Edgar Filing: LENNAR CORP /NEW/

10-Q

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 29, 2016

Commission File Number: 1-11749

Lennar Corporation

(Exact name of registrant as specified in its charter)



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

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

(305) 559-4000

(Registrant’s telephone number, including area code)

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

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

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



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

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

Common stock outstanding as of February 29, 2016:

Class A 183,405,590

Class B 31,303,195

Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

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

(unaudited)



	February 29,		November 30,
	2016 (1)		2015 (1)
ASSETS
Lennar Homebuilding:
Cash and cash equivalents	$	510,878	893,408
Restricted cash	3,255		13,505
Receivables, net	61,229		74,538
Inventories:
Finished homes and construction in progress	4,234,536		3,957,167
Land and land under development	5,113,493		4,724,578
Consolidated inventory not owned	20,290		58,851
Total inventories	9,368,319		8,740,596
Investments in unconsolidated entities	771,401		741,551
Other assets	599,915		609,222
	11,314,997		11,072,820
Rialto	1,272,004		1,505,500
Lennar Financial Services	1,157,079		1,425,837
Lennar Multifamily	451,108		415,352
Total assets	$	14,195,188	14,419,509

(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 29, 2016, total assets include $582.1 million related to consolidated VIEs of which $11.0 million is included in Lennar Homebuilding cash and cash equivalents, $5.8 million in Lennar Homebuilding receivables, net, $5.5 million in Lennar Homebuilding finished homes and construction in progress, $162.8 million in Lennar Homebuilding land and land under development, $20.3 million in Lennar Homebuilding consolidated inventory not owned, $34.8 million in Lennar Homebuilding investments in unconsolidated entities, $22.3 million in Lennar Homebuilding other assets, $307.4 million in Rialto assets and $12.2 million in Lennar Multifamily assets.

As of November 30, 2015, total assets include $652.3 million related to consolidated VIEs of which $9.6 million is included in Lennar Homebuilding cash and cash equivalents, $0.5 million in Lennar Homebuilding receivables, net, $3.9 million in Lennar Homebuilding finished homes and construction in progress, $154.2 million in Lennar Homebuilding land and land under development, $58.9 million in Lennar Homebuilding consolidated inventory not owned, $35.8 million in Lennar Homebuilding investments in unconsolidated entities, $22.7 million in Lennar Homebuilding other assets, $355.2 million in Rialto assets and $11.5 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 29,			November 30,
	2016 (2)			2015 (2)
LIABILITIES AND EQUITY
Lennar Homebuilding:
Accounts payable	$	442,905		475,909
Liabilities related to consolidated inventory not owned	19,854			51,431
Senior notes and other debts payable	5,333,981			5,025,130
Other liabilities	749,138			899,815
	6,545,878			6,452,285
Rialto	656,303			866,224
Lennar Financial Services	838,251			1,083,978
Lennar Multifamily	61,307			66,950
Total liabilities	8,101,739			8,469,437
Stockholders’ equity:
Preferred stock	—			—
Class A common stock of $0.10 par value; Authorized: February 29, 2016 and November 30, 2015 - 300,000,000 shares; Issued: February 29, 2016 - 184,262,923 shares and November 30, 2015 - 180,658,550 shares	18,426			18,066
Class B common stock of $0.10 par value; Authorized: February 29, 2016 and November 30, 2015 - 90,000,000 shares; Issued: February 29, 2016 - 32,982,815 shares and November 30, 2015 - 32,982,815 shares	3,298			3,298
Additional paid-in capital	2,341,502			2,305,560
Retained earnings	3,565,264			3,429,736
Treasury stock, at cost; February 29, 2016 - 857,333 shares of Class A common stock and 1,679,620 shares of Class B common stock; November 30, 2015 - 815,959 shares of Class A common stock and 1,679,620 shares of Class B common stock	(107,978		)	(107,755	)
Accumulated other comprehensive income (loss)	(398		)	39
Total stockholders’ equity	5,820,114			5,648,944
Noncontrolling interests	273,335			301,128
Total equity	6,093,449			5,950,072
Total liabilities and equity	$	14,195,188		14,419,509

(2)

As of February 29, 2016, total liabilities include $60.3 million related to consolidated VIEs as to which there was no recourse against the Company, of which $3.0 million is included in Lennar Homebuilding accounts payable, $19.9 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $21.7 million in Lennar Homebuilding other liabilities, $11.7 million in Rialto liabilities and $4.0 million in Lennar Multifamily liabilities.

As of November 30, 2015, total liabilities include $84.4 million related to consolidated VIEs as to which there was no recourse against the Company, of which $2.0 million is included in Lennar Homebuilding accounts payable, $51.4 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $15.6 million in Lennar Homebuilding other liabilities, $11.3 million in Rialto liabilities and $4.0 million in Lennar Multifamily liabilities.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(Dollars in thousands, except per share amounts)

(unaudited)



	Three Months Ended
	February 29,			February 28,
	2016			2015
Revenues:
Lennar Homebuilding	$	1,786,481		1,441,658
Lennar Financial Services	123,956			124,827
Rialto	43,711			41,197
Lennar Multifamily	39,516			36,457
Total revenues	1,993,664			1,644,139
Costs and expenses:
Lennar Homebuilding	1,568,205			1,265,175
Lennar Financial Services	109,025			109,300
Rialto	42,907			40,781
Lennar Multifamily	47,020			41,961
Corporate general and administrative	47,668			43,654
Total costs and expenses	1,814,825			1,500,871
Lennar Homebuilding equity in earnings from unconsolidated entities	3,000			28,899
Lennar Homebuilding other income, net	519			6,333
Other interest expense	(1,157		)	(4,071	)
Rialto equity in earnings from unconsolidated entities	1,497			2,664
Rialto other expense, net	(691		)	(272	)
Lennar Multifamily equity in earnings (loss) from unconsolidated entities	19,686			(178	)
Earnings before income taxes	201,693			176,643
Provision for income taxes	(56,241		)	(59,726	)
Net earnings (including net earnings attributable to noncontrolling interests)	145,452			116,917
Less: Net earnings attributable to noncontrolling interests	1,372			1,954
Net earnings attributable to Lennar	$	144,080		114,963
Other comprehensive income, net of tax:
Net unrealized gain (loss) on securities available-for-sale	(437		)	200
Other comprehensive income attributable to Lennar	$	143,643		115,163
Other comprehensive income attributable to noncontrolling interests	$	1,372		1,954
Basic earnings per share	$	0.68		0.56
Diluted earnings per share	$	0.63		0.50
Cash dividends per each Class A and Class B common share	$	0.04		0.04

