What changed in this filing

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Item 1A. Risk Factors

2025-02-06 compared with 2024-02-05 · 66 added, 48 removed, 165 unchanged (41% of the section changed)

8 unchanged sentences

However, in the second quarter of 2022, in response to the Federal Reserve's increases to the federal funds rate as part of their effort to reduce inflation, mortgage rates increased, reaching their highest levels since 2008.

As a result, we began to experience lower than

expected signups and traffic, as well as an increase in cancellation rates, during the second half of 2022 and into the first half of 2023.

Ongoing volatility in interest rates may continue to negatively impact our operations and financial results.

Despite recent interest rate cuts by the Federal Reserve beginning in September 2024, interest rates have remained elevated.

Ongoing volatility in interest rates may negatively impact our operations and financial results.

A decrease in the availability of mortgage financing generally could also adversely impact the market for new homes, which could result from lenders increasing the qualifications needed for mortgages or adjusting their terms to address any increased credit risk.

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The residential homebuilding industry is sensitive to changes in economic conditions and other factors, such as the level of employment, consumer confidence, consumer income, product affordability, availability of financing, inflation, and interest rate levels.

Adverse changes in any of these conditions generally, or in the markets where we operate, could decrease demand and pricing for new homes in these areas and result in customer cancellations of pending contracts, which could adversely affect the number of home deliveries we make or reduce the prices we can charge for homes, either of which could result in a significant decrease in our revenues and earnings that could materially and adversely affect our financial condition.

As we have seen with elevated inflation and interest rates the last three years, adverse changes in any of these conditions generally, or in the markets where we operate, can decrease demand and pricing for new homes and result in customer cancellations of pending contracts, which could adversely affect the number of home deliveries we make or reduce the prices we can charge for homes, either of which could result in a significant decrease in our revenues and earnings that could materially and adversely affect our financial condition.

For example, beginning in 2006 and continuing through 2011, the U.S.

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Beginning in 2020, the COVID-19 pandemic also impacted our business and resulted in a significant slowdown in our business and impacts to our financial results, followed by historically high inflation, increased interest rates and weaker economic conditions all of which impacted the affordability of our homes and consumer sentiment.

Inflation has resulted in increased costs that we may not be able to recoup.

In addition, over the last three years, the U.S.

economy experienced significant inflation and mortgage and other interest rate increases, which negatively impacted home affordability and consumer sentiment and created some volatility in demand for new housing.

Inflation has resulted in increased costs that we may not be able to recoup and has impacted home affordability and consumer sentiment.

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

In addition, significant inflation is often accompanied by higher interest rates, which recently have had a negative impact on demand for our homes.

In an inflationary environment like the one we are currently experiencing, economic conditions and other market factors may make it difficult for us to raise home prices enough to keep up with the rate of inflation, which could reduce our profit margins or reduce the number of consumers who can afford to purchase one of our homes.

We are currently experiencing heightened labor and materials prices which have resulted primarily from increased demand and inflationary monetary policy stemming from the onset of the COVID-19 pandemic in early 2020.

These factors have increased our operational costs in recent periods, and if the current inflationary environment continues or worsens, we may not be able to adjust the pricing we charge for homes to offset these increased costs in the future, which would adversely impact our results of operations and cash flows.

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

In an inflationary environment like the one we have experienced in recent years, economic conditions and other market factors may make it difficult for us to raise home prices enough to keep up with the rate of inflation, which could reduce our profit margins or reduce the number of consumers who can afford to purchase one of our homes.

Heightened labor and material prices resulting from inflation have increased operational costs in recent years.

If the inflationary environment in recent years continues or worsens, we may not be able to adjust the pricing we charge for homes to offset these increased costs in the future, which would adversely impact our results of operations and cash flows.

In addition, inflation through the broader economy, especially when combined with higher mortgage interest rates, has negatively impacted home affordability and consumer sentiment and created some volatility in demand for new housing.

Supply shortages and other risks related to the demand for skilled labor and building materials increased costs and delayed deliveries and could continue to do so.

The homebuilding industry is highly competitive for skilled labor.

Labor shortages have continued to limit the availability of construction labor.

Additionally, the supply of certain building materials, especially lumber, wood-based materials such as roof and floor trusses and oriented strand boards, steel, resin, concrete, copper, and petroleum-based materials, is limited and has been impacted by the combination of strong consumer demand, disruptions in the global supply chain caused by the COVID-19 pandemic, and major weather events at the point of manufacture of certain products.

