10-K 1 len-20121130x10k.htm 10-K LEN-2012.11.30-10K
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, 2012
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. ¨
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 (151,415,536 Class A shares and 9,695,238 Class B shares) as of May 31, 2012, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $4,280,079,309.
As of December 31, 2012, the registrant had outstanding 160,676,634 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 29, 2013.





PART I

Item 1.
Business
Overview of Lennar Corporation
We are one of the nation’s largest homebuilders, a provider of financial services and through our Rialto Investments (“Rialto”) segment, an investor, and manager of funds that invest in real estate assets. 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 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, 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.
We have two other reportable segments: a Financial Services reportable segment and a Rialto reportable segment.
Our Financial Services reportable segment provides mortgage financing, title insurance and closing services for both buyers of our homes and others. Substantially all of the loans we originate are sold within a short period in the secondary mortgage market 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. Our Financial Services segment operates generally in the same states as our homebuilding operations, as well as in other states.
Our Rialto reportable segment focuses on real estate investments and asset management. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and securities, as well as providing strategic real estate capital. Rialto's primary focus is to manage third party capital and has invested in or commenced the workout and/or oversight of billions of dollars of real estate assets across the United States, including commercial and residential real estate loans and properties, as well as mortgage backed securities with the objective of generating superior, risk-adjusted returns. To date, many of its investment and management opportunities have arisen from the dislocation in the United States real estate markets and the restructuring and recapitalization of those markets.
Rialto is the sponsor of and an investor in private equity vehicles that invest in and manage real estate related assets. This has included Rialto Real Estate Fund, LP (“Fund I”) in which investors have committed a total of $700 million of equity (including $75 million by us). In addition, subsequent to November 30, 2012, Rialto Real Estate Fund II, LP (“Fund II”) had its first closing of investor commitments of $260 million (including $100 million by us). 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.  
For financial information about our Homebuilding, Lennar Financial Services and Rialto 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 13,802 new homes in 2012. 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 some of our current major homebuilding markets including California, Florida and Texas through both organic growth and acquisitions such as Pacific Greystone Corporation in 1997, amongst others. In 1997, we completed the spin-off of our commercial real estate business to 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.

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From 2002 through 2005, we acquired several regional homebuilders, which brought us into new markets and strengthened our position in several existing markets. During 2010 and 2011, we made several investments through our Rialto segment, and the funds it manages, in distressed real estate assets to take advantage of opportunities arising from dislocation in the United States real estate market. Towards the end of 2011, we started-up operations in Portland, Oregon with purchases of distressed finished homesites. In 2012, we expanded our operations into the Seattle market with the acquisition of approximately 650 finished homesites in 20 communities from Premier Communities. During 2012, we also started to incubate our Multifamily business, by acquiring land and beginning the construction phase of some multifamily rental properties. The Multifamily business will focus on assembling a geographically diversified portfolio of institutional quality multifamily rental properties using a development strategy in select U.S. markets through unconsolidated entities. Subsequent to November 30, 2012, our Rialto segment completed the first closing of its second real estate investment fund.
Recent Business Developments
Overview
During 2012, we saw a housing market that stabilized and began to recover. We have seen demand for home purchases return to the market place with regard to most of our communities, driven by a combination of affordable home prices, low interest rates and reduced competition from foreclosures, as evidenced by our increase in new orders of 37% year over year.
We reported net earnings attributable to Lennar of $679.1 million, or $3.11 per diluted share, for the year ended November 30, 2012, which includes a partial reversal of our deferred tax asset valuation allowance of $491.5 million, or $2.25 per diluted share, compared to net earnings attributable to Lennar of $92.2 million, or $0.48 per diluted share, for the year ended November 30, 2011. In 2012, we benefited greatly from the strategic capital investments we made in recent years and our increased operating leverage due to higher deliveries. In addition to the increased demand for new homes, our intense focus on efficient business practice through our Everything’s Included program, product re-engineering and reduced selling, general and administrative expenses all contributed to our increase in profitability.
We ended 2012 with $1.1 billion in Lennar Homebuilding cash and cash equivalents. We extended our debt maturities by issuing $400 million of 4.75% senior notes due 2017 and $350 million of 4.750% senior notes due 2022, while retiring $302.6 million of senior notes and other debt. Our strong balance sheet and liquidity will allow us to capitalize on future opportunities as they present themselves.
During 2012, our Lennar Financial Services segment had operating earnings of $84.8 million, compared to $20.7 million in the same period last year. The increase in operating earnings was primarily due to increased volume and margins in the segment’s mortgage operations and increased volume in the segment's title operations, as a result of a significant increase in refinance transactions and homebuilding deliveries.
During 2012, our Rialto segment, which invests, and manages funds that invest, in distressed real estate opportunities, had operating earnings of $26.0 million (which is comprised of $11.6 million of operating earnings and an add back of $14.4 million of net loss attributable to noncontrolling interests), compared to operating earnings of $34.6 million (which included $63.5 million of operating earnings offset by $28.9 million of net earnings attributable to noncontrolling interests) in 2011. The segment’s operating earnings came primarily from equity in earnings from our investment in the Alliance Bernstein L.P. (“AB”) Public-Private Investment Program (“PPIP”) fund and our investment in the real estate investment fund managed by the Rialto segment ("Fund I"). Those earnings were partially offset by operating losses related to the the FDIC Portfolios in which we invested in 2010. For the year ended November 30, 2012, the Rialto segment had revenues of $138.9 million, which consisted primarily of accretable interest income associated with the segment’s portfolio of real estate loans and fees for managing and servicing assets, expenses of $139.0 million, which consisted primarily of costs related to its portfolio operations and other general and administrative expenses, and other income (expense), net, of ($29.8) million, which consisted primarily of expenses related to owning and maintaining REO and impairments on REO, partially offset by gains from sales of REO and rental income.
Homebuilding Operations
Overview
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 $255,000 in fiscal 2012, compared to $244,000 in fiscal 2011 and $243,000 in fiscal 2010. We operate primarily under the Lennar brand name.
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, 2012 we were actively building and marketing homes in 457 communities, excluding unconsolidated entities. During 2012, we became actively involved, primarily through unconsolidated

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entities, in the development of multifamily rental properties. The Multifamily business will focus on assembling a geographically diversified portfolio of institutional quality multifamily rental properties using a development strategy in select U.S. markets. 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.
Management and Operating Structure
We balance a local operating structure with centralized corporate level management. Decisions related to our overall strategy, acquisitions of land and businesses, risk management, financing, cash management and information systems are centralized at the corporate level. Our local operating structure consists of divisions, which are managed by individuals who generally have significant experience in the homebuilding industry and, in most instances, in their particular markets. They are responsible for operating decisions regarding land identification, entitlement and development, the management of inventory levels for our current volume levels, community development, home design, construction and marketing of our homes.
Diversified Program of Property Acquisition
We generally acquire land for development and for the construction of homes that we sell to homebuyers. Land is subject to specified underwriting criteria and is acquired 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 until we have determined whether to exercise the options;
Acquiring parcels of land through joint ventures, primarily to reduce and share our risk, among other factors, by limiting the amount of our capital invested in land, while increasing our access to potential future homesites and allowing us to participate in strategic ventures; and
Acquiring distressed assets from banks, government sponsored enterprises, opportunity funds and through relationships established by our Rialto segment.
At November 30, 2012, we owned 107,138 homesites and had access through option contracts to an additional 21,346 homesites, of which 13,312 homesites were through option contracts with third parties and 8,034 homesites were through option contracts with Lennar Homebuilding unconsolidated entities in which we have investments. At November 30, 2011, we owned 94,684 homesites and had access through option contracts to an additional 16,702 homesites, of which 8,314 homesites were through option contracts with third parties and 8,388 homesites were through option contracts with Lennar Homebuilding unconsolidated entities in which we have investments.
Construction and Development
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 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, debt issuances and equity offerings.
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 homebuying experience by including 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. We sell our homes primarily from models that we have designed and constructed. During 2012, the homes we delivered had an average sales price of $255,000.
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. We advertise our communities through newspapers, radio advertisements and other local

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and regional publications, on billboards and on the Internet, including our website, www.lennar.com. In addition, we advertise 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. Through the participation of sales associates, on-site construction supervisors and customer care associates, all working in a team effort, we strive to create a quality homebuying experience for our customers, 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.
Deliveries
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,
 
2012
 
2011
 
2010
East
5,440

 
4,576

 
4,539

Central
2,154

 
1,661

 
1,682

West
2,301

 
1,846

 
2,079

Southeast Florida
1,314

 
904

 
536

Houston
1,917

 
1,411

 
1,645

Other
676

 
447

 
474

Total
13,802

 
10,845

 
10,955

Of the total home deliveries listed above, 95, 99 and 96, respectively, represent deliveries from unconsolidated entities for the years ended November 30, 2012, 2011 and 2010.
Backlog
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 contracts if they fail to qualify for financing or under certain other circumstances. We experienced a cancellation rate of 17% in 2012, compared to 19% and 17%, respectively, in 2011 and 2010. The cancellation rate for the year ended November 30, 2012 was within a range that is consistent with historical cancellation rates and substantially below those we experienced from 2007 through 2009. Substantially all homes currently in backlog will be delivered in fiscal year 2013. 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 our last three fiscal years:
 
Years Ended November 30,
(Dollars in thousands)
2012
 
2011
 
2010
East
$
368,361

 
220,974

 
176,588

Central
168,912

 
65,256

 
52,923

West
202,959

 
97,292

 
58,072

Southeast Florida
141,146

 
52,013

 
39,035

Houston
135,282

 
79,800

 
58,822

Other
143,725

 
45,324

 
21,852

Total
$
1,160,385

 
560,659

 
407,292


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Of the dollar value of homes in backlog listed above, $3.5 million, $1.0 million and $2.1 million, respectively, represent the backlog dollar value from unconsolidated entities at November 30, 2012, 2011 and 2010.
Inventory Impairments and Valuation Adjustments related to Lennar Homebuilding Investments in Unconsolidated Entities
We evaluated our balance sheet quarterly for possible impairment on a community by community basis during fiscal 2012. Based on our evaluations and assessments, during the years ended November 30, 2012, 2011 and 2010, we recorded the following inventory impairments:
 
Years Ended November 30,
(In thousands)
2012
 
2011
 
2010
Valuation adjustments to finished homes, CIP and land on which we intend to build homes
$
12,574

 
35,726

 
44,717

Valuation adjustments to land we intend to sell or have sold to third parties
666

 
456

 
3,436

Write-offs of option deposits and pre-acquisition costs
2,389

 
1,784

 
3,105

 
$
15,629

 
37,966

 
51,258

During the years ended November 30, 2012, 2011 and 2010, we recorded the following valuation adjustments related to Lennar Homebuilding investments in unconsolidated entities:
 
Years Ended November 30,
(In thousands)
2012
 
2011
 
2010
Our share of valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities
$
12,145

 
8,869

 
10,461

Valuation adjustments to Lennar Homebuilding investments in unconsolidated entities
18

 
10,489

 
1,735

 
$
12,163

 
19,358

 
12,196

The inventory impairments and valuation adjustments to Lennar Homebuilding investments in unconsolidated entities recorded above were estimated based on market conditions and assumptions made by management at the time the valuation adjustments were recorded, which may differ materially from actual results if market conditions or our assumptions change.
Lennar Homebuilding Investments in Unconsolidated Entities
For a number of years, we created and participated in joint ventures that acquired and developed land for our homebuilding operations, for sale to third parties or for use in their own homebuilding operations. Through these joint ventures, we reduced the amount we had to invest in order to assure access to potential future homesites, thereby mitigating certain risks associated with land acquisitions, and, in some instances, we obtained access to land to which we could not otherwise have obtained access or could not have obtained access on as favorable terms. Although these ventures initially served their intended purpose of risk mitigation, as the homebuilding market deteriorated and asset impairments resulted in the loss of equity, some of our joint venture partners became financially unable or unwilling to fulfill their obligations. During 2012, we continued to reevaluate all of our joint venture arrangements, with particular focus on those ventures with recourse indebtedness, and we continued a process, begun in 2008 of reducing the number of joint ventures in which we were participating as well as the recourse indebtedness of those joint ventures. As of November 30, 2012, we had reduced the number of Lennar Homebuilding unconsolidated joint ventures in which we were participating to 36 from 270 joint ventures at the peak in 2006 and reduced our maximum recourse debt exposure related to Lennar Homebuilding unconsolidated joint ventures to $66.7 million from $1,764.4 million at the peak in 2006. As of November 30, 2011, we were participating in 35 Lennar Homebuilding unconsolidated joint ventures, with maximum recourse debt exposure related to Lennar Homebuilding unconsolidated joint ventures of $108.7 million. At November 30, 2012 and 2011, our net recourse exposure related to Lennar Homebuilding unconsolidated entities was $49.9 million and $74.9 million, respectively. In addition, we have 2 multifamily unconsolidated entities as of November 30, 2012.
Lennar Financial Services Operations
Mortgage Financing
We primarily originate conforming conventional, FHA-insured and VA-guaranteed residential mortgage loan products and other products to our homebuyers 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, located generally

