What changed in this filing

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Item 1A. Risk Factors

2022-12-19 compared with 2022-01-04 · 114 added, 103 removed, 279 unchanged (44% of the section changed)

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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:

Employment levels and wage and job growth;

Interest rates;

Employment levels and wage and job growth; 

Labor shortages and increasing labor and materials costs, including because of changes in immigration laws and trends in labor migration; 

Availability and affordability of financing for home buyers;

Interest rates;

Adverse changes in tax laws;

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Foreclosure rates;

Consumer confidence and spending;

Housing affordability, consumer confidence and spending;

Housing demand in general and for our particular community locations and product designs, as well as consumer interest in purchasing a home compared to other housing alternatives;

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Availability of water supply in locations in which we operate.

Turmoil in the financial markets could affect our liquidity.

Turmoil in the financial markets can affect our liquidity.

In addition, our cash balances are primarily invested in short-term government-backed instruments.

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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.

Some 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.

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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).

For example, the federal government has previously 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.

We have also experienced labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, particularly over the past year due to historic inflation rates in the United States.

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.

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 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.

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;

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.

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 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 weather and other environmental conditions, and resulting governmental regulations. 

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.

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.

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.

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.

Throughout fiscal 2022, we experienced construction delays due to shortages in the supply of materials, as well as labor and subcontractor shortages in all of our markets.

These delays impact the timing of our expected home closings and may also result in cost increases that we may not be able to pass to our current or future customers.

Sustained increases in construction costs may, over time, erode our margins, and impact our total contract or delivery volumes.

Due to significantly increased demand in June and July of 2020, we began increasing home prices which continued throughout the first half of fiscal 2022.

During the second half of fiscal 2022 demand and home prices started to decrease as a result of rising mortgage rates.

If we are limited in our ability to raise home prices and labor and house construction costs rise further, we could experience lower gross margins.

Additionally, we experienced a significant increase in lumber prices during fiscal 2021 and into the first half of fiscal 2022 due to supply chain issues, but we have recently seen prices start to decrease.

Interest rates have increased substantially over the last year and may continue to increase.

Because almost all of our customers require mortgage financing, increases in interest rates or the decreased availability of mortgage financing could considerably impair the affordability of our homes, lower demand for our products, limit our marketing effectiveness and limit our ability to fully realize our backlog.

Virtually all of our customers finance their acquisitions through lenders providing mortgage financing.

Over the past several years mortgage rates have been historically low, which made the homes we sell more affordable.

However, mortgage rates more than doubled in fiscal year 2022, as a result of the Federal Reserve raising interest rates in an effort to curtail inflation.

When interest rates increase, the cost of owning a home increases, which reduces the number of potential homebuyers who can obtain mortgage financing and can result in a decline in the demand for our homes.

We cannot predict whether interest rates will continue to rise, or the paces of the increases, but further increases would likely have a considerable impact on housing demand.

Increases in interest rates (or the perception that interest rates will rise, including as a result of government actions), increases in the costs to obtain mortgages or decreases in availability of mortgage financing have, and could continue to, lower demand for new homes because of the increased monthly mortgage costs and cash required to close on mortgages to potential home buyers.

Even if potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their existing homes to potential buyers who need financing.

This could prevent or limit our ability to attract new customers as well as our ability to fully realize our backlog because our sales contracts generally include a financing contingency.

Financing contingencies permit the customer to cancel his/her obligation in the event mortgage financing at prevailing interest rates, including financing arranged or provided by us, is unobtainable within the period specified in the contract.

This contingency period is typically four to eight weeks following the date of execution of the sales contract.

We believe that the availability of mortgage financing, including through federal government agencies or government-sponsored enterprises (such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHA/VA financing), is an important factor in marketing many of our homes.

Any limitations or restrictions on the availability of mortgage financing (including due to any failure of lawmakers to agree on a budget or appropriation legislation to fund relevant programs or operations) could reduce our sales.

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 and by increasing mortgage rates for homebuyers.

Inflation can adversely affect us by increasing costs of land, materials and labor, which we have experienced in fiscal year 2022 due to historic inflation rates.

In addition, as discussed above, inflation is often accompanied by higher interest rates that could cause a slowdown in the housing market.

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.

Moreover, in an inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which can have an adverse impact on our business or financial results.