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 29,			February 28,
	2016			2015
Cash flows from operating activities:
Net earnings (including net earnings attributable to noncontrolling interests)	$	145,452		116,917
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	10,077			8,306
Amortization of discount/premium and accretion on debt, net	4,777			5,417
Equity in earnings from unconsolidated entities	(24,183		)	(31,385	)
Distributions of earnings from unconsolidated entities	27,207			29,914
Share-based compensation expense	11,142			10,251
Excess tax benefits from share-based awards	(7,029		)	(35	)
Deferred income tax expense	43,402			27,616
Loss on retirement of debt and notes payable	—			(608	)
Gain on sale of operating property and equipment	—			(6,472	)
Unrealized and realized gains on real estate owned	(7,230		)	(3,405	)
Impairments of loans receivable and real estate owned	5,976			4,055
Valuation adjustments and write-offs of option deposits and pre-acquisition costs and other assets	1,164			519
Changes in assets and liabilities:
Decrease in restricted cash	19,958			27,014
Decrease in receivables	262,453			210,670
Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs	(677,078		)	(721,222	)
(Increase) decrease in other assets	(9,825		)	18,524
Decrease (increase) in loans held-for-sale	228,316			(216,669	)
Decrease in accounts payable and other liabilities	(250,466		)	(209,671	)
Net cash used in operating activities	(215,887		)	(730,264	)
Cash flows from investing activities:
Increase in restricted cash related to LOCs	—			64
Net additions of operating properties and equipment	(18,453		)	(28,946	)
Investments in and contributions to unconsolidated entities	(103,971		)	(35,456	)
Distributions of capital from unconsolidated entities	69,356			18,174
Proceeds from sales of real estate owned	20,256			28,055
Improvements to real estate owned	(1,194		)	(2,347	)
Receipts of principal payments on loans receivable	2,725			3,519
Originations of loans receivable	(10,046		)	—
Purchase of investment carried at cost	—			(18,000	)
Purchases of commercial mortgage-backed securities bonds	(23,078		)	—
Acquisition, net of cash acquired	(600		)	—
Purchases of Lennar Homebuilding investments available-for-sale	—			(28,093	)
Decrease in Lennar Financial Services loans held-for-investment, net	766			606
Purchases of Lennar Financial Services investment securities	(6,968		)	(18,886	)
Proceeds from maturities/sales of Lennar Financial Services investments securities	4,621			14,116
Net cash used in investing activities	$	(66,586	)	(67,194	)

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 29,			February 28,
	2016			2015
Cash flows from financing activities:
Net borrowings under unsecured revolving credit facility	$	500,000		250,000
Net repayments under warehouse facilities	(395,233		)	(29,681	)
Proceeds from senior notes	—			250,625
Debt issuance costs	(684		)	(1,494	)
Conversions and exchanges on convertible senior notes	(162,852		)	—
Principal payments on Rialto notes payable including structured notes	(669		)	(17,499	)
Proceeds from other borrowings	6,763			46,630
Principal payments on other borrowings	(59,146		)	(108,048	)
Receipts related to noncontrolling interests	65			1,302
Payments related to noncontrolling interests	(42,015		)	(57,629	)
Excess tax benefits from share-based awards	7,029			35
Common stock:
Issuances	—			8,227
Repurchases	(219		)	(186	)
Dividends	(8,552		)	(8,208	)
Net cash (used in) provided by financing activities	(155,513		)	334,074
Net decrease in cash and cash equivalents	(437,986		)	(463,384	)
Cash and cash equivalents at beginning of period	1,158,445			1,281,814
Cash and cash equivalents at end of period	$	720,459		818,430
Summary of cash and cash equivalents:
Lennar Homebuilding	$	510,878		583,754
Rialto	112,305			147,219
Lennar Financial Services	91,214			84,201
Lennar Multifamily	6,062			3,256
	$	720,459		818,430
Supplemental disclosures of non-cash investing and financing activities:
Lennar Homebuilding and Lennar Multifamily:
Non-cash sale of operating properties and equipment	$	—		(59,397	)
Purchases of inventories and other assets financed by sellers	$	20,714		290
Non-cash contributions to unconsolidated entities	$	19,248		26,594
Rialto:
Real estate owned acquired in satisfaction/partial satisfaction of loans receivable	$	5,183		8,637
Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
Inventories	$	14,923		—
Operating properties and equipment and other assets	$	—		(17,421	)
Investments in unconsolidated entities	$	(2,445	)	2,948
Other liabilities	$	—		1,220
Noncontrolling interests	$	(12,478	)	13,253

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 15) 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, 2015. 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 29, 2016 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 condensed consolidated financial statements have been reclassified to conform with the 2016 presentation. These reclassifications had no impact on the Company's results of operations. As a result of the Company's change in reportable segments, the Company restated certain prior year amounts in the condensed consolidated financial statements to conform with the 2016 presentation (See Note 2). In addition, certain prior year amounts in the supplemental financial information included in Note 18 were revised to conform with the Company’s current guarantor and non-guarantor structure. These revisions did not affect the Company’s condensed consolidated financial statements as they relate solely to transactions between Lennar Corporation and its subsidiaries and only impact the condensed consolidating financial statements. As such, the supplemental financial information included in Note 18 has been retrospectively adjusted for the three months ended February 28, 2015.


(2)	Operating and Reporting Segments

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

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding West

(4) Homebuilding Houston

(5) Lennar Financial Services

(6) Rialto

(7) Lennar Multifamily

In the first quarter of 2016, the Company made the decision to divide the Southeast Florida operating division into two operating segments to maximize operational efficiencies given the continued growth of the division. As a result of this change in management structure, the Company re-evaluated its reportable segments and determined that neither operating segment met the reportable criteria set forth in Accounting Standards Codification ("ASC") 280, Segment Reporting. The Company aggregated these operating segments into the Homebuilding East reportable segment as these divisions exhibit similar economic characteristics, geography and product type as the other divisions in Homebuilding East. All prior year segment information has

been restated to conform with the 2016 presentation. The change in the reportable segments has no effect on the Company's condensed consolidated financial position, results of operations or cash flows for the periods presented.

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

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

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

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

Central: Arizona, Colorado and Texas⁽¹⁾

West: California and Nevada

Houston: Houston, Texas

Other: Illinois, Minnesota, Oregon, Tennessee and Washington

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

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

Operations of the Rialto segment include raising, investing and managing third-party capital, originating and securitizing commercial mortgage loans as well as investing its own capital in real estate related mortgage loans, properties and related securities. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and 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 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, 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, 2015. 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 29, 2016		November 30, 2015
Assets:
Homebuilding East	$	3,519,242	3,140,604
Homebuilding Central	1,488,437		1,421,195
Homebuilding West	4,248,352		4,157,616
Homebuilding Houston	541,449		481,386
Homebuilding Other	825,145		858,000
Rialto	1,272,004		1,505,500
Lennar Financial Services	1,157,079		1,425,837
Lennar Multifamily	451,108		415,352
Corporate and unallocated	692,372		1,014,019
Total assets	$	14,195,188	14,419,509



	Three Months Ended
	February 29,		February 28,
(In thousands)	2016		2015
Revenues:
Homebuilding East	$	659,054	610,683
Homebuilding Central	275,219		210,508
Homebuilding West	551,339		382,773
Homebuilding Houston	138,621		131,257
Homebuilding Other	162,248		106,437
Lennar Financial Services	123,956		124,827
Rialto	43,711		41,197
Lennar Multifamily	39,516		36,457
Total revenues (1)	$	1,993,664	1,644,139
Operating earnings (loss):
Homebuilding East	$	84,706	86,533
Homebuilding Central	20,323		15,052
Homebuilding West (2)	88,834		82,493
Homebuilding Houston	12,872		17,015
Homebuilding Other	13,903		6,551
Lennar Financial Services	14,931		15,527
Rialto	1,610		2,808
Lennar Multifamily	12,182		(5,682	)
Total operating earnings	249,361		220,297
Corporate general and administrative expenses	47,668		43,654
Earnings before income taxes	$	201,693	176,643


(1)	Total revenues were net of sales incentives of $103.7 million ($21,600 per home delivered) for the three months ended February 29, 2016, and $93.6 million ($21,800 per home delivered) for the three months ended February 28, 2015.