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in the same states as our homebuilding operations as well as some other states. In 2012, our financial services subsidiaries provided loans to 77% 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 independent mortgage lenders, we believe creditworthy purchasers of our homes have access to financing.
During 2012, we originated approximately 19,700 mortgage loans totaling $4.4 billion, compared to 13,800 mortgage loans totaling $2.9 billion during 2011. Substantially all of the loans we originate are sold within a short period in the secondary mortgage market 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. At November 30, 2012 we had a reserve of $7.3 million related to claims of that type.
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. We finance our mortgage loan activities with borrowings under our financial services warehouse facilities or from our operating funds. One of our 364-day warehouse repurchase facilities with a maximum aggregate commitment of $150 million and an additional uncommitted amount of $50 million matures in February 2013, a 364-day warehouse repurchase facility with a maximum aggregate commitment of $250 million matures in July 2013, and a 364-day warehouse repurchase facility with a maximum aggregate commitment of $150 million (plus a $100 million temporary accordion feature that expired December 31, 2012) and a 364-day warehouse facility with a maximum aggregate commitment of $60 million, both of which mature in November 2013. We expect the facilities to be renewed or replaced with other facilities when they mature.
Title Insurance and Closing Services
We provide title insurance and closing services to our homebuyers and others. During 2012, we provided title and closing services for approximately 108,200 real estate transactions, and issued approximately 149,300 title insurance policies through our underwriter, North American Title Insurance Company, compared to 86,400 real estate transactions and 121,800 title insurance policies issued during 2011. Title and closing services are provided by agency subsidiaries in Arizona, California, Colorado, District of Columbia, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Texas, Utah, Virginia and Wisconsin. Title insurance services are provided in these same states, except New York, as well as in Alabama, Delaware, Georgia, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Ohio, Oklahoma, Oregon, North Carolina, South Carolina, Tennessee, Washington and Wyoming.
Rialto Investments Operations
The Rialto segment focuses on real estate investments and asset management. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and securities, as well as providing strategic real estate capital. Rialto's primary focus is to manage third party capital and has invested in or commenced the workout and/or oversight of billions of dollars of real estate assets across the United States, including commercial and residential real estate loans and properties, as well as mortgage backed securities with the objective of generating superior, risk-adjusted returns. To date, many of its investment and management opportunities have arisen from the dislocation in the United States real estate markets and the restructuring and recapitalization of those markets.
In 2010, our Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies (“LLCs”), in partnership with the Federal Deposit Insurance Corporation (“FDIC”), for approximately $243 million (net of transaction costs and a $22 million working capital reserve). The LLCs hold performing and non-performing distressed residential and commercial real estate loans (“FDIC Portfolios”). The FDIC retained a 60% equity interest in the LLCs and provided $626.9 million of financing with 0% interest, which is non-recourse to us and the LLCs. As of November 30, 2012, the notes payable balance was $470.0 million, however, $223.8 million of cash collections on the loans in excess of expenses were deposited in a defeasance account, established for the repayment of the notes payable, under the agreement with the FDIC.
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. During the year ended November 30, 2012, we retired $33.0 million principal amount of the 5-year senior unsecured note, thus, as of November 30, 2012, the remaining balance on the note was $90.9 million.
In 2012, our Rialto segment had equity in earnings (loss) from unconsolidated entities of $20.9 million related to our investment in the AB PPIP fund, which included $17.0 million of net gains primarily related to gains realized by the AB PPIP fund from the sale of investments in its portfolio and $6.1 million of interest income earned by the AB PPIP fund. During the second half of 2012, all of the securities in the investment portfolio underlying the AB PPIP fund were monetized in connection with the unwinding of its operations, resulting in liquidating distributions to us of $83.5 million. We also earned $9.1 million in

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fees from the segment's role as a sub-advisor to the AB PPIP fund, which were included in the Rialto Investments segment's revenue. As our role as sub-advisor to the AB PPIP fund has been completed, no further management fees will be received for these services. As of November 30, 2012 and 2011, the carrying value of our investment in the AB PPIP fund was $0.2 million and $65.2 million, respectively. The AB PPIP fund was formed in 2010 under the Federal government’s PPIP to purchase real estate related securities from banks and other financial institutions. Rialto is a sub-advisor to the AB PPIP fund and receives management fees for its sub-advisory services. When it was formed, we committed to invest $75 million in the AB PPIP fund. Total equity commitments of approximately $1.2 billion were made by private investors in this fund, and the U.S. Treasury committed to a matching amount of approximately $1.2 billion of equity in the fund, and agreed to extend up to approximately $2.3 billion of debt financing.
In 2012, our Rialto segment also had equity in earnings (loss) from unconsolidated entities of $21.0 million related to Fund I that it closed in 2010 with initial equity commitments of $300 million (including $75 million committed and contributed by us). As of November 30, 2012, the equity commitments of Fund I were $700 million (including the $75 million committed and contributed by us). All capital commitments have been called and funded, thus Fund I is closed to additional commitments. Fund I’s objective during its three-year investment period is to invest in distressed real estate assets and other related investments that fit within Fund I’s investment parameters. As of November 30, 2012, the carrying value of our investment in Fund I was $98.9 million.
Subsequent to November 30, 2012, our Rialto segment completed the first closing of Fund II with initial equity commitments of approximately $260 million (including $100 million committed by us).
For both Fund I and Fund II, in order to protect investors in the Funds against the possibility that we would keep attractive investment opportunities for ourselves instead of presenting them to the Funds, we agreed that we would not make investments that are suitable for Fund I or Fund II, as the case may be, except to the extent an Advisory Committee of the applicable 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.
Seasonality
We have historically experienced variability in our results of operations from quarter-to-quarter due to the seasonal nature of the homebuilding business.
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 become an increasingly competitive factor within the homebuilding 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:
Balance sheet, where we continue to focus on inventory management and liquidity;
Access to land, particularly in land-constrained markets;
Access to distressed assets 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
Everything’s Included® marketing program, which simplifies the homebuying 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 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 assets is highly competitive and fragmented. A number of entities and funds have formed in recent years for the purpose of acquiring real estate related assets at prices that

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reflect the depressed state of the real estate market, and it is likely that additional entities and funds will be formed for this purpose during the next several years. We compete with other purchasers of distressed assets. We compete in the marketplace for distressed asset portfolios based on many factors, including purchase price, representations, warranties and indemnities, timeliness of purchase decisions and reputation. We believe that our major distinction 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 content 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 our experienced team and the infrastructure already in place, including our investment in a service provider, are ahead of our competitors. This has us well positioned for the large pipeline of opportunity that has been building. In marketing 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.
Regulation
Homes and residential communities that we build must comply with state and local laws and regulations relating to, among other things, zoning, construction permits or entitlements, construction material requirements, density requirements, and requirements relating to 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 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.
The residential homebuilding industry is 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.
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.
A subsidiary of Newhall, an unconsolidated entity of which we currently indirectly own 15%, provides water to a portion of Los Angeles County, California. This subsidiary is subject to extensive regulation by the California Public Utilities Commission.
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.

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We will be subject to regulations regarding residential mortgage loans that were proposed in January 2013 by the Federal Consumer Financial Protection Bureau.
Because Rialto manages two real estate asset investment funds and two entities partly owned by the FDIC, a Rialto segment entity is required to be 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.
Compliance Policy
We have a Code of Business and Ethics that requires every associate (i.e., employee) and officer to at all times deal fairly with the Company’s customers, subcontractors, suppliers, competitors and associates, and states that all our associates, officers and directors are expected to comply at all times with all applicable laws, rules and regulations. Despite this, there are instances in which subcontractors or others through which we do business engage in practices that do not comply with applicable regulations and guidelines. There have been instances in which some of our associates were aware of these practices and did not take adequate steps to prevent them. When we learn of practices relating to homes we build or financing we provide that do not comply with applicable regulations or guidelines, we move actively to stop the non-complying practices as soon as possible and we have taken disciplinary action with regard to our associates who were aware of the practices and did not take steps to remedy them, including in some instances terminating their employment. Our Code of Business and Ethics also has procedures in place that allow whistleblowers to submit their concerns regarding our operations, financial reporting, business integrity or any other related matter anonymously to the Audit Committee of our Board of Directors and/or to the non-management directors of our Board of Directors, which is intended to give potential whistleblowers a means of making their concerns known without a possibility of retaliation.
Associates
At December 31, 2012, we employed 4,722 individuals of whom 2,327 were involved in the Lennar Homebuilding operations, 2,150 were involved in the Lennar Financial Services operations and 245 were involved in the Rialto operations, compared to November 30, 2011, when we employed 4,062 individuals of whom 2,192 were involved in the Lennar Homebuilding operations, 1,682 were involved in Lennar Financial Services operations and 188 were involved in the Rialto 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 associates who are represented by labor unions.
Relationship with LNR Property Corporation
In 1997, we transferred our commercial real estate investment and management business to LNR Property Corporation (“LNR”), and spun-off LNR to our stockholders. As a result, LNR became a publicly-traded company, and the family of Stuart A. Miller, our Chief Executive Officer and a Director, which had voting control of our company, became the controlling shareholder of LNR.
Since the spin-off, we have entered into a number of joint ventures and other transactions with LNR. Many of the joint ventures were formed to acquire and develop land, part of which was subsequently sold to us or other homebuilders for residential building and part of which was subsequently sold to LNR for commercial development. In February 2005, LNR was acquired by a privately-owned entity. Although Mr. Miller’s family was required to purchase a 20.4% financial interest in that privately-owned entity, this interest was non-voting and neither Mr. Miller nor anyone else in his family was an officer or director, or otherwise was involved in the management, of LNR or its parent. Nonetheless, because the Miller family had a financial interest in LNR’s parent, we adopted a bylaw that required that all significant transactions with LNR, or entities in which it has an interest, be reviewed and approved by an Independent Directors Committee of our Board of Directors. In 2011, the Miller family ceased to have any interest in LNR or its parent. Accordingly, in January 2013, the bylaw requiring Independent Director Committee review of transactions involving LNR was deleted.
NYSE Certification
We submitted our 2011 Annual CEO Certification to the New York Stock Exchange on April 20, 2012. The certification was not qualified in any respect.
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 Exchange Act, 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.

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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.
Homebuilding Market and Economic Risks
Although demand for new homes has begun strengthening, there continue to be factors that are adversely affecting demand and could lead to a return of the downturn that for several years severely reduced the number of homes we could sell and the prices for which we could sell them
From 2007 at least until the second half of 2011, the homebuilding industry experienced a significant downturn. This severely affected both the numbers of homes we could sell and the prices for which we could sell them. Beginning in 2010, our margins improved to closer to their historically normal levels, and beginning in the middle of 2011, demand for our homes began to increase in many of our communities. However, there continue to be factors that are adversely affecting demand for our homes, including limited availability of mortgage financing for potential homebuyers and a significant inventory of used homes, including foreclosed homes. If these or other factors caused demand for homes to return to their pre-2011 levels, we could have significant difficulty generating profits from our homebuilding activities.
Demand for new homes is sensitive to economic conditions over which we have no control, such as the availability of mortgage financing and the level of employment.
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. Currently, unemployment is above historically normal levels and many lenders have limited their willingness to make, and tightened their credit requirements with regard to, residential mortgage loans. Regulations that have been proposed by the Federal Consumer Financial Protection Bureau could make it even more difficult for some potential home buyers to finance their purchases. Partially offsetting these factors, mortgage interest rates are very low, which has reduced the monthly cost of owning a home. However, interest rates on residential mortgage loans could increase at any time, and this, together with the reluctance of many lenders to make residential mortgage loans, and possible effects of new governmental regulations, could significantly reduce demand for the homes we build.
High unemployment affects us in two ways. Not only are people who are not employed or are concerned about loss of their jobs unlikely to purchase new homes, but they may be forced to sell the homes they own. Therefore, high unemployment can adversely affect us both by reducing demand for the homes we build and by increasing the supply of homes for sale.
Most of our 2012 earnings resulted from non-cash reversals of reserves relating to future tax benefits.
During 2007, 2008 and 2009, we suffered losses for financial statement purposes totaling more than $4.4 billion, before tax benefit. Those losses generated large tax benefits, some of which we used to recover taxes we had paid in prior years, but some of which resulted in deferred tax assets in the form of net operating loss carryforwards ("NOLs"), from which we could benefit only if we had taxable income in the future. Because it was not certain whether we would have sufficient taxable income to enable us to take advantage of the available future tax benefits, during 2008 and 2009, we recorded a valuation allowance against our deferred tax assets totaling $647.4 million (net of a reversal due to a change in the tax laws). At November 30, 2011, the deferred tax asset valuation allowance still totaled $576.9 million. During fiscal 2012, because our improved operating results made it appear more likely than not that the majority of our deferred tax assets would be utilized, we reversed a majority of the deferred tax asset valuation allowance, which had the effect of increasing our net earnings by $491.5 million. As of November 30, 2012, our net deferred tax assets were $467.6 million and our deferred tax asset valuation allowance was $88.8 million, which is primarily related to state NOLs.
Mortgage defaults, particularly by homebuyers who financed homes using non-traditional financing products, have increased the number of homes available for resale.
During the period of high demand prior to 2007, many homebuyers financed their purchases using non-traditional adjustable rate or interest only mortgages or other mortgages, including sub-prime mortgages, that involved, at least during

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initial years, monthly payments that were significantly lower than those required by conventional fixed rate mortgages. As a result, new homes became more affordable. However, as monthly payments for these homes increased either as a result of increasing adjustable interest rates or as a result of principal payments coming due, many of these homebuyers defaulted on their payments and had their homes foreclosed, which increased the inventory of homes available for resale. There continue to be foreclosures, and foreclosure sales and other distress sales continue to exert a downward pressure on the prices for which homes, including homes in some of our communities, can be sold.
It has become more difficult for potential homebuyers to obtain mortgage financing, which is reducing demand for homes we offer.
Many lenders and other holders of mortgage loans have been adversely affected in recent years by a combination of reduced ability of homeowners to meet mortgage obligations and reduced value of the homes that secure mortgage loans. As a result, lenders and secondary market mortgage purchasers have eliminated most of their non-traditional and sub-prime financing products and increased the qualifications needed to obtain mortgage loans. Among other things, if a home appraises for less than the purchase price, the potential homebuyer may need to provide a greater down-payment in order to meet the lender requirement or the purchase price (which is our sale price) may need to be reduced. Also, in January 2013, the Federal Consumer Financial Protection Bureau proposed regulations that could make it more difficult for some potential buyers to finance home purchases. Although mortgage interest rates have been very low during 2010, 2011 and 2012, the difficulty of obtaining mortgage loans has reduced the effect that low interest rates probably would otherwise have had upon home sales.
We have had to take significant write-downs of the carrying values of land we own and of our investments in unconsolidated entities, and a future decline in land values could result in additional write-downs.
Some of the land we currently own was purchased in or before 2007 at prices that were significantly above those for which similar land was available for sale under the depressed market conditions that prevailed in 2008 and subsequent years. Also, prior to 2007, we obtained options to purchase land at prices that became unattractive. When we obtained those options, we often made substantial non-refundable deposits and, in some instances, we incurred substantial infrastructure development and other pre-acquisition costs before we decided whether to exercise the options. When demand for homes fell, we were required to take significant write-downs of the carrying value of our land inventory and we elected not to exercise many high price options, even though that required us to forfeit deposits and write-off pre-acquisition costs.
Additionally, as a result of the depressed market conditions between 2008 and 2011, we recorded significant reductions in the carrying value of our investments in unconsolidated entities and, in addition, we had to record our share of reductions made by unconsolidated entities in the carrying values of their assets.
The combination of land inventory impairments, write-offs of option deposits and pre-acquisition costs and valuation adjustments related to unconsolidated entities in which we had investments were a major cause of the net losses we incurred in fiscal 2007, 2008 and 2009. Write downs related to our homebuilding activities were significantly lower during 2010, 2011 and 2012 and resulted primarily from changes in strategy or losses suffered by our joint ventures (we also had some write downs in 2011 and 2012 with regard to loans receivable and foreclosed real estate held by our Rialto segment). However, if market conditions were to deteriorate significantly in the future, we could be required to make additional 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 can adversely affect us, particularly in a period of declining home sale prices.
Inflation can have a long-term impact on us because increasing costs of land, materials and labor require us to attempt to increase the sale prices of homes in order to maintain satisfactory margins. Although the rate of inflation has been low for the last several years, we have begun to experience increases in the prices of some materials and some economists predict that government spending programs and other factors could lead to significant inflation in the future. An excess of supply over demand for new homes may require us to reduce the prices for which we sell homes, but not be accompanied by reductions, or prevent increases, in the costs of materials and labor. The effect of cost increases that we cannot recover by increasing prices would be to reduce the margins on the homes we sell. In addition to directly reducing our profit from home sales, that would make it more difficult for us to recover the full cost of previously purchased land, and could lead to significant further reductions in the value of our land inventory.
We face significant competition in our efforts to sell new homes.
The homebuilding industry is highly competitive. We compete in each of our markets with numerous national, regional and local homebuilders. This competition with other homebuilders can reduce the number of homes we deliver or cause us to accept reduced margins in order to maintain sales volume. We also compete with the resale of existing homes, including foreclosed homes (many of which had been owned by housing speculators) and rental housing.

