ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company”, “we”, “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries).
The following tables and related discussion set forth key operating and financial data for our homebuilding and financial services operations as of and for the fiscal years ended October 31, 2025 and 2024. For similar operating and financial data and discussion of our fiscal 2024 results compared to our fiscal 2023 results, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended October 31, 2024, which was filed with the SEC on December 18, 2024.
Key Performance Indicators
The following key performance indicators are commonly used in the homebuilding industry and by management as a means to better understand our operating performance and trends affecting our business and compare our performance with the performance of other homebuilders. We believe these key performance indicators also provide useful information to investors in analyzing our performance:
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Overview
Market Conditions and Operating Results
The demand for new and existing homes is dependent on a variety of demographic and economic factors, including job and wage growth, household formation, consumer confidence, mortgage financing, interest rates, inflation and overall housing affordability.
From January 2022 to October 2023, 30-year mortgage rates more than doubled. The sharp increase in interest rates, persistently high levels of inflation and doubt about the stability of the economy negatively impacted housing demand beginning in the second half of fiscal 2022 and into fiscal 2023. During the first quarter of fiscal 2024, mortgage rates declined, which had a positive effect on our sales pace. Rates fluctuated for the remainder of fiscal 2024 and throughout fiscal 2025 but still remain persistently high. As a result, affordability generally remains challenging for homebuyers. We have stayed aggressive in our pricing, incentives and concessions in order to align with the current market.
We continue to use our increased inventory of quick move-in homes (“QMI homes”) to help meet buyers’ needs for more affordable housing in the existing uncertain interest rate environment. The time between contract signing and closing is shorter with a QMI home as compared to a to be built home, which provides customers with more certainty on their mortgage pricing. The availability of QMI homes also allows us to offer mortgage interest rate buydown assistance, which is a tool we offer through our wholly-owned mortgage banking subsidiary (“K. Hovnanian Mortgage”), to help ease the impact of higher monthly payments from rising interest rates. We pay the cost of interest rate buydowns for customers that qualify through K. Hovnanian Mortgage and decide to use the program. The level of interest rate based incentives utilized differs across our markets and is one of several available options we use to drive sales and close homes.
Although the long-term fundamentals of
the new home market remain favorable, during fiscal 2025, volatility in
the broader economy and affordability constraints caused many consumers to
delay purchasing a new home. As a result of this more difficult sales
environment, we experienced a decrease in net contracts compared to fiscal 2024. Even as mortgage rates increased and we focused on increasing sales
pace versus price, we were still able to raise net prices in approximately36% of our communities during the fourth quarter of fiscal 2025.
There remains a great degree of
uncertainty due to inflation, tariffs, the continued possibility of an economic
recession, employment risk and the potential for further mortgage rate
increases. While we continue to experience certain supply chain issues, we remain
focused on continuing to shorten our construction cycle times and building on
our national initiatives to drive down costs with our material providers and
trade partners. The changing conditions in the housing market, and in the
general economy, make it difficult to predict how strongly our business will
be impacted by these external factors over fiscal 2026 and
beyond.
Our cash position allowed us to spend $859.4 million on land purchases and land development for long-term growth during fiscal 2025 and still have total liquidity of $404.1 million, including $272.8 million of homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility as of October 31, 2025. In addition, our September 2025 issuance of $900.0
million in aggregate amount of senior unsecured notes to refinance all of our
senior secured notes and secured term loan facility contributed to our ongoing
efforts to manage and simplify the Company’s capital structure and strengthen
its financial position.
Additional information on our results for the year ended October 31, 2025 were as follows:
● For the year ended October 31, 2025, sale of homes revenues decreased0.8% as compared to the prior year, due to a 3.5% decrease in average sales prices, partially offset by a 2.8% increase in homes delivered. The increase in deliveries in fiscal 2025 was primarily the result of a 7.7% increase in community count as well as an increase in QMI contracts.
● Homebuilding gross margin percentage decreased from 18.7% for the year ended October 31, 2024 to 12.7% for the year ended October 31, 2025, and homebuilding gross margin percentage, before cost of sales interest expense and land charges, decreased from 22.0% for the year ended October 31, 2024 to 17.2% for the year ended October 31, 2025. The decreases were primarily due to the increased use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable. In the current homebuilding
environment, we remain focused on driving financial performance by increasing
our sales pace versus achieving a higher gross margin.
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● Selling, general and administrative expenses (including corporate general and administrative) increased $7.6 million for the year ended October 31, 2025 as compared to the prior year, however, as a percentage of total revenue, such costs were relatively flat at11.7% for the year endedOctober 31, 2025compared to11.4% for the year endedOctober 31, 2024. The increase was primarily due to an increase in advertising expenses and compensation expense, mainly related to increased headcount and annual merit increases, as well as fees incurred on unused builder forward commitments. The increase in headcount was in preparation for expected growth in community count and deliveries in fiscal 2025 and fiscal 2026.
● Other interest increased to $35.4 million for the year ended October 31, 2025 from $30.8 million for the year ended October 31, 2024, primarily due to an increase in communities in planning, along with an increase in land banking and model lease financing interest, as our inventory not owned increased during fiscal 2025.
● Income before income taxes decreased to $86.1 million for the year ended October 31, 2025 from $317.1 million for the year ended October 31, 2024. Similarly, net income declined to $63.9 million for fiscal 2025, compared to $242.0 million in the previous fiscal year. Several key factors contributed to these
reductions. Although both fiscal years
included gains resulting from the consolidation of previously unconsolidated
joint ventures, the gain in fiscal 2024 was $45.7 million whereas the gain
for fiscal 2025 was $18.9 million. Additionally, the results for the year ended October 31, 2025 reflected
a loss on extinguishment of debt totaling $33.1 million. In contrast, the year
ended October 31, 2024 included a gain on extinguishment of debt totaling $1.4
million. Net income was also negatively impacted by inventory impairments and
land option write-offs of $39.6 million and $11.6 million for the years ended
October 31, 2025 and 2024, respectively.
● Earnings per share, basic and diluted, decreased to $7.95 and $7.43, respectively, for the year ended October 31, 2025, compared to earnings per share, basic and diluted of $34.40 and $31.79, respectively, for the year ended October 31, 2024.
● Net contracts decreased 3.1% to 5,023 for the year ended October 31, 2025, compared to 5,186 in the prior year. Included in the year ended October 31, 2025 and 2024, respectively, were 44 and 276 build-for-rent contracts.
● Net contracts per active selling community decreased to 35.9 for the year ended October 31, 2025 compared to 39.9 in the prior year. The decrease was due to the decrease in net contracts from October 31, 2024 to October 31, 2025.
● Active selling communities increased to 140 at October 31, 2025 compared to 130 at October 31, 2024, while our total lots controlled decreased to 35,883 at October 31, 2025 compared to 41,891 at October 31, 2024. This reduction in the number of total lots controlled was primarily the result of our decision to walk away from certain lower
margin lots. These lots had been originally underwritten prior to the escalation
of sales incentives that are necessary in the current market environment in order to make home purchases more affordable. We expect our community count will continue to grow in fiscal 2026.
● Contract backlog decreased from 1,649 homes at October 31, 2024 to 1,242 homes at October 31, 2025, and the dollar value of contract backlog decreased to $726.5 million, a 22.4% decrease in dollar value compared to the prior year. Our backlog conversion ratio has increased from the prior year due to our focus on having more QMI homes available to sell and deliver.
