Edgar Filing: LENNAR CORP /NEW/

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2019

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 every Interactive Data File required to be submitted 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 such files). YES ý NO ¨

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



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

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

Common stock outstanding as of February 28, 2019:

Class A 285,430,769

Class B 37,743,556

Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)



	February 28,		November 30,
	2019 (1)		2018 (1)
ASSETS
Homebuilding:
Cash and cash equivalents	$	852,551	1,337,807
Restricted cash	12,875		12,399
Receivables, net	222,579		236,841
Inventories:
Finished homes and construction in progress	9,742,794		8,681,357
Land and land under development	8,164,066		8,178,388
Consolidated inventory not owned	301,938		208,959
Total inventories	18,208,798		17,068,704
Investments in unconsolidated entities	924,056		870,201
Goodwill	3,442,359		3,442,359
Other assets	1,264,362		1,355,782
	24,927,580		24,324,093
Financial Services	2,243,611		2,778,910
Multifamily	1,003,872		874,219
Lennar Other	574,863		588,959
Total assets	$	28,749,926	28,566,181


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

As of February 28, 2019, total assets include $1.0 billion related to consolidated VIEs of which $37.4 million is included in Homebuilding cash and cash equivalents, $0.3 million in Homebuilding receivables, net, $102.3 million in Homebuilding finished homes and construction in progress, $311.4 million in Homebuilding land and land under development, $301.9 million in Homebuilding consolidated inventory not owned, $4.0 million in Homebuilding investments in unconsolidated entities, $10.5 million in Homebuilding other assets, $187.2 million in Financial Services assets, $51.6 million in Multifamily assets and $8.1 million in Lennar Other assets.

As of November 30, 2018, total assets include $666.2 million related to consolidated VIEs of which $57.6 million is included in Homebuilding cash and cash equivalents, $0.2 million in Homebuilding receivables, net, $81.7 million in Homebuilding finished homes and construction in progress, $293.1 million in Homebuilding land and land under development, $209.0 million in Homebuilding consolidated inventory not owned, $3.8 million in Homebuilding investments in unconsolidated entities, $10.5 million in Homebuilding other assets and $10.3 million in Lennar Other assets.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets – (Continued)

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

(unaudited)



	February 28,			November 30,
	2019 (2)			2018 (2)
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	1,025,286		1,154,782
Liabilities related to consolidated inventory not owned	267,344			175,590
Senior notes and other debts payable	9,256,423			8,543,868
Other liabilities	1,763,980			1,902,658
	12,313,033			11,776,898
Financial Services	1,300,005			1,868,202
Multifamily	209,965			170,616
Lennar Other	33,228			67,508
Total liabilities	13,856,231			13,883,224
Stockholders’ equity:
Preferred stock	—			—
Class A common stock of $0.10 par value; Authorized: February 28, 2019 and November 30, 2018 - 400,000,000 shares; Issued: February 28, 2019 - 295,015,005 shares and November 30, 2018 - 294,992,562 shares	29,501			29,499
Class B common stock of $0.10 par value; Authorized: February 28, 2019 and November 30, 2018 - 90,000,000 shares; Issued: February 28, 2019 - 39,442,634 shares and November 30, 2018 - 39,442,219 shares	3,944			3,944
Additional paid-in capital	8,514,301			8,496,677
Retained earnings	6,724,242			6,487,650
Treasury stock, at cost; February 28, 2019 - 9,584,236 shares of Class A common stock and 1,699,078 shares of Class B common stock; November 30, 2018 - 8,498,203 shares of Class A common stock and 1,698,424 shares of Class B common stock	(485,016		)	(435,869	)
Accumulated other comprehensive loss	(158		)	(366	)
Total stockholders’ equity	14,786,814			14,581,535
Noncontrolling interests	106,881			101,422
Total equity	14,893,695			14,682,957
Total liabilities and equity	$	28,749,926		28,566,181


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

As of February 28, 2019, total liabilities include $528.4 million related to consolidated VIEs as to which there was no recourse against the Company, of which $5.4 million is included in Homebuilding accounts payable, $60.8 million in Homebuilding senior notes and other debts payable, $267.3 million in Homebuilding liabilities related to consolidated inventory not owned, $1.3 million in Homebuilding other liabilities, $190.6 million in Financial Services liabilities, $1.8 million in Multifamily liabilities and $1.0 million in Lennar Other liabilities.

