What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-11-17 compared with 2021-11-18 · 110 added, 98 removed, 240 unchanged (46% of the section changed)

Risk Factors.

Discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below.

They describe various risks and uncertainties we are or may become subject to, many of which are difficult to predict or beyond our control.

Although the risks are organized and described separately, many of the risks are interrelated.

These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

Risks Related to our Concentrated Ownership

31 unchanged sentences

Horton is not restricted from competing with us or otherwise taking for itself or its other affiliates certain corporate opportunities that may be attractive to us.

Table of Content s

Any inability to resolve favorably any disputes that may arise between us and D.R.

11 unchanged sentences

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

New agreements may be entered into between us and D.R.

Horton, and agreements we enter into with D.R.

New agreements may be entered into between D.R.

Horton and us, and agreements we enter into with D.R.

Horton may be amended upon agreement between the parties.

21 unchanged sentences

However, if we elect to use the controlled company exemptions, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

Table of Content s

We may not realize potential benefits of the strategic relationship with D.R.

5 unchanged sentences

The parties may collaborate with respect to such opportunities and, if they elect to develop such opportunities, D.R.

Horton has a right of first offer or right to purchase some or all of the lots developed by us, as set forth in the Master Supply Agreement, on market terms as determined by the parties.

Horton has a right of first offer or right to purchase some or all of the lots developed by us, as set forth in the Master Supply Agreement, on market terms offered by Forestar.

There are numerous uncertainties associated with our relationship with D.R.

10 unchanged sentences

In addition, we have in the past relied on builder referrals as a source for land development opportunities, and there is a risk that builders may refer such opportunities to land developers other than us as a result of our close alignment with D.R.

Risks Related to Our Operations

Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

In December 2019, COVID-19 emerged in the Wuhan region of China and subsequently spread worldwide.

The World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses for a period of time, which began to adversely affect our business in March 2020.

As economic activity resumed and restrictive orders relating to COVID-19 were eased, demand for our residential lots improved significantly during the remainder of fiscal 2020 and remained strong throughout fiscal 2021.

However, the effects of the pandemic, combined with the improvement in economic conditions and the strong demand for residential lots, caused multiple disruptions in our supply chain and have resulted in shortages in certain building materials and tightness in the labor market, which has caused our development cycle to lengthen in some markets.

There is uncertainty regarding the extent to which and how long COVID-19 will impact the U.S.

economy and our supply chain.

The extent to which COVID-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of COVID-19 or other variant strains and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If COVID-19 or other variant strains have a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

Risks Related to Our Business and our Industry

The homebuilding and lot development industries are cyclical and affected by changes in economic, real estate or other conditions that could adversely affect our business or financial results.

7 unchanged sentences

• demographic trends.

Adverse changes in these general and local economic conditions or deterioration in the broader economy would cause a negative impact on our business and financial results and increase the risk for asset impairments and write-offs.

Changes in these economic conditions may affect some of our regions or markets more than others.

Adverse changes in general and local economic conditions or deterioration in the broader economy may negatively impact our business and financial results and increase the risk of asset impairments and write-offs.

Changes in economic conditions may affect some of our regions or markets more than others.

If adverse conditions affect our larger markets, they could have a proportionately greater impact on us than on some other real estate development companies.

In the past, the federal government’s fiscal and trade policies and economic stimulus actions have created uncertainty in the financial markets and caused volatility in interest rates, which impacted business and consumer behavior.

Monetary policy actions affecting interest rates or fiscal policy actions and new legislation related to taxation, spending levels or borrowing limits, along with the related political debates, conflicts and compromises associated with such actions, may negatively impact the financial markets and consumer confidence.

Such events could hurt the U.S.

The federal government’s fiscal policies and the Federal Reserve's monetary policies may negatively impact the financial markets and consumer confidence and could hurt the U.S.

economy and the real estate market, and in turn, could adversely affect the operating results of our businesses.

During fiscal 2022, in response to increased inflation, the Federal Reserve raised interest rates significantly and has signaled it expects additional future interest rate increases.

As a result, mortgage interest rates increased significantly, and we began to see a moderation in housing demand.

Increases in mortgage interest rates would likely reduce demand for our residential lots and may have an adverse impact on our business or financial results.