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Results of Operations
Total Revenues
Compared to the prior year, revenues (decreased) increased as follows:
Year Ended October 31,
Variance
Compared
Homebuilding:
Total revenues percent change (0.9) %
Homebuilding: Sale of Homes
Sale of homes revenues decreased $22.6 million, or 0.8%, for the year ended October 31, 2025, compared to the prior year. The slight decrease in revenues in fiscal 2025 was primarily due to the average sales price per home decreasing 3.5% in fiscal2025from fiscal2024, partially offset by a 2.8% increase in homes delivered. The increase in deliveries in fiscal 2025 was primarily the result of community count increasing, along with an increase in our backlog conversion ratio. The decrease in average sales price in fiscal 2025 was primarily due to the geographic and community mix of our deliveries. For further detail on changes in segment revenues see “Homebuilding Operations by Segment” below. Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantlyup or down. For further detail on land sales and other revenues, see the section titled “Homebuilding: Land Sales and Other Revenues” below.
Information on the sale of homes is set forth in the table below:
Year Ended
October 31, October 31,
(Dollars in thousands, except average sales price) 2025 2024
Consolidated total:
Unconsolidated joint ventures:(1)
(1) Represents housing revenues and home deliveries for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our joint ventures.
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Homebuilding: Land Sales and Other Revenues
Land sales and other revenues decreased $24.7 million for the year ended October 31, 2025, compared to the prior year. Revenue associated with land sales can vary significantly due to the mix of land parcels sold. There werefive land sales during the year endedOctober 31, 2025, compared tosix in the prior year. Other revenues include interest income, which decreased as a result of lower rates on cash and cash equivalent account balances beginning in the first quarter of fiscal 2025 compared to the prior year.
Homebuilding: Cost of Sales
Cost of sales includes expenses for consolidated housing and land and lot sales, including inventory impairment and land option write-offs (defined as “land charges” in the tables below). A breakout of such expenses for homebuilding and land and lot sales and the gross margins for each is set forth below.
Homebuilding gross margin before cost of sales interest expense and land charges, is a non-GAAP financial measure. This measure should not be considered as an alternative to homebuilding gross margin determined in accordance with U.S. GAAP as an indicator of operating performance.
Management believes this non-GAAP measure enables investors to better understand our operating performance. This measure is also useful internally, helping management evaluate our operating results on a consolidated basis and relative to other companies in our industry. In particular, the magnitude and volatility of land charges for the Company, and for other homebuilders, have been significant and, as such, have made comparable financial analysis of our industry more difficult. Homebuilding metrics excluding land charges, as well as interest amortized to cost of sales, and other similar presentations prepared by analysts and other companies are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies’ respective levels of impairments and debt.
Year Ended
October 31, October 31,
Cost of sales, excluding interest expense and land charges 2,360,888 2,241,749
Homebuilding gross margin percentage 12.7 % 18.7 %
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Cost of sales as a percentage of consolidated home sales revenues are presented below:
Year Ended
October 31, October 31,
Cost of sales, excluding interest expense and land charges:
Housing, land and development costs 71.3 % 68.6 %
Commissions 3.3 % 3.2 %
Financing concessions 3.9 % 2.5 %
Overheads 4.3 % 3.7 %
Total cost of sales, before interest expense and land charges 82.8 % 78.0 %
Cost of sales interest 3.1 % 3.0 %
Land charges 1.4 % 0.3 %
Homebuilding gross margin percentage 12.7 % 18.7 %
We sell a variety of home types in various communities, each yielding a different gross margin. As a result, depending on the mix of communities delivering homes, consolidated gross margin may fluctuate up or down. Total homebuilding gross margin percentage decreased to 12.7% for the year ended October 31, 2025 compared to 18.7% for the prior year. Total homebuilding gross margin percentage, before cost of sales interest expense and land charges decreased to 17.2% for the year ended October 31, 2025 compared to 22.0% for the prior year. The decreases in gross margins were primarily due to increases in our use of incentives and concessions, including additional mortgage interest rate buydowns, to make our homes more affordable.
Land and lot sale expenses and gross margins are set forth below:
Year Ended
October 31, October 31,
Land and lot sales gross margin, excluding interest 11,131 21,122
Land and lot sales interest expense 618 2,090
Land and lot sales gross margin, including interest $ 10,513 $ 19,032
Land sales are ancillary to our homebuilding operations and are expected to continue in the future but may fluctuate significantly.
Homebuilding: Inventory Impairments and Land Option Write-offs
Inventory impairments and land option write-offs reflect certain inventories we have either written off or written down to their estimated fair value totaling $39.6 million and $11.6 million in expense for the years ended October 31, 2025 and 2024, respectively. During the years ended October 31, 2025 and 2024, we wrote off residential land option, approval and engineering costs totaling $18.2 million and $1.6 million, respectively. Land option, approval and engineering costs are written off when a community’s pro forma profitability is not projected to produce an adequate return on investment commensurate with the risk. If we determine an adequate return is not probable, we cancel the option, or when a community is redesigned, we write off the engineering costs related to the initial design. Such write-offs occurred across each of our segments in fiscal 2025 and 2024. Inventory impairments were $21.4 million in the aggregate for the year ended October 31, 2025 for six communities in our Northeast segment, one community in our Southeast segment and five communities in our West segment. For the year ended October 31, 2024, inventory impairments were $10.0 million in the aggregate for two communities in our Northeast segment and two communities in our West segment. It is difficult to predict future impairments, but if conditions in the overall housing industry or a specific geographic market worsen in the future, there are future changes in our business strategy that significantly affect the key assumptions used in our projections of future cash flows, and/or there are material changes in any other items we consider in assessing recoverability, we may need to recognize additional inventory impairments and any such charges could be material.
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In fiscal 2025, we walked away from 32.9% of all the lots we controlled under option contracts. The remaining 67.1% of our option lots are in communities that we believe remain economically feasible.
The following table represents lot option walk-aways by segment for the year ended October 31, 2025:
Walk-
Away
Dollar Number of % of Lots as a
Amount Walk- Walk- Total % of Total
of Walk Away Away Option Option
(Dollars in millions) Away Lots Lots Lots(1) Lots
Homebuilding: Selling, General and Administrative
Homebuilding selling, general and administrative (“SGA”) expenses increased $9.9 million to $212.4 million for the year ended October 31, 2025, compared to the prior fiscal year. The increase is primarily due to an increase in selling overhead from higher advertising costs and an increase in total compensation expense as a result of an increase in headcount from opening more communities along with the cost associated with annual merit increases, as well as fees incurred on unused builder forward commitments we began offering in the second half of fiscal 2022 to lower mortgage rates for our customers.
Homebuilding: Key Performance Indicators
Net Contracts Per Active Selling Community
Net contracts per active selling community in fiscal 2025 were 35.9 compared to 39.9 in fiscal 2024, a 10.0% decrease in sales pace per community. Our reported level of sales contracts (net of cancellations) was impacted by uneven demand caused by overall market uncertainty along with affordability constraints and high interest rates.
Contract Cancellation Rates
The following table provides historical quarterly cancellation rates, which represents the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter, excluding unconsolidated joint ventures:
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The following table provides quarterly contract cancellations as a percentage of the beginning backlog, excluding unconsolidated joint ventures:
Most cancellations occur within the legal rescission period, which varies by state but is generally less than two weeks after the signing of the contract. Cancellations also occur as a result of a buyer’s failure to qualify for a mortgage, which generally occurs during the first few weeks after signing. Due to our solid backlog position, our cancellation rate as a percentage of beginning backlog for the fourth quarter of fiscal 2025 was 17%, which approximates our historical normal rate. When sales pace is increasing, the cancellation rate as a percentage of beginning backlog tends to lag the changes seen in our cancellation rate as a percentage of gross sales. Market conditions, although continuing to improve, still remain uncertain and it is difficult to predict what cancellation rates will be in the future.
