10-Q 1 len-2017831x10qq3.htm 10-Q 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 August 31, 2017
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 September 30, 2017:
Class A 203,957,071
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)
 
August 31,
 
November 30,
 
2017 (1)
 
2016 (1)
ASSETS
 
 
 
Lennar Homebuilding:
 
 
 
Cash and cash equivalents
$
564,591

 
1,050,138

Restricted cash
9,051

 
5,977

Receivables, net
86,640

 
106,976

Inventories:
 
 
 
Finished homes and construction in progress
5,037,433

 
3,951,716

Land and land under development
5,497,572

 
5,106,191

Consolidated inventory not owned
386,579

 
121,019

Total inventories
10,921,584

 
9,178,926

Investments in unconsolidated entities
1,016,588

 
811,723

Goodwill
140,270

 

Other assets
936,796

 
651,028

 
13,675,520

 
11,804,768

Lennar Financial Services
1,385,188

 
1,754,672

Rialto
1,195,407

 
1,276,210

Lennar Multifamily
683,258

 
526,131

Total assets
$
16,939,373

 
15,361,781

(1)
Under certain provisions of Accounting Standards Codification ("ASC") Topic 810, Consolidations, ("ASC 810") the Company is required to separately disclose on its 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 August 31, 2017, total assets include $812.9 million related to consolidated VIEs of which $9.7 million is included in Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $81.3 million in Lennar Homebuilding finished homes and construction in progress, $189.6 million in Lennar Homebuilding land and land under development, $386.6 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding investments in unconsolidated entities, $13.1 million in Lennar Homebuilding other assets, $85.8 million in Rialto assets and $42.0 million in Lennar Multifamily assets.
As of November 30, 2016, total assets include $536.3 million related to consolidated VIEs of which $13.3 million is included in Lennar Homebuilding cash and cash equivalents, $0.2 million in Lennar Homebuilding receivables, net, $54.2 million in Lennar Homebuilding finished homes and construction in progress, $106.3 million in Lennar Homebuilding land and land under development, $121.0 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding investments in unconsolidated entities, $13.9 million in Lennar Homebuilding other assets, $213.8 million in Rialto assets and $8.8 million in Lennar Multifamily assets.

See accompanying notes to condensed consolidated financial statements.
2

Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets – (Continued)
(Dollars in thousands, except shares and per share amounts)
(unaudited)

 
August 31,
 
November 30,
 
2017 (2)
 
2016 (2)
LIABILITIES AND EQUITY
 
 
 
Lennar Homebuilding:
 
 
 
Accounts payable
$
524,852

 
478,546

Liabilities related to consolidated inventory not owned
381,679

 
110,006

Senior notes and other debts payable
5,523,765

 
4,575,977

Other liabilities
1,068,028

 
841,449

 
7,498,324

 
6,005,978

Lennar Financial Services
950,098

 
1,318,283

Rialto
703,329

 
707,980

Lennar Multifamily
128,162

 
117,973

Total liabilities
9,279,913

 
8,150,214

Stockholders’ equity:
 
 
 
Preferred stock

 

Class A common stock of $0.10 par value; Authorized: August 31, 2017 and November 30, 2016
- 300,000,000 shares; Issued: August 31, 2017 - 205,428,593 shares and November 30, 2016
- 204,089,447 shares
20,543

 
20,409

Class B common stock of $0.10 par value; Authorized: August 31, 2017 and November 30, 2016
- 90,000,000 shares; Issued: August 31, 2017 and November 30, 2016 - 32,982,815 shares
3,298

 
3,298

Additional paid-in capital
2,886,273

 
2,805,349

Retained earnings
4,778,965

 
4,306,256

Treasury stock, at cost; August 31, 2017 - 1,467,826 shares of Class A common stock and
1,679,620 shares of Class B common stock; November 30, 2016 - 917,447 shares of
Class A common stock and 1,679,620 shares of Class B common stock
(136,070
)
 
(108,961
)
Accumulated other comprehensive income (loss)
1,251

 
(309
)
Total stockholders’ equity
7,554,260

 
7,026,042

Noncontrolling interests
105,200

 
185,525

Total equity
7,659,460

 
7,211,567

Total liabilities and equity
$
16,939,373

 
15,361,781

(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 August 31, 2017, total liabilities include $390.2 million related to consolidated VIEs as to which there was no recourse against the Company, of which $4.7 million is included in Lennar Homebuilding accounts payable, $381.7 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $1.1 million in Lennar Homebuilding other liabilities and $2.7 million in Rialto liabilities.
As of November 30, 2016, total liabilities include $126.4 million related to consolidated VIEs as to which there was no recourse against the Company, of which $3.6 million is included in Lennar Homebuilding accounts payable, $110.0 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $2.5 million in Lennar Homebuilding other liabilities and $10.3 million in Rialto liabilities.

See accompanying notes to condensed consolidated financial statements.
3

Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Dollars in thousands, except per share amounts)
(unaudited)


 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Lennar Homebuilding
$
2,885,195

 
2,496,969

 
7,789,630

 
6,734,335

Lennar Financial Services
215,056

 
191,444

 
571,462

 
491,340

Rialto
57,810

 
63,885

 
207,804

 
152,434

Lennar Multifamily
103,415

 
81,596

 
291,900

 
195,264

Total revenues
3,261,476

 
2,833,894

 
8,860,796

 
7,573,373

Costs and expenses:
 
 
 
 
 
 
 
Lennar Homebuilding
2,492,065

 
2,164,027

 
6,829,109

 
5,844,520

Lennar Financial Services
165,999

 
138,196

 
458,014

 
379,073

Rialto
49,503

 
62,306

 
175,492

 
155,416

Lennar Multifamily
105,956

 
84,007

 
301,303

 
204,244

Corporate general and administrative
72,860

 
61,164

 
200,333

 
164,634

Total costs and expenses
2,886,383

 
2,509,700

 
7,964,251

 
6,747,887

Lennar Homebuilding equity in loss from unconsolidated entities
(9,651
)
 
(18,034
)
 
(42,691
)
 
(24,667
)
Lennar Homebuilding other income, net
2,797

 
29,974

 
12,364

 
43,068

Lennar Homebuilding loss due to litigation

 

 
(140,000
)
 

Rialto equity in earnings from unconsolidated entities
4,858

 
5,976

 
11,310

 
14,337

Rialto other expense, net
(16,357
)
 
(7,612
)
 
(54,119
)
 
(27,888
)
Lennar Multifamily equity in earnings from unconsolidated entities
11,645

 
5,060

 
44,219

 
38,754

Earnings before income taxes
368,385

 
339,558

 
727,628

 
869,090

Provision for income taxes
(124,795
)
 
(106,427
)
 
(253,656
)
 
(266,469
)
Net earnings (including net earnings (loss) attributable to noncontrolling interests)
243,590

 
233,131

 
473,972

 
602,621

Less: Net earnings (loss) attributable to noncontrolling interests
(5,575
)
 
(2,711
)
 
(26,918
)
 
4,230

Net earnings attributable to Lennar
$
249,165

 
235,842

 
500,890

 
598,391

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Net unrealized gains on securities available-for-sale
165

 
639

 
1,556

 
1,121

Reclassification adjustments for (gains) loss included in earnings, net of tax

 
(31
)
 
4

 
(37
)
Other comprehensive income attributable to Lennar
$
249,330

 
236,450

 
502,450

 
599,475

Other comprehensive income (loss) attributable to noncontrolling interests
$
(5,575
)
 
(2,711
)
 
(26,918
)
 
4,230

Basic earnings per share
$
1.06

 
1.04

 
2.13

 
2.74

Diluted earnings per share
$
1.06

 
1.01

 
2.13

 
2.59

Cash dividends per each Class A and Class B common share
$
0.04

 
0.04

 
0.12

 
0.12



See accompanying notes to condensed consolidated financial statements.
4

Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)


 
Nine Months Ended
 
August 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net earnings (including net earnings (loss) attributable to noncontrolling interests)
$
473,972

 
602,621

Adjustments to reconcile net earnings to net cash used in operating activities:
 
 
 
Depreciation and amortization
46,907

 
35,785

Amortization of discount/premium and accretion on debt, net
7,079

 
11,901

Equity in earnings from unconsolidated entities
(12,838
)
 
(28,424
)
Distributions of earnings from unconsolidated entities
59,927

 
52,787

Share-based compensation expense
43,303

 
34,628

Excess tax benefits from share-based awards
(1,980
)
 
(7,039
)
Deferred income tax (benefit) expense
(4,027
)
 
53,833

Loss on retirement of debt and notes payable

 
1,569

Gain on sale of operating properties and equipment

 
(12,559
)
Unrealized and realized gains on real estate owned
(5,064
)
 
(17,251
)
Impairments of loans receivable, loans held-for-sale and real estate owned
60,237

 
26,893

Valuation adjustments and write-offs of option deposits and pre-acquisition costs
13,462

 
9,817

Changes in assets and liabilities:
 
 
 
Decrease in restricted cash
9,321

 
16,820

Decrease in receivables
325,375

 
40,108

Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs
(902,585
)
 
(892,208
)
Increase in other assets
(47,160
)
 
(34,753
)
Decrease in loans held-for-sale
118,930

 
126,484

Increase (decrease) in accounts payable and other liabilities
142,854

 
(24,092
)
Net cash provided by (used in) operating activities
327,713

 
(3,080
)
Cash flows from investing activities:
 
 
 
Increase in restricted cash for investments
(23,750
)
 

Net additions of operating properties and equipment
(67,107
)
 
(54,847
)
Proceeds from the sale of operating properties and equipment

 
17,450

Investments in and contributions to unconsolidated entities
(381,209
)
 
(320,047
)
Distributions of capital from unconsolidated entities
123,209

 
209,820

Proceeds from sales of real estate owned
72,952

 
66,638

Improvements to real estate owned
(866
)
 
(2,998
)
Purchases of loans receivable and real estate owned
(148
)
 
(249
)
Receipts of principal payments on loans held-for-sale
5,937

 

Receipts of principal payments on loans receivable and other
73,948

 
57,733

Originations of loans receivable
(57,375
)
 
(56,507
)
Purchases of commercial mortgage-backed securities bonds
(70,187
)
 
(33,005
)
Acquisition, net of cash acquired
(611,399
)
 
(725
)
(Increase) decrease in Lennar Financial Services loans held-for-investment, net
(7,862
)
 
2,086

Purchases of Lennar Financial Services investment securities
(38,733
)
 
(20,936
)
Proceeds from maturities/sales of Lennar Financial Services investments securities
25,039

 
18,912

Net cash used in investing activities
$
(957,551
)
 
(116,675
)




See accompanying notes to condensed consolidated financial statements.
5

Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)


 
Nine Months Ended
 
August 31,
 
2017
 
2016
Cash flows from financing activities:
 
 
 
Net borrowings under unsecured revolving credit facility
$

 
125,000

Net repayments under warehouse facilities
(397,760
)
 
(137,325
)
Proceeds from senior notes
1,250,000

 
499,024

Debt issuance costs
(16,697
)
 
(3,981
)
Redemption of senior notes
(658,595
)
 
(250,000
)
Conversions and exchanges on convertible senior notes

 
(233,893
)
Proceeds from Rialto notes payable
63,494

 

Principal payments on Rialto notes payable including structured notes
(18,944
)
 
(4,121
)
Proceeds from other borrowings
75,927

 
34,095

Principal payments on other borrowings
(55,295
)
 
(133,899
)
Receipts related to noncontrolling interests
10,299

 
266

Payments related to noncontrolling interests
(61,782
)
 
(98,178
)
Excess tax benefits from share-based awards
1,980

 
7,039

Common stock:
 
 
 
Issuances
693

 
19,471

Repurchases
(27,104
)
 
(19,871
)
Dividends
(28,181
)
 
(26,222
)
Net cash provided by (used in) financing activities
138,035

 
(222,595
)
Net decrease in cash and cash equivalents
(491,803
)
 
(342,350
)
Cash and cash equivalents at beginning of period
1,329,529

 
1,158,445

Cash and cash equivalents at end of period
$
837,726

 
816,095

Summary of cash and cash equivalents:
 
 
 
Lennar Homebuilding
$
564,591

 
567,708

Lennar Financial Services
115,016

 
110,164

Rialto
154,814

 
133,103

Lennar Multifamily
3,305

 
5,120

 
$
837,726

 
816,095

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Lennar Homebuilding and Lennar Multifamily:
 
 
 
Non-cash contributions to unconsolidated entities
$
62,659

 
59,262

Non-cash distributions from unconsolidated entities
$

 
16,331

Conversion of convertible senior notes to equity
$

 
243,009

Purchases of inventories and other assets financed by sellers
$
108,726

 
92,368

Rialto:
 
 
 
Real estate owned acquired in satisfaction/partial satisfaction of loans receivable
$
757

 
7,842

Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
 
 
 
Inventories
$

 
111,347

Investments in unconsolidated entities
$

 
(2,445
)
Liabilities related to consolidated inventory not owned
$

 
(96,424
)
Noncontrolling interests
$

 
(12,478
)

See accompanying notes to condensed consolidated financial statements.
6



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, 2016. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.
The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three and nine months ended August 31, 2017 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
As a result of the Company's change in reportable segments during fiscal year 2016, the Company restated certain prior year amounts in the condensed consolidated financial statements to conform with the 2017 presentation (see Note 3). In addition, certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2017 presentation. These reclassifications had no impact on the Company's condensed consolidated financial statements.