Table of Content s

Deployments of U.S.

1 unchanged sentence

If we experience any of the foregoing, homebuilders may be less willing or able to buy our residential lots.

In the future, our pricing and product strategies may also be limited by market conditions.

Additionally, cancellations of lot sales contracts may increase if homebuilders do not honor their contracts due to any of the factors discussed above.

Our pricing and product strategies may also be limited by market conditions.

We may be unable to change the mix of our product offerings, reduce the costs of the residential lots we develop, or satisfactorily address changing market conditions in other ways without adversely affecting our profits and returns.

In addition, cancellations of lot sales contracts may increase if homebuilders do not honor their contracts due to any of the factors discussed above.

Our business and financial results could be adversely affected by significant inflation, higher interest rates or deflation.

Inflation can adversely affect us by increasing costs of land, materials and labor.

In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability.

During fiscal 2022, we began to see a moderation in housing demand as inflationary pressures and mortgage interest rates increased.

In an inflationary environment, depending on industry and other economic conditions, we may be precluded from raising residential lot prices enough to keep up with the rate of inflation, which could reduce our profit margins.

Moreover, in an inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which can have an adverse impact on our business or financial results.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels.

This could lead to deterioration in economic conditions, including an increase in the rate of unemployment.

Deflation could also cause the value of our real estate to decline.

These, or other factors related to deflation, could have a negative impact on our business or financial results.

Supply shortages and other risks related to acquiring land, materials and skilled labor could increase our costs and delay lot deliveries.

The residential lot development industry may experience significant difficulties that can affect the cost or timing of lot development, including:

• difficulty in acquiring land suitable for residential development at affordable prices in locations that are attractive to homebuilders;

• shortages of qualified subcontractors;

• reliance on local subcontractors, manufacturers and distributors who may be inadequately capitalized;

• shortages of construction materials;

• significant increases in the cost of materials and other inputs, including petroleum-based products.

These factors may cause construction delays or increase our costs.

During fiscal 2021 and 2022, we have experienced multiple disruptions in our supply chain, which have resulted in shortages of certain building materials and tightness in the labor market.

This has caused our construction cycle to lengthen and costs of building materials to increase.

If shortages and cost increases in building materials and tightness in the labor market persist for a prolonged period of time, our profit margins could be adversely impacted if we are unable to offset future cost increases by increasing the selling price of our lots.

Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

The ongoing COVID-19 pandemic continues to affect the global economy.

The effects of the pandemic contributed to disrupting our supply chain, which has resulted in shortages of certain building materials and tightness in the labor market.

Table of Content s

There is uncertainty regarding the extent to which and how long COVID-19 and its variant strains will continue to impact the global economy and our supply chain, and the effect of the pandemic on our operational and financial performance will depend on future developments, including its impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If COVID-19 and its variant strains continue to have a negative impact on economic conditions, our results of operations and financial condition could be adversely impacted.

Our business and financial results could be adversely affected by weather conditions and natural disasters.

1 unchanged sentence

Additionally, the physical impacts of climate change may cause these occurrences to increase in frequency, severity and duration.

Any such events could delay our development work and lot sales, unfavorably affect the cost or availability of materials or labor, damage residential lots under construction, lead to changing customer preferences and/or negatively impact demand for residential lots in affected areas.

There has been no material impact on our business from these events or material operational challenges resulting from these events, but they could adversely affect our business in the future.

Any such events can temporarily delay our development work and lot sales, unfavorably affect the cost or availability of materials or labor, damage residential lots under construction, lead to changing customer preferences and/or negatively impact demand for residential lots in affected areas.

We have experienced temporary delays in production and short-term impacts on our lot sales from weather events in recent years.

However, there has been no material impact on our business from these events or material operational challenges resulting from these events, but they could adversely affect our business in the future.

The climates and geology of many of the states in which we operate, including California, Florida, Texas and other coastal areas where we have some of our larger operations and which have experienced recent natural disasters, present increased risks of adverse weather or natural disasters.

The impacts from past natural disasters have not had a material impact on our business, financial condition and results of operations.

A health and safety incident relating to our operations could be costly in terms of potential liability and reputational damage.

1 unchanged sentence

Due to health and safety regulatory requirements and the number of residential lots we develop, health and safety performance is critical to the success of our business.