Contract Backlog
Our consolidated contract backlog, excluding unconsolidated joint ventures, by segment is set forth below:
October 31, October 31,
Northeast: (1)(2)(3)
Southeast: (1)(3)
West: (4)
Contract backlog dollars decreased22.4% as of October 31, 2025 compared to October 31, 2024, and the number of homes in backlog decreased24.7% for the same period. The decrease in backlog dollars and number of homes for the year ended October 31, 2025 compared to the prior fiscal year was primarily driven by an increase in sales of QMI homes and improved contract backlog conversion.
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Homebuilding Operations by Segment
Financial information relating to our homebuilding operations by segment was as follows:
Year Ended October 31,
Variance
(Dollars in thousands, except average sales price) Compared
Northeast
Southeast
West
Homebuilding Results by Segment
Northeast –
Homebuilding
revenues increased 11.2% in fiscal 2025 compared to fiscal 2024, primarily
due to a 19.6% increase in homes delivered,
partially offset by a 4.8% decrease in average sales price. The decrease
in average sales price was the result of new communities delivering lower
priced, smaller single family homes, townhomes and affordable-housing homes in fiscal 2025 compared to some
communities delivering higher priced, larger single family homes and townhomes
in higher-end submarkets of the segment in fiscal 2024, which were no longer
delivered in fiscal 2025.
Income before income taxes decreased $25.5 million
to $165.5 million in fiscal
2025 compared to fiscal 2024, primarily due to a $23.6 million decrease in land sales
and other revenue, an $11.5 million increase in inventory impairments and land
option write-offs and a decrease in gross margin percentage. For a discussion of gross margin, see
“Homebuilding: Cost of Sales” above.
Southeast – Homebuilding revenues decreased 22.0% in fiscal
2025 compared to fiscal 2024, primarily due to a 19.8%
decrease in homes delivered and a 2.7% decrease in average sales price. The
decrease in average sales price was the result of new communities delivering
lower priced, smaller single family homes in lower-end submarkets of the
segment in fiscal 2025 compared to some communities in fiscal 2024 that had
higher priced, larger single family homes and townhomes in higher-end
submarkets, which were no longer delivered in fiscal 2025.
Income before income taxes decreased $62.2 million
to $15.5 million in fiscal
2025 compared to fiscal 2024, primarily due to the decrease in
homebuilding revenue discussed above, a $4.8 million increase in inventory
impairments and land option write-offs and a decrease in gross
margin percentage. For a discussion of gross margin, see
“Homebuilding: Cost of Sales” above.
West – Homebuilding revenues decreased 4.2% in fiscal
2025 compared to fiscal 2024 due a 4.5% decrease in average
sales price, while the numbers of homes delivered remained flat. The decrease
in average sales price was mainly the result of new communities delivering
lower priced, smaller single family homes in lower-end and higher-end submarkets
of the segment in fiscal 2025 compared to some communities in fiscal 2024 that
had higher priced, larger single family homes in higher-end submarkets, which
were no longer delivered in fiscal 2025.
Income before income taxes decreased $111.6 million to
$15.1 million in fiscal
2025 compared to fiscal 2024, primarily due to the decrease in
homebuilding revenue discussed above, an $11.7 million increase in inventory
impairments and land option write-offs, a $12.4 million increase in SGA expenses and a decrease in gross margin percentage. For a discussion of gross margin, see
“Homebuilding: Cost of Sales” above.
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Financial Services
Financial services consists primarily of originating mortgages for our home buyers, selling such mortgages in the secondary market, and title insurance activities. We use mandatory investor commitments and forward sales of mortgage-backed securities (“MBS”) to hedge our mortgage-related interest rate exposure on agency and government loans. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments. For the years ended October 31, 2025 and 2024, our conforming conventional loan originations as a percentage of our total loans were 58.7% and 64.0%, respectively. FHA/VA loans represented 40.3% and 35.4%, respectively, of our total loans. The remaining 1.0% and 0.6% of our loan originations represent loans which exceed conforming conventions. Realized gains and losses relating to the sale of mortgage loans are recognized when control passes to the buyer of the mortgage.
During the years ended October 31, 2025 and 2024, financial services provided $39.0 million and $24.1 million of income before income taxes, respectively. In fiscal 2025, financial services income before income taxes increased from the prior year primarily due to an increase in the volume of loans closed and an increase in the basis point spread between the loans originated and the implied rate from our sale of the loans. In the markets served by our wholly owned mortgage banking subsidiaries, 80.0% and 79.4% of our noncash home buyers obtained mortgages originated by these subsidiaries during the years ended October 31, 2025 and 2024, respectively.
Corporate General and Administrative
Corporate general and administrative expenses include payroll, stock compensation, facility costs and rent and other costs associated with our executive offices, legal expenses, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, national and digital marketing, construction services and administration of insurance, quality and safety. Corporate general and administrative expenses decreased $2.3 million for the year ended October 31, 2025 compared to the year ended October 31, 2024, primarily due to lower stock compensation expense, along with a decrease in bonus expense due to lower profitability. In addition, we recorded a benefit in fiscal 2025 related to our 2024 and 2023 long-term incentive plan phantom stock awards, as a result of a decrease in our stock price during fiscal 2025.
Other Interest
Other interest increased $4.7 million to $35.4 million for the year ended October 31, 2025 compared to the year ended October 31, 2024. The increase in Other interest was primarily due to an increase in communities in planning, along with additional inventory financing resulting from an increase in average land banking and model lease financing interest, as our inventory not owned increased during fiscal 2025.
(Loss) Gain on Extinguishment of Debt, Net
On April 30, 2025, K. Hovnanian Enterprises, Inc. (“K. Hovnanian”) redeemed the remaining $26.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 for a redemption price of $27.5 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $0.4 million for the fiscal year ended October 31, 2025, including the write-off of unamortized premiums, debt issuance costs and fees. The gain from the redemption is included in the Consolidated Statement of Operations as "(Loss) gain on extinguishment of debt, net".
On September 25, 2025, K. Hovnanian completed a private placement of $450.0 million aggregate principal amount of 8.0% Senior Notes due 2031 (the “2031 Notes”) and $450.0 million aggregate principal amount of 8.375% Senior Notes due 2033 (the “2033 Notes” and, together with the 2031 Notes, the “Notes”). The Notes are guaranteed by the Company and substantially all of its subsidiaries, other than K. Hovnanian, its home mortgage subsidiaries, certain of its title insurance subsidiaries, joint ventures and subsidiaries holding interests in joint ventures. K. Hovnanian used the net proceeds from the Notes issuance, together with cash on hand, to (i) fund the redemption on September 25, 2025 of the entire outstanding principal amount of its 11.75% Senior Secured 1.25 Lien Notes due 2029 at a redemption price equal to 100.0% of the principal amount thereof plus the applicable “make-whole” premium, plus accrued and unpaid interest to, but excluding, the redemption date, (ii) fund the redemption of the entire outstanding principal amount of its 8.0% Senior Secured 1.125 Lien Notes due 2028 at a redemption price equal to 104.0% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the redemption date of September 30, 2025 and (iii) repay in full all outstanding loans under its Senior Secured 1.75 Lien Term Loan Facility due 2028 at par plus accrued and unpaid interest to, but excluding, the prepayment date.
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In addition, on September 25, 2025, the amendments to the Fourth Amendment to the Credit Agreement, dated as of September 10, 2025, to the Credit Agreement dated as of October 31, 2019 (as amended by the First Amendment to the Credit Agreement, dated as of November 27, 2019, the Second Amendment to the Credit Agreement, dated as of August 19, 2022 and the Third Amendment to the Credit Agreement, dated as of September 25, 2023), by and among K. Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto, which provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans became effective.
These transactions resulted in a loss on extinguishment of debt of $33.5 million for the fiscal year ended October 31, 2025, including the write off of unamortized premiums, debt issuance costs and fees.
