums and debt issuance costs)		1,147,872			1,248,373			1,145,261			1,146,547
Accrued Interest		47,562			28,154
Accrued interest								52,036			32,415
Total homebuilding		2,085,671			1,959,054			1,943,319			2,040,231

Financial services		108,616			182,219			91,078			135,581

Income taxes payable		4,470			3,851			4,991			3,167
Total liabilities		2,198,757			2,145,124			2,039,388			2,178,979

Equity:
Hovnanian Enterprises, Inc. stockholders' equity:
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at July 31, 2022 and October 31, 2021		135,299			135,299
Common stock, Class A, $0.01 par value - authorized 16,000,000 shares; issued 6,159,484 shares at July 31, 2022 and 6,066,164 shares at October 31, 2021		62			61
Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 733,395 shares at July 31, 2022 and 686,876 shares at October 31, 2021		7			7
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at January 31, 2023 and October 31, 2022								135,299			135,299
Common stock, Class A, $0.01 par value - authorized 16,000,000 shares; issued 6,178,146 shares at January 31, 2023 and 6,159,886 shares at October 31, 2022								62			62
Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 747,994 shares at January 31, 2023 and 733,374 shares at October 31, 2022								7			7
Paid in capital - common stock		723,797			722,118			729,158			727,663
Accumulated deficit		(405,378	)		(567,228	)		(336,366	)		(352,413	)
Treasury stock - at cost – 470,430 shares of Class A common stock and 27,669 shares of Class B common stock at July 31, 2022 and October 31, 2021		(115,360	)		(115,360	)
Treasury stock - at cost – 901,379 shares of Class A common stock at January 31, 2023 and 782,901 shares at October 31, 2022; 27,669 shares of Class B common stock at January 31, 2023 and October 31, 2022								(132,382	)		(127,582	)
Total Hovnanian Enterprises, Inc. stockholders’ equity		338,427			174,897			395,778			383,036
Noncontrolling interest in consolidated joint ventures		320			487			19			15
Total equity		338,747			175,384			395,797			383,051
Total liabilities and equity	$	2,537,504		$	2,320,508		$	2,435,185		$	2,562,030

	Three Months Ended July 31,					Nine Months Ended July 31,						Three Months Ended January 31,
	2022		2021			2022			2021			2023			2022
Revenues:
Homebuilding:
Sale of homes	$	736,654	$	663,279		$	1,973,843		$	1,894,159		$	499,645		$	551,366
Land sales and other revenues		16,406		7,559			18,052			13,280			3,557			638
Total homebuilding		753,060		670,838			1,991,895			1,907,439			503,202			552,004
Financial services		14,533		19,845			43,548			61,070			12,164			13,309
Total revenues		767,593		690,683			2,035,443			1,968,509			515,366			565,313

Expenses:
Homebuilding:
Cost of sales, excluding interest		548,576		521,868			1,480,175			1,498,040			391,040			427,917
Cost of sales interest		22,453		19,240			57,876			58,130			15,022			13,745
Inventory impairment loss and land option write-offs		1,173		1,309			1,837			3,267
Inventory impairments and land option write-offs													477			99
Total cost of sales		572,202		542,417			1,539,888			1,559,437			406,539			441,761
Selling, general and administrative		50,163		42,988			139,410			125,417			47,918			42,746
Total homebuilding expenses		622,365		585,405			1,679,298			1,684,854			454,457			484,507

Financial services		10,790		11,238			31,982			32,953			9,053			10,400
Corporate general and administrative		24,774		17,284			75,893			81,149			25,490			29,435
Other interest		9,624		19,158			35,442			65,166			15,093			13,393
Other operations		670		504			1,679			1,233
Other expenses, net													386			368
Total expenses		668,223		633,589			1,824,294			1,865,355			504,479			538,103
Loss on extinguishment of debt		-		(306	)		(6,795	)		(306	)
Income from unconsolidated joint ventures		12,557		5,011			23,919			9,568			7,160			8,191
Income before income taxes		111,927		61,799			228,273			112,416			18,047			35,401
State and federal income tax provision (benefit):
State		6,385		1,476			11,515			(89,272	)		2,211			2,543
Federal		22,928		12,621			46,901			(353,649	)		(2,880	)		8,050
Total income taxes		29,313		14,097			58,416			(442,921	)		(669	)		10,593
Net income		82,614		47,702			169,857			555,337			18,716			24,808
Less: preferred stock dividends		2,669		-			8,007			-			2,669			2,669
Net income available to common stockholders	$	79,945	$	47,702		$	161,850		$	555,337		$	16,047		$	22,139

Per share data:
Basic:
Net income per common share	$	10.92	$	6.85		$	22.05		$	80.02		$	2.37		$	3.12
Weighted-average number of common shares outstanding		6,485		6,315			6,424			6,263			6,186			6,389
Assuming dilution:
Net income per common share	$	10.82	$	6.72		$	21.77		$	78.51		$	2.26		$	3.07
Weighted-average number of common shares outstanding		6,544		6,434			6,507			6,370			6,468			6,501

	A Common Stock				B Common Stock					Preferred Stock																			A Common Stock					B Common Stock				Preferred Stock
	Shares				Shares					Shares																			Shares					Shares				Shares
	Issued and				Issued and					Issued and				Paid-In			Accumulated			Treasury			Noncontrolling						Issued and					Issued and				Issued and				Paid-In		Accumulated			Treasury			Noncontrolling
	Outstanding		Amount		Outstanding			Amount		Outstanding		Amount		Capital			Deficit			Stock			Interest			Total			Outstanding			Amount		Outstanding		Amount		Outstanding		Amount		Capital		Deficit			Stock			Interest		Total

Balance, October 31, 2021		5,595,734	$	61		659,207		$	7		5,600	$	135,299	$	722,118		$	(567,228	)	$	(115,360	)	$	487		$	175,384
Balance, October 31, 2022																														5,376,985		$	62		705,705	$	7		5,600	$	135,299	$	727,663	$	(352,413	)	$	(127,582	)	$	15	$	383,051

Stock options, amortization and issuances		804													4												4			209													8										8

Preferred dividend declared ($476.56 per share)																		(2,669	)								(2,669	)																	(2,669	)							(2,669	)

Restricted stock amortization, issuances and forfeitures		17,654				17,445									(552	)											(552	)		18,051					14,620								1,487										1,487

Conversion of Class B to Class A common stock		48				(48	)																				-
Changes in noncontrolling interest in consolidated joint ventures																																																			4		4

Changes in noncontrolling interest in consolidated joint ventures																								(88	)		(88	)
Share repurchases																														(118,478	)																	(4,800	)				(4,800	)

Net income																		24,808									24,808																		18,716								18,716

Balance, January 31, 2022		5,614,240	$	61		676,604		$	7		5,600	$	135,299	$	721,570		$	(545,089	)	$	(115,360	)	$	399		$	196,887

Stock options, amortization and issuances		600													77												77

Preferred dividend declared ($476.56 per share)																		(2,669	)								(2,669	)

Restricted stock amortization, issuances and forfeitures		20,483													1,672												1,672

Conversion of Class B to Class A common stock		58				(58	)																				-

Changes in noncontrolling interest in consolidated joint ventures																								(3	)		(3	)

Net income																		62,435									62,435

Balance, April 30, 2022		5,635,381	$	61		676,546		$	7		5,600	$	135,299	$	723,319		$	(485,323	)	$	(115,360	)	$	396		$	258,399

Stock options, amortization and issuances		759													30												30

Preferred dividend declared ($476.56 per share)																		(2,669	)								(2,669	)

Restricted stock amortization, issuances and forfeitures		52,898		1		29,196									448												449

Conversion of Class B to Class A common stock		16				(16	)																				-

Changes in noncontrolling interest in consolidated joint ventures																								(76	)		(76	)

Net income																		82,614									82,614

Balance, July 31, 2022		5,689,054	$	62		705,726		$	7		5,600	$	135,299	$	723,797		$	(405,378	)	$	(115,360	)	$	320		$	338,747
Balance, January 31, 2023																														5,276,767		$	62		720,325	$	7		5,600	$	135,299	$	729,158	$	(336,366	)	$	(132,382	)	$	19	$	395,797

	A Common Stock				B Common Stock					Preferred Stock																			A Common Stock				B Common Stock					Preferred Stock
	Shares				Shares					Shares																			Shares				Shares					Shares
	Issued and				Issued and					Issued and				Paid-In			Accumulated			Treasury			Noncontrolling						Issued and				Issued and					Issued and				Paid-In			Accumulated			Treasury			Noncontrolling
	Outstanding		Amount		Outstanding			Amount		Outstanding		Amount		Capital			Deficit			Stock			Interest			Total			Outstanding		Amount		Outstanding			Amount		Outstanding		Amount		Capital			Deficit			Stock			Interest			Total

Balance, October 31, 2020		5,519,880	$	60		622,217		$	7		5,600	$	135,299	$	718,110		$	(1,175,045	)	$	(115,360	)	$	835		$	(436,094	)
Balance, October 31, 2021																														5,595,734	$	61		659,207		$	7		5,600	$	135,299	$	722,118		$	(567,228	)	$	(115,360	)	$	487		$	175,384

Stock options, amortization and issuances															54												54			804													4												4

Preferred dividend declared ($476.56 per share)																																														(2,669	)								(2,669	)

Restricted stock amortization, issuances and forfeitures		7,207				2,370									668												668			17,654				17,445									(552	)											(552	)

Conversion of Class B to Class A common stock		45				(45	)																				-			48				(48	)																				-

Changes in noncontrolling interest in consolidated joint ventures																								78			78																									(88	)		(88	)

Net income																		18,959									18,959																			24,808									24,808

Balance, January 31, 2021		5,527,132	$	60		624,542		$	7		5,600	$	135,299	$	718,832		$	(1,156,086	)	$	(115,360	)	$	913		$	(416,335	)

Stock options, amortization and issuances		33,316				5,368									(255	)											(255	)

Restricted stock amortization, issuances and forfeitures															770												770

Conversion of Class B to Class A common stock		25				(25	)																				-

Changes in noncontrolling interest in consolidated joint ventures																								(142	)		(142	)

Net income																		488,676									488,676

Balance, April 30, 2021		5,560,473	$	60		629,885		$	7		5,600	$	135,299	$	719,347		$	(667,410	)	$	(115,360	)	$	771		$	72,714

Stock options, amortization and issuances		6,806													128												128

Restricted stock amortization, issuances and forfeitures		26,357		1		29,338									295												296

Conversion of Class B to Class A common stock		4				(4	)																				-

Changes in noncontrolling interest in consolidated joint ventures																								(149	)		(149	)

Net income																		47,702									47,702

Balance, July 31, 2021		5,593,640	$	61		659,219		$	7		5,600	$	135,299	$	719,770		$	(619,708	)	$	(115,360	)	$	622		$	120,691
Balance, January 31, 2022																														5,614,240	$	61		676,604		$	7		5,600	$	135,299	$	721,570		$	(545,089	)	$	(115,360	)	$	399		$	196,887

	Nine Months Ended						Three Months Ended
	July 31,						January 31,
	2022			2021				2023			2022
Cash flows from operating activities:
Net income	$	169,857		$	555,337		$	18,716		$	24,808
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		4,009			4,091			1,410			1,175
Compensation from stock options and awards		6,404			5,309
Amortization of bond discounts, premiums and deferred financing costs		(203	)		490
Gain on sale and retirement of property and assets		(37	)		(11	)
Stock-based compensation								2,070			1,635
Amortization of debt discounts, premiums and deferred financing costs								330			(280	)
Gain on sale of property and assets								(14	)		(5	)
Income from unconsolidated joint ventures		(23,919	)		(9,568	)		(7,160	)		(8,191	)
Distributions of earnings from unconsolidated joint venture		4,197			8,933
Loss on extinguishment of debt		6,795			306
Distributions of earnings from unconsolidated joint ventures								692			2,100
Noncontrolling interest in consolidated joint ventures		225			310			-			62
Inventory impairment and land option write-offs		1,837			3,267
(Increase) decrease in assets:
Inventory impairments and land option write-offs								477			99
Decrease (Increase) in assets:
Inventories								11,669			(159,227	)
Receivables, deposits and notes								5,772			(2,139	)
Origination of mortgage loans		(882,023	)		(1,087,731	)		(215,477	)		(272,877	)
Sale of mortgage loans		945,541			1,060,423			251,923			342,090
Receivables, prepaids, deposits and other assets		(13,464	)		(1,972	)
Inventories		(332,858	)		(96,576	)
Deferred tax assets		49,108			(447,453	)		(2,576	)		9,465
Increase (decrease) in liabilities:
(Decrease) increase in liabilities:
Accounts payable, accrued interest and other liabilities								(98,125	)		(70,490	)
Customers’ deposits								(2,777	)		14,924
State income tax payable		619			(1,348	)		1,824			1,122
Customers’ deposits		31,226			28,443
Accounts payable, accrued interest and other accrued liabilities		4,089			60,022
Net cash (used in) provided by operating activities		(28,597	)		82,272
Net cash used in operating activities								(31,246	)		(115,729	)
Cash flows from investing activities:
Proceeds from sale of property and assets		63			30			69			5
Purchase of property, equipment, and other fixed assets and acquisitions		(8,606	)		(3,889	)
Investment in and advances to unconsolidated joint ventures		(169	)		(16,337	)
Purchase of property, equipment, and other fixed assets								(3,740	)		(2,453	)
Investment in and advances to unconsolidated joint ventures, net of reimbursements								(22,238	)		(1,033	)
Distributions of capital from unconsolidated joint ventures		5,427			27,175			2,633			554
Net cash (used in) provided by investing activities		(3,285	)		6,979
Net cash used in investing activities								(23,276	)		(2,927	)
Cash flows from financing activities:
Proceeds from mortgages and notes		351,227			160,604			57,704			136,021
Payments related to mortgages and notes		(287,478	)		(178,251	)		(68,958	)		(63,892	)
Proceeds from model sale leaseback financing programs		27,433			5,638			1,310			8,737
Payments related to model sale leaseback financing programs		(11,295	)		(18,233	)		(3,303	)		(3,553	)
Proceeds from land bank financing programs		140,179			27,636			21,317			21,425
Payments related to land bank financing programs		(39,148	)		(77,313	)		(12,553	)		(13,642	)
Proceeds from partner distributions to consolidated joint venture		40			40
Payments for partner distributions to consolidated joint venture		(432	)		(563	)		-			(150	)
Net (payments) proceeds related to mortgage warehouse lines of credit		(64,257	)		29,216
Payments related to senior secured notes		(103,875	)		(111,214	)
Net payments related to mortgage warehouse lines of credit								(35,971	)		(63,311	)
Preferred dividends paid		(8,007	)		-			(2,669	)		(2,669	)
Repurchases of common stock								(4,800	)		-
Deferred financing costs from land banking financing programs and note issuances		(5,318	)		(1,205	)		(464	)		(1,848	)
Net cash used in financing activities		(931	)		(163,645	)
Net cash (used in) provided by financing activities								(48,387	)		17,118
Net decrease in cash and cash equivalents, and restricted cash and cash equivalents		(32,813	)		(74,394	)		(102,909	)		(101,538	)
Cash and cash equivalents, and restricted cash and cash equivalents balance, beginning of period		311,396			309,460			382,190			311,396
Cash and cash equivalents, and restricted cash and cash equivalents balance, end of period	$	278,583		$	235,066		$	279,281		$	209,858

Supplemental disclosures of cash flows:
Cash paid during the period for:
Cash (received) paid during the period for:
Interest, net of capitalized interest (see Note 3 to the Condensed Consolidated Financial Statements)	$	17,268		$	54,823		$	(3,904	)	$	(5,254	)
Income taxes	$	8,689		$	5,847		$	84		$	7

Reconciliation of Cash, cash equivalents and restricted cash
Homebuilding: Cash and cash equivalents	$	225,089		$	172,748		$	234,929		$	137,898
Homebuilding: Restricted cash and cash equivalents		15,505			15,100			8,154			14,260
Financial Services: Cash and cash equivalents, included in Financial services assets		4,849			6,187
Financial Services: Restricted cash and cash equivalents, included in Financial services assets		33,140			41,031
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	278,583		$	235,066
Financial Services: Cash and cash equivalents, included in financial services assets								4,682			6,846
Financial Services: Restricted cash and cash equivalents, included in financial services assets								31,516			50,854
Total cash, cash equivalents and restricted cash shown in the statements of cash flows							$	279,281		$	209,858

~~In the~~ ~~third~~ ~~quarter of fiscal~~ ~~2021,~~ ~~we acquired the remaining assets of~~ ~~one~~ ~~of our unconsolidated joint ventures, resulting in a $24.3 million reduction in our investment in the joint venture and a corresponding increase to inventory.~~

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company,” “we,” “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). ~~HEI has~~Historically, the Company had seven reportable segments consisting of six ~~Homebuilding~~homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment. During the ~~Financial Services~~fourth quarter of fiscal 2022, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now had three reportable homebuilding segments comprised of (1) Northeast, (2) Southeast and (3) West (see Note 17). All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.

The accompanying unaudited Condensed Consolidated Financial Statements include HEI's accounts and those of all of its consolidated subsidiaries after elimination of all ~~of its significant~~ intercompany balances and transactions. Noncontrolling interest represents the proportionate equity interest in a consolidated joint venture that is not 100% owned by the Company. One of HEI's subsidiaries owns a 99% controlling interest in the consolidated joint venture, and therefore HEI is required to consolidate the joint venture within its Condensed Consolidated Financial Statements. The 1% that the Company ~~does~~ ~~not~~ ~~own is accounted for as noncontrolling interest. Another~~ ~~one~~ of HEI's subsidiaries owns an 80% controlling interest in a consolidated joint venture, and therefore HEI is required to consolidate the joint venture within its Condensed Consolidated Financial Statements. The 20% that the Company does ~~not~~ ~~own is accounted for as noncontrolling interest.~~ directly or indirectly.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2021.~~2022. 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~~financial statements in conformity with U.S. 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.

During the first quarter of fiscal 2023, the Board of Directors approved certain grants under a new Long-Term Incentive Program (the “2023 LTIP”) that contain performance-based vesting conditions. The performance period for the 2023 LTIP commenced on November 1, 2022 and will end on October 31, 2025. At the end of the performance period, 50% of the awards, if any, are payable in cash-settled phantom shares and the remaining 50% of the awards, if any, are payable in shares of Company stock, subject to a mandatory two-year post-vesting hold period.

For the three ~~and~~ ~~nine~~months ended ~~July~~January 31, 2023 and 2022,~~the Company’s total~~ stock-based compensation expense was ~~$3.0~~$2.1 million ~~($2.2~~(pre and post tax) and $1.6 million ~~net of tax) and $6.4 million~~ ($~~4.8 million net of tax), respectively. For the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021,~~ ~~the Company’s total stock-based compensation expense was $3.6 million ($2.7 million net of tax) and $5.3 million ($4.1~~1.1 million, net of tax), respectively. Included in ~~total~~ stock-based compensation expense was ~~the vesting~~$8 thousand and $45 thousand of stock ~~options of $30 thousand and $0.1 million~~option expense for the three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2022,~~2023 ~~respectively, and $0.1 million and $0.2 million for the~~ ~~three~~and ~~nine~~2022, ~~months ended~~ ~~July 31, 2021,~~ respectively.

