# HOVNANIAN ENTERPRISES INC (HOV) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HOVNANIAN ENTERPRISES INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/357294/000175392624002117/hov-20241031.htm
Accession: 0001753926-24-002117
Filing date: 2024-12-18
Report date: 2024-10-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HOV/
All MD&A years: /company/HOV/mda/
Previous year: /company/HOV/mda/fy2023/ (FY 2023)
Next year: /company/HOV/mda/fy2025/ (FY 2025)

ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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).

The following tables and related discussion set forth key operating and financial data for our homebuilding and financial services operations as of and for the fiscal years ended October 31, 2024 and 2023. For similar operating and financial data and discussion of our fiscal 2023 results compared to our fiscal 2022 results, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended October 31, 2023, which was filed with the SEC on December 18, 2023.

Key Performance Indicators

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:

[[GREPCENT_TABLE]]
[["","\u25cf","Net contracts is a volume indicator which represents the number of new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period. The dollar value of net contracts represents the dollars associated with net contracts executed in the period. These values are an indicator of potential future revenues;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Contract backlog is a volume indicator which represents the number of homes that are under contract, but not yet delivered as of the stated date. The dollar value of contract backlog represents the dollar amount of the homes in contract backlog. These values are an indicator of potential future revenues;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Active selling communities is a volume indicator which represents the number of communities which are open for sale with ten or more home sites available as of the end of a period. We identify communities based on product type; therefore, at times there are multiple communities at one land site. These values are an indicator of potential revenues;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Net contracts per average active selling community is used to indicate the pace at which homes are being sold (put into contract) in active selling communities and is calculated by dividing the number of net contracts in a period by the average number of active selling communities in the same period. Sales pace is an indicator of market strength and demand; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Contract cancellation rates is a volume indicator which represents the number of sales contracts cancelled in the period divided by the number of gross sales contracts executed during the period. Contract cancellation rates as a percentage of backlog is calculated by dividing the number of cancelled contracts in the period by the contract backlog at the beginning of the period. Cancellation rates as compared to prior periods can be an indicator of market strength or weakness."]]
[[/GREPCENT_TABLE]]

29

Table of Contents

Overview

Market Conditions and Operating Results

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.

From January 2022 to October 2023,
30-year mortgage rates more than doubled. The sharp increase in interest rates,
persistently high levels of inflation and doubt about the stability of the
economy, negatively impacted housing demand beginning in the second half of
fiscal 2022 and into fiscal 2023. During the first quarter of fiscal 2024, mortgage rates declined, which had a positive
effect on our sales pace. Rates fluctuated for the remainder of
fiscal 2024 and affordability generally remains challenging for homebuyers. We
have been aggressive in our pricing, incentives and concessions in order to
align with the current market.

We continue to use our increased
inventory of quick move-in homes (“QMI homes”) to help meet buyers’
needs for more affordable housing in the recent uncertain interest rate
environment. The time between contract signing and closing is shorter with a
QMI home as compared to a to be built home, which provides customers with more
certainty on their mortgage pricing. The availability of QMI homes also allows
us to offer mortgage interest rate buydown assistance, which is a tool we offer
through our wholly-owned mortgage banking subsidiary (“K. Hovnanian
Mortgage”), to help ease the impact of higher monthly payments from rising
interest rates. We pay the cost of interest rate buydowns for customers that
qualify through K. Hovnanian Mortgage and decide to use the program. The level
of interest rate based incentives utilized differs across our markets and is one of several available options we use to drive sales
and close homes.

The number of existing home sales listings are at all-time low levels, which limits the supply of homes available for purchase, leading to increased demand for new homes, which leads to improved pricing power. During fiscal 2024, there was stronger demand for our homes as compared to the prior year, which led to a significant increase in net contracts and net contracts per average active selling community. We were able to increase net prices in approximately 34% of our communities during the fourth quarter of fiscal 2024.

There still remains a great degree of uncertainty due to inflation, the continued possibility of an economic recession, employment risk and the potential for further mortgage rate increases. While we continue to experience some lingering supply chain issues, we remain focused on continuing to shorten our construction cycle times and building on our national initiatives to drive down costs with our material providers and trade partners. The changing conditions in the housing market, and in the general economy, make it difficult to predict how strongly our business will be impacted by these external factors over fiscal 2025 and beyond.

Our cash position allowed us to spend $995.4 million on land purchases and land development for long-term growth during fiscal 2024, and still have total liquidity of $338.2 million, including $210.0 million of homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility as of October 31, 2024. 

Additional information on our results for the year ended October 31, 2024 were as follows: 

● For the year ended October 31, 2024, sale of homes revenues increased 9.3% as compared to the prior year, primarily due to a 9.6% increase in homes delivered, partially offset by a 0.3% decrease in average sales price. The increase in deliveries in fiscal 2024 was primarily the result of a 15.0% increase in community count as well as an increase in QMI contracts.

● Homebuilding gross margin percentage decreased from 19.6% for the year ended October 31, 2023 to 18.7% for the year ended October 31, 2024, and homebuilding gross margin percentage, before cost of sales interest expense and land charges, decreased from 22.7% for the year ended October 31, 2023 to 22.0% for the year ended October 31, 2024. The decreases were primarily due to the increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable.

30

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● Selling, general and administrative expenses (including corporate general and administrative) increased $37.5 million for the year ended October 31, 2024 as compared to the prior year, however, as a percentage of total revenue, such costs were relatively flat at 11.4% for the year ended October 31, 2024 compared to 11.1% for the year ended October 31, 2023. The increase was primarily due to an increase in advertising expenses and compensation expense, mainly related to increased headcount and annual merit increases, along with grants of phantom stock awards under our 2019, 2023 and 2024 long-term incentive plans, for which expense is impacted by the change in our stock price each period. The
increase in headcount is in preparation for growth in community count and
deliveries in fiscal 2025.

● Other interest decreased
to $30.8 million for the year ended October 31, 2024 from $54.1 million for the year ended October 31, 2023, primarily due to a reduction in principal of our senior notes as a
result of redemptions during fiscal 2023
and the first quarter of fiscal 2024, and
the debt exchange executed in the third quarter of fiscal 2024.

● Income before income taxes increased to $317.1 million for the year ended October 31, 2024 from $256.0 million for the year ended October 31, 2023. Net income increased to $242.0 million for the year ended October 31, 2024 from $205.9 million for the year ended October 31, 2023. Net income for the years ended October 31, 2024 and 2023, included gains of $45.7 million and $19.1 million, respectively, from the consolidation of previously unconsolidated joint ventures. Net income for the year ended October 31, 2023 included a $25.6 million loss on extinguishment of debt.

