What changed in this filing

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Item 1A. Risk Factors

2021-02-12 compared with 2020-02-18 · 118 added, 119 removed, 132 unchanged (64% of the section changed)

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These factors could cause results to differ materially from our historical results or our future expectations.

Our long-term success depends on the availability of lots and land that meet our land investment criteria.

The availability of lots and land that meet our investment and marketing standards depends on a number of factors outside of our control, including land availability in general, competition with other homebuilders and land buyers, credit market conditions, legal and government agency processes and regulations, inflation in land prices, zoning, availability of utilities, our ability and the costs to obtain building permits, the amount of impact fees, property tax rates and other regulatory requirements.

If suitable lots or land becomes less available, or the cost of attractive land increases, it could reduce the number of homes that we may be able to build and sell and reduce our anticipated margins, each of which could adversely impact our financial results.

The availability of suitable land assets could also affect the success of our strategic initiative to sustain the number of actively selling communities that support the shift of our product focus to entry-level and first move-up homes, and to maintain profitability.

Shortages in the availability of subcontract labor may delay construction schedules and increase our costs.

We conduct our construction operations only as a general contractor.

Virtually all design, architectural, construction and development work is performed by unaffiliated third-party consultants and subcontractors.

As a consequence, we depend on the continued availability of and satisfactory performance by these consultants and subcontractors for the design and construction of our communities and homes and to provide related materials.

The cost of labor may also be adversely affected by shortages of qualified trades people, changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration.

Throughout the homebuilding cycle, we have experienced shortages of skilled labor in certain markets, which led to increased labor costs.

Although we continually strive to be a partner of choice with our trades, we cannot be assured that in the future there will be a sufficient supply of, or satisfactory performance by, these unaffiliated third-party subcontractors and consultants, which could have a material adverse effect on our business.

If our current strategic initiatives are not successful, it could have negative consequences on our operations, financial position and cash flows.

We have historically focused our community designs, product offerings and marketing on the first- and second-move-up buyer.

As a result of changing demographics and trends, we have shifted our strategy and have undertaken actions to align our pricing and product and community offerings to focus on entry-level and first move-up homes based on our belief that these two product types will comprise the majority of the market demand in the near and medium term outlook.

We have invested significant efforts to align our community layouts, lot sizes and product designs toward these buyers.

If there is not a resurgence of first-time and first move-up buyers or our entry-level home offerings do not appeal to our customers, it could have negative consequences on our operations, financial position and cash flows.

If home prices decline, potential buyers may not be able to sell their existing homes, which may negatively impact our sales.

As a homebuilder, we are subject to market forces beyond our control.

In general, housing demand is impacted by the affordability of housing.

Many homebuyers need to sell their existing homes in order to purchase a new home from us, and a weakness in the home resale market could adversely affect that ability.

Declines in home prices could have an adverse effect on our homebuilding business margins and cash flows.

Increases in interest rates and decreases in mortgage availability may make purchasing a home more difficult or less desirable and may negatively impact the ability to sell new and existing homes.

Risks Related to the Homebuilding Industry and Economy

Increases in interest rates or decreases in mortgage availability may make purchasing a home more difficult or less desirable and may negatively impact the ability to sell new and existing homes.

In general, housing demand is adversely affected by increases in interest rates and a lack of availability of mortgage financing.

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If mortgage interest rates increase and, consequently, the ability of prospective buyers to finance home purchases is adversely affected, our home sales and cash flow may be adversely affected and the impact may be material.

These risks can also indirectly impact us to the extent our customers need to sell their existing home to purchase a new home from us if the potential buyers of their homes are unable to obtain mortgage financing.

These risks can also indirectly impact us to the extent our customers need to sell their existing homes to purchase a new home from us if the potential buyer of their home is unable to obtain mortgage financing.

Although long-term interest rates currently are near historically low levels, it is difficult to predict future increases or decreases in market interest rates.

Most of our buyers need a mortgage loan to purchase their home.

Their ability to obtain a mortgage loan is largely subject to prevailing interest rates, lenders’ credit standards and appraisals, and the availability of government-supported programs, such as those from the FHA, the VA, Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

If credit standards are tightened, appraisals for our homes are lowered, or mortgage

loan programs are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing.

