10-K 1 len-20141130x10k.htm 10-K LEN-2014.11.30-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2014
Commission file number 1-11749
 
Lennar Corporation
(Exact name of registrant as specified in its charter)
Delaware
 
95-4337490
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
700 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (305) 559-4000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, par value 10¢
 
New York Stock Exchange
Class B Common Stock, par value 10¢
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ý NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 
(Do not check if a smaller reporting company)            
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES ¨ NO ý
The aggregate market value of the registrant’s Class A and Class B common stock held by non-affiliates of the registrant (168,333,343 shares of Class A common stock and 9,705,207 shares of Class B common stock) as of May 31, 2014, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $7,219,372,214.
As of November 30, 2014, the registrant had outstanding 173,736,150 shares of Class A common stock and 31,303,195 shares of Class B common stock.
 
DOCUMENTS INCORPORATED BY REFERENCE:
Related Section
Documents
III
Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 30, 2015.





PART I

Item 1.
Business
Overview of Lennar Corporation
We are one of the nation’s largest homebuilders, a provider of real estate related financial services, a commercial real estate investment, investment management and finance company through our Rialto segment and a developer of multifamily rental properties in select U.S. markets primarily through unconsolidated entities.
Our homebuilding operations are the most substantial part of our business, comprising $7.0 billion in revenues, or approximately 90% of consolidated revenues in fiscal 2014. We have grouped our homebuilding activities into five reportable segments, which we refer to as Homebuilding East, Homebuilding Central, Homebuilding West, Homebuilding Southeast Florida and Homebuilding Houston. Information about homebuilding activities in states in which our homebuilding activities are not economically similar to those in other states in the same geographic area is grouped under “Homebuilding Other.” Our reportable homebuilding segments and Homebuilding Other have operations located in:
East: Florida(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia
Central: Arizona, Colorado and Texas(2) 
West: California and Nevada
Southeast Florida: Southeast Florida
Houston: Houston, Texas
Other: Illinois, Minnesota, Tennessee, Oregon and Washington
(1)
Florida in the East reportable segment excludes Southeast Florida, which is its own reportable segment.
(2)
Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.
Our other reportable segments are Lennar Financial Services, Rialto and Lennar Multifamily. For financial information about our Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily operations, you should review Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is Item 7 of this Report, and our consolidated financial statements and the notes to our consolidated financial statements, which are included in Item 8 of this Report.
A Brief History of Our Company
We are a national homebuilder that operates in various states with deliveries of 21,003 new homes in 2014. Our company was founded as a local Miami homebuilder in 1954. We completed our initial public offering in 1971 and listed our common stock on the New York Stock Exchange in 1972. During the 1980s and 1990s, we entered and expanded operations in a number of homebuilding markets, including California, Florida and Texas, through both organic growth and acquisitions, such as Pacific Greystone Corporation in 1997. In 1997, we completed the spin-off of our then commercial real estate business, LNR Property Corporation. In 2000, we acquired U.S. Home Corporation, which expanded our operations into New Jersey, Maryland, Virginia, Minnesota and Colorado and strengthened our position in other states. From 2002 through 2005, we acquired several regional homebuilders, which brought us into new markets and strengthened our position in several existing markets. From 2010 through 2013, we started and expanded our homebuilding operations in the Atlanta, Oregon, Seattle and Nashville markets. More recently, we have been strengthening and expanding our competitive position through the development of land that was strategically purchased at favorable prices during the real estate market downturn, and through a focus on our ancillary and complementary platforms, including Rialto, Lennar Multifamily and FivePoint, a consolidated joint venture that was formed to manage master planned mixed use developments.
Homebuilding Operations
Overview
Our homebuilding operations include the construction and sale of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which we have investments. We primarily sell single-family attached and detached homes in communities targeted to first-time, move-up and active adult homebuyers. We operate primarily under the Lennar brand name. Our homebuilding mission is focused on the profitable development of these residential communities. Key elements of our strategy include:
Strong Operating Margins - We believe our operating leverage combined with our attractive land purchases position us for strong operating margins.
Everything’s Included® Approach - We are focused on distinguishing our products, including through our Everything’s Included® approach, which maximizes our purchasing power to include luxury features as standard items in our homes.

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Innovative Homebuilding - We are constantly innovating the homes we build to create products that meet our customers' needs. Our latest innovation, NextGen homes, or a home within a home, provides a unique new home solution for multi-generational households as homebuyers often need to accommodate children and parents to share the cost of their mortgage and other living expenses.
Flexible Operating Structure - Our local operating structure gives us the flexibility to make operating decisions based on local homebuilding conditions and customer preferences, while our centralized management structure provides oversight for our homebuilding operations.
Diversified Program of Property Acquisition
We generally acquire land for development and for the construction of homes that we sell to homebuyers. Land purchases are subject to specified underwriting criteria and are made through our diversified program of property acquisition, which may consist of the following:
Acquiring land directly from individual land owners/developers or homebuilders;
Acquiring local or regional homebuilders that own, or have options to purchase, land in strategic markets;
Acquiring land through option contracts, which generally enables us to control portions of properties owned by third parties (including land funds) and unconsolidated entities in which we have investments until we have determined whether to exercise the options;
Acquiring parcels of land through joint ventures, which among other factors, limits the amount of our capital invested in land while increasing our access to potential future homesites and allowing us to participate in strategic ventures;
Acquiring land in conjunction with Lennar Multifamily and Lennar Commercial; and
Acquiring distressed assets from banks and opportunity funds, often through relationships established by our Rialto segment.
At November 30, 2014, we owned 132,679 homesites and had access through option contracts to an additional 31,890 homesites, of which 24,855 homesites were through option contracts with third parties and 7,035 homesites were through option contracts with unconsolidated entities in which we have investments. At November 30, 2013, we owned 125,643 homesites and had access through option contracts to an additional 28,133 homesites, of which 20,966 homesites were through option contracts with third parties and 7,167 homesites were through option contracts with unconsolidated entities in which we have investments.
Construction and Development
Through our own efforts and those of unconsolidated entities in which Lennar Homebuilding has investments, we are involved in all phases of planning and building in our residential communities, including land acquisition, site planning, preparation and improvement of land and design, construction and marketing of homes. We use independent subcontractors for most aspects of home construction. At November 30, 2014, we were actively building and marketing homes in 625 communities, including 3 communities being developed by unconsolidated entities.
We generally supervise and control the development of land and the design and building of our residential communities with a relatively small labor force. We hire subcontractors for site improvements and virtually all of the work involved in the construction of homes. Arrangements with our subcontractors generally provide that our subcontractors will complete specified work in accordance with price schedules and in compliance with applicable building codes and laws. The price schedules may be subject to change to meet changes in labor and material costs or for other reasons. We believe that the sources and availability of raw materials to our subcontractors are adequate for our current and planned levels of operation. We generally do not own heavy construction equipment. We finance construction and land development activities primarily with cash generated from operations and debt issuances.
For additional information about our investments in and relationships with unconsolidated entities, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report.
Marketing
We offer a diversified line of homes for first-time, move-up and active adult homebuyers in a variety of environments ranging from urban infill communities to golf course communities. Our Everything’s Included® marketing program simplifies the home buying experience by including the most desirable features as standard items. This marketing program enables us to differentiate our homes from those of our competitors by creating value through standard upgrades and competitive pricing, while reducing construction and overhead costs through a simplified manufacturing process, product standardization and volume purchasing. In addition, our innovative NextGen homes and our advances in including solar powered technology in

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certain of the homes we sell, enhance our image and improve our marketing and sales efforts. We sell our homes primarily from models that we have designed and constructed.
We employ sales associates who are paid salaries, commissions or both to conduct on-site sales of homes. We also sell homes through independent brokers. Our marketing strategy is focused on advertising through digital and social media, including through our Internet website, www.lennar.com, which has allowed us to attract more knowledgeable homebuyers. However, we also continue to advertise through more traditional media, including newspapers, radio advertisements and other local and regional publications and on billboards. We tailor our marketing strategy based on the community being advertised, such as advertising our active adult communities in areas where prospective active adult homebuyers live.
Quality Service
We strive to continually improve homeowner customer satisfaction throughout the pre-sale, sale, construction, closing and post-closing periods. We strive to create a quality home buying experience for our customers through the participation of sales associates, on-site construction supervisors and customer care associates, all working in a team effort, which we believe leads to enhanced customer retention and referrals. The quality of our homes is substantially affected by the efforts of on-site management and others engaged in the construction process, by the materials we use in particular homes and by other similar factors.
We warrant our new homes against defective materials and workmanship for a minimum period of one year after the date of closing. Although we subcontract virtually all segments of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trades, we are primarily responsible to the homebuyers for the correction of any deficiencies.
Local Operating Structure and Centralized Management
We balance a local operating structure with centralized corporate level management. Our local operating structure consists of homebuilding divisions across the country, which are generally managed by a division president, a controller, management personnel focused on land entitlement, acquisition and development, sales, construction, customer service and purchasing. We decentralize our homebuilding operations to give our division presidents and their teams, who generally have significant experience in the homebuilding industry, and in most instances, in their particular markets, the flexibility to make local operating decisions, including land identification, entitlement and development, the management of inventory levels for our current sales volume, community development, home design, construction and marketing of our homes.
We centralize at the corporate level decisions related to our overall strategy, acquisitions of land and businesses, risk management, financing, cash management and information systems.
Deliveries
We primarily sell single-family attached and detached homes in communities targeted to first-time, move-up and active adult homebuyers. The average sales price of a Lennar home was $326,000 in fiscal 2014, compared to $290,000 in fiscal 2013 and $255,000 in fiscal 2012.
The table below indicates the number of deliveries for each of our current reportable homebuilding segments and Homebuilding Other during our last three fiscal years:
 
Years Ended November 30,
 
2014
 
2013
 
2012
East
7,824

 
6,941

 
5,440

Central
3,156

 
2,814

 
2,154

West
4,141

 
3,323

 
2,301

Southeast Florida
2,086

 
1,741

 
1,314

Houston
2,482

 
2,266

 
1,917

Other
1,314

 
1,205

 
676

Total
21,003

 
18,290

 
13,802

Of the total home deliveries listed above, 32, 56 and 95 represent deliveries from unconsolidated entities for the years ended November 30, 2014, 2013 and 2012, respectively.

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Backlog
Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by deposits. In some instances, purchasers are permitted to cancel sales contracts if they fail to qualify for financing or under certain other circumstances. We experienced a cancellation rate of 17% in 2014, compared to 16% and 17% in 2013 and 2012, respectively. The cancellation rate for the year ended November 30, 2014 was within a range that is consistent with historical cancellation rates and below those we experienced from 2006 through 2009. We expect that substantially all homes currently in backlog will be delivered in fiscal year 2015. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.
The table below indicates the backlog dollar value for each of our current reportable homebuilding segments and Homebuilding Other as of the end of each of our last three fiscal years:
 
November 30,
(In thousands)
2014
 
2013
 
2012
East
$
672,204

 
600,257

 
368,361

Central
310,726

 
195,762

 
168,912

West
437,492

 
257,498

 
202,959

Southeast Florida
214,606

 
215,988

 
141,146

Houston
225,737

 
180,665

 
135,282

Other
113,563

 
169,431

 
143,725

Total
$
1,974,328

 
1,619,601

 
1,160,385

Of the total dollar value of homes in backlog listed above, $39.8 million, $2.5 million and $3.5 million represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2014, 2013 and 2012, respectively.
Lennar Homebuilding Investments in Unconsolidated Entities
We create and participate in joint ventures that acquire and develop land for our homebuilding operations, for sale to third parties or for use in their own homebuilding operations. Through these joint ventures, we reduce the amount we invest in order to assure access to potential future homesites, thereby mitigating certain risks associated with land acquisitions, and, in some instances, we obtain access to land to which we could not otherwise have obtained access or could not have obtained access on as favorable terms. As of November 30, 2014 and 2013, we had 35 and 36 Lennar Homebuilding unconsolidated joint ventures, respectively, in which we were participating, and our maximum recourse debt exposure related to Lennar Homebuilding unconsolidated joint ventures was $24.5 million and $41.0 million, respectively.
Ancillary Businesses
We have ancillary business activities that are related to our homebuilding business, but are not components of our core homebuilding operations.
FivePoint Communities - In 2011, we transferred the management of several large properties in California to FivePoint Communities Management, Inc., a consolidated joint venture. FivePoint Communities is currently undertaking six master planned mixed use developments, three in Southern California and three in or near San Francisco. These developments are planned for a total of 50,000 homesites and 20 million square feet of commercial space, as well as parks and sports and entertainment venues.
Lennar Commercial - Lennar Commercial is focused on the development, investment and management of retail, office and mixed-use projects generally in the same states as our homebuilding operations.
Sunstreet - Lennar’s solar business is currently focused on providing homeowners in California and Colorado through its solar power purchase program, a high-efficiency solar system that generates most of a home's annual expected energy needs at a cost below current utility rates for the average homeowner.

