Key questions and answers from the fourth quarter earnings call conducted by Hovnanian Enterprises Inc. (HOV: chart) on December 17, 2008.

David Goldberg (UBS): Are you going to be bringing down a level of unsold inventory further in your plans?

J. Larry Sorsby:Cash flow generation is going to be a little more challenging as conditions have continued to deteriorate out there in terms of pace and sales price. Having said that, our focus remains on cash flow generation even at the expense of margins and yes, as we shrink communities you’ll see our started unsold levels come down.

We think they’re at appropriate levels given the community count right now because you have got to have two or three started unsold homes at a community level. Many people wait to buy a home until they’ve actually got theirs sold so they want to get into something relatively quickly.

Some of the low-hanging fruit has been taken away and we won’t be able to reduce it nearly as much as we did in 2008 but we will expect to reduce started unsolds somewhat during 2009.

David Goldberg (UBS): Can you give us some more color about what kind of firms you’re talking to now for joint ventures?

Ara K. Hovnanian: As you can imagine there was a lot of turmoil in September, October and November in the financial markets. Some firms were very affected, some were not so affected, and some had an actual improvement in their position in appetite.

It didn’t necessarily change the type of players although maybe to some extent we’re seeing a little more interest in the private equity capital versus the hedge funds. But suffice it to say we feel there are plenty of interested parties out there; enough for us to meet our needs.

We haven’t felt a huge pressure to finalize a transaction, frankly because we just don’t see the land opportunities just yet. We think they will come up in 2009 but it’s not as though we have 20 deals that we’re waiting to find a partner on. We don’t at this moment. However we’ve been around for 50 years; we’ve been through these cycles every time; we know we have to be patient.

Overall the return criteria really hasn’t changed that much. Overall they’re looking for a mid-20s kind of IRR and based on our 50-year history we think that’s very achievable particularly in buying property at the bottom of the market place.

Ivy Zelman (Zelman & Associates): Given your leverage, how should we think about the viability of the future?

Ara K. Hovnanian: There is no question from traditional balance sheet metrics we’re highly levered and likely if the market continues to deteriorate that we’ll be more highly levered in the next quarter if the market goes down further and we do more current impairments.

On the other hand, the good part of our balance sheet is we have a lot of cash handy and fortunately don’t have a lot of short-term maturities. The good news is over the many years before our maturities come due we think it’s highly likely the market is going to correct and get back to a normal semblance of order and that we will see velocities on a per community basis improve that will have a dramatic affect on margins.

Not only the velocity but obviously we think pricing will stabilize and ultimately will continue to go up which will also affect both our margins and our ability to generate cash flow.

In the meantime our plan is to do new communities and acquisitions in joint ventures that will preserve our cash yet give us access to some very good returns particularly from a return on investment standpoint.

Our strategy is to preserve cash in new properties by using joint ventures, continue to generate cash and the plan is that as we get profitable obviously we’re not going to be paying taxes for a long time. When we get back to making $2 million we’ll keep all of the $2 million and keep adding to our reserves there.

We think in short order we’ll be able to restore our balance sheet to normal levels. Without a doubt, for a while however, we’ll just be operating with the excess cash that we have and from the traditional metrics of book value, we’re not going to be in as good of a position.

Analyst for Nishu Sood (Deutsche Bank Securities): Is it possible for you to give us some color around how much debt you’d be looking to retire or things like that?

J. Larry Sorsby:We are exploring various alternatives including additional exchanges going forward.

Alex Barron (Agency Trading Group):On margins, is there a difference in impairments with other builders or do you think it’s more a function of the business model of taking down more option lots?