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

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, ~~(as defined~~or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange ~~Act Rule 12b-2). YES~~ þ NO ¨Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~Exchange~~ Act). ~~Yes~~YES ¨ NoNO þ

The aggregate market value of the registrant’s Class A and Class B common stock held by non-affiliates of the registrant ~~(121,320,336~~(124,270,835 Class A shares and ~~11,122,341~~10,843,179 Class B shares) as of May 31, ~~2004,~~2006, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was ~~$6,044,862,064.~~$6,431,999,899.

As of January 31, ~~2005,~~2007, the registrant had outstanding ~~122,475,545~~127,302,839 shares of Class A common stock and ~~32,674,962~~31,234,563 shares of Class B common stock.

We are one of the nation’s largest homebuilders and a provider of financial services. Our homebuilding operations include the construction and sale of single-family attached and detached homes, and to a lesser extent multi-level buildings, as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which we have investments. We have grouped our homebuilding activities into three reportable segments, which we refer to as Homebuilding East, Homebuilding Central and Homebuilding West. Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is ~~being filed~~grouped under “Homebuilding Other.” Our reportable homebuilding segments and Homebuilding Other have divisions located in the following states:

We have one Financial Services reportable segment that provides mortgage financing, title insurance, closing services and other ancillary services (including personal lines insurance, high-speed Internet and cable television) for both buyers of our homes and others. We sell substantially all of the ~~purpose~~loans that we originate in the secondary mortgage market. Our Financial Services segment operates generally in the same states as our homebuilding segments, as well as other states. For financial information about both our homebuilding and financial services operations, you should review Management’s Discussion and Analysis of ~~restating~~Financial Condition and Results of Operations, which is Item 7 of this Report, and our consolidated financial statements and the notes to our consolidated financial statements, which are included in Item 8 of ~~cash flows~~this Report.

During the second half of 2006, the market conditions in the homebuilding industry deteriorated. As a result, we evaluated our balance sheet for impairment on an asset-by-asset basis. Based on this assessment in 2006, we recorded $501.8 million of inventory valuation adjustments and $126.4 million of valuation adjustments to our investments in unconsolidated entities. This market deterioration was driven primarily by excess supply as speculators reduced purchases and returned homes to the ~~years ended November 30, 2004, 2003~~market as well as negative customer sentiment surrounding the general homebuilding market. We also experienced slower sales (down 3% in 2006) and ~~2002~~higher cancellation rates (29% in 2006) which have impacted most of our markets and therefore, we made greater use of sales incentives to ~~reclassify $128.5 million, $137.7 million~~generate sales in order to build-out our inventory, deliver our backlog and ~~$77.9 million, respectively, from “cash flows from investing activities”~~convert inventory into cash. The use of these sales incentives had a negative impact on gross margins.

We primarily sell single-family attached and detached homes, and to ~~“cash flows from operating activities” as such amounts relate~~a lesser extent, multi-level buildings, in communities targeted to ~~distributions~~first-time, move-up and active adult homebuyers. The average sales price of ~~earnings received from~~a Lennar home was $315,000 in fiscal 2006. We operate primarily under the Lennar brand name and market our homes primarily under our Everything’s Included^® program.

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

We balance a local operating structure with centralized corporate level management. Decisions related to our overall strategy, acquisitions of land and businesses, risk management, financing, cash management and information systems are centralized at the corporate level. Our local operating structure encompasses both land and homebuilding divisions, which are managed by individuals who generally have significant experience in the homebuilding industry and, in most instances, in their particular markets. Our land divisions are responsible for

operating decisions regarding land identification, entitlement and development and the management of inventory levels for our planned growth. Our homebuilding divisions are responsible for community development, home design, evenflow construction and marketing our homes primarily under our Everything’s Included^® program.

We generally acquire land for development and for the construction of homes that we sell to homebuyers. Land is subject to specified underwriting criteria and is acquired through our diversified program of property acquisition consisting of the following:

At November 30, 2006, we owned 92,325 homesites and had access through option contracts to an additional 189,279 homesites, of which 94,758 were through option contracts with third parties and 94,521 were through option contracts with unconsolidated entities in which we have investments. At November 30, 2005, we owned 102,687 homesites and had access through option contracts to an additional 222,119 homesites, of which 127,013 were through option contracts with third parties and 95,106 were through option contracts with unconsolidated entities in which we have investments.

We generally supervise and control the development of land and the design and building of our residential communities with a relatively small labor force. We hire subcontractors for site improvements and virtually all of the work involved in the construction of homes. Generally, arrangements with our subcontractors provide that our subcontractors will complete specified work in accordance with price schedules and applicable building codes and laws. The price schedules may be subject to change to meet changes in labor and material costs or for other reasons. We believe that the sources and availability of raw materials to our subcontractors are adequate for our current and planned levels of operation. We generally do not own heavy construction equipment. We finance construction and land development activities primarily with cash generated from operations and public debt issuances, as well as cash borrowed under our revolving credit facility, commercial paper program and unsecured, fixed-rate notes.

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 $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 Everything’s Included^® marketing program simplifies the homebuying experience by including desirable features as standard items. This marketing program enables us to differentiate our homes from those of our competitors by creating value through standard upgrades and competitive pricing, while reducing construction and overhead costs through a simplified manufacturing process, product standardization and volume purchasing. We sell our homes primarily from models that we have designed and constructed.

We employ sales associates who are paid salaries, commissions or both to complete on-site sales of homes. We also sell homes through independent brokers. We advertise our communities in newspapers, radio advertisements and other local and regional publications, on billboards and on the Internet, including our website, www.lennar.com. In addition, we advertise our active adult communities in areas where prospective active adult homebuyers live.

We have participated in charitable down-payment assistance 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.

We strive to continually improve homeowner customer satisfaction throughout the pre-sale, sale, construction, closing and post-closing periods. Through the participation of sales associates, on-site construction supervisors and customer care associates, all working in a team effort, we strive to create a quality homebuying experience for our customers, which we believe leads to enhanced customer retention and referrals.

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

We currently have a “Heightened Awareness” program, which is a focused initiative designed to objectively evaluate and measure the quality of construction in our communities. In addition to our “Heightened Awareness” program, we have a quality assurance program in certain markets in which we employ third-party consultants to inspect our homes during the construction process. These inspectors provide us with 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.

We 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 the homebuyer for the correction of any deficiencies.

The table below indicates the number of deliveries for each of our homebuilding segments and Homebuilding Other during our last three fiscal years:

Of the total home deliveries listed above, 2,536, 1,477 and 1,015, respectively, represent deliveries from unconsolidated entities for the years ended November 30, 2006, 2005 and 2004.

Despite the fact that deliveries for the full fiscal 2006 year increased in each of our homebuilding segments and Homebuilding Other, during the fourth quarter of 2006, deliveries were lower in our Homebuilding Central and West segments and Homebuilding Other, compared to the fourth quarter of 2005.

Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales contracts if they fail to qualify for financing or under certain other circumstances. We experienced a cancellation rate of 29% in 2006, compared to 17% and 16%, respectively, in 2005 and 2004. Although we experienced a significant increase in our cancellation rate during 2006, we remain focused on reselling these homes, which, in many instances, includes the use of higher sales incentives, to avoid the build up of excess inventory. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners, except for our multi-level buildings under construction for which revenue is recognized under percentage-of-completion accounting.

The table below indicates the backlog dollar value for each of our homebuilding segments and Homebuilding Other as of the end of our last three fiscal years:

Of the dollar value of homes in backlog listed above, $478,707, $590,129 and $644,839, respectively, represent the backlog dollar value from unconsolidated entities at November 30, 2006, 2005 and 2004.

As of December 31, 2006 and 2005, the backlog dollar value was $3.6 billion and $6.7 billion, respectively, of which $0.5 billion in 2006 and 2005 represents the backlog dollar value from unconsolidated entities.

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, LLC, located generally in the same states as our homebuilding segments and Homebuilding Other, as well as other states. In 2006, our financial services subsidiaries provided loans to 66% of our homebuyers who obtained mortgage financing in areas where we offered services. Because of the availability of mortgage loans from our financial services subsidiaries, as well as independent mortgage lenders, we believe access to financing has not been, and is not, a significant obstacle for most purchasers of our homes.

During 2006, we originated approximately 41,800 mortgage loans totaling $10.5 billion. Substantially all of those loans were sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis; however, we remain liable for certain limited representations and warranties related to loan sales.

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

We provide title insurance and title and closing services and other ancillary services to our homebuyers and others. We provided title and closing services for approximately 161,300 real estate transactions, issued approximately 195,700 title insurance policies and provided title insurance underwriting during 2006 through subsidiaries of North American Title Insurance Company. Title and closing services and title insurance underwriting are provided by agency subsidiaries in Arizona, California, Colorado, District of Columbia, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, Pennsylvania, Texas, Virginia and Wisconsin.

Lennar Communications Ventures oversees our interests and activities in relationships with providers of advanced communication services and provides cable television and high-speed Internet services to residents of our communities and others. At December 31, 2006, we had approximately 11,300 subscribers across California, Florida and Texas.

We have historically experienced variability in our results of operations from quarter-to-quarter due to the seasonal nature of the homebuilding business. Currently, we are focusing our efforts on asset management and our homebuilding manufacturing process, in order to achieve a more evenflow production of home deliveries

throughout the year. Evenflow production involves determining the appropriate production levels based on demand in the market, and is driven by a defined production schedule designed to produce a more consistent level of starts and deliveries throughout the year in order to gain production efficiencies. If our efforts at evenflow production are successful, the result should be a reduction in inventory cycle time and more consistent start, completion and delivery dates.

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

Our financial services operations compete with other mortgage lenders, including national, regional and local mortgage bankers and brokers, banks, savings and loan associations and other financial institutions, in the origination and sale of mortgage loans. Principal competitive factors include interest rates and other features of mortgage loan products available to the consumer. We compete with other title insurance agencies and underwriters for closing services and title insurance. Principal competitive factors include service and price. 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.

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

The residential homebuilding industry is also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. These environmental laws include such areas as storm water and surface water management, soil, groundwater and wetlands protection, subsurface conditions and air quality protection and enhancement. Environmental laws and existing conditions may result in delays, may cause us to incur substantial compliance and other costs and may prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas.

In recent years, several cities and counties in which we have developments have submitted to voters “slow growth” initiatives and other ballot measures that could impact the affordability and availability of land suitable for residential development within those localities. Although many of these initiatives have been defeated, we believe that if similar initiatives were approved, residential construction by us and others within certain cities or counties could be seriously impacted.

In order to make it possible for some of our homebuyers to obtain FHA-insured or VA-guaranteed mortgages, we must construct the homes they buy in compliance with regulations promulgated by those agencies.

Various states have statutory disclosure requirements relating to the marketing and sale of new homes. These disclosure requirements vary widely from state-to-state. In addition, some states require that each new home be registered with the state at or before the time title is transferred to a buyer (e.g., the Texas Residential Construction Commission Act).

In some states, we are required to be registered as a licensed contractor and comply with applicable rules and regulations. In various states, our new home consultants are required to be registered as licensed real estate agents and to adhere to the laws governing the practices of real estate agents.

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

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, (“Newhall”) of which we currently, 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. In December 2006, subsequent to our fiscal year end, we and LNR Property Corporation entered into an agreement to admit a new strategic partner into our LandSource joint venture, which owns Newhall (See Note 22 to our consolidated financial statements in Item 8 of this Report).

At December 31, 2006, we employed 12,605 individuals of whom 9,018 were involved in our homebuilding operations and 3,587 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. However, we subcontract many phases of our homebuilding operations and some of the subcontractors we use have employees who are represented by labor unions.

In 1997, we transferred our commercial real estate investment and management business to LNR Property Corporation (“LNR”), and spun-off LNR to our stockholders. As a result, LNR became a publicly-traded company, and the family of Stuart A. Miller, our President, Chief Executive Officer and a Director, which had voting control of us, became the controlling shareholder of LNR.

Since the spin-off, we have entered into a number of joint ventures and other transactions with LNR. Many of the joint ventures were formed to acquire and develop land, part of which was subsequently sold to us or other homebuilders for residential building and part of which was subsequently sold to LNR for commercial development. Because for a number of years after the spin-off LNR was controlled by Mr. Miller and his family, all significant transactions we or our subsidiaries engaged in with LNR or entities in which it had an interest were reviewed and approved by the Independent Directors Committee of our Board of Directors.

In January 2004, a company of which we and LNR each own 50% acquired The Newhall Land and Farming Company (“Newhall”) for approximately $1 billion. The purchase price was paid with (1) approximately $200 million we contributed to the jointly-owned company, (2) approximately $200 million LNR contributed to the jointly-owned company, (3) a $400 million term loan borrowed under $600 million of bank financing obtained by 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 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.

On November 30, 2004, we and LNR each transferred our interests in most of our joint ventures to the jointly-owned company that had acquired Newhall, and that company was renamed LandSource Communities Development LLC (“LandSource”). In December 2006, subsequent to our fiscal year end, we and LNR entered into an agreement to admit a new strategic partner into our LandSource joint venture (See Note 22 to our consolidated financial statements in Item 8 of this Report).

In February 2005, LNR was acquired by a privately-owned entity. Although Mr. Miller’s family acquired a 20.4% financial interest in that privately-owned entity, this interest is non-voting and 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% financial, non-voting, interest in LNR’s parent, significant transactions with LNR or entities in which it has an interest are still reviewed and approved by the Independent Directors Committee of our Board of Directors.

We submitted our 2005 Annual CEO Certification to the New York Stock Exchange on April 20, 2006. The certification was not qualified in any respect.

Our corporate website is www.lennar.com. We make available on our website, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the Securities and Exchange Commission. Information on our website is not part of this document.

Our website also includes printable versions of our Corporate Governance Guidelines, our Code of Business Conduct and Ethics and the charters for each of our Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Directors. Each of these documents is also available in print to any stockholder who requests a copy by addressing a request to:

If any of the following risks develop into actual events, our business, financial condition, results of operations, cash flows, strategies and prospects could be materially adversely affected.

A significant decline in demand for new homes coupled with an increase in the inventory of available new homes adversely affects our sales volume and pricing.

In 2006, the homebuilding industry experienced a significant decline in demand for newly built homes in many of our markets. The decline followed an unusually long period of strong demand for new homes. Some of this strong demand resulted from “speculators” purchasing new homes with the intention of selling them at a profit, rather than with the intention of living in them. In many instances, the speculators do not have the financial resources to retain the purchased homes, and are selling these homes at depressed prices. Inventories of new homes have also increased as a result of increased cancellation rates on pending contracts as new homebuyers sometimes find it more advantageous to forfeit a deposit than to complete the purchase of the home. This combination of lower demand and higher inventories affects both the number of homes we can sell and the prices at which we can sell them. We have no basis for predicting how long demand and supply will remain out of balance in markets where we operate or whether, even if demand and supply come back in balance, sales volumes or pricing will return to prior levels.

Demand for new homes is sensitive to economic conditions over which we have no control.

Demand for homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. Although the market experienced some increase in mortgage interest rates during 2006, mortgage interest rates remain lower than their historical averages. If mortgage interest rates increase or if any of these other economic factors adversely change nationally, or in the markets where we operate, the ability or willingness of prospective buyers to purchase new homes could be adversely affected and cancellations of pending contracts could further increase, resulting in a decrease in our revenues and earnings.

Increasing interest rates could cause defaults for homebuyers who financed homes using non-traditional financing products, which could increase the number of homes available for resale.

During the recent time of high demand in the homebuilding industry, many homebuyers financed their purchases using non-traditional adjustable rate or interest only mortgages or other mortgages, including sub-prime mortgages, that involve significantly lower initial monthly payments. As a result, new homes have been more affordable in recent years. However, as monthly payments for these homes increase either as a result of increasing adjustable interest rates or as a result of principal payments coming due, some of these homebuyers could default on their payments and have their homes foreclosed, which would increase the inventory of homes available for resale. In addition, if lenders perceive deterioration in credit quality among homebuyers, lenders may eliminate some of the available non-traditional and sub-prime financing products or increase the qualifications needed for mortgages or adjust their terms to address any increased credit risk. In general, if mortgage rates increase or lenders make it more difficult for prospective buyers to finance home purchases, it could become more difficult or costly for customers to purchase our homes, which would have an adverse affect on our sales volume.

We sell substantially all of the loans we originate within a short period in the secondary mortgage market on a servicing released, non-recourse basis; however, we remain liable for certain limited representations and warranties related to loan sales and certain limited repurchase obligations in the event of early borrower default.

Inflation can adversely affect us, particularly in a period of declining home sale prices.

Inflation can have a long-term impact on us because increasing costs of land, materials and labor may require us to attempt to increase the sale prices of homes in order to maintain satisfactory margins. However, the increased inventory of new homes we are currently experiencing requires that we decrease prices in order to attempt to maintain sales volume. This deflation in sales price, in addition to impacting our margins on new homes, also reduces the value of our land inventory and makes it more difficult for us to recover the full cost of previously purchased land in new home sales prices or, if we choose, to dispose of land assets. In addition, depressed land values may cause us to walk away from deposits on option contracts if we cannot satisfactorily renegotiate the purchase price of the optioned land.

Some of the land we currently own was purchased at prices that reflected the recent high demand cycle in the homebuilding industry. As a result, during the fourth quarter of 2006 we recorded material inventory valuation adjustments. If market conditions continue to deteriorate, some of these assets may be subject to future impairment write-downs, decreasing the value of our assets as reflected on our balance sheet and adversely affecting our stockholders’ equity.

The homebuilding industry is highly competitive. We compete in each of our markets with numerous national, regional and local homebuilders. This competition with other homebuilders could reduce the number of homes we deliver, or cause us to accept reduced margins in order to maintain sales volume.

We also compete with the resale of existing homes, including foreclosed homes, sales by housing speculators and available rental housing. As demand for homes has slowed, competition, including competition with homes purchased for speculation rather than as places to live, has created increased downward pressure on the prices at which we are able to sell homes, as well as upon the number of homes we can sell.

Homebuilding is subject to warranty and liability claims in the ordinary course of business that can be significant.

As a homebuilder, we are subject to home warranty and construction defect claims arising in the ordinary course of business. We are also subject to liability claims arising in the course of construction activities. We record warranty and other reserves for the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built. We have, and many of our subcontractors have, general liability, property, errors and omissions, workers compensation and other business insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain self-insured retentions, deductibles and other coverage limits. However, because of the uncertainties inherent in these matters, we cannot provide assurance that our insurance coverage or our subcontractor arrangements will be adequate to address all warranty, construction defect and liability claims in the future. Additionally, the coverage offered by and the availability of general liability insurance for construction defects are currently limited and costly. There can be no assurance that coverage will not be further restricted and become even more costly.

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

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

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

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

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. During 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 additional suitable land could rise, and in some areas no suitable land may be available at reasonable prices. Any land shortages or any decrease in the supply of suitable land at reasonable prices could limit our ability to develop new communities or result in increased land costs that we are not able to pass through to our customers. This could adversely impact our revenues, earnings and margins.

We incur many costs even before we begin to build homes in a community. These include costs of preparing land and installing roads, sewage and other utilities, as well as taxes and other costs related to ownership of the land on which we plan to build homes. Reducing the rate at which we build homes extends the length of time it takes us to recover these costs. Also, we frequently acquire options to purchase land and make deposits that will be forfeited if we do not exercise the options within specified periods. Because of current market conditions, we have had to terminate some of these options, resulting in forfeiture of deposits we made with regard to the options.

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

Our business requires that we are able to obtain financing for the development of our residential communities and to provide bonds to ensure the completion of our projects. We currently use our $2.7 billion credit facility to provide some of the financing we need. In addition, we have from time-to-time raised funds by selling debt securities into public and private capital markets. The willingness of lenders to make funds available to us could be affected by reductions in the amounts they are willing to lend to homebuilders generally, even if we continue to maintain a strong balance sheet. If we were unable to finance the development of our communities through our credit facility or other debt, or if we were unable to provide required surety bonds for our projects, our business operations and revenues could suffer materially.

Our competitive position could suffer if we were unable to take advantage of acquisition opportunities.

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. Given current market conditions, executing this strategy by identifying opportunities to purchase at favorable prices companies that are having problems contending with the current difficult homebuilding environment may be particularly important. Not properly executing this strategy could put us at a disadvantage in our efforts to compete with other major homebuilders who are able to take advantage of such favorable acquisition opportunities.

Our ability to continue to grow our business and operations in a profitable manner depends to a significant extent upon our ability to access capital on favorable terms.

At present, our access to capital is enhanced by the ~~equity method.~~ fact that our senior debt securities have an investment-grade credit rating from each of the principal credit rating agencies. If we were to lose our investment-grade credit rating for any reason, it would become more difficult and costly for us to access the capital that is required in order to implement our business plans and achieve our growth objectives.

We might have difficulty integrating acquired companies into our operations.

The ~~restatement~~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.

The performance of our joint venture partners is important to the continued success of our joint venture strategies.

Our joint venture strategy depends in large part on the ability of our joint venture partners to perform their obligations under our agreements with them. If a joint venture partner does not perform its obligations, we may be required to make significant financial expenditures or otherwise undertake the performance of obligations not satisfied by our partner at significant cost to us.

Our future success depends, to a significant degree, on the efforts of our senior management. Our operations could be adversely affected if key members of senior management cease to be active in our company.

Our Financial Services segment could have difficulty financing its activities.

Our Financial Services segment has warehouse lines of credit totaling $1.4 billion. It uses those lines to finance its lending activities until it accumulates sufficient mortgage loans to be able to sell them into the capital markets. These warehouse lines of credit mature in September 2007 ($700 million) and in April 2008 ($670 million). If we are unable to renew or extend these debt arrangements when they mature, our Financial Services segment’s mortgage lending activities may be adversely affected.

Federal laws and regulations that adversely affect liquidity in the secondary mortgage market could hurt our business.

Recent federal laws and regulations could have the effect of curtailing the activities of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These organizations provide significant liquidity to the secondary mortgage market. Any curtailment of their activities could increase mortgage interest rates and increase the effective cost of our homes, which could reduce demand for our homes and adversely affect our results of operations.

The federal financial institution agencies recently issued their final Interagency Guidance on Nontraditional Mortgage Products (“Guidance”). This Guidance applies to credit unions, banks and savings associations and their subsidiaries, and bank and savings association holding companies and their subsidiaries. Although the Guidance does not apply to independent mortgage companies, it likely will affect the ~~net change~~origination operations of many mortgage companies that broker or sell nontraditional mortgage loan products to such entities. This Guidance could reduce the number of potential customers who could qualify for loans to purchase homes from us and others.

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

Some state and local governments in areas where we operate have approved, and others where we operate may approve, various slow growth or no growth homebuilding initiatives and other ballot measures that could negatively impact the availability of land and building opportunities within those jurisdictions. Approval of slow

growth, no growth or similar initiatives (including the effect of these initiatives on existing entitlements and zoning) could adversely affect our ability to build or timely build and sell homes in the affected markets and/or create additional administrative and regulatory requirements and costs, which, in turn, could have an adverse effect on our future revenues and earnings.

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

We are subject to extensive and complex laws and regulations that affect the land development and homebuilding process, including laws and regulations related to zoning, permitted land uses, levels of density, building design, elevation of properties, water and waste disposal and use of open spaces. In addition, we are subject to laws and regulations related to workers’ health and safety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of the markets where we operate, we are required to pay environmental impact fees, use energy-saving construction materials and give commitments to municipalities to provide certain infrastructure such as roads and sewage systems. We generally are required to obtain permits, entitlements and approvals from local authorities to commence and carry out residential development or home construction. Such permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments, neighboring property owners or other interested parties, adding delays, costs and risks of non-approval to the process. Our obligation to comply with the laws and regulations under which we operate, and our obligation to ensure that our employees, subcontractors and other agents comply with these laws and regulations, could result in delays in construction and land development, cause us to incur substantial costs and prohibit or restrict land development and homebuilding activity in certain areas in which we operate.

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

Significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally are deductible expenses for the purpose of calculating an individual’s federal, and in some cases state, taxable income, 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 reduce 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.

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

Stuart A. Miller, our President, Chief Executive Officer and a Director, has voting control, through personal holdings and family-owned entities, of Class A and Class B common stock that enables Mr. Miller to cast approximately 49% of the votes that may be cast by the holders of our outstanding Class A and Class B common stock combined. That probably gives Mr. Miller the power to control the election of our directors and the approval of matters that are presented to our stockholders. Mr. Miller’s voting power might discourage someone from acquiring us or from making a significant equity investment in us, even if we needed the investment to meet our obligations and to operate our business. Also, because of his voting power, Mr. Miller may be able to authorize actions in matters that are contrary to our other stockholders’ desires.

Robert J. Strudler, who served as Chairman of our Board of Directors since 2004, passed away on November 7, 2006. Prior to Mr. Strudler’s appointment as Chairman in December 2004, he served as Lennar’s Vice Chairman and Chief Operating Officer from May 2000 through November 2004. As of the date of this Report, our Board of Directors has not appointed a new Chairman.

Mr. Miller has served as our President and Chief Executive Officer since 1997 and is one of our Directors. Before 1997, Mr. Miller held various executive positions with us.

Mr. Jaffe has served as Vice President since 1994 and has served as our Chief Operating Officer since December 2004. Before that time, Mr. Jaffe served as a Regional President in our Homebuilding Division. Additionally, prior to his appointment as Chief Operating Officer, Mr. Jaffe was one of our Directors from 1997 through June 2004.

Mr. Beckwitt has served as our Executive Vice President since March 2006. In this position, Mr. Beckwitt is involved in all operational aspects of our company, with a focus on new business and strategic growth opportunities. Mr. Beckwitt served on the Board of Directors of D.R. Horton, Inc. from 1993 to November 2003. From 1993 to March 2000, he held various executive officer positions at D.R. Horton, including President of the company.

Mr. Gross has served as Vice President and our Chief Financial Officer since 1997. Before that, Mr. Gross was Senior Vice President, Controller and Treasurer of Pacific Greystone Corporation.

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

Ms. Bessette joined us in 1995 and has served as our Controller since 1997. She was appointed a Vice President in 2000.

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

We lease and maintain our executive offices in an office complex in Miami, Florida. We also lease and maintain regional offices in California and Texas. Our homebuilding and financial services offices are located in the markets where we conduct business, primarily in leased space. We believe that our existing facilities are adequate for our current and planned levels of operation.

Because of the nature of our homebuilding operations, significant amounts of property are held as inventory in the ordinary course of our homebuilding business. We discuss these properties in the discussion of our homebuilding operations in Item 1 of this Report.

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 homes in particular communities in accordance with plans and specifications or applicable construction codes and seek reimbursement for sums allegedly needed to remedy the alleged deficiencies, assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business, financial position, results of operations or cash flows.

Our Class A and Class B common stock are listed on the New York Stock Exchange under the symbols “LEN” and “LEN.B,” respectively. The following table shows the high and low sales prices for ~~any~~our Class A and Class B common stock for the periods indicated, as reported by the NYSE, and cash dividends declared per share:

As of January 31, 2007, the last reported sale price of our Class A common stock was $54.38 and the last reported sale price of our Class B common stock was $50.56. As of January 31, 2007, there were approximately 1,100 and 800 holders of record, respectively, of our Class A and Class B common stock.

On January 10, 2007, 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 15, 2007 to holders of record at the close of business on February 5, 2007. We regularly pay quarterly dividends as set forth in the table above. 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 Board of Directors authorized a stock repurchase program to permit future purchases of up to 20 million shares of our outstanding common stock. During the three months and year ended November 30, 2006, we repurchased the following shares of our Class A and Class B common stock (table and footnote amounts in thousands, except per share amounts):

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

The following table sets forth our selected consolidated financial and operating information as of or for each of the years ended November 30, ~~2004, 2003~~2002 through 2006. The information presented below is based upon our historical financial statements, except for the results of operations of a subsidiary of the Financial Services segment’s title company that was sold in May 2005, which have been classified as discontinued operations. Share and ~~2002 and has no impact on our consolidated balance sheets, consolidated statements of earnings and related earnings~~ per share amounts ~~or consolidated statements of stockholders’ equity. Conforming changes~~ have been ~~made~~retroactively adjusted to reflect the ~~consolidating statements~~effect of ~~cash flows included in Note 17~~our April 2003 10% Class B common stock distribution and management’s discussion and analysis of financial condition and results of operations included in this Form 10-K/A. See Note 19 in the notes to the consolidated financial statements for further information relating to the restatement. This Form 10-K/A has not been updated for events or information subsequent to the date of filing of the original Form 10-K, except in connection with the foregoing.our January 2004 two-for-one stock split.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial ~~Data,” included in our original Form 10-K,~~Data” and our audited consolidated financial statements and accompanying notes included elsewhere in this ~~document.~~

The discussion of cash flows in the Financial Condition and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended November 30, 2004, 2003 and 2002 reflects a restatement of $128.5 million, $137.7 million and $77.9 million in our consolidated statements of cash flows, respectively, to reclassify these amounts from “cash flows from investing activities” to “cash flows from operating activities” as they relate to distributions of earnings received from unconsolidated entities in which we have investments that are accounted for by the equity method. The restatement does not affect the net change in cash for any of the years ended November 30, 2004, 2003 and 2002 and has no impact on our consolidated balance sheets, consolidated statements of earnings and related earnings per share amounts or consolidated statements of stockholders’ equity.Report.