A homebuyers' ability to obtain a mortgage loan is largely subject to prevailing interest rates, lenders’ credit standards and appraisals, and the availability of government-supported programs, such as those from the FHA, the VA, Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

If credit standards or appraisal guidelines are tightened, or mortgage loan programs are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing.

There can be no assurance that these programs will continue to be available or that they will be as accommodating as they currently are.

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A prolonged tightening of the financial markets could also negatively impact our business.

Information technology failures and data security breaches could harm our business.

We use information technology and other computer resources to carry out important operational, financial and marketing activities as well as maintain our business records.

Many of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify certain security and service level standards.

Although we and our service providers employ what we believe are adequate security, disaster recovery and other preventative and corrective measures, our ability to conduct our business may be impaired if these resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.

For example, during the first quarter for fiscal 2020, some of our systems were affected by a malware attack that encrypted certain information on some of our systems and resulted in limitations to certain employee access to some of our systems and services, although all core operating activities continued during our remediation process.

As of the date of this report, we have restored our computer systems.

In connection with this incident, we retained third party consultants and forensic experts to assist us with the investigation of the attack.

Although we have not completed the final analysis of the quantification of these costs and related impacts, including the availability of insurance to offset these costs, as of the date of this Report, we believe our analysis and remediation are nearly complete and we do not believe that this incident will have a material adverse effect on our results of operations and/or financial condition.

We cannot assure you, however, that similar or more serious attacks will not occur in the future and a significant and extended disruption in the functioning of our information technology and other computer resources could damage our reputation and cause us to lose customers and sales, result in the unintended public disclosure or the misappropriation of proprietary, personal and confidential information (including information about our homebuyers, employees and business partners), and require us to incur significant expense to address and remediate these kinds of issues.

The release of confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on our consolidated financial statements and reputation.

In addition, the costs of maintaining adequate protection against such threats, depending on their evolution, pervasiveness and frequency and/or government-mandated standards or obligations regarding protective efforts, are expected to continue to increase in the future may be material to our consolidated financial statements.

Legislation related to tariffs could increase the cost to construct our homes.

The cost of certain building materials is influenced by changes in local and global commodity prices as well as government regulation, such as government-imposed tariffs on building supplies such as lumber and flooring materials.

For example, during 2018 and 2019, we experienced increases in the prices of some building materials as a result of such tariffs.

Such cost increases limit our ability to control costs, potentially reducing margins on the homes we build if we are not able to successfully offset the increased costs through higher sales prices.

Additionally, tariffs pose a risk to our supply chain availability if we are forced to source our materials from non-tariff products.

Our future operations may be adversely impacted by high inflation.

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Although inflation has not historically had a material adverse effect on our business, sustained increases in material costs could have a material adverse effect on our business if we are unable to correspondingly increase home sale prices.

Our ability to acquire and develop raw or partially finished lots may be negatively impacted if we are unable to secure performance bonds.

In connection with land development work on our raw or partially developed land, we are oftentimes required to provide performance bonds, letters of credit or other assurances for the benefit of the respective municipalities or governmental authorities.

These instruments provide assurance to the beneficiaries that the development will be completed, or that in case we do not perform, that funds from these instruments are available for the municipality or governmental agency to arrange for completion of such work.

Although such instruments are currently accessible, in the future additional performance bonds or letters of credit may be difficult to obtain, or may become difficult to obtain on terms that are acceptable to us.

If we are unable to secure such instruments, progress on affected projects may be delayed or halted or we may be required to expend additional cash, which may adversely affect our financial position and ability to grow our operations.

If home prices decline, potential buyers may not be able to sell their existing homes, which may negatively impact our sales.

As a homebuilder, we are subject to market forces beyond our control.

In general, housing demand is impacted by the affordability of housing.

Many homebuyers need to sell their existing homes in order to purchase a new home from us, and a weakness in the home resale market could adversely affect that ability.

Declines in home prices could have an adverse effect on our homebuilding business volumes and cash flows.

Legislation related to tariffs could increase the cost to construct our homes.

For example, during 2018 and 2019, we experienced increases in the prices of some building materials as a result of such tariffs.

Such cost increases limit our ability to control costs, potentially reducing margins on the homes we build if we are not able to

successfully offset the increased costs through higher sales prices.