On November 15, 2023, we redeemed in full all of the $113.5 million aggregate principal amount of our 10.0% Senior Secured 1.75 Lien Notes due 2025 for a redemption price of $119.2 million, which included accrued and unpaid interest. This redemption resulted in a gain on extinguishment of debt of $1.4 million, including the write-off of unamortized premiums, debt issuance costs and fees.
Income from Unconsolidated Joint Ventures
Income from unconsolidated joint ventures consists of our share of the income or loss from our joint ventures. Income from unconsolidated joint ventures decreased to $46.4 million for the year ended October 31, 2025 from $52.3 million for the year ended October 31, 2024. The decrease of $5.8 million in fiscal 2025 was primarily due to the recognition of losses from two unconsolidated joint ventures in which one started delivering homes during the second quarter of fiscal 2025 and the other is not yet delivering homes. In addition, we recognized income during the first nine months of the prior year from a joint venture that was subsequently consolidated prior to the end of fiscal 2024.
Income Taxes
Income tax expense decreased to $22.2 million for the year ended October 31, 2025 from $75.1 million for the year ended October 31, 2024. These amounts were primarily attributable to federal and state taxes on
income before taxes and non-deductible executive compensation, along with less state net operating losses (“NOL”) available to utilize, partially offset by energy efficient home
tax credits. In fiscal 2025, income tax expense was further reduced by the
benefit of our debt extinguishment. Income tax expense for fiscal year 2024 includes the favorable impact of releasing state valuation allowances. Currently, federal tax expense is not paid in cash as it is offset by the use of our existing NOL carryforwards.
Deferred federal and state income tax assets (“DTAs”) primarily represent the deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in subsequent years as an offset against future taxable income. If the combination of future years’ income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years. In accordance with ASC 740, we evaluate our DTAs quarterly to determine if valuation allowances are required. We assess whether valuation allowances should be established based on the consideration of all available evidence using a “more-likely-than-not” standard.
As of October 31, 2025, we considered the weight of all available positive and negative evidence to determine the valuation allowance for DTAs of $53.0 million. See Note 11 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information.
Deferred tax assets, net, of $229.6 million at October 31, 2025 decreased $11.4 million from October 31, 2024, due primarily to the utilization of our DTAs to offset tax expense on taxable income during fiscal 2025.
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Contractual Obligations
The following summarizes our aggregate contractual commitments at October 31, 2025:
Payments Due by Period
Less than More than
(In thousands) Total 1 year 1-3 years 3-5 years 5 years
We had outstanding letters of credit and performance bonds of $6.2 million and $276.8 million, respectively, at October 31, 2025, related primarily to our obligations to local governments to construct roads and other improvements in various developments. We do not believe that any such letters of credit or performance bonds are likely to be drawn upon.
Capital Resources and Liquidity
Overview
Our total liquidity at October 31, 2025 was $404.1 million, including $272.8 million in homebuilding cash and cash equivalents and $125.0 million of borrowing capacity under our senior secured revolving credit facility. This was above our target liquidity range of $170.0 to $245.0 million. We believe that our cash on hand together with available borrowings on our senior secured revolving credit facility will be sufficient through fiscal 2026 to finance our working capital requirements.
We have historically funded our homebuilding and financial services operations with cash flows from operating activities, borrowings under our credit facilities, the issuance of new debt and equity securities, and other financing activities. We may not be able to obtain desired financing even if market conditions, including then-current market available interest rates (in recent years, we have not been able to access the traditional capital and bank lending markets at competitive interest rates due to our highly leveraged capital structure), would otherwise be favorable, which could also impact our ability to grow our business.
Operating, Investing and Financing Cash Flow Activities
We spent $859.4 million on land and land development during fiscal 2025. After land and land development spending and all other operating activities, including revenue received from deliveries, we had $188.3 million in cash provided by operations. During fiscal 2025, cash used in investing activities was $66.0 million, primarily due to a new joint venture entered into during the period, along with spending on capitalized software, partially offset by distributions of capital from existing unconsolidated joint ventures. Cash used in financing activities was $70.4 million during fiscal 2025, which was primarily due to a $26.6 million redemption of our senior secured notes, net payments related to the September 2025 debt transaction and related deferred financing costs, net payments for nonrecourse mortgage financings, treasury stock purchases, payments of preferred dividends and net payments under our mortgage warehouse lines of credit, partially offset by net proceeds from land banking financings and model sale leaseback financings. We intend to continue to use nonrecourse mortgages, model sale leasebacks, joint ventures, and, subject to covenant restrictions in our debt instruments, land banking programs as our business needs dictate.
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Our cash uses during the years ended October 31, 2025 and 2024 were for operating expenses, land purchases, land deposits, land development, construction spending, debt payments, model sale leasebacks, land banking transactions, state income taxes, interest payments, preferred dividend payments, financing transaction costs, debt and equity repurchases, litigation matters and investments in unconsolidated joint ventures. During these periods, we provided for our cash requirements from available cash on hand, home and land sales, financing transactions, nonrecourse mortgage transactions, income from unconsolidated joint ventures, financial service revenues and other revenues.
Our net income historically does not approximate cash flow from operating activities. The difference between net income and cash flow from operating activities is primarily caused by changes in inventory levels together with changes in receivables, prepaid expenses and other assets, mortgage loans held for sale, accrued interest, deferred income taxes, accounts payable and other liabilities, and noncash charges relating to depreciation, stock compensation and impairments. When we are expanding our operations, inventory levels, prepaid expenses and other assets increase causing cash flow from operating activities to decrease. Certain liabilities also increase as operations expand and partially offset the negative effect on cash flow from operations caused by the increase in inventory, prepaid expenses and other assets. Similarly, as our mortgage operations expand, net income from these operations increases, but for cash flow purposes, net income is partially offset by the net change in mortgage assets and liabilities. The opposite is true as our investment in new land purchases and development of new communities decrease, causing us to generate positive cash flow from operations.
See “Inventories” below for a detailed discussion of our inventory position.
Debt Transactions
Senior secured notes, senior notes and credit facilities balances as of October 31, 2025 and October 31, 2024, were as follows:
October 31, October 31,
Senior Secured Notes:
Total Senior Secured Notes $ - $ 655,000
Senior Notes:
Senior Secured Revolving Credit Facility (3) $ - $ -
Subtotal senior notes and credit facilities $ 924,968 $ 881,556
Unamortized debt issuance costs $ (13,199 ) $ (2,678 )
(1) On September 25, 2025, K. Hovnanian completed a private placement of $450.0 million aggregate principal amount of 8.0% Senior Notes due April 1, 2031 and $450.0 million aggregate principal amount of 8.375% Senior Notes due October 1, 2033. K. Hovnanian used the net proceeds from the notes issuance, together with cash on hand, to fund (i) the redemption of all of its $430.0 million aggregate principal amount of 11.75% Senior Secured 1.25 Lien Notes due September 30, 2029 and all of its $225.0 million aggregate principal amount of 8.0% Senior Secured 1.125 Lien Notes due September 30, 2028, and (ii) the payoff in full of its $175.0 million Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028.
(2) On April 30, 2025 K. Hovnanian redeemed the remaining $26.6 million aggregate principal amount of its 13.5% Senior Notes due 2026 for a redemption price of $27.5 million, which included accrued and unpaid interest.
(3) At October 31, 2025, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. The revolving loans under the revolving credit facility have a maturity of June 30, 2028 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term SOFR (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 3.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.
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Except for K. Hovnanian, the issuer of the notes and borrower under the credit agreement governing our secured revolving credit facility (the "Secured Credit Facility"), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Secured Credit Facility and senior notes outstanding at October 31, 2025 (collectively, the “Notes Guarantors”).