● Earnings per share, basic and diluted, increased to $34.40 and $31.79, respectively, for the year ended October 31, 2024, compared to earnings per share, basic and diluted of $28.76 and $26.88, respectively, for the year ended October 31, 2023.

● Net contracts increased 11.6% to 5,186 for the year ended October 31, 2024, compared to 4,647 in the prior year, primarily driven by demand for new homes resulting from the low supply of existing homes for sale and overall growth in the broader economy. Included in the year ended October 31, 2024 and 2023, respectively, were 276 and 438 build-for-rent contracts. Net contracts, including domestic unconsolidated
joint ventures, increased 16.1% to 6,007 for the year ended October 31, 2024, from
5,172 in fiscal 2023.

● Net contracts per average active selling community increased to 43.6 for the year ended October 31, 2024 compared to 40.8 in the prior year. The increase was due to the increase in net contracts discussed above.

● Active selling communities increased to 130 at October 31, 2024 compared to 113 at October 31, 2023, and our total lots controlled increased to 41,891 at October 31, 2024 compared to 31,726 at October 31, 2023. We expect our community count will continue to grow in fiscal 2025.

● Contract backlog decreased from 1,824 homes at October 31, 2023 to 1,649 homes at October 31, 2024, and the dollar value of contract backlog decreased to $936.8 billion, a 11.7% decrease in dollar value compared to the prior year. Our backlog conversion ratio has increased from the prior year due to our focus on having more QMI homes available to sell and deliver. 

31

Table of Contents

Results of Operations

Total Revenues

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

[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["","","","","","","Variance"],["","","","","","","2024"],["","","","","","","Compared"],["(Dollars in thousands)","","2024","","","to 2023","","","2023"],["Homebuilding:"],["Sale of homes","","$","2,875,488","","","$","245,031","","","$","2,630,457"],["Land sales","","","42,757","","","","(5,460",")","","","48,217"],["Other revenues","","","12,609","","","","(4,645",")","","","17,254"],["Financial services","","","74,064","","","","13,976","","","","60,088"],["Total change","","$","3,004,918","","","$","248,902","","","$","2,756,016"],["Total revenues percent change","","","","","","","9","%"]]
[[/GREPCENT_TABLE]]

Homebuilding: Sale of Homes

Sale of homes revenues increased $245.0 million, or 9.3%, for the year ended October 31, 2024, compared to the prior year. The increased revenues in fiscal 2024 were primarily due to a 9.6% increase in homes delivered, partially offset by the average sales price per home decreasing slightly to $537,675 in fiscal 2024 from $539,249 in fiscal 2023. The increase in deliveries in fiscal 2024 was primarily the result of community count increasing, along with an increase in our backlog conversion ratio. The decrease in average sales price in fiscal 2024 was primarily due to the geographic and community mix of our deliveries. For further detail on changes in segment revenues see “Homebuilding Operations by Segment” below. Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantly up or down. For further detail on land sales and other revenues, see the section titled “Homebuilding: Land Sales and Other Revenues” below.

Information on the sale of homes is set forth in the table below:

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","October 31,","","","October 31,"],["(Dollars in thousands, except average sales price)","","2024","","","2023"],["Consolidated total:"],["Housing revenues","","$","2,875,488","","","$","2,630,457"],["Homes delivered","","","5,348","","","","4,878"],["Average sales price","","$","537,675","","","$","539,249"],["Unconsolidated joint ventures:(1)"],["Housing revenues","","$","539,028","","","$","765,653"],["Homes delivered","","","853","","","","2,771"],["Average sales price","","$","631,920","","","$","276,309"]]
[[/GREPCENT_TABLE]]

(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. During the fourth quarter of fiscal 2023, we delivered 2,176 homes in our unconsolidated joint venture in the Kingdom of Saudi Arabia. See Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our joint ventures.

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Table of Contents

Homebuilding: Land Sales and Other Revenues

Land sales and other revenues decreased $10.1 million for the year ended October 31, 2024, compared to the prior year. Other revenues include interest income, which decreased as a result of lower rates on cash and cash equivalent accounts beginning in the first quarter of fiscal 2024 compared to the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There were six land sales during the year ended October 31, 2024, compared to four in the prior year.

Homebuilding: Cost of Sales

Cost of sales includes expenses for consolidated housing and land and lot sales, including inventory impairment 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.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","October 31,","","","October 31,"],["(Dollars in thousands)","","2024","","","2023"],["Sale of homes","","$","2,875,488","","","$","2,630,457"],["Cost of sales, excluding interest expense and land charges","","","2,241,749","","","","2,032,136"],["Homebuilding gross margin, before cost of sales interest expense and land charges","","","633,739","","","","598,321"],["Cost of sales interest expense, excluding land sales interest expense","","","87,717","","","","79,894"],["Homebuilding gross margin, after cost of sales interest expense, before land charges","","","546,022","","","","518,427"],["Land charges","","","8,903","","","","1,536"],["Homebuilding gross margin","","$","537,119","","","$","516,891"],["Homebuilding gross margin percentage","","","18.7","%","","","19.6","%"],["Homebuilding gross margin percentage, before cost of sales interest expense and land charges","","","22.0","%","","","22.7","%"],["Homebuilding gross margin percentage, after cost of sales interest expense, before land charges","","","19.0","%","","","19.7","%"]]
[[/GREPCENT_TABLE]]

33

Table of Contents

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

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","October 31,","","","October 31,"],["","","2024","","","2023"],["Sale of homes","","","100.0","%","","","100.0","%"],["Cost of sales, excluding interest expense and land charges:"],["Housing, land and development costs","","","68.6","%","","","67.9","%"],["Commissions","","","3.2","%","","","3.4","%"],["Financing concessions","","","2.5","%","","","2.1","%"],["Overheads","","","3.7","%","","","3.9","%"],["Total cost of sales, before interest expense and land charges","","","78.0","%","","","77.3","%"],["Cost of sales interest","","","3.0","%","","","3.0","%"],["Land charges","","","0.3","%","","","0.1","%"],["Homebuilding gross margin percentage","","","18.7","%","","","19.6","%"],["Homebuilding gross margin percentage, before cost of sales interest expense and land charges","","","22.0","%","","","22.7","%"],["Homebuilding gross margin percentage, after cost of sales interest expense and before land charges","","","19.0","%","","","19.7","%"]]
[[/GREPCENT_TABLE]]

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 decreased to 18.7% for the year ended October 31, 2024 compared to 19.6% for the prior year. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 22.0% for the year ended October 31, 2024 compared to 22.7% for the prior year. The decreases in gross margins were primarily due to increases in our use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable.

