Edgar Filing: LENNAR CORP /NEW/

Document

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, 2018

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," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Common stock outstanding as of February 28, 2018:

Class A 288,004,551

Class B 37,679,938

Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)



	February 28,		November 30,
	2018 (1)		2017 (1)
ASSETS
Lennar Homebuilding:
Cash and cash equivalents	$	733,905	2,282,925
Restricted cash	22,842		8,740
Receivables, net	194,235		137,667
Inventories:
Finished homes and construction in progress	9,306,606		4,676,279
Land and land under development	7,907,541		5,791,338
Consolidated inventory not owned	366,669		393,273
Total inventories	17,580,816		10,860,890
Investments in unconsolidated entities	990,723		900,769
Goodwill	3,433,477		136,566
Other assets	1,437,514		863,404
	24,393,512		15,190,961
Lennar Financial Services	1,748,432		1,689,508
Rialto	909,249		1,153,840
Lennar Multifamily	892,830		710,725
Total assets	$	27,944,023	18,745,034


(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, 2018, total assets include $864.8 million related to consolidated VIEs of which $7.6 million is included in Lennar Homebuilding cash and cash equivalents, $0.1 million in Lennar Homebuilding receivables, net, $45.4 million in Lennar Homebuilding finished homes and construction in progress, $308.8 million in Lennar Homebuilding land and land under development, $366.7 million in Lennar Homebuilding consolidated inventory not owned, $4.5 million in Lennar Homebuilding investments in unconsolidated entities, $11.7 million in Lennar Homebuilding other assets, $20.0 million in Rialto assets and $100.0 million in Lennar Multifamily assets.

As of November 30, 2017, total assets include $799.4 million related to consolidated VIEs of which $15.8 million is included in Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $53.2 million in Lennar Homebuilding finished homes and construction in progress, $229.0 million in Lennar Homebuilding land and land under development, $393.3 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding investments in unconsolidated entities, $11.8 million in Lennar Homebuilding other assets, $48.8 million in Rialto assets and $42.7 million in Lennar Multifamily assets.

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,
	2018 (2)			2017 (2)
LIABILITIES AND EQUITY
Lennar Homebuilding:
Accounts payable	$	782,797		604,953
Liabilities related to consolidated inventory not owned	347,048			380,720
Senior notes and other debts payable	10,382,540			6,410,003
Other liabilities	1,623,391			1,315,641
	13,135,776			8,711,317
Lennar Financial Services	1,005,002			1,177,814
Rialto	488,104			720,056
Lennar Multifamily	141,057			149,715
Total liabilities	14,769,939			10,758,902
Stockholders’ equity:
Preferred stock	—			—
Class A common stock of $0.10 par value; Authorized: February 28, 2018 - 400,000,000 and November 30, 2017 - 300,000,000 shares; Issued: February 28, 2018 - 289,922,064 shares and November 30, 2017 - 205,429,942 shares	28,992			20,543
Class B common stock of $0.10 par value; Authorized: February 28, 2018 and November 30, 2017 - 90,000,000 shares; Issued: February 28, 2018 - 39,368,304 shares and November 30, 2017 - 37,687,505 shares	3,937			3,769
Additional paid-in capital	8,221,423			3,142,013
Retained earnings	4,967,580			4,840,978
Treasury stock, at cost; February 28, 2018 - 1,917,513 shares of Class A common stock and 1,688,366 shares of Class B common stock; November 30, 2017 - 1,473,590 shares of Class A common stock and 1,679,650 shares of Class B common stock	(161,378		)	(136,020	)
Accumulated other comprehensive income	376			1,034
Total stockholders’ equity	13,060,930			7,872,317
Noncontrolling interests	113,154			113,815
Total equity	13,174,084			7,986,132
Total liabilities and equity	$	27,944,023		18,745,034


(2)	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, 2018, total liabilities include $366.0 million related to consolidated VIEs as to which there was no recourse against the Company, of which $4.5 million is included in Lennar Homebuilding accounts payable, $11.1 million in Lennar Homebuilding senior notes and other debts payable, $347.0 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $1.5 million in Lennar Homebuilding other liabilities, $1.8 million in Rialto liabilities and $0.1 million in Lennar Multifamily liabilities.

As of November 30, 2017, total liabilities include $389.7 million related to consolidated VIEs as to which there was no recourse against the Company, of which $5.0 million is included in Lennar Homebuilding accounts payable, $380.7 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $1.8 million in Lennar Homebuilding other liabilities and $2.2 million in Rialto liabilities.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Dollars in thousands, except per share amounts)

(unaudited)



	Three Months Ended
	February 28,
	2018			2017
Revenues:
Lennar Homebuilding	$	2,662,093		2,018,694
Lennar Financial Services	171,140			148,043
Rialto	54,302			82,006
Lennar Multifamily	93,256			88,685
Total revenues	2,980,791			2,337,428
Costs and expenses:
Lennar Homebuilding	2,404,007			1,801,561
Lennar Financial Services	151,445			127,379
Rialto	45,413			66,913
Lennar Multifamily	97,199			92,649
Acquisition and integration costs related to CalAtlantic	104,195			—
Corporate general and administrative	67,810			60,699
Total costs and expenses	2,870,069			2,149,201
Lennar Homebuilding equity in loss from unconsolidated entities	(14,287		)	(11,534	)
Lennar Homebuilding other income, net	169,928			5,739
Lennar Homebuilding loss due to litigation	—			(140,000	)
Rialto equity in earnings from unconsolidated entities	9,114			722
Rialto other expense, net	(8,791		)	(16,658	)
Lennar Multifamily equity in earnings from unconsolidated entities	2,742			23,147
Earnings before income taxes	269,428			49,643
Provision for income taxes (1)	(132,611		)	(19,969	)
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	136,817			29,674
Less: Net earnings (loss) attributable to noncontrolling interests	602			(8,406	)
Net earnings attributable to Lennar	$	136,215		38,080
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on securities available-for-sale	(658		)	972
Total other comprehensive income (loss), net of tax	$	(658	)	972
Total comprehensive income attributable to Lennar	$	135,557		39,052
Total comprehensive income (loss) attributable to noncontrolling interests	$	602		(8,406	)
Basic earnings per share (2)	$	0.53		0.16
Diluted earnings per share (2)	$	0.53		0.16
Cash dividends per each Class A and Class B common share	$	0.04		0.04


(1)	Provision for income taxes for the three months ended February 28, 2018 includes a non-cash one-time write down of deferred tax assets of $68.6 million resulting from the Tax Cuts and Jobs Act enacted in December 2017.


(2)	Basic and diluted average shares outstanding and earnings per share calculations for the three months ended February 28, 2017 have been adjusted to reflect 4.7 million of Class B shares distributed in the stock dividend on November 27, 2017.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Three Months Ended
	February 28,
	2018			2017
Cash flows from operating activities:
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	$	136,817		29,674
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization	19,570			11,743
Amortization of discount/premium and accretion on debt, net	40			3,132
Equity in (earnings) loss from unconsolidated entities	2,431			(12,335	)
Distributions of earnings from unconsolidated entities	3,542			31,949
Share-based compensation expense	17,766			12,505
Excess tax benefits from share-based awards	—			(1,953	)
Deferred income tax (benefit) expense	33,788			(36,229	)
Gain on sale of operating properties and equipment	(207		)	—
Gain on sale of interest in unconsolidated entity	(164,880		)	—
Unrealized and realized gains on real estate owned	(883		)	(1,698	)
Impairments of loans receivable and real estate owned	5,486			25,484
Valuation adjustments and write-offs of option deposits and pre-acquisition costs	12,048			1,930
Changes in assets and liabilities:
Decrease in restricted cash	12,801			10,842
(Increase) decrease in receivables	(22,406		)	264,714
Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs	(548,725		)	(601,711	)
(Increase) decrease in other assets	(26,582		)	12,846
Decrease in loans held-for-sale	422,991			339,492
Decrease in accounts payable and other liabilities	(46,325		)	(11,061	)
Net cash (used in) provided by operating activities	(142,728		)	79,324
Cash flows from investing activities:
Net additions of operating properties and equipment	(40,810		)	(25,785	)
Proceeds from sale of investment in unconsolidated entity	175,179			—
Investments in and contributions to unconsolidated entities	(62,575		)	(151,706	)
Distributions of capital from unconsolidated entities	20,927			39,961
Proceeds from sales of real estate owned	18,080			24,215
Other proceeds, net	2,627			2,029
Originations of loans receivable	—			(9,330	)
Purchases of commercial mortgage-backed securities bonds	(31,068		)	(40,357	)
Acquisitions, net of cash acquired	(1,101,739		)	(596,172	)
Decrease (increase) in Lennar Financial Services loans held-for-investment, net	1,590			(2,025	)
Purchases of Lennar Financial Services investment securities	(20,894		)	(12,204	)
Proceeds from maturities/sales of Lennar Financial Services investments securities	10,473			5,292
Net cash used in investing activities	$	(1,028,210	)	(766,082	)

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Three Months Ended
	February 28,
	2018			2017
Cash flows from financing activities:
Net borrowings under revolving lines of credit	$	45,300		250,000
Net repayments under warehouse facilities	(344,511		)	(543,356	)
Proceeds from senior notes	—			600,000
Debt issuance costs	(12,039		)	(10,848	)
Proceeds from Rialto notes payable	32,226			35,460
Principal payments on Rialto senior notes and other notes payable	(100,161		)	(2,971	)
Proceeds from other borrowings	581			7,395
Payments related to other liabilities	(1,478		)	—
Principal payments on other borrowings	(15,387		)	(16,242	)
Receipts related to noncontrolling interests	3,852			153
Payments related to noncontrolling interests	(23,760		)	(25,871	)
Excess tax benefits from share-based awards	—			1,953
Common stock:
Issuances	—			99
Repurchases	(25,355		)	(83	)
Dividends	(9,617		)	(9,400	)
Net cash (used in) provided by financing activities	(450,349		)	286,289
Net decrease in cash and cash equivalents	(1,621,287		)	(400,469	)
Cash and cash equivalents at beginning of period	2,650,872			1,329,529
Cash and cash equivalents at end of period	$	1,029,585		929,060
Summary of cash and cash equivalents:
Lennar Homebuilding	$	733,905		640,816
Lennar Financial Services	165,849			162,513
Rialto	113,582			119,308
Lennar Multifamily	16,249			6,423
	$	1,029,585		929,060
Supplemental disclosures of non-cash investing and financing activities:
Lennar Homebuilding and Lennar Multifamily:
Non-cash contributions to unconsolidated entities	$	523		25,315
Non-cash increase in consolidated inventory not owned	$	—		115,000
Purchases of inventories and other assets financed by sellers	$	23,503		80,919
Equity component of acquisition consideration	$	5,070,006		—
Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
Inventories	$	35,430		—
Receivables	$	7,198		—
Investments in unconsolidated entities	$	(25,614	)	—
Other liabilities	$	(17,014	)	—

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, 2017. 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, 2018 are not necessarily indicative of the results to be expected for the full year.

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.

Reclassifications/Revisions

Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2018 presentation. These reclassifications had no impact on the Company's condensed consolidated financial statements.


(2)	Business Acquisitions

Acquisition of CalAtlantic Group, Inc.

On February 12, 2018, the Company completed the acquisition of CalAtlantic Group, Inc. (“CalAtlantic”) through a transaction in which CalAtlantic was merged with and into a wholly-owned subsidiary of the Company (“Merger Sub”), with Merger Sub continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “Merger”). The Merger took place pursuant to the Agreement and Plan of Merger dated as of October 29, 2017, among CalAtlantic, the Company and Merger Sub (the “Merger Agreement”). CalAtlantic is a homebuilder which builds homes across the homebuilding spectrum, from entry level to luxury, in 43 metropolitan statistical areas spanning 19 states. CalAtlantic also provides mortgage, title and escrow services. A primary reason for the acquisition was to increase local market concentration in order to generate synergies and efficiencies.

Based on an evaluation of the provisions of Accounting Standard Codification ("ASC"), Topic 805, Business Combinations, ("ASC 805"), Lennar Corporation was determined to be the acquirer for accounting purposes. The purchase price accounting reflected in the accompanying financial statements is provisional and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date pursuant to ASC 805). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities. The $3.4 billion allocated to goodwill represents the excess of the purchase price over the estimated fair value of assets acquired and liabilities assumed.