The credit agreement governing the Secured Credit Facility and the indentures governing the senior notes (together, the “Debt Instruments”) outstanding at October 31, 2025 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K. Hovnanian, to incur (including through exchanges or certain other types of transactions) indebtedness, pay dividends, including on our preferred stock, and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans under the Secured Credit Facility (the “Secured Revolving Loans”) made under the Credit Agreement, dated as of October 31, 2019, as amended, by and among K. Hovnanian, the Company, the other guarantors party thereto, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto (the “Secured Credit Agreement”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency and, with respect to the Secured Revolving Loans, material inaccuracy of representations and warranties, a change of control, the failure of the documents granting security for the obligations under the Secured Credit Agreement to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the Secured Credit Agreement to be valid and perfected. As of October 31, 2025, we believe we were in compliance with the covenants of the Debt Instruments.
Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions, may do so from time to time. We will also continue to analyze and evaluate our capital structure and explore transactions to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so with the right opportunity. We may also continue to make debt or equity purchases and/or exchanges from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.
Due to covenant restrictions in our Debt Instruments, we may be limited in the amount of debt we can incur, even if market conditions, including then-current market available interest rates (prior to the fourth quarter of fiscal 2025, we had not been able to access the traditional capital and bank lending markets at competitive interest rates for some time due to our highly leveraged capital structure), would otherwise be favorable, which could also impact our ability to grow our business.
See Note 9 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of K. Hovnanian’s Debt Instruments, including information with respect to the collateral securing our Secured Credit Agreement.
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Mortgages and Notes Payable
We have nonrecourse mortgage loans for certain communities totaling $29.5 million and $90.7 million, net of debt issuance costs, at October 31, 2025 and October 31, 2024, respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $113.9 million and $249.7 million, respectively. The weighted-average interest rate on these obligations was 7.4% and 8.7% at October 31, 2025 and October 31, 2024, respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.
K. Hovnanian Mortgage originates mortgage loans primarily from the sale of our homes. Such mortgage loans and related servicing rights are generally sold in the secondary mortgage market within a short period of time. K. Hovnanian Mortgage finances the origination of mortgage loans through various master repurchase agreements, which are recorded in “Financial services” liabilities on the Consolidated Balance Sheets. The loans are secured by the mortgages held for sale and are repaid when we sell the underlying mortgage loans to permanent investors. As of October 31, 2025 and 2024, we had an aggregate of $94.3 million and $131.4 million, respectively, outstanding under several of K. Hovnanian Mortgage’s short-term borrowing facilities.
See Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of these agreements and facilities.
Equity
On September 1, 2022, our Board of Directors (the “Board”) authorized a repurchase program for up to $50.0 million of our Class A common stock. On December 18, 2024, the Board authorized an incremental increase to our repurchase program and on April 11, 2025, the Board authorized another incremental increase to our repurchase program, such that, inclusive of any amounts remaining under the existing repurchase authorization, as of April 11, 2025, we were authorized to repurchase up to $30.6 million of our Class A common stock. Under the program, repurchases may be made from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and actual dollar amount repurchased will depend on a variety of factors, including legal requirements, price, future tax implications and economic and market conditions. The repurchase program may be changed, suspended or discontinued at any time and does not have a specified expiration date.
During the year ended October 31, 2025, we repurchased 257,908 shares of Class A common stock, with a market value of $30.1 million, or $116.70 per share. During the year ended October 31, 2024, we repurchased 188,800 shares of Class A common stock, with a market value of $26.5 million, or $140.31 per share. Share repurchases are added to “Treasury stock” on our Consolidated Balance Sheets. As of October 31, 2025, $26.4 million of our Class A common stock is available for repurchase under our share repurchase program.
On July 12, 2005, we issued 5,600 shares of 7.625% Series A preferred stock, with a liquidation preference of $25,000 per share. Dividends on the Series A preferred stock are not cumulative and are payable at an annual rate of 7.625%. The Series A preferred stock is not convertible into the Company’s common stock and is redeemable, in whole or in part, at our option at the liquidation preference of the shares. The Series A preferred stock is traded as depositary shares, with each depositary share representing 1/1000th of a share of Series A preferred stock. The depositary shares are listed on the NASDAQ Global Market under the symbol “HOVNP.” During both fiscal 2025 and 2024 we paid dividends of $10.7 million on the Series A preferred stock.
Unconsolidated Joint Ventures
We have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. At both October 31, 2025 and 2024, we had investments in six unconsolidated homebuilding joint ventures. Our unconsolidated joint ventures had total combined assets of $720.4 million and $845.1 million at October 31, 2025 and 2024, respectively. Our investments in unconsolidated joint ventures totaled $163.5 million and $142.9 million at October 31, 2025 and 2024, respectively. The increase in our investments of $20.6 million was primarily due to new joint ventures formed during the year, along with income recognized from existing joint ventures,
partially offset by an increase in
our share of losses recognized from existing joint ventures. Partner distributions and the consolidation of previously unconsolidated joint ventures also partially offset the increase in the investment balance.
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As of October 31, 2025 and 2024, our unconsolidated joint ventures had outstanding debt totaling $121.9 million and $88.7 million, respectively, under separate construction loan agreements with different third-party lenders and affiliates of certain investment partners to finance land development activities. The outstanding debt is secured by the underlying property and related project assets and is nonrecourse to us. Although we and our unconsolidated joint venture partners provide certain guarantees and indemnities to the lender, we do not provide a guaranty or have any other obligation to repay the outstanding debt or to support the value of the collateral underlying the outstanding debt. Our guarantees are limited to performance and completion of development activities, environmental indemnification and standard warranty and representation against fraud, misrepresentation and similar actions, including voluntary bankruptcy. We do not believe that our existing exposure under our guaranty and indemnity obligations related to the outstanding debt of our unconsolidated joint ventures is material.
We determined that none of our joint ventures was a variable interest entity. All our unconsolidated joint ventures were accounted for under the equity method because we did not have a controlling financial interest. See Notes 19 and 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of joint ventures and variable interest entities.
Inventories
Total inventory, excluding consolidated inventory not owned, decreased $129.2 million during the year ended October 31, 2025 from October 31, 2024. Total inventory, excluding consolidated inventory not owned, decreased in the Northeast by $83.3 million, increased in the Southeast by $108.8 million and decreased in the West by $154.7 million. The net decrease was primarily attributable to home deliveries, impairments and write-offs, and land sales. However, this reduction was partially offset by new land purchases and land development during fiscal 2025, along with an increase in inventory from the consolidation of previously unconsolidated joint ventures. Substantially all homes under construction or completed and included in inventory at October 31, 2025 are expected to close during the next six to nine months.
Consolidated inventory not owned, which consists of options related to land banking and model financing, increased $121.9 million during fiscal 2025. The increase was primarily due to an increase in land banking transactions, along with an increase in the sale and leaseback of certain model homes during the period. We have land banking arrangements, whereby we sell land parcels to land bankers and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, these transactions are considered a financing rather than a sale. Our Consolidated Balance Sheet, at October 31, 2025, included inventory of $258.6 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $169.1 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions. In addition, we sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third-party at the end of the respective lease. As a result of our continued involvement and the ability to repurchase model homes with below market options, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, our Consolidated Balance Sheet, at October 31, 2025, included inventory of $74.3 million recorded to “Consolidated inventory not owned,” with a corresponding amount of $75.6 million (net of debt issuance costs) recorded to “Liabilities from inventory not owned” for the amount of net cash received from sale and leaseback transactions.
In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At October 31, 2025, we had total cash deposits of $333.2 million to purchase land and lots with a total purchase price of $2.8 billion. Our financial exposure is generally limited to forfeiture of the nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. We have no material third-party guarantees.
