LNC052598 • Annual Report Letter • 8.25”x11.75” • CedricM
Letter to our Shareholders
Stuart A. Miller
President and Chief Executive Officer
Lennar Corporation
Dear Shareholders:
Fiscal 2009 was a year of continued repositioning for
our Company as we remained focused on adapting
our business in light of the current economic landscape.
Although we continue to face challenges from high
unemployment, increased foreclosures and tightening
credit standards, recent demand trends in many of the
communities in which we are selling homes indicate that
the markets are stabilizing and the housing market is
beginning its road to recovery. We’ve continued to make
meaningful progress by carefully managing our asset
base, improving our homebuilding operating platform
and reworking our joint ventures. The progress we have
made has been substantial and will ultimately enable us
to return to profitability.
Consistent with our long-standing strategy, the focus on
our balance sheet was our top priority. In fiscal 2009,
that meant:
• Maximizing our cash position by generating positive
operating cash flows of $421 million
• Enhancing our balance sheet liquidity by:
- Issuing $225 million of stock under our $275
shape and our Divisions are beginning to underwrite
and purchase new land on a conservative basis, which
would produce a reasonable profit at today’s prices.
On the joint venture front, we have continued to
meaningfully eliminate joint ventures in order to add
clarity and simplicity to our operating program. Our
focus in this area has really paid off. We have reduced
the number of unconsolidated joint ventures to 62 from
270 at the peak in 2006. Many of the remaining joint
ventures are strategic ventures that have already been
reworked, and have assets that are well positioned for
the future. At the end of 2009, our maximum recourse
debt related to unconsolidated joint ventures was $288
million, down from $520 million a year ago and from
$1.8 billion at the peak in 2006. We expect to continue
to reduce this amount and the number of unconsolidated
joint ventures as we move through 2010.
Relative to our homebuilding operating platform and
repositioning the Company for profitability, we have
made continued progress throughout 2009 by:
million equity draw down program
• Refining our product offering targeting first-time and
- Extending our debt maturities by issuing $400
million of senior notes maturing in 2017 while
retiring $448 million of shorter term senior notes
and other debt
• Ending the year with $1.3 billion in homebuilding
cash and a homebuilding debt to total capital
position, net of homebuilding cash, of 36.9%
• Managing our inventory by matching our starts
and closings and using below market financing and
incentives to sell homes and reduce cancellations
• Opportunistically purchasing new
land
for
future growth
• Expecting to receive a tax refund of $320 million
in early 2010 as a result of tax legislation enacted
during our fourth quarter
With our balance sheet fortified with ample liquidity,
we are positioned to make strategic investments that
will create long-term shareholder value as we begin to
grow again. We are beginning to see opportunities take
value-oriented homebuyers
• Reducing the number of floor plans and rebidding
and value engineering our product to increase
efficiency and reduce costs
• Continuing to right size our overhead in each of our
operating divisions and our corporate office
• Improving our pre-impairment homebuilding gross
margin to 17.8% in the fourth quarter, which allowed
us to return to a positive 1.6% pre-impairment
operating margin
Although we made significant progress, our results
reflect the challenging market conditions our Company
continued to navigate throughout 2009:
• Revenues of $3.1 billion – down 32%
• Net loss of $417.1 million or $2.45 per share.
Our net loss includes $560.4 million in valuation
adjustments and other write-offs and was partially
offset by a benefit for income taxes of $314.3 million
primarily due to a NOL carryback
LNC052598 • Annual Report Letter • 8.25”x11.75” • CedricM
• Homebuilding operating loss of $647 million
• Deliveries of 11,478 homes – down 27%
• New orders of 11,510 homes – down 14%
As we enter a new year, the market and the overall
economy appear to be in the early stages of stabilization,
which is where recovery begins. This recovery is not
presenting itself as a V-shaped return to better times,
but instead is proving to be a rocky bottom with visibility
obscured by more questions than answers. Nevertheless,
as we continue to review our operations in the field,
market-by-market, there are some common themes that
appear to be forming a trend.
• Prices are no longer free falling downward and
in fact, in many instances, are actually starting to
stabilize and even trend mildly upward
• For the Company overall, sales incentives were
$36,300 per home delivered in the fourth quarter
of 2009, down from $42,200 per home delivered
in the third quarter of 2009, and $51,400 per home
delivered in the fourth quarter of 2008
• Our cancellation rate has decreased to 18% from
26% a year ago
• The $8,000 tax credit is facilitating an inventory
clearing process and will help enable a return to
normalcy when the credit expires in the Spring
• Consumer confidence is increasing and there is a
tangible sense that with prices and interest rates low,
now is the right time to purchase a home
This improved sentiment is driving new purchasers to
the market and traffic is improving. This reflected itself
during the fourth quarter of 2009 when we experienced
our first year-over-year increase in new orders since our
first quarter of 2006.
The distress in the market has presented numerous
opportunities to acquire new properties that can add to
profitability starting in 2010. We have begun to purchase
land assets to replace closeout communities and add
new well located communities. The majority of these
acquisitions are finished homesites where we can start
building homes immediately. Many of these acquisitions
have been structured as rolling options where we have a
minimal deposit with a flexible takedown schedule.
The prices for these acquisitions are a fraction of what
they were at the peak of the market because land owners
have recalibrated their thinking to the reality of today’s
market. Accordingly, the ratio of the finished homesite in
relation to the sales price of the home is lower than the
historical average and in many instances, a portion of
the homesite purchase price is paid when the home is
delivered to the homebuyer.
Additionally, we’ve continued to mature our distressed
asset strategy under the banner of Rialto. We’ve been
preparing to be a significant participant in the distressed
opportunities that naturally present themselves in down
cycles. The team is formed and at the beginning of our
2010 fiscal year we announced that, in partnership with
the FDIC, we acquired for approximately $243 million
indirect 40% managing member interests in limited
liability companies created to hold two portfolios of
real estate loans with a combined unpaid balance of
$3.05 billion. Acquiring and working out distressed real
estate loans was a large and extremely profitable part
of our business during the last major real estate down
cycle in the early 1990s. We are excited to return to
this business and honored to partner with the FDIC to
manage, work through and add value to the portfolio
of loans. This distressed business will create additional
income streams for the Company while generating new
opportunities and creating significant shareholder value.
As we commence fiscal 2010, our hard work and intense
focus on improving margins is producing results and
positioning our Company for fundamental profitability.
Although there remain headwinds for the economy and
housing market overall, with a strong balance sheet and
dedicated team of Associates, we are well positioned to
grow our business in 2010.
Sincerely,
Stuart A. Miller
President and Chief Executive Officer
Lennar Corporation
FORM 10-K
LENNAR CORPORATION
FORM 10-K
For the Fiscal Year Ended November 30, 2009
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Signatures
Financial Statement Schedule
Certifications
1
9
16
17
17
18
18
20
22
62
65
113
113
113
114
114
114
114
114
115
119
120
122
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, 2009
Commission file number 1-11749
Lennar Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4337490
(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¢
Class B Common Stock, par value 10¢
New York Stock Exchange
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 Í 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 Í
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 Í 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 ‘ 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. Í
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 Í
Smaller reporting company ‘
Accelerated filer ‘
Non-accelerated filer ‘
(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 Í
The aggregate market value of the registrant’s Class A and Class B common stock held by non-affiliates of the
registrant (140,089,269 Class A shares and 9,653,835 Class B shares) as of May 31, 2009, based on the closing sale price per
share as reported by the New York Stock Exchange on such date, was $1,401,660,022.
As of December 31, 2009, the registrant had outstanding 153,610,871 shares of Class A common stock and 31,283,959
shares of Class B common stock.
Related Section
Documents
DOCUMENTS INCORPORATED BY REFERENCE:
III
Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 30, 2010.
Item 1. Business.
Overview of Lennar Corporation
PART I
We are one of the nation’s largest homebuilders and a provider of financial services. Our homebuilding
operations include the construction and sale of single-family attached and detached homes, and to a lesser extent
multi-level residential buildings, 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
four reportable segments, which we refer to as Homebuilding East, Homebuilding Central, Homebuilding West 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, Maryland, New Jersey and Virginia
Central: Arizona, Colorado and Texas (1)
West: California and Nevada
Houston: Houston, Texas
Other: Illinois, Minnesota, New York, North Carolina and South Carolina
(1) Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.
We have one 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 that we
originate are sold in the secondary mortgage market on a servicing released, non-recourse basis; although, we
remain liable for certain limited representations and warranties related to loan sales. Our Financial Services
segment operates generally in the same states as our homebuilding operations, as well as in other states. For
financial information about both our homebuilding and financial services 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
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. From 2002 through
2005, we acquired several regional homebuilders, which brought us into new markets and strengthened our
position in several existing markets. We are a national homebuilder that operates in various states with deliveries
of 11,478 new homes in 2009.
Recent Business Developments
Overview
During 2009, we continued to adapt our business in light of the current economic landscape. Despite high
unemployment rates, increased foreclosures and tightening credit standards, recent demand trends in the
communities in which we are selling homes indicate that the markets may be stabilizing as more confident
homebuyers are taking advantage of increased affordability resulting from declining home prices, historically
low interest rates and government stimulus programs.
We ended the year with $1.3 billion in cash and a homebuilding debt-to-total capital ratio, net of
homebuilding cash, of 36.9%. Additionally, as a result of tax legislation that was enacted in our fourth quarter,
we will receive a tax refund of approximately $320 million in early 2010. We extended our debt maturities by
issuing $400 million of senior notes maturing in 2017 and retiring $448 million of senior notes and other debt.
We also issued $225 million of stock under our $275 million equity draw down program. During 2009, we
continued to reduce the number of unconsolidated joint ventures in which we have investments to 62 at the end
of 2009 from 116 at the end of 2008 and our maximum recourse debt related to those investments to $288 million
at the end of 2009 from $520 million at the end of 2008.
1
In late 2008, we experienced higher cancellation rates resulting in an increase in completed, unsold
inventory. In the first half of 2009, we were able to convert this inventory into cash by offering higher sales
incentives. Additionally, in 2009 we continued focusing on refining our product offering, reducing the number of
floor plans and targeting first time and value oriented homebuyers. Our more efficient product offerings have
significantly reduced our construction costs and allowed us to meet our customers’ demands. These cost savings,
combined with reduced sales incentives, improved our gross margins throughout the second half of 2009.
As demand in some of our markets showed signs of stabilization and our balance sheet strengthened, we
increased our land purchases in the second half of the year in premium locations that should generate high returns
once we start delivering those homes, as well as investing in strategic land-buying opportunities, such as
purchasing land from distressed land sellers and banks.
During 2009, one of our more significant joint ventures, LandSource Communities Development LLC
(“LandSource”), which filed for bankruptcy in 2008, was reorganized into a new company named Newhall Land
Development, LLC, (“Newhall”). The reorganized company emerged from Chapter 11 free of its previous bank
debt. As part of the reorganization, we invested $140 million in exchange for approximately a 15% equity
interest in the reorganized Newhall, ownership in several communities that were formerly owned by LandSource,
the settlement and release of any claims that might have been asserted against us and certain other claims
LandSource had against third parties.
We are also looking to invest in distressed real estate opportunities through Rialto Capital Management
(“Rialto”). We may participate in investments Rialto may make, whether through a fund formed by Rialto or as a
direct participant in particular investments. Rialto is actively evaluating investment opportunities in various types
of residential and commercial real estate assets and/or loans and is currently bidding on pools of distressed real
estate assets and/or loans.
During 2009, Rialto became a sub-advisor to AllianceBernstein L.P. with regard to a fund formed under the
Federal government’s Public-Private Investment Program (“PPIP”) to purchase real estate related securities from
banks and other financial institutions. We committed to invest $75 million of the total equity commitments of
approximately $1.1 billion made by private investors in this fund, and the U.S. Treasury committed to a matching
amount of approximately $1.1 billion of equity in the fund, as well as agreed to extend up to approximately $2.2
billion of financing. Subsequent to November 30, 2009, we invested $23 million in the PPIP fund, which is
focused on acquiring securities backed by real estate loans.
Inventory Impairments and Valuation Adjustments related to Investments in Unconsolidated Entities
We continued evaluating our balance sheet quarterly for impairment on an asset-by-asset basis during fiscal
2009. Based on our evaluation and assessment, during the years ended November 30, 2009, 2008 and 2007, we
recorded the following inventory impairments:
Valuation adjustments to finished homes, CIP and land on which we intend to
build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments to land we intend to sell or have sold to third
Years Ended November 30,
2009
2008
2007
(In thousands)
$180,239
195,518
747,843
parties (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs of option deposits and pre-acquisition costs . . . . . . . . . . . . . . . . . . .
95,314
84,372
47,791
97,172
1,167,294
529,981
Total inventory impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$359,925
340,481
2,445,118
(1) The $1.2 billion of valuation adjustments recorded in 2007 to land we intend to sell or have sold to third
parties included $740.4 million of valuation adjustments related to a portfolio of land we sold to a strategic
land investment venture with Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley &
Co., Inc., which was formed in November 2007 and in which we have a 20% ownership interest.
2
During the years ended November 30, 2009, 2008 and 2007, we recorded the following valuation
adjustments related to our investments in unconsolidated entities:
Years Ended November 30,
2009
2008
2007
(In thousands)
Our share of valuation adjustments related to assets of unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments to our investments in unconsolidated entities . . . . . . . . . .
$101,893
88,972
32,245
172,790
364,162
132,206
Total valuation adjustments to our investments in unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$190,865
205,035
496,368
The inventory impairments and valuation adjustments to our 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.
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 served their initial 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 2009, we continued reevaluating all of
our joint venture arrangements, with particular focus on those ventures with recourse indebtedness, and reduced
the number of joint ventures in which we were participating and the recourse indebtedness of those joint
ventures. As of November 30, 2009, we had reduced the number of unconsolidated joint ventures in which we
were participating to 62 from 261 joint ventures at November 30, 2006 and reduced our net recourse exposure
related to unconsolidated joint ventures to $194.6 million from $1,102.9 million at November 30, 2006.
Homebuilding Operations
Overview
We primarily sell single-family attached and detached homes, and to a lesser extent, multi-level residential
buildings, in communities targeted to first-time, move-up and active adult homebuyers. The average sales price
of a Lennar home was $243,000 in fiscal 2009, compared to $270,000 in fiscal 2008 and $297,000 in fiscal 2007.
We operate primarily under the Lennar brand name.
Through our own efforts and unconsolidated entities in which we have 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. 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 our homes.
3
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 option;
• 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 and opportunity funds.
At November 30, 2009, we owned 82,703 homesites and had access through option contracts to an
additional 21,173 homesites, of which 7,423 were through option contracts with third parties and 13,750 were
through option contracts with unconsolidated entities in which we have investments. At November 30, 2008, we
owned 74,681 homesites and had access through option contracts to an additional 38,589 homesites, of which
12,718 were through option contracts with third parties and 25,871 were through option contracts with
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 available in a
variety of environments ranging from urban infill communities to golf course communities. We sell our homes
primarily from models that we have designed and constructed. During 2009, the homes we delivered had an
average sales price of $243,000.
We employ sales associates who are paid salaries, commissions or both to complete on-site sales of homes.
We also sell homes through independent brokers. We advertise our communities through newspapers, radio
advertisements and other local 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 or by other similar factors. To the extent
bonuses have been paid, management incentive programs have consistently been contingent upon achieving
certain customer satisfaction standards.
4
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 homebuilding segments and
Homebuilding Other during our last three fiscal years:
East
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
3,817
1,796
2,480
2,150
1,235
2008
4,957
2,442
4,031
2,736
1,569
2007
9,840
7,020
8,739
4,380
3,304
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,478
15,735
33,283
Of the total home deliveries listed above, 56, 391 and 1,701, respectively, represent deliveries from
unconsolidated entities for the years ended November 30, 2009, 2008 and 2007.
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 18% in 2009, compared to 26% and 30%, respectively, in 2008 and 2007. Substantially all homes
currently in backlog will be delivered in fiscal year 2010. 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 homebuilding segments and
Homebuilding Other as of the end of our last three fiscal years:
2009
2008
2007
East
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$179,175
36,158
143,868
60,876
59,494
(In thousands)
202,791
23,736
108,779
57,785
63,179
587,100
67,344
408,280
128,340
193,073
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$479,571
$456,270
1,384,137
Of the dollar value of homes in backlog listed above, $7.2 million, $12.5 million and $182.7 million,
respectively, represent the backlog dollar value from unconsolidated entities at November 30, 2009, 2008 and
2007.
Financial Services Operations
Mortgage Financing
We primarily originate conforming conventional, FHA-insured, VA-guaranteed residential mortgage loan
products and other products to our homebuyers and others through our financial services subsidiaries, Universal
American Mortgage Company, LLC and Eagle Home Mortgage, LLC, located generally in the same states as our
homebuilding operations as well as other states. In 2009, our financial services subsidiaries provided loans to
87% 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 most creditworthy purchasers of our homes have access to financing.
During 2009, we originated approximately 17,900 mortgage loans totaling $4.0 billion, compared to 18,300
mortgage loans totaling $4.3 billion during 2008. Substantially all of the loans we originate are sold in the
5
secondary mortgage market on a servicing released, non-recourse basis; although, we remain liable for certain
limited representations. Therefore, we have little direct exposure related to the residential mortgages we sell.
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. Two of our warehouse repurchase facilities with a maximum aggregate commitment of $200 million and
$100 million, respectively, mature in June 2010, and the other warehouse facility with a maximum aggregate
commitment of $125 million matures in July 2010. 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 2009, we provided
title and closing services for approximately 120,500 real estate transactions, and issued approximately 92,500
title insurance policies through our underwriter, North American Title Insurance Company. 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, Virginia and Wisconsin.
Title insurance services are provided in these same states, as well as in Alabama, Delaware, Georgia North
Carolina, South Carolina and Tennessee.
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 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;
•
•
Pricing to current market conditions through sales incentives offered to homebuyers; and
Production of value-engineered homes for first-time and valued-oriented homebuyers.
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.
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
6
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.
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, 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.
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 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, including in some
instances terminating their employment. Our Code of Business and Ethics also has procedures in place that
allows 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, thus ensuring their protection from retaliation.
Associates
At December 31, 2009, we employed 3,835 individuals of whom 2,184 were involved in our homebuilding
operations and 1,651 were involved in our financial services operations, compared to November 30, 2008, when
we employed 4,913 individuals of whom 3,055 were involved in our homebuilding operations and 1,858 were
involved in our financial services 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.
7
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 President, Chief Executive Officer and a Director, which had
voting control of us, 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 is non-voting and
neither Mr. Miller nor anyone else in his family is an officer or director, or otherwise is involved in the
management, of LNR or its parent. Nonetheless, because the Miller family has a 20.4% financial, non-voting,
interest in LNR’s parent, significant transactions with LNR, or entities in which it has an interest, have
historically been and continued to be reviewed and approved by the Independent Directors Committee of our
Board of Directors.
LandSource/Newhall Transactions
In January 2004, a company of which we and LNR each owned 50% acquired The Newhall Land and
Farming Company for approximately $1 billion, including $200 million we contributed and $200 million that
LNR contributed (the remainder came from borrowings and sales of properties to LNR). Subsequently, we and
LNR each transferred our interests in most of our joint ventures to the jointly-owned company that had acquired
The Newhall Land and Farming Company, and that company was renamed LandSource Communities
Development LLC (“LandSource”).
In February 2007, LandSource admitted MW Housing Partners as a new strategic partner. As part of the
transaction, the joint venture obtained $1.6 billion of non-recourse financing, which consisted of a $200 million
five-year Revolving Credit Facility, a $1.1 billion six-year Term Loan B Facility and a $244 million seven-year
Second Lien Term Facility. The transaction resulted in a cash distribution to us of $707.6 million. Our resulting
ownership of LandSource was 16%. As a result of the recapitalization, we recognized a pretax financial
statement gain of $175.9 million in 2007.
In June 2008, LandSource and a number of its subsidiaries commenced proceedings under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. In November 2008, our
land purchase options with LandSource were terminated, thus, in 2008 we recognized a deferred profit of $101.3
million (net of $31.8 million of write-offs of option deposits and pre-acquisition costs and other write-offs)
related to the 2007 recapitalization of LandSource.
In July 2009, the United States Bankruptcy Court for the District of Delaware confirmed the plan of
reorganization for LandSource. As a result of the bankruptcy proceedings, LandSource was reorganized into a
new company named Newhall Land Development, LLC, (“Newhall”). The reorganized company emerged from
Chapter 11 free of its previous bank debt. As part of the reorganization, we invested $140 million in exchange for
approximately a 15% equity interest in the reorganized Newhall, ownership in several communities that were
formerly owned by LandSource, the settlement and release of any claims that might have been asserted against us
and certain other claims LandSource had against third parties.
Relationship with Rialto Capital Management
Over the last three years we have had a correction in housing values, which resulted in a significant drop in
consumer spending and impairment in housing values. Currently, the FDIC, many banks and financial
institutions have billions of dollars of underperforming and illiquid assets on their balance sheets, which have
significantly curtailed their lending capacity. In 2007, Rialto was formed by Jeffrey Krasnoff, who was the co-
founder of LNR Property Corporation, to focus on acquisitions of distressed debt and other real estate assets
utilizing Rialto’s abilities to source, underwrite, price, turnaround and ultimately monetize such assets in markets
across the Untied States. We might participate in investments Rialto may make, whether through a fund formed
by Rialto or as a direct participant in particular investments. We will participate in profits generated by Rialto
and receive fees related to those investments. In addition, this may give us access to assets for use in our
homebuilding operations.
8
Rialto’s first venture was to become a sub-advisor to AllianceBernstein L.P. with regard to Alliance
Bernstein Legacy Securities Master Fund LLC, a fund formed under the Federal government’s PPIP to purchase
real estate related securities from banks and other financial institutions. We committed to invest $75 million of
the total of approximately $1.1 billion of equity commitments made by private investors in this fund, and the
U.S. Treasury committed to a matching amount of approximately $1.1 billion of equity in the fund, as well as
agreeing to extend up to approximately $2.2 billion of financing. Subsequent to November 30, 2009, we invested
$23 million in the PPIP fund, which is focused on acquiring securities backed by real estate loans.
NYSE Certification
We submitted our 2008 Annual CEO Certification to the New York Stock Exchange on April 17, 2009. 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, as soon as reasonably practicable after we electronically file these documents with, or furnish them
to, the Securities and Exchange Commission. Information on our website is not part of this document.
Our website also includes printable versions of our Corporate Governance Guidelines, our Code of Business
Conduct and Ethics and the charters for each of our 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 could cause a material adverse effect upon
our business, financial condition, results of operations, cash flows, strategies and prospects.
Homebuilding Market and Economic Risks
The homebuilding industry has experienced a significant downturn. A continuing decline in demand for new
homes coupled with an increase in the inventory of available new homes and alternatives to new homes could
adversely affect our sales volume and pricing even more than has occurred to date.
The homebuilding industry has experienced a significant downturn. As a result, we have experienced a
significant decline in demand for newly built homes in almost all of our markets. Homebuilders’ inventories of
unsold new homes have increased as a result of increased cancellation rates on pending contracts as new
homebuyers sometimes find it more advantageous to forfeit a deposit than to complete the purchase of the home.
In addition, an oversupply of alternatives to new homes, such as rental properties and used homes (including
foreclosed homes), has depressed prices and reduced margins. This combination of lower demand and higher
inventories affects both the number of homes we can sell and the prices at which we can sell them. In 2008 and
2009, we experienced periods of significant decline in our sales results, significant reductions in our margins as a
result of higher levels of sales incentives and price concessions, and a higher than normal cancellation rate. We
have no basis for predicting how long demand and supply will remain out of balance in markets where we
operate or whether sales volumes or pricing will return to prior levels.
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. During 2008 and
2009, the mortgage lending industry experienced significant instability. As a result of increased default rates,
9
particularly (but not entirely) with regard to sub-prime and other non-conforming loans, many lenders have
reduced their willingness to make, and tightened their credit requirements with regard to, residential mortgage
loans. Fewer loan products, stricter loan qualification standards and higher down payment requirements have
made it more difficult for some borrowers to finance the purchase of our homes. Although our finance company
subsidiaries offer mortgage loans to potential buyers of most of the homes we build, we may no longer be able to
offer financing terms that are attractive to our potential buyers. Lack of availability of mortgage financing at
acceptable rates reduces demand for the homes we build, including in some instances causing potential buyers to
cancel contracts they have signed.
There has also been a substantial loss of jobs in the United States during 2008 and 2009. People who are not
employed or are concerned about loss of their jobs are unlikely to purchase new homes and may be forced to try
to sell the homes they own. Therefore, the current employment situation can adversely affect us both by reducing
demand for the homes we build and by increasing the supply of homes for sale.
Mortgage defaults by homebuyers who financed homes using non-traditional financing products are
increasing the number of homes available for resale.
During the period of high demand in the homebuilding industry, 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 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 have increased either as a result of increasing adjustable interest rates or as a
result of principal payments coming due, some of these homebuyers have defaulted on their payments and had
their homes foreclosed, which has increased the inventory of homes available for resale. This is likely to
continue. Foreclosure sales and other distress sales may result in further declines in market prices for homes. In
an environment of declining home prices, many homebuyers may delay purchases of homes in anticipation of
lower prices in the future. In addition, as lenders perceive deterioration in credit quality among homebuyers,
lenders have been eliminating some of the available non-traditional and sub-prime financing products and
increasing the qualifications needed for mortgages or adjusting their terms to address increased credit risk. In
general, to the extent mortgage rates increase or lenders make it more difficult for prospective buyers to finance
home purchases, it becomes more difficult or costly for customers to purchase our homes, which has an adverse
effect on our sales volume.
We have had to take significant write-downs of the carrying values of the land we own and of our investments
in unconsolidated entities, and a continuing decline in land values could result in additional write-downs.
Some of the land we currently own was purchased at high prices and have been written down to fair value as
a result of current market conditions. Also, we obtained options to purchase land at prices that no longer are
attractive, and in connection with those options we made non-refundable deposits and, in some instances,
incurred pre-acquisition costs. When demand fell, we were required to take significant write-downs of the
carrying value of our land inventory and we elected not to exercise high price options, even though that required
us to forfeit deposits and write-off pre-acquisition costs.
Additionally, as a result of these market conditions, we recorded significant valuation adjustments to our
investments in unconsolidated entities and recorded our share of valuation adjustments relative to assets of our
unconsolidated entities.
The combination of land inventory impairments, write-offs of option deposits and pre-acquisition costs and
valuation adjustments relating to our investments in unconsolidated entities had a material negative effect on our
operating results for fiscal 2007, 2008 and 2009, contributing to most of our net loss in fiscal 2008 and 2009. If
market conditions continue to deteriorate, some of our assets may be subject to further write-downs in the future,
decreasing the assets reflected on our balance sheet and adversely affecting 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 an excess of
supply over demand for new homes, such as the one we are currently experiencing, requires that we reduce
prices, rather than increase them, it does not necessarily result in reductions, or prevent increases, in the costs of
materials and labor. Under those circumstances, the effect of cost increases is to reduce the margins on the homes
we sell. That makes it more difficult for us to recover the full cost of previously purchased land, and has
contributed to the significant reductions in the value of our land inventory.
10
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 could reduce the number of
homes we deliver or cause us to accept reduced margins in order to maintain sales volume.
We also compete with the resale of existing homes, including foreclosed homes, sales by housing
speculators and available rental housing. As demand for homes has slowed, competition, including competition
with homes purchased for speculation rather than as places to live and competition with foreclosed homes, has
created increased downward pressure on the prices at which we are able to sell homes, as well as upon the
number of homes we can sell.
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. There can be no assurance that coverage will not be further restricted and become even more
costly.
Performance of subcontractors and quality and suitability of building materials.
We rely on subcontractors to perform the actual construction of our homes, and in many cases, to select and
obtain raw materials. Despite our detailed specifications and quality control procedures, in some cases, improper
construction processes or defective materials, such as Chinese drywall, 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 to the Company in 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.
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 negatively impact the demand for new homes in affected areas.
Furthermore, if our insurance does not fully cover business interruptions or losses resulting from these events,
our results of operations, liquidity or capital resources could be adversely affected.
Supply shortages and other risks related to the demand for skilled labor and building materials could increase
costs and delay deliveries.
Increased costs or shortages of skilled labor and/or lumber, framing, concrete, steel and other building
materials could cause increases in construction costs and construction delays. We generally are unable to pass on
increases in construction costs to customers who have already entered into sales contracts, as those sales
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.
11
Reduced numbers of home sales could lead us to absorb additional costs.
We incur many costs even before we begin to build homes in a community. These include costs of preparing
land and installing roads, sewage 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 homes extends the length of time it
takes us to recover these costs. Also, we frequently acquire options to purchase land and make deposits that will
be forfeited if we do not exercise the options within specified periods. Because of current market conditions, we
have had to terminate a number of these options, resulting in significant forfeitures of deposits we made with
regard to the options, and in some instances, pre-acquisition costs we incurred with regard to properties that were
the subject of options we terminated.
If our financial performance further declines, we may not be able to maintain compliance with the covenants
in our credit facilities and senior debt securities.
Our $1.1 billion Credit Facility imposes certain restrictions on our operations. The most significant
restrictions relate to debt incurrence, sales of assets other than in the ordinary course of business, cash
distributions and investments by us and certain of our subsidiaries. In addition, our Credit Facility requires
compliance with certain financial covenants, including a minimum adjusted consolidated tangible net worth
requirement and a maximum permitted leverage ratio. Also, because we currently do not have investment grade
debt ratings, we can only borrow up to specified percentages of the book values of various types of our assets,
referred to in the credit agreement as our borrowing base. Our unrestricted cash in excess of $750 million is
excluded from our borrowing base. Because of these limitations, we were unable to borrow under the Credit
Facility for a majority of 2009.
While we currently are in compliance with the financial covenants in the Credit Facility agreement, it is
possible that in fiscal 2010 we will not be in compliance with our covenants if we have significant valuation
adjustments and other write-offs during the year, issue debt and/or make significant investments in strategic joint
ventures. If we are not in compliance and are unable to obtain a waiver or amendment to the Credit Facility, then
it would constitute a default with regard to our Credit Facility, which would give the lenders the right to
terminate the Credit Facility and require us to replace or cash collateralize $177.9 million of letters of credit
outstanding under the Credit Facility as of November 30, 2009. If our lenders required us to replace or cash
collateralize the letters of credit outstanding under the Credit Facility and we were unable to do so, that might
entitle the holders of $2.2 billion of debt securities we have sold into the capital markets to cause the sums
evidenced by those debt securities to become due immediately. We would not be able to repay those amounts
without selling substantial assets, which we might have to do at prices well below the fair values, and the
carrying values, of the assets. Such forced sales would have a material adverse effect on our business and
financial condition.
We may be unable to obtain suitable financing and bonding for the development of our communities.
Our business depends upon our ability to finance the development of our residential communities and to
provide bonds to ensure the completion of our projects. We have in the past used our Credit Facility to finance
development activities and we currently use it to provide or secure some of the bonds we need. In addition, we
have from time-to-time raised funds by selling debt securities into public and private capital markets, although
this is expensive, and could be difficult, to do under current market conditions. The willingness of lenders to
make funds available to us has been affected both by factors relating to us as a borrower, and by a decrease in the
willingness of banks and other lenders to lend to homebuilders generally. If we were unable to finance the
development of our communities, or if we were unable to provide required surety bonds for our projects, our
business operations and revenues could suffer materially.
Our ability to continue to grow our business and operations in a profitable manner depends to a significant
extent upon our ability to access capital on favorable terms.
Our ability to access capital on favorable terms has been an important factor in growing our business and
operations in a profitable manner. In 2007 and 2008, each of the principal credit rating agencies lowered our
credit ratings, and we no longer have investment grade ratings. This makes it more costly, and 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. If we are subject to a further downgrade, it would exacerbate
such difficulties.
12
Increased debt costs will make it more difficult for us to have positive net income.
In April 2009, we sold $400 million principal amount of 12.25% senior notes due 2017. During fiscal 2009,
we retired approximately $448 million principal amount of senior notes and other debt. The annual interest cost
of the debt we retired was approximately $29 million, while the annual interest cost of the notes we sold in April
2009 is approximately $49 million. Thus, during the year we increased the annual interest cost of our outstanding
debt securities by approximately $20 million. This affected our results of operations in fiscal 2009 and will affect
our results in 2010 and subsequent years. It could make it more difficult for us to achieve positive net income.
The repurchase warehouse credit facilities of our Financial Services segment will expire in 2010.
Our Financial Services segment has two warehouse repurchase facilities with a maximum aggregate
commitment of $200 million and $100 million, respectively, that mature in June 2010 and another warehouse
repurchase facility with a maximum aggregate commitment of $125 million that matures in July 2010. The
Financial Services segment uses these facilities to finance its mortgage lending activities until the mortgage loans
are sold to investors and expects both facilities to be renewed or replaced with other facilities when they mature.
If we are unable to renew or replace these facilities when they mature, it could seriously impede the activities of
our Financial Services segment.
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 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,
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
beginning in 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 maintenance guarantees (guarantees that the values of the joint ventures’ assets would be at
least specified percentages of their borrowings) or limited repayment guarantees.
Our joint venture strategy depends in large part on the ability of our joint venture partners to perform their
obligations under our agreements with them. 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 obligations not
satisfied by our partner at significant cost to us. Also, when we have guaranteed joint venture obligations, we
have been given 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 if our joint venture partners are
having financial problems, we may have difficulty collecting the sums they owe us, and therefore, we may be
required to pay a disproportionately large portion of the guaranteed amounts. In addition, because we lack a
controlling interest in these joint ventures, we are 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 may be unable to liquidate our joint venture investments to generate
cash. Even if we are able to liquidate joint venture investments, the amounts received upon liquidation may be
insufficient to cover the costs we have incurred in satisfying joint venture obligations.
During 2007, 2008 and 2009, we have significantly reduced the number of joint ventures in which we
participate and our exposure to recourse indebtedness of such joint ventures. However, the risks to us from joint
ventures in which we are a participant are likely to continue at least as long as the value of residential properties
continues to decline.
The unconsolidated entities in which we have investments may not be able to modify the terms of their debt
arrangements.
Some of the unconsolidated entities’ debt arrangements contain financial covenants they may not be able to
meet. Additionally, certain joint venture loan agreements have minimum number of homesite takedown
requirements in which the joint ventures are required to sell a minimum number of homesites over a stated
13
amount of time. Due to the deterioration of the homebuilding market, many of the joint ventures are in the
process of repaying, refinancing, renegotiating or extending their loans. This action may be required, for
example, in the case of an expired maturity date or a failure to comply with the loan’s covenants. There can be no
assurance that the joint ventures will be able to finance, refinance, renegotiate or extend, on terms we and our
joint venture partners deem acceptable, all of the joint venture loans that are currently being renegotiated. If joint
ventures are unsuccessful in these efforts, we could be required to provide at least a portion of the funds the joint
ventures need to be able to repay the loans.
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. As a result
of a decline in our stock price, previous retention mechanisms, such as equity awards, have diminished in value.
If our ability to resell mortgages to investors is impaired, we may be required to broker loans or fund them
ourselves.
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; although, we remain liable for certain limited representations and
warranties related to loan sales. If there is a decline in the secondary mortgage market, our ability to sell
mortgages could be adversely impacted and we could be required to fund our commitments to our homebuyers
with our own financial resources or require our homebuyers to find other sources of financing. If we became
unable to sell loans into the secondary mortgage market or directly to the Federal National Mortgage Association
(“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), we would either have to
curtail our origination of mortgage loans, which among other things, could significantly reduce our ability to sell
homes, or to 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 is adversely affected by reduced demand for our homes.
A majority 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 adversely affects the financial results of this segment of
our business.
If housing markets improve, we may not be able to acquire land suitable for residential homebuilding at
reasonable prices, which could increase our costs and reduce our revenues, earnings and margins.
Our long-term ability to build homes depends upon our acquiring land suitable for residential building at
reasonable prices in locations where we want to build. For a number of years, we experienced an increase in
competition for suitable land as a result of land constraints in many of our markets, which increased the price we
had to pay to acquire land. Then, when demand for new homes began to drop beginning in 2006, we started to
reduce our land inventory to bring it in line with the reduced rate at which we were absorbing land into our
operations. While the current reduced demand for new homes is making it possible to purchase land at prices far
below those we were required to pay prior to 2006, in the long term, competition for suitable land is likely to
increase again, and as available land is developed, the cost of acquiring additional suitable land could rise, and in
some areas suitable land might not be available at reasonable prices. Any land shortages or any decrease in the
supply of suitable land at reasonable prices could limit our ability to develop new communities or result in
increased land costs that we are not able to pass through to our customers. This could adversely impact our
revenues, earnings and margins.
Regulatory Risks
Federal laws and regulations that adversely affect liquidity in the secondary mortgage market could hurt our
business.
Changes in federal laws and regulations could have the effect of curtailing the activities of Fannie Mae and
Freddie Mac. 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.
14
Our homebuyers’ ability to qualify for and obtain affordable mortgages could be impacted by changes in
government sponsored entities and private mortgage insurance companies supporting the mortgage market.
Changes made by Fannie Mae, Freddie Mac, FHA/VA sponsored mortgage programs, as well as changes
made by private mortgage insurance companies, could result in a reduction in the ability for homebuyers to
qualify for mortgages due to tighter lending standards such as higher income requirements, larger down
payments, increased reserves and higher credit scores. Higher income requirements could reduce the amount that
homebuyers can qualify for when buying new homes. Larger down payment requirements and increased asset
reserve thresholds could prevent or delay some homebuyers from entering the market. Increased credit score
requirements could also eliminate a segment of potential homebuyers.
Government entities in regions where we operate have adopted or may adopt, slow or no growth initiatives,
which could adversely affect our ability to build or timely build in these areas.
Some 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. 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 certain 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. Such permits, entitlements and approvals
may, from time-to-time, be opposed or challenged by local governments, neighboring property owners or other
interested parties, adding delays, costs and risks of non-approval to the process. Our obligation to comply with
the laws and regulations under which we operate, and our 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.
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 are instances in which subcontractors or others through whom we
do business engage in practices that do not comply with applicable regulations or guidelines. Sometimes our
associates have been aware of these practices but did not take 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, 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.
Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally
are deductible expenses for the purpose of calculating an individual’s federal, and in some cases state, taxable
income. If the government were to make changes to income tax laws that eliminate or substantially reduce these
income tax deductions, the after-tax cost of owning a home would increase substantially. This could adversely
impact demand for, and/or sales prices of, new homes.
15
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 President, Chief Executive Officer and a Director, has voting control, through personal
holdings and family-owned entities, of Class A and Class B common stock that enables Mr. Miller to cast
approximately 46% of the votes that may be cast by the holders of 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 acquiring us or from making a significant equity investment in us, even if we needed the investment to meet
our obligations and to operate our business. Also, because of his voting power, Mr. Miller may be able to
authorize actions that are contrary to our other stockholders’ desires.
We may not be able to benefit from net operating loss (“NOL”) carryforwards.
We suffered significant losses in 2007, 2008 and 2009 for both tax and financial statement purposes. We
were able to carry back 100% of our 2007 tax loss and most of our 2008 tax loss. However, for our 2009 fiscal
year the legislation enacted in November 2009 that expanded the NOL carryback to 5 years only allows 50% of
taxable income earned in 2004 to be offset with 2009 loss. As such, we will only receive tax benefits with regard
to the remainder of the losses that were not carried back, if we have taxable income in the 20 year NOL
carryforward period. Additionally, we have fully reserved against all our deferred tax assets, including our NOL
carryforward that we were carrying on our financial statements, due to the possibility that we may not have
taxable income that will enable us to benefit from them. However, these deferred tax assets will be available to
us if we have sufficient future taxable income to take advantage of them.
Trading in our shares could substantially reduce our ability to use tax loss carryforwards.
Under the Internal Revenue Code, if there is a greater than 50% change of ownership of our stock during
any three-year period caused by more than 5% shareholders, the ability to utilize NOL carryforwards are limited
to the market value of the Company 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 becoming a new majority owner. During the past three years, there have not been
any significant changes in our holdings by 5% shareholders. 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 occurred, 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, 2010:
Name
Position
Stuart A. Miller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President and Chief Executive Officer . . . . . . . . . .
Jonathan M. Jaffe . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President and Chief Operating Officer . . . . . .
Richard Beckwitt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Vice President . . . . . . . . . . . . . . . . . . . . .
Bruce E. Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President and Chief Financial Officer
. . . . . .
Diane J. Bessette . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President and Treasurer
. . . . . . . . . . . . . . . . .
Mark Sustana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secretary and General Counsel . . . . . . . . . . . . . . . .
David M. Collins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Age
52
50
50
51
49
48
40
Mr. Miller has served as our President and Chief Executive Officer since 1997 and is one of our Directors.
Before 1997, Mr. Miller held various executive positions with us.
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.
16
Mr. Beckwitt has served as our Executive Vice President since March 2006. In this position, Mr. Beckwitt is
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. 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. Before joining Lennar,
Mr. Sustana held various legal positions at GenTek, Inc., a manufacturer of communication products, industrial
components and performance chemicals.
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 and
financial services 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 are 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 regarding alleged violations of
environmental laws. We typically settle these matters before they reach litigation for amounts that are not
material to us.
In April 2008, we were named as a nominal defendant in a derivative suit in the United States District Court
for the Southern District of Florida, Miami Division, entitled Doris Staehr, Derivatively on Behalf of Lennar
Corporation v. Stuart A. Miller, et al., Case No. 08-20990-CIV, in which the plaintiff purports to assert claims
for our benefit against some of our current and former officers and directors, primarily relating to allegedly
inadequate or incorrect disclosures about the likelihood of a decline in the housing market and the effects it
would have on us. Because the suit is allegedly brought for our benefit, it does not seek any damages from us. In
August 2008, we moved to dismiss the suit on the ground that the plaintiff failed to make a demand on our
directors that under most circumstances is a prerequisite to a derivative suit. The director defendants moved to
dismiss for that and other reasons. In March 2009, the Court issued an order requiring the plaintiff to replead her
complaint to avoid confusion regarding the theories upon which she predicated her claims, and denied the
motions to dismiss as moot. In April 2009, the plaintiff filed an amended complaint. In May 2009, we again
moved to dismiss for failure to make a pre-suit demand on our directors. The director defendants also filed
another motion to dismiss. After those motions were fully briefed, the Court asked the parties to file
supplemental briefs discussing the decision in In Re Citigroup Inc. Shareholder Derivative Litigation, 2009 WL
2610746 (S.D.N.Y. 2009), in which another court held that stockholders cannot bring a derivative claim for
17
federal securities fraud based on alleged failure of disinterested directors to have disclosed facts of which they
were aware when they made the decisions with which the litigation is concerned. The parties have filed the
supplemental briefs and are now awaiting a decision from the Court on the motions to dismiss.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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:
Fiscal Quarter
Class A Common Stock
High/Low Prices
2009
2008
Cash Dividends
Per Class A Share
2009
2008
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11.56 – 5.54
$11.25 – 5.72
$15.92 – 7.28
$17.66 – 12.05
$21.64 – 11.98
$22.73 – 13.40
$17.22 – 9.33
$16.90 – 3.42
4¢
4¢
4¢
4¢
16¢
16¢
16¢
4¢
Fiscal Quarter
Class B Common Stock
High/Low Prices
2009
2008
Cash Dividends
Per Class B Share
2009
2008
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8.99 – 4.09
$ 8.93 – 4.36
$12.49 – 5.58
$13.87 – 9.18
$20.10 – 11.14
$20.92 – 12.41
$15.43 – 8.46
$15.34 – 2.26
4¢
4¢
4¢
4¢
16¢
16¢
16¢
4¢
As of December 31, 2009, the last reported sale price of our Class A common stock was $12.77 and the last
reported sale price of our Class B common stock was $9.84. As of December 31, 2009, there were approximately
1,000 and 720 holders of record, respectively, of our Class A and Class B common stock.
On January 12, 2010, our Board of Directors declared a quarterly cash dividend of $0.04 per share for both
our Class A and Class B common stock, which is payable on February 12, 2010 to holders of record at the close
of business on January 26, 2010. We regularly evaluate with our Board of Directors 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 three months and year ended November 30,
2009, there were no shares repurchased under this program.
The information required by Item 201(d) of Regulation S-K is provided in Item 12 of this Report.
18
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, 2004 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.
Comparison of Five - Year Cumulative Total Return
Fiscal Year Ended November 30
(2004=$100)
$200
$100
$-
2004
2005
2006
2007
2008
2009
Lennar Corporation
Dow Jones U.S. Total Market Index
Dow Jones Home Construction Index
Lennar Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dow Jones U.S. Home Construction Index . . . . . . . . . . . . . . . . . . . . . . . . .
Dow Jones U.S. Total Market Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100
$100
$100
130
135
110
119
108
126
33
45
136
15
31
83
28
38
106
2004
2005
2006
2007
2008
2009
19
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, 2005 through 2009. The information presented below is based upon our
historical financial statements, except for the results of operations of a subsidiary of the Financial Services
segment’s title company that was sold in May 2005, which have been classified as discontinued operations.
At or for the Years Ended November 30,
2009
2008
2007
2006
2005
(Dollars in thousands, except per share amounts)
Results of Operations:
Revenues:
Homebuilding . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . .
$2,834,285
$ 285,102
$3,119,387
4,263,038
312,379
4,575,417
9,730,252
456,529
10,186,781
15,623,040
643,622
16,266,662
13,304,599
562,372
13,866,971
Operating earnings (loss) from
continuing operations:
Homebuilding (1) . . . . . . . . . . . . . . . .
Financial services (2) . . . . . . . . . . . . .
Corporate general and administrative
$ (647,381)
35,982
$
(400,786)
(30,990)
(2,913,999)
6,120
986,153
149,803
2,277,091
104,768
expenses . . . . . . . . . . . . . . . . . . . . . . .
$ (120,093)
(129,752)
(173,202)
(193,307)
(187,257)
Loss on redemption of 9.95% senior
notes . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
—
—
—
(34,908)
Earnings (loss) from continuing
operations before income taxes . . . . .
$ (731,492)
(561,528)
(3,081,081)
942,649
2,159,694
Earnings from discontinued operations
before income taxes (3) . . . . . . . . . . .
$
—
—
—
—
17,261
Earnings (loss) from continuing
operations (4) . . . . . . . . . . . . . . . . . . .
$ (417,147)
(1,109,085)
(1,941,081)
593,869
1,344,410
Earnings from discontinued
operations . . . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share:
Earnings (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . .
Earnings from discontinued
operations . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) . . . . . . . . . . . . . . .
Cash dividends declared per share—
Class A common stock . . . . . . . . . . . .
Cash dividends declared per share—
Class B common stock . . . . . . . . . . . .
Financial Position:
Total assets . . . . . . . . . . . . . . . . . . . . . . .
Debt: . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . .
Shares outstanding (000s) . . . . . . . . . . .
Stockholders’ equity per share . . . . . . . .
Homebuilding Data (including
unconsolidated entities):
—
$
$ (417,147)
—
—
—
(1,109,085)
(1,941,081)
593,869
10,745
1,355,155
$
$
$
$
$
(2.45)
(7.00)
(12.31)
—
(2.45)
0.16
0.16
—
(7.00)
0.52
0.52
—
(12.31)
0.64
0.64
3.69
—
3.69
0.64
0.64
8.17
0.06
8.23
0.573
0.573
$7,314,791
7,424,898
9,102,747
12,408,266
12,541,225
$2,761,352
$ 217,557
$2,443,479
184,896
13.22
$
2,544,935
225,783
2,623,007
160,558
16.34
2,295,436
541,437
3,822,119
159,887
23.91
2,613,503
1,149,231
5,701,372
158,155
36.05
2,592,772
1,269,782
5,251,411
157,559
33.33
Number of homes delivered . . . . . . . . . .
New orders . . . . . . . . . . . . . . . . . . . . . . .
Backlog of home sales contracts . . . . . .
Backlog dollar value . . . . . . . . . . . . . . .
11,478
11,510
1,631
$ 479,571
15,735
13,391
1,599
456,270
33,283
25,753
4,009
1,384,137
49,568
42,212
11,608
3,980,428
42,359
43,405
18,565
6,884,238
20
(1) Homebuilding operating earnings (loss) from continuing operations include $359.9 million, $340.5 million,
$2,445.1 million, $501.8 million and $20.5 million, respectively, of valuation adjustments for the years
ended November 30, 2009, 2008, 2007, 2006 and 2005. In addition, it includes $101.9 million, $32.2
million, $364.2 million and $126.4 million, respectively, of our share of valuation adjustments related to
assets of our investments in unconsolidated entities for the years ended November 30, 2009, 2008, 2007 and
2006, and $89.0 million, $172.8 million, $132.2 million and $14.5 million, respectively of valuation
adjustments to our investments in unconsolidated entities for the years ended November 30, 2009, 2008,
2007 and 2006. During the year ended November 30, 2007, homebuilding operating earnings (loss) from
continuing operations also includes $190.2 million of goodwill impairments. There were no other material
valuation adjustments for the year ended November 30, 2005.
(2) Financial Services operating loss from continuing operations for the year ended November 30, 2008
includes a $27.2 million impairment of the Financial Services segment’s goodwill.
(3) Earnings from discontinued operations before income taxes include a gain of $15.8 million for the year
ended November 30, 2005 related to the sale of a subsidiary of the Financial Services segment’s title
company.
(4) Earnings (loss) from continuing operations for the year ended November 30, 2009 primarily includes a
reversal of our deferred tax asset valuation allowance of $351.8 million, primarily due to a change in tax
legislation, which allowed us to carryback our fiscal year 2009 tax loss to recover previously paid income
taxes. Earnings (loss) from continuing operations for the year ended November 30, 2008 include a $730.8
million valuation allowance recorded against our deferred tax assets.
21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with “Selected Financial Data” and our audited consolidated financial statements and accompanying
notes included elsewhere in this Report.
Special Note Regarding Forward-Looking Statements
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
Despite high unemployment rates, increased foreclosures and tightening credit standards, recent demand
trends in the communities in which we are selling homes indicate that the markets may be stabilizing as more
confident homebuyers are taking advantage of increased affordability resulting from declining home prices,
historically low interest rates and government stimulus programs. We are optimistic that homebuyers have
recognized that the residential housing market is improving and will continue to take advantage of the
government stimulus, which includes new tax legislation that extended the homebuyer tax credit through
April 30, 2010 and expanded it to include other than first time homebuyers.
We ended the year with $1.3 billion in cash and a homebuilding debt-to-total capital ratio, net of
homebuilding cash, of 36.9%. Additionally, as a result of tax legislation that was enacted in our fourth quarter,
we will receive a tax refund of approximately $320 million in early 2010. We extended our debt maturities by
issuing $400 million of senior notes maturing in 2017 and retiring $448 million of senior notes and other debt.
We also issued $225 million of stock under our $275 million equity draw down program. These transactions
provide us additional financial flexibility and capital for new investment opportunities such as adding new
communities with high return expectations, investing in long-term, strategic joint ventures (similar to Newhall)
and investing in distressed opportunities.
We continue to focus on the basics of our homebuilding operations as we strategically position our company
for a potential return to profitability in 2010. In late 2008, we experienced higher cancellation rates resulting in
an increase in completed, unsold inventory. In early 2009 we were able to convert our completed, unsold
inventory into cash by offering higher sales incentives. Additionally, in 2009 we continued focusing on refining
our product offering, reducing the number of floor plans and targeting first time and value oriented homebuyers.
These more efficient product offerings have significantly reduced our construction costs and allowed us to meet
our customers’ demands. These cost savings, combined with reduced sales incentives, improved our gross
margins throughout the second half of 2009. We also reduced S,G&A expenses by right-sizing our overhead
levels which should allow for leveraging additional volume. Our homebuilding divisions are focused on
operating at profitable levels and generating positive cash flow in 2010.
Results of Operations
Overview
Our net loss in 2009 was $417.1 million, or $2.45 per basic and diluted share, compared to a net loss of
$1,109.1 million, or $7.00 per basic and diluted share, in 2008. Our net loss in 2009 was reduced by the benefit
for income taxes of $314.3 million. The current year net loss was attributable to the challenging market
conditions that have persisted during 2009 and has impacted all of our homebuilding operations. Our gross
margin percentage decreased in 2009, compared to 2008, primarily due to an increase in valuation adjustments as
a percentage of home sales revenue and a decrease in the average sales price of homes delivered during 2009,
compared to 2008.
22
The following table sets forth financial and operational information for the years indicated related to our
operations.
Years Ended November 30,
2009
2008
2007
(Dollars in thousands, except average sales price)
Homebuilding revenues:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,776,850
57,435
4,150,717
112,321
Total homebuilding revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,834,285
4,263,038
Homebuilding costs and expenses:
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,524,850
236,277
449,259
3,641,090
245,536
655,255
9,462,940
267,312
9,730,252
8,892,268
1,928,451
1,368,358
Total homebuilding costs and expenses . . . . . . . . . . . . . . . . . . . .
3,210,386
4,541,881
12,189,077
Homebuilding operating margins . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . .
Gain on recapitalization of unconsolidated entity . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(376,101)
(130,917)
(98,425)
(70,850)
28,912
—
—
(278,843)
(59,156)
(172,387)
(27,594)
4,097
133,097
—
(2,458,825)
(362,899)
(50,221)
(25,808)
(1,927)
175,879
(190,198)
Homebuilding operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (647,381)
(400,786)
(2,913,999)
Financial services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Financial services costs and expenses (1)
285,102
249,120
312,379
343,369
Financial services operating earnings (loss) . . . . . . . . . . . . . . . . . . .
$
35,982
(30,990)
456,529
450,409
6,120
Total operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate general and administrative expenses . . . . . . . . . . . . . . . . . .
(611,399)
(120,093)
(431,776)
(129,752)
(2,907,879)
(173,202)
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (731,492)
(561,528)
(3,081,081)
Gross margin on home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses as a % of revenues from home sales . . . . . . . . . . . . .
Operating margin as a % of revenues from home sales . . . . . . . . . . . .
Gross margin on home sales excluding valuation adjustments (2) . . .
Operating margin as a % of revenues from home sales excluding
9.1%
16.2%
(7.1)%
15.6%
12.3%
15.8%
(3.5)%
17.0%
6.0%
14.5%
(8.4)%
13.9%
valuation adjustments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.6)%
1.2%
(0.5)%
Average sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 243,000
270,000
297,000
(1) Financial Services costs and expenses for the year ended November 30, 2008 include a $27.2 million
impairment of goodwill.
(2) Gross margin on home sales excluding valuation adjustments and operating margin as a percentage of
revenues from home sales excluding valuation adjustments are non-GAAP financial measures disclosed by
certain of our competitors and have been presented because we find it useful in evaluating our performance
and believe that it helps readers of our financial statements compare our operations with those of our
competitors. See the Non-GAAP Financial Measure section.
2009 versus 2008
Revenues from home sales decreased 33% in the year ended November 30, 2009 to $2.8 billion from $4.2
billion in 2008. Revenues were lower primarily due to a 26% decrease in the number of home deliveries,
excluding unconsolidated entities, and a 10% decrease in the average sales price of homes delivered in 2009.
New home deliveries, excluding unconsolidated entities, decreased to 11,422 homes in the year ended
November 30, 2009 from 15,344 homes last year. In the year ended November 30, 2009, new home deliveries
were lower in each of our homebuilding segments and Homebuilding Other, compared to 2008. The average
sales price of homes delivered decreased to $243,000 in the year ended November 30, 2009 from $270,000 in
2008. Sales incentives offered to homebuyers were $44,800 per home delivered in the year ended November 30,
2009, compared to $48,700 per home delivered last year.
23
Gross margins on home sales were $252.0 million, or 9.1%, in the year ended November 30, 2009, which
included $180.2 million of valuation adjustments, compared to gross margins on home sales of $509.6 million, or
12.3%, in the year ended November 30, 2008, which included $195.5 million of valuation adjustments. Gross
margins on home sales excluding valuation adjustments were $432.2 million, or 15.6%, in the year ended
November 30, 2009, compared to $705.1 million, or 17.0%, in 2008. Gross margin percentage on home sales,
excluding valuation adjustments, decreased compared to last year, due primarily to reduced sales prices. Gross
margins on home sales excluding valuation adjustments is a Non-GAAP financial measure, which is discussed in
the Non-GAAP Financial Measure section.
Homebuilding interest expense was $147.4 million in the year ended November 30, 2009 ($67.4 million was
included in cost of homes sold, $9.2 million in cost of land sold and $70.9 million in other interest expense),
compared to $130.4 million in the year ended November 30, 2008 ($99.3 million was included in cost of homes
sold, $3.4 million in cost of land sold and $27.6 million in other interest expense). Despite a decrease in
deliveries during the year ended November 30, 2009, compared to last year, interest expense increased primarily
due to the interest related to the $400 million 12.25% senior notes due 2017 issued during the second quarter of
2009, as well as a reduction in qualifying assets eligible for interest capitalization as a result of a decrease in
inventories from prior year.
Our homebuilding debt to total capital ratio as of November 30, 2009 was 53.1%, compared to 49.2% as of
November 30, 2008. Our net homebuilding debt to total capital ratio as of November 30, 2009 was 36.9%
compared to 35.7% as of November 30, 2008. The net homebuilding debt to total capital ratio consists of net
homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net
homebuilding debt plus stockholders’ equity).
Selling, general and administrative expenses were reduced by $206.0 million, or 31%, in the year ended
November 30, 2009, compared to last year, primarily due to reductions in associate headcount, variable selling
expenses and fixed costs. As a percentage of revenues from home sales, selling, general and administrative
expenses increased to 16.2% in the year ended November 30, 2009, from 15.8% in 2008, due to lower revenues.
Losses on land sales totaled $178.8 million in the year ended November 30, 2009, which included $108.9
million of valuation adjustments and $84.4 million of write-offs of deposits and pre-acquisition costs related to
homesites under option that we do not intend to purchase. In the year ended November 30, 2008, losses on land
sales totaled $133.2 million, which included $47.8 million of valuation adjustments and $97.2 million of
write-offs of deposits and pre-acquisition costs related to homesites that were under option.
Equity in loss from unconsolidated entities was $130.9 million in the year ended November 30, 2009, which
included $101.9 million of our share of valuation adjustments related to assets of unconsolidated entities in
which we have investments, compared to equity in loss from unconsolidated entities of $59.2 million in the year
ended November 30, 2008, which included $32.2 million of our share of valuation adjustments related to assets
of unconsolidated entities in which we have investments.
Other expense, net totaled $98.4 million in the year ended November 30, 2009, which included $89.0
million of valuation adjustments to our investments in unconsolidated entities and $9.7 million of write-offs of
notes and other receivables, compared to other expense, net of $172.4 million in the year ended November 30,
2008, which included $172.8 million of valuation adjustments to our investments in unconsolidated entities and
$25.0 million of write-offs of notes and other receivables.
Minority interest income, net was $28.9 million in the year ended November 30, 2009, which included
$13.6 million of minority interest income as a result of $27.2 million of valuation adjustments to inventories of
50%-owned consolidated joint ventures, compared to minority interest income, net of $4.1 million in the year
ended November 30, 2008.
Sales of land, equity in loss from unconsolidated entities, other expense, net and minority interest income,
net may vary significantly from period to period depending on the timing of land sales and other transactions
entered into by us and unconsolidated entities in which we have investments.
Operating earnings for our Financial Services segment was $36.0 million in the year ended November 30,
2009, compared to an operating loss of $31.0 million last year. The increase in profitability in our Financial
Services segment was primarily due to lower fixed costs as a result of successful cost reduction initiatives
implemented throughout the downturn. In addition, in the year ended November 30, 2008, there was a $27.2
million write-off of goodwill related to the segment’s mortgage operations, compared to no write-off in the year
ended November 30, 2009.
24
Corporate general and administrative expenses were reduced by $9.7 million, or 7%, for the year ended
November 30, 2009, compared to 2008. As a percentage of total revenues, corporate general and administrative
expenses increased to 3.8% in the year ended November 30, 2009, from 2.8% last year, due to lower revenues.
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. As a result of our net operating
loss during the year ended November 30, 2009, we generated deferred tax assets of $269.6 million and recorded a
non-cash valuation allowance against the entire amount of the deferred tax assets. In addition, we recorded a
reversal of our deferred tax asset valuation allowance of $351.8 million during the fourth quarter of 2009,
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.
At November 30, 2009, we owned 82,703 homesites and had access to an additional 21,173 homesites
through either option contracts with third parties or agreements with unconsolidated entities in which we have
investments. At November 30, 2009, 2% of the homesites we owned were subject to home purchase contracts.
Our backlog of sales contracts was 1,631 homes ($479.6 million) at November 30, 2009, compared to 1,599
homes ($456.3 million) at November 30, 2008.
2008 versus 2007
Revenues from home sales decreased 56% in the year ended November 30, 2008 to $4.2 billion from $9.5
billion in 2007. Revenues were lower primarily due to a 51% decrease in the number of home deliveries,
excluding unconsolidated entities, and a 9% decrease in the average sales price of homes delivered in 2008. New
home deliveries, excluding unconsolidated entities, decreased to 15,344 homes in the year ended November 30,
2008 from 31,582 homes in 2007. In the year ended November 30, 2008, new home deliveries were lower in
each of our homebuilding segments and Homebuilding Other, compared to 2007. The average sales price of
homes delivered decreased to $270,000 in the year ended November 30, 2008 from $297,000 in 2007, due to
reduced pricing. Sales incentives offered to homebuyers were $48,700 and $48,000 per home delivered,
respectively, in the years ended November 30, 2008 and 2007.
Gross margins on home sales were $509.6 million, or 12.3%, in the year ended November 30, 2008, which
included $195.5 million of valuation adjustments, compared to gross margins on home sales of $570.7 million, or
6.0%, in the year ended November 30, 2007, which included $747.8 million of valuation adjustments. Gross
margins on home sales excluding valuation adjustments were $705.1 million, or 17.0%, in the year ended
November 30, 2008, compared to $1,318.5 million, or 13.9%, in 2007. Gross margin percentage on home sales,
excluding valuation adjustments, improved compared to 2007 primarily due to our lower inventory basis and
continued focus on repositioning our product and reducing construction costs. Gross margins on home sales
excluding valuation adjustments is a non-GAAP financial measure which is discussed in the Non-GAAP
Financial Measure section.
Homebuilding interest was $130.4 million in 2008 ($99.3 million was included in cost of homes sold, $3.4
million in cost of land sold and $27.6 million in other interest expense), compared to $203.7 million in 2007
($168.5 million was included in cost of homes sold, $9.4 million in cost of land sold and $25.8 million in other
interest expense). The decrease in interest expense was due to lower interest costs resulting from lower average
debt during 2008, as well as decreased deliveries during 2008, compared to 2007.
Our homebuilding debt to total capital ratio as of November 30, 2008 was 49.2%, compared to 37.5% as of
November 30, 2007. Our net homebuilding debt to total capital ratio as of November 30, 2008 was 35.7%
compared to 30.2% as of November 30, 2007. The net homebuilding debt to total capital ratio consists of net
homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net
homebuilding debt plus stockholders’ equity).
Selling, general and administrative expenses were reduced by $713.1 million, or 52%, in the year ended
November 30, 2008, compared to 2007, primarily due to the consolidation of divisions, which resulted in
reductions in associate headcount, variable selling expense and fixed costs. As a percentage of revenues from
home sales, selling, general and administrative expenses increased to 15.8% in the year ended November 30,
2008, from 14.5% in 2007, due to lower revenues.
Losses on land sales totaled $133.2 million in the year ended November 30, 2008, which included $47.8
million of valuation adjustments and $97.2 million of write-offs of deposits and pre-acquisition costs related to
25
homesites that were under option. In the year ended November 30, 2007, losses on land sales totaled $1,661.1
million, which included $1,167.3 million of valuation adjustments and $530.0 million of write-offs of deposits
and pre-acquisition costs related to homesites that were under option.
Equity in loss from unconsolidated entities was $59.2 million in the year ended November 30, 2008, which
included $32.2 million of our share of valuation adjustments related to assets of unconsolidated entities in which
we have investments, compared to equity in loss from unconsolidated entities of $362.9 million in the year ended
November 30, 2007, which included $364.2 million of our share of valuation adjustments related to assets of
unconsolidated entities in which we have investments.
Other expense, net totaled $172.4 million in the year ended November 30, 2008, which included $172.8
million of valuation adjustments to our investments in unconsolidated entities and $25.0 million of write-offs of
notes and other receivables, compared to other expense, net of $50.2 million in the year ended November 30,
2007, which included $132.2 million of valuation adjustments to our investments in unconsolidated entities.
Minority interest income (expense), net was $4.1 million in the year ended November 30, 2008, compared
to minority interest income (expense), net of ($1.9) million in the year ended November 30, 2007.
Due to the termination of our rights to purchase certain assets from our LandSource unconsolidated joint
venture, we recognized deferred profit of $101.3 million in the year ended November 30, 2008 (net of $31.8
million of write-offs of option deposits and pre-acquisition costs and other write-offs) related to the 2007
recapitalization of LandSource.
Sales of land, equity in loss from unconsolidated entities, other expense, net and minority interest income
(expense), net may vary significantly from period to period depending on the timing of land sales and other
transactions entered into by us and unconsolidated entities in which we have investments.
Operating loss for the Financial Services segment was $31.0 million in the year ended November 30, 2008,
compared to operating earnings of $6.1 million in 2007. The decline in profitability was primarily due to a
goodwill impairment of $27.2 million related to the segment’s mortgage operations and fewer transactions in the
segment’s title and mortgage operations.
Corporate general and administrative expenses were reduced by $43.5 million, or 25%, for the year ended
November 30, 2008, compared to 2007. As a percentage of total revenues, corporate general and administrative
expenses increased to 2.8% in the year ended November 30, 2008, from 1.7% in 2007, due to lower revenues.
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. As a result of our operational
results for the year ended November 30, 2008, we incurred cumulative losses over the evaluation period we
established. Accordingly, based on our evaluation of available evidence including our cumulative losses in the
evaluation period, our current level of profits and losses and current market conditions, we recorded a $730.8
million non-cash valuation allowance against our deferred tax assets during the year ended November 30, 2008.
At November 30, 2008, we owned 74,681 homesites and had access to an additional 38,589 homesites
through either option contracts with third parties or agreements with unconsolidated entities in which we have
investments. At November 30, 2008, 2% of the homesites we owned were subject to home purchase contracts.
Our backlog of sales contracts was 1,599 homes ($456.3 million) at November 30, 2008, compared to 4,009
homes ($1,384.1 million) at November 30, 2007. The lower backlog was attributable to challenged market
conditions that persisted throughout 2008, which resulted in lower new orders in 2008, compared to 2007.
Non-GAAP Financial Measure
Gross margins on home sales excluding valuation adjustments is a non-GAAP financial measure, and is
defined by us as sales of homes revenue less cost of homes sold excluding valuation adjustments recorded during
the period. Management finds this to be an important and useful measure in evaluating our performance because
it discloses the profit we generate on homes we actually delivered during the period, as our valuation adjustments
relate to inventory that we did not deliver during the period. Gross margins on home sales excluding valuation
adjustments also is important to our management, because it assists our management in making strategic
decisions regarding our construction pace, product mix and product pricing based upon the profitability we
generated on homes we actually delivered during previous periods. We believe investors also find gross margins
26
on home sales excluding valuation adjustments to be important and useful because it discloses a profitability
measure on homes we actually delivered in a period that can be compared to the profitability on homes we
delivered in a prior period without regard to the variability of valuation adjustments recorded from period to
period. In addition, to the extent that our competitors provide similar information, disclosure of our gross
margins on home sales excluding valuation adjustments helps readers of our financial statements compare our
ability to generate profits with regard to the homes we deliver in a period to our competitors’ ability to generate
profits with regard to the homes they deliver in the same period.
Although management finds gross margins on home sales excluding valuation adjustments to be an
important measure in conducting and evaluating our operations, this measure has limitations as an analytical tool
as it is not reflective of the actual profitability generated by our company during the period. This is because it
excludes charges we recorded relating to inventory that was impaired during the period. In addition, because
gross margins on home sales excluding valuation adjustments is a financial measure that is not calculated in
accordance with generally accepted accounting principles (“GAAP”), it may not be completely comparable to
similarly titled measures of our competitors due to differences in methods of calculation and charges being
excluded. Our management compensates for the limitations of using gross margins on home sales excluding
valuation adjustments by using this non-GAAP measure only to supplement our GAAP results in order to
provide a more complete understanding of the factors and trends affecting our operations. In order to analyze our
overall performance and actual profitability relative to our homebuilding operations, we also compare our gross
margins on home sales during the period, inclusive of valuation adjustments, with the same measure during prior
comparable periods. Due to the limitations discussed above, gross margins on home sales excluding valuation
adjustments should not be viewed in isolation as it is not a substitute for GAAP measures of gross margins.
The table set forth below reconciles our gross margins on home sales excluding valuation adjustments for
the years ended November 30, 2009, 2008 and 2007 to our gross margins on home sales for the years ended
November 30, 2009, 2008 and 2007:
Years Ended November 30,
2009
2008
2007
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,776,850
2,524,850
(In thousands)
4,150,717
3,641,090
9,462,940
8,892,268
Gross margins on home sales . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments to finished homes, CIP and land on which
we intend to build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252,000
509,627
570,672
180,239
195,518
747,843
Gross margins on homes sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 432,239
705,145
1,318,515
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.
We have grouped our homebuilding activities into four reportable segments, which we refer to as
Homebuilding East, Homebuilding Central, Homebuilding West and Homebuilding Houston. Information about
homebuilding activities in states that do not have economic characteristics that are similar to those in other states
in the same geographic is grouped under “Homebuilding Other.” 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, 2009, our reportable homebuilding segments and Homebuilding Other consisted of
homebuilding operations located in:
East: Florida, Maryland, New Jersey and Virginia.
Central: Arizona, Colorado and Texas. (1)
West: California and Nevada.
Houston: Houston, Texas.
Other: Illinois, Minnesota, New York, North Carolina and South Carolina.
(1) Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.
27
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,
2009
2008
2007
(In thousands)
Revenues:
East:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 844,689
27,569
1,252,725
23,033
2,691,198
63,452
Total East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
872,258
1,275,758
2,754,650
Central:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
361,273
5,910
512,957
20,153
1,549,020
56,819
Total Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
367,183
533,110
1,605,839
West:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
810,459
15,778
1,408,051
32,112
3,460,667
83,045
Total West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
826,237
1,440,163
3,543,712
Houston:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429,127
5,691
542,288
8,565
815,250
23,000
Total Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
434,818
550,853
838,250
Other:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
331,302
2,487
434,696
28,458
946,805
40,996
Total Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
333,789
463,154
987,801
Total homebuilding revenues . . . . . . . . . . . . . . . . . . . . . . .
$2,834,285
4,263,038
9,730,252
28
Years Ended November 30,
2009
2008
2007
(In thousands)
Operating earnings (loss):
East:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (70,878)
(92,968)
(5,660)
(11,900)
(24,847)
474
—
(37,361)
(41,242)
(31,422)
(37,633)
(9,376)
3,924
—
(366,153)
(400,830)
(58,069)
(11,151)
(9,759)
(923)
(46,274)
Total East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(205,779)
(153,110)
(893,159)
Central:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(39,309)
406
(8,143)
(13,371)
(10,223)
94
—
(67,124)
(11,330)
(1,310)
(9,954)
(5,369)
(407)
—
(110,663)
(142,330)
(25,378)
(12,938)
(5,896)
(85)
(31,293)
Total Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(70,546)
(95,494)
(328,583)
West:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on recapitalization of unconsolidated entity . . . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(80,294)
(48,125)
(114,373)
(66,568)
(21,710)
5,390
(67,757)
(74,987)
(25,113)
(100,597)
(8,339)
440
— 133,097
—
—
(347,018)
(950,316)
(274,267)
(28,272)
(10,132)
(723)
175,879
(43,955)
Total West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(325,680)
(143,256)
(1,478,804)
Houston:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income, net
25,854
(3,424)
(1,801)
(900)
(3,287)
—
39,897
807
(920)
(978)
—
—
76,378
1,151
(752)
2,878
—
22
Total Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,442
38,806
79,677
Other:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,632)
(34,731)
(940)
(5,686)
(10,783)
22,954
—
(13,283)
(6,463)
(391)
(23,226)
(4,509)
140
—
(50,230)
(168,814)
(4,433)
(738)
(21)
(218)
(68,676)
Total Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(61,818)
(47,732)
(293,130)
Total homebuilding operating loss . . . . . . . . . . . . . . . . . . .
$(647,381)
(400,786)
(2,913,999)
29
Summary of Homebuilding Data
Deliveries
For the Years Ended November 30,
Homes
2009
2008
2007
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,817
1,796
2,480
2,150
1,235
4,957
2,442
4,031
2,736
1,569
9,840
7,020
8,739
4,380
3,304
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,478
15,735
33,283
Of the total home deliveries above, 56, 391 and 1,701, respectively, represent deliveries from
unconsolidated entities for the years ended November 30, 2009, 2008 and 2007.
For the Years Ended November 30,
Dollar Value (In thousands)
Average Sales Price
2009
2008
2007
2009
2008
2007
East
Central . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 844,689 1,276,454 2,839,959
361,273
512,957 1,549,020
856,285 1,519,219 3,764,510
429,127
542,288
815,250
331,852
504,336 1,011,179
221,000
201,000
345,000
200,000
269,000
258,000
210,000
377,000
198,000
321,000
Total . . . . . . . . . . . . . . . . . . . . . . . $2,823,226 4,355,254 9,979,918
246,000
277,000
289,000
221,000
431,000
186,000
306,000
300,000
Of the total dollar value of home deliveries above, $46.4 million, $204.5 million and $517.0 million,
respectively, represent the dollar value of home deliveries from unconsolidated entities for the years ended
November 30, 2009, 2008 and 2007. The home deliveries from unconsolidated entities had an average sales price
of $828,000, $523,000 and $304,000, respectively, for the years ended November 30, 2009, 2008 and 2007.
Sales Incentives (1)
For the Years Ended November 30,
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $190,600
65,448
Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129,476
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West
72,480
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,030
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
260,118
97,136
253,732
67,408
68,124
2009
(In thousands)
2008
2007
543,727
231,603
577,734
67,637
95,133
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $512,034
746,518
1,515,834
For the Years Ended November 30,
Average Sales Incentives Per Home
Delivered
Sales Incentives as a % of Revenue
2009
2008
2007
2009
. . . . . . . . . . . . . . . . . . . . . . . . . . . $
East
Central . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
49,900
36,400
53,400
33,700
43,800
Total . . . . . . . . . . . . . . . . . . . . . . . $
44,800
53,400
39,800
66,600
24,600
45,900
48,700
60,800
33,000
71,600
15,400
30,100
48,000
18.4%
15.4%
13.8%
14.4%
14.0%
15.6%
2008
17.2%
15.9%
15.3%
11.1%
13.6%
15.3%
2007
16.9%
13.0%
14.3%
7.7%
9.1%
13.9%
(1) Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.
30
New Orders (2)
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2009
3,710
1,840
2,569
2,130
1,261
Homes
2008
3,953
2,280
3,396
2,416
1,346
2007
7,492
5,055
6,765
3,621
2,820
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,510
13,391
25,753
Of the new orders above, 58, 174 and 1,091, respectively, represent new orders from unconsolidated entities
for the years ended November 30, 2009, 2008 and 2007.
Years Ended November 30,
Dollar Value (In thousands)
Average Sales Price
2009
2008
2007
2009
2008
2007
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 820,209
373,084
892,002
432,380
328,858
910,749
470,721
1,249,733
471,733
357,718
221,000
1,976,047
203,000
1,021,704
2,857,727 347,000
203,000
261,000
683,605
825,222
230,000
206,000
368,000
195,000
266,000
264,000
202,000
422,000
189,000
293,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,846,533
3,460,654
7,364,305 247,000
258,000
286,000
Of the total dollar value of new orders above, $41.5 million, $97.5 million and $273.5 million, respectively,
represent the dollar value of new orders from unconsolidated entities for the years ended November 30, 2009,
2008 and 2007. The new orders from unconsolidated entities had an average sales price of $716,000, $560,000
and $251,000, respectively, for the years ended November 30, 2009, 2008 and 2007.
__________
(2) New orders represent the number of new sales contracts executed by homebuyers, net of cancellations,
during the years ended November 30, 2009, 2008 and 2007.
Backlog
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2009
Homes
2008
682
167
336
249
197
787
123
247
269
173
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,631
1,599
2007
1,797
285
942
589
396
4,009
Of the total homes in backlog above, 9 homes, 8 homes and 364 homes, respectively, represent homes in
backlog from unconsolidated entities at November 30, 2009, 2008 and 2007.
November 30,
Dollar Value (In thousands)
Average Sales Price
2009
2008
2007
2009
2008
2007
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 179,175
36,158
143,868
60,876
59,494
202,791
23,736
108,779
57,785
63,179
587,100
67,344
408,280
128,340
193,073
263,000
217,000
428,000
244,000
302,000
258,000
193,000
440,000
215,000
365,000
327,000
236,000
433,000
218,000
488,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 479,571
456,270
1,384,137
294,000
285,000
345,000
31
Of the total dollar value of homes in backlog above, $7.2 million, $12.5 million and $182.7 million,
respectively, represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2009,
2008 and 2007. The homes in backlog from unconsolidated entities had an average sales price of $804,000,
$1,558,000 and $502,000, respectively, at November 30, 2009, 2008 and 2007.
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,
2009
2008
2007
Cancellation Rates
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
East
Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
22% 31% 34%
17% 22% 29%
15% 24% 29%
19% 27% 32%
16% 23% 20%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18% 26% 30%
During the fourth quarter of 2009, our cancellation rate was 20%. Our cancellation rate during 2009
decreased to a historically normal level. We do not recognize revenue on homes under sales contracts until the
sales are closed and title passes to the new homeowners, except for our multi-level residential buildings under
construction for which revenue was recognized under percentage-of-completion accounting during 2007. In 2008
and 2009, we did not recognize revenues and expenses under percentage-of-completion accounting for our multi-
level residential buildings under construction.
2009 versus 2008
East: Homebuilding revenues decreased in 2009, compared to 2008, primarily due to a decrease in the
number of home deliveries and in the average sales price of homes delivered in all of the states in this segment.
Gross margins on home sales were $36.2 million, or 4.3%, in 2009 including valuation adjustments of $73.7
million, compared to gross margins on home sales of $164.5 million, or 13.1%, in 2008 including $76.8 million
of valuation adjustments. Gross margins on home sales excluding valuation adjustments were $109.8 million, or
13.0%, in 2009, compared to $241.3 million, or 19.3%, in 2008. Gross margin percentage on home sales,
excluding valuation adjustments, decreased compared to last year due to reduced pricing and higher sales
incentives offered to homebuyers as a percentage of revenues from home sales (18.4% in 2009 and 17.2% in
2008).
Losses on land sales were $93.0 million in 2009 (including $64.1 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $37.0 million of valuation
adjustments), compared to losses on land sales of $41.2 million in 2008 (including $19.0 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $23.3
million of valuation adjustments).
Central: Homebuilding revenues decreased in 2009, compared to 2008, primarily due to a decrease in the
number of home deliveries in all of the states in this segment and a decrease in the average sales price of homes
delivered in Arizona, partially offset by a slight increase in the average selling price in Colorado and Texas,
excluding Houston. Gross margins on home sales were $29.2 million, or 8.1%, in 2009 including valuation
adjustments of $13.6 million, compared to gross margins on home sales of $31.8 million, or 6.2%, in 2008
including $28.1 million of valuation adjustments. Gross margins on home sales excluding valuation adjustments
were $42.8 million, or 11.9%, in 2009, compared to $59.9 million, or 11.7%, in 2008. Sales incentives offered to
homebuyers as a percentage of revenues from home sales were 15.4% in 2009 and 15.9% in 2008.
Gross profits on land sales were $0.4 million in 2009 (net of $0.1 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $1.3 million of valuation
adjustments), compared to losses on land sales of $11.3 million in 2008 (including $6.0 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $12.4
million of valuation adjustments).
32
West: Homebuilding revenues decreased in 2009, compared to 2008, primarily due to a decrease in the
number of home deliveries and average sales price of homes delivered in all of the states in this segment. Gross
margins on home sales were $92.8 million, or 11.5%, in 2009 including valuation adjustments of $64.1 million,
compared to gross margins on home sales of $154.1 million, or 10.9%, in 2008 including $75.6 million of
valuation adjustments. Gross margins on home sales excluding valuation adjustments were $156.9 million, or
19.4%, in 2009, compared to $229.7 million, or 16.3%, in 2008. Gross margin percentage on home sales,
excluding valuation adjustments, increased compared to last year primarily due to a decrease of sales incentives
offered to homebuyers as a percentage of home sales revenues (13.8% in 2009, compared to 15.3% in 2008).
Losses on land sales were $48.1 million in 2009 (including $13.9 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $38.7 million of valuation
adjustments), compared to losses on land sales of $75.0 million in 2008 (including $62.4 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $11.1
million of valuation adjustments).
Houston: Homebuilding revenues decreased in 2009, compared to 2008, primarily due to a decrease in the
number of home deliveries in this segment. Gross margins on home sales were $75.3 million, or 17.5%, in 2009
including valuation adjustments of $1.1 million, compared to gross margins on home sales of $103.9 million, or
19.2%, in 2008 including $2.3 million of valuation adjustments. Gross margins on home sales excluding
valuation adjustments were $76.4 million, or 17.8%, in 2009, compared to $106.2 million, or 19.6%, in 2008.
Gross margin percentage on home sales, excluding valuation adjustments, decreased compared to last year
primarily due to higher sales incentives offered to homebuyers as a percentage of revenues from home sales
(14.4% in 2009, compared to 11.1% in 2008).
Losses on land sales were $3.4 million in 2009 (including $2.5 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $0.7 million of valuation
adjustments), compared to gross profits on land sales of $0.8 million in 2008 (net of $0.7 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $0.1 million
of valuation adjustments).
Other: Homebuilding revenues decreased in 2009, compared to 2008, primarily due to a decrease in the
number of home deliveries in all of the states in Homebuilding Other except in North and South Carolina
combined, and a decrease in the average sales price of homes delivered in North and South Carolina combined
and Minnesota. Gross margins on home sales were $18.5 million, or 5.6% in 2009 including valuation
adjustments of $27.8 million, compared to gross margins on home sales of $55.3 million, or 12.7%, in 2008
including $12.7 million of valuation adjustments. Gross margins on home sales excluding valuation adjustments
were $46.2 million, or 14.0%, in 2009, compared to $68.0 million, or 15.7%, in 2008. Gross margin percentage
on home sales, excluding valuation adjustments, decreased compared to last year due to reduced pricing and
higher sales incentives offered to homebuyers as a percentage of revenues from home sales (14.0% in 2009,
compared to 13.6% in 2008).
Losses on land sales were $34.7 million in 2009 (including $3.8 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $31.2 million of valuation
adjustments), compared to losses on land sales of $6.5 million in 2008 (including $9.0 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $0.9 million
of valuation adjustments).
2008 versus 2007
East: Homebuilding revenues decreased in 2008, compared to 2007, primarily due to a decrease in the
number of home deliveries and in the average sales price of homes delivered in all of the states in this segment.
Gross margins on home sales were $164.5 million, or 13.1%, in 2008 including valuation adjustments of $76.8
million, compared to gross margins on home sales of $89.0 million, or 3.3%, in 2007 including $279.1 million of
valuation adjustments. Gross margins on home sales excluding valuation adjustments were $241.3 million, or
19.3%, in 2008, compared to $368.0 million, or 13.7%, in 2007. Gross margin percentage on home sales
increased compared to 2007 due to our lower inventory basis and continued focus on reducing costs. As a
percentage of home sales revenues, sales incentives were 17.2% in 2008 and 16.9% in 2007.
Losses on land sales were $41.2 million in 2008 (including $19.0 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $23.3 million of valuation
33
adjustments), compared to losses on land sales of $400.8 million in 2007 (including $119.6 million of write-offs
of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $307.5
million of valuation adjustments).
Central: Homebuilding revenues decreased in 2008, compared to 2007, primarily due to a decrease in the
number of home deliveries in all of the states in this segment. Gross margins on home sales were $31.8 million,
or 6.2%, in 2008 including valuation adjustments of $28.1 million, compared to gross margins on home sales of
$102.0 million, or 6.6%, in 2007 including $91.4 million of valuation adjustments. Gross margins on home sales
excluding valuation adjustments were $59.9 million, or 11.7%, in 2008, compared to $193.3 million, or 12.5%, in
2007. Gross margin percentage on home sales decreased compared to 2007 primarily due to higher sales
incentives offered to homebuyers (15.9% in 2008, compared to 13.0% in 2007).
Losses on land sales were $11.3 million in 2008 (including $6.0 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $12.4 million of valuation
adjustments), compared to losses on land sales of $142.3 million in 2007 (including $56.3 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $79.1
million of valuation adjustments).
West: Homebuilding revenues decreased in 2008, compared to 2007, primarily due to a decrease in the
number of home deliveries and average sales price of homes delivered in all of the states in this segment. Gross
margins on home sales were $154.1 million, or 10.9%, in 2008 including valuation adjustments of $75.6 million,
compared to gross margins on home sales of $119.1 million, or 3.4%, in 2007 including $331.8 million of
valuation adjustments. Gross margins on home sales excluding valuation adjustments were $229.7 million, or
16.3%, in 2008, compared to $451.0 million, or 13.0%, in 2007. Gross margin percentage on home sales
increased compared to 2007 primarily due to our lower inventory basis and continued focus on reducing costs,
despite higher sales incentives offered to homebuyers (15.3% in 2008, compared to 14.3% in 2007).
Losses on land sales were $75.0 million in 2008 (including $62.4 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $11.1 million of valuation
adjustments), compared to losses on land sales of $950.3 million in 2007 (including $310.8 million of write-offs
of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $648.6
million of valuation adjustments).
Houston: Homebuilding revenues decreased in 2008, compared to 2007, primarily due to a decrease in the
number of home deliveries in this segment. Gross margins on home sales were $103.9 million, or 19.2%, in 2008
including valuation adjustments of $2.3 million, compared to gross margins on home sales of $171.7 million, or
21.1%, in 2007 including $2.8 million of valuation adjustments. Gross margins on home sales excluding
valuation adjustments were $106.2 million, or 19.6%, in 2008, compared to $174.5 million, or 21.4%, in 2007.
Gross margin percentage on home sales decreased compared to 2007 primarily due to higher sales incentives
offered to homebuyers (11.1% in 2008, compared to 7.7% in 2007).
Gross profits on land sales were $0.8 million in 2008 (net of $0.7 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $0.1 million of valuation
adjustments), compared to gross profits on land sales of $1.2 million in 2007 (net of $0.8 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $1.8 million
of valuation adjustments).
Other: Homebuilding revenues decreased in 2008, compared to 2007, primarily due to a decrease in the
number of home deliveries in all of the states in Homebuilding Other, and a decrease in the average sales price of
homes delivered in all of the states in this segment except in Minnesota. Gross margins on home sales were $55.3
million, or 12.7%, in 2008 including valuation adjustments of $12.7 million, compared to gross margins on home
sales of $88.9 million, or 9.4%, in 2007 including $42.8 million of valuation adjustments. Gross margins on
home sales excluding valuation adjustments were $68.0 million, or 15.7%, in 2008, compared to $131.7 million,
or 13.9%, in 2007. Gross margin percentage on home sales increased compared to 2007 primarily due to our
lower inventory basis and continued focus on reducing costs, despite higher sales incentives offered to
homebuyers (13.6% in 2008, compared to 9.1% in 2007).
Losses on land sales were $6.5 million in 2008 (including $9.0 million of write-offs of deposits and
pre-acquisition costs related to land under option that we do not intend to purchase and $0.9 million of valuation
adjustments), compared to losses on land sales of $168.8 million in 2007 (including $42.4 million of write-offs of
deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $130.3
million of valuation adjustments).
34
Gross margins on home sales excluding valuation adjustments is a Non-GAAP financial measure that is
discussed previously under “Non-GAAP Financial Measure.” The table set forth below reconciles our gross
margins on home sales excluding valuation adjustments for the years ended November 30, 2009, 2008 and 2007
for each of our reportable homebuilding segments and Homebuilding Other to our gross margins on home sales
for the years ended November 30, 2009, 2008 and 2007:
Years Ended November 30,
2009
2008
2007
(In thousands)
East:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$844,689
808,528
1,252,725
1,088,229
2,691,198
2,602,239
Gross margins on home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,161
164,496
88,959
Valuation adjustments to finished homes, CIP and land on which we
intend to build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,670
76,791
279,064
Gross margins on homes sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,831
241,287
368,023
Central:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
361,273
332,040
512,957
481,176
1,549,020
1,447,050
Gross margins on home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,233
31,781
101,970
Valuation adjustments to finished homes, CIP and land on which we
intend to build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,603
28,142
91,354
Gross margins on homes sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,836
59,923
193,324
West:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
810,459
717,631
1,408,051
1,253,952
3,460,667
3,341,518
Gross margins on home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92,828
154,099
119,149
Valuation adjustments to finished homes, CIP and land on which we
intend to build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,095
75,614
331,827
Gross margins on homes sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
156,923
229,713
450,976
Houston:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429,127
353,838
542,288
438,368
815,250
643,597
Gross margins on home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,289
103,920
171,653
Valuation adjustments to finished homes, CIP and land on which we
intend to build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,116
2,262
2,836
Gross margins on homes sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,405
106,182
174,489
Other:
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
331,302
312,813
434,696
379,365
946,805
857,864
Gross margins on home sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,489
55,331
88,941
Valuation adjustments to finished homes, CIP and land on which we
intend to build homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,755
12,709
42,762
Gross margins on homes sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,244
68,040
131,703
Total gross margins on home sales . . . . . . . . . . . . . . . . .
Total valuation adjustments . . . . . . . . . . . . . . . . . . . . . . .
$252,000
$180,239
509,627
195,518
570,672
747,843
Total gross margins on home sales excluding valuation
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$432,239
705,145
1,318,515
35
Financial Services Segment
We have one 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
Financial Services segment originates are sold in the secondary mortgage market on a servicing released,
non-recourse basis; although, we remain liable for certain limited representations. The following table sets forth
selected financial and operational information relating to our Financial Services segment.
Years Ended November 30,
2009
2008
2007
(Dollars in thousands)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 285,102
249,120
312,379
343,369
456,529
450,409
Operating earnings (loss) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
35,982
(30,990)
6,120
Dollar value of mortgages originated . . . . . . . . . . . . . . . . . . . . . .
$4,020,000
4,290,000
7,740,000
Number of mortgages originated . . . . . . . . . . . . . . . . . . . . . . . . .
17,900
18,300
30,900
Mortgage capture rate of Lennar homebuyers . . . . . . . . . . . . . . .
87%
85%
73%
Number of title and closing service transactions . . . . . . . . . . . . .
120,500
105,900
136,300
Number of title policies issued . . . . . . . . . . . . . . . . . . . . . . . . . . .
92,500
96,700
146,200
(1) Financial Services costs and expenses and operating loss for the year ended November 30, 2008 include a
$27.2 million impairment of goodwill.
Financial Condition and Capital Resources
At November 30, 2009, we had cash and cash equivalents related to our homebuilding and financial services
operations of $1,457.4 million, compared to $1,203.4 million at November 30, 2008 and $795.2 million at
November 30, 2007.
We finance our land acquisition and development activities, construction activities, financial services
activities and general operating needs primarily with cash generated from our operations, debt issuances and
equity offerings, as well as cash borrowed under our warehouse lines of credit.
Operating Cash Flow Activities
During 2009 and 2008, cash provided by operating activities totaled $420.8 million and $1,100.8 million,
respectively. During 2009, cash provided by operating activities was positively impacted by a decrease in
inventories as a result of reducing completed, unsold inventory, a reduction in construction in progress resulting
from lower new home starts in early 2009 and write-offs and valuation adjustments pertaining to the respective
inventory, which was partially offset by land acquisitions. Cash provided by operating activities was partially
offset by our net loss, a decrease in accounts payable and other liabilities and an increase in our receivables as a
result of an increase in our income tax receivables primarily due to a change in tax legislation, which allowed us
to carryback our fiscal year 2009 tax loss to recover previously paid income taxes.
During 2008, cash provided by operating activities included a decrease in our inventory as a result of
reduced land purchases, a reduction in construction in progress resulting from lower new home starts and write-
offs and valuation adjustments pertaining to the respective inventory. In order to improve liquidity in 2008, we
continued to focus our efforts on adjusting pricing to meet market conditions, as we pulled back production and
curtailed land purchases where possible in order to keep our balance sheet positioned for future opportunities.
Cash provided by operating activities was also impacted by a decrease in our receivables primarily related to the
collection of our income tax receivables, a decrease in loans held-for-sale resulting from a decrease in our new
home deliveries during the year and our deferred income tax provision. Cash provided by operating activities was
partially offset by our net loss and a decrease in accounts payable and other liabilities primarily due to a decrease
in our land purchases.
36
Investing Cash Flow Activities
During 2009 and 2008, cash used in investing activities totaled $275.1 million and $265.7 million,
respectively. During the year ended November 30, 2009, we contributed $326.0 million of cash to unconsolidated
entities of which $94.5 million related to our investment in the reorganized Newhall, as well as the purchase of
equity interests in other joint ventures previously owned by LandSource, compared to $403.7 million of cash
contributed to unconsolidated entities in 2008. Our investing activities also included distributions of capital from
unconsolidated entities of $24.1 million and $87.8 million, respectively, during the years ended November 30,
2009 and 2008.
We are always looking at the possibility of acquiring homebuilders and other companies. However, at
November 30, 2009, we had no agreements or understandings regarding any significant transactions.
Financing Cash Flow Activities
During 2009, our net cash provided by financing activities was primarily attributed to the issuance of
common stock and new debt, partially offset by the redemption of debt.
During 2008, our net cash used in financing activities primarily related to net repayments under financial
services debt, principal payments on other borrowings and dividends paid, partially offset by receipts related to
minority interests.
During 2007, we sold a diversified portfolio of land consisting of approximately 11,000 homesites in 32
communities located throughout the country to a strategic land investment venture with Morgan Stanley Real
Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which we have a 20% ownership interest and
50% voting rights. Due to our continuing involvement, the transaction did not qualify as a sale under GAAP;
thus, the inventory remained on our balance sheet in consolidated inventory not owned. During 2009 and 2008,
we exercised certain land option contracts from the land investment venture, reducing the liabilities reflected on
our consolidated balance sheet related to consolidated inventory not owned by $33.7 million and $48.4 million,
respectively.
Homebuilding debt to total capital and net homebuilding debt to total capital are financial measures
commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our
homebuilding operations. Management believes providing a measure of leverage of our homebuilding operations
enables management and readers of our financial statements to better understand our financial position and
performance. Homebuilding debt to total capital and net homebuilding debt to total capital are calculated as
follows:
November 30,
2009
2008
(Dollars in thousands)
Homebuilding debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,761,352
2,443,479
2,544,935
2,623,007
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,204,831
5,167,942
Homebuilding debt to total capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53.1%
49.2%
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding debt
Less: Homebuilding cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
$2,761,352
1,330,603
2,544,935
1,091,468
Net homebuilding debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,430,749
1,453,467
Net homebuilding debt to total capital (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.9%
35.7%
(1) Net homebuilding debt to total capital consists of net homebuilding debt (homebuilding debt less
homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders’
equity).
At November 30, 2009, homebuilding debt to total capital was higher compared to prior year due to the
increase in homebuilding debt as a result of a net increase in senior notes and other debts payable, and the
decrease in stockholders’ equity primarily due to our net loss, which included the effects of inventory valuation
adjustments, write-offs of option deposits and pre-acquisition costs, our share of valuation adjustments related to
37
assets of unconsolidated entities, valuation adjustments to investments in unconsolidated entities and a valuation
allowance against our deferred tax assets, all of which are non-cash items. This decrease in stockholders’ equity
was partially offset by common stock issued under our equity draw down program and a reversal of a portion of
our deferred tax asset valuation allowance during the fourth quarter of 2009, 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.
In addition to the use of capital in our homebuilding and financial services operations, we actively evaluate
various other uses of capital, which fit into our homebuilding and financial services strategies and appear to meet
our profitability and return on capital goals. This may include acquisitions of, or investments in, other entities,
the payment of dividends or repurchases of our outstanding common stock or debt. These activities may be
funded through any combination of our credit facilities, cash generated from operations, sales of assets or the
issuance of public debt, common stock or preferred stock.
The following table summarizes our homebuilding senior notes and other debts payable:
November 30,
2009
2008
(Dollars in thousands)
5.125% senior notes due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.95% senior notes due 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.95% senior notes due 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.50% senior notes due 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.60% senior notes due 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.50% senior notes due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.25% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 5⁄ 8% senior notes due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage notes on land and other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 249,955
244,727
347,471
248,365
501,424
249,760
392,392
—
527,258
299,877
249,615
346,851
248,088
501,618
249,733
—
280,976
368,177
$2,761,352
2,544,935
Our average debt outstanding was $2.6 billion in 2009, compared to $2.3 billion in 2008. The average rate
for interest incurred was 6.0% and 5.8%, respectively in 2009 and 2008. Interest incurred related to
homebuilding debt for the year ended November 30, 2009 was $172.1 million, compared to $148.3 million in
2008. The majority of our short-term financing needs, including financings for land acquisition and development
activities and general operating needs, are met with cash generated from operations, debt issuances and equity
offerings.
In April 2009, we sold $400 million of 12.25% senior notes due 2017 (the “12.25% Senior Notes”) at a
price of 98.098% in a private placement. Proceeds from the offering, after payment of initial purchase’s discount
and expenses, were $386.7 million. We added the proceeds to our working capital to be used for general
corporate purposes, which may include the repayment or repurchase of our near-term maturities or of debt of our
joint ventures that we have guaranteed. Interest on the 12.25% Senior Notes is due semi-annually. The 12.25%
Senior Notes are unsecured and unsubordinated, and are guaranteed by substantially all of our subsidiaries. The
12.25% Senior Notes were subsequently exchanged for identical 12.25% Senior Notes that had been registered
under the Securities Act of 1933. At November 30, 2009, the carrying amount of the 12.25% Senior Notes was
$392.4 million.
In March 2009, we retired our $281 million of 7 5⁄ 8% senior notes due March 2009 for 100% of the
outstanding principal amount, plus accrued and unpaid interest as of the maturity date.
In June 2007, we redeemed our $300 million senior floating-rate notes due 2009. The redemption price was
$300.0 million, or 100% of the principal amount of the outstanding senior floating-rate notes due 2009, plus
accrued and unpaid interest as of the redemption date.
In April 2006, we sold $250 million of 5.95% senior notes due 2011 and $250 million of 6.50% senior notes
due 2016 (collectively, the “2006 Senior Notes”) at prices of 99.766% and 99.873%, respectively, in a private
placement under SEC Rule 144A. Proceeds from the offering of the 2006 Senior Notes, after initial purchaser’s
discount and expenses, were $248.7 million and $248.9 million, respectively. We added the proceeds to our
working capital to be used for general corporate purposes. Interest on the 2006 Senior Notes is due semi-
annually. The 2006 Senior Notes are unsecured and unsubordinated, and substantially all of our subsidiaries
38
guarantee the 2006 Senior Notes. The 2006 Senior Notes were subsequently exchanged for identical notes
registered under the Securities Act of 1933. During the year ended November 30, 2009, we redeemed $5.0
million of the 5.95% senior notes due 2011. At November 30, 2009 and 2008, the carrying amount of the 2006
Senior Notes was $494.5 million and $499.3 million, respectively.
In September 2005, we sold $300 million of 5.125% senior notes due 2010 (the “5.125% Senior Notes”) at a
price of 99.905% in a private placement. Proceeds from the offering, after initial purchaser’s discount and
expenses, were $298.2 million. We added the proceeds to our working capital to be used for general corporate
purposes. Interest on the 5.125% Senior Notes is due semi-annually. The 5.125% Senior Notes are unsecured and
unsubordinated. Substantially all of our subsidiaries guaranteed the 5.125% Senior Notes. In 2006, we exchanged
the 5.125% Senior Notes for registered notes. The registered notes have substantially identical terms as the
5.125% Senior Notes, except that the registered notes do not include transfer restrictions that are applicable to the
5.125% Senior Notes. During the year ended November 30, 2009, we redeemed $50.0 million of the 5.125%
Senior Notes. At November 30, 2009 and 2008, the carrying amount of the 5.125% Senior Notes was $250.0
million and $299.9 million, respectively.
In April 2005, we sold $300 million of 5.60% Senior Notes due 2015 (the “5.60% Senior Notes”) at a price of
99.771%. Proceeds from the offering, after initial purchaser’s discount and expenses, were $297.5 million. In July
2005, we sold $200 million of 5.60% Senior Notes due 2015 at a price of 101.407%. The 5.60% Senior Notes were
the same issue as the 5.60% Senior Notes we sold in April 2005. Proceeds from the offering, after initial purchaser’s
discount and expenses, were $203.9 million. We added the proceeds of both offerings to our working capital to be
used for general corporate purposes. Interest on the 5.60% Senior Notes is due semi-annually. The 5.60% Senior
Notes are unsecured and unsubordinated. Substantially all of our subsidiaries guaranteed the 5.60% Senior Notes.
The 5.60% Senior Notes were subsequently exchanged for identical 5.60% Senior Notes that had been registered
under the Securities Act of 1933. At November 30, 2009 and 2008, the carrying amount of the 5.60% Senior Notes
sold in April and July 2005 was $501.4 million and $501.6 million, respectively.
In August 2004, we sold $250 million of 5.50% senior notes due 2014 (the “5.50% Senior Notes”) at a price
of 98.842% in a private placement. Proceeds from the offering, after initial purchaser’s discount and expenses,
were $245.5 million. We used the proceeds to repay borrowings under our Credit Facility. Interest on the 5.50%
Senior Notes is due semi-annually. The 5.50% Senior Notes are unsecured and unsubordinated. Substantially all
of our subsidiaries guaranteed the 5.50% Senior Notes. At November 30, 2009 and 2008, the carrying value of
the 5.50% Senior Notes was $248.4 million and $248.1 million, respectively.
In February 2003, we issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%.
Substantially all of our subsidiaries guaranteed the 5.95% senior notes. At November 30, 2009 and 2008, the
carrying amount of the 5.95% senior notes was $347.5 million and $346.9 million, respectively.
Substantially all of our wholly-owned subsidiaries have guaranteed all our Senior Notes (the “Guaranteed
Notes”). The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly and
indirectly owned by Lennar Corporation. The principal reason our wholly-owned subsidiaries guaranteed the
Guaranteed Notes is so holders of the Guaranteed Notes will have rights at least as great with regard to our
subsidiaries as any other holders of a material amount of our unsecured debt. Therefore, the guarantees of the
Guaranteed Notes will remain in effect while the guarantor subsidiaries guarantee a material amount of the debt
of Lennar Corporation, as a separate entity, to others. At any time, however, when a guarantor subsidiary is no
longer guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes, either
directly or by guaranteeing other subsidiaries’ obligations as guarantors of Lennar Corporation’s debt, the
guarantor subsidiaries’ guarantee of the Guaranteed Notes will be suspended. Currently, the only debt the
guarantor subsidiaries are guaranteeing other than the Guaranteed Notes is Lennar Corporation’s principal
revolving bank credit line (currently the Credit Facility). Therefore, if, the guarantor subsidiaries cease
guaranteeing Lennar Corporation’s obligations under its principal revolving bank credit line and are not
guarantors of any new debt, the guarantor subsidiaries’ guarantees of the Guaranteed Notes will be suspended
until such time, if any, as they again are guaranteeing at least $75 million of Lennar Corporation’s debt other
than the Guaranteed Notes.
If the guarantor subsidiaries are guaranteeing a revolving credit line totaling at least $75 million, we will
treat the guarantees of the Guaranteed Notes as remaining in effect even during periods when Lennar
Corporation’s borrowings under the revolving credit line is less than $75 million. Because it is possible that our
banks will permit some or all of the guarantor subsidiaries to stop guaranteeing our revolving credit line, it is
possible that, at some time or times in the future, the Guaranteed Notes will no longer be guaranteed by the
guarantor subsidiaries.
39
Our senior unsecured revolving credit facility (the “Credit Facility”) consists of a $1.1 billion revolving
credit facility maturing in July 2011. In order to borrow under our Credit Facility, we are required to first use our
cash in excess of $750 million and have availability under our borrowing base calculation. As of November 30,
2009, we had no availability to borrow under our Credit Facility. We can create availability under our Credit
Facility to the extent we use the cash in excess of $750 million to purchase qualified borrowing base assets.
Our Credit Facility is guaranteed by substantially all of our subsidiaries. Interest rates on outstanding
borrowings are LIBOR-based, with margins determined based on changes in our credit ratings, or an alternate
base rate, as described in our Credit Facility agreement. During the year ended November 30, 2009, we did not
have any borrowings under our Credit Facility, compared to average daily borrowings of $21.3 million during the
year ended November 30, 2008. At both November 30, 2009 and 2008, we had no outstanding balance under our
Credit Facility. However, at November 30, 2009 and 2008, $177.9 million and $275.2 million, respectively, of
our total letters of credit outstanding discussed below, were collateralized against certain borrowings available
under our Credit Facility.
Our performance letters of credit outstanding were $97.7 millions and $167.5 million, respectively, at
November 30, 2009 and 2008. Our financial letters of credit outstanding were $205.4 million and $278.5 million,
respectively, at November 30, 2009 and 2008. Performance letters of credit are generally posted with regulatory
bodies to guarantee our performance of certain development and construction activities, and financial letters of
credit are generally posted in lieu of cash deposits on option contracts and for insurance risks, credit
enhancements and as other collateral.
At November 30, 2009, our Financial Services segment had two warehouse repurchase facilities with a
maximum aggregate commitment of $200 million and $100 million, respectively, that mature in June 2010 and
another warehouse repurchase facility with a maximum aggregate commitment of $125 million that matures in
July 2010. The maximum aggregate commitment under these facilities totaled $425 million.
Our Financial Services segment uses these facilities to finance its lending activities until the mortgage loans
are sold to investors and expects the facilities to be renewed or replaced with other facilities when they mature.
Borrowings under the facilities were $217.5 million and $209.5 million, respectively, at November 30, 2009 and
2008 and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for
with outstanding principal balances of $266.9 million and $281.2 million, respectively, at November 30, 2009
and 2008. These facilities have several interest rate-pricing options, which fluctuate with market rates. The
combined effective interest rate on the facilities at November 30, 2009 was 4.2%.
At November 30, 2008, our Financial Services segment had advances under a different conduit funding
agreement totaling $10.8 million, which had an effective interest rate of 2.9% at November 30, 2008. At
November 30, 2008, our Financial Services segment had advances under the on going 60-day committed
repurchase facility of $5.2 million, which were collateralized by mortgage loans and receivables on loans sold to
investors but not yet paid for with outstanding principal balances of $5.5 million. The effective interest rate of
this facility at November 30, 2008 was 3.7%.
Our Financial Services segment, in the normal course of business, uses derivative financial instruments to
reduce its exposure to fluctuations in interest rates. The Financial Services segment enters into forward
commitments and, to a lesser extent, option contracts to protect the value of loans held-for-sale from increases in
market interest rates. We do not anticipate that we will suffer credit losses from counterparty non-performance.
Due to the fact that our Financial Services segment’s borrowings under the lines of credit are generally
repaid with the proceeds from the sale of mortgage loans and receivables on loans that secure those borrowings,
the facilities are not likely to be a call on our current cash or future cash resources. If the facilities are not
renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale and
by collecting on receivables on loans sold but not yet paid. Without the facilities, our Financial Services segment
would have to use cash from operations and other funding sources to finance its lending activities.
Debt Covenants
At November 30, 2009, we believe we were in compliance with our debt covenants. Under our Credit
Facility agreement (the “Agreement”), we were required to maintain a leverage ratio of less than or equal to 55%
at the end of each fiscal quarter during our 2009 fiscal year and we are required to maintain a leverage ratio of
less than or equal to 52.5% for our 2010 fiscal year and through the maturity of our Credit Facility in 2011. If our
40
adjusted consolidated tangible net worth, as calculated per the Agreement, falls below $1.6 billion, our Credit
Facility would be reduced from $1.1 billion to $0.9 billion. In no event may our adjusted consolidated tangible
net worth, as calculated per the Agreement, be less than $1.3 billion.
The following are computations of our adjusted consolidated tangible net worth and our leverage ratio as
calculated per the Agreement as of November 30, 2009:
Covenant
Level
Level Achieved as of
November 30, 2009
Cushion
(Dollars in thousands)
Adjusted consolidated net worth (1) . . . . . . . . . . . . . . . . . . . .
Leverage ratio (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,686,031
2,254,661
55%
48%
568,630
700 Basis Points
The terms “adjusted consolidated tangible net worth” and “leverage ratio” used in the Agreement are
specifically calculated per the Agreement and differ in specified ways from comparable GAAP or common usage
terms. Our adjusted consolidated tangible net worth and leverage ratio, as well as our maximum recourse
exposure from joint ventures were calculated for purposes of the Agreement as of November 30, 2009 as follows:
(1) The minimum adjusted consolidated net worth and the adjusted consolidated tangible net worth as
calculated per the Agreement is as follows:
Minimum adjusted consolidated tangible net worth
Stated adjusted consolidated tangible net worth per the Agreement
Plus: 50% of cumulative positive consolidated net income in excess of aggregate amount
. . . . . . . . . . . . . . . . . . . .
paid to purchase or redeem equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Deferred tax asset valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
November 30, 2009
(Dollars in thousands)
$2,330,000
3,416
(647,385)
Minimum adjusted consolidated tangible net worth as calculated per the Agreement
. .
$1,686,031
Adjusted consolidated tangible net worth
Consolidated stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Intangible assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated tangible net worth as calculated per the Agreement . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Less: Consolidated stockholders’ equity of mortgage banking subsidiaries (b)
As of
November 30, 2009
(In thousands)
$2,443,479
(34,046)
2,409,433
(154,772)
Adjusted consolidated tangible net worth as calculated per the Agreement
. . . . . . . . . . . .
$2,254,661
Intangible assets consist of the Financial Services’ title operations goodwill.
(a)
(b) Consolidated stockholders’ equity of mortgage banking subsidiaries represents the stockholders’ equity of
the Financial Services segment’s mortgage operations which is included in stockholders’ equity in our
consolidated balance sheet as of November 30, 2009.
41
(2) The leverage ratio as calculated per the Agreement is as follows:
Senior notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Indebtedness of our consolidated entities (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lennar’s indebtedness as calculated per the Agreement
Plus: Letters of credit (b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Lennar’s maximum recourse exposure related to unconsolidated entities . . . . . . . . . .
Plus: Lennar’s maximum recourse exposure related to its consolidated entities (a) . . . . . . .
Consolidated indebtedness as calculated per the Agreement . . . . . . . . . . . . . . . . . . . . . . .
Less: 75% of unconsolidated and consolidated entities reimbursement obligations (c)
. .
Plus: 10% of unconsolidated and consolidated entities non-recourse indebtedness with
As of
November 30, 2009
(Dollars in thousands)
$2,761,352
(303,263)
2,458,089
206,094
287,739
110,775
3,062,697
(104,819)
completion guarantees (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,840
Less: the lesser of $500 million or unrestricted cash in excess of $15 million per the
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Numerator as calculated per the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denominator as calculated per the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leverage ratio (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(500,000)
$2,518,718
$5,273,379
48%
(a)
Indebtedness of our consolidated entities primarily includes $192.9 million of non-recourse debt of our
consolidated entities and $110.8 million of recourse debt of our consolidated entities. These amounts are
included in senior notes and other debts payable in our consolidated balance sheet as of November 30, 2009.
Indebtedness of our consolidated entities is offset by $0.5 million of primarily corporate guarantees.
(b) Letters of credit include our financial letters of credit outstanding of $205.4 million disclosed in Note 6 of
the notes to our consolidated financial statements as of November 30, 2009 and $0.7 million of letters of
credit related to the Financial Services segment’s title operations.
(c) Reimbursement obligations include $93.2 million related to our joint and several reimbursement agreements
from partners of our unconsolidated entities and $46.6 million related to our joint and several
reimbursement agreements from partners of our consolidated entities.
(d) Non-recourse debt with completion guarantees includes $608.4 million of our unconsolidated entities
non-recourse debt with completion guarantees.
(e) Leverage ratio consists of the numerator as calculated per the Agreement divided by the denominator as
calculated per the Agreement (consolidated indebtedness as calculated per the Agreement, less 75% of
unconsolidated and consolidated entities reimbursement obligations, plus 10% of unconsolidated and
consolidated non-recourse indebtedness with completion guarantees, plus adjusted consolidated tangible net
worth as calculated per the Agreement).
Additionally, our Credit Facility requires us to effect quarterly reductions of our maximum recourse
exposure related to joint ventures in which we have investments by a total of $200 million to $535 million by
November 30, 2009, which we had already accomplished as of May 31, 2009. We must also effect quarterly
reductions during our 2010 fiscal year totaling $180 million to $355 million of which we have already reduced it
by $136.5 million. During the first six months of our 2011 fiscal year, we must reduce our maximum recourse
exposure related to joint ventures by $80 million to $275 million.
If the joint ventures are unable to reduce their debt, where there is recourse to us, through the sale of
inventory or other means, then we and our partners may be required to contribute capital to the joint ventures.
While we currently believe we are in compliance with our debt covenants in the Agreement, if we had to
record significant additional valuation adjustments and other write-offs in the future, issue debt, and/or make
significant investments in strategic joint ventures, they could cause us to fail to comply with the Agreement’s
covenants. In addition, if we default in the payment or performance of certain obligations relating to the debt of
unconsolidated entities above a specified threshold amount, we would be in default under the Agreement. If we
are not in compliance and are unable to obtain a waiver or amendments to the Credit Facility, the lenders would
have the right to terminate the facility and require us to replace or cash collateralize $177.9 million of letters of
credit outstanding under our Credit Facility. A default under the Agreement might entitle holders of $2.2 billion
of debt securities we have sold into the capital markets to cause the sums evidenced by those debt securities to
become due immediately, which might require us to sell assets at prices well below the fair values, or the
carrying values, of the assets. However, our cash and cash equivalents of $1.3 billion at November 30, 2009
provide ample liquidity to cash collateralize the letters of credit if necessary.
42
Changes in Capital Structure
We have a stock repurchase program which permits the purchase of up to 20 million shares of our
outstanding common stock. During 2009, 2008 and 2007, there were no material share repurchases of common
stock under the stock repurchase program. As of November 30, 2009, 6.2 million shares of common stock can be
repurchased in the future under the program.
Treasury stock increased by 0.3 million Class A common shares and 0.5 million Class A common shares,
respectively, during the years ended November 30, 2009 and November 30, 2008, in connection with activity
related to our equity compensation plan and forfeitures of restricted stock.
In April 2009, we entered into distribution agreements with J.P Morgan Securities, Inc., Citigroup Global
Markets Inc., Merril Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., relating to
an offering of our Class A common stock into the market from time to time for an aggregate of up to $275
million. As of November 30, 2009, we had sold a total of 21.0 million shares of our Class A common stock under
the equity offering for gross proceeds of $225.5 million, or an average of $10.76 per share. After compensation
to the distributors of $4.5 million, we received net proceeds of $221.0 million. We will use the proceeds from the
offering for general corporate purposes.
During 2009, Class A and Class B common stock holders received a per share annual dividend of $0.16. In
October 2008, the Company’s Board of Directors voted to decrease the annual dividend rate with regard to the
Company’s Class A and Class B common stock to $0.16 per share per year (payable quarterly) from $0.64 per
share per year (payable quarterly). During 2008 and 2007, Class A and Class B common stockholders received
per share annual dividends of $0.52 and $0.64, respectively.
Based on our current financial condition and credit relationships, we believe that our operations and
borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of
activity.
Off-Balance Sheet Arrangements
Investments in Unconsolidated Entities
At November 30, 2009, we had equity investments in 62 unconsolidated entities, compared to 116
unconsolidated entities at November 30, 2008. We are focused on continuing to reduce the number of
unconsolidated entities that we have investments in. Historically, we invested in unconsolidated entities that
acquire and develop land (1) for our homebuilding operations or for sale to third parties or (2) for the
construction of homes for sale to third-party homebuyers. Through these entities, we sought to reduce and share
our risk by limiting the amount of our capital invested in land, while obtaining access to potential future
homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances,
enabled us to acquire land to which we could not otherwise obtain access, or could not obtain access on as
favorable terms, without the participation of a strategic partner. Participants in these joint ventures are land
owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/
developers give us access to homesites owned or controlled by our partner. Joint ventures with other
homebuilders provide us with the ability to bid jointly with our partner for large land parcels. Joint ventures with
financial partners allow us to combine our homebuilding expertise with access to our partners’ capital. Joint
ventures with strategic partners allow us to combine our homebuilding expertise with the specific expertise (e.g.
commercial or infill experience) of our partner. Each joint venture is governed by an executive committee
consisting of members from the partners.
Although the strategic purposes of our joint ventures and the nature of our joint ventures partners vary, the
joint ventures are generally designed to acquire, develop and/or sell specific assets during a limited life-time. The
joint ventures are typically structured through non-corporate entities in which control is shared with our venture
partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other
joint venture participants typically make pro-rata cash contributions to the joint venture. In many cases, our risk
is limited to our equity contribution and potential future capital contributions. Additionally, most joint ventures
obtain third-party debt to fund a portion of the acquisition, development and construction costs of their
communities. The joint venture agreements usually permit, but do not require, the joint ventures to make
additional capital calls in the future. However, capital calls relating to the repayment of joint venture debt under
payment or maintenance guarantees generally is required.
43
Under the terms of our joint venture agreements, we generally have the right to share in earnings and
distributions of the entities on a pro-rata basis based on our ownership percentage. Some joint venture
agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of
the joint venture exceed specified targets (such as a specified internal rate of return). Our equity in earnings (loss)
from unconsolidated entities excludes our pro-rata share of joint ventures’ earnings resulting from land sales to
our homebuilding divisions. Instead, we account for those earnings as a reduction of our costs of purchasing the
land from the joint ventures. This in effect defers recognition of our share of the joint ventures’ earnings related
to these sales until we deliver a home and title passes to a third-party homebuyer.
In some instances, we are designated as the manager under the direction of a management committee that
has shared power amongst the partners of the unconsolidated entity and receive fees for such services. In
addition, we often enter into option contracts to acquire properties from our joint ventures, generally for market
prices at specified dates in the future. Option contracts generally require us to make deposits using cash or
irrevocable letters of credit toward the exercise price. These option deposits are generally negotiated by
management on a case by case basis and until recently have usually been 10% of the exercise price.
We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their
future liquidity or results of operations. Joint ventures in which we have investments are subject to a variety of
financial and non-financial debt covenants related primarily to equity maintenance, fair value of collateral and
minimum homesite takedown or sale requirements. We monitor the performance of joint ventures in which we
have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in
compliance with the debt covenants, we evaluate and assess possible impairment of our investment.
Our arrangements with joint ventures generally do not restrict our activities or those of the other
participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed
as competitive with the activities of these ventures in the localities where the joint ventures do business.
As discussed above, the joint ventures in which we invest generally supplement equity contributions with
third-party debt to finance their activities. In many instances, the debt financing is non-recourse, thus neither we
nor the other equity partners are a party to the debt instruments. In other cases, we and the other partners agree to
provide credit support in the form of repayment or maintenance guarantees.
Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations
described above. The joint ventures generally do not enter into lease commitments because the entities are
managed either by us, or another of the joint venture participants, who supply the necessary facilities and
employee services in exchange for market-based management fees. However, they do enter into management
contracts with the participants who manage them. Some joint ventures also enter into agreements with
developers, which may be us or other joint venture participants, to develop raw land into finished homesites or to
build homes.
The joint ventures often enter into option agreements with buyers, which may include us or other joint
venture participants, to deliver homesites or parcels in the future at market prices. Option deposits are recorded
by the joint ventures as liabilities until the exercise dates at which time the deposit and remaining exercise
proceeds are recorded as revenue. Any forfeited deposit is recognized as revenue at the time of forfeiture. Our
unconsolidated joint ventures generally do not enter into off-balance sheet arrangements.
As described above, the liquidity needs of joint ventures in which we have investments vary on an
entity-by-entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and
development activities, the entities generally require cash, which is provided through a combination of equity
contributions and debt financing, to fund acquisition and development of properties. As the properties are
completed and sold, cash generated is available to repay debt and for distribution to the joint venture’s members.
Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the
scope of the joint venture’s activities and the stage in the joint venture’s life cycle.
We track our share of cumulative earnings and cumulative distributions of our joint ventures. For purposes
of classifying distributions received from joint ventures in our statements of cash flows, cumulative distributions
are treated as returns on capital to the extent of cumulative earnings and included in our consolidated statements
of cash flows as operating activities. Cumulative distributions in excess of our share of cumulative earnings are
treated as returns of capital and included in our consolidated statements of cash flows as investing activities.
44
Summarized financial information on a combined 100% basis related to unconsolidated entities in which we
had investments that are accounted for by the equity method was as follows:
Statements of Operations and Selected Information
Years Ended November 30,
2009
2008
2007
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 339,993
1,212,866
(Dollars in thousands)
862,728
1,394,601
2,060,279
3,075,696
Net loss of unconsolidated entities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (872,873)
(531,873)
(1,015,417)
Our share of net loss (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our share of net loss—recognized (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our cumulative share of net earnings—deferred at November 30 . . . . . . .
Our investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . .
Equity of the unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (131,138)
$ (130,917)
$
12,052
$ 609,140
$2,249,289
(55,598)
(59,156)
21,491
766,752
2,688,365
(353,946)
(362,899)
34,731
934,271
2,739,467
Our investment % in the unconsolidated entities . . . . . . . . . . . . . . . . . . . . .
27%
29%
34%
(1) The net loss of unconsolidated entities for the year ended November 30, 2009 was primarily related to
valuation adjustments recorded by the unconsolidated entities. Our exposure to such losses was significantly
lower as a result of our small ownership interest in the respective unconsolidated entities or our previous
valuation adjustments to our investments in unconsolidated entities.
(2) For the years ended November 30, 2009, 2008 and 2007, our share of net loss recognized from
unconsolidated entities includes $101.9 million, $32.2 million and $364.2 million, respectively, of our share
of valuation adjustments related to assets of the unconsolidated entities in which we have investments.
Balance Sheets
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and equity:
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity of:
November 30,
2009
2008
(Dollars in thousands)
$ 171,946
3,628,491
403,383
135,081
7,115,360
541,984
$4,203,820
7,792,425
$ 366,141
1,588,390
1,042,002
4,062,058
Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
609,140
1,640,149
766,752
1,921,613
Total equity of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,249,289
2,688,365
$4,203,820
7,792,425
Our equity in the unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27%
29%
In November 2007, we sold a portfolio of land consisting of approximately 11,000 homesites in 32
communities located throughout the country to a strategic land investment venture with Morgan Stanley Real
Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which we have a 20% ownership interest and
50% voting rights. Due to our continuing involvement, the transaction did not qualify as a sale under GAAP;
thus, the inventory has remained on our consolidated balance sheet in consolidated inventory not owned. As of
November 30, 2009 and 2008, the portfolio of land (including land development costs) of $477.9 million and
$538.4 million, respectively, is reflected as inventory in the summarized condensed financial information related
to unconsolidated entities in which we have investments. The decrease in this inventory from November 30, 2008
to November 30, 2009, resulted primarily from valuation adjustments of $50.1 million recorded by the land
investment venture.
In February 2007, LandSource Communities Development LLC (“LandSource”) admitted MW Housing
Partners as a new strategic partner. As part of the transaction, the joint venture obtained $1.6 billion of
non-recourse financing, which consisted of a $200 million five-year Revolving Credit Facility, a $1.1 billion
six-year Term Loan B Facility and a $244 million seven-year Second Lien Term Facility. The transaction
resulted in a cash distribution to us of $707.6 million. As a result, our ownership in LandSource was reduced to
45
16%. As a result of the recapitalization, we recognized a pretax financial statements gain of $175.9 million
during the year ended November 30, 2007. During the year ended November 30, 2007, we also recognized $24.7
million of profit deferred at the time of the recapitalization of the LandSource joint venture in other expense, net.
In June 2008, LandSource and a number of its subsidiaries commenced proceedings under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. In November 2008, our
land purchase options with LandSource were terminated, thus, in 2008, we recognized a deferred profit of $101.3
million (net of $31.8 million of write-offs of option deposits and pre-acquisition costs and other write-offs)
related to the 2007 recapitalization of LandSource.
In July 2009, the United States Bankruptcy Court for the District of Delaware confirmed the plan of
reorganization for LandSource. As a result of the bankruptcy proceedings, LandSource was reorganized into
Newhall. The reorganized company emerged from Chapter 11 free of its previous bank debt. As part of the
reorganization plan, we invested $140 million in exchange for approximately 15% equity interest in the
reorganized Newhall, ownership in several communities that were formerly owned by LandSource, the
settlement and release of any claims that might have been asserted against us and certain other claims
LandSource had against third parties.
Debt to total capital of the unconsolidated entities in which we have investments was calculated as follows:
November 30,
2009
2008
(Dollars in thousands)
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,588,390
2,249,289
4,062,058
2,688,365
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,837,679
6,750,423
Debt to total capital of our unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
41.4%
60.2%
Our investments in unconsolidated entities by type of venture were as follows:
November 30,
2009
2008
(In thousands)
Land development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 565,673
43,467
633,652
133,100
Total investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 609,140
766,752
During 2009, as homebuilding market conditions remained challenged, we recorded $101.9 million of our
share of valuation adjustments related to the assets of unconsolidated entities in which we have investments,
compared to $32.2 million for the year ended November 30, 2008. In addition, we recorded $89.0 million and
$172.8 million, respectively, of valuation adjustments to our investments in unconsolidated entities for the years
ended November 30, 2009 and 2008. We will continue to monitor our investments in joint ventures and the
recoverability of assets owned by those joint ventures.
The summary of our net recourse exposure related to the unconsolidated entities in which we have
investments was as follows:
November 30,
2009
2008
(In thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Several recourse debt—repayment
Several recourse debt—maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and several recourse debt—repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and several recourse debt—maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land seller debt and other debt recourse exposure . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,691
75,238
85,799
81,592
2,420
78,547
167,941
138,169
123,051
12,170
Lennar’s maximum recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: joint and several reimbursement agreements with our partners . . . . . . . . . .
287,740
(93,185)
519,878
(127,428)
Lennar’s net recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$194,555
392,450
46
During the year ended November 30, 2009, we reduced our maximum recourse exposure related to
indebtedness of unconsolidated entities by $232.1 million, of which $106.1 million was paid by us and $126.0
million related to the joint ventures selling inventory, dissolution of joint ventures, renegotiation of joint venture
debt agreements and in certain circumstances consolidation of joint ventures. In addition, during the year ended
November 30, 2009, we recorded $40.1 million of obligation guarantees related to debt of certain of our joint
ventures. As of November 30, 2009, we had $14.1 million of obligation guarantees recorded as a liability on our
consolidated balance sheet. The obligation guarantees are estimated based on current facts and circumstances;
any unexpected changes may lead us to incur additional obligation guarantees in the future.
Indebtedness of an unconsolidated entity is secured by its own assets. Some unconsolidated entities own
multiple properties and other assets. There is no cross collateralization of debt to different unconsolidated
entities. We also do not use our investment in one unconsolidated entity as collateral for the debt in another
unconsolidated entity or commingle funds among our unconsolidated entities.
In connection with a loan to an unconsolidated entity, we and our partners often guarantee to a lender either
jointly and severally or on a several basis, any, or all of the following: (i) the completion of the development, in
whole or in part, (ii) indemnification of the lender from environmental issues, (iii) indemnification of the lender
from “bad boy acts” of the unconsolidated entity (or full recourse liability in the event of unauthorized transfer or
bankruptcy) and (iv) that the loan to value and/or loan to cost will not exceed a certain percentage (maintenance
or remargining guarantee) or that a percentage of the outstanding loan will be repaid (repayment guarantee).
In connection with loans to an unconsolidated entity where there is a joint and several guarantee, we in
certain instances have a reimbursement agreement with our partner. The reimbursement agreement provides that
neither party is responsible for more than its proportionate share of the guarantee. However, if our joint venture
partner does not have adequate financial resources to meet its obligations under the reimbursement agreement,
we may be liable for more than our proportionate share, up to our maximum exposure, which is the full amount
covered by the joint and several guarantee.
The recourse debt exposure in the previous table represents our maximum exposure to loss from guarantees
and does not take into account the underlying value of the collateral or the other assets of the borrowers that are
available to repay debt or to reimburse us for any payments on our guarantees. Our unconsolidated entities that
have recourse debt have a significant amount of assets and equity. The summarized balance sheets of our
unconsolidated entities with recourse debt were as follows.
November 30,
2009
2008
(In thousands)
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,324,993
777,836
547,157
2,846,819
1,565,148
1,281,671
(1) The decrease in equity of our unconsolidated entities with recourse debt relates primarily to valuation
adjustments recorded by the unconsolidated entities, partner buyouts and consolidation of joint ventures,
partially offset by capital contributions made by us and our partners during the year ended November 30,
2009. Our exposure to impairment losses was significantly lower, as a result of our small ownership interest
in the respective unconsolidated entities or our previous valuation adjustments to our investments in
unconsolidated entities.
In addition, in most instances in which we have guaranteed debt of an unconsolidated entity, our partners
have also guaranteed that debt and are required to contribute their share of the guarantee payments. Some of our
guarantees are repayment guarantees and some are maintenance guarantees. In a repayment guarantee, we and
our venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender
would have to exercise its rights against the collateral. In the event of default, if our venture partner does not
have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable
for more than our proportionate share, up to our maximum recourse exposure, which is the full amount covered
by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally
land and improvements) is less than a specified percentage of the loan balance. If we are required to make a
payment under a maintenance guarantee to bring the value of the collateral above the specified percentage of the
loan balance, the payment may constitute a capital contribution or loan to the unconsolidated entity and increase
our share of any funds the unconsolidated entity distributes.
47
In many of the loans to unconsolidated entities, we and our joint venture partners (or entities related to
them) have been required to give guarantees of completion to the lenders. Those completion guarantees may
require that the guarantors complete the construction of the improvements for which the financing was obtained.
If the construction was to be done in phases, very often the guarantee generally is limited to completing only the
phases as to which construction has already commenced and for which loan proceeds were used. Under many of
the completion guarantees, the guarantors are permitted, under certain circumstances, to use undisbursed loan
proceeds to satisfy the completion of obligations, and in many of those cases, the guarantors only pay interest on
those funds, with no repayment of the principal of such funds required.
During the years ended November 30, 2009 and 2008, amounts paid under our maintenance guarantees were
$31.6 million and $74.0 million, respectively. During the year ended November 30, 2009, we made a payment of
$5.6 million under a completion guarantee related to one joint venture. During the year ended November 30,
2008, there were no payments under completion guarantees. During the years ended November 30, 2009 and
2008, loan repayments, including amounts paid under our repayment guarantees, were $72.4 million and $94.9
million, respectively. These guarantee payments are recorded primarily as contributions to our unconsolidated
entities.
As of November 30, 2009, the fair values of the maintenance guarantee, completion guarantees and
repayment guarantees were not material. We believe that as of November 30, 2009, in the event we become
legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering
event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion
of the obligation or we and our partners would contribute additional capital into the venture.
The total debt of the unconsolidated entities in which we have investments was as follows:
November 30,
2009
2008
(Dollars in thousands)
Lennar’s net recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursement agreements from partners . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 194,555
93,185
392,450
127,428
Lennar’s maximum recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
287,740
519,878
Non-recourse bank debt and other debt (partner’s share of several
recourse) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse land seller debt or other debt
Non-recourse debt with completion guarantees—excluding LandSource . . . .
Non-recourse debt without completion guarantees—excluding
140,078
47,478
608,397
285,519
90,519
820,435
LandSource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt without completion guarantees—LandSource (1) . . . . . . .
504,697
994,580
— 1,351,127
Non-recourse debt to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,300,650
3,542,180
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,588,390
4,062,058
Lennar’s maximum recourse exposure as a % of total JV debt
. . . . . . . . . . . .
18%
13%
(1) During 2009, LandSource emerged from bankruptcy as a new reorganized company named Newhall Land
Development, LLC. As a result, all of LandSource’s bank debts were discharged.
Some of the unconsolidated entities’ debt arrangements contain certain financial covenants. As market
conditions remained challenged during the year ended November 30, 2009, we continued to closely monitor
these covenants and the unconsolidated entities’ abilities to comply with them. Our Credit Facility requires us to
report certain defaults arising under indebtedness with respect to our joint ventures. As of November 30, 2009,
we had no reportable joint venture defaults under the Credit Facility.
In view of current credit market conditions, it is not uncommon for lenders to real estate developers,
including joint ventures in which we have interests, to assert non-monetary defaults (such as failure to meet
construction completion deadlines or declines in the market value of collateral below required amounts) or
technical monetary defaults against the real estate developers. In most instances, those asserted defaults are
resolved by modifications of the loan terms, additional equity investments or other concessions by the borrowers.
In addition, in some instances, real estate developers, including joint ventures in which we have interests, are
forced to request temporary waivers of covenants in loan documents or modifications of loan terms, which are
48
often, but not always obtained. However, in some instances developers, including joint ventures in which we
have interests, are not able to meet their monetary obligations to lenders, and are thus declared in default.
Because we sometimes guarantee all or portions of the obligations to lenders of joint ventures in which we have
interests, when these joint ventures default on their obligations, lenders may or may not have claims against us.
Normally, we do not make payments with regard to guarantees of joint venture obligations while the joint
ventures are contesting assertions regarding sums due to their lenders. When it is determined that a joint venture
is obligated to make a payment that we have guaranteed and the joint venture will not be able to make that
payment, we accrue the amounts probable to be paid by us as a liability. Although we generally fulfill our
guarantee obligations within reasonable time after we determine that we are obligated with regard to them, at any
point in time it is likely that we will have some balance of unpaid guarantee liability. At November 30, 2009, the
liability for unpaid guarantees of joint venture indebtedness on our consolidated balance sheet totaled $14.1
million.
The following table summarizes the principal maturities of our unconsolidated entities (“JVs”) debt as per
current debt arrangements as of November 30, 2009 and does not represent estimates of future cash payments
that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that
would allow the loans to be extended into future years.
Total JV
Assets (1)
Total JV
Debt
2010
2011
2012
Thereafter
Other
Debt (2)
Principal Maturities of Unconsolidated JVs by Period
(In thousands)
Net recourse debt to
Lennar . . . . . . . . . . .
$
194,555
113,798
26,586
43,408
8,343
2,420
Reimbursement
agreements . . . . . . . .
Gross recourse debt to
93,185
8,862
50,878
33,445
—
—
Lennar . . . . . . . . . . .
$1,324,993
287,740
122,660
77,464
76,853
8,343
2,420
Debt without recourse
to Lennar . . . . . . . . .
2,585,204
1,300,650
203,134
960,820
70,381
Total . . . . . . . . . . .
$3,910,197
1,588,390
325,794
1,038,284
147,234
13,996
22,339
52,319
54,739
(1) Excludes unconsolidated joint venture assets where the joint venture has no debt.
(2) Represents land seller debt and other debt.
The following table is a breakdown of the assets, debt and equity of the unconsolidated joint ventures by
partner type as of November 30, 2009:
Gross
Recourse
Debt to
Lennar
Total JV
Assets
Reimbursement
Agreements
Net
Recourse
Debt to
Lennar
Total Debt
Without
Recourse to
Lennar
Total JV
Debt
Total JV
Equity
JV
Debt to
Total
Capital
Ratio
Remaining
Homes/
Homesites
in JV
(Dollars in thousands)
Partner Type:
Land Owners/
Developers . . . . . $ 680,933
505,775
. . . . . . . . 2,614,336
402,776
Other Builders . . . .
Financial
Strategic . . . . . . . . .
62,196
66,450
70,495
86,179
Total . . . . . . . . . . . . . . $4,203,820 285,320
—
8,862
50,878
33,445
93,185
62,196
57,588
19,617
52,734
157,190
122,216
917,762
51,163
219,386 $ 387,439
188,666
271,097
988,257 1,336,293
254,460
137,342
36% 26,687
41%
8,722
43% 44,764
6,754
35%
192,135 1,248,331 1,533,651 $2,249,289
41% 86,927
Land seller debt and
other debt . . . . . . . . $
2,420
—
2,420
52,319
54,739
Total JV debt . . . . . . . $
287,740
93,185
194,555 1,300,650 1,588,390
49
The table below indicates the assets, debt and equity of our 10 largest unconsolidated joint venture
investments as of November 30, 2009:
Lennar’s
Investment
Total JV
Assets
Gross
Recourse
Debt to
Lennar
Reimbursement
Agreements
Net
Recourse
Debt to
Lennar
Total Debt
Without
Recourse to
Lennar
Total JV
Debt
Total JV
Equity
JV
Debt to
Total
Capital
Ratio
(Dollars in thousands)
Land Development JVs (1):
Platinum Triangle
Partners . . . . . . . . . . . . . . $ 98,527
270,692 66,889
Heritage Fields El Toro . . . .
Newhall Land
Development (2) . . . . . . .
56th & Lone Mountain . . . . .
Runkle Canyon . . . . . . . . . .
MS Rialto Residential
Holdings . . . . . . . . . . . . .
Ballpark Village . . . . . . . . .
Rocking Horse Partners . . . .
Treasure Island Community
Development . . . . . . . . . .
Willow Springs
84,352 1,248,401
—
33,445
—
33,444
—
— 545,518
66,889
545,518
194,835
674,089
26%
45%
49,811
39,123
36,690
32,357
31,495
19,414
—
473,954
109,921 15,117
74,888
—
490,461
121,067
49,295
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,117
—
—
15,116
—
— 290,008 —
30,233
—
77,900
73,381 —
28%
— 110,185
56,910
—
9,616
—
110,185
56,910
9,616
352,854
62,520
38,611
24%
48%
20%
15,277
34,214
—
—
30,584 —
Properties . . . . . . . . . . . . .
15,135
33,789
3,508
3,508
30,270
10 largest JV investments . . 422,181 2,906,682 82,006
Other JVs . . . . . . . . . . . . . . . 186,959 1,297,138 203,314
Total . . . . . . . . . . . . . . . . . . . $609,140 4,203,820 285,320
33,445
59,740
93,185
48,561
740,853
822,859 1,825,052
143,574
507,478
710,792
424,237
192,135 1,248,331 1,533,651 2,249,289
Land seller debt and other
debt
. . . . . . . . . . . . . . . . . $
Total JV debt . . . . . . . . . . . . $
2,420
—
2,420
52,319
54,739
287,740
93,185
194,555 1,300,650 1,588,390
10%
31%
63%
41%
(1) All of the joint ventures presented in the table above operate in our Homebuilding West segment except for
56th & Lone Mountain, Rocking Horse Partners and Willow Springs Properties, which operate in our
Homebuilding Central segment, and MS Rialto Residential Holdings, which operates in all of our
homebuilding segments and Homebuilding Other.
(2) During 2009, LandSource emerged from bankruptcy as a new reorganized company named Newhall Land
Development, LLC. As a result, all of LandSource’s bank debts were discharged.
The table below indicates the percentage of assets, debt and equity of our 10 largest unconsolidated joint
venture investments as of November 30, 2009:
% of Gross
Recourse
Debt to
Lennar
% of Net
Recourse
Debt to
Lennar
% of Total
Debt Without
Recourse to
Lennar
% of Total
JV Assets
10 largest JVs . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69%
31%
29%
71%
25%
75%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
59%
41%
100%
% of Total
JV Equity
81%
19%
100%
Option Contracts
We have access to 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 option.
A majority of our option contracts require a non-refundable cash deposit or irrevocable letter of credit based on
a percentage of the purchase price of the land. Until recently, these option deposits generally have approximated
10% of the exercise price. Our option contracts sometimes include price adjustment provisions, which adjust the
purchase price of the land to its approximate fair value at the time of acquisition or are based on fair value at the
time of takedown. The exercise periods of our option contracts generally range from one-to-ten years.
Our investments in option contracts are recorded at cost unless those investments are determined to be
impaired, in which case our investments are written down to fair value. We review option contracts for indicators
of impairment during each reporting period. The most significant indicator of impairment is a decline in the fair
value of the optioned property such that the purchase and development of the optioned property would no longer
50
meet our targeted return on investment. Such declines could be caused by a variety of factors including increased
competition, decreases in demand or changes in local regulations that adversely impact the cost of development.
Changes in any of these factors would cause us to re-evaluate the likelihood of exercising our land options.
Some option contracts contain a predetermined take-down schedule for the optioned land parcels. However,
in almost all instances, we are not required to purchase land in accordance with those take-down schedules. In
substantially all instances, we have the right and ability to not exercise our option and forfeit our deposit without
further penalty, other than termination of the option and loss of any unapplied portion of our deposit and
pre-acquisition costs. Therefore, in substantially all instances, we do not consider the take-down price to be a
firm contractual obligation.
When we intend not to exercise an option, we write-off any deposit and pre-acquisition costs associated with
the option contract. For the years ended November 30, 2009, 2008 and 2007, we wrote-off $84.4 million, $97.2
million and $530.0 million, respectively, of option deposits and pre-acquisition costs related to homesites under
option that we do not intend to purchase.
The table below indicates the number of homesites owned and homesites to which we had access through
option contracts with third parties (“optioned”) or unconsolidated joint ventures in which we have investments
(“JVs”) (i.e., controlled homesites) for each of our homebuilding segments and Homebuilding Other at
November 30, 2009 and 2008:
November 30, 2009
Controlled Homesites
Optioned
JVs
Total
Owned
Homesites
Total
Homesites
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,701
1,273
78
901
470
1,900
2,381
7,667
1,728
74
6,601
3,654
7,745
2,629
544
28,406
15,607
24,770
6,672
7,248
35,007
19,261
32,515
9,301
7,792
Total homesites . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,423
13,750
21,173
82,703
103,876
November 30, 2008
Controlled Homesites
Optioned
JVs
Total
Owned
Homesites
Total
Homesites
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
West
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,705
1,820
203
1,461
529
4,444
5,991
12,078
2,654
704
13,149
7,811
12,281
4,115
1,233
25,688
14,501
18,776
7,389
8,327
38,837
22,312
31,057
11,504
9,560
Total homesites . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,718
25,871
38,589
74,681
113,270
We evaluate all option contracts for land when entered into or upon a reconsideration event to determine
whether we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to
the optioned land, if we are deemed to be the primary beneficiary, we are required to consolidate the land under
option at the purchase price of the optioned land. During the year ended November 30, 2009, the effect of
consolidation of these option contracts was an increase of $14.3 million to consolidated inventory not owned
with a corresponding increase to liabilities related to consolidated inventory not owned in our consolidated
balance sheet as of November 30, 2009. This increase was offset primarily by our exercise of options to acquire
land under certain contracts previously consolidated, resulting in a net decrease in consolidated inventory not
owned of $84.1 million. To reflect the purchase price of the inventory consolidated, we reclassified $2.6 million
of related option deposits from land under development to consolidated inventory not owned in the
accompanying consolidated balance sheet as of November 30, 2009. The liabilities related to consolidated
inventory not owned primarily represent the difference between the option exercise prices for the optioned land
and our cash deposits.
Our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted
of our non-refundable option deposits and pre-acquisition costs totaling $127.4 million and $191.2 million,
respectively, at November 30, 2009 and 2008. Additionally, we had posted $58.2 million and $89.5 million,
respectively, of letters of credit in lieu of cash deposits under certain option contracts as of November 30, 2009
and 2008.
51
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations at November 30, 2009:
Contractual Obligations
Payments Due by Period
Total
Less than
1 year
1 to 3
years
3 to 5
years
More than
5 years
(In thousands)
Homebuilding—Senior notes and other debts payable . . . . $2,761,352 464,614 470,504 676,659 1,149,575
3
Financial services—Notes and other debts payable . . . . . . .
156,842
Interest commitments under interest bearing debt (1) . . . . .
25,840
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other contractual obligations (2) . . . . . . . . . . . . . . . . . . . . .
217,557 217,482
30
828,994 168,311 285,381 218,460
28,451
158,631
—
75,000
46,570
75,000
57,770
—
42
Total contractual obligations (3) . . . . . . . . . . . . . . . . . . . . . $4,041,534 971,977 813,697 923,600 1,332,260
(1)
Interest commitments on variable interest-bearing debt are determined based on the interest rate as of
November 30, 2009.
(2) Commitment to fund an equity investment.
(3) Total contractual obligations exclude our gross unrecognized tax benefits of $77.2 million as of
November 30, 2009 because we are unable to make reasonable estimates as to the period of cash settlement
with the respective taxing authorities.
We are subject to the usual obligations associated with entering into contracts (including option contracts)
for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for
the purchase of land generally enable us to defer acquiring portions of properties owned by third parties and
unconsolidated entities until we have determined whether to exercise our option. This reduces our financial risk
associated with land holdings. At November 30, 2009, we had access to 21,173 homesites through option
contracts with third parties and unconsolidated entities in which we have investments. At November 30, 2009, we
had $127.4 million of non-refundable option deposits and pre-acquisition costs related to certain of these
homesites and $58.2 million of letters of credit posted in lieu of cash deposits under certain option contracts.
At November 30, 2009, we had letters of credit outstanding in the amount of $303.1 million (which included
the $58.2 million of letters of credit discussed above). These letters of credit are generally posted either with
regulatory bodies to guarantee our performance of certain development and construction activities or in lieu of
cash deposits on option contracts. Additionally, at November 30, 2009, we had outstanding performance and
surety bonds related to site improvements at various projects (including certain projects in our joint ventures) of
$821.2 million. Although significant development and construction activities have been completed related to
these site improvements, these bonds are generally not released until all of the development and construction
activities are completed. As of November 30, 2009, there were approximately $324.4 million, or 40%, of costs to
complete related to these site improvements. We do not presently anticipate any draws upon these bonds, but if
any such draws occur, we do not believe they would have a material effect on our financial position, results of
operations or cash flows.
Our Financial Services segment had a pipeline of loan applications in process of $838.6 million at
November 30, 2009. Loans in process for which interest rates were committed to the borrowers and builder
commitments for loan programs totaled $203.6 million as of November 30, 2009. Substantially all of these
commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire
without being exercised by the borrowers or borrowers may not meet certain criteria at the time of closing, the
total commitments do not necessarily represent future cash requirements.
Our Financial Services segment uses mandatory mortgage-backed securities (“MBS”) forward
commitments, option contracts and investor commitments to hedge our mortgage-related interest rate exposure.
These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated
with MBS forward commitments, option contracts and loan sales transactions is managed by limiting our
counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit
standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair
value of the MBS forward commitments and option contracts. At November 30, 2009, we had open commitments
amounting to $247.7 million to sell MBS with varying settlement dates through February 2010.
52
The following sections discuss economic conditions, market and financing risk, seasonality and interest
rates and changing prices that may have an impact on our business:
Economic Conditions
Throughout 2009, market conditions in the homebuilding industry remained challenging. Even though
consumer confidence appears to have improved during 2009 and demand in some of our markets showed signs of
stabilization, the homebuilding industry was still negatively impacted by high levels of unemployment, increased
foreclosures and tight credit standards. Despite our continued use of sales incentives, our net new orders were
down 14% and 48%, respectively, in 2009 and 2008, even though they increased 3% in the fourth quarter of 2009
year-over-year for the first time since the first quarter of our 2006 fiscal year. Our sales incentives were $44,800
per home delivered and $48,700 per home delivered, respectively in 2009 and 2008. A continued decline in the
prices for new homes could adversely affect our revenues and margins, as well as the carrying amount of our
inventory and other investments.
Market and Financing Risk
We finance our contributions to JVs, land acquisition and development activities, construction activities,
financial services activities and general operating needs primarily with cash generated from operations, debt
issuances and equity offerings, as well as cash borrowed under our Credit Facility and borrowings under our
warehouse repurchase facilities. We also purchase land under option agreements, which enables us to control
homesites until we have determined whether to exercise the option. We tried to manage the financial risks of
adverse market conditions associated with land holdings by what we believed to be prudent underwriting of land
purchases in areas we viewed as desirable growth markets, careful management of the land development process
and, until recent years, limitation of risks by using partners to share the costs of purchasing and developing land,
as well as obtaining access to land through option contracts. Although we believed our land underwriting
standards were conservative, we did not anticipate the severe decline in land values and the sharply reduced
demand for new homes encountered throughout 2008 and 2009.
Seasonality
We have historically experienced variability in our results of operations from quarter-to-quarter due to the
seasonal nature of the homebuilding business.
Interest Rates and Changing Prices
Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a
need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates,
which can have a negative impact on housing demand and the costs of financing land development activities and
housing construction. Rising interest rates, as well as increased materials and labor costs, may reduce gross
margins. An increase in material and labor costs is particularly a problem during a period of declining home
prices. During 2009, a decrease in home sales prices contributed to lower gross margins and inventory valuation
adjustments. Conversely, deflation can impact the value of real estate and make it difficult for us to recover our
land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.
New Accounting Pronouncements
The Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”). The ASC does not alter current accounting principles generally accepted in the Unites
States of America (“GAAP”), but rather integrated existing accounting standards with other authoritative
guidance. The ASC provides a single source of authoritative GAAP for nongovernmental entities and supersedes
all other previously issued non-Securities Exchange Commission accounting and reporting guidance. The
adoption of the ASC did not have any effect on the Company’s result of operations or financial position.
In December 2007, the FASB updated certain provisions of ASC Topic 805, Business Combinations, (“ASC
805”). These provisions broaden the guidance of ASC 805, extending its applicability to all transactions and
other events in which one entity obtains control over one or more other businesses. It broadens the fair value
measurement and recognition requirements of assets acquired, liabilities assumed and interests transferred as a
result of business combinations. ASC 805 expands on required disclosures to improve the financial statement
users’ abilities to evaluate the nature and financial effects of business combinations. ASC 805 is effective for
business combinations that close on or after December 1, 2009. We do not expect the adoption of these new
provisions to have a material effect on our consolidated financial statements.
53
In December 2007, the FASB updated certain provisions of ASC Topic 810, Consolidation, (“ASC 810”).
These provisions require that a noncontrolling interest (formerly minority interest) in a subsidiary be reported as
equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be
identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes
in the parent’s ownership interest in a subsidiary and requires fair value measurement of any noncontrolling
equity investment retained in a deconsolidation. ASC 810 is effective for our fiscal year beginning December 1,
2009. The adoption of these new provisions will result in the reclassification of the noncontrolling interest in our
consolidated joint ventures into the stockholders’ equity section of our consolidated balance sheet.
In June 2009, the FASB updated certain provisions of ASC 810. These provisions amend the consolidation
guidance applicable to variable interest entities and the definition of a variable interest entity, and require
enhanced disclosures to provide more information about an enterprise’s involvement in a variable interest entity.
ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable
interest entity. These provisions under ASC 810 are effective for our fiscal year beginning December 1, 2009.
We do not expect the adoption of these provisions to have a material effect on our consolidated financial
statements.
Critical Accounting Policies and Estimates
Our accounting policies are more fully described in Note 1 of the notes to our consolidated financial
statements included in Item 8 of this document. As discussed in Note 1, the preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions about future events that affect the amounts reported in our consolidated
financial statements and accompanying notes. Future events and their effects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ
from those estimates, and such differences may be material to our consolidated financial statements. Listed
below are those policies and estimates that we believe are critical and require the use of significant judgment in
their application.
Homebuilding Operations
Revenue Recognition
Revenues from sales of homes are recognized when sales are closed and title passes to the new homeowner,
the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the
home, the new homeowner’s receivable is not subject to future subordination and we do not have a substantial
continuing involvement with the new home. Revenues from sales of land are recognized when a significant down
payment is received, the earnings process is complete, title passes and collectability of the receivable is
reasonably assured. We believe that the accounting policy related to revenue recognition is a critical accounting
policy because of the significance of revenue.
Inventories
Inventories are stated at cost unless the inventory within a community is determined to be impaired, in
which case the impaired inventory is written down to fair value. Inventory costs include land, land development
and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to
development and construction. We review our inventory for indicators of impairment by evaluating each
community during each reporting period. The inventory within each community is categorized as finished homes
and construction in progress or land under development based on the development state of the community. There
were 390 and 493 active communities as of November 30, 2009 and 2008, respectively. If the undiscounted cash
flows expected to be generated by a community are less than its carrying amount, an impairment charge is
recorded to write down the carrying amount of such community to its fair value.
In conducting our review for indicators of impairment on a community level, we evaluate, among other
things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog,
projected margins with regard to future home sales over the life of the community, projected margins with regard
to future land sales, and the estimated fair value of the land itself. We pay particular attention to communities in
which inventory is moving at a slower than anticipated absorption pace and communities whose average sales
price and/or margins are trending downward and are anticipated to continue to trend downward. From this
review, we identify communities whose carrying values exceed their undiscounted cash flows. While all of our
54
homebuilding segments and Homebuilding Other have been severely impacted by the downturn in the housing
market, our West Homebuilding segment has been most significantly impacted as evidenced by its decrease in
revenues of 43% for the year ended November 30, 2009, compared to the year ended November 30, 2008.
We estimate the fair value of our communities using a discounted cash flow model. These projected cash
flows for each community are significantly impacted by estimates related to market supply and demand, product
type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and
marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors
for that particular community. Every division evaluates the historical performance of each of its communities as
well as the current trends in the market and economy impacting the community and its surrounding areas. These
trends are analyzed for each of the estimates listed above. For example, since the start of the downturn in the
housing market, we have found ways to reduce our construction costs in many communities, and this reduction in
construction costs in addition to changes in product type in many communities has impacted future estimated
cash flows.
Each of the homebuilding markets we operate is unique, as homebuilding has historically been a local
business driven by local market conditions and demographics. Each of our homebuilding markets is dynamic and
has specific supply and demand relationships reflective of local economic conditions. Our projected cash flows
are impacted by many assumptions. Some of the most critical assumptions in our cash flow models are our
projected absorption pace for home sales, sales prices and costs to build and deliver our homes on a community
by community basis.
In order to arrive at the assumed absorption pace for home sales included in our cash flow models, we
analyze our historical absorption pace in the community as well as other communities in the geographical area. In
addition, we analyze internal and external market studies and trends, which generally include, but are not limited
to, statistics on population demographics, unemployment rates and availability of competing product in the
geographic area where the community is located. When analyzing our historical absorption pace for home sales
and corresponding internal and external market studies, we place greater emphasis on more current metrics and
trends such as the absorption pace realized in our most recent quarters as well as forecasted population
demographics, unemployment rates and availability of competing product. Generally, if we notice a variation
from historical results over a span of two fiscal quarters, we consider such variation to be the establishment of a
trend and adjust our historical information accordingly in order to develop assumptions on the projected
absorption pace in the cash flow model for a community.
In order to determine the assumed sales prices included in our cash flow models, we analyze the historical
sales prices realized on homes we delivered in the community and other communities in the geographical area as
well as the sales prices included in our current backlog for such communities. In addition, we analyze internal
and external market studies and trends, which generally include, but are not limited to, statistics on sales prices in
neighboring communities and sales prices on similar products in non-neighboring communities in the geographic
area where the community is located. When analyzing our historical sales prices and corresponding market
studies, we also place greater emphasis on more current metrics and trends such as future forecasted sales prices
in neighboring communities as well as future forecasted sales prices for similar product in non-neighboring
communities. Generally, if we notice a variation from historical results over a span of two fiscal quarters, we
consider such variation to be the establishment of a trend and adjust our historical information accordingly in
order to develop assumptions on the projected sales prices in the cash flow model for a community.
In order to arrive at our assumed costs to build and deliver our homes, we generally assume a cost structure
reflecting contracts currently in place with our vendors adjusted for any anticipated cost reduction initiatives or
increases in cost structure. Costs assumed in our cash flow models for our communities are generally based on
the rates we are currently obligated to pay under existing contracts with our vendors adjusted for any anticipated
cost reduction initiatives or increases in cost structure.
Due to the fact that the estimates and assumptions included in our cash flow models are based upon
historical results and projected trends, they do not anticipate unexpected changes in market conditions that may
lead to us incurring additional impairment charges in the future.
Using all the available trend information, we calculate our best estimate of projected cash flows for each
community. While many of the estimates are calculated based on historical and projected trends, all estimates are
subjective and change from market to market and community to community as market and economic conditions
change. The determination of fair value also requires discounting the estimated cash flows at a rate we believe a
55
market participant would determine to be commensurate with the inherent risks associated with the assets and
related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the
community’s projected life and development stage. We generally use a discount rate of approximately 20%,
subject to the perceived risks associated with the community’s cash flow streams relative to its inventory.
We estimate the fair value of inventory evaluated for impairment based on market conditions and
assumptions made by management at the time the inventory is evaluated, which may differ materially from
actual results if market conditions or our assumptions change. For example, further market deterioration or
changes in our assumptions may lead to us incurring additional impairment charges on previously impaired
inventory, as well as on inventory not currently impaired, but for which indicators of impairment may arise if
further market deterioration occurs.
We also have access to land inventory through option contracts, which generally enables us to defer
acquiring portions of properties owned by third parties and unconsolidated entities until we have determined
whether to exercise our option. A majority of our option contracts require a non-refundable cash deposit or
irrevocable letter of credit based on a percentage of the purchase price of the land. Our option contracts are
recorded at cost. In determining whether to walk-away from an option contract, we evaluate the option primarily
based upon the expected cash flows from the property that is the subject of the option. If we intend to walk-away
from an option contract, we record a charge to earnings in the period such decision is made for the deposit
amount and related pre-acquisition costs associated with the option contract.
We believe that the accounting related to inventory valuation and impairment is a critical accounting policy
because: (1) assumptions inherent in the valuation of our inventory are highly subjective and susceptible to
change and (2) the impact of recognizing impairments on our inventory has been and could continue to be
material to our consolidated financial statements. Our evaluation of inventory impairment, as discussed above,
includes many assumptions. The critical assumptions include the timing of the home sales within a community,
management’s projections of selling prices and costs and the discount rate applied to estimate the fair value of
the homesites within a community on the balance sheet date. Our assumptions on the timing of home sales are
critical because the homebuilding industry has historically been cyclical and sensitive to changes in economic
conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in
these economic conditions could materially affect the projected sales price, costs to develop the homesites and/or
absorption rate in a community. Our assumptions on discount rates are critical because the selection of a discount
rate affects the estimated fair value of the homesites within a community. A higher discount rate reduces the
estimated fair value of the homesites within the community, while a lower discount rate increases the estimated
fair value of the homesites within a community. Because of changes in economic and market conditions and
assumptions and estimates required of management in valuing inventory during changing market conditions,
actual results could differ materially from management’s assumptions and may require material inventory
impairment charges to be recorded in the future.
During the years ended November 30, 2009, 2008 and 2007, we recorded the following inventory
impairments:
Valuation adjustments to finished homes, CIP and land on which we intend to
build homes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments to land we intend to sell or have sold to third
Years Ended November 30,
2009
2008
2007
(In thousands)
$180,239
195,518
747,843
parties (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs of option deposits and pre-acquisition costs . . . . . . . . . . . . . . . . . . .
95,314
84,372
47,791
97,172
1,167,294
529,981
Total inventory impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$359,925
340,481
2,445,118
(1) Valuation adjustments to finished homes, CIP and land on which we intend to build homes for the years
ended November 30, 2009, 2008 and 2007 relate to 131 communities, 146 communities and 428
communities, respectively.
(2) The $1.2 billion of valuation adjustments recorded in 2007 to land we intend to sell or have sold to third
parties included $740.4 million of valuation adjustments related to a portfolio of land we sold to a strategic
land investment venture with Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley &
Co., Inc., which was formed in November 2007 and in which we have a 20% ownership interest.
56
The valuation adjustments 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. See Note 2 of the notes to our consolidated financial statements
included in Item 8 of this document for details related to valuation adjustments and write-offs by reportable
segment and Homebuilding Other.
Warranty Costs
Although we subcontract virtually all aspects 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
correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses
incurred by subcontractors. Warranty reserves are established at an amount estimated to be adequate to cover
potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to
the delivery of a home. Reserves are determined based upon historical data and trends with respect to similar
product types and geographical areas. We believe the accounting estimate related to the reserve for warranty
costs is a critical accounting estimate because the estimate requires a large degree of judgment.
At November 30, 2009, the reserve for warranty costs was $158.0 million, which included $58.0 million
related to defective drywall manufactured in China that was purchased and installed by various of our
subcontractors. Defective Chinese drywall appears to be an industry-wide issue as other homebuilders have
publicly disclosed that they are experiencing similar issues with defective Chinese drywall. While we believe that
the reserve for warranty costs is adequate, there can be no assurances that historical data and trends will
accurately predict our actual warranty costs. Additionally, there can be no assurances that future economic or
financial developments might not lead to a significant change in the reserve.
Investments in Unconsolidated Entities
We strategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding
operations or for sale to third parties or (2) for construction of homes for sale to third-party homebuyers. Our
partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners.
Most of the unconsolidated entities through which we acquire and develop land are accounted for by the
equity method of accounting because we are not the primary beneficiary, and we have a significant, but less than
controlling, interest in the entities. We record our investments in these entities in our consolidated balance sheets
as “Investments in Unconsolidated Entities” and our pro-rata share of the entities’ earnings or losses in our
consolidated statements of operations as “Equity in Earnings (Loss) from Unconsolidated Entities,” as described
in Note 4 of the notes to our consolidated financial statements. Advances to these entities are included in the
investment balance.
Management looks at specific criteria and uses its judgment when determining if we are the primary
beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining
whether we have significant influence or we have control include risk and reward sharing, experience and
financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions
and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a
critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or
have control or significant influence.
As of November 30, 2009, we believe that the equity method of accounting is appropriate for our
investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling
interest, but rather share control with our partners. At November 30, 2009, the unconsolidated entities in which
we had investments had total assets of $4.2 billion and total liabilities of $2.0 billion.
We evaluate our investments in unconsolidated entities for indicators of impairment during each reporting
period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of our
investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment
recognized is the excess of the investment’s carrying amount over its estimated fair value.
The evaluation of our investment in unconsolidated entities includes certain critical assumptions:
(1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future
distributions and (3) various other factors.
57
Our assumptions on the projected future distributions from the unconsolidated entities are dependent on
market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by
the unconsolidated entities. Such inventory is also reviewed for potential impairment by the unconsolidated
entities. The review for inventory impairment performed by our unconsolidated entities is materially consistent
with our process, as discussed above, for evaluating its own inventory as of the end of a reporting period. The
unconsolidated entities generally also use a discount rate of approximately 20% in their reviews for impairment,
subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a
valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share of it is
reflected in our equity in loss from unconsolidated entities with a corresponding decrease to our investment in
unconsolidated entities. In certain instances, we may be required to record additional losses relating to our
investment in unconsolidated entities; such losses are included in other expense, net. We believe our assumptions
on the projected future distributions from the unconsolidated entities are critical because the operating results of
the unconsolidated entities from which the projected distributions are derived are dependent on the status of the
homebuilding industry, which has historically been cyclical and sensitive to changes in economic conditions such
as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic
conditions could materially affect the projected operational results of the unconsolidated entities from which the
distributions are derived.
In addition, we believe our assumptions on discount rates are also critical accounting policies because the
selection of the discount rates also affects the estimated fair value of our investment in unconsolidated entities. A
higher discount rate reduces the estimated fair value of our investment in unconsolidated entities, while a lower
discount rate increases the estimated fair value of our investment in unconsolidated entities. Because of changes
in economic conditions, actual results could differ materially from management’s assumptions and may require
material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.
Additionally, we consider various qualitative factors to determine if a decrease in the value of our
investment is other-than-temporary. These factors include age of the venture, intent and ability for us to recover
our investment in the entity, short-term liquidity needs of the unconsolidated entity, trends in the general
economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall
projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability
of the investment through future cash flows and relationships with the other partners and banks. If we believe
that the decline in the fair value of the investment is temporary, then no impairment is recorded.
During the years ended November 30, 2009, 2008 and 2007, we recorded the following valuation
adjustments related to our investments in unconsolidated entities:
Years Ended November 30,
2009
2008
2007
(In thousands)
Our share of valuation adjustments related to assets of unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments to our investments in unconsolidated entities . . . . . . . . . .
$101,893
88,972
32,245
172,790
364,162
132,206
Total valuation adjustments to our investments in unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$190,865
205,035
496,368
These valuation adjustments were calculated 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. See Note 2 of the notes to our consolidated financial statements
included in Item 8 of this document for details related to valuation adjustments and write-offs by reportable
segment and homebuilding other.
Financial Services Operations
Revenue Recognition
Premiums from title insurance policies are recognized as revenue on the effective date of the policies.
Escrow fees and loan origination revenues are recognized at the time the related real estate transactions are
completed, usually upon the close of escrow. Expected gains and losses from the sale of loans and their related
servicing rights are included in the measurement of all written loan commitments that are accounted for at fair
value through earnings at the time of commitment. Interest income on loans held-for-sale and loans
58
held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual
interest rates. We believe that the accounting policy related to revenue recognition is a critical accounting policy
because of the significance of revenue.
Allowance for Loan and Other Losses
We provide an allowance for loan losses by taking into consideration various factors such as past loan loss
experience, present economic conditions and other factors considered relevant by management. Anticipated
changes in economic conditions, which may influence the level of the allowance, are considered in the evaluation
by management when the likelihood of the changes can be reasonably determined. This analysis is based on
judgments and estimates and may change in response to economic developments or other conditions that may
influence borrowers’ financial conditions or prospects. At November 30, 2009, the allowance for loan losses was
$7.4 million, compared to $20.4 million at November 30, 2008. We believe that the 2009 year-end allowance is
adequate, particularly in view of the fact that we usually sell the loans in the secondary mortgage market on a
non-recourse basis within 30 days after we originate them. Since we remain liable for certain representations and
warranties, there can be no assurances that further deterioration in the housing market and future economic or
financial developments, including general interest rate increases or a slowdown in the economy, might not lead to
increased provisions to the allowance or a higher occurrence of loan write-offs. This allowance requires
management’s judgment and estimate. For these reasons, we believe that the accounting estimate related to the
allowance for loan losses is a critical accounting estimate.
We provide a reserve for estimated title and escrow losses based upon management’s evaluation of claims
presented and estimates for any incurred but not reported claims. The reserve is established at a level that
management estimates to be sufficient to satisfy those claims where a loss is determined to be probable and the
amount of such loss can be reasonably estimated. The reserve for title and escrow losses for both known and
incurred but not reported claims is considered by management to be adequate for such purposes.
Homebuilding and Financial Services Operations
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in
business combinations. Evaluating goodwill for impairment involves the determination of the fair value of our
reporting units in which we have recorded goodwill. A reporting unit is a component of an operating segment for
which discrete financial information is available and reviewed by management on a regular basis. Inherent in the
determination of fair value of our reporting units are certain estimates and judgments, including the interpretation
of current economic indicators and market valuations as well as our strategic plans with regard to our operations.
To the extent additional information arises or our strategies change, it is possible that our conclusion regarding
goodwill impairment could change, which could have a material effect on our financial position and results of
operations. For these reasons, we believe that the accounting estimate related to goodwill impairment is a critical
accounting estimate.
We review goodwill annually (or whenever indicators of impairment exist) for impairment. For our review
of the Financial Services segment’s goodwill during the years ended November 30, 2009 and 2008, we
determined the fair value of our Financial Services segment based entirely on the income approach due to a lack
of guideline companies with adequate comparisons to our Financial Services segment on a stand alone basis.
The income approach establishes fair value by methods which discount or capitalize earnings and/or cash
flow by a discount or capitalization rate that reflects market rate of return expectations, market conditions and the
risk of the relative investment. We used a discounted cash flow method when applying the income approach.
This analysis includes operating income, interest expense, taxes and incremental working capital, as well as other
factors. The projections used in the analysis are for a five-year period and represent what we consider to be
normalized earnings.
In determining the fair value of our Financial Services segment under the income approach, our expected
cash flows are affected by various assumptions. The most significant assumptions affecting our expected cash
flows are the discount rate, projected revenue growth rate and operating profit margin. The impact of a change in
any of our significant underlying assumptions +/- 1% would not result in a materially different fair value.
59
We performed our annual impairment test in the fourth quarter of fiscal 2009 for our Financial Services
segment’s goodwill, and determined that an impairment adjustment was not required. During the year ended
November 30, 2008, we impaired $27.2 million of our Financial Services segment’s goodwill. During the year
ended November 30, 2007, we impaired all goodwill related to our homebuilding operations amounting to $190.2
million. As of November 30, 2009 and 2008, there were no material identifiable intangible assets, other than
goodwill.
At both November 30, 2009 and 2008, goodwill recorded in our Financial Services segment was $34.0
million.
Valuation of Deferred Tax Assets
We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are
recognized based on the future tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as attributable
to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when
the changes are enacted.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on
the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to
establish valuation allowances for deferred tax assets are assessed each reporting period by us based on the more-
likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate
consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.
This assessment considers, among other matters, the nature, frequency and severity of current and cumulative
losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with loss
carryforwards not expiring unused and tax planning alternatives. Based upon all available evidence, we recorded
a valuation allowance against our deferred tax assets of $730.8 million during the year ended November 30,
2008, and increased it by $269.6 million during the year ended November 30, 2009. In addition, we recorded a
reversal of $351.8 million to the deferred tax asset valuation allowance during the year ended November 30,
2009 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. At November 30, 2009 and 2008, our deferred tax assets, as well as the
valuation allowance recorded, were $647.4 million and $730.8 million, respectively. In future periods, the
allowance could be reduced based on sufficient evidence indicating that it is more likely than not that a portion or
all of our deferred tax assets will be realized. As such, at both November 30, 2009 and 2008, we had no net
deferred tax assets.
We believe that the accounting estimate for the valuation of deferred tax assets is a critical accounting
estimate because judgment is required in assessing the likely future tax consequences of events that have been
recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities
on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes.
Changes in existing tax laws or rates could affect actual tax results and future business results, which may affect
the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for
deferred tax consequences represents our best estimate of future events.
Share-Based Payments
We have share-based awards outstanding under four different plans which provide for the granting of stock
options and stock appreciation rights and awards of restricted common stock (“nonvested shares”) to key
officers, associates and directors. The exercise prices of stock options and stock appreciation rights may not be
less than the market value of the common stock on the date of the grant. Exercises are permitted in installments
determined when options are granted. Each stock option and stock appreciation right will expire on a date
determined at the time of the grant, but not more than ten years after the date of the grant. We account for stock
option awards granted under the plans based on the estimated grant date fair value.
We believe that the accounting estimate for share based payments is a critical accounting estimate because
the calculation of share-based employee compensation expense involves estimates that require management’s
judgments. These estimates include the fair value of each of our stock option awards, which are estimated on the
date of grant using a Black-Scholes option-pricing model as discussed in Note 12 of the notes to our consolidated
60
financial statements included under Item 8 of this document. The fair value of our stock option awards, which are
subject to graded vesting, is expensed on a straight-line basis over the vesting life of the options. Expected
volatility is based on an average of (1) historical volatility of our stock and (2) implied volatility from traded
options on our stock. The risk-free rate for periods within the contractual life of the stock option award is based
on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a
maturity equal to the expected term of the stock option award granted. We use historical data to estimate stock
option exercises and forfeitures within our valuation model. The expected life of stock option awards granted is
derived from historical exercise experience under our share-based payment plans and represents the period of
time that stock option awards granted are expected to be outstanding.
61
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks related to fluctuations in interest rates on our investments, debt obligations,
loans held-for-sale and loans held-for-investment. We utilize forward commitments and option contracts to
mitigate the risks associated with our mortgage loan portfolio.
The table below provides information at November 30, 2009 about our significant financial instruments that
are sensitive to changes in interest rates. For loans held-for-sale, loans held-for-investment, net and investments
held-to-maturity, senior notes and other debts payable and notes and other debts payable, the table presents
principal cash flows and related weighted average effective interest rates by expected maturity dates and
estimated fair values at November 30, 2009. Weighted average variable interest rates are based on the variable
interest rates at November 30, 2009.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and
Notes 1 and 14 of the notes to consolidated financial statements in Item 8 for a further discussion of these items
and our strategy of mitigating our interest rate risk.
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by
Expected Maturity and Average Interest Rate
November 30, 2009
Years Ending November 30,
2010
2011
2012
2013
2014
Thereafter Total
Fair Value at
November 30,
2009
(Dollars in millions)
ASSETS
Financial services:
Loans held-for-sale:
Fixed rate . . . . . . . . . . . . . . $ —
—
Average interest rate . . . . .
Variable rate . . . . . . . . . . . . $ —
—
Average interest rate . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
Loans held-for-investment, net
and investments
held-to-maturity:
Fixed rate . . . . . . . . . . . . . . $
Average interest rate . . . . .
Variable rate . . . . . . . . . . . . $
Average interest rate . . . . .
2.0
2.8%
0.1
5.5%
2.3
2.4%
0.1
5.5%
0.5
7.5%
0.1
5.5%
0.6
7.5%
0.2
5.5%
LIABILITIES
Homebuilding:
Senior notes and other debts
payable:
180.8
— 180.8
—
—
—
4.9% 4.9%
1.9
3.8% 3.8%
1.9
20.6
14.6
0.6
7.6% 7.1% 6.2%
6.3
0.2
5.5% 5.5% 5.5%
7.0
180.8
—
1.9
—
22.3
—
7.0
—
Fixed rate . . . . . . . . . . . . . . $ 260.6
Average interest rate . . . . .
Variable rate . . . . . . . . . . . . $ 204.0
Average interest rate . . . . .
5.1%
2.2%
259.7
5.9%
62.1
5.7%
15.1
4.9%
133.6
3.3%
347.5
269.0 1,148.6 2,300.5
6.0%
47.8
3.7%
5.7% 8.1% 6.9%
1.0
12.4
5.5% 3.5% 3.2%
460.9
2,293.8
—
460.9
—
Financial services:
Notes and other debts payable:
Fixed rate . . . . . . . . . . . . . . $
Average interest rate . . . . .
Variable rate . . . . . . . . . . . . $ 217.5
Average interest rate . . . . .
—
—
0.1
—
8.0% —
0.1
—
8.0% —
4.2%
—
—
—
—
—
—
—
—
62
0.1
8.0%
—
—
— 217.6
—
4.2%
0.1
—
217.6
—
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the
participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of November 30, 2009. The effectiveness of our internal
control over financial reporting as of November 30, 2009 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their attestation report which is included herein.
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Lennar Corporation
We have audited the internal control over financial reporting of Lennar Corporation and subsidiaries (the
“Company”) as of November 30, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of November 30, 2009, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended November 30, 2009 of the
Company and our report dated January 29, 2010 expressed an unqualified opinion on those financial statements.
Certified Public Accountants
Miami, Florida
January 29, 2010
64
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Lennar Corporation
We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the
“Company”) as of November 30, 2009 and 2008, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the three years in the period ended November 30, 2009. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Lennar Corporation and subsidiaries as of November 30, 2009 and 2008 and the results of their
operations and their cash flows for each of the three years in the period ended November 30, 2009, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of November 30, 2009, based on the
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated January 29, 2010 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
Certified Public Accountants
Miami, Florida
January 29, 2010
65
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 2009 and 2008
ASSETS
Homebuilding:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories:
Finished homes and construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land under development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated inventory not owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
2008
(In thousands, except per
share amounts)
$1,330,603
9,225
122,053
334,428
1,091,468
8,828
94,520
255,460
1,503,346
1,990,430
594,213
4,087,989
609,140
263,803
2,080,345
1,741,407
678,338
4,500,090
766,752
99,802
6,757,241
557,550
6,816,920
607,978
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,314,791
7,424,898
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities related to consolidated inventory not owned . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
Class A common stock of $0.10 par value per share
Authorized: 2009 and 2008—300,000 shares
Issued: 2009—165,155 shares; 2008—140,503 shares . . . . . . . . . . . . . . . . . . . . . . . .
Class B common stock of $0.10 par value per share
Authorized: 2009 and 2008—90,000 shares
Issued: 2009 and 2008—32,964 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 2009—11,543 Class A common shares and 1,680 Class B
common shares; 2008—11,229 Class A common shares and 1,680 Class B common
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 169,596
518,359
2,761,352
862,584
246,727
592,777
2,544,935
834,873
4,311,891
414,886
4,219,312
416,833
4,726,777
144,535
4,636,145
165,746
16,515
14,050
3,296
2,208,934
828,424
3,296
1,944,626
1,273,159
(613,690)
(612,124)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,443,479
2,623,007
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,314,791
7,424,898
See accompanying notes to consolidated financial statements.
66
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended November 30, 2009, 2008 and 2007
2009
2008
(Dollars in thousands, except per share amounts)
2007
Revenues:
Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,834,285
285,102
4,263,038
312,379
9,730,252
456,529
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,119,387
4,575,417
10,186,781
Costs and expenses:
Homebuilding (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate general and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
3,210,386
249,120
120,093
4,541,881
343,369
129,752
12,189,077
450,409
173,202
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,579,599
5,015,002
12,812,688
Equity in loss from unconsolidated entities (3) . . . . . . . . . . . . . . . . . .
Other expense, net (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest income (expense), net (5) . . . . . . . . . . . . . . . . . . . . .
Gain on recapitalization of unconsolidated entity . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit (provision) for income taxes (6) . . . . . . . . . . . . . . . . . . . . . . .
(130,917)
(98,425)
(70,850)
28,912
—
—
(731,492)
314,345
(59,156)
(172,387)
(27,594)
4,097
133,097
—
(561,528)
(547,557)
(362,899)
(50,221)
(25,808)
(1,927)
175,879
(190,198)
(3,081,081)
1,140,000
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (417,147)
(1,109,085)
(1,941,081)
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(2.45)
(7.00)
(12.31)
(1) Homebuilding costs and expenses include $373.5 million, $340.5 million and $2,445.1 million, respectively,
of valuation adjustments and write-offs of option deposits and pre-acquisition costs for the years ended
November 30, 2009, 2008 and 2007.
(2) Financial Services costs and expenses for the year ended November 30, 2008 include a $27.2 million
impairment of goodwill.
(3) Equity in loss from unconsolidated entities includes the Company’s share of valuation adjustments related to
assets of unconsolidated entities in which the Company has investments of $101.9 million, $32.2 million
and $364.2 million, respectively, for the years ended November 30, 2009, 2008 and 2007.
(4) Other expense, net includes $89.0 million, $172.8 million and $132.2 million, respectively, of valuation
adjustments to the Company’s investments in unconsolidated entities for the years ended November 30,
2009, 2008 and 2007.
(5) Minority interest income (expense), net, for the year ended November 30, 2009, includes $13.6 million of
minority interest income recorded as a result of $27.2 million of valuation adjustments to inventories of
50%-owned consolidated joint ventures.
(6) Benefit (provision) for income taxes for the year ended November 30, 2009 primarily includes a reversal of
the Company’s deferred tax asset valuation allowance of $351.8 million, primarily due to a change in tax
legislation, which allowed the Company to carryback its fiscal year 2009 tax loss to recover previously paid
income taxes. For the year ended November 30, 2008, benefit (provision) for income taxes includes a
$730.8 million valuation allowance recorded against the Company’s deferred tax assets.
See accompanying notes to consolidated financial statements.
67
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended November 30, 2009, 2008 and 2007
Class A common stock:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuances of Class A common shares . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock and director plans . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B common stock:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital:
2009
2008
2007
(Dollars in thousands)
14,050
2,096
369
16,515
3,296
—
3,296
13,931
—
119
14,050
3,296
—
3,296
13,689
—
242
13,931
3,287
9
3,296
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuances of Class A common shares . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion of convertible senior subordinated notes to Class A
common shares, including tax benefit
. . . . . . . . . . . . . . . . . . . . . .
Employee stock and director plans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax (provision) benefit from employee stock plans and vesting of
1,944,626
218,875
1,920,386
—
1,753,695
—
—
25,332
—
12,940
95,978
47,235
restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(6,139)
5,171
Amortization of restricted stock and performance-based stock
options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,101
17,439
18,307
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,208,934
1,944,626
1,920,386
Retained earnings:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends—Class A common stock . . . . . . . . . . . . . . . . . . . . . .
Cash dividends—Class B common stock . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,273,159
(417,147)
(22,448)
(5,140)
—
2,496,933
(1,109,085)
(67,220)
(16,267)
(31,202)
4,539,137
(1,941,081)
(80,984)
(20,139)
—
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
828,424
1,273,159
2,496,933
Deferred compensation plan:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
—
—
(332)
332
—
(1,586)
1,254
(332)
See accompanying notes to consolidated financial statements.
68
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)
Years Ended November 30, 2009, 2008 and 2007
2009
2008
2007
(Dollars in thousands)
Deferred compensation liability:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
332
(332)
—
1,586
(1,254)
332
Treasury stock, at cost:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(612,124)
(1,566)
(610,366)
(1,758)
(606,395)
(3,971)
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(613,690)
(612,124)
(610,366)
Accumulated other comprehensive loss:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains arising during period on interest rate swaps, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on Company’s portion of unconsolidated
entity’s interest rate swap liability, net of tax . . . . . . . . . . . . . . . .
Reclassification adjustment for loss included in net loss for interest
rate swaps, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change to the Company’s portion of unconsolidated entity’s
minimum pension liability, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Balance at November 30,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
(2,061)
(2,041)
—
1,002
2,061
(2,061)
—
—
—
338
701
(2,061)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,443,479
2,623,007
3,822,119
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (417,147)
(1,107,024)
(1,941,101)
See accompanying notes to consolidated financial statements.
69
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 30, 2009, 2008 and 2007
2009
2008
(Dollars in thousands)
2007
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(417,147) (1,109,085) (1,941,081)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of discount/premium on debt, net
. . . . . . . . . . . . . . . . . . .
Gain on recapitalization of unconsolidated entity . . . . . . . . . . . . . . . . . .
Equity in loss from unconsolidated entities, including $101.9 million,
$32.2 million and $364.2 million, respectively, of the Company’s
share of valuation adjustments related to assets of unconsolidated
entities in 2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of earnings from unconsolidated entities . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest (income) expense, net
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax (provision) benefits from share-based awards . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based awards . . . . . . . . . . . . . . . . . . . . .
Deferred income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on partial redemption of senior notes . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustments, write-offs of option deposits and
pre-acquisition costs, write-offs of notes and other receivables and
goodwill impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
(Increase) decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in receivables . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in inventories, excluding valuation adjustments and
write-offs of option deposits and pre-acquisition costs . . . . . . . .
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in financial services loans held-for-sale . . . . . . . . . . . . . .
Decrease in accounts payable and other liabilities . . . . . . . . . . . . .
19,905
1,736
32,399
2,662
— (133,097)
54,303
2,461
(175,879)
130,917
2,498
(28,912)
30,392
—
—
—
(1,183)
59,156
21,069
(4,097)
29,871
(6,139)
—
772,508
—
362,899
106,883
1,927
35,478
5,171
(4,590)
(438,817)
—
472,137
565,465
2,767,522
(4,066)
(117,874)
4,624
828,646
(10,633)
(542,400)
428,964
(5,125)
4,497
(95,896)
292,264
7,166
83,622
(346,200)
666,228
48,509
190,254
(683,722)
Net cash provided by operating activities . . . . . . . . . . . . . . . .
420,843
1,100,834
444,513
Cash flows from investing activities:
Net disposals of operating properties and equipment
. . . . . . . . . . . . . . . . . . .
Investments in and contributions to unconsolidated entities . . . . . . . . . . . . . .
Distributions of capital from unconsolidated entities . . . . . . . . . . . . . . . . . . .
Distributions in excess of investment in unconsolidated entity . . . . . . . . . . . .
Decrease in financial services portfolio loans held-for-investment
. . . . . . . .
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of investment securities . . . . . . . . . . . . .
329
(325,994)
24,119
—
9,655
(1,747)
18,518
1,390
(403,709)
87,802
—
5,006
(176,514)
220,322
81
(607,957)
542,346
354,644
18,130
(107,791)
107,530
Net cash provided by (used in) investing activities . . . . . . . . .
(275,120)
(265,703)
306,983
Cash flows from financing activities:
Net repayments under financial services debt . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from 12.25% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs of 12.25% senior notes due 2017 . . . . . . . . . . . . . . . . . .
Redemption of 7 5⁄ 8% senior notes due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
Partial redemption of 5.125% senior notes due 2010 . . . . . . . . . . . . . . . . . . .
Partial redemption of 5.95% senior notes due 2011 . . . . . . . . . . . . . . . . . . . .
Redemption of senior floating-rate notes due 2009 . . . . . . . . . . . . . . . . . . . . .
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from sale of land to an unconsolidated land investment
(8,226)
392,392
(5,500)
(281,477)
(49,269)
(4,647)
—
19,912
(111,395)
(315,654)
(607,794)
—
—
—
—
—
—
—
(322)
—
—
— (300,000)
32,178
(188,544)
3,548
(132,055)
venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
445,000
Exercise of land options contracts from an unconsolidated land investment
venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,656)
(48,434)
—
See accompanying notes to consolidated financial statements.
70
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
Years Ended November 30, 2009, 2008 and 2007
Receipts related to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based awards . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock:
2009
2008
2007
(Dollars in thousands)
5,620
(7,744)
—
154,275
(3,240)
—
9,008
(45,553)
4,590
Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
221,437
(1,566)
(27,588)
224
(1,758)
(83,487)
21,588
(3,971)
(101,123)
Net cash provided by (used in) financing activities . . . . . . . . . . . .
108,293
(426,903)
(734,621)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
$ 254,016
1,203,422
408,228
795,194
16,875
778,319
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,457,438
1,203,422
795,194
Summary of cash and cash equivalents:
Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,330,603
126,835
1,091,468
111,954
642,467
152,727
$1,457,438
1,203,422
795,194
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized . . . . . . . . . . . . . . . . .
Cash (received) paid for income taxes, net . . . . . . . . . . . . . . . . . . . . . . .
$
55,101
$ (241,805)
37,949
(877,039)
32,731
214,848
Supplemental disclosures of non-cash investing and financing activities:
Conversion of debt to equity, including tax benefit . . . . . . . . . . . . . . . .
Purchases of inventories financed by sellers . . . . . . . . . . . . . . . . . . . . .
Non-cash contributions to unconsolidated entities . . . . . . . . . . . . . . . . .
Non-cash distributions from unconsolidated entities . . . . . . . . . . . . . . .
Issuance of common stock for employee compensation . . . . . . . . . . . .
Consolidation/deconsolidation of previously unconsolidated/
—
$
22,106
$
$
8,150
$ 125,307
—
$
—
2,384
27,434
56,913
—
95,978
10,253
73,822
14,036
7,391
consolidated entities, net:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,466
$ 360,640
$ (127,449)
$
68,727
$ (223,942)
$ (79,599)
$ (12,843)
34,346
647,466
(183,647)
620
(371,811)
(88,774)
(38,200)
4,093
238,060
(69,767)
1,625
(173,239)
6,981
(7,753)
See accompanying notes to consolidated financial statements.
71
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Lennar Corporation and all
subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and variable
interest entities (see Note 15) in which Lennar Corporation is deemed the primary beneficiary (the “Company”).
The Company’s investments in both unconsolidated entities in which a significant, but less than controlling,
interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary
are accounted for by the equity method. All intercompany transactions and balances have been eliminated in
consolidation. The Company has evaluated subsequent events through January 29, 2010, the date the
consolidated financial statements were filed with the U.S Securities and Exchange Commission (“SEC”).
Accounting Standards Codification
The Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”). The ASC does not alter current accounting principles generally accepted in the Unites
States of America (“GAAP”), but rather integrated existing accounting standards with other authoritative
guidance. The ASC provides a single source of authoritative GAAP for nongovernmental entities and supersedes
all other previously issued non-SEC accounting and reporting guidance. The adoption of the ASC did not have
any effect on the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Share-Based Payments
The Company has share-based awards outstanding under four different plans which provide for the granting
of stock options and stock appreciation rights and awards of restricted common stock (“nonvested shares”) to key
officers, associates and directors. The exercise prices of stock options and stock appreciation rights may not be
less than the market value of the common stock on the date of the grant. Exercises are permitted in installments
determined when options are granted. Each stock option and stock appreciation right will expire on a date
determined at the time of the grant, but not more than ten years after the date of the grant. The Company
accounts for stock option awards granted under the plans based on the estimated grant date fair value.
Revenue Recognition
Revenues from sales of homes are recognized when the sales are closed and title passes to the new
homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to
pay for the home, the new homeowner’s receivable is not subject to future subordination and the Company does
not have a substantial continuing involvement with the new home. Revenues from sales of land are recognized
when a significant down payment is received, the earnings process is complete, title passes and collectability of
the receivable is reasonably assured.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were $42.2 million, $65.7 million
and $120.4 million, respectively, for the years ended November 30, 2009, 2008 and 2007.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Due to the short maturity period of cash equivalents, the carrying amounts of these
instruments approximate their fair values. Cash and cash equivalents as of November 30, 2009 and 2008 included
$5.8 million and $9.8 million, respectively, of cash held in escrow for approximately three days.
72
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Restricted Cash
Restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to
the homebuyer, as required by the state and local governments in which the homes were sold.
Income Tax Receivables
Income tax receivables consist of tax refunds that the Company expects to receive within one year. As of
November 30, 2009 and 2008, there were $334.4 million and $255.5 million, respectively, of income tax
receivables.
Inventories
Inventories are stated at cost unless the inventory within a community is determined to be impaired, in
which case the impaired inventory is written down to fair value. Inventory costs include land, land development
and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to
development and construction. Construction overhead and selling expenses are expensed as incurred. Homes
held-for-sale are classified as inventories until delivered. Land, land development, amenities and other costs are
accumulated by specific area and allocated to homes within the respective areas. The Company reviews its
inventory for indicators of impairment by evaluating each community during each reporting period. The
inventory within each community is categorized as finished homes and construction in progress or land under
development based on the development state of the community. There were 390 and 493 active communities as
of November 30, 2009 and 2008, respectively. If the undiscounted cash flows expected to be generated by a
community are less than its carrying amount, an impairment charge is recorded to write down the carrying
amount of such community to its fair value.
In conducting its review for indicators of impairment on a community level, the Company evaluates, among
other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog,
projected margins with regard to future home sales over the life of the community, projected margins with regard to
future land sales and the estimated fair value of the land itself. The Company pays particular attention to
communities in which inventory is moving at a slower than anticipated absorption pace and communities whose
average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From
this review, the Company identifies communities whose carrying values exceed their undiscounted cash flows.
The Company estimates the fair value of its communities using a discounted cash flow model. The projected
cash flows for each community are significantly impacted by estimates related to market supply and demand,
product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales
and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other
factors for that particular community. Every division evaluates the historical performance of each of its
communities as well as current trends in the market and economy impacting the community and its surrounding
areas. These trends are analyzed for each of the estimates listed above. For example, since the start of the
downturn in the housing market, the Company has found ways to reduce its construction costs in many
communities, and this reduction in construction costs in addition to change in product type in many communities
has impacted future estimated cash flows.
Each of the homebuilding markets in which the Company operates is unique, as homebuilding has
historically been a local business driven by local market conditions and demographics. Each of the Company’s
homebuilding markets is dynamic and has specific supply and demand relationships reflective of local economic
conditions. The Company’s projected cash flows are impacted by many assumptions. Some of the most critical
assumptions in the Company’s cash flow model are projected absorption pace for home sales, sales prices and
costs to build and deliver homes on a community by community basis.
In order to arrive at the assumed absorption pace for home sales included in the Company’s cash flow
model, the Company analyzes its historical absorption pace in the community as well as other communities in the
geographical area. In addition, the Company analyzes internal and external market studies and trends, which
generally include, but are not limited to, statistics on population demographics, unemployment rates and
availability of competing product in the geographic area where the community is located. When analyzing the
73
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Company’s historical absorption pace for home sales and corresponding internal and external market studies, the
Company places greater emphasis on more current metrics and trends such as the absorption pace realized in its
most recent quarters as well as forecasted population demographics, unemployment rates and availability of
competing product. Generally, if the Company notices a variation from historical results over a span of two fiscal
quarters, the Company considers such variation to be the establishment of a trend and adjusts its historical
information accordingly in order to develop assumptions on the projected absorption pace in the cash flow model
for a community.
In order to determine the assumed sales prices included in its cash flow models, the Company analyzes the
historical sales prices realized on homes it delivered in the community and other communities in the geographical
area as well as the sales prices included in its current backlog for such communities. In addition, the Company
analyzes internal and external market studies and trends, which generally include, but are not limited to, statistics
on sales prices in neighboring communities and sales prices on similar products in non-neighboring communities
in the geographic area where the community is located. When analyzing its historical sales prices and
corresponding market studies, the Company also places greater emphasis on more current metrics and trends
such as future forecasted sales prices in neighboring communities as well as future forecasted sales prices for
similar products in non-neighboring communities. Generally, if the Company notices a variation from historical
results over a span of two fiscal quarters, the Company considers such variation to be the establishment of a trend
and adjusts its historical information accordingly in order to develop assumptions on the projected sales prices in
the cash flow model for a community.
In order to arrive at the Company’s assumed costs to build and deliver homes, the Company generally
assumes a cost structure reflecting contracts currently in place with its vendors adjusted for any anticipated cost
reduction initiatives or increases in cost structure. Costs assumed in the cash flow model for the Company’s
communities are generally based on the rates the Company is currently obligated to pay under existing contracts
with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure.
Due to the fact that the estimates and assumptions included in the Company’s cash flow models are based
upon historical results and projected trends, it does not anticipate unexpected changes in market conditions that
may lead the Company to incur additional impairment charges in the future.
Using all available trend information, the Company calculates its best estimate of projected cash flows for
each community. While many of the estimates are calculated based on historical and projected trends, all
estimates are subjective and change from market to market and community to community as market and
economic conditions change. The determination of fair vale also requires discounting the estimated cash flows at
a rate the Company believes a market participant would determine to be commensurate with the inherent risks
associated with the assets and related estimated cash flow streams. The discount rate used in determining each
asset’s fair value depends on the community’s projected life and development stage. The Company generally
uses a discount rate of approximately 20%, subject to the perceived risks associated with the community’s cash
flow streams relative to its inventory.
The Company estimates the fair value of inventory evaluated for impairment based on market conditions
and assumptions made by management at the time the inventory is evaluated, which may differ materially from
actual results if market conditions or assumptions change. For example, further market deterioration or changes
in assumptions may lead to the Company incurring additional impairment charges on previously impaired
inventory, as well as on inventory not currently impaired but for which indicators of impairment may arise if
further market deterioration occurs.
The Company also has access to land inventory through option contracts, which generally enables the
Company to defer acquiring portions of properties owned by third parties and unconsolidated entities until it has
determined whether to exercise its option. A majority of the Company’s option contracts require a non-refundable
cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. The Company’s
option contracts are recorded at cost. In determining whether to walk-away from an option contract, the Company
evaluates the option primarily based upon its expected cash flows from the property under option. If the Company
intends to walk away from an option contract, it records a charge to earnings in the period such decision is made
for the deposit amount and related pre-acquisition costs associated with the option contract.
See Note 2 for details of inventory valuation adjustments and write-offs of option deposits and
pre-acquisition costs by reportable segment and Homebuilding Other.
74
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Investments in Unconsolidated Entities
The Company evaluates its investments in unconsolidated entities for indicators of impairment during each
reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in value
of the Company’s investment in the unconsolidated entity has occurred which is other-than-temporary. The
amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.
The evaluation of the Company’s investment in unconsolidated entities includes certain critical assumptions
made by management: (1) projected future distributions from the unconsolidated entities, (2) discount rates
applied to the future distributions and (3) various other factors.
The Company’s assumptions on the projected future distributions from the unconsolidated entities are
dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale
of inventory by the unconsolidated entities. Such inventory is also reviewed for potential impairment by the
unconsolidated entities. The unconsolidated entities generally use a discount rate of approximately 20% in their
reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams
relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, the
Company’s proportionate share is reflected in the Company’s equity in earnings (loss) from unconsolidated
entities with a corresponding decrease to its investment in unconsolidated entities. In certain instances, the
Company may be required to record additional losses relating to its investment in unconsolidated entities, if the
Company’s investment in the unconsolidated entity, or a portion thereof, is deemed to be other than temporarily
impaired. These losses are included in other expense, net.
Additionally, the Company considers various qualitative factors to determine if a decrease in the value of
the investment is other-than-temporary. These factors include age of the venture, intent and ability for the
Company to recover its investment in the entity, financial condition and long-term prospects of the entity, short-
term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land,
entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults
under contracts with third parties (including bank debt), recoverability of the investment through future cash
flows and relationships with the other partners and banks. If the Company believes that the decline in the fair
value of the investment is temporary, then no impairment is recorded.
See Note 2 for details of valuation adjustments related to the Company’s unconsolidated entities by
reportable segment and Homebuilding Other.
The Company tracks its share of cumulative earnings and distributions of its joint ventures (“JVs”). For
purposes of classifying distributions received from JVs in the Company’s consolidated statements of cash flows,
cumulative distributions are treated as returns on capital to the extent of cumulative earnings and included in the
Company’s consolidated statements of cash flows as operating activities. Cumulative distributions in excess of
the Company’s share of cumulative earnings are treated as returns of capital and included in the Company’s
consolidated statements of cash flows as investing activities.
Interest and Real Estate Taxes
Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are
being actively developed. Interest related to homebuilding and land, including interest costs relieved from
inventories, is included in cost of homes sold and cost of land sold. Interest expense related to the financial
services operations is included in its costs and expenses.
During the years ended November 30, 2009, 2008 and 2007, interest incurred by the Company’s
homebuilding operations related to homebuilding debt was $172.1 million, $148.3 million and $199.1 million,
respectively; interest capitalized into inventories was $101.3 million, $120.7 million and $196.7 million,
respectively.
75
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Interest expense was included in cost of homes sold, cost of land sold and other interest expense as follows:
Interest expense in cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense in cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2009
2008
2007
$ 67,414
9,185
70,850
(In thousands)
99,319
3,444
27,594
168,453
9,439
25,808
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$147,449
130,357
203,700
Operating Properties and Equipment
Operating properties and equipment are recorded at cost and are included in other assets in the consolidated
balance sheets. The assets are depreciated over their estimated useful lives using the straight-line method. At the
time operating properties and equipment are disposed of, the asset and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful
life for operating properties is thirty years, for furniture, fixtures and equipment is two to ten years and for
leasehold improvements is five years or the life of the lease, whichever is shorter. Operating properties are
reviewed for possible impairment if there are indicators that their carrying amounts are not recoverable. No
impairments were recorded during the periods presented.
Investment Securities
Investment securities are classified as available-for-sale unless they are classified as trading or
held-to-maturity. Securities classified as trading are carried at fair value and unrealized holding gains and losses
are recorded in earnings. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or
losses on available-for-sale securities are reported as accumulated other comprehensive gain or loss, which is a
separate component of stockholders’ equity, net of tax, until realized. Securities classified as held-to-maturity are
carried at amortized cost because they are purchased with the intent and ability to hold to maturity.
At November 30, 2009 and 2008, investment securities classified as held-to-maturity totaled $2.5 million
and $19.1 million, respectively, and are included in the assets of the Financial Services segment. The
held-to-maturity securities consist mainly of certificates of deposit and U.S. treasury securities. At November 30,
2009 and 2008, the Company had no investment securities classified as trading or available-for-sale.
Derivative Financial Instruments
The Financial Services segment, in the normal course of business, uses derivative financial instruments to
reduce its exposure to fluctuations in mortgage-related interest rates. The segment uses mortgage-backed
securities (“MBS”) forward commitments, option contracts and investor commitments to protect the value of
fixed rate-locked loan commitments and loans held-for-sale from fluctuations in mortgage-related interest rates.
These derivative financial instruments are carried at fair value with the changes in fair value included in
Financial Services revenues.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in
business combinations. Evaluating goodwill for impairment involves the determination of the fair value of the
Company’s reporting units in which the Company has recorded goodwill. A reporting unit is a component of an
operating segment for which discrete financial information is available and reviewed by the Company’s
management on a regular basis. Inherent in the determination of fair value of the Company’s reporting units are
certain estimates and judgments, including the interpretation of current economic indicators and market
valuations as well as the Company’s strategic plans with regard to its operations. To the extent additional
information arises or the Company’s strategies change, it is possible that the Company’s conclusion regarding
goodwill impairment could change, which could have a significant effect on the Company’s financial position
and results of operations.
76
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At both November 30, 2009 and 2008, goodwill was $34.0 million. The goodwill relates to the Financial
Services segment and is included in the assets of that segment. During fiscal 2008, the Company impaired $27.2
million of the Financial Services segment’s goodwill. During fiscal 2007, the Company impaired all of its
homebuilding goodwill amounting to $190.2 million.
The Company reviews goodwill annually (or whenever indicators of impairment exist) for impairment. The
Company performed its annual impairment test in the fourth quarter of fiscal 2009 for the Financial Services
segment’s goodwill, and determined that an impairment adjustment was not required. As of both November 30,
2009 and 2008, there were no material identifiable intangible assets, other than goodwill.
Income Taxes
The Company records income taxes under the asset and liability method, whereby deferred tax assets and
liabilities are recognized based on the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered
or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the
period when the changes are enacted.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on
the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to
establish valuation allowances for deferred tax assets is assessed each reporting period by the Company based on
the more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate
consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.
This assessment considers, among other matters, the nature, frequency and severity of current and cumulative
losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience
with loss carryforwards not expiring unused and tax planning alternatives. Based upon all available evidence, the
Company recorded a valuation allowance against its deferred tax assets of $730.8 million during the year ended
November 30, 2008, and increased it by $269.6 million during the year ended November 30, 2009. In addition,
the Company recorded a reversal of $351.8 million to the deferred tax asset valuation allowance during the year
ended November 30, 2009 primarily due to a change in tax legislation, which allowed the Company to carry back
its fiscal year 2009 tax loss to recover previously paid income taxes. At November 30, 2009 and 2008, the
Company’s deferred tax assets, as well as the valuation allowance recorded, were $647.4 million and $730.8
million, respectively. In future periods, the allowance could be reduced based on sufficient evidence indicating
that it is more likely than not that a portion or all of the Company’s deferred tax assets will be realized. As such,
at both November 30, 2009 and 2008, the Company had no net deferred tax assets.
Effective December 1, 2007, the Company adopted certain provisions under ASC Topic 740, Income Taxes,
(“ASC 740”), which provides interpretative guidance for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. Effective with the Company’s adoption of these
provisions, interest related to unrecognized tax benefits is now recognized in the financial statements as a
component of benefit (provision) for income taxes. Interest and penalties related to unrecognized tax benefits
were previously recorded in other expense, net in the Company’s statements of operations.
77
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Product Warranty
Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover
potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to
the delivery of a home. Reserves are determined based on historical data and trends with respect to similar
product types and geographical areas. The Company regularly monitors the warranty reserve and makes
adjustments to its pre-existing warranties in order to reflect changes in trends and historical data as information
becomes available. Warranty reserves are included in other liabilities in the consolidated balance sheets. The
activity in the Company’s warranty reserve was as follows:
November 30,
2009
2008
(In thousands)
Warranty reserve, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranties issued during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to pre-existing warranties from changes in estimates . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$129,449
28,710
69,324
(69,587)
164,841
45,338
15,042
(95,772)
Warranty reserve, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$157,896
129,449
Adjustments to pre-existing warranties from changes in estimates for the year ended November 30, 2009
include an adjustment for warranty issues related to defective drywall manufactured in China and purchased and
installed by various of the Company’s subcontractors. Defective Chinese drywall appears to be an industry-wide
issue as other homebuilders have publicly disclosed that they are experiencing similar issues with defective
Chinese drywall.
As of November 30, 2009, the Company identified approximately 600 homes delivered in Florida primarily
during its 2006 and 2007 fiscal years that are confirmed to have defective Chinese drywall and resulting damage.
This represents a small percentage of homes the Company delivered in Florida (3.1%) and nationally (0.8%)
during those fiscal years in the aggregate.
Based on its efforts to date, the Company has not identified defective Chinese drywall in homes delivered
by the Company outside of Florida. The Company is continuing its investigation of homes delivered during the
relevant time period in order to determine whether there are additional homes, not yet inspected, with defective
Chinese drywall and resulting damage. If the outcome of the Company’s inspections identifies more homes than
the Company has estimated to have defective Chinese drywall, it might require an increase in the Company’s
warranty reserve in the future.
Through November 30, 2009, the Company has accrued $80.7 million of warranty reserves related to homes
confirmed as having defective Chinese drywall, as well as an estimate for homes not yet inspected that may
contain Chinese drywall. As of November 30, 2009, the warranty reserve, net of payments was $58.0 million.
The Company has recorded a $38.7 million receivable for covered damages under its insurance coverage relative
to the cost it expects to incur remedying the homes confirmed and estimated to have defective Chinese drywall
and resulting damage. The Company is seeking reimbursement from its subcontractors, insurers and others for
costs the Company has incurred or expects to incur to investigate and repair defective Chinese drywall and
resulting damage.
Self-Insurance
Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by the
Company up to certain limits. Undiscounted accruals for claims under the Company’s self-insurance program are
based on claims filed and estimates for claims incurred but not yet reported.
Minority Interest
The Company has consolidated certain joint ventures because the Company either was determined to be the
primary beneficiary, or has a controlling interest in these joint ventures. Therefore, the entities’ financial
statements are consolidated in the Company’s consolidated financial statements and the other partners’ equity is
78
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
recorded as minority interest. At November 30, 2009 and 2008, minority interest was $144.5 million and $165.7
million, respectively. Minority interest income (expense), net was $28.9 million, $4.1 million and ($1.9) million,
respectively, for the years ended November 30, 2009, 2008 and 2007.
Loss per Share
Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted
average number of common shares outstanding for the period. As a result of the Company’s net loss during the
years ended November 30, 2009, 2008 and 2007, the weighted average number of shares of common stock used
for calculating basic and diluted loss per share is the same because inclusion of securities or other contracts to
issue common stock would be anti-dilutive.
Financial Services
Premiums from title insurance policies are recognized as revenue on the effective date of the policies.
Escrow fees and loan origination revenues are recognized at the time the related real estate transactions are
completed, usually upon the close of escrow. Expected gains and losses from the sale of loans and their related
servicing rights are included in the measurement of all written loan commitments that are accounted for at fair
value through earnings at the time of commitment. Interest income on loans held-for-sale and loans
held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual
interest rates.
Loans held-for-sale by the Financial Services segment are carried at fair value and changes in fair value are
reflected in earnings. Premiums and discounts recorded on these loans are presented as an adjustment to the
carrying amount of the loans and are not amortized.
The Company elected the fair value option for its loans held-for-sale for mortgage loans originated
subsequent to February 29, 2008 in accordance with ASC Topic 825, Financial Instruments, (“ASC 825”), which
permits entities to measure various financial instruments and certain other items at fair value on a
contract-by-contract basis. Management believes carrying loans held-for-sale at fair value improves financial
reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the
derivative instruments used to economically hedge them without having to apply complex hedge accounting
provisions. In addition, the Company adopted certain provisions of ASC Topic 815-10-S99, SEC Materials,
(“ASC 815-10-S99”) on March 1, 2008, requiring the recognition of the fair value of its rights to service a
mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair
value of these servicing rights is included in the Company’s loans held-for-sale as of November 30, 2009 and
2008. Prior to March 1, 2008, the fair value of the servicing rights was not recognized until the related loan was
sold. Fair value of the servicing rights is determined based on values in the Company’s servicing sales contracts.
At November 30, 2009 and 2008, loans held-for-sale, all of which were accounted for at fair value, had an
aggregate fair value of $182.7 million and $190.1 million, respectively and an aggregate outstanding principal
balance of $175.5 million and $185.2 million, respectively, at November 30, 2009 and 2008.
Substantially all of the loans originated are sold within a short period in the secondary mortgage market on a
servicing released, non-recourse basis; although, the Company remains liable for certain limited representations
and warranties related to loan sales.
Loans for which the Company has the positive intent and ability to hold to maturity consist of mortgage
loans carried at lower of cost, net of unamortized discounts or fair value on a nonrecurring basis. Discounts are
amortized over the estimated lives of the loans using the interest method.
The Company also provides an allowance for loan losses. The provision recorded and the adequacy of the
related allowance is determined by the Company’s management’s continuing evaluation of the loan portfolio in
light of past loan loss experience, credit worthiness and nature of underlying collateral, present economic
conditions and other factors considered relevant by the Company’s management. Anticipated changes in
economic factors, which may influence the level of the allowance, are considered in the evaluation by the
Company’s management when the likelihood of the changes can be reasonably determined. While the
79
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Company’s management uses the best information available to make such evaluations, future adjustments to the
allowance may be necessary as a result of future economic and other conditions that may be beyond
management’s control.
New Accounting Pronouncements
In December 2007, the FASB updated certain provisions of ASC Topic 805, Business Combinations, (“ASC
805”). These provisions broaden the guidance of ASC 805, extending its applicability to all transactions and
other events in which one entity obtains control over one or more other businesses. It broadens the fair value
measurement and recognition requirement of assets acquired, liabilities assumed and interests transferred as a
result of business combinations. ASC 805 expands on required disclosures to improve the financial statement
users’ abilities to evaluate the nature and financial effects of business combinations. ASC 805 is effective for
business combinations that close on or after December 1, 2009. The Company does not expect the adoption of
these new provisions to have a material effect on its consolidated financial statements.
In December 2007, the FASB updated certain provisions of ASC Topic 810, Consolidation, (“ASC 810”).
These provisions require that a noncontrolling interest (formerly minority interest) in a subsidiary be reported as
equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be
identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes
in the parent’s ownership interest in a subsidiary and requires fair value measurement of any noncontrolling
equity investment retained in a deconsolidation. ASC 810 is effective for the Company’s fiscal year beginning
December 1, 2009. The adoption of these new provisions will result in the reclassification of the noncontrolling
interest in the Company’s consolidated joint ventures into the stockholders’ equity section of the Company’s
consolidated balance sheet.
In June 2009, the FASB updated certain provisions of ASC 810. These provisions amend the consolidation
guidance applicable to variable interest entities and the definition of a variable interest entity, and require
enhanced disclosures to provide more information about an enterprise’s involvement in a variable interest entity.
ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable
interest entity. These provisions under ASC 810 are effective for the Company’s fiscal year beginning
December 1, 2009. The Company does not expect the adoption of these provisions to have a material effect on its
consolidated financial statements.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform with
the 2009 presentation. These reclassifications had no impact on the Company’s results of operations. Prior to
2009, the Company included other interest expense as a component of other expense, net in the consolidated
statements of operations. In 2009, the Company separately disclosed other interest expense in its consolidated
statements of operations and reclassified prior year amounts to conform with the 2009 presentation.
2. Operating and Reporting Segments
The Company’s operating segments are aggregated into reportable segments, based primarily upon similar
economic characteristics, geography and product type. The Company’s reportable segments consist of:
(1) Homebuilding East
(2) Homebuilding Central
(3) Homebuilding West
(4) Homebuilding Houston
(5) Financial Services
Information about homebuilding activities in which the Company’s 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.
Operations of the Company’s homebuilding segments primarily include the construction and sale of single-
family attached and detached homes, and to a lesser extent, multi-level residential buildings, as well as the
80
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
purchase, development and sale of residential land directly and through the Company’s unconsolidated entities.
The Company’s reportable homebuilding segments, and all other homebuilding operations not required to be
reported separately, have operations located in:
East: Florida, Maryland, New Jersey and Virginia
Central: Arizona, Colorado and Texas (1)
West: California and Nevada
Houston: Houston, Texas
Other: Illinois, Minnesota, New York, North Carolina and South Carolina
(1) Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.
Operations of the Financial Services segment include primarily mortgage financing, title insurance and
closing services for both buyers of the Company’s homes and others. Substantially all of the loans the Financial
Services segment originates are sold in the secondary mortgage market on a servicing released, non-recourse
basis; although, the Company remains liable for certain limited representations and warranties related to loan
sales. The Financial Services segment operates generally in the same states as the Company’s homebuilding
operations, as well as in other states.
Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes.
Operating earnings (loss) for the homebuilding segments consist of revenues generated from the sales of homes
and land, equity in earnings (loss) from unconsolidated entities, other income (expense), net, minority interest
income (expense), net and gain on recapitalization of unconsolidated entity, less the cost of homes and land sold
and selling, general and administrative expenses. Homebuilding operating earnings (loss) for the year ended
November 30, 2009 includes the following:
• Valuation adjustments to finished homes, construction in progress (“CIP”) and land on which the
Company intends to build homes,
• Valuation adjustments to land the Company intends to sell or has sold to third parties,
• Write-offs of option deposits and pre-acquisition costs related to land under option that the Company
does not intend to purchase,
• Valuation adjustments related to assets of unconsolidated entities in which the Company has
investments, recorded in equity in earnings (loss) from unconsolidated entities, and
• Valuation adjustments to the Company’s investments in unconsolidated entities and write-offs of certain
notes and other receivables, recorded in other income (expense), net.
Financial Services operating earnings (loss), for the year ended November 30, 2009, consist of revenues
generated from primarily mortgage financing, title insurance and closing services less the cost of such services,
certain selling, general and administrative expenses incurred by the Financial Services segment and goodwill
impairments.
Each reportable segment follows the same accounting policies described in Note 1—“Summary of
Significant Accounting Policies” to the consolidated financial statements. Operational results of each segment are
not necessarily indicative of the results that would have occurred had the segment been an independent, stand-
alone entity during the periods presented.
81
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial information relating to the Company’s operations was as follows:
November 30,
2009
2008
2007
(In thousands)
Assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding East
Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,469,671
703,669
1,986,558
214,706
756,068
557,550
1,626,569
1,588,299
774,412
2,022,787
267,628
849,726
607,978
1,314,068
1,630,086
809,128
2,477,661
267,893
708,266
1,037,809
2,171,904
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,314,791
7,424,898
9,102,747
Investments in unconsolidated entities:
Homebuilding East
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
54,242
96,036
423,850
20,527
14,485
94,897
178,618
451,719
21,820
19,698
Total investments in unconsolidated entities . . . . . . . . . . . . .
$ 609,140
766,752
166,839
181,816
515,548
29,797
40,271
934,271
Financial Services goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
34,406
34,046
61,222
Years Ended November 30,
2009
2008
2007
(In thousands)
Revenues:
Homebuilding East
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 872,258
367,183
826,237
434,818
333,789
285,102
1,275,758
533,110
1,440,163
550,853
463,154
312,379
2,754,650
1,605,839
3,543,712
838,250
987,801
456,529
Total revenues (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,119,387
4,575,417
10,186,781
Operating earnings (loss):
Homebuilding East
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding West (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (205,779)
(70,546)
(325,680)
16,442
(61,818)
35,982
(153,110)
(95,494)
(143,256)
38,806
(47,732)
(30,990)
(893,159)
(328,583)
(1,478,804)
79,677
(293,130)
6,120
Total operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(611,399)
(120,093)
(431,776)
(129,752)
(2,907,879)
(173,202)
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (731,492)
(561,528)
(3,081,081)
(1) Total revenues are net of sales incentives of $512.0 million ($44,800 per home delivered) for the year ended
November 30, 2009, $746.5 million ($48,700 per home delivered) for the year ended November 30, 2008
and $1,515.8 million ($48,000 per home delivered) for the year ended November 30, 2007.
Includes $133.1 million and $175.9 million, respectively, of a pretax financial statement gain on the
recapitalization of an unconsolidated entity for the years ended November 30, 2008 and 2007.
(2)
82
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Valuation adjustments and write-offs relating to the Company’s operations were as follows:
Years Ended November 30,
2009
2008
2007
(In thousands)
Valuation adjustments to finished homes, CIP and land on which the Company
intends to build homes:
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 73,670
13,603
64,095
1,116
27,755
180,239
76,791
28,142
75,614
2,262
12,709
195,518
279,064
91,354
331,827
2,836
42,762
747,843
Valuation adjustments to land the Company intends to sell or has sold to third
parties:
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs of option deposits and pre-acquisition costs:
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company’s share of valuation adjustments related to assets of unconsolidated
entities:
37,048
1,309
38,679
674
17,604
95,314
64,131
82
13,902
2,471
3,786
84,372
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
504
6,184
94,665
—
540
101,893
23,251
12,369
11,094
137
940
47,791
18,989
6,024
62,447
745
8,967
97,172
7,241
1,732
22,675
—
597
32,245
Valuation adjustments to investments in unconsolidated entities:
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs of notes and other receivables:
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairments:
East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services write-offs of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,981
13,179
65,607
1,317
3,888
88,972
54,340
11,197
90,193
—
17,060
172,790
2,148
105
7,387
—
19
9,659
—
—
—
—
—
—
—
—
10,200
—
10,222
—
4,596
25,018
—
—
—
—
—
—
—
27,176
307,534
79,101
648,628
1,762
130,269
1,167,294
119,645
56,304
310,795
813
42,424
529,981
55,157
29,585
273,679
—
5,741
364,162
42,200
14,552
68,883
—
6,571
132,206
—
—
—
—
—
—
46,274
31,293
43,955
—
68,676
190,198
28,426
—
Total valuation adjustments and write-offs of option deposits and
pre-acquisition costs, notes and other receivables and goodwill . . . . . . . . .
$560,449
597,710
3,160,110
(1) For the year ended November 30, 2009, valuation adjustments to land the Company intends to sell or has sold to third
parties has been reduced by $13.6 million of minority interest income as a result of $27.2 million of valuation
adjustments to inventories of 50%-owned consolidated joint ventures.
83
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2009, market conditions remained challenging in the homebuilding industry. These challenging
market conditions during 2009 have led to lower home sales prices in certain communities and changes in the
strategy of certain joint ventures, which resulted in valuation adjustments and write-offs. Further deterioration in
the homebuilding market could cause additional pricing pressures and slower absorption, which could lead to
additional valuation adjustments in the future. In addition, market conditions could cause the Company to
re-evaluate its strategy regarding certain assets that could result in further valuation adjustments and/or additional
write-offs of option deposits and pre-acquisition costs due to the abandonment of those option contracts.
Homebuilding interest expense (1):
Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central
Homebuilding West
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,713
19,488
46,809
11,902
20,537
43,376
17,307
46,522
7,768
15,384
62,150
37,417
73,579
7,172
23,382
Total homebuilding interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 147,449
130,357
203,700
Years Ended November 30,
2009
2008
2007
(In thousands)
Financial Services interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization:
Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central
Homebuilding West
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Total depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,006
Net additions (disposals) to operating properties and equipment:
Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding West
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net disposals to operating properties and equipment . . . . . . . . . .
Equity in loss from unconsolidated entities:
Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Central
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding West
Homebuilding Houston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2,839
12,391
37,553
3,676
2,073
7,643
974
1,718
4,269
19,653
230
150
291
—
(2,009)
1,711
(702)
4,395
2,428
14,644
1,104
1,678
6,095
19,492
49,836
40
33
85
20
(398)
1,657
(2,827)
(329)
(1,390)
10,505
3,614
24,211
1,006
4,994
10,143
18,137
72,610
(5,391)
(127)
(2,182)
1,715
348
4,206
1,350
(81)
(5,660)
(8,143)
(114,373)
(1,801)
(940)
(31,422)
(1,310)
(25,113)
(920)
(391)
(58,069)
(25,378)
(274,267)
(752)
(4,433)
Total equity in loss from unconsolidated entities . . . . . . . . . . . . . . . . . .
$(130,917)
(59,156)
(362,899)
(1) Prior to fiscal 2009, other interest expense was classified as a corporate and unallocated expense. For the
year ended November 30, 2009, other interest expense was allocated to the respective homebuilding
segments and Homebuilding Other in order to more completely evaluate the segments’ performance. As a
result, prior year amounts have been reclassified to conform with the 2009 presentation. The reclassification
had no impact on the Company’s results of operations.
84
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3. Receivables
November 30,
2009
2008
(In thousands)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgages and notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 88,813
44,111
51,491
76,002
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132,924
(10,871)
127,493
(32,973)
$122,053
94,520
Accounts receivable relates primarily to amounts expected to be recovered related to defective Chinese
drywall, rebates and other receivables. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for accounts receivable. Mortgages and notes receivable arising from the
sale of land are generally collateralized by the property sold to the buyer. Allowances are maintained for
potential credit losses based on historical experience, present economic conditions and other factors considered
relevant by the Company.
4.
Investments in Unconsolidated Entities
Summarized condensed financial information on a combined 100% basis related to unconsolidated entities
in which the Company has investments that are accounted for by the equity method was as follows:
Statements of Operations
Years Ended November 30,
2009
2008
2007
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 339,993
1,212,866
(In thousands)
862,728
1,394,601
2,060,279
3,075,696
Net earnings (loss) of unconsolidated entities (1) . . . . . . . . . . . .
$ (872,873)
(531,873)
(1,015,417)
The Company’s share of net loss—recognized (2) . . . . . . . . . . .
$ (130,917)
(59,156)
(362,899)
(1) The net loss of unconsolidated entities for the year ended November 30, 2009 was primarily related to
valuation adjustments recorded by the unconsolidated entities. The Company’s exposure to such losses was
significantly lower as a result of its small ownership interest in the respective unconsolidated entities or its
previous valuation adjustments recorded to its investments in unconsolidated entities.
(2) For the years ended November 30, 2009, 2008 and 2007, the Company’s share of net loss recognized from
unconsolidated entities includes $101.9 million, $32.2 million and $364.2 million, respectively, of the
Company’s share of valuation adjustments related to assets of the unconsolidated entities in which the
Company has investments.
Balance Sheets
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and equity:
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity of:
November 30,
2009
2008
(Dollars in thousands)
$ 171,946
3,628,491
403,383
135,081
7,115,360
541,984
$4,203,820
7,792,425
$ 366,141
1,588,390
1,042,002
4,062,058
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
609,140
1,640,149
766,752
1,921,613
Total equity of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . .
2,249,289
2,688,365
$4,203,820
7,792,425
The Company’s equity in its unconsolidated entities . . . . . . . . . . . . . . . . . . . .
27%
29%
85
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s partners generally are unrelated homebuilders, land owners/developers and financial or
other strategic partners. The unconsolidated entities follow accounting principles that are in all material respects
the same as those used by the Company. The Company shares in the profits and losses of these unconsolidated
entities generally in accordance with its ownership interests. In many instances, the Company is appointed as the
day-to-day manager under the direction of a management committee that has shared powers amongst the partners
of the unconsolidated entities and receives management fees and/or reimbursement of expenses for performing
this function. During the years ended November 30, 2009, 2008 and 2007, the Company received management
fees and reimbursement of expenses from the unconsolidated entities totaling $15.3 million, $33.3 million and
$52.1 million, respectively.
The Company and/or its partners sometimes obtain options or enter into other arrangements under which the
Company can purchase portions of the land held by the unconsolidated entities. Option prices are generally
negotiated prices that approximate fair value when the Company receives the options. During the years ended
November 30, 2009, 2008 and 2007, $117.8 million, $416.2 million and $977.5 million, respectively, of the
unconsolidated entities’ revenues were from land sales to the Company. The Company does not include in its
equity in earnings (loss) from unconsolidated entities its pro rata share of unconsolidated entities’ earnings
resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a
reduction of the cost of purchasing the land from the unconsolidated entities. This in effect defers recognition of
the Company’s share of the unconsolidated entities’ earnings related to these sales until the Company delivers a
home and title passes to a third-party homebuyer.
In 2007, the Company sold a portfolio of land consisting of approximately 11,000 homesites in 32
communities located throughout the country to a strategic land investment venture with Morgan Stanley Real
Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which the Company has a 20% ownership
interest and 50% voting rights. Due to the Company’s continuing involvement, the transaction did not qualify as
a sale by the Company under GAAP; thus, the inventory has remained on the Company’s consolidated balance
sheet in consolidated inventory not owned. In 2007, the Company recorded a valuation adjustment of $740.4
million on the inventory sold to the investment venture. As of November 30, 2009 and 2008, the portfolio of land
(including land development costs) of $477.9 million and $538.4 million, respectively, is reflected as inventory
in the summarized condensed financial information related to unconsolidated entities in which the Company has
investments. The decrease in this inventory from November 30, 2008 to November 30, 2009 resulted primarily
from valuation adjustments of $50.1 million recorded by the land investment venture.
The unconsolidated entities in which the Company has investments usually finance their activities with a
combination of partner equity and debt financing. In some instances, the Company and its partners have
guaranteed debt of certain unconsolidated entities.
The summary of the Company’s net recourse exposure related to the unconsolidated entities in which the
Company has investments was as follows:
November 30,
2009
2008
(In thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Several recourse debt—repayment
Several recourse debt—maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and several recourse debt—repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and several recourse debt—maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land seller debt and other debt recourse exposure . . . . . . . . . . . . . . . . . . . . . . . .
$ 42,691
75,238
85,799
81,592
2,420
78,547
167,941
138,169
123,051
12,170
The Company’s maximum recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less joint and several reimbursement agreements with the Company’s
287,740
519,878
partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(93,185)
(127,428)
The Company’s net recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$194,555
392,450
During the year ended November 30, 2009, the Company reduced its maximum recourse exposure related to
indebtedness of unconsolidated entities by $232.1 million, of which $106.1 million was paid by the Company
86
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and $126.0 million related to the joint venture selling inventory, dissolution of joint ventures, renegotiation of
joint venture debt agreements and in certain circumstances consolidation of joint ventures. In addition, during the
year ended November 30, 2009, the Company recorded $40.1 million of obligation guarantees related to debt of
certain of its joint ventures. As of November 30, 2009, the Company had $14.1 million of obligation guarantees
recorded as a liability on its consolidated balance sheet. The obligation guarantees are estimated based on current
facts and circumstances; any unexpected changes may lead the Company to incur additional obligation
guarantees in the future.
Indebtedness of an unconsolidated entity is secured by its own assets. Some unconsolidated entities own
multiple properties and other assets. There is no cross collateralization of debt to different unconsolidated
entities. We also do not use our investment in one unconsolidated entity as collateral for the debt in another
unconsolidated entity or commingle funds among our unconsolidated entities.
In connection with a loan to an unconsolidated entity, the Company and its partners often guarantee to a
lender either jointly and severally or on a several basis, any, or all of the following: (i) the completion of the
development, in whole or in part, (ii) indemnification of the lender from environmental issues,
(iii) indemnification of the lender from “bad boy acts” of the unconsolidated entity (or full recourse liability in
the event of unauthorized transfer or bankruptcy) and (iv) that the loan to value and/or loan to cost will not
exceed a certain percentage (maintenance or remargining guarantee) or that a percentage of the outstanding loan
will be repaid (repayment guarantee).
In connection with loans to an unconsolidated entity where there is a joint and several guarantee, the
Company generally has a reimbursement agreement with its partner. The reimbursement agreement provides that
neither party is responsible for more than its proportionate share of the guarantee. However, if the Company’s
joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement
agreement, the Company may be liable for more than its proportionate share, up to its maximum recourse
exposure, which is the full amount covered by the joint and several guarantee.
The Company’s senior unsecured revolving credit facility (the “Credit Facility”) requires the Company to
effect quarterly reductions of its maximum recourse exposure related to joint ventures in which it has investments
by a total of $200 million to $535 million by November 30, 2009, which the Company accomplished as of
May 31, 2009. The Company must also effect quarterly reductions during its 2010 fiscal year totaling $180
million to $355 million of which the Company has already reduced it by $136.5 million as of November 30,
2009. During the first six months of its 2011 fiscal year, the Company must reduce its maximum recourse
exposure related to joint ventures by $80 million to $275 million (See Note 6).
If the joint ventures are unable to reduce their debt, where there is recourse to the Company, through the sale
of inventory or other means, then the Company and its partners may be required to contribute capital to the joint
ventures.
The recourse debt exposure in the previous table represents the Company’s maximum recourse exposure to
loss from guarantees and does not take into account the underlying value of the collateral or the other assets of
the borrowers that are available to repay the debt or to reimburse the Company for any payments on its
guarantees. The Company’s unconsolidated entities that have recourse debt have significant amount of assets and
equity.
87
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The summarized balance sheets of the Company’s unconsolidated entities with recourse debt were as
follows:
November 30,
2009
2008
(In thousands)
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,324,993
777,836
547,157
2,846,819
1,565,148
1,281,671
(1) The decrease in equity of the Company’s unconsolidated entities with recourse debt relates primarily to
valuation adjustments recorded by the unconsolidated entities, partner buyouts and consolidation of joint
ventures, partially offset by capital contributions made by the Company and its partners during the year
ended November 30, 2009. The Company’s exposure to impairment losses was significantly lower, as a
result of its small ownership interest in the respective unconsolidated entities or its previous valuation
adjustments to its investments in unconsolidated entities.
In addition, in most instances in which the Company has guaranteed debt of an unconsolidated entity, the
Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee
payments. Some of the Company’s guarantees are repayment guarantees and some are maintenance guarantees.
In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the
debt in the event of default before the lender would have to exercise its rights against the collateral. In the event
of default, if the Company’s venture partner does not have adequate financial resources to meet its obligations
under the reimbursement agreement, the Company may be liable for more than its proportionate share, up to its
maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The
maintenance guarantees only apply if the value or the collateral (generally land and improvements) is less than a
specified percentage of the loan balance. If the Company is required to make a payment under a maintenance
guarantee to bring the value of the collateral above the specified percentage of the loan balance, the payment
would constitute a capital contribution or loan to the unconsolidated entity and increase the Company’s share of
any funds the unconsolidated entity distributes.
In many of the loans to unconsolidated entities, the Company and its joint venture partners (or entities
related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees
may require that the guarantors complete the construction of the improvements for which the financing was
obtained. If the construction was to be done in phases, very often the guarantee is to complete only the phases as
to which construction has already commenced and for which loan proceeds were used. Under many of the
completion guarantees, the guarantors are permitted, under certain circumstances, to use undisbursed loan
proceeds to satisfy the completion obligations, and in many of those cases, the guarantors pay interest only on
those funds, with no repayment of the principal of such funds required.
During the years ended November 30, 2009 and 2008, amounts paid under the Company’s maintenance
guarantees were $31.6 million and $74.0 million, respectively. During the year ended November 30, 2009, the
Company made a payment of $5.6 million under a completion guarantee related to one joint venture. During the
year ended November 30, 2008, there were no payments under completion guarantees. During the years ended
November 30, 2009 and 2008, loan repayments, including amounts paid under the Company’s repayment
guarantees, were $72.4 million and $94.9 million, respectively. These guarantee payments are recorded primarily
as contributions to the Company’s unconsolidated entities.
As of November 30, 2009, the fair values of the maintenance guarantees, repayment guarantees and
completion guarantees were not material. The Company believes that as of November 30, 2009, in the event it
becomes legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a
triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a
significant portion of the obligation or the Company and its partners would contribute additional capital into the
venture.
In certain instances, the Company has placed performance letters of credit and surety bonds with
municipalities for its joint ventures.
88
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The total debt of the unconsolidated entities in which the Company has investments was as follows:
November 30,
2009
2008
(Dollars in thousands)
Lennar’s net recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursement agreements from partners . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 194,555
93,185
392,450
127,428
The Company’s maximum recourse exposure . . . . . . . . . . . . . . . . . . . . . . . . .
287,740
519,878
Non-recourse bank debt and other debt (partner’s share of several
recourse) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse land seller debt or other debt
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt with completion guarantees—excluding LandSource . . . .
Non-recourse debt without completion guarantees—excluding
140,078
47,478
608,397
285,519
90,519
820,435
LandSource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-recourse debt without completion guarantees—LandSource (1) . . . . . . .
504,697
994,580
— 1,351,127
Non-recourse debt to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,300,650
3,542,180
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,588,390
4,062,058
The Company’s maximum recourse exposure as a % of total JV debt . . . . . . .
18%
13%
(1) During 2009, LandSource emerged from bankruptcy as a new reorganized company named Newhall Land
Development, LLC. As a result, all of LandSource’s bank debts were discharged.
LandSource/Newhall Transactions
In January 2004, an unconsolidated entity of which the Company and LNR Property Corporation (“LNR”)
each owned 50% acquired The Newhall Land and Farming Company for approximately $1 billion, including
$200 million the Company contributed and $200 million that LNR contributed (the remainder came from
borrowings and sales of properties to LNR). Subsequently, the Company and LNR each transferred their interests
in most of their joint ventures to the jointly-owned company that had acquired The Newhall Land and Farming
Company, and that company was renamed LandSource Communities Development LLC (“LandSource”).
In February 2007, LandSource admitted MW Housing Partners as a new strategic partner. As part of the
transaction, the joint venture obtained $1.6 billion of non-recourse financing, which consisted of a $200 million
five-year Revolving Credit Facility, a $1.1 billion six-year Term Loan B Facility and a $244 million seven-year
Second Lien Term Facility. The transaction resulted in a cash distribution from LandSource to the Company of
$707.6 million. As a result, the Company’s ownership in LandSource was reduced to 16%. As a result of the
recapitalization, the Company recognized a pretax financial statement gain of $175.9 million during the year
ended November 30, 2007.
In June 2008, LandSource and a number of its subsidiaries commenced proceedings under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. In November 2008, the
Company’s land purchase options with LandSource were terminated, thus, in 2008, the Company recognized a
deferred profit of $101.3 million (net of $31.8 million of write-offs of option deposits and pre-acquisition costs
and other write-offs) related to the 2007 recapitalization of LandSource.
In July 2009, the United States Bankruptcy Court for the District of Delaware confirmed the plan of
reorganization for LandSource. As a result of the bankruptcy proceedings, LandSource was reorganized into a
new company called Newhall Land Development, LLC, (“Newhall”). The reorganized company emerged from
Chapter 11 free of its previous bank debt. As part of the reorganization plan, the Company invested $140 million
in exchange for approximately a 15% equity interest in the reorganized Newhall, ownership in several
communities that were formerly owned by LandSource, the settlement and release of any claims that might have
been asserted against the Company and certain other claims LandSource had against third parties.
89
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Operating Properties and Equipment
November 30,
2009
2008
(In thousands)
Operating properties (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$145,015
27,916
32,055
1,300
30,825
31,911
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
204,986
(52,954)
64,036
(51,473)
$152,032
12,563
(1) During the year ended November 30, 2009, the Company reclassified $85.1 million from inventories to
operating properties, as a result of converting a multi-level residential building to a rental operation.
Operating properties also include $62.7 million of operating properties associated with the consolidation of
joint ventures during the year ended November 30, 2009.
Operating properties and equipment are included in other assets in the consolidated balance sheets.
6. Senior Notes and Other Debts Payable
November 30,
2009
2008
(Dollars in thousands)
5.125% senior notes due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.95% senior notes due 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.95% senior notes due 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.50% senior notes due 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.60% senior notes due 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.50% senior notes due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.25% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 5⁄ 8% senior notes due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage notes on land and other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 249,955
244,727
347,471
248,365
501,424
249,760
392,392
—
527,258
299,877
249,615
346,851
248,088
501,618
249,733
—
280,976
368,177
$2,761,352
2,544,935
The Company has a $1.1 billion Credit Facility that matures in July 2011. In order to borrow under the
Credit Facility, the Company is required to first use its cash in excess of $750 million and have availability under
its borrowing base calculation. As of November 30, 2009, the Company had no availability to borrow under the
Credit Facility. The Company can create availability under its Credit Facility to the extent it uses the cash in
excess of $750 million to purchase qualified borrowing base assets.
The Credit Facility is guaranteed by substantially all of the Company’s subsidiaries. Interest rates on
outstanding borrowings are LIBOR-based, with margins determined based on changes in the Company’s credit
ratings, or an alternate base rate, as described in the Credit Facility agreement. At both November 30, 2009 and
2008, the Company had no outstanding balance under the Credit Facility. However, at November 30, 2009 and
2008, $177.9 million and $275.2 million, respectively, of the Company’s total letters of credit outstanding
discussed below, were collateralized against certain borrowings available under the Credit Facility.
The Company’s performance letters of credit outstanding were $97.7 million and $167.5 million,
respectively, at November 30, 2009 and 2008. The Company’s financial letters of credit outstanding were $205.4
million and $278.5 million, respectively, at November 30, 2009 and 2008. Performance letters of credit are
generally posted with regulatory bodies to guarantee the Company’s performance of certain development and
construction activities, and financial letters of credit are generally posted in lieu of cash deposits on option
contracts and for insurance risks, credit enhancements and as other collateral. Additionally, at November 30,
2009, the Company had outstanding performance and surety bonds related to site improvements at various
90
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
projects (including certain projects in the Company’s joint ventures) of $821.2 million. Although significant
development and construction activities have been completed related to these site improvements, these bonds are
generally not released until all development and construction activities are completed. As of November 30, 2009,
there were approximately $324.4 million, or 40%, of costs to complete related to these site improvements. The
Company does not presently anticipate any draws upon these bonds, but if any such draws occur, the Company
does not believe they would have a material effect on its financial position, results of operations or cash flows.
At November 30, 2009, the Company believes it was in compliance with its debt covenants. Under the
Credit Facility agreement, the Company was required to maintain a leverage ratio of less than or equal to 55% at
the end of each fiscal quarter during the Company’s 2009 fiscal year and is required to maintain a leverage ratio
of less than or equal to 52.5% for its 2010 fiscal year and through the maturity of the Company’s Credit Facility
in 2011. If the Company’s adjusted consolidated tangible net worth, as calculated per the Credit Facility
agreement, falls below $1.6 billion, the Company’s Credit Facility would be reduced from $1.1 billion to $0.9
billion. In no event may the Company’s adjusted consolidated tangible net worth, as calculated per the Credit
Facility agreement, be less than $1.3 billion.
In addition to other requirements, the Credit Facility requires the Company to effect quarterly reductions of
its maximum recourse exposure related to joint ventures in which it has investments by a total of $200 million to
$535 million by November 30, 2009, which the Company accomplished as of May 31, 2009. The Company must
also effect quarterly reductions during its 2010 fiscal year totaling $180 million to $355 million of which the
Company has already reduced it by $136.5 million. During the first six months of its 2011 fiscal year, the
Company must reduce its maximum recourse exposure related to joint ventures by $80 million to $275 million.
In April 2009, the Company sold $400 million of 12.25% senior notes due 2017 (the “12.25% Senior
Notes”) at a price of 98.098% in a private placement. Proceeds from the offering, after payment of initial
purchaser’s discount and expenses, were $386.7 million. The Company added the proceeds to its working capital
to be used for general corporate purposes, which may include the repayment or repurchase of its near-term
maturities or of debt of its joint ventures that it has guaranteed. Interest on the 12.25% Senior Notes is due semi-
annually. The 12.25% Senior Notes are unsecured and unsubordinated, and are guaranteed by substantially all of
the Company’s subsidiaries. The 12.25% Senior Notes were subsequently exchanged for identical 12.25% Senior
Notes that had been registered under the Securities Act of 1933. At November 30, 2009, the carrying amount of
the 12.25% Senior Notes was $392.4 million.
In March 2009, the Company retired its $281 million of 7 5⁄ 8% senior notes due March 2009 for 100% of
the outstanding principal amount, plus accrued and unpaid interest as of the maturity date.
In June 2007, the Company redeemed its $300 million senior floating-rate notes due 2009. The redemption
price was $300.0 million, or 100% of the principal amount of the outstanding senior floating-rate notes due 2009,
plus accrued and unpaid interest as of the redemption date.
In April 2006, the Company sold $250 million of 5.95% senior notes due 2011 and $250 million of 6.50%
senior notes due 2016 (collectively, the “2006 Senior Notes”) at prices of 99.766% and 99.873%, respectively, in
a private placement under SEC Rule 144A. Proceeds from the offering of the 2006 Senior Notes, after initial
purchaser’s discount and expenses, were $248.7 million and $248.9 million, respectively. The Company added
the proceeds to its working capital to be used for general corporate purposes. Interest on the 2006 Senior Notes is
due semi-annually. The 2006 Senior Notes are unsecured and unsubordinated, and substantially all of the
Company’s subsidiaries guarantee the 2006 Senior Notes. The 2006 Senior Notes were subsequently exchanged
for identical 2006 Senior Notes that had been registered under the Securities Act of 1933. During the year ended
November 30, 2009, the Company redeemed $5.0 million of the 5.95% senior notes due 2011. At November 30,
2009 and 2008, the carrying amount of the 2006 Senior Notes was $494.5 million and $499.3 million,
respectively.
In September 2005, the Company sold $300 million of 5.125% senior notes due 2010 (the “5.125% Senior
Notes”) at a price of 99.905% in a private placement. Proceeds from the offering, after initial purchaser’s
discount and expenses, were $298.2 million. The Company added the proceeds to the Company’s working capital
to be used for general corporate purposes. Interest on the 5.125% Senior Notes is due semi-annually. The 5.125%
91
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Senior Notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries guaranteed the
5.125% Senior Notes. In 2006, the Company exchanged the 5.125% Senior Notes for registered notes. The
registered notes have substantially identical terms as the 5.125% Senior Notes, except that the registered notes do
not include transfer restrictions that are applicable to the 5.125% Senior Notes. During the year ended
November 30, 2009, the Company redeemed $50.0 million of the 5.125% Senior Notes. At November 30, 2009
and 2008, the carrying amount of the 5.125% Senior Notes was $250.0 million and $299.9 million, respectively.
In April 2005, the Company sold $300 million of 5.60% Senior Notes due 2015 (the “5.60% Senior Notes”)
at a price of 99.771%. Proceeds from the offering, after initial purchaser’s discount and expenses, were $297.5
million. In July 2005, the Company sold $200 million of 5.60% Senior Notes due 2015 at a price of 101.407%.
The 5.60% Senior Notes were the same issue as the 5.60% Senior Notes the Company sold in April 2005.
Proceeds from the offering, after initial purchaser’s discount and expenses, were $203.9 million. The Company
added the proceeds of both offerings to its working capital to be used for general corporate purposes. Interest on
the 5.60% Senior Notes is due semi-annually. The 5.60% Senior Notes are unsecured and unsubordinated.
Substantially all of the Company’s subsidiaries guaranteed the 5.60% Senior Notes. The 5.60% Senior Notes
were subsequently exchanged for identical 5.60% Senior Notes that had been registered under the Securities Act
of 1933. At November 30, 2009 and 2008, the carrying amount of the 5.60% Senior Notes sold in April and July
2005 was $501.4 million and $501.6 million, respectively.
In August 2004, the Company sold $250 million of 5.50% senior notes due 2014 (the “5.50% Senior
Notes”) at a price of 98.842% in a private placement. Proceeds from the offering, after initial purchaser’s
discount and expenses, were $245.5 million. The Company used the proceeds to repay borrowings under its
Credit Facility. Interest on the 5.50% Senior Notes is due semi-annually. The 5.50% Senior Notes are unsecured
and unsubordinated. Substantially all of the Company’s subsidiaries guaranteed the 5.50% Senior Notes. At
November 30, 2009 and 2008, the carrying value of the 5.50% Senior Notes was $248.4 million and $248.1
million, respectively.
In February 2003, the Company issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%.
Substantially all of the Company’s subsidiaries guaranteed the 5.95% senior notes. At November 30, 2009 and
2008, the carrying amount of the 5.95% senior notes was $347.5 million and $346.9 million, respectively.
At November 30, 2009, the Company had mortgage notes on land and other debt due at various dates
through 2013 bearing interest at rates up to 10.0% with an average interest rate of 3.2%. At November 30, 2009
and 2008, the carrying amount of the mortgage notes on land and other debt was $527.3 million and $368.2
million, respectively.
The minimum aggregate principal maturities of senior notes and other debts payable during the five years
subsequent to November 30, 2009 and thereafter are as follows:
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Debt
Maturities
(In thousands)
$ 464,614
321,814
148,690
395,281
281,378
1,149,575
92
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7. Financial Services Segment
The assets and liabilities related to the Financial Services segment were as follows:
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held-for-sale (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held-for-investment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2009
2008
(In thousands)
$126,835
25,646
123,967
182,706
25,131
2,512
34,046
36,707
111,954
21,977
133,641
190,056
58,339
19,139
34,046
38,826
$557,550
607,978
$217,557
197,329
225,783
191,050
$414,886
416,833
(1) Receivables, net, primarily relate to loans sold to investors for which the Company had not yet been paid as
of November 30, 2009 and 2008, respectively.
(2) Loans held-for-sale relate to unsold loans carried at fair value.
(3) Other assets include mortgage loan commitments of $4.7 million and $4.4 million, respectively, as of
November 30, 2009 and 2008, carried at fair value.
(4) Other liabilities include forward contracts of $3.6 million and $6.5 million, respectively, as of November 30,
2009 and 2008, carried at fair value.
At November 30, 2009, the Financial Services segment had two warehouse repurchase facilities with a
maximum aggregate commitment of $200 million and $100 million, respectively, that mature in June 2010, and
another warehouse repurchase facility with a maximum aggregate commitment of $125 million that matures in
July 2010. The maximum aggregate commitment under these facilities totaled $425 million. The Financial
Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to
investors and expects the facilities to be renewed or replaced with other facilities when they mature. Borrowings
under the facilities were $217.5 million and $209.5 million, respectively, at November 30, 2009 and 2008 and
were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with
outstanding principal balances of $266.9 million and $281.2 million, respectively, at November 30, 2009 and
2008. The combined effective interest rate on the facilities at November 30, 2009 was 4.2%. If the facilities are
not renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale
to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Financial
Services segment would have to use cash from operations and other funding sources to finance its lending
activities.
At November 30, 2008, the Financial Services segment had advances under a different conduit funding
agreement totaling $10.8 million, which had an effective interest rate of 2.9% at November 30, 2008. At
November 30, 2008, the Financial Services segment had advances under the on going 60-day committed
repurchase facility of $5.2 million, which were collateralized by mortgage loans and receivables on loans sold to
investors but not yet paid for with outstanding principal balances of $5.5 million. The effective interest rate of
this facility at November 30, 2008 was 3.7%.
93
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
8.
Income Taxes
The benefit (provision) for income taxes consisted of the following:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2009
2008
2007
(In thousands)
$327,131
(12,786)
249,157
(24,206)
715,311
(14,128)
314,345
224,951
701,183
— (646,261)
— (126,247)
282,263
156,554
— (772,508)
438,817
$314,345
(547,557) 1,140,000
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax
effects of significant temporary differences that give rise to the net deferred tax asset are as follows:
Deferred tax assets:
Inventory valuation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2009
2008
(In thousands)
$ 175,166
114,002
330,160
41,598
29,685
—
—
38,765
239,854
118,222
217,040
44,436
36,614
26,383
65,307
34,370
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
729,376
(647,385)
782,226
(730,836)
Total deferred tax assets after valuation allowance . . . . . . . . . . . . . . . . . . .
81,991
51,390
Deferred tax liabilities:
Capitalized expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,531
15,977
30,483
81,991
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
18,187
420
32,783
51,390
—
As a result of the valuation allowance against the Company’s net deferred tax assets, at November 30, 2009
and 2008, the Company’s Homebuilding operations and the Financial Services segment did not have net deferred
tax assets.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if based on
the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to
establish valuation allowances for deferred tax assets is assessed periodically based on the more-likely-than-not
realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to
all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers,
among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future
94
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards
not expiring unused and tax planning alternatives.
Based upon all available evidence, the Company recorded a valuation allowance against its deferred tax
assets of $730.8 million during the year ended November 30, 2008, and increased it by $269.6 million during the
year ended November 30, 2009. In addition, the Company recorded a reversal of its deferred tax asset valuation
allowance of $351.8 million during the fourth quarter of 2009, primarily due to a change in tax legislation, which
allowed the Company to carry back its fiscal year 2009 tax loss to recover previously paid income taxes. At
November 30, 2009 and 2008, the Company’s deferred tax asset valuation allowance was $647.4 million and
$730.8 million, respectively. In future periods, the allowance could be reduced based on sufficient evidence
indicating that it is more likely than not that a portion or all of our deferred tax assets will be realized. At both
November 30, 2009 and 2008, the Company had no net deferred tax assets.
At November 30, 2009, the Company had federal and state net operating loss carryforwards totaling $330.2
million. Federal net operating loss carryforwards may be carried forward up to 20 years to offset future taxable
income and begin to expire in 2025. State net operating losses may be carried forward from 5 to 20 years,
depending on the tax jurisdiction, with losses expiring between 2012 and 2029.
A reconciliation of the statutory rate and the effective tax rate follows:
Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit . . . . . . . . . . .
Internal Revenue Code Section 199 impact
. . . . . . . . . . . . . . . . . .
Goodwill impairments and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax reserves and interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Deferred tax asset valuation reversal (allowance)
Percentage of Pretax Loss
2009
2008
2007
35.00%
2.32
—
(0.63)
(4.97)
11.25
35.00% 35.00%
3.09
(0.29)
(1.60)
(3.56)
(130.15)
3.00
(0.30)
(0.70)
—
—
Effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.97% (97.51)% 37.00%
The following table summarizes the changes in gross unrecognized tax benefits for the years ended
November 30, 2009 and 2008:
November 30,
2009
2008
(In thousands)
Gross unrecognized tax benefits, beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Decreases due to settlement with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . .
Increases of prior year items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases due to statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100,168
(57,022)
36,061
(1,996)
88,560
(2,605)
14,213
—
Gross unrecognized tax benefits, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 77,211
100,168
At November 30, 2009, the Company had $77.2 million of gross unrecognized tax benefits. If the Company
were to recognize these tax benefits, $52.4 million would affect the Company’s effective tax rate.
The Company expects the total amount of unrecognized tax benefits to decrease by $13.4 million within
twelve months as a result of the settlement of certain tax accounting items with the IRS with respect to the prior
examination cycle that carried over to the current years under examination, and as a result of the conclusion of
examinations with a number of state taxing authorities. The majority of these items were previously recorded as
deferred tax liabilities and the settlement will not affect the Company’s tax rate.
At November 30, 2009 and 2008, the Company had $33.6 million and $33.5 million, respectively, accrued
for interest and penalties, of which $3.9 million and $16.1 million, respectively, were recorded during the years
ended November 30, 2009 and 2008.
95
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The IRS is currently examining the Company’s federal income tax returns for fiscal years 2005 through
2009, and certain state taxing authorities are examining various fiscal years. The final outcome of these
examinations is not yet determinable. The statute of limitations for the Company’s major tax jurisdictions
remains open for examination for fiscal year 2003 and subsequent years.
9. Loss Per Share
Basic and diluted loss per share were calculated as follows:
Years Ended November 30,
2008
2007
2009
Numerator for basic and diluted loss per share—net loss . . . . . . . . . . . . . .
Denominator for basic and diluted loss per share—weighted average
(In thousands, except per share amounts)
$(417,147)
(1,109,085)
(1,941,081)
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170,537
158,395
157,718
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(2.45)
(7.00)
(12.31)
Options to purchase 7.5 million shares, 7.4 million shares and 4.9 million shares, respectively, in total of
Class A and Class B common stock were outstanding and anti-dilutive for the years ended November 30, 2009,
2008 and 2007.
10. Comprehensive Loss
Comprehensive loss represents changes in stockholders’ equity from non-owner sources. The components of
comprehensive loss were as follows:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains arising during period on interest rate swaps, net of tax
(37%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on Company’s portion of unconsolidated entity’s
interest rate swap liability, net of tax (37%)
. . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for loss included in net loss for interest rate
swaps, net of tax (37%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change to the Company’s portion of unconsolidated entity’s minimum
pension liability, net of tax (37%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2009
2008
2007
$(417,147)
(In thousands)
(1,109,085)
(1,941,081)
—
—
—
—
—
1,002
2,061
(2,061)
—
—
338
701
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(417,147)
(1,107,024)
(1,941,101)
There was no accumulated other comprehensive loss at November 30, 2009 and 2008.
11. Capital Stock
Preferred Stock
The Company is authorized to issue 500,000 shares of preferred stock with a par value of $10 per share and
100 million shares of participating preferred stock with a par value of $0.10 per share. No shares of preferred
stock or participating preferred stock have been issued as of November 30, 2009.
Common Stock
During 2009, the Company’s Class A and Class B common stockholders received a per share annual
dividend of $0.16. In October 2008, the Company’s Board of Directors voted to decrease the annual dividend
rate with regard to the Company’s Class A and Class B common stock to $0.16 per share per year (payable
96
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
quarterly) from $0.64 per share per year (payable quarterly). During the years ended November 30, 2008 and
2007, Class A and Class B common stockholders received per share annual dividends of $0.52 and $0.64,
respectively.
The only significant difference between the Class A common stock and Class B common stock is that
Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to
ten votes per share.
As of November 30, 2009, Stuart A. Miller, the Company’s President, Chief Executive Officer and a
Director, directly owned, or controlled through family-owned entities, shares of Class A and Class B common
stock, which represented approximately 46% voting power of the Company’s stock.
The Company has a stock repurchase program which permits the purchase of up to 20 million shares of its
outstanding common stock. During the years ended November 30, 2009, 2008 and 2007, there were no material
share repurchases of common stock under the stock repurchase program. As of November 30, 2009, 6.2 million
shares of common stock can be repurchased in the future under the program.
Treasury stock increased by 0.3 million Class A common shares and 0.5 million Class A common shares,
respectively, during the years ended November 30, 2009 and November 30, 2008, in connection with activity
related to the Company’s equity compensation plan and forfeitures of restricted stock.
In April 2009, the Company entered into distribution agreements with J.P Morgan Securities, Inc., Citigroup
Global Markets Inc., Merril Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc.,
relating to an offering of its Class A common stock into the market from time to time for an aggregate of up to
$275 million. As of November 30, 2009, the Company had sold a total of 21.0 million shares of its Class A
common stock under the equity offering for gross proceeds of $225.5 million, or an average of $10.76 per share.
After compensation to the distributors of $4.5 million, the Company received net proceeds of $221.0 million. The
Company will use the proceeds from the offering for general corporate purposes.
Restrictions on Payment of Dividends
Other than to maintain compliance with certain covenants contained in the Credit Facility, there are no
restrictions on the payment of dividends on common stock by the Company. There are no agreements which
restrict the payment of dividends by subsidiaries of the Company other than to maintain the financial ratios and
net worth requirements under the Financial Services segment’s warehouse lines of credit, which restrict the
payment of dividends from the Company’s mortgage subsidiaries following the occurrence and during the
continuance of an event of default thereunder and limit dividends to 50% of net income in the absence of an
event of default.
401(k) Plan
Under the Company’s 401(k) Plan (the “Plan”), contributions made by associates can be invested in a
variety of mutual funds or proprietary funds provided by the Plan trustee. The Company may also make
contributions for the benefit of associates. The Company records as compensation expense its contribution to the
Plan. This amount was $5.2 million in 2009, $7.6 million in 2008 and $15.2 million in 2007.
12. Share-Based Payments
The Company has share-based awards outstanding under four different plans which provide for the granting
of stock options and stock appreciation rights and awards of restricted common stock (“nonvested shares”) to key
officers, associates and directors. These awards are primarily issued in the form of new shares. The exercise
prices of stock options and stock appreciation rights may not be less than the market value of the common stock
on the date of the grant. Exercises are permitted in installments determined when options are granted. Each stock
option and stock appreciation right will expire on a date determined at the time of the grant, but not more than ten
years after the date of the grant.
97
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash flows resulting from tax benefits related to tax deductions in excess of the compensation expense
recognized for those options (excess tax benefits) are classified as financing cash flows. For the years ended
November 30, 2009 and 2008, the Company did not have any excess tax benefits from shared-based awards. For
the year ended November 30, 2007, the Company classified $4.6 million of excess tax benefits as financing cash
inflows.
Compensation expense related to the Company’s share-based awards was as follows:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2009
2008
2007
(In thousands)
12,432
17,439
$10,291
20,101
17,171
18,307
Total compensation expense for share-based awards . . . . . . . . . . . . .
$30,392
29,871
35,478
Cash received from stock options exercised during the years ended November 30, 2009, 2008 and 2007 was
$0.3 million, $0.2 million, and $21.6 million, respectively. There were no material tax deductions related to stock
options exercised during the years ended November 30, 2009 and 2008. The tax deductions related to stock
options exercised during the year ended November 30, 2007 were $8.3 million.
The fair value of each of the Company’s stock option awards is estimated on the date of grant using a Black-
Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the
Company’s stock option awards, which are subject to graded vesting, is expensed on a straight-line basis over the
vesting life of the stock options. Expected volatility is based on historical volatility of the Company’s stock over
the most recent period equal to the expected life of the award. The risk-free rate for periods within the contractual
life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the
stock option award is granted with a maturity equal to the expected term of the stock option award granted. The
Company uses historical data to estimate stock option exercises and forfeitures within its valuation model. The
expected life of stock option awards granted is derived from historical exercise experience under the Company’s
share-based payment plans and represents the period of time that stock option awards granted are expected to be
outstanding.
The fair value of these options was determined at the date of the grant using the Black-Scholes option-
pricing model. The significant weighted average assumptions for the years ended November 30, 2009, 2008 and
2007 were as follows:
2009
2008
2007
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life (years) . . . . . . . . . . . . . . . . . . . . . . . .
1.7% - 1.8% 3.2% - 4.7% 1.3% - 2.7%
73% - 121% 43% - 60% 30% - 34%
0.7% - 2.8% 1.9% - 3.5% 4.1% - 5.0%
2.0 - 5.0
2.0 - 5.0
2.0 - 5.0
A summary of the Company’s stock option activity for the year ended November 30, 2009 was as follows:
Stock
Options
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
(In thousands)
Outstanding at November 30, 2008 . . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . .
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,761,204
32,500
(2,376,150)
(22,449)
Outstanding at November 30, 2009 . . . . . . . . . . . .
6,395,105
Vested and expected to vest in the future at
November 30, 2009 . . . . . . . . . . . . . . . . . . . . . . .
5,478,478
Exercisable at November 30, 2009 . . . . . . . . . . . . .
3,002,000
Available for grant at November 30, 2009 . . . . . . .
3,361,621
$31.50
$ 8.92
$37.10
$13.54
$29.37
$30.30
$38.66
98
3.6 years
3.5 years
2.8 years
$547
$744
$603
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average fair value of options granted during the years ended November 30, 2009, 2008 and
2007 was $4.74, $3.85 and $12.89, respectively. The total intrinsic value of options exercised during the years
ended November 30, 2009 and 2008 was not material. The total intrinsic value of options exercised during the
year ended November 30, 2007 was $22.3 million.
The fair value of nonvested shares is determined based on the trading price of the Company’s common stock
on the grant date. The weighted average fair value of nonvested shares granted during the years ended
November 30, 2009, 2008 and 2007 was $12.63, $15.11 and $49.52, respectively. A summary of the Company’s
nonvested shares activity for the year ended November 30, 2009 was as follows:
Nonvested restricted shares at November 30, 2008 . . . . . . . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,022,923
1,619,059
(1,153,573)
(138,924)
Nonvested restricted shares at November 30, 2009 . . . . . . . . . . . . . . . . .
2,349,485
$32.33
$12.63
$22.64
$10.80
$13.27
Weighted Average
Grant Date
Fair Value
Shares
At November 30, 2009, there was $44.2 million of unrecognized compensation expense related to unvested
share-based awards granted under the Company’s share-based payment plans, of which $12.7 million relates to
stock options and $31.5 million relates to nonvested shares. The unrecognized expense related to nonvested
shares is expected to be recognized over a weighted-average period of 2.8 years. During the years ended
November 30, 2009, 2008 and 2007, 1.2 million nonvested shares, 0.4 million nonvested shares and 0.3 million
nonvested shares, respectively, vested. For the year ended November 30, 2009, there was no tax provision related
to nonvested share activity because the Company has recorded a full valuation allowance against its deferred tax
assets. The tax provision related to nonvested share activity during the years ended November 30, 2008 and 2007
was $6.1 million and $3.1 million, respectively.
13. Deferred Compensation Plan
In June 2002, the Company adopted the Lennar Corporation Nonqualified Deferred Compensation Plan (the
“Deferred Compensation Plan”) that allowed a selected group of members of management to defer a portion of
their salaries and bonuses and up to 100% of their restricted stock. All participant contributions to the Deferred
Compensation Plan are vested. Salaries and bonuses that are deferred under the Deferred Compensation Plan are
credited with earnings or losses based on investment decisions made by the participants. The cash contributions
to the Deferred Compensation Plan are invested by the Company in various investment securities that were
classified as trading.
Restricted stock is deferred under the Deferred Compensation Plan by surrendering the restricted stock in
exchange for the right to receive in the future a number of shares equal to the number of restricted shares that are
surrendered. The surrender is reflected as a reduction in stockholders’ equity equal to the fair value of the
restricted stock when it was issued, with an offsetting increase in stockholders’ equity to reflect a deferral of the
compensation expense related to the surrendered restricted stock. Changes in the fair value of the shares that will
be issued in the future are not reflected in the consolidated financial statements.
As of November 30, 2007, approximately 36,000 Class A common shares and 3,600 Class B common
shares of restricted stock had been surrendered in exchange for rights under the Deferred Compensation Plan,
resulting in a reduction in stockholders’ equity of $0.3 million fully offset by an increase in stockholders’ equity
to reflect the deferral of compensation in that amount. Shares that the Company is obligated to issue in the future
under the Deferred Compensation Plan are treated as outstanding shares in both the Company’s basic and diluted
loss per share calculations for the year ended November 30, 2007. In 2008, the Compensation Committee of the
Company’s Board of Directors approved the termination of the Deferred Compensation Plan and $1.8 million in
total in cash and shares of common stock was distributed to its participants.
99
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Financial Instruments
The following table presents the carrying amounts and estimated fair values of financial instruments held by
the Company at November 30, 2009 and 2008, using available market information and what the Company
believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market
data to develop the estimates of fair value. The use of different market assumptions and/or estimation
methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and
cash equivalents, restricted cash, receivables and accounts payable, which had fair values approximating their
carrying amounts due to the short maturities of these instruments.
ASSETS
Financial services:
Loans held-for-investment, net . . . . . . . . . . . . . . . . . . . . . . . . .
Investments—held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES
Homebuilding:
Senior notes and other debts payable . . . . . . . . . . . . . . . . . . . .
Financial services:
Notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2009
2008
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(In thousands)
$
$
25,131
2,512
26,818
2,529
58,339
19,139
58,339
19,266
$2,761,352
2,754,737 2,544,935
1,785,692
$ 217,557
217,557
225,783
225,783
The following methods and assumptions are used by the Company in estimating fair values:
Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is based
on quoted market prices. The Company’s variable-rate borrowings are tied to market indices and approximate
fair value due to the short maturities associated with the majority of the instruments.
Financial services—The fair values above are based on quoted market prices, if available. The fair values
for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted
cash flows or other financial information.
Fair Value Option
GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements
and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as
follows:
Level 1 Fair value determined based on quoted prices in active markets for identical assets.
Level 2 Fair value determined using significant other observable inputs.
Level 3 Fair value determined using significant unobservable inputs.
The Company’s financial instruments measured at fair value at November 30, 2009 on a recurring basis are
all within the Company’s Financial Services segment and are summarized below:
Financial Instruments
Fair Value Hierarchy
Loans held-for-sale (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 2
Level 2
Level 2
Fair Value at
November 30,
2009
(In thousands)
$182,706
4,700
(3,558)
$183,848
(1) The aggregate fair value of loans held-for-sale of $182.7 million exceeds its aggregate principal balance of
$175.5 million by $7.2 million.
100
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company elected the fair value option for its loans held-for-sale for mortgage loans originated
subsequent to February 29, 2008 in accordance with ASC 825, which permits entities to measure various
financial instruments and certain other items at fair value on a contract-by-contract basis. Management believes
carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings
caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them
without having to apply complex hedge accounting provisions. In addition, the Company adopted ASC
815-10-S99 on March 1, 2008, requiring the recognition of the fair value of its rights to service a mortgage loan
as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these
servicing rights is included in the Company’s loans held-for-sale as of November 30, 2009 and 2008. Prior to
March 1, 2008, the fair value of the servicing rights was not recognized until the related loan was sold. Fair value
of the servicing rights is determined based on values in the Company’s servicing sales contracts. Fair value of
loans held for sale is based on independent quoted market prices, where available, or the prices for other
mortgage whole loans with similar characteristics.
The assets accounted for under ASC 825 are initially measured at fair value. Gains and losses from initial
measurement and subsequent changes in fair value are recognized in the Financial Services segment’s earnings
(loss). The changes in fair values that are included in earnings (loss) are shown, by financial instrument and
financial statement line item, below:
Years Ended November 30,
2009
2008
Changes in fair value included in Financial Services revenues:
(In thousands)
Loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,264
$ 318
$2,903
4,923
4,382
(6,461)
Interest income on loans held-for-sale measured at fair value is calculated based on the interest rate of the
loan and recorded in interest income in the Financial Services’ statement of operations.
The Financial Services segment had a pipeline of loan applications in process of $838.6 million at
November 30, 2009. Loans in process for which interest rates were committed to the borrowers and builder
commitments for loans program totaled $203.6 million as of November 30, 2009. Substantially all of these
commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire
without being exercised by the borrowers or borrowers may not meet certain criteria at the time of closing, the
total commitments do not necessarily represent future cash requirements.
The Financial Services segment uses mandatory mortgage-backed securities (“MBS”) forward
commitments, option contracts and investor commitments to hedge its mortgage-related interest rate exposure.
These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated
with MBS forward commitments, option contracts and loan sales transactions is managed by limiting our
counterparties to investment banks, federally regulated bank affiliates and other investors meeting the
Company’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference
between the contract price and fair value of the MBS forward commitments and option contracts. At
November 30, 2009, the segment had open commitments amounting to $247.7 million to sell MBS with varying
settlement dates through February 2010.
101
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the
Company has recorded valuation adjustments and write-offs during the year ended November 30, 2009. The
assets measured at fair value on a nonrecurring basis are all within the Company’s Homebuilding operations and
are summarized below:
Non-financial Assets
November 30, 2009
Fair Value
Hierarchy
Pre-
impairment
Amount
Total
Losses (1)
(In thousands)
Fair Value
Finished homes and construction in progress (2) . . . . . . . . . .
Land under development (2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entities (3) . . . . . . . . . . . . . . .
Level 3
Level 3
Level 3
$431,922
$ 99,754
$ 53,501
(143,920) 288,002
59,952
(39,802)
(35,471)
(88,972)
(1) Represents total losses recorded during the year ended November 30, 2009.
(2) The valuation charges were included in homebuilding costs and expenses in the Company’s statement of
(3)
operations for the year ended November 30, 2009.
Investments in unconsolidated entities with an aggregate carrying value of $19.8 million were written down
to their fair value of ($39.4) million, which represents the Company’s obligation for guarantees related to
debt of certain unconsolidated entities recorded as a liability during the year ended November 30, 2009. In
addition, investments in unconsolidated entities with an aggregate carrying value of $33.7 million were
written down to their fair value of $3.9 million. The valuation charges was included in other expense, net in
the Company’s statement of operations for the year ended November 30, 2009.
See Note 1 for a detailed description of the Company’s process for identifying and recording valuation
adjustments related to inventory and investments in unconsolidated entities.
15. Consolidation of Variable Interest Entities
GAAP requires the consolidation of certain entities in which an enterprise absorbs a majority of the entity’s
expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership,
contractual or other financial interests in the entity.
Unconsolidated Entities
At November 30, 2009, the Company had investments in and advances to unconsolidated entities
established to acquire and develop land for sale to the Company in connection with its homebuilding operations,
for sale to third parties or for the construction of homes for sale to third-party homebuyers. The Company
evaluated all agreements during 2009 that were entered into or had reconsideration events and it consolidated
entities that at November 30, 2009 had total combined assets and liabilities of $282.8 million and $225.6 million,
respectively. At November 30, 2009, the Company’s consolidated joint ventures had total combined assets and
liabilities of $815.1 million and $391.7 million, respectively.
Additionally, during 2009, the Company consolidated certain joint ventures and then bought out the
respective partners at a later date, resulting in the consolidated joint ventures becoming wholly-owned. At
November 30, 2009, the assets and liabilities of these entities amounted to $85.3 million and $22.9 million,
respectively.
At November 30, 2009 and 2008, the Company’s recorded investment in unconsolidated entities was $609.1
million and $766.8 million, respectively. The Company’s estimated maximum exposure to loss with regard to
unconsolidated entities was primarily its recorded investments in these entities and the exposure under the
guarantees discussed in Note 4.
Option Contracts
The Company has access to land through option contracts, which generally enables it to control portions of
properties owned by third parties (including land funds) and unconsolidated entities until the Company has
determined whether to exercise the option.
102
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of
credit based on a percentage of the purchase price of the land. The Company’s option contracts sometimes
include price adjustment provisions, which adjust the purchase price of the land to its approximate fair value at
the time of acquisition, or are based on the fair value of the land at the time of takedown.
The Company’s investments in option contracts are recorded at cost unless those investments are
determined to be impaired, in which case the Company’s investments are written down to fair value. The
Company reviews option contracts for indicators of impairment during each reporting period. The most
significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase
and development of the optioned property would no longer meet the Company’s targeted return on investment
with appropriate consideration given to the length of time available to exercise the option. Such declines could be
caused by a variety of factors including increased competition, decreases in demand or changes in local
regulations that adversely impact the cost of development. Changes in any of these factors would cause the
Company to re-evaluate the likelihood of exercising its land options.
Some option contracts contain a predetermined take-down schedule for the optioned land parcels. However,
in almost all instances, the Company is not required to purchase land in accordance with those take-down
schedules. In substantially all instances, the Company has the right and ability to not exercise its option and
forfeit its deposit without further penalty, other than termination of the option and loss of any unapplied portion
of its deposit and pre-acquisition costs. Therefore, in substantially all instances, the Company does not consider
the take-down price to be a firm contractual obligation.
When the Company does not intend to exercise an option, it writes off any unapplied deposit and
pre-acquisition costs associated with the option contract. For the years ended November 30, 2009, 2008 and
2007, the Company wrote-off $84.4 million, $97.2 million and $530.0 million, respectively, of option deposits
and pre-acquisition costs related to land under option that it does not intend to purchase.
The Company evaluates all option contracts for land when entered into or upon a reconsideration event to
determine whether it is the primary beneficiary of certain of these option contracts. Although the Company does
not have legal title to the optioned land, if the Company is deemed to be the primary beneficiary, it is required to
consolidate the land under option at the purchase price of the optioned land. During the year ended November 30,
2009, the effect of consolidation of these option contracts was an increase of $14.3 million to consolidated
inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in
the accompanying consolidated balance sheets as of November 30, 2009. This increase was offset primarily by
the Company exercising its options to acquire land under certain contracts previously consolidated, resulting in a
net decrease in consolidated inventory not owned of $84.1 million for the year ended November 30, 2009. To
reflect the purchase price of the inventory consolidated, the Company reclassified $2.6 million of related option
deposits from land under development to consolidated inventory not owned in the accompanying consolidated
balance sheet as of November 30, 2009. The liabilities related to consolidated inventory not owned primarily
represent the difference between the option exercise prices for the optioned land and the Company’s cash
deposits.
The Company’s exposure to loss related to its option contracts with third parties and unconsolidated entities
consisted of its non-refundable option deposits and pre-acquisition costs totaling $127.4 million and $191.2
million, respectively, at November 30, 2009 and 2008. Additionally, the Company had posted $58.2 million and
$89.5 million, respectively, of letters of credit in lieu of cash deposits under certain option contracts as of
November 30, 2009 and 2008.
103
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16. Commitments and Contingent Liabilities
The Company is party to various claims, legal actions and complaints arising in the ordinary course of
business. In the opinion of management, the disposition of these matters will not have a material adverse effect
on the Company’s consolidated financial statements.
The Company is subject to the usual obligations associated with entering into contracts (including option
contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its
business. Option contracts generally enable the Company to control portions of properties owned by third parties
(including land funds) and unconsolidated entities until the Company determines whether to exercise the option.
The use of option contracts allows the Company to reduce the financial risks associated with long-term land
holdings. At November 30, 2009, the Company had $127.4 million of non-refundable option deposits and
pre-acquisition costs related to certain of these homesites, which were included in inventories in the consolidated
balance sheet.
The Company has entered into agreements to lease certain office facilities and equipment under operating
leases. Future minimum payments under the non-cancelable leases in effect at November 30, 2009 are as follows:
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Lease
Payments
(In thousands)
$46,570
35,271
22,499
15,332
13,119
25,840
Rental expense for the years ended November 30, 2009, 2008 and 2007 was $67.9 million, $108.9 million
and $150.1 million, respectively.
Rental expense includes the following termination costs related to the abandonment of leases as a result of
the Company’s efforts to consolidate its operations and reduce costs in the following financial statement line
items:
Years Ended November 30,
2009
2008
2007
Selling general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Financial services costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In thousands)
18,830
2,401
6,498
12,305
—
4,789
$6,170
1,786
850
Total termination costs related to abandonment of leases . . . . . . . . . . .
$8,806
27,729
17,094
The Company is committed, under various letters of credit, to perform certain development and construction
activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under
these arrangements totaled $303.1 million at November 30, 2009. The Company also had outstanding
performance and surety bonds related to site improvements at various projects (including certain projects in the
Company’s joint ventures) of $821.2 million. Although significant development and construction activities have
been completed related to these site improvements, these bonds are generally not released until all development
and construction activities are completed. As of November 30, 2009, there were approximately $324.4 million, or
40%, of costs to complete related to these site improvements. The Company does not presently anticipate any
draws upon these bonds that would have a material effect on its consolidated financial statements.
104
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. Supplemental Financial Information
The Company’s obligations to pay principal, premium, if any, and interest under its Credit Facility, 5.125%
senior notes due 2010, 5.95% senior notes due 2011, 5.95% senior notes due 2013, 5.50% senior notes due 2014,
5.60% senior notes due 2015, 6.50% senior notes due 2016 and 12.25% senior notes due 2017 are guaranteed by
substantially all of the Company’s subsidiaries. The guarantees are full and unconditional and the guarantor
subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The guarantees are joint and several,
subject to limitations as to each guarantor designed to eliminate fraudulent conveyance concerns. Supplemental
financial information for the guarantors is presented as follows:
Consolidating Balance Sheet
November 30, 2009
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In thousands)
Homebuilding:
ASSETS
Cash and cash equivalents, restricted
cash, receivables, net and income tax
receivables . . . . . . . . . . . . . . . . . . . . . . $1,564,529
Inventories . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . . . . . .
198,524
— 3,493,784
9,874
44,232
3,389,625
563,984
63,040
522,148
5,008,260
—
4,841,480
153,545
33,256
594,205
35,282
156,531
—
819,274
404,005
— 1,796,309
— 4,087,989
—
—
(3,911,773)
609,140
263,803
—
(3,911,773) 6,757,241
557,550
—
Total assets . . . . . . . . . . . . . . . . . . . $5,008,260
4,995,025
1,223,279
(3,911,773) 7,314,791
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities . . $ 246,501
Liabilities related to consolidated
inventory not owned . . . . . . . . . . . . . .
Senior notes and other debts payable . . .
Intercompany . . . . . . . . . . . . . . . . . . . . .
—
2,234,093
84,187
518,359
223,545
102,454
Financial services . . . . . . . . . . . . . . . . . . . . .
2,564,781
—
1,546,449
58,951
Total liabilities . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
2,564,781
—
2,443,479
1,605,400
—
3,389,625
Total liabilities and stockholders’
702,091
83,588
— 1,032,180
—
303,714
(186,641)
200,661
355,935
556,596
144,535
522,148
518,359
—
— 2,761,352
—
—
— 4,311,891
414,886
—
— 4,726,777
144,535
—
(3,911,773) 2,443,479
equity . . . . . . . . . . . . . . . . . . . . . $5,008,260
4,995,025
1,223,279
(3,911,773) 7,314,791
105
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Balance Sheet
November 30, 2008
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In thousands)
Homebuilding:
ASSETS
Cash and cash equivalents, restricted
cash, receivables, net and income tax
receivables . . . . . . . . . . . . . . . . . . . . . . $1,263,623
Inventories . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . .
165,060
— 3,975,084
—
30,420
4,314,255
751,613
64,515
635,413
21,593
525,006
15,139
4,867
—
— 1,450,276
— 4,500,090
—
—
(4,949,668)
766,752
99,802
—
Financial services . . . . . . . . . . . . . . . . . . . . .
5,608,298
—
5,591,685
8,332
566,605
599,646
(4,949,668) 6,816,920
607,978
—
Total assets . . . . . . . . . . . . . . . . . . . $5,608,298
5,600,017
1,166,251
(4,949,668) 7,424,898
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities . . $ 269,457
Liabilities related to consolidated
inventory not owned . . . . . . . . . . . . . .
Senior notes and other debts payable . . .
Intercompany . . . . . . . . . . . . . . . . . . . . .
—
2,176,758
539,076
592,777
130,126
(140,463)
Financial services . . . . . . . . . . . . . . . . . . . . .
2,985,291
—
1,282,851
2,911
Total liabilities . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
2,985,291
—
2,623,007
1,285,762
—
4,314,255
Total liabilities and stockholders’
700,411
111,732
— 1,081,600
—
238,051
(398,613)
(48,830)
413,922
365,092
165,746
635,413
—
592,777
— 2,544,935
—
—
— 4,219,312
416,833
—
— 4,636,145
165,746
—
(4,949,668) 2,623,007
equity . . . . . . . . . . . . . . . . . . . . . $5,608,298
5,600,017
1,166,251
(4,949,668) 7,424,898
106
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Operations
Year Ended November 30, 2009
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In thousands)
Revenues:
Homebuilding . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . .
$
— 2,792,314
162,768
—
Total revenues . . . . . . . . . . . . . . . .
— 2,955,082
41,971
179,941
221,912
—
(57,607)
2,834,285
285,102
(57,607)
3,119,387
Costs and expenses:
Homebuilding . . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . . .
Corporate general and
— 3,132,257
150,704
—
96,921
129,729
(18,792)
(31,313)
3,210,386
249,120
administrative . . . . . . . . . . . . . . . . . .
113,560
—
—
6,533
120,093
Total costs and expenses . . . . . . . .
113,560
3,282,961
226,650
(43,572)
3,579,599
Equity in loss from unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Minority interest income, net
Earnings (loss) before income taxes . . . . . . .
Benefit (provision) for income taxes . . . . . .
Equity in earnings (loss) from
—
33,732
(47,714)
—
(127,542)
52,138
(130,674)
(98,478)
(70,850)
—
(627,881)
269,800
(243)
—
—
28,912
23,931
(7,593)
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
(341,743)
16,338
—
Net earnings (loss) . . . . . . . . . . . . . . . . . . . .
$(417,147)
(341,743)
16,338
—
(33,679)
47,714
—
—
—
(130,917)
(98,425)
(70,850)
28,912
(731,492)
314,345
325,405
325,405
—
(417,147)
Consolidating Statement of Operations
Year Ended November 30, 2008
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In thousands)
Revenues:
Homebuilding . . . . . . . . . . . . . . . . . . . $
Financial services . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . .
— 4,262,154
6,426
—
— 4,268,580
288
379,624
379,912
596
(73,671)
4,263,038
312,379
(73,075)
4,575,417
Costs and expenses:
Homebuilding . . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . . .
Corporate general and
— 4,549,804
3,359
—
2,458
391,854
(10,381)
(51,844)
4,541,881
343,369
administrative . . . . . . . . . . . . . . . . .
129,752
—
—
—
129,752
Total costs and expenses . . . . . .
129,752
4,553,163
394,312
(62,225)
5,015,002
Equity in loss from unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net
. . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . .
Minority interest income, net . . . . . . . . . . .
Gain on recapitalization of unconsolidated
entity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
35,341
(46,191)
—
(59,156)
(172,387)
(27,594)
—
—
—
—
4,097
—
133,097
—
Loss before income taxes . . . . . . . . . . . . . .
(Provision) benefit for income taxes . . . . .
Equity in loss from subsidiaries . . . . . . . . .
(140,602)
(150,494)
(817,989)
(410,623)
(400,398)
(6,968)
(10,303)
3,335
—
—
(35,341)
46,191
—
—
—
—
824,957
(59,156)
(172,387)
(27,594)
4,097
133,097
(561,528)
(547,557)
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,109,085)
(817,989)
(6,968)
824,957
(1,109,085)
107
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Operations
Year Ended November 30, 2007
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In thousands)
Revenues:
Homebuilding . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . .
$
Total revenues . . . . . . . . . . . . . .
—
—
—
9,710,626
9,125
9,719,751
19,626
503,266
522,892
—
(55,862)
9,730,252
456,529
(55,862) 10,186,781
Costs and expenses:
Homebuilding . . . . . . . . . . . . . . . . . .
Financial services . . . . . . . . . . . . . . .
Corporate general and
— 12,165,338
22,063
—
64,943
451,804
(41,204) 12,189,077
450,409
(23,458)
administrative . . . . . . . . . . . . . . . .
173,202
—
—
—
173,202
Total costs and expenses . . . . . .
173,202
12,187,401
516,747
(64,662) 12,812,688
Equity in loss from unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . .
Other interest expense . . . . . . . . . . . . . . . .
Minority interest expense, net . . . . . . . . . .
Gain on recapitalization of unconsolidated
entity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairments . . . . . . . . . . . . . . . .
Earnings (loss) before income taxes . . . . .
(Provision) benefit for income taxes . . . . .
Equity in earnings (loss) from
—
9,675
(875)
—
(362,899)
(50,221)
(25,808)
—
—
—
—
(1,927)
—
—
175,879
(190,198)
—
—
—
(9,675)
875
—
—
—
(362,899)
(50,221)
(25,808)
(1,927)
175,879
(190,198)
(164,402)
60,829
(2,920,897)
1,080,732
4,218
(1,561)
— (3,081,081)
1,140,000
—
subsidiaries . . . . . . . . . . . . . . . . . . . . . .
(1,837,508)
2,657
—
1,834,851
—
Net earnings (loss) . . . . . . . . . . . . . . . . . .
$(1,941,081)
(1,837,508)
2,657
1,834,851
(1,941,081)
108
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Cash Flows
Year Ended November 30, 2009
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(Dollars in thousands)
Cash flows from operating activities:
Net earnings (loss)
Adjustments to reconcile net earnings (loss)
. . . . . . . . . . . . . . . . . . . . . $ (417,147)
(341,743)
16,338
325,405
(417,147)
to net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Increase in investments in unconsolidated
(203,812) 1,449,961
(82,754)
(325,405)
837,990
(620,959) 1,108,218
(66,416)
—
420,843
entities, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,874)
726
(234,169)
20,048
(57,832)
5,981
Net cash used in investing activities . . . .
(9,148)
(214,121)
(51,851)
Cash flows from financing activities:
Net repayments under financial services
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(84)
(8,142)
Net proceeds from 12.25% senior notes due
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of 7 5⁄ 8% senior notes due
386,892
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(281,477)
Partial redemption of 5.125% senior notes
due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partial redemption of 5.95% senior notes due
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net repayments under other borrowings . . . . .
Exercise of land option contracts from an
unconsolidated land investment venture . . .
Net payments related to minority interests . . . .
Common stock:
Issuances . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . .
Cash and cash equivalents at beginning of
—
—
—
—
—
—
(49,269)
(4,647)
—
—
(16,715)
—
(74,768)
—
—
(33,656)
—
—
(2,124)
221,437
(1,566)
(27,588)
601,900
—
—
—
—
—
—
(814,766)
212,866
845,682
(865,221)
127,832
215,575
28,876
9,565
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(301,875)
26,755
(275,120)
(8,226)
386,892
(281,477)
(49,269)
(4,647)
(91,483)
(33,656)
(2,124)
221,437
(1,566)
(27,588)
—
108,293
254,016
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,007,594
125,437
Cash and cash equivalents at end of year . . . . $1,223,169
154,313
70,391
79,956
— 1,203,422
— 1,457,438
109
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Cash Flows
Year Ended November 30, 2008
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(Dollars in thousands)
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,109,085)
Adjustments to reconcile net loss to net cash
provided by operating activities . . . . . . . .
1,291,030
Net cash provided by operating
(817,989)
(6,968)
824,957
(1,109,085)
1,459,469
284,377
(824,957)
2,209,919
activities . . . . . . . . . . . . . . . . . . . . . .
181,945
641,480
277,409
—
1,100,834
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(315,907)
50,204
(265,703)
(315,654)
(128,507)
(322)
(48,434)
151,035
224
(1,758)
(83,487)
—
(426,903)
408,228
795,194
1,203,422
Cash flows from investing activities:
Increase in investments in unconsolidated
entities, net . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in)
—
(423)
(315,907)
1,857
—
48,770
investing activities . . . . . . . . . . . . . .
(423)
(314,050)
48,770
Cash flows from financing activities:
Net repayments under financial services
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net repayments under other borrowings . . .
Partial redemption of 7 5⁄ 8% senior notes
—
—
—
(61,981)
(315,654)
(66,526)
due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
(322)
—
Exercise of land option contracts from an
unconsolidated land investment
venture . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net payments related to minority
interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock:
—
—
Issuances . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . .
224
(1,758)
(83,487)
414,031
Net cash provided by (used in)
—
—
151,035
—
—
—
(48,434)
—
—
—
—
(292,787)
(121,244)
financing activities . . . . . . . . . . . . . .
328,688
(403,202)
(352,389)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . .
510,210
(75,772)
(26,210)
Cash and cash equivalents at beginning of
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
497,384
139,733
Cash and cash equivalents at end of year . . . $ 1,007,594
63,961
158,077
131,867
110
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Cash Flows
Year Ended November 30, 2007
Lennar
Corporation
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(Dollars in thousands)
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . $(1,941,081) (1,837,508)
Adjustments to reconcile net earnings (loss)
2,657
1,834,851 (1,941,081)
to net cash provided by (used in)
operating activities . . . . . . . . . . . . . . . . . .
Net cash provided by (used in)
(1,915,832) 5,305,931
830,346
(1,834,851) 2,385,594
operating activities . . . . . . . . . . . . . .
(3,856,913) 3,468,423
833,003
—
444,513
Cash flows from investing activities:
Increase in investments in unconsolidated
entities, net . . . . . . . . . . . . . . . . . . . . . . . .
—
(65,611)
—
Distributions in excess on investment in
unconsolidated entity . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in)
—
(1,355)
354,644
(16,353)
—
35,658
investing activities . . . . . . . . . . . . . .
(1,355)
272,680
35,658
Cash flows from financing activities:
Net repayments under financial services
—
—
—
—
(65,611)
354,644
17,950
306,983
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(607,794)
—
(607,794)
Net proceeds from sale of land to an
unconsolidated land investment
venture . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of senior floating-rate notes
due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
Net repayments under other borrowings . . .
Net payments related to minority
interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based
—
445,000
—
—
(66,209)
—
(90,157)
(300,000)
—
—
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,590
Common stock:
Issuances . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . .
21,588
(3,971)
(101,123)
4,313,723 (4,198,614)
—
—
—
—
—
(36,545)
—
—
—
—
(115,109)
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . .
3,934,807 (3,819,823)
(849,605)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . .
76,539
(78,720)
19,056
Cash and cash equivalents at beginning of
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
420,845
Cash and cash equivalents at end of year
. . . $
497,384
218,453
139,733
139,021
158,077
111
—
—
—
—
—
—
—
—
—
—
—
—
—
445,000
(300,000)
(156,366)
(36,545)
4,590
21,588
(3,971)
(101,123)
—
(734,621)
16,875
778,319
795,194
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Quarterly Data (unaudited)
2009
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit from sales of homes . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per share:
First
Second
Third
Fourth
(In thousands, except per share amounts)
$ 593,063
34,182
$
$ (154,081)
$ (155,929)
891,853
76,092
(123,638)
(125,185)
720,730
49,496
(168,865)
(171,605)
913,741
92,230
(284,908)
35,572
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(0.98)
(0.98)
(0.76)
(0.76)
(0.97)
(0.97)
0.20
0.19
2008
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit from sales of homes . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per share:
$1,062,913
$ 136,695
$ (154,294)
$ (88,216)
1,127,916
88,366
(173,182)
(120,916)
1,106,540
147,122
(139,102)
(88,964)
1,278,048
137,444
(94,950)
(810,989)
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(0.56)
(0.76)
(0.56)
(5.12)
(1) Net earnings during the fourth quarter of 2009 include a reversal of the Company’s deferred tax asset
valuation allowance of $351.8 million.
(2) Net loss during the fourth quarter of 2008 includes a $730.8 million valuation allowance recorded against
the Company’s deferred tax assets.
Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum
of per share amounts for the quarters may not agree with per share amounts for the year.
112
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer participated in an evaluation by our management
of the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter that ended on
November 30, 2009. Based on their participation in that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures were effective as of November 30, 2009 to ensure that information required to
be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules
and forms, and to ensure that information required to be disclosed in our reports filed or submitted under the
Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and
CFO, as appropriate to allow timely decisions regarding required disclosures.
Our CEO and CFO also participated in an evaluation by our management of any changes in our internal
control over financial reporting that occurred during the quarter ended November 30, 2009. That evaluation did
not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting and the Report of Independent
Registered Public Accounting Firm obtained from Deloitte & Touche LLP relating to the effectiveness of Lennar
Corporation’s internal control over financial reporting are included elsewhere in this document.
Item 9B. Other Information.
Not applicable.
113
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item for executive officers is set forth under the heading “Executive
Officers of Lennar Corporation” in Part I. The other information called for by this item is incorporated by
reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission
not later than March 30, 2010 (120 days after the end of our fiscal year).
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to our definitive proxy statement, which
will be filed with the Securities and Exchange Commission not later than March 30, 2010 (120 days after the end
of our fiscal year).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The information required by this item is incorporated by reference to our definitive proxy statement, which
will be filed with the Securities and Exchange Commission not later than March 30, 2010 (120 days after the end
of our fiscal year), except for the information required by Item 201(d) of Regulation S-K, which is provided
below.
The following table summarizes our equity compensation plans as of November 30, 2009:
Plan category
Number of shares to
be issued upon
exercise of
outstanding options,
warrants and rights
(a)(1)
Weighted- average
exercise price of
outstanding options,
warrants and rights
(b)
Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))
(c)(2)
Equity compensation plans approved by
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,395,105
Equity compensation plans not approved by
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,395,105
$29.37
—
$29.37
3,361,621
—
3,361,621
(1) This amount includes approximately 31,100 shares of Class B common stock that may be issued under our
equity compensation plans.
(2) Both Class A and Class B common stock may be issued.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to our definitive proxy statement, which
will be filed with the Securities and Exchange Commission not later than March 30, 2010 (120 days after the end
of our fiscal year).
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to our definitive proxy statement, which
will be filed with the Securities and Exchange Commission not later than March 30, 2010 (120 days after the end
of our fiscal year).
114
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Documents filed as part of this Report.
1.
The following financial statements are contained in Item 8:
Financial Statements
Page in
this Report
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of November 30, 2009 and 2008 . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended November 30, 2009,
2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended
November 30, 2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended November 30,
2009, 2008 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
66
67
68
70
72
2.
The following financial statement schedule is included in this Report:
Financial Statement Schedule
Page in
this Report
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . .
120
121
Information required by other schedules has either been incorporated in the consolidated financial
statements and accompanying notes or is not applicable to us.
3.
The following exhibits are filed with this Report or incorporated by reference:
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.4
Amended and Restated Certificate of Incorporation, dated April 28, 1998—Incorporated by
reference to Exhibit 3(a) of the Company’s Annual Report on Form 10-K for the fiscal year
ended November 30, 2004.
Certificate of Amendment to Certificate of Incorporation, dated April 9, 1999—
Incorporated by reference to Exhibit 3(a) of the Company’s Annual Report on Form 10-K
for the fiscal year ended November 30, 1999.
Certificate of Amendment to Certificate of Incorporation, dated April 8, 2003—
Incorporated by reference to Annex IV of the Company’s Proxy Statement on Schedule
14A dated March 10, 2003.
Certificate of Amendment to Certificate of Incorporation, dated April 8, 2008—
Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K,
dated April 8, 2008.
Bylaws of the Company, as amended through June 28, 2005—Incorporated by reference to
Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
May 31, 2005.
Amendment to Section 3.3 of the Bylaws of the Company, dated April 8, 2008—
Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K,
dated April 8, 2008.
Indenture, dated as of December 31, 1997, between Lennar and Bank One Trust Company,
N.A., as trustee—Incorporated by reference to Exhibit 4 of the Company’s Registration
Statement on Form S-3, Registration No. 333-45527, filed with the Commission on
February 3, 1998.
Sixth Supplemental Indenture, dated February 5, 2003, between Lennar and Bank One Trust
Company, N.A., as trustee (relating to 5.950% Senior Notes due 2013)—Incorporated by
reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, dated January 31,
2003.
115
4.5
4.6
4.7
4.8
4.9
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
10.12
Indenture, dated August 12, 2004, between Lennar and J.P. Morgan Trust Company,
N.A., as trustee (relating to Lennar’s 5.50% Senior Notes due 2014)—Incorporated by
reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-4,
Registration No. 333-121130, filed with the Commission on December 10, 2004.
Indenture, dated April 28, 2005, between Lennar and J.P. Morgan Trust Company, N.A.,
as trustee (relating to Lennar’s 5.60% Senior Notes due 2015)—Incorporated by
reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-4,
Registration No. 333-127839, filed with the Commission on August 25, 2005.
Indenture, dated September 15, 2005, between Lennar and J.P. Morgan Trust Company,
N.A., as trustee (relating to Lennar’s 5.125% Senior Notes due 2010)—Incorporated by
reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-4,
Registration No. 333-130923, filed with the Commission on January 9, 2006.
Indenture, dated April 26, 2006, between Lennar and J.P. Morgan Trust Company, N.A.,
as trustee (relating to Lennar’s 5.95% Senior Notes due 2011)—Incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated
April 26, 2006.
Indenture, dated April 26, 2006, between Lennar and J.P. Morgan Trust Company, N.A.,
as trustee (relating to Lennar’s 6.50% Senior Notes due 2016)—Incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, dated
April 26, 2006.
Amended and Restated Lennar Corporation 1997 Stock Option Plan—Incorporated by
reference to Exhibit 10(a) of the Company’s Annual Report on Form 10-K for the fiscal
year ended November 30, 1997.
Lennar Corporation 2000 Stock Option and Restricted Stock Plan—Incorporated by
reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended February 28, 2001.
Lennar Corporation 2003 Stock Option and Restricted Stock Plan—Incorporated by
reference to Annex VI of the Company’s Proxy Statement on Schedule 14A dated
March 10, 2003.
Lennar Corporation 2007 Equity Incentive Plan—Incorporated by reference to Exhibit
A of the Company’s Proxy Statement on Schedule 14A dated February 28, 2007.
Lennar Corporation 2007 Incentive Compensation Plan—Incorporated by reference to
Exhibit B of the Company’s Proxy Statement on Schedule 14A dated February 28, 2007.
Lennar Corporation Employee Stock Ownership Plan and Trust—Incorporated by reference
to the Company’s Registration Statement on Form S-8, Registration No. 2-89104.
Amendment dated December 13, 1989 to Lennar Corporation Employee Stock
Ownership Plan—Incorporated by reference to the Company’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1990.
Lennar Corporation Employee Stock Ownership/401(k) Trust Agreement dated
December 13, 1989—Incorporated by reference to the Company’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1990.
Amendment dated April 18, 1990 to Lennar Corporation Employee Stock
Ownership/401(k) Plan—Incorporated by reference to the Company’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1990.
Lennar Corporation Nonqualified Deferred Compensation Plan—Incorporated by
reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the
quarter ended August 31, 2002.
Credit Agreement dated July 21, 2006 among Lennar, the lenders named therein and
JPMorgan Chase Bank, N.A., as Administrative Agent—Incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated July 21, 2006.
First Amendment to Credit Agreement dated August 21, 2007 among Lennar, the
lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent—
Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on
Form 8-K, dated August 21, 2007.
116
10.13
10.14
10.15
10.16
10.17
10.18*
10.19*
10.20
10.21
10.22
10.23
10.24
10.25
Second Amendment to Credit Agreement dated January 23, 2008 among Lennar, the
lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent—
Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K,
dated January 23, 2008.
Amended and Restated Loan Agreement dated September 25, 2006 between UAMC
Capital, LLC, the lenders named therein and Calyon New York Branch, as Administrative
Agent—Incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on
Form 10-K for the fiscal year ended November 30, 2006.
First Omnibus Amendment dated as of June 29, 2007 to Amended and Restated Loan
Agreement dated September 25, 2006 between UAMC Capital, LLC, the lenders named
therein and Calyon New York Branch, as Administrative Agent—Incorporated by
reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter
ended August 31, 2007.
Second Omnibus Amendment dated as of August 20, 2007 to Amended and Restated Loan
Agreement dated September 25, 2006 between UAMC Capital, LLC, the lenders named
therein and Calyon New York Branch, as Administrative Agent—Incorporated by
reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter
ended August 31, 2007.
Third Omnibus Amendment and Waiver dated as of January 23, 2008 to Amended and
Restated Loan Agreement dated September 25, 2006 between UAMC Capital, LLC, the
lenders named therein and Calyon New York Branch, as Administrative Agent—
Incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on
Form 10-K for the fiscal year ended November 30, 2007.
Aircraft Time-Sharing Agreement, dated August 17, 2005, between U.S. Home
Corporation and Stuart Miller—Incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K, dated August 17, 2005.
Amendment No. 1 to Aircraft Time-Sharing Agreement, dated September 1, 2005,
between U.S. Home Corporation and Stuart Miller—Incorporated by reference to
Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the fiscal year ended
November 30, 2005.
Third Amended and Restated Warehousing Credit and Security Agreement dated April 30,
2006, by and among, Universal American Mortgage Company, LLC, the other Borrowers
named in the agreement, the Lender Parties named in the agreement and Residential
Funding Corporation—Incorporated by reference to Exhibit 10.18 of the Company’s
Annual Report on Form 10-K for the fiscal year ended November 30, 2006.
Master Issuing and Paying Agency Agreement, dated March 29, 2006, between Lennar
Corporation and JPMorgan Chase Bank, N.A.—Incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K, dated March 29, 2006.
Contribution and Formation Agreement, dated as of December 28, 2006, by and among
LandSource Communities Development, LLC, the Existing Members named in the
agreement and MW Housing Partners III, L.P.—Incorporated by reference to Exhibit 10.1
of the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28,
2007.
Membership Interest Purchase Agreement, dated as of November 30, 2007, by and among
Lennar, Lennar Homes of California, Inc., the Sellers named in the agreement and MS
Rialto Residential Holdings, LLC.—Incorporated by reference to Exhibit 10.23 of the
Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007.
Fourth Omnibus Amendment, dated as of February 28, 2008 to Amended and Restated
Loan Agreement dated September 25, 2006 between UAMC Capital, LLC, the lenders
names therein and Calyon New York Branch, as Administrative Agent—Incorporated by
reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter
ended February 29, 2008.
Third Amendment to Credit Agreement, dated as of November 7, 2008 among Lennar, the
lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent—
Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K,
dated November 13, 2008.
117
10.26
10.27
10.28
10.29
21
23
31.1
31.2
32
Indenture, dated April 30, 2009, between Lennar and The Bank of New York Mellon, as
trustee (relating to Lennar’s 12.25% Senior Notes due 2017)—Incorporated by reference
to Exhibit 99.1 of the Company’s Current Report on Form 8-K, dated April 30, 2009.
Distribution Agreement, dated April 20, 2009, between Lennar and J.P. Morgan Securities,
Inc., as agent (relating to sales by the Company of its Class A common stock)—
Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K,
dated April 20, 2009.
Distribution Agreement, dated April 20, 2009, between Lennar and Citigroup Capital
Markets Inc., as agent (relating to sales by the Company of its Class A common stock)—
Incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K,
dated April 20, 2009.
Distribution Agreement, dated April 20, 2009, between Lennar and Merrill Lynch, Pierce,
Fenner & Smith Incorporated., as agent (relating to sales by the Company of its Class A
common stock)—Incorporated by reference to Exhibit 99.3 of the Company’s Current
Report on Form 8-K, dated April 20, 2009.
List of subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14a/15d-14(a) Certification of Stuart A. Miller.
Rule 13a-14a/15d-14(a) Certification of Bruce E. Gross.
Section 1350 Certifications of Stuart A. Miller and Bruce E. Gross.
* Management contract or compensatory plan or arrangement.
118
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LENNAR CORPORATION
/s/
STUART A. MILLER
Stuart A. Miller
President, Chief Executive Officer and Director
Date: January 29, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Principal Executive Officer:
Stuart A. Miller
President, Chief Executive Officer and
/s/
Date:
STUART A. MILLER
January 29, 2010
Director
Principal Financial Officer:
Bruce E. Gross
Vice President and Chief Financial Officer
/s/
Date:
BRUCE E. GROSS
January 29, 2010
Principal Accounting Officer:
David M. Collins
Controller
Directors:
Irving Bolotin
Steven L. Gerard
Sherrill W. Hudson
R. Kirk Landon
Sidney Lapidus
Donna Shalala
Jeffrey Sonnenfeld
DAVID M. COLLINS
January 29, 2010
IRVING BOLOTIN
January 29, 2010
STEVEN L. GERARD
January 29, 2010
SHERRILL W. HUDSON
January 29, 2010
R. KIRK LANDON
January 29, 2010
SIDNEY LAPIDUS
January 29, 2010
DONNA SHALALA
January 29, 2010
JEFFREY SONNENFELD
January 29, 2010
/s/
Date:
/s/
Date:
/s/
Date:
/s/
Date:
/s/
Date:
/s/
Date:
/s/
Date:
/s/
Date:
119
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Lennar Corporation
We have audited the consolidated financial statements of Lennar Corporation and subsidiaries (the
“Company”) as of November 30, 2009 and 2008, and for each of the three years in the period ended
November 30, 2009, and the Company’s internal control over financial reporting as of November 30, 2009, and
have issued our reports thereon dated January 29, 2010; such consolidated financial statements and reports are
included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of
the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the
Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Certified Public Accountants
Miami, Florida
January 29, 2010
120
LENNAR CORPORATION AND SUBSIDIARIES
Schedule II—Valuation and Qualifying Accounts
Years Ended November 30, 2009, 2008 and 2007
Additions
Beginning
balance
Charged to
costs and
expenses
Charged
(credited)
to other
accounts
(In thousands)
Deductions
Ending
balance
Description
Year ended November 30, 2009
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts and notes
and other receivables . . . . . . . . . . . . . . . . .
$ 33,952
28,105
(14)
(50,333)
11,710
Allowance for loan losses . . . . . . . . . . . . . . . .
$ 20,384
4,107
(5,384)
(11,663)
7,444
Allowance against net deferred tax assets . . .
$730,836
269,568
—
(353,019) 647,385
Year ended November 30, 2008
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts and notes
and other receivables . . . . . . . . . . . . . . . . .
$ 18,750
17,584
Allowance for loan losses . . . . . . . . . . . . . . . .
$ 11,145
14,696
Allowance against net deferred tax assets . . .
$ — 730,836
—
—
—
(2,382)
33,952
(5,457)
20,384
— 730,836
Year ended November 30, 2007
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts and notes
and other receivables . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . .
$
$
3,782
1,810
18,260
—
(3,292)
18,750
31,596
4,310
(26,571)
11,145
121
Exhibit 31.1
CHIEF EXECUTIVE OFFICER’S CERTIFICATION
I, Stuart A. Miller, certify that:
1. I have reviewed this annual report on Form 10-K of Lennar Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: January 29, 2010
Name: Stuart A. Miller
Title: President and Chief Executive Officer
122
Exhibit 31.2
CHIEF FINANCIAL OFFICER’S CERTIFICATION
I, Bruce E. Gross, certify that:
1. I have reviewed this annual report on Form 10-K of Lennar Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: January 29, 2010
Name: Bruce E. Gross
Title: Vice President and Chief Financial Officer
123
Officers’ Section 1350 Certifications
Exhibit 32
Each of the undersigned officers of Lennar Corporation, a Delaware corporation (the “Company”), hereby certifies that (i) the
Company’s Annual Report on Form 10-K for the year ended November 30, 2009 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Company’s Annual Report on
Form 10-K for the year ended November 30, 2009 fairly presents, in all material respects, the financial condition and results of
operations of the Company, at and for the periods indicated.
Name: Stuart A. Miller
Title: President and Chief Executive Officer
Date: January 29, 2010
Name: Bruce E. Gross
Title: Vice President and Chief Financial Officer
124
LENNAR CORPORATION AND SUBSIDIARIES
STOCKHOLDER INFORMATION
Annual Meeting
The Annual Stockholders’ Meeting will be
held at 11:00 a.m. on Wednesday, April 14, 2010
at Lennar Corporation,
700 Northwest 107th Avenue, Second Floor
Miami, Florida 33172
Registrar and Transfer Agent
Computershare Investor Services
P.O. Box 43078
Providence, Rhode Island 02940
Listing
New York Stock Exchange (LEN, LEN.B)
Corporate Counsel
K&L Gates LLP
599 Lexington Avenue
New York, New York 10022
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 South Biscayne Boulevard, Suite 400
Miami, Florida 33131