Any failure in health and safety performance, including compliance with potential new workplace requirements related to the COVID-19 pandemic, may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly.

Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly.

Such an incident could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our financial results and liquidity.

Supply shortages and other risks related to acquiring land, materials and skilled labor could increase our costs and delay lot deliveries.

The residential lot development industry may experience significant difficulties that can affect the cost or timing of lot development, including:

• difficulty in acquiring land suitable for residential development at affordable prices in locations that are attractive to homebuilders;

• shortages of qualified subcontractors;

• reliance on local subcontractors, manufacturers and distributors who may be inadequately capitalized;

• shortages of construction materials;

• significant increases in the cost of materials.

These factors may cause construction delays or increase our costs.

During periods of significantly higher demand in the housing industry, the risk of shortages and cost increases in land, labor and materials available to the industry will likely increase.

The real estate development industry is highly competitive and a number of entities with which we compete are larger and have greater resources or are smaller and have lower cost structures, and competitive conditions may adversely affect our results of operations.

The real estate development industry in which we operate is highly competitive.

Competitive conditions in the real estate development industry may result in difficulties acquiring suitable land at acceptable prices, lower sales volumes and prices, increased development or construction costs and delays in construction.

We compete with numerous regional and local developers for the acquisition of land suitable for development.

We also compete with national, regional and local homebuilders who develop real estate for their own use in homebuilding operations, many of which are larger and have greater resources than we do or are smaller and have lower cost structures than we do.

Any improvement in the cost structure or service of our competitors will increase the competition we face.

Our business, financial condition and results of operations may be negatively affected by any of these factors.

There can be no assurance that our current business strategy will be successful.

Our business strategy is focused on expanding our unique residential lot development business across a geographically diversified national platform while consolidating market share in the fragmented U.S.

lot development industry, primarily through our strategic relationship with D.R.

There can be no assurance that our unique model will continue to succeed as intended or that we will be able to continue to execute it effectively because of the risks described elsewhere in this “Risk Factors” section, or other unforeseen issues or problems that arise.

If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial condition may be negatively affected.

We may have continuing liabilities relating to assets that have been sold, which could adversely impact our results of operations.

In the course of selling assets we are typically required to make contractual representations and warranties and to provide contractual indemnities to the buyers.

These contractual obligations typically survive the closing of the transactions for some period of time.

If a buyer is successful in sustaining a claim against us we may incur additional expenses pertaining to an asset we no longer own, and we may also be obligated to defend and/or indemnify the buyer from certain third-party claims.

Such obligations could be material and they could adversely impact our results of operations.

From time to time, we obtain performance bonds, the unavailability of which could adversely affect our results of operations and cash flows.

From time to time, we provide surety bonds to secure our performance or obligations under construction contracts, development agreements and other arrangements.

At September 30, 2022, we had $632.7 million of outstanding surety bonds.

Our ability to obtain surety bonds primarily depends upon our credit rating, financial condition, past performance and other factors, including the capacity of the surety market and the underwriting practices of surety bond issuers.

The ability to obtain surety bonds also can be impacted by the willingness of insurance companies to issue performance bonds for construction and development activities.

If we are unable to obtain surety bonds when required, our results of operations and cash flows could be adversely affected.

Governmental regulations and environmental matters could increase the cost and limit the availability of property suitable for residential lot development and could adversely affect our business or financial results.

5 unchanged sentences

Any of these may limit, delay or increase the costs of acquisition of land for residential use and development or home construction.

Table of Content s

We are also subject to a significant number and variety of local, state and federal laws and regulations concerning protection of health, safety, labor standards and the environment.

4 unchanged sentences

Transition risks, such as government restrictions, standards or regulations intended to reduce greenhouse gas emissions and potential climate change impacts, are emerging and may increase in the future in the form of restrictions or additional requirements on land development in certain areas.

Such restrictions and requirements could increase our operating and compliance costs or require additional technology and capital investment,

which could adversely affect our results of operations.

Such restrictions and requirements could increase our operating and compliance costs or require additional technology and capital investment, which could adversely affect our results of operations.

This is a particular concern in the western United States, where some of the most extensive and stringent environmental laws and residential building construction standards in the country have been enacted, and where we have business operations.

1 unchanged sentence

However, given the rapidly changing nature of environmental laws and matters that may arise that are not currently known, we cannot predict our future exposure concerning such matters, and our future costs to achieve compliance or remedy potential violations could be significant.

Additionally, actual or perceived environmental, social, governance and other sustainability (“ESG”) matters and our response to these matters could harm our business.

Additionally, actual or perceived environmental, social, governance ("ESG") and other sustainability matters and our response to these matters could harm our business.

Increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and report.

These factors may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows.

These factors may alter the environment in which we do business and may increase the ongoing costs of compliance, and adversely impact our results of operations and cash flows.

If we are unable to adequately address such ESG matters or fail to comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results.

The subcontractors we rely on to perform the actual development of our residential lots are also subject to a significant

number of local, state and federal laws and regulations, including laws involving matters that are not within our control.

If the subcontractors who develop our residential lots fail to comply with all applicable laws, we can suffer reputational

damage and may be exposed to possible liability.

We are also subject to an extensive number of laws and regulations because our common stock is publicly traded in the capital markets.

1 unchanged sentence

Changes in these laws and regulations, including the subsequent implementation of rules by the administering government authorities, may require us to incur additional compliance costs, and such costs may be significant.

There can be no assurance that our current business strategy will be successful.

lot development industry, primarily through our strategic relationship with D.R.

If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial condition may be negatively affected.

Table of Content s

We may have continuing liabilities relating to assets that have been sold, which could adversely impact our results of operations.

In the course of selling assets we are typically required to make contractual representations and warranties and to provide contractual indemnities to the buyers.

These contractual obligations typically survive the closing of the transactions for some period of time.

Such obligations could be material and they could adversely impact our results of operations.

Our real estate development operations span several markets and as a result, our financial results may be significantly influenced by the local economies of those markets.

The local economic growth and strength of the markets in which our real estate development activity is located are important factors in sustaining demand for our land and lots.

Any adverse impact to the economic growth and health, or infrastructure development, of a local economy in which we develop real estate could materially adversely affect our business, liquidity, financial condition and results of operations.

Any adverse impact on the economic growth and health, or infrastructure development, of a local economy in which we develop real estate could materially adversely affect our business, liquidity, financial condition and results of operations.

Our real estate development operations are highly dependent upon national, regional and local homebuilders.

4 unchanged sentences

As a result, we may sell fewer lots and may have lower sales revenues, which could have an adverse effect on our business, liquidity, financial condition and results of operations.

From time to time, we obtain performance bonds, the unavailability of which could adversely affect our results of operations and cash flows.

From time to time, we provide surety bonds to secure our performance or obligations under construction contracts, development agreements and other arrangements.

At September 30, 2021, we had $479.3 million of outstanding surety bonds.

The ability to obtain surety bonds also can be impacted by the willingness of insurance companies to issue performance bonds for construction and development activities.

If we are unable to obtain surety bonds when required, our results of operations and cash flows could be adversely affected.

Delays or failures by governmental authorities to take expected actions could reduce our returns or cause us to incur losses on certain real estate development projects.

2 unchanged sentences

Slowing new home sales, decreasing real estate values or difficult credit markets for bond sales can reduce or delay district bond sale revenues and tax or assessment receipts, causing such districts to delay reimbursement of our qualified expenses.

Failure to receive timely reimbursement for qualified expenses could adversely affect our cash flows and reduce our returns or cause us to incur losses on certain real estate development projects.

Failure to receive reimbursement for qualified expenses could adversely affect our cash flows and reduce our returns or cause us to incur losses on certain real estate development projects.

Failure to succeed in new markets may limit our growth.

7 unchanged sentences

• lack of familiarity with local governmental and permitting procedures.

Table of Content s

We plan to raise additional capital in the future, and such capital may not be available when needed or at all.

1 unchanged sentence

The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment.

The maturity date of the facility is April 16, 2025.

The maturity date of the facility is October 28, 2026.

The revolving credit facility is guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

We also have outstanding $400 million principal amount of 3.85% senior notes due 2026 and $300 million principal amount of 5.0% senior notes due 2028, both of which may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements.

1 unchanged sentence

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations and support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital.