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The following tables summarize home sites included in our total residential real estate. The decrease in total home sites available at October 31, 2025 compared to October 31, 2024 is attributable to delivering homes and terminating certain option agreements,
partially offset by acquiring new land parcels during the period.
Remaining
Total Contracted Home
Home Not Sites
Sites Delivered Available
Construction to permanent financing lots 2 2 -
Construction to permanent financing lots 4 4 -
(1) Represents active communities and home sites for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated joint ventures. See Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our unconsolidated joint ventures.
The following table summarizes our started or completed unsold homes and models, excluding unconsolidated joint ventures, in active selling communities. The decrease in unsold homes was primarily due to a concerted effort to align our starts pace with the sales pace in fiscal 2025.
Unsold Unsold
Homes Models Total Homes Models Total
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Financial Services Assets and Liabilities
Financial services assets consist primarily of residential mortgage receivables held for sale of which $109.8 million and $147.2 million at October 31, 2025 and 2024, respectively, were being temporarily warehoused and are awaiting sale in the secondary mortgage market. The decrease in mortgage loans held for sale from October 31, 2024 was primarily related to a decrease in the volume of loans originated during the fourth quarter of fiscal 2025 compared to the fourth quarter of fiscal 2024.
Financial services liabilities decreased $52.3 million from $183.1 million at October 31, 2024, to $130.9 million at October 31, 2025. The decrease was primarily due to the decrease in amounts outstanding under our mortgage warehouse lines of credit and directly correlated to the decrease in the volume of mortgage loans held for sale.
Inflation
The annual rate of inflation in the United States was 3.0% in September 2025, as measured by the most recent publicly available Consumer Price Index, which is slightly higher than October 2024, but much improved from its peak of 9.1% in June 2022. Inflation has a long-term effect, because of higher costs of land, materials and labor results in increasing the sale prices of our homes. Historically, these price increases have been commensurate with the general rate of inflation in our housing markets and have not had a significant adverse effect on the sale of our homes. A significant risk faced by the housing industry generally is that rising house construction costs, including land, labor and interest costs, could substantially outpace increases in the income of potential purchasers and therefore limit our ability to raise home sale prices, which may result in lower gross margins.
Inflation has a lesser short-term effect, because we generally negotiate fixed-price contracts with many, but not all, of our subcontractors and material suppliers for the construction of our homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between three to 12 months. Construction costs for residential buildings represented approximately 51% of our homebuilding cost of sales for fiscal year 2025.
Critical Accounting Policies
Management believes that the following critical accounting policies require its most significant judgments and estimates used in the preparation of the Consolidated Financial Statements:
Inventories - Inventories consist of land, land development, home construction costs, capitalized interest, construction overhead and property taxes. Construction costs are accumulated during the period of construction and charged to cost of sales under the specific identification method. Land, land development and common facility costs are allocated based on buildable acres to product types within each community, then charged to cost of sales equally based upon the number of homes to be constructed in each product type.
We record inventories on our Consolidated Balance Sheets at cost unless the inventory is determined to be impaired, in which case the inventory is written down to its fair value. Our inventories consist of the following three components: (1) sold and unsold homes and lots under development, which includes all construction, land, capitalized interest and land development costs related to started homes and land under development in our active communities; (2) land and land options held for future development or sale, which includes all costs related to land in our communities in planning or mothballed communities; and (3) consolidated inventory not owned, which consists of model homes financed with an investor and inventory related to land banking arrangements accounted for as financings.
We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third-party at the end of the respective lease. As a result of our continued involvement and the ability to repurchase model homes with below market options, for accounting purposes in accordance with ASC 606 “Revenue From Contracts with Customers,” these sale and leaseback transactions are considered a financing rather than a sale.
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We have land banking arrangements, whereby we sell our land parcels to the land banker and they provide us an option to purchase back finished lots on a predetermined schedule. Because of our options to repurchase these parcels, for accounting purposes in accordance with ASC 606, these transactions are considered a financing rather than a sale.
The recoverability of inventories and other long-lived assets is assessed in accordance with ASC 360, “Property, Plant and Equipment.” ASC 360 requires long-lived assets, including inventories, held for development to be evaluated for impairment based on the undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. We evaluate impairment at the individual community level, which is the lowest level of discrete cash flows that are available.
We evaluate inventories of communities under development and held for future development for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, decreases in local housing market values, decreases in gross margins or sales absorption rates, decreases in net sales prices (base sales price, net of sales incentives), or actual or projected operating or cash flow losses. The assessment of communities for indicators of impairment is performed quarterly. As part of this process, we prepare detailed budgets for all of our communities at least semi-annually and identify those communities with a projected operating loss. For those communities with projected losses, we estimate the remaining undiscounted future cash flows and compare those to the carrying value of the community, to determine if the carrying value of the asset is recoverable.
The projected operating profits, losses or cash flows of each community can be significantly impacted by our estimates of the following:
● future base selling prices;
● future home sales incentives;
● future home construction and land development costs; and
● future sales absorption pace and cancellation rates.
These estimates are dependent upon specific market conditions for each community. While we consider available information to determine what we believe to be our best estimates as of the end of a quarterly reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact our estimates for a community include:
● changes by management in the sales strategy of the community;
● existing home inventory supplies, including foreclosures and short sales.
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These and other local market-specific conditions that may be present are considered by management in preparing projection assumptions for each community. The sales objectives can differ between our communities, even within a given market. For example, facts and circumstances in a given community may lead us to price our homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another community may lead us to price our homes to minimize deterioration in our gross margins, although it may result in a slower sales absorption pace. In addition, the key assumptions included in our estimate of future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in homes sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one community that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby community. Changes in our key assumptions, including estimated construction and development costs, sales absorption pace and selling strategies, could materially impact future cash flow and fair-value estimates. Due to the number of scenarios that would result from various changes in these factors, we do not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.
If the undiscounted cash flows are more than the carrying value of the community, then the carrying amount is recoverable, and no impairment is recorded. However, if the undiscounted cash flows are less than the carrying amount, then the community is deemed impaired and is written down to its fair value. We determine the estimated fair value of each community by calculating the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from third parties. The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments. Should the estimates or expectations used in determining estimated cash flows or fair value, including discount rates, decrease or differ from current estimates in the future, we may be required to recognize additional impairments related to current and future communities. The impairment of a community is allocated to each lot on a relative fair value basis.
From time to time, we write off deposits, engineering and capitalized interest costs when we determine that it is no longer probable that we will exercise options to buy land in specific locations or when we redesign communities and/or abandon certain engineering costs. In deciding not to exercise a land option, we take into consideration changes in market conditions, the timing of required land takedowns, the willingness of land sellers to modify terms of the land option contract (including timing of land takedowns), and the availability and best use of our capital, among other factors. The write-off is recorded in the period it is deemed not probable that the optioned property will be acquired.
Inventories held for sale are land parcels ready for sale in their current condition, where we have decided not to build homes but are instead actively marketing the land. Land held for sale is recorded at the lower of its carrying amount or the fair value less costs to sell. In determining fair value for land held for sale, management considers, among other things, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale) and recent bona fide offers received from third parties.
Unconsolidated Homebuilding and Land Development Joint Ventures - Investments in unconsolidated entities in which the Company has significant influence over the operating and financial decisions of the entity, but holds less than a controlling financial interest, are accounted for by the equity method. In all periods presented, our investments in unconsolidated homebuilding and land development joint ventures are accounted for under the equity method because
we are not the primary beneficiary or de-facto agent, and we have a
significant, but less than controlling, interest in the entities. Under the equity method, we recognize our proportionate share of income or loss earned by the joint venture upon the delivery of lots or homes to third parties. Our ownership interests in joint ventures vary but our voting equity interests held are generally 20% to 50%.
