What changed in this filing

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Item 1A. Risk Factors

2022-01-04 compared with 2020-12-22 · 91 added, 78 removed, 291 unchanged (37% of the section changed)

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Our business has been, and could continue to be, materially and adversely disrupted by the present outbreak and worldwide spread of COVID-19 and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.

There have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and worldwide spread of the novel coronavirus (COVID-19) in the United States and across the world, including quarantines, curfews, “stay-at-home”

or “shelter in place”

orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. 

Such measures undertaken by governmental authorities to address COVID-19 have, and could continue to, significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and consumer uncertainty, have a material adverse impact on our Consolidated Financial Statements.

Our response to the various governmental measures in mid-March and early April of 2020, including, among other measures, temporarily closing our sales offices, model homes and design studios to the general public and limiting our construction operations, and the response of municipal and private services we rely on, substantially tempered our sales pace.

Beginning in May and continuing through October 31, 2020 our sales pace has exceeded our pre-COVID sales pace.

The further spread of COVID-19 and a resurgence of the infection rate have led governmental authorities to once again tighten restrictions.

Although our sales pace and net contracts have continued to be reasonably strong, they have slowed some more recently, and we remain uncertain regarding the full long-term magnitude or duration of the business and economic impacts from the unprecedented COVID-19 pandemic.

Further, it remains unknown whether recent, current or anticipated demand will continue once the current COVID-19 pandemic subsides.

Our business could also be negatively impacted over the medium-to-longer term if the lasting disruptions related to the COVID-19 pandemic decrease consumer confidence generally or more particularly with respect to purchasing a home;

cause civil unrest;

or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our homes;

impair our ability to sell and build homes in a typical manner or at all, generate revenues and cash flows, and/or access our senior secured revolving credit facility or the capital or lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business;

increase the costs or decrease the supply of building materials or the availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts;

and/or result in our recognizing charges in future periods, which may be material, for impairments, land option write-offs or restructuring.

Such a circumstance could, among other things, exhaust our available liquidity (and ability to access liquidity sources) and/or trigger an acceleration to pay a significant portion or all of our then-outstanding debt obligations, which we may be unable to do.

The impacts from COVID-19 may also further delay our ability to reverse all or any portion of our valuation allowance for deferred taxes.

The inherent uncertainties surrounding the COVID-19 pandemic, due in part to the evolving and changing environment, infection levels and governmental directives, concerns about the winter months, public health challenges and progress, and market reactions thereto, also make it more challenging for our management to estimate the future performance of our business and develop strategies to generate growth or achieve our objectives. 

Should the adverse impacts described above (or others that are currently unknown) occur or intensify, whether individually or collectively, we would expect to experience, among other things, decreases in our net contracts, homes delivered, average selling prices, revenues and profitability, some of which we experienced in March and April of 2020, and such impacts could be material to our Consolidated Financial Statements in future periods.

The homebuilding industry is significantly affected by changes in general and local economic conditions, real estate markets, and weather and other environmental conditions, which could affect our ability to build homes at prices our customers are willing or able to pay, could reduce profits that may not be recaptured, could result in cancellation of sales contracts, and could affect our liquidity.

The homebuilding industry is significantly affected by changes in general and local economic conditions and real estate markets, which could affect our ability to build homes at prices our customers are willing or able to pay, could reduce profits that may not be recaptured, could result in cancellation of sales contracts, and could affect our liquidity.

The homebuilding industry is cyclical, has from time to time experienced significant difficulties, and is significantly affected by changes in general and local economic conditions such as:

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If we are unable to obtain such additional letters of credit as needed to operate our business, we would be adversely affected.

Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods or prolonged precipitation, droughts, fires and other environmental conditions can harm the local homebuilding business. Some of our business is in areas that are particularly vulnerable to the physical impacts of climate change, such as from the increased frequency and severity of such weather conditions, which can delay home construction, increase costs by damaging inventories, reduce the availability of building materials, and negatively impact the demand for new homes in affected areas, as well as slow down or otherwise impair the ability of utilities and local governmental authorities to provide approvals and service to new housing communities.

