Edgar Filing: LENNAR CORP /NEW/

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2016

Commission File Number: 1-11749

Lennar Corporation

(Exact name of registrant as specified in its charter)



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

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

(305) 559-4000

(Registrant’s telephone number, including area code)

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

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

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



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

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

Common stock outstanding as of August 31, 2016:

Class A 196,500,243

Class B 31,303,195

Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

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

(unaudited)



	August 31,		November 30,
	2016 (1)		2015 (1)
ASSETS
Lennar Homebuilding:
Cash and cash equivalents	$	567,708	893,408
Restricted cash	5,452		13,505
Receivables, net	78,986		74,538
Inventories:
Finished homes and construction in progress	4,335,302		3,957,167
Land and land under development	5,193,420		4,724,578
Consolidated inventory not owned	127,024		58,851
Total inventories	9,655,746		8,740,596
Investments in unconsolidated entities	796,499		741,551
Other assets	637,546		609,222
	11,741,937		11,072,820
Rialto	1,196,653		1,505,500
Lennar Financial Services	1,527,556		1,425,837
Lennar Multifamily	532,574		415,352
Total assets	$	14,998,720	14,419,509

(1)

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

As of August 31, 2016, total assets include $596.6 million related to consolidated VIEs of which $9.7 million is included in Lennar Homebuilding cash and cash equivalents, $0.1 million in Lennar Homebuilding receivables, net, $46.9 million in Lennar Homebuilding finished homes and construction in progress, $113.8 million in Lennar Homebuilding land and land under development, $127.0 million in Lennar Homebuilding consolidated inventory not owned, $4.6 million in Lennar Homebuilding investments in unconsolidated entities, $16.5 million in Lennar Homebuilding other assets, $251.5 million in Rialto assets and $26.6 million in Lennar Multifamily assets.

As of November 30, 2015, total assets include $652.3 million related to consolidated VIEs of which $9.6 million is included in Lennar Homebuilding cash and cash equivalents, $0.5 million in Lennar Homebuilding receivables, net, $3.9 million in Lennar Homebuilding finished homes and construction in progress, $154.2 million in Lennar Homebuilding land and land under development, $58.9 million in Lennar Homebuilding consolidated inventory not owned, $35.8 million in Lennar Homebuilding investments in unconsolidated entities, $22.7 million in Lennar Homebuilding other assets, $355.2 million in Rialto assets and $11.5 million in Lennar Multifamily assets.

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Balance Sheets – (Continued)

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

(unaudited)



	August 31,			November 30,
	2016 (2)			2015 (2)
LIABILITIES AND EQUITY
Lennar Homebuilding:
Accounts payable	$	459,183		475,909
Liabilities related to consolidated inventory not owned	108,443			51,431
Senior notes and other debts payable	4,920,848			5,025,130
Other liabilities	867,367			899,815
	6,355,841			6,452,285
Rialto	632,562			866,224
Lennar Financial Services	1,140,215			1,083,978
Lennar Multifamily	107,196			66,950
Total liabilities	8,235,814			8,469,437
Stockholders’ equity:
Preferred stock	—			—
Class A common stock of $0.10 par value; Authorized: August 31, 2016 and November 30, 2015 - 300,000,000 shares; Issued: August 31, 2016 - 197,412,050 shares and November 30, 2015 - 180,658,550 shares	19,741			18,066
Class B common stock of $0.10 par value; Authorized: August 31, 2016 and November 30, 2015 - 90,000,000 shares; Issued: August 31, 2016 - 32,982,815 shares and November 30, 2015 - 32,982,815 shares	3,298			3,298
Additional paid-in capital	2,628,398			2,305,560
Retained earnings	4,001,905			3,429,736
Treasury stock, at cost; August 31, 2016 - 911,807 shares of Class A common stock and 1,679,620 shares of Class B common stock; November 30, 2015 - 815,959 shares of Class A common stock and 1,679,620 shares of Class B common stock	(108,930		)	(107,755	)
Accumulated other comprehensive income	1,123			39
Total stockholders’ equity	6,545,535			5,648,944
Noncontrolling interests	217,371			301,128
Total equity	6,762,906			5,950,072
Total liabilities and equity	$	14,998,720		14,419,509

