What changed in this filing

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Item 1A. Risk Factors

2022-05-31 compared with 2021-05-28 · 60 added, 41 removed, 192 unchanged (34% of the section changed)

10 unchanged sentences

Our products are produced in a manner that is considered labor-intensive and requires a consistent and available workforce, which may be adversely affected by a large-scale decline in public health conditions or other emergencies.

As it relates to the COVID-19 pandemic, our normal operations have been constrained by actions we have taken to maintain a safe working environment for our employees, including compliance with mandated social distancing and other governmental requirements.

Factory capacity utilization levels have fallen accordingly, having also experienced increased employee absenteeism and pandemic impacts to our supply chain.

As it relates to the COVID-19 pandemic, our normal operations were constrained by actions we took to maintain a safe working environment for our employees, including compliance with mandated social distancing and other governmental requirements.

Factory capacity utilization levels fell accordingly as the result of increased employee absenteeism and the pandemic impacts to our supply chain.

Our primary suppliers are domestic, while also depending on materials originating from overseas.

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The magnitude of the COVID-19 pandemic, including the extent of any continuing impact on our business, financial position, results of operations or liquidity, which could be material, cannot be reasonably estimated at this time because of the continuing fluidity of the situation.

It will depend on the duration of the pandemic, its geographic spread, potential business disruptions and the overall impact on the national economy and consumer behavior.

Depending on the duration and severity of the COVID-19 pandemic, it may also have the effect of heightening many of the other risks described below in this Item 1A or elsewhere in this Annual Report, such as:

It will depend on the duration and evolution of the pandemic, potential business disruptions and the overall impact on the national economy and consumer behavior.

National emergencies like the COVID-19 pandemic may also have the effect of heightening many of the other risks described below in this Item 1A or elsewhere in this Annual Report, such as:

risks related to the successful completion of our growth and expansion goals;

6 unchanged sentences

and risks related to stock price fluctuations.

The Company's results of operations can be adversely affected by labor shortages and the pricing and availability of raw materials

The Company's results of operations can be adversely affected by labor shortages and the pricing and availability of transportation or raw materials

The homebuilding industry has from time to time experienced labor shortages and other labor related issues.

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An overall labor shortage or a lack of skilled or unskilled labor could cause significant increases in costs or delays in construction of homes, which could have a material adverse effect upon our revenue and results of operations.

As our homes are transported by independent third-party transportation companies, shortages or increased transportation costs from rising fuel prices could have an adverse impact to our operations.

Our results of operations can also be affected by the pricing and availability of raw materials.

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We have experienced production halts from shortages of primary building materials in the past, and although we attempt to increase the sales prices of our homes in response to higher materials costs, such increases may lag behind the escalation of material costs.

Excessive health and safety incidents relating to our operations could be costly to the Company

Home construction is inherently dangerous.

While safety is a top priority, any failure in health and safety performance may result in additional health and workers' compensation costs or penalties for non-compliance with relevant regulatory requirements, which may result in difficulty attracting labor or a negative impact to our reputation.

Some of the Company's manufacturing production employees are represented by unions, and failure to negotiate reasonable collective bargaining agreements may result in strikes, work stoppages or substantially higher ongoing labor costs

Certain manufacturing production employees (approximately 7% of our total employees) are represented by unions and are covered by collective bargaining agreements, which expire in April 2023 and February 2024.

Wages, health and welfare benefits, work rules and other issues have historically been negotiated in a reasonable amount of time and have previously not resulted in any extended work stoppages.

However, if we are unable to negotiate acceptable new agreements, it could result in worker strikes, loss of business, disruption of operations and increased operating costs as a result of higher wages or benefits paid to union members, which would have an adverse effect on our business and results of operations.

Increases in the rate of cancellations of home sales orders could have an adverse effect on the Company's business

Our backlog reflects home sales orders with our distributors and home buyers for homes that have not yet been delivered.

Distributors and home buyers may cancel orders prior to production without penalty.

If there is a downturn in the housing market, or if financing becomes less available or more expensive to obtain with higher interest rates, more distributors and homebuyers may cancel their agreements of sale with us, which would have an adverse effect on our business and results of operations.

The Company may not be able to successfully integrate past or future acquisitions to attain the anticipated benefits and such acquisitions may adversely impact the Company's liquidity

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Standard Casualty specializes in homeowner property and casualty insurance products for the manufactured housing industry, primarily serving the Texas, Arizona, New Mexico and Nevada markets.