At September 30, 2021, we had an effective shelf registration statement filed with the SEC in September 2018 registering $500 million of equity securities, of which $100 million was reserved for sales under our at-the-market equity offering program that became effective August 2020.

At September 30, 2022, we had an effective shelf registration statement filed with the SEC in October 2021 registering $750 million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program that became effective November 2021.

At September 30, 2022, $748.2 million remained available for issuance under the shelf registration statement, of which $298.2 million is reserved for sales under our at-the-market equity offering program.

In October 2021, after the expiration of the existing registration statement and at-the market equity offering program, a new shelf registration statement became effective registering $750 million of equity securities.

We anticipate entering into a new at-the-market equity offering program under this new shelf registration statement.

We plan to raise additional capital, in the form of additional debt or equity, in the future to have sufficient capital resources and liquidity to fund our business needs and future growth plans and repay existing indebtedness.

We plan to raise additional capital in the future, in the form of additional debt or equity, to have sufficient capital resources and liquidity to fund our business needs and future growth plans and repay existing indebtedness.

Our ability to raise additional capital will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial condition, operating performance and growth prospects.

4 unchanged sentences

An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

The real estate development industry in which we operate is highly competitive.

We compete with numerous regional and local developers for the acquisition of land suitable for development.

Any improvement in the cost structure or service of our competitors will increase the competition we face.

Our business, financial condition and results of operations may be negatively affected by any of these factors.

Table of Content s

Risks Related to Our Indebtedness

12 unchanged sentences

Dependence on Future Performance

Our ability to meet our debt service and other obligations, including our obligations under the senior notes

and the financial covenants under our revolving credit facility, will depend, in part, upon our future financial performance.

Our ability to meet our debt service and other obligations, including our obligations under the senior notes and the financial covenants under our revolving credit facility, will depend, in part, upon our future financial performance.

Our future results are subject to the risks and uncertainties described in this “Risk Factors” section.

4 unchanged sentences

Changes in prevailing interest rates may affect the cost of our debt service obligations, because borrowings under our revolving credit facility bear interest at floating rates.

Borrowings under our revolving credit facility primarily bears interest based on the London Interbank Offered Rate (“LIBOR”).

On November 30, 2020, ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors.

The United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021.

The Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative for use in financial and other derivatives contracts that are currently indexed to United States dollar LIBOR.

Our revolving credit facility includes provisions addressing the future discontinuation of United States dollar LIBOR that are broadly consistent with the “hardwired” approach recommended by the Alternative Rates Reference Committee convened by the Federal Reserve Board.

Such provisions provide for a transition, upon the occurrence of certain triggers, to a SOFR-based interest rate or, under certain circumstances, interest rates based on another benchmark to be determined, together in each case with certain spread adjustments and other changes necessary to implement such replacement benchmark.

At this time, it is not possible to predict the effect any modification or discontinuation of LIBOR, or the establishment of an alternative reference rate such as SOFR, will have on us.

Borrowings under our revolving credit facility primarily bear interest based on the Secured Overnight Financing Rate ("SOFR").

Changes in Debt Ratings

1 unchanged sentence

Any lowering of our debt ratings could make accessing the capital markets or obtaining additional credit from banks more difficult and/or more expensive.

Table of Content s

Change of Control Purchase Option and Change of Control Default .

21 unchanged sentences

• prevent us from making debt service payments on certain of our debt instruments.

Table of Content s

General Risk Factors

1 unchanged sentence

The market price of our shares of common stock has fluctuated substantially and may continue to fluctuate in response to many factors which are beyond our control, including:

• fluctuations in our operating results, including results that vary from expectations of management, analysts and investors;

• fluctuations in our operating results, including results that vary from the expectations of management, analysts and investors;

• announcements of strategic developments, acquisitions, financings and other material events by us or our competitors;

9 unchanged sentences

Our success may be dependent on our ability to continue to employ and retain skilled personnel.

Our business and financial results could be adversely affected by significant inflation, higher interest rates or deflation.

Inflation can adversely affect us by increasing costs of land, materials and labor.

In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability and demand.

In a highly inflationary environment, depending on industry and other economic conditions, we may be precluded from raising residential lot prices enough to keep up with the rate of inflation, which could reduce our profit margins.

Moreover, in a highly inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which could have an adverse impact on our business or financial results.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels.

