Lennar
Annual Report 2017

Plain-text annual report

FORM 10-K LENNAR CORPORATION FORM 10-K For the fiscal year ended November 30, 2017 Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Part II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Part III Item 10. Item 11. Item 12. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Item 14. Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Part IV Item 15. Signatures Exhibits, Financial Statement Schedules Financial Statement Schedule Certifications 1 9 20 21 21 21 22 24 25 66 68 125 125 128 128 128 128 128 128 129 132 134 135 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 2017 Commission file number 1-11749 Lennar Corporation (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 95-4337490 (I.R.S. Employer Identification No.) 700 Northwest 107th Avenue, Miami, Florida 33172 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (305) 559-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Class A Common Stock, par value 10¢ Class B Common Stock, par value 10¢ Name of each exchange on which registered New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES 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 NO NO 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 NO Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES The aggregate market value of the registrant’s Class A and Class B common stock held by non-affiliates of the registrant (198,632,273 shares of Class A common stock and 9,739,513 shares of Class B common stock) as of May 31, 2017, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $10,595,353,196. NO As of December 31, 2017, the registrant had outstanding 203,952,285 shares of Class A common stock and 36,007,774 shares of Class B common stock. DOCUMENTS INCORPORATED BY REFERENCE: Related Section Documents III Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 30, 2018. Item 1. Business Overview of Lennar Corporation PART I We are one of the nation’s largest homebuilders, a provider of real estate related financial services, a commercial real estate, investment management and finance company through our Rialto segment and a developer of multifamily rental properties in select U.S. markets primarily through unconsolidated entities. Our homebuilding operations are the most substantial part of our business, comprising $11.2 billion in revenues, or approximately 89% of consolidated revenues, in fiscal 2017. On October 29, 2017, we entered into an agreement (the "Merger Agreement") pursuant to which CalAtlantic Group, Inc. (“CalAtlantic”), another of the nation’s largest homebuilders, will be merged with and into a subsidiary of Lennar (the "Merger"). That transaction, which is subject to approval by both our stockholders and CalAtlantic’s stockholders, will make us the largest homebuilder in the United States based on revenues. As of November 30, 2017, our reportable homebuilding segments and Homebuilding Other had divisions located in: East: Florida(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia Central: Arizona, Colorado and Texas West: California and Nevada Other: Illinois, Minnesota, Oregon, Tennessee and Washington (1) Florida includes information related to WCI Communities, Inc. ("WCI") from the date of acquisition (February 10, 2017) to November 30, 2017. Our other reportable segments are Lennar Financial Services, Rialto and Lennar Multifamily. For financial information about our Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily operations, review Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is Item 7 of this Report, and our consolidated financial statements and the notes to our consolidated financial statements, which are included in Item 8 of this Report. A Brief History of Our Company We are a national homebuilder that operates in various states with deliveries of 29,394 new homes in 2017. Our company was founded as a local Miami homebuilder in 1954. We completed our initial public offering in 1971 and listed our common stock on the New York Stock Exchange in 1972. During the 1980s and 1990s, we entered and expanded operations in a number of homebuilding markets, including California, Florida and Texas, through both organic growth and acquisitions, such as Pacific Greystone Corporation in 1997. In 1997, we completed the spin-off of our then commercial real estate business, LNR Property Corporation. In 2000, we acquired U.S. Home Corporation, which expanded our operations into New Jersey, Maryland, Virginia, Minnesota and Colorado and strengthened our position in other states. From 2002 through 2005, we acquired several regional homebuilders, which brought us into new markets and strengthened our position in several existing markets. Through the most recent economic downturn, we strengthened and expanded our competitive position through strategic purchases of land at favorable prices. From 2010 through 2013, we expanded our homebuilding operations into the Georgia, Oregon, Washington and Tennessee markets. In 2017, we acquired WCI for $642.6 million in cash. WCI is a homebuilder of luxury single and multifamily homes, including a small percentage of luxury high-rise tower units, with operations in Florida. WCI's homes, tower units and communities are primarily targeted to move-up, active adult and second-home buyers. We are currently focused on maintaining moderate growth in community count and homes sales, reducing selling, general and administrative expenses by using innovative strategies to reduce customer acquisition costs, as well as on our soft-pivot land strategy, shortening the average time between when we acquire land and when we expect to begin building homes on it. In addition to focusing on growing our core operating platforms, Lennar Homebuilding and Lennar Financial Services, we have also been focusing on maximizing the value of our other businesses, including Rialto, Lennar Multifamily and Five Point Holdings, LLC ("FivePoint") (included as one of our Lennar Homebuilding unconsolidated entities), which is developing three very large multi-use planned developments in California. CalAtlantic Merger On October 29, 2017, we entered into an agreement pursuant to which CalAtlantic will be merged with and into a subsidiary of ours. CalAtlantic builds homes across the homebuilding spectrum, from entry level to luxury, in over 43 metropolitan statistical areas spanning 19 states. Although CalAtlantic also provides mortgage, title and escrow services, for the years ended December 31, 2016, 2015 and 2014, homebuilding revenue (consisting of home and land sales revenues) accounted for over 98% of CalAtlantic’s consolidated total revenue. We will issue an estimated 83.8 million 1 shares of Class A common stock and 1.7 million shares of Class B common stock, and will make cash payments to CalAtlantic stockholders totaling $1.16 billion, as a result of the transaction. The transaction is subject to approval by our stockholders and by CalAtlantic’s stockholders at meetings scheduled to be held on February 12, 2018. As of and for the year ended December 31, 2017, CalAtlantic had: • 14,602 home deliveries at an average sales price of $450,000 • Net new orders of 15,205 at an average sales price of $459,000 • • Backlog of 6,420 homes and backlog dollar value of $3.2 billion • 67,961 homesites owned and controlled as of September 30, 2017 565 average active selling communities Homebuilding Operations Overview Our homebuilding operations include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which we have investments. New home deliveries, including deliveries from unconsolidated entities, were 29,394 in fiscal 2017, compared to 26,563 in fiscal 2016 and 24,292 in fiscal 2015. We primarily sell single-family attached and detached homes in communities targeted to first-time homebuyers, move-up homebuyers, active adult homebuyers and luxury homebuyers (with the acquisition of WCI). The average sales price of a Lennar home varies depending on product and geographic location. For fiscal 2017, the average sales price, excluding deliveries from unconsolidated entities, was $376,000, compared to $361,000 in fiscal 2016 and $344,000 in fiscal 2015. We operate primarily under the Lennar brand name. Our homebuilding mission is focused on the profitable development of residential communities. Key elements of our strategy include: • Strong Operating Margins - We believe our operating leverage combined with our attractive land purchases position us for strong operating margins. • Everything’s Included® Approach - We are focused on distinguishing our products, including through our Everything’s Included® approach, which maximizes our purchasing power and enables us to include luxury features as standard items in our homes. • Innovative Homebuilding - We are constantly innovating the homes we build to create products that better meet our customers' needs and desires. Our Next Gen® home, or a home within a home, provides a unique new home solution for multi-generational households as homebuyers often need to accommodate children and parents to share the cost of their mortgage and other living expenses. In fiscal 2017, we delivered 1,475 Next Gen® homes representing an increase of 21% from the prior year and 5% of total home deliveries, excluding unconsolidated entities. The average sales price of the Next Gen® homes delivered in fiscal 2017 was $508,000, which is 35% above the average sales price of total home deliveries, excluding unconsolidated entities. • Flexible Operating Structure - Our local operating structure gives us the flexibility to make operating decisions based on local homebuilding conditions and customer preferences, while our centralized management structure provides oversight for our homebuilding operations. • Digital Marketing - We are increasingly advertising homes through digital channels, which is significantly increasing the efficiency of our marketing efforts. Diversified Program of Property Acquisition We generally acquire land for development and for the construction of homes that we sell to homebuyers. Land purchases are subject to specified underwriting criteria and are made through our diversified program of property acquisition, which may consist of: • Acquiring land directly from individual land owners/developers or homebuilders; • Acquiring local or regional homebuilders that own, or have options to purchase, land in strategic markets; • Acquiring land through option contracts, which generally enables us to control portions of properties owned by third parties (including land funds) and unconsolidated entities in which we have investments until we have determined whether to exercise the options; • Acquiring parcels of land through joint ventures or partnerships, which among other benefits, limits the amount of our capital invested in land while increasing our access to potential future homesites and allowing us to participate in strategic ventures; • Acquiring land in conjunction with Lennar Multifamily; and • Acquiring assets from banks and opportunity funds, often through relationships established by our Rialto segment. 2 At November 30, 2017, we owned 141,126 homesites and had access through option contracts to an additional 37,527 homesites, of which 32,082 homesites were through option contracts with third parties and 5,445 homesites were through option contracts with unconsolidated entities in which we have investments. At November 30, 2016, we owned 125,879 homesites and had access through option contracts to an additional 33,166 homesites, of which 26,650 homesites were through option contracts with third parties and 6,516 homesites were through option contracts with unconsolidated entities in which we have investments. Construction and Development Through our own efforts and those of unconsolidated entities in which Lennar Homebuilding has investments, we are involved in all phases of planning and building in our residential communities, including land acquisition, site planning, preparation and improvement of land and design, construction and marketing of homes. We use independent subcontractors for most aspects of home construction. At November 30, 2017, we were actively building and marketing homes in 765 communities, including four communities being constructed by unconsolidated entities. We generally supervise and control the development of land and the design and building of our residential communities with a relatively small labor force. We hire subcontractors for site improvements and virtually all of the work involved in the construction of homes. Arrangements with our subcontractors generally provide that our subcontractors will complete specified work in accordance with price schedules and in compliance with applicable building codes and laws. The price schedules may be subject to change to meet changes in labor and material costs or for other reasons. We believe that the sources and availability of raw materials to our subcontractors are adequate for our current and planned levels of operation. We generally do not own heavy construction equipment. We finance construction and land development activities primarily with cash generated from operations and debt issuances. For additional information about our investments in and relationships with unconsolidated entities, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report. Marketing We offer a diversified line of homes for first-time, move-up, active adult, luxury and multi-generational homebuyers in a variety of locations ranging from urban infill communities to suburban golf course communities. Our Everything’s Included® marketing program simplifies the home buying experience by including the most desirable features as standard items. This marketing program enables us to differentiate our homes from those of our competitors by creating value through standard features and competitive pricing, while reducing construction and overhead costs through a simplified construction process, product standardization and volume purchasing. In addition, our advances in including solar powered technology and home automation in certain of the homes we sell, enhance our brand and improve our ability to generate traffic and sales. We sell our homes primarily from models that we have designed and constructed. We employ new home consultants who are paid salaries, commissions or both to conduct on-site sales of our homes. We also sell homes through independent realtors. Most recently our marketing strategy has shifted to increase advertising through digital channels including paid search, display advertising, social media and e-mail marketing, all of which drive traffic to our website, www.lennar.com. This has allowed us to attract more qualified and knowledgeable homebuyers and has helped us reduce our selling, general and administrative expenses as a percentage of home sales revenues. However, we also continue to advertise through more traditional media, including newspapers, radio advertisements and other local and regional publications and on billboards where appropriate. We tailor our marketing strategy and message based on the community being advertised and the customers being targeted, such as advertising our active adult communities in areas where prospective active adult homebuyers live or will potentially want to purchase. Quality Service We continually strive to improve homeowner customer satisfaction throughout the pre-sale, sale, construction, closing and post-closing periods. We strive to create a quality home buying experience for our customers through the participation of sales associates, on-site construction supervisors and customer care associates, all working in a team effort, which we believe leads to enhanced customer retention and referrals. The quality of our homes is substantially affected by the efforts of on-site management and others engaged in the construction process, by the materials we use in particular homes and by other similar factors. We warrant our new homes against defective materials and workmanship for a minimum period of one year after the date of closing. Although we subcontract virtually all segments of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trades, we are primarily responsible to the homebuyers for the correction of any deficiencies. 3 Local Operating Structure and Centralized Management We balance a local operating structure with centralized corporate level management. Our local operating structure consists of homebuilding divisions across the country, which are generally managed by a division president, a controller and personnel focused on land entitlement, acquisition and development, sales, construction, customer service and purchasing. This local operating structure gives our division presidents and their teams, who generally have significant experience in the homebuilding industry, and in most instances, in their particular markets, the flexibility to make local operating decisions, including land identification, entitlement and development, the management of inventory levels for our current sales volume, community development, home design, construction and marketing of our homes. We centralize at the corporate level decisions related to our overall strategy, acquisitions of land and businesses, risk management, financing, cash management and information systems. Backlog Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by deposits. In some instances, purchasers are permitted to cancel sales contracts if they fail to qualify for financing or under certain other circumstances. We experienced a cancellation rate of 15% in 2017, compared to 16% and 16% in 2016 and 2015, respectively. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners. The backlog dollar value including unconsolidated entities at November 30, 2017 was $3.6 billion, compared to $2.9 billion at November 30, 2016 and $2.5 billion at November 30, 2015. We expect that substantially all homes currently in backlog will be delivered in fiscal year 2018. Lennar Homebuilding Investments in Unconsolidated Entities We create and participate in joint ventures that acquire and develop land for our homebuilding operations, for sale to third parties or for use in their own homebuilding operations. Through these joint ventures, we reduce the amount we invest in potential future homesites, thereby mitigating certain risks associated with land acquisitions, and, in some instances, we obtain access to land to which we could not otherwise have obtained access or could not have obtained access on as favorable terms. As of both November 30, 2017 and 2016, we had 38 Lennar Homebuilding unconsolidated joint ventures in which we were participating, and our maximum recourse debt exposure related to Lennar Homebuilding unconsolidated joint ventures was $69.2 million and $52.4 million, respectively. Homebuilding Ancillary Businesses We have ancillary business activities that are related to our homebuilding business, but are not components of our core homebuilding operations. FivePoint - In May 2016, we, through our wholly-owned subsidiaries, contributed, or obtained the right to contribute, our investments in three strategic joint ventures which own the Newhall Ranch, Great Park Neighborhoods, and the San Francisco Shipyard and Candlestick Point (the "Shipyard Venture") master planned mixed-use developments in California previously managed by FivePoint Communities, in exchange for an investment in FivePoint, which is currently included within our Lennar Homebuilding unconsolidated entities. A portion of the assets in the Shipyard Venture was retained by us and our Shipyard Venture partner. In May 2017, FivePoint completed its initial public offering ("IPO"). Concurrent with the IPO, we invested an additional $100 million in FivePoint in a private placement. As of November 30, 2017, we owned approximately 40% of FivePoint and the carrying amount of our investment was $359.2 million. Sunstreet - Our solar business is focused on providing homeowners through solar purchases or lease programs, high-efficiency solar power systems that generate much of a home's annual expected energy needs. In fiscal 2017, Sunstreet expanded its operations into South Carolina and reentered the Nevada market. In addition to these states, Sunstreet also operates in California, Colorado, Delaware, Florida, Maryland, Oregon,Texas and Washington. During the year ended November 30, 2017, we monetized $200 million of future lease payments related to solar systems. Lennar Financial Services Operations Mortgage Financing We offer conforming conventional, FHA-insured and VA-guaranteed residential mortgage loan products and other home mortgage products to buyers of our homes and others through our financial services subsidiary, Eagle Home Mortgage, LLC, from locations in most of the states in which we have homebuilding operations, as well as some other states. In 2017, our financial services subsidiaries provided loans to 80% of our homebuyers who obtained mortgage financing in areas where we offered services. Because of the availability of mortgage loans from our financial services subsidiaries, as well as from independent mortgage lenders, we believe almost all credit worthy potential purchasers of our homes have access to financing. 4 During 2017, we originated approximately 31,600 residential mortgage loans totaling $9.0 billion, compared to 33,500 residential mortgage loans totaling $9.3 billion during 2016. Substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. Several claims of this type have been asserted against us. We do not believe that the ultimate resolution of these claims will have a material adverse effect on our business or financial position. We finance our mortgage loan activities with borrowings under our financial services warehouse facilities or from our operating funds. At November 30, 2017, Lennar Financial Services had four warehouse facilities maturing at various dates through fiscal 2018 with a total maximum aggregate commitment of $1.5 billion including an uncommitted amount of $325 million. We expect the facilities to be renewed or replaced with other facilities when they mature. We have a corporate risk management policy under which we hedge our interest rate risk on rate-locked loan commitments and loans held-for-sale to mitigate exposure to interest rate fluctuations. Title and Other Insurance and Closing Services We provide title insurance and closing services to our homebuyers and others. During 2017, we provided title and closing services for approximately 110,000 real estate transactions, and issued approximately 314,800 title insurance policies through our underwriter subsidiary, North American Title Insurance Company, compared to approximately 116,000 real estate transactions and 298,900 title insurance policies during 2016. Title and closing services by agency subsidiaries are provided in 35 states. Title insurance services are provided in 40 states. We also provide our homebuyers and others with personal lines, property and casualty insurance products through our insurance agency subsidiary, North American Advantage Insurance Services, LLC, which operates in the same states as our homebuilding divisions, as well as other states. During 2017 and 2016, we issued, as agent, approximately 12,800 and 13,500 new homeowner policies, respectively, and renewed approximately 26,500 and 27,700 homeowner policies, respectively. Rialto Operations The Rialto segment is a commercial real estate, investment management, and finance company. Rialto’s primary focus is to manage third-party capital and to originate commercial mortgage loans which it sells into securitizations. It also has invested its own capital in mortgage loans, properties and real estate related securities. Rialto is the sponsor of, and an investor in, the private equity vehicles listed in the table below, that invest in real estate related assets and make other real estate related investments: Private Equity Vehicle Rialto Real Estate Fund, LP. . . . . . . . . . . . . . . Inception Year 2010 Rialto Real Estate Fund II, LP . . . . . . . . . . . . . Rialto Mezzanine Partners Fund, LP . . . . . . . . Rialto Capital CMBS Funds . . . . . . . . . . . . . . Rialto Real Estate Fund III . . . . . . . . . . . . . . . Rialto Credit Partnership, LP. . . . . . . . . . . . . . 2012 2013 2014 2015 2016 Commitment $700 million (including $75 million by Lennar) $1.3 billion (including $100 million by Lennar) $300 million (including $34 million by Lennar) $119 million (including $52 million by Lennar) $1.9 billion (including $140 million by Lennar) $220 million (including $20 million by Lennar) Rialto owns general partner interests in each of the funds, which entitles it to receive additional revenue through carried interests if the funds exceed certain performance thresholds ("carried interests"). Rialto is also entitled to receive advance distributions in order to cover income tax obligations resulting from allocations of taxable income to hypothetical carried interests in the funds ("advance distributions"). Carried interest and advance distributions are collectively referred to as incentive income. During the years ended November 30, 2017, 2016 and 2015, Rialto received $44.2 million, $10.1 million and $20.0 million, respectively, in incentive income. For Funds I, II and III, in order to protect investors in the Funds, we agreed that while the Funds were seeking investments (which no longer is the case with regard to Fund I and Fund II) we would not make investments on our behalf that would be suitable for the applicable Fund, unless an Advisory Committee of the Fund decides that the Fund should not make those particular investments, with an exception enabling us to purchase properties for use in connection with our homebuilding operations. Rialto Mortgage Finance ("RMF") originates and sells into securitizations five, seven and ten year commercial first mortgage loans, which are secured by income producing properties. RMF also originates floating rate loans secured by commercial real estate properties, many of which are undergoing transition, including properties undergoing lease-up, sell-out and renovation or repositioning. In order to finance RMF lending activities, as of November 30, 2017, RMF had secured five warehouse repurchase financing agreements maturing between December 2017 and November 2018 with 5 commitments totaling $1.2 billion, which includes $100 million for floating rate loans. Subsequent to November 30, 2017, the warehouse repurchase financing agreements maturing in December 2017 and January 2018 had their maturity dates extended to December 2019 and December 2018, respectively. Lennar Multifamily Operations We have been actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. Our Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. During the year ended November 30, 2017, our Lennar Multifamily segment continued to grow as a leading developer of apartment communities across the country with interests in 53 communities with development costs of approximately $5.1 billion, of which 13 communities were completed and operating, 12 communities were partially completed and leasing, 22 communities were under construction and the remaining communities were either owned or under contract. As of November 30, 2017, our Lennar Multifamily segment had a pipeline of future projects totaling $4.0 billion in assets across a number of states that will be developed primarily by unconsolidated entities. Our Lennar Multifamily segment had equity investments in 27 and 28 unconsolidated entities (including the Lennar Multifamily Venture, described below) as of November 30, 2017 and 2016, respectively. During the year ended November 30, 2017, unconsolidated entities in which our Lennar Multifamily segment was a participant sold seven operating properties resulting in gains allocable to the Lennar Multifamily segment of $96.7 million, which are included in Lennar Multifamily equity in earnings from unconsolidated entities. During the years ended November 30, 2016 and 2015, our Lennar Multifamily segment sold seven and two operating properties, respectively, through its unconsolidated entities, resulting in the segment's $91.0 million and $22.2 million share of gains, respectively, included within Lennar Multifamily equity in earnings from unconsolidated entities. The Lennar Multifamily Venture (the "Venture") is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by us comprised of cash, undeveloped land and preacquisition costs. As of November 30, 2017, $1.5 billion of the $2.2 billion in equity commitments had been called, of which we have contributed $350.7 million representing our pro-rata portion of the called equity, resulting in a remaining equity commitment for us of $153.3 million. For additional information about our investments in and relationships with unconsolidated entities, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report. Seasonality We historically have experienced, and expect to continue to experience, variability in quarterly results. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second fiscal quarter and increased deliveries in the second half of our fiscal year. However, periods of economic downturn in the industry can alter seasonal patterns. Competition The residential homebuilding industry is highly competitive. We compete for homebuyers in each of the market regions where we operate with numerous national, regional and local homebuilders, as well as with resales of existing homes and with the rental housing market. We compete for homebuyers on the basis of a number of interrelated factors including location, price, reputation, amenities, design, quality and financing. In addition to competition for homebuyers, we also compete with other homebuilders for desirable properties, raw materials and access to reliable, skilled labor. We compete for land buyers with third parties in our efforts to sell land to homebuilders and others. We believe we are competitive in the market regions where we operate primarily due to our: • Everything’s Included® marketing program, which simplifies the home buying experience by including most desirable features as standard items; Innovative home designs, such as our Next Gen® homes that provide both privacy and togetherness for multi-generational families; Financial position, where we continue to focus on inventory management and liquidity; • • • Access to land, particularly in land-constrained markets; • Access to distressed assets, primarily through relationships established by our Rialto segment; • Pricing to current market conditions through sales incentives offered to homebuyers; • Cost efficiencies realized through our national purchasing programs and production of value-engineered homes; and • Quality construction and home warranty programs, which are supported by a responsive customer care team. 6 Our financial services operations compete with other mortgage lenders, including national, regional and local mortgage bankers and brokers, banks, savings and loan associations and other financial institutions, in the origination and sale of residential mortgage loans. Principal competitive factors include interest rates and other features of mortgage loan products available to the consumer. We compete with other title insurance agencies and underwriters for closing services and title insurance. Principal competitive factors include service and price. The business of Rialto, and the funds it manages, of purchasing real estate related assets is highly competitive and fragmented. A number of entities and funds have been formed in recent years for the purpose of acquiring real estate related assets and it is likely that additional entities and funds will be formed for this purpose during the next several years. We compete in the marketplace for assets based on many factors, including purchase price, representations, warranties and indemnities, timeliness of purchase decisions and reputation. In marketing of real estate investment funds we sponsor, we compete with a large variety of asset managers, including banks and other financial institutions and real estate investment firms. Rialto’s RMF business competes with other commercial mortgage lenders in a competitive market and its profitability depends on its ability to originate commercial real estate loans and sell them into securitizations at attractive prices. Some of Rialto's competitors are substantially larger and have a lower cost of funds and greater financial, technical, marketing and other resources than Rialto and have access to funding sources that may not be available to Rialto. In addition, some of Rialto's competitors may have higher risk tolerances or make different risk assessments, than Rialto does, which could allow them to consider a wider variety of investments and establish more relationships than Rialto. We believe that the major factors distinguishing Rialto from many of its competitors is that Rialto's team is made up of experienced managers who engage in working out and /or adding value to real estate assets and have been doing that for several years. RMF's business is conducted by highly seasoned managers who have been originating and securitizing loans for over 26 years with long-standing relationships and can leverage Rialto’s/Lennar’s infrastructure facilities for a rapid market entrance as well as Rialto’s current underwriting platform. Additionally, because Rialto is a lender or capital provider to developers, we believe having our homebuilding team participating in the underwriting process provides us with a distinct advantage in our evaluation of real estate assets. We believe that our experienced team and the infrastructure already in place give the Rialto segment an advantage and position the segment well when compared to a number of its competitors. Our multifamily operations compete with other multifamily apartment developers and operators, including REITs, across the United States. In addition, our multifamily operations compete in securing capital, partners and equity, and in securing tenants within the large supply of already existing rental apartments. Principal competitive factors include location, rental price and quality, and management of the apartment buildings. Regulation The residential communities and multifamily apartment developments that we build are subject to a large variety of local, state and federal statutes, ordinances, rules and regulations relating to, among other things, zoning, construction permits or entitlements, construction materials, density, building design and property elevation, building codes and handling of waste. These include laws requiring the use of construction materials that reduce the need for energy-consuming heating and cooling systems. These laws and regulations are subject to frequent change and often increase construction costs. In some instances, we must comply with laws that require commitments from us to provide roads and other offsite infrastructure, and may require them to be in place prior to the commencement of new construction. These laws and regulations are usually administered by counties and municipalities and may result in fees and assessments or building moratoriums. In addition, certain new development projects are subject to assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial. Also, some states are attempting to make homebuilders responsible for violations of wage and other labor laws by their subcontractors. Residential homebuilding and apartment development are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. These environmental laws include such areas as storm water and surface water management, soil, groundwater and wetlands protection, subsurface conditions and air quality protection and enhancement. Environmental laws and existing conditions may result in delays, may cause us to incur substantial compliance and other costs and may prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas. For example, a 2015 decision of the California Supreme Court significantly delayed the start, and increased the cost of a California master planned mixed-use development in which we have an indirect investment. In recent years, several cities and counties in which we have developments have submitted to voters "slow growth" initiatives and other ballot measures that could impact the affordability and availability of land suitable for residential development within those localities. Although many of these initiatives have been defeated, we believe that if 7 similar initiatives were approved, residential construction by us and others within certain cities or counties could be seriously impacted. In order to make it possible for some of our homebuyers to obtain FHA-insured or VA-guaranteed mortgages, we must construct the homes they buy in compliance with regulations promulgated by those agencies. Various states have statutory disclosure requirements relating to the marketing and sale of new homes. These disclosure requirements vary widely from state-to-state. In addition, some states require that each new home be registered with the state at or before the time title is transferred to a buyer (e.g., the Texas Residential Construction Commission Act). In some states, we are required to be registered as a licensed contractor and comply with applicable rules and regulations. In various states, our new home consultants are required to be registered as licensed real estate agents and to adhere to the laws governing the practices of real estate agents. Our mortgage and title subsidiaries must comply with applicable real estate, lending and insurance laws and regulations. The subsidiaries are licensed in the states in which they do business and must comply with laws and regulations in those states. These laws and regulations include provisions regarding capitalization, operating procedures, investments, lending and privacy disclosures, forms of policies and premiums. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains a number of requirements relating to mortgage lending and securitizations. These include, among others, minimum standards for lender practices, limitations on certain fees and a requirement that the originator of loans that are securitized retain a portion of the risk, either directly or by holding interests in the securitizations. Several federal, state and local laws, rules, regulations and ordinances, including, but not limited to, the Federal Fair Debt Collection Practices Act ("FDCPA") and the Federal Trade Commission Act and comparable state statutes, regulate consumer debt collection activity. Although, for a variety of reasons, we may not be specifically subject to the FDCPA or to some state statutes that govern debt collectors, it is our policy to comply with applicable laws in our collection activities. To the extent that some or all of these laws apply to our collection activities, our failure to comply with such laws could have a material adverse effect on us. We are also subject to regulations promulgated by the Federal Consumer Financial Protection Bureau regarding residential mortgage loans. Since Rialto manages real estate asset investments, mezzanine loan and commercial mortgage-backed securities ("CMBS") funds and two entities partly owned by the FDIC, one of Rialto's entities is registered as an investment adviser under the Investment Advisers Act of 1940. This Act has requirements related to dealings between investment advisers and the entities they advise and imposes record keeping and disclosure obligations on investment advisers. Our RMF subsidiary must comply with laws and regulations applicable to commercial mortgage lending. Rialto or its subsidiaries must be licensed in states in which they make loans and must comply with laws and regulations in those states. Associates At November 30, 2017, we employed 9,111 individuals of whom 4,900 were involved in the Lennar Homebuilding operations, 3,414 were involved in the Lennar Financial Services operations, 335 were involved in the Rialto operations and 462 were involved in the Lennar Multifamily operations, compared to November 30, 2016, when we employed 8,335 individuals of whom 4,351 were involved in the Lennar Homebuilding operations, 3,224 were involved in the Lennar Financial Services operations, 365 were involved in the Rialto operations and 395 were involved in the Lennar Multifamily operations. We do not have collective bargaining agreements relating to any of our associates. However, we subcontract many phases of our homebuilding operations and some of the subcontractors we use have employees who are represented by labor unions. NYSE Certification On April 24, 2017, we submitted our Annual CEO Certification to the New York Stock Exchange ("NYSE") in accordance with NYSE's listing standards. The certification was not qualified in any respect. 8 Item 1A. Risk Factors. The following are what we believe to be the principal risks that could materially affect us and our businesses. Market and Economic Risks The homebuilding recovery has continued its progression; however, a downturn or decline in economic conditions could adversely affect our operations. In fiscal 2017, we continued to experience a steadily improving housing market, and we saw increases in new sales contracts signed and homes delivered compared with the prior year. However, demand for new homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. The prior economic downturn severely affected both the numbers of homes we could sell and the prices for which we could sell them. We cannot predict whether the recovery in the housing market will continue. If the recovery were to slow or stop, or there were another economic downturn, the resulting decline in demand for new homes would negatively impact our business, results of operations and financial condition. During the prior economic downturn, we had to take significant write-downs on the carrying values of land we owned and of option values. A future decline in land values could result in similar write-downs. Inventory risks are substantial for our homebuilding business. There are risks inherent in controlling, owning and developing land and if housing demand declines, we may own land or homesites we acquired at costs we will not be able to recover fully, or on which we cannot build and sell homes profitably. This is particularly true when entitled land becomes increasingly scarce, as it has recently, and the cost of purchasing such land may be relatively high. Also, there can be significant fluctuations in the value of our owned undeveloped land, building lots and housing inventories related to changes in market conditions. As a result, our deposits for building lots controlled under option or similar contracts may be put at risk, we may have to sell homes or land for lower than anticipated profit margins or we may have to record inventory impairment charges with regard to our developed and undeveloped land and lots. When demand for homes fell during the most recent recession, we were required to take significant write-downs of the carrying value of our land inventory and we elected not to exercise many options to purchase land, even though that required us to forfeit deposits and write-off pre-acquisition costs. Although we have reduced our exposure to costs of that type, a certain amount of exposure is inherent in our homebuilding business. If market conditions were to deteriorate significantly in the future, we could again be required to make significant write downs with regard to our land inventory, which would decrease the asset values reflected on our balance sheet and adversely affect our earnings and our stockholders' equity. Inflation may adversely affect us by increasing costs beyond what we can recover through price increases. Inflation can adversely affect us by increasing costs of land, materials and labor. In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on demand for our homes. In an inflationary environment, depending on homebuilding industry and other economic conditions, we may be unable to raise home prices enough to keep up with the rate of inflation, which would reduce our profit margins. Although the rate of inflation has been low for the last several years, we currently are experiencing increases in the prices of labor and materials above the general inflation rate. Homebuilding, mortgage lending, real estate asset investing and multifamily rentals are very competitive industries, and competitive conditions could adversely affect our business or financial results. Homebuilding. The homebuilding industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable land, financing, raw materials, skilled management and labor resources. We compete in each of our markets with numerous national, regional and local homebuilders. We also compete with sellers of existing homes, including foreclosed homes, and with rental housing. These competitive conditions can reduce the number of homes we deliver, negatively impact our selling prices, reduce our profit margins, and cause impairments in the value of our inventory or other assets. Competition can also affect our ability to acquire suitable land, raw materials and skilled labor at acceptable prices or other terms. Lennar Financial Services. Our Lennar Financial Services business competes with other mortgage lenders, including national, regional and local banks and other financial institutions. Mortgage lenders who have greater access to low cost funds, superior technologies or different lending criteria than we do may be able to offer more attractive financing to potential customers than we can. 9 Rialto. There are many firms and investment funds that compete with Rialto in trying to acquire mortgage portfolios and other real estate related assets. At least some of the firms with which Rialto competes, or will compete, for investment opportunities have a cost of funds or targeted investment returns that are lower than those of Rialto or the funds it manages, and therefore those firms may be able to pay more for investment opportunities than would be prudent for Rialto or the funds it manages. Our RMF business competes with national and regional banks as well as smaller community banks within the various markets in which it operates and with non-bank lenders, many of which are far larger than RMF or have access to lower cost funds than does RMF. Lennar Multifamily. Our multifamily rental business competes with other multifamily apartment developers and operators at locations across the U.S. where we have investments in rental properties. We also compete in securing partners, equity capital and debt financing, and we compete for tenants with the large supply of already existing or newly built rental apartments, as well as with sellers of homes. These competitive conditions could negatively impact the ability of the ventures in which we are participating to find renters for the apartments they are building or the prices for which those apartments can be rented. Operational Risks We may be subject to significant potential liabilities as a result of warranty and liability claims made against us. As a homebuilder, we are subject in the ordinary course of our business to warranty and construction defect claims. We are also subject to claims for injuries that occur in the course of construction activities. We record warranty and other reserves for the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes we build. We have, and many of our subcontractors have, general liability, property, workers compensation and other business insurance. These insurance policies are intended to protect us against risk of loss from claims, subject to self-insured retentions, deductibles and coverage limits. However, it is possible that this insurance will not be adequate to address all warranty, construction defect and liability claims to which we are subject. Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained are costly and often include exclusions based upon past losses those insurers suffered as a result of use of defective products in homes we and many other homebuilders built. As a result, an increasing number of our subcontractors are unable to obtain insurance, and we have in many cases had to waive our customary insurance requirements, which increases our and our insurers’ exposure to claims and increases the possibility that our insurance will not be adequate to protect us against all the costs we incur. Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business. We rely on subcontractors to perform the actual construction of our homes, and in many cases, to select and obtain building materials. Despite our detailed specifications and quality control procedures, in some cases, subcontractors may use improper construction processes or defective materials. Defective products widely used by the homebuilding industry can result in the need to perform extensive repairs to large numbers of homes. The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers and insurers. We also can suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply with applicable laws, including laws involving things that are not within our control. When we learn about possibly improper practices by subcontractors, we try to cause the subcontractors to discontinue them. However, we may not always be able to do that, and even when we can, it may not avoid claims against us relating to what the subcontractors already did. Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay deliveries. Increased costs or shortages of skilled labor and/or lumber, framing, concrete, steel and other building materials could cause increases in construction costs and construction delays. During 2017, we experienced increases in the prices of some building materials and shortages of skilled labor in some areas. We generally are unable to pass on increases in construction costs to customers who have already entered into purchase contracts, as those contracts generally fix the price of the homes at the time the contracts are signed, which may be well in advance of the construction of the homes. Sustained increases in construction costs may, over time, erode our margins, particularly if pricing competition or weak demand restricts our ability to pass additional costs of materials and labor on to homebuyers. 10 Reduced numbers of home sales extend the time it takes us to recover land purchase and property development costs. We incur many costs even before we begin to build homes in a community. Depending on the stage of development a land parcel is in when we acquire it, these may include costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land on which we plan to build homes. If the rate at which we sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-construction costs and it may take longer for us to recover our costs. Increased demand for homes could require us to increase our corporate credit line, and our inability to do that could limit our ability to take full advantage of market opportunities. Our business requires that we be able to finance the development of our residential communities. One of the ways we do this is with bank borrowings. At November 30, 2017, we had a $2.0 billion revolving credit facility with a group of banks (the "Credit Facility"), which includes a $403 million accordion feature, subject in part to additional commitments. If market conditions strengthen to the point that we need additional funding but we are not able to increase our Credit Facility or obtain funds from other types of financings, that could prevent us from taking full advantage of the enhanced market opportunities. Failure to comply with the covenants and conditions imposed by our credit facilities could restrict future borrowing or cause our debt to become immediately due and payable. The agreement governing our Credit Facility (the "Credit Agreement") makes it a default if we fail to pay principal or interest when it is due (subject in some instances to grace periods) or to comply with various covenants, including covenants regarding financial ratios. In addition, our Lennar Financial Services segment has warehouse facilities to finance its lending activities and our Rialto segment has warehouse facilities to finance its mortgage origination activities. If we default under the Credit Agreement or our warehouse facilities, the lenders will have the right to terminate their commitments to lend and to require immediate repayment of all outstanding borrowings. This could reduce our available funds at a time when we are having difficulty generating all the funds we need from our operations, in capital markets or otherwise, and restrict our ability to obtain financing in the future. Further, Rialto's 7.00% senior notes due 2018 (the "7.00% Senior Notes") contain restrictive covenants imposing operational and financial restrictions on our Rialto segment, including restrictions that may limit Rialto’s ability to sell assets, pay dividends or make other distributions, enter into transactions with affiliates or incur additional indebtedness. In addition, if we default under the Credit Agreement or our warehouse facilities, it could cause the amounts outstanding under our senior notes to become immediately due and payable, which would have a material adverse impact on our consolidated financial condition. We have a substantial level of indebtedness, which may have an adverse effect on our business or limit our ability to take advantage of business, strategic or financing opportunities. As of November 30, 2017, our consolidated debt, net of debt issuance costs, and excluding amounts outstanding under our credit facilities, was $6.9 billion. The indentures governing our senior notes do not restrict our incurrence of future secured or unsecured debt, and the agreement governing our Credit Facility allows us to incur a substantial amount of future unsecured debt. Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay the principal, interest or other amounts due on our indebtedness. Further, the expected acquisition of CalAtlantic will make us responsible for CalAtlantic debt, which was $3.8 billion as of September 30, 2017. Our reliance on debt to help support our operations exposes us to a number of risks, including: • we may be more vulnerable to general adverse economic and homebuilding industry conditions; • we may have to pay higher interest rates upon refinancing indebtedness if interest rates rise, thereby reducing our earnings and cash flows; • we may find it difficult, or may be unable to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements that would be in our best long-term interests; • we may be required to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our debt, reducing the cash flow available to fund operations and investments; • we may have reduced flexibility in planning for, or reacting to, changes in our businesses or the industries in which they are conducted; • we may have a competitive disadvantage relative to other companies in our industry that are less leveraged; and • we may be required to sell debt or equity securities or sell some of our core assets, possibly on unfavorable terms, in order to meet payment obligations. 11 Our inability to obtain performance bonds could adversely affect our results of operations and cash flows. We often are required to provide surety bonds to secure our performance or obligations under construction contracts, development agreements and other arrangements. At November 30, 2017, we had outstanding surety bonds of $1.3 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. Our ability to obtain surety bonds primarily depends upon our credit rating, financial condition, past performance and similar factors, the capacity of the surety market and the underwriting practices of surety bond issuers. The ability to obtain surety bonds also can be impacted by the willingness of insurance companies to issue performance bonds for construction and development activities. If we are unable to obtain surety bonds when required, our results of operations and cash flows could be adversely affected. Our Lennar Financial Services segment and RMF have warehouse facilities that mature between 2018 and 2019, and if we cannot renew or replace these facilities, we may have to reduce our mortgage lending and origination activities. Our Lennar Financial Services segment has committed and uncommitted amounts under four warehouse repurchase credit facilities that totaled $1.5 billion as of November 30, 2017, all of which will mature between December 2017 and December 2018. Subsequent to November 30, 2017, the warehouse repurchase credit facility due December 2017 was extended to December 2018. Our Lennar Financial Services segment uses these facilities to finance its mortgage lending activities until the mortgage loans it originates are sold to investors. In addition, RMF, the commercial mortgage lender in our Rialto segment, has committed amounts under five warehouse repurchase credit facilities that totaled $1.2 billion as of November 30, 2017, all of which will mature between December 2017 and November 2018. Subsequent to November 30, 2017, the warehouse credit facilities due December 2017 and January 2018 were extended to December 2019 and December 2018, respectively. RMF uses these facilities primarily to finance its mortgage origination activities. We expect these facilities to be renewed or replaced with other facilities when they mature. If we were unable to renew or replace these facilities on favorable terms or at all when they mature, that could seriously impede the activities of our Lennar Financial Services segment and RMF, as applicable, which would have a material adverse impact on our financial results. We conduct some of our operations through joint ventures with independent third parties and we can be adversely impacted by our joint venture partners' failures to fulfill their obligations or decisions to act contrary to our wishes. In our Homebuilding and Lennar Multifamily segments, we participate in joint ventures in order to help us acquire attractive land positions, to manage our risk profile and to leverage our capital base. In certain circumstances, joint venture participants, including us, are required to provide guarantees of obligations relating to the joint ventures, such as completion and environmental guarantees. If a joint venture partner does not perform its obligations, we may be required to bear more than our proportional share of the cost of fulfilling them. For example, in connection with our Lennar Multifamily business, and its joint ventures, we and the other venture participants have guaranteed certain obligations to complete construction of multifamily residential buildings at agreed upon costs, which could make us and the other venture participants responsible for cost over-runs. Although all the participants in a venture are normally responsible for sharing the costs of fulfilling obligations of that type, if some of the venture participants are unable or unwilling to meet their share of the obligations, we may be held responsible for some or all of the defaulted payments. In addition, because we do not have a controlling interest in most of the joint ventures in which we participate, we may not be able to cause joint ventures to sell assets, return invested capital or take other actions when such actions might be in our best interest. Several of the joint ventures in which we participate will in the relatively near future be required to repay, refinance, renegotiate or extend their borrowings. If any of those joint ventures are unable to do this, we could be required to provide at least a portion of the funds the joint ventures need to be able to repay the borrowings and to conduct the activities for which they were formed, which could adversely affect our financial position. The loss of the services of members of our senior management or a significant number of our operating employees could negatively affect our business. Our success depends to a significant extent upon the performance and active participation of our senior management, many of whom have been with the Company for a significant number of years. If we were to lose members of our senior management, we might not be able to find appropriate replacements on a timely basis and our operations could be negatively affected. Also, the loss of a significant number of operating employees and our inability to hire qualified replacements could have a material adverse effect on our business. 