(2)	For the three months ended February 29, 2016 and February 28, 2015, operating earnings included $6.0 million and $31.3 million, respectively, of equity in earnings from Heritage Fields El Toro, one of the Company's unconsolidated entities ("El Toro"), for details refer to Note 3.


(3)	Lennar Homebuilding Investments in Unconsolidated Entities

Summarized condensed financial information on a combined 100% basis related to Lennar Homebuilding’s unconsolidated entities that are accounted for by the equity method was as follows:

Statements of Operations



	Three Months Ended
	February 29,		February 28,
(In thousands)	2016		2015
Revenues	$	99,726	442,957
Costs and expenses	97,200		298,879
Other income	—		2,943
Net earnings of unconsolidated entities	$	2,526	147,021
Lennar Homebuilding equity in earnings from unconsolidated entities	$	3,000	28,899

For the three months ended February 29, 2016, net earnings of unconsolidated entities included sales of approximately 220 homesites by El Toro to third parties for $62.1 million that resulted in $20.7 million of gross profit. This transaction resulted primarily in the recognition of $6.0 million of Lennar Homebuilding equity in earnings. For the three months ended February 28, 2015, net earnings of unconsolidated entities included sales of approximately 900 homesites by El Toro for $412.2 million that resulted in $145.5 million of gross profit, of which (1) approximately 300 homesites were sold to Lennar for $126.4 million that resulted in $44.6 million of gross profit of which the Company's portion was deferred, and (2) approximately 600 homesites were sold to third parties. These transactions resulted primarily in the recognition of $31.3 million of Lennar homebuilding equity in earnings for the three months ended February 28, 2015.

Balance Sheets



(In thousands)	February 29, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	242,573	248,980
Inventories	3,126,810		3,059,054
Other assets	501,077		465,404
	$	3,870,460	3,773,438
Liabilities and equity:
Accounts payable and other liabilities	$	279,893	288,192
Debt	836,483		792,886
Equity	2,754,084		2,692,360
	$	3,870,460	3,773,438

As of February 29, 2016 and November 30, 2015, the Company’s recorded investments in Lennar Homebuilding unconsolidated entities were $771.4 million and $741.6 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of February 29, 2016 and November 30, 2015 was $873.3 million and $839.5 million, respectively. The basis difference is primarily as a result of the Company buying an interest in a partner's equity in a Lennar Homebuilding unconsolidated entity at a discount to book value, contributing non-monetary assets to an unconsolidated entity with a higher fair value than book value and deferring equity in earnings on land sales.

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 29, 2016			November 30, 2015
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	50,098		50,411
Non-recourse land seller debt and other debt	323,995			324,000
Non-recourse debt with completion guarantees	148,781			146,760
Non-recourse debt without completion guarantees	303,080			260,734
Non-recourse debt to the Company	825,954			781,905
The Company’s maximum recourse exposure	10,529			10,981
Total debt	$	836,483		792,886
The Company’s maximum recourse exposure as a % of total JV debt	1		%	1	%

In most instances in which the Company has guaranteed debt of a Lennar Homebuilding unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Historically, the Company has had repayment guarantees and/or maintenance guarantees. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral. In the event of default, if the Company’s venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. As of both February 29, 2016 and November 30, 2015, the Company did not have any maintenance guarantees or joint and several repayment guarantees related to its Lennar Homebuilding unconsolidated entities.

In connection with many of the loans to Lennar Homebuilding unconsolidated entities, the Company and its joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used.

If the Company is required to make a payment under any guarantee, the payment would constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase the Company’s investment in the unconsolidated entity and its share of any funds the unconsolidated entity distributes.

As of both February 29, 2016 and November 30, 2015, the fair values of the repayment guarantees and completion guarantees were not material. The Company believes that as of February 29, 2016, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 11).


(4)	Stockholders' Equity

The following table reflects the changes in equity attributable to both Lennar Corporation and the noncontrolling interests of its consolidated subsidiaries in which it has less than a 100% ownership interest for both the three months ended February 29, 2016 and February 28, 2015:



				Stockholders’ Equity
(In thousands)	Total Equity			Class A Common Stock	Class B Common Stock	Additional Paid - in Capital		Treasury Stock		Accumulated Comprehensive Other Income (Loss)		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)	145,452			—	—	—		—		—		144,080		1,372
Employee stock and directors plans	(194		)	—	—	29		(223	)	—		—		—
Conversions and exchanges of convertible senior notes to Class A common stock	—			360	—	(360	)	—		—		—		—
Tax benefit from employee stock plans, vesting of restricted stock and conversion of convertible senior notes	25,131			—	—	25,131		—		—		—		—
Amortization of restricted stock	11,142			—	—	11,142		—		—		—		—
Cash dividends	(8,552		)	—	—	—		—		—		(8,552	)	—
Receipts related to noncontrolling interests	65			—	—	—		—		—		—		65
Payments related to noncontrolling interests	(42,015		)	—	—	—		—		—		—		(42,015	)
Non-cash consolidations, net	12,478			—	—	—		—		—		—		12,478
Non-cash activity related to noncontrolling interests	307			—	—	—		—		—		—		307
Other comprehensive loss, net of tax	(437		)	—	—	—		—		(437	)	—		—
Balance at February 29, 2016	$	6,093,449		18,426	3,298	2,341,502		(107,978	)	(398	)	3,565,264		273,335



				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, 2014	$	5,251,302		17,424	3,298	2,239,574	(93,440	)	130	2,660,034		424,282
Net earnings (including net earnings attributable to noncontrolling interests)	116,917			—	—	—	—		—	114,963		1,954
Employee stock and directors plans	8,074			1	—	47	8,026		—	—		—
Tax benefit from employee stock plans and vesting of restricted stock	35			—	—	35	—		—	—		—
Amortization of restricted stock and performance-based stock options	10,250			—	—	10,250	—		—	—		—
Cash dividends	(8,208		)	—	—	—	—		—	(8,208	)	—
Receipts related to noncontrolling interests	1,302			—	—	—	—		—	—		1,302
Payments related to noncontrolling interests	(57,629		)	—	—	—	—		—	—		(57,629	)
Non-cash deconsolidations, net	(13,253		)	—	—	—	—		—	—		(13,253	)
Other comprehensive income, net of tax	200			—	—	—	—		200	—		—
Balance at February 28, 2015	$	5,308,990		17,425	3,298	2,249,906	(85,414	)	330	2,766,789		356,656

The Company has a stock repurchase program, which originally authorized the purchase of up to 20 million shares of its outstanding common stock. During the three months ended February 29, 2016 and February 28, 2015, there were no share

repurchases of common stock under the stock repurchase program. As of February 29, 2016, the remaining authorized shares that could be purchased under the stock repurchase program were 6.2 million shares of common stock.


(5)	Income Taxes

The provision for income taxes and effective tax rate were as follows:



	Three Months Ended
	February 29,			February 28,
(Dollars in thousands)	2016			2015
Provision for income taxes	$	(56,241	)	(59,726	)
Effective tax rate (1)	28.08		%	34.19	%

(1)

For the three months ended February 29, 2016, the effective tax rate included tax benefits for (1) a settlement with the IRS, (2) the domestic production activities deduction, and (3) energy tax credits, offset primarily by state income tax expense. For the three months ended February 28, 2015, the effective tax rate included a tax benefit for the domestic production activities deduction and energy tax credits, offset primarily by state income tax expense and interest accrued on uncertain tax positions.