Some of the statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Annual Report on Form ~~10-K/A,~~10-K, are “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption “Risk Factors ~~Relating to Our Business~~” in Item 11A of ~~our Annual Report on Form 10-K for our fiscal year ended November 30, 2004.~~this Report. We do not undertake any obligation ~~or duty~~ to update forward-looking ~~statements to reflect either the occurrence or non-occurrence of any of the risk factors, or to reflect any other future event or circumstance.~~statements.

~~Our backlog dollar value~~During the second half of sales contracts at November 30, 2004 was 30% higher than it was at November 30, 2003. This gives us good visibility as we enter fiscal 2005. In fiscal 2005, we anticipate demand for our homes to remain strong due to continued strength2006, conditions in the homebuilding ~~market,~~industry deteriorated and we ~~also anticipate growth~~have not yet seen a recovery as we entered the first quarter of 2007. This market weakness is driven primarily by excess supply as speculators reduce purchases and return homes to the market as well as negative customer sentiment surrounding the general homebuilding market. We are experiencing slower sales (down 3% in ~~the volume~~2006) and higher cancellations (29% in 2006) which have impacted most of our ~~mid-to-high-rise residential business.~~ markets and, therefore, we are making greater use of sales incentives to generate sales in order to build-out our inventory, deliver our backlog and convert inventory into cash.

In ~~addition,~~order to manage under these difficult conditions, we ~~remain a growth-focused company,~~have focused on generating cash flow and maintaining an “inventory neutral” position, which has created liquidity on our balance sheet. We have also renegotiated the prices at which we have options or agreements to purchase land, to bring them in line with current market prices. In order to generate cash flow, we have priced our inventory to market; however, this has resulted in higher than normal sales incentives, leading to lower gross margins on home sales. As we look ahead to 2007, the strength of our balance sheet, together with our renegotiated land positions that reflect current market conditions, provide the foundation from which we will try to rebuild our margins. Steps we expect to take to improve margins include reducing selling, general and administrative expenses to match current volume and reflect available efficiencies, reducing construction costs by negotiating lower prices, redesigning products to meet current market demand, and building on land at current market prices. We will also continue to ~~employ a diversified growth strategy~~carefully match our starts to ~~enhance future opportunities for our company. This~~demand, which we expect will ~~entail increasing sales organically and by acquiring small and possibly large homebuilders. We expect this combination of organic growth and strategic acquisitions~~cause deliveries in 2007 to ~~result~~be at least 20% lower than they were in ~~among other things, cost savings and growth of ancillary services.~~2006.

While we may be negatively impacted by higher interest rates, higher building costs and shortages of certain building materials in the long-term, we believe we will be able to leverage our size to offset these market factors, and we will attempt to manage these challenges through process improvement and cost reduction. Also, our strong balance sheet and cash position afford us the opportunity to continue to build on an already strong market share position while we continue to look for opportunities to grow into new markets.

~~We achieved record revenues, profits and earnings per share in 2004.~~ Our net earnings from continuing operations in ~~2004~~2006 were ~~$945.6~~$593.9 million, or ~~$5.70~~$3.69 per diluted share ~~diluted~~ ($~~6.09~~3.76 per ~~share basic)~~basic share), compared to ~~$751.4 million,~~$1.3 billion, or ~~$4.65~~$8.17 per diluted share ~~diluted~~ ($~~5.10~~8.65 per ~~share basic)~~basic share), in ~~2003.~~2005. The ~~increase~~decrease in net earnings was attributable to ~~strength in~~depressed market conditions during 2006 that impacted our Homebuilding ~~Division’s~~segments’ operations. ~~In particular, both~~While our deliveries and average sales price on homes delivered increased, our gross margins decreased due to ~~strong demand resulting from supply constraints, demographic trends, low interest rates~~inventory valuation adjustments during the second half of 2006 and ~~improving economic trends.~~higher sales incentives offered to homebuyers in 2006, compared to 2005.

The following table sets forth financial and operational information for ~~all~~the years ~~have been adjusted~~indicated related to ~~reflect~~our continuing operations. The results of operations of the ~~effect~~homebuilders we acquired during these years were not material to our consolidated financial statements and are included in the tables since the respective dates of the acquisitions.

Revenues from home sales increased 17% in the year ended November 30, 2006 to $14.9 billion from $12.7 billion in 2005. Revenues were higher primarily due to a 15% increase in the number of home deliveries in 2006. New home deliveries, excluding unconsolidated entities, increased to 47,032 homes in the year ended November 30, 2006 from 40,882 homes last year. In the year ended November 30, 2006, new home deliveries were higher in each of our ~~April 2003 10% Class B common stock distribution~~homebuilding segments and Homebuilding Other, compared to 2005. The average sales price of homes delivered increased to $315,000 in the year ended November 30, 2006 from $311,000 in 2005 despite higher sales incentives offered to homebuyers ($32,000 per home delivered in 2006, compared to $9,000 per home delivered in 2005).

Despite the full year increases, there was a significant slowdown in new home sales throughout the country as the year progressed. As a result, during the fourth quarter of the year, revenues from home sales declined by 14%, new home deliveries declined by 4%, excluding unconsolidated entities, and the average sales price declined by 11%, compared with the same period of the prior year. The decline in average sales price resulted from our ~~January 2004 two-for-one stock split.~~use of higher sales incentives.

Gross margins on home sales excluding inventory valuation adjustments were $3.0 billion, or 20.3%, in the year ended November 30, 2006, compared to $3.3 billion, or 26.0%, in 2005. Gross margin percentage on home sales decreased compared to last year in all of our homebuilding segments and Homebuilding Other primarily due to higher sales incentives offered to homebuyers. Gross margins on home sales including inventory valuation

adjustments were $2.7 billion, or 18.4%, in the year ended November 30, 2006 due to $280.5 million of inventory valuation adjustments ($157.0 million, $27.1 million, $79.0 million and $17.4 million, respectively, in our Homebuilding East, Central and West segments and Homebuilding Other).

Homebuilding interest expense (primarily included in cost of homes sold and cost of land sold) was $241.1 million in 2006, compared to $187.2 million in 2005. The increase in interest expense was due to higher interest costs resulting from higher average debt during 2006, as well as increased deliveries during 2006, compared to 2005. Our homebuilding debt to total capital ratio as of November 30, 2006 was 31.4%, compared to 33.1% as of November 30, 2005.

Selling, general and administrative expenses as a percentage of revenues from home sales were 11.9% and 11.1%, respectively, for the years ended November 30, 2006 and 2005. The 80 basis point increase was primarily due to increases in broker commissions and advertising expenses, partially offset by lower incentive compensation expenses. Management fees of $37.4 million received during the year ended November 30, 2005 from unconsolidated entities in which we had investments, which were previously recorded as a reduction of selling, general and administrative expenses, have been reclassified to management fees and other income, net in order to conform to the 2006 presentation.

Loss on land sales totaled $30.0 million in the year ended November 30, 2006, net of $152.2 million of write-offs of deposits and pre-acquisition costs ($80.5 million, $2.9 million, $44.0 million and $24.8 million, respectively, in our Homebuilding East, Central and West segments and Homebuilding Other) related to 24,235 homesites under option that we do not intend to purchase and $69.1 million of inventory valuation adjustments ($24.7 million, $17.3 million and $27.1 million, respectively, in our Homebuilding East and Central segments and Homebuilding Other), compared to gross profit from land sales of $200.8 million in 2005. Equity in earnings (loss) from unconsolidated entities was ($12.5) million in the year ended November 30, 2006, which included $126.4 million of valuation adjustments ($25.5 million, $92.8 million and $8.1 million, respectively, in our Homebuilding East and West segments and Homebuilding Other) to our investments in unconsolidated entities, compared to equity in earnings from unconsolidated entities of $133.8 million last year. Management fees and other income, net, totaled $66.6 million in the year ended November 30, 2006, compared to $99.0 million in 2005. Minority interest expense, net was $13.4 million and $45.0 million, respectively, in the years ended November 30, 2006 and 2005. Sales of land, equity in earnings (loss) from unconsolidated entities, management fees and other income, net and minority interest expense, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.

Operating earnings from continuing operations for the Financial Services segment were $149.8 million in the year ended November 30, 2006, compared to $104.8 million last year. The increase was primarily due to a $17.7 million pretax gain generated from monetizing the segment’s personal lines insurance policies, as well as increased profitability from the segment’s mortgage operations as a result of increased volume and profit per loan. The segment’s mortgage capture rate (i.e., the percentage of our homebuyers, excluding cash settlements, who obtained mortgage financing from us in areas where we offered services) was 66% in both the years ended November 30, 2006 and 2005.

Corporate general and administrative expenses as a percentage of total revenues were 1.2% in the year ended November 30, 2006, compared to 1.4% in the same period last year.

At November 30, 2006, we owned 92,325 homesites and had access to an additional 189,279 homesites through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. At November 30, 2006, 10% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 11,608 homes ($4.0 billion) at November 30, 2006, compared to 18,565 homes ($6.9 billion) at November 30, 2005. As a result of pricing our homes to market through the use of higher sales incentives, building out our inventory and delivering our backlog in an effort to maintain an “inventory neutral” position, our backlog declined in 2006. The lower backlog was also attributable to the depressed market conditions during 2006, which resulted in lower new orders in 2006, compared to 2005. At November 30, 2006, our inventory balance was consistent with the balance at November 30, 2005.

Revenues from home sales increased 33% in 2005 to $12.7 billion from $9.6 billion in 2004. Revenues were higher primarily due to a 16% increase in the number of home deliveries and a 15% increase in the average sales price of homes delivered in 2005. New home deliveries, excluding unconsolidated entities, increased to 40,882 homes in the year ended November 30, 2005 from 35,189 homes in 2004. In 2005, new home deliveries were higher in each of our homebuilding segments and Homebuilding Other, compared to 2004. The average sales price of homes delivered increased to $311,000 in the year ended November 30, 2005 from $272,000 in 2004.

Gross margins on home sales were $3.3 billion, or 26.0%, 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 Florida.

Homebuilding interest expense (primarily included in cost of homes sold and cost of land sold) was $187.2 million in 2005, compared to $134.2 million in 2004. The increase in interest expense was due to higher interest costs resulting from higher debt, as well as increased deliveries during 2005, compared to 2004, due to the growth in our homebuilding operations. Our homebuilding debt to total capital ratio as of November 30, 2005 was 33.1%, compared to 33.3% as of November 30, 2004.

Selling, general and administrative expenses as a percentage of revenues from home sales were 11.1% in the year ended November 30, 2005, compared to 11.2% in the year ended November 30, 2004. Management fees of $37.4 million and $28.4 million received during the years ended November 30, 2005 and 2004, respectively, from unconsolidated entities in which we had investments, which were previously recorded as a reduction of selling, general and administrative expenses, have been reclassified to management fees and other income, net in order to conform to the 2006 presentation.

Gross profit on land sales totaled $200.8 million in the year ended November 30, 2005, compared to $159.4 million in 2004. 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 $45.0 million and $10.8 million, respectively, in the years ended November 30, 2005 and 2004. Management fees and other income, net, totaled $99.0 million in the year ended November 30, 2005, compared to $97.7 million in 2004. Equity in earnings from unconsolidated entities was $133.8 million in the year ended November 30, 2005, compared to $90.7 million in 2004. 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.

Operating earnings from continuing operations for the Financial Services segment were $104.8 million in the year ended November 30, 2005, compared to $110.7 million in 2004. The decrease was primarily due to reduced profitability from the segment’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 segment’s alarm monitoring contracts in 2004. This decrease was partially offset by improved profitability from the segment’s title operations in 2005. The segment’s mortgage capture rate (i.e., the percentage of our homebuyers, excluding cash settlements, who obtained mortgage financing from us in areas where we offered services) was 66% in the year ended November 30, 2005, compared to 71% in 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’ title company, which generated a $15.8 million pretax gain.

Corporate general and administrative expenses as a percentage of total revenues were 1.4% and 1.3%, respectively, in the years ended November 30, 2005 and 2004.

At November 30, 2005, we owned 102,687 homesites and had access to an additional 222,119 homesites through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. At November 30, 2005, 14% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 18,565 homes ($6.9 billion) at November 30, 2005, compared to 15,546 homes ($5.1 billion) at November 30, 2004. The higher backlog was primarily attributable to our growth and strong demand for our homes, which resulted in higher new orders in 2005, compared to 2004. As a result of acquisitions combined with our organic growth, inventories increased 53% during 2005, while revenues from sales of homes increased 33% for the year ended November 30, 2005, compared to 2004.

Our Homebuilding ~~Division sells~~operations construct and ~~constructs~~sell homes primarily for first-time, move-up and active adult ~~homebuyers. We use a dual marketing strategy in which we sell homes~~homebuyers primarily under ~~both~~ our Everything’s Included^{^®} ~~and Design Studio~~^SM~~programs.~~ program. Our land operations include the purchase, development and sale of land for our homebuilding activities, as well as the sale of land to third parties. In certain circumstances, we diversify our operations through strategic alliances and minimize our risks by investing ~~in unconsolidated entities~~ with third parties. 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 includedparties in ~~the tables since the respective dates of the acquisitions.~~

~~Homebuilding Division’s Selected Financial and Operational Data~~joint ventures.

~~Summary~~We have grouped our homebuilding activities into three reportable segments, which we refer to as Homebuilding East, Homebuilding Central and Homebuilding West. Information about homebuilding activities in states that do not have economic characteristics that are similar to those in other states in the same geographic area is grouped under “Homebuilding Other.” References in this Management’s Discussion and Analysis of ~~Home~~Financial Condition and ~~Backlog Data By Region~~Results of Operations to homebuilding segments are to those reportable segments.

At November 30, ~~2004,~~2006, our ~~market regions~~reportable homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in the following states:East:Florida, Maryland, ~~Virginia,~~ New Jersey and Virginia.Central:Arizona, Colorado and Texas.West:California and Nevada.Other:Illinois, Minnesota, New York, North Carolina and South Carolina.~~Central:~~ ~~Texas, Illinois and Minnesota.~~~~West:~~ ~~California, Colorado, Arizona and Nevada.~~

The following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated:

Of the total home deliveries listed above, ~~1,015, 768~~2,536, 1,477 and ~~568,~~1,015, respectively, represent deliveries from unconsolidated entities for the years ended November 30, ~~2004, 2003~~2006, 2005 and ~~2002.~~2004.


New Orders	At or for the Years Ended November 30,
New Orders	2004	2003	2002
East	12,467	11,640	10,192	11,290	11,096	11,550
Central	11,192	9,696	7,591	16,120	15,926	13,626
West	14,008	12,187	10,590	11,119	12,179	8,931
Other				3,683	4,204	3,560

Total	37,667	33,523	28,373	42,212	43,405	37,667

Of the new orders listed above, ~~1,700, 1,553~~1,921, 1,254 and ~~733,~~1,700, respectively, represent new orders from unconsolidated entities for the years ended November 30, ~~2004, 2003~~2006, 2005 and ~~2002.~~2004.


Backlog – Homes
Backlog—Homes
East	7,327	6,121	4,780	4,139	7,581	7,024
Central	2,567	2,416	2,713	3,598	4,547	3,750
West	5,652	5,368	4,615	2,991	4,883	3,472
Other				880	1,554	1,300

Total	15,546	13,905	12,108	11,608	18,565	15,546

Of the homes in backlog listed above, ~~1,585, 1,226~~1,089, 1,359 and ~~441,~~1,585, respectively, represent homes in backlog from unconsolidated entities at November 30, ~~2004, 2003~~2006, 2005 and ~~2002.~~2004.


*Backlog Dollar Value(In thousands)***
East	$	2,177,884	1,526,970	1,177,214	$	1,460,213	2,774,396	2,104,959
Central		633,703	558,919	566,713		850,472	1,210,257	911,303
West		2,243,686	1,801,411	1,456,279		1,328,617	2,374,646	1,597,185
Other						341,126	524,939	441,826

Total	$	5,055,273	3,887,300	3,200,206	$	3,980,428	6,884,238	5,055,273

Of the dollar value of homes in backlog listed above, ~~$644,839, $367,855~~$478,707, $590,129 and ~~$132,401,~~$644,839, respectively, represent the backlog dollar value from unconsolidated entities at November 30, ~~2004, 2003~~2006, 2005 and ~~2002.~~2004.

Backlog represents the number of homes ~~subject to pending~~under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales ~~contracts~~ if they ~~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 29% in 2006, compared to 17% and 16% in 2005 and 2004, ~~compared~~respectively. During the fourth quarter of 2006, our cancellation rate was 33%. Although we experienced a significant increase in our cancellation rate during 2006, we remain focused on reselling these homes, which, in many instances, would include the use of higher sales incentives (discussed below as a percentage of revenues from home sales) to ~~20% and 21% in 2003 and 2002, respectively. Although cancellations can delay~~avoid the ~~sales~~build up 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.excess inventory. We do

not recognize revenue on homes ~~covered by pending~~under sales contracts until the sales are closed and title passes to the new ~~homeowners.~~homeowners, except for our multi-level buildings under construction for which revenue is recognized under percentage-of-completion accounting.

During 2004, we expanded our presence through homebuilding acquisitions in all of our regions. During 2003, we expanded our operations in California and South Carolina through homebuilding acquisitions. The results of operations of the homebuilders we acquired are included in our results of operations since their respective acquisition dates.23

~~Revenues from home sales~~East: Homebuilding revenues increased ~~19%~~ in ~~2004~~2006, compared to ~~$9.6 billion from $8.0 billion in 2003. Revenues were higher~~2005, primarily due to ~~a 12%~~an increase in the number of home deliveries in Florida and ~~a 6%~~an increase in the average sales price of homes delivered in ~~2004.~~Florida and New home deliveries, excluding unconsolidated entities, increased to 35,189 homes in the year ended November 30, 2004 from 31,412 homes last year. 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.

Jersey. Gross margins on home sales excluding inventory valuation adjustments were ~~$2.3~~$1.0 billion, or ~~23.9%~~22.0%, in ~~2004,~~2006, compared to ~~$1.9 billion,~~$976.9 million or ~~23.1%~~28.5% in 2005. Gross margin percentage on home sales decreased compared to last year primarily due to higher sales incentives offered to homebuyers (11.4% in 2006, compared to 1.8% in 2005), particularly during the second half of the year. Gross margins on home sales including inventory valuation adjustments were $865.0 million, or 18.6%, in ~~2003. Margins were positively impacted by an improvement~~2006 due to a total of $157.0 million of inventory valuation adjustments in our East and West regions. This improvement was primarily attributable to pricing power, 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.all states.

Central:Homebuilding ~~interest expense (primarily included~~revenues increased in ~~cost of homes sold and cost of land sold) was $134.2 million in 2004,~~2006, compared to ~~$141.3 million in 2003. The decrease in interest expense was~~2005, primarily 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.~~

Revenues and gross margins on land sales totaled $440.8 million and $159.4 million, or 36.2%, respectively, in 2004, compared to $308.2 million and $73.3 million, or 23.8%, respectively, in 2003. Margins were positively impacted by each of our regions, with a strong contribution from our East and West regions. Equity in earnings from unconsolidated entities was $90.7 million in 2004, compared to $81.9 million last year. This improvement resulted from an increase in homes delivered by our unconsolidated homebuilding joint ventures. Management fees and other income, net, totaled $58.5 million in 2004, compared to $21.9 million in 2003. Sales of land, equity in earnings from unconsolidated entities and management fees and other income, net, may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.

At November 30, 2004, we owned approximately 88,000 homesites and had access to an additional 168,000 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 prior year.

~~Revenues from sales of homes increased 22% in 2003, compared to 2002, as a result of a 17%~~ increase in the number of home deliveries in Arizona and ~~a 4%~~Texas, and an increase in the average sales price of homes delivered in ~~2003. New~~Arizona and Colorado. Gross margins on home ~~deliveries~~sales excluding inventory valuation adjustments were $631.5 million, or 17.8%, in 2006, compared to $657.7 million, or 20.6%, in 2005. Gross margin percentage on home sales decreased compared to last year primarily due to higher sales incentives offered to homebuyers (9.1% in ~~most~~2006, compared to 5.3% in 2005), particularly during the second half of ~~our markets,~~the year. Gross margins on home sales including inventory valuation adjustments were $604.4 million, or 17.1%, in 2006 due to $27.1 million of inventory valuation adjustments primarily in ~~California, Florida, Texas~~Arizona and ~~Illinois. The average sales price of homes delivered~~Colorado.

West: Homebuilding revenues increased in ~~2003~~2006, compared to 2005, primarily due to an increase in the number of home deliveries in all of the states in this segment and an increase in the average sales price of homes delivered in ~~most~~Nevada, due to higher deliveries in Reno. Gross margins on home sales excluding inventory valuation adjustments were $1.2 billion, or 22.4%, in 2006, compared to $1.5 billion, or 29.3%, in 2005. Gross margin percentage on home sales decreased compared to last year primarily due to higher sales incentives offered to homebuyers (7.5% in 2006, compared to 1.5% in 2005), particularly during the second half of ~~our existing markets, combined with changes~~the year. Gross margins on home sales including inventory valuation adjustments were $1.1 billion, or 20.9%, in ~~our product~~2006 due to a total of $79.0 million of inventory valuation adjustments in all states.

Other: Homebuilding revenues increased in 2006, compared to 2005, primarily due to an increase in the number of home deliveries in the Carolinas, Minnesota and ~~geographic mix.~~

East: Homebuilding revenues increased in 2005, compared to 2004, primarily due to an increase in the number of home deliveries and an increase in the average sales price of homes delivered in all of the states in this segment. Gross margins on home sales were ~~$1.9 billion~~$976.9 million, or ~~23.1%~~28.5%, in ~~2003,~~2005, compared to $669.5 million, or 25.3%, in 2004. Gross margins on home sales increased in 2005 due primarily to higher margins in Florida.

Central: Homebuilding revenues increased in 2005, compared to 2004, primarily due to an increase in the number of home deliveries in all of the states in this segment and an increase in the average sales price of homes delivered in all of the states in this segment, except Texas. Gross margins on home sales were $657.7 million, or 20.6%, in 2005, compared to $488.9 million, or 18.8%, in 2004. Gross margins on home sales increased in 2005 due to higher margins in all of the states in this segment.

West: Homebuilding revenues increased in 2005, compared to 2004, primarily due to an increase in the number of home deliveries and an increase in the average sales price of homes delivered in all of the states in this segment. Gross margins on home sales were $1.5 billion, or ~~22.2%~~29.3%, in ~~2002. The increase in 2003 was due to a greater contribution from a strong California market, combined with lower interest costs due to a lower debt leverage ratio while we continued to grow.~~

~~Homebuilding interest expense (primarily included in cost of homes sold and cost of land sold) was $141.3 million in 2003,~~2005, compared to ~~$145.6~~$935.0 million, or 27.1%, in ~~2002. 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~~2004. Gross margins on home sales increased ~~to 10.9%~~ in ~~2003, compared to 10.7% in 2002. The increase in 2003 was~~2005 primarily due to higher ~~personnel-related expenses,~~margins in California.

Revenues and gross margins on land sales totaled $308.2 million and $73.3 million, or 23.8%, respectively, in 2003, compared to $169.6 million and $2.0 million, or 1.2%, respectively, in 2002. Margins in 2003 were positively impacted by each of our regions, with strong contributions from our East and West regions. Equity in earnings from unconsolidated entities was $81.9 million in 2003, compared to $42.7 million in 2002. Management fees and other income, net, totaled $21.9 million in 2003, compared to $33.3 million in 2002. Sales of land, equity in earnings from unconsolidated entities and management fees and other income, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.

~~At November 30, 2003, we owned approximately 74,000 homesites and had access~~2004, primarily due to an additional 135,000 homesites through either option contracts or unconsolidated entities in which we have investments. At November 30, 2003, 13% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 13,905 homes ($3.9 billion) at November 30, 2003, compared to 12,108 homes ($3.2 billion) at November 30, 2002. The higher backlog was primarily attributable to our homebuilding acquisitions and growthincrease in the number of ~~active communities, which resulted~~home deliveries in ~~higher new orders~~all of the states in ~~2003,~~Homebuilding Other, except Illinois, and an increase in the average sales price of homes delivered in all of the states in Homebuilding Other, except Minnesota. Gross margins from home sales were $191.8 million, or 18.0%, in 2005, compared to ~~2002. As a result of these acquisitions combined with our organic growth, inventories, excluding consolidated inventory not owned, increased 11% during 2003, while revenues from~~$191.0 million, or 22.1%, in 2004. Gross margins on home sales ~~of homes increased 22% for~~decreased in 2005 due to lower margins in Minnesota and Illinois, partially offset by an increase in the ~~year ended November 30, 2003, compared to 2002.~~Carolinas.

~~Our~~We have one Financial Services ~~Division~~reportable segment that provides mortgage financing, title insurance, ~~title and~~ closing services and other ancillary services (including personal lines insurance, ~~agency services~~high-speed Internet and cable television) for both buyers of our homes and others. The ~~Division sells~~Financial Services segment sold substantially all of the loans it ~~originates~~originated in the secondary mortgage ~~market. The Division also provides high-speed Internet~~market on a servicing released, non-recourse basis; however, we remain liable for certain limited representations and ~~cable television services~~warranties related to ~~residents of our communities and others.~~loan sales. The following table sets forth selected financial and operational information relating to our Financial Services ~~Division.~~segment. The results of operations of companies we acquired during these years are included in the table since the respective dates of the acquisitions.

~~Financial Services Division’s Selected Financial and Operational Data~~

Operating earnings from our Financial Services Division decreased to $112.3 million in 2004, compared to $154.5 million in 2003. The decrease in operating earnings 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 Division’s mortgage capture rate (i.e., the percentage of our homebuyers, excluding cash settlements, who obtained mortgage financing from us in areas where we offered services) was relatively consistent in the year ended November 30, 2004, compared to 2003. The decline in operating earnings was partially offset by a $6.5 million gain generated by monetizing the majority of our alarm monitoring contracts.

Operating earnings from our Financial Services Division increased to $154.5 million in 2003, compared to $127.6 million in 2002. The increase in 2003 was primarily due to improved results from our mortgage and title operations, which benefited from low interest rates and a strong refinance and housing environment. The Division’s mortgage capture rate (i.e., the percentage of our homebuyers, excluding cash settlements, who obtained mortgage financing from us in areas where we offered services) decreased in the year ended November 30, 2003 due to the transitioning of the mortgage business related to the homebuilders we have acquired since the beginning of fiscal 2002, as well as a result of increased competitiveness in the mortgage market.

~~Corporate general and administrative expenses as a percentage of total revenues were 1.3% in both 2004 and 2003 and 1.2% in 2002.~~

At November 30, ~~2004,~~2006, we had cash related to our homebuilding and financial services operations of ~~$1.4 billion,~~$778.3 million, compared to ~~$1.3~~$1.1 billion at ~~the end of fiscal 2003.~~November 30, 2005. The ~~increase~~decrease in cash was primarily due to ~~an increase~~repayment of debt, a decrease in accounts payable and other liabilities, contributions to unconsolidated entities and repurchases of common stock, partially offset by our net earnings, distributions of capital from unconsolidated entities and proceeds from debt ~~issuances partially offset by an increase in operating assets and contributions to unconsolidated entities as we position ourselves for future growth.~~issuances.

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, issuances of commercial paper and unsecured, fixed-rate notes and borrowings under our warehouse lines of credit.

During ~~2004~~2006 and ~~2003,~~2005, cash flows provided by operating activities amounted to ~~$401.3~~$554.7 million and ~~$718.5~~$323.0 million, respectively. During 2004, cash flows provided by operating activities consisted primarily of net earnings, distributions of earnings from unconsolidated entities, a decrease in mortgage loans held-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 from land sales. In particular, inventories increased by $870.2 million during 2004 due to an increased number of home starts to support a significantly higher backlog combined with the accelerated takedown of homesites that had been under option.

~~During 2003,~~2006, cash flows provided by operating activities consisted primarily of net earnings, distributions of earnings from unconsolidated entities and the change in inventories, including inventory write-offs and valuation adjustments, partially offset by the deferred income tax benefit and a decrease in ~~mortgage loans held-for-sale~~accounts payable and other liabilities.

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 ~~in part~~ by an increase in inventories due to an increase in construction in progress to support a significantly higher backlog and ~~a higher number of active communities. In particular, inventories increased by $267.2 million during 2003 due~~land purchases to facilitate future growth, an increase in ~~backlog~~receivables resulting primarily from land sales and ~~the expansion of operations~~equity in ~~our market areas.~~

Cash flows used in investing activities totaled ~~$566.7~~$406.5 million during ~~2004,~~2006, compared to ~~$255.9 million~~$1.0 billion in ~~2003.~~2005. In ~~2004,~~2006, we used ~~$105.7~~$33.2 million of cash for acquisitions and ~~$751.2~~$729.3 million of cash was contributed to 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 ~~$330.6~~$321.6 million of distributions of capital from unconsolidated entities. In ~~2003,~~2005, we used ~~$159.4~~$416.0 million of cash for acquisitions ~~contributed $235.7~~and $919.8 million of cash was contributed to unconsolidated ~~entities and used $18.8 million for net additions to operating properties and equipment.~~entities. We also had an increase in financial services loans held-for-investment of $117.4 million. This usage of cash was partially offset by ~~$170.1~~$466.8 million of distributions of capital from unconsolidated entities.