Property and casualty insurance companies are subject to certain risk-based capital requirements as specified by the National Association of Insurance Commissioners.

Under those requirements, the amount of capital and surplus maintained by a property and casualty insurance company is determined based on its various risk factors.

Property and casualty insurance companies are subject to certain risk-based capital requirements usually in accordance with model rules as specified by the National Association of Insurance Commissioners.

Under these requirements, the amount of capital and surplus maintained by a property and casualty insurance company is determined based on its various risk factors.

Certain of our premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements.

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In addition to the extraction of sensitive information, attacks could include the deployment of harmful malware, ransomware, denial of service attacks or other means, which could affect service reliability and threaten the confidentiality, integrity and availability of information.

We use enterprise-grade information technology and computer resources to carry out important operational activities and to maintain business records.

Although secured in commercial data centers, our computer systems, including its back-up systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches and cyber incidents, catastrophic events such as fires, tornadoes and hurricanes and human error.

We use enterprise-grade information technology and computer resources to carry out important operational activities and to aggregate and maintain business records from a variety of systems.

Although most information is stored on servers that are secured in commercial data centers, individual systems, including back-up systems, are subject to damage or interruption from power outages, telecommunications failures, human error, computer viruses, security breaches and cyber incidents, which may infect our network infrastructure.

Such systems are also vulnerable to catastrophic events such as fires, tornadoes, earthquakes and hurricanes.

Given the unpredictability of the timing, nature and scope of information technology disruptions, if our computer systems and our backup systems are damaged, breached or cease to function properly, we could potentially be subject to production downtimes, operational delays, distraction of management, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks and financial losses from remedial actions.

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Although many of the costs and expenses we incurred related to this March 2019 incident were covered by insurance, we could in the future suffer a cyber incident that could result in material costs and losses that are not covered by insurance, which could have a material adverse effect on our results of operations and financial condition.

Failure to maintain the security of personally identifiable information could adversely affect the Company.

In connection with our business, we collect and retain personally identifiable information (e.g., information regarding our customers, suppliers and employees), and there is an expectation that we will adequately protect that information.

A significant theft, loss or fraudulent use of the personally identifiable information we maintain, or of our data, by cyber-criminals or others could adversely impact our reputation and could result in significant costs, fines or litigation.

The Company's participation in certain financing programs for the purchase of its products by industry distributors and consumers may expose the Company to additional risk of credit loss, which could adversely impact its liquidity and results of operations

8 unchanged sentences

Although we maintain general liability insurance and reserves for such claims, there can be no assurance that warranty and construction defect claims will remain at current levels or that such reserves will continue to be adequate.

A large number of warranty and construction defect claims that exceed current levels could have a material adverse effect on our results of operations or financial condition.

Additionally, the cost of insurance has increased significantly in recent years.

If we are not able to maintain current levels of coverage, or if warranty and construction defect claims exceed current levels, our results of operations or financial condition could be adversely effected.

Products supplied to the Company or work done by subcontractors can expose the Company to risks that could adversely affect its business

We sometimes rely on subcontractors to perform certain processes such as home setup or warranty work.

In some cases, subcontractors may use improper processes or defective materials, which could result in the need for us to perform repairs on homes.

In addition, although we expect all of our employees, officers and directors to comply at all times with all applicable laws, rules and regulations, there may be instances in which subcontractors or others through whom we do business engage in practices that do not comply with applicable laws, regulations or governmental guidelines.

When we learn of practices that do not comply with applicable laws, regulations or guidelines, we move actively to stop the non-complying practices as soon as possible.

However, regardless of the steps we take after we learn of improper practices, we can in some instances be subject to fines or other governmental penalties and our reputation can be injured due to the practices having taken place.

The Company has contingent repurchase obligations related to wholesale financing provided to industry distributors

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We may be required to honor contingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchase agreements.

In addition, the ability to recover losses on homes repurchased could be at risk in a declining price environment.

A write-off of all or part of the Company's goodwill could adversely affect its results of operations and financial condition

As of April 3, 2021, 8% of our total assets consisted of goodwill, all of which is attributable to factory-built housing operations.

As of April 2, 2022, 9% of our total assets consisted of goodwill, all of which is attributable to our factory-built housing segment.

In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other ("ASC 350"), goodwill is tested annually for impairment.

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Loan contracts secured by collateral that is geographically concentrated could experience higher rates of delinquencies, default and foreclosure losses than loan contracts secured by collateral that is more geographically dispersed.