As of November 30, 2018, total liabilities include $242.5 million related to consolidated VIEs as to which there was no recourse against the Company, of which $11.4 million is included in Homebuilding accounts payable, $51.9 million in Homebuilding senior notes and other debt payable, $175.6 million in Homebuilding liabilities related to consolidated inventory not owned, $2.6 million in Homebuilding other liabilities and $1.0 million in Lennar Other liabilities.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Dollars in thousands, except per share amounts)

(unaudited)



	Three Months Ended
	February 28,
	2019			2018
Revenues:
Homebuilding	$	3,623,721		2,662,093
Financial Services	143,311			196,087
Multifamily	97,394			93,256
Lennar Other	3,656			29,355
Total revenues	3,868,082			2,980,791
Costs and expenses:
Homebuilding	3,238,835			2,404,033
Financial Services	124,339			170,225
Multifamily	101,178			97,199
Lennar Other	1,622			26,607
Acquisition and integration costs related to CalAtlantic	—			104,195
Corporate general and administrative	79,343			67,810
Total costs and expenses	3,545,317			2,870,069
Homebuilding equity in loss from unconsolidated entities	(13,756		)	(14,128	)
Homebuilding other income (expense), net	(1,535		)	169,995
Multifamily equity in earnings (loss) from unconsolidated entities and other gain	10,581			2,742
Lennar Other equity in earnings from unconsolidated entities	8,330			8,955
Lennar Other expense, net	(7,261		)	(8,858	)
Earnings before income taxes	319,124			269,428
Provision for income taxes (1)	(79,700		)	(132,611	)
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	239,424			136,817
Less: Net earnings (loss) attributable to noncontrolling interests	(486		)	602
Net earnings attributable to Lennar	$	239,910		136,215
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on securities available-for-sale	$	208		(658	)
Total other comprehensive income (loss), net of tax	$	208		(658	)
Total comprehensive income attributable to Lennar	$	240,118		135,557
Total comprehensive income (loss) attributable to noncontrolling interests	$	(486	)	602
Basic earnings per share	$	0.74		0.53
Diluted earnings per share	$	0.74		0.53


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

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Three Months Ended
	February 28,
	2019			2018
Cash flows from operating activities:
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	$	239,424		136,817
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	18,362			19,570
Amortization of discount/premium and accretion on debt, net	(7,048		)	40
Equity in loss from unconsolidated entities	5,710			2,431
Distributions of earnings from unconsolidated entities	3,489			3,542
Share-based compensation expense	16,899			17,766
Deferred income tax expense	65,879			33,788
Gain on sale of operating properties and equipment	—			(207	)
Gain on sale of interest in unconsolidated entity and other Multifamily gain	(10,865		)	(164,880	)
Gain on sale of Financial Services' retail mortgage and real estate brokerage business	(1,663		)	—
Unrealized and realized gains on real estate owned	(938		)	(883	)
Impairments of loans receivable, loans held-for-sale and real estate owned	—			5,486
Valuation adjustments and write-offs of option deposits and pre-acquisition costs	6,910			12,048
Changes in assets and liabilities:
Decrease (increase) in receivables	394,682			(22,406	)
Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs	(1,073,322		)	(548,725	)
Decrease (increase) in other assets	49,015			(26,582	)
Decrease in loans held-for-sale	156,720			422,991
Decrease in accounts payable and other liabilities	(387,677		)	(46,325	)
Net cash used in operating activities	(524,423		)	(155,529	)
Cash flows from investing activities:
Net additions of operating properties and equipment	(27,395		)	(40,810	)
Proceeds from sale of investment in unconsolidated entity	17,790			175,179
Proceeds from sale of Financial Services' retail mortgage and real estate brokerage business	24,446			—
Investments in and contributions to unconsolidated entities	(133,917		)	(62,575	)
Distributions of capital from unconsolidated entities	70,080			20,927
Proceeds from sales of real estate owned	2,696			18,080
Purchases of commercial mortgage-backed securities bonds	—			(31,068	)
Acquisitions, net of cash and restricted cash acquired	—			(1,076,771	)
(Increase) decrease in Financial Services loans held-for-investment, net	(11,208		)	1,590
Purchases of Financial Services investment securities	(31,305		)	(20,894	)
Proceeds from maturities/sales of Financial Services investments securities	9,442			10,473
Other proceeds, net	1,383			1,877
Net cash used in investing activities	$	(77,988	)	(1,003,992	)

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Three Months Ended
	February 28,
	2019			2018
Cash flows from financing activities:
Net borrowings under revolving lines of credit	$	725,000		45,300
Net repayments under warehouse facilities	(508,655		)	(344,511	)
Debt issuance costs	—			(12,039	)
Proceeds from other borrowings	10,452			32,807
Principal payments on other borrowings	(92,983		)	(115,548	)
Payments related to other liabilities	(447		)	(1,478	)
Receipts related to noncontrolling interests	8,348			3,852
Payments related to noncontrolling interests	(11,297		)	(23,760	)
Common stock:
Issuances	607			—
Repurchases	(49,143		)	(25,355	)
Dividends	(12,860		)	(9,617	)
Net cash provided by (used in) financing activities	69,022			(450,349	)
Net decrease in cash and cash equivalents and restricted cash	(533,389		)	(1,609,870	)
Cash and cash equivalents and restricted cash at beginning of period	1,595,978			2,694,084
Cash and cash equivalents and restricted cash at end of period	$	1,062,589		1,084,214
Summary of cash and cash equivalents and restricted cash:
Homebuilding	$	865,426		756,747
Financial Services	166,751			208,524
Multifamily	13,594			16,249
Lennar Other	16,818			102,694
	$	1,062,589		1,084,214
Supplemental disclosures of non-cash investing and financing activities:
Homebuilding and Multifamily:
Non-cash contributions to unconsolidated entities	$	—		523
Purchases of inventories and other assets financed by sellers	$	46,144		23,503
Equity component of acquisition consideration	$	—		5,070,006
Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
Inventories	$	—		35,430
Receivables	$	—		7,198
Operating properties and equipment and other assets	$	51,603		—
Investments in unconsolidated entities	$	(4,755	)	(25,614	)
Notes payable	$	(36,110	)	—
Other liabilities	$	(1,844	)	(17,014	)
Noncontrolling interests	$	(8,894	)	—

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)


(1)	Basis of Presentation

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and VIEs (see Note 16 of the Notes to the Condensed Consolidated Financial Statements) 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, 2018. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three months ended February 28, 2019 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.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09"). ASU 2014-09 provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASU 2014-09 became effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs such as ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, among others. These ASUs do not change the core principle of the guidance stated in ASU 2014-09, instead these amendments are intended to clarify and improve operability of certain topics included within the revenue standard. These ASUs had the same effective date and transition requirements as ASU 2014-09. The Company has adopted the modified retrospective method. The Company recorded an immaterial net increase to retained earnings during the three months ended February 28, 2019, due to the cumulative impact of adopting ASU 2014-09, with the impact primarily related to the recognition of deferral of net margin from home deliveries.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows , including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. ASU 2016-15 was effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The adoption of ASU 2016-15 did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, effective December 1, 2018.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)

The amendments in the standard require that the statement of cash flows explain the change during the period in the total of cash and cash equivalents and restricted cash. As a result, the Company's beginning-of-period and end-of-period cash balances presented in the condensed consolidated statements of cash flows were retrospectively adjusted to include restricted cash with cash and cash equivalents.

In accordance with Securities and Exchange Commission ("SEC") Final Rule Release No. 33-10532, Disclosure Update and Simplification, the Company removed the presentation of cash dividends per each Class A and Class B common share from the accompanying condensed consolidated statements of operations and comprehensive income (loss). This is now disclosed with the analysis of changes in stockholders' equity within Note 5 of the Notes to the Condensed Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such these investments may be measured at cost. ASU 2016-01 was effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The adoption of ASU 2016-01 did not have a material impact on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of addressing whether transactions involving in-substance nonfinancial assets, held directly or in a subsidiary, should be accounted for as acquisitions or disposals of nonfinancial assets or of businesses. ASU 2017-01 was effective for the Company’s fiscal year beginning December 1, 2018 and subsequent interim periods. The adoption of ASU 2017-01 did not have a material impact on the Company’s condensed consolidated financial statements.

Reclassifications

Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2019 presentation. The Company's segments were adjusted to reflect Rialto Mortgage Finance ("RMF") and certain other Rialto assets within the Financial Services segment effective December 1, 2018. The remaining assets retained related to the Company's former Rialto segment were included in the Lennar Other segment. In addition, the Company's strategic technology investments, which were part of Homebuilding, were reclassified to be included in the Lennar Other segment. These reclassifications were between segments and had no impact on the Company's total assets, total equity, revenue or net income in the condensed consolidated financial statements.


(2)	Business Acquisitions

Acquisition of CalAtlantic Group, Inc.

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

Based on an evaluation of the provisions of ASC Topic 805, Business Combinations, ("ASC 805"), Lennar Corporation was determined to be the acquirer for accounting purposes. The $3.3 billion allocated to Homebuilding goodwill and the $175 million allocated to Financial Services goodwill is final and represents the excess of the purchase price over the estimated fair value of assets acquired and liabilities assumed.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)

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



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

Consideration attributable to Class A common stock	$	4,933,425
Consideration attributable to Class B common stock	77,823
Consideration attributable to equity awards that convert upon change of control	58,758
Consideration attributable to cash including fractional shares	1,162,341
Total purchase price	$	6,232,347



(In thousands)
ASSETS
Homebuilding:
Cash and cash equivalents, restricted cash and receivables, net	$	55,191
Inventories	6,239,147
Intangible asset (1)	8,000
Investments in unconsolidated entities	151,900
Goodwill (2)	3,305,792
Other assets	561,151
Total Homebuilding assets	10,321,181
Financial Services (2)	355,128
Total assets	10,676,309
LIABILITIES
Homebuilding:
Accounts payable	306
Senior notes payable and other debts	3,926,152
Other liabilities (3)	374,656
Total Homebuilding liabilities	4,301,114
Financial Services	124,418
Total liabilities	4,425,532
Noncontrolling interests (4)	18,430
Total purchase price	$	6,232,347


(1)	Intangible asset includes trade name. The amortization period for the trade name was six months.

(2)

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, and it is generally not deductible for income tax purposes. As of the Merger date, goodwill consisted primarily of expected greater efficiencies and opportunities due to increased concentration of local market share, reduced general and administrative costs and reduced homebuilding costs resulting from the merger and cost savings as a result of additional homebuilding and non-homebuilding synergies. The allocation of goodwill among the Company's reporting segments included $1.1 billion to Homebuilding East, $495.0 million to Homebuilding Central, $342.2 million to Homebuilding Texas, $1.4 billion to Homebuilding West, and $175.4 million to Financial Services.

(3)

Other liabilities includes contingencies assumed at the Merger date, which includes warranty and legal reserves. Warranty reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Warranty reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Consistent with ASC 450, Contingencies, legal reserves are established when a loss is considered probable and the amount of loss can be reasonably estimated.


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

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)

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


(3)	Operating and Reporting Segments

The Company's homebuilding operations construct and sell homes primarily for first-time, move-up and active adult homebuyers primarily under the Lennar brand name. In addition, the Company's homebuilding operations purchase, develop and sell land to third parties. In connection with the CalAtlantic acquisition, the Company experienced significant growth in its operations. As a result in 2018, the Company's chief operating decision makers ("CODM") reassessed how they evaluate the business and allocate resources. The CODM manage and assess the Company’s performance at a regional level. Therefore, in 2018 the Company performed an assessment of its operating segments in accordance with ASC 280, Segment Reporting, (“ASC 280”) and determined that each of its four homebuilding regions, financial services operations, multifamily operations and Rialto operations are its operating segments. Prior to this change, in accordance with the aggregation criteria defined in ASC 280, the Company’s operating segments were aggregated into reportable segments, based primarily upon similar economic characteristics, geography and product type. In addition, in the first quarter of 2019, as a result of the reclassification of RMF and certain other Rialto assets from the Rialto segment to the Financial Services segment effective December 1, 2018, the Company has renamed the Rialto segment as "Lennar Other" and included in this segment certain strategic technology investments, which were reclassified from Homebuilding to Lennar Other. Prior periods have been reclassified to conform with the 2019 presentation. The Company’s reportable segments consist of:

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding Texas

(4) Homebuilding West

(5) Financial Services

(6) Multifamily

(7) Lennar Other

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, other revenues from management fees and forfeited deposits, equity in earnings (loss) from unconsolidated entities and other income (expense), net, less the cost of homes sold and land sold, and selling, general and administrative expenses incurred by 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, New Jersey, North and South Carolina

Central: Georgia, Illinois, Indiana, Maryland, Minnesota and Virginia

Texas: Texas

West: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington

Other: Urban divisions and other homebuilding related investments, including FivePoint

Operations of the Financial Services segment include primarily mortgage financing, title and closing services primarily for buyers of the Company’s homes as well as property and casualty insurance. It also includes originating and selling into securitizations commercial mortgage loans through its RMF business. The Financial Services segment sells substantially all of the loans it originates within a short period of time 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. Financial Services’ operating earnings consist of revenues generated primarily from mortgage financing, title and closing services, and property and casualty insurance, less the cost of such services and certain selling, general and administrative expenses incurred by the segment. The Financial Services segment operates generally in the same states as the Company’s homebuilding operations as well as in other states.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)

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

Operations of the Lennar Other segment include operating earnings (loss) consisting of revenues generated primarily from the Company's share of carried interests in the Rialto fund investments retained after the sale of Rialto's asset and investment management platform, along with equity in earnings (loss) from the Rialto fund investments and strategic technology investments, and other income (expense), net from the remaining assets related to the Company's former Rialto segment.

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, 2018. The Company's operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented.

Financial information relating to the Company’s operations was as follows:



(In thousands)	February 28, 2019		November 30, 2018
Assets:
Homebuilding East	$	6,821,359	7,183,758
Homebuilding Central	2,662,731		2,522,799
Homebuilding Texas	2,476,923		2,311,760
Homebuilding West	10,803,039		10,291,385
Homebuilding Other	968,106		1,013,367
Financial Services	2,243,611		2,778,910
Multifamily	1,003,872		874,219
Lennar Other	574,863		588,959
Corporate and unallocated	1,195,422		1,001,024
Total assets	$	28,749,926	28,566,181
Homebuilding goodwill	$	3,442,359	3,442,359
Financial Services goodwill (1)	$	215,516	237,688


(1)	Decrease in goodwill relates to the Financial Services' segment sale of substantially all of its retail mortgage and its real estate brokerage business.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)



	Three Months Ended
	February 28,
(In thousands)	2019			2018
Revenues:
Homebuilding East	$	1,226,814		912,963
Homebuilding Central	435,067			254,568
Homebuilding Texas	418,517			356,098
Homebuilding West	1,540,896			1,127,957
Homebuilding Other	2,427			10,507
Financial Services (1)	143,311			196,087
Multifamily	97,394			93,256
Lennar Other	3,656			29,355
Total revenues (2)	$	3,868,082		$	2,980,791
Operating earnings (loss) (3):
Homebuilding East	$	135,383		101,329
Homebuilding Central	30,926			9,036
Homebuilding Texas	32,278			14,013
Homebuilding West	190,661			139,429
Homebuilding Other (4)	(19,653		)	150,120
Total Homebuilding operating earnings	369,595			413,927
Financial Services	18,972			25,862
Multifamily	6,797			(1,201		)
Lennar Other	3,103			2,845
Corporate and unallocated (5)	(79,343		)	(172,005		)
Earnings before income taxes	$	319,124		269,428


(1)	Financial Services revenues are significantly lower period over period primarily due to the loss of revenues as a result of the sales of substantially all of the segment's retail mortgage business and the segment's real estate brokerage business, as well as a decrease in revenue related to RMF due to lower securitization volume and margin.


(2)	Total revenues were net of sales incentives of $222.3 million ($25,300 per home delivered) for the three months ended February 28, 2019, compared to $149.9 million ($22,300 per home delivered) for the three months ended February 28, 2018.


(3)	All Homebuilding segments were impacted by purchase accounting adjustments that totaled $55.0 million for the three months ended February 28, 2018.


(4)	Homebuilding Other operating earnings for the three months ended February 28, 2018 included $164.9 million related to a gain on the sale of an 80% interest in one of Homebuilding's strategic joint ventures, Treasure Island Holdings.


(5)	Corporate and unallocated includes corporate, general and administrative expenses, and for the three months ended February 28, 2018, $104.2 million of acquisition and integration costs related to the CalAtlantic acquisition.