Supply constraints can also be further

exacerbated by government policies which make it more difficult and/or expensive for suppliers to produce materials needed for our business.

These factors, along with the consolidation of ownership of the source of supply for certain building materials, have resulted in increases to the prices of some materials.

Additionally, the supply of certain building materials, especially lumber, wood-based materials such as roof and floor trusses and oriented strand boards, steel, resin, concrete, copper, and petroleum-based materials, is limited and has been impacted by the combination of strong consumer demand, disruptions in the global supply chain, and major weather events at the point of manufacture of certain products.

Supply constraints can also be further exacerbated by government policies that make it more difficult and/or expensive for suppliers to produce materials needed for our business.

For instance, changes in laws, government regulations, or enforcement priorities, such as the imposition of tariffs (in particular on materials imported from Canada or Mexico) or other import or export restrictions, penalties or sanctions, including modification or elimination of international agreements covering trade or investment, or changes in immigration laws and/or their enforcement, could result in higher component costs, tighter overall labor conditions and a shortage of skilled tradespeople, which could in turn adversely affect our business.

Several of these factors, along with the consolidation of ownership of the source of supply for certain building materials, have resulted in increases to the prices of some materials.

Increased costs and shortages of labor and materials can cause increases in construction costs, and construction delays.

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Any land shortages or any decrease in the supply of suitable land at reasonable prices could limit our ability to develop new communities or result in increased land costs.

We may not be able to pass through to our customers any increased land costs, which could adversely impact our revenues, earnings, and margins.

We may not be able to pass through to our customers any increased land costs, which could adversely impact our earnings and margins.

If the market value of our land drops significantly, our profits could decrease and result in write-downs of the carrying values of land we own.

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Increased competitive conditions in the residential resale or rental market in the regions where we operate could decrease demand for new homes or unfavorably impact pricing for new homes.

An inability to accurately predict customer preferences or demand, or to respond effectively to technological developments, including artificial intelligence, could materially impact the business.

Our development, integration, and use of artificial intelligence (“AI”) technology in our operations remains in the early phases.

We have started to assess the use of AI technology to drive productivity and analyze data.

While we aim to develop, integrate, and use AI responsibly, we may ultimately be unsuccessful in identifying or resolving issues, such as accuracy, cybersecurity risks, unintended biases, and discriminatory outputs, before they arise.

AI is a new and emerging technology in early stages of commercial use and presents a number of risks inherent in its use, including, but not limited to, ethical considerations, public perception, intellectual property protection, regulatory compliance, privacy concerns, and data security, all of which could have a material adverse effect on our business, results of operations, and financial position.

As a result, we cannot predict future developments in AI and related impacts to our business and our industry.

If we are unable to successfully and accurately develop, integrate, and use AI technology, as well as address the risks and challenges associated with AI, our business, results of operations, and financial position could be negatively impacted.

Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our reputation, business, financial condition, and results of operations may be adversely affected.

Government regulations could increase the cost and limit the availability of our development and homebuilding projects or affect our related Financial Services operations and adversely affect our business or financial results.

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All of these factors have caused and could in the future cause an increase in the effective cost of our homes.

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

The impact of environmental laws varies depending upon the prior uses of the building site or adjoining properties and may be greater in areas with less supply where undeveloped land or desirable alternatives are less available.

We also are subject to a variety of local, state, and federal laws and regulations concerning protection of health, safety, and the environment, including laws and regulations relating to the disclosure of certain information relating to the environmental impact of our operations.

The impact of environmental laws on our operations varies depending upon the prior uses of the

building site or adjoining properties and may be greater in areas with less supply where undeveloped land or desirable alternatives are less available.

These matters may result in delays, may cause us to incur substantial compliance, remediation and other costs, and could prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or areas.

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They also subject our operations to examination by applicable agencies, pursuant to which those agencies may limit our ability to provide mortgage financing or title services to potential purchasers of our homes.

For our homes to qualify for FHA or VA mortgages, we must satisfy valuation standards and site, material, and construction requirements of those agencies.

For example, for our homes to qualify for FHA or VA mortgages, we must satisfy valuation standards and site, material, and construction requirements of those agencies.

Homebuilding is subject to warranty and other claims in the ordinary course of business that can be significant.

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In such cases, it can result in the need to perform repairs to homes.

We record warranty and other reserves relating to the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built.

We record warranty and other reserves relating to the homes we sell based on historical experience in our markets.

We have, and require our subcontractors to have, general liability, property, errors and omissions, workers compensation, and other business insurance.