As of February 29, 2016 and November 30, 2015, the Company's deferred tax assets, net included in the condensed consolidated balance sheets were $315.7 million and $340.7 million, respectively.

At both February 29, 2016 and November 30, 2015, the Company had $12.3 million of gross unrecognized tax benefits.

At February 29, 2016, the Company had $43.7 million accrued for interest and penalties, of which $0.7 million was accrued during the three months ended February 29, 2016. In addition, during the three months ended February 29, 2016, the Company's accrual for interest and penalties was reduced by $22.2 million due primarily to a settlement with the IRS. At November 30, 2015, the Company had $65.1 million accrued for interest and penalties.


(6)	Earnings Per Share

Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

All outstanding nonvested shares that contain non-forfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and participation rights in undistributed earnings. The Company’s restricted common stock (“nonvested shares”) are considered participating securities.

Basic and diluted earnings per share were calculated as follows:



	Three Months Ended
	February 29,		February 28,
(In thousands, except per share amounts)	2016		2015
Numerator:
Net earnings attributable to Lennar	$	144,080	114,963
Less: distributed earnings allocated to nonvested shares	89		91
Less: undistributed earnings allocated to nonvested shares	1,420		1,184
Numerator for basic earnings per share	142,571		113,688
Less: net amount attributable to noncontrolling interests in Rialto's Carried Interest Incentive Plan (1)	202		—
Plus: interest on 3.25% convertible senior notes due 2021	1,982		1,982
Plus: undistributed earnings allocated to convertible shares	1,420		1,184
Less: undistributed earnings reallocated to convertible shares	1,325		1,064
Numerator for diluted earnings per share	$	144,446	115,790
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding	210,292		202,930
Effect of dilutive securities:
Share-based payments	4		11
Convertible senior notes	18,620		27,375
Denominator for diluted earnings per share - weighted average common shares outstanding	228,916		230,316
Basic earnings per share	$	0.68	0.56
Diluted earnings per share	$	0.63	0.50


(1)	The amount presented above relates to Rialto's Carried Interest Incentive Plan adopted in June 2015 (see Note 8) 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 both the three months ended February 29, 2016 and February 28, 2015, there were no options to purchase shares of common stock that were outstanding and anti-dilutive.


(7)	Lennar Financial Services Segment

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



(In thousands)	February 29, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	91,214	106,777
Restricted cash	9,235		13,961
Receivables, net (1)	150,214		242,808
Loans held-for-sale (2)	684,406		843,252
Loans held-for-investment, net	31,223		30,998
Investments held-to-maturity	39,268		40,174
Investments available-for-sale (3)	45,180		42,827
Goodwill	39,439		38,854
Other (4)	66,900		66,186
	$	1,157,079	1,425,837
Liabilities:
Notes and other debts payable	$	625,322	858,300
Other (5)	212,929		225,678
	$	838,251	1,083,978


(1)	Receivables, net primarily related to loans sold to investors for which the Company had not yet been paid as of February 29, 2016 and November 30, 2015, 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 February 29, 2016 and November 30, 2015, other assets included mortgage loan commitments carried at fair value of $19.1 million and $13.1 million, respectively, and mortgage servicing rights carried at fair value of $15.8 million and $16.8 million, respectively. In addition, other assets also included forward contracts carried at fair value $0.5 million as of November 30, 2015.


(5)	Other liabilities included $62.7 million and $65.0 million as of February 29, 2016 and November 30, 2015, 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 $9.6 million as of February 29, 2016.

At February 29, 2016, the Lennar Financial Services segment warehouse facilities were as follows:



(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures August 2016 (1)	$	400,000
364-day warehouse repurchase facility that matures August 2016	300,000
364-day warehouse repurchase facility that matures October 2016 (2)	450,000
Total	$	1,150,000


(1)	In accordance with the amended warehouse repurchase facility agreement, the maximum aggregate commitment will be increased to $600 million in the second quarter of fiscal 2016.


(2)	Maximum aggregate commitment includes an uncommitted amount of $250 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 expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $625.3 million and $858.3 million at February 29, 2016 and November 30, 2015, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $673.1 million and $916.9 million at February 29, 2016 and November 30, 2015, respectively. If the facilities are not renewed or replaced, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

Substantially, all of the loans the Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreements. Over the last several years there has been an 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
	February 29,			February 28,
(In thousands)	2016			2015
Loan origination liabilities, beginning of period	$	19,492		11,818
Provision for losses	788			802
Payments/settlements	(172		)	(144	)
Loan origination liabilities, end of period	$	20,108		12,476


(8)	Rialto Segment

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



(In thousands)	February 29, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	112,305	150,219
Restricted cash (1)	10,233		15,061
Receivables, net (2)	—		154,948
Loans held-for-sale (3)	243,230		316,275
Loans receivable, net	166,536		164,826
Real estate owned - held-for-sale	177,221		183,052
Real estate owned - held-and-used, net	148,900		153,717
Investments in unconsolidated entities	234,039		224,869
Investments held-to-maturity	49,309		25,625
Other (4)	130,231		116,908
	$	1,272,004	1,505,500
Liabilities:
Notes and other debts payable	$	609,150	771,728
Other (5)	47,153		94,496
	$	656,303	866,224


(1)	Restricted cash primarily consists of 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 relate to loans sold but not settled as of November 30, 2015.


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


(4)	Other assets included credit default swaps carried at fair value of $9.8 million and $6.2 million as of February 29, 2016 and November 30, 2015, respectively, and interest rate swaps and swap futures carried at fair value of $0.3 million as of November 30, 2015.


(5)	Other liabilities included interest rate swaps and swap futures carried at fair value of $6.0 million and $1.0 million as of February 29, 2016 and November 30, 2015, respectively, and credit default swaps carried at fair value of $0.7 million as of November 30, 2015.

For the three months ended February 29, 2016 and February 28, 2015, Rialto costs and expenses included loan impairments of $2.3 million and $1.2 million, respectively, primarily associated with the segment's FDIC loans portfolio (before noncontrolling interests). In addition, for the three months ended February 29, 2016 and February 28, 2015, Rialto operating earnings included a net loss attributable to noncontrolling interests of $0.3 million and $1.8 million, respectively.

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



	Three Months Ended
	February 29,			February 28,
(In thousands)	2016			2015
Realized gains on REO sales, net	$	3,746		3,130
Unrealized losses on transfer of loans receivable to REO and impairments, net	(153		)	(2,556	)
REO and other expenses	(14,835		)	(13,242	)
Rental and other income	10,551			12,396
Rialto other expense, net	$	(691	)	(272	)

Loans Receivable

The following table represents loans receivable, net by type:



(In thousands)	February 29, 2016		November 30, 2015
Nonaccrual loans: FDIC and Bank Portfolios	$	78,447	88,694
Accrual loans	88,089		76,132
Loans receivable, net	$	166,536	164,826

The nonaccrual loan portfolios consist primarily of loans acquired at a discount. 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. At February 29, 2016, these consolidated LLCs had total combined assets and liabilities of $307.4 million and $11.7 million, respectively. At November 30, 2015, these consolidated LLCs had total combined assets and liabilities of $355.2 million and $11.3 million, respectively.