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Operational Risks
Homebuilding is subject to warranty and liability claims in the ordinary course of business that can be significant.
As a homebuilder, we are subject to home warranty and construction defect claims arising in the ordinary course of business. We are also subject to liability 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 built. We have, and many of our subcontractors have, general liability, property, errors and omissions, workers compensation and other business insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain self-insured retentions, deductibles and other coverage limits. However, because of the uncertainties inherent in these matters, we cannot provide assurance that our insurance coverage or our subcontractors' insurance and financial resources will be adequate to address all warranty, construction defect and liability claims in the future. Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and costly. As a result, an increasing number of our subcontractors are unable to obtain insurance, and we have in many cases waived our customary insurance requirements, and assumed responsibility for certain risks and liabilities of those subcontractors. There can be no assurance that coverage will not be further restricted and become even more costly.
Things done by subcontractors can expose us to warranty costs and other risks.
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, improper construction processes or defective materials, such as defective Chinese drywall that at one time was installed in homes built for the Company and many other homebuilders in Florida and elsewhere, were used in the construction of our homes. When we find these issues, we repair them in accordance with our warranty obligations. 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 in these cases may be significant if we are unable to recover the cost of repair 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 all 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 had been doing.
Natural disasters and severe weather conditions could delay deliveries, increase costs and decrease demand for new homes in affected areas.
Many of our homebuilding operations are conducted in areas that are subject to natural disasters and severe weather. The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories and 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.
Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs and delay deliveries.
Increased costs or shortages of skilled labor and/or lumber, framing, concrete, steel and other building materials could cause increases in construction costs and construction delays. By the end of 2012, we had begun to experience 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 home. Sustained increases in construction costs may, over time, erode our margins, particularly if pricing competition restricts our ability to pass on any additional costs of materials or labor, thereby decreasing our margins.
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. These include costs of preparing land and installing roads, sewers and other utilities, as well as taxes and other costs related to ownership of the land on which we plan to build homes. Reducing the rate at which we build and sell homes extends the length of time it takes us to recover these costs.
We have substantially reduced our corporate credit line.
Our business requires that we be able to finance the development of our residential communities. Until 2010, we had a corporate credit facility (with Lennar Corporation as the borrower and most of our wholly-owned subsidiaries, other than finance company subsidiaries, as guarantors) that we used to help finance development activities. Prior to 2008, this credit line

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was as high as $3.1 billion. However, because of the decline in our land purchasing, development and building activities, and our ability to obtain debt and equity financing through the capital markets, we gradually reduced the credit line, and in February 2010, we terminated it (although, we established and continue to maintain letter of credit facilities). In 2012, we established a new $500 million credit line, which has an accordion feature that could enable us to increase it to $525 million. However, this is still substantially less than the credit line we maintained in and prior to 2008. We believe that under current circumstances, the funds we generate through our operations, together with our ability to sell debt and equity securities into capital markets and our new credit line, give us access to all the funds we need. If market conditions strengthen to the point that we need additional funding, but we are not able to significantly increase our credit facility, the relatively small size of our credit facility might prevent us from taking full advantage of market opportunities.
We could lose our credit line if we fail to make required payments or to comply with financial covenants.
We have a credit line that is available for us to use to help finance our homebuilding and other activities. The agreement relating to that credit line makes it a default for us to 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. If we default under the credit agreement, 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.
We do not have an investment grade credit rating, which makes it more costly for us to sell debt securities.
Our ability to sell debt securities on favorable terms has been an important factor in financing our business and operations in a profitable manner. In 2007 and 2008, each of the principal credit rating agencies lowered our credit ratings, and as a result we no longer have investment grade ratings. This makes it more costly, and under some circumstances could make it more difficult, for us to access the debt capital markets for funds we may require in order to implement our business plans and achieve our growth objectives.
Despite not having an investment grade rating, during 2010, 2011 and 2012, we were able to sell debt securities in capital market transactions at significantly lower interest rates than in previous years. During 2010, we sold $250 million principal amount of 6.95% senior notes due 2018, $276.5 million of 2.00% convertible senior notes due 2020 and $446 million of 2.75% convertible senior notes due 2020. During 2011, we sold $350 million principal amount of 3.25% convertible senior notes due 2021, and we sold an additional $50 million principal amount of those notes shortly after November 30, 2011, when the initial purchasers of the notes exercised an option to purchase additional notes to cover over-allotments. During 2012 we sold a total of $750 million principal amount of senior notes that mature in 2017 and 2022, respectively, and bear interest at 4.75%. Despite the relatively low interest rates with regard to the notes we sold in 2010 through 2012, the rates probably would have been even lower if we had had an investment grade rating. If we became subject to further downgrades, that would increase the cost and difficulty of accessing debt capital markets.
The repurchase warehouse credit facilities of our Financial Services segment will expire in 2013.
Our Lennar Financial Services segment has a 364-day warehouse repurchase facilities with a maximum aggregate commitment of $150 million and an additional uncommitted amount of $50 million that matures in February 2013, a 364-day warehouse repurchase facility with a maximum aggregate commitment of $250 million that matures in July 2013, and a 364-day warehouse repurchase facility with a maximum aggregate commitment of $150 million (plus a $100 million temporary accordion feature that expired December 31, 2012) and a 364-day warehouse facility with a maximum aggregate commitment of $60 million, both of which mature in November 2013. The Financial Services segment uses these facilities to finance its mortgage lending activities until the mortgage loans it originates are sold to investors. It expects all three facilities to be renewed or replaced with other facilities when they mature. If we were unable to renew or replace these facilities when they mature, that could seriously impede the activities of our Financial Services segment, unless Lennar itself is willing and able to provide the funds our Financial Services segment needs to finance its mortgage originations until the mortgages can be sold.
We conduct some of our operations through unconsolidated joint ventures with independent third parties in which we do not have a controlling interest and we can be adversely impacted by joint venture partners' failure to fulfill their obligations.
For a number of years, we created and participated in a large number of joint ventures that acquired and developed land for our homebuilding operations, for sale to third parties or for use in the joint ventures' own homebuilding operations. By using these joint ventures, we reduced the amount we had to invest in order to assure access to potential future homesites, and, in some instances, we obtained access to land to which we could not otherwise have obtained access or could not have obtained access on as favorable terms. However, as the homebuilding market deteriorated after 2006, many of our joint venture partners became financially unable or unwilling to fulfill their obligations.
Most joint ventures borrowed money to help finance their activities, and although recourse on the loans was generally limited to the joint ventures and their properties, frequently we and our joint venture partners were required to provide

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maintenance guarantees (guarantees that the values of the joint ventures' assets would be at least specified percentages of their borrowings) or limited repayment guarantees.
If a joint venture partner does not perform its obligations, we may be required to make significant financial expenditures or otherwise undertake the performance of our partner's obligations at what can be a significant cost to us. Also, when we have guaranteed joint venture obligations, we have had the right to be reimbursed by our joint venture partners for any amounts by which we pay more than our pro rata share of the joint ventures' obligations. However, particularly when our joint venture partners were having financial problems, we often had difficulty collecting the sums they owed us, and therefore, we sometimes were required to pay a disproportionately large portion of the guaranteed amounts. In addition, because we lacked controlling interests in these joint ventures, we were usually unable to require that they sell assets, return invested capital or take any other action without the consent of at least one of our joint venture partners. As a result, without joint venture partner consent, we were unable to liquidate our joint venture investments to generate cash. Even when we were able to liquidate joint venture investments, the amounts received upon liquidation sometimes were insufficient to cover the costs we had incurred in satisfying joint venture obligations.
By 2012, we had significantly reduced both the number of joint ventures in which we participate and our exposure to recourse indebtedness of the remaining joint ventures. However, because most of the remaining joint ventures in which we participate were formed with regard to particular properties, and the extent to which the value of residential real estate has stabilized is not the same in all areas, we continue to have risks of loss with regard to at least some of the joint ventures in which we are a participant. In addition, as part of our multifamily business, and its joint ventures, we have assumed certain obligations to complete construction of multifamily residential buildings at agreed upon costs and we could be responsible for cost overruns.
The unconsolidated entities in which we have investments may not be able to modify the terms of their debt arrangements.
Many 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.
We could be adversely impacted by the loss of key management personnel.
Our future success depends, to a significant degree, on the efforts of our senior management. Our operations could be adversely affected if key members of senior management cease to be active in our company.
Our Financial Services segment is adversely affected by reduced demand for our homes.
Approximately 50% of the mortgage loans made by our Financial Services segment are made to buyers of homes we build. Therefore, a decrease in the demand for our homes would adversely affect the financial results of this segment of our business.
If our ability to resell mortgages is impaired, we may be required to reduce home sales unless we are willing to become a long term investor in loans we originate.
Substantially all of the loans we originate are sold within a short period in the secondary mortgage market 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. The secondary mortgage market was severely impacted by the decline in property values between 2007 and 2011 and it has not recovered fully even though property values in many areas of the country stabilized significantly, and even began to rise, during the last part of 2011 and during 2012. To date, our finance company subsidiaries have been able to sell substantially all the mortgages they have originated. If, however, 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 could, among other things, delay the time when we recognize revenues from home sales on our statements of operations.
Our Financial Services segment has received demands that it repurchase mortgage loans it sold in the secondary mortgage market and we may be required to repurchase loans in excess of amounts reserved.
Particularly during 2009, 2010 and 2011, our Financial Services segment received demands that it repurchase certain loans that it had previously sold in the secondary mortgage market. The demands related primarily to loans originated during 2005 through 2007 and were frequently based on assertions that information borrowers gave our Financial Services segment was not accurate. In many instances, we have successfully disputed the claims. However, in some instances we have settled claims to maintain our business relationships with the claimants or to avoid litigation costs. In other instances, there are active disputes regarding certain loans. While we believe we have significant defenses against virtually all of the currently unresolved

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repurchase demands, we have established a reserve based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and our actual past repurchases and losses through the disposition of loans we repurchased, as well as previous settlements. At November 30, 2012 and 2011, this reserve was $7.3 million and $6.1 million, respectively. If there is an unexpected increase in the amount of repurchase demands we receive that we believe we should settle, or if we are not able to resolve existing repurchase demands on a basis consistent with our experience to date, the cost to us with regard to the repurchase demands could exceed the reserve we have established.
Although our Rialto segment's investments in distressed real estate assets have been at significant discounts, if the real estate markets deteriorate significantly we could suffer losses.
Until 2011, the principal activity of our Rialto segment involved acquisitions of portfolios of, or interests in portfolios of, distressed debt instruments and foreclosed properties. That was consistent with the Rialto segment's objective of focusing on commercial and residential real estate opportunities arising from dislocations in the United States real estate markets and the restructuring and recapitalization of those markets. Since 2011, investments have been made primarily by Fund I managed by the Rialto segment, rather than by the Rialto segment itself, and the Rialto segment is in the process of marketing Fund II. Lennar is an investor in Fund I and has committed to make an investment in Fund II. Investing in distressed debt and foreclosed properties presents many risks in addition to those inherent in normal lending activities, including the risk that the anticipated restructuring and recapitalization of the United States real estate markets will not be completed for many years, the risk that defaults on debt instruments in which the Rialto segment or the funds it manages invests will be greater than anticipated and the risk that if the Rialto segment or any of the funds it manages has to liquidate its investments into the market, it will suffer severe losses in doing so. There is also the possibility that, even if the investments made by the Rialto segment or the funds it manages perform as expected, absence of a liquid market for these investments will result in a need to reduce the values at which they are carried on our financial statements.
If Rialto's investments in real estate are not properly valued or sufficiently reserved to cover actual losses and we are required to increase our valuation reserves, our earnings could be reduced.
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 the updated market value of the foreclosed property if classified as held-and-used, or the market value of the foreclosed property less estimated selling costs if classified as held-for-sale (fair value), and a charge-off is recorded for any excess of the property's book value over its fair value. If the valuation we establish for a property proves to be too high, we may have to record additional charge-offs in subsequent periods. Material additional charge-offs could have an adverse effect on our results of operations, and possibly even on our financial condition.
There is substantial competition for the types of investments on which our Rialto segment is focused, and this may limit the ability of the Rialto segment or the investment fund it manages to make investments on terms that are attractive to it.
Our Rialto segment, and its funds, Fund I and Fund II, that it created and manages, currently are focused on investments in distressed mortgage debt, foreclosed properties and other real estate related assets that have been adversely affected by the dislocations during the last several years in the markets for real estate, mortgage loans and real estate related securities. Some of the opportunities to acquire these types of assets arise under programs involving co-investments with and financing provided by agencies of the Federal government. There are many firms and investment funds that are trying to acquire the types of assets on which our Rialto segment and the investment fund it manages are focused, and it is likely that a significant number of additional investment funds will be formed in the future with the objective of acquiring those types of assets. At least some of the firms with which the Rialto segment competes, or will compete, for investment opportunities have, or will have, a cost of capital that is lower than that of the Rialto segment or the investment funds it manages, and therefore those firms may be able to pay more for investment opportunities than would be prudent for our Rialto segment or the investment funds it manages.
Our Rialto segment could be adversely affected by court and governmental responses to improper mortgage foreclosure procedures.
During recent years it appears that mortgage lenders and mortgage loan servicers have in a number of instances failed to comply with the requirements for obtaining and foreclosing mortgage loans. Although our Rialto segment owns or manages entities that own large numbers of mortgage loans, those loans all were acquired by our Rialto segment and the entities it manages within the past two years, and our Rialto segment has procedures designed to ensure that any mortgage foreclosures which it undertakes will comply with all applicable requirements. However, even if neither our Rialto segment nor any servicing organization it uses does anything improper in foreclosing mortgages held by the Rialto segment or entities it manages, reaction by courts and regulatory agencies against apparently widespread instances of improper mortgage foreclosure procedures could make it more difficult and more expensive for our Rialto segment to foreclose mortgages that secure loans that it or entities it manages own.