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Policies issued by our captive insurance subsidiaries represent self-insurance of these risks by us.

We reserve for costs to cover our self-insured and deductible amounts under these policies and for any costs of claims and lawsuits based on an analysis of our historical claims, which includes an estimate of claims incurred but not yet reported.

We reserve for costs to cover our self-insured and deductible amounts under these policies and for any costs of claims and lawsuits based on actuarial analyses of our historical claims, which include estimates of claims incurred but not yet reported.

Our insurance coverage, our subcontractor arrangements, and our reserves may not be adequate to address all our warranty and construction defect claims in the future, and there is typically a lag between our payment of claims and reimbursements from applicable insurance carriers.

Contractual indemnities can be difficult to enforce, we may be responsible for applicable self-insured retentions, and some types of claims may not be covered by insurance or may exceed applicable coverage limits.

Additionally, the coverage offered by and the availability of general liability insurance for construction defects are costly and limited.

There can be no assurance that coverage will not be further restricted or become more costly.

Additionally, the coverage offered by and the availability of general liability insurance for construction defects have become more costly and limited.

There can be no assurance that coverage will not be further restricted, become more costly, or even become unavailable in the future.

Additionally, we are exposed to counterparty default risk related to our subcontractors, our insurance carriers, and our subcontractors’ insurance carriers.

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

taken disciplinary action regarding subcontractors and employees of ours who were aware of non-complying practices and did not take steps to address them, including in some instances terminating their employment or engagement.

When we learn of practices that do not comply with applicable laws, regulations, or government guidelines, including practices relating to homes, buildings, or multifamily properties we build or finance, we endeavor to move to stop the non-complying practices as soon as possible, and we have taken disciplinary action regarding subcontractors and employees of ours who were aware of non-complying practices and did not take steps to address them, including in some instances terminating their employment or engagement.

However, regardless of the steps we take after we learn of practices that do not comply with applicable laws, regulations, or government guidelines, we can in some instances be subject to fines or other governmental penalties, and our reputation can be injured, due to the practices having taken place.

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The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies, and utility companies related to the construction of roads, sewers, and other infrastructure.

December 31, 2023, we had outstanding letters of credit and surety bonds totaling $312.7 million and $2.4 billion, respectively.

At December 31, 2024, we had outstanding letters of credit and surety bonds totaling $321.1 million and $2.9 billion, respectively.

These letters of credit are generally issued via our unsecured Revolving Credit Facility, which contains certain financial covenants and other limitations.

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

To provide for potential tax exposures, we consider a variety of factors, including relevant facts and circumstances, applicable tax law, correspondence with taxing authorities, and effective settlement of audit issues.

To provide for potential tax exposures, we consider a variety of factors, including those described above in relation to our evaluation of tax matters.

If these reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position, cash flows, and results of operations.

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While we have recorded valuation allowances against certain of our deferred tax assets, the valuation allowances are subject to change as facts and circumstances change.

Our ability to utilize net operating losses (“NOLs”) and other tax attributes to offset our future taxable income or income tax would be limited if we were to undergo an “ownership change” within the meaning of Section 382 of the Internal Revenue Code (the “IRC”).

An "ownership change" under Section 382 of the IRC would establish an annual limitation to the amount of NOLs and other tax attributes we could utilize to offset our taxable income or income tax in any single year.

An "ownership change" under Section 382 would establish an annual limitation to the amount of NOLs and other tax attributes we could utilize to offset our taxable income or income tax in any single year.

The application of these limitations might prevent full utilization of the deferred tax assets.

To preserve our ability to utilize NOLs and other tax attributes in the future without a Section 382 limitation, we adopted a shareholder rights plan, which is triggered upon certain transfers of our securities, and amended our by-laws to prohibit certain transfers of our securities.

Our shareholder rights plan, as amended, expires June 1, 2025, unless our Board of Directors and shareholders approve an amendment to extend the term prior thereto.

Notwithstanding the foregoing measures, there can be no assurance that we will not undergo an ownership change within the meaning of Section 382.

In addition, our shareholder rights plan may adversely affect the marketability of our common stock, because any non-exempt third party that acquires shares of our common stock in excess of the applicable threshold would suffer substantial dilution of its ownership interest.

To preserve our ability to utilize NOLs and other tax attributes in the future without a Section 382 limitation, we adopted a shareholder rights plan (the “Rights Plan”), which is triggered upon certain transfers of our securities, and amended our by-laws to prohibit certain transfers of our securities.

The Rights Plan, as amended, expires June 1, 2025, unless our Board of Directors and shareholders approve an amendment to extend the term prior thereto.