In addition in 2010, Rialto acquired 400 distressed residential and commercial real estate loans (“Bank Portfolios”) and over 300 REO properties from three financial institutions.

Based on the nature of these loans, the portfolios are managed by assessing the risks related to the likelihood of collection of payments from borrowers and guarantors, as well as monitoring the value of the underlying collateral. As of February 29, 2016 and November 30, 2015, management classified all loans receivable within the FDIC Portfolios and Bank Portfolios as nonaccrual loans as forecasted principal and interest cannot be reasonably estimated and accounted for these assets in accordance with ASC 310-10, Receivables.

Accrual loans as of February 29, 2016 included loans originated of which $18.1 million relates to a convertible land loan that matures in July 2016 and $70.0 million relates to floating and fixed rate commercial property loans maturing between October 2017 and October 2025.

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

February 29, 2016



			Recorded Investment
(In thousands)	Unpaid Principal Balance		With Allowance	Without Allowance	Total Recorded Investment
Land	$	114,480	51,691	1,153	52,844
Single family homes	35,413		8,306	1,974	10,280
Commercial properties	12,154		1,379	1,072	2,451
Other	66,667		—	12,872	12,872
Loans receivable	$	228,714	61,376	17,071	78,447

November 30, 2015



			Recorded Investment
(In thousands)	Unpaid Principal Balance		With Allowance	Without Allowance	Total Recorded Investment
Land	$	145,417	59,740	1,165	60,905
Single family homes	39,659		8,344	3,459	11,803
Commercial properties	13,458		1,368	1,085	2,453
Other	78,279		—	13,533	13,533
Loans receivable	$	276,813	69,452	19,242	88,694

The average recorded investment in impaired loans was approximately $84 million and $123 million for the three months ended February 29, 2016 and February 28, 2015, respectively.

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

Allowance for Loan Losses

The allowance for loan losses is a valuation reserve established through provisions for loan losses charged against Rialto’s operating earnings.

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



	Three Months Ended
	February 29,			February 28,
(In thousands)	2016			2015
Allowance on nonaccrual loans, beginning of the period	$	35,625		58,236
Provision for loan losses, net of recoveries	2,339			1,224
Charge-offs	(7,571		)	(8,441	)
Allowance on nonaccrual loans, end of the period	$	30,393		51,019

Real Estate Owned

The acquisition of properties acquired through, or in lieu of, loan foreclosure are reported within the condensed consolidated balance sheets as REO held-and-used, net and REO held-for-sale. When a property is determined to be held-and-used, net, the asset is recorded at fair value and depreciated over its useful life using the straight line method. When certain criteria set forth in ASC 360, Property, Plant and Equipment, are met, the property is classified as held-for-sale. When a real estate asset is classified as held-for-sale, the property is recorded at the lower of its cost basis or fair value less estimated costs to sell. The fair value of REO held-for-sale is determined in part by placing reliance on third-party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity.

The following tables represent the activity in REO:



	Three Months Ended
	February 29,			February 28,
(In thousands)	2016			2015
REO - held-for-sale, beginning of period	$	183,052		190,535
Improvements	887			1,704
Sales	(16,510		)	(24,925	)
Impairments and unrealized losses	(3,548		)	(1,418	)
Transfers from held-and-used, net (1)	13,340			19,615
REO - held-for-sale, end of period	$	177,221		185,511



	Three Months Ended
	February 29,			February 28,
(In thousands)	2016			2015
REO - held-and-used, net, beginning of period	$	153,717		255,795
Additions	8,667			8,912
Improvements	307			643
Impairments	(89		)	(1,413	)
Depreciation	(362		)	(789	)
Transfers to held-for-sale (1)	(13,340		)	(19,615	)
Other	—			(964	)
REO - held-and-used, net, end of period	$	148,900		242,569


(1)	During both the three months ended February 29, 2016 and February 28, 2015, the Rialto segment transferred certain properties from REO held-and-used, net to REO held-for-sale as a result of changes in the disposition strategy of the real estate assets.

For the three months ended February 29, 2016, the Company recorded net gains of $2.7 million from acquisitions of REO through foreclosure. These net gains are recorded in Rialto other expense, net.

Rialto Mortgage Finance - loans held-for-sale

During the three months ended February 29, 2016, RMF originated loans with a total principal balance of $315.3 million of which $305.8 million were recorded as loans held-for-sale and $9.5 million as accrual loans within loans receivable, net, and sold $380.2 million of loans into two separate securitizations. During the three months ended February 28, 2015, RMF originated loans with a total principal balance of $565.5 million and sold $318.1 million of loans into two separate securitizations. As of November 30, 2015, $151.8 million of the originated loans were sold into a securitization trust but not settled and thus were included as receivables, net.

Notes and Other Debts Payable

In November 2013, the Rialto segment originally issued $250 million aggregate principal amount of the 7.00% senior notes due 2018 ("7.00% Senior Notes"), at a price of 100% in a private placement. In March 2014, the Rialto segment issued an additional $100 million of the 7.00% Senior Notes, at a price of 102.25% of their face value in a private placement. Proceeds from the offerings, after payment of expenses, were approximately $347 million. Rialto used the net proceeds of the 7.00% Senior Notes to provide additional working capital for RMF, and to make investments in the funds that Rialto manages, as well as for general corporate purposes. In addition, Rialto used $100 million of the net proceeds to repay sums that had been advanced to RMF from Lennar to enable it to begin originating and securitizing commercial mortgage loans. Interest on the 7.00% Senior Notes is due semi-annually. At February 29, 2016 and November 30, 2015, the carrying amount, net of debt issuances costs, of the 7.00% Senior Notes was $348.1 million and $347.9 million, respectively. Under the indenture, Rialto is subject to certain covenants limiting, among other things, Rialto’s ability to incur indebtedness, to make investments, to make distributions to or enter into transactions with Lennar or to create liens, subject to certain exceptions and qualifications. Rialto also has quarterly and annual reporting requirements, similar to an SEC registrant, to holders of the 7.00% Senior Notes. The Company believes Rialto was in compliance with its debt covenants at February 29, 2016.

At February 29, 2016, Rialto warehouse facilities were as follows:



(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures August 2016 (1)	$	250,000
364-day warehouse repurchase facility that matures October 2016 (one year extension) (1)	400,000
364-day warehouse repurchase facility that matures January 2017 (1)	250,000
Warehouse repurchase facility that matures December 2017 (1)	100,000
Warehouse repurchase facility that matures August 2018 (two - one year extensions) (2)	100,000
Total	$	1,100,000


(1)	RMF uses these facilities to finance its loan origination and securitization activities.


(2)	In 2015, Rialto entered into a separate repurchase facility to finance the origination of floating rate accrual loans. Loans financed under this facility will be held as accrual loans within loans receivable, net. Borrowings under this facility were $41.6 million and $36.3 million as of February 29, 2016 and November 30, 2015, respectively.

Borrowings under the facilities that finance RMF's loan originations and securitization activities were $146.3 million and $317.1 million as of February 29, 2016 and November 30, 2015, 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.

In 2010, Rialto paid $310 million for the Bank Portfolios and for over 300 REO properties, of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions for which the maturity was subsequently extended. The remaining balance is due in December 2016. As of both February 29, 2016 and November 30, 2015, the outstanding amount related to the 5-year senior unsecured note was $30.3 million.

In May 2014, the Rialto segment issued $73.8 million principal amount of notes through a structured note offering (the “Structured Notes”) collateralized by certain assets originally acquired in the Bank Portfolios transaction at a price of 100%, with an annual coupon rate of 2.85%. Proceeds from the offering, after payment of expenses and hold backs for a cash reserve, were $69.1 million. In November 2014, the Rialto segment issued an additional $20.8 million of the Structured Notes at a price of 99.5%, with an annual coupon rate of 5.0%. Proceeds from the offering, after payment of expenses, were $20.7 million. The estimated final payment date of the Structured Notes is August 15, 2017. As of February 29, 2016 and November 30, 2015, the outstanding amount, net of debt issuance costs, related to the Structured Notes was $31.1 million and $31.3 million, respectively.

Investments

All of Rialto's investments in funds have the attributes of an investment company in accordance with ASC 946, Financial Services – Investment Companies, as amended by ASU 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, the attributes of which are different from the attributes that would cause a company to be an investment company for purposes of the Investment Company Act of 1940. As a result, the assets and liabilities of 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:



								February 29, 2016		February 29, 2016		November 30, 2015
(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	$	63,278	68,570
Rialto Real Estate Fund II, LP	2012	1,305,000		1,305,000		100,000		100,000		97,498		99,947
Rialto Mezzanine Partners Fund, LP	2013	300,000		300,000		33,799		33,799		28,296		32,344
Rialto Capital CMBS Funds	2014	102,878		102,878		44,750		44,750		44,097		23,233
Rialto Real Estate Fund III	2015	697,173		—		100,000		—		72		—
Other investments										798		775
										$	234,039	224,869

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



	Three Months Ended
	February 29,			February 28,
(In thousands)	2016			2015
Rialto Real Estate Fund, LP	$	1,339		746
Rialto Real Estate Fund II, LP	(722		)	893
Rialto Mezzanine Partners Fund, LP	724			475
Rialto Capital CMBS Funds	372			544
Rialto Real Estate Fund III	(239		)	—
Other investments	23			6
Rialto equity in earnings from unconsolidated entities	$	1,497		2,664

During the three months ended February 29, 2016 and February 28, 2015, the Company received $4.9 million and $6.5 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. These advance distributions are not subject to clawbacks and are included in Rialto's revenues.

During 2015, Rialto adopted a Carried Interest Incentive Plan (the "Plan"), under which participating employees in the aggregate may receive up to 40% of the equity units of a limited liability company (a "Carried Interest Entity"). This Carried Interest Entity is entitled to distributions made by a fund or other investment vehicle (a "Fund") managed by a subsidiary of Rialto. As such, those employees receiving equity units in the Carried Interest Entity may participate in 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)	February 29, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	108,500	188,147
Loans receivable	450,787		473,997
Real estate owned	518,466		506,609
Investment securities	1,188,653		1,092,476
Investments in partnerships	422,493		429,979
Other assets	27,495		30,340
	$	2,716,394	2,721,548
Liabilities and equity:
Accounts payable and other liabilities	$	35,947	29,462
Notes payable	450,250		374,498
Equity	2,230,197		2,317,588
	$	2,716,394	2,721,548

Statements of Operations



	Three Months Ended
	February 29,			February 28,
(In thousands)	2016			2015
Revenues	$	44,296		41,738
Costs and expenses	20,899			23,005
Other income (expense), net (1)	(15,162		)	5,874
Net earnings of unconsolidated entities	$	8,235		24,607
Rialto equity in earnings from unconsolidated entities	$	1,497		2,664


(1)	Other income (expense), net, included realized and unrealized gains (losses) on investments.

At February 29, 2016 and November 30, 2015, the carrying value of Rialto's non-investment grade commercial mortgage-backed securities (“CMBS”) was $49.3 million and $25.6 million, respectively. These investments securities have discount rates ranging from 39% to 55% with coupon rates ranging from 3.0% to 4.0%, stated and assumed final distribution dates between November 2020 and February 2026, and stated maturity dates between November 2048 and January 2059. The Rialto segment reviews changes in estimated cash flows periodically to determine if other-than-temporary impairment has occurred on its investment securities. Based on the Rialto segment’s assessment, no impairment charges were recorded during the three months ended February 29, 2016 or February 28, 2015. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.

In 2014, the Rialto segment invested $18.0 million in a private commercial real estate services company. The investment was carried at cost at both February 29, 2016 and November 30, 2015 and is included in Rialto's other assets.


(9)	Lennar Multifamily Segment

The Company is actively involved, primarily through unconsolidated entities, in the development, 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)	February 29, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	6,062	8,041
Land under development	145,917		115,982
Consolidated inventory not owned	5,508		5,508
Investments in unconsolidated entities	257,719		250,876
Other assets	35,902		34,945
	$	451,108	415,352
Liabilities:
Accounts payable and other liabilities	$	57,300	62,943
Liabilities related to consolidated inventory not owned	4,007		4,007
	$	61,307	66,950

The unconsolidated entities in which the Lennar Multifamily segment has investments usually finance their activities with a combination of partner equity and debt financing. In connection with many of the loans to Lennar Multifamily unconsolidated entities, the Company (or entities related to them) has been required to give guarantees of completion and cost over-runs to the lenders and partners. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used. Additionally, the Company guarantees the construction costs of the project as construction cost over-runs would be paid by the Company. Generally, these payments would be increases to our investment in the entities and would increase our share of funds the entities distribute after the achievement of certain thresholds. As of both February 29, 2016 and November 30, 2015, the fair value of the completion guarantees was immaterial. Additionally, as of February 29, 2016 and November 30, 2015, the Lennar Multifamily segment had $36.9 million and $37.9 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 11 related to the Company's performance and financial letters of credit. As of February 29, 2016 and November 30, 2015, Lennar Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $520.2 million and $466.7 million, respectively.

In many instances, the Lennar Multifamily segment is appointed as the construction, development and property manager of certain of its Lennar Multifamily unconsolidated entities and receives fees for performing this function. During the three months ended February 29, 2016 and February 28, 2015, the Lennar Multifamily segment recorded fee income, net of deferrals, from its unconsolidated entities of $8.1 million and $4.5 million, respectively.

During the three months ended February 29, 2016 and February 28, 2015, the Lennar Multifamily segment provided general contractor services for construction of some of the rental properties owned by unconsolidated entities in which the Company has an investment and received fees totaling $31.4 million and $31.9 million, respectively, which are partially offset by costs related to those services of $30.6 million and $31.3 million, respectively.

In 2015, the Lennar Multifamily segment completed the initial closing of the Lennar Multifamily Venture (the "Venture") for the development, construction and property management of class-A multifamily assets. During the three months ended February 29, 2016, the Venture received an additional $300 million of equity commitments, increasing its total equity commitments to $1.4 billion, including a $504 million co-investment commitment by Lennar comprised of cash, undeveloped land and preacquisition costs. As of February 29, 2016, $372.6 million of the $1.4 billion in equity commitments had been called, of which the Company contributed its portion of $133.7 million representing its pro-rata portion of the called equity. During the three months ended February 29, 2016, $97.2 million in equity commitments was called, none of which was called from the Company due to new investors coming into the Venture. During the three months ended February 29, 2016, the Company received distributions of $43.6 million as a return of capital from the Venture. As of February 29, 2016 and November 30, 2015, the carrying value of the Company's investment in the Venture was $127.0 million and $122.5 million, respectively.