We have loan contracts secured by factory-built homes located in 26 states, including Texas, Florida, Arizona, Oklahoma and New Mexico.

We have loan contracts secured by factory-built homes located in 26 states, including Texas, Florida, New Mexico, Oklahoma and Alabama.

Standard Casualty also specializes in writing contracts for the manufactured housing industry, primarily serving the Texas, Arizona, New Mexico and Nevada markets.

The Company's income tax provision and other tax liabilities may be insufficient if taxing authorities initiate and are successful in asserting tax positions that are contrary to the Company's position.

In the normal course of business, we are audited by various federal, state and local authorities regarding income tax matters.

Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and other taxes.

Although we believe our approach to determining the appropriate tax treatment is supportable and in accordance with tax laws and regulations and relevant accounting literature, it is possible that the final tax authority will take a position that is materially different than ours.

As each audit is conducted, adjustments, if any, are recorded in our consolidated financial statements in the period determined.

Such differences could have a material adverse effect on our income tax provision or benefit, or other tax reserves, and, consequently, on our results of operations, financial position or cash flows.

A prolonged delay by Congress and the President to approve budgets or continuing appropriation resolutions to facilitate the operations of the federal government could delay the completion of home sales and/or cause cancellations, and thereby negatively impact the Company's deliveries and revenues

22 unchanged sentences

Failure to comply with such regulations, changes in these or other regulations, or the imposition of additional regulations, could affect our earnings, limit our access to capital and have a material adverse effect on the business and results of operations.

An increase in interest rates could reduce potential buyers' ability or desire to obtain financing with which to buy homes and adversely affect the Company's business or financial results.

The Federal Reserve Board has recently raised its benchmark rate, with further increases possible.

Increases in interest rates could significantly increase the cost of owning a new home, which usually reduces the number of potential buyers who can afford, or are willing, to purchase homes we build.

This could adversely impact demand for our homes and the ability of potential customers to obtain financing, adversely affecting our business, financial condition and operating results.

Availability of wholesale financing for industry distributors continues to be limited to a few floor plan lenders and lending limits may be reduced from time to time which can negatively affect distributor demand

6 unchanged sentences

As a participant in the homebuilding industry, we are subject to market forces beyond our control.

These market forces include employment levels, employment growth, interest rates, consumer confidence, land availability and development costs, apartment and rental housing vacancy levels, inflation, deflation and the health of the general economy.

These market forces include employment levels, employment growth, interest rates, consumer confidence, home input supply availability, land availability and development costs, suppliers impacted by global conflicts, apartment and rental housing vacancy levels, inflation, deflation and the health of the general economy.

Unfavorable changes in any of the above factors or other issues could have an adverse effect on our revenues, earnings or financial position.

13 unchanged sentences

Deterioration in global, national, regional or local economic conditions and turmoil in financial markets could have a negative impact on our business.

Among other things, unfavorable changes in employment levels, job growth, consumer confidence and income, inflation, deflation, trade tariffs, foreign currency exchange rates and interest rates may further reduce demand for our products, which could negatively affect our business, results of operations and financial condition.

These factors could have an adverse effect on the availability of financing to our customers, causing revenues to decline.

Among other things, unfavorable changes in employment levels, job growth, consumer confidence and income, inflation, deflation, trade tariffs, foreign currency exchange rates and interest rates may further reduce demand for our products or have an adverse effect on the availability of financing to our customers, which could negatively affect our business, results of operations and financial condition.

Legal and Regulatory Risks

If the manufactured housing industry is not able to secure favorable local zoning ordinances, the Company's revenue could decline and its business could be adversely affected

If favorable local zoning ordinances are not adopted or if local zoning ordinances become further restricted, the Company's revenue could decline and its business could be adversely affected

Manufactured housing communities and individual home placements are subject to local zoning ordinances and other local regulations relating to utility service and construction of roadways.

1 unchanged sentence

Manufactured homes may not achieve widespread acceptance and localities may not adopt zoning ordinances permitting the development of manufactured home communities.

If the manufactured housing industry is unable to secure favorable local zoning ordinances, our revenue could decline and the business, results of operations and financial condition could be adversely affected.

If favorable local zoning ordinances are not adopted or become further restricted, our revenue could decline and the business, results of operations and financial condition could be adversely affected.

The Company is subject to extensive regulation affecting the production and sale of manufactured housing, which could adversely affect its profitability

4 unchanged sentences

Failure to comply with applicable laws or regulations or the passage in the future of new and more stringent laws, may adversely affect our financial condition or results of operations.