Specific
criteria is used when determining if we are the primary beneficiary of, or have
a controlling interest in, an unconsolidated entity. Factors considered in
determining whether we have significant influence, or we have control include
risk and reward sharing, experience and financial condition of the other
partner, voting rights, involvement in day-to-day capital and operating
decisions and continuing involvement. The evaluation of whether an entity is a
variable interest entity or a voting interest entity and then whether we are
the primary beneficiary or have control or significant influence can require
significant judgment. We believe that the equity method of accounting is
appropriate for our investments in unconsolidated entities where we are not the
primary beneficiary and we do not have a controlling interest but rather share
control with our partners. In most cases, the joint venture agreements require
that both partners agree on establishing the significant operating and capital
decisions of the partnership, including budgets, in the ordinary course of
business.
In accordance with ASC323,“Investments - Equity Method and Joint Ventures,” we assess our investments in unconsolidated joint ventures for recoverability quarterly, and if it is determined that a loss in value of the investment below its carrying amount is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture’s projected cash flows. This process requires significant management judgment and estimates.
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Warranty Costs and Construction Defect Reserves - We accrue warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. This accrual is expensed as selling, general, and administrative costs. Our insurance coverage generally includes deductibles either in the aggregate or on a per-claim basis, with the exception of workers’ compensation insurance, which does not have a deductible. Reserves for estimated losses for construction defects, warranty and bodily injury claims have been established using the assistance of a third-party actuary. The third-party actuary uses our historical warranty and construction defect data to assist management in estimating our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the general liability and construction defect programs. The estimates consider provisions for inflation, claims handling and legal fees. These estimates are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of products we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. As a high degree of judgment is required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs as part of cost of sales at the time each home is closed and title and possession have been transferred to the homebuyer.
Deferred Income Taxes - Deferred income taxes are provided for temporary differences between amounts recorded for financial reporting and income tax purposes. If the combination of future years’ income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried forward to future years to recover the DTAs. We evaluate all available positive and negative evidence, including the existence of losses in recent years and forecasts of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions we use in forecasting future taxable income require significant judgment. The ultimate realization of DTAs is dependent on the generation of future taxable income during the periods in which temporary differences or carry-forwards are deductible or creditable. A valuation allowance is provided to offset DTAs if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized.
In evaluating the exposures associated with our various tax filing positions, we recognize tax liabilities in accordance with ASC 740, “Income Taxes” for more likely than not exposures. We re-evaluate the exposures associated with our tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity by taxing authorities and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. A number of years may elapse before a particular matter for which we have established a liability is audited and fully resolved or clarified. We adjust our liability for unrecognized tax benefits and the income tax provision in the period in which an uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from our current estimate. Any such changes will be reflected as increases or decreases to income tax expense in the period in which they are determined.
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Recent Accounting Pronouncements
See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Safe Harbor Statement
All statements in this Annual Report on Form 10-K that are not historical facts should be considered as “Forward-Looking Statements” within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company’s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to:
● Increases in inflation;
● The seasonality of the Company’s business;
● Reliance on, and the performance of subcontractors;
● Increases in cancellations of agreements of sale;
● Changes in tax laws affecting the after-tax costs of owning a home;
● Levels of competition;
● Utility shortages and outages or rate fluctuations;
● Information technology failures and data security breaches;
● Negative publicity;
● Global economic and political instability;
● Availability and terms of financing to the Company;
● The Company’s sources of liquidity;
● Changes in credit ratings;
● Operations through unconsolidated joint ventures with third parties;
● Significant influence of the Company’s controlling stockholders;
● Availability of net operating loss carryforwards; and
● Loss of key management personnel or failure to attract qualified personnel.
Certain risks, uncertainties and other factors are described in detail in Part I, Item 1 “Business” and Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K as updated by our subsequent filings with the SEC. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report on Form 10-K.
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ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our long term-debt requires fixed interest payments and we have limited exposure to variable rates. In connection with our mortgage operations, mortgage loans held for sale and the associated mortgage warehouse lines of credit under our Master Repurchase Agreements are subject to interest rate risk; however, such obligations reprice frequently and are short-term in duration. In addition, we hedge the interest rate risk on mortgage loans by obtaining forward commitments from private investors. Accordingly, the interest rate risk from mortgage loans is not significant. We do not use financial instruments to hedge interest rate risk except with respect to mortgage loans. The following table sets forth as of October 31, 2025, our long-term debt obligations, principal cash flows by scheduled maturity, weighted-average interest rates and estimated fair value (“FV”).
Long-Term Debt as of October 31, 2025 by Fiscal Year of Debt Maturity
FV at
Long term debt(1)(2):
Weighted-average interest rate - % - % - % - % - % 8.10 % 8.10 %
(1) Does not include the mortgage warehouse lines of credit made under ourMaster Repurchase Agreements.
(2) Does not include $29.5 million of nonrecourse mortgages secured by inventory. These mortgages have various maturities spread over the next two to three years and are paid off as homes are delivered. In addition, it does not include our $125.0 million Secured Credit Facility under which there were no borrowings outstanding as of October 31, 2025. The revolving loans under the Secured Credit Facility have a maturity of June 30, 2028 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term SOFR (subject to a floor of 3.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate (subject to a floor of 3.00%) plus an applicable margin of 3.50%. In addition, K. Hovnanian pays an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of Hovnanian Enterprises, Inc. and its consolidated subsidiaries are set forth herein beginning on page 65.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A
CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of October 31, 2025. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the Company’s disclosure controls and procedures are effective to accomplish their objectives.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended October 31, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of October 31, 2025.
The effectiveness of the Company’s internal control over financial reporting as of October 31, 2025 has been audited by Deloitte & Touche LLP, the Company’s independent registered public accounting firm, as stated in their report below.
ITEM 9B
OTHER INFORMATION
None.
ITEM 9C
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
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PART III
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information called for by Item 10, except as set forth in this Item 10, is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 31, 2026, which will involve the election of directors.
Information About Our Executive Officers
Our executive officers are listed below and brief summaries of their business experience and certain other information with respect to them are set forth following the table. Each executive officer holds such office for a one-year term.
Year
Started
With
Name Age Position Company
Brad G. O’Connor 55 Chief Financial Officer 2004
Alexander Hovnanian 35 President 2012
Michael Wyatt 59 Chief Operating Officer 2015
Mr. Hovnanian has been Chief Executive Officer since July 1997 and served as President from 1988 until November 2025. Mr. Hovnanian joined the Company in 1979, was appointed Executive Vice President in 1983, has been a Director of the Company since 1981 and was Vice Chairman from 1998 through November 2009. In November 2009, he was elected Chairman of the Board following the death of Kevork S. Hovnanian, the chairman and founder of the Company and the father of Mr. Hovnanian.
Mr. O’Connor was appointed Chief Financial Officer in November 2023 and Senior Vice President and Treasurer in April 2020. He held the position of Chief Accounting Officer from May 2011 until October 2023 and Treasurer from April 2020 through December 2024. He joined the Company as Vice President, Associate Corporate Controller in May 2004, and was promoted to Corporate Controller in December 2007. Prior to joining the Company, Mr. O’Connor was the Corporate Controller for Amershem Biosciences, a global biotech company, and was a Senior Manager in the audit practice of PricewaterhouseCoopers LLP.
Mr. Alexander Hovnanian was appointed President in November 2025. He had held the position of Executive Vice President, National Homebuilding Operations since March 2020. He joined the Company full-time in 2012 and has held various positions in the Company's homebuilding operations. He attended Harvard Business School from 2014 to 2016 and after obtaining his MBA, he returned to employment with the Company. In November 2017, Mr. Hovnanian was appointed Area President followed by a promotion to Division President of the Northeast Division in December 2018.
