Edgar Filing: LENNAR CORP /NEW/

LEN-2015.2.28-10Q Q1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2015

Commission File Number: 1-11749

Lennar Corporation

(Exact name of registrant as specified in its charter)



Delaware		95-4337490
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

(305) 559-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO ý

Common stock outstanding as of February 28, 2015:

Class A 173,900,552

Class B 31,303,195

Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands, except shares and per share amounts)

(unaudited)



	February 28,		November 30,
	2015 (1)		2014 (1)
ASSETS
Lennar Homebuilding:
Cash and cash equivalents	$	583,754	885,729
Restricted cash	10,520		9,849
Receivables, net	69,541		93,444
Inventories:
Finished homes and construction in progress	3,486,172		3,082,345
Land and land under development	4,870,087		4,601,802
Consolidated inventory not owned	50,243		52,453
Total inventories	8,406,502		7,736,600
Investments in unconsolidated entities	684,135		656,837
Other assets	592,026		672,589
	10,346,478		10,055,048
Rialto	1,379,841		1,458,152
Lennar Financial Services	1,113,960		1,177,053
Lennar Multifamily	280,366		268,014
Total assets	$	13,120,645	12,958,267

(1)

Under certain provisions of Accounting Standards Codification (“ASC”) Topic 810, Consolidations, (“ASC 810”) the Company is required to separately disclose on its condensed consolidated balance sheets the assets owned by consolidated variable interest entities (“VIEs”) and liabilities of consolidated VIEs as to which neither Lennar Corporation, or any of its subsidiaries, has any obligations.

As of February 28, 2015, total assets include $818.9 million related to consolidated VIEs of which $13.9 million is included in Lennar Homebuilding cash and cash equivalents, $0.3 million in Lennar Homebuilding restricted cash, $0.4 million in Lennar Homebuilding receivables, net, $0.3 million in Lennar Homebuilding finished homes and construction in progress, $195.3 million in Lennar Homebuilding land and land under development, $50.2 million in Lennar Homebuilding consolidated inventory not owned, $28.9 million in Lennar Homebuilding investments in unconsolidated entities, $101.8 million in Lennar Homebuilding other assets, $423.8 million in Rialto assets and $4.0 million in Lennar Multifamily assets.

As of November 30, 2014, total assets include $929.1 million related to consolidated VIEs of which $11.7 million is included in Lennar Homebuilding cash and cash equivalents, $0.3 million in Lennar Homebuilding restricted cash, $0.2 million in Lennar Homebuilding receivables, net, $0.2 million in Lennar Homebuilding finished homes and construction in progress, $208.2 million in Lennar Homebuilding land and land under development, $52.5 million in Lennar Homebuilding consolidated inventory not owned, $23.9 million in Lennar Homebuilding investments in unconsolidated entities, $104.6 million in Lennar Homebuilding other assets, $508.4 million in Rialto assets and $19.2 million in Lennar Multifamily assets.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets – (Continued)

(Dollars in thousands, except shares and per share amounts)

(unaudited)



	February 28,			November 30,
	2015 (2)			2014 (2)
LIABILITIES AND EQUITY
Lennar Homebuilding:
Accounts payable	$	388,206		412,558
Liabilities related to consolidated inventory not owned	43,121			45,028
Senior notes and other debts payable	5,133,118			4,690,213
Other liabilities	686,731			863,236
	6,251,176			6,011,035
Rialto	697,758			747,044
Lennar Financial Services	817,546			896,643
Lennar Multifamily	45,175			52,243
Total liabilities	7,811,655			7,706,965
Stockholders’ equity:
Preferred stock	—			—
Class A common stock of $0.10 par value; Authorized: February 28, 2015 and November 30, 2014 - 300,000,000 shares; Issued: February 28, 2015 - 174,247,254 shares and November 30, 2014 - 174,241,570 shares	17,425			17,424
Class B common stock of $0.10 par value; Authorized: February 28, 2015 and November 30, 2014 - 90,000,000 shares; Issued: February 28, 2015 - 32,982,815 shares and November 30, 2014 - 32,982,815 shares	3,298			3,298
Additional paid-in capital	2,250,236			2,239,704
Retained earnings	2,766,789			2,660,034
Treasury stock, at cost; February 28, 2015 - 346,702 shares of Class A common stock and 1,679,620 shares of Class B common stock; November 30, 2014 - 505,420 shares of Class A common stock and 1,679,620 shares of Class B common stock	(85,414		)	(93,440	)
Total stockholders’ equity	4,952,334			4,827,020
Noncontrolling interests	356,656			424,282
Total equity	5,308,990			5,251,302
Total liabilities and equity	$	13,120,645		12,958,267

(2)

As of February 28, 2015, total liabilities include $140.6 million related to consolidated VIEs as to which there was no recourse against the Company, of which $7.4 million is included in Lennar Homebuilding accounts payable, $43.1 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $61.5 million in Lennar Homebuilding senior notes and other debts payable, $14.9 million in Lennar Homebuilding other liabilities and $13.8 million in Rialto liabilities.

As of November 30, 2014, total liabilities include $149.8 million related to consolidated VIEs as to which there was no recourse against the Company, of which $6.8 million is included in Lennar Homebuilding accounts payable, $45.0 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $61.6 million in Lennar Homebuilding senior notes and other debts payable, $14.8 million in Lennar Homebuilding other liabilities and $21.5 million in Rialto liabilities.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

(unaudited)



	Three Months Ended
	February 28,
	2015			2014
Revenues:
Lennar Homebuilding	$	1,441,658		1,231,385
Lennar Financial Services	124,827			76,952
Rialto	41,197			46,955
Lennar Multifamily	36,457			7,803
Total revenues	1,644,139			1,363,095
Costs and expenses:
Lennar Homebuilding	1,265,175			1,064,355
Lennar Financial Services	109,300			72,487
Rialto	40,781			47,576
Lennar Multifamily	41,961			13,927
Corporate general and administrative	43,654			38,112
Total costs and expenses	1,500,871			1,236,457
Lennar Homebuilding equity in earnings from unconsolidated entities	28,899			4,990
Lennar Homebuilding other income, net	6,333			2,889
Other interest expense	(4,071		)	(12,691	)
Rialto equity in earnings from unconsolidated entities	2,664			5,354
Rialto other expense, net	(272		)	(1,229	)
Lennar Multifamily equity in loss from unconsolidated entities	(178		)	(75	)
Earnings before income taxes	176,643			125,876
Provision for income taxes	(59,726		)	(45,911	)
Net earnings (including net earnings attributable to noncontrolling interests)	$	116,917		79,965
Less: Net earnings attributable to noncontrolling interests	1,954			1,848
Net earnings attributable to Lennar	$	114,963		78,117
Basic earnings per share	$	0.56		0.38
Diluted earnings per share	$	0.50		0.35
Cash dividends per each Class A and Class B common share	$	0.04		0.04
Comprehensive earnings attributable to Lennar	$	114,963		78,117
Comprehensive earnings attributable to noncontrolling interests	$	1,954		1,848

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(unaudited)