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Lennar Financial Services Operations
Mortgage Financing
We primarily offer conforming conventional, FHA-insured and VA-guaranteed residential mortgage loan products and other products to buyers of our homes and others through our financial services subsidiary, Universal American Mortgage Company, LLC, which includes Universal American Mortgage Company, LLC, d/b/a Eagle Home Mortgage, from locations in most of the states in which we have homebuilding operations, as well as some other states. In 2014, our financial services subsidiaries provided loans to 78% of our homebuyers who obtained mortgage financing in areas where we offered services. Because of the availability of mortgage loans from our financial services subsidiaries, as well as from independent mortgage lenders, we believe almost all creditworthy purchasers of our homes have access to financing.
During 2014, we originated approximately 23,300 residential mortgage loans totaling $6.0 billion, compared to 22,300 residential mortgage loans totaling $5.3 billion during 2013. Substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. Therefore, we have limited direct exposure related to the residential mortgages we originate.
We finance our mortgage loan activities with borrowings under our financial services warehouse facilities or from our operating funds. At November 30, 2014, our financial services warehouse facilities had a maximum aggregate commitment of $925 million including $150 million of accordion features. The facilities have various maturity dates and we expect the facilities to be renewed or replaced with other facilities when they mature. We have a corporate risk management policy under which we hedge our interest rate risk on rate-locked loan commitments and loans held-for-sale to mitigate exposure to interest rate fluctuations.
Title Insurance and Closing Services
We provide title insurance and closing services to our homebuyers and others. During 2014, we provided title and closing services for approximately 90,700 real estate transactions, and issued approximately 220,400 title insurance policies through our underwriter, North American Title Insurance Company, compared to 101,200 real estate transactions and 192,400 title insurance policies during 2013. Title and closing services are provided by agency subsidiaries in Arizona, California, Colorado, Delaware, District of Columbia, Florida, Illinois, Indiana, Maryland, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, Utah, Virginia and Wisconsin. Title insurance services are provided in 40 states.
Rialto Operations
The Rialto segment is a commercial real estate investment, investment management, and finance company. Rialto’s primary focus is to manage third-party capital and to originate commercial mortgage loans which it sells into securitizations. It also has invested its own capital in mortgage loans, properties and real estate related securities.
Rialto is the sponsor of and an investor in private equity vehicles that invest in and manage real estate related assets. This includes:
Rialto Real Estate Fund, LP ("Fund I") that was formed in 2010 to invest in distressed real estate assets and other related investments to which investors have committed and contributed a total of $700 million of equity (including $75 million by us);
Rialto Real Estate Fund II, LP ("Fund II") that was formed in 2012 to invest in distressed real estate assets and other related investments to which investors have committed $1.3 billion (including $100 million by us); and
Rialto Mezzanine Partners Fund (the "Mezzanine Fund") that was formed in 2013 with a target of raising $300 million in capital (including $27 million committed by us) to invest in performing mezzanine commercial loans that have expected durations of one to two years and are secured by equity interests in the borrowing entity owning the real estate assets.
Rialto also earns fees for its role as a manager of these vehicles and for providing asset management and other services to those vehicles and other third parties. In addition, Rialto owns general partner interests in each of the funds, which entitle it to a share of the sums distributed by the funds after investors have recovered their investments and received specified internal rates of return on those investments. For both Fund I and Fund II, in order to protect investors in the Funds, we agreed that while the Funds were seeking investments (which no longer is the case with regard to Fund I) we would not make investments that are suitable for the applicable Fund, except to the extent an Advisory Committee of the Fund decides that the Fund should not make particular investments, with an exception enabling us to purchase properties for use in connection with our homebuilding operations.

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During 2013, Rialto Mortgage Finance ("RMF") was formed and began originating and selling into securitizations five, seven and ten year commercial first mortgage loans, generally with principal amounts between $2 million and $75 million, which are secured by income producing properties. RMF has secured two warehouse repurchase financing agreements that mature in fiscal year 2015 with commitments totaling $650 million to help finance the loans it makes. This business has become a significant contributor to the Rialto segment's revenues.
In 2010, our Rialto segment also acquired distressed residential and commercial real estate loans and real estate owned ("REO") properties from three financial institutions (“Bank Portfolios”). We paid $310 million for the Bank Portfolios, of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions.
In 2010, our Rialto segment also acquired indirectly 40% managing member equity interests in two limited liability companies (“LLCs”), in partnership with the Federal Deposit Insurance Corporation (“FDIC”), which retained 60% equity interest in the LLCs, for approximately $243 million (net of transaction costs and a $22 million working capital reserve). The LLCs held performing and non-performing distressed residential and commercial real estate loans (“FDIC Portfolios”). If the LLCs exceed expectations and meet certain internal rate of return and distribution threshold, our equity interest in the LLCs could be reduced from 40% down to 30%, with a corresponding increase to the FDIC’s equity interest from 60% up to 70%. As these thresholds have not been met, distributions continue being shared 60% / 40% with the FDIC.
Lennar Multifamily Operations
We are actively involved, primarily through unconsolidated entities, in the development of multifamily rental properties. Our Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. We currently use third-party management companies to rent the apartments though we anticipate renting the apartments through our own entities in the future.
Our net investment in the Lennar Multifamily segment as of November 30, 2014 and 2013 was $203.7 million and $105.6 million, respectively. Our Lennar Multifamily segment was participating in 26 and 13 unconsolidated entities as of November 30, 2014 and 2013, respectively. During 2014, our Lennar Multifamily segment sold two operating properties through unconsolidated entities. As of November 30, 2014, it had interests in 24 communities with development costs of approximately $1.5 billion, of which one community was completed and operating, three communities were partially completed and leasing, 19 communities were under construction and one was under development. Our Lennar Multifamily segment had a pipeline of future projects totaling $4.3 billion in assets across a number of states that will be developed by unconsolidated entities. We are exploring opportunities to create a fund, which we would manage and in which we would make an investment, to provide funding for the rental communities we develop.
For additional information about our investments in and relationships with unconsolidated entities, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report.
Seasonality
We historically have experienced, and expect to continue to experience, variability in quarterly results. 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. However, periods of economic downturn in the industry, such as we experienced in recent years, can alter seasonal patterns.
Competition
The residential homebuilding industry is highly competitive. We compete for homebuyers in each of the market regions where we operate with numerous national, regional and local homebuilders, as well as with resales of existing homes and with the rental housing market. In recent years, lenders’ efforts to sell foreclosed homes have been a significant competitive factor within the home sales industry. We compete for homebuyers on the basis of a number of interrelated factors including location, price, reputation, amenities, design, quality and financing. In addition to competition for homebuyers, we also compete with other homebuilders for desirable properties, raw materials and access to reliable, skilled labor. We compete for land buyers with third parties in our efforts to sell land to homebuilders and others. We believe we are competitive in the market regions where we operate primarily due to our:
Financial position, where we continue to focus on inventory management and liquidity;
Access to land, particularly in land-constrained markets;
Access to distressed assets, primarily through relationships established by our Rialto segment;
Pricing to current market conditions through sales incentives offered to homebuyers;
Cost efficiencies realized through our national purchasing programs and production of value-engineered homes;
Quality construction and home warranty programs, which are supported by a responsive customer care team; and

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Everything’s Included® marketing program, which simplifies the home buying experience by including most desirable features as standard items.
Our financial services operations compete with other mortgage lenders, including national, regional and local mortgage bankers and brokers, banks, savings and loan associations and other financial institutions, in the origination and sale of residential mortgage loans. Principal competitive factors include interest rates and other features of mortgage loan products available to the consumer. We compete with other title insurance agencies and underwriters for closing services and title insurance. Principal competitive factors include service and price.
The business of Rialto, and the funds it manages, of purchasing distressed real estate related assets is highly competitive and fragmented. A number of entities and funds have been formed in recent years for the purpose of acquiring real estate related assets at discounted prices and it is likely that additional entities and funds will be formed for this purpose during the next several years. We compete with these and other purchasers of distressed assets. We compete in the marketplace for distressed real estate related asset portfolios based on many factors, including purchase price, representations, warranties and indemnities, timeliness of purchase decisions and reputation. We believe that the major factor distinguishing us from the competition is that our team is made up of already in place managers who are already working out loans and dealing with similar borrowers. Additionally, because of the high number of loans made to developers, we believe having our homebuilding team participating in the underwriting process provides us with a distinct advantage in our evaluation of these assets. We believe that these factors, together with our ownership of a mortgage services firm, puts us ahead of many of our competitors and has us well positioned to take advantage of the large pipeline of opportunity that has been building. In marketing the real estate investment funds it sponsors, Rialto competes with a large variety of asset managers, including investment banks and other financial institutions and real estate investment firms.
Rialto’s RMF business competes with other commercial mortgage lenders in a competitive market and its profitability depends on our ability to originate and sell into securitizations commercial real estate loans at attractive prices. Some of our competitors may have a lower cost of funds than we do and access to funding sources that may not be available to us. In addition, some of our competitors may have higher risk tolerances or make different risk assessments, than we do, which could allow them to consider a wider variety of investments and establish more relationships than us. We believe that our major distinction from many of our competitors is that our team is made up of highly seasoned managers who have been originating and securitizing loans for over 25 years with long-standing relationships and can leverage Rialto’s/Lennar’s infrastructure facilities for a rapid market entrance as well as Rialto’s current underwriting platform.
Our multifamily operations compete with other multifamily apartment developers and operators, including REITs, across the United States. In addition, our multifamily operations compete in securing capital, partners and equity, and in securing tenants within the large supply of already existing rental apartments. Principal competitive factors include location, rental price and quality, and management of the apartment buildings.
Regulation
The residential communities and multifamily apartment developments that we build are subject to a large variety of local, state and federal statutes, ordinances, rules and regulations relating to, among other things, zoning, construction permits or entitlements, construction materials, density, building design and property elevation, building codes and handling of waste. These include laws requiring the use of construction materials that reduce the need for energy-consuming heating and cooling systems. These laws and regulations are subject to frequent change and often increase construction costs. In some instances, we must comply with laws that require commitments from us to provide roads and other offsite infrastructure, and may require them to be in place prior to the commencement of new construction. These laws and regulations are usually administered by counties and municipalities and may result in fees and assessments or building moratoriums. In addition, certain new development projects are subject to assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial. Also, some states are attempting to make homebuilders responsible for violations of wage and other labor laws by their subcontractors.
Residential homebuilding and apartment development are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. These environmental laws include such areas as storm water and surface water management, soil, groundwater and wetlands protection, subsurface conditions and air quality protection and enhancement. Environmental laws and existing conditions may result in delays, may cause us to incur substantial compliance and other costs and may prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas.
In recent years, several cities and counties in which we have developments have submitted to voters “slow growth” initiatives and other ballot measures that could impact the affordability and availability of land suitable for residential development within those localities. Although many of these initiatives have been defeated, we believe that if similar initiatives were approved, residential construction by us and others within certain cities or counties could be seriously impacted.

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In order to make it possible for some of our homebuyers to obtain FHA-insured or VA-guaranteed mortgages, we must construct the homes they buy in compliance with regulations promulgated by those agencies. Various states have statutory disclosure requirements relating to the marketing and sale of new homes. These disclosure requirements vary widely from state-to-state. In addition, some states require that each new home be registered with the state at or before the time title is transferred to a buyer (e.g., the Texas Residential Construction Commission Act). In some states, we are required to be registered as a licensed contractor and comply with applicable rules and regulations. In various states, our new home consultants are required to be registered as licensed real estate agents and to adhere to the laws governing the practices of real estate agents.
Our mortgage and title subsidiaries must comply with applicable real estate laws and regulations. The subsidiaries are licensed in the states in which they do business and must comply with laws and regulations in those states. These laws and regulations include provisions regarding capitalization, operating procedures, investments, lending and privacy disclosures, forms of policies and premiums. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains a number of new requirements relating to mortgage lending and securitizations. These include, among others, minimum standards for lender practices, limitations on certain fees and a requirement that the originator of loans that are securitized retain a portion of the risk, either directly or by holding interests in the securitizations.
Several federal, state and local laws, rules, regulations and ordinances, including, but not limited to, the Federal Fair Debt Collection Practices Act (“FDCPA”) and the Federal Trade Commission Act and comparable state statutes, regulate consumer debt collection activity. Although, for a variety of reasons, we may not be specifically subject to the FDCPA or certain state statutes that govern debt collectors, it is our policy to comply with applicable laws in our collection activities. To the extent that some or all of these laws apply to our collection activities our failure to comply with such laws could have a material adverse effect on us. We are also subject to regulations promulgated by the Federal Consumer Financial Protection Bureau regarding residential mortgage loans.
Because Rialto manages two real estate asset investment funds, one mezzanine loan fund and two entities partly owned by the FDIC, a Rialto segment entity is registered as an investment adviser under the Investment Advisers Act of 1940. This Act has requirements related to dealings between investment advisers and the entities they advise and imposes record keeping and disclosure obligations on investment advisers. Our RMF subsidiary must comply with laws and regulations applicable to commercial mortgage lending. It or its subsidiaries must be licensed in states in which they make loans and must comply with laws and regulations in those states.
Associates
At November 30, 2014, we employed 6,825 individuals of whom 3,578 were involved in the Lennar Homebuilding operations, 2,707 were involved in the Lennar Financial Services operations, 383 were involved in the Rialto operations and 157 were involved in the Lennar Multifamily operations, compared to November 30, 2013, when we employed 5,708 individuals of whom 2,944 were involved in the Lennar Homebuilding operations, 2,377 were involved in the Lennar Financial Services operations, 300 were involved in the Rialto operations and 87 were involved in the Lennar Multifamily operations. We do not have collective bargaining agreements relating to any of our associates. However, we subcontract many phases of our homebuilding operations and some of the subcontractors we use have employees who are represented by labor unions.
NYSE Certification
On April 9, 2014, we submitted our Annual CEO Certification to the New York Stock Exchange ("NYSE") in accordance with NYSE's listing standards. The certification was not qualified in any respect.

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Available Information
Our corporate website is www.lennar.com. We make available on our website, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the Securities and Exchange Commission. Information on our website is not part of this document.
Our website also includes printable versions of our Corporate Governance Guidelines, our Code of Business Conduct and Ethics and the charters for each of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Directors. Each of these documents is also available in print to any stockholder who requests a copy by addressing a request to:
Lennar Corporation
Attention: Office of the General Counsel
700 Northwest 107th Avenue
Miami, Florida 33172

Item 1A.
Risk Factors.
The following are what we believe to be the principal risks that might materially affect us and our businesses.
Market and Economic Risks
The homebuilding recovery has continued its progression at a slow and steady pace, however a downturn in the recovery or decline in economic conditions could adversely affect our operations.
In fiscal 2014, we experienced a steadily improving housing market, and in our business saw a strong recovery in the number of new sales contracts signed and improved gross margins compared with the prior year. However, demand for new homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. The economic downturn that began in 2007 was one of the most severe in U.S. history, and severely affected both the numbers of homes we could sell and the prices for which we could sell them. We cannot predict whether the recovery in the housing market will continue. If the recovery were to slow or stop, or economic conditions were to worsen, the demand for new homes would likely decline, negatively impacting our business, results of operations, cash flows and financial condition.
For several years we had to take significant write-downs on the carrying values of land we owned and of option expenses. A future decline in land values could result in similar write-downs.
Inventory risks are substantial for our homebuilding business. There are risks inherent in controlling, owning and developing land and if housing demand declines, we may own land or lots at a cost we will not be able to recover fully, or on which we cannot build and sell homes profitably. Also, there can be significant fluctuations in the value of our owned undeveloped land, building lots and housing inventories related to changes in market conditions. As a result, our deposits for building lots controlled under option or similar contracts may be put at risk, we may have to sell homes or land for a lower than anticipated profit margin or we may have to record inventory impairment charges with regard to our developed and undeveloped land and lots. When demand for homes fell during the recent recession, we were required to take significant write-downs of the carrying value of our land inventory and we elected not to exercise many options to purchase land, even though that required us to forfeit deposits and write-off pre-acquisition costs. If market conditions were to deteriorate significantly in the future, we could again be required to make significant write downs with regard to our land inventory, which would decrease the asset values reflected on our balance sheet and adversely affect our earnings and our stockholders' equity.
Inflation may adversely affect us by increasing costs that we may not be able to recover.
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 have a negative impact on demand for our homes. In a highly inflationary environment, depending on industry and other economic conditions, we may be precluded from raising home prices enough to keep up with the rate of inflation, which would reduce our profit margins. Although the rate of inflation has been low for the last several years, we have been experiencing increases in the prices of labor and materials and there could be a significant increase in inflation in the future.

