Hovnanian Enterprises (HOV) risk factors, FY2024 10-K

Risk Relating to Our Business and Industry

1. 01Availability of water supply in locations in which we operate
2. 02Raw material and labor shortages and price fluctuations could delay or increase the cost of home construction and adversely affect our operating results
3. 03Inflation may adversely affect us by increasing costs beyond what we can recover through price increases and by increasing mortgage rates for homebuyers
4. 04A significant downturn in the homebuilding industry could materially and adversely affect our business
5. 05The homebuilding industry is significantly affected by changes in weather and other environmental conditions and resulting governmental regulations and increased focus by stakeholders on sustainability issues
6. 06Our business is seasonal in nature and our quarterly operating results fluctuate
7. 07Our success depends on the availability of suitable undeveloped land and improved lots at acceptable prices and our having sufficient liquidity to fund such investments
8. 08We rely on subcontractors to construct our homes and may incur costs or losses if these subcontractors fail to properly construct our homes or manage and pay their employees, or if products supplied to us by subcontractors are defective
9. 09Changes in economic and market conditions could result in the sale of homes at a loss or holding land in inventory longer than planned, the cost of which can be significant
10. 10We conduct a significant portion of our business in Arizona, California, Delaware, Florida, New Jersey, South Carolina, Texas and Virginia, and accordingly, regional factors affecting home sales and activities in these markets may have a large impact on our results of operations
11. 11Increases in cancellations of agreements of sale could have an adverse effect on our business
12. 12Increases in the after-tax costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results
13. 13Mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties
14. 14We compete on several levels with homebuilders that may have greater sales and financial resources, which could hurt future earnings
15. 15Utility shortages and outages or rate fluctuations could have an adverse effect on our operations
16. 16Information technology failures and data security breaches could harm our business
17. 17Negative publicity could adversely affect our reputation and our business, financial results and stock price
18. 18Global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations

Risks Related to Our Debt and Liquidity

1. 19We have a significant amount of debt
2. 20Make us more vulnerable to downturns in our business and general economic conditions
3. 21Our sources of liquidity are limited and may not be sufficient to meet our needs
4. 22Our cash flows, liquidity and consolidated financial statements could be materially and adversely affected if we are unable to obtain letters of credit
5. 23We may have difficulty in obtaining the additional financing required to operate and develop our business
6. 24We could be adversely affected by a negative change in our credit rating
7. 25Restrictive covenants in our debt instruments may restrict our and certain of our subsidiaries’ ability to operate, and if our financial performance worsens, we may not be able to undertake transactions within the restrictions of our debt instruments
8. 26The terms of our debt instruments allow us to incur additional indebtedness

Regulatory and Legal Risks

1. 27We may be liable for claims for damages as a result of use of hazardous materials
2. 28Legal claims not resolved in our favor, such as product liability litigation and warranty claims may be costly
3. 29Tax increases and changes in tax rules may adversely affect our financial results

Risks Related to Our Organization and Structure

1. 30We conduct certain of our operations through unconsolidated joint ventures with independent third parties in which we do not have a controlling interest. These investments involve risks and are highly illiquid
2. 31The Hovnanian family is able to exercise significant influence over us
3. 32Based on past impairments and our financial performance in prior years, we generated a federal net operating loss carryforward of $398.8 million through the year ended October 31, 2024, and we may generate net operating loss carryforwards in future years
4. 33We could be adversely impacted by the loss of key management personnel or if we fail to attract qualified personnel