For example, wildfires in California and hurricanes in Texas and Florida in recent years have at various times caused utility company delays, slowing of our production process, increased cost of operations and also have impacted our sales and construction activity in affected markets during the related time periods. 

In addition, geopolitical events, acts of war or terrorism, threats to national security, civil unrest, any outbreak or escalation of hostilities throughout the world and health pandemics may have a substantial impact on the economy, consumer confidence, the housing market, our associates and our customers.

The difficulties described above could cause us to take longer and incur more costs to build our homes.

In addition, our insurance may not fully cover business interruptions or losses caused by weather conditions and manmade or natural disasters and we may not be able to recapture increased costs by raising prices in many cases because we fix our prices up to 12 months in advance of delivery by signing home sales contracts.

In addition, our insurance may not fully cover business interruptions or losses caused by weather conditions and man-made or natural disasters and we may not be able to recapture increased costs by raising prices in many cases because we fix our prices up to 12 months in advance of delivery by signing home sales contracts.

Some home buyers may also cancel or not honor their home sales contracts altogether.

Raw material and labor shortages and price fluctuations could delay or increase the cost of home construction and adversely affect our operating results.

The homebuilding industry is vulnerable to raw material and labor shortages and has from time to time experienced such shortages.

In particular, shortages and fluctuations in the price of lumber or in other important raw materials could result in delays in the start or completion of, or increase the cost of, developing one or more of our residential communities.

Pricing for labor and raw materials can be affected by various national, regional, local, economic and political factors.

For example, the federal government has imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with the construction and delivery of our homes, including lumber, raising our costs for these items (or products made with them).

Such government imposed tariffs and trade regulations on imported building supplies, and retaliatory measures by other countries, may in the future have significant impacts on the cost to construct our homes and on our customers’

budgets, including by causing disruptions or shortages in our supply chain .

We have experienced some labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, over the past few years.

The cost of labor may be adversely affected by changes in immigration laws and trends in labor migration.

In addition, increased demand could increase material and labor costs.

Due to significantly increased demand in June and July of 2020, we began increasing home prices which continued throughout fiscal 2021.

While we believe that these price increases could offset potential material and labor cost increases, if rising labor and house construction costs substantially outpace increases in the income of potential purchasers we may be limited in our ability to raise home sale prices, which may result in lower gross margins.

Since the COVID-19 pandemic began, we have experienced construction delays due to shortages in the supply of materials, as well as labor shortages in all of our markets.

Additionally, we experienced a significant increase in lumber prices during fiscal 2021, although we have recently seen prices start to decrease.

or “shelter in place”

orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. 

Beginning in May 2020 and continuing through April 30, 2021, our sales pace exceeded our pre-COVID sales pace.

The further spread of COVID-19 and a resurgence of the infection rate have led governmental authorities to once again tighten restrictions.

Although our sales pace and net contracts have continued to be reasonably strong, similar to pre-COVID sales pace, they have slowed some more recently, and we remain uncertain regarding the full long-term magnitude or duration of the business and economic impacts from the unprecedented COVID-19 pandemic.

Further, it remains unknown whether recent, current or anticipated demand will continue once the current COVID-19 pandemic subsides.

cause civil unrest;

or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our homes;

increase costs of doing business due to the potential impact of vaccine mandates/testing requirements;

and/or result in our recognizing charges in future periods, which may be material, for impairments, land option write-offs or restructuring.

The homebuilding industry is significantly affected by changes in weather and other environmental conditions, and resulting governmental regulations. 

Additionally, the physical impacts of climate change may cause these occurrences to increase in frequency, severity and duration, which can delay home construction, increase costs by damaging inventories, reduce the availability of building materials, and negatively impact the demand for new homes in affected areas, as well as slow down or otherwise impair the ability of utilities and local governmental authorities to provide approvals and service to new housing communities.