The Company may face risks related to the potential outcomes of the SEC subpoenas, including potential penalties, expense, the use of significant management time and attention, potential litigation or regulatory action and potential reputational damage that the Company may suffer as a result of the matters under investigation

The Company may face risks related to the potential outcomes of the SEC litigation, including potential penalties, expense, the use of significant management time and attention or potential reputational damage that the Company may suffer as a result of the litigation

As disclosed in Part I, Item 3, Legal Proceedings, since 2018, we have been cooperating with an investigation by the enforcement staff of the SEC regarding trading in personal and Company accounts directed by the Company's former Chief Executive Officer, Joseph Stegmayer.

The Audit Committee of the Board conducted an internal investigation led by independent legal counsel and other advisers and, following the completion of its work in early 2019, the results of the Audit Committee's work were shared with the Company's auditors, listing exchange and the SEC staff.

We continue to make documents and personnel available to the SEC staff and intend to continue cooperating with its investigation.

On September 2, 2021, the SEC filed a civil complaint in the United States District Court District of Arizona, naming the Company, along with Mr.

Stegmayer and the Company's former Chief Financial Officer.

The case is currently in the discovery phase of litigation.

We are unable to predict what consequences any investigation by any regulatory agency may have on us, including significant legal and accounting expenses.

1 unchanged sentence

Any proceedings commenced against us by a regulatory agency could result in administrative orders against us, the imposition of penalties and/or fines against us and/or the imposition of sanctions against certain of our current or former officers, directors and/or employees.

The investigations, results of the investigations or remedial actions we have taken or may take as a result of such investigations may adversely affect our business.

If we are subject to adverse findings resulting from the SEC investigation, or from our own independent investigation, we could be required to pay damages and/or penalties or have other remedies imposed on us.

The investigations, litigation or remedial actions we have taken or are currently undertaking may adversely affect our business.

If we are subject to adverse findings resulting from the SEC litigation, we could be required to pay damages and/or penalties or have other remedies imposed on us.

Losses not covered by our Director and Officer ("D&O") insurance may be large, which could adversely impact the Company's financial performance

3 unchanged sentences

General Risk Factors

The loss of any of the Company's executive officers could reduce its ability to execute its business strategy and could have a material adverse effect on its business and results of operations

We are dependent to a significant extent upon the efforts of our executive officers.

The loss of the services of one or more executive officer could impair our ability to execute our business strategy and have a material adverse effect upon our business, financial condition and results of operations.

The loss of any of the Company's executive officers, senior leadership or business operations managers or a significant number of operating employees could reduce its ability to execute its business strategy and could have a material adverse effect on its business and results of operations

We are dependent to a significant extent upon the efforts of our executive officers, senior leaders and business operations managers.

The loss of the services of one or more of these individuals could impair our ability to execute our business strategy and have a material adverse effect upon our business, financial condition and results of operations.

Also, the loss of a significant number of operating employees and our ability to hire qualified replacements could have a material adverse effect on our business.

We currently have no key person life or other insurance for our executive officers.

The Company has incurred net losses in certain prior periods and there can be no assurance that it will generate income in the future

Since becoming a stand-alone public company, we have generated net income each complete fiscal year, except for fiscal year 2010, in which we incurred net losses attributable in substantial part to the downturn affecting the manufactured housing industry.

The likelihood that we will generate net income in the future must be considered in light of the difficulties facing the manufactured housing industry as a whole, economic conditions, the competitive environment in which we operate and the other risks and uncertainties discussed in this section of the Annual Report.

The Company's liquidity and ability to raise capital may be limited

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For example, the Company's restated certificate of incorporation and restated bylaws authorize blank series preferred stock, establish a staggered board of directors and impose certain procedural and other requirements for stockholder proposals.

Volatility of stock price

The price of the Company's common stock may fluctuate widely, depending upon a number of factors, many of which are beyond our control.

These factors include:

the perceived prospects of the business and the manufactured housing industry as a whole;

differences between our actual financial and operating results and those expected by investors and analysts;

changes in analysts' recommendations or projections;

changes affecting the availability of financing in the wholesale and consumer lending markets;

actions or announcements by competitors;

changes in the regulatory environment in which we operate;

significant sales of shares by a principal stockholder;

actions taken by stockholders that may be contrary to Board of Director recommendations;

and changes in general economic or market conditions.

In addition, stock markets generally experience significant price and volume volatility from time to time, which may adversely affect the market price of the Company's common stock for reasons unrelated to our performance.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors