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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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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