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Homebuilding, mortgage lending, distressed asset investing and multifamily rentals are very competitive industries, and competitive conditions could adversely affect our business or financial results.
Homebuilding. The homebuilding industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable land, financing, raw materials, skilled management and labor resources. We compete in each of our markets with numerous national, regional and local homebuilders. We also compete with sellers of existing homes, including foreclosed homes, and with rental housing. These competitive conditions can reduce the number of homes we deliver, negatively impact our selling prices, reduce our profit margins, and cause impairments in the value of our inventory or other assets. Competition can also affect our ability to acquire suitable land, raw materials and skilled labor at acceptable costs or terms.
Lennar Financial Services. Our Lennar Financial Services business competes with other mortgage lenders, including national, regional and local banks and other financial institutions, many of which are far larger, and some of which are subject to fewer government regulations, than our financial services subsidiaries. Mortgage lenders who are subject to fewer regulations than we are or have greater access to low cost funds or different lending criteria than we do may be able to offer more attractive financing to potential customers than we can.
Lennar Multifamily. Our multifamily rental business competes with other multifamily apartment developers and operators across the United States. We also compete in securing capital, partners and equity, and in securing tenants with the large supply of already existing rental apartments. These competitive conditions could negatively impact the ability of the ventures in which we are participating to find renters for the apartments they are building or the prices for which those apartments can be rented.
Rialto. There are many firms and investment funds that compete with Rialto in trying to acquire distressed mortgage debt, foreclosed properties and other real estate related assets that have been adversely affected by the recent recession. At least some of the firms with which Rialto competes, or will compete, for investment opportunities have, or will have, a cost of funds that is lower than that of Rialto or the funds it manages, and therefore those firms may be able to pay more for investment opportunities than would be prudent for Rialto or the funds it manages. Our RMF business competes with national and regional banks as well as smaller community banks within the various markets in which we operate and non-bank lenders, many of which are far larger than RMF or have access to lower cost funds than we do.
Operational Risks
We may be subject to significant potential liabilities as a result of warranty and liability claims made against us.
As a homebuilder, we are subject in the ordinary course of our business to warranty and construction defect claims. We are also subject to claims for injuries that occur in the course of construction activities. We record warranty and other reserves for the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes we build. We have, and many of our subcontractors have, general liability, property, workers compensation and other business insurance. These insurance policies are intended to protect us against a portion of our risk of loss from claims, subject to certain self-insured retentions, deductibles and other coverage limits. However, it is possible that this insurance will not be adequate to address all warranty, construction defect and liability claims to which we are subject. Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained are costly and often include exclusions based upon past losses those insurers suffered as a result of use of defective Chinese drywall and other products in homes we and many other homebuilders built. As a result, an increasing number of our subcontractors are unable to obtain insurance, and we have in many cases had to waive our customary insurance requirements, which increases our and our insurers’ exposure to claims and increases the possibility that our insurance will not be adequate to protect us for all the costs we incur.
Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business.
We rely on subcontractors to perform the actual construction of our homes, and in many cases, to select and obtain building materials. Despite our detailed specifications and quality control procedures, in some cases, subcontractors may use improper construction processes or defective materials, such as defective Chinese drywall that at one time was installed by subcontractors in homes built for us and for many other homebuilders in Florida and elsewhere. Although our subcontractors have principal responsibility for defects in the work they do, we have ultimate responsibility to the homebuyers. Defective products widely used by the homebuilding industry can result in the need to perform extensive repairs to large numbers of homes. The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers and insurers.
We also can suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply with applicable laws, including laws involving things that are not within our control. When we learn about possibly improper practices by subcontractors, we try to cause the subcontractors to discontinue them. However, we are not always able to do that, and even when we can, it may not avoid claims against us relating to what the subcontractors already did.

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Supply shortages and 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. During 2014, we experienced increases in the prices of some building materials and shortages of skilled labor in some areas. We generally are unable to pass on increases in construction costs to customers who have already entered into purchase contracts, as those contracts generally fix the price of the homes at the time the contracts are signed, which may be well in advance of the construction of the homes. Sustained increases in construction costs may, over time, erode our margins, particularly if pricing competition restricts our ability to pass additional costs of materials and labor on to homebuyers.
Reduced numbers of home sales extend the time it takes us to recover land purchase and property development costs.
We incur many costs even before we begin to build homes in a community. Depending on the stage of development a land parcel is in when we acquire it, these may include costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land on which we plan to build homes. If the rate at which we sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-construction costs and it may take longer for us to recover our costs.
Increased demand for homes could require us to increase our corporate credit line, and our inability to do that could limit our ability to take full advantage of market opportunities.
Our business requires that we be able to finance the development of our residential communities. One of the ways we do this is with bank borrowings. At November 30, 2014, we had a $1.5 billion Credit Facility, subject in part to additional commitments. If market conditions strengthen to the point that we need additional funding but we are not able to increase our Credit Facility or obtain funds from other types of financings, that could prevent us from taking full advantage of the enhanced market opportunities.
Failure to comply with the covenants and conditions imposed by our credit facilities could restrict future borrowing or cause our debt to become immediately due and payable.
We have a Credit Facility that is available for us to use to help finance our homebuilding, acquisitions and other activities. The agreement governing our Credit Facility (the “Credit Agreement”) makes it a default for us if we fail to pay principal or interest when it is due (subject in some instances to grace periods) or to comply with covenants, including covenants regarding various financial ratios. In addition, our Lennar Financial Services segment has warehouse facilities to finance its lending activities and our Rialto segment has warehouse facilities to finance its mortgage origination activities. If we default under the Credit Agreement or our warehouse facilities, the lenders will have the right to terminate their commitments to lend and to require immediate repayment of all outstanding borrowings. This could reduce our available funds at a time when we are having difficulty generating all the funds we need from our operations, in capital markets or otherwise, and restrict our ability to obtain financing in the future. Further, Rialto's 7.00% Senior Notes due 2018 contain restrictive covenants imposing operational and financial restrictions on our Rialto segment, including restrictions that may limit Rialto’s ability to sell assets, pay dividends or make other distributions, enter into transactions with affiliates or incur additional indebtedness. In addition, if we default under the Credit Agreement or our warehouse facilities, it could result in the amounts outstanding under our senior notes and convertible senior notes to become immediately due and payable, which would have a material adverse impact on our consolidated financial condition.
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, 2014, our consolidated debt, excluding amounts outstanding under our credit facilities, was $5.2 billion. The indentures governing our senior notes and convertible senior notes do not restrict the incurrence of future secured or unsecured debt by us, and the agreement governing our Credit Facility allows us to incur a substantial amount of future unsecured debt. Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay the principal, interest or other amounts due on our indebtedness. Our reliance on debt to help support our operations exposes us to a number of risks, including:
we may be more vulnerable to general adverse economic and industry conditions;
we may have to pay higher interest rates upon refinancing or on our variable rate indebtedness if interest rates rise, thereby reducing our cash flows;
we may find it difficult to, or may be unable to, obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements that would be in our best long-term interests;
we may be required to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our debt, reducing the cash flow available to fund operations and investments;

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we may have reduced flexibility in planning for, or reacting to, changes in our businesses or the industries in which they are conducted;
we may have a competitive disadvantage relative to other companies in our industry that are less leveraged; and
we may be required to sell debt or equity securities or sell some of our core assets, possibly on unfavorable terms, in order to meet payment obligations.
Our Lennar Financial Services segment and RMF have warehouse facilities that mature in 2015, and if we cannot renew or replace these facilities, we may have to reduce our mortgage lending activities.
Our Lennar Financial Services segment has an aggregate committed and uncommitted amount under four warehouse repurchase credit facilities that totaled $925 million as of November 30, 2014, all of which will mature during 2015. Our Lennar Financial Services segment uses these facilities to finance its mortgage lending activities until the mortgage loans it originates are sold to investors. In addition, RMF, the commercial mortgage lender in our Rialto segment, has an aggregate committed amount under two warehouse repurchase credit facilities that totaled $650 million as of November 30, 2014 both of which will mature during 2015. RMF uses these facilities to finance its mortgage origination activities. 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 Lennar Financial Services segment and RMF, as applicable, which would have a material adverse impact on our financial results.
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.
In our Homebuilding and Lennar Multifamily segments, we participate in joint ventures in order to acquire attractive land positions, to manage our risk profile and to leverage our capital base. In certain circumstances, the joint venture participants, including ourselves, 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. For example, as part of our Lennar Multifamily business, and its joint ventures, we and the other venturers have assumed certain obligations to complete construction of multifamily residential buildings at agreed upon costs, which could make us and the other venture participants responsible for cost overruns. Although all the participants in a venture are normally responsible for sharing the costs of fulfilling obligations of that type, if some of the venture participants are unable or unwilling to meet their share of the obligations, we may be held responsible for some or all of the defaulted payments. In addition, because we do not have a controlling interest in most of the joint ventures in which we participate, we may not be able to sell assets, return invested capital or take other actions without the consent of at least one of our joint venture partners when such action may be in our best interest.
Several of the joint ventures in which we participate will in the relatively near future be required to repay, refinance, renegotiate or extend their loans. If any of those joint ventures are unable to do this, we could be required to provide at least a portion of the funds the joint ventures need to be able to repay the loans and to conduct the activities for which they were formed, which could adversely affect our financial position.
Our new businesses may not be as successful as we anticipate, and could disrupt our ongoing businesses and adversely affect our operations.
We have invested and expect to continue to invest in new business opportunities. In July 2013, we began commercial mortgage loan origination activities through RMF. In addition, during 2012 and 2013, we began our Lennar Multifamily business in which we have invested substantial resources to participate in the development of multifamily rental properties. Further, under our Homebuilding umbrella, we are investing in a solar business and a business focused on the development, investment and management of commercial properties. As with any new businesses, these endeavors, and others we may undertake in the future, are likely to involve significant risks and uncertainties, including significant start-up costs and the possibility that the new businesses will not be profitable or will not generate the expected returns on our investments, and the new businesses may require attention from our senior management that reduces their ability to focus on our core activities.
The loss of the services of members of our senior management or a significant number of our employees could negatively affect our business.
Our success depends to a significant extent upon the performance and active participation of our senior management, many of whom have been with the Company for a significant number of years. If we were to lose members of our senior management, we might not be able to find appropriate replacements on a timely basis and our operations could be negatively affected. Also, the loss of a significant number of operating employees and our inability to hire qualified replacements could have a material adverse effect on our business.

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Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings.
Our corporate credit rating and ratings of our senior notes and convertible senior notes affect, among other things, our ability to access new capital, especially debt. A substantial portion of our access to capital is through the issuance of senior notes and convertible senior notes, of which we have $4.3 billion outstanding as of November 30, 2014. Among other things, we rely on proceeds of debt issuances to pay the principal of existing senior notes when they mature. Negative changes in the ratings of our senior notes could make it difficult for us to sell senior notes in the future and could result in more stringent covenants and higher interest rates with regard to new senior notes we issue.
Natural disasters and severe weather conditions could delay deliveries and increase costs of new homes in affected areas, which could harm our sales and results of operations.
Many of our homebuilding operations are conducted in areas that are subject to natural disasters, including hurricanes, earthquakes, droughts, floods, wildfires and severe weather. The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories and lead to shortages of labor and materials in areas affected by the disasters, and can negatively impact the demand for new homes in affected areas. If our insurance does not fully cover business interruptions or losses resulting from these events, our results of operations could be adversely affected.
If our homebuyers are not able to obtain suitable financing, that would reduce demand for our homes and our home sales revenues.
Many purchasers of our homes obtain mortgage loans to finance a substantial portion of the purchase price of the homes they purchase. The uncertainties in the mortgage markets, including the tightening of credit standards and increased government regulation, could adversely affect the ability of potential homebuyers to obtain financing for a home purchase, thus preventing them from purchasing our homes. Changes made by Fannie Mae, Freddie Mac and FHA/VA to sponsored mortgage programs, as well as changes made by private mortgage insurance companies, have reduced the ability of many potential homebuyers to qualify for mortgages. Principal among these have been tighter lending standards such as higher income requirements, larger required down payments, increased reserves and higher required credit scores. In addition, there continues to be substantial uncertainty regarding the future of Fannie Mae and Freddie Mac, including proposals that they reduce or terminate their role as the principal sources of liquidity in the secondary market for mortgage loans. It is not clear how, if Fannie Mae and Freddie Mac curtail their secondary market mortgage loan purchases, the liquidity they provide would be replaced. There is a substantial possibility that substituting an alternate source of liquidity would increase mortgage interest rates, which would increase the buyer's effective cost of the homes we sell, and therefore could reduce demand for our homes and adversely affect our results of operations.
Changes in tax laws can increase the after tax cost of owning a home, and further tax law changes could adversely affect demand for the homes we build.
Under current tax law certain significant expenses of owning a home, including mortgage loan interest costs and real estate taxes, generally are deductible expenses for the purpose of calculating an individual’s federal, and in some cases state, tax liability. However, the American Taxpayer Relief Act of 2012, which was signed into law in January 2013, resulted in higher income tax rates and limits the amount of mortgage interest individuals can deduct in computing their income tax liability. The limit on deductibility of mortgage interest can increase the after-tax cost of owning a home for some individuals. Any additional increases in personal income tax rates and/or additional tax deduction limits could adversely impact demand for new homes, including homes we build, which could adversely affect our results of operations.
Our Lennar Financial Services segment can be adversely affected by reduced demand for our homes or by a slowdown in mortgage refinancings.
Approximately 57% of the mortgage loans made by our Lennar Financial Services segment in 2014 were made to buyers of homes we built. Therefore, a decrease in the demand for our homes would adversely affect the revenues of this segment of our business. In addition, the revenues of our Lennar Financial Services segment would be adversely affected by a decrease in refinance transactions, such as the decrease that we experienced during the first half of fiscal 2014.
If our ability to sell mortgages into the secondary market is impaired, that could significantly reduce our ability to sell homes unless we are willing to become a long-term investor in loans we originate.
Substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. If we became unable to sell loans into the secondary mortgage market or directly to Fannie Mae and Freddie Mac, we would have to either curtail our origination of 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.

