Item 8. Financial Statements and Supplementary Data.

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Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Lennar Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the "Company") as of November 30, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended November 30, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of November 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 22, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Lennar Homebuilding and Lennar Multifamily Investments in Unconsolidated Entities - Consolidation of Variable Interest Entities - Refer to Note 1, Summary of Significant Accounting Policies (Variable Interest Entities)****, and Note 8, Variable Interest Entities**, to the financial statements**

Critical Audit Matter Description

Certain of the Company’s investments in unconsolidated entities within their Homebuilding and Multifamily segments have complex structures and agreements which need to be evaluated for consolidation, including determining whether the joint venture is a variable interest entity (“VIE”), and if so, whether the Company is the primary beneficiary. This assessment is performed at the formation of the joint venture and upon the occurrence of reconsideration events. This determination requires significant judgment by management.

As of November 30, 2020, the carrying value of the Company’s consolidated VIE’s assets and non-recourse liabilities was $1.1 billion and $528.5 million, respectively. Additionally, at November 30, 2020, the carrying value of the Company’s investments in VIEs that are unconsolidated was $949.4 million.

We identified the consolidation and primary beneficiary assessment upon formation and reconsideration events of some of the Company’s VIE’s as a critical audit matter given the significant judgment required by management. This required a high degree of auditor judgment and an increased extent of audit effort due to the complexity of the entity structures and agreements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting determination for unconsolidated joint ventures included the following, among others:

We tested the effectiveness of the investment consolidation controls over the initial accounting assessment of joint ventures and the continuous reassessment for reconsideration events, as required by the accounting framework.
We selected a sample of unconsolidated joint ventures and evaluated the appropriateness of the Company’s accounting conclusions upon formation and reconsideration events by:

◦Reading the joint venture agreements and other related documents and evaluating the structure and terms of the agreement to determine if the joint venture should be classified as a VIE.

◦If an entity is determined to be a VIE, considering whether the Company appropriately determined the primary beneficiary by evaluating the contractual arrangements of the entity to determine if the Company has the power to direct activities, and if the Company has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could be significant to the VIE.

◦For those entities where the Company has determined it is the primary beneficiary, evaluating whether or not the Company consolidated the balances at the appropriate amounts.

◦Evaluating the evidence obtained in other areas of the audit to determine if there were additional reconsideration events that had not been identified by the Company, including, among others, reading joint venture board minutes and confirming the terms of certain joint venture agreements and side agreements, if any.

/s/ Deloitte & Touche LLP

Miami, Florida

January 22, 2021

We have served as the Company's auditor since 1994.

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

November 30, 2020 and 2019


	2020 (1)		2019 (1)
	(Dollars in thousands)
ASSETS
Homebuilding:
Cash and cash equivalents	$	2,703,986	1,200,832
Restricted cash	15,211		9,698
Receivables, net	298,671		329,124
Inventories:
Finished homes and construction in progress	8,593,399		9,195,721
Land and land under development	7,495,262		8,267,647
Consolidated inventory not owned	836,567		313,139
Total inventories	16,925,228		17,776,507
Investments in unconsolidated entities	953,177		1,009,035
Goodwill	3,442,359		3,442,359
Other assets	1,190,793		1,021,684
	25,529,425		24,789,239
Financial Services	2,776,987		3,006,024
Multifamily	1,175,908		1,068,831
Lennar Other	452,857		495,417
Total assets	$	29,935,177	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 consolidated balance sheets the assets of consolidated variable interest entities ("VIEs") that are owned by the consolidated VIEs and liabilities of consolidated VIEs as to which there is no recourse against the Company.

As of November 30, 2020, total assets include $1.1 billion related to consolidated VIEs of which $32.1 million is included in Homebuilding cash and cash equivalents, $0.1 million in Homebuilding receivables, net, $14.2 million in Homebuilding finished homes and construction in progress, $486.8 million in Homebuilding land and land under development, $426.3 million in Homebuilding consolidated inventory not owned, $1.6 million in Homebuilding investments in unconsolidated entities, $110.3 million in Homebuilding operating properties and equipment, $10.4 million in Homebuilding other assets and $39.9 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 consolidated financial statements.

