Jeffrey T. O'Keefe - Director of Investor Relations Ara K. Hovnanian - Chairman, Chief Executive Officer and President J. Larry Sorsby - Chief Financial Officer, Executive Vice President and Director Brad G. O'Connor - Chief Accounting Officer, Vice President and Corporate Controller

Alan Ratner - Zelman & Associates, Research Division Andrew Casella - Imperial Capital, LLC, Research Division Rob Hansen - Deutsche Bank AG, Research Division Jason A. Marcus - JP Morgan Chase & Co, Research Division Megan McGrath - MKM Partners LLC, Research Division Kristen McDuffy - Goldman Sachs Group Inc., Research Division Daniel Oppenheim - Crédit Suisse AG, Research Division David Goldberg - UBS Investment Bank, Research Division Joshua Pollard - Goldman Sachs Group Inc., Research Division Alex Barrón - Housing Research Center, LLC Susan Berliner - JP Morgan Chase & Co, Research Division Joel Locker - FBN Securities, Inc., Research Division Andrew Scheffer - Onex Credit Partners

Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 2012 First Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for 12 months. This conference is being recorded for rebroadcast. [Operator Instructions] Management will make some opening remarks about the fourth quarter results and then open up the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the investors page of the company's website at www.khov.com. Those listeners who would like to follow along should log on to the website at this time. Before we begin, I would like to turn the call over to Jeff O'Keefe, Vice President, Investor Relations. Jeff, please go ahead.

Thank you. Before I turn the call over to Ara, I would like to read the following about forward-looking statements. All statements made during this conference call that are not historical facts should be considered as forward-looking statements. 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 risks, uncertainties and other factors include, but are not limited to, changes in general and economic and industry and business conditions and impacts of the sustained homebuilding downturn; adverse weather and other environmental conditions and natural disasters; changes in market conditions and seasonality of the company's business; changes in home prices and sales activity in the markets where the company builds homes; government regulation, including regulations concerning development of land, the homebuilding, sales and customer financing process, tax laws and the environment; fluctuations in interest rates and the availability of mortgage financing; shortages in and price fluctuations of raw materials and labor; the availability and cost of suitable land and improved lots; levels of competition; availability of financing to the company; utility shortages and outages or rate fluctuations; levels of indebtedness and restrictions on the company's operations and activities imposed by the agreements governing the company's outstanding indebtedness; the company's sources of liquidity; changes in credit ratings; availability of net operating loss carryforwards; operations through joint ventures with third parties; product liability litigation, warranty claims and claims by mortgage investors; successful identification and integration of acquisitions; significant influence of the company's controlling stockholders; changes in tax laws affecting the after-tax costs of owning a home; geopolitical risks, terrorist attacks and other acts of war; and other factors described in detail in the company's annual report on the Form 10-K for the year ended October 31, 2011. 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. I would now like to turn the call over to Ara Hovnanian, our Chairman, President and Chief Executive Officer. Ara, please go ahead.

Good morning, and thank you for participating in today's call to review the results of our first quarter ended January 31, 2012. Joining me today from the company are Larry Sorsby, Executive Vice President and CFO; Brad O'Connor, Vice President, Chief Accounting Officer and Corporate Controller; David Valiaveedan, Vice President, Finance and Treasurer; and Jeff O'Keefe, Vice President of Investor Relations. On Slide 3, you can see a brief summary of our first quarter results and comparisons to the prior year's first quarter. As you can see, our net contract, community count, net contracts per community, deliveries, backlog and total revenues all increased year-over-year in the first quarter of 2012. This is the first quarterly year-over-year increase in total revenues since the third quarter of 2006. After 21 straight quarters of decline, it feels good to reverse this trend. We are hopeful that our positive sales results will continue and drive additional revenue growth, going forward. As we have said previously, our path to returning to profitability is very related on our ability to grow the top line. Our net loss was less this quarter than it was in the year-ago period. From a macroeconomic perspective, things definitely feel better right now. There are more positive trends than negative trends grabbing the headlines. Mortgage rates remain low. The energy sector is booming. There are fewer discussions about fears of a double-dip recession. Consumer confidence is improving. And there is pent-up demand on the sidelines right now. The key to unlocking this pent-up demand is job growth. And there is some evidence of a slight improvement in the labor market, which bodes well for our industry if it continues. With this economic backdrop, our net contracts have improved significantly. If you turn to Slide 4, you see that on an absolute…

Thanks, Ara. Let me start with our efforts to reload our land position. Turning to Slide 11. It shows the cumulative balance of new land parcels that we've controlled since January of 2009. So far, we have purchased or optioned approximately 17,000 lots. The land that we've purchased or optioned met or exceeded our investment threshold of a 25% unlevered IRR based on the then current home selling prices and no change in sales pace for the next couple of years. We continue to seek land opportunities in all of our markets and we've had success in finding new deals that made economic sense in most of our markets. As you can see from Slide 12, after seeing a steady flow of gross new land and lot purchase agreements throughout fiscal 2011, during the first quarter of fiscal 2012, we did experience a fall-off of new land and lot purchases. The figures aren't as dramatic on a net basis, where we contracted for 200 home sites in both the first and second quarters of last year, compared to 100 home sites this year. However, we have noticed a very recent pick-up in new land and lot activity and are optimistic that we would return to net land and lot acquisition levels similar to what we experienced in 2011. During the first quarter, we optioned 450 new lots and walked away from about 350 newly identified lots. The net results for the first quarter was that our total lots purchased or controlled since January of 2009 increased by about 100 lots sequentially from the fourth quarter of 2011. During the first quarter, we purchased 600 newly identified lots in 81 communities. In addition, we purchased about 90 lots from legacy options. In total, we spent approximately $74.1 million of cash in…

Thanks, Larry. I know that many investors are concerned with our cash position. We have said for over a year now that we wanted to be fully invested in land. And for the first time, we've gotten to the point where we ended the quarter with our cash in our cash target range. These land investments resulted in our ability to increase community counts, deliveries and contracts during our first quarter. And assuming no change in market conditions, they've set us up for additional growth this year. Keep in mind that the first quarter is typically our weakest in terms of cash flow because of the low seasonal deliveries. This year's first quarter was no exception. However, we are confident that deliveries and operating cash flow should improve in our later quarters, barring a significant change in the current marketing conditions. Operating within the confines of our cash target range, we feel comfortable that we can continue to reinvest in land and grow our revenues as well as repay the debt that matures between now and the end of 2015. That gives us time to refinance the 2016 debt and issue additional equity in a better market, as Larry mentioned. Our comfort is partially based on the fact that we are investing in new communities that generally have faster inventory turns. These new communities are now starting to return the cash initially invested as well as a profit. And at the same time, we continue to liquidate our slower-turning legacy assets. We recognize that some will extrapolate the first quarter's cash flow and be concerned about our liquidity. Once again, our internal models show improved cash flow in subsequent quarters, particularly given our recent contract pace and deliveries from new communities that had consumed cash in the previous quarters. Our…

[Operator Instructions] And your first question will come from the line of Alan Ratner with Zelman & Associates. Alan Ratner - Zelman & Associates, Research Division: Ara and, I guess, Larry as well, I appreciate the kind of walking through the cash targets and some of the levers you can pull in a situation where maybe the market doesn't accelerate, like we're seeing some signs that it's doing. But I guess I was hoping to ask a question kind of the other way, and that's looking at your February orders and the 38% increase there. Thinking about the cash that needs to go out the door to build up that backlog, and assuming maybe the market is actually even stronger than some of the signs that we've been seeing over the past couple of months, what would get to the point in terms of order growth where you would maybe have to bring that cash position below your -- the low end of that target in order to -- maybe on a short-term basis, but in order to kind of build up that backlog? Or would you manage that target so strictly where, even if you're pretty sure that cash is going to be coming back in the door 1 quarter or 2 down the road, you would still pull those levers to remain within that target?

Well, as you know, the increased orders work both sides on terms of cash generation. On one side, it takes a little more cash to produce the WIP. On the other side, to the extent we're delivering homes on land that we own, it generates some significant cash flow. And those two really work to counter each other. At this point, we're comfortable that we're going to stay within the targets even with the kind of pick-up that we've seen. Alan Ratner - Zelman & Associates, Research Division: And then, Larry, would you be able to provide the split on your unrestricted cash balance between -- I believe you had some cash within the unrestricted subsidiary that's back in the secured notes versus what's at the, I guess, the parent or at least the K. Hov subsidiary.

Yes, that will be in the 10-Q, but I think we have...

