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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ To _______
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)
(305559-4000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $.10
LEN
New York Stock Exchange
Class B Common Stock, par value $.10
LEN.B
New York Stock Exchange
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
¨
Emerging growth company
Non-accelerated filer
¨
Smaller reporting 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 August 31, 2020:
Class A 275,115,747
Class B 37,621,166





LENNAR CORPORATION
 
 
 
 
 
 
 
FORM 10-Q
 
 
For the period ended August 31, 2020
 
 
 
 
 
 
 
Part I
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
Part II
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 3 - 5.
 
 
Item 6.
 
 
 
 
 





Part I. Financial Information
Item 1. Financial Statements

Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
 
August 31,
 
November 30,
 
2020 (1)
 
2019 (1)
ASSETS
 
 
 
Homebuilding:
 
 
 
Cash and cash equivalents
$
1,966,796

 
1,200,832

Restricted cash
11,959

 
9,698

Receivables, net
295,958

 
329,124

Inventories:
 
 
 
Finished homes and construction in progress
9,288,624

 
9,195,721

Land and land under development
7,987,149

 
8,267,647

Consolidated inventory not owned
395,489

 
313,139

Total inventories
17,671,262

 
17,776,507

Investments in unconsolidated entities
940,695

 
1,009,035

Goodwill
3,442,359

 
3,442,359

Other assets
1,137,137

 
1,021,684

 
25,466,166

 
24,789,239

Financial Services
2,209,549

 
3,006,024

Multifamily
1,184,086

 
1,068,831

Lennar Other
455,484

 
495,417

Total assets
$
29,315,285

 
29,359,511

(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, nor any of its subsidiaries, has any obligations.
As of August 31, 2020, total assets include $960.5 million related to consolidated VIEs of which $21.3 million is included in Homebuilding cash and cash equivalents, $0.1 million in Homebuilding receivables, net, $15.8 million in Homebuilding finished homes and construction in progress, $481.0 million in Homebuilding land and land under development, $386.6 million in Homebuilding consolidated inventory not owned, $2.1 million in Homebuilding investments in unconsolidated entities, $8.9 million in Homebuilding other assets and $44.7 million in Multifamily assets.
As of November 30, 2019, total assets include $980.2 million related to consolidated VIEs of which $15.5 million is included in Homebuilding cash and cash equivalents, $0.2 million in Homebuilding receivables, net, $97.5 million in Homebuilding finished homes and construction in progress, $283.2 million in Homebuilding land and land under development, $301.0 million in Homebuilding consolidated inventory not owned, $2.5 million in Homebuilding investments in unconsolidated entities, $10.0 million in Homebuilding other assets, $221.2 million in Financial Services assets and $49.1 million in Multifamily assets.

See accompanying notes to condensed consolidated financial statements.
3

Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(In thousands, except share amounts)
(unaudited)

 
August 31,
 
November 30,
 
2020 (2)
 
2019 (2)
LIABILITIES AND EQUITY
 
 
 
Homebuilding:
 
 
 
Accounts payable
$
1,140,341

 
1,069,179

Liabilities related to consolidated inventory not owned
324,544

 
260,266

Senior notes and other debts payable, net
7,180,274

 
7,776,638

Other liabilities
1,944,247

 
1,900,955

 
10,589,406

 
11,007,038

Financial Services
1,197,847

 
2,056,450

Multifamily
236,059

 
232,155

Lennar Other
11,628

 
30,038

Total liabilities
12,034,940

 
13,325,681

Stockholders’ equity:
 
 
 
Preferred stock

 

Class A common stock of $0.10 par value; Authorized: August 31, 2020 and November 30, 2019 - 400,000,000 shares; Issued: August 31, 2020 - 298,935,646 shares and November 30, 2019 - 297,119,153 shares
29,894

 
29,712

Class B common stock of $0.10 par value; Authorized: August 31, 2020 and November 30, 2019 - 90,000,000 shares; Issued: August 31, 2020 - 39,443,130 shares and November 30, 2019 - 39,443,064 shares
3,944

 
3,944

Additional paid-in capital
8,654,954

 
8,578,219

Retained earnings
9,760,165

 
8,295,001

Treasury stock, at cost; August 31, 2020 - 23,819,899 shares of Class A common stock and 1,821,964 shares of Class B common stock; November 30, 2019 - 18,964,973 shares of Class A common stock and 1,704,630 shares of Class B common stock
(1,276,691
)
 
(957,857
)
Accumulated other comprehensive income (loss)
(163
)
 
498

Total stockholders’ equity
17,172,103

 
15,949,517

Noncontrolling interests
108,242

 
84,313

Total equity
17,280,345

 
16,033,830

Total liabilities and equity
$
29,315,285

 
29,359,511

(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 VIEs and liabilities of consolidated VIEs as to which neither Lennar Corporation, nor any of its subsidiaries, has any obligations.
As of August 31, 2020, total liabilities include $473.8 million related to consolidated VIEs as to which there was no recourse against the Company, of which $20.0 million is included in Homebuilding accounts payable, $315.4 million in Homebuilding liabilities related to consolidated inventory not owned, $118.4 million in Homebuilding senior notes and other debts payable, $9.3 million in Homebuilding other liabilities and $10.7 million in Multifamily liabilities.
As of November 30, 2019, total liabilities include $549.7 million related to consolidated VIEs as to which there was no recourse against the Company, of which $13.7 million is included in Homebuilding accounts payable, $247.5 million in Homebuilding liabilities related to consolidated inventory not owned, $47.1 million in Homebuilding senior notes and other debt payable, $8.9 million in Homebuilding other liabilities, $231.1 million in Financial Services liabilities and $1.4 million in Multifamily liabilities.

See accompanying notes to condensed consolidated financial statements.
4

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


 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
 
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Homebuilding
$
5,505,120

 
5,438,998

 
14,626,720

 
14,258,318

Financial Services
237,068

 
224,502

 
631,992

 
572,029

Multifamily
115,170

 
183,958

 
370,904

 
428,764

Lennar Other
12,896

 
9,600

 
33,348

 
28,919

Total revenues
5,870,254

 
5,857,058

 
15,662,964

 
15,288,030

Costs and expenses:
 
 
 
 
 
 
 
Homebuilding
4,673,158

 
4,781,932

 
12,684,295

 
12,608,026

Financial Services
101,989

 
149,804

 
363,688

 
422,142

Multifamily
118,786

 
181,616

 
379,607

 
431,510

Lennar Other
2,062

 
2,734

 
3,564

 
7,550

Corporate general and administrative
92,661

 
92,615

 
262,959

 
248,071

Total costs and expenses
4,988,656

 
5,208,701

 
13,694,113

 
13,717,299

Homebuilding equity in loss from unconsolidated entities
(6,431
)
 
(10,459
)
 
(20,077
)
 
(4,601
)
Homebuilding other income (expense), net
(11,787
)
 
12,375

 
(16,845
)
 
(35,325
)
Financial Services gain on deconsolidation

 

 
61,418

 

Multifamily equity in earnings (loss) from unconsolidated entities and other gain
(1,532
)
 
7,883

 
4,702

 
15,446

Lennar Other equity in earnings (loss) from unconsolidated entities
(2,189
)
 
8,903

 
(28,712
)
 
12,255

Lennar Other income (expense), net
(646
)
 
24

 
(10,195
)
 
(12,900
)
Earnings before income taxes
859,013

 
667,083

 
1,959,142

 
1,545,606

Provision for income taxes
(189,690
)
 
(154,440
)
 
(382,498
)
 
(374,670
)
Net earnings (including net earnings (loss) attributable to noncontrolling interests)
669,323

 
512,643

 
1,576,644

 
1,170,936

Less: Net earnings (loss) attributable to noncontrolling interests
2,905

 
(723
)
 
(5,632
)
 
(3,812
)
Net earnings attributable to Lennar
$
666,418

 
513,366

 
1,582,276

 
1,174,748

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net unrealized gain (loss) on securities available-for-sale
$
175

 
180

 
(209
)
 
949

Reclassification adjustments for loss included in earnings, net of tax

 

 
(452
)
 
(176
)
Total other comprehensive income (loss), net of tax
$
175

 
180

 
(661
)
 
773

Total comprehensive income attributable to Lennar
$
666,593

 
513,546

 
1,581,615

 
1,175,521

Total comprehensive income (loss) attributable to noncontrolling interests
$
2,905

 
(723
)
 
(5,632
)
 
(3,812
)
Basic earnings per share
$
2.13

 
1.60

 
5.05

 
3.64

Diluted earnings per share
$
2.12

 
1.59

 
5.03

 
3.63







See accompanying notes to condensed consolidated financial statements.
5

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


 
Nine Months Ended
 
August 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net earnings (including net loss attributable to noncontrolling interests)
$
1,576,644

 
1,170,936

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
68,771

 
63,822

Amortization of discount/premium and accretion on debt, net
(18,632
)
 
(19,841
)
Equity in loss (earnings) from unconsolidated entities
50,971

 
(12,235
)
Distributions of earnings from unconsolidated entities
39,036

 
9,175

Share-based compensation expense
83,799

 
65,438

Deferred income tax expense
124,906

 
144,969

Gain on sale of other assets, operating properties and equipment and real estate owned
(15,846
)
 
(10,907
)
Loss on consolidation
4,824

 
48,874

Gain on deconsolidation of previously consolidated entity
(61,418
)
 

Gain on sale of interest in unconsolidated entity and other Multifamily gain
(4,661
)
 
(10,865
)
Gain on sale of Financial Services' portfolio/businesses
(5,014
)
 
(2,368
)
Valuation adjustments and write-offs of option deposits and pre-acquisition costs
76,630

 
15,912

Changes in assets and liabilities:
 
 
 
Decrease in receivables
264,643

 
527,990

Decrease (increase) in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs
113,429

 
(1,610,329
)
(Increase) decrease in other assets
(124,641
)
 
48,263

Decrease (increase) in loans held-for-sale
557,757

 
(14,992
)
Increase (decrease) in accounts payable and other liabilities
165,646

 
(115,549
)
Net cash provided by operating activities
2,896,844

 
298,293

Cash flows from investing activities:
 
 
 
Net additions of operating properties and equipment
(42,856
)
 
(69,557
)
Proceeds from the sale of operating properties and equipment, other assets and real estate owned
33,096

 
58,578

Proceeds from sale of investment in unconsolidated entity

 
17,790

Proceeds from sale of Financial Services' portfolio/businesses
14,978

 
24,446

Investments in and contributions to unconsolidated entities/deconsolidation of previously consolidated entity
(412,474
)
 
(329,858
)
Distributions of capital from unconsolidated entities
135,677

 
250,265

Receipts of principal payments on loans receivable and other

 
2,152

Proceeds from sale of commercial mortgage-backed securities bonds
3,248

 

Decrease (increase) in Financial Services loans held-for-investment, net
2,427

 
(2,902
)
Purchases of investment securities
(49,293
)
 
(31,879
)
Proceeds from maturities/sales of investments securities
46,091

 
41,608

Other receipts, net
1,639

 

Net cash used in investing activities
$
(267,467
)
 
(39,357
)






See accompanying notes to condensed consolidated financial statements.
6

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


 
Nine Months Ended
 
August 31,
 
2020
 
2019
Cash flows from financing activities:
 
 
 
Net borrowings under revolving line of credit
$

 
700,000

Net repayments under warehouse facilities
(789,339
)
 
(423,123
)
Redemption of senior notes
(313,000
)
 
(500,000
)
Principal payments on notes payable and other borrowings
(550,256
)
 
(154,736
)
Proceeds from other borrowings
70,032

 
62,634

Net proceeds related to other liabilities
6,559

 
(2,533
)
Conversions, exchanges and redemption of convertible senior notes

 
(1,288
)
Receipts related to noncontrolling interests
175,565

 
27,395

Payments related to noncontrolling interests
(29,450
)
 
(35,689
)
Common stock:
 
 
 
Issuances

 
388

Repurchases
(318,989
)
 
(419,322
)
Dividends
(117,112
)
 
(38,776
)
Net cash used in financing activities
$
(1,865,990
)
 
(785,050
)
Net increase (decrease) in cash and cash equivalents and restricted cash
763,387

 
(526,114
)
Cash and cash equivalents and restricted cash at beginning of period
1,468,691

 
1,595,978

Cash and cash equivalents and restricted cash at end of period
$
2,232,078

 
1,069,864

Summary of cash and cash equivalents and restricted cash:
 
 
 
Homebuilding
$
1,978,755

 
808,643

Financial Services
228,430

 
238,406

Multifamily
21,591

 
16,478

Lennar Other
3,302

 
6,337

 
$
2,232,078

 
1,069,864

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Homebuilding and Multifamily:
 
 
 
Purchases of inventories and other assets financed by sellers
$
117,097

 
84,624

Non-cash contributions to unconsolidated entities
13,859

 
107,368

Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
 
 
 
Financial Services assets
$
217,565

 

Financial Services liabilities
(115,175
)
 

Financial Services noncontrolling interests
(102,390
)
 

Inventories
95,476

 
187,506

Receivables

 
102,959

Operating properties and equipment and other assets
6,870

 
53,412

Investments in unconsolidated entities
(68,290
)
 
67,925

Notes payable
(44,924
)
 
(383,212
)
Other liabilities
(1,455
)
 
(19,696
)
Noncontrolling interests
12,323

 
(8,894
)


See accompanying notes to condensed consolidated financial statements.
7



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 variable interest entities ("VIEs") (see Note 10 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, 2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.
The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three and nine months ended August 31, 2020 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.
Cash and Cash Equivalents
Homebuilding cash and cash equivalents as of August 31, 2020 and November 30, 2019 included $396.9 million and $565.8 million, respectively, of cash held in escrow for approximately three days.
Share-based Payments
During the three and nine months ended August 31, 2020, the Company granted employees 0.9 million and 1.8 million nonvested shares, respectively. During both the three and nine months ended August 31, 2019, the Company granted employees 2.1 million nonvested shares.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases ("ASU 2016-02"), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification determined whether the lease expense was recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 was effective for the Company beginning December 1, 2019. The Company elected the available practical expedients on adoption. Additionally, in preparation for adoption of the standard, the Company implemented internal controls and key system functionality to enable the preparation of financial information. The standard did not have a material impact on our condensed consolidated statements of operations and comprehensive income (loss) or our condensed consolidated statements of cash flows. As a result of the adoption, as of December 1, 2019, the Company has recorded $150.7 million of ROU assets and $159.7 million of lease liabilities on its condensed consolidated balance sheets within other assets and accounts payable or other liabilities of the respective segments.
Reclassifications
Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2020 presentation. The Company's segments were adjusted, effective December 1, 2019, to reflect the North Carolina divisions within the Central segment, which were previously part of the East segment. This was due to a change in operations. This reclassification was between segments and had no impact on the Company's total assets, total equity, revenue or net income in the condensed consolidated financial statements.

8

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)



(2)
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. The Company's chief operating decision makers manage and assess the Company’s performance at a regional level. Therefore, the Company performed an assessment of its operating segments in accordance with ASC 280, Segment Reporting, and determined that the following are its operating and reportable segments:
(1) Homebuilding East
(2) Homebuilding Central
(3) Homebuilding Texas
(4) Homebuilding West
(5) Financial Services
(6) Multifamily
(7) Lennar Other
The assets and liabilities related to the Company’s segments were as follows:
(In thousands)
August 31, 2020
Assets:
Homebuilding
 
Financial
Services
 
Multifamily
 
Lennar
Other
 
Total
Cash and cash equivalents
$
1,966,796

 
217,442

 
21,591

 
3,302

 
2,209,131

Restricted cash
11,959

 
10,988

 

 

 
22,947

Receivables, net (1)
295,958

 
316,717

 
86,725

 

 
699,400

Inventories
17,671,262

 

 
336,493

 

 
18,007,755

Loans held-for-sale (2)

 
1,087,182

 

 

 
1,087,182

Loans held-for-investment, net

 
67,219

 

 
1,419

 
68,638

Investments held-to-maturity

 
164,588

 

 

 
164,588

Investments available-for-sale (3)

 

 

 
53,770

 
53,770

Investments in unconsolidated entities (4)
940,695

 
70,218

 
656,012

 
386,247

 
2,053,172

Goodwill
3,442,359

 
189,699

 

 

 
3,632,058

Other assets (5)
1,137,137

 
85,496

 
83,265

 
10,746

 
1,316,644

 
$
25,466,166

 
2,209,549

 
1,184,086

 
455,484

 
29,315,285

Liabilities:
 
 
 
 
 
 
 
 
 
Notes and other debts payable, net
$
7,180,274

 
956,414

 

 
1,906

 
8,138,594

Other liabilities (6)
3,409,132

 
241,433

 
236,059

 
9,722

 
3,896,346

 
$
10,589,406

 
1,197,847

 
236,059

 
11,628

 
12,034,940


9

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


(In thousands)
November 30, 2019
Assets:
Homebuilding
 
Financial
Services
 
Multifamily
 
Lennar
Other
 
Total
Cash and cash equivalents
$
1,200,832

 
234,113

 
8,711

 
2,340

 
1,445,996

Restricted cash
9,698

 
12,022

 

 
975

 
22,695

Receivables, net (1)
329,124

 
500,847

 
76,906

 

 
906,877

Inventories
17,776,507

 

 
315,107

 

 
18,091,614

Loans held-for-sale (2)

 
1,644,939

 

 

 
1,644,939

Loans held-for-investment, net

 
73,867

 

 

 
73,867

Investments held-to-maturity

 
190,289

 

 
54,117

 
244,406

Investments available-for-sale (3)

 
3,732

 
48,206

 

 
51,938

Investments in unconsolidated entities (4)
1,009,035

 

 
561,190

 
403,688

 
1,973,913

Goodwill
3,442,359

 
215,516

 

 

 
3,657,875

Other assets (5)
1,021,684

 
130,699

 
58,711

 
34,297

 
1,245,391

 
$
24,789,239

 
3,006,024

 
1,068,831

 
495,417

 
29,359,511

Liabilities:
 
 
 
 
 
 
 
 
 
Notes and other debts payable, net
$
7,776,638

 
1,745,755

 
36,125

 
15,178

 
9,573,696

Other liabilities (6)
3,230,400

 
310,695

 
196,030

 
14,860

 
3,751,985

 
$
11,007,038

 
2,056,450

 
232,155

 
30,038

 
13,325,681

(1)
Receivables, net for Financial Services primarily related to loans sold to investors for which the Company had not yet been paid as of August 31, 2020 and November 30, 2019, respectively.
(2)
Loans held-for-sale related to unsold residential and commercial 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) on the condensed consolidated balance sheet.
(4)
Lennar Other investments in unconsolidated entities decreased primarily due to a $25.0 million write-down of assets held by Rialto legacy funds because of the disruption in the capital markets as a result of the coronavirus pandemic ("COVID-19") and the economic shutdown.
(5)
As of August 31, 2020 and November 30, 2019, Financial Services other assets included mortgage loan commitments carried at fair value of $40.5 million and $16.3 million, respectively, and mortgage servicing rights carried at fair value of $1.4 million and $24.7 million, respectively.
(6)
As of August 31, 2020 and November 30, 2019, Financial Services other liabilities included $67.3 million and $60.7 million, respectively, of certain of the Company’s self-insurance reserves related to construction defects, general liability and workers’ compensation. In addition, as of August 31, 2020 and November 30, 2019, Financial Services other liabilities also included forward contracts carried at fair value of $4.9 million and $3.9 million, respectively.