Additionally, tariffs pose a risk to our supply chain availability if we are forced to use alternative materials or products.

A reduction in our sales absorption levels may force us to incur and absorb additional community-level costs.

We incur certain overhead costs associated with our communities, such as marketing expenses, real estate taxes and HOA assessments and costs associated with the upkeep and maintenance of our model and sales complexes.

If our sales absorptions pace decreases and the time required to close out our communities is extended, we would likely incur additional overhead costs,

which would negatively impact our financial results.

If our sales absorptions pace decreases and the time required to close out our communities is extended, we would likely incur additional overhead costs, which would negatively impact our financial results.

Additionally, we typically incur various land development improvement costs for a community prior to the commencement of home construction.

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Our backlog reflects the number and value of homes for which we have entered into non-contingent sales contracts with customers but have not yet delivered those homes.

While we may accept sales contracts on a contingent basis in limited circumstances, they are not included in our backlog until the contingency is removed.

In connection with the sale of a home, our policy is to generally collect a deposit from our customers, although typically this deposit reflects a small percentage of the total purchase price, and due to local regulations, the deposit may, in certain circumstances, be fully or partially refundable prior to closing.

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Some of our competitors have significantly greater financial resources and some may have lower costs than we do.

Competition among homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, amenities, design, innovation, quality and price.

Competition among homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, product type, amenities, design, innovation, quality and price.

Competition is expected to continue and may become more intense, and there may be new entrants in the markets in which we currently operate and in markets we may enter in the future and our industry has recently experienced some consolidations.

If we are unable to successfully compete, our financial results and growth could suffer.

Expirations, amendments or changes to tax laws, incentives or credits currently available to us and our homebuyers may negatively impact our business.

Under previous tax law, certain expenses of owning a home, including mortgage loan interest costs and real estate taxes, generally were deductible expenses for the purpose of calculating an individual's federal, and in some cases state, tax liability.

However, the Tax cuts and Jobs Act (the "Tax Act") signed into law on December 22, 2017 limits these deductions for some individuals.

The Tax Act caps individual state and local tax deductions at $10,000 for the aggregate of state and local real property and income taxes or state and local sales taxes.

Additionally, the Tax Act reduces the cap on mortgage interest deduction to $750,000 of debt for debt incurred after December 15, 2017 while retaining the $1 million debt cap for debt incurred prior to December 15, 2017, The limits on deductibility of mortgage interest and property taxes may increase the after-tax cost of owning a home for some individuals.

Any increases in personal income tax rates and/or additional tax deduction limits relating to the cost of home ownership could adversely impact demand for homes, including homes we build, which could adversely affect the results of our operations.

Reduced levels of sales may cause us to re-evaluate the viability of existing option contracts, resulting in a potential termination of these contracts which may lead to impairment charges.

In the prior homebuilding cycle, a significant portion of our lots were controlled under option contracts.

Such options generally require a cash deposit that will be forfeited if we do not exercise the option or proceed with the lot purchase(s).

During the last significant downturn, we forfeited significant amounts of deposits and wrote off significant amounts of related pre-acquisition costs related to projects we no longer deemed feasible, as they were not projected to generate acceptable returns.

Although our participation in such options is more limited at this time, another downturn in the homebuilding market may cause us to re-evaluate the feasibility of our optioned projects which may result in us forfeiting associated deposits, which would reduce our assets and stockholders’ equity.

Our business may be negatively impacted by natural disasters or extensive weather.

Our homebuilding operations include operations in Texas, California, North Carolina, South Carolina, Tennessee, Georgia and Florida which occasionally experience extreme weather conditions such as tornadoes, hurricanes, earthquakes, wildfires, flooding, drought, landslides, prolonged periods of precipitation, sinkholes and other natural disasters.

We may not be able to insure against some of these risks.

For example, during 2017 and 2018, several of our markets were impacted by hurricanes.

These occurrences could damage or destroy some of our homes under construction or our building lots and community improvements, which may result in uninsured or underinsured losses.

We could also suffer significant construction delays or substantial fluctuations in the pricing or availability of building materials due to such disasters.

Any of these events could cause a delay in scheduled closings and a decrease in our revenue, cash flows and earnings.