The cash amount that's in what we'll call a new secure group is $81 million. Alan Ratner - Zelman & Associates, Research Division: And how freely can you move the cash back and forth within those 2 buckets?

I mean, cash is fungible. So I mean, obviously, as we're buying new land parcels, we make a conscious decision whether we are going to buy the land in the new secure group or the old secure group. So if we have more cash in one or the other, we'll make that land decision to purchase it in the one that has more cash than we think that it needs to have. There's other levers that we pull as well, but we're very comfortable that we can adequately manage the cash between the 2 secure groups.

Your next question will come from the line of Andrew Casella with Imperial Capital.

Larry, regarding the slide on your potential liquidity levers, can you quantify, I guess, the opportunities that exist in selling excess land in model sale leasebacks and what investors could look forward to if you were to have to pull those levers and what kind of cash it can generate?

We're really not making a public projection on how much we might do of each one of those particular categories. As Ara said, we have quite a number of models on the books. I think you can actually see that on one of the slides, to give you a little bit of perspective of the number of models that we currently own. So someone might be able to look that up as we go, since it's a publicly disclosed number.

217 models.

217 models as an example. But in terms of land sales and other things, when we do land banking activities, et cetera, we can do that both on owned land as well as new land. Those are not necessarily levers that we anticipate pulling. It's just that -- it's kind of safety valves that are available to us if the market deteriorates and just something we can look at redeploying cash if we can get better returns doing something else with it.

And is there a priority as far as which one of these you would rather do versus another option?

We would look at the opportunities at the time that we decided to do it. And whatever we thought was the best opportunity at that time, we would pursue first.

Clearly, we'd rather not defer land purchases, since we'd like that for growth. So some of the other alternatives would certainly be more attractive. And things like model leasebacks or joint ventures, can be -- or land banking opportunities -- could be better sources of capital for us. We'd prefer not to issue much equity at these prices, because we feel pretty confident about the direction we're going in and we'd rather issue more equity at higher prices. But so if forced to prioritize, I guess I'd say, in that order: land banking, lot model sales, et cetera, before some of the other choices. I will mention, we have had a few model sale leasebacks, not many. But there have been small investors that are happy to basically earn the return equivalent to their mortgage payments and carrying costs. And those are good opportunities for us, a fairly inexpensive source of capital right now. I haven't added up the numbers, but Jeff mentioned we have about 217 models out there, I guess, that we still own. So if you multiply that by our average price somewhere around $300,000, I guess, that's about $66 million on our average price. Models tend to be slightly above our average price. So that can be -- certainly can be a source of capital.

And just one quick follow-up. Larry, as far as the balance in the new secure group on the cash side, can you give us an insight as to what constitutes excess cash in one box versus the other? I mean, can we infer that the unrestricted group is now at $80 million, down from $120 million sequentially? Is that, I guess -- can we read into that number at all?

No, not really. I mean, what we do is we look at the cash needs. It depends on what kind of investments we make in each secure group. I mean, for example, if we bought a raw piece of dirt in a new secure group and we were going to have to spend land development dollars on it in nearby quarters, we would be able to project out what those cash needs were. So it just depends on what investments are in there. And we understand what the cash needs are in each of the individual secure groups and we're going to make sure that we have adequate cash in each one. As another example, there may come a time that we have only producing communities in one group or the other and they are going to be generating cash, so we're comfortable with the cash balance being a lower number. So we manage the company as one combined entity. We understand we have to wall off the 2 secure groups and we've properly done so. And we're going to manage the company as a single entity. And that cash number may change from one quarter to the next as to how much is in each of the different secure groups.

Your next question will come from the line of Nishu Sood with Deutsche Bank.

It's actually Rob Hansen on for Nishu. Have you guys looked at -- if these current positive trends continue, how much cash you would have to spend on land development this year? And I'm just kind of asking because you mentioned that you're going to have to do a little more land development but you also want to increase turns and buy these smaller plots of lands and turn them into cash as well. So I guess, what's going to be more impactful this year for you?

We've factored in the land development spend in our projections. Basically -- in the boom days, you'd think of a parcel of 150 lots and develop 100 at a time. Today, we're much more resourceful with our capital. And we will develop lots in very small increments and basically turn that asset even if it's a undeveloped land much more quickly than we had in the past. So right now, it's factored in. If we were to find opportunities that were large parcels that needed a lot more development dollars upfront, for those, we would -- and we have -- sought joint venture partners, as long as the returns are sufficient. Having said that, we haven't seen as many of the large opportunities as the small opportunities. And since we've got the cash position, we've been doing those wholly owned in the recent periods. But we'd be happy to bring some to our partners and we've got some good experiences with them, if we found the right opportunities.

Okay. And then just in terms of the February sales data, how did the -- how did it look, excluding JVs? And were there any parts of the country that significantly outperformed?

Do you have that at your fingertips, Jeff, or not?

Hold on one moment. While Jeff is getting the without-JVs and with-JVs numbers -- I assume that's what he's digging up right now -- I'll just comment that the pick-up was pretty broad based in terms of product type and geographies. If I had to pick on 2 markets that haven't quite joined in the resurgence as much as some of the others, I might say Tampa and parts of New Jersey. Other than that, we've seen a pretty broad-based pick-up by geographies and product types.

Without JVs, we're up about 30% in the month of February.

Your next question will come from the line of Michael Rehaut with JPMorgan. Jason A. Marcus - JP Morgan Chase & Co, Research Division: This is actually Jason Marcus, in for Mike. So my first question is regarding the sequential gross margin improvement. I was wondering if you could give us a little bit more detail in terms of what the key drivers were there? And then also, I think you mentioned that gross margin should improve year-over-year. I was just wondering if the level that it's at now you think is -- is it sustainable? Or do you think that it can potentially improve from here?

I guess I'll answer the second question first. Is -- I think we said pretty clearly we expect gross margins to improve in 2012, so it wouldn't surprise me at all that it's going to improve above the level that we just reported. Ara, do you want to take the first part of the question?

Yes. As always, it's a mix of everything, a mix of which communities are selling, a mix of the newer communities that are helping a little bit. So it's really a -- the overall mix. In general, we're weeding through some of our older legacy communities. We're weeding through some of the lower-profit communities and feeling some strength in the marketplace. We also just haven't seen the pricing pressure that existed in prior quarters. There are always anecdotal situations where you have to tweak concessions and that affects margins. But we've also been having some anecdotal situations where we're raising prices, not enough to say clearer trends, but we're definitely seeing that a little more and that is clearly helping the overall gross margin situation. Jason A. Marcus - JP Morgan Chase & Co, Research Division: Okay. And then the next question is just regarding new communities. I was wondering if you could give us any color on how many net new communities you expect to add over the next several quarters?

Yes, it's just not something that we make public projections on. We kind of directionally tell you what we're expecting to have occurred, but it's a very difficult number to project because if we were selling faster than we had expected, that'll lead to less community counts. So I mean, there's just -- might have delays on opening. So it's just a very difficult number to project.

Your next question will come from the line of Megan McGrath with MKM Partners.

I guess, first of all, in the category of no good deed goes unpunished, I'm going to ask you about your liquidity levers again. But really, just wanted to get -- manage expectations a little bit here about how you are forecasting and when you talk about a deterioration in the market and when you could use these, can you give us a sense of what that really means? Do we need to keep the pace? Do we need to just see growth, and you think that you can manage it? Does that mean that we start to see year-over-year declines? When you think about a deterioration, what exactly does that mean?

Well, I guess what we've very, very consistently said and reiterated time and time again is, every time we run our own model, we're kind of assuming today's absorption pace, today's home prices and that things don't get better, they don't get worse. I mean, we run upsides and downsides, but when we talk about our model publicly, it's the model that kind of just assumes market conditions remain just as they are forever. So when we talk about deterioration, what we're saying is that the market materially gets worse than it is today, i.e., the last time we kind of ran the model. So that's kind of what we mean by -- and it isn't just, it's a tiny hiccup. It's something materially worsens.

Yes. And to be clear, we haven't run our model, assuming February is what happens in every month or even the first quarter. I'd say our models are run more conservatively than what we've experienced recently. And we have, we believe, sufficient cash flow to buy land and hold our cash target in that scenario. It would have to decrease less. Home sales and prices would have to decrease from that position of -- which was, again, more conservative than what we've just announced for the recent quarter and the month of February.

And then could you trail down a little bit more, if you could -- on your land base, you talked about buying new land that requires development. This land that you're seeing, is it raw, is it partially developed? And how does that compare to, for example, your mothballed lots? Are your mothballed lots mostly undeveloped? And -- so when you talk about taking those out and the low-cost base of them, are you -- how much money are you going to have to put into those lots when you eventually bring them to market?

The mothballed lots, first of all, have both developed and undeveloped. We probably -- I haven't looked at the exact breakdown, but I think we have more undeveloped in a couple of parcels. But we certainly have quite a few that are developed. On the ones that are undeveloped, there are a couple that would require more significant cash flow and cash investment to develop them. Many of them, though, are able to be broken down into much smaller increments. So I think we can get a reasonable blend between the ones that are already developed, some of that are -- can be broken down into very small land development increments, and those that might require more significant investment. And perhaps for those, when they're ready, we might seek out a partner. But we really got quite a mix. The -- in terms of what kind of undeveloped we're seeing today, they -- it really runs the gamut. We're -- immediately after this meeting, we actually have a small land committee meeting. I'll give you an example of one, it's for property in Chicago. It's a quasi infill, it's kind of on the beginning edge of the suburban fringe. And the streets on the outside are improved, and the land development that's necessary has to do more with drainage and sidewalk improvements, et cetera, not bringing the main utility there. In some cases -- and in that case, that's an older neighborhood and this is one of those overlooked parcels. And we get those and they tend to have less development. In other cases, we pick up where a land developer stoped and perhaps the bank got the property back. And they might have had the sewer and water lines done and stopped there. So we have to go complete perhaps the water and sewer or maybe just test it and then put in the final grading, do the roads, curves, sidewalks, et cetera. And the third category is where we don't have anything there and we've got to do everything A to Z. We really have situations in all 3 categories all the time. And that blend is pretty much -- we've kind of assumed, the same blend of opportunities that we've been contracting over the last few quarters, we have assumed that's the same blend over the next few quarters. And that's how we calculate our capital needs.

Your next question will come from the line of Kristen McDuffy with Goldman Sachs.

I understand that you can issue up to 125 million of shares for cash. Do you know how much equity you could issue in exchange for debt without limiting your ability to utilize your NOLs?

I think there's some back-specific stuff on that, but it's difficult to make the estimate. It's some number somewhat lower than the 125 million, but I can't tell you what it is.

Okay. The cash that you're spending from your secure group, do you expect this to be spent mostly on wholly owned land? Or do you think that, at a point in the future, you would invest it into joint ventures?

We have 2 secure groups. Which one are you talking about?

The one for the 2s and 5s.

Okay. I mean, everything that we do in that secure group is actually in a joint venture. It's just a wholly owned joint venture. We could do additional unconsolidated -- or excuse me -- yes, unconsolidated joint ventures in the future. And it's something that we may choose to do.

As I think about investing cash in these joint ventures, how difficult is it to get that cash back? Does it take longer than, say, on a normal development to get cash back from a joint venture?

I mean, it's -- and that's again back-specific as to what the exact terms of the joint venture structure is. But typically, the cash comes back in a similar kind of flow as if we had it on a wholly owned basis. We just don't put all the cash up. We're putting cash up alongside of our investors. So it just takes less cash, and the cash flows themselves are similar, if not identical. So we would get our pro rata share back, except for the fact that we get a promote, so that if we get into the promote stream, that promote portion may be delayed in terms of coming back to us because we got to make sure we're over those thresholds. But that would have been cash we wouldn't have gotten if we did it on a wholly owned basis in terms of a extra IRR kind of return.

Okay. And it sounds like your focus is on purchasing finished lots. But I just -- I think conventional wisdom is that those are becoming more limited and difficult to find. How are you balancing that? Are you -- what percentage of your lot purchases in the quarter are generally finished versus in need of development?

I'm not sure if I have that statistic off the top of my head. It varies to some extent from market to market. For example, in Houston and Dallas, almost 100% of our purchases are already developed and often are on a rolling option basis where we buy X number of finished lots per quarter. In other markets, like, let's say, California or New Jersey, that's typically a little more difficult to achieve. But I just don't have the exact breakdown of our recent purchases of finished or undeveloped. Jeff, do you happen to have that handy?

No, I don't.

No. No, we don't track that.

Okay. And then just lastly, I wanted to just talk about the land banking idea. I know you guys considered this a few years ago, a couple of years ago, and found it not to be the most attractive option. I was wondering, what's changed? How much initial investment something like this would take? And how much of your land would you hope to purchase through such a thing if you chose that route?