Financial information relating to the Company’s segments was as follows:
    
 
Three Months Ended August 31, 2020
(In thousands)
Homebuilding
 
Financial Services
 
Multifamily
 
Lennar Other
 
Corporate and
unallocated
 
Total
Revenues
$
5,505,120

 
237,068

 
115,170

 
12,896

 

 
5,870,254

Operating earnings (loss)
813,744

 
135,079

 
(5,148
)
 
7,999

 

 
951,674

Corporate general and administrative expenses

 

 

 

 
92,661

 
92,661

Earnings (loss) before income taxes
813,744

 
135,079

 
(5,148
)
 
7,999

 
(92,661
)
 
859,013

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended August 31, 2019
Revenues
$
5,438,998

 
224,502

 
183,958

 
9,600

 

 
5,857,058

Operating earnings
658,982

 
74,698

 
10,225

 
15,793

 

 
759,698

Corporate general and administrative expenses

 

 

 

 
92,615

 
92,615

Earnings before income taxes
658,982

 
74,698

 
10,225

 
15,793

 
(92,615
)
 
667,083



10

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


 
Nine Months Ended August 31, 2020
(In thousands)
Homebuilding
 
Financial Services
 
Multifamily
 
Lennar Other
 
Corporate and
unallocated
 
Total
Revenues
$
14,626,720

 
631,992

 
370,904

 
33,348

 

 
15,662,964

Operating earnings (loss) (1)
1,905,503

 
329,722

 
(4,001
)
 
(9,123
)
 

 
2,222,101

Corporate general and administrative expenses

 

 

 

 
262,959

 
262,959

Earnings (loss) before income taxes
1,905,503

 
329,722

 
(4,001
)
 
(9,123
)
 
(262,959
)
 
1,959,142

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended August 31, 2019
Revenues
$
14,258,318

 
572,029

 
428,764

 
28,919

 

 
15,288,030

Operating earnings
1,610,366

 
149,887

 
12,700

 
20,724

 

 
1,793,677

Corporate general and administrative expenses

 

 

 

 
248,071

 
248,071

Earnings before income taxes
1,610,366

 
149,887

 
12,700

 
20,724

 
(248,071
)
 
1,545,606

(1)
Operating loss for Lennar Other for the nine months ended August 31, 2020 included a $25.0 million write-down of assets held by Rialto legacy funds because of the disruption in the capital markets as a result of COVID-19 and the economic shutdown.

Homebuilding Segments
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, Pennsylvania and South Carolina
Central: Georgia, Illinois, Indiana, Maryland, Minnesota, North Carolina and Virginia
Texas: Texas
West: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington
Other: Urban divisions and other homebuilding related investments primarily in California, including FivePoint Holdings, LLC ("FivePoint")
The assets related to the Company’s homebuilding segments were as follows:
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
East
 
Central
 
Texas
 
West
 
Other
 
Corporate and Unallocated
 
Total Homebuilding
Balance at August 31, 2020
$
5,586,328

 
3,494,566

 
2,204,192

 
10,800,281

 
1,257,126

 
2,123,673

 
25,466,166

Balance at November 30, 2019
5,804,764

 
3,636,694

 
2,246,893

 
10,663,666

 
1,173,163

 
1,264,059

 
24,789,239


11

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Financial information relating to the Company’s homebuilding segments was as follows:
 
Three Months Ended August 31, 2020
(In thousands)
East
 
Central
 
Texas
 
West
 
Other
 
Total Homebuilding
Revenues
$
1,478,659

 
1,063,621

 
747,934

 
2,212,211

 
2,695

 
5,505,120

Operating earnings (loss)
244,189

 
132,678

 
116,111

 
342,834

 
(22,068
)
 
813,744

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended August 31, 2019
Revenues
$
1,502,004

 
1,066,418

 
713,376

 
2,063,324

 
93,876

 
5,438,998

Operating earnings (loss)
219,335

 
116,589

 
78,298

 
259,424

 
(14,664
)
 
658,982


 
Nine Months Ended August 31, 2020
(In thousands)
East
 
Central
 
Texas
 
West
 
Other
 
Total Homebuilding
Revenues
$
3,908,421

 
2,839,415

 
1,933,918

 
5,920,804

 
24,162

 
14,626,720

Operating earnings (loss)
586,104

 
292,031

 
269,071

 
847,835

 
(89,538
)
 
1,905,503

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended August 31, 2019
Revenues
$
3,837,673

 
2,743,757

 
1,825,105

 
5,747,243

 
104,540

 
14,258,318

Operating earnings (loss)
503,803

 
264,238

 
185,950

 
722,989

 
(66,614
)
 
1,610,366


Financial Services
Operations of the Financial Services segment include primarily mortgage financing, title and closing services primarily for buyers of the Company’s homes. It also includes originating and selling into securitizations commercial mortgage loans through its LMF Commercial business, formerly Rialto Mortgage Finance. The Financial Services segment sells substantially all of the residential loans it originates within a short period of time in the secondary mortgage market. The segment applies residential mortgage financing underwriting standards it believes are in-line with industry standards. The majority of the residential loans 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.
At August 31, 2020, the Financial Services warehouse facilities were all 364-day repurchase facilities and were used to fund residential mortgages or commercial mortgages for LMF Commercial as follows:
(In thousands)
Maximum Aggregate Commitment
Residential facilities maturing:
 
January 2021
$
500,000

March 2021
300,000

June 2021
600,000

July 2021
200,000

Total - Residential facilities
$
1,600,000

LMF Commercial facilities maturing
 
November 2020
$
200,000

December 2020 (1)
700,000

Total - LMF Commercial facilities
$
900,000

Total
$
2,500,000

(1)
Includes $50.0 million LMF Commercial warehouse repurchase facility used to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans held-for-investment, net. There were borrowings under this facility of $11.4 million as of August 31, 2020.
The Financial Services segment uses the residential facilities to finance its residential lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to the Company and are expected to be

12

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


renewed or replaced with other facilities when they mature. The LMF Commercial facilities finance LMF Commercial loan originations and securitization activities and were secured by a 75% interest in the originated commercial loans financed.
Borrowings and collateral under the facilities and their prior year predecessors were as follows:
(In thousands)
August 31, 2020
 
November 30, 2019
Borrowings under the residential facilities
$
699,016

 
1,374,063

Collateral under the residential facilities
727,319

 
1,423,650

Borrowings under the LMF Commercial facilities
103,667

 
216,870


If the facilities are not renewed or replaced, the borrowings under the lines of credit will be repaid by selling the mortgage loans held-for-sale to investors and by collecting receivables on loans sold but not yet paid for. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.
Substantially all of the residential loans the 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. Purchasers sometimes try to defray 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 residential 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 Financial Services’ liabilities in the Company's condensed consolidated balance sheets.
The activity in the Company’s loan origination liabilities was as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2020
 
2019
 
2020
 
2019
Loan origination liabilities, beginning of period
$
10,880

 
7,424

 
9,364

 
48,584

Provision for losses
1,234

 
1,006

 
3,149

 
2,593

Payments/settlements
(24
)
 
(109
)
 
(423
)
 
(42,856
)
Loan origination liabilities, end of period
$
12,090

 
8,321

 
12,090

 
8,321


LMF Commercial - loans held-for-sale
During the nine months ended August 31, 2020, LMF Commercial originated commercial loans with a total principal balance of $582.0 million, all of which were recorded as loans held-for-sale and sold $622.3 million of commercial loans into four separate securitizations. As of August 31, 2020, there were no unsettled transactions.
During the nine months ended August 31, 2019, LMF Commercial originated commercial loans with a total principal balance of $984.5 million, of which $969.2 million were recorded as loans held-for-sale, $15.3 million were recorded as loans held-for-investments, and sold $848.3 million of commercial loans into seven separate securitizations.
Investments held-to-maturity
At August 31, 2020 and November 30, 2019, the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was $164.6 million and $166.0 million, respectively. These securities were purchased at discounts ranging from 6% to 84% with coupon rates ranging from 2.0% to 5.3%, stated and assumed final distribution dates between October 2027 and December 2028, and stated maturity dates between October 2050 and December 2051. The Financial Services segment reviews changes in estimated cash flows periodically to determine if an other-than-temporary impairment has occurred on its CMBS. Based on the segment’s assessment, no impairment charges were recorded during either the three or nine months ended August 31, 2020 or 2019. The Financial Services segment classifies these securities as held-to-maturity based on its intent and ability to hold the securities until maturity. The Company has financing agreements to finance CMBS that have been purchased as investments by the Financial Services segment. At August 31, 2020 and November 30, 2019, the carrying amount,

13

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


net of debt issuance costs, of outstanding debt in these agreements was $153.7 million and $154.7 million, respectively, and interest is incurred at a rate of 3.4%.
Multifamily
The Company is actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. The Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.
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.
Lennar Other
Lennar Other primarily includes fund interests the Company retained when it sold the Rialto asset and investment management platform, as well as strategic investments in technology companies. 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.
(3)
Investments in Unconsolidated Entities
Homebuilding Unconsolidated Entities
As of August 31, 2020 and November 30, 2019, the Company’s recorded investments in Homebuilding unconsolidated entities were $940.7 million and $1.0 billion, respectively, while the underlying equity in Homebuilding unconsolidated entities partners’ net assets as of August 31, 2020 and November 30, 2019 was $1.2 billion and $1.3 billion, respectively. 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. As of August 31, 2020 and November 30, 2019, the carrying amounts of the Company's FivePoint investment were $376.4 million and $374.0 million, respectively.
The total debt of the Homebuilding unconsolidated entities in which the Company has investments was $1.1 billion as of both August 31, 2020 and November 30, 2019, of which the Company's maximum recourse exposure was $4.9 million and $10.8 million as of August 31, 2020 and November 30, 2019, respectively. In most instances in which the Company has guaranteed debt of an unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of default before the lender would have to exercise its rights against the collateral.
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 August 31, 2020 and November 30, 2019, the fair values of the repayment guarantees, maintenance guarantees, and completion guarantees were not material. The Company believes that as of August 31, 2020, 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 7 of the Notes to the Condensed Consolidated Financial Statements).

14

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Multifamily Unconsolidated Entities
The unconsolidated entities in which the 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 Multifamily unconsolidated entities, the Company (or entities related to them) has been required to give guarantees of completion and cost over-runs to the lenders and partners. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. Additionally, the Company guarantees the construction costs of the project as construction cost over-runs would be paid by the Company. Generally, these payments would increase the Company's investment in the entities and would increase its share of funds the entities distribute after the achievement of certain thresholds. As of both August 31, 2020 and November 30, 2019, the fair value of the completion guarantees was immaterial. As of August 31, 2020 and November 30, 2019, Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $933.2 million and $867.3 million, respectively.
In many instances, the Multifamily segment is appointed as the construction, development and property manager for its Multifamily unconsolidated entities and receives fees for performing this function. During the three and nine months ended August 31, 2020, the Multifamily segment recorded fee income, net of deferrals, from its unconsolidated entities of $14.1 million and $42.5 million, respectively. During the three and nine months ended August 31, 2019, the Multifamily segment recorded fee income, net of deferrals, from its unconsolidated entities of $14.3 million and $40.7 million, respectively.
The Multifamily segment also provides general contractor services for construction of some of the rental properties owned by unconsolidated entities in which the Company has an investment. During the three and nine months ended August 31, 2020, the Multifamily segment provided general contractor services, net of deferrals, totaling $101.1 million and $299.5 million, respectively, which were partially offset by costs related to those services of $97.2 million and $287.6 million, respectively. During the three and nine months ended August 31, 2019, the Multifamily segment provided general contractor services, net of deferrals, totaling $83.2 million and $264.8 million, respectively, which were partially offset by costs related to those services of $79.9 million and $254.5 million, respectively.
The Multifamily segment includes Multifamily Venture Fund I (the "LMV I") and Multifamily Venture Fund II LP (the "LMV II"), which are long-term multifamily development investment vehicles involved in the development, construction and property management of class-A multifamily assets. Details of each as of and during the nine months ended August 31, 2020 are included below:
 
August 31, 2020
(In thousands)
LMV I
 
LMV II
Lennar's carrying value of investments
$
348,561

 
250,777

Equity commitments
2,204,016

 
1,257,700

Equity commitments called
2,137,746

 
861,508

Lennar's equity commitments
504,016

 
381,000

Lennar's equity commitments called
496,082

 
259,886

Lennar's remaining commitments
7,934

 
121,114

Distributions to Lennar during the nine months ended August 31, 2020
23,822

 


(4)
Stockholders' Equity
The following tables reflect 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 the three and nine months ended August 31, 2020 and 2019:

15

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


 
 
 
Three Months Ended August 31, 2020
 
 
(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 May 31, 2020
$
16,632,624

 
29,804

 
3,944

 
8,630,442

 
(1,253,863
)
 
(338
)
 
9,132,714

 
89,921

Net earnings (including net earnings attributable to noncontrolling interests)
669,323

 

 

 

 

 

 
666,418

 
2,905

Employee stock and directors plans
(22,843
)
 
90

 

 
(105
)
 
(22,828
)
 

 

 

Amortization of restricted stock
28,658

 

 

 
28,658

 

 

 

 

Cash dividends
(38,967
)
 

 

 

 

 

 
(38,967
)
 

Receipts related to noncontrolling interests
6,504

 

 

 

 

 

 

 
6,504

Payments related to noncontrolling interests
(7,949
)
 

 

 

 

 

 

 
(7,949
)
Non-cash purchase or activity of noncontrolling interests, net

(4,259
)
 

 

 
(4,041
)
 

 

 

 
(218
)
Non-cash consolidations/deconsolidations, net
17,079

 

 

 

 

 

 

 
17,079

Total other comprehensive income, net of tax
175

 

 

 

 

 
175

 

 

Balance at August 31, 2020
$
17,280,345

 
29,894

 
3,944

 
8,654,954

 
(1,276,691
)
 
(163
)
 
9,760,165

 
108,242

 
 
 
Three Months Ended August 31, 2019
 
 
(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 May 31, 2019
$
15,246,535

 
29,503

 
3,944

 
8,529,828

 
(537,106
)
 
227

 
7,132,908

 
87,231

Net earnings (including net loss attributable to noncontrolling interests)
512,643

 

 

 

 

 

 
513,366

 
(723
)
Employee stock and directors plans
(22,359
)
 
206

 

 
(400
)
 
(22,165
)
 

 

 

Purchases of treasury stock
(295,930
)
 

 

 

 
(295,930
)
 

 

 

Amortization of restricted stock
34,048

 

 

 
34,048

 

 

 

 

Cash dividends
(12,899
)
 

 

 

 

 


(12,899
)
 

Receipts related to noncontrolling interests
18,458

 

 

 

 

 

 

 
18,458

Payments related to noncontrolling interests
(12,372
)
 

 

 

 

 

 

 
(12,372
)
Non-cash activity related to noncontrolling interests
(2,357
)
 

 

 
(3,772
)
 

 

 

 
1,415

Total other comprehensive income, net of tax
180

 

 

 

 

 
180

 

 

Balance at August 31, 2019
$
15,465,947

 
29,709

 
3,944

 
8,559,704

 
(855,201
)
 
407

 
7,633,375

 
94,009



16

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


 
 
 
Nine Months Ended August 31, 2020
 
 
(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, 2019
$
16,033,830

 
29,712

 
3,944

 
8,578,219

 
(957,857
)
 
498

 
8,295,001

 
84,313

Net earnings (including net loss attributable to noncontrolling interests)
1,576,644

 

 

 

 

 

 
1,582,276

 
(5,632
)
Employee stock and directors plans
(29,616
)
 
182

 

 
521

 
(30,319
)
 

 

 

Purchases of treasury stock
(288,515
)
 

 

 

 
(288,515
)
 

 

 

Amortization of restricted stock
83,799

 

 

 
83,799

 

 

 

 

Cash dividends
(117,112
)
 

 

 

 

 


(117,112
)
 

Receipts related to noncontrolling interests
175,565

 

 

 

 

 

 

 
175,565

Payments related to noncontrolling interests
(29,450
)
 

 

 

 

 

 

 
(29,450
)
Non-cash purchase or activity of noncontrolling interests, net

(9,427
)
 

 

 
(7,585
)
 

 

 

 
(1,842
)
Non-cash consolidations/deconsolidations, net
(114,712
)
 

 

 

 

 

 

 
(114,712
)
Total other comprehensive loss, net of tax
(661
)
 

 

 

 

 
(661
)
 

 

Balance at August 31, 2020
$
17,280,345

 
29,894

 
3,944

 
8,654,954

 
(1,276,691
)
 
(163
)
 
9,760,165

 
108,242


 
 
 
Nine Months Ended August 31, 2019
 
 
(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)
1,170,936

 

 

 

 

 

 
1,174,748

 
(3,812
)
Employee stock and directors plans
(23,050
)
 
210

 

 
1,361

 
(24,621
)
 

 

 

Purchases of treasury stock
(394,711
)
 

 

 

 
(394,711
)
 

 

 

Amortization of restricted stock
65,438

 

 

 
65,438

 

 

 

 

Cash dividends
(38,776
)
 

 

 

 

 


(38,776
)
 

Receipts related to noncontrolling interests
27,395

 

 

 

 

 

 

 
27,395

Payments related to noncontrolling interests
(35,689
)
 

 

 

 

 

 

 
(35,689
)
Non-cash consolidations, net
8,894

 

 

 

 

 

 

 
8,894

Cumulative-effect of accounting change
9,753

 

 

 

 

 

 
9,753

 

Non cash activity related to noncontrolling interests
(7,973
)
 

 

 
(3,772
)
 

 

 

 
(4,201
)
Total other comprehensive income, net of tax
773

 

 

 

 

 
773

 

 

Balance at August 31, 2019
$
15,465,947

 
29,709

 
3,944

 
8,559,704

 
(855,201
)
 
407

 
7,633,375

 
94,009


On October 1, 2020, the Company's Board of Directors increased its annual dividend to $1.00 per share from $0.50 per share resulting in a quarterly cash dividend of $0.25 per share on both its Class A and Class B common stock, payable on October 30, 2020 to holders of record at the close of business on October 16, 2020. On July 24, 2020, the Company paid cash dividends of $0.125 per share on both its Class A and Class B common stock to holders of record at the close of business on July 10, 2020, as declared by its Board of Directors on June 25, 2020. The Company approved and paid cash dividends of $0.04 per share on both its Class A and Class B common stock in each quarter for the year ended November 30, 2019.
In January 2019, the Company's Board of Directors authorized the repurchase of up to the lesser of $1 billion in value, excluding commissions, or 25 million in shares, of the Company's outstanding Class A and Class B common stock. The repurchase has no expiration date. The following table represents the repurchase of the Company's Class A and Class B common stocks, under this program, for the three and nine months ended August 31, 2020 and 2019:

17

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2020
 
August 31, 2019
 
August 31, 2020
 
August 31, 2019
(Dollars in thousands, except price per share)
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Shares repurchased
 

 

 
6,110,000

 

 
4,250,000

 
115,000

 
8,110,000

 

Principal
 
$

 
$

 
$
295,930

 
$

 
$
282,274

 
$
6,155

 
$
394,710

 
$

Average price per share
 
$

 
$

 
$
48.41

 
$

 
$
66.42

 
$
53.52

 
$
48.65

 
$


(5)
Income Taxes
The provision for income taxes and effective tax rate were as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(Dollars in thousands)
2020
 
2019
 
2020
 
2019
Provision for income taxes

$189,690

 
154,440

 
382,498

 
374,670

Effective tax rate (1)
22.2
%
 
23.1
%
 
19.5
%
 
24.2
%
(1)
For both the three and nine months ended August 31, 2020, the effective tax rate included state income tax expense and non-deductible executive compensation, partially offset by new energy efficient home and solar tax credits, as well as a benefit related to years ended November 30, 2018 and 2019, due to Congress retroactively extending the new energy efficient home tax credit in December 2019.
(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") is considered participating securities.
Basic and diluted earnings per share were calculated as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands, except per share amounts)
2020
 
2019
 
2020
 
2019
Numerator:
 
 
 
 
 
 
 
Net earnings attributable to Lennar
$
666,418

 
513,366

 
1,582,276

 
1,174,748

Less: distributed earnings allocated to nonvested shares
324

 
119

 
1,014

 
312

Less: undistributed earnings allocated to nonvested shares
7,474

 
4,401

 
17,433

 
9,271

Numerator for basic earnings per share
658,620

 
508,846

 
1,563,829

 
1,165,165

Less: net amount attributable to Rialto's Carried Interest Incentive Plan (1)
3,606

 
1,498

 
6,928

 
4,655

Numerator for diluted earnings per share
$
655,014

 
507,348

 
1,556,901

 
1,160,510

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share - weighted average common shares outstanding
308,889

 
318,103

 
309,492

 
319,924

Effect of dilutive securities:
 
 
 
 
 
 
 
Shared based payments
1

 
1

 
1

 
3

Denominator for diluted earnings per share - weighted average common shares outstanding
308,890

 
318,104

 
309,493

 
319,927

Basic earnings per share
$
2.13

 
1.60

 
5.05

 
3.64

Diluted earnings per share
$
2.12

 
1.59

 
5.03

 
3.63


(1)
The amounts presented relate to Rialto's Carried Interest Incentive Plan and represent the difference between the advanced tax distributions received from the Rialto funds included in the Lennar Other segment and the amount Lennar is assumed to own.
For both the three and nine months ended August 31, 2020 and August 31, 2019, there were no options to purchase shares of common stock that were outstanding and anti-dilutive.

18

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


(7)Homebuilding Senior Notes and Other Debts Payable
(Dollars in thousands)
August 31,
2020
 
November 30,
2019
2.95% senior notes due 2020
$
299,857

 
299,421

8.375% senior notes due 2021
393,135

 
418,860

4.750% senior notes due 2021
499,479

 
498,893

6.25% senior notes due December 2021
306,479

 
310,252

4.125% senior notes due 2022
598,628

 
597,885

5.375% senior notes due 2022
256,056

 
258,198

4.750% senior notes due 2022
572,345

 
571,644

4.875% senior notes due December 2023
397,250

 
396,553

4.500% senior notes due 2024
647,347

 
646,802

5.875% senior notes due 2024
444,653

 
448,158

4.750% senior notes due 2025
497,891

 
497,558

5.25% senior notes due 2026
407,012

 
407,921

5.00% senior notes due 2027
352,604

 
352,892

4.75% senior notes due 2027
894,573

 
893,046

6.625% senior notes due 2020

 
303,668

Mortgage notes on land and other debt
612,965

 
874,887

 
$
7,180,274

 
7,776,638


The carrying amounts of the senior notes in the table above are net of debt issuance costs of $17.9 million and $22.9 million as of August 31, 2020 and November 30, 2019, respectively.
At August 31, 2020, the Company had an unsecured revolving credit facility (the "Credit Facility") with maximum borrowings of $2.4 billion maturing in 2024. The Credit Facility agreement (the "Credit Agreement") provides that up to $500 million in commitments may be used for letters of credit. The maturity and details of the Credit Facility are unchanged from the disclosure in the Company's Financial Condition and Capital Resources section in its Form 10-K for the year ended November 30, 2019. Under the Credit 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 Agreement, which involves adjustments to GAAP financial measures. The Company believes it was in compliance with its debt covenants at August 31, 2020. In addition to the Credit Facility, the Company has other letter of credit facilities with different financial institutions.
Performance letters of credit are generally posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities. Financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at August 31, 2020, the Company had outstanding surety bonds including performance surety bonds related to site improvements at various projects (including certain projects in the Company’s joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. 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.
The Company's outstanding letters of credit and surety bonds are described below:
(In thousands)
 
August 31,
2020
 
November 30,
2019
Performance letters of credit
 
$
770,527

 
715,793

Financial letters of credit
 
258,703

 
184,075

Surety bonds
 
3,041,946

 
2,946,167

Anticipated future costs primarily for site improvements related to performance surety bonds
 
1,498,173

 
1,427,145


The Company's senior notes are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries and some of the Company's other subsidiaries. Although the guarantees are full, unconditional and joint and several while they are in effect, (i) a subsidiary will cease to be a guarantor at any time when it is not directly or indirectly guaranteeing at least

19

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


$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.
(8)
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 activity in the Company’s warranty reserve, which are included in Homebuilding other liabilities was as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2020
 
2019
 
2020
 
2019
Warranty reserve, beginning of the period
$
301,462

 
291,624

 
294,138

 
319,109

Warranties issued
50,324

 
49,603

 
134,867

 
131,429

Adjustments to pre-existing warranties from changes in estimates (1)
3,640

 
1,097

 
17,251

 
(6,426
)
Payments
(36,677
)
 
(51,808
)
 
(127,507
)
 
(153,596
)
Warranty reserve, end of period
$
318,749

 
290,516

 
318,749

 
290,516


(1)
The adjustments to pre-existing warranties from changes in estimates during the three and nine months ended August 31, 2020 and 2019 primarily related to specific claims in certain of the Company's homebuilding communities and other adjustments.
(9)
Financial Instruments and Fair Value Disclosures
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at August 31, 2020 and November 30, 2019, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash and cash equivalents, restricted cash, receivables, net and accounts payable, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
 
 
 
August 31, 2020
 
November 30, 2019
(In thousands)
Fair Value Hierarchy
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
ASSETS
 
 
 
 
 
 
 
 
 
Financial Services:
 
 
 
 
 
 
 
 
 
Loans held-for-investment, net
Level 3
 
$
67,219

 
64,377

 
73,867

 
69,708

Investments held-to-maturity
Level 3
 
$
164,588

 
196,246

 
166,012

 
195,962

Investments held-to-maturity
Level 2
 
$

 

 
24,277

 
24,257

Lennar Other:
 
 
 
 
 
 
 
 
 
Investments held-to-maturity
Level 3
 
$

 

 
54,117

 
56,415

LIABILITIES
 
 
 
 
 
 
 
 
 
Homebuilding senior notes and other debts payable, net
Level 2
 
$
7,180,274

 
7,670,550

 
7,776,638

 
8,144,632

Financial Services notes and other debts payable, net
Level 2
 
$
956,414

 
957,832

 
1,745,755

 
1,745,782

Multifamily note payable, net
Level 2
 
$

 

 
36,125

 
36,125

Lennar Other notes and other debts payable, net
Level 2
 
$
1,906

 
1,906

 
15,178

 
15,178


The following methods and assumptions are used by the Company in estimating fair values:
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 the short-term nature of the majority of the borrowings.
Homebuilding—For senior notes and other debts payable, the fair value of fixed-rate borrowings is primarily 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.

20

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Multifamily—For notes payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the borrowings.
Lennar Other—The fair value for investments held-to-maturity is based on discounted cash flow. For notes payable, the fair values approximate their carrying value due to variable interest pricing terms and the short-term nature of the borrowings.
Fair Value Measurements:
GAAP provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:
Level 1: Fair value determined based on quoted prices in active markets for identical assets.
Level 2: Fair value determined using significant other observable inputs.
Level 3: Fair value determined using significant unobservable inputs.
The Company’s financial instruments measured at fair value on a recurring basis are summarized below:
(In thousands)
Fair Value Hierarchy
 
Fair Value at
August 31,
2020
 
Fair Value at
November 30,
2019
Financial Services Assets:
 
 
 
 
 
Residential loans held-for-sale (1)
Level 2
 
$
930,151

 
1,447,715

LMF Commercial loans held-for-sale (2)
Level 3
 
$
157,031

 
197,224

Mortgage servicing rights
Level 3
 
$
1,356

 
24,679

Lennar Other:
 
 
 
 
 
Investments available-for-sale
Level 3
 
$
53,770

 


(1)
The aggregate fair value of residential loans held-for-sale of $930.2 million at August 31, 2020 exceeded their aggregate principal balance of $887.9 million by $42.2 million. The aggregate fair value of residential loans held-for-sale of $1.4 billion at November 30, 2019 exceeded their aggregate principal balance of $1.4 billion by $42.2 million.
(2)
The aggregate fair value of LMF Commercial loans held-for-sale of $157.0 million at August 31, 2020 exceeded their aggregate principal balance of $155.5 million by $1.6 million. The aggregate fair value of LMF Commercial loans held-for-sale of $197.2 million at November 30, 2019 exceeded their aggregate principal balance of $196.3 million by $0.9 million.
Financial Services residential loans held-for-sale - Fair value is based on independent quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics. Management believes carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. In addition, the Company recognizes the fair value of its rights to service a mortgage loan as revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these servicing rights is included in Financial Services’ loans held-for-sale as of August 31, 2020 and November 30, 2019. Fair value of servicing rights is determined based on actual sales of servicing rights on loans with similar characteristics.
LMF Commercial 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.
Mortgage servicing rights - Financial Services records mortgage servicing rights when it sells loans on a servicing-retained basis or through the acquisition or assumption of the right to service a financial asset. The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates and are noted below:

21

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


 
As of August 31, 2020
Unobservable inputs
 
Mortgage prepayment rate
17%
Discount rate
12%
Delinquency rate
4%


Lennar Other investments available-for-sale - The fair value of investments available-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 changes in fair values for Level 1 and Level 2 financial instruments measured on a recurring basis are shown below by financial instrument and financial statement line item:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(In thousands)
2020
 
2019
 
2020
 
2019
Changes in fair value included in Financial Services revenues:
 
 
 
 
 
 
 
Loans held-for-sale
$
2,229

 
(2,490
)
 
6

 
397

Mortgage loan commitments
(4,534
)
 
646

 
24,177

 
9,498

Forward contracts
(205
)
 
1,646

 
(1,088
)
 
734

Changes in fair value included in other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Lennar Other investments available-for-sale
175

 

 
(163
)
 

Financial Services investments available-for-sale

 
180

 
(46
)
 
949


Interest on Financial Services loans held-for-sale and LMF Commercial loans held-for-sale measured at fair value is calculated based on the interest rate of the loans and recorded as revenues in the Financial Services’ statement of operations.

22

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements in the Company's Financial Services segment:
 
Three Months Ended
 
August 31, 2020
 
August 31, 2019
(In thousands)
Mortgage servicing rights
 
LMF Commercial loans held-for-sale
 
Mortgage servicing rights
 
LMF Commercial loans held-for-sale
Beginning balance
$
1,238

 
159,885

 
29,419

 
259,599

Purchases/loan originations
563

 
164,380

 
449

 
263,888

Sales/loan originations sold, including those not settled

 
(164,527
)
 

 
(347,713
)
Disposals/settlements
(34
)
 

 
(1,544
)
 

Changes in fair value (1)
(411
)
 
(1,165
)
 
(5,252
)
 
3,502

Interest and principal paydowns

 
(1,542
)
 

 
(572
)
Ending balance
$
1,356

 
157,031

 
23,072

 
178,704

 
Nine Months Ended
 
August 31, 2020
 
August 31, 2019
(In thousands)
Mortgage servicing rights
 
LMF Commercial loans held-for-sale
 
Mortgage servicing rights
 
LMF Commercial loans held-for-sale
Beginning balance
$
24,679

 
197,224

 
37,206

 
61,691

Purchases/loan originations
1,917

 
582,030

 
2,707

 
969,200

Sales/loan originations sold, including those not settled

 
(622,251
)
 

 
(848,262
)
Disposals/settlements (2)
(10,231
)
 

 
(3,830
)
 
(9,920
)
Changes in fair value (1)
(15,009
)
 
2,102

 
(13,011
)
 
6,825

Interest and principal paydowns

 
(2,074
)
 

 
(830
)
Ending balance
$
1,356

 
157,031

 
23,072

 
178,704


(1)
Changes in fair value for LMF Commercial loans held-for-sale and Financial Services mortgage servicing rights are included in Financial Services' revenues.
(2)
Includes $7.5 million related to the sale of a servicing portfolio.
The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs. The fair values included in the table below represent only those assets whose carrying values were adjusted to fair value during the respective periods disclosed. The assets measured at fair value on a nonrecurring basis are summarized below:
 
 
 
Three Months Ended
 
 
 
August 31, 2020
 
August 31, 2019
(In thousands)
Fair Value
Hierarchy
 
Carrying Value
 
Fair Value
 
Total Losses, Net (1)
 
Carrying Value
 
Fair Value
 
Total Losses, Net (1)
Non-financial assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Finished homes and construction in progress (1)
Level 3
 
$
20,650

 
18,089

 
(2,561
)
 
4,922

 
4,142

 
(780
)
Land and land under development (1)
Level 3
 
$
21,621

 
12,650

 
(8,971
)
 
1,300

 
85

 
(1,215
)
 
 
 
Nine Months Ended
 
 
 
August 31, 2020
 
August 31, 2019
(In thousands)
Fair Value
Hierarchy
 
Carrying Value
 
Fair Value
 
Total Losses, Net (1)
 
Carrying Value
 
Fair Value
 
Total Losses, Net (1)
Non-financial assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Finished homes and construction in progress (1)
Level 3
 
$
162,459

 
138,493

 
(23,966
)
 
4,922

 
4,142

 
(780
)
Land and land under development (1)
Level 3
 
$
86,683

 
34,019

 
(52,664
)
 
8,253

 
3,085

 
(5,168
)

(1)
Valuation adjustments were included in Homebuilding costs and expenses in the Company's condensed consolidated statements of operations and comprehensive income (loss).

23

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Finished homes and construction in progress are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Form 10-K for the year ended November 30, 2019.
The Company estimates the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or assumptions change. This was particularly the case with regard to inventory owned at August 31, 2020, because of the need to consider the effect of the COVID-19 pandemic and related government actions in determining whether there was a need for valuation adjustments and write-offs. For example, changes in market conditions and other specific developments or changes in assumptions may cause the Company to re-evaluate its strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.
The Company disclosed its accounting policy related to inventories and its review for indicators of impairment in the Summary of Significant Accounting Policies in its Form 10-K for the year ended November 30, 2019. On a quarterly basis, the Company reviews its active communities for indicators of potential impairments. As of August 31, 2020 and August 31, 2019, there were 1,194 and 1,295 active communities, excluding unconsolidated entities, respectively. The table below summarizes communities reviewed for indicators of impairment and communities with valuation adjustments recorded:
 
 
 
Communities with valuation adjustments

 
# of communities with potential indicator of impairment
 
# of communities
 
Fair Value
(in thousands)
 
Valuation Adjustments
(in thousands)
At or for the Nine Months Ended
 
 
 
 
 
 
 
August 31, 2020
28
 
14

 
$
76,115

 
$
40,364

August 31, 2019
47
 
1

 
4,226

 
1,995


The table below summarizes the most significant unobservable inputs used in the Company's discounted cash flow model to determine the fair value of its communities for which the Company recorded valuation adjustments:
 
Nine Months Ended
 
August 31, 2020
 
August 31, 2019
Unobservable inputs
Range
 
 
Average selling price
$
201,000

-
$
970,000

 
$
167,000

Absorption rate per quarter (homes)
3
-
15
 
12
Discount rate
20%
 
20%


(10)
Variable Interest Entities
The Company evaluated the joint venture ("JV") agreements of its JV's that were formed or that had reconsideration events, such as changes in the governing documents or to debt arrangements during the nine months ended August 31, 2020. Based on the Company's evaluation, the Company consolidated one Homebuilding entity and one Multifamily entity that had a total assets and liabilities of $140.0 million and $51.2 million and $49.4 million and $0.9 million, respectively. The Company deconsolidated two Multifamily entities that had total assets of $37.2 million and an immaterial amount of liabilities. In addition, the Company's Financial Services segment deconsolidated one entity that had total assets and liabilities of $291.2 million and $204.1 million, respectively. In January 2019, this JV was formed by the sale of the Company’s retail title agency and its retail title insurance business to this JV entity. In exchange for the sale of the retail agency and retail title insurance business, the Company received 20% of the JV entity’s preferred stock, warrants exercisable to purchase additional shares of preferred stock in the JV entity and a note due from the JV to the Company. The JV entity’s reconsideration event was due to a significant equity raise that was completed during the three months ended May 31, 2020. The proceeds of the equity raise resulted in approximately a 43% reduction of the principal amount of debt owed by the JV entity to the Company as well as an approximately 20% reduction of the Company’s ownership interest in the JV. The JV remains a VIE; however, the Company has concluded that it is no longer the primary beneficiary as the Company no longer has the power to direct the VIE. In particular, the additional infusion of equity from third party investors provides evidence that the JV entity is no longer financially dependent on the Company. The Company does not have the voting or economic power to direct the activities of the JV entity. As a result, the Company concluded that the JV entity should be deconsolidated which required fair value accounting for its equity investment and note receivable. The valuation assumptions used in determining fair value of the equity investment began by utilizing the capital raise discounted by public company comparable transactions that took into account the impact of