During the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022, respectively, we ~~evaluated inventories of all 393~~had 361 and ~~374~~382 communities under development and held for future development or sale, ~~respectively,~~which we evaluated for ~~impairment indicators through preparation and review of detailed budgets or other market~~ indicators of impairment. ~~As a result of such analysis, we~~We did not identify ~~any~~ impairment indicators ~~and therefore were~~ ~~not~~ ~~required to perform undiscounted future cash flow analyses during the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~for any ~~of the 393 communities. We performed undiscounted future cash flow analyses~~community during ~~the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021~~ ~~for~~ ~~three~~ of the 374 communities with an aggregate carrying value of $11.5 million, which had projected operating losses or other impairment indicators. As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses and recorded impairment losses of $1.2 million in ~~two~~ ~~communities for~~ the three months ended ~~July~~January 31, ~~2021~~ ~~and $2.0 million in~~ ~~three~~ ~~communities for the~~ ~~nine~~2023 ~~months ended~~or ~~July 31, 2021~~2022.~~. In the~~ ~~first~~~~three~~ ~~quarters of fiscal~~ ~~2021,~~ ~~the discount rates used for the impairments recorded ranged from 18.3% to 19.3%. In the~~ ~~first~~~~three~~ ~~quarters of fiscal~~ ~~2022,~~ ~~we did~~ ~~not~~ record any impairment losses. Impairment losses are included in the Condensed Consolidated Statement of Operations on the line entitled “Homebuilding: Inventory impairment loss and land option write-offs” and deducted from inventory.

The Condensed Consolidated Statement of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” also includes write-offs of options and approval, engineering and capitalized interestWe write off certain costs ~~that we record~~ when ~~we redesign~~ communities ~~and/~~are redesigned, abandoned 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.~~our options. Total aggregate write-offs related to these items were ~~$1.1~~$0.5 million and $0.1 million for the three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~~~, respectively, and $1.8 million and $1.3 million for the~~ ~~nine~~ ~~months ended~~ ~~July 31,~~ 2022~~and~~ ~~2021~~, 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 ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022 were ~~1,892~~2,182 and ~~851, respectively, and 3,025 and 1,420 during the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~ ~~and~~ ~~2021~~,420, respectively. The walk-aways ~~were located in all~~occurred across each of our segments ~~in the~~ ~~first~~~~three~~ ~~quarters of fiscal~~ ~~2022~~ ~~and in the Mid-Atlantic, Southeast, Southwest and West segments in the~~ ~~first~~~~three~~ ~~quarters of fiscal~~ ~~2021.~~

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 ~~three~~ ~~quarters~~quarter of fiscal ~~2022,~~2023, we did not mothball any ~~additional~~ communities, nor did we sell or re-activate any ~~previously mothballed communities. We re-activated~~ ~~four~~ previously mothballed communities. As of both ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~ 2022, the net aggregate book value ~~associated with~~of our two ~~and~~ ~~six~~ ~~total~~ mothballed communities was $1.4 million, ~~and $4.3 million, respectively,~~ which was net of ~~impairment charges recorded~~impairments in prior periods of $20.3 ~~million and $57.5 million, respectively.~~million.

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease. As a result of our continued involvement, ~~for accounting purposes in accordance with ASC~~ ~~606~~-10-55-~~68,~~these sale and leaseback transactions are considered a financing rather than a sale. ~~Therefore, for purposes of our~~Our Condensed Consolidated Balance Sheets at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~ 2022 included inventory of ~~$43.8~~$47.4 million and ~~$32.5~~$48.5 million, respectively, ~~was~~ recorded to “Consolidated inventory not owned,” with a corresponding amount of ~~$47.2~~$49.3 million and ~~$31.5~~$51.2 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~~ ~~606~~-10-55-~~70,~~these transactions are considered a financing rather than a sale. ~~For purposes of our~~Our Condensed Consolidated Balance Sheets at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~ 2022 included inventory of ~~$237.1~~$267.6 million and ~~$66.2~~$260.1 million, respectively, ~~was~~ recorded to “Consolidated inventory not owned,” with a corresponding amount of ~~$131.3~~$160.3 million and ~~$31.3~~$151.3 million, ~~(net of debt issuance costs),~~ respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

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~~we 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~~our discretion. ~~Under the requirements of ASC~~ ~~810,~~ ~~certain~~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~~We analyze our 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~~we are required to consolidate a VIE if ~~the Company is~~we are 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 considersperformance and whether ~~it has~~we have the obligation to absorb losses of, ~~the VIE~~ or the right to receive benefits from the VIE. As a result of ~~its~~our analyses, we have concluded the Company ~~determined that, as of~~ ~~July 31, 2022~~ ~~and~~ ~~October 31, 2021,~~ ~~it was~~is not the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

~~We will continue to secure land and lots using options, some of which are with VIEs.~~ Including deposits on our unconsolidated VIEs, at ~~July~~January 31, ~~2022~~2023, we had total cash deposits amounting to ~~$173.4~~$187.7 million to purchase land and lots with a total purchase price of $1.8 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.~~property.

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, weWe have an ~~owner controlled~~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 three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022, we received ~~$2.4~~$1.0 million and ~~$1.4 million, respectively, and $5.6 million and $4.5~~$1.2 million, respectively, from subcontractors related to the owner-controlled insurance program, which we accounted for as reductions to inventory.

We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. ~~This accrual is expensed as selling, general and administrative costs.~~ For homes to be delivered in fiscal ~~2022~~2023 and previously delivered in ~~2021,~~2022, our deductible under our general liability insurance is or was ~~a $25~~$25.0 million, ~~and $20 million, respectively,~~ aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal ~~2022~~2023 and ~~2021~~2022 is or was $0.5 million, up to a $5.0 million limit in California and $0.25 million, up to a $5$5.0 million ~~limit.~~limit in all other states. Our aggregate retention for construction defect, warranty and bodily injury claims is ~~$25~~or was $25.0 million for fiscal ~~2022~~2023 and ~~was $20 million for fiscal~~ ~~2021.~~2022. 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~~control is transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022 were as follows:

~~Warranty accruals are based upon historical experience. We engage a~~The majority of the charges incurred during the ~~third~~first~~-party actuary that uses our historical warranty and~~ quarter of fiscal 2023 represented payments for construction ~~defect data~~defects related to ~~assist our management in estimating our unpaid claims, claim adjustment expenses and incurred but~~the settlement of ~~not~~two 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.

litigation matters. Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were less than $0.1 million for both the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022 for prior year deliveries.

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

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

We anticipate that increasingly stringent requirements will continue to be imposed on developers and homebuilders in the future. In addition, some of these laws and regulations that significantly affect how certain properties may be developed are contentious, attract intense political attention, and may be subject to significant changes over time. For example, regulations governing wetlands permitting under the federal Clean Water Act have been the subject of extensive rulemakings for many years, resulting in several major joint rulemakings by the EPA and the U.S. Army Corps of Engineers that have expanded and contracted the scope of wetlands subject to regulation; and such rulemakings have been the subject of many legal challenges, some of which remain pending. It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate. Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect, may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In ~~March 2013,~~ we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the ~~1990s.~~ We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead. We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project. We responded to the EPA’s request. In ~~August~~ ~~2013,~~ we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site. We began preliminary discussions with the EPA concerning a possible resolution. The EPA requested additional information in ~~April 2014~~ ~~and again in~~ ~~March 2017~~ ~~and the Company responded to the information requests. On~~ ~~May 2, 2018~~ the EPA sent a letter to the Company entity demanding reimbursement for 100% of the EPA’s costs to clean-up the site in the amount of $2.7 million. The Company responded to the EPA’s demand letter on ~~June 15, 2018~~ setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations. Two other PRPs identified by the EPA began negotiations with the EPA and preliminary negotiations with the Company regarding the site. The EPA then requested that the ~~three~~ ~~PRPs present a joint settlement offer to the EPA. In~~ ~~June 2022,~~ ~~the Company and~~ ~~one~~ of the other PRPs reached an agreement with the EPA for a total settlement of $1.5 million (plus accrued interest), with the Company contributing $0.8 million to the settlement, which was slightly below the amount we had previously accrued. The consent decree entered into by the settling parties was submitted to the United States District Court for the District of New Jersey (where the EPA has filed a complaint seeking reimbursement of response costs) on ~~June 14, 2022~~ ~~and was signed and filed by such Court on~~ ~~August 9, 2022.~~

In 2015, the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Great Notch, LLC, K. Hovnanian Construction Management, Inc., and K. Hovnanian Companies, LLC. The Complaint also asserts claims against various other design professionals and contractors. The Special Masters appointed by the Court to decide non-dispositive motions issued an opinion that (a) granted the Great Notch ~~Plaintiff has also filed a~~Plaintiff’s motion ~~which remains pending,~~ to permit it to ~~pursue~~assert a claim to pierce the corporate veil of K. Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against ~~it.~~it, and (b) further stated that the Great Notch Plaintiff is not permitted to pursue that claim until after any trial on the underlying liability claims. To date, the Hovnanian-affiliated defendants have reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On its remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff has asserted damages of approximately $119.5 million, which amount is potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. The trial ~~is currently~~had been scheduled for ~~January 23, 2023.~~April 17, 2023; however, the Court has adjourned the trial and has not yet set a new date. The Hovnanian-affiliated defendants intend to defend these claims vigorously.

In December 2020, the ~~NJDEP~~New Jersey Department of Environmental Protection ("NJDEP") and the Administrator of the New Jersey Spill Compensation Fund (the “Spill Fund”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Union County against Hovnanian Enterprises, Inc., in addition to other unrelated parties, in connection with contamination at Hickory Manor, a residential condominium development. Alleged predecessors of certain defendants had used the Hickory Manor property for decades for manufacturing purposes. In 1998, NJDEP confirmed that groundwater at this site was impacted from an off-site source. The site was later remediated, resulting in the NJDEP issuing an unconditional site-wide No Further Action determination letter and Covenant Not to Sue in 1999. Subsequently, one of our affiliates was involved in redeveloping the property as a residential community. The complaint asserts claims under the New Jersey Spill Act and other state law claims and alleges that the NJDEP and the Spill Fund have incurred over $5.3 million since 2009 to investigate vapor intrusion at the development and to install vapor mitigation systems. Among other things, the complaint seeks recovery of the costs incurred, an order that defendants perform additional required remediation and disgorgement of profits on our affiliate’s sales of the units in the development. Discovery ~~has commenced.~~is ongoing. Hovnanian Enterprises, Inc. intends to defend these claims vigorously.

Cash ~~represents cash deposited in checking accounts. Cash~~ equivalents include certificates of deposit, U.S. 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 high credit quality financial institutions. At ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, ~~$13.7~~$13.9 million and ~~$15.7~~$13.4 million, respectively, of ~~the~~our total cash and cash equivalents was in cash equivalents and restricted cash ~~equivalents, the book value of which approximates fair value.~~equivalents.

Homebuilding ~~- Restricted~~"Restricted cash and cash ~~equivalents~~equivalents" on the Condensed Consolidated Balance Sheets totaled ~~$15.5~~$8.2 million and ~~$16.1~~$13.4 million as of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, respectively, ~~the majority~~which primarily consists of ~~which represents~~ cash collateralizing our letter of credit agreements and facilities ~~as discussed in~~(see Note ~~12.~~12).

Financial services restricted cash and cash equivalents, which are included in ~~Financial services~~"Financial services" assets on the Condensed Consolidated Balance Sheets, totaled ~~$33.1~~$31.5 million and ~~$43.5~~$36.1 million as of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, respectively. Included in these balances were (1) financial services customers’ deposits of ~~$31.1~~$28.4 million at ~~July~~January 31, ~~2022~~2023 and ~~$40.7~~$29.7 million as of October 31, ~~2021~~2022, respectively, which are subject to restrictions on our use, and (2) ~~$2.0 million at~~ ~~July 31, 2022~~ ~~and $2.8 million as of~~ ~~October 31, 2021~~ of restricted cash under the terms of our mortgage warehouse lines of ~~credit.~~credit of $3.1 million at January 31, 2023 and $6.4 million as of October 31, 2022, respectively.

~~Total~~ Homebuilding ~~Customers’ deposits~~"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.

We ~~lease~~rent certain office space for use in our operations. ~~We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC~~ ~~842~~ ~~“Leases” ("ASC~~ ~~842"~~~~). In order to meet the definition of a lease under ASC~~ ~~842,~~ the contractual arrangement must convey to us the right to control the use of an identifiable asset for a period of time in exchange for consideration. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Our office lease terms are generally from ~~three~~ to ~~five~~ ~~years and generally contain renewal options. In accordance with ASC~~ ~~842,~~ our lease terms include those renewals only to the extent that they are reasonably certain to be exercised. The exercise of these lease renewal options is generally at our discretion. In accordance with ASC ~~842,~~ the lease liability is equal to the present value of the remaining lease payments while the right of use (“ROU”) asset is based on the lease liability, subject to adjustment, such as for lease incentives. Our leases do ~~not~~ provide a readily determinable implicit interest rate and therefore, we must estimate our incremental borrowing rate. In determining the incremental borrowing rate, we consider the lease period and our collateralized borrowing rates.

Our lease population at ~~July~~January 31, ~~2022~~2023 is comprised of operating leases where we are the lessee, ~~and these leases are~~ primarily ~~real estate for office space~~ for our corporate office and division ~~offices and design centers. As allowed by ASC~~ ~~842,~~ ~~we adopted an accounting policy election to~~ ~~not~~ ~~record leases with lease terms of~~ ~~twelve~~ ~~months or less on our Condensed Consolidated Balance Sheets.~~offices.

Lease ~~cost~~costs are included in our Condensed Consolidated Statements of Operations, primarily in ~~Selling,~~"Selling, general and ~~administrative~~administrative" homebuilding expenses and payments on our lease liabilities are presented in the table below. Our short-term lease costs and sublease income are de minimis.

Operating right-of-use lease assets ("ROU ~~assets~~assets") are classified within ~~Prepaids~~"Prepaid expenses and other ~~assets~~assets" on our Condensed Consolidated Balance Sheets, while lease liabilities are classified within ~~Accounts~~"Accounts payable and other ~~liabilities on our Condensed Consolidated Balance Sheets.~~liabilities". During the three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2022~~2023, the Company recorded ~~an additional $1.4~~a net increase of $0.4 million ~~and $9.8 million, respectively,~~ to both its ROU assets and lease liabilities as a result of new leases and lease renewals that commenced during the period. The following table contains additional information about our leases:

Maturities of our operating lease liabilities as of ~~July~~January 31, ~~2022~~2023 are as follows:

(1) Lease payments exclude $13.7 million of legally binding minimum lease payments for office leases signed but not yet commenced as of January 31, 2023. The related ROU assets and operating lease liabilities are not reflected on the Company's Condensed Consolidated Balance Sheets as of January 31, 2023.

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~~are collateralized by the underlying property. ~~We have elected the fair value option to record loans~~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.”~~“Financial services” revenue. 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~~ parties 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 ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, ~~$71.9~~$58.0 million and ~~$136.5~~$92.5 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 11). 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 the resale value of the home. The reserves for these estimated losses are included in ~~the~~ “Financial services” ~~balances~~liabilities on the Condensed Consolidated Balance Sheets. As of both ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022, we had reserves specifically for ~~13 and 16~~14 identified mortgage loans, ~~respectively,~~ as well as reserves for an estimate ~~for~~of future losses on mortgages sold but not yet identified to us.

The activity in our loan origination reserves during the three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022 was as follows:

We have nonrecourse mortgage loans for certain communities totaling ~~$187.8~~$133.9 million and ~~$125.1~~$144.8 million, ~~(net~~net of debt issuance ~~costs)~~costs, at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of ~~$527.6~~$416.1 million and ~~$448.5~~$418.9 million, respectively. The weighted-average interest rate on these obligations was ~~6.1%~~7.7% and ~~4.4%~~6.7% at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are generally 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”), which was amended on ~~July 29, 2022~~January 31, 2023 to extend the maturity date to ~~July~~January 31, 2024, ~~31,~~~~2023,~~is a short-term borrowing facility that provides up to $50.0 ~~million through its maturity~~.million. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted Secured Overnight Financing Rate ("SOFR"), which was ~~2.33%~~4.63% at ~~July~~January 31, ~~2022~~2023, plus the applicable margin of 2.25% to 2.375%. As of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, the aggregate principal amount of all borrowings outstanding under the Chase Master Repurchase Agreement was ~~$25.5~~$15.7 million and ~~$45.7~~$14.1 million, respectively.

K. Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”) which is a short-term borrowing facility that provides up to $50.0 million through its maturity on March 8, ~~2023.~~2023, which we expect to be renewed for a one year term. 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 Bloomberg Short Term Bank Yield Index ("BSBY") rate, plus the applicable margin ranging from 2.125% to 4.5% based on the type of loan and the number of days outstanding on the warehouse line. As of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, the aggregate principal amount of all borrowings outstanding under the Customers Master Repurchase Agreement was ~~$21.2~~$20.3 million and ~~$40.5~~$43.1 million, respectively.

K. Hovnanian Mortgage also has a secured Master Repurchase Agreement with Comerica Bank (“Comerica Master Repurchase Agreement”) which was amended on January 12, 2023 to extend the maturity date to January 10, 2024, and is a short-term borrowing facility ~~that matures on~~ ~~January 9, 2023.~~ through its maturity. The Comerica Master Repurchase Agreement provides up to $60.0 million on the 15th day of the last month of the Company's fiscal quarters and reverts back to up to $50.0 million 30 days thereafter. The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly at the daily adjusting BSBY rate, subject to a floor of 0.50%, plus the applicable margin of ~~1.875%~~1.75% or 3.25% based upon the type of loan. As of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, the aggregate principal amount of all borrowings outstanding under the Comerica Master Repurchase Agreement was ~~$24.0~~$22.4 million and ~~$48.7~~$37.1 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 ~~July~~January 31, ~~2022~~2023, we believe we were in compliance with the covenants under the Master Repurchase Agreements.

Senior notes and credit facilities balances as of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022, were as follows:

(1) $26.0 million of 8.0% Senior Notes due 2027 (the "8.0% 2027 Notes") are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with U.S. GAAP, such notes are not reflected on the Condensed Consolidated Balance Sheets of HEI.

(2) At ~~July~~January 31, ~~2022~~2023, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. OnIn the ~~August 19,~~ fourth quarter of fiscal 2022, we amended our Secured Credit Facility, which amendments became effective in thefirst quarter of fiscal 2023. As amended, the revolving loans thereunder have a maturity of ~~the Senior Secured Revolving Credit Facility was extended from~~ ~~December 28, 2022~~ to June 30, 2024 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 1.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the ~~fixed interest~~undrawn revolving commitments at a rate ~~was replaced with a floating interest rate in each case, effective upon the satisfaction~~ of ~~customary conditions in respect of the collateral securing the borrowings thereunder. See Note~~ ~~22.~~1.00% per annum.

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at January 31, 2023(except for the 8.0% 2027 Notes which are not guaranteed by K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company) at ~~July 31, 2022~~ (collectively, the “Notes Guarantors”).