Summarized condensed financial information on a combined 100% basis related to Lennar Multifamily's investments in unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets



(In thousands)	February 29, 2016		November 30, 2015
Assets:
Cash and cash equivalents	$	43,252	39,579
Operating properties and equipment	1,563,679		1,398,244
Other assets	31,931		25,925
	$	1,638,862	1,463,748
Liabilities and equity:
Accounts payable and other liabilities	$	210,231	179,551
Notes payable	520,177		466,724
Equity	908,454		817,473
	$	1,638,862	1,463,748

Statements of Operations



	Three Months Ended
	February 29,		February 28,
(In thousands)	2016		2015
Revenues	$	8,314	2,094
Costs and expenses	11,672		2,994
Other income, net	40,122		—
Net earnings (loss) of unconsolidated entities	$	36,764	(900	)
Lennar Multifamily equity in earnings (loss) from unconsolidated entities (1)	$	19,686	(178	)


(1)	For the three months ended February 29, 2016, Lennar Multifamily equity in earnings from unconsolidated entities included the segment's $20.4 million share of a gain as a result of the sale of an operating property by one of its unconsolidated entities.


(10)	Lennar Homebuilding Cash and Cash Equivalents

Cash and cash equivalents as of February 29, 2016 and November 30, 2015 included $300.1 million and $414.9 million, respectively, of cash held in escrow for approximately three days.


(11)	Lennar Homebuilding Senior Notes and Other Debts Payable



(Dollars in thousands)	February 29, 2016		November 30, 2015
Unsecured revolving credit facility	$	500,000	—
6.50% senior notes due 2016	249,960		249,905
12.25% senior notes due 2017	397,037		396,252
4.75% senior notes due 2017	397,922		397,736
6.95% senior notes due 2018	247,931		247,632
4.125% senior notes due 2018	273,460		273,319
4.500% senior notes due 2019	497,384		497,210
4.50% senior notes due 2019	596,868		596,622
2.75% convertible senior notes due 2020	71,041		233,225
3.25% convertible senior notes due 2021	398,644		398,194
4.750% senior notes due 2022	567,486		567,325
4.875% senior notes due 2023	393,642		393,545
4.750% senior notes due 2025	495,894		495,784
Mortgage notes on land and other debt	246,712		278,381
	$	5,333,981	5,025,130

The carrying amounts of the senior notes listed above are net of debt issuance costs of $24.4 million and $26.4 million, as February 29, 2016 and November 30, 2015, respectively.

At February 29, 2016, the Company had a $1.6 billion Credit Facility, which includes a $163 million accordion feature, subject to additional commitments, with certain financial institutions. The maturity for $1.3 billion of the Credit Facility is in June 2019, with the remainder maturing in June 2018. The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit 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 February 29, 2016. In addition, the Company had $320 million letter of credit facilities with different financial institutions.

The Company’s performance letters of credit outstanding were $245.5 million and $236.5 million, respectively, at February 29, 2016 and November 30, 2015. The Company’s financial letters of credit outstanding were $222.0 million and $216.7 million, at February 29, 2016 and November 30, 2015, 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 February 29, 2016, the Company had outstanding performance and surety bonds related to site improvements at various projects (including certain projects in the Company’s joint ventures) of $1.3 billion, which includes $223.4 million related to pending litigation. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of February 29, 2016, there were approximately $468.8 million, or 36%, 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.

Subsequent to February 29, 2016, the Company issued $500 million aggregate principal amount of 4.750% senior notes due 2021 (the "4.750% Senior Notes") at a price of 100%. Proceeds from the offering, after payment of expenses, were estimated to be $495.9 million. The Company will use the net proceeds from the sales of the 4.750% Senior Notes for general corporate purposes, including the repayment of the 6.50% senior notes due 2016. Interest on the 4.750% Senior Notes is due semi-annually beginning October 1, 2016. The 4.750% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

At both February 29, 2016 and November 30, 2015, the principal amount of the 3.25% convertible senior notes due 2021 (the “3.25% Convertible Senior Notes”) was $400.0 million and the carrying amount, net of debt issuance costs, was $398.6 million and $398.2 million, at February 29, 2016 and November 30, 2015, respectively. The 3.25% Convertible Senior Notes

are convertible into shares of Class A common stock at any time prior to maturity or redemption at the initial conversion rate of 42.5555 shares of Class A common stock per $1,000 principal amount of the 3.25% Convertible Senior Notes or 17,022,200 shares of Class A common stock if all the 3.25% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $23.50 per share of Class A common stock, subject to anti-dilution adjustments. The shares are included in the calculation of diluted earnings per share. The 3.25% Convertible Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

The 2.75% convertible senior notes due 2020 (the “2.75% Convertible Senior Notes”) are convertible into cash, shares of Class A common stock or a combination of both, at the Company’s election. However, it is the Company’s intent to settle the face value of the 2.75% Convertible Senior Notes in cash. At February 29, 2016, holders may convert the 2.75% Convertible Senior Notes at the initial conversion rate of 45.1794 shares of Class A common stock per $1,000 principal amount or 3,209,590 shares of Class A common stock if all the 2.75% Convertible Senior Notes are converted, which is equivalent to an initial conversion price of approximately $22.13 per share of Class A common stock. Shares are included in the calculation of diluted earnings per share because even though it is the Company’s intent to settle the face value of the 2.75% Convertible Senior Notes in cash, the Company's volume weighted average stock price exceeded the conversion price. The Company’s volume weighted average stock price for the three months ended February 29, 2016 and February 28, 2015 was $44.07 and $45.52, respectively, which exceeded the conversion price, thus 1.6 million shares and 10.4 million shares, respectively, were included in the calculation of diluted earnings per share. The 2.75% Convertible Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

Holders of the 2.75% Convertible Senior Notes have the right to convert them during any fiscal quarter (and only during such fiscal quarter, except if they are called for redemption or about to mature), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day. Holders of the 2.75% Convertible Senior Notes had the right to require the Company to repurchase them for cash equal to 100% of their principal amount, plus accrued but unpaid interest, on December 15, 2015, but none of them elected to do so. The Company has the right to redeem the 2.75% Convertible Senior Notes at any time on or after December 20, 2015 for 100% of their principal amount, plus accrued but unpaid interest.

During the three months ended February 29, 2016, the Company exchanged and converted approximately $163 million in aggregate principal amount of the 2.75% Convertible Senior Notes for approximately $163 million in cash and 3.6 million shares of Class A common stock, plus accrued and unpaid interest through the date of completion of the exchanges and conversions.

For its 2.75% Convertible Senior Notes, the Company will be required to pay contingent interest with regard to any interest period beginning with the interest period commencing December 20, 2015 and ending June 14, 2016, and for each subsequent six-month period commencing on an interest payment date to, but excluding, the next interest payment date, if the average trading price of the 2.75% Convertible Senior Notes during the five consecutive trading days ending on the second trading day immediately preceding the first day of the applicable interest period exceeds 120% of the principal amount of the 2.75% Convertible Senior Notes. The amount of contingent interest payable per $1,000 principal amount of notes during the applicable interest period will equal 0.75% per year of the average trading price of such $1,000 principal amount of 2.75% Convertible Senior Notes during the five trading day reference period.

