Operating and Reporting Segments

The Company’s operating segments are aggregated into reportable segments, based primarily upon similar economic characteristics, geography and product type. The Company’s reportable segments consist of:

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding West

(4) Homebuilding Southeast Florida

(5) Homebuilding Houston

(6) Lennar Financial Services

(7) Rialto Investments

Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under “Homebuilding Other,” which is not considered a reportable segment.

Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes. Operations of the Company’s homebuilding segments primarily 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 the Company’s unconsolidated entities. Operating earnings (loss) for the homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings (loss) from unconsolidated entities and other income, net, less the cost of homes sold and land sold, selling, general and administrative expenses and other interest expense of the segment. The Company’s reportable homebuilding segments and all other homebuilding operations not required to be reported separately 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, 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.

Operations of the Lennar Financial Services segment include mortgage financing, title insurance and closing services for both buyers of the Company’s homes and others. Substantially all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Lennar Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title insurance and closing services, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Lennar Financial Services segment operates generally in the same states as the Company’s homebuilding operations, as well as in other states.

Operations of the Rialto Investments (“Rialto”) segment include sourcing, underwriting, pricing, managing and ultimately monetizing real estate and real estate related assets, as well as providing similar services to others in markets across the country. Rialto’s operating earnings consists of revenues generated primarily from accretable interest income associated with portfolios of real estate loans acquired in partnership with the FDIC and other portfolios of real estate loans and assets acquired, fees for sub-advisory services, other income (expense), net, consisting primarily of gains upon foreclosure of real estate owned (“REO”) and gains on sale of REO, and equity in earnings (loss) from unconsolidated entities, less the costs incurred by the segment for managing portfolios, REO expenses, due diligence expenses related to both completed and abandoned transactions, and other general administrative expenses.

Each reportable segment follows the same accounting policies described in Note 1 – “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s 2011 Annual Report on Form 10-K. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented.

Financial information relating to the Company’s operations was as follows:



(In thousands)	May 31, 2012		November 30, 2011
Assets:
Homebuilding East	$	1,473,193	1,312,750
Homebuilding Central	706,506		681,859
Homebuilding West	2,212,194		2,169,503
Homebuilding Southeast Florida	637,253		604,415
Homebuilding Houston	276,274		230,076
Homebuilding Other	660,065		595,615
Rialto Investments (1)	1,748,827		1,897,148
Lennar Financial Services	629,416		739,755
Corporate and unallocated	1,007,481		923,550
Total assets	$	9,351,209	9,154,671


(1)	Consists primarily of assets of consolidated VIEs (see Note 8).



	Three Months Ended					Six Months Ended
	May 31,					May 31,
(In thousands)	2012			2011		2012		2011
Revenues:
Homebuilding East	$	310,149		265,374		554,982		447,745
Homebuilding Central	114,564			92,155		200,277		159,161
Homebuilding West	157,710			120,897		280,795		217,279
Homebuilding Southeast Florida	70,878			51,930		120,667		87,021
Homebuilding Houston	102,455			81,886		187,289		134,839
Homebuilding Other	52,332			50,234		88,511		83,140
Lennar Financial Services	88,595			59,422		156,810		117,135
Rialto Investments	33,472			42,595		65,680		76,218
Total revenues (1)	$	930,155		764,493		1,655,011		1,322,538

Operating earnings (loss):
Homebuilding East	$	26,291		25,134		40,238		30,795
Homebuilding Central (2)	4,318			(3,350	)	5,382		(18,474	)
Homebuilding West (3)	(9,405		)	(8,855	)	(16,978	)	40,490
Homebuilding Southeast Florida (4)	24,176			5,797		30,810		9,971
Homebuilding Houston	10,262			2,966		14,778		2,925
Homebuilding Other	178			(467	)	1,579		(8,994	)
Lennar Financial Services	17,980			2,495		26,230		3,678
Rialto Investments	7,471			22,678		12,527		45,680
Total operating earnings	81,271			46,398		114,566		106,071
Corporate general and administrative expenses	29,168			20,598		56,010		43,950
Earnings before income taxes	$	52,103		25,800		58,556		62,121


(1)	Total revenues are net of sales incentives of $95.3 million ($29,800 per home delivered) and $179.7 million ($31,700 per home delivered), respectively, for the three and six months ended May 31, 2012, compared to $89.9 million ($33,900 per home delivered) and $152.8 million ($33,500 per home delivered), respectively, for the three and six months ended May 31, 2011.


(2)	For the three and six months ended May 31, 2011, operating loss includes $1.0 million and $7.6 million, respectively, of expenses associated with remedying pre-existing liabilities of a previously acquired company.

(3)

For the six months ended May 31, 2011, operating earnings include $37.5 million related to the receipt of a litigation settlement, as well as $15.4 million related to the Company’s share of a gain on debt extinguishment and the recognition of $10.0 million of deferred management fees related to management services previously performed by the Company for one of its Lennar Homebuilding unconsolidated entities.


(4)	For both the three and six months ended May 31, 2012, operating earnings include a $15.0 million gain on the sale of an operating property.

Valuation adjustments and write-offs relating to the Company’s homebuilding operations were as follows:



	Three Months Ended			Six Months Ended
	May 31,			May 31,
(In thousands)	2012		2011	2012	2011
Valuation adjustments to finished homes, CIP and land on which the Company intends to build homes:
East	$	568	324	785	1,176
Central	55		201	208	4,077
West	1,441		1,568	1,971	1,582
Southeast Florida	308		763	636	763
Houston	28		168	89	217
Other	4		304	740	325
Total	2,404		3,328	4,429	8,140
Valuation adjustments to land the Company intends to sell or has sold to third parties:
East	15		72	15	92
Central	—		156	—	179
West	1		—	1	—
Southeast Florida	332		—	332	—
Houston	—		—	—	10
Total	348		228	348	281
Write-offs of option deposits and pre-acquisition costs:
East	322		346	329	346
Central	5		26	54	26
West	—		—	232	—
Houston	—		—	—	81
Other	154		—	156	—
Total	481		372	771	453
Company’s share of valuation adjustments related to assets of unconsolidated entities:
Central	—		—	—	371
West	5,437		—	5,437	1,660
Other	—		—	—	2,495
Total	5,437		—	5,437	4,526
Valuation adjustments to investments of unconsolidated entities:
East (1)	7		150	18	8,412
Total	7		150	18	8,412
Write-offs of other receivables and other assets:
East	1,000		—	1,000	—
Other	—		—	—	4,806
Total	1,000		—	1,000	4,806
Total valuation adjustments and write-offs of option deposits and pre-acquisition costs, other receivables and other assets	$	9,677	4,078	12,003	26,618

(1)

For both the three and six months ended May 31, 2011, the Company recorded a $0.1 million valuation adjustment related to a $29.8 million investment of a Lennar Homebuilding unconsolidated entity, which was the result of a linked transaction. The linked transaction resulted in a pre-tax gain of $38.6 million related to a debt extinguishment due to the Company's purchase of the Lennar Homebuilding entity debt's at a discount and a $38.7 million valuation adjustment of the Lennar Homebuilding unconsolidated entity's inventory upon acquisition. The net pre-tax loss of $0.1 million was included in Lennar Homebuilding other income (expense), net.

During the six months ended May 31, 2012, the Company recorded lower valuation adjustments than during the six months ended May 31, 2011. Changes in market conditions and other specific developments may cause the Company to re-evaluate its strategy regarding certain assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.