Land and lot sale expenses and gross margins are set forth below:

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","October 31,","","","October 31,"],["(In thousands)","","2024","","","2023"],["Land and lot sales","","$","42,757","","","$","48,217"],["Cost of sales, excluding interest","","","21,635","","","","20,664"],["Land and lot sales gross margin, excluding interest","","","21,122","","","","27,553"],["Land and lot sales interest expense","","","2,090","","","","926"],["Land and lot sales gross margin, including interest","","$","19,032","","","$","26,627"]]
[[/GREPCENT_TABLE]]

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Table of Contents

Homebuilding: Inventory Impairments and Land Option Write-offs

Inventory impairments and land option write-offs reflect certain inventories we have either written off or written down to their estimated fair value totaling $11.6 million and $1.5 million in expense for the years ended October 31, 2024 and 2023, respectively. During the years ended October 31, 2024 and 2023, we wrote off residential land option, approval and engineering costs totaling $1.6 million and $1.5 million, respectively. Land option, approval and engineering costs are written off when a community’s pro forma profitability is not projected to produce an adequate return on investment commensurate with the risk. If we determine an adequate return is not probable, we cancel the option, or when a community is redesigned, we write off the engineering costs related to the initial design. Such write-offs occurred across each of our segments in fiscal 2024 and 2023. Inventory impairments were $10.0 million in the aggregate for the year ended October 31, 2024 for two communities in our Northeast segment and two communities in our West segment. We did not record any inventory impairments for the year ended October 31, 2023. It is difficult to predict future impairments, but if conditions in the overall housing industry or a specific geographic market worsen in the future beyond our current expectations, there are future changes in our business strategy that significantly affect the key assumptions used in our projections of future cash flows, and/or there are material changes in any other items we consider in assessing recoverability, we may need to recognize additional inventory impairments and any such charges could be material.

In fiscal 2024, we walked away from 9.7% of all the lots we controlled under option contracts. The remaining 90.3% of our option lots are in communities that we believe remain economically feasible.

The following table represents lot option walk-aways by segment for the year ended October 31, 2024:

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","","","","","","","","Walk-"],["","","","","","","","","","","","","","","","","","","Away"],["","","Dollar","","","Number of","","","% of","","","","","","","Lots as a"],["","","Amount","","","Walk-","","","Walk-","","","Total","","","% of Total"],["","","of Walk","","","Away","","","Away","","","Option","","","Option"],["(Dollars in millions)","","Away","","","Lots","","","Lots","","","Lots(1)","","","Lots"],["Northeast","","$","0.4","","","","427","","","","11.2","%","","","18,078","","","","2.4","%"],["Southeast","","","0.9","","","","1,748","","","","46.0","%","","","8,103","","","","21.6","%"],["West","","","0.3","","","","1,625","","","","42.8","%","","","12,878","","","","12.6","%"],["Total","","$","1.6","","","","3,800","","","","100.0","%","","","39,059","","","","9.7","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Includes lots optioned at October 31, 2024 and lots optioned that the Company walked away from in the year ended October 31, 2024."]]
[[/GREPCENT_TABLE]]

Homebuilding: Selling, General and Administrative

Homebuilding selling, general and administrative (“SGA”) expenses remained nearly flat with a $0.9 million increase to $202.5 million for the year ended October 31, 2024, compared to the prior fiscal year.

Homebuilding: Key Performance Indicators

Net Contracts Per Average Active Selling Community

Net contracts per average active selling community in fiscal 2024 were 43.6 compared to 40.8 in fiscal 2023, a 6.9% increase in sales pace per community. Our reported level of sales contracts (net of cancellations) was impacted by an increase in our active selling communities and an increase in customer demand partially due to the increased availability of QMI homes. 

Contract Cancellation Rates

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:

[[GREPCENT_TABLE]]
[["Quarter","","2024","","","2023","","","2022","","","2021","","","2020"],["First","","","14","%","","","30","%","","","14","%","","","17","%","","","19","%"],["Second","","","14","%","","","18","%","","","17","%","","","16","%","","","23","%"],["Third","","","17","%","","","16","%","","","27","%","","","16","%","","","18","%"],["Fourth","","","18","%","","","25","%","","","41","%","","","15","%","","","18","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Quarter","","2024","","","2023","","","2022","","","2021","","","2020"],["First","","","10","%","","","16","%","","","8","%","","","11","%","","","14","%"],["Second","","","13","%","","","16","%","","","9","%","","","9","%","","","20","%"],["Third","","","12","%","","","12","%","","","8","%","","","6","%","","","21","%"],["Fourth","","","15","%","","","13","%","","","13","%","","","6","%","","","14","%"]]
[[/GREPCENT_TABLE]]

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. Due to our solid backlog position, our cancellation rate as a percentage of beginning backlog for the fourth quarter of fiscal 2024 was 15%, which approximates our historical normal rate. When sales pace is increasing, the cancellation rate as a percentage of beginning backlog tends to lag the changes seen in our cancellation rate as a percentage of gross sales. Market conditions, although continuing to improve, still remain uncertain and it is difficult to predict what cancellation rates will be in the future.

Contract Backlog

Our consolidated contract backlog, excluding unconsolidated joint ventures, by segment is set forth below:

[[GREPCENT_TABLE]]
[["","","October 31,","","","October 31,"],["(Dollars in thousands)","","2024","","","2023"],["Northeast: (1)(2)(3)"],["Total contract backlog","","$","531,481","","","$","420,100"],["Number of homes","","","782","","","","617"],["Southeast: (3)"],["Total contract backlog","","$","121,974","","","$","304,251"],["Number of homes","","","239","","","","615"],["West: (3)"],["Total contract backlog","","$","283,377","","","$","336,263"],["Number of homes","","","628","","","","592"],["Totals: (1)(2)(3)"],["Total consolidated contract backlog","","$","936,832","","","$","1,060,614"],["Number of homes","","","1,649","","","","1,824"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Reflects the reclassification of 88 homes and $74.2 million of contract backlog as of July 31, 2024 from an unconsolidated joint venture to the consolidated Northeast segment. This is related to the assets and liabilities acquired from a joint venture the company closed out during the three months ended July 31, 2024."],["(2)","Reflects the reclassification of 38 homes and $32.3 million of contract backlog as of April 30, 2023 from an unconsolidated joint venture to the consolidated Northeast segment. This is related to the assets and liabilities acquired from a joint venture the Company closed out during the three months ended April 30, 2023."],["(3)","Reflects the reclassification of 90 homes and $73.7 million, 59 homes and $33.0 million, and 12 homes and $5.7 million of contract backlog from the consolidated Northeast, Southeast and West segments, respectively, to an unconsolidated joint venture as of July 31, 2023. This is related to the assets and liabilities contributed to a joint venture by the Company during the three months ended July 31, 2023."]]
[[/GREPCENT_TABLE]]

Contract backlog dollars decreased 11.7% as of October 31, 2024 compared to October 31, 2023, and the number of homes in backlog decreased 9.6% for the same period. The decrease in backlog dollars and number of homes for the year ended October 31, 2024 compared to the prior fiscal year was primarily driven by an increase in sales of QMI homes and improved contract backlog conversion.