At a meeting of the Board of Directors held on February 5, 2025, due to the limited NOLs and other tax attributes remaining that would be affected by an “ownership change” under Section 382, the Board of Directors determined not to approve an amendment to extend the term of the Rights Plan beyond its expiration date of June 1, 2025 and determined to consider, at a future meeting of the Board of Directors, amendments to the provisions of the Company’s by-laws that prohibit certain transfers of our securities.

Notwithstanding the foregoing measures, and in particular if they are no longer in place, there can be no assurance that we will not undergo an ownership change within the meaning of Section 382 at a time when NOLs and other tax attributes that would be affected by an “ownership change” under Section 382 exist.

In addition, our Rights Plan, while in effect, may adversely affect the marketability of our common stock, because any non-exempt third party that acquires shares of our common stock in excess of the applicable threshold would suffer substantial dilution of its ownership interest.

The value of our deferred tax assets and liabilities are also dependent upon the tax rates expected to be in effect at the time they are realized.

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Our mortgage operations may be responsible for losses arising out of claims associated with mortgage loans originated and sold to investors in the event of errors or omissions relating to certain representations and warranties made by us that the loans met certain requirements, including representations as to underwriting standards, the type of collateral, the existence of primary mortgage insurance, and the validity of certain borrower representations in connection with the loan.

To date, the significant majority of these claims made by investors against our mortgage operations relate to loans originated prior to 2009, during which time inherently riskier loan products became more common in the origination market.

We may also be asked to indemnify underwriters that purchased and securitized loans originated by a former subsidiary of Centex Corporation ("Centex"), which we acquired in 2009, for losses incurred by investors in those securitized loans based on similar breaches of representations and warranties.

To date, the significant

majority of these claims made by investors against our mortgage operations relate to loans originated prior to 2009, during

which time inherently riskier loan products became more common in the origination market.

We may also be asked to

indemnify underwriters that purchased and securitized loans originated by a former subsidiary of Centex Corporation

("Centex"), which we acquired in 2009, for losses incurred by investors in those securitized loans based on similar breaches of

representations and warranties.

The resolution of claims related to alleged breaches of these representations and warranties and repurchase claims could have a material adverse effect on our financial condition, cash flows and results of operations.

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Accordingly, there can be no assurance that such reserves will not need to be increased in the future.

We are implementing a new enterprise resource planning system, and challenges with the implementation of the system may impact our business and operations.

We are beginning the process of a multi-year implementation of a new enterprise resource planning system (“ERP”).

The ERP implementation will require the integration of the new ERP with multiple new and existing information systems and business processes, and will be designed to accurately maintain our books and records and provide information to our management teams important to the operation of the business.

Our ERP implementation will continue to require ongoing maintenance and monitoring.

Conversion from our old system to the new ERP may cause inefficiencies until the ERP is stabilized and mature.

The implementation of our new ERP will mandate new procedures and certain modifications to our disclosure controls and procedures and internal control over financial reporting and it will take time for such procedures and controls to become mature in their operation.

If we are unable to adequately implement and maintain procedures and controls relating to our new ERP, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired and impact our assessment of the effectiveness of our internal controls over financial reporting.

The ERP implementation is costly and may not ultimately result in the operational benefits to the Company that are currently anticipated.

General Risk Factors

Information technology failures or data security breaches could harm our business and result in substantial costs.

We use information technology and other computer resources to carry out important operational activities and to maintain our business records.

We use information technology and other computer resources to conduct important operational activities and to maintain our business records.

Our computer systems, including our back-up systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches (through cyber-attacks from computer hackers and sophisticated organizations), catastrophic events such as fires, tornadoes and hurricanes, usage errors by our employees, or cyber-attacks or errors by third party vendors who could gain access to our confidential data or that of our customers, vendors, or employees.

In particular, the frequency, severity and novelty of cyber-attacks on companies has increased in recent years, including significant ransomware attacks and foreign attacks on prominent companies and computer software programs, as threat actors become increasingly sophisticated and employ techniques, including malicious uses of artificial intelligence such as deepfakes, to launch attacks that are increasingly difficult to detect and defend against.

We, like many organizations, have experienced and expect to continue to experience varying degrees of cybersecurity incidents in the course of our business, including phishing and social engineering intrusions which could lean, in turn, to ransomware attacks or other incidents that could impact our business.