	Three Months Ended
	February 28,
	2015			2014
Cash flows from operating activities:
Net earnings (including net earnings attributable to noncontrolling interests)	$	116,917		79,965
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	8,306			7,839
Amortization of discount/premium on debt, net	5,417			5,306
Lennar Homebuilding equity in earnings from unconsolidated entities	(28,899		)	(4,990	)
Distributions of earnings from Lennar Homebuilding unconsolidated entities	25,988			1,332
Rialto equity in earnings from unconsolidated entities	(2,664		)	(5,354	)
Distributions of earnings from Rialto unconsolidated entities	3,926			—
Lennar Multifamily equity in loss from unconsolidated entities	178			75
Share based compensation expense	10,251			8,741
Excess tax benefits from share-based awards	(35		)	(137	)
Deferred income tax expense	27,616			42,079
Gain on retirement of Rialto notes payable	(608		)	—
Gain on sale of operating property and equipment	(6,472		)	—
Unrealized and realized gains on Rialto real estate owned	(3,405		)	(9,441	)
Impairments of Rialto loans receivable and REO	4,055			9,025
Valuation adjustments and write-offs of option deposits and pre-acquisition costs and other assets	519			2,054
Changes in assets and liabilities:
Decrease in restricted cash	27,014			4,408
Decrease in receivables	210,670			69,081
Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs	(721,222		)	(592,008	)
Decrease in other assets	18,524			6,049
Increase in Rialto loans held-for-sale	(246,393		)	(42,935	)
Decrease in Lennar Financial Services loans held-for-sale	29,724			98,363
Decrease in accounts payable and other liabilities	(209,671		)	(74,059	)
Net cash used in operating activities	(730,264		)	(394,607	)
Cash flows from investing activities:
Increase in restricted cash related to LOCs	64			560
Net additions of operating properties and equipment	(28,946		)	(3,531	)
Investments in and contributions to Lennar Homebuilding unconsolidated entities	(14,940		)	(24,149	)
Distributions of capital from Lennar Homebuilding unconsolidated entities	4,272			53,649
Investments in and contributions to Rialto unconsolidated entities	(11,217		)	(18,306	)
Distributions of capital from Rialto unconsolidated entities	2,777			5,182
Investments in and contributions to Lennar Multifamily unconsolidated entities	(9,299		)	(9,083	)
Distributions of capital from Lennar Multifamily unconsolidated entities	11,125			35,893
Receipts of principal payments on Rialto loans receivable	3,519			6,879
Proceeds from sales of Rialto real estate owned	28,055			50,742
Purchase of investment carried at cost	(18,000		)	—
Improvements to Rialto real estate owned	(2,347		)	(2,356	)
Purchases of Lennar Homebuilding investments available-for-sale	(28,093		)	(15,994	)
Decrease in Lennar Financial Services loans held-for-investment, net	606			953
Purchases of Lennar Financial Services investment securities	(18,886		)	(5,220	)
Proceeds from maturities of Lennar Financial Services investment securities	14,116			51
Net cash provided by (used in) investing activities	$	(67,194	)	75,270

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(unaudited)



	Three Months Ended
	February 28,
	2015			2014
Cash flows from financing activities:
Net borrowings under unsecured revolving credit facility	$	250,000		—
Net repayments under Lennar Financial Services debt	(71,652		)	(151,048	)
Net borrowings (repayments) under Rialto warehouse repurchase facilities	41,971			(18,169	)
Proceeds from Lennar Homebuilding senior notes	250,625			500,500
Debt issuance costs	(1,494		)	(4,195	)
Principal payments on Rialto notes payable	(17,499		)	(2,101	)
Proceeds from other borrowings	46,630			15,332
Principal payments on other borrowings	(108,048		)	(87,502	)
Exercise of land option contracts from an unconsolidated land investment venture	—			(1,540	)
Receipts related to noncontrolling interests	1,302			74
Payments related to noncontrolling interests	(57,629		)	(32,609	)
Excess tax benefits from share-based awards	35			137
Common stock:
Issuances	8,227			12,420
Repurchases	(186		)	—
Dividends	(8,208		)	(8,169	)
Net cash provided by financing activities	334,074			223,130
Net decrease in cash and cash equivalents	(463,384		)	(96,207	)
Cash and cash equivalents at beginning of period	1,281,814			970,505
Cash and cash equivalents at end of period	$	818,430		874,298
Summary of cash and cash equivalents:
Lennar Homebuilding	$	583,754		645,691
Lennar Financial Services	84,201			56,707
Rialto	147,219			169,404
Lennar Multifamily	3,256			2,496
	$	818,430		874,298
Supplemental disclosures of non-cash investing and financing activities:
Lennar Homebuilding and Lennar Multifamily:
Inventory acquired in satisfaction of other assets including investments available-for-sale	$	—		4,774
Non-cash sale of operating properties and equipment	$	(59,397	)	—
Purchases of inventories and other assets financed by sellers	$	290		25,762
Non-cash contributions to Lennar Multifamily unconsolidated entities	$	26,594		54,955
Rialto:
Real estate owned acquired in satisfaction/partial satisfaction of loans receivable	$	8,637		4,534
Non-cash acquisition of Servicer Provider	$	—		8,317
Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
Operating properties and equipment and other assets of Lennar Multifamily	$	(17,421	)	22,495
Investments in unconsolidated entities	$	2,948		(10,495	)
Other liabilities	$	1,220		—
Noncontrolling interests	$	13,253		(12,000	)

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)


(1)	Basis of Presentation

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and VIEs (see Note 16) in which Lennar Corporation is deemed to be the primary beneficiary (the “Company”). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 30, 2014. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three months ended February 28, 2015 are not necessarily indicative of the results to be expected for the full year.

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 related to the Rialto segment 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 capital during the commitment period and 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 clawbacks 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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.


(2)	Operating and Reporting Segments

The Company’s operating segments are aggregated into reportable segments, based primarily upon similar economic characteristics, geography and product type. The Company’s reportable segments consist of:

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding West

(4) Homebuilding Southeast Florida

(5) Homebuilding Houston

(6) Lennar Financial Services

(7) Rialto

(8) 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 and other interest expense of the segment.

The Company’s reportable homebuilding segments and all other homebuilding operations not required to be reported separately have operations located in:

East: Florida⁽¹⁾, Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia

Central: Arizona, Colorado and Texas⁽²⁾

West: California and Nevada

Southeast Florida: Southeast Florida

Houston: Houston, Texas

Other: Illinois, Minnesota, Oregon, Tennessee and Washington

(1)Florida in the East reportable segment excludes Southeast Florida, which is its own reportable segment.

(2)Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.

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. 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, 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.

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, 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 operating earnings consist of revenues generated primarily from gains from securitization transactions and interest income from the Rialto Mortgage Finance (“RMF”) business, interest income associated with portfolios of real estate loans acquired in partnership with the FDIC and other portfolios of real estate loans and assets acquired, asset management, due diligence and underwriting fees derived from the segment's investments in the real estate investment funds managed by the Rialto segment, fees for sub-advisory services, distributions with regard to partnership interests, other income (expense), net, consisting primarily of gains upon foreclosure of real estate owned (“REO”) and gains on sale of REO, and equity in earnings (loss) from unconsolidated entities, less the costs incurred by the segment for managing portfolios, costs related to RMF, REO expenses and other general and administrative expenses.