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Table of Contents

Homebuilding Operations by Segment 

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

[[GREPCENT_TABLE]]
[["","","Year Ended October 31,"],["","","","","","","Variance"],["","","","","","","2024"],["(Dollars in thousands, except average sales price)","","","","","","Compared"],["","","2024","","","to 2023","","","2023"],["Northeast"],["Homebuilding revenue","","$","1,036,049","","","$","67,198","","","$","968,851"],["Income before income taxes","","$","190,477","","","$","11,961","","","$","178,516"],["Homes delivered","","","1,646","","","","28","","","","1,618"],["Average sales price","","$","612,148","","","$","35,414","","","$","576,734"],["Southeast"],["Homebuilding revenue","","$","448,902","","","$","28,606","","","$","420,296"],["Income before income taxes","","$","77,613","","","$","(137",")","","$","77,750"],["Homes delivered","","","878","","","","102","","","","776"],["Average sales price","","$","510,027","","","$","(30,767",")","","$","540,794"],["West"],["Homebuilding revenue","","$","1,437,894","","","$","141,902","","","$","1,295,992"],["Income before income taxes","","$","123,246","","","$","9,162","","","$","114,084"],["Homes delivered","","","2,824","","","","340","","","","2,484"],["Average sales price","","$","502,864","","","$","(11,486",")","","$","514,350"]]
[[/GREPCENT_TABLE]]

Homebuilding Results by Segment

Northeast –Homebuilding revenues increased
6.9% in fiscal 2024 compared to fiscal 2023, primarily due to a 1.7% increase in homes delivered and a 6.1%
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 condominiums in higher-end submarkets of the segment in fiscal 2024
compared to some communities delivering lower priced, smaller single family
homes and townhomes in lower-end submarkets of the segment in fiscal 2023,
which were no longer delivering in the current year.

Income before income
taxes increased $12.0 million to $190.5 million in fiscal 2024 compared to fiscal 2023, primarily due to the increase in homebuilding
revenue discussed above and a $1.1 million
decrease in SGA, while gross margin percentage remained relatively flat.

Southeast – Homebuilding revenues increased
6.8% in fiscal 2024 compared to fiscal 2023, primarily due to a 13.1% increase in homes delivered, partially
offset by a 5.7%
decrease in average sales price. The decrease in average sales price was the
result of new communities delivering lower priced, smaller single family homes, townhomes and build-for-rent homes in lower-end submarkets of the segment in fiscal 2024 compared to
some communities in fiscal 2023 that had higher priced, larger single family
homes and townhomes in mid to higher-end submarkets, which were no longer
delivering in the current year.

Income before income taxes remained relatively flat, with a
$0.1 million decrease to $77.6 million in
fiscal 2024 compared to fiscal 2023. There was a slight decrease in gross margin
percentage in fiscal 2024 compared to
fiscal 2023.

West – Homebuilding revenues increased
10.9% in fiscal 2024 compared to fiscal 2023, primarily due to a 13.7%
increase in homes delivered, partially offset by a 2.2%
decrease in average sales price. The decrease in average sales price was mainly
the result of new communities delivering lower priced, smaller single family
homes in lower-end submarkets of the segment in fiscal 2024 compared to some
communities in fiscal 2023 that had higher priced, larger single family homes
and condominiums in mid to higher-end submarkets, which were no longer
delivering in the current year.

Income before income taxes increased $9.2
million to $123.2
million in fiscal 2024 compared to fiscal 2023, primarily due to the increase in
homebuilding revenue discussed above and a $5.7 million increase in income from
unconsolidated joint ventures, while gross
margin percentage remained relatively flat.

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Financial Services

Financial services consists primarily of originating mortgages for 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 years ended October 31, 2024 and 2023, our conforming conventional loan originations as a percentage of our total loans were 64.0% and 69.8%, respectively. FHA/VA loans represented 35.4% and 29.5%, respectively, of our total loans. The remaining 0.6% and 0.7% of our loan originations represent loans which exceed conforming conventions. Realized gains and losses relating to the sale of mortgage loans are recognized when control passes to the buyer of the mortgage.

During the years ended October 31, 2024 and 2023, financial services provided $24.1 million and $19.4 million of income before income taxes, respectively. In fiscal 2024, financial services income before income taxes increased $4.7 million from the prior year primarily due to an increase in the volume of loans closed and an increase in the average size of the loans settled. In the markets served by our wholly owned mortgage banking subsidiaries, 79.4% and 70.1% of our noncash home buyers obtained mortgages originated by these subsidiaries during the years ended October 31, 2024 and 2023, respectively.

Corporate General and Administrative

Corporate general and administrative 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 $36.5 million for the year ended October 31, 2024 compared to the year ended October 31, 2023, primarily due to an increase in compensation expense, mainly related to increased headcount and annual merit increases and increased expense related to grants of phantom stock awards under our 2019, 2023 and 2024 long-term incentive plans, for which expense is impacted by the change in our stock price each period. In addition, since the 2024 long-term incentive plan was new in the current year this resulted in incremental stock compensation expense when compared to the prior year.

Other Interest

Other interest decreased $23.3 million to $30.8 million for the year ended October 31, 2024 compared to the year ended October 31, 2023. Our assets that qualify for interest capitalization (inventory under development) exceeded our debt during the third quarter of fiscal 2024, therefore, all of the related interest incurred during fiscal 2024 qualified for interest capitalization instead of being directly expensed. Also contributing to the decrease in Other interest was the reduction in principal of our senior notes as a result of redemptions during fiscal 2023 and the first quarter of fiscal 2024, and the debt exchange executed in the third quarter of fiscal 2024.