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If real estate Rialto acquired through foreclosures is not properly valued when it is acquired, we could be required to take valuation charge-offs, which would reduce our earnings.
When a loan is foreclosed upon and we take title to the property, we obtain a valuation of the property and base its book value on that valuation. The book value of the foreclosed property is periodically compared to its updated market value (or its updated market value less estimated selling costs if the foreclosed property is classified as held-for-sale), and a charge-off is recorded for any excess of the property's book value over its fair value. If the revised valuation we establish for a property proves to be too high, we may have to record additional charge-offs in subsequent periods. Material charge-offs could have an adverse effect on our results of operations, and possibly even on our financial condition.
The ability of our Rialto segment to profit from the investments it makes may depend to a significant extent on its ability to manage resolutions of distressed mortgages and other real estate related assets.
A principal factor in a prospective purchaser's decision regarding the price it will pay for a portfolio of mortgage loans or other real estate related assets is the cash flow the prospective purchaser expects the portfolio to generate. The cash flow a portfolio of distressed mortgage loans and related assets will generate can be affected by the way the assets in the portfolio are managed. We believe the backgrounds and experience of the personnel in our Rialto segment enable the Rialto segment to generate better cash flows from the distressed assets it manages than what is generally expected with regard to similar assets. When Rialto decides whether it or a fund it manages should purchase particular distressed assets and what it or the fund should be willing to pay for them, one consideration is whether, and to what extent, Rialto thinks it will be able to obtain above average returns in resolving the assets. If Rialto is not able to achieve its anticipated returns, it or the fund it manages will not realize the expected return on its investment.
Regulatory Risks
We may be adversely impacted by legal and regulatory changes.
We are subject with regard to almost all of our activities to a variety of federal, state and local laws and regulations. Laws and regulations, and policies under or interpretations of existing laws and regulations, change frequently. Our businesses could be adversely affected by changes in laws, regulations, policies or interpretations or by our inability to comply with them without making significant changes in our businesses.
We may be adversely impacted by laws and regulations directed at the financial industry.
New or modified regulations and related regulatory guidance focused on the financial industry may have adverse effects on aspects of our businesses. For example, in October 2014, final rules were promulgated under the Dodd-Frank Wall Street Reform Act that requires mortgage lenders or third-party B-piece buyers to retain a portion of the credit risk related to securitized loans. We have determined that these rules do not affect our residential mortgage lending operations at this time; however, the new rules may adversely impact our commercial mortgage lending operations in our RMF business. While we are still assessing the impact of the new rules on the market, we believe that the rules may reduce the price of commercial mortgage-backed securities ("CMBS") and limit the overall volume of CMBS related loan purchases, which could impact the financial results of our RMF business. In addition, if our residential mortgage lending operations became subject to these rules in the future, that would substantially increase the amount we would have to invest in our mortgage lending operations and increase our risks with regard to loans we originate and sell in the secondary mortgage market.
Governmental regulations regarding land use and environmental matters could increase the cost and limit the availability of our development and homebuilding projects and adversely affect our business or financial results.
We are subject to extensive and complex laws and regulations that affect the land development, homebuilding and apartment development 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. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to development or construction being approved, if they are approved at all. We are also subject to determinations by governmental authorities as to the adequacy of water or sewage facilities, roads and other local services with regard to particular residential communities. 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. Any of these can limit, delay, or increase the costs of land development or home construction.
We are also subject to a variety of local, state and federal laws and regulations concerning protection of the environment. In some of the markets where we operate, we are required by law to pay environmental impact fees, use energy-saving construction materials and give commitments to municipalities to provide infrastructure such as roads and sewage systems. We generally are required to obtain permits, entitlements and approvals from local authorities to commence and carry out residential development or home construction. These permits, entitlements and approvals may, from time-to-time, be

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opposed or challenged by local governments, environmental advocacy groups, neighboring property owners or other possibly interested parties, adding delays, costs and risks of non-approval to the process. Violations of environmental laws and regulations can result in injunctions, civil penalties, remediation expenses, and other costs. In addition, some environmental laws impose strict liability, which means that we may be held liable for unlawful environmental conditions on property we own which we did not create.
We are also subject to laws and regulations related to workers' health and safety, and there are efforts to subject us to other labor related laws or rules, some of which may make us responsible for things done by our subcontractors over which we have little or no control. In addition, our residential mortgage subsidiary is subject to various state and federal statutes, rules and regulations, including those that relate to lending operations and other areas of mortgage origination and loan servicing. The impact of those statutes, rules and regulations can increase our homebuyers’ costs of financing, and our cost of doing business, as well as restricting our homebuyers’ access to some types of loans.
Our obligation to comply with the laws and regulations under which we operate, and our need to ensure that our associates, subcontractors and other agents comply with these laws and regulations, could result in delays in construction and land development, cause us to incur substantial costs and prohibit or restrict land development and homebuilding activity in certain areas in which we operate. Budget reductions by state and local governmental agencies may increase the time it takes to obtain required approvals and therefore may aggravate the delays we could encounter. Government agencies also routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our businesses that can be significant.
We can be injured by improper acts of persons over whom we do not have control.
Although we expect all of our associates (i.e., 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. When we learn of practices that do not comply with applicable laws or regulations, including practices relating to homes, buildings or multifamily rental properties we build or finance, we move actively to stop the non-complying practices as soon as possible and we have taken disciplinary action with regard to associates of ours who were aware of non-complying practices and did not take steps to address them, including in some instances terminating their employment. However, regardless of the steps we take after we learn of practices that do not comply with applicable laws or regulations, 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.
Our ability to collect upon mortgage loans may be limited by the application of state laws.
Our mortgage loans typically permit us to accelerate the debt upon default by the borrower. The courts of all states will enforce acceleration clauses in the event of a material payment default, subject in some cases to a right of the court to revoke the acceleration and reinstate the mortgage loan if a payment default is cured. The equity courts of a state, however, may refuse to allow the foreclosure of a mortgage or to permit the acceleration of the indebtedness in instances in which they decide that the exercise of those remedies would be inequitable or unjust or the circumstances would render an acceleration unconscionable.
Further, the ability to collect upon mortgage loans may be limited by the application of state and federal laws. For example, Nevada has enacted a law providing that if the amount an assignee of a mortgage note paid to acquire the note is less than the face amount of the note, the creditor cannot recover more through a deficiency action than the amount it paid for the note. If the Nevada law is upheld, or similar laws are enacted in other jurisdictions, it could materially and adversely affect our ability and the ability of funds we manage to profit from purchases of distressed debt.
Other Risks
Our results of operations could be adversely affected if legal claims are brought against us and are not resolved in our favor.
In the ordinary course of our business, we are subject to legal claims by homebuyers, borrowers against whom we have instituted foreclosure proceedings, persons with whom we have land purchase contracts and a variety of other persons. We establish reserves against legal claims and we believe that, in general, they will not have a material adverse effect on our business or financial condition. However, if the amounts we are required to pay as a result of claims against us substantially exceed the sums anticipated by our reserves, the need to pay those amounts could have a material adverse effect on our results of operations for the periods when we are required to make the payments.

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Information technology failures and data security breaches could harm our business.
We rely extensively on information technology (IT) systems, including Internet sites, data hosting facilities and other hardware and platforms, some of which are hosted by third parties, to assist in conducting our businesses. Our IT systems, like those of most companies, may be vulnerable to a variety of interruptions, including, but not limited to, natural disasters, telecommunications failures, hackers, and other security issues. Moreover, our computer systems, like those of most companies, are subjected to computer viruses or other malicious codes, and to cyber or phishing-attacks. Although we have implemented administrative and technical controls and taken other actions to minimize the risk of cyber incidents and protect our information technology, computer intrusion efforts are becoming increasingly sophisticated, and even the enhanced controls we have installed might be breached. If our IT systems cease to function properly, we could suffer interruptions in our operations. If our cyber-security is breached, unauthorized persons may gain access to proprietary or confidential information, including information about purchasers of our homes or borrowers from our mortgage lending subsidiaries. This could damage our reputation and require us to incur significant costs to repair or restore the security of our computer systems.
Increases in the rate of cancellations of home sale agreements could have an adverse effect on our business.
Our backlog reflects agreements of sale with our homebuyers for homes that have not yet been delivered. We have received a deposit from our home buyer for each home reflected in our backlog, and generally we have the right to retain the deposit if the home buyer does not complete the purchase. In some cases, however, a home buyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local laws, the home buyer’s inability to obtain mortgage financing, his or her inability to sell his or her current home or our inability to complete and deliver the home within the specified time. If there is a downturn in the housing market, or if mortgage financing becomes even less available than it currently is, more homebuyers may cancel their agreements of sale with us, which would have an adverse effect on our business and results of operations.
Our success depends on our ability to acquire land suitable for residential homebuilding at reasonable prices, in accordance with our land investment criteria.
There is strong competition among homebuilders for land that is suitable for residential development. The future availability of finished and partially finished developed lots and undeveloped land that meet our internal criteria depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers for desirable property, inflation in land prices, zoning, allowable housing density, and other regulatory requirements. Should suitable lots or land become less available, the number of homes we could build and sell could be reduced, and the cost of land could be increased, perhaps substantially, which could adversely impact our results of operations.
Expansion of our services and investments into international markets through our Rialto segment subjects us to risks inherent in international operations.
In December 2014, Fund II, of which our Rialto segment owns an interest and for which it performs asset management services, acquired an interest in a joint venture which holds real estate assets in Spain. Expansion of our services and investments into Spain and any expansion into other international markets in the future, could result in operational problems not typically experienced in the United States. Our activities outside the United States will be subject to risks associated with doing business internationally, including fluctuations in currency exchange rates, changes in a specific country’s or region’s political or economic conditions, and competitive disadvantages due to our need to comply with U.S. anti-bribery laws. There also are tax consequences of doing business outside the U.S., both under U.S. tax laws and under the tax laws of the countries in which we do business.
We could suffer adverse tax and other financial consequences if we are unable to utilize our net operating loss ("NOL") carryforwards.
At November 30, 2014, we had state tax NOL carryforwards totaling $113.8 million that will expire between 2015 and 2034. As of November 30, 2014, state tax NOL carryforwards totaling $2.0 million will expire over the next twelve months, if sufficient taxable income is not generated in the applicable states to utilize the net operating losses. At November 30, 2014, we had a valuation allowance of $8.0 million against our state NOL carryforwards because we believe it is more likely than not that a portion of our state NOL carryforwards will not be realized due to the limited carryforward periods in certain states. If we are unable to use our NOLs, we may have to record charges or reduce our deferred tax assets, which could have an adverse effect on our results of operations.
We experience 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.
We historically have experienced, and expect to continue to experience, variability in quarterly results. As a result of such variability, our short-term performance may not be a meaningful indicator of future results. 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

16


the second half of our fiscal year. 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 have a stockholder who can exercise significant influence over matters that are brought to a vote of our stockholders.
Stuart A. Miller, our Chief Executive Officer and a Director, has voting control, through personal holdings and holdings by family-owned entities, of Class B, and to a lesser extent Class A, common stock that enables Mr. Miller to cast approximately 44% of the votes that can be cast by the holders of all our outstanding Class A and Class B common stock combined. That effectively gives Mr. Miller the power to control the election of our directors and the approval of matters that are presented to our stockholders. Mr. Miller's voting power might discourage someone from seeking to acquire us or from making a significant equity investment in us, even if we needed the investment to meet our obligations or to operate our business. Also, because of his voting power, Mr. Miller could be able to authorize actions that are contrary to our other stockholders' desires.
The trading price of our Class B common stock normally is lower than that of our Class A common stock.
The only difference between our Class A common stock and our Class B common stock is that the Class B common stock entitles the holders to 10 votes per share, while the Class A common stock entitles holders to only one vote per share. However, the trading price of the Class B common stock on the New York Stock Exchange ("NYSE") normally is 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 a significant 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.
Changes in global or regional environmental conditions and governmental actions in response to such changes may adversely affect us by increasing the costs of or restricting our planned or future growth activities.
There is growing concern from many members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases and other human activities have caused, or will cause, significant changes in weather patterns and increase the frequency and severity of natural disasters. Government mandates, standards or regulations intended to reduce greenhouse gas emissions or projected climate change impacts could result in restrictions on land development in certain areas and increased energy, transportation and raw material costs, or cause us to incur compliance expenses that we will be unable fully to recover, which could reduce our housing gross profit margins and adversely affect our results of operations.

Item 1B.
Unresolved Staff Comments.
Not applicable.
Executive Officers of Lennar Corporation
The following individuals are our executive officers as of January 23, 2015:
Name
Position
Age
Stuart A. Miller
Chief Executive Officer
57
Richard Beckwitt
President
55
Jonathan M. Jaffe
Vice President and Chief Operating Officer
55
Bruce E. Gross
Vice President and Chief Financial Officer
56
Diane J. Bessette
Vice President and Treasurer
54
Mark Sustana
Secretary and General Counsel
53
David M. Collins
Controller
45
Mr. Miller is one of our Directors and has served as our Chief Executive Officer since 1997. Mr. Miller served as our President from 1997 to April 2011. Before 1997, Mr. Miller held various executive positions with us.
Mr. Beckwitt served as our Executive Vice President from March 2006 to 2011. Since April 2011, Mr. Beckwitt has served as our President. As our Executive Vice President and then our President, Mr. Beckwitt has been involved in all operational aspects of our company. Mr. Beckwitt served on the Board of Directors of D.R. Horton, Inc. from 1993 to November 2003. From 1993 to March 2000, he held various executive officer positions at D.R. Horton, including President of the company.

17


Mr. Jaffe has served as Vice President since 1994 and has served as our Chief Operating Officer since December 2004. Before that time, Mr. Jaffe served as a Regional President in our Homebuilding operations. Additionally, prior to his appointment as Chief Operating Officer, Mr. Jaffe was one of our Directors from 1997 through June 2004.
Mr. Gross has served as Vice President and our Chief Financial Officer since 1997. Before that, Mr. Gross was Senior Vice President, Controller and Treasurer of Pacific Greystone Corporation, which we acquired in 1997.
Ms. Bessette joined us in 1995 and served as our Controller from 1997 to 2008. Since February 2008, she has served as our Treasurer. She was appointed a Vice President in 2000.
Mr. Sustana has served as our Secretary and General Counsel since 2005.
Mr. Collins joined us in 1998 and has served as our Controller since February 2008. Before becoming Controller, Mr. Collins served as our Executive Director of Financial Reporting.