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

November 30, 2020 and 2019


	2020 (2)		2019 (2)
	(Dollars in thousands except per share amounts)
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	1,037,338	1,069,179
Liabilities related to consolidated inventory not owned	706,691		260,266
Senior notes and other debts payable, net	5,955,758		7,776,638
Other liabilities	2,225,864		1,969,082
	9,925,651		11,075,165
Financial Services	1,644,248		1,988,323

Multifamily	252,911		232,155
Lennar Other	12,966		30,038
Total liabilities	11,835,776		13,325,681
Stockholders’ equity:
Preferred stock	—		—
Class A common stock of $0.10 par value per share; Authorized: 2020 and 2019 - 400,000,000 shares; Issued: 2020 - 298,942,836 shares; 2019 - 297,119,153 shares	29,894		29,712
Class B common stock of $0.10 par value per share; Authorized: 2020 and 2019 - 90,000,000 shares, Issued: 2020 - 39,443,168 shares; 2019 - 39,443,064 shares	3,944		3,944
Additional paid-in capital	8,676,056		8,578,219
Retained earnings	10,564,994		8,295,001
Treasury stock, at cost; 2020 - 23,864,589 shares of Class A common stock and 1,822,016 shares of Class B common stock; 2019 - 18,964,973 shares of Class A common stock and 1,704,630 shares of Class B common stock	(1,279,227)		(957,857)
Accumulated other comprehensive income (loss)	(805)		498
Total stockholders’ equity	17,994,856		15,949,517
Noncontrolling interests	104,545		84,313
Total equity	18,099,401		16,033,830
Total liabilities and equity	$	29,935,177	29,359,511

(2)As of November 30, 2020, total liabilities include $528.5 million related to consolidated VIEs as to which there was no recourse against the Company, of which $28.4 million is included in Homebuilding accounts payable, $351.4 million in Homebuilding liabilities related to consolidated inventory not owned, $129.1 million in Homebuilding senior notes and other debts payable, $9.9 million in Homebuilding other liabilities and $9.8 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 debts 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 consolidated financial statements.

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Years Ended November 30, 2020, 2019 and 2018


	2020		2019	2018
	(Dollars in thousands, except per share amounts)
Revenues:
Homebuilding	$	20,981,136	20,793,216	19,077,597
Financial Services	890,311		824,810	954,631
Multifamily	576,328		604,700	421,132
Lennar Other	41,079		36,835	118,271
Total revenues	22,488,854		22,259,561	20,571,631
Costs and expenses:
Homebuilding	17,961,644		18,245,700	16,936,803
Financial Services	470,777		600,168	754,915
Multifamily	575,581		599,604	429,759
Lennar Other	6,744		11,794	115,969
Acquisition and integration costs related to CalAtlantic	—		—	152,980
Corporate general and administrative	358,418		341,114	343,934
Total costs and expenses	19,373,164		19,798,380	18,734,360
Homebuilding equity in loss from unconsolidated entities	(836)		(13,273)	(90,209)
Homebuilding other income (expense), net	(29,749)		(31,338)	203,902
Financial Services gain on deconsolidation	61,418		—	—
Multifamily equity in earnings from unconsolidated entities and other gain	21,934		11,294	51,322
Lennar Other equity in earnings (loss) from unconsolidated entities	(35,037)		15,372	24,110
Lennar Other expense, net	(9,632)		(8,944)	(60,119)
Gain on sale of Rialto investment and asset management platform	—		—	296,407
Earnings before income taxes	3,123,788		2,434,292	2,262,684
Provision for income taxes (1)	(656,235)		(592,173)	(545,171)
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	2,467,553		1,842,119	1,717,513
Less: Net earnings (loss) attributable to noncontrolling interests	2,517		(6,933)	21,682
Net earnings attributable to Lennar	$	2,465,036	1,849,052	1,695,831
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on securities available-for-sale	(851)		1,040	(1,634)
Reclassification adjustments for (gains) loss included in net earnings	(452)		(176)	234
Total other comprehensive income (loss), net of tax	$	(1,303)	864	(1,400)
Total comprehensive income attributable to Lennar	$	2,463,733	1,849,916	1,694,431
Total comprehensive income (loss) attributable to noncontrolling interests	$	2,517	(6,933)	21,682
Basic earnings per share	$	7.88	5.76	5.46
Diluted earnings per share	$	7.85	5.74	5.44

(1)Provision for income taxes for the year ended November 30, 2018 includes a non-cash one-time write down of deferred tax assets of $68.6 million resulting from the Tax Cuts and Jobs Act enacted in December 2017.