In an effort to counteract such inflationary pressures and maintain sales volumes in light of these challenges, we have offered increased sales incentives and have been purchasing bulk mortgage lock commitments to be used for qualifying homebuyers, which reduce our profit margins.

These measures may not be successful and continued inflationary pressures could further impact our profitability.

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

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In addition, an oversupply of alternatives to new homes, such as rental properties, resale homes and foreclosures, depressed prices and reduced margins for the sale of new homes.

Industry conditions had a material adverse effect on our business and results of operations in fiscal years 2007 through 2011.

Industry conditions had a material adverse effect on our business and results of operations in fiscal 2007 through 2011.

Further, we had substantially increased our inventory through fiscal 2006, which required significant cash outlays and which increased our price and margin exposure as we worked through this inventory.

If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.

In particular, during the second half of fiscal 2022, housing demand weakened due to a sharp increase in mortgage rates, the substantial increase in home prices experienced over the past two years, significant inflation in the broader economy, stock market volatility, and other macro-economic conditions, which have adversely impacted buyer sentiment and behavior.

Additionally, U.S.

single family home starts fell to the lowest level in more than two years in September 2022, which many predict will not recover in light of rising interest rates and recessionary fears.

Therefore, the risks discussed above are more pronounced in the current economic environment.

Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

The World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions 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. We responded in various ways to the 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, limiting our construction operations, and reducing the municipal and private services we rely on, which substantially tempered our sales pace.

Beginning in May 2020 and continuing through April 2021, our sales pace recovered and exceeded our pre-COVID-19 sales pace.

However, the effects of the pandemic combined with the improvement in economic conditions and the strong demand for new homes caused multiple disruptions in our supply chain and have resulted in shortages in certain building materials and tightness in the labor market, which has caused our construction cycle to lengthen.

While government restrictions have eased throughout 2022 and people have largely resumed pre-pandemic activities, the effects of COVID-19 continue to linger in the U.S.

economy and our supply chain.

Future disruptions and governmental actions, due to COVID-19 or a different epidemic or pandemic, combined with any associated economic and/or social instability or distress, may have an adverse impact on our results of operations, financial condition and cash flows.

The homebuilding industry is significantly affected by changes in weather and other environmental conditions and resulting governmental regulations and increased focus by stakeholders on sustainability issues. 

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 adversely 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.

These concerns have also resulted in increasing governmental and societal attention to environmental, social, and governance ("ESG") matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess, and report.

These and other rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, may create challenges for the Company, including our compliance and ethics programs, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows.

Our business is seasonal in nature and our quarterly operating results fluctuate.

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See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies.”

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, 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.

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

We conduct a significant portion of our business in Arizona, California, Delaware, 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, Delaware, Florida, 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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We have received a deposit from our home buyer for each home, which is reflected in our backlog, and we generally have the right to retain the deposit if the home buyer does not complete the purchase.

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.

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 their current home, or our inability to complete and deliver the new home within the specified time.

At October 31, 2022, including unconsolidated joint ventures, we had a backlog of signed contracts for 4,710 homes with a sales value aggregating $1.9 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.

Interest rates have been low compared to most historical periods over the last several years and may increase.

Because almost all of our customers require mortgage financing, increases in interest rates or the decreased availability of mortgage financing could impair the affordability of our homes, lower demand for our products, limit our marketing effectiveness and limit our ability to fully realize our backlog.

Virtually all of our customers finance their acquisitions through lenders providing mortgage financing.

Mortgage rates have generally remained low compared to most historical periods for the last several years, which has made the homes we sell more affordable.

We cannot predict whether interest rates will continue to fall, remain low or rise.

Increases in interest rates (or the perception that interest rates will rise, including as a result of government actions), increases in the costs to obtain mortgages or decreases in availability of mortgage financing could lower demand for new homes because of the increased monthly mortgage costs and cash required to close on mortgages to potential home buyers.

This could prevent or limit our ability to attract new customers as well as our ability to fully realize our backlog because our sales contracts generally include a financing contingency.

This contingency period is typically four to eight weeks following the date of execution of the sales contract.

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.

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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which was signed into law in December 2017 includes provisions which impose significant limitations with respect to these income tax deductions.

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.

For instance, through the end of 2025, 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.

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’

Further, existing and prospective regulatory and societal focus on and 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.

Although these items have not materially impacted our business to date, 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;

The competitive conditions in the homebuilding industry together with current market conditions have caused, and could continue to result in, difficulty in acquiring suitable land at acceptable prices;

increased selling incentives;

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Information technology failures and data security breaches could harm our business.