Gain (Loss) on Extinguishment of Debt, Net

On November 15, 2023, we redeemed in full all of the $113.5 million aggregate principal amount of our 10.0% Senior Secured 1.75 Lien Notes due 2025 for a redemption price of $119.2 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $1.4 million, including the write-off of unamortized premiums, debt issuance costs and fees.

On May 30, 2023, we redeemed $100.0 million aggregate principal amount of our 7.75% Senior Secured 1.125 Lien Notes due 2026 (the “Existing 1.125 Lien Notes”). The aggregate purchase price for this redemption was $104.2 million, which included accrued and unpaid interest and was funded with cash on hand. This redemption resulted in a loss on extinguishment of debt of $4.1 million, including the write-off of unamortized debt issuance costs and fees.

On August 29, 2023, we redeemed an additional $100.0 million aggregate principal amount of our Existing 1.125 Lien Notes. The aggregate purchase price for this redemption was $102.2 million, which included accrued and unpaid interest and was funded with cash on hand. This redemption resulted in a loss on extinguishment of debt of $3.8 million, including the write-off of unamortized debt issuance costs and fees.

On September 7, 2023, we repurchased in the open market $45.0 million aggregate principal amount of our 10.0% Senior Secured 1.75 Lien Notes due 2025. The aggregate purchase price for this repurchase was $46.7 million, which included accrued and unpaid interest and which was funded with cash on hand. This repurchase resulted in a gain on extinguishment of debt of $0.2 million, including the write-off of unamortized debt issuance costs and fees.

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On October 5, 2023, we issued new 8.0% Senior Secured 1.125 Lien Notes due 2028 (the “New 1.125 Lien Notes”) and new 11.75% Senior Secured 1.25 Lien Notes due 2029 (the “New 1.25 Lien Notes”) and redeemed with the proceeds from the issuances of the New 1.125 Lien Notes and New 1.25 Lien Notes all of the remaining (i) $50.0 million aggregate principal amount of our Existing 1.125 Lien Notes for a redemption price of $51.5 million, which included accrued and unpaid interest, (ii) $282.3 million aggregate principal amount of our 10.5% Senior Secured 1.25 Lien Notes due 2026 for a redemption price of $293.9 million, which included accrued and unpaid interest, and (iii) $162.3 million aggregate principal amount of our 11.25% Senior Secured 1.5 Lien Notes due 2026 for a redemption price of $164.8 million, which included accrued and unpaid interest. These redemptions resulted in a loss on extinguishment of debt of $17.9 million, including the write-off of unamortized debt issuance costs and fees.

Income from Unconsolidated Joint Ventures

Income from unconsolidated joint ventures consists of our share of the earnings or losses of our joint ventures. Income from unconsolidated joint ventures increased to $52.3 million for the year ended October 31, 2024 from income of $43.2 million for the year ended October 31, 2023. The increase of $9.1 million in fiscal 2024 was primarily due to the recognition of additional income from two of our unconsolidated joint ventures; because the joint venture partner achieved certain return hurdles, the Company was able to recognize a higher share of the unconsolidated joint venture’s income than it had in the prior year.

Income Taxes

Income tax expense of $75.1 million and $50.1 million for the years ended October 31, 2024 and 2023, respectively, was primarily driven by federal and state tax expense on income before income taxes and non-deductible executive compensation expense, partially offset by the generation of energy efficient home tax credits. Income tax expense for fiscal years 2024 and 2023 also reflected the favorable impact of releasing state valuation allowances. The federal tax expense is not paid in cash as it is offset by the use of our existing net operating loss (“NOL”) carryforwards.

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

As of October 31, 2024, we considered the weight of all available positive and negative evidence to determine the valuation allowance for DTAs of $55.7 million. See Note 11 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information.

Deferred tax assets, net, of $241.0 million at October 31, 2024 decreased $61.8 million from October 31, 2023, due primarily to the utilization of our DTAs to offset tax expense on taxable income during fiscal 2024.

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Table of Contents

Contractual Obligations

The following summarizes our aggregate contractual commitments at October 31, 2024:

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["","","","","","","Less than","","","","","","","","","","","More than"],["(In thousands)","","Total","","","1 year","","","1-3 years","","","3-5 years","","","5 years"],["Long term debt (1)(2)(3)","","$","1,280,870","","","$","90,863","","","$","202,032","","","$","950,211","","","$","37,764"],["Operating leases","","","38,663","","","","11,133","","","","17,687","","","","5,758","","","","4,085"],["Total","","$","1,319,533","","","$","101,996","","","$","219,719","","","$","955,969","","","$","41,849"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Represents our senior secured and unsecured term loan credit facilities, senior secured and senior notes and other notes payable and $399.3 million of related interest payments for the life of such debt."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Does not include $90.7 million of nonrecourse mortgages secured by inventory. These mortgages have various maturities spread over the next two to three years and are paid off as homes are delivered."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Does not include the mortgage warehouse lines of credit made under our Master Repurchase Agreements. See \u201cCapital Resources and Liquidity\u201d for further discussion. Also, does not include our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of October 31, 2024."]]
[[/GREPCENT_TABLE]]

We had outstanding letters of credit and performance bonds of $2.6 million and $225.7 million, respectively, at October 31, 2024, related primarily to our obligations to local governments to construct roads and other improvements in various developments. We do not believe that any such letters of credit or performance bonds are likely to be drawn upon.

Capital Resources and Liquidity

Overview

Our total liquidity at October 31, 2024 was $338.2 million, including $210.0 million in homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility. This was above our target liquidity range of $170.0 to $245.0 million. We believe that our cash on hand together with available borrowings on our senior secured revolving credit facility will be sufficient through fiscal 2025 to finance our 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. 

Operating, Investing and Financing Cash Flow Activities 

We spent $995.4 million on land and land development during fiscal 2024. After land and land development spending and all other operating activities, including revenue received from deliveries, we had $23.6 million in cash provided by operations. During fiscal 2024, cash used in investing activities was $46.5 million, primarily due to a new joint venture entered into during the period, along with spending on capitalized software, partially offset by distributions of capital from existing unconsolidated joint ventures. Cash used in financing activities was $187.9 million during fiscal 2024, which was primarily due to a $113.5 million redemption of our senior secured notes, net payments of $31.5 million related to the May 2024 debt exchange, net payments for nonrecourse mortgage financings, treasury stock purchases and payments of preferred dividends, partially offset by net proceeds from our mortgage warehouse lines of credit, land banking financings and model sale leaseback financings. We intend to continue to use nonrecourse mortgages, model sale leasebacks, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.

