What changed in this filing

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Item 1A. Risk Factors

2022-01-28 compared with 2021-01-22 · 78 added, 57 removed, 232 unchanged (37% of the section changed)

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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.

Negative publicity could negatively impact our reputation, which could cause our revenues or results of operations to decline.

Our business success is dependent upon the reputation of the Lennar brand and its association with quality and integrity.

If we are unable to maintain the position of the Lennar brand, our business may be adversely affected, which could result in lower sales and earnings.

Unfavorable media or investor and analyst reports related to our industry, company, brand, marketing, personnel, operations, business performance, or prospects may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy.

Furthermore, the speed at which negative publicity is disseminated has

increased dramatically through the use of electronic communication, including social media outlets, websites and other digital platforms.

Our success in maintaining and enhancing our brand depends on our ability to adapt to this rapidly changing media environment.

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

An announced spin off of some of our businesses may not achieve its goals.

We have announced our intention to transfer some of our non-core businesses into a newly formed company and to distribute at least most of the stock of that company to our stockholders.

Our hope is that doing that will result in the combined market value of our stock and the stock of the new company exceeding what the market value of our stock would be if we continued to conduct the businesses that we will transfer to the new company.

However, there is no assurance that that will occur.

Among other things, making the new company a self-standing entity will lose some synergies the businesses it will own currently benefit from.

Therefore, it is possible that after the separation, the combined market value of our stock and the stock of the new company will be less, not more, than what the market value of our stock would be if we did not move some of our non-core businesses into a new company

Our business strategies for our homebuilding and mortgage finance businesses may not increase our value.

We cannot assure you that our strategies for our core homebuilding and mortgage finance businesses, and any related initiatives or actions, will be successful.

Principal among our current strategies is continuing to reduce our inventory of land we own (i.e., to become a land lighter company).

We cannot provide any assurance that this strategy, or other strategies we will follow, will increase our value.

It is possible that the land lighter or other strategies will reduce, rather than increase, the value and profitability of our core businesses.

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

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.

We saw the homebuilding industry stall from mid-March through April of 2020 as a result of the COVID-19 pandemic.

However, after that, demand for new homes grew steadily through the remainder of 2020 and throughout 2021.

While the homebuilding industry only paused for a relatively brief period in 2020, a 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.

It is possible that another downturn resulting from a health pandemic or other factors would result in a decline in demand for new homes for a significant period which would negatively impact our business, results of operations and financial condition.

Supply shortages and continuing cost increases could adversely affect our operations.

During fiscal 2021, we experienced a significantly stressed supply of both labor and materials, and we expect this to continue well into fiscal 2022.

The time it takes to build a home has increased as a result of supply issues, which has led to delayed home deliveries.

In addition, the costs of construction materials and other components of homes, lumber in particular, and the costs of labor have been rising.

We have been actively managing our sales pace so we do not sell homes until construction is ready to start, in order to avoid the possibility of costs increasing after we have committed to the prices at which we will 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.

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

Any inability to pass on future increased costs to homebuyers would put downward pressure on our operating margins in 2022 and subsequent years.

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

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Although we have reduced our exposure to costs of that type, a certain amount of exposure is inherent in our homebuilding business.

If market conditions were to deteriorate significantly in the future, we could again be required to make significant write-downs of the carrying value of our inventory and costs relating to land purchase options.

If market conditions were to deteriorate significantly in the future, we could again be required to make significant write-downs of the carrying value of our land inventory and costs relating to land purchase options.

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

The United States has experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

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

With the exception of a period in March and April of 2020, the COVID-19 pandemic and its effects on the economy has not adversely affected our home sales.

However, this may not continue to be the case.

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

If COVID-19 continues to cause, or another contagious disease causes, significant negative impacts to economic conditions or consumer confidence, our results of operations, financial condition and cash flows could be materially adversely impacted.

Operational Risks

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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.

Excessive Health and safety incidents relating to our operations could be costly to us.

Land development and construction are inherently dangerous.

While safety is a priority on our land development and construction sites, we cannot always control the way work is performed by subcontractors, including whether they comply with laws and regulations designed to maximize the safety of construction workers.

Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, may result in our subcontractors having difficulty attracting the workers they need and may result in a negative impact to our reputation.

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

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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 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.

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

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It has a $300 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.

We also had warehouse borrowing facilities totaling $2.3 billion to support our mortgage lending activities.

