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, 20032005

 

Commission file number 1-11749

 


 

LENNAR CORPORATIONLennar Corporation

(Exact name of registrant as specified in its charter)

 

Delaware 95-4337490

(State or other jurisdiction of

(I.R.S. Employer
incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (305) 559-4000


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class


 

Name of each exchange on which registered


Class A Common Stock, par value 10¢

 New York Stock Exchange

Class B Common Stock, par value 10¢

 New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:

 

NONE


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  þ  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  þ

 

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  þ  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.  þ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   þAccelerated filer  ¨Non-accelerated filer  ¨

 

Indicate by check mark whether the registrant is an accelerated filera shell company (as defined in Rule 12b-2 of the Act).    YES  ¨   NO  þ  NO  ¨

 

The aggregate market value of the registrant’s Class A and Class B common stock held by non-affiliates of the registrant (108,781,312(118,606,859 Class A shares and 10,904,06011,248,552 Class B shares) as of May 31, 2003 (adjusted for the registrant’s two-for-one stock split in January 2004),2005, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $4,002,093,239.$7,484,881,075.

 

As of January 31, 2004,2006, the registrant had outstanding 122,988,592125,989,769 shares of Class A common stock and 32,524,46232,823,187 shares of Class B common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

Related Section


 

Documents



III

 Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 29, 2004.30, 2006.

 



PART I

 

Item 1.    Business.

 

General DevelopmentOverview of BusinessLennar Corporation

 

We are one of the nation’s largest homebuilders and a provider of financial services. Our homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through our unconsolidated partnerships.entities in which we have investments. Our financial services subsidiariesoperations provide mortgage financing, title insurance, closing services and insurance agency services for both buyers of our homes and others, andothers. We sell substantially all of the loans theythat we originate in the secondary mortgage market. These subsidiariesThrough our financial services operations, we also provide high-speed Internet access,and cable television and alarm installation and monitoring services to residents of communities we develop and to others. For financial information about both our homebuilding and financial services operating segments, you should review our consolidated financial statements and the notes to our consolidated financial statements, which are included in Item 8 of this document.

 

The following is a summaryA Brief History of our growth history:Our Growth

 

1954

1954:

  FoundedWe were founded as a local Miami homebuilder.
1969

1969:

  BeganWe began developing, owning and managing commercial and multi-family residential real estate.
1971

1971:

  CompletedWe completed our initial public offering.
1972

1972:

  EnteredOur common stock was listed on the New York Stock Exchange. We also entered the Arizona homebuilding market.
1986

1986:

  AcquiredWe acquired Development Corporation of America in Florida.
1991

1991:

  EnteredWe entered the Texas homebuilding market.
1992

1992:

  MateriallyWe expanded our commercial operations by acquiring, through a joint venture, an AmeriFirsta portfolio of loans, mortgages and properties from the Resolution Trust Corporation.
1995

1995:

  EnteredWe entered the California homebuilding market through the acquisition of Bramalea California, Inc.
1996

1996:

  ExpandedWe expanded in California through ourthe acquisition of Renaissance Homes, Inc.,and significantly expanded our operations in Texas with the acquisitions of the assets and operations of both Houston-based Village Builders and Friendswood Development Company, and acquired Regency Title in Texas.Title.
1997

1997:

  CompletedWe completed the spin-off of our commercial real estate investment business to LNR Property Corporation. We continued our expansion in California through homesite acquisitions and investments in unconsolidated partnership investments.entities. We also acquired Pacific Greystone Corporation, which further expanded our operations in California and Arizona and brought us into the Nevada homebuilding market.
1998

1998:

  AcquiredWe acquired the properties of two California homebuilders, ColRich Communities and Polygon Communities, acquired a Northern California homebuilder, Winncrest Homes, and acquired North American Title with operations in Arizona, California and Colorado.
1999

1999:

  AcquiredWe acquired Eagle Home Mortgage with operations in Nevada, Oregon and Washington and Southwest Land Title in Texas.
2000

2000:

  AcquiredWe acquired U.S. Home Corporation, which expanded our operations into New Jersey, Maryland, Virginia, Minnesota, Ohio and Colorado and strengthened our position in other states, andstates. We expanded our title operations in Texas through the acquisition of Texas Professional Title.
2002

2002:

  AcquiredWe acquired Patriot Homes, Sunstar Communities, Don Galloway Homes, Genesee Company, Barry Andrews Homes, Cambridge Homes, Pacific Century Homes, Concord Homes and Summit Homes, which expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our position in several of our existing markets. We also acquired Sentinel Title with operations in Maryland and Washington, D.C.
2003

2003:

  AcquiredWe acquired Seppala Homes and Coleman Homes, which expanded our operations in South Carolina and California. We also acquired Mid America Title in Illinois.

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2004

2004:

  AcquiredWe acquired The Newhall Land and Farming Company through an unconsolidated entity of which we and LNR Property Corporation each ownsown 50%. We expanded into the San Antonio, Texas homebuilding market by acquiring the operations of Connell-Barron Homes and entered the Jacksonville, Florida homebuilding market by acquiring the operations of Classic American Homes. Through acquisitions, we also expanded our mortgage operations in Oregon and Washington. We expanded our title and closing operations into Minnesota through the acquisition of Title Protection, Inc.

2005:

We entered the metropolitan New York City and Boston markets by acquiring, directly and through a joint venture, rights to develop a portfolio of properties in New Jersey facing mid-town Manhattan and waterfront properties near Boston. We also entered the Reno, Nevada market and then expanded in Reno through the acquisition of Barker Coleman. We expanded our presence in Jacksonville through the acquisition of Admiral Homes.

 

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Financial Information about Operating SegmentsHomebuilding Operations

 

We have two operating segments—homebuilding and financial services. The financial information related to these operating segments is contained in Item 8.Overview

 

Narrative DescriptionWe primarily sell single-family attached and detached homes, and to a lesser extent, condominiums, in communities targeted to first-time, move-up and active adult homebuyers. The average sales price of Business

HOMEBUILDING

Undera Lennar home was $311,000 in fiscal 2005. We operate primarily under the Lennar Family of Builders banner, we operate using the following brand names: Lennar Homes,and U.S. Home Greystone Homes, Village Builders, Renaissance Homes, Orrin Thompson Homes, Lundgren Bros., Winncrest Homes, Patriot Homes, NuHome, Barry Andrews Homes, Concord Homes, Summit Homes, Cambridge Homes, Coleman Homesbrand names, which incorporate our Everything’s Included® and Rutenberg Homes. Our active adult communities are primarily marketed under the Heritage and Greenbriar brand names.Design StudioSM programs.

 

Through our own efforts and unconsolidated partnershipsentities in which we have interests,investments, we are involved in all phases of planning and building in our residential communities including land acquisition, site planning, preparation and improvement of land and design, construction and marketing of homes. We subcontract virtually all aspectsview unconsolidated entities as a means to both expand our market opportunities and manage our risks. For additional information about our unconsolidated entities, see Management’s Discussion and Analysis of developmentFinancial Condition and construction.Results of Operations in Item 7.

 

We primarily sell single-family attached and detached homes. The homes are targeted primarily to first-time, move-up and active adult homebuyers. The average sales price of a Lennar home was $256,000 in fiscal 2003.

Current Homebuilding Activities

   Homes Delivered in the Years
Ended November 30,


Region


  2003

  2002

  2001

East Region

  10,348  9,296  8,175

Central Region

  9,993  7,766  7,056

West Region

  11,839  10,331  8,668
   
  
  

Total

  32,180  27,393  23,899
   
  
  

Of the deliveries listed above, 768, 568 and 795 deliveries relate to unconsolidated partnerships for the years ended November 30, 2003, 2002 and 2001, respectively.

At November 30, 2003, our market regions consisted of homebuilding divisions in the following states:East: Florida, Maryland, Virginia, New Jersey, North Carolina and South Carolina.Central: Texas, Illinois and Minnesota.West: California, Colorado, Arizona and Nevada.

Management and Operating Structure

 

We balance a local operating structure with centralized corporate level management. Our local managers, who generally have significant experience both in the homebuilding industry generally and, in most instances, in their particular markets, are responsible for operating decisions regarding land identification, joint ventures, community development, home design, construction and marketing. 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.

 

We view unconsolidated partnerships and similar entities as a means to both expand our market opportunities and manage our risk. For additional information about our unconsolidated partnerships, see Management’s Discussion and AnalysisDiversified Program of Financial Condition and Results of Operations in Item 7.

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Property Acquisition

 

In our homebuilding operations, we generally acquire land for development and for the construction of homes whichthat we sell to homebuyers. We also sell land to third parties. Land acquisitions areis subject to strict underwriting criteria and may be madeis acquired through our diversified program of property acquisition consisting of the following:

Acquiring land directly from individual land sellers or homebuilders,

Acquiring local or regional homebuilders that own, or have options on, land in strategic markets,

Acquiring large parcels of land through partnerships with other entities. Through unconsolidated partnerships,joint ventures, where we reduce and share our risk as well as(using primarily non-recourse debt) by limiting the amountsamount of our capital invested in owned land, and increasewhile increasing our access to other land. Partnerships also, in some instances, help us acquire land to which we could not obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner.

potential future homesites, and

 

In some instances, we acquire

Acquiring land through option contracts, which generally enables us to defer acquiring portions of properties owned by third parties (including land funds) and unconsolidated partnershipsentities until we are ready to build homes on them. This reduces our financial risk associated

2


The table below indicates the number of homesites owned and homesites to which we had access through option contracts with land holdings. Mostthird parties (“optioned”) or unconsolidated joint ventures in which we have investments (“JVs”) (i.e., controlled homesites) for each of our land is not subject to mortgages; however, the majority of land acquired by partnerships is subject to purchase money mortgages. We generally do not acquire land for speculation. market regions at November 30, 2005 and 2004:

      Controlled

   

November 30, 2005


  Owned

  Optioned

  JVs

  Total

East

  42,407  67,339  16,777  126,523

Central

  25,388  15,543  19,604  60,535

West

  34,892  44,131  58,725  137,748
   
  
  
  

Total

  102,687  127,013  95,106  324,806
   
  
  
  
      Controlled

   

November 30, 2004


  Owned

  Optioned

  JVs

  Total

East

  23,559  47,474  18,487  89,520

Central

  24,355  24,060  14,916  63,331

West

  39,826  22,380  41,010  103,216
   
  
  
  

Total

  87,740  93,914  74,413  256,067
   
  
  
  

At November 30, 2003, we owned approximately 74,000 homesites2005, our market regions consisted of homebuilding divisions located in the following states:East: Florida, Maryland, Delaware, Virginia, New Jersey, New York, North Carolina and had access to an additional 135,000 homesites through option contracts or our unconsolidated partnerships.

ConstructionSouth Carolina.Central: Texas, Illinois and DevelopmentMinnesota.West: California, Colorado, Arizona and Nevada.

 

Construction and Development

We generally supervise and control the development of the land and the design and building of our residential communities. We hire subcontractors for site improvements and virtually all of the work involved in the construction of homes. In almost all instances, theGenerally, arrangements with our subcontractors commit theprovide that our subcontractors towill complete specified work in accordance with written price schedules. These price schedules normallyand applicable building codes and laws. The price schedules may be subject to change to meet changes in labor and material costs.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, and onlywe have a relatively small labor force used to supervise land development and construction of homes and perform routine maintenance and minor amounts of other work. We generally finance construction and land development activities primarily with cash generated from operations and public debt issuances, as well as from borrowingscash borrowed under our working capital lines and issuances of public debt.revolving credit facility.

 

Marketing

 

We offer a diversified line of homes for first-time, move-up and active adult homebuyers. With homes priced from under $100,000 to above one million dollars$1,000,000 and available in a variety of environments ranging from urban infill communities to golf course communities, we are focused on providing homes for a wide spectrum of buyers. Our unique dual marketing strategies of Everything’s Included® and Design StudioSM programs provide customers with the flexibility to choose how they would like to purchase their new home. In our Everything’s Included® homes,program, we make the homebuying experience simple by including desirable, top-of-the-line features as standard items. In our Design StudioSM homes,program, we provide an individualized homebuying experience and personalized design consultation in our design studios, offering a diverse selection ofmarket targeted upgrades and options for a new home. We sell our homes primarily from models that we have designed and constructed.

 

We employ sales associates who are paid salaries, commissions or both to makecomplete on-site sales of homes. We also sell homes through independent brokers. We advertise our communities in newspapers and other local and regional publications, on billboards and through our web site,website, www.lennar.com. TheOur website allows homebuyers to search for homes with specific design criteria in their price range and desired location. In addition, we advertise our active adult communities in areas where prospective active adult homebuyers live.

 

Our business is somewhat seasonal, with signings of new home sales contracts being strongest in the late winter and spring, resulting in the strongest home deliveries (and therefore, strongest home sales revenues) in the late summer and fall (our third and fourth fiscal quarters).

For a small percentage of our homebuyers (generally less than 5% of our deliveries), weWe have participated in charitable down-payment assistance programs.programs for a small percentage of our homebuyers. Through these programs, we make a donation to a non-profit organization that provides financial assistance to a homebuyer, who would not otherwise have sufficient funds for a down payment.

 

Quality Service

 

We strive to continually improve customer satisfaction by employing a process which is intended to provide a positive experience for each homeowner throughout the pre-sale, sale, building,construction, closing and post-closing periods. Through the participation of sales associates, on-site construction

 

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periods. The participation of sales associates, on-site construction supervisors and post-closing customer care associates, all working in a team effort, is intendedwe strive to fostercreate a quality homebuilding experience for our reputation for quality service and ultimately leadcustomers, which we believe leads to enhanced customer retention and referrals.

 

The quality of our homes is affected substantially moreaffected by the efforts of on-site management and others engaged in the construction process, than it is by the materials we use in particular homes or by other similar factors. Currently, most management team members’ bonus plans are, in part, contingent upon achieving certain customer satisfaction.satisfaction standards.

 

We have a “Heightened Awareness” program, which is a focused initiative designed to objectively evaluate and measure the quality of construction in our communities. The purpose of this program is to ensure that the homes delivered to our customers meet our high standards.standards of quality and value. Our communities are inspected and reviewed on a periodic basis by one of our trained associates. This program is an example of our commitment to provide the finestquality homes to our customers. In addition to our “Heightened Awareness” program, we have a quality assurance program in certain markets where we employ third-party consultants to inspect our homes during the construction process. These inspectors provide us with documentation of all inspection reports and follow-up verification. We also obtain independent surveys of selected customers through a third-party consultant and use the survey results to further improve our standard of quality and customer satisfaction.

 

CompetitionWe warrant our new homes against defective material 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 trade, we are primarily responsible to correct any deficiencies.

Deliveries

 

The housing industrytable below indicates the number of deliveries for each of our market regions during our last three fiscal years:

Region


  2005

  2004

  2003

East

  12,467  11,323  10,348

Central

  13,074  11,122  9,993

West

  16,818  13,759  11,839
   
  
  

Total

  42,359  36,204  32,180
   
  
  

Of the total home deliveries listed above, 1,477, 1,015 and 768, respectively, represent deliveries from unconsolidated entities for the years ended November 30, 2005, 2004 and 2003.

Backlog

Backlog represents the number of homes under sales contracts. Substantially all of the homes currently in backlog are expected to be delivered during fiscal 2006. 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 are unable to close on the sale of their existing home, fail to qualify for financing or under certain other circumstances. We experienced a cancellation rate of 17% in 2005, compared to 16% and 20%, respectively, in 2004 and 2003. Although cancellations can delay the sales of our homes, they have not had a material impact on sales, operations or liquidity because we closely monitor our prospective buyers’ ability to obtain financing and use that information to adjust construction start plans to match anticipated deliveries of homes. 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 mid-to-high-rise condominiums under construction for which revenue is highly competitive. Inrecognized under percentage-of-completion accounting.

The table below indicates the backlog dollar value for each of our activities, we compete with numerous developers and buildersmarket regions as of various sizes, both national and local, who are buildingthe end of our last three fiscal years:

Region


  2005

  2004

  2003

   (In thousands)

East

  $2,931,247  2,177,884  1,526,970

Central

   775,505  633,703  558,919

West

   3,177,486  2,243,686  1,801,411
   

  
  

Total

  $6,884,238  5,055,273  3,887,300
   

  
  

Of the dollar value of homes in backlog listed above, $590,129, $644,839 and near$367,855, respectively, represent the areas where our communities are located. Competition is on the basis of location, design, quality, amenities, price, servicebacklog dollar value from unconsolidated entities at November 30, 2005, 2004 and reputation. Sales of existing homes also provide significant competition. Some of our principal national competitors include Beazer Homes USA, Inc., Centex Corporation, D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, M.D.C. Holdings, Inc., NVR, Inc., Pulte Homes, Inc., Standard Pacific Corp., The Ryland Group, Inc. and Toll Brothers, Inc.2003.

 

As of December 31, 2005 and 2004, the backlog dollar value was $6.7 billion and $5.1 billion, respectively, of which $0.5 billion and $0.7 billion, respectively, represent the backlog dollar value from unconsolidated entities.

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FINANCIAL SERVICESFinancial Services Operations

 

Mortgage Financing

 

We provide a full spectrum of conventional, FHA-insured and VA-guaranteed, first and second lien residential mortgage loan products to our homebuyers and others through our financial services subsidiaries, Universal American Mortgage Company, LLC and Eagle Home Mortgage, Inc., located in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, South Carolina, Texas, Virginia and Washington.the same states as our homebuilding divisions, as well as other states. In 2003,2005, our financial services subsidiaries provided loans to approximately 72%66% of our homebuyers who obtained mortgage financing from us in areas where we offered services for the entire year.services. Because of the availability of mortgage loans from our financial services subsidiaries, as well as independent mortgage lenders, we believe access to financing has not been, and is not, a significant obstacle for most purchasers of our homes.

 

During 2003,2005, we originated approximately 41,00042,300 mortgage loans totaling $7.6$9.5 billion. We sellSubstantially all of the loans we originate are sold in the secondary mortgage market on a servicing released, non-recourse basis. basis; however, we remain liable for customary representations and warranties related to loan sales.

We have a corporate risk management policy under which we hedge our interest rate risk on rate lockedrate-locked loan commitments and loans held for sale againstheld-for-sale to mitigate exposure to interest rate fluctuations. We finance our mortgage loan activities with borrowings under our financial services subsidiaries’ warehouse lines of credit or from our general corporate funds.

 

Title Insurance, Closing Services and Insurance Agency Services

 

We provide closing servicestitle insurance and title insuranceand closing services to our homebuyers and others. We provided title and closing services for approximately 245,000187,700 real estate transactions and issued 175,000approximately 193,900 title insurance policies during 20032005 through subsidiaries of North American Title Group, Inc. ClosingTitle and closing services are provided by agency subsidiaries in Arizona, California, Colorado, District of Columbia, Florida, Illinois, Maryland, Minnesota, Nevada, Pennsylvania, Texas, Virginia and Virginia.Wisconsin. Title insurance underwriting is provided by North American Title Insurance Corporation in the District of Columbia, Florida, Illinois, Maryland, Texas and Texas,Virginia and North American Title Insurance Company in Arizona, California, Colorado and Nevada provide title insurance underwriting.Nevada.

 

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We provide our homebuyers and others with personal lines, property and casualty insurance products through our insurance agency subsidiary, Universal American Insurance Agency, Inc., forwhich operates in the same states as our homebuyers and others in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, North Carolina, South Carolina, Texas and Virginia.homebuilding divisions, as well as other states. During 2003,2005, we issued, as agent, approximately 8,50014,200 new homeowner policies and renewed approximately 4,60018,500 homeowner policies.

 

Strategic TechnologiesCommunication Services

 

Our subsidiary, Strategic Technologies, Inc.,Lennar Communications Ventures oversees our interests and activities in relationships with providers of advanced communication services, and through its subsidiaries provides broadband services includingcable television and high-speed Internet access, as well as alarm installation and monitoring services to residents of our communities and others. At November 30, 2003,December 31, 2005, we had approximately 6,000 broadband12,400 subscribers across Texas, California and approximately 14,000 alarm monitoring customers in Florida and California.Florida.

 

RELATIONSHIP WITHSeasonality

We have historically experienced variability in our results of operations from quarter-to-quarter due to the seasonal nature of the homebuilding business. We typically experience the highest rate of orders for new homes in the first half of the calendar year, although the rate of orders for our new homes is highly dependent on the number of active communities and the timing of new community openings. We typically have a greater percentage of new home deliveries in the second half of our fiscal year compared to the first half because new home deliveries trail orders for new homes by several months. As a result, our revenues and operating earnings from sales of homes are generally higher in the second half of our fiscal year.

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. 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

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homebuilders and others. We believe we are competitive in the market regions where we operate primarily due to our:

Excellent land position, particularly in land-constrained markets, where we have increased the number of homesites we own or control;

Strong presence in some of the fastest growing homebuilding markets in the United States; and

Balance sheet, where we continue to focus on liquidity while maintaining a strong capital structure.

Our financial services operations compete with other mortgage lenders, including national, regional and local mortgage bankers and brokers, 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 insurance agencies, including national, regional and local insurance agencies, in the sale of homeowner insurance and related insurance services. Principal competitive factors include cost and other features of insurance products available to the consumer. We compete with other escrow companies and other title insurance agencies for closing services and title insurance. Principal competitive factors include service and price. We compete with other communication service providers in the sale of high-speed Internet and cable television services. Principal competitive factors include price, quality, service and availability.

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, building design and property elevation, building codes and handling of waste. These include laws requiring the use of construction materials that reduce the need for energy-consuming heating and cooling systems. These laws and regulations are subject to frequent change and often increase construction costs. In some instances, we must comply with laws that require commitments from us to provide roads and other offsite infrastructure to be in place prior to the commencement of new construction. These laws and regulations are usually administered by counties and municipalities and may result in fees and assessments or building moratoriums. In addition, certain new development projects are subject to assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial.

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 those homes 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 buyers (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 adhere to the laws governing the practices of real estate agents.

6


Our personal lines insurance and title subsidiaries must comply with applicable insurance laws and regulations. Our mortgage financing subsidiaries and title agencies must comply with applicable real estate lending laws and regulations.

Our mortgage banking and insurance subsidiaries are licensed in the states in which they do business and must comply with laws and regulations in those states regarding mortgage banking and applicable types of insurance companies. These laws and regulations include provisions regarding capitalization, operating procedures, investments, lending and privacy disclosures, forms of policies and premiums.

Our cable subsidiary is generally required to both secure a franchise agreement with each locality in which it operates and to satisfy requirements of the Federal Communications Commission in the ordinary conduct of its business.

A subsidiary of The Newhall Land and Farming Company, of which we indirectly own 50%, provides water to a portion of Los Angeles County, California. This subsidiary is subject to extensive regulation by the California Public Utilities Commission.

Employees

At December 31, 2005, we employed 13,687 individuals of whom 9,765 were involved in our homebuilding operations and 3,922 were involved in our financial services operations. We believe our relations with our employees are good. We do not have collective bargaining agreements relating to any of our employees. We subcontract many phases of our homebuilding operations and some of the subcontractors we use have employees who are represented by labor unions.

Relationship with LNR PROPERTY CORPORATIONProperty Corporation

 

In connection with the 1997, transfer ofwe transferred our commercial real estate investment and management business to LNR Property Corporation (“LNR”), and the spin-off ofspun-off LNR to our stockholders,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.

At the time of the spin-off, we entered into an agreement which, among other things, prevented us, in some circumstances, from engaging through December 2002 in any of the businesses in which LNR was engaged, or anticipated becoming engaged, at the time of the spin-off, and prohibited LNR from engaging, at least through December 2002, in any of the businesses in which we were engaged, or anticipated becoming engaged, at the time of the spin-off (except in limited instances in which our then activities or anticipated activities overlapoverlapped with LNR). In August 2003, thisThis agreement was extended through November 30, 2005. We2005 and expired on that date.

Since the spin-off, we have no current intentionentered into a number of joint ventures and other transactions with LNR. Many of the joint ventures were formed to become involvedacquire 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. Because LNR was controlled by Mr. Miller and his family, all significant transactions we or our subsidiaries engaged in the types of activitieswith LNR or entities in which LNR primarily engages (primarily related to commercial or multi-family residential real estate, commercial mortgage loansit had an interest were reviewed and investments in commercial mortgage-backed securities). Further,approved by the agreement delineating activities in which we could engage from those in which LNR could engage has helped the two companies work cooperatively in partnerships and other joint endeavors.

We and LNR are separate publicly-traded companies and neither of us has any financial interest in the other, except for partnerships in which we both have investments. Stuart Miller, our President and Chief Executive Officer, is the Chairman of the Board of Directors of LNR and is the sole director and officer of family-owned entities which own stock that gives Mr. Miller voting control, or near voting control, of both companies. An Independent Directors Committee approves all ventures we enter into with LNR and any significant transactions between LNR and us or any of our subsidiaries.Board of Directors.

 

In July 2003,January 2004, a company of which we and LNR each ownsown 50% agreed to purchaseacquired The Newhall Land and Farming Company (“Newhall”) for approximately $1 billion. That transactionThe purchase price was completed in January 2004. In connectionpaid with (1) approximately $200 million we contributed to the transaction,jointly-owned company, (2) approximately $200 million LNR contributed to the jointly-owned company, jointly owned(3) a $400 million term loan borrowed under $600 million of bank financing obtained by LNR and us,the jointly-owned company and another company of which we and LNR each owned 50% and (4) approximately $217 million from the proceeds of a sale by Newhall of income-producing properties to LNR. Newhall owns 50%, entered into a $600 million bank financing arrangement.approximately 48,000 acres in California, including approximately 34,000 acres in north Los Angeles County that includes two master-planned communities. In connection with the acquisition, we agreed to purchase 687 homesites and received options to purchase an additional 623 homesites from Newhall.

 

For more information about certainOn November 30, 2004, we and LNR each transferred our interests in most of our partnershipsjoint ventures to the jointly-owned company that had acquired Newhall, and that company was renamed LandSource Communities Development LLC.

7


In February 2005, LNR was acquired by a privately-owned entity. Although Mr. Miller’s family acquired a 20.4% interest in that privately-owned entity, neither Mr. Miller nor anybody 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% interest in LNR’s parent, significant transactions with LNR see Management’s Discussionor entities in which it has an interest are still reviewed and Analysisapproved by the Independent Directors Committee of Financial Condition and Resultsour Board of Operations in Item 7.Directors.

 

REGULATIONNYSE Certifications

Homes and residential communities that we build must comply with state and local laws and regulations relating to, among other things, zoning, treatment of waste, construction materials which must be used, density requirements, building design and minimum elevation of properties. These include laws requiring use of construction materials which 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 cases, there are laws which require that commitments to provide roads and other offsite infrastructure be in place prior to the commencement of new construction. These laws and regulations are usually administered by individual counties and municipalities and may result in fees and assessments or building moratoriums. In addition, certain new development projects are subject to assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial.

5


The residential homebuilding industry also is subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can 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 which could impact the affordability and availability of homes and land 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 purchasers of some of our homes to obtain FHA-insured or VA-guaranteed mortgages, we must construct those homes in compliance with regulations promulgated by those agencies.

 

We have registered condominium communitiessubmitted our 2004 Annual CEO Certification to the New York Stock Exchange on April 21, 2005. The certification was not qualified in any respect. Additionally, we filed with the appropriate authorities in FloridaSecurities and California. Sales in other states would require compliance with laws in those states regarding salesExchange Commission as exhibits to our Form 10-K and Form 10-K/A for the year ended November 30, 2004, the CEO and CFO certifications required under Section 302 of condominium homes.the Sarbanes-Oxley Act.

Available Information

 

Our personal lines insurancecorporate 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 title subsidiaries must complyany amendments to these reports, as soon as reasonably practicable after we electronically file these documents with, applicable insurance lawsor furnish them to, the Securities and regulations. Our mortgage financing subsidiaries and title agencies must comply with applicable real estate lending laws and regulations.Exchange Commission. Information on our website is not part of this document.

 

Our mortgage bankingwebsite also includes our Corporate Governance Guidelines, our Code of Business Conduct and insurance subsidiaries are licensedEthics and the charters for the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee of our Board of Directors. Each of these documents is also available in the states in which they do business and must comply with laws and regulations in those states regarding mortgage banking and title insurance companies. These laws and regulations include provisions regarding capitalization, operating procedures, investments, lending and privacy disclosures, forms of policies and premiums.print to any stockholder who requests a copy by addressing a request to:

 

We can be affected by government regulation that does not directly apply to us, such as any curtailment of activitiesLennar Corporation

Attention: Office of the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Because these organizations provide significant liquidity to the secondary mortgage market, a serious curtailment of their activities could increase mortgage interest rates and therefore increase the effective cost of purchasing our homes.General Counsel

700 Northwest 107th Avenue

A subsidiary of The Newhall Land and Farming Company, of which we indirectly own 50%, provides water to a portion of Los Angeles County. This subsidiary is subject to extensive regulation by the California Public Utilities Commission.Miami, Florida 33172

 

CAUTIONARY STATEMENTSItem 1A.    Risk Factors.

 

SomeRisk Factors Relating to Our Business

If any of the statements in this Report are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Actfollowing risks develop into actual events, our business, financial condition, results of 1995. By their nature, forward-looking statements involve risks, uncertaintiesoperations, cash flows, strategies and other factors that may cause actual results to differprospects could be materially from those which the statements anticipate. They include the factors discussed under “Particular Factors Which Could Affect Us.”adversely affected:

 

PARTICULAR FACTORS WHICH COULD AFFECT US

The following factorsDownward changes in particulareconomic conditions generally or in the market regions where we operate could significantly affect our operationsdecrease demand and financial results. We publicly disseminate future earnings goals which could be impacted by some ofpricing for new homes in these factors.

We are subject to the cyclical nature of the home sales market.areas.

 

The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levelsthe level of employment, consumer confidence, andconsumer income, availability of financing and interest rate levelslevels. Adverse changes in any of these conditions generally, or in the market regions where we operate, could decrease demand and demandpricing for housing. The resale market for used homes, including foreclosed homes, also affects the sale of new homes in these areas or result in customer cancellations of pending contracts, which could adversely affect the number of home deliveries we make or reduce the prices we can charge for homes, either of which could result in backlog.a decrease in our revenues and earnings.

 

6

The homebuilding industry has not experienced an economic down cycle in a number of years, which may have resulted in an overvaluation of land and new homes.


Although the homebuilding business historically has been cyclical, it has not undergone aan economic down cycle in a number of years. Further, during 2005, land and home prices rose significantly in many of our markets. This has led some people to assert that the prices of land, new homes and the stocksstock prices of homebuilding companies are overvaluedmay be inflated and willmay decline when or if the marketdemand for land and new homes begins to weaken.weakens. A decline in the prices of stocks of homebuilding companiesfor land and new homes could adversely affect both our revenues and margins. A decline in our stock price could make itraising capital through stock issuances more difficult and more expensive for us to raise funds through stock issuances if we needed funds to meet our obligations or otherwise wanted to do so.expensive.

 

WeFederal laws and regulations that adversely affect liquidity in the secondary mortgage market could be affected by prices or shortageshurt our business.

Recent federal laws and regulations could have the effect of materials or by weather conditionscurtailing the activities of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These

8


organizations provide significant liquidity to the secondary mortgage market. Any curtailment of their activities could increase mortgage interest rates and increase the effective cost of our homes, which could reduce demand for our homes and adversely affect our results of operations.

 

The residential homebuilding industry has,federal financial institution agencies recently issued proposed Interagency Guidance on Nontraditional Mortgage Products (“Guidance”). If adopted, the Guidance will apply to credit unions, to banks and savings associations and their subsidiaries, and to bank and savings association holding companies and their subsidiaries. Although the Guidance will not apply to independent mortgage companies, it likely will affect the origination operations of many mortgage companies that broker or sell nontraditional mortgage loan products to such entities. If the Guidance is adopted, it could reduce the number of potential customers who could qualify for loans to purchase homes from time-to-time, experienced fluctuating lumber pricesus and supply, as well as shortages of other materials and labor, including insulation, drywall, concrete, carpenters, electricians and plumbers. Delays in construction of homes due to these factors or due to weather conditions, could have an adverse effect upon our operations.others.

 

We are dependent on the availability of suitable land.

Our ability to build homes depends upon our being able to acquire at acceptable prices land that is suitable for residential development in the areas in which we want to build homes. Because of this, we maintain, directly or through partnerships or similar arrangements, a significant inventory of land, much of which is undeveloped or only partially developed.

We could be affected by governmental regulations.

All of our businesses are subject to substantial governmental regulations. In particular, the homebuilding business is subject to government regulations relating to land use, water rights, construction materials, building design and minimum elevation of properties, as well as a variety of environmental matters. Changes in government regulations often increase the cost of building homes in areas in which we have communities and could prevent entirely the building of new homes in some areas.

We could be affected by inflation or deflation.

Inflation can increase the cost of building materials, land, labor and other construction related costs. Conversely, deflation can reduce the value of our land inventory and make it more difficult for us to recover the full cost of previously purchased land in home sale prices.

Customers may be unwilling or unable to purchase our homes at times when mortgage financingmortgage-financing costs are high.high or as credit quality declines.

 

The majority of our homebuyers finance their acquisitionspurchases through our financial services subsidiariesoperations or third-party lenders. In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing.financing as a result of declining customer credit quality or other issues. If mortgage interest rates increase and the ability or willingness of prospective buyers to finance home purchases is adversely affected, our operating results may be negativelyadversely affected. Our homebuilding activities also are dependent upon the availability and cost of mortgage financing for buyers of homes currently owned by potential purchasers of our homes who cannot purchase our homes until they sell their current homes.

 

Competition may affectfor homebuyers could reduce our deliveries or decrease our profitability.

 

Our profitabilityThe homebuilding industry is affected both by the numberhighly competitive for skilled labor, materials and suitable land, as well as homebuyers. We compete in each of homes we sellour markets with numerous national, regional and by the profit margins we achieve when we sell homes. Competition and similar factors canlocal homebuilders. This competition with other homebuilders could reduce the number of homes we sell,deliver, or can forcecause us to accept reduced profit margins in order to maintain sales volume.

 

We also compete with resales of existing used or foreclosed homes, housing speculators and available rental housing. Increased competitive conditions in the residential resale or rental market in the regions where we operate could decrease demand for new homes and increase cancellations of sales contracts in backlog.

Government entities in regions where we operate have adopted or may adopt, slow or no growth initiatives, which could adversely affect our ability to build or timely build in these areas.

Some municipalities where we operate have approved, and others where we operate may approve, various slow growth or no growth homebuilding initiatives and other ballot measures that could negatively impact the availability of land and building opportunities within those localities. Approval of slow growth, no growth or similar initiatives (including the effect of these initiatives on existing entitlements and zoning) could adversely affect our ability to build or timely build and sell homes in the affected markets and or create additional administrative and regulatory requirements and costs, which, in turn, could have an adverse effect on our future revenues and earnings.

Natural disasters and severe weather conditions could delay deliveries, increase costs and decrease demand for new homes in affected areas.

Our operating results varyhomebuilding operations are located in many areas that are subject to natural disasters and severe weather. The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories and negatively impact the demand for new homes in affected areas. Furthermore, if our insurance does not fully cover business interruptions or losses resulting from quarterthese events, our earnings, liquidity or capital resources could be adversely affected.

Supply shortages and other risks related to quarter.the demand for skilled labor and building materials could increase costs and delay deliveries.

Increased costs or shortages of skilled labor and/or lumber, framing, concrete, steel and other building materials could cause increases in construction costs and construction delays. We generally are unable to pass on increases in construction costs to those customers who have already entered into sales contracts, as those sales contracts generally fix the price of the home at the time the contract is signed, which may be well in advance of the construction of the home. Sustained increases in construction costs may, over time, erode our margins, and pricing competition for materials and labor may restrict our ability to pass on any additional costs, thereby decreasing our margins.

9


We may not be able to acquire land suitable for residential homebuilding at reasonable prices, which could increase our costs and reduce our revenues, earnings and margins.

Our long-term ability to build homes depends upon our acquiring land suitable for residential building at reasonable prices in locations where we want to build. Over the past few years, we have experienced an increase in competition for suitable land as a result of land constraints in many of our markets. As competition for suitable land increases, and as available land is developed, the cost of acquiring suitable remaining land could rise, and the availability of suitable land at acceptable prices may decline. Any land shortages or any decrease in the supply of suitable land at reasonable prices could limit our ability to develop new communities or result in increased land costs. We may not be able to pass through to our customers any increased land costs, which could adversely impact our revenues, earnings and margins.

Compliance with federal, state and local regulations related to our business could have substantial costs both in time and money, and some regulations could prohibit or restrict some homebuilding ventures.

 

We have historically experienced,are subject to extensive and expectcomplex laws and regulations that affect the land development and homebuilding process, including laws and regulations related to continuezoning, 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 experience, variabilitylaws and regulations related to workers’ health and safety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of the markets where we operate, we are required to pay environmental impact fees, use energy-saving construction materials and give commitments to municipalities to provide certain infrastructure such as roads and sewage systems. We generally are required to obtain permits, entitlements and approvals from local authorities to commence and complete residential development or home construction. Such permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments, neighboring property owners or other interested parties, adding delays, costs and risks of non-approval to the process. Our obligation to comply with the laws and regulations under which we operate, and our obligation to ensure that our employees, subcontractors and other agents comply with these laws and regulations, could result in operating results on a quarterly basis. Factorsdelays 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 may contribute to this variability include, but are not limited to:we operate.

 

the timing of home deliveries and land sales;

Changing market conditions may adversely affect our ability to sell our land and home inventories at expected prices, which could reduce our margins.

the timing of receipt of regulatory approvals for the construction of homes;

the condition of the real estate market, prices for homes and general economic conditions;

 

7The lag time between when we acquire land for development and when we can bring communities to market can vary significantly. The market value of home inventories, undeveloped land and developed homesites can fluctuate significantly during this time period because of changing market conditions. Recently we have been able to sell homes at higher prices than we anticipated when we acquired the land on which they were built, which has helped us to achieve unusually high profit margins. However, in the future, we may need to sell homes or other property at prices that generate lower margins than we anticipate when we purchase land. We may also be required to record material write-downs to our land or home inventories if their market values decline.

Inflation may result in increased costs that we may not be able to recoup if demand declines.

Inflation can have a long-term impact on us because increasing costs of land, materials and labor may require us to increase the sales price of homes in order to maintain satisfactory margins. However, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand, in which case we may not be able to raise home prices sufficiently to keep up with the rate of inflation and our margins could decrease.

Tax law changes could make home ownership more expensive or less attractive.

Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally are deductible expenses for an individual’s federal, and in some cases state, income taxes, subject to various limitations under current tax law and policy. If the federal government or a state government changes income tax laws, as has been discussed recently, to eliminate or substantially modify these income tax deductions, then the after-tax cost of owning a new home would increase substantially. This could adversely impact demand for, and/or sales prices of, new homes.

10


the cyclical nature of the homebuilding and financial services industries;

We may be unable to obtain suitable financing and bonding for the development of our communities.

prevailing interest rates and availability of mortgage financing;

the increase in the number of homes available for sale in the marketplace;

pricing policies of our competitors;

the timing of the opening of new residential communities;

weather conditions; and

the cost and availability of materials and labor.

 

Our historical financial performance is not necessarily a meaningful indicatorbusiness depends substantially on our ability to obtain financing for the development of future results. We expect our financial resultsresidential communities and to continueprovide bonds to vary from quarterensure the completion of our projects. If we are unable to quarter.finance the development of our communities through our credit facility or other debt, or if we are unable to provide required surety bonds for our projects, our business operations and revenues could be adversely affected.

 

We may be unable to renew or extend our significant outstanding debt instruments when they mature.

Our senior unsecured credit facility consists of a $1.7 billion revolving credit facility maturing in June 2010 and includes access to an additional $500 million via an accordion feature, under which the facility may be increased to $2.2 billion, subject to additional commitments. In January 2006, we increased the commitment under the credit facility to $2.2 billion via access of the accordion feature. Also, our Financial Services Division has warehouse lines of credit totaling $1.3 billion, with borrowings under these lines of credit totaling $1.2 billion at November 30, 2005. These warehouse lines of credit mature in 2006 and 2007. We cannot assure that we will be able to extend or renew these debt arrangements on terms acceptable to us, or at all. If we are unable to renew or extend these debt arrangements, it could adversely affect our liquidity and capital resources.

We may not be able to identify or integrate suitable acquisition targets, which could adversely affect our ability to execute our growth strategy.

Our ability to execute our growth strategy depends in part on our ability to identify and purchase suitable acquisition candidates, as well as our ability to successfully integrate acquired operations into our business. The integration of operations of acquired companies with our operations, including the consolidation of systems, procedures, personnel and facilities, the relocation of staff, and the achievement of anticipated cost savings, economies of scale and other business efficiencies, presents significant challenges to our management, particularly if several acquisitions occur at the same time.

Additional factors may adversely impact our acquisition growth strategy. Our acquisition strategy may require spending significant amounts of capital. If we are unable to obtain sufficient debt or equity financing on acceptable terms, or at all, we may need to reduce the scope of our acquisition growth strategy, which could have a material adverse effect on our growth prospects. The competition from our competitors or others pursuing the same acquisition candidates may increase purchase prices of businesses and/or prevent us from acquiring certain acquisition candidates. If any of the aforementioned factors cause us to alter our growth strategy, our results of operations and growth prospects could be adversely affected.

We could be hurt by the loss of key management personnel.

 

Our future success depends, to a significant degree, on the efforts of our senior management. Our operations maycould be adversely affected if key members of senior management cease to be active in our Company. We have designed our compensation structure and employee benefit programs to encourage long-term employment by senior management.company.

 

We have a stockholder who exercises significant stockholder.influence over matters that are brought to a vote of our stockholders.

 

We have two classes of stock: Class A common stock, which is entitled to one vote per share; and Class B common stock, which is entitled to ten votes per share. Stuart A. Miller, our President, and Chief Executive Officer and a Director, has voting control, through personal holdings and family-owned entities, and personal holdings, of Class A and Class B common stock that entitlesenables Mr. Miller to cast approximately 48%47% of the combined votes that canmay be cast by the holders of our outstanding Class A and Class B common stock combined. That gives significant influence to Mr. Miller in electing all our directors and approving most 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 in matters that are contrary to our other stockholders’ desired actions or interests.

Item 1B.Unresolved Staff Comments.

Not applicable.

 

11


EMPLOYEESExecutive Officers of Lennar Corporation

 

At November 30, 2003, we employed 10,572The following individuals are our executive officers as of whom 6,786 were involved in homebuilding operations and 3,786 were involved in financial services operations. We do not have collective bargaining agreements relating to anyFebruary 7, 2006:

Name


Position


Age

Robert J. Strudler

Chairman of the Board63

Stuart A. Miller

President and Chief Executive Officer48

Jonathan M. Jaffe

Vice President and Chief Operating Officer46

Bruce E. Gross

Vice President and Chief Financial Officer47

Marshall H. Ames

Vice President62

Diane J. Bessette

Vice President and Controller45

David B. McCain

Vice President45

Mark Sustana

Secretary and General Counsel44

Mr. Strudler was the Vice Chairman of our employees. However, someBoard of Directors and Chief Operating Officer from May 2000 through November 2004. Effective December 1, 2004, Mr. Strudler resigned as Chief Operating Officer and was elected as the subcontractors we use have employees who are represented by labor unions.Chairman of our Board of Directors. Prior to May 2000, Mr. Strudler was the Chairman and Co-Chief Executive Officer of U.S. Home Corporation.

 

ACCESS TO OUR INFORMATIONMr. Miller has been our President and Chief Executive Officer since 1997 and is one of our Directors. Before 1997, Mr. Miller held various executive positions with us.

 

We electronically fileMr. Jaffe has been a Vice President since 1994 and has served as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendmentsChief Operating Officer since December 1, 2004. Prior to these reports, with the Securities and Exchange Commission (“SEC”). The public may read and copy anythat time, Mr. Jaffe served as a Regional President in our Homebuilding Division. Additionally, prior to his appointment as Chief Operating Officer, Mr. Jaffe was one of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically.our Directors from 1997 through June 2004.

 

We make available, freeMr. Gross has been a Vice President and our Chief Financial Officer since 1997. Prior to that, Mr. Gross was Senior Vice President, Controller and Treasurer of charge, through our website, www.lennar.com, and by responding to requests addressed to our investor relations department, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all exhibits and amendments to these reports. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.Pacific Greystone Corporation.

 

8

Mr. Ames has been a Vice President since 1982 and has been responsible for Investor Relations since 2000.


Ms. Bessette joined us in 1995, has been our Controller since 1997 and became a Vice President in 2000.

Mr. McCain joined us in 1998 as a Vice President and as our General Counsel and Secretary. In 2003, Mr. McCain was appointed President and Chief Executive Officer of Lennar Financial Services, LLC.

Mr. Sustana joined us in 2005 as our Secretary and General Counsel. Before joining Lennar, Mr. Sustana held various legal positions at GenTek, Inc., a manufacturer of communication products, industrial components and performance chemicals.

Item 2.    Properties.

For information about properties we own for use in our homebuilding activities, see Item 1.

 

We lease and maintain our executive offices financial services subsidiary headquarters, certain mortgage and title branches and a homebuilding division in an office complex in Miami, Florida. The leases for these offices expire through 2009. Our other 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 document.

 

Item 3.    Legal Proceedings.

 

We are party to various claims and lawsuits which arise in the ordinary course of business. Although the specific allegations in the lawsuits differ, most of them involve claims that we failed to construct buildings 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, or assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business, financial position, or results of operations.operations or cash flows.

 

Item 4.    Submission of Matters to a Vote of Security Holders.

 

Not applicable.

 

912


PART II

 

Item 5.    Market for the Registrant’s Common StockEquity, Related Stockholder Matters and Related Security Holder Matters.Issuer Purchases of Equity Securities.

 

Share, dividendOur 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 amounts in the tables below have been adjusted for our January 2004 two-for-one stock split.split:

 

   

Class A Common Stock Prices
New York Stock Exchange


Cash Dividends
Per Class A Share


High/Low Prices


  

Cash Dividends

Per Class A Share


 

Fiscal Quarter


  

20032005


2002



  20032004

    2005    

  2002    2004    

 

First

  $28.7762.49 – 24.1544.15  $28.7350.90 – 18.2842.55  5/813¾¢ 5/812½¢

Second

  $34.0962.09 – 24.1050.30  $30.1256.98 – 25.3441.33  5/813¾¢ 5/812½¢

Third

  $40.8168.86 – 31.1557.46  $31.9946.50 – 21.6040.30  5/813¾¢ 5/812½¢

Fourth

  $49.2962.78 – 32.9452.34  $29.9548.75 – 24.6341.37  12½16¢ 5/813¾¢

   

Class B Common Stock Prices
New York Stock Exchange


Cash Dividends
Per Class B Share


High/Low Prices


  

Cash Dividends

Per Class B Share


 

Fiscal Quarter


  

20032005


2002



  20032004

    2005    

  2002    2004    

 

First

  N/A *$57.40 – 40.81  N/A *$48.30 – 40.40  9/1613¾¢ 9/1612½¢

Second

  $33.0957.07 – 26.0346.90  N/A *$53.82 – 38.60  5/813¾¢ 9/1612½¢

Third

  $37.8564.00 – 29.5953.50  N/A *$43.20 – 37.40  5/813¾¢ 9/1612½¢

Fourth

  $46.7158.12 – 31.7548.96  N/A *$44.99 – 37.70  12½16¢ 9/1613¾¢

*In April 2003, our Class B common stock became listed on the New York Stock Exchange.

 

As of November 30, 2003, there were approximately 1,200 holders of recordJanuary 31, 2006, the last reported sale price of our Class A common stock was $62.56 and the last reported sale price of our Class B common stock was $57.79. As of January 31, 2006, there were approximately 9001,200 and 800 holders of record, respectively, of our Class A and Class B common stock.

 

The followingOn January 12, 2006, our Board of Directors declared a quarterly cash dividend of $0.16 per share for both our Class A and Class B common stock, which is payable on February 17, 2006 to holders of record at the close of business on February 7, 2006. We regularly pay quarterly dividends as set forth in the table summarizesabove. We currently expect that comparable cash dividends will continue to be paid in the future although we have no commitment to do that.

In June 2001, our equity compensation plans asBoard of Directors authorized our stock repurchase program to permit future purchases of up to 20 million shares (adjusted for the January 2004 two-for-one stock split) of our outstanding common stock. During the three months ended November 30, 2003:2005, we repurchased the following shares of our Class A common stock (amounts in thousands, except per share amounts):

 

Plan Category


  

Number of shares to
be issued upon

exercise of
outstanding options,

warrants and rights

(a)


  

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)


Equity compensation plans approved by stockholders

  6,660,968  $20.01  9,821,000

Equity compensation plans not approved by stockholders

  —     —    —  
   
  

  

Total

  6,660,968  $20.01  9,821,000
   
  

  

Period


  

Total Number

of Shares

Purchased


  

Average

Price

Paid Per

Share


  

Total Number

of Shares

Purchased as

Part of

Publicly

Announced

Plans or

Programs


  

Maximum

Number

of Shares

That May

Yet Be

Purchased

Under the

Plans or

Programs


September 1, 2005 to September 30, 2005

  —    $—    —    13,240

October 1, 2005 to October 31, 2005

  500   53.64  500  12,740

November 1, 2005 to November 30, 2005

  290   54.75  290  12,450
   
  

  
  

Total

  790  $54.05  790   
   
  

  
   

 

The information required by Item 201(d) of Regulation S-K is provided under Item 12 of this document.

 

1013


Item 6.    Selected Financial Data.

 

   At or for the Years Ended November 30,

   2003

  2002

  2001

  2000

  1999

   (Dollars in thousands, except per share amounts)

Results of Operations:

                

Revenues:

                

Homebuilding (1)

  $8,348,645  6,751,301  5,554,747  4,362,034  2,822,060

Financial services

  $558,974  484,219  425,354  316,934  269,307

Total revenues

  $8,907,619  7,235,520  5,980,101  4,678,968  3,091,367

Operating earnings:

                

Homebuilding (1)

  $1,164,089  834,056  666,123  382,195  291,944

Financial services

  $154,453  127,611  89,131  43,595  31,096

Corporate general and administrative expenses

  $111,488  85,958  75,831  50,155  37,563

Earnings before provision for income taxes

  $1,207,054  875,709  679,423  375,635  285,477

Net earnings

  $751,391  545,129  417,845  229,137  172,714

Net earnings per share (diluted) (2)

  $4.65  3.51  2.73  1.65  1.24

Cash dividends per share—Class A common stock (2)

  $.144  .025  .025  .025  .025

Cash dividends per share—Class B common stock (2)

  $.143  .0225  .0225  .0225  .0225

Financial Position:

                

Total assets

  $6,775,432  5,755,633  4,714,426  3,777,914  2,057,647

Debt:

                

Homebuilding

  $1,552,217  1,585,309  1,505,255  1,254,650  523,661

Financial services

  $740,469  862,618  707,077  448,860  278,634

Stockholders’ equity

  $3,263,774  2,229,157  1,659,262  1,228,580  881,499

Shares outstanding (000s) (2)

   157,836  142,811  140,833  138,008  127,417

Stockholders’ equity per share (2)

  $20.68  15.61  11.78  8.90  6.92

Delivery and Backlog Information

(including unconsolidated partnerships):

                

Number of homes delivered

   32,180  27,393  23,899  18,578  12,606

Backlog of home sales contracts

   13,905  12,108  8,339  8,363  2,903

Dollar value of backlog

  $3,887,000  3,200,000  1,982,000  2,072,000  662,000

The following table sets forth our selected financial and operating information as of or for each of the years ended November 30, 2001 through 2005. The information presented below is based upon Lennar’s historical financial statements, except for the results of operations of a subsidiary of the Financial Services Division’s title company that was sold in May 2005 and have been classified as discontinued operations. Share and per share amounts have been retroactively adjusted to reflect the effect of our April 2003 10% Class B common stock distribution and our January 2004 two-for-one stock split.

  At or for the Years Ended November 30,

  2005

 2004 (1)

 2003 (1)

 2002 (1)

 2001 (1)

  (Dollars in thousands, except per share amounts)

Results of Operations:

           

Revenues:

           

Homebuilding

 $13,304,599 10,000,632 8,348,645 6,751,301 5,554,747

Financial services

 $562,372 500,336 556,581 482,008 422,149

Total revenues

 $13,866,971 10,500,968 8,905,226 7,233,309 5,976,896

Operating earnings from continuing operations:

           

Homebuilding

 $2,277,091 1,548,488 1,164,089 834,056 666,123

Financial services

 $104,768 110,731 153,719 126,941 87,669

Corporate general and administrative expenses

 $187,257 141,722 111,488 85,958 75,831

Loss on redemption of 9.95% senior notes

 $34,908 —   —   —   —  

Earnings from continuing operations before provision for income taxes

 $2,159,694 1,517,497 1,206,320 875,039 677,961

Earnings from discontinued operations before provision for income taxes (2)

 $17,261 1,570 734 670 1,462

Earnings from continuing operations

 $1,344,410 944,642 750,934 544,712 416,946

Earnings from discontinued operations

 $10,745 977 457 417 899

Net earnings

 $1,355,155 945,619 751,391 545,129 417,845

Diluted earnings per share:

           

Earnings from continuing operations

 $8.17 5.70 4.65 3.51 2.72

Earnings from discontinued operations

 $0.06 0.00 0.00 0.00 0.01

Net earnings

 $8.23 5.70 4.65 3.51 2.73

Cash dividends declared per share—Class A common stock

 $0.573 0.513 0.144 0.025 0.025

Cash dividends declared per share—Class B common stock

 $0.573 0.513 0.143 0.0225 0.0225

Financial Position:

           

Total assets (3)

 $12,541,225 9,165,280 6,775,432 5,755,633 4,714,426

Debt:

           

Homebuilding

 $2,592,772 2,021,014 1,552,217 1,585,309 1,505,255

Financial services (including limited-purpose finance subsidiaries)

 $1,270,438 900,340 740,469 862,618 707,077

Stockholders’ equity

 $5,251,411 4,052,972 3,263,774 2,229,157 1,659,262

Shares outstanding (000s)

  157,559 156,230 157,836 142,811 140,833

Stockholders’ equity per share

 $33.33 25.94 20.68 15.61 11.78

Delivery and Backlog Information

           

(including unconsolidated entities):

           

Number of homes delivered

  42,359 36,204 32,180 27,393 23,899

Backlog of home sales contracts

  18,565 15,546 13,905 12,108 8,339

Backlog dollar value

 $6,884,238 5,055,273 3,887,300 3,200,206 1,981,632

(1) Prior year amounts contain reclassificationsIn May 2005, the Company sold a subsidiary of the Financial Services Division’s title company. As a result of the sale, the subsidiary’s results of operations have been reclassified as discontinued operations to conform towith the 20032005 presentation. These reclassifications had no impact on reported net earnings. In particular, homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.
(2) ShareEarnings from discontinued operations before provision for income taxes includes a gain of $15.8 million for the year ended November 30, 2005 related to the sale of a subsidiary of the Financial Services Division’s title company.
(3)As of November 30, 2004, 2003, 2002 and per share amounts have been adjusted2001, the Financial Services Division had assets of discontinued operations of $1.0 million, $1.3 million, $0.4 million and $0.4 million, respectively, related to reflecta subsidiary of the effect of our 10% Class B common stock distributionDivision’s title company that was sold in April 2003 and our two-for-one stock split in January 2004.May 2005.

 

1114


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 document.

Special Note Regarding Forward-Looking Statements

 

Some of the statements contained in the followingthis 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”statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. By their nature,These forward-looking statements involve risks, uncertaintiesinclude statements regarding our business, financial condition, results of operations, cash flows, strategies and other factors that may cause actual results to differ materially from those which theprospects. You can identify forward-looking statements anticipate. Forward-looking statements can be identified by the fact that theythese statements do not relate strictly to historical or current facts. They contain words such as “anticipate,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 Relating to Our Business“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “guidance,” “goal,” “visibility,” and other wordsin Item 1A of this document. We do not undertake any obligation or phrases of similar meaning in connection with any discussion of future operating or financial performance. Factors which may affect our results include, but are not limitedduty to changes in general economic conditions, the market for homes and prices for homes generally and in areas where we have developments, the availability and cost of land suitable for residential development, materials prices, labor costs, interest rates, consumer confidence, competition, terrorist acts or other acts of war, environmental factors and government regulations affecting our operations.update forward-looking statements.

 

RESULTS OF OPERATIONSOutlook

 

Fiscal 2005 proved to be a very strong year for Lennar and other large national homebuilders, as the pace of price appreciation on new homes drove record level profit margins in various markets. During fiscal 2005, we accumulated a record level backlog dollar value of new home orders, which at November 30, 2005 was 36% higher than it was at the end of fiscal 2004. With communities in place to meet our delivery goals and a backlog of $6.7 billion as of December 31, 2005, we believe that we are well positioned for fiscal 2006.

As we enter fiscal 2006, there have been early indications of a slower sales pace in certain markets in which we operate. While these indicators point to the likelihood that price appreciation in these markets will not continue at the level experienced in fiscal 2005, we believe that in most of these markets, with interest rates reasonably low, employment trends remaining positive and inventory levels only moderately up, our focus on inventory management and excellent land positions should support another record year for our company.

Our strong balance sheet and ample liquidity position us well for opportunities, as we focus primarily on growing our company organically. However, we remain opportunistic towards the acquisition of small and possibly large homebuilders. In addition to maintaining a strong balance sheet and growing bottom-line profitability, we remain focused on achieving strong returns on capital by managing our land portfolio and controlling additional homesites through options and strategic joint ventures.

Results of Operations

Overview

 

We achieved record revenues, profits and earnings per share from continuing operations in 2003.2005. Our net earnings from continuing operations in 20032005 were $751.4 million,$1.3 billion, or $4.65$8.17 per share diluted ($8.65 per share basic), compared to $545.1$944.6 million, or $3.51$5.70 per share diluted ($6.08 per share basic), in 2002.2004. The increase in net earnings from continuing operations was attributable to strong homebuilding gross margins and increased operating earnings fromstrength in our Financial Services Division.Homebuilding Division’s operations. In particular, both our deliveries and average sales price on homes delivered increased due to strong demand resulting fromand supply constraints strong demographic trends,in strategic markets, low interest rates and improvingfavorable economic and demographic trends. With $1.2 billion of cash at year-end, our net homebuilding debt (i.e., homebuilding debt less homebuilding cash) to total net capital (i.e., net homebuilding debt plus stockholders’ equity) ratio was 9.7% at November 30, 2003, compared to 27.7% last year. Additionally, we had zero outstanding under our $1 billion revolving credit facilities at year-end. Our record earnings combined with a strong balance sheet contributed to a return on net capital of approximately 23% in 2003, compared to approximately 22% in 2002.

 

Earnings per share amounts for all years have been adjusted to reflect the effect of our April 2003 10% Class B common stock distribution and our January 2004 two-for-one stock split.

 

Homebuilding

 

Our Homebuilding Division sells and constructs homes primarily for first-time, move-up and active adult homebuyers. We use a dual marketing strategy in which we sell homes under both our Everything’s Included® and Design StudioSM programs. Our land operations include the purchase, development and sale of land for our homebuilding activities, as well as the sale

15


of land to third parties. In certain circumstances, we diversify our operations through strategic alliances and minimize our riskrisks by forming partnershipsinvesting with otherthird parties in unconsolidated entities. The following tables set forth selected financial and operational information for the years indicated. The results of operations of the homebuilders we acquired during these years are included in the informationtables since the respective dates of the acquisitions.

Homebuilding Division’s Selected Financial and Operational Data

 

12


Selected Homebuilding Division Financial Data

  Years Ended November 30,

   Years Ended November 30,

 
  2003

 2002

 2001

   2005

 2004

 2003

 
  

(Dollars in thousands,

except average sales price)

   

(Dollars in thousands,

except average sales price)

 

Revenues:

      

Sales of homes

  $8,040,470  6,581,703  5,467,548   $12,711,789  9,559,847  8,040,470 

Sales of land

   308,175  169,598  87,199    592,810  440,785  308,175 
  


 

 

  


 

 

Total revenues

   8,348,645  6,751,301  5,554,747    13,304,599  10,000,632  8,348,645 
  


 

 

  


 

 

Costs and expenses:

      

Cost of homes sold

   6,180,777  5,119,668  4,275,321    9,410,343  7,275,446  6,180,777 

Cost of land sold

   234,844  167,640  85,546    391,984  281,409  234,844 

Selling, general and administrative

   872,735  705,901  573,204    1,375,480  1,044,483  872,735 
  


 

 

  


 

 

Total costs and expenses

   7,288,356  5,993,209  4,934,071    11,177,807  8,601,338  7,288,356 
  


 

 

  


 

 

Equity in earnings from unconsolidated partnerships

   81,937  42,651  27,051 

Equity in earnings from unconsolidated entities

   133,814  90,739  81,937 

Management fees and other income, net

   21,863  33,313  18,396    61,515  69,251  26,817 

Minority interest expense, net

   45,030  10,796  4,954 
  


 

 

  


 

 

Operating earnings

  $1,164,089  834,056  666,123   $2,277,091  1,548,488  1,164,089 
  


 

 

  


 

 

Gross margin on home sales

   23.1% 22.2% 21.8%   26.0% 23.9% 23.1%
  


 

 

  


 

 

SG&A expenses as a % of revenues from home sales

   10.9% 10.7% 10.5%   10.8% 10.9% 10.9%
  


 

 

  


 

 

Operating margin as a % of revenues from home sales

   12.3% 11.5% 11.3%   15.2% 13.0% 12.3%
  


 

 

  


 

 

Average sales price

  $256,000  245,000  237,000   $311,000  272,000  256,000 
  


 

 

  


 

 

 

Prior year amounts contain reclassifications to conform to the 2003 presentation. These reclassifications had no impact on reported net earnings. Homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

13


Summary of Home and Backlog Data By Region

   At or for the Years Ended November 30,

   2003

  2002

  2001

   (Dollars in thousands)

Deliveries

          

East

   10,348  9,296  8,175

Central

   9,993  7,766  7,056

West

   11,839  10,331  8,668
   

  
  

Total

   32,180  27,393  23,899
   

  
  

Of the deliveries listed above, 768, 568 and 795 deliveries relate to unconsolidated partnerships for the years ended November 30, 2003, 2002 and 2001, respectively.

New Orders

          

East

   11,640  10,192  8,445

Central

   9,696  7,591  7,180

West

   12,187  10,590  8,250
   

  
  

Total

   33,523  28,373  23,875
   

  
  

Of the new orders listed above, 1,553, 733 and 833 new orders relate to unconsolidated partnerships for the years ended November 30, 2003, 2002 and 2001, respectively.

Backlog—Homes

          

East

   6,121  4,780  3,314

Central

   2,416  2,713  1,977

West

   5,368  4,615  3,048
   

  
  

Total

   13,905  12,108  8,339
   

  
  

Of the homes in backlog listed above, 1,226, 441 and 255 homes in backlog relate to unconsolidated partnerships at November 30, 2003, 2002 and 2001, respectively.

Backlog Dollar Value

          

(including unconsolidated partnerships)

  $3,887,000  3,200,000  1,982,000
   

  
  

 

At November 30, 2003,2005, our market regions consisted of homebuilding divisions located in the following states:East: Florida, Maryland, Delaware, Virginia, New Jersey, New York, North Carolina and South Carolina.Central: Texas, Illinois and Minnesota.West: California, Colorado, Arizona and Nevada.

 

   For the Years Ended November 30,

   2005

  2004

  2003

Deliveries

         

East

  12,467  11,323  10,348

Central

  13,074  11,122  9,993

West

  16,818  13,759  11,839
   
  
  

Total

  42,359  36,204  32,180
   
  
  

Of the total home deliveries listed above, 1,477, 1,015 and 768, respectively, represent deliveries from unconsolidated entities for the years ended November 30, 2005, 2004 and 2003.

New Orders

         

East

  12,577  12,467  11,640

Central

  13,793  11,192  9,696

West

  17,035  14,008  12,187
   
  
  

Total

  43,405  37,667  33,523
   
  
  

Of the new orders listed above, 1,254, 1,700 and 1,553, respectively, represent new orders from unconsolidated entities for the years ended November 30, 2005, 2004 and 2003.

16


   November 30,

         2005      

        2004      

        2003      

Backlog—Homes

         

East

  8,128  7,327  6,121

Central

  3,286  2,567  2,416

West

  7,151  5,652  5,368
   
  
  

Total

  18,565  15,546  13,905
   
  
  

Of the homes in backlog listed above, 1,359, 1,585 and 1,226, respectively, represent homes in backlog from unconsolidated entities at November 30, 2005, 2004 and 2003.

Backlog Dollar Value (In thousands)

          

East

  $2,931,247  2,177,884  1,526,970

Central

   775,505  633,703  558,919

West

   3,177,486  2,243,686  1,801,411
   

  
  

Total

  $6,884,238  5,055,273  3,887,300
   

  
  

Of the dollar value of homes in backlog listed above, $590,129, $644,839 and $367,855, respectively, represent the backlog dollar value from unconsolidated entities at November 30, 2005, 2004 and 2003.

Backlog represents the number of homes under sales contracts. Substantially all of the homes currently in backlog are expected to be delivered in fiscal 2006. 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 are unable to close on the sale of their existing home, fail to qualify for financing or under certain other circumstances. We experienced a cancellation rate of 17% in 2005, compared to 16% and 20% in 2004 and 2003, respectively. Although cancellations can delay the sales of our homes, they have not had a material impact on sales, operations or liquidity because we closely monitor our prospective buyers’ ability to obtain financing and use that information to adjust construction start plans to match anticipated deliveries of homes. 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 mid-to-high-rise condominiums under construction for which revenue is recognized under percentage-of-completion accounting.

During 2005, we entered metropolitan New York City and the Boston and Reno, Nevada markets and we expanded our presence in our East and West regions through homebuilding acquisitions. During 2004, we expanded our presence in all of our regions through homebuilding acquisitions. During 2003, we expanded our operations in California and South Carolina through homebuilding acquisitions. During 2002, we acquired nine homebuilders, which expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our positions in several of our existing markets. The results of operations of the homebuilders we acquiredacquisitions are included in our results of operations since their respective acquisition dates.

 

2005 versus 2004

Revenues from home sales of homes increased 22%33% in 2003 and 20%2005 to $12.7 billion from $9.6 billion in 2002, compared2004. Revenues were higher primarily due to the previous years as a result of a 17% increase and a 16% increase in the number of home deliveries respectively, in 2003 and 2002, and a 4%15% increase in the average sales price of homes delivered in both years.2005. New home deliveries, excluding unconsolidated entities, increased to 40,882 homes in the year ended November 30, 2005 from 35,189 homes last year. In 2003,2005, new home deliveries were higher in mosteach of our markets, primarily in California, Florida, Texas and Illinois. In 2002, new home deliveries were higher primarily dueregions, compared to a strong homebuilding market, combined with our acquisitions during the year.2004. The average sales price of homes delivered increased in 2003 and 2002 primarily due to an increase$311,000 in the average sales priceyear ended November 30, 2005 from $272,000 in most of our existing markets, combined with changes in our product and geographic mix.2004.

 

Gross margin percentagesmargins on home sales were 23.1%$3.3 billion, or 26.0%, 22.2%in the year ended November 30, 2005, compared to $2.3 billion, or 23.9%, in 2004. Gross margin percentage on home sales increased 210 basis points primarily due to a product mix favoring our higher margin states, as well as a significant gross margin percentage improvement in Arizona, California and 21.8%Florida.

Homebuilding interest expense (primarily included in 2003, 2002cost of homes sold and 2001, respectively.cost of land sold) was $187.2 million in 2005, compared to $134.2 million in 2004. The increase in 2003interest expense was due to a greater contribution from a strong California market, combined

14


with lowerhigher interest costs resulting from higher debt, as well as increased deliveries during 2005, compared to 2004, due to a lowerthe growth in our homebuilding operations. Our homebuilding debt leverageto total capital ratio while we continuedas of November 30, 2005 was 33.1%, compared to grow. The increase in 2002 was due to improved operational efficiencies and strength in the homebuilding markets in which we operated, partially offset by softness primarily in the Texas market.33.3% as of November 30, 2004.

 

Selling, general and administrative expenses as a percentage of revenues from home sales increasedwere 10.8% in the year ended November 30, 2005, compared to 10.9% in 2003, compared to 10.7% and 10.5% in 2002 and 2001, respectively. The increase in 2003 was primarily due to higher personnel-related expenses, compared to 2002. The increase in 2002 was primarily due to an increase in insurance costs, compared to 2001.the year ended November 30, 2004.

 

Gross profitsprofit on land sales totaled $73.3$200.8 million in the year ended November 30, 2003,2005, compared to $2.0$159.4 million in 20022004. Some of these land sales were from consolidated joint ventures, which resulted in minority

17


interest expense. Minority interest expense, net from these land sales and $1.7other activities of the consolidated joint ventures was $45.0 million and $10.8 million, respectively, in 2001. Profits in 2003 were positively impacted by each of our regions, with strong contributions from our Eastthe years ended November 30, 2005 and West regions. Equity in earnings from unconsolidated partnerships was $81.92004. Management fees and other income, net, totaled $61.5 million in the year ended November 30, 2003,2005, compared to $42.7$69.3 million in 2002 and $27.1 million2004. Equity in 2001. Management fees and other income, net, totaled $21.9earnings from unconsolidated entities was $133.8 million in the year ended November 30, 2003,2005, compared to $33.3$90.7 million in 2002last year. Sales of land, minority interest expense, net, management fees and $18.4 million in 2001. Land sales,other income, net and equity in earnings from unconsolidated partnerships, and management fees and other income, net,entities may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and our unconsolidated partnerships.entities in which we have investments.

 

At November 30, 2003,2005, we owned approximately 74,000102,700 homesites and had access to an additional 135,000222,100 homesites through either option contracts or our unconsolidated partnerships.entities in which we have investments. At November 30, 2003, approximately 15%2005, 14% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 13,90518,565 homes ($3.96.9 billion) at November 30, 2003,2005, compared to 12,10815,546 homes ($3.25.1 billion) at November 30, 2002.2004. The higher backlog was primarily attributable to our homebuilding acquisitionsgrowth and growth in the number of active communities,strong demand for our homes, which resulted in higher new orders in 2003,2005, compared to 2002.2004. As a result of these acquisitions combined with our organic growth, inventories, excluding consolidated inventory not owned, increased 13%54% during 2003,2005, while revenues from sales of homes increased 22%33% for the year ended November 30, 2003,2005, compared to prior year.

 

2004 versus 2003

Revenues from home sales increased 19% in 2004 to $9.6 billion from $8.0 billion in 2003. Revenues were higher primarily due to a 12% increase in the number of home deliveries and a 6% increase in the average sales price of homes delivered in 2004. New home deliveries, excluding unconsolidated entities, increased to 35,189 homes in the year ended November 30, 2004 from 31,412 homes in 2003. In 2004, new home deliveries were higher in each of our regions, compared to 2003. The average sales price of homes delivered increased to $272,000 in the year ended November 30, 2004 from $256,000 in 2003.

Gross margins on home sales were $2.3 billion, or 23.9%, in 2004, compared to $1.9 billion, or 23.1%, in 2003. Margins were positively impacted by an improvement in our East and West regions. This improvement was primarily attributable to favorable pricing conditions, particularly in our land-constrained markets, as well as a change in product mix. This improvement was partially offset by warranty expense related to the resolution of a dispute.

Homebuilding interest expense (primarily included in cost of homes sold and cost of land sold) was $134.2 million in 2004, compared to $141.3 million in 2003. The decrease in interest expense was due to lower interest costs resulting from a lower debt leverage ratio while we continued to grow.

Selling, general and administrative expenses as a percentage of revenues from home sales were 10.9% in both 2004 and 2003.

Gross profit on land sales totaled $159.4 million in the year ended November 30, 2004, compared to $73.3 million in 2003. Some of these land sales were from consolidated joint ventures, which resulted in minority interest expense. Minority interest expense, net from these land sales and other activities of the consolidated joint ventures was $10.8 million and $5.0 million, respectively, in the years ended November 30, 2004 and 2003. Management fees and other income, net, totaled $69.3 million in 2004, compared to $26.8 million in 2003. Equity in earnings from unconsolidated entities was $90.7 million in 2004, compared to $81.9 million in 2003. This improvement resulted from an increase in homes delivered by our unconsolidated homebuilding joint ventures. Sales of land, minority interest expense, net, management fees and other income, net and equity in earnings from unconsolidated entities 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.

At November 30, 2004, we owned approximately 87,700 homesites and had access to an additional 168,300 homesites through either option contracts or unconsolidated entities in which we have investments. At November 30, 2004, 13% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 15,546 homes ($5.1 billion) at November 30, 2004, compared to 13,905 homes ($3.9 billion) at November 30, 2003. The higher backlog was primarily attributable to our growth and strong demand for our homes, which resulted in higher new orders in 2004, compared to 2003. As a result of acquisitions combined with our organic growth, inventories, excluding consolidated inventory not owned, increased 35% during 2004, while revenues from sales of homes increased 19% for the year ended November 30, 2004, compared to 2003.

Financial Services

 

Our Financial Services Division provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of our homes and others. The Division sells substantially all of the loans it

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originates in the secondary mortgage market.market on a servicing released, non-recourse basis; however, we remain liable for customary representations and warranties related to loan sales. The Division also provides high-speed Internet access,and cable television and alarm installation and monitoring services to residents of our communities and others. The following table sets forth selected financial and operational information relating to our Financial Services Division. The results of operations of companies we acquired during these years are included in the informationtable since the respective dates of the acquisitions.

 

   Years Ended November 30,

 
   2003

  2002

  2001

 
   (Dollars in thousands) 

Revenues

  $558,974  484,219  425,354 
  

Costs and expenses

   404,521  356,608  336,223 
   


 

 

Operating earnings

  $154,453  127,611  89,131 
   


 

 

Dollar value of mortgages originated

  $7,603,000  6,132,000  5,226,000 
   


 

 

Number of mortgages originated

   41,000  34,100  30,600 
   


 

 

Mortgage capture rate of Lennar homebuyers

   72% 80% 79%
   


 

 

Number of title closing transactions (excluding title policies issued)

   245,000  189,000  162,000 
   


 

 

Number of title policies issued

   175,000  146,000  111,000 
   


 

 

Financial Services Division’s Selected Financial and Operational Data

   Years Ended November 30,

 
   2005

  2004

  2003

 
   (Dollars in thousands) 

Revenues

  $562,372  500,336  556,581 

Costs and expenses

   457,604  389,605  402,862 
   


 

 

Operating earnings from continuing operations

  $104,768  110,731  153,719 
   


 

 

Dollar value of mortgages originated

  $9,509,000  7,517,000  7,603,000 
   


 

 

Number of mortgages originated

   42,300  37,900  41,000 
   


 

 

Mortgage capture rate of Lennar homebuyers

   66% 71% 72%
   


 

 

Number of title and closing service transactions

   187,700  187,700  245,600 
   


 

 

Number of title policies issued

   193,900  185,100  175,000 
   


 

 

2005 versus 2004

 

Operating earnings from ourcontinuing operations for the Financial Services Division increased to $154.5were $104.8 million in 2003,the year ended November 30, 2005, compared to $127.6$110.7 million and $89.1 million in 2002 and 2001, respectively.last year. The increase in 2003decrease was primarily due to reduced profitability from the Division’s mortgage operations as a result of a more competitive mortgage environment in 2005, as well as a $6.5 million pretax gain generated from monetizing a majority of the Division’s alarm monitoring contracts in 2004. This decrease was partially offset by improved resultsprofitability from our mortgage andthe Division’s title operations which benefited from low interest rates and a strong refinance and housing environment. The increase in 2002 was primarily due to improved results from our

15


mortgage and title operations, which benefited from a low interest rate and strong housing environment in 2002. The operating earnings in 2002 included a $5.0 million gain on the sale of a cable system.2005. The Division’s mortgage capture rate (i.e., mortgage capture rate is the percentage of our homebuyers, excluding cash settlements, who obtained mortgage financing from us in areas where we offered services for the entire year) decreasedservices) was 66% in the year ended November 30, 2005, compared to 71% 2004. The decrease in the capture rate was a result of a more competitive mortgage environment. During 2005, we sold North American Exchange Company (“NAEC”), a subsidiary of the Financial Services Division’s title company, which generated a $15.8 million pretax gain.

2004 versus 2003

Operating earnings from continuing operations from our Financial Services Division decreased to $110.7 million in 2004, compared to $153.7 million in 2003. The decrease in operating earnings from continuing operations in 2004 was primarily due to a more competitive mortgage environment and a slowdown in refinance activity, which resulted in reduced profitability from our mortgage and title operations. The decline in operating earnings from continuing operations was partially offset by a $6.5 million gain generated by monetizing the transitioningmajority of our alarm monitoring contracts in 2004. The Division’s mortgage capture rate (i.e., the percentage of our homebuyers, excluding cash settlements, who obtained mortgage business related to the homebuildersfinancing from us in areas where we have acquired since the beginning of fiscal 2002 as well as increasing competitivenessoffered services) was relatively consistent in the mortgage market.year ended November 30, 2004, compared to 2003.

 

Corporate General and Administrative

 

Corporate general and administrative expenses as a percentage of total revenues were 1.3%1.4% in 2003 compared to 1.2% in 2002the year ended November 30, 2005 and 1.3% in 2001.both the years ended November 30, 2004 and 2003.

 

FINANCIAL CONDITION AND CAPITAL RESOURCESFinancial Condition and Capital Resources

 

At November 30, 2003,2005, we had cash related to our homebuilding and financial services operations of $1.2$1.1 billion, compared to $731.2 million$1.4 billion at the end of fiscal 2002.November 30, 2004. The increasedecrease in cash was primarily due to an increase in net earningsinventories, contributions to unconsolidated entities, repurchases of common stock and acquisitions partially offset by an increase in inventoriesour net earnings, distributions of capital from unconsolidated entities and proceeds from debt issuances as we position ourselves for future growth. In connection with the acquisition of The Newhall Land and Farming Company by an entity jointly-owned with LNR Property Corporation (“LNR”), we contributed approximately $200 million to fund a portion of the purchase price. The majority of this commitment was funded subsequent to year-end.

 

Operating Cash Flow Activity

During 2003 and 2002, cash flows provided by operating activities amounted to $580.8 million and $204.6 million, respectively. During 2003, cash flows provided by operating activities consisted primarily of net earnings and a decrease in loans held for sale offset in part by an increase in operating assets to support a significantly higher backlog and a higher number of active communities. In particular, inventories at November 30, 2003 had increased by $267.2 million since November 30, 2002, due to an increase in backlog and the expansion of operations in our market areas. We finance our land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from our operations and public debt issuances, as well as cash borrowed under our revolving credit facilities.facility and warehouse lines of credit.

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Operating Cash Flow Activities

 

During 2002,2005 and 2004, cash flows provided by operating activities amounted to $323.0 million and $420.2 million, respectively. During 2005, cash flows provided by operating activities consisted primarily of net earnings, an increase in accounts payable and other liabilities and distributions of earnings from unconsolidated entities partially offset by an increase in part by increased levels of operating assetsinventories due to an increase in construction in progress to support a significantly higher backlog and a higher number of active communities as we continuedland purchases to grow. Cashfacilitate future growth, an increase in receivables resulting primarily from land sales and equity in earnings from unconsolidated entities.

During 2004, cash flows provided by operating activities were lower in 2001 due to an increaseconsisted primarily of net earnings, distributions of earnings from unconsolidated entities, a decrease in financial services loans held for saleheld-for-sale and an increase in accounts payable and other liabilities offset in part by an increase in inventories to support a significantly higher backlog and an increase in receivables resulting primarily from land sales. In particular, inventories increased by $870.2 million during 2004 due to an increased number of $211.1 million and $57.1 million in receivables. We sellhome starts to support a significantly higher backlog combined with the loans we originate in the secondary mortgage market, generally within 45 daysaccelerated takedown of the closing of the loans. The cash related to these loans and receivables was primarily received in December 2001 and was used to pay down our warehouse lines of credit. Inventories increased $130.7 million in 2001 as we positioned ourselves for future growth.homesites that had been under option.

 

Investing Cash Flow ActivityActivities

 

Cash flows used in investing activities totaled $118.2$1.0 billion during 2005, compared to $534.1 million in the year ended November 30, 2003 compared to $365.7 million in 2002, and cash provided by investing activities of $1.9 million in 2001.2004. In 2003,2005, we used $159.4$416.0 million of cash for acquisitions, $919.8 million of cash was contributed to unconsolidated entities and we had an increase in financial services loans held-for-investment of $117.4 million. This usage of cash was partially offset by $466.8 million of distributions of capital from unconsolidated entities. In 2004, we used $105.7 million of cash for acquisitions and $18.8$751.2 million for net additionsof cash was contributed to operating properties and equipment.unconsolidated entities. In particular, we contributed approximately $200 million to an unconsolidated entity to fund the entity’s purchase of Newhall. This usage of cash was partially offset by $72.1$330.6 million of net distributions byof capital from unconsolidated partnerships in which we invest. In 2002, we used $424.3 million of cash for acquisitions offset by $57.9 million of net distributions by unconsolidated partnerships. In 2001, $10.8 million was provided by the sale of substantially all of our mortgage servicing rights and $5.6 million related to net distributions by unconsolidated partnerships in which we invest. This generation of cash was offset by $13.1 million of net additions to operating properties and equipment.entities.

 

During 2003,2005, we entered metropolitan New York City and the Boston and Reno, Nevada markets and we expanded our presence in Californiaour East and South Carolina, with ourWest regions through homebuilding acquisitions and we purchased a title company, which expanded our title and closing business into the Chicago market. In connection with these acquisitions and contingent consideration related to prior period acquisitions, we paid $159.4 million, net of cash acquired. During 2002, we expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our positions in

16


several of our existing markets through our homebuilding acquisitions. In connection with the 2002 acquisitions, total consideration, including debt of acquired companies, totaled approximately $600 million. The results of operations of the acquired companiesthese acquisitions are included in our results of operations since their respective acquisition dates. We are always looking at the possibility of acquiring homebuilders and other companies. We currently are engaged in discussions regarding possible transactions. However, at November 30, 2005, we havehad no agreements or understandings regarding any transactions, and it is possible we will not enter into any significant transactions in the near future.transactions.

 

In July 2003, we formed a joint venture with LNR named NWHL Investment, LLC (“NWHL”), and NWHL entered into an agreement to acquire The Newhall Land and Farming Company (“Newhall”). Newhall’s primary business is developing two master-planned communities in Los Angeles County, California. The transaction was completed on January 27, 2004. The total purchase consideration, after payments with regard to employee options, was approximately $1 billion. In connection with the transaction, NWHL and another company jointly owned by us and LNR, obtained $600 million of bank financing, of which $400 million was used in connection with the acquisition of Newhall. The remainder of the bank financing will be available to finance operations of Newhall and other property ownership and development companies that are jointly owned by us and LNR. We and LNR each contributed approximately $200 million to NWHL to fund a portion of the purchase price. Simultaneous with the closing of the transaction, LNR purchased income-producing properties from Newhall for approximately $217 million and we agreed to purchase 687 homesites and obtained options to purchase 623 homesites from the venture.

Financing Cash Flow ActivityActivities

Homebuilding debt to total capital is a financial measure commonly used in the homebuilding industry and is presented to assist in understanding the leverage of our homebuilding operations. By providing a measure of leverage of our homebuilding operations, management believes that this measure enables readers of our financial statements to better understand our financial position and performance. Homebuilding debt to total capital as of November 30, 2005 and 2004 is calculated as follows:

   2005

  2004

 
   (Dollars in thousands) 

Homebuilding debt

  $2,592,772  2,021,014 

Stockholders’ equity

   5,251,411  4,052,972 
   


 

Total capital

  $7,844,183  6,073,986 
   


 

Homebuilding debt to total capital

   33.1% 33.3%
   


 

 

The following summarizes our senior notes and other debts payable:

   November 30,

   2003

  2002

   (Dollars in thousands)

3 7/8% zero-coupon senior convertible debentures due 2018

  $—    266,917

5.125% zero-coupon convertible senior subordinated notes due 2021

   261,012  248,138

5.95% senior notes due 2013

   344,260  —  

7 5/8% senior notes due 2009

   273,593  272,591

9.95% senior notes due 2010

   301,995  300,175

Term Loan B due 2008

   296,000  391,000

U.S. Home senior notes due through 2009

   2,367  9,366

The Fortress Group, Inc. senior notes due 2003

   —    12,575

Mortgage notes on land and other debt

   72,990  84,547
   

  
   $1,552,217  1,585,309
   

  

Our ratio of net homebuilding debt to total net capital was 9.7% at November 30, 2003, compared to 27.7% at November 30, 2002. The decrease2005 was consistent with the ratio in the ratio primarily resulted from cash generated by our operations during 2003.prior year. In addition to the use of capital in our homebuilding and financial services activities,operations, we will continue to 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 requirements.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.

 

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The following table summarizes our homebuilding senior notes and other debts payable:

   November 30,

   2005

  2004

   (Dollars in thousands)

5.125% zero-coupon convertible senior subordinated notes due 2021

  $157,346  274,623

7 5/8 % senior notes due 2009

   276,299  274,890

5.125% senior notes due 2010

   299,715  —  

9.95% senior notes due 2010

   —    304,009

5.95% senior notes due 2013

   345,203  344,717

5.50% senior notes due 2014

   247,326  247,105

5.60% senior notes due 2015

   502,127  —  

Senior floating-rate notes due 2007

   200,000  200,000

Senior floating-rate notes due 2009

   300,000  300,000

Mortgage notes on land and other debt

   264,756  75,670
   

  
   $2,592,772  2,021,014
   

  

Our average debt outstanding was $1.6$3.0 billion in both 2003 and 2002 and $1.52005, compared to $2.0 billion in 2001.2004. The average rates for interest incurred were 7.7%5.7% in 2003, and 7.6%2005, compared to 6.4% in both 2002 and 2001.2004. Interest incurred for the year ended November 30, 2005 was $172.9 million, compared to $137.9 million in 2004. 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 and funds available under our senior securednew unsecured credit facilities. In May 2003, we amended and restatedfacility (the “New Facility”), which replaced our senior securedunsecured credit facilities (the “Credit Facilities”) to provide us with up to $1.3 billion of financing.in June 2005. The Credit Facilities consistNew Facility consists of a $712 million$1.7 billion revolving credit facility maturing in May 2008, a $315June 2010. The New Facility also includes access to an additional $500 million 364-dayvia an accordion feature, under which the New Facility may be increased to $2.2 billion, subject to additional commitments. We repaid the outstanding balance under the Credit Facilities with borrowings under the New Facility. As of November 30, 2005, the commitment under the New Facility’s revolving credit facility maturing in May 2004 and a $300was increased by $40 million term loan B maturing in December 2008. We may electvia access of the accordion feature, reducing the access to convert borrowingsadditional commitments under the 364-day revolving credit facilityaccordion feature to a term loan, which would mature in May 2008.$460 million as of November 30, 2005. Subsequent to November 30, 2005, we received the remaining additional commitments of $460 million under the accordion feature increasing the New Facility to $2.2 billion. The Credit Facilities are collateralized by the stock of certain of our subsidiaries and are alsoNew Facility is guaranteed on a joint and several basis by substantially all of our subsidiaries other than finance company subsidiaries primarily engaged in(which include mortgage and title reinsurance activities.insurance subsidiaries). Interest rates on outstanding borrowings are LIBOR-based, with margins determined based on changes in our leverage ratio and credit ratings, or an alternate base rate. At

17


November 30, 2003, $296.0 million was outstanding under the term loan B and2005, no amounts were outstanding under the revolvingNew Facility. During the year ended November 30, 2005, the average daily borrowings under the Credit Facilities and the New Facility were $685.4 million.

We have a structured letter of credit facilities.facility (the “LC Facility”) with a financial institution. The purpose of the LC Facility is to facilitate the issuance of up to $200 million of letters of credit on a senior unsecured basis. In connection with the LC Facility, the financial institution issued $200 million of its senior notes, which are linked to our performance on the LC Facility. If there is an event of default under the LC Facility, including our failure to reimburse a draw against an issued letter of credit, the financial institution would assign its claim against us, to the extent of the amount due and payable by us under the LC Facility, to its noteholders in lieu of their principal repayment on their performance-linked notes.

In June 2005, we entered into a letter of credit facility with a financial institution. The purpose of the letter of credit facility is to facilitate the issuance of up to $150 million of letters of credit on a senior unsecured basis through the facility’s expiration date of June 2008.

 

At November 30, 2003,2005, we had letters of credit outstanding in the amount of $627.9 million.$1.2 billion, which includes $194.3 million outstanding under the LC Facility and $148.2 million outstanding under the letter of credit facility entered into in June 2005. The majority of these letters of credit are posted with regulatory bodies to guarantee our performance of certain development and construction activities or are posted in lieu of cash deposits on option contracts. Of our total letters of credit $341.4outstanding, $244.6 million were collateralized against certain borrowings available under the Credit Facilities.New Facility.

 

In February 2003,April 2005, we issued $350sold $300 million of 5.95%5.60% senior notes due 20132015 (the “Senior Notes”) at a price of 98.287%99.771%. Substitute registered notes were subsequently issued. Proceeds from the offering, after initial purchaser’s discount and expenses, were $297.5 million. We added the proceeds to our working capital to be used for general corporate purposes. Interest on the Senior Notes is due semi-annually. The senior notesSenior Notes are guaranteed on a jointunsecured and several basis by substantiallyunsubordinated. Substantially all of our subsidiaries other than finance company subsidiaries primarily engagedguaranteed the Senior Notes.

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In May 2005, we redeemed all of our outstanding 9.95% senior notes due 2010 (the “Notes”). The redemption price was $337.7 million, or 104.975% of the principal amount of the Notes outstanding, plus accrued and unpaid interest as of the redemption date. The redemption of the Notes resulted in mortgage and title reinsurance activities.a $34.9 million pretax loss.

In July 2005, we sold an additional $200 million of Senior Notes at a price of 101.407%. The Senior Notes were the same issue as the 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 to our working capital to be used for general corporate purposes. Interest on the Senior Notes is due semi-annually. The Senior Notes are unsecured and unsubordinated. Substantially all of our subsidiaries other than finance company subsidiaries guaranteed the Senior Notes. At November 30, 2005, the carrying value of the Senior Notes sold in April and July 2005 was $502.1 million.

In September 2005, we sold $300 million of 5.125% senior notes due 2010 (the “New 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 New Senior Notes is due semi-annually. The New Senior Notes are unsecured and unsubordinated. Substantially all of our subsidiaries other than finance company subsidiaries guaranteed the New Senior Notes. We have agreed to exchange the New Senior Notes for registered notes. The registered notes will have substantially identical terms as the New Senior Notes, except that the registered notes will not include transfer restrictions that are applicable to the New Senior Notes. At November 30, 2005, the carrying value of the New Senior Notes was $299.7 million.

In March and April 2004, we issued a total of $300 million of senior floating-rate notes due 2009 (the “Floating Rate Notes”) in a registered offering, which are callable at par beginning in March 2006. Proceeds from the offerings, after underwriting discount and expenses, were approximately $342$298.5 million. We used $116 million of the proceeds to repay outstanding indebtednesspartially prepay the term loan B portion of the Credit Facilities and added the remainder to our working capital to be used for general corporate purposes. We repaid the remaining outstanding balance of the term loan B with cash from our working capital. Interest on the Floating Rate Notes is three-month LIBOR plus 0.75% (5.17% as of November 30, 2005) and is payable quarterly, compared to the term loan B interest of three-month LIBOR plus 1.75%. The Floating Rate Notes are unsecured and unsubordinated. At November 30, 2005, the carrying value of the Floating Rate Notes was $300.0 million. Substantially all of our subsidiaries, other than finance company subsidiaries, have guaranteed the Floating Rate Notes.

In August 2004, we sold $250 million of 5.50% senior notes due 2014 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 Facilities. Interest on the senior notes is due semi-annually. The senior notes are unsecured and unsubordinated. Substantially all of our subsidiaries, other than finance company subsidiaries, guaranteed the senior notes. At November 30, 2005, the carrying value of the senior notes was $247.3 million. We also sold $200 million of senior floating-rate notes due 2007 in a private placement. The senior floating-rate notes are callable at par beginning in February 2006. Proceeds from the offering, after initial purchaser’s discount and expenses, were issued$199.3 million. We used the proceeds to repay borrowings under our shelf registration statement.Credit Facilities. Interest on the senior floating-rate notes is three-month LIBOR plus 0.50% (4.92% as of November 30, 2005) and is payable quarterly. The senior floating-rate notes are unsecured and unsubordinated. Substantially all of our subsidiaries, other than finance company subsidiaries, guaranteed the senior floating-rate notes. At November 30, 2005, the carrying value of the senior floating-rate notes was $200.0 million.

Substantially all of our subsidiaries, other than finance company subsidiaries, have guaranteed all our Senior Notes and Floating Rate 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 subsidiaries, other than finance company 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, 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. Therefore, if, the guarantor subsidiaries cease guaranteeing Lennar Corporation’s obligations under the principal revolving bank

22


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 the 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 the 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.

 

At November 30, 2003,2005, our Financial Services Division had warehouse lines of credit totaling $750 million, which included a $145 million temporary increase that expired in December 2003,$1.3 billion to fund itsour mortgage loan activities. Borrowings under the facilities were $714.4 million$1.2 billion at November 30, 20032005 and were collateralized by mortgage loans and receivables on loans sold but not yet funded by the investor with outstanding principal balances of $742.2 million.$1.3 billion. There are several interest rate-pricing options, which fluctuate with market rates. The effective interest rate on the facilities at November 30, 2005 was 5.1%. The warehouse lines of credit mature in May 2004August 2006 ($250700 million) and in October 2005April 2007 ($500600 million), at which time we expect boththe facilities to be renewed. Additionally, the line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At November 30, 2003,2005, we had advances under a conduit funding agreement with a major financial institution amounting to $0.6$10.7 million. Borrowings under this agreement are collateralized by mortgage loans.loans and had an effective interest rate of 5.0% at November 30, 2005. We also had a $20$25 million revolving line of credit with a bank that matures in August 2006, at which time the Division expects the line of credit to be renewed. The line of credit is collateralized by certain assets of the Division and stock of certain title subsidiaries. Borrowings under the line of credit were $19.4$23.6 million and had an effective interest rate of 4.9% at November 30, 2003.2005.

 

We have various interest rate swap agreements, which effectively convert variable interest rates to fixed interest rates on approximately $300$200 million of outstanding debt related to our homebuilding operations. The interest rate swaps mature at various dates through 2007fiscal 2008 and fix the LIBOR index (to which certain of our debt interest rates are tied) at an average interest rate of 6.8% at November 30, 2003.2005. The net effect on our operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. Counterparties to these agreements are major financial institutions. At November 30, 2003,2005, the fair market value of the interest rate swaps net of tax, was a $21.0$6.7 million liability. Our Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and, to a lesser extent, option contracts to protect the value of loans held for saleheld-for-sale from increases in market interest rates. We do not anticipate that we will suffer credit losses from counterparty non-performance.

 

We have met all of our quantifiable debt covenants. There have been no significant changes in liquidity from the balance sheet date to the date of issuance of this Annual Report on Form 10-K, except as noted above related to the remaining additional commitments of $460 million received under the accordion feature increasing the New Facility to $2.2 billion.

Changes in Capital Structure

On April 8, 2003, at our Annual Meeting of Stockholders, our stockholders approved an amendment to our certificate of incorporation that eliminated the restrictions on transfer of our Class B common stock and eliminated a difference between the dividends on the common stock (renamed Class A common stock) and the Class B common stock. The only significant remaining difference between the Class A common stock and the Class B common stock is that the Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

Because stockholders approved the change to the terms of the Class B common stock, we distributed to the holders of record of our stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. The distribution occurred on April 21, 2003 and our Class B common stock became listed on the New York Stock Exchange (“NYSE”). Our Class A common stock was already listed on the NYSE. Approximately 13 million shares of Class B common stock (adjusted for the January 2004 two-for-one stock split) were issued as a result of the stock distribution.

Additionally, our stockholders approved an amendment to our certificate of incorporation increasing the number of shares of common stock we are authorized to issue to 300 million shares of Class A common stock and 90 million shares of Class B common stock. However, we have committed to Institutional Shareholder

18


Services that we will not issue, without a subsequent stockholder vote, shares that would increase the outstanding Class A common stock to more than 170 million shares or increase the outstanding Class B common stock to more than 45 million shares.

The principal purpose of the April 2003 10% Class B stock distribution and the amendments to our certificate of incorporation was to make a greater number of authorized shares available for us to use in acquisitions, to sell in order to raise capital, to issue under stock option or other incentive programs or otherwise to issue.

In June 2003, we called our 3 7/8% zero-coupon senior convertible debentures due 2018 (the “Debentures”) for redemption. At the option of the holders, the Debentures could have been converted into Class A common stock at any time prior to the redemption date. Each $1,000 principal amount at maturity of Debentures was convertible into 27.4814 shares of Class A common stock (inclusive of the adjustment for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split), which equated to a redemption price of approximately $20.46 per share of Class A common stock. In 2003, substantially all of the Debentures were converted into approximately 13.6 million shares of Class A common stock (adjusted for the January 2004 two-for-one stock split).

 

In December 2003, our Board of Directors approvedJanuary 2004, we effected a two-for-one stock split in the form of a 100% stock dividend of Class A and Class B common stock for stockholders of record on January 6, 2004. The additionalstock. All share and per share amounts (except authorized shares, were distributed on January 20, 2004.treasury shares and par value) have been retroactively adjusted to reflect the split. There was no net effect on total stockholders’ equity. Share and per share data (except authorized shares, treasury shares and par value) for all periods presented have been retroactively adjusted to reflectequity as a result of the stock split.

Our 2003 Stock Option and Restricted Stock Plan (the “2003 Plan”) provides for the granting of Class A and Class B stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights are not less than the market value of the common stock on the date of the grant. No options granted under the 2003 Plan may be exercisable until at least six months after the date of the grant. Thereafter, 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 10 years after the date of the grant. At November 30, 2003, the 2003 Plan had no shares of restricted stock outstanding.

 

In June 2001, our Board of Directors increasedauthorized our previously authorized stock repurchase program to permit future purchases of up to 20 million shares of our outstanding Class A common stock (adjusted for our January 2004 two-for-one stock split). During 2003, we did not repurchase any of our outstanding common stock in the open market under these authorizations. In prior years under prior approvals, we had repurchased approximately 9.8 million shares (not adjusted for our January 2004 two-for-one stock split) of our outstanding Class A common stock for an aggregate purchase price of approximately $158.9 million, or $16 per share. In December 2003,stock. During 2005, we granted approximately 2.4 million stock options (adjusted for our January 2004 two-for-one stock split) to our employees under the 2003 Plan and in January 2004, repurchased a similar amounttotal of 5.1 million shares of our outstanding Class A common stock under our stock repurchase program for an aggregate purchase price of approximately $109.6$274.9 million, or $45.64$53.38 per share (adjusted forshare. As of November 30, 2005, 12.4 million shares of our January 2004 two-for-onecommon stock split).can be repurchased in the future under the program.

In addition to the Class A common shares purchased under our stock repurchase program, we repurchased approximately 229,000 Class A common shares related to the vesting of restricted stock and distributions of common stock from our deferred compensation plan during the year ended November 30, 2005.

 

In September 2003,2005, our Board of Directors voted to increase the annual dividend rate at which dividends are paid with regard to our Class A and Class B common stock to $0.50$0.64 per share per year (payable quarterly) from $0.025$0.55 per share per year (both adjusted for(payable quarterly). Dividend rates reflect our January 2004 two-for-one stock split). Additionally, our Board of Directors voted to retire our Class A common stock held in treasury.split.

 

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In recent years, we have sold convertible and non-convertible debt into public markets, and at year end,year-end, we had a shelf registration statement effective under the Securities Act registration statementsof 1933, as amended, under which we could sell to the public up to $620 million$1.0 billion of debt securities, common stock, preferred stock or other securities andsecurities. At November 30, 2005, we had another shelf registration statement effective under the Securities Act of 1933, as amended, under which we could issue up to $400 million of equity or debt securities in connection with acquisitions of companies or interests in companies, businesses or assets.

 

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 growth.

 

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OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Investments in Unconsolidated PartnershipsOff-Balance Sheet Arrangements

 

We frequently enter into partnershipsstrategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding operations or for sale to third parties.parties or (2) for the construction of homes for sale to third-party homebuyers. Through partnerships,these entities, we reduce and share our risk and also reduceby limiting the amount of our capital invested in land, while increasing access to potential future homesites. The use of partnershipsthese entities also, in some instances, enables 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. Our partners in these partnershipsentities generally are unrelated homebuilders, land sellers and financial or other real estate entities. While we view the use of unconsolidated partnerships as beneficial to our homebuilding activities, we do not view them as essential to those activities.strategic partners.

 

Most of the partnershipsentities in which we invest are accounted for by the equity method of accounting. At November 30, 2003, we had ownership interests2005, our recorded investment in unconsolidated entities was $1.3 billion and our estimated maximum exposure to loss with regard to unconsolidated entities was our recorded investments in these unconsolidated partnerships that did not exceed 50%.entities in addition to the exposure under the guarantees discussed below. In many instances, we are appointed as the day-to-day manager of the partnershipsthese entities and receive fees for performing this function. During 2003, 20022005, 2004 and 2001,2003, we received management fees and reimbursement of expenses totaling $39.0$58.6 million, $29.2$40.6 million and $26.1$39.0 million, respectively, from unconsolidated partnershipsentities in which we had interests.investments. We and/or our partners sometimes obtain options or enter into other arrangements under which we can purchase portions of the land held by the unconsolidated partnerships.entities. Option prices are generally negotiated prices that approximate fair market value when we receive the options. During 2005, 2004 and 2003, 2002 and 2001, $460.5$431.2 million, $419.3$547.6 million and $232.6$460.5 million, respectively, of the unconsolidated partnerships’entities’ revenues were from land sales to our homebuilding divisions. We do not include in our equity in earnings from unconsolidated entities our pro rata share of unconsolidated entities’ earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the unconsolidated entities. This in effect defers recognition of our share of the unconsolidated entities’ earnings related to these sales until we deliver a home and title passes to a homebuyer.

Summarized operating results for unconsolidated entities in which we had investments were as follows:

   Years Ended November 30,

 
   2005

  2004

  2003

 
   (Dollars in thousands) 

Revenues

  $2,676,628  1,641,018  1,314,674 

Costs and expenses

   2,020,470  1,199,243  938,981 
   


 

 

Net earnings of unconsolidated entities

  $656,158  441,775  375,693 
   


 

 

Our share of net earnings

  $241,631  148,868  148,914 

Our share of net earnings—recognized

   133,814  90,739  81,937 
   


 

 

Our share of net earnings—deferred

  $107,817  58,129  66,977 
   


 

 

Our investment in unconsolidated entities

  $1,282,686  856,422  390,334 

Equity of the unconsolidated entities

  $3,334,549  1,795,010  885,722 
   


 

 

Our investment % in the unconsolidated entities

   38.5% 47.7% 44.1%
   


 

 

 

At November 30, 2003,2005, the unconsolidated partnershipsentities in which we had interestsinvestments had total assets of $2.1$8.8 billion and total liabilities of $1.2$5.5 billion, which included $901.8 million$4.5 billion of notes and mortgages payable. In some instances, we and/or our partners have provided varying levelsguarantees of guaranteesdebt of certain unconsolidated entities on certain partnership debt.a pro rata basis. At November 30, 2003,2005, we had recourserepayment guarantees of $88.7$324.3 million and limited maintenance guarantees of $111.6$761.1 million related to unconsolidated entity debt. The fair market value of the unconsolidated partnerships’ debts.repayment guarantees is insignificant. When we and/or our partners provide guarantees, the partnershipunconsolidated entity generally receives more favorable terms from its lenders.lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnershipan unconsolidated entity defaults on its loan arrangements and the carrying 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 limited maintenance guarantee to bring the carrying value of the collateral above the specified

24


percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnershipentity and increase our share of any funds it distributes. At November 30, 2005, there were no assets held as collateral that, upon the unconsolidated partnership distributes.

During 2003, the unconsolidated partnerships in whichoccurrence of any triggering event or condition under a guarantee, we were a partner generated $1.3 billion of revenuescould obtain and incurred $939.0 million of expenses, resulting in net earnings of $375.7 million. Our share of those net earnings was $81.9 million. We do not include in our income our pro rata share of partnership earnings resulting from land salesliquidate to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the partnerships. This in effect defers recognition of our share of the partnership earnings until a home is delivered and title passes to a homebuyer.

In November 2003, we and LNR each contributed our 50% interests in certain of our jointly-owned unconsolidated partnerships that had significant assets to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for 50% interests in LandSource. In addition, in July 2003, we and LNR formed, and obtained 50% interests in, NWHL, which agreed to purchase, and in January 2004 completed the purchase, of The Newhall Land and Farming Company, for a total of approximately $1 billion. We and LNR each contributed approximately $200 million to NWHL to fundrecover all or a portion of the purchase price, and LandSource and NWHL jointly obtained $600 million of bank financing, of which $400 million was used in connection with the acquisition of Newhall (the remainder of the acquisition price wasamounts to be paid with proceeds ofunder a sale of income-producing properties from Newhall to LNR for $217 million). We are not obligated with regard to the borrowings by LandSource and NWHL, except that we and LNR have made limited maintenance guarantees and have committed to complete any property development commitments in the event of default. The combined assets and liabilities of LandSource and NWHL at November 30, 2003 were $380.7 million and $122.3 million, respectively. Our combined investment in LandSource and NWHL was $128.8 million at November 30, 2003.guarantee.

 

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Contractual Obligations and Commercial Commitments

 

The following table summarizes our contractual obligations at November 30, 2003:2005:

 

     Payments Due by Period

     Payments Due by Period

Contractual Obligations


  Total

  Less
than 1 year


  1 to 3 years

  4 to 5 years

  Over 5 years

  Total

  

Less

than 1 year


  1 to 3 years

  3 to 5 years

  More than
5 years


  (Dollars in thousands)  (In thousands)

Homebuilding—Senior notes and other debts payable

  $1,552,217  21,523  64,158  8,000  1,458,536  $2,592,772  27,631  382,325  930,814  1,252,002

Financial Services—Notes and other debts payable (including limited-purpose finance subsidiaries)

   740,469  734,532  108  17  5,812

Financial services—Notes and other debts payable (including limited-purpose finance subsidiaries)

   1,270,438  1,269,782  —    —    656

Interest commitments under interest bearing debt

   768,800  138,135  238,980  167,266  224,419

Operating leases

   192,710  48,022  69,199  40,608  34,881   238,733  77,975  87,424  43,676  29,658
  

  
  
  
  
  

  
  
  
  

Total contractual cash obligations

  $2,485,396  804,077  133,465  48,625  1,499,229  $4,870,743  1,513,523  708,729  1,141,756  1,506,735
  

  
  
  
  
  

  
  
  
  

 

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 partnershipsentities until we are ready to build homes on them. This reduces our financial risk associated with land holdings. At November 30, 2003,2005, we had access to acquire approximately 135,000222,100 homesites through option contracts and unconsolidated partnerships.entities in which we have investments. At November 30, 2003,2005, we had $220.6$741.6 million of non-refundable option deposits and advanced costs on real estate related to certain of these homesites.

 

We are 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 $627.9 million$1.2 billion at November 30, 2003.2005. Additionally, we had outstanding performance and surety bonds related to site improvements at various projects with estimated costs to complete of $1.0$1.8 billion. We do not believe thatthere will be any draws upon these bonds, but if there were any, willthey would not have a material effect on our financial position, results of operations or cash flows.

 

Our Financial Services Division’s commitments regardingDivision had a pipeline of loans in process totaledtotaling approximately $2.6$3.7 billion at November 30, 2003.2005. To minimize credit risk, we use the same credit policies in the approval of theour commitments as are applied to our lending activities. Loans in process for which interest rates were committed to the borrowers totaled approximately $511.7 million as of November 30, 2005. 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, the total commitments do not necessarily represent future cash requirements. Loans in process for which interest rates were committed to the borrowers totaled approximately $330.7 million as of November 30, 2003. Substantially all of these commitments were for periods of 60 days or less.

 

Our Financial Services Division uses mandatory mortgage-backed securities (“MBS”) forward commitments (“MBS”)and MBS option contracts to hedge its interest rate exposure during the period from when it makesextends an interest rate commitmentlock to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments and MBS option contracts only with investment banks with primary dealer status and loan sales transactions with permanent investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and currentfair market value. At November 30, 2003,2005, we had open commitments amounting to $512.0$321.0 million to sell MBS with varying settlement dates through January 2004.February 2006.

 

ECONOMIC CONDITIONSEconomic Conditions

 

During 2003,2005, the homebuilding environment remained strong due to a positive supply/demand relationship, as well as low interest rates. As a result of this favorable environment as well as our recent homebuilding acquisitions and growth in the number of our active communities, our new orders increased by 18%15% in 2003.2005. Although the homebuilding business historically has

25


been cyclical, it has not undergone aan economic down cycle in a number of years. Further, during 2005, home prices rose significantly in many of our markets. This has led some people to assert that the prices of land, new homes and the stocksstock prices of homebuilding companies are overvaluedmay be inflated and willmay decline rapidly whenif the marketdemand for new homes begins to weaken.weakens. A decline in the prices of stocks of homebuilding companies would make it more expensive,for new homes could adversely affect both our revenues and margins. A decline in our stock price could make itraising capital through stock issuances more difficult for us to raise funds through stock issuances.and expensive.

 

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MARKET AND FINANCING RISKMarket and Financing Risk

 

We finance our contributions to joint ventures, land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from operations and public debt issuances, as well as cash borrowed under our revolving credit facilities.facility and warehouse lines of credit. We also buypurchase land under option agreements, which enableenables us to acquire homesites when we are ready to build homes on them. The financial risks of adverse market conditions associated with land holdings isare managed by prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process and limitation of riskrisks by using partners to share the costs of purchasing and developing land, as well as obtaining access to land through option arrangements.contracts.

 

BACKLOG

Backlog represents the number of homes subject to pending sales contracts. Homes are sold using sales contracts which are generally accompanied by sales deposits. Before entering into sales contracts, we generally prequalify our customers. In some instances, purchasers are permitted to cancel sales contracts if they are unable to close on the sale of their existing home or fail to qualify for financing and under certain other circumstances. We experienced an average cancellation rate of 20% in 2003, compared to 21% and 22% in 2002 and 2001, respectively. Although cancellations can delay the sales of our homes, they have not had a material impact on sales, operations or liquidity, because we closely monitor our prospective buyers’ ability to obtain financing and use the information to adjust construction start plans to match anticipated deliveries of homes. We do not recognize revenue on homes covered by pending sales contracts until the sales are closed and title passes to the new homeowners.

SEASONALITYSeasonality

 

We have historically experienced variability in our results of operations from quarter to quarterquarter-to-quarter due to the seasonal nature of the homebuilding business. We typically experience the highest rate of orders for new homes in the first half of the calendar year, although the rate of orders for new homes is highly dependent on the number of active communities and the timing of new community openings. Because new home deliveries trail orders for new homes by several months, weWe typically have a greater percentage of new home deliveries in the second half of our fiscal year compared to the first half.half because new home deliveries trail orders for new homes by several months. As a result, our revenues and operating earnings from sales of homes are generally higher in the second half of theour fiscal year.

 

INTEREST RATES AND CHANGING PRICESInterest 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. In recent years, the increases in these costs have followed the general rate of inflation and hence have not had a significant adverse impact on us. In addition, 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 PRONOUNCEMENTSNew Accounting Pronouncements

 

Our discussionIn December 2004, the Financial Accounting Standards Board (“FASB”) issued Staff Position 109-1,Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004(“FSP 109-1”). The American Jobs Creation Act, which was signed into law in October 2004, provides a tax deduction on qualified domestic production activities. When fully phased-in, the deduction will be up to 9% of the lesser of “qualified production activities income” or taxable income. Based on the guidance provided by FSP 109-1, this deduction should be accounted for as a special deduction under Statement of Financial Accounting Standards (“SFAS”) No. 109,Accounting for Income Taxes, and will reduce tax expense in the period or periods that the amounts are deductible on the tax return. FSP 109-1 was effective December 21, 2004 and the tax benefit resulting from the new deduction will be effective beginning in our first quarter of fiscal year 2006, which begins December 1, 2005. We are evaluating the impact of this law on our future financial statements and currently estimate the future reduction in our federal income tax rate to be approximately 75 basis points.

In December 2004, the FASB issued SFAS No. 123 (revised 2004),Share-Based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) establishes accounting pronouncementsstandards for transactions in which a company exchanges its equity instruments for goods or services. In particular, the statement will require companies to record compensation expense for all share-based payments, such as employee stock options, at fair market value. The statement’s effective date is the first interim or annual reporting period of the first fiscal year that begins on or after June 15, 2005 (our first quarter of fiscal year 2006 which begins December 1, 2005). We estimate that the adoption of SFAS No. 123(R) will result in a charge to net earnings of approximately $0.09 per share diluted for the year ending November 30, 2006.

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In March 2005, the SEC released Staff Accounting Bulletin No. 107,Share-Based Payment(“SAB No. 107”). SAB No. 107 provides the SEC staff position regarding the application of SFAS No. 123(R). SAB No. 107 contains interpretive guidance related to the interaction between SFAS No. 123(R) and theircertain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 also highlights the importance of disclosures made related to the accounting for share-based payment transactions.

In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154, which replaces APB Opinion No. 20,Accounting Changes, and SFAS No. 3,Reporting Accounting Changes in Interim Financial Statements, changes the requirements for the accounting and reporting of a change in an accounting principle. The statement requires retrospective application of changes in an accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (our fiscal year beginning December 1, 2006). The adoption of SFAS No. 154 is not expected to have a material impact on our financial statements is included in Note 1position, results of Notes to Consolidated Financial Statements.operations or cash flows.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATESCritical Accounting Policies and Estimates

 

Our accounting policies are more fully described in Note 1 of Notesthe notes to Consolidated Financial Statements.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 theour 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 theour 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.

 

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Homebuilding DivisionOperations

 

Revenue Recognition

 

SalesRevenues from sales of homes are recognized when sales are closed and title passes to the new homeowners. Additionally,Revenues from sales of other real estate (including sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete, title passes and collectibility of the receivable is reasonably assured. We do not include in our income our pro rata share of partnership earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the partnerships. This in effect defers recognition of our share of the partnership earnings until a home is delivered and title passes to a homebuyer. We believe that the accounting policy related to revenue recognition is a “criticalcritical accounting policy”policy because of the significance of revenue recognition.

 

Effective December 1, 2004, as a result of the determination that we met all applicable requirements under SFAS No. 66,Accounting for Sales of Real Estate, we began to apply the percentage-of-completion method to our mid-to-high-rise condominiums under construction. In accordance with SFAS No. 66, we record a portion of the value of condominium home contracts as revenue when (1) construction is beyond a preliminary stage, (2) the buyer is committed to the extent of being unable to require a full refund except for non-delivery of the home, (3) sufficient homes have already been sold to assure the entire property will not revert to rental property, (4) sales prices are collectible and (5) aggregate sales proceeds and costs can be reasonably estimated. Revenue recognized under the percentage-of-completion method is calculated based upon the percentage of total costs incurred in relation to total estimated costs to complete, and is adjusted for estimated cancellations due to potential customer defaults. The change to the percentage-of-completion method did not have a material impact on our financial condition as of November 30, 2005, or our results of operations or cash flows for the year ended November 30, 2005. Actual revenues and costs to complete construction in the future could differ from our current estimates. If our estimates of revenues and development costs change, then our revenues, cost of sales and related cumulative profits will be revised in the period that estimates change.

Inventories

 

Inventories are stated at cost, unless the inventory within a community is determined to be impaired, in which case the impaired inventory iswould be written down to fair market 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. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

 

27


We evaluate our inventory for impairment whenever indicators of impairment exist. Accounting standards require that if the sum of the undiscounted future cash flows expected to result from an asset is less than the reported value of the asset, an asset impairment must be recognized in the consolidated financial statements. The amount of impairment to recognize is calculated by subtracting the fair market value of the asset from the carrying value of the asset.

 

We believe that the accounting estimate related to inventory valuation and impairment is a “criticalcritical accounting estimate”estimate because: (1) it is highly susceptible to change because ofdue to the assumptions about future sales and cost of sales and (2) the impact of recognizing impairments on the assets reported in our consolidated balance sheets, as well as our net earnings, could be material. Our assumptions about future home sales prices and volumes require significant judgment because historically the residential homebuilding industry ishas been cyclical and is highly sensitive to changes in economic conditions. Although the homebuilding business historically has been cyclical, it has not undergone a down cycle in a number of years.

 

No material impairment charges were recorded during the years ended November 30, 2005, 2004 and 2003. While no material impairment existed as of November 30, 2003,2005, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to an impairment of inventory.

 

Warranty Costs

 

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 trade, 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 “criticalcritical accounting estimate”estimate because the estimate requires a large degree of judgment.

 

At November 30, 2003,2005, the reserve for warranty costs was $116.6$144.9 million. 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 PartnershipsEntities

 

We frequently enter into partnershipsinvest in entities that acquire and develop land for sale to us in connection with our homebuilding operations or for sale to third parties. Our partners generally are unrelated homebuilders, land sellers and financial or other real estate entities.strategic partners.

 

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Most of the partnershipsunconsolidated entities through which we acquire and develop land are accounted for by the equity method of accounting because we are not the primary beneficiary, for partnerships created after January 31, 2003, as defined under Financial Accounting Standards BoardFASB Interpretation No. 4646(R) (“FIN 46”46(R)”),Consolidation of Variable Interest Entities, and we have a significant, but less than controlling, interest in the partnerships.entities. We record theour investments in these partnershipsentities in our consolidated balance sheets as “Investments in Unconsolidated Partnerships”Entities” and our pro rata share of the partnerships’entities’ earnings or losses in our consolidated statements of earnings as “Equity in Earnings from Unconsolidated Partnerships,Entities,” as described in Note 56 of Notesthe notes to Consolidated Financial Statements.our consolidated financial statements. Advances to these partnershipsentities are included in the investment amount.balance.

 

Management uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, a partnership.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. DueThe 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 only significant influence, the accounting policy relating to the use of the equity method of accounting is a “critical accounting policy.”influence.

 

As of November 30, 2003,2005, we believe that the equity method of accounting is appropriate for our investments in unconsolidated partnershipsentities 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, 2003,2005, the unconsolidated partnershipsentities in which we had interestsinvestments had total assets of $2.1$8.8 billion and total liabilities of $1.2$5.5 billion.

 

28


Financial Services DivisionOperations

 

Revenue Recognition

 

Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and deliveredshipped to an investor. Premiums from title insurance policies are recognized as revenue on the effective datedates of the policy.policies. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Interest income on loans held-for-sale is recognized as earned over the terms of the mortgage loans based on the contractual interest rates. In all circumstances, we do not recognize revenue until the earnings process is complete and collectibility of the receivable is reasonably assured. We believe that the accounting policy related to revenue recognition is a “criticalcritical accounting policy”policy because of the significance of revenue recognition.

 

AllowancesAllowance for Loss ReservesLoan Losses

 

We provide an allowance for loan losses when and if we determine that loans or portions of them are not likely to be collected. In evaluating the adequacy of the allowance for loan losses, we consider various factors such as past loan loss experience, regulatory examinations, 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, 2003,2005, the allowance for loan losses was $3.0$1.2 million. While we believe that the 20032005 year-end allowance was adequate, particularly in view of the fact that we usually sell the loans in the secondary mortgage market on a non-recourse basis within 4560 days after we originate them, there can be no assurances that 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 incidenceoccurrence of loan charge-offs. At November 30, 2003, we also had anThis allowance for titlerequires management’s judgment and escrow losses of $0.6 million related to certain assets. These allowances require management’s judgments and estimates.estimate. For these reasons, we believe that the accounting estimatesestimate related to the allowancesallowance for loss reserves are “criticalloan losses is a critical accounting estimates.”estimate.

 

Homebuilding and Financial Services DivisionsOperations

 

Goodwill Valuation

 

Goodwill represents the excess of the purchase price over the fair market value of net assets acquired. The process of determining goodwill requires judgment. Evaluating goodwill for impairment involves the determination of the fair market value of our reporting units. Inherent in such fair market value determinations are certain judgments and

24


estimates, including the interpretation of current economic indicators and market valuations, and 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 those reasons, we believe that the accounting estimate related to goodwill impairment is a “criticalcritical accounting estimate.

 

During fiscal 2002, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)We review goodwill annually (or more frequently under certain conditions) for impairment in accordance with SFAS No. 142,Goodwill and Other Intangible AssetsAssets.. In connection with the adoption of SFAS No. 142, we performed a test for impairment of goodwill as of December 1, 2001, which resulted in no impairment being identified. Goodwill is no longer subject to amortization. Instead, we review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We performed our annual impairment test of goodwill as of September 30, 20032005 and determined that goodwill was not impaired.

 

At November 30, 2003,2005, goodwill was $212.7 million (net of accumulated amortization of $18.0 million).$253.1 million. While we believe that no impairment existed as of November 30, 2003,2005, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to an impairment of goodwill.

 

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, 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 incomeearnings in the period when the changes are enacted.

 

29


We believe that the accounting estimate for the valuation of deferred tax assets is a “criticalcritical accounting estimate”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 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. Although it is possible there will be changes that are not anticipated in our current estimates, we believe it is unlikely such changes would have a material period-to-period impact on our financial position or results of operations.

 

At November 30, 2003,2005, our net deferred tax asset was $177.8$111.1 million. Based on our assessment, it appears more likely than not that the net deferred tax asset will be realized through future taxable earnings.

 

Stock-Based Compensation

Item 7A.    QuantitativeWith the approval of a committee consisting of members of our Board of Directors, from time-to-time we issue to employees options to purchase our common stock. The committee approves grants only from amounts remaining available for grant that were formally authorized by our common stockholders. We grant approved options with an exercise price not less than the market price of the common stock on the date of the option grant. We account for options under the provisions of Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees, and, Qualitative Disclosures About Market Risk.accordingly, recognize no compensation expense for the grants. SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123, require us to disclose the effects on net earnings and basic and diluted earnings per share had we recorded compensation expense in accordance with SFAS No. 123.

In December 2004, the FASB issued SFAS No. 123(R). SFAS No. 123(R) establishes accounting standards for transactions in which a company exchanges its equity instruments for goods or services. In particular, the statement will require companies to record compensation expense for all share-based payments, such as employee stock options, at fair market value. The statement’s effective date is the first interim or annual reporting period of the first fiscal year that begins on or after June 15, 2005 (our first quarter of fiscal year 2006 beginning December 1, 2005). We estimate that the adoption of SFAS No. 123(R) will result in a charge to net earnings of approximately $0.09 per share diluted for the year ending November 30, 2006.

In March 2005, the SEC released Staff Accounting Bulletin No. 107,Share-Based Payment(“SAB No. 107”). SAB No. 107 provides the SEC staff position regarding the application of SFAS No. 123(R). SAB No. 107 contains interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 also highlights the importance of disclosures made related to the accounting for share-based payment transactions.

We believe that the accounting estimate for the valuation of share-based payment is a critical accounting estimate because judgment is required in determining the valuation of the stock options granted to employees.

30


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, mortgage loans held-for-sale and mortgage loans held for sale.held-for-investment. We utilize derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage our exposure to changes in interest rates. We also utilize forward commitments and option contracts to mitigate the riskrisks associated with our mortgage loan portfolio.

 

The tablestable on the following pages providepage provides information at November 30, 2003 and 20022005 about our significant derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For mortgageinvestments available-for-sale, loans held for sale, mortgageheld-for-sale, loans held-for-investment and investments held-to-maturity, senior notes and other debts payable and notes and other debts payable, the tables present principal cash flows and related weighted average effective interest rates by expected maturity dates and estimated fair market values at November 30, 2003 and 2002.2005. Weighted average variable interest rates are based on the variable interest rates at November 30, 2003 and 2002. Our term loan B is presented as fixed rate debt because our interest rate swaps effectively changed the majority of the debt from a variable interest rate to a fixed interest rate.2005. For interest rate swaps, the tables presenttable presents notional amounts and weighted average interest

25


rates by contractual maturity dates and estimated fair market values at November 30, 2003 and 2002.2005. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contracts. Our limited-purpose finance subsidiaries have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral and are excluded from the following tables.table. Our trading investments primarily mutual funds, do not have interest rate sensitivity, and therefore, are also excluded from the following tables.table.

 

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Notes 1 and 1416 of Notesthe notes to Consolidated Financial Statementsconsolidated financial statements in Item 8 for a further discussion of these items and our strategy of mitigating our interest rate risk.

 

2631


Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

November 30, 20032005

 

  

Years Ending November 30,


   Fair Market
Value at
November 30,
2003


  Years Ending November 30,

   

Fair Market

Value at

November 30,

2005


  2004

 2005

 2006

 2007

 2008

 Thereafter

 Total

   2006

 2007

 2008

     2009    

     2010    

 Thereafter

 Total

 
  (Dollars in millions)  (Dollars in millions)            

ASSETS

       

Homebuilding:

 

Investments available-for-sale:

 

Fixed rate

 $—    —    —    —    —    8.9  8.9 8.9

Average interest rate

  —    —    —    —    —    7.5% —   —  

Financial services:

       

Mortgage loans held for sale, net:

      

Loans held-for-sale, net:

 

Fixed rate

  $—    —    —    —    —    383.2  383.2  383.2  $—    —    —    —    —    320.5  320.5 320.5

Average interest rate

   —    —    —    —    —    6.1% —    —     —    —    —    —    —    6.7% —   —  

Variable rate

  $—    —    —    —    —    159.3  159.3  159.3  $—    —    —    —    —    242.0  242.0 242.0

Average interest rate

   —    —    —    —    —    5.0% —    —     —    —    —    —    —    6.2% —   —  

Mortgage loans and investments:

      

Loans held-for-investment and investments held-to-maturity:

 

Fixed rate

  $30.6  3.8  6.0  0.6  2.0  15.5  58.5  57.4  $105.3  52.0  4.3  0.2  0.8  15.1  177.7 175.9

Average interest rate

  6.0% 6.4% 7.6% 11.7% 6.0% 8.6% —   —  

Variable rate

 $—    —    —    0.1  0.1  1.7  1.9 1.5

Average interest rate

   1.7% 4.0% 10.4% 23.6% 10.0% 9.9% —    —     —    —    —    5.2% 5.2% 5.2% —   —  

LIABILITIES

       

Homebuilding:

       

Senior notes and other debts payable:

       

Fixed rate

  $21.5  45.7  18.4  4.0  4.0  1,458.6  1,552.2  1,878.8  $27.6  35.3  50.8  297.7  301.6  1,252.0  1,965.0 2,072.9

Average interest rate

   4.8% 7.2% 11.9% 2.9% 2.9% 6.4% —    —     3.8% 6.3% 4.4% 7.6% 5.1% 5.6% —   —  

Variable rate

 $—    200.0  96.2  300.0  31.6  —    627.8 628.0

Average interest rate

  —    4.9% 6.0% 4.6% 8.7% —    —   —  

Financial services:

       

Notes and other debts payable:

       

Fixed rate

  $—    —    —    —    —    —    —    —   

Average interest rate

   —    —    —    —    —    —    —    —   

Variable rate

  $734.5  0.1  0.1  —    —    —    734.7  734.7  $1,269.8  —    —    —    —    —    1,269.8 1,269.8

Average interest rate

   1.8% 4.9% 4.9% —    —    —    —    —     5.1% —    —    —    —    —    —   —  

OTHER FINANCIAL INSTRUMENTS

       

Homebuilding:

      

Homebuilding liabilities:

 

Interest rate swaps:

       

Variable to fixed—notional amount

  $—    100.0  —    200.0  —    —    300.0  (33.7)

Variable to fixed-notional amount

 $—    130.3  69.7  —    —    —    200.0 6.7

Average pay rate

   —    6.7% —    6.8% —    —    —    —     —    6.8% 6.8% —    —    —    —   —  

Average receive rate

   —    LIBOR  —    LIBOR  —    —    —    —     —    LIBOR  LIBOR  —    —    —    —   —  

 

2732


Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

November 30, 2002Management’s Annual Report on Internal Control Over Financial Reporting

 

   Years Ending November 30,

  Thereafter

  Total

  Fair Market
Value at
November 30,
2002


 
   2003

  2004

  2005

  2006

  2007

     
   (Dollars in millions) 

ASSETS

                          

Financial services:

                          

Mortgage loans held for sale, net:

                          

Fixed rate

  $—    —    —    —    —    616.6  616.6  616.6 

Average interest rate

   —    —    —    —    —    6.2% —    —   

Variable rate

  $—    —    —    —    —    91.7  91.7  91.7 

Average interest rate

   —    —    —    —    —    5.2% —    —   

Mortgage loans and investments:

                          

Fixed rate

  $22.1  6.3  0.3  6.0  0.6  17.4  52.7  52.1 

Average interest rate

   2.9% 2.6% 13.7% 10.4% 14.7% 11.1% —    —   

LIABILITIES

                          

Homebuilding:

                          

Senior notes and other debts payable:

                          

Fixed rate

  $64.1  19.7  14.6  17.5  379.8  1,089.6  1,585.3  1,779.7 

Average interest rate

   10.1% 4.3% 15.2% 13.0% 4.0% 7.1% —    —   

Financial services:

                          

Notes and other debts payable:

                          

Fixed rate

  $—    —    —    —    —    —    —    —   

Average interest rate

   —    —    —    —    —    —    —    —   

Variable rate

  $688.4  165.0  —    —    —    —    853.4  853.4 

Average interest rate

   2.3% 2.3% —    —    —    —    —    —   

OTHER FINANCIAL INSTRUMENTS

                          

Homebuilding:

                          

Interest rate swaps:

                          

Variable to fixed—notional amount

  $—    —    100.0  —    200.0  —    300.0  (39.3)

Average pay rate

   —    —    6.7% —    6.8% —    —    —   

Average receive rate

   —    —    LIBOR  —    LIBOR  —    —    —   

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 inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal Control—Integrated Framework,our management concluded that our internal control over financial reporting was effective as of November 30, 2005. Our management’s assessment of the effectiveness of our internal control over financial reporting as of November 30, 2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

 

2833


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Lennar Corporation

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Lennar Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of November 30, 2005, based on the criteria established inInternal 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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, management’s assessment that the Company maintained effective internal control over financial reporting as of November 30, 2005, is fairly stated, in all material respects, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2005, based on the criteria established inInternal 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, 2005 of the Company and our report dated February 7, 2006 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 7, 2006

34


Item 8.    Financial Statements and Supplementary Data.

 

REPORT OF INDEPENDENT AUDITORS’ REPORTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Lennar Corporation:Corporation

 

We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the “Company”) as of November 30, 20032005 and 20022004, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the three years in the period ended November 30, 2003.2005. 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 auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit 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, thesuch consolidated financial statements referred to above present fairly, in all material respects, the financial position of the CompanyLennar Corporation and subsidiaries as of November 30, 20032005 and 2002,2004, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003,2005, 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 effectiveness of the Company’s internal control over financial reporting as of November 30, 2005, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 7, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

 

Miami, Florida

February 27, 20047, 2006

 

2935


LENNAR CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

November 30, 20032005 and 20022004

 

   2003

  2002

 
   (In thousands, except per
share amounts)
 
ASSETS        

Homebuilding:

        

Cash

  $1,201,276  731,163 

Receivables, net

   60,392  48,432 

Inventories:

        

Finished homes and construction in progress

   2,006,548  2,044,694 

Land under development

   1,592,978  1,185,473 

Consolidated inventory not owned

   49,329  —   

Land held for development

   7,246  7,410 
   


 

Total inventories

   3,656,101  3,237,577 

Investments in unconsolidated partnerships

   390,334  285,594 

Other assets

   450,619  357,738 
   


 

    5,758,722  4,660,504 

Financial services

   1,016,710  1,095,129 
   


 

Total assets

  $6,775,432  5,755,633 
   


 

LIABILITIES AND STOCKHOLDERS’ EQUITY        

Homebuilding:

        

Accounts payable and other liabilities

  $1,040,961  969,779 

Liabilities related to consolidated inventory not owned

   45,214  —   

Senior notes and other debts payable, net

   1,552,217  1,585,309 
   


 

    2,638,392  2,555,088 

Financial services

   873,266  971,388 
   


 

Total liabilities

   3,511,658  3,526,476 

Stockholders’ equity:

        

Preferred stock

   —    —   

Class A common stock of $0.10 par value per share (1)

        

Authorized: 2003-300,000 shares; 2002-100,000, Issued: 2003-125,328; 2002-130,122

   12,533  13,012 

Class B common stock of $0.10 par value per share (1)

        

Authorized: 2003-90,000 shares; 2002-30,000, Issued: 2003-32,508; 2002-19,400

   3,251  1,940 

Additional paid-in capital (1)

   1,358,304  866,026 

Retained earnings

   1,914,963  1,538,945 

Unearned restricted stock

   (4,301) (7,337)

Deferred compensation plan (1)—2003-534 Class A common shares and 53 Class B common shares; 2002-120 Class A common shares and 12 Class B common shares

   (4,919) (1,103)

Deferred compensation liability

   4,919  1,103 

Treasury stock, at cost; 2002-9,848 Class A common shares

   —    (158,992)

Accumulated other comprehensive loss

   (20,976) (24,437)
   


 

Total stockholders’ equity

   3,263,774  2,229,157 
   


 

Total liabilities and stockholders’ equity

  $6,775,432  5,755,633 
   


 


(1)Class A common stock, Class B common stock, additional paid-in capital, and all share information (except authorized shares, treasury shares and par value) have been retroactively adjusted to reflect the effect of the Company’s January 2004 two-for-one stock split. See Note 12.
  2005

  2004

 
  

(In thousands, except per

share amounts)

 
ASSETS       

Homebuilding:

       

Cash

 $909,557  1,310,920 

Restricted cash

  22,681  11,552 

Receivables, net

  299,232  153,285 

Inventories:

       

Finished homes and construction in progress

  4,625,563  3,140,520 

Land under development

  2,867,463  1,725,755 

Consolidated inventory not owned

  370,505  275,795 
  


 

Total inventories

  7,863,531  5,142,070 

Investments in unconsolidated entities

  1,282,686  856,422 

Goodwill

  195,156  183,345 

Other assets

  266,747  249,229 
  


 

   10,839,590  7,906,823 

Financial services

  1,701,635  1,258,457 
  


 

Total assets

 $12,541,225  9,165,280 
  


 

LIABILITIES AND STOCKHOLDERS’ EQUITY       

Homebuilding:

       

Accounts payable

 $876,830  554,666 

Liabilities related to consolidated inventory not owned

  306,445  222,769 

Senior notes and other debts payable

  2,592,772  2,021,014 

Other liabilities

  1,997,824  1,232,654 
  


 

   5,773,871  4,031,103 

Financial services

  1,437,700  1,038,478 
  


 

Total liabilities

  7,211,571  5,069,581 

Minority interest

  78,243  42,727 

Stockholders’ equity:

       

Preferred stock

  —    —   

Class A common stock of $0.10 par value per share

       

Authorized: 2005 and 2004-300,000 shares

       

Issued: 2005-130,247 shares; 2004-123,722 shares

  13,025  12,372 

Class B common stock of $0.10 par value per share

       

Authorized: 2005 and 2004-90,000 shares

       

Issued: 2005-32,781 shares; 2004-32,598 shares

  3,278  3,260 

Additional paid-in capital

  1,526,420  1,277,780 

Retained earnings

  4,046,563  2,780,637 

Unearned compensation

  (39,432) (2,564)

Deferred compensation plan; 2005-439 Class A common shares and 44
Class B common shares; 2004-695 Class A common shares and 70 Class B common shares

  (4,047) (6,410)

Deferred compensation liability

  4,047  6,410 

Treasury stock, at cost; 2005-5,468 Class A common shares; 2004-90 Class A common shares

  (293,222) (3,938)

Accumulated other comprehensive loss

  (5,221) (14,575)
  


 

Total stockholders’ equity

  5,251,411  4,052,972 
  


 

Total liabilities and stockholders’ equity

 $12,541,225  9,165,280 
  


 

 

See accompanying notes to consolidated financial statements.

 

3036


LENNAR CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended November 30, 2003, 20022005, 2004 and 20012003

 

  2003

  2002 (1)

  2001 (1)

  2005

  2004

  2003

  (In thousands, except per share amounts)  

(Dollars in thousands, except per

share amounts)

Revenues:

                  

Homebuilding

  $8,348,645  6,751,301  5,554,747  $13,304,599  10,000,632  8,348,645

Financial services

   558,974  484,219  425,354   562,372  500,336  556,581
  

  
  
  

  
  

Total revenues

   8,907,619  7,235,520  5,980,101   13,866,971  10,500,968  8,905,226
  

  
  
  

  
  

Costs and expenses:

                  

Homebuilding

   7,288,356  5,993,209  4,934,071   11,177,807  8,601,338  7,288,356

Financial services

   404,521  356,608  336,223   457,604  389,605  402,862

Corporate general and administrative

   111,488  85,958  75,831   187,257  141,722  111,488
  

  
  
  

  
  

Total costs and expenses

   7,804,365  6,435,775  5,346,125   11,822,668  9,132,665  7,802,706
  

  
  
  

  
  

Equity in earnings from unconsolidated partnerships

   81,937  42,651  27,051

Equity in earnings from unconsolidated entities

   133,814  90,739  81,937

Management fees and other income, net

   21,863  33,313  18,396   61,515  69,251  26,817

Minority interest expense, net

   45,030  10,796  4,954

Loss on redemption of 9.95% senior notes

   34,908  —    —  
  

  
  
  

  
  

Earnings before provision for income taxes

   1,207,054  875,709  679,423

Earnings from continuing operations before provision for income taxes

   2,159,694  1,517,497  1,206,320

Provision for income taxes

   455,663  330,580  261,578   815,284  572,855  455,386
  

  
  

Earnings from continuing operations

   1,344,410  944,642  750,934

Discontinued operations:

         

Earnings from discontinued operations before provision for income taxes

   17,261  1,570  734

Provision for income taxes

   6,516  593  277
  

  
  

Earnings from discontinued operations

   10,745  977  457
  

  
  
  

  
  

Net earnings

  $751,391  545,129  417,845  $1,355,155  945,619  751,391
  

  
  
  

  
  

Basic earnings per share (1):

         

Earnings from continuing operations

  $8.65  6.08  5.10

Earnings from discontinued operations

   0.07  0.01  0.00
  

  
  

Earnings per share (2):

         

Basic

  $5.10  3.88  3.03

Net earnings

  $8.72  6.09  5.10
  

  
  
  

  
  

Diluted

  $4.65  3.51  2.73

Diluted earnings per share (1):

         

Earnings from continuing operations

  $8.17  5.70  4.65

Earnings from discontinued operations

   0.06  0.00  0.00
  

  
  
  

  
  

Net earnings

  $8.23  5.70  4.65
  

  
  

(1)Certain prior year amounts have been reclassified to conform to the 2003 presentation (see Note 1).
(2) Earnings per share amounts have been retroactively adjusted to reflect the effect of the Company’s April 2003 10% Class B stock distribution and January 2004 two-for-one stock split. Seesplit (See Notes 1012 and 12.14).

 

See accompanying notes to consolidated financial statements.

 

3137


LENNAR CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended November 30, 2003, 20022005, 2004 and 20012003

 

  2003

 2002

 2001

   2005

 2004

 2003

 
  (Dollars in thousands)   (Dollars in thousands) 

Class A common stock (1):

      

Beginning balance

  $13,012  12,824  12,546   $12,372  12,533  13,012 

Conversion of 3 7/8% zero-coupon senior convertible debentures to Class A common shares

   1,356  —    —      —    —    1,356 

Conversion of 5.125% zero-coupon convertible senior subordinated notes to Class A common shares

   409  —    —   

Par value of retired treasury stock

   (1,972) —    —      —    (240) (1,972)

Employee stock plans

   137  180  256 

Conversion of Class B common stock

   —    8  22 

Employee stock and director plans

   244  79  137 
  


 

 

  


 

 

Balance at November 30,

   12,533  13,012  12,824    13,025  12,372  12,533 
  


 

 

  


 

 

Class B common stock (1):

      

Beginning balance

   1,940  1,948  1,970    3,260  3,251  1,940 

Employee stock plans

   11  —    —      18  9  11 

10% Class B common stock distribution

   1,300  —    —      —    —    1,300 

Conversion to Class A common stock

   —    (8) (22)
  


 

 

  


 

 

Balance at November 30,

   3,251  1,940  1,948    3,278  3,260  3,251 
  


 

 

  


 

 

Additional paid-in capital (1):

      

Beginning balance

   866,026  836,538  805,243    1,277,780  1,358,304  866,026 

10% Class B common stock distribution

   351,368  —    —      —    —    351,368 

Conversion of 3 7/8% zero-coupon senior convertible debentures to Class A common shares

   269,968  10  —      —    —    269,968 

Conversion of 5.125% zero-coupon convertible senior subordinated notes to Class A common shares

   127,869  —    —   

Conversion of other debt

   6  —    —      —    25  6 

Employee stock plans

   18,049  18,750  19,145 

Employee stock and director plans

   82,083  14,869  18,049 

Performance-based stock options

   (492) 844  —   

Tax benefit from employee stock plans and vesting of restricted stock

   10,951  10,728  12,150    39,180  13,142  10,951 

Retirement of treasury stock

   (158,064) —    —      —    (109,404) (158,064)
  


 

 

  


 

 

Balance at November 30,

   1,358,304  866,026  836,538    1,526,420  1,277,780  1,358,304 
  


 

 

  


 

 

Retained earnings:

      

Beginning balance

   1,538,945  996,998  582,299    2,780,637  1,914,963  1,538,945 

Net earnings

   751,391  545,129  417,845    1,355,155  945,619  751,391 

10% Class B common stock distribution including cash paid for fractional shares of $298

   (352,966) —    —   

10% Class B common stock distribution including cash paid for
fractional shares of $298 in 2003

   —    —    (352,966)

Cash dividends—Class A common stock

   (19,167) (2,746) (2,705)   (70,495) (63,252) (19,167)

Cash dividends—Class B common stock

   (3,240) (436) (441)   (18,734) (16,693) (3,240)
  


 

 

  


 

 

Balance at November 30,

   1,914,963  1,538,945  996,998    4,046,563  2,780,637  1,914,963 
  


 

 

  


 

 

Unearned restricted stock:

   

Unearned compensation:

   

Beginning balance

   (7,337) (10,833) (14,535)   (2,564) (4,301) (7,337)

Restricted stock cancellations

   —    387  415 

Amortization of unearned restricted stock

   3,036  3,109  3,287 

Issuance of restricted stock

   (44,276) (420) —   

Performance-based stock options

   492  (844) —   

Amortization of restricted stock and performance-based stock options

   6,916  3,001  3,036 
  


 

 

  


 

 

Balance at November 30,

   (4,301) (7,337) (10,833)   (39,432) (2,564) (4,301)
  


 

 

  


 

 

Deferred compensation plan:

      

Beginning balance

   (1,103) —    —      (6,410) (4,919) (1,103)

Deferred compensation activity

   (3,816) (1,103) —      2,363  (1,491) (3,816)
  


 

 

  


 

 

Balance at November 30,

   (4,919) (1,103) —      (4,047) (6,410) (4,919)
  


 

 

  


 

 

Deferred compensation liability:

   

Beginning balance

   1,103  —    —   

Deferred compensation activity

   3,816  1,103  —   
  


 

 

Balance at November 30,

   4,919  1,103  —   
  


 

 

 

See accompanying notes to consolidated financial statements.

 

3238


LENNAR CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)

Years Ended November 30, 2003, 20022005, 2004 and 20012003

 

  2003

 2002

 2001

  2005

 2004

 2003

 
  (Dollars in thousands)  (Dollars in thousands) 

Deferred compensation liability:

 

Beginning balance

 $6,410  4,919  1,103 

Deferred compensation activity

  (2,363) 1,491  3,816 
 


 

 

Balance at November 30,

  4,047  6,410  4,919 
 


 

 

Treasury stock, at cost:

    

Beginning balance

   (158,992) (158,927) (158,943)  (3,938) —    (158,992)

Employee stock plans and vesting of restricted stock, net

   (1,044) (65) —   

Shares issued

   —    —    16 

Employee stock plans

  (14,385) (4,020) (1,044)

Purchases of treasury stock

  (274,899) (109,562) —   

Retirement of treasury stock

   160,036  —    —     —    109,644  160,036 
  


 

 

 


 

 

Balance at November 30,

   —    (158,992) (158,927)  (293,222) (3,938) —   
  


 

 

 


 

 

Accumulated other comprehensive loss:

    

Beginning balance

   (24,437) (19,286) —     (14,575) (20,976) (24,437)

SFAS No. 133 transition adjustment, net of tax

   —    —    (3,510)

Change in fair value of interest rate swaps, net of tax

   3,461  (5,151) (15,776)

Unrealized gains arising during period on interest rate swaps, net of tax

  10,049  6,734  3,461 

Unrealized gains arising during period on available-for-sale investment securities, net of tax

  185  53  —   

Company’s portion of unconsolidated entity’s minimum pension liability, net of tax

  (880) (386) —   
  


 

 

 


 

 

Balance at November 30,

   (20,976) (24,437) (19,286)  (5,221) (14,575) (20,976)
  


 

 

 


 

 

Net earnings

   751,391  545,129  417,845 

Total stockholders’ equity

 $5,251,411  4,052,972  3,263,774 
  


 

 

 


 

 

Comprehensive income

   754,852  539,978  398,559  $1,364,509  952,020  754,852 
  


 

 

Total stockholders’ equity

  $3,263,774  2,229,157  1,659,262 
  


 

 


(1) Class A common stock, Class B common stock and additional paid-in capital have been retroactively adjusted to reflect the effect of the Company’s January 2004 two-for-one stock split. Seesplit (See Note 12.14).

 

See accompanying notes to consolidated financial statements.

 

3339


LENNAR CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended November 30, 2003, 20022005, 2004 and 20012003

 

  2003

 2002

 2001

   2005

 2004

 2003

 
  (Dollars in thousands)   (Dollars in thousands) 

Cash flows from operating activities:

      

Net earnings

  $751,391  545,129  417,845 

Adjustments to reconcile net earnings to net cash provided by operating activities:

   

Net earnings from continuing operations

  $1,344,410  944,642  750,934 

Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities:

   

Depreciation and amortization

   54,503  47,031  48,383    65,169  55,573  54,503 

Amortization of discount on debt, net

   21,408  25,358  20,287 

Equity in earnings from unconsolidated partnerships

   (81,937) (42,651) (27,051)

Amortization of discount on debt

   14,389  17,713  21,408 

Equity in earnings from unconsolidated entities

   (133,814) (90,739) (81,937)

Distribution of earnings from unconsolidated entities

   221,131  128,535  137,657 

Minority interests

   45,030  10,796  4,954 

Tax benefit from employee stock plans and vesting of restricted stock

   10,951  10,728  12,150    39,180  13,142  10,951 

Deferred income tax provision (benefit)

   (51,143) (5,672) 9,769    10,220  81,532  (51,206)

Loss on redemption of 9.95% senior notes

   34,908  —    —   

Changes in assets and liabilities, net of effect from acquisitions:

      

Increase in receivables

   (50,659) (101,817) (57,100)   (221,275) (385,204) (50,657)

Increase in inventories

   (267,234) (242,330) (130,725)   (1,687,491) (870,194) (267,234)

(Increase) decrease in other assets

   (33,964) (11,122) 48 

(Increase) decrease in financial services loans held for sale

   165,773  (119,379) (211,143)

Increase (decrease) in accounts payable and other liabilities

   61,710  99,293  (23,267)

Increase in other assets

   (30,150) (1,289) (33,025)

(Increase) decrease in financial services loans held-for-sale

   (114,657) 94,948  165,773 

Increase in accounts payable and other liabilities

   741,690  418,573  54,296 

Net earnings from discontinued operations

   10,745  977  457 

Adjustment to reconcile net earnings from discontinued operations to net cash provided by operating activities (including gain on sale of discontinued operations of ($15,816)
in 2005)

   (16,510) 1,187  (1,985)
  


 

 

  


 

 

Net cash provided by operating activities

   580,799  204,568  59,196    322,975  420,192  714,889 
  


 

 

  


 

 

Cash flows from investing activities:

      

(Increase) decrease in restricted cash

   (11,129) 32,584  11,538 

Net additions to operating properties and equipment

   (18,848) (4,085) (13,110)   (21,747) (27,389) (18,848)

Decrease in investments in unconsolidated partnerships, net

   72,073  57,902  5,601 

(Increase) decrease in financial services mortgage loans

   (93) 13,886  (997)

Contributions to unconsolidated entities

   (919,817) (751,211) (235,650)

Distributions of capital from unconsolidated entities

   466,800  330,614  170,066 

(Increase) decrease in financial services loans held-for-investment

   (117,359) 1,211  (93)

Purchases of investment securities

   (29,614) (31,545) (18,143)   (37,350) (48,562) (29,614)

Proceeds from investment securities

   17,674  22,442  17,700    36,078  34,376  17,674 

Decrease in financial services mortgage servicing rights

   —    —    10,812 

Acquisitions, net of cash acquired

   (159,389) (424,277) —      (416,049) (105,730) (159,389)

Proceeds from the sale of business

   17,000  —    —   
  


 

 

  


 

 

Net cash provided by (used in) investing activities

   (118,197) (365,677) 1,863 

Net cash used in investing activities

   (1,003,573) (534,107) (244,316)
  


 

 

  


 

 

Cash flows from financing activities:

      

Net borrowings (repayments) under financial services short-term debt

   (118,989) 156,120  265,607    372,849  162,277  (118,989)

Net proceeds from issuance of 5.95% senior notes

   341,730  —    —   

Net proceeds from issuance of 5.125% zero-coupon convertible senior subordinated notes

   —    —    224,250 

Net proceeds from senior floating-rate notes due 2009

   —    298,500  —   

Net proceeds from senior floating-rate notes due 2007

   —    199,300  —   

Net proceeds from 5.125% senior notes

   298,215  —    —   

Net proceeds from 5.50% senior notes

   —    245,480  —   

Net proceeds from 5.60% senior notes

   501,460  —    —   

Net proceeds from 5.95% senior notes

   —    —    341,730 

Redemption of 9.95% senior notes

   (337,731) —    —   

Proceeds from other borrowings

   —    20,103  110    53,198  —    —   

Principal payments on other borrowings

   (186,078) (131,299) (24,272)

Principal payments on term loan B and other borrowings

   (190,240) (404,089) (186,078)

(Payments) receipts related to minority interests, net

   (33,181) (18,396) 2,682 

Common stock:

      

Issuance

   18,197  19,317  19,789 

Issuances

   38,069  14,537  18,197 

Repurchases

   (1,044) (65) —      (289,284) (113,582) (1,044)

Dividends and other

   (22,705) (3,182) (3,146)   (89,229) (79,945) (22,705)
  


 

 

  


 

 

Net cash provided by financing activities

   31,111  60,994  482,338    324,126  304,082  33,793 
  


 

 

  


 

 

 

34See accompanying notes to consolidated financial statements.

40


LENNAR CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS—(CONTINUED)(Continued)

Years Ended November 30, 2003, 20022005, 2004 and 20012003

 

   2003

  2002

  2001

   (Dollars in thousands)

Net increase (decrease) in cash

   493,713  (100,115) 543,397

Cash at beginning of year

   777,159  877,274  333,877
   


 

 

Cash at end of year

  $1,270,872  777,159  877,274
   


 

 

Summary of cash:

          

Homebuilding

  $1,201,276  731,163  824,013

Financial services

   69,596  45,996  53,261
   


 

 
   $1,270,872  777,159  877,274
   


 

 

Supplemental disclosures of cash flow information:

          

Cash paid for interest, net of amounts capitalized

  $6,559  18,589  17,546

Cash paid for income taxes

  $503,410  307,073  234,549

Supplemental disclosures of non-cash investing and financing activities:

          

Conversion of debt to equity

  $271,330  10  —  

Consolidated inventory not owned

  $45,214  —    —  

Purchases of inventory financed by sellers

  $15,395  21,087  28,993

Acquisitions:

          

Fair value of assets acquired, inclusive of cash of $9,004 in 2003 and $37,986 in 2002

  $159,453  664,424  —  

Goodwill recorded

   30,326  83,560  —  

Fair value of liabilities assumed

   (21,386) (285,721) —  
   


 

 

Cash paid

  $168,393  462,263  —  
   


 

 

   2005

  2004

  2003

 
   (Dollars in thousands) 

Net increase (decrease) in cash

  $(356,472) 190,167  504,366 

Cash at beginning of year

   1,415,815  1,225,648  721,282 
   


 

 

Cash at end of year

  $1,059,343  1,415,815  1,225,648 
   


 

 

Summary of cash:

           

Homebuilding

  $909,557  1,310,920  1,157,140 

Financial services

   149,786  104,895  68,508 
   


 

 

   $1,059,343  1,415,815  1,225,648 
   


 

 

Supplemental disclosures of cash flow information:

           

Cash paid for interest, net of amounts capitalized

  $15,844  —    6,559 

Cash paid for income taxes, net

  $571,498  278,444  503,410 

Supplemental disclosures of non-cash investing and financing activities:

           

Conversion of debt to equity

  $128,278  25  271,330 

Purchases of inventory financed by sellers

  $159,078  45,892  15,395 

Land distributions from unconsolidated entities

  $74,498  31,311  6,050 

Acquisitions:

           

Fair market value of assets acquired, inclusive of cash of $0 in 2005, $1,392 in 2004 and $9,004 in 2003

  $409,262  88,822  159,453 

Goodwill recorded

   13,781  26,656  30,326 

Fair market value of liabilities assumed

   (6,994) (8,356) (21,386)
   


 

 

Cash paid

  $416,049  107,122  168,393 
   


 

 

 

See accompanying notes to consolidated financial statements.

 

3541


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 (the “Company”) in which the CompanyLennar Corporation has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003(see Note 17) in which the CompanyLennar Corporation is deemed the primary beneficiary (see Note 15)(the “Company”). The Company’s investments in both unconsolidated partnershipsentities in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003in variable interest entities in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

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 that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Stock Split

 

In December 2003, the Company’s Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend of Class A and Class B common stock forpayable to stockholders of record on January 6, 2004. The additional shares were distributed on January 20, 2004. All share and per share amounts (except authorized shares, treasury shares and par value) have been retroactively adjusted to reflect the stock split. There was no net effect on total stockholders’ equity as a result of the stock split.

 

Stock-Based Compensation

UseThe Company grants stock options to certain employees for fixed numbers of Estimatesshares with, in each instance, an exercise price not less than the fair market value of the shares at the date of the grant. The Company accounts for the stock option grants in accordance with Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees. No compensation expense is recognized if stock options granted have exercise prices greater than or equal to the fair market value of the Company’s stock on the date of the grant. Compensation expense is recognized for stock option grants if the options are performance-based and the Company’s stock has appreciated from the grant date to the measurement date to a fair market value greater than the exercise price of the options. Compensation expense for performance-based options is recognized using the straight-line method over the vesting period of the options based on the difference between the exercise price of the options and the fair market value of the Company’s stock on the measurement date. The Company also grants restricted stock, which is valued based on the market price of the common stock on the date of grant. Compensation expense arising from restricted stock grants is recognized using the straight-line method over the period of the restrictions. Unearned compensation for performance-based options and restricted stock is shown as a reduction of stockholders’ equity in the consolidated balance sheets.

 

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 that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.42


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair market value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation, as amended by SFAS No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure, to stock-based employee compensation:

   Years Ended November 30,

 
   2005

  2004

  2003

 
   

(In thousands,

except per share amounts)

 

Net earnings, as reported

  $1,355,155  945,619  751,391 

Add: Total stock-based employee compensation expense included in reported net earnings, net of tax

   3,999  1,868  1,890 

Deduct: Total stock-based employee compensation expense determined under fair market value based method for all awards, net of tax

   (16,912) (13,086) (8,938)
   


 

 

Pro forma net earnings

  $1,342,242  934,401  744,343 
   


 

 

Earnings per share (1):

           

Basic—as reported

  $8.72  6.09  5.10 
   


 

 

Basic—pro forma

  $8.64  6.01  5.05 
   


 

 

Diluted—as reported

  $8.23  5.70  4.65 
   


 

 

Diluted—pro forma

  $8.16  5.63  4.61 
   


 

 


(1)Per share amounts have been retroactively adjusted to reflect the effect of the Company’s January 2004 two-for-one stock split.

The fair market 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, 2005, 2004 and 2003 were as follows:

   2005

  2004

  2003

Dividend yield

  1.0%  1.1%  0.9%

Volatility rate

  27%-34%  27%-36%  39%-46%

Risk-free interest rate

  3.8%-4.6%  2.8%-4.5%  2.2%-3.6%

Expected option life (years)

  2.0-5.0  2.0-5.0  2.0-5.0

Revenue Recognition

 

Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate (including the sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete, title passes and the collectioncollectibility of any remainingthe receivables is reasonably assured.

 

Effective December 1, 2004, as a result of the determination that the Company met all applicable requirements under SFAS No. 66,Accounting for Sales of Real Estate, the Company began to apply the percentage-of-completion method to its mid-to-high-rise condominiums under construction. In accordance with SFAS No. 66, the Company records a portion of the value of condominium home contracts as revenue when (1) construction is beyond a preliminary stage, (2) the buyer is committed to the extent of being unable to require a full refund except for non-delivery of the home, (3) sufficient homes have already been sold to assure the entire property will not revert to rental property, (4) sales prices are collectible and (5) aggregate sales proceeds and costs can be reasonably estimated. Revenue recognized under the percentage-of-completion method is calculated based upon the percentage of total costs incurred in relation to total estimated costs to complete, and is adjusted for estimated cancellations due to potential customer defaults. The change to the percentage-of-completion method did not have a material impact on the Company’s financial condition as of November 30, 2005, or its results of operations or cash flows for the year ended November 30, 2005. Actual revenues and costs to complete construction in the future could differ from the Company’s current estimates. If the Company’s estimates of revenues and development costs change, then its revenues, cost of sales and related cumulative profits will be revised in the period that estimates change.

43


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs were $82.3 million, $60.3 million and $54.9 million for the years ended November 30, 2005, 2004 and 2003, respectively.

Cash

 

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 the cash equivalents, the carrying amountamounts of these instruments approximatesapproximate their fair market values. Cash as of November 30, 20032005 and 20022004 included $68.7$193.6 million and $56.2$127.3 million, respectively, of cash primarily held in escrow for approximately three days and $45.2 million and $20.9 million, respectively, of restricted deposits.days.

 

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.

Inventories

 

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory iswould be written down to fair market 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. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired arewould be recorded as adjustments to the cost basis of the respective inventories. No material impairment wascharges were recorded during the years ended November 30, 2003, 2002 or 2001.2005, 2004 and 2003.

 

Construction overhead and selling expenses are expensed as incurred. Homes held for saleheld-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.

 

36


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 2003, 20022005, 2004 and 2001,2003, interest incurred by the Company’s homebuilding operations was $172.9 million, $137.9 million and $131.8 million, $130.6respectively; interest capitalized into inventories was $171.1 million, $137.6 million and $127.9$129.5 million, respectively,respectively; and interest expense primarily included in cost of homes sold and cost of land sold was $141.3$187.2 million, $145.6$134.2 million and $119.5$141.3 million, respectively.

 

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 30 years, for furniture, fixtures and equipment is two to ten years and for leasehold improvements is 5five years and for equipmentor the life of the lease, whichever is 2 to 10 years.shorter.

 

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 market value and unrealized holding gains and losses are recorded in earnings. Securities classified as held-to-maturity are carried at amortized cost because they are

44


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

purchased with the intent and ability to hold to maturity. Available-for-sale securities are recorded at fair market value. Any unrealized holding gains or losses on available-for-sale securities would beare reported in a separate component of stockholders’ equity, net of tax, effects, until realized.

 

At November 30, 20032005 and 2002,2004, investment securities classified as held-to-maturity totaled $28.0$32.1 million and $22.4$31.6 million, respectively, and were included in the assets of the Financial Services Division. The held-to-maturity securities consist mainly of certificates of deposit and U.S. treasury securities. At November 30, 2003,2005 and 2004, investment securities classified as trading totaled $6.9$8.7 million and $8.6 million, respectively, and were included in other assets of the Homebuilding Division. The trading securities are comprised mainly of marketable equity mutual funds designated to approximate the Company’s liabilities under its deferred compensation plan. There were no available-for-sale investment securitiesAdditionally, at November 30, 2003 or 2002.2005 and 2004, investment securities classified as available-for-sale totaled $8.9 million and $8.6 million, respectively, and were included in other assets of the Homebuilding Division. The available-for-sale securities are comprised of municipal bonds with an original maturity of 20 years and a cost basis of $8.5 million at November 30, 2005 and 2004.

Derivative Financial Instruments

 

Derivative Financial Instruments

Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards (“SFAS”)SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities,, as amended.amended by SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair market value. Gains or losses resulting from changes in the fair market value of derivatives are recognized in earnings or recorded in other comprehensive income and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

 

The Company’s policy is to designate at a derivative’s inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes.

 

The Company has various interest rate swap agreements, which effectively convert variable interest rates to fixed interest rates on approximately $300$200 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair market value in

37


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

other liabilities in the consolidated balance sheets at November 30, 20032005 and 2002.2004. The related loss is deferred, net of tax, in stockholders’ equity as accumulated other comprehensive loss (see Note 11).loss. The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS No. 133. Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The Company believes that there will be no ineffectiveness related to the interest rate swaps and therefore no portion of the accumulated other comprehensive loss will be reclassified into future earnings. The net effect on the Company’s operating results is that interest on the variable ratevariable-rate debt being hedged is recorded based on fixed interest rates.

 

The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into mortgage-backed securities (“MBS”) forward commitments and, to a lesser extent, MBS option contracts to protect the value of fixed rate lockedrate-locked loan commitments and loans held for saleheld-for-sale from fluctuations in market interest rates. These derivative financial instruments are designated as fair market value hedges, and, accordingly, for all qualifying and highly effective fair market value hedges, the changes in the fair market value of the derivative and the loss or gain on the hedged asset relatingrelated to the risk being hedged are recorded currently in earnings. The effect of the implementation of SFAS No. 133 on the Financial Services Division’s operating earnings was not significant.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair market value of net assets acquired and was amortized by the Company through fiscal 2001 on a straight-line basis over periods ranging from 15 to 20 years.acquired. At November 30, 20032005 and 2002,2004, goodwill was $212.7$253.1 million and $189.4$239.4 million, respectively (net of accumulated amortization of $18.0 million at November 30, 2003 and 2002).respectively. During fiscal 2003,2005 and 2004, the Company’s goodwill increased $30.3$13.8 million and $26.7 million, respectively, due to current year acquisitions and payment of contingent consideration related to prior year acquisitions, partially offset by the reduction of the Company’s net deferred tax asset valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill. Goodwill is included in other assets of the Homebuilding Division ($169.2 million and $155.4 million at November 30, 2003 and 2002, respectively) and the assets of the Financial Services Division ($43.5 million and $34.0 million at November 30, 2003 and 2002, respectively) in the consolidated balance sheets. Historically through fiscal 2001, in the event that facts and circumstances had indicated that the carrying value of goodwill might be impaired, an evaluation of recoverability would have been performed. If an evaluation had been required, the estimated future undiscounted cash flows associated with the goodwill would have been compared to the carrying amount to determine if a write-down to fair value based on discounted cash flows was required. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

 

The Company adopted SFAS No. 142,Goodwill and Other Intangible Assets on December 1, 2001. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. No impairment charges were recognized from the adoption of SFAS No. 142. The Company performed its annual impairment test of goodwill as of September 30, 2003 and determined that goodwill was not impaired. As of November 30, 2003 and 2002, there were no material identifiable intangible assets, other than goodwill. Net earnings and earnings per share for fiscal 2001 (adjusted for the Company’s April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) adjusted to exclude goodwill amortization, net of taxes, is as follows:

3845


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

   

(In thousands, except

per share amounts)

Net earnings:

    

Reported net earnings

  $417,845

Goodwill amortization, net of tax

   6,148
   

Adjusted net earnings

  $423,993
   

Basic earnings per share:

    

Reported basic earnings per share

  $3.03

Goodwill amortization, net of tax

   0.04
   

Adjusted basic earnings per share

  $3.07
   

Diluted earnings per share:

    

Reported diluted earnings per share

  $2.73

Goodwill amortization, net of tax

   0.04
   

Adjusted diluted earnings per share

  $2.77
   

acquisitions in the respective years and payment of contingent consideration related to prior period acquisitions. Goodwill is included in the assets of the Homebuilding Division ($195.2 million and $183.3 million at November 30, 2005 and 2004, respectively) and the assets of the Financial Services Division ($58.0 million and $56.0 million at November 30, 2005 and 2004, respectively) in the consolidated balance sheets.

 

The Company reviews goodwill annually (or more frequently under certain conditions) for impairment in accordance with SFAS No. 142,Goodwill and Other Intangible Assets. The Company performed its annual impairment test of goodwill as of September 30, 2005 and determined that goodwill was not impaired. No impairment was recorded during the years ended November 30, 2005, 2004 or 2003. As of November 30, 2005 and 2004, there were no material identifiable intangible assets, other than goodwill.

Income Taxes

 

Income taxes are accounted for in accordance with SFAS No. 109,Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on temporary differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

 

Product Warranty Costs

 

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. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:was as follows:

 

  (In thousands)   November 30,

 

Warranty reserve, November 30, 2002

  $93,606 
  2005

 2004

 
  (In thousands) 

Warranty reserve, beginning of year

  $116,826  116,571 

Provision

   120,167    177,285  142,398 

Payments

   (97,202)   (149,195) (142,143)
  


  


 

Warranty reserve, November 30, 2003

  $116,571 

Warranty reserve, end of year

  $144,916  116,826 
  


  


 

 

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.

 

Advertising CostsMinority Interest

 

The Company expenses advertising costshas consolidated certain joint ventures because the Company either was determined to be the primary beneficiary pursuant to Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) (“FIN 46(R)”),Consolidation of Variable Interest Entities, or has a controlling interest in these joint ventures. Therefore, the entities’ financial statements are consolidated in the Company’s financial statements and the partners’ equity is recorded as incurred. Advertising costs were $54.9 million, $43.9minority interest. Also included in minority interest is the estimated fair market value of all third-party interests in variable interest entities. At November 30, 2005 and 2004, minority interest was $78.2 million and $43.6$42.7 million, respectively. Minority interest expense, net was $45.0 million, $10.8 million and $5.0 million, respectively, for the years ended November 30, 2003, 20022005, 2004 and 2001, respectively.

Stock-Based Compensation2003.

 

The Company grants stock options to certain employees for fixed numbers of shares with, in each instance, an exercise price not less than the fair value of the shares at the date of the grant. The Company accounts for the

39


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

stock option grants in accordance with Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees. No compensation expense is recognized because all stock options granted have exercise prices not less than the market value of the Company’s stock on the date of the grant. The Company also grants restricted stock, which is valued based on the market price of the common stock on the date of grant. Unearned compensation arising from the restricted stock grants is amortized to expense using the straight-line method over the period of the restrictions. Unearned restricted stock is shown as a reduction of stockholders’ equity in the consolidated balance sheets.

The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation as amended by SFAS No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure, which was effective for the Company in fiscal 2003, to stock-based employee compensation:

   Years Ended November 30,

 
   2003

  2002

  2001

 
   

(In thousands,

except per share amounts)

 

Net earnings, as reported

  $751,391  545,129  417,845 

Add: Total stock-based employee compensation expense included in reported net earnings, net of related tax affects

   1,890  1,935  2,022 

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

   (8,938) (6,556) (5,818)
   


 

 

Pro forma net earnings

  $744,343  540,508  414,049 
   


 

 

Earnings per share:

           

Basic—as reported

  $5.10  3.88  3.03 
   


 

 

Basic—pro forma

  $5.05  3.85  3.00 
   


 

 

Diluted—as reported

  $4.65  3.51  2.73 
   


 

 

Diluted—pro forma

  $4.61  3.48  2.70 
   


 

 

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, 2003, 2002 and 2001 were as follows:

   2003

  2002

  2001

Dividend yield

  1.8%  0.1%  0.1%

Volatility rate

  39%-46%  42%-47%  40%-42%

Risk-free interest rate

  2.2%-3.6%  3.2%-5.1%  4.5%-5.8%

Expected option life (years)

  2.0-5.0  2.0-5.0  6.4

Earnings per Share

 

Earnings per share is accounted for in accordance with SFAS No. 128,Earnings per Share, which requires a dual presentation of basic and diluted earnings per share on the face of the consolidated statement of earnings.

46


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

 

Financial Services

 

Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and

40


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

delivered shipped to an investor. Premiums from title insurance policies are recognized as revenue on the effective datedates of the policy.policies. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

 

Mortgage loans held for saleLoans held-for-sale by the Financial Services Division that are designated as hedged assets are carried at fair market value asbecause the effect of changes in fair market value are reflected in the carrying amount of the loans and 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.

 

When the Division sells loans in the secondary mortgage market, a gain or loss is recognized to the extent that the sales proceeds exceed, or are less than, the book value of the loans. Loan origination fees, net of direct origination costs, are deferred and recognized as a component of the gain or loss when loans are sold.

 

Mortgage loansLoans for which the Financial Services Division has the positive intent and ability to hold to maturity consist of mortgage loans carried at cost, net of unamortized discounts. Discounts are amortized over the estimated lives of the loans using the interest method. Interest income on loans held-for-sale is recognized as earned over the term of the mortgage loans based on the contractual interest rates.

 

The Division also provides allowancesan allowance for loan losses when and if management determines that loans, or portions thereof, are uncollectible. The provision recorded and the adequacy of the related allowance is determined by management’s continuing evaluation of the loan portfolio in light of past loan loss experience, regulatory examinations, present economic conditions and other factors considered relevant by management. Anticipated changes in economic factors, 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. While 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.

 

The Division provides an allowance for estimated title and escrow losses based upon management’s evaluation of claims presented and estimates for any incurred but not reported claims. The allowance 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 allowance for title and escrow losses for both known and incurred but not reported claims is considered by management to be adequate for such purposes.New Accounting Pronouncements

 

In December 2004, the FASB issued Staff Position 109-1,NewApplication of FASB Statement No. 109, Accounting Pronouncementsfor Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (“FSP 109-1”). The American Jobs Creation Act, which was signed into law in October 2004, provides a tax deduction on qualified domestic production activities. When fully phased-in, the deduction will be up to 9% of the lesser of “qualified production activities income” or taxable income. Based on the guidance provided by FSP 109-1, this deduction should be accounted for as a special deduction under SFAS No. 109,Accounting for Income Taxes, and will reduce tax expense in the period or periods that the amounts are deductible on the tax return. FSP 109-1 was effective December 21, 2004 and the tax benefit resulting from the new deduction will be effective beginning in the Company’s first quarter of fiscal year 2006 beginning December 1, 2005. The Company is evaluating the impact of this law on its future financial statements and currently estimates the future reduction in its federal income tax rate to be approximately 75 basis points.

 

In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003,December 2004, the FASB issued SFAS No. 149,123 (revised 2004),Amendment of Statement 133 on Derivative Instruments and Hedging ActivitiesShare-Based Payment. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under (“SFAS No. 133. This123(R)”). SFAS No. 123(R) establishes accounting standards for transactions in which a company exchanges its equity instruments for goods or services. In particular, the statement waswill require companies to record compensation expense for all share-based payments, such as employee stock options, at fair market value. The statement’s effective for contracts entered intodate is the first interim or modifiedannual reporting period of the first fiscal year that begins on or after June 30, 2003.15, 2005 (the Company’s first quarter of fiscal year 2006 beginning December 1, 2005). The implementationCompany estimates that the adoption of SFAS No. 149 did not have123(R) will result in a material impact oncharge to net earnings of approximately $0.09 per share diluted for the Company’s financial condition, results of operations or cash flows.year ending November 30, 2006.

 

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests

4147


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

in limited life entities. The Company does not believe thatIn March 2005, the implementationSEC released Staff Accounting Bulletin No. 107,Share-Based Payment(“SAB No. 107”). SAB No. 107 provides the SEC staff position regarding the application of SFAS No. 150 had,123(R). SAB No. 107 contains interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. SAB No. 107 also highlights the importance of disclosures made related to the accounting for share-based payment transactions.

In May 2005, the FASB issued SFAS No. 154,Accounting Changes and Error Corrections—a replacement of APB opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154, which replaces APB Opinion No. 20,Accounting Changes, and SFAS No. 3,Reporting Accounting Changes in Interim Financial Statements, changes the requirements for the accounting and reporting of a change in an accounting principle. The statement requires retrospective application of changes in an accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or willthe cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 (the Company’s fiscal year beginning December 1, 2006). The adoption of SFAS No. 154 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

 

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”),Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of 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. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 15).

In December 2003, the Securities and Exchange Commission (“SEC”) expressed their view on accounting for loan commitments that relate to the origination of mortgage loans that will be held for resale. It is the SEC’s view that loan commitments are written options that should be recorded at their fair value, which in all cases should be a liability until either expiration or exercise. The Company estimates the value of these loan commitments as the difference between the current value of similar loans and the price at which the Company has committed to originate the loans. Under the Company’s current method of accounting for these loan commitments, the Company recognizes both derivative assets and liabilities. The SEC’s view, which is to be applied prospectively, is effective for commitments entered into in the first reporting period beginning after March 15, 2004. Management is currently evaluating the adoption of the SEC’s view and has not made a definitive determination as to its impact.

Reclassifications

 

Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 20032005 presentation. These reclassifications had no impact on reported net earnings. In particular, homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

 

2.    Discontinued Operations

In May 2005, the Company sold North American Exchange Company (“NAEC”), a subsidiary of the Financial Services Division’s title company, which generated a $15.8 million pretax gain. NAEC’s revenues were $3.3 million, $3.9 million and $2.4 million, respectively, for the years ended November 30, 2005, 2004 and 2003. As of November 30, 2005, there were no remaining assets or liabilities of discontinued operations. As of November 30, 2004, assets and liabilities of discontinued operations were $1.0 million and $0.3 million, respectively.

3.    Acquisitions

During 2005, the Company expanded its presence through homebuilding acquisitions in its East and West regions. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid $416.0 million. The results of operations of these acquisitions are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as the effect is not material. Total goodwill associated with these acquisitions and contingent consideration related to acquisitions prior to 2005 was $13.8 million.

During 2004, the Company expanded its presence through homebuilding acquisitions in all of its regions, expanded its mortgage operations in Oregon and Washington and expanded its title and closing business into Minnesota through the acquisition of Title Protection, Inc. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid $105.7 million, net of cash acquired. The results of operations of these acquisitions are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as the effect is not material. Total goodwill associated with these acquisitions and contingent consideration related to acquisitions prior to 2004 was $26.7 million.

 

During 2003, the Company expanded its presence in California and South Carolina through its homebuilding acquisitions, and purchased a title company, which expanded the Company’s title and closing business into the Chicago market. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid $159.4 million, net of cash acquired. The results of operations of the companies acquired by the Companythese acquisitions are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as the effect iswas not considered material. Total goodwill associated with these acquisitions and contingent consideration relatingrelated to acquisitions prior year acquisitionsto 2003 was $30.3 million.

 

During 2002, the Company expanded its operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened its positions in several of its existing markets

4248


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

with the Company’s homebuilding acquisitions. In connection with these acquisitions, total consideration, including debt of acquired companies, totaled approximately $600 million. The results of operations of the homebuilders acquired by the Company are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as the effect is not considered material. Total goodwill associated with these acquisitions was $74.7 million.

3.4.    Operating and Reporting Segments

 

The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company’s reportable operating segments are strategic business units that offer different products and services. The accounting policies of the segments are described in the summary of significant accounting policies in Note 1. Segment amounts include all elimination adjustments made in consolidation.

 

The Homebuilding

Homebuilding Division’s operations primarily include the sale and construction of single-family attached and detached homes, and to a lesser extent, condominiums, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnerships.

Financial Servicesentities. At November 30, 2005, the Company had homebuilding divisions located in the following states: Arizona, California, Colorado, Delaware, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, New York, North Carolina, South Carolina, Texas and Virginia.

 

The Financial Services Division provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of the Company’s homes and others. It sellsSubstantially all of the loans it originates are sold in the secondary mortgage market.market on a servicing released, non-recourse basis. The Financial Services Division also provides high-speed Internet access,and cable television and alarm installation and monitoring services to residents of the Company’s communities and others. At November 30, 2005, the Financial Services Division operated in the same markets as the Homebuilding Division, as well as other states.

 

Financial information relating to the Company’s reportable segments is as follows:

   Years Ended November 30,

   2003

  2002

  2001

   (In thousands)

Homebuilding Revenues:

          

Sales of homes

  $8,040,470  6,581,703  5,467,548

Sales of land

   308,175  169,598  87,199
   

  
  

Total homebuilding revenues

   8,348,645  6,751,301  5,554,747
   

  
  

Homebuilding Costs and Expenses:

          

Cost of homes sold

   6,180,777  5,119,668  4,275,321

Cost of land sold

   234,844  167,640  85,546

Selling, general and administrative

   872,735  705,901  573,204
   

  
  

Total homebuilding costs and expenses

   7,288,356  5,993,209  4,934,071
   

  
  

Equity in earnings from unconsolidated partnerships

   81,937  42,651  27,051

Management fees and other income, net

   21,863  33,313  18,396
   

  
  

Homebuilding operating earnings

  $1,164,089  834,056  666,123
   

  
  

Financial services revenues

  $558,974  484,219  425,354

Financial services costs and expenses

   404,521  356,608  336,223
   

  
  

Financial services operating earnings

  $154,453  127,611  89,131
   

  
  

Corporate general and administrative expenses

   111,488  85,958  75,831
   

  
  

Earnings before provision for income taxes

  $1,207,054  875,709  679,423
   

  
  

4349


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The following table sets forth additional financialFinancial information relatingrelated to the homebuilding operations:Company’s reportable operating segments was as follows:

 

   Years Ended November 30,

   2003

  2002

  2001

   (In thousands)

Depreciation and amortization

  $46,545  39,779  38,733
   

  
  

Net additions to operating properties and equipment

  $4,633  3,214  7,169
   

  
  
   Years Ended November 30,

   2005

  2004

  2003

   (Dollars in thousands)

Homebuilding revenues:

          

Sales of homes

  $12,711,789  9,559,847  8,040,470

Sales of land

   592,810  440,785  308,175
   

  
  

Total homebuilding revenues

   13,304,599  10,000,632  8,348,645
   

  
  

Homebuilding costs and expenses:

          

Cost of homes sold

   9,410,343  7,275,446  6,180,777

Cost of land sold

   391,984  281,409  234,844

Selling, general and administrative

   1,375,480  1,044,483  872,735
   

  
  

Total homebuilding costs and expenses

   11,177,807  8,601,338  7,288,356
   

  
  

Equity in earnings from unconsolidated entities

   133,814  90,739  81,937

Management fees and other income, net

   61,515  69,251  26,817

Minority interest expense, net

   45,030  10,796  4,954
   

  
  

Homebuilding operating earnings

  $2,277,091  1,548,488  1,164,089
   

  
  

Financial services revenues

  $562,372  500,336  556,581

Financial services costs and expenses

   457,604  389,605  402,862
   

  
  

Financial services operating earnings

  $104,768  110,731  153,719
   

  
  

Total segment operating earnings

  $2,381,859  1,659,219  1,317,808
   

  
  

Corporate general and administrative expenses

   187,257  141,722  111,488

Loss on redemption of 9.95% senior notes

   34,908  —    —  
   

  
  

Earnings from continuing operations before provision for income taxes

  $2,159,694  1,517,497  1,206,320
   

  
  

 

The following table sets forth additional financial information relating to the financial services operations:Company’s reportable operating segments:

 

  Years Ended November 30,

  Years Ended November 30,

  2003

  2002

  2001

  2005

  2004

  2003

  (In thousands)  (In thousands)

Homebuilding:

         

Interest expense

  $187,154  134,193  141,347
  

  
  

Depreciation and amortization

  $7,958  7,252  9,650  $54,823  45,848  46,545
  

  
  

Interest income, net

  $32,218  28,000  21,279
  

  
  
  

  
  

Net additions to operating properties and equipment

  $14,215  871  5,941  $11,739  7,552  4,633
  

  
  
  

  
  

Financial services:

         

Interest income, net

  $33,989  27,003  32,218
  

  
  

Depreciation and amortization

  $10,346  9,725  7,958
  

  
  

Net additions to operating properties and equipment

  $10,008  19,837  14,215
  

  
  

 

4.    Receivables

   November 30,

 
   2003

  2002

 
   (In thousands) 

Accounts receivable

  $55,997  43,931 

Mortgages and notes receivable

   5,686  6,912 
   


 

    61,683  50,843 

Allowance for doubtful accounts

   (1,291) (2,411)
   


 

   $60,392  48,432 
   


 

5.    InvestmentsDuring 2005, 2004 and 2003, interest included in Unconsolidated Partnershipsthe Homebuilding Division’s cost of homes sold was $168.8 million, $128.0 million and $135.9 million, respectively. During 2005, 2004 and 2003, interest included in the Homebuilding Division’s cost of land sold was $16.5 million, $5.8 million and $3.2 million, respectively. All other interest related to the Homebuilding Division is included in management fees and other income, net.

 

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

   November 30,

   2003

  2002

   (In thousands)

Assets:

       

Cash

  $219,919  47,502

Inventories

   1,701,318  1,170,782

Other assets

   166,837  136,579
   

  
   $2,088,074  1,354,863
   

  

Liabilities and equity:

       

Accounts payable and other liabilities

  $300,530  177,673

Notes and mortgages payable

   901,822  563,563

Equity of:

       

The Company

   390,334  285,594

Others

   495,388  328,033
   

  
   $2,088,074  1,354,863
   

  

4450


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

   Years Ended November 30,

   2003

  2002

  2001

   (In thousands)

Revenues

  $1,314,674  939,847  903,293

Costs and expenses

   938,981  780,093  761,704
   

  
  

Net earnings of unconsolidated partnerships

  $375,693  159,754  141,589
   

  
  

Company’s share of net earnings

  $81,937  42,651  27,051
   

  
  

5.    Receivables

   November 30,

 
   2005

  2004

 
   (In thousands) 

Accounts receivable

  $103,275  78,829 

Mortgages and notes receivable

   198,376  75,796 
   


 

    301,651  154,625 

Allowance for doubtful accounts

   (2,419) (1,340)
   


 

   $299,232  153,285 
   


 

 

At November 30, 2003,The Company’s receivables result primarily from the Company’ssale of land. The Company performs ongoing credit evaluations of its customers. The Company generally does not require collateral for accounts receivable. Notes receivable 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.

6.    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 interest in these Partnerships did not exceed 50%. method was as follows:

   November 30,

   2005

  2004

   (In thousands)

Assets:

       

Cash

  $334,530  380,213

Inventories

   7,615,489  3,305,999

Other assets

   875,741  527,468
   

  
   $8,825,760  4,213,680
   

  

Liabilities and equity:

       

Accounts payable and other liabilities

  $1,004,940  534,336

Notes and mortgages payable

   4,486,271  1,884,334

Equity of:

       

The Company

   1,282,686  856,422

Others

   2,051,863  938,588
   

  
   $8,825,760  4,213,680
   

  

   Years Ended November 30,

   2005

  2004

  2003

   (In thousands)

Revenues

  $2,676,628  1,641,018  1,314,674

Costs and expenses

   2,020,470  1,199,243  938,981
   

  
  

Net earnings of unconsolidated entities

  $656,158  441,775  375,693
   

  
  

Company’s share of net earnings—recognized

  $133,814  90,739  81,937
   

  
  

The Company’s partners generally are unrelated homebuilders, land sellers and financial or other real estate entities.strategic partners. The Partnershipsunconsolidated entities follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnershipsunconsolidated entities generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager of the Partnershipsunconsolidated entities and receives management fees for performing this function. During 2003, 20022005, 2004 and 2001,2003, the Company received management fees and reimbursement of expenses from the Partnershipsunconsolidated entities totaling $58.6 million, $40.6 million and $39.0 million, $29.2 million and $26.1 million, respectively. In determining its share of the Partnerships’ net earnings, the Company does not include in its income its pro rata share of partnership 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 partnerships. This in effect defers recognition of the Company’s share of the partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

51


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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 Partnerships.unconsolidated entities. Option prices are generally negotiated prices that approximate fair market value when the options are purchased.Company receives the options. During 2005, 2004 and 2003, 2002 and 2001, $460.5$431.2 million, $419.3$547.6 million and $232.6$460.5 million, respectively, of the Partnerships’unconsolidated entities’ revenues were from land sales to the Company. The Company does not include in its equity in earnings 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 homebuyer.

 

In some instances, the Company and/or its partners have provided varying levels of guarantees ofon debt of certain unconsolidated partnerships.entities on a pro rata basis. At November 30, 2003,2005, the Company had recourserepayment guarantees of $88.7$324.3 million and limited maintenance guarantees of $111.6$761.1 million related to unconsolidated entity debt ($200.0 million of debtthe limited maintenance guarantees related to LandSource Communities Development LLC). The fair market value of unconsolidated partnerships.the repayment guarantees is insignificant. When the Company and/or its partners provide a guarantee,guarantees, the partnershipunconsolidated entity generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnershipan unconsolidated entity defaults on its loan arrangements and the carrying value of 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 limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnershipentity and increase the Company’s share of any funds the unconsolidated partnershipentity distributes. ThereAt November 30, 2005, there were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts to be paid under a guarantee.

 

In November 2003, the Company and LNR Property Corporation (“LNR”) each contributed its 50% interests in certain of its jointly-owned unconsolidated partnershipsentities that had significant assets to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for 50% interests in LandSource. In addition, in July 2003, the Company and LNR formed, and obtained 50% interests in, NWHL, Investment, LLC (“NWHL”), which agreed to purchase, and in January 2004 completed the purchase, ofpurchased The Newhall Land and Farming Company (“Newhall”) for a total of approximately $1 billion. Newhall’s primary business is developing two master-planned communities in Los Angeles County, California.

LandSource was formed as a vehicle to obtain financing based on the value of the combined assets of the joint venture entities that the Company and LNR contributed to LandSource. The Company and LNR used LandSource’s financing capacity, together with the financing value of Newhall’s assets, to obtain improved financing for part of the purchase price of Newhall and for working capital to be used by the LandSource subsidiaries and Newhall.

The Company and LNR each contributed approximately $200 million to NWHL, and LandSource and NWHL jointly obtained $600 million of bank financing, of which $400 million was a term loan used in connection with the acquisition of Newhall (the remainder of the acquisition price was paid with proceeds of a sale of income-producing properties from Newhall to LNR for $217 million at the closing of the transaction). The remainder of the bank financing was a $200 million revolving credit facility that is available to finance operations of Newhall and other property ownership and development companies that are jointly owned by the Company and LNR. The Company agreed to purchase 687 homesites and obtained options to purchase an additional 623 homesites from the venture.Newhall. The Company is not obligated with regard to the borrowings by LandSource and NWHL, except that the Company and LNR have made limited maintenance guarantees and have committed to complete any property development commitments in the event LandSource or NWHL defaults.

 

45In November 2004, LandSource was merged into NWHL. NWHL was renamed LandSource Communities Development LLC (“Merged LandSource”) upon completion of the merger. The Company and LNR may use Merged LandSource for future joint ventures. The consolidated assets and liabilities of Merged LandSource were $1.4 billion and $767.5 million, respectively, at November 30, 2005 and $1.3 billion and $709.5 million, respectively, at November 30, 2004. The Company’s investment in Merged LandSource was $332.7 million and $318.7 million at November 30, 2005 and 2004, respectively.

52


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

have committed to complete any property development commitments in the event of default. The combined assets and liabilities of LandSource and NWHL at November 30, 2003 were $380.7 million and $122.3 million, respectively. The Company’s combined investment in LandSource and NWHL was $128.8 million at November 30, 2003.

6.7.    Operating Properties and Equipment

 

  November 30,

   November 30,

 
  2003

 2002

   2005

 2004

 
  (In thousands)   (In thousands) 

Operating properties

  $12,203  7,126 

Leasehold improvements

   22,027  18,170 

Furniture, fixtures and equipment

  $38,354  43,492    37,966  32,190 

Community recreational facilities

   6,083  8,077 

Leasehold improvements

   13,032  7,510 
  


 

  


 

   57,469  59,079    72,196  57,486 

Accumulated depreciation and amortization

   (36,631) (41,919)   (41,544) (36,175)
  


 

  


 

  $20,838  17,160   $30,652  21,311 
  


 

  


 

 

Operating properties and equipment are included in other assets in the consolidated balance sheets.

 

7.8.    Other Liabilities

   November 30,

   2005

  2004

   (In thousands)

Income taxes currently payable

  $463,588  267,090

Accrued compensation

   396,614  277,037

Other

   1,137,622  688,527
   

  
   $1,997,824  1,232,654
   

  

9.    Senior Notes and Other Debts Payable

 

  November 30,

  November 30,

  2003

  2002

  2005

  2004

  (Dollars in thousands)  (Dollars in thousands)

3 7/8% zero-coupon senior convertible debentures due 2018

  $—    266,917

5.125% zero-coupon convertible senior subordinated notes due 2021

   261,012  248,138  $157,346  274,623

7 5/8% senior notes due 2009

   276,299  274,890

5.125% senior notes due 2010

   299,715  —  

9.95% senior notes due 2010

   —    304,009

5.95% senior notes due 2013

   344,260  —     345,203  344,717

7 5/8% senior notes due 2009

   273,593  272,591

9.95% senior notes due 2010

   301,995  300,175

Term Loan B due 2008

   296,000  391,000

U.S. Home senior notes due through 2009

   2,367  9,366

The Fortress Group, Inc. senior notes due 2003

   —    12,575

5.50% senior notes due 2014

   247,326  247,105

5.60% senior notes due 2015

   502,127  —  

Senior floating-rate notes due 2007

   200,000  200,000

Senior floating-rate notes due 2009

   300,000  300,000

Mortgage notes on land and other debt

   72,990  84,547   264,756  75,670
  

  
  

  
  $1,552,217  1,585,309  $2,592,772  2,021,014
  

  
  

  

 

In May 2003,June 2005, the Company amended and restatedreplaced its senior securedunsecured credit facilities (the “Credit Facilities”) to provide the Company with up to $1.3 billion of financing.a new senior unsecured credit facility (the “New Facility”). The Credit Facilities consistNew Facility consists of a $712 million$1.7 billion revolving credit facility maturing in May 2008, a $315June 2010. The New Facility also includes access to an additional $500 million 364-dayvia an accordion feature, under which the New Facility may be increased to $2.2 billion, subject to additional commitments. The Company repaid the outstanding balance under the Credit Facilities with borrowings under the New Facility. As of November 30, 2005, the commitment under the New Facility’s revolving credit facility maturing in May 2004 and a $300was increased by $40 million term loan B maturing in December 2008. The Company may electvia access of the accordion feature, reducing the access to convert borrowingsadditional commitments under the 364-day revolving credit facilityaccordion feature to a term loan, which would mature in May 2008.$460 million as of November 30, 2005. Subsequent to November 30, 2005, the Company received the remaining additional commitments of $460 million under the accordion feature increasing the New Facility to $2.2 billion. The Credit Facilities are collateralized by the stock of certain of the Company’s subsidiaries and are alsoNew Facility is guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries other than finance company subsidiaries primarily engaged in(which include mortgage and title reinsurance activities. At November 30, 2003, $296.0 million was outstanding under the term loan B and no amounts were outstanding under the revolving credit facilities.insurance subsidiaries). Interest rates on outstanding borrowings are LIBOR-based, and thewith margins are set by a pricing grid with thresholds that adjustdetermined based on changes in the Company’s leverage ratio and credit ratings, or an alternate base rate, as described in the Credit Facilities’ credit rating.agreement. At November 30, 2005, no amounts were outstanding under the New Facility.

53


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has a structured letter of credit facility (the “LC Facility”) with a financial institution. The purpose of the LC Facility is to facilitate the issuance of up to $200 million of letters of credit on a senior unsecured basis. In connection with the LC facility, the financial institution issued $200 million of their senior notes, which were linked to the Company’s performance on the LC Facility. If there is an event of default under the LC Facility, including the Company’s failure to reimburse a draw against an issued letter of credit, the financial institution would assign its claim against the Company, to the extent of the amount due and payable by the Company under the LC Facility, to its noteholders in lieu of their principal repayment on their performance-linked notes.

In June 2005, the Company entered into a letter of credit facility with a financial institution. The purpose of the letter of credit facility is to facilitate the issuance of up to $150 million of letters of credit on a senior unsecured basis through the facility’s expiration date of June 2008.

 

At November 30, 2003,2005, the Company had letters of credit outstanding in the amount of $627.9 million.$1.2 billion, which includes $194.3 million outstanding under the LC Facility and $148.2 million outstanding under the letter of credit facility entered into in June 2005. The majority of these letters of credit are posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities or are posted in lieu of cash deposits on option contracts. Of the Company’s total letters of credit $341.4outstanding, $244.6 million were collateralized against certain borrowings available under the Credit Facilities.New Facility.

 

46In April 2005, the Company sold $300 million of 5.60% senior notes due 2015 (the “Senior Notes”) at a price of 99.771%. Substitute registered notes were subsequently issued. Proceeds from the offering, after initial purchaser’s discount and expenses, were $297.5 million. The Company added the proceeds to the Company’s working capital to be used for general corporate purposes. Interest on the Senior Notes is due semi-annually. The Senior Notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries other than finance company subsidiaries guaranteed the Senior Notes.

In May 2005, the Company redeemed all of its outstanding 9.95% senior notes due 2010 (the “Notes”). The redemption price was $337.7 million, or 104.975% of the principal amount of the Notes outstanding, plus accrued and unpaid interest as of the redemption date. The redemption of the Notes resulted in a $34.9 million pretax loss.

In July 2005, the Company sold an additional $200 million of Senior Notes at a price of 101.407%. The Senior Notes were the same issue as the 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 to the Company’s working capital to be used for general corporate purposes. Interest on the Senior Notes is due semi-annually. The Senior Notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries other than finance company subsidiaries guaranteed the Senior Notes. At November 30, 2005, the carrying value of the Senior Notes sold in April and July 2005 was $502.1 million.

In September 2005, the Company sold $300 million of 5.125% senior notes due 2010 (the “New Senior Notes”) at a price of 99.905%. 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 New Senior Notes is due semi-annually. The New Senior Notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries other than finance company subsidiaries guaranteed the New Senior Notes. The Company has agreed to exchange the New Senior Notes for registered notes. The registered notes will have substantially identical terms as the New Senior Notes, except that the registered notes will not include transfer restrictions that are applicable to the New Senior Notes. At November 30, 2005, the carrying value of the New Senior Notes was $299.7 million.

In March and April 2004, the Company issued a total of $300 million of senior floating-rate notes due 2009 (the “Floating Rate Notes”), in a registered offering, which are callable at par beginning in March 2006. Proceeds from the offerings, after underwriting discount and expenses, were $298.5 million. The Company used the proceeds to partially prepay the term loan B portion of the Credit Facilities and added the remainder to the Company’s working capital to be used for general corporate purposes. The Company repaid the remaining outstanding balance of the term loan B with cash from the Company’s working capital. Interest on the Floating Rate Notes is three-month LIBOR plus 0.75% (5.17% as of November 30, 2005) and is payable quarterly,

54


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

compared to the term loan B interest of three-month LIBOR plus 1.75%. The Floating Rate Notes are unsecured and unsubordinated. At November 30, 2005 and 2004, the carrying value of the Floating Rate Notes was $300.0 million. Substantially all of our subsidiaries, other than finance company subsidiaries, have guaranteed the Floating Rate Notes.

In February 2003,August 2004, the Company issued $350sold $250 million of 5.95%5.50% senior notes due 20132014 at a price of 98.287%.98.842% in a private placement. Proceeds from the offering, after underwritinginitial purchaser’s discount and expenses, were approximately $342$245.5 million. The Company used $116 million of the proceeds to repay outstanding indebtedness and addedborrowings under its Credit Facilities. Interest on the remainder to its general working capital.senior notes is due semi-annually. The senior notes are guaranteed on a jointunsecured and several basis by substantiallyunsubordinated. Substantially all of the Company’s subsidiaries, other than finance company subsidiaries, primarily engaged in mortgage and title reinsurance activities.guaranteed the senior notes. At November 30, 2003,2005 and 2004, the carrying value of the senior notes was $344.3 million.

In June 2003, the$247.3 million and $247.1 million, respectively. The Company called its 3 7/8% zero-couponalso sold $200 million of senior convertible debentures due 2018 (the “Debentures”) for redemption. At the option of the holders, the Debentures could have been converted into Class A common stock at any time prior to the redemption date. Each $1,000 principal amount at maturity of Debentures was convertible into 27.4814 shares of Class A common stock (inclusive of the adjustment for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split), which equated to a redemption price of approximately $20.46 per share of Class A common stock. In 2003, substantially all of the Debentures were converted into approximately 13.6 million shares of Class A common stock (adjusted for the January 2004 two-for-one stock split).

As a result of the acquisition of The Fortress Group, Inc. (“Fortress”) in 2002, the Company assumed Fortress’s publicly held notes totaling $33.8 million. During fiscal 2003, the Company repaid the balance of the outstanding senior notes.

In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, zero-coupon convertible senior subordinatedfloating-rate notes due 2021 (“Notes”) with2007 in a face amountprivate placement. The senior floating-rate notes are callable at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%.par beginning in February 2006. Proceeds from the issuance,offering, after underwritinginitial purchaser’s discount and expenses, were approximately $224$199.3 million. The NotesCompany used the proceeds to repay borrowings under its Credit Facilities. Interest on the senior floating-rate notes is three-month LIBOR plus 0.50% (4.92% as of November 30, 2005) and is payable quarterly. The senior floating-rate notes are guaranteed on a jointunsecured and several basis by substantiallyunsubordinated. Substantially all of the Company’s subsidiaries, other than finance company subsidiaries, engaged in mortgage and title reinsurance activities. The Company usedguaranteed the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital. The indenture relating to the Notes provides that the Notes are convertible into the Company’s Class A common stock during limited periods after the market price of the Company’s Class A common stock exceeds 110% of the accreted conversion price at the rate of approximately 14.2 Class A common shares per $1,000 face amount of Notes at maturity, which would total approximately 9.0 million shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split). For this purpose, the “market price” is the average closing price of the Company’s Class A common stock over the last twenty trading days of a fiscal quarter.

Other events that would cause the Notes to be convertible are: a) a call of the Notes for redemption; b) the initial credit ratings assigned to the Notes by any two of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings are reduced by two rating levels; c) a distribution to all holders of the Company’s Class A common stock of options expiring within 60 days entitling the holders to purchase common stock for less than its quoted price; or d) a distribution to all holders of the Company’s Class A common stock of common stock, assets, debt, securities or rights to purchase securities with a per share value exceeding 15% of the closing price of the Class A common stock on the day preceding the declaration date for the distribution. The conversion ratio equates to an initial conversion price of $25.64 per share when the Company’s stock price was $19.42 per share (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split).

senior floating-rate notes. At November 30, 2003, the Notes were convertible because the average closing price of the Company’s Class A common stock over the last twenty trading days of the fourth quarter of 2003 (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) exceeded 110% ($32.28 per share at November 30, 2003) of the accreted conversion price. These shares were not included in the calculation of diluted earnings per share for the years ended November 30, 2002 and 2001 because the contingencies discussed above were not met.

Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversaries of the issue date for the initial issue price plus accrued yield to the purchase date. The

47


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company’s common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. At November 30, 2003,2005, the carrying value of outstanding Notes, net of unamortized original issue discount,the senior floating-rate notes was $261.0$200.0 million.

 

At November 30, 2003,2005, the Company had mortgage notes on land and other debt bearing interest at fixed interest rates ranging from 2.9%up to 25.0%11.0% with an average interest rate of 8.8%5.9%. The notes are due through 20092010 and are collateralized by land. At November 30, 2003,2005 and 2004, the carrying value of the mortgage notes on land and other debt was $73.0 million.$264.8 million and $75.7 million, respectively.

 

The minimum aggregate principal maturities of senior notes and other debts payable during the five years subsequent to November 30, 20032005 are as follows: 2004—$21.5 million; 2005—$45.7 million; 2006—$18.4 million; 2007—$4.0 million and 2008—$4.0 million.

   Debt
Maturities


   (In thousands)

2006

  $27,631

2007

   235,288

2008

   147,037

2009

   597,669

2010

   333,145

55


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The remaining principal obligations are due subsequent to November 30, 2008.2010. The Company’s debt arrangements contain certain financial covenants with which the Company was in compliance at November 30, 2003.2005.

 

8.10.  Financial Services

 

The assets and liabilities related to the Company’s financial services operations were as follows:

 

   November 30,

   2003

  2002

   (In thousands)

Assets:

       

Cash and receivables, net

  $301,530  239,893

Mortgage loans held for sale, net

   542,507  708,304

Mortgage loans, net

   30,451  30,341

Title plants

   18,215  15,586

Investment securities

   28,022  22,379

Goodwill, net

   43,503  34,002

Other

   46,670  35,422

Limited-purpose finance subsidiaries

   5,812  9,202
   

  
   $1,016,710  1,095,129
   

  

Liabilities:

       

Notes and other debts payable

  $734,657  853,416

Other

   132,797  108,770

Limited-purpose finance subsidiaries

   5,812  9,202
   

  
   $873,266  971,388
   

  
   November 30,

   2005

  2004 (1)

   (In thousands)

Assets:

       

Cash

  $149,786  105,469

Receivables, net

   675,877  513,089

Loans held-for-sale, net

   562,510  447,607

Loans held-for-investment, net

   147,459  29,248

Title plants

   19,452  18,361

Investments held-to-maturity

   32,146  31,574

Goodwill

   57,988  56,019

Other (including limited-purpose finance subsidiaries)

   56,417  57,090
   

  
   $1,701,635  1,258,457
   

  

Liabilities:

       

Notes and other debts payable

  $1,269,782  896,934

Other (including limited-purpose finance subsidiaries)

   167,918  141,544
   

  
   $1,437,700  1,038,478
   

  

(1)In May 2005, the Company sold a subsidiary of the Financial Services Division’s title company. As of November 30, 2005, the Division had no remaining assets or liabilities related to discontinued operations. As of November 30, 2004, assets and liabilities related to discontinued operations were $1.0 million (primarily cash and investment securities) and $0.3 million (other liabilities), respectively.

 

At November 30, 2003,2005, the Financial Services Division had warehouse lines of credit totaling $750 million, which included a $145 million temporary increase that expired in December 2003,$1.3 billion to fund its mortgage loan activities. Borrowings under the facilities were $714.4 million$1.2 billion and $489.7$872.8 million at November 30, 20032005 and 2002,2004, respectively, and were collateralized by mortgage loans and receivables on loans sold but not yet funded by the investor with outstanding principal balances of $742.2 million$1.3 billion and $523.8$894.7 million, respectively. There are several interest rate pricingrate-pricing options, which fluctuate with market rates. The effective interest rate on the facilities at November 30, 20032005 and 20022004 was 1.7%5.1% and 2.3%2.9%, respectively. The warehouse lines of credit mature in May 2004August 2006 ($250700 million) and in October 2005April 2007 ($500600 million), at which time the Division expects boththe facilities to be renewed. Additionally, the line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At November 30, 20032005 and 2002,2004, the Division had advances under a conduit funding agreement with a major financial institution amounting to $0.6$10.7 million and $343.7$5.2 million, respectively. Borrowings under this agreement are collateralized by mortgage loans and had an

48


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

effective interest rate of 1.9%5.0% and 2.3%3.2% at November 30, 20032005 and 2002,2004, respectively. The Division also had a $20$25 million revolving line of credit with a bank that matures in August 2006, at which time the Division expects the line of credit to be renewed. The line of credit is collateralized by certain assets of the Division and stock of certain title subsidiaries. Borrowings under the line of credit were $19.4$23.6 million and $20.0$18.9 million at November 30, 20032005 and 2002,2004, respectively, and had an effective interest rate of 2.1%4.9% and 2.4%3.1% at November 30, 20032005 and 2002,2004, respectively. The Division’s notes and other debts payable totaling $1.3 billion are due in 2006.

 

The limited-purpose finance subsidiaries of the Financial Services Division have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral, which includes a combination of mortgage notes, mortgage-backed securities and funds held by a trustee. At November 30, 20032005 and 2002,2004, the balances outstanding for the bonds and notes payable were $5.8$0.7 million and $9.2$3.4 million, respectively. The borrowings mature in 2015 through 2018 and carry interest rates ranging from 8.8%8.9% to 11.7%. The annual principal repayments are dependent upon collections on the underlying mortgages, including prepayments, and therefore cannot be reasonably determined.

 

The minimum aggregate principal maturities of the Financial Services Division’s notes and other debts payable (including limited-purpose finance subsidiaries) during the five years subsequent to November 30, 2003 are as follows: 2004—$734.5 million; 2005—$0.1 million and 2006—$0.1 million. The remaining principal obligations are due subsequent to November 30, 2008.56


LENNAR CORPORATION AND SUBSIDIARIES

 

9.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11.  Income Taxes

 

The provision (benefit) for income taxes consisted of the following:

 

   Years Ended November 30,

   2003

  2002

  2001

   (In thousands)

Current:

          

Federal

  $448,444  295,052  220,124

State

   58,362  41,200  31,685
   


 

 
    506,806  336,252  251,809
   


 

 

Deferred:

          

Federal

   (45,395) (5,036) 9,281

State

   (5,748) (636) 488
   


 

 
    (51,143) (5,672) 9,769
   


 

 
   $455,663  330,580  261,578
   


 

 

49


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

From continuing operations:

     
   Years Ended November 30,

 
   2005

  2004

  2003

 
   (In thousands) 

Current:

           

Federal

  $717,109  440,241  448,254 

State

   87,955  51,082  58,338 
   


 
  

    805,064  491,323  506,592 
   


 
  

Deferred:

           

Federal

   9,232  71,615  (45,451)

State

   988  9,917  (5,755)
   


 
  

    10,220  81,532  (51,206)
   


 
  

   $815,284  572,855  455,386 
   


 
  

From discontinued operations:

     
   Years Ended November 30,

 
   2005

  2004

  2003

 
   (In thousands) 

Current:

           

Federal

  $5,791  520  190 

State

   731  66  24 
   


 
  

    6,522  586  214 
   


 
  

Deferred:

           

Federal

   (5) 6  56 

State

   (1) 1  7 
   


 
  

    (6) 7  63 
   


 
  

   $6,516  593  277 
   


 
  

 

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:

 

  November 30,

   November 30,

  2003

  2002

   2005

  2004

  (In thousands)   (In thousands)

Deferred tax assets:

            

Acquisition adjustments

  $18,290  28,061 

Reserves and accruals

   168,444  105,283   $235,744  187,531

Capitalized expenses

   43,141  48,760    83,727  65,708

Net operating loss and capital loss carryforwards, tax affected

   4,379  4,379 

Investments in unconsolidated partnerships

   1,788  17,555 

Investments in unconsolidated entities

   35,508  21,092

Other

   36,293  26,410    26,463  33,041
  

  

  

  

Deferred tax assets

   272,335  230,448 

Less: valuation allowance

   —    (6,978)
  

  

Total deferred tax assets, net

   272,335  223,470 

Total deferred tax assets

   381,442  307,372
  

  

  

  

Deferred tax liabilities:

            

Acquisition adjustments

   6,868  5,186 

Reserves and accruals

   2,584  1,269 

Capitalized expenses

   38,163  51,829 

Installment sales

   1,413  698 

Section 461 deductions and other

   45,529  42,314 

Completed contract reporting differences

   190,795  84,786

Section 461(f) deductions

   34,960  35,445

Other

   44,592  60,303
  

  

  

  

Total deferred tax liabilities

   94,557  101,296    270,347  180,534
  

  

  

  

Net deferred tax asset

  $177,778  122,174   $111,095  126,838
  

  

  

  

57


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The Homebuilding Division’s net deferred tax asset amounting to $166.7$104.5 million and $114.4$120.3 million at November 30, 20032005 and 2002,2004, respectively, is included in other assets in the consolidated balance sheets.

 

At November 30, 20032005 and 2002,2004, the Financial Services Division had a net deferred tax asset of $11.1$6.6 million and $7.8$6.5 million, respectively, which is included in the assets of the Financial Services Division.

 

SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax asset will not be realized. Based on management’s assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings. During fiscal 2003, restrictions associated with the utilization of the capital loss carryforwards and acquisition adjustments lapsed, resulting in the reduction of the valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill.

 

A reconciliation of the statutory rate and the effective tax rate follows:

 

  Percentage of Pre-tax Income

  2003

  2002

  2001

Statutory rate

     35.00%     35.00      35.00

State income taxes, net of federal income tax benefit

 2.75  2.75  3.10

Other

 —    —    0.40
  

 
  

Effective rate

 37.75% 37.75  38.50
  

 
  

50


LENNAR CORPORATION AND SUBSIDIARIES

   Percentage of Pre-tax Earnings

 
       2005    

      2004    

      2003    

 

Statutory rate

  35.00% 35.00% 35.00%

State income taxes, net of federal income tax benefit

  2.75% 2.75% 2.75%
   

 

 

Effective rate

  37.75% 37.75% 37.75%
   

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10.12.    Earnings Per Share

 

Basic and diluted earnings per share for the years ended November 30, 2003, 20022005, 2004 and 20012003 were calculated as follows:

 

  2003

  2002

  2001

  2005

  2004

  2003

  

(In thousands,

except per share amounts)

  

(In thousands,

except per share amounts)

Numerator:

         

Numerator—Basic earnings per share:

         

Earnings from continuing operations

  $1,344,410  944,642  750,934

Earnings from discontinued operations

   10,745  977  457
  

  
  

Numerator for basic earnings per share—net earnings

  $751,391  545,129  417,845  $1,355,155  945,619  751,391
  

  
  

Numerator—Diluted earnings per share:

         

Earnings from continuing operations

  $1,344,410  944,642  750,934

Interest on zero-coupon senior convertible debentures due 2018, net of tax

   4,116  6,418  6,094   —    —    4,116

Interest on zero-coupon convertible senior subordinated notes due 2021, net of tax

   4,105  —    —     7,699  8,557  4,105
  

  
  
  

  
  

Numerator for diluted earnings per share

  $759,612  551,547  423,939

Numerator for diluted earnings per share from continuing operations

   1,352,109  953,199  759,155

Numerator for diluted earnings per share from discontinued operations

   10,745  977  457
  

  
  

Numerator for diluted earnings per share—net earnings

  $1,362,854  954,176  759,612
  

  
  
  

  
  

Denominator:

                  

Denominator for basic earnings per share—weighted average shares

   147,334  140,329  138,021   155,398  155,398  147,334

Effect of dilutive securities:

                  

Employee stock options and restricted stock

   3,152  3,377  3,821   2,598  2,973  3,152

Zero-coupon senior convertible debentures due 2018

   8,380  13,556  13,556   —    —    8,380

Zero-coupon convertible senior subordinated notes due 2021

   4,486  —    —     7,526  8,969  4,486
  

  
  
  

  
  

Denominator for diluted earnings per share—adjusted weighted average shares and assumed conversions

   163,352  157,262  155,398   165,522  167,340  163,352
  

  
  
  

  
  

Basic earnings per share

  $5.10  3.88  3.03

Basic earnings per share:

         

Earnings from continuing operations

  $8.65  6.08  5.10

Earnings from discontinued operations

   0.07  0.01  0.00
  

  
  
  

  
  

Diluted earnings per share

  $4.65  3.51  2.73

Net earnings

  $8.72  6.09  5.10
  

  
  
  

  
  

Diluted earnings per share:

         

Earnings from continuing operations

  $8.17  5.70  4.65

Earnings from discontinued operations

   0.06  0.00  0.00
  

  
  

Net earnings

  $8.23  5.70  4.65
  

  
  

58


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Basic and diluted earnings per share amounts and weighted average shares outstanding have been adjusted to reflect the effect of the Company’s April 2003 10% Class B stock distribution and the January 2004 two-for-one stock split.

 

At November 30, 2005 and 2003, anti-dilutive options outstanding were not material. At November 30, 2004, options to purchase 2.3 million shares of Class A common stock were outstanding and anti-dilutive.

In 2001, the Company issued zero-coupon convertible senior subordinated notes due 2021.2021, (“Convertible Notes”). The indenture relating to the notesConvertible Notes provides that the notesConvertible Notes are convertible into the Company’s Class A common stock during limited periods after the market price of the Company’s Class A common stock exceeds 110% of the accreted conversion price at the rate of approximately 14.2 Class A common shares per $1,000 face amount of notes at maturity, which would total approximately 9.0 million shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split). For this purpose, the “market price” is the average closing price of the Company’s Class A common stock over the last twenty trading days of a fiscal quarter.

 

Other events that would cause the notesConvertible Notes to be convertible are: a)(a) a call of the notesConvertible Notes for redemption; b)(b) the initial credit ratings assigned to the notesConvertible Notes by any two of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings are reduced by two rating levels; c)levels below the initial rating; (c) a distribution to all holders of the Company’s Class A common stock of options expiring within 60 days entitling the holders to purchase common stock for less than its quoted price; or d)(d) a distribution to all holders of the Company’s Class A common stock of common stock, assets, debt, securities or rights to purchase securities with a per share value exceeding 15% of the closing price of the Class A common stock on the day preceding the declaration date for the distribution.

 

During the year ended November 30, 2005, $288.7 million face value of Convertible Notes were converted to 4.1 million shares of the Company’s Class A common stock. The weighted average of these shares is included in the calculation of basic earnings per share for the year ended November 30, 2005. The calculation of diluted earnings per share included 7.5 million shares for the year ended November 30, 2005, compared to 9.0 million shares and 4.5 million shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) for the year ended November 30, 2003 because the average closing price of the Company’s Class A common stock over the last twenty trading days of both the third and fourth quarters of 2003 exceeded 110% of the accreted conversion price. These shares were not included in the calculation of diluted earnings per share for the years ended November 30, 20022004 and 2001 because2003, respectively, related to the contingencies discussed above were not met.dilutive effect of non-converted Convertible Notes.

 

5113.    Comprehensive Income

Comprehensive income represents changes in stockholders’ equity from non-owner sources. The components of comprehensive income were as follows:

   Years Ended November 30,

   2005

  2004

  2003

   (Dollars in thousands)

Net earnings

  $1,355,155  945,619  751,391

Unrealized gains arising during period on interest rate swaps, net of 37.75% tax effect

   10,049  6,734  3,461

Unrealized gains arising during period on available-for-sale investment securities, net of 37.75% tax effect

   185  53  —  

Company’s portion of unconsolidated entity’s minimum pension liability, net of 37.75% tax effect

   (880) (386) —  
   


 

 

Comprehensive income

  $1,364,509  952,020  754,852
   


 

 

Accumulated other comprehensive loss consisted of the following at November 30, 2005 and 2004:

   November 30,

 
   2005

  2004

 
   (In thousands) 

Unrealized loss on interest rate swaps

  $(4,193) (14,242)

Unrealized gain on available-for-sale investment securities

   238  53 

Unrealized loss on Company’s portion of unconsolidated entity’s minimum pension liability

   (1,266) (386)
   


 

Accumulated other comprehensive loss

  $(5,221) (14,575)
   


 

59


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

11.    Comprehensive Income

Comprehensive income represents changes in stockholders’ equity from non-owner sources. For the years ended November 30, 2003, 2002 and 2001, the change in the fair value of interest rate swaps was the only adjustment to the Company’s net earnings in deriving comprehensive income. In accordance with the transition provisions of SFAS No. 133, on December 1, 2000, the Company recorded a cumulative-effect type adjustment of $3.5 million (net of tax benefit of $2.2 million) in accounts payable and other liabilities and accumulated other comprehensive loss to recognize the fair value of interest rate swaps. Subsequent to the Company’s adoption of SFAS No. 133 through November 30, 2001, the liability and accumulated other comprehensive loss increased $15.8 million (net of tax benefit of $9.9 million) to $19.3 million. For the years ended November 30, 2003 and 2002, the liability and accumulated other comprehensive loss decreased $3.5 million (net of tax of $2.1 million) and increased $5.2 million (net of tax benefit of $2.7 million), respectively. Comprehensive income was $754.9 million, $540.0 million and $398.6 million for the years ended November 30, 2003, 2002 and 2001, respectively.

12.14.    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, 2003.2005.

 

Common Stock

 

On April 8, 2003, at the Company’s Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation that eliminated the restrictions on the transfer of the Company’s Class B common stock and eliminated a difference between the dividends on the common stock (renamed Class A common stock) and the Class B common stock. The only significant remaining difference between the Class A common stock and the Class B common stock is that the Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

 

Because stockholders approved the change to the terms of the Class B common stock, the Company distributed to the holders of record of its stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. The distribution occurred on April 21, 2003, and the Company’s Class B common stock became listed on the New York Stock Exchange (“NYSE”). The Company’s Class A common stock was already listed on the NYSE. Approximately 13 million shares of Class B common stock (adjusted for the January 2004 two-for-one stock split) were issued as a result of the stock distribution.

 

Additionally, the Company’s stockholders approved an amendment to the certificate of incorporation increasing the number of shares of common stock the Company is authorized to issue to 300 million shares of Class A common stock and 90 million shares of Class B common stock. However, the Company has committed to Institutional Shareholder Services that it will not issue, without a subsequent stockholder vote, shares that would increase the outstanding Class A common stock to more than 170 million shares or increase the outstanding Class B common stock to more than 45 million shares.

 

In September 2003, the Company’s Board of Directors voted to increase the rate at which dividends are paid with regard to the Company’s Class A and Class B common stock to $0.50 per share per year (payable quarterly) from $0.025 per share per year (adjusted for the January 2004 two-for-one stock split). During 2003, Class A and Class B common stockholders received annual dividends of $0.14 per share. During 2002 and 2001, Class A common stockholders received quarterly dividends of $0.00625 per share and the Class B common stockholders received quarterly dividends of $0.005625 per share.

52


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of November 30, 2003, Mr. Stuart Miller, the Company’s President and Chief Executive Officer, directly owned or controlled as the director and officer of family-owned entities, approximately 22 million shares (adjusted for the January 2004 two-for-one stock split) of Class A and Class B common stock, which represented approximately 48% voting power of the Company’s stock.

In December 2003, the Company’s Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend of Class A and Class B common stock forpayable to stockholders of record on January 6, 2004. The additional shares were distributed on January 20, 2004. All share and per share amounts (except authorized shares, treasury shares and par value) have been retroactively adjusted to reflect the split. There was no net effect on total stockholders’ equity as a result of the stock split.

 

In September 2005, the Company’s Board of Directors voted to increase the annual dividend rate with regard to the Company’s Class A and Class B common stock to $0.64 per share per year (payable quarterly) from $0.55 per share per year (payable quarterly). Dividend rates were adjusted for the Company’s January 2004 two-for-one stock split. During 2005, 2004 and 2003, Class A and Class B common stockholders received per share annual dividends of $0.57, $0.51 and $0.14, respectively.

As of November 30, 2005, Stuart A. Miller, the Company’s President, Chief Executive Officer and a Director, directly owned, or controlled through family-owned entities, approximately 22 million shares of Class A and Class B common stock, which represented approximately 47% voting power of the Company’s stock.

In June 2001, the Company’s Board of Directors increased the previously authorized stock repurchase program to permit future purchases of up to 20 million shares (adjusted for the January 2004 two-for-one stock split) of the Company’s outstanding Class A common stock. During 2003, 2002 and 2001,2005, the Company did not repurchase anyrepurchased a total of its outstanding Class A or Class B common stock in the open market under these authorizations. In prior years under prior approvals, the Company had repurchased approximately 9.85.1 million shares (not adjusted for the Company’s January 2004 two-for-one stock split) of its outstanding Class A common stock under the stock repurchase program for an aggregate purchase price of approximately $158.9$274.9 million, or $16$53.38 per share. In September 2003, the Board of Directors voted to retire the Company’s Class A common stock held in treasury. As a result, approximately 9.9 million Class A common shares (not adjusted for the Company’s JanuaryDuring 2004, two-for-one stock split) were retired. The retirement had no net effect on total stockholders’ equity. In December 2003, the Company granted approximately 2.4 million stock options (adjusted for the Company’s January 2004 two-for-one stock split) to employees under the Company’s 2003 Stock Option and Restricted Stock Plan, and in January 2004, repurchased a similar amountnumber of shares of its outstanding Class A common stock under the stock repurchase program for an aggregate purchase price of approximately $109.6 million, or $45.64 per share (adjusted for the Company’s January 2004 two-for-one stock split). During 2003, the Company did not repurchase any of its outstanding Class A common stock in the open market under these authorizations. As of November 30, 2005, 12.4 million Class A common shares can be repurchased in the future under the program.

60


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In addition to the Class A common shares purchased under the Company’s stock repurchase program, the Company repurchased approximately 229,000 and 91,000 Class A common shares during the years ended November 30, 2005 and 2004, respectively, related to the vesting of restricted stock and distributions of common stock from the Company’s deferred compensation plan.

 

At November 30, 2003,2005, the Company had a shelf registration statementsstatement effective under the Securities Act of 1933, as amended, relatingunder which the Company could sell to the public up to $620 million$1.0 billion of equity or debt securities, common stock, preferred stock or other securities. At November 30, 2005, the Company had another shelf registration statement effective under the Securities Act of 1933, as amended, under which it may sell for cash andthe Company could issue up to $400 million of equity or debt securities which it could issue in connection with acquisitions of companies or interests in companies, businesses or assets.

 

Restrictions on Payment of Dividends

 

Other than as required to maintain the financial ratios and net worth required by the Credit Facilities,New 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 as required to maintain the financial ratios and net worth requirements under the Financial Services Division’s warehouse lines of credit.

 

Stock Option Plans

 

The Lennar Corporation 2003 Stock Option and Restricted Stock Plan (the “2003 Plan”) provides for the granting of Class A and Class B stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights aremay not be less than the market value of the common stock on the date of the grant. No options granted under the 2003 Plan may be exercisable until at least six months after the date of the grant. Thereafter, 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 10ten years after the date of the grant. At November 30, 2003,2005, there were no724,000 common shares of restricted stock outstanding under the 2003 Plan. The stock was valued based on its market price on the date of the grant. The grants vest over four years from the date of issuance.

 

The Lennar Corporation 2000 Stock Option and Restricted Stock Plan (the “2000 Plan”) provided for the granting of Class A stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. No options granted under the 2000 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options

53


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 10ten years after the date of the grant. At November 30, 2003, a combined total of 1,036,2002005, there were no shares of Class A and Class B restricted stock (adjusted for the January 2004 two-for-one stock split) were outstanding under the Plan. The stock was valued based on its market price on the date of the grant. The grants vest over 5 years from the date of issuance. Unearned compensation arising from the restricted stock grants is amortized to expense over the period of the restrictions and is shown as a reduction of stockholders’ equity in the consolidated balance sheets.

 

The Lennar Corporation 1997 Stock Option Plan (the “1997 Plan”) provided for the granting of Class A stock options and stock appreciation rights to key employees of the Company to purchase shares at prices not less than the market value of the common stock on the date of the grant. No options granted under the 1997 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option and stock appreciation right granted will expire on a date determined at the time of the grant, but not more than 10ten years after the date of the grant.

 

The Lennar Corporation 1991 Stock Option Plan (the “1991 Plan”) provided for the granting of Class A stock options to certain key employees of the Company to purchase Class A shares at prices not less than market value of the common stock on the date of the grant. No options granted under the 1991 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option granted will expire on a date determined at the time of the grant, but not more than 10ten years after the date of the grant.

 

A summary of the Company’s stock option activity for the years ended November 30, 2003, 2002 and 2001 (adjusted for the January 2004 two-for-one stock split) is as follows:

   2003

  2002

  2001

   Stock
Options


  Weighted
Average
Exercise
Price


  Stock
Options


  Weighted
Average
Exercise
Price


  Stock
Options


  Weighted
Average
Exercise
Price


Outstanding, beginning of year

  4,827,348  $15.98  5,731,512  $11.57  6,957,366  $8.34

Grants

  2,636,000  $28.36  1,100,000  $26.37  1,583,200  $18.74

Other *

  694,824  $—    —    $—    —    $—  

Terminations

  (19,250) $22.74  (124,024) $16.01  (202,778) $14.67

Exercises

  (1,477,954) $12.27  (1,880,140) $8.60  (2,606,276) $7.07
   

 

  

 

  

 

Outstanding, end of year

  6,660,968  $20.01  4,827,348  $15.98  5,731,512  $11.57
   

 

  

 

  

 

Exercisable, end of year

  745,336  $12.96  936,074  $12.79  1,497,624  $7.80
   

 

  

 

  

 

Available for grant, end of year

  9,821,000      3,394,600      4,433,000    
   

     

     

   

Weighted average fair value per share of options granted during the year under SFAS No. 123

     $8.65     $11.72     $9.21

*Represents options for Class B common stock which were issued as a result of anti-dilution provisions with regard to unexercised Class A stock options as of the date of the April 2003 10% Class B stock distribution.

5461


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

A summary of the Company’s stock option activity for the years ended November 30, 2005, 2004 and 2003 (adjusted for the January 2004 two-for-one stock split) is as follows:

   2005

  2004

  2003

   Stock
Options


  Weighted
Average
Exercise
Price


  Stock
Options


  Weighted
Average
Exercise
Price


  Stock
Options


  Weighted
Average
Exercise
Price


Outstanding, beginning of year

  8,025,292  $28.26  6,660,968  $20.01  4,827,348  $15.98

Grants

  1,581,125  $55.46  2,478,796  $46.42  2,636,000  $28.36

Other*

  —    $—    —    $—    694,824  $—  

Terminations

  (541,853) $34.02  (240,386) $33.17  (19,250) $22.74

Exercises

  (1,905,016) $20.01  (874,086) $16.55  (1,477,954) $12.27
   

 

  

 

  

 

Outstanding, end of year

  7,159,548  $35.92  8,025,292  $28.26  6,660,968  $20.01
   

 

  

 

  

 

Exercisable, end of year

  1,390,848  $22.36  1,338,425  $15.87  745,336  $12.96
   

 

  

 

  

 

Available for grant, end of year

  5,408,359      7,440,704      9,821,000    
   

     

     

   

Weighted average fair market value per share of options granted during the year under SFAS No. 123

     $16.02     $13.27     $8.65

The following table summarizes information about stock options outstanding at November 30, 2003 (adjusted for the January 2004 two-for-one stock split):2005:

 

   Options Outstanding

  Options Exercisable

Range of Per Share

Exercise Prices


  Number
Outstanding at
November 30,
2003


  Weighted
Average
Remaining
Contractual Life


  Weighted
Average
Per Share
Exercise Price


  Number
Outstanding at
November 30,
2003


  Weighted
Average
Per Share
Exercise Price


$  4.02—$  5.19

  66,176  2.7 years  $4.80  31,126  $4.88

$  7.02—$  8.38

  1,022,714  4.3 years  $7.58  290,114  $7.67

$  9.25—$12.88

  379,944  4.0 years  $9.88  64,244  $9.92

$14.93—$18.88

  1,179,736  7.2 years  $16.70  275,448  $16.75

$21.10—$26.32

  3,843,448  5.4 years  $24.91  84,404  $24.06

$27.84—$43.16

  168,950  4.6 years  $35.73  —    $—  
   Options Outstanding*

  Options Exercisable*

Range of Weighted

Average Per Share

Exercise Prices*


  

Number

Outstanding at

November 30,

2005


  

Weighted

Average

Remaining

Contractual Life


  

Weighted

Average

Per Share

Exercise Price


  

Number

Outstanding at

November 30,

2005


  

Weighted

Average

Per Share

Exercise Price


$  4.72—$  8.25

  524,575  1.8 years  $7.39  239,006  $7.44

$  9.25—$12.87

  229,900  2.4 years  $9.91  41,800  $10.03

$14.93—$18.88

  335,894  5.0 years  $16.66  312,794  $16.77

$21.09—$26.32

  2,321,671  2.9 years  $25.06  620,602  $24.98

$27.85—$43.16

  63,949  2.8 years  $38.87  13,500  $39.08

$45.19—$56.33

  3,524,241  3.5 years  $49.74  163,146  $46.74

$56.91—$67.49

  159,318  4.7 years  $59.41  —    $—  

*The Company distributed to the holders of record of its stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. As a result of anti-dilution provisions in the Company’s stock option plans, each time an option is exercised with regard to ten shares of Class A common stock, the option holder will also receive one share of Class B common stock. The options cannot be exercised to purchase just Class B common stock, and there is no separate exercise price related to the Class B common stock. The Company did not adjust the number of stock options or the exercise price related to the Class A stock options. There was no accounting consequence from the anti-dilution effect of the Class B common stock distribution.

 

Employee Stock Ownership/401(k) Plan

 

Prior to 1998, the Employee Stock Ownership/401(k) Plan (the “Plan”) provided shares of Class A common stock to employees who had completed one year of continuous service with the Company. During 1998, the Plan was amended to exclude any new shares from being provided to employees. All prior year contributions to employees actively employed on or after October 1, 1998 vested at a rate of 20% per year over a five yearfive-year period. All active participants in the Plan whose employment terminated prior to October 1, 1998 vested based upon the Plan that was active prior to their termination of employment. Under the 401(k) portion of the Plan, contributions made by employees 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 employees. The Company records as compensation expense an amount which approximates the vesting of the contributions to the Employee Stock Ownership portion of the Plan, as well as the Company’sits contribution to the 401(k) portion of the Plan. This amount was $12.0 million in 2005, $10.3 million in 2004 and $9.1 million in 2003, $7.0 million in 2002 and $6.5 million in 2001.2003.

62


LENNAR CORPORATION AND SUBSIDIARIES

 

13.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

15.    Deferred Compensation Plan

 

In June 2002, the Company adopted the Lennar Corporation Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”) that allows 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 are 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 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 value of the shares that will be issued in the future are not reflected in the consolidated financial statements.

 

As of November 30, 2003,2005, approximately 534,000438,900 Class A common shares and 53,40043,900 Class B common shares of restricted stock (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) had been surrendered in exchange for rights under the Deferred Compensation Plan, resulting in a reduction in stockholders’ equity of $4.9$4.0 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 earnings per share calculations for the years ended November 30, 20032005, 2004 and 2002.

55


LENNAR CORPORATION AND SUBSIDIARIES2003.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14.16.    Financial Instruments

 

The following table presents the carrying amounts and estimated fair market values of financial instruments held by the Company at November 30, 20032005 and 2002,2004, 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 market value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair market value amounts. The table excludes cash, restricted cash, receivables and accounts payable, which had fair market values approximating their carrying values.values due to the short maturities of these instruments.

 

  November 30,

   November 30,

  2003

 2002

   2005

  2004

  Carrying
Amount


 Fair
Value


 Carrying
Amount


 Fair
Value


   

Carrying

Amount


  

Fair

Value


  

Carrying

Amount


  

Fair

Value


  (In thousands)   (In thousands)

ASSETS

               

Homebuilding:

               

Investments—available-for-sale

  $8,883  8,883  8,585  8,585

Investments—trading

  $6,859  6,859  —    —      8,660  8,660  8,565  8,565

Financial services:

               

Mortgage loans held for sale, net

  $542,507  542,507  708,304  708,304 

Mortgage loans, net

   30,451  29,355  30,341  29,666 

Investments held-to-maturity

   28,022  28,021  22,379  22,412 

Limited-purpose finance subsidiaries—collateral for bonds and notes payable

   5,812  6,129  9,202  9,703 

Loans held-for-sale, net

  $562,510  562,510  447,607  447,607

Loans held-for-investment, net

   147,459  145,219  29,248  27,770

Investments—held-to-maturity

   32,146  32,149  31,574  31,562

Limited-purpose finance subsidiaries

   2,562  2,666  3,406  3,693

LIABILITIES

               

Homebuilding:

               

Senior notes and other debts payable

  $1,552,217  1,878,830  1,585,309  1,779,705   $2,592,772  2,700,893  2,021,014  2,266,998

Financial services:

               

Notes and other debts payable

  $734,657  734,657  853,416  853,416   $1,269,782  1,269,782  896,934  896,934

Limited-purpose finance subsidiaries—bonds and notes payable

   5,812  6,129  9,202  9,703 

Limited-purpose finance subsidiaries

   656  694  3,406  3,693

OTHER FINANCIAL INSTRUMENTS

               

Homebuilding:

   

Homebuilding liabilities:

            

Interest rate swaps

  $(33,696) (33,696) (39,256) (39,256)  $6,737  6,737  22,879  22,879

Financial services assets (liabilities):

   

Financial services liabilities:

            

Commitments to originate loans

  $(229) (229) (717) (717)  $112  112  392  392

Forward commitments to sell loans and option contracts

   (1,120) (1,120) 1,430  1,430    477  477  394  394

63


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The following methods and assumptions are used by the Company in estimating fair market values:

 

HomebuildingInvestmentsSince there are no quoted market prices for investments classified as trading (included in other assets):available-for-sale, the fair market value is estimated from available yield curves for investments of similar quality and terms. The fair market value for investments classified as trading is based on quoted market prices. SeniorFor senior notes and other debts payable: Thepayable, the fair market value of fixed ratefixed-rate borrowings is based on quoted market prices. Variable rateVariable-rate borrowings are tied to market indices and therefore approximate fair market value. Interest rate swaps: The fair market value for interest rate swaps is based on dealer quotations and generally represents an estimate of the amount the Company would pay or receive to terminate the agreement at the reporting date.

 

Financial services—The fair market values are based on quoted market prices, if available. The fair market values for instruments whichthat do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

 

The CompanyHomebuilding Division utilizes interest rate swap agreements to manage interest costs and hedge against risks associated with changing interest rates. Counterparties to these agreements are major financial institutions. Credit losslosses from counterparty non-performance isare not anticipated. A majority of the Company’s availableDivision’s variable interest rate borrowings are based on the London Interbank Offered Rate (“LIBOR”)LIBOR index. At November 30, 2003,2005, the

56


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company Division had fourthree interest rate swap agreements outstanding with a total notional amount of $300$200 million, which will mature at various dates through 2007.fiscal 2008. These agreements fixed the LIBOR index at an average interest rate of 6.8% at November 30, 2003.2005. The effect of the interest rate swap agreements on interest incurred and on the average interest rate was an increase of $16.7$11.0 million and 1.03%0.40%, respectively, for the year ended November 30, 2003,2005, an increase of $17.0$16.5 million and 1.08%0.89%, respectively, for the year ended November 30, 20022004 and an increase of $7.2$16.7 million and 0.48%1.03%, respectively, for the year ended November 30, 2001.2003.

 

As of November 30, 2003, theThe Financial Services Division’s commitments regardingDivision had a pipeline of loans in process totaledtotaling approximately $2.6 billion.$3.7 billion at November 30, 2005. To minimize credit risk, the Division uses the same credit policies in the approval of the commitments as are applied to allthe Division’s lending activities. Loans in process for which interest rates were committed to the borrowers totaled $511.7 million as of November 30, 2005. 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, the total commitments do not necessarily represent future cash requirements. Loans in process for which interest rates were committed to the borrowers totaled approximately $330.7 million as of November 30, 2003. Substantially all of these commitments were for periods of 60 days or less.

 

MandatoryThe Financial Services Division uses mandatory mortgage-backed securities (“MBS”) forward commitments (“MBS”) are used by the Companyand MBS option contracts to hedge its interest rate exposure during the period from when it makesextends an interest rate commitmentlock to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS forward commitments and MBS option contracts only with investment banks with primary dealer status and loan sales transactions with permanent investors meeting the Division’s credit standards of the Company. At any time, thestandards. The Division’s risk, to the Company, in the event of default by the purchaser, is the difference between the contract price and current fair market value. At November 30, 2003,2005, the CompanyDivision had open commitments amounting to $512.0$321.0 million to sell MBS with varying settlement dates through January 2004.February 2006.

 

15.17.    Consolidation of Variable Interest Entities

 

In JanuaryDecember 2003, the FASB issued FIN 46, as46(R), (which further clarified and amended by the FASB’s issuanceFIN 46,Consolidation of a revision to FIN 46 in December 2003,Variable Interest Entities) which 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. Prior to the issuance of FIN 46,46(R), entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 4646(R) applied immediately to variable interestsinterest entities created after January 31, 2003, and with respect to variable interestsinterest entities created before February 1, 2003, FIN 46 will apply46(R) applied in the Company’s second quarter endingended May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full2004. The adoption of FIN 46 will46(R) did not have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.Company’s results of operations or cash flows.

 

PartnershipsUnconsolidated Entities

 

At November 30, 2003,2005, the Company had investments in and advances to partnershipsunconsolidated entities established to acquire and develop land for sale to the Company in connection with its homebuilding operations, or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company determined that it is the primary beneficiary of one partnership that was created after January 31, 2003, and, accordingly, included the accounts of that partnership in the accompanying consolidated financial statements. No other partnerships created after January 31, 2003 were consolidated as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $390.3 million in addition to the exposure under the guarantees discussed in Note 5.

 

5764


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

for sale to third parties or for the construction of homes for sale to third-party homebuyers. The Company evaluated all agreements under FIN 46(R). During the year ended November 30, 2005, the Company consolidated entities under FIN 46(R) that at November 30, 2005 had total combined assets and liabilities of $144.0 million and $90.5 million, respectively.

At November 30, 2005, the Company’s recorded investment in unconsolidated entities was $1.3 billion; however, the Company’s estimated maximum exposure to loss with regard to unconsolidated entities was its recorded investments in these entities in addition to the exposure under the guarantees discussed in Note 6.

Option contractsContracts

 

The Company evaluated itsall option contracts for land entered into subsequent to January 31, 2003 and determined it iswas the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46,46(R), the Company, asif it is deemed the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). Themarket value. During the year ended November 30, 2005, the effect of the consolidation of these option contracts was an increase of $45.2$516.3 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2003.2005. This increase was offset primarily by the Company exercising its option to acquire land under certain contracts previously consolidated under FIN 46(R), resulting in a net increase in consolidated inventory not owned of $94.7 million. To reflect the fair valuepurchase price of the inventory consolidated under FIN 46,46(R), the Company reclassified $4.1$125.9 million of related option deposits from land under development to consolidated inventory not owned. The liabilities related to consolidated inventory not owned represent the difference between the exercise price of the optioned land and the Company’s deposits. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. deposits.

At November 30, 2003,2005 and 2004, the Company’s exposure to loss representsrelated to its option contracts with third parties and unconsolidated entities represented its non-refundable option deposits and/orand advanced costs totaling $741.6 million and $222.4 million, respectively, as well as letters of credit related to options with estimated aggregate exercise prices totaling approximately $3 billion.posted in lieu of cash deposits.

 

16.18.    Commitments and Contingent Liabilities

 

The Company and its subsidiaries areis 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 financial condition, results of operations or cash flows of the Company.

 

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 for the purchase of land permitgenerally enable the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnershipsentities until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditionsrisks associated with long-term land holdings. At November 30, 2003,2005, the Company had access to acquire approximately 135,000222,100 homesites through option contracts and unconsolidated partnerships.entities in which the Company had investments. At November 30, 2003,2005, the Company had $220.6$741.6 million of non-refundable option deposits and advanced costs on real estate related to certain of these homesites.homesites, which were included in inventories in the consolidated balance sheet.

At November 30, 2005 and 2004, the Company had $69.3 million and $74.0 million, respectively, of reserves recorded in accordance with SFAS No. 5,Accounting for Contingencies, for tax filing positions and related interest based on the Company’s evaluation that uncertainty exists in sustaining the deductions. This reserve is included in other liabilities in the consolidated balance sheets.

65


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelablenon-cancelable leases in effect at November 30, 2005 are as follows: 2004—$48.0 million; 2005—$38.2 million; 2006—$31.0 million; 2007—$24.3 million; 2008—$16.3 million and thereafter—$34.9 million.

   Lease
Payments


   (In thousands)

2006

  $77,975

2007

   52,146

2008

   35,278

2009

   26,268

2010

   17,408

Thereafter

   29,658

Rental expense for the years ended November 30, 2005, 2004 and 2003 2002 and 2001 was $63.2$116.0 million, $55.0$84.7 million and $42.3$63.2 million, respectively.

 

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 $627.9 million$1.2 billion at November 30, 2003.2005. The Company also had outstanding performance and surety bonds related to site improvements at various projects with estimated costs to complete of $1.0 billion related principally to its obligations for site improvements at various projects at November 30, 2003.$1.8 billion. The Company does not believe thatthere will be any draws upon these bonds, but if there were any, willthey would not have a material effect on the Company’s financial position, results of operations or cash flows.

 

5866


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

17.    Supplemental Financial Information

19.Supplemental Financial Information

 

As discussed in Note 7, theThe Company’s obligations to pay principal, premium, if any, and interest under certain debt instrumentsthe New Facility, senior floating-rate notes due 2007, senior floating-rate notes due 2009, 7 5/8% senior notes due 2009, 5.125% senior notes due 2010, 5.95% senior notes due 2013, 5.50% senior notes due 2014 and 5.60% senior notes due 2015 are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries other than subsidiaries primarily engaged in mortgage and title reinsurance activities.finance company subsidiaries. The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.presented as follows:

 

Consolidating Balance Sheet

November 30, 20032005

 

  Lennar
Corporation


 Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


 Eliminations

 Total

  Lennar
Corporation


 Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


 Eliminations

 Total

  (In thousands)  (In thousands)

ASSETS

            

Homebuilding:

            

Cash and receivables, net

  $895,715  365,953  —    —    1,261,668

Cash, restricted cash and receivables, net

  $401,467  816,971  13,032  —    1,231,470

Inventories

   —    3,649,493  6,608  —    3,656,101   —    7,619,470  244,061  —    7,863,531

Investments in unconsolidated partnerships

   16,346  373,988  —    —    390,334

Investments in unconsolidated entities

   —    1,282,686  —    —    1,282,686

Goodwill

   —    195,156  —    —    195,156

Other assets

   99,614  351,005  —    —    450,619   80,838  121,354  64,555  —    266,747

Investments in subsidiaries

   3,541,747  390,722  —    (3,932,469) —     7,150,775  500,342  —    (7,651,117) —  
  


 
  

 

 
  


 
  

 

 
   4,553,422  5,131,161  6,608  (3,932,469) 5,758,722   7,633,080  10,535,979  321,648  (7,651,117) 10,839,590

Financial services

   —    16,285  1,000,425  —    1,016,710   —    29,341  1,672,294  —    1,701,635
  


 
  

 

 
  


 
  

 

 

Total assets

  $4,553,422  5,147,446  1,007,033  (3,932,469) 6,775,432  $7,633,080  10,565,320  1,993,942  (7,651,117) 12,541,225
  


 
  

 

 
  


 
  

 

 

LIABILITIES AND

STOCKHOLDERS’ EQUITY

            

Homebuilding:

            

Accounts payable and other liabilities

  $325,695  715,041  225  —    1,040,961  $1,026,281  1,783,582  64,791  —    2,874,654

Liabilities related to consolidated inventory not owned

   —    45,214  —    —    45,214   —    306,445  —    —    306,445

Senior notes and other debts payable, net

   1,476,860  75,357  —    —    1,552,217

Senior notes and other debts payable

   2,328,016  250,642  14,114  —    2,592,772

Intercompany

   (512,907) 762,867  (249,960) —    —     (972,628) 1,066,147  (93,519) —    —  
  


 
  

 

 
  


 
  

 

 
   1,289,648  1,598,479  (249,735) —    2,638,392   2,381,669  3,406,816  (14,614) —    5,773,871

Financial services

   —    7,220  866,046  —    873,266   —    7,729  1,429,971  —    1,437,700
  


 
  

 

 
  


 
  

 

 

Total liabilities

   1,289,648  1,605,699  616,311  —    3,511,658   2,381,669  3,414,545  1,415,357  —    7,211,571

Minority interest

   —    —    78,243  —    78,243

Stockholders’ equity

   3,263,774  3,541,747  390,722  (3,932,469) 3,263,774   5,251,411  7,150,775  500,342  (7,651,117) 5,251,411
  


 
  

 

 
  


 
  

 

 

Total liabilities and stockholders’ equity

  $4,553,422  5,147,446  1,007,033  (3,932,469) 6,775,432  $7,633,080  10,565,320  1,993,942  (7,651,117) 12,541,225
  


 
  

 

 
  


 
  

 

 

 

5967


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Consolidating Balance Sheet

November 30, 20022004

 

  Lennar
Corporation


 Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


 Eliminations

 Total

  Lennar
Corporation


 Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


 Eliminations

 Total

  (In thousands)  (In thousands)

ASSETS

            

Homebuilding:

            

Cash and receivables, net

  $622,019  157,566  10  —    779,595

Cash, restricted cash and receivables, net

  $1,116,366  303,594  55,797  —    1,475,757

Inventories

   —    3,231,015  6,562  —    3,237,577   —    4,900,834  241,236  —    5,142,070

Investments in unconsolidated partnerships

   —    285,594  —    —    285,594

Investments in unconsolidated entities

   —    856,422  —    —    856,422

Goodwill

   —    183,345  —    —    183,345

Other assets

   84,122  273,616  —    —    357,738   98,823  125,019  25,387  —    249,229

Investments in subsidiaries

   2,584,512  302,655  —    (2,887,167) —     4,984,722  569,032  —    (5,553,754) —  
  


 
  

 

 
  


 
  

 

 
   3,290,653  4,250,446  6,572  (2,887,167) 4,660,504   6,199,911  6,938,246  322,420  (5,553,754) 7,906,823

Financial services

   —    35,933  1,074,241  (15,045) 1,095,129   —    27,956  1,230,501  —    1,258,457
  


 
  

 

 
  


 
  

 

 

Total assets

  $3,290,653  4,286,379  1,080,813  (2,902,212) 5,755,633  $6,199,911  6,966,202  1,552,921  (5,553,754) 9,165,280
  


 
  

 

 
  


 
  

 

 

LIABILITIES AND

STOCKHOLDERS’ EQUITY

            

Homebuilding:

         ��   

Accounts payable and other liabilities

  $333,746  635,842  222  (31) 969,779  $725,061  961,015  101,244  —    1,787,320

Senior notes and other debts payable, net

   1,478,821  121,502  —    (15,014) 1,585,309

Liabilities related to consolidated inventory not owned

   —    222,769  —    —    222,769

Senior notes and other debts payable

   1,945,344  23,636  52,034  —    2,021,014

Intercompany

   (751,071) 931,951  (180,880) —    —     (523,466) 767,079  (243,613) —    —  
  


 
  

 

 
  


 
  

 

 
   1,061,496  1,689,295  (180,658) (15,045) 2,555,088   2,146,939  1,974,499  (90,335) —    4,031,103

Financial services

   —    12,572  958,816  —    971,388   —    6,981  1,031,497  —    1,038,478
  


 
  

 

 
  


 
  

 

 

Total liabilities

   1,061,496  1,701,867  778,158  (15,045) 3,526,476   2,146,939  1,981,480  941,162  —    5,069,581

Minority interest

   —    —    42,727  —    42,727

Stockholders’ equity

   2,229,157  2,584,512  302,655  (2,887,167) 2,229,157   4,052,972  4,984,722  569,032  (5,553,754) 4,052,972
  


 
  

 

 
  


 
  

 

 

Total liabilities and stockholders’ equity

  $3,290,653  4,286,379  1,080,813  (2,902,212) 5,755,633  $6,199,911  6,966,202  1,552,921  (5,553,754) 9,165,280
  


 
  

 

 
  


 
  

 

 

 

6068


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Earnings

Year Ended November 30, 2005

  Lennar
Corporation


  Guarantor
Subsidiaries


 Non-Guarantor
Subsidiaries


 Eliminations

  Total

  (Dollars in thousands)

Revenues:

             

Homebuilding

 $—    12,908,793 395,806 —    13,304,599

Financial services

  —    9,109 586,424 (33,161) 562,372
  


 
 
 

 

Total revenues

  —    12,917,902 982,230 (33,161) 13,866,971
  


 
 
 

 

Costs and expenses:

             

Homebuilding

  —    10,884,961 297,221 (4,375) 11,177,807

Financial services

  —    11,915 471,728 (26,039) 457,604

Corporate general and administrative

  187,257  —   —   —    187,257
  


 
 
 

 

Total costs and expenses

  187,257  10,896,876 768,949 (30,414) 11,822,668
  


 
 
 

 

Equity in earnings from unconsolidated entities

  —    133,814 —   —    133,814

Management fees and other income (expense), net

  (2,747) 60,151 1,364 2,747  61,515

Minority interest expense, net

  —    —   45,030 —    45,030

Loss on redemption of 9.95% senior notes

  34,908  —   —   —    34,908
  


 
 
 

 

Earnings (loss) from continuing operations before provision (benefit) for income taxes

  (224,912) 2,214,991 169,615 —    2,159,694

Provision (benefit) for income taxes

  (84,904) 836,159 64,029 —    815,284
  


 
 
 

 

Earnings (loss) from continuing operations

  (140,008) 1,378,832 105,586 —    1,344,410

Earnings from discontinued operations, net of tax

  —    —   10,745 —    10,745

Equity in earnings from subsidiaries

  1,495,163  116,331 —   (1,611,494) —  
  


 
 
 

 

Net earnings

 $1,355,155  1,495,163 116,331 (1,611,494) 1,355,155
  


 
 
 

 
              

Consolidating Statement of Earnings

Year Ended November 30, 2004

  Lennar
Corporation


  Guarantor
Subsidiaries


 Non-Guarantor
Subsidiaries


  Eliminations

  Total

  (In thousands)

Revenues:

              

Homebuilding

 $—    9,688,964 311,668  —    10,000,632

Financial services

  —    18,000 510,322  (27,986) 500,336
  


 
 

 

 

Total revenues

  —    9,706,964 821,990  (27,986) 10,500,968
  


 
 

 

 

Costs and expenses:

              

Homebuilding

  —    8,356,652 247,681  (2,995) 8,601,338

Financial services

  —    14,736 399,860  (24,991) 389,605

Corporate general and administrative

  141,722  —   —    —    141,722
  


 
 

 

 

Total costs and expenses

  141,722  8,371,388 647,541  (27,986) 9,132,665
  


 
 

 

 

Equity in earnings from unconsolidated entities

  —    90,739 —    —    90,739

Management fees and other income (expense), net

  —    69,530 (279) —    69,251

Minority interest expense, net

  —    —   10,796  —    10,796
  


 
 

 

 

Earnings (loss) from continuing operations before provision (benefit) for income taxes

  (141,722) 1,495,845 163,374  —    1,517,497

Provision (benefit) for income taxes

  (53,500) 564,681 61,674  —    572,855
  


 
 

 

 

Earnings (loss) from continuing operations

  (88,222) 931,164 101,700  —    944,642

Earnings from discontinued operations, net of tax

  —    —   977  —    977

Equity in earnings from subsidiaries

  1,033,841  102,677 —    (1,136,518) —  
  


 
 

 

 

Net earnings

 $945,619  1,033,841 102,677  (1,136,518) 945,619
  


 
 

 

 

69


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Consolidating Statement of Earnings

Year Ended November 30, 2003

 

  Lennar
Corporation


 Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

 Total

  Lennar
Corporation


 Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

 Total

  (In thousands)  (In thousands)

Revenues:

                  

Homebuilding

  $—    8,348,645  —    —    8,348,645  $—    8,348,645  —    —    8,348,645

Financial services

   —    12,726  558,282  (12,034) 558,974   —    12,726  555,889  (12,034) 556,581
  


 
  
  

 
  


 
  
  

 

Total revenues

   —    8,361,371  558,282  (12,034) 8,907,619   —    8,361,371  555,889  (12,034) 8,905,226
  


 
  
  

 
  


 
  
  

 

Costs and expenses:

                  

Homebuilding

   —    7,291,417  561  (3,622) 7,288,356   —    7,291,417  561  (3,622) 7,288,356

Financial services

   —    11,549  401,384  (8,412) 404,521   —    11,549  399,725  (8,412) 402,862

Corporate general and administrative

   111,488  —    —    —    111,488   111,488  —    —    —    111,488
  


 
  
  

 
  


 
  
  

 

Total costs and expenses

   111,488  7,302,966  401,945  (12,034) 7,804,365   111,488  7,302,966  400,286  (12,034) 7,802,706
  


 
  
  

 
  


 
  
  

 

Equity in earnings from unconsolidated partnerships

   —    81,937  —    —    81,937

Equity in earnings from unconsolidated entities

   —    81,937  —    —    81,937

Management fees and other income, net

   —    21,863  —    —    21,863   —    26,817  —    —    26,817

Minority interest expense, net

   —    —    4,954  —    4,954
  


 
  
  

 
  


 
  
  

 

Earnings (loss) before income taxes

   (111,488) 1,162,205  156,337  —    1,207,054

Earnings (loss) from continuing operations before provision (benefit) for income taxes

   (111,488) 1,167,159  150,649  —    1,206,320

Provision (benefit) for income taxes

   (42,084) 438,732  59,015  —    455,663   (42,084) 440,600  56,870  —    455,386

Equity in earnings (losses) from subsidiaries

   820,795  97,322  —    (918,117) —  
  


 
  
  

 
  


 
  
  

 

Net earnings (loss)

  $751,391  820,795  97,322  (918,117) 751,391

Earnings (loss) from continuing operations

   (69,404) 726,559  93,779  —    750,934

Earnings from discontinued operations, net of tax

   —    —    457  —    457

Equity in earnings from subsidiaries

   820,795  94,236  —    (915,031) —  
  


 
  
  

 
  


 
  
  

 

Net earnings

  $751,391  820,795  94,236  (915,031) 751,391
  


 
  
  

 

 

Consolidating Statement of Earnings

Year Ended November 30, 2002

   Lennar
Corporation


  Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

  Total

   (In thousands)

Revenues:

                

Homebuilding

  $—    6,751,295  6  —    6,751,301

Financial services

   —    66,577  420,604  (2,962) 484,219
   


 
  
  

 

Total revenues

   —    6,817,872  420,610  (2,962) 7,235,520
   


 
  
  

 

Costs and expenses:

                

Homebuilding

   —    5,995,607  564  (2,962) 5,993,209

Financial services

   —    54,434  302,174  —    356,608

Corporate general and administrative

   85,958  —    —    —    85,958
   


 
  
  

 

Total costs and expenses

   85,958  6,050,041  302,738  (2,962) 6,435,775
   


 
  
  

 

Equity in earnings from unconsolidated partnerships

   —    42,651  —    —    42,651

Management fees and other income, net

   —    33,313  —    —    33,313
   


 
  
  

 

Earnings (loss) before income taxes

   (85,958) 843,795  117,872  —    875,709

Provision (benefit) for income taxes

   (32,391) 318,533  44,438  —    330,580

Equity in earnings (losses) from subsidiaries

   598,696  73,434  —    (672,130) —  
   


 
  
  

 

Net earnings (loss)

  $545,129  598,696  73,434  (672,130) 545,129
   


 
  
  

 

6170


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Consolidating Statement of EarningsCash Flows

Year Ended November 30, 20012005

 

   Lennar
Corporation


  Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

  Total

   (In thousands)

Revenues:

                

Homebuilding

  $—    5,554,743  4  —    5,554,747

Financial services

   —    55,146  370,208  —    425,354
   


 
  
  

 

Total revenues

   —    5,609,889  370,212  —    5,980,101
   


 
  
  

 

Costs and expenses:

                

Homebuilding

   —    4,933,528  543  —    4,934,071

Financial services

   —    62,358  273,865  —    336,223

Corporate general and administrative

   75,831  —    —    —    75,831
   


 
  
  

 

Total costs and expenses

   75,831  4,995,886  274,408  —    5,346,125
   


 
  
  

 

Equity in earnings from unconsolidated partnerships

   —    27,051  —    —    27,051

Management fees and other income, net

   —    18,396  —    —    18,396
   


 
  
  

 

Earnings (loss) before income taxes

   (75,831) 659,450  95,804  —    679,423

Provision (benefit) for income taxes

   (27,829) 253,888  35,519  —    261,578

Equity in earnings (losses) from subsidiaries

   465,847  60,285  —    (526,132) —  
   


 
  
  

 

Net earnings (loss)

  $417,845  465,847  60,285  (526,132) 417,845
   


 
  
  

 
   Lennar
Corporation


  Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

  Total

 
   (Dollars in thousands) 

Cash flows from operating activities:

                 

Net earnings from continuing operations

  $1,355,155  1,495,163  105,586  (1,611,494) 1,344,410 

Net earnings from discontinued operations

   —    —    10,745  —    10,745 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities

   (1,091,091) (1,325,709) (226,874) 1,611,494  (1,032,180)
   


 

 

 

 

Net cash provided by (used in)
operating activities

   264,064  169,454  (110,543) —    322,975 
   


 

 

 

 

Cash flows from investing activities:

                 

Increase in investments in unconsolidated
entities, net

   —    (453,017) —    —    (453,017)

Acquisitions, net of cash acquired

   —    (414,079) (1,970) —    (416,049)

Other

   (5,463) (22,151) (106,893) —    (134,507)
   


 

 

 

 

Net cash used in investing activities

   (5,463) (889,247) (108,863) —    (1,003,573)
   


 

 

 

 

Cash flows from financing activities:

                 

Net borrowings under financial services
short-term debt

   —    —    372,849  —    372,849 

Net proceeds from 5.125% senior notes

   298,215  —    —    —    298,215 

Net proceeds from 5.60% senior notes

   501,460  —    —    —    501,460 

Redemption of 9.95% senior notes

   (337,731) —    —    —    (337,731)

Net repayments under other borrowings

   —    (75,209) (61,833) —    (137,042)

Payments related to minority interests, net

   —    —    (33,181) —    (33,181)

Common stock:

                 

Issuances

   38,069  —    —    —    38,069 

Repurchases

   (289,284) —    —    —    (289,284)

Dividends

   (89,229) —    —    —    (89,229)

Intercompany

   (1,090,578) 1,146,903  (56,325) —    —   
   


 

 

 

 

Net cash provided by (used in)
financing activities

   (969,078) 1,071,694  221,510  —    324,126 
   


 

 

 

 

Net increase (decrease) in cash

   (710,477) 351,901  2,104  —    (356,472)

Cash at beginning of year

   1,111,944  143,180  160,691  —    1,415,815 
   


 

 

 

 

Cash at end of year

  $401,467  495,081  162,795  —    1,059,343 
   


 

 

 

 

 

6271


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows

Year Ended November 30, 2004

  Lennar
Corporation


  Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

  Total

 
  (Dollars in thousands) 

Cash flows from operating activities:

                

Net earnings from continuing operations

 $945,619  1,033,841  101,700  (1,136,518) 944,642 

Net earnings from discontinued operations

  —    —    977  —    977 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities

  (576,392) (857,956) (227,597) 1,136,518  (525,427)
  


 

 

 

 

Net cash provided by (used in) operating activities

  369,227  175,885  (124,920) —    420,192 
  


 

 

 

 

Cash flows from investing activities:

                

Increase in investments in unconsolidated entities, net

  —    (420,597) —    —    (420,597)

Acquisitions, net of cash acquired

  —    (93,082) (12,648) —    (105,730)

Other

  (15,110) 17,955  (10,625) —    (7,780)
  


 

 

 

 

Net cash used in investing activities

  (15,110) (495,724) (23,273) —    (534,107)
  


 

 

 

 

Cash flows from financing activities:

                

Net borrowings under financial services short-term debt

  —    —    162,277  —    162,277 

Net proceeds from senior floating-rate notes due 2009

  298,500  —    —    —    298,500 

Net proceeds from senior floating-rate notes due 2007

  199,300  —    —    —    199,300 

Net proceeds from 5.50% senior notes

  245,480  —    —    —    245,480 

Net repayments under term loan B and other borrowings

  (296,000) (74,721) (33,368) —    (404,089)

Payments related to minority interests, net

  —    —    (18,396) —    (18,396)

Common stock:

                

Issuances

  14,537  —    —    —    14,537 

Repurchases

  (113,582) —    —    —    (113,582)

Dividends

  (79,945) —    —    —    (79,945)

Intercompany

  (403,966) 274,080  129,886  —    —   
  


 

 

 

 

Net cash provided by (used in) financing activities

  (135,676) 199,359  240,399  —    304,082 
  


 

 

 

 

Net increase (decrease) in cash

  218,441  (120,480) 92,206  —    190,167 

Cash at beginning of year

  893,503  263,660  68,485  —    1,225,648 
  


 

 

 

 

Cash at end of year

 $1,111,944  143,180  160,691  —    1,415,815 
  


 

 

 

 

72


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Consolidating Statement of Cash Flows

Year Ended November 30, 2003

 

  Lennar
Corporation


 Guarantor
Subsidiaries


 Non-Guarantor
Subsidiaries


 Eliminations

 Total

   Lennar
Corporation


 Guarantor
Subsidiaries


 Non-Guarantor
Subsidiaries


 Eliminations

 Total

 
  (In thousands)   (Dollars in thousands) 

Cash flows from operating activities:

      

Net earnings (loss)

  $751,391  820,795  97,322  (918,117) 751,391 

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities

   (789,215) (457,339) 172,859  903,103  (170,592)

Net earnings from continuing operations

  $751,391  820,795  93,779  (915,031) 750,934 

Net earnings from discontinued operations

   —    —    457  —    457 

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities

   (789,215) (324,232) 176,928  900,017  (36,502)
  


 

 

 

 

  


 

 

 

 

Net cash provided by (used in) operating activities

   (37,824) 363,456  270,181  (15,014) 580,799    (37,824) 496,563  271,164  (15,014) 714,889 
  


 

 

 

 

  


 

 

 

 

Cash flows from investing activities:

      

(Increase) decrease in investments in unconsolidated partnerships, net

   (16,346) 88,419  —    —    72,073 

Increase in investments in unconsolidated entities, net

   (16,346) (49,238) —    —    (65,584)

Acquisitions, net of cash acquired

   —    (149,212) (10,177) —    (159,389)   —    (149,212) (10,177) —    (159,389)

Other

   (9,177) (6,662) (15,042) —    (30,881)   (9,177) 4,876  (15,042) —    (19,343)
  


 

 

 

 

  


 

 

 

 

Net cash used in investing activities

   (25,523) (67,455) (25,219) —    (118,197)   (25,523) (193,574) (25,219) —    (244,316)
  


 

 

 

 

  


 

 

 

 

Cash flows from financing activities:

      

Net borrowings (repayments) under revolving credit facilities and other borrowings

   (95,237) (106,083) 228  15,014  (186,078)

Net proceeds from issuance of 5.95% senior notes

   341,730  —    —    —    341,730 

Net repayments under financial services short-term debt

   —    —    (118,989) —    (118,989)   —    —    (118,989) —    (118,989)

Net proceeds from 5.95% senior notes

   341,730  —    —    —    341,730 

Net borrowings (repayments) under term loan B and other borrowings

   (95,237) (106,083) 228  15,014  (186,078)

Receipts related to minority interests, net

   —    —    2,682  —    2,682 

Common stock:

      

Issuance

   18,197  —    —    —    18,197 

Issuances

   18,197  —    —    —    18,197 

Repurchases

   (1,044) —    —    —    (1,044)   (1,044) —    —    —    (1,044)

Dividends and other

   (22,705) —    —    —    (22,705)   (22,705) —    —    —    (22,705)

Intercompany

   94,746  7,882  (102,628) —    —      94,746  12,432  (107,178) —    —   
  


 

 

 

 

  


 

 

 

 

Net cash provided by (used in) financing activities

   335,687  (98,201) (221,389) 15,014  31,111    335,687  (93,651) (223,257) 15,014  33,793 
  


 

 

 

 

  


 

 

 

 

Net increase in cash

   272,340  197,800  23,573  —    493,713    272,340  209,338  22,688  —    504,366 

Cash at beginning of year

   621,163  109,995  46,001  —    777,159    621,163  54,322  45,797  —    721,282 
  


 

 

 

 

  


 

 

 

 

Cash at end of year

  $893,503  307,795  69,574  —    1,270,872   $893,503  263,660  68,485  —    1,225,648 
  


 

 

 

 

  


 

 

 

 

 

6373


LENNAR CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Consolidating Statement of Cash Flows

Year Ended November 30, 2002

   Lennar
Corporation


  Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

  Total

 
   (In thousands) 

Cash flows from operating activities:

                 

Net earnings (loss)

  $545,129  598,696  73,434  (672,130) 545,129 

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities

   (500,149) (299,043) (198,513) 657,144  (340,561)
   


 

 

 

 

Net cash provided by (used in) operating activities

   44,980  299,653  (125,079) (14,986) 204,568 
   


 

 

 

 

Cash flows from investing activities:

                 

Decrease in investments in unconsolidated partnerships, net

   —    57,891  11  —    57,902 

Acquisitions, net of cash acquired

   —    (415,607) (8,670) —    (424,277)

Other

   (1,759) 3,382  (925) —    698 
   


 

 

 

 

Net cash used in investing activities

   (1,759) (354,334) (9,584) —    (365,677)
   


 

 

 

 

Cash flows from financing activities:

                 

Net borrowings (repayments) under revolving credit facilities and other borrowings

   (6,806) (119,635) 259  14,986  (111,196)

Net borrowings under financial services short-term debt

   —    —    156,120  —    156,120 

Common stock:

                 

Issuance

   19,317  —    —    —    19,317 

Repurchases

   (65) —    —    —    (65)

Dividends

   (3,182) —    —    —    (3,182)

Intercompany

   (141,647) 170,593  (28,946) —    —   
   


 

 

 

 

Net cash provided by (used in) financing activities

   (132,383) 50,958  127,433  14,986  60,994 
   


 

 

 

 

Net decrease in cash

   (89,162) (3,723) (7,230) —    (100,115)

Cash at beginning of year

   710,325  113,718  53,231  —    877,274 
   


 

 

 

 

Cash at end of year

  $621,163  109,995  46,001  —    777,159 
   


 

 

 

 

64


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows

Year Ended November 30, 2001

   Lennar
Corporation


  Guarantor
Subsidiaries


  Non-Guarantor
Subsidiaries


  Eliminations

  Total

 
   (In thousands) 

Cash flows from operating activities:

                 

Net earnings (loss)

  $417,845  465,847  60,285  (526,132) 417,845 

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities

   (393,618) (217,936) (273,227) 526,132  (358,649)
   


 

 

 

 

Net cash provided by (used in) operating activities

   24,227  247,911  (212,942) —    59,196 
   


 

 

 

 

Cash flows from investing activities:

                 

Decrease in investments in unconsolidated partnerships, net

   —    5,582  19  —    5,601 

Other

   17  (7,913) 4,158  —    (3,738)
   


 

 

 

 

Net cash provided by (used in) investing activities

   17  (2,331) 4,177  —    1,863 
   


 

 

 

 

Cash flows from financing activities:

                 

Net borrowings (repayments) under revolving credit facilities and other borrowings

   219,974  (21,385) 1,499  —    200,088 

Net borrowings under financial services short-term debt

   —    —    265,607  —    265,607 

Common stock:

                 

Issuance

   19,789  —    —    —    19,789 

Dividends

   (3,146) —    —    —    (3,146)

Intercompany

   243,681  (198,242) (45,439) —    —   
   


 

 

 

 

Net cash provided by (used in) financing activities

   480,298  (219,627) 221,667  —    482,338 
   


 

 

 

 

Net increase in cash

   504,542  25,953  12,902  —    543,397 

Cash at beginning of year

   205,783  87,765  40,329  —    333,877 
   


 

 

 

 

Cash at end of year

  $710,325  113,718  53,231  —    877,274 
   


 

 

 

 

65


LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

18.20.    Quarterly Data (unaudited)

 

   First

  Second

  Third

  Fourth

   (In thousands, except per share amounts)

2003

             

Revenues

  $1,600,470  2,103,108  2,267,842  2,936,199

Earnings before provision for income taxes

  $170,792  257,534  323,819  454,909

Net earnings

  $106,318  160,315  201,577  283,181

Earnings per share:

             

Basic

  $0.75  1.13  1.35  1.81

Diluted

  $0.68  1.02  1.21  1.69

2002

             

Revenues

  $1,236,901  1,549,484  1,847,952  2,601,183

Earnings before provision for income taxes

  $115,487  170,293  228,464  361,465

Net earnings

  $71,891  106,007  142,219  225,012

Earnings per share:

             

Basic

  $0.52  0.76  1.01  1.60

Diluted

  $0.47  0.68  0.91  1.44
   First

  Second

  Third

  Fourth

   (In thousands, except per share amounts)

2005

             

Revenues

  $2,405,731  2,932,974  3,498,332  5,029,934

Gross profit from sales of homes

  $544,443  654,082  846,448  1,256,473

Earnings from continuing operations before provision for income taxes

  $309,645  374,689  541,772  933,588

Earnings from discontinued operations before provision for income taxes

  $726  16,535  —    —  

Net earnings

  $193,206  243,537  337,253  581,159

Basic earnings per share:

             

Earnings from continuing operations

  $1.25  1.51  2.18  3.70

Earnings from discontinued operations

  $0.00  0.07  0.00  0.00
   

  
  
  

Net earnings

  $1.25  1.58  2.18  3.70
   

  
  
  

Diluted earnings per share:

             

Earnings from continuing operations

  $1.17  1.42  2.06  3.54

Earnings from discontinued operations

  $0.00  0.06  0.00  0.00
   

  
  
  

Net earnings

  $1.17  1.48  2.06  3.54
   

  
  
  

2004

             

Revenues

  $1,862,167  2,342,045  2,747,329  3,549,427

Gross profit from sales of homes

  $373,798  483,706  566,540  860,357

Earnings from continuing operations before provision for income taxes

  $223,422  323,220  361,426  609,429

Earnings from discontinued operations before provision for income taxes

  $276  332  376  586

Net earnings

  $139,252  201,411  225,222  379,734

Basic earnings per share:

             

Earnings from continuing operations

  $0.90  1.30  1.45  2.44

Earnings from discontinued operations

  $0.00  0.00  0.00  0.00
   

  
  
  

Net earnings

  $0.90  1.30  1.45  2.44
   

  
  
  

Diluted earnings per share:

             

Earnings from continuing operations

  $0.84  1.22  1.36  2.29

Earnings from discontinued operations

  $0.00  0.00  0.00  0.00
   

  
  
  

Net earnings

  $0.84  1.22  1.36  2.29
   

  
  
  

 

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. All earnings per share amounts were adjusted for the Company’s April 2003 10% Class B stock distribution and the January 2004 two-for-one stock split.split and discontinued operations (See Note 2).

 

6674


Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

Not applicable.

 

Item 9a.9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) 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, 2003.2005. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of November 30, 20032005 to ensure that required information is disclosed on a timely basis in our reports filed or furnished under the Securities Exchange Act.Act of 1934.

 

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, 2003.2005. 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 is included elsewhere in this document.

75


Item 9B.    Other Information.

Not applicable.

PART III

 

Item 10.    Directors and Executive Officers of the Registrant.

 

Information about our directors and their compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 is incorporatedThe information required by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 29, 2004 (120 days after the end of our fiscal year). The following people were ourthis item for executive officers on February 4, 2004:

Name/Position


  Age

    Year of
Election


Stuart A. Miller,
President and Chief Executive Officer

  46    1997

Robert J. Strudler,
Vice Chairman and Chief Operating Officer

  61    2000

Bruce E. Gross,
Vice President and Chief Financial Officer

  45    1997

Marshall H. Ames,
Vice President

  60    1982

Diane J. Bessette,
Vice President and Controller

  43    1997

Benjamin P. Butterfield,
General Counsel and Secretary

  44    2003

Jonathan M. Jaffe,
Vice President

  44    1994

Craig M. Johnson,
Vice President, Community Development

  50    2000

Waynewright E. Malcolm,
Vice President and Treasurer

  40    1997

David B. McCain,
Vice President

  43    1998

Allan J. Pekor,
Vice President

  67    1997

The year of election representsis set forth under the year that the executive officer was elected to his or her current position.

67


Mr. Stuart Miller has been our President and Chief Executive Officer since April 1997 and is one of our Directors. Prior to that, Mr. Miller held various executive positions with us and had been a Vice President since 1985. Mr. Miller is also the Chairman of the Board of LNR Property Corporation.

Mr. Strudler has been Vice Chairman of the Board of Directors and Chief Operating Officer since May 2000. Prior to that, Mr. Strudler was the Chairman and Co-Chief Executive Officer of U.S. Home Corporation.

Mr. Gross has been a Vice President and our Chief Financial Officer since 1997. Prior to that, Mr. Gross was employed as Senior Vice President, Controller and Treasurer of Pacific Greystone Corporation.

Mr. Ames has been a Vice President since 1982 and has been responsible for Investor Relations since 2000.

Ms. Bessette has been employed by us since 1995, has been our Controller since 1997 and became a Vice President in 2000.

Mr. Butterfield joined us in 2003 as General Counsel and Secretary. Prior to joining us, Mr. Butterfield had served, since 1996, as General Counsel and Secretary of Hughes Supply, Inc.

Mr. Jaffe has been a Vice President since 1994 and serves as a Regional President in our Homebuilding Division. Mr. Jaffe is one of our Directors.

Mr. Johnson has been a Vice President since May 2000. Mr. Johnson served as President of Strategic Technologies, Inc. from 2001 through 2003. Prior to that, Mr. Johnson was a Senior Vice President of U.S. Home Corporation.

Mr. Malcolm joined us as Treasurer in 1997 and became a Vice President in 2000.

Mr. McCain joined us in 1998 as a Vice President, General Counsel and Secretary. In 2003, Mr. McCain was appointed President and Chief Executive Officerheading “Executive Officers of Lennar Financial Services, LLC.

Mr. Pekor has held various executive positions with us since 1979. Mr. Pekor served as President of Lennar Financial Services, LLC from 1997 through 2003. In 2003, Mr. Pekor was elected Chairman of the Board of Directors of Lennar Financial Services, LLC.

Audit Committee Expert

Our Board has a separately-designated standing Audit Committee establishedCorporation” in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended.Part I. The members of the Audit Committee are R. Kirk Landon (Chairman), Steven L. Gerard and Irving Bolotin. The Board has determined that Steven L. Gerard is an audit committee financial expert, as that term is defined in Item 401(h) of SEC Regulation S-K, and that he is independent, as that term is defined in Item 7(d)(3)(iv) of SEC Schedule 14A.

Code of Ethics

We have a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. This Code is available on our website at www.lennar.com. Stockholders may obtain a free copy of the Code by addressing a request to:

Lennar Corporation

Attention: Investor Relations

700 Northwest 107th Avenue

Miami, Florida 33172

68


Corporate Governance Guidelines and Charters

Our Corporate Governance Guidelines, and the charters of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee of our Board of Directors, are all available on our website at www.lennar.com. Stockholders may obtain a free copy of the Corporate Governance Guidelines or any of the charters by addressing a request to:

Lennar Corporation

Attention: Investor Relations

700 Northwest 107th Avenue

Miami, Florida 33172

NYSE Annual Certification

Stuart A. Miller, our Chief Executive Officer, has certified to the New York Stock Exchange that, as of February 27, 2004 (the date of the certification), he was not aware of any violation by us of the NYSE’s corporate governance listing standards.

Item 11.    Executive Compensation.

Theother 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 29, 200430, 2006 (120 days after the end of our fiscal year).

 

Item 12.    Security Ownership of Certain Beneficial Owners and Management.11.    Executive Compensation.

 

The information called forrequired 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 29, 200430, 2006 (120 days after the end of our fiscal year).

 

Item 13.12.    Security Ownership of Certain RelationshipsBeneficial Owners and Management and Related Transactions.Stockholder Matters.

 

The information called forrequired 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 29, 200430, 2006 (120 days after the end of our fiscal year)., except for the information required by Item 201(d) of Regulation S-K, which is included below.

The following table summarizes our equity compensation plans as of November 30, 2005:

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

  7,159,548  $35.92  5,408,359

Equity compensation plans not approved by stockholders

  —     —    —  
   
  

  

Total

  7,159,548  $35.92  5,408,359
   
  

  

(1)This amount includes approximately 341,000 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 14.    Principal Accountant Fees13.    Certain Relationships and Services.Related Transactions.

 

The information called forrequired 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 29, 200430, 2006 (120 days after the end of our fiscal year).

 

69Item 14.    Principal Accountant 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, 2006 (120 days after the end of our fiscal year).

76


PART IV

 

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

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 Auditors’ ReportRegistered Public Accounting Firm

  2935

Consolidated Balance Sheets as of November 30, 20032005 and 20022004

  3036

Consolidated Statements of Earnings for the Years Ended November 30, 2003, 20022005, 2004 and 20012003

  3137

Consolidated Statements of Stockholders’ Equity for the Years Ended November 30, 2003, 20022005, 2004 and 20012003

  3238

Consolidated Statements of Cash Flows for the Years Ended November 30, 2003, 20022005, 2004 and 20012003

  3440

Notes to Consolidated Financial Statements

  3642

 

 2. The following financial statement schedule is included in this Report:

 

Financial Statement Schedule


  Page
in this
Report


Report of Independent Auditors’ ReportRegistered Public Accounting Firm

  7481

Schedule II—Valuation and Qualifying Accounts

  7582

 

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:

 

  2.1    Separation and Distribution Agreement, dated June 10, 1997, between Lennar and LNR Property Corporation—Incorporated by reference to Exhibit 10.1 of the Registration Statement on Form 10 of LNR Property Corporation filed with the Commission on July 31, 1997.
  2.2    Agreement and Plan of Merger dated July 21, 2003, among Lennar, The Newhall Land and Farming Company, LNR Property Corporation, NWHL Investment LLC and NWHL Acquisition, L.P.—Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated January 27, 2004.
 3(a). 

  3.1    

Amended and Restated Certificate of Incorporation, dated April 28, 1998—Incorporated by reference to Exhibit 3(a) toof the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 1998.

2004.
 3(b). 

  3.2    

Certificate of Amendment to Certificate of Incorporation, dated April 9, 1999—Incorporated by reference to Exhibit 3(a) toof the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 1999.

 3(c). 

  3.3    

Certificate of Amendment to Certificate of Incorporation, dated April 8, 2003—Incorporated by reference to Annex IV to the Schedule 14A dated March 10, 2003.

 3(d). 

Bylaws—  3.4    

Bylaws of the Company, as amended through June 28, 2005—Incorporated by reference to Exhibit 3.2 to3.1 of the CurrentCompany’s Quarterly Report on Form 8-K dated November 17, 1997, file number 1-06643.

10-Q for the quarter ended May 31, 2005.
 3(e). 

Amended and Restated Bylaws, dated February 16, 2004.

  4(a).  4.1      

Indenture, dated as of December 31, 1997, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee—Incorporated by Referencereference to Exhibit 4 of the Company’s Registration Statement on Form S-3, Registration No. 333-45527.

333-45527, filed with the Commission on February 3, 1998.
 4(b). 

  4.2    

Second Supplemental Indenture, dated as of February 19, 1999, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee (relating to Lennar’s 7 5/8% Senior Notes due 2009)—Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, dated February 19, 1999, file number 1-11749.1999.

77


 4(c). 

  4.3    

Third Supplemental Indenture, dated May 3, 2000, by and amongbetween Lennar Corporation and Bank One Trust Company, N.A., as successor trustee to The First National Bank of Chicago (relating to Lennar’s 7 5/8% 5/8% Senior Notes due 2009)—Incorporated by reference to Exhibit 4(d) of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2000.

70


  4(d). 

  4.4    

Fifth Supplemental Indenture, dated April 4, 2001, by and amongbetween Lennar Corporation and Bank One Trust Company, N.A., as trustee (relating to Lennar’s Zero CouponZero-Coupon Convertible Senior Subordinated Notes due 2021)—Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, dated April 4, 2001, file number 1-11749.

2001.
 4(e). 

  4.5    

Sixth Supplemental Indenture, dated May 3, 2000, by and amongFebruary 5, 2003, between Lennar Corporation and Bank One Trust Company, N.A., as trustee relating(relating to 9.95%5.950% Senior Notes due 2010—2013)—Incorporated by reference to Registration Statement No. 333-41316.

Exhibit 4.1 of the Company’s Current Report on Form 8-K, dated January 31, 2003.
10(a). 

  4.6    

Eighth Supplemental Indenture, dated January 21, 2005, between Lennar and J.P. Morgan Trust Company, N.A., as trustee (relating to Lennar’s Senior Floating-Rate Notes due 2009)—Incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4, Registration No. 333-116975, filed with the Commission on June 29, 2004.
  4.7    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.
  4.8    Indenture, dated August 18, 2004, between Lennar and J.P. Morgan Trust Company, N.A., as trustee (relating to Lennar’s Senior Floating-Rate Notes due 2007)—Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-4, Registration No. 333-121132, filed with the Commission on December 10, 2004.
  4.9    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.
  4.10  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.
10.1*  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.
10.2*  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.

10(b). 

Amended and Restated 10.3*  

Lennar Corporation 19972003 Stock Option and Restricted Stock Plan—Incorporated by reference to Annex VI of the Annual ReportCompany’s Proxy Statement on Form 10-K for the fiscal year ended November 30, 1997.

Schedule 14A dated March 10, 2003.
10(c). 

10.4*  

Lennar Corporation 1991 Stock Option Plan—Incorporated by reference to Registration Statement No. 33-45442.

10(d). 

10.5*  

Lennar Corporation Employee Stock Ownership Plan and Trust—Incorporated by reference to Registration Statement No. 2-89104.

10(e). 

10.6*  

Amendment dated December 13, 1989 to Lennar Corporation Employee Stock Ownership Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.

78


10(f). 

10.7*  

Lennar Corporation Employee Stock Ownership/401(k) Trust Agreement dated December 13, 1989—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.

10(g). 

10.8*  

Amendment dated April 18, 1990 to Lennar Corporation Employee Stock Ownership/401(k) Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.

10(h). 

Separation and Distribution Agreement, dated June 10, 1997, between Lennar Corporation and LNR Property Corporation—Incorporated by reference to Registration Statement No. 333-35671.

10(i).10.9      

Credit Agreement, dated October 31, 1997, by and among Lennar Land Partners and the Lenders named therein—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1997.

10(j).

Credit Agreement, dated May 3, 2000, among Lennar Corporation and various lenders—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000.

10(k).

First Amended and Restated Warehousing Credit and Security Agreement dated October 23, 2003, betweenby and among Universal American Mortgage Company, LLC, Eagle Home Mortgage, Inc., Ameristar Financial Services, Inc., Universal American Mortgage Company of California, UAMC Asset Corp. II and Residential Funding Corporation.

Corporation—Incorporated by reference to Exhibit 10(k) to the Annual Report on Form 10-K for the fiscal year ended November 30, 2003.
10(l). 

10.10*

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.

10(m). 

Second Amended and Restated 10.11  

Credit Agreement, dated May 30, 2003June 17, 2005 among Lennar Corporation and various lenders.

10(n).

Lennar Corporation 2003 Stock Option and Restricted Stock Plan—the lenders named therein—Incorporated by reference to Annex VI toExhibit 10 of the Schedule 14A dated March 10, 2003.

10(o).

Agreement and Plan of Merger dated July 21, 2003, by and among The Newhall Land and Farming Company, Lennar Corporation, LNR Property Corporation, NWHL Investment LLC and NWHL Acquisition, L.P.—Incorporated by reference to theCompany’s Current Report on Form 8-K, dated January 27, 2004.

June 17, 2005.
10(p). 

10.12  

Parent Company Guarantee dated January 27, 2004 by Lennar Corporation and LNR Property Corporation in favor of Bank One, NA,N.A., for the benefit of the lenders under the Credit Agreement referred to therein.

therein—Incorporated by reference to Exhibit 10(p) to the Annual Report on Form 10-K for the fiscal year ended November 30, 2003.

71


10(q). 

10.13  

Loan Agreement dated May 23, 2003 between UAMC Capital, LLC and the lenders named therein.

10(r).

Extension Agreement dated August 26, 2003 between Lennar Corporation and LNR Property Corporation, relatedtherein—Incorporated by reference to exhibit 10(h) above.

21.

List of subsidiaries.

23.

Independent Auditors’ Consent.

31.1

Certification by Stuart A. Miller, President and Chief Executive Officer, pursuantExhibit 10(q) to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification by Bruce E. Gross, Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.

Certification by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.

Financial statements of Lennar Corporation’s affiliates whose securities collateralize Lennar’s 5.125% zero-coupon convertible senior subordinated notes due 2021, Lennar’s 7 5/8% Senior Notes due 2009 and Lennar’s Credit Facilities.

(b)Current ReportsAnnual Report on Form 8-K filed during10-K for the quarterfiscal year ended November 30, 2003.

 (1)10.14    ReportSeventh Amendment to First Amended and Restated Warehousing Credit and Security Agreement dated as of November 26, 2003, relating to the transfer to a newly formed entity, of which Lennar and LNR will each own 50%, our respective 50% interests in six jointly-owned entities at their book value.22, 2004.

 (2)10.15*  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.
10.16*Amendment No. 1 to Aircraft Time-Sharing Agreement, dated September 24, 2003, furnishing certain reclassifications for our homebuilding results, which had no impact on reported net earnings.1, 2005, between U.S. Home Corporation and Stuart Miller.

 (3)10.17    ReportSecond Amended and Restated Warehousing Credit and Security Agreement dated September 16, 2003, furnishing information relating to a press release containing information about our results of operations forApril 21, 2005, by and among the third fiscal quarter, which ended on August 31, 2003.Lender Parties named in the agreement and Residential Funding Corporation.

 (4)21         Report dated September 8, 2003, furnishing information relating to a press release stating that The Newhall Land and Farming Company (“Newhall Land”) had filed with the Securities and Exchange Commission a preliminary proxy statement relating to a meetingList of Newhall Land’s unitholders for the purpose of voting upon the previously announced acquisition of Newhall Land by a Lennar/LNR Property Corporation joint venture.subsidiaries.

 (c)23         The exhibits to this Report are listed in Item 15(a)3.Consent of Independent Registered Public Accounting Firm.

 (d)31.1      The financial statement schedules required by Regulation S-X which are excluded from the Annual Report to Stockholders as permitted by Rule 14a-3(b)(1) are listed in Item 15(a)2.13a-14a/15d-14(a) Certification of Stuart A. Miller.
31.2    Rule 13a-14a/15d-14(a) Certification of Bruce E. Gross.
32       Section 1350 Certifications of Stuart A. Miller and Bruce E. Gross.

*Management contract or compensatory plan or arrangement.

 

7279


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we havethe registrant has duly caused this Report to be signed on ourits behalf by the undersigned, thereunto duly authorized.

 

LENNAR CORPORATION

LENNAR CORPORATION

By:

/s/                        STUART A. MILLER


Stuart A. Miller

President, Chief Executive Officer and Director

Date: February 7, 2006

 

Date: February 27, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on our behalf of the registrant and in the capacities and on the dates indicated:

 

Principal Executive Officer:

     

Stuart A. Miller

/s/

STUART A. MILLER


Stuart A. Miller

President, Chief Executive Officer and Director

 Date:

February 27, 20047, 2006

Principal Financial Officer:

     

Bruce E. Gross

/s/

BRUCE E. GROSS


Bruce E. Gross

Vice President and Chief Financial Officer

 Date:

February 27, 20047, 2006

Principal Accounting Officer:

     

Diane J. Bessette

/s/

DIANE J. BESSETTE


Diane J. Bessette

Vice President and Controller

 Date:

February 27, 20047, 2006

Directors:

     

/s/    IRVING BOLOTIN        


Irving BolotinRobert J. Strudler

 /s/  

ROBERT J. STRUDLER

Chairman of the Board

Date:

February 27, 20047, 2006

Irving Bolotin

/s/    S

ITEVENRVING L. GBERARD        OLOTIN


Steven L. Gerard

  Date:

February 27, 20047, 2006

Steven L. Gerard

/s/    J

SONATHANTEVEN M. JL. GAFFE        ERARD


Jonathan M. Jaffe

  Date:

February 27, 20047, 2006

R. Kirk Landon

/s/

R. KIRK LANDON


R. Kirk Landon

  Date:

February 27, 20047, 2006

Sidney Lapidus

/s/

SIDNEY LAPIDUS


Sidney Lapidus

  Date:

February 27, 20047, 2006

Hervé Ripault

/s/

HERVÉ RIPAULT


Hervé Ripault

  Date:

February 27, 20047, 2006

Donna Shalala

/s/

DONNA STEVEN J. SAIONTZ        HALALA


Steven J. Saiontz

  Date:

February 27, 20047, 2006

Jeffrey Sonnenfeld

/s/    D

JONNAEFFREY SHALALA        ONNENFELD


Donna Shalala

  February 27, 2004

/s/    ROBERT J. STRUDLER        


Robert J. Strudler

Date:
  

February 27, 20047, 2006

 

7380


REPORT OF INDEPENDENT AUDITORS’ REPORTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Lennar Corporation:Corporation

 

We have audited the consolidated financial statements of Lennar Corporation and subsidiaries (the “Company”) as of November 30, 20032005 and 20022004, and for each of the three years in the period ended November 30, 2003,2005, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of November 30, 2005, and the effectiveness of the Company’s internal control over financial reporting as of November 30, 2005, and have issued our reportreports thereon dated February 27, 2004;7, 2006; such consolidated financial statements and reportreports are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15(a)2. The 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.

 

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

 

Miami, Florida

February 27, 20047, 2006

 

7481


LENNAR CORPORATION AND SUBSIDIARIES

 

Schedule II—Valuation and Qualifying Accounts

Years Ended November 30, 2003, 20022005, 2004 and 20012003

 

     Additions

        Additions

   

Description


  Beginning
balance


  Charged to
costs and
expenses


  Charged to
other
accounts


  Deductions

 Ending
balance


  Beginning
balance


  

Charged to
costs

and expenses


  Charged
to other
accounts


  Deductions

 Ending
balance


  (In thousands)

Year ended November 30, 2005

            

Allowances deducted from assets to which they apply:

            

Allowances for doubtful accounts and notes receivable

  $1,784  1,803  —    (805) 2,782
  

  
  
  

 

Allowance for loan losses

  $1,407  269  32  (528) 1,180
  

  
  
  

 

Year ended November 30, 2004

            

Allowances deducted from assets to which they apply:

            

Allowances for doubtful accounts and notes receivable

  $2,088  737  43  (1,084) 1,784
  

  
  
  

 

Allowance for loan losses

  $3,090  51  149  (1,883) 1,407
  

  
  
  

 

Year ended November 30, 2003

                        

Allowances deducted from assets to which they apply:

                        

Allowances for doubtful accounts and notes receivable

  $3,166,000  1,858,000  13,000  (2,949,000) 2,088,000  $3,166  1,858  13  (2,949) 2,088
  

  
  
  

 
  

  
  
  

 

Deferred income and unamortized discounts

  $8,613,000  —    5,353,000  (10,491,000) 3,475,000
  

  
  
  

 

Loan loss reserve

  $3,001,000  —    —    (28,000) 2,973,000
  

  
  
  

 

Valuation allowance

  $76,000  —    41,000  —    117,000

Allowance for loan losses

  $3,077  —    41  (28) 3,090
  

  
  
  

 
  

  
  
  

 

Deferred tax asset valuation allowance

  $6,978,000  —    —    (6,978,000) —    $6,978  —    —    (6,978) —  
  

  
  
  

 
  

  
  
  

 

Year ended November 30, 2002

            

Allowances deducted from assets to which they apply:

            

Allowances for doubtful accounts and notes receivable

  $4,755,000  1,602,000  260,000  (3,451,000) 3,166,000
  

  
  
  

 

Deferred income and unamortized discounts

  $4,641,000  6,156,000  20,000  (2,204,000) 8,613,000
  

  
  
  

 

Loan loss reserve

  $4,065,000  190,000  —    (1,254,000) 3,001,000
  

  
  
  

 

Valuation allowance

  $1,259,000  71,000  —    (1,254,000) 76,000
  

  
  
  

 

Deferred tax asset valuation allowance

  $7,117,000  —    —    (139,000) 6,978,000
  

  
  
  

 

Year ended November 30, 2001

            

Allowances deducted from assets to which they apply:

            

Allowances for doubtful accounts and notes receivable

  $5,188,000  2,368,000  —    (2,801,000) 4,755,000
  

  
  
  

 

Deferred income and unamortized discounts

  $8,345,000  7,000  254,000  (3,965,000) 4,641,000
  

  
  
  

 

Loan loss reserve

  $3,645,000  655,000  9,000  (244,000) 4,065,000
  

  
  
  

 

Valuation allowance

  $1,377,000  —    —    (118,000) 1,259,000
  

  
  
  

 

Deferred tax asset valuation allowance

  $7,117,000  —    —    —    7,117,000
  

  
  
  

 

 

7582


EXHIBIT INDEX

Exhibit No.

Description


10.14  Seventh Amendment to First Amended and Restated Warehousing Credit and Security Agreement dated as of November 22, 2004.
10.16  Amendment No. 1 to Aircraft Time-Sharing Agreement, dated September 1, 2005, between U.S. Home Corporation and Stuart Miller.
10.17  Second Amended and Restated Warehousing Credit and Security Agreement dated April 21, 2005, by and among the Lender Parties named in the agreement and Residential Funding Corporation.
21       List of subsidiaries.
23       Consent of Independent Registered Public Accounting Firm.
31.1    Rule 13a-14a/15d-14(a) Certification of Stuart A. Miller.
31.2    Rule 13a-14a/15d-14(a) Certification of Bruce E. Gross.
32       Section 1350 Certifications of Stuart A. Miller and Bruce E. Gross.