See accompanying notes to consolidated financial statements.

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

Years Ended November 30, 2020, 2019 and 2018


	2020		2019	2018
	(Dollars in thousands, except per share amounts)
Class A common stock:
Beginning balance	$	29,712	29,499	20,543
Employee stock and director plans	182		213	183

Stock issuance in connection with CalAtlantic acquisition	—		—	8,408
Conversion of convertible senior notes to shares of Class A common stock	—		—	365
Balance at November 30,	29,894		29,712	29,499
Class B common stock:
Beginning balance	3,944		3,944	3,769

Stock issuance in connection with CalAtlantic acquisition	—		—	168
Conversion of convertible senior notes to shares of Class B common stock	—		—	7
Balance at November 30,	3,944		3,944	3,944
Additional paid-in capital:
Beginning balance	8,578,219		8,496,677	3,142,013
Employee stock and director plans	576		415	3,797

Stock issuance in connection with CalAtlantic acquisition	—		—	5,061,430

Amortization of restricted stock	107,131		86,940	72,655
Conversion of convertible senior notes to shares of Class A common stock	—		—	216,782
Equity adjustment related to noncontrolling interests	(9,870)		(5,813)	—

Balance at November 30,	8,676,056		8,578,219	8,496,677
Retained earnings:
Beginning balance	8,295,001		6,487,650	4,840,978
Net earnings attributable to Lennar	2,465,036		1,849,052	1,695,831
Cumulative-effect of accounting change	—		9,753	—
Cash dividends - Class A common stock ($0.625 per share for 2020 and $0.16 per share for 2019 and 2018)	(171,520)		(45,418)	(43,195)
Cash dividends - Class B common stock ($0.625 per share for 2020 and $0.16 per share for 2019 and 2018)	(23,523)		(6,036)	(5,964)

Balance at November 30,	10,564,994		8,295,001	6,487,650
Treasury stock, at cost:
Beginning balance	(957,857)		(435,869)	(136,020)
Employee stock and directors plans	(32,855)		(29,049)	(49,939)
Purchases of treasury stock	(288,515)		(492,939)	(249,910)

Balance at November 30,	(1,279,227)		(957,857)	(435,869)
Accumulated other comprehensive income (loss):
Beginning balance	498		(366)	1,034
Total other comprehensive income (loss), net of tax	(1,303)		864	(1,400)
Balance at November 30,	(805)		498	(366)
Total stockholders’ equity	17,994,856		15,949,517	14,581,535
Noncontrolling interests:
Beginning balance	84,313		101,422	113,815
Net earnings (loss) attributable to noncontrolling interests	2,517		(6,933)	21,682
Receipts related to noncontrolling interests	176,617		27,859	18,126
Payments related to noncontrolling interests	(42,349)		(43,734)	(89,575)

Non-cash consolidations/deconsolidations, net	(114,712)		8,894	—

Non-cash purchase or activity of noncontrolling interests, net	(1,841)		(3,195)	37,374

Balance at November 30,	104,545		84,313	101,422
Total equity	$	18,099,401	16,033,830	14,682,957

See accompanying notes to consolidated financial statements.

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended November 30, 2020, 2019 and 2018


	2020		2019	2018
	(In thousands)
Cash flows from operating activities:
Net earnings (including net earnings (loss) attributable to noncontrolling interests)	$	2,467,553	1,842,119	1,717,513
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	94,553		92,200	91,181
Amortization of discount/premium and accretion on debt, net	(24,775)		(26,210)	(23,544)
Equity in (earnings) loss from unconsolidated entities	22,127		(2,528)	30,518
Distributions of earnings from unconsolidated entities	62,073		12,753	113,096
Share-based compensation expense	107,131		86,940	72,655