Operations of the Lennar Multifamily segment include revenues generated primarily from construction activities and management fees generated from joint ventures as well as revenues from the sales of land and equity in earnings (loss) from

unconsolidated entities, less expenses related to construction activities, the costs related to sales of land 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 in the Company’s Form 10-K for the year ended November 30, 2014.and Section 4 of Item 2 of this Form 10-Q, “Critical Accounting Policies.” 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)	February 28, 2015		November 30, 2014
Assets:
Homebuilding East	$	2,410,301	2,323,978
Homebuilding Central	1,343,019		1,233,991
Homebuilding West	3,733,950		3,454,611
Homebuilding Southeast Florida	737,586		722,706
Homebuilding Houston	458,554		398,538
Homebuilding Other	913,372		880,912
Rialto	1,379,841		1,458,152
Lennar Financial Services	1,113,960		1,177,053
Lennar Multifamily	280,366		268,014
Corporate and unallocated	749,696		1,040,312
Total assets	$	13,120,645	12,958,267



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Revenues:
Homebuilding East	$	468,335		390,508
Homebuilding Central	210,508			162,494
Homebuilding West	382,773			315,015
Homebuilding Southeast Florida	142,348			102,164
Homebuilding Houston	131,257			130,623
Homebuilding Other	106,437			130,581
Lennar Financial Services	124,827			76,952
Rialto	41,197			46,955
Lennar Multifamily	36,457			7,803
Total revenues (1)	$	1,644,139		1,363,095
Operating earnings (loss):
Homebuilding East	$	58,247		50,652
Homebuilding Central	15,052			10,660
Homebuilding West (2)	82,493			53,793
Homebuilding Southeast Florida	28,286			20,558
Homebuilding Houston	17,015			21,671
Homebuilding Other (3)	6,551			4,884
Lennar Financial Services	15,527			4,465
Rialto	2,808			3,504
Lennar Multifamily	(5,682		)	(6,199	)
Total operating earnings	220,297			163,988
Corporate general and administrative expenses	43,654			38,112
Earnings before income taxes	$	176,643		125,876


(1)	Total revenues were net of sales incentives of $93.6 million ($21,800 per home delivered) for the three months ended February 28, 2015 and $76.5 million ($21,300 per home delivered) for the three months ended February 28, 2014.


(2)	For the three months ended February 28, 2015, operating earnings included Lennar Homebuilding equity in earnings from unconsolidated entities of $31.3 million primarily related to the sale of approximately 600 homesites to third parties by Heritage Fields El Toro, one of the Company's unconsolidated entities.


(3)	For the three months ended February 28, 2014, operating earnings included $1.0 million in write-offs of option deposits and pre-acquisition costs.


(3)	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



	Three Months Ended
	February 28,
(In thousands)	2015		2014
Revenues	$	442,957	143,694
Costs and expenses	298,879		145,639
Other income	2,943		—
Net earnings (loss) of unconsolidated entities (1)	$	147,021	(1,945	)
Lennar Homebuilding equity in earnings from unconsolidated entities (2)	$	28,899	4,990


(1)	For the three months ended February 28, 2015, net earnings of unconsolidated entities included the sale of approximately 300 homesites to Lennar by Heritage Fields El Toro, one of the Company's unconsolidated entities, for $126.4 million, resulting in $44.6 million of gross profit of which the Company's portion was deferred.

(2)

For the three months ended February 28, 2015, Lennar Homebuilding equity in earnings from unconsolidated entities included $31.3 million of equity in earnings primarily related to the sale of approximately 600 homesites to third parties by Heritage Fields El Toro, one of the Company's unconsolidated entities. For the three months ended February 28, 2014, Lennar Homebuilding equity in earnings from unconsolidated entities included $4.5 million of equity in earnings primarily as a result of a third-party land sale by one unconsolidated entity.

Balance Sheets



(In thousands)	February 28, 2015		November 30, 2014
Assets:
Cash and cash equivalents	$	229,004	243,597
Inventories	2,739,595		2,889,267
Other assets	145,833		155,470
	$	3,114,432	3,288,334
Liabilities and equity:
Accounts payable and other liabilities	$	287,794	271,638
Debt	487,387		737,755
Equity	2,339,251		2,278,941
	$	3,114,432	3,288,334

As of February 28, 2015 and November 30, 2014, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $684.1 million and $656.8 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of February 28, 2015 and November 30, 2014 was $745.9 million and $722.6 million, respectively. The basis difference is primarily as a result of the Company buying an interest in a partner's equity in a Lennar Homebuilding unconsolidated entity at a discount to book value and contributing non-monetary assets to an unconsolidated entity with a higher fair value than book value.

The Lennar Homebuilding unconsolidated entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities.

The total debt of the Lennar Homebuilding unconsolidated entities in which the Company has investments, including Lennar's maximum recourse exposure, were as follows:



(Dollars in thousands)	February 28, 2015			November 30, 2014
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	55,767		56,573
Non-recourse land seller debt or other debt	4,022			4,022
Non-recourse debt with completion guarantees (1)	180,032			442,854
Non-recourse debt without completion guarantees	224,796			209,825
Non-recourse debt to the Company	464,617			713,274
The Company’s maximum recourse exposure	22,770			24,481
Total debt	$	487,387		737,755
The Company’s maximum recourse exposure as a % of total JV debt	5		%	3	%


(1)	The decrease in non-recourse debt with completion guarantees was primarily related to a debt paydown by Heritage Fields El Toro, one of the Company's unconsolidated entities, as a result of land sales.

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. Historically, the Company has had repayment guarantees and/or maintenance guarantees. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral. In the event of default, if the Company’s venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. As of both February 28, 2015 and November 30, 2014, the Company did not have any maintenance or joint and several guarantees related to its Lennar Homebuilding unconsolidated entities.

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 unconsolidated entity distributes.

As of both February 28, 2015 and November 30, 2014, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of February 28, 2015, 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, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 12).


(4)	Stockholders' Equity

The following table reflects the changes in equity attributable to both Lennar Corporation and the noncontrolling interests of its consolidated subsidiaries in which it has less than a 100% ownership interest for both the three months ended February 28, 2015 and 2014:



				Stockholders’ Equity
(In thousands)	Total Equity			Class A Common Stock	Class B Common Stock	Additional Paid- in Capital	Treasury Stock		Retained Earnings		Noncontrolling Interests
Balance at November 30, 2014	$	5,251,302		17,424	3,298	2,239,704	(93,440	)	2,660,034		424,282
Net earnings (including net earnings attributable to noncontrolling interests)	116,917			—	—	—	—		114,963		1,954
Employee stock and directors plans	8,274			1	—	247	8,026		—		—
Tax benefit from employee stock plans and vesting of restricted stock	35			—	—	35	—		—		—
Amortization of restricted stock	10,250			—	—	10,250	—		—		—
Cash dividends	(8,208		)	—	—	—	—		(8,208	)	—
Receipts related to noncontrolling interests	1,302			—	—	—	—		—		1,302
Payments related to noncontrolling interests	(57,629		)	—	—	—	—		—		(57,629	)
Non-cash deconsolidations, net	(13,253		)	—	—	—	—		—		(13,253	)
Balance at February 28, 2015	$	5,308,990		17,425	3,298	2,250,236	(85,414	)	2,766,789		356,656



				Stockholders’ Equity
(In thousands)	Total Equity			Class A Common Stock	Class B Common Stock	Additional Paid- in Capital	Treasury Stock		Retained Earnings		Noncontrolling Interests
Balance at November 30, 2013	$	4,627,470		18,483	3,298	2,721,246	(628,019	)	2,053,893		458,569
Net earnings (including net earnings attributable to noncontrolling interests)	79,965			—	—	—	—		78,117		1,848
Employee stock and directors plans	12,433			1	—	525	11,907		—		—
Tax benefit from employee stock plans and vesting of restricted stock	137			—	—	137	—		—		—
Amortization of restricted stock	8,739			—	—	8,739	—		—		—
Cash dividends	(8,169		)	—	—	—	—		(8,169	)	—
Receipts related to noncontrolling interests	74			—	—	—	—		—		74
Payments related to noncontrolling interests	(32,609		)	—	—	—	—		—		(32,609	)
Non-cash consolidations, net	13,117			—	—	—	—		—		13,117
Balance at February 28, 2014	$	4,701,157		18,484	3,298	2,730,647	(616,112	)	2,123,841		440,999

The Company has a stock repurchase program, which originally authorized the purchase of up to 20 million shares of its outstanding common stock. During both the three months ended February 28, 2015 and 2014, there were no share repurchases of common stock under the stock repurchase program. As of February 28, 2015, the remaining authorized shares that could be purchased under the stock repurchase program were 6.2 million shares of common stock.