We are subject to home warranty and construction defect claims arising in the ordinary course of business, which may lead to additional reserves or expenses.

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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 claims resulting from personal injury or death.

Such a failure 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 business, financial condition and operating results.

Our 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 our 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.

We have one state tax audit unresolved at this time.

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 tax 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, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period.

Our ability to acquire and develop raw or partially finished lots may be negatively impacted if we are unable to secure performance bonds.

In connection with land development work on our raw or partially developed land, we are oftentimes required to provide performance bonds or other assurances for the benefit of the respective municipalities or governmental authorities.

These performance bonds provide assurance to the beneficiaries that the development will be completed, or that in case we do not perform, that funds from the bonds are available for the municipality or governmental agency to arrange for completion of such work.

Although such bonds are currently accessible, in the future additional performance bonds may be difficult to obtain, or may become difficult to obtain on terms that are acceptable to us.

If we are unable to secure such required bonds, progress on affected projects may be delayed or halted or we may be required to expend additional cash or provide other forms of surety or security for such obligations, such as letters of credit, which may adversely affect our financial position and ability to grow our operations.

The loss of key personnel may negatively impact us.

Our success largely depends on the continuing services of certain key employees and our ability to attract and retain qualified personnel.

We have employment agreements with certain key employees who we believe possess valuable industry knowledge, experience and leadership abilities that would be difficult in the short term to replicate.

The loss of the services of such key employees could harm our operations and business plans.

Failure to comply with laws and regulations by our employees or representatives may harm us.

We are required to comply with applicable laws and regulations that govern all aspects of our business including land acquisition, development, home construction, labor and employment, mortgage origination, insurance, title and escrow operations, sales and warranty.

It is possible that individuals acting on our behalf could intentionally or unintentionally violate some of these laws and regulations.

Although we endeavor to comply with such laws and regulations and take immediate action if we become aware of such violations, we may incur fines, penalties or losses as a result of these actions and our reputation with governmental agencies and our customers may be damaged.

Further, other acts of bad judgment may also result in negative publicity and/or financial consequences.

Our lack of geographic diversification could adversely affect us if the homebuilding industry in our markets decline.

We have operations in Texas, Arizona, California, Colorado, Florida, North Carolina, South Carolina, Georgia and Tennessee.

Although we have, in recent years, expanded our operations to new markets, our geographic diversification is still limited and could adversely impact us if the homebuilding business in our current markets should decline, since we may not have a balancing opportunity in other geographic regions.

Such a failure could also 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 business, financial condition and operating results.

We experience fluctuations and variability in our operating results on a quarterly basis and, as a result, our historical performance may not be a meaningful indicator of future results.

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• conditions of the real estate market in areas where we operate and of the general economy;

• governmental imposed restrictions and consumer reactions related to the COVID-19 pandemic;

• the cyclical nature of the homebuilding industry;

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At December 31, 2020, we had approximately $1.0 billion of indebtedness and $745.6 million of cash and cash equivalents.

If we require working capital greater than that provided by our operations and current liquidity position, and $719.1 million available to be drawn under our credit facility, we may be required to seek additional capital in the form of equity or debt financing from a variety of potential sources, including bank financing and public bonds.

There can be no

assurance we would be able to obtain such additional capital on terms acceptable to us, if at all.

If we require working capital greater than that provided by our operations and current liquidity position, including the $ 682.6 million available to be drawn under our credit facility, we may be required to seek additional capital in the form of equity or debt financing from a variety of potential sources, including bank financing, public bonds or off-balance sheet resources.

There can be no assurance we would be able to obtain such additional capital on terms acceptable to us, if at all.

The level of our indebtedness could have important consequences to our stockholders, including the following:

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• we could be required to use a substantial portion of our cash flow from operations to pay interest and principal on our indebtedness, which would reduce the funds available to us for other purposes such as land and lot acquisition, development and construction activities;

• we have a low level of indebtedness and a moderate volume of cash and cash equivalents, although some of our competitors may have additional access to capital, which may put us at a competitive disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in our industry, including increased competition;

• although we have a low level of indebtedness and a high volume of cash and cash equivalents, some of our competitors may have additional access to capital, which may put us at a competitive disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in our industry, including increased competition;

• we may be more vulnerable to economic downturns and adverse developments in our business than some of our competitors.