While to our knowledge we have not experienced a significant cybersecurity incident that has materially affected our business strategy, results of operations or financial condition, and we are continuously working to improve our information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to enhance our levels of protection, to the extent possible, against cyber risks and security breaches, and to enhance our monitoring to prevent, detect, contain, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have an impact on our business, there is no assurance that advances in computer capabilities, new technologies, methods or other developments will detect or prevent security breaches and safeguard access to proprietary or confidential information or otherwise prevent material consequences for our business and reputation.

In particular, the frequency, severity and novelty of cyber-attacks on companies has increased significantly in recent years, including significant ransomware attacks and foreign attacks on prominent companies and computer software programs, as threat actors become increasingly sophisticated and employ techniques, including malicious uses of AI such as deepfakes, to launch attacks that are increasingly difficult to detect and defend against.

We, like many organizations, have experienced and expect to continue to experience varying degrees of cybersecurity incidents in the course of our business, including phishing and social engineering intrusions which could lead, in turn, to ransomware attacks or other incidents that could impact our business.

monitoring to prevent, detect, contain, address, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have an impact on our business, there is no assurance that advances in computer capabilities, new technologies, methods, or other developments will detect or prevent security breaches and safeguard access to proprietary or confidential information or otherwise prevent material consequences for our business and reputation.

If our computer systems and our back-up systems are damaged, breached, or cease to function properly, or if there are intrusions or failures of critical infrastructure such as the power grid or communications systems, we could suffer extended interruptions in our operations.

Any such disruption could damage our reputation, result in lost customers, lost revenue and market value declines, lead to legal proceedings against us by affected third parties resulting in penalties or fines and require us to incur significant costs to remediate or otherwise resolve these issues.

Any such disruption could damage our reputation, result in lost customers, lost revenue, and market value declines, lead to legal proceedings against us by affected third parties resulting in penalties or fines, result in government investigations or related inquiries, and require us to incur significant costs to remediate or otherwise resolve these issues.

In addition to direct cyber-attacks on, or other disruptions of, our systems, cyber-attacks on, or other disruptions of, the systems of our suppliers, financial service companies, service providers, and other parties on which we rely to conduct our business can result in their inability to provide services to us and impact our ability to conduct our business in the ordinary course.

about our employees, customers and business partners, requiring us to incur significant expense to address and resolve.

Breaches of our computer or data systems, including those operated by third parties on our behalf, could also result in the unintended public disclosure or the misappropriation of our proprietary information or personal and confidential information, about our employees, customers, and business partners, requiring us to incur significant expense to address and resolve.

Improper conduct by our employees who have access to such information could also result in the misuse of such information.

The misappropriation and/or release of confidential information may also lead to legal or regulatory proceedings against us by affected individuals and the outcome of such proceedings could include penalties or fines and require us to incur significant costs to remediate or otherwise resolve.

The misappropriation and/or release of confidential information may also lead to legal or regulatory proceedings against us by affected individuals or otherwise, and the outcome of such proceedings could include penalties or fines and require us to incur significant costs to remediate or otherwise resolve.

Depending on its nature, a particular breach or series of breaches of our systems may result in the unauthorized use, appropriation or loss of confidential or proprietary information on a one-time or continuing basis, which may not be detected for a period of time.

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As a result, the impact of such public health issues and the related governmental actions could have a significant adverse impact on our consolidated financial statements.

For instance, in 2020, the World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, including the closures of non-essential businesses for a period of time.

These restrictions had an adverse impact on our business beginning in the spring of 2020.

As effective treatment and mitigation measures for COVID-19 advanced, economic activity gradually resumed and demand for new homes improved significantly.

The effects of the pandemic on economic activity, combined with the strong demand for new homes, caused many disruptions to our supply chain and shortages in certain building components and materials, as well as labor shortages.

Some of those conditions continue to impact our operations and financial performance as have the impact of COVID-19 on the broader economy.

For instance, pervasive inflation incurred in part by COVID-19 resulted in federal financial policies which increased mortgage interest rates resulting in a significant impact to our business.

Our operational and financial performance could be impacted by a pandemic, including a resurgence in the COVID-19 pandemic and any containment or mitigation measures put in place as a result of the resurgence, all of which are highly uncertain, unpredictable and outside our control.

Our business was previously materially and adversely impacted by events related to the COVID-19 pandemic and related macroeconomic impacts, including inflation, labor shortages, and supply chain disruptions, and our business could be materially and adversely disrupted by another epidemic or pandemic like COVID-19, or similar public threat, or fear of such an event, and the measures that international, federal, state, and local governments, agencies, law enforcement, and/or health authorities implement to address it.

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