12 Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings. Our corporate credit rating and ratings of our senior notes affect, among other things, our ability to access new capital, especially debt, and the costs of that new capital. A substantial portion of our access to capital is through the issuance of senior notes, of which we have more than $6.0 billion outstanding, net of debt issuance costs, and excluding Rialto's 7.00% Senior Notes, as of November 30, 2017. Further, the expected acquisition of CalAtlantic will make us responsible for CalAtlantic debt, which was $3.8 billion as of September 30, 2017. Among other things, we rely on proceeds of debt issuances to pay the principal of existing senior notes when they mature. Negative changes in the ratings of our senior notes could make it difficult for us to sell senior notes in the future and could result in more stringent covenants and higher interest rates with regard to new senior notes we issue. We will have to replace a substantial amount of debt in fiscal year 2018. We have a substantial amount of debt that matures in fiscal year 2018. We have $250 million of senior notes that mature in June 2018 and we will have to replace or renew a total of $2.6 billion of warehouse lines used by Lennar Financial Services and RMF as they mature. In addition, assuming we complete the acquisition of CalAtlantic, based on balances as of September 30, 2017, CalAtlantic will have to offer to repurchase $258 million of convertible senior notes that otherwise will mature in 2019. CalAtlantic also has $575 million of senior notes and $223 million of convertible senior notes as of September 30, 2017 that mature in May 2018 (although the convertible senior notes are likely to be converted before they mature). Additionally, we will have to replace a $750 million revolving credit facility currently maintained by CalAtlantic. We (including CalAtlantic) might have to raise as much as an additional $1.9 billion by December 2018 to replace the senior notes that will become due on or before that date. In January 2018, we commenced offers to exchange any and all of the outstanding $3.0 billion aggregate principal amount of senior notes of CalAtlantic for up to the same aggregate principal amount of new notes issued by Lennar. This includes the notes due in 2018. The new Lennar notes will have the same maturities as the CalAtlantic notes for which they are exchanged, and therefore will not change the maturities of debt that will have to be repaid. Natural disasters and severe weather conditions could delay deliveries and increase costs of new homes in affected areas, which could harm our sales and results of operations. Many of our homebuilding operations are conducted in areas that are subject to natural disasters, including hurricanes, earthquakes, droughts, floods, wildfires and severe weather. The occurrence of natural disasters or severe weather conditions can delay new home deliveries, increase costs by damaging inventories and lead to shortages of labor and materials in areas affected by the disasters, and can negatively impact the demand for new homes in affected areas. If our insurance does not fully cover business interruptions or losses resulting from these events, our results of operations could be adversely affected. In the third and fourth quarters of 2017, our homebuilding operation was disrupted due to impacts from Hurricanes Harvey and Irma, which caused delays of 550 home deliveries that were pushed into fiscal 2018. If our homebuyers are not able to obtain suitable financing, that would reduce demand for our homes and our home sales revenues. Most purchasers of our homes obtain mortgage loans to finance a substantial portion of the purchase price of the homes they purchase. While the majority of our homebuyers obtain their mortgage financing from Lennar Financial Services, others obtain mortgage financing from banks and other independent lenders. The uncertainties in the mortgage markets and increased government regulation could adversely affect the ability of potential homebuyers to obtain financing for home purchases, thus preventing them from purchasing our homes. Among other things, changes made by Fannie Mae, Freddie Mac and FHA/VA to sponsored mortgage programs, as well as changes made by private mortgage insurance companies, have reduced the ability of many potential homebuyers to qualify for mortgages. Principal among these are higher income requirements, larger required down payments, increased reserves and higher required credit scores. In addition, there has been uncertainty regarding the future of Fannie Mae and Freddie Mac, including proposals that they reduce or terminate their role as the principal sources of liquidity in the secondary market for mortgage loans. It is not clear how, if Fannie Mae and Freddie Mac were to curtail their secondary market mortgage loan purchases, the liquidity they provide would be replaced. There is a substantial possibility that substituting an alternate source of liquidity would increase mortgage interest rates, which would increase the buyers' effective costs of paying for the homes we sell, and therefore could reduce demand for our homes and adversely affect our results of operations. Our Lennar Financial Services segment can be adversely affected by reduced demand for our homes or by a slowdown in mortgage refinancings. Approximately 61% of the mortgage loans made by our Lennar Financial Services segment in 2017 were made to buyers of homes we built. Therefore, a decrease in the demand for our homes would adversely affect the revenues of this segment of our business. In addition, the revenues of our Lennar Financial Services segment would be adversely affected by a continued decrease in refinance transactions, if mortgage interest rates continue to rise. 13 If our ability to sell mortgages into the secondary market is impaired, that could significantly reduce our ability to sell homes unless we are willing to become a long-term investor in loans we originate. Substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. If we became unable to sell loans into the secondary mortgage market or directly to Fannie Mae and Freddie Mac, we would have to either curtail our origination of residential mortgage loans, which among other things, could significantly reduce our ability to sell homes, or commit our own funds to long term investments in mortgage loans, which, in addition to requiring us to deploy substantial amounts of our own funds, could delay the time when we recognize revenues from home sales on our statements of operations. We may be liable for certain limited representations and warranties we make in connection with sale of loans. While substantially all of the residential mortgage loans we originate are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis, we remain responsible for certain limited representations and warranties we make in connection with such sales. Mortgage investors currently are seeking to have us buy back mortgage loans or compensate them for losses incurred on mortgage loans that we have sold based on claims that we breached our limited representations or warranties. In addition, when our Rialto segment sells loans to securitization trusts or other purchasers, it gives limited industry standard representations and warranties about the loans, which, if incorrect, may require it to repurchase the loans, replace them with substitute loans or indemnify persons for losses or expenses incurred as a result of breaches of representations and warranties. If we have significant liabilities with respect to such claims, it could have an adverse effect on our results of operations, and possibly our financial condition. If real estate Rialto acquires through foreclosures is not properly valued when it is acquired, we could be required to take valuation charge-offs, which would reduce our earnings. When a loan is foreclosed upon and we take title to the property, we obtain a valuation of the property and base its book value on that valuation. The book value of the foreclosed property is periodically compared to its updated market value (or its updated market value less estimated selling costs if the foreclosed property is classified as held-for- sale), and a charge-off is recorded for any excess of the property's book value over its fair value. If the revised valuation we establish for a property proves to be too high, we may have to record additional charge-offs in subsequent periods. Material charge-offs could have an adverse effect on our results of operations, and possibly even on our financial condition. Regulatory Risks We may be adversely impacted by legal and regulatory changes. We are subject with regard to almost all of our activities to a variety of federal, state and local laws and regulations. Laws and regulations, and policies under or interpretations of existing laws and regulations, change frequently. Our businesses could be adversely affected by changes in laws, regulations, policies or interpretations or by our inability to comply with them without making significant changes in our businesses. We may be adversely impacted by laws and regulations directed at the financial industry. New or modified regulations and related regulatory guidance focused on the financial industry may have adverse effects on aspects of our businesses. For example, in October 2014, final rules were promulgated under the Dodd-Frank Wall Street Reform Act that require mortgage lenders or third-party B-piece buyers to retain a portion of the credit risk related to securitized loans. We have determined that the rules do not affect our residential mortgage lending operations at this time; however, the rules may adversely impact our RMF subsidiary’s commercial mortgage lending operations. The rules have been in effect for over a year; however, their long term impact is still undetermined. If, in the future, the rules cause a decrease the price of CMBS and/or a decrease in the overall volume of CMBS related loan purchases in the industry, this could negatively impact the financial results of our RMF business. In addition, if our residential mortgage lending operations became subject to these rules in the future, that would substantially increase the amount we would have to invest in our mortgage lending operations and increase our risks with regard to loans we originate and sell in the secondary mortgage market. 14 Governmental regulations regarding land use and environmental matters could increase the cost and limit the availability of our development and homebuilding projects and adversely affect our business or financial results. We are subject to extensive and complex laws and regulations that affect the land development, homebuilding and apartment development process, including laws and regulations related to zoning, permitted land uses, levels of density, building design, elevation of properties, water and waste disposal and use of open spaces. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to development or construction being approved, if they are approved at all. We are also subject to determinations by governmental authorities as to the adequacy of water or sewage facilities, roads and other local services with regard to particular residential communities. New housing developments may also be subject to various assessments for schools, parks, streets and other public improvements. In addition, in many markets government authorities have implemented no growth or growth control initiatives. Any of these can limit, delay, or increase the costs of land development or home construction. We are also subject to a variety of local, state and federal laws and regulations concerning protection of the environment. In some of the markets where we operate, we are required by law to pay environmental impact fees, use energy-saving construction materials and give commitments to municipalities to provide infrastructure such as roads and sewage systems. We generally are required to obtain permits, entitlements and approvals from local authorities to commence and carry out residential development or home construction. These permits, entitlements and approvals may, from time-to-time, be opposed or challenged by local governments, environmental advocacy groups, neighboring property owners or other possibly interested parties, adding delays, costs and risks of non-approval to the process. Violations of environmental laws and regulations can result in injunctions, civil penalties, remediation expenses, and other costs. In addition, some environmental laws impose strict liability, which means that we may be held liable for unlawful environmental conditions on property we own which we did not create. We are also subject to laws and regulations related to workers' health and safety, and there are efforts to subject homebuilders like us to other labor related laws or rules, some of which may make us responsible for things done by our subcontractors over which we have little or no control. In addition, our residential mortgage subsidiary is subject to various state and federal statutes, rules and regulations, including those that relate to lending operations and other areas of mortgage origination and loan servicing. The impact of those statutes, rules and regulations can increase our homebuyers’ costs of financing, and our cost of doing business, as well as restricting our homebuyers’ access to some types of loans. Our obligation to comply with the laws and regulations under which we operate, and our need to ensure that our associates, subcontractors and other agents comply with these laws and regulations, could result in delays in construction and land development, cause us to incur substantial costs and prohibit or restrict land development and homebuilding activity in certain areas in which we operate. Budget reductions by state and local governmental agencies may increase the time it takes to obtain required approvals and therefore may aggravate the delays we could encounter. Government agencies also routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our businesses that can be significant. We can be injured by improper acts of persons over whom we do not have control. Although we expect all of our associates (i.e., employees), officers and directors to comply at all times with all applicable laws, rules and regulations, there may be instances in which subcontractors or others through whom we do business engage in practices that do not comply with applicable laws, regulations or governmental guidelines. When we learn of practices that do not comply with applicable laws or regulations, including practices relating to homes, buildings or multifamily rental properties we build or finance, we move actively to stop the non-complying practices as soon as possible and we have taken disciplinary action with regard to associates of ours who were aware of non-complying practices and did not take steps to address them, including in some instances terminating their employment. However, regardless of the steps we take after we learn of practices that do not comply with applicable laws or regulations, we can in some instances be subject to fines or other governmental penalties, and our reputation can be injured, due to the practices' having taken place. 15 We could be hurt by efforts to impose liabilities or obligations on persons with regard to labor law violations by other persons whose employees perform contracted services. The homes we sell are built by employees of subcontractors and other contract parties. We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees. However, various governmental agencies are trying to hold contract parties like us responsible for violations of wage and hour laws and other work related laws by firms whose employees are performing contracted for services. A recent National Labor Relations Board ruling held that for labor law purposes a firm could under some circumstances be responsible as a joint employer of its contractors' employees. That ruling has been withdrawn. If it had not been withdrawn and had been upheld on appeal, it could have made us responsible for collective bargaining obligations of, and labor law violations by our subcontractors. Governmental rulings that make us responsible for labor practices by our subcontractors could create substantial exposures for us in situations that are not within our control. Our ability to collect upon mortgage loans may be limited by the application of state laws. Our mortgage loans typically permit us to accelerate the debt upon default by the borrower. The courts of all states will enforce acceleration clauses in the event of a material payment default, subject in some cases to a right of the court to revoke the acceleration and reinstate the mortgage loan if a payment default is cured. The equity courts of a state, however, may refuse to allow the foreclosure of a mortgage or to permit the acceleration of the indebtedness in instances in which they decide that the exercise of those remedies would be inequitable or unjust or the circumstances would render an acceleration unconscionable. Further, the ability to collect upon mortgage loans may be limited by the application of state and federal laws. For example, Nevada has enacted a law providing that if the amount an assignee of a mortgage note paid to acquire the note is less than the face amount of the note, the assignee cannot recover more through a deficiency action than the amount it paid for the note. If the Nevada law is upheld, or similar laws are enacted in other jurisdictions, it could materially and adversely affect our ability and the ability of funds we manage to profit from purchases of distressed debt. Other Risks Our results of operations could be adversely affected if legal claims against us are not resolved in our favor. In the ordinary course of our business, we are subject to legal claims by homebuyers, borrowers against whom we have instituted foreclosure proceedings, persons with whom we have land purchase contracts and a variety of other persons. We establish reserves against legal claims and we believe that, in general, legal claims will not have a material adverse effect on our business or financial condition. However, if the amounts we are required to pay as a result of claims against us substantially exceed the sums anticipated by our reserves, the need to pay those amounts could have a material adverse effect on our results of operations for the periods when we are required to make the payments. During fiscal 2017, we were required to make a significant payment, and make a significant charge against earnings, as a result of a litigation against us in a contract suit. Information technology failures and data security breaches could harm our business. We rely extensively on information technology ("IT") systems, including Internet sites, data hosting facilities and other hardware and software platforms, some of which are hosted by third parties, to assist in conducting our businesses. Our IT systems, like those of most companies, may be vulnerable to a variety of interruptions, including, but not limited to, natural disasters, telecommunications failures, hackers, and other security issues. Moreover, our computer systems, like those of most companies, are subjected to computer viruses or other malicious codes, and to cyber or phishing-attacks. Although we have implemented administrative and technical controls and taken other actions to minimize the risk of cyber incidents and protect our information technology, computer intrusion efforts are becoming increasingly sophisticated, and even the enhanced controls we have installed might be breached. If our IT systems cease to function properly, we could suffer interruptions in our operations. If our cyber-security is breached, unauthorized persons may gain access to proprietary or confidential information, including information about purchasers of our homes or borrowers from our mortgage lending subsidiaries. This could damage our reputation, expose us to claims, and require us to incur significant costs to repair or restore the security of our computer systems. 16 Increases in the rate of cancellations of home sale agreements could have an adverse effect on our business. Our backlog reflects agreements of sale with our homebuyers for homes that have not yet been delivered. We have received a deposit from our home buyer for each home reflected in our backlog, and generally we have the right to retain the deposit if the homebuyer does not complete the purchase. In some cases, however, a homebuyer may cancel the agreement of sale and receive a complete or partial refund of the deposit for reasons such as state and local laws, the homebuyer’s inability to obtain mortgage financing, his or her inability to sell his or her current home or our inability to complete and deliver the home within the specified time. If there is a downturn in the housing market, or if mortgage financing becomes even less available than it currently is, more homebuyers may cancel their agreements of sale with us, which would have an adverse effect on our business and results of operations. Our success depends on our ability to acquire land suitable for residential homebuilding at reasonable prices, in accordance with our land investment criteria. There is strong competition among homebuilders for land that is suitable for residential development. The future availability of finished and partially finished developed lots and undeveloped land that meet our internal criteria depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers for desirable property, inflation in land prices, zoning, allowable housing density, and other regulatory requirements. Should suitable lots or land become less available, the number of homes we could build and sell could be reduced, and the cost of land could be increased, perhaps substantially, which could adversely impact our results of operations. Our expected acquisition of CalAtlantic will substantially increase our supply of land that is suitable for residential development, but it will also substantially increase the rate at which we are building homes. Expansion of our services and investments into international markets through our Rialto segment subjects us to risks inherent in international operations. Fund II, of which our Rialto segment owns an interest and for which it performs asset management services, owns an interest in a joint venture which holds real estate assets in Spain. Expansion of our services and investments in Spain and any expansion into other international markets in the future, could result in operational problems not typically experienced in the United States. Our activities outside the United States are subject to risks associated with doing business internationally, including fluctuations in currency exchange rates, the implementation of currency controls, material changes in a specific country’s or region’s political or economic conditions, differences in the legal and regulatory systems, reputational risks and cultural differences which may lead to competitive disadvantages, particularly due to our need to comply with U.S. anti-corruption laws. There also are tax consequences of doing business outside the U.S., both under U.S. tax laws and under the tax laws of the countries in which we do business. We could suffer adverse tax and other financial consequences if we are unable to utilize our net operating loss ("NOL") carryforwards. At November 30, 2017, we had state tax NOL carryforwards totaling $66.2 million that will expire between 2018 and 2036. At November 30, 2017, we had a valuation allowance of $6.4 million, primarily related to state NOL carryforwards that are not more likely than not to be utilized due to an inability to carry back these losses in most states and short carryforward periods that exist in certain states. If we are unable to use our NOLs, we may have to record charges or reduce our deferred tax assets, which could have an adverse effect on our results of operations. There have been substantial changes to the Internal Revenue Code, some of which could have an adverse effect on our business. On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act, which contains substantial changes to the Internal Revenue Code, effective January 1, 2018, some of which could have an adverse effect on our business. Among the possible changes that could make purchasing homes less attractive are (i) limitations on the ability of our homebuyers to deduct property taxes, (ii) limitations on the ability of our homebuyers to deduct mortgage interest, and (iii) limitations on the ability of our homebuyers to deduct state and local income taxes. Although the rate at which we pay federal income tax will be reduced, this will require us to write down our deferred tax assets by approximately $70 million, which will negatively impact our results of operations in the first quarter of fiscal year 2018. Lastly, the new law eliminates the ability to carry back any future NOLs and only allows for carryforwards, the utilization of which is limited to 80% of taxable income in a given carryforward year. This could affect the timing of our ability to utilize net operating losses in the future. 17 We experience variability in our operating results on a quarterly basis and, as a result, our historical performance may not be a meaningful indicator of future results. We historically have experienced, and expect to continue to experience, variability in quarterly results. As a result of such variability, our short-term performance may not be a meaningful indicator of future results. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second fiscal quarter and increased deliveries in the second half of our fiscal year. Our quarterly results of operations may continue to fluctuate in the future as a result of a variety of factors, including, among others, seasonal home buying patterns, the timing of home closings and land sales and weather-related problems. We have a stockholder who can exercise significant influence over matters that are brought to a vote of our stockholders. Stuart Miller, our Chief Executive Officer and a Director, has voting control, through personal holdings and holdings by family-owned entities, of Class B, and to a lesser extent Class A, common stock that enables Mr. Miller to cast approximately 39.0% of the votes that can be cast by the holders of all our outstanding Class A and Class B common stock combined. This percentage will be reduced to 33.1% by the issuance of shares in connection with the expected merger with CalAtlantic, but even that reduced percentage probably gives Mr. Miller the power to control the election of our directors and the approval of matters that are presented to our stockholders. Mr. Miller's voting power might discourage someone from seeking to acquire us or from making a significant equity investment in us, even if we needed the investment to meet our obligations or to operate our business. Also, because of his voting power, Mr. Miller could be able to cause our stockholders to approve actions that are contrary to our other stockholders' desires. The trading price of our Class B common stock normally is lower than that of our Class A common stock. The only significant difference between our Class A common stock and our Class B common stock is that the Class B common stock entitles the holders to ten votes per share, while the Class A common stock entitles holders to only one vote per share. However, the trading price of the Class B common stock on the New York Stock Exchange ("NYSE") normally is substantially lower than the NYSE trading price of our Class A common stock. We believe this is because only a relatively small number of shares of Class B common stock are available for trading, which reduces the liquidity of the market for our Class B common stock to a point where many investors are reluctant to invest in it. The limited liquidity could make it difficult for a holder of even a relatively small number of shares of our Class B common stock to dispose of the stock without materially reducing the trading price of the Class B common stock. Changes in global or regional environmental conditions and governmental actions in response to such changes may adversely affect us by increasing the costs of or restricting our planned or future growth activities. There is growing concern from many members of the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases and other human activities have caused, or will cause, significant changes in weather patterns and increase the frequency and severity of natural disasters. Government mandates, standards or regulations intended to reduce greenhouse gas emissions or projected climate change impacts have resulted, and are likely to continue to result, in restrictions on land development in certain areas and increased energy, transportation and raw material costs, or cause us to incur compliance expenses that we will be unable fully to recover, which could reduce our housing gross profit margins and adversely affect our results of operations. Risks relating to the Merger of CalAtlantic Lennar has never done an acquisition as large as the expected merger with CalAtlantic Although Lennar has acquired a number of homebuilders through the years, and as recently as February 2017 it completed the acquisition of WCI, a New York Stock Exchange listed homebuilder, Lennar has never acquired a homebuilder, or any other type of company, as large as CalAtlantic. It is possible that techniques Lennar has used in the past to integrate operations of acquired companies and to realize cost savings and other operating and administrative benefits with regard to them, will not be as effective with regard to CalAtlantic as they were with regard to smaller companies. The Merger is subject to closing conditions and may not be completed on a timely basis, or at all. Failure to complete the combination could have a significant adverse effect on us. Completion of the Merger that will make CalAtlantic a wholly owned subsidiary of ours is subject to a number of conditions, including (i) the approval by our stockholders of the issuance of our Class A and Class B common stock as part of the Merger consideration, and (ii) approval by the CalAtlantic stockholders of a proposal to adopt the Merger Agreement. This makes the timing of completion of the Merger, or whether it will be completed at all, uncertain. Either we or CalAtlantic can terminate the Merger Agreement if the Merger is not consummated by May 31, 2018 (which can be extended under some circumstances to August 31, 2018). In addition, either the CalAtlantic board of directors or our board of directors can withdraw its recommendation that stockholders vote in favor of the Merger if it determines that, 18 because of an intervening event, failure to do so would be inconsistent with its fiduciary obligations, and CalAtlantic can in any event terminate the Merger Agreement in order to accept what its board determines to be a superior proposal that we do not at least match. If our board withdraws or negatively modifies its recommendation, CalAtlantic can terminate the Merger Agreement, in which case we would be required to pay CalAtlantic a termination fee of $178.7 million. In addition, if our stockholders fail to give the required stockholder approval or approvals, we will be required to reimburse CalAtlantic for its costs related to the Merger up to $30 million. Although we would be entitled to a $178.7 million termination fee if CalAtlantic’s Board withdraws or negatively modifies its recommendation or reimbursement of costs up to $30 million if CalAtlantic’s stockholders fail to give the required stockholder approvals, our loss of anticipated benefits deriving from the Merger is likely to be far greater than the termination fee or expense reimbursement we may receive. If the Merger is not completed by August 31, 2018, we will be required to redeem $1.2 billion of senior notes we sold in November 2017. In November 2017, we sold a total of $1.2 billion of senior notes to raise funds with which, among other things, to pay the more than $1.16 billion that CalAtlantic stockholders will receive as Merger consideration. If (x) consummation of the CalAtlantic Merger does not occur on or before August 31, 2018, or (y) prior to August 31, 2018 we notify the trustee for the noteholders that we will not pursue consummation of the Merger, we will be required to redeem all the outstanding senior notes for 101% of their principal amount plus accrued and unpaid interest. We may not realize the expected benefits of the Merger because of integration difficulties and other challenges. The success of the CalAtlantic Merger will depend in large part on our successfully integrating its and our personnel, operations, strategies, technologies and other components of the two companies’ businesses following the completion of the CalAtlantic merger. We may fail to realize some or all of the anticipated benefits of the Merger if the integration process takes longer than expected or is more costly than expected. In any event, we anticipate that the overall integration of CalAtlantic will be a time consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt our business. Any delay in completing the Merger may reduce the benefits from the Merger. The CalAtlantic merger is subject to a number of conditions that may prevent or delay its completion. A delay in completing the Merger would delay the time when we would begin to realize the benefits of the synergies that we expect the Merger to produce. The Merger will significantly increase the ratio of our homebuilding debt to our total capital net of cash. We will incur or become subject to a substantial amount of additional debt as a result of the Merger. We have sold $1.2 billion of debt securities primarily to finance the more than $1.16 billion we will pay to CalAtlantic stockholders who exercise (or are deemed to exercise) an option to elect to receive cash instead of our stock as a result of the Merger. In addition, the surviving corporation, which will be our wholly owned subsidiary, will become subject to CalAtlantic’s debt, which at September 30, 2017 totaled $3.8 billion. We estimate that the Merger will increase the ratio of our consolidated homebuilding debt to total capital, net of cash, from its November 30, 2017 level of 34.4% to a pro forma level of 45.5%. We anticipate being able to reduce the ratio to its pre-merger level by the end of fiscal 2019. However, to the extent cash flows of the combined companies are less than anticipated, we may not be able to reduce the ratio of our consolidated homebuilding debt to total capital, net of cash, to its pre-merger level until well after the end of fiscal 2019, if we are ever able to do that. The Merger will add a substantial amount of goodwill to our balance sheet. Since the price we will be deemed to have paid for the net assets of CalAtlantic for accounting purposes will depend on the value of our Class A and Class B common stock when the Merger takes place, and neither those stock prices nor the value of the CalAtlantic assets we will acquire in the CalAtlantic Merger will be known until the Merger takes place, we will not know until after the Merger takes place the amount by which for accounting purposes we are deemed to pay will exceed the net value of the assets we receive and the liabilities our subsidiary assumes in the Merger (i.e., the portion of the deemed purchase price that will be treated as goodwill). However, we estimate that if the value of our Class A common stock at the time of the Merger is $62.36 per share and the value of our Class B common stock at the time of the Merger is $49.47 per share, the respective closing prices of those shares on December 18, 2017, the Merger would result in our adding approximately $3.4 billion to the goodwill carried on our balance sheet. If it is determined in the future that the profits generated by the assets acquired in the Merger are not sufficient to justify that goodwill, we will have to write off some or all of it, and to charge the amount written off against our earnings. 19 The amount of the Merger consideration we agreed to pay was influenced by our assumption that we will be able to achieve significant cost savings as a result of the Merger. Our willingness to agree to the equity consideration and cash consideration reflected in the Merger Agreement was based in substantial part on an analysis by our management which concluded, among other things, that we would be able to accomplish substantial annual savings in selling, general and administrative costs and in operating costs following the CalAtlantic Merger. Although our management was previously able to achieve its anticipated cost savings with regard to homebuilding activities of WCI, which we acquired in February 2017, CalAtlantic is much larger than WCI or any other company we have ever acquired. If we are not able to accomplish significant cost savings with regard to development of the CalAtlantic properties, and with regard to some of the properties or companies we already own, we may not be able to generate sufficient merger-related profits to justify the cost of the Merger to us. Item 1B. Unresolved Staff Comments. Not applicable. Executive Officers of Lennar Corporation The following individuals are our executive officers as of January 24, 2018: Position Name Stuart Miller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . Richard Beckwitt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jonathan M. Jaffe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President and Chief Operating Officer . . . . . . Bruce Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President and Chief Financial Officer . . . . . . Diane J. Bessette. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President and Treasurer . . . . . . . . . . . . . . . . . Mark Sustana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secretary and General Counsel. . . . . . . . . . . . . . . . David M. Collins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Age 60 58 58 59 57 56 48 Mr. Miller is one of our Directors and has served as our Chief Executive Officer since 1997. Mr. Miller served as our President from 1997 to April 2011. Before 1997, Mr. Miller held various executive positions with us. Mr. Miller also serves on the Board of Directors of Five Point Holdings, LLC. Mr. Beckwitt served as our Executive Vice President from March 2006 to 2011. Since April 2011, Mr. Beckwitt has served as our President. Mr. Beckwitt also serves on the Board of Directors of Eagle Materials Inc. and Five Point Holdings, LLC, and previously served on the Board of Directors of D.R. Horton, Inc. from 1993 to November 2003. From 1993 to March 2000, he held various executive officer positions at D.R. Horton, including President of the company. Mr. Jaffe has served as Vice President since 1994 and has served as our Chief Operating Officer since December 2004. Before that time, Mr. Jaffe served as a Regional President in our Homebuilding operations. Additionally, prior to his appointment as Chief Operating Officer, Mr. Jaffe was one of our Directors from 1997 through June 2004. Mr. Jaffe serves on the Board of Directors of Five Point Holdings, LLC. Mr. Gross has served as Vice President and our Chief Financial Officer since 1997. Before that, Mr. Gross was Senior Vice President, Controller and Treasurer of Pacific Greystone Corporation, which we acquired in 1997. Ms. Bessette joined us in 1995 and served as our Controller from 1997 to 2008. Since February 2008, she has served as our Treasurer. She was appointed a Vice President in 2000. Mr. Sustana has served as our Secretary and General Counsel since 2005. Mr. Collins joined us in 1998 and has served as our Controller since February 2008. 20 Item 2. Properties. We lease and maintain our executive offices in an office complex in Miami, Florida. Our homebuilding, financial services, Rialto and multifamily offices are located in the markets where we conduct business, primarily in leased space. We believe that our existing facilities are adequate for our current and planned levels of operation. Because of the nature of our homebuilding operations, significant amounts of property are held as inventory in the ordinary course of our homebuilding business. We discuss these properties in the discussion of our homebuilding operations in Item 1 of this Report. Item 3. Legal Proceedings. We are party to various claims and lawsuits which arise in the ordinary course of business, but we do not consider the volume of our claims and lawsuits unusual given the number of homes we deliver and the fact that the lawsuits often relate to homes delivered several years before the lawsuits are commenced. Although the specific allegations in the lawsuits differ, they most commonly involve claims that we failed to construct homes in particular communities in accordance with plans and specifications or applicable construction codes and seek reimbursement for sums allegedly needed to remedy the alleged deficiencies, assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We are a plaintiff in many cases in which we seek contribution from our subcontractors for home repair costs. The costs incurred by us in construction defect lawsuits may be offset by warranty reserves, our third-party insurers, subcontractor insurers or indemnity contributions from subcontractors. We are also a party to various lawsuits involving purchases and sales of real property. These lawsuits include claims regarding representations and warranties made in connection with the transfer of the property and disputes regarding the obligation to purchase or sell the property. From time-to-time, we also receive notices from environmental agencies or other regulators regarding alleged violations of environmental or other laws. We typically settle these matters before they reach litigation for amounts that are not material to us. In addition, we are a defendant in several lawsuits by persons to which we sold pools of mortgages we originated, alleging breaches of warranties in the sale documents. Our mortgage subsidiary has been subpoenaed by the United States Department of Justice ("DOJ") regarding the adequacy of certain underwriting and quality control processes related to Federal Housing Administration loans originated and sold in prior years. We have provided information related to these loans and our processes to the DOJ, and communications are ongoing. The DOJ has to date not asserted any claim for damages or penalties. We do not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on our business or financial position. However, the financial effect of litigation concerning purchases and sales of property may depend upon the value of the subject property, which may have changed from the time the agreement for purchase or sale was entered into. Item 4. Mine Safety Disclosures. Not applicable. 21 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our Class A and Class B common stock are listed on the New York Stock Exchange under the symbols "LEN" and "LEN.B," respectively. The Class A and Class B high and low stock prices have been restated for all periods presented to reflect the effect of the stock dividend discussed below. The following table shows the high and low sales prices for our Class A and Class B common stock for the periods indicated, as reported by the New York Stock Exchange, and cash dividends declared per share: Class A Common Stock High/Low Prices Cash Dividends Per Class A Share Fiscal Quarter First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 $48.18 - 41.13 2016 $51.61 - 36.52 $52.89 - 48.27 $48.14 - 41.66 $54.82 - 49.59 $48.77 - 42.39 $63.15 - 48.69 $46.80 - 39.02 2017 4¢ 4¢ 4¢ 4¢ 2016 4¢ 4¢ 4¢ 4¢ Class B Common Stock High/Low Prices Cash Dividends Per Class B Share Fiscal Quarter First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 $38.82 - 32.74 $43.60 - 38.90 $46.52 - 41.01 2016 $41.86 - 29.45 $38.53 - 33.05 $39.15 - 34.00 $51.90 - 40.59 $37.42 - 31.46 2017 4¢ 4¢ 4¢ 4¢ 2016 4¢ 4¢ 4¢ 4¢ As of December 31, 2017, the last reported sale price of our Class A common stock was $63.24 and the last reported sale price of our Class B common stock was $51.68. As of December 31, 2017, there were approximately 668 and 510 holders of record of our Class A and Class B common stock, respectively. On January 11, 2018, our Board of Directors declared a quarterly cash dividend of $0.04 per share for both our Class A and Class B common stock, which is payable on February 9, 2018, to holders of record at the close of business on January 26, 2018. On November 27, 2017, we paid a stock dividend of one share of Class B common stock for each 50 shares of Class A common stock or Class B common stock to holders of record at the close of business on November 10, 2017, as declared by our Board of Directors on October 30, 2017. Our Board of Directors evaluates each quarter the decision whether to declare a dividend and the amount of the dividend. The following table provides information about our repurchases of common stock during the three months ended November 30, 2017: Period: September 1 to September 30, 2017 . . . October 1 to October 31, 2017 . . . . . . . November 1 to November 30, 2017 . . . Total Number of Shares Purchased (1) 228 351 183 Average Price Paid Per Share $ $ $ 52.23 56.01 54.62 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) — — — Maximum Number of Shares that may yet be Purchased under the Plans or Programs (2) 6,218,968 6,218,968 6,218,968 (1) Represents shares of Class A common stock withheld by us to cover withholding taxes due, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due. (2) In June 2001, our Board of Directors authorized a stock repurchase program under which we were authorized to purchase up to 20 million shares of our outstanding Class A common stock or Class B common stock. This repurchase authorization has no expiration date. The information required by Item 201(d) of Regulation S-K is provided in Item 12 of this Report. 22 Performance Graph The following graph compares the five-year cumulative total return of our Class A common stock with the Dow Jones U.S. Home Construction Index and the Dow Jones U.S. Total Market Index. The graph assumes $100 invested on November 30, 2012 in our Class A common stock, the Dow Jones U.S. Home Construction Index and the Dow Jones U.S. Total Market Index, and the reinvestment of all dividends. Lennar Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 Dow Jones U.S. Home Construction Index . . . . . . . . . . . . . . . . . . . . . $ 100 Dow Jones U.S. Total Market Index . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 2012 2013 94 104 131 2014 125 124 152 2015 136 141 155 2016 114 124 168 2017 168 222 205 23 Item 6. Selected Financial Data. The following table sets forth our selected consolidated financial and operating information as of or for each of the years ended November 30, 2013 through 2017. The information presented below is based upon our historical financial statements. (Dollars in thousands, except per share amounts) 2017 2016 2015 2014 2013 At or for the Years Ended November 30, Results of Operations: Revenues: Lennar Homebuilding . . . . . . . . . . . . . . . . $ 11,200,242 9,741,337 8,466,945 7,025,130 5,354,947 Lennar Financial Services . . . . . . . . . . . . . $ 770,109 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 281,243 Lennar Multifamily . . . . . . . . . . . . . . . . . . $ 394,771 687,255 233,966 287,441 620,527 221,923 164,613 454,381 230,521 69,780 427,342 138,060 14,746 Total revenues . . . . . . . . . . . . . . . . . $ 12,646,365 10,949,999 9,474,008 7,779,812 5,935,095 Operating earnings (loss): Lennar Homebuilding . . . . . . . . . . . . . . . . $ 1,269,039 1,344,932 1,271,641 1,033,721 Lennar Financial Services . . . . . . . . . . . . . $ 155,524 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (22,495) Lennar Multifamily . . . . . . . . . . . . . . . . . . $ 73,432 Corporate general and administrative expenses. $ 285,889 163,617 (16,692) 71,174 232,562 127,795 33,595 (7,171) 216,244 Earnings before income taxes . . . . . . . . . . . . . . $ 1,189,611 1,330,469 1,209,616 Net earnings attributable to Lennar (1) . . . . . . . $ 810,480 911,844 802,894 Diluted earnings per share (2) . . . . . . . . . . . . . . $ Cash dividends declared per each - Class A and Class B common stock. . . . . . . . . . . . . . . . $ 3.38 0.16 3.86 0.16 3.39 0.16 Financial Position: 80,138 44,079 733,075 85,786 26,128 (10,993) (16,988) 177,161 969,784 638,916 2.75 0.16 146,060 681,941 479,674 2.10 0.16 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,745,034 15,361,781 14,419,509 12,923,151 11,239,885 Debt: Lennar Homebuilding . . . . . . . . . . . . . . . . $ 6,410,003 4,575,977 5,025,130 4,661,266 4,165,792 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 625,081 622,335 Lennar Financial Services . . . . . . . . . . . . . $ 937,431 1,077,228 Lennar Multifamily . . . . . . . . . . . . . . . . . . $ — Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . $ 7,872,317 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,986,132 Shares outstanding (000s) (2) . . . . . . . . . . . . . . 239,964 Stockholders’ equity per share (2) . . . . . . . . . . . $ 32.81 — 7,026,042 7,211,567 239,133 29.38 771,728 858,300 — 5,648,944 5,950,072 215,804 26.18 617,077 704,143 — 4,827,020 5,251,302 209,697 23.02 437,161 374,166 13,858 4,168,901 4,627,470 209,070 19.94 Lennar Homebuilding Data (including unconsolidated entities): Number of homes delivered. . . . . . . . . . . . . . . . New orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Backlog of home sales contracts . . . . . . . . . . . . 29,394 30,348 8,935 26,563 27,372 7,623 24,292 25,106 6,646 21,003 22,029 5,832 18,290 19,043 4,806 Backlog dollar value . . . . . . . . . . . . . . . . . . . . . $ 3,550,366 2,891,538 2,477,751 1,974,328 1,619,601 (1) Net earnings attributable to Lennar for the year ended November 30, 2013 included $177.0 million net tax provision, which included a tax benefit of $67.1 million for a valuation allowance reversal. (2) As a result of the stock dividend distributed during 2017, the diluted earnings per share, shares outstanding and stockholders' equity per share for all periods presented were adjusted to reflect 4.7 million additional Class B shares. 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our audited consolidated financial statements and accompanying notes included elsewhere in this Report. Special Note Regarding Forward-Looking Statements This annual report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target,” “will” or other words of similar meaning. Some of them are opinions formed based upon general observations, anecdotal evidence and industry experience, but that are not supported by specific investigation or analysis. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements. The most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include, but are not limited to: our inability to acquire land at anticipated prices; increases in operating costs, including costs related to real estate taxes, construction materials, labor and insurance; unfavorable outcomes in legal proceedings; anything that prevents the CalAtlantic transaction from taking place when expected; our inability to realize the anticipated synergy benefits from the CalAtlantic transaction; our inability to close a one-time transaction expected to take place in the first quarter of 2018; a downturn in the market for residential real estate; changes in general economic and financial conditions that reduce demand for our products and services, lower our profit margins or reduce our access to credit; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods; decreased demand for our Lennar Multifamily rental units or difficulty selling our rental properties; the possibility that the Tax Cuts and Jobs Act will have more negative than positive impact on us; the possibility that the benefit from our increasing use of technology will not justify its cost; increased competition for home sales from other sellers of new and resale homes; negative effects of increasing mortgage interest rates; our inability to reduce our homebuilding debt to our total capital net of cash; a decline in the value of our land inventories and resulting write-downs of the carrying value of our real estate assets; the failure of the participants in various joint ventures to honor their commitments; difficulty obtaining land-use entitlements or construction financing; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage; the inability of Rialto to sell mortgages it originates into securitizations on favorable terms; new laws or regulatory changes that adversely affect the profitability of our businesses; our inability to refinance our debt on terms that are acceptable to us; and changes in accounting conventions that adversely affect our reported earnings. Please see "Item 1A-Risk Factors" of this Annual Report for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise. Outlook The housing market has been strong in 2017 and there continues to be a general sense of optimism in the market, with increased job creation across the country and wages have generally been moving higher. We believe lower unemployment, modest wage growth and consumer confidence should increase household formation, which drives families to purchase homes and to rent apartments. We believe that the generally strong, stable and improving economy, together with limited supply and production deficits from past years, have been and will continue to drive demand and pricing power in the upcoming spring selling season, even though that will be offset by land and construction cost increases. The recently passed Tax Cuts and Jobs Act has added additional momentum to the economic landscape. While there have been concerns about the new tax law on housing, initial readings and reviews are suggesting that it is generally stimulative to the economy. In addition, concerns about the reduction of the mortgage interest deduction, deductibility of real estate taxes and state and local taxes seem to be offset by overall optimistic momentum around economic stability and growth. For our typical buyer profile, we have found that the effect of the new tax law is generally positive at their income levels. Additionally, the doubling of the standard deduction should help a new group of aspiring homeowners accumulate savings for a down payment to purchase a home and create personal financial stability. Fiscal 2017 was another excellent year for Lennar, with revenues increasing 15% from 2016. Our core homebuilding business continued to produce strong operating results as gross margins and operating margins were 22.1% and 12.9%, respectively. Our home deliveries and new orders both increased 11% compared to fiscal 2016. Our efficient Everything’s Included® manufacturing model helped mitigate the impact of a tight labor market and our focus 25 on strategic innovation and higher volume helped to improve our S,G&A leverage. In addition, we ended the year with a strong sales backlog, up 17% in homes and 23% in dollar value, which gives us a strong start for fiscal 2018. Complementing our homebuilding business, we also had strong performances from our Financial Services and Multifamily rental businesses during fiscal 2017. Our Financial Services segment produced $155.5 million of pretax earnings compared to $163.6 million in 2016. The decrease was due to lower profitability in the segment's mortgage operations as a result of a decrease in refinance transactions, which led to both lower origination volume and profit per loan. This was partially offset by higher profit per transaction in the segment's title operations. Our Multifamily rental business continued to grow during fiscal 2017, as it sold seven operating properties. With a $9.1 billion geographically diversified pipeline of multifamily product, this segment continues to grow while capitalizing on future development opportunities. In fiscal 2018, our principal focus will be on the successful integration of the CalAtlantic merger, which is expected to close on February 12, 2018. The transaction is all about creating leadership and scale in the markets that we know best and with the product lines that have defined our companies for decades. With scale, we believe we can drive both synergies and efficiencies as we build best-of-class operating platforms in the most strategic markets in the country. We believe we can use technologies to innovate and improve our operations to drive down costs in our homebuilding operations. In the first quarter of 2018, we expect to close on a strategic one-time, non-core, non Rialto transaction that shifted from the fourth quarter of 2017. This will result in a profit that will benefit from the lower federal tax rate passed in December 2017. We expect that our Company’s main driver of earnings will continue to be our homebuilding and financial services operations as we believe we are currently positioned to deliver between 32,000 and 32,500 homes in fiscal 2018, excluding the impact from the CalAtlantic merger. We are also focused on our multiple platforms including Rialto and Multifamily, as such ancillary businesses continue to mature and expand their franchises providing opportunities that we expect will enhance shareholder value. Overall, we believe we are on track to achieve another year of strong profitability in fiscal 2018. 26 Results of Operations Overview Our net earnings attributable to Lennar were $810.5 million, or $3.38 per diluted share ($3.38 per basic share) in 2017, $911.8 million, or $3.86 per diluted share ($4.05 per basic share) in 2016, and $802.9 million, or $3.39 per diluted share ($3.78 per basic share) in 2015. All earnings per share amounts have been retroactively adjusted for the Class B stock dividend. The following table sets forth financial and operational information for the years indicated related to our operations. Years Ended November 30, 2016 2015 (Dollars in thousands) Lennar Homebuilding revenues: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,035,299 164,943 Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Lennar Homebuilding revenues . . . . . . . . . . . . . . . . . . . . . . 11,200,242 2017 22,774 135,075 (61,708) 9,752,269 1,447,973 1,015,848 8,601,346 Lennar Homebuilding costs and expenses: Costs of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Lennar Homebuilding costs and expenses . . . . . . . . . . . . . . Lennar Homebuilding operating margins . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding equity in earnings (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding other income, net . . . . . . . . . . . . . . . . . . . . . . . (140,000) Lennar Homebuilding loss due to litigation . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding operating earnings . . . . . . . . . . . . . . . . . . . . $ 1,269,039 770,109 Lennar Financial Services revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Financial Services costs and expenses . . . . . . . . . . . . . . . . . . . Lennar Financial Services operating earnings. . . . . . . . . . . . . . . . . $ Rialto revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . Rialto other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto operating earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily equity in earnings from unconsolidated entities . Lennar Multifamily operating earnings (loss) . . . . . . . . . . . . . . . . . $ 73,432 Total operating earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,475,500 285,889 Corporate general and administrative expenses . . . . . . . . . . . . . . . . . . Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,189,611 Net earnings attributable to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . $ 810,480 Gross margin as a % of revenue from home sales . . . . . . . . . . . . . . . . S,G&A expenses as a % of revenues from home sales. . . . . . . . . . . . . Operating margin as a % of revenues from home sales . . . . . . . . . . . . Average sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (81,636) (22,495) 614,585 155,524 281,243 247,549 394,771 407,078 376,000 25,447 85,739 22.1% 9.2% 12.9% 27 9,558,517 182,820 9,741,337 8,335,904 131,041 8,466,945 7,362,853 6,332,850 138,111 898,917 8,399,881 1,341,456 (49,275) 52,751 — 100,939 831,050 7,264,839 1,202,106 63,373 6,162 — 1,344,932 1,271,641 687,255 523,638 163,617 233,966 229,769 18,961 (39,850) (16,692) 287,441 301,786 85,519 71,174 1,563,031 232,562 1,330,469 911,844 23.0% 9.4% 13.6% 620,527 492,732 127,795 221,923 222,875 22,293 12,254 33,595 164,613 191,302 19,518 (7,171) 1,425,860 216,244 1,209,616 802,894 24.0% 10.0% 14.1% 361,000 344,000 2017 versus 2016 Revenues from home sales increased 15% in the year ended November 30, 2017 to $11.0 billion from $9.6 billion in 2016. Revenues were higher primarily due to an 11% increase in the number of home deliveries, excluding unconsolidated entities, and a 4% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 29,322 homes in the year ended November 30, 2017 from 26,481 homes last year. There was an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other. The increase in the number of deliveries was primarily driven by an increase in active communities over the last year and by higher demand as the number of deliveries per active community increased. The average sales price of homes delivered, excluding unconsolidated entities, increased to $376,000 in the year ended November 30, 2017 from $361,000 in the year ended November 30, 2016, primarily due to product mix (selling at different price points) and increased pricing in certain of our markets due to favorable market conditions. Sales incentives offered to homebuyers were $22,700 per home delivered in the year ended November 30, 2017, or 5.7% as a percentage of home sales revenue, compared to $22,500 per home delivered in the year ended November 30, 2016, or 5.9% as a percentage of home sales revenue. Gross margins on home sales were $2.4 billion, or 22.1%, in the year ended November 30, 2017, compared to $2.2 billion, or 23.0%, in the year ended November 30, 2016. Gross margin percentage on home sales decreased compared to the year ended November 30, 2016 primarily due to an increase in construction and land costs per home, partially offset by an increase in the average sales price of homes delivered. Selling, general and administrative expenses were $1.0 billion in the year ended November 30, 2017, compared to $898.9 million in the year ended November 30, 2016. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.2% in the year ended November 30, 2017, from 9.4% in the year ended November 30, 2016 due to improved operating leverage as a result of an increase in home deliveries. Gross profits on land sales were $29.9 million in the year ended November 30, 2017, compared to $44.7 million in the year ended November 30, 2016. Lennar Homebuilding equity in loss from unconsolidated entities was $61.7 million in the year ended November 30, 2017, compared to $49.3 million in the year ended November 30, 2016. In the year ended November 30, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of net operating losses from our unconsolidated entities which were primarily driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by profits from land sales. In the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination as well as our share of net operating losses associated with the new FivePoint unconsolidated entity formed as the result of this combination. This was partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties. Lennar Homebuilding other income, net, totaled $22.8 million in the year ended November 30, 2017, compared to $52.8 million in the year ended November 30, 2016. In the year ended November 30, 2016, other income, net included management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures and gains on the sale of several clubhouses. Lennar Homebuilding loss due to litigation of $140 million in the year ended November 30, 2017, was related to litigation regarding a contract we entered into in 2005 to purchase property in Maryland. As a result of the litigation, we purchased the property for $114 million, which approximated our estimate of fair value for the property. In addition, we paid approximately $124 million in interest and other closing costs and have accrued for the amount we expect to pay as reimbursement for attorney's fees. Lennar Homebuilding interest expense was $277.8 million in the year ended November 30, 2017 ($260.7 million was included in costs of homes sold, $10.0 million in costs of land sold and $7.2 million in other interest expense), compared to $245.1 million in the year ended November 30, 2016 ($235.1 million was included in costs of homes sold, $5.3 million in costs of land sold and $4.6 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries. Operating earnings for our Lennar Financial Services segment were $155.5 million in the year ended November 30, 2017, compared to $163.6 million in the year ended November 30, 2016. Operating earnings decreased due to lower profitability in the segment's mortgage operations as a result of a decrease in refinance transactions, which led to both lower origination volume and profit per loan. This was partially offset by higher profit per transaction in the segment's title operations and earnings from the real estate brokerage business which was acquired as part of the WCI acquisition in February 2017. Operating earnings for our Rialto segment were $23.6 million in the year ended November 30, 2017 (which included $22.5 million of operating loss and an add back of $46.1 million of net loss attributable to noncontrolling interests). Operating earnings in the year ended November 30, 2016 were $2.1 million (which included $16.7 million of 28 operating loss and add back of $18.8 million of net loss attributable to noncontrolling interests). The increase in operating earnings was primarily related to an increase in incentive income related to carried interest distributions from the Rialto real estate funds, as well as an increase in management fee income and equity in earnings from unconsolidated entities. This was partially offset by an increase in REO and loan impairments and general and administrative expenses. In addition, the year ended November 30, 2016 included a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio. Operating earnings for our Lennar Multifamily segment were $73.4 million in the year ended November 30, 2017, compared to operating earnings of $71.2 million in the year ended November 30, 2016. The increase in profitability was primarily due to the segment's $96.7 million share of gains as a result of the sale of seven operating properties by Lennar Multifamily's unconsolidated entities, compared to the segment's $91.0 million share of gains as a result of the sale of seven operating properties by Lennar Multifamily's unconsolidated entities in the year ended November 30, 2016. Corporate general and administrative expenses were $285.9 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2017, compared to $232.6 million, or 2.1% as a percentage of total revenues, in the year ended November 30, 2016. The increase was primarily due to personnel and related expenses and professional expenses related to technology investments. Net earnings (loss) attributable to noncontrolling interests were ($38.7) million and $1.2 million in the years ended November 30, 2017 and 2016, respectively. Net loss attributable to noncontrolling interests during the year ended November 30, 2017 was primarily attributable to net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC in 2010. Net earnings attributable to noncontrolling interests during the year ended November 30, 2016 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures, partially offset by a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC. In the years ended November 30, 2017 and 2016, we had a tax provision of $417.9 million and $417.4 million, respectively. Our overall effective income tax rates were 34.02% and 31.40% for the years ended November 30, 2017 and 2016, respectively. The increase is primarily the result of the new energy efficient home credits expiring during the year ended November 30, 2017, which increased our effective tax rate by 1.74%. For the years ended November 30, 2017 and 2016, the impact of this tax credit was (0.73%) and (2.47%), respectively. In December 2017, the Tax Cuts and Jobs Act was enacted which will have a positive impact on our effective tax rate in 2018 and subsequent years. The tax reform bill will reduce our effective tax rate in 2018 from 34% to approximately 25%. Excluded from our 2018 effective tax rate is a one-time non-cash write-down of our deferred tax assets of approximately $70 million which will be recorded in the first quarter of 2018 as a result of our lower federal tax rate. 2016 versus 2015 Revenues from home sales increased 15% in the year ended November 30, 2016 to $9.6 billion from $8.3 billion in 2015. Revenues were higher primarily due to a 9% increase in the number of home deliveries, excluding unconsolidated entities, and a 5% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 26,481 homes in the year ended November 30, 2016 from 24,209 homes in 2015. There was an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other. The increase in the number of deliveries was primarily driven by an increase in active communities over 2015 and by higher demand as the number of deliveries per active community increased. The average sales price of homes delivered increased to $361,000 in the year ended November 30, 2016 from $344,000 in the year ended November 30, 2015, primarily due to product mix and increased pricing in certain of our markets due to favorable market conditions. Sales incentives offered to homebuyers were $22,500 per home delivered in the year ended November 30, 2016, or 5.9% as a percentage of home sales revenue, compared to $21,400 per home delivered in the year ended November 30, 2015, or 5.9% as a percentage of home sales revenue. Gross margins on home sales were $2.2 billion, or 23.0%, in the year ended November 30, 2016, compared to $2.0 billion, or 24.0%, in the year ended November 30, 2015. Gross margin percentage on home sales decreased compared to the year ended November 30, 2015 primarily due to an increase in land costs per home, partially offset by an increase in the average sales price of homes delivered. Selling, general and administrative expenses were $898.9 million in the year ended November 30, 2016, compared to $831.1 million in the year ended November 30, 2015. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.4% in the year ended November 30, 2016, from 10.0% in the year ended November 30, 2015 due to improved operating leverage as a result of an increase in home deliveries and benefits from our focus on digital marketing. 29 Gross profits on land sales were $44.7 million in the year ended November 30, 2016, compared to $30.1 million in the year ended November 30, 2015. Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($49.3) million in the year ended November 30, 2016, compared to $63.4 million in the year ended November 30, 2015. In the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million. This was partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties. In the year ended November 30, 2015, Lennar Homebuilding equity in earnings from unconsolidated entities included $82.8 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites and a commercial property to third parties, sales of homesites to another joint venture in which we have a 50% investment, and a gain on debt extinguishment. Lennar Homebuilding other income, net, totaled $52.8 million in the year ended November 30, 2016, compared to $6.2 million in the year ended November 30, 2015. In the year ended November 30, 2016, other income, net, included management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures and gains on the sale of several clubhouses. In the year ended November 30, 2015, other income, net included $10.2 million aggregate gains on sales of an operating property and a clubhouse. Lennar Homebuilding interest expense was $245.1 million in the year ended November 30, 2016 ($235.1 million was included in costs of homes sold, $5.3 million in costs of land sold and $4.6 million in other interest expense), compared to $220.1 million in the year ended November 30, 2015 ($205.2 million was included in costs of homes sold, $2.5 million in costs of land sold and $12.5 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries. Operating earnings for our Lennar Financial Services segment were $163.6 million in the year ended November 30, 2016, compared to $127.8 million in the year ended November 30, 2015. The increase in profitability was primarily due to increased transactions and higher profit per transaction in the segment's mortgage and title operations. Operating earnings for our Rialto segment were $2.1 million in the year ended November 30, 2016 (which included a $16.7 million operating loss and an add back of $18.8 million of net loss attributable to noncontrolling interests). Operating earnings in the year ended November 30, 2015 were $28.8 million (which included $33.6 million of operating earnings, partially offset by $4.8 million of net earnings attributable to noncontrolling interests).The decrease in operating earnings was primarily attributable to a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio, a decrease in net realized gains on the sale of REO, an increase in REO and loan impairments, and general and administrative expenses. This was partially offset by an increase in operating earnings related to RMF as a result of higher securitization margins. The hospital is managed by a third party management company. Operating earnings for our Lennar Multifamily segment were $71.2 million in the year ended November 30, 2016, compared to an operating loss of $7.2 million in the year ended November 30, 2015. The increase in profitability was primarily due to the segment's $91.0 million share of gains as a result of the sale of seven operating properties by Lennar Multifamily's unconsolidated entities. In the year ended November 30, 2015, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by the segment's $22.2 million share of gains as a result of the sale of two operating properties by Lennar Multifamily's unconsolidated entities, management fee income and general contractor income, net. Corporate general and administrative expenses were $232.6 million, or 2.1% as a percentage of total revenues, in the year ended November 30, 2016, compared to $216.2 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2015. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage. Net earnings attributable to noncontrolling interests were $1.2 million and $16.3 million in the years ended November 30, 2016 and 2015, respectively. Net earnings attributable to noncontrolling interests during the year ended November 30, 2016 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures, partially offset by a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC. Net earnings attributable to noncontrolling interests during the year ended November 30, 2015 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures and net earnings related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC. In the years ended November 30, 2016 and 2015, we had a tax provision of $417.4 million and $390.4 million, respectively. Our overall effective income tax rates were 31.40% and 32.72% for the years ended November 30, 2016 and 2015, respectively. The reduction is primarily the result of the reversal of an accrual due to a settlement with the IRS in the year ended November 30, 2016, which reduced our effective tax rate by (1.02%). During the year ended November 30, 2016, tax legislation was passed extending the new energy efficient home credit through 2016, as well as 30 extending the 30% investment tax credit for solar energy property through 2022. For the years ended November 30, 2016 and 2015, the impact of these tax credits was (3.46%) and (1.92%), respectively. Homebuilding Segments Our Homebuilding operations construct and sell homes primarily for first-time, move-up and active adult homebuyers primarily under the Lennar brand name. In addition, our homebuilding operations purchase, develop and sell land to third parties. In certain circumstances, we diversify our operations through strategic alliances and attempt to minimize our risks by investing with third parties in joint ventures. As of and for the year ended November 30, 2017, we have aggregated our homebuilding activities into three reportable segments, which we refer to as Homebuilding East, Homebuilding Central, and Homebuilding West, 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," which is not a reportable segment. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to homebuilding segments are to those three reportable segments. At November 30, 2017 our reportable homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in: East: Florida(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia Central: Arizona, Colorado and Texas West: California and Nevada Other: Illinois, Minnesota, Oregon, Tennessee and Washington (1) Florida includes information related to WCI Communities, Inc. ("WCI") from the date of acquisition (February 10, 2017) to November 30, 2017. The following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated: Selected Financial and Operational Data (In thousands) Homebuilding revenues: East: Years Ended November 30, 2017 2016 2015 Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,577,296 Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,269 Total East. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,612,565 Central: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,444,924 Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,368 Total Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,509,292 West: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,422 Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,752 Total West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,197,174 Other: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 862,657 18,554 881,211 3,887,217 54,119 3,941,336 2,218,590 64,989 2,283,579 2,704,670 52,988 2,757,658 748,040 10,724 758,764 3,524,691 38,987 3,563,678 1,888,126 56,186 1,944,312 2,338,652 26,867 2,365,519 584,435 9,001 593,436 Total homebuilding revenues. . . . . . . . . . . . . . . . . . . . . . . . $ 11,200,242 9,741,337 8,466,945 31 (In thousands) Operating earnings: East: Years Ended November 30, 2017 2016 2015 Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 614,114 Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings (loss) from unconsolidated entities. . . . . . . . . . . . . . . Other income (expense), net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss due to litigation (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total East. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,970 1,413 3,187 (140,000) 483,684 Central: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,712 Sales of land (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings (loss) from unconsolidated entities (4) . . . . . . . . . . . . Other expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,168 (7,447) (3,971) Total Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,462 West: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings (loss) from unconsolidated entities (5) . . . . . . . . . . . . Other income, net (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429,588 12,719 (55,181) 16,809 403,935 Other: 578,207 22,035 (230) 17,163 — 617,175 245,103 2,038 401 (1,567) 245,975 396,696 16,689 (49,731) 32,692 396,346 578,185 10,448 118 (7,888) — 580,863 196,372 13,595 75 (1,344) 208,698 358,054 446 62,960 14,358 435,818 Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,691 Sales of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings (loss) from unconsolidated entities. . . . . . . . . . . . . . . Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,011 (493) 6,749 Total Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,958 Total homebuilding operating earnings . . . . . . . . . . . . . . . $ 1,269,039 76,741 3,947 285 4,463 85,436 1,344,932 39,393 5,613 220 1,036 46,262 1,271,641 (1) Other income, net, for the year ended November 30, 2016, included gains of $14.5 million on the sales of three clubhouses. Other expense, net, for the year ended November 30, 2015, primarily related to a loss on a strategic sale of an operating property from one of our consolidated joint ventures, partially offset by noncontrolling interests. (2) Loss due to litigation regarding a contract we entered into in 2005 to purchase property in Maryland. As a result of the litigation, we purchased the property for $114 million, which approximated our estimate of fair value for the property. In addition, we paid approximately $124 million in interest and other closing costs and has accrued for the amount it expects to pay as reimbursement for attorney's fees. (3) Sales of land for the year ended November 30, 2016 included $6.3 million of valuation adjustments to land we intend to sell or have sold to third parties. (4) Equity in loss from unconsolidated entities for the year ended November 30, 2017 included valuation adjustments recorded for an unconsolidated entity. (5) Equity in loss from unconsolidated entities for the year ended November 30, 2017 included our share of operational net losses from unconsolidated entities driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by profit from land sales. Equity in loss for the year ended November 30, 2016 included our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million, partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties. Equity in earnings from unconsolidated entities for the year ended November 30, 2015 included $82.8 million of equity in earnings from one of our unconsolidated entities primarily due to the sale of a commercial property and homesites to third parties and a gain on debt extinguishment. (6) Other income, net for the year ended November 30, 2017 included an $8.6 million gain on the sale of an operating property. Other income, net, for the year ended November 30, 2016 included $30.1 million of management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures. Other income, net, for the year ended November 30, 2015 included a $6.5 million gain on the sale of an operating property. 32 Summary of Homebuilding Data Deliveries: East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended November 30, 2017 14,076 7,262 6,238 1,818 29,394 Homes 2016 12,483 6,788 5,734 1,558 26,563 2015 11,515 6,171 5,245 1,361 24,292 Of the total homes delivered listed above, 72, 82 and 83 represent home deliveries from unconsolidated entities for the years ended November 30, 2017, 2016 and 2015, respectively. Dollar Value (In thousands) Average Sales Price 2017 2016 2015 2017 2016 2015 Years Ended November 30, East . . . . . . . . . . . . $ 4,577,296 Central. . . . . . . . . . West. . . . . . . . . . . . Other . . . . . . . . . . . 2,444,924 3,199,252 862,657 Total . . . . . . . $ 11,084,129 3,890,405 2,218,590 2,757,112 748,040 9,614,147 3,527,612 $ 1,888,127 2,383,432 584,435 8,383,606 $ 325,000 337,000 513,000 475,000 377,000 312,000 327,000 481,000 480,000 362,000 306,000 306,000 454,000 429,000 345,000 Of the total dollar value of home deliveries listed above, $48.8 million, $55.6 million and $47.7 million represent the dollar value of home deliveries from unconsolidated entities for the years ended November 30, 2017, 2016 and 2015, respectively. The home deliveries from unconsolidated entities had an average sales price of $678,000, $678,000 and $575,000 for the years ended November 30, 2017, 2016 and 2015, respectively. Sales Incentives (1): Years Ended November 30, (In thousands) 2017 2016 2015 East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332,531 201,701 99,532 31,975 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 665,739 278,979 183,921 101,337 32,062 596,299 258,594 153,173 80,617 25,679 518,063 Years Ended November 30, Average Sales Incentives Per Home Delivered Sales Incentives as a % of Revenue 2017 2016 2015 2017 2016 2015 East . . . . . . . . . . . . $ Central. . . . . . . . . . West. . . . . . . . . . . . Other . . . . . . . . . . . Total . . . . . . . $ 23,600 27,800 16,100 17,600 22,700 22,400 27,100 17,900 20,600 22,500 22,500 24,800 15,600 18,900 21,400 6.8% 7.6% 3.1% 3.6% 5.7% 6.7% 7.7% 3.6% 4.1% 5.9% 6.8% 7.5% 3.3% 4.2% 5.9% (1) Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities. 33 New Orders (2): East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended November 30, 2017 14,775 7,154 6,715 1,704 30,348 Homes 2016 12,764 7,041 5,910 1,657 27,372 2015 11,579 6,448 5,608 1,471 25,106 Of the total new orders listed above, 65, 23 and 105 represent new orders from unconsolidated entities for the years ended November 30, 2017, 2016 and 2015, respectively. Dollar Value (In thousands) Average Sales Price 2017 2016 2015 2017 2016 2015 Years Ended November 30, East . . . . . . . . . . . . $ Central. . . . . . . . . . West. . . . . . . . . . . . Other . . . . . . . . . . . 4,795,740 2,409,559 3,529,945 823,993 Total . . . . . . . $ 11,559,237 3,977,605 2,354,618 2,832,993 788,721 9,953,937 3,570,496 $ 2,037,339 2,617,393 663,247 8,888,475 $ 325,000 337,000 526,000 484,000 381,000 312,000 334,000 479,000 476,000 364,000 308,000 316,000 467,000 451,000 354,000 Of the total dollar value of new orders listed above, $48.0 million, $9.2 million and $70.2 million represent the dollar value of new orders from unconsolidated entities for the years ended November 30, 2017, 2016 and 2015, respectively. The new orders from unconsolidated entities had an average sales price of $738,000, $401,000 and $669,000 for the years ended November 30, 2017, 2016 and 2015, respectively. (2) New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the years ended November 30, 2017, 2016 and 2015. Backlog: East (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, Homes 2016 3,243 2,321 1,530 529 7,623 2017 4,300 2,213 2,007 415 8,935 2015 2,852 2,068 1,354 372 6,646 Of the total homes in backlog listed above, 23, 30 and 89 represent homes in backlog from unconsolidated entities at November 30, 2017, 2016 and 2015, respectively. Dollar Value (In thousands) Average Sales Price 2017 2016 2015 2017 2016 2015 November 30, East . . . . . . . . . . . . $ 1,468,830 1,065,425 928,098 $ Central. . . . . . . . . . West. . . . . . . . . . . . Other . . . . . . . . . . . 785,469 1,078,760 217,307 821,608 748,488 256,017 685,750 671,524 192,379 Total . . . . . . . $ 3,550,366 2,891,538 2,477,751 $ 342,000 355,000 537,000 524,000 397,000 329,000 354,000 489,000 484,000 379,000 325,000 332,000 496,000 517,000 373,000 Of the total dollar value of homes in backlog listed above, $15.2 million, $16.0 million and $62.4 million represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2017, 2016 and 2015, respectively. The homes in backlog from unconsolidated entities had an average sales price of $659,000, $533,000 and $701,000 at November 30, 2017, 2016 and 2015, respectively. (3) During the year ended November 30, 2017, we acquired 359 homes in backlog as a result of the WCI acquisition. During the year ended November 30, 2016, we acquired 110 homes in backlog from other homebuilders. (4) During the year ended November 30, 2016, we acquired 58 homes in backlog. 34 Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners. We experienced cancellation rates as follows: Years Ended November 30, 2017 2016 2015 East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% 19% 14% 10% 15% 14% 20% 15% 11% 16% Active Communities: November 30, 2017 2016 2015 East (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 216 138 57 765 303 199 135 58 695 15% 21% 13% 11% 16% 284 206 119 56 665 Of the total active communities listed above, four communities represent active communities being developed by unconsolidated entities as of November 30, 2017. Of the total active communities listed above, two and three communities represent active communities being constructed by unconsolidated entities as of November 30, 2016 and 2015, respectively. (1) We acquired 51 active communities related to the WCI acquisition on February 10, 2017. As of November 30, 2017, there were 52 active communities. The following table details our gross margins on home sales for each of our reportable homebuilding segments and Homebuilding Other: (Dollars in thousands) East: Years Ended November 30, 2017 2016 2015 Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,577,296 Costs of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,504,176 3,887,217 2,935,921 3,524,691 2,599,855 Gross margins on home sales . . . . . . . . . . . . . . . . 1,073,120 23.4% 951,296 24.5% 924,836 26.2% Central: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,444,924 1,936,879 2,218,590 1,752,781 1,888,126 1,485,243 Gross margins on home sales . . . . . . . . . . . . . . . . 508,045 20.8% 465,809 21.0% 402,883 21.3% West: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,422 2,489,788 2,704,670 2,086,480 2,338,652 1,773,651 Gross margins on home sales . . . . . . . . . . . . . . . . 660,634 21.0% 618,190 22.9% 565,001 24.2% Other: Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 862,657 670,503 748,040 587,671 584,435 474,101 Gross margins on home sales . . . . . . . . . . . . . . . . 192,154 22.3% 160,369 21.4% 110,334 18.9% Total gross margins on home sales . . . . . . . . . . . . . . . . . . $ 2,433,953 22.1% 2,195,664 23.0% 2,003,054 24.0% 35 2017 versus 2016 Homebuilding East: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries in Florida and the Carolinas, partially offset by a decrease in the number of home deliveries in Georgia and Virginia. Revenues from home sales also increased as a result of the increase in the average sales price of homes delivered in Florida and the Carolinas, partially offset by a decrease in the average sales price of homes delivered in Georgia and Virginia. The increase in the number of deliveries in Florida was primarily driven by an increase in active communities over the last year primarily related to the WCI acquisition. The increase in the number of deliveries in the Carolinas was primarily driven by an increase in active communities. The decrease in the number of deliveries in Georgia and Virginia was primarily due to a decrease in deliveries per active community as a result of timing of opening and closing of communities. The increase in the average sales price of homes delivered in Florida and the Carolinas was primarily due to an increase in home deliveries in higher-priced communities and favorable market conditions. The decrease in the average sales price of homes delivered in Georgia and Virginia was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities and opening lower-priced communities during the year ended November 30, 2017. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to the same period last year primarily due to an increase in direct construction costs per home, partially offset by an increase in the average sales price of homes delivered. Homebuilding Central: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries in Texas and Arizona and an increase in the average sales price of homes delivered in all the states in the segment. The increase in the number of deliveries in Texas was primarily driven by higher demand as the number of deliveries per active community increased and the number of active communities increased. The increase in the number of deliveries in Arizona was primarily driven by an increase in the number of active communities. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to the same period last year primarily due to an increase in land and direct construction costs per home, partially offset by an increase in the average sales price of homes delivered. Homebuilding West: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries and average sales price in all the states in the segment. The increase in the number of home deliveries is primarily driven by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily due to a change in product mix and favorable market conditions. Gross margin percentage on home sales for the year ended November 30, 2017 decreased compared to the same period last year primarily due to an increase in direct construction and land costs per home, partially offset by an increase in the average sales price of homes delivered. Homebuilding Other: Revenues from home sales increased in 2017 compared to 2016, primarily due to an increase in the number of home deliveries in Minnesota and Tennessee, partially offset by a decrease in the average sales price of homes delivered in all states in Homebuilding Other except Washington. The increase in the number of deliveries in Minnesota and Tennessee was primarily driven by higher demand as the number of deliveries per active community increased. The decrease in the average sales price of homes delivered in all states in Homebuilding Other, except Washington, was primarily driven by a change in product mix due to closing out the remaining homes in higher- priced communities and opening lower-priced communities during the year ended November 30, 2017. The increase in the average sales price of homes delivered in Washington was primarily due to favorable market conditions and a change in product mix. Gross margin percentage on home sales for the year ended November 30, 2017 increased compared to the same period last year primarily due to a decrease in construction costs per home delivered as the average sales price of homes delivered decreased as well. 2016 versus 2015 Homebuilding East: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries in all the states in the segment, except Virginia and Georgia, and an increase in the average sales price of homes delivered in all the states in the segment, except Florida. The increase in the number of deliveries was primarily driven by an increase in active communities over 2015 primarily in Florida and/or driven by higher demand as the number of deliveries per active community increased. The decrease in home deliveries in Virginia and Georgia was primarily driven by a decrease in active communities that had a high volume of home deliveries in 2015. The increase in the average sales price of homes delivered was primarily due to a change in product mix as there was an increase in home deliveries in higher-priced communities in 2016 compared to 2015 and/or because we have been able to increase the sales price in certain of our communities due to favorable market conditions. The decrease in average sales price of homes delivered in Florida was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities in 2015 and opening lower-priced communities in 2016. In addition, we have also been able to increase the sales prices in certain of our communities due to favorable market conditions. Gross margin percentage on home sales decreased compared to 2015 primarily due to an increase in land and direct construction costs per home, partially offset by an increase in average sales price of homes delivered. 36 Homebuilding Central: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries and in the average sales price of homes delivered in all the states in the segment. The increase in the number of deliveries was primarily driven by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily due to a change in product mix driven by an increase in home deliveries in higher-priced close out communities in 2016 compared to 2015 and/or because we have been able to increase the sales prices in certain of our communities due to favorable market conditions. Gross margin percentage on home sales slightly decreased compared to 2015 primarily due to an increase in land costs per home, partially offset by an increase in the average sales price of homes delivered. Homebuilding West: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries in California, partially offset by a decrease in the number of home deliveries in Nevada and an increase in the average sales price of homes delivered in all the states in the segment. The increase in the number of deliveries in California was primarily driven by an increase in active communities over 2015 and/or by higher demand as the number of deliveries per active community increased. The decrease in the number of deliveries in Nevada was primarily driven by lower demand as the number of deliveries per active community decreased due to a change in product mix (selling at different price points) from 2015. The increase in the average sales price of homes delivered was primarily due to a change in product mix (selling at different price points) and/or because we have been able to increase the sales prices in certain of our communities due to favorable market conditions. Gross margin percentage on home sales decreased compared to 2015 primarily due to an increase in land costs per home and an increase in sales incentives offered to homebuyers as a percentage of revenues from home sales, partially offset by an increase in the average sales price of homes delivered. Homebuilding Other: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries in all the states in Homebuilding Other and an increase in the average sales price of homes delivered in all states in Homebuilding Other, except Minnesota. The increase in the number of deliveries was primarily driven by an increase in active communities over 2015 and/or by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily due to an increase in home deliveries in higher-priced communities in 2016 compared to 2015. The decrease in the average sales price of homes delivered in Minnesota was primarily due to the lower average sales price of the homes acquired in backlog. Gross margin percentage on home sales increased compared to 2015 primarily due to an increase in the average sales price of homes delivered and a decrease in construction and land costs per home (prior year's land costs per home included a valuation adjustment of $9.6 million in our Northeast Urban operations). Lennar Financial Services Segment Our Lennar Financial Services reportable segment provides mortgage financing, title insurance and closing services for both buyers of our homes and others. Our Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements. Several claims of this type have been asserted against us. We do not believe these claims will have a material adverse effect on our business. As part of the WCI acquisition in February 2017, Lennar Financial Services acquired a real estate brokerage business under the Berkshire Hathaway Home Services brand. This business operates only in Florida. In June 2017, our captive mortgage financing services operations changed its name from Universal American Mortgage Company, LLC to Eagle Home Mortgage, LLC. The following table sets forth selected financial and operational information related to our Lennar Financial Services segment: Years Ended November 30, 2017 770,109 (Dollars in thousands) Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155,524 Dollar value of mortgages originated . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,973,000 31,600 Number of mortgages originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage capture rate of Lennar homebuyers . . . . . . . . . . . . . . . . . . . Number of title and closing service transactions . . . . . . . . . . . . . . . . . Number of title policies issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,585 110,000 314,800 80% 2016 687,255 523,638 163,617 9,343,000 33,500 2015 620,527 492,732 127,795 8,877,000 32,600 82% 82% 116,000 298,900 108,600 263,500 37 Rialto Segment Our Rialto reportable segment is a commercial real estate investment, investment management, and finance company focused on raising, investing and managing third-party capital, originating and selling into securitizations commercial mortgage loans as well as investing our own capital in real estate related mortgage loans, properties and related securities. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, perform diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and securities as well as providing strategic real estate capital. Rialto's primary focus is to manage third-party capital and to originate and sell into securitizations commercial mortgage loans. Rialto has continued the workout and/or oversight of billions of dollars of real estate assets across the United States, including commercial and residential real estate loans and properties as well as mortgage backed securities with the objective of generating superior, risk-adjusted returns. To date, many of the investment and management opportunities have arisen from the dislocation in the United States real estate markets and the restructuring and recapitalization of those markets. Rialto's operating earnings (loss) were as follows: Years Ended November 30, (In thousands) Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs and expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . Rialto other income (expense), net (2) . . . . . . . . . . . . . . . . . . . . . . . . . Operating earnings (loss) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2017 281,243 247,549 25,447 (81,636) (22,495) 2016 233,966 229,769 18,961 (39,850) (16,692) 2015 221,923 222,875 22,293 12,254 33,595 (1) Costs and expenses included loan impairments of $32.6 million, $18.2 million and $10.4 million for the years ended November 30, 2017, 2016 and 2015, respectively, primarily associated with the segment's FDIC loans portfolio (before noncontrolling interests). (2) Rialto other income (expense), net, included REO impairments of $63.6 million, $24.4 million and $12.4 million for the years ended November 30, 2017, 2016 and 2015, respectively. (3) Operating earnings (loss) for the years ended November 30, 2017, 2016 and 2015 included net earnings (loss) attributable to noncontrolling interests of ($46.1) million, ($18.8) million and $4.8 million, respectively. The following is a detail of Rialto other income (expense), net: (In thousands) Realized gains on REO sales, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Unrealized losses on transfer of loans receivable to REO and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REO and other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rental and other income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Years Ended November 30, 2017 2016 2015 4,578 17,495 35,242 (64,623) (49,432) 27,841 (81,636) (23,087) (54,008) 19,750 (39,850) (13,678) (57,740) 48,430 12,254 (1) Rental and other income for the year ended November 30, 2016, included a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio. Rialto Mortgage Finance RMF originates and sells into securitizations five, seven and ten year commercial first mortgage loans, which are secured by income producing properties. This business has become a significant contributor to Rialto's revenues. During the year ended November 30, 2017, RMF originated loans with a total principal balance of $1.7 billion, of which $1.6 billion were recorded as loans held-for-sale and $98.4 million as accrual loans within loans receivable, net, and sold $1.5 billion of loans into 12 separate securitizations. During the year ended November 30, 2016, RMF originated loans with a total principal balance of $1.8 billion of which $1.7 billion were recorded as loans held-for-sale and $81.2 million were recorded as accrual loans within loans receivable, net, and sold $1.9 billion of loans into 11 separate securitizations. As of November 30, 2017, there were no unsettled transactions. As of November 30, 2016, originated loans with an unpaid principal balance of $199.8 million were sold into a securitization trust but not settled and thus were included as Rialto's receivables, net. FDIC Portfolios In 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies ("LLCs") in partnership with the FDIC ("FDIC Portfolios"). The LLCs met the accounting definition of VIEs and since we were determined to be the primary beneficiary, we consolidated the LLCs. In February 2017, the FDIC 38 exercised its “clean-up call rights” under the Amended and Restated Limited Liability Company Agreement. As a result, Rialto had until July 10, 2017 to liquidate and sell the assets in the FDIC Portfolios. On July 10, 2017, Rialto and the FDIC entered into an agreement which extended the original agreement date to January 10, 2018. At November 30, 2017, the consolidated LLCs had total combined assets of $48.8 million, which primarily included $23.8 million in cash, $20.0 million of real estate owned, net and $1.6 million of loans held-for-sale. As of January 11, 2018, (1) the FDIC can, at its discretion, sell any remaining assets, or (2) Rialto has the option to purchase the FDIC's interest in the portfolios. As of January 19, 2018, there were only four assets with a carrying value totaling $0.3 million which were not under contract to sell. Investments Rialto is the sponsor of and an investor in private equity vehicles that invest in and manage real estate related assets and other related investments. These include: Private Equity Vehicle Rialto Real Estate Fund, LP. . . . . . . . . . . . . . . Inception Year 2010 Rialto Real Estate Fund II, LP . . . . . . . . . . . . . Rialto Mezzanine Partners Fund, LP . . . . . . . . Rialto Capital CMBS Funds . . . . . . . . . . . . . . Rialto Real Estate Fund III . . . . . . . . . . . . . . . Rialto Credit Partnership, LP. . . . . . . . . . . . . . 2012 2013 2014 2015 2016 Commitment $700 million (including $75 million by us) $1.3 billion (including $100 million by us) $300 million (including $34 million by us) $119 million (including $52 million by us) $1.9 billion (including $140 million by us) $220 million (including $20 million by us) Rialto also earns fees for its role as a manager of these vehicles and for providing asset management and other services to those vehicles and other third parties. At November 30, 2017 and 2016, the carrying value of Rialto's commercial mortgage-backed securities ("CMBS") was $179.7 million and $71.3 million, respectively. These securities were purchased at discount rates ranging from 9% to 84% with coupon rates ranging from 1.3% to 5.0%, stated and assumed final distribution dates between November 2020 and October 2027, and stated maturity dates between November 2043 and March 2059. The Rialto segment reviews changes in estimated cash flows periodically to determine if an other-than-temporary impairment has occurred on its CMBS. Based on the Rialto segment’s assessment, no impairment charges were recorded during any of the years ended November 30, 2017, 2016 and 2015. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity. During 2017, Rialto purchased a 5% vertical strip in three separate CMBS transactions. A vertical interest is an equal interest in each class of securities issued in the securitization (e.g., 5.0% of each class) or a single vertical security entitling the holder to a specific percentage of the amounts paid on each class of those securities. As part of the Dodd- Frank Wall Street Reform and Protection Act that came into effect in December 2016, originators that contribute loans to a CMBS trust are required to satisfy risk retention rules. Some risk retention rules permit the retention of risk by third parties, and the risk may be held by purchasing vertical, horizontal or other combined strips in a securitization. Lennar Multifamily Segment We have been actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. Our Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. As of November 30, 2017 and 2016, our balance sheet had $710.7 million and $526.1 million, respectively, of assets related to our Lennar Multifamily segment, which included investments in unconsolidated entities of $407.5 million and $318.6 million, respectively. Our net investment in the Lennar Multifamily segment as of November 30, 2017 and 2016 was $561.0 million and $412.9 million, respectively. During the year ended November 30, 2017, our Lennar Multifamily segment sold seven operating properties through its unconsolidated entities resulting in the segment's $96.7 million share of gains. During the years ended November 30, 2016 and 2015, our Lennar Multifamily segment sold seven and two operating properties, respectively, through its unconsolidated entities resulting in the segment's $91.0 million and $22.2 million share of gains, respectively. During the year ended November 30, 2016, our Lennar Multifamily segment sold land to third parties generating gross profit of $5.6 million. Our Lennar Multifamily segment had equity investments in 27 and 28 unconsolidated entities (including the Lennar Multifamily Venture, the "Venture") as of November 30, 2017 and 2016, respectively. As of November 30, 2017, our Lennar Multifamily segment had interests in 53 communities with development costs of $5.1 billion, of which 13 communities were completed and operating, 12 communities were partially completed and leasing, 22 communities were under construction and the remaining communities were either owned or under contract. As of November 30, 2017, our 39 Lennar Multifamily segment also had a pipeline of potential future projects totaling $4.0 billion in assets across a number of states that would be developed primarily by future unconsolidated entities. The Venture is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by us comprised of cash, undeveloped land and preacquisition costs. Financial Condition and Capital Resources At November 30, 2017, we had cash and cash equivalents related to our homebuilding, financial services, Rialto and multifamily operations of $2.7 billion, compared to $1.3 billion and $1.2 billion at November 30, 2016 and 2015, respectively. At November 30, 2017, cash included $1.16 billion, which will be paid to CalAtlantic stockholders in connection with the acquisition of CalAtlantic. We finance all of our activities including Homebuilding, financial services, Rialto, multifamily and general operating needs primarily with cash generated from our operations, debt issuances and equity offerings as well as cash borrowed under our warehouse lines of credit and our unsecured revolving credit facility (the "Credit Facility"). Operating Cash Flow Activities During 2017, 2016 and 2015, cash provided by (used in) operating activities totaled $996.9 million, $507.8 million and ($419.6) million, respectively. During 2017, cash provided by operating activities was positively impacted by our net earnings, a decrease in receivables, an increase in accounts payable and other liabilities and a decrease in restricted cash, partially offset by an increase in other assets and an increase in loans held-for-sale of $108.9 million related to Rialto. In addition, cash provided by operating activities was negatively impacted by an increase in inventories due to strategic land purchases, land development and construction costs. For the year ended November 30, 2017, distributions of earnings from unconsolidated entities were (1) $35.0 million from Lennar Homebuilding unconsolidated entities, (2) $12.9 million from Rialto unconsolidated entities, and (3) $89.7 million from Lennar Multifamily unconsolidated entities. During 2016, cash provided by operating activities was positively impacted by our net earnings, a net decrease in loans held-for-sale primarily related to RMF due to the timing of the securitizations and an increase in accounts payable and other liabilities, partially offset by a smaller increase in inventories than in 2015 due to our soft-pivot strategy, and an increase in receivables and other assets. For the year ended November 30, 2016, distributions of earnings from unconsolidated entities were (1) $86.3 million from Lennar Multifamily unconsolidated entities, (2) $14.0 million from Rialto unconsolidated entities, and (3) $1.7 million from Lennar Homebuilding unconsolidated entities. During 2015, cash used in operating activities was impacted by an increase in inventories due to strategic land purchases and land development costs, an increase of $213.5 million in Rialto loans held-for-sale related to RMF and an increase of $105.2 million in Lennar Financial Services loans held-for-sale, partially offset by our net earnings and an increase in accounts payable and other liabilities. For the year ended November 30, 2015, distributions of earnings from unconsolidated entities were (1) $26.3 million from Lennar Homebuilding unconsolidated entities, (2) $21.1 million from Lennar Multifamily unconsolidated entities, and (3) $13.3 million from Rialto unconsolidated entities. Investing Cash Flow Activities During 2017, 2016 and 2015, cash used in investing activities totaled $869.8 million, $85.8 million and $98.4 million, respectively. During 2017, our cash used in investing activities was primarily due to our $611.1 million acquisition of WCI, net of cash acquired. In addition, we had cash contributions to unconsolidated entities of $430.3 million, which included (1) $261.9 million to Lennar Homebuilding unconsolidated entities primarily for working capital and paydowns of joint venture debt, including $120.7 million to Five Point, (2) $119.7 million to Lennar Multifamily unconsolidated entities primarily for working capital and (3) $48.7 million to Rialto unconsolidated entities comprised primarily of $32.9 million contributed to Rialto Real Estate Fund III ("Fund III"), $8.8 million contributed to the Rialto Credit Partnership, LP ("RCP") and $7.0 million contributed to other investments. In addition, cash used in investing activities was impacted by purchases of CMBS bonds by our Rialto segment. This was partially offset by the receipt of $165.4 million of principal payments on loans receivable and other, $86.6 million of proceeds from the sales of REO and distributions of capital from unconsolidated entities of $207.3 million, which primarily included (1) $83.0 million from Lennar Multifamily unconsolidated entities, of which $26.8 million was distributed by the Venture, (2) $80.9 million from Lennar Homebuilding unconsolidated entities, and (3) $41.6 million from Rialto unconsolidated entities comprised primarily of $21.2 million distributed by Rialto Real Estate Fund II, LP (" Fund II"), $5.4 million distributed by Fund III, $7.0 million distributed by the Rialto Mezzanine Partners Fund, LP ("Mezzanine Fund"), and $5.4 million distributed by the CMBS Funds. During 2016, our cash used in investing activities was primarily impacted by cash contributions to unconsolidated entities of (1) $198.2 million to Lennar Multifamily unconsolidated entities primarily related to contributions to the Venture, (2) $184.2 million to Lennar Homebuilding unconsolidated entities primarily for working 40 capital, (3) $43.4 million to Rialto unconsolidated entities comprised of $28.8 million contributed to the CMBS Funds, $7.2 million contributed to Fund III, $5.7 million contributed to RCP and $1.7 million contributed to other investments. In addition, cash used in investing activities was impacted by purchases of CMBS by our Rialto segment and origination of loans receivable primarily related to floating rate loans originated by RMF. This was partially offset by distributions of capital from unconsolidated entities of (1) $251.2 million from Lennar Multifamily unconsolidated entities, of which $193.7 million was distributed by the Venture, (2) $44.6 million from Lennar Homebuilding unconsolidated entities, and (3) $27.4 million from Rialto unconsolidated entities comprised of $12.8 million distributed by Fund II, $11.7 million distributed by the Mezzanine Fund and $2.9 million distributed by the CMBS Funds; by the receipt of $97.9 million of proceeds from the sales of REO; and receipt of $84.4 million of principal payments on loans receivable and settlement of accrual loans. During 2015, our cash used in investing activities was primarily impacted by cash contributions to unconsolidated entities of (1) $210.7 million to Lennar Homebuilding unconsolidated entities primarily for working capital, (2) $63.0 million to Rialto unconsolidated entities comprised of $41.7 million contributed to Fund II, $13.3 million contributed to the Mezzanine Fund and $8.0 million contributed to the CMBS Funds, and (3) $41.3 million to Lennar Multifamily unconsolidated entities primarily for working capital. In addition, cash used in investing activities was impacted by purchases of investment securities and loans held-for-investments. This was partially offset by the receipt of $73.7 million of proceeds from the sale of a Lennar Homebuilding operating property, $155.3 million of proceeds from the sale of REO and by distributions of capital from unconsolidated entities of (1) $118.0 million from Lennar Homebuilding unconsolidated entities, (2) $78.1 million from Lennar Multifamily unconsolidated entities, of which $55.3 million was distributed by the Venture, and (3) $22.9 million from Rialto unconsolidated entities comprised of $16.9 million distributed by Fund II, $3.4 million distributed by the Mezzanine Fund and $2.6 million distributed by the CMBS Funds. Financing Cash Flow Activities During 2017, 2016 and 2015, our cash provided by (used in) financing activities totaled $1.2 billion, ($250.9) million and $394.7 million, respectively. During 2017, our cash provided by financing activities was primarily attributed to the receipt of proceeds related to the (1) issuance of $600 million aggregate principal amount of 4.125% senior notes due 2022 (the "4.125% Senior Notes"), (2) issuance of $650 million aggregate principal amount of 4.50% senior notes due 2024 (the "4.50% Senior Notes"), (3) issuance of $300 million aggregate principal amount of 2.95% senior notes due 2020 (the "2.95% Senior Notes"), (4) issuance of $900 million aggregate principal amount of 4.750% senior notes due 2027 (the "4.750% Senior Notes"), (5) $31.2 million of proceeds from other borrowings, (6) $99.6 million of proceeds from the issuance of Rialto notes payable and (7) $195.5 million of proceeds from other liabilities. This was partially offset by (1) the retirement of $400 million aggregate principal amount of our 12.25% senior notes due 2017 (the "12.25% Senior Notes"), (2) the redemption of $400 million aggregate principal amount of our 4.75% senior notes due 2017 (the "4.75% Senior Notes"), (3) the redemption of $250 million principal amount of our 6.875% senior notes due 2021 that had been issued by WCI, (4) $199.7 million of net repayments under our warehouse facilities, which was comprised of $139.8 million of net repayments under our Lennar Financial Services warehouse repurchase facilities and $59.9 million of net repayments under our Rialto warehouse facilities, (5) $74.4 million of payments related to noncontrolling interests, and (5) $139.7 million of principal payments on other borrowings. The proceeds from the issuance of the 2.95% Senior Notes and the 4.750% Senior Notes will be used primarily to pay the cash portion of the consideration related to the merger with CalAtlantic. During 2016, our cash used in financing activities was primarily impacted by (1) the redemption of $250 million aggregate principal amount of our 6.50% senior notes due April 2016 (the "6.50% Senior Notes"), (2) $234.0 million of cash payments in connection with exchanges or conversions of our 2.75% convertible senior notes due December 2020 (the "2.75% Convertible Senior Notes"), (3) $211.0 million of principal payments on other borrowings, (4) $111.3 million of net repayments under our Rialto's warehouse repurchase facilities, and (5) $127.4 million of payments related to noncontrolling interests. The cash used in financing activities was partially offset by the receipt of proceeds of the sale of $500 million aggregate principal amount of our 4.750% senior notes due 2021 and $218.8 million of net borrowings under our Lennar Financial Services' warehouse repurchase facilities. During 2015, our cash provided by financing activities was primarily attributed to the receipt of proceeds related to the sale of (1) $400 million aggregate principal amount of 4.875% senior notes due 2023, (2) an additional $250 million aggregate principal amount of our 4.50% senior notes due November 2019, and (3) $500 million aggregate principal amount of our 4.750% senior notes due 2025; proceeds of $101.6 million from other borrowings; and net borrowings of $366.3 million under our Lennar Financial Services' and Rialto's warehouse repurchase facilities. The cash provided by financing activities was partially offset by the redemption of $500 million principal amount of our 5.60% senior notes due 2015, exchanges and conversions of $212.1 million principal amount of our 2.75% Convertible Senior Notes, principal payments of $258.1 million on other borrowings, and payments of $133.4 million related to noncontrolling interests. 41 Debt to total capital ratios are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our Lennar Homebuilding operations. Lennar Homebuilding debt to total capital and net Lennar Homebuilding debt to total capital were calculated as follows: (Dollars in thousands) Lennar Homebuilding debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 6,410,003 7,872,317 2016 4,575,977 7,026,042 Total capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,282,320 11,602,019 November 30, Lennar Homebuilding debt to total capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Less: Lennar Homebuilding cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . 6,410,003 2,282,925 Net Lennar Homebuilding debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,127,078 Lennar Homebuilding net debt to total capital (1) . . . . . . . . . . . . . . . . . . . . . . . . . . 34.4% 44.9% 39.4% 4,575,977 1,050,138 3,525,839 33.4% (1) Lennar Homebuilding net debt to total capital is a non-GAAP financial measure defined as net Lennar Homebuilding debt (Lennar Homebuilding debt less Lennar Homebuilding cash and cash equivalents) divided by total capital (net Lennar Homebuilding debt plus stockholders' equity). We believe the ratio of net Lennar Homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in our Lennar Homebuilding operations. However, because net Lennar Homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non- GAAP financial measure should be used to supplement our GAAP results. At November 30, 2017, Lennar Homebuilding debt to total capital was higher compared to the prior year period, primarily as a result of net increase in Lennar Homebuilding debt due to the issuance of senior notes in order to fund the cash portion of the CalAtlantic merger as noted below. This was partially offset by an increase in stockholders' equity primarily related to our net earnings. We are continually exploring various types of transactions to manage our leverage and liquidity positions, take advantage of market opportunities and increase our revenues and earnings. These transactions may include the issuance of additional indebtedness, the repurchase of our outstanding indebtedness for cash or equity, the acquisition of homebuilders and other companies, the purchase or sale of assets or lines of business, the issuance of common stock or securities convertible into shares of common stock, the buyback of shares of common stock, and/or pursuing other financing alternatives. In connection with some of our more recently formed businesses, such as Rialto and Lennar Multifamily, we may also consider other types of transactions such as restructurings, joint ventures, spin-offs or initial public offerings as we intend to move back to being a pure play homebuilding company over time. If any of these transactions are implemented, they could materially impact the amount and composition of our indebtedness outstanding, increase or decrease our interest expense, dilute our existing stockholders and/or affect the net book value of our assets. At November 30, 2017, we had a merger agreement with CalAtlantic discussed below that included the cash consideration portion that caused us to issue the 2.95% Senior Notes and 4.750% Senior Notes as noted in the financing cash flow activities above. On October 29, 2017, Lennar and a wholly-owned subsidiary of Lennar (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CalAtlantic, a Homebuilding company. Subject to the terms and conditions of the Merger Agreement, CalAtlantic will be merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Merger”). CalAtlantic builds well-crafted homes in thoughtfully designed communities that meet the desires of customers across the homebuilding spectrum, from entry level to luxury, in over 43 metropolitan statistical areas spanning 19 states. CalAtlantic also provides mortgage, title and escrow services. Under the terms of the Merger Agreement, CalAtlantic’s stockholders will receive 0.885 shares of our Class A common stock for each share of CalAtlantic’s common stock. CalAtlantic’s stockholders will also have the option to exchange all or a portion of their shares of common stock for cash in an amount of $48.26 per share (the "Cash Election Option") in lieu of receiving our Class A common stock, subject to a maximum cash amount of $1.16 billion. The Cash Election Option will be subject to proration to the extent they exceed the maximum cash amount. A major stockholder of CalAtlantic has agreed that it will be deemed to elect to exercise the Cash Election Option to the extent actual exercises are less than the maximum amount. Therefore, we will pay the maximum amount in cash regardless of how many CalAtlantic stockholders exercise the Cash Election Option. No fractional shares of our Class A common stock will be issued in the Merger. Any holder of CalAtlantic’s common stock who would be entitled to receive a fraction of a share of our Class A common stock will instead receive cash equal to the market value of a share of such Class A common stock (based on the last sale price reported on the New York Stock Exchange on the last trading day before the closing date). On a pro forma basis, CalAtlantic stockholders are expected to own approximately 26% of the combined company. The transaction, which must be approved by both CalAtlantic and our stockholders, is expected to close on or shortly after February 12, 2018. 42 The transaction will make us the largest homebuilder in the United States in terms of revenues. We expect that the transaction will result in significant savings in the cost of producing homes and reductions of general and administrative costs as a percentage of total revenues. When our Board of Directors was considering the transaction, our management estimated that we expected to achieve cost savings and other synergy benefits from the transaction of approximately $100 million in fiscal year 2018 and $365 million per year after that. For the year ended December 31, 2017, CalAtlantic had an average of 565 selling communities, had delivered 14,602 homes at an average sales price of $450,000 and had net new orders of 15,205 homes at an average sales price of $459,000. At December 31, 2017, CalAtlantic had a backlog of 6,420 home sale contracts with a total backlog dollar value of $3.2 billion. The following table summarizes our Lennar Homebuilding senior notes and other debts payable: (Dollars in thousands) 6.95% senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.125% senior notes due December 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.500% senior notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% senior notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.95% senior notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.750% senior notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.125% senior notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.750% senior notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.875% senior notes due December 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.500% senior notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.750% senior notes due 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.75% senior notes due 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.75% senior notes due December 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.25% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgages notes on land and other debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2017 2016 249,342 274,459 498,793 598,325 298,305 497,329 595,904 569,484 394,964 645,353 496,671 892,657 — — 398,417 248,474 273,889 498,002 597,474 — 496,547 — 568,404 394,170 — 496,226 — 398,479 398,232 206,080 $ 6,410,003 4,575,977 The carrying amounts of the senior notes listed above are net of debt issuance costs of $33.5 million and $22.1 million, as of November 30, 2017 and 2016, respectively. Our Lennar Homebuilding average debt outstanding was $5.7 billion with an average rate for interest incurred of 4.8% for the year ended November 30, 2017, compared to $5.1 billion with an average rate for interest incurred of 5.1% for the year ended November 30, 2016. Interest incurred related to Lennar Homebuilding debt for the year ended November 30, 2017 was $290.3 million, compared to $281.4 million in 2016. 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, proceeds from debt as well as borrowings under our Credit Facility. 43 The terms of each of our senior notes outstanding at November 30, 2017 were as follows: Senior Notes Outstanding (1) (Dollars in thousands) 6.95% senior notes due 2018 . . . . . . . . . . . . . . . 4.125% senior notes due December 2018. . . . . . 4.500% senior notes due 2019 . . . . . . . . . . . . . . 4.50% senior notes due 2019 . . . . . . . . . . . . . . . 2.95% senior notes due 2020 . . . . . . . . . . . . . . . 4.750% senior notes due 2021 . . . . . . . . . . . . . . 4.125% senior notes due 2022 . . . . . . . . . . . . . . 4.750% senior notes due 2022 Principal Amount Net Proceeds (2) Price Dates Issued $ 250,000 243,900 98.929% 275,000 271,718 99.998% 500,000 495,725 600,000 595,801 300,000 298,800 500,000 495,974 600,000 575,000 595,160 567,585 (3) (4) 100% 100% 100% (5) May 2010 February 2013 February 2014 November 2014, February 2015 November 2017 March 2016 January 2017 October 2012, February 2013, April 2013 4.875% senior notes due December 2023. . . . . . 4.500% senior notes due 2024 . . . . . . . . . . . . . . 4.750% senior notes due 2025 . . . . . . . . . . . . . . 4.75% senior notes due 2027 . . . . . . . . . . . . . . . 