Certain provisions under ASC 470, Debt, require the issuer of certain convertible debt instruments that may be settled in cash on conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company has applied these provisions to its 2.75% Convertible Senior Notes. At issuance, the Company estimated the fair value of the 2.75% Convertible Senior Notes using similar debt instruments that did not have a conversion feature and allocated the residual value to an equity component that represented the estimated fair value of the conversion feature at issuance. The debt discount of the 2.75% Convertible Senior Notes was amortized over the five years ended November 30, 2015. At February 29, 2016, the carrying and principal amount of the 2.75% Convertible Senior Notes was $71.0 million, which is included in Lennar Homebuilding senior notes and other debts payable. At November 30, 2015, the principal amount of the 2.75% Convertible Senior Notes was $233.9 million, the carrying amount of the equity component included in stockholders’ equity was $0.6 million, and the net carrying amount of the 2.75% Convertible Senior Notes included in Lennar Homebuilding senior notes and other debts payable was $233.2 million.

Although the guarantees by substantially all of the Company's 100% owned homebuilding subsidiaries are full, unconditional and joint and several while they are in effect, (i) a subsidiary will cease to be a guarantor at any time when it is not directly or indirectly guaranteeing at least $75 million of debt of Lennar Corporation (the parent company), and (ii) a subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of.


(12)	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
	February 29,			February 28,
(In thousands)	2016			2015
Warranty reserve, beginning of period	$	130,853		115,927
Warranties issued	17,573			13,323
Adjustments to pre-existing warranties from changes in estimates (1)	(620		)	3,661
Payments	(23,073		)	(16,640	)
Warranty reserve, end of period	$	124,733		116,271


(1)	The adjustments to pre-existing warranties from changes in estimates during both the three months ended February 29, 2016 and February 28, 2015 primarily related to specific claims related to certain of our homebuilding communities and other adjustments.


(13)	Share-Based Payments

During the three months ended February 29, 2016, the Company granted an immaterial number of nonvested shares and did not grant any stock options. During the three months ended February 28, 2015, the Company granted an immaterial number of stock options and did not grant any nonvested shares. Compensation expense related to the Company’s share-based payment awards was as follows:



	Three Months Ended
	February 29,		February 28,
(In thousands)	2016		2015
Nonvested shares	$	11,142	10,250
Stock options	—		1
Total compensation expense for share-based awards	$	11,142	10,251


(14)	Financial Instruments and Fair Value Disclosures

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at February 29, 2016 and November 30, 2015, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables, net and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.



		February 29, 2016			November 30, 2015
	Fair Value	Carrying		Fair	Carrying	Fair
(In thousands)	Hierarchy	Amount		Value	Amount	Value
ASSETS
Rialto:
Loans receivable, net	Level 3	$	166,536	170,485	164,826	169,302
Investments held-to-maturity	Level 3	$	49,309	48,800	25,625	25,227
Lennar Financial Services:
Loans held-for-investment, net	Level 3	$	31,223	30,333	30,998	29,931
Investments held-to-maturity	Level 2	$	39,268	39,127	40,174	40,098
LIABILITIES
Lennar Homebuilding senior notes and other debts payable	Level 2	$	5,333,981	5,846,813	5,025,130	5,936,327
Rialto notes and other debts payable	Level 2	$	609,150	631,629	771,728	803,013
Lennar Financial Services notes and other debts payable	Level 2	$	625,322	625,322	858,300	858,300

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

Rialto—The fair values for loans receivable, net are based on the fair value of the collateral less estimated cost to sell or discounted cash flows, if estimable. The fair value for investments held-to-maturity is based on discounted cash flows. For notes and other debts payable, the fair value is calculated based on discounted cash flows using the Company’s weighted average borrowing rate and for the warehouse repurchase financing agreements fair values approximate their carrying value due to their short-term maturities.

Lennar Financial Services—The fair values above are based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information. For notes and other debts payable, the fair values approximate their carrying value due to variable interest pricing terms and short-term nature of the borrowing.

Lennar Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is based on quoted market prices and the fair value of variable-rate borrowings is based on expected future cash flows calculated using current market forward rates.

Fair Value Measurements:

GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

Level 1: Fair value determined based on quoted prices in active markets for identical assets.

Level 2: Fair value determined using significant other observable inputs.

Level 3: Fair value determined using significant unobservable inputs.

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



(In thousands)	Fair Value Hierarchy	Fair Value at February 29, 2016			Fair Value at November 30, 2015
Rialto Financial Assets:
Loans held-for-sale (1)	Level 3	$	243,230		316,275
Credit default swaps	Level 2	$	9,770		6,153
Rialto Financial Liabilities:
Interest rate swaps and swap futures	Level 1	$	5,983		978
Lennar Financial Services Assets (Liabilities):
Loans held-for-sale (2)	Level 2	$	684,406		843,252
Investments available-for-sale	Level 1	$	45,180		42,827
Mortgage loan commitments	Level 2	$	19,113		13,060
Forward contracts	Level 2	$	(9,637	)	531
Mortgage servicing rights	Level 3	$	15,810		16,770


(1)	The aggregate fair value of Rialto loans held-for-sale of $243.2 million at February 29, 2016 exceeds their aggregate principal balance of $238.1 million by $5.1 million. The aggregate fair value of loans held-for-sale of $316.3 million at November 30, 2015 exceeds their aggregate principal balance of $314.3 million by $2.0 million.


(2)	The aggregate fair value of Lennar Financial Services loans held-for-sale of $684.4 million at February 29, 2016 exceeds their aggregate principal balance of $655.6 million by $28.8 million. The aggregate fair value of loans held-for-sale of $843.3 million at November 30, 2015 exceeds their aggregate principal balance of $815.0 million by $28.2 million.

The estimated fair values of the Company’s financial instruments have been determined by using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The following methods and assumptions are used by the Company in estimating fair values:

Rialto loans held-for-sale- The fair value of loans held-for-sale is calculated from model-based techniques that use discounted cash flow assumptions and the Company’s own estimates of CMBS spreads, market interest rate movements and the underlying loan credit quality. Loan values are calculated by allocating the change in value of an assumed CMBS capital structure to each loan. The value of an assumed CMBS capital structure is calculated, generally, by discounting the cash flows associated with each CMBS class at market interest rates and at the Company’s own estimate of CMBS spreads. The Company estimates CMBS spreads by observing the pricing of recent CMBS offerings, secondary CMBS markets, changes in the CMBX index, and general capital and commercial real estate market conditions. Considerations in estimating CMBS spreads include comparing the Company’s current loan portfolio with comparable CMBS offerings containing loans with similar duration, credit quality and collateral composition. These methods use unobservable inputs in estimating a discount rate that is used to assign a value to each loan. While the cash payments on the loans are contractual, the discount rate used and assumptions regarding the relative size of each class in the CMBS capital structure can significantly impact the valuation. Therefore, the estimates used could differ materially from the fair value determined when the loans are sold to a securitization trust.

Rialto interest rate swaps and swap futures- The fair value of interest rate swaps (derivatives) is based on observable values for underlying interest rates and market determined risk premiums. The fair value of interest rate swap futures (derivatives) is based on quoted market prices for identical investments traded in active markets.

Rialto credit default swaps- The fair value of credit default swaps (derivatives) is based on quoted market prices for similar investments traded in active markets.

Lennar Financial Services loans held-for-sale- Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. Management believes carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to a