24

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


COVID-19 and the economic shutdown and the lack of marketability of the Company’s investment. The valuation of the note receivable utilized the underlying cash flows and applied a discount, which was determined by using market comparables. The Company used discount rates ranging from 16% to 30% for the fair value calculations. In aggregate, the resulting fair value of the equity investment and note receivable totaled $123.4 million, of which $70.8 million was included in Financial Services investments in unconsolidated entities at the time of deconsolidation. Upon deconsolidation, the Company recorded a gain of $61.4 million.
The carrying amount of our consolidated VIE's assets and non-recourse liabilities are disclosed in the footnote to the condensed consolidated balance sheets.
A VIE’s assets can only be used to settle obligations of that VIE. The VIEs are not guarantors of the Company’s senior notes or other debts payable. The assets held by a VIE usually are collateral for that VIE’s debt. The Company and other partners do not generally have an obligation to make capital contributions to a VIE unless the Company and/or the other partner(s) have entered into debt guarantees with a VIE’s lenders. Other than debt guarantee agreements with a VIE’s lenders, there are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to a VIE. While the Company has option contracts to purchase land from certain of its VIEs, the Company is not required to purchase the assets and could walk away from the contracts.
Unconsolidated VIEs
At August 31, 2020 and November 30, 2019, the Company’s recorded investments in VIEs that are unconsolidated and its estimated maximum exposure to loss were as follows:
 
August 31, 2020
 
November 30, 2019
(In thousands)
Investments in
Unconsolidated VIEs
 
Lennar’s Maximum
Exposure to Loss (1)
 
Investments in
Unconsolidated VIEs
 
Lennar’s Maximum
Exposure to Loss (1)
Homebuilding
$
85,733

 
85,914

 
80,939

 
81,118

Multifamily (2)
608,911

 
755,394

 
533,018

 
768,651

Financial Services (3)
234,806

 
287,614

 
166,012

 
166,012

Lennar Other
7,152

 
7,152

 
60,882

 
60,882

 
$
936,602

 
1,136,074

 
840,851

 
1,076,663

(1)
Limited to investments in unconsolidated VIEs, except as noted below.
(2)
As of August 31, 2020 and November 30, 2019, the maximum exposure to loss of Multifamily's investments in unconsolidated VIEs was primarily limited to its investments in the unconsolidated VIEs, except with regard to the remaining equity commitment of $129.0 million and $224.2 million, respectively, to fund LMV I and LMV II for future expenditures related to the construction and development of its projects.
(3)
As of August 31, 2020, the maximum exposure to loss of Financial Services' investments in unconsolidated entities included a note receivable.
While these entities are VIEs, the Company has determined that the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance is generally shared and the Company and its partners are not de-facto agents. While the Company generally manages the day-to-day operations of the VIEs, each of these VIEs has an executive committee made up of representatives from each partner. The members of the executive committee have equal votes and major decisions require unanimous consent and approval from all members. The Company does not have the unilateral ability to exercise participating voting rights without partner consent.
There are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to the VIEs. Except for the unconsolidated VIEs discussed above, the Company and the other partners did not guarantee any debt of the other unconsolidated VIEs. While the Company has option contracts to purchase land from certain of its unconsolidated VIEs, the Company is not required to purchase the assets and could walk away from the contracts.
Option Contracts
The Company has access to land through option contracts, which generally enable it to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company has determined whether to exercise the options.
The Company evaluates all option contracts for land to determine whether they are VIEs and, if so, whether the Company is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, if the Company is deemed to be the primary beneficiary or makes a significant deposit for optioned land, it may need to consolidate the land under option at the purchase price of the optioned land.
During the nine months ended August 31, 2020, consolidated inventory not owned increased by $82.4 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated

25

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


balance sheet as of August 31, 2020. The increase was primarily related to the Company entering into option contracts, which required consolidation during the period, partially offset by the Company exercising its options to acquire land under previously consolidated contracts. To reflect the purchase price of the inventory consolidated, the Company had a net reclass related to option deposits from consolidated inventory not owned to land under development in the accompanying condensed consolidated balance sheet as of August 31, 2020. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and the Company’s cash deposits.
The Company’s exposure to losses related to its option contracts with third parties and unconsolidated entities consisted of its non-refundable option deposits and pre-acquisition costs totaling $325.4 million and $320.5 million at August 31, 2020 and November 30, 2019, respectively. Additionally, the Company had posted $76.8 million and $75.0 million of letters of credit in lieu of cash deposits under certain land and option contracts as of August 31, 2020 and November 30, 2019, respectively. As a result of the COVID-19 pandemic, the Company reviewed its option contracts as of August 31, 2020 and had no write-offs of costs related to option contracts because of the COVID-19 pandemic during the nine months ended August 31, 2020.
(11)Commitments and Contingent Liabilities
The Company is a party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the Company’s consolidated financial statements. From time to time, the Company is also a party to various lawsuits involving purchases and sales of real property. These lawsuits include claims regarding representations and warranties made in connection with the transfer of properties and disputes regarding the obligation to purchase or sell properties.
The Company does not believe that the ultimate resolution of these claims or lawsuits will have a material adverse effect on its business or financial position. However, the financial effect of litigation concerning purchases and sales of property may depend upon the value of the subject property, which may have changed from the time the agreement for purchase or sale was entered into.
Leases
The Company has entered into agreements to lease certain office facilities and equipment under operating leases. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets and right-of-use lease liabilities are recorded on the balance sheet for all leases, except leases with an initial term of 12 months or less. Many of the Company's leases include options to renew. The exercise of lease renewal options is at the Company's option and therefore renewal option payments have not been included in the ROU assets or lease liabilities. The following table includes additional information about the Company's leases:
(Dollars in thousands)
August 31, 2020
Right-of-use assets
$
121,728

Lease liabilities
$
131,325

Weighted-average remaining lease term (in years)
2.7

Weighted-average discount rate
3.1
%


26

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancellable leases in effect at August 31, 2020 were as follows:
(Dollars in thousands)
Lease Payments
2020
$
8,897

2021
36,049

2022
28,843

2023
21,804

2024
15,853

2025 and thereafter
30,861

Total future minimum lease payments (1)
$
142,307

Less: Interest (2)
10,982

Present value of lease liabilities (2)
$
131,325

(1)
Total future minimum lease payments exclude variable lease costs of $12.7 million and short-term lease costs of $2.3 million. This also does not include minimum lease payments for executed and legally enforceable leases that have not yet commenced. As of August 31, 2020, the minimum lease payments for these leases that have not yet commenced were immaterial.
(2)
The Company's leases do not include a readily determinable implicit rate. As such, the Company has estimated the discount rate for these leases to determine the present value of lease payments at the lease commencement date or as of December 1, 2019, which was the effective date of ASU 2016-02. As of August 31, 2020, the weighted average remaining lease term and weighted average discount rate used in calculating the lease liabilities were 2.7 years and 3.1%, respectively. The Company recognized the lease liabilities on its condensed consolidated balance sheets within accounts payable or other liabilities of the respective segments.
Rental expense for the nine months ended August 31, 2020, was $62.6 million. Payments on lease liabilities during the nine months ended August 31, 2020 totaled $40.4 million. Rental expense includes costs for all leases. On occasion, the Company may sublease rented space which is no longer used for the Company's operations. For the nine months ended August 31, 2020, the Company had an immaterial amount of sublease income.

27

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


(12)
New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. ASU 2016-13 is effective for the Company's fiscal year beginning December 1, 2020 and subsequent interim periods. While the Company is continuing to evaluate the impact of the adoption of ASU 2016-13, the Company does not expect the adoption to have a material impact on its condensed consolidated financial statements. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments —Credit Losses and ASU 2019-05, Financial Instruments —Credit Losses (Topic 326) Targeted Transition Relief. These ASUs do not change the core principle of the guidance in ASU 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. These ASUs will have the same effective date and transition requirements as ASU 2016-13.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 will be effective for the Company’s fiscal year beginning December 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact the adoption of ASU 2017-04 will have on the Company's condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 will be effective for the Company’s fiscal year beginning December 1, 2022. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on the Company's condensed consolidated financial statements.
(13)
Supplemental Financial Information
The indentures governing the Company’s senior notes require that, if any of the Company’s 100% owned subsidiaries, other than its finance company subsidiaries and foreign subsidiaries, directly or indirectly guarantee at least $75 million principal amount of debt of Lennar Corporation, those subsidiaries must also guarantee Lennar Corporation’s obligations with regard to its senior notes. The entities referred to as "guarantors" in the following tables are subsidiaries that are not finance company subsidiaries or foreign subsidiaries and were guaranteeing the senior notes because at August 31, 2020 they were guaranteeing Lennar Corporation's letter of credit facilities and its Credit Facility, disclosed in Note 7 of the Notes to the Condensed Consolidated Financial Statements. The guarantees are full, unconditional and joint and several and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. A subsidiary's guarantee of Lennar senior notes will be suspended at any time when it is not directly or indirectly guaranteeing at least $75 million principal amount of debt of Lennar Corporation, and 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.
For purposes of the condensed consolidating statement of cash flows included in the following supplemental financial information, the Company's accounting policy is to treat cash received by Lennar Corporation (the "Parent") from its subsidiaries, to the extent of net earnings from such subsidiaries as a dividend and accordingly a return on investment within cash flows from operating activities. Distributions of capital received by the Parent from its subsidiaries are reflected as cash flows from investing activities. The cash outflows associated with the return on investment dividends and distributions of capital received by the Parent are reflected by the Guarantor and Non-Guarantor subsidiaries in the Dividends line item within cash flows from financing activities. All other cash flows between the Parent and its subsidiaries represent the settlement of receivables and payables between such entities in conjunction with the Parent's centralized cash management arrangement with its subsidiaries, which operates with the characteristics of a revolving credit facility, and are accordingly reflected net in the Intercompany line item within cash flows from investing activities for the Parent and net in the Intercompany line item within cash flows from financing activities for the Guarantor and Non-Guarantor subsidiaries.
Supplemental information for the subsidiaries that were guarantor subsidiaries at August 31, 2020 was as follows:


28

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Balance Sheet
August 31, 2020
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, restricted cash and receivables, net
$
1,645,161

 
602,845

 
26,707

 

 
2,274,713

Inventories

 
17,174,841

 
496,421

 

 
17,671,262

Investments in unconsolidated entities

 
938,584

 
2,111

 

 
940,695

Goodwill

 
3,442,359

 

 

 
3,442,359

Other assets
397,033

 
413,928

 
362,541

 
(36,365
)
 
1,137,137

Investments in subsidiaries
10,166,689

 
43,534

 

 
(10,210,223
)
 

Intercompany
12,272,981

 

 

 
(12,272,981
)
 

 
24,481,864

 
22,616,091

 
887,780

 
(22,519,569
)
 
25,466,166

Financial Services

 
287,907

 
1,923,928

 
(2,286
)
 
2,209,549

Multifamily

 

 
1,184,086

 

 
1,184,086

Lennar Other

 
193,874

 
282,728

 
(21,118
)
 
455,484

Total assets
$
24,481,864

 
23,097,872

 
4,278,522

 
(22,542,973
)
 
29,315,285

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Accounts payable and other liabilities
$
773,363

 
2,033,906

 
337,088

 
(59,769
)
 
3,084,588

Liabilities related to consolidated inventory not owned

 
324,544

 

 


 
324,544

Senior notes and other debts payable
6,536,398

 
525,482

 
118,394

 


 
7,180,274

Intercompany

 
9,924,870

 
2,348,111

 
(12,272,981
)
 

 
7,309,761

 
12,808,802

 
2,803,593

 
(12,332,750
)
 
10,589,406

Financial Services

 
30,921

 
1,166,926

 

 
1,197,847

Multifamily

 

 
236,059

 

 
236,059

Lennar Other

 

 
11,628

 

 
11,628

Total liabilities
7,309,761

 
12,839,723

 
4,218,206

 
(12,332,750
)
 
12,034,940

Total stockholders’ equity
17,172,103

 
10,258,149

 
(47,926
)
 
(10,210,223
)
 
17,172,103

Noncontrolling interests

 

 
108,242

 

 
108,242

Total equity
17,172,103

 
10,258,149

 
60,316

 
(10,210,223
)
 
17,280,345

Total liabilities and equity
$
24,481,864

 
23,097,872

 
4,278,522

 
(22,542,973
)
 
29,315,285



29

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Balance Sheet
November 30, 2019
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, restricted cash and receivables, net
$
722,172

 
794,588

 
22,894

 

 
1,539,654

Inventories

 
17,396,139

 
380,368

 

 
17,776,507

Investments in unconsolidated entities

 
1,006,541

 
2,494

 

 
1,009,035

Goodwill

 
3,442,359

 

 

 
3,442,359

Other assets
344,941

 
500,356

 
217,607

 
(41,220
)
 
1,021,684

Investments in subsidiaries
10,453,165

 
26,773

 

 
(10,479,938
)
 

Intercompany
12,027,996

 

 

 
(12,027,996
)
 

 
23,548,274

 
23,166,756

 
623,363

 
(22,549,154
)
 
24,789,239

Financial Services

 
275,812

 
2,731,285

 
(1,073
)
 
3,006,024

Multifamily

 

 
1,068,831

 

 
1,068,831

Lennar Other

 
158,194

 
339,988

 
(2,765
)
 
495,417

Total assets
$
23,548,274

 
23,600,762

 
4,763,467

 
(22,552,992
)

29,359,511

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Accounts payable and other liabilities
$
760,981

 
1,935,366

 
318,845

 
(45,058
)
 
2,970,134

Liabilities related to consolidated inventory not owned

 
260,266

 

 

 
260,266

Senior notes and other debts payable
6,837,776

 
885,783

 
53,079

 

 
7,776,638

Intercompany

 
10,122,374

 
1,905,622

 
(12,027,996
)
 

 
7,598,757

 
13,203,789

 
2,277,546

 
(12,073,054
)
 
11,007,038

Financial Services

 
40,235

 
2,016,215

 

 
2,056,450

Multifamily

 

 
232,155

 

 
232,155

Lennar Other

 

 
30,038

 

 
30,038

Total liabilities
7,598,757

 
13,244,024

 
4,555,954

 
(12,073,054
)
 
13,325,681

Total stockholders’ equity
15,949,517

 
10,356,738

 
123,200

 
(10,479,938
)
 
15,949,517

Noncontrolling interests

 

 
84,313

 

 
84,313

Total equity
15,949,517

 
10,356,738

 
207,513

 
(10,479,938
)
 
16,033,830

Total liabilities and equity
$
23,548,274

 
23,600,762

 
4,763,467

 
(22,552,992
)
 
29,359,511




30

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended August 31, 2020
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
Homebuilding
$

 
5,493,155

 
11,965

 

 
5,505,120

Financial Services

 
40,163

 
202,882

 
(5,977
)
 
237,068

Multifamily

 

 
115,170

 

 
115,170

Lennar Other

 

 
12,896

 

 
12,896

Total revenues

 
5,533,318

 
342,913

 
(5,977
)
 
5,870,254

Cost and expenses:
 
 
 
 
 
 
 
 
 
Homebuilding

 
4,659,970

 
13,424

 
(236
)
 
4,673,158

Financial Services

 
19,262

 
89,414

 
(6,687
)
 
101,989

Multifamily

 

 
118,786

 

 
118,786

Lennar Other

 
232

 
1,830

 

 
2,062

Corporate general and administrative
88,977

 
2,419

 

 
1,265

 
92,661

Total costs and expenses
88,977


4,681,883


223,454


(5,658
)

4,988,656

Homebuilding equity in earnings (loss) from unconsolidated entities

 
(6,557
)
 
126

 

 
(6,431
)
Homebuilding other income (expense), net
(319
)
 
(12,722
)
 
935

 
319

 
(11,787
)
Multifamily equity in loss from unconsolidated entities and other gain

 

 
(1,532
)
 

 
(1,532
)
Lennar Other equity in earnings (loss) from unconsolidated entities

 
(4,145
)
 
1,956

 

 
(2,189
)
Lennar Other income (expense), net

 
437

 
(1,083
)
 

 
(646
)
Earnings (loss) before income taxes
(89,296
)
 
828,448

 
119,861

 

 
859,013

Benefit (provision) for income taxes
20,823

 
(182,045
)
 
(28,468
)
 

 
(189,690
)
Equity in earnings from subsidiaries
734,891

 
81,609

 

 
(816,500
)
 

Net earnings (including net earnings attributable to noncontrolling interests)
666,418

 
728,012

 
91,393

 
(816,500
)
 
669,323

Less: Net earnings attributable to noncontrolling interests

 

 
2,905

 

 
2,905

Net earnings attributable to Lennar
$
666,418

 
728,012

 
88,488

 
(816,500
)
 
666,418

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

 

 
175

 

 
175

Total other comprehensive income, net of tax
$

 

 
175

 

 
175

Total comprehensive income attributable to Lennar
$
666,418

 
728,012

 
88,663

 
(816,500
)
 
666,593

Total comprehensive income attributable to noncontrolling interests
$

 

 
2,905

 

 
2,905




31

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended August 31, 2019
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
Homebuilding
$

 
5,413,602

 
25,396

 

 
5,438,998

Financial Services

 
36,409

 
192,960

 
(4,867
)
 
224,502

Multifamily

 

 
183,958

 

 
183,958

Lennar Other

 

 
9,600

 

 
9,600

Total revenues

 
5,450,011

 
411,914

 
(4,867
)
 
5,857,058

Cost and expenses:
 
 
 
 
 
 
 
 
 
Homebuilding

 
4,758,852

 
24,009

 
(929
)
 
4,781,932

Financial Services

 
17,707

 
137,148

 
(5,051
)
 
149,804

Multifamily

 

 
181,616

 

 
181,616

Lennar Other

 

 
2,734

 

 
2,734

Corporate general and administrative
86,846

 
4,503

 

 
1,266

 
92,615

Total costs and expenses
86,846

 
4,781,062

 
345,507

 
(4,714
)
 
5,208,701

Homebuilding equity in loss from unconsolidated entities

 
(10,455
)
 
(4
)
 

 
(10,459
)
Homebuilding other income (expense), net
(153
)
 
7,101

 
5,274

 
153

 
12,375

Multifamily equity in earnings from unconsolidated entities and other gain

 

 
7,883

 

 
7,883

Lennar Other equity in earnings from unconsolidated entities

 
561

 
8,342

 

 
8,903

Lennar Other income, net

 

 
24

 

 
24

Earnings (loss) before income taxes
(86,999
)
 
666,156

 
87,926

 

 
667,083

Benefit (provision) for income taxes
19,816

 
(151,808
)
 
(22,448
)
 

 
(154,440
)
Equity in earnings from subsidiaries
580,549

 
42,876

 

 
(623,425
)
 

Net earnings (including net loss attributable to noncontrolling interests)
513,366

 
557,224

 
65,478

 
(623,425
)
 
512,643

Less: Net loss attributable to noncontrolling interests

 

 
(723
)
 

 
(723
)
Net earnings attributable to Lennar
$
513,366

 
557,224

 
66,201

 
(623,425
)
 
513,366

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

 

 
180

 

 
180

Total other comprehensive income, net of tax
$

 

 
180

 