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together, the “Debt Instruments”) outstanding at ~~July~~January 31, ~~2022~~2023 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase (including through exchanges) common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Unsecured Term Loan Facility (defined below) (the “Unsecured Term Loans”), loans made under the Secured Term Loan Facility (defined below) (the “Secured Term Loans”) and loans made under the Secured Credit Agreement (as defined below) (the “Secured Revolving Loans”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Unsecured Term Loans, Secured Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected. As of ~~July~~January 31, ~~2022~~2023, we believe we were in compliance with the covenants of the Debt Instruments.

If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as defined in the applicable Debt Instrument, we are restricted from making certain payments, including dividends (in each such case, our secured debt leverage ratio must also be less than 4.0 to 1.0), and from incurring indebtedness other than certain permitted indebtedness and nonrecourse indebtedness. Beginning as of October 31, 2021, as a result of our improved operating results, our fixed coverage ratio was above 2.0 to 1.0 and our secured debt leverage ratio was below 4.0 to 1.0, therefore we were no longer restricted from paying dividends. As such, we made dividend payments of ~~$2.7~~$2.7 million to preferred shareholders in ~~each~~the first quarter of both fiscal 2023 and 2022. Market conditions continue to adversely impact our business, and it is therefore likely that by the end of fiscal 2023 we will be restricted under our Debt Instruments from continuing to pay dividends on our Series A preferred stock. Dividends on the Series A preferred stock are not cumulative and, accordingly, if for any reason we do not declare a dividend on the Series A preferred stock for a quarterly dividend period (regardless of our availability of funds), holders of the ~~first,~~Series A Preferred Stock will have ~~second~~no right to receive a dividend for that period, and we will have ~~third~~no ~~quarters of fiscal~~ ~~2022.~~obligation to pay a dividend for that period.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions, may do so from time to time. We also continue to actively analyze and evaluate our capital structure and explore transactions to simplify our capital structure and to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so with the right opportunity. We may also continue to make debt or equity purchases and/or exchanges ~~for debt or equity~~ from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

On ~~April 29, 2022,~~ ~~K. Hovnanian redeemed $100.0 million aggregate principal amount of its 7.75% Senior Secured~~ ~~1.125~~ ~~Lien Notes due~~ ~~2026~~ ~~(the~~ ~~"1.125~~ Lien Notes"). The aggregate purchase price for this redemption was $105.5 million, which included accrued and unpaid interest and which was funded with cash on hand. This redemption resulted in a loss on extinguishment of debt of $6.8 million for the ~~nine~~ ~~months ended~~ ~~July 31, 2022,~~ ~~including the write-off of unamortized financing costs and fees. The loss from the redemption is included in the Condensed Consolidated Statement of Operations as "Loss on extinguishment of debt".~~

On ~~August 19, 2022,~~ ~~the Company, K. Hovnanian, and other subsidiaries of the Company as guarantors entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement, dated as of~~ ~~October 31, 2019,~~ ~~as amended by the First Amendment, dated as of~~ ~~November 27, 2019,~~ by and among K. Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto, which provides for up to $125.0 million in aggregate amount of senior secured ~~first~~ ~~lien revolving loans (the “Revolving Credit Facility”). Upon effectiveness, the Second Amendment will (i) extend the final scheduled maturity of the Revolving Credit Facility from~~ ~~December 28, 2022~~ to ~~June 30, 2024, (~~ii) replace the 7.75% fixed interest rate with a floating interest rate based on the SOFR and (iii) provide for certain technical and clarifying amendments. Borrowings under the Revolving Credit Facility will bear interest, at K. Hovnanian’s option, at either (i) a term SOFR rate (subject to a floor of 1.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum. The foregoing amendments will take effect upon the satisfaction of customary conditions in respect of the collateral securing the borrowings under the Revolving Credit Facility.

On ~~July 30, 2021,~~ ~~K. Hovnanian redeemed in full all of the $111.2 million aggregate principal amount of 10.0% Senior Secured Notes due~~ ~~2022~~ ~~(the~~ ~~"10.0%~~~~2022~~ Notes"). The aggregate purchase price for this redemption was $111.7 million, which included accrued and unpaid interest and which was funded with cash on hand. This redemption resulted in a loss on extinguishment of debt of $0.3 million for the ~~three~~ ~~months ended~~ ~~July 31, 2021,~~ ~~net of the write-off of unamortized financing costs and fees. The loss from the redemption is included in the Condensed Consolidated Statement of Operations as "Loss on extinguishment of debt".~~

On ~~August 2, 2021,~~ ~~K. Hovnanian redeemed in full all of the $69.7 million aggregate principal amount of 10.5% Senior Secured Notes due~~ ~~2024~~ ~~(the~~ ~~"10.5%~~~~2024~~ ~~Notes"). The aggregate purchase price for this redemption was $71.9 million, which included accrued and unpaid interest and which was funded with cash on hand.~~

On October 31, 2019, K. Hovnanian, HEI, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and affiliates of certain investment managers (the “Investors”), as lenders, entered into a credit agreement (the “Secured Credit Agreement” and, together with the Unsecured Term Loan Facility (defined below) and the Secured Term Loan Facility, the “Credit Facilities”) providing for up to ~~$125.0~~$125.0 million in aggregate amount of Secured Revolving Loans to be used for general corporate purposes, upon the terms and subject to the conditions set forth therein. Secured Revolving Loans are to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors. OnIn the ~~August 19, 2022,~~ fourth~~the maturity~~ quarter of ~~the~~fiscal 2022, we amended our Secured Credit Agreement, ~~was extended from~~which amendments became effective in the ~~December 28, 2022~~ firstto quarter of fiscal 2023. As amended, the revolving loans thereunder have a maturity of June 30, 2024 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 1.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the ~~fixed interest~~undrawn revolving commitments at a rate ~~was replaced with a floating interest rate in each case, effective upon the satisfaction~~ of ~~customary conditions in respect of the collateral securing the borrowings thereunder. See Note~~ ~~22.~~1.00% per annum.

The7.75% Senior Secured 1.125 Lien Notes due 2026 (the "1.125 Lien Notes") have a maturity of February 15, 2026 and bear interest at a rate of 7.75% per annum payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates. K. Hovnanian may ~~also~~ redeem some or all of the 1.125 Lien Notes at 103.875% of principal commencing February 15, 2022, at 101.937% of principal commencing February 15, 2023 and at 100.0% of principal commencing February 15, 2024.

The 10.5% Senior Secured 1.25 Lien Notes due 2026 (the "1.25 Lien Notes") have a maturity of February 15, 2026 and bear interest at a rate of 10.5% per annum payable semi-annually on February 15 and August 15 of each year to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates. K. Hovnanian may ~~also~~ redeem some or all of the 1.25 Lien Notes at 105.25% of principal commencing February 15, 2022, at 102.625% of principal commencing February 15, 2023 and at 100.0% of principal commencing February 15, 2024.

The 10.0%1.75 Lien Notes due 2025 (the "1.75 Lien Notes") have a maturity of November 15, 2025 and bear interest at a rate of 10.0% per annum payable semi-annually on May 15 and November 15 of each year to holders of record at the close of business on May 1 or November 1, as the case may be, immediately preceding each such interest payment date. At any time and from time to time prior to November 15, 2023, K. Hovnanian may redeem some or all of the 1.75 Lien Notes at a redemption price equal to 102.50% of their principal amount and at any time and from time to time after November 15, 2023, K. Hovnanian may redeem some or all of the 1.75 Lien Notes at a redemption price equal to 100.0% of their principal amount.

The 11.25% Senior Secured 1.5 Lien Notes due 2026 (the "1.5 Lien Notes") have a maturity of February 15, 2026 and bear interest at a rate of 11.25% per annum payable semi-annually on February 15 and August 15 of each year to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates. The 1.5 Lien Notes are redeemable in whole or in part at our option at any time prior to February 15, 2026 at 100.0% of their principal amount.

On December 10, 2019, K. Hovnanian entered into a Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028 (the “Secured Term Loan Facility”). The secured term loans under the Secured Term Loan Facility (the “Secured Term Loans”) bear interest at a rate equal to 10.0% per annum and will mature on January 31, 2028, with interest payable in arrears on the last business day of each fiscal quarter. At any time and from time to time prior to November 15, ~~2022,~~ ~~K. Hovnanian~~ ~~may~~ ~~voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 105.00% of their principal amount, at any time and from time to time after~~ ~~November 15, 2022~~ ~~and prior to~~ ~~November 15,~~ 2023, K. Hovnanian may voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 102.50% of their principal amount and at any time and from time to time after November 15, 2023, K. Hovnanian may voluntarily prepay some or all of the Secured Term Loans at a prepayment price equal to 100.0% of their principal amount.

Each series of secured notes and the guarantees thereof, the Secured Term Loans and the guarantees thereof and the Secured Credit Agreement and the guarantees thereof are secured by the same assets. Among the secured debt, the liens securing the Secured Credit Agreement are senior to the liens securing all of K. Hovnanian’s other secured notes and the Secured Term Loan. The liens securing the 1.125 Lien Notes are senior to the liens securing the 1.25 Lien Notes, 1.5 Lien Notes, the 1.75 Lien Notes, the Secured Term Loans and any other future secured obligations that are junior in priority with respect to the assets securing the 1.125 Lien Notes, the liens securing the 1.25 Lien Notes are senior to the liens securing the 1.5 Lien Notes, the 1.75 Lien Notes, the Secured Term Loans and any other future secured obligations that are junior in priority with respect to the assets securing the 1.25 Lien Notes, the liens securing the 1.5 Lien Notes are senior to the liens securing the 1.75 Lien Notes, the Secured Term Loans and any other future secured obligations that are junior in priority with respect to the assets securing the 1.5 Lien Notes, the liens securing the 1.75 Lien Notes and the Secured Term Loans (which are secured on a pari passu basis with each other) are senior to any other future secured obligations that are junior in priority with respect to the assets securing the 1.75 Lien Notes and the Secured Term Loans, in each case, with respect to the assets securing such debt.

As of ~~July~~January 31, ~~2022~~2023, the collateral securing the Secured Credit Agreement, the Secured Term Loan Facility and the secured notes included (1) ~~$220.9~~$242.3 million of cash and cash equivalents, which included ~~$7.3~~$5.8 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) ~~$430.3~~$470.7 million aggregate book value of real property, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised; and (3) equity interests in joint venture holding companies with an aggregate book value of ~~$102.6~~$96.9 million.

The 13.5% Senior Notes due 2026 (the “13.5% 2026 Notes”) bear interest at 13.5% per annum and mature on February 1, 2026. Interest on the 13.5% 2026 Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date. The 13.5% 2026 Notes are redeemable in whole or in part at K. Hovnanian’s option at any time prior to February 1, 2025 at a redemption price equal to 100% of their principal amount plus an applicable “Make Whole Amount”. At any time and from time to time on or after February 1, 2025, K. Hovnanian may also redeem some or all of the 13.5% 2026 Notes at a redemption price equal to 100.0% of their principal amount.

The 5.0% Senior Notes due 2040 (the “5.0% 2040 Notes”) bear interest at 5.0% per annum and mature on February 1, 2040. Interest on the 5.0% 2040 Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date. At any time and from time to time, K. Hovnanian may redeem some or all of the 5.0% 2040 Notes at a redemption price equal to 100.0% of their principal amount.

The Unsecured Term Loans bear interest at a rate equal to 5.0% per annum and interest is payable in arrears, on the last business day of each fiscal quarter. The Unsecured Term Loans will mature on February 1, 2027.

We have certain stand-alone cash collateralized letter of credit agreements and facilities under which there was a total of ~~$7.1~~$5.7 million and ~~$9.3~~$6.0 million letters of credit outstanding at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, respectively. These agreements and facilities require us to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash we have available for other uses. At ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, the amount of cash collateral in these segregated accounts was ~~$7.3~~$5.8 million and ~~$9.9~~$6.1 million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Condensed Consolidated Balance Sheets.

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

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

Basic and diluted earnings per share for the periods presented below were calculated as follows:

~~Shares~~In addition, 80 thousand and 24 thousand shares related to out-of-the money stock options, ~~that~~which could potentially dilute basic earnings per share in the future, ~~that~~ were not included in the computation of diluted earnings per share ~~were 80 thousand and 24 thousand for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022,~~ ~~respectively, and 25 thousand~~ for both the three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2021~~2023 and 2022, respectively, because to do so would have been anti-dilutive for ~~the periods presented.~~

On July 12, 2005, we issued 5,600 shares of 7.625% Series A ~~Preferred Stock,~~preferred stock, with a liquidation preference of $25,000 per share. Dividends on ~~the~~ Series A ~~Preferred Stock~~preferred stock are not cumulative and are payable at an annual rate of 7.625%. The Series A ~~Preferred Stock~~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~~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 Stock Market LLC under the symbol “HOVNP.”~~preferred stock. During both the three ~~and~~ ~~nine~~months ended ~~July~~January 31, 2023 and 2022we paid dividends of $2.7 million ~~and $8.0 million~~ on the Series A ~~Preferred Stock, respectively. During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31,~~ ~~2021,~~ ~~we did~~ ~~not~~ ~~pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments.~~preferred stock.

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

On August 4, 2008, our Board of Directors (the “Board”) adopted a shareholder rights plan (the “Rights Plan”), which was amended on January 11, 2018 and January 18, 2021, designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss ~~(NOL)~~(“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~~common Stock and Class B ~~Common~~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~~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~~shareholders 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~~common stock will trigger a dilutive event only if they acquire additional shares. The approval of the ~~Board of Directors’~~Board’s decision to adopt the Rights Plan may be terminated by the Board ~~of Directors~~ at any time, prior to the Rights being triggered. The Rights Plan will continue in effect until August 14, 2024, unless it expires earlier in accordance with its terms. The approval of the ~~Board of Directors’~~Board’s decision to initially adopt the Rights Plan and the amendments thereto were approved by shareholders. Our ~~stockholders~~shareholders also approved an amendment to our Certificate of Incorporation to restrict certain transfers of Class A ~~Common Stock~~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~~shareholders and holders of Class B ~~stockholders,~~common stock, the transfer restrictions in our Restated Certificate of Incorporation generally restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to (i) increase the direct or indirect ownership of our stock by any person (or public group) from less than 5% to 5% or more of our common stock; (ii) increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own 5% or more of our common stock; or (iii) create a new “public group” (as defined in the applicable ~~United States~~U.S. Treasury regulations). Transfers included under the transfer restrictions include sales to persons (or public groups) whose resulting percentage ownership (direct or indirect) of common stock would exceed the 5% thresholds discussed above, or to persons whose direct or indirect ownership of common stock would by attribution cause another person (or public group) to exceed such threshold.

On July 3, 2001, ~~our~~the Board ~~of Directors~~ authorized a stock repurchase program to purchase up to 0.2 million shares of Class A ~~Common Stock (the "Prior Program").~~ common stock. On September 1, 2022, the Board terminated our prior repurchase program and authorized a new program for the repurchase of up to $50.0 million of our Class A common stock. Under the new repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

During the three months ended January 31, 2023, we repurchased 118,478 shares under the new stock repurchase program, with a market value of $4.8 million, or $40.51 per share, which were added to "Treasury stock" on our Condensed Consolidated Balance Sheets as of January 31, 2023. There were no shares ~~purchased~~repurchased during the three ~~and~~ ~~nine~~months ended ~~July~~January 31, 2022. As of ~~July~~January 31, ~~2022~~2023, ~~, the maximum number~~$33.0 million of ~~shares of~~our Class A ~~Common Stock that~~ ~~may~~ ~~yet~~common stock is available to be purchased under ~~this program is 22 thousand. In~~ ~~September 2022,~~ ~~our Board of Directors terminated~~ the ~~Prior Program and adopted a new~~stock repurchase program. ~~See Note~~ ~~22.~~

The total income tax benefit for the three months ended January 31, 2023 was $0.7 million. The benefit was primarily due to $6.2 million of energy efficient tax credits on homes closed in the prior fiscal year, which was offset by federal and state tax expense as a result of pretax income.

The total income tax expense for the three ~~and~~ ~~nine~~months ended ~~July~~January 31, 2022was ~~$29.3 million and $58.4 million, respectively.~~$10.6 million. The expense was primarily due to federal and state tax expense recorded as a result of our pretax income. The federal tax expense is not paid in cash as it is offset by the use of our existing NOL carryforwards.

~~The total income tax expense for the~~ ~~three~~ ~~months ended~~ ~~July 31, 2021~~ ~~was $14.1 million. The federal tax expense was primarily related to pretax income generated during the quarter and state tax expense from income generated in states where we do~~ ~~not~~ ~~have net operating loss carryforwards to offset the current year income. The total tax benefit for the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021~~ ~~was $442.9 million. The benefit was primarily due to the reversal of a substantial portion of our valuation allowance previously recorded against our deferred tax assets.~~

Our federal net operating losses of ~~$1.0 billion~~$909.5 million expire between 2029 and 2038, and ~~$15.7~~$21.1 million have an indefinite carryforward period. Of our ~~$2.4~~$2.3 billion of state NOLs, ~~$229.8~~$411.4 million expire between ~~2022~~2023 through ~~2026;~~2027; ~~$1.5~~$1.4 billion expire between ~~2027~~2028 through ~~2031;~~2032; ~~$396.5~~$369.7 million expire between ~~2032~~2033 through ~~2036;~~2037; ~~$170.4~~$73.7 million expire between ~~2037~~2038 through ~~2041;~~2042; and ~~$53.9~~$51.5 million have an indefinite carryforward period.

On ~~August 16, 2022,~~ the Inflation Reduction Act (IRA) was enacted and signed into U.S. law to provide additional economic relief in response to the high cost of prescription drugs, healthcare availability, climate change and inflation. We are currently evaluating the impact of the IRA on the Company's consolidated financial statements but do ~~not~~ ~~expect there will be a material impact. We will continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and various state agencies.~~

The Company recognizes deferred income taxes for deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. A valuation allowance is provided to offset deferred tax assets ("DTAs") if, based upon the available evidence, it is more likely than not that some or all of the ~~deferred tax assets~~DTAs will not be realized. Future realization of ~~deferred tax assets~~DTAs depends on the existence of sufficient taxable income of the appropriate character. Sources of taxable income include future reversals of existing taxable temporary differences, expected future taxable income, taxable income in prior carryback years if permitted under the tax law and tax planning strategies. Management has determined that it is more likely than not that sufficient taxable income will be generated in the future to realize its ~~deferred tax assets except for a portion related to state deferred tax assets.~~DTAs, net of any valuation allowance. The Company’s ~~deferred tax assets~~DTAs as of ~~July~~January 31, ~~2022~~ 2023were ~~$376.6~~$347.4 million.