Additionally, other coastal areas where we operate face increased risks of adverse weather or natural disasters.

In addition, there is a growing concern from advocacy groups and the general public that the emissions of greenhouse gases and other human activities have caused, or will cause, significant changes in weather patterns and temperatures and the frequency and severity of natural disasters.

Government mandates, standards and regulations enacted in response to these projected climate changes impacts could result in restrictions on land development in certain areas or increased energy, transportation and raw material costs that may adversely affect our financial condition and results of operations.

A significant downturn in the homebuilding industry could materially and adversely affect our business.

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We may be at a disadvantage in competing for land compared to others who have more substantial cash resources.

Raw material and labor shortages and price fluctuations could delay or increase the cost of home construction and adversely affect our operating results.

The homebuilding industry is vulnerable to raw material and labor shortages and has from time to time experienced such shortages.

Pricing for labor and raw materials can be affected by various national, regional, local, economic and political factors.

budgets, including by causing disruptions or shortages in our supply chain .

We have experienced some labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, over the past few years.

The cost of labor may be adversely affected by changes in immigration laws and trends in labor migration.

In addition, increased demand could increase material and labor costs.

Due to significantly increased demand in June and July of 2020, we began increasing home prices.

We rely on subcontractors to construct our homes and may incur costs or losses if these subcontractors fail to properly construct our homes or manage and pay their employees, or if products supplied to us by subcontractors are defective.

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If market conditions significantly worsen, additional inventory impairment losses and land option write-offs will likely be necessary.

We conduct a significant portion of our business in Arizona, California, Florida, New Jersey, Ohio, Texas and Virginia, and accordingly, regional factors affecting home sales and activities in these markets may have a large impact on our results of operations.

We presently conduct a significant portion of our business in Arizona, California, Florida, New Jersey, Ohio, Texas and Virginia, which subjects us to risks associated with the regional and local economies of these markets.

We conduct a significant portion of our business in Arizona, California, Delaware, Florida, Maryland, New Jersey, Ohio, Texas and Virginia, and accordingly, regional factors affecting home sales and activities in these markets may have a large impact on our results of operations.

We presently conduct a significant portion of our business in Arizona, California, Delaware, Florida, Maryland, New Jersey, Ohio, Texas and Virginia, which subjects us to risks associated with the regional and local economies of these markets.

Home prices and sales activities in these markets and in most of the other markets in which we operate have declined from time to time, particularly as a result of slow economic growth.

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In some situations, however, a home buyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local law, an inability to obtain mortgage financing at prevailing interest rates (including financing arranged or provided by us), an inability to sell the current home, or our inability to complete and deliver the new home within the specified time.

At October 31, 2020, including unconsolidated joint ventures, we had a backlog of signed contracts for 4,820 homes with a sales value aggregating $1.8 billion.

At October 31, 2021, including unconsolidated joint ventures, we had a backlog of signed contracts for 5,535 homes with a sales value aggregating $2.2 billion.

If mortgage financing becomes less accessible, or if economic conditions deteriorate, more home buyers may cancel their agreements of sale with us, which could have an adverse effect on our business and results of operations.

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Further, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.

Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.

Inflation can adversely affect us by increasing costs of land, materials and labor.

In addition, inflation is often accompanied by higher interest rates.

In an inflationary environment, such as the current economic environment, depending on homebuilding industry and other economic conditions, we may be unable to raise home prices enough to keep up with the rate of inflation, which would reduce our profit margins.

Given the inflation rates in fiscal year 2021, we have experienced, and continue to experience, increases in the prices of land, labor and materials.

Continued inflationary pressures could impact our profitability.

Increases in the after-tax costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

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For instance, the annual deduction for real estate taxes and state and local income taxes (or sales taxes in lieu of income taxes) is now generally limited to $10,000.

Proposed legislation that was passed by the House of Representatives in November 2021 (the “Build Back Better Act”) would generally raise this limit to $80,000 through 2030, but there can be no assurance that this proposed legislation will be enacted and, even if enacted, there may be changes with respect thereto (i.e., that would modify the limit) prior to enactment.