15


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 related to the 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 will 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. If it is not able to do that, the Rialto segment probably will not generate the returns it is seeking.
The supply of real estate related assets available at discounts from normal prices will likely decrease if the real estate markets continue to improve, which could require our Rialto segment to change its investment strategy.
The current strategy of our Rialto segment is to seek above normal risk adjusted returns for itself or the investment funds it manages by focusing on investments in commercial and residential real estate related assets that are available at below market prices because of the dislocations in the United States real estate markets over the past several years. A continued recovery of the real estate markets would probably benefit the investments the Rialto segment and the funds it manages have made, but it probably would substantially reduce or end the availability of the types of distressed asset investments they have made. That would require the Rialto segment to rethink, and probably to change, its investment strategy.
Restrictions in agreements related to Fund I, that the Rialto segment manages could prevent the Rialto segment from making investments.
The Rialto segment manages Fund I, a fund that was formed to make investments in, among other things, distressed real estate related debt and foreclosed properties. In order to protect investors in Fund I against the possibility that we would keep attractive investment opportunities for ourselves instead of presenting them to Fund I, we agreed that we would not make investments that are suitable for Fund I except to the extent an Advisory Committee consisting of representatives of Fund I investors decides that Fund I should not make particular investments, and we will probably make similar commitments with regard to subsequent funds the Rialto segment creates. There is an exception that permits us to purchase properties for use in connection with our homebuilding operations. However, it is likely that for several years the restrictions will prevent the Rialto segment from making investments in distressed mortgage loans or foreclosed properties other than through Fund I (of which we currently own approximately 10.7%), except to the extent the applicable Advisory Committee decides that a fund should not make particular investments.
Regulatory Risks
Federal laws and regulations that adversely affect liquidity in the secondary mortgage market could hurt our business.
There have been significant concerns about the continuing viability of Fannie Mae and Freddie Mac and a number of proposals to curtail their activities. These organizations provide significant liquidity to the secondary mortgage market. Any curtailment of their activities could increase mortgage interest rates and increase the effective cost of our homes, which could reduce demand for our homes and adversely affect our results of operations.
Our homebuyers' ability to qualify for and obtain affordable mortgages could be impacted by changes made by government sponsored entities and private mortgage insurance companies supporting the mortgage market.
Changes made by Fannie Mae, Freddie Mac and FHA/VA 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. Higher income requirements reduce the amounts for which some homebuyers can qualify when buying new homes. Larger down payment requirements and increased asset reserve thresholds appear to be preventing or delaying some homebuyers from entering the market. Increased credit score requirements eliminate a segment of potential homebuyers.
New government regulations may make it more difficult for potential purchasers to finance home purchases and may reduce the number of mortgage loans our Financial Services segment makes.
In January 2013, the Federal Consumer Financial Protection Bureau proposed regulations that would impose minimum qualifications for mortgage borrowers. These regulations could make it more difficult for some potential buyers to finance home purchases and could result in our Financial Services segment originating fewer mortgages, which, in turn, could have an adverse effect on future revenues and earnings.
Government entities in regions where we operate have adopted or may adopt, slow or no growth initiatives, which could adversely affect our ability to build or timely build in these areas.

16


Some state and local governments in areas where we operate have approved, and others where we operate may approve, various slow growth or no growth homebuilding initiatives and other ballot measures that could negatively impact the availability of land and building opportunities within those jurisdictions. Approval of slow growth, no growth or similar initiatives (including the effect of these initiatives on existing entitlements and zoning) could adversely affect our ability to build or timely build and sell homes in the affected markets and/or create additional administrative and regulatory requirements and costs, which, in turn, could have an adverse effect on our future revenues and earnings.
Compliance with federal, state and local regulations related to our business could create substantial costs both in time and money, and some regulations could prohibit or restrict some homebuilding ventures.
We are subject to extensive and complex laws and regulations that affect the land development and homebuilding process, including laws and regulations related to zoning, permitted land uses, levels of density, building design, elevation of properties, water and waste disposal and use of open spaces. In addition, we are subject to laws and regulations related to workers' health and safety, 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. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of the markets where we operate, we are required 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 opposed or challenged by local governments, neighboring property owners or other interested parties, adding delays, costs and risks of non-approval to the process. Our obligation to comply with the laws and regulations under which we operate, and our 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.
We can be injured by failures of persons who act on our behalf to comply with applicable regulations and guidelines.
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 regulations or guidelines. When we learn of practices relating to homes we build or financing we provide that do not comply with applicable regulations or guidelines, 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 the 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 regulations or guidelines, we can in some instances be subject to fines or other governmental penalties, and our reputation can be injured, due to the practices' having taken place.
Tax law changes could make home ownership more expensive or less attractive.
Historically, significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally have been deductible expenses for the purpose of calculating an individual's federal, and in some cases state, taxable income as itemized deductions. The Federal government has been considering eliminating some deductions, or limiting the tax benefit of deductions, with regard to people with incomes above specified levels. As part of the American Taxpayer Relief Act of 2012, enacted on January 1, 2013, beginning in 2013 certain taxpayers will have their itemized deductions limited. Such limits will increase the after-tax cost of owning a home, which is likely to impact adversely the demand for homes we build and could reduce the prices for which we can sell homes, particularly in higher priced communities.
Other Risks
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 46% 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 and 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.

17


The trading price of our Class B common stock is substantially less 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. Yet the trading price of the Class B common stock on the New York Stock exchange normally is 20% to 30% lower than the NYSE trading price of our Class A common stock.
We may not be able to benefit from net operating loss ("NOL") carryforwards.
We suffered significant losses in 2007, 2008 and 2009 for tax (as well as for financial statement) purposes. We were able to carry back part of these losses to recover taxes we had paid with regard to prior years. However, we will not receive any tax benefits with regard to tax losses we could not carry back, except to the extent we have taxable income in the 20 year NOL carryforward period. From 2008 until 2011, we fully reserved in our financial statements against all our deferred tax assets due to the possibility that we might not have taxable income that would enable us to benefit from them. However, because in 2012 it became more likely than not that we would have sufficient future taxable income to take advantage of our deferred tax assets, in 2012 we reversed a majority of the deferred tax asset valuation allowance and we currently carry the net deferred tax assets on our balance sheet. Nonetheless, we will not actually realize the deferred tax benefits unless and until we have taxable income, and if we do not have sufficient taxable income during the 20 year NOL carryforward period, we may be required to fully reserve against our deferred tax assets again and/or, we will not receive the full tax benefit of the losses we incurred.
Trading in our shares could substantially reduce our ability to use tax loss carryforwards.
Under the Internal Revenue Code, if during any three year period there is a greater than 50% change of ownership of our stock by persons who own more than 5% of our stock, our ability to utilize NOL carryforwards would be limited to the market value of our company at the time of the change in ownership times the long-term federal tax exempt rate. This change of ownership limitation can occur as a result of purchases and sales in the market by persons who become owners of more than 5% of our stock, even without anybody becoming a new majority owner. During the past three years, there have not been any significant changes in the holdings of our stock by 5% stockholders. However, it is possible that as a result of future stock trading, within a three-year period buyers could acquire in the market 5% or greater ownership interests in our stock totaling more than 50%. If that occurs, our ability to apply our tax loss carryforwards could become limited.

Item 1B.
Unresolved Staff Comments.
Not applicable.
Executive Officers of Lennar Corporation
The following individuals are our executive officers as of January 29, 2013:
Name
Position
Age
Stuart A. Miller
Chief Executive Officer
55
Richard Beckwitt
President
53
Jonathan M. Jaffe
Vice President and Chief Operating Officer
53
Bruce E. Gross
Vice President and Chief Financial Officer
54
Diane J. Bessette
Vice President and Treasurer
52
Mark Sustana
Secretary and General Counsel
51
David M. Collins
Controller
43
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. From March 2000 to April 2003, Mr. Beckwitt was the owner and principal of EVP Capital, L.P., (a venture capital and real estate advisory company). Mr. Beckwitt retired in May 2003 to design and personally construct a second home in Maine.
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.

18


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.
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 and Rialto Investments 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 do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business, financial position, results of operations or cash flows. 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.


19


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
2012
 
2011
 
2012
 
2011
First
$24.35 - 18.12
 
$21.54 - 15.41
 
 
Second
$30.12 - 22.20
 
$20.60 - 17.34
 
 
Third
$32.85 - 23.48
 
$19.10 - 12.39
 
 
Fourth
$39.33 - 32.17
 
$18.82 - 12.14
 
 
 
Class B Common  Stock
High/Low Prices
 
Cash Dividends
Per  Class B Share
Fiscal Quarter
2012
 
2011
 
2012
 
2011
First
$19.63 - 13.73
 
$17.40 - 12.43
 
 
Second
$24.52 - 17.91
 
$16.75 - 14.00
 
 
Third
$26.20 - 18.14
 
$15.46 -   9.30
 
 
Fourth
$32.03 - 25.56
 
$14.36 -   8.95
 
 
As of December 31, 2012, the last reported sale price of our Class A common stock was $38.67 and the last reported sale price of our Class B common stock was $30.54. As of December 31, 2012, there were approximately 900 and 650 holders of record, respectively, of our Class A and Class B common stock.
On January 17, 2013, 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 15, 2013 to holders of record at the close of business on February 1, 2013. Our Board of Directors evaluates each quarter the decision whether to declare a dividend and the amount of the dividend.
In June 2001, our Board of Directors authorized a stock repurchase program to permit future purchases of up to 20 million shares of our outstanding common stock. During the year ended November 30, 2012, there were no shares repurchased under this program. At November 30, 2012, we still had authorization to purchase up to 6.2 million shares under the program.
The information required by Item 201(d) of Regulation S-K is provided in Item 12 of this Report.

20


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, 2007 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.

 
2007
 
2008
 
2009
 
2010
 
2011
 
2012
Lennar Corporation
$
100

 
47

 
89

 
108

 
133

 
277

Dow Jones U.S. Home Construction Index
$
100

 
69

 
82

 
74

 
79

 
144

Dow Jones U.S. Total Market Index
$
100

 
61

 
79

 
88

 
95

 
110


21



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, 2008 through 2012. 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)
2012
 
2011
 
2010
 
2009
 
2008
Results of Operations:
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Lennar Homebuilding
$
3,581,232

 
2,675,124

 
2,705,639

 
2,834,285

 
4,263,038

Lennar Financial Services
$
384,618

 
255,518

 
275,786

 
285,102

 
312,379

Rialto Investments
$
138,856

 
164,743

 
92,597

 

 

Total revenues
$
4,104,706

 
3,095,385

 
3,074,022

 
3,119,387

 
4,575,417

Operating earnings (loss):
 
 
 
 
 
 
 
 
 
Lennar Homebuilding (1)
$
253,101

 
109,044

 
100,060

 
(676,293
)
 
(404,883
)
Lennar Financial Services (2)
$
84,782

 
20,729

 
31,284

 
35,982

 
(30,990
)
Rialto Investments
$
11,569

 
63,457

 
57,307

 
(2,528
)
 

Corporate general and administrative expenses
$
127,338

 
95,256

 
93,926

 
117,565

 
129,752

Earnings (loss) before income taxes
$
222,114

 
97,974

 
94,725

 
(760,404
)
 
(565,625
)
Net earnings (loss) attributable to Lennar (3)
$
679,124

 
92,199

 
95,261

 
(417,147
)
 
(1,109,085
)
Diluted earnings (loss) per share
$
3.11

 
0.48

 
0.51

 
(2.45
)
 
(7.01
)
Cash dividends declared per each - Class A and Class B common stock
$
0.16

 
0.16

 
0.16

 
0.16

 
0.52

Financial Position:
 
 
 
 
 
 
 
 
 
Total assets
$
10,362,206

 
9,154,671

 
8,787,851

 
7,314,791

 
7,424,898

Debt:
 
 
 
 
 
 
 
 
 
Lennar Homebuilding
$
4,005,051

 
3,362,759

 
3,128,154

 
2,761,352

 
2,544,935

Rialto Investments
$
574,480

 
765,541

 
752,302

 

 

Lennar Financial Services
$
457,994

 
410,134

 
271,678

 
217,557

 
225,783

Stockholders’ equity
$
3,414,764

 
2,696,468

 
2,608,949

 
2,443,479

 
2,623,007

Total equity
$
4,001,208

 
3,303,525

 
3,194,383

 
2,558,014

 
2,788,753

Shares outstanding (000s)
191,548

 
188,403

 
186,636

 
184,896

 
160,558

Stockholders’ equity per share
$
17.83

 
14.31

 
13.98

 
13.22

 
16.34

Lennar Homebuilding Data (including unconsolidated entities):
 
 
 
 
 
 
 
 
 
Number of homes delivered
13,802

 
10,845

 
10,955

 
11,478

 
15,735

New Orders
15,684

 
11,412

 
10,928

 
11,510

 
13,391

Backlog of home sales contracts
4,053

 
2,171

 
1,604

 
1,631

 
1,599

Backlog dollar value
$
1,160,385

 
560,659

 
407,292

 
479,571

 
456,270

(1)
 Lennar Homebuilding operating earnings (loss) include $15.6 million, $38.0 million, $51.3 million, $359.9 million and $340.5 million, respectively, of inventory valuation adjustments for the years ended November 30, 2012, 2011, 2010, 2009 and 2008. In addition, it includes $12.1 million, $8.9 million, $10.5 million, $101.9 million and $32.2 million, respectively, of valuation adjustments related to assets of unconsolidated entities in which we have investments for the years ended November 30, 2012, 2011, 2010, 2009 and 2008, and $10.5 million, $1.7 million, $89.0 million and $172.8 million, respectively, of valuation adjustments to our investments in unconsolidated entities for the years ended November 30, 2011, 2010, 2009 and 2008.
(2)
Lennar Financial Services operating loss for the year ended November 30, 2008 includes a $27.2 million impairment of the Lennar Financial Services segment’s goodwill.
(3)
Net earnings (loss) attributable to Lennar for the year ended November 30, 2012 includes $435.2 million of benefit for income taxes, which includes a partial reversal of our deferred tax asset valuation allowance of $491.5 million, partially offset by a tax provision for fiscal year 2012 pretax earnings. Net earnings (loss) 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. Net earnings (loss) attributable to Lennar for the year ended

22


November 30, 2009 primarily include a partial reversal of our deferred tax asset valuation allowance of $351.8 million, primarily due to a change in tax legislation, which allowed us to carry back our fiscal year 2009 tax loss to recover previously paid income taxes. Net earnings (loss) attributable to Lennar for the year ended November 30, 2008 include a $730.8 million valuation allowance recorded against our deferred tax assets.