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Any downgrades from these ratings may impact our ability to obtain future additional financing, or to obtain such financing on terms that are favorable to us and therefore, may adversely impact our future operations.

We may not be successful in future expansion and integrating acquisitions.

We may consider growth or expansion of our operations in our current markets or in other areas of the country.

We may not be successful in future expansion and integrating future acquisitions.

Our expansion into new or existing markets could have a material adverse effect on our cash flows and/or profitability as we may incur costs to integrate new markets into our operations in advance of those operations providing a right-sized impact to our bottom line.

The magnitude, timing and nature of any future expansion will depend on a number of factors, including suitable additional markets and/or acquisition candidates, the negotiation of acceptable terms, our financial capabilities, the size of the new business, and general economic and business conditions.

New acquisitions may result in the incurrence of additional debt.

Acquisitions also involve numerous risks, including difficulties and/or delays in the assimilation and integration of the acquired company’s operations, the incurrence of unanticipated liabilities or expenses, the diversion of management’s attention from other business concerns, risks of entering markets in which we have limited or no direct experience and the potential loss of key employees of the acquired company.

It cannot be assured that integration delays for future acquisitions will not occur, and such delays could have an impact on our operations and our financial results.

Our business may be negatively impacted by natural disasters or extreme weather events.

We may not be able to insure against some of these risks.

For example, during 2017 and 2018, several of our markets were impacted by hurricanes, and a devastating tornado impacted the Nashville market in the first quarter of 2020.

These occurrences could damage or destroy some of our homes under construction or our building lots and community improvements, which may result in uninsured or underinsured losses.

We could also suffer significant construction delays or substantial fluctuations in the pricing or availability of building materials due to such disasters.

Any of these events could cause a delay in scheduled closings and a decrease in our revenue, cash flows and earnings.

Risks Related to Our Strategy

Our long-term success depends on the availability of lots and land that meet our land investment criteria.

The availability of lots and land that meet our underwriting standards depends on a number of factors outside of our control, including land availability in general, competition with other homebuilders and land buyers, credit market conditions, legal and government agency processes and regulations, inflation in land prices, zoning, availability of utilities, our ability and the costs to obtain building permits, the amount of impact fees, property tax rates and other regulatory requirements.

The availability of suitable land assets could also affect the success of our strategic initiative to increase our number of actively selling communities and to maintain profitability.

If our current strategies are not successful, it could have negative consequences on our operations, financial position and cash flows.

We focus our community designs, product offerings and marketing on entry-level and first move-up homes based on our belief that these two product types will comprise the majority of the market demand in the near and medium term outlook.

If there is a shift away from, or decrease in, the demand for first-time and first move-up buyers or our entry-level home offerings, it could have negative consequences on our operations, financial position and cash flows.

Reduced levels of sales may cause us to re-evaluate the viability of existing option contracts, resulting in a potential termination of these contracts which may lead to impairment charges.

In the prior homebuilding cycle, a significant portion of our lots were controlled under option contracts.

Such options generally require a cash deposit that will be forfeited if we do not exercise the option or proceed with the lot purchase(s).

Our lack of geographic diversification could adversely affect us if the homebuilding industry in our markets decline.

We have operations in Texas, Arizona, California, Colorado, Florida, North Carolina, South Carolina, Georgia and Tennessee.

Our ability to build energy-efficient technologies at a profitable price point may be replicated by other builders in the future, which could reduce our competitive advantage.

We believe we currently have a competitive advantage over many of the other production homebuilders by virtue of our energy efficiency technologies.

Our communities offer a high level of energy-saving features included in the base price of our homes, and most of our single family detached home plans can accommodate the incorporation of optional solar features to further optimize energy savings.

If other builders are able to replicate our energy efficient technologies and offer them at a similar or lower price point or are required to do so by changing regulatory standards, it could diminish our competitive advantage in the marketplace.

Shortages in the availability of subcontract labor may delay construction schedules and increase our costs.

We conduct our construction operations only as a general contractor.

Virtually all construction and development work is performed by unaffiliated third-party consultants and subcontractors.