400,000 393,622 99.169% November 2015 650,000 644,838 500,000 495,528 900,000 894,650 100% 100% 100% April 2017 April 2015 November 2017 (1) Interest is payable semi-annually for each of the series of senior notes. The senior notes are unsecured and unsubordinated, but are guaranteed by substantially all of the our 100% owned homebuilding subsidiaries. (2) We generally uses the net proceeds for working capital and general corporate purposes, which can include the repayment or repurchase of other outstanding senior notes, except the proceeds from issuance of our 2.95% senior notes due 2020 and our 4.750% senior notes due 2027 will be used primarily for the Cash Election Option in connection with the merger of CalAtlantic. (3) We issued $400 million aggregate principal amount at a price of 100% and $100 million aggregate principal amount at a price of 100.5%. (4) We issued $350 million aggregate principal amount at a price of 100% and $250 million aggregate principal amount at a price of 100.25%. (5) We issued $350 million aggregate principal amount at a price of 100%, $175 million aggregate principal amount at a price of 98.073% and $50 million aggregate principal amount at a price of 98.250%. In November 2017, we redeemed the $400 million aggregate principal amount of our 4.75% Senior Notes due 2017. The redemption price, which was paid in cash, was 100% of the principal amount plus accrued interest. In November 2017, we issued $300 million aggregate principal amount of 2.95% Senior Notes and $900 million aggregate principal amount of 4.750% Senior Notes at a price of 100% in a private placement. Proceeds from the offering, after payment of initial purchaser’s discount and certain expenses, were $1.19 billion. We intend to use the net proceeds of this offering to fund the portion of cash consideration payable by us in connection with the Merger, to pay expenses related to the Merger and for general corporate purposes. Interest on the 2.95% Senior Notes and 4.750% Senior Notes is due semi-annually beginning May 29, 2018. In August 2017, we redeemed the $250 million aggregate principal amount of the 6.875% senior notes due 2021 that we assumed as a result of our WCI acquisition in February 2017. The redemption price, which was paid in cash, was 103.438% of the principal amount plus accrued but unpaid interest up to, but not including, the redemption date. There was no gain or loss recorded on redemption as it had been recorded at fair value on the acquisition date. In March 2017, we retired our 12.25% Senior Notes for 100% of the $400 million aggregate principal amount, plus accrued and unpaid interest. Currently, substantially all of our 100% owned homebuilding subsidiaries are guaranteeing all our senior notes (the "Guaranteed Notes"). The guarantees are full and unconditional. The principal reason our 100% owned homebuilding subsidiaries are guaranteeing the Guaranteed Notes is so holders of the Guaranteed Notes will have rights at least as great with regard to those subsidiaries as any other holders of a material amount of our unsecured debt. Therefore, the guarantees of the Guaranteed Notes will remain in effect with regard to a guarantor subsidiary only while it guarantees a material amount of the debt of Lennar Corporation, as a separate entity, to others. At any time when a guarantor subsidiary is no longer guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes, either directly or by guaranteeing other subsidiaries’ obligations as guarantors of Lennar Corporation’s debt, the guarantor subsidiary’s guarantee of the Guaranteed Notes will be suspended. Therefore, if the guarantor subsidiaries cease guaranteeing Lennar Corporation’s obligations under our Credit Facility and our letter of credit facilities and are not guarantors of any new debt, the guarantor subsidiaries’ guarantees of the Guaranteed Notes will be suspended until such time, if any, as they again are guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes. 44 If our guarantor subsidiaries are guaranteeing revolving credit lines totaling at least $75 million, we will treat the guarantees of the Guaranteed Notes as remaining in effect even during periods when Lennar Corporation’s borrowings under the revolving credit lines are less than $75 million. A subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of. In May 2017, we amended our Credit Facility to increase the maximum borrowings from $1.8 billion to $2.0 billion and extended the maturity on $1.4 billion of the Credit Facility from June 2020 to June 2022, with another $160 million maturing in June 2018 and the remaining $50 million maturing in June 2020. As of November 30, 2017, the Credit Facility included a $403 million accordion feature, subject to additional commitments. The proceeds available under our Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit agreement also provides that up to $500 million in commitments may be used for letters of credit. As of both November 30, 2017 and 2016, we had no outstanding borrowings under the Credit Facility. We may from time to time, borrow and repay amounts under our Credit Facility. Consequently, the amount outstanding under the Credit Facility at the end of a period may not be reflective of the total amounts outstanding during the period. In addition, we had $330 million letter of credit facilities with different financial institutions at November 30, 2017. Under the amended Credit Agreement executed in May 2017, as of the end of each fiscal quarter, we are required to maintain minimum consolidated tangible net worth of approximately $4.2 billion plus the sum of 50% of the cumulative consolidated net income from February 28, 2017, if positive, and 50% of the net cash proceeds from any equity offerings from and after February 28, 2017, minus the lesser of 50% of the amount paid after May 18, 2017 to repurchase common stock and $100 million. We are required to maintain a leverage ratio that shall not exceed 65% and may be reduced by 2.5% per quarter if our interest coverage ratio is less than 2.25:1.00 for two consecutive fiscal calendar quarters. The leverage ratio will have a floor of 60%. If our interest coverage ratio subsequently exceeds 2.25:1.00 for two consecutive fiscal calendar quarters, the leverage ratio we will be required to maintain will be increased by 2.5% per quarter to a maximum of 65%. As of the end of each fiscal quarter, we are also required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio equal to or greater than 1.50:1.00 for the last twelve months then ended. We believe that we were in compliance with our debt covenants at November 30, 2017 The following summarizes our required debt covenants and our actual levels or ratios with respect to those covenants as calculated per the Credit Agreement as of November 30, 2017: (Dollars in thousands) Minimum net worth test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Maximum leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidity test (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Covenant Level 4,498,214 Level Achieved as of November 30, 2017 6,476,907 65.0% 1.00 32.8% 8.13 (1) We are only required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio of equal to or greater than 1.50:1.00 for the last twelve months then ended. Although we are in compliance with our debt covenants for both calculations, we have only disclosed our liquidity test. The terms minimum net worth test, maximum leverage ratio, liquidity test and interest coverage ratio used in the Credit Agreement are specifically calculated per the Credit Agreement and differ in specified ways from comparable GAAP or common usage terms. Our performance letters of credit outstanding were $384.4 million and $270.8 million at November 30, 2017 and 2016, respectively. Our financial letters of credit outstanding were $127.4 million and $210.3 million at November 30, 2017 and 2016, respectively. Performance letters of credit are generally posted with regulatory bodies to guarantee the performance of certain development and construction activities. Financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2017, we had outstanding surety bonds of $1.3 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds. 45 At November 30, 2017, our Lennar Financial Services segment warehouse facilities were as follows: (In thousands) 364-day warehouse repurchase facility that matures December 2017 (1) (2) . . . . . . . . . . . . . . . . . . . . . $ 364-day warehouse repurchase facility that matures March 2018 (3). . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures June 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures September 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Maximum Aggregate Commitment 400,000 150,000 600,000 300,000 1,450,000 (1) Maximum aggregate commitment includes an uncommitted amount of $250 million. (2) Subsequent to November 30, 2017, the warehouse repurchase facility maturity was extended to December 2018. (3) Maximum aggregate commitment includes an uncommitted amount of $75 million. Our Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $937.2 million and $1.1 billion, at November 30, 2017 and 2016, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $974.1 million and $1.1 billion, at November 30, 2017 and 2016, respectively. The combined effective interest rate on the facilities at November 30, 2017 was 3.6%. If the facilities are not renewed or replaced, 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 Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities. At November 30, 2017, our Rialto warehouse facilities were as follows: (In thousands) Warehouse repurchase facility that matures December 2017 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364-day warehouse repurchase facility that matures January 2018 (2). . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures October 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures November 2018 (one year extension) . . . . . . . . . Maximum Aggregate Commitment 200,000 250,000 400,000 200,000 Total - Loans origination and securitization business (RMF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,050,000 Warehouse repurchase facility that matures August 2018 (two - one year extensions) (3). . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,000 1,150,000 (1) Subsequent to November 30, 2017, the warehouse repurchase facility maturity date was extended to December 2019. (2) Subsequent to November 30, 2017, the warehouse repurchase facility maturity date was extended to December 2018 and the maximum aggregate commitment of the facility was reduced to $200 million. (3) Rialto uses this warehouse repurchase facility to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans receivable, net. There were no borrowings under this facility as of November 30, 2017. Borrowings under this facility were $43.3 million as of November 30, 2016. Borrowings under the facilities that finance RMF's loan originations and securitization activities were $162.1 million and $180.2 million as of November 30, 2017 and 2016, respectively, and were secured by a 75% interest in the originated commercial loans financed. The facilities require immediate repayment of the 75% interest in the secured commercial loans when the loans are sold in a securitization and the proceeds are collected. These warehouse repurchase facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. As of November 30, 2017 and 2016, the carrying amount, net of debt issuance costs, of Rialto's 7.00% Senior Notes was $349.4 million and $348.7 million, respectively. Under the indenture, Rialto is subject to certain covenants limiting, among other things, Rialto’s ability to incur indebtedness, to make investments, to make distributions to, or enter into transactions with Lennar or to create liens, subject to certain exceptions and qualifications. Rialto also has quarterly and annual reporting requirements, similar to an SEC registrant, to holders of the 7.00% Senior Notes. We believe Rialto was in compliance with its debt covenants at November 30, 2017. Changes in Capital Structure We have a stock repurchase program adopted in 2001, which originally authorized us to purchase up to 20 million shares of our outstanding common stock. During the years ended November 30, 2017, 2016 and 2015, there were no repurchases of common stock under the stock repurchase program. As of November 30, 2017, the remaining authorized shares that can be purchased under the stock repurchase program were 6.2 million shares of common stock. 46 During the years ended November 30, 2017 and 2016, treasury stock increased by 0.6 million shares and 0.1 million shares of Class A common stock, respectively, primarily due to activity related to our equity compensation plan. During the years ended November 30, 2017, 2016 and 2015, our Class A and Class B common stockholders received a per share annual dividend of $0.16. On November 27, 2017, we paid a stock dividend of one share of Class B common stock for each 50 shares of Class A common stock or Class B common stock to holders of record at the close of business on November 10, 2017, as declared by our Board of Directors on October 30, 2017. 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 Lennar Homebuilding - Investments in Unconsolidated Entities At November 30, 2017, we had equity investments in 38 homebuilding and land unconsolidated entities (of which 3 had recourse debt, 10 had non-recourse debt and 25 had no debt), compared to 38 homebuilding and land unconsolidated entities at November 30, 2016. Historically, we have invested in unconsolidated entities that acquired and developed 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 have primarily sought to reduce and share our risk by limiting the amount of our capital invested in land, while obtaining access to potential future homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances, has enabled us to acquire land 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 have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to homesites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partner. Each joint venture is governed by an executive committee consisting of members from the partners. Although the strategic purposes of our joint ventures and the nature of our joint ventures' partners vary, the joint ventures are generally designed to acquire, develop and/or sell specific assets during a limited life-time. The joint ventures are typically structured through non-corporate entities in which control is shared with our venture partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other joint venture participants typically make pro-rata cash contributions to the joint venture. In many cases, our risk is limited to our equity contribution and potential future capital contributions. Additionally, most joint ventures obtain third-party debt to fund a portion of the acquisition, development and construction costs of their communities. The joint venture agreements usually permit, but do not require, the joint ventures to make additional capital calls in the future. However, capital calls relating to the repayment of joint venture debt under payment guarantees generally is required. Under the terms of our joint venture agreements, we generally have the right to share in earnings and distributions of the entities on a pro-rata basis based on our ownership percentage. Some joint venture agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). Lennar Homebuilding equity in earnings (loss) from unconsolidated entities excludes our pro-rata share of joint ventures’ earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our costs of purchasing the land from the joint ventures or reduce the investment in certain cost sharing unconsolidated entities. This in effect defers recognition of our share of the joint ventures’ earnings related to these sales until we deliver a home and title passes to a third-party homebuyer. In many instances, we are designated as the manager of a venture under the direction of a management committee that has shared power among the partners of the unconsolidated entity and we receive fees for such services. In addition, we often enter into option or purchase contracts to acquire properties from our joint ventures, generally for market prices at specified dates in the future. Option contracts, in some instances, require us to make deposits using cash or irrevocable letters of credit toward the exercise price. These option deposits are generally negotiated on a case by case basis. We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. Joint ventures in which we have investments may be subject to a variety of financial and non-financial debt covenants related primarily to equity maintenance, fair value of collateral and minimum homesite takedown or sale requirements. We monitor the performance of joint ventures in which we have investments on a regular 47 basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. Our arrangements with joint ventures generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the joint ventures do business. As discussed above, the joint ventures in which we invest generally supplement equity contributions with third- party debt to finance their activities. In some instances, the debt financing is non-recourse, thus neither we nor the other equity partners are a party to the debt instruments. In other cases, we and the other partners agree to provide credit support in the form of repayment guarantees. Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations described above. The joint ventures generally do not enter into lease commitments because the entities are managed either by us, or another of the joint venture participants, who supply the necessary facilities and employee services in exchange for market-based management fees. However, they do enter into management contracts with the participants who manage them. Some joint ventures also enter into agreements with developers, which may be us or other joint venture participants, to develop raw land into finished homesites or to build homes. The joint ventures often enter into option or purchase agreements with buyers, which may include us or other joint venture participants, to deliver homesites or parcels in the future at market prices. Option deposits are recorded by the joint ventures as liabilities until the exercise dates at which time the deposit and remaining exercise proceeds are recorded as revenue. Any forfeited deposit is recognized as revenue at the time of forfeiture. Our unconsolidated joint ventures generally do not enter into off-balance sheet arrangements. As described above, the liquidity needs of joint ventures in which we have investments vary on an entity-by- entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition and development of properties. As the properties are completed and sold, cash generated is available to repay debt and for distribution to the joint venture’s members. Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the scope of the joint venture’s activities and the stage in the joint venture’s life cycle. We track our share of cumulative earnings and cumulative distributions of our joint ventures. For purposes of classifying distributions received from joint ventures in our statements of cash flows, cumulative distributions are treated as returns on capital to the extent of cumulative earnings and included in our consolidated statements of cash flows as cash flow from operating activities. Cumulative distributions in excess of our share of cumulative earnings are treated as returns of capital and included in our consolidated statements of cash flows as cash flows from investing activities. Summarized financial information on a combined 100% basis related to Lennar Homebuilding’s unconsolidated entities that are accounted for by the equity method was as follows: Statements of Operations and Selected Information Years Ended November 30, (Dollars in thousands) Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 471,899 616,217 Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,253 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings (loss) of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . $ (121,065) Lennar Homebuilding equity in earnings (loss) from unconsolidated 2017 entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (61,708) Lennar Homebuilding cumulative share of net earnings - deferred at November 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,621 Lennar Homebuilding investments in unconsolidated entities. . . . . . . . . . $ 900,769 Equity of the unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,196,811 Lennar Homebuilding investment % in the unconsolidated entities (1). . . 21% 2016 439,874 578,831 — (138,957) 2015 1,309,517 969,509 49,343 389,351 (49,275) 63,373 41,495 811,723 3,765,336 42,651 741,551 2,692,360 22% 28% (1) Our share of profit and cash distributions from operations could be higher compared to our ownership interest in unconsolidated entities if certain specified internal rate of return or cash flow milestones are achieved. For the year ended November 30, 2017, one of our unconsolidated entities had equity in earnings of $11.9 million relating to an equity method investee selling 475 homesites to a third-party land bank. Simultaneous with the purchase by the land bank, we entered into an option contract to purchase all 475 homesites from the land bank. Due to 48 our involvement with respect to the homesites sold from the investee entity, we deferred all of our equity in earnings from the unconsolidated entity relating to the sale transaction, which amounted to $4.9 million. For the year ended November 30, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of net operating losses from our unconsolidated entities, which were primarily driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by the profits from land sales. For the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million. This was partially offset by $12.7 million of equity in earnings primarily due to sales of homesites to third parties by one of our unconsolidated entities. For the year ended November 30, 2015, Lennar Homebuilding equity in earnings included $82.8 million of equity in earnings from one of our unconsolidated entities primarily due to (1) sales of approximately 800 homesites to a joint venture in which we have a 50% investment and for which our portion of the gross profit from the sale was deferred, (2) sales of approximately 700 homesites and a commercial property to third parties and (3) a gain on debt extinguishment. In addition, for the year ended November 30, 2015, net earnings of unconsolidated entities included sales of approximately 300 homesites to us by one of our unconsolidated entities that resulted in $49.3 million of gross profit, of which our portion was deferred. Balance Sheets November 30, 2017 2016 (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 953,261 3,751,525 1,061,507 Liabilities and equity: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832,151 737,331 4,196,811 $ 5,766,293 $ 5,766,293 221,334 3,889,795 1,334,116 5,445,245 791,245 888,664 3,765,336 5,445,245 (1) Debt is net of debt issuance costs of $5.7 million and $4.2 million, for the years ended November 30, 2017 and 2016, respectively. On May 2, 2016, we contributed, or obtained the right to contribute, our investment in three strategic joint ventures previously managed by FivePoint Communities in exchange for an investment in a FivePoint entity. The fair values of the assets contributed to this FivePoint entity are included within the unconsolidated entities summarized condensed balance sheet presented above. A portion of the assets of one of the three strategic joint ventures transferred to a new unconsolidated entity was retained by us and our venture partner. The transactions did not have a material impact to our financial position or cash flows for the year ended November 30, 2016. For the year ended November 30, 2016, we recorded $42.6 million of our share of combination costs and operational net losses in equity in loss from unconsolidated entities on the consolidated statement of operations. In May 2017, FivePoint completed its initial public offering ("IPO"). Concurrent with the IPO, we invested an additional $100 million in FivePoint in a private placement. As of November 30, 2017, we own approximately 40% of FivePoint and the carrying amount of our investment is $359.2 million. As of November 30, 2017 and 2016, our recorded investments in Lennar Homebuilding unconsolidated entities were $900.8 million and $811.7 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of November 30, 2017 and 2016 was $1.3 billion and $1.2 billion, respectively. The basis difference is primarily as a result of us contributing our investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to us. The Lennar Homebuilding unconsolidated entities in which we have investments usually finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. 49 Debt to total capital of the Lennar Homebuilding unconsolidated entities in which we have investments was calculated as follows: November 30, (Dollars in thousands) Debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,196,811 Total capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,934,142 2017 737,331 2016 888,664 3,765,336 4,654,000 Debt to total capital of our unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.9% 19.1% (1) Debt is net of debt issuance costs of $5.7 million and $4.2 million, for the years ended November 30, 2017 and 2016, respectively. Our investments in Lennar Homebuilding unconsolidated entities by type of venture were as follows: (In thousands) Land development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 868,015 32,754 900,769 2016 787,138 24,585 811,723 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 of different unconsolidated entities. We also do not use our investment in one unconsolidated entity as collateral for the debt of another unconsolidated entity or commingle funds among Lennar Homebuilding unconsolidated entities. In connection with loans to a Lennar Homebuilding 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 an 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). The total debt of Lennar Homebuilding unconsolidated entities in which we have investments, including Lennar's maximum recourse exposure, were as follows: November 30, (Dollars in thousands) Non-recourse bank debt and other debt (partner’s share of several recourse) . . . . . . . . . $ Non-recourse land seller debt and other debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recourse debt with completion guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recourse debt without completion guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recourse debt to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar’s maximum recourse exposure (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2017 64,197 1,997 255,903 351,800 673,897 69,181 (5,747) 737,331 2016 48,945 323,995 147,100 320,372 840,412 52,438 (4,186) 888,664 Lennar’s maximum recourse exposure as a % of total JV debt . . . . . . . . . . . . . . . . . . . . 9% 6% (1) Non-recourse land seller debt and other debt as of November 30, 2016 included a $320 million non-recourse note related to a transaction between one of our unconsolidated entities and another unconsolidated joint venture, which was settled in December 2016. (2) As of November 30, 2017, the increase in our maximum recourse exposure was primarily related to us providing repayment guarantees on one new unconsolidated entity's debt. During the year ended November 30, 2017, our maximum recourse exposure related to indebtedness of Lennar Homebuilding unconsolidated entities increased by $16.7 million, as a result of us providing a repayment guarantee on unconsolidated entities' debt of $24.9 million on Lennar Homebuilding unconsolidated entities debt and an increase in recourse debt due to additional borrowings of $7.1 million, partially offset by a decrease due to $13.9 million primarily related to the joint ventures selling assets and a debt repayment of $1.4 million. 50 The recourse debt exposure in the previous table represents our maximum exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay debt or to reimburse us for any payments on our guarantees. In addition, in most instances in which we have guaranteed debt of a Lennar Homebuilding unconsolidated entity, our partners have also guaranteed that debt and are required to contribute their share of the guarantee payment. 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 connection with many of the loans to Lennar Homebuilding 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, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used. If we are required to make a payment under any guarantee, the payment would generally constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase our share of any funds the unconsolidated entity distributes. As of both November 30, 2017 and 2016, the fair values of the repayment and completion guarantees were not material. We believe that as of November 30, 2017, in the event we become legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral is expected to be sufficient to repay at least a significant portion of the obligation or we and our partners would contribute additional capital into the venture. In certain instances, we have placed performance letters of credit and surety bonds with municipalities for our joint ventures (see Note 7 of the notes to our consolidated financial statements). In view of credit market conditions during the past several years, it is not uncommon for lenders and/or real estate developers, including joint ventures in which we have interests, to assert non-monetary defaults (such as failure to meet construction completion deadlines or declines in the market value of collateral below required amounts) or technical monetary defaults against the real estate developers. In most instances, those asserted defaults are resolved by modifications of the loan terms, additional equity investments or other concessions by the borrowers. In addition, in some instances, real estate developers, including joint ventures in which we have interests, are forced to request temporary waivers of covenants in loan documents or modifications of loan terms, which are 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 possible that we will have some balance of unpaid guarantee liability. At both November 30, 2017 and 2016, we had no liabilities accrued for unpaid guarantees of joint venture indebtedness on our consolidated balance sheets. The following table summarizes the principal maturities of our Lennar Homebuilding unconsolidated entities ("JVs") debt as per current debt arrangements as of November 30, 2017 and it 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. (In thousands) Maximum recourse debt exposure to Lennar . . . . . . . . . . . . . . . . . . . . . . . Debt without recourse to Lennar . . . . . Debt issuance costs. . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . Principal Maturities of Unconsolidated JVs by Period Total JV Debt 2018 2019 2020 Thereafter Other $ 69,181 673,897 (5,747) $ 737,331 6,560 179,064 — 185,624 38,566 261,194 — 299,760 24,055 44,670 — 68,725 — 186,972 — 186,972 — 1,997 (5,747) (3,750) 51 The table below indicates the assets, debt and equity of our 10 largest Lennar Homebuilding unconsolidated joint venture investments as of November 30, 2017: Lennar’s Investment (Dollars in thousands) Top Ten JVs (1): FivePoint . . . . . . . . . . . . . . . . . . $ 359,227 Heritage Hills Irvine . . . . . . . . . 115,678 Heritage Fields El Toro . . . . . . . Treasure Island Community 111,967 28,893 22,974 22,629 40,025 41,595 Development . . . . . . . . . . . . . Runkle Canyon . . . . . . . . . . . . . Ballpark Village. . . . . . . . . . . . . Krome Groves Land Trust . . . . . Fifth Wall Ventures SPV I . . . . . Lennar Intergulf (150 Ocean) . . EL at Monroe. . . . . . . . . . . . . . . 10 largest JV investments . . . . . Other JVs . . . . . . . . . . . . . . . . . . 122,654 Total. . . . . . . . . . . . . . . . . . . . . . $ 900,769 Land seller debt and other debt . Debt issuance costs . . . . . . . . . . Total JV debt . . . . . . . . . . . . . . . 778,115 17,758 17,369 Maximum Recourse Debt Exposure to Lennar Total Debt Without Recourse to Lennar Total JV Assets Total JV Debt Total JV Equity JV Debt to Total Capital Ratio 2,496,531 — 69,790 69,790 1,818,434 391,879 15,576 109,033 124,609 260,199 1,593,422 171,265 102,312 88,681 89,860 22,761 66,414 37,584 5,060,709 705,584 5,766,293 — — — — 7,616 — — — 23,192 45,989 69,181 — — 69,181 9,182 9,182 1,418,181 78,377 19,977 25,235 18,639 — 29,095 3,770 363,098 308,802 671,900 1,997 (5,747) 668,150 78,377 19,977 25,235 26,255 — 29,095 3,770 83,220 81,950 57,786 63,209 22,750 35,515 32,794 386,290 3,874,038 354,791 322,773 741,081 4,196,811 1,997 (5,747) 737,331 4% 32% 1% 49% 20% 30% 29% —% 45% 10% 9% 52% 15% (1) The 10 largest joint ventures presented above represent the majority of total JVs assets and equity, 34% of total JV maximum recourse debt exposure to Lennar and 53% of total JV debt without recourse to Lennar. In addition, all of the joint ventures presented in the table above operate in our Homebuilding West segment except for Krome Groves Land Trust and EL at Monroe, LLC, which operate in our Homebuilding East segment. Rialto - Investments in Unconsolidated Entities The following table reflects Rialto's investments in funds that invest in and manage real estate related assets and other investments: November 30, 2017 November 30, 2017 November 30, 2016 (In thousands) Rialto Real Estate Fund, LP . . Rialto Real Estate Fund II, LP. Rialto Mezzanine Partners Fund, LP. . . . . . . . . . . . . . . . Rialto Capital CMBS Funds . . Rialto Real Estate Fund III . . . Rialto Credit Partnership, LP. . Other investments . . . . . . . . . . Inception Year Equity Commitments Equity Commitments Called Commitment to Fund by the Company Funds Contributed by the Company Investment 2010 2012 2013 2014 2015 2016 $ 700,006 $ 700,006 $ 75,000 $ 75,000 $ 41,860 1,305,000 1,305,000 100,000 100,000 86,904 300,000 119,174 1,887,000 220,000 300,000 119,174 569,482 159,886 33,799 52,474 140,000 19,999 33,799 52,474 40,104 14,534 19,189 54,018 41,223 13,288 8,936 58,116 96,192 23,643 50,519 9,093 5,794 2,384 $ 265,418 245,741 During the years ended November 30, 2017, 2016, and 2015, Rialto's share of earnings from unconsolidated entities was $25.4 million, $19.0 million and $22.3 million, respectively. 52 As manager of real estate funds, Rialto is entitled to receive additional revenue through carried interests if the funds meet certain performance thresholds. Rialto also periodically receives advance distributions related to Rialto's carried interests in order to cover income tax obligations resulting from allocations of taxable income to its carried interests in its real estate funds. These distributions are not subject to clawbacks but will reduce future carried interest payments to which Rialto becomes entitled from the applicable funds and have been recorded as revenues. The amounts presented in the table below include advance and carried interest distributions received as follows: (In thousands) Rialto Real Estate Fund, LP (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto Real Estate Fund II, LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto Real Estate Fund III, LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto Mezzanine Partners Fund, LP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto Capital CMBS Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Years Ended November 30, 2017 2016 2015 36,973 1,656 2,948 311 2,281 44,169 7,633 100 — 750 1,639 10,122 9,588 9,383 — 513 516 20,000 (1) Rialto received $36.8 million of distributions, net of prior advance distributions, with regard to its carried interest in Rialto Real Estate Fund, LP during the year ended November 30, 2017. The following table represents amounts Rialto would have received had the funds ceased operations and hypothetically liquidated all their investments at their estimated fair values on November 30, 2017, both gross and net of amounts already received as advanced tax distributions. The actual amounts Rialto may receive could be materially different from amounts presented in the table below. (In thousands) Rialto Real Estate Fund, LP . . . . . . . . . . . . . . . $ Rialto Real Estate Fund II, LP (1). . . . . . . . . . . Hypothetical Carried Interest 166,989 Paid as Advanced Tax Distribution 52,062 52,308 219,297 11,139 63,201 $ Paid as Carried Interest Hypothetical Carried Interest, Net 36,824 — 36,824 78,103 41,169 119,272 (1) Net of interests of participating employees (refer to paragraph below). During 2015, Rialto adopted a Carried Interest Incentive Plan (the "Plan"), under which participating employees in the aggregate may receive up to 40% of the equity units of a limited liability company (a "Carried Interest Entity") that is entitled to distributions made by a fund or other investment vehicle (a "Fund") managed by a subsidiary of Rialto. As such, those employees receiving equity units in a Carried Interest Entity may benefit from distributions made by a Fund to the extent the Carried Interest Entity makes distributions to its equity holders. The units issued to employees are equity awards and are subject to vesting schedules and forfeiture or repurchase provisions in the case of termination of employment. Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows: Balance Sheets November 30, 2017 2016 (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Loans receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,552 538,317 348,601 1,849,795 393,874 42,949 Liabilities and equity: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Notes payable (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,374 576,810 2,643,904 $ 3,269,088 $ 3,269,088 53 230,229 406,812 439,191 1,379,155 398,535 29,036 2,882,958 36,131 532,264 2,314,563 2,882,958 (1) Notes payable are net of debt issuance costs of $3.1 million and $2.9 million, as of November 30, 2017 and November 30, 2016, respectively. Statements of Operations and Selected Information Years Ended November 30, 2017 (In thousands) Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 238,981 104,343 Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,927 Other income, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,565 Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . $ 25,447 Rialto's investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . $ 265,418 Equity of the unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,643,904 Rialto's investment % in the unconsolidated entities . . . . . . . . . . . . . . . . . 10% 2016 200,346 96,343 49,342 153,345 18,961 245,741 2015 170,921 97,162 144,941 218,700 22,293 224,869 2,314,563 2,317,588 11% 10% (1) Other income, net, included realized and unrealized gains (losses) on investments. Lennar Multifamily - Investments in Unconsolidated Entities At November 30, 2017, Lennar Multifamily had equity investments in 27 unconsolidated entities that are engaged in multifamily residential developments (of which 13 had non-recourse debt and 14 had no debt), compared to 28 unconsolidated entities at November 30, 2016. We invest in unconsolidated entities that acquire and develop land to construct multifamily rental properties. Through these entities, we are focusing on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Participants in these joint ventures have been financial partners. Joint ventures with financial partners have allowed us to combine our development and construction expertise with access to our partners’ capital. Each joint venture is governed by an operating agreement that provides significant substantive participating voting rights on major decisions to our partners. The Venture is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by us comprised of cash, undeveloped land and preacquisition costs. The Venture is currently seeded with 35 undeveloped multifamily assets that were previously purchased or under contract by the Lennar Multifamily segment totaling approximately 10,600 apartments with projected project costs of $3.9 billion as of November 30, 2017. There are four completed and operating multifamily assets with 1,062 apartments. During the year ended November 30, 2017, $586.4 million in equity commitments were called, of which we contributed $134.9 million representing our pro-rata portion of the called equity. During the year ended November 30, 2017, we received $26.8 million of distributions as a return of capital from the Venture, except for distributions of capital related to land contributions. As of November 30, 2017, $1.5 billion of the $2.2 billion in equity commitments had been called, of which we had contributed $350.7 million representing our pro-rata portion of the called equity, resulting in a remaining equity commitment for us of $153.3 million. As of November 30, 2017 and 2016, the carrying value of our investment in the Venture was $323.8 million and $198.2 million, respectively. The joint ventures are typically structured through non-corporate entities in which control is shared with our venture partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other joint venture participants typically make pro-rata cash contributions to the joint venture except for cost over-runs relating to the construction of the project. In all cases, we have been required to provide guarantees of completion and cost over- runs to the lenders and partners. These completion guarantees may require us to complete the improvements for which the financing was obtained. Therefore, our risk is limited to our equity contribution, draws on letters of credit and potential future payments under the guarantees of completion and cost over-runs. In certain instances, payments made under the cost over-run guarantees are considered capital contributions. Additionally, the joint ventures obtain third-party debt to fund a portion of the acquisition, development and construction costs of the rental projects. The joint venture agreements usually permit, but do not require, the joint ventures to make additional capital calls in the future. However, the joint venture debt does not have repayment or maintenance guarantees. Neither we nor the other equity partners are a party to the debt instruments. In some cases, we agree to provide credit support in the form of a letter of credit provided to the bank. We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. We believe all of the joint ventures were in compliance with their debt covenants at November 30, 2017. 54 Under the terms of our joint venture agreements, we generally have the right to share in earnings and distributions of the entities on a pro-rata basis based on our ownership percentages. Most joint venture agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). In many instances, we are designated as the development manager and/or the general contractor and/or the property manager of the unconsolidated entity and receive fees for such services. In addition, we do not plan to enter into option and purchase contracts to acquire properties from our Lennar Multifamily joint ventures. Our arrangements with joint ventures generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the joint ventures do business. Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations described above. The joint ventures generally do not enter into lease commitments because the entities are managed either by us or the other partners, who supply the necessary facilities and employee services in exchange for market- based management fees. However, they do enter into management contracts with the participants who manage them. As described above, the liquidity needs of joint ventures in which we have investments vary on an entity-by- entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition, development and construction of multifamily rental properties. As the properties are completed and sold, cash generated will be available to repay debt and for distribution to the joint venture’s members. Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the scope of the joint venture’s activities and the stage in the joint venture’s life cycle. Summarized financial information on a combined 100% basis related to Lennar Multifamily’s investments in unconsolidated entities that are accounted for by the equity method was as follows: Balance Sheets November 30, 2017 2016 (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,073 2,952,070 36,772 Liabilities and equity: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Notes payable (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,123 879,047 1,934,745 3,025,915 $ 3,025,915 43,658 2,210,627 33,703 2,287,988 196,617 577,085 1,514,286 2,287,988 (1) Notes payable are net of debt issuance costs of $17.6 million and $12.3 million, for the years ended November 30, 2017 and November 30, 2016, respectively. The following table summarizes the principal maturities of our Lennar Multifamily unconsolidated entities debt as per current debt arrangements as of November 30, 2017 and does not represent estimates of future cash payments that will be made to reduce debt balances. Principal Maturities of Lennar Multifamily Unconsolidated JVs by Period (In thousands) Debt without recourse to Lennar Multifamily . Debt issuance costs . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total JV Debt $ 896,683 (17,636) $ 879,047 2018 252,767 — $ 252,767 2019 318,082 — $318,082 2020 299,777 — $ 299,777 55 Thereafter 26,057 Other — — (17,636) $ (17,636) $ 26,057 Statements of Operations and Selected Information Years Ended November 30, (In thousands) Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily equity in earnings from unconsolidated entities (1) $ Our investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . $ 407,544 Equity of the unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,934,745 2017 67,578 108,610 207,793 166,761 85,739 2016 45,287 68,976 191,385 167,696 85,519 318,559 1,514,286 2015 16,309 27,190 43,340 32,459 19,518 250,876 817,473 Our investment % in the unconsolidated entities (2) . . . . . . . . . . . . . . . . 21% 21% 31% (1) During the years ended November 30, 2017, 2016 and 2015, our Lennar Multifamily segment sold seven, seven and two operating properties, respectively, through its unconsolidated entities resulting in the segment's $96.7 million, $91.0 million and $22.2 million share of gains, respectively. (2) Our share of profit and cash distributions from sales of operating properties could be higher compared to our ownership interest in unconsolidated entities if certain specified internal rate of return milestones are achieved. Option Contracts We often obtain access to land through option contracts, which generally enable us to control portions of properties owned by third parties (including land funds) and unconsolidated entities until we have determined whether to exercise the options. 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 JVs (i.e., controlled homesites) at November 30, 2017 and 2016: Controlled Homesites November 30, 2017 East . . . . . . . . . . . . . . . . . . . . . . . . Central . . . . . . . . . . . . . . . . . . . . . . West . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . Total homesites. . . . . . . . . . . . Optioned JVs Total Owned Homesites Total Homesites 17,809 10,069 2,271 1,933 32,082 482 1,135 3,828 — 5,445 18,291 11,204 6,099 1,933 37,527 64,317 31,862 38,265 6,682 82,608 43,066 44,364 8,615 141,126 178,653 Controlled Homesites November 30, 2016 East . . . . . . . . . . . . . . . . . . . . . . . . Central . . . . . . . . . . . . . . . . . . . . . . West . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . Total homesites. . . . . . . . . . . . Optioned JVs Total Owned Homesites Total Homesites 17,185 5,726 2,409 1,330 26,650 482 1,135 4,899 — 6,516 17,667 6,861 7,308 1,330 33,166 51,453 32,690 35,451 6,285 69,120 39,551 42,759 7,615 125,879 159,045 We evaluate all option contracts for land to determine whether they are VIEs and, if so, whether we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, if we are deemed to be the primary beneficiary or make a significant deposit for optioned land, we may need to consolidate the land under option at the purchase price of the optioned land. During the year ended November 30, 2017, consolidated inventory not owned increased by $272.3 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2017. The increase was primarily related to a transaction in which one of our unconsolidated entities sold 475 homesites to a third-party land bank and simultaneous with the purchase by the land bank, we entered into an option contract to purchase all 475 homesites from the land bank. We consolidated the option contract with the land bank due to an amount that we would have to pay if we default under the option contract. The consolidation resulted in a $320.1 million increase in consolidated inventory not owned and liabilities related to 56 consolidated not owned. The increase from the land bank transaction was partially offset by us exercising our option to acquire land under previously consolidated contracts. To reflect the purchase price of the inventory consolidated, we had a net reclass related to option deposits from land under development to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2017. 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 $137.0 million and $85.0 million at November 30, 2017 and 2016, respectively. Additionally, we had posted $51.8 million and $45.1 million of letters of credit in lieu of cash deposits under certain land and option contracts as of November 30, 2017 and 2016, respectively. 57 Contractual Obligations and Commercial Commitments The following table summarizes certain of our contractual obligations at November 30, 2017: (In thousands) Lennar Homebuilding - Senior notes and other Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Payments Due by Period debts payable (1) . . . . . . . . . . . . . . . . . . . . $ 6,448,504 357,655 1,853,047 1,726,355 2,511,447 Lennar Financial Services - Notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . Rialto - Notes and other debts payable (2) . . . . Interest commitments under interest bearing 937,431 633,281 debt (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases. . . . . . . . . . . . . . . . . . . . . . . . . Other contractual obligations (4). . . . . . . . . . . . 276,600 Total contractual obligations (5) . . . . . . . . . . . . $ 9,943,383 1,494,395 153,172 937,356 183,875 312,568 46,228 233,500 75 350,000 471,716 63,072 43,100 — 12,485 334,134 31,411 — — 86,921 375,977 12,461 — 2,071,182 2,781,010 2,104,385 2,986,806 (1) The amounts presented in the table above exclude debt issuance costs and any discounts/premiums. (2) Amounts include notes payable and other debts payable of $350 million related to Rialto's 7.00% Senior Notes and $162.1 million related to the Rialto warehouse repurchase facilities. These amounts exclude debt issuance costs and any discounts/ premiums. (3) Interest commitments on variable interest-bearing debt are determined based on the interest rate as of November 30, 2017. (4) Amounts include $153.3 million remaining equity commitment to fund the Venture for future expenditures related to the construction and development of the projects, $99.9 million of commitments to fund Rialto's Fund III, $5.5 million of commitments to fund Rialto's RCP and an $18.0 million commitment to invest in a real estate investment trust. (5) Total contractual obligations exclude our gross unrecognized tax benefits and accrued interest and penalties totaling $62.0 million as of November 30, 2017, because we are unable to make reasonable estimates as to the period of cash settlement with the respective taxing authorities. We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land generally enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether to exercise our options. This reduces our financial risk associated with land holdings. At November 30, 2017, we had access to 37,527 homesites through option contracts with third parties and unconsolidated entities in which we have investments. At November 30, 2017, we had $137.0 million of non-refundable option deposits and pre-acquisition costs related to certain of these homesites and had posted $51.8 million of letters of credit in lieu of cash deposits under certain land and option contracts. At November 30, 2017, we had letters of credit outstanding in the amount of $511.8 million (which included the $51.8 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, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2017, we had outstanding surety bonds of $1.3 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all of the development and construction activities are completed. As of November 30, 2017, there were approximately $570.4 million, or 44%, of anticipated future costs to complete related to these site improvements. We do not presently anticipate any draws upon these bonds or letters of credit, 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 Lennar Financial Services segment had a pipeline of loan applications in process of $2.4 billion at November 30, 2017. Loans in process for which interest rates were committed to the borrowers totaled approximately $500 million as of November 30, 2017. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments is expected to expire without being exercised by the borrowers or borrowers may not meet certain criteria at the time of closing, the total commitments do not necessarily represent future cash requirements. Our Lennar Financial Services segment uses mandatory mortgage-backed securities ("MBS") forward commitments, option contracts, futures 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, futures contracts and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and the option contracts. At November 30, 2017, we had open commitments amounting 58 to $1.1 billion to sell MBS with varying settlement dates through February 2018 and open futures contracts in the amount of $332.0 million with the settlement dates through September 2024. The following sections discuss market and financing risk, seasonality and interest rates and changing prices that may have an impact on our business: Market and Financing Risk We finance our contributions to JVs, land acquisition and development activities, construction activities, financial services activities, Rialto activities, Lennar Multifamily activities and general operating needs primarily with cash generated from operations, debt and equity issuances, as well as borrowings under our Credit Facility and warehouse repurchase facilities. We also purchase land under option agreements, which enables us to control homesites until we have determined whether to exercise the options. We try to manage the financial risks of adverse market conditions associated with land holdings by what we believe to be prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process and, until recent years, limitation of risks by using partners to share the costs of purchasing and developing land as well as obtaining access to land through option contracts. Although we believed our land underwriting standards were conservative, we did not anticipate the severe decline in land values and the sharply reduced demand for new homes encountered in the prior economic downturn. Seasonality We historically have experienced, and expect to continue to experience, variability in quarterly results. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second fiscal quarter and increased deliveries in the second half of our fiscal year. However, periods of economic downturn in the industry can alter seasonal patterns. Interest Rates and Changing Prices Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates as well as increased material and labor costs, may reduce gross margins. An increase in material and labor costs is particularly a problem during a period of declining home prices. Conversely, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations. New Accounting Pronouncements See Note 1 of the notes to our consolidated financial statements for a comprehensive list of new accounting pronouncements. Critical Accounting Policies and Estimates Our accounting policies are more fully described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to our consolidated financial statements. Listed below are those policies and estimates that we believe are critical and require the use of significant judgment in their application. Valuation of Deferred Tax Assets We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. Interest related to unrecognized tax benefits is recognized in the financial statements as a component of income tax expense. A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed each reporting period by us based on the consolidation of all 59 available positive and negative evidence using a "more-likely-than-not" standard with respect to whether deferred tax assets will be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, actual earnings, forecasts of future profitability, the duration of statutory carryforward periods, our experience with loss carryforwards not expiring unused and tax planning alternatives. We believe that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because of the judgment required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results, which may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents our best estimate of future events. In December 2017, the Tax Cuts and Jobs Act was enacted which will have a positive impact on our effective tax rate in 2018 and subsequent years. The tax reform bill will reduce our effective tax rate in 2018 from 34% to approximately 25%. Excluded from our 2018 effective tax rate is a one-time non-cash write-down of our deferred tax assets of approximately $70 million that will be recorded in the first quarter of 2018 as a result of our lower effective tax rate. Lennar Homebuilding and Lennar Multifamily Operations Lennar Homebuilding Revenue Recognition Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowner’s receivable is not subject to future subordination and we do not have a substantial continuing involvement with the new home. Revenues from sales of land are recognized when a significant down payment is received, the earnings process is complete, title passes and collectability of the receivable is reasonably assured. We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue. Lennar Multifamily Revenue Recognition Our Lennar Multifamily segment provides management services with respect to the development, construction and property management of rental projects in joint ventures in which we have investments. As a result, our Lennar Multifamily segment earns and receives fees, which are generally based upon a stated percentage of development and construction costs and a percentage of gross rental collections. These fees are included in Lennar Multifamily revenue and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. In addition, our Lennar Multifamily segment provides general contractor services for the construction of some of its rental projects and recognizes the revenue over the period in which the services are performed under the percentage of completion method. We believe that the accounting policy related to Lennar Multifamily revenue recognition is a critical accounting policy because it represents a significant portion of our Lennar Multifamily's revenues and is expected to continue to grow in the future as the segment builds more rental properties. Inventories Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. We review our inventory for indicators of impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development state of the community. There were 761 and 693 active communities, excluding unconsolidated entities, as of November 30, 2017 and 2016, respectively. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value. In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales, and the estimated fair value of the land itself. We pay particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review, we identify communities in which to assess if the carrying values exceed their undiscounted cash flows. Although gross margin percentages for the year ended November 30, 2017 have decreased compared to the year ended November 30, 2016 primarily due to an increase in direct construction and land costs, revenues have increased for all of our homebuilding segments and Homebuilding 60 Other, compared to the year ended November 30, 2016. The increase is primarily due to an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other, and an increase in the average sales price of homes delivered in all of our Homebuilding segments, but not in Homebuilding Other. We estimate the fair value of our communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above. Each of the homebuilding markets in which we operate is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of our homebuilding markets has specific supply and demand relationships reflective of local economic conditions. Our projected cash flows are impacted by many assumptions. Some of the most critical assumptions in our cash flow models are our projected absorption pace for home sales, sales prices and costs to build and deliver our homes on a community by community basis. In order to arrive at the assumed absorption pace for home sales and the assumed sales prices included in our cash flow model, we analyze our historical absorption pace and historical sales prices in the community and in other comparable communities in the geographical area. In addition, we consider internal and external market studies and place greater emphasis on more current metrics and trends, which generally include, but are not limited to, statistics and forecasts on population demographics and on sales prices in neighboring communities, unemployment rates and availability and sales price of competing product in the geographical area where the community is located as well as the absorption pace realized in our most recent quarters and the sales prices included in our current backlog for such 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 absorption pace and 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. Those costs assumed are used in our cash flow models for our communities. Since 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 or strategies that may lead to us incurring additional impairment charges in the future. Using all the available 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. We estimate the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or our assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause us to re-evaluate our strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other 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 options contracts. 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 options. 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. In determining whether to walk-away from an option contract, we evaluate the option primarily based upon the expected cash flows from the property under option. Our investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case our investments are written down to fair value. We review option contracts for indicators of impairment during each reporting period. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet our targeted return on 61 investment with appropriate consideration given to the length of time available to exercise the option. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause us to re-evaluate the likelihood of exercising our land options. 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 any related pre-acquisition costs associated with the option contract. We believe that the accounting related to inventory valuation and impairment is a critical accounting policy because: (1) assumptions inherent in the valuation of our inventory are highly subjective and susceptible to change and (2) the impact of recognizing impairments on our inventory has been and could continue to be material to our consolidated financial statements. Our evaluation of inventory impairment, as discussed above, includes many assumptions. The critical assumptions include the timing of the home sales within a community, management’s projections of selling prices and costs and the discount rate applied to estimate the fair value of the homesites within a community on the balance sheet date. Our assumptions on the timing of home sales are critical because the homebuilding industry has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected sales price, costs to develop the homesites and/or absorption rate in a community. Our assumptions on discount rates are critical because the selection of a discount rate affects the estimated fair value of the homesites within a community. A higher discount rate reduces the estimated fair value of the homesites within the community, while a lower discount rate increases the estimated fair value of the homesites within a community. Because of changes in economic and market conditions and assumptions and estimates required of management in valuing inventory during changing market conditions, actual results could differ materially from management’s assumptions and may require material inventory impairment charges to be recorded in the future. Product Warranty Although we subcontract virtually all aspects of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trades, we are primarily responsible to homebuyers to correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses incurred by subcontractors. 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 upon historical data and trends with respect to similar product types and geographical areas. We believe the accounting estimate related to the reserve for warranty costs is a critical accounting estimate because the estimate requires a large degree of judgment. At November 30, 2017, the reserve for warranty costs was $164.6 million, which included $16.0 million of adjustments to pre-existing warranties from changes in estimates during the current year primarily related to specific claims related to certain of our homebuilding communities and other adjustments as well as $6.3 million of warranties assumed related to the WCI acquisition. While we believe that the reserve for warranty costs is adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Additionally, there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve. Lennar Homebuilding and Lennar Multifamily 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, (2) for construction of homes for sale to third-party homebuyers or (3) for the construction and sale of multifamily rental properties. Our Lennar Homebuilding partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. Our Lennar Multifamily partners are all financial 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 or a de-facto agent, 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 "Lennar Homebuilding or Lennar Multifamily Investments in Unconsolidated Entities" and our pro-rata share of the entities’ earnings or losses in our consolidated statements of operations as "Lennar Homebuilding or Lennar Multifamily Equity in Earnings (Loss) from Unconsolidated Entities," as described in Note 5 and Note 10 of the notes to our consolidated financial statements. For most unconsolidated entities, we generally have the right to share in earnings and distributions on a pro-rata basis based upon ownership percentages. However, certain Lennar Homebuilding unconsolidated entities and all of our Lennar Multifamily unconsolidated entities provide for a different allocation of profit and cash distributions if and when cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). Advances to these entities are included in the investment balance. 