| LENNAR CORP /NEW/ Item 1A Risk Factors |
| Risk Factors Relating to Our Business If any of the following risks develop into actual events, our business, financial condition, results of operations, cash flows, strategies and prospects could be materially adversely affected: Downward changes in economic conditions generally or in the market regions where we operate could decrease demand and pricing for new homes in these areas |
| The residential homebuilding industry is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, availability of financing and interest rate levels |
| Adverse changes in any of these conditions generally, or in the market regions where we operate, could decrease demand and pricing for new homes in these areas or 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 decrease in our revenues and earnings |
| The homebuilding industry has not experienced an economic down cycle in a number of years, which may have resulted in an overvaluation of land and new homes |
| Although the homebuilding business historically has been cyclical, it has not undergone an economic down cycle in a number of years |
| Further, during 2005, land and home prices rose significantly in many of our markets |
| This has led some people to assert that the prices of land, new homes and the stock prices of homebuilding companies may be inflated and may decline if the demand for land and new homes weakens |
| A decline in the prices for land and new homes could adversely affect both our revenues and margins |
| A decline in our stock price could make raising capital through stock issuances more difficult and expensive |
| Federal laws and regulations that adversely affect liquidity in the secondary mortgage market could hurt our business |
| Recent federal laws and regulations could have the effect of curtailing the activities of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) |
| These 8 ______________________________________________________________________ organizations provide significant liquidity to the secondary mortgage market |
| Any curtailment of their activities could increase mortgage interest rates and increase the effective cost of our homes, which could reduce demand for our homes and adversely affect our results of operations |
| The federal financial institution agencies recently issued proposed Interagency Guidance on Nontraditional Mortgage Products (“Guidance”) |
| If adopted, the Guidance will apply to credit unions, to banks and savings associations and their subsidiaries, and to bank and savings association holding companies and their subsidiaries |
| Although the Guidance will not apply to independent mortgage companies, it likely will affect the origination operations of many mortgage companies that broker or sell nontraditional mortgage loan products to such entities |
| If the Guidance is adopted, it could reduce the number of potential customers who could qualify for loans to purchase homes from us and others |
| Customers may be unwilling or unable to purchase our homes at times when mortgage-financing costs are high or as credit quality declines |
| The majority of our homebuyers finance their purchases through our financial services operations or third-party lenders |
| In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing as a result of declining customer credit quality or other issues |
| If mortgage interest rates increase and the ability or willingness of prospective buyers to finance home purchases is adversely affected, our operating results may be adversely affected |
| Competition for homebuyers could reduce our deliveries or decrease our profitability |
| The homebuilding industry is highly competitive for skilled labor, materials and suitable land, as well as homebuyers |
| We compete in each of our markets with numerous national, regional and local homebuilders |
| This competition with other homebuilders could reduce the number of homes we deliver, or cause us to accept reduced margins in order to maintain sales volume |
| We also compete with resales of existing used or foreclosed homes, housing speculators and available rental housing |
| Increased competitive conditions in the residential resale or rental market in the regions where we operate could decrease demand for new homes and increase cancellations of sales contracts in backlog |
| Government entities in regions where we operate have adopted or may adopt, slow or no growth initiatives, which could adversely affect our ability to build or timely build in these areas |
| Some municipalities where we operate have approved, and others where we operate may approve, various slow growth or no growth homebuilding initiatives and other ballot measures that could negatively impact the availability of land and building opportunities within those localities |
| Approval of slow growth, no growth or similar initiatives (including the effect of these initiatives on existing entitlements and zoning) could adversely affect our ability to build or timely build and sell homes in the affected markets and or create additional administrative and regulatory requirements and costs, which, in turn, could have an adverse effect on our future revenues and earnings |
| Natural disasters and severe weather conditions could delay deliveries, increase costs and decrease demand for new homes in affected areas |
| Our homebuilding operations are located in many areas that are subject to natural disasters and severe weather |
| The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories and negatively impact the demand for new homes in affected areas |
| Furthermore, if our insurance does not fully cover business interruptions or losses resulting from these events, our earnings, liquidity or capital resources could be adversely affected |
| Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs and delay deliveries |
| Increased costs or shortages of skilled labor and/or lumber, framing, concrete, steel and other building materials could cause increases in construction costs and construction delays |
| We generally are unable to pass on increases in construction costs to those customers who have already entered into sales contracts, as those sales contracts generally fix the price of the home at the time the contract is signed, which may be well in advance of the construction of the home |
| Sustained increases in construction costs may, over time, erode our margins, and pricing competition for materials and labor may restrict our ability to pass on any additional costs, thereby decreasing our margins |
| 9 ______________________________________________________________________ We may not be able to acquire land suitable for residential homebuilding at reasonable prices, which could increase our costs and reduce our revenues, earnings and margins |
| Our long-term ability to build homes depends upon our acquiring land suitable for residential building at reasonable prices in locations where we want to build |
| Over the past few years, we have experienced an increase in competition for suitable land as a result of land constraints in many of our markets |
| As competition for suitable land increases, and as available land is developed, the cost of acquiring suitable remaining land could rise, and the availability of suitable land at acceptable prices may decline |
| 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 |
| Compliance with federal, state and local regulations related to our business could have substantial costs both in time and money, and some regulations could prohibit or restrict some homebuilding ventures |
| We are subject to extensive and complex laws and regulations that affect the land development and homebuilding process, including laws and regulations related to zoning, permitted land uses, levels of density, building design, elevation of properties, water and waste disposal and use of open spaces |
| In addition, we are subject to laws and regulations related to workers’ health and safety |
| We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment |
| In some of the markets where we operate, we are required to pay environmental impact fees, use energy-saving construction materials and give commitments to municipalities to provide certain infrastructure such as roads and sewage systems |
| We generally are required to obtain permits, entitlements and approvals from local authorities to commence and complete residential development or home construction |
| Such permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments, neighboring property owners or other interested parties, adding delays, costs and risks of non-approval to the process |
| Our obligation to comply with the laws and regulations under which we operate, and our obligation to ensure that our employees, subcontractors and other agents comply with these laws and regulations, could result in delays in construction and land development, cause us to incur substantial costs and prohibit or restrict land development and homebuilding activity in certain areas in which we operate |
| Changing market conditions may adversely affect our ability to sell our land and home inventories at expected prices, which could reduce our margins |
| The lag time between when we acquire land for development and when we can bring communities to market can vary significantly |
| The market value of home inventories, undeveloped land and developed homesites can fluctuate significantly during this time period because of changing market conditions |
| Recently we have been able to sell homes at higher prices than we anticipated when we acquired the land on which they were built, which has helped us to achieve unusually high profit margins |
| However, in the future, we may need to sell homes or other property at prices that generate lower margins than we anticipate when we purchase land |
| We may also be required to record material write-downs to our land or home inventories if their market values decline |
| Inflation may result in increased costs that we may not be able to recoup if demand declines |
| Inflation can have a long-term impact on us because increasing costs of land, materials and labor may require us to increase the sales price of homes in order to maintain satisfactory margins |
| However, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand, in which case we may not be able to raise home prices sufficiently to keep up with the rate of inflation and our margins could decrease |
| Tax law changes could make home ownership more expensive or less attractive |
| Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally are deductible expenses for an individual’s federal, and in some cases state, income taxes, subject to various limitations under current tax law and policy |
| If the federal government or a state government changes income tax laws, as has been discussed recently, to eliminate or substantially modify these income tax deductions, then the after-tax cost of owning a new home would increase substantially |
| This could adversely impact demand for, and/or sales prices of, new homes |
| 10 ______________________________________________________________________ We may be unable to obtain suitable financing and bonding for the development of our communities |
| Our business depends substantially on our ability to obtain financing for the development of our residential communities and to provide bonds to ensure the completion of our projects |
| If we are unable to finance the development of our communities through our credit facility or other debt, or if we are unable to provide required surety bonds for our projects, our business operations and revenues could be adversely affected |
| We may be unable to renew or extend our significant outstanding debt instruments when they mature |
| Our senior unsecured credit facility consists of a dlra1dtta7 billion revolving credit facility maturing in June 2010 and includes access to an additional dlra500 million via an accordion feature, under which the facility may be increased to dlra2dtta2 billion, subject to additional commitments |
| In January 2006, we increased the commitment under the credit facility to dlra2dtta2 billion via access of the accordion feature |
| Also, our Financial Services Division has warehouse lines of credit totaling dlra1dtta3 billion, with borrowings under these lines of credit totaling dlra1dtta2 billion at November 30, 2005 |
| These warehouse lines of credit mature in 2006 and 2007 |
| We cannot assure that we will be able to extend or renew these debt arrangements on terms acceptable to us, or at all |
| If we are unable to renew or extend these debt arrangements, it could adversely affect our liquidity and capital resources |
| We may not be able to identify or integrate suitable acquisition targets, which could adversely affect our ability to execute our growth strategy |
| Our ability to execute our growth strategy depends in part on our ability to identify and purchase suitable acquisition candidates, as well as our ability to successfully integrate acquired operations into our business |
| The integration of operations of acquired companies with our operations, including the consolidation of systems, procedures, personnel and facilities, the relocation of staff, and the achievement of anticipated cost savings, economies of scale and other business efficiencies, presents significant challenges to our management, particularly if several acquisitions occur at the same time |
| Additional factors may adversely impact our acquisition growth strategy |
| Our acquisition strategy may require spending significant amounts of capital |
| If we are unable to obtain sufficient debt or equity financing on acceptable terms, or at all, we may need to reduce the scope of our acquisition growth strategy, which could have a material adverse effect on our growth prospects |
| The competition from our competitors or others pursuing the same acquisition candidates may increase purchase prices of businesses and/or prevent us from acquiring certain acquisition candidates |
| If any of the aforementioned factors cause us to alter our growth strategy, our results of operations and growth prospects could be adversely affected |
| We could be hurt by the loss of key management personnel |
| Our future success depends, to a significant degree, on the efforts of our senior management |
| Our operations could be adversely affected if key members of senior management cease to be active in our company |
| We have a stockholder who exercises significant influence over matters that are brought to a vote of our stockholders |
| Stuart A Miller, our President, Chief Executive Officer and a Director, has voting control, through personal holdings and family-owned entities, of Class A and Class B common stock that enables Mr |
| Miller to cast approximately 47prca of the votes that may be cast by the holders of our outstanding Class A and Class B common stock combined |
| That gives significant influence to Mr |
| Miller in electing our directors and approving most matters that are presented to our stockholders |
| Miller’s voting power might discourage someone from acquiring us or from making a significant equity investment in us, even if we needed the investment to meet our obligations and to operate our business |
| Also, because of his voting power, Mr |
| Miller may be able to authorize actions in matters that are contrary to our other stockholders’ desired actions or interests |