As of ~~October~~January 31, ~~2020,~~ ~~we had a valuation allowance of $396.5 million of federal deferred tax assets related to NOLs, as well as other matters, all of which was reversed during the year ended~~ ~~October 31, 2021.~~ ~~We also had a valuation allowance of $181.0 million of deferred tax assets related to state NOLs as of~~ ~~October~~ ~~31,~~~~2020,~~ ~~of which $78.1 million was reversed in the~~ ~~second~~ ~~quarter of fiscal~~ ~~2021~~ ~~and $101.6 million remained at~~ ~~October 31, 2021.~~

~~As of~~ ~~July 31, 2022~~2023, we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our ~~deferred state income tax assets ("DTAs")~~DTAs was ~~appropriate in accordance with ASC~~ ~~740.~~appropriate. Overall, the positive evidence, both objective and subjective, outweighed the negative evidence. The significant positive improvement in our operations in the last 36three ~~months,~~years, coupled with our contract backlog of ~~$1.8~~$1.2 billion as of ~~July~~January 31, ~~2022~~2023 provided positive evidence to support the conclusion that a full valuation allowance is not necessary for all of our DTAs. As such, we used our go forward projections to estimate our usage of our existing federal and state DTAs. ~~From~~Based on this analysis, we determined that ~~review, we concluded that a~~the current valuation allowance for our ~~federal~~ DTAs ~~was~~of $95.7 million as of ~~not~~January 31, 2023 needed. However, with respect to our state DTAs, we concluded that a valuation allowance of $80.6 million was still necessary related to states that have shorter carryforward periods or from states where we have significantly reduced or eliminated our operations and thus are ~~not~~ ~~able to project that we will fully utilize those DTAs.~~is appropriate.

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

~~HEI’s homebuilding operating segments~~operations in 14 states that are aggregated into reportable segments based primarily upon geographic proximity.

Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment. During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof. In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina and Tampa markets and is currently in the process of exiting the Chicago market. Applying the principles set forth under Accounting Standards Codification ("ASC") 280, including that our business trends are reflective of economic conditions in markets with general geographic proximity, ~~similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes.~~ we realigned our homebuilding operating segments.

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

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

Operations of the ~~Homebuilding~~homebuilding segments primarily include the sale and construction of single-family attached and detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. In addition, from time to time, operations of the homebuilding segments include sales of land. Operations of the ~~Financial Services~~financial services segment include mortgage banking and title services provided to the homebuilding operations’ customers. Our financial services subsidiaries do not typically retain or service mortgages that we originate but ~~rather~~ sell the mortgages and related servicing rights to investors.

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

Evaluation of segment performance is based primarily on ~~operating earnings from continuing operations before provision or benefit for~~ income ~~taxes (“Income~~(loss) before income ~~taxes”).~~taxes. Income (loss) before income taxes for the ~~Homebuilding~~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~~financial services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and ~~selling,~~corporate general and administrative ~~expenses incurred by the Financial Services segment.~~

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

Financial information relating to ~~HEI’s segment operations~~our reportable segments was as follows:

(1~~) Deferred tax assets for the Financial services segment are included in the Deferred tax assets, net line on the Condensed Consolidated Balance Sheets.~~

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

During the ~~third~~first quarter of fiscal ~~2021,~~2023, we ~~purchased the remaining equity interest in~~contributed ~~one~~four ~~of our~~communities we owned, including one active community, to one new unconsolidated joint ~~ventures~~venture for ~~$6.3~~$41.1 million of net cash. ~~As a result of this transaction, we took control of~~ ~~four~~ ~~communities, including~~ ~~three~~ ~~active communities. The unconsolidated joint venture was subsequently dissolved.~~

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

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.

As of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, we had advances outstanding of ~~$1.8~~$3.8 million and ~~$2.2~~$1.6 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 $74.7 million and $60.9 million at~~ ~~July 31, 2022~~ ~~and~~ ~~October 31, 2021,~~ ~~respectively.~~ In some cases, our net investment in these unconsolidated joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture. Impairments of unconsolidated joint venture investments are assessed for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. During the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022, we did not write-down any of our unconsolidated joint venture investments.

“Income 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 from these unconsolidated homebuilding and land development joint ventures.

The reason “Our share of net income” in our homebuilding joint ventures is higher ~~or lower~~ than the “Joint venture net income” shown in the tables above ~~for~~is a result of our varying ownership percentages in each investment. For both the three ~~and~~ ~~nine~~months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022,, we had investments in eight and ten unconsolidated joint ventures, respectively, ~~is because we have varying~~and our ownership ~~percentages, ranging~~in these joint ventures ranged from 20% to over 50%~~, in our 8 and 12 unconsolidated joint ventures~~ for both ~~periods, respectively.~~periods. Therefore, depending on mix, if the unconsolidated joint ventures in which we have higher sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a higher overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage; conversely, if the unconsolidated joint ventures in which we have lower sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a lower overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage. For the three months ended ~~July~~January 31, ~~2022~~2023, ~~, "Our share of net income (loss)~~" was higher than the "Joint venture net income (loss)" due to the recognition of income in excess of our current sharing percentage based on the joint venture agreement as a result of a management analysis conducted which determined it is more likely than ~~not~~ ~~that the Company will achieve its return on investment. For the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~~~, "Our~~Our share of net income" was higher than the "Joint venture net income" due to ~~distributions we received during the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~ ~~that we recognized entirely as income by the Company since our investment balance is zero, as well as the aforementioned management analysis which resulted in~~ the recognition of income in excess of our current sharing percentage for one of our unconsolidated joint ventures in accordance with the joint venture agreement, which provides a higher earning percentage than ownership percentage when the joint venture partner exceeds defined rate of return thresholds. This was slightly offset by a second unconsolidated joint venture that experienced increased income during the period for which we currently recognize a lower profit-sharing percentage based on the joint ~~venture agreement.~~venture's agreements. In addition, we had previously written off our investment in one of our unconsolidated joint ventures that was generating losses and therefore for the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 ~~and therefore~~ we ~~currently do~~did not recognize ~~those losses.~~any losses on this investment. Had we not fully written off our investment, our share of the net loss in this unconsolidated joint venture would have been approximately 50%, which would have reduced our overall share of net income across all of our unconsolidated joint ventures. As a result, this unconsolidated joint venture loss significantly reduced the profit when looking at all of our ~~8 unconsolidated joint ventures, in the aggregate, without having any impact on our share of net income or loss recorded in the applicable period.~~

~~For the~~ ~~three~~ ~~months ended~~ ~~July 31, 2021,~~ ~~"Our share of net income" is lower than the "Joint venture net income" due to increased income on~~ ~~one~~ ~~of our newer unconsolidated joint ventures during the quarter for which we currently recognize~~ no ~~percentage of the profit based on the joint venture agreement, and a~~ ~~second~~ ~~unconsolidated joint venture for which we recognize a lower profit sharing percentage which had higher profit in the current period. In addition, for the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021~~ ~~we had written off our investment in~~ ~~two~~ ~~of our unconsolidated joint ventures that are generating losses and therefore we currently do~~ ~~not~~ ~~recognize those losses. Had we~~ ~~not~~ fully written off our investment, our share of the net loss in these unconsolidated joint ventures would have been approximately 50%, which would have reduced our overall share of net income across all of our unconsolidated joint ventures. As a result, these unconsolidated joint ventures losses significantly reduce the profit when looking at all of our 12eight unconsolidated joint ventures, in the aggregate, without having any impact on our share of net income or loss recorded in the applicable period.

To compensate us for the administrative services we provide as the manager of certain unconsolidated joint ventures, we receive a management fee based on a percentage of the applicable unconsolidated joint venture’s revenues. These management fees, which totaled ~~$2.9~~$3.6 million and ~~$3.2~~$2.4 million for the three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022, respectively, ~~and $8.5 million for the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~ ~~and~~ ~~2021~~ are recorded in ~~“Homebuilding: Selling,~~“Selling, general and administrative” onhomebuilding expenses in the Condensed Consolidated Statements of Operations.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. For some of our unconsolidated joint ventures, obtaining financing was challenging; therefore, some of our unconsolidated joint ventures are capitalized only with equity. ~~The total debt to capitalization ratio of all our unconsolidated joint ventures was 27% as of~~ ~~July 31, 2022~~. Any unconsolidated joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the unconsolidated joint venture entity is considered a VIE ~~under ASC~~ ~~810~~-10 ~~“Consolidation – Overall”~~ due to the returns being capped to the equity holders; however, in these instances, we have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities.

In March 2020, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2020-04, ~~“Facilitation~~“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides companies with optional ~~guidance~~expedients to ease the potential accounting burden ~~associated with~~on contracts affected by the discontinuation of the London Interbank Offered Rate or another reference rate ~~reform on financial reporting.~~expected to be discontinued. This guidance ~~became~~was effective for the Company beginning on March 12, 2020 and we may elect to apply the amendments ~~prospectively~~prospectively. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, to extend the temporary accounting rules under ASC 848 from ~~now through~~ December 31, ~~2022.~~2022 ~~The Company is~~to December 31, 2024. We are currently evaluating the potential impact, but ~~does~~we do not expect the adoption of this guidance to have a material impact on our Condensed Consolidated Financial Statements.

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

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

(1) The aggregate unpaid principal balance was ~~$86.2~~$74.5 million and ~~$146.5~~$110.2 million at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, respectively.

We elected the fair value option for our loans held for ~~sale in accordance with ASC~~ ~~825,~~ ~~“Financial Instruments,” which permits us to measure financial instruments at fair value on a contract-by-contract basis.~~sale. 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.~~accounting. 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~~financial services segment had a pipeline of loan applications in process of ~~$836.4~~$555.7 million at ~~July~~January 31, ~~2022~~2023. Loans in process for which interest rates were committed to the borrowers totaled ~~$165.8~~$85.9 million as of ~~July~~January 31, ~~2022~~2023. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments isare expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements.

The ~~Financial Services~~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 primarily managed by entering into MBS forward commitments and 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~~contracts. In the event of default by the purchaser, our risk is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At ~~July~~January 31, ~~2022~~2023, ~~the segment~~we hadno open commitments ~~amounting to $4.0 million~~ to sell ~~MBS with varying settlement dates through~~ ~~September 14, 2022.~~mandatory MBS.

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

~~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~~

We did ~~three~~not ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021~~~~. The Company did~~ ~~not~~ have any assets measured at fair value on a nonrecurring basis during the three months endedJanuary 31, 2023 and ~~nine~~2022, ~~months ended~~ ~~July 31, 2022~~~~. The assets measured at fair value on a nonrecurring basis are all within the Company's Homebuilding operations and are summarized below:~~

~~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 $1.2 million and $2.0 million for the ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021~~~~. The Company did~~ ~~not~~ ~~record any inventory impairments for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~~~. 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 each series of our Notes and Credit Facilities are listed below. Level 2 measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. ~~Level~~Level 3 measurements are estimated based on third-party broker quotes or ~~management’s~~management's estimate of the fair value based on available trades for similar ~~debt~~debt instruments. As shown in the table below, our ~~5.0%~~ ~~2040~~1.75 Lien Notes, 1.125 Lien Notes and 1.25 Lien Notes were a Level 2 measurement at ~~July~~January 31, ~~2022~~2023 due to recent trades on such notes (whereas such notes were a Level 3 measurement at October 31, ~~2021)~~2022).

The Senior Secured Revolving Credit Facility is not included in the above tables because there were no borrowings outstanding thereunder as of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022.

From time to time, 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, provides services to the Company. During ~~both~~ the three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022, the services provided by such engineering firm to the Company totaled ~~$0.2 million. During the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2022~~ ~~and~~ ~~2021~~~~, the services provided by such engineering firm to the Company totaled $0.7~~$0.4 million and ~~$0.4~~$0.2 million, respectively. Neither the Company nor Mr. Hovnanian has a financial interest in the relative’s company from whom the services were provided.

On ~~September 1, 2022,~~ ~~our Board of Directors terminated our Prior Program and authorized a new program for the repurchase of up to $50.0 million of our Class A common stock. Under the new repurchase program, repurchases~~ ~~may~~ be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar amounts repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. The repurchase program ~~may~~ ~~be changed, suspended or discontinued at any time and does~~ ~~not~~ ~~have a specified expiration date.~~

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

Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and a financial services segment. During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof. In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina and Tampa markets and is currently in the process of exiting the Chicago market. Applying the principles set forth under Accounting Standards Codification 280, Segment Reporting, including that our business trends are reflective of economic conditions in markets with general geographic proximity, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now have three reportable homebuilding segments comprised of (1) Northeast, (2) Southeast and (3) West, as noted below. All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.

The following key performance indicators are commonly used in the homebuilding industry and by management as a means to better understand our operating performance and trends affecting our business and compare our performance with the performance of other homebuilders. We believe these key performance indicators also provide useful information to investors in analyzing our performance:

The demand for new and existing homes is dependent on a variety of demographic and economic factors, including job and wage growth, household formation, consumer confidence, mortgage financing, interest rates, inflation and overall housing affordability. In general, at the start of fiscal year 2020, factors including rising levels of household formation, a constrained supply of new and used homes, wage growth, strong employment conditions and mortgage rates that were low by historical standards were contributing to improving conditions for new home sales.

In March 2020, as a result of the initial impact of COVID-19, we experienced adverse business conditions, including a slowdown in customer traffic and sales pace and an increase in cancellations. However, beginning in May 2020, the homebuilding market rapidly improved, due to what we believe is a combination of factors including low interest rates, low inventory levels of existing homes and a general desire for more indoor and outdoor space. During the third quarter and continuing through the fourth quarter of fiscal 2020, we returned to our normal activities with respect to land purchases, land development and resuming the construction of unsold homes. As a result, our operating metrics improved significantly in fiscal 2020 as compared to fiscal 2019, and improved even further in fiscal 2021. However, sinceFrom early January 2022, 30-year mortgage rates ~~have~~ increased rapidly from 3.2% to ~~5.3%~~a high of 7.1% at the end of ~~July 2022. While these rates are still low by historical standards,~~October 2022, and then back down slightly to 6.1% at the end of January 2023. The quick and sharp increase in interest rates ~~along with record~~from 2021 to 2022, persistently high levels of inflation ~~levels~~ and ~~consumer fears~~doubt about the stability of ~~an economic recession, has~~the economy, continues to negatively impact housing demand. During the first quarter of fiscal 2023, we were aggressive in our pricing, incentives and concessions in order to increase affordability, which had a ~~negative impact~~positive effect on our sales pace, but due to the general uncertainty potential buyers still remain cautious about their decision to purchase a home. As a result, our net contracts and net contracts per average active selling ~~community. Despite~~community remained adversely impacted compared to the ~~decrease~~first quarter of fiscal 2022, although we did see positive improvement throughout the quarter. Our gross contract cancellation rate for the three months ended January 31, 2023 was higher than the three months ended January 31, 2022 but decreased compared to the fourth quarter of fiscal 2022. For the month of January 2023 our gross contract cancellation rate was 27%, which remained above our historical average. We continue to experience extended build times due to lingering supply chain issues but given the lower volume of homes in ~~net~~construction we expect to see improvements resulting from an increase in available labor going forward. In addition, we have renegotiated the timing or pricing of certain land contracts and continue to build on our ~~revenues, gross margin percentage~~national initiatives to drive down costs with our vendors and ~~pretax profit results~~trade partners who are also being affected by the difficult macro-economic environment. Although recent sales per community in January and February have ~~continued~~begun to ~~show strong improvement over~~improve, given the slower sales pace in the second half of fiscal 2022 and the first quarter of fiscal 2023 compared to the prior year and uncertainty in the homebuilding market, the Company will be taking measures in the second quarter of fiscal 2023 to reduce its overhead expenses through ~~July 31, 2022, though~~a combination of workforce reductions and certain other cost reduction measures.

We expect continued pressure on our results from higher wages due to inflation, as well as increased advertising spending, and less favorable margins on the mortgage rates we offer customers in order to attract buyers. The changing conditions in the housing market caused by increased mortgage rates and other factors make it is difficult to predict how strongly our business will be adversely impacted as we head into the ~~impact of these and other factors on our future results which may be negatively impacted.~~spring selling season.

~~The below highlights~~Information on our ~~overall positive~~ operating results for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022:~~2023 are as follows:

● ~~For the three and nine months ended July 31, 2022, sale~~Sale of homes revenues ~~increased 11.1% and 4.2%, respectively, as compared~~decreased to $499.6 million for the ~~same periods of~~three months ended January 31, 2023 from $551.4 million for the prior year, primarily resulting from an increase in average prices of 17.8% and 19.1%, respectively, as home prices increased in virtually all of our markets, along with the geographic and community mix of our deliveries, partially offset by respective decreases of 5.7% and 12.5%three months ended January 31, 2022. There was a 20.1% decrease in the number of home ~~deliveries. The decreases in home~~ deliveries, ~~were~~ due in part to the prior year deliveries being unusually high as a result of ~~the unsustainable and~~an extremely strong sales pace in late fiscal ~~2020~~2021 and early fiscal ~~2021,~~2022. Partially offsetting the decrease in home deliveries was an increase in average prices of 13.4% for the three months ended January 31, 2023, compared to the prior year period, as home prices increased rapidly in virtually all of our markets through the first half of fiscal 2022, along with the geographic and ~~also due to supply chain challenges extending construction cycle times and delaying some~~community mix of our deliveries.

● Gross margin dollars ~~increased 33.2% and 27.2%~~decreased 15.0% for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022, respectively,~~2023, as compared to the same period of the prior year, as a result of the ~~increase~~decrease in gross margin percentage to ~~23.1%~~18.7% for the three months ended ~~July~~January 31, ~~2022~~2023 from ~~19.2%~~19.9% for the three months ended ~~July~~January 31, ~~2021, and increased to 22.3% for the nine months ended July 31, 2022 from 18.3% for the nine months ended July 31, 2021.~~2022. Gross margin percentage, before cost of sales interest expense and land charges, ~~increased~~decreased from ~~22.1% and 21.4%~~22.4% for the three ~~and nine~~ months ended ~~July~~January 31, ~~2021~~2022 to ~~26.3% and 25.3%~~21.8% for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022.~~2023. The ~~increases~~decreases were primarily due to ~~price increases~~our use of incentives and concessions to make our homes more affordable in ~~virtually all of our~~the markets ~~along with the mix of communities delivering homes~~ in ~~each period.~~which we operate, partially offset by a reduction in construction costs.

● Selling, general and administrative costs (including corporate general and administrative expenses) ("Total SGA") was ~~$74.9~~$73.4 million, or ~~9.8%~~14.2% of total revenues, in the three months ended ~~July~~January 31, ~~2022~~2023 compared with ~~$60.3~~$72.2 million, or ~~8.7%~~12.8% of total revenues, in the three months ended ~~July~~January 31, ~~2021. For the nine months ended July 31, 2022,~~2022. The increase in Total SGA was $215.3 million, or 10.6% of total revenues, compared with $206.6 million, or 10.5% of total revenues, in the same period of the prior fiscal year. Such costs increased $14.6 million and $8.7 million for the three and nine months ended July 31, 2022, respectively, as compared to the same periods of the prior year. Excluding the impact in each of the three months ended July 31, 2022 and 2021 related to the grants of phantom stock awards under our 2019 Long Term Incentive Plan (“2019 LTIP”), SGA as a percentage of total revenues ~~would have been 9.7% for each period. Had equity shares rather than phantom shares been utilized~~is primarily due to the decrease in revenues for the ~~2019 LTIP, there would not have been any expenses or benefit related~~three months ended January 31, 2023, as compared to the ~~movement in our stock price.~~same period of the prior year, as discussed above.