Furthermore, through the end of 2025, the deduction for mortgage interest is generally only available with respect to the first $750,000 of a new mortgage and there is no longer a federal deduction for interest on home equity loans.

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In addition, increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in insurance premiums can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and can have an adverse impact on our business and financial results.

Further, existing and prospective regulatory and societal responses to climate change intended to reduce potential climate change impacts may increase the upfront costs of purchasing a home, costs to maintain the home and its systems, energy and utility costs and the cost to obtain homeowner and various hazard and flood insurance, or limit homeowners’

ability to obtain these insurance policies altogether.

Although these items have had no material effect on our business, they could adversely affect our business in the future.

Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties.

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Our financial services segment competes with other mortgage providers, primarily on the basis of fees, interest rates and other features of mortgage loan products.

The competitive conditions in the homebuilding industry together with current market conditions have, and could continue to, result in: 

difficulty in acquiring suitable land at acceptable prices;

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delays in construction;

or impairment of our ability to implement our strategies and operational actions. 

Any of these problems could increase costs and/or lower profit margins.

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In addition, we rely on the systems of third parties, such as third-party vendors.

Our computer systems, including our backup systems, and those of the third-parties on whose systems we rely, are subject to damage or interruption from computer and telecommunications failures, computer viruses, power outages, security breaches (including through data-theft and cyber-attack), usage errors by our associates and catastrophic events, such as fires, floods, hurricanes and tornadoes.

Our computer systems, including our backup systems, and those of the third-parties on whose systems we rely, are subject to damage or interruption from computer and telecommunications failures, computer viruses, power outages, security breaches (including through phishing attempts, data-theft and cyber-attack), ransomware attacks, usage errors by our associates and catastrophic events, such as fires, floods, hurricanes and tornadoes.

As part of our normal business activities, we collect and store certain personal identifying and confidential information relating to our homebuyers, employees, vendors and suppliers, and maintain operational and financial information related to our business.

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Data protection and privacy laws have been enacted by the U.S.

federal and state governments, including the California Consumer Privacy Act, which became effective on January 1, 2020, and the regulatory regime continues to evolve and is increasingly demanding. 

Many states are considering privacy and security legislation and there are ongoing discussions regarding a national privacy law. 

federal and state governments, including the California Consumer Privacy Act, which became effective on January 1, 2020, and the regulatory regime continues to evolve and is increasingly demanding.

Many states have passed or are considering privacy and security legislation and there are ongoing discussions regarding a national privacy law.

Variations in requirements across other states could present compliance challenges, as well as significant costs related to compliance.

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We have a significant amount of debt.

Our debt (excluding nonrecourse secured debt and debt of our financial subsidiaries), as of October 31, 2020, including the debt of the subsidiaries that guarantee our debt, was $1,435.7 million ($1,431.1 million net of discount and premiums and debt issuance costs).

Our debt (excluding nonrecourse secured debt and debt of our financial subsidiaries), as of October 31, 2021, including the debt of the subsidiaries that guarantee our debt, was $1,254.9 million ($1,248.4 million net of discount and premiums and debt issuance costs).

Additionally, we have a $125.0 million senior secured revolving credit facility, which was fully available for borrowing as of October 31, 2021.

Our debt service payments for the year ended October 31, 2020, were $349.3 million, which represented interest incurred and payments on the principal of our debt and do not include principal and interest on nonrecourse secured debt, debt of our financial subsidiaries and fees under our letter of credit and other credit facilities and agreements.

As of October 31, 2020, we had $11.3 million in aggregate outstanding face amount of letters of credit issued under various letter of credit and other credit facilities and agreements, certain of which were collateralized by $11.6 million of cash.

Our fees for these letters of credit for the year ended October 31, 2020, which are based on both the used and unused portion of the facilities and agreements, were $0.4 million.

We also had substantial contractual commitments and contingent obligations, including $194.4 million of performance bonds as of October 31, 2020.