Deferred income tax expense	92,082		235,493	268,037
Loss on retirement of senior notes and other debts payable	7,997		—	—
Gain on sale of Rialto investment and asset management platform	—		—	(296,407)
(Gain) loss on sale of other assets, operating properties and equipment, CMBS bonds, other liabilities and real estate owned	(8,626)		(23,124)	23,356

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	(4,617)		(10,865)	(180,621)

Gain on sale of Financial Services' portfolio/businesses	(5,014)		(2,368)	—



Valuation adjustments and write-offs of option deposits and pre-acquisition costs, other receivables and other assets	117,825		56,125	49,338
Changes in assets and liabilities:

Decrease (increase) in receivables	25,868		312,255	(431,183)
Decrease (increase) in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs	781,362		(623,644)	(135,870)
Decrease (increase) in other assets	90,534		(69,699)	(24,923)
Decrease (increase) in loans held-for-sale	154,852		(431,339)	5,805
Increase (decrease) in accounts payable and other liabilities	266,488		(14,639)	412,796
Net cash provided by operating activities	$	4,190,819	1,482,343	1,691,747
Cash flows from investing activities:

Net additions to operating properties and equipment	(72,752)		(86,497)	(130,439)
Proceeds from the sale of operating properties and equipment, other assets, CMBS bonds and real estate owned	33,934		79,307	70,854
Proceeds from sale of investments in unconsolidated entities	—		17,790	225,267
Proceeds from sale of Financial Services' portfolio/businesses	14,978		24,446	—
Investments in and contributions to unconsolidated entities/deconsolidation of previously consolidated entity	(486,217)		(436,325)	(405,547)
Distributions of capital from unconsolidated and consolidated entities	220,713		405,677	362,516



Proceeds from sale of commercial mortgage-backed securities bonds	3,248		—	—
Receipts of principal payments on loans receivable and other	—		2,382	4,339




Purchases of CMBS bonds	—		—	(31,068)
Proceeds from sale of Rialto investment and asset management platform	—		—	340,000

Acquisitions, net of cash and restricted cash acquired	—		—	(1,078,282)


Increase in Financial Services loans held-for-investment, net	(3,122)		(3,516)	(3,603)

Purchases of investment securities	(45,548)		(36,261)	(47,305)
Proceeds from maturities/sales of investment securities	52,918		52,593	85,237
Other receipts (payments), net	1,643		—	(145)
Net cash (used in) provided by investing activities	$	(280,205)	19,596	(593,954)

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Years Ended November 30, 2020, 2019 and 2018


	2020		2019	2018
	(In thousands)
Cash flows from financing activities:
Net repayments under revolving lines of credit	$	—	—	(454,700)
Net (repayments) borrowings under warehouse facilities	(281,835)		166,552	272,920

Debt issuance costs	—		(25)	(14,661)
Redemption of senior notes	(1,499,999)		(1,100,000)	(1,100,000)
Conversions, exchanges and redemption of convertible senior notes	—		(1,288)	(59,145)


Principal payments on Rialto notes payable including structured notes	—		—	(359,016)
Proceeds from other borrowings	92,688		88,751	44,374
Proceeds from liabilities related to consolidated inventory not owned	346,406		—	—
Payments to other liabilities	(116,541)		(3,850)	(3,542)
Principal payments on notes payable and other borrowings	(604,995)		(189,454)	(104,751)

Receipts related to noncontrolling interests	176,617		27,859	18,126
Payments related to noncontrolling interests	(42,349)		(43,734)	(89,575)

Common stock:
Issuances	—		493	3,061
Repurchases	(321,524)		(523,074)	(299,833)
Dividends	(195,043)		(51,454)	(49,159)
Net cash used in financing activities	$	(2,446,575)	(1,629,224)	(2,195,901)
Net increase (decrease) in cash and cash equivalents and restricted cash	1,464,039		(127,285)	(1,098,108)
Cash and cash equivalents and restricted cash at beginning of year	1,468,691		1,595,976	2,694,084
Cash and cash equivalents and restricted cash at end of year	$	2,932,730	1,468,691	1,595,976
Summary of cash and cash equivalents and restricted cash:
Homebuilding	$	2,703,986	1,200,832	1,337,807
Financial Services	116,171		234,113	188,485
Multifamily	38,963		8,711	7,832
Lennar Other	3,918		2,340	24,334
Homebuilding restricted cash	15,211		9,698	12,399
Financial Services restricted cash	54,481		12,022	17,944
Lennar Other restricted cash	—		975	7,175
	$	2,932,730	1,468,691	1,595,976
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized	$	97,336	49,870	128,877
Cash paid for income taxes, net	$	402,180	261,445	376,609

Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventories, land under development and other assets financed by sellers	$	120,796	101,300	163,519
Net non-cash contributions to unconsolidated entities	97,281		156,075	162,281

Non-cash sale of operating properties and equipment and other assets	—		48,671	—
Non-cash right of use assets recognized due to adoption of ASU 2016-02	150,702		—	—
Non-cash lease liabilities recognized due to adoption of ASU 2016-02	159,717		—	—
Conversions of and exchanges on convertible senior notes to equity	—		—	217,154

Equity component of acquisition consideration	—		—	5,070,006










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	35,430
Receivables	—		102,959	7,198
Operating properties and equipment and other assets	6,870		53,412	—
Investments in unconsolidated entities	(68,290)		67,925	(25,614)

Notes payable	(44,924)		(383,212)	—
Other liabilities	(1,455)		(19,696)	(17,014)
Noncontrolling interests	12,323		(8,894)	—

See accompanying notes to consolidated financial statements.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying 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 8) in which Lennar Corporation is deemed 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.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Homebuilding revenues and related profits from sales of homes are recognized at the time of the closing of a sale, when title to and possession of the property are transferred to the homebuyer. The Company’s performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date. Cash proceeds from home closings held in escrow for the Company’s benefit, typically for approximately three to four days, are included in Homebuilding cash and cash equivalents in the Company's consolidated balance sheets. Contract liabilities include customer deposits liabilities related to sold but undelivered homes that are included in other liabilities in the Company's consolidated balance sheets. The Company periodically elects to sell parcels of land to third parties. Cash consideration from land sales is typically due on the closing date, which is generally when performance obligations are satisfied and revenue is recognized as title to and possession of the property are transferred to the buyer.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs were $72.6 million, $84.3 million and $72.1 million for the years ended November 30, 2020, 2019 and 2018, respectively.

Share-Based Payments

The Company has share-based awards outstanding under the 2016 Equity Incentive Plan (the "Plan"), which provides for the granting of stock options, stock appreciation rights, restricted common stock ("nonvested shares") and other share based awards to officers, associates and directors. The exercise prices of stock options may not be less than the market value of the common stock on the date of the grant. Exercises are permitted in installments determined when options are granted. Each stock option will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant. The Company accounts for stock option awards and nonvested share awards granted under the Plan based on the estimated grant date fair value.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Due to the short maturity period of cash equivalents, the carrying amounts of these instruments approximate their fair values. Homebuilding restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold, as well as funds on deposit to secure and support performance obligations. Financial Services restricted cash consisted of upfront deposits and application fees LMF Commercial receives before originating loans and is recognized as income once the loan has been originated, as well as cash held in escrow by the Company’s loan service provider on behalf of customers and lenders and is disbursed in accordance with agreements between the transacting parties. Lennar Other restricted cash primarily consisted of cash set aside for future investments on behalf of a real estate investment trust that Rialto Capital Management is a sub-advisor (“Rialto”).

Homebuilding cash and cash equivalents as of November 30, 2020 and 2019 included $314.3 million and $565.8 million, respectively, of cash held in escrow for approximately four days and three days, respectively.

Receivables

At November 30, 2020 and 2019, Homebuilding accounts receivable related primarily to other receivables and rebates. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

receivable. Mortgages and notes receivable arising from the sale of homes and land are generally collateralized by the property sold to the buyer. Allowances are maintained for potential credit losses based on historical experience, present economic conditions and other factors considered relevant by the Company. Balances for the years ended November 30, 2020 and 2019 are noted below:


	November 30,
(In thousands)	2020		2019
Accounts receivable	$	133,560	129,216
Mortgages and notes receivable	167,909		203,230

	301,469		332,446
Allowance for doubtful accounts	(2,798)		(3,322)
Receivables, net	$	298,671	329,124

Inventories

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. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. Construction overhead and selling expenses are expensed as incurred. Homes held-for-sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

The Company reviews its inventory for indicators of impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development state of the community. There were 1,173 and 1,278 active communities, excluding unconsolidated entities, as of November 30, 2020 and 2019, respectively. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value.