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

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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.

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.

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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.

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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.

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

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.

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We have a substantial level of indebtedness, which may have an adverse effect on our business or limit our ability to take advantage of business, strategic or financing opportunities.

As of November 30, 2020, our consolidated debt, net of debt issuance costs, and excluding amounts outstanding under our credit facilities, was $6.0 billion.

As of November 30, 2021, we had outstanding senior notes which we had sold into the capital markets over a number of years totaling $4.2 billion.

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 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:

We reduced our outstanding senior notes during fiscal 2021 by $1.2 billion, but we still have a significant amount outstanding.

Sales of senior debt into the capital markets has, until recently, been a significant source of funding for our operations and acquisitions.

Our use of capital markets debt to help support our operations exposes us to a number of risks, including:

• we may be more vulnerable to general adverse economic and homebuilding industry conditions;

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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.

Our Financial Services segment, including LMF Commercial, has warehouse facilities that mature in fiscal year 2022, and if we could not renew or replace these facilities, we probably would have to reduce our mortgage lending and origination activities.

During fiscal year 2022, we will have to replace or renew a total of $2.9 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.

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

If we were unable to renew or replace these facilities on favorable terms or at all when they mature, that could seriously impede the activities of our Financial Services segment, which would have a material adverse impact on our financial results.

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

We often are required to provide surety bonds to secure our performance of obligations under construction contracts, development agreements and other arrangements.

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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 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, 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.

We conduct some of our operations through joint ventures with independent third parties and we can be adversely impacted by our joint venture partners' failures to fulfill their obligations or decisions to act contrary to our wishes.

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In certain circumstances, joint venture participants, including us, are required to provide guarantees of obligations relating to the joint ventures, such as completion and environmental guarantees.

If a joint venture partner does not perform its obligations, we may be required to bear more than our proportional share of the cost of fulfilling them.

If a joint venture partner does not perform its obligations, we may be required to bear more than our proportional share of the cost of fulfilling the joint venture’s obligations.

For example, in connection with our Multifamily business, and its joint ventures, we and the other venture participants have guaranteed obligations to complete construction of multifamily residential buildings at agreed upon costs, which could make us and the other venture participants responsible for cost over-runs.

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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 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.

During the past several years, the U.S.

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

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

New or increased tariffs could also negatively affect U.S.

national or regional economies, which could affect the demand for the homes we build.

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New housing developments may also be subject to various assessments for schools, parks, streets and other public improvements.

In addition, in many markets government authorities have implemented no growth or growth control initiatives.

addition, in many markets government authorities have implemented no growth or growth control initiatives.

Any of these can limit, delay, or increase the costs of land development or home construction.

Government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy, transportation, or raw material costs, which could reduce our profit margins and adversely affect our results of operations.

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

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

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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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Our IT systems, like those of most companies, may be vulnerable to a variety of disruptions, including, but not limited to, those caused by natural disasters, telecommunications failures, hackers, and other security issues.

Moreover, our computer systems, like those of most companies, are subject to possibility of computer viruses or other malicious codes, and to cyber or phishing-attacks.

Moreover, our computer systems, like those of most companies, are subject to the possibility of computer viruses or other malicious codes, and to cyber or phishing-attacks.

We have installed and continually upgrade an array of protections against cyber intrusions.

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

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

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.

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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.

However, a variety of factors, such as the shutdown of large portions of our national economy in the second quarter of 2020 as a result of the COVID-19 pandemic, can change seasonal patterns.

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 if there are reductions in the market value of our investments in publicly traded companies.

We have made investments in companies that are engaged in applying technology to improve the homebuilding industry and real estate related aspects of the financial services industry.

Our investments in Opendoor Technologies, Inc.

("Opendoor"), Sunnova, Hippo Holdings, Inc.

("Hippo"), SmartRent, Inc.

("SmartRent") and Blend Labs, Inc.

("Blend") are carried on our books at their fair values, which will change depending on the value of the Company’s share holdings on the last day of each quarter.

As a result, the Company’s net earnings could be significantly affected by mark to market gains or losses on the Company’s investments.

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.

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However, for many years, the trading price of the Class B common stock on the NYSE has been substantially lower than the NYSE trading price of our Class A common stock.

We believe this is because only a relatively small number of shares of Class B common stock are available for trading, which reduces the liquidity of the market for our Class B common stock to a point where many investors are reluctant to invest in it.

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.

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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