What changed in this filing

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Item 1A. Risk Factors

2021-01-22 compared with 2020-01-27 · 132 added, 103 removed, 157 unchanged (60% of the section changed)

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Market and Economic Risks

Demand for homes we build may be adversely affected by a variety of macroeconomic factors beyond our control.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends.

These factors, in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control.

Our results of operations and financial condition may be adversely affected by the COVID-19 pandemic and resulting governmental actions.

The COVID-19 pandemic caused the shutdown of large portions of our national economy.

While portions of the national economy have reopened, there is still significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as their impact on the U.S.

economy and consumer confidence.

With the exception of a period in March and April, the COVID-19 pandemic and its effects on the economy do not appear to have adversely affected our home sales through the year ended November 30, 2020.

However, this may not continue to be the case.

The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continuing severity of COVID-19, whether there are additional outbreaks of COVID-19, and the actions taken to contain it or treat its impact.

If the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our results of operations, financial condition and cash flows could be materially adversely impacted.

A downturn in the homebuilding market could adversely affect our operations.

In fiscal 2019 , we continued to experience an improving housing market, and we saw increases in new sales contracts signed and homes delivered compared with the prior year.

However, demand for new homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels.

The economic downturn in 2007-2010 severely affected both the number of homes we could sell and the prices for which we could sell them.

It also required us to write down the carrying value of our land inventory.

It is likely that if there were another economic downturn, the resulting decline in demand for new homes would negatively impact our business, results of operations and financial condition.

We may not be able to continue to manage our costs.

During fiscal 2019, although we encountered increases in the costs of labor and materials, our direct costs as a percentage of our average sales prices trended downward each quarter.

While we expect this trend to continue in 2020, we may not be able to lower our direct construction cost as a percentage of average sales price.

We continue to operate in a labor constrained market and we cannot predict future inflationary pressures and tariffs on imported building materials.

Our inability to pass on future increased costs to homebuyers would put downward pressure on our operating margins in 2020.

An increase in mortgage interest rates could reduce our buyers’ ability or desire to obtain financing and adversely affect our business or financial results.

During fiscal 2020, we saw the homebuilding industry stall from mid-March through April as a result of the COVID-19 pandemic, but by May and into June, the market for new homes had steadily strengthened.

While the homebuilding industry only paused for a relatively brief period in 2020, the prior economic downturn in 2007-2010 severely affected for more than two years both the number of homes we could sell and the prices for which we could sell them.

That required us to write down the carrying value of our land inventory and write off costs of land purchase options.

It is possible that another downturn resulting from increasing severity of the COVID-19 pandemic or other factors would result in a decline in demand for new homes which would negatively impact our business, results of operations and financial condition.

Continuing cost increases could affect our operating margins.

During fiscal 2020, although lumber, in particular, labor and other costs were rising, we were able to implement cost saving changes that enabled us to minimize the effect of the cost increases.

Further, we actively managed our sales pace so we did not sell homes until construction was ready to start, in order to avoid the possibility of costs increasing after we committed to the prices at which we would sell homes.

While we will continue to focus on cost controls, we may not be able to maintain our current level of direct construction costs as a percentage of average sales price.

We continue to operate in a labor

constrained market and we cannot predict future inflationary pressures or increases in tariffs on imported building materials.

Our inability to pass on future increased costs to homebuyers would put downward pressure on our operating margins in 2021 and subsequent years.

An increase in mortgage interest rates could reduce potential buyers’ ability or desire to obtain financing with which to buy homes.

Mortgage rates are very low as compared to most historical periods.

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

During the prior economic downturn, we had to take significant write-downs on the carrying values of land we owned and of option values.

A future decline in land values could result in similar write-downs.

A decline in prices of new homes could require us to write down the carrying value of land we own and to write off option costs.

We are constantly purchasing land, or entering into arrangements to purchase land, for use in our homebuilding operations.