The following table summarizes the purchase price allocation based on the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition:



(Dollars in thousands)
CalAtlantic shares of common stock outstanding	118,025,879
CalAtlantic shares electing cash conversion	24,083,091
CalAtlantic shares exchanged	93,942,788
Exchange ratio for Class A common stock	0.885
Exchange ratio for Class B common stock	0.0177
Number of shares of Lennar Class A common stock issued in exchange	83,138,277
Number of shares of Lennar Class B common stock issued in exchange (due to Class B common stock dividend)	1,662,172

Consideration attributable to Class A common stock	$	4,933,425
Consideration attributable to Class B common stock	77,823
Consideration attributable to equity awards that convert upon change of control	58,755
Consideration attributable to cash including fractional shares	1,162,344
Total purchase price	$	6,232,347



(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents, restricted cash and receivables, net	$	57,879
Inventories	6,288,283
Intangible assets (1)	8,000
Investments in unconsolidated entities	151,858
Goodwill (2)	3,296,911
Other assets	577,623
Total Homebuilding assets	10,380,554
Financial Services (2)	322,804
Total assets	10,703,358
LIABILITIES
Homebuilding:
Accounts payable	85,001
Senior notes payable and other debts	3,922,987
Other liabilities (3)	349,520
Total Homebuilding liabilities	4,357,508
Financial Services	95,073
Total liabilities	4,452,581
Noncontrolling interests (4)	18,430
Total purchase price	$	6,232,347


(1)	Intangible assets includes trade name. The amortization period for the trade name is approximately six months.

(2)

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, and it is generally not deductible for income tax purposes. As of the merger date, goodwill consisted primarily of expected greater efficiencies and opportunities due to increased concentration of local market share, reduced general and administrative costs and reduced homebuilding costs resulting from the merger and cost savings as a result of additional homebuilding and non-homebuilding synergies. The assignment of goodwill by the Company's reporting segments has not been completed yet, however, a provisional amount of goodwill of approximately$150 million was allocated to Lennar Financial Services.

(3)

Other liabilities includes contingencies assumed at the Merger date, which includes warranty and legal reserves. Warranty 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. Warranty reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Consistent with ASC 450, Contingencies, legal reserves are established when a loss is considered probable and the amount of loss can be reasonably estimated.


(4)	Fair value of noncontrolling interests was measured using discounted cash flows of expected future contributions and distributions.

Lennar Homebuilding revenue and net earnings attributable to Lennar for the three months ended February 28, 2018 included $373.4 million of home sales revenue and $108.5 million of a pre-tax loss from CalAtlantic from the date of acquisition to February 28, 2018, which included acquisition and integration costs of $104.2 million from both Lennar and CalAtlantic. These transaction expenses were included within acquisition and integration costs related to CalAtlantic in the accompanying condensed consolidated statement of operations for the three months ended February 28, 2018.

The following presents summarized unaudited supplemental pro forma operating results as if CalAtlantic had been included in the Company's Consolidated Statements of Operations as of the beginning of the quarter presented.



	Three Months Ended
	February 28,
(Dollars in thousands, except per share amounts)	2018		2017
Revenues from home sales	$	4,194,203	3,611,375
Net earnings (1)	130,496		156,234
Earnings per share:
Basic	$	0.51	0.62
Diluted	$	0.51	0.61


(1)	Net earnings for three months ended February 28, 2018 include a pre-tax impact from acquisition and integration costs related to CalAtlantic of $104.2 million.

The supplemental pro forma operating results have been determined after adjusting the operating results of CalAtlantic to reflect additional amortization that would have been recorded assuming the fair value adjustment to intangible assets had been applied beginning December 1, 2016. Certain other adjustments, including those related to conforming accounting policies and adjusting acquired inventory to fair value, have not been reflected in the supplemental pro forma operating results due to the impracticability of estimating their impacts.

Acquisition of WCI Communities, Inc. in February 2017

On February 10, 2017, the Company acquired WCI Communities, Inc. ("WCI") a homebuilder of luxury single and multifamily homes, including a small percentage of luxury high-rise tower units, with operations in Florida. WCI stockholders received $642.6 million in cash. The cash consideration was funded primarily from working capital and proceeds from the issuance of 4.125% senior notes due 2022 (see Note 12).

Based on an evaluation of the provisions of ASC 805, Lennar Corporation was determined to be the acquirer for accounting purposes. The following table summarizes the purchase price allocation based on the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition:



(In thousands)
ASSETS
Cash and cash equivalents, restricted cash and receivables, net	$	42,079
Inventories	613,495
Intangible assets (1)	59,283
Goodwill (2)	156,566
Deferred tax assets, net	88,147
Other assets	66,173
Total assets	1,025,743
LIABILITIES
Accounts payable	26,735
Senior notes and other debts payable	282,793
Other liabilities	73,593
Total liabilities	383,121
Total purchase price	$	642,622


(1)	Intangible assets include non-compete agreements and a trade name. The amortization period for these intangible assets was six months for the non-compete agreements and 20 years for the trade name.

(2)

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, and it is not deductible for income tax purposes. As of the merger date, goodwill consisted primarily of purchasing and other synergies resulting from the merger, expected production, savings in corporate and division overhead costs and expected expanded opportunities for growth through a higher-end more luxurious product, greater presence in the state of Florida and customer diversity. The amount of goodwill allocated to the Company's Homebuilding East segment was $136.6 million and to the Lennar Financial Services segment was $20.0 million. These amounts were based on the relative fair value of each acquired reporting unit in accordance with ASC 350, Intangibles-Goodwill and Other.

For the three months ended February 28, 2017, Lennar Homebuilding revenues included $19.5 million of home sales revenues from WCI and earnings before income taxes included $8.9 million of pre-tax earnings from WCI since the date of acquisition, which included transaction-related expenses of $11.0 million comprised mainly of severance costs, general and administrative expenses, and amortization expense related to non-compete agreements and trade name since the date of acquisition. These transaction expenses were included primarily within Lennar Homebuilding selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the three months ended February 28, 2017. The pro forma effect of the acquisition on the results of operations is not presented as this acquisition was not considered material.


(3)	Operating and Reporting Segments

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

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding West

(4) Lennar Financial Services

(5) Rialto

(6) Lennar Multifamily

Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under "Homebuilding Other," which is not considered a reportable segment.

Evaluation of segment performance is based primarily on operating earnings (loss) before income taxes. Operations of the Company’s homebuilding segments primarily include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. Operating earnings (loss) for the homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings (loss) from unconsolidated entities and other income (expense), net, less the cost of homes sold and land sold, selling, general and administrative expenses incurred by the segment and loss due to litigation.

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

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

Central: Arizona, Colorado and Texas

West: California and Nevada

Other: Illinois, Indiana, Minnesota, Oregon, Tennessee, Utah and Washington

Operations of the Lennar Financial Services segment include primarily mortgage financing, title insurance, closing services and property and casualty insurance for both buyers of the Company’s homes and others. It also includes a real estate brokerage business acquired as part of the WCI transaction. The Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Lennar Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title insurance, property and casualty insurance, closing services and real estate brokerage, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Lennar Financial Services segment operates generally in the same states as the Company’s homebuilding operations as well as in other states.

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 real estate related securities as well as providing

strategic real estate capital. Rialto’s operating earnings(loss) 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 and other portfolios of real estate loans and assets acquired, asset management, due diligence and underwriting fees derived from the real estate investment funds managed by the Rialto segment, fees for sub-advisory services, other income (expense), net and equity in earnings (loss) from unconsolidated entities, less the costs incurred by the segment for managing portfolios, costs related to RMF and other general and administrative expenses.

Operations of the Lennar Multifamily segment include revenues generated from the sales of land, revenue from construction activities and management fees generated from joint ventures and equity in earnings (loss) from unconsolidated entities, less the cost of sales of land sold, expenses related to construction activities and general and administrative expenses.

Each reportable segment follows the same accounting policies described in Note 1 – "Summary of Significant Accounting Policies" to the consolidated financial statements in the Company’s Form 10-K for the year ended November 30, 2017. 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, 2018		November 30, 2017
Assets:
Homebuilding East	$	7,537,607	4,754,581
Homebuilding Central	3,609,537		2,037,905
Homebuilding West	7,668,640		5,165,218
Homebuilding Other	1,547,102		960,541
Lennar Financial Services	1,748,432		1,689,508
Rialto	909,249		1,153,840
Lennar Multifamily	892,830		710,725
Corporate and unallocated	4,030,626		2,272,716
Total assets	$	27,944,023	18,745,034
Lennar Homebuilding goodwill (1)	$	3,433,477	136,566
Lennar Financial Services goodwill (1)	$	210,628	59,838
Rialto goodwill	$	5,396	5,396

(1)

In connection with the CalAtlantic acquisition, the Company recorded a provisional amount of homebuilding goodwill of $3.3 billion. The allocation of goodwill by homebuilding reporting segment has not yet been finalized. A provisional amount of goodwill related to the CalAtlantic acquisition of $150 million was allocated to Lennar Financial Services. In connection with the WCI acquisition in 2017, the Company allocated $136.6 million of goodwill to the Lennar Homebuilding East reportable segment and $20.0 million to the Lennar Financial Services segment.



	Three Months Ended
	February 28,
(In thousands)	2018			2017
Revenues:
Homebuilding East	$	1,070,654		767,726
Homebuilding Central	611,780			516,181
Homebuilding West	779,879			552,798
Homebuilding Other	199,780			181,989
Lennar Financial Services	171,140			148,043
Rialto	54,302			82,006
Lennar Multifamily	93,256			88,685
Total revenues (1)	$	2,980,791		2,337,428
Operating earnings (loss) (2):
Homebuilding East (3)	$	105,921		(55,709	)
Homebuilding Central (4)	42,546			52,858
Homebuilding West (5)	251,276			53,360
Homebuilding Other (6)	13,984			20,829
Lennar Financial Services	19,695			20,664
Rialto	9,212			(843	)
Lennar Multifamily	(1,201		)	19,183
Total operating earnings	441,433			110,342
Acquisition and integration costs related to CalAtlantic	104,195			—
Corporate general and administrative expenses	67,810			60,699
Earnings before income taxes	$	269,428		49,643


(1)	Total revenues were net of sales incentives of $149.9 million ($22,300 per home delivered) for the three months ended February 28, 2018, compared to $123.5 million ($22,700 per home delivered) for the three months ended February 28, 2017.


(2)	All homebuilding segments and Homebuilding other were impacted by purchase accounting adjustments for three months ended February 28, 2018.


(3)	Homebuilding East operating earnings for the three months ended February 28, 2017 included a $140 million loss due to litigation (see Note 17).


(4)	Homebuilding Central operating earnings for the three months ended February 28, 2018 included a $6.9 million valuation adjustment.


(5)	Homebuilding West operating earnings includes $164.9 million related to a gain on the sale of an 80% interest in one of Lennar Homebuilding's strategic joint ventures, Treasure Island Holdings.


(6)	Homebuilding Other operating earnings for the three months ended February 28, 2018 were impacted by the timing of opening and closing of communities.


(4)	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)	2018			2017
Revenues	$	68,872		46,136
Costs and expenses	108,424			79,066
Net loss of unconsolidated entities	$	(39,552	)	(32,930	)
Lennar Homebuilding equity in loss from unconsolidated entities	$	(14,287	)	(11,534	)

For the three months ended February 28, 2018, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities and the Company's share of net operating losses from its unconsolidated entities.

For the three months ended February 28, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company’s share of net operating losses from its unconsolidated entities. The operating losses from

the Company's unconsolidated entities were primarily driven by general and administrative expenses, as there were not sufficient land sale transactions to offset those expenses during the three months ended February 28, 2017.

Balance Sheets



(In thousands)	February 28, 2018		November 30, 2017
Assets:
Cash and cash equivalents	$	816,965	953,261
Inventories	4,155,615		3,751,525
Other assets	1,063,853		1,061,507
	$	6,036,433	5,766,293
Liabilities and equity:
Accounts payable and other liabilities	$	907,108	832,151
Debt (1)	736,596		737,331
Equity	4,392,729		4,196,811
	$	6,036,433	5,766,293


(1)	Debt presented above is net of debt issuance costs of $5.3 million and $5.7 million, as of February 28, 2018 and November 30, 2017, respectively.

In May 2017, FivePoint Holdings, LLC ("FivePoint") completed its initial public offering ("IPO"). Concurrent with the IPO, the Company invested an additional $100 million in FivePoint in a private placement. As of February 28, 2018, the Company owns approximately 40% of FivePoint and the carrying amount of the Company's investment is $352.0 million.

As of February 28, 2018 and November 30, 2017, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $990.7 million and $900.8 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of February 28, 2018 and November 30, 2017 was $1.4 billion and $1.3 billion, respectively. The basis difference is primarily as a result of the Company contributing its investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to the Company.

In 2017, the Company entered into a Membership Interest Purchase Agreement and a Payment Escrow Agreement (“Agreement”) with one of its strategic joint ventures under which the Company agreed to sell 80% to a third-party. Under the terms of the Agreement, the sale transaction was contingent upon the satisfaction of certain conditions. In January 2018, conditions were fulfilled and the transaction was closed resulting in gains of $164.9 million recorded in Lennar Homebuilding other income, net within the accompanying condensed consolidated statement of operations for the three months ended February 28, 2018.

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, 2018		November 30, 2017
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	62,720	64,197
Non-recourse land seller debt and other debt	1,997		1,997
Non-recourse debt with completion guarantees	251,235		255,903
Non-recourse debt without completion guarantees	355,844		351,800
Non-recourse debt to the Company	671,796		673,897