(2)

As of August 31, 2016, total liabilities include $136.8 million related to consolidated VIEs as to which there was no recourse against the Company, of which $2.7 million is included in Lennar Homebuilding accounts payable, $108.4 million in Lennar Homebuilding liabilities related to consolidated inventory not owned, $1.7 million in Lennar Homebuilding other liabilities, $12.1 million in Rialto liabilities and $11.9 million in Lennar Multifamily liabilities.

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

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Dollars in thousands, except per share amounts)

(unaudited)



	Three Months Ended					Nine Months Ended
	August 31,					August 31,
	2016			2015		2016		2015
Revenues:
Lennar Homebuilding	$	2,496,969		2,232,318		6,734,335		5,789,788
Lennar Financial Services	191,444			168,748		491,340		463,460
Rialto	63,885			51,554		152,434		160,682
Lennar Multifamily	81,596			39,078		195,264		114,511
Total revenues	2,833,894			2,491,698		7,573,373		6,528,441
Costs and expenses:
Lennar Homebuilding	2,164,027			1,913,283		5,844,520		5,003,940
Lennar Financial Services	138,196			129,311		379,073		369,443
Rialto	62,306			53,323		155,416		161,610
Lennar Multifamily	84,007			47,072		204,244		136,293
Corporate general and administrative	61,164			56,494		164,634		150,355
Total costs and expenses	2,509,700			2,199,483		6,747,887		5,821,641
Lennar Homebuilding equity in earnings (loss) from unconsolidated entities	(18,034		)	13,300		(24,667	)	48,693
Lennar Homebuilding other income, net	30,947			4,189		46,391		10,305
Other interest expense	(973		)	(2,812	)	(3,323	)	(10,701	)
Rialto equity in earnings from unconsolidated entities	5,976			7,590		14,337		17,582
Rialto other income (expense), net	(7,612		)	1,172		(27,888	)	28
Lennar Multifamily equity in earnings from unconsolidated entities	5,060			5,004		38,754		4,404
Earnings before income taxes	339,558			320,658		869,090		777,111
Provision for income taxes	(106,427		)	(95,621	)	(266,469	)	(250,573	)
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	233,131			225,037		602,621		526,538
Less: Net earnings (loss) attributable to noncontrolling interests	(2,711		)	1,725		4,230		5,247
Net earnings attributable to Lennar	$	235,842		223,312		598,391		521,291
Other comprehensive income, net of tax:
Net unrealized gain (loss) on securities available-for-sale	639			(400	)	1,121		(294	)
Reclassification adjustments for gains included in earnings, net of tax	(31		)	—		(37	)	(23	)
Other comprehensive income attributable to Lennar	$	236,450		222,912		599,475		520,974
Other comprehensive income (loss) attributable to noncontrolling interests	$	(2,711	)	1,725		4,230		5,247
Basic earnings per share	$	1.04		1.07		2.74		2.53
Diluted earnings per share	$	1.01		0.96		2.59		2.25
Cash dividends per each Class A and Class B common share	$	0.04		0.04		0.12		0.12