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Our multifamily rental business competes with other multifamily apartment developers and operators at locations across the U.S.

where we have investments in rental properties.

where we have investments in multifamily rental properties.

We also compete in securing partners, equity capital and debt financing, and we compete for tenants with the large supply of already existing or newly built rental apartments, as well as with sellers of homes.

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However, it is possible that this insurance will not be adequate to address all warranty, construction defect and liability claims to which we are subject.

Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained are costly and often include exclusions based upon past losses those insurers suffered as a result of use of defective products in homes we and many other homebuilders built.

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

Also, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained often include exclusions based upon past losses those insurers suffered as a result of use of defective products in homes we and many other homebuilders built.

As a result, an increasing number of our subcontractors are unable to obtain insurance, and we have in many cases had to waive our customary insurance requirements, which increases our and our insurers’ exposure to claims and increases the possibility that our insurance will not be adequate to protect us against all the costs we incur.

This increase in cost and limitation in coverage has also increased our self-insured retentions and decreased our total coverage.

It is possible in the future that insurance would not be available at commercially reasonable rates, which may cause us to reduce or eliminate general liability insurance.

Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business.

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When we learn about possibly improper practices by subcontractors, we try to cause the subcontractors to discontinue them.

However, we may not always be able to do that, and even when we can, it may not avoid claims against us relating to what the subcontractors already did.

However, we may not always be able to do that, and even when we can, it may not avoid claims against us relating to work the subcontractors already performed.

Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay deliveries.

During 2019 , we experienced increases in the prices of some building materials and shortages of skilled labor in some areas.

We generally are unable to pass on increases in construction costs to customers who have already entered into purchase contracts, as those contracts generally fix the price of the homes at the time the contracts are signed, which may be well in advance of the construction of the homes.

Increases in construction costs sometimes exceed our ability to increase home prices, particularly in areas where there is aggressive pricing competition or weak demand.

During 2020, we experienced increases in the prices of some building materials, particularly lumber, and shortages of skilled labor in some areas.

We generally are unable to pass on increases in construction costs to customers who have already entered into purchase contracts, as those contracts usually fix the price of the homes at the time the contracts are signed, which in the past has often been well in advance of the construction of the homes.

During 2020, in order to reduce the risk of this happening, we focused on not signing a contract relating to sale of a home until construction was ready to start.

However, increases in construction costs sometimes exceed our ability to increase home prices, particularly in areas where there is aggressive pricing competition or weak demand.

This reduces our operating margins and our net income.

Reduced numbers of home sales extend the time it takes us to recover land purchase and property development costs.

A reduced number of home sales would extend the time it takes us to recover land purchase and property development costs.

We incur many costs even before we begin to build homes in a community.

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If the rate at which we sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-construction costs and it may take longer for us to recover our costs.

Increased interest rates will increase the cost of the homes we build.

Increased interest rates would increase the cost of the homes we build.

Our business requires us to finance much of the cost of developing our residential communities.

One of the ways we do this is with bank borrowings.

At November 30, 2019 , we had a $2.5 billion revolving credit facility with a group of banks (the "Credit Facility").

At November 30, 2020, we had a $2.4 billion revolving credit facility with a group of banks

(the "Credit Facility") maturing in 2024.

It has a $400 million accordion feature, subject to additional commitments, thus the maximum borrowings could be $2.8 billion.

The Credit Facility agreement provides that up to $500 million in commitments may be used for letters of credit.

The interest on borrowings under the Credit Facility is at rates based on prevailing short term rates from time to time.

If interest rates increase, this increases the cost of the homes we build, which either makes those homes more expensive for homebuyers, which is likely to reduce demand, or lower our operating margins, or both.

Failure to comply with the covenants and conditions imposed by our credit facilities could restrict future borrowing or cause our debt to become immediately due and payable.

At November 30, 2020, we had no borrowings under the Credit Facility.

However, if in the future we have a need for significant borrowings under the Credit Facility and interest rates increase, that would increase the cost of the homes we build, which either would make those homes more expensive for homebuyers, which is likely to reduce demand, or would lower our operating margins, or both.

