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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

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

For the quarterly period ended January 31, 2024

OR

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

Commission file number 1-8551

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

Delaware (State or Other Jurisdiction of Incorporation or Organization)

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

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

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

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

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


Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value per share

HOV

New York Stock Exchange

Preferred Stock Purchase Rights(1)

N/A

New York Stock Exchange

Depositary Shares each representing 1/1,000th of a share of 7.625% Series A Preferred Stock

HOVNP

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐

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

Large Accelerated Filer ☐

Accelerated Filer

Nonaccelerated Filer ☐

Smaller Reporting Company

Emerging Growth Company

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 5,346,595 shares of Class A Common Stock and 749,065 shares of Class B Common Stock were outstanding as of February 28, 2024.

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

(In thousands, except per share data)

(Unaudited)

January 31,

October 31,

2024

2023

ASSETS

Homebuilding:

Cash and cash equivalents

$ 183,118 $ 434,119

Restricted cash and cash equivalents

8,369 8,431

Inventories:

Sold and unsold homes and lots under development

1,092,347 998,841

Land and land options held for future development or sale

173,134 125,587

Consolidated inventory not owned

198,077 224,758

Total inventories

1,463,558 1,349,186

Investments in and advances to unconsolidated joint ventures

110,592 97,886

Receivables, deposits and notes, net

24,208 27,982

Property and equipment, net

37,441 33,946

Prepaid expenses and other assets

68,127 69,886

Total homebuilding

1,895,413 2,021,436

Financial services

149,633 168,671

Deferred tax assets, net

295,332 302,833

Total assets

$ 2,340,378 $ 2,492,940

LIABILITIES AND EQUITY

Homebuilding:

Nonrecourse mortgages secured by inventory, net of debt issuance costs

$ 99,553 $ 91,539

Accounts payable and other liabilities

360,207 415,480

Customers’ deposits

51,798 51,419

Liabilities from inventory not owned, net of debt issuance costs

114,658 124,254

Senior notes and credit facilities (net of discounts, premiums and debt issuance costs)

934,617 1,051,491

Accrued interest

41,472 26,926

Total homebuilding

1,602,305 1,761,109

Financial services

128,402 148,181

Income taxes payable

2,583 1,861

Total liabilities

1,733,290 1,911,151

Equity:

Hovnanian Enterprises, Inc. stockholders' equity:

Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at January 31, 2024 and October 31, 2023

135,299 135,299

Common stock, Class A, $0.01 par value - authorized 16,000,000 shares; issued 6,247,939 shares at January 31, 2024 and 6,247,308 shares at October 31, 2023

62 62

Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 776,734 shares at January 31, 2024 and 776,750 shares at October 31, 2023

8 8

Paid in capital - common stock

740,063 735,946

Accumulated deficit

(135,962 ) (157,197 )

Treasury stock - at cost – 901,379 shares of Class A common stock at January 31, 2024 and October 31, 2023; 27,669 shares of Class B common stock at January 31, 2024 and October 31, 2023

(132,382 ) (132,382 )

Total Hovnanian Enterprises, Inc. stockholders’ equity

607,088 581,736

Noncontrolling interest in consolidated joint ventures

- 53

Total equity

607,088 581,789

Total liabilities and equity

$ 2,340,378 $ 2,492,940

See notes to condensed consolidated financial statements (unaudited).

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

(In thousands, except per share data)

(Unaudited)


Three Months Ended January 31,

2024

2023

Revenues:

Homebuilding:

Sale of homes

$ 573,636 $ 499,645

Land sales and other revenues

5,292 3,557

Total homebuilding

578,928 503,202

Financial services

15,268 12,164

Total revenues

594,196 515,366

Expenses:

Homebuilding:

Cost of sales, excluding interest

449,213 391,040

Cost of sales interest

19,898 15,022

Inventory impairments and land option write-offs

302 477

Total cost of sales

469,413 406,539

Selling, general and administrative

48,937 47,918

Total homebuilding expenses

518,350 454,457

Financial services

11,471 9,053

Corporate general and administrative

37,133 25,490

Other interest

10,451 15,093

Other expenses, net

551 386

Total expenses

577,956 504,479

Gain on extinguishment of debt, net

1,371 -

Income from unconsolidated joint ventures

14,952 7,160

Income before income taxes

32,563 18,047

State and federal income tax provision (benefit):

State

2,206 2,211

Federal

6,453 (2,880 )

Total income taxes

8,659 (669 )

Net income

23,904 18,716

Less: preferred stock dividends

2,669 2,669

Net income available to common stockholders

$ 21,235 $ 16,047

Per share data:

Basic:

Net income per common share

$ 3.11 $ 2.37

Weighted-average number of common shares outstanding

6,496 6,186

Assuming dilution:

Net income per common share

$ 2.91 $ 2.26

Weighted-average number of common shares outstanding

6,937 6,468


See notes to condensed consolidated financial statements (unaudited).


HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

THREE MONTH PERIOD ENDED JANUARY 31, 2024

(In thousands, except share data)

(Unaudited)

 

   

A Common Stock

   

B Common Stock

   

Preferred Stock

                                         
   

Shares

           

Shares

           

Shares

                                                 
   

Issued and

           

Issued and

           

Issued and

           

Paid-In

   

Accumulated

   

Treasury

   

Noncontrolling

         
   

Outstanding

   

Amount

   

Outstanding

   

Amount

   

Outstanding

   

Amount

   

Capital

   

Deficit

   

Stock

   

Interest

   

Total

 
                                                                                       

Balance, October 31, 2023

    5,345,929     $ 62       749,081     $ 8       5,600     $ 135,299     $ 735,946     $ (157,197 )   $ (132,382 )   $ 53     $ 581,789  

                                                                                       

Stock options, amortization and issuances

    615                                     46                         46  
                                                                                         

Preferred dividend declared ($476.56 per share)

                                                            (2,669 )                     (2,669 )
                                                                                         

Restricted stock amortization, issuances and forfeitures

                                                4,071                               4,071  
                                                                                         
Conversion of Class B to Class A common stock 

16




(16 )





























-















































Changes in noncontrolling interest in consolidated joint ventures

                                                                          (53     (53
                                                                                         

Net income

                                                            23,904                       23,904  
                                                                                         

Balance, January 31, 2024

    5,346,560     $ 62       749,065     $ 8       5,600     $ 135,299     $ 740,063     $ (135,962 )   $ (132,382 )   $ -     $ 607,088  
                                                                                         

 

See notes to condensed consolidated financial statements (unaudited).

 


HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

THREE MONTH PERIOD ENDED JANUARY 31, 2023

(In thousands, except share data)

(Unaudited)

 

   

A Common Stock

   

B Common Stock

   

Preferred Stock

                                         
   

Shares

           

Shares

           

Shares

                                                 
   

Issued and

           

Issued and

           

Issued and

           

Paid-In

   

Accumulated

   

Treasury

   

Noncontrolling

         
   

Outstanding

   

Amount

   

Outstanding

   

Amount

   

Outstanding

   

Amount

   

Capital

   

Deficit

   

Stock

   

Interest

   

Total

 
                                                                                         

Balance, October 31, 2022

    5,376,985     $ 62       705,705     $ 7       5,600     $ 135,299     $ 727,663     $ (352,413 )   $ (127,582 )   $ 15     $ 383,051  
                                                                                         

Stock options, amortization and issuances

    209                                               8                               8  
                                                                                         

Preferred dividend declared ($476.56 per share)

                                                            (2,669 )                     (2,669 )
                                                                                         

Restricted stock amortization, issuances and forfeitures

    18,051               14,620                               1,487
                            1,487
                                                                                         

Changes in noncontrolling interest in consolidated joint ventures

                                                                            4     4
                                                                                         
Share repurchases

(118,478
)





























(4,800 )





(4,800 )













































Net income

                                                            18,716                       18,716  
                                                                                         

Balance, January 31, 2023

    5,276,767     $ 62       720,325     $ 7       5,600     $ 135,299     $ 729,158     $ (336,366 )   $ (132,382 )   $ 19     $ 395,797  
                                                                                         


See notes to condensed consolidated financial statements (unaudited). 


HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

(In thousands)

(Unaudited)


Three Months Ended

January 31,

2024

2023

Cash flows from operating activities:

Net income

$ 23,904 $ 18,716

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation

1,598 1,410

Stock-based compensation

4,073 2,070

Amortization of debt discounts, premiums and deferred financing costs

214 330

Gain on sale of property and assets

(41 ) (14 )

Income from unconsolidated joint ventures

(14,952 ) (7,160 )

Distributions of earnings from unconsolidated joint ventures

1,010 692

Gain on extinguishment of debt

(1,371 ) -

Inventory impairments and land option write-offs

302 477

(Increase) decrease in assets:

Inventories

(114,674 ) 11,669

Receivables, deposits and notes

4,694 5,772

Origination of mortgage loans

(306,156 ) (215,477 )

Sale of mortgage loans

337,346 251,923

Deferred tax assets

7,501 (2,576 )

(Decrease) increase in liabilities:

Accounts payable, accrued interest and other liabilities

(33,553 ) (98,125 )

Customers’ deposits

379
(2,777 )

State income tax payable

722
1,824

Net cash used in operating activities

(89,004 ) (31,246 )

Cash flows from investing activities:

Proceeds from sale of property and assets

43 69

Purchase of property, equipment, and other fixed assets

(5,442 ) (3,740 )

Investment in and advances to unconsolidated joint ventures, net of reimbursements

-
(22,238 )

Distributions of capital from unconsolidated joint ventures

1,278 2,633

Net cash used in investing activities

(4,121 ) (23,276 )

Cash flows from financing activities:

Proceeds from mortgages and notes

78,867 57,704

Payments related to mortgages and notes

(71,257 ) (68,958 )

Proceeds from model sale leaseback financing programs

- 1,310

Payments related to model sale leaseback financing programs

(5,907 ) (3,303 )

Proceeds from land bank financing programs

18,407 21,317

Payments related to land bank financing programs

(22,296 ) (12,553 )

Net payments related to mortgage warehouse lines of credit

(27,004 ) (35,971 )

Payments related to senior secured notes

(113,502 ) -

Preferred dividends paid

(2,669 ) (2,669 )
Treasury stock purchases

-


(4,800

)

Deferred financing costs from land banking financing programs and note issuances

(910 ) (464 )

Net cash used in financing activities

(146,271 ) (48,387 )

Net decrease in cash and cash equivalents, and restricted cash and cash equivalents

(239,396 ) (102,909 )

Cash and cash equivalents, and restricted cash and cash equivalents balance, beginning of period

477,519 382,190

Cash and cash equivalents, and restricted cash and cash equivalents balance, end of period

$ 238,123 $ 279,281

Supplemental disclosures of cash flows:

Cash (received) paid during the period for:

Interest, net of capitalized interest

$ (2,965 ) $ (3,904 )

Income taxes

$ 435 $ 84

Reconciliation of Cash, cash equivalents and restricted cash

Homebuilding: Cash and cash equivalents

$ 183,118 $ 234,929

Homebuilding: Restricted cash and cash equivalents

8,369 8,154

Financial Services: Cash and cash equivalents, included in financial services assets

4,522 4,682

Financial Services: Restricted cash and cash equivalents, included in financial services assets

42,114 31,516

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

$ 238,123 $ 279,281




HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES


1.

Basis of Presentation

 

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company,” “we,” “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). 

 

The accompanying unaudited Condensed Consolidated Financial Statements include HEI's accounts and those of all of its consolidated subsidiaries after elimination of all intercompany balances and transactions. Noncontrolling interest represents the proportionate equity interest in a consolidated joint venture that is not 100% owned by the Company directly or indirectly, which we sold our membership interest in during the first quarter of fiscal 2024.

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. In the opinion of management, all adjustments for interim periods presented have been made, which include normal recurring accruals and deferrals necessary for a fair presentation of our condensed consolidated financial position, results of operations and cash flows. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the Condensed Consolidated Financial Statements. Results for interim periods are not necessarily indicative of the results which might be expected for a full year.


2.

Stock Compensation

 

During the first quarter of fiscal 2024, the Board of Directors ("the Board") approved certain grants under a new Long-Term Incentive Program (the “2024 LTIP”) that contain performance-based vesting conditions. The performance period for the 2024 LTIP commenced on November 1, 2023 and will end on October 31, 2026. At the end of the performance period, 50% of the awards, if any, are payable in cash-settled phantom shares and the remaining 50% of the awards, if any, are payable in shares of Company stock, subject to a mandatory two-year post-vesting hold period.

 

For the three months ended January 31, 2024 and 2023, stock-based compensation expense was $4.1 million ($3.0 million net of tax) and $2.1 million (pre and post-tax), respectively

 


3.Interest


Interest costs incurred, expensed and capitalized were as follows:


Three Months Ended

January 31,

(In thousands)

2024

2023

Interest capitalized at beginning of period

$ 52,060 $ 59,600

Plus interest incurred(1)

31,961 34,326

Less cost of sales interest expensed

(19,898 ) (15,022 )

Less other interest expensed(2)

(10,451 ) (15,093 )

Less interest contributed to unconsolidated joint venture(3)

-
(3,016 )

Interest capitalized at end of period(4)

$ 53,672 $ 60,795

(1)

Data does not include interest incurred by our mortgage and finance subsidiaries.

(2)

Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $3.7 million and $6.6 million for the three months ended January 31, 2024 and 2023, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization and therefore is expensed as incurred. This component of other interest was $6.8 million and $8.5 million for the three months ended January 31, 2024 and 2023, respectively.

(3)

Represents capitalized interest which was included as part of the assets contributed to joint ventures, as discussed in Note 18. There was no impact to the Condensed Consolidated Statement of Operations as a result of these transactions.