Item 2.
Properties.
We lease and maintain our executive offices in an office complex in Miami, Florida. Our homebuilding, financial services, Rialto and multifamily offices are located in the markets where we conduct business, primarily in leased space. We believe that our existing facilities are adequate for our current and planned levels of operation.
Because of the nature of our homebuilding operations, significant amounts of property are held as inventory in the ordinary course of our homebuilding business. We discuss these properties in the discussion of our homebuilding operations in Item 1 of this Report.

Item 3.
Legal Proceedings.
We are party to various claims and lawsuits which arise in the ordinary course of business, but we do not consider the volume of our claims and lawsuits unusual given the number of homes we deliver and the fact that the lawsuits often relate to homes delivered several years before the lawsuits are commenced. Although the specific allegations in the lawsuits differ, they most commonly involve claims that we failed to construct homes in particular communities in accordance with plans and specifications or applicable construction codes and seek reimbursement for sums allegedly needed to remedy the alleged deficiencies, assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We are a plaintiff in many cases in which we seek contribution from our subcontractors for home repair costs. The costs incurred by us in construction defect lawsuits may be offset by warranty reserves, our third-party insurers, subcontractor insurers and indemnity contributions from subcontractors. We are also a party to various lawsuits involving purchases and sales of real property. These lawsuits include claims regarding representations and warranties made in connection with the transfer of the property and disputes regarding the obligation to purchase or sell the property. We do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business or financial position. However, the financial effect of litigation concerning purchases and sales of property may depend upon the value of the subject property, which may have changed from the time the agreement for purchase or sale was entered into. From time-to-time, we also receive notices from environmental agencies or other regulators regarding alleged violations of environmental or other laws. We typically settle these matters before they reach litigation for amounts that are not material to us.
We have been engaged in litigation since 2008 in the United States District Court for the District of Maryland (U.S. Home Corporation v. Settlers Crossing, LLC, et al., Civil Action No. DKC 08-1863) regarding whether we are required by a contract we entered into in 2005 to purchase a property in Maryland. After entering into the contract, we later renegotiated the purchase price, reducing it from $200 million to $134 million, $20 million of which has been paid and subsequently written off, leaving a balance of $114 million. In July 2014, the Court ruled that we may be obligated to purchase the property. As a result of changes in zoning for the property during the litigation, the Court ordered further proceedings to determine whether the sellers are entitled to specific performance and, if so, whether a further reduction in the purchase price is required. In January 2015, the Court rendered a decision ordering us to purchase the property for the $114 million balance of the contract price, to pay interest at the rate of 12% per annum from May 27, 2008, and to reimburse the seller for real estate taxes and attorneys’ fees. We believe the decision is contrary to applicable law and will appeal the decision.
In December 2013, we were awarded by a civil jury $802 million in compensatory damages and $200 million in punitive damages against Nicolas Marsch III and his company, Briarwood Capital LLC, on court findings of defamation and conspiracy to extort money from us in 2008 and 2009 (Lennar Corp. v. Briarwood Capital LLC, 2008-055741-CA-01, Florida Circuit Court, Miami-Dade County). We do not expect to be able to collect the amount awarded to us.
Item 4.
Mine Safety Disclosures.
Not applicable.

18


PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Class A and Class B common stock are listed on the New York Stock Exchange under the symbols “LEN” and “LEN.B,” respectively. The following table shows the high and low sales prices for our Class A and Class B common stock for the periods indicated, as reported by the NYSE, and cash dividends declared per share:
 
Class A Common  Stock
High/Low Prices
 
Cash Dividends
Per  Class A Share
Fiscal Quarter
2014
 
2013
 
2014
 
2013
First
$44.40 - 34.09
 
$43.22 - 35.51
 
 
Second
$44.30 - 37.32
 
$44.40 - 36.76
 
 
Third
$42.67 - 35.74
 
$39.97 - 31.35
 
 
Fourth
$48.00 - 37.50
 
$37.84 - 31.09
 
 
 
Class B Common  Stock
High/Low Prices
 
Cash Dividends
Per  Class B Share
Fiscal Quarter
2014
 
2013
 
2014
 
2013
First
$36.56 - 28.65
 
$34.87 - 28.28
 
 
Second
$36.31 - 31.63
 
$34.73 - 28.55
 
 
Third
$35.98 - 30.06
 
$31.25 - 25.18
 
 
Fourth
$38.58 - 30.96
 
$30.94 - 25.38
 
 
As of December 31, 2014, the last reported sale price of our Class A common stock was $44.81 and the last reported sale price of our Class B common stock was $36.11. As of December 31, 2014, there were approximately 803 and 575 holders of record of our Class A and Class B common stock, respectively.
On January 14, 2015, our Board of Directors declared a quarterly cash dividend of $0.04 per share for both our Class A and Class B common stock, which is payable on February 12, 2015, to holders of record at the close of business on January 29, 2015. Our Board of Directors evaluates each quarter the decision whether to declare a dividend and the amount of the dividend.
The following table provides information about the Company's repurchases of common stock during the three months ended November 30, 2014:
Period:
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Number of Shares that may yet be Purchased under the Plans or Programs (2)
September 1 to September 30, 2014

 
$

 

 
6,218,968

October 1 to October 31, 2014

 
$

 

 
6,218,968

November 1 to November 30, 2014
173,858

 
$
47.24

 

 
6,218,968

(1)
Represents shares of Class A common stock withheld by us to cover withholding taxes due, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.
(2)
In June 2001, our Board of Directors authorized a stock repurchase program under which we were authorized to purchase up to 20 million shares of our outstanding Class A common stock or Class B common stock. This repurchase authorization has no expiration date.
The information required by Item 201(d) of Regulation S-K is provided in Item 12 of this Report.

19


Performance Graph
The following graph compares the five-year cumulative total return of our Class A common stock with the Dow Jones U.S. Home Construction Index and the Dow Jones U.S. Total Market Index. The graph assumes $100 invested on November 30, 2009 in our Class A common stock, the Dow Jones U.S. Home Construction Index and the Dow Jones U.S. Total Market Index, and the reinvestment of all dividends.
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Lennar Corporation
$
100

 
121

 
149

 
310

 
293

 
388

Dow Jones U.S. Home Construction Index
$
100

 
90

 
97

 
177

 
184

 
220

Dow Jones U.S. Total Market Index
$
100

 
112

 
120

 
139

 
183

 
212


20



Item 6.
Selected Financial Data.
The following table sets forth our selected consolidated financial and operating information as of or for each of the years ended November 30, 2010 through 2014. The information presented below is based upon our historical financial statements.
 
At or for the Years Ended November 30,
(Dollars in thousands, except per share amounts)
2014
 
2013
 
2012
 
2011
 
2010
Results of Operations:
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Lennar Homebuilding
$
7,025,130

 
5,354,947

 
3,581,232

 
2,675,124

 
2,705,639

Lennar Financial Services
$
454,381

 
427,342

 
384,618

 
255,518

 
275,786

Rialto
$
230,521

 
138,060

 
138,856

 
164,743

 
92,597

Lennar Multifamily
$
69,780

 
14,746

 
426

 

 

Total revenues
$
7,779,812

 
5,935,095

 
4,105,132

 
3,095,385

 
3,074,022

Operating earnings (loss):
 
 
 
 
 
 
 
 
 
Lennar Homebuilding (1)
$
1,033,721

 
733,075

 
258,985

 
109,505

 
100,060

Lennar Financial Services
$
80,138

 
85,786

 
84,782

 
20,729

 
31,284

Rialto
$
44,079

 
26,128

 
11,569

 
63,457

 
57,307

Lennar Multifamily
$
(10,993
)
 
(16,988
)
 
(5,884
)
 
(461
)
 

Corporate general and administrative expenses
$
177,161

 
146,060

 
127,338

 
95,256

 
93,926

Earnings before income taxes
$
969,784

 
681,941

 
222,114

 
97,974

 
94,725

Net earnings attributable to Lennar (2)
$
638,916

 
479,674

 
679,124

 
92,199

 
95,261

Diluted earnings per share
$
2.80

 
2.15

 
3.11

 
0.48

 
0.51

Cash dividends declared per each - Class A and
Class B common stock
$
0.16

 
0.16

 
0.16

 
0.16

 
0.16

Financial Position:
 
 
 
 
 
 
 
 
 
Total assets
$
12,958,267

 
11,273,247

 
10,362,206

 
9,154,671

 
8,787,851

Debt:
 
 
 
 
 
 
 
 
 
Lennar Homebuilding
$
4,690,213

 
4,194,432

 
4,005,051

 
3,362,759

 
3,128,154

Rialto
$
623,246

 
441,883

 
574,480

 
765,541

 
752,302

Lennar Financial Services
$
704,143

 
374,166

 
457,994

 
410,134

 
271,678

Lennar Multifamily
$

 
13,858

 

 

 

Stockholders’ equity
$
4,827,020

 
4,168,901

 
3,414,764

 
2,696,468

 
2,608,949

Total equity
$
5,251,302

 
4,627,470

 
4,001,208

 
3,303,525

 
3,194,383

Shares outstanding (000s)
205,039

 
204,412

 
191,548

 
188,403

 
186,636

Stockholders’ equity per share
$
23.54

 
20.39

 
17.83

 
14.31

 
13.98

Lennar Homebuilding Data (including unconsolidated entities):
 
 
 
 
 
 
 
 
 
Number of homes delivered
21,003

 
18,290

 
13,802

 
10,845

 
10,955

New orders
22,029

 
19,043

 
15,684

 
11,412

 
10,928

Backlog of home sales contracts
5,832

 
4,806

 
4,053

 
2,171

 
1,604

Backlog dollar value
$
1,974,328

 
1,619,601

 
1,160,385

 
560,659

 
407,292

(1)
Lennar Homebuilding operating earnings include $9.9 million, $7.5 million, $15.6 million, $38.0 million and $51.3 million of inventory valuation adjustments for the years ended November 30, 2014, 2013, 2012, 2011 and 2010, respectively. In addition, operating earnings include $4.6 million, $12.1 million, $8.9 million and $10.5 million of our share of valuation adjustments related to assets of unconsolidated entities in which we have investments for the years ended November 30, 2014, 2012, 2011 and 2010, respectively, and $10.5 million and $1.7 million of valuation adjustments to our investments in unconsolidated entities for the years ended November 30, 2011 and 2010, respectively.
(2)
Net earnings attributable to Lennar for the year ended November 30, 2014 includes $341.1 million tax provision for income taxes related to pre-tax earnings of the period, compared to a $177.0 million net tax provision in the year ended November 30, 2013, which included a tax benefit of $67.1 million for a valuation allowance reversal. Net earnings attributable to Lennar for the year ended November 30, 2012 includes $435.2 million of benefit for income taxes, which includes a reversal of the majority of our deferred tax asset valuation allowance of $491.5 million, partially offset by a tax provision for fiscal year 2012 pre-tax earnings. Net earnings attributable to Lennar for the years ended November 30, 2011 and 2010 include $14.6 million and $25.7 million, respectively, of benefit for income taxes, primarily due to settlements with various taxing authorities.

21


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data” and our audited consolidated financial statements and accompanying notes included elsewhere in this Report.

Special Note Regarding Forward-Looking Statements
This annual report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements in this annual report include statements regarding: our belief that we are still in the early stages of a protracted slow growth housing recovery, our belief regarding the drivers of such recovery, and our belief that we are well positioned to benefit from the recovery; our belief that the recovery will continue to benefit the rental market; our expectation that will see some margin contraction in 2015; our belief regarding the impact of the decline in oil prices on our Homebuilding operations; our expectation that we will continue to invest in carefully underwritten strategic land acquisitions; our expectation that we will start generating positive cash flows in fiscal 2016; our expectation that our Financial Services segment's earnings will increase in fiscal 2015; our expectation that Rialto's RMF business will begin to generate a more predictable and recurring component of earnings for Rialto; our expectation that the Multifamily segment will complete the construction of its development pipeline over the next four years, that we will sell our rental properties once rents and occupancies have stabilized, and that we will sell another five communities towards the end of fiscal 2015; our expectation that FivePoint Communities will continue to mature as a long-term strategy; our belief that our main driver of earnings will continue to be our homebuilding and Financial Services operations; our belief that we are well positioned to deliver between 23,500 and 24,000 homes with gross margins expected to average about 24% during fiscal 2015; our belief that we are on track to achieve another year of substantial profitability in fiscal 2015; our intent to settle the face value of the 2.75% convertible senior notes due 2020 in cash; our expectation regarding our variability in our quarterly results; our expectations regarding the renewal or replacement of our warehouse facilities; our belief regarding draws upon our bonds or letters of credit, and our belief regarding the impact to the Company if there were such a draw; our expectation that substantially all homes currently in backlog will be delivered in fiscal year 2015; our belief that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity; our belief regarding legal proceedings in which we are involved; and our estimates regarding certain tax matters and accounting valuations, including our expectations regarding the result of anticipated settlements with various taxing authorities.
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following: a slowdown in the recovery of real estate markets across the nation, or any downturn in such markets; changes in general economic and financial conditions, and demographic trends, in the U.S. leading to decreased demand for our services and homes, lower profit margins and reduced access to credit; unfavorable or unanticipated outcomes in legal proceedings that substantially exceed our expectations; the possibility that we will incur nonrecurring costs that may not have a material adverse effect on our business or financial condition, but may have a material adverse effect on our consolidated financial statements for a particular reporting period; decreased demand for our Multifamily rental properties, and our ability to successfully sell our rental properties once rents and occupancies have stabilized; our ability to acquire land and pursue real estate opportunities at anticipated prices; increased competition for home sales from other sellers of new and resale homes; conditions in the capital, credit and financial markets, including mortgage lending standards, the availability of mortgage financing and mortgage foreclosure rates; changes in interest and unemployment rates, and inflation; a decline in the value of the land and home inventories we maintain or possible future write-downs of the carrying value of our real estate assets; increases in operating costs, including costs related to real estate taxes, construction materials, labor and insurance, and our ability to manage our cost structure, both in our Homebuilding and Multifamily businesses; our inability to maintain anticipated pricing levels and our inability to predict the effect of interest rates on demand; the ability and willingness of the participants in various joint ventures to honor their commitments; our ability to successfully and timely obtain land-use entitlements and construction financing, and address issues that arise in connection with the use and development of our land; natural disasters and other unforeseen damage for which our insurance may not provide adequate coverage; our inability to successfully grow our ancillary businesses; potential liability under environmental or construction laws, or other laws or regulations affecting our business; regulatory changes that adversely affect the profitability of our businesses; our ability to comply with the terms of our debt instruments; and our ability to successfully estimate the impact of certain regulatory, accounting and tax matters.