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
Some of the statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Annual Report on Form 10-K, are “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption “Risk Factors” in Item 1A of this Report. We do not undertake any obligation to update forward-looking statements, except as required by Federal securities laws.

Outlook
Throughout 2012 we have seen fundamental shifts and resulting trends that indicate the housing market has stabilized and is currently recovering. This shift has been driven by a combination of low home prices, low interest rates, reduced foreclosures and an extremely favorable rent-to-own comparison making the decision for qualified homebuyers to buy homes more attractive than the escalating cost of renting. Overall, we are experiencing more traffic in our communities, and have seen an increased sales pace at increasing prices in many of our markets during fiscal 2012 as reflected in our new orders and sales backlog, which increased 37% and 87%, respectively, from the prior year. In 2013, housing should continue to assume its traditional role in the economy, driving employment upward, increasing consumer confidence and overall helping to accelerate the economic recovery.
In fiscal 2013, our principal focus in our homebuilding operations will continue to be on maintaining and improving our operating margin on the homes we sell by increasing sales prices and reducing sales incentives, as well as taking advantage of the steps we have taken over the past several years to reduce costs and right-size our overhead structure. In addition, we continue to invest in carefully underwritten strategic land acquisitions in well-positioned markets that we expect to continue to support our homebuilding operations going forward and help us increase operating leverage as deliveries increase. Our Financial Services segment benefited in 2012 from a robust refinancing market and our growing homebuilding operations. Although we expect a less robust refinancing market in 2013, our Financial Services segment should continue to be a strong profit generator in 2013. Our Rialto Investments segment also produced profitability during fiscal 2012 as it continued to grow its business. We believe that 2013 will be a transitional year for our Rialto Investments segment as the PPIP fund was successfully completed at the end of 2012 and the first closing of our second fund was completed in December of 2012 and will be ramping up throughout 2013.
As we enter fiscal 2013, we believe that all the segments of our company are well positioned. We are on track to achieve another year of substantial profitability in 2013 as the housing market recovery continues and we continue to benefit from our strategic land acquisitions and new community openings.


23


Results of Operations
Overview
Our net earnings attributable to Lennar in 2012 were $679.1 million, or $3.11 per diluted share ($3.58 per basic share), compared to $92.2 million, or $0.48 per diluted share ($0.49 per basic share), in 2011. A substantial portion of our net earnings resulted from the reversal of a majority of our deferred tax asset valuation allowance of $491.5 million, or $2.25 per diluted share. Our 2012 earnings before taxes were $222.1 million, compared to $98.0 million in 2011.
The following table sets forth financial and operational information for the years indicated related to our operations.
 
Years Ended November 30,
(Dollars in thousands)
2012
 
2011
 
2010
Lennar Homebuilding revenues:
 
 
 
 
 
Sales of homes
$
3,492,177

 
2,624,785

 
2,631,314

Sales of land
89,055

 
50,339

 
74,325

Total Lennar Homebuilding revenues
3,581,232

 
2,675,124

 
2,705,639

Lennar Homebuilding costs and expenses:
 
 
 
 
 
Cost of homes sold
2,698,831

 
2,101,414

 
2,113,393

Cost of land sold
78,808

 
42,611

 
52,968

Selling, general and administrative
438,727

 
384,798

 
376,962

Total Lennar Homebuilding costs and expenses
3,216,366

 
2,528,823

 
2,543,323

Lennar Homebuilding operating margins
364,866

 
146,301

 
162,316

Lennar Homebuilding equity in loss from unconsolidated entities
(26,676
)
 
(62,716
)
 
(10,966
)
Lennar Homebuilding other income, net
9,264

 
116,109

 
19,135

Other interest expense
(94,353
)
 
(90,650
)
 
(70,425
)
Lennar Homebuilding operating earnings
$
253,101

 
109,044

 
100,060

Lennar Financial Services revenues
$
384,618

 
255,518

 
275,786

Lennar Financial Services costs and expenses
299,836

 
234,789

 
244,502

Lennar Financial Services operating earnings
$
84,782

 
20,729

 
31,284

Rialto Investments revenues
$
138,856

 
164,743

 
92,597

Rialto Investments costs and expenses
138,990

 
132,583

 
67,904

Rialto Investments equity in earnings (loss) from unconsolidated entities
41,483

 
(7,914
)
 
15,363

Rialto Investments other income (expense), net
(29,780
)
 
39,211

 
17,251

Rialto Investments operating earnings
$
11,569

 
63,457

 
57,307

Total operating earnings
$
349,452

 
193,230

 
188,651

Corporate general administrative expenses
127,338

 
95,256

 
93,926

Earnings before income taxes
$
222,114

 
97,974

 
94,725

Net earnings attributable to Lennar
$
679,124

 
92,199

 
95,261

Gross margin as a % of revenue from home sales
22.7
%
 
19.9
%
 
19.7
%
S,G&A expenses as a % of revenues from home sales
12.6
%
 
14.7
%
 
14.3
%
Operating margin as a % of revenues from home sales
10.2
%
 
5.3
%
 
5.4
%
Average sales price
$
255,000

 
244,000

 
243,000

2012 versus 2011
Revenues from home sales increased 33% in the year ended November 30, 2012 to $3.5 billion from $2.6 billion in 2011. Revenues were higher primarily due to a 28% increase in the number of home deliveries, excluding unconsolidated entities, and a 4% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 13,707 homes in the year ended November 30, 2012 from 10,746 homes last year. 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 $255,000 in the year ended November 30, 2012 from $244,000 in the same period last year, 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

24


many of our markets as the market recovers. Sales incentives offered to homebuyers were $28,300 per home delivered in the year ended November 30, 2012, or 10.0% as a percentage of home sales revenue, compared to $33,700 per home delivered in the same period last year, or 12.1% 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, and in certain markets emphasizing energy efficiency and new technologies.
Gross margins on home sales were $793.3 million, or 22.7%, in the year ended November 30, 2012, which included $12.6 million of valuation adjustments, compared to gross margins on home sales of $523.4 million, or 19.9%, in the year ended November 30, 2011, which included 35.7 million of valuation adjustments. Gross margin percentage on home sales improved compared to last year, primarily due to a greater percentage of deliveries from our new higher margin communities, 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 lower valuation adjustments.
Gross profits on land sales totaled $10.2 million in the year ended November 30, 2012, compared to gross profits on land sales of $7.7 million in the year ended November 30, 2011.
Selling, general and administrative expenses were $438.7 million in the year ended November 30, 2012, compared to selling, general and administrative expenses of $384.8 million last year, which included $8.4 million related to expenses associated with remedying pre-existing liabilities of a previously acquired company, offset by $8.0 million related to the receipt of a litigation settlement. Selling, general and administrative expenses as a percentage of revenues from home sales improved to 12.6% in the year ended November 30, 2012, from 14.7% in 2011, primarily due to improved operating leverage and lower advertising costs.
Lennar Homebuilding equity in loss from unconsolidated entities was $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 asset sales at Lennar Homebuilding's unconsolidated entities. This compared to Lennar Homebuilding equity in loss from unconsolidated entities of $62.7 million in the year ended November 30, 2011, which included our share of valuation adjustments of $57.6 million related to an asset distribution from a Lennar Homebuilding unconsolidated entity as the result of a linked transaction. This was offset by a pre-tax gain of $62.3 million included in 2011 Lennar Homebuilding other income, net, related to that unconsolidated entity’s net asset distribution. The transaction resulted in a net pre-tax gain of $4.7 million in the year ended November 30, 2011. In addition, in the year ended November 30, 2011, Lennar Homebuilding equity in loss from unconsolidated entities included $8.9 million of valuation adjustments related to assets of Lennar Homebuilding’s unconsolidated entities, offset by our share of a gain on debt extinguishment at one of Lennar Homebuilding’s unconsolidated entities totaling $15.4 million.
Lennar Homebuilding other income, net, totaled $9.3 million in the year ended November 30, 2012, primarily due to 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 ("5.95% Senior Notes") through a tender offer. This compared to Lennar Homebuilding other income, net, of $116.1 million in the year ended November 30, 2011, which included the $62.3 million pre-tax gain related to an unconsolidated entity's net asset distribution discussed in the previous paragraph and $29.5 million related to the receipt of a litigation settlement. The parties to a litigation in which the Company was a plaintiff entered into a settlement agreement in 2011 in which they agreed the Company may make the following statement: “Lennar recently settled litigation against a third party in connection with Lennar’s ongoing dispute with Nicolas Marsch, III and his affiliates. As a result of the settlement, the third party paid Lennar total cash consideration of $37.5 million and that the terms are confidential.” Lennar Homebuilding other income, net, in the year ended November 30, 2011 also included $5.1 million related to the favorable resolution of a joint venture and the recognition of $10.0 million of deferred management fees related to management services previously performed for one of Lennar Homebuilding’s unconsolidated entities. These amounts were partially offset by $10.5 million of valuation adjustments to our investments in Lennar Homebuilding’s unconsolidated entities and $4.9 million of write-offs of other assets in the year ended November 30, 2011.
Homebuilding interest expense was $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), compared to $163.0 million in the year ended November 30, 2011 ($70.7 million was included in cost of homes sold, $1.6 million in cost of land sold and $90.7 million in other interest expense). Interest expense increased primarily due to an increase in our outstanding debt compared to the prior year.
Operating earnings for our Lennar Financial Services segment were $84.8 million in the year ended November 30, 2012, compared to operating earnings of $20.7 million in the same period last year. The increase in profitability was primarily due to increased volume and margins in the segment’s mortgage operations and increased volume in the segment's title operations, as a result of a significant increase in refinance transactions and homebuilding deliveries.
In the year ended November 30, 2012, operating earnings for the Rialto Investments segment were $26.0 million (which is comprised of $11.6 million of operating earnings and an add back of $14.4 million of net loss attributable to

25


noncontrolling interests), compared to operating earnings of $34.6 million (which included $63.5 million of operating earnings offset by $28.9 million of net earnings attributable to noncontrolling interests) in the same period last year. In the year ended November 30, 2012, revenues in this segment were $138.9 million, which consisted primarily of accretable interest income associated with the segment’s portfolio of real estate loans and fees for managing and servicing assets, compared to revenues of $164.7 million in the same period last year. Revenues decreased primarily due to lower interest income as a result of a decrease in the portfolio of loans. In the year ended November 30, 2012, expenses in this segment were $139.0 million, 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, compared to expenses of $132.6 million in the same period last year, which consisted primarily of costs related to its portfolio operations, loan impairments of $13.8 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests), due diligence expenses related to both completed and abandoned transactions, and other general and administrative expenses.
In the year ended November 30, 2012, Rialto Investments other income (expense), net, was ($29.8) million, which consisted primarily of expenses related to owning and maintaining REO and impairments on REO, partially offset by gains from sales of REO and rental income. In the year ended November 30, 2011, Rialto Investments other income (expense), net, was $39.2 million, which consisted primarily of gains from acquisition of real estate owned (“REO”) through foreclosure, as well as gains from sales of REO, partially offset by expenses related to owning and maintaining those assets, and a $4.7 million gain on the sale of investment securities.
In the year ended November 30, 2012, the segment also had equity in earnings (loss) from unconsolidated entities of $41.5 million,which 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 the real estate investment fund managed by the Rialto segment ("Fund I"). During the second half of 2012, all of the securities in the investment portfolio underlying the AB PPIP fund were monetized related to the unwinding of its operations, resulting in liquidating distributions of $83.5 million. As our role as sub-advisor to the AB PPIP fund has been completed, no further management fees will be received for these services. This compared to equity in earnings (loss) from unconsolidated entities of ($7.9) million in the same period last year, consisting primarily of $21.4 million of unrealized losses related to our share of the mark-to-market adjustments of the investment portfolio underlying the AB PPIP fund, partially offset by $10.7 million of interest income earned by the AB PPIP fund and $2.9 million of equity in earnings related to Fund I.
In the year ended November 30, 2012, corporate general and administrative expenses were $127.3 million, or 3.1% as a percentage of total revenues, compared to $95.3 million, or 3.1% as a percentage of total revenues, in the same period last year. The increase in corporate general and administrative expenses was primarily due to an increase in personnel related expenses as a result of an increase in share-based and variable compensation expense.
In the years ended November 30, 2012 and 2011, net earnings (loss) attributable to noncontrolling interests were ($21.8) million and $20.3 million, respectively. Net loss attributable to noncontrolling interests during the year ended November 30, 2012 was attributable to noncontrolling interests related to our homebuilding operations and the FDIC's interest in the portfolio of real estate loans that we hold in partnership with the FDIC in our Rialto Investments segment. Net earnings attributable to noncontrolling interests during the year ended November 30, 2011 were related to the Rialto Investments operations, partially offset by a net loss attributable to noncontrolling interests in our homebuilding operations.
During the year ended November 30, 2012, we concluded that it was more likely than not that the majority of our deferred tax assets would be utilized. This conclusion was based on a detailed evaluation of all relevant evidence, both positive and negative. The positive evidence included factors such as eleven consecutive quarters of earnings, the expectation of continued earnings and evidence of a sustained recovery in the housing markets that we operate. Such evidence is supported by us experiencing significant increases in key financial indicators, including new orders, revenues, gross margin, backlog, gross margin in backlog, and deliveries compared with the prior year. We have also restructured our corporate and field operations, significantly reducing our cost structure and permitting us to generate profits at lower level of activity. Economic data has also been affirming housing market recovery. Housing starts, homebuilding volume and prices are increasing and forecasted to continue to increase. Low mortgage rates, affordable home prices, reduced foreclosures, and a favorable home ownership to rental comparison continue to drive the recovery. Lastly, we project to use the majority of our net operating losses in the allowable carryforward periods, and we have no history of net operating losses expiring unutilized.
We are required to use judgment in considering the relative impact of negative and positive evidence when determining the need for a valuation allowance for our deferred tax asset. The weight given to the potential effect of negative and positive evidence shall be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary. The most significant direct negative evidence that currently exists is that we are currently in a cumulative four-year loss position. However, our cumulative four-year loss is declining