I think the structure of a land banking arrangement is pretty much as follows: We as the homebuilder would put down a deposit. That would typically be between 10% and 20% of the purchase price. The land banker would fund the land development also, if that's required. And then we would take down the lots on some pre-prescribed basis. Typically, we -- there's what's known as a skip provision, so that if there is a sales hiccup, you can skip one quarter of lots and you just add it to the overall pile. And the rates of return, it shift -- that's what shifts around in different times of the market cycle. I'd say from mid teens to high teens is kind of the talk, generally. And considering we buy land on an unlevered return of about 25%-plus, land banking arrangements with those kind of returns still make economic sense to us if they're large enough to warrant it.

Your next question will come from the line of Dan Oppenheim with Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: I was wondering, if we think about the margins and such and getting cash flow generation, profitability, isn't just about the volumes but also hopefully having the margins coming through, margins even excluding the interest well below some of the peers. Do you think that some of that speaks to the land that you're getting where it's faster inventory turn and so it's then tougher in terms of making the margins? Is it just fewer deals in that land right now? How do you look at that?

Part of it, I think, has to do that we don't all report margins the same way. So when you're looking at our gross margin, it's after sales commissions. And most of our peers do it before sales commissions. So that may be why you're saying we're -- I mean, we're still on the low side, but it's -- we move up the rank a bit when you make that apple-to-apple kind of adjustment.

Your next question will come from the line of David Goldberg with UBS.

I just want to make sure I understood that, in this recent debt-for-equity swap -- and I realize it was relatively small. But I just want to think about that relative to the Section 83 -- Section 382 rules and the change in ownership rules. Does it have an impact on your 382 and your ability to issue the 125 million shares? I know it was the same number you gave last quarter. Should we kind of assume that there's no impact accordingly on the change in ownership rules?

[indiscernible] Yes, we're not going to do an exchange with someone that's a 5% holder or this makes them a 5% holder. So as long as we stick to that kind of proposition, it will have absolutely no impact on the 382.

Got it. And then I guess, my follow-up question, it's kind of related to a question that was asked earlier about the cash flows and the joint venture. But I want to think about that relative to the earning stream and how that might differ. So we can obviously -- we can see the kind of earnings that come out of it from a [indiscernible] basis, it's kind of a line item. And I'm just trying to think about how the cash flows would differ on -- obviously JVs, we are not fully consolidating them as we look forward.

Well, I think earnings could exist before you get the cash flow -- before either partner gets cash flow, because you may be following back from the cash flow into WIP and subsequent land development sections. We do -- even if we are into the promote and believe we will be in the promote section where we might get a disproportionate share of the income, we do not recognize that from a P&L standpoint, nor do we get the cash flow from that, until the near the very end of the life, both. Again, cash flow nor that extra boost in P&L, we would not get until the end of that particular joint venture.

Got it. And can I just sneak one more in here quickly? If I look at the absorption pace in the joint ventures, it looks like it's higher than the joint ventures of the wholly owned on balance sheet communities. Is that just related to the legacy communities that you still hold that have a slower absorption pace? Or is that something about product or location of what's in the JV versus what's on balance sheet?

To be honest with you, we haven't even analyzed that. My suspicion is it may have to do with some kind of tailwind. I don't know whether we're counting the community accounts that are 10 or fewer lots remaining or whether there is even any of those. I mean, it's just not something we've really analyzed. So I don't think I can give you an off-the-cuff answer, but they're generally larger communities than we've done in JVs. And in some instances, that might impact absorption of -- it's just not something we've really done a lot of analysis on.

Is it fair to say, quality-wise, there's no difference between what's in the JV and what's in terms of location, A, B, kind of C part of locations?

Yes, I think that's a safe bet. The primary reason we would do some in the JV is the size of the community rather than any other qualitative measure.

Your next question will come from the line of Joshua Pollard with Goldman Sachs.

Most of what I wanted to know has been answered. But I'd love to understand, what's the highest level of land you guys could bring on this year, now given that you're going to have to split your land spend much more between development and acquisition? It's something that -- I know you guys don't give community count targets, but I'm really just trying to understand how much slower you guys may have to grow the business if land prices begin to make a march higher from the hair?