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Nine Months Ended
	August 31,
	2016			2015
Cash flows from operating activities:
Net earnings (including net earnings attributable to noncontrolling interests)	$	602,621		526,538
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	35,785			30,450
Amortization of discount/premium and accretion on debt, net	11,901			15,107
Equity in earnings from unconsolidated entities	(28,424		)	(70,679	)
Distributions of earnings from unconsolidated entities	52,787			43,343
Share-based compensation expense	34,628			32,199
Excess tax benefits from share-based awards	(7,039		)	(113	)
Deferred income tax expense (benefit)	53,833			(3,890	)
Loss on retirement of debt and notes payable	1,569			3,206
Gain on sale of operating properties and equipment	(12,559		)	(5,945	)
Unrealized and realized gains on real estate owned	(17,251		)	(14,879	)
Impairments of loans receivable and real estate owned	26,893			16,225
Valuation adjustments and write-offs of option deposits and pre-acquisition costs and other assets	9,817			17,664
Changes in assets and liabilities:
Decrease in restricted cash	16,820			21,405
Decrease in receivables	40,108			44,145
Increase in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs	(892,208		)	(1,284,106	)
Increase in other assets	(34,753		)	(40,747	)
Decrease (increase) in loans held-for-sale	126,484			(467,925	)
(Decrease) increase in accounts payable and other liabilities	(24,092		)	49,588
Net cash used in operating activities	(3,080		)	(1,088,414	)
Cash flows from investing activities:
Increase in restricted cash related to LOCs	—			717
Net additions of operating properties and equipment	(54,847		)	(60,924	)
Proceeds from the sale of operating properties and equipment	17,450			73,732
Investments in and contributions to unconsolidated entities	(320,047		)	(116,739	)
Distributions of capital from unconsolidated entities	209,820			80,177
Proceeds from sales of real estate owned	66,638			88,565
Improvements to real estate owned	(2,998		)	(6,055	)
Receipts of principal payments on loans receivable and other	57,733			14,225
Purchases of loans receivable and real estate owned	(249		)	—
Originations/purchases of loans receivable	(56,507		)	(22,545	)
Purchase of investment carried at cost	—			(18,000	)
Purchases of commercial mortgage-backed securities bonds	(33,005		)	—
Acquisition, net of cash acquired	(725		)	—
Purchases of Lennar Homebuilding investments available-for-sale	—			(28,093	)
Decrease (increase) in Lennar Financial Services loans held-for-investment, net	2,086			(4,421	)
Purchases of Lennar Financial Services investment securities	(20,936		)	(33,702	)
Proceeds from maturities/sales of Lennar Financial Services investments securities	18,912			17,382
Net cash used in investing activities	$	(116,675	)	(15,681	)

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)



	Nine Months Ended
	August 31,
	2016			2015
Cash flows from financing activities:
Net borrowings under unsecured revolving credit facility	$	125,000		575,000
Net (repayments) borrowings under warehouse facilities	(137,325		)	294,015
Proceeds from senior notes	499,024			750,625
Debt issuance costs	(3,981		)	(7,210	)
Redemption of senior notes	(250,000		)	(500,000	)
Conversions and exchanges on convertible senior notes	(233,893		)	(168,854	)
Principal payments on Rialto notes payable including structured notes	(4,121		)	(28,247	)
Proceeds from other borrowings	34,095			87,905
Principal payments on other borrowings	(133,899		)	(232,925	)
Receipts related to noncontrolling interests	266			1,475
Payments related to noncontrolling interests	(98,178		)	(105,830	)
Excess tax benefits from share-based awards	7,039			113
Common stock:
Issuances	19,471			9,406
Repurchases	(19,871		)	(23,133	)
Dividends	(26,222		)	(24,765	)
Net cash (used in) provided by financing activities	(222,595		)	627,575
Net decrease in cash and cash equivalents	(342,350		)	(476,520	)
Cash and cash equivalents at beginning of period	1,158,445			1,281,814
Cash and cash equivalents at end of period	$	816,095		805,294
Summary of cash and cash equivalents:
Lennar Homebuilding	$	567,708		595,719
Rialto	133,103			106,731
Lennar Financial Services	110,164			99,305
Lennar Multifamily	5,120			3,539
	$	816,095		805,294
Supplemental disclosures of non-cash investing and financing activities:
Lennar Homebuilding and Lennar Multifamily:
Non-cash distributions from unconsolidated entities	$	16,331		—
Conversion of convertible senior notes to equity	$	243,009		—
Inventory acquired in satisfaction of other assets including investments available-for-sale	$	—		28,093
Inventory acquired in partner buyout	$	—		64,440
Non-cash sale of operating properties and equipment	$	—		(59,397	)
Purchases of inventories and other assets financed by sellers	$	92,368		46,521
Non-cash contributions to unconsolidated entities	$	59,262		126,411
Rialto:
Real estate owned acquired in satisfaction/partial satisfaction of loans receivable	$	7,842		14,683
Consolidation/deconsolidation of unconsolidated/consolidated entities, net:
Inventories	$	111,347		—
Operating properties and equipment and other assets	$	—		(17,421	)
Investments in unconsolidated entities	$	(2,445	)	2,948
Liabilities related to consolidated inventory not owned	$	(96,424	)	—
Other liabilities	$	—		1,220
Noncontrolling interests	$	(12,478	)	13,253