26


significantly as a result of eleven consecutive quarters of profitability and based on our current earnings level we will realize a majority of our deferred tax assets.
Based on the analysis of positive and negative evidence, we believe that there is enough positive evidence to overcome our current cumulative loss position. Therefore, we concluded that it was more likely than not that we will realize our deferred tax assets, and reversed the majority of the valuation allowance established against our deferred tax assets during the year ended November 30, 2012.
Accordingly, we reversed $491.5 million of the valuation allowance against our deferred tax assets. Based on analysis utilizing objectively verifiable evidence, it was not more likely than not that certain state net operating loss carryforwards would be utilized. As a result, the remaining valuation allowance against our deferred tax assets was $88.8 million, as of November 30, 2012, which is primarily related to state net operating loss carryforwards. In future periods, the remaining valuation allowance could be reversed if additional sufficient positive evidence is present indicating that it is more likely than not that such assets would be realized. The valuation allowance against our deferred tax assets was $576.9 million at November 30, 2011.
As of November 30, 2012, we owned 107,138 homesites and had access to an additional 21,346 homesites through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. As of November 30, 2011, we owned 94,684 homesites and had access to an additional 16,702 homesites through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. Our backlog of sales contracts was 4,053 homes ($1.2 billion) at November 30, 2012, compared to 2,171 homes ($560.7 million) at November 30, 2011.
2011 versus 2010
For both the years ended November 30, 2011 and 2010, revenues from home sales were $2.6 billion. There was a 1% increase in the average sales price of homes delivered, offset by a 1% decrease in the number of homes deliveries, excluding unconsolidated entities. New home deliveries, excluding unconsolidated entities, decreased to 10,746 homes in the year ended November 30, 2011 from 10,859 homes in 2010. The decrease in home deliveries was primarily in our Homebuilding Houston and Homebuilding West segments and Homebuilding Other as a result of the absence of the Federal homebuyer tax credit, partially offset by an increase in home deliveries in our Homebuilding Southeast Florida segment. The increase in deliveries in our Homebuilding Southeast Florida segment was the result of an increase in home deliveries from communities acquired in 2010 that has sales but only a small amount of deliveries during the year ended November 30, 2010. The average sales price of homes delivered increased to $244,000 in the year ended November 30, 2011 from $243,000 in 2010, driven primarily by an increase in the average sales price of home deliveries in all of our Homebuilding segments and Homebuilding Other, except for our Homebuilding West segment, primarily due to a higher percentage of home deliveries in higher priced communities. This increase was partially offset by a reduction in average sales price in our Homebuilding West segment due to a shift to smaller square footage homes generating a lower average sales price. Sales incentives offered to homebuyers were $33,700 per home delivered in the year ended November 30, 2011, or 12.1% as a percentage of home sales revenue, compared to $32,800 per home delivered in 2010, or 11.9% as a percentage of home sales revenue. During 2011 our biggest competition was from the sales of existing and foreclosed homes. We differentiate our new homes from those homes by issuing new home warranty, and in certain markets emphasizing energy efficiency and new technology such as keyless door locks and lighting and thermostats controlled remotely from outside the home.
Gross margins on home sales were $523.4 million, or 19.9%, in the year ended November 30, 2011, which included $35.7 million of valuation adjustments, compared to gross margins on home sales of $517.9 million, or 19.7%, in the year ended November 30, 2010, which included $44.7 million of valuation adjustments.
Gross profits on land sales totaled $7.7 million in the year ended November 30, 2011, net of $0.5 million of valuation adjustments and $1.8 million in write-offs of deposits and pre-acquisition costs, compared to gross profits on land sales of $21.4 million in the year ended November 30, 2010, primarily due to a $14.1 million reduction of an obligation related to a profit participation agreement. Gross profits on land sales for the year ended November 30, 2010 were net of $3.4 million of valuation adjustments and $3.1 million in write-offs of deposits and pre-acquisition costs.
Selling, general and administrative expenses were $384.8 million in the year ended November 30, 2011, which included $8.4 million related to additional expenses associated with remedying pre-existing liabilities of a previously acquired company, offset by $8.0 million related to the receipt of a litigation settlement. Selling, general and administrative expenses were $377.0 million in the year ended November 30, 2010. Selling, general and administrative expenses as a percentage of revenues from home sales increased to 14.7% in the year ended November 30, 2011, from 14.3% in 2010.
Lennar Homebuilding equity in loss from unconsolidated entities was $62.7 million in the year ended November 30, 2011, which primarily included our share of valuation adjustments of $57.6 million related to an asset distribution from a Lennar Homebuilding unconsolidated entity as the result of a linked transaction. This was offset by a pre-tax gain of $62.3 million included in Lennar Homebuilding other income, net, related to that unconsolidated entity’s net asset distribution. The transaction resulted in a net pre-tax gain of $4.7 million. In addition, Lennar Homebuilding equity in loss from unconsolidated

27


entities included $8.9 million of valuation adjustments related to assets of Lennar Homebuilding’s unconsolidated entities, offset by our share of a gain on debt extinguishment at one of Lennar Homebuilding’s unconsolidated entities totaling $15.4 million. In the year ended November 30, 2010, Lennar Homebuilding equity in loss from unconsolidated entities was $11.0 million, which included $10.5 million of valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by a net pre-tax gain of $7.7 million as a result of a transaction by one of Lennar Homebuilding’s unconsolidated entities.
Lennar Homebuilding other income net, totaled $116.1 million in the year ended November 30, 2011, which included the $62.3 million pre-tax gain discussed in the previous paragraph and $29.5 million related to the receipt of a litigation settlement. Lennar Homebuilding other income, net, in the year ended November 30, 2011 also included $5.1 million related to the favorable resolution of a joint venture and the recognition of $10.0 million of deferred management fees related to management services previously performed for one of Lennar Homebuilding’s unconsolidated entities. These amounts were partially offset by $10.5 million of valuation adjustments to our investments in Lennar Homebuilding’s unconsolidated entities. In the year ended November 30, 2010, Lennar Homebuilding other income, net, was $19.1 million, which included a $19.4 million pre-tax gain on the extinguishment of other debt and other income, partially offset by a pre-tax loss of $10.8 million related to the repurchase of senior notes through a tender offer.
Homebuilding interest expense was $163.0 million in the year ended November 30, 2011 ($70.7 million was included in cost of homes sold, $1.6 million in cost of land sold and $90.7 million in other interest expense), compared to $143.9 million in the year ended November 30, 2010 ($71.5 million was included in cost of homes sold, $2.0 million in cost of land sold and $70.4 million in other interest expense). Interest expense increased primarily due to an increase in our outstanding debt compared to 2010.
Operating earnings for our Lennar Financial Services segment were $20.7 million in the year ended November 30, 2011, compared to operating earnings of $31.3 million in 2010. The decrease in profitability was due primarily to decreased volume in the segment’s mortgage operations. In addition, in the year ended November 30, 2010, our Lennar Financial Services segment received $5.1 million of proceeds from the previous sale of a cable system.
In the year ended November 30, 2011, operating earnings in our Rialto Investments segment were $63.5 million (which included $28.9 million of net earnings attributable to noncontrolling interests), compared to operating earnings of $57.3 million (which included $33.2 million of net earnings attributable to noncontrolling interests) in 2010. In the year ended November 30, 2011, revenues in this segment were $164.7 million, which consisted primarily of accretable interest income associated with the segment’s portfolio of real estate loans and fees for managing and servicing assets, compared to revenues of $92.6 million in 2010. In the year ended November 30, 2011, Rialto Investments other income, net, was $39.2 million, which consisted primarily of gains from acquisition of REO through foreclosure, as well as gains from sales of REO, partially offset by expenses related to owning and maintaining those assets, and a $4.7 million gain on the sale of investment securities. In the year ended November 30, 2010, Rialto Investments other income, net, was $17.3 million, which consisted primarily of gains from acquisition of real estate owned through foreclosure as well as gains from real estate sales.
The segment also had equity in earnings (loss) from unconsolidated entities of ($7.9) million in the year ended November 30, 2011, consisting primarily of $21.4 million of unrealized losses related to our share of the mark-to-market adjustments of the investment portfolio underlying the AB PPIP fund, partially offset by $10.7 million of interest income earned by the AB PPIP fund and $2.9 million of equity in earnings related to Fund I. This compares to equity in earnings (loss) from unconsolidated entities of $15.4 million in 2010, which included $9.3 million of unrealized gains related to our share of the mark-to-market adjustments of AB PPIP investments. In the year ended November 30, 2011, expenses in this segment were $132.6 million, which consisted primarily of costs related to its portfolio operations, due diligence expenses related to both completed and abandoned transactions, and other general and administrative expenses, compared to expenses of $67.9 million in 2010.
Corporate general and administrative expenses were $95.3 million, or 3.1% as a percentage of total revenues, in the year ended November 30, 2011, compared to $93.9 million, or 3.1% as a percentage of total revenues, in the year ended November 30, 2010.
Net earnings (loss) attributable to noncontrolling interests were $20.3 million and $25.2 million, respectively, in the year ended November 30, 2011 and 2010. Net earnings attributable to noncontrolling interests during both the years ended November 30, 2011 and 2010 were primarily related to the FDIC’s interest in the portfolio of real estate loans that we acquired in partnership with the FDIC.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if based on available evidence, it is more likely than not that such assets will not be realized. Based upon an evaluation of all available evidence, during the year ended November 30, 2011, we recorded a reversal of the deferred tax asset valuation allowance of $32.6 million, primarily due to net earnings generated during the year.

28


At November 30, 2011, we owned 94,684 homesites and had access to an additional 16,702 homesites through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. At November 30, 2011, 1% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 2,171 homes ($560.7 million) at November 30, 2011, compared to 1,604 homes ($407.3 million) at November 30, 2010.

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 also 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, 2012, 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, 2012, 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 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)
2012
 
2011
 
2010
Revenues:
 
 
 
 
 
East:
 
 
 
 
 
Sales of homes
$
1,283,441

 
1,009,750

 
970,355

Sales of land
16,539

 
11,062

 
16,623

Total East
1,299,980

 
1,020,812

 
986,978

Central:
 
 
 
 
 
Sales of homes
487,317

 
355,350

 
348,486

Sales of land
19,071

 
9,907

 
9,246

Total Central
506,388

 
365,257

 
357,732

West:
 
 
 
 
 
Sales of homes
683,267

 
531,984

 
650,844

Sales of land
14,022

 
8,879

 
32,646

Total West
697,289

 
540,863

 
683,490

Southeast Florida:
 
 
 
 
 
Sales of homes
353,841

 
239,608

 
131,091

Sales of land
13,800

 

 

Total Southeast Florida
367,641

 
239,608

 
131,091

Houston:
 
 
 
 
 
Sales of homes
449,580

 
321,908

 
357,590

Sales of land
22,043

 
19,802

 
8,348

Total Houston
471,623

 
341,710

 
365,938

Other
 
 
 
 
 
Sales of homes
234,731

 
166,185

 
172,948

Sales of land
3,580

 
689

 
7,462

Total Other
238,311

 
166,874

 
180,410

Total homebuilding revenues
$
3,581,232

 
2,675,124

 
2,705,639


30


 
Years Ended November 30,
(In thousands)
2012
 
2011
 
2010
Operating earnings (loss):
 
 
 
 
 
East:
 
 
 
 
 
Sales of homes
$
137,231

 
98,822

 
114,061

Sales of land
2,472

 
233

 
1,108

Equity in earnings (loss) from unconsolidated entities
542

 
(518
)
 
(602
)
Other income (expense), net (1)
(166
)
 
4,568

 
3,772

Other interest expense
(26,082
)
 
(22,755
)
 
(19,113
)
Total East
113,997

 
80,350

 
99,226

Central:
 
 
 
 
 
Sales of homes (2)
39,388

 
(16,109
)
 
(7,910
)
Sales of land
909

 
2,129

 
(353
)
Equity in loss from unconsolidated entities
(514
)
 
(922
)
 
(4,727
)
Other expense, net
(1,529
)
 
(1,082
)
 
(2,261
)
Other interest expense
(13,427
)
 
(15,184
)
 
(10,661
)
Total Central
24,827

 
(31,168
)
 
(25,912
)
West:
 
 
 
 
 
Sales of homes (2)
39,941

 
(3,071
)
 
4,019

Sales of land
388

 
749

 
16,502

Equity in loss from unconsolidated entities (3)
(25,415
)
 
(57,215
)
 
(6,113
)
Other income, net (4)
2,393

 
117,066

 
5,451

Other interest expense
(31,334
)
 