Increases in the rate of cancellations of home sale agreements could have an adverse effect on our business.

Our backlog reflects agreements of sale with our homebuyers for homes that have not yet been delivered.

We usually have received a deposit from our home buyer for each home reflected in our backlog, and generally we have the right to retain the deposit if the homebuyer does not complete the purchase.

In some cases, however, a homebuyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local laws, the homebuyer’s inability to obtain mortgage financing, their inability to sell their current home or our inability to complete and deliver the home within the specified time.

If there is a downturn in the housing market, or if mortgage financing becomes less available than it currently is, more homebuyers may cancel their agreements of sale with us, which would have an adverse effect on our business and results of operations.

Our success to a substantial extent depends on our ability to acquire land that is suitable for residential homebuilding and meets our land investment criteria.

There is strong competition among homebuilders for land that is suitable for residential development.

The future availability of finished and partially finished developed lots and undeveloped land that meet our internal criteria depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers for desirable property, inflation in land prices, zoning, allowable housing density, and other regulatory requirements.

Should suitable lots or land become less available, the number of homes we could build and sell could be reduced, and the cost of land could be increased, perhaps substantially, which could adversely impact our results of operations.

We could be hurt by refusals of owners of land to honor options or contracts to sell the land to us.

We have made a strategic decision to increase the portion of our potential land inventory that we control through options or contracts and reduce the portion we own.

This substantially reduces our investment in land.

However, if landowners who are parties to the options or contracts were to refuse to honor them, we could lose access to land at the time we want to use it in our homebuilding activities.

The loss of the services of members of our senior management or a significant number of our operating employees could negatively affect our business.

Our success depends to a significant extent upon the performance and active participation of our senior management, many of whom have been with us for 20 or more years.

If we were to lose members of our senior management, we might not be able to find appropriate replacements on a timely basis and our operations could be negatively affected.

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

Natural disasters and severe weather conditions could delay deliveries and increase costs of new homes in affected areas, which could harm our sales and results of operations.

Many of our homebuilding operations are conducted in areas that are subject to natural disasters, including hurricanes, earthquakes, droughts, floods, wildfires and severe weather.

The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories and lead to shortages of labor and materials in areas affected by the disasters, and can negatively impact the demand for new homes in affected areas.

Our insurance may not cover business interruptions or losses resulting from these events and our results of operations could be adversely affected by these events.

If our homebuyers are not able to obtain suitable financing, that would reduce demand for our homes and our home sales revenues.

Most purchasers of our homes obtain mortgage loans to finance a substantial portion of the purchase price of the homes they purchase.

While the majority of our homebuyers obtain their mortgage financing from our Financial Services segment, others obtain mortgage financing from banks and other independent lenders.

Disruptions in the mortgage markets and increased government regulation could adversely affect the ability of potential homebuyers to obtain financing for home purchases, making it difficult for them to purchase our homes.

Among other things, changes made by Fannie Mae, Freddie Mac, Ginnie Mae and FHA/VA to sponsored mortgage programs, as well as changes made in recent years by private mortgage insurance companies, have reduced the ability of potential homebuyers to qualify for mortgages.

Principal among these are higher income requirements, larger required down payments, increased reserves and higher required credit scores.

In addition, there has been uncertainty regarding the future of Fannie Mae, Freddie Mac and Ginnie Mae, including proposals that they reduce or terminate their role as the principal sources of liquidity in the secondary market for mortgage loans.

It is not clear how, if Fannie Mae, Freddie Mac and Ginnie Mae were to curtail their secondary market mortgage loan purchases, the liquidity they provide would be replaced.

There is a substantial possibility that substituting an alternate source of liquidity would increase mortgage interest rates, which would increase the buyers' effective costs of paying for the homes we sell, and therefore could reduce demand for our homes and adversely affect our results of operations.