As a consequence, we depend on the continued availability of and satisfactory performance by these consultants and subcontractors for the construction of our communities and homes and to provide related materials.

Throughout various homebuilding cycles, we have experienced shortages of skilled labor in certain markets, which led to increased labor costs.

Operational Risks

Information technology failures and data security breaches could harm our business.

We use information technology and other computer resources to carry out important operational, financial and marketing activities as well as maintain our business records.

Many of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify certain security and service level standards.

We and our service providers employ what we believe are appropriate security, disaster recovery and other preventative and corrective systems and processes.

Additionally, we maintain cyber-security insurance and require our employees to complete an annual information security training and compliance program;

however, our ability to conduct our business may be impaired if these information technology resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.

For example, during the first quarter of 2020, some of our systems were affected by a malware attack that encrypted certain information on some of our systems and resulted in limitations to certain employee access for a short duration to certain of our systems and services, although all core operating activities continued during our remediation process.

We completed this remediation process and our computer systems were restored, and the incident did not have a material adverse effect on our results of operations and/or financial condition and did not result in any exfiltration of data.

We cannot be assured, however, that similar or more serious attacks will not occur in the future and a significant and extended disruption in the functioning of our information technology and other computer resources could damage our reputation and cause us to lose customers and sales, result in the unintended public disclosure or the misappropriation of proprietary, personal and confidential information (including information about our homebuyers, employees and business partners), and require us to incur significant expense to address and remediate these kinds of issues.

In addition, the costs of maintaining adequate protection against such threats, depending on their evolution, pervasiveness and frequency and/or government-mandated standards or obligations regarding protective efforts, are expected to continue to increase in the future and may be material to our consolidated financial statements.

The loss of key personnel may negatively impact us.

Our success largely depends on the continuing services of certain key employees and our ability to attract and retain qualified personnel.

The loss of the services of such key employees could harm our operations and business plans.

Regulatory Risks

Expirations, amendments or changes to tax laws, incentives or credits currently available to us and our homebuyers may negatively impact our business.

However, the Tax cuts and Jobs Act (the "Tax Act") signed into law on December 22, 2017 limited these deductions for some individuals.

The Tax Act caps individual state and local tax deductions at $10,000 for the aggregate of state and local real property and income taxes or state and local sales taxes.

The limits on deductibility of mortgage interest and property taxes may increase the after-tax cost of owning a home for some individuals.

We are subject to federal and state income taxes and recognize benefits from certain allowable deductions.

Increases in statutory tax rates or the elimination or reduction of available deductions could adversely affect the results of our operations and the realization of our deferred tax assets.

Our 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 our 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.

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

We have no federal or state income tax examinations being conducted at this time.

Failure to comply with laws and regulations by our employees or representatives may harm us.

It is possible that individuals acting on our behalf could intentionally or unintentionally violate some of these laws and regulations.

Further, other acts of bad judgment may also result in negative publicity and/or financial consequences.

We are subject to extensive government regulations that could cause us to incur significant liabilities or restrict our business activities.

Regulatory requirements could cause us to incur significant liabilities and costs and could restrict our business activities.

We are subject to local, state and federal statutes and rules regulating labor and employment matters, relationships with trade partners and their employees, certain land development matters, as well as building and site design.

We are subject to local, state and federal statutes, codes, and rules regulating labor and employment matters, relationships with trade partners and their employees, certain land development matters, as well as building and site design and construction.

We are subject to various fees and charges of government authorities designed to defray the cost of providing certain governmental services and improvements.

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We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment.

Environmental laws or permit restrictions may result in project delays, may cause

substantial compliance and other costs and may prohibit or severely restrict development in certain environmentally sensitive regions or geographic areas.

Environmental laws or permit restrictions may result in project delays, may cause substantial compliance and other costs and may prohibit or severely restrict development in certain environmentally sensitive regions or geographic areas.

Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber.

Our wholly-owned title company, Carefree Title Agency, provides title insurance and closing settlement services for our homebuyers.

The title and settlement services provided by Carefree Title Agency are subject to various regulations, including regulation by state banking and insurance regulations.

Our wholly-owned title company, Carefree Title, provides title insurance and closing settlement services for our homebuyers.

The title and settlement services provided by Carefree Title are subject to various regulations, including regulation by state banking and insurance regulations.