Mr. Wyatt was appointed Chief Operating Officer in November 2025. He had been Group President of the East Group operations since May 2020. He held the position of Region President of the California Region from June 2019 to May 2020. He joined the Company as Division President of the Northern California Division in September 2015. Prior to joining the Company, Mr. Wyatt spent 16 years with Centex Corporation (“Centex Homes”) and six years with the PulteGroup, Inc. (“Pulte Homes”). He held Division President roles in Myrtle Beach, South Carolina, Las Vegas, Nevada, and Northern California for Centex Homes. After the merger of Centex Homes and Pulte Homes, Mr. Wyatt continued in the corporate office for Pulte Homes, where he spent six years managing home building operations rising to Senior Vice President of Home Building Operations when he left to join the Company.
Code of Ethics and Corporate Governance Guidelines
In more than 60 years of doing business, we have been committed to enhancing our shareholders’ investment through conduct that is in accordance with the highest levels of integrity. Our Code of Ethics is a set of guidelines and policies that govern broad principles of ethical conduct and integrity embraced by our Company. Our Code of Ethics applies to our principal executive officer, principal financial officer and principal accounting officer, and all other associates of our Company, including our directors and other officers.
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We also remain committed to fostering sound corporate governance principles. The Company’s Corporate Governance Guidelines assist the Board of Directors of the Company (the “Board”) in fulfilling its responsibilities related to corporate governance conduct. These guidelines serve as a framework addressing the function, structure, and operations of the Board, for purposes of promoting consistency of the Board’s role in overseeing the work of management.
We have posted our Code of Ethics on our web site at www.khov.com under “Investor Relations/Corporate Governance.” We have also posted our Corporate Governance Guidelines on our web site at www.khov.com under “Investor Relations/Corporate Governance.” We will post amendments to or waivers from our Code of Ethics that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange (the “NYSE”) on our web site at www.khov.com under “Investor Relations/Corporate Governance.”
Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee Charters
We have adopted charters that apply to the Company’s Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. We have posted the text of these charters on our web site at www.khov.com under “Investor Relations/Corporate Governance/Highlights.”
ITEM 11
EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 31, 2026.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION
The information called for by Item 12, except as set forth in this Item 12, is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 31, 2026.
The following table provides information as of October 31, 2025, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
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Plan Category (a) (a) (b) (b) (c)
Equity compensation plans not approved by security holders: - - - - -
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information called for by Item 13 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 31, 2026.
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is Deloitte & Touche LLP (PCAOB ID No. 34).
Further information called for by Item 14 is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A in connection with our annual meeting of shareholders to be held on March 31, 2026.
PART IV
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
See the “Index” to the Consolidated Financial Statements commencing on page 62 of this Form 10-K.
(2) Financial Statement Schedules
No schedules have been prepared because the required information of such schedules is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and notes thereto.
(3) Exhibits
See the “Exhibit Index” beginning on page 56 of this Form 10-K.
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Exhibits:
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21 Subsidiaries of the Registrant.
23(a) Consent of Deloitte & Touche LLP.
31(a) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31(b) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
* Management contracts or compensatory plans or arrangements.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time.
ITEM 16
Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
HOVNANIAN ENTERPRISES, INC.
By: /s/ ARA K. HOVNANIAN
Ara K. Hovnanian
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on December 22, 2025, and in the capacities indicated.
/s/ ARA K. HOVNANIAN Chairman of the Board, Chief Executive Officer and Director
Ara K. Hovnanian (Principal Executive Officer)
/s/ BRAD G. O’CONNOR Chief Financial Officer
Brad G. O’Connor (Principal Financial Officer and Principal Accounting Officer)
/s/ EDWARD A. KANGAS Chairman of Audit Committee and Director
Edward A. Kangas
/s/ JOSEPH A. MARENGI Chairman of Compensation Committee and Director
Joseph A. Marengi
Vincent Pagano Jr.
/s/ J. LARRY SORSBY Director
J. Larry Sorsby
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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements: Page
Report of Independent Registered Public Accounting Firm 63
Notes to Consolidated Financial Statements 70
No schedules have been prepared because the required information of such schedules is not present, is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements and notes thereto.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM
To the stockholders and Board of Directors of Hovnanian Enterprises, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hovnanian Enterprises, Inc. and subsidiaries (the “Company”) as of October 31, 2025, and 2024, the related consolidated statements of operations, equity, and cash flows, for each of the three years in the period ended October 31, 2025, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of October 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company's management is responsible for these financial statements,
for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on these
financial statements and an opinion on the Company's internal control over
financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material
respects.
Our audits of the financial statements included
performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures
to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Warranty Costs and Construction Defect Reserves – Refer to Notes 3 and Note 16 to the financial statements
Critical Audit Matter Description
The Company accrues for warranty costs that are covered under its general liability and construction defect policy as part of its general liability insurance deductible. Reserves for estimated losses for construction defects, warranty and bodily injury claims are established using the assistance of a third-party actuary. The third-party actuary uses the Company’s historical warranty and construction defect data to assist management in estimating the unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that the Company is assuming under the general liability and construction defect programs.
We identified the estimation of the reserves for warranty costs and construction defects as a critical audit matter because of the complexity and judgment involved in the determination of the estimated liability amount. This liability requires the Company to make significant assumptions about trends in construction defect claims, claim settlement patterns, insurance industry practices and legal interpretations with respect to homes built by the Company. Auditing the reserves for estimated losses for construction defects required a high degree of auditor judgment and increased effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the construction defect reserves, included the following, among others:
/s/ DELOITTE & TOUCHE LLP
New York, New York
December 22, 2025
We have served as the Company’s auditor since 2009.
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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, October 31,
(In thousands, except per share data) 2025 2024
ASSETS
Homebuilding:
Restricted cash and cash equivalents 12,608 7,875
Inventories:
Land and land options held for future development or sale 171,793 238,499
Investments in and advances to unconsolidated joint ventures 163,469 142,910
LIABILITIES AND EQUITY
Homebuilding:
Liabilities from inventory not owned, net of debt issuance costs 244,723 140,298
Equity:
See notes to consolidated financial statements.
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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
October 31, October 31, October 31,
Revenues:
Homebuilding:
Expenses:
Homebuilding:
State and federal income tax provision:
Per share data:
Basic:
Weighted-average number of common shares outstanding 6,449 6,479 6,230
Assuming dilution:
Weighted-average number of common shares outstanding 6,892 7,007 6,666
(1) Includes gain on consolidation of a joint venture of $18.9 million, $45.7 million and $19.1 million for the years ended October 31, 2025, 2024 and 2023, respectively (see Note 20).
See notes to consolidated financial statements.
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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
A Common Stock B Common Stock Preferred Stock
(In thousands, except share data) Shares Shares Shares Retained Earnings
Issued and Issued and Issued and Paid-In (Accumulated Treasury Noncontrolling
Stock options, amortization and issuances 3,563 92 92
Conversion of Class B to Class A common stock 199 (199 ) -
Changes in noncontrolling interest in consolidated joint ventures 38 38
Stock options, amortization and issuances 5,502 550 550
Conversion of Class B to Class A common stock 72,977 1 (72,977 ) (1 ) -
Changes in noncontrolling interest in consolidated joint ventures (53 ) (53 )
Stock options, amortization and issuances 1,655 25 25
Conversion of Class B to Class A common stock 9 (9 ) -
See notes to consolidated financial statements.
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HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
October 31, October 31, October 31,
Cash flows from operating activities:
Gain on sale of property and assets (535 ) (1,143 ) (1,106 )
Gain on inventory contributed to joint venture (22,682 ) - -
Distributions of earnings from unconsolidated joint ventures 4,408 3,919 18,650
Noncontrolling interest in consolidated joint ventures - - 38
Decrease (increase) in assets: