e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2009
Commission File Number: 1-11749
 
Lennar Corporation
(Exact name of registrant as specified in its charter)
 
     
Delaware   95-4337490
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
700 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
(305) 559-4000
(Registrant’s telephone number, including area code)
 
     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 o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). YES o    NO o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO þ
     Common stock outstanding as of September 30, 2009:
         
  Class A   152,041,536  
  Class B   31,283,959  
 
 

 


TABLE OF CONTENTS

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Items 1 — 5. Not applicable
Item 6. Exhibits
SIGNATURES
EX-31.1
EX-31.2
EX-32


Table of Contents

Part I. Financial Information
Item 1.   Financial Statements.
Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)
                 
    August 31,     November 30,  
    2009     2008  
ASSETS
               
Homebuilding:
               
Cash and cash equivalents
  $ 1,336,739       1,091,468  
Restricted cash
    11,315       8,828  
Receivables, net
    110,983       94,520  
Income tax receivables
    1,501       255,460  
Inventories:
               
Finished homes and construction in progress
    1,549,716       2,080,345  
Land under development
    2,063,632       1,741,407  
Consolidated inventory not owned
    608,110       678,338  
 
           
Total inventories
    4,221,458       4,500,090  
Investments in unconsolidated entities
    650,878       766,752  
Other assets
    260,807       99,802  
 
           
 
    6,593,681       6,816,920  
Financial services
    494,658       607,978  
 
           
Total assets
  $ 7,088,339       7,424,898  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Homebuilding:
               
Accounts payable
  $ 216,239       246,727  
Liabilities related to consolidated inventory not owned
    532,045       592,777  
Senior notes and other debts payable
    2,665,796       2,544,935  
Other liabilities
    756,204       834,873  
 
           
 
    4,170,284       4,219,312  
Financial services
    340,704       416,833  
 
           
Total liabilities
    4,510,988       4,636,145  
 
           
Minority interest
    171,391       165,746  
Stockholders’ equity:
               
Class A common stock of $0.10 par value per share Authorized: August 31, 2009 and November 30, 2008 – 300,000 shares; Issued: August 31, 2009 – 163,540 shares; November 30, 2008 – 140,503 shares
    16,354       14,050  
Class B common stock of $0.10 par value per share Authorized: August 31, 2009 and November 30, 2008 – 90,000 shares; Issued: August 31, 2009 and November 30, 2008 – 32,964 shares
    3,296       3,296  
Additional paid-in capital
    2,199,384       1,944,626  
Retained earnings
    800,180       1,273,159  
Treasury stock, at cost; August 31, 2009 – 11,503 Class A common shares and 1,680 Class B common shares; November 30, 2008 – 11,229 Class A common shares and 1,680 Class B common shares
    (613,254 )     (612,124 )
 
           
Total stockholders’ equity
    2,405,960       2,623,007  
 
           
Total liabilities and stockholders’ equity
  $ 7,088,339       7,424,898  
 
           
See accompanying notes to condensed consolidated financial statements.

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Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
    2009     2008     2009     2008  
Revenues:
                               
Homebuilding
  $ 643,613       1,016,156       1,977,876       3,056,476  
Financial services
    77,117       90,384       227,770       240,893  
 
                       
Total revenues
    720,730       1,106,540       2,205,646       3,297,369  
 
                       
Costs and expenses:
                               
Homebuilding (1)
    704,360       1,054,180       2,150,194       3,233,282  
Financial services
    65,961       103,245       199,583       266,460  
Corporate general and administrative
    28,053       34,047       86,323       98,453  
 
                       
Total costs and expenses
    798,374       1,191,472       2,436,100       3,598,195  
 
                       
Equity in loss from unconsolidated entities (2)
    (42,303 )     (10,958 )     (105,110 )     (52,857 )
Other expense, net (3)
    (51,697 )     (52,228 )     (122,053 )     (121,895 )
Minority interest income, net (4)
    2,779       9,016       11,033       9,000  
 
                       
Loss before (provision) benefit for income taxes
    (168,865 )     (139,102 )     (446,584 )     (466,578 )
(Provision) benefit for income taxes (5)
    (2,740 )     50,138       (6,135 )     168,482  
 
                       
Net loss
  $ (171,605 )     (88,964 )     (452,719 )     (298,096 )
 
                       
Basic and diluted loss per share
  $ (0.97 )     (0.56 )     (2.72 )     (1.88 )
 
                       
Cash dividends per each Class A and Class B common share
  $ 0.04       0.16       0.12       0.48  
 
                       
 
(1)   Homebuilding costs and expenses include $58.8 million and $152.0 million, respectively, of valuation adjustments for the three and nine months ended August 31, 2009; and $64.5 million and $205.4 million, respectively, of valuation adjustments for the three and nine months ended August 31, 2008.
 
(2)   Equity in loss from unconsolidated entities includes SFAS 144 valuation adjustments related to assets of unconsolidated entities in which the Company has investments of $31.0 million and $81.0 million, respectively, for the three and nine months ended August 31, 2009; and $2.9 million and $29.9 million, respectively, for the three and nine months ended August 31, 2008.
 
(3)   Other expense, net includes APB 18 valuation adjustments to the Company’s investments in unconsolidated entities of $27.5 million and $71.7 million, respectively, for the three and nine months ended August 31, 2009; and $40.0 million and $116.5 million, respectively, for the three and nine months ended August 31, 2008. Other expense, net includes $0.5 million and $5.6 million, respectively, of write-offs of notes receivable for the three and nine months ended August 31, 2009 and 2008. Other expense, net also includes $22.4 million and $5.2 million, respectively, of interest expense not capitalized for the three months ended August 31, 2009 and 2008; and $49.0 million and $22.1 million, respectively, of interest expense not capitalized for the nine months ended August 31, 2009 and 2008.
 
(4)   For the three and nine months ended August 31, 2008, minority interest income, net includes $7.9 million of minority interest income recorded as a result of a $15.9 million SFAS 144 valuation adjustment to inventory of a 50% – owned consolidated joint venture.
 
(5)   (Provision) benefit for income taxes includes a valuation allowance of $60.2 million and $162.4 million, respectively, for the three and nine months ended August 31, 2009 recorded by the Company against its entire amount of deferred tax assets generated as a result of its net loss during the periods presented.
See accompanying notes to condensed consolidated financial statements.

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Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                 
    Nine Months Ended  
    August 31,  
    2009     2008  
Cash flows from operating activities:
               
Net loss
  $ (452,719 )     (298,096 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization
    14,054       25,942  
Amortization of discount/premium on debt, net
    1,363       1,878  
Equity in loss from unconsolidated entities, including $81.0 million and $29.9 million, respectively, of the Company’s share of SFAS 144 valuation adjustments related to assets of unconsolidated entities for the nine months ended August 31, 2009 and 2008
    105,110       52,857  
Distributions of earnings from unconsolidated entities
    2,098       17,801  
Minority interest income, net
    (11,033 )     (9,000 )
Share-based compensation expense
    21,963       21,288  
Tax provision from share-based awards
          (6,042 )
Deferred income tax benefit
          (245,185 )
Gain on partial redemption of senior notes
    (1,169 )      
Valuation adjustments and write-offs of option deposits and pre-acquisition costs, goodwill and notes receivable
    224,247       354,683  
Changes in assets and liabilities:
               
Increase in restricted cash
    (10,619 )     (12,099 )
Decrease in receivables
    281,333       1,111,929  
Decrease (increase) in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs
    263,886       (41,028 )
Decrease in other assets
    15,731       1,982  
Decrease in financial services loans held-for-sale
    47,193       110,769  
Decrease in accounts payable and other liabilities
    (114,522 )     (233,311 )
 
           
Net cash provided by operating activities
    386,916       854,368  
 
           
Cash flows from investing activities:
               
Net additions to operating properties and equipment
    (832 )     (2,234 )
Contributions to unconsolidated entities
    (278,254 )     (343,846 )
Distributions of capital from unconsolidated entities
    24,221       80,440  
Decrease in financial services portfolio loans held-for-investment
    3,749       2,918  
Purchases of investment securities
    (1,647 )     (163,479 )
Proceeds from sales and maturities of investment securities
    18,184       169,949  
 
           
Net cash used in investing activities
    (234,579 )     (256,252 )
 
           
Cash flows from financing activities:
               
Net repayments under financial services debt
    (81,179 )     (347,272 )
Proceeds from 12.25% senior notes due 2017
    392,392        
Debt issuance costs of 12.25% senior notes due 2017
    (5,500 )      
Redemption of 7 5/8% senior notes due 2009
    (281,477 )      
Partial redemption of 5.125% senior notes due 2010
    (19,177 )      
Partial redemption of 5.95% senior notes due 2011
    (4,647 )      
Proceeds from other borrowings
    17,543       994  
Principal payments on other borrowings
    (67,712 )     (130,024 )
Exercise of land option contracts from an unconsolidated land investment venture
    (22,907 )     (44,146 )
Receipts related to minority interests
    3,588       148,624  
Payments related to minority interests
    (3,366 )     (3,535 )
Common stock:
               
Issuances
    221,125       224  
Repurchases
    (1,130 )     (1,686 )
Dividends
    (20,260 )     (77,073 )
 
           
Net cash provided by (used in) financing activities
  $ 127,293       (453,894 )
 
           

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Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows — (Continued)
(In thousands)
(unaudited)
                 
    Nine Months Ended  
    August 31,  
    2009     2008  
Net increase in cash and cash equivalents
  $ 279,630       144,222  
Cash and cash equivalents at beginning of period
    1,203,422       795,194  
 
           
Cash and cash equivalents at end of period
  $ 1,483,052       939,416  
 
           
Summary of cash and cash equivalents:
               
Homebuilding
  $ 1,336,739       857,050  
Financial services
    146,313       82,366  
 
           
 
  $ 1,483,052       939,416  
 
           
Supplemental disclosures of non-cash investing activities:
               
Non-cash contributions to unconsolidated entities
  $ 280       27,320  
Non-cash distributions from unconsolidated entities
  $ 90,744       56,912  
Non-cash reclass from inventory to operating properties and equipment
  $ 102,775        
Consolidation/deconsolidation of previously unconsolidated/consolidated entities, net:
               
Receivables
  $ 9,821       15,584  
Inventories
  $ 191,621       394,450  
Investment in unconsolidated entities
  $ (99,363 )     (165,977 )
Other assets
  $ 69,574       945  
Other debts payable
  $ (79,105 )     (167,542 )
Other liabilities
  $ (76,935 )     (52,611 )
Minority interest
  $ (15,613 )     (24,849 )
See accompanying notes to condensed consolidated financial statements.

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Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
Basis of Consolidation
     The accompanying condensed 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 17) in which Lennar Corporation is deemed to be the primary beneficiary (the “Company”). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 30, 2008. The Company has evaluated subsequent events through October 9, 2009, the date the condensed consolidated financial statements were filed with the Securities Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.
     The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three and nine months ended August 31, 2009 are not necessarily indicative of the results to be expected for the full year.
Reclassifications
     Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2009 presentation. These reclassifications had no impact on the Company’s results of operations.
Use of Estimates
     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
(2) Operating and Reporting Segments
     The Company’s operating segments are aggregated into reportable segments in accordance with Statement of Financial Accounting Standards (“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:
  (1)   Homebuilding East
 
  (2)   Homebuilding Central
 
  (3)   Homebuilding West
 
  (4)   Homebuilding Houston
 
  (5)   Financial Services
     Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under “Homebuilding Other,” which is not considered a reportable segment in accordance with SFAS 131.

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     Operations of the Company’s homebuilding segments primarily include the construction and sale of single-family attached and detached homes, and to a lesser extent, multi-level residential buildings, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. The Company’s reportable homebuilding segments, and all other homebuilding operations not required to be reported separately, have divisions located in:
     
 
  East: Florida, Maryland, New Jersey and Virginia
 
  Central: Arizona, Colorado and Texas (1)
 
  West: California and Nevada
 
  Houston: Houston, Texas
 
  Other: Illinois, Minnesota, New York, North Carolina and South Carolina
 
(1)   Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.
     Operations of the Financial Services segment include mortgage financing, title insurance, closing services and to a much lesser extent other ancillary services (including high-speed Internet and cable television) for both buyers of the Company’s homes and others. Substantially all of the loans the Financial Services segment originates are sold in the secondary mortgage market on a servicing released, non-recourse basis; although, the Company remains liable for certain limited representations and warranties related to loan sales. The Financial Services segment operates generally in the same states as the Company’s homebuilding operations, as well as in other states.
     Evaluation of segment performance is based primarily on operating earnings (loss) before (provision) benefit for income taxes. Operating earnings (loss) for the homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings (loss) from unconsolidated entities, other income (expense), net and minority interest income (expense), net, less the cost of homes and land sold and selling, general and administrative expenses. Homebuilding operating earnings (loss) includes the following:
    SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS 144”) valuation adjustments to finished homes, construction in progress (“CIP”) and land on which the Company intends to build homes,
 
    SFAS 144 valuation adjustments to land the Company intends to sell or has sold to third parties,
 
    Write-offs of option deposits and pre-acquisition costs related to land under option that the Company does not intend to purchase,
 
    SFAS 144 valuation adjustments related to assets of unconsolidated entities in which the Company has investments, recorded in equity in earning (loss) from unconsolidated entities, and
 
    Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, (“APB 18”) valuation adjustments to the Company’s investments in unconsolidated entities, recorded in other income (expense), net.
     Financial Services operating earnings (loss) consist of revenues generated from mortgage financing, title insurance, closing services, and to a much lesser extent other ancillary services (including high-speed Internet and cable television) less the cost of such services, certain selling, general and administrative expenses incurred by the Financial Services segment and goodwill impairments.
     Each reportable segment follows the same accounting principles described in Note 1 – “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s 2008 Annual Report on Form 10-K. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent stand alone entity during the periods presented.

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     Financial information relating to the Company’s operations was as follows:
                 
    August 31,     November 30,  
(In thousands)   2009     2008  
Assets:
               
Homebuilding East
  $ 1,555,938       1,588,299  
Homebuilding Central
    722,037       774,412  
Homebuilding West
    1,950,952       2,022,787  
Homebuilding Houston
    248,624       267,628  
Homebuilding Other
    810,009       849,726  
Financial Services
    494,658       607,978  
Corporate and unallocated
    1,306,121       1,314,068  
 
           
Total assets
  $ 7,088,339       7,424,898  
 
           
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
Revenues:
                               
Homebuilding East
  $ 192,056       318,371       601,801       898,173  
Homebuilding Central
    96,913       112,404       252,211       404,896  
Homebuilding West
    172,818       323,747       591,761       1,028,677  
Homebuilding Houston
    102,412       154,376       300,316       393,363  
Homebuilding Other
    79,414       107,258       231,787       331,367  
Financial Services
    77,117       90,384       227,770       240,893  
 
                       
Total revenues (1)
  $ 720,730       1,106,540       2,205,646       3,297,369  
 
                       
 
                               
Operating earnings (loss):
                               
Homebuilding East
  $ (52,690 )     5,099       (85,968 )     (66,213 )
Homebuilding Central
    (9,706 )     (21,637 )     (54,836 )     (64,843 )
Homebuilding West
    (90,878 )     (67,757 )     (238,081 )     (206,362 )
Homebuilding Houston
    3,570       15,468       10,002       30,670  
Homebuilding Other
    (2,264 )     (23,367 )     (19,565 )     (35,810 )
Financial Services
    11,156       (12,861 )     28,187       (25,567 )
 
                       
Total operating loss
    (140,812 )     (105,055 )     (360,261 )     (368,125 )
Corporate and unallocated
    (28,053 )     (34,047 )     (86,323 )     (98,453 )
 
                       
Loss before (provision) benefit for income taxes
  $ (168,865 )     (139,102 )     (446,584 )     (466,578 )
 
                       
 
(1)   Total revenues are net of sales incentives of $112.2 million ($42,200 per home delivered) and $385.3 million ($48,600 per home delivered), respectively, for the three and nine months ended August 31, 2009, compared to $169.7 million ($45,900 per home delivered) and $516.2 million ($47,500 per home delivered), respectively, for the three and nine months ended August 31, 2008.

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     Valuation adjustments and write-offs relating to the Company’s operations were as follows:
                                 
    Three Months Ended   Nine Months Ended
  August 31,   August 31,
(In thousands)   2009     2008   2009     2008
SFAS 144 valuation adjustments to finished homes, CIP and land on which the Company intends to build homes:
                               
East
  $ 38,701       8,685       60,972       50,967  
Central
    1,209       2,058       11,463       21,107  
West
    6,879       18,900       40,903       48,960  
Houston
    517       682       760       794  
Other
    2,092       1,959       10,638       10,305  
                     
Total
    49,398       32,284       124,736       132,133  
                     
SFAS 144 valuation adjustments to land the Company intends to sell or has sold to third parties:
                               
East (1)
          11,333       2,117       13,840  
Central
    7       1,201       1,185       10,770  
West
    5       622       2,533       5,437  
Houston
    628             628       109  
Other
          292             893  
                     
Total
    640       13,448       6,463       31,049  
                     
Write-offs of option deposits and pre-acquisition costs:
                               
East
    5,963       832       11,743       11,010  
Central
          1,706       82       5,836  
West
    2,779       5,866       4,482       10,073  
Houston
                721       745  
Other
          2,458       3,786       6,636  
                     
Total
    8,742       10,862       20,814       34,300  
                     
Company’s share of SFAS 144 valuation adjustments related to assets of unconsolidated entities:
                               
East
                251       7,241  
Central
    600             1,454       158  
West
    30,351       2,919       79,296       21,870  
Houston
                       
Other
                      597  
                     
Total
    30,951       2,919       81,001       29,866  
                     
APB 18 valuation adjustments to investments in unconsolidated entities:
                               
East
          10,076       2,566       20,171  
Central
    1,024             13,179       421  
West
    26,381       16,647       54,407       82,593  
Houston
                       
Other
    80       13,272       1,571       13,306  
                     
Total
    27,485       39,995       71,723       116,491  
                     
Write-offs of notes receivable:
                               
West
    511       1,000       511       1,000  
Other
          4,596             4,596  
                     
Total
    511       5,596       511       5,596  
                     
Financial services goodwill impairments
          27,176             27,176  
                     
Total valuation adjustments and write-offs of option deposits and pre-acquisition costs, notes receivable and goodwill
  $ 117,727       132,280       305,248       376,611  
                     
 
(1)   For the three and nine months ended August 31, 2008, SFAS 144 valuation adjustments to land the Company intends to sell or has sold to third parties have been reduced by $7.9 million of minority interest income recorded as a result of a $15.9 million SFAS 144 valuation adjustment to inventory of a 50% – owned consolidated joint venture.

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     Changes in market conditions during the third quarter of 2009 led to lower home sales prices in certain communities and changes in the strategy of certain joint ventures, which resulted in valuation adjustments and write-offs. Further deterioration in the homebuilding market could cause additional pricing pressures and slower absorption, which could lead to additional valuation adjustments in the future. In addition, market conditions could cause the Company to re-evaluate its strategy regarding certain assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those option contracts.
(3) Investments in Unconsolidated Entities
     Summarized condensed financial information on a combined 100% basis related to unconsolidated entities in which the Company has investments that are accounted for by the equity method was as follows:
                                 
    Three Months Ended     Nine Months Ended  
  August 31,     August 31,  
Statements of Operations
 
  2009     2008     2009     2008  
(In thousands)                                
Revenues
  $ 97,572       155,367       216,815       772,635  
Costs and expenses
    264,385       256,816       959,750       1,046,953  
 
                       
Net loss of unconsolidated entities (1)
  $ (166,813 )     (101,449 )     (742,935 )     (274,318 )
 
                       
The Company’s share of net loss – recognized (2)
  $ (42,303 )     (10,958 )     (105,110 )     (52,857 )
 
                       
 
(1)   The net loss of unconsolidated entities for the three and nine months ended August 31, 2009 was primarily related to valuation adjustments recorded by the unconsolidated entities. The Company’s exposure to such losses was significantly lower as a result of its small ownership interest in the respective unconsolidated entities or its previous APB 18 valuation adjustments to its investments in unconsolidated entities.
 
(2)   For the three and nine months ended August 31, 2009, the Company’s share of net loss recognized from unconsolidated entities includes $31.0 million and $81.0 million, respectively of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which the Company has investments, compared to $2.9 million and $29.9 million, respectively, for the three and nine months ended August 31, 2008.
                 
  August 31,     November 30,  
Balance Sheets
 
  2009     2008  
(Dollars in thousands)                
Assets:
               
Cash and cash equivalents
  $ 196,187       135,081  
Inventories
    4,818,496       7,115,360  
Other assets
    300,455       541,984  
 
           
 
  $ 5,315,138       7,792,425  
 
           
 
               
Liabilities and equity:
               
Accounts payable and other liabilities
  $ 628,695       1,042,002  
Debt
    2,229,179       4,062,058  
Equity of:
               
The Company
    650,878       766,752  
Others
    1,806,386       1,921,613  
 
           
Total equity of unconsolidated entities
    2,457,264       2,688,365  
 
           
 
  $ 5,315,138       7,792,425  
 
           
The Company’s equity in its unconsolidated entities
    26 %     29 %
 
           
     In fiscal 2007, the Company sold a portfolio of land consisting of approximately 11,000 homesites in 32 communities located throughout the country to a strategic land investment venture with Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which the Company has a 20% ownership interest and 50% voting rights. Due to the Company’s continuing involvement, the transaction did not qualify as a sale by the Company under GAAP; thus, the inventory has remained on the Company’s consolidated balance sheet in consolidated inventory not owned. As of August 31, 2009 and November 30, 2008, the portfolio of land (including land development costs) of $492.5 million and $538.4 million, respectively, is reflected as inventory in the summarized condensed financial information related to unconsolidated entities in which the Company has investments. The decrease in this inventory from November 30, 2008 to August 31, 2009 resulted primarily from valuation adjustments of $41.6 million recorded by the land investment venture.