22


Please see “Item 1A-Risk Factors” of this Annual Report for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.

Outlook
We continue to believe that we are still in the early stages of a protracted slow growth housing recovery. The housing market's recovery has continued its progression at a slow and steady pace, moving upward in a fairly narrow channel as we enter fiscal 2015. The recovery has been supported on the downside by the significant production deficit that has resulted from the extremely low volumes of dwellings, both single family and multifamily, that has been built over the past seven years. At the same time, the recovery has been constrained by a limited supply of available homes on the market, limited supply of land available to add to the supply of homes and constrained demand from purchasers who would like to buy but are unable to access the mortgage market. We believe the recovery will also continue to benefit the rental market as first time home purchasers find limited access to the for sale market as a result of high down payments and strict underwriting standards.
Looking back, fiscal 2014 was an excellent year for Lennar, with revenues and pretax earnings attributable to Lennar increasing 31% and 49%, respectively, from 2013. In fiscal 2014, our gross margin increased 50 basis points to 25.4%. This gross margin, combined with our selling, general and administrative expenses of 10.5%, increased our operating margin 60 basis points to 14.9% during fiscal 2014. During fiscal 2014, labor and material costs increased by 7%, which represents a slowing pace of costs increases from the past two years. In addition, we ended the year with a strong sales backlog, up 21% in homes and 22% in dollar value, which gives us a great start for fiscal 2015.
During fiscal 2014, we also had strong performances from our other business segments. Our Financial Services segment produced $80.1 million of pretax earnings. Rialto generated $66.6 million of operating earnings net of earnings attributable to noncontrolling interests, benefiting from the Rialto Mortgage Finance ("RMF") business and earnings from its real estate funds. Our Multifamily rental business continued to grow during fiscal 2014, as it sold two completed rental properties and ended the year with 19 communities under construction, one completed and fully leased, three partially completed and leasing and one under development. Finally, our FivePoint Communities is well positioned, managing the entitlement and development of some of the most desirable real estate assets in Southern and Northern California.
In fiscal 2015, our principal focus in our homebuilding operations will continue to be on generating strong operating margins on the homes we sell by delivering homes from our excellent land positions, although we expect to see some margin contraction due to competitive pressures and the inclusion of some additional previously mothballed land assets being developed. In addition, the significant decline in oil prices may negatively impact our Houston segment in fiscal 2015, however this decline could potentially have offsetting benefits. Thus we cannot project the impact of declining oil prices at this time. We will continue to carefully balance pricing power, sales incentives, brokerage commissions and advertising expenses to maximize our results. In addition, we plan to continue to invest in carefully underwritten strategic land acquisitions in well-positioned markets that we expect will continue to support our homebuilding operations going forward and help us increase operating leverage as our deliveries increase. In fiscal 2014, land purchases were $1.4 billion compared to $1.8 billion in fiscal 2013. For fiscal 2015, we are continuing our pivot towards a land lighter model in homebuilding with the focus of becoming cash flow positive and deleveraging our balance sheet. We expect to start generating positive cash flows in fiscal 2016.
During fiscal 2015, we expect our Financial Services segment's earnings to increase as the segment will continue to benefit as our homebuilding business expands and the number of non-Lennar purchasers using our mortgage company continues to grow in various markets. We are also focused on our multiple platforms including Rialto, Multifamily, and FivePoint. As Rialto continues to grow as a blue chip capital investment management company and commercial real estate capital provider, we expect contributions from Rialto's RMF business will begin to generate a more predictable and recurring component of earnings for Rialto. In fiscal 2015, Rialto will continue its transition into an asset light, fund model. Our Multifamily segment anticipates that the construction of its development pipeline will be completed over the next four years, and as a merchant builder of apartments, we plan to sell our apartments once rents and occupancies have stabilized. We are well positioned and expect to sell another five communities towards the end of fiscal 2015. In addition, we expect FivePoint Communities to continue to mature as a long-term strategy as it develops land in premium California locations to fill the growing demand for well-located approved and developed homesites.
In conclusion, we believe that our Company remains well positioned to benefit from the housing market's recovery. We expect that our Company's main driver of earnings will continue to be our homebuilding and Financial Services operations, as we are currently well positioned to deliver between 23,500 and 24,000 homes with gross margins expected to average about 24% during fiscal 2015. We are also focused on our multiple platforms including Rialto, Multifamily, and FivePoint, as such ancillary business continue to mature and expand their franchises providing longer-term opportunities that we expect will enhance shareholder value. Overall, we are on track to achieve another year of substantial profitability in fiscal 2015, as the

23


housing market recovery continues and we will continue to benefit from our strategic land acquisitions and new community openings.

Results of Operations
Overview
Our net earnings attributable to Lennar in 2014 were $638.9 million, or $2.80 per diluted share ($3.12 per basic share), compared to $479.7 million, or $2.15 per diluted share ($2.48 per basic share), in 2013. Our 2014 earnings before taxes were $969.8 million, compared to $681.9 million in 2013.
The following table sets forth financial and operational information for the years indicated related to our operations.
 
Years Ended November 30,
(Dollars in thousands)
2014
 
2013
 
2012
Lennar Homebuilding revenues:
 
 
 
 
 
Sales of homes
$
6,839,642

 
5,292,072

 
3,492,177

Sales of land
185,488

 
62,875

 
89,055

Total Lennar Homebuilding revenues
7,025,130

 
5,354,947

 
3,581,232

Lennar Homebuilding costs and expenses:
 
 
 
 
 
Cost of homes sold
5,103,409

 
3,973,812

 
2,698,831

Cost of land sold
143,797

 
45,834

 
78,808

Selling, general and administrative
714,823

 
559,462

 
438,727

Total Lennar Homebuilding costs and expenses
5,962,029

 
4,579,108

 
3,216,366

Lennar Homebuilding operating margins
1,063,101

 
775,839

 
364,866

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities
(355
)
 
23,803

 
(26,672
)
Lennar Homebuilding other income, net
7,526

 
27,346

 
15,144

Other interest expense
(36,551
)
 
(93,913
)
 
(94,353
)
Lennar Homebuilding operating earnings
$
1,033,721

 
733,075

 
258,985

Lennar Financial Services revenues
$
454,381

 
427,342

 
384,618

Lennar Financial Services costs and expenses
374,243

 
341,556

 
299,836

Lennar Financial Services operating earnings
$
80,138

 
85,786

 
84,782

Rialto revenues
$
230,521

 
138,060

 
138,856

Rialto costs and expenses
249,114

 
151,072

 
138,990

Rialto equity in earnings from unconsolidated entities
59,277

 
22,353

 
41,483

Rialto other income (expense), net
3,395

 
16,787

 
(29,780
)
Rialto operating earnings
$
44,079

 
26,128

 
11,569

Lennar Multifamily revenues
69,780

 
14,746

 
426

Lennar Multifamily costs and expenses
95,227

 
31,463

 
6,306

Lennar Multifamily equity in earnings (loss) from unconsolidated entities
14,454

 
(271
)
 
(4
)
Lennar Multifamily operating loss
$
(10,993
)
 
(16,988
)
 
(5,884
)
Total operating earnings
$
1,146,945

 
828,001

 
349,452

Corporate general administrative expenses
177,161

 
146,060

 
127,338

Earnings before income taxes
$
969,784

 
681,941

 
222,114

Net earnings attributable to Lennar
$
638,916

 
479,674

 
679,124

Gross margin as a % of revenue from home sales
25.4
%
 
24.9
%
 
22.7
%
S,G&A expenses as a % of revenues from home sales
10.5
%
 
10.6
%
 
12.6
%
Operating margin as a % of revenues from home sales
14.9
%
 
14.3
%
 
10.2
%
Average sales price
$
326,000

 
290,000

 
255,000


24


2014 versus 2013
Revenues from home sales increased 29% in the year ended November 30, 2014 to $6.8 billion from $5.3 billion in 2013. Revenues were higher primarily due to a 15% increase in the number of home deliveries, excluding unconsolidated entities, and a 12% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 20,971 homes in the year ended November 30, 2014 from 18,234 homes last year. There was an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other, which was primarily driven by an increase in active communities over the last year. The average sales price of homes delivered increased to $326,000 in the year ended November 30, 2014 from $290,000 in the year ended November 30, 2013, primarily due to increased pricing in many of our markets as the market recovery continues. Sales incentives offered to homebuyers were $21,400 per home delivered in the year ended November 30, 2014, or 6.2% as a percentage of home sales revenue, compared to $20,500 per home delivered in the year ended November 30, 2013, or 6.6% as a percentage of home sales revenue. Currently, our biggest competition is from the sales of existing and foreclosed homes. We differentiate our new homes from those homes by issuing new home warranties, updated floor plans, our Everything's Included marketing program, community amenities and in certain markets by emphasizing energy efficiency and new technologies.
Gross margins on home sales were $1.7 billion, or 25.4%, in the year ended November 30, 2014, compared to gross margins on home sales of $1.3 billion, or 24.9%, in the year ended November 30, 2013. Gross margin percentage on home sales improved compared to the year ended November 30, 2013, primarily due to an increase in the average sales price of homes delivered, a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales and $20.9 million of insurance recoveries and other nonrecurring items, partially offset by an increase in materials, labor and land costs.
Gross profits on land sales totaled $41.7 million in the year ended November 30, 2014, compared to $17.0 million in the year ended November 30, 2013. Gross profits on land sales in the year ended November 30, 2013 included a $4.8 million recovery of an option deposit previously written-off.
Selling, general and administrative expenses were $714.8 million in the year ended November 30, 2014, compared to $559.5 million in the year ended November 30, 2013. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 10.5% in the year ended November 30, 2014, from 10.6% in the year ended November 30, 2013.
Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($0.4) million in the year ended November 30, 2014, compared to $23.8 million in the year ended November 30, 2013. In the year ended November 30, 2014, Lennar Homebuilding equity in loss from unconsolidated entities related to our share of operating losses of Lennar Homebuilding unconsolidated entities, which included $4.6 million of our share of valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by our share of operating earnings of $4.7 million related to a third-party land sale by one unconsolidated entity. In the year ended November 30, 2013, Lennar Homebuilding equity in earnings from unconsolidated entities included our share of operating earnings of $19.8 million primarily related to sales of homesites to third parties by one unconsolidated entity for approximately $204 million resulting in a gross profit of approximately $67 million.
Lennar Homebuilding other income, net, totaled $7.5 million in the year ended November 30, 2014, compared to $27.3 million in the year ended November 30, 2013. In the year ended November 30, 2013, Lennar Homebuilding other income, net was primarily due to management fees and the sale of a rental operating property by one of our consolidated joint ventures that resulted in a gain of $14.4 million (the transaction resulted in a net loss of $3.2 million after considering the impact of noncontrolling interests totaling $17.6 million), partially offset by other expenses.
Lennar Homebuilding interest expense was $201.5 million in the year ended November 30, 2014 ($161.4 million was included in cost of homes sold, $3.6 million in cost of land sold and $36.6 million in other interest expense), compared to $214.3 million in the year ended November 30, 2013 ($117.8 million was included in cost of homes sold, $2.6 million in cost of land sold and $93.9 million in other interest expense). Interest expense decreased due to an increase in qualifying assets eligible for interest capitalization, partially offset by an increase in our outstanding debt and home deliveries.
Operating earnings for our Lennar Financial Services segment were $80.1 million in the year ended November 30, 2014, compared to operating earnings of $85.8 million in the year ended November 30, 2013. The decrease in profitability was primarily due to a more competitive environment as a result of a significant decrease in refinance transactions, which resulted in lower profit per transaction in the segment's mortgage operations.
Operating earnings for our Rialto segment were $66.6 million in the year ended November 30, 2014 (which included $44.1 million of operating earnings and an add back of $22.5 million of net loss attributable to noncontrolling interests), compared to operating earnings of $19.9 million (which included $26.1 million of operating earnings, partially offset by $6.2 million of net earnings attributable to noncontrolling interests) in the year ended November 30, 2013.

25


Rialto revenues were $230.5 million in the year ended November 30, 2014, compared to revenues of $138.1 million in the year ended November 30, 2013. Revenues increased primarily due to the receipt of a $34.7 million advanced distribution with regard to Rialto's carried interest in Rialto Real Estate Fund, LP (“Fund I”) in order to cover the income tax obligation which resulted from allocations of taxable income due to Rialto’s general partner interest in Fund I. In addition, revenues increased due to an increase in securitization revenue and interest income from Rialto Mortgage Finance (“RMF”), partially offset by a decrease in interest income associated with Rialto’s portfolio of real estate loans.
Rialto expenses were $249.1 million in the year ended November 30, 2014, compared to expenses of $151.1 million in the year ended November 30, 2013. Expenses increased primarily due to an increase in loan impairments of $41.0 million due to changes in estimated cash flows expected to be collected on the segment’s loan portfolios and the change from the accretable yield income method to a cost recovery basis method in the fourth quarter of 2014. We made this determination in order to better reflect the performance of the loan portfolios due to the uncertainty in estimating the timing and amount of future cash flows. In addition, expenses increased due to an increase in interest expense and other general administrative expenses.
Rialto equity in earnings from unconsolidated entities was $59.3 million and $22.4 million in the years ended November 30, 2014 and 2013, respectively, primarily related to our share of earnings from the Rialto real estate funds. The higher equity in earnings related to increases in fair value and recognition of gains related to certain assets in the Rialto real estate funds.
In the year ended November 30, 2014, Rialto other income, net was $3.4 million, which consisted primarily of net realized gains on the sale of real estate owned ("REO") of $43.7 million and rental and other income, partially offset by expenses related to owning and maintaining REO, $19.3 million of impairments on REO and other expenses. In the year ended November 30, 2013, Rialto other income, net, was $16.8 million, which consisted primarily of net realized gains on the sale of REO of $48.8 million, a gain of $8.5 million related to a bargain purchase acquisition, which included cash and a loan receivable as consideration, and rental income, partially offset by expenses related to owning and maintaining REO and $16.1 million of impairments on REO.
Operating loss for our Lennar Multifamily segment was $11.0 million in the year ended November 30, 2014, compared to $17.0 million in the year ended November 30, 2013. In the year ended November 30, 2014, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by the segment's share of gains of $14.7 million as a result of the sale of two operating properties by Lennar Multifamily unconsolidated entities and management fee income. In the year ended November 30, 2013, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by gross profit on a land sale and management fee income.
Corporate general and administrative expenses were $177.2 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2014, compared to $146.1 million, or 2.5% as a percentage of total revenues, in the year ended November 30, 2013. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage.
Net earnings (loss) attributable to noncontrolling interests were ($10.2) million and $25.3 million in the years ended November 30, 2014 and 2013, respectively. Net loss attributable to noncontrolling interests in the year ended November 30, 2014 was primarily due to a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC, partially offset by a strategic transaction by one of our Lennar Homebuilding's consolidated joint ventures that impacted noncontrolling interests by $5.6 million. In the year ended November 30, 2013, net earnings attributable to noncontrolling interests were primarily attributable to a transaction by one of our consolidated joint ventures that decreased noncontrolling interests by $17.6 million.
During the year ended November 30, 2014, we had a $341.1 million tax provision related to pre-tax earnings of the period, compared to a $177.0 million net tax provision in the year ended November 30, 2013, which included a tax benefit of $67.1 million for a valuation allowance reversal. Our overall effective tax rates were 34.80% and 26.96% for the years ended November 30, 2014 and 2013, respectively. The difference in effective tax rates was primarily related to the reversal of our valuation allowance in the year ended November 30, 2013.