We use information technology, digital telecommunications and other computer resources to carry out important operational activities and to maintain our business records.

We use information technology ("IT"), digital telecommunications and other computer resources to conduct important operational activities and to maintain our business records.

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

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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.

federal and state governments, including the California Consumer Privacy Act (and its successor the California Privacy Rights Act which will go into effect in January 2023) and the Virginia Consumer Data Protection Act, which will become effective in January 2023, 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.

Privacy, security, and compliance concerns have continued to increase as technology has evolved.

Further, there has been a surge in widespread cyber-attacks during and since the COVID-19 pandemic, and the use of remote work environments and virtual platforms may increase our risk of cyber-attack or data security breaches.

We maintain cybersecurity insurance coverage and have implemented systems and processes intended to secure our information technology systems and prevent unauthorized access to or loss of sensitive, confidential and personal data, including through the use of encryption and authentication technologies.

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Unfavorable media related to our industry, company, brand, personnel, operations, business performance, or prospects may impact our stock price and the performance of our business, regardless of its accuracy or inaccuracy.

The speed at which negative publicity is disseminated has increased dramatically through the use of electronic communication, including social media outlets, websites, “tweets”, and blogs.

The speed at which negative publicity is disseminated has increased dramatically through the use of electronic communication, including social media outlets, websites, “tweets,”

Our success in maintaining and expanding our brand image depends on our ability to adapt to this rapidly changing media environment.

Adverse publicity or negative commentary from any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.

Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.

Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, such as the conflict between Russia and Ukraine.

While we do not have any customer or direct supplier relationships in either country, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels.

In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business.

Risks Related to Our Debt and Liquidity

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

Our strategy has been to reduce our overall debt levels and while we have reduced our debt obligations by approximately $281 million over the past two years, as a result of recent declines in market conditions, we have paused on our debt retirement initiatives and are increasing our focus on preserving liquidity.

Our significant amount of debt could have important consequences.

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Require us to dedicate a substantial portion of our cash flow from operations to the payment of our debt and reduce our ability to use our cash flow for other purposes, including land investments;

Require us to pay higher interest rates upon refinancing debt if interest rates rise or due to the concentration of debt maturities;

Require us to pay higher interest rates upon refinancing debt if interest rates rise or due to the concentration of debt maturities or our overall leverage levels;

Limit our flexibility in planning for, or reacting to, changes in our business;

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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 2021 and 2020 was $210.2 million and $292.8 million, respectively.

Cash provided by operating activities in fiscal 2022 and 2021 was $89.5 million and $210.2 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.

If there is a sustained decline in market conditions in the homebuilding industry 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.

In addition, we will need to refinance all or a portion of our debt on or before maturity, which we may not be able to do on favorable terms or at all.

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Therefore, any downgrade by any of the principal credit agencies may exacerbate these difficulties.

There can be no assurances that our credit ratings will not be downgraded in the future, whether as a result of deteriorating general economic conditions, a more protracted downturn in the housing industry, failure to successfully implement our operating strategy, the adverse impact on our results of operations or liquidity position of any of the above, or otherwise.

There can be no assurances that our credit ratings will not be downgraded in the future, whether as a result of deteriorating general economic conditions, a protracted downturn in the housing industry, failure to successfully implement our operating strategy, the adverse impact on our results of operations or liquidity position of any of the above, or otherwise.

Restrictive covenants in our debt instruments may restrict our and certain of our subsidiaries’

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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/exchanges, and investments by us and certain of our subsidiaries (including in joint ventures).

The most significant restrictions relate to debt incurrence, 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.

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Any such event of default could lead to cross defaults under certain of our other debt or negatively impact other covenants.

In any of these situations, we may be unable to amend the applicable instrument or obtain a waiver without significant additional cost, or at all, and we may be unable to obtain alternative financing.

In any of these situations, we may be unable to amend the applicable debt instrument or obtain a waiver without significant additional cost, or at all, and we may be unable to obtain alternative financing.

Any such situation could have a material adverse effect on the solvency of the Company.

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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;

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

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

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

significant changes over time.

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

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.

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

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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.

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

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

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

We responded to the EPA’s request. In August 2013, we were notified that the EPA considers us a 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.

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

We began preliminary discussions with the EPA concerning a possible resolution.