62 Management looks at specific criteria and uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or have control or significant influence. As of November 30, 2017, we believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest, but rather share control with our partners. At November 30, 2017, the Lennar Homebuilding unconsolidated entities in which we had investments had total assets of $5.8 billion and total liabilities of $1.6 billion. At November 30, 2017, the Lennar Multifamily unconsolidated entities in which we had investments had total assets of $3.0 billion and total liabilities of $1.1 billion. We evaluate the long-lived assets in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the fair value of our investment in the unconsolidated entity below its carrying amount has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. The evaluation of our investment in unconsolidated entities includes certain critical assumptions: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors. Our assumptions on the projected future distributions from unconsolidated entities are dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by the Lennar Homebuilding unconsolidated entities or operating assets by the Lennar Multifamily unconsolidated entities. Such long- lived assets are also reviewed for potential impairment by the unconsolidated entities. The unconsolidated entities generally also use a discount rate of between 10% and 20% in their reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in our Lennar Homebuilding or Lennar Multifamily equity in earnings (loss) from unconsolidated entities with a corresponding decrease to our Lennar Homebuilding or Lennar Multifamily investment in unconsolidated entities. 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. Additionally, we evaluate if a decrease in the value of an investment below its carrying amount is other than- temporary. This evaluation includes certain critical assumptions made by management and other factors such as age of the venture, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the unconsolidated entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investments, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners and banks. If the decline in the fair value of the investment is other-than-temporary, then these losses are included in Lennar Homebuilding other income, net or Lennar Multifamily costs and expenses. We believe our assumptions on discount rates are critical accounting policies because the selection of the discount rates affects the estimated fair value of our investments in unconsolidated entities. A higher discount rate reduces the estimated fair value of our investments in unconsolidated entities, while a lower discount rate increases the estimated fair value of our investments 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. Consolidation of Variable Interest Entities GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. 63 Our variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management services and development agreements between us and a VIE, (4) loans provided by us to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs. Generally, all major decision making in our joint ventures is shared among all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by us are nominal and believed to be at market and there is no significant economic disproportionality between us and other partners. Generally, we purchase less than a majority of the JV’s assets and the purchase prices under our option contracts are believed to be at market. Generally, our unconsolidated entities become VIEs and consolidate when the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, we continue to fund operations and debt paydowns through partner loans or substituted capital contributions. The accounting policy relating to variable interest entities is a critical accounting policy because the determination of whether an entity is a VIE and, if so, whether we are primary beneficiary may require us to exercise significant judgment. Lennar Financial Services Operations Revenue Recognition Title premiums on policies issued directly by us are recognized as revenue on the effective date of the title policies and escrow fees and loan origination revenues are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Revenues from title policies issued by independent agents are recognized as revenue when notice of issuance is received from the agent, which is generally when cash payment is received by us. Expected gains and losses from the sale of loans and their related servicing rights are included in the measurement of all written loan commitments that are accounted for at fair value through earnings at the time of commitment. Interest income on loans held-for-sale and loans held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual interest rates. We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue. Loan Origination Liabilities Substantially all of the loans our Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties related to loan sales. Over the last several years there has been an industry-wide effort by purchasers to defray their losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. A number of claims of that type have been brought against us. We do not believe these claims will have a material adverse effect on our business. Our mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. We establish reserves for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans, as well as previous settlements. While we believe that we have adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed our expectations, additional recourse expense may be incurred. This allowance requires management’s judgment and estimates. For these reasons, we believe that the accounting estimate related to the loan origination losses is a critical accounting estimate. Rialto Operations Management Fee Revenue Our Rialto segment provides services to a variety of legal entities and investment vehicles such as funds, joint ventures, co-invests, and other private equity structures to manage their respective investments. As a result, Rialto earns and receives management fees, underwriting fees and due diligence fees. These fees are included in Rialto revenues and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. Rialto receives investment management fees from investment vehicles based on 1) a percentage of committed or called capital during the commitment period and called capital after the commitment period ends and 2) a percentage of 64 invested capital less the portion of such invested capital utilized to acquire investments that have been sold (in whole or in part) or liquidated. Fees earned for underwriting and due diligence services are based on actual costs incurred. In certain situations, Rialto may earn additional fees when the return on assets managed exceeds contractually established thresholds. Such revenue is only booked when the contract terms are met, the contract is at, or near, completion and the amounts are known and collectability is reasonably assured. Since such revenue is recognized during the latter half of the life of the investment vehicle, after substantially all of the assets have been sold and investment gains and losses realized, the possibility of claw backs is limited. In addition, Rialto may also receive tax distributions in order to cover income tax obligations resulting from allocations of taxable income due to Rialto's carried interests in the Funds. These distributions are not subject to clawbacks and therefore are recorded as revenue when received. We believe the way we record Rialto management fee revenue is a significant accounting policy because it represents a significant portion of our Rialto segment's revenues and is expected to continue to grow in the future as the segment manages more assets. Rialto Mortgage Finance - Loans Held-for-Sale The originated mortgage loans are classified as loans held-for-sale and are recorded at fair value. We elected the fair value option for RMF's loans held-for-sale in accordance with ASC 825, Financial Instruments, which permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Changes in fair values of the loans are reflected in Rialto revenues in the accompanying consolidated statements of operations. Interest income on these loans is calculated based on the interest rate of the loan and is recorded in Rialto revenues in the accompanying consolidated statements of operations. Substantially all of the mortgage loans originated are sold within a short period of time in securitizations on a servicing released, non-recourse basis; although, we remain liable for certain limited industry-standard representations and warranties related to loan sales. We recognize revenue on the sale of loans into securitization trusts when control of the loans has been relinquished. We believe this is a critical accounting policy due to the significant judgment involved in estimating the fair values of loans held-for-sale during the period between when the loans are originated and the time the loans are sold and because of its significance to our Rialto segment. Real Estate Owned REO represents real estate that our Rialto segment has taken control, or has effective control of, in partial or full satisfaction of loans receivable. At the time of acquisition of a property through foreclosure of a loan, REO is recorded at fair value less estimated costs to sell if classified as held-for-sale or at fair value if classified as held-and-used, which becomes the property’s new basis. The fair values of these assets are determined in part by placing reliance on third-party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third-party appraisals and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for anticipated date of sale, location, property size, and other factors. Each REO is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular REO, we analyze historical trends, including trends achieved by our local homebuilding operations, if applicable, and current trends in the market and economy impacting the REO. Using available trend information, we then calculate our best estimate of fair value, which can include projected cash flows discounted 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. Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third-party appraisals and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by our Rialto segment from disposition of these assets. The amount by which the recorded investment in the loan is less than the REO’s fair value (net of estimated cost to sell if held-for-sale), is recorded as an unrealized gain on foreclosure in our consolidated statement of operations. The amount by which the recorded investment in the loan is greater than the REO’s fair value (net of estimated cost to sell if held-for-sale) is recorded as a provision for loan losses in our consolidated statement of operations. Subsequent to obtaining REO via foreclosure or directly from a financial institution, management periodically performs valuations using the methodologies described above such that the real estate is carried at the lower of its carrying value or current fair value, less estimated costs to sell if classified as held-for-sale. Held-and-used assets are tested for recoverability whenever changes in circumstances indicate that the carrying value may not be recoverable, and impairment losses are recorded for any amount by which the carrying value exceeds its fair value. Any subsequent impairment losses, operating expenses or income, and gains and losses on disposition of such properties are also recognized in Rialto other income (expense), net. REO assets classified as held-and-used are depreciated using a useful life of forty years for commercial properties and twenty seven and a half years for residential properties. REO assets classified as held-for-sale are not depreciated. Occasionally, an asset will require certain improvements to yield a higher return. Construction costs incurred prior to acquisition or during development of the asset may be capitalized. 65 We believe that the accounting related to REO is a critical accounting policy because of the significant judgment required in the third-party appraisals and/or internally prepared analyses of recent offers or prices of comparable properties in the proximate vicinity used to estimate the fair value of REOs. Consolidations of Variable Interest Entities In 2010, our Rialto segment acquired indirectly 40% managing member equity interests in two LLCs, in partnership with the FDIC. We determined that each of the LLCs met the definition of a VIE and we were the primary beneficiary. In accordance with ASC 810-10-65-2, Consolidations, ("ASC 810-10-65-2"), we identified the activities that most significantly impact the LLCs’ economic performance and determined that we have the power to direct those activities. The economic performance of the LLCs is most significantly impacted by the performance of the LLCs’ portfolios of assets, which consist primarily of distressed residential and commercial mortgage loans. Thus, the activities that most significantly impact the LLCs’ economic performance are the servicing and disposition of mortgage loans and real estate obtained through foreclosure of loans, restructuring of loans, or other planned activities associated with the monetizing of loans. The FDIC does not have the unilateral power to terminate our role in managing the LLCs and servicing the loan portfolios. While the FDIC has the right to prevent certain types of transactions (i.e., bulk sales, selling assets with recourse back to the selling entity, selling assets with representations and warranties and financing the sales of assets without the FDIC’s approval), the FDIC does not have full voting or blocking rights over the LLCs’ activities, making their voting rights protective in nature, not substantive participating voting rights. Other than as described in the preceding sentence, which are not the primary activities of the LLCs, we can cause the LLCs to enter into both the disposition and restructuring of loans without any involvement of the FDIC. Additionally, the FDIC has no voting rights with regard to the operation/management of the operating properties that are acquired upon foreclosure of loans (e.g. REO) and no voting rights over the business plans of the LLCs. The FDIC can make suggestions regarding the business plans, but we can decide not to follow the FDIC’s suggestions and not to incorporate them in the business plans. Since the FDIC’s voting rights are protective in nature and not substantive participating voting rights, we have the power to direct the activities that most significantly impact the LLCs’ economic performance. In accordance with ASC 810-10-65-2, we determined that we had an obligation to absorb losses of the LLCs that could potentially be significant to the LLCs or the right to receive benefits from the LLCs that could potentially be significant to the LLCs based on the following factors: • Rialto/Lennar owns 40% of the equity of the LLCs and has the power to direct the activities of the LLCs that most significantly impact their economic performance through loan resolutions and the sale of REO. • Rialto/Lennar has a management/servicer contract under which we earn a 0.5% servicing fee. • Rialto/Lennar has guaranteed, as the servicer, its obligations under the servicing agreement up to $10 million. We are aware that the FDIC, as the owner of 60% of the equity of each of the LLCs, may also have an obligation to absorb losses of the LLCs that could potentially be significant to the LLCs. However, in accordance with ASC 810-10-25-38A, only one enterprise, if any, is expected to be identified as the primary beneficiary of a VIE. Since both criteria for consolidation in ASC 810-10-65-2 are met, we consolidated the LLCs. We believe that our assessment that we are the primary beneficiary of the LLCs is a critical accounting policy because of the significant judgment required in evaluating all of the key factors and circumstances in determining the primary beneficiary. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to a number of market risks in the ordinary course of business. Our primary market risk exposure relates to fluctuations in interest rates on our investments, loans held-for-sale, loans held-for-investment and outstanding variable rate debt. For fixed rate debt, such as our senior notes, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. For variable rate debt such as our unsecured revolving credit facility and Lennar Financial Services’ and Rialto’s warehouse repurchase facilities, changes in interest rates generally do not affect the fair value of the outstanding borrowings on the debt facilities, but do affect our earnings and cash flows. In our Lennar Financial Services operations, we utilize mortgage backed securities forward commitments, option contracts and investor commitments to protect the value of rate-locked commitments and loans held-for-sale from fluctuations in mortgage-related interest rates. To mitigate interest risk associated with Rialto’s loans held-for-sale, we use derivative financial instruments to hedge our exposure to risk from the time a borrower locks a loan until the time the loan is securitized. We hedge our interest rate exposure through entering into interest rate swap futures. We also manage a portion of our credit exposure by buying protection within the CMBX and CDX markets. 66 We do not enter into or hold derivatives for trading or speculative purposes. The table below provides information at November 30, 2017 about our significant instruments that are sensitive to changes in interest rates. For loans held-for-investment, net and investments held-to-maturity, senior notes and other debts payable and notes and other debts payable, the table presents principal cash flows and related weighted average effective interest rates by expected maturity dates and estimated fair values at November 30, 2017. Weighted average variable interest rates are based on the variable interest rates at November 30, 2017. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Notes 1 and 15 of the notes to the consolidated financial statements in Item 8 for a further discussion of these items and our strategy of mitigating our interest rate risk. Information Regarding Interest Rate Sensitivity Principal (Notional) Amount by Expected Maturity and Average Interest Rate November 30, 2017 Years Ending November 30, Fair Value at November 30, 2018 2019 2020 2021 2022 Thereafter Total 2017 (Dollars in millions) ASSETS Rialto: Investments held-to-maturity: Fixed rate . . . . . . . . . . . . . . $ Average interest rate . . . . . . — — — — 19.5 4.0% — — — — 160.1 179.6 2.7% 3.4% 199.2 — Lennar Financial Services: Loans held-for-investment, net and investments held-to- maturity: Fixed rate . . . . . . . . . . . . . . $ Average interest rate . . . . . . Variable rate . . . . . . . . . . . . $ Average interest rate . . . . . . 32.9 2.5% 0.1 3.4% 19.7 2.3% 0.1 3.4% 8.8 2.3% 0.1 3.4% 2.2 5.2% 0.1 3.4% 1.4 4.8% 0.1 3.4% 28.5 4.3% 2.5 3.4% 93.5 3.1% 3.0 3.4% 91.1 — 2.9 — LIABILITIES Lennar Homebuilding: Senior notes and other debts payable: Fixed rate . . . . . . . . . . . . . . $ Average interest rate . . . . . . Variable rate . . . . . . . . . . . . $ Average interest rate . . . . . . 357.6 1,477.9 345.8 523.0 1,192.3 2,511.4 6,408.0 5.7% — — 4.4% 4.1 4.9% 2.7% 25.3 4.4% 4.6% 11.1 3.4% 4.4% — — 4.7% — — 4.5% 40.5 4.1% 6,593.9 — 43.4 — Rialto: Notes and other debts payable: Fixed rate . . . . . . . . . . . . . . $ Average interest rate . . . . . . Variable rate . . . . . . . . . . . . $ Average interest rate . . . . . . 1.7 6.2% 182.2 3.8% 350.0 6.2% — — Lennar Financial Services: Notes and other debts payable: Variable rate . . . . . . . . . . . . $ Average interest rate . . . . . . 937.3 3.6% 0.1 4.0% 1.1 3.3% — — 11.4 3.3% — — 86.9 3.3% — — 451.1 5.3% 182.2 3.8% — — — — — — 937.4 3.6% 462.4 — 182.2 — 937.4 — — — — — — — 67 Item 8. Item 8. Financial Statements and Supplementary Data. Financial Statements and Supplementary Data. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Lennar Corporation To the Board of Directors and Stockholders of Lennar Corporation We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the "Company") as of November 30, 2017 and 2016, and the related consolidated statements of operations and "Company") as of November 30, 2017 and 2016, and the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for each of the three years in the period ended November 30, 2017. comprehensive income (loss), equity, and cash flows for each of the three years in the period ended November 30, 2017. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. opinion on the Company's financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Lennar Corporation and subsidiaries as of November 30, 2017 and 2016, and the results of their operations and their of Lennar Corporation and subsidiaries as of November 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2017, in conformity with accounting principles cash flows for each of the three years in the period ended November 30, 2017, in conformity with accounting principles generally accepted in the United States of America. generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of November 30, 2017, based on the criteria (United States), the Company’s internal control over financial reporting as of November 30, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 24, 2018 expressed an unqualified opinion on the Company’s of the Treadway Commission and our report dated January 24, 2018 expressed an unqualified opinion on the Company’s internal control over financial reporting. internal control over financial reporting. Certified Public Accountants Certified Public Accountants Miami, Florida Miami, Florida January 24, 2018 January 24, 2018 68 68 LENNAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LENNAR CORPORATION AND SUBSIDIARIES November 30, 2017 and 2016 CONSOLIDATED BALANCE SHEETS November 30, 2017 and 2016 2017 (1) 2016 (1) (Dollars in thousands) 2017 (1) 2016 (1) Lennar Homebuilding: ASSETS ASSETS (Dollars in thousands) Lennar Homebuilding: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,282,925 1,050,138 8,740 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,977 Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,282,925 1,050,138 137,667 Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,976 8,740 Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,977 Inventories: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,667 Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,976 4,676,279 Finished homes and construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . 3,951,716 Inventories: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,791,338 Land and land under development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,106,191 4,676,279 Finished homes and construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . 3,951,716 393,273 Consolidated inventory not owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,019 5,791,338 Land and land under development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,106,191 10,860,890 Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,178,926 393,273 Consolidated inventory not owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,019 900,769 Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811,723 10,860,890 Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,178,926 136,566 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 900,769 Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811,723 863,404 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651,028 136,566 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 15,190,961 11,804,768 863,404 651,028 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,689,508 Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754,672 15,190,961 11,804,768 1,153,840 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,210 1,689,508 Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754,672 710,725 Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526,131 1,153,840 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276,210 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,745,034 15,361,781 710,725 Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526,131 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,745,034 15,361,781 (1) Under certain provisions of Accounting Standards Codification ("ASC") Topic 810, Consolidations, ("ASC 810") the Company is required to separately disclose on its consolidated balance sheets the assets of consolidated variable interest entities ("VIEs") that (1) Under certain provisions of Accounting Standards Codification ("ASC") Topic 810, Consolidations, ("ASC 810") the Company is are owned by the consolidated VIEs and liabilities of consolidated VIEs as to which there is no recourse against the Company. required to separately disclose on its consolidated balance sheets the assets of consolidated variable interest entities ("VIEs") that are owned by the consolidated VIEs and liabilities of consolidated VIEs as to which there is no recourse against the Company. As of November 30, 2017, total assets include $799.4 million related to consolidated VIEs of which $15.8 million is included in Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $53.2 million in Lennar As of November 30, 2017, total assets include $799.4 million related to consolidated VIEs of which $15.8 million is included in Homebuilding finished homes and construction in progress, $229.0 million in Lennar Homebuilding land and land under Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $53.2 million in Lennar development, $393.3 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding Homebuilding finished homes and construction in progress, $229.0 million in Lennar Homebuilding land and land under investments in unconsolidated entities, $11.8 million in Lennar Homebuilding other assets, $48.8 million in Rialto assets and development, $393.3 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding $42.7 million in Lennar Multifamily assets. investments in unconsolidated entities, $11.8 million in Lennar Homebuilding other assets, $48.8 million in Rialto assets and $42.7 million in Lennar Multifamily assets. As of November 30, 2016, total assets include $536.3 million related to consolidated VIEs of which $13.3 million is included in Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $54.2 million in Lennar As of November 30, 2016, total assets include $536.3 million related to consolidated VIEs of which $13.3 million is included in Homebuilding finished homes and construction in progress, $106.3 million in Lennar Homebuilding land and land under Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $54.2 million in Lennar development, $121.0 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding Homebuilding finished homes and construction in progress, $106.3 million in Lennar Homebuilding land and land under investments in unconsolidated entities, $13.9 million in Lennar Homebuilding other assets, $213.8 million in Rialto assets and development, $121.0 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding $8.8 million in Lennar Multifamily assets. investments in unconsolidated entities, $13.9 million in Lennar Homebuilding other assets, $213.8 million in Rialto assets and $8.8 million in Lennar Multifamily assets. See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 69 69 LENNAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LENNAR CORPORATION AND SUBSIDIARIES November 30, 2017 and 2016 CONSOLIDATED BALANCE SHEETS November 30, 2017 and 2016 2017 (2) 2016 (2) Lennar Homebuilding: LIABILITIES AND EQUITY LIABILITIES AND EQUITY 2017 (2) (Dollars in thousands, except shares and per share amounts) (Dollars in thousands, except shares and per share amounts) 2016 (2) Lennar Homebuilding: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Liabilities related to consolidated inventory not owned . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Senior notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities related to consolidated inventory not owned . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity: Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity: Class A common stock of $0.10 par value per share; Authorized: 2017 and 2016 - Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000,000 shares; Issued: 2017 - 205,429,942 shares; 2016 - 204,089,447 shares . Class A common stock of $0.10 par value per share; Authorized: 2017 and 2016 - Class B common stock of $0.10 par value per share; Authorized: 2017 and 2016 - 300,000,000 shares; Issued: 2017 - 205,429,942 shares; 2016 - 204,089,447 shares . 90,000,000 shares, Issued: 2017 - 37,687,505 shares; 2016 - 32,982,815 shares . . . . Class B common stock of $0.10 par value per share; Authorized: 2017 and 2016 - Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000,000 shares, Issued: 2017 - 37,687,505 shares; 2016 - 32,982,815 shares . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, at cost; 2017 - 1,473,590 shares of Class A common stock and Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, at cost; 2017 - 1,473,590 shares of Class A common stock and 604,953 380,720 604,953 6,410,003 380,720 1,315,641 6,410,003 8,711,317 1,315,641 1,177,814 8,711,317 720,056 1,177,814 149,715 720,056 10,758,902 149,715 10,758,902 — — 20,543 20,543 3,769 3,142,013 3,769 4,840,978 3,142,013 4,840,978 478,546 110,006 478,546 4,575,977 110,006 841,449 4,575,977 6,005,978 841,449 1,318,283 6,005,978 707,980 1,318,283 117,973 707,980 8,150,214 117,973 8,150,214 — — 20,409 20,409 3,298 2,805,349 3,298 4,306,256 2,805,349 4,306,256 1,679,650 shares of Class B common stock; 2016 - 917,449 shares of Class A (136,020) common stock and 1,679,620 shares of Class B common stock . . . . . . . . . . . . . . . . . 1,679,650 shares of Class B common stock; 2016 - 917,449 shares of Class A 1,034 Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (136,020) common stock and 1,679,620 shares of Class B common stock . . . . . . . . . . . . . . . . . 7,872,317 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034 Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,815 Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,872,317 7,986,132 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,815 Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,745,034 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,986,132 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,745,034 (108,961) (309) (108,961) 7,026,042 (309) 185,525 7,026,042 7,211,567 185,525 15,361,781 7,211,567 15,361,781 (2) As of November 30, 2017, total liabilities include $389.7 million related to consolidated VIEs as to which there was no recourse against the Company, of which $5.0 million is included in Lennar Homebuilding accounts payable, $380.7 million in Lennar (2) As of November 30, 2017, total liabilities include $389.7 million related to consolidated VIEs as to which there was no recourse Homebuilding liabilities related to consolidated inventory not owned, $1.8 million in Lennar Homebuilding other liabilities and against the Company, of which $5.0 million is included in Lennar Homebuilding accounts payable, $380.7 million in Lennar $2.2 million in Rialto liabilities. Homebuilding liabilities related to consolidated inventory not owned, $1.8 million in Lennar Homebuilding other liabilities and $2.2 million in Rialto liabilities. As of November 30, 2016, total liabilities include $126.4 million related to consolidated VIEs as to which there was no recourse against the Company, of which $3.6 million is included in Lennar Homebuilding accounts payable, $110.0 million in Lennar As of November 30, 2016, total liabilities include $126.4 million related to consolidated VIEs as to which there was no recourse Homebuilding liabilities related to consolidated inventory not owned, $2.5 million in Lennar Homebuilding other liabilities, against the Company, of which $3.6 million is included in Lennar Homebuilding accounts payable, $110.0 million in Lennar $10.3 million in Rialto liabilities. Homebuilding liabilities related to consolidated inventory not owned, $2.5 million in Lennar Homebuilding other liabilities, $10.3 million in Rialto liabilities. See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 70 70 LENNAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) LENNAR CORPORATION AND SUBSIDIARIES Years Ended November 30, 2017, 2016 and 2015 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Years Ended November 30, 2017, 2016 and 2015 2017 2016 2015 (Dollars in thousands, except per share amounts) 2016 2017 2015 Revenues: (Dollars in thousands, except per share amounts) Revenues: Costs and expenses: Costs and expenses: Lennar Homebuilding equity in earnings (loss) from unconsolidated Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,200,242 770,109 Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,200,242 281,243 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770,109 Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,771 Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,243 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,646,365 Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,771 Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,646,365 Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,752,269 Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,585 Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,752,269 Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,549 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,585 Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407,078 Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,549 Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,889 Corporate general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . 407,078 Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,307,370 Total costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,889 Corporate general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . 11,307,370 Total costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61,708) entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding equity in earnings (loss) from unconsolidated 22,774 Lennar Homebuilding other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . (61,708) entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140,000) Lennar Homebuilding loss due to litigation . . . . . . . . . . . . . . . . . . . . . . . . 22,774 Lennar Homebuilding other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . 25,447 Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . (140,000) Lennar Homebuilding loss due to litigation . . . . . . . . . . . . . . . . . . . . . . . . (81,636) Rialto other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,447 Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . 85,739 Lennar Multifamily equity in earnings from unconsolidated entities . . . . (81,636) Rialto other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189,611 Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,739 Lennar Multifamily equity in earnings from unconsolidated entities . . . . (417,857) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189,611 Net earnings (including net earnings (loss) attributable to (417,857) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 771,754 noncontrolling interests). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings (including net earnings (loss) attributable to (38,726) Less: Net earnings (loss) attributable to noncontrolling interests . . . . 771,754 noncontrolling interests). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810,480 Net earnings attributable to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (38,726) Less: Net earnings (loss) attributable to noncontrolling interests . . . . Other comprehensive income (loss), net of tax: 810,480 Net earnings attributable to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,331 Net unrealized gain (loss) on securities available-for-sale . . . . . . . . . Other comprehensive income (loss), net of tax: Reclassification adjustments for (gains) loss included in net Net unrealized gain (loss) on securities available-for-sale . . . . . . . . . earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustments for (gains) loss included in net Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . $ earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income attributable to Lennar . . . . . . . . . . . . . . $ Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . $ Total comprehensive income (loss) attributable to noncontrolling Total comprehensive income attributable to Lennar . . . . . . . . . . . . . . $ interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total comprehensive income (loss) attributable to noncontrolling Basic earnings per share (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings per share (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Basic earnings per share (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings per share (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) Basic and diluted average shares outstanding and earnings per share calculations have been adjusted to reflect 4.7 million 9,741,337 687,255 9,741,337 233,966 687,255 287,441 233,966 10,949,999 287,441 10,949,999 8,399,881 523,638 8,399,881 229,769 523,638 301,786 229,769 232,562 301,786 9,687,636 232,562 9,687,636 (49,275) 52,751 (49,275) — 52,751 18,961 — (39,850) 18,961 85,519 (39,850) 1,330,469 85,519 (417,378) 1,330,469 (417,378) 913,091 1,247 913,091 911,844 1,247 911,844 (295) (295) (53) (348) (53) 911,496 (348) 911,496 1,247 4.05 1,247 3.86 4.05 3.86 8,466,945 620,527 8,466,945 221,923 620,527 164,613 221,923 9,474,008 164,613 9,474,008 7,264,839 492,732 7,264,839 222,875 492,732 191,302 222,875 216,244 191,302 8,387,992 216,244 8,387,992 63,373 6,162 63,373 — 6,162 22,293 — 12,254 22,293 19,518 12,254 1,209,616 19,518 (390,416) 1,209,616 (390,416) 819,200 16,306 819,200 802,894 16,306 802,894 (65) (65) (26) (91) (26) 802,803 (91) 802,803 16,306 3.78 16,306 3.39 3.78 3.39 1,331 12 1,343 12 811,823 1,343 811,823 (38,726) 3.38 (38,726) 3.38 3.38 3.38 Class B shares distributed as a part of the stock dividend on November 27, 2017. (1) Basic and diluted average shares outstanding and earnings per share calculations have been adjusted to reflect 4.7 million Class B shares distributed as a part of the stock dividend on November 27, 2017. See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 71 71 LENNAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EQUITY LENNAR CORPORATION AND SUBSIDIARIES Years Ended November 30, 2017, 2016 and 2015 CONSOLIDATED STATEMENT OF EQUITY Years Ended November 30, 2017, 2016 and 2015 2017 2016 2015 Class A common stock: (Dollars in thousands, except per share amounts) (Dollars in thousands, except per share amounts) 2016 2017 2015 Class A common stock: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Employee stock and director plans . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Conversion of convertible senior notes to shares of Class A common Employee stock and director plans . . . . . . . . . . . . . . . . . . . . . . . . . . . stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of convertible senior notes to shares of Class A common Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Class B common stock: Class B common stock: Additional paid-in capital: Additional paid-in capital: Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock dividends - Class B common stock . . . . . . . . . . . . . . . . . . . . . . Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock dividends - Class B common stock . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee stock and director plans . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax benefit from employee stock plans, vesting of restricted stock Employee stock and director plans . . . . . . . . . . . . . . . . . . . . . . . . . . . and conversion of convertible senior notes . . . . . . . . . . . . . . . . . Tax benefit from employee stock plans, vesting of restricted stock Amortization of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . and conversion of convertible senior notes . . . . . . . . . . . . . . . . . Conversion of convertible senior notes to shares of Class A common Amortization of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion of convertible senior notes to shares of Class A common Stock dividends - Class B common stock . . . . . . . . . . . . . . . . . . . . . . stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,409 134 20,409 134 — 20,543 — 20,543 3,298 471 3,298 3,769 471 3,769 2,805,349 2,086 2,805,349 2,086 35,543 61,356 35,543 61,356 — Retained earnings: Retained earnings: Treasury stock, at cost: Treasury stock, at cost: Accumulated other comprehensive income (loss): Accumulated other comprehensive income (loss): Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock dividends - Class B common stock . . . . . . . . . . . . . . . . . . . . . . 237,679 — 3,142,013 237,679 3,142,013 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,306,256 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810,480 Net earnings attributable to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,306,256 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,600) Cash dividends - Class A common stock ($0.16 per share) . . . . . . . . 810,480 Net earnings attributable to Lennar . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,008) Cash dividends - Class B common stock ($0.16 per share) . . . . . . . . (32,600) Cash dividends - Class A common stock ($0.16 per share) . . . . . . . . (238,150) Stock dividends - Class B common stock . . . . . . . . . . . . . . . . . . . . . . (5,008) Cash dividends - Class B common stock ($0.16 per share) . . . . . . . . 4,840,978 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (238,150) Stock dividends - Class B common stock . . . . . . . . . . . . . . . . . . . . . . 4,840,978 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108,961) Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,059) Employee stock and directors plans . . . . . . . . . . . . . . . . . . . . . . . . . . (108,961) Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (136,020) Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,059) Employee stock and directors plans . . . . . . . . . . . . . . . . . . . . . . . . . . (136,020) Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (309) Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343 Total other comprehensive income (loss), net of tax. . . . . . . . . . . . . . (309) Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343 Total other comprehensive income (loss), net of tax. . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,872,317 1,034 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,872,317 185,525 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,726) Net earnings (loss) attributable to noncontrolling interests. . . . . . . . . 185,525 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,786 Receipts related to noncontrolling interests . . . . . . . . . . . . . . . . . . . . (38,726) Net earnings (loss) attributable to noncontrolling interests. . . . . . . . . (74,372) Payments related to noncontrolling interests. . . . . . . . . . . . . . . . . . . . 5,786 Receipts related to noncontrolling interests . . . . . . . . . . . . . . . . . . . . — Non-cash distributions to noncontrolling interests . . . . . . . . . . . . . . . (74,372) Payments related to noncontrolling interests. . . . . . . . . . . . . . . . . . . . 37,292 Non-cash consolidations (deconsolidations), net . . . . . . . . . . . . . . . . — Non-cash distributions to noncontrolling interests . . . . . . . . . . . . . . . (1,690) Non-cash purchase or activity of noncontrolling interests . . . . . . . . . 37,292 Non-cash consolidations (deconsolidations), net . . . . . . . . . . . . . . . . 113,815 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,690) Non-cash purchase or activity of noncontrolling interests . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,986,132 113,815 Balance at November 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,986,132 Noncontrolling interests: Noncontrolling interests: 18,066 124 18,066 124 2,219 20,409 2,219 20,409 3,298 — 3,298 3,298 — 3,298 2,305,560 1,487 2,305,560 1,487 45,803 55,516 45,803 55,516 396,983 396,983 — 2,805,349 — 2,805,349 3,429,736 911,844 3,429,736 (30,315) 911,844 (5,009) (30,315) — (5,009) 4,306,256 — 4,306,256 (107,755) (1,206) (107,755) (108,961) (1,206) (108,961) 39 (348) 39 (309) (348) 7,026,042 (309) 7,026,042 301,128 1,247 301,128 353 1,247 (127,410) 353 (5,033) (127,410) 12,478 (5,033) 2,762 12,478 185,525 2,762 7,211,567 185,525 7,211,567 17,424 122 17,424 122 520 18,066 520 18,066 3,298 — 3,298 3,298 — 3,298 2,239,574 1,451 2,239,574 1,451 21,313 43,742 21,313 43,742 (520) (520) — 2,305,560 — 2,305,560 2,660,034 802,894 2,660,034 (28,183) 802,894 (5,009) (28,183) — (5,009) 3,429,736 — 3,429,736 (93,440) (14,315) (93,440) (107,755) (14,315) (107,755) 130 (91) 130 39 (91) 5,648,944 39 5,648,944 424,282 16,306 424,282 1,296 16,306 (133,374) 1,296 — (133,374) (13,253) — 5,871 (13,253) 301,128 5,871 5,950,072 301,128 5,950,072 See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 72 72 LENNAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS LENNAR CORPORATION AND SUBSIDIARIES Years Ended November 30, 2017, 2016 and 2015 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended November 30, 2017, 2016 and 2015 2017 2016 2017 (In thousands) 2016 Cash flows from operating activities: Net earnings (including net earnings (loss) attributable to noncontrolling interests) . . $ Cash flows from operating activities: Adjustments to reconcile net earnings to net cash provided by (used in) operating Net earnings (including net earnings (loss) attributable to noncontrolling interests) . . $ Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . activities: Amortization of discount/premium on debt, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings from unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of discount/premium on debt, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings from unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on retirement of debt and notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Loss on retirement of debt and notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized and realized gains on real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of other assets (investment carried at cost) . . . . . . . . . . . . . . . . . . . . . . Unrealized and realized gains on real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . Impairments of loans receivable and real estate owned . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of other assets (investment carried at cost) . . . . . . . . . . . . . . . . . . . . . . Valuation adjustments and write-offs of option deposits and pre-acquisition costs, Impairments of loans receivable and real estate owned . . . . . . . . . . . . . . . . . . . . . . . other receivables and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation adjustments and write-offs of option deposits and pre-acquisition costs, Changes in assets and liabilities: Changes in assets and liabilities: other receivables and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in inventories, excluding valuation adjustments and write-offs of Decrease (increase) in receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . option deposits and pre-acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in inventories, excluding valuation adjustments and write-offs of Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . option deposits and pre-acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . Increase in accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . (Increase) decrease in restricted cash related to investments or LOCs. . . . . . . . . . . . Net additions to operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in restricted cash related to investments or LOCs. . . . . . . . . . . . Proceeds from the sale of operating properties and equipment . . . . . . . . . . . . . . . . . Net additions to operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Investments in and contributions to unconsolidated entities . . . . . . . . . . . . . . . . . . . Proceeds from the sale of operating properties and equipment . . . . . . . . . . . . . . . . . Distributions of capital from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . Investments in and contributions to unconsolidated entities . . . . . . . . . . . . . . . . . . . Proceeds from sales of real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of capital from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . Improvements to real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receipts of principal payments on loans held-for-sale. . . . . . . . . . . . . . . . . . . . . . . . Improvements to real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receipts of principal payments on loans receivable and other. . . . . . . . . . . . . . . . . . Receipts of principal payments on loans held-for-sale. . . . . . . . . . . . . . . . . . . . . . . . Purchases of loans receivable and real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . Receipts of principal payments on loans receivable and other. . . . . . . . . . . . . . . . . . Originations of loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of loans receivable and real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of investment carried at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Originations of loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of other assets (investment carried at cost) . . . . . . . . . . . . . . . . . Purchase of investment carried at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of commercial mortgage-backed securities bonds. . . . . . . . . . . . . . . . . . . Proceeds from sale of other assets (investment carried at cost) . . . . . . . . . . . . . . . . . Proceeds from sale of commercial mortgage-backed securities bonds . . . . . . . . . . . Purchases of commercial mortgage-backed securities bonds. . . . . . . . . . . . . . . . . . . Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of commercial mortgage-backed securities bonds . . . . . . . . . . . Purchases of Lennar Homebuilding investments available-for-sale. . . . . . . . . . . . . . Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of Lennar Homebuilding investments available-for-sale. . . . . . Purchases of Lennar Homebuilding investments available-for-sale. . . . . . . . . . . . . . Decrease (increase) in Lennar Financial Services held-for-investment, net. . . . . . . . Proceeds from sales of Lennar Homebuilding investments available-for-sale. . . . . . Purchases of Lennar Financial Services investment securities. . . . . . . . . . . . . . . . . . Decrease (increase) in Lennar Financial Services held-for-investment, net. . . . . . . . Proceeds from maturities/sales of Lennar Financial Services investment securities . Purchases of Lennar Financial Services investment securities. . . . . . . . . . . . . . . . . . Proceeds from maturities/sales of Lennar Financial Services investment securities . Cash flows from investing activities: Cash flows from investing activities: Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 771,754 771,754 66,324 11,312 66,324 (49,478) 11,312 137,669 (49,478) 61,356 137,669 (1,981) 61,356 91,050 (1,981) — 91,050 (10,339) — (5,119) (10,339) (2,450) (5,119) 97,786 (2,450) 97,786 16,339 16,339 14,490 253,111 14,490 253,111 (661,494) (44,535) (661,494) (105,600) (44,535) 356,669 (105,600) 996,864 356,669 996,864 (18,000) (111,773) (18,000) 60,326 (111,773) (430,304) 60,326 207,327 (430,304) 86,565 207,327 (1,294) 86,565 11,251 (1,294) 165,413 11,251 (148) 165,413 (98,375) (148) — (98,375) 3,610 — (107,262) 3,610 — (107,262) (611,103) — — (611,103) — — (14,257) — (53,558) (14,257) 41,765 (53,558) (869,817) 41,765 (869,817) (In thousands) 913,091 913,091 50,219 14,619 50,219 (55,205) 14,619 101,965 (55,205) 55,516 101,965 (7,039) 55,516 97,485 (7,039) 1,569 97,485 (14,457) 1,569 (21,380) (14,457) — (21,380) 45,201 — 45,201 11,283 11,283 9,716 (260,844) 9,716 (260,844) (503,527) (41,933) (503,527) 90,093 (41,933) 21,432 90,093 507,804 21,432 507,804 — (76,439) — 25,288 (76,439) (425,761) 25,288 323,190 (425,761) 97,871 323,190 (1,906) 97,871 — (1,906) 84,433 — (548) 84,433 (56,507) (548) — (56,507) — — (42,436) — — (42,436) (725) — — (725) 541 — 963 541 (37,764) 963 23,963 (37,764) (85,837) 23,963 (85,837) 2015 2015 819,200 819,200 43,666 19,874 43,666 (105,184) 19,874 60,753 (105,184) 43,873 60,753 (113) 43,873 (5,637) (113) 3,632 (5,637) (5,945) 3,632 (36,380) (5,945) — (36,380) 25,179 — 25,179 31,002 31,002 20,876 (86,432) 20,876 (86,432) (1,126,907) (28,154) (1,126,907) (318,739) (28,154) 225,790 (318,739) (419,646) 225,790 (419,646) 2,030 (91,355) 2,030 73,732 (91,355) (314,937) 73,732 218,996 (314,937) 155,295 218,996 (8,477) 155,295 — (8,477) 28,389 — (3,228) 28,389 (78,703) (3,228) (18,000) (78,703) — (18,000) (13,973) — 7,014 (13,973) — 7,014 (28,093) — — (28,093) (5,022) — (45,687) (5,022) 23,626 (45,687) (98,393) 23,626 (98,393) See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 73 73 LENNAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) LENNAR CORPORATION AND SUBSIDIARIES Years Ended November 30, 2017, 2016 and 2015 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years Ended November 30, 2017, 2016 and 2015 2017 2016 Cash flows from financing activities: 2017 Cash flows from financing activities: (199,684) Net (repayments) borrowings under warehouse facilities . . . . . . . . . . . . . . . . . . . . . $ 2,450,000 Proceeds from senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (199,684) Net (repayments) borrowings under warehouse facilities . . . . . . . . . . . . . . . . . . . . . $ (28,590) Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,450,000 Proceeds from senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,058,595) Redemption of senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,590) Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Conversions and exchanges on convertible senior notes . . . . . . . . . . . . . . . . . . . . . . (1,058,595) Redemption of senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,630 Proceeds from Rialto notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Conversions and exchanges on convertible senior notes . . . . . . . . . . . . . . . . . . . . . . (24,964) Principal payments on Rialto notes payable including structured notes . . . . . . . . . . 99,630 Proceeds from Rialto notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,230 Proceeds from other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,964) Principal payments on Rialto notes payable including structured notes . . . . . . . . . . 195,541 Proceeds from other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,230 Proceeds from other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,725) Principal payments on other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,541 Proceeds from other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,786 Receipts related to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139,725) Principal payments on other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,372) Payments related to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,786 Receipts related to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,981 Excess tax benefits from share-based awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,372) Payments related to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock: 1,981 Excess tax benefits from share-based awards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock: (27,054) Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,608) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,054) Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,194,296 Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . (37,608) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,321,343 Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 1,194,296 Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . 1,329,529 Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,321,343 Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,650,872 1,329,529 Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,650,872 Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,282,925 241,861 Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,282,925 117,410 Lennar Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,861 Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,676 Lennar Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,410 Lennar Financial Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,650,872 8,676 Lennar Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,650,872 89,485 199,557 89,485 199,557 Cash paid for interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash paid for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash paid for interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash paid for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Summary of cash and cash equivalents: Summary of cash and cash equivalents: Supplemental disclosures of cash flow information: Supplemental disclosures of cash flow information: (In thousands) 2016 (In thousands) 107,465 499,024 107,465 (4,740) 499,024 (250,000) (4,740) (234,028) (250,000) — (234,028) (39,026) — 37,163 (39,026) — 37,163 (210,968) — 353 (210,968) (127,410) 353 7,039 (127,410) 7,039 19,471 (19,902) 19,471 (35,324) (19,902) (250,883) (35,324) 171,084 (250,883) 1,158,445 171,084 1,329,529 1,158,445 1,329,529 1,050,138 148,827 1,050,138 123,964 148,827 6,600 123,964 1,329,529 6,600 1,329,529 66,570 374,731 66,570 374,731 Supplemental disclosures of non-cash investing and financing activities: Lennar Homebuilding and Lennar Multifamily: Supplemental disclosures of non-cash investing and financing activities: Lennar Homebuilding and Lennar Multifamily: Purchases of inventories, land under development and other assets financed by Rialto: sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Purchases of inventories, land under development and other assets financed by Net non-cash contributions to unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . $ sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Conversion of convertible senior notes to equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net non-cash contributions to unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . $ Inventory acquired in satisfaction of other assets including investments available- Conversion of convertible senior notes to equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Inventory acquired in satisfaction of other assets including investments available- Inventory acquired in partner buyout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Non-cash sale of operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . $ Inventory acquired in partner buyout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Non-cash sale of operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . $ Real estate owned acquired in satisfaction/partial satisfaction of loans receivable . . $ Rialto: Consolidation/deconsolidation of unconsolidated/consolidated entities, net: Consolidation/deconsolidation of unconsolidated/consolidated entities, net: Real estate owned acquired in satisfaction/partial satisfaction of loans receivable . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Operating properties and equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Operating properties and equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . $ Liabilities related to consolidated inventory not owned. . . . . . . . . . . . . . . . . . . . . . . $ Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Liabilities related to consolidated inventory not owned. . . . . . . . . . . . . . . . . . . . . . . $ Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 279,323 62,618 279,323 — 62,618 — — — — — — — 1,140 1,140 48,656 (1,716) 48,656 (9,692) (1,716) — (9,692) 44 — (37,292) 44 (37,292) 101,504 107,935 101,504 399,206 107,935 399,206 — — — — — — 8,476 8,476 111,347 — 111,347 (2,445) — (96,424) (2,445) — (96,424) (12,478) — (12,478) 2015 2015 366,290 1,146,647 366,290 (11,807) 1,146,647 (500,000) (11,807) (212,107) (500,000) — (212,107) (58,923) — 101,618 (58,923) — 101,618 (258,108) — 1,296 (258,108) (133,374) 1,296 113 (133,374) 113 9,405 (23,188) 9,405 (33,192) (23,188) 394,670 (33,192) (123,369) 394,670 1,281,814 (123,369) 1,158,445 1,281,814 1,158,445 893,408 150,219 893,408 106,777 150,219 8,041 106,777 1,158,445 8,041 1,158,445 87,132 336,796 87,132 336,796 66,819 205,327 66,819 — 205,327 — 28,093 64,440 28,093 (59,397) 64,440 (59,397) 17,248 17,248 — (17,421) — 2,948 (17,421) — 2,948 1,220 — 13,253 1,220 13,253 See accompanying notes to consolidated financial statements. See accompanying notes to consolidated financial statements. 74 74 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basis of Consolidation 1. Summary of Significant Accounting Policies The accompanying consolidated financial statements include the accounts of Lennar Corporation and all The accompanying consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and VIEs (see Note Basis of Consolidation 16) in which Lennar Corporation is deemed the primary beneficiary (the "Company"). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and VIEs (see Note Company is not deemed to be the primary beneficiary are accounted for by the equity method. All intercompany 16) in which Lennar Corporation is deemed the primary beneficiary (the "Company"). The Company’s investments in transactions and balances have been eliminated in consolidation. both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the Company is not deemed to be the primary beneficiary are accounted for by the equity method. All intercompany Use of Estimates transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the amounts Use of Estimates reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. United States of America ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those Revenue Recognition estimates. Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, Revenue Recognition the new homeowner’s receivable is not subject to future subordination and the Company does not have a substantial continuing involvement with the new home. Revenues from sales of land are recognized when a significant down the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, payment is received, the earnings process is complete, title passes and collectability of the receivable is reasonably the new homeowner’s receivable is not subject to future subordination and the Company does not have a substantial assured. See Lennar Financial Services, Rialto and Lennar Multifamily within this Note for disclosure of other revenue continuing involvement with the new home. Revenues from sales of land are recognized when a significant down recognition policies related to those segments. payment is received, the earnings process is complete, title passes and collectability of the receivable is reasonably assured. See Lennar Financial Services, Rialto and Lennar Multifamily within this Note for disclosure of other revenue Advertising Costs recognition policies related to those segments. The Company expenses advertising costs as incurred. Advertising costs were $47.0 million, $40.9 million and $47.9 million for the years ended November 30, 2017, 2016 and 2015, respectively. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs were $47.0 million, $40.9 million and Share-Based Payments $47.9 million for the years ended November 30, 2017, 2016 and 2015, respectively. The Company has share-based awards outstanding under the 2007 Equity Incentive Plan and the 2016 Equity The Company has share-based awards outstanding under the 2007 Equity Incentive Plan and the 2016 Equity Incentive Plan (the "Plans"), each of which provides for the granting of stock options, stock appreciation rights, restricted Share-Based Payments common stock ("nonvested shares") and other share based awards to officers, associates and directors. The exercise prices of stock options may not be less than the market value of the common stock on the date of the grant. Exercises are Incentive Plan (the "Plans"), each of which provides for the granting of stock options, stock appreciation rights, restricted permitted in installments determined when options are granted. Each stock option will expire on a date determined at the common stock ("nonvested shares") and other share based awards to officers, associates and directors. The exercise time of the grant, but not more than ten years after the date of the grant. The Company accounts for stock option awards prices of stock options may not be less than the market value of the common stock on the date of the grant. Exercises are and nonvested share awards granted under the Plans based on the estimated grant date fair value. permitted in installments determined when options are granted. Each stock option will expire on a date determined at the time of the grant, but not more than ten years after the date of the grant. The Company accounts for stock option awards Cash and Cash Equivalents and nonvested share awards granted under the Plans based on the estimated grant date fair value. The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Due to the short maturity period of cash equivalents, the carrying amounts of these instruments Cash and Cash Equivalents approximate their fair values. Cash and cash equivalents as of November 30, 2017 and 2016 included $569.8 million and The Company considers all highly liquid investments purchased with original maturities of three months or less $460.5 million, respectively, of cash held in escrow for approximately 3 days. to be cash equivalents. Due to the short maturity period of cash equivalents, the carrying amounts of these instruments approximate their fair values. Cash and cash equivalents as of November 30, 2017 and 2016 included $569.8 million and Restricted Cash $460.5 million, respectively, of cash held in escrow for approximately 3 days. Lennar Homebuilding 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, as Restricted Cash well as funds on deposit to secure and support performance obligations. Rialto restricted cash primarily consisted of cash Lennar Homebuilding restricted cash consists of customer deposits on home sales held in restricted accounts set aside for future investments on behalf of a real estate investment trust that Rialto is a sub-advisor to. It also included until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold, as upfront deposits and application fees Rialto Mortgage Finance ("RMF") receives before originating loans and is well as funds on deposit to secure and support performance obligations. Rialto restricted cash primarily consisted of cash recognized as income once the loan has been originated, as well as cash held in escrow by the Company’s loan servicer set aside for future investments on behalf of a real estate investment trust that Rialto is a sub-advisor to. It also included provider on behalf of customers and lenders and is disbursed in accordance with agreements between the transacting upfront deposits and application fees Rialto Mortgage Finance ("RMF") receives before originating loans and is parties. recognized as income once the loan has been originated, as well as cash held in escrow by the Company’s loan servicer provider on behalf of customers and lenders and is disbursed in accordance with agreements between the transacting parties. 75 75 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Inventories Finished homes and construction in progress 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. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. Construction overhead and selling expenses are expensed as incurred. Homes held-for-sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas. The Company reviews its inventory for indicators of impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development state of the community. There were 761 and 693 active communities, excluding unconsolidated entities, as of November 30, 2017 and 2016, respectively. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value. In conducting its review for indicators of impairment on a community level, the Company evaluates, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. The Company pays particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/ or margins are trending downward and are anticipated to continue to trend downward. From this review, the Company identifies communities in which to assess if the carrying values exceed their undiscounted projected cash flows. The Company estimates the fair value of its communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above. Each of the homebuilding markets in which the Company operates is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of the Company’s homebuilding markets has specific supply and demand relationships reflective of local economic conditions. The Company’s projected cash flows are impacted by many assumptions. Some of the most critical assumptions in the Company’s cash flow model are projected absorption pace for home sales, sales prices and costs to build and deliver homes on a community by community basis. In order to arrive at the assumed absorption pace for home sales and the assumed sales prices included in the Company’s cash flow model, the Company analyzes its historical absorption pace and historical sales prices in the community and in other comparable communities in the geographical area. In addition, the Company considers internal and external market studies and places greater emphasis on more current metrics and trends, which generally include, but are not limited to, statistics and forecasts on population demographics and on sales prices in neighboring communities, unemployment rates and availability and sales prices of competing product in the geographical area where the community is located as well as the absorption pace realized in its most recent quarters and the sales prices included in the Company's current backlog for such communities. Generally, if the Company notices a variation from historical results over a span of two fiscal quarters, the Company considers such variation to be the establishment of a trend and adjusts its historical information accordingly in order to develop assumptions on the projected absorption pace and sales prices in the cash flow model for a community. In order to arrive at the Company’s assumed costs to build and deliver homes, the Company generally assumes a cost structure reflecting contracts currently in place with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Those costs assumed are used in the cash flow model for the Company’s communities. Since the estimates and assumptions included in the Company’s cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead the Company to incur additional impairment charges in the future. 76 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The determination of fair value requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. The Company generally uses a discount rate of approximately 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. The Company estimates the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause the Company to re-evaluate its strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other 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 options contracts. As of November 30, 2017, the Company reviewed its communities for potential indicators of impairments and identified ten homebuilding communities with 630 homesites and a carrying value of $100.4 million as having potential indicators of impairment. For the year ended November 30, 2017, the Company recorded valuation adjustments of $7.9 million on 473 homesites in seven communities with a carrying value of $13.9 million. As of November 30, 2016, the Company reviewed its communities for potential indicators of impairments and identified 11 homebuilding communities with 663 homesites and a carrying value of $180.9 million as having potential indicators of impairment. For the year ended November 30, 2016, the Company recorded no valuation adjustments. The table below summarizes the most significant unobservable inputs used in the Company's discounted cash flow model to determine the fair value of its communities for which the Company recorded valuation adjustments during the years ended November 30, 2017 and 2016: Years ended November 30, Unobservable inputs Average selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,000 - $567,000 Absorption rate per quarter (homes) . . . . . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 - 10 20% Range 2017 2016 Range $158,000 - $1,300,000 3 - 16 12% - 20% The Company also has access to land inventory through option contracts, which generally enables the Company to defer acquiring portions of properties owned by third parties and unconsolidated entities until it has determined whether to exercise its option. A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. The Company’s option contracts 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 at the time of takedown. In determining whether to walk away from an option contract, the Company evaluates the option primarily based upon its expected cash flows from the property under option. If the Company intends to walk away from an option contract, it records a charge to earnings in the period such decision is made for the deposit amount and any related pre- acquisition costs associated with the option contract. 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. 77 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Lennar Homebuilding and Lennar Multifamily Investments in Unconsolidated Entities The Company evaluates the long-lived assets in unconsolidated entities for indicators of impairment during each reporting period. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, the Company generally uses a discount rate between 10% and 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory or operating assets. The Company’s proportionate share of a valuation adjustment is reflected in the Company's Lennar Homebuilding or Lennar Multifamily equity in earnings (loss) from unconsolidated entities with a corresponding decrease to its Lennar Homebuilding or Lennar Multifamily investment in unconsolidated entities. Additionally, the Company evaluates if a decrease in the value of an investment below its carrying value is other-than-temporary. This evaluation includes certain critical assumptions made by management: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors, which include age of the venture, relationships with the other partners and banks, general economic market conditions, land status and liquidity needs of the unconsolidated entity. If the decline in the fair value of the investment is other-than-temporary, then these losses are included in Lennar Homebuilding other income, net or Lennar Multifamily costs and expenses. The Company tracks its share of cumulative earnings and distributions of its joint ventures ("JVs"). For purposes of classifying distributions received from JVs in the Company’s consolidated statements of cash flows, cumulative distributions are treated as returns on capital to the extent of cumulative earnings and included in the Company’s consolidated statements of cash flows as operating activities. Cumulative distributions in excess of the Company’s share of cumulative earnings are treated as returns of capital and included in the Company’s consolidated statements of cash flows as cash from investing activities. Consolidation of Variable Interest Entities GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company’s variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management and development agreements between the Company and a VIE, (4) loans provided by the Company to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. The Company examines specific criteria and uses its judgment when determining if it is the primary beneficiary of a VIE. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality, if any, between the Company and the other partner(s) and contracts to purchase assets from VIEs. The determination whether an entity is a VIE and, if so, whether the Company is the primary beneficiary may require it to exercise significant judgment. Generally, all major decision making in the Company’s joint ventures is shared among all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by the Company are nominal and believed to be at market and there is no significant economic disproportionality between the Company and other partners. Generally, the Company purchases less than a majority of the JV’s assets and the purchase prices under its option contracts are believed to be at market. Generally, Lennar Homebuilding and Lennar Multifamily unconsolidated entities become VIEs and consolidate when the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, the Company continues to fund operations and debt paydowns through partner loans or substituted capital contributions. Operating Properties and Equipment Operating properties and equipment are recorded at cost and are included in other assets in the consolidated balance sheets. The assets are depreciated over their estimated useful lives using the straight-line method. At the time operating properties and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful life for operating properties is 30 years, for furniture, fixtures and equipment is two to ten years and for leasehold improvements is five years or the life of the lease, whichever is shorter. Operating properties are reviewed for possible impairment if there are indicators that their carrying amounts are not recoverable. 78 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Investment Securities Investment securities are classified as available-for-sale unless they are classified as trading or held-to-maturity. Securities classified as trading are carried at fair value and unrealized holding gains and losses are recorded in earnings. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or losses on available-for-sale securities are reported as accumulated other comprehensive gain or loss, which is a separate component of stockholders’ equity, net of tax, until realized. Securities classified as held-to-maturity are carried at amortized cost because they are purchased with the intent and ability to hold to maturity. At November 30, 2017 and 2016, the Lennar Financial Services segment had investment securities classified as held-to-maturity totaling $52.3 million and $42.0 million, respectively, which consist mainly of corporate debt obligations, U.S. government agency obligations, certificates of deposit and U.S. treasury securities that mature at various dates, mainly within five years. Also, at November 30, 2017 and 2016, the Lennar Financial Services segment had available-for-sale securities totaling $57.4 million and $53.6 million, respectively, which consist primarily of preferred stock and mutual funds. These investments available-for-sale are carried at fair value with changes recorded as a component of accumulated other comprehensive income (loss). In addition, at November 30, 2017 and 2016, the Rialto segment had investment securities classified as held-to- maturity totaling $179.7 million and $71.3 million, respectively. The Rialto segment held-to-maturity securities consist of commercial mortgage-backed securities ("CMBS"). At both November 30, 2017 and 2016, the Company had no investment securities classified as trading. Interest and Real Estate Taxes Interest and real estate taxes attributable to land and homes are capitalized as inventory costs while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in costs of homes sold and costs of land sold. Interest expense related to the Lennar Financial Services operations is included in its costs and expenses. During the years ended November 30, 2017, 2016 and 2015, interest incurred by the Company’s homebuilding operations related to homebuilding debt was $290.3 million, $281.4 million and $288.5 million, respectively; interest capitalized into inventories was $283.2 million, $276.8 million and $276.1 million, respectively. Interest expense was included in costs of homes sold, costs of land sold and other interest expense as follows: (In thousands) Interest expense in costs of homes sold . . . . . . . . . . . . . . . . . . . . . . . . $ Interest expense in costs of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . Other interest expense (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2017 260,650 9,995 7,164 2016 235,148 5,287 4,626 277,809 245,061 2015 205,200 2,493 12,454 220,147 Years Ended November 30, (1) Included in Lennar Homebuilding other income, net. Income Taxes The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. Interest related to unrecognized tax benefits is recognized in the financial statements as a component of income tax expense. A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed each reporting period by the Company based on the consideration of all available positive and negative evidence using a "more-likely-than-not" standard with respect to whether deferred tax assets will be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, actual earnings, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards not expiring unused and tax planning alternatives. Based on the analysis of positive and negative evidence, the Company believed that there was enough positive evidence for the Company to conclude that it was more likely than not that the Company would realize the majority of its 79 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) deferred tax assets. As of November 30, 2017 and 2016, the Company's net deferred tax assets included a valuation allowance of $6.4 million and $5.8 million, respectively. See Note 11 for additional information. Other Liabilities Reflected within the consolidated balance sheets, the other liabilities balance as of November 30, 2017 and 2016, included accrued interest payable, product warranty (as noted below), accrued bonuses, accrued wages and benefits, deferred income, customer deposits, income taxes payable, and other accrued liabilities. 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 Lennar Homebuilding other liabilities in the consolidated balance sheets. The activity in the Company’s warranty reserve was as follows: (In thousands) Warranty reserve, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Warranties issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to pre-existing warranties from changes in estimates (1) . . . . . . . . . . Warranties assumed related to the WCI acquisition. . . . . . . . . . . . . . . . . . . . . . . . . Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranty reserve, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 135,403 109,359 16,027 6,345 (102,515) 164,619 130,853 96,934 2,079 — (94,463) 135,403 (1) The adjustments to pre-existing warranties from changes in estimates during the years ended November 30, 2017 and 2016 primarily related to specific claims in certain of the Company's homebuilding communities and other adjustments. Self-Insurance Certain insurable risks such as construction defects, general liability, medical and workers’ compensation are self-insured by the Company up to certain limits. Undiscounted accruals for claims under the Company’s self-insurance program are based on claims filed and estimates for claims incurred but not yet reported. The Company’s self-insurance reserve as of November 30, 2017 and 2016 was $90.2 million and $87.6 million of which $57.7 million and $57.4 million, respectively, was included in Lennar Financial Services’ other liabilities as of November 30, 2017 and 2016. Amounts incurred in excess of the Company's self-insurance occurrence or aggregate retention limits are covered by insurance up to the Company's purchased coverage levels. The Company's insurance policies are maintained with highly- rated underwriters for whom the Company believes counterparty default risk is not significant. Earnings per Share Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings of the Company. All outstanding nonvested shares that contain non-forfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings. The Company’s restricted common stock ("nonvested shares") are considered participating securities. Lennar Financial Services Revenue Recognition Title premiums on policies issued directly by the Company are recognized as revenue on the effective date of the title policies and escrow fees and loan origination revenues are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Revenues from title policies issued by independent agents are recognized as revenue when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. Expected gains and losses from the sale of loans and their related servicing rights are included 80 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) in the measurement of all written loan commitments that are accounted for at fair value through earnings at the time of commitment. Interest income on loans held-for-sale and loans held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual interest rates. Loans Held-for-Sale Loans held-for-sale by the Lennar Financial Services segment, including the rights to service the mortgage loans, are carried at fair value and changes in fair value are reflected in earnings. Premiums and discounts recorded on these loans are presented as an adjustment to the carrying amount of the loans and are not amortized. 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 Lennar Financial Services segment recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these servicing rights is included in Lennar Financial Services' other assets as of November 30, 2017 and 2016. Fair value of the servicing rights is determined based on values in the Company’s servicing sales contracts. Provision for Losses The Company establishes reserves for possible losses associated with mortgage loans previously originated and sold to investors based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans, as well as previous settlements. Loan origination liabilities are included in Lennar Financial Services’ liabilities in the consolidated balance sheets. The activity in the Company’s loan origination liabilities was as follows: (In thousands) Loan origination liabilities, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to pre-existing provisions for losses from changes in estimates . . . . . Payments/settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan origination liabilities, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 24,905 3,861 (4,440) (1,783) 22,543 19,492 4,627 1,224 (438) 24,905 Loans Held-for-Investment, Net Loans for which the Company has the positive intent and ability to hold to maturity consist of mortgage loans carried at the principal amount outstanding, net of unamortized discounts and allowance for loan losses. Discounts are amortized over the estimated lives of the loans using the interest method. The Lennar Financial Services segment also provides an allowance for loan losses. The provision recorded and the adequacy of the related allowance is determined by management’s continuing evaluation of the loan portfolio in light of past loan loss experience, credit worthiness and nature of underlying collateral, present economic conditions and other factors considered relevant by the Company’s management. Anticipated changes in economic factors, which may influence the level of the allowance, are considered in the evaluation by the Company’s management when the likelihood of the changes can be reasonably determined. While the Company’s management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary as a result of future economic and other conditions that may be beyond management’s control. Derivative Financial Instruments The Lennar Financial Services segment, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in mortgage-related interest rates. The segment uses mortgage-backed securities ("MBS") forward commitments, option contracts, future contracts and investor commitments to protect the value of fixed rate-locked loan commitments and loans held-for-sale from fluctuations in mortgage-related interest rates. These derivative financial instruments are carried at fair value with the changes in fair value included in Lennar Financial Services revenues. 81 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Rialto Management Fee Revenue The Rialto segment provides services to a variety of legal entities and investment vehicles such as funds, joint ventures, co-invests, and other private equity structures to manage their respective investments. As a result, Rialto earns and receives management fees, underwriting fees and due diligence fees. These fees are included in Rialto revenues and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. Rialto receives investment management fees from investment vehicles based on 1) a percentage of committed or called capital during the commitment period and called capital after the commitment period ends and 2) a percentage of invested capital less the portion of such invested capital utilized to acquire investments that have been sold (in whole or in part) or liquidated. Fees earned for underwriting and due diligence services are based on actual costs incurred. In certain situations, Rialto may earn additional fees when the return on assets managed exceeds contractually established thresholds. Such revenue is only booked when the contract terms are met, the contract is at, or near, completion and the amounts are known and collectability is reasonably assured. Since such revenue is recognized during the latter half of the life of the investment vehicle, after substantially all of the assets have been sold and investment gains and losses realized, the possibility of claw backs is limited. In addition, Rialto may also receive tax distributions in order to cover income tax obligations resulting from allocations of taxable income due to Rialto's carried interests in the funds. These distributions are not subject to clawbacks and therefore are recorded as revenue when received. Rialto Mortgage Finance - Loans Held-for-Sale The originated mortgage loans are classified as loans held-for-sale and are recorded at fair value. The Company elected the fair value option for RMF's loans held-for-sale in accordance with Accounting Standards Codification ("ASC") 825, Financial Instruments, which permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Management believes that 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, which are also carried at fair value, used to economically hedge them without having to apply complex hedge accounting provisions. Changes in fair values of the loans are reflected in Rialto revenues in the accompanying consolidated statements of operations. Interest income on these loans is calculated based on the interest rate of the loan and is recorded in Rialto revenues in the accompanying consolidated statements of operations. Substantially all of the mortgage loans originated are sold within a short period of time in a securitization on a servicing released, non-recourse basis; although, the Company remains liable for certain limited industry-standard representations and warranties related to loan sales. The Company recognizes revenue on the sale of loans into securitization trusts when control of the loans has been relinquished. In 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies ("LLCs") in partnership with the FDIC ("FDIC Portfolios"). The LLCs met the accounting definition of VIEs and since the Company was determined to be the primary beneficiary, the Company consolidated the LLCs. The Company was determined to be the primary beneficiary because it has the power to direct the activities of the LLCs that most significantly impact the LLCs' performance through Rialto's management and servicer contracts. In February 2017, the FDIC exercised its “clean-up call rights” under the Amended and Restated Limited Liability Company Agreement. As a result, Rialto had until July 10, 2017 to liquidate and sell the assets in the FDIC Portfolios. On July 10, 2017, Rialto and the FDIC entered into an agreement which extended the original agreement date to January 10, 2018. At November 30, 2017, the consolidated LLCs had total combined assets of $48.8 million, which primarily included $23.8 million in cash, $20.0 million of real estate owned, net and $1.6 million of loans held-for-sale. As of January 11, 2018, (1) the FDIC can, at its discretion, sell any remaining assets, or (2) Rialto has the option to purchase the FDIC's interest in the portfolios. As of January 19, 2018, there were only four assets with a carrying value totaling $0.3 million which were not under contract to sell. Real Estate Owned Real estate owned ("REO") represents real estate that the Rialto segment has taken control in partial or full satisfaction of loans receivable. At the time of acquisition of a property through foreclosure of a loan, REO is recorded at fair value less estimated costs to sell if classified as held-for-sale or at fair value if classified as held-and-used, which becomes the property’s new basis. The fair values of these assets are determined in part by placing reliance on third-party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third-party appraisals and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for anticipated date of sale, location, property size, and other factors. Each REO is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular REO, the Company analyzes historical trends, including trends achieved by the Company's local homebuilding operations, if applicable, and current trends in the market and economy impacting the REO. Using available trend information, the Company then calculates its best estimate of fair value, which can include projected cash flows discounted at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the 82 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) assets and related estimated cash flow streams. These methods use unobservable inputs to develop fair value for the Company’s REO. Due to the volume and variance of unobservable inputs, resulting from the uniqueness of each of the Company's REO, the Company does not use a standard range of unobservable inputs with respect to its evaluation of REO. However, for operating properties included within REO, the Company may also use estimated cash flows multiplied by a capitalization rate to determine the fair value of the property. Generally, the capitalization rates used to estimate fair value ranged from 8% to 12% and varied based on the location of the asset, asset type and occupancy rates for the operating properties. Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third-party appraisals and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by the Rialto segment from disposition of these assets. The amount by which the recorded investment in the loan is less than the REO’s fair value (net of estimated cost to sell if held-for-sale), is recorded as an unrealized gain upon foreclosure in the Company’s consolidated statements of operations. The amount by which the recorded investment in the loan is greater than the REO’s fair value (net of estimated cost to sell if held-for-sale) is recorded as a provision for loan losses in the Company’s consolidated statements of operations. Additionally, REO includes real estate which Rialto has purchased directly from financial institutions. These REOs are recorded at cost or allocated cost if purchased in a bulk transaction. Subsequent to obtaining REO via foreclosure or directly from a financial institution, management periodically performs valuations using the methodologies described above such that the real estate is carried at the lower of its carrying value or current fair value, less estimated costs to sell if classified as held-for-sale. Held-and-used assets are tested for recoverability whenever changes in circumstances indicate that the carrying value may not be recoverable, and impairment losses are recorded for any amount by which the carrying value exceeds its fair value. Any subsequent impairment losses, operating expenses or income, and gains and losses on disposition of such properties are also recognized in Rialto other income (expense), net. REO assets classified as held-and-used are depreciated using a useful life of forty years for commercial properties and twenty seven and a half years for residential properties. REO assets classified as held-for-sale are not depreciated. Occasionally an asset will require certain improvements to yield a higher return. In accordance with ASC 970-340-25, Real Estate, construction costs incurred prior to acquisition or during development of the asset may be capitalized. Derivative Instruments The Rialto segment, in the normal course of business, uses derivative financial instruments on loans held-for- sale in order to minimize its exposure to fluctuations in mortgage-related interest rates as well as lessen its credit risk. The segment hedges interest rate exposure by entering into interest rate swaps and swap futures. These derivative financial instruments are carried at fair value with derivative instruments in gain positions recorded in other assets while derivative instruments in loss positions are recorded in other liabilities. Consolidations of Variable Interest Entities In 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies ("LLCs"), in partnership with the FDIC. The Company determined that each of the LLCs met the definition of a VIE and that the Company was the primary beneficiary. In accordance with ASC 810-10-65-2, Consolidations, ("ASC 810-10-65-2"), the Company identified the activities that most significantly impact the LLCs’ economic performance and determined that it has the power to direct those activities. The economic performance of the LLCs is most significantly impacted by the performance of the LLCs’ portfolios of assets, which consisted primarily of distressed residential and commercial mortgage loans. Thus, the activities that most significantly impact the LLCs’ economic performance are the servicing and disposition of mortgage loans and real estate obtained through foreclosure of loans, restructuring of loans, or other planned activities associated with the monetizing of loans. At November 30, 2017, these consolidated LLCs had total combined assets and liabilities of $48.8 million and $2.2 million, respectively. At November 30, 2016, these consolidated LLCs had total combined assets and liabilities of $213.8 million and $10.3 million, respectively. The FDIC does not have the unilateral power to terminate the Company’s role in managing the LLCs and servicing the loan portfolios. While the FDIC has the right to prevent certain types of transactions (i.e., bulk sales, selling assets with recourse back to the selling entity, selling assets with representations and warranties and financing the sales of assets without the FDIC’s approval), the FDIC does not have full voting or blocking rights over the LLCs’ activities, making their voting rights protective in nature, not substantive participating voting rights. Other than as described in the preceding sentence, which are not the primary activities of the LLCs, the Company can cause the LLCs to enter into both the disposition and restructuring of loans without any involvement of the FDIC. Additionally, the FDIC has no voting rights with regard to the operation/management of the operating properties that are acquired upon foreclosure of loans (e.g. REO) and no voting rights over the business plans of the LLCs. The FDIC can make suggestions regarding the business plans, but the Company can decide not to follow the FDIC’s suggestions and not to incorporate them in the 83 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) business plans. Since the FDIC’s voting rights are protective in nature and not substantive participating voting rights, the Company has the power to direct the activities that most significantly impact the LLCs’ economic performance. In accordance with ASC 810-10-65-2, the Company determined that it had an obligation to absorb losses of the LLCs that could potentially be significant to the LLCs or the right to receive benefits from the LLCs that could potentially be significant to the LLCs based on the following factors: • Rialto/Lennar owns 40% of the equity of the LLCs and has the power to direct the activities of the LLCs that most significantly impact their economic performance through loan resolutions and the sale of REO. • Rialto/Lennar has a management/servicer contract under which the Company earns a 0.5% servicing fee. • Rialto/Lennar has guaranteed, as the servicer, its obligations under the servicing agreement up to $10 million. The Company is aware that the FDIC, as the owner of 60% of the equity of each of the LLCs, may also have an obligation to absorb losses of the LLCs that could potentially be significant to the LLCs. However, in accordance with ASC 810-10-25-38A, only one enterprise, if any, is expected to be identified as the primary beneficiary of a VIE. Since both criteria for consolidation in ASC 810-10-65-2 are met, the Company consolidated the LLCs. Voting Interest Entities Rialto Real Estate Fund, LP ("Fund I"), Rialto Real Estate Fund II, LP ("Fund II"), Rialto Real Estate Fund III ("Fund III"), Rialto Mezzanine Partners Fund, LP ("Mezzanine Fund") and the Rialto Credit Partnership, LP ("RCP") are unconsolidated entities and are accounted for under the equity method of accounting. They were determined to have the attributes of an investment company in accordance with ASC Topic 946, Financial Services – Investment Companies, the attributes of which are different from the attributes that would cause a company to be an investment company for purposes of the Investment Company Act of 1940. As a result, Fund I, Fund II, Fund III, Mezzanine Fund, and the RCP's assets and liabilities are recorded at fair value with increases/decreases in fair value recorded in their respective statements of operations, the Company’s share of which is recorded in the Rialto equity in earnings (loss) from unconsolidated entities financial statement line item. The Company determined that Fund I, Fund II, Fund III, Mezzanine Fund, and the RCP are not variable interest entities but rather voting interest entities due to the following factors: • The Company determined that Rialto’s general partner interest and all the limited partners’ interests qualify as equity investment at risk. • Based on the capital structure of Fund I, Fund II, Fund III, Mezzanine Fund, and the RCP (100% capitalized via equity contributions), the Company was able to conclude that the equity investment at risk was sufficient to allow Fund I, Fund II, Fund III, Mezzanine Fund and the RCP to finance its activities without additional subordinated financial support. • The general partner and the limited partners in Fund I, Fund II, Fund III, Mezzanine Fund and the RCP, collectively, have full decision-making ability as they collectively have the power to direct the activities of Fund I, Fund II, Fund III, Mezzanine Fund and the RCP, since Rialto, in addition to being a general partner with a substantive equity investment in Fund I, Fund II, Fund III, Mezzanine Fund and the RCP, also provides services to Fund I, Fund II, Fund III, Mezzanine Fund and the RCP, under a management agreement and an investment agreement, which are not separable from Rialto’s general partnership interest. • As a result of all these factors, the Company has concluded that the power to direct the activities of Fund I, Fund II, Fund III, Mezzanine Fund, and the RCP reside in its general partnership interest and thus with the holders of the equity investment at risk. • • In addition, there are no guaranteed returns provided to the equity investors and the equity contributions are fully subjected to Fund I, Fund II, Fund III, Mezzanine Fund and the RCP's operational results, thus the equity investors absorb the expected negative and positive variability relative to Fund I, Fund II, Fund III, Mezzanine Fund and the RCP. Finally, substantially all of the activities of Fund I, Fund II, Fund III, Mezzanine Fund and the RCP are not conducted on behalf of any individual investor or related group that has disproportionately few voting rights (i.e., on behalf of any individual limited partner). Having concluded that Fund I, Fund II, Fund III, Mezzanine Fund and the RCP are voting interest entities, the Company has evaluated the funds under the voting interest entity model to determine whether, as general partner, it has control over Fund I, Fund II, Fund III, Mezzanine Fund and the RCP. The Company determined that it does not control Fund I, Fund II, Fund III, Mezzanine Fund or the RCP as its general partner, because the unaffiliated limited partners have substantial kick-out rights and can remove Rialto as general partner at any time for cause or without cause through a simple majority vote of the limited partners or in the case of the RCP, and individual limited partner. In addition, there are no significant barriers to the exercise of these rights. As a result of determining that the Company does not control 84 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Fund I, Fund II, Fund III, Mezzanine Fund or the RCP under the voting interest entity model, Fund I, Fund II, Fund III, Mezzanine Fund and the RCP are not consolidated in the Company’s financial statements. Lennar Multifamily Management Fees and General Contractor Revenue The Lennar Multifamily segment provides management services with respect to the development, construction and property management of rental projects in joint ventures in which the Company has investments. As a result, the Lennar Multifamily segment earns and receives fees, which are generally based upon a stated percentage of development and construction costs and a percentage of gross rental collections. These fees are included in Lennar Multifamily revenue and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. In addition, the Lennar Multifamily provides general contractor services for the construction of some of its rental projects and recognizes the revenue over the period in which the services are performed under the percentage of completion method. New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09"). ASU 2014-09 provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. In July 2015, the FASB deferred the effective date by one year and permitted early adoption of the standard, but not before the original effective date; therefore, ASU 2014-09 will be effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The Company has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of applying this ASU recognized at the date of initial application. The Company is currently planning to adopt the modified retrospective method and is continuing to evaluate the impact the adoption of ASU 2014-09 will have on the Company's consolidated financial statements. Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients among others. These ASUs do not change the core principle of the guidance stated in ASU 2014-09, instead these amendments are intended to clarify and improve operability of certain topics included within the revenue standard. These ASUs will have the same effective date and transition requirements as ASU 2014-09. The Company is continuing to evaluate the method and impact the adoption of these ASUs and ASU 2014-09 will have on the Company's consolidated financial statements. In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"). ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 will be effective for the Company’s fiscal year beginning December 1, 2017 and subsequent interim periods. The adoption of ASU 2015-16 is not expected to have a material effect on the Company’s consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such these investments may be measured at cost. ASU 2016-01 will be effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The adoption of ASU 2016-01 is not expected to have a material effect on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease 85 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 will be effective for the Company’s fiscal year beginning December 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company's consolidated financial statements. In March 2016, the FASB issued ASU 2016-07, Investments- Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"). ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. ASU 2016-07 will be effective for the Company’s fiscal year beginning December 1, 2017 and subsequent interim periods. The adoption of ASU 2016-07 is not expected to have a material effect on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company’s fiscal year beginning December 1, 2017 and subsequent interim periods. The adoption of ASU 2016-09 is not expected to have a material impact on the Company's consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 is effective for the Company's fiscal year beginning December 1, 2020 and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. Additionally, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash ("ASU 2016-18"). ASU 2016-18 clarifies certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance related to transfers between cash and restricted cash and how entities present, in their statement of cash flows, the cash receipts and cash payments that directly affect the restricted cash accounts. Both ASU 2016-15 and ASU 2016-18 will be effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The adoption of ASU 2016-15 will modify the Company's current disclosures and reclassifications within the consolidated statement of cash flows but is not expected to have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of addressing whether transactions involving in-substance nonfinancial assets, held directly or in a subsidiary, should be accounted for as acquisitions or disposals of nonfinancial assets or of businesses. ASU 2017-01 will be effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The adoption of ASU 2017-01 is not expected to have a material effect on the Company’s consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 will be effective for the Company’s fiscal year beginning December 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact the adoption of ASU 2017-04 will have on the Company's consolidated financial statements. Reclassifications/Revisions Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2017 presentation. These reclassifications had no impact on the Company's consolidated financial statements. 86 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 2. Business Acquisition On October 29, 2017, the Company and a wholly-owned subsidiary of the Company (“Merger Sub”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with CalAtlantic Group, Inc. (" CalAtlantic"), a Delaware corporation. Subject to the terms and conditions of the Merger Agreement, CalAtlantic will be merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Merger”). CalAtlantic builds homes in over 43 metropolitan statistical areas spanning 19 states. CalAtlantic also provides mortgage, title and escrow services. Under the terms of the Merger Agreement, CalAtlantic’s stockholders will receive 0.885 shares of the Company’s Class A common stock and 0.0177 shares of the Company's Class B common stock for each share of CalAtlantic’s common stock. However, the Company will pay $48.26 per share in cash for 24,083,091 of the shares of CalAtlantic common stock (the "Cash Election Option") in lieu of receiving the Company’s Class A and Class B common stock, which will total approximately $1.16 billion. The Cash Election Option will be subject to proration to the extent they exceed the maximum cash amount. No fractional shares of the Company’s Class A or Class B common stock will be issued in the Merger. Any holder of CalAtlantic’s common stock who would be entitled to receive a fraction of a share of the Company’s Class A or Class B common stock will instead receive cash equal to the market value of a share of such Class A common stock (based on the last sale price reported on the New York Stock Exchange on the last trading day before the closing date). On a pro forma basis, CalAtlantic stockholders are expected to own approximately 26% of the combined company. The transaction is expected to close in February 2018. On February 10, 2017, the Company acquired WCI Communities, Inc. ("WCI") a homebuilder of luxury single and multifamily homes, including a small percentage of luxury high-rise tower units, with operations in Florida. WCI stockholders received 642.6 million in cash. The cash consideration was funded primarily from working capital and from proceeds from the issuance of 4.125% senior notes due 2022 (see Note 7). Based on an evaluation of the provisions of ASC Topic 805, Business Combinations, ("ASC 805"), Lennar Corporation was determined to be the acquirer for accounting purposes. The following table summarizes the provisional purchase price allocation based on the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition, which are subject to change within a measurement period of up to one year from the acquisition date pursuant to ASC 805. The purchase price allocation of WCI is provisional pending completion of the fair value analysis of acquired assets and liabilities assumed: (In thousands) Assets: Cash and cash equivalents, restricted cash and receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,079 613,495 59,283 156,566 88,147 66,173 1,025,743 26,735 282,793 73,593 383,121 642,622 87 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (1) Intangible assets include non-compete agreements and a trade name. The amortization period for these intangible assets was six months for the non-compete agreements and 20 years for the trade name. (2) Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, and it is not deductible for income tax purposes. As of the merger date, goodwill consisted primarily of purchasing and other synergies resulting from the merger, expected production, savings in corporate and division overhead costs and expected expanded opportunities for growth through a higher-end more luxurious product, greater presence in the state of Florida and customer diversity. The provisional amount of goodwill allocated to the Company's Homebuilding East segment was $136.6 million and to the Lennar Financial Services segment was $20.0 million. These provisional amounts were based on the relative fair value of each acquired reporting unit in accordance with ASC 350, Intangibles-Goodwill and Other. For the year ended November 30, 2017, Lennar Homebuilding revenues included $494.7 million of home sales revenues from WCI and earnings before income taxes included $51.7 million of pre-tax earnings from WCI since the date of acquisition, which included transaction-related expenses of $28.1 million comprised mainly of severance costs, general and administrative expenses, and amortization expense related to non-compete agreements and trade name since the date of acquisition. These transaction expenses were included primarily within Lennar Homebuilding selling, general and administrative expenses in the accompanying consolidated statement of operations for the year ended November 30, 2017. The pro forma effect of the acquisition on the results of operations is not presented as this acquisition was not considered material. 3. Operating and Reporting Segments As of and for the year ended November 30, 2017, the Company’s operating segments are aggregated into reportable segments, based primarily upon similar economic characteristics, geography and product type. The Company’s reportable segments consist of: (1) Homebuilding East (2) Homebuilding Central (3) Homebuilding West (4) Lennar Financial Services (5) Rialto (6) Lennar Multifamily 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. Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes. Operations of the Company’s homebuilding segments primarily include the construction and sale of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. 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 and other income (expense), net, less the cost of homes sold and land sold, selling, general and administrative expenses incurred by the segment and loss due to litigation. The Company’s reportable homebuilding segments and all other homebuilding operations not required to be reported separately, have homebuilding divisions located in: East: Florida(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia Central: Arizona, Colorado and Texas West: California and Nevada Other: Illinois, Minnesota, Oregon, Tennessee and Washington (1) Florida includes information related to WCI from the date of acquisition (February 10, 2017) to November 30, 2017. Operations of the Lennar Financial Services segment include primarily mortgage financing, title insurance and closing services for both buyers of the Company’s homes and others. It also includes a real estate brokerage business acquired as part of the WCI transaction. The Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Lennar Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title insurance and closing services and commissions on realty estate brokerage, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Lennar Financial Services segment operates generally in the same states as the Company’s homebuilding operations as well as in other states. 88 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Operations of the Rialto segment include raising, investing and managing third-party capital, originating and securitizing commercial mortgage loans as well as investing its own capital in real estate related mortgage loans, properties and related securities. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, perform diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and real estate related securities as well as providing strategic real estate capital. Rialto’s operating earnings consist of revenues generated primarily from gains from securitization transactions and interest income from the RMF business, interest income associated with portfolios of real estate loans acquired and other portfolios of real estate loans and assets acquired, asset management, due diligence and underwriting fees derived from the real estate investment funds managed by the Rialto segment, fees for sub-advisory services, other income (expense), net, and equity in earnings from unconsolidated entities, less the costs incurred by the segment for managing portfolios, costs related to RMF and other general and administrative expenses. Operations of the Lennar Multifamily segment include revenues generated from land sales, revenue from construction activities and management fees generated from joint ventures, and equity in earnings from unconsolidated entities, less the cost of land sold, expenses related to construction activities and general and administrative expenses. Each reportable segment follows the same accounting policies described in Note 1—"Summary of Significant Accounting Policies" to the consolidated financial statements. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented. Financial information relating to the Company’s operations was as follows: (In thousands) Assets: November 30, 2017 2016 2015 Homebuilding East (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,754,581 2,037,905 Homebuilding Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,272,716 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,745,034 5,165,218 1,689,508 1,153,840 710,725 960,541 Lennar Homebuilding investments in unconsolidated entities: Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Lennar Homebuilding investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily investments in unconsolidated entities . . . . . . . . . . $ Lennar Homebuilding goodwill (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Financial Services goodwill (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,670 25,220 791,995 14,884 900,769 265,418 407,544 136,566 59,838 5,396 3,512,990 1,993,403 4,318,924 907,523 1,754,672 1,276,210 526,131 3,140,604 1,902,581 4,157,616 858,000 1,425,837 1,505,500 415,352 1,071,928 1,014,019 15,361,781 14,419,509 62,900 36,031 696,471 16,321 811,723 245,741 318,559 — 39,838 5,396 40,573 35,925 649,170 15,883 741,551 224,869 250,876 — 38,854 5,396 (1) Homebuilding East segment includes the provisional fair values of homebuilding assets acquired as part of the WCI acquisition. (2) In connection with the WCI acquisition, the Company allocated $136.6 million of goodwill to the Lennar Homebuilding East reportable segment and $20.0 million to the Lennar Financial Services segment. These amounts are provisional pending completion of the fair value analysis of acquired assets and liabilities. 89 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Years Ended November 30, 2017 2016 2015 (In thousands) Revenues: Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,612,565 2,509,292 3,197,174 881,211 770,109 281,243 394,771 Total revenues (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,646,365 Operating earnings (loss): Homebuilding East (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate general and administrative expenses . . . . . . . . . . . . . . 483,684 269,462 403,935 111,958 155,524 (22,495) 73,432 1,475,500 285,889 Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 1,189,611 3,941,336 2,283,579 2,757,658 758,764 687,255 233,966 287,441 3,563,678 1,944,312 2,365,519 593,436 620,527 221,923 164,613 10,949,999 9,474,008 617,175 245,975 396,346 85,436 163,617 (16,692) 71,174 1,563,031 232,562 1,330,469 580,863 208,698 435,818 46,262 127,795 33,595 (7,171) 1,425,860 216,244 1,209,616 (1) Total revenues were net of sales incentives of $665.7 million ($22,700 per home delivered) for the year ended November 30, 2017, $596.3 million ($22,500 per home delivered) for the year ended November 30, 2016 and $518.1 million ($21,400 per home delivered) for the year ended November 30, 2015. (2) Homebuilding East operating earnings for the year ended November 30, 2017 included a $140 million loss due to litigation (see Note 17). (3) For the years ended November 30, 2017 and 2016, Homebuilding West's operating earnings included an equity in loss from unconsolidated entities of $55.2 million and $49.7 million, respectively, refer to the following table for additional details. (4) For the year ended November 30, 2017, Rialto's operating loss included $96.2 million of gross REO and loan impairments ($44.7 million net of noncontrolling interests) as Rialto liquidated most of the remaining assets of the FDIC portfolio. For the year ended November 30, 2016, Rialto's operating loss included a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio. (5) For the years ended November 30, 2017, 2016 and 2015, Lennar Multifamily's operating earnings included $85.7 million, $85.5 million and $19.5 million of equity in earnings from unconsolidated entities primarily as a result of $96.7 million, $91.0 million and $22.2 million, respectively, share of gains from the sale of seven, seven and two operating properties, respectively, by its unconsolidated entities. 90 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (In thousands) Lennar Homebuilding interest expense: Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Lennar Homebuilding interest expense . . . . . . . . . . . . . . . . . . . $ Lennar Financial Services interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Depreciation and amortization: Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net additions to (disposals of) operating properties and equipment: Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate and unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Years Ended November 30, 2017 2016 2015 100,288 55,212 103,100 19,209 277,809 13,331 42,004 19,922 11,007 22,741 4,772 9,992 5,194 2,910 51,142 127,680 2 (48) 13,912 29,927 11,185 4,115 12,657 40,023 92,541 48,879 87,293 16,348 245,061 12,388 40,303 18,713 10,328 19,437 4,562 7,667 7,590 2,472 34,966 105,735 (10,379) 2,385 24,438 26,727 6,218 1,908 1,666 12,645 94,425 41,280 70,397 14,045 220,147 13,547 43,127 16,877 9,881 17,683 4,477 6,100 7,758 1,110 23,522 87,408 316 (18) (11,482) (72,472) 3,306 9,382 2,147 27,466 Total net additions (disposals of) operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111,773 65,608 (41,355) Lennar Homebuilding equity in earnings (loss) from unconsolidated entities: Homebuilding East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Homebuilding Central . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding West (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Homebuilding Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,413 (7,447) (55,181) (493) Total Lennar Homebuilding equity in earnings (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (61,708) Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily equity in earnings from unconsolidated entities . . . . . . . $ 25,447 85,739 (230) 401 (49,731) 285 (49,275) 18,961 85,519 118 75 62,960 220 63,373 22,293 19,518 (1) For the year ended November 30, 2017, net disposals of operating properties and equipment included the sale of an operating property with a basis of $47.0 million. For the year ended November 30, 2015, net disposals of operating properties and equipment included the sale of an operating property with a basis of $59.4 million. (2) For the year ended November 30, 2015, net disposals of operating properties and equipment included the sale of an operating property with a basis of $73.3 million. (3) For the year ended November 30, 2017, equity in loss included the Company's share of operational net losses from unconsolidated entities driven by general and administrative expenses and valuation adjustments, partially offset by profits from land sales. For the year ended November 30, 2016, equity in loss included the Company's share of costs associated with the FivePoint combination (described in Note 5) and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million, partially offset by $12.7 million of equity in earnings primarily due to sales of homesites to third parties by one of the Company's unconsolidated entities. For the year ended November 30, 2015, equity in earnings included $82.8 million of equity in earnings from one of the Company's unconsolidated entities. 91 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 4. Lennar Homebuilding Receivables (In thousands) Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Mortgage and notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 59,733 80,602 140,335 (2,668) 137,667 67,296 39,788 107,084 (108) 106,976 At November 30, 2017 and 2016, Lennar Homebuilding accounts receivable related primarily to other receivables and rebates. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. Mortgages and notes receivable arising from the sale of homes and land are generally collateralized by the property sold to the buyer. Allowances are maintained for potential credit losses based on historical experience, present economic conditions and other factors considered relevant by the Company. 5. Lennar Homebuilding Investments in Unconsolidated Entities Summarized condensed financial information on a combined 100% basis related to Lennar Homebuilding’s unconsolidated entities that are accounted for by the equity method was as follows: Statements of Operations (In thousands) Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings (loss) of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . $ Lennar Homebuilding equity in earnings (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Years Ended November 30, 2017 471,899 616,217 23,253 (121,065) 2016 439,874 578,831 — (138,957) 2015 1,309,517 969,509 49,343 389,351 (61,708) (49,275) 63,373 For the year ended November 30, 2017, one of the Company’s unconsolidated entities had equity in earnings of $11.9 million relating to an equity method investee selling 475 homesites to a third-party land bank. Simultaneous with the purchase by the land bank, the Company entered into an option contract to purchase all 475 homesites from the land bank. Due to the Company’s continuing involvement with respect to the homesites sold from the investee entity, the Company deferred all of its equity in earnings from the unconsolidated entity relating to the sale transaction, which amounted to $4.9 million. For the year ended November 30, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of net operating losses from the Company's unconsolidated entities which were primarily driven by general and administrative expenses and valuation adjustments related to assets of Lennar Homebuilding unconsolidated entities, partially offset by the profits from land sales. For the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million. This was partially offset by $12.7 million of equity in earnings primarily due to sales of homesites to third parties by one of the Company's unconsolidated entities. For the year ended November 30, 2015, Lennar Homebuilding equity in earnings included $82.8 million of equity in earnings from one of the Company's unconsolidated entities primarily due to (1) sales of approximately 800 homesites to a joint venture in which the Company has a 50% investment and for which the Company's portion of the gross profit from the sale was deferred, (2) sales of approximately 700 homesites and a commercial property to third parties and (3) a gain on debt extinguishment. In addition, for the year ended November 30, 2015, net earnings of unconsolidated entities included sales of approximately 300 homesites to Lennar by one of the Company's unconsolidated entities that resulted in $49.3 million of gross profit, of which the Company's portion was deferred. 