26


2013 versus 2012
Revenues from home sales increased 52% in the year ended November 30, 2013 to $5.3 billion from $3.5 billion in 2012. Revenues were higher primarily due to a 33% increase in the number of home deliveries, excluding unconsolidated entities, and a 14% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 18,234 homes in the year ended November 30, 2013 from 13,707 homes in the year ended November 30, 2012. There was an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $290,000 in the year ended November 30, 2013 from $255,000 in the year ended November 30, 2012, driven primarily by an increase in the average sales price of home deliveries in all of our Homebuilding segments, primarily due to increased pricing in many of our markets as the market recovery continued. Sales incentives offered to homebuyers were $20,500 per home delivered in the year ended November 30, 2013, or 6.6% as a percentage of home sales revenue, compared to $28,300 per home delivered in the year ended November 30, 2012, or 10.0% as a percentage of home sales revenue.
Gross margins on home sales were $1,318.3 million, or 24.9%, in the year ended November 30, 2013, compared to gross margins on home sales of $793.3 million, or 22.7%, in the year ended November 30, 2012. Gross margin percentage on home sales improved in the year ended November 30, 2013 compared to the year ended November 30, 2012, primarily due to a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales, an increase in the average sales price of homes delivered and a greater percentage of deliveries from our new higher margin communities (communities where land was acquired subsequent to November 30, 2008) which made up 61% of our 2013 deliveries, partially offset by an increase in materials, labor and land costs.
Gross profits on land sales totaled $17.0 million in the year ended November 30, 2013, compared to gross profits on land sales of $10.2 million in the year ended November 30, 2012.
Selling, general and administrative expenses were $559.5 million in the year ended November 30, 2013, compared to selling, general and administrative expenses of $438.7 million in the year ended November 30, 2012. Selling, general and administrative expenses as a percentage of revenues from home sales improved to 10.6% in the year ended November 30, 2013, from 12.6% in 2012, due to improved operating leverage as a result of increased absorption per community and more active communities.
Lennar Homebuilding equity in earnings from unconsolidated entities was $23.8 million in the year ended November 30, 2013, related to our share of operating earnings of Lennar Homebuilding unconsolidated entities, primarily as a result of sales of approximately 500 homesites to third parties by one unconsolidated entity for approximately $204 million, resulting in a gross profit of approximately $67 million. Our share of equity in earnings for the year ended November 30, 2013 related to the sales of those homesites was $19.8 million. This compared to Lennar Homebuilding equity in loss of $26.7 million in the year ended November 30, 2012, primarily related to our share of operating losses of Lennar Homebuilding unconsolidated entities, which included $12.1 million of valuation adjustments primarily related to strategic asset sales at Lennar Homebuilding's unconsolidated entities.
Lennar Homebuilding other income, net, totaled $27.3 million in the year ended November 30, 2013, primarily due to management fees and the sale of an operating property by one of our consolidating homebuilding joint ventures that resulted in a $14.4 million of other income (the transaction resulted in a net loss of $3.2 million after considering the impact of noncontrolling interests totaling $17.6 million), partially offset by other expenses. This compared to Lennar Homebuilding other income, net, of $15.1 million in the year ended November 30, 2012, which included a $15.0 million gain on the sale of an operating property, partially offset by a pre-tax loss of $6.5 million related to the repurchase of $204.7 million aggregate principal amount of our 5.95% senior notes due 2013 through a tender offer.
Homebuilding interest expense was $214.3 million in the year ended November 30, 2013 ($117.8 million was included in cost of homes sold, $2.6 million in cost of land sold and $93.9 million in other interest expense), compared to $181.4 million in the year ended November 30, 2012 ($85.1 million was included in cost of homes sold, $1.9 million in cost of land sold and $94.4 million in other interest expense). Interest expense increased due to an increase in our weighted average outstanding debt and an increase in deliveries, partially offset by a lower weighted average interest rate compared to the year ended November 30, 2012.
Operating earnings for our Lennar Financial Services segment were $85.8 million in the year ended November 30, 2013, compared to operating earnings of $84.8 million in the year ended November 30, 2012. The operating earnings were consistent year over year, which was driven by an increase in profit in the title operations as a result of a higher profit per transaction, offset by a slight decrease in profitability in the mortgage operations.
In the year ended November 30, 2013, operating earnings attributable to Lennar for the Rialto segment were $19.9 million (which included $26.1 million of operating earnings, offset by $6.2 million of net earnings attributable to noncontrolling interests), compared to operating earnings attributable to Lennar of $26.0 million (which was comprised of

27


$11.6 million of operating earnings and an add back of $14.4 million of net loss attributable to noncontrolling interests) in the year ended November 30, 2012.
In the year ended November 30, 2013, revenues in the Rialto segment were $138.1 million, which consisted primarily of accretable interest income associated with the segment’s portfolio of real estate loans, gains from securitization transactions and interest income from the new RMF business and fees for managing and servicing assets, compared to revenues of $138.9 million in the year ended November 30, 2012. Revenues decreased primarily due to lower interest income as a result of a decrease in the segment's portfolio of loans, offset by gains from securitization transactions and interest income from Rialto's new RMF business.
In the year ended November 30, 2013, expenses in the Rialto segment were $151.1 million, which consisted primarily of costs related to its portfolio operations, the new RMF business, loan impairments of $16.1 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests) and other general and administrative expenses, compared to expenses of $139.0 million in the year ended November 30, 2012, which consisted primarily of costs related to its portfolio operations, loan impairments of $28.0 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests), and other general and administrative expenses.
In the year ended November 30, 2013, the Rialto segment also had equity in earnings from unconsolidated entities of $22.4 million, which primarily included $21.9 million of equity in earnings related to our share of earnings from the Rialto real estate funds. This compared to equity in earnings from unconsolidated entities of $41.5 million in the year ended November 30, 2012, which primarily included $17.0 million of net gains primarily related to realized gains from the sale of investments in the portfolio underlying the the AllianceBernstein L.P. (“AB”) fund formed under the Federal government’s Public-Private Investment Program (“PPIP”), $6.1 million of interest income earned by the AB PPIP fund and $21.0 million of equity in earnings related to our share of earnings from Rialto Real Estate Fund, LP, a real estate investments fund managed by the Rialto segment.
In the year ended November 30, 2013, Rialto other income, net was $16.8 million, which consisted primarily of net realized gains on the sale of REO of $48.8 million, an $8.5 million gain related to a bargain purchase acquisition which included cash and a loan receivable as consideration, and rental income, partially offset by expenses related to owning and maintaining REO and impairments on REO of $16.1 million. In the year ended November 30, 2012, Rialto other expense, net, was $29.8 million, which consisted primarily of expenses related to owning and maintaining REO and impairments on REO, partially offset by net realized gains from sales of REO of $21.6 million and rental income.
Our Lennar Multifamily segment had a start-up operating loss of $17.0 million in the year ended November 30, 2013, compared to an operating loss of $5.9 million in the year ended November 30, 2012. The operating loss in Lennar Multifamily primarily relates to general and administrative expenses of the segment, partially offset by gross profit on a land sale and management fee income.
In the year ended November 30, 2013, corporate general and administrative expenses were $146.1 million, or 2.5% as a percentage of total revenues, compared to $127.3 million, or 3.1% as a percentage of total revenues, in the year ended November 30, 2012. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage.
Net earnings (loss) attributable to noncontrolling interests were $25.3 million and ($21.8) million in the years ended November 30, 2013 and 2012, respectively. Net earnings attributable to noncontrolling interests for the year ended November 30, 2013 was primarily attributable to a transaction by one of our homebuilding consolidated joint ventures that decreased noncontrolling interests by $17.6 million. Net loss attributable to noncontrolling interests for the year ended November 30, 2012 was primarily related to our homebuilding operations and the FDIC's interest in the portfolio of real estate loans.
During the years ended November 30, 2013 and 2012, we concluded that it was more likely than not that the majority of our deferred tax assets would be utilized. In 2013, additional positive evidence included actual and forecasted profitability, as well as generating cumulative pre-tax earnings over a rolling four year period including the pre-tax earnings achieved during 2013. Accordingly, for the year ended November 30, 2013, we reversed $67.1 million of our valuation allowance primarily against our state deferred tax assets. This reversal was offset by a tax provision of $244.1 million, primarily related to pre-tax earnings during the year ended November 30, 2013, resulting in a $177.0 million provision for income taxes for the year ended November 30, 2013. As of November 30, 2013, our remaining valuation allowance against our deferred tax assets was $12.7 million, which is primarily related to state net operating loss carryforwards that are expected to expire due to short carryforward periods. For the year ended November 30, 2012, we reversed $491.5 million of our valuation allowance against our deferred tax assets. This reversal was partially offset by a tax provision of $25.9 million, primarily related to pre-tax earnings during the year ended November 30, 2012, resulting in a $435.2 million benefit for income taxes for the year ended November 30, 2012. Our overall effective tax rates were 26.96% and (178.43%) for the years ended November 30, 2013 and 2012, respectively. The low effective tax rate and the negative effective tax rate were primarily related to the reversal of our valuation allowance and special tax credits taken in the years ended November 30, 2013 and 2012, respectively.

28


During the year ended November 30, 2013, we had significant transactions involving three of our consolidated joint ventures. In the first joint venture transaction, we bought out our 50% partners for $82.3 million, paying $18.8 million in cash and financing the remainder with a short-term note. Our consolidated joint venture then contributed certain assets to a new unconsolidated joint venture and brought in a new, long-term partner for $125 million, or a 31.25% interest. Additionally, if the new unconsolidated entity meets certain cash flow thresholds, the partner's equity interest in the unconsolidated entity could be decreased to 16.25% or increased to 46.25% with a corresponding increase or decrease in our equity interest percentage. During the year ended November 30, 2013, the new unconsolidated joint venture subsequently distributed $125 million of cash to us as a return of capital.
In the second joint venture transaction, we purchased our partner's interest for $153.2 million and the inventories are now wholly-owned assets, which we plan to develop and build homes. During the year ended November 30, 2013, there was a third joint venture transaction where we paid off the bank debt of the consolidated joint venture and assumed the partner's interest, resulting in the entity becoming wholly-owned.
These transactions did not impact our net earnings for the year ended November 30, 2013 but our consolidated balance sheet as of November 30, 2013 was affected as follows: cash was reduced by approximately $47 million, inventory decreased by approximately $225 million, investments in unconsolidated entities increased by $98 million, deferred tax assets were increased by $40 million, additional paid-in capital (equity) was reduced by $62 million, net of tax, and non-controlling interests were reduced by $134 million.

Homebuilding Segments
Our Homebuilding operations construct and sell homes primarily for first-time, move-up and active adult homebuyers primarily under the Lennar brand name. In addition, our homebuilding operations purchase, develop and sell land to third parties. In certain circumstances, we diversify our operations through strategic alliances and attempt to minimize our risks by investing with third parties in joint ventures.
As of and for the year ended November 30, 2014, we have grouped our homebuilding activities into five reportable segments, which we refer to as Homebuilding East, Homebuilding Central, Homebuilding West, Homebuilding Southeast Florida and Homebuilding Houston. Information about homebuilding activities in states in which our homebuilding activities are not economically similar to other states in the same geographic area is grouped under “Homebuilding Other,” which is not considered a reportable segment. Reference in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to homebuilding segments are to those reportable segments.
At November 30, 2014, our reportable homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in:
East: Florida(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia
Central: Arizona, Colorado and Texas(2) 
West: California and Nevada
Southeast Florida: Southeast Florida
Houston: Houston, Texas
Other: Illinois, Minnesota, Oregon, Tennessee and Washington
(1)
Florida in the East reportable segment excludes Southeast Florida, which is its own reportable segment.
(2)
Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.