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

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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 ("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 April 20, 2022.

We believe that we have adequate reserves for this matter.

Two other PRPs identified by the EPA began negotiations with the EPA and preliminary negotiations with the Company regarding the site.

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

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

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

Legal claims not resolved in our favor, such as product liability litigation and warranty claims may be costly.

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“Legal Proceedings,”

in the ordinary course of business we are involved in litigation from time to time, including with home owners associations, home buyers and other persons with whom we have relationships.

in the ordinary course of business we are involved in litigation from time-to-time, including with homeowner associations, home buyers and other persons with whom we have relationships.

For example, as a homebuilder, we are subject to construction defect and home warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business.

Such claims are common in the homebuilding industry and can be costly.

For example, in the past we have received construction defect and home warranty claims associated with, and we were involved in a multidistrict litigation concerning, allegedly defective drywall manufactured in China that may have been responsible for noxious smells and accelerated corrosion of certain metals in certain homes we have constructed.

We remediated certain homes in response to such claims and settled the litigation.

With regard to certain general liability exposures such as product liability claims, construction defect claims and related claims, assessment of claims and the related liability and reserve estimation process is highly judgmental and 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.

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Furthermore, after claims are asserted for construction defects, it can be difficult to determine the extent to which assertions of such claims will expand geographically.

For example, the Company has been a party to litigation in New Jersey concerning alleged defects in construction (see Item 3 –

“Legal Proceedings”

and Note 18 to our Consolidated Financial Statements for the year ended October 31, 2021).

For example, the Company has been a party to litigation in New Jersey concerning alleged defects in construction (see Note 18 to our Consolidated Financial Statements for the year ended October 31, 2022).

In addition, the amount and scope of coverage offered by insurance companies is currently limited, and this coverage may be further restricted and become more costly.

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Additionally, we may need to significantly increase our construction defect and home warranty reserves as a result of insurance not being available for any of the reasons discussed above, such claims or the results of our annual actuarial study.

Tax increases and changes in tax rules may adversely affect our financial results

As a company conducting business with physical operations throughout North America, we are exposed, both directly and indirectly, to the effects of changes in U.S., state and local tax rules.

Taxes for financial reporting purposes and cash tax liabilities in the future may be adversely affected by changes in such tax rules.

Such changes may put us at a competitive disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs through to our customers.

The Biden administration has announced in 2022 and 2021, and in certain cases has enacted, a number of tax proposals to fund new government investments in infrastructure, healthcare, and education, among other things.

Certain of these proposals involve an increase in the domestic corporate tax rate, which if implemented could have a material impact on our future results of operations and cash flows.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law, with tax provisions primarily focused on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share repurchases.

The IRA also creates a number of potentially beneficial tax credits to incentivize investments in certain technologies and industries.

Certain provisions of the IRA will become effective beginning in fiscal 2023.

While we do not believe the IRA will have a material negative impact on our business, the effects of the measures are unknown at this time.

Risks Related to Our Organization and Structure

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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, 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.

At October 31, 2022, we had invested an aggregate of $74.9 million in these unconsolidated joint ventures, including outstanding net advances to these unconsolidated joint ventures of $1.6 million.

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

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Therefore, absent partner agreement, we will be unable to liquidate our joint venture investments to generate cash.

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

The Hovnanian family is able to exercise significant influence over us.

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

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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 $1.2 billion through the fiscal year ended October 31, 2021, and we may generate net operating loss carryforwards in future years.

Based on past impairments and our financial performance, we generated a federal net operating loss carryforward of $925.3 million through the year ended October 31, 2022, 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.

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or (iii) create a new “public group”

(as defined in the applicable United States Treasury regulations).

(as defined in the applicable U.S.

Treasury regulations).

We could be adversely impacted by the loss of key management personnel or if we fail to attract qualified personnel.

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UNRESOLVED STAFF COMMENTS

We rent approximately 63,000 square feet of office space in the Northeast for our corporate headquarters.

We own 215,000 square feet of office and warehouse space throughout the Midwest.

We lease approximately 314,000 square feet of space for our segments located in the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West.

We rent approximately 63,000 square feet of office space for our corporate headquarters and own 215,000 square feet of office and warehouse space in the Northeast.

We lease approximately 294,000 square feet of space for our segments located in the Northeast, Southeast and West.

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

What changed 10-K

Item 1A. Risk Factors