During the three months ended February 28, 2015 and 2014, treasury stock decreased by 0.2 million and 0.3 million shares of Class A common stock, respectively, due to activity related to the Company's equity compensation plan.


(5)	Income Taxes

During the three months ended February 28, 2015 and 2014, the Company recorded a tax provision of $59.7 million and $45.9 million, respectively, primarily related to pre-tax earnings. The effective tax rates for the three months ended February 28, 2015 and 2014 were 34.19% and 37.02%, respectively. The effective tax rates for both periods included a tax benefit for the domestic production activities deduction and energy tax credits, offset primarily by state income tax expense and interest accrued on uncertain tax positions.

As of February 28, 2015 and November 30, 2014, the Company's deferred tax assets, net included in the condensed consolidated balance sheets were $286.1 million and $313.8 million, respectively.

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 both February 28, 2015 and November 30, 2014, the net deferred tax assets included a valuation allowance of $8.0 million, 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.

At both February 28, 2015 and November 30, 2014, the Company had federal tax effected NOL carryforwards totaling $2.0 million that may be carried forward up to 20 years to offset future taxable income and begin to expire in 2029. At February 28, 2015 and November 30, 2014, the Company had state tax effected NOL carryforwards totaling $111.0 million and $113.8 million, respectively, that may be carried forward from 5 to 20 years, depending on the tax jurisdiction, with losses expiring between 2015 and 2034.

At both February 28, 2015 and November 30, 2014, the Company had $7.3 million of gross unrecognized tax benefits. At February 28, 2015, the Company had $31.9 million accrued for interest and penalties, of which $0.4 million was recorded during the three months ended February 28, 2015. At November 30, 2014, the Company had $31.5 million accrued for interest and penalties.


(6)	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 the 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.

Basic and diluted earnings per share were calculated as follows:



	Three Months Ended
	February 28,
(In thousands, except per share amounts)	2015		2014
Numerator:
Net earnings attributable to Lennar	$	114,963	78,117
Less: distributed earnings allocated to nonvested shares	91		98
Less: undistributed earnings allocated to nonvested shares	1,184		842
Numerator for basic earnings per share	113,688		77,177
Plus: interest on 3.25% convertible senior notes due 2021	1,982		1,982
Plus: undistributed earnings allocated to convertible shares	1,184		842
Less: undistributed earnings reallocated to convertible shares	1,064		770
Numerator for diluted earnings per share	$	115,790	79,231
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding	202,930		201,955
Effect of dilutive securities:
Share-based payments	11		10
Convertible senior notes	27,375		25,670
Denominator for diluted earnings per share - weighted average common shares outstanding	230,316		227,635
Basic earnings per share	$	0.56	0.38
Diluted earnings per share	$	0.50	0.35

For both the three months ended February 28, 2015 and 2014, there were no options to purchase shares of Class A common stock that were outstanding and anti-dilutive.


(7)	Lennar Financial Services Segment

The assets and liabilities related to the Lennar Financial Services segment were as follows:



(In thousands)	February 28, 2015		November 30, 2014
Assets:
Cash and cash equivalents	$	84,201	90,010
Restricted cash	8,347		8,609
Receivables, net (1)	113,625		150,858
Loans held-for-sale (2)	708,559		738,396
Loans held-for-investment, net	26,206		26,894
Investments held-to-maturity	47,429		45,038
Goodwill	38,854		38,854
Other (3)	86,739		78,394
	$	1,113,960	1,177,053
Liabilities:
Notes and other debts payable	$	632,491	704,143
Other (4)	185,055		192,500
	$	817,546	896,643


(1)	Receivables, net primarily related to loans sold to investors for which the Company had not yet been paid as of February 28, 2015 and November 30, 2014, respectively.


(2)	Loans held-for-sale related to unsold loans carried at fair value.

(3)

Other assets included mortgage loan commitments carried at fair value of $19.0 million and $12.7 million as of February 28, 2015 and November 30, 2014, respectively. As of February 28, 2015 and November 30, 2014, other assets also included mortgage servicing rights carried at fair value of $16.8 million and $17.4 million, respectively, and other investment securities of $19.3 million and $16.8 million, respectively.


(4)	Other liabilities included $68.9 million and $69.3 million as of February 28, 2015 and November 30, 2014, respectively, of certain of the Company’s self-insurance reserves related to general liability and workers’ compensation. Other liabilities also included forward contracts carried at fair value of $7.6 million as of November 30, 2014.

At February 28, 2015, the Lennar Financial Services segment warehouse facilities were as follows:



(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures June 2015 (1)	$	150,000
364-day warehouse repurchase facility that matures December 2015 (2)	350,000
364-day warehouse repurchase facility that matures March 2016 (3)	300,000
Totals	$	800,000


(1)	Maximum aggregate commitment includes a $50 million accordion feature that is available beginning the tenth (10th) calendar day immediately preceding the first day of a fiscal quarter-through 20 days after fiscal quarter-end.


(2)	In accordance with the amended warehouse repurchase facility agreement, the maximum aggregate commitment was increased from $325 million to $350 million through the second quarter of fiscal 2015 and will be increased to $450 million for the third and fourth quarter of fiscal 2015.


(3)	Maximum aggregate commitment includes a $100 million accordion feature that is available 10 days prior to the end of each fiscal quarter through 20 days after each fiscal quarter end. At February 28, 2015 the facility was on a rolling termination date through March 19, 2015 extending the final maturity date to March 2016.

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 expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $632.5 million and $698.4 million at February 28, 2015 and November 30, 2014, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $658.7 million and $732.1 million at February 28, 2015 and November 30, 2014, respectively. 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.

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 increased 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. The Company’s mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes 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 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. Loan origination liabilities are included in Lennar Financial Services’ liabilities in the Company's condensed consolidated balance sheets. The activity in the Company’s loan origination liabilities was as follows:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Loan origination liabilities, beginning of period	$	11,818		9,311
Provision for losses	802			293
Payments/settlements	(144		)	(19	)
Loan origination liabilities, end of period	$	12,476		9,585

For Lennar Financial Services loans held-for-investment, net, a loan is deemed impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Interest income is not accrued or recognized on impaired loans unless payment is received. Impaired loans are written-off if and when the loan is no longer secured by collateral. The total unpaid principal balance of the impaired loans was as follows:



(In thousands)	February 28, 2015			November 30, 2014
Impaired loans unpaid principal balance	$	7,912		7,576
Valuation allowance	(3,789		)	(3,730	)
Investment in impaired loans	$	4,123		3,846

The average recorded investment in impaired loans totaled $4.0 million and $3.9 million for the three months ended February 28, 2015 and 2014, respectively.