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)


(1)	Basis of Presentation

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and VIEs (see Note 15) in which Lennar Corporation is deemed to be the primary beneficiary (the “Company”). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 30, 2015. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three and nine months ended August 31, 2016 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications/Revisions

As a result of the Company's change in reportable segments in the first quarter of 2016, the Company restated certain prior year amounts in the condensed consolidated financial statements to conform with the 2016 presentation (See Note 2). These reclassifications had no impact on the Company's condensed consolidated financial statements.


(2)	Operating and Reporting Segments

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

(1) Homebuilding East

(2) Homebuilding Central

(3) Homebuilding West

(4) Homebuilding Houston

(5) Lennar Financial Services

(6) Rialto

(7) Lennar Multifamily

In the first quarter of 2016, the Company made the decision to divide the Southeast Florida operating division into two operating segments to maximize operational efficiencies given the continued growth of the division. As a result of this change in management structure, the Company re-evaluated its reportable segments and determined that neither operating segment met the reportable criteria set forth in Accounting Standards Codification ("ASC") 280, Segment Reporting. The Company aggregated these operating segments into the Homebuilding East reportable segment as these divisions exhibit similar economic characteristics, geography and product type as the other divisions in Homebuilding East. All prior year segment information has been restated to conform with the 2016 presentation. The change in the reportable segments has no effect on the Company's condensed consolidated financial position, results of operations or cash flows for the periods presented.

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

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

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

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

Central: Arizona, Colorado and Texas⁽¹⁾

West: California and Nevada

Houston: Houston, Texas

Other: Illinois, Minnesota, Oregon, Tennessee and Washington

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

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

Operations of the Rialto segment include raising, investing and managing third-party capital, originating and securitizing commercial mortgage loans as well as investing its own capital in real estate related mortgage loans, properties and related securities. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and real estate related securities as well as providing strategic real estate capital. Rialto’s operating earnings consist of revenues generated primarily from gains from securitization transactions and interest income from the Rialto Mortgage Finance (“RMF”) business, interest income associated with portfolios of real estate loans acquired and other portfolios of real estate loans and assets acquired, asset management, due diligence and underwriting fees derived from the real estate investment funds managed by the Rialto segment, fees for sub-advisory services, other income (expense), net and equity in earnings (loss) from unconsolidated entities, less the costs incurred by the segment for managing portfolios, costs related to RMF and other general and administrative expenses.

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

Each reportable segment follows the same accounting policies described in Note 1 – “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s Form 10-K for the year ended November 30, 2015. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented.

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



(In thousands)	August 31, 2016		November 30, 2015
Assets:
Homebuilding East	$	3,621,564	3,140,604
Homebuilding Central	1,494,703		1,421,195
Homebuilding West	4,527,360		4,157,616
Homebuilding Houston	495,216		481,386
Homebuilding Other	825,798		858,000
Rialto	1,196,653		1,505,500
Lennar Financial Services	1,527,556		1,425,837
Lennar Multifamily	532,574		415,352
Corporate and unallocated	777,296