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     In June 2008, LandSource Communities Development LLC (“LandSource”) and a number of its subsidiaries commenced proceedings under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. In July 2009, the United States Bankruptcy Court for the District of Delaware confirmed the plan of reorganization for LandSource. As a result of the bankruptcy proceedings, LandSource was reorganized into a new company called Newhall Land Development, LLC, (“Newhall”). The reorganized company emerged from Chapter 11 free of its previous bank debt. As part of the reorganization plan, the Company invested $140 million in exchange for approximately a 15% equity interest in the reorganized Newhall, ownership in several communities that were formerly owned by LandSource and the settlement and release of any claims that might have been asserted against the Company.
     The unconsolidated entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities.
     The summary of the Company’s net recourse exposure related to the unconsolidated entities in which the Company has investments was as follows:
                 
    August 31,     November 30,  
    2009     2008  
(In thousands)                
Several recourse debt – repayment
  $ 50,725       78,547  
Several recourse debt – maintenance
    99,343       167,941  
Joint and several recourse debt – repayment
    141,902       138,169  
Joint and several recourse debt – maintenance
    85,928       123,051  
Land seller debt and other debt recourse exposure
    2,420       12,170  
 
           
The Company’s maximum recourse exposure
    380,318       519,878  
Less: joint and several reimbursement agreements with the Company’s partners
    (121,177 )     (127,428 )
 
           
The Company’s net recourse exposure
  $ 259,141       392,450  
 
           
     During the nine months ended August 31, 2009, the Company reduced its maximum recourse exposure related to indebtedness of unconsolidated entities by $139.6 million, of which $78.4 million was paid by the Company and $61.2 million related to the joint ventures selling inventory, dissolution of joint ventures and renegotiation of joint venture debt agreements. In addition, during the three and nine months ended August 31, 2009, the Company recorded $1.0 million and $28.9 million, respectively, of obligation guarantees related to debt of certain of its joint ventures. As of August 31, 2009, the Company had $4.8 million recorded as a liability.
     The Company’s senior unsecured revolving credit facility (the “Credit Facility”) requires the Company to effect quarterly reductions of its maximum recourse exposure related to joint ventures in which it has investments by a total of $200 million to $535 million by November 30, 2009, which the Company accomplished as of May 31, 2009. The Company must also effect quarterly reductions during its 2010 fiscal year totaling $180 million to $355 million of which the Company has already reduced it by $91.2 million as of August 31, 2009. During the first six months of its 2011 fiscal year, the Company must reduce its maximum recourse exposure related to joint ventures by $80 million to $275 million.
     If the joint ventures are unable to reduce their debt, where there is recourse to the Company, through the sale of inventory or other means, then the Company and its partners may be required to contribute capital to the joint ventures.

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     The recourse debt exposure in the previous table represents the Company’s maximum recourse exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay the debt or to reimburse the Company for any payments on its guarantees. The Company’s unconsolidated entities that have recourse debt have a significant amount of assets and equity. The summarized balance sheets of the Company’s unconsolidated entities with recourse debt were as follows:
                 
    August 31,   November 30,
    2009   2008
(In thousands)                
Assets
  $ 1,647,973       2,846,819  
Liabilities
    1,057,024       1,565,148  
Equity (1)
    590,949       1,281,671  
 
(1)   The decrease in equity of the Company’s unconsolidated entities with recourse debt relates primarily to valuation adjustments recorded by the unconsolidated entities during the nine months ended August 31, 2009. The Company’s exposure to such losses was significantly lower, as a result of its small ownership interest in the respective unconsolidated entities or its previous APB 18 valuation adjustments to its investments in unconsolidated entities.
     In addition, in most instances in which the Company has guaranteed debt of an unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Some of the Company’s guarantees are repayment guarantees and some are maintenance guarantees. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral. In the event of default, if the Company’s venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a maintenance guarantee to bring the value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated entity and increase the Company’s share of any funds the unconsolidated entity distributes.
     In many of the loans to unconsolidated entities, the Company and its joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, very often the guarantee is to complete only the phases as to which construction has already commenced and for which loan proceeds were used. Under many of the completion guarantees, the guarantors are permitted, under certain circumstances, to use undisbursed loan proceeds to satisfy the completion obligations, and in many of those cases, the guarantors only pay interest on those funds, with no repayment of the principal of such funds required.
     During the three months ended August 31, 2009, there were no payments under completion or maintenance guarantees. During the nine months ended August 31, 2009, the Company made payments of $5.6 million and $18.0 million, respectively, under completion and maintenance guarantees. During the three and nine months ended August 31, 2009, loan repayments, including amounts paid under the Company’s repayment guarantees, were $21.9 million and $60.4 million, respectively. These guarantee payments are recorded primarily as contributions to the Company’s unconsolidated entities.
     In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, as of August 31, 2009, the fair values of the maintenance guarantees, repayment guarantees and completion guarantees were not material. The Company believes that as of August 31, 2009, in the event it becomes legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture.

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     In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 10).
     The total debt of the unconsolidated entities in which the Company has investments was as follows:
                 
    August 31,     November 30,  
    2009     2008  
(Dollars in thousands)
               
The Company’s net recourse exposure
  $ 259,141       392,450  
Reimbursement agreements from partners
    121,177       127,428  
 
           
The Company’s maximum recourse exposure
  $ 380,318       519,878  
 
           
 
Non-recourse bank debt and other debt (partner’s share of several recourse)
  $ 183,596       285,519  
Non-recourse land seller debt and other debt
    83,015       90,519  
Non-recourse bank debt with completion guarantees – excluding LandSource
    621,628       820,435  
Non-recourse bank debt without completion guarantees – excluding LandSource
    960,622       994,580  
Non-recourse bank debt without completion guarantees – LandSource (1)
          1,351,127  
 
           
Non-recourse debt to the Company
    1,848,861       3,542,180  
 
           
Total debt
  $ 2,229,179       4,062,058  
 
           
The Company’s maximum recourse exposure as a % of total JV debt
    17 %     13 %
 
           
 
(1)   During the third quarter of 2009, LandSource emerged from bankruptcy as a new reorganized company named Newhall Land Development, LLC. As a result, all of LandSource’s bank debts were discharged.
(4) Income Taxes
FIN 48
     At August 31, 2009 and November 30, 2008, the Company had $92.5 million and $100.2 million, respectively, of gross unrecognized tax benefits. During the three and nine months ended August 31, 2009, total unrecognized tax benefits decreased by $11.9 million and $13.0 million, respectively, as a result of the completion of various state examinations, settlements with various taxing authorities and the lapse of statute limitations. The decrease in total unrecognized tax benefits for the three and nine months ended August 31, 2009 was partially offset by an increase of $5.3 million related to tax benefits taken in a prior period. Although the Company has not recognized these tax benefits, $23.7 million would affect the Company’s effective tax rate if the Company were to recognize these tax benefits.
     The Company expects the total amount of unrecognized tax benefits to decrease by $54.6 million within twelve months as a result of the settlement of certain tax accounting items with the IRS with respect to the prior examination cycle that carried over to the current years under examination, and as a result of the conclusion of examinations with a number of state taxing authorities. The majority of these items were previously recorded as deferred tax liabilities and the settlement will not affect the Company’s tax rate.
     At August 31, 2009, the Company had $33.0 million accrued for interest and penalties, of which $1.9 million and $5.3 million, respectively, was recorded during the three and nine months ended August 31, 2009 in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, (“FIN 48”). At November 30, 2008, the Company had $33.5 million accrued for interest and penalties.
     The IRS is currently examining the Company’s federal income tax returns for fiscal years 2005 through 2009, and certain state taxing authorities are examining various fiscal years. The final outcome of these examinations is not yet determinable. The statute of limitations for the Company’s major tax jurisdictions remains open for examination for fiscal year 2003 and subsequent years.
Deferred Tax Assets
     SFAS 109, Accounting for Income Taxes, (“SFAS 109”) requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the SFAS 109 more-likely-than-not realization

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threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards not expiring unused and tax planning alternatives.
     During fiscal 2008, the Company established a full valuation allowance against its deferred tax assets totaling $730.8 million. Based upon an evaluation of all available evidence, during the three and nine months ended August 31, 2009, the Company recorded an additional valuation allowance of $60.2 million and $162.4 million, respectively, against the entire amount of deferred tax assets generated as a result of its net loss during the periods. The Company’s cumulative loss position over the evaluation period and the current uncertain and volatile market conditions were significant evidence supporting the need for a valuation allowance. As a result, as of August 31, 2009, the Company’s deferred tax assets valuation allowance was $893.2 million. In future periods, the allowance could be reduced based on sufficient evidence indicating that it is more likely than not that a portion or all of the Company’s deferred tax assets will be realized.
(5) Loss Per Share
     Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. As a result of the Company’s net loss during all periods presented, the weighted average number of shares of common stock used for calculating basic and diluted loss per share are the same because the inclusion of securities or other contracts to issue common stock would be anti-dilutive. Basic and diluted loss per share was calculated as follows:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands, except per share amounts)   2009     2008     2009     2008  
Numerator for basic and diluted loss per share – net loss
  $ (171,605 )     (88,964 )     (452,719 )     (298,096 )
 
                       
Denominator for basic and diluted loss per share – weighted average shares
    176,770       158,499       166,658       158,350  
 
                       
Basic and diluted loss per share
  $ (0.97 )     (0.56 )     (2.72 )     (1.88 )
 
                       
     Options to purchase 6.8 million and 6.7 million shares, respectively, of common stock were outstanding and anti-dilutive for the three months ended August 31, 2009 and 2008. Options to purchase 7.5 million shares of common stock were outstanding and anti-dilutive for both the nine months ended August 31, 2009 and 2008.

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(6) Financial Services
     The assets and liabilities related to the Financial Services segment were as follows:
                 
    August 31,     November 30,  
(In thousands)   2009     2008  
Assets:
               
Cash and cash equivalents
  $ 146,313       111,954  
Restricted cash
    30,109       21,977  
Receivables, net (1)
    79,627       133,641  
Loans held-for-sale (2)
    140,192       190,056  
Loans held-for-investment, net
    20,837       58,339  
Investments held-to-maturity
    2,746       19,139  
Goodwill
    34,046       34,046  
Other (3)
    40,788       38,826  
 
           
 
  $ 494,658       607,978  
 
           
Liabilities:
               
Notes and other debts payable
  $ 144,605       225,783  
Other (4)
    196,099       191,050  
 
           
 
  $ 340,704       416,833  
 
           
 
(1)   Receivables, net primarily relate to loans sold to investors for which the Company had not yet been paid as of August 31, 2009 and November 30, 2008, respectively.
 
(2)   Loans held-for-sale relate to unsold loans as of August 31, 2009 and November 30, 2008, respectively, carried at fair value.
 
(3)   Other assets include mortgage loan commitments of $5.9 million and $4.4 million, respectively, as of August 31, 2009 and November 30, 2008, carried at fair value.
 
(4)   Other liabilities include forward contracts of $2.7 million and $6.5 million, respectively, as of August 31, 2009 and November 30, 2008, carried at fair value.
     At August 31, 2009, the Financial Services segment had warehouse repurchase facilities that mature in December 2009 ($100 million) and in June 2010 ($200 million), and a new 364-day warehouse repurchase facility that matures in July 2010 ($125 million). The maximum aggregate commitment under these facilities totaled $425 million. The new 364-day warehouse repurchase facility replaced an on going 60-day committed repurchase facility. The Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and expects the facilities to be renewed or replaced with other facilities when they mature. Borrowings under the facilities were $144.5 million and $209.5 million, respectively, at August 31, 2009 and November 30, 2008 and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $191.2 million and $281.2 million, respectively, at August 31, 2009 and November 30, 2008. If the facilities are not renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.
     At November 30, 2008, the Financial Services segment had advances under the on going 60-day committed repurchase facility of $5.2 million, which were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $5.5 million. At November 30, 2008, the Financial Services segment had advances under a different conduit funding agreement totaling $10.8 million, which were collateralized by mortgage loans.
(7) Cash and Cash Equivalents
     Cash and cash equivalents as of August 31, 2009 and November 30, 2008 included $5.5 million and $9.8 million, respectively, of cash held in escrow for approximately three days.

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(8) Restricted Cash
     Restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold.
(9) Other Assets
     During the three months ended August 31, 2009, the Company reclassified $102.8 million from inventories to operating properties, which is included in other assets, as a result of converting a multi-level residential building to a rental operation. Other assets also include a $58.5 million operating property associated with the consolidation of a joint venture during the three months ended August 31, 2009.
(10) Senior Notes and Other Debts Payable
                 
    August 31,     November 30,  
(Dollars in thousands)   2009     2008  
5.125% senior notes due 2010
  $ 279,918       299,877  
5.95% senior notes due 2011
    244,727       249,615  
5.95% senior notes due 2013
    347,156       346,851  
5.50% senior notes due 2014
    248,224       248,088  
5.60% senior notes due 2015
    501,424       501,618  
6.50% senior notes due 2016
    249,760       249,733  
12.25% senior notes due 2017
    392,392        
7 5/8% senior notes due 2009
          280,976  
Mortgage notes on land and other debt
    402,195       368,177  
 
           
 
  $ 2,665,796       2,544,935  
 
           
     The Company’s Credit Facility consists of a $1.1 billion revolving credit facility that matures in July 2011. In order to borrow under the Credit Facility, the Company is required to first use its cash in excess of $750 million and have availability under its borrowing base calculation. As of August 31, 2009, the Company had no availability to borrow under the Credit Facility due to the fact that it had cash and cash equivalents of $1.3 billion. The Company can create availability under its Credit Facility to the extent it uses the cash in excess of $750 million to purchase qualified borrowing base assets.
     The Credit Facility is guaranteed by substantially all of the Company’s subsidiaries. Interest rates on outstanding borrowings are LIBOR-based, with margins determined based on changes in the Company’s credit ratings, or an alternate base rate, as described in the Credit Facility agreement. At both August 31, 2009 and November 30, 2008, the Company had no outstanding balance under the Credit Facility. However, at August 31, 2009 and November 30, 2008, $194.6 million and $275.2 million, respectively, of the Company’s total letters of credit outstanding discussed below, were collateralized against certain borrowings available under the Credit Facility.
     The Company’s performance letters of credit outstanding were $108.1 million and $167.5 million, respectively, at August 31, 2009 and November 30, 2008. The Company’s financial letters of credit outstanding were $212.8 million and $278.5 million, respectively, at August 31, 2009 and November 30, 2008. Performance letters of credit are generally posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities and financial letters of credit are generally posted in lieu of cash deposits on option contracts. Additionally, at August 31, 2009, the Company had outstanding performance and surety bonds related to site improvements at various projects (including certain projects of the Company’s joint ventures) of $864.1 million. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released or reduced until all development and construction activities are completed. As of August 31, 2009, there were approximately $339.2 million, or 39%, of costs to complete related to these site improvements. The Company does not presently anticipate any draws upon these bonds, but if such draws occur, the Company does not believe they would have a material effect on its financial position, results of operations or cash flows.
     At August 31, 2009, the Company believes it was in compliance with its debt covenants. Under the Credit Facility agreement, the Company is required to maintain a leverage ratio of less than or equal to 55% at the end of each fiscal quarter during the Company’s 2009 fiscal year and a leverage ratio of less

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than or equal to 52.5% for its 2010 fiscal year and through the maturity of the Company’s Credit Facility in 2011. If the Company’s adjusted consolidated tangible net worth, as calculated per the Credit Facility agreement, falls below $1.6 billion, the Company’s Credit Facility would be reduced from $1.1 billion to $0.9 billion. In no event may the Company’s adjusted consolidated tangible net worth, as calculated per the Credit Facility agreement, be less than $1.3 billion. As of August 31, 2009, the Company’s leverage ratio and adjusted consolidated tangible net worth, calculated per the Credit Facility agreement (which involves adjustments to GAAP financial measures, as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations) were 50% and $2.1 billion, respectively.
     In addition to other requirements, the Credit Facility requires the Company to effect quarterly reductions of its maximum recourse exposure related to joint ventures in which it has investments by a total of $200 million to $535 million by November 30, 2009, which the Company accomplished as of May 31, 2009. The Company must also effect quarterly reductions during its 2010 fiscal year totaling $180 million to $355 million of which the Company has already reduced it by $91.2 million. During the first six months of its 2011 fiscal year, the Company must reduce its maximum recourse exposure related to joint ventures by $80 million to $275 million.
     If the joint ventures are unable to reduce their debt, where there is recourse to the Company, through the sale of inventory or other means, then the Company and its partners may be required to contribute capital to the joint ventures.
     In March 2009, the Company retired its $281 million of 7 5/8% senior notes due March 2009 for 100% of the outstanding principal amount, plus accrued and unpaid interest as of the maturity date.
     In April 2009, the Company issued $400 million of 12.25% senior notes due 2017 (the “12.25% Senior Notes”) at a price of 98.098% in a private placement. Proceeds from the offering, after payment of initial purchaser’s discount and expenses, were $386.7 million. The Company added the proceeds to the Company’s working capital to be used for general corporate purposes, which may include the repayment or repurchase of its near-term maturities or of debt of its joint ventures that it has guaranteed. Interest on the 12.25% Senior Notes is due semi-annually. The 12.25% Senior Notes are unsecured and unsubordinated, and are guaranteed by substantially all of the Company’s subsidiaries. In September 2009, the Company completed an exchange of the 12.25% Senior Notes for substantially identical notes registered under the Securities Act of 1933 (the “Exchange Notes”), with all of the 12.25% Senior Notes being exchanged for the Exchange Notes. At August 31, 2009, the carrying amount of the 12.25% Senior Notes was $392.4 million.
(11) Product Warranty
     Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company regularly monitors the warranty reserve and makes adjustments to its pre-existing warranties in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in other liabilities in the accompanying condensed consolidated balance sheets. The activity in the Company’s warranty reserve was as follows:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
Warranty reserve, beginning of period
  $ 142,174       132,942       129,449       164,842  
Warranties issued during the period
    6,475       10,899       19,757       32,845  
Adjustments to pre-existing warranties from changes in estimates
    13,967       9,814       42,746       7,872  
Payments
    (18,678 )     (23,546 )     (48,014 )     (75,450 )
 
                       
Warranty reserve, end of period
  $ 143,938       130,109       143,938       130,109  
 
                       

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     Adjustments to pre-existing warranties from changes in estimates for the three and nine months ended August 31, 2009 include an adjustment for warranty issues related to defective drywall manufactured in China and purchased and installed by various of the Company’s subcontractors. Defective Chinese drywall appears to be an industry-wide issue as other homebuilders have publicly disclosed that they are experiencing similar issues with defective Chinese drywall.
     As of August 31, 2009, the Company identified approximately 500 homes delivered in Florida primarily during its 2006 and 2007 fiscal years that are confirmed to have defective Chinese drywall and resulting damage. This represents a small percentage of homes the Company delivered in Florida (2.6%) and nationally (0.6%) during those fiscal years in the aggregate.
     Based on its efforts to date, the Company has not identified defective Chinese drywall in homes delivered by the Company outside of Florida. The Company is continuing its investigation of homes delivered during the relevant time period in order to determine whether there are additional homes, not yet inspected, with defective Chinese drywall and resulting damage. If the outcome of the Company’s inspections identifies more homes than the Company has estimated to have defective Chinese drywall, it might require an increase in the Company’s warranty reserve in the future.
     Through August 31, 2009, the Company has accrued $54.5 million of warranty reserves, which include amounts related to homes identified as having defective Chinese drywall as well as an estimate for homes not yet inspected that may contain Chinese drywall. As of August 31, 2009, the warranty reserve, net of payments was $41.8 million. The Company has a $33.6 million receivable for covered damages under its insurance coverage relative to the cost it expects to incur in remedying the homes confirmed and estimated to have defective Chinese drywall and resulting damage. The Company is seeking reimbursement from its subcontractors, insurers and others for costs the Company has incurred or expects to incur to investigate and repair defective Chinese drywall and resulting damage.
(12) Stockholders’ Equity
     The Company has a stock repurchase program which permits the purchase of up to 20 million shares of its outstanding common stock. There were no share repurchases during the nine months ended August 31, 2009. As of August 31, 2009, 6.2 million shares of common stock can be repurchased in the future under the program. Treasury stock increased by 0.1 million and 0.3 million common shares, respectively, during the three and nine months ended August 31, 2009, in connection with activity related to the Company’s equity compensation plan and forfeitures of restricted stock.
     During April 2009, the Company entered into distribution agreements with J.P. Morgan Securities, Inc., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., relating to an offering of the Company’s Class A common stock into the market from time to time for an aggregate of up to $275 million. As of August 31, 2009, the Company had sold a total of 21.0 million shares of its Class A common stock under the equity offering for gross proceeds of $225.5 million, or an average of $10.76 per share. After compensation to the distributors of $4.5 million, the Company received net proceeds of $221.0 million. The Company will use the proceeds from the offering for general corporate purposes which may include acquisitions.
(13) Share-Based Payment
     During the three months ended August 31, 2009 and 2008, compensation expense related to the Company’s share-based payment awards was $6.4 million and $6.4 million, respectively, of which $3.0 million and $1.9 million, respectively, related to stock options and $3.4 million and $4.5 million, respectively, related to awards of restricted common stock (“nonvested shares”). During the nine months ended August 31, 2009 and 2008, compensation expense related to the Company’s share-based payment awards was $22.0 million and $21.3 million, respectively, of which $9.0 million and $8.8 million, respectively, related to stock options and $13.0 million and $12.5 million, respectively, related to nonvested shares. During the three months ended August 31, 2009, the Company granted an immaterial amount of stock options and did not issue any nonvested shares. During the three months ended August 31,

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2008, the Company granted 4.5 million stock options and issued 0.1 million nonvested shares. During the nine months ended August 31, 2009, the Company granted an immaterial amount of stock options and did not issue any nonvested shares. During the nine months ended August 31, 2008, the Company granted 4.5 million stock options and issued 1.2 million nonvested shares.
(14) Comprehensive Loss
     Comprehensive loss represents changes in stockholders’ equity from non-owner sources. The components of comprehensive loss were as follows:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
Net loss
  $ (171,605 )     (88,964 )     (452,719 )     (298,096 )
Unrealized gain on Company’s portion of unconsolidated entity’s interest rate swap liability, net of tax
          2,812             2,061  
 
                       
Comprehensive loss
  $ (171,605 )     (86,152 )     (452,719 )     (296,035 )
 
                       
(15) Financial Instruments
     The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at August 31, 2009 and November 30, 2008, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables and accounts payable, which had fair values approximating their carrying amounts due to the short maturities of these instruments.
                                 
    August 31, 2009   November 30, 2008
    Carrying   Fair   Carrying   Fair
(In thousands)   Amount   Value   Amount   Value
ASSETS
                               
Financial services:
                               
Loans held-for-investment, net
  $ 20,837       20,837       58,339       58,339  
Investments held-to-maturity
  $ 2,746       2,758       19,139       19,266  
LIABILITIES
                               
Homebuilding:
                               
Senior notes and other debts payable
  $ 2,665,796       2,594,167       2,544,935       1,785,692  
Financial services:
                               
Notes and other debts payable
  $ 144,605       144,605       225,783       225,783  
     The following methods and assumptions are used by the Company in estimating fair values:
     Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is based on quoted market prices. The Company’s variable-rate borrowings are tied to market indices and approximate fair value due to the short maturities associated with the majority of the instruments.
     Financial services—The fair values above are based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

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(16) Fair Value Disclosures
     SFAS No. 157, Fair Value Measurements, (“SFAS 157”), provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:
     Level 1: Fair value determined based on quoted prices in active markets for identical assets.
     Level 2: Fair value determined using significant other observable inputs.
     Level 3: Fair value determined using significant unobservable inputs.
     The Company’s financial instruments measured at fair value on a recurring basis are all within the Company’s Financial Services segment and are summarized below:
                 
    Fair Value   Fair Value at
Financial Instruments
 
  Hierarchy   August 31, 2009
(Dollars in thousands)                
Loans held-for-sale (1)
  Level 2   $ 140,192  
Mortgage loan commitments
  Level 2     5,894  
Forward contracts
  Level 2     (2,717 )
 
(1)   The aggregate fair value of loans held-for-sale of $140.2 million exceeds its aggregate principal balance of $136.3 million by $3.9 million.
     As of August 31, 2009, the Company’s loans held-for-sale are carried at fair value in accordance with SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”), which permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Management believes carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. In addition, the Company also applies Staff Accounting Bulletin (“SAB”) No. 109, Written Loan Commitments Recorded at Fair Value through Earnings, (“SAB 109”) to its rights to service a mortgage loan and recognizes revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these servicing rights is included in the Company’s loans held-for-sale balance as of August 31, 2009. Fair value of the servicing rights is determined based on quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics.
     The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the current period. The assets measured at fair value on a nonrecurring basis are all within the Company’s Homebuilding operations and are summarized below:
                         
    Fair Value   Fair Value at   Total
Non-financial Assets
 
  Hierarchy   August 31, 2009   Losses(1)
(Dollars in thousands)                        
Finished homes and construction in progress (2)
  Level 3   $ 83,300       (43,301 )
Land under development (3)
  Level 3     4,624       (6,737 )
Investments in unconsolidated entities (4)
  Level 3     125       (27,485 )
 
(1)   Represents total losses recorded during the three months ended August 31, 2009.
 
(2)   In accordance with SFAS 144, finished homes and construction in progress with a carrying value of $126.6 million were written down to their fair value of $83.3 million, resulting in an impairment charge of $43.3 million, which was included in homebuilding costs and expenses in the Company’s statement of operations for three months ended August 31, 2009.
 
(3)   In accordance with SFAS 144, land under development with a carrying value of $11.3 million was written down to its fair value of $4.6 million, resulting in an impairment charge of $6.7 million, which was included in homebuilding costs and expenses in the Company’s statement of operations for the three months ended August 31, 2009.

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(4)   In accordance with APB 18, investments in unconsolidated entities with an aggregate carrying value of $27.6 million were written down to their fair value of $0.1 million. The impairment charge of $27.5 million was included in other expense, net in the Company’s statement of operations for the three months ended August 31, 2009.
     Finished homes and construction in progress and land under development are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. The Company reviews its inventory for impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development stage of the community. As of August 31, 2009 and 2008, there were 411 and 523 active communities, respectively, each of which was reviewed for impairment. SFAS 144 requires that if the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment charge should be recorded to write-down the carrying amount of such asset to its fair value.
     The Company estimates the fair value of its communities using a discounted cash flow model. In determining the projected cash flows of a community, the Company primarily uses estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every homebuilding division evaluates the historical performance of each of its communities and the current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above. For example, since the start of the downturn in the housing market, the Company has reduced its construction costs in many communities, and this reduction in construction costs, in addition to changes in product type, has impacted future estimated cash flows. Using all of the trend information available, the division provides its best estimate of projected cash flows for each community. While many of the estimates are calculated based on trends, all estimates are subjective and change from market to market; and from community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. The Company generally uses a discount rate of approximately 20% depending on the perceived risks associated with a community’s cash flow streams relative to its inventory.
     The Company evaluates each of its investments in unconsolidated entities for impairment during each reporting period in accordance with APB 18. A series of operating losses of an investee or other factors including age of venture, intent and ability for the Company to retain its investment in the entity, financial condition and long-term prospects of the entity and relationships with the other partners and banks, may indicate that a decrease in the value of the Company’s investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. If the Company determines that its investment in the unconsolidated entity, or a portion of this investment could not be recovered through disposition, the Company includes these losses in other expense, net. The evaluation of the Company’s investment in an unconsolidated entity includes two critical assumptions: (1) projected future distributions from the unconsolidated entity and (2) discount rates applied to the future distributions. Inventory of the Company’s unconsolidated entities is also reviewed for potential impairment in accordance with SFAS 144. The unconsolidated entities generally use discount rates of approximately 20% in their SFAS 144 reviews for impairment, subject to the perceived risks associated with the community’s cash flow stream relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity in accordance with SFAS 144, the Company’s proportionate share is reflected in the Company’s equity in loss from unconsolidated entities with a corresponding decrease to its investments in unconsolidated entities.

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(17) Consolidation of Variable Interest Entities
     The Company follows FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (“FIN 46R”), 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.
Unconsolidated Entities
     At August 31, 2009, the Company had investments in and advances to unconsolidated entities established to acquire and develop land for sale to the Company in connection with its homebuilding operations, for sale to third parties or for the construction of homes for sale to third-party homebuyers. The Company evaluated all agreements under FIN 46R that were entered into or had reconsideration events during the nine months ended August 31, 2009, and it consolidated entities that at August 31, 2009 had total combined assets and liabilities of $195.3 million and $95.8 million, respectively.
     At August 31, 2009 and November 30, 2008, the Company’s recorded investment in unconsolidated entities was $650.9 million and $766.8 million, respectively. The Company’s estimated maximum exposure to loss with regard to unconsolidated entities is primarily its recorded investment in these entities and the exposure under the guarantees discussed in Note 3.
Option Contracts
     The Company has access to land through option contracts, which generally enables it to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company has determined whether to exercise the option.
     A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. The Company’s option contracts sometimes include price adjustment provisions, which adjust the purchase price of the land to its approximate fair value at the time of acquisition, or are based on the fair value of the land at the time of takedown.
     The Company’s investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case the Company’s investments are written down to fair value. The Company reviews option contracts for impairment during each reporting period. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet the Company’s targeted return on investment. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause the Company to re-evaluate the likelihood of exercising its land options.
     Some option contracts contain a predetermined take-down schedule for the optioned land parcels. However, in almost all instances, the Company is not required to purchase land in accordance with those take-down schedules. In substantially all instances, the Company has the right and ability to not exercise its option and forfeit its deposit without further penalty, other than termination of the option and loss of any unapplied portion of its deposit and pre-acquisition costs. Therefore, in substantially all instances, the Company does not consider the take-down price to be a firm contractual obligation.
     When the Company does not intend to exercise an option, it writes off any unapplied deposit and pre-acquisition costs associated with the option contract. For the three months ended August 31, 2009 and August 31, 2008, the Company wrote-off $8.7 million and $10.9 million, respectively, of option deposits and pre-acquisition costs related to land under option that it does not intend to purchase. For the nine months ended August 31, 2009 and August 31, 2008, the Company wrote off $20.8 million and $34.3 million, respectively, of option deposits and pre-acquisition costs related to land under option that it does not intend to purchase.

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     The table below indicates the number of homesites owned and homesites to which the Company had access through option contracts with third parties (“optioned”) or unconsolidated joint ventures in which the Company has investments (“JVs”) (i.e., controlled homesites) at August 31, 2009 and 2008:
                                         
    Controlled Homesites     Owned     Total  
August 31, 2009
  Optioned     JVs     Total     Homesites     Homesites  
                               
East
    8,019       2,504       10,523       25,622       36,145  
Central
    1,370       3,761       5,131       16,168       21,299  
West
    29       11,212       11,241       21,410       32,651  
Houston
    1,051       2,115       3,166       6,588       9,754  
Other
    489       677       1,166       7,747       8,913  
                               
Total homesites
    10,958       20,269       31,227       77,535       108,762  
                               
                                         
    Controlled Homesites     Owned     Total  
August 31, 2008
  Optioned     JVs     Total     Homesites     Homesites  
                               
East
    9,416       5,676       15,092       26,813       41,905  
Central
    1,724       6,036       7,760       14,493       22,253  
West
    1,370       24,183       25,553       18,547       44,100  
Houston
    1,434       2,755       4,189       7,897       12,086  
Other
    768       733       1,501       8,512       10,013  
                               
Total homesites
    14,712       39,383       54,095       76,262       130,357  
                               
     The Company evaluates all option contracts for land when entered into or upon a reconsideration event to determine whether it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46R, the Company, if it is deemed to be the primary beneficiary, is required to consolidate the land under option at the purchase price of the optioned land. During the nine months ended August 31, 2009, the effect of the consolidation of these option contracts was an increase of $12.5 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the Company’s condensed consolidated balance sheet as of August 31, 2009. This increase was offset by the Company exercising its options to acquire land under certain contracts previously consolidated, resulting in a net decrease in consolidated inventory not owned of $70.2 million during the nine months ended August 31, 2009. To reflect the purchase price of the inventory consolidated under FIN 46R, the Company reclassified $2.1 million of related option deposits from land under development to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of August 31, 2009. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and the Company’s cash deposits.
     The Company’s exposure to loss related to its option contracts with third parties and unconsolidated entities consisted of its non-refundable option deposits and pre-acquisition costs totaling $173.6 million and $191.2 million, respectively, at August 31, 2009 and November 30, 2008. Additionally, the Company had posted $58.8 million and $89.5 million, respectively, of letters of credit in lieu of cash deposits under certain option contracts as of August 31, 2009 and November 30, 2008.
(18) New Accounting Pronouncements
     In September 2006, the FASB issued 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 was effective for the Company’s financial assets and liabilities on December 1, 2007. The FASB deferred the provisions of SFAS 157 relating to nonfinancial assets and

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liabilities until the Company’s fiscal year beginning December 1, 2008. SFAS 157 did not materially affect how the Company determines fair value, but has resulted in certain additional disclosures (see Note 16).
     In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS 140-4 and FIN 46(R)-8, Disclosure by Public Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest Entities. The purpose of this FSP is to promptly improve disclosures by public companies until the pending amendments to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, and FIN 46R requiring public companies to provide additional disclosures regarding their involvement about the transferor’s continuing involvement with transferred financial assets are effective. It also amends FIN 46R by requiring public companies to provide additional disclosures regarding their involvement with variable interest entities. This FSP was effective for the Company’s fiscal year beginning December 1, 2008. The FSP did not have a material effect on the Company’s condensed consolidated financial statements.
     In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133, (“SFAS 161”). SFAS 161 expands the disclosure requirements in SFAS 133 regarding an entity’s derivative instruments and hedging activities. SFAS 161 was effective for the Company’s fiscal year beginning December 1, 2008. The adoption of SFAS 161 did not have a material effect on the Company’s condensed consolidated financial statements.
     In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, (“FSP 107-1”). FSP 107-1 requires that the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, be included in interim financial statements. In addition, FSP 107-1 requires public companies to disclose the method and significant assumptions used to estimate the fair value of those financial instruments and to discuss any changes of method or assumptions, if any, during the reporting period. FSP 107-1 was effective for the Company’s quarter ended August 31, 2009. The adoption of FSP 107-1 did not have a material effect on the Company’s condensed consolidated financial statements, but has resulted in certain additional disclosures (see Note 15).
     In May 2009, the FASB issued SFAS No. 165, Subsequent Events, (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Among other things, SFAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS 165 was effective for the Company’s quarter ended August 31, 2009. The adoption of SFAS 165 did not have a material impact on the Company’s condensed consolidated financial statements, but has resulted in certain additional disclosures (see Note 1).
     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities and the definition of a variable interest entity, and requires enhanced disclosures to provide more information about an enterprise’s involvement in a variable interest entity. This statement also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS 167 is effective for the Company’s fiscal year beginning December 1, 2009. The Company is currently reviewing the effect of SFAS 167 on its condensed consolidated financial statements.
     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162, (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 is effective for the Company’s November 30, 2009 consolidated financial statements. SFAS 168 does not change GAAP and will not have a material impact on the Company’s consolidated financial statements.

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(19) Supplemental Financial Information
     The Company’s obligations to pay principal, premium, if any, and interest under its Credit Facility, 5.125% senior notes due 2010, 5.95% senior notes due 2011, 5.95% senior notes due 2013, 5.50% senior notes due 2014, 5.60% senior notes due 2015, 6.50% senior notes due 2016 and 12.25% senior notes due 2017 are guaranteed by substantially all of the Company’s subsidiaries. The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The guarantees are joint and several, subject to limitations as to each guarantor designed to eliminate constructive 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:
Condensed Consolidating Balance Sheet
August 31, 2009
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
ASSETS
                                       
Homebuilding:
                                       
Cash and cash equivalents, restricted cash, receivables, net and income tax receivables
  $ 1,260,978       167,348       32,212             1,460,538  
Inventories
          3,709,972       511,486             4,221,458  
Investments in unconsolidated entities
          623,447       27,431             650,878  
Other assets
    27,242       56,089       177,476             260,807  
Investments in subsidiaries
    3,802,053       641,102             (4,443,155 )      
                               
 
    5,090,273       5,197,958       748,605       (4,443,155 )     6,593,681  
Financial services
          159,752       334,906             494,658  
                               
Total assets
  $ 5,090,273       5,357,710       1,083,511       (4,443,155 )     7,088,339  
                               
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Homebuilding:
                                       
Accounts payable and other liabilities
  $ 234,357       672,906       65,180             972,443  
Liabilities related to consolidated inventory not owned
          532,045                   532,045  
Senior notes and other debts payable
    2,263,601       193,699       208,496             2,665,796  
Intercompany
    186,355       91,793       (278,148 )            
                               
 
    2,684,313       1,490,443       (4,472 )           4,170,284  
Financial services
          65,214       275,490             340,704  
                               
Total liabilities
    2,684,313       1,555,657       271,018             4,510,988  
Minority interest
                171,391             171,391  
Stockholders’ equity
    2,405,960       3,802,053       641,102       (4,443,155 )     2,405,960  
                               
Total liabilities and stockholders’ equity
  $ 5,090,273       5,357,710       1,083,511       (4,443,155 )     7,088,339  
                               

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(19) Supplemental Financial Information – (Continued)
Condensed Consolidating Balance Sheet
November 30, 2008
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
ASSETS
                                       
Homebuilding:
                                       
Cash and cash equivalents, restricted cash, receivables, net and income tax receivables
  $ 1,263,623       165,060       21,593             1,450,276  
Inventories
          3,975,084       525,006             4,500,090  
Investments in unconsolidated entities
          751,613       15,139             766,752  
Other assets
    30,420       64,515       4,867             99,802  
Investments in subsidiaries
    4,314,255       635,413             (4,949,668 )      
                               
 
    5,608,298       5,591,685       566,605       (4,949,668 )     6,816,920  
Financial services
          8,332       599,646             607,978  
                               
Total assets
  $ 5,608,298       5,600,017       1,166,251       (4,949,668 )     7,424,898  
                               
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Homebuilding:
                                       
Accounts payable and other liabilities
  $ 269,457       700,411       111,732             1,081,600  
Liabilities related to consolidated inventory not owned
          592,777                   592,777  
Senior notes and other debts payable
    2,176,758       130,126       238,051             2,544,935  
Intercompany
    539,076       (140,463 )     (398,613 )            
                               
 
    2,985,291       1,282,851       (48,830 )           4,219,312  
Financial services
          2,911       413,922             416,833  
                               
Total liabilities
    2,985,291       1,285,762       365,092             4,636,145  
Minority interest
                165,746             165,746  
Stockholders’ equity
    2,623,007       4,314,255       635,413       (4,949,668 )     2,623,007  
                               
Total liabilities and stockholders’ equity
  $ 5,608,298       5,600,017       1,166,251       (4,949,668 )     7,424,898  
                               

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(19) Supplemental Financial Information – (Continued)
Condensed Consolidating Statement of Operations
Three Months Ended August 31, 2009
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
Revenues:
                                       
Homebuilding
  $       636,918       6,695             643,613  
Financial services
          43,750       49,406       (16,039 )     77,117  
                               
Total revenues
          680,668       56,101       (16,039 )     720,730  
                               
Costs and expenses:
                                       
Homebuilding
          694,217       12,078       (1,935 )     704,360  
Financial services
          40,699       37,258       (11,996 )     65,961  
Corporate general and administrative
    26,319                   1,734       28,053  
                               
Total costs and expenses
    26,319       734,916       49,336       (12,197 )     798,374  
                               
Equity in loss from unconsolidated entities
          (42,211 )     (92 )           (42,303 )
Other expense, net
    (3,828 )     (51,711 )           3,842       (51,697 )
Minority interest income, net
                2,779             2,779  
                               
Earnings (loss) before (provision) benefit for income taxes
    (30,147 )     (148,170 )     9,452             (168,865 )
(Provision) benefit for income taxes
    2,789       (2,401 )     (3,128 )           (2,740 )
Equity in earnings (loss) from subsidiaries
    (144,247 )     6,324             137,923        
                               
Net earnings (loss)
  $ (171,605 )     (144,247 )     6,324       137,923       (171,605 )
                               
Condensed Consolidating Statement of Operations
Three Months Ended August 31, 2008
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
Revenues:
                                       
Homebuilding
  $       1,014,296       1,860             1,016,156  
Financial services
          2,240       105,423       (17,279 )     90,384  
                               
Total revenues
          1,016,536       107,283       (17,279 )     1,106,540  
                               
Costs and expenses:
                                       
Homebuilding
          1,055,890       1,836       (3,546 )     1,054,180  
Financial services
          1,447       112,804       (11,006 )     103,245  
Corporate general and administrative
    34,047                         34,047  
                               
Total costs and expenses
    34,047       1,057,337       114,640       (14,552 )     1,191,472  
                               
Equity in loss from unconsolidated entities
          (10,958 )                 (10,958 )
Other expense, net
    (2,727 )     (52,228 )           2,727       (52,228 )
Minority interest income, net
                9,016             9,016  
                               
Earnings (loss) before (provision) benefit for income taxes
    (36,774 )     (103,987 )     1,659             (139,102 )
(Provision) benefit for income taxes
    13,265       37,473       (600 )           50,138  
Equity in earnings (loss) from subsidiaries
    (65,455 )     1,059             64,396        
                               
Net earnings (loss)
  $ (88,964 )     (65,455 )     1,059       64,396       (88,964 )
                               

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(19) Supplemental Financial Information – (Continued)
Condensed Consolidating Statement of Operations
Nine Months Ended August 31, 2009
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
Revenues:
                                       
Homebuilding
  $       1,947,066       30,810             1,977,876  
Financial services
          123,941       146,512       (42,683 )     227,770  
                               
Total revenues
          2,071,007       177,322       (42,683 )     2,205,646  
                               
Costs and expenses:
                                       
Homebuilding
          2,116,834       50,368       (17,008 )     2,150,194  
Financial services
          113,785       106,365       (20,567 )     199,583  
Corporate general and administrative
    81,207                   5,116       86,323  
                               
Total costs and expenses
    81,207       2,230,619       156,733       (32,459 )     2,436,100  
                               
Equity in loss from unconsolidated entities
          (104,872 )     (238 )           (105,110 )
Other expense, net
    (10,182 )     (122,095 )           10,224       (122,053 )
Minority interest income, net
                11,033             11,033  
                               
Earnings (loss) before (provision) benefit for income taxes
    (91,389 )     (386,579 )     31,384             (446,584 )
(Provision) benefit for income taxes
    10,207       (5,310 )     (11,032 )           (6,135 )
Equity in earnings (loss) from subsidiaries
    (371,537 )     20,352             351,185        
                               
Net earnings (loss)
  $ (452,719 )     (371,537 )     20,352       351,185       (452,719 )
                               
Condensed Consolidating Statement of Operations
Nine Months Ended August 31, 2008
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
Revenues:
                                       
Homebuilding
  $       3,050,362       5,518       596       3,056,476  
Financial services
          4,370       292,423       (55,900 )     240,893  
                               
Total revenues
          3,054,732       297,941       (55,304 )     3,297,369  
                               
Costs and expenses:
                                       
Homebuilding
          3,235,705       6,135       (8,558 )     3,233,282  
Financial services
          3,567       302,380       (39,487 )     266,460  
Corporate general and administrative
    98,453                         98,453  
                               
Total costs and expenses
    98,453       3,239,272       308,515       (48,045 )     3,598,195  
                               
Equity in loss from unconsolidated entities
          (52,857 )                 (52,857 )
Other expense, net
    (7,259 )     (121,895 )           7,259       (121,895 )
Minority interest income, net
                9,000             9,000  
                               
Loss before benefit for income taxes
    (105,712 )     (359,292 )     (1,574 )           (466,578 )
Benefit for income taxes
    38,174       129,740       568             168,482  
Equity in loss from subsidiaries
    (230,558 )     (1,006 )           231,564        
                               
Net loss
  $ (298,096 )     (230,558 )     (1,006 )     231,564       (298,096 )
                               

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(19) Supplemental Financial Information – (Continued)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended August 31, 2009
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
Cash flows from operating activities:
                                       
Net earnings (loss)
  $ (452,719 )     (371,537 )     20,352       351,185       (452,719 )
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities
    144,275       1,060,910       (14,365 )     (351,185 )     839,635  
                               
Net cash provided by (used in) operating activities
    (308,444 )     689,373       5,987             386,916  
                               
Cash flows from investing activities:
                                       
Increase in investments in unconsolidated entities, net
          (206,029 )     (48,004 )           (254,033 )
Other
    (52 )     19,966       (460 )           19,454  
                               
Net cash used in investing activities
    (52 )     (186,063 )     (48,464 )           (234,579 )
                               
Cash flows from financing activities:
                                       
Net repayments under financial services debt
          (69 )     (81,110 )           (81,179 )
Net proceeds from 12.25% senior notes due 2017
    386,892                         386,892  
Redemption of 7 5/8% senior notes due 2009
    (281,477 )                       (281,477 )
Partial redemption of 5.125% senior notes due 2010
    (19,177 )                       (19,177 )
Partial redemption of 5.95% senior notes due 2011
    (4,647 )                       (4,647 )
Net repayments on other borrowings
          (4,664 )     (45,505 )           (50,169 )
Exercise of land option contracts from an unconsolidated land investment venture
          (22,907 )                 (22,907 )
Net receipts related to minority interests
                222             222  
Common stock:
                                       
Issuances
    221,125                         221,125  
Repurchases
    (1,130 )                       (1,130 )
Dividends
    (20,260 )                       (20,260 )
Intercompany
    265,307       (464,249 )     198,942              
                               
Net cash provided by (used in) financing activities
    546,633       (491,889 )     72,549             127,293  
                               
Net increase in cash and cash equivalents
    238,137       11,421       30,072             279,630  
Cash and cash equivalents at beginning of period
    1,007,594       125,437       70,391             1,203,422  
                               
Cash and cash equivalents at end of period
  $ 1,245,731       136,858       100,463             1,483,052  
                               

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(19) Supplemental Financial Information – (Continued)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended August 31, 2008
                                         
    Lennar     Guarantor     Non-Guarantor              
(In thousands)   Corporation     Subsidiaries     Subsidiaries     Eliminations     Total  
                               
Cash flows from operating activities:
                                       
Net loss
  $ (298,096 )     (230,558 )     (1,006 )     231,564       (298,096 )
Adjustments to reconcile net loss to net cash provided by operating activities
    567,908       728,759       87,361       (231,564 )     1,152,464  
                               
Net cash provided by operating activities
    269,812       498,201       86,355             854,368  
                               
Cash flows from investing activities:
                                       
Increase in investments in unconsolidated entities, net
          (263,406 )                 (263,406 )
Other
    (691 )     (3,694 )     11,539             7,154  
                               
Net cash provided by (used in) investing activities
    (691 )     (267,100 )     11,539             (256,252 )
                               
Cash flows from financing activities:
                                       
Net repayments under financial services debt
                (347,272 )           (347,272 )
Net repayments on other borrowings
          (46,570 )     (82,460 )           (129,030 )
Exercise of land option contracts from an unconsolidated land investment venture
          (44,146 )                 (44,146 )
Net receipts related to minority interests
                145,089             145,089  
Common stock:
                                       
Issuances
    224                         224  
Repurchases
    (1,686 )                       (1,686 )
Dividends
    (77,073 )                       (77,073 )
Intercompany
    70,498       (202,629 )     132,131              
                               
Net cash used in financing activities
    (8,037 )     (293,345 )     (152,512 )           (453,894 )
                               
Net increase (decrease) in cash and cash equivalents
    261,084       (62,244 )     (54,618 )           144,222  
Cash and cash equivalents at beginning of period
    497,384       139,733       158,077             795,194  
                               
Cash and cash equivalents at end of period
  $ 758,468       77,489       103,459             939,416  
                               

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Item 1 of this Report and our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for our fiscal year ended November 30, 2008.
     Some of the statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, are “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements may 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” included in Item 1A of our Annual Report on Form 10-K for our fiscal year ended November 30, 2008. We do not undertake any obligation to update forward-looking statements, except as required by Federal securities laws.
Outlook
     During the third quarter of 2009, the overall housing market appears to have continued its road back to recovery as more confident homebuyers took advantage of increased affordability, declining home prices, historically low interest rates and government stimulus programs. While high unemployment, increased foreclosures and strict credit standards continue to present challenges for the industry to generate a more normalized sales pace and pricing, consumer sentiment has significantly improved as homebuyers appear to have recognized that the residential housing market is stabilizing.
     Our strategy has been to streamline our core homebuilding operations for a return to profitability and to position us for future opportunities. We have continued to make strategic operational changes in order to address the current homebuilding environment by focusing on S,G&A control and efficient low-cost floor plans targeted to first-time and value-focused homebuyers. S,G&A control has resulted in the centralization of functions and reduction of homebuilding divisions in order to significantly lower overhead costs, while our focus on efficient low-cost floor plans and market tuned product has enabled us to reduce our construction cost per square foot and the number of floor plans we bring to market.
     In addition, we continue to focus on carefully managing our inventory levels and working on reducing our joint ventures and our net recourse indebtedness exposure. We will also continue to focus on cash generation and returning to homebuilding profitability.
(1) Results of Operations
Overview
     We historically have experienced, and expect to continue to experience, variability in quarterly results. Our results of operations for the three and nine months ended August 31, 2009 are not necessarily indicative of the results to be expected for the full year.
     Our net loss was $171.6 million, or $0.97 per basic and diluted share, in the third quarter of 2009, compared to net loss of $89.0 million, or $0.56 per basic and diluted share, in the third quarter of 2008. Net loss was $452.7 million, or $2.72 per basic and diluted share, in the nine months ended August 31, 2009, compared to a net loss of $298.1 million, or $1.88 per basic and diluted share, in the nine months ended August 31, 2008. Market conditions remained challenging in all of our regions and the net loss for

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the three and nine months ended August 31, 2009 is attributable to those conditions. Our gross margins decreased during the three and nine months ended August 31, 2009, compared to the same periods last year, primarily as a result of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-lived Assets, (“SFAS 144”) valuation adjustments and a decrease in the average sales price of homes delivered during the three and nine months ended August 31, 2009, compared to the same periods last year.
     Financial information relating to our operations was as follows:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009   2008   2009   2008
                                 
Homebuilding revenues:
                               
Sales of homes
  $ 635,266       995,731       1,946,624       2,967,651  
Sales of land
    8,347       20,425       31,252       88,825  
                                 
Total homebuilding revenues
    643,613       1,016,156       1,977,876       3,056,476  
                                 
Homebuilding costs and expenses:
                               
Cost of homes sold
    585,770       848,609       1,786,854       2,595,468  
Cost of land sold
    17,792       49,273       48,839       149,526  
Selling, general and administrative
    100,798       156,298       314,501       488,288  
                                 
Total homebuilding costs and expenses
    704,360       1,054,180       2,150,194       3,233,282  
                                 
Homebuilding operating margins
    (60,747 )     (38,024 )     (172,318 )     (176,806 )
Equity in loss from unconsolidated entities
    (42,303 )     (10,958 )     (105,110 )     (52,857 )
Other expense, net
    (51,697 )     (52,228 )     (122,053 )     (121,895 )
Minority interest income, net
    2,779       9,016       11,033       9,000  
                                 
Homebuilding operating loss
  $ (151,968 )     (92,194 )     (388,448 )     (342,558 )
                                 
Financial services revenues
  $ 77,117       90,384       227,770       240,893  
Financial services costs and expenses
    65,961       103,245     199,583       266,460
                                 
Financial services operating earnings (loss)
  $ 11,156       (12,861 )     28,187       (25,567 )
                                 
Total operating loss
  $ (140,812 )     (105,055 )     (360,261 )     (368,125 )
Corporate general and administrative expenses
    (28,053 )     (34,047 )     (86,323 )     (98,453 )
                                 
Loss before (provision) benefit for income taxes
  $ (168,865 )     (139,102 )     (446,584 )     (466,578 )
                                 
Three Months Ended August 31, 2009 versus Three Months Ended August 31, 2008
     Revenues from home sales decreased 36% in the third quarter of 2009 to $635.3 million from $995.7 million in 2008. Revenues were lower primarily due to a 28% decrease in the number of home deliveries, excluding unconsolidated entities, and a 12% decrease in the average sales price of homes delivered in the third quarter of 2009. New home deliveries, excluding unconsolidated entities, decreased to 2,660 homes in the third quarter of 2009 from 3,694 homes last year. In the third quarter of 2009, new home deliveries were lower in each of our homebuilding segments and Homebuilding Other, compared to 2008. The average sales price of homes delivered decreased to $239,000 in the third quarter of 2009 from $270,000 in the same period last year. Sales incentives offered to homebuyers were $42,200 per home delivered in the third quarter of 2009, compared to $45,900 per home delivered in the same period last year, and declined sequentially from $52,600 per home delivered in the second quarter of 2009.
     Gross margins on home sales were $49.5 million, or 7.8%, in the third quarter of 2009, which included $49.4 million of SFAS 144 valuation adjustments, compared to gross margins on home sales of $147.1 million, or 14.8%, in the third quarter of 2008, which included $32.3 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $98.9 million, or 15.6%, in the third quarter of 2009, compared to $179.4 million, or 18.0%, in the third quarter of 2008. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year, due to reduced pricing and to sales incentives as a percentage of revenues from home sales

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increasing to 15.0% in the third quarter of 2009, from 14.5% in the same period last year. Gross margins on home sales excluding SFAS 144 valuation adjustments is a non-GAAP financial measure which is discussed in the Non-GAAP Financial Measure section.
     Homebuilding interest expense was $40.7 million in the third quarter of 2009 ($17.8 million was included in cost of homes sold, $0.5 million was included in cost of land sold and $22.4 million was included in other expense, net), compared to $27.6 million in the third quarter of 2008 ($21.4 million was included in cost of homes sold, $1.0 million was included in cost of land sold and $5.2 million was included in other expense, net). Despite a decrease in deliveries during the third quarter of 2009, compared to the third quarter of 2008, interest expense increased primarily due to the interest related to $400 million of 12.25% senior notes due 2017 issued during the second quarter of 2009 and a reduction in qualifying assets eligible for interest capitalization as a result of a decrease in inventories.
     Selling, general and administrative expenses were reduced by $55.5 million, or 36%, in the third quarter of 2009, compared to the same period last year, primarily due to reductions in associate headcount, variable selling expenses and fixed costs. As a percentage of revenues from home sales, selling, general and administrative expenses were 15.9% in the third quarter of 2009 and 15.7% in 2008.
     Losses on land sales totaled $9.4 million in the third quarter of 2009, which included $0.6 million of SFAS 144 valuation adjustments and $8.7 million of write-offs of deposits and pre-acquisition costs related to homesites under option that we do not intend to purchase. In the third quarter of 2008, losses on land sales totaled $28.8 million, which included $21.4 million of SFAS 144 valuation adjustments and $10.9 million of write-offs of deposits and pre-acquisition costs related to homesites that were under option.
     Equity in loss from unconsolidated entities was $42.3 million in the third quarter of 2009, which included $31.0 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments, compared to equity in loss from unconsolidated entities of $11.0 million in the third quarter of 2008, which included $2.9 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments.
     Other expense, net, was $51.7 million in the third quarter of 2009, which included $27.5 million of Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, (“APB 18”) valuation adjustments to our investments in unconsolidated entities and $0.5 million of write-offs of notes receivable, compared to other expense, net, of $52.2 million in the third quarter of 2008, which included $40.0 million of APB 18 valuation adjustments to our investments in unconsolidated entities and $5.6 million of write-offs of notes receivable.
     Minority interest income, net, was $2.8 million in the third quarter of 2009, compared to minority interest income, net, of $9.0 million in the third quarter of 2008, which included $7.9 million of minority interest income as a result of a $15.9 million SFAS 144 valuation adjustment to inventory of a 50%-owned consolidated joint venture.
     Sales of land, equity in loss from unconsolidated entities, other expense, net and minority interest income, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.
     Operating earnings for the Financial Services segment was $11.2 million in the third quarter of 2009, compared to an operating loss of $12.9 million in the same period last year. In the third quarter of 2008, there was a $27.2 million write-off of goodwill related to the segment’s mortgage operations, compared to no write-off in the third quarter of 2009.
     Corporate general and administrative expenses were reduced by $6.0 million, or 18%, in the third quarter of 2009, compared to the same period last year. As a percentage of total revenues, corporate general and administrative expenses increased to 3.9% in the third quarter of 2009, from 3.1% in 2008, due to lower revenues.

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     SFAS 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on available evidence, it is more likely than not that such assets will not be realized. As a result of its net loss during the three months ended August 31, 2009, we generated deferred tax assets of $60.2 million and recorded a non-cash valuation allowance in accordance with SFAS 109 against the entire amount of deferred tax assets generated.
     During the three months ended August 31, 2009, we issued 8.1 million shares of our Class A common stock under an equity offering into the market from time to time for gross proceeds of $99.2 million.
     In July 2009, the United States Bankruptcy Court for the District of Delaware confirmed the plan of reorganization for LandSource Communities Development LLC (“LandSource”). As a result of the bankruptcy proceedings, LandSource was reorganized into a new company called Newhall Land Development, LLC, (“Newhall”). The reorganized company emerged from Chapter 11 free of bank debt. As part of the reorganization plan, we invested $140 million in exchange for approximately a 15% equity interest in the reorganized Newhall, ownership in several communities that were formerly owned by LandSource and the settlement and release of any claims that might have been asserted against us.
     Our overall effective income tax rates were (1.62%) and 36.04%, respectively for the three months ended August 31, 2009 and 2008. The decrease in the effective tax rate, compared with the same period during 2008, resulted primarily from the establishment of a deferred tax asset valuation allowance.
Nine Months Ended August 31, 2009 versus Nine Months Ended August 31, 2008
     Revenues from home sales decreased 34% in the nine months ended August 31, 2009 to $1.9 billion from $3.0 billion in 2008. Revenues were lower primarily due to a 27% decrease in the number of home deliveries, excluding unconsolidated entities, and a 10% decrease in the average sales price of homes delivered in 2009. New home deliveries, excluding unconsolidated entities, decreased to 7,934 homes in the nine months ended August 31, 2009 from 10,860 homes last year. In the nine months ended August 31, 2009, new home deliveries were lower in each of our homebuilding segments and Homebuilding Other, compared to 2008. The average sales price of homes delivered decreased to $245,000 in the nine months ended August 31, 2009 from $274,000 in 2008. Sales incentives offered to homebuyers were $48,600 per home delivered in the nine months ended August 31, 2009, compared to $47,500 per home delivered in the same period last year.
     Gross margins on home sales were $159.8 million, or 8.2%, in the nine months ended August 31, 2009, which included $124.7 million of SFAS 144 valuation adjustments, compared to gross margins on home sales of $372.2 million, or 12.5%, in the nine months ended August 31, 2008, which included $132.1 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $284.5 million, or 14.6%, in the nine months ended August 31, 2009, compared to $504.3 million, or 17.0%, in 2008. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year, due to reduced pricing and to sales incentives as a percentage of revenues from home sales increasing to 16.5% in the nine months ended August 31, 2009, from 14.8% in the same period last year. Gross margins on home sales excluding SFAS 144 valuation adjustments is a non-GAAP financial measure, which is discussed in the Non-GAAP Financial Measure section.
     Homebuilding interest expense was $99.5 million in the nine months ended August 31, 2009 ($45.5 million was included in cost of homes sold, $5.0 million was included in cost of land sold and $49.0 million was included in other expense, net), compared to $98.0 million in the same period last year ($73.6 million was included in cost of homes sold, $2.3 million was included in cost of land sold and $22.1 million was included in other expense, net). Despite a decrease in deliveries during the nine months ended August 31, 2009, compared to the same period last year, interest expense increased primarily due to the interest related to $400 million of 12.25% senior notes due 2017 issued during the second quarter of 2009 and a reduction in qualifying assets eligible for interest capitalization as a result of a decrease in inventories.

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     Selling, general and administrative expenses were reduced by $173.8 million, or 36%, in the nine months ended August 31, 2009, compared to the same period last year, primarily due to reductions in associate headcount, variable selling expenses and fixed costs. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 16.2% in the nine months ended August 31, 2009, from 16.5% in 2008.
     Losses on land sales totaled $17.6 million in the nine months ended August 31, 2009, which included $6.5 million of SFAS 144 valuation adjustments and $20.8 million of write-offs of deposits and pre-acquisition costs related to homesites under option that we do not intend to purchase. In the nine months ended August 31, 2008, losses on land sales totaled $60.7 million, which included $39.0 million of SFAS 144 valuation adjustments and $34.3 million of write-offs of deposits and pre-acquisition costs related to homesites that were under option.
     Equity in loss from unconsolidated entities was $105.1 million in the nine months ended August 31, 2009, which included $81.0 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments, compared to equity in loss from unconsolidated entities of $52.9 million in the nine months ended August 31, 2008, which included $29.9 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments.
     Other expense, net, was $122.1 million in the nine months ended August 31, 2009, which included $71.7 million of APB 18 valuation adjustments to our investments in unconsolidated entities and $0.5 million of write-offs of notes receivable, compared to other expense, net, of $121.9 million in the nine months ended August 31, 2008, which included $116.5 million of APB 18 valuation adjustments to our investments in unconsolidated entities and $5.6 million of write-offs of notes receivable.
     Minority interest income, net, was $11.0 million in the nine months ended August 31, 2009, compared to minority interest income, net, of $9.0 million in the nine months ended August 31, 2008, which included $7.9 million of minority interest as a result of a $15.9 million SFAS 144 valuation adjustment to inventory of a 50%-owned consolidated joint venture.
     Sales of land, equity in loss from unconsolidated entities, other expense, net and minority interest income, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.
     Operating earnings for the Financial Services segment was $28.2 million in the nine months ended August 31, 2009, compared to an operating loss of $25.6 million in the same period last year. The increase in profitability in the Financial Services segment was primarily due to lower fixed costs as a result of its successful cost reduction initiatives implemented throughout the downturn. In addition, in the nine months ended August 31, 2008, there was a $27.2 million write-off of goodwill related to the segment’s mortgage operations, compared to no write-off in the nine months ended August 31, 2009.
     Corporate general and administrative expenses were reduced by $12.1 million, or 12%, in the nine months ended August 31, 2009, compared to the same period last year. As a percentage of total revenues, corporate general and administrative expenses increased to 3.9% in the nine months ended August 31, 2009, from 3.0% in the same period last year, due to lower revenues.
     SFAS 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on available evidence, it is more likely than not that such assets will not be realized. As a result of its net loss during the nine months ended August 31, 2009, we generated deferred tax assets of $162.4 million and recorded a non-cash valuation allowance in accordance with SFAS 109 against the entire amount of deferred tax assets generated.
     As of August 31, 2009, we had issued 21.0 million shares of our Class A common stock under an equity offering into the market from time to time for gross proceeds of $225.5 million. We are authorized to sell shares for up to $275 million under the equity offering. We will use the proceeds from the equity offering for general corporate purposes which may include acquisitions.

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     Our overall effective income tax rates were (1.37%) and 36.11%, respectively for the nine months ended August 31, 2009 and 2008. The decrease in the effective tax rate, compared with the same period during 2008, resulted primarily from the establishment of a deferred tax asset valuation allowance.
Non-GAAP Financial Measure
     Gross margins on home sales excluding SFAS 144 valuation adjustments is a non-GAAP financial measure, and is defined by us as sales of homes revenue less costs of homes sold excluding SFAS 144 valuation adjustments recorded during the period. Management finds this to be an important and useful measure in evaluating our performance because it discloses the profit we generate on homes we actually delivered during the period, as our SFAS 144 valuation adjustments relate to inventory that we did not deliver during the period. Gross margins on home sales excluding SFAS 144 valuation adjustments also is important to our management, because it assists our management in making strategic decisions regarding our construction pace, product mix and product pricing based upon the profitability we generated on homes we actually delivered during previous periods. We believe investors also find gross margins on home sales excluding SFAS 144 valuation adjustments to be important and useful because it discloses a profitability measure on homes we actually delivered in a period that can be compared to the profitability on homes we delivered in a prior period without regard to the variability of SFAS 144 valuation adjustments recorded from period to period. In addition, to the extent that our competitors provide similar information, disclosure of our gross margins on home sales excluding SFAS 144 valuation adjustments helps readers of our financial statements compare our ability to generate profits with regard to the homes we deliver in a period to our competitors’ ability to generate profits with regard to the homes they deliver in the same period.
     Although management finds gross margins on home sales excluding SFAS 144 valuation adjustments to be an important measure in conducting and evaluating our operations, this measure has limitations as an analytical tool as it is not reflective of the actual profitability generated by our company during the period. This is because it excludes charges we recorded, in accordance with SFAS 144, relating to inventory that was impaired during the period. In addition, because gross margins on home sales excluding SFAS 144 valuation adjustments is a financial measure that is not calculated in accordance with GAAP, it may not be completely comparable to similarly titled measures of our competitors due to differences in methods of calculation and charges being excluded. Our management compensates for the limitations of using gross margins on home sales excluding SFAS 144 valuation adjustments by using this non-GAAP measure only to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our operations. In order to analyze our overall performance and actual profitability relative to our homebuilding operations, we also compare our gross margins on home sales during the period, inclusive of SFAS 144 valuation adjustments, with the same measure during prior comparable periods. Due to the limitations discussed above, gross margins on home sales excluding SFAS 144 valuation adjustments should not be viewed in isolation as it is not a substitute for GAAP measures of gross margins.
     The table set forth below reconciles our gross margins on home sales excluding SFAS 144 valuation adjustments for the three and nine months ended August 31, 2009 and 2008 to our gross margins on home sales for the three and nine months ended August 31, 2009 and 2008:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
                         
Sales of homes
  $ 635,266       995,731       1,946,624       2,967,651  
Cost of homes sold
    585,770       848,609       1,786,854       2,595,468  
                             
Gross margins on home sales
    49,496       147,122       159,770       372,183  
SFAS 144 valuation adjustments to finished homes, CIP and land on which we intend to build homes
    49,398       32,284       124,736       132,133  
                             
Gross margins on home sales excluding SFAS 144 valuation adjustments
  $ 98,894       179,406       284,506       504,316  
                             

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Homebuilding Segments
     We have grouped our homebuilding activities into four reportable segments, which we refer to as Homebuilding East, Homebuilding Central, Homebuilding West and Homebuilding Houston, based primarily upon similar economic characteristics, geography and product type. 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 Financial Condition and Results of Operations to homebuilding segments are to those reportable segments.
     At August 31, 2009, our reportable homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in:
     East: Florida, Maryland, New Jersey and Virginia
     Central: Arizona, Colorado and Texas (1)
     West: California and Nevada
     Houston: Houston, Texas
     Other: Illinois, Minnesota, New York, North Carolina and South Carolina
 
(1)   Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.
     The following tables set forth selected financial and operational information related to our homebuilding operations for the periods indicated:
Selected Financial and Operational Data
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
Revenues:
                               
East:
                               
Sales of homes
  $ 190,321       306,415       583,630       878,856  
Sales of land
    1,735       11,956       18,171       19,317  
 
                       
Total East
    192,056       318,371       601,801       898,173  
 
                       
Central:
                               
Sales of homes
    94,297       111,429       247,823       389,155  
Sales of land
    2,616       975       4,388       15,741  
 
                       
Total Central
    96,913       112,404       252,211       404,896  
 
                       
West:
                               
Sales of homes
    170,974       320,943       587,970       1,000,056  
Sales of land
    1,844       2,804       3,791       28,621  
 
                       
Total West
    172,818       323,747       591,761       1,028,677  
 
                       
Houston:
                               
Sales of homes
    100,442       152,075       295,596       385,775  
Sales of land
    1,970       2,301       4,720       7,588  
 
                       
Total Houston
    102,412       154,376       300,316       393,363  
 
                       
Other:
                               
Sales of homes
    79,232       104,869       231,605       313,809  
Sales of land
    182       2,389       182       17,558  
 
                       
Total Other
    79,414       107,258       231,787       331,367  
 
                       
Total homebuilding revenues
  $ 643,613       1,016,156       1,977,876       3,056,476  
 
                       

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    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
Operating earnings (loss):
                               
East:
                               
Sales of homes
  $ (37,616 )     22,787       (56,400 )     (824 )
Sales of land
    (5,696 )     (18,742 )     (5,999 )     (29,619 )
Equity in loss from unconsolidated entities
    (1,676 )     (3,262 )     (4,312 )     (30,275 )
Other expense, net
    (7,788 )     (4,683 )     (19,561 )     (15,092 )
Minority interest income, net
    86       8,999       304       9,597  
 
                       
Total East
    (52,690 )     5,099       (85,968 )     (66,213 )
 
                       
Central:
                               
Sales of homes
    (4,348 )     (19,449 )     (30,420 )     (55,299 )
Sales of land
    160       (1,846 )     (168 )     (11,719 )
Equity in earnings (loss) from unconsolidated entities
    (940 )     338       (2,763 )     1,106  
Other income (expense), net
    (4,579 )     (680 )     (21,579 )     1,534  
Minority interest income (expense), net
    1             94       (465 )
 
                       
Total Central
    (9,706 )     (21,637 )     (54,836 )     (64,843 )
 
                       
West:
                               
Sales of homes
    (15,947 )     (30,250 )     (70,765 )     (80,616 )
Sales of land
    (3,274 )     (5,794 )     (5,983 )     (15,997 )
Equity in loss from unconsolidated entities
    (39,169 )     (7,474 )     (96,198 )     (21,997 )
Other expense, net
    (33,825 )     (24,256 )     (69,150 )     (87,770 )
Minority interest income, net
    1,337       17       4,015       18  
 
                       
Total West
    (90,878 )     (67,757 )     (238,081 )     (206,362 )
 
                       
Houston:
                               
Sales of homes
    5,644       15,769       15,108       31,320  
Sales of land
    (680 )     476       (1,696 )     801  
Equity in loss from unconsolidated entities
    (365 )     (278 )     (1,514 )     (808 )
Other expense, net
    (1,029 )     (499 )     (1,896 )     (643 )
 
                       
Total Houston
    3,570       15,468       10,002       30,670  
 
                       
Other:
                               
Sales of homes
    965       1,967       (12,254 )     (10,686 )
Sales of land
    45       (2,942 )     (3,741 )     (4,167 )
Equity in loss from unconsolidated entities
    (153 )     (282 )     (323 )     (883 )
Other expense, net
    (4,476 )     (22,110 )     (9,867 )     (19,924 )
Minority interest income (expense), net
    1,355             6,620       (150 )
 
                       
Total Other
    (2,264 )     (23,367 )     (19,565 )     (35,810 )
 
                       
Total homebuilding operating loss
  $ (151,968 )     (92,194 )     (388,448 )     (342,558 )
 
                       

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Summary of Homebuilding Data
Deliveries
                                                 
    Three Months Ended  
    Homes     Dollar Value (In thousands)     Average Sales Price  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
    885       1,197     $ 190,321       313,505     $ 215,000       262,000  
Central
    462       561       94,297       111,430       204,000       199,000  
West
    551       885       195,507       335,401       355,000       379,000  
Houston
    494       758       100,442       152,074       203,000       201,000  
Other
    299       390       79,232       135,555       265,000       348,000  
 
                                   
Total
    2,691       3,791     $ 659,799       1,047,965     $ 245,000       276,000  
 
                                   
     Of the total homes delivered listed above, 31 homes with a dollar value of $24.5 million and an average sales price of $791,000 represent deliveries from unconsolidated entities for the three months ended August 31, 2009, compared to 97 deliveries with a dollar value of $52.2 million and an average sales price of $538,000 for the three months ended August 31, 2008.
                                                 
    Nine Months Ended  
    Homes     Dollar Value (In thousands)     Average Sales Price  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
    2,654       3,440     $ 583,630       902,585     $ 220,000       262,000  
Central
    1,243       1,837       247,823       389,155       199,000       212,000  
West
    1,758       2,874       627,724       1,106,454       357,000       385,000  
Houston
    1,479       1,945       295,596       385,775       200,000       198,000  
Other
    848       1,121       232,155       373,778       274,000       333,000  
 
                                   
Total
    7,982       11,217     $ 1,986,928       3,157,747     $ 249,000       282,000  
 
                                   
     Of the total homes delivered listed above, 48 homes with a dollar value of $40.3 million and an average sales price of $840,000 represent deliveries from unconsolidated entities for the nine months ended August 31, 2009, compared to 357 deliveries with a dollar value of $190.1 million and an average sales price of $532,000 for the nine months ended August 31, 2008.
Sales Incentives (1)
                                                 
    Three Months Ended  
    Sales Incentives     Average Sales Incentives     Sales Incentives  
    (In thousands)     Per Home Delivered     as a % of Revenue  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
  $ 43,869       63,142     $ 49,600       53,900       18.7 %     17.0 %
Central
    15,151       21,011       32,800       37,500       13.9 %     15.8 %
West
    24,223       53,325       46,600       62,200       12.4 %     14.2 %
Houston
    16,781       17,853       34,000       23,600       14.3 %     10.5 %
Other
    12,157       14,347       40,700       41,300       13.3 %     12.1 %
 
                                   
Total
  $ 112,181       169,678     $ 42,200       45,900       15.0 %     14.5 %
 
                                   
                                                 
    Nine Months Ended  
    Sales Incentives     Average Sales Incentives     Sales Incentives  
    (In thousands)     Per Home Delivered     as a % of Revenue  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
  $ 139,970       179,055     $ 52,700       53,300       19.4 %     16.9 %
Central
    46,846       70,925       37,700       38,600       15.9 %     15.4 %
West
    107,170       177,563       62,600       66,600       15.4 %     15.1 %
Houston
    50,102       40,667       33,900       20,900       14.5 %     9.5 %
Other
    41,198       47,979       48,700       45,600       15.1 %     13.3 %
 
                                   
Total
  $ 385,286       516,189     $ 48,600       47,500       16.5 %     14.8 %
 
                                   
 
(1)   Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.

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New Orders (2)
                                                 
    Three Months Ended  
    Homes     Dollar Value (In thousands)     Average Sales Price  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
    1,046       944     $ 233,718       205,855     $ 223,000       218,000  
Central
    492       554       98,788       106,582       201,000       192,000  
West
    651       870       223,807       311,873       344,000       358,000  
Houston
    557       687       116,734       127,153       210,000       185,000  
Other
    358       332       87,936       91,991       246,000       277,000  
 
                                   
Total
    3,104       3,387     $ 760,983       843,454     $ 245,000       249,000  
 
                                   
     Of the total new orders listed above, 17 homes with a dollar value of $13.8 million and an average sales price of $816,000 represent new orders from unconsolidated entities for the three months ended August 31, 2009, compared to 50 new orders with a dollar value of $20.8 million and an average sales price of $415,000 for the three months ended August 31, 2008.
                                                 
    Nine Months Ended  
    Homes     Dollar Value (In thousands)     Average Sales Price  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
    2,869       3,190     $ 631,866       752,201     $ 220,000       236,000  
Central
    1,421       1,811       284,725       378,622       200,000       209,000  
West
    2,032       2,762       699,885       1,037,662       344,000       376,000  
Houston
    1,601       1,967       323,116       392,259       202,000       199,000  
Other
    935       1,098       237,145       302,300       254,000       275,000  
 
                                   
Total
    8,858       10,828     $ 2,176,737       2,863,044     $ 246,000       264,000  
 
                                   
     Of the total new orders listed above, 48 homes with a dollar value of $34.0 million and an average sales price of $709,000 represent new orders from unconsolidated entities for the nine months ended August 31, 2009, compared to 212 new orders with a dollar value of $110.9 million and an average sales price of $523,000 for the nine months ended August 31, 2008.
 
(2)   New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the three and nine months ended August 31, 2009 and 2008.
Backlog
                                                 
    Homes     Dollar Value (In thousands)     Average Sales Price  
    August 31,     August 31,     August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008     2009     2008  
East
    1,004       1,541     $ 252,100       416,889     $ 251,000       271,000  
Central
    301       259       61,277       52,965       204,000       204,000  
West
    521       770       180,955       306,975       347,000       399,000  
Houston
    391       611       85,188       134,824       218,000       221,000  
Other
    258       373       67,367       136,031       261,000       365,000  
 
                                   
Total
    2,475       3,554     $ 646,887       1,047,684     $ 261,000       295,000  
 
                                   
     Of the total homes in backlog listed above, 7 homes with a backlog dollar value of $5.8 million and an average sales price of $829,000 represent the backlog from unconsolidated entities at August 31, 2009, compared with backlog from unconsolidated entities of 132 homes with a dollar value of $66.8 million and an average sales price of $506,000 at August 31, 2008.

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     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 cancellation rates in our homebuilding segments and Homebuilding Other as follows:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,     August 31,     August 31,  
    2009     2008     2009     2008  
East
    22 %     34 %     21 %     30 %
Central
    17 %     25 %     16 %     22 %
West
    16 %     25 %     14 %     23 %
Houston
    19 %     25 %     19 %     24 %
Other
    14 %     22 %     16 %     19 %
 
                       
Overall
    19 %     27 %     18 %     25 %
 
                       
Three Months Ended August 31, 2009 versus Three Months Ended August 31, 2008
     Homebuilding East: Homebuilding revenues decreased for the three months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in all the states in this segment, except in New Jersey, and a decrease in the average sales price of homes delivered in all the states in this segment. Gross margins on home sales were ($10.5) million, or (5.5%), for the three months ended August 31, 2009, including SFAS 144 valuation adjustments of $38.7 million, compared to gross margins on home sales of $58.4 million, or 19.1%, for the three months ending August 31, 2008, including $8.7 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $28.2 million, or 14.8%, for the three months ended August 31, 2009, compared to $67.1 million, or 21.9%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year due to reduced pricing and higher sales incentives offered to homebuyers as a percentage of revenues from home sales (18.7% in 2009, compared to 17.0% in 2008).
     Losses on land sales were $5.7 million for the three months ended August 31, 2009, including $6.0 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase, compared to losses on land sales of $18.7 million during the same period last year, including $0.8 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $19.3 million of SFAS 144 valuation adjustments.
     Homebuilding Central: Homebuilding revenues decreased for the three months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in all the states in this segment. Gross margins on home sales were $10.3 million, or 10.9%, for the three months ended August 31, 2009, including SFAS 144 valuation adjustments of $1.2 million, compared to gross margins on home sales of $4.4 million, or 4.0%, for the three months ending August 31, 2008, including $2.1 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $11.5 million, or 12.2%, for the three months ended August 31, 2009, compared to $6.5 million, or 5.8%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, increased compared to last year due to our lower inventory basis, continued focus on reducing costs, and lower sales incentives offered to homebuyers as a percentage of revenues from home sales (13.9% in 2009, compared to 15.8% in 2008).
     Gross profits on land sales were $0.2 million for the three months ended August 31, 2009, compared to losses on land sales of $1.8 million during the same period last year, including $1.7 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $1.2 million of SFAS 144 valuation adjustments.
     Homebuilding West: Homebuilding revenues decreased for the three months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries and average sales price of homes delivered in all of the states in this segment. Gross margins on home sales were $21.1 million, or 12.4%, for the three months ended August 31, 2009, including SFAS 144 valuation adjustments of $6.9 million, compared to gross margins on home sales of $33.1 million, or 10.3%, for the

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three months ending August 31, 2008, including $18.9 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $28.0 million, or 16.4%, for the three months ended August 31, 2009, compared to $52.0 million, or 16.2%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 adjustments, increased compared to last year primarily due to lower sales incentives offered to homebuyers as a percentage of revenues from home sales (12.4% in 2009, compared to 14.2% in 2008).
     Losses on land sales were $3.3 million for the three months ended August 31, 2009, including $2.8 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase, compared to losses on land sales of $5.8 million during the same period last year, including $5.9 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $0.6 million of SFAS 144 valuation adjustments.
     Homebuilding Houston: Homebuilding revenues decreased for the three months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in this segment. Gross margins on home sales were $16.6 million, or 16.6%, for the three months ended August 31, 2009, including SFAS 144 valuation adjustments of $0.5 million, compared to gross margins on home sales of $32.5 million, or 21.3%, for the three months ending August 31, 2008, including $0.7 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $17.2 million, or 17.1%, for the three months ended August 31, 2009, compared to $33.1 million, or 21.8%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year due to higher sales incentives offered to homebuyers as a percentage of revenues from home sales (14.3% in 2009, compared to 10.5% in 2008).
     Losses on land sales were $0.7 million for the three months ended August 31, 2009, including $0.6 million of SFAS 144 valuation adjustments, compared to gross profits on land sales of $0.5 million during the same period last year.
     Homebuilding Other: Homebuilding revenues decreased for the three months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in all states in Homebuilding Other. Gross margins on home sales were $11.9 million, or 15.0%, for the three months ended August 31, 2009, including SFAS 144 valuation adjustments of $2.1 million, compared to gross margins on home sales of $18.8 million, or 17.9%, for the three months ending August 31, 2008, including $2.0 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $14.0 million, or 17.7%, for the three months ended August 31, 2009, compared to $20.7 million, or 19.8%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year primarily due to higher sales incentives offered to homebuyers as a percentage of revenues from home sales (13.3% in 2009, compared to 12.1% in 2008).
     Gross profits on land sales were less than $0.1 million for the three months ended August 31, 2009, compared to losses on land sales of $2.9 million during the same period last year, including $2.5 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $0.3 million of SFAS 144 valuation adjustments.
Nine Months Ended August 31, 2009 versus Nine Months Ended August 31, 2008
     Homebuilding East: Homebuilding revenues decreased for the nine months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in all the states in this segment, except New Jersey, and a decrease in the average sales price of homes delivered in all the states in this segment. Gross margins on home sales were $19.6 million, or 3.4%, for the nine months ended August 31, 2009, including SFAS 144 valuation adjustments of $61.0 million, compared to gross margins on home sales of $127.8 million, or 14.5%, for the nine months ended August 31, 2008, including $51.0 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $80.5 million, or 13.8%, for the nine months ended August 31, 2009, compared to $178.8 million, or 20.3%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year due to reduced

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pricing and higher sales incentives offered to homebuyers as a percentage of revenues from home sales (19.4% in 2009, compared to 16.9% in 2008).
     Losses on land sales were $6.0 million for the nine months ended August 31, 2009, including $11.7 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $2.1 million of SFAS 144 valuation adjustments, compared to losses on land sales of $29.6 million during the same period last year, including $11.0 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $21.8 million of SFAS 144 valuation adjustments.
     Homebuilding Central: Homebuilding revenues decreased for the nine months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in all the states in this segment. Gross margins on home sales were $17.3 million, or 7.0%, for the nine months ended August 31, 2009, including SFAS 144 valuation adjustments of $11.5 million, compared to gross margins on home sales of $21.3 million, or 5.5%, for the nine months ended August 31, 2008, including $21.1 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $28.8 million, or 11.6%, for the nine months ended August 31, 2009, compared to $42.4 million, or 10.9%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, increased compared to last year due to our lower inventory basis and continued focus on reducing costs. Sales incentives offered to homebuyers as a percentage of home sales revenues were 15.9% in 2009 and 15.4% in 2008.
     Losses on land sales were $0.2 million for the nine months ended August 31, 2009, including $0.1 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $1.2 million of SFAS 144 valuation adjustments, compared to losses on land sales of $11.7 million during the same period last year, including $5.8 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $10.8 million of SFAS 144 valuation adjustments.
     Homebuilding West: Homebuilding revenues decreased for the nine months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries and average sales price of homes delivered in all the states in this segment. Gross margins on home sales were $51.2 million, or 8.7%, for the nine months ended August 31, 2009, including SFAS 144 valuation adjustments of $40.9 million, compared to gross margins on home sales of $103.8 million, or 10.4%, for the nine months ended August 31, 2008, including $49.0 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $92.1 million, or 15.7%, for the nine months ended August 31, 2009, compared to $152.8 million, or 15.3%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, increased compared to last year due to our lower inventory basis and continued focus on reducing costs. Sales incentives offered to homebuyers as a percentage of home sales revenues were 15.4% in 2009 and 15.1% in 2008.
     Losses on land sales were $6.0 million for the nine months ended August 31, 2009, including $4.5 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $2.5 million of SFAS 144 valuation adjustments, compared to losses on land sales of $16.0 million during the same period last year, including $10.1 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $5.4 million of SFAS 144 valuation adjustments.
     Homebuilding Houston: Homebuilding revenues decreased for the nine months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in this segment. Gross margins on home sales were $50.3 million, or 17.0%, for the nine months ended August 31, 2009, including SFAS 144 valuation adjustments of $0.8 million, compared to gross margins on home sales of $78.3 million, or 20.3%, for the nine months ended August 31, 2008, including $0.8 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $51.1 million, or 17.3%, for the nine months ended August 31, 2009, compared to $79.1 million, or 20.5%, for the same period last year. Gross margin percentage on home sales, excluding SFAS

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144 valuation adjustments, decreased compared to last year primarily due to higher sales incentives offered to homebuyers as a percentage of home sales revenues (14.5% in 2009, compared to 9.5% in 2008).
     Losses on land sales were $1.7 million for the nine months ended August 31, 2009, including $0.7 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase and $0.6 million of SFAS 144 valuation adjustments, compared to gross profits on land sales of $0.8 million during the same period last year, including $0.7 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $0.1 million of SFAS 144 valuation adjustments.
     Homebuilding Other: Homebuilding revenues decreased for the nine months ended August 31, 2009, compared to the same period last year, primarily due to a decrease in the number of home deliveries in all the states in Homebuilding Other except in the Carolinas and a decrease in the average sales price of homes in the Carolinas and Minnesota. Gross margins on home sales were $21.3 million, or 9.2%, for the nine months ended August 31, 2009, including SFAS 144 valuation adjustments of $10.6 million, compared to gross margins on home sales of $41.0 million, or 13.1%, for the nine months ended August 31, 2008, including $10.3 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $32.0 million, or 13.8%, for the nine months ended August 31, 2009, compared to $51.3 million, or 16.3%, for the same period last year. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year due to higher sales incentives offered to homebuyers as a percentage of home sales revenues (15.1% in 2009, compared to 13.3% in 2008).
     Losses on land sales were $3.7 million for the nine months ended August 31, 2009, including $3.8 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase, compared to losses on land sales of $4.2 million during the same period last year, including $6.6 million of write-offs of deposits and pre-acquisition costs related to land that was under option and $0.9 million of SFAS 144 valuation adjustments.

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     Gross margins on home sales excluding SFAS 144 valuation adjustments is a Non-GAAP financial measure that is discussed previously under “Non-GAAP Financial Measure.” The table set forth below reconciles our gross margins on home sales excluding SFAS 144 valuation adjustments for the three and nine months ended August 31, 2009 and 2008 for each of our reportable homebuilding segments and Homebuilding Other to our gross margins on home sales for the three and nine months ended August 31, 2009 and 2008:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(In thousands)   2009     2008     2009     2008  
East:
                               
Sales of homes
  $ 190,321       306,415       583,630       878,856  
Cost of homes sold
    200,841       248,014       564,071       751,041  
 
                       
Gross margins on home sales
    (10,520 )     58,401       19,559       127,815  
SFAS 144 valuation adjustments to finished homes, CIP and land on which we intend to build homes
    38,701       8,685       60,972       50,967  
 
                       
Gross margins on home sales excluding SFAS 144 valuation adjustments
    28,181       67,086       80,531       178,782  
 
                       
 
                               
Central:
                               
Sales of homes
    94,297       111,429       247,823       389,155  
Cost of homes sold
    83,993       107,027       230,485       367,865  
 
                       
Gross margins on home sales
    10,304       4,402       17,338       21,290  
SFAS 144 valuation adjustments to finished homes, CIP and land on which we intend to build homes
    1,209       2,058       11,463       21,107  
 
                       
Gross margins on home sales excluding SFAS 144 valuation adjustments
    11,513       6,460       28,801       42,397  
 
                       
 
                               
West:
                               
Sales of homes
    170,974       320,943       587,970       1,000,056  
Cost of homes sold
    149,826       287,864       536,737       896,262  
 
                       
Gross margins on home sales
    21,148       33,079       51,233       103,794  
SFAS 144 valuation adjustments to finished homes, CIP and land on which we intend to build homes
    6,879       18,900       40,903       48,960  
 
                       
Gross margins on home sales excluding SFAS 144 valuation adjustments
    28,027       51,979       92,136       152,754  
 
                       
 
                               
Houston:
                               
Sales of homes
    100,442       152,075       295,596       385,775  
Cost of homes sold
    83,799       119,609       245,286       307,472  
 
                       
Gross margins on home sales
    16,643       32,466       50,310       78,303  
SFAS 144 valuation adjustments to finished homes, CIP and land on which we intend to build homes
    517       682       760       794  
 
                       
Gross margins on home sales excluding SFAS 144 valuation adjustments
    17,160       33,148       51,070       79,097  
 
                       
 
                               
Other:
                               
Sales of homes
    79,232       104,869       231,605       313,809  
Cost of homes sold
    67,311       86,095       210,275       272,828  
 
                       
Gross margins on home sales
    11,921       18,774       21,330       40,981  
SFAS 144 valuation adjustments to finished homes, CIP and land on which we intend to build homes
    2,092       1,959       10,638       10,305  
 
                       
Gross margins on home sales excluding SFAS 144 valuation adjustments
    14,013       20,733       31,968       51,286  
 
                       
Total gross margins on home sales
  $ 49,496       147,122       159,770       372,183  
 
                       
Total SFAS 144 valuation adjustments
  $ 49,398       32,284       124,736       132,133  
 
                       
Total gross margins on home sales excluding SFAS 144 valuation adjustments
  $ 98,894       179,406       284,506       504,316  
 
                       

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     The SFAS 144 valuation adjustments and write-offs of deposits and pre-acquisition costs in our homebuilding segments and Homebuilding Other resulted primarily from challenging market conditions that have persisted during the nine months ended August 31, 2009. The SFAS 144 valuation adjustments were calculated based on assumptions of current market conditions and estimates made by our management, which may differ from actual results. Changes in market conditions could result in additional inventory valuation adjustments, as well as additional write-offs of options deposits and pre-acquisition costs in the future.
     At August 31, 2009 and 2008, we owned 77,535 homesites and 76,262 homesites, respectively, and had access to an additional 31,227 homesites and 54,095 homesites, respectively, through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. At November 30, 2008, we owned 74,681 homesites and had access to an additional 38,589 homesites through either option contracts with third parties or agreements with unconsolidated entities in which we have investments. At August 31, 2009, 3% of the homesites we owned were subject to home purchase contracts. At August 31, 2009 and 2008, our backlog of sales contracts was 2,475 homes ($646.9 million) and 3,554 homes ($1,047.7 million), respectively. The lower backlog was primarily attributable to challenging market conditions that have persisted during the nine months ended August 31, 2009, which resulted in lower new orders in the nine months ended August 31, 2009, compared to the prior year. While our backlog was lower year over year, it has improved sequentially throughout 2009 and is at the highest level since August 31, 2008.
Financial Services Segment
     The following table presents selected financial data related to our Financial Services segment for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(Dollars in thousands)   2009     2008     2009     2008  
Revenues
  $ 77,117       90,384       227,770       240,893  
Costs and expenses
    65,961       103,245       199,583       266,460  
 
                       
Operating earnings (loss)
  $ 11,156       (12,861 )     28,187       (25,567 )
 
                       
Dollar value of mortgages originated
  $ 869,000       1,045,000       3,105,000       3,182,000  
 
                       
Number of mortgages originated
    4,000       4,500       13,700       13,500  
 
                       
Mortgage capture rate of Lennar homebuyers
    85 %     87 %     87 %     85 %
 
                       
Number of title and closing service transactions
    31,000       28,400       92,800       82,600  
 
                       
Number of title policies issued
    24,600       20,800       61,100       66,700  
 
                       
(2) Financial Condition and Capital Resources
     At August 31, 2009, we had cash and cash equivalents related to our homebuilding and financial services operations of $1,483.1 million, compared to $939.4 million at August 31, 2008.
     We finance our land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from our operations, debt issuances and equity offerings, as well as cash borrowed under our revolving credit facility and our warehouse lines of credit.
Operating Cash Flow Activities
     In the nine months ended August 31, 2009 and 2008, cash provided by operating activities totaled $386.9 million and $854.4 million, respectively. During the nine months ended August 31, 2009, cash provided by operating activities was positively impacted by a decrease in inventories, as a result of reducing completed, unsold inventory and curtailing land purchases at the beginning of the year, and the receipt of a federal tax refund of $251.0 million generated by losses incurred prior to fiscal 2009.

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These cash flows were partially offset by a decrease in accounts payable and other liabilities. Throughout the nine months ended August 31, 2009, we continued to focus our efforts on adjusting pricing to meet market conditions.
Investing Cash Flow Activities
     During the nine months ended August 31, 2009 and 2008, cash flows used in investing activities totaled $234.6 million and $256.3 million, respectively. In the nine months ended August 31, 2009, we contributed $278.3 million of cash to unconsolidated entities of which $94.5 million related to our investment in the reorganized Newhall, as well as the purchase of equity interests in other joint ventures previously owned by LandSource, compared to $343.8 million of cash contributed to unconsolidated entities in the same period last year. Our investing activities also included distributions of capital from unconsolidated entities during the nine months ended August 31, 2009 and 2008 of $24.2 million and $80.4 million, respectively.
     We are always looking at the possibility of acquiring homebuilders and other companies. However, at August 31, 2009, we had no agreements or understandings regarding any significant transactions.
Financing Cash Flow Activities
     During the nine months ended August 31, 2009, our net cash provided by financing activities was primarily attributed to the issuance of common stock and new debt, partially offset by the redemption of debt.
     Homebuilding debt to total capital and net homebuilding debt to total capital are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our homebuilding operations. Management believes providing a measure of leverage of our homebuilding operations enables management and readers of our financial statements to better understand our financial position and performance. Homebuilding debt to total capital and net homebuilding debt to total capital are calculated as follows:
                         
    August 31,     November 30,     August 31,  
(Dollars in thousands)   2009     2008     2008  
Homebuilding debt
  $ 2,665,796       2,544,935       2,338,697  
Stockholders’ equity
    2,405,960       2,623,007       3,431,898  
 
                 
Total capital
  $ 5,071,756       5,167,942       5,770,595  
 
                 
Homebuilding debt to total capital
    52.6 %     49.2 %     40.5 %
 
                 
 
                       
Homebuilding debt
  $ 2,665,796       2,544,935       2,338,697  
Less: Homebuilding cash and cash equivalents
    1,336,739       1,091,468       857,050  
 
                 
Net homebuilding debt
  $ 1,329,057       1,453,467       1,481,647  
 
                 
Net homebuilding debt to total capital (1)
    35.6 %     35.7 %     30.2 %
 
                 
 
(1)   Net homebuilding debt to total capital consists of net homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders’ equity).
     At August 31, 2009, homebuilding debt to total capital and net homebuilding debt to total capital were higher compared to August 31, 2008 due to the increase in homebuilding debt as a result of an increase in senior notes and other debts payable, and the decrease in stockholders’ equity primarily due to our cumulative net loss since August 31, 2008, which included the effects of inventory valuation adjustments, write-offs of option deposits and pre-acquisition costs, our share of SFAS 144 valuation adjustments related to assets of unconsolidated entities, APB 18 valuation adjustments to investments in unconsolidated entities and a valuation allowance against our deferred tax assets, all of which are non-cash items. This decrease in stockholders’ equity was partially offset by common stock issued under our equity offering.

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     Our average debt outstanding was $2.6 billion for the nine months ended August 31, 2009, compared to $2.3 billion in the same period last year. The average rate for interest incurred was 6.1% for the nine months ended August 31, 2009, compared to 5.9% for the same period last year. Interest incurred related to homebuilding debt for the nine months ended August 31, 2009 was $123.0 million, compared to $110.7 million last year. 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, market transactions and funds available under our unsecured revolving credit facility (the “Credit Facility”).
     In March 2009, we retired our $281 million of 7 5/8% senior notes due March 2009 for 100% of the outstanding principal amount, plus accrued and unpaid interest as of the maturity date.
     In April 2009, we issued $400 million of 12.25% senior notes due 2017 (the “12.25% Senior Notes”) at a price of 98.098% in a private placement. Proceeds from the offering, after payment of initial purchaser’s discount and expenses, were $386.7 million. We added the proceeds to our working capital to be used for general corporate purposes, which may include the repayment or repurchase of our near-term maturities or of debt of our joint ventures that we have guaranteed. Interest on the 12.25% Senior Notes is due semi-annually. The 12.25% Senior Notes are unsecured and unsubordinated, and are guaranteed by substantially all of our subsidiaries. In September 2009, we completed an exchange of the 12.25% Senior Notes for substantially identical notes registered under the Securities Act of 1933 (the “Exchange Notes”), with substantially all of the 12.25% Senior Notes being exchanged for the Exchange Notes. At August 31, 2009, the carrying amount of the 12.25% Senior Notes was $392.4 million.
     Our Credit Facility consists of a $1.1 billion revolving credit facility that matures in July 2011. In order to borrow under our Credit Facility, we are required to first use our cash in excess of $750 million and have availability under our borrowing base calculation. As of August 31, 2009, we had no availability to borrow under our Credit Facility due to the fact that we had cash and cash equivalents of $1.3 billion. We can create availability under our Credit Facility to the extent we use the cash in excess of $750 million to purchase qualified borrowing base assets.
     Our Credit Facility is guaranteed by substantially all of our subsidiaries. Interest rates on outstanding borrowings are LIBOR-based, with margins determined based on changes in our credit ratings, or an alternate base rate, as described in our Credit Facility agreement. During the nine months ended August 31, 2009, we did not have any borrowings under our Credit Facility, compared to average daily borrowings of $28.4 million during the nine months ended August 31, 2008. At August 31, 2009 and November 30, 2008, we had no outstanding balance under our Credit Facility. However, at August 31, 2009 and November 30, 2008, $194.6 million and $275.2 million, respectively, of our total letters of credit outstanding discussed below, were collateralized against certain borrowings available under our Credit Facility.
     Our performance letters of credit outstanding were $108.1 million and $167.5 million, respectively, at August 31, 2009 and November 30, 2008. Our financial letters of credit outstanding were $212.8 million and $278.5 million, respectively, at August 31, 2009 and November 30, 2008. Performance letters of credit are generally posted with regulatory bodies to guarantee our performance of certain development and construction activities, and financial letters of credit are generally posted in lieu of cash deposits on option contracts.
     At August 31, 2009, we believe we were in compliance with our debt covenants. Under our Credit Facility agreement, we are required to maintain a leverage ratio of less than or equal to 55% at the end of each fiscal quarter during our 2009 fiscal year and a leverage ratio of less than or equal to 52.5% for our 2010 fiscal year and through the maturity of our Credit Facility in 2011. If our adjusted consolidated tangible net worth, as calculated per our Credit Facility agreement, falls below $1.6 billion, our Credit Facility would be reduced from $1.1 billion to $0.9 billion. In no event may our adjusted consolidated tangible net worth, as calculated per our Credit Facility agreement, be less than $1.3 billion.

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     The following are computations of our adjusted consolidated tangible net worth and our leverage ratio as calculated per our Credit Facility agreement (the “Agreement”) as of August 31, 2009:
                         
            Level Achieved as        
(Dollars in thousands)   Covenant Level     of August 31, 2009     Cushion  
Adjusted consolidated tangible net worth (1)
  $ 1,440,217       2,089,618       649,401  
Leverage ratio (2)
    55 %     50 %   500 Basis Points
     The terms adjusted consolidated tangible net worth and leverage ratio used in the Agreement are specifically calculated per the Agreement and differ in specified ways from comparable GAAP or common usage terms. Our adjusted consolidated tangible net worth and leverage ratio, as well as our maximum recourse exposure from joint ventures were calculated for purposes of the Agreement as of August 31, 2009 as follows:
 
(1)   The minimum adjusted consolidated tangible net worth and the adjusted consolidated tangible net worth as calculated per the Agreement are as follows:
     Minimum adjusted consolidated tangible net worth
         
    As of August 31,  
(In thousands)   2009  
Stated adjusted consolidated tangible net worth per the Agreement
  $ 2,330,000  
Plus: 50% of cumulative positive consolidated net income in excess of aggregate amount paid to purchase or redeem equity securities
    3,416  
Less: Deferred tax asset valuation allowance
    (893,199 )
 
     
Minimum adjusted consolidated tangible net worth as calculated per the Agreement
  $ 1,440,217  
 
     
     Adjusted consolidated tangible net worth
         
    As of August 31,  
(In thousands)   2009  
Consolidated stockholders’ equity
  $ 2,405,960  
Less: Intangible assets (a)
    (35,499 )
 
     
Consolidated tangible net worth as calculated per the Agreement
    2,370,461  
Less: Consolidated stockholders’ equity of mortgage banking subsidiaries (b)
    (280,843 )
 
     
Adjusted consolidated tangible net worth as calculated per the Agreement
  $ 2,089,618  
 
     
 
(a)   Intangible assets include the Financial Services’ title operations goodwill of $34.0 million and other intangible assets of $1.5 million included in other assets in our condensed consolidated balance sheet as of August 31, 2009.
 
(b)   Consolidated stockholders’ equity of mortgage banking subsidiaries represents the stockholders’ equity of the Financial Services segment’s mortgage operations which is included in stockholders’ equity in our condensed consolidated balance sheet as of August 31, 2009.

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(2)   The leverage ratio as calculated per the Agreement is as follows:
         
(In thousands)   As of August 31, 2009  
Senior notes and other debts payable
  $ 2,665,796  
Less: Indebtedness of our consolidated entities (a)
    (208,030 )
 
     
Lennar’s indebtedness as calculated per the Agreement
    2,457,766  
Plus: Letters of credit (b)
    213,540  
Plus: Lennar’s maximum recourse exposure related to unconsolidated entities
    380,318  
Plus: Lennar’s maximum recourse exposure related to its consolidated entities (a)
    63,433  
 
     
Consolidated indebtedness as calculated per the Agreement
    3,115,057  
Less: 75% of unconsolidated and consolidated entities reimbursement obligations (c)
    (106,343 )
Plus: 10% of unconsolidated and consolidated entities non-recourse indebtedness with completion guarantees (d)
    64,465  
Less: the lesser of $500 million or unrestricted cash in excess of $15 million per the Agreement
    (500,000 )
 
     
Numerator as calculated per the Agreement
  $ 2,573,179  
 
     
Denominator as calculated per the Agreement
  $ 5,162,797  
 
     
Leverage ratio (e)
    50 %
 
     
 
(a)   Indebtedness of our consolidated entities primarily includes $145.1 million of non-recourse debt of our consolidated entities and $63.4 million of recourse debt of our consolidated entities. These amounts are included in senior notes and other debts payable in our condensed consolidated balance sheet as of August 31, 2009. Indebtedness of our consolidated entities is offset by $0.5 million of primarily corporate guarantees.
 
(b)   Letters of credit include our financial letters of credit outstanding of $212.8 million disclosed in Note 10 of the notes to our condensed consolidated financial statements as of August 31, 2009 and $0.7 million of letters of credit related to the Financial Services segment’s title operations.
 
(c)   Reimbursement obligations include $121.2 million related to our joint and several reimbursement agreements from partners of our unconsolidated entities and $20.6 million related to our joint and several reimbursement agreements from partners of our consolidated entities.
 
(d)   Non-recourse debt with completion guarantees includes $621.6 million of our unconsolidated entities non-recourse debt with completion guarantees and $23.0 million of consolidated entities non-recourse debt with completion guarantees.
 