 
180

Total comprehensive income attributable to Lennar
$
513,366

 
557,224

 
66,381

 
(623,425
)
 
513,546

Total comprehensive loss attributable to noncontrolling interests
$

 

 
(723
)
 

 
(723
)



32

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Nine Months Ended August 31, 2020
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
Homebuilding
$

 
14,589,155

 
37,565

 

 
14,626,720

Financial Services

 
104,691

 
545,247

 
(17,946
)
 
631,992

Multifamily

 

 
370,904

 

 
370,904

Lennar Other

 

 
33,348

 

 
33,348

Total revenues

 
14,693,846

 
987,064

 
(17,946
)
 
15,662,964

Cost and expenses:
 
 
 
 
 
 
 
 
 
Homebuilding

 
12,647,627

 
44,071

 
(7,403
)
 
12,684,295

Financial Services

 
56,861

 
320,141

 
(13,314
)
 
363,688

Multifamily

 

 
379,607

 

 
379,607

Lennar Other

 
232

 
3,332

 

 
3,564

Corporate general and administrative
253,531

 
5,632

 

 
3,796

 
262,959

Total costs and expenses
253,531

 
12,710,352

 
747,151

 
(16,921
)
 
13,694,113

Homebuilding equity in earnings (loss) from unconsolidated entities

 
(20,513
)
 
436

 

 
(20,077
)
 Homebuilding other income (expense), net
(1,025
)
 
(20,961
)
 
4,116

 
1,025

 
(16,845
)
Financial Services gain on deconsolidation

 
61,418

 

 

 
61,418

Multifamily equity in earnings from unconsolidated entities and other gain

 

 
4,702

 

 
4,702

Lennar Other equity in loss from unconsolidated entities

 
(12,997
)
 
(15,715
)
 

 
(28,712
)
Lennar Other income (expense), net

 
443

 
(10,638
)
 

 
(10,195
)
Earnings (loss) before income taxes
(254,556
)
 
1,990,884

 
222,814

 

 
1,959,142

Benefit (provision) for income taxes
49,562

 
(373,756
)
 
(58,304
)
 

 
(382,498
)
Equity in earnings from subsidiaries
1,787,270

 
162,444

 

 
(1,949,714
)
 

Net earnings (including net earnings (loss) attributable to noncontrolling interests)
1,582,276

 
1,779,572

 
164,510

 
(1,949,714
)
 
1,576,644

Less: Net earnings (loss) attributable to noncontrolling interests

 

 
(5,632
)
 

 
(5,632
)
Net earnings attributable to Lennar
$
1,582,276

 
1,779,572

 
170,142

 
(1,949,714
)
 
1,582,276

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
 
Net unrealized loss on securities available-for-sale
$

 


(209
)


 
(209
)
Reclassification adjustments for gain included in earnings, net of tax

 


(452
)


 
(452
)
Total other comprehensive loss, net of tax
$

 

 
(661
)
 

 
(661
)
Total comprehensive income attributable to Lennar
$
1,582,276

 
1,779,572

 
169,481

 
(1,949,714
)
 
1,581,615

Total comprehensive loss attributable to noncontrolling interests
$

 

 
(5,632
)
 

 
(5,632
)



33

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Nine Months Ended August 31, 2019
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
Homebuilding
$

 
14,202,932

 
55,386

 

 
14,258,318

Financial Services

 
121,679

 
464,938

 
(14,588
)
 
572,029

Multifamily

 

 
428,764

 

 
428,764

Lennar Other

 

 
28,919

 

 
28,919

Total revenues

 
14,324,611

 
978,007

 
(14,588
)
 
15,288,030

Cost and expenses:
 
 
 
 
 
 
 
 
 
Homebuilding

 
12,546,016

 
55,910

 
6,100

 
12,608,026

Financial Services

 
76,914

 
368,926

 
(23,698
)
 
422,142

Multifamily

 

 
431,510

 

 
431,510

Lennar Other

 

 
7,550

 

 
7,550

Corporate general and administrative
238,696

 
5,579

 

 
3,796

 
248,071

Total costs and expenses
238,696

 
12,628,509

 
863,896

 
(13,802
)
 
13,717,299

Homebuilding equity in earnings (loss) from unconsolidated entities

 
(4,869
)
 
268

 

 
(4,601
)
Homebuilding other income (expense), net
(783
)
 
(43,845
)
 
8,517

 
786

 
(35,325
)
Multifamily equity in earnings from unconsolidated entities and other gain

 

 
15,446

 

 
15,446

Lennar Other equity in earnings (loss) from unconsolidated entities

 
(7,024
)
 
19,279

 

 
12,255

Lennar Other expense, net

 

 
(12,900
)
 

 
(12,900
)
Earnings (loss) before income taxes
(239,479
)
 
1,640,364

 
144,721

 

 
1,545,606

Benefit (provision) for income taxes
57,906

 
(394,383
)
 
(38,193
)
 

 
(374,670
)
Equity in earnings from subsidiaries
1,356,321

 
76,352

 

 
(1,432,673
)
 

Net earnings (including net loss attributable to noncontrolling interests)
1,174,748

 
1,322,333

 
106,528

 
(1,432,673
)
 
1,170,936

Less: Net loss attributable to noncontrolling interests

 

 
(3,812
)
 

 
(3,812
)
Net earnings attributable to Lennar
$
1,174,748

 
1,322,333

 
110,340

 
(1,432,673
)
 
1,174,748

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

 

 
949

 

 
949

Reclassification adjustments for loss included in earnings, net of tax

 

 
(176
)
 

 
(176
)
Total other comprehensive income, net of tax
$

 

 
773

 

 
773

Total comprehensive income attributable to Lennar
$
1,174,748

 
1,322,333

 
111,113

 
(1,432,673
)
 
1,175,521

Total comprehensive loss attributable to noncontrolling interests
$

 

 
(3,812
)
 

 
(3,812
)



34

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Statement of Cash Flows
Nine Months Ended August 31, 2020
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings (including net loss attributable to noncontrolling interests)
$
1,582,276

 
1,779,572

 
164,510

 
(1,949,714
)
 
1,576,644

Distributions of earnings from guarantor and non-guarantor subsidiaries
1,787,270

 
162,444

 

 
(1,949,714
)
 

Other adjustments to reconcile net earnings (including net loss attributable to noncontrolling interests) to net cash provided by operating activities
(1,757,490
)
 
395,502

 
732,474

 
1,949,714

 
1,320,200

Net cash provided by operating activities
1,612,056

 
2,337,518

 
896,984

 
(1,949,714
)
 
2,896,844

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Investments in and contributions to unconsolidated entities/deconsolidation of a previously consolidated entity, net of distributions of capital

 
(71,695
)
 
(205,102
)
 

 
(276,797
)
Proceeds from the sales of operating properties and equipment and other assets

 
33,096

 

 

 
33,096

Other
(3,414
)
 
32,229

 
(52,581
)
 

 
(23,766
)
Distributions of capital from guarantor and non-guarantor subsidiaries
100,000

 
50,000

 

 
(150,000
)
 

Intercompany
(62,896
)
 

 

 
62,896

 

Net cash provided by (used in) investing activities
33,690

 
43,630

 
(257,683
)
 
(87,104
)
 
(267,467
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings (repayments) under unsecured revolving credit facilities

 
1,476

 
(790,815
)
 

 
(789,339
)
Net borrowings (repayments) on senior notes, other borrowings, other liabilities, and other notes payable
(280,630
)
 
(481,524
)
 
121,604

 

 
(640,550
)
Common stock:
 
 
 
 
 
 
 
 

Repurchases
(318,989
)
 

 

 

 
(318,989
)
Dividends
(117,112
)
 
(1,879,572
)
 
(220,142
)
 
2,099,714

 
(117,112
)
Intercompany

 
(185,180
)
 
248,076

 
(62,896
)
 

Net cash used in financing activities
(716,731
)
 
(2,544,800
)
 
(641,277
)
 
2,036,818

 
(1,865,990
)
Net increase (decrease) in cash and cash equivalents and restricted cash
929,015

 
(163,652
)
 
(1,976
)
 

 
763,387

Cash and cash equivalents and restricted cash at beginning of period
713,828

 
532,304

 
222,559

 

 
1,468,691

Cash and cash equivalents and restricted cash at end of period
$
1,642,843

 
368,652

 
220,583

 

 
2,232,078




35

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)


Condensed Consolidating Statement of Cash Flows
Nine Months Ended August 31, 2019
(In thousands)
Lennar
Corporation
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net earnings (including net loss attributable to noncontrolling interests)
$
1,174,748

 
1,322,333

 
106,528

 
(1,432,673
)
 
1,170,936

Distributions of earnings from guarantor and non-guarantor subsidiaries
1,356,321

 
76,352

 

 
(1,432,673
)
 

Other adjustments to reconcile net earnings (including net loss attributable to noncontrolling interests) to net cash provided by operating activities
(1,261,601
)
 
(1,342,672
)
 
298,957

 
1,432,673

 
(872,643
)
Net cash provided by operating activities
1,269,468

 
56,013

 
405,485

 
(1,432,673
)
 
298,293

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Investments in and contributions to unconsolidated entities and consolidated entities, net of distributions of capital

 
(135,395
)
 
55,802

 

 
(79,593
)
Proceeds from sales of real estate owned

 

 
8,560

 

 
8,560

Proceeds from sale of investment in unconsolidated entities

 

 
17,790

 

 
17,790

Proceeds from sales of Financial Services' business

 
21,517

 
2,929

 

 
24,446

Other
(2,164
)
 
34,935

 
(43,331
)
 

 
(10,560
)
Intercompany
(1,256,112
)
 

 

 
1,256,112

 

Net cash provided by (used in) investing activities
(1,258,276
)
 
(78,943
)
 
41,750

 
1,256,112

 
(39,357
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net borrowings under unsecured revolving credit facilities
700,000

 

 

 

 
700,000

Net repayments under warehouse facilities

 
(9
)
 
(423,114
)
 

 
(423,123
)
Net borrowings (repayments) on convertible senior notes, other borrowings, other liabilities, and other notes payable
(500,000
)
 
(117,444
)
 
21,521

 

 
(595,923
)
Net repayments related to noncontrolling interests

 

 
(8,294
)
 

 
(8,294
)
Common stock:
 
 
 
 
 
 
 
 

Issuances
388

 

 

 

 
388

Repurchases
(419,322
)
 

 

 

 
(419,322
)
Dividends
(38,776
)
 
(1,322,333
)
 
(110,340
)
 
1,432,673

 
(38,776
)
Intercompany

 
1,181,304

 
74,808

 
(1,256,112
)
 

Net cash used in financing activities
(257,710
)
 
(258,482
)
 
(445,419
)
 
176,561

 
(785,050
)
Net increase (decrease) in cash and cash equivalents and restricted cash
(246,518
)
 
(281,412
)
 
1,816

 

 
(526,114
)
Cash and cash equivalents and restricted cash at beginning of period
624,694

 
721,603

 
249,681

 

 
1,595,978

Cash and cash equivalents and restricted cash at end of period
$
378,176

 
440,191

 
251,497

 

 
1,069,864




36



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Item 1 of this Report and our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K, for our fiscal year ended November 30, 2019.
Some of the statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q, are "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “intend,” “objective,” “plan,” “predict,” “projection,” “seek,” “strategy,” “target,” “will” or other words of similar meaning. Forward-looking statements contained herein may include opinions or beliefs regarding market conditions and similar matters. In many instances, those opinions and beliefs are based upon general observations by members of our management, anecdotal evidence and our experience in the conduct of our businesses, without specific investigation or analyses. Therefore, while they reflect our view of the industries and markets in which we are involved, they should not be viewed as reflecting verifiable views or views that are necessarily shared by all who are involved in those industries or markets. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.
The forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements. The most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include, but are not limited to: the potential negative impact to our business of the ongoing coronavirus (“COVID-19”) pandemic, the duration, impact and severity of which is highly uncertain; increases in operating costs, including costs related to construction materials, labor, real estate taxes and insurance, and our inability to manage our cost structure, both in our Homebuilding and Multifamily businesses; an extended slowdown in the real estate markets across the nation, including a slowdown in the market for single family homes or the multifamily rental market; reduced availability of mortgage financing or increased interest rates; our inability to successfully execute our strategies, including our land lighter strategy and our strategy to monetize non-core assets; changes in general economic and financial conditions that reduce demand for our products and services, lower our profit margins or reduce our access to credit; our inability to acquire land at anticipated prices; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods; decreased demand for our homes or Multifamily rental properties; the possibility that the benefit from our increasing use of technology will not justify its cost; increased competition for home sales from other sellers of new and resale homes; our inability to pay down debt; whether government actions or other factors related to COVID-19 force us to further delay or terminate our program of repurchasing our stock; a decline in the value of our land inventories and resulting write-downs of the carrying value of our real estate assets; the failure of the participants in various joint ventures to honor their commitments; difficulty obtaining land-use entitlements or construction financing; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage; new laws or regulatory changes that adversely affect the profitability of our businesses; our inability to refinance our debt on terms that are acceptable to us; and changes in accounting conventions that adversely affect our reported earnings.
Please see our Form 10-K for the fiscal year ended November 30, 2019, Part II, Item 1A of this quarterly report on Form 10-Q and our other filings with the SEC for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation, other than those imposed by securities laws, to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.
Outlook
Our third quarter was a solid quarter for Lennar, reflecting the robust state of the housing market across the country. As a result of the COVID-19 pandemic, the home has become more and more essential to the way we live and to the quality of our lives. Inventories are limited and demand remains strong driven by low interest rates and a customer focus on owning and controlling their lifestyle. Our measured growth strategy in the current market is to focus on selling current inventory, which improves our inventory turn, while being patient with longer-term sales, which enables expected price appreciation to offset future cost escalations to maximize margin.
As expected, our closings in the third quarter were limited by the production pause we took in March, April and May as we assessed the impact of COVID-19 on the housing market. We increased production as the market recovered and expect this to generate increased deliveries as we move into 2021. We expect to deliver between 15,500 and 16,000 homes in the fourth quarter of 2020. While community count is difficult to predict, we expect our community count to increase approximately 10% in 2021.

37



For the short term, we are already extremely well positioned to manage costs and meet demand. While we're selling through communities somewhat faster than expected, we are well fortified with strong land positions that will be brought online. And while lumber, in particular, and other costs are rising, we are actively managing sales pace, primarily to started homes in order to manage that cost risk. During the third quarter, our ability to raise prices together with our focus on cost controls enabled us to increase our gross and operating margins by 270 basis points and 310 basis points, respectively. In addition, our laser focus on improving our SG&A leverage combined with the benefits of our increased use of technology helped drive our SG&A to a historical third quarter low of 8.0% of home sale revenues. We believe our strong margins will continue throughout 2021, and we expect our bottom line to grow faster than our top line.
For the intermediate term, we are and have been accelerating starts and production of homes under construction, while also accelerating the readiness of new communities that we control wherever possible. And for the longer term, we are focused on ramping up our land purchases for new communities as we believe the industry will have a sustained expansion for the foreseeable future. We have remained focused on our optioned versus owned land strategy and will continue to manage towards a 50%-50% target. At the end of the third quarter, the portion of land we controlled through options or similar agreements was 35%, up from 30% in the third quarter of 2019. In addition, we ended the quarter with a 3.8 year supply of land owned, compared to a 4.4 year supply of land owned in the third quarter of 2019. Among other things, this has increased our cash flow, which enabled us to reduce debt such that our quarter-end homebuilding debt-to-total capital ratio improved to 29.5%. We expect to be in a strong cash and liquidity position, and plan to continue to pay down debt, resume some form of a stock reacquisition program and look at other ways to properly deploy capital to enhance returns.
Our financial services segment also had an excellent quarter, benefiting from an increase in volume and margins, as well as technology enabled efficiencies. We are also focused on monetizing non-core assets, including our Multifamily platform, which we view as a blue-chip asset, but does not generate the type of returns we get from our core businesses.
With a solid balance sheet, leading positions in almost all of our homebuilding markets and continued execution of our core operating strategies, we believe that we are well positioned to meet demand, drive high margins and cash flow and continue to grow with the market.
(1) Results of Operations
Overview
We historically have experienced, and expect to continue to experience, variability in quarterly results. Our results of operations for the three and nine months ended August 31, 2020 are not necessarily indicative of the results to be expected for the full year. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second and third fiscal quarters and increased deliveries in the second half of our fiscal year. However, a variety of factors, such as the COVID-19 pandemic, can alter seasonal patterns.
Our net earnings attributable to Lennar were $666.4 million, or $2.12 per diluted share ($2.13 per basic share), in the third quarter of 2020, compared to net earnings attributable to Lennar of $513.4 million, or $1.59 per diluted share ($1.60 per basic share), in the third quarter of 2019. Our net earnings attributable to Lennar were $1.6 billion, or $5.03 per diluted share ($5.05 per basic share), in the nine months ended August 31, 2020, compared to net earnings attributable to Lennar of $1.2 billion, or $3.63 per diluted share ($3.64 per basic share), in the nine months ended August 31, 2019.