(31,479
)
 
(25,720
)
Total West
(14,027
)
 
26,050

 
(5,861
)
Southeast Florida:
 
 
 
 
 
Sales of homes
65,745

 
34,096

 
16,793

Sales of land
(354
)
 

 

Equity in loss from unconsolidated entities
(961
)
 
(1,152
)
 
(269
)
Other income, net (5)
15,653

 
2,488

 
9,460

Other interest expense
(9,026
)
 
(8,004
)
 
(4,979
)
Total Southeast Florida
71,057

 
27,428

 
21,005

Houston:
 
 
 
 
 
Sales of homes
43,423

 
16,115

 
25,138

Sales of land
6,182

 
4,617

 
1,683

Equity in earnings (loss) from unconsolidated entities
(35
)
 
46

 
766

Other income, net
1,328

 
965

 
1,413

Other interest expense
(4,623
)
 
(4,563
)
 
(2,970
)
Total Houston
46,275

 
17,180

 
26,030

Other
 
 
 
 
 
Sales of homes
28,891

 
8,720

 
(11,142
)
Sales of land
650

 

 
2,417

Equity in loss from unconsolidated entities
(293
)
 
(2,955
)
 
(21
)
Other income (expense), net
(8,415
)
 
(7,896
)
 
1,300

Other interest expense
(9,861
)
 
(8,665
)
 
(6,982
)
Total Other
10,972

 
(10,796
)
 
(14,428
)
Total homebuilding operating earnings
$
253,101

 
109,044

 
100,060

(1)
Other income (expense), net, for the year ended November 30, 2011 includes $5.1 million of income related to the favorable resolution of a joint venture.
(2)
Operating earnings (loss) on the sales of homes in our Homebuilding Central segment for the year ended November 30, 2011 includes $8.4 million of additional expenses associated with remedying pre-existing liabilities of a previously acquired company. Sales of homes

31


in our Homebuilding West segment for the year ended November 30, 2011 includes an $8.1 million benefit related to changes in our cost-to-complete estimates for homebuilding communities in the close-out phase.
(3)
For the year ended November 30, 2012, equity in loss from unconsolidated entities relates primarily to our share of operating losses of our Lennar Homebuilding unconsolidated entities, which includes $12.1 million of our share of valuation adjustments primarily related to asset sales at Lennar Homebuilding unconsolidated entities. For the year ended November 30, 2011, equity in loss from unconsolidated entities includes a $57.6 million valuation adjustment related to an asset distribution from a Lennar Homebuilding unconsolidated entity that resulted from a linked transaction where there was also a pre-tax gain of $62.3 million related to the distribution of assets of the unconsolidated entity. The pre-tax gain of $62.3 million was included in Lennar Homebuilding other income (expense), net for the year ended November 30, 2011.
(4)
For the year ended November 30, 2011, other income, net, includes a pre-tax gain of $62.3 million related to the distribution of assets of a Lennar Homebuilding unconsolidated entity, $29.5 million related to the receipt of a litigation settlement, discussed previously in the Overview section, and the recognition of $10.0 million of deferred management fees related to management services previously performed by us for one of the Lennar Homebuilding unconsolidated entities.
(5)
Other income, net for the year ended November 30, 2012, includes a $15.0 million gain on the sale of an operating property.
Summary of Homebuilding Data
Deliveries:
 
Years Ended November 30,
 
Homes
 
2012
 
2011
 
2010
East
5,440

 
4,576

 
4,539

Central
2,154

 
1,661

 
1,682

West
2,301

 
1,846

 
2,079

Southeast Florida
1,314

 
904

 
536

Houston
1,917

 
1,411

 
1,645

Other
676

 
447

 
474

Total
13,802

 
10,845

 
10,955

Of the total home deliveries above, 95, 99 and 96, respectively, represent deliveries from unconsolidated entities for the years ended November 30, 2012, 2011 and 2010.
 
Years Ended November 30,
 
Dollar Value (In thousands)
 
Average Sales Price
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
East
$
1,290,549

 
1,009,750

 
970,355

 
$
237,000

 
221,000

 
214,000

Central
487,317

 
355,350

 
348,486

 
226,000

 
214,000

 
207,000

West
728,092

 
598,202

 
711,822

 
316,000

 
324,000

 
342,000

Southeast Florida
353,841

 
239,607

 
131,091

 
269,000

 
265,000

 
245,000

Houston
449,580

 
321,908

 
357,590

 
235,000

 
228,000

 
217,000

Other
234,731

 
166,186

 
172,948

 
347,000

 
372,000

 
365,000

Total
$
3,544,110

 
2,691,003

 
2,692,292

 
$
257,000

 
248,000

 
246,000

Of the total dollar value of home deliveries above, $51.9 million, $66.2 million and $61.0 million, respectively, represent the dollar value of home deliveries from unconsolidated entities for the years ended November 30, 2012, 2011 and 2010. The home deliveries from unconsolidated entities had an average sales price of $547,000, $669,000 and $635,000, respectively, for the years ended November 30, 2012, 2011 and 2010.

32


Sales Incentives (1):
 
Years Ended November 30,
 
(In thousands)
 
2012
 
2011
 
2010
East
$
169,779

 
148,424

 
127,592

Central
49,028

 
52,117

 
53,034

West
48,341

 
54,000

 
65,988

Southeast Florida
41,529

 
33,092

 
22,248

Houston
62,497

 
54,680

 
63,255

Other
17,050

 
19,421

 
24,370

Total
$
388,224

 
361,734

 
356,487

 
Years Ended November 30,
 
Average Sales Incentives Per
Home Delivered
 
Sales Incentives as a
% of Revenue
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
East
$
31,300

 
32,400

 
28,110

 
11.7
%
 
12.8
%
 
11.6
%
Central
22,800

 
31,400

 
31,500

 
9.1
%
 
12.8
%
 
13.2
%
West
21,700

 
30,900

 
33,300

 
6.6
%
 
9.2
%
 
9.2
%
Southeast Florida
31,600

 
36,600

 
41,500

 
10.5
%
 
12.0
%
 
14.5
%
Houston
32,600

 
38,800

 
38,500

 
12.2
%
 
14.5
%
 
15.0
%
Other
25,200

 
43,400

 
51,400

 
6.8
%
 
10.5
%
 
12.3
%
Total
$
28,300

 
33,700

 
32,800

 
10.0
%
 
12.1
%
 
11.9
%
(1)
Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.
New Orders (2):
 
Years Ended November 30,
 
Homes
 
2012
 
2011
 
2010
East
5,868

 
4,769

 
4,509

Central
2,498

 
1,716

 
1,769

West
2,711

 
1,965

 
1,922

Southeast Florida
1,617

 
947

 
614

Houston
2,078

 
1,521

 
1,641

Other
912

 
494

 
473

Total
15,684

 
11,412

 
10,928

Of the new orders above, 98, 98 and 90, respectively, represent new orders from unconsolidated entities for the years ended November 30, 2012, 2011 and 2010.
 
Years Ended November 30,
 
Dollar Value (In thousands)
 
Average Sales Price
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
East
$
1,438,268

 
1,051,624

 
954,255

 
$
245,000

 
221,000

 
212,000

Central
591,677

 
367,274

 
365,667

 
237,000

 
214,000

 
207,000

West
834,426

 
638,418

 
625,469

 
308,000

 
325,000

 
325,000

Southeast Florida
441,311

 
254,632

 
156,424

 
273,000

 
269,000

 
255,000

Houston
505,579

 
342,836

 
355,771

 
243,000

 
225,000

 
217,000

Other
333,232

 
189,658

 
169,025

 
365,000

 
384,000

 
357,000

Total
$
4,144,493

 
2,844,442

 
2,626,611

 
$
264,000

 
249,000

 
240,000


33


Of the total dollar value of new orders above, $54.4 million, $65.1 million and $55.9 million, respectively, represent the dollar value of new orders from unconsolidated entities for the years ended November 30, 2012, 2011 and 2010. The new orders from unconsolidated entities had an average sales price of $556,000, $664,000 and $621,000, respectively, for the years ended November 30, 2012, 2011 and 2010.
New orders represent the number of new sales contracts executed by homebuyers, net of cancellations, during the years ended November 30, 2012, 2011 and 2010.
Backlog:
 
Years Ended November 30,
 
Homes
 
2012
 
2011
 
2010
East
1,376

 
948

 
755

Central
653

 
309

 
254

West
708

 
298

 
179

Southeast Florida
469

 
166

 
123

Houston
516

 
355

 
245

Other
331

 
95

 
48

Total
4,053

 
2,171

 
1,604

Of the total homes in backlog above, 5 homes, 2 homes and 3 homes, respectively, represent homes in backlog from unconsolidated entities at November 30, 2012, 2011 and 2010.
 
Dollar Value (In thousands)
 
Average Sales Price
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
East
$
368,361

 
220,974

 
176,588

 
$
268,000

 
233,000

 
234,000

Central
168,912

 
65,256

 
52,923

 
259,000

 
211,000

 
208,000

West
202,959

 
97,292

 
58,072

 
287,000

 
326,000

 
324,000

Southeast Florida
141,146

 
52,013

 
39,035

 
301,000

 
313,000

 
317,000

Houston
135,282

 
79,800

 
58,822

 
262,000

 
225,000

 
240,000

Other
143,725

 
45,324

 
21,852

 
434,000

 
477,000

 
455,000

Total
$
1,160,385

 
560,659

 
407,292

 
$
286,000

 
258,000

 
254,000

Of the total dollar value of homes in backlog above, $3.5 million, $1.0 million and $2.1 million, respectively, represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2012, 2011 and 2010. The homes in backlog from unconsolidated entities had an average sales price of $704,000, $506,000 and $716,000, respectively, at November 30, 2012, 2011 and 2010.
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 experienced cancellation rates in our homebuilding segments and Homebuilding Other as follows:
 
Years Ended November 30,
 
2012
 
2011
 
2010
East
18
%
 
18
%
 
17
%
Central
18
%
 
23
%
 
18
%
West
17
%
 
18
%
 
18
%
Southeast Florida
12
%
 
13
%
 
18
%
Houston
23
%
 
21
%
 
18
%
Other
8
%
 
8
%
 
11
%
Total
17
%
 
19
%
 
17
%
Our cancellation rate during 2012 was within a range that is consistent with historical cancellation rates, but substantially below those we experienced from 2007 through 2009. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.

34


The following table details our gross margins on home sales for the years ended November 30, 2012, 2011 and 2010 for each of our reportable homebuilding segments and Homebuilding Other:
 
Years Ended November 30,
(In thousands)
2012
 
2011
 
2010
East:
 
 
 
 
 
Sales of homes
$
1,283,441

 
1,009,750

 
970,355

Cost of homes sold
979,219

 
779,538

 
734,328

Gross margins on home sales
304,222

 
230,212

 
236,027

Central:
 
 
 
 
 
Sales of homes
487,317

 
355,350

 
348,486

Cost of homes sold
390,823

 
313,311

 
304,329

Gross margins on home sales
96,494

 
42,039

 
44,157

West:
 
 
 
 
 
Sales of homes
683,267

 
531,984

 
650,844

Cost of homes sold
540,982

 
426,922

 
525,310

Gross margins on home sales
142,285

 
105,062

 
125,534

Southeast Florida:
 
 
 
 
 
Sales of homes
353,841

 
239,608

 
131,091

Cost of homes sold
256,672

 
182,155

 
98,634

Gross margins on home sales
97,169

 
57,453

 
32,457

Houston:
 
 
 
 
 
Sales of homes
449,580

 
321,908

 
357,590

Cost of homes sold
354,981

 
263,037

 
289,474

Gross margins on home sales
94,599

 
58,871

 
68,116

Other
 
 
 
 
 
Sales of homes
234,731

 
166,185

 
172,948

Cost of homes sold
176,154

 
136,451

 
161,318

Gross margins on home sales
58,577

 
29,734

 
11,630

Total gross margins on home sales
$
793,346

 
523,371

 
517,921

2012 versus 2011
East: Homebuilding revenues increased in 2012, compared to 2011, primarily due to an increase in the number of home deliveries in all of the states in the segment, except Maryland and Virginia, and an increase in the average sales price of homes delivered in all of the states in the segment. The increase in the number of deliveries was primarily driven by an increase in demand as evidenced by higher traffic volume in some of our communities, primarily Florida, New Jersey and Georgia, compared to last year, resulting in an increase in our home sales per community. The increase in the average sales price of homes delivered was primarily because we have been able to increase the sales price of homes delivered and/or reduce sales incentives in certain of our communities as the market stabilized during the year and began to recover in certain areas. Gross margins on home sales were $304.2 million, or 23.7%, in 2012, compared to gross margins on home sales of $230.2 million, or 22.8%, in 2011. Gross margin percentage on homes increased compared to last year primarily due to a greater percentage of deliveries from our new higher margin communities and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (11.7% in 2012, compared to 12.8% in 2011).
Central: Homebuilding revenues increased in 2012 compared to 2011, primarily due to an increase in the number of home deliveries in all of the states in the segment and an increase in the average sales price of homes delivered in all states in the segment, except Colorado. The increase in the number of deliveries was primarily driven by an increase in demand as evidenced by higher traffic volume in some of our communities, compared to last year, resulting in an increase in our home sales per community. The increase in the average sales price of homes delivered was primarily because we have been able to increase the sales price of homes delivered and/or reduce sales incentives in certain of our communities as the market stabilized during the year and began to recover in certain areas. Gross margins on home sales were $96.5 million, or 19.8%, in 2012, compared to gross margins on home sales of $42.0 million, or 11.8%, in 2011. Gross margin percentage on homes sales improved compared to last year primarily due to a greater percentage of deliveries from our new higher margin communities in

35


all the states, except Colorado, a decrease in valuation adjustments and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (9.1% in 2012, compared to 12.8% in 2011).
West: Homebuilding revenues increased in 2012 compared to 2011, primarily due to an increase in the number of home deliveries in all of the states in the segment, compared to last year. The increase in the number of deliveries was primarily driven by an increase in demand as evidenced by higher traffic volume in some of our communities, compared to last year, resulting in an increase in our home sales per community. Gross margins on home sales were $142.3 million, or 20.8%, in 2012, compared to gross margins on home sales of $105.1 million, or 19.7%, in 2011.Gross margin percentage on homes increased compared to last year primarily due to a greater percentage of deliveries from our new higher margin communities and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (6.6% in 2012, compared to 9.2% in 2011).
Southeast Florida: Homebuilding revenues increased in 2012, compared to 2011, primarily due to an increase in the number of home deliveries in this segment driven by an increase in demand as evidenced by higher traffic volume in some of our communities, compared to the same period last year, resulting in an increase in our home sales per community. Gross margins on home sales were $97.2 million, or 27.5%, in 2012, compared to gross margins on home sales of $57.5 million, or 24.0%, in 2011. Gross margin percentage on homes sales improved compared to last year primarily due to a greater percentage of deliveries from our new higher margin communities and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (10.5% in 2012, compared to 12.0% in 2011).
Houston: Homebuilding revenues increased in 2012, compared to 2011, primarily due to an increase in the number of home deliveries driven by an increase in demand as evidenced by higher traffic volume in some of our communities, compared to last year, resulting in an increase in our home sales per community. Gross margins on home sales were $94.6 million, or 21.0%, in 2012, compared to gross margins on home sales of $58.9 million, or 18.3%, in 2011. Gross margin percentage on homes sales improved compared to last year primarily due to a greater percentage of deliveries from our new higher margin communities and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (12.2% in 2012, compared to 14.5% in 2011).
Other: Homebuilding revenues increased in 2012, compared to 2011, primarily due to an increase in the number of home deliveries in all the states of Homebuilding Other, except Illinois. The increase in deliveries was primarily driven by an increase in demand as evidenced by higher traffic volume in some of our communities, compared to last year, resulting in an increase in our home sales per community. Gross margins on home sales were $58.6 million, or 25.0%, in 2012, compared to gross margins on home sales of $29.7 million, or 17.9%, in 2011. Gross margin percentage on homes sales improved compared to last year primarily due to a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (6.8% in 2012, compared to 10.5% in 2011) and lower valuation adjustments.
2011 versus 2010
East: Homebuilding revenues increased in 2011, compared to 2010, primarily due to an increase in the average sales price of homes delivered in all of the states in the segment, except New Jersey. The increase in the average sales price of homes delivered was primarily due to a higher percentage of home deliveries in higher priced communities. Gross margins on home sales were $230.2 million, or 22.8%, in 2011 including valuation adjustments of $5.6 million, compared to gross margins on home sales of $236.0 million, or 24.3%, in 2010 including $6.2 million of valuation adjustments. Although gross margin percentage on home sales in this segment remained above average compared to the rest of our homebuilding operations, gross margin percentage on home sales decreased compared to 2010 primarily due to an increase in sales incentives offered to homebuyers as a percentage of revenues from home sales (12.8% in 2011, compared to 11.6% in 2010) and because gross margin on homes sales for the year ended November 30, 2010 included third-party recoveries related to Chinese drywall.
Central: Homebuilding revenues increased in 2011, compared to 2010, primarily due to an increase in the average sales price of homes delivered in Texas, excluding Houston, as a result of the introduction of new higher-end homes at a higher average sales price. Gross margins on home sales were $42.0 million, or 11.8%, in 2011 including valuation adjustments of $13.7 million, compared to gross margins on home sales of $44.2 million, or 12.7%, in 2010 including $9.2 million of valuation adjustments. Gross margin percentage on home sales decreased compared to 2010 primarily due to adjustments to pre-existing home warranties in Texas, excluding Houston and an increase in valuation adjustments, partially offset by a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (12.8% in 2011, compared to 13.2% in 2010).
West: Homebuilding revenues decreased in 2011, compared to 2010, primarily due to a decrease in the number of home deliveries and the averages sales price of homes delivered in California. The decrease in the number of home deliveries in California resulted from a decrease in demand for new homes primarily driven by the absence of the Federal homebuyer tax credit during the entire year in 2011. The decrease in the average sales price of homes delivered in California was due to shift to smaller square footage homes generating a lower average sales price during the year ended November 30, 2011. Gross margins on home sales were $105.1 million, or 19.7%, in 2011 including valuation adjustments of $7.8 million, compared to gross margins on home sales of $125.5 million, or 19.3%, in 2010 including $7.1 million of valuation adjustments. Gross margin

36


percentage on home sales improved compared to 2010 primarily due to an $8.1 million benefit related to changes in our cost-to-complete estimates for homebuilding communities in the close-out phase, partially offset by a higher percentage of home deliveries in lower price point communities and reduced pricing as the segment focused on reducing its completed unsold inventory. Sales incentives offered to homebuyers as a percentage of revenues from home sales were (9.2% in both 2011 and 2010). Gross profit on land sales were $0.7 million in 2011, compared to gross profits on land sales of $16.5 million in 2010, primarily due to a $14.1 million reduction of an obligation related to a profit participation agreement in 2010.
Southeast Florida: Homebuilding revenues increased in 2011, compared to 2010, primarily due to an increase in the number of home deliveries in this segment as a result of home deliveries from communities acquired in 2010 that had sales, but only a few deliveries, during the year ended November 30, 2010. Southeast Florida also had an increase in the average sales price of homes delivered as a result of closing out lower price point communities in the beginning of 2011 and introducing new communities at a higher price point during 2011. Gross margins on home sales were $57.5 million, or 24.0%, in 2011 including valuation adjustments of $5.6 million, compared to gross margins on home sales of $32.5 million, or 24.8%, in 2010 including $4.4 million of valuation adjustments. Although gross margin percentage on home sales in this segment remained above average compared to the rest of our homebuilding operations, gross margin percentage on home sales decreased compared to 2010 primarily due to increased valuation adjustments in 2011 and because gross margin on homes sales for the year ended November 30, 2010 included third-party recoveries related to Chinese drywall. This decrease was partially offset by a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (12.0% in 2011, compare to 14.5% in 2010).
Houston: Homebuilding revenues decreased in 2011, compared to 2010, primarily due to a decrease in the number of home deliveries resulting from a decrease in demand for new homes primarily driven by the absence of the Federal homebuyer tax credit during the entire year in 2011, partially offset by an increase in the average sales price of homes delivered as a result of the close out of lower average sales priced communities in 2010. Gross margins on home sales were $58.9 million, or 18.3%, in 2011, compared to gross margins on home sales of $68.1 million, or 19.0%, in 2010. Gross margin percentage on home sales decreased compared to 2010 primarily due to reduced pricing in some lower price point communities in an effort to reduce its completed unsold inventory, partially offset by a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (14.5% in 2011, compared to 15.0% in 2010). Gross profits on land sales were $4.6 million in 2011, compared to profits on land sales of $1.7 million in 2010.
Other: Homebuilding revenues decreased in 2011, compared to 2010, primarily due to a decrease in the number of home deliveries in Illinois primarily driven by the absence of the Federal homebuyer tax credit during the entire year in 2011. Gross margins on home sales were $29.7 million, or 17.9%, in 2011 including valuation adjustments of $2.5 million, compared to gross margins on home sales of $11.6 million, or 6.7%, in 2010 including $17.5 million of valuation adjustments. Gross margin percentage on home sales improved compared to 2010 primarily due to a reduction of valuation adjustments and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales (10.5% in 2011, compared to 12.3% in 2010). There was no gross profit on land sales in 2011, compared to profits on land sales of $2.4 million in 2010.
Lennar Financial Services Segment
We have one Lennar Financial Services reportable segment that provides primarily mortgage financing, title insurance and closing services for both buyers of our 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, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. The following table sets forth selected financial and operational information relating to the Lennar Financial Services segment:
 
Years Ended November 30,
(Dollars in thousands)
2012
 
2011
 
2010
Revenues
$
384,618

 
255,518

 
275,786

Costs and expenses
299,836

 
234,789

 
244,502

Operating earnings
$
84,782

 
20,729

 
31,284

Dollar value of mortgages originated
$
4,431,000

 
2,896,000

 
3,272,000

Number of mortgages originated
19,700

 
13,800

 
15,200

Mortgage capture rate of Lennar homebuyers
77
%
 
78
%
 
85
%
Number of title and closing service transactions
108,200

 
86,400

 
102,500

Number of title policies issued
149,300

 
121,800

 
107,600


37


Rialto Investments Segment
Rialto’s objective is to generate superior, risk-adjusted returns, for itself and for funds it creates and manages, by focusing on commercial and residential real estate opportunities arising from dislocations in the United States real estate markets and the eventual restructure and recapitalization of those markets. Rialto believes it will be able to deliver these returns through its abilities to source, underwrite, price, manage and ultimately monetize real estate assets, as well as providing similar services to others in markets across the country. Until November 2010, our Rialto segment acquired interests in real estate related assets for its own account. In November 2010, it completed the first closing of Fund I with initial equity commitments of approximately $300 million (including $75 million committed and contributed by us). Fund I's objective during its three year investment period is to invest in distressed real estate assets and other related investments that fit within Fund I's investment parameters. During 2011 and 2012 investors contributed capital into Fund I, which is managed by Rialto and in which we own a 10.7% interest. Since the formation of Fund I, all distressed real estate asset acquisitions by our Rialto segment have been acquired by Fund I.
The following table presents the results of operations of our Rialto segment for the periods indicated:
 
Years Ended November 30,
(In thousands)
2012
 
2011
 
2010
Revenues
$
138,856

 
164,743

 
92,597

Costs and expenses
138,990

 
132,583

 
67,904

Rialto Investments equity in earnings (loss) from unconsolidated entities
41,483

 
(7,914
)
 
15,363

Rialto Investments other income (expense), net
(29,780
)
 
39,211

 
17,251

Operating earnings (1)
$
11,569

 
63,457

 
57,307

(1)
Operating earnings for the years ended November 30, 2012, 2011 and 2010 include ($14.4) million, $28.9 million and $33.2 million, respectively, of net earnings (loss) attributable to noncontrolling interests.
The following is a detail of Rialto Investments other income (expense), net for the periods indicated:
 
Years Ended November 30,
(In thousands)
2012
 
2011
 
2010
Realized gains (losses) on REO sales
$
21,649

 
6,035

 
2,893

Unrealized gains (losses) on transfer of loans receivable to REO
(11,160
)
 
70,779

 
18,089

REO expenses
(56,745
)
 
(49,531
)
 
(3,902
)
Rental income
16,476

 
7,185

 
171

Gain on sale of investment securities

 
4,743

 

Rialto Investments other income (expense), net
$
(29,780
)
 
39,211

 
17,251

Distressed Asset Portfolios
In February 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies (“LLCs”), in partnership with the FDIC, for approximately $243 million (net of transaction costs and a $22 million working capital reserve). The LLCs hold performing and non-performing loans formerly owned by 22 failed financial institutions and when the Rialto segment acquired its interests in the LLCs, the two portfolios consisted of approximately 5,500 distressed residential and commercial real estate loans (“FDIC Portfolios”). The FDIC retained a 60% equity interest in the LLCs and provided $626.9 million of financing with 0% interest, which is non-recourse to the Company and the LLCs. In accordance with GAAP, interest has not been imputed because the notes are with, and guaranteed by, a governmental agency. The notes are secured by the loans held by the LLCs. Additionally, if the LLCs exceed expectations and meet certain internal rate of return and distribution thresholds, 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 of November 30, 2012 and 2011, the notes payable balance was $470.0 million and $626.9 million, respectively; however, as of November 30, 2012 and 2011, $223.8 million and $219.4 million, respectively, of cash collections on loans in excess of expenses were deposited in a defeasance account, established for the repayment of the notes payable, under the agreement with the FDIC. The funds in the defeasance account will be used to retire the notes payable upon their maturity. During the year ended November 30, 2012, the LLCs retired $156.9 million principal amount of the notes payable under the agreement with the FDIC through the defeasance account.

38


The LLCs met the accounting definition of VIEs and since we were determined to be the primary beneficiary, we consolidated the LLCs. We determined to be the primary beneficiary because it has the power to direct the activities of the LLCs that most significantly impact the LLCs’ performance through its management and servicer contracts. At November 30, 2012, these consolidated LLCs had total combined assets and liabilities of $1.2 billion and $0.5 billion, respectively. At November 30, 2011, these consolidated LLCs had total combined assets and liabilities of $1.4 billion and $0.7 billion, respectively.
In September 2010, the Rialto segment acquired approximately 400 distressed residential and commercial real estate loans (“Bank Portfolios”) and over 300 REO properties from three financial institutions. We paid $310.0 million for the distressed real estate and real estate related assets of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions. During the year ended November 30, 2012, we retired $33.0 million principal amount of the 5-year senior unsecured note.
Investments
An affiliate in the Rialto segment was a sub-advisor to the AB PPIP fund and receives management fees for sub-advisory services. We also made a commitment to invest $75 million of the total equity commitments of approximately $1.2 billion made by private investors in this fund, and the U.S. Treasury has committed to a matching amount of approximately $1.2 billion of equity in the fund, as well as agreed to extend up to approximately $2.3 billion of debt financing. During the year ended November 30, 2012, we contributed $1.9 million and received distributions of $87.6 million. Of the distributions received during the year ended November, 30, 2012, $83.5 million related to the unwinding of the AB PPIP fund's operations. We also earned $9.1 million in fees during 2012 from the segment's role as a sub-advisor to the AB PPIP fund, which were included in the Rialto Investments revenue. At the end of 2012, the AB PPIP fund finalized the last sales of the underlying securities in the fund and made substantially all of the final liquidating distributions to the partners, including us. As our role as sub-advisor to the AB PPIP fund has been completed, no further management fees will be received for these services. During the year ended November 30, 2011, we invested $3.7 million, in the AB PPIP fund. As of November 30, 2012 and 2011, the carrying value of our investment in the AB PPIP fund was $0.2 million and $65.2 million.
In November 2010, the Rialto segment completed the first closing of Fund I. As of November 30, 2012, the equity commitments of Fund I were $700 million (including the $75 million committed by us). All capital commitments have been called and funded. Fund I is closed to additional commitments. Fund I’s objective during its three-year investment period is to invest in distressed real estate assets and other related investments that fit within Fund I’s investment parameters. During the year ended November 30, 2012, we contributed $41.7 million of which $13.9 million was distributed back to us as a return of capital contributions due to a securitization within Fund I. During the year ended November 30, 2011, we contributed