● Other interest ~~decreased~~increased to ~~$9.6 million and $35.4~~$15.1 million for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022, respectively,~~2023 from ~~$19.2 million and $65.2~~$13.4 million for the three ~~and nine~~ months ended ~~July~~January 31, ~~2021, respectively, as we incurred less interest and had less debt in excess of~~2022, primarily due to additional inventory ~~as a result of the reduction of our debt in fiscal 2021 and fiscal 2022, and~~financing resulting from an increase in average inventory not ~~owned during the three and nine months ended July 31, 2022 compared to the three and nine months ended July 31, 2021.~~owned.

● Pre-tax income ~~increased~~decreased to ~~$111.9~~$18.0 million for the three months ended ~~July~~January 31, ~~2022~~2023 from pre-tax income of ~~$61.8~~$35.4 million for the three months ended ~~July~~January 31, ~~2021, and increased to $228.3 million for the nine months ended July 31, 2022 from pre-tax income of $112.4 million for the nine months ended July 31, 2021.~~2022. Net income ~~increased~~decreased to ~~$82.6~~$18.7 million for the three months ended ~~July~~January 31, ~~2022~~2023 from net income of ~~$47.7~~$24.8 million for the three months ended ~~July~~January 31, ~~2021, and decreased to $169.9 million~~2022. Net income for the ~~nine months ended July 31, 2022~~first quarter of fiscal 2023 included a $6.2 million tax benefit from net income of $555.3 million for the nine months ended July 31, 2021. Earnings per share, basic and diluted, increased to $10.92 and $10.82, respectively, for the three months ended July 31, 2022 compared to $6.85 and $6.72, respectively, for the three months ended July 31, 2021.energy efficient home credits. Earnings per share, basic and diluted, decreased to ~~$22.05~~$2.37 and ~~$21.77,~~$2.26, respectively, for the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 compared to ~~$80.02~~$3.12 and ~~$78.51,~~$3.07, respectively, for the ~~nine~~three months ended ~~July~~January 31, 2021. While pretax income increased in fiscal 2022, the significant decrease in net income for the nine months ended July 31, 2022 was due to the full reversal of our federal valuation allowance and a portion of the state valuation allowance in respect of our deferred tax assets in the second quarter of fiscal 2021 (see Note 16 to the Condensed Consolidated Financial Statements).2022.

● Net contracts decreased ~~34.0% and 18.6%~~49.2% for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022, respectively,~~2023, compared to the same ~~periods~~period of the prior year, as the slow sales pace ~~slowed to below normal levels~~across the industry during the ~~third~~second half of fiscal 2022 continued into the first quarter of fiscal ~~2022, due to an overall slow-down~~2023, primarily as a result of fluctuating interest rates and a continuing uncertain economic outlook. However, sales pace per community did improve in ~~home demand.~~each consecutive month of the first quarter of fiscal 2023.

● Net contracts per average active selling community decreased to ~~7.6~~6.5 for the three months ended ~~July~~January 31, ~~2022~~2023 compared to ~~12.0 in the same period of the prior year, and decreased to 34.9 for the nine months ended July 31, 2022 compared to 44.9~~13.1 in the same period of the prior year. The ~~decreases were~~decline was due to the ~~decreases~~decrease in net contracts discussed above.

● Active selling communities at July 31, 2022 increased by 3.8% compared to July 31, 2021. We continue to actively pursue new communities, and our total lots controlled increased to 31,913 at July 31, 2022 compared to 31,002 at July 31, 2021.

● Contract backlog decreased from ~~3,673~~3,624 homes at ~~July~~January 31, ~~2021~~2022 to ~~3,183~~2,028 homes at ~~July~~January 31, ~~2022. Despite this decrease, as a result of price increases in virtually all of our markets,~~2023, and the dollar value of contract backlog ~~increased 2.4%~~decreased to ~~$1.8~~$1.2 billion, a 37.6% decrease in dollar value compared to the prior year. The decreases were primarily attributed to lower sales and an increase in cancellations as buyers continue to try and navigate a difficult environment. Our gross contract cancellation rate of 30% in the first quarter of fiscal 2023 was an improvement sequentially from the fourth quarter of fiscal 2022 when it was 41%.

● Our cash position allowed us to spend ~~$554.1~~$134.4 million on land purchases and land development during the ~~nine~~three months ended ~~July~~January 31, ~~2022, redeem $100 million principal amount of our senior secured notes,~~2023 and still have total liquidity of ~~$357.4~~$365.7 million, including ~~$225.1~~$234.9 million of homebuilding cash and cash equivalents as of ~~July~~January 31, ~~2022~~2023 and $125.0 million of borrowing capacity under our senior secured revolving credit facility.

Compared to the same period in the prior year, revenues increased (decreased) as follows:

For the three months ended January 31, 2023, sale of homes revenues decreased 9.4% compared to the same period in the prior year. The sale of homes revenue decrease is due to a 20.1% decrease in homes delivered, partially offset by a 13.4% increase in the average price per home for the three months ended January 31, 2023, compared with the prior year period. The average price per home increased to $532,671 in the three months ended January 31, 2023 from $469,647 in the three months ended January 31, 2022. The increase in average price was the result of increases in home prices in virtually all of our markets, primarily during the first half of fiscal 2022, along with the geographic and community mix of our deliveries. Land sales are ancillary to our homebuilding operations and are expected to continue in the future. For further detail on changes in segment revenues see “Homebuilding: Operations by Segment” below. For further detail on land sales and other revenues, see “Homebuilding: Land Sales and Other Revenues” below.

(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 18to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our unconsolidated joint ventures.

Land sales and other revenues increased $2.9 million for the three months ended January 31, 2023 compared to the same period in the prior year. Other revenues include interest income, which increased as a result of an increase in rates on cash and cash equivalent accounts in the first quarter of fiscal 2023 compared to the same period in the prior year. In addition, other revenues include income from contract cancellations where deposits have been forfeited due to contract terminations, which increased due to higher cancellations in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There was one land sale in both of the three months ended January 31, 2023 and 2022, and a $0.3 million increase in land sales revenue.

Cost of sales includes expenses for consolidated housing and land and lot sales, including inventory impairments and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for homebuilding and land and lot sales and the gross margins for each 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 U.S. 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 comparable 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 levels of impairments and debt.

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

We sell a variety of home types in various communities, each yielding a different gross margin. The decrease in gross margins for the three months ended January 31, 2023, was primarily due to the increase in our use of incentives and concessions to make our homes more affordable.

Land sales are ancillary to our residential homebuilding operations and are expected to continue in the future but may fluctuate significantly.

Inventory impairments and land option write-offs reflects certain inventories we have either written off or written down to their estimated fair value totaling $0.5 million and $0.1 million in expense for the three months ended January 31, 2023 and 2022, respectively. There were no inventory impairments during the three months ended January 31, 2023 and 2022. During the three months ended January 31, 2023 and 2022, we wrote-off residential land option, approval and engineering costs. Such write-offs occurred across each of our segments in the first quarter of fiscal 2023 and 2022.

Homebuilding selling, general and administrative (“SGA”) expenses increased $5.2 million to $47.9 million for the three months ended January 31, 2023 compared to the same period in the prior year. The increase was primarily due to fees incurred on unused builder forward commitments we are offering to lower mortgage rates for our customers, which began in the second half of fiscal 2022. Also contributing to the increase in SGA was an increase in compensation expense related to merit-based salary increases.

Net contracts per average active selling community for the three months ended January 31, 2023 were 6.5 compared to 13.1 for the same period in the prior year. Our reported level of sales contracts (net of cancellations) were impacted by a decrease in the pace of sales in all of our segments. As noted above, the current level of demand for new homes is significantly lower due to high levels of inflation, a sharp increase in mortgage rates from the prior year and continued concern about an economic recession. During the quarter, net contracts per average active selling community did increase from 1.5 in November to 3.0 in January as mortgage rates started to stabilize slightly during the period for potential home buyers.

The following table provides historical quarterly cancellation rates, which represents the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter, excluding unconsolidated joint ventures:

The following table provides quarterly contract cancellations as a percentage of the beginning backlog, excluding unconsolidated joint ventures:

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 generally been within what we believe to be a normal range, with fiscal 2021 and first half of fiscal 2022 cancellation rates, in particular, being below historical norms as a result of the strong market conditions. However, during the last three quarters, due to the sharp decline in gross sales and an increase in cancellations, our cancellation rate as a percentage of gross sales increased significantly to 27%, 41% and 30%, respectively, which is higher than our historical normal range. Additionally, our cancellation rate as a percentage of beginning backlog for the first quarter of fiscal 2023 was 16%, which is also above our historical normal range of 13%. Market conditions remain uncertain and it is difficult to predict what cancellation rates will be in the future.

Our consolidated sales contracts and homes in contract backlog, excluding unconsolidated joint ventures, by segment is set forth below:

Contract backlog dollars decreased 37.6% as of January 31, 2023 compared to January 31, 2022, and the number of homes in backlog decreased 44.0% for the same period. The decrease in backlog dollars and number of homes for the three months ended January 31, 2023 compared to the same period in the prior year was driven by the slower sales environment in the second half of fiscal 2022 and first quarter of fiscal 2023.

Financial information relating to our homebuilding operations by segment was as follows:

Northeast - Homebuilding revenue increased 20.9% for the three months ended January 31, 2023 compared to the same period in the prior year. The increase for the three months ended January 31, 2023 was attributed to a 3.6% increase in homes delivered as well as a 16.5% increase in average sales price. The increase in average sales price was the result of price increases in certain communities.

Income before income taxes increased $8.7 million to $28.5 million for the three months ended January 31, 2023 as compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, a $1.8 million decrease in SGA, and a slight increase in gross margin percentage.

Southeast – Homebuilding revenue increased 32.8% for the three months ended January 31, 2023 compared to the same period in the prior year. The increase was due to a 35.6% increase in homes delivered, partially offset by a 2.0% decrease in average sales price. The decrease in average sales price was the result of new communities delivering lower priced, smaller single-family homes and townhomes in lower-end submarkets of the segment for the three months ended January 31, 2023 compared to a mix of more deliveries in higher-end submarkets for the three months ended January 31, 2022. This decrease is partially offset by price increases in certain communities.

Income before income taxes increased $1.5 million to $11.6 million for the three months ended January 31, 2023 compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above and an increase in gross margin percentage.

West – Homebuilding revenue decreased 32.9% for the three months ended January 31, 2023 compared to the same period in the prior year. The decrease was due to a 40.2% decrease in homes delivered, partially offset by an 11.9% increase in average sales price. The increase in average sales price was the result of price increases in certain communities.

Income before income taxes decreased $34.0 million to $9.9 million for the three months ended January 31, 2023 compared to the same period in the prior year. The decrease is primarily due to the decrease in homebuilding revenue discussed above and a decrease in gross margin percentage.

~~As disclosed~~Financial services consist primarily of originating mortgages from our home buyers, 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. For the three months ended January 31, 2023 and 2022, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 29.1% and 24.3%, respectively, of our total loans. For the three months ended January 31, 2023 compared to the same period in the prior year, our conforming conventional loan originations as a percentage of our total loans decreased from 74.6% to 70.1%, respectively. The origination of loans which exceed conforming conventions decreased to 0.8% for the three months ended January 31, 2023 compared to 1.1% for the same period in the prior year.

During the three months ended January 31, 2023 and 2022, financial services provided $3.1 million and $2.9 million of income before income taxes, respectively. The slight increase in financial services income before income taxes was primarily due to the decrease in total financial services costs from closing less loans in the first quarter of fiscal 2023 compared to the same period in the prior year and an increase in the basis point spread between the loans originated and the implied rate from our sale of the loans. In the market areas served by our wholly owned mortgage banking subsidiaries, 63.3% and 64.1% of our noncash homebuyers obtained mortgages originated by these subsidiaries during the three months ended January 31, 2023 and 2022, respectively.

Corporate general and administrative expenses include operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, facility costs and rent and other costs associated with our executive offices, legal expenses, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, national and digital marketing, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses decreased to $25.5 million for the three months ended January 31, 2023 compared to $29.4 million for the three months ended January 31, 2022, primarily due to a decrease in compensation expense, mainly related to the grants of phantom stock awards under our 2019 long-term incentive plan, for which expense is impacted by the change in our ~~annual report~~stock price each period. During the first quarter of fiscal 2023, stock awards were granted under a new Long-Term Incentive Program (the “2023 LTIP”) that consists of 50% cash-settled phantom shares and 50% equity-settled shares. The 2023 LTIP included phantom shares based on ~~Form 10-K~~analysis that demonstrated a higher likelihood of dilution to our book value per share if the entire award was settled in shares rather than cash via phantom shares.

Other interest increased $1.7 million for the ~~fiscal year~~three months ended ~~October~~January 31, ~~2021,~~2023 compared to the same period in the prior year. Our assets that qualify for interest capitalization (inventory under development) are less than our ~~most critical accounting policies relate~~debt, and therefore the portion of interest not covered by qualifying assets is directly expensed. Other interest increased primarily due to ~~income recognition~~additional inventory financing resulting from ~~mortgage loans; inventories;~~an increase in average inventory not owned.

Income from unconsolidated joint ~~ventures; and warranty and construction defect reserves. Since October~~ventures consists of our share of the earnings or losses of our unconsolidated joint ventures. Income from unconsolidated joint ventures decreased $1.0 million to $7.2 million for the three months ended January 31, ~~2021, there have been no significant changes~~2023 compared to ~~those critical accounting policies.~~the same period in the prior year. The decrease was primarily due to receiving the final distribution from one of our unconsolidated joint ventures in the first quarter of fiscal 2022.

The total income tax benefit for the three months ended January 31, 2023 was $0.7 million. The benefit was primarily due to $6.2 million in energy efficient home tax credits offset by federal and state tax expense as a result of pretax income. The total income tax expense for the three months ended January 31, 2022 was $10.6 million. The expense was primarily due to federal and state tax expense recorded as a result of our pretax income. The federal tax expense is not paid in cash as it is offset by the use of our existing NOL carryforwards.

Our ~~operations consist primarily~~total liquidity at January 31, 2023 was $365.7 million, including $234.9 million in homebuilding cash and cash equivalents and $125.0 million of ~~residential housing development and sales in~~borrowing capacity under our senior secured revolving credit facility. We believe that our cash on hand together with available borrowings on our senior secured revolving credit facility will be sufficient for at least 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 servicesnext 12 months to finance our ~~homebuilding customers.~~working capital requirements.

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. We may not be able to obtain desired financing even if market conditions, including then-current market available interest rates (in recent years, we have not been able to access the traditional capital and bank lending markets at competitive interest rates due to our highly leveraged capital structure), would otherwise be favorable, which could also impact our ability to grow our business.

Our total liquidity at July 31, 2022 was $357.4 million, including $225.1 million in homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility. Our total liquidity was above our target liquidity range of $170.0 to $245.0 million. The lingering macro economic effects of the COVID-19 pandemic, including inflation and labor and supply market constraints, as well as geopolitical tensions have created significant uncertainty as to general economic and housing market conditions for fiscal 2022 and beyond. We believe that these sources of cash together with available borrowings on our senior secured revolving credit facility will be sufficient through fiscal 2022 to finance our working capital requirements.

We spent ~~$554.1~~$134.4 million on land and land development during the first ~~three quarters~~quarter of fiscal ~~2022, along with $105.5 million for the $100.0 million partial redemption of our 7.75% Senior Secured 1.125 Lien Notes due 2026.~~2023. After ~~considering this~~ land and land development ~~debt payment~~spending and all other operating activities, including revenue received from deliveries, cash used ~~for~~in operations was ~~$28.6~~$31.2 million. During the first ~~three quarters~~quarter of fiscal ~~2022,~~2023, cash used ~~for~~in investing activities was ~~$3.3~~$23.3 million, primarily due to a new unconsolidated joint venture entered into during the period, along with the acquisition of certain fixed assets, partially offset by distributions from existing unconsolidated joint ventures. Cash used ~~for~~in financing activities was ~~$0.9~~$48.4 million during the first ~~three quarters~~quarter of fiscal ~~2022, which in addition to the $100.0 million debt redemption mentioned above, was~~2023, primarily due ~~primarily~~ to net payments related to our mortgage warehouse lines of credit, net payments for nonrecourse mortgage financings and model sale leaseback financings, repurchases of common stock and the payment of preferred dividends, partially offset by net proceeds from ~~nonrecourse mortgage financings and~~ land banking ~~and model sale leaseback~~ financings during the period. We intend to continue to use nonrecourse ~~mortgage financings,~~mortgages, model sale ~~leaseback,~~leasebacks, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

Our cash uses during the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022 were for operating expenses, land purchases, land deposits, land development, construction spending, ~~debt payments,~~model sale leasebacks, state income taxes, interest payments, preferred ~~dividend payments,~~dividends, equity repurchases, litigation matters and investments in unconsolidated 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, income from unconsolidated joint ventures, financial service revenues and other revenues.

Our net income historically does not approximate cash flow from operating activities. The difference between net income and cash flow from operating activities is primarily caused by changes in inventory levels together with changes in receivables, prepaid expenses and other assets, mortgage loans held for sale, ~~interest and other~~ accrued ~~liabilities,~~interest, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, ~~and~~ stock compensation ~~awards~~ and ~~impairment losses for inventory.~~impairments. When we are expanding our operations, inventory levels, ~~prepaids~~prepaid expenses 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~~prepaid expenses 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, causing us to generate positive cash flow from operations.

Senior notes and credit facilities balances as of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, were as follows:

(1) $26.0 million of 8.0% Senior Notes due 2027 (the "8.0% 2027 Notes") are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are not reflected on the Condensed Consolidated Balance Sheets of HEI.

~~(2)~~ At ~~July~~January 31, ~~2022,~~2023, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. ~~On August 19,~~In the fourth quarter of fiscal 2022, ~~the maturity of the Senior~~we amended our Secured ~~Revolving~~ Credit Facility, ~~was extended from December 28, 2022 to~~which amendments became effective in the first quarter of fiscal 2023.As amended, the revolving loans thereunder have a maturity of June 30, 2024 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 1.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the ~~fixed interest~~undrawn revolving commitments at a rate ~~was replaced with a floating interest rate in each case, effective upon the satisfaction~~ of customary conditions in respect of the collateral securing the borrowings thereunder. See Note 22 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.1.00% per annum.

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at ~~July~~January 31, ~~2022~~2023 (except for the 8.0% Senior Notes due 2027 ~~Notes~~ which are not guaranteed by K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company) (collectively, the “Notes Guarantors”).

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together, the “Debt Instruments”) outstanding at ~~July~~January 31, ~~2022~~2023 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase (including through exchanges) common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Unsecured Term Loan Facility (defined below) (the “Unsecured Term Loans”), loans made under the Secured Term Loan Facility (defined below) (the “Secured Term Loans”) and loans made under the Secured Credit Agreement (as defined below) (the “Secured Revolving Loans”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Unsecured Term Loans, Secured Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected. As of ~~July~~January 31, ~~2022,~~2023, we believe we were in compliance with the covenants of the Debt Instruments.

If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as defined in the applicable Debt Instrument, we are restricted from making certain payments, including dividends (in each such case, our secured debt leverage ratio must also be less than 4.0 to 1.0), and from incurring indebtedness other than certain permitted indebtedness and nonrecourse indebtedness. Beginning as of October 31, 2021, as a result of our improved operating results, our fixed coverage ratio was above 2.0 to 1.0 and our secured debt leverage ratio was below 4.0 to 1.0, therefore we were no longer restricted from paying dividends. As such, we made dividend payments of $2.7 million to preferred shareholders in ~~each~~the first quarter of both fiscal 2023 and 2022. As discussed above, market conditions continue to adversely impact our business, and it is therefore likely that by the end of fiscal 2023 we will be restricted under our Debt Instruments from continuing to pay dividends on our Series A preferred stock. Dividends on the Series A preferred stock are not cumulative and, accordingly, if for any reason we do not declare a dividend on the Series A preferred stock for a quarterly dividend period (regardless of availability of funds), holders of the ~~first, second~~Series A Preferred Stock will have no right to receive a dividend for that period, and ~~third quarters of fiscal 2022.~~we will have no obligation to pay a dividend for that period.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions, may do so from time to time (for example, we redeemed $100 million aggregate principal amount of our senior secured notes during the second quarter of fiscal 2022). We also continue to actively analyze and evaluate our capital structure and explore transactions to simplify our capital structure and to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so with the right opportunity. We may also continue to make debt or equity purchases and/or exchanges ~~for debt or equity~~ from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

Any liquidity-enhancing or other capital raising or refinancing 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, even if market conditions, including then-current market available interest rates (in recent years, we have not been able to access the traditional capital and bank lending markets at competitive interest rates due to our highly leveraged capital structure), would otherwise be favorable, which could also impact our ability to grow our business.

See Note 12 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of ~~the Unsecured Term Loans, the Secured Term Loans and Secured Revolving Loans and~~ K. Hovnanian’s Credit Facilities, senior secured notes and senior notes, including information with respect to the collateral securing our secured Debt Instruments.

We have nonrecourse mortgage loans for certain communities totaling ~~$187.8~~$133.9 million and ~~$125.1~~$144.8 million (net of debt issuance costs) at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of ~~$527.6~~$416.1 million and ~~$448.5~~$418.9 million, respectively. The weighted-average interest rate on these obligations was ~~6.1%~~7.7% and ~~4.4%~~6.7% at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

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.~~ 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. The loans are secured by the mortgages held for sale and are repaid when we sell the underlying mortgage loans to permanent investors. As of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, we had an aggregate of ~~$70.7~~$58.4 million and ~~$134.9~~$94.3 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

See Note 11 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of these agreements.

On September 1, 2022, our Board of Directors terminated our prior repurchase program and authorized a new program for the repurchase of up to $50.0 million of our Class A common stock. Under the new repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

During the three months ended January 31, 2023, we repurchased 118,478 shares under the new stock repurchase program, with a market value of $4.8 million, or $40.51 per share, which were added to "Treasury stock" on our Condensed Consolidated Balance Sheets as of January 31, 2023. There were no shares repurchased during the three months ended January 31, 2022. As of January 31, 2023, $33.0 million of our Class A common stock is available to be purchased under the stock repurchase program.

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 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. During both the three months ended January 31, 2023 and 2022 we paid dividends of $2.7 million on the Series A preferred stock.

We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. Investments in and advances to unconsolidated joint ventures increased $26.1 million to $101.0 million at January 31, 2023 compared to October 31, 2022. The increase was primarily due to a new joint venture formed in the first quarter of fiscal 2023, along with income recorded from one of our existing unconsolidated joint ventures during the period. As of January 31, 2023 and October 31, 2022, we had investments in seven and six unconsolidated homebuilding joint ventures, respectively, and one unconsolidated land development joint venture for both periods. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including a voluntary bankruptcy.

Total inventory, excluding consolidated inventory not owned, ~~increased $148.8~~decreased $18.6 million ~~during the nine months ended July~~to $1.2 billion at January 31, ~~2022 from~~2023 compared to October 31, ~~2021.~~2022. Total inventory, excluding consolidated inventory not owned, ~~increased~~decreased in the Northeast by ~~$35.6~~$54.5 million, ~~in the Mid-Atlantic~~partially offset by ~~$51.5~~increases of $17.2 million in the Southeast ~~by $46.4~~and $18.7 million ~~and~~ in the ~~Southwest by $29.6 million. The increase was partially offset by decreases in the Midwest of $10.1 million and in the West of $4.2 million.~~West. The net ~~increase~~decrease was primarily attributable to home deliveries, along with inventory contributed to a new joint venture, partially offset by new land purchases and land development ~~partially offset by home deliveries~~ during the period. During the nine months ended July 31, 2022, we wrote-off costs in the amount of $1.8 million 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. There were no impairment losses during the nine months ended July 31, 2022. 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. This trend may not continue in either the near or the long term. Substantially all homes under construction or completed and included in inventory at ~~July~~January 31, ~~2022~~2023 are expected to be delivered during the next six to nine months.

Consolidated inventory not owned, ~~increased $182.2 million. Consolidated inventory not owned~~which consists of options related to land banking and model financing, ~~transactions that were added to our Condensed Consolidated Balance Sheet in accordance with US GAAP. The increase~~increased $6.4 million from October 31, ~~2021~~2022 to ~~July~~January 31, ~~2022~~2023. The increase was primarily due to an increase in land banking transactions, ~~along with an increase~~partially offset by 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 606-10-55-70, these transactions are considered a financing rather than a sale. For purposes of~~On our Condensed Consolidated Balance Sheet, at ~~July~~January 31, ~~2022,~~2023, inventory of ~~$237.1~~$267.6 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of ~~$131.3~~$160.3 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from ~~the~~land banking transactions. ~~In addition, we~~We also 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~~third-party at the end of the respective lease. As a result of our continued involvement, for accounting purposes in accordance with ASC 606-10-55-68, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes ofOn our Condensed Consolidated Balance Sheet, at ~~July~~January 31, ~~2022,~~2023, inventory of ~~$43.8~~$47.4 million was recorded to “Consolidated inventory not owned,” with a corresponding amount of ~~$47.2~~$49.3 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from ~~the~~sale and leaseback transactions.

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. 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 ~~July~~January 31, ~~2022,~~2023, we had mothballed land in two communities. The book value associated with these communities included on our Condensed Consolidated Balance Sheet in “Land and land options held for future development or sale” at ~~July~~January 31, ~~2022~~2023 was $1.4 million, which was net of impairment charges recorded in prior periods of $20.3 million. ~~We continually review communities to determine if mothballing is appropriate.~~ During the first ~~three quarters~~quarter of fiscal ~~2022,~~2023, we did not mothball any additional communities, nor did we sell or re-activate any ~~previously mothballed communities, however, we re-activated four~~ previously mothballed communities.

Inventories held for sale, which are land parcels where we have decided not to build homes and we are actively marketing the land for sale, represented $10.2 million of our total inventories held for sale at January 31, 2023, and are reported at the lower of carrying amount or fair value less costs to sell. There were no inventories held for sale at ~~both July 31, 2022 and~~ October 31, ~~2021.~~2022. 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.

The following tables summarize home sites included in our total residential real estate. The ~~increase~~decrease in total home sites available at ~~July~~January 31, ~~2022~~2023 compared to October 31, ~~2021~~2022 is attributable to ~~acquiring new land parcels, partially offset by~~ delivering homes and terminating certain option agreements during the ~~period.~~period, partially offset by acquiring new land parcels.

The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in active and substantially completed communities. The increase in unsold homes was primarily due to a conscious effort to increase our number of started unsold homes per community to provide buyers the opportunity to close quickly, so they may lock in a lower mortgage rate, thereby making our homes more affordable as mortgage rates continue to rise.

~~Investments in and advances to unconsolidated joint ventures increased $13.8~~Financial services assets decreased $43.2 million to ~~$74.7~~$112.8 million at ~~July~~January 31, ~~2022~~2023, compared to October 31, 2021. The increase was primarily due to income recorded from one of our unconsolidated joint ventures during the period, partially offset by partner distributions. As of July 31, 2022 and October 31, 2021, we had investments in seven and nine unconsolidated homebuilding joint ventures, respectively, and one unconsolidated land development joint venture for both periods. We have no guarantees associated with our unconsolidated joint ventures, other than guarantees limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including a voluntary bankruptcy.

Prepaid insurance increased for the nine months ended July 31, 2022, 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 prepaid costs are expensed as homes are delivered. The increase was primarily due to costs incurred for communities not yet open for sale. Other prepaids increased primarily due to new premiums for the renewal of certain software and related services during the period, partially offset by the amortization of these costs. Other prepaids also increased related to a new program for the bulk purchase of mortgage lock commitments to be used for qualifying homebuyers and expensed on future deliveries. Lease right of use asset represents the net present value of our operating leases which, in accordance with ASC 842, are required to be recorded as an asset on our Condensed Consolidated Balance Sheets. See Note 9 to the Condensed Consolidated Financial Statements for further information. The increase in lease right of use assets was primarily due to lease renewals, partially offset by lease payments during the period.

2022. Financial services assets consist primarily of residential ~~mortgages receivable~~mortgage receivables held for sale of which ~~$85.1~~$70.9 million and ~~$149.2~~$108.6 million at ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021,~~2022, 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, ~~2021~~2022 was primarily ~~due~~related to a decrease in the volume of loans originated during the ~~third~~first quarter of fiscal ~~2022~~2023 compared to the fourth quarter of fiscal ~~2021,~~2022, partially offset by ana slight increase in the average loan value.

~~Deferred tax assets, net, decreased $49.1 million from October 31, 2021 to July 31, 2022, due to the utilization of our deferred tax assets to offset tax expense on taxable income during the period.~~

Nonrecourse mortgages secured by inventory increased to $187.8 million at July 31, 2022 from $125.1 million at October 31, 2021. The increase was primarily due to new mortgages for communities in all of our segments obtained during the nine months ended July 31, 2022, along with additional loan borrowings on existing mortgages, partially offset by the payment of existing mortgages during the period.

The increase in accounts payable was primarily due to the increase in backlog dollars from October 31, 2021 to July 31, 2022, as homes are under construction for future delivery. Lease liability represents the net present value of our minimum lease obligations, which as discussed above, are required to be recorded on our Condensed Consolidated Balance Sheets in accordance with ASC 842. The increase corresponds to the increase in the lease right of use asset discussed above. Accrued expenses decreased primarily due to the timing of certain accruals for profit and price participation programs, along with a decrease in accrued property taxes and a decrease in an accrual for a sales reward program. The decrease in accrued compensation was primarily due to the payment of our fiscal year 2021 bonuses during the first quarter of fiscal 2022, partially offset by the accrual of fiscal 2022 bonuses in the first three quarters of fiscal 2022. Other liabilities decreased primarily due to deferred payroll tax withholdings which were paid during the period.

~~Customers’ deposits increased $31.2 million from October 31, 2021 to $99.5 million at July 31, 2022. The increase was primarily related to the increase in backlog dollars during the period.~~

Liabilities from inventory not owned increased $115.7 million from October 31, 2021 to $178.5 million at July 31, 2022. The increase was primarily due to an increase in land banking activity during the period and an increase in the sale and leaseback of certain model homes, both accounted for as financing transactions as described above.

Financial ~~Services (liabilities)~~services liabilities decreased ~~$73.6~~$44.5 million to ~~$108.6~~$91.1 million at ~~July~~January 31, ~~2022 from $182.2 million at~~2023 compared to October 31, ~~2021.~~2022. The decrease was primarily due to a decrease in amounts outstanding under our mortgage warehouse lines of credit and directly correlates to the decrease in the volume of mortgage loans held for sale during the period.

Accrued interest increased $19.4 million from $28.2 million at October 31, 2021, to $47.6 million at July 31, 2022. The increase was primarily due to timing of new accruals, partially offset by payments, related to our senior secured, senior notes and the term loan during the period.

~~RESULTS OF OPERATIONS FOR THE~~ ~~three and nine months ended July 31, 2022~~ ~~COMPARED TO THE~~ ~~three and nine months ended July 31, 2021~~

~~Compared to the same prior period, revenues increased (decreased) as follows:~~

For the three and nine months ended July 31, 2022, sale of homes revenues increased by 11.1% and 4.2%, respectively, compared to the same periods of the prior year due to a 17.8% and 19.1% increase in the average price per home, respectively, partially offset by a 5.7% and 12.5% decrease in homes delivered, respectively, for the three and nine months ended July 31, 2022, compared with the respective prior year period. The average price per home increased to $521,710 in the three months ended July 31, 2022 from $442,776 in the three months ended July 31, 2021. The average price per home increased to $501,103 in the nine months ended July 31, 2022 from $420,831 in the nine months ended July 31, 2021. The increase in average price was the result of increases in home prices in virtually all of our markets along with the geographic and community mix of our deliveries. 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 increase in land sales and other revenues, see the section titled “Land Sales and Other Revenues” below.

(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 18 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our unconsolidated joint ventures.

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:

~~(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 18 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our unconsolidated joint ventures.

In the first three quarters of fiscal 2022, our open for sale community count decreased to 108 from 124 at October 31, 2021, which was the net result of opening 35 new communities and closing 51 communities since the beginning of fiscal 2022. The decrease in open for sale communities is a result of delays in land development as a result of supply chain and other issues that initially arose during the pandemic and have persisted. We expect community count to grow during the fourth quarter of 2022. Our reported level of sales contracts (net of cancellations) we have seen through the nine months ended July 31, 2022 was impacted by a decrease in sales pace per community for the nine months ended July 31, 2022 as compared to the same period of the prior year. Net contracts per average active selling community for the three months ended July 31, 2022 decreased to 7.6 compared to 12.0 for the same period in the prior year which was during a peak in sales pace during the pandemic. Net contracts per average active selling community for the nine months ended July 31, 2022 decreased to 34.9 compared to 44.9 for the same period in the prior year which was during a peak in sales pace during the pandemic.

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:

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

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, with fiscal 2021 and the first half of fiscal 2022 cancellation rates, in particular, being below historical norms as a result of the strong market conditions. Fiscal 2020 had varying cancellation rates due to the COVID-19 pandemic and its effects. During the third quarter of fiscal 2022, due to the sharp decline in gross sales, our cancellation rate as a percentage of gross sales increased significantly to 27%, which is higher than our historical normal range. However, due to our strong backlog position, our cancellation rate as a percentage of beginning backlog decreased slightly from the prior quarter to 8%, which is below our historical normal range. Market conditions remain 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.

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

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 23.1% during the three months ended July 31, 2022 compared to 19.2% for the same period last year. Homebuilding gross margin percentage, before cost of sales interest expense and land charges, increased from 22.1% for the three months ended July 31, 2021 to 26.3% for the three months ended July 31, 2022. Total homebuilding gross margin percentage increased to 22.3% during the nine months ended July 31, 2022 compared to 18.3% for the same period last year. Homebuilding gross margin percentage, before cost of sales interest expense and land charges, increased from 21.4% for the nine months ended July 31, 2021 to 25.3% for the nine months ended July 31, 2022. The increases for the three and nine months ended July 31, 2022 for both gross margin percentage and gross margin percentage, before cost of sales interest expense and land charges, were primarily due to increases in home prices across virtually all our operating segments, along with the mix of communities delivering compared to the prior year periods.

Reflected as inventory impairment loss and land option write-offs in cost of sales, we wrote-off or wrote-down certain inventories totaling $1.1 million and $1.3 million during the three months ended July 31, 2022 and 2021, respectively, and $1.8 million and $3.3 million during the nine months ended July 31, 2022 and 2021, respectively, to their estimated fair value. During the three and nine months ended July 31, 2022, we wrote-off residential land options and approval and engineering costs amounting to $1.1 million and $1.8 million, respectively, compared to $0.1 million and $1.3 million for the three and nine months ended July 31, 2021, respectively, which are included in the total land charges discussed above. 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 when we believe it is probable we will cancel the option or when a community is redesigned engineering costs related to the initial design are written-off. Such write-offs were located in all the segments in the first three quarters of fiscal 2022 and in the Mid-Atlantic, Southeast, Southwest and West segments in the first three quarters of fiscal 2021. There were no inventory impairments during the three and nine months ended July 31, 2022. We recorded inventory impairments of $1.2 million and $2.0 million during the three and nine months ended July 31, 2021, respectively, which were related to two communities in the Southeast segment for the three and nine months ended July 31, 2021, and one community in the West segment for the nine months ended July 31, 2021. It is difficult to predict impairment levels, and should it become necessary or desirable to have additional land sales, 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 consist primarily of land and lot sales. A breakout of land and lot sales is set forth below:~~

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 one and two land sales in the three months ended July 31, 2022 and 2021, respectively, resulting in an increase of $9.0 million in land sales revenues. There were four and eight land sales in the nine months ended July 31, 2022 and 2021, respectively, resulting in an increase of $4.5 million in land sales revenues. During the third quarter of fiscal 2022, we had a more significant land sale in the Northeast segment causing the increase in land sales revenue for both the three and nine months ended July 31, 2022.

Land sales and other revenues increased $8.8 million and $4.8 million for the three and nine months ended July 31, 2022 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. The increase for the three and nine months ended July 31, 2022, compared to the three and nine months ended July 31, 2021, was mainly due to the increase in land sales discussed above.

Homebuilding selling, general and administrative (“SGA”) expenses increased $7.2 million and $14.0 million for the three and nine months ended July 31, 2022, respectively, compared to the same period last year. The increase for the three and nine months ended July 31, 2022 was due to an increase in total compensation expense as a result of an increase in headcount and bonuses related to market conditions and company performance and an increase in insurance costs as a result of an increase in premiums to obtain insurance during fiscal 2022. Also impacting the increase in the three months ended July 31, 2022 was a decrease of unconsolidated joint venture management fees received, which offset general and administrative expenses, as a result of fewer unconsolidated joint venture deliveries during the respective periods, while the same remained flat for the nine months ended July 31, 2022 compared to same period in the prior year. SGA expenses as a percentage of homebuilding revenues increased to 6.7% and 7.0% for the three and nine months ended July 31, 2022 compared to 6.4% and 6.6% for the three and nine months ended July 31, 2021, respectively, as a result of the increase in expense for the current periods compared to the prior year periods.

~~Northeast -~~ Homebuilding revenues increased 115.7% for the three months ended July 31, 2022 compared to the same period of the prior year. The increase for the three months ended July 31, 2022 was attributed to a $15.8 million increase in land sales and other revenue and a 77.3% increase in homes delivered, partially offset by a 3.6% decrease in average sales price. The decrease 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 July 31, 2022 compared to some communities delivering in the three months ended July 31, 2021 that had smaller single family homes in mid to higher-end submarkets of the segment with higher location premiums that are no longer delivering.

Income before income taxes increased $13.4 million to $20.2 million for the three months ended July 31, 2022 as compared to the prior year period. This was primarily due to the increase in homebuilding revenue discussed above, partially offset by a decrease in gross margin percentage before interest expense for the period compared to the same period of the prior year.

Homebuilding revenues increased 55.4% for the nine months ended July 31, 2022 compared to the same period of the prior year. The increase for the nine months ended July 31, 2022 was attributed to a $13.5 million increase in land sales and other revenue, a 32.4% increase in homes delivered and a 7.7% increase in average sales price. 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 nine months ended July 31, 2022 compared to some communities delivering in the nine months ended July 31, 2021 that had smaller single family homes, townhomes and affordable-housing homes in mid to higher-end submarkets of the segment that are no longer delivering. Also impacting the increase in average sales price was price increases in certain communities.

Income before income taxes increased $14.6 million to $31.1 million for the nine months ended July 31, 2022 as compared to the prior year period. This was primarily due to the increase in homebuilding revenue discussed above, partially offset by a decrease in gross margin percentage before interest expense for the period compared to the same period of the prior year.

~~Mid-Atlantic~~ - Homebuilding revenues increased 58.0% for the three months ended July 31, 2022 compared to the same period in the prior year period. The increase was primarily due to a 19.2% increase in average sales price and a 32.8% increase in homes delivered for the three months ended July 31, 2022 compared to the same period in the prior year. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes increased $21.8 million to $37.8 million for the three months ended July 31, 2022 compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, a $4.1 million increase in income from unconsolidated joint ventures and an increase in gross margin percentage before interest expense for the three months ended July 31, 2022 compared to the same period of the prior year.

Homebuilding revenues increased 27.3% for the nine months ended July 31, 2022 compared to the same period in the prior year period. The increase was primarily due to a 21.2% increase in average sales price and a 5.0% increase in homes delivered for the nine months ended July 31, 2022 compared to the same period in the prior year. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes increased $43.8 million to $82.4 million for the nine months ended July 31, 2022 compared to the same period in the prior year. This was primarily due to the increase in homebuilding revenue discussed above, a $7.7 million increase in income from unconsolidated joint ventures and an increase in gross margin percentage before interest expense for the nine months ended July 31, 2022 compared to the same period of the prior year.

~~Midwest~~ - Homebuilding revenues increased 1.2% for the three months ended July 31, 2022 compared to the same period in the prior year. The increase was due to a 15.9% increase in average sales price, partially offset by a 12.6% decrease in homes delivered for the three months ended July 31, 2022. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes decreased $1.3 million to $2.0 million for the three months ended July 31, 2022 compared to the same period in the prior year. The decrease was primarily due to a $0.4 million increase in selling, general and administrative costs and a decrease in gross margin percentage before interest expense for the period compared to the same period of the prior year.

Homebuilding revenues decreased 5.8% for the nine months ended July 31, 2022 compared to the same period in the prior year. The decrease was due to a $2.5 million decrease in land sales and other revenue, a 16.1% decrease in homes delivered, partially offset by a 13.9% increase in average sales price for the nine months ended July 31, 2022. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes decreased $6.8 million to $4.3 million for the nine months ended July 31, 2022 compared to the same period in the prior year. The decrease was primarily due to the decrease in homebuilding revenue discussed above, a $2.0 million increase in selling, general and administrative costs and a decrease in gross margin percentage before interest expense for the period compared to the same period of the prior year.

~~Southeast~~ – Homebuilding revenues increased 3.9% for the three months ended July 31, 2022 compared to the same period in the prior year. The increase was due to a 6.5% increase in homes delivered and an 8.3% increase in average sales price, partially offset by a $6.8 million decrease in land sales and other revenue for the three months ended July 31, 2022 compared to the same period of the prior year. The increase in average price was mainly the result of price increases in certain communities.

Income before income taxes increased $12.6 million to $15.3 million for the three months ended July 31, 2022 compared to the prior year period, primarily due to the increase in homebuilding revenue discussed above, a $6.1 million increase in income from unconsolidated joint ventures and an increase in gross margin percentage before interest expense for the period compared to the same period of the prior year.

Homebuilding revenues increased 2.5% for the nine months ended July 31, 2022 compared to the same period in the prior year. The increase was due to a 7.8% increase in average sales price, partially offset by a 1.5% decrease in homes delivered and a $6.8 million decrease in land sales and other revenue. The increase in average sales price was the result of new communities delivering higher priced, larger single family homes in higher-end submarkets of the segment in the nine months ended July 31, 2022 compared to some communities delivering in the nine months ended July 31, 2021 that had lower priced, smaller single family homes in higher-end submarkets of the segment that are no longer delivering. Also impacting the increase in the average sales price was price increases in certain communities.

Income before income taxes increased $26.6 million to $36.2 million for the nine months ended July 31, 2022 compared to the prior year period, primarily due to the increase in homebuilding revenue discussed above, a $10.7 million increase in income from unconsolidated joint ventures and an increase in gross margin percentage before interest expense for the period compared to the same period of the prior year.

~~Southwest~~ - Homebuilding revenues increased 25.0% for the three months ended July 31, 2022 compared to the same period in the prior year. The increase was primarily due to a 25.7% increase in average sales price, partially offset by a 0.5% decrease in homes delivered for the three months ended July 31, 2022 compared to the same period in the prior year. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes increased $14.2 million to $42.7 million for the three months ended July 31, 2022 compared to the same period in the prior year. The increase was primarily due to the increase in homebuilding revenues discussed above and an increase in gross margin percentage before interest expense for the three months ended July 31, 2022 compared to the same period of the prior year.

Homebuilding revenues increased 11.6% for the nine months ended July 31, 2022 compared to the same period in the prior year. The increase was primarily due to a 22.8% increase in average sales price, partially offset by a 9.1% decrease in homes delivered for the nine months ended July 31, 2022 compared to the same period in the prior year. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes increased $20.5 million to $99.4 million for the nine months ended July 31, 2022 compared to the same period in the prior year. The increase was primarily due to the increase in homebuilding revenues discussed above and an increase in gross margin percentage before interest expense for the nine months ended July 31, 2022 compared to the same period of the prior year.

~~West~~ – Homebuilding revenues decreased 41.3% for the three months ended July 31, 2022 compared to the same period in the prior year. The decrease was due to a 47.8% decrease in homes delivered, partially offset by a 12.4% increase in average sales price. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes decreased $8.0 million to $19.2 million for the three months ended July 31, 2022 compared to the prior year period. The decrease is primarily due to the decrease in homebuilding revenues discussed above and a $2.2 million increase in selling, general and administrative costs, partially offset by an increase in gross margin percentage before interest expense for the period compared to the same period of the prior year.

Homebuilding revenues decreased 24.3% for the nine months ended July 31, 2022 compared to the same period in the prior year. The decrease was due to a 37.6% decrease in homes delivered, partially offset by a 21.3% increase in average sales price. The increase in average sales price was mainly the result of price increases in certain communities.

Income before income taxes increased $11.3 million to $70.0 million for the nine months ended July 31, 2022 compared to the prior year period. The increase is primarily due to a $1.3 million decrease in inventory impairment loss and land option write-offs and an increase in gross margin percentage before interest expense for the period compared to the same period of the prior year.

Financial services consist primarily of originating mortgages from our home buyers, 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 three quarters of fiscal 2022 and 2021, Federal Housing Administration and Veterans Administration (“FHA/VA”) loans represented 24.0% and 29.6%, respectively, of our total loans. The origination of FHA/VA loans decreased from the first three quarters of fiscal 2021 to the first three quarters of fiscal 2022, and our conforming conventional loan originations as a percentage of our total loans increased from 69.7% to 75.2% for this period, respectively. The origination of loans which exceed conforming conventions was relatively flat at 0.8% for the first three quarters of fiscal 2021 compared to fiscal 2022. 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.

During the three and nine months ended July 31, 2022, financial services provided a $3.7 million and $11.6 million pretax profit, respectively, compared to $8.6 million and $28.1 million, respectively, of pretax profit for the same periods of fiscal 2021. The decrease in pretax profit was attributed to the decrease in the homebuilding deliveries and a decrease in the basis point spread between the loans originated and the implied rate from the sale of the loans. In the market areas served by our wholly owned mortgage banking subsidiaries, 52.5% and 65.6% of our noncash homebuyers obtained mortgages originated by these subsidiaries during the three months ended July 31, 2022 and 2021, respectively, and 59.0% and 68.6% of our noncash homebuyers obtained mortgages originated by these subsidiaries during the nine months ended July 31, 2022 and 2021, respectively.

Corporate general and administrative expenses include the operations at our headquarters in New Jersey. These expenses include payroll, stock compensation, facility costs and rent and other costs associated with our executive offices, legal expenses, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, national and digital marketing, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses increased to $24.8 million for the three months ended July 31, 2022 compared to $17.3 million for the three months ended July 31, 2021 and decreased to $75.9 million for the nine months ended July 31, 2022 compared to $81.1 million for the nine months ended July 31, 2021. The increase for the three months ended July 31, 2022 compared to the same period in the prior fiscal year was primarily due to increased compensation and bonuses related to market conditions and company performance. The decrease for the nine months ended July 31, 2022 compared to the same period in the prior fiscal year was primarily due to decreases in compensation expense, mainly related to the grants of phantom stock awards under our 2019 LTIP, for which expense is impacted by the change in our stock price each period. The expense decreased as a result of the significant decrease in our stock price during the third quarter of fiscal 2022, versus a significant increase in stock price during the same period of the prior year.

Other interest decreased $9.5 million for the three months ended July 31, 2022 compared to the three months ended July 31, 2021 and decreased $29.7 million for the nine months ended July 31, 2022 compared to the nine months ended July 31, 2021. Our assets that qualify for interest capitalization (inventory under development) are less than our debt, and therefore the portion of interest not covered by qualifying assets is directly expensed. Other interest decreased because we incurred less interest and had less debt in excess of inventory as a result of the reduction of our debt and increase in our qualifying assets during fiscal 2021 and 2022.

Income from unconsolidated joint ventures consists of our share of the earnings or losses of our unconsolidated joint ventures. Income from unconsolidated joint ventures increased $7.5 million to $12.6 million for the three months ended July 31, 2022 and increased $14.4 million to $23.9 million for the nine months ended July 31, 2022 compared to the same respective periods of the prior year. The increase was primarily due to the recognition of our share of income from two of our unconsolidated joint ventures during the three and nine months ended July 31, 2022 based on the joint venture partner achieving certain return hurdles, in compliance with the joint venture agreement, and as a result, the Company was able to recognize a higher share of the unconsolidated joint venture’s profit.

On April 29, 2022, K. Hovnanian redeemed $100.0 million aggregate principal amount of its 7.75% Senior Secured 1.125 Lien Notes due 2026. The aggregate purchase price for this redemption was $105.5 million, which included accrued and unpaid interest and which was funded with cash on hand. This redemption resulted in a loss on extinguishment of debt of $6.8 million for the nine months ended July 31, 2022, net of the write-off of unamortized financing costs and fees. The loss from the redemption is included in the Condensed Consolidated Statement of Operations as "Loss on extinguishment of debt".

The total income tax expense for the three and nine months ended July 31, 2022 was $29.3 million and $58.4 million, respectively. The expense was primarily due to federal and state tax expense recorded as a result of our pretax income. The federal tax expense is not paid in cash as it is offset by the use of our existing NOL carryforwards. The total income tax expense for the three months ended July 31, 2021 was $14.1 million. The federal tax expense was primarily related to pretax income generated during the quarter and state tax expense from income generated in states where we do not have net operating loss carryforwards to offset the current year income. The total benefit for the nine months ended July 31, 2021 was $442.9 million. The benefit was primarily due to the reversal of a substantial portion of our valuation allowance previously recorded against our deferred tax assets.

The annual rate of inflation in the United States hit ~~8.5%~~6.4% in ~~July 2022,~~January 2023, nearly the highest in more than three decades, as measured by the Consumer Price ~~Index (CPI).~~Index. Inflation has a long-term effect, because ~~increasing~~higher costs offor land, materials and labor ~~result~~results in increasing ~~sale~~sales prices of our homes. Historically, 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~~could 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~~12 months. Construction costs for residential buildings represented approximately ~~56.9%~~57.7% of our homebuilding cost of sales for the ~~nine~~three months ended ~~July~~January 31, ~~2022.~~2023.

For the first quarter of fiscal 2023, elevated inflation continues to create economic uncertainty and have an impact on interest rates, which in turn adversely impacted our home sales.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, our most critical accounting policies relate to inventories, unconsolidated joint ventures, warranty and construction defect reserves and income taxes. Since October 31, 2022, there have been no significant changes to those critical accounting policies.

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:

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, ~~2021.~~2022. 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.

~~A primary market risk facing us is interest rate risk on~~Substantially all of our long-term debt ~~including debt instruments at~~requires fixed interest payments and we have limited exposure to 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.~~significant. 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 ~~July~~January 31, ~~2022,~~2023, our long-term debt obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair value (“FV”).

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 ~~July~~January 31, ~~2022.~~2023. 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 ~~July~~January 31, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

~~No shares of our Class A Common Stock or Class B Common Stock were purchased~~The table below sets forth information regarding repurchases by ~~or on behalf of~~ the Company ~~or any affiliated purchaser~~of its common stock during the ~~fiscal third quarter of 2022.~~periods indicated:

(1) On September 1, 2022, ~~our~~the Board ~~of Directors~~ terminated our prior repurchase program and authorized a new program for the repurchase of up to $50.0 million of our Class A common stock. Under the new repurchase program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual dollar ~~amounts~~amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.

Certain debt agreements to which we are a party contain restrictions on the payment of cash dividends. However, beginning as of October 31, 2021, as a result of our improved operating results, we were no longer restricted from paying dividends. During each of the first, second and third quarters of fiscal 2022, we paid a dividend in the amount of $2.7 million on the Series A Preferred Stock.

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.

INDEX	PAGE NUMBER

PART I. Financial Information
Item l. Financial Statements:

Condensed Consolidated Balance Sheets (unaudited) as of ~~July~~January 31, ~~2022~~2023 and October 31, ~~2021~~2022	3

Condensed Consolidated Statements of Operations (unaudited) for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022	4

Condensed Consolidated Statements of Changes in Equity ~~(Deficit)~~ (unaudited) for the three ~~and nine~~ months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022	5

Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~July~~January 31, ~~2022~~2023 and ~~2021~~2022	7

Notes to Condensed Consolidated Financial Statements (unaudited)	98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3227

Item 3. Quantitative and Qualitative Disclosures About Market Risk	5541

Item 4. Controls and Procedures	5541

PART II. Other Information
Item 1. Legal Proceedings	5642

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5642

Item 6. Exhibits	5743

Signatures	5945

	Three Months Ended				Nine Months Ended				Three Months Ended
	July 31,				July 31,				January 31,
(In thousands)	2022		2021		2022		2021		2023			2022
Interest capitalized at beginning of period	$	63,573	$	59,772	$	58,159	$	65,010	$	59,600		$	58,159
Plus interest incurred(1)		32,644		39,181		99,299		122,508		34,326			32,783
Less cost of sales interest expensed		22,453		19,240		57,876		58,130		(15,022	)		(13,745	)
Less other interest expensed(2)(3)		9,624		19,158		35,442		65,166		(15,093	)		(13,393	)
Less interest contributed to unconsolidated joint venture(4)		-		-		-		3,667		(3,016	)		-
Plus interest acquired from unconsolidated joint venture(5)		-		3,118		-		3,118
Interest capitalized at end of period(6)	$	64,140	$	63,673	$	64,140	$	63,673
Interest capitalized at end of period(5)									$	60,795		$	63,804

(4)	Represents capitalized interest which was included as part of the assets contributed to joint ventures, as discussed in Note 18. There was no impact to the Condensed Consolidated Statement of Operations as a result of these transactions.
(5)	~~Represents capitalized interest which was included as part of the assets purchased from joint ventures, as discussed in Note~~ ~~18.~~ ~~There was~~ no ~~impact to the Condensed Consolidated Statement of Operations as a result of these transactions.~~
(6)	Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

	Three Months Ended						Nine Months Ended						Three Months Ended
	July 31,						July 31,						January 31,
(In thousands)	2022			2021			2022			2021			2023			2022

Balance, beginning of period	$	91,464		$	90,025		$	94,916		$	86,417		$	97,718		$	94,916
Additions – Selling, general and administrative		1,995			2,047			6,337			6,504			1,577			2,216
Additions – Cost of sales		3,990			6,058			7,083			10,059			1,303			1,424
Charges incurred during the period		(3,047	)		(3,513	)		(12,984	)		(10,249	)		(8,802	)		(4,154	)
Changes to pre-existing reserves		(94	)		789			(1,044	)		2,675			(729	)		(1,049	)
Balance, end of period	$	94,308		$	95,406		$	94,308		$	95,406		$	91,067		$	93,353

	*Three Months Ended*				*Nine Months Ended*				Three Months Ended January 31,
(In thousands)	*July 31, 2022*		*July 31, 2021*		*July 31, 2022*		*July 31, 2021*		2023		2022
Operating lease cost	$	2,528	$	2,760	$	7,793	$	7,970
Operating lease costs									$	2,859	$	2,588
Cash payments on lease liabilities	$	2,432	$	2,483	$	7,086	$	7,171	$	2,386	$	2,440

(In thousands)	*At July 31, 2022*			*At October 31, 2021*			January 31, 2023			October 31, 2022
ROU assets	$	18,898		$	17,844		$	17,650		$	17,899
Lease liabilities	$	19,940		$	18,952		$	18,498		$	18,862
Weighted-average remaining lease term (in years)		3.5			3.1			3.4			3.5
Weighted-average discount rate (incremental borrowing rate)		9.5	%		9.4	%
Weighted-average discount rate								9.5	%		9.5	%

Year ending October 31,	*(in thousands)*
2022 (excluding the nine months ended July 31, 2022)	$	2,417
2023		8,146
Fiscal Year Ended October 31,				(In thousands)
2023 (excluding the three months ended January 31, 2023)				$	6,321
2024		5,494			5,779
2025		4,404			4,653
2026		2,758			3,111
2027		1,396			1,863
Total payments		24,615
Total operating lease payments (1)					21,727
Less: imputed interest		(4,675	)		(3,229	)
Present value of lease liabilities	$	19,940
Present value of operating lease liabilities				$	18,498

	*July 31,*			*October 31,*			January 31,			October 31,
(In thousands)	*2022*			*2021*			*2023*			*2022*
Senior Secured Notes:
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025	$	158,502		$	158,502
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026		250,000			350,000
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026		282,322			282,322
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026		162,269			162,269
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025							$	158,502		$	158,502
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026								250,000			250,000
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026								282,322			282,322
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026								162,269			162,269
Total Senior Secured Notes	$	853,093		$	953,093		$	853,093		$	853,093
Senior Notes:
8.0% Senior Notes due November 1, 2027 (1)	$	-		$	-
13.5% Senior Notes due February 1, 2026		90,590			90,590
5.0% Senior Notes due February 1, 2040		90,120			90,120
8.0% Senior Notes due November 1, 2027 (1)							$	-		$	-
13.5% Senior Notes due February 1, 2026								90,590			90,590
5.0% Senior Notes due February 1, 2040								90,120			90,120
Total Senior Notes	$	180,710		$	180,710		$	180,710		$	180,710
Senior Unsecured Term Loan Credit Facility due February 1, 2027	$	39,551		$	39,551		$	39,551		$	39,551
Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028	$	81,498		$	81,498		$	81,498		$	81,498
Senior Secured Revolving Credit Facility (2)	$	-		$	-		$	-		$	-
Subtotal notes payable	$	1,154,852		$	1,254,852
Subtotal senior notes and credit facilities							$	1,154,852		$	1,154,852
Net (discounts) premiums	$	6,266		$	10,769		$	1,930		$	4,079
Net debt issuance costs	$	(13,246	)	$	(17,248	)
Total notes payable, net of discounts, premiums and debt issuance costs	$	1,147,872		$	1,248,373
Unamortized debt issuance costs							$	(11,521	)	$	(12,384	)
Total senior notes and credit facilities, net of discounts, premiums and unamortized debt issuance costs							$	1,145,261		$	1,146,547

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

(Dollars in thousands)	July 31, 2022
(In thousands)										January 31, 2023
				Land									Land
	Homebuilding			Development			Total			Homebuilding			Development			Total
Assets:
Cash and cash equivalents	$	142,058		$	1,104		$	143,162		$	132,931		$	859		$	133,790
Inventories		459,356			-			459,356			501,596			-			501,596
Other assets		28,809			-			28,809			25,388			-			25,388
Total assets	$	630,223		$	1,104		$	631,327		$	659,915		$	859		$	660,774

Liabilities and equity:
Accounts payable and accrued liabilities	$	465,579		$	884			466,463		$	479,122		$	642		$	479,764
Notes payable		44,380			-			44,380			58,767			-			58,767
Total liabilities		509,959			884			510,843			537,889			642			538,531
Equity of:
Hovnanian Enterprises, Inc.		72,737			211			72,948			97,047			209			97,256
Others		47,527			9			47,536			24,979			8			24,987
Total equity		120,264			220			120,484			122,026			217			122,243
Total liabilities and equity	$	630,223		$	1,104		$	631,327		$	659,915		$	859		$	660,774
Debt to capitalization ratio		27	%		0	%		27	%		33	%		0	%		32	%

(Dollars in thousands)	October 31, 2021
(In thousands)										October 31, 2022
				Land									Land
	Homebuilding			Development			Total			Homebuilding			Development			Total
Assets:
Cash and cash equivalents	$	132,963		$	1,972		$	134,935		$	153,176		$	868		$	154,044
Inventories		442,347			-			442,347			441,140			-			441,140
Other assets		34,551			-			34,551			20,037			-			20,037
Total assets	$	609,861		$	1,972		$	611,833		$	614,353		$	868		$	615,221

Liabilities and equity:
Accounts payable and accrued liabilities	$	386,117		$	1,681		$	387,798		$	471,813		$	651		$	472,464
Notes payable		73,994			-			73,994			34,880			-			34,880
Total liabilities		460,111			1,681			461,792			506,693			651			507,344
Equity of:
Hovnanian Enterprises, Inc.		58,460			254			58,714			73,142			209			73,351
Others		91,290			37			91,327			34,518			8			34,526
Total equity		149,750			291			150,041			107,660			217			107,877
Total liabilities and equity	$	609,861		$	1,972		$	611,833		$	614,353		$	868		$	615,221
Debt to capitalization ratio		33	%		0	%		33	%		24	%		0	%		24	%

	Three Months Ended July 31, 2022									Three Months Ended January 31, 2023
(In thousands)				Land									Land
	Homebuilding			Development			Total			Homebuilding			Development		Total

Revenues	$	80,745		$	-		$	80,745		$	79,601		$	-	$	79,601
Cost of sales and expenses		(74,303	)		(3	)		(74,306	)		(76,885	)		-		(76,885	)
Joint venture net income (loss)	$	6,442		$	(3	)	$	6,439
Our share of net income (loss)	$	12,570		$	(13	)	$	12,557
Joint venture net income										$	2,716		$	-	$	2,716
Our share of net income										$	7,160		$	-	$	7,160

	Three Months Ended July 31, 2021
(In thousands)				Land
	Homebuilding			Development			Total

Revenues	$	102,576		$	-		$	102,576
Cost of sales and expenses		(96,622	)		(31	)		(96,653	)
Joint venture net income (loss)	$	5,954		$	(31	)	$	5,923
Our share of net income	$	5,012		$	-		$	5,012

	Nine Months Ended July 31, 2022
(In thousands)				Land
	Homebuilding			Development			Total

Revenues	$	237,732		$	113		$	237,845
Cost of sales and expenses		(218,171	)		(34	)		(218,205	)
Joint venture net income	$	19,561		$	79		$	19,640
Our share of net income	$	23,887		$	32		$	23,919

	Nine Months Ended July 31, 2021
(In thousands)				Land
	Homebuilding			Development			Total

Revenues	$	265,566		$	691		$	266,257
Cost of sales and expenses		(255,591	)		(208	)		(255,799	)
Joint venture net income	$	9,975		$	483		$	10,458
Our share of net income	$	9,560		$	208		$	9,768

	Three Months Ended January 31, 2022
(In thousands)				Land
	Homebuilding			Development			Total

Revenues	$	69,591		$	113		$	69,704
Cost of sales and expenses		(65,582	)		(26	)		(65,608	)
Joint venture net income	$	4,009		$	87		$	4,096
Our share of net income	$	8,147		$	45		$	8,192

		Fair Value at			Fair Value at				Fair Value at			Fair Value at
	Fair Value	July 31,			October 31,			Fair Value	January 31,			October 31,
(In thousands)	Hierarchy	2022			2021			Hierarchy	2023			2022

Mortgage loans held for sale (1)	Level 2	$	87,795		$	151,059		Level 2	$	74,891		$	110,548
Forward contracts	Level 2		(287	)		(107	)	Level 2		(37	)		752
Total	Total	$	87,508		$	150,952		Total	$	74,854		$	111,300
Interest rate lock commitments	Level 3		78			152		Level 3		-			-
Total	Total	$	87,586		$	151,104		Total	$	74,854		$	111,300

	Three Months Ended July 31, 2022							Three Months Ended January 31, 2023
	Mortgage		Interest Rate					Mortgage		Interest Rate
	Loans Held		Lock		Forward			Loans Held		Lock		Forward
(In thousands)	For Sale		Commitments		Contracts			For Sale		Commitments		Contracts


Fair value included in net income all reflected in financial services revenues	$	36	$	364	$	(781	)
Change in fair value included in financial services revenue								$	421	$	-	$	(37	)

		Three Months Ended
		July 31, 2021
		Pre-
	Fair Value	Impairment
(In thousands)	Hierarchy	Amount		Total Losses			Fair Value

Sold and unsold homes and lots under development	Level 3	$	9,236	$	(1,166	)	$	8,070
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

		Nine Months Ended
		July 31, 2021
		Pre-
	Fair Value	Impairment
(In thousands)	Hierarchy	Amount		Total Losses			Fair Value

Sold and unsold homes and lots under development	Level 3	$	11,522	$	(2,009	)	$	9,513
Land and land options held for future development or sale	Level 3	$	-	$	-		$	-

(In thousands)	*Level 1*		*Level 2*		*Level 3*		*Total*		*Level 1*		*Level 2*		*Level 3*		*Total*
Senior Secured Notes:
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025		-		-		167,410		167,410
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026		-		-		243,675		243,675
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026		-		-		277,292		277,292
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026		-		-		164,865		164,865
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025										-		164,842		-		164,842
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026										-		243,308		-		243,308
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026										-		284,665		-		284,665
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026										-		-		158,955		158,955
Senior Notes:
13.5% Senior Notes due February 1, 2026		-		-		96,600		96,600
5.0% Senior Notes due February 1, 2040		-		48,214		-		48,214
13.5% Senior Notes due February 1, 2026										-		-		96,523		96,523
5.0% Senior Notes due February 1, 2040										-		-		45,881		45,881
Senior Credit Facilities:
Senior Unsecured Term Loan Credit Facility due February 1, 2027		-		-		32,131		32,131		-		-		33,436		33,436
Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028		-		-		86,062		86,062		-		-		84,106		84,106
Total fair value	$	-	$	48,214	$	1,068,035	$	1,116,249	$	-	$	692,815	$	418,901	$	1,111,716

	Three Months Ended January 31,
(Dollars in thousands, except average sales price)	2023		2022		% Change

Consolidated total:
Housing revenues	$	499,645	$	551,366		(9.4	)%
Homes delivered		938		1,174		(20.1	)%
Average sales price	$	532,671	$	469,647		13.4	%

Unconsolidated joint ventures (1)
Housing revenues	$	78,670	$	63,620		23.7	%
Homes delivered		107		109		(1.8	)%
Average sales price	$	735,234	$	583,670		26.0	%

Quarter	2023		2022			2021			2020			2019

First	30	%	14		%	17		%	19		%	24		%
Second				17	%		16	%		23	%		19	%
Third				27	%		16	%		18	%		19	%
Fourth				41	%		15	%		18	%		21	%

	Net Contracts for the
	Three Months Ended				Contract Backlog as of
	January 31,				January 31,
(Dollars in thousands)	2023		2022		2023		2022

Northeast:
Dollars	$	185,850	$	261,577	$	432,508	$	761,929
Number of homes		311		468		782		1,395

Southeast:
Dollars	$	82,191	$	126,454	$	319,344	$	292,384
Number of homes		164	$	228		525		545

West:
Dollars	$	147,087	$	410,231	$	425,669	$	831,289
Number of homes		313		855		721		1,684

Total:
Dollars	$	415,128	$	798,262	$	1,177,521	$	1,885,602
Number of homes		788		1,551		2,028		3,624

	July 31,			October 31,
(In thousands)	2022			2021
Senior Secured Notes:
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025	$	158,502		$	158,502
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026		250,000			350,000
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026		282,322			282,322
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026		162,269			162,269
Total Senior Secured Notes	$	853,093		$	953,093
Senior Notes:
8.0% Senior Notes due November 1, 2027 (1)	$	-		$	-
13.5% Senior Notes due February 1, 2026		90,590			90,590
5.0% Senior Notes due February 1, 2040		90,120			90,120
Total Senior Notes	$	180,710		$	180,710
Senior Unsecured Term Loan Credit Facility due February 1, 2027	$	39,551		$	39,551
Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028	$	81,498		$	81,498
Senior Secured Revolving Credit Facility (2)	$	-		$	-
Subtotal notes payable	$	1,154,852		$	1,254,852
Net (discounts) premiums	$	6,266		$	10,769
Net debt issuance costs	$	(13,246	)	$	(17,248	)
Total notes payable, net of discounts, premiums and debt issuance costs	$	1,147,872		$	1,248,373

			Active		Proposed						Active		Proposed
	Active		Communities		Developable		Total		Active		Communities		Developable		Total
	Communities(1)		Homes		Homes		Homes		Communities(1)		Homes		Homes		Homes
July 31, 2022:
January 31, 2023:

Northeast		4		704		3,187		3,891		33		3,928		10,269		14,197
Mid-Atlantic		19		2,013		6,591		8,604
Midwest		6		975		1,615		2,590
Southeast		19		2,141		1,320		3,461		21		1,776		1,873		3,649
Southwest		44		5,208		4,714		9,922
West		16		2,330		1,499		3,829		67		6,570		4,956		11,526

Consolidated total		108		13,371		18,926		32,297		121		12,274		17,098		29,372

Unconsolidated joint ventures (2)		17		3,535		-		3,535		12		3,680		236		3,916

Owned				7,375		2,708		10,083				6,153		2,181		8,334
Optioned				5,612		16,218		21,830				5,872		14,917		20,789

Controlled lots				12,987		18,926		31,913

Construction to permanent financing lots				384		-		384				249		-		249

Consolidated total				13,371		18,926		32,297				12,274		17,098		29,372

	(1)	Active communities are open for sale communities with ten or more home sites available. We identify communities based on product type. Therefore, at times there are multiple communities at one land site.

	(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 18 to the Condensed Consolidated Financial Statements for a further discussion of our unconsolidated joint ventures.

	July 31, 2022						October 31, 2021:						January 31, 2023						October 31, 2022:

	Unsold						Unsold						Unsold						Unsold
	Homes		Models		Total		Homes		Models		Total		Homes		Models		Total		Homes		Models		Total

Northeast		14		7		21		8		10		18		76		36		112		92		32		124
Mid-Atlantic		38		20		58		26		22		48
Midwest		14		2		16		8		9		17
Southeast		47		6		53		24		22		46		71		5		76		72		5		77
Southwest		172		13		185		114		29		143
West		65		14		79		7		12		19		521		22		543		516		22		538

Total		350		62		412		187		104		291		668		63		731		680		59		739


Started or completed unsold homes and models per active selling communities (1)		3.2		0.6		3.8		1.5		0.8		2.3		5.5		0.5		6.0		5.6		0.5		6.1

	July 31,		October 31,		Dollar
(In thousands)	2022		2021		Change

Prepaid insurance	$	4,272	$	2,577	$	1,695
Prepaid project costs		29,321		25,880		3,441
Other prepaids		11,349		9,140		2,209
Other assets		506		745		(239	)
Lease right of use asset		18,898		17,844		1,054
Total	$	64,346	$	56,186	$	8,160

	Nine Months Ended

	July 31,		July 31,		Dollar			Percentage
(Dollars in thousands)	2022		2021		Change			Change
Homebuilding:
Sale of homes	$	1,973,843	$	1,894,159	$	79,684			4.2	%
Land sales and other revenues		18,052		13,280		4,772			35.9	%
Financial services		43,548		61,070		(17,522	)		(28.7	)%

Total revenues	$	2,035,443	$	1,968,509	$	66,934			3.4	%

	Three Months Ended July 31,							Nine Months Ended July 31,
(Dollars in thousands)	2022		2021		% Change			2022		2021		% Change

Northeast:
Dollars	$	60,266	$	35,255		70.9	%	$	135,671	$	95,157		42.6	%
Homes		78		44		77.3	%		184		139		32.4	%

Mid-Atlantic:
Dollars	$	168,076	$	106,195		58.3	%	$	396,180	$	311,230		27.3	%
Homes		251		189		32.8	%		610		581		5.0	%

Midwest:
Dollars	$	61,375	$	60,588		1.3	%	$	172,987	$	181,191		(4.5	)%
Homes		166		190		(12.6	)%		483		576		(16.1	)%

Southeast:
Dollars	$	71,484	$	61,978		15.3	%	$	200,133	$	188,489		6.2	%
Homes		148		139		6.5	%		402		408		(1.5	)%

Southwest:
Dollars	$	266,107	$	212,773		25.1	%	$	692,093	$	620,120		11.6	%
Homes		590		593		(0.5	)%		1,643		1,808		(9.1	)%

West:
Dollars	$	109,346	$	186,490		(41.4	)%	$	376,779	$	497,972		(24.3	)%
Homes		179		343		(47.8	)%		617		989		(37.6	)%

Consolidated total:
Dollars	$	736,654	$	663,279		11.1	%	$	1,973,843	$	1,894,159		4.2	%
Homes		1,412		1,498		(5.7	)%		3,939		4,501		(12.5	)%

Unconsolidated joint ventures (1)
Dollars	$	78,390	$	102,262		(23.3	)%	$	228,984	$	264,442		(13.4	)%
Homes		121		179		(32.4	)%		372		453		(17.9	)%

	Net Contracts (1) for the				Net Contracts (1) for the
	Three Months Ended				Nine Months Ended				Contract Backlog as of
	July 31,				July 31,				July 31,
(Dollars in thousands)	2022		2021		2022		2021		2022		2021

Northeast:
Dollars	$	47,109	$	52,066	$	181,641	$	135,684	$	184,366	$	122,638
Homes		66		62		249		169		237		160

Mid-Atlantic:
Dollars	$	91,100	$	117,341	$	384,950	$	414,059	$	330,960	$	361,329
Homes		139		176		608		647		506		572

Midwest:
Dollars	$	29,999	$	56,848	$	144,833	$	216,775	$	166,291	$	205,101
Homes		60		165		371		628		493		648

Southeast:
Dollars	$	67,402	$	58,522	$	326,727	$	223,201	$	348,019	$	211,859
Homes		114		124		555		487		574		440

Southwest:
Dollars	$	179,005	$	196,481	$	742,953	$	783,924	$	510,681	$	524,029
Homes		336		469		1,533		2,034		966		1,292

West:
Dollars	$	53,324	$	127,872	$	345,642	$	453,557	$	251,293	$	325,472
Homes		84		215		559		795		407		561

Consolidated total:
Dollars	$	467,939	$	609,130	$	2,126,746	$	2,227,200	$	1,791,610	$	1,750,428
Homes		799		1,211		3,875		4,760		3,183		3,673

Unconsolidated joint ventures:(2)
Dollars	$	84,392	$	140,913	$	315,015	$	408,804	$	628,034	$	502,999
Homes		133		380		683		1,112		2,599		2,065

	●	Changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn;
	●	Shortages in, and price fluctuations of, raw materials and labor, including due to geopolitical events, changes in trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with, and retaliatory measures taken by other countries;
	●	~~The outbreak and spread of COVID-19~~Fluctuations in interest rates and the ~~measures that governments, agencies, law enforcement and/or health authorities implement to address it, as well as continuing macroeconomic effects~~availability of ~~the pandemic;~~mortgage financing;
	●	Adverse weather and other environmental conditions and natural disasters;
	●	The seasonality of the Company’s business;
	●	The availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots;
	●	Reliance on, and the performance of, subcontractors;
	●	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;
	●	Increases in cancellations of agreements of sale;
	●	~~Fluctuations~~Increases in ~~interest rates and the availability of mortgage financing;~~inflation;
	●	Changes in tax laws affecting the after-tax costs of owning a home;
	●	Legal claims brought against us and not resolved in our favor, such as product liability litigation, warranty claims and claims made by mortgage investors;
	●	Levels of competition;
	●	Utility shortages and outages or rate fluctuations;
	●	Information technology failures and data security breaches;
	●	Negative publicity;
	●	High leverage and restrictions on the ~~Company's~~Company’s operations and activities imposed by the agreements governing the ~~Company's~~Company’s outstanding indebtedness;
	●	Availability and terms of financing to the Company;
	●	The ~~Company's~~Company’s sources of liquidity;
	●	Changes in credit ratings;
	●	Government ~~regulations,~~regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment;
	●	Operations through unconsolidated joint ventures with third parties;
	●	Significant influence of the Company’s controlling stockholders;
	●	Availability of net operating loss carryforwards;
	●	Loss of key management personnel or failure to attract qualified personnel; and
	●	~~Increases in inflation.~~The outbreak and spread of COVID-19 and the measures that governments, agencies, law enforcement and/or health authorities implement to address it, as well as continuing macroeconomic effects of the pandemic.

	Long Term Debt as of July 31, 2022 by Fiscal Year of Expected Maturity Date																							Long Term Debt as of January 31, 2023 by Fiscal Year of Maturity Date
																						FV at																							FV at
(Dollars in thousands)	2022			2023			2024			2025			2026			Thereafter			Total			7/31/22		2023			2024			2025			2026			2027			Thereafter			Total			1/31/23

Long term debt(1)(2):
Long term debt(1):
Fixed rate	$	-		$	-		$	-		$	-		$	943,683		$	211,169		$	1,154,852		$	1,116,249	$	-		$	-		$	-		$	943,683		$	39,551		$	171,618		$	1,154,852		$	1,111,716
Weighted average interest rate		-	%		-	%		-	%		-	%		10.10	%		6.93	%		9.52	%				-	%		-	%		-	%		10.10	%		5.00	%		7.37	%		9.52	%

(1)	Does not ~~include~~include:
	● the mortgage warehouse lines of credit made under ourMaster Repurchase ~~Agreements. Also, does not include our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of July 31, 2022.~~Agreements;
~~(2)~~	~~Does not include $187.8~~● $133.9 million of nonrecourse mortgages secured by ~~inventory. These mortgages~~inventory, which have various maturities spread over the next two to three years and are paid off as homes are ~~delivered.~~delivered; and
	● our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of January 31, 2023.