This could lead to deterioration in economic conditions, including an increase in the rate of unemployment.

Deflation could also cause the value of our real estate to decline.

If oil prices decline significantly, economic conditions in markets that have significant exposure to the energy sector may weaken.

These, or other factors that increase the risk of significant deflation, could have a negative impact on our business or financial results.

Information technology failures, data security breaches and the failure to satisfy privacy and data protection laws and regulations could harm our business.

1 unchanged sentence

These information technology systems are dependent upon global communications providers, web browsers, third-party software and data storage providers and other aspects of the Internet infrastructure that have experienced security breaches, cyber-attacks, ransomware attacks, significant systems failures and service outages in the past.

Additionally, phishing attacks, whereby perpetrators attempt to fraudulently induce employees, customers, vendors or other users of a company’s systems to disclose sensitive information to gain access to its data, have become more prevalent in recent years.

The use of remote work environments and virtual platforms may increase our risk of cyber-attack or data security breaches.

Further, geopolitical tensions or conflicts, such as the ongoing conflict between Russia and Ukraine, may create a heightened risk of cyber-attacks or other data security breaches.

Our normal business activities involve collecting and storing information specific to our customers, employees, vendors and suppliers and maintaining operational and financial information related to our business, both in an office setting and remote locations as needed.

A material breach in the security of our information technology systems or other data security controls could include the theft or release of this information.

A data security breach, a significant and extended disruption in the functioning of our information technology systems or a breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to lose customers, adversely impact our sales and revenue and require us to incur significant expense to address and remediate or otherwise resolve these

kinds of issues.

The unintended or unauthorized disclosure of personal identifying and confidential information as a result of a security breach could also lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators.

The unintended or unauthorized disclosure of personal identifying and confidential information as a result of a security breach by any means could lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators.

The outcome of such proceedings, which could include penalties or fines, could have a significant negative impact on our business.

We may also be required to incur significant costs to protect against damages caused by information technology failures, security breaches, and the failure to satisfy privacy and data protection laws and regulations in the future as legal requirements continue to increase.

Certain regulators, including various state governments, have recently enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act, and others are considering establishing similar or stronger protections.

These regulations impose certain obligations for handling specified personal information in our systems, and for apprising individuals of the information we have collected about them.

We have incurred costs in an effort to comply with these requirements, and our costs may increase significantly if new requirements are enacted and based on how individuals exercise their rights.

Any noncompliance could result in our incurring substantial penalties and reputational damage, and also could result in litigation.

We provide employee awareness training of cybersecurity threats and routinely utilize information technology security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and we regularly enhance our security measures to protect our systems and data.

Our increased use of remote work environments and virtual platforms in response to the COVID-19 pandemic may also increase our risk of cyber-attack or data security breaches.

The European Union and other international regulators, as well as state governments, have enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act (and its successor the California Privacy Rights Act that will go into effect on January 1, 2023), and other governments are considering establishing similar or stronger protections.

These regulations impose certain obligations for handling specified personal information in our systems, including notifying individuals regarding information we have collected from them.

We have incurred costs in an effort to comply with these requirements, but our costs may increase significantly if new requirements are enacted and based on how individuals exercise their rights.

Any noncompliance could result in substantial penalties, reputational damage or litigation.

Table of Content s

We provide employee awareness training about cybersecurity threats.

We routinely utilize information technology security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and we regularly enhance our security measures to protect our systems and data.

We use various encryption, tokenization and authentication technologies to mitigate cybersecurity risks and have increased our monitoring capabilities to enhance early detection and rapid response to potential cyber threats.

1 unchanged sentence

As such, we may be unable to anticipate these techniques, to implement adequate preventative measures or to identify and investigate cybersecurity incidents.

Consequently, we cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or security failures will not occur in the future, and such occurrences could have a material and adverse effect on our consolidated results of operations or financial position.

Although past cybersecurity incidents have not had a material effect on our business or operations to date, in the future, a data security breach, a significant and extended disruption in the functioning of our information technology systems or a breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to lose customers.

We cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or security failures will not occur in the future, and such occurrences could have a material and adverse effect on our consolidated results of operations or financial position.

Table of Content s

Unresolved Staff Comments.

2 unchanged sentences

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