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Our cash uses during the years ended October 31, 2024 and 2023 were for operating expenses, land purchases, land deposits, land development, construction spending, debt payments, model sale leasebacks, land banking transactions, state income taxes, interest payments, preferred dividend payments, financing transaction costs, debt and 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, financing transactions, nonrecourse mortgage 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, accrued interest, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, stock compensation and impairments. When we are expanding our operations, inventory levels, 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, 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. 

See “Inventories” below for a detailed discussion of our inventory position.

Debt Transactions

Senior secured notes, senior notes and credit facilities balances as of October 31, 2024 and October 31, 2023, were as follows:

[[GREPCENT_TABLE]]
[["","","October 31,","","","October 31,"],["(In thousands)","","2024","","","2023"],["Senior Secured Notes:"],["10.0% Senior Secured 1.75 Lien Notes due November 15, 2025 (1)","","$","-","","","$","113,502"],["8.0% Senior Secured 1.125 Lien Notes due September 30, 2028","","","225,000","","","","225,000"],["11.75% Senior Secured 1.25 Lien Notes due September 30, 2029","","","430,000","","","","430,000"],["Total Senior Secured Notes","","$","655,000","","","$","768,502"],["Senior Notes:"],["13.5% Senior Notes due February 1, 2026 (2)","","$","26,588","","","$","90,590"],["5.0% Senior Notes due February 1, 2040 (2)","","","24,968","","","","90,120"],["Total Senior Notes","","$","51,556","","","$","180,710"],["Senior Unsecured Term Loan Credit Facility due February 1, 2027 (2)","","$","-","","","$","39,551"],["Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028 (2)","","$","175,000","","","$","81,498"],["Senior Secured Revolving Credit Facility (3)","","$","-","","","$","-"],["Subtotal senior notes and credit facilities","","$","881,556","","","$","1,070,261"],["Net premiums (discounts)","","$","17,340","","","$","(14,563",")"],["Unamortized debt issuance costs","","$","(2,678)","","","$","(4,207",")"],["Total senior notes and credit facilities, net of discounts, premiums and unamortized debt issuance costs","","$","896,218","","","$","1,051,491"]]
[[/GREPCENT_TABLE]]

(1) On November 15, 2023, K. Hovnanian redeemed all of its $113.5 million aggregate principal amount of 10.0% Senior Secured 1.75 Lien Notes due November 15, 2025.

(2) On May 21, 2024, K. Hovnanian exchanged $64.0 million aggregate principal amount of 13.5% Senior Notes due February 1, 2026 and cash, $65.2 million aggregate principal amount of 5.0% Senior Notes due February 1, 2040 and all of its $39.6 million aggregate principal amount of loans under the Senior Unsecured Term Loan Credit Facility due February 1, 2027 and cash for an additional $93.5 million aggregate principal amount of loans under the Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028.

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(3) At October 31, 2024, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. The revolving loans thereunder have a maturity of June 30, 2026 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 4.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.

Except for K. Hovnanian, the issuer of the notes and borrower under the credit agreements governing our term loans and revolving credit facilities (collectively, the “Credit Facilities”), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at October 31, 2024 (collectively, the “Notes Guarantors”).

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together with the Credit Facilities, the “Debt Instruments”) outstanding at October 31, 2024 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 (including through exchanges or certain other types of transactions) indebtedness, pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans (the “Secured Term Loans”) made under the Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028, and loans (the “Secured Revolving Loans”) made under the Senior Secured Revolving Credit Agreement due June 30, 2026, or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Secured Term Loans, 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 Secured Term Loans and Secured Revolving Loans, material
inaccuracy of representations and warranties and with respect to the Secured
Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected. As of October 31, 2024, 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 and dividends (in the case of certain of such payments, 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, we were no longer restricted from paying dividends. As such, we have made dividend payments of $2.7 million to preferred shareholders in every quarter since the first quarter of fiscal 2022. We currently believe our ratios will permit us to continue to make dividend payments on our preferred stock. However, with general economic uncertainty, it is difficult to predict long-term market conditions and the effects on our business and if and when we may 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 Series A Preferred Stock will have no right to receive a dividend for that period, and we will have no obligation to pay a dividend for that period.

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

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 9 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of K. Hovnanian’s Credit Facilities, senior secured notes and senior notes, including information with respect to the collateral securing our Debt Instruments.

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Mortgages and Notes Payable

We have nonrecourse mortgage loans for certain communities totaling $90.7 million and $91.5 million, net of debt issuance costs, at October 31, 2024 and October 31, 2023, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $249.7 million and $331.6 million, respectively. The weighted-average interest rate on these obligations was 8.7% and 8.5% at October 31, 2024 and October 31, 2023, 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. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in “Financial services” liabilities on the Consolidated Balance Sheets. 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 October 31, 2024 and 2023, we had an aggregate of $131.4 million and $110.8 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.

 See Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of these agreements and facilities.

Equity 

On September 1, 2022, our Board of Directors authorized a repurchase program for up to $50.0 million of our Class A common stock. Under the 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 year ended October 31, 2024, we repurchased 188,800 shares, with a market value of $26.5 million, or $140.31 per share. During the year ended October 31, 2023, we repurchased 118,478 shares, with a market value of $4.8 million, or $40.51 per share. Share repurchases are added to “Treasury stock” on our Consolidated Balance Sheets. As of October 31, 2024, $6.5 million of our Class A common stock is available for repurchase under our share 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 the Series A preferred stock are not cumulative and are payable at an annual rate of 7.625%. The Series A preferred stock is not convertible into the Company’s common stock and is redeemable in whole or in part at our option at the liquidation preference of the shares. The Series A preferred stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A preferred stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” During both fiscal 2024 and 2023 we paid dividends of $10.7 million on the Series A preferred stock.

Unconsolidated Joint Ventures 

We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. As of October 31, 2024 and 2023, we had investments in six and seven unconsolidated homebuilding joint ventures, respectively, and one unconsolidated land development joint venture as of October 31, 2023. Our unconsolidated joint ventures had total combined assets of $845.1 million and $884.4 million at October 31, 2024 and 2023, respectively. Our investments in unconsolidated joint ventures totaled $142.9 million and $97.9 million at October 31, 2024 and 2023, respectively. The increase in our investments of $45.0 million was primarily due to a new joint venture formed during the year, along with income recognized from existing joint ventures, partially offset by the consolidation of a previously unconsolidated joint venture.