(4)	Homebuilding Investments in Unconsolidated Entities

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

Statements of Operations



	Three Months Ended
	February 28,
(In thousands)	2019		2018
Revenues	90,644		68,189
Costs and expenses	123,751		107,424
Other income	197		—
Net loss of unconsolidated entities	(32,910	)	(39,235	)
Homebuilding equity in loss from unconsolidated entities	(13,756	)	(14,128	)

For the three months ended February 28, 2019, Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of net operating losses from its unconsolidated entities.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)

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

Balance Sheets



(In thousands)	February 28, 2019		November 30, 2018
Assets:
Cash and cash equivalents	$	741,581	781,833
Inventories	4,315,061		4,291,470
Other assets	1,041,639		1,045,274
	$	6,098,281	6,118,577
Liabilities and equity:
Accounts payable and other liabilities	$	868,466	874,355
Debt (1)	1,219,163		1,202,556
Equity	4,010,652		4,041,666
	$	6,098,281	6,118,577
Homebuilding investments in unconsolidated entities (2)	$	924,056	870,201


(1)	Debt presented above is net of debt issuance costs of $11.3 million and $12.4 million, as of February 28, 2019 and November 30, 2018, respectively.


(2)	Homebuilding investments in unconsolidated entities as of February 28, 2019 and November 30, 2018, do not include $67.0 million and $62.0 million, respectively, of the negative investment balance for one unconsolidated entity as it was reclassed to other liabilities.

As of February 28, 2019 and November 30, 2018, the Company’s recorded investments in Homebuilding unconsolidated entities were $924.1 million and $870.2 million, respectively, while the underlying equity in Homebuilding unconsolidated entities partners’ net assets as of both February 28, 2019 and November 30, 2018 was $1.2 billion. The basis difference was primarily as a result of the Company contributing its investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to the Company. Included in the Company's recorded investments in Homebuilding unconsolidated entities is the Company's 40% ownership of FivePoint, a publicly traded entity. As of February 28, 2019 and November 30, 2018 the carrying amount of the Company's investment was $362.1 million and $342.7 million, respectively.

During the three months ended February 28, 2018, the Company sold 80% of a strategic joint venture to a third-party resulting in a gain of $164.9 million recorded in Homebuilding other income, net within the accompanying Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

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



(Dollars in thousands)	February 28, 2019			November 30, 2018
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	41,816		48,313
Non-recourse debt with completion guarantees	233,115			239,568
Non-recourse debt without completion guarantees	896,219			861,371
Non-recourse debt to the Company	1,171,150			1,149,252
The Company’s maximum recourse exposure (1)	59,266			65,707
Debt issuance costs	(11,253		)	(12,403	)
Total debt	$	1,219,163		1,202,556
The Company’s maximum recourse exposure as a % of total JV debt	5		%	5	%


(1)	As of February 28, 2019 and November 30, 2018, the Company's maximum recourse exposure was primarily related to the Company providing repayment guarantees on three and four unconsolidated entities' debt, respectively.

In most instances in which the Company has guaranteed debt of a Homebuilding unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. In a repayment

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) - (Continued)

guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral.

In connection with many of the loans to 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 Homebuilding unconsolidated entity and increase the Company’s investment in the unconsolidated entity and its share of any funds the unconsolidated entity distributes.

As of both February 28, 2019 and November 30, 2018, the fair values of the repayment guarantees, maintenance guarantees, and completion guarantees were not material. The Company believes that as of February 28, 2019, in the event it becomes legally obligated to perform under a guarantee of the obligation of a Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral would be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities with regard to obligations of its joint ventures (see Note 12 of the Notes to the Condensed Consolidated Financial Statements).


(5)	Stockholders' Equity

The following table reflects the changes in equity attributable to both Lennar Corporation and the noncontrolling interests of its consolidated subsidiaries in which it has less than a 100% ownership interest for both the three months ended February 28, 2019 and 2018:



				Stockholders’ Equity
(In thousands)	Total Equity			Class A Common Stock	Class B Common Stock	Additional Paid - in Capital	Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings	Noncontrolling Interests
Balance at November 30, 2018	$	14,682,957		29,499	3,944	8,496,677	(435,869	)	(366	)	6,487,650	101,422
Net earnings (including net loss attributable to noncontrolling interests)	239,424			—	—	—	—		—		239,910	(486	)
Employee stock and directors plans	(1,422		)	2	—	725	(2,149	)	—		—	—
Purchases of treasury stock	(46,998		)	—	—	—	(46,998	)	—		—	—
Amortization of restricted stock	16,899			—