(4)

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


4.Reduction of Inventory to Fair Value 


We had 403 and 361 communities under development and held for future development or sale at January 31, 2024 and 2023, respectively, which we evaluated for impairment indicators. We did not identify impairment indicators (i.e., those with a projected operating loss) for any community during the three months ended January 31, 2024 and 2023.

 

Write-offs of options, engineering and capitalized interest costs are recorded in "Inventory impairments and land option write-offs" when we redesign communities, abandon certain engineering costs or do not exercise options in various locations because the pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. Total aggregate write-offs related to these items were $0.3 million and $0.5 million for the three months ended January 31, 2024 and 2023, respectively. The number of lots walked away from during the three months ended January 31, 2024 and 2023 were 928 and 2,182, respectively. The walk-aways during the first quarter of fiscal 2024 occurred in our Southeast and West segments and for the first quarter of fiscal 2023 the walk-aways occurred across each of our segments. 

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third-party at the end of the respective lease. As a result of our continued involvement these sale and leaseback transactions are considered a financing rather than a sale. Our Condensed Consolidated Balance Sheets at January 31, 2024 and October 31, 2023, included inventory of $36.6 million and $41.7 million, respectively, recorded to “Consolidated inventory not owned” with a corresponding amount of $36.3 million and $42.0 million, respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

 

We have land banking arrangements, whereby we sell our land parcels to a land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, these transactions are considered a financing rather than a sale. Our Condensed Consolidated Balance Sheets at January 31, 2024 and October 31, 2023, included inventory of $161.5 million and $183.1 million, respectively, recorded to “Consolidated inventory not owned” with a corresponding amount of $78.4 million (net of debt issuance costs) and $82.3 million, respectively, recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.

  


5.Variable Interest Entities 

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

 

Although the Company does not have legal title to the underlying land, we analyze our option purchase contracts to determine whether the corresponding land and lot sellers are VIEs and, if so, whether we are the primary beneficiary. The significant factors we consider in determining if the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared include, among other things, our ability in determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, changing the terms of the contract or arranging financing for the VIE. As a result of our analyses, we have concluded, there are no VIEs that required consolidation at either January 31, 2024 or October 31, 2023 because we are not the primary beneficiary of the land or lots under option purchase contracts.

 

We will continue to secure land and lots using options, some of which are with VIEs where we have determined power is shared among the partners and we do not have a controlling financial interest. Including deposits on our unconsolidated VIEs, at January 31, 2024 and October 31, 2023, we had total cash deposits amounting to $206.5 million and $192.3 million, respectively, to purchase land and lots with a total purchase price of $2.3 billion and $2.2 billion, respectively. The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions are met.


6.

Warranty Costs


We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. For homes to be delivered in fiscal 2024, our deductible under our general liability insurance is $30.0 million, aggregated for construction defect and warranty claims, and for homes previously delivered in 2023, our deductible under our general liability insurance was $25.0 million, aggregated for construction defect, warranty, and bodily injury claims. As of November 1, 2023, we no longer have an aggregate deductible for bodily injury claims. For bodily injury claims, our deductible per occurrence in fiscal 2024 is $0.25 million and $0.5 million for action over claims, both with a $30.0 million limit, and for fiscal 2023 it was $0.25 million for all other states and $0.5 million for California, both with a $5.0 million limit. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs at the time each home is closed and control is transferred to the homebuyer. Additions, charges and changes in the warranty reserve and general liability reserve for the three months ended January 31, 2024 and 2023 were as follows:

 

   

Three Months Ended

 
   

January 31,

 

(In thousands)

 

2024

   

2023

 

Balance, beginning of period

  $ 98,919     $ 97,718  

Additions – Selling, general and administrative

    2,547       1,577  

Additions – Cost of sales

    2,868       1,303  

Charges incurred during the period

    (6,644 )     (8,802 )

Changes to pre-existing reserves

    2,146       (729 )

Balance, end of period

  $ 99,836     $ 91,067  

 


7.

Commitments and Contingent Liabilities

 

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

 

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

 

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

 

                  In 2015, the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc. and several of its affiliates, including K. Hovnanian at Great Notch, LLC, K. Hovnanian Construction Management, Inc., and K. Hovnanian Companies, LLC. The Complaint also asserts claims against various other design professionals and contractors. The Special Masters appointed by the Court to decide non-dispositive motions issued an opinion that (a) granted the Great Notch Plaintiff’s motion to permit it to assert a claim to pierce the corporate veil of K. Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it, and (b) further stated that the Great Notch Plaintiff is not permitted to pursue that claim until after any trial on the underlying liability claims. In 2018, the Hovnanian-affiliated defendants reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On the remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff had asserted damages of approximately $119.5 million, which amount was potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. In December 2023, the parties reached a settlement on the remaining claims throug