Our Financial Services segment can be adversely affected by reduced demand for our homes.

Approximately 93% of the residential mortgage loans made by our Financial Services segment in 2020 were made to buyers of homes we built.

Therefore, a decrease in the demand for our homes would adversely affect the revenues of this aspect of our business.

If our ability to sell mortgages into the secondary market is impaired, that could significantly reduce our ability to sell homes unless we are willing to become a long-term investor in loans we originate.

Substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis.

If we became unable to sell residential mortgage loans into the secondary mortgage market or directly to Fannie Mae, Freddie Mac and Ginnie Mae, we would have to either curtail our origination of residential mortgage loans, which among other things, could significantly reduce our ability to sell homes, or commit our own funds to long term investments in mortgage loans, which, in addition to requiring us to deploy substantial amounts of our own funds, could delay the time when we recognize revenues from home sales on our statements of operations.

We may be liable for certain limited representations and warranties we make in connection with sale of loans.

While substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis, we remain responsible for certain industry standard limited representations and warranties we make in connection with such sales.

Mortgage investors sometimes seek to have us buy back mortgage loans or compensate them for losses incurred on mortgage loans that we have sold based on claims that we breached

our limited representations and warranties.

In addition, when LMF Commercial sells loans to securitization trusts or other purchasers, it gives limited industry standard representations and warranties about the loans, which, if incorrect, may require it to repurchase the loans, replace them with substitute loans or indemnify persons for losses or expenses incurred as a result of breaches of representations and warranties.

If we have significant liabilities with respect to such claims, it could have an adverse effect on our results of operations, and possibly our financial condition.

Financing Risks

Failure to comply with the covenants and conditions imposed by our borrowing facilities could restrict future borrowing or cause our debt to become immediately due and payable.

The agreement governing our Credit Facility (the "Credit Agreement") makes it a default if we fail to pay principal or interest when it is due (subject in some instances to grace periods) or to comply with various covenants, including covenants regarding financial ratios.

In addition, our Financial Services residential mortgage companies have warehouse facilities to finance their mortgage lending activities and our RMF commercial lending group has warehouse facilities to finance its mortgage origination activities.

In addition, our Financial Services residential mortgage companies have warehouse facilities to finance their mortgage lending activities and our LMF Commercial lending group has warehouse facilities to finance its mortgage origination activities.

If we default under the Credit Agreement or our warehouse facilities, the lenders will have the right to terminate their commitments to lend and to require immediate repayment of all outstanding borrowings.

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The indentures governing our senior notes do not restrict our incurrence of future secured or unsecured debt, and the agreement governing our Credit Facility allows us to incur a substantial amount of future unsecured debt.

We reduced our outstanding indebtedness during fiscal 2019, but we still have a significant amount of indebtedness.

We reduced our outstanding senior indebtedness during fiscal 2020 by $1.5 billion, but we still have a significant amount of indebtedness.

Our reliance on debt to help support our operations exposes us to a number of risks, including:

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• we may be required to sell debt or equity securities or sell some of our core assets, possibly on unfavorable terms, in order to meet payment obligations.

Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings.

Our corporate credit rating and ratings of our senior notes affect, among other things, our ability to access new capital, especially debt, and the costs of that new capital.

For a number of years, a substantial portion of our access to capital has been through the issuance of senior notes, of which we have approximately $5.4 billion outstanding, net of debt issuance costs, as of November 30, 2020.

Among other things, we have often relied on proceeds of debt issuances to pay the principal of existing senior notes when they mature.

Negative changes in the ratings of our senior notes could make it difficult for us to sell senior notes in the future and could result in more stringent covenants and higher interest rates with regard to new senior notes we issue.

During fiscal year 2021, we will have to replace or renew a total of $2.4 billion of warehouse lines used by Financial Services, including LMF Commercial, as they mature.

If we cannot replace or renew this debt when we need it, our operations could be adversely affected.

Our inability to obtain performance bonds or post letters of credit could adversely affect our operations.