I guess the first comment, and then I'll let Ara tag on if he has additional things to say, is, we've been saying for quite a number of quarters and certainly throughout all of 2011 that we were doing land development and doing land development on newly identified lots. So this is not something new. And I don't think it's materially changed in the last quarter or two. So I -- we're not giving you clarity on specifically what our land spend is going to be, but I don't expect the fact that we are buying raw land or partially developed land -- that really hadn't materially changed in the last 6 quarters, would be my reaction.

But what was the split between development versus acquisition in '11?

I don't think we've ever publicly disclosed that.

Okay. My final question is, you guys sort of announced the debt purchases that you did in the quarter in your K. And it doesn't look like you guys did much more beyond that into the rest of the quarter. Is there something that sort of signaled to you, Larry, you should slow down on the debt repurchase side? Or how should we expect you guys to approach debt repurchasing for the balance of 2012?

The governor to our willingness to spend on land, to spend on debt repurchases -- the final governor is really liquidity and managing to that cash target range that we continue to talk about. But when we're looking specifically -- as in, am I going to invest in land? Am I going to invest in debt repurchase? It's the price of the debt and where it's trading. So we take all of those kind of factors into account. If we feel we have the liquidity to go out and make debt repurchases, we compare and contrast it to the potential yields we could get on land and do a balance. That's really kind of how we think about it.

So -- and so is it right in assuming that the IRR, which you guys said were low to mid 20s for land purchases that you guys are getting, you guys would expect lower returns on purchasing debt in the -- from December through January?

Well, I think when we have purchased it, we were getting higher returns than we got on land. The transactions that we did do were very appealing from an IRR perspective.

Your next question will come from the line of Alex Barrón with Housing Research Center. Alex Barrón - Housing Research Center, LLC: I guess I am trying to balance a couple of thoughts and hoping you can help me. One is, you guys are obviously growing the orders at a pretty rapid and solid rate, 20%, 30-plus percent. And so does that necessarily translate into, your inventories are going to start to grow at that rate? And if so, how do you balance that against your cash position? How -- are you going to need to raise capital soon?

Some of that -- as we tried to discuss on the call, some of that is really the fruit of investments that we've been making over the last few quarters, buying land -- in some cases, we were putting the development in, in other cases just building the models and getting ready to open. So as you've seen in some of the charts, our community count has been growing, which means we bought the land, we opened the communities. Because we don't report it until it's open for sale. And that typically means the big investments have preceded that. And then the dollars that are necessary after that are pretty rapidly turning dollars. They're associated with the construction we have. So if it takes you 90 or 120 days to build a house and you only have -- you pay the subcontractors 30 days later, that part of the asset can turn fairly quickly. I mean, we can actually get proceeds from the customers of closing the house before all of the bills have been received for that particular house. So that component has pretty good turns, and the land and land development component has typically preceded that community's opening. Alex Barrón - Housing Research Center, LLC: Okay. I guess my second question had to do with trying to understand the accounts payable. That portion dropped sequentially, I guess, $30 million, $40 million. And I was wondering, is that just a seasonal thing, or is that going to bounce back as the year progresses?

It's a seasonal thing, Alex. Fourth quarter's typically a big delivery and big deliveries right at the very end of the quarter and that led to higher accounts payable. And there were just less in this quarter. And you'll see that same pattern if you go back and look historically at us as well.

Your next question will come from the line of Susan Berliner with JPMorgan. Susan Berliner - JP Morgan Chase & Co, Research Division: I'm sorry, my questions were answered.

Your next question will come from the line of Joel Locker with FBN Securities.

Just wanted to get, I guess, on the debt-to-equity swap, just what kind of -- how deep is that pool? Could you have done 12 million for $48 million or maybe 20 million for all that? Just based on -- issuing shares at an equivalent of $4 a share doesn't seem like a bad play right here.

Well, I mean, we've been approached from time to time, and sometimes we're able to negotiate terms at market, sometimes we're not able to negotiate terms at market. But as we mentioned in the script, to the extent that there's others that are interested in pursuing this, to the extent we can do them at roughly kind of market prices, it's something we would entertain.

[Operator Instructions] Your next question is a follow-up from the line of Andrew Casella with Imperial Capital.

If you could give us an update on your restricted payment basket in the old secure group. And then just talking about the ability to dividend money upstream from the new secure group, if you have that ability at all.

Well, I think I mentioned the answer to the first question: We have roughly $138 million of restricted payment capacity left in that bucket from the old secure group. And then in terms of dividend in cash, I mean, the cash is walled off, with the exception of some limited propositions that I don't expect are going to be meaningful dollars. What really happens is, if we make money in the new secure group on the investments that we make, it adds -- for every dollar that we make, it adds another dollar to the collateral basket that I can do an additional secured dollar debt. That's really the benefit.

And just secondly, on your incentives as a percent of the home sale price, can you talk a little bit about that in the quarter and if you think that number can come down as we go through the year? It sounded like, sort of year-over-year February, you guys weren't necessarily doing any additional incentives or promotional programs, so any color would be helpful.

Yes, we -- first of all, we really focus on net pricing. Some situations, the -- for a variety of reasons, a division in a location may decide to keep the base price higher and offer bigger incentives. And 10 miles away, they may decide to offer no incentive and just have very low base prices. So sometimes, it can be -- the discussion can be confusing. All we focus on is net pricing. And overall, in spite of the fact that I saw the Case-Shiller index did go down in a bunch of cities last month, I'd say the environment on pricing overall is holding steady.

Your next question will come from the line of Andy Scheffer with Onex Credit Partners.

Can you describe what caused the change in your mothballed lots?

I don't think there's a big change. Are you talking about sequentially?

Yes.

Go ahead, Brad.

We had one community that we sold the property, it's reflected in our land sales. And then the other community is now being reactivated. It's going to be opening for sale.

Un-mothballed.

Un-mothballed, basically. And then one other community had a change in its regulatory -- it's map, basically -- but for regulatory reasons it's reduced the number of lots.

We basically reduced the density, went with fewer but larger lots. And we thought that would better optimize the value of the land.

And you commented, Larry, in your prepared remarks about un-mothballing future lots, going forward. What has to happen in terms of the market for you to un-mothball those communities?

I think what basically has to happen is continued improvement in absorption pace of -- combined with, at some level in certain communities, an ability to increase home prices. So our ability to get a better return on that investment to justify reopening that community or opening it for the first time is basically what has to happen.

In some cases, construction costs come -- have come down enough to un-mothball a couple of communities without the price going up. In some cases, we've managed to change the product type or use type and justify un-mothballing a community. But generally speaking, Larry's response is right on. It would require a little more pricing or a little more velocity. Or in some cases, besides construction costs, we have seen a few instances where the municipalities have lowered some of their fees. And that could justify un-mothballing as well.

So we should -- any change there would be on the margins, it sounds like.

Yes.

Well, until the market improves, is that what you're saying?

Going from here.

Well, it's a -- I'm not sure what you mean by any changes. But as the market improves, we fully expect over time to bring all of those lots back.

We're about to un-mothball a small -- another small parcel. In that case, almost every one of the changes were at play. The municipality did in fact reduce some of their fees by about $5,000. The market has picked up just a little bit in price and pace. And we were able to redesign the product for something that's more cost efficient, yet still works with the entitlements. And when you add those 3 together, it justifies un-mothballing. It's like 70 lots and will be a positive profit and cash contributor. So every situation is different.

I guess what I'm trying to get at is, is this a 7-year process, is it a 5-year, 3-year? I'm trying to get a sense as to how quickly or slowly that could happen.

It's so dependent on those factors. I would say, in general, I would not assume that we're going to un-mothball everything in 2 years. I think, more likely, it's just going to slowly evolve over time. The properties are in many different locations. So a neighborhood in Northern California may improve and firm up just like the one I just mentioned in Florida did. And frankly, I -- we have no way to project when that would happen. It just -- all of a sudden, we saw the pace pick up, prices pick up and some of the other factors. And it was not in our projections at all. In fact, we had it -- we assumed in our internal models that it would be mothballed for another 4 years. And we just made the decision a week or two ago to un-mothball it. So it's one of those things that's hard to tell. There are just so many location-specific dynamics.

And there are no further questions in the queue. I would now like to turn the call back over to Mr. Ara Hovnanian for closing comments.

Thank you. And we'll try to work on the pronunciation in our future calls. We're obviously not spending enough money on radio advertising. But in any case, I appreciate your attention for the call. We are pleased with the results. We're not going to be ultimately pleased until we return to profitability and then start driving some good solid numbers. We feel good about the growth prospects coming up, and we look forward to reporting on them in the ensuing quarters. Thank you.

This concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.