(8)	Rialto Segment

The assets and liabilities related to the Rialto segment were as follows:



(In thousands)	February 28, 2015		November 30, 2014
Assets:
Cash and cash equivalents	$	147,219	303,889
Restricted cash (1)	19,488		46,975
Receivables, net (2)	—		153,773
Loans receivable, net	116,725		130,105
Loans held-for-sale (3)	360,045		113,596
Real estate owned - held-for-sale	185,511		190,535
Real estate owned - held-and-used, net	242,569		255,795
Investments in unconsolidated entities	182,878		175,700
Investments held-to-maturity	17,624		17,290
Other	107,782		70,494
	$	1,379,841	1,458,152
Liabilities:
Notes and other debts payable (4)	$	646,082	623,246
Other	51,676		123,798
	$	697,758	747,044


(1)	Restricted cash primarily consists of 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.


(2)	Receivables, net primarily relate to loans sold but not settled as of November 30, 2014.


(3)	Loans held-for-sale relate to unsold loans originated by RMF carried at fair value.

(4)

Notes and other debts payable include $351.8 million and $351.9 million related to the 7.00% Senior Notes due 2018 (“7.00% Senior Notes”) as of February 28, 2015 and November 30, 2014, respectively, $183.2 million and $141.3 million related to the RMF warehouse repurchase financing agreements as of February 28, 2015 and November 30, 2014, respectively, and $40.4 million and $58.0 million related to the notes issued through a structured note offering as of February 28, 2015 and November 30, 2014, respectively.

Rialto’s operating earnings were as follows:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Revenues	$	41,197		46,955
Costs and expenses (1)	40,781			47,576
Rialto equity in earnings from unconsolidated entities	2,664			5,354
Rialto other expense, net	(272		)	(1,229	)
Operating earnings (2)	$	2,808		3,504


(1)	Costs and expenses for the three months ended February 28, 2015 and 2014 included loan impairments of $1.2 million and $6.7 million, respectively, primarily associated with the segment's FDIC loans portfolio (before noncontrolling interests).


(2)	Operating earnings for the three months ended February 28, 2015 and 2014 included net earnings (loss) attributable to noncontrolling interests of ($1.8) million and $0.9 million, respectively.

The following is a detail of Rialto other expense, net:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Realized gains on REO sales, net	$	3,130		9,509
Unrealized losses on transfer of loans receivable to REO and impairments, net	(2,556		)	(2,377	)
REO and other expenses	(13,242		)	(31,172	)
Rental and other income	12,396			22,811
Rialto other expense, net	$	(272	)	(1,229	)

Loans Receivable

In February 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies (“LLCs”), in partnership with the FDIC (“FDIC Portfolios”), which retained 60% equity interests in the LLCs, for approximately $243 million (net of transaction costs and a $22 million working capital reserve). If the LLCs exceed expectations and meet certain internal rate of return and distribution thresholds, the Company’s equity interest in the LLCs could be reduced from 40% down to 30%, with a corresponding increase to the FDIC’s equity interest from 60% up to 70%. As these thresholds have not been met, distributions continue being shared 60%/40% with the FDIC. During the three months ended February 28, 2015 and 2014, the LLCs distributed $73.5 million and $53.1 million, respectively, of which $44.1 million and $31.9 million, respectively, was distributed to the FDIC and $29.4 million and $21.2 million, respectively, was distributed to Rialto, the parent company.

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 activities of the LLCs that most significantly impact the LLCs' performance through Rialto's management and servicer contracts. At February 28, 2015, these consolidated LLCs had total combined assets and liabilities of $423.8 million and $13.8 million, respectively. At November 30, 2014, these consolidated LLCs had total combined assets and liabilities of $508.4 million and $21.5 million, respectively.

In September 2010, the Rialto segment acquired approximately 400 distressed residential and commercial real estate loans (“Bank Portfolios”) and over 300 REO properties from three financial institutions. The Company paid $310 million for the distressed real estate and real estate related assets of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions that was extended and is due on December 2016. As of both February 28, 2015 and November 30, 2014, there was $60.6 million outstanding.

In May 2014, the Rialto segment issued $73.8 million principal amount of notes through a structured note offering (the “Structured Notes”) collateralized by certain assets originally acquired in the Bank Portfolios transaction at a price of 100%, with an annual coupon rate of 2.85%. Proceeds from the offering, after payment of expenses and hold backs for a cash reserve, were $69.1 million. In November 2014, the Rialto segment issued an additional $20.8 million of the Structured Notes at a price of 99.5%, with an annual coupon rate of 5.0%. Proceeds from the offering, after payment of expenses, were $20.7 million. The estimated final payment date of the Structured Notes is December 15, 2015. As of February 28, 2015 and November 30, 2014, the outstanding amount related to Rialto's structured note offering was $40.4 million and $58.0 million, respectively.

The loans receivable portfolios consist of loans acquired at a discount. Based on the nature of these loans, the portfolios are managed by assessing the risks related to the likelihood of collection of payments from borrowers and guarantors, as well as monitoring the value of the underlying collateral. The following table displays the loans receivable, net by aggregate collateral type and risk categories:



(In thousands)	February 28, 2015		November 30, 2014
Land	$	78,397	89,603
Single family homes	19,092		20,402
Commercial properties	7,118		7,286
Other	12,118		12,814
Loans receivable, net	$	116,725	130,105

In order to assess the risk associated with each risk category, the Rialto segment evaluates the forecasted cash flows and the value of the underlying collateral securing loans receivable on a quarterly basis or when an event occurs that suggests a decline in the collateral’s fair value.

During the fourth quarter of 2014, in an effort to better reflect the performance of the FDIC Portfolios and Bank Portfolios, the Company changed from recording accretable yield income on a loan pool basis to recording income on a cost recovery basis per loan as expected cash flows on the remaining loan portfolios could no longer be reasonably estimated. Therefore, all the loans receivable, net presented above are classified as nonaccrual loans in accordance with ASC 310-10, Receivables (“ASC 310-10”) at February 28, 2015 and November 30, 2014.

With regard to loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, (“ASC 310-30”), prior to the fourth quarter of 2014 the Rialto segment estimated the cash flows, at acquisition, it expected to collect on the FDIC Portfolios and Bank Portfolios. In accordance with ASC 310-30, the difference between the contractually required payments and the cash flows expected to be collected at acquisition was referred to as the nonaccretable difference. This difference was neither accreted into income nor recorded on the Company’s condensed consolidated balance

sheets. The excess of cash flows expected to be collected over the cost of the loans acquired was referred to as the accretable yield and was recognized in interest income over the remaining life of the loans using the effective yield method.

For the three months ended February 28, 2015, there was no activity in the accretable yield for the FDIC Portfolios and Bank Portfolios as all the remaining accreting loans were classified as nonaccrual loans during the fourth quarter of 2014, as explained above. For the three months ended February 28, 2014 the activity in the accretable yield was as follows:



	Three Months Ended
	February 28,
(In thousands)	2014
Accretable yield, beginning of period	$	73,144
Additions	1,352
Deletions	(8,704		)
Accretions	(9,795		)
Accretable yield, end of period	$	55,997

Additions primarily represent reclasses from nonaccretable yield to accretable yield on the portfolios. Deletions represent loan impairments, net of recoveries, and disposal of loans, which includes foreclosure of underlying collateral and result in the removal of the loans from the accretable yield portfolios.