38









Financial information relating to our operations was as follows:
 
Three Months Ended August 31, 2020
(In thousands)
Homebuilding
 
Financial Services
 
Multifamily
 
Lennar Other
 
Corporate
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Sales of homes
$
5,467,364

 

 

 

 

 
5,467,364

Sales of land
34,323

 

 

 

 

 
34,323

Other revenues
3,433

 
237,068

 
115,170

 
12,896

 

 
368,567

Total revenues
5,505,120

 
237,068

 
115,170

 
12,896

 

 
5,870,254

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Costs of homes sold
4,204,814

 

 

 

 

 
4,204,814

Costs of land sold
32,395

 

 

 

 

 
32,395

Selling, general and administrative expenses
435,949

 

 

 

 

 
435,949

Other costs and expenses

 
101,989

 
118,786

 
2,062

 

 
222,837

Total costs and expenses
4,673,158

 
101,989

 
118,786

 
2,062

 

 
4,895,995

Equity in loss from unconsolidated entities and Multifamily other gain
(6,431
)
 

 
(1,532
)
 
(2,189
)
 

 
(10,152
)
Other expense, net
(11,787
)
 

 

 
(646
)
 

 
(12,433
)
Operating earnings (loss)
$
813,744

 
135,079

 
(5,148
)
 
7,999

 

 
951,674

Corporate general and administrative expenses

 

 

 

 
92,661

 
92,661

Earnings (loss) before income taxes
$
813,744

 
135,079

 
(5,148
)
 
7,999

 
(92,661
)
 
859,013

 
Three Months Ended August 31, 2019
(In thousands)
Homebuilding
 
Financial Services
 
Multifamily
 
Lennar Other
 
Corporate
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Sales of homes
$
5,330,694

 

 

 

 

 
5,330,694

Sales of land
104,338

 

 

 

 

 
104,338

Other revenues
3,966

 
224,502

 
183,958

 
9,600

 

 
422,026

Total revenues
5,438,998

 
224,502

 
183,958

 
9,600

 

 
5,857,058

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Costs of homes sold
4,245,061

 

 

 

 

 
4,245,061

Costs of land sold
92,151

 

 

 

 

 
92,151

Selling, general and administrative expenses
444,720

 

 

 

 

 
444,720

Other costs and expenses

 
149,804

 
181,616

 
2,734

 

 
334,154

Total costs and expenses
4,781,932

 
149,804

 
181,616

 
2,734

 

 
5,116,086

Equity in earnings (loss) from unconsolidated entities and Multifamily other gain
(10,459
)
 

 
7,883

 
8,903

 

 
6,327

Other income, net
12,375

 

 

 
24

 

 
12,399

Operating earnings
$
658,982

 
74,698

 
10,225

 
15,793

 

 
759,698

Corporate general and administrative expenses

 

 

 

 
92,615

 
92,615

Earnings (loss) before income taxes
$
658,982

 
74,698

 
10,225

 
15,793

 
(92,615
)
 
667,083



39



 
Nine Months Ended August 31, 2020
(In thousands)
Homebuilding
 
Financial Services
 
Multifamily
 
Lennar Other
 
Corporate
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Sales of homes
$
14,533,212

 

 

 

 

 
14,533,212

Sales of land
81,023

 

 

 

 

 
81,023

Other revenues
12,485

 
631,992

 
370,904

 
33,348

 

 
1,048,729

Total revenues
14,626,720

 
631,992

 
370,904

 
33,348

 

 
15,662,964

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Costs of homes sold
11,359,364

 

 

 

 

 
11,359,364

Costs of land sold
102,899

 

 

 

 

 
102,899

Selling, general and administrative expenses
1,222,032

 

 

 

 

 
1,222,032

Other costs and expenses

 
363,688

 
379,607

 
3,564

 

 
746,859

Total costs and expenses
12,684,295

 
363,688

 
379,607

 
3,564

 

 
13,431,154

Equity in earnings (loss) from unconsolidated entities and Multifamily other gain
(20,077
)
 

 
4,702

 
(28,712
)
 

 
(44,087
)
Financial Services gain on deconsolidation

 
61,418

 

 

 

 
61,418

Other expense, net
(16,845
)
 

 
 
 
(10,195
)
 

 
(27,040
)
Operating earnings (loss)
$
1,905,503

 
329,722

 
(4,001
)
 
(9,123
)
 

 
2,222,101

Corporate general and administrative expenses

 

 

 

 
262,959

 
262,959

Earnings (loss) before income taxes
$
1,905,503

 
329,722

 
(4,001
)
 
(9,123
)
 
(262,959
)
 
1,959,142

 
Nine Months Ended August 31, 2019
(In thousands)
Homebuilding
 
Financial Services
 
Multifamily
 
Lennar Other
 
Corporate
 
Total
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Sales of homes
$
14,114,939

 

 

 

 

 
14,114,939

Sales of land
134,576

 

 

 

 

 
134,576

Other revenues
8,803

 
572,029

 
428,764

 
28,919

 

 
1,038,515

Total revenues
14,258,318

 
572,029

 
428,764

 
28,919

 

 
15,288,030

Homebuilding costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Costs of homes sold
11,264,640

 

 

 

 

 
11,264,640

Costs of land sold
119,685

 

 

 

 

 
119,685

Selling, general and administrative
1,223,701

 

 

 

 

 
1,223,701

Other costs and expenses

 
422,142

 
431,510

 
7,550

 
 
 
861,202

Total costs and expenses
12,608,026

 
422,142

 
431,510

 
7,550

 

 
13,469,228

Equity in earnings (loss) from unconsolidated entities and Multifamily other gain
(4,601
)
 

 
15,446

 
12,255

 

 
23,100

Other expense, net
(35,325
)
 

 

 
(12,900
)
 

 
(48,225
)
Operating earnings
$
1,610,366

 
149,887

 
12,700

 
20,724

 

 
1,793,677

Corporate general and administrative expenses

 

 

 

 
248,071

 
248,071

Earnings (loss) before income taxes
$
1,610,366

 
149,887

 
12,700

 
20,724

 
(248,071
)
 
1,545,606

Three Months Ended August 31, 2020 versus Three Months Ended August 31, 2019
Revenues from home sales increased 3% in the third quarter of 2020 to $5.5 billion from $5.3 billion in the third quarter of 2019. Revenues were higher primarily due to a 2% increase in the number of home deliveries, excluding unconsolidated entities, and a 1% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 13,809 homes in the third quarter of 2020 from 13,513 homes in the third quarter of 2019. The average sales price of homes delivered was $396,000 in the third quarter of 2020, compared to $394,000 in the third quarter of 2019.
Gross margin on home sales were $1.3 billion, or 23.1%, in the third quarter of 2020, compared to $1.1 billion, or 20.4%, in the third quarter of 2019. The gross margin percentage on home sales increased primarily due to our focus on reducing construction costs.

40



Selling, general and administrative expenses were $435.9 million in the third quarter of 2020, compared to $444.7 million in the third quarter of 2019. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.0% in the third quarter of 2020, from 8.3% in the third quarter of 2019 as we focused on improving our leverage combined with the benefits of our technology efforts.
Operating earnings for our Financial Services segment were $135.1 million in the third quarter of 2020, compared to $74.7 million ($78.8 million net of noncontrolling interests) in the third quarter of 2019. Operating earnings increased due to an improvement in the mortgage business as a result of an increase in volume and margin. Additionally, operating earnings of our title business increased primarily due to an increase in volume.
Operating loss for our Multifamily segment was $5.1 million in the third quarter of 2020, compared to operating earnings of $10.2 million ($10.5 million net of noncontrolling interests) in the third quarter of 2019, which included the sale of an operating property. Operating earnings for our Lennar Other segment were $8.0 million in the third quarter of 2020, compared to $15.8 million ($15.9 million net of noncontrolling interests) in the third quarter of 2019.
Nine Months Ended August 31, 2020 versus Nine Months Ended August 31, 2019
Revenues from home sales increased 3% in the nine months ended August 31, 2020 to $14.5 billion from $14.1 billion in the nine months ended August 31, 2019. Revenues were higher primarily due to a 5% increase in the number of home deliveries, excluding unconsolidated entities. New home deliveries, excluding unconsolidated entities, increased to 36,775 homes in the nine months ended August 31, 2020 from 35,021 homes in the nine months ended August 31, 2019. The average sales price of homes delivered was $395,000 in the nine months ended August 31, 2020, compared to $403,000 in the nine months ended August 31, 2019. The decrease in average sales price primarily resulted from continuing to shift to lower-priced communities and regional product mix due to COVID-19 stay-at-home orders in certain higher priced markets.
Gross margin on home sales were $3.2 billion, or 21.8%, in the nine months ended August 31, 2020, compared to $2.9 billion or 20.2%, in the nine months ended August 31, 2019. The gross margin percentage on home sales increased primarily due to our continued focus on reducing construction costs. Loss on land sales in the nine months ended August 31, 2020 was $21.9 million, primarily due to a write-off of costs in the second quarter of 2020 as a result of us not moving forward with a naval base development in Concord, California, northeast of San Francisco. Gross margin on land sales were $14.9 million in the nine months ended August 31, 2019.
Selling, general and administrative expenses were $1.2 billion in both the nine months ended August 31, 2020 and 2019. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.4% in the nine months ended August 31, 2020, from 8.7% in the nine months ended August 31, 2019.
Operating earnings for our Financial Services segment were $329.7 million ($343.8 million net of noncontrolling interests) in the nine months ended August 31, 2020, compared to $149.9 million ($163.0 million net of noncontrolling interests) in the nine months ended August 31, 2019. Operating earnings increased due to an improvement in our mortgage and title businesses as a result of an increase in volume and margin, as well as reductions in loan origination costs. Additionally, in the second quarter of 2020, our Financial Services segment recorded a $61.4 million gain on the deconsolidation of a previously consolidated entity.
Operating loss for our Multifamily segment was $4.0 million in the nine months ended August 31, 2020, compared to operating earnings of $12.7 million ($13.4 million net of noncontrolling interests) in the nine months ended August 31, 2019. Operating loss for our Lennar Other segment was $9.1 million in the nine months ended August 31, 2020, compared to operating earnings of $20.7 million ($21.2 million net of noncontrolling interests) in the nine months ended August 31, 2019.
For the nine months ended August 31, 2020 and 2019, we had a tax provision of $382.5 million and $374.7 million, respectively, which resulted in an overall effective income tax rate of 19.5% and 24.2%, respectively. The reduction in the overall effective income tax rate is primarily due to the extension of the new energy efficient home tax credit during the first quarter of 2020.
Homebuilding Segments
At August 31, 2020, our reportable Homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in:
East: Florida, New Jersey, Pennsylvania and South Carolina
Central: Georgia, Illinois, Indiana, Maryland, North Carolina, Minnesota, Tennessee and Virginia
Texas: Texas
West: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington

41



Other: Urban divisions and other homebuilding related investments primarily in California, including FivePoint Holdings, LLC ("FivePoint")
The following tables set forth selected financial and operational information related to our homebuilding operations for the periods indicated:
Selected Financial and Operational Data
 
Three Months Ended August 31, 2020
 
Gross Margins
 
Operating Earnings (Loss)
(In thousands)
Sales of Homes Revenue
 
Costs of Sales of Homes
 
Gross Margin %
 
Net Margins on Sales of Homes (1)
 
Gross Margins on Sales of Land
 
Other Revenue
 
Equity in Earnings (Loss) from Unconsolidated Entities
 
Other Income (Expense), net
 
Operating Earnings (Loss)
East
$
1,477,273

 
1,112,035

 
24.7
 %
 
241,904

 
(103
)
 
638

 
897

 
853

 
244,189

Central
1,062,799

 
842,764

 
20.7
 %
 
134,395

 
(57
)
 
1,341

 
70

 
(3,071
)
 
132,678

Texas
719,467

 
538,480

 
25.2
 %
 
114,954

 
2,016

 
203

 
242

 
(1,304
)
 
116,111

West
2,205,235

 
1,706,530

 
22.6
 %
 
343,353

 
72

 
1,145

 
48

 
(1,784
)
 
342,834

Other (2)
2,590

 
5,005

 
(93.2
)%
 
(8,005
)
 

 
106

 
(7,688
)
 
(6,481
)
 
(22,068
)
Totals
$
5,467,364

 
4,204,814

 
23.1
 %
 
$
826,601

 
1,928

 
3,433

 
(6,431
)
 
(11,787
)
 
813,744

 
Three Months Ended August 31, 2019
 
Gross Margins
 
Operating Earnings (Loss)
(In thousands)
Sales of Homes Revenue
 
Costs of Sales of Homes
 
Gross Margin %
 
Net Margins on Sales of Homes (1)
 
Gross Margins on Sales of Land
 
Other Revenue
 
Equity in Earnings (Loss) from Unconsolidated Entities
 
Other Income (Expense), net
 
Operating Earnings (Loss)
East
$
1,500,056

 
1,167,440

 
22.2
%
 
209,610

 
119

 
1,083

 
(184
)
 
8,707

 
219,335

Central
1,054,715

 
858,434

 
18.6
%
 
108,564

 
4,113

 
699

 
14

 
3,199

 
116,589

Texas
696,903

 
555,561

 
20.3
%
 
75,213

 
3,322

 
253

 
176

 
(666
)
 
78,298

West
2,060,740

 
1,646,254

 
20.1
%
 
253,844

 
727

 
1,336

 
655

 
2,862

 
259,424

Other (2)
18,280

 
17,372

 
5.0
%
 
(6,318
)
 
3,906

 
595

 
(11,120
)
 
(1,727
)
 
(14,664
)
Totals
$
5,330,694

 
4,245,061

 
20.4
%
 
$
640,913

 
12,187

 
3,966

 
(10,459
)
 
12,375

 
658,982


 
Nine Months Ended August 31, 2020
 
Gross Margins
 
Operating Earnings (Loss)
(In thousands)
Sales of Homes Revenue
 
Costs of Sales of Homes
 
Gross Margin %
 
Net Margins on Sales of Homes (1)
 
Gross Margins on Sales of Land
 
Other Revenue
 
Equity in Earnings (Loss) from Unconsolidated Entities
 
Other Income (Expense), net
 
Operating Earnings (Loss)
East
$
3,904,268

 
2,971,929

 
23.9
 %
 
581,923

 
(1,681
)
 
3,913

 
1,474

 
475

 
586,104

Central
2,833,745

 
2,300,783

 
18.8
 %
 
291,672

 
(703
)
 
2,209

 
642

 
(1,789
)
 
292,031

Texas
1,877,374

 
1,428,758

 
23.9
 %
 
266,647

 
5,213

 
970

 
446

 
(4,205
)
 
269,071

West
5,894,183

 
4,619,334

 
21.6
 %
 
841,369

 
(1,267
)
 
4,873

 
3,948

 
(1,088
)
 
847,835

Other (2)
23,642

 
38,560

 
(63.1
)%
 
(29,795
)
 
(23,438
)
 
520

 
(26,587
)
 
(10,238
)
 
(89,538
)
Totals
$
14,533,212

 
11,359,364

 
21.8
 %
 
$
1,951,816

 
(21,876
)
 
12,485

 
(20,077
)
 
(16,845
)
 
1,905,503



42



 
Nine Months Ended August 31, 2019
 
Gross Margins
 
Operating Earnings (Loss)
(In thousands)
Sales of Homes Revenue
 
Costs of Sales of Homes
 
Gross Margin %
 
Net Margins on Sales of Homes (1)
 
Gross Margins on Sales of Land
 
Other Revenue
 
Equity in Earnings (Loss) from Unconsolidated Entities
 
Other Income (Expense), net
 
Operating Earnings (Loss)
East
$
3,828,659

 
2,998,113

 
21.7
 %
 
491,322

 
3,854

 
2,802

 
(418
)
 
6,243

 
503,803

Central
2,723,292

 
2,230,857

 
18.1
 %
 
254,422

 
4,957

 
975

 
152

 
3,732

 
264,238

Texas
1,796,343

 
1,435,311

 
20.1
 %
 
182,257

 
5,597

 
508

 
334

 
(2,746
)
 
185,950

West
5,738,881

 
4,569,646

 
20.4
 %
 
718,061

 
(3,422
)
 
2,743

 
158

 
5,449

 
722,989

Other (2)
27,764

 
30,713

 
(10.6
)%
 
(19,464
)
 
3,905

 
1,775

 
(4,827
)
 
(48,003
)
 
(66,614
)
Totals
$
14,114,939

 
11,264,640

 
20.2
 %
 
$
1,626,598

 
14,891

 
8,803

 
(4,601
)
 
(35,325
)
 
1,610,366

(1)
Net margins on sales of homes include selling, general and administrative expenses.
(2)
Negative gross and net margins were due to period costs in Urban divisions that impact costs of homes sold without sufficient sales of homes revenue to offset those costs.
Summary of Homebuilding Data
Deliveries:
 
Three Months Ended
 
Homes
 
Dollar Value (In thousands)
 
Average Sales Price
 
August 31,
 
August 31,
 
August 31,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
East
4,309

 
4,521

 
$
1,488,022

 
1,502,780

 
$
345,000

 
332,000

Central
2,767

 
2,809

 
1,062,799

 
1,054,715

 
384,000

 
375,000

Texas
2,598

 
2,260

 
719,467

 
696,904

 
277,000

 
308,000

West
4,165

 
3,908

 
2,205,235

 
2,060,740

 
529,000

 
527,000

Other
3

 
24

 
2,590

 
18,280

 
863,000

 
762,000

Total
13,842

 
13,522

 
$
5,478,113

 
5,333,419

 
$
396,000

 
394,000

Of the total homes delivered listed above, 33 homes with a dollar value of $10.7 million and an average sales price of $326,000 represent home deliveries from unconsolidated entities for the three months ended August 31, 2020, compared to nine home deliveries with a dollar value of $2.7 million and an average sales price of $303,000 for the three months ended August 31, 2019.
 
Nine Months Ended
 
Homes
 
Dollar Value (In thousands)
 
Average Sales Price
 
August 31,
 
August 31,
 
August 31,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
East
11,511

 
11,502

 
$
3,924,289

 
3,838,124

 
$
341,000

 
334,000

Central
7,389

 
7,193

 
2,833,745

 
2,723,291

 
384,000

 
379,000

Texas
6,637

 
5,660

 
1,877,374

 
1,796,344

 
283,000

 
317,000

West
11,273

 
10,667

 
5,894,183

 
5,738,881

 
523,000

 
538,000

Other
25

 
49

 
23,642

 
43,312

 
946,000

 
884,000

Total
36,835

 
35,071

 
$
14,553,233

 
14,139,952

 
$
395,000

 
403,000

Of the total homes delivered listed above, 60 homes with a dollar value of $20.0 million and an average sales price of $334,000 represent home deliveries from unconsolidated entities for the nine months ended August 31, 2020, compared to 50 home deliveries with a dollar value of $25.0 million and an average sales price of $500,000 for the nine months ended August 31, 2019.


43



New Orders (1):
 
Three Months Ended
 
Active Communities
 
Homes
 
Dollar Value (In thousands)
 
Average Sales Price
 
August 31,
 
August 31,
 
August 31,
 
August 31,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
East
340

 
361

 
4,655

 
4,530

 
$
1,631,349

 
1,462,210

 
$
350,000

 
323,000

Central
297

 
338

 
3,375

 
2,632

 
1,298,792

 
1,003,818

 
385,000

 
381,000

Texas
217

 
235

 
2,746

 
2,221

 
743,553

 
660,304

 
271,000

 
297,000

West
341

 
362

 
4,786

 
3,949

 
2,580,328

 
2,049,404

 
539,000

 
519,000

Other
3

 
4

 
2

 
37

 
1,452

 
33,896

 
726,000

 
916,000

Total
1,198

 
1,300

 
15,564

 
13,369

 
$
6,255,474

 
5,209,632

 
$
402,000

 
390,000

Of the total new orders listed above, 34 homes with a dollar value of $9.7 million and an average sales price of $286,000 represent new orders in four active communities from unconsolidated entities for the three months ended August 31, 2020, compared to 21 new orders with a dollar value of $7.3 million and an average sales price of $349,000 in five active communities for the three months ended August 31, 2019.
 
Nine Months Ended
 
Homes
 
Dollar Value (In thousands)
 
Average Sales Price
 
August 31,
 
August 31,
 
August 31,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
East
12,512

 
12,756

 
$
4,266,221

 
4,242,708

 
$
341,000

 
333,000

Central
8,741

 
7,974

 
3,341,959

 
3,020,328

 
382,000

 
379,000

Texas
7,327

 
6,069

 
1,986,770

 
1,861,849

 
271,000

 
307,000

West
12,359

 
11,481

 
6,508,509

 
5,977,758

 
527,000

 
521,000

Other
16

 
70

 
15,189

 
60,447

 
949,000

 
864,000

Total
40,955

 
38,350

 
$
16,118,648

 
15,163,090

 
$
394,000

 
395,000

Of the total new orders listed above, 85 homes with a dollar value of $26.8 million and an average sales price of $316,000 represent new orders from unconsolidated entities for the nine months ended August 31, 2020, compared to 68 new orders with a dollar value of $32.1 million and an average sales price of $472,000 for the nine months ended August 31, 2019.
(1)
New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the three and nine months ended August 31, 2020 and August 31, 2019.

Backlog:
 
Homes
 
Dollar Value (In thousands)
 
Average Sales Price
 
August 31,
 
August 31,
 
August 31,
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
East
6,691

 
6,999

 
$
2,368,300

 
2,419,795

 
$
354,000

 
346,000

Central
4,502

 
4,110

 
1,752,180

 
1,597,944

 
389,000

 
389,000

Texas
2,860

 
2,557

 
822,734

 
826,226

 
288,000

 
323,000

West
5,644

 
5,215

 
2,922,743

 
2,726,329

 
518,000

 
523,000

Other

 
27

 

 
26,123

 

 
968,000

Total
19,697

 
18,908

 
$
7,865,957

 
7,596,417

 
$
399,000

 
402,000

Of the total homes in backlog listed above, 56 homes with a backlog dollar value of $17.0 million and an average sales price of $303,000 represent the backlog from unconsolidated entities at August 31, 2020, compared to 25 homes with a backlog dollar value of $9.8 million and an average sales price of $391,000 at August 31, 2019.
(1)
During the nine months ended August 31, 2019, we acquired 13 homes in backlog.
Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. Various state and federal laws and regulations may sometimes give purchasers a right to cancel homes in backlog. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.

44



Three Months Ended August 31, 2020 versus Three Months Ended August 31, 2019
Homebuilding East: Revenues from home sales decreased in the third quarter of 2020 compared to the third quarter of 2019, primarily due to a decrease in the number of home deliveries in all the states of the segment except in New Jersey, partially offset by an increase in the average sales price of homes delivered in all the states of the segment except in Pennsylvania. The decrease in the number of home deliveries was primarily due to the effects of COVID-19 and the economic shutdown. The increase in the number of home deliveries in New Jersey was primarily due to higher demand as the number of deliveries per active community increased during the quarter. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. The decrease in the average sales price of homes delivered in Pennsylvania was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities. Gross margin percentage on home deliveries in the third quarter of 2020 increased compared to the same period last year primarily due to reducing our construction costs and an increase in the average sales price of homes delivered.
Homebuilding Central: Revenues from home sales increased in the third quarter of 2020 compared to the third quarter of 2019, primarily due to an increase in the average sales price of homes delivered in all the states of the segment except in Indiana, North Carolina and Tennessee, partially offset by a decrease in the number of home deliveries in all the states in the segment except in Maryland, Minnesota and Tennessee. The decrease in the number of home deliveries was primarily due to the effects of COVID-19 and the economic shutdown. The increase in the average sales price of homes delivered was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the third quarter of 2020 increased compared to the same period last year primarily due to reducing our construction costs and an increase in the average sales price of homes delivered.
Homebuilding Texas: Revenues from home sales increased in the third quarter of 2020 compared to the third quarter of 2019, primarily due to an increase in the number of home deliveries, partially offset by a decrease in the average sales price of homes delivered. The increase in the number of deliveries was primarily due to higher demand as the number of deliveries per active community increased. The decrease in average sales price of homes delivered was primarily due to closing out higher priced communities and shifting into lower priced communities. Gross margin percentage on home deliveries in the third quarter of 2020 increased compared to the same period last year primarily due to reducing our construction costs.
Homebuilding West: Revenues from home sales increased in the third quarter of 2020 compared to the third quarter of 2019, primarily due to an increase in the number of home deliveries in all states of the segment except Arizona and Oregon. The increase in the number of home deliveries in all states of the segment except Arizona and Oregon was primarily due to higher demand as the number of deliveries per active community increased during the quarter. The decrease in the number of home deliveries in Arizona and Oregon was primarily due to the effects of COVID-19 and the economic shutdown. Gross margin percentage on home deliveries in the third quarter of 2020 increased compared to the same period last year primarily due to reducing our construction costs.
Nine Months Ended August 31, 2020 versus Nine Months Ended August 31, 2019
Homebuilding East: Revenues from home sales increased in the nine months ended August 31, 2020 compared to the nine months ended August 31, 2019, primarily due to an increase in the average sales price of homes delivered in Florida and New Jersey, partially offset by a decrease in the average sales price of homes delivered in Pennsylvania and South Carolina. The increase in the average sales price of homes delivered in Florida and New Jersey was primarily due to favorable market conditions. The decrease in the average sales price of homes delivered in the South Carolina and Pennsylvania was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities. Gross margin percentage on home deliveries in the nine months ended August 31, 2020 increased compared to the same period last year primarily due to reducing our construction costs and an increase in the average sales price of homes delivered.
Homebuilding Central: Revenues from home sales increased in the nine months ended August 31, 2020 compared to the nine months ended August 31, 2019, primarily due to an increase in the number of home deliveries in all the states in the segment except in North Carolina and Virginia. The increase in the number of home deliveries was primarily due to higher demand as the number of deliveries per active community increased. The decrease in the number of homes deliveries in North Carolina and Virginia was primarily due to the effects of COVID-19 and the economic shutdown. Gross margin percentage on home deliveries in the nine months ended August 31, 2020 increased compared to the same period last year primarily due to reducing our construction costs, partially offset by valuation adjustments taken in a few communities.
Homebuilding Texas: Revenues from home sales increased in the nine months ended August 31, 2020 compared to the nine months ended August 31, 2019, primarily due to an increase in the number of home deliveries, partially offset by a decrease in the average sales price of homes delivered. The increase in the number of deliveries was primarily due to higher demand as the number of deliveries per active community increased. The decrease in average sales price of homes delivered was primarily due to closing out higher priced communities and shifting into lower priced communities. Gross margin

45



percentage on home deliveries in the nine months ended August 31, 2020 increased compared to the same period last year primarily due to reducing our construction costs.
Homebuilding West: Revenues from home sales increased in the nine months ended August 31, 2020 compared to the nine months ended August 31, 2019, primarily due to an increase in the number of home deliveries in all the states of the segment except Oregon, Washington and Utah, partially offset by a decrease in the average sales price of homes delivered in all the states of the segment except Arizona. The increase in the number of home deliveries in all the states of the segment except Oregon, Washington and Utah was primarily due to higher demand as the number of deliveries per active community increased. The decrease in the number of home deliveries in Oregon, Washington and Utah was primarily due to the effects of COVID-19 and the economic shutdown. The decrease in the average sales price of homes delivered in all the states of the segment except Arizona was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities. The increase in the average sales price of homes delivered in Arizona was primarily due to favorable market conditions. Gross margin percentage on home deliveries in the nine months ended August 31, 2020 increased compared to the same period last year primarily due to reducing our construction costs.
Financial Services Segment
Our Financial Services reportable segment provides mortgage financing, title and closing services primarily for buyers of our homes. The segment also originates and sells into securitizations commercial mortgage loans through its LMF Commercial business. Our Financial Services segment sells substantially all of the residential 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, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements.
The following table sets forth selected financial and operational information related to the residential mortgage and title activities of our Financial Services segment:
 
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(Dollars in thousands)
2020
 
2019
 
2020
 
2019
Dollar value of mortgages originated
$
3,529,000

 
2,883,000

 
9,007,000

 
7,440,000

Number of mortgages originated
10,800

 
9,200

 
27,800

 
23,700

Mortgage capture rate of Lennar homebuyers
82
%
 
77
%
 
80
%
 
75
%
Number of title and closing service transactions
16,400

 
14,300

 
42,000

 
42,400

At August 31, 2020 and November 30, 2019, the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was $164.6 million and $166.0 million, respectively. These securities were purchased at discounts ranging from 6% to 84% with coupon rates ranging from 2.0% to 5.3%, stated and assumed final distribution dates between October 2027 and December 2028, and stated maturity dates between October 2050 and December 2051. Our Financial Services segment classifies these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.
LMF Commercial
LMF Commercial originates and sells into securitizations five, seven and ten year commercial first mortgage loans, which are secured by income producing properties.
During the nine months ended August 31, 2020, LMF Commercial originated commercial loans with a total principal balance of $582.0 million, all of which were recorded as loans held-for-sale and sold $622.3 million of commercial loans into four separate securitizations. As of August 31, 2020, there were no unsettled transactions.
During the nine months ended August 31, 2019, LMF Commercial originated commercial loans with a total principal balance of $984.5 million, all of which were recorded as loans held-for-sale, and sold $848.3 million of loans into seven separate securitizations.

46



Multifamily Segment
The following tables provide information related to our investment in the Multifamily segment:
Balance Sheets
August 31, 2020
 
November 30, 2019
(Dollars in thousands)
 
 
 
Multifamily investments in unconsolidated entities
$
656,012

 
561,190

Lennar's net investment in Multifamily
930,213

 
829,537

Statements of Operations
Three Months Ended
 
Nine Months Ended
 
August 31,
 
August 31,
(Dollars in thousands)
2020
 
2019
 
2020
 
2019
Number of operating properties/investments sold through joint ventures

 
1

 
2

 
3

Lennar's share of gains on the sale of operating properties/investments
$

 
12,620

 
$
3,001

 
$
28,128

Despite widespread reductions in economic activity due to the COVID-19 pandemic, the properties in which the Multifamily segment has investments did not, overall, experience significant increases in vacancies or in delinquent rent payments to date.
(2) Financial Condition and Capital Resources
At August 31, 2020, we had cash and cash equivalents and restricted cash related to our homebuilding, financial services, multifamily and other operations of $2.2 billion, compared to $1.5 billion at November 30, 2019 and $1.1 billion at August 31, 2019.
We finance all of our activities, including homebuilding, financial services, multifamily, other and general operating needs, primarily with cash generated from our operations, debt issuances and cash borrowed under our warehouse lines of credit and our unsecured revolving credit facility (the "Credit Facility").
Operating Cash Flow Activities
During the nine months ended August 31, 2020 and 2019, cash provided by operating activities totaled $2.9 billion and $298.3 million, respectively. During the nine months ended August 31, 2020, cash provided by operating activities was impacted primarily by our net earnings, a decrease in loans held-for-sale of $557.8 million primarily related to the sale of loans originated by Financial Services, a decrease in receivables of $264.6 million and an increase in accounts payable and other liabilities of $165.6 million, partially offset by an increase in other assets of $124.6 million.
During the nine months ended August 31, 2019, cash provided by operating activities was impacted primarily by our net earnings, a decrease in receivables of $528.0 million, partially offset by an increase in inventories due to strategic land purchases, land development and construction costs of $1.6 billion.
Investing Cash Flow Activities
During the nine months ended August 31, 2020 and 2019, cash used in investing activities totaled $267.5 million and $39.4 million, respectively. During the nine months ended August 31, 2020, our cash used in investing activities was primarily due to cash contributions of $412.5 million to unconsolidated entities and deconsolidation of a previously consolidated entity, which included (1) $86.9 million to Homebuilding unconsolidated entities, (2) $122.7 million to Multifamily unconsolidated entities, (3) $50.3 million to the strategic technology investments included in the Lennar Other segment; and (4) the derecognition of $152.5 million of cash as of the date of deconsolidation of a previously consolidated Financial Services entity. This was partially offset by distributions of capital from unconsolidated entities of $135.7 million, which primarily included (1) $58.3 million from Homebuilding unconsolidated entities, (2) $39.1 million from the unconsolidated Rialto real estate funds included in our Lennar Other segment; and (3) $38.3 million from Multifamily unconsolidated entities.
During the nine months ended August 31, 2019, cash used in investing activities was primarily due to cash contributions of $329.9 million to unconsolidated entities, which included (1) $196.4 million to Homebuilding unconsolidated entities, (2) $80.2 million to Multifamily unconsolidated entities primarily for working capital; and (3) $52.9 million to the unconsolidated Rialto real estate funds and strategic investments included in our Lennar Other segment; and $69.6 million of net addition to operating properties and equipment. This was partially offset by distributions of capital from unconsolidated and consolidated entities of $250.3 million, which included (1) $107.2 million from Multifamily unconsolidated entities; (2) $78.7 million from Homebuilding unconsolidated entities; (3) $41.6 million from the unconsolidated Rialto real estate funds and strategic investments included in our Lennar Other segment; and (4)$22.9 million from Financial Services consolidated entities. In addition, cash used in investing activities was also offset by $50.0 million of proceeds from the sale of two Homebuilding operating properties and other assets, and $41.6 million of proceeds from the sales of available-for-sale securities.

47



Financing Cash Flow Activities
During the nine months ended August 31, 2020 and 2019, cash used in financing activities totaled $1.9 billion and $785.1 million, respectively. During the nine months ended August 31, 2020, cash used in financing activities was primarily impacted by (1) $789.3 million of net repayments under our Financial Services' warehouse facilities, which included the LMF Commercial warehouse repurchase facilities; (2) $550.3 million of principal payments on notes payable and other borrowings; (3) the redemption of $313 million aggregate principal amount of our senior notes; and (4) repurchases of our common stock for $319.0 million, which included $288.5 million of repurchases under our repurchase program and $30.3 million of repurchases related to our equity compensation plan. These were partially offset by $175.6 million of receipts related to noncontrolling interests.
During the nine months ended August 31, 2019, cash used in financing activities was primarily impacted by (1) payment at maturity of $500.0 million aggregate principal amount of our 4.50% senior notes due June 2019; (2) $423.1 million of net repayments under our Financial Services' warehouse facilities, which included the LMF Commercial warehouse repurchase facilities; (3) $154.7 million principal payment on other borrowings; and (4) repurchases of our common stock for $419.3 million, which included $394.7 million of repurchases of our stock under our repurchase program and $24.6 million of repurchases related to our equity compensation plan. These were partially offset by (1) $700 million of net borrowings under our Credit Facility; and (2) $62.6 million proceeds from other borrowings.
Debt to total capital ratios are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our homebuilding operations. Homebuilding debt to total capital and net Homebuilding debt to total capital are calculated as follows:
(Dollars in thousands)
August 31,
2020
 
November 30,
2019
 
August 31,
2019
Homebuilding debt
$
7,180,274

 
7,776,638

 
9,075,016

Stockholders’ equity
17,172,103

 
15,949,517

 
15,371,938

Total capital
$
24,352,377

 
23,726,155

 
24,446,954

Homebuilding debt to total capital
29.5
%

32.8
%
 
37.1
%
Homebuilding debt
$
7,180,274

 
7,776,638

 
9,075,016

Less: Homebuilding cash and cash equivalents
1,966,796

 
1,200,832

 
795,405

Net Homebuilding debt
$
5,213,478

 
6,575,806

 
8,279,611

Net Homebuilding debt to total capital (1)
23.3
%
 
29.2
%
 
35.0
%
(1)
Net homebuilding debt to total capital is a non-GAAP financial measure defined as net homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders' equity). We believe the ratio of net homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in homebuilding operations. However, because net homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement our GAAP results.
At August 31, 2020, Homebuilding debt to total capital improved compared to August 31, 2019 and November 30, 2019, primarily as a result of a decrease in Homebuilding debt and an increase in stockholders' equity due to net earnings.
We are continually exploring various types of transactions to manage our leverage and liquidity positions, take advantage of market opportunities and increase our revenues and earnings. These transactions may include the issuance of additional indebtedness, the repurchase of our outstanding indebtedness, the repurchase of our common stock, the acquisition of homebuilders and other companies, the purchase or sale of assets or lines of business, the issuance of common stock or securities convertible into shares of common stock, and/or the pursuit of other financing alternatives. In connection with some of our non-homebuilding businesses, we are also considering other types of transactions such as sales, restructurings, joint ventures, spin-offs or initial public offerings as we continue to move back towards being a pure play homebuilding company.
Our Homebuilding senior notes and other debts payable are summarized within Note 7 of the Notes to the Condensed Consolidated Financial Statements.
At August 31, 2020, we had an unsecured revolving credit facility (the "Credit Facility") with maximum borrowings of $2.4 billion maturing in 2024. The Credit Facility agreement (the "Credit Agreement") provides that up to $500 million in commitments may be used for letters of credit. Under the Credit Agreement, as of the end of the fiscal quarter, we are subject to debt covenants. The maturity, details and debt covenants of the Credit Facility are unchanged from the disclosure in the Financial Condition and Capital Resources section of our Form 10-K for the year ended November 30, 2019. In addition to the Credit Facility, we have other letter of credit facilities with different financial institutions.
Our outstanding letters of credit and surety bonds are described below:

48



 
 
August 31,
2020
 
November 30,
2019
(In thousands)
 
 
 
 
Performance letters of credit
 
$
770,527

 
715,793

Financial letters of credit
 
258,703

 
184,075

Surety bonds
 
3,041,946

 
2,946,167

Anticipated future costs primarily for site improvements related to performance surety bonds
 
1,498,173

 
1,427,145

Currently, substantially all of our 100% owned homebuilding subsidiaries are guaranteeing all our senior notes (the "Guaranteed Notes"). The guarantees are full and unconditional. However, they will terminate as to a subsidiary any time it is not directly or indirectly guaranteeing at least $75 million of Lennar Corporation debt or when the subsidiary is sold. These guarantees are outlined in Note 13 of the Notes to the Condensed Consolidated Financial Statements.
Our Homebuilding average debt outstanding and the average rates of interest was as follows:
 
Nine Months Ended
(Dollars in thousands)
August 31,
2020
 
August 31,
2019
Homebuilding average debt outstanding
$
7,896,372

 
$
9,191,109

Average interest rate
4.9
%
 
4.8
%
Interest incurred
272,347

 
320,960

Under the amended Credit Facility agreement executed in April 2019 (the "Credit Agreement"), as of the end of each fiscal quarter, we are required to maintain minimum consolidated tangible net worth of approximately $7.1 billion plus the sum of 50% of the cumulative consolidated net income for each completed fiscal quarter subsequent to February 28, 2019, if positive, and 50% of the net cash proceeds from any equity offerings from and after February 28, 2019, minus the lesser of 50% of the amount paid after April 11, 2019 to repurchase common stock and $375.0 million. We are required to maintain a leverage ratio that shall not exceed 65% and may be reduced by 2.5% per quarter if our interest coverage ratio is less than 2.25:1.00 for two consecutive fiscal calendar quarters. The leverage ratio will have a floor of 60%. If our interest coverage ratio subsequently exceeds 2.25:1.00 for two consecutive fiscal calendar quarters, the leverage ratio we will be required to maintain will be increased by 2.5% per quarter to a maximum of 65%. As of the end of each fiscal quarter, we are also required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio equal to or greater than 1.50:1.00 for the last twelve months then ended. We believe that we were in compliance with our debt covenants at August 31, 2020.
The following summarizes our debt covenant requirements and our actual levels or ratios with respect to those covenants as calculated per the Credit Agreement as of August 31, 2020:
(Dollars in thousands)
Covenant Level
 
Level Achieved as of
August 31, 2020
Minimum net worth test
$
8,370,211

 
11,621,827

Maximum leverage ratio
65.0
%
 
27.8
%
Liquidity test
1.00

 
5.68


49



At August 31, 2020, the Financial Services warehouse facilities were all 364-day repurchase facilities and were used to fund residential mortgages or commercial mortgages for LMF Commercial as follows:
(In thousands)
Maximum Aggregate Commitment
Residential facilities maturing:
 
January 2021
$
500,000

March 2021
300,000

June 2021
600,000

July 2021
200,000

Total - Residential facilities
$
1,600,000

LMF Commercial facilities maturing
 
November 2020
$
200,000

December 2020 (1)
700,000

Total - LMF Commercial facilities
$
900,000

Total
$
2,500,000

(1)
Includes $50.0 million LMF Commercial warehouse repurchase facility used to finance the origination of floating rate accrual loans, which are reported as accrual loans within loans held-for-investment, net. There were borrowings under this facility of $11.4 million as of August 31, 2020.
Our Financial Services segment uses the residential facilities to finance its residential lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. The LMF Commercial facilities finance LMF Commercial loan originations and securitization activities and were secured by a 75% interest in the originated commercial loans financed.
Borrowings and collateral under the facilities and their prior year predecessors were as follows:
(In thousands)
 
August 31, 2020
 
November 30, 2019
Borrowings under the residential facilities
 
$
699,016

 
1,374,063

Collateral under the residential facilities
 
727,319

 
1,423,650

Borrowings under the LMF Commercial facilities
 
103,667

 
216,870

If the facilities are not renewed or replaced, the borrowings under the lines of credit will be repaid by selling the mortgage loans held-for-sale to investors and by collecting receivables on loans sold but not yet paid for. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.
Changes in Capital Structure
In January 2019, our Board of Directors authorized the repurchase of up to the lesser of $1.0 billion in value, or 25 million in shares, of our outstanding Class A and Class B common stock. The repurchase authorization has no expiration date. The following table represents the repurchase of our Class A and Class B common stocks, under this program, for the three and nine months ended August 31, 2020 and 2019:
 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2020
 
August 31, 2019
 
August 31, 2020
 
August 31, 2019
(Dollars in thousands, except price per share)
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Shares repurchased
 

 

 
6,110,000

 

 
4,250,000

 
115,000

 
8,110,000

 

Principal
 
$

 
$

 
$
295,930

 
$

 
$
282,274

 
$
6,155

 
$
394,710

 
$

Average price per share
 
$

 
$

 
$
48.41

 
$

 
$
66.42

 
$
53.52

 
$
48.65

 
$

During the nine months ended August 31, 2020, treasury stock increased primarily due to our repurchase of 4.4 million shares of Class A and Class B common stock through our stock repurchase program. During the nine months ended August 31, 2019, treasury stock increased due to our repurchase of 8.1 million shares of Class A common stock during the nine months ended August 31, 2019 through our stock repurchase program and 0.6 million shares of Class A common stock primarily due to activity related to our equity compensation plan.
On October 1, 2020, our Board of Directors increased our annual dividend to $1.00 per share from $0.50 per share resulting in a quarterly cash dividend of $0.25 per share on both our Class A and Class B common stock, payable on October 30, 2020 to holders of record at the close of business on October 16, 2020. On July 24, 2020, we paid cash dividends of $0.125 per share on both our Class A and Class B common stock to holders of record at the close of business on July 10, 2020, as

50



declared by our Board of Directors on June 25, 2020. We declared and paid cash dividends of $0.04 per share on both our Class A and Class B common stock in each quarter for the year ended November 30, 2019.
Based on our current financial condition and credit relationships, we believe that, assuming the effects of the COVID-19 pandemic and resulting governmental actions on our operations do not significantly worsen for a protracted period, our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity.
Off-Balance Sheet Arrangements
Homebuilding: Investments in Unconsolidated Entities
At August 31, 2020, we had equity investments in 39 active homebuilding and land unconsolidated entities (of which three had recourse debt, nine had non-recourse debt and 27 had no debt) compared to 36 active homebuilding and land unconsolidated entities at November 30, 2019. Historically, we have invested in unconsolidated entities that acquired and developed land (1) for our homebuilding operations or for sale to third parties or (2) for the construction of homes for sale to third-party homebuyers. Through these entities, we have primarily sought to reduce and share our risk by limiting the amount of our capital invested in land, while obtaining access to potential future homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances, has enabled us to acquire land to which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Participants in these joint ventures have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to homesites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partners. Each joint venture is governed by an executive committee consisting of members from the partners.
As of August 31, 2020 and November 30, 2019, our recorded investments in Homebuilding unconsolidated entities were $940.7 million and $1.0 billion, respectively, while the underlying equity related to our investments in Homebuilding unconsolidated entities partners’ net assets as of August 31, 2020 and November 30, 2019 were $1.2 billion and $1.3 billion, respectively. The basis difference is primarily as a result of us contributing our 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 us. Included in our recorded investments in Homebuilding unconsolidated entities is our 40% ownership of FivePoint. As of August 31, 2020 and November 30, 2019, the carrying amounts of our investment in FivePoint were $376.4 million and $374.0 million, respectively.
The total debt of the Homebuilding unconsolidated entities in which we have investments was $1.1 billion as of both August 31, 2020 and November 30, 2019, of which our maximum recourse exposure was $4.9 million and $10.8 million as of August 31, 2020 and November 30, 2019, respectively. In most instances in which we have guaranteed debt of a Homebuilding unconsolidated entity, our partners have also guaranteed that debt and are required to contribute their share of the guarantee payment. In a repayment guarantee, we and our venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral.
In connection with many of the loans to Homebuilding unconsolidated entities, we and our 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 we are required to make a payment under any guarantee, the payment would generally constitute a capital contribution or loan to the Homebuilding unconsolidated entity and increase our share of any funds the unconsolidated entity distributes.
As of August 31, 2020 and November 30, 2019, the fair values of the repayment, maintenance, and completion guarantees were not material. We believe that as of August 31, 2020, in the event we become 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 we and our partners would contribute additional capital into the venture. In certain instances, we have placed performance letters of credit and surety bonds with municipalities with regard to obligations of our joint ventures (see Note 7 of the Notes to Condensed Consolidated Financial Statements).
The following table summarizes the principal maturities of our Homebuilding unconsolidated entities ("JVs") debt as per current debt arrangements as of August 31, 2020 and it does not represent estimates of future cash payments that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that would allow the loans to be

51



extended into future years.
 
Principal Maturities of Unconsolidated JVs by Period
(In thousands)
Total JV Debt
 
2020
 
2021
 
2022
 
Thereafter
 
Other
Debt without recourse to Lennar
$
1,088,048

 
49,497

 
211,460

 
164,396

 
662,695

 

Land seller and CDD debt
8,200

 

 

 

 

 
8,200

Maximum recourse debt exposure to Lennar
4,932

 

 

 
4,932

 

 

Debt issuance costs
(11,930
)
 

 

 

 

 
(11,930
)
Total
$
1,089,250

 
49,497

 
211,460

 
169,328

 
662,695

 
(3,730
)
Multifamily: Investments in Unconsolidated Entities
At August 31, 2020, Multifamily had equity investments in 21 unconsolidated entities that are engaged in multifamily residential developments (of which seven had non-recourse debt and 14 had no debt), compared to 19 unconsolidated entities at November 30, 2019. We invest in unconsolidated entities that acquire and develop land to construct multifamily rental properties. Through these entities, we are focusing on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Initially, we participated in building multifamily developments and selling them soon after they were completed. Recently, however, we have been focused on developing properties with the intention of retaining them. Participants in these joint ventures have been financial partners. Joint ventures with financial partners have allowed us to combine our development and construction expertise with access to our partners’ capital. Each joint venture is governed by an operating agreement that provides significant substantive participating voting rights on major decisions to our partners.
The Multifamily segment includes LMV I and LMV II, which are long-term multifamily development investment vehicles involved in the development, construction and property management of class-A multifamily assets. Details of each as of and during the nine months ended August 31, 2020 are included below:
 
 
August 31, 2020
(In thousands)
 
LMV I
 
LMV II
Lennar's carrying value of investments
 
$
348,561

 
250,777

Equity commitments
 
2,204,016

 
1,257,700

Equity commitments called
 
2,137,746

 
861,508

Lennar's equity commitments
 
504,016

 
381,000

Lennar's equity commitments called
 
496,082

 
259,886

Lennar's remaining commitments
 
7,934

 
121,114

Distributions to Lennar during the nine months ended August 31, 2020

 
23,822

 

We regularly monitor the results of both our Homebuilding and Multifamily unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. We believe all of the joint ventures were in compliance with their debt covenants at August 31, 2020.
The following table summarizes the principal maturities of our Multifamily unconsolidated entities debt as per current debt arrangements as of August 31, 2020 and it does not represent estimates of future cash payments that will be made to reduce debt balances.
 
Principal Maturities of Unconsolidated JVs by Period
(In thousands)
Total JV Debt
 
2020
 
2021
 
2022
 
Thereafter
 
Other
Debt without recourse to Lennar
$
2,466,461

 
92,629

 
676,916

 
478,041

 
1,218,875

 

Debt issuance costs
(28,246
)
 

 

 

 

 
(28,246
)
Total
$
2,438,215

 
92,629

 
676,916

 
478,041

 
1,218,875

 
(28,246
)

Lennar Other: Investments in Unconsolidated Entities
As part of the sale of the Rialto investment and asset management platform, we retained our ability to receive a portion of payments with regard to carried interests if funds meet specified performance thresholds. We periodically receive advance distributions related to the carried interests in order to cover income tax obligations resulting from allocations of taxable

52



income to the carried interests. These distributions are not subject to clawbacks but will reduce future carried interest payments to which we become entitled from the applicable funds and have been recorded as revenues.
As of August 31, 2020 and November 30, 2019, we had strategic technology investments in unconsolidated entities of $196.1 million and $124.3 million, respectively.
Option Contracts
We often obtain access to land through option contracts, which generally enable us to control portions of properties owned by third parties (including land funds) and unconsolidated entities until we have determined whether to exercise the options.
The table below indicates the number of homesites owned and homesites to which we had access through option contracts with third parties ("optioned") or unconsolidated JVs (i.e., controlled homesites) at August 31, 2020 and August 31, 2019:
 
Controlled Homesites
 
 
 
 
 
Years of
August 31, 2020
Optioned
 
JVs
 
Total
 
Owned Homesites
 
Total Homesites
 
Supply Owned (1)
East
30,683

 
12,718

 
43,401

 
62,256

 
105,657

 
 
Central
14,504

 
122

 
14,626

 
42,785

 
57,411

 
 
Texas
25,556

 

 
25,556

 
35,560

 
61,116

 
 
West
14,911

 
2,854

 
17,765

 
59,475

 
77,240

 
 
Other
1,137

 
7,544

 
8,681

 
2,068

 
10,749

 
 
Total homesites
86,791

 
23,238

 
110,029

 
202,144

 
312,173

 
3.8

% of total homesites
 
 


 
35
%
 
65
%
 
 
 
 
 
Controlled Homesites
 
 
 
 
 
Years of
August 31, 2019
Optioned
 
JVs
 
Total
 
Owned Homesites
 
Total Homesites
 
Supply Owned (1)
East
24,269

 
16,613

 
40,882

 
68,308

 
109,190

 
 
Central
14,760

 
132

 
14,892

 
43,802

 
58,694

 
 
Texas
24,049

 

 
24,049

 
37,603

 
61,652

 
 
West
8,193

 
3,304

 
11,497

 
64,627

 
76,124

 
 
Other

 
1,310

 
1,310

 
3,234

 
4,544

 
 
Total homesites
71,271

 
21,359

 
92,630

 
217,574

 
310,204

 
4.4

% of total homesites
 
 


 
30
%
 
70
%
 
 
 
 
(1)
Based on trailing twelve months of home deliveries.
We evaluate certain option contracts for land to determine whether they are VIEs and, if so, whether we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, if we are deemed to be the primary beneficiary or make a significant deposit for optioned land, we may need to consolidate the land under option at the purchase price of the optioned land. Consolidated land purchase options are reflected in the accompanying condensed consolidated balance sheets as consolidated inventory not owned. Over the next several years, we plan to increase the controlled homesites to 50% of our entire homesite inventory from approximately 35% as of August 31, 2020. Recently, we have undertaken several strategic land initiatives which include acquiring fully developed homesites from regional developers and may also include building homes in bulk for landowners who will retain them as rental properties.
During the nine months ended August 31, 2020, consolidated inventory not owned increased by $82.4 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of August 31, 2020. The increase was primarily due to the consolidation of option contracts, partially offset by us exercising our options to acquire land under previously consolidated contracts. To reflect the purchase price of the inventory consolidated, we had a net reclass related to option deposits from consolidated inventory not owned to land under development in the accompanying condensed consolidated balance sheet as of August 31, 2020. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and our cash deposits.
Our exposure to losses related to option contracts with third parties and unconsolidated entities consisted of non-refundable option deposits and pre-acquisition costs totaling $325.4 million and $320.5 million at August 31, 2020 and November 30, 2019, respectively. Additionally, we had posted $76.8 million and $75.0 million of letters of credit in lieu of cash deposits under certain land and option contracts as of August 31, 2020 and November 30, 2019, respectively.

53



Contractual Obligations and Commercial Commitments
Our contractual obligations and commercial commitments have not changed materially from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019. There were no outstanding borrowings under our Credit Facility as of August 31, 2020.
(3) New Accounting Pronouncements
See Note 12 of the Notes to Condensed Consolidated Financial Statements included under Item 1 of this Report for a discussion of new accounting pronouncements applicable to our company.
(4) Critical Accounting Policies
We believe that there have been no significant changes to our critical accounting policies during the nine months ended August 31, 2020 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, for the year ended November 30, 2019.

54



Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks related to fluctuations in interest rates on our investments, debt obligations, loans held-for-sale and loans held-for-investment. We utilize forward commitments and option contracts to mitigate the risks associated with our mortgage loan portfolio.
As of August 31, 2020, we had no outstanding borrowings under our Credit Facility.
As of August 31, 2020, our borrowings under Financial Services' warehouse repurchase facilities totaled $699.0 million under residential facilities and $103.7 million under LMF Commercial facilities.
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by
Expected Maturity and Average Interest Rate
August 31, 2020
 
Three Months Ending November 30,
 
Years Ending November 30,
 
 
 
 
 
Fair Value at August 31,
(Dollars in millions)
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
Thereafter
 
Total
 
2020
LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Notes and
other debts payable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate
$
345.1

 
1,039.1

 
1,793.6

 
56.8

 
1,519.3

 
571.7

 
1,674.1

 
6,999.7

 
7,513.0

Average interest rate
2.9
%
 
6.0
%
 
4.9
%
 
4.5
%
 
5.0
%
 
4.8
%
 
5.0
%
 
5.0
%
 

Variable rate
$

 
150.3

 

 

 

 

 

 
150.3

 
157.6

Average interest rate

 
5.3
%
 

 

 

 

 

 
5.3
%
 

Financial Services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes and other
debts payable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate
$

 

 

 

 

 

 
153.7

 
153.7

 
155.1

Average interest rate

 

 

 

 

 

 
3.4
%
 
3.4
%
 

Variable rate
$
802.7

 

 

 

 

 

 

 
802.7

 
802.7

Average interest rate
2.8
%
 

 

 

 

 

 

 
2.8
%
 

Lennar Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes and other
debts payable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate
$
1.9

 

 

 

 

 

 

 
1.9

 
1.9

Average interest rate
3.0
%
 

 

 

 

 

 

 
3.0
%
 

For additional information regarding our market risk refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended November 30, 2019.
Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of August 31, 2020 to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed in our reports filed or furnished under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2020. That evaluation did not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

55



Part II. Other Information

Item 1. Legal Proceedings
We are a party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on our condensed consolidated financial statements. From time to time, we are also a party to various lawsuits involving purchases and sales of real property. These lawsuits include claims regarding representations and warranties made in connection with the transfer of properties and disputes regarding the obligation to purchase or sell properties.
Item 1A. Risk Factors
Our results of operations and financial condition may be adversely affected by the COVID-19 pandemic and resulting governmental actions.
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors, in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The COVID-19 pandemic has caused the shutdown of large portions of our national economy. While portions of the national economy have reopened, there is still significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. economy and consumer confidence. With the exception of a period in March and April, the COVID-19 pandemic and its effects on the economy do not appear to have adversely affected our home sales through the quarter ended August 31, 2020. However, this may not continue to be the case. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continuing severity of COVID-19, whether there are additional outbreaks of COVID-19, and the actions taken to contain it or treat its impact. If the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our results of operations, financial condition and cash flows could be materially adversely impacted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our repurchases of common stock during the three months ended August 31, 2020:
Period:
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Number of Shares that may yet be Purchased under the Plans or Programs (2)
June 1 to June 30, 2020
14,401

 
$
63.55

 

 
10,860,271

July 1 to July 31, 2020
363,624

 
$
60.05

 

 
10,860,271

August 1 to August 31, 2020
997

 
$
74.55

 

 
10,860,271

(1)
Includes shares of Class A common stock withheld by us to cover withholding taxes due, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.
(2)
In January 2019, our Board of Directors authorized a stock repurchase program, which replaced the June 2001 stock repurchase program, under which we are authorized to purchase up to the lesser of $1.0 billion in value, excluding commission, or 25 million in shares, of our outstanding Class A or Class B common stock. This repurchase authorization has no expiration.
Items 3 - 5. Not Applicable

56



Item 6. Exhibits
31.1*
31.2*
32.*
101.*
The following financial statements from Lennar Corporation's Quarterly Report on Form 10-Q for the quarter ended August 31, 2020, filed on October 1, 2020, were formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements.
101.INS*
iXBRL Instance Document.
101.SCH*
iXBRL Taxonomy Extension Schema Document.
101.CAL*
iXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
iXBRL Taxonomy Extension Definition.
101.LAB*
iXBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
iXBRL Taxonomy Presentation Linkbase Document.
104**
The cover page from Lennar Corporation's Quarterly Report on Form 10-Q for the quarter ended August 31, 2020 was formatted in iXBRL.
* Filed herewith.
** Included in Exhibit 101.


57



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
Lennar Corporation
 
 
 
(Registrant)
 
 
 
 
Date:
October 1, 2020
 
/s/    Diane Bessette        
 
 
 
Diane Bessette
 
 
 
Vice President, Chief Financial Officer and Treasurer
 
 
 
 
Date:
October 1, 2020
 
/s/    David Collins        
 
 
 
David Collins
 
 
 
Controller


58