During 2004, we expanded our presence through homebuilding acquisitions in all of our regions, expanded our mortgage operations in Oregon and Washington and expanded our title and closing business into Minnesota. The results of operations of the companies acquired 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. However, at November 30, 2004, we had no agreements or understandings regarding any significant transactions.25

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, ~~2004~~2006 and ~~2003~~2005 is calculated as follows:


*(Dollars in thousands)*	2004			2003
						2006			2005
						(Dollars in thousands)
Homebuilding debt	$	2,021,014		1,552,217		$	2,613,503		2,592,772
Stockholders’ equity		4,052,972		3,263,774			5,701,372		5,251,411

Total capital	$	6,073,986		4,815,991		$	8,314,875		7,844,183

Homebuilding debt to total capital		33.3	%	32.2	%		31.4	%	33.1	%

The ~~increase~~leverage ratio at November 30, 2006 was lower than the leverage ratio in the ~~ratio primarily resulted from our~~prior year as we made greater use of sales incentives to generate sales in order to build-out our inventory, deliver our backlog and convert inventory into cash. This intensified focus on generating strong cash flow allowed us to strengthen our balance sheet and ~~increased borrowings to fund inventory purchases and contributions to unconsolidated entities to support future growth.~~ reduce the leverage of our homebuilding operations.

In addition to the use of capital in our homebuilding and financial services operations, we actively evaluate various other uses of capital, which fit into our homebuilding and financial services strategies and appear to meet our profitability and return on capital goals. This may include acquisitions of, or investments in, other entities, the payment of dividends or repurchases of our outstanding common stock or debt. These activities may be funded through any combination of our credit facilities, issuances of commercial paper and unsecured, fixed-rate notes, cash generated from operations, sales of assets or the issuance of public debt, common stock or preferred stock.

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


*(Dollars in thousands)*	November 30,
*(Dollars in thousands)*	2004		2003
				November 30,
				2006		2005
				(Dollars in thousands)
7⁵/8% senior notes due 2009				$	277,830	276,299
5.125% senior notes due 2010					299,766	299,715
5.95% senior notes due 2011					249,415	—
5.95% senior notes due 2013					345,719	345,203
5.50% senior notes due 2014					247,559	247,326
5.60% senior notes due 2015					501,957	502,127
6.50% senior notes due 2016					249,683	—
Senior floating-rate notes due 2007					—	200,000
Senior floating-rate notes due 2009					300,000	300,000
5.125% zero-coupon convertible senior subordinated notes due 2021	$	274,623	261,012		—	157,346
5.95% senior notes due 2013		344,717	344,260
7⁵/8% senior notes due 2009		274,890	273,593
9.95% senior notes due 2010		304,009	301,995
5.50% senior notes due 2014		247,105	—
Senior floating-rate notes due 2009		300,000	—
Senior floating-rate notes due 2007		200,000	—
Term loan B		—	296,000
U.S. Home senior notes		—	2,367
Mortgage notes on land and other debt		75,670	72,990		141,574	264,756

	$	2,021,014	1,552,217	$	2,613,503	2,592,772

Our average debt outstanding was ~~$2.0~~$4.0 billion in ~~2004,~~2006, compared to ~~$1.6~~$3.0 billion in ~~2003.~~2005. The average ~~rates~~rate for interest incurred ~~were 6.4%~~was 5.7% in ~~2004,~~both 2006 and 2005. Interest incurred for the year ended November 30, 2006 was $247.5 million, compared to ~~7.7%~~$172.9 million in ~~2003.~~2005. 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 new senior unsecured revolving credit facility (the “New Facility”), which replaced our senior unsecured credit ~~facilities~~facility (the “Credit ~~Facilities”~~Facility”)~~. In May 2004, we amended~~ in July 2006, and ~~restated our Credit Facilities to provide us with up to $1.2 billion~~issuances of ~~financing.~~ commercial paper and unsecured, fixed-rate notes.

The Credit Facilities also include access to an additional $190 million via an accordion feature, under which the Credit Facilities may be increased to $1.4 billion, subject to additional commitments. The Credit Facilities, including $115 million committed in October 2004 under the accordion feature, consistNew Facility consists of a ~~$927.9 million~~$2.7 billion revolving credit facility maturing in ~~May 2009 and a $397.6 million 364-day revolving credit facility maturing in May 2005. Subsequent~~July 2011. The New Facility also includes access to ~~November 30, 2004, we received~~an additional $0.5 billion of financing through an accordion feature, subject to additional commitments ~~of $70 million~~for a maximum aggregate commitment under the ~~accordion feature. Prior to the amendment, in March 2004, we repaid the remaining outstanding balance~~New Facility of ~~the term loan B portion of the Credit Facilities. We may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in May 2009.~~$3.2 billion. The ~~Credit Facilities are~~New Facility is guaranteed ~~on a joint and several basis~~ by substantially all of our subsidiaries other than finance company subsidiaries (which include mortgage and title insurance agency subsidiaries). Interest rates on outstanding borrowings are LIBOR-based, ~~and the~~with margins ~~are set by a pricing grid with thresholds that adjust~~determined based on changes in our ~~leverage ratio and~~credit ratings, or an alternate base rate, as described

in the ~~Credit Facilities’~~ credit ~~ratings.~~agreement. At November 30, ~~2004,~~2006, we had no ~~amounts were~~ outstanding balance under the New Facility. During the year ended November 30, 2006, the average daily borrowings under the Credit ~~Facilities.~~Facility and the New Facility were $447.4 million.

At November 30, 2004, we had letters of credit outstanding in the amount of $787.4 million. The majority of these letters of credit is posted with regulatory bodies to guarantee our performance of certain development and construction activities or is posted in lieu of cash deposits on option contracts. Of our total letters of credit outstanding, $251.4 million were collateralized against certain borrowings available under the Credit Facilities.

~~In September 2004, we entered into~~We have 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 ~~transaction,~~LC Facility, the financial institution issued $200 million of their senior notes, which were 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 ~~paying~~their principal repayment on their ~~performance linked~~performance-linked notes.

At November 30, ~~2004,~~2006, we had letters of credit outstanding in the amount of ~~$196.4~~$1.4 billion, which includes $190.8 million outstanding under the LC Facility. 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 outstanding, $496.9 million were collateralized against certain borrowings available under the New Facility.

In ~~March and April 2004,~~November 2006, we ~~issued a total of $300~~called our $200 million of senior floating-rate notes due ~~2009~~2007 (the ~~“Initial~~“Floating-Rate Notes”). The redemption price was $200.0 million, or 100% of the principal amount of the Floating-Rate Notes outstanding, plus accrued and unpaid interest as of the redemption date.

In April 2006, substantially all of our outstanding 5.125% zero-coupon convertible senior subordinated notes due 2021, (the “Convertible Notes”) were converted by the noteholders into 4.9 million Class A common shares. The Convertible Notes were convertible at a rate of 14.2 shares of our Class A common stock per $1,000 principal amount at maturity. Convertible Notes not converted by the noteholders were not material and were redeemed by us on April 4, 2006. The redemption price was $468.10 per $1,000 principal amount at maturity, which represented the original issue price plus accrued original issue discount to the redemption date.

In April 2006, we issued $250 million of 5.95% senior notes due 2011 and $250 million of 6.50% senior notes due 2016 (collectively, the “New Senior Notes”) at a price of 99.766% and 99.873%, ~~which are callable at par beginning~~respectively, in ~~March 2006.~~a private placement. Proceeds from the ~~offerings,~~offering of the New Senior Notes, after ~~underwriting~~initial purchaser’s discount and expenses, were ~~$298.5 million.~~$248.7 million and $248.9 million, respectively. We ~~used the proceeds to partially prepay the term loan B portion of the Credit Facilities and~~ added the ~~remainder~~proceeds 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 ~~Initial~~New Senior Notes is ~~three-month LIBOR plus 0.75% (3.16% as~~due semi-annually. The New Senior Notes are unsecured and unsubordinated, and substantially all of our subsidiaries other than finance company subsidiaries guarantee the New Senior Notes. In October 2006, we completed an exchange offer of the New Senior Notes for substantially identical notes registered under the Securities Act of 1933 (the “Exchange Notes”), with substantially all of the New Senior Notes being exchanged for the Exchange Notes. At November 30, ~~2004)~~2006, the carrying value of the Exchange Notes was $499.1 million.

In March 2006, we initiated a commercial paper program (the “Program”) under which we may, from time-to-time, issue short-term unsecured notes in an aggregate amount not to exceed $2.0 billion. This Program has allowed us to obtain more favorable short-term borrowing rates than we would obtain otherwise. The Program is exempt from the registration requirements of the Securities Act of 1933. Issuances under the Program are guaranteed by all of our wholly-owned subsidiaries that are also guarantors of our New Facility. The average daily borrowings under the Program from its inception through November 30, 2006 were $553.3 million.

We also have an arrangement with a financial institution whereby we can enter into short-term, unsecured, fixed-rate notes from time-to-time. During the year ended November 30, 2006, the average daily borrowings under these notes were $379.0 million.

In September 2005, we sold $300 million of 5.125% senior notes due 2010 (the “5.125% Senior Notes”) at a price of 99.905% in a private placement. Proceeds from the offering, after initial purchaser’s discount and expenses, were $298.2 million. We added the proceeds to our working capital to be used for general corporate purposes. Interest on the 5.125% Senior Notes is ~~payable quarterly, compared to the term loan B interest of three-month LIBOR plus 1.75%.~~due semi-annually. The ~~Initial~~5.125% Senior Notes are unsecured and unsubordinated. ~~At November 30, 2004, the carrying value of the Initial Notes was $300.0 million.~~

Substantially all of our subsidiaries other than finance company subsidiaries ~~and subsidiaries formed or acquired after October 9, 2001,~~ guaranteed the ~~Initial~~5.125% Senior Notes. In 2006, we exchanged the 5.125% Senior Notes for registered notes. The registered notes have substantially identical terms as the 5.125% Senior Notes, except that the registered notes do not include transfer restrictions that are applicable to the 5.125% Senior Notes. At November 30, 2006, the carrying value of the 5.125% Senior Notes was $299.8 million.

In July 2005, we sold $200 million of 5.60% Senior Notes due 2015 (the “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, 2006, the carrying value of the Senior Notes sold in April and July 2005 was $502.0 million.

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 a $34.9 million pretax loss.

In April 2005, we 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 for the April and July 2005 Senior Notes. 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 Notes are unsecured and unsubordinated. Substantially all of our subsidiaries other than finance company subsidiaries guaranteed the Senior Notes.

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, ~~and subsidiaries formed or acquired after October 9, 2001,~~ guaranteed the ~~Initial~~Guaranteed Notes is so holders of the ~~Initial~~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 ~~Initial~~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 ~~Initial~~Guaranteed Notes, ~~and other notes with similar termination provisions,~~ either directly or by guaranteeing other subsidiaries’ obligations as guarantors of Lennar Corporation’s debt, the guarantor ~~subsidiaries~~subsidiaries’ guarantee of the ~~Initial~~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 ~~lines, $350 million principal amount of senior notes due 2013, $322 million principal amount of 9.95% senior notes due 2010, $282 million principal amount of 7~~⁵/8~~% senior notes due 2009, $250 million principal amount of 5.50% senior notes due~~

~~2014~~line (currently the New Facility) and $200 million principal amount of senior floating-rate notes due 2007. However, the guarantor subsidiaries’ guarantees of the senior notes due 2013, the senior notes due 2014 and the senior floating-rate notes due 2007 also will be suspended with regard to any guarantor subsidiary while it is not guaranteeing at least $75 million of Lennar Corporation’s debt and the guarantor subsidiaries’ guarantees of the senior notes due 2010 will be suspended with regard to any guarantor subsidiary that no longer is guaranteeing any of Lennar Corporation’s debt.our Commercial Paper Program. Therefore, if, ~~while the Initial Notes are outstanding,~~ the guarantor subsidiaries cease guaranteeing Lennar Corporation’s obligations under the principal revolving bank credit ~~lines~~line and are not guarantors of any new debt, the guarantor subsidiaries’ guarantees of the ~~Initial~~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 ~~Initial~~Guaranteed Notes.

If the guarantor subsidiaries are guaranteeing the revolving credit ~~lines~~line totaling at least $75 million, we will treat the guarantees of the ~~Initial~~Guaranteed Notes as remaining in effect even during periods when Lennar Corporation’s borrowings under the revolving credit ~~lines are~~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~~our revolving credit ~~lines,~~line, it is possible that, at some time or times in the future, the ~~Initial~~Guaranteed Notes will no longer be guaranteed by the guarantor subsidiaries.

In the Supplemental Indenture relating to the Initial Notes, we agreed to file by March 31, 2004 a registration statement relating to the guarantees by subsidiaries formed or acquired after October 9, 2001, but we did not do so because of questions regarding what information was required in that registration statement. Instead of filing a registration statement relating solely to the additional guarantees, on June 29, 2004, we filed a registration statement relating to an offer to exchange fully guaranteed senior floating-rate notes due 2009, series B (the “New Notes”) for the Initial Notes. The New Notes would be substantially identical with the Initial Notes, except that the New Notes would be guaranteed by all of our wholly-owned subsidiaries (other than finance company subsidiaries), including subsidiaries formed or acquired by us after October 9, 2001. In December 2004, the registration statement became effective. In January 2005, we exchanged all of the Initial Notes for the New 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, ~~2004, the carrying value of the senior notes was $247.1 million.~~

In August 2004, 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 $199.3 million. We used the proceeds to repay borrowings under our Credit Facilities. Interest on the senior floating-rate notes is three-month LIBOR plus 0.50% (2.91% as of November 30, 2004) 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, 2004, the carrying value of the senior floating-rate notes was $200.0 million.

~~At November 30, 2004,~~2006, our Financial Services ~~Division~~segment had warehouse lines of credit totaling ~~$950 million, which included a $275 million temporary increase that expired in December 2004,~~$1.4 billion to fund our mortgage loan activities. Borrowings under the ~~facilities~~lines of credit were ~~$872.8 million~~$1.1 billion at November 30, ~~2004~~2006 and were collateralized by mortgage loans and receivables on loans sold but not yet funded by the investor with outstanding principal balances of ~~$894.7 million.~~$1.3 billion. There are several interest ~~rate pricing~~rate-pricing options, which fluctuate with market rates. The effective interest rate on the facilities at November 30, ~~2004~~2006 was ~~2.9%~~6.1%. The warehouse lines of credit mature ~~during 2005~~in September 2007 ($700 million) and in April 2008 ($670 million), at which time we expect the facilities to be renewed. At November 30, ~~2004,~~2006, we had advances under a conduit funding agreement ~~with a major financial institution~~ amounting to ~~$5.2 million. Borrowings under this agreement are collateralized by mortgage loans and~~$1.7 million, which had an effective interest rate of ~~3.2%~~6.2% at November 30, ~~2004.~~2006. We also had a ~~$20~~$25 million revolving line of credit ~~with a bank~~ that matures in ~~July 2005,~~May 2007, at which time ~~the Division expects~~we expect the line of credit to be renewed. The line of credit is collateralized by certain assets of the ~~Division~~Financial Services segment and stock of certain title subsidiaries. Borrowings under the line of credit were ~~$18.9~~$23.7 million at November 30, 2006 and had an effective interest rate of ~~3.1%~~6.3% at November 30, ~~2004.~~

We have various interest rate swap agreements, which effectively convert variable interest rates to fixed interest rates on ~~$300~~$200 million of outstanding debt related to our homebuilding operations. The interest rate swaps mature at various dates through fiscal 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, ~~2004.~~2006. 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, ~~2004,~~2006, the fair ~~market~~ value of the interest rate swaps ~~net of tax,~~ was a ~~$14.2~~$2.1 million liability. Our Financial Services ~~Division,~~segment, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The ~~Division~~Financial Services segment enters into forward commitments and, to a lesser extent, option contracts to protect the value of loans held-for-sale from increases in market interest rates. We do not anticipate that we will suffer credit losses from counterparty non-performance.

We have met all of our quantifiable debt covenants. There have been no significant changes in our liquidity from the balance sheet date to the date of issuance of this Annual Report on Form 10-K.

In December 2003, our 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 payable 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 June 2001, our Board of Directors ~~increased our previously~~ authorized a stock repurchase program to permit ~~future purchases~~the purchase of up to 20 million shares ~~(adjusted for the January 2004 two-for-one stock split)~~ of our outstanding ~~Class A~~ common stock. In December 2003, we granted approximately 2.4 million stock options (adjusted for our January 2004 two-for-one stock split) to employees under our 2003 Stock Option and Restricted Stock Plan, and in January 2004During 2006, we repurchased a ~~similar number~~total of 6.2 million shares of our outstanding ~~Class A~~ common stock under our stock repurchase program for an aggregate purchase price including commissions of ~~approximately $109.6~~$320.1 million, or ~~$45.64~~$51.59 per ~~share (adjusted~~share. During 2005, we repurchased a total of 5.1 million shares of our Class A common stock under the stock repurchase program for ~~our January 2004 two-for-one stock split).~~an aggregate purchase price including commissions of $274.9 million, or $53.38 per share. As of November 30, ~~2004, 17.6~~2006, 6.2 million ~~Class A~~shares of common ~~shares~~stock can be repurchased in the future under the program. ~~During December 2004 and January 2005, we repurchased a total of 1.9 million~~

In addition to the common shares ~~of our outstanding Class A common stock~~purchased under our stock repurchase program, ~~for an aggregate purchase price of $105.3~~we repurchased approximately 0.1 million ~~or $54.39 per share.~~

~~Additionally,~~and 0.2 million Class A common shares during the ~~year~~years ended November 30, ~~2004, we repurchased approximately 91,000 Class A common shares~~2006 and 2005, respectively, related to the vesting of restricted stock and ~~distributions~~distribution of common stock from our deferred compensation plan.

In 2006, our annual dividend rate with regard to our Class A and Class B common stock was $0.64 per share per year (payable quarterly). In September ~~2004,~~2005, our Board of Directors voted to increase the annual dividend rate with regard to our Class A and Class B common stock to ~~$0.55~~$0.64 per share per year (payable quarterly) from ~~$0.50~~$0.55 per share per year (payable quarterly). ~~Dividend rates reflect our January 2004 two-for-one stock split.~~

In recent years, we have sold convertible and non-convertible debt into public markets, and at year-end, we had shelf registration statements under the Securities Act of 1933, as amended, under which we could sell to the public up to $320 million of debt securities, common stock, preferred stock or other securities and could issue up to $400 million of equity or debt securities in connection with acquisitions of 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.

We strategically 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 these entities, we primarily seek to reduce and share our risk by limiting the amount of our capital invested in land, while increasing access to potential future ~~homesites.~~homesites and allowing us to participate in strategic ventures. The use of these 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 ~~entities generally~~joint ventures (“JVs”) are ~~unrelated~~land owners/developers, other homebuilders and financial or strategic partners. JVs with land ~~sellers~~owners/developers give us access to homesites owned or controlled by our partner. JVs with other ~~real estate entities. While we view~~homebuilders provide us with the ~~use of these entities as beneficial~~ability to bid jointly with our partner for large land parcels. JVs with financial partners allow us to combine our homebuilding expertise with access to our partners’ capital. JVs with strategic partners allow us to combine our homebuilding ~~activities, we do not view them as essential~~expertise with the specific expertise (e.g. commercial or infill experience) of our partner.

Although the strategic purposes of our JVs and the nature of our JV partners vary, the JVs are generally designed to ~~those activities.~~

~~Most of the~~acquire, develop and/or sell specific assets during a limited life-time. The JVs are typically structured through non-corporate entities in which control is shared with our venture partners. Each JV is unique in terms of its funding requirements and liquidity needs. We and the other JV participants typically make pro-rata cash contributions to the JV. In many cases, our risk is limited to our equity contribution and potential future capital contributions. The capital contributions usually coincide in time with the acquisition of properties by the JV. Additionally, most JVs obtain third-party debt to fund a portion of the acquisition, development and construction costs of their communities. The JV agreements usually permit, but do not require, the JVs to make additional capital calls in the future.

Our investment in unconsolidated entities has grown in recent years primarily due to (1) our participation in a larger number of ventures in order to increase the number of homesites controlled while minimizing capital requirements and mitigating market risk and (2) the increase in land prices in recent years. At November 30, 2006, we ~~invest~~had equity investments in approximately 260 unconsolidated entities. Our investments in unconsolidated entities are generally land development ventures and homebuilding ventures, most of which are accounted for by the equity method of accounting. At

During 2006, we experienced a slowdown in demand for homes in many markets and we increased sales incentives to maintain sales volumes. Primarily as a result of these market conditions, we recorded $126.4 million of valuation adjustments to our investment in unconsolidated entities for the year ended November 30, ~~2004,~~2006. After the valuation adjustments, as of November 30, 2006, we ~~had ownership interests~~believe that our investment in ~~these unconsolidated entities~~JVs is fully recoverable and it is unlikely that ~~did not exceed 50%. During 2004,~~we will be called to perform on any of our guarantees that would have a material impact on our consolidated financial statements. We will continue to monitor our investments and the ~~unconsolidated entities~~recoverability of assets owned by the JVs.

Under the terms of our JV agreements, we generally have the right to share in ~~which we had investments generated $1.6 billion of revenues~~earnings and incurred $1.2 billion of expenses, resulting in net earnings of $441.8 million. Our share of those net earnings was $90.7 million. In many instances, we are appointed as the day-to-day manager of these entities and receive fees for performing this function. During 2004, 2003 and 2002, we received management fees and reimbursement of expenses totaling $40.6 million, $39.0 million and $29.2 million, respectively, from unconsolidated entities in which we had investments. We and/or our partners sometimes obtain options or enter into other arrangements under which we can purchase portionsdistributions of the ~~land held by~~entities on a pro-rata basis based on our ownership percentage. Some JV agreements provide for a different allocation of profit and cash distributions if and when the unconsolidated entities. Option prices are generally negotiated prices that approximate fair market value when we receive the options. During 2004, 2003 and 2002, $547.6 million, $460.5 million and $419.3 million, respectively,cumulative results of the ~~unconsolidated entities’ revenues were from land sales to our homebuilding divisions. We do not include in our~~JV exceed specified targets (such as a specified internal rate of return). Our equity in earnings from unconsolidated entities excludes our ~~pro rata~~pro-rata share of ~~unconsolidated entities’~~JVs’ earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our ~~cost~~costs of purchasing the land from the ~~unconsolidated entities.~~JVs. This in effect defers recognition of our share of the ~~unconsolidated entities’~~JVs’ earnings related to these sales until we deliver a home ~~is delivered~~ and title passes to a third-party homebuyer.

In some instances, we are designated as the manager of the unconsolidated entity and receive fees for such services. In addition, we often enter into option contracts to acquire properties from our JVs generally for market prices at specified dates in the future. Option contracts generally require us to make deposits using cash or irrevocable letters of credit toward the exercise price. These option deposits generally approximate 10% of the exercise price.

We regularly monitor the results of our unconsolidated JVs and any trends that may affect their future liquidity or results of operations. JVs in which we have investments are subject to a variety of financial and non-financial debt covenants related primarily to equity maintenance, fair value of collateral and minimum homesite takedown or sale requirements. We monitor the performance of JVs in which we have investments on a regular basis to assess compliance with debt covenants. For those JVs not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. As of November 30, 2006, substantially all of our unconsolidated JVs were in compliance with their debt covenants in all material respects.

Our arrangements with JVs generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the JVs do business.

As discussed above, the JVs in which we invest generally supplement equity contributions with third-party debt to finance their activities. In many instances, the debt financing is non-recourse, thus neither we nor the other equity partners are a party to the debt instruments. In other cases, we and the other partners agree to provide credit support in the form of repayment or maintenance guarantees.

Material contractual obligations of our unconsolidated JVs primarily relate to the debt obligations described above. The JVs generally do not enter into lease commitments because the entities are managed either by us, or another of the JV participants, who supply the necessary facilities and employee services in exchange for market-based management fees. However, they do enter into management contracts with the participants who manage

them. Some JVs also enter into agreements with developers, which may be us or other JV participants, to develop raw land into finished homesites or to build homes.

The JVs often enter into option agreements with buyers, which may include us or other JV participants, to deliver homesites or parcels in the future at market prices. Option deposits are recorded by the JVs as liabilities until the exercise dates at which time the deposit and remaining exercise proceeds are recorded as revenue. Any forfeited deposit is recognized as revenue at the time of forfeiture. Our unconsolidated JVs generally do not enter into off-balance sheet arrangements.

As described above, the liquidity needs of JVs in which we have investments vary on an entity-by-entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition and development of properties. As the properties are completed and sold, cash generated is available to repay debt and for distribution to the JV’s members. Thus, the amount of cash available for a JV to distribute at any given time is a function of the scope of the JV’s activities and the stage in the JV’s life cycle.

We track our share of cumulative earnings and cumulative distributions of our JVs. For purposes of classifying distributions received from JVs in our statements of cash flows, cumulative distributions are treated as returnson capital to the extent of accumulated earnings. Cumulative distributions in excess of our share of cumulative earnings are treated as returnsof capital. Returns of capital and returns on capital are separately identified and reported in our consolidated statements of cash flows as investing activities and operating activities, respectively.

At November 30, ~~2004,~~2006, the ~~unconsolidated entities~~JVs in which we had investments had total assets of ~~$4.2~~$10.1 billion and total liabilities of ~~$2.4~~$6.4 billion, which included ~~$1.9~~$5.0 billion of notes and mortgages payable. These JVs usually finance their activities with a combination of partner equity and debt financing. As of November 30, 2006, our equity in these JVs represented 39% of the entities’ total equity. In some instances, we and our partners have guaranteed debt of certain JVs. Our summary of guarantees related to our unconsolidated entities was as follows:

The maintenance amounts above are our maximum exposure of loss, which assumes that the fair value of the underlying collateral is zero. As of November 30, 2006, the fair values of the maintenance guarantees and repayment guarantees were not material.

In addition, we and/or our partners ~~have provided guarantees~~occasionally grant liens on ~~debt of certain unconsolidated entities on~~our respective interests in a pro rata basis. At November 30, 2004, we had repayment guarantees of $161.3 million and limited maintenance guarantees of $319.3 million of the unconsolidated entity debt ($200.0 million of the limited maintenance guarantees relatedJV in order to ~~the unconsolidated entity~~help secure a loan to that ~~acquired Newhall).~~JV. When we and/or our partners provide guarantees, the ~~unconsolidated entity~~JV generally receives more favorable terms from its lenders than would otherwise be available to it. In a repayment guarantee, we and our JV partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral. The ~~limited~~ maintenance guarantees only apply if ~~an unconsolidated entity defaults on its loan arrangements and~~ the value ofor 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 value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated entity and increase our share of any funds itthe JV distributes. During 2006, amounts paid under our maintenance guarantees were not material. As of November 30, 2006, if there was an occurrence of a triggering event or condition under a guarantee, the collateral would be sufficient to repay the obligation.

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

On December 29, 2006, we and LNR reached a definitive agreement to admit a new strategic partner into our LandSource joint venture. The transaction will result in a cash distribution to us and our current partner, LNR, of approximately $660 million each. For financial statement purposes, the transaction is expected to generate earnings of approximately $500 million for us, of which approximately $125 million will be recognized at closing and a potential of approximately $375 million could be realized over future years. The new partner will contribute cash and property with a combined value of approximately $900 million. Subsequent to the transaction, in addition to options we will have on certain LandSource assets, we will also have $153 million of specific performance options on other LandSource assets. Following the contribution and refinancing, our and LNR’s interest in LandSource will be diluted to 19% each, and the new partner will be issued a 62% interest in LandSource. The transaction is expected to close during our first quarter of 2007.

In our homebuilding operations, we have access to land through option contracts, which generally enables us to defer acquiring portions of properties owned by third parties (including land funds) and unconsolidated entities until we are ready to build homes on them.

A majority of our option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. These option deposits generally approximate 10% of the exercise price. These options are generally rolling options, in which we acquire homesites based on pre-determined take-down schedules. Our option contracts often include price escalators, which adjust the purchase price of the land to its approximate fair value at time of the acquisition. The exercise periods of our option contracts vary on a case-by-case basis, but generally range from one-to-ten years.

Our investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case our investments are written down to fair value. We review option contracts for impairment during each reporting period in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-lived Assets, (“SFAS 144”). The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet our targeted return on investment. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause us to re-evaluate the likelihood of exercising our land options.

Each option contract contains a predetermined take-down schedule for the optioned land parcels. However, in almost all instances, we are not required to purchase land in accordance with those take-down schedules. In substantially all instances, we have the right and ability to not exercise our option and forfeit our deposit without further penalty, other than termination of the option and loss of any unapplied portion of our deposit and pre-acquisition costs. Therefore, in substantially all instances, we do not consider the take-down price to be a firm contractual obligation. When we permit an option to terminate or walk away from an option, we write-off any unapplied deposit and pre-acquisition costs. For the year ended November 30, 2006, we wrote-off $152.2 million of option deposits and pre-acquisition costs related to 24,235 homesites under option that we do not intend to purchase, compared to $15.1 million in 2005.

In very limited cases, the land seller can enforce the take-down schedule by requiring us to exercise our option. We record the option contract as a financing arrangement when required in accordance with SFAS No. 49,Accounting for Product Financing Arrangements, and record the optioned property and related take-down liability in our consolidated financial statements.

We evaluated all option contracts for land when entered into or upon a reconsideration event and determined we were the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, under FIN 46(R), we, if we are deemed to be the primary beneficiary, are required to consolidate the land under option at the purchase price of the optioned land. During 2006 and 2005, the effect of the consolidation of these option contracts was an increase of $548.7 million and $516.3 million, respectively, to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in our consolidated balance sheets as of November 30, 2006 and 2005. This increase was offset primarily by the exercising of our options to acquire land under certain contracts previously consolidated under FIN 46(R), resulting in a net increase in consolidated inventory not owned of $1.8 million. To reflect the purchase price of the inventory consolidated under FIN 46(R), we reclassified $80.7 million of related option deposits from land under development to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2006. The liabilities related to consolidated inventory not owned represent the difference between the purchase price of the optioned land and our cash deposits.

At November 30, 2006 and 2005, our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of our non-refundable option deposits and advanced costs totaling $785.9 million and $741.6 million, respectively. Additionally, we posted $553.4 million of letters of credit in lieu of cash deposits under certain option contracts as of November 30, 2006.

The table below indicates the number of homesites owned and homesites to which we had access through option contracts with third parties (“optioned”) or unconsolidated joint ventures in which we have investments (“JVs”) (i.e., controlled homesites) for each of our homebuilding segments and Homebuilding Other at November 30, 2006 and 2005:

The following table summarizes our contractual debt obligations at November 30, ~~2004:~~2006:

We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we are ready to build homes on them. This reduces our financial ~~risks~~risk associated with ~~long-term~~ land holdings. At November 30, ~~2004,~~2006, we had access to ~~acquire approximately 168,000~~189,279 homesites through option contracts with third parties and unconsolidated entities in which we have investments. At November 30, ~~2004,~~2006, we had ~~$222.4~~$785.9 million of non-refundable option deposits and advanced costs 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 ~~$787.4~~$1.4 billion (which included the $553.4 million of letters of credit noted above) at November 30, ~~2004.~~2006. Additionally, we had outstanding performance and surety bonds related to site improvements at various projects with estimated costs to complete of ~~$1.3~~$1.8 billion. We do not believe ~~that~~there will be any draws upon these letters of credit or bonds, but if there were any, ~~will~~we do not believe these draws would have a material effect on our financial position, results of operations or cash flows.

Our Financial Services ~~Division~~segment had a pipeline of ~~loans~~loan applications in process ~~totaling approximately $3.1~~of $2.9 billion at November 30, ~~2004. To minimize credit risk, we use the same credit policies in the approval of our commitments as are applied to our lending activities.~~2006. Loans in process for which interest rates were committed to the borrowers totaled approximately ~~$519.9~~$323.9 million as of November 30, ~~2004.~~2006. 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.

Our Financial Services ~~Division~~segment uses mandatory mortgage-backed securities (“MBS”) forward commitments and MBS option contracts to hedge its interest rate exposure during the period from when it extends an interest rate lock 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 fair ~~market~~ value. At November 30, ~~2004,~~2006, we had open commitments amounting to ~~$273.6~~$335.0 million to sell MBS with varying settlement dates through ~~February 2005.~~January 2007.

The following sections discuss economic conditions, market and financing risk, seasonality, and interest rates and changing prices that may have an impact on our business:

During ~~2004,~~2006, conditions in the homebuilding ~~environment remained strong due~~industry weakened and we have not yet seen a recovery as we entered the first quarter of 2007. This market deterioration has been driven primarily by excess supply as speculators reduced purchases and returned homes to ~~a positive supply/demand relationship,~~the market as well as ~~low interest rates. As a result of this favorable environment~~negative customer sentiment surrounding the general homebuilding market. We experienced slower sales (down 3% in 2006) and ~~growth~~higher cancellations (29% in ~~the number~~2006) which have impacted most of our ~~active communities,~~markets and therefore, we made greater use of sales incentives ($32,000 per home delivered in 2006, compared to $9,000 per home delivered in 2005) to generate sales in order to achieve our ~~new orders increased by 12%~~delivery goals which resulted in 2004. Although the homebuilding business historically has been cyclical, it has not undergone an economic down cycle in a number of years. This has led some people to assert that the prices of new homes and the stock prices of homebuilding companies may be inflated and may decline if the demand for new homes weakens.lower inventory levels. A continued decline in the prices for new homes could adversely affect both our revenues and ~~gross margins. A decline in~~margins, as well as the carrying value of our ~~stock price could make raising capital through stock issuances more difficult~~inventory and ~~expensive.~~other investments.

We finance our contributions to JVs, land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from operations and public debt issuances, as well as cash borrowed under our revolving credit ~~facilities~~facility, issuance of commercial paper and unsecured, fixed-rate notes and borrowings under our warehouse lines of credit. We also purchase land under option agreements, which enables us to acquire homesites when we are ready to build homes on them. The financial risks of adverse market conditions associated with land holdings are 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 risks by using partners to share the costs of purchasing and developing land, as well as obtaining access to land through option contracts.

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~~Currently, we are focusing our efforts on asset management and our homebuilding manufacturing process, in order to achieve a more evenflow production of home deliveries throughout the ~~highest rate of orders for new homes~~year. Evenflow production involves determining the appropriate production levels based on demand in the ~~first half~~market, and is driven by a defined production schedule designed to produce a consistent level of starts and deliveries throughout the ~~calendar~~ year ~~although~~in order to gain production efficiencies. If our efforts at evenflow production are successful, the ~~rate of orders for new homes is highly dependent on the number of active communities~~result should be a reduction in inventory cycle time 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 revenuesmore accurate start, completion and ~~operating earnings from sales of homes are generally higher in the second half of our fiscal year.~~

Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates, as well as increased materials and labor costs, may reduce gross margins. An increase in material and labor costs, along with a more normalized home sales price appreciation in

2006 compared to previous years, have contributed to lower gross margins and in certain instances to inventory valuation adjustments. 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.

In ~~March 2004,~~June 2006, the ~~Securities~~FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of SFAS 109,(“FIN 48”). FIN 48 provides interpretive guidance for the financial statement recognition and ~~Exchange Commission released SEC Staff Accounting Bulletin (“SAB”) No. 105,~~~~Application~~measurement of ~~Accounting Principles to Loan Commitments~~~~. SAB No. 105 provides the SEC staff~~a tax position regarding the application of accounting principles generally accepted in the United States of America to loan commitments that relate to the origination of mortgage loans that will be held for resale. SAB No. 105 contains specific guidance on the inputs to a valuation-recognition model to measure loan commitments accounted for at fair market value. Previous accounting guidance required the commitmenttaken or expected to be recognized on the balance sheet at fair market value from its inception through its expiration or funding. SAB No. 105 requires that fair-value measurement include only differences between the guaranteed interest ratetaken in ~~the loan commitment and~~ a market interest rate, excluding any expected future cash flows related to the customer relationship or loan servicing. In addition, SAB No. 105 requires the disclosure of both the accounting policy for loan commitments, including the methods and assumptions used to estimate the fair market value of loan commitments, and any associated hedging strategies. SAB No. 105tax return. FIN 48 is effective for all loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004. The implementation of SAB No. 105 did not have a material impact on our financial condition, results of operations or cash flows.

Infiscal years beginning after December ~~2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(R),~~~~Share-Based Payment~~. SFAS No. 123(R) establishes accounting standards for transactions in which a company exchanges its equity instruments for goods or services. In particular, this Statement would require companies to record compensation expense for all share-based payments, such as employee stock options, at fair market value. This Statement’s effective date is the first quarter of the first fiscal year that begins after June 15, ~~2005~~2006 (our fiscal ~~quarter~~year beginning December 1, ~~2005)~~2007). We are currently reviewing the effect of this Interpretation on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal year beginning December 1, 2007), and interim periods within those fiscal years. SFAS 157 is not expected to materially affect how we determine fair value.

In September 2006, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected financial statement misstatements should be considered in current year financial statements. SAB 108 requires registrants to quantify misstatements using both balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relative quantitative and qualitative factors. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006 (our fiscal year ended November 30, 2006). SAB 108 did not have an effect on our consolidated financial statements.

In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8,Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement onNo. 66, Accounting for Sales of Real Estate, for Sales of Condominiums,(“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007 (our fiscal year beginning December 1, 2007). The effect of this EITF is not expected to be material to our consolidated financial statements.

Our accounting policies are more fully described in Note 1 of the notes to our consolidated financial ~~statements.~~statements included in Item 8 of this document. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to our consolidated financial statements. Listed below are those policies and estimates that we believe are critical and require the use of significant judgment in their application.

Revenues from sales of homes are recognized when sales are closed and title passes to the new ~~homeowners.~~homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowner’s receivable is not subject to future subordination and we do not have a substantial continuing involvement with the new home in accordance with SFAS No. 66,Accounting for Sales of Real Estate,(“SFAS 66”). Revenues from sales of land 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 believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue recognition.

Inventories are stated at cost, unless the inventory within a community is determined to be impaired, in which case the impaired inventory would 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.

We evaluate our inventory for impairment ~~whenever indicators of impairment exist.~~during each reporting period in accordance with SFAS 144. Accounting standards require that if the sum of the undiscounted future cash flows expected to result from an asset is less than the ~~reported~~carrying 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 critical accounting estimate because: (1) ~~it is~~assumptions inherent in the valuation of our inventory are highly subjective and susceptible to change ~~due to the assumptions about future sales and cost of sales~~ and (2) the impact of recognizing impairments on ~~the assets reported in~~our inventory could be material to our consolidated balance sheets ~~as well as~~and statements of earnings. We evaluate our ~~net earnings, could be material.~~inventory for impairment periodically on an asset-by-asset basis. This evaluation includes two critical assumptions with regard to future homesite sales prices, cost of sales and absorption. The two critical assumptions include the timing of the homesite sales and the discount rate applied to determine the fair value of the homesites on the balance sheet date. Our assumptions ~~about future home~~on the timing of homesite sales ~~prices and volumes require significant judgment~~are critical because the ~~residential~~ homebuilding industry ishas historically been cyclical and ~~is highly~~ sensitive to changes in economic ~~conditions. Although~~conditions such as interest rates and unemployment levels. Changes in these economic conditions could materially affect the ~~homebuilding business historically has been cyclical, it has not undergone~~projected sales price, costs to develop our homesites and/or absorption. Our assumption on discount rates is critical because the selection of a ~~down cycle~~discount rate affects the estimated fair value of the homesites. A higher discount rate reduces the estimated fair value of the homesites, while a lower discount rate increases the estimated fair value of the homesites. Because of changes in ~~a number~~economic and market conditions and assumptions and estimates required of ~~years.~~management in valuing inventory during these changing market conditions, actual results could differ materially from management’s assumptions and may require material inventory impairment charges to be recorded in the future.

~~While no impairment existed as~~During the years ended November 30, 2006 and 2005, we recorded $501.8 million and $20.5 million, respectively, of inventory adjustments, which included $280.5 million of homebuilding inventory valuation adjustments in 2006, $152.2 million and $15.1 million, respectively, in 2006 and 2005 of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $69.1 million and $5.4 million, respectively, in 2006 and 2005 of land inventory valuation adjustments. During the year ended November 30, 2004, ~~there can be no assurances~~we recorded $16.8 million of write-offs of deposits and pre-acquisition costs related to land under option that ~~future economic or financial developments, including general interest rate increases or a slowdown in the economy, might~~we do not ~~lead~~intend to ~~an impairment of inventory.~~purchase. These valuation adjustments were calculated based on current market conditions and assumptions made by our management, which may differ materially from actual results if market conditions change.

Although we subcontract virtually all ~~segments~~aspects 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 critical accounting estimate because the estimate requires a large degree of judgment.

At November 30, ~~2004,~~2006, the reserve for warranty costs was ~~$116.8~~$172.6 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.

We frequently invest 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~~owners/developers and financial or other ~~real estate entities.~~strategic partners.

Most of the unconsolidated entities through which we acquire and develop land are accounted for by the equity method of accounting because we are not the primary beneficiary, as defined under FASB Interpretation No. 46(R) ~~(“FIN 46(R)”)~~,Consolidation of Variable Interest Entities, and we have a significant, but less than controlling, interest in the entities. We record our investments in these entities in our consolidated balance sheets as

~~“Investments~~ “Investments in Unconsolidated Entities” and our ~~pro rata~~pro-rata share of the entities’ earnings or losses in our consolidated statements of earnings as “Equity in Earnings (Loss) from Unconsolidated Entities,” as described in Note 56 of the notes to our consolidated financial statements. Advances to these entities are included in the investment balance.

Management uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or have control or significant influence.

As of November 30, ~~2004,~~2006, we believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest, but rather share control with our partners. At November 30, ~~2004,~~2006, the unconsolidated entities in which we had investments had total assets of ~~$4.2~~$10.1 billion and total liabilities of ~~$2.4~~$6.4 billion.

We evaluate our investments in unconsolidated entities for impairment during each reporting period in accordance with Accounting Principles Board (“APB”) Opinion No. 18,The Equity Method of Accounting for Investments in Common Stock. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment to recognize is calculated by subtracting the fair value of the asset from the carrying value of the asset. Our evaluation includes two critical assumptions: projected future distributions from the unconsolidated entities and discount rates applied to the future distributions. Our assumptions on the projected future distributions from the unconsolidated entities are critical because the operating results of the unconsolidated entities from which the projected distributions are derived are dependent on the status of the homebuilding industry, which has historically been cyclical and sensitive to changes in economic conditions such as interest rates and unemployment levels. Changes in these economic conditions could materially affect the projected operational results of the unconsolidated entities from which the distributions are derived. Our assumption on discount rates is critical because the selection of a discount rate affects the estimated fair value of our investment in the unconsolidated entities. A higher discount rate reduces the estimated fair value of our investment in the unconsolidated entities, while a lower discount rate increases the estimated fair value of our investment in the unconsolidated entities. During the years ended November 30, 2005 and 2004, we did not record any material valuation adjustments to our investment in unconsolidated entities; however, during the year ended November 30, 2006, we recorded $126.4 million of valuation adjustments. Because of changes in economic conditions, actual results could differ materially from management’s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.

Loan origination revenues, net of direct origination costs, ~~are recognized when the related loans are sold. Gains~~and gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and shipped to an investor. Premiums from title insurance policies are recognized as revenue on the effective dates of the policies. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Interest income on ~~mortgage~~ 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 critical accounting policy because of the significance of revenue recognition.

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~~by taking into consideration 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, ~~2004,~~2006, the allowance for loan losses was ~~$1.4~~$1.8 million. While we believe that the ~~2004~~2006 year-end allowance ~~was~~is adequate, particularly in view of the fact that we usually sell the loans in the secondary mortgage market on a non-recourse basis within 4560 days after we originate them, remaining liable for certain representations and warranties, 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 ~~occurence~~occurrence of loan charge-offs. This allowance requires management’s judgment and estimate. For these reasons, we believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate.

We provide 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.

Goodwill represents the excess of the purchase price over the fair ~~market~~ value of net assets ~~acquired.~~acquired in business combinations. 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 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~~these reasons, we believe that the accounting estimate related to goodwill impairment is a critical accounting estimate.

We review goodwill annually (or ~~more frequently under certain conditions)~~whenever indicators of impairment exist) for impairment in accordance with SFAS No. 142,Goodwill and Other Intangible Assets.We performed our annual impairment test of goodwill as of September 30, ~~2004~~2006 and determined that goodwill was not impaired.

At November 30, ~~2004,~~2006, goodwill was ~~$239.4 million (net of accumulated amortization of $18.0 million).~~$257.8 million. While we believe that no impairment existed as of November 30, ~~2004,~~2006, 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.

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 earnings in the period when the changes are enacted.

We believe that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results 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, ~~2004,~~2006, our net deferred tax asset was ~~$126.8~~$307.2 million. Based on our assessment, it appears more likely than not that the net deferred tax asset will be realized through future taxable earnings.

~~With~~We have share-based awards outstanding under four different plans which provide for the ~~approval~~granting of ~~a committee consisting~~stock options and stock appreciation rights and awards of ~~members~~restricted common stock (“nonvested shares”) to key officers, employees and directors. The exercise prices of ~~our Board of Directors, we occasionally issue to employees~~stock 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 priceand stock appreciation rights may not be

less than the market ~~price~~value of the common stock on the date of the ~~option~~ grant. ~~We account for~~No options granted under the plans 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 ten years after the date of the grant.

Prior to December 1, 2005, we accounted for stock option awards granted under our share-based payment plans in accordance with the recognition and measurement provisions of ~~Accounting Principles Board (“APB”)~~APB Opinion No. 25,Accounting for Stock Issued to Employees,, (“APB 25”) and ~~accordingly, recognize no compensation expense for the grants. SFAS~~related Interpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation,~~, and~~(“SFAS 123”). Share-based employee compensation expense was not recognized in our consolidated statements of earnings prior to December 1, 2005, as all stock option awards granted under the plans had an exercise price equal to or greater than the market value of the common stock on the date of the grant. Effective December 1, 2005, we adopted the provisions of SFAS No. ~~148,~~123 (revised 2004),~~Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123~~Share-Based Payment,~~, require us to disclose~~ (“SFAS 123R”) using the ~~effects on net earnings and basic and diluted earnings per share had we recorded~~modified-prospective-transition method. Under this transition method, 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, this Statement would require companies to recordrecognized during 2006 included: (a) compensation expense for all share-based ~~payments, such~~awards granted prior to, but not yet vested as ~~employee stock options, at fair market value. This Statement’s effective date is the first quarter~~ of, ~~the first fiscal year that begins after June 15, 2005 (our fiscal quarter beginning~~ December 1, ~~2005). We are currently reviewing~~2005, based on the ~~effect~~grant date fair value estimated in accordance with the original provisions of SFAS ~~No. 123(R)~~123, and (b) compensation expense for all share-based awards granted subsequent to December 1, 2005, based on ~~our consolidated financial statements.~~

We believe that the accounting estimate for ~~the valuation of share-based payment~~share based payments is a critical accounting estimate because ~~judgment~~the calculation of share-based employee compensation expense involves estimates that require management’s judgments. These estimates include the fair value of each of our stock option awards, which are estimated on the date of grant using a Black-Scholes option-pricing model as discussed in Note 15 of our consolidated financial statements included under Item 8 of this document. The fair value of our stock option awards, which are subject to graded vesting, is ~~required in determining~~expensed on a straight-line basis over the ~~valuation~~vesting life of the options. Expected volatility is based on an average of (1) historical volatility of our stock and (2) implied volatility from traded options on our stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award granted. We use historical data to estimate stock option exercises and forfeitures within our valuation model. The expected life of stock option awards granted is derived from historical exercise experience under our share-based payment plans and represents the period of time that stock option awards granted are expected to be outstanding.

Prior to the adoption of SFAS 123R, we presented all tax benefits related to deductions resulting from the exercise of stock options ~~granted~~as cash flows from operating activities in the consolidated statements of cash flows. SFAS 123R requires that cash flows resulting from tax benefits related to ~~employees.~~tax deductions in excess of the compensation expense recognized for those options (excess tax benefits) be classified as financing cash flows.

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 risks associated with our mortgage loan portfolio.

The ~~tables~~table on the following ~~pages provide~~page provides information at November 30, ~~2004 and 2003~~2006 about our significant derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For investments available-for-sale, ~~mortgage~~ loans held-for-sale, ~~mortgage~~ loans held-for-investment and investments held-to-maturity, ~~investments,~~ senior notes and other debts payable and notes and other debts payable, the ~~tables present~~table presents principal cash flows and related weighted average effective interest rates by expected maturity dates and estimated fair ~~market~~ values at November 30, ~~2004 and 2003.~~2006. Weighted average variable interest rates are based on the variable interest rates at November 30, ~~2004 and 2003.~~2006. For interest rate swaps, the ~~tables present~~table presents notional amounts and weighted average interest rates by contractual maturity dates and estimated fair ~~market~~ values at November 30, ~~2004 and 2003.~~2006. 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. Our trading investments do not have interest rate sensitivity, and therefore, are also excluded from the following ~~tables.~~

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Notes 1 and 1417 of the notes to consolidated financial statements in Item 8 for a further discussion of these items and our strategy of mitigating our interest rate risk.


*(Dollars in millions)*	Years Ending November 30,											Thereafter		Total		Fair Market Value at November 30, 2003
*(Dollars in millions)*	2004			2005		2006		2007		2008				Total
																		Years Ending November 30,															Fair Value at November 30, 2006
																		2007			2008		2009		2010		2011		Thereafter		Total		Fair Value at November 30, 2006
																		(Dollars in millions)
ASSETS																Fair Market Value at November 30, 2003
Financial services:
Mortgage loans held-for-sale, net:
Loans held-for-sale, net:
Fixed rate	$	—		—		—		—		—		Thereafter	383.2		383.2		383.2		$	—		—		—		—		—		331.4		331.4		331.4
Average interest rate		—		—		—		—		—		6.1	%	—		—			—		—		—		—		—		7.0	%	7.0	%	—
Variable rate	$	—		—		—		—		—		159.3		159.3		159.3		$	—		—		—		—		—		152.3		152.3		152.3
Average interest rate		—		—		—		—		—		5.0	%	—		—			—		—		—		—		—		6.8	%	6.8	%	—
Mortgage loans and held-to-maturity 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		$	218.7		3.6		5.7		4.3		0.3		14.8		247.4		245.4
Average interest rate																			5.8	%	7.4	%	9.5	%	6.8	%	9.2	%	8.5	%	6.1	%	—
Variable rate																		$	—		—		—		—		0.1		1.7		1.8		1.8
Average interest rate		1.7	%	4.0	%	10.4	%	23.6	%	10.0	%	9.9	%	—		—			—		—		—		—		6.1	%	6.1	%	6.1	%	—
LIABILITIES
Homebuilding:
Senior notes and other debts payable:
Fixed rate	$	15.6		27.6		14.4		—		—		1,182.6		1,240.2		1,566.8		$	62.0		6.0		278.0		317.9		249.4		1,344.9		2,258.2		2,270.9
Average interest rate		5.1	%	9.0	%	15.0	%	—		—		7.2	%	—		—			2.6	%	7.9	%	7.6	%	5.3	%	6.0	%	5.8	%	5.9	%	—
Variable rate	$	5.9		18.1		4.0		4.0		4.0		276.0		312.0		312.0		$	25.3		30.0		300.0		—		—		—		355.3		355.3
Average interest rate		3.9	%	4.5	%	2.9	%	2.9	%	2.9	%	2.9	%	—		—			9.6	%	9.3	%	6.1	%	—		—		—		6.7	%	—
Financial services:
Notes and other debts payable:
Variable rate	$	734.5		0.1		0.1		—		—		—		734.7		734.7		$	1,149.0		0.1		0.1		—		—		—		1,149.2		1,149.2
Average interest rate		1.8	%	4.9	%	4.9	%	—		—		—		—		—			6.1	%	7.1	%	7.2	%	—		—		—		6.1	%	—
OTHER FINANCIAL INSTRUMENTS
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		2.1
Average pay rate		—		6.7	%	—		6.8	%	—		—		—		—			6.8	%	6.8	%	—		—		—		—		6.8	%	—
Average receive rate		—		LIBOR		—		LIBOR		—		—		—		—			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, 2006. Our management’s assessment of the effectiveness of our internal control over financial reporting as of November 30, 2006 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

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, 2006, 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, 2006, 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, 2006, 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, 2006 of the Company and our report dated February 8, 2007 expressed an unqualified opinion on those financial statements.

We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the “Company”) as of November 30, ~~2004~~2006 and ~~2003,~~2005, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the three years in the period ended November 30, ~~2004.~~2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ~~the Company~~Lennar Corporation and subsidiaries as of November 30, ~~2004~~2006 and ~~2003,~~2005, and the results of ~~its~~their operations and ~~its~~their cash flows for each of the three years in the period ended November 30, ~~2004,~~2006, in conformity with accounting principles generally accepted in the United States of America.

~~As discussed in Note 19, the accompanying consolidated statements of cash flows have been restated.~~

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, ~~2004,~~2006, 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 ~~11, 2005 (October 21, 2005 as to the effects of the restatement discussed in Note 19)~~8, 2007 expressed an ~~adverse~~unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting ~~because of management’s omission of a material weakness from its report~~ and ~~expressed~~ an ~~adverse~~unqualified opinion on the effectiveness of the Company’s internal control over financial ~~reporting because of a material weakness.~~reporting.


*(Dollars in thousands)*	2004			2003		2002
Class A common stock (1):
								2006			2005		2004
								(Dollars in thousands)
Class A common stock:
Beginning balance	$	12,533		13,012		12,824		$	13,025		12,372		12,533
Conversion of 3⁷/8% zero-coupon senior convertible debentures to Class A common shares		—		1,356		—
Conversion of 5.125% zero-coupon convertible senior subordinated notes to Class A common shares									488		409		—
Par value of retired treasury stock		(240	)	(1,972	)	—			—		—		(240	)
Employee stock plans and director compensation		79		137		180
Conversion of Class B common stock		—		—		8
Employee stock and director plans									176		244		79

Balance at November 30,		12,372		12,533		13,012			13,689		13,025		12,372

Class B common stock (1):
Class B common stock:
Beginning balance		3,251		1,940		1,948			3,278		3,260		3,251
Employee stock plans and restricted stock		9		11		—
10% Class B common stock distribution		—		1,300		—
Conversion to Class A common stock		—		—		(8	)
Employee stock plans									9		18		9

Balance at November 30,		3,260		3,251		1,940			3,287		3,278		3,260

Additional paid-in capital (1):
Additional paid-in capital:
Beginning balance		1,358,304		866,026		836,538			1,486,988		1,275,216		1,354,003
10% Class B common stock distribution		—		351,368		—
Conversion of 3⁷/8% zero-coupon senior convertible debentures to Class A common shares		—		269,968		10
Conversion of 5.125% zero-coupon convertible senior subordinated notes to Class A common shares									157,406		127,869		—
Conversion of other debt		25		6		—			—		—		25
Employee stock plans, director compensation and restricted stock		14,869		18,049		18,750
Mark-to-market of performance-based stock options		844		—		—
Employee stock and director plans									82,342		37,807		14,449
Tax benefit from employee stock plans and vesting of restricted stock		13,142		10,951		10,728			15,705		39,180		13,142
Retirement of treasury stock		(109,404	)	(158,064	)	—			—		—		(109,404	)
Amortization of restricted stock and performance-based stock options									11,254		6,916		3,001

Balance at November 30,		1,277,780		1,358,304		866,026			1,753,695		1,486,988		1,275,216

Retained earnings:
Beginning balance		1,914,963		1,538,945		996,998			4,046,563		2,780,637		1,914,963
Net earnings		945,619		751,391		545,129			593,869		1,355,155		945,619
10% Class B common stock distribution including cash paid for fractional shares of $298 in 2003		—		(352,966	)	—
Cash dividends – Class A common stock		(63,252	)	(19,167	)	(2,746	)
Cash dividends – Class B common stock		(16,693	)	(3,240	)	(436	)

Balance at November 30,		2,780,637		1,914,963		1,538,945

Unearned compensation:
Beginning balance		(4,301	)	(7,337	)	(10,833	)
Issuance of restricted stock		(420	)	—		—
Mark-to-market of performance-based stock options		(844	)	—		—
Restricted stock cancellations		—		—		387
Amortization of restricted stock and performance-based stock options		3,001		3,036		3,109
Cash dividends—Class A common stock									(80,860	)	(70,495	)	(63,252	)
Cash dividends—Class B common stock									(20,435	)	(18,734	)	(16,693	)

Balance at November 30,		(2,564	)	(4,301	)	(7,337	)		4,539,137		4,046,563		2,780,637

Deferred compensation plan:
Beginning balance		(4,919	)	(1,103	)	—			(4,047	)	(6,410	)	(4,919	)
Deferred compensation activity		(1,491	)	(3,816	)	(1,103	)		2,461		2,363		(1,491	)

Balance at November 30,		(6,410	)	(4,919	)	(1,103	)	$	(1,586	)	(4,047	)	(6,410	)


*(Dollars in thousands)*	2004			2003		2002
								2006			2005		2004
								(Dollars in thousands)
Deferred compensation liability:
Beginning balance	$	4,919		1,103		—		$	4,047		6,410		4,919
Deferred compensation activity		1,491		3,816		1,103			(2,461	)	(2,363	)	1,491

Balance at November 30,		6,410		4,919		1,103			1,586		4,047		6,410

Treasury stock, at cost:
Beginning balance		—		(158,992	)	(158,927	)		(293,222	)	(3,938	)	—
Employee stock plans and vesting of restricted stock, net		—		(1,044	)	(65	)
Employee stock plans									(3,125	)	(14,385	)	(4,020	)
Purchases of treasury stock		(113,582	)	—		—			(320,104	)	(274,899	)	(109,562	)
Reissuance of treasury stock									10,056		—		—
Retirement of treasury stock		109,644		160,036		—			—		—		109,644

Balance at November 30,		(3,938	)	—		(158,992	)		(606,395	)	(293,222	)	(3,938	)

Accumulated other comprehensive loss:
Beginning balance		(20,976	)	(24,437	)	(19,286	)		(5,221	)	(14,575	)	(20,976	)
Change in unrealized gain (loss) on interest rate swaps, net of tax		6,734		3,461		(5,151	)
Change in unrealized gain on available-for-sale investment securities, net of tax		53		—		—
Company’s portion of unconsolidated entity’s minimum pension liability, net of tax		(386	)	—		—
Unrealized gains arising during period on interest rate swaps, net of tax									2,853		10,049		6,734
Unrealized gains arising during period on available-for-sale investment securities, net of tax									7		185		53
Reclassification adjustment for gains included in net earnings for available-for-sale investment securities, net of tax									(245	)	—		—
Change to the Company’s portion of unconsolidated entity’s minimum pension liability, net of tax									565		(880	)	(386	)

Balance at November 30,		(14,575	)	(20,976	)	(24,437	)		(2,041	)	(5,221	)	(14,575	)

Total stockholders’ equity	$	4,052,972		3,263,774		2,229,157		$	5,701,372		5,251,411		4,052,972

Comprehensive income	$	952,020		754,852		539,978		$	597,049		1,364,509		952,020


*(Dollars in thousands)*	2004			2003		2002
								2006			2005		2004
								(Dollars in thousands)
Principal payments on other borrowings									(150,793	)	(190,240	)	(404,089	)
Net payments related to minority interests									(71,351	)	(33,181	)	(18,396	)
Excess tax benefits from share-based awards									7,103		—		—
Common stock:
Issuances									31,131		38,069		14,537
Repurchases									(323,229	)	(289,284	)	(113,582	)
Dividends									(101,295	)	(89,229	)	(79,945	)

Net cash provided by (used in) financing activities									(429,205	)	324,126		304,082
	(as restated – See Note 19)
Net increase (decrease) in cash	$	157,069		493,713		(100,115	)	$	(281,024	)	(356,472	)	190,167
Cash at beginning of year		1,270,872		777,159		877,274			1,059,343		1,415,815		1,225,648

Cash at end of year	$	1,427,941		1,270,872		777,159		$	778,319		1,059,343		1,415,815

Summary of cash:
Homebuilding	$	1,322,472		1,201,276		731,163		$	661,662		909,557		1,310,920
Financial services		105,469		69,596		45,996			116,657		149,786		104,895

	$	1,427,941		1,270,872		777,159		$	778,319		1,059,343		1,415,815

Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized	$	—		6,559		18,589		$	28,731		15,844		—
Cash paid for income taxes, net	$	278,444		503,410		307,073		$	915,743		571,498		278,444

Supplemental disclosures of non-cash investing and financing activities:
Conversion of debt to equity	$	25		271,330		10		$	157,894		128,278		25
Purchases of inventory financed by sellers	$	45,892		15,395		21,087		$	36,810		159,078		45,892
Non-cash contributions to unconsolidated entities								$	39,491		—		—
Non-cash distributions from unconsolidated entities								$	25,329		74,498		31,311
Issuance of common stock for employee compensation								$	38,150		—		—
Consolidation/deconsolidation of previously unconsolidated/consolidated entities, net:
Receivables								$	(232	)	20,100		—
Inventories								$	188,191		153,005		92,614
Investments in unconsolidated entities								$	(38,354	)	(26,103	)	(4,903	)
Other assets								$	6,563		6,423		1,919
Other debts payable								$	(81,455	)	(81,006	)	(48,099	)
Other liabilities								$	(40,588	)	(49,401	)	(21,331	)
Minority interest								$	(34,125	)	(23,018	)	(20,200	)

Acquisitions:
Fair market value of assets acquired, inclusive of cash of $1,392 in 2004, $9,004 in 2003 and $37,986 in 2002	$	88,822		159,453		664,424
Fair value of assets acquired, including cash of $0 in 2006, $0 in 2005 and $1,392 in 2004								$	23,843		409,262		88,822
Goodwill recorded		26,656		30,326		83,560			10,518		13,781		26,656
Fair market value of liabilities assumed		(8,356	)	(21,386	)	(285,721	)
Fair value of liabilities assumed									(1,148	)	(6,994	)	(8,356	)

Cash paid	$	107,122		168,393		462,263		$	33,213		416,049		107,122

The accompanying consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and variable interest entities (see Note ~~15)~~18) in which Lennar Corporation is deemed the primary beneficiary (the “Company”). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

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.