When forecasted principal and interest cannot be reasonably estimated, management classifies the loan as nonaccrual and accounts for these assets in accordance with ASC 310-10. When a loan is classified as nonaccrual, any subsequent cash receipt is accounted for using the cost recovery method. In accordance with ASC 310-10, a loan is considered impaired when based on current information and events it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Although these loans met the definition of ASC 310-10, these loans were not considered impaired relative to the Company’s recorded investment at the time of acquisition since they were acquired at a substantial discount to their unpaid principal balance. A provision for loan losses is recognized when the recorded investment in the loan is in excess of its fair value. The fair value of the loan is determined by using either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral less estimated costs to sell.

The following tables represent nonaccrual loans in the FDIC Portfolios and Bank Portfolios accounted for under ASC 310-10 aggregated by collateral type:

February 28, 2015



			Recorded Investment
(In thousands)	Unpaid Principal Balance		With Allowance	Without Allowance	Total Recorded Investment
Land	$	199,367	76,354	2,043	78,397
Single family homes	60,723		14,514	4,578	19,092
Commercial properties	21,425		6,983	135	7,118
Other	61,787		—	12,118	12,118
Loans receivable	$	343,302	97,851	18,874	116,725

November 30, 2014



			Recorded Investment
(In thousands)	Unpaid Principal Balance		With Allowance	Without Allowance	Total Recorded Investment
Land	$	228,245	85,912	3,691	89,603
Single family homes	66,183		18,096	2,306	20,402
Commercial properties	34,048		3,368	3,918	7,286
Other	64,284		5	12,809	12,814
Loans receivable	$	392,760	107,381	22,724	130,105

The average recorded investment in impaired loans totaled approximately $123 million and $7 million for the three months ended February 28, 2015 and 2014, respectively.

Accrual — Loans in which forecasted cash flows under the loan agreement, as it might be modified from time to time, can be reasonably estimated at the date of acquisition. The risk associated with loans in this category relates to the possible default by the borrower with respect to principal and interest payments and the possible decline in value of the underlying collateral and thus, both could cause a decline in the forecasted cash flows used to determine accretable yield income and the recognition of an impairment through an allowance for loan losses but can be reversed if conditions improve. For the three months ended February 28, 2015, there is no activity in the Company's allowance related to accrual loans as there were no loans classified as accrual loans at both February 28, 2015 and November 30, 2014. For the three months ended February 28, 2014, the activity in the Company's allowance rollforward related to accrual loans was as follows:



	Three Months Ended
	February 28,
(In thousands)	2014
Allowance on accrual loans, beginning of period	$	18,952
Provision for loan losses, net of recoveries	6,637
Charge-offs	(667		)
Allowance on accrual loans, end of period	$	24,922

Nonaccrual — Loans in which forecasted principal and interest could not be reasonably estimated. The risk of nonaccrual loans relates to a decline in the value of the collateral securing the outstanding obligation and the recognition of an impairment through an allowance for loan losses if the recorded investment in the loan exceeds its fair value. The activity in the Company's allowance rollforward related to nonaccrual loans was as follows:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Allowance on nonaccrual loans, beginning of period	$	58,236		1,213
Provision for loan losses, net of recoveries	1,224			79
Charge-offs	(8,441		)	(868	)
Allowance on nonaccrual loans, end of period	$	51,019		424

Real Estate Owned

The acquisition of properties acquired through, or in lieu of, loan foreclosure are reported within the condensed consolidated balance sheets as REO held-and-used, net and REO held-for-sale. When a property is determined to be held-and-used, net, the asset is recorded at fair value and depreciated over its useful life using the straight line method. When certain criteria set forth in ASC 360, Property, Plant and Equipment, are met, the property is classified as held-for-sale. When a real estate asset is classified as held-for-sale, the property is recorded at the lower of its cost basis or fair value less estimated costs to sell. The fair value of REO held-for-sale is 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 following tables represent the activity in REO:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
REO - held-for-sale, beginning of period	$	190,535		197,851
Improvements	1,704			1,593
Sales	(24,925		)	(41,233	)
Impairments and unrealized losses	(1,418		)	(1,791	)
Transfers from held-and-used, net (1)	19,615			29,814
REO - held-for-sale, end of period	$	185,511		186,234



	Three Months Ended
	February 28,
(In thousands)	2015			2014
REO - held-and-used, net, beginning of period	$	255,795		428,989
Additions	8,912			8,034
Improvements	643			763
Impairments	(1,413		)	(904	)
Depreciation	(789		)	(1,393	)
Transfers to held-for-sale (1)	(19,615		)	(29,814	)
Other	(964		)	—
REO - held-and-used, net, end of period	$	242,569		405,675


(1)	During the three months ended February 28, 2015 and 2014, the Rialto segment transferred certain properties from REO held-and-used, net to REO held-for-sale as a result of changes in the disposition strategy of the real estate assets.

Rialto Mortgage Finance

RMF originates and sells into securitizations five, seven and ten year commercial first mortgage loans, generally with principal amounts between $2 million and $75 million, which are secured by income producing properties. During the three months ended February 28, 2015, RMF originated loans with a total principal balance of $565.5 million and sold $318.1 million of loans into two separate securitizations. During the three months ended February 28, 2014, RMF originated loans with a total principal balance of $295.5 million and sold $253.0 million of loans into two separate securitizations. As November 30, 2014, $147.2 million of the originated loans were sold into a securitization trust but not settled and thus were included as receivables, net.

As of both February 28, 2015 and November 30, 2014, RMF had two warehouse repurchase financing agreements that mature in fiscal year 2015 with commitments totaling $650 million to help finance the loans it makes. Borrowings under these facilities were $183.2 million and $141.3 million as of February 28, 2015 and November 30, 2014, respectively. In March 2015, RMF entered into an additional warehouse repurchase facility with commitments totaling $250 million that matures in fiscal 2016.

In November 2013, the Rialto segment issued $250 million aggregate principal amount of the 7.00% senior notes due 2018 (“7.00% Senior Notes”), at a price of 100% in a private placement. Proceeds from the offering, after payment of expenses, were approximately $245 million. Rialto used a majority of the net proceeds of the sale of the 7.00% Senior Notes as working capital for RMF and used $100 million to repay sums that had been advanced to RMF from Lennar to enable it to begin originating and securitizing commercial mortgage loans. In March 2014, the Rialto segment issued an additional $100 million of the 7.00% Senior Notes, at a price of 102.25% of their face value in a private placement. Proceeds from the offering, after payment of expenses, were approximately $102 million. Rialto used the net proceeds of the offering to provide additional working capital for RMF, and to make investments in the funds that Rialto manages, as well as for general corporate purposes. Interest on the 7.00% Senior Notes is due semi-annually. At February 28, 2015 and November 30, 2014, the carrying amount of the 7.00% Senior Notes was $351.8 million and $351.9 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. The Company believes it was in compliance with its debt covenants at February 28, 2015.

Investments

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 Rialto's funds investment 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:



								February 28, 2015		February 28, 2015		November 30, 2014
(Dollars in thousands)	Inception Year	Equity Commitments		Equity Commitments Called		Commitment to fund by the Company		Funds contributed by the Company		Investment
Rialto Real Estate Fund, LP	2010	$	700,006	$	700,006	$	75,000	$	75,000	$	68,760	71,831
Rialto Real Estate Fund II, LP	2012	1,305,000		860,058		100,000		65,905		74,632		67,652
Rialto Mezzanine Partners Fund, LP	2013	300,000		213,536		33,799		24,058		23,674		20,226
Other investments										15,812		15,991
										$	182,878	175,700

Rialto's share of earnings (loss) from unconsolidated entities was as follows:



	Three Months Ended
	February 28,
(In thousands)	2015		2014
Rialto Real Estate Fund, LP	$	746	5,059
Rialto Real Estate Fund II, LP	893		38
Rialto Mezzanine Partners Fund, LP	475		289
Other investments	550		(32	)
Rialto equity in earnings from unconsolidated entities	$	2,664	5,354

During the three months ended February 28, 2015 , the Company received $6.5 million of advance distributions with regard to Rialto's carried interest in Rialto Real Estate Fund, LP ("Fund I") and Rialto Real Estate Fund II, LP ("Fund II") in order to cover income tax obligations resulting from allocations of taxable income to Rialto's carried interests in Fund I and Fund II. These amounts of advance distributions are not subject to clawbacks and are included in Rialto's revenues.