92 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Balance Sheets (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities and equity: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ November 30, 2017 2016 953,261 3,751,525 1,061,507 5,766,293 832,151 737,331 4,196,811 5,766,293 221,334 3,889,795 1,334,116 5,445,245 791,245 888,664 3,765,336 5,445,245 (1) Debt presented above is net of debt issuance costs of $5.7 million and $4.2 million, as of November 30, 2017 and 2016, respectively. In May 2016, the Company contributed, or obtained the right to contribute, its investment in three strategic joint ventures previously managed by FivePoint Communities in exchange for an investment in a FivePoint entity. The fair values of the assets contributed to this FivePoint entity are included within the unconsolidated entities summarized condensed balance sheet presented above. A portion of the assets of one of the three strategic joint ventures transferred to a new unconsolidated entity was retained by Lennar and its venture partner. The transactions did not have a material impact to the Company’s financial position or cash flows for the year ended November 30, 2016. For the year ended November 30, 2016, the Company recorded $42.6 million of its share of combination costs and operational net losses associated with FivePoint in equity in loss from unconsolidated entities on the consolidated statement of operations. In May 2017, FivePoint completed its initial public offering ("IPO"). Concurrent with the IPO, the Company invested an additional $100 million in FivePoint in a private placement. As of November 30, 2017, the Company owns approximately 40% of FivePoint and the carrying amount of the Company's investment is $359.2 million. As of November 30, 2017 and 2016, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $900.8 million and $811.7 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of November 30, 2017 and 2016 was $1.3 billion and $1.2 billion, respectively. The basis difference is primarily as a result of the Company contributing its investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to the Company. The Company's recorded investments in Lennar Homebuilding unconsolidated entities included $33.3 million of assets held-for-sale. During the year ended November 30, 2015, one of the Company's unconsolidated entities sold approximately 800 homesites to a joint venture, in which the Company has a 50% investment, for $472 million of which $320 million was financed through a non-recourse note. This transaction resulted in $157.4 million of gross profit, of which the Company's portion was deferred. The Company’s partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. The unconsolidated entities follow accounting principles that are in all material respects the same as those used by the Company. The Company shares in the profits and losses of these unconsolidated entities generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager under the direction of a management committee that has shared powers amongst the partners of the unconsolidated entities and the Company receives management fees and/or reimbursement of expenses for performing this function. During the years ended November 30, 2017, 2016 and 2015, the Company received management fees and reimbursement of expenses, net of deferrals, from Lennar Homebuilding unconsolidated entities totaling $4.4 million, $13.2 million and $31.3 million, respectively. The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the unconsolidated entities. Option prices are generally negotiated prices that approximate fair value when the Company receives the options. During the years ended November 30, 2017, 2016 and 2015, $226.2 million, $130.4 million and $177.6 million, respectively, of the unconsolidated entities’ revenues were from land sales to the Company. The Company does not include in its Lennar Homebuilding equity in earnings (loss) from unconsolidated entities its pro-rata share of unconsolidated entities’ earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the unconsolidated entities. This in effect defers recognition of the Company’s share of the unconsolidated entities’ earnings related to these sales until the Company delivers a home and title passes to a third-party homebuyer. 93 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Lennar Homebuilding 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 total debt of the Lennar Homebuilding unconsolidated entities in which the Company has investments was as follows: November 30, (Dollars in thousands) Non-recourse bank debt and other debt (partner’s share of several recourse) . . . . . . . . . $ Non-recourse land seller debt and other debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recourse debt with completion guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recourse debt without completion guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recourse debt to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company’s maximum recourse exposure (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 64,197 1,997 255,903 351,800 673,897 69,181 (5,747) Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 737,331 2016 48,945 323,995 147,100 320,372 840,412 52,438 (4,186) 888,664 The Company’s maximum recourse exposure as a % of total JV debt . . . . . . . . . . . . . . 9% 6% (1) Non-recourse land seller debt and other debt as of November 30, 2016, included a $320 million non-recourse note related to a transaction between one of the Company's unconsolidated entities and another unconsolidated joint venture, which was settled in December 2016. (2) As of November 30, 2017 and 2016, the Company's maximum recourse exposure was primarily related to the Company providing a repayment guarantee on three unconsolidated entities' debt and two unconsolidated entities' debt, respectively. In most instances in which the Company has guaranteed debt of a Lennar Homebuilding unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral. In connection with many of the loans to Lennar Homebuilding 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, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used. If the Company is required to make a payment under any guarantee, the payment would constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase the Company's investment in the unconsolidated entity and its share of any funds the entity distributes. As of both November 30, 2017 and 2016, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of November 30, 2017, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 7). 94 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 6. Lennar Homebuilding Operating Properties and Equipment Operating properties and equipment are included in Lennar Homebuilding other assets in the consolidated balance sheets and were as follows: (In thousands) Operating properties (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 188,073 52,185 79,082 319,340 (104,272) 215,068 151,461 40,513 68,579 260,553 (86,939) 173,614 (1) Operating properties primarily include rental operations and commercial properties. During the year ended November 30, 2017, the Company acquired an operating property with an allocated fair value of $34.0 million as part of the WCI acquisition and sold an operating property with a basis of $47.0 million. 7. Lennar Homebuilding Senior Notes and Other Debts Payable (Dollars in thousands) 6.95% senior notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.125% senior notes due December 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.500% senior notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% senior notes due 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.95% senior notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.750% senior notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.125% senior notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.750% senior notes due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.875% senior notes due December 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.500% senior notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.750% senior notes due 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.75% senior notes due 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.75% senior notes due December 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.25% senior notes due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage notes on land and other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2017 2016 249,342 274,459 498,793 598,325 298,305 497,329 595,904 569,484 394,964 645,353 496,671 892,657 — — 398,417 248,474 273,889 498,002 597,474 — 496,547 — 568,404 394,170 — 496,226 — 398,479 398,232 206,080 $ 6,410,003 4,575,977 The carrying amounts of the senior notes listed above are net of debt issuance costs of $33.5 million and $22.1 million, as of November 30, 2017 and 2016, respectively. In May 2017, the Company amended the credit agreement governing its unsecured revolving credit facility (the "Credit Facility") to increase the maximum borrowings from $1.8 billion to $2.0 billion and extended the maturity on $1.4 billion of the Credit Facility from June 2020 to June 2022, with $160 million maturing in June 2018 and the remaining $50 million maturing in June 2020. As of November 30, 2017, the Credit Facility included a $403 million accordion feature, subject to additional commitments. The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit agreement also provides that up to $500 million in commitments may be used for letters of credit. As of both November 30, 2017 and 2016, the Company had no outstanding borrowings under the Credit Facility. Under the Credit Facility agreement, the Company is required to maintain a minimum consolidated tangible net worth, a maximum leverage ratio and either a liquidity or an interest coverage ratio. These ratios are calculated per the Credit Facility agreement, which involves adjustments to GAAP financial measures. The Company believes it was in compliance with its debt covenants at November 30, 2017. In addition, the Company had $330 million in letter of credit facilities with different financial institutions at November 30, 2017. 95 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company’s performance letters of credit outstanding were $384.4 million and $270.8 million at November 30, 2017 and 2016, respectively. The Company’s financial letters of credit outstanding were $127.4 million and $210.3 million at November 30, 2017 and 2016, respectively. Performance letters of credit are generally posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities. Financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2017, the Company had outstanding surety bonds of $1.3 billion including performance surety bonds related to site improvements at various projects (including certain projects of the Company’s joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of November 30, 2017, there were approximately $570.4 million, or 44%, of anticipated future costs to complete related to these site improvements. The Company does not presently anticipate any draws upon these bonds or letters of credit, but if any such draws occur, the Company does not believe they would have a material effect on its financial position, results of operations or cash flows. The terms of each of the Company's senior notes outstanding at November 30, 2017 were as follows: Senior Notes Outstanding (1) (Dollars in thousands) 6.95% senior notes due 2018 . . . . . . . . . . . . . . . 4.125% senior notes due December 2018. . . . . . 4.500% senior notes due 2019 . . . . . . . . . . . . . . 4.50% senior notes due 2019 . . . . . . . . . . . . . . . 2.95% senior notes due 2020 . . . . . . . . . . . . . . . 4.750% senior notes due 2021 . . . . . . . . . . . . . . 4.125% senior notes due 2022 . . . . . . . . . . . . . . 4.750% senior notes due 2022 . . . . . . . . . . . . . . Principal Amount Net Proceeds (2) Price Dates Issued $ 250,000 243,900 98.929% 275,000 271,718 99.998% 500,000 495,725 600,000 595,801 300,000 298,800 500,000 495,974 600,000 575,000 595,160 567,585 (3) (4) 100% 100% 100% (5) May 2010 February 2013 February 2014 November 2014, February 2015 November 2017 March 2016 January 2017 October 2012, February 2013, April 2013 4.875% senior notes due December 2023. . . . . . 4.500% senior notes due 2024 . . . . . . . . . . . . . . 4.750% senior notes due 2025 . . . . . . . . . . . . . . 4.75% senior notes due 2027 . . . . . . . . . . . . . . . 400,000 393,622 99.169% November 2015 650,000 644,838 500,000 495,528 900,000 894,650 100% 100% 100% April 2017 April 2015 November 2017 (1) Interest is payable semi-annually for each of the series of senior notes. The senior notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries. (2) The Company generally uses the net proceeds for working capital and general corporate purposes, which can include the repayment or repurchase of other outstanding senior notes. (3) The Company issued $400 million aggregate principal amount at a price of 100% and $100 million aggregate principal amount at a price of 100.5%. (4) The Company issued $350 million aggregate principal amount at a price of 100% and $250 million aggregate principal amount at a price of 100.25%. (5) The Company issued $350 million aggregate principal amount at a price of 100%, $175 million aggregate principal amount at a price of 98.073% and $50 million aggregate principal amount at a price of 98.250%. In November 2017, the Company redeemed the $400 million principal amount of its 4.75% Senior Notes due 2017. The redemption price, which was paid in cash, was 100% of the principal amount plus accrued interest. In November 2017, the Company issued $300 million aggregate principal amount of 2.95% Senior Notes due 2020 (the “2.95% Senior Notes”) and $900 million aggregate principal amount of its 4.750% Senior Notes due 2027 (the “4.750% Senior Notes”) at a price of 100% in a private placement. Proceeds from the offering, after payment of initial purchaser’s discount and certain expenses, were $1.19 billion. The Company intends to use the net proceeds of this offering to fund a portion of the Cash Election Option payable by the Company in connection with the CalAtlantic merger (the “Merger”), to pay expenses related to the Merger and for general corporate purposes. Interest on the 2.95% Senior Notes and 4.750% Senior Notes is due semi-annually beginning May 29, 2018. The 2.95% Senior Notes and 4.750% Senior Note are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries. In August 2017, the Company redeemed the $250 million principal amount of the 6.875% senior notes due 2021 (the "6.875% Senior Notes") that we assumed as a result of the acquisition of WCI in February 2017. The redemption price, which was paid in cash, was 103.438% of the principal amount, plus accrued and unpaid interest up to, but not 96 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) including, the redemption date. There was no gain or loss recorded on redemption of the 6.875% senior notes as it had been recorded at fair value on the acquisition date. In April 2017, the Company issued $650 million aggregate principal amount of 4.50% senior notes due 2024 (the "4.50% Senior Notes") at a price of 100%. Proceeds from the offering, after payment of expenses, were $644.8 million. The Company used the net proceeds from the sales of the 4.500% Senior Notes for (1) the retirement of its 12.25% senior notes due 2017 for 100% of the $400 million outstanding principal amount, plus accrued and unpaid interest and (2) the redemption of its 6.875% senior notes due 2021 for 103.438% of the $250 million outstanding principal amount plus accrued but unpaid interest up to, but not including, the redemption date. Interest on the 4.50% Senior Notes is due semi-annually beginning October 30, 2017. The 4.50% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries. In January 2017, the Company issued $600 million aggregate principal amount of 4.125% senior notes due 2022 (the "4.125% Senior Notes") at a price of 100%. Proceeds from the offering, after payment of expenses, were $595.2 million. The Company used the net proceeds from the sales of the 4.125% Senior Notes to fund a portion of the cash consideration for the Company's acquisition of WCI and to pay for costs and expenses related to this acquisition as well as for general corporate purposes. Interest on the 4.125% Senior Notes is due semi-annually beginning July 15, 2017. The 4.125% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries. The Company's senior notes are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries and some of the Company's other subsidiaries. Although the guarantees are full, unconditional and joint and several while they are in effect, (i) a subsidiary will cease to be a guarantor at any time when it is not directly or indirectly guaranteeing at least $75 million of debt of Lennar Corporation (the parent company), and (ii) a subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of. At November 30, 2017, the Company had mortgage notes on land and other debt due at various dates through 2036 bearing interest at rates up to 7.5% with an average interest rate of 3.1%. At November 30, 2017 and 2016, the carrying amount of the mortgage notes on land and other debt was $398.4 million and $206.1 million, respectively. During the years ended November 30, 2017 and 2016, the Company retired $139.7 million and $211.0 million, respectively, of mortgage notes on land and other debt. The minimum aggregate principal maturities of senior notes and other debts payable during the five years subsequent to November 30, 2017 and thereafter are as follows: (In thousands) 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt Maturities 357,655 1,481,943 371,104 534,095 1,192,260 2,511,447 The Company expects to pay its near-term maturities as they come due through cash generated from operations, the issuance of additional debt or equity offerings as well as borrowings under the Company's Credit Facility. 97 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 8. Lennar Financial Services Segment The assets and liabilities related to the Lennar Financial Services segment were as follows: (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held-for-sale (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held-for-investment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments available-for-sale (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2017 2016 117,410 12,006 313,252 937,516 44,193 52,327 57,439 59,838 95,527 123,964 17,053 409,528 939,405 30,004 41,991 53,570 39,838 99,319 $ 1,689,508 1,754,672 Liabilities: Notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937,431 240,383 $ 1,177,814 1,077,228 241,055 1,318,283 (1) Receivables, net, primarily related to loans sold to investors for which the Company had not yet been paid as of November 30, 2017 and 2016, respectively. (2) Loans held-for-sale related to unsold loans carried at fair value. (3) Investments available-for-sale are carried at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss). (4) As of November 30, 2017, goodwill included $20 million related to the WCI acquisition. The amount provided herein is provisional, pending completion of the fair value analysis of WCI's acquired assets and liabilities assumed. (5) As of November 30, 2017 and 2016, other assets included mortgage loan commitments carried at fair value of $9.9 million and $7.4 million, respectively, and mortgage servicing rights carried at fair value of $31.2 million and $23.9 million, respectively. In addition, other assets also included forward contracts carried at fair value of $1.7 million and $26.5 million as of November 30, 2017 and November 30, 2016, respectively. (6) As of November 30, 2017 and 2016, other liabilities included $57.7 million and $57.4 million, respectively, of certain of the Company’s self-insurance reserves related to construction defects, general liability and workers’ compensation. At November 30, 2017, the Lennar Financial Services segment warehouse facilities were as follows: (In thousands) 364-day warehouse repurchase facility that matures December 2017 (1) (2) . . . . . . . . . . . . . . . . . . . . . $ 364-day warehouse repurchase facility that matures March 2018 (3). . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures June 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures September 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Maximum Aggregate Commitment 400,000 150,000 600,000 300,000 1,450,000 (1) Maximum aggregate commitment includes an uncommitted amount of $250 million. (2) Subsequent to November 30, 2017, the warehouse repurchase facility maturity was extended to December 2018. (3) Maximum aggregate commitment includes an uncommitted amount of $75 million. The Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to the Company and are expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $937.2 million and $1.1 billion at November 30, 2017 and 2016, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $974.1 million and $1.1 billion at November 30, 2017 and 2016, respectively. The combined effective interest rate on the facilities at November 30, 2017 was 3.6%. If the facilities are not renewed or replaced, 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 Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities. 98 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 9. Rialto Segment The assets and liabilities related to the Rialto segment were as follows: (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held-for-sale (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2017 2016 241,861 22,466 — 236,018 1,933 86,047 265,418 179,659 120,438 148,827 9,935 204,518 126,947 111,608 243,703 245,741 71,260 113,671 $ 1,153,840 1,276,210 Liabilities: Notes and other debts payable (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 625,081 94,975 720,056 622,335 85,645 707,980 (1) Receivables, net primarily related to loans sold but not settled as of November 30, 2016. (2) Loans held-for-sale related to unsold loans originated by RMF carried at fair value and loans in the FDIC Portfolios carried at lower of cost or market. (3) As of November 30, 2017 and 2016, notes and other debts payable primarily included $349.4 million and $348.7 million, respectively, related to Rialto's 7.00% senior notes due 2018 (the "7.00% Senior Notes"), and $162.1 million and $223.5 million, respectively, related to Rialto's warehouse repurchase facilities. Rialto Mortgage Finance - loans held-for-sale During the year ended November 30, 2017, RMF originated loans with a total principal balance of $1.7 billion of which $1.6 billion were recorded as loans held-for-sale and $98.4 million were recorded as accrual loans within loans receivable, net, and sold $1.5 billion of loans into 12 separate securitizations. During the year ended November 30, 2016, RMF originated loans with a principal balance of $1.8 billion of which $1.7 billion were recorded as loans held-for-sale and $81.2 million were recorded as accrual loans within loans receivable, net, and sold $1.9 billion of loans into 11 separate securitizations. As of November 30, 2017, there were no unsettled transactions. As of November 30, 2016, originated loans with an unpaid principal balance of $199.8 million were sold into a securitization trust but not settled and thus were included as receivables, net. FDIC Portfolios In 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies ("LLCs") in partnership with the FDIC Portfolios. The LLCs met the accounting definition of VIEs and since the Company was determined to be the primary beneficiary, the Company consolidated the LLCs. The Company was determined to be the primary beneficiary because it has the power to direct the activities of the LLCs that most significantly impact the LLCs' performance through Rialto's management and servicer contracts. In February 2017, the FDIC exercised its “clean-up call rights” under the Amended and Restated Limited Liability Company Agreement. As a result, Rialto had until July 10, 2017 to liquidate and sell the assets in the FDIC Portfolios. On July 10, 2017, Rialto and the FDIC entered into an agreement which extended the original agreement date to January 10, 2018. At November 30, 2017, the consolidated LLCs had total combined assets of $48.8 million, which primarily included $23.8 million in cash, $20.0 million of real estate owned, net and $1.6 million of loans held-for-sale. As of January 11, 2018, (1) the FDIC can, at its discretion, sell any remaining assets, or (2) Rialto has the option to purchase the FDIC's interest in the portfolios. As of January 19, 2018, there were only four assets with a carrying value totaling $0.3 million which were not under contract to sell. 99 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) At November 30, 2017, Rialto warehouse facilities were as follows: (In thousands) Warehouse repurchase facility that matures December 2017 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364-day warehouse repurchase facility that matures January 2018 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures October 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364-day warehouse repurchase facility that matures November 2018 (one year extension) . . . . . . . . . . . Maximum Aggregate Commitment 200,000 250,000 400,000 200,000 Total - Loans origination and securitization business (RMF). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,050,000 Warehouse repurchase facility that matures August 2018 (two - one year extensions) (3). . . . . . . . . . . . . 100,000 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,150,000 (1) Subsequent to November 30, 2017, the warehouse repurchase facility maturity date was extended to December 2019. (2) Subsequent to November 30, 2017, the warehouse repurchase facility maturity date was extended to December 2018 and maximum aggregate commitment of the facility was reduced to $200 million. (3) Rialto uses this warehouse repurchase facility to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans receivable, net. There were no borrowings under this facility as of November 30, 2017. Borrowings under this facility were $43.3 million as of November 30, 2016. Borrowings under the facilities that finance RMF's loan originations and securitization activities were $162.1 million and $180.2 million as of November 30, 2017 and 2016, respectively, and were secured by a 75% interest in the originated commercial loans financed. The facilities require immediate repayment of the 75% interest in the secured commercial loans when the loans are sold in a securitization and the proceeds are collected. These warehouse repurchase facilities are non-recourse to the Company and are expected to be renewed or replaced with other facilities when they mature. If the facilities are not renewed or replaced, the borrowings under the lines of credit will be paid off by selling the loans held-for-sale to investors. Without the facilities, the Rialto segment would have to use cash from operations and other funding sources to finance its lending activities. Investments in Unconsolidated Entities Generally, all of Rialto's investments in funds have the attributes of an investment company in accordance with ASC 946, Financial Services – Investment Companies, as amended by ASU 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, the attributes of which are different from the attributes that would cause a company to be an investment company for purposes of the Investment Company Act of 1940. As a result, the assets and liabilities of the funds in which Rialto has investments in are recorded at fair value with increases/decreases in fair value recorded in their respective statements of operations and the Company’s share is recorded in Rialto equity in earnings from unconsolidated entities in the Company's statement of operations. The following table reflects Rialto's investments in funds that invest in and manage real estate related assets and other investments: November 30, 2017 November 30, 2017 November 30, 2016 (Dollars in thousands) Rialto Real Estate Fund, LP . . Rialto Real Estate Fund II, LP. Rialto Mezzanine Partners Fund, LP. . . . . . . . . . . . . . . Rialto Capital CMBS Funds . . Rialto Real Estate Fund III . . . Rialto Credit Partnership, LP. . Other investments . . . . . . . . . . Inception Year Equity Commitments Equity Commitments Called Commitment to Fund by the Company Funds Contributed by the Company Investment 2010 2012 2013 2014 2015 2016 $ 700,006 $ 700,006 $ 75,000 $ 75,000 $ 41,860 1,305,000 1,305,000 100,000 100,000 86,904 300,000 119,174 1,887,000 220,000 300,000 119,174 569,482 159,886 33,799 52,474 140,000 19,999 33,799 52,474 40,104 14,534 19,189 54,018 41,223 13,288 8,936 58,116 96,192 23,643 50,519 9,093 5,794 2,384 $ 265,418 245,741 During the years ended November 30, 2017, 2016 and 2015, Rialto received $7.3 million, $10.1 million and $20.0 million, respectively, of advance distributions with regard to Rialto's carried interests in its real estate funds in order to cover income tax obligations resulting from allocations of taxable income to Rialto's carried interests in these funds. In addition, during the year ended November 30, 2017, Rialto received $36.8 million of distributions with regard 100 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) to its carried interest in its real estate funds. Rialto Real Estate Fund, LP. These incentive income distributions are not subject to clawbacks and therefore are included in Rialto's revenues. During 2015, Rialto adopted a Carried Interest Incentive Plan (the "Plan"), under which participating employees in the aggregate may receive up to 40% of the equity units of a limited liability company (a "Carried Interest Entity") that is entitled to carried interest distributions made by a fund or other investment vehicle (a "Fund") managed by a subsidiary of Rialto. As such, those employees receiving equity units in a Carried Interest Entity may benefit from distributions made by a Fund to the extent the Carried Interest Entity makes distributions to its equity holders. The units issued to employees are equity awards and are subject to vesting schedules and forfeiture or repurchase provisions in the case of a termination of employment. Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows: Balance Sheets November 30, 2017 2016 (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Loans receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,552 538,317 348,601 1,849,795 393,874 42,949 Liabilities and equity: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Notes payable (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,374 576,810 2,643,904 3,269,088 $ 3,269,088 230,229 406,812 439,191 1,379,155 398,535 29,036 2,882,958 36,131 532,264 2,314,563 2,882,958 (1) Notes payable are net of debt issuance costs of $3.1 million and $2.9 million, as of November 30, 2017 and 2016, respectively. Statements of Operations (In thousands) Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . $ 2017 238,981 104,343 109,927 244,565 25,447 2016 200,346 96,343 49,342 153,345 18,961 2015 170,921 97,162 144,941 218,700 22,293 Years Ended November 30, (1) Other income, net included realized and unrealized gains (losses) on investments. Investments held-to-maturity At November 30, 2017 and 2016, the carrying value of Rialto's commercial mortgage-backed securities ("CMBS") was $179.7 million and $71.3 million, respectively. These securities were purchased at discount rates ranging from 9% to 84% with coupon rates ranging from 1.3% to 5.0%, stated and assumed final distribution dates between November 2020 and October 2027, and stated maturity dates between November 2043 and March 2059. During 2017, Rialto purchased a 5% vertical strip in three separate CMBS transactions. A vertical interest is an equal interest in each class of securities issued in the securitization (e.g., 5.0% of each class) or a single vertical security entitling the holder to a specific percentage of the amounts paid on each class of those securities. As part of the Dodd-Frank Wall Street Reform and Protection Act that came into effect in December 2016, originators that contribute loans to a CMBS trust are required to satisfy risk retention rules. Some risk retention rules permit the retention of risk by third parties, and the risk may be held by purchasing vertical, horizontal or other combined strips in a securitization. The Rialto segment reviews changes in estimated cash flows periodically to determine if an other-than- temporary impairment has occurred on its CMBS. Based on management’s assessment, no impairment charges were 101 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) recorded during any of the years ended November 30, 2017, 2016 and 2015. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity. 10. Lennar Multifamily Segment The Company is actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. The Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. The assets and liabilities related to the Lennar Multifamily segment were as follows: (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Receivables (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land under development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ November 30, 2017 2016 8,676 69,678 208,618 407,544 16,209 710,725 149,715 149,715 6,600 58,929 139,713 318,559 2,330 526,131 117,973 117,973 (1) Receivables primarily related to general contractor services, net of deferrals and management fee income receivables due from unconsolidated entities as of November 30, 2017 and 2016. The unconsolidated entities in which the Lennar Multifamily segment has investments usually finance their activities with a combination of partner equity and debt financing. In connection with many of the loans to Lennar Multifamily unconsolidated entities, the Company (or entities related to them) has been required to give guarantees of completion and cost over-runs to the lenders and partners. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. Additionally, the Company guarantees the construction costs of the project as construction cost over-runs would be paid by the Company. Generally, these payments would be increases to the Company's investment in the entities and would increase its share of funds the entities distribute after the achievement of certain thresholds. As of both November 30, 2017 and 2016, the fair value of the completion guarantees was immaterial. Additionally, as of November 30, 2017 and 2016, the Lennar Multifamily segment had $4.7 million and $32.0 million, respectively, of letters of credit outstanding primarily for credit enhancements for the bank debt of certain of its unconsolidated entities and deposits on land purchase contracts. These letters of credit outstanding are included in the disclosure in Note 7 related to the Company's performance and financial letters of credit. As of November 30, 2017 and 2016, the Lennar Multifamily segment's unconsolidated entities had non- recourse debt with completion guarantees of $896.7 million and $589.4 million, respectively. In many instances, the Lennar Multifamily segment is appointed as the construction, development and property manager of certain of its Lennar Multifamily unconsolidated entities and receives fees for performing this function. During the years ended November 30, 2017, 2016 and 2015, the Lennar Multifamily segment received fee income, net of deferrals, from its unconsolidated entities of $53.8 million, $38.5 million and $27.2 million, respectively. The Lennar Multifamily segment also provides general contractor services for construction of some of the rental properties owned by unconsolidated entities in which the Company has investments. During the years ended November 30, 2017, 2016 and 2015, the Lennar Multifamily segment provided general contractor services, net of deferrals, totaling $341.0 million, $237.1 million and $142.7 million, respectively, which were offset by costs related to those services of $330.4 million, $228.6 million and $138.6 million, respectively. The Lennar Multifamily Venture (the "Venture") is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by Lennar comprised of cash, undeveloped land and preacquisition costs. During the year ended November 30, 2017, $586.4 million in equity commitments were called, of which the Company contributed its portion of $134.9 million. During the year ended November 30, 2017, the Company received $26.8 million distributions as a return of capital from the Venture. As of November 30, 2017, $1.5 billion of the $2.2 billion in equity commitments had been called, of which the Company has contributed $350.7 million representing its pro-rata portion of the called equity, resulting in a remaining equity commitment for the Company of $153.3 million. As of November 30, 2017 and 2016, the carrying value of the Company's investment in the Venture was $323.8 million and $198.2 million, respectively. 102 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Summarized condensed financial information on a combined 100% basis related to Lennar Multifamily's investments in unconsolidated entities that are accounted for by the equity method was as follows: Balance Sheets November 30, 2017 2016 (In thousands) Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Operating properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,073 2,952,070 36,772 Liabilities and equity: Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Notes payable (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 212,123 879,047 1,934,745 3,025,915 $ 3,025,915 43,658 2,210,627 33,703 2,287,988 196,617 577,085 1,514,286 2,287,988 (1) Notes payable are net of debt issuance costs of $17.6 million and $12.3 million, as of November 30, 2017 and 2016, respectively. Statements of Operations (In thousands) Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings of unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily equity in earnings from unconsolidated entities (1). . $ Years Ended November 30, 2017 2016 2015 67,578 108,610 207,793 166,761 85,739 45,287 68,976 191,385 167,696 85,519 16,309 27,190 43,340 32,459 19,518 (1) During the year ended November 30, 2017, 2016 and 2015, the Lennar Multifamily segment sold seven, seven and two operating properties, respectively, through its unconsolidated entities resulting in the segment's $96.7 million, $91.0 million and $22.2 million share of gains, respectively. 103 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 11. Income Taxes The benefit (provision) for income taxes consisted of the following: (In thousands) Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Years Ended November 30, 2017 2016 2015 (309,235) (17,572) (326,807) (40,641) (50,409) (91,050) (417,857) (300,116) (19,777) (319,893) (43,775) (53,710) (97,485) (417,378) (343,635) (52,420) (396,055) 12,872 (7,233) 5,639 (390,416) A reconciliation of the statutory rate and the effective tax rate was as follows: Percentage of Pretax Income 2017 2016 2015 Statutory rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State income taxes, net of federal income tax benefit . . . . . . . Domestic production activities deduction . . . . . . . . . . . . . . . . Tax reserves and interest expense. . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset valuation allowance . . . . . . . . . . . . . . . . . . State net operating loss adjustment (1). . . . . . . . . . . . . . . . . . . Tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.00% 3.29 (2.77) 0.27 0.17 — (2.03) 0.09 34.02% 35.00% 3.21 (2.78) (0.89) (0.01) — (3.46) 0.33 31.40% 35.00% 3.22 (3.01) 2.64 (0.09) (3.00) (1.92) (0.12) 32.72% (1) During the year ended November 30, 2015, the Company recorded a benefit for additional state net operating loss carryforwards as a result of the conclusion of a state tax examination. 104 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax assets were as follows: (In thousands) Deferred tax assets: Inventory valuation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Reserves and accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto investments in partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets after valuation allowance. . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Capitalized expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ The detail of the Company's net deferred tax assets were as follows: November 30, 2017 2016 54,511 164,868 100,338 15,705 197,204 38,627 68,857 640,110 (6,423) 633,687 79,440 244,969 11,583 335,992 297,695 56,733 198,270 92,362 11,352 106,270 42,796 57,890 565,673 (5,773) 559,900 30,632 226,195 25,675 282,502 277,398 (In thousands) Net deferred tax assets (liabilities): (1) Lennar Homebuilding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 279,900 21,944 (1,176) (2,973) 297,695 249,714 26,547 5,919 (4,782) 277,398 (1) Net deferred tax assets and net deferred tax liabilities detailed above are included within other assets and other liabilities in the respective segments. A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed each reporting period by the Company based on the consideration of all available positive and negative evidence using a "more-likely-than-not" standard with respect to whether deferred tax assets will be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, actual earnings, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards not expiring unused and tax planning alternatives. As of November 30, 2017 and 2016, the net deferred tax assets included a valuation allowance of $6.4 million and $5.8 million, respectively, primarily related to state net operating loss ("NOL") carryforwards that are not more likely than not to be utilized due to an inability to carry back these losses in most states and short carryforward periods that exist in certain states. During the year ended November 30, 2016, the Company reversed $0.2 million, of valuation allowance primarily due to the utilization of state net operating losses. During the year ended November 30, 2017, the Company increased its valuation allowance against deferred tax assets relating to state net operating losses by $0.7 million. At November 30, 2017 and 2016, the Company had federal tax effected NOL carryforwards totaling $34.1 million and $1.8 million, respectively, that may be carried forward up to 20 years to offset future taxable income and begin to expire in 2029. At November 30, 2017 and 2016, the Company had state tax effected NOL carryforwards 105 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) totaling $66.2 million and $90.6 million, respectively, that may be carried forward from 5 to 20 years, depending on the tax jurisdiction, with losses expiring between 2018 and 2036. The following table summarizes the changes in gross unrecognized tax benefits: (In thousands) Gross unrecognized tax benefits, beginning of year. . . . . . . . . . . . . . . $ Increase due to tax positions taken during prior period (1) . . . . . . . . . Gross unrecognized tax benefits, end of year. . . . . . . . . . . . . . . . . . . . $ Years Ended November 30, 2017 2016 2015 12,285 — 12,285 12,285 — 12,285 7,257 5,028 12,285 (1) Increased the Company's effective tax rate for the year ended November 30, 2015 from 32.30% to 32.72% due to state audits. If the Company were to recognize its gross unrecognized tax benefits as of November 30, 2017, $8.0 million would affect the Company’s effective tax rate. The Company does not expect the total amount of unrecognized tax benefits to increase or decrease by a material amount within the following twelve months. The following summarizes the changes in interest and penalties accrued with respect to gross unrecognized tax benefits: (In thousands) Accrued interest and penalties, beginning of the year . . . . . . . . . . . . . . . . . . . . . . . $ Accrual of interest and penalties (primarily related to federal and state audits) . . . Reduction of interest and penalties (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest and penalties, end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 45,973 4,184 (434) 49,723 65,145 3,251 (22,423) 45,973 (1) The Company's accrual for interest and penalties was reduced during the year ended November 30, 2016 primarily due to a settlement with the IRS. The IRS is currently examining the Company’s federal income tax returns for fiscal year 2016, 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 2005 and subsequent years. The Company participates in an IRS examination program, Compliance Assurance Process, "CAP." This program operates as a contemporaneous exam throughout the year in order to keep exam cycles current and achieve a higher level of compliance. On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act. This Act will materially affect the taxes owed by the Company in 2018 and subsequent years. Among other things, it will reduce the maximum federal corporate income tax rate to 21%, which should have a positive effect on the Company's net earnings and earnings per share. It will also limit or eliminate certain deductions to which the Company has been entitled in past years and it will reduce the value of the Company's deferred tax assets, which will require the Company to recognize in the first quarter of fiscal year 2018 a charge against earnings for impairment of those assets of approximately $70 million. 106 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 12. Earnings Per Share Basic and diluted earnings per share were calculated as follows: (In thousands, except per share amounts) 2017 2016 2015 Years Ended November 30, Numerator: Net earnings attributable to Lennar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 810,480 Less: distributed earnings allocated to nonvested shares . . . . . . . . . . . . . . . . . Less: undistributed earnings allocated to nonvested shares . . . . . . . . . . . . . . . 377 7,447 Numerator for basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 802,656 Less: net amount attributable to noncontrolling interests in Rialto's Carried Interest Incentive Plan (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plus: interest on 3.25% convertible senior notes due 2021. . . . . . . . . . . . . . . . Plus: undistributed earnings allocated to convertible shares . . . . . . . . . . . . . . Less: undistributed earnings reallocated to convertible shares. . . . . . . . . . . . . 1,009 — — — 911,844 337 8,852 902,655 1,028 5,528 8,852 8,438 802,894 361 8,371 794,162 4,120 7,928 8,371 7,528 Numerator for diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 801,647 907,569 798,813 Denominator: Denominator for basic earnings per share - weighted average common shares outstanding (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,155 223,079 209,847 Effect of dilutive securities: Share-based payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 — 3 12,288 9 25,614 Denominator for diluted earnings per share - weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per share (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings per share (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 237,156 235,370 235,470 3.38 3.38 4.05 3.86 3.78 3.39 (1) The amounts presented above relate to Rialto's Carried Interest Incentive Plan adopted in June 2015 (see Note 9) and represent the difference between the advanced tax distributions received by Rialto's subsidiary and the amount Lennar, as the parent company, is assumed to own. (2) The weighted average common shares for the periods presented have been retroactively adjusted to include 4.7 million of Class B shares distributed as part of the stock dividend on November 27, 2017. As a result, basic and diluted earnings per share have also been retroactively adjusted. For the years ended November 30, 2017, 2016 and 2015, there were no options to purchase shares of common stock that were outstanding and anti-dilutive. 13. Capital Stock Preferred Stock The Company is authorized to issue 500,000 shares of preferred stock with a par value of $10 per share and 100 million shares of participating preferred stock with a par value of $0.10 per share. No shares of preferred stock or participating preferred stock have been issued as of November 30, 2017 and 2016. Common Stock During each of the years ended November 30, 2017, 2016 and 2015, the Company’s Class A and Class B common stockholders received a per share annual dividend of $0.16. The only significant difference between the Class A common stock and Class B common stock is that Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share. On November 27, 2017, we paid a stock dividend of one share of Class B common stock for each 50 shares of Class A common stock or Class B common stock to holders of record at the close of business on November 10, 2017, as declared by the Company's Board of Directors on October 30, 2017. As of November 30, 2017, Stuart Miller, the Company’s Chief Executive Officer and a Director, directly owned, or controlled through family-owned entities, shares of Class A and Class B common stock, which represented approximately 39% voting power of the Company’s stock. The Company has a stock repurchase program adopted in 2001, which originally authorized the purchase of up to 20 million shares of its outstanding common stock. During the years ended November 30, 2017, 2016 and 2015, there were no share repurchases of common stock under the stock repurchase program. As of November 30, 2017, the 107 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) remaining authorized shares that could be purchased under the stock repurchase program were 6.2 million shares of common stock. During the years ended November 30, 2017 and 2016, treasury stock increased by 0.6 million shares and 0.1 million shares of Class A common stock, respectively, primarily due to activity related to the Company's equity compensation plan. Restrictions on Payment of Dividends There are no restrictions on the payment of dividends on common stock by the Company. There are no agreements which restrict the payment of dividends by subsidiaries of the Company other than (i) the need to maintain the financial ratios and net worth requirements under the Lennar Financial Services segment’s warehouse lines of credit, which restrict the payment of dividends from the Company’s mortgage subsidiaries following the occurrence and during the continuance of an event of default thereunder and limit dividends to 50% of net income in the absence of an event of default, and (ii) the restriction under Rialto's 7.00% Senior Notes indenture that limits Rialto's ability to make distributions to Lennar. 401(k) Plan Under the Company’s 401(k) Plan (the "Plan"), contributions made by associates can be invested in a variety of mutual funds or proprietary funds provided by the Plan trustee. The Company may also make contributions for the benefit of associates. The Company records as compensation expense its contribution to the Plan. For the years ended November 30, 2017, 2016 and 2015, this amount was $17.2 million, $15.7 million and $13.5 million, respectively. 14. Share-Based Payments Compensation expense related to the Company’s share-based awards was as follows: (In thousands) Nonvested shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Stock options (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,356 — Total compensation expense for share-based awards . . . . . . . . . . $ 61,356 55,516 — 55,516 43,742 131 43,873 Years ended November 30, 2017 2016 2015 (1) Stock options expense relates to stock option awards granted to Lennar's non-employee directors for the year ended November 30, 2015. The fair value of these stock option awards was estimated on the date of grant using a Black-Scholes option- pricing model. Cash flows resulting from tax benefits related to tax deductions in excess of the compensation expense recognized are classified as financing cash flows. For the years ended November 30, 2017, 2016 and 2015 there was $2.0 million, $7.0 million, and $0.1 million, respectively, of excess tax benefits from share-based awards primarily related to nonvested shares. The fair value of nonvested shares is determined based on the trading price of the Company’s common stock on the grant date. The weighted average fair value of nonvested shares granted during the years ended November 30, 2017, 2016 and 2015 was $51.92, $45.10 and $49.01, respectively. A summary of the Company’s nonvested shares activity for the year ended November 30, 2017, adjusted for the Class B stock dividend, was as follows: Nonvested shares at November 30, 2016 (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonvested shares at November 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares 2,328,614 $ $ 1,348,065 (1,227,865) $ (48,948) $ $ 2,399,866 Weighted Average Grant Date Fair Value 45.95 51.92 45.88 46.45 49.33 (1) Nonvested shares and weighted average fair value at November 30, 2016 have been adjusted to reflect the Class B shares issued as a part of the stock dividend on November 27, 2017. At November 30, 2017, there was $79.2 million of unrecognized compensation expense related to unvested share-based awards granted under the Company’s share-based payment plan, all of which relates to nonvested shares with a weighted average remaining contractual life of 2.0 years. For the years ended November 30, 2017, 2016 and 2015, 1.2 million, 1.1 million and 1.2 million nonvested shares, respectively, were vested each year. 108 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 15. Financial Instruments and Fair Value Disclosures The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at November 30, 2017 and 2016, 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, net, and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. Fair Value Carrying Amount November 30, 2017 2016 Fair Value Carrying Amount Fair Value Hierarchy (In thousands) ASSETS Rialto: Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . Level 3 Investments held-to-maturity . . . . . . . . . . . . . . . . . . . Level 3 Lennar Financial Services: Loans held-for-investment, net . . . . . . . . . . . . . . . . . . Level 3 Investments held-to-maturity . . . . . . . . . . . . . . . . . . . Level 2 LIABILITIES Lennar Homebuilding senior notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Level 2 Rialto notes and other debts payable. . . . . . . . . . . . . . Level 2 Lennar Financial Services notes and other debts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Level 2 $ $ $ $ 1,933 179,659 1,933 199,190 111,608 71,260 113,747 69,992 44,193 52,327 41,795 52,189 30,004 41,991 31,233 42,058 $ 6,410,003 6,598,848 4,575,977 4,669,643 $ $ 625,081 644,644 622,335 646,366 937,431 937,431 1,077,228 1,077,228 The following methods and assumptions are used by the Company in estimating fair values: Rialto—The fair values for loans receivable, net are based on the fair value of the collateral less estimated cost to sell or discounted cash flows, if estimable. The fair value for investments held-to-maturity is based on discounted cash flows. For notes and other debts payable, the fair value is calculated based on discounted cash flows using quoted interest rates and for the warehouse repurchase financing agreements fair values approximate their carrying value due to their short-term maturities. Lennar 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. For notes and other debts payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the borrowings. Lennar Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is primarily based on quoted market prices and the fair value of variable-rate borrowings is based on expected future cash flows calculated using current market forward rates. Fair Value Measurements GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows: Level 1: Fair value determined based on quoted prices in active markets for identical assets. Level 2: Fair value determined using significant other observable inputs. Level 3: Fair value determined using significant unobservable inputs. 109 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The Company’s financial instruments measured at fair value on a recurring basis are summarized below: (In thousands) Rialto Financial Assets: Fair Value Hierarchy Fair Value at November 30, 2017 Fair Value at November 30, 2016 RMF loans held-for-sale (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit default swaps (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Level 3 Level 2 Lennar Financial Services Assets: Loans held-for-sale (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Level 2 Level 1 Level 2 Level 2 Level 3 $ $ $ $ $ $ $ 234,403 995 937,516 57,439 9,873 1,681 31,163 126,947 2,863 939,405 53,570 7,437 26,467 23,930 (1) The aggregate fair value of Rialto loans held-for-sale of $234.4 million at November 30, 2017 were below their aggregate principal balance of $235.4 million by $1.0 million. The aggregate fair value of Rialto loans held-for-sale of $126.9 million at November 30, 2016 were below their aggregate principal balance of $127.8 million by $0.9 million. (2) Rialto's credit default swaps are included within Rialto's other assets. (3) The aggregate fair value of Lennar Financial Services loans held-for-sale of $937.5 million at November 30, 2017 exceeds their aggregate principal balance of $908.8 million by $28.7 million. The aggregate fair value of Lennar Financial Services loans held- for-sale of $939.4 million at November 30, 2016 exceeds their aggregate principal balance of $931.0 million by $8.4 million. The estimated fair values of the Company’s financial instruments have been determined by 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 following methods and assumptions are used by the Company in estimating fair values: Rialto loans held-for-sale— The fair value of loans held-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. Loan values are calculated by allocating the change in value of an assumed CMBS capital structure to each loan. The value of an assumed CMBS capital structure is calculated, generally, by discounting the cash flows associated with each CMBS class at market interest rates and at the Company’s own estimate of CMBS spreads. The Company estimates CMBS spreads by observing the pricing of recent CMBS offerings, secondary CMBS markets, changes in the CMBX index, and general capital and commercial real estate market conditions. Considerations in estimating CMBS spreads include comparing the Company’s current loan portfolio with comparable CMBS offerings containing loans with similar duration, credit quality and collateral composition. These methods use unobservable inputs in estimating a discount rate that is used to assign a value to each loan. While the cash payments on the loans are contractual, the discount rate used and assumptions regarding the relative size of each class in the CMBS capital structure can significantly impact the valuation. Therefore, the estimates used could differ materially from the fair value determined when the loans are sold to a securitization trust. Rialto credit default swaps— The fair value of credit default swaps (derivatives) is based on quoted market prices for similar investments traded in active markets. Lennar Financial Services loans held-for-sale— Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. 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 recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these servicing rights is included in Lennar Financial Services’ loans held-for-sale as of November 30, 2017 and 2016. Fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics. Lennar Financial Services investments available-for-sale— The fair value of these investments is based on the quoted market prices for similar financial instruments. Lennar Financial Services mortgage loan commitments— Fair value of commitments to originate loans is based upon the difference between the current value of similar loans and the price at which the Lennar Financial Services segment has committed to originate the loans. The fair value of commitments to sell loan contracts is the estimated amount that the Lennar Financial Services segment would receive or pay to terminate the commitments at the reporting date based on market prices for similar financial instruments. In addition, the Company recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. 110 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics. The fair value of the mortgage loan commitments and related servicing rights is included in Lennar Financial Services’ other assets. Lennar Financial Services forward contracts— Fair value is based on quoted market prices for similar financial instruments. The fair value of forward contracts is included in the Lennar Financial Services segment's other assets as of November 30, 2017 and November 30, 2016. The Lennar Financial Services segment uses mandatory mortgage-backed securities ("MBS") forward commitments, option contracts and investor commitments to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments, option contracts and loan sales transactions is managed by limiting the Company’s counterparties to investment banks, federally regulated bank affiliates and other investors meeting the Company’s credit standards. The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At November 30, 2017, the segment had open commitments amounting to $1.1 billion to sell MBS with varying settlement dates through February 2018. Lennar Financial Services mortgage servicing rights — Lennar Financial Services records the value of mortgage servicing rights when it sells loans on a servicing-retained basis or through the acquisition or assumption of the right to service a financial asset. The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates. As of November 30, 2017, the key assumptions used in determining the fair value include a 13.1% mortgage prepayment rate, a 12.3% discount rate and a 9.9% delinquency rate. The fair value of mortgage servicing rights is included in the Lennar Financial Services segment's other assets. The changes in fair values for Level 1 and Level 2 financial instruments measured on a recurring basis are shown below by financial instrument and financial statement line item: (In thousands) Changes in fair value included in Lennar Financial Services revenues: Years Ended November 30, 2017 2016 2015 Loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Mortgage loan commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Investments available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,309 2,436 (24,786) (12) (19,865) (5,623) 25,936 53 (4,137) 373 8,107 26 Changes in fair value included in Rialto revenues: Credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,367) (2,063) 477 Changes in fair value included in other comprehensive income (loss), net of tax: Lennar Financial Services investments available-for-sale . . . . . . $ 1,331 (295) (65) Interest on Lennar Financial Services loans held-for-sale and Rialto loans held-for-sale measured at fair value is calculated based on the interest rate of the loan and recorded as revenues in the Lennar Financial Services’ statement of operations and Rialto's statement of operations, respectively. 111 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements: (In thousands) Years Ended November 30, 2017 2016 Lennar Financial Services Rialto Lennar Financial Services Rialto Mortgage servicing rights RMF loans held-for-sale Mortgage servicing rights RMF loans held-for-sale Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Purchases/loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,930 10,479 126,947 1,583,876 16,770 9,195 316,275 1,696,188 Sales/loan originations sold, including those not settled . . . . . . . . . . . . . — (1,474,714) — (1,881,682) Disposals/settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,912) Changes in fair value (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and principal paydowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666 — End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,163 — (301) (1,405) 234,403 (4,063) 2,028 — — (1,759) (2,075) 23,930 126,947 (1) Changes in fair value for Rialto loans held-for-sale and Lennar Financial Services mortgage servicing rights are included in Rialto's and Lennar Financial Services' revenues, respectively. 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. The fair values included in the tables below represent only those assets whose carrying values were adjusted to fair value during the respective periods disclosed. The assets measured at fair value on a nonrecurring basis are summarized below: Years Ended November 30, 2017 2016 2015 Fair Value Hierarchy Carrying Value Fair Value Total Gains (Losses) (1) Carrying Value Fair Value Total Gains (Losses) (1) Carrying Value Fair Value Total Gains (Losses) (1) (In thousands) Financial assets Rialto: Impaired loans receivable . . . . . . . . Level 3 FDIC Portfolios loans held-for-sale. . Level 3 Non-financial assets Lennar Homebuilding: $ 31,561 18,885 (12,676) 79,581 61,352 (18,229) 127,319 116,956 (10,363) 32,018 12,072 (19,946) — — — — — — Finished homes and construction in progress (2). . . . . . . Level 3 Land and land under development (2) . . . Level 3 $ $ Rialto: REO, net (3) . . . . . . . . . Upon acquisition/ 8,601 4,227 (4,374) — — — 59,913 47,898 (12,015) 6,771 3,094 (3,677) 29,418 22,925 (6,493) 32,500 20,033 (12,467) transfer . . . . . . . . . . Level 3 $ 27,640 26,591 (1,049) 53,154 54,443 1,289 59,829 58,517 (1,312) Upon management periodic valuations . Level 3 $ 145,251 81,677 (63,574) 105,830 81,454 (24,376) 44,796 32,430 (12,366) (1) Represents losses due to valuation adjustments, write-offs, gains (losses) from transfers or acquisitions of real estate through foreclosure and REO impairments recorded during the years ended November 30, 2017, 2016 and 2015. (2) Valuation adjustments were included in Lennar Homebuilding costs and expenses in the Company's consolidated statement of operations for the year ended November 30, 2017, 2016 and 2015. (3) REO held-for-sale assets are initially recorded at fair value less estimated costs to sell at the time of the transfer or acquisition through, or in lieu of, loan foreclosure. The fair value of REO held-for-sale is based upon appraised value at the time of foreclosure or management's best estimate. In addition, management periodically performs valuations of its REO held-for-sale. The gains (losses) upon the transfer or acquisition of REO and impairments were included in Rialto other income (expense), net, in the Company’s consolidated statement of operations for the years ended November 30, 2017, 2016 and 2015. See Note 1 for a detailed description of the Company’s process for identifying and recording valuation adjustments related to Lennar Homebuilding inventory and Rialto REO assets and loans receivables. 112 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 16. Consolidation of Variable Interest Entities The Company evaluated the joint venture agreements of its joint ventures that were formed or that had reconsideration events during the year ended November 30, 2017. Based on the Company’s evaluation, during the year ended November 30, 2017, the Company consolidated an entity that had total combined assets of $48.7 million and liabilities of $1.5 million. During the year ended November 30, 2017, there were no VIEs that were deconsolidated. The Company’s recorded investments in unconsolidated entities were as follows: (In thousands) Lennar Homebuilding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Lennar Multifamily. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2017 2016 900,769 265,418 407,544 811,723 245,741 318,559 Consolidated VIEs As of November 30, 2017, the carrying amount of the VIEs’ assets and non-recourse liabilities that consolidated was $799.4 million and $389.7 million, respectively. As of November 30, 2016, the carrying amount of the VIEs’ assets and non-recourse liabilities that consolidated was $536.3 million and $126.4 million, respectively. Those assets are owned by, and those liabilities are obligations of, the VIEs, not the Company. A VIE’s assets can only be used to settle obligations of that VIE. The VIEs are not guarantors of the Company’s senior notes and other debts payable. The assets held by a VIE usually are collateral for that VIE’s debt. The Company and other partners do not generally have an obligation to make capital contributions to a VIE unless the Company and/or the other partner(s) have entered into debt guarantees with the VIE’s banks. Other than debt guarantee agreements with a VIE’s banks, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to a VIE. While the Company has option contracts to purchase land from certain of its VIEs, the Company is not required to purchase the assets and could walk away from the contracts. Unconsolidated VIEs At November 30, 2017 and 2016, the Company’s recorded investments in VIEs that are unconsolidated and its estimated maximum exposure to loss were as follows: November 30, 2017 (In thousands) Lennar Homebuilding (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ November 30, 2016 (In thousands) Lennar Homebuilding (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Rialto (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Investments in Unconsolidated VIEs 181,804 179,659 345,175 706,638 Lennar’s Maximum Exposure to Loss 248,909 179,659 503,364 931,932 Investments in Unconsolidated VIEs 120,940 71,260 240,928 433,128 Lennar’s Maximum Exposure to Loss 164,804 71,260 549,093 785,157 113 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (1) At both November 30, 2017 and 2016, the maximum exposure to loss of Lennar Homebuilding’s investments in unconsolidated VIEs was limited to its investments in the unconsolidated VIEs, except with regard to repayment guarantees of unconsolidated entities' debt of $61.6 million and $43.4 million, respectively. (2) At both November 30, 2017 and 2016, the maximum recourse exposure to loss of Rialto’s investments in unconsolidated VIEs was limited to its investments in the unconsolidated entities VIEs. At November 30, 2017 and 2016, investments in unconsolidated VIEs and Lennar’s maximum exposure to loss included $179.7 million and $71.3 million, respectively, related to Rialto’s investments held-to-maturity. (3) As of November 30, 2017 and 2016, the remaining equity commitment of $153.3 million and $288.2 million, respectively, to fund the Venture for future expenditures related to the construction and development of its projects was included in Lennar's maximum exposure to loss. In addition, at November 30, 2017 and 2016, the maximum exposure to loss of Lennar Multifamily's investments in unconsolidated VIEs was limited to its investments in the unconsolidated VIEs, except with regard to $4.6 million and $19.7 million, respectively, of letters of credit outstanding for certain of the unconsolidated VIEs that could be drawn upon in the event of default under their debt agreements. While these entities are VIEs, the Company has determined that the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance is generally shared and the Company and its partners are not de-facto agents. While the Company generally manages the day-to-day operations of the VIEs, each of these VIEs has an executive committee made up of representatives from each partner. The members of the executive committee have equal votes and major decisions require unanimous consent and approval from all members. The Company does not have the unilateral ability to exercise participating voting rights without partner consent. As of November 30, 2017, the Company and other partners do not generally have an obligation to make capital contributions to the VIEs, except for $153.3 million remaining equity commitment to fund the Venture for future expenditures related to the construction and development of the projects and $4.6 million of letters of credit outstanding for certain Lennar Multifamily unconsolidated VIEs that could be drawn upon in the event of default under their debt agreements. In addition, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the VIEs, except with regard to $61.6 million repayment guarantees of two unconsolidated entities' debt. Except for the unconsolidated VIEs discussed above, the Company and the other partners did not guarantee any debt of the other unconsolidated VIEs. While the Company has option contracts to purchase land from certain of its unconsolidated VIEs, the Company is not required to purchase the assets and could walk away from the contracts. 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. The Company evaluates all option contracts for land to determine whether they are VIEs and, if so, whether the Company is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, if the Company is deemed to be the primary beneficiary or makes a significant deposit for optioned land, it may need to consolidate the land under option at the purchase price of the optioned land. During the year ended November 30, 2017, consolidated inventory not owned increased by $272.3 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2017. The increase was primarily related to a transaction in which one of the Company’s unconsolidated entities sold 475 homesites to a third-party land bank and simultaneous with the purchase by the land bank, the Company entered into an option contract to purchase all 475 homesites from the land bank. The Company consolidated the option contract with the land bank due to an amount that the Company would have to pay if the Company defaults under the option contract. The consolidation resulted in a $320.1 million increase in consolidated inventory not owned and liabilities related to consolidated not owned. The increase from the land bank transaction was partially offset by the Company exercising its option to acquire land under previously consolidated contracts. To reflect the purchase price of the inventory consolidated, the Company had a net reclass related to option deposits from land under development to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2017. 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 $137.0 million and $85.0 million at November 30, 2017 and 2016, respectively. Additionally, the Company had posted $51.8 million and $45.1 million of letters of credit in lieu of cash deposits under certain land and option contracts as of November 30, 2017 and 2016, respectively. 114 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 17. Commitments and Contingent Liabilities The Company is party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the Company’s consolidated financial statements. The Company is also a party to various lawsuits involving purchases and sales of real property. These lawsuits include claims regarding representations and warranties made in connection with the transfer of properties and disputes regarding the obligation to purchase or sell properties. The Company does not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on its business or financial position. However, the financial effect of litigation concerning purchases and sales of property may depend upon the value of the subject property, which may have changed from the time the agreement for purchase or sale was entered into. The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts generally enable the Company to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company determines whether to exercise the option. The use of option contracts allows the Company to reduce the financial risks associated with long-term land holdings. At November 30, 2017, the Company had $137.0 million of non-refundable option deposits and pre-acquisition costs related to certain of these homesites, which were included in inventories in the consolidated balance sheet. The Company was in litigation since 2008 in the United States District Court for the District of Maryland regarding whether the Company was required by a contract it entered into in 2005 to purchase a property in Maryland. After entering into the contract, the Company later renegotiated the purchase price during the downturn, reducing it from $200 million to $134 million, $20 million of which has been paid and subsequently written off, leaving a balance of $114 million. In January 2015, the District Court rendered a decision ordering the Company to purchase the property for the $114 million balance of the contract price, to pay interest at the rate of 12% per annum from May 27, 2008, and to reimburse the seller for real estate taxes and attorneys’ fees. The Company believed the decision was contrary to applicable law and appealed the decision. On March 23, 2017, the United States Court of Appeals for the Fourth Circuit held oral argument in the appeal. Following oral argument, the Company concluded that it was appropriate to establish an accrual of $140 million for the litigation. The accrual represented the expected liability associated with the litigation, and did not include the Company’s estimate of the fair value of the property. On April 12, 2017, the United States Court of Appeals for the Fourth Circuit issued a decision upholding the lower court’s decision. The Company subsequently purchased the property for $114 million, which approximated the Company's estimate of the fair value of the property, and paid approximately $124 million in interest and other closing costs. The Company previously accrued for the amount it expected to pay as reimbursement for attorney’s fees. The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancellable leases in effect at November 30, 2017 were as follows: (In thousands) 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Payments 37,891 35,403 27,669 21,091 10,320 12,461 Rental expense for the years ended November 30, 2017, 2016 and 2015 was $74.6 million, $63.2 million and $55.9 million, respectively. The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $511.8 million at November 30, 2017. Additionally, at November 30, 2017, the Company had outstanding surety bonds of $1.3 billion including performance surety bonds related to site improvements at various projects(including certain projects in the Company’s joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of November 30, 2017, there were approximately $570.4 million, or 44%, of anticipated future costs to complete related to these site improvements. The Company does not presently anticipate any draws upon these bonds that would have a material effect on its consolidated financial statements. 115 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Substantially all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Over the last several years there has been an industry-wide effort by purchasers to defray their losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. Mortgage investors could seek to have the Company buy back mortgage loans or compensate them for losses incurred on mortgage loans that the Company has sold based on claims that the Company breached its limited representations or warranties. The Company’s mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. While the Company believes that it has adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed the Company’s expectations, additional recourse expense may be incurred. 18. Supplemental Financial Information The indentures governing the Company’s 6.95% senior notes due 2018, 4.125% senior notes due 2018, 4.500% senior notes due 2019, 4.50% senior notes due 2019, 2.95% senior notes due 2020, 4.750% senior notes due 2021, 4.125% senior notes due 2022, 4.750% senior notes due 2022, 4.875% senior notes due 2023, 4.500% senior notes due 2024, 4.750% senior notes due 2025 and 4.75% senior notes due 2027 require that, if any of the Company’s 100% owned subsidiaries, other than its finance company subsidiaries and foreign subsidiaries, directly or indirectly guarantee at least $75 million principal amount of debt of Lennar Corporation, those subsidiaries must also guarantee Lennar Corporation’s obligations with regard to its senior notes. The entities referred to as "guarantors" in the following tables are subsidiaries that are not finance company subsidiaries or foreign subsidiaries and were guaranteeing the senior notes because at November 30, 2017 they were guaranteeing Lennar Corporation's letter of credit facilities and its Credit Facility, described in Note 7. The guarantees are full, unconditional and joint and several and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. A subsidiary's guarantee will be suspended at any time when it is not directly or indirectly guaranteeing at least $75 million principal amount of debt of Lennar Corporation, and a subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of. For purposes of the consolidating statement of cash flows included in the following supplemental financial information, the Company's accounting policy is to treat cash received by Lennar Corporation ("the Parent") from its subsidiaries, to the extent of net earnings from such subsidiaries as a dividend and accordingly a return on investment within cash flows from operating activities. Distributions of capital received by the Parent from its subsidiaries are reflected as cash flows from investing activities. The cash outflows associated with the return on investment dividends and distributions of capital received by the Parent are reflected by the Guarantor and Non-Guarantor subsidiaries in the Dividends line item within cash flows from financing activities. All other cash flows between the Parent and its subsidiaries represent the settlement of receivables and payables between such entities in conjunction with the Parent's centralized cash management arrangement with its subsidiaries, which operates with the characteristics of a revolving credit facility, and are accordingly reflected net in the Intercompany line item within cash flows from investing activities for the Parent and net in the Intercompany line item within cash flows from financing activities for the Guarantor and Non-Guarantor subsidiaries. 116 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Supplemental information for the subsidiaries that were guarantor subsidiaries at November 30, 2017 was as follows: Consolidating Balance Sheet November 30, 2017 Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total (In thousands) ASSETS Lennar Homebuilding: Cash and cash equivalents, restricted cash and receivables, net. . . . . . . . . . . . $ 1,945,024 462,336 Inventories . . . . . . . . . . . . . . . . . . . . . . . . — 10,560,996 Investments in unconsolidated entities. . . Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . — — Other assets . . . . . . . . . . . . . . . . . . . . . . . Investments in subsidiaries. . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . 246,490 4,446,309 7,881,306 884,294 136,566 520,899 52,237 — 21,972 299,894 16,475 — 114,431 — — 14,519,129 12,617,328 452,772 Lennar Financial Services. . . . . . . . . . . . . . . Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . — Total assets . . . . . . . . . . . . . . . . . . . . $14,519,129 130,184 1,561,525 — 1,153,840 — 710,725 12,747,512 3,878,862 — 2,429,332 — 10,860,890 — — (18,416) (4,498,546) (7,881,306) (12,398,268) (2,201) 900,769 136,566 863,404 — — 15,190,961 1,689,508 — 1,153,840 — (12,400,469) 710,725 18,745,034 LIABILITIES AND EQUITY Lennar Homebuilding: Accounts payable and other liabilities . . . $ Liabilities related to consolidated inventory not owned . . . . . . . . . . . . . . . 635,227 1,011,051 294,933 (20,617) 1,920,594 Senior notes and other debts payable . . . . 6,011,585 Intercompany . . . . . . . . . . . . . . . . . . . . . . — 6,775,719 1,105,587 6,646,812 8,548,355 1,418,073 367,220 394,365 13,500 4,053 — 380,720 — 6,410,003 (7,881,306) (7,901,923) — 8,711,317 — — — — — 48,700 1,129,114 — 1,177,814 — — 720,056 149,715 8,597,055 3,416,958 4,150,457 — 4,150,457 348,089 113,815 461,904 12,747,512 3,878,862 — — (7,901,923) (4,498,546) — (4,498,546) (12,400,469) 720,056 149,715 10,758,902 7,872,317 113,815 7,986,132 18,745,034 Lennar Financial Services. . . . . . . . . . . . . . . Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . — Total liabilities . . . . . . . . . . . . . . . . . $ 6,646,812 7,872,317 Stockholders’ equity. . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . 7,872,317 Total liabilities and equity . . . . . . . $14,519,129 — 117 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Balance Sheet November 30, 2016 Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total (In thousands) ASSETS Lennar Homebuilding: Cash and cash equivalents, restricted cash and receivables, net. . . . . . . . . . . . $ 705,126 436,090 Inventories . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated entities. . . Other assets . . . . . . . . . . . . . . . . . . . . . . . Investments in subsidiaries. . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . — 8,901,874 — 227,267 3,918,687 7,017,962 793,840 346,865 130,878 — 21,875 277,052 17,883 84,224 — — 11,869,042 10,609,547 401,034 — 1,163,091 — 9,178,926 — (7,328) (4,049,565) (7,017,962) (11,074,855) 811,723 651,028 — — 11,804,768 Lennar Financial Services loans held-for- sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Financial Services all other assets . Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . — Total assets . . . . . . . . . . . . . . . . . . . . $11,869,042 — — — — 103,000 939,405 715,758 — 1,276,210 — 526,131 10,712,547 3,858,538 — (3,491) 939,405 815,267 — 1,276,210 — (11,078,346) 526,131 15,361,781 LIABILITIES AND EQUITY Lennar Homebuilding: Accounts payable and other liabilities . . . $ Liabilities related to consolidated inventory not owned . . . . . . . . . . . . . . . Senior notes and other debts payable . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . 473,103 778,249 79,462 (10,819) 1,319,995 — 4,369,897 13,582 203,572 96,424 2,508 — 6,071,778 946,184 4,843,000 7,067,181 1,124,578 — 110,006 — 4,575,977 (7,017,962) (7,028,781) — 6,005,978 — — Lennar Financial Services. . . . . . . . . . . . . . . Rialto. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . . . — Total liabilities . . . . . . . . . . . . . . . . . $ 4,843,000 7,026,042 Stockholders’ equity. . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . 7,026,042 Total liabilities and equity . . . . . . . $11,869,042 — 38,530 1,279,753 — 1,318,283 — — 707,980 117,973 7,105,711 3,230,284 3,606,836 — 3,606,836 442,729 185,525 628,254 10,712,547 3,858,538 — — (7,028,781) (4,049,565) — (4,049,565) (11,078,346) 707,980 117,973 8,150,214 7,026,042 185,525 7,211,567 15,361,781 118 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Statement of Operations and Comprehensive Income Year Ended November 30, 2017 Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total (In thousands) Revenues: Lennar Homebuilding . . . . . . . . . . . . . . . . $ Lennar Financial Services . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . — 11,118,553 — — — 307,892 — — 81,689 482,227 281,243 394,906 — 11,426,445 1,240,065 — 11,200,242 (20,010) — (135) (20,145) (3,617) (20,911) (213) — 5,061 (19,680) 770,109 281,243 394,771 12,646,365 9,752,269 614,585 247,549 407,078 285,889 11,307,370 — 465 — — — — (61,708) 22,774 (140,000) 25,447 (81,636) 85,739 9,958,235 1,089,325 — (61,400) (308) — 9,676,548 — — — 279,490 279,490 280,349 — — 1,338 (427) — — — — 17,488 (140,000) — — — (279,917) 95,228 995,169 1,284,298 (427,961) 72,104 79,338 355,147 247,762 407,078 — 5,248 — 25,447 (81,636) 85,739 185,230 (85,124) — — (1,067,273) — 1,189,611 (417,857) — 810,480 928,441 100,106 (1,067,273) 771,754 — — 810,480 928,441 (38,726) 138,832 — (1,067,273) (38,726) 810,480 — — — — — — 1,331 12 1,343 — — — 1,331 12 1,343 928,441 140,175 (1,067,273) 811,823 — (38,726) — (38,726) Cost and expenses: Lennar Homebuilding . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . Corporate general and administrative . . . . Total costs and expenses . . . . . . . . . . . Lennar Homebuilding equity in loss from unconsolidated entities. . . . . . . . . . . . . . . . . . Lennar Homebuilding other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Homebuilding loss due to litigation . . . Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto other expense, net . . . . . . . . . . . . . . . . . . Lennar Multifamily equity in earnings from unconsolidated entities. . . . . . . . . . . . . . . . . . Earnings (loss) before income taxes . . . . . . . . . Benefit (provision) for income taxes. . . . . . . . . Equity in earnings from subsidiaries . . . . . . . . . Net earnings (including net loss attributable to noncontrolling interests) . . . . . . . . . . . . . . . . Less: Net loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net earnings attributable to Lennar . . . . . . . $ Other comprehensive income, net of tax: Net unrealized gains on securities available- for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Reclassification adjustments for losses included in net earnings, net of tax . . . . . . . . Total other comprehensive income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income attributable to Lennar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 810,480 Total comprehensive loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . $ — 119 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Statement of Operations and Comprehensive Income (Loss) Year Ended November 30, 2016 Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total (In thousands) Revenues: Lennar Homebuilding . . . . . . . . . . . . . . . . $ Lennar Financial Services . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . — 9,731,122 — — — 215,737 — — 10,215 491,536 233,966 287,527 — 9,946,859 1,023,244 — 9,741,337 (20,018) — (86) (20,104) (13,012) (9,397) (796) — 5,061 (18,144) 687,255 233,966 287,441 10,949,999 8,399,881 523,638 229,769 301,786 232,562 9,687,636 — 8,389,469 — — — 226,482 226,482 192,572 — — 1,019 23,424 340,463 230,565 301,786 — 8,583,060 896,238 — (49,662) 387 — (49,275) (1,922) 49,976 2,737 1,960 52,751 — — — — — — 18,961 (39,850) 85,519 — — — 18,961 (39,850) 85,519 (228,404) 71,719 1,068,529 1,364,113 (419,596) 63,278 194,760 (69,501) — — (1,131,807) — 1,330,469 (417,378) — 911,844 1,007,795 125,259 (1,131,807) 913,091 — 911,844 — 1,007,795 1,247 124,012 — (1,131,807) 1,247 911,844 — — — — — — (295) (53) (348) — — — (295) (53) (348) Cost and expenses: Lennar Homebuilding . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . Corporate general and administrative . . . . Total costs and expenses . . . . . . . . . . . Lennar Homebuilding equity in earnings (loss) from unconsolidated entities . . . . . . . . . . . . . Lennar Homebuilding other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto other expense, net . . . . . . . . . . . . . . . . . . Lennar Multifamily equity in earnings from unconsolidated entities. . . . . . . . . . . . . . . . . . Earnings (loss) before income taxes . . . . . . . . . Benefit (provision) for income taxes. . . . . . . . . Equity in earnings from subsidiaries . . . . . . . . . Net earnings (including net earnings attributable to noncontrolling interests) . . . . . Less: Net earnings attributable to noncontrolling interests . . . . . . . . . . . . . . . . . Net earnings attributable to Lennar . . . . . . . $ Other comprehensive loss, net of tax: Net unrealized loss on securities available-for- sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Reclassification adjustments for gains included in net earnings, net of tax. . . . . . . . . . . . . . . . $ Total other comprehensive loss, net of tax. . . Total comprehensive income attributable to Lennar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 911,844 1,007,795 123,664 (1,131,807) 911,496 Total comprehensive income attributable to noncontrolling interests . . . . . . . . . . . . . . . . $ — — 1,247 — 1,247 120 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Statement of Operations and Comprehensive Income (Loss) Year Ended November 30, 2015 Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total (In thousands) Revenues: Lennar Homebuilding . . . . . . . . . . . . . . . . $ Lennar Financial Services . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . Cost and expenses: Lennar Homebuilding . . . . . . . . . . . . . . . . Lennar Financial Services . . . . . . . . . . . . . Rialto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lennar Multifamily . . . . . . . . . . . . . . . . . . Corporate general and administrative . . . . Total costs and expenses . . . . . . . . . . . Lennar Homebuilding equity in earnings from unconsolidated entities. . . . . . . . . . . . . . . . . . Lennar Homebuilding other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto equity in earnings from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rialto other income, net . . . . . . . . . . . . . . . . . . Lennar Multifamily equity in earnings from unconsolidated entities. . . . . . . . . . . . . . . . . . Earnings (loss) before income taxes . . . . . . . . . Benefit (provision) for income taxes. . . . . . . . . Equity in earnings from subsidiaries . . . . . . . . . Net earnings (including earnings attributable to noncontrolling interests) . . . . . . . . . . . . . . Less: Net earnings attributable to noncontrolling interests . . . . . . . . . . . . . . . . . Net earnings attributable to Lennar . . . . . . . $ Other comprehensive loss, net of tax: Net unrealized loss on securities available-for- sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Reclassification adjustments for gains included in net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ Total other comprehensive loss, net of tax. . . Total comprehensive income attributable to — 8,466,945 — — — 194,993 — — — 8,661,938 — 7,231,495 — — — 210,377 210,377 181,805 — — 806 — 445,535 221,923 164,639 832,097 49,327 316,003 223,933 191,302 — 7,414,106 780,565 — 8,466,945 (20,001) — (26) (20,027) (15,983) (5,076) (1,058) — 5,061 (17,056) 620,527 221,923 164,613 9,474,008 7,264,839 492,732 222,875 191,302 216,244 8,387,992 — 49,134 14,239 — 63,373 (6,918) (7,551) 17,660 2,971 6,162 — — — — — — 22,293 12,254 19,518 — — — 22,293 12,254 19,518 (217,295) 71,099 949,090 1,289,415 (412,301) 51,956 137,496 (49,214) — — (1,001,046) — 1,209,616 (390,416) — 802,894 929,070 88,282 (1,001,046) 819,200 — — 802,894 929,070 16,306 71,976 — (1,001,046) 16,306 802,894 — — — — — — (65) (26) (91) — — — (65) (26) (91) Lennar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 802,894 929,070 71,885 (1,001,046) 802,803 Total comprehensive income attributable to noncontrolling interests . . . . . . . . . . . . . . . . $ — — 16,306 — 16,306 121 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Statement of Cash Flows Year Ended November 30, 2017 (In thousands) Cash flows from operating activities: Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total Net earnings (including net loss attributable to noncontrolling interests). . . . . . . . . . . . . $ Distributions of earnings from guarantor and non-guarantor subsidiaries . . . . . . . . . . . . . Other adjustments to reconcile net earnings (including net loss attributable to noncontrolling interests) to net cash provided by operating activities . . . . . . . . . Net cash provided by operating activities . . . . . Cash flows from investing activities: Proceeds from sale of operating properties . . Investments in and contributions to unconsolidated entities, net of distributions of capital . . . . . . . . . . . . . . . . Proceeds from sales of real estate owned . . . Receipts of principal payments on loans held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . Originations of loans receivable . . . . . . . . . . Purchases of commercial mortgage-backed securities bonds . . . . . . . . . . . . . . . . . . . . . Acquisition, net of cash acquired. . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of capital from guarantor and non-guarantor subsidiaries . . . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . Cash flows from financing activities: Net repayments under warehouse facilities . . Proceeds from senior notes and debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . Redemption of senior notes . . . . . . . . . . . . . . Net proceeds on Rialto notes payable . . . . . . Net proceeds on other borrowings . . . . . . . . . Proceeds on other liabilities . . . . . . . . . . . . . . Net payments related to noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based awards Common stock: Issuances . . . . . . . . . . . . . . . . . . . . . . . Repurchases . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810,480 928,441 100,106 (1,067,273) 771,754 995,169 72,104 — (1,067,273) — (739,947) 1,065,702 (246,983) 753,562 144,767 244,873 1,067,273 (1,067,273) 225,110 996,864 — — — — — — (611,103) (35,251) 115,000 (865,364) (1,396,718) 60,326 — (181,101) — — — — — (49,356) 80,000 — (90,131) (41,876) 86,565 11,251 (98,375) (107,262) — 96,365 — — (53,332) — — — — — — — — (195,000) 865,364 670,364 60,326 (222,977) 86,565 11,251 (98,375) (107,262) (611,103) 11,758 — — (869,817) — (104) (199,580) — (199,684) 2,433,539 (800,000) — — — — 1,981 720 (27,054) (37,608) — — (258,595) — (104,471) — — — — — (1,018,441) 700,197 (12,129) — 74,666 (4,024) 195,541 (68,586) — — — (243,832) 165,167 — 2,421,410 — (1,058,595) 74,666 — (108,495) 195,541 — — — — — — 1,262,273 (865,364) (68,586) 1,981 720 (27,054) (37,608) — 1,571,578 (681,414) (92,777) 396,909 1,194,296 1,240,562 (17,983) 98,764 — 1,321,343 697,112 Cash and cash equivalents at end of period. . . . $ 1,937,674 377,070 359,087 255,347 354,111 — 1,329,529 — 2,650,872 122 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Statement of Cash Flows Year Ended November 30, 2016 (In thousands) Cash flows from operating activities: Net earnings (including net earnings attributable to noncontrolling interests) . . . $ Distributions of earnings from guarantor and non-guarantor subsidiaries . . . . . . . . . . . . . Other adjustments to reconcile net earnings (including net earnings attributable to noncontrolling interests) to net cash provided by (used in) operating activities . Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities: Proceeds from sale of operating properties . . (Investments in and contributions to) and distributions of capital from unconsolidated entities, net . . . . . . . . . . . . Proceeds from sales of real estate owned . . . Receipts of principal payments on loans receivable and other . . . . . . . . . . . . . . . . . . Originations of loans receivable . . . . . . . . . . Purchases of commercial mortgage-backed securities bonds . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of capital from guarantor and non-guarantor subsidiaries . . . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Net borrowings under warehouse facilities . . Proceeds from senior notes and debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . Redemption of senior notes . . . . . . . . . . . . . . Conversions and exchanges of convertible senior notes. . . . . . . . . . . . . . . . . . . . . . . . . Principal payments on Rialto notes payable including structured notes . . . . . . . . . . . . . Net payments on other borrowings . . . . . . . . Net payments related to noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based awards Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total 911,844 1,007,795 125,259 (1,131,807) 913,091 1,068,529 63,278 — (1,131,807) — (1,083,418) (231,877) (221,799) 1,131,807 (405,287) 896,955 839,196 (96,540) (1,131,807) 507,804 25,288 — — — — — — — — 25,288 (102,571) 97,871 84,433 (56,507) (42,436) (91,915) 36,962 97,871 84,433 (56,507) (42,436) (23,579) — — (74,000) 787,185 — — (758,894) (136,872) 96,744 713,185 (85,837) — 116 107,349 — 107,465 — — — — — — (11,709) 40,000 (787,185) 495,974 (250,000) (234,028) — — — 7,039 (139,533) — — — — (56,627) 34,000 — — — — — (165,463) — — — — (1,047,795) 551,840 (1,690) — — (39,026) (8,342) (127,057) — — — (158,012) 235,345 8,567 8,771 246,576 255,347 — — — — — — — — 1,205,807 (787,185) 494,284 (250,000) (234,028) (39,026) (173,805) (127,057) 7,039 19,471 (19,902) (35,324) — 418,622 — (250,883) 171,084 — 1,158,445 — 1,329,529 Common stock: Issuances . . . . . . . . . . . . . . . . . . . . . . . Repurchases . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . 19,471 (19,902) (35,324) — Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase in cash and cash equivalents . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of period. . . . $ (16,770) 121,291 (661,302) 41,022 575,821 697,112 336,048 377,070 123 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consolidating Statement of Cash Flows Year Ended November 30, 2015 Lennar Corporation Guarantor Subsidiaries Non- Guarantor Subsidiaries Consolidating Adjustments Total attributable to noncontrolling interests) . . . $ 802,894 929,070 88,282 (1,001,046) 819,200 (In thousands) Cash flows from operating activities: Net earnings (including net earnings Distributions of earnings from guarantor and non-guarantor subsidiaries . . . . . . . . . . . . . Other adjustments to reconcile net earnings (including net earnings attributable to noncontrolling interests) to net cash provided by (used in) operating activities . Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities: Proceeds from sale of operating properties . . Investments in and contributions to unconsolidated entities, net of distributions of capital . . . . . . . . . . . . . . . . Proceeds from sales of real estate owned . . . Receipts of principal payments on loans receivable and other . . . . . . . . . . . . . . . . . . Origination of Rialto loans receivable . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of capital from guarantor and non-guarantor subsidiaries . . . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Net borrowings under warehouse facilities . . Proceeds from senior notes and debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . Redemption of senior notes . . . . . . . . . . . . . . Conversion and exchanges of convertible senior notes. . . . . . . . . . . . . . . . . . . . . . . . . Principal payments on Rialto notes payable including structured notes . . . . . . . . . . . . . Net payments on other borrowings . . . . . . . . Net payments related to noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based awards Common stock: Issuances . . . . . . . . . . . . . . . . . . . . . . . Repurchases . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of period . . . $ 949,090 51,956 — (1,001,046) — (782,575) (861,284) (596,033) 1,001,046 (1,238,846) 969,409 119,742 (507,751) (1,001,046) (419,646) — — — — — (5,988) 73,732 — (90,267) — — — (96,180) (5,674) 155,295 28,389 (78,703) (78,997) — — — — — — 73,732 (95,941) 155,295 28,389 (78,703) (181,165) 115,000 115,050 (1,514,775) — — (230,050) — 1,514,775 — — (1,405,763) 2,335 20,310 1,284,725 (98,393) — 1,137,826 (500,000) (212,107) — — — 113 9,405 — (156,490) (58,923) — — — — — — — — 366,290 — 366,290 (2,986) — — (132,078) — — — (187,026) 353,158 — 1,134,840 (500,000) — — — — — — — — 1,231,096 (1,514,775) (212,107) (58,923) (156,490) (132,078) 113 9,405 (23,188) (33,192) — (23,188) (33,192) — (1,044,070) — 1,161,617 378,857 (38,943) 338,435 (283,679) 394,670 (57,497) 83,134 (149,006) — (123,369) 633,318 575,821 252,914 336,048 395,582 246,576 — 1,281,814 — 1,158,445 124 LENNAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 19. Quarterly Data (unaudited) First Second Third Fourth (In thousands, except per share amounts) 2017 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Gross profit from sales of homes . . . . . . . . . . . . . . . $ Earnings before income taxes . . . . . . . . . . . . . . . . . . $ Net earnings attributable to Lennar. . . . . . . . . . . . . . $ Earnings per share: 2,337,428 419,165 49,643 38,080 Basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.16 0.16 2016 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Gross profit from sales of homes . . . . . . . . . . . . . . . $ Earnings before income taxes . . . . . . . . . . . . . . . . . . $ Net earnings attributable to Lennar. . . . . . . . . . . . . . $ Earnings per share: 1,993,664 398,946 201,693 144,080 3,261,892 616,875 309,600 213,645 0.89 0.89 2,745,815 561,523 327,839 218,469 3,261,476 650,411 368,385 249,165 1.04 1.04 2,833,894 551,676 339,558 235,842 3,785,569 747,502 461,983 309,590 1.29 1.29 3,376,626 683,519 461,379 313,453 Basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.66 0.62 0.99 0.93 1.02 0.99 1.34 1.31 (1) Basic and diluted earnings per share calculations have been retroactively adjusted in each of the periods presented to reflect the 4.7 million Class B shares distributed as a part of the stock dividend on November 27, 2017. Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of November 30, 2017 to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, 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 furnished under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2017. That evaluation did not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm obtained from Deloitte & Touche LLP relating to the effectiveness of Lennar Corporation’s internal control over financial reporting are included elsewhere in this document. 125 Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of November 30, 2017. The effectiveness of our internal control over financial reporting as of November 30, 2017 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein. 126 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Lennar Corporation REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have audited the internal control over financial reporting of Lennar Corporation and subsidiaries (the We have audited the internal control over financial reporting of Lennar Corporation and subsidiaries (the We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board "Company") as of November 30, 2017, based on the criteria established in Internal Control — Integrated Framework To the Board of Directors and Stockholders of Lennar Corporation (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of "Company") as of November 30, 2017, based on the criteria established in Internal Control — Integrated Framework the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of internal control over financial reporting based on our audit. the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether internal control over financial reporting based on our audit. effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and for our opinion. evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such A company’s internal control over financial reporting is a process designed by, or under the supervision of, the other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis company’s principal executive and principal financial officers, or persons performing similar functions, and effected by for our opinion. the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the A company’s internal control over financial reporting is a process designed by, or under the supervision of, the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with company’s principal executive and principal financial officers, or persons performing similar functions, and effected by generally accepted accounting principles. A company’s internal control over financial reporting includes those policies the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are generally accepted accounting principles. A company’s internal control over financial reporting includes those policies recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of financial statements. management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the collusion or improper management override of controls, material misstatements due to error or fraud may not be financial statements. prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control Because of the inherent limitations of internal control over financial reporting, including the possibility of over financial reporting to future periods are subject to the risk that the controls may become inadequate because of collusion or improper management override of controls, material misstatements due to error or fraud may not be changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control In our opinion, the Company maintained, in all material respects, effective internal control over financial over financial reporting to future periods are subject to the risk that the controls may become inadequate because of reporting as of November 30, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of the inherent limitations of internal control over financial reporting, including the possibility of In our opinion, the Company maintained, in all material respects, effective internal control over financial We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board reporting as of November 30, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) (United States), the consolidated financial statements as of and for the year ended November 30, 2017 of the Company issued by the Committee of Sponsoring Organizations of the Treadway Commission. and our report dated January 24, 2018 expressed an unqualified opinion on those financial statements. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended November 30, 2017 of the Company and our report dated January 24, 2018 expressed an unqualified opinion on those financial statements. Certified Public Accountants Miami, Florida Certified Public Accountants January 24, 2018 Miami, Florida January 24, 2018 127 127 Item 9B. Other Information. Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item for executive officers is set forth under the heading "Executive Officers of Lennar Corporation" in Part I. We have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The Code of Business Conduct and Ethics is located on our internet web site at www.lennar.com under "Investor Relations – Corporate Governance." We intend to provide disclosure of any amendments or waivers of our Code of Business Conduct and Ethics on our website within four business days following the date of the amendment or waiver. The other information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 2018 (120 days after the end of our fiscal year). Item 11. Executive Compensation. The information required by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 2018 (120 days after the end of our fiscal year). Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 2018 (120 days after the end of our fiscal year), except for the information required by Item 201(d) of Regulation S-K, which is provided below. The following table summarizes our equity compensation plans as of November 30, 2017: Plan category Equity compensation plans approved by stockholders . . Equity compensation plans not approved by stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares to be issued upon exercise of outstanding options, warrants and rights (a) 20,000 $ Weighted-average exercise price of outstanding options, warrants and rights — 20,000 $ Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) (1) 12,468,877 — 12,468,877 51.26 — 51.26 (1) Both shares of Class A and Class B common stock may be issued. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 2018 (120 days after the end of our fiscal year). Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 2018 (120 days after the end of our fiscal year). 128 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Documents filed as part of this Report. 1. The following financial statements are contained in Item 8: Financial Statements Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets as of November 30, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended November 30, 2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Equity for the Years Ended November 30, 2017, 2016 and 2015. . . . . . . . . . Consolidated Statements of Cash Flows for the Years Ended November 30, 2017, 2016 and 2015. . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The following financial statement schedule is included in this Report: Financial Statement Schedule Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule II—Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page in this Report 68 69 71 72 73 75 Page in this Report 133 134 Information required by other schedules has either been incorporated in the consolidated financial statements and accompanying notes or is not applicable to us. 3. The following exhibits are filed with this Report or incorporated by reference: 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 4.5 Agreement and Plan of Merger, dated September 22, 2016, among WCI Communities, Inc., Lennar Corporation, Marlin Green Corp., and Marlin Blue LLC - Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, dated September 22, 2016. Agreement and Plan of Merger, dated as of October 29, 2017, by and among Lennar Corporation, CalAtlantic Group, Inc. and Cheetah Cub Group Corp - Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, dated October 29, 2017. Restated Certificate of Incorporation of the Company, dated January 14, 2015 - Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2014. Bylaws of the Company, as amended effective October 3, 2013 - Incorporated by reference to Exhibit 3.6 of the Company’s Current Report on Form 8-K, dated October 4, 2013. Indenture, dated as of December 31, 1997, between Lennar Corporation and Bank One Trust Company, N.A., as trustee - Incorporated by reference to Exhibit 4 of the Company’s Registration Statement on Form S-3, Registration No. 333-45527, filed with the Commission on February 3, 1998. Indenture, dated May 4, 2010, between Lennar and The Bank of New York Mellon, as trustee (relating to Lennar’s 6.95% Senior Notes due 2018) - Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-4, Registration No. 333-167622, filed with the Commission on June 18, 2010. Indenture, dated October 23, 2012, between Lennar and The Bank of New York Mellon Trust Company, N.A., as trustee (relating to Lennar’s 4.750% Senior Notes due 2022) - Incorporated by reference to Exhibit 4.12 of the Company's Annual Report on Form 10-K, for the fiscal year ended November 30, 2012. Indenture, dated February 4, 2013, between Lennar and The Bank of New York Mellon Trust Company, N.A., as trustee (relating to Lennar’s 4.125% Senior Notes due 2018) - Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 10-Q for the quarter ended February 28, 2013. Eighth Supplemental Indenture, dated as of February 12, 2014, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.50% Senior Notes due 2019 - Incorporated by reference to Exhibit 4.12 of the Company’s Current Report on Form 8-K, dated February 13, 2014. 129 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 10.1* 10.2* 10.3* 10.4* 10.5* 10.6 10.7 10.8 10.9 Ninth Supplemental Indenture, dated as of November 25, 2014, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.500% Senior Notes due 2019 - Incorporated by reference to Exhibit 4.13 of the Company’s Current Report on Form 8-K, dated November 25, 2014. Tenth Supplemental Indenture, dated as of April 28, 2015, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.750% Senior Notes due 2025 - Incorporated by reference to Exhibit 4.14 of the Company’s Current Report on Form 8-K, dated April 29, 2015. Eleventh Supplemental Indenture, dated as of November 5, 2015, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.875% Senior Notes due 2023 - Incorporated by reference to Exhibit 4.15 of the Company’s Current Report on Form 8-K, dated November 6, 2015. Twelfth Supplemental Indenture, dated as of March 4, 2016, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.750% Senior Notes due 2021 - Incorporated by reference to Exhibit 4.16 of the Company’s Current Report on Form 8-K, dated March 4, 2016. Thirteenth Supplemental Indenture, dated as of January 20, 2017, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.125% Senior Notes due 2022- Incorporated by reference to Exhibit 4.17 of the Company’s Current Report on Form 8-K, dated January 20, 2017. Fourteenth Supplemental Indenture, dated as of April 28, 2017, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 4.50% Senior Notes due 2024 - Incorporated by reference to Exhibit 4.18 of the Company’s Current Report on Form 8-K, dated April 28, 2017. Indenture, dated as of November 29, 2017, among Lennar Corporation, each of the guarantors identified therein and The Bank of New York Mellon, as trustee, including the form of 2.95% Senior Notes due 2020 and the form of 4.75% Senior Notes due 2027- Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, dated November 29, 2017. Registration Agreement, dated as of November 29, 2017, among the Company, each of the guarantors identified therein, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, Mizuho Securities USA LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC - Incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K, dated November 29, 2017. Lennar Corporation 2007 Equity Incentive Plan, as amended effective January 12, 2012 - Incorporated by reference to Exhibit 1 of the Company’s Proxy Statement on Schedule 14A dated March 2, 2012. Lennar Corporation 2012 Incentive Compensation Plan - Incorporated by reference to Exhibit 2 of the Company’s Proxy Statement on Schedule 14A dated March 2, 2012. Lennar Corporation Nonqualified Deferred Compensation Plan - Incorporated by reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2002. Lennar Corporation 2016 Equity Incentive Plan - Incorporated by reference to Exhibit A of the Company’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 2, 2016. Lennar Corporation 2016 Incentive Compensation Plan - Incorporated by reference to Exhibit B of the Company’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 2, 2016. Membership Interest Purchase Agreement, dated as of November 30, 2007, by and among Lennar, Lennar Homes of California, Inc., the Sellers named in the agreement and MS Rialto Residential Holdings, LLC. - Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007. Fourth Amended and Restated Credit Agreement, dated as of June 24, 2016, among Lennar Corporation, as borrower, JPMorgan Chase Bank, N.A., as swingline lender, issuing lender, and administrative agent, the several lenders from time to time parties thereto, and the other parties and agents therein - Incorporated by reference to Exhibit 10.19 of the Company’s Current Report on Form 8-K, dated June 24, 2016. Fourth Amended and Restated Guarantee Agreement, dated as of June 24, 2016, among certain of Lennar Corporation’s subsidiaries in favor of guaranteed parties referred to therein - Incorporated by reference to Exhibit 10.20 of the Company’s Current Report on Form 8-K, dated June 24, 2016. Fifth Amended and Restated Credit Agreement, dated as of May 18, 2017, among Lennar Corporation, as borrower, JPMorgan Chase Bank, N.A., as swingline lender, issuing lender, and administrative agent, the several lenders from time to time parties thereto, and the other parties and agents thereto - Incorporated by reference to Exhibit 10.21 of the Company’s Current Report on Form 8-K, dated May 18, 2017. 130 10.1 10.11 10.12* 10.13* 10.14 10.15 Fifth Amended and Restated Guarantee Agreement, dated as of May 18, 2017, among certain of Lennar Corporation’s subsidiaries in favor of guaranteed parties referred to therein - Incorporated by reference to Exhibit 10.22 of the Company’s Current Report on Form 8-K, dated May 18, 2017. Indenture, dated November 14, 2013, among Rialto Holdings, LLC, Rialto Corporation, the Guarantors named therein and Wells Fargo Bank, National Association, as trustee, including the form of 7.000% Senior Notes due 2018 - Incorporated by reference to Exhibit 10.20 of the Company’s Current Report on Form 8-K, dated November 14, 2013. 2016 Award Agreements for Stuart Miller, Rick Beckwitt, Jonathan Jaffe, Bruce Gross and Mark Sustana - Incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2015. 2017 Award Agreements for Stuart Miller, Rick Beckwitt, Jonathan Jaffe, Bruce Gross and Mark Sustana Incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2016. Form of Aircraft Time Sharing Agreement, dated February 12, 2015, between U.S. Home Corporation and Lessee -Incorporated by reference to Exhibit 10.19 of the Company’s Current Report on Form 8-K, dated February 19, 2015. Voting and Cash Election Agreement, dated as of October 29, 2017, between Lennar Corporation and MP CA Homes LLC- Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated October 29, 2017. 10.16* 2018 Award Agreement for Mark Sustana - Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, dated January 11, 2018. 21 23 31.1 31.2 32 101 List of subsidiaries.** Consent of Independent Registered Public Accounting Firm.** Rule 13a-14a/15d-14(a) Certification of Stuart Miller.** Rule 13a-14a/15d-14(a) Certification of Bruce Gross.** Section 1350 Certifications of Stuart Miller and Bruce Gross.** The following financial statements from Lennar Corporation Annual Report on Form 10-K for the year ended November 30, 2017, filed on January 24, 2018, formatted in XBRL (Extensible Business Reporting Language); (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statements of Equity (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. * Management contract or compensatory plan or arrangement. ** Filed herewith. Item 16. Form 10-K Summary None. 131 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES LENNAR CORPORATION /S/ STUART MILLER Stuart Miller Chief Executive Officer and Director Date: January 24, 2018 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Principal Executive Officer: Stuart Miller Chief Executive Officer and Director Date: Principal Financial Officer: Bruce Gross Vice President and Chief Financial Officer Date: Principal Accounting Officer: David Collins Controller Directors: Irving Bolotin Steven L. Gerard Theron I. ("Tig") Gilliam, Jr. Sherrill W. Hudson Sidney Lapidus Teri McClure Armando Olivera Donna Shalala Jeffrey Sonnenfeld Date: Date: Date: Date: Date: Date: Date: Date: Date: Date: 132 /S/ STUART MILLER January 24, 2018 /S/ BRUCE GROSS January 24, 2018 /S/ DAVID COLLINS January 24, 2018 /S/ IRVING BOLOTIN January 24, 2018 /S/ STEVEN L. GERARD January 24, 2018 /s/ THERON I. ("TIG") GILLIAM, JR. January 24, 2018 /S/ SHERRILL W. HUDSON January 24, 2018 /S/ SIDNEY LAPIDUS January 24, 2018 /S/ TERI MCCLURE January 24, 2018 /S/ ARMANDO OLIVERA January 24, 2018 /S/ DONNA SHALALA January 24, 2018 /S/ JEFFREY SONNENFELD January 24, 2018 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Lennar Corporation We have audited the consolidated financial statements of Lennar Corporation and subsidiaries (the "Company") as of November 30, 2017 and 2016, and for each of the three years in the period ended November 30, 2017, and the Company’s internal control over financial reporting as of November 30, 2017, and have issued our reports thereon dated January 24, 2018; such consolidated financial statements and reports are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Certified Public Accountants Miami, Florida January 24, 2018 133 LENNAR CORPORATION AND SUBSIDIARIES Schedule II—Valuation and Qualifying Accounts Years Ended November 30, 2017, 2016 and 2015 Additions Beginning balance Charged to costs and expenses Charged (credited) to other accounts Deductions Ending balance (In thousands) Year ended November 30, 2017 Allowances deducted from assets to which they apply: Allowances for doubtful accounts and notes and other receivables . . . . . . . . . $ Allowance for loan losses and loans receivable . . . . . . . . . $ Allowance against net Year ended November 30, 2016 Allowances deducted from assets to which they apply: Allowances for doubtful accounts and notes and other receivables . . . . . . . . . $ Allowance for loan losses and loans receivable . . . . . . . . . $ Allowance against net Year ended November 30, 2015 Allowances deducted from assets to which they apply: Allowances for doubtful accounts and notes and other receivables . . . . . . . . . $ Allowance for loan losses and loans receivable . . . . . . . . . $ Allowance against net 328 260 2,463 (202) deferred tax assets. . . . . . . . $ 5,773 650 33,575 32,850 (1) — (63,232) — 2,849 3,192 6,423 768 125 (88) (477) 328 deferred tax assets. . . . . . . . $ 5,945 — 39,486 18,818 — — (24,729) 33,575 (172) 5,773 3,257 370 (2,528) (331) 768 62,104 11,465 — — (34,083) 39,486 (2,084) 5,945 deferred tax assets. . . . . . . . $ 8,029 — 134 I, Stuart Miller, certify that: CHIEF EXECUTIVE OFFICER'S CERTIFICATION CHIEF EXECUTIVE OFFICER'S CERTIFICATION I, Stuart Miller, certify that: 1. I have reviewed this annual report on Form 10-K of Lennar Corporation; Exhibit 31.1 Exhibit 31.1 1. I have reviewed this annual report on Form 10-K of Lennar Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material misleading with respect to the period covered by this report; fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is designed under our supervision, to ensure that material information relating to the registrant, including its consolidated being prepared; subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial b. Designed such internal control over financial reporting, or caused such internal control over financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial accounting principles; reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report by this report based on such evaluation; and our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) reporting; and that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control persons performing the equivalent functions): over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize a. All significant deficiencies and material weaknesses in the design or operation of internal control over and report financial information; and financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 24, 2018 Date: January 24, 2018 Name: Stuart Miller Title: Chief Executive Officer Name: Stuart Miller Title: Chief Executive Officer 135 135 CHIEF FINANCIAL OFFICER'S CERTIFICATION I, Bruce Gross, certify that: CHIEF FINANCIAL OFFICER'S CERTIFICATION I, Bruce Gross, certify that: 1. I have reviewed this annual report on Form 10-K of Lennar Corporation; Exhibit 31.2 Exhibit 31.2 a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material 1. I have reviewed this annual report on Form 10-K of Lennar Corporation; fact necessary to make the statements made, in light of the circumstances under which such statements were made, not 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material misleading with respect to the period covered by this report; fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is designed under our supervision, to ensure that material information relating to the registrant, including its consolidated being prepared; subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is b. Designed such internal control over financial reporting, or caused such internal control over financial being prepared; reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial b. Designed such internal control over financial reporting, or caused such internal control over financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial accounting principles; reporting and the preparation of financial statements for external purposes in accordance with generally accepted c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report accounting principles; our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report by this report based on such evaluation; and our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred by this report based on such evaluation; and during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) reporting; and that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control persons performing the equivalent functions): over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or a. All significant deficiencies and material weaknesses in the design or operation of internal control over persons performing the equivalent functions): financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize a. All significant deficiencies and material weaknesses in the design or operation of internal control over and report financial information; and financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize b. Any fraud, whether or not material, that involves management or other employees who have a significant role and report financial information; and in the registrant's internal control over financial reporting. b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 24, 2018 Date: January 24, 2018 Name: Bruce Gross Title: Vice President and Chief Financial Officer Name: Bruce Gross Title: Vice President and Chief Financial Officer 136 136 Officers' Section 1350 Certifications Exhibit 32 Each of the undersigned officers of Lennar Corporation, a Delaware corporation (the "Company"), hereby certifies that (i) the Company's Annual Report on Form 10-K for the year ended November 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Company's Annual Report on Form 10-K for the year ended November 30, 2017 fairly presents, in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated. Name: Stuart Miller Title: Chief Executive Officer Name: Bruce Gross Title: Vice President and Chief Financial Officer Date: January 24, 2018 137 LENNAR CORPORATION AND SUBSIDIARIES STOCKHOLDER INFORMATION Annual Meeting The Annual Stockholders' Meeting will be held at 11:00 a.m. on Wednesday, April 11, 2018 at Lennar Corporation, 700 Northwest 107th Avenue, Second Floor Miami, Florida 33172 Registrar and Transfer Agent Computershare Investor Services P.O. Box 30170 College Station, Texas 77842 Listing New York Stock Exchange (LEN, LEN.B) Independent Registered Public Accounting Firm Deloitte & Touche LLP 333 SE 2nd Avenue, Suite 3600 Miami, FL 33131 

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