(e)   Leverage ratio consists of the numerator as calculated per the Agreement divided by the denominator as calculated per the Agreement (consolidated indebtedness as calculated per the Agreement, less 75% of unconsolidated and consolidated entities reimbursement obligations, plus 10% of unconsolidated and consolidated entities non-recourse indebtedness with completion guarantees, plus adjusted consolidated tangible net worth as calculated per the Agreement).
     Additionally, our Credit Facility requires us to effect quarterly reductions of our maximum recourse exposure related to joint ventures in which we have investments by a total of $200 million to $535 million by November 30, 2009, which we had already accomplished as of May 31, 2009. We must also effect quarterly reductions during our 2010 fiscal year totaling $180 million to $355 million of which we have already reduced it by $91.2 million. During the first six months of our 2011 fiscal year, we must reduce our maximum recourse exposure related to joint ventures by $80 million to $275 million.
     If the joint ventures are unable to reduce their debt, where there is recourse to us, through the sale of inventory or other means, then we and our partners may be required to contribute capital to the joint ventures.
     While we currently believe we are in compliance with the debt covenants in the Agreement, if we had to record significant additional impairments in the future, they could cause us to fail to comply with the Agreement’s covenants. In addition, if we default in the payment or performance of certain obligations relating to the debt of unconsolidated entities above a specified threshold amount, we would be in default under the Agreement. Either of those events would give the lenders the right to cause any amounts we owe

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under our Credit Facility, if any, to become immediately due. If we were unable to repay the borrowings when they became due, that could entitle holders of $2.3 billion of debt securities we have sold into the capital markets to cause the sums evidenced by those debt securities to become immediately due, which might require us to sell assets at prices well below the future fair values, or the carrying values, of the assets.
     At August 31, 2009, our Financial Services segment had warehouse repurchase facilities that mature in December 2009 ($100 million) and in June 2010 ($200 million), and a new 364-day warehouse repurchase facility that matures in July 2010 ($125 million). The maximum aggregate commitment under these facilities totaled $425 million. The new 364-day warehouse repurchase facility replaced an on going 60-day committed repurchase facility. Our Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and expects the facilities to be renewed or replaced with other facilities when they mature. Borrowings under the facilities were $144.5 million and $209.5 million, respectively, at August 31, 2009 and November 30, 2008 and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $191.2 million and $281.2 million, respectively, at August 31, 2009 and November 30, 2008.
     At November 30, 2008, our Financial Services segment had advances under the on going 60-day committed repurchase facility of $5.2 million, which were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $5.5 million. At November 30, 2008, our Financial Services segment had advances under a different conduit funding agreement totaling $10.8 million, which were collateralized by mortgage loans.
     Due to the fact that our Financial Services segment’s borrowings under the lines of credit are generally repaid with the proceeds from the sales of mortgage loans and receivables on loans that secure those borrowings, the facilities are not likely to be a call on our current or future cash resources. If the facilities are not renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, our Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.
Changes in Capital
     We have a stock repurchase program which permits the purchase of up to 20 million shares of our outstanding common stock. There were no share repurchases during the nine months ended August 31, 2009. As of August 31, 2009, 6.2 million shares of common stock can be repurchased in the future under the program. Treasury stock increased by 0.1 million and 0.3 million common shares, respectively, during the three and nine months ended August 31, 2009, in connection with activity related to our equity compensation plan and forfeitures of restricted stock.
     During April 2009, we entered into distribution agreements with J.P. Morgan Securities, Inc., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., relating to an offering of our Class A common stock into the market from time to time for an aggregate of up to $275 million. As of August 31, 2009, we had sold a total of 21.0 million shares of our Class A common stock under the equity offering for gross proceeds of $225.5 million, or an average of $10.76 per share. After compensation to the distributors of $4.5 million, we received net proceeds of $221.0 million. We will use the proceeds from the offering for general corporate purposes which may include acquisitions.
     On August 5, 2009, we paid cash dividends of $0.04 per share for both our Class A and Class B common stock to holders of record at the close of business on July 22, 2009, as declared by our Board of Directors on June 30, 2009. On October 6, 2009, our Board of Directors declared a quarterly cash dividend of $0.04 per share on both our Class A and Class B common stock payable on November 13, 2009 to holders of record at the close of business on October 23, 2009.

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     Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity.
Off-Balance Sheet Arrangements
Investments in Unconsolidated Entities
     We strategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding operations or for sale to third parties or (2) for 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 obtaining access to potential future 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. Participants in these joint ventures are land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers give us access to homesites owned or controlled by our partner. Joint ventures with other homebuilders provide us with the ability to bid jointly with our partner for large land parcels. Joint ventures with financial partners allow us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners allow us to combine our homebuilding expertise with the specific expertise (e.g., commercial or infill experience) of our partner. Most joint ventures are governed by an executive committee consisting of members from the partners.
     Summarized condensed financial information on a combined 100% basis related to unconsolidated entities in which we have investments that are accounted for by the equity method was as follows:
     Statements of Operations and Selected Information
                                 
                    At or for the  
    Three Months Ended     Nine Months Ended  
    August 31,     August 31,  
(Dollars in thousands)   2009     2008     2009     2008  
Revenues
  $ 97,572       155,367       216,815       772,635  
Costs and expenses
    264,385       256,816       959,750       1,046,953  
 
                       
Net loss of unconsolidated entities (1)
  $ (166,813 )     (101,449 )     (742,935 )     (274,318 )
 
                       
Our share of net loss (2)
  $ (42,208 )     (8,415 )     (105,457 )     (49,006 )
Our share of net loss — recognized (2)
  $ (42,303 )     (10,958 )     (105,110 )     (52,857 )
Our cumulative share of net earnings — deferred at August 31, 2009 and 2008, respectively
                  $ 13,251       25,093  
Our investments in unconsolidated entities
                  $ 650,878       799,189  
Equity of the unconsolidated entities
                  $ 2,457,264       2,876,173  
 
                           
Our investment % in the unconsolidated entities
                    26.5 %     27.8 %
 
                           
 
(1)   The net loss of unconsolidated entities for the three and nine months ended August 31, 2009 was primarily related to valuation adjustments recorded by the unconsolidated entities. Our exposure to such losses was significantly lower as a result of our small ownership interest in the respective unconsolidated entities or our previous APB 18 valuation adjustments to our investments in unconsolidated entities.
 
(2)   For the three and nine months ended August 31, 2009, our share of net loss recognized from unconsolidated entities includes $31.0 million and $81.0 million, respectively, of SFAS 144 valuation adjustments related to assets of the unconsolidated entities in which we have investments, compared to $2.9 million and $29.9 million, respectively, for the three and nine months ended August 31, 2008.

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     Balance Sheets
                 
    August 31,     November 30,  
(Dollars in thousands)   2009     2008  
Assets:
               
Cash and cash equivalents
  $ 196,187       135,081  
Inventories
    4,818,496       7,115,360  
Other assets
    300,455       541,984  
 
           
 
  $ 5,315,138       7,792,425  
 
           
Liabilities and equity:
               
Accounts payable and other liabilities
  $ 628,695       1,042,002  
Debt
    2,229,179       4,062,058  
Equity of:
               
Lennar
    650,878       766,752  
Others
    1,806,386       1,921,613  
 
           
Total equity of unconsolidated entities
    2,457,264       2,688,365  
 
           
 
  $ 5,315,138       7,792,425  
 
           
Our equity in the unconsolidated entities
    26 %     29 %
 
           
     In fiscal 2007, we sold a portfolio of land consisting of approximately 11,000 homesites in 32 communities located throughout the country to a strategic land investment venture with Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which we have a 20% ownership interest and 50% voting rights. Due to our continuing involvement, the transaction did not qualify as a sale by us under GAAP; thus, the inventory has remained on our consolidated balance sheet in consolidated inventory not owned. As of August 31, 2009 and November 30, 2008, the portfolio of land (including land development costs) of $492.5 million and $538.4 million, respectively, is reflected as inventory in the summarized condensed financial information related to unconsolidated entities in which we have investments. The decrease in this inventory from November 30, 2008 to August 31, 2009 resulted primarily from valuation adjustments of $41.6 million recorded by the land investment venture.
     In June 2008, LandSource and a number of its subsidiaries commenced proceedings under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. In July 2009, the United States Bankruptcy Court for the District of Delaware confirmed the plan of reorganization for LandSource. As a result of the bankruptcy proceedings, LandSource was reorganized into Newhall. The reorganized company emerged from Chapter 11 free of its previous bank debt. As part of the reorganization plan, we invested $140 million in exchange for approximately a 15% equity interest in the reorganized Newhall, ownership in several communities that were formerly owned by LandSource and the settlement and release of all claims that might have been asserted against us.
     Debt to total capital of the unconsolidated entities in which we have investments was calculated as follows:
                 
    August 31,     November 30,  
(Dollars in thousands)   2009     2008  
Debt
  $ 2,229,179       4,062,058  
Equity
    2,457,264       2,688,365  
 
           
Total capital
  $ 4,686,443       6,750,423  
 
           
Debt to total capital of our unconsolidated entities
    47.6 %     60.2 %
 
           

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     At August 31, 2009, we had equity investments in 72 unconsolidated entities, compared to 83 unconsolidated entities at May 31, 2009 and 146 unconsolidated entities at August 31, 2008. We will try to further reduce the number of unconsolidated entities in which we have investments. Our investments in unconsolidated entities by type of venture were as follows:
                 
    August 31,     November 30,  
(In thousands)   2009     2008  
Land development
  $ 607,027       633,652  
Homebuilding
    43,851       133,100  
 
           
Total investment
  $ 650,878       766,752  
 
           
     During the three and nine months ended August 31, 2009, as homebuilding market conditions remained challenged, we recorded $31.0 million and $81.0 million, respectively, of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments, compared to $2.9 million and $29.9 million, respectively, in the same periods last year. In addition, we recorded $27.5 million and $71.7 million, respectively, of APB 18 valuation adjustments to our investments in unconsolidated entities for the three and nine months ended August 31, 2009, compared to $40.0 million and $116.5 million, respectively, in the same periods last year. We will continue to monitor our investments and the recoverability of assets owned by the joint ventures.
     The summary of our net recourse exposure related to the unconsolidated entities in which we have investments was as follows:
                 
    August 31,     November 30,  
    2009     2008  
(In thousands)                
Several recourse debt – repayment
  $ 50,725       78,547  
Several recourse debt – maintenance
    99,343       167,941  
Joint and several recourse debt – repayment
    141,902       138,169  
Joint and several recourse debt – maintenance
    85,928       123,051  
Land seller debt and other debt recourse exposure
    2,420       12,170  
 
           
Lennar’s maximum recourse exposure
    380,318       519,878  
Less: joint and several reimbursement agreements with our partners
    (121,177 )     (127,428 )
 
           
Our net recourse exposure
  $ 259,141       392,450  
 
           
     During the nine months ended August 31, 2009, we reduced our maximum recourse exposure related to indebtedness of unconsolidated entities by $139.6 million, of which $78.4 million was paid by us and $61.2 million related to the joint ventures selling inventory, dissolution of joint ventures and renegotiation of joint venture debt agreements. In addition, during the three and nine months ended August 31, 2009, we recorded $1.0 million and $28.9 million, respectively, of obligation guarantees related to debt of certain of our joint ventures. As of August 31, 2009, we had $4.8 million recorded as a liability.
     Indebtedness of an unconsolidated entity is secured by its own assets. Some unconsolidated entities own multiple properties and other assets. There is no cross collateralization of debt to different unconsolidated entities. We also do not use our investment in one unconsolidated entity as collateral for the debt in another unconsolidated entity or commingle funds among our unconsolidated entities.
     In connection with a loan to an unconsolidated entity, we and our partners often guarantee to a lender either jointly and severally or on a several basis, any, or all of the following: (i) the completion of the development, in whole or in part, (ii) indemnification of the lender from environmental issues, (iii) indemnification of the lender from “bad boy acts” of the unconsolidated entity (or full recourse liability in the event of unauthorized transfer or bankruptcy) and (iv) that the loan to value and/or loan to cost will not exceed a certain percentage (maintenance or remargining guarantee) or that a percentage of the outstanding loan will be repaid (repayment guarantee).
     In connection with loans to an unconsolidated entity where there is a joint and several guarantee, we generally have a reimbursement agreement with our partner. The reimbursement agreement provides that

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neither party is responsible for more than its proportionate share of the guarantee. However, if our joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share, up to our maximum exposure, which is the full amount covered by the joint and several guarantee.
     The recourse debt exposure in the previous table represents our maximum exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay the debt or to reimburse us for any payments on our guarantees. Our unconsolidated entities that have recourse debt have a significant amount of assets and equity. The summarized balance sheets of our unconsolidated entities with recourse debt were as follows:
                 
    August 31,   November 30,
(In thousands)   2009   2008
Assets
  $ 1,647,973       2,846,819  
Liabilities
    1,057,024       1,565,148  
Equity (1)
    590,949       1,281,671  
 
(1)   The decrease in equity of our unconsolidated entities with recourse debt relates primarily to valuation adjustments recorded by the unconsolidated entities during the nine months ended August 31, 2009. Our exposure to such losses was significantly lower, as a result of our small ownership interest in the respective unconsolidated entities or our previous APB 18 valuation adjustments to our investments in unconsolidated entities.
     In addition, in most instances in which we have guaranteed debt of an unconsolidated entity, our partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Some of our guarantees are repayment guarantees and some are maintenance guarantees. In a repayment guarantee, we and our venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral. In the event of default, if our venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share, up to our maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If we are required to make a payment under a maintenance guarantee to bring the value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated entity and increase our share of any funds the unconsolidated entity distributes.
     In many of the loans to unconsolidated entities, we and our joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, very often the guarantee is to complete only the phases as to which construction has already commenced and for which loan proceeds were used. Under many of the completion guarantees, the guarantors are permitted, under certain circumstances, to use undisbursed loan proceeds to satisfy the completion of obligations, and in many of those cases, the guarantors only pay interest on those funds, with no repayment of the principal of such funds required.
     During the three months ended August 31, 2009, there were no payments under completion or maintenance guarantees. During the nine months ended August 31, 2009, we made payments of $5.6 million and $18.0 million, respectively, under completion and maintenance guarantees. During the three and nine months ended August 31, 2009, loan repayments, including amounts paid under our repayment guarantees, were $21.9 million and $60.4 million, respectively. These guarantee payments are recorded primarily as contributions to our unconsolidated entities.
     In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, as of August 31, 2009, the fair values of the maintenance guarantees, repayment guarantees and completion guarantees were not material. We believe that as of August 31, 2009, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated

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entity due to a triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or we and our partners would contribute additional capital into the venture.
     The total debt of the unconsolidated entities in which we have investments was as follows:
                 
    August 31,     November 30,  
    2009     2008  
(Dollars in thousands)                
Lennar’s net recourse exposure
  $ 259,141       392,450  
Reimbursement agreements from partners
    121,177       127,428  
 
           
Lennar’s maximum recourse exposure
  $ 380,318       519,878  
 
           
 
               
Non-recourse bank debt and other debt (partner’s share of several recourse)
  $ 183,596       285,519  
Non-recourse land seller debt and other debt
    83,015       90,519  
Non-recourse bank debt with completion guarantees – excluding LandSource
    621,628       820,435  
Non-recourse bank debt without completion guarantees – excluding LandSource
    960,622       994,580  
Non-recourse bank debt without completion guarantees – LandSource (1)
          1,351,127  
 
           
Non-recourse debt to Lennar
    1,848,861       3,542,180  
 
           
Total debt
  $ 2,229,179       4,062,058  
 
           
Lennar’s maximum recourse exposure as a % of total JV debt
    17 %     13 %
 
           
 
(1)   During the third quarter of 2009, LandSource emerged from bankruptcy as a new reorganized company named Newhall Land Development, LLC. As a result, all of LandSource’s bank debts were discharged.
     Some of the unconsolidated entities’ debt arrangements contain certain financial covenants. As market conditions remained challenged during the three months ended August 31, 2009, we continued to closely monitor these covenants and the unconsolidated entities’ ability to comply with them. Our Credit Facility requires us to report defaults arising under indebtedness with respect to our joint ventures. As of August 31, 2009, we had no joint venture defaults reported under the Credit Facility.
     In view of current credit market conditions, it is not uncommon for lenders to real estate developers, including joint ventures in which we have interests, to assert non-monetary defaults (such as failures to meet construction completion deadlines or declines in the market value of collateral below required amounts) or technical monetary defaults against the real estate developers. In most instances, those asserted defaults are resolved by modifications of loan terms, additional equity investments or other concessions by the borrowers. In addition, in some instances, real estate developers, including joint ventures in which we have interests, are forced to request temporary waivers of covenants in loan documents or modifications of loan terms, which are often, but not always, obtained. However, in some instances developers, including joint ventures in which we have interests, are not able to meet their monetary obligations to lenders, and are thus declared in default. Because we sometimes guarantee all or portions of the obligations to lenders of joint ventures in which we have interests, when these joint ventures default on their obligations, lenders may or may not have claims against us. Normally, we do not make payments with regard to guarantees of joint venture obligations while the joint ventures are contesting assertions regarding sums due to their lenders. When it is determined that a joint venture is obligated to make a payment that we have guaranteed and the joint venture will not be able to make that payment, we accrue the amounts probable to be paid by us as a liability. Although we generally fulfill our guarantee obligations within a reasonable time after we determine that we are obligated with regard to them, at any point in time it is likely that we will have some balance of unpaid guarantee liability. At August 31, 2009, the liability for unpaid guarantees of joint venture indebtedness reflected on our balance sheet totaled $4.8 million.

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     The following table summarizes the principal maturities of our unconsolidated entities (“JVs”) debt as per current debt arrangements as of August 31, 2009 and does not represent estimates of future cash payments that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that would allow the loans to be extended into future years.
                                                         
            Principal Maturities of Unconsolidated JVs by Period  
    Total JV     Total JV                                     Other  
(In thousands)   Assets (1)     Debt     2009     2010     2011     Thereafter     Debt (2)  
                                         
Net recourse debt to Lennar
  $         259,141       120,499       76,795       12,764       46,663       2,420  
Reimbursement agreements
            121,177       8,862       27,992       50,878       33,445        
                                             
Gross recourse debt to Lennar
  $ 1,647,973       380,318       129,361       104,787       63,642       80,108       2,420  
Debt without recourse to Lennar
    3,286,064       1,848,861       249,489       480,381       951,687       79,447       87,857  
                                           
Total
  $ 4,934,037       2,229,179       378,850       585,168       1,015,329       159,555       90,277  
                                         
 
(1)   Excludes unconsolidated joint venture assets where the joint venture has no debt.
 
(2)   Represents land seller debt and other debt.
     The following table is a breakdown of the assets, debt and equity of the unconsolidated joint ventures by partner type as of August 31, 2009:
                                                                         
            Gross             Net     Total Debt                     JV Debt     Remaining  
            Recourse             Recourse     Without                     to Total     Homes/  
    Total JV     Debt to     Reimbursement     Debt to     Recourse to     Total JV     Total JV     Capital     Homesites  
(Dollars in thousands)   Assets     Lennar     Agreements     Lennar     Lennar     Debt     Equity     Ratio     in JV  
                                                       
     
Partner Type:
                                                                       
Land Owners/Developers
  $ 775,625       73,023             73,023       211,147       284,170       383,937       43 %     31,717  
Other Builders
    721,899       90,188       8,862       81,326       175,799       265,987       384,409       41 %     13,529  
Financial
    3,268,896       70,489       50,878       19,611       1,232,219       1,302,708       1,438,615       48 %     50,512  
Strategic
    548,718       144,198       61,437       82,761       141,839       286,037       250,303       53 %     13,713  
                                                       
Total
  $ 5,315,138       377,898       121,177       256,721       1,761,004       2,138,902       2,457,264       47 %     109,471  
                                                                 
Land seller debt and other debt
  $         2,420             2,420       87,857       90,277                          
                                                               
Total JV debt
  $         380,318       121,177       259,141       1,848,861       2,229,179                          
                                                               

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    The table below indicates the assets, debt and equity of our 10 largest unconsolidated joint venture investments as of August 31, 2009:
                                                                         
                    Gross             Net     Total Debt                     JV Debt  
                    Recourse             Recourse     Without                     to Total  
    Lennar’s     Total JV     Debt     Reimbursement     Debt to     Recourse to     Total JV     Total JV     Capital  
(Dollars in thousands)   Investment     Assets     to Lennar     Agreements     Lennar     Lennar     Debt     Equity     Ratio  
                                                       
Land development JVs (1):
                                                                       
Platinum Triangle Partners
  $ 99,027       270,634       66,889       33,445       33,444             66,889       195,835       25 %
Heritage Fields El Toro
    84,805       1,439,583                         545,518       545,518       676,696       45 %
Newhall Land Development (2)
    46,604       523,138                                     317,000        
Runkle Canyon
    36,719       74,755                                     73,437        
MS Rialto Residential Holdings
    33,524       502,119                         113,131       113,131       365,339       24 %
Ballpark Village
    30,903       119,177                         56,910       56,910       61,276       48 %
56th & Lone Mountain
    25,067       108,213       28,336             28,336       28,336       56,672       49,483       53 %
Baywinds Land Trust
    24,214       53,638       4,914             4,914       15,154       20,068       32,827       38 %
Rocking Horse Partners
    20,107       50,622                         9,840       9,840       39,998       20 %
Huntley Venture
    18,962       71,714                                     71,220        
                                                       
10 largest JV investments
    419,932       3,213,593       100,139       33,445       66,694       768,889       869,028       1,883,111       32 %
                                                       
Other JVs
    230,946       2,101,545       277,759       87,732       190,027       992,115       1,269,874       574,153       69 %
                                                       
Total
  $ 650,878       5,315,138       377,898       121,177       256,721       1,761,004       2,138,902       2,457,264       47 %
                                                                 
Land seller debt and other debt
  $                 2,420             2,420       87,857       90,277                  
                                                               
Total JV debt
  $                 380,318       121,177       259,141       1,848,861       2,229,179                  
                                                               
 
(1)   All of the joint ventures presented in the table above operate in our Homebuilding West segment except for 56th & Lone Mountain and Rocking Horse Partners, which operate in our Homebuilding Central segment, Baywinds Land Trust, which operates in our Homebuilding East segment, Huntley Venture, which operates in Homebuilding Other and MS Rialto Residential Holdings which operates in all of our homebuilding segments and Homebuilding Other. At August 31, 2009, our investments in Bellevue Towers Investors and Lennar Intergulf (Central Park) were no longer part of our list of 10 largest unconsolidated joint venture investments because of valuation adjustments and thus they are not included in the table above.
 
(2)   During the third quarter of 2009, LandSource emerged from bankruptcy as a new reorganized company named Newhall Land Development, LLC. As a result, all of LandSource’s bank debts were discharged.
     The table below indicates the percentage of assets, debt and equity of our 10 largest unconsolidated joint venture investments as of August 31, 2009:
                                         
            % of Gross     % of Net     % of Total        
    % of     Recourse     Recourse     Debt Without     % of  
    Total JV     Debt to     Debt to     Recourse to     Total JV  
    Assets     Lennar     Lennar     Lennar     Equity  
                               
10 largest JVs
    60 %     26 %     26 %     44 %     77 %
Other
    40 %     74 %     74 %     56 %     23 %
                               
Total
    100 %     100 %     100 %     100 %     100 %
                               
Option Contracts
     We have access to land through option contracts, which generally enables us to control portions of properties owned by third parties (including land funds) and unconsolidated entities until we have determined whether to exercise the option.
     When we intend not to exercise an option, we write-off any unapplied deposit and pre-acquisition costs associated with the option contract. For the three months ended August 31, 2009 and 2008, we wrote-off $8.7 million and $10.9 million, respectively, of option deposits and pre-acquisition costs related to land under option that we do not intend to purchase. For the nine months ended August 31, 2009 and 2008, we wrote-off $20.8 million and $34.3 million, respectively, of option deposits and pre-acquisition costs related to land that was under option that we do not intend to purchase.

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     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 at August 31, 2009 and 2008:
                                         
    Controlled Homesites     Owned     Total  
August 31, 2009   Optioned     JVs     Total     Homesites     Homesites  
                               
East
    8,019       2,504       10,523       25,622       36,145  
Central
    1,370       3,761       5,131       16,168       21,299  
West
    29       11,212       11,241       21,410       32,651  
Houston
    1,051       2,115       3,166       6,588       9,754  
Other
    489       677       1,166       7,747       8,913  
                                 
Total homesites
    10,958       20,269       31,227       77,535       108,762  
                               
                                         
    Controlled Homesites     Owned     Total  
August 31, 2008   Optioned     JVs     Total     Homesites     Homesites  
                                 
East
    9,416       5,676       15,092       26,813       41,905  
Central
    1,724       6,036       7,760       14,493       22,253  
West
    1,370       24,183       25,553       18,547       44,100  
Houston
    1,434       2,755       4,189       7,897       12,086  
Other
    768       733       1,501       8,512       10,013  
                                 
Total homesites
    14,712       39,383       54,095       76,262       130,357  
                               
     We evaluate all option contracts for land when entered into or upon a reconsideration event to determine whether we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (“FIN 46R”) if we are deemed to be the primary beneficiary, we are required to consolidate the land under option at the purchase price of the optioned land. During the nine months ended August 31, 2009, the effect of the consolidation of these option contracts was an increase of $12.5 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in our condensed consolidated balance sheet as of August 31, 2009. This increase was offset primarily by our exercise of options to acquire land under certain contracts previously consolidated, resulting in a net decrease in consolidated inventory not owned of $70.2 million during the nine months ended August 31, 2009. To reflect the purchase price of the inventory consolidated under FIN 46R, we reclassified $2.1 million of related option deposits from land under development to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of August 31, 2009. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and our cash deposits.
     Our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of our non-refundable option deposits and pre-acquisition costs totaling $173.6 million and $191.2 million, respectively, at August 31, 2009 and November 30, 2008. Additionally, we had posted $58.8 million and $89.5 million, respectively, of letters of credit in lieu of cash deposits under certain option contracts as of August 31, 2009 and November 30, 2008.

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Contractual Obligations and Commercial Commitments
     During the nine months ended August 31, 2009, our contractual obligations with regard to debt related to our homebuilding operations changed. In March 2009, we retired our $281 million of 7 5/8% senior notes due March 2009, and in April 2009 we issued $400 million of 12.25% senior notes due 2017 as previously discussed under “Financing Cash Flow Activities.” The following summarizes our contractual debt obligations as of August 31, 2009:
                                                 
            Payments Due by Period  
            Three months     December 1,     December 1,     December 1,    
            ending     2009 through     2010 through     2012 through      
            November 30,     November 30,     November 30,     November 30,      
Contractual Obligations   Total     2009     2010     2012     2014     Thereafter  
                                     
(In thousands)
                                               
Homebuilding — Senior notes and other debts payable
  $ 2,665,796       19,964       347,192       470,273       678,708       1,149,659  
Financial Services — Notes and other debts payable
    144,605       144,504       26       42       30       3  
Interest commitments under interest-bearing debt
    872,951       43,504       168,979       284,879       218,744       156,845  
                                     
Total contractual obligations
  $ 3,683,352       207,972       516,197       755,194       897,482       1,306,507  
                                     
     We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our option. This reduces our financial risk associated with land holdings. At August 31, 2009, we had access to 31,227 homesites through option contracts with third parties and unconsolidated entities in which we have investments. At August 31, 2009, we had $58.8 million of letters of credit posted in lieu of cash deposits under certain option contracts.
     At August 31, 2009, we had letters of credit outstanding in the amount of $320.9 million (which included the $58.8 million of letters of credit discussed above). These letters of credit are generally posted either with regulatory bodies to guarantee our performance of certain development and construction activities or in lieu of cash deposits on option contracts. Additionally, at August 31, 2009, we had outstanding performance and surety bonds related to site improvements at various projects (including certain projects of our joint ventures) of $864.1 million. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released or reduced until all of the development and construction activities are completed. As of August 31, 2009, there were approximately $339.2 million, or 39%, of costs to complete related to these site improvements. We do not presently anticipate any draws upon these bonds, but if any such draws occur, we do not believe they would have a material effect on our financial position, results of operations or cash flows.
     Our Financial Services segment had a pipeline of loan applications in process of $1.1 billion at August 31, 2009. Loans in process for which interest rates were committed to the borrowers and builder commitments for loan programs totaled approximately $252.0 million as of August 31, 2009. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers or because borrowers may not meet certain criteria at the time of closing, the total commitments do not necessarily represent future cash requirements.
     Our Financial Services segment uses mandatory mortgage-backed securities (“MBS”) forward commitments, option contracts and investor commitments to hedge our mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments, option contracts and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between

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the contract price and fair value of the MBS forward commitments and option contracts. At August 31, 2009, we had open commitments amounting to $311.0 million to sell MBS with varying settlement dates through November 2009.
(3) New Accounting Pronouncements
     See Note 18 of our condensed consolidated financial statements included under Item 1 of this Report for a discussion of new accounting pronouncements applicable to our company.
(4) Critical Accounting Policies
     We believe that there have been no significant changes to our critical accounting policies during the nine months ended August 31, 2009, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 30, 2008. Even though our critical accounting policies have not changed significantly during the nine months ended August 31, 2009, the following provides additional disclosures about the Company’s valuation process related to inventories and investments in unconsolidated entities.
Inventories
     Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. We review our inventory for impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development stage of the community. There were 411 and 523 active communities as of August 31, 2009 and 2008, respectively. SFAS 144 requires that if the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment charge should be recorded to write down the carrying amount of such asset to its fair value.
     In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins on homes with regard to future home sales over the life of the community, projected margins with regard to future land sales, and the fair value of the land itself. We pay particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review we identify communities whose carrying values exceed their undiscounted cash flows. While all of our segments have been severely impacted by the downturn in the housing market, our Central and West homebuilding segments have been most significantly impacted as evidenced by the decrease in revenues of 38% and 42%, respectively, for the nine months ended August 31, 2009, compared to the nine months ended August 31, 2008.
     We estimate the fair value of our communities using a discounted cash flow model. These projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as the current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above. For example, since the start of the downturn in the housing market, we have found ways to reduce our construction costs in many communities, and this reduction in construction costs in addition to change in product type in many communities has impacted future estimated cash flows.
     Each of the homebuilding markets we operate in is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of our homebuilding markets is dynamic and has specific supply and demand relationships reflective of local economic conditions. Our

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cash flow models are impacted by many assumptions. Some of the most critical assumptions in our cash flow models are our projected absorption pace for home sales, sales prices and costs to build and deliver our homes on a community by community basis.
     In order to arrive at the assumed absorption pace for home sales included in our cash flow models, we analyze our historical absorption pace in the community as well as other communities in the geographical area. In addition, we analyze internal and external market studies and trends, which generally include, but are not limited to, statistics on population demographics, unemployment rates and availability of competing product in the geographic area where the community is located. When analyzing our historical absorption pace for home sales and corresponding internal and external market studies, we place greater emphasis on more current metrics and trends such as the absorption pace realized in our most recent quarters as well as forecasted population demographics, unemployment rates and availability of competing product. Generally, if we notice a variation from historical results over a span of two fiscal quarters, we consider such variation to be the establishment of a trend and adjust our historical information accordingly in order to develop assumptions on the projected absorption pace in the cash flow model for a community.
     In order to determine the assumed sales prices included in our cash flow models, we analyze the historical sales prices realized on homes we delivered in the community and other communities in the geographical area as well as the sales prices included in our current backlog for such communities. In addition, we analyze internal and external market studies and trends, which generally include, but are not limited to, statistics on sales prices in neighboring communities and sales prices on similar products in non-neighboring communities in the geographic area where the community is located. When analyzing our historical sales prices and corresponding market studies, we also place greater emphasis on more current metrics and trends such as future forecasted sales prices in neighboring communities as well as future forecasted sales prices for similar product in non-neighboring communities. Generally, if we notice a variation from historical results over a span of two fiscal quarters, we consider such variation to be the establishment of a trend and adjust our historical information accordingly in order to develop assumptions on the projected sales prices in the cash flow model for a community.
     In order to arrive at our assumed costs to build and deliver our homes, we generally assume a cost structure reflecting contracts currently in place with our vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Costs assumed in our cash flow models for our communities are generally based on the rates we are currently obligated to pay under existing contracts with our vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Due to the fact that the estimates and assumptions included in our cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions that may lead to us incurring additional impairment charges in the future.
     Using all the available trend information, we calculate our best estimate of projected cash flows for each community. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change from market to market and community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate we believe a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use a discount rate of approximately 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. For example, construction in progress inventory which is closer to completion will generally require a lower discount rate than land under development in communities consisting of multiple phases spanning several years of development.
     We estimate fair values of inventory evaluated for impairment under SFAS 144 based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or our assumptions change. For example, further market deterioration or changes in our assumptions may lead to us incurring additional impairment charges on previously impaired inventory, as well as on inventory not currently impaired, but for which indicators of impairment may arise if further market deterioration occurs.

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     We also have access to land inventory through option contracts, which generally enables us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our option. A majority of our option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. Our option contracts are recorded at cost. In determining whether to walk away from an option contract, we evaluate the option primarily based upon the expected cash flows from the property that is the subject of the option. If we intend to walk away from an option contract, we record a charge to earnings in the period such decision is made for the deposit amount and related pre-acquisition costs associated with the option contract.
     We believe that the accounting related to inventory valuation and impairment is a critical accounting policy because: (1) assumptions inherent in the valuation of our inventory are highly subjective and susceptible to change and (2) the impact of recognizing impairments on our inventory has been and could continue to be material to our consolidated financial statements. Our evaluation of inventory impairment, as discussed above, includes many assumptions. The critical assumptions include the timing of the home sales within a community, management’s projections of selling prices and costs and the discount rate applied to the estimate of the fair value of the homesites within a community on the balance sheet date. Our assumptions on the timing of home sales are critical because the homebuilding industry has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected sales price, costs to develop the homesites and/or absorption rate in a community. Our assumptions on discount rates are critical because the selection of a discount rate affects the estimated fair value of the homesites within a community. A higher discount rate reduces the estimated fair value of the homesites within the community, while a lower discount rate increases the estimated fair value of the homesites within a community. Because of changes in economic and market conditions and assumptions and estimates required of management in valuing inventory during changing market conditions, actual results could differ materially from management’s assumptions and may require material inventory impairment charges to be recorded in the future.
     During the three months ended August 31, 2009 and 2008, we recorded $58.8 million and $64.5 million, respectively, of inventory adjustments, which included $49.4 million and $32.3 million, respectively, of valuation adjustments to finished homes, construction in progress and land on which we intend to build homes in 39 communities, during both the three months ended August 31, 2009 and 2008. The inventory adjustments also included $0.6 million and $21.4 million, respectively, during the three months ended August 31, 2009 and 2008, of SFAS 144 valuation adjustments to land we intend to sell or have sold to third parties and $8.7 million and $10.9 million, respectively, during the three months ended August 31, 2009 and 2008, of write-offs of deposits and pre-acquisition costs related to homesites option that we do not intend to purchase.
     During the nine months ended August 31, 2009 and 2008, we recorded $152.0 million and $205.4 million, respectively, of inventory adjustments, which included $124.7 million and $132.1 million, respectively, of valuation adjustments to finished homes, construction in progress and land on which we intend to build homes in 102 communities and 96 communities, respectively, during the nine months ended August 31, 2009 and 2008. The inventory adjustments also included $6.5 million and $39.0 million, respectively, during the nine months ended August 31, 2009 and 2008, of SFAS 144 valuation adjustments to land we intend to sell or have sold to third parties and $20.8 million and $34.3 million, respectively, during the nine months ended August 31, 2009 and 2008, of write-offs of deposits and pre-acquisition costs related to homesites option that we do not intend to purchase.
     The SFAS 144 valuation adjustments were estimated based on market conditions and assumptions made by management at the time the valuation adjustments were recorded, which may differ materially from actual results if market conditions or our assumptions change. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of this document for details related to valuation adjustments and write-offs by reportable segment and homebuilding other.

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Investments in Unconsolidated Entities
     We strategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding operations or for sale to third parties or (2) for construction of homes for sale to third-party homebuyers. Our partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners.
     Most of the unconsolidated entities through which we acquire and develop land are accounted for by the equity method of accounting because we are not the primary beneficiary, as defined under FIN 46R, and we have a significant, but less than controlling, interest in the entities. We record our investments in these entities in our consolidated balance sheets as “Investments in Unconsolidated Entities” and our pro-rata share of the entities’ earnings or losses in our consolidated statements of operations as “Equity in Loss from Unconsolidated Entities,” as described in Note 3 of the notes to our condensed consolidated financial statements included in Item 1 of this document. Advances to these entities are included in the investment balance.
     Management looks at specific criteria and uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or have control or significant influence.
     As of August 31, 2009, we believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest, but rather share control with our partners. At August 31, 2009, the unconsolidated entities in which we had investments had total assets of $5.3 billion and total liabilities of $2.9 billion.
     We evaluate each of our investments in unconsolidated entities for impairment during each reporting period in accordance with APB 18. A series of operating losses of an investee or other factors may indicate that a decrease in the value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.
     Additionally, we consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary. These factors include age of the venture, intent and ability for us to retain our investment in the entity, financial condition and long-term prospects of the entity and relationships with the other partners and banks. If we believe that the decline in the fair value of the investment is temporary, then no impairment is recorded.
     The evaluation of our investment in unconsolidated entities includes two critical assumptions: (1) projected future distributions from the unconsolidated entities and (2) discount rates applied to the future distributions.
     Our assumptions on the projected future distributions from the unconsolidated entities are dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by the unconsolidated entities. Such inventory is also reviewed for potential impairment by the unconsolidated entities in accordance with SFAS 144. The review for inventory impairment performed by our unconsolidated entities is materially consistent with our process, as discussed above, for evaluating its own inventory as of the end of a reporting period. The unconsolidated entities generally also use a discount rate of approximately 20% in their SFAS 144 reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity in accordance with SFAS 144, our proportionate share of it is reflected in our equity in loss from unconsolidated entities with a corresponding decrease to our investment in unconsolidated entities. In certain instances, we may be required to record additional losses relating to our investment in unconsolidated entities under APB 18; such losses are included in other

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expense, net. We believe our assumptions on the projected future distributions from the unconsolidated entities are critical because the operating results of the unconsolidated entities from which the projected distributions are derived are dependent on the status of the homebuilding industry, which has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected operational results of the unconsolidated entities from which the distributions are derived.
     In addition, we believe our assumptions on discount rates are also critical because the selection of the discount rates also affects the estimated fair value of our investment in unconsolidated entities. A higher discount rate reduces the estimated fair value of our investment in unconsolidated entities, while a lower discount rate increases the estimated fair value of our investment in unconsolidated entities. Because of changes in economic conditions, actual results could differ materially from management’s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.
     During the three months ended August 31, 2009 and 2008, we recorded $58.4 million and $42.9 million, respectively, of valuation adjustments to our investments in unconsolidated entities, which included $31.0 million and $2.9 million, respectively, for the three months ended August 31, 2009 and 2008, of our share of SFAS 144 valuation adjustments related to assets of our unconsolidated entities and $27.5 million and $40.0 million, respectively, during the three months ended August 31, 2009 and 2008, of valuation adjustments to our investments in unconsolidated entities in accordance with APB 18.
     During the nine months ended August 31, 2009 and 2008, we recorded $152.7 million and $146.4 million, respectively, of valuation adjustments to our investments in unconsolidated entities, which included $81.0 million and $29.9 million, respectively, for the nine months ended August 31, 2009 and 2008, of our share of SFAS 144 valuation adjustments related to assets of our unconsolidated entities and $71.7 million and $116.5 million, respectively, during the nine months ended August 31, 2009 and 2008, of valuation adjustments to our investments in unconsolidated entities in accordance with APB 18.
     These valuation adjustments were calculated based on market conditions and assumptions made by management at the time the valuation adjustments were recorded, which may differ materially from actual results if market conditions or our assumptions change.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     We are exposed to market risks related to fluctuations in interest rates on our investments, debt obligations, loans held-for-sale and portfolio loans held-for-investment. We utilize forward commitments and option contracts to mitigate the risks associated with our mortgage loan portfolio.
     During the nine months ended August 31, 2009, our market risks with regard to debt related to our homebuilding operations changed. In March 2009, we retired our $281 million of 7 5/8% senior notes due in March 2009 and in April 2009 we issued $400 million of 12.25% senior notes due 2017 as discussed under “Financing Cash Flow Activities.”
     The following table presents principal cash flows and related weighted average effective interest rates by expected maturity dates and estimated fair values at August 31, 2009 for our homebuilding senior notes and other debts payable and Financial Services notes and other debts payable. Weighted average variable interest rates are based on the variable interest rates at August 31, 2009.
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by
Expected Maturity and Average Interest Rate
August 31, 2009
                                                                         
    Three months                                                            
    ending                                                           Fair Value at
    November 30,   Years Ending November 30,                   August 31,
(Dollars in millions)   2009   2010   2011   2012   2013   2014   Thereafter   Total   2009
 
LIABILITIES
                                                                       
Homebuilding:
                                                                       
Senior notes and other debts payable:
                                                                       
Fixed rate
  $ 3.6       287.9       259.8             356.3       259.7       1,149.7       2,317.0       2,245.4  
Average interest rate
    2.1 %     5.1 %     5.9 %           6.1 %     5.6 %     8.1 %     6.9 %      
Variable rate
  $ 16.4       59.3       74.9       135.6       45.4       17.2             348.8       348.8  
Average interest rate
    1.7 %     3.4 %     6.0 %     3.3 %     3.8 %     5.5 %           4.0 %      
Financial services:
                                                                       
Notes and other debts payable:
                                                                       
Fixed rate
  $ 0.1                                           0.1       0.1  
Average interest rate
    7.9 %                                         7.9 %      
Variable rate
  $ 144.5                                           144.5       144.5  
Average interest rate
    4.5 %                                         4.5 %      

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Item 4. Controls and Procedures.
     Our Chief Executive Officer and Chief Financial Officer participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter that ended on August 31, 2009. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of August 31, 2009 to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
     Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2009. That evaluation did not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Items 1 – 5. Not applicable.
Item 6. Exhibits.
     
31.1.
  Rule 13a-14(a) certification by Stuart A. Miller, President and Chief Executive Officer.
 
   
31.2.
  Rule 13a-14(a) certification by Bruce E. Gross, Vice President and Chief Financial Officer.
 
   
32.
  Section 1350 certifications by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
         
  Lennar Corporation
       (Registrant)
 
 
Date: October 9, 2009  /s/ Bruce E. Gross    
  Bruce E. Gross   
  Vice President and
Chief Financial Officer 
 
 
     
Date: October 9, 2009  /s/ David M. Collins    
  David M. Collins   
  Controller