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If we were unable to obtain surety bonds when required, our operations could be adversely affected.

Our Financial Services segment, including RMF , has warehouse facilities that mature in fiscal year 2020, and if we could not renew or replace these facilities, we probably would have to reduce our mortgage lending and origination activities.

Our Financial Services segment's residential mortgage origination subsidiaries have committed and uncommitted amounts under four warehouse repurchase credit facilities that totaled $1.8 billion as of November 30, 2019 , all of which will mature at various dates through fiscal 2020.

Our Financial Services segment, including LMF Commercial, has warehouse facilities that mature in fiscal year 2021, and if we could not renew or replace these facilities, we probably would have to reduce our mortgage lending and origination activities.

Our Financial Services segment's residential mortgage origination subsidiaries have committed and uncommitted borrowing amounts under four warehouse repurchase credit facilities that totaled $1.8 billion as of November 30, 2020, all of which will mature at various dates through fiscal 2021.

Our Financial Services segment uses these facilities to finance its residential mortgage lending activities until the mortgage loans it originates are sold to investors.

In addition, RMF , our commercial mortgage lending subsidiary, which is included in our Financial Services segment, has committed amounts under five warehouse repurchase credit facilities that totaled $900 million as of November 30, 2019 , all of which will mature within a year after that date.

RMF uses these facilities primarily to finance its commercial mortgage loan origination activities.

In addition, LMF Commercial, our commercial mortgage lending subsidiary, which is included in our Financial Services segment, has committed borrowing amounts under five warehouse repurchase credit facilities that totaled $800 million as of November 30, 2020, all of which will mature within a year after that date.

LMF Commercial uses these facilities primarily to finance its commercial mortgage loan origination activities.

We expect these facilities to be renewed or replaced with other facilities when they mature.

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If any of those joint ventures are unable to do this, we could be required to provide at least a portion of the funds the joint ventures need to be able to repay the borrowings and to finance the activities for which they were incurred, which could adversely impact our financial position.

The loss of the services of members of our senior management or a significant number of our operating employees could negatively affect our business.

Our success depends to a significant extent upon the performance and active participation of our senior management, many of whom have been with us for 20 or more years.

If we were to lose members of our senior management, we might not be able to find appropriate replacements on a timely basis and our operations could be negatively affected.

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

Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings.

Our corporate credit rating and ratings of our senior notes affect, among other things, our ability to access new capital, especially debt, and the costs of that new capital.

A substantial portion of our access to capital is through the issuance of senior notes, of which we have approximately $6.9 billion outstanding, net of debt issuance costs as of November 30, 2019 .

Among other things, we rely on proceeds of debt issuances to pay the principal of existing senior notes when they mature.

We will have to replace or repay a substantial amount of debt in fiscal year 2020.

We have $600 million of senior notes that mature in fiscal year 2020 and we will have to replace or renew a total of $2.7 billion of warehouse lines used by Financial Services, including RMF , as they mature.

If we cannot replace or renew this debt when we need it, our operations could be adversely affected.

Natural disasters and severe weather conditions could delay deliveries and increase costs of new homes in affected areas, which could harm our sales and results of operations.

Many of our homebuilding operations are conducted in areas that are subject to natural disasters, including hurricanes, earthquakes, droughts, floods, wildfires and severe weather.

If our insurance does not fully cover business interruptions or losses resulting from these events, our results of operations could be adversely affected.

In the third quarter of fiscal year 2019, our homebuilding operation was disrupted due to impacts from hurricanes, which slowed home production and delayed home sales.

If our homebuyers are not able to obtain suitable financing, that would reduce demand for our homes and our home sales revenues.

Most purchasers of our homes obtain mortgage loans to finance a substantial portion of the purchase price of the homes they purchase.

While the majority of our homebuyers obtain their mortgage financing from Financial Services, others obtain mortgage financing from banks and other independent lenders.

The uncertainties in the mortgage markets and increased government regulation could adversely affect the ability of potential homebuyers to obtain financing for home purchases, making it difficult for them to purchase our homes.

Among other things, changes made by Fannie Mae, Freddie Mac, Ginnie Mae and FHA/VA to sponsored mortgage programs, as well as changes made by private mortgage insurance companies, have reduced the ability of potential homebuyers to qualify for mortgages.

Principal among these are higher income requirements, larger required down payments, increased reserves and higher required credit scores.

It is not clear how, if Fannie Mae, Freddie Mac and Ginnie Mae were to curtail their secondary market mortgage loan purchases, the liquidity they provide would be replaced.

Our Financial Services segment can be adversely affected by reduced demand for our homes.

Approximately 95% of the residential mortgage loans made by our Financial Services segment in 2019 were made to buyers of homes we built.

Therefore, a decrease in the demand for our homes would adversely affect the revenues of this aspect of our business.

Substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis.

We may be liable for certain limited representations and warranties we make in connection with sale of loans.

representations and warranties we make in connection with such sales.

Mortgage investors sometimes seek to have us buy back mortgage loans or compensate them for losses incurred on mortgage loans that we have sold based on claims that we breached our limited representations or warranties.

In addition, when RMF sells loans to securitization trusts or other purchasers, it gives limited industry standard representations and warranties about the loans, which, if incorrect, may require it to repurchase the loans, replace them with substitute loans or indemnify persons for losses or expenses incurred as a result of breaches of representations and warranties.

If we have significant liabilities with respect to such claims, it could have an adverse effect on our results of operations, and possibly our financial condition.

Regulatory Risks

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trade policies and retaliatory responses from other countries may substantially increase the costs or limit supplies of building materials and products used in our homes.

During the past year, the U.S.

During the past couple of years, the U.S.

government has imposed new, or increased existing, tariffs on an array of imported materials and products that are used in the homes we build, including lumber, steel, aluminum, solar panels and washing machines, which increases the costs of those items, and it has threatened additional new or increased tariffs.

The tariffs that have been imposed or increased have impacted our construction costs and caused disruptions in our supply chains, and new or increased tariffs could result in further cost increases.

These cost increases could negatively impact our profit margins.

These cost increases will either require us to increase prices or negatively impact our profit margins.

The new or increased tariffs could also negatively affect U.S.

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We generally are required to obtain permits, entitlements and approvals from local authorities to commence and carry out residential development or home construction.

These permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments, environmental advocacy groups, neighboring property owners or other possibly interested parties, adding delays, costs and risks of non-approval to the process.

These permits, entitlements and approvals sometimes are opposed or challenged by local governments, environmental advocacy groups, neighboring property owners or other possibly interested parties, adding delays, costs and risks of non-approval to the process.

Violations of environmental laws and regulations can result in injunctions, civil penalties, remediation expenses, and other costs.

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Our obligation to comply with the laws and regulations under which we operate, and our need to ensure that our associates, subcontractors and other agents comply with these laws and regulations, could result in delays in construction and land development, cause us to incur substantial costs and prohibit or restrict land development and homebuilding activity in certain areas in which we operate.

Budget reductions by state and local governmental agencies may increase the time it takes to

obtain required approvals and therefore may aggravate the delays we encounter.

Budget reductions by state and local governmental agencies may increase the time it takes to obtain required approvals and therefore may aggravate the delays we encounter.

Shutdowns of government offices in response to the COVID-19 pandemic have further delayed the time it is taking to obtain required approvals.

Government agencies also routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our businesses that can be significant.

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We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees.

However, various governmental agencies have sought, and in the future may seek, to hold contract parties like us responsible for violations of wage and hour laws, workers’ compensation and other work-related laws by firms whose employees are performing contracted for services.

However, various

governmental agencies have sought, and in the future may seek, to hold contract parties like us responsible for violations of wage and hour laws, workers’ compensation and other work-related laws by firms whose employees are performing contracted for services.

While the future of joint employer liability remains uncertain, if we were deemed to be a joint employer of our subcontractors’ employees, we could become responsible for collective bargaining obligations of, and labor law violations by, our subcontractors.

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We have substantial investments in real estate related businesses in which we are a minority investor.

We have investments in funds and other investment vehicles managed by Rialto Capital Management, a company we sold in November 2018, investments in a number of companies that are applying technology to various aspects of building and marketing homes and real estate related aspects of the financial services industry, and investments in FivePoint, a publicly traded company that has ownership interests in, and is managing the development of, three large multi-use master planned communities in California.

We have investments in funds and other investment vehicles managed by Rialto Capital Management, a company we sold in November 2018, investments in a number of companies that are applying technology to various aspects of building and marketing homes and real estate related aspects of the financial services industry, and investments in FivePoint Holdings, a publicly traded company that has ownership interests in, and is managing the development of, three large multi-use master planned communities in California.

As a minority investor, we have limited influence over decisions made with regard to these funds and businesses.

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Our results of operations could be adversely affected if legal claims against us are not resolved in our favor.

In the ordinary course of our business, we are subject to legal claims by homebuyers, borrowers against whom we have instituted foreclosure proceedings, persons with whom we have land purchase contracts and a variety of other persons.

We establish reserves against legal claims and we believe that, in general, legal claims will not have a material adverse effect on our business or financial condition.

We establish reserves against legal claims and we believe that, in general, the outcome of legal claims will not have a material adverse effect on our business or financial condition.

However, if the amounts we are required to pay as a result of claims against us substantially exceed the sums anticipated by our reserves, the need to pay those amounts could have an adverse effect on our results of operations for the periods when we are required to make the payments.

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The risk of cyber intrusion is one of the areas of risk as to which there are regular periodic presentations to our Board.

However, computer intrusion efforts are becoming increasingly sophisticated, and it is possible that the controls we have installed could at some time be breached in a material respect.

If we were to be subject to a material successful cyber intrusion, that could result in remediation costs, increased cyber protection costs, lost revenues or loss of customers, litigation or regulatory actions by governmental authorities, increased insurance premiums, reputational damage and damage to our competitiveness, our stock price and our long-term stockholder value.

However, cyber intrusion efforts are becoming increasingly sophisticated, and it is possible that the controls we have installed could at some time be breached in a material respect.

Further, there has been a surge in widespread cyber-attacks during the COVID-19 pandemic.

The increase in the frequency and scope of cyber-attacks during the pandemic exacerbates data security risks.

While, to date, we have not had a significant cybersecurity breach or attack that had a material impact on our business or results of operations, if we were to be subject to a material successful cyber intrusion, that could result in remediation or service restoration costs, increased cyber protection costs, lost revenues or loss of customers, litigation or regulatory actions by governmental authorities, increased insurance premiums, reputational damage and damage to our competitiveness, our stock price and our long-term stockholder value.

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

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regulatory environment surrounding information security and privacy is increasingly demanding.

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

Increases in the rate of cancellations of home sale agreements could have an adverse effect on our business.

Our backlog reflects agreements of sale with our homebuyers for homes that have not yet been delivered.

We usually have received a deposit from our home buyer for each home reflected in our backlog, and generally we have the right to retain the deposit if the homebuyer does not complete the purchase.

Our success to a substantial extent depends on our ability to acquire land that is suitable for residential homebuilding and meets our land investment criteria.

There is strong competition among homebuilders for land that is suitable for residential development.

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

International activities subject us to risks inherent in international operations.

We sell a significant number of homes in communities in the United States to people who are not residents of the United States, and some large investors in our multifamily development ventures are located outside the United States.

While there has been a pause as a result of the coronavirus pandemic, we historically have sold significant numbers of homes in communities in the United States to people who are not residents of the United States, and some large investors in our multifamily development and single-family rental ventures are located outside the United States.

Dealings with people or institutions located outside the United States create risks related to currencies and to political affairs in various countries.

In some instances, the government may review the possible effects of investments by non-U.S.

entities on U.S.

national security.

We must also be careful to comply with U.S.

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tax laws and under the tax laws of the countries in which we do business.

There have been substantial changes to the Internal Revenue Code, some of which could have an adverse effect on our business.

The Tax Cuts and Jobs Act, which became effective January 1, 2018, contains substantial changes to the Internal Revenue Code, some of which could have an adverse effect on our business.

Among the possible changes that could make purchasing homes less attractive are (i) limitations on the ability of our homebuyers to deduct property taxes, (ii) limitations on the ability of our homebuyers to deduct mortgage interest, and (iii) limitations on the ability of our homebuyers to deduct state and local income taxes.

We experience variability in our operating results on a quarterly basis.

Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second fiscal quarter and increased deliveries in the second half of our fiscal year.

The shutdown of large portions of our national economy in the second quarter of 2020 as a result of the COVID-19 pandemic changed this pattern with regard to 2020, but we expect it to resume in 2021 and subsequent years.

Our quarterly results of operations may continue to fluctuate in the future as a result of a variety of factors, including, among others, seasonal home buying patterns, the timing of home closings and land sales and weather-related problems.

We could suffer significant losses with regard to our investments in technology companies.

In connection with our effort to use new technology to reduce selling costs and improve the experience of our homebuyers, we have made substantial investments in companies that are developing new technology that we are using.

In many instances those companies have not yet achieved profitability or their ability to survive market downturns has not yet been tested.

While we hope at least most of the investments we have made will prove to be profitable, it is possible that will not be the case, and that we at some time will have to write down significant portions of our investments in technology companies.

Changes in global or regional environmental conditions and governmental actions in response to such changes may adversely affect us by increasing the costs of or restricting our planned or future growth activities.

There is growing concern from many members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases and other human activities have caused, or will cause, significant changes in weather patterns and increase the frequency and severity of natural disasters.

Government mandates, standards or regulations intended to reduce greenhouse gas emissions or projected climate change impacts have resulted, and are likely to continue to result, in restrictions on land development in certain areas and increased energy, transportation and raw material costs.

We have tried to reduce the effect of the homes we build on the climate by installing solar power systems and other energy saving devices in many of those homes.

Nonetheless, governmental requirements directed at reducing effects on climate could cause us to incur expenses that we cannot recover or that will require us to increase the price of homes we sell to the point that it affects demand for those homes.

Risks Related to Ownership of our Stock

We have a stockholder who can exercise significant influence over matters that are brought to a vote of our stockholders.

Stuart Miller, our Executive Chairman and a Director, through family and personal holdings of Class B, and to a lesser extent Class A, common stock, has the power to cast approximately 34% of the votes that can be cast by the holders of all our outstanding Class A and Class B common stock combined.

Stuart Miller, our Executive Chairman, through family and personal holdings of Class B, and to a lesser extent Class A, common stock, has the power to cast approximately 34% of the votes that can be cast by the holders of all our outstanding Class A and Class B common stock combined.

This gives Mr.

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The limited liquidity could make it difficult for a holder of even a relatively small number of shares of our Class B common stock to dispose of the stock without materially reducing the trading price of the Class B common stock.

We could suffer significant losses with regard to our investments in technology companies.

In many instances those companies have not yet achieved profitability or their ability to survive market downturns has not yet been tested.

While we think at least most of the investments we have made will prove to be profitable, it is possible that will not be the case, and that we at some time will have to write down significant portions of our investments in technology companies.

We have tried to reduce the effect of the homes we build on the climate by installing solar power systems and other energy saving devices in many of those homes.

General Risk Factors

The risk factors described above are those that we think may be material with regard to an investment in us that are not applicable generally to all business enterprises.

However, we are subject to the many risks that affect all or most business enterprises in the United States or internationally, and our business or financial condition could be materially affected by those risks.

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