~~In December 2003,~~The Company has share-based awards outstanding under four different plans which provide for the ~~Company’s Board~~granting of ~~Directors approved a two-for-one~~ stock ~~split in the form~~options and stock appreciation rights and awards of ~~a 100% stock dividend of Class A and Class B~~restricted common stock ~~payable~~(“nonvested shares”) to ~~stockholders~~key officers, employees and directors. The exercise prices 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.

~~The Company grants~~ stock options ~~to certain employees for fixed numbers of shares with, in each instance, an exercise price~~and stock appreciation rights may not be less than the ~~fair~~ market value of the ~~shares at~~common stock on the date of the grant. ~~The Company accounts for~~No options granted under the plans 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 ~~grants~~and stock appreciation right will expire on a date determined at the time of the grant, but not more than ten years after the date of the grant.

Prior to December 1, 2005, the Company accounted for stock option awards granted under the plans in accordance with the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to ~~Employees.~~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(“APB 25”) 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 shownrelated Interpretations, 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 market value recognition provisions of~~permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation,(“SFAS 123”). Share-based employee compensation expense was not recognized in the Company’s consolidated statements of earnings prior to December 1, 2005, as ~~amended by SFAS No. 148,~~~~Accounting for Stock-Based Compensation—Transition and Disclosure~~,all stock option awards granted under the plans had an exercise price equal to ~~stock-based employee compensation:~~

~~The fair~~ market value of ~~these options was determined at~~the common stock on the date of the ~~grant~~grant. Effective December 1, 2005, the Company adopted the provisions of SFAS No. 123 (revised 2004),Share-Based Payment, (“SFAS 123R”) using the ~~Black-Scholes option-pricing model. The significant weighted average assumptions for~~modified-prospective-transition method. Under this transition method, compensation expense recognized during the ~~years~~year ended November 30, ~~2004, 2003~~2006 included: (a) compensation expense for all share-based awards granted prior to, but not yet vested as of, December 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and ~~2002 were as follows:~~(b) compensation expense for all share-based awards granted subsequent to December 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified-prospective-transition method, results for prior periods have not been restated.

As a result of adopting SFAS 123R, the charge to earnings before provision for income taxes for the year ended November 30, 2006 was $25.6 million. The impact of adopting SFAS 123R on net earnings for the year ended November 30, 2006 was $18.5 million. The impact of adopting SFAS 123R on basic and diluted earnings per share for the year ended November 30, 2006 was $0.12 per share and $0.11 per share, respectively. See Note 15 for details related to share-based payments.

Revenues from sales of homes are recognized when the sales are closed and title passes to the new ~~homeowners.~~homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowner’s receivable is not subject to future subordination and the Company does not have a substantial continuing involvement with the new home in accordance with SFAS No. 66,Accounting for Sales of Real Estate(“SFAS 66”). Revenues from sales of land are recognized when a significant down payment is received, the earnings process is complete, title passes and the ~~collection~~collectibility of ~~any remaining~~the receivables is reasonably assured.

The Company expenses advertising costs as incurred. Advertising costs were $155.5 million, $82.3 million and $60.3 million for the years ended November 30, 2006, 2005 and 2004, respectively.

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 ~~amount~~amounts of these instruments ~~approximates~~approximate their fair ~~market~~ values. Cash as of November 30, ~~2004~~2006 and ~~2003~~2005 included ~~$127.3~~$135.9 million and ~~$68.7~~$193.6 million, respectively, of cash primarily held in escrow for approximately three ~~days~~days.

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 ~~$12.0 million and $45.2 million, respectively, of restricted deposits.~~local governments in which the homes were sold.

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory would 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 reviews inventories for impairment during each reporting period in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-lived Assets, (“SFAS 144”). The Company evaluates long-lived assets for impairment based on the projected undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired ~~would be~~are recorded as adjustments to the cost basis of the respective inventories. ~~No impairment was recorded during~~During the years ended November 30, 2006 and 2005, the Company recorded $501.8 million and $20.5 million, respectively, of inventory adjustments, which included $280.5 million of homebuilding inventory valuation adjustments in 2006 (no adjustments in 2005), $152.2 million and $15.1 million, respectively, in 2006 and 2005 of write-offs of deposits and pre-acquisition costs related to land under option that the Company does not intend to purchase and $69.1 million and $5.4 million, respectively, in 2006 and 2005 of land inventory valuation adjustments. During the year ended November 30, 2004, ~~2003 or 2002.~~the Company recorded $16.8 million of write-offs of deposits and pre-acquisition costs related to land under option that it does not intend to purchase. These valuation adjustments were calculated based on current market conditions and assumptions made by management, which may differ materially from actual results if market conditions change.

Construction overhead and selling expenses are expensed as incurred. Homes held-for-sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

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 2004, 2003 and 2002, interest incurred by the Company’s homebuilding operations was $137.9 million, $131.8 million and $130.6 million, respectively; interest capitalized into inventories was $137.6 million, $129.5 million and $126.8 million, respectively; and interest expense primarily included in cost of homes sold and cost of land sold was $134.2 million, $141.3 million and $145.6 million, respectively.

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 leasehold improvements is five years and for equipment is two to ten years.

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 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 are reported in a separate component of stockholders’ equity, net of tax, until realized.

At November 30, 2004 and 2003, investment securities classified as held-to-maturity totaled $31.6 million and $28.0 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, 2004 and 2003, investment securities classified as trading totaled $8.6 million and $6.9 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. Additionally, at November 30, 2004, investment securities classified as available-for-sale totaled $8.6 million 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. There were no available-for-sale investment securities at November 30, 2003.

~~SFAS No. 133,~~~~Accounting for Derivative Instruments and Hedging Activities~~~~, as 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.Advertising Costs

The Company ~~has various interest rate swap agreements, which effectively convert variable interest rates to fixed interest rates on $300~~expenses advertising costs as incurred. Advertising costs were $155.5 million, ~~of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges~~$82.3 million and ~~accordingly, are reflected at their fair market value in~~$60.3 million for the ~~consolidated balance sheets in accounts payable and other liabilities at~~years ended November 30, 2006, 2005 and 2004, and 2003. The related loss is deferred, net of tax, in stockholders’ equity as accumulated other comprehensive 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-rate debt being hedged is recorded based on fixed interest rates.respectively.

The ~~Financial Services Division, in~~Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Due to 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 fixed rate-locked loan commitments and loans held-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 valueshort maturity period of the ~~derivative~~cash equivalents, the carrying amounts of these instruments approximate their fair values. Cash as of November 30, 2006 and ~~the loss or gain~~2005 included $135.9 million and $193.6 million, respectively, of cash primarily held in escrow for approximately three days.

Restricted cash consists of customer deposits on ~~the hedged asset related~~home sales held in restricted accounts until title transfers to the ~~risk being hedged are recorded currently~~homebuyer as required by the state and local governments in ~~earnings.~~which the homes were sold.

Goodwill represents the excess of the purchase price over the fair market value of net assets acquired. At November 30, 2004 and 2003, goodwill was $239.4 million and $212.7 million, respectively (net of accumulated amortization of $18.0 million at November 30, 2004 and 2003). During fiscal 2004 and 2003, the Company’s goodwill increased $26.7 million and $30.3 million, respectively, due to current year acquisitions and payment of contingent consideration related to prior year acquisitions. During fiscal 2003, the increase in goodwill was 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 ($183.4 million and $169.2 million at November 30, 2004 and 2003, respectively) and the assets of the Financial Services Division ($56.0 million and $43.5 million at November 30, 2004 and 2003, respectively) in the consolidated balance sheets.Inventories

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory would be written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. The Company reviews ~~goodwill annually (or more frequently under certain conditions)~~inventories for impairment during each reporting period in accordance with SFAS No. ~~142,~~144,~~Goodwill and Other Intangible~~Accounting for the Impairment or Disposal of Long-lived Assets, (“SFAS 144”). The Company ~~performed its annual~~evaluates long-lived assets for impairment ~~test~~based on the projected undiscounted future cash flows of ~~goodwill~~the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of ~~September 30, 2004 and determined that goodwill was not impaired. No impairment was recorded during~~the respective inventories. During the years ended November 30, ~~2004, 2003 or 2002. As~~2006 and 2005, the Company recorded $501.8 million and $20.5 million, respectively, of inventory adjustments, which included $280.5 million of homebuilding inventory valuation adjustments in 2006 (no adjustments in 2005), $152.2 million and $15.1 million, respectively, in 2006 and 2005 of write-offs of deposits and pre-acquisition costs related to land under option that the Company does not intend to purchase and $69.1 million and $5.4 million, respectively, in 2006 and 2005 of land inventory valuation adjustments. During the year ended November 30, 2004, the Company recorded $16.8 million of write-offs of deposits and ~~2003, there~~pre-acquisition costs related to land under option that it does not intend to purchase. These valuation adjustments were ~~no material identifiable intangible assets, other than goodwill.~~

~~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~~calculated based on ~~temporary differences between financial reporting carrying values~~current market conditions and ~~tax bases of assets and liabilities, and are measured~~assumptions made by ~~using enacted tax rates expected to apply to taxable income in the years in~~management, which ~~those differences are expected to reverse.~~may differ materially from actual results if market conditions change.

~~Other Liabilities~~Construction overhead and selling expenses are expensed as incurred. Homes held-for-sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

~~Other liabilities primarily include homebuyer deposits, accrued compensation, warranty reserves, income taxes payable and minority interest.~~

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 activity in the Company’s warranty reserve was as follows:

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 reported.

The Company has 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 entity’s financial statements are consolidated in the Company’s financial statements and the partners’ equity is recorded as minority interest. Also included in minority interest is the estimated fair market value of all third-party interests in variable interest entities. Minority interest is included in accounts payable and other liabilities in the consolidated balance sheets and minority interest income or expense is included in management fees and other income, net in the consolidated statements of earnings. At November 30, 2004 and 2003, minority interest was $42.7 million and $11.8 million, respectively.

The Company expenses advertising costs as incurred. Advertising costs were ~~$60.3~~$155.5 million, ~~$54.9~~$82.3 million and ~~$43.9~~$60.3 million for the years ended November 30, 2006, 2005 and 2004, ~~2003~~respectively.

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 amounts of these instruments approximate their fair values. Cash as of November 30, 2006 and ~~2002,~~2005 included $135.9 million and $193.6 million, respectively, of cash primarily held in escrow for approximately three days.

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 are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory would be written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. The Company reviews inventories for impairment during each reporting period in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-lived Assets, (“SFAS 144”). The Company evaluates long-lived assets for impairment based on the projected undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. During the years ended November 30, 2006 and 2005, the Company recorded $501.8 million and $20.5 million, respectively, of inventory adjustments, which included $280.5 million of homebuilding inventory valuation adjustments in 2006 (no adjustments in 2005), $152.2 million and $15.1 million, respectively, in 2006 and 2005 of write-offs of deposits and pre-acquisition costs related to land under option that the Company does not intend to purchase and $69.1 million and $5.4 million, respectively, in 2006 and 2005 of land inventory valuation adjustments. During the year ended November 30, 2004, the Company recorded $16.8 million of write-offs of deposits and pre-acquisition costs related to land under option that it does not intend to purchase. These valuation adjustments were calculated based on current market conditions and assumptions made by management, which may differ materially from actual results if market conditions change.

During 2006, 2005 and 2004, interest incurred by the Company’s homebuilding operations was $247.5 million, $172.9 million and $137.9 million, respectively; interest capitalized into inventories was $226.3 million, $171.1 million and $137.6 million, respectively; and interest expense primarily included in cost of homes sold and cost of land sold was $241.1 million, $187.2 million and $134.2 million, respectively.

Operating properties and equipment are recorded at cost and are included in other assets in the consolidated balance sheets. The assets are depreciated over their estimated useful lives using the straight-line method. At the time operating properties and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful life for operating properties is thirty years, for furniture, fixtures and equipment is two to ten years and for leasehold improvements is five years or the life of the lease, whichever is shorter.

Investment securities are classified as available-for-sale unless they are classified as trading or held-to-maturity. Securities classified as trading are carried at fair value and unrealized holding gains and losses are recorded in earnings. Securities classified as held-to-maturity are carried at amortized cost because they are purchased with the intent and ability to hold to maturity. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or losses on available-for-sale securities are reported as accumulated other comprehensive gain or loss, which is a separate component of stockholders’ equity, net of tax, until realized.

At November 30, 2006 and 2005, investment securities classified as held-to-maturity totaled $59.6 million and $32.1 million, respectively, and were included in the assets of the Financial Services segment. The held-to-maturity securities consist mainly of certificates of deposit and U.S. treasury securities. At November 30, 2006 and 2005, the Company had investment securities classified as trading that totaled $8.5 million and $8.7 million, respectively, and were included in other assets of the Homebuilding operations. The trading securities are comprised mainly of marketable equity mutual funds designated to approximate the Company’s liabilities under its deferred compensation plan. Additionally, at November 30, 2006, the Company had no investment securities classified as available-for-sale, compared to $8.9 million in the prior year included in other assets of the Homebuilding operations. The available-for-sale securities were comprised of municipal bonds with an original maturity of 20 years and were sold in 2006.

SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, (“SFAS 133”), as amended and interpreted, 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 value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income or loss 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 has various interest rate swap agreements, which effectively convert variable interest rates to fixed interest rates on $200.0 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 value in other liabilities in the consolidated balance sheets at November 30, 2006 and 2005. The related loss is deferred, net of tax, in stockholders’ equity as accumulated other comprehensive loss. The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS 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-rate debt being hedged is recorded based on fixed interest rates.

The Financial Services segment, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The segment enters into mortgage-backed securities (“MBS”) forward commitments and, to a lesser extent, MBS option contracts to protect the value of fixed rate-locked loan commitments and loans held-for-sale from fluctuations in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset related to the risk being hedged are recorded currently in earnings.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations. At November 30, 2006 and 2005, goodwill was $257.8 million and $253.1 million, respectively. During fiscal 2006, the Company’s goodwill had a net increase of $4.7 million due to an acquisition by the Financial Services segment and payment of contingent consideration related to prior period acquisitions. During fiscal 2005, the Company’s goodwill increased $13.8 million due to 2005 acquisitions and payment of contingent consideration related to prior period acquisitions. Goodwill is included in the assets of the Homebuilding segments ($196.6 million and $195.2 million, respectively, at November 30, 2006 and 2005) and the assets of the Financial Services segment ($61.2 million and $58.0 million, respectively, at November 30, 2006 and 2005) in the consolidated balance sheets.

The Company reviews goodwill annually (or whenever indicators of impairment exist) 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, 2006 and determined that goodwill was not impaired. No impairment was recorded during the years ended November 30, 2006, 2005 or 2004. As of November 30, 2006 and 2005, there were no material identifiable intangible assets, other than goodwill.

Income taxes are accounted for in accordance with SFAS No. 109,Accounting for Income Taxes,(“SFAS 109”). Under SFAS 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.

Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company constantly monitors the warranty reserve and makes adjustments to its pre-existing warranties in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in other liabilities in the consolidated balance sheets. The activity in the Company’s warranty reserve was as follows:

The Company has 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 consolidated financial statements and the other partners’ equity is recorded as minority interest. At November 30, 2006 and 2005, minority interest was $55.4 million and $78.2 million, respectively. Minority interest expense, net was $13.4 million, $45.0 million and $10.8 million, respectively, for the years ended November 30, 2006, 2005 and 2004.

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. 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.

Loan origination revenues, net of direct origination costs ~~are recognized when the related loans are sold. Gains~~and gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and shipped to an investor. Premiums from title insurance policies are recognized as revenue on the effective dates of the policies. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

~~Mortgage loans~~Loans held-for-sale by the Financial Services ~~Division~~segment that are designated as hedged assets are carried at fair ~~market~~ value because 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~~segment 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. Substantially all of these loans were sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis; however, the Company remains liable for certain limited representations and warranties related to loan sales. 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 loans~~Loans for which the ~~Division~~segment 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 ~~mortgage~~ loans held-for-sale is recognized as earned over the term of the mortgage loans based on the contractual interest rates.

The ~~Division~~segment also provides an allowance for loan ~~losses when and if management determines that loans, or portions thereof, are uncollectible.~~losses. 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,~~credit worthiness and nature of underlying collateral, 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.

In ~~March 2004,~~June 2006, the ~~Securities~~FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of SFAS 109,(“FIN 48”). FIN 48 provides interpretive guidance for the financial statement recognition and ~~Exchange Commission released SEC Staff Accounting Bulletin (“SAB”) No. 105,~~~~Application~~measurement of ~~Accounting Principles to Loan Commitments~~~~. SAB No. 105 provides the SEC staff~~a tax position regarding the application of accounting principles generally accepted in the United States of America to loan commitments that relate to the origination of mortgage loans that will be held for resale. SAB No. 105 contains specific guidance on the inputs to a valuation-recognition model to measure loan commitments accounted for at fair market value. Previous accounting guidance required the commitmenttaken or expected to be recognized on the balance sheet at fair market value from its inception through its expiration or funding. SAB No. 105 requires that fair-value measurement include only differences between the guaranteed interest ratetaken in ~~the loan commitment and~~ a market interest rate, excluding any expected future cash flows related to the customer relationship or loan servicing. In addition, SAB No. 105 requires the disclosure of both the accounting policy for loan commitments, including the methods and assumptions used to estimate the fair market value of loan commitments, and any associated hedging strategies. SAB No. 105tax return. FIN 48 is effective for all loan commitments accounted for as derivatives and entered into subsequent to March 31, 2004. The implementation of SAB No. 105 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Infiscal years beginning after December ~~2004, the FASB issued SFAS No. 123(R),~~~~Share-Based Payment~~. SFAS No. 123(R) establishes accounting standards for transactions in which a company exchanges its equity instruments for goods or services. In particular, this Statement will require companies to record compensation expense for all share-based payments, such as employee stock options, at fair market value. This Statement’s effective date is the first quarter of the first fiscal year that begins after June 15, ~~2005~~2006 (the Company’s fiscal ~~quarter~~year beginning December 1, ~~2005)~~2007). The Company is currently reviewing the effect of this ~~Statement~~Interpretation on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (the Company’s fiscal year beginning December 1, 2007), and interim periods within those fiscal years. SFAS 157 is not expected to materially affect how the Company determines fair value.

In September 2006, the Securities and Exchange Commission (“SEC”) Staff issued Staff Accounting Bulletin 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected financial statement misstatements should be considered in current year financial statements. SAB 108 requires registrants to quantify misstatements using both balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relative quantitative and qualitative factors. SAB 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006 (the Company’s fiscal year ended November 30, 2006). SAB 108 did not have an effect on the Company’s consolidated financial statements.

In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8,Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums,(“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007 (the Company’s fiscal year beginning December 1, 2007). The effect of this EITF is not expected to be material to the Company’s consolidated financial statements.

Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2006 presentation. These reclassifications had no impact on reported net earnings.

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

During ~~2004,~~2006, the Company did not have any material acquisitions. During 2005, the Company expanded its presence through homebuilding acquisitions in all of its ~~regions, expanded its mortgage operations in Oregon~~homebuilding segments and ~~Washington and expanded its title and closing business into Minnesota.~~Homebuilding Other. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid ~~$105.7 million, net of cash acquired.~~$416.0 million. The results of operations of ~~the companies acquired by the Company~~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 ~~period acquisitions~~to 2005 was ~~$26.7~~$13.8 million.

During ~~2003,~~2004, the Company expanded its presence through homebuilding acquisitions in ~~California and South Carolina through~~all of its homebuilding ~~acquisitions,~~segments, expanded its mortgage operations in Oregon and ~~purchased a title company, which~~Washington and expanded ~~the Company’s~~its title and closing business into Minnesota through the ~~Chicago market.~~acquisition of Title Protection, Inc. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid ~~$159.4~~$105.7 million, net of cash acquired. The results of operations of ~~the companies acquired by the Company~~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 ~~was~~is not ~~considered~~ material. Total goodwill associated with these acquisitions and contingent consideration related to acquisitions prior to ~~2003~~2004 was ~~$30.3~~$26.7 million.

The Company’s operating segments are aggregated into reportable segments in accordance with SFAS No. 131,Disclosures About Segments of an Enterprise and Related Information(“SFAS 131”), based primarily upon similar economic characteristics, geography and product type. The Company’s reportable segments consist of:

Information about homebuilding activities in states which are not economically similar to other states in the ~~Company expanded its operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened its positions~~same geographic area is grouped under “Homebuilding Other,” which is not considered a reportable segment in ~~several~~accordance with SFAS 131.

Operations of ~~its existing markets through~~ 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 was not considered material. Total goodwill associated with these homebuilding acquisitions, as well as the Company’s acquisition of a title company and contingent consideration related to acquisitions prior to 2002 was $83.6 million.

~~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 Division’s operations~~ primarily include the sale and construction of single-family attached and detached homes, and to a lesser extent, multi-level buildings, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. ~~At November 30, 2004, the Company had~~The Company’s reportable homebuilding segments, and all other homebuilding operations not required to be reported separately, have divisions located in the following states: ~~Arizona, California, Colorado,~~

East: Florida, ~~Illinois,~~ Maryland, ~~Minnesota, Nevada,~~ New Jersey and Virginia

Other: Illinois, Minnesota, New York, North Carolina and South Carolina ~~Texas and Virginia.~~

~~The~~Operations of the Financial Services ~~Division provides~~segment include mortgage financing, title insurance, ~~title and~~ closing services and other ancillary services (including personal lines insurance, ~~agency services~~high-speed Internet and cable television) for both buyers of the Company’s homes and others. Substantially all of the loans it

~~originates are~~the Financial Services segment originated were sold in the secondary mortgage market on a servicing released non-recourse ~~basis.~~basis; however, the Company remains liable for certain limited representations and warranties related to loan sales. The Financial Services ~~Division also provides~~segment operates generally in the same states as the Company’s homebuilding segments, as well as other states.

Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes. Operating earnings for the homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings (loss) from unconsolidated entities and management fees and other income, net, less the cost of homes and land sold, selling, general and administrative expenses and minority interest expense, net. Operating earnings for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and other ancillary services (including personal lines insurance, high-speed Internet and cable ~~television~~television) less the cost of such services ~~to residents of the Company’s communities~~ and ~~others. At November 30, 2004,~~certain selling, general and administrative expenses incurred by the Financial Services ~~Division operated~~segment.

Each reportable segment follows the same accounting policies described in Note 1—“Summary of Significant Accounting Policies” to the ~~following markets: Arizona, California, Colorado, District~~consolidated financial statements. Operational results of ~~Columbia, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Virginia, Washington and Wisconsin.~~each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented.

Financial ~~information related to the Company’s reportable operating segments was as follows:~~

~~The following table sets forth additional financial~~ information relating to the Company’s ~~reportable operating segments:~~operations was as follows:

During ~~2004, 2003~~the year ended November 30, 2006, the Company recorded $501.8 million of inventory valuation adjustments, which included $280.5 million of homebuilding inventory valuation adjustments ($157.0 million, $27.1 million, $79.0 million and ~~2002,~~$17.4 million, respectively, in the Company’s Homebuilding East, Central and

West segments and Homebuilding Other), $152.2 million of write-offs of deposits and pre-acquisition costs ($80.5 million, $2.9 million, $44.0 million and $24.8 million, respectively, in the Company’s Homebuilding East, Central and West segments and Homebuilding Other) related to 24,235 homesites under option that the Company does not intend to purchase and $69.1 million of land inventory valuation adjustments ($24.7 million, $17.3 million and $27.1 million, respectively, in the Company’s Homebuilding East and Central segments and Homebuilding Other). During the year ended November 30, 2006, the Company also recorded $126.4 million of valuation adjustments ($25.5 million, $92.8 million and $8.1 million, respectively, in the Company’s Homebuilding East and West segments and Homebuilding Other) to the Company’s investments in unconsolidated entities.

During 2006, 2005 and 2004, interest included in the homebuilding segments’ and Homebuilding ~~Division’s~~Other’s cost of homes sold was ~~$128.0~~$207.5 million, ~~$135.9~~$168.8 million and ~~$136.9~~$128.0 million, respectively. During ~~2004, 2003~~2006, 2005 and ~~2002,~~2004, interest included in the homebuilding segments’ and Homebuilding ~~Division’s~~Other’s cost of land sold was ~~$5.8~~$12.4 million, ~~$3.2~~$16.5 million and ~~$4.8~~$5.8 million, respectively. All other interest related to the homebuilding segments and Homebuilding ~~Division~~Other is included in management fees and other income, net.

The Company’s ~~receivables~~accounts receivable result primarily from the sale of land. The Company performs ongoing credit evaluations of its customers. The Company generally does not require collateral for accounts receivable. ~~Notes~~Mortgages and 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.

Summarized condensed financial information on a combined 100% basis related to unconsolidated entities in which the Company has investments that are accounted for primarily by the equity method was as follows:


*(In thousands)*	November 30,
*(In thousands)*	2004		2003
				November 30,
				2006		2005
				(In thousands)
Assets:
Cash	$	380,213	219,919	$	276,501	334,530
Inventories		3,305,999	1,701,318		8,955,567	7,615,489
Other assets		527,468	166,837		868,073	875,741

	$	4,213,680	2,088,074	$	10,100,141	8,825,760

Liabilities and equity:
Accounts payable and other liabilities	$	534,336	300,530	$	1,387,745	1,004,940
Notes and mortgages payable		1,884,334	901,822		5,001,625	4,486,271
Equity of:
The Company		856,422	390,334		1,447,178	1,282,686
Others		938,588	495,388		2,263,593	2,051,863

	$	4,213,680	2,088,074	$	10,100,141	8,825,760


*(In thousands)*	Years Ended November 30,
*(In thousands)*	2004		2003	2002
					Years Ended November 30,
					2006			2005	2004
					(In thousands)
Revenues	$	1,641,018	1,314,674	939,847	$	2,651,932		2,676,628	1,641,018
Costs and expenses		1,199,243	938,981	780,093		2,588,196		2,020,470	1,199,243

Net earnings of unconsolidated entities	$	441,775	375,693	159,754	$	63,736		656,158	441,775

Company’s share of net earnings	$	90,739	81,937	42,651
Company’s share of net earnings (loss)—recognized (1)					$	(12,536	)	133,814	90,739

~~At November 30, 2004, the Company’s equity investment in these unconsolidated entities did not exceed 50%.~~ The Company’s partners generally are unrelated homebuilders, land ~~sellers~~owners/developers and financial or other ~~real estate entities.~~strategic partners. The unconsolidated entities follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these unconsolidated entities generally in accordance with its ownership interests. In many instances, the Company is appointed as the

unconsolidated entities and receives management fees and/or reimbursement of expenses for performing this function. During ~~2004, 2003~~2006, 2005 and ~~2002,~~2004, the Company received management fees and reimbursement of expenses from the unconsolidated entities totaling ~~$40.6~~$72.8 million, ~~$39.0~~$58.6 million and ~~$29.2~~$40.6 million, respectively.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the unconsolidated entities. Option prices are generally negotiated prices that approximate fair ~~market~~ value when the ~~options are entered into.~~Company receives the options. During 2006, 2005 and 2004, ~~2003 and 2002, $547.6~~$742.5 million, ~~$460.5~~$431.2 million and ~~$419.3~~$547.6 million, respectively, of the unconsolidated entities’ revenues were from land sales to the Company. The Company does not include in its equity in earnings (loss) from unconsolidated entities its pro rata share of unconsolidated entities’ earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the unconsolidated entities. This in effect defers recognition of ~~its~~the Company’s share of the unconsolidated entities’ earnings related to these sales until the Company delivers a home ~~is delivered~~ and title passes to a third-party homebuyer.

The unconsolidated entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. As of November 30, 2006, the Company’s equity in these unconsolidated entities represented 39% of the entities’ total equity. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities.

The Company’s summary of guarantees related to its unconsolidated entities was as follows:

The maintenance amounts above are the Company’s maximum exposure of loss, which assumes that the fair value of the underlying collateral is zero. As of November 30, 2006 and 2005, the fair values of the maintenance guarantees and repayment guarantees were not material.

In ~~some instances,~~addition, the Company and/or its partners ~~have provided guarantees~~occasionally grant liens on ~~debt of certain unconsolidated entities on~~their interest in a pro rata basis. At November 30, 2004, the Company had repayment guarantees of $161.3 million and limited maintenance guarantees of $319.3 million of unconsolidated entity debt ($200.0 million of the limited maintenance guarantees relatedjoint venture in order to ~~NWHL Investment, LLC (“NWHL”)).~~help secure a loan to that joint venture. When the Company and/or its partners provide ~~a guarantee,~~guarantees, the unconsolidated entity generally receives more favorable terms from its lenders than would otherwise be available to it. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral. The ~~limited~~ maintenance guarantees only apply if ~~an unconsolidated entity defaults on its loan arrangements and~~ the value ofor 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 value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated entity and increase the Company’s share of any funds the unconsolidated entity distributes. AtDuring 2006, amounts paid under the Company’s maintenance guarantees were not material. As of November 30, ~~2004,~~2006, if there ~~were no assets held as collateral that, upon the~~was an occurrence of ~~any~~a triggering event or condition under a guarantee, the ~~Company could obtain and liquidate~~collateral would be sufficient to ~~recover all or a portion of~~repay the ~~amounts to be paid under a guarantee.~~obligation.

In November 2003, the Company and LNR Property Corporation (“LNR”) each contributed its 50% interests in certain of its jointly-owned unconsolidated entities 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, which in January 2004 purchased 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 ($132 million at November 30, 2006) and obtained options to purchase an additional 623 homesites from 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.

In 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 ~~$1.3~~$1.5 billion and ~~$709.5~~$888.8 million, respectively, at November 30, ~~2004~~2006 and ~~$380.7 million~~$1.4 billion and ~~$122.3~~$767.5 million, respectively, at November 30, ~~2003.~~2005. The Company’s investment in Merged LandSource was ~~$318.7~~$329.1 million and ~~$128.8~~$332.7 million at November 30, ~~2004~~2006 and ~~2003,~~2005, respectively. In December 2006, subsequent to the Company’s fiscal year end, the Company and LNR entered into an agreement to admit a new strategic partner into their Merged LandSource joint venture (See Note 22).


*(In thousands)*	November 30,
*(In thousands)*	2004			2003
						November 30,
						2006			2005
						(In thousands)
Operating properties						$	13,120		12,203
Leasehold improvements							33,896		22,027
Furniture, fixtures and equipment	$	32,190		38,354			45,922		37,966
Community recreational facilities		7,126		6,083
Leasehold improvements		18,170		13,032

		57,486		57,469			92,938		72,196
Accumulated depreciation and amortization		(36,175	)	(36,631	)		(50,061	)	(41,544	)

	$	21,311		20,838		$	42,877		30,652

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


*(Dollars in thousands)*	November 30,
*(Dollars in thousands)*	2004		2003
				November 30,
				2006		2005
				(Dollars in thousands)
7⁵/8% senior notes due 2009				$	277,830	276,299
5.125% senior notes due 2010					299,766	299,715
5.95% senior notes due 2011					249,415	—
5.95% senior notes due 2013					345,719	345,203
5.50% senior notes due 2014					247,559	247,326
5.60% senior notes due 2015					501,957	502,127
6.50% senior notes due 2016					249,683	—
Senior floating-rate notes due 2007					—	200,000
Senior floating-rate notes due 2009					300,000	300,000
5.125% zero-coupon convertible senior subordinated notes due 2021	$	274,623	261,012		—	157,346
5.95% senior notes due 2013		344,717	344,260
7 5/8% senior notes due 2009		274,890	273,593
9.95% senior notes due 2010		304,009	301,995
5.50% senior notes due 2014		247,105	—
Senior floating-rate notes due 2009		300,000	—
Senior floating-rate notes due 2007		200,000	—
Term loan B		—	296,000
U.S. Home senior notes		—	2,367
Mortgage notes on land and other debt		75,670	72,990		141,574	264,756

	$	2,021,014	1,552,217	$	2,613,503	2,592,772

In ~~May 2004,~~July 2006, the Company ~~amended and restated~~replaced its senior unsecured ~~credit facilities~~Credit Facility (the “Credit ~~Facilities”~~Facility”) ~~to provide the Company~~ with ~~up to $1.2 billion of financing.~~a new senior unsecured revolving credit facility (the “New Facility”). The Credit Facilities also include access to an additional $190 million via an accordion feature, under which the Credit Facilities may be increased to $1.4 billion, subject to additional commitments. The Credit Facilities, including $115 million committed in October 2004 under the accordion feature, consistNew Facility consists of a ~~$927.9 million~~$2.7 billion revolving credit facility maturing in ~~May 2009 and a $397.6 million 364-day revolving credit facility maturing in 2005. Subsequent~~2011. The New Facility also includes access to ~~November 30, 2004, the Company received~~an additional $0.5 billion of financing through an accordion feature, subject to additional commitments, ~~of $70 million~~for a maximum aggregate commitment under the ~~accordion feature. Prior to the amendment, in March 2004, the Company repaid the remaining outstanding balance~~New Facility of ~~the term loan B portion of the Credit Facilities.~~$3.2 billion. The ~~Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in May 2009. The Credit Facilities are~~New Facility is guaranteed ~~on a joint and several basis~~ by substantially all of the Company’s subsidiaries other than finance company subsidiaries (which include mortgage and title insurance agency subsidiaries). Interest rates on outstanding borrowings are LIBOR-based, ~~and the~~with margins ~~are set by a pricing grid with thresholds that adjust~~determined based on changes in the Company’s ~~leverage ratio and~~credit ratings, or an alternate base rate, as described in the ~~Credit Facilities’~~ credit ~~ratings.~~agreement. At November 30, ~~2004,~~2006, the Company had no ~~amounts were~~ outstanding balance under the New Facility. At November 30, 2005, the Company had no outstanding balance under the Credit ~~Facilities.~~Facility.

~~At November 30, 2004, the~~The Company had letters of credit outstanding in the amount of $787.4 million. The majority of these letters of credit is posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities or is posted in lieu of cash deposits on option contracts. Of the

~~Company’s total letters of credit outstanding, $251.4 million were collateralized against certain borrowings available under the Credit Facilities.~~

~~In September 2004, the Company entered into~~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 ~~transaction,~~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 ~~paying~~their principal repayment on their ~~performance linked~~performance-linked notes. No material amounts have been drawn to date on any letters of credit issued under the LC Facility.

At November 30, ~~2004,~~2006, the Company had letters of credit outstanding in the amount of ~~$196.4~~$1.4 billion, which includes $190.8 million outstanding under the LC Facility. 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 outstanding, $496.9 million were collateralized against certain borrowings available under the New Facility.

In November 2006, the Company called its $200 million senior floating-rate notes due 2007 (the “Floating-Rate Notes”). The redemption price was $200.0 million, or 100% of the principal amount of the Floating-Rate Notes outstanding, plus accrued and unpaid interest as of the redemption date.

In April 2006, substantially all the outstanding 5.125% zero-coupon convertible senior subordinated notes due 2021 (the “Convertible Notes”) were converted by the noteholders into 4.9 million Class A common shares. The Convertible Notes were convertible at a rate of 14.2 shares of the Company’s Class A common stock per $1,000 principal amount at maturity. Convertible Notes not converted by the noteholders were not material and were redeemed by the Company on April 4, 2006. The redemption price was $468.10 per $1,000 principal amount at maturity, which represented the original issue price plus accrued original issue discount to the redemption date.

In April 2006, the Company issued $250 million of 5.95% senior notes due 2011 and $250 million of 6.50% senior notes due 2016 (collectively, the “New Senior Notes”) at a price of 99.766% and 99.873%, respectively, in a private placement. Proceeds from the offering of the New Senior Notes, after initial purchaser’s discount and expenses, were $248.7 million and $248.9 million, respectively. The Company added the proceeds to its working capital to be used for general corporate purposes. Interest on the New Senior Notes is due semi-annually. The New Senior Notes are unsecured and unsubordinated, and substantially all of the Company’s subsidiaries other than finance company subsidiaries guarantee the New Senior Notes. In October 2006, the Company completed an exchange of the New Senior Notes for substantially identical notes registered under the Securities Act of 1933 (the “Exchange Notes”), with substantially all of the New Senior Notes being exchanged for Exchange Notes. At November 30, 2006, the carrying value of the Exchange Notes was $499.1 million.

In March ~~and April 2004,~~2006, the Company ~~issued~~initiated a ~~total~~commercial paper program (the “Program”) under which the Company may, from time-to-time, issue short-term unsecured notes in an aggregate amount not to exceed $2.0 billion. This Program has allowed the Company to obtain more favorable short-term borrowing rates than it would obtain otherwise. The Program is exempt from the registration requirements of the Securities Act of 1933. Issuances under the Program are guaranteed by all of the Company’s wholly-owned subsidiaries that are also guarantors of its New Facility. At November 30, 2006, no amounts were outstanding under the Program.

The Company also has an agreement with a financial institution whereby it can enter into short-term, unsecured, fixed-rate notes from time-to-time. At November 30, 2006, no amounts were outstanding related to these notes.

In September 2005, the Company sold $300 million of 5.125% senior ~~floating-rate~~ notes due ~~2009~~2010 (the ~~“Initial~~“5.125% Senior Notes”)~~, which are callable~~ at ~~par beginning~~a price of 99.905% in ~~March 2006.~~a private placement. Proceeds from the ~~offerings,~~offering, after ~~underwriting~~initial purchaser’s discount and expenses, were ~~$298.5~~$298.2 million. The Company ~~used~~added 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 ~~Initial~~5.125% Senior Notes is ~~three-month LIBOR plus 0.75% (3.16% as of November 30, 2004) and is payable quarterly, compared to the term loan B interest of three-month LIBOR plus 1.75%.~~due semi-annually. The ~~Initial~~5.125% Senior Notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries other than finance company subsidiaries guaranteed the 5.125% Senior Notes. In 2006, the Company exchanged the 5.125% Senior Notes for registered notes. The registered notes have substantially identical terms as the 5.125% Senior Notes, except that the registered notes do not include transfer restrictions that are applicable to the 5.125% Senior Notes. At November 30, ~~2004,~~2006 and 2005, the carrying value of the ~~Initial~~5.125% Senior Notes was ~~$300.0 million.~~$299.8 million and $299.7 million, respectively.

In ~~June 2004,~~July 2005, the Company ~~filed~~sold $200 million of 5.60% Senior Notes due 2015 (the “Senior Notes”) at a ~~registration statement related~~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 ~~an offer~~the Company’s working capital to ~~exchange fully guaranteed senior floating-rate notes~~be used for general corporate purposes. Interest on the Senior Notes is due ~~2009, series B (the “New Notes”) for the Initial Notes.~~semi-annually. The ~~New~~Senior Notes ~~would be substantially identical with the Initial Notes, except that the New Notes would be guaranteed by~~are unsecured and unsubordinated. Substantially all of the Company’s ~~wholly-owned~~ subsidiaries ~~including subsidiaries formed or acquired by the Company after October 9, 2001,~~ other than finance company ~~subsidiaries.~~ subsidiaries guaranteed the Senior Notes. At November 30, 2006 and 2005, the carrying value of the Senior Notes sold in April and July 2005 was $502.0 million and $502.1 million, respectively.

In ~~December 2004, the registration statement became effective. In January~~May 2005, the Company ~~exchanged~~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 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 for the April and July 2005 Senior Notes. 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 ~~Initial Notes for~~Company’s subsidiaries other than finance company subsidiaries guaranteed the ~~New~~Senior Notes.

In August 2004, the Company 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. The Company used the proceeds to repay borrowings under its Credit ~~Facilities.~~Facility. Interest on the 5.50% senior notes is due semi-annually. The 5.50% senior notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries, other than finance company subsidiaries, guaranteed the 5.50% senior notes. At November 30, ~~2004,~~2006 and 2005, the carrying value of the 5.50% senior notes was ~~$247.1 million.~~$247.6 million and $247.3 million, respectively.

In ~~August~~March and April 2004, the Company ~~also sold $200~~issued a total of $300 million of senior floating-rate notes due ~~2007~~2009 (the “Floating Rate Notes”), in a ~~private placement. The senior floating-rate notes~~registered offering, which are callable at par beginning in ~~February~~March 2006. Proceeds from the ~~offering,~~offerings, after ~~initial purchaser’s~~underwriting discount and expenses, were ~~$199.3~~$298.5 million. The Company used the proceeds to ~~repay borrowings under its~~partially prepay a portion of the Credit ~~Facilities.~~Facilities and added the remainder to the Company’s working capital to be used for general corporate purposes. Interest on the ~~senior floating-rate notes~~Floating Rate Notes is three-month LIBOR plus ~~0.50% (2.91%~~0.75% (6.15% as of November 30, ~~2004)~~2006) and is payable quarterly. The ~~senior floating-rate notes~~Floating Rate Notes are unsecured and unsubordinated. Substantially all of the Company’s subsidiaries, other than finance company subsidiaries, guaranteed the ~~senior floating-rate notes.~~Floating Rate Notes. At November 30, ~~2004,~~2006 and 2005, the carrying value of the ~~senior floating-rate notes~~Floating Rate Notes was ~~$200.0~~$300.0 million.

In February 2003, the Company issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%. Proceeds from the offering, after underwriting discount and expenses, were $341.7 million. The Company used approximately $116 million of the proceeds to repay outstanding indebtedness and added the remainder to its general working capital. The senior notes are guaranteed on a joint and several basis by substantiallySubstantially all of the Company’s subsidiaries, other than finance company subsidiaries, ~~primarily engaged in mortgage and title reinsurance activities.~~guaranteed the 5.95% senior notes. At November 30, ~~2004~~2006 and ~~2003,~~2005, the carrying value of the 5.95% senior notes was ~~$344.7~~$345.7 million and ~~$344.3~~$345.2 million, respectively.

In ~~June 2003,~~February 1999, the Company ~~called its 3 7/8% zero-coupon~~issued $282 million of 7⁵/8% senior ~~convertible debentures~~notes 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 $20.46 per share of Class A common stock. In 2003, substantially2009. Substantially all of the ~~Debentures were converted into 13.6~~Company’s subsidiaries, other than finance company subsidiaries, guaranteed the 7⁵/8% senior notes. At November 30, 2006 and 2005, the carrying value of the 7⁵/8% senior notes was $277.8 million ~~shares of Class A common stock (adjusted for the January 2004 two-for-one stock split).~~and $276.3 million, respectively.

In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, zero-coupon convertible senior subordinated notes due 2021 (the “Notes”) with a face amount 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%. Proceeds from the issuance, after underwriting discount, were $224.3 million. The Company used 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 14.2 Class A common shares per $1,000 face amount of Notes at maturity, which would total 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.64

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 two rating 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) 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).NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At November 30, 2004 and 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 2004 and 2003 (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) exceeded 110% ($33.96 per share at November 30, 2004) of the accreted conversion price. These shares were not included in the calculation of diluted earnings per share for the year ended November 30, 2002 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 Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company’s Class A 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, 2004 and 2003, the carrying value of outstanding Notes, net of unamortized original issue discount, was $274.6 million and $261.0 million, respectively.

~~At November 30, 2004,~~ the Company had mortgage notes on land and other debt bearing interest at rates up to ~~25.0%~~10.0% with an average interest rate of ~~6.2%~~6.1%. The notes are due through ~~2009~~2010 and are collateralized by land.

At November 30, ~~2004~~2006 and ~~2003,~~2005, the carrying value of the mortgage notes on land and other debt was ~~$75.7~~$141.6 million and ~~$73.0~~$264.8 million, respectively.

The minimum aggregate principal maturities of senior notes and other debts payable during the five years subsequent to November 30, ~~2004~~2006 are as follows:


	Debt Maturities		Debt Maturities
	*(In thousands)*		(In thousands)
2005	$	60,821
2006		14,687
2007		200,052	$	87,298
2008		59		35,949
2009		574,941		577,991
2010				317,932
2011				249,415

The remaining principal obligations are due subsequent to November 30, ~~2009.~~2011. The Company’s debt arrangements contain certain financial covenants with which the Company was in compliance at November 30, ~~2004.~~2006.

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

At November 30, ~~2004,~~2006, the Financial Services ~~Division~~segment had warehouse lines of credit totaling ~~$950 million, which included a $275 million temporary increase that expired in December 2004,~~$1.4 billion to fund its mortgage loan activities. Borrowings under the ~~facilities~~lines of credit were ~~$872.8 million~~$1.1 billion and ~~$714.4 million~~$1.2 billion, respectively, at November 30, ~~2004~~2006 and ~~2003, respectively,~~2005 and were collateralized by mortgage loans and receivables on loans

sold but not yet funded by investors with outstanding principal balances of ~~$894.7 million~~$1.3 billion at November 30, 2006 and ~~$742.2 million, respectively.~~2005. There are several interest rate-pricing options, which fluctuate with market rates. The effective interest rate on the ~~facilities~~warehouse lines of credit at November 30, ~~2004~~2006 and ~~2003~~2005 was ~~2.9%~~6.1% and ~~1.7%~~5.1%, respectively. The warehouse lines of credit mature ~~during 2005~~in September 2007 ($700 million) and in April 2008 ($670 million), at which time the ~~Division~~Company expects the facilities to be renewed. At November 30, ~~2004~~2006 and ~~2003,~~2005, the ~~Division~~segment had

advances under a conduit funding agreement with a major financial institution amounting to ~~$5.2~~$1.7 million and ~~$0.6~~$10.7 million, respectively. Borrowings under this agreement are collateralized by mortgage loans and had an effective interest rate of ~~3.2%~~6.2% and ~~1.9%~~5.0% at November 30, ~~2004~~2006 and ~~2003,~~2005, respectively. The ~~Division~~segment also ~~had~~has a ~~$20~~$25 million revolving line of credit ~~with a bank~~ that matures in ~~July 2005,~~May 2007, at which time the ~~Division~~segment expects the line of credit to be renewed. The line of credit is collateralized by certain assets of the ~~Division~~segment and stock of certain title subsidiaries. Borrowings under the line of credit were ~~$18.9~~$23.7 million and ~~$19.4~~$23.6 million at November 30, ~~2004~~2006 and ~~2003,~~2005, respectively, and had an effective interest rate of ~~3.1%~~6.3% and ~~2.1%~~4.9% at November 30, ~~2004~~2006 and ~~2003,~~2005, respectively. ~~The Division’s notes and other debts payable totaling $896.9 million are due in 2005.~~

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, 2004 and 2003, the balances outstanding for the bonds and notes payable were $3.4 million and $5.8 million, respectively. The borrowings mature in 2015 through 2018 and carry interest rates ranging from 8.8% to 11.7%. The annual principal repayments are dependent upon collections on the underlying mortgages, including prepayments, and therefore cannot be reasonably determined.11. Income Taxes


*(In thousands)*	Years Ended November 30,
*(In thousands)*	2004		2003		2002
From continuing operations
							Years Ended November 30,
							2006			2005		2004
							(In thousands)
Current:
Federal	$	440,761	448,444		295,052		$	484,731		717,109		440,241
State		51,148	58,362		41,200			62,054		87,955		51,082

		491,909	506,806		336,252			546,785		805,064		491,323

Deferred:
Federal		71,621	(45,395	)	(5,036	)		(173,616	)	9,232		71,615
State		9,918	(5,748	)	(636	)		(24,389	)	988		9,917

		81,539	(51,143	)	(5,672	)		(198,005	)	10,220		81,532

	$	573,448	455,663		330,580		$	348,780		815,284		572,855

From discontinued operations
							Years Ended November 30,
							2006			2005		2004
							(In thousands)
Current:
Federal							$	—		5,791		520
State								—		731		66

								—		6,522		586

Deferred:
Federal								—		(5	)	6
State								—		(1	)	1

								—		(6	)	7

							$	—		6,516		593

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~~were as follows:


*(In thousands)*	November 30,
*(In thousands)*	2004		2003
				November 30,
				2006		2005
				(In thousands)
Deferred tax assets:
Acquisition adjustments	$	12,715	18,290
Reserves and accruals		187,531	168,444	$	227,045	235,744
Inventory valuation adjustments					208,433	—
Capitalized expenses		65,708	43,141		139,695	83,727
Net operating loss and capital loss carryforwards, net of tax		4,379	4,379
Investments in unconsolidated entities		21,092	1,788		18,456	35,508
Other		15,947	36,293		65,227	26,463

Total deferred tax assets		307,372	272,335		658,856	381,442

Deferred tax liabilities:
Acquisition adjustments		10,623	6,868
Reserves and accruals		6,737	2,584
Capitalized expenses		10,290	38,163
Installment sales		1,413	1,413
Section 461 deductions and other		151,471	45,529
Completed contract reporting differences					235,742	190,795
Section 461(f) deductions					34,960	34,960
Other					80,954	44,592

Total deferred tax liabilities		180,534	94,557		351,656	270,347

Net deferred tax asset	$	126,838	177,778	$	307,200	111,095

~~The~~At November 30, 2006 and 2005, the Homebuilding ~~Division’s~~segments had a net deferred tax asset ~~amounting to $120.3~~of $300.2 million and ~~$166.7~~$104.5 million, ~~at November 30, 2004 and 2003,~~ respectively, which is included in other assets in the consolidated balance sheets.

At November 30, ~~2004~~2006 and ~~2003,~~2005, the Financial Services ~~Division~~segment had a net deferred tax asset of ~~$6.5~~$7.0 million and ~~$11.1~~$6.6 million, respectively, which is included in the assets of the Financial Services ~~Division.~~segment.

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~~

The American Jobs Creation Act 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 allowance2004 provided a tax deduction on qualified domestic production activities under Internal Revenue Code Section 199. The tax benefit from this deduction resulted in a ~~decrease to goodwill.~~0.75% reduction in the effective tax rate for the year ended November 30, 2006.

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


	Percentage of Pre-tax Earnings						Percentage of Pretax Earnings
	2004		2003		2002		2006		2005		2004
Statutory rate	35.00	%	35.00	%	35.00	%	35.00	%	35.00	%	35.00	%
State income taxes, net of federal income tax benefit	2.75	%	2.75	%	2.75	%	2.75	%	2.75	%	2.75	%
Internal Revenue Code Section 199 benefit							(0.75	)%	—		—

Effective rate	37.75	%	37.75	%	37.75	%	37.00	%	37.75	%	37.75	%

Basic and diluted earnings per share for the years ended November 30, ~~2004, 2003~~2006, 2005 and ~~2002~~2004 were calculated as follows:

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

Options to purchase ~~2.3~~3.1 million shares and 1.7 million shares, respectively, in total of Class A and Class B common stock were outstanding and anti-dilutive atfor the years ended November 30, 2006 and 2004. ~~Anti-dilutive~~For the year ended November 30, 2005, anti-dilutive options outstanding ~~at November 30, 2003 and 2002~~ were not material.

In 2001, the Company issued 5.125% zero-coupon convertible senior subordinated notes due ~~2021.~~2021, (“Convertible Notes”). The indenture relating to the ~~notes provides~~Convertible Notes provided that the ~~notes are~~Convertible Notes were 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 14.2 Class A common shares per $1,000 face amount of notes at maturity, which would total 9.0 million ~~shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split).~~shares. 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~~In April 2006, substantially all of the ~~notes for redemption; b)~~Company’s outstanding Convertible Notes were converted by the ~~initial credit ratings assigned~~noteholders into 4.9 million Class A common shares. Convertible Notes not converted by the noteholders were not material and were redeemed by the Company on April 4, 2006. During the year ended November 30, 2005, $288.7 million face value of Convertible Notes were converted to ~~the notes by any two of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings are two rating levels below the initial rating; c) a distribution to all holders~~4.1 million shares of the Company’s Class A common ~~stock~~stock. The weighted average amount of ~~options expiring within 60 days entitling~~shares issued upon conversion is included in the ~~holders to purchase common stock for less than its quoted price; or d) a distribution to all holders~~calculation of ~~the Company’s Class A common stock of common stock, assets, debt, securities or rights to purchase securities with a~~basic earnings per share ~~value exceeding 15%~~from the date of ~~the closing price of the Class A common stock on the day preceding the declaration date for the distribution.~~

1.5 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, 2006, compared to 7.5 million and 9.0 million shares for the years ended 2005 and 2004, ~~because~~respectively, related to the ~~average closing price~~dilutive effect of the Company’s Class A common stock over the last twenty trading days of each of the Company’s fiscal quarters through November 30, 2004 exceeded 110% ($33.96 per share as of November 30, 2004) of the accreted conversion price. The calculation of diluted earnings per share included 4.5 million shares (adjusted for the April 2003 10% Class B distribution and January 2004 two-for-one distribution) 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 year ended November 30, 2002 because the contingencies discussed above were not met.Convertible Notes prior to conversion.

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

~~12.~~

~~Capital Stock~~

The Company’s effective tax rate was 37.00% in 2006 and 37.75% in both 2005 and 2004.

Accumulated other comprehensive loss consisted of the following at November 30, 2006 and 2005:

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, ~~2004.~~2006.

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 stockDuring 2006, 2005 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 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 payable to~~ stockholders ~~of record on January 6, 2004. The additional shares were distributed on January 20, 2004. All share and~~received per share ~~amounts (except authorized shares, treasury shares~~annual dividends of $0.64, $0.57 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.~~

$0.51, respectively. In September ~~2004,~~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 ~~$0.55~~$0.64 per share per year (payable quarterly) from ~~$0.50~~$0.55 per share per year (payable quarterly). Dividend rates were adjusted for the Company’s January 2004 two-for-one stock split. During 2004 and 2003, Class A and Class B common stockholders received annual dividends of $0.51 per share and $0.14 per share, respectively. During 2002, Class A common stockholders received an annual dividend of $0.025 per share and Class B common stockholders received an annual dividend of $0.0225 per share, both payable quarterly.

As of November 30, ~~2004, Mr.~~2006, Stuart A. Miller, the Company’s President, ~~and~~ 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%~~49% voting power of the Company’s stock.

In June 2001, the Company’s Board of Directors ~~increased the previously~~ authorized a stock repurchase program to permit ~~future purchases~~the purchase of up to 20 million shares ~~(adjusted for the January 2004 two-for-one stock split)~~ of ~~the Company’s~~its outstanding ~~Class A~~ common stock. During ~~2003 and 2002,~~2006, the Company ~~did not~~repurchased a

total of 6.2 million shares of the outstanding common stock under the stock repurchase ~~any~~program for an aggregate purchase price including commissions of $320.1 million, or $51.59 per share. During 2005, the Company repurchased a total of 5.1 million shares of its outstanding Class A common stock inunder the ~~open market under these authorizations. In December 2003,~~stock repurchase program for an aggregate purchase price including commissions of $274.9 million, or $53.38 per share. During 2004, 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 the Company~~ repurchased a similar number of shares of its outstanding Class A common stock under the stock repurchase program for an aggregate purchase price including commissions of approximately $109.6 million, or $45.64 per ~~share (adjusted for the Company’s January 2004 two-for-one stock split).~~share. As of November 30, ~~2004, 17.6~~2006, 6.2 million ~~Class A~~shares of common ~~shares~~stock can be repurchased in the future under the program. ~~During December 2004 and January 2005,~~

In addition to the ~~Company repurchased a total of 1.9 million~~common shares ~~of its outstanding Class A common stock~~purchased under the Company’s stock repurchase program, ~~for an aggregate purchase price of $105.3 million, or $54.39 per share.~~

~~Additionally, during the year ended November 30, 2004,~~ the Company repurchased approximately ~~91,000~~0.1 million and 0.2 million Class A common shares during the years ended November 30, 2006 and 2005, respectively, related to the vesting of restricted stock and distributions of common stock from the Company’s deferred compensation plan.

At November 30, 2004, the Company had shelf registration statements under the Securities Act of 1933, as amended, relating to up to $320 million of equity or debt securities which it may sell for cash and up to $400 million of equity or debt securities which it could issue in connection with acquisitions of companies or interests in them, businesses or assets.

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~~segment’s warehouse lines of credit.

Under the Company’s 401(k) Plan (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 its contribution to the 401(k) Plan. This amount was $19.0 million in 2006, $12.0 million in 2005 and $10.3 million in 2004.

The ~~Lennar Corporation 2003 Stock Option and Restricted Stock Plan (the “2003 Plan”) provides~~Company has share-based awards outstanding under four different plans which provide for the granting of ~~Class A and Class B~~ stock options and stock appreciation rights and awards of restricted common stock (“nonvested shares”) to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights may not be less than the market value of the common stock on the date of the grant. No options granted under the ~~2003 Plan~~plans 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 ten years after the date of the grant. At November 30, 2004, there were 10,000 Class B 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 five years from the date of issuance.

~~The Lennar Corporation 2000 Stock Option and Restricted Stock Plan (the “2000 Plan”) provided~~Prior to December 1, 2005, the Company accounted for ~~the granting of Class A~~ stock ~~options and stock appreciation rights and~~option 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~~plans in accordance with the ~~date~~recognition and measurement provisions of APB 25 and related Interpretations, as permitted by SFAS 123. Share-based employee compensation expense was not recognized in the ~~grant. Thereafter, exercises are permitted in installments determined when options are granted. Each~~Company’s consolidated statements of earnings prior to December 1, 2005, as all stock option and stock appreciation right will expire on a date determined at the time of the grant, but not more than ten years after the date of the grant. At November 30, 2004, a combined total of 518,100 shares of Class A and Class B restricted stock were outstandingawards granted under the ~~Plan. The stock was valued based on its market~~plans had an exercise price onequal to or greater than the ~~date of the grant. The grants vest over five years from the date of issuance.~~

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 market value of the common stock on the date of the grant. NoEffective December 1, 2005, the Company adopted the provisions of SFAS 123R using the modified-prospective-transition method. Under this transition method, compensation expense recognized during the year ended November 30, 2006 included: (a) compensation expense for all share-based awards granted prior to, but not yet vested as of, December 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based awards granted subsequent to December 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified-prospective-transition method, results for prior periods have not been restated.

Prior to the adoption of SFAS 123R, the Company presented all tax benefits related to deductions resulting from the exercise of stock options as cash flows from operating activities in the consolidated statements of cash flows. SFAS 123R requires that cash flows resulting from tax benefits related to tax deductions in excess of the compensation expense recognized for those options (excess tax benefits) be classified as financing cash flows. As a result, the Company classified $7.1 million of excess tax benefits as financing cash inflows for the year ended November 30, 2006.

The following table illustrates the effect on net earnings and earnings per share for the years ended November 30, 2005 and 2004, if the Company had applied the fair value recognition provisions of SFAS 123, as amended by SFAS No. 148,Accounting for Stock-Based Compensation-Transition and Disclosure, to stock options awards granted under the ~~1997 Plan may~~Company’s share-based payment plans. For purposes of this pro forma disclosure, the value of the stock option awards is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ vesting periods.

Compensation expense related to the Company’s share-based awards for the year ended November 30, 2006 was $36.6 million of which $25.6 million related to stock options resulting from the adoption of SFAS 123R and $11.0 million related to nonvested shares. During the years ended November 30, 2005 and 2004, compensation expense related to the Company’s share-based awards was $6.9 million and $3.0 million, respectively, which primarily related to nonvested shares. The total income tax benefit recognized in the consolidated statement of earnings for share-based awards during the year ended November 30, 2006 was $10.0 million of which $7.1 million related to stock options resulting from the adoption of SFAS 123R and $2.9 million related to nonvested shares. During the years ended November 30, 2005 and 2004, the income tax benefit recognized in the consolidated statements of earnings for share-based awards was $2.6 million and $1.1 million, respectively, all of which related to nonvested shares.

Cash received from stock options exercised during the years ended November 30, 2006, 2005 and 2004 was $31.1 million, $38.1 million and $14.5 million, respectively. The tax deductions related to stock options exercised during the years ended November 30, 2006, 2005 and 2004 were $12.1 million, $23.2 million and $8.6 million, respectively.

The fair value of each of the Company’s stock option awards is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the Company’s stock option awards, which are subject to graded vesting, is expensed on a straight-line basis over the vesting life of the stock options. Expected volatility is based on an average of (1) historical volatility of the Company’s stock and (2) implied volatility from traded options on the Company’s stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award is granted with a maturity equal to the expected term of the stock option award granted. The Company uses historical data to estimate stock option exercises and forfeitures within its valuation model. The expected life of stock option awards granted is derived from historical exercise experience under the Company’s share-based payment plans and represents the period of time that stock option awards granted are expected to be ~~exercisable until~~outstanding.

The fair value of these options was determined at ~~least six months after~~ the date of the ~~grant. Thereafter, exercises are permitted in installments determined when options are granted. Each~~grant using the Black-Scholes option-pricing model. The significant weighted average assumptions for the years ended November 30, 2006, 2005 and 2004 were as follows:

A summary of the Company’s stock option ~~and stock appreciation right granted will expire on a date determined at~~activity for the ~~time of the grant, but not more than ten years after the date of the grant.~~year ended November 30, 2006 is as follows:

The Lennar Corporation 1991 Stock Option Plan (the “1991 Plan”) provided for the granting of Class A stock options to key employees of the Company to purchase 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 ten years after the date of the grant.

A summary of the Company’s stock option activity for the years ended November 30, 2005 and 2004 ~~2003 and 2002 (adjusted for the January 2004 two-for-one stock split) is~~was as follows:


	2004				2003				2002				2005				2004
	Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price
Outstanding, beginning of year	6,660,968		$	20.01	4,827,348		$	15.98	5,731,512		$	11.57	8,025,292		$	28.26	6,660,968		$	20.01
Grants	2,478,796		$	46.42	2,636,000		$	28.36	1,100,000		$	26.37	1,581,125		$	55.46	2,478,796		$	46.42
Other*	—		$	—	694,824		$	—	—		$	—
Terminations	(240,386	)	$	33.17	(19,250	)	$	22.74	(124,024	)	$	16.01
Forfeited or expired													(541,853	)	$	34.02	(240,386	)	$	33.17
Exercises	(874,086	)	$	16.55	(1,477,954	)	$	12.27	(1,880,140	)	$	8.60	(1,905,016	)	$	20.01	(874,086	)	$	16.55

Outstanding, end of year	8,025,292		$	28.26	6,660,968		$	20.01	4,827,348		$	15.98	7,159,548		$	35.92	8,025,292		$	28.26

Exercisable, end of year	1,338,425		$	15.87	745,336		$	12.96	936,074		$	12.79	1,390,848		$	22.36	1,338,425		$	15.87

Available for grant, end of year	7,440,704				9,821,000				3,394,600				5,408,359				7,440,704

Weighted average fair market value per share of options granted during the year under SFAS No. 123			$	13.27			$	8.65			$	11.72

The ~~following table summarizes information about~~weighted average fair value of options granted during the years ended November 30, 2006, 2005 and 2004 was $17.27, $16.02 and $13.27, respectively. The total intrinsic value of options exercised during the years ended November 30, 2006, 2005 and 2004 was $36.1 million, $70.2 million and $27.6 million, respectively.

The fair value of nonvested shares is determined based on the average trading price of the Company’s common stock on the grant date. The weighted average fair value of nonvested shares granted during the years ended November 30, 2006 and 2005 was $57.09 and $61.93, respectively. There were no nonvested shares granted during the year ended November 30, 2004. A summary of the Company’s nonvested shares activity for the year ended November 30, 2006 was as follows:

At November 30, 2006, there was $74.0 million of unrecognized compensation expense related to unvested share-based awards granted under the Company’s share-based payment plans, of which $40.7 million relates to stock options ~~outstanding at~~and $33.4 million relates to nonvested shares. That expense is expected to be recognized over a weighted-average period of 3.2 years. During the years ended November 30, ~~2004:~~

~~Employee Stock Ownership/401(k) Plan~~2006, 2005 and 2004, 0.1 million nonvested shares, 0.5 million nonvested shares and 0.5 million nonvested shares, respectively, vested. The tax deductions related to nonvested share activity during 2006, 2005 and 2004 were $3.7 million, $16.0 million and $4.5 million, respectively.

~~Prior to 1998, the Employee Stock Ownership/401(k)~~16. Deferred Compensation 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 vest at a rate of 20% per year over a five-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’s contribution to the 401(k) portion of the Plan. This amount was $10.3 million in 2004, $9.1 million in 2003 and $7.0 million in 2002.

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 fair value of the restricted stock when it was issued, with an offsetting increase in stockholders’ equity to reflect a deferral of the compensation expense related to the surrendered restricted stock. Changes in the fair value of the shares that will be issued in the future are not reflected in the consolidated financial statements.

As of November 30, ~~2004,~~2006, approximately ~~695,300~~172,000 Class A common shares and ~~69,600~~17,200 Class B common shares of restricted stock had been surrendered in exchange for rights under the Deferred Compensation Plan, resulting in a reduction in stockholders’ equity of ~~$6.4~~$1.6 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, ~~2004, 2003~~2006, 2005 and ~~2002.~~2004.

The following table presents the carrying amounts and estimated fair ~~market~~ values of financial instruments held by the Company at November 30, ~~2004~~2006 and ~~2003,~~2005, 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 due to the short maturities of these instruments.

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

Homebuilding –—Since there are no quoted market prices for investments classified as 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. For senior notes and other debts payable, the fair ~~market~~ value of fixed-rate borrowings is based on quoted market prices. Variable-rate borrowings are tied to market indices and therefore approximate fair ~~market~~ value. 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 that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

The Homebuilding ~~Division utilizes~~operations utilize 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 losses from counterparty non-performance are not anticipated. A majority of the ~~Division’s available~~Homebuilding operations’ variable interest rate borrowings are based on the LIBOR index. At November 30, ~~2004,~~2006, the ~~Division~~Homebuilding operations had ~~four~~three interest rate swap agreements outstanding with a total notional amount of ~~$300~~$200 million, which will mature at various dates through fiscal 2008. These agreements fixed the LIBOR index at an average interest rate of 6.8% at November 30, ~~2004.~~2006. The effect of ~~the~~ interest rate swap agreements on interest incurred and on the average interest rate was an increase of $3.8 million and 0.10%, respectively, for the year ended November 30, 2006, an increase of $11.0 million and 0.40%, respectively, for the year ended November 30, 2005 and an increase of $16.5 million and 0.89%, respectively, for the year ended November 30, ~~2004, an increase of $16.7 million and 1.03%, respectively, for the year ended November 30, 2003 and an increase of $17.0 million and 1.08%, respectively, for the year ended November 30, 2002.~~2004.

The Financial Services ~~Division~~segment had a pipeline of ~~loans~~loan applications in process ~~totaling approximately $3.1~~of $2.9 billion at November 30, ~~2004. To minimize credit risk, the Division uses the same credit policies in the approval of the commitments as are applied to the Division’s lending activities.~~2006. Loans in process for which interest rates were committed to the borrowers totaled ~~$519.9~~approximately $323.9 million as of November 30, ~~2004.~~2006. 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.

The Financial Services ~~Division~~segment uses mandatory mortgage-backed securities (“MBS”) forward commitments and MBS option contracts to hedge its interest rate exposure during the period from when it extends an interest rate lock 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~~segment’s credit standards. The ~~Division’s~~segment’s risk, in the event of default by the purchaser, is the difference between the contract price and current fair ~~market~~ value. At November 30, ~~2004,~~2006, the ~~Division~~segment had open commitments amounting to ~~$273.6~~$335.0 million to sell MBS with varying settlement dates through ~~February 2005.~~January 2007.

~~In December 2003, the FASB issued FIN 46(R), (which further clarified and amended FIN 46,~~18. Consolidation of Variable Interest ~~Entities)~~Entities

The Company follows FIN 46(R), 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(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 46(R) applied immediately to variable interest entities created after January 31, 2003, and with respect to variable interest entities created before February 1, 2003, FIN 46(R) applied in the Company’s second quarter ended May 31, 2004. The adoption of FIN 46(R) did not have a material impact on the Company’s results of operations or cash flows.

At November 30, ~~2004,~~2006, the Company had investments in and advances to unconsolidated entities established to acquire and develop land for sale to the Company in connection with its homebuilding operations, for sale to third parties or for the construction of homes for sale to third-party homebuyers. The Company evaluated all agreements under FIN 46(R)~~. During the year ended November 30, 2004, the Company~~ during 2006 that were entered into or had reconsideration events and it consolidated entities ~~under FIN 46(R)~~ that at November 30, ~~2004~~2006 had total combined assets and liabilities of ~~$81.5~~$167.8 million and ~~$39.8~~$123.3 million, respectively.

At November 30, ~~2004,~~2006 and 2005, the Company’s recorded investment in unconsolidated entities was ~~$856.4 million; however, the~~$1.4 billion and $1.3 billion, respectively. The Company’s estimated maximum exposure to loss with regard to unconsolidated entities was primarily its recorded investments in these entities ~~in addition to~~and the exposure under the guarantees discussed in Note 5.6.

In the Company’s homebuilding operations, the Company has access to land through option contracts, which generally enables it to defer acquiring portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company is ready to build homes on them.

At November 30, 2006, the Company had access through option contracts to 189,279 homesites, of which 94,758 were through option contracts with third parties and 94,521 were through option contracts with unconsolidated entities in which the Company has investments. At November 30, 2005, the Company had access through option contracts to 222,119 homesites, of which 127,013 were through option contracts with third parties and 95,106 were through option contracts with unconsolidated entities in which the Company has investments.

A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. These options are generally rolling options, in which the Company acquires homesites based on pre-determined take-down schedules. The Company’s option contracts often include price escalators, which adjust the purchase price of the land to its approximate fair value at time of the acquisition. The exercise periods of the Company’s option contracts vary on a case-by-case basis, but generally range from one to ten years.

The Company’s investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case the Company’s investments are written down to fair value. The Company reviews option contracts for impairment during each reporting period in accordance with SFAS 144. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet the Company’s targeted return on investment. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause the Company to re-evaluate the likelihood of exercising its land options.

Each option contract contains a predetermined take-down schedule for the optioned land parcels. However, in almost all instances, the Company is not required to purchase land in accordance with those take-down schedules. In substantially all instances, the Company has the right and ability to not exercise its option and forfeit its deposit without further penalty, other than termination of the option and loss of any unapplied portion of its deposit and pre-acquisition costs. Therefore, in substantially all instances, the Company does not consider the take-down price to be a firm contractual obligation. When the Company permits an option to terminate or walks away from an option, it writes-off any unapplied deposit and pre-acquisition costs. For the year ended November 30, 2006, the Company wrote-off $152.2 million of option deposits and pre-acquisition costs related to 24,235 homesites under option that it does not intend to purchase, compared to $15.1 million in 2005.

In very limited cases, the land seller can enforce the take-down schedule by requiring the Company to exercise its option. The Company records the option contract as a financing arrangement when required in accordance with SFAS No. 49,Accounting for Product Financing Arrangements, and records the optioned property and related take-down liability in its consolidated financial statements.

The Company evaluated all option contracts for land when entered into or upon a reconsideration event and determined it was the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46(R), the Company, if it is deemed to be the primary beneficiary, is required to consolidate the land under option at ~~fair market value.~~the purchase price of the optioned land. During ~~the year ended November 30, 2004,~~2006 and 2005, the effect of the consolidation of these option contracts was an increase of ~~$336.6~~$548.7 million and $516.3 million, respectively, to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance ~~sheet~~sheets as of November 30, ~~2004.~~2006 and 2005. This increase was offset primarily by the Company exercising its ~~option~~options to acquire land under certain contracts previously consolidated under FIN 46(R), resulting in a net increase in consolidated inventory not owned of ~~$226.5~~$1.8 million. To reflect the purchase price of the inventory consolidated under FIN 46(R), the Company reclassified ~~$73.4~~$80.7 million of related option deposits from land under development to consolidated inventory not ~~owned.~~owned in the accompanying consolidated balance sheet as of November 30, 2006. The liabilities related to consolidated inventory not owned represent the difference between the ~~exercise~~purchase price of the optioned land and the Company’s ~~option~~cash deposits.

At November 30, ~~2004,~~2006 and 2005, the Company’s exposure to loss related to its option contracts with third parties and unconsolidated entities ~~represented~~consisted of its non-refundable option deposits and advanced costs totaling ~~$222.4~~$785.9 million ~~as well as~~and $741.6 million, respectively. Additionally, the Company posted $553.4 million of letters of credit ~~posted~~ in lieu of cash ~~deposits.~~deposits under certain option contracts as of November 30, 2006.

The Company ~~and its subsidiaries are~~is party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the 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 generally enable the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated entities until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risks associated with long-term land holdings. At November 30, ~~2004,~~2006, the Company had access to acquire ~~approximately 168,000~~189,279 homesites through option contracts with third parties and agreements with unconsolidated entities in which the Company had investments. At November 30, ~~2004,~~2006, the Company had ~~$222.4~~$785.9 million of non-refundable option deposits and advanced costs related to certain of these ~~homesites.~~homesites, which were included in inventories in the consolidated balance sheet.

At November 30, ~~2004,~~2006 and 2005, the Company had ~~$74.0~~$124.5 million and $69.3 million, respectively, of reserves recorded in accordance with SFAS No. 5,Accounting for Contingencies, for income tax filing positions and related interest based on the Company’s evaluation that uncertainty exists in sustaining the deductions. This reserve is included in ~~accounts payable and~~ other liabilities in the consolidated balance ~~sheet at November 30, 2004.~~sheets.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the non-cancelable leases in effect at November 30, ~~2004~~2006 are as follows:


	Lease Payments		Lease Payments
	*(In thousands)*		(In thousands)
2005	$	63,539
2006		48,723
2007		38,670	$	92,481
2008		28,452		60,018
2009		21,387		47,195
2010				33,381
2011				24,097
Thereafter		27,204		27,274

Rental expense for the years ended November 30, 2006, 2005 and 2004 ~~2003 and 2002~~ was ~~$84.7~~$140.6 million, ~~$63.2~~$116.0 million and ~~$55.0~~$84.7 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 ~~$787.4 million~~$1.4 billion at November 30, ~~2004.~~2006. The Company also had outstanding performance and surety bonds related to site improvements at various projects with estimated costs to complete of ~~$1.3 billion related principally to its obligations for site improvements at various projects at November 30, 2004.~~$1.8 billion. The Company does not believe ~~that~~there will be any draws upon these bonds, but if there were any, ~~will~~they would not have a material effect on the Company’s financial position, results of operations or cash flows.

The Company’s obligations to pay principal, premium, if any, and interest under ~~the Company’s Credit Facilities, senior floating-rate notes due 2007,~~its New Facility, senior floating-rate notes due 2009, 7 ~~5/8%~~⁵/8% senior notes due 2009, ~~9.95%~~5.125% senior notes due 2010, 5.95% senior notes due 2011, 5.95% senior notes due 2013, ~~and~~ 5.50% senior notes due 2014, 5.60% senior notes due 2015 and 6.50% senior notes due 2016 are guaranteed ~~on a joint and several basis~~ by substantially all of the Company’s subsidiaries other than finance company subsidiaries. The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The guarantees are joint and several, subject to limitations as to each guarantor designed to eliminate fraudulent conveyance concerns. 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 as follows:


*(In thousands)*	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
										Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
										(In thousands)
ASSETS
Homebuilding:
Cash and receivables, net	$	1,116,366		303,594	55,797		—		1,475,757
Cash, restricted cash and receivables, net										$	422,373		395,261	27,867		—		845,501
Inventories		—		4,900,834	241,236		—		5,142,070		—		7,523,554	307,929		—		7,831,483
Investments in unconsolidated entities		—		856,422	—		—		856,422		—		1,435,346	11,832		—		1,447,178
Goodwill											—		196,638	—		—		196,638
Other assets		98,823		308,364	25,387		—		432,574		360,708		104,200	9,182		—		474,090
Investments in subsidiaries		4,984,722		578,836	—		(5,563,558	)	—		7,839,517		486,461	—		(8,325,978	)	—

		6,199,911		6,948,050	322,420		(5,563,558	)	7,906,823		8,622,598		10,141,460	356,810		(8,325,978	)	10,794,890
Financial services		—		27,956	1,230,501		—		1,258,457		—		25,108	1,588,268		—		1,613,376

Total assets	$	6,199,911		6,976,006	1,552,921		(5,563,558	)	9,165,280	$	8,622,598		10,166,568	1,945,078		(8,325,978	)	12,408,266

LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	725,061		1,003,742	101,244		—		1,830,047	$	605,834		1,644,304	91,922		—		2,342,060
Liabilities related to consolidated inventory not owned		—		222,769	—		—		222,769		—		333,723	—		—		333,723
Senior notes and other debts payable		1,945,344		23,636	52,034		—		2,021,014		2,471,928		53,720	87,855		—		2,613,503
Intercompany		(523,466	)	734,156	(210,690	)	—		—		(156,536	)	288,570	(132,034	)	—		—

		2,146,939		1,984,303	(57,412	)	—		4,073,830		2,921,226		2,320,317	47,743		—		5,289,286
Financial services		—		6,981	1,031,497		—		1,038,478		—		6,734	1,355,481		—		1,362,215

Total liabilities		2,146,939		1,991,284	974,085		—		5,112,308		2,921,226		2,327,051	1,403,224		—		6,651,501
Minority interest											—		—	55,393		—		55,393
Stockholders’ equity		4,052,972		4,984,722	578,836		(5,563,558	)	4,052,972		5,701,372		7,839,517	486,461		(8,325,978	)	5,701,372

Total liabilities and stockholders’ equity	$	6,199,911		6,976,006	1,552,921		(5,563,558	)	9,165,280	$	8,622,598		10,166,568	1,945,078		(8,325,978	)	12,408,266


*(In thousands)*	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
										Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
										(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 entities		16,346		373,988	—		—		390,334		—		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		1,476,860		75,357	—		—		1,552,217		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


*(In thousands)*	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
										Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
										(In thousands)
Revenues:
Homebuilding	$	—		9,688,964	311,668		—		10,000,632	$	—		9,688,964	311,668		—		10,000,632
Financial services		—		18,000	514,253		(27,986	)	504,267		—		18,000	510,322		(27,986	)	500,336

Total revenues		—		9,706,964	825,921		(27,986	)	10,504,899		—		9,706,964	821,990		(27,986	)	10,500,968

Costs and expenses:
Homebuilding		—		8,356,652	247,681		(2,995	)	8,601,338		—		8,385,081	247,681		(2,995	)	8,629,767
Financial services		—		14,736	402,221		(24,991	)	391,966		—		14,736	399,860		(24,991	)	389,605
Corporate general and administrative		141,722		—	—		—		141,722		141,722		—	—		—		141,722

Total costs and expenses		141,722		8,371,388	649,902		(27,986	)	9,135,026		141,722		8,399,817	647,541		(27,986	)	9,161,094

Equity in earnings from unconsolidated entities		—		90,739	—		—		90,739		—		90,739	—		—		90,739
Management fees and other income (loss), net		—		58,734	(279	)	—		58,455
Management fees and other income (expense), net											—		97,959	(279	)	—		97,680
Minority interest expense, net											—		—	10,796		—		10,796

Earnings (loss) before provision (benefit) for income taxes		(141,722	)	1,485,049	175,740		—		1,519,067
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	)	560,606	66,342		—		573,448		(53,500	)	564,681	61,674		—		572,855
Equity in earnings (losses) from subsidiaries		1,033,841		109,398	—		(1,143,239	)	—

Net earnings (loss)	$	945,619		1,033,841	109,398		(1,143,239	)	945,619
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


*(Dollars in thousands)*	Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
												Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
												(Dollars in thousands)
Cash flows from operating activities:
Net earnings (loss)	$	945,619		1,033,841		109,398		(1,143,239	)	945,619
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities		(576,392	)	(872,278	)	(238,906	)	1,143,239		(544,337	)
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		161,563		(129,508	)	—		401,282			369,227		175,885		(124,920	)	—		420,192

Cash flows from investing activities:
Increase in investments in unconsolidated entities, net		—		(420,597	)	—		—		(420,597	)		—		(420,597	)	—		—		(420,597	)
Acquisitions, net of cash acquired		—		(93,082	)	(12,648	)	—		(105,730	)		—		(93,082	)	(12,648	)	—		(105,730	)
Other		(15,110	)	(14,629	)	(10,625	)	—		(40,364	)		(15,110	)	17,955		(10,625	)	—		(7,780	)

Net cash used in investing activities		(15,110	)	(528,308	)	(23,273	)	—		(566,691	)		(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 borrowings under financial services debt													—		—		162,277		—		162,277
Net proceeds from senior floating-rate notes due 2007													199,300		—		—		—		199,300
Net proceeds from senior floating-rate notes due 2009		298,500		—		—		—		298,500			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			245,480		—		—		—		245,480
Net repayments under other term loan B and other borrowings		(296,000	)	(74,721	)	(33,368	)	—		(404,089	)
Net repayments under term loan B and other borrowings													(296,000	)	(74,721	)	(33,368	)	—		(404,089	)
Net payments related to minority interests													—		—		(18,396	)	—		(18,396	)
Common stock:
Issuances		14,537		—		—		—		14,537			14,537		—		—		—		14,537
Repurchases		(113,582	)	—		—		—		(113,582	)		(113,582	)	—		—		—		(113,582	)
Dividends		(79,945	)	—		—		—		(79,945	)		(79,945	)	—		—		—		(79,945	)
Intercompany		(403,966	)	288,402		115,564		—		—			(403,966	)	274,080		129,886		—		—

Net cash provided by (used in) financing activities		(135,676	)	213,681		244,473		—		322,478			(135,676	)	199,359		240,399		—		304,082

Net increase (decrease) in cash		218,441		(153,064	)	91,692		—		157,069			218,441		(120,480	)	92,206		—		190,167
Cash at beginning of year		893,503		307,795		69,574		—		1,270,872			893,503		263,660		68,485		—		1,225,648

Cash at end of year	$	1,111,944		154,731		161,266		—		1,427,941		$	1,111,944		143,180		160,691		—		1,415,815

~~Year Ended November 30, 2003~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


*(In thousands, except per share amounts)*	First		Second	Third	Fourth
2004
						First		Second	Third	Fourth
						(In thousands, except per share amounts)
2006
Revenues	$	1,862,907	2,342,885	2,748,360	3,550,747	$	3,240,659	4,577,503	4,182,435	4,266,065
Gross profit from sales of homes	$	373,798	483,706	566,540	860,357	$	727,923	946,508	729,198	336,812
Earnings before provision for income taxes	$	223,698	323,552	361,802	610,015
Net earnings	$	139,252	201,411	225,222	379,734
Earnings per share:
Earnings (loss) before provision (benefit) for income taxes						$	409,606	515,472	328,055	(310,484	)
Net earnings (loss)						$	258,052	324,747	206,675	(195,605	)
Earnings (loss) per share:
Basic	$	0.90	1.30	1.45	2.44	$	1.64	2.04	1.31	(1.24	)
Diluted	$	0.84	1.22	1.36	2.29	$	1.58	2.00	1.30	(1.24	)

2003
2005
Revenues	$	1,600,470	2,103,108	2,267,842	2,936,199	$	2,405,731	2,932,974	3,498,332	5,029,934
Gross profit from sales of homes	$	314,222	430,258	483,897	631,316	$	544,443	654,082	846,448	1,256,473
Earnings before provision for income taxes	$	170,792	257,534	323,819	454,909
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	$	106,318	160,315	201,577	283,181	$	193,206	243,537	337,253	581,159
Earnings per share:
Basic	$	0.75	1.13	1.35	1.81
Diluted	$	0.68	1.02	1.21	1.69
Basic earnings per share:
Earnings from continuing operations						$	1.25	1.51	2.18	3.70
Earnings from discontinued operations						$	—	0.07	—	—

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						$	—	0.06	—	—

Net earnings						$	1.17	1.48	2.06	3.54

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~~

On December 29, 2006, the Company and LNR reached a definitive agreement to admit a new strategic partner into their LandSource joint venture (See Note 6 for additional information related to the LandSource joint venture). The transaction will result in a cash distribution to the Company and its current partner, LNR, of approximately $660 million each. For financial statement purposes, the transaction is expected to generate earnings ~~per share amounts were adjusted~~of approximately $500 million for the ~~Company’s April 2003 10% Class B stock distribution~~Company, of which approximately $125 million will be recognized at closing and ~~its January 2004 two-for-one stock split.~~

a potential of approximately $375 million could be realized over future years. The new partner will contribute cash and property with a combined value of approximately $900 million. Subsequent to the ~~issuance~~transaction, in addition to options the Company will have on certain LandSource assets, the Company will also have $153 million of specific performance options on other LandSource assets. Following the contribution and refinancing, the Company’s ~~consolidated financial statements for~~and LNR’s interest in LandSource will be diluted to 19% each, and the ~~year ended November 30, 2004, management determined that~~new partner will be issued a 62% interest in LandSource. The transaction is expected to close during the Company’s ~~consolidated statements~~first quarter of cash flows for the years ended November 30, 2004, 2003 and 2002 should be restated to reclassify $128.5 million, $137.7 million and $77.9 million, respectively, from “cash flows from investing activities” to “cash flows from operating activities” as such amounts relate to distributions of earnings received from unconsolidated entities in which the Company has investments that are accounted for by the equity method. The restatement does not affect the net change in cash for any of the years ended November 30, 2004, 2003 and 2002 and has no impact on the Company’s consolidated balance sheets, consolidated statements of earnings and related earnings per share amounts or consolidated statements of stockholders’ equity. Conforming changes have been made to the consolidating statements of cash flows for the years ended November 30, 2004, 2003 and 2002 included in Note 17.2007.

Item 9. Changes in and Disagreements With Accountants on ~~the Company’s consolidated statements of cash flows for the years ended November 30, 2004, 2003~~Accounting and ~~2002 is as follows:~~Financial Disclosure.

(In thousands)

For The Year
Ended November 30, 2003

   As Reported
As Restated

Cash flows from operating activities:

Distributions of earnings from unconsolidated entities
   $ —   $ 137,657
Net cash provided by operating activities
   580,799 718,456
Cash flows from investing activities:

Distributions of capital from unconsolidated entities
   307,723 170,066
Net cash used in investing activities
   (118,197 ) (255,854 )

Our Chief Executive Officer and Chief Financial Officer participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter that ended on November 30, ~~2004.~~2006. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of November 30, ~~2004~~2006 to ensure that information required ~~information is~~to be disclosed ~~on a timely basis~~ in our reports filed or ~~furnished~~submitted under the Securities Exchange Act of 1934 ~~as amended.~~

Our CEO and our CFO reviewed with our management whether our need to restate our consolidated statements of cash flows affected their conclusions, set forth under the caption Evaluation of Disclosure Controls and Procedures in our Annual Report on Form 10-K for the year ended November 30, 2004, that our disclosure controls and procedures were effective as of those dates to ensure that required information is ~~disclosed on a timely basis in our reports filed or furnished under the Securities Exchange Act of 1934, as amended.~~

~~In connection with this review, our CEO and CFO noted that our decision to restate our consolidated statements of cash flows did not call into question whether the relevant information was~~ recorded, processed, summarized orand reported within the time periods specified in the ~~SEC’s~~Securities Exchange Commissions’s rules and ~~forms. It also did not involve any issue about whether~~forms, and to ensure that information required to be disclosed in ~~the~~our reports ~~we file~~filed or submitted under the Securities Exchange Act ~~was~~of 1934 is accumulated and communicated to our management, including our ~~principal executive~~CEO and ~~principal financial officers,~~CFO, as appropriate to allow timely decisions regarding required disclosure. Rather, the restatements resulted solely from reconsideration of a decision made by management regarding how generally accepted accounting principles required a particular item of information, that was properly recorded in our financial records and made available to our management in a timely manner, to be classified on our consolidated statements of cash flows. Our CEO and CFO do not find that management’s subsequent decision, that its prior classification was not in accordance with generally accepted accounting principles, raises any question about whether our disclosure controls and procedures were effective to ensure that required information was disclosed to them as appropriate to allow timely decisions regarding required disclosure. Therefore, based on that review, our CEO and our CFO determined that their prior conclusions, that our disclosure controls and procedures were effective at November 30, 2004, had not changed.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in~~Internal Control – Integrated~~~~Framework~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in~~~~Internal Control - Integrated Framework~~, our management concluded that our internal control over financial reporting was effective as of November 30, 2004. Our management’s assessment of the effectiveness of our internal control over financial reporting as of November 30, 2004 has been audited by Deloitte & Touche LLP (“Deloitte”), an independent registered public accounting firm, as stated in their attestation report which is included herein.

On October 17, 2005, we reported in a Current Report on Form 8-K that we would be restating our consolidated statements of cash flows to restate as cash flows from operating activities an item that had been classified as cash flows from investing activities. The restatement does not affect our consolidated balance sheets, consolidated statements of earnings or consolidated statements of stockholders’ equity.

The restatement involved restating cash distributions of earnings we have received from unconsolidated entities as cash flows from operating activities, rather than as cash flows from investing activities. Distributions of capital from unconsolidated entities continue to be classified as cash flows from investing activities. As a result of the restatement, our net cash provided by operating activities and net cash used in investing activities during the years ended November 30, 2004, 2003 and 2002 increased $128.5 million, $137.7 million and $77.9 million, respectively. The consolidated statements of cash flows contained in this Report on Form 10-K/A reflect the restated classification of distributions of earnings from unconsolidated entities.

The decision to restate our consolidated statements of cash flows does not cause our management to change its conclusion, described in its Report on Internal Control Over Financial Reporting that is contained in our Annual Report on Form 10-K for the year ended November 30, 2004, that our internal control over financial reporting was effective as of November 30, 2004. The distributions from unconsolidated entities that are subject to the restatement were visible and disclosed on the face of our consolidated statements of cash flows. Although they were classified entirely as cash flows from investing activities, rather than being reported partly as cash flows from operating activities and partly as cash flows from investing activities, we had employed this accounting treatment for a number of years, and we believe that a number of other companies in our industry follow this practice. We previously received unqualified opinions on our consolidated financial statements included in our Annual Report on Form 10-K.

During the financial closing and reporting process relating to the first quarter of our 2005 fiscal year, we reviewed the classification of these distributions in our statements of cash flows as well as the disclosure presentation of other companies in our industry, and dialogued with Deloitte about the presentation. Based on these procedures, we reached the conclusion that the presentation of all distributions from unconsolidated entities as cash flows from investing activities was appropriate. Subsequent to our first quarter review, we have reconsidered the accounting treatment for distributions from unconsolidated entities in accordance with SFAS No. 95,~~Statement of Cash Flows,~~ and we now believe that Statement requires that distributions of earnings from unconsolidated entities be classified as cash flows from operating activities. The restatements conform our consolidated statements of cash flows to that accounting treatment. Under these circumstances, our management does not believe that the restatements resulted from, or require a finding of, a material weakness in our internal control over financial reporting.

~~That conclusion was discussed with, and approved by, the Audit Committee of our Board of Directors.~~

Deloitte, which audits our consolidated financial statements, has informed us that it does not agree with our management’s conclusion that our decision to restate our consolidated statements of cash flows did not result from a material weakness in our internal control over financial reporting. On October 17, 2005, Deloitte informed us that it had withdrawn its report dated February 11, 2005 relating to our management’s assessment of the effectiveness of our internal control over financial reporting, in which it had concurred with our management’s assessment that our internal control over financial reporting was effective at November 30, 2004. Deloitte also informed us that it had withdrawn its report dated February 11, 2005, relating to its audit of our financial statements for the year ended November 30, 2004, and has issued a report regarding the restated financial statements which are included in this document.

Deloitte has issued a new report on its assessment of our management’s assessment of internal control over financial reporting, in which it stated that in its opinion our failure to report our distributions of earnings from unconsolidated entities in the category required by generally accepted accounting principles resulted from a material weakness in the operation of our internal control over financial reporting.

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, ~~2004.~~2006. That evaluation did not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~We have audited management’s assessment, included in the accompanying~~ Management’s Annual Report on Internal Control Over Financial Reporting ~~that~~and the Report of Independent Registered Public Accounting Firm obtained from Deloitte & Touche LLP are included elsewhere in this document.

The information required by this item for executive officers is set forth under the heading “Executive Officers of Lennar ~~Corporation~~Corporation” in Part I. The other information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and ~~subsidiaries (the “Company”) maintained effective internal control over financial reporting~~Exchange Commission not later than March 30, 2007 (120 days after the end of our fiscal year).

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, 2007 (120 days after the end of our fiscal year).

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table summarizes our equity compensation plans as of November 30, ~~2004, based on the criteria established in~~~~Internal Control—Integrated Framework~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. 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.2006:

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. We have identified the following material weakness that has not been identified as a material weakness in management’s assessment: The Company’s controls over the proper classification of cash flows relating to the distributions from unconsolidated entities did not operate effectively as of November 30, 2004. This material weakness resulted in the restatement of the Company’s previously issued financial

statements as described in Note 19 to the consolidated financial statements. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended November 30, 2004 (as restated), of the Company and this report does not affect our report on such restated financial statements.

In our opinion, because of the omission of the material weakness described above from management’s assessment, management’s assessment that the Company maintained effective internal control over financial reporting as of November 30, 2004, is not fairly stated, in all material respects, based on the criteria established in~~Internal Control—Integrated Framework~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained, in all material respects, effective internal control over financial reporting as of November 30, 2004, based on the criteria established in~~Internal Control—Integrated Framework~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission.~~

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended November 30, 2004 of the Company and our reports dated February 11, 2005 (October 21, 2005 as to the effects of the restatement discussed in Note 19) expressed an unqualified opinion on those financial statements and financial statement schedule.

Information required by other schedules has either been incorporated in the consolidated financial statements and accompanying notes or is not applicable to us.



~~2(b).~~	2.2	Agreement and Plan of Merger dated July 21, 2003, ~~by and~~ among Lennar, The Newhall Land and Farming Company, ~~Lennar Corporation,~~ 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.



~~4(g).~~		Eighth Supplemental Indenture, dated January 21, 2005, by and between Lennar Corporation and J.P. Morgan Trust Company, N.A., as successor to The First National Bank of Chicago, as trustee (relating to Lennar’s fully guaranteed 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(h).~~	4.6	Indenture, dated August 12, 2004, ~~by and~~ between Lennar ~~Corporation~~ 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 toof the Company’s Registration Statement on Form S-4, Registration No. 333-121130, filed with the Commission on December 10, 2004.



10(i).*	10.9*	Lennar Corporation Nonqualified Deferred Compensation ~~Plan –~~ Plan—Incorporated by reference to Exhibit 10 toof the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

We have audited the consolidated financial statements of Lennar Corporation and subsidiaries (the “Company”) as of November 30, ~~2004~~2006 and ~~2003,~~2005, and for each of the three years in the period ended November 30, 2004 and have issued our report thereon dated February 11, 2005 (October 21, 2005 as to the effects of the restatement discussed in Note 19) which report expresses an unqualified opinion and includes an explanatory paragraph relating to the restatement described in Note 19; and, have audited2006, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of November 30, ~~2004,~~2006, and the effectiveness of the Company’s internal control over financial reporting as of November 30, ~~2004~~2006, and have issued our ~~report~~reports thereon dated February 11, 2005 (October 21, 2005 as to the effect of the material weakness) which report expresses an adverse opinion on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting because of a material weakness;8, 2007; such ~~consolidated financial statements and~~ reports are included elsewhere in this Form ~~10-K/A.~~10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item ~~15(a)2. The~~15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

February ~~11, 2005 (October 21, 2005 as to the effects of the restatement discussed in Note 19)~~8, 2007


	Beginning balance		Additions		Deductions		Ending balance
Description	Beginning balance		Charged to costs and expenses	Charged to other accounts	Deductions		Ending balance
	(In thousands)
Year ended November 30, 2006
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable	$	2,782	2,190	154	(1,344	)	3,782

Allowance for loan losses	$	1,180	2,390	158	(1,918	)	1,810

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


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


Related Section		Documents

III		Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 30, ~~2005.~~2007.


1954:		We were founded as a local Miami homebuilder.

1969:		We began developing, owning and managing commercial and multi-family residential real estate.

1971:		We completed our initial public offering.

1972:		Our common stock was listed on the New York Stock Exchange. We also entered the Arizona homebuilding market.

1986:		We acquired Development Corporation of America in Florida.

1991:		We entered the Texas homebuilding market.

1992:		We expanded our commercial operations by acquiring, through a joint venture, a portfolio of loans, mortgages and properties from the Resolution Trust Corporation.

1995:		We entered the California homebuilding market through the acquisition of Bramalea California, Inc.

1996:		We expanded in California through the acquisition of Renaissance Homes, and significantly expanded 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.

1997:		We 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 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:		We 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:		We acquired Eagle Home Mortgage with operations in Nevada, Oregon and Washington and Southwest Land Title in Texas.


2000:		We 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. We expanded our title operations in Texas through the acquisition of Texas Professional Title.

2002:		We 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 existing markets. We also acquired Sentinel Title with operations in Maryland and Washington, D.C.

2003:		We acquired Seppala Homes and Coleman Homes, which expanded our operations in South Carolina and California. We also acquired Mid America Title in Illinois.

2004:		We acquired The Newhall Land and Farming Company through an unconsolidated entity of which we and LNR Property Corporation each own 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.


	2006	2005	2004
East	14,859	11,220	10,438
Central	17,069	15,448	13,126
West	13,333	11,731	9,079
Other	4,307	3,960	3,561

Total	49,568	42,359	36,204


Large accelerated filer þ		Accelerated filer ¨		Non-accelerated filer ¨


Name	Position	Age
Stuart A. Miller	President and Chief Executive Officer	49
Jonathan M. Jaffe	Vice President and Chief Operating Officer	47
Richard Beckwitt	Executive Vice President	47
Bruce E. Gross	Vice President and Chief Financial Officer	48
Marshall H. Ames	Vice President	63
Diane J. Bessette	Vice President and Controller	46
Mark Sustana	Secretary and General Counsel	45


	Total Number of Shares Purchased		Average Price Paid Per Share				Total Number of Shares Purchased Under Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
	Class		Class
Period	A	B	A		B
December 1, 2005 to February 28, 2006*	8	—	$	63.48	$	—	—	12,450
March 1, 2006 to May 31, 2006*	4,555	447		54.40		48.56	5,000	7,450
June 1, 2006 to August 31, 2006*	56	672		44.62		40.93	672	6,778
September 1, 2006 to September 30, 2006*	—	1		—		43.52	—	—
October 1, 2006 to October 31, 2006	—	285		—		43.51	285	6,493
November 1, 2006 to November 30, 2006*	1	249		50.21		43.46	249	6,244

Total	4,620	1,654	$	54.30	$	43.82	6,206


*(Dollars in thousands, except average sales price)*	Years Ended November 30,
*(Dollars in thousands, except average sales price)*	2004			2003		2002
Revenues:
Sales of homes	$	9,559,847		8,040,470		6,581,703
Sales of land		440,785		308,175		169,598

Total revenues		10,000,632		8,348,645		6,751,301

Costs and expenses:
Cost of homes sold		7,275,446		6,180,777		5,119,668
Cost of land sold		281,409		234,844		167,640
Selling, general and administrative		1,044,483		872,735		705,901

Total costs and expenses		8,601,338		7,288,356		5,993,209

Equity in earnings from unconsolidated entities		90,739		81,937		42,651
Management fees and other income, net		58,455		21,863		33,313

Operating earnings	$	1,548,488		1,164,089		834,056

Gross margin on home sales		23.9	%	23.1	%	22.2	%

SG&A expenses as a % of revenues from home sales		10.9	%	10.9	%	10.7	%

Operating margin as a % of revenues from home sales		13.0	%	12.3	%	11.5	%

Average sales price	$	272,000		256,000		245,000


Deliveries	For the Years Ended November 30,
Deliveries	2004	2003	2002
East	11,323	10,348	9,296
Central	11,122	9,993	7,766
West	13,759	11,839	10,331

Total	36,204	32,180	27,393


	At or for the Years Ended November 30,
	2006	2005	2004
Deliveries
East	14,859	11,220	10,438
Central	17,069	15,448	13,126
West	13,333	11,731	9,079
Other	4,307	3,960	3,561

Total	49,568	42,359	36,204


	November 30, 2006
	(In thousands)
Sole recourse debt	$	18,920
Several recourse debt—repayment		163,508
Several recourse debt—maintenance		560,823
Joint and several recourse debt—repayment		64,473
Joint and several recourse debt—maintenance		956,682

Lennar’s maximum recourse exposure		1,764,406
Less joint and several reimbursement agreements with our partners		(661,486	)

Lennar’s net recourse exposure	$	1,102,920


	November 30,
Balance Sheet	2006		2005
	(In thousands)
Assets:
Cash	$	276,501	334,530
Inventories		8,955,567	7,615,489
Other assets		868,073	875,741

	$	10,100,141	8,825,760

Liabilities and equity:
Accounts payable and other liabilities	$	1,387,745	1,004,940
Notes and mortgages payable		5,001,625	4,486,271
Equity of:
Lennar		1,447,178	1,282,686
Others		2,263,593	2,051,863

	$	10,100,141	8,825,760


	Years Ended November 30,
Statements of Earnings	2006			2005		2004
	(Dollars in thousands)
Revenues	$	2,651,932		2,676,628		1,641,018
Costs and expenses:		2,588,196		2,020,470		1,199,243

Net earnings of unconsolidated entities	$	63,736		656,158		441,775

Our share of net earnings	$	24,918		241,631		148,868
Our share of net earnings (loss)—recognized (1)	$	(12,536	)	133,814		90,739
Our cumulative share of net earnings—deferred at November 30	$	99,360		151,182		120,817

Our investment in unconsolidated entities	$	1,447,178		1,282,686		856,422
Equity of the unconsolidated entities	$	3,710,771		3,334,549		1,795,010

Our investment % in the unconsolidated entities		39.0	%	38.5	%	47.7	%


	Controlled
November 30, 2006	Optioned		JVs		Total		Owned		Total
East	42,733		17,898		60,631		36,169		96,800
Central	27,435		30,815		58,250		21,887		80,137
West	17,959		43,789		61,748		22,390		84,138
Other	6,631		2,019		8,650		11,879		20,529

Total	94,758		94,521		189,279		92,325		281,604

Percentage	34	%	33	%	67	%	33	%	100	%


	Controlled
November 30, 2005	Optioned		JVs		Total		Owned		Total
East	60,954		15,930		76,884		39,259		116,143
Central	29,794		31,284		61,078		27,704		88,782
West	26,345		45,609		71,954		24,477		96,431
Other	9,920		2,283		12,203		11,247		23,450

Total	127,013		95,106		222,119		102,687		324,806

Percentage	39	%	29	%	68	%	32	%	100	%


	Years Ended November 30,
	2006		2005	2004
	(In thousands)
Revenues:
East:
Sales of homes	$	4,642,582	3,430,903	2,647,294
Sales of land		129,297	68,080	98,994

Total East		4,771,879	3,498,983	2,746,288

Central:
Sales of homes		3,545,174	3,186,870	2,594,321
Sales of land		104,047	188,023	113,632

Total Central		3,649,221	3,374,893	2,707,953

West:
Sales of homes		5,466,437	5,030,190	3,455,703
Sales of land		503,075	272,577	201,350

Total West		5,969,512	5,302,767	3,657,053

Other:
Sales of homes		1,200,681	1,063,826	862,529
Sales of land		31,747	64,130	26,809

Total Other		1,232,428	1,127,956	889,338

Total homebuilding revenues	$	15,623,040	13,304,599	10,000,632


*(In thousands)*	Total		Payments Due by Period
Contractual Obligations	Total		Less than 1 year	1 to 3 years	4 to 5 years	Over 5 years
Homebuilding - Senior notes and other debts payable	$	2,021,014	60,821	214,739	575,000	1,170,454
Financial services - Notes and other debts payable (including limited - purpose finance subsidiaries)		900,340	896,896	38	—	3,406
Interest commitments under interest bearing debt		642,966	118,463	205,869	172,302	146,332
Operating leases		227,975	63,539	87,393	49,839	27,204

Total contractual cash obligations	$	3,792,295	1,139,719	508,039	797,141	1,347,396


	2006			2005
	(In thousands, except per share amounts)
ASSETS
Homebuilding:
Cash	$	661,662		909,557
Restricted cash		24,796		22,681
Receivables, net		159,043		299,232
Inventories:
Finished homes and construction in progress		4,447,748		4,625,563
Land under development		3,011,408		2,867,463
Consolidated inventory not owned		372,327		370,505

Total inventories		7,831,483		7,863,531
Investments in unconsolidated entities		1,447,178		1,282,686
Goodwill		196,638		195,156
Other assets		474,090		266,747

		10,794,890		10,839,590
Financial services		1,613,376		1,701,635

Total assets	$	12,408,266		12,541,225

LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable	$	751,496		876,830
Liabilities related to consolidated inventory not owned		333,723		306,445
Senior notes and other debts payable		2,613,503		2,592,772
Other liabilities		1,590,564		1,997,824

		5,289,286		5,773,871
Financial services		1,362,215		1,437,700

Total liabilities		6,651,501		7,211,571
Minority interest		55,393		78,243
Stockholders’ equity:
Preferred stock		—		—
Class A common stock of $0.10 par value per share
Authorized: 2006 and 2005-300,000 shares
Issued: 2006-136,886 shares; 2005-130,247 shares		13,689		13,025
Class B common stock of $0.10 par value per share
Authorized: 2006 and 2005-90,000 shares
Issued: 2006-32,874 shares; 2005-32,781 shares		3,287		3,278
Additional paid-in capital		1,753,695		1,486,988
Retained earnings		4,539,137		4,046,563
Deferred compensation plan; 2006-172 Class A common shares and 17 Class B common shares; 2005-439 Class A common shares and 44 Class B common shares		(1,586	)	(4,047	)
Deferred compensation liability		1,586		4,047
Treasury stock, at cost; 2006-9,951 Class A common shares and 1,653 Class B common shares; 2005-5,468 Class A common shares		(606,395	)	(293,222	)
Accumulated other comprehensive loss		(2,041	)	(5,221	)

Total stockholders’ equity		5,701,372		5,251,411

Total liabilities and stockholders’ equity	$	12,408,266		12,541,225


	Years Ended November 30,
	2005			2004
	(In thousands, except per share amounts)
Net earnings, as reported	$	1,355,155		945,619
Add: Total stock-based employee compensation expense included in reported net earnings, net of tax		3,999		1,868
Deduct: Total stock-based employee compensation expense determined under fair market value based method for all awards, net of tax		(16,912	)	(13,086	)

Pro forma net earnings	$	1,342,242		934,401

Earnings per share:
Basic—as reported	$	8.72		6.09

Basic—pro forma	$	8.64		6.01

Diluted—as reported	$	8.23		5.70

Diluted—pro forma	$	8.16		5.63


	Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (In thousands)
Outstanding at November 30, 2005	7,159,548		$	35.92
Grants	1,799,100		$	61.37
Forfeited or expired	(563,860	)	$	48.38
Exercises	(1,194,076	)	$	26.11

Outstanding at November 30, 2006	7,200,712		$	42.93	2.9	$	87,242

Vested and expected to vest in the future at November 30, 2006	6,358,637		$	41.87	2.9	$	83,361

Exercisable at November 30, 2006	2,257,242		$	28.27	2.4	$	54,121

Available for grant at November 30, 2006	3,458,027


	Shares		Weighted Average Grant Date Fair Value
Nonvested restricted shares at November 30, 2005	724,000		$	61.65
Grants	661,792		$	57.09
Vested	(72,744	)	$	60.99
Forfeited	(51,280	)	$	59.23

Nonvested restricted shares at November 30, 2006	1,261,768		$	59.40


Range of Weighted Average Per Share Exercise Prices*		Options Outstanding*				Options Exercisable*
Range of Weighted Average Per Share Exercise Prices*		Number Outstanding at November 30, 2004	Weighted Average Remaining Contractual Life	Weighted Average Per Share Exercise Price		Number Outstanding at November 30, 2004	Weighted Average Per Share Exercise Price
$	4.72 - $ 5.19	51,433	2.0 years	$	4.92	21,776	$	5.19
$	7.49 - $ 8.38	839,670	3.0 years	$	7.60	443,671	$	7.64
$	9.25 - $12.87	297,000	3.6 years	$	9.91	55,000	$	9.96
$	14.93 - $18.88	834,331	6.1 years	$	16.70	401,196	$	16.76
$	21.09 - $26.32	3,465,610	4.2 years	$	25.00	404,282	$	24.71
$	27.85 - $43.16	133,949	3.7 years	$	37.83	12,500	$	37.95
$	45.19 - $56.33	2,403,299	4.0 years	$	46.43	—	$	—


*(In thousands)*	For The Year Ended November 30, 2004
	As Reported			As Restated
Cash flows from operating activities:
Distributions of earnings from unconsolidated entities	$	—		$	128,535
Net cash provided by operating activities		272,747			401,282
Cash flows from investing activities:
Distributions of capital from unconsolidated entities		459,149			330,614
Net cash used in investing activities		(438,156	)		(566,691	)


*(In thousands)*	For The Year Ended November 30, 2003
*(In thousands)*	As Reported			As Restated
Cash flows from operating activities:
Distributions of earnings from unconsolidated entities	$	—		$	137,657
Net cash provided by operating activities		580,799			718,456
Cash flows from investing activities:
Distributions of capital from unconsolidated entities		307,723			170,066
Net cash used in investing activities		(118,197	)		(255,854	)


*(In thousands)*	For The Year Ended November 30, 2002
*(In thousands)*	As Reported			As Restated
Cash flows from operating activities:
Distributions of earnings from unconsolidated entities	$	—		$	77,915
Net cash provided by operating activities		204,568			282,483
Cash flows from investing activities:
Distributions of capital from unconsolidated entities		293,959			216,044
Net cash used in investing activities		(365,677	)		(443,592	)


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	7,200,712	$	42.93	3,458,027
Equity compensation plans not approved by stockholders	—		—	—

Total	7,200,712	$	42.93	3,458,027


Financial Statements		Page in this Report
Report of Independent Registered Public Accounting Firm		21
	44
Consolidated Balance Sheets as of November 30, ~~2004~~2006 and ~~2003~~2005		22
	45
Consolidated Statements of Earnings for the Years Ended November 30, ~~2004, 2003~~2006, 2005 and ~~2002~~2004		23
	46
Consolidated Statements of Stockholders’ Equity for the Years Ended November 30, ~~2004, 2003~~2006, 2005 and ~~2002~~2004		24
	47
Consolidated Statements of Cash Flows for the Years Ended November 30, ~~2004, 2003~~2006, 2005 and ~~2002~~2004		26
	49
Notes to Consolidated Financial Statements		2851


Financial Statement Schedule		Page in this Report
Report of Independent Registered Public Accounting Firm		69
	92
Schedule ~~II -~~ II—Valuation and Qualifying Accounts		7093


~~2(a).~~	2.1	Separation and Distribution Agreement, dated June 10, 1997, between Lennar ~~Corporation~~ and LNR Property ~~Corporation –~~ Corporation—Incorporated by reference to Exhibit 10.1 toof the Registration Statement on Form 10 of LNR Property Corporation filed with the Commission on July 31, 1997.

~~3(a).~~	3.1	Amended and Restated Certificate of Incorporation, dated April 28, ~~1998.~~1998—Incorporated by reference to Exhibit 3(a) of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004.

~~3(b).~~	3.2	Certificate of Amendment to Certificate of Incorporation, dated April 9, ~~1999 -~~ 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(d).~~	3.4	Bylaws ~~dated~~of the Company, as amended through June ~~22, 2004 –~~ 28, 2005—Incorporated by reference to Exhibit ~~3 to~~3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, ~~2004.~~2005.


~~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%~~⁵/8% Senior Notes due 2009) – —Incorporated by reference to Exhibit 4.1 toof the Company’s Current Report on Form 8-K, dated February ~~24,~~19, 1999.


~~4(c).~~		4.3	Third Supplemental Indenture, dated May 3, 2000, ~~by and among~~between 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) toof the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2000.


~~4(d).~~		~~Fifth~~ 4.4	Sixth Supplemental Indenture, dated ~~April 4, 2001, by and among~~February 5, 2003, between Lennar ~~Corporation~~ and Bank One Trust Company, N.A., as trustee (relating to ~~Lennar’s Zero Coupon Convertible~~5.950% Senior ~~Subordinated~~ Notes due ~~2021) -~~ 2013)—Incorporated by reference to Exhibit 4.1 toof the Company’s Current Report on Form 8-K, dated ~~April 4, 2001.~~January 31, 2003.


~~4(e).~~		Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee (relating to 9.95% Senior Notes due 2010) – Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, Registration No. 333-41316, filed with the Commission on July 13, 2000.
4.5
~~4(f).~~		~~Seventh~~Eighth Supplemental Indenture, dated ~~March 19, 2004, by and~~January 21, 2005, between Lennar ~~Corporation~~ and J.P. Morgan Trust Company, N.A., ~~as successor to The First National Bank of Chicago,~~ as trustee (relating to Lennar’s Senior Floating-Rate Notes due 2009) – —Incorporated by reference to Exhibit ~~4.1 to~~4.3 of the Company’s Registration Statement on Form S-4, Registration No. 333-116975, filed with the Commission on June 29, 2004.