7



(2)
Business Acquisition
On February 10, 2017, the Company acquired WCI Communities, Inc. ("WCI") a homebuilder of luxury single and multifamily homes, including a small percentage of luxury high-rise tower units, with operations in Florida. WCI stockholders received $642.6 million in cash. The cash consideration was funded primarily from working capital and from proceeds from the issuance of 4.125% senior notes due 2022 (see Note 12).
Based on an evaluation of the provisions of ASC Topic 805, Business Combinations, ("ASC 805"), Lennar Corporation was determined to be the acquirer for accounting purposes. The following table summarizes the provisional purchase price allocation based on the estimated fair value of net assets acquired and liabilities assumed at the date of acquisition, which are subject to change within a measurement period of up to one year from the acquisition date pursuant to ASC 805. The purchase price allocation is provisional pending completion of the fair value analysis of acquired assets and liabilities assumed:
(In thousands)
 
Assets:
 
Cash and cash equivalents, restricted cash and receivables, net
$
42,079

Inventories
613,495

Intangible assets (1)
59,283

Goodwill (2)
160,270

Deferred tax assets, net
84,078

Other assets
66,173

Total assets
1,025,378

Liabilities:
 
Accounts payable
26,735

Senior notes and other debts payable
282,793

Other liabilities
73,228

Total liabilities
382,756

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 provisional amount of goodwill allocated to the Company's Homebuilding East segment was $140.3 million and to the Lennar Financial Services segment was $20.0 million. These provisional amounts were based on the relative fair value of each acquired reporting unit in accordance with ASC 350, Intangibles-Goodwill and Other.
For the three and nine months ended August 31, 2017, Lennar Homebuilding revenues included $149.6 million and $351.9 million, respectively, of home sales revenues from WCI and earnings before income taxes included $20.0 million and $33.2 million, respectively, of pre-tax earnings from WCI since the date of acquisition, which included transaction-related expenses of $6.9 million and $25.9 million, respectively, 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 and nine months ended August 31, 2017. The pro-forma effect of the acquisition on the results of operations is not presented as this acquisition was not considered material.

8



(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(1), Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia
Central: Arizona, Colorado and Texas
West: California and Nevada
Other: Illinois, Minnesota, Oregon, Tennessee and Washington
(1) 
Florida includes information related to WCI from the date of acquisition (February 10, 2017) to August 31, 2017.
Operations of the Lennar Financial Services segment include primarily mortgage financing, title insurance and closing services for both buyers of the Company’s homes and others. It also includes a real estate brokerage business acquired as part of the WCI transaction. The Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Lennar Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title insurance, 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 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 expense, net and equity in earnings from unconsolidated entities, less the costs incurred by the segment for managing portfolios, costs related to RMF and other general and administrative expenses.
Operations of the Lennar Multifamily segment include revenues generated from 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, 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, 2016. 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.

9



Financial information relating to the Company’s operations was as follows:
(In thousands)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Homebuilding East (1)
$
4,812,569

 
3,512,990

Homebuilding Central
2,092,624

 
1,993,403

Homebuilding West
5,093,996

 
4,318,924

Homebuilding Other
913,250

 
907,523

Lennar Financial Services
1,385,188

 
1,754,672

Rialto
1,195,407

 
1,276,210

Lennar Multifamily
683,258

 
526,131

Corporate and unallocated
763,081

 
1,071,928

Total assets
$
16,939,373

 
15,361,781

Lennar Homebuilding goodwill (2)
$
140,270

 

Lennar Financial Services goodwill (2)
$
59,838

 
39,838

Rialto goodwill
$
5,396

 
5,396

(1)
Homebuilding East segment includes the provisional fair values of homebuilding assets acquired as part of the WCI acquisition.
(2)
In connection with the WCI acquisition, the Company allocated $140.3 million of goodwill to the Lennar Homebuilding East reportable segment and $20.0 million to the Lennar Financial Services segment. These amounts are provisional pending completion of the fair value analysis of acquired assets and liabilities.
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Homebuilding East
$
1,255,797

 
1,002,584

 
3,218,413

 
2,615,936

Homebuilding Central
602,901

 
622,304

 
1,801,424

 
1,645,131

Homebuilding West
823,500

 
671,122

 
2,146,492

 
1,940,520

Homebuilding Other
202,997

 
200,959

 
623,301

 
532,748

Lennar Financial Services
215,056

 
191,444

 
571,462

 
491,340

Rialto
57,810

 
63,885

 
207,804

 
152,434

Lennar Multifamily
103,415

 
81,596

 
291,900

 
195,264

Total revenues (1)
$
3,261,476

 
2,833,894

 
8,860,796

 
7,573,373

Operating earnings (loss):
 
 
 
 
 
 
 
Homebuilding East (2)
$
179,908

 
161,789

 
277,906

 
389,433

Homebuilding Central
66,184

 
67,759

 
194,986

 
169,716

Homebuilding West
112,749

 
92,308

 
237,333

 
294,949

Homebuilding Other
27,435

 
23,026

 
79,969

 
54,118

Lennar Financial Services
49,057

 
53,248

 
113,448

 
112,267

Rialto
(3,192
)
 
(57
)
 
(10,497
)
 
(16,533
)
Lennar Multifamily
9,104

 
2,649

 
34,816

 
29,774

Total operating earnings
441,245

 
400,722

 
927,961

 
1,033,724

Corporate general and administrative expenses
72,860

 
61,164

 
200,333

 
164,634

Earnings before income taxes
$
368,385

 
339,558

 
727,628

 
869,090

(1)
Total revenues were net of sales incentives of $165.4 million ($21,800 per home delivered) and $463.4 million ($22,400 per home delivered) for the three and nine months ended August 31, 2017, respectively, compared to $152.3 million ($22,500 per home delivered) and $402.2 million ($22,000 per home delivered) for the three and nine months ended August 31, 2016, respectively.
(2)
Homebuilding East operating earnings for the nine months ended August 31, 2017 included a $140 million loss due to litigation (see Note 17). For both the three and nine months ended August 31, 2016 operating earnings included a gain of $8.7 million on the sale of a clubhouse.

10



(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
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Revenues
$
144,966

 
43,889

 
323,689

 
352,251

Costs and expenses
151,643

 
110,649

 
421,554

 
409,219

Other income
12,578

 

 
18,695

 

Net earnings (loss) of unconsolidated entities
$
5,901

 
(66,760
)
 
(79,170
)
 
(56,968
)
Lennar Homebuilding equity in loss from unconsolidated entities
$
(9,651
)
 
(18,034
)
 
(42,691
)
 
(24,667
)
For both the three and nine months ended August 31, 2017, one of the Company’s unconsolidated entities had equity in earnings of $18.8 million relating to an equity method investee selling 475 homesites to a third-party land bank. Simultaneous with the purchase by the land bank, the Company entered into an option contract to purchase all 475 homesites from the land bank. Due to the Company’s continuing involvement with respect to the homesites sold from the investee entity, the Company deferred all of its equity in earnings from the unconsolidated entity relating to the sale transaction, which amounted to $7.8 million.
For the three months ended August 31, 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of net operating losses from unconsolidated entities and its deferral of equity in earnings from the land sale transaction discussed above. The net earnings of unconsolidated entities were primarily driven by the unconsolidated entity’s equity in earnings relating to the land sale offset by general and administrative expenses during the three months ended August 31, 2017.
For the nine months ended August 31, 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 and its deferral of equity in earnings from the land sale transaction discussed above. The net loss from unconsolidated entities was primarily driven by general and administrative expenses, partially offset by the unconsolidated entity’s equity in earnings from the land sale discussed above.
For both the three and nine months ended August 31, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of costs associated with the FivePoint combination and the Company’s share of net operating losses associated with the new FivePoint unconsolidated entity. For the nine months ended August 31, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was partially offset by equity in earnings from one of the Company's unconsolidated entities primarily due to sales of homesites to third parties.
Balance Sheets
(In thousands)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Cash and cash equivalents
$
806,972

 
221,334

Inventories
3,785,662

 
3,889,795

Other assets
1,227,756

 
1,334,116

 
$
5,820,390

 
5,445,245

Liabilities and equity:
 
 
 
Accounts payable and other liabilities
$
697,065

 
791,245

Debt (1)
754,749

 
888,664

Equity
4,368,576

 
3,765,336

 
$
5,820,390

 
5,445,245

(1)
Debt presented above is net of debt issuance costs of $5.4 million and $4.2 million, as of August 31, 2017 and November 30, 2016, respectively.
On May 2, 2016 (the "Closing Date"), the Company contributed, or obtained the right to contribute, its investment in three strategic joint ventures previously managed by FivePoint Communities in exchange for an investment in a FivePoint

11



entity. The fair values of the assets contributed to this FivePoint entity are included within the unconsolidated entities summarized condensed balance sheet presented above. A portion of the assets of one of the three strategic joint ventures transferred to a new unconsolidated entity was retained by Lennar and its venture partner. The transactions did not have a material impact to the Company’s financial position or cash flows for the year ended November 30, 2016. For the year ended November 30, 2016, the Company recorded $42.6 million of its share of combination costs and operational net losses in equity in loss from unconsolidated entities on the consolidated statement of operations.
In May 2017, FivePoint completed its initial public offering ("IPO"). Concurrent with the IPO, the Company invested $100 million in FivePoint. As of August 31, 2017, the Company owns approximately 40% of FivePoint and the carrying amount of the Company's investment is $361.1 million.
As of August 31, 2017 and November 30, 2016, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $1.0 billion and $811.7 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of August 31, 2017 and November 30, 2016 was $1.4 billion and $1.2 billion, respectively. The basis difference is primarily as a result of the Company contributing its investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to the Company.
The 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)
August 31,
2017
 
November 30,
2016
Non-recourse bank debt and other debt (partner’s share of several recourse)
$
68,302

 
48,945

Non-recourse land seller debt and other debt (1)
1,997

 
323,995

Non-recourse debt with completion guarantees
275,959

 
147,100

Non-recourse debt without completion guarantees
342,987

 
320,372

Non-recourse debt to the Company
689,245

 
840,412

The Company’s maximum recourse exposure (2)
70,929

 
52,438

Debt issuance costs
(5,425
)
 
(4,186
)
Total debt
$
754,749

 
888,664

The Company’s maximum recourse exposure as a % of total JV debt
9
%
 
6
%
(1)
Non-recourse land seller debt and other debt as of November 30, 2016 included a $320 million non-recourse note related to a transaction between one of the Company's unconsolidated entities and another unconsolidated joint venture, which was settled in December 2016.
(2)
As of August 31, 2017 and November 30, 2016, the Company's maximum recourse exposure was primarily related to the Company providing repayment guarantees on three unconsolidated entities' debt and one unconsolidated entity's debt, respectively.
In most instances in which the Company has guaranteed debt of a Lennar Homebuilding unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral.
In connection with many of the loans to Lennar Homebuilding unconsolidated entities, the Company and its joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used.
If the Company is required to make a payment under any guarantee, the payment would constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase the Company’s investment in the unconsolidated entity and its share of any funds the unconsolidated entity distributes.
As of both August 31, 2017 and November 30, 2016, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of August 31, 2017, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral would be sufficient to repay at least a significant portion of the obligation or the Company and its

12



partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities with regard to obligations of its joint ventures (see Note 12).


13



(5)
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 nine months ended August 31, 2017 and 2016:
 
 
 
Stockholders’ Equity
 
 
(In thousands)
Total
Equity
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid - in Capital
 
Treasury
Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interests
Balance at November 30, 2016
$
7,211,567

 
20,409

 
3,298

 
2,805,349

 
(108,961
)
 
(309
)
 
4,306,256

 
185,525

Net earnings (including net loss attributable to noncontrolling interests)
473,972

 

 

 

 

 

 
500,890

 
(26,918
)
Employee stock and directors plans
(24,896
)
 
134

 

 
2,079

 
(27,109
)
 

 

 

Tax benefit from employee stock plans, vesting of restricted stock and conversions of convertible senior notes
35,542

 

 

 
35,542

 

 

 

 

Amortization of restricted stock
43,303

 

 

 
43,303

 

 

 

 

Cash dividends
(28,181
)
 

 

 

 

 

 
(28,181
)
 

Receipts related to noncontrolling interests
10,299

 

 

 

 

 

 

 
10,299

Payments related to noncontrolling interests
(61,782
)
 

 

 

 

 

 

 
(61,782
)
Non-cash activity related to noncontrolling interests
(1,924
)
 

 

 

 

 

 

 
(1,924
)
Other comprehensive income, net of tax
1,560

 

 

 

 

 
1,560

 

 

Balance at August 31, 2017
$
7,659,460

 
20,543

 
3,298

 
2,886,273

 
(136,070
)
 
1,251

 
4,778,965

 
105,200

 
 
 
Stockholders’ Equity
 
 
(In thousands)
Total
Equity
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid - in Capital
 
Treasury
Stock
 
Accumulated Other Comprehensive Income
 
Retained
Earnings
 
Noncontrolling
Interests
Balance at November 30, 2015
$
5,950,072

 
18,066

 
3,298

 
2,305,560

 
(107,755
)
 
39

 
3,429,736

 
301,128

Net earnings (including net earnings attributable to noncontrolling interests)
602,621

 

 

 

 

 

 
598,391

 
4,230

Employee stock and directors plans
501

 
124

 

 
1,552

 
(1,175
)
 

 

 

Conversions and exchanges of convertible senior notes to Class A common stock
242,406

 
1,551

 

 
240,855

 

 

 

 

Tax benefit from employee stock plans, vesting of restricted stock and conversions of convertible senior notes
45,803

 

 

 
45,803

 

 

 

 

Amortization of restricted stock
34,628

 

 

 
34,628

 

 

 

 

Cash dividends
(26,222
)
 

 

 

 

 

 
(26,222
)
 

Receipts related to noncontrolling interests
266

 

 

 

 

 

 

 
266

Payments related to noncontrolling interests
(98,178
)
 

 

 

 

 

 

 
(98,178
)
Non-cash distributions to noncontrolling interests
(5,033
)
 

 

 

 

 

 

 
(5,033
)
Non-cash consolidations, net
12,478

 

 

 

 

 

 

 
12,478

Non-cash activity related to noncontrolling interests
2,480

 

 

 

 

 

 

 
2,480

Other comprehensive income, net of tax
1,084

 

 

 

 

 
1,084

 

 

Balance at August 31, 2016
$
6,762,906

 
19,741

 
3,298

 
2,628,398

 
(108,930
)
 
1,123

 
4,001,905

 
217,371


14



(6)
Income Taxes
The provision for income taxes and effective tax rate were as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(Dollars in thousands)
2017
 
2016
 
2017
 
2016
Provision for income taxes
$
(124,795
)
 
(106,427
)
 
(253,656
)
 
(266,469
)
Effective tax rate (1)
33.37
%
 
31.09
%
 
33.62
%
 
30.81
%
(1)
For the three months ended August 31, 2017, the effective tax rate included tax benefits for the domestic production activities deduction, and energy tax credits, offset primarily by state income tax expense and a valuation allowance recorded against state net operating losses the Company expects to expire unutilized. For the nine months ended August 31, 2017, the effective tax rate included tax benefits for (1) settlements with the IRS, (2) the domestic production activities deduction, and (3) energy tax credits, offset primarily by state income tax expense, and a valuation allowance recorded against state net operating losses the Company expects to expire unutilized. For the three months ended August 31, 2016, the effective tax rate included tax benefits for the domestic production activities deduction and energy tax credits, offset primarily by state income tax expense. For the nine months ended August 31, 2016, the effective tax rate included tax benefits for (1) settlements with the IRS, (2) the domestic production activities deduction, and (3) energy tax credits, offset primarily by state income tax expense.
As of August 31, 2017 and November 30, 2016, the Company's deferred tax assets, net, included in the condensed consolidated balance sheets were $388.4 million and $277.4 million, respectively.
At both August 31, 2017 and November 30, 2016, the Company had $12.3 million of gross unrecognized tax benefits.
At August 31, 2017, the Company had $48.8 million accrued for interest and penalties, of which $3.2 million was accrued during the nine months ended August 31, 2017. During the nine months ended August 31, 2017, the accrual for interest and penalties was reduced by $0.4 million, primarily as a result of interest payments. At November 30, 2016, the Company had $46.0 million accrued for interest and penalties.

(7)
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.

15



Basic and diluted earnings per share were calculated as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands, except per share amounts)
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net earnings attributable to Lennar
$
249,165

 
235,842

 
500,890

 
598,391

Less: distributed earnings allocated to nonvested shares
88

 
81

 
290

 
256

Less: undistributed earnings allocated to nonvested shares
2,358

 
2,232

 
4,600

 
5,798

Numerator for basic earnings per share
246,719

 
233,529

 
496,000

 
592,337

Less: net amount attributable to noncontrolling interests in Rialto's Carried Interest Incentive Plan (1)
294

 
258

 
845

 
864

Plus: interest on 3.25% convertible senior notes due 2021

 
964

 

 
4,836

Plus: undistributed earnings allocated to convertible shares

 
2,232

 

 
5,797

Less: undistributed earnings reallocated to convertible shares

 
2,162

 

 
5,484

Numerator for diluted earnings per share
$
246,425

 
234,305

 
495,155

 
596,622

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share - weighted average common shares outstanding
232,673

 
223,549

 
232,361

 
215,814

Effect of dilutive securities:
 
 
 
 
 
 
 
Share-based payments
1

 
3

 
2

 
4

Convertible senior notes

 
8,266

 

 
14,399

Denominator for diluted earnings per share - weighted average common shares outstanding
232,674

 
231,818

 
232,363

 
230,217

Basic earnings per share
$
1.06

 
1.04

 
2.13

 
2.74

Diluted earnings per share
$
1.06

 
1.01

 
2.13

 
2.59

(1)
The amounts presented relate to Rialto's Carried Interest Incentive Plan adopted in June 2015 (see Note 9) and represents the difference between the advanced tax distributions received by Rialto's subsidiary and the amount Lennar, as the parent company, is assumed to own.
For the three and nine months ended August 31, 2017 and 2016, there were no options to purchase shares of common stock that were outstanding and anti-dilutive.


16



(8)
Lennar Financial Services Segment
The assets and liabilities related to the Lennar Financial Services segment were as follows:
(In thousands)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Cash and cash equivalents
$
115,016

 
123,964

Restricted cash
14,152

 
17,053

Receivables, net (1)
286,902

 
409,528

Loans held-for-sale (2)
661,649

 
939,405

Loans held-for-investment, net
37,665

 
30,004

Investments held-to-maturity
53,631

 
41,991

Investments available-for-sale (3)
57,784

 
53,570

Goodwill (4)
59,838

 
39,838

Other (5)
98,551

 
99,319

 
$
1,385,188

 
1,754,672

Liabilities:
 
 
 
Notes and other debts payable
$
719,727

 
1,077,228

Other (6)
230,371

 
241,055

 
$
950,098

 
1,318,283

(1)
Receivables, net primarily related to loans sold to investors for which the Company had not yet been paid as of August 31, 2017 and November 30, 2016, respectively.
(2)
Loans held-for-sale related to unsold loans carried at fair value.
(3)
Investments available-for-sale are carried at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss).
(4)
As of August 31, 2017, goodwill included $20.0 million of goodwill related to the WCI acquisition. The amount provided herein is provisional, pending completion of the fair value analysis of WCI's acquired assets and liabilities assumed (see Note 2).
(5)
As of August 31, 2017 and November 30, 2016, other assets included mortgage loan commitments carried at fair value of $17.5 million and $7.4 million, respectively, and mortgage servicing rights carried at fair value of $27.7 million and $23.9 million, respectively. In addition, other assets also included forward contracts carried at fair value of $26.5 million as of November 30, 2016.
(6)
As of August 31, 2017 and November 30, 2016, other liabilities included $56.1 million and $57.4 million, respectively, of certain of the Company’s self-insurance reserves related to construction defects, general liability and workers’ compensation. Other liabilities also included forward contracts carried at fair value of $5.5 million August 31, 2017.
At August 31, 2017, the Lennar Financial Services segment warehouse facilities were as follows:
(In thousands)
Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures September 2017 (1)
$
300,000

364-day warehouse repurchase facility that matures December 2017 (2)
400,000

364-day warehouse repurchase facility that matures March 2018 (3)
150,000

364-day warehouse repurchase facility that matures June 2018
600,000

Total
$
1,450,000

(1)
Subsequent to August 31, 2017, the warehouse repurchase facility maturity date was extended to September 2018.
(2)
Maximum aggregate commitment includes an uncommitted amount of $250 million.
(3)
Maximum aggregate commitment includes an uncommitted amount of $75 million.
The Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to the Company and are expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $719.5 million and $1.1 billion at August 31, 2017 and November 30, 2016, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $747.9 million and $1.1 billion at August 31, 2017 and November 30, 2016, 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 for. Without the facilities, the Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

17



Substantially, all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Over the last several years there has been an industry-wide effort by purchasers to defray their losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. Mortgage investors could seek to have the Company buy back mortgage loans or compensate them for losses incurred on mortgage loans that the Company has sold based on claims that the Company breached its limited representations or warranties. The Company’s mortgage operations have established accruals for possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes accruals 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
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Loan origination liabilities, beginning of period
$
25,912

 
20,994

 
24,905

 
19,492

Provision for losses
1,056

 
1,288

 
3,000

 
3,186

Adjustments to pre-existing provisions for losses from changes in estimates
(4,440
)
 
1,224

 
(4,440
)
 
1,224

Payments/settlements
(651
)
 
(17
)
 
(1,588
)
 
(413
)
Loan origination liabilities, end of period
$
21,877

 
23,489

 
21,877

 
23,489


(9)
Rialto Segment
The assets and liabilities related to the Rialto segment were as follows:
(In thousands)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Cash and cash equivalents
$
154,814

 
148,827

Restricted cash (1)
30,928

 
9,935

Receivables, net (2)

 
204,518

Loans held-for-sale (3)
304,984

 
126,947

Loans receivable, net
52,779

 
111,608

Real estate owned, net
123,695

 
243,703

Investments in unconsolidated entities
249,551

 
245,741

Investments held-to-maturity
142,462

 
71,260

Other
136,194

 
113,671

 
$
1,195,407

 
1,276,210

Liabilities:
 
 
 
Notes and other debts payable (4)
$
617,152

 
622,335

Other
86,177

 
85,645

 
$
703,329

 
707,980

(1)
Restricted cash primarily consisted of cash set aside for future investments on behalf of a real estate investment trust that Rialto is a sub-advisor to. It also included upfront deposits and application fees RMF receives before originating loans and is recognized as income once the loan has been originated, as well as cash held in escrow by the Company’s loan servicer provider on behalf of customers and lenders and is disbursed in accordance with agreements between the transacting parties.
(2)
Receivables, net primarily related to loans sold but not settled as of November 30, 2016.
(3)
Loans held-for-sale related to unsold loans originated by RMF carried at fair value and loans in the FDIC Portfolios carried at lower of cost or market.

18


(4)
As of August 31, 2017 and November 30, 2016, notes and other debts payable primarily included $349.2 million and $348.7 million, respectively, related to Rialto's 7.00% senior notes due 2018, and $182.7 million and $223.5 million, respectively, related to Rialto's warehouse repurchase facilities.
Rialto Mortgage Finance - loans held-for-sale
During the nine months ended August 31, 2017, RMF originated loans with a total principal balance of $1.3 billion of which $1.3 billion were recorded as loans held-for-sale and $57.4 million were recorded as accrual loans within loans receivable, net, and sold $1.1 billion of loans into eight separate securitizations. During the nine months ended August 31, 2016, RMF originated loans with a total principal balance of $1.2 billion of which $1.2 billion were recorded as loans held-for-sale and $55.7 million as accrual loans within loans receivable, net, and sold $1.3 billion of loans into seven separate securitizations. As of August 31, 2017, there were no unsettled transactions. As of November 30, 2016, originated loans with an unpaid principal balance of $199.8 million were sold into a securitization trust but not settled and thus were included as receivables, net.
FDIC Portfolios
In 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies ("LLCs") in partnership with the FDIC ("FDIC Portfolios"). The LLCs met the accounting definition of VIEs and since the Company was determined to be the primary beneficiary, the Company consolidated the LLCs. The Company was determined to be the primary beneficiary because it has the power to direct the activities of the LLCs that most significantly impact the LLCs' performance through Rialto's management and servicer contracts.
In February 2017, the FDIC exercised its “clean-up call rights” under the Amended and Restated Limited Liability Company Agreement. As a result, Rialto had until July 10, 2017 to liquidate and sell the assets in the FDIC Portfolios. On July 10, 2017, Rialto and the FDIC entered into an agreement which extended the original agreement date to January 10, 2018. After January 10, 2018, (1) the FDIC can, at its discretion, sell any remaining assets, or (2) Rialto will have the option to purchase the FDIC's interest in the portfolios. At August 31, 2017, the consolidated LLCs had total combined assets of $85.8 million, which primarily included $49.0 million of real estate owned, net and $19.2 million of loans held-for-sale.
Warehouse Facilities
At August 31, 2017, Rialto warehouse facilities were as follows:
(In thousands)
Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures October 2017 (1)
$
500,000

Warehouse repurchase facility that matures December 2017
200,000

364-day warehouse repurchase facility that matures January 2018
250,000

Total - Loan origination and securitization business (RMF)
$
950,000

Warehouse repurchase facility that matures August 2018 (two - one year extensions) (2)
100,000

Total
$
1,050,000

(1)
Subsequent to August 31, 2017, Rialto executed an amendment and extension of this facility, providing for, among other things, the extension of the maximum term facility to October 2018, with the option for an additional one year extension, and decreased the maximum aggregate commitment of the facility to $400 million.
(2)
Rialto uses this warehouse repurchase facility to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans receivable, net. Borrowings under this facility were $34.4 million and $43.3 million as of August 31, 2017 and November 30, 2016, respectively.
Borrowings under the facilities that finance RMF's loan originations and securitization activities were $148.3 million and $180.2 million as of August 31, 2017 and November 30, 2016, respectively, and were secured by a 75% interest in the originated commercial loans financed. The facilities require immediate repayment of the 75% interest in the secured commercial loans when the loans are sold in a securitization and the proceeds are collected. These warehouse repurchase facilities are non-recourse to the Company and are expected to be renewed or replaced with other facilities when they mature. If the facilities are not renewed or replaced, the borrowings under the lines of credit will be paid off by selling the loans held-for-sale to investors. Without the facilities, the Rialto segment would have to use cash from operations and other funding sources to finance its lending activities.
Investments in Unconsolidated Entities
Generally, all of Rialto's investments in funds have the attributes of an investment company in accordance with ASC 946, Financial Services – Investment Companies, as amended by ASU 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, the attributes of which are different from the

19


attributes that would cause a company to be an investment company for purposes of the Investment Company Act of 1940. As a result, the assets and liabilities of the funds in which Rialto has investments in are recorded at fair value with increases/decreases in fair value recorded in their respective statements of operations and the Company’s share is recorded in Rialto equity in earnings from unconsolidated entities in the Company's statement of operations.
The following table reflects Rialto's investments in funds that invest in and manage real estate related assets and other investments:
 
 
 
 
 
 
 
 
 
August 31,
2017
 
August 31,
2017
 
November 30,
2016
(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

 
$
46,623

 
58,116

Rialto Real Estate Fund II, LP
2012
 
1,305,000

 
1,305,000

 
100,000

 
100,000

 
81,169

 
96,192

Rialto Mezzanine Partners Fund, LP
2013
 
300,000

 
300,000

 
33,799

 
33,799

 
20,632

 
23,643

Rialto Capital CMBS Funds
2014
 
119,174

 
119,174

 
52,474

 
52,474

 
50,545

 
50,519

Rialto Real Estate Fund III
2015
 
1,887,000

 
469,150

 
140,000

 
33,533

 
33,268

 
9,093

Rialto Credit Partnership, LP
2016
 
220,000

 
150,786

 
19,999

 
13,707

 
13,800

 
5,794

Other investments
 
 
 
 
 
 
 
 
 
 
3,514

 
2,384

 
 
 
 
 
 
 
 
 
 
 
$
249,551

 
245,741

During the three and nine months ended August 31, 2017, Rialto received $0.8 million and $3.9 million, respectively, of advance distributions with regard to Rialto's carried interests in its real estate funds in order to cover income tax obligations resulting from allocations of taxable income to Rialto's carried interests in these funds. In addition, during the three and nine months ended August 31, 2017, Rialto received $10.6 million and $29.4 million, respectively, of distributions with regard to its carried interest in Rialto Real Estate Fund, LP. During the three and nine months ended August 31, 2016, Rialto received $2.1 million and $9.5 million, respectively, of such advanced distributions.
During 2015, Rialto adopted a Carried Interest Incentive Plan (the "Plan"), under which participating employees in the aggregate may receive up to 40% of the equity units of a limited liability company (a "Carried Interest Entity") that is entitled to carried interest distributions made by a fund or other investment vehicle (a "Fund") managed by a subsidiary of Rialto. As such, those employees receiving equity units in a Carried Interest Entity may benefit from distributions made by a Fund to the extent the Carried Interest Entity makes distributions to its equity holders. The units issued to employees are equity awards and are subject to vesting schedules and forfeiture or repurchase provisions in the case of a termination of employment.
Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows:
Balance Sheets
(In thousands)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Cash and cash equivalents
$
80,337

 
230,229

Loans receivable
595,149

 
406,812

Real estate owned
307,669

 
439,191

Investment securities
1,700,572

 
1,379,155

Investments in partnerships
409,670

 
398,535

Other assets
49,452

 
29,036

 
$
3,142,849

 
2,882,958

Liabilities and equity:
 
 
 
Accounts payable and other liabilities
$
40,239

 
36,131

Notes payable (1)
587,813

 
532,264

Equity
2,514,797

 
2,314,563

 
$
3,142,849

 
2,882,958

(1)
Notes payable are net of debt issuance costs of $3.4 million and $2.9 million, as of August 31, 2017 and November 30, 2016, respectively.

20


Statements of Operations
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Revenues
$
64,267

 
51,485

 
182,453

 
147,021

Costs and expenses
26,752

 
24,472

 
83,753

 
66,075

Other income, net (1)
245

 
28,947

 
9,893

 
40,495

Net earnings of unconsolidated entities
$
37,760

 
55,960

 
108,593

 
121,441

Rialto equity in earnings from unconsolidated entities
$
4,858

 
5,976

 
11,310

 
14,337

(1)
Other income, net, included realized and unrealized gains (losses) on investments.
Investments held-to-maturity
At August 31, 2017 and November 30, 2016, the carrying value of Rialto's commercial mortgage-backed securities ("CMBS") was $142.5 million and $71.3 million, respectively. These securities were purchased at discounts ranging from 9% to 84% with coupon rates ranging from 1.3% to 5.0%, stated and assumed final distribution dates between November 2020 and June 2027, and stated maturity dates between November 2043 and March 2059. The Rialto segment reviews changes in estimated cash flows periodically to determine if an other-than-temporary impairment has occurred on its CMBS. Based on the Rialto segment’s assessment, no impairment charges were recorded during either the three and nine months ended August 31, 2017 or August 31, 2016. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.

(10)
Lennar Multifamily Segment
The Company is actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. The Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.
The assets and liabilities related to the Lennar Multifamily segment were as follows:
(In thousands)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Cash and cash equivalents
$
3,305

 
6,600

Receivables (1)
71,464

 
58,929

Land under development
179,965

 
139,713

Investments in unconsolidated entities
397,119

 
318,559

Other assets
31,405

 
2,330

 
$
683,258

 
526,131

Liabilities:
 
 
 
Accounts payable and other liabilities
$
128,162

 
117,973

(1)
Receivables primarily related to general contractor services, net of deferrals and management fee income receivables due from unconsolidated entities as of August 31, 2017 and November 30, 2016, respectively.
The unconsolidated entities in which the Lennar Multifamily segment has investments usually finance their activities with a combination of partner equity and debt financing. In connection with many of the loans to Lennar Multifamily unconsolidated entities, the Company (or entities related to them) has been required to give guarantees of completion and cost over-runs to the lenders and partners. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. Additionally, the Company guarantees the construction costs of the project as construction cost over-runs would be paid by the Company. Generally, these payments would be increases to the Company's investment in the entities and would increase its share of funds the entities distribute after the achievement of certain thresholds. As of both August 31, 2017 and November 30, 2016, the fair value of the completion guarantees was immaterial. Additionally, as of August 31, 2017 and November 30, 2016, the Lennar Multifamily segment had $13.0 million and $32.0 million, respectively, of letters of credit outstanding primarily for credit enhancements for the bank debt of certain of its unconsolidated entities and deposits on land purchase contracts. These letters of credit outstanding are included in the disclosure in Note 12 related to the Company's performance and financial letters of credit. As of August 31, 2017 and November 30, 2016, Lennar Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $838.9 million and $589.4 million, respectively.

21



In many instances, the Lennar Multifamily segment is appointed as the construction, development and property manager for certain of its Lennar Multifamily unconsolidated entities and receives fees for performing this function. During the three and nine months ended August 31, 2017, the Lennar Multifamily segment recorded fee income, net of deferrals, from its unconsolidated entities of $13.1 million and $41.2 million, respectively. During the three and nine months ended August 31, 2016, the Lennar Multifamily segment recorded fee income, net of deferrals, from its unconsolidated entities of $10.0 million and $27.4 million, respectively.
The Lennar Multifamily segment also provides general contractor services for construction of some of the rental properties owned by unconsolidated entities in which the Company has an investment. During the three and nine months ended August 31, 2017, the Lennar Multifamily segment provided general contractor services, net of deferrals totaling $90.3 million and $250.7 million, respectively, which were partially offset by costs related to those services of $86.7 million and $243.7 million, respectively. During the three and nine months ended August 31, 2016, the Lennar Multifamily segment provided general contractor services, net of deferrals totaling $71.6 million and $156.5 million, respectively, which were partially offset by costs related to those services of $69.1 million and $151.4 million, respectively.
The Lennar Multifamily Venture (the "Venture") is a long-term multifamily development investment vehicle involved in the development, construction and property management of class-A multifamily assets with $2.2 billion in equity commitments, including a $504 million co-investment commitment by Lennar comprised of cash, undeveloped land and preacquisition costs. During the nine months ended August 31, 2017, $464.4 million in equity commitments were called, of which the Company contributed $106.1 million representing the Company's pro-rata portion of the called equity. During the nine months ended August 31, 2017, the Company received no distributions as a return of capital from the Venture, except for distributions of capital related to land contributions to the Venture. As of August 31, 2017, $1.4 billion of the $2.2 billion in equity commitments had been called, of which the Company had contributed $321.9 million, representing its pro-rata portion of the called equity, resulting in a remaining equity commitment for the Company of $182.1 million. As of August 31, 2017 and November 30, 2016, the carrying value of the Company's investment in the Venture was $296.9 million and $198.2 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)
August 31,
2017
 
November 30,
2016
Assets:
 
 
 
Cash and cash equivalents
$
51,725

 
43,658

Operating properties and equipment
2,832,790

 
2,210,627

Other assets
35,848

 
33,703

 
$
2,920,363

 
2,287,988

Liabilities and equity:
 
 
 
Accounts payable and other liabilities
$
220,881

 
196,617

Notes payable (1)
821,500

 
577,085

Equity
1,877,982

 
1,514,286

 
$
2,920,363

 
2,287,988

(1)
Notes payable are net of debt issuance costs of $17.4 million and $12.3 million, as of August 31, 2017 and November 30, 2016, respectively.

22



Statements of Operations
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Revenues
$
18,822

 
13,796

 
44,414

 
31,759

Costs and expenses
28,904

 
24,611

 
75,727

 
50,341

Other income, net
47,210

 
20,335

 
125,939

 
90,729

Net earnings of unconsolidated entities
$
37,128

 
9,520

 
94,626

 
72,147

Lennar Multifamily equity in earnings from unconsolidated entities (1)
$
11,645

 
5,060

 
44,219

 
38,754

(1)
During three and nine months ended August 31, 2017, the Lennar Multifamily segment sold two and five operating properties, respectively, through its unconsolidated entities resulting in the segment's $15.4 million and $52.9 million share of gains, respectively. During the three and nine months ended August 31, 2016, the Lennar Multifamily segment sold one and three operating properties, respectively, through its unconsolidated entities resulting in the segment's $8.0 million and $43.8 million share of gains, respectively.

(11)
Lennar Homebuilding Cash and Cash Equivalents
Cash and cash equivalents as of August 31, 2017 and November 30, 2016 included $281.0 million and $460.5 million, respectively, of cash held in escrow for approximately 3 days.

(12)
Lennar Homebuilding Senior Notes and Other Debts Payable
(Dollars in thousands)
August 31,
2017
 
November 30,
2016
4.75% senior notes due December 2017
$
399,036

 
398,479

6.95% senior notes due 2018
249,223

 
248,474

4.125% senior notes due December 2018
274,316

 
273,889

4.500% senior notes due 2019
498,572

 
498,002

4.50% senior notes due 2019
598,145

 
597,474

4.750% senior notes due 2021
497,134

 
496,547

4.125% senior notes due 2022
595,656

 

4.750% senior notes due 2022
569,105

 
568,404

4.875% senior notes due December 2023
394,868

 
394,170

4.500% senior notes due 2024
645,172

 

4.750% senior notes due 2025
496,560

 
496,226

12.25% senior notes due 2017

 
398,232

Mortgage notes on land and other debt
305,978

 
206,080

 
$
5,523,765

 
4,575,977


The carrying amounts of the senior notes listed above are net of debt issuance costs of $26.4 million and $22.1 million, as of August 31, 2017 and November 30, 2016, respectively.
In May 2017, the Company amended the credit agreement governing its unsecured revolving credit facility (the "Credit Facility") to increase the maximum borrowings from $1.8 billion to $2.0 billion and extend the maturity on $1.4 billion of the Credit Facility from June 2020 to June 2022, with $160 million maturing in June 2018 and the remaining $50 million maturing in June 2020. As of August 31, 2017, the Credit Facility included a $403 million accordion feature, subject to additional commitments. The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit agreement also provides that up to $500 million in commitments may be used for letters of credit. Under the Credit Facility agreement, the Company is required to maintain a minimum consolidated tangible net worth, a maximum leverage ratio and either a liquidity or an interest coverage ratio. These ratios are calculated per the Credit Facility agreement, which involves adjustments to GAAP financial measures. The Company believes it was in compliance with its debt covenants at August 31, 2017. In addition, the Company had $330 million of letter of credit facilities with different financial institutions.
The Company’s performance letters of credit outstanding were $395.7 million and $270.8 million, respectively, at August 31, 2017 and November 30, 2016. The Company’s financial letters of credit outstanding were $153.8 million and

23



$210.3 million, at August 31, 2017 and November 30, 2016, respectively. Performance letters of credit are generally posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities. Financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at August 31, 2017, the Company had outstanding surety bonds of $1.2 billion including performance surety bonds related to site improvements at various projects (including certain projects in the Company’s joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of August 31, 2017, there were approximately $514.4 million, or 42%, 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 January 2017, the Company issued $600 million aggregate principal amount of 4.125% senior notes due 2022 (the "4.125% Senior Notes") at a price of 100%. Proceeds from the offering, after payment of expenses, were $595.2 million. The Company used the net proceeds from the sales of the 4.125% Senior Notes to fund a portion of the cash consideration for the Company's acquisition of WCI and to pay for costs and expenses related to this acquisition as well as for general corporate purposes. Interest on the 4.125% Senior Notes is due semi-annually beginning July 15, 2017. The 4.125% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.
In February 2017, the Company assumed 6.875% senior notes due 2021 (the "6.875% Senior Notes") as a result of the WCI acquisition. The 6.875% senior notes were recorded at fair value with a principal amount outstanding of $249.8 million and were callable beginning August 2017. In August 2017, the Company redeemed the $250 million principal amount of the 6.875% senior notes. The redemption price, which was paid in cash, was 103.438% of the principal amount plus accrued but unpaid interest up to, but not including, the redemption date. There was no gain or loss recorded on redemption of the 6.875% senior notes as it had been recorded at fair value on the acquisition date.
In April 2017, the Company issued $650 million aggregate principal amount of 4.50% senior notes due 2024 (the "4.50% Senior Notes") at a price of 100%. Proceeds from the offering, after payment of expenses, were $645.0 million. The Company used the net proceeds from the sales of the 4.50% Senior Notes for (1) the retirement of its 12.25% senior notes due 2017 for 100% of the $400 million outstanding principal amount, plus accrued and unpaid interest and (2) the redemption of its 6.875% senior notes due 2021 for 103.438% of the $250 million outstanding principal amount plus accrued but unpaid interest up to, but not including, the redemption date. Interest on the 4.50% Senior Notes is due semi-annually beginning October 30, 2017. The 4.50% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.
The Company's senior notes are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries and some of the Company's other subsidiaries. Although the guarantees are full, unconditional and joint and several while they are in effect, (i) a subsidiary will cease to be a guarantor at any time when it is not directly or indirectly guaranteeing at least $75 million of debt of Lennar Corporation (the parent company), and (ii) a subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of.


24



(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 Lennar Homebuilding other liabilities in the condensed consolidated balance sheets. The activity in the Company’s warranty reserve was as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2017
 
2016
 
2017
 
2016
Warranty reserve, beginning of period
$
151,833

 
127,159

 
135,403

 
130,853

Warranties issued
28,795

 
25,382

 
78,945

 
67,952

Adjustments to pre-existing warranties from changes in estimates (1)
4,436

 
4,982

 
14,769

 
4,247

Warranties assumed related to the WCI acquisition

 

 
6,345

 

Payments
(25,758
)
 
(23,984
)
 
(76,156
)
 
(69,513
)
Warranty reserve, end of period
$
159,306

 
133,539

 
159,306

 
133,539

(1)
The adjustments to pre-existing warranties from changes in estimates during the three and nine months ended August 31, 2017 and 2016 primarily related to specific claims related to certain of the Company's homebuilding communities and other adjustments.


(14)
Share-Based Payments
During the three and nine months ended August 31, 2017 and 2016, the Company granted employees 1.3 million and 1.2 million, respectively, of nonvested shares. Compensation expense related to the Company’s nonvested shares for the three and nine months ended August 31, 2017 was $18.5 million and $43.3 million, respectively. Compensation expense related to the Company’s nonvested shares for the three and nine months ended August 31, 2016 was $12.4 million and $34.6 million, respectively.

25



(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 August 31, 2017 and November 30, 2016, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables, net and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
 
 
 
August 31, 2017
 
November 30, 2016
(In thousands)
Fair Value
Hierarchy
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
ASSETS
 
 
 
 
 
 
 
 
 
Rialto:
 
 
 
 
 
 
 
 
 
Loans receivable, net
Level 3
 
$
52,779

 
52,784

 
111,608

 
113,747

Investments held-to-maturity
Level 3
 
$
142,462

 
143,737

 
71,260

 
69,992

Lennar Financial Services:
 
 
 
 
 
 
 
 
 
Loans held-for-investment, net
Level 3
 
$
37,665

 
35,378