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



(In thousands)	February 28, 2015		November 30, 2014
Assets:
Cash and cash equivalents	$	77,844	141,609
Loans receivable	515,229		512,034
Real estate owned	442,258		378,702
Investment securities	859,117		795,306
Investments in partnerships	345,752		311,037
Other assets	30,456		45,451
	$	2,270,656	2,184,139
Liabilities and equity:
Accounts payable and other liabilities	$	15,846	20,573
Notes payable	407,446		395,654
Equity	1,847,364		1,767,912
	$	2,270,656	2,184,139

Statements of Operations



	Three Months Ended
	February 28,
(In thousands)	2015		2014
Revenues	$	41,738	31,427
Costs and expenses	23,005		26,109
Other income, net (1)	5,874		48,170
Net earnings of unconsolidated entities	$	24,607	53,488
Rialto equity in earnings from unconsolidated entities	$	2,664	5,354


(1)	Other income, net, for the three months ended February 28, 2015 and 2014 included realized and unrealized gains (losses) on investments.

In 2010, the Rialto segment invested in non-investment grade commercial mortgage-backed securities (“CMBS”) at a 55% discount to par value. The carrying value of the investment securities at February 28, 2015 and November 30, 2014 was $17.6 million and $17.3 million, respectively. These securities bear interest at a coupon rate of 4% and have a stated and assumed final distribution date of November 2020 and a stated maturity date of October 2057. The Rialto segment reviews changes in estimated cash flows periodically to determine if other-than-temporary impairment has occurred on its investment securities. Based on the Rialto segment’s assessment, no impairment charges were recorded during both the three months ended February 28, 2015 and 2014. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.

In December 2014, the Rialto segment invested in a private commercial real estate services company at a price of $18.0 million. The investment is carried at cost at February 28, 2015 and is included in Rialto's other assets.


(9)	Lennar Multifamily Segment

The Company is actively involved, primarily through unconsolidated entities, in the development 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)	February 28, 2015		November 30, 2014
Assets:
Cash and cash equivalents	$	3,256	2,186
Land under development	121,706		120,666
Consolidated inventory not owned	5,508		5,508
Investments in unconsolidated entities	123,978		105,674
Operating properties and equipment	219		15,740
Other assets	25,699		18,240
	$	280,366	268,014
Liabilities:
Accounts payable and other liabilities	$	41,167	48,235
Liabilities related to consolidated inventory not owned	4,008		4,008
	$	45,175	52,243

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. 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. Additionally, the Company guarantees the construction costs of the project. Generally construction cost over-runs would be paid by the Company. Generally, these payments are increases to our investment in the entities and would increase our share of funds the entities distribute after the achievement of certain thresholds. As of both February 28, 2015 and November 30, 2014, the fair value of the completion guarantees was immaterial. Additionally, as of February 28, 2015 and November 30, 2014, the Lennar Multifamily segment had $22.2 million and $23.5 million, respectively, of letters of credit outstanding primarily for credit enhancements for the bank debt of certain of its unconsolidated entities. These letters of credit outstanding were included in the disclosure in Note 12 related to the Company's performance and financial letters of credit. As of February 28, 2015 and November 30, 2014, Lennar Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $244.0 million and $163.4 million, respectively.

During the three months ended February 28, 2015 and 2014, the Lennar Multifamily segment provided general contractor services for construction of some of its rental properties and received fees totaling $31.9 million and $6.2 million, respectively, which are offset by costs related to those services of $31.3 million and $6.0 million, respectively.

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



(In thousands)	February 28, 2015		November 30, 2014
Assets:
Cash and cash equivalents	$	21,389	25,319
Operating properties and equipment	806,652		637,259
Other assets	19,699		14,742
	$	847,740	677,320
Liabilities and equity:
Accounts payable and other liabilities	$	102,305	87,151
Notes payable	244,026		163,376
Equity	501,409		426,793
	$	847,740	677,320

Statements of Operations



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Revenues	$	2,094		—
Costs and expenses	2,994			143
Net loss of unconsolidated entities	$	(900	)	(143	)
Lennar Multifamily equity in loss from unconsolidated entities	$	(178	)	(75	)


(10)	Lennar Homebuilding Cash and Cash Equivalents

Cash and cash equivalents as of February 28, 2015 and November 30, 2014 included $278.2 million and $263.2 million, respectively, of cash held in escrow for approximately three days.


(11)	Lennar Homebuilding Restricted Cash

Restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold, as well as funds on deposit to secure and support performance obligations.


(12)	Lennar Homebuilding Senior Notes and Other Debts Payable



(Dollars in thousands)	February 28, 2015		November 30, 2014
5.60% senior notes due 2015	$	500,139	500,272
6.50% senior notes due 2016	249,942		249,923
12.25% senior notes due 2017	396,807		396,278
4.75% senior notes due 2017	399,250		399,250
6.95% senior notes due 2018	248,652		248,485
4.125% senior notes due 2018	274,995		274,995
4.500% senior notes due 2019	500,431		500,477
4.50% senior notes due 2019	600,625		350,000
2.75% convertible senior notes due 2020	434,494		431,042
3.25% convertible senior notes due 2021	400,000		400,000
4.750% senior notes due 2022	571,439		571,439
Unsecured revolving credit facility that matures 2018	250,000		—
Mortgage notes on land and other debt	306,344		368,052
	$	5,133,118	4,690,213

At February 28, 2015, the Company had a $1.5 billion unsecured revolving credit facility (the “Credit Facility”), which includes a $248 million accordion feature, subject to additional commitments, with certain financial institutions that matures in June 2018. 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 Facility agreement also provides that up to $500 million in commitments may be used for letters of credit. 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. For more details refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations in Item 2. The Company believes it was in compliance with its debt covenants at February 28, 2015. In addition, the Company had $315 million letter of credit facilities with different financial institutions.

The Company’s performance letters of credit outstanding were $239.0 million and $234.1 million, respectively, at February 28, 2015 and November 30, 2014. The Company’s financial letters of credit outstanding were $186.6 million and $190.4 million, respectively, at February 28, 2015 and November 30, 2014. 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 February 28, 2015, the Company had outstanding performance and surety bonds related to site improvements at various projects (including certain projects in the Company’s joint ventures) of $934.2 million. 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 February 28, 2015, there were approximately $472.4 million, or 51%, 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.