29


The following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated:
Selected Financial and Operational Data
 
Years Ended November 30,
(In thousands)
2014
 
2013
 
2012
Revenues:
 
 
 
 
 
East:
 
 
 
 
 
Sales of homes
$
2,228,469

 
1,828,543

 
1,283,441

Sales of land
19,212

 
13,619

 
16,539

Total East
2,247,681

 
1,842,162

 
1,299,980

Central:
 
 
 
 
 
Sales of homes
908,195

 
736,557

 
487,317

Sales of land
28,745

 
6,918

 
19,071

Total Central
936,940

 
743,475

 
506,388

West:
 
 
 
 
 
Sales of homes
1,761,762

 
1,160,842

 
683,267

Sales of land
34,613

 
490

 
14,022

Total West
1,796,375

 
1,161,332

 
697,289

Southeast Florida:
 
 
 
 
 
Sales of homes
686,994

 
502,175

 
353,841

Sales of land
5,904

 

 
13,800

Total Southeast Florida
692,898

 
502,175

 
367,641

Houston:
 
 
 
 
 
Sales of homes
675,927

 
604,212

 
449,580

Sales of land
37,186

 
36,949

 
22,043

Total Houston
713,113

 
641,161

 
471,623

Other
 
 
 
 
 
Sales of homes
578,295

 
459,743

 
234,731

Sales of land
59,828

 
4,899

 
3,580

Total Other
638,123

 
464,642

 
238,311

Total homebuilding revenues
$
7,025,130

 
5,354,947

 
3,581,232


30


 
Years Ended November 30,
(In thousands)
2014
 
2013
 
2012
Operating earnings (loss):
 
 
 
 
 
East:
 
 
 
 
 
Sales of homes
$
341,461

 
279,561

 
137,231

Sales of land
5,193

 
1,255

 
2,472

Equity in earnings from unconsolidated entities
2,254

 
678

 
542

Other income (expense), net
2,867

 
(5,354
)
 
(166
)
Other interest expense
(11,667
)
 
(25,023
)
 
(26,082
)
Total East
340,108

 
251,117

 
113,997

Central:
 
 
 
 
 
Sales of homes (1)
81,182

 
68,743

 
39,388

Sales of land
6,911

 
773

 
909

Equity in loss from unconsolidated entities
(131
)
 
(87
)
 
(514
)
Other expense, net (2)
(6,971
)
 
(1,809
)
 
(1,529
)
Other interest expense
(5,406
)
 
(12,417
)
 
(13,427
)
Total Central
75,585

 
55,203

 
24,827

West:
 
 
 
 
 
Sales of homes
286,393

 
190,582

 
39,941

Sales of land
11,851

 
3,442

 
388

Equity in earnings (loss) from unconsolidated entities (3)
(1,647
)
 
22,039

 
(25,415
)
Other income, net (4)
7,652

 
27,832

 
2,393

Other interest expense
(11,530
)
 
(32,740
)
 
(31,334
)
Total West
292,719

 
211,155

 
(14,027
)
Southeast Florida:
 
 
 
 
 
Sales of homes
158,951

 
107,733

 
65,745

Sales of land
3,967

 
(188
)
 
(354
)
Equity in loss from unconsolidated entities
(576
)
 
(152
)
 
(961
)
Other income, net (5)
2,318

 
7,778

 
15,653

Other interest expense
(2,697
)
 
(8,282
)
 
(9,026
)
Total Southeast Florida
161,963

 
106,889

 
71,057

Houston:
 
 
 
 
 
Sales of homes (6)
99,066

 
73,024

 
43,423

Sales of land
10,202

 
10,749

 
6,182

Equity in earnings (loss) from unconsolidated entities
121

 
2,079

 
(35
)
Other income (expense), net
(201
)
 
(503
)
 
1,328

Other interest expense
(1,566
)
 
(4,530
)
 
(4,623
)
Total Houston
107,622

 
80,819

 
46,275

Other:
 
 
 
 
 
Sales of homes
54,357

 
39,155

 
28,891

Sales of land (7)
3,567

 
1,010

 
650

Equity in loss from unconsolidated entities
(376
)
 
(754
)
 
(289
)
Other income (expense), net
1,861

 
(598
)
 
(2,535
)
Other interest expense
(3,685
)
 
(10,921
)
 
(9,861
)
Total Other
55,724

 
27,892

 
16,856

Total homebuilding operating earnings
$
1,033,721

 
733,075

 
258,985

(1)
Sales of homes for the year ended November 30, 2014 included $6.4 million of insurance recoveries and other nonrecurring items.
(2)
Other expense, net for the year ended November 30, 2014 included $2.0 million in write-offs of other receivables.
(3)
Lennar Homebuilding equity in loss for the year ended November 30, 2014 included our share of operating losses of Lennar Homebuilding unconsolidated entities, which included $4.6 million of our share of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities, partially offset by our share of operating earnings of $4.7 million related to third-party land sales

31


by one unconsolidated entity. For the year ended November 30, 2013, Lennar Homebuilding equity in earnings from unconsolidated entities included our share of operating earnings of $19.8 million primarily related to the sales of approximately 500 homesites to third parties by one unconsolidated entity for approximately $204 million, resulting in a gross profit of approximately $67 million. Equity in earnings recognized by us related to the sale of land by our unconsolidated entities may vary significantly from period to period depending on the timing of those land sales and other transactions entered into by our unconsolidated entities in which we have investments. For the year ended November 30, 2012, equity in loss from unconsolidated entities included $12.1 million of our share of valuation adjustments primarily related to strategic asset sales at Lennar Homebuilding unconsolidated entities.
(4)
Other income, net for the year ended November 30, 2013, included a $14.4 million gain on the sale of an operating property.
(5)
Other income, net for the year ended November 30, 2014 included $1.0 million of valuation adjustments to other assets. Other income, net for the year ended November 30, 2012, included a $15.0 million gain on the sale of an operating property.
(6)
Sales of homes for the year ended November 30, 2014 included a $5.5 million insurance recovery.
(7)
Sales of land for the year ended November 30, 2014 included $1.5 million in write-offs of option deposits and pre-acquisition costs.
Summary of Homebuilding Data
Deliveries:
 
Years Ended November 30,
 
Homes
 
2014
 
2013
 
2012
East
7,824

 
6,941

 
5,440

Central
3,156

 
2,814

 
2,154

West
4,141

 
3,323

 
2,301

Southeast Florida
2,086

 
1,741

 
1,314

Houston
2,482

 
2,266

 
1,917

Other
1,314

 
1,205

 
676

Total
21,003

 
18,290

 
13,802

Of the total home deliveries above, 32, 56 and 95 represent deliveries from unconsolidated entities for the years ended November 30, 2014, 2013 and 2012, respectively.
 
Years Ended November 30,
 
Dollar Value (In thousands)
 
Average Sales Price
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
East
$
2,234,086

 
1,834,794

 
1,290,549

 
$
286,000

 
264,000

 
237,000

Central
908,195

 
736,558

 
487,317

 
288,000

 
262,000

 
226,000

West
1,775,587

 
1,190,385

 
728,092

 
429,000

 
358,000

 
316,000

Southeast Florida
686,994

 
502,175

 
353,841

 
329,000

 
288,000

 
269,000

Houston
675,927

 
604,212

 
449,580

 
272,000

 
267,000

 
235,000

Other
578,295

 
459,743

 
234,731

 
440,000

 
382,000

 
347,000

Total
$
6,859,084

 
5,327,867

 
3,544,110

 
$
327,000

 
291,000

 
257,000

Of the total dollar value of home deliveries above, $19.4 million, $35.8 million and $51.9 million represent the dollar value of home deliveries from unconsolidated entities for the years ended November 30, 2014, 2013 and 2012, respectively. The home deliveries from unconsolidated entities had an average sales price of $608,000, $639,000 and $547,000 for the years ended November 30, 2014, 2013 and 2012, respectively.
Sales Incentives (1):
 
Years Ended November 30,
 
(In thousands)
 
2014
 
2013
 
2012
East
$
176,726

 
163,039

 
169,779

Central
71,533

 
51,557

 
49,028

West
59,148

 
29,542

 
48,341

Southeast Florida
54,529

 
47,504

 
41,529

Houston
62,935

 
64,216

 
62,497

Other
24,286

 
17,230

 
17,050

Total
$
449,157

 
373,088

 
388,224


32


 
Years Ended November 30,
 
Average Sales Incentives Per
Home Delivered
 
Sales Incentives as a
% of Revenue
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
East
$
22,600

 
23,600

 
31,300

 
7.4
%
 
8.2
%
 
11.7
%
Central
22,700

 
18,300

 
22,800

 
7.3
%
 
6.5
%
 
9.1
%
West
14,300

 
9,000

 
21,700

 
3.2
%
 
2.5
%
 
6.6
%
Southeast Florida
26,100

 
27,300

 
31,600

 
7.4
%
 
8.6
%
 
10.5
%
Houston
25,400

 
28,300

 
32,600

 
8.5
%
 
9.6
%
 
12.2
%
Other
18,500

 
14,300

 
25,200

 
4.0
%
 
3.6
%
 
6.8
%
Total
$
21,400

 
20,500

 
28,300

 
6.2
%
 
6.6
%
 
10.0
%
(1)
Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.
New Orders (2):
 
Years Ended November 30,
 
Homes
 
2014
 
2013
 
2012
East
8,068

 
7,533

 
5,868

Central
3,473

 
2,805

 
2,498

West
4,516

 
3,231

 
2,711

Southeast Florida
2,055

 
1,879

 
1,617

Houston
2,643

 
2,419

 
2,078

Other
1,274

 
1,176

 
912

Total
22,029

 
19,043

 
15,684

Of the new orders above, 95, 55 and 98 represent new orders from unconsolidated entities for the years ended November 30, 2014, 2013 and 2012, respectively.
 
Years Ended November 30,
 
Dollar Value (In thousands)
 
Average Sales Price
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
East
$
2,303,916

 
2,066,065

 
1,438,268

 
$
286,000

 
274,000

 
245,000

Central
1,021,839

 
763,895

 
591,677

 
294,000

 
272,000

 
237,000

West
1,956,157

 
1,243,831

 
834,426

 
433,000

 
385,000

 
308,000

Southeast Florida
685,536

 
576,781

 
441,311

 
334,000

 
307,000

 
273,000

Houston
720,453

 
649,472

 
505,579

 
273,000

 
268,000

 
243,000

Other
522,411

 
485,699

 
333,232

 
410,000

 
413,000

 
365,000

Total
$
7,210,312

 
5,785,743

 
4,144,493

 
$
327,000

 
304,000

 
264,000

Of the total dollar value of new orders above, $56.8 million, $34.8 million and $54.4 million represent the dollar value of new orders from unconsolidated entities for the years ended November 30, 2014, 2013 and 2012, respectively. The new orders from unconsolidated entities had an average sales price of $598,000, $632,000 and $556,000 for the years ended November 30, 2014, 2013 and 2012, respectively.
(2)
New orders represent the number of new sales contracts executed by homebuyers, net of cancellations, during the years ended November 30, 2014, 2013 and 2012.

33


Backlog:
 
November 30,
 
Homes
 
2014
 
2013
 
2012
East
2,212

 
1,968

 
1,376

Central
961

 
644

 
653

West
991

 
616

 
708

Southeast Florida
576

 
607

 
469

Houston
830

 
669

 
516

Other
262

 
302

 
331

Total
5,832

 
4,806

 
4,053

Of the total homes in backlog above, 67, 4 and 5 represent homes in backlog from unconsolidated entities at November 30, 2014, 2013 and 2012, respectively.
 
November 30,
 
Dollar Value (In thousands)
 
Average Sales Price
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
East
$
672,204

 
600,257

 
368,361

 
$
304,000

 
305,000

 
268,000

Central
310,726

 
195,762

 
168,912

 
323,000

 
304,000

 
259,000

West
437,492

 
257,498

 
202,959

 
441,000

 
418,000

 
287,000

Southeast Florida
214,606

 
215,988

 
141,146

 
373,000

 
356,000

 
301,000

Houston
225,737

 
180,665

 
135,282

 
272,000

 
270,000

 
262,000

Other
113,563

 
169,431

 
143,725

 
433,000

 
561,000

 
434,000

Total
$
1,974,328

 
1,619,601

 
1,160,385

 
$
339,000

 
337,000

 
286,000

Of the total dollar value of homes in backlog above, $39.8 million, $2.5 million and $3.5 million represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2014, 2013 and 2012, respectively. The homes in backlog from unconsolidated entities had an average sales price of $595,000, $624,000 and $704,000 at November 30, 2014, 2013 and 2012, respectively.
Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.
We experienced cancellation rates in our homebuilding segments and Homebuilding Other as follows:
 
Years Ended November 30,
 
2014
 
2013
 
2012
East
17
%
 
16
%
 
18
%
Central
20
%
 
18
%
 
18
%
West
14
%
 
15
%
 
17
%
Southeast Florida
13
%
 
12
%
 
12
%
Houston
24
%
 
21
%
 
23
%
Other
13
%
 
13
%
 
8
%
Total
17
%
 
16
%
 
17
%

34


Active Communities:
 
November 30,
 
2014
 
2013
 
2012
East
233

 
197

 
167

Central
117

 
101

 
74

West
111

 
80

 
61

Southeast Florida
32

 
30

 
31

Houston
78

 
79

 
70

Other
54

 
50

 
56

Total
625

 
537

 
459

Of the total active communities listed above, 3 communities represent active communities being developed by unconsolidated entities as of November 30, 2014. Of the total active communities listed above, 2 communities represent active communities being developed by unconsolidated entities as of both November 30, 2013 and 2012.
Deliveries from New Higher Margin Communities (3):
 
Years Ended November 30,
 
Homes
 
2014
 
2013
 
2012
East
5,533

 
4,781

 
3,014

Central
2,313

 
1,356

 
884

West
2,871

 
2,090

 
1,375

Southeast Florida
1,666

 
1,137

 
933

Houston
1,177

 
756

 
330

Other
1,076

 
962

 
343

Total
14,636

 
11,082

 
6,879

 
Years Ended November 30,
 
Dollar Value (In thousands)
 
Average Sales Price
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
East
$
1,591,060

 
1,265,141

 
687,361

 
$
288,000

 
265,000

 
228,000

Central
654,860

 
346,917

 
201,334

 
283,000

 
256,000

 
228,000

West
1,101,430

 
649,675

 
411,833

 
384,000

 
311,000

 
300,000

Southeast Florida
593,798

 
374,420

 
271,978

 
356,000

 
329,000

 
292,000

Houston
356,971

 
222,641

 
75,884

 
303,000

 
294,000

 
230,000

Other
431,537

 
353,496

 
134,127

 
401,000

 
367,000

 
391,000

Total
$
4,729,656

 
3,212,290

 
1,782,517

 
$
323,000

 
290,000

 
259,000

(3)
Deliveries from new higher margin communities represent deliveries from communities where land was acquired subsequent to November 30, 2008, and is a subset of the deliveries included in the preceding deliveries table.

35


The following table details our gross margins on home sales for the years ended November 30, 2014, 2013 and 2012 for each of our reportable homebuilding segments and Homebuilding Other:
<
 
Years Ended November 30,
 
(In thousands)
2014
 
2013
 
2012
 
East:
 
 
 
 
 
 
Sales of homes
$
2,228,469

 
1,828,543

 
1,283,441

 
Cost of homes sold
1,639,328

 
1,353,048

 
979,219

 
Gross margins on home sales
589,141

26.4%
475,495

26.0%
304,222

23.7%
Central:
 
 
 
 
 
 
Sales of homes
908,195

 
736,557

 
487,317

 
Cost of homes sold
721,494

 
591,611

 
390,823

 
Gross margins on home sales
186,701

20.6%
144,946

19.7%
96,494

19.8%
West:
 
 
 
 
 
 
Sales of homes
1,761,762

 
1,160,842

 
683,267

 
Cost of homes sold
1,305,208

 
840,619

 
540,982

 
Gross margins on home sales
456,554

25.9%
320,223

27.6%
142,285

20.8%
Southeast Florida:
 
 
 
 
 
 
Sales of homes
686,994

 
502,175

 
353,841

 
Cost of homes sold
473,146

 
352,684

 
256,672

 
Gross margins on home sales
213,848

31.1%
149,491

29.8%
97,169