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As of October 31, 2024 and 2023, our unconsolidated joint ventures had outstanding debt totaling $88.7 million and $101.1 million, respectively, under separate construction loan agreements with different third-party lenders and affiliates of certain investment partners to finance land development activities. The outstanding debt is secured by the underlying property and related project assets and is non-recourse to us. Although we and our unconsolidated joint venture partners provide certain guarantees and indemnities to the lender, we do not have a guaranty or any other obligation to repay the outstanding debt or to support the value of the collateral underlying the outstanding debt. Our guarantees are limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including voluntary bankruptcy. We do not believe that our existing exposure under our guaranty and indemnity obligations related to the outstanding debt is material.

We determined that none of our joint ventures were a variable interest entity. All our unconsolidated joint ventures were accounted for under the equity method because we did not have a controlling financial interest. See Notes 19 and 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of joint ventures and variable interest entities.

Inventories

Total inventory, excluding consolidated inventory not owned, increased $309.4 million during the year ended October 31, 2024 from October 31, 2023. Total inventory, excluding consolidated inventory not owned, increased in the Northeast by $155.1 million, in the Southeast by $2.8 million and in the West by $151.5 million. The increases were primarily attributable to new land purchases and land development during the period, along with an increase in inventory from the consolidation of a previously unconsolidated joint venture. The increases were partially offset by home deliveries and land sales. In addition, our sold and unsold homes have increased as we focus on building more QMI homes. 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 October 31, 2024 are expected to close during the next six to nine months.

Consolidated inventory not owned, which consists of options related to land banking and model financing, decreased $13.8 million during fiscal 2024. The decrease was primarily due to a decrease in land banking transactions, partially offset by an increase in the sale and leaseback of certain model homes during the period. We have land banking arrangements, whereby we sell land parcels to 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, these transactions are considered a financing rather than a sale. Our Consolidated Balance Sheet, at October 31, 2024, included inventory of $164.9 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $94.1 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. In addition, we sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third-party at the end of the respective lease. As a result of our continued involvement and the ability to repurchase model homes with below market options, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, our Consolidated Balance Sheet, at October 31, 2024, included inventory of $46.1 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $46.2 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from sale and leaseback transactions.

In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At October 31, 2024, we had total cash deposits of $264.8 million to purchase land and lots with a total purchase price of $3.0 billion. Our financial exposure is generally limited to forfeiture of the nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. We have no material third-party guarantees.

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

[[GREPCENT_TABLE]]
[["","","","","","","","","","","Remaining"],["","","Total","","","Contracted","","","Home"],["","","Home","","","Not","","","Sites"],["","","Sites","","","Delivered","","","Available"],["October 31, 2024:"],["Northeast","","","19,580","","","","782","","","","18,798"],["Southeast","","","7,161","","","","239","","","","6,922"],["West","","","15,154","","","","628","","","","14,526"],["Consolidated total","","","41,895","","","","1,649","","","","40,246"],["Unconsolidated joint ventures (1)","","","4,349","","","","679","","","","3,670"],["Owned","","","6,632","","","","1,215","","","","5,417"],["Optioned","","","35,259","","","","430","","","","34,829"],["Construction to permanent financing lots","","","4","","","","4","","","","-"],["Consolidated total","","","41,895","","","","1,649","","","","40,246"],["October 31, 2023:"],["Northeast","","","14,161","","","","617","","","","13,544"],["Southeast","","","5,935","","","","615","","","","5,320"],["West","","","11,658","","","","592","","","","11,066"],["Consolidated total","","","31,754","","","","1,824","","","","29,930"],["Unconsolidated joint ventures (1)","","","5,406","","","","422","","","","4,984"],["Owned","","","7,337","","","","1,442","","","","5,895"],["Optioned","","","24,389","","","","354","","","","24,035"],["Construction to permanent financing lots","","","28","","","","28","","","","-"],["Consolidated total","","","31,754","","","","1,824","","","","29,930"]]
[[/GREPCENT_TABLE]]

(1) 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 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our unconsolidated joint ventures.

The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in active selling communities. The increase in unsold homes was primarily due to a conscious effort to increase the number of QMI homes per community to provide buyers the opportunity to lock in a lower mortgage rate by closing quickly, thereby making our homes more affordable and creating certainty as mortgage rates continued to fluctuate during fiscal 2024.

[[GREPCENT_TABLE]]
[["","","October 31, 2024","","","October 31, 2023"],["","","Unsold","","","","","","","","","","","Unsold"],["","","Homes","","","Models","","","Total","","","Homes","","","Models","","","Total"],["Northeast","","","259","","","","35","","","","294","","","","159","","","","41","","","","200"],["Southeast","","","135","","","","19","","","","154","","","","99","","","","16","","","","115"],["West","","","627","","","","31","","","","658","","","","570","","","","24","","","","594"],["Total","","","1,021","","","","85","","","","1,106","","","","828","","","","81","","","","909"],["Started or completed unsold homes and models per active selling communities(1)","","","7.9","","","","0.6","","","","8.5","","","","7.3","","","","0.7","","","","8.0"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Active selling communities (which are communities that are open for sale with ten or more home sites available) were 130 and 113 at October 31, 2024 and 2023, respectively. This ratio does not include substantially completed communities, which are communities with less than ten home sites available."]]
[[/GREPCENT_TABLE]]

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Financial Services Assets and Liabilities 

Financial services assets consist primarily of residential mortgage receivables held for sale of which $147.2 million and $127.6 million at October 31, 2024 and 2023, respectively, were being temporarily warehoused and are awaiting sale in the secondary mortgage market. The increase in mortgage loans held for sale from October 31, 2023 was primarily related to an increase in the volume of loans originated during the fourth quarter of fiscal 2024 compared to the fourth quarter of fiscal 2023, along with an increase in the average loan value.

Financial services liabilities increased $34.9 million from $148.2 million at October 31, 2023, to $183.1 million at October 31, 2024. The increase was primarily due to the increase in amounts outstanding under our mortgage warehouse lines of credit, and directly correlated to the increase in the volume of mortgage loans held for sale.

Inflation

The annual rate of inflation in the United States was 2.6% in October 2024, as measured by the Consumer Price Index, which is much improved from its peak of 9.1% in June 2022. Inflation has a long-term effect, because of higher costs of land, materials and labor results in increasing the sale 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, could substantially outpace increases in the income of potential purchasers and therefore limit our ability to raise home sales 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 12 months. Construction costs for residential buildings represented approximately 53% of our homebuilding cost of sales for fiscal year 2024.