In November 2014, the Company originally issued $350 million aggregate principal amount of 4.50% senior notes due 2019 (the “4.50% Senior Notes”) at a price of 100%. In February 2015, the Company issued an additional $250 million aggregate principal amount of its 4.50% Senior Notes at a price of 100.25%. Proceeds from the offerings, after payment of expenses, were $596.4 million. The Company is using the net proceeds from the sales of the 4.50% Senior Notes for working capital and general corporate purposes. Interest on the 4.50% Senior Notes is due semi-annually beginning May 15, 2015. The 4.50% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

At both February 28, 2015 and November 30, 2014, the carrying and principal amount of the 3.25% convertible senior notes due 2021 (the “3.25% Convertible Senior Notes”) was $400.0 million. The 3.25% Convertible Senior Notes are convertible into shares of Class A common stock at any time prior to maturity or redemption at the initial conversion rate of 42.5555 shares of Class A common stock per $1,000 principal amount of the 3.25% Convertible Senior Notes or 17,022,200 shares of Class A common stock if all the 3.25% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $23.50 per share of Class A common stock, subject to anti-dilution adjustments. The shares

are included in the calculation of diluted earnings per share. The 3.25% Convertible Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

The 2.75% convertible senior notes due 2020 (the “2.75% Convertible Senior Notes”) are convertible into cash, shares of Class A common stock or a combination of both, at the Company’s election. However, it is the Company’s intent to settle the face value of the 2.75% Convertible Senior Notes in cash. Shares are included in the calculation of diluted earnings per share because even though it is the Company’s intent to settle the face value of the 2.75% Convertible Senior Notes in cash, the Company's volume weighted average stock price exceeded the conversion price. The Company’s volume weighted average stock price for the three months ended February 28, 2015 and 2014 was $45.52 and $38.78, respectively, which exceeded the conversion price, thus 10.4 million shares and 8.6 million shares, respectively, were included in the calculation of diluted earnings per share. Holders may convert the 2.75% Convertible Senior Notes at the initial conversion rate of 45.1794 shares of Class A common stock per $1,000 principal amount or 20,150,012 shares of Class A common stock if all the 2.75% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $22.13 per share of Class A common stock. The 2.75% Convertible Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

Certain provisions under ASC 470, Debt, require the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company has applied these provisions to its 2.75% Convertible Senior Notes. At both February 28, 2015 and November 30, 2014, the principal amount of the 2.75% Convertible Senior Notes was $446.0 million. At February 28, 2015 and November 30, 2014, the carrying amount of the equity component included in stockholders’ equity was $11.5 million and $15.0 million, respectively, and the net carrying amount of the 2.75% Convertible Senior Notes included in Lennar Homebuilding senior notes and other debts payable was $434.5 million and $431.0 million, respectively.

Although the guarantees by substantially all of the Company's 100% owned homebuilding subsidiaries 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.


(13)	Product Warranty

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



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Warranty reserve, beginning of period	$	115,927		102,580
Warranties issued	13,323			10,392
Adjustments to pre-existing warranties from changes in estimates (1)	3,661			2,120
Payments	(16,640		)	(13,995	)
Warranty reserve, end of period	$	116,271		101,097


(1)	The adjustments to pre-existing warranties from changes in estimates during the three months ended February 28, 2015 and 2014 primarily related to specific claims related to certain of our homebuilding communities and other adjustments.


(14)	Share-Based Payments

During the three months ended February 28, 2015, the Company granted an immaterial number of stock options and did not grant any nonvested shares. During the three months ended February 28, 2014, the Company did not grant any stock options or nonvested shares. Compensation expense related to the Company’s share-based payment awards was as follows:



	Three Months Ended
	February 28,
(In thousands)	2015		2014
Stock options	$	1	2
Nonvested shares	10,250		8,739
Total compensation expense for share-based awards	$	10,251	8,741


(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 February 28, 2015 and November 30, 2014, 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.



		February 28, 2015			November 30, 2014
	Fair Value	Carrying		Fair	Carrying	Fair
(In thousands)	Hierarchy	Amount		Value	Amount	Value
ASSETS
Rialto:
Loans receivable, net	Level 3	$	116,725	122,012	130,105	135,881
Investments held-to-maturity	Level 3	$	17,624	17,504	17,290	17,155
Lennar Financial Services:
Loans held-for-investment, net	Level 3	$	26,206	25,879	26,894	26,723
Investments held-to-maturity	Level 2	$	47,429	47,497	45,038	45,051
LIABILITIES
Lennar Homebuilding senior notes and other debts payable	Level 2	$	5,133,118	6,361,102	4,690,213	5,760,075
Rialto notes and other debts payable	Level 2	$	646,082	673,669	623,246	640,335
Lennar Financial Services notes and other debts payable	Level 2	$	632,491	632,491	704,143	704,143

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

Lennar Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is 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.

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 the Company’s weighted average borrowing rate and for the warehouse repurchase financing agreements fair values approximate their carrying value due to their short 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 short-term nature of the borrowings.

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.

The Company’s financial instruments measured at fair value on a recurring basis are summarized below:



Financial Instruments	Fair Value Hierarchy	Fair Value at February 28, 2015			Fair Value at November 30, 2014
(In thousands)
Lennar Financial Services:
Loans held-for-sale (1)	Level 2	$	708,559		738,396
Mortgage loan commitments	Level 2	$	18,966		12,687
Forward contracts	Level 2	$	(55	)	(7,576	)
Mortgage servicing rights	Level 3	$	16,786		17,353
Lennar Homebuilding:
Investments available-for-sale	Level 3	$	28,573		480
Rialto:
Loans held-for-sale (2)	Level 3	$	360,045		113,596


(1)	The aggregate fair value of Lennar Financial Services loans held-for-sale of $708.6 million at February 28, 2015 exceeds their aggregate principal balance of $683.5 million by $25.1 million. The aggregate fair value of loans held-for-sale of $738.4 million at November 30, 2014 exceeds their aggregate principal balance of $706.0 million by $32.4 million.


(2)	The aggregate fair value of Rialto loans held-for-sale of $360.0 million at February 28, 2015 exceeds their aggregate principal balance of $358.9 million by $1.1 million. The aggregate fair value of loans held-for-sale of $113.6 million at November 30, 2014 exceeds their aggregate principal balance of $111.8 million by $1.8 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:

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 February 28, 2015 and November 30, 2014. Fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics.

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. 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. As of February 28, 2015, the fair value of forward contracts is included in the Lennar Financial Services segment's other liabilities. As of November 30, 2014, the fair value of forward contracts is included in the Lennar Financial Services segment's other liabilities.

Lennar Financial Services mortgage servicing rights — Lennar Financial Services records mortgage servicing rights when it sells loans on a servicing-retained basis, at the time of securitization 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 February 28, 2015, the key assumptions used in determining the fair value include a 12.4% mortgage prepayment rate, a 12.0% discount rate and a 6.7% delinquency rate. The fair value of mortgage servicing rights is included in the Lennar Financial Services segment's other assets.

Lennar Homebuilding investments available-for-sale— The fair value of these investments is based on third-party valuations and/or estimated by the Company on the basis of discounted cash flows and it is included in the Lennar Homebuilding segment's other assets.

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.

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:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Changes in fair value included in Lennar Financial Services revenues:
Loans held-for-sale	$	(7,300	)	(1,240	)
Mortgage loan commitments	$	6,279		2,794
Forward contracts	$	7,521		(5,721	)

Interest income 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 statement of operations, respectively.

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 February 28, 2015, the segment had open commitments amounting to $956.0 million to sell MBS with varying settlement dates through May 2015.

The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements:



	Three Months Ended
	February 28,
(In thousands)	2015			2014
Mortgage servicing rights, beginning of period	$	17,353		11,455
Purchases and retention of mortgage servicing rights	344			1,421
Disposals	(779		)	(261	)
Changes in fair value (1)	(132		)	(660	)
Mortgage servicing rights, end of period	$	16,786		11,955


(1)	Amount represents changes in fair value included in Lennar Financial Services revenues.