Our debt service payments for the year ended October 31, 2021, were $318.8 million, which represented interest incurred and payments on the principal of our debt and do not include principal and interest on nonrecourse secured debt, debt of our financial subsidiaries and fees under our letter of credit and other credit facilities and agreements.

As of October 31, 2021, we had $9.3 million in aggregate outstanding face amount of letters of credit issued under various letter of credit and other credit facilities and agreements, certain of which were collateralized by $9.9 million of cash.

Our fees for these letters of credit for the year ended October 31, 2021, which are based on both the used and unused portion of the facilities and agreements, were $0.2 million.

We also had substantial contractual commitments and contingent obligations, including $223.8 million of performance bonds as of October 31, 2021.

See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations.”

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We are largely dependent on our current cash balance and future cash flows from operations (which may not be positive) to enable us to service our indebtedness, to cover our operating expenses and/or to fund our other liquidity needs.

Cash provided by operating activities in fiscal 2020 was $292.8 million and cash used in operating activities in fiscal 2019 was $249.1 million.

Depending on the levels of our land purchases, we could generate negative or positive cash flow in future years.

Cash provided by operating activities in fiscal 2021 and 2020 was $210.2 million and $292.8 million, respectively.

Depending on the levels of our land purchases, we could generate positive or negative cash flow in future years.

If the current improved market conditions in the homebuilding industry do not continue over the next several years, our cash flows could be insufficient to fund our obligations and support land purchases, and if we cannot buy additional land we would ultimately be unable to generate future revenues from the sale of houses.

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operations and activities.

The most significant restrictions relate to debt incurrence (including non-recourse indebtedness), creation of liens, repayment of certain indebtedness prior to its respective stated maturity, sales of assets (including in certain land banking transactions), cash distributions, (including paying dividends on common and preferred stock), capital stock repurchases, and investments by us and certain of our subsidiaries (including in joint ventures).

Because of these restrictions, we are currently prohibited from paying dividends on our common and preferred stock and anticipate that we will remain prohibited for the foreseeable future.

The most significant restrictions relate to debt incurrence (including non-recourse indebtedness), creation of liens, repayment of certain indebtedness prior to its respective stated maturity, sales of assets (including in certain land banking transactions), cash distributions, (including paying dividends on common and preferred stock), capital stock repurchases/exchanges, and investments by us and certain of our subsidiaries (including in joint ventures).

Because of these restrictions, we could be prohibited from paying dividends on our common and preferred stock.

The restrictions in our debt instruments could prohibit or restrict our and certain of our subsidiaries’

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Any of the above delays or costs could have a negative effect on our future revenues and earnings.

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

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

and contamination or other environmental conditions at or in the vicinity of our developments may result in claims against us for personal injury, property damage or other losses.

Government mandates, standards and regulations enacted in response to these projected climate change impacts could result in restrictions on land development in certain areas or increased energy, transportation and raw material costs.

There is a variety of legislation being enacted, or considered for enactment at the federal, state, local and international levels relating to energy and climate change.

This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards, as well as standards to improve the resiliency of buildings to climate-related impacts such as flooding storm surges, severe winds, and other extreme weather-related stress on buildings.

In particular, new building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct homes.

We anticipate that increasingly stringent requirements will continue to be imposed on developers and homebuilders in the future.

For example, for a number of years, the EPA and U.S.

Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a June 2015 rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation. After a series of interim rulemakings, in April 2020 the EPA and the U.S.

Army Corps of Engineers formally published the Navigable Waters Protection Rule, which they characterize as more appropriate for determining the scope of waters subject to federal permitting.

The new rule took effect in June 2020 in all states except Colorado, where a federal district court issued a preliminary injunction against application of the rule in that state.

It is being challenged by 17 states in one lawsuit and by a number of environmental advocacy groups in at least three other lawsuits, as well as in several lawsuits by cattlemen and other rancher groups contending that the new rule still exercises permitting authority over too many waters. It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate.

Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations.

In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In addition, some of these laws and regulations that significantly affect how certain properties may be developed are contentious, attract intense political attention, and may be subject to 

significant changes over time.

For example, regulations governing wetlands permitting under the federal Clean Water Act have been the subject of extensive rulemakings for many years, resulting in several major joint rulemakings by the EPA and the U.S.

Army Corps of Engineers that have expanded and contracted the scope of wetlands subject to regulation;

and such rulemakings have been the subject of many legal challenges, some of which remain pending.

It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate.

Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations.

In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In March 2013, we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the 1990s.

We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead.

We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead.

We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project.

We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site.

We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company.

The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests.

We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site.

We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company.

The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests.

On May 2, 2018 the EPA sent a letter to the Company entity demanding reimbursement for 100% of the EPA’s costs to clean-up the site in the amount of $2.7 million.

The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations.

The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations.

Two other PRPs identified by the EPA are now also in negotiations with the EPA and in preliminary negotiations with the Company regarding the site.

In the course of negotiations, the EPA informed the Company that the New Jersey Department of Environmental Protection has also incurred costs remediating part of the site.

In the course of negotiations, the EPA informed the Company that the New Jersey Department of Environmental Protection ("NJDEP") has also incurred costs remediating part of the site.

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

The Company and the other two PRPs are parties to a series of agreements tolling the statute of limitations on the EPA’s claims for reimbursement, most recently extending the date until January 15, 2021.

The Company and the other two PRPs are parties to a series of agreements tolling the statute of limitations on the EPA's claims for reimbursement, most recently extending the date until April 20, 2022.

We believe that we have adequate reserves for this matter.

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We currently operate through a number of unconsolidated homebuilding and land development joint ventures with independent third parties in which we do not have a controlling interest.

At October 31, 2020, we had invested an aggregate of $103.2 million in these unconsolidated joint ventures, including net advances from these unconsolidated joint ventures of $1.1 million.

At October 31, 2021, we had invested an aggregate of $60.9 million in these unconsolidated joint ventures, including net advances to these unconsolidated joint ventures of $2.2 million.

In addition, as part of our strategy, we intend to continue to evaluate additional joint venture opportunities;

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Our controlling stockholders are able to exercise significant influence over us.

Members of the Hovnanian family, including Ara K.

Hovnanian, our chairman of the board, president, and chief executive officer, have voting control, through personal holdings, the limited partnership and the limited liability company established for members of Mr. Hovnanian’s family and family trusts of Class A and Class B common stock that enabled them to cast approximately 55% of the votes that could be cast by the holders of our outstanding Class A and Class B common stock combined as of October 31, 2020.

Their combined stock ownership enables them to exert significant control over us, including power to control the election of the Board of Directors and to approve matters presented to our stockholders.

The combined ownership of members of the Hovnanian family, including Ara K.

Hovnanian, our chairman of the board, president, and chief executive officer, through personal holdings, the limited partnership and the limited liability company established for members of Mr. Hovnanian’s family and family trusts of Class A and Class B common stock, enables them to exert significant control over us, including power to control the election of the Board of Directors and to approve matters presented to our stockholders.

Such holdings represented approximately 55% of the votes that could be cast by the holders of our outstanding Class A and Class B common stock combined as of October 31, 2021.

This concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without their support.

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Our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code.

Based on past impairments and our current financial performance, we generated a federal net operating loss carryforward of $1.4 billion through the fiscal year ended October 31, 2020, and we may generate net operating loss carryforwards in future years.

Based on past impairments and our current financial performance, we generated a federal net operating loss carryforward of $1.2 billion through the fiscal year ended October 31, 2021, and we may generate net operating loss carryforwards in future years.

Section 382 of the United States Internal Revenue Code of 1986, as amended (the “Code”), contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss carryforwards and certain built-in losses recognized in years after the ownership change.

28 unchanged sentences

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What changed 10-K

Item 1A. Risk Factors