Critical Accounting Policies

Management believes that the following critical accounting policies require its most significant judgments and estimates used in the preparation of the Consolidated Financial Statements:

Inventories - Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under the specific identification method. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.

We record inventories on our Consolidated Balance Sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following three components: (1) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (2) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (3) consolidated inventory not owned, which consists of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.

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 and the ability to repurchase model homes with below market options, for accounting purposes in accordance with ASC 606 “Revenue From Contracts with Customers,” these sale and leaseback transactions are considered a financing rather than a sale.

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We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes in accordance with ASC 606, these transactions are considered a financing rather than a sale.

The recoverability of inventories and other long-lived assets is assessed in accordance with ASC 360, “Property, Plant and Equipment.” ASC 360 requires long-lived assets, including inventories, held for development to be evaluated for impairment based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. We evaluate impairment at the individual community level, which is the lowest level of discrete cash flows that are available.

We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price, net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indicators of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.

The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:

[[GREPCENT_TABLE]]
[["","\u25cf","future base selling prices;"],["","\u25cf","future home sales incentives;"],["","\u25cf","future home construction and land development costs; and"],["","\u25cf","future sales absorption pace and cancellation rates."]]
[[/GREPCENT_TABLE]]

These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact our estimates for a community include:

[[GREPCENT_TABLE]]
[["","\u25cf","the intensity of competition within a market, including available home sales prices and home sales incentives offered by our competitors;"],["","\u25cf","the current sales absorption pace for both our communities and competitor communities;"],["","\u25cf","community specific attributes, such as location, availability of lots in the market, desirability and uniqueness of our community, and the size and style of homes currently being offered;"],["","\u25cf","potential for alternative product offerings to respond to local market conditions;"],["","\u25cf","changes by management in the sales strategy of the community;"],["","\u25cf","current local market economic and demographic conditions and related trends of forecasts; and"],["","\u25cf","existing home inventory supplies, including foreclosures and short sales."]]
[[/GREPCENT_TABLE]]

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These and other local market-specific conditions that may be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community may lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one community that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, sales absorption pace and selling strategies, could materially impact future cash flow and fair-value estimates. Due to the number of scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and no impairment is recorded. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by calculating the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from third parties. The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we may be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.

From time to time, we write off deposits, engineering and capitalized interest costs when we determine that it is no longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding not to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed not probable that the optioned property will be acquired.

Inventories held for sale are land parcels ready for sale in their current condition, where we have decided not to build homes but are instead actively marketing the land. Land held for sale is recorded at the lower of carrying amount or fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from third parties.

Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated entities in which the Company has significant influence over the operating and financial decisions of the entity, but holds less than a controlling financial interest, are accounted for by the equity method. In all periods presented, our investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method. Under the equity method, we recognize our proportionate share of income and loss earned by the joint venture upon the delivery of lots or homes to third parties. Our ownership interests in joint ventures vary but our voting equity interests held are generally 20% to 50%. In determining whether or not we must consolidate joint ventures where we are the managing member of the joint venture, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the significant operating and capital decisions of the partnership, including budgets, in the ordinary course of business. The evaluation of whether or not we control a joint venture can require significant judgment. In accordance with ASC 323, “Investments - Equity Method and Joint Ventures” we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows.

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Warranty Costs and Construction Defect Reserves - We accrue warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general, and administrative costs. Our insurance coverage generally includes deductibles either in the aggregate or on a per-claim basis, with the exception of workers’ compensation insurance, which does not have a deductible. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a third-party actuary. The third-party actuary uses our historical warranty and construction defect data to assist management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates consider provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. As a high degree of judgment is required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer.

Deferred Income Taxes - Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and income tax purposes. If the combination of future years’ income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried forward to future years to recover the DTAs. We evaluate all available positive and negative evidence, including the existence of losses in recent years and forecasts of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions we use in forecasting future taxable income require significant judgment. The ultimate realization of DTAs is dependent on the generation of future taxable income during the periods in which temporary differences or carry-forwards are deductible or creditable. A valuation allowance is provided to offset DTAs if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized.

In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC 740, “Income Taxes” for more likely than not exposures. We re-evaluate the exposures associated with our tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years may elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and the income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to income tax expense in the period in which they are determined.

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Recent Accounting Pronouncements

See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Safe Harbor Statement 

All statements in this Annual Report on Form 10-K 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:

[[GREPCENT_TABLE]]
[["","\u25cf","Changes in general and local economic, industry and business conditions and impacts of a significant homebuilding downturn;"],["","\u25cf","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;"],["","\u25cf","Fluctuations in interest rates and the availability of mortgage financing, including as a result of instability in the banking sector;"],["","\u25cf","Increases in inflation;"],["","\u25cf","Adverse weather and other environmental conditions and natural disasters;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The seasonality of the Company\u2019s business;"],["","\u25cf","The availability and cost of suitable land and improved lots and sufficient liquidity to invest in such land and lots;"],["","\u25cf","Reliance on, and the performance of subcontractors;"],["","\u25cf","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;"],["","\u25cf","Increases in cancellations of agreements of sale;"],["","\u25cf","Changes in tax laws affecting the after-tax costs of owning a home;"],["","\u25cf","Legal claims brought against us and not resolved in our favor, such as product liability litigation, warranty claims and claims made by mortgage investors;"],["","\u25cf","Levels of competition;"],["","\u25cf","Utility shortages and outages or rate fluctuations;"],["","\u25cf","Information technology failures and data security breaches;"],["","\u25cf","Negative publicity;"],["","\u25cf","Global economic and political instability;"],["","\u25cf","High leverage and restrictions on the Company\u2019s operations and activities imposed by the agreements governing the Company\u2019s outstanding indebtedness;"],["","\u25cf","Availability and terms of financing to the Company;"],["","\u25cf","The Company\u2019s sources of liquidity;"],["","\u25cf","Changes in credit ratings;"],["","\u25cf","Government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment;"],["","\u25cf","Potential liability as a result of the past or present use of hazardous materials;"],["","\u25cf","Operations through unconsolidated joint ventures with third parties;"],["","\u25cf","Significant influence of the Company\u2019s controlling stockholders;"],["","\u25cf","Availability of net operating loss carryforwards; and"],["","\u25cf","Loss of key management personnel or failure to attract qualified personnel."]]
[[/GREPCENT_TABLE]]

Certain risks, uncertainties and other factors are described in detail in Part I, Item 1 “Business” and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K as updated by our subsequent filings with the SEC. 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 Annual Report on Form 10-K.

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