Potential changes to federal and state laws and regulations could have the effect of limiting our activities or how our mortgage joint venture conducts its operations and this could have an adverse effect on our results of operations.

Our mortgage joint venture is engaged in mortgage broker activities and provides services both to our customers and on a limited scope, to other homebuyers.

Our mortgage joint venture is engaged in mortgage broker activities and provides services to our homebuyers.

The mortgage industry remains under intense scrutiny and continues to face increasing regulation at the federal, state and local level.

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In addition, if we are determined to have violated federal or state regulations, we face the loss of our licenses or other required approvals or we could be subject to fines, penalties, civil actions or we could be required to suspend our activities, each of which could have an adverse effect on our reputation, results and operations.

Legislation relating to energy and climate change could increase our costs to construct homes.

There is a variety of new legislation being enacted, or considered for enactment at the federal, state, local and international levels relating to energy and climate change.

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Similarly, energy-and climate-related initiatives affect a wide variety of companies throughout the United States and the world and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy and climate-related regulations.

Our ability to build energy-efficient technologies at a profitable price point may be replicated by other builders in the future, which could reduce our competitive advantage.

We believe we currently have a competitive advantage over many of the other production homebuilders by virtue of our energy efficiency technologies.

If other builders are able to replicate our energy efficient technologies and offer them at a similar price point or are required to do so by changing regulatory standards, it could diminish our competitive advantage in the marketplace.

General Risk Factors

Negative publicity could adversely affect our reputation and our business, financial results and stock price.

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Adverse publicity or negative commentary from any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.

Our business could be materially disrupted by an epidemic or pandemic (such as the present COVID-19 pandemic), or fear of such an event, and the measures that federal, state and local governments and/or health authorities implement to address it.

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 building materials, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends.

These factors can be significantly adversely affected by a variety of factors beyond our control.

For example, the COVID-19 pandemic and the measures undertaken by governmental authorities to address it, initially disrupted or prevented us from operating parts our business in the ordinary course.

With the exception of a brief pause in March and April, the COVID-19 pandemic and its effects on the economy have not adversely affected our results of operations to date.

However, future disruptions and governmental actions combined with any associated economic and/or social instability or distress, may have an adverse impact on our results of operations, financial condition and cash flows.

Any of the above risk factors could have a material adverse effect on any investment in our bonds and common stock.

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our goals, strategies and strategic initiatives and the anticipated benefits relating thereto;

our intentions and the expected benefits and advantages of our product and land positioning strategies, including with respect to our focus on the first-time and first move-up buyer;

our intentions and the expected benefits and advantages of our product and land positioning strategies, including with respect to our focus on the first-time and first move-up buyer and housing demand for affordable homes;

the benefits of and our intentions to use options to acquire land;

our design center strategy;

our exposure to supplier concentration risk;

our exposure to supplier concentration risk and other matters concerning our supply chain;

our delivery of substantially all of our backlog existing as of year end;

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growth in the first-time buyer segment that are seeking entry-level homes;

the timing, locations and extent of new community openings in 2020;

the timing, locations and targeted number of new community openings in 2021 and beyond;

that we may repurchase our debt and equity securities;

our non-use of derivative financial instruments;

expectations regarding our industry and our business into 2020 and beyond;

expectations regarding our industry and our business into 2021 and beyond, including the potential impact thereon of COVID-19 and governmental imposed restrictions and reaction thereto;

the demand for and the pricing of our homes;

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the impact of new accounting standards and changes in accounting estimates;

trends and expectations concerning sales prices, sales orders, cancellations, construction costs, gross margins, land costs and profitability and future home inventories;

trends and expectations concerning sales prices, sales orders, cancellations, construction and materials costs, gross margins, land costs, community counts and profitability and future home inventories;

our future cash needs;

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Unresolved Staff Comments

Our corporate office is in a leased building located in Scottsdale, Arizona with 70,260 square feet and a September 30, 2023 lease expiration.

Our corporate office is in a leased building located in Scottsdale, Arizona with approximately 72,000 square feet and a September 30, 2023 lease expiration.

We lease an aggregate of approximately 320,000 square feet of office space in our markets for our operating divisions, corporate and executive offices.

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