In conducting its review for indicators of impairment on a community level, the Company evaluates, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. The Company pays particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review, the Company identifies communities in which to assess if the carrying values exceed their undiscounted projected cash flows.

The Company estimates the fair value of its communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above.

Each of the homebuilding markets in which the Company operates is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of the Company’s homebuilding markets has specific supply and demand relationships reflective of local economic conditions. The Company’s projected cash flows are impacted by many assumptions. Some of the most critical assumptions in the Company’s cash flow model are projected absorption pace for home sales, sales prices and costs to build and deliver homes on a community by community basis.

In order to arrive at the assumed absorption pace for home sales and the assumed sales prices included in the Company’s cash flow model, the Company analyzes its historical absorption pace and historical sales prices in the community and in other comparable communities in the geographical area. In addition, the Company considers internal and external market studies and places greater emphasis on more current metrics and trends, which generally include, but are not limited to, statistics and forecasts on population demographics and on sales prices in neighboring communities, unemployment rates and availability and sales prices of competing product in the geographical area where the community is located as well as the absorption pace realized in its most recent quarters and the sales prices included in the Company's current backlog for such communities.

Generally, if the Company notices a variation from historical results over a span of two fiscal quarters, the Company considers such variation to be the establishment of a trend and adjusts its historical information accordingly in order to develop assumptions on the projected absorption pace and sales prices in the cash flow model for a community.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In order to arrive at the Company’s assumed costs to build and deliver homes, the Company generally assumes a cost structure reflecting contracts currently in place with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Those costs assumed are used in the cash flow model for the Company’s communities.

Since the estimates and assumptions included in the Company’s cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead the Company to incur additional impairment charges in the future.

The determination of fair value requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage.

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. 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 table below summarizes communities reviewed for indicators of impairment and communities with valuation adjustments recorded:


	At November 30,	Communities with valuation adjustments for the years ended November 30,
	# of communities with potential indicator of impairment	# of communities	Fair Value (in thousands)		Valuation Adjustments (in thousands)

2020	10	16	$	79,734	$	44,811
2019	40	3	7,910		2,582

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 during the years ended November 30, 2020 and 2019:


		Years Ended November 30,
	2020			2019
Unobservable inputs	Range			Range
Average selling price		$201,000	-	$970,000	$167,000	-	$222,000
Absorption rate per quarter (homes)		3	-	15	4	-	12
Discount rate		20%			20%

The Company also has access to land inventory through option contracts, which generally enables the Company to defer acquiring portions of properties owned by third parties and unconsolidated entities until it has determined whether to exercise its option.

A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. The Company’s option contracts sometimes include price adjustment provisions, which adjust the purchase price of the land to its approximate fair value at the time of acquisition or are based on the fair value at the time of takedown.

In determining whether to walk away from an option contract, the Company evaluates the option primarily based upon its expected cash flows from the property under option. If the Company intends to walk away from an option contract, it records a charge to earnings in the period such decision is made for the deposit amount and any related pre-acquisition costs associated with the option contract.

Some option contracts contain a predetermined take-down schedule for the optioned land parcels. However, in almost all instances, the Company is not required to purchase land in accordance with those take-down schedules. In substantially all instances, the Company has the right and ability to not exercise its option and forfeit its deposit without further penalty, other than termination of the option and loss of any unapplied portion of its deposit and pre-acquisition costs. Therefore, in substantially all instances, the Company does not consider the take-down price to be a firm contractual obligation. When the Company does not intend to exercise an option, it writes off any unapplied deposit and pre-acquisition costs associated with the option contract.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investments in Unconsolidated Entities

The Company evaluates the long-lived assets in unconsolidated entities for indicators of impairment during each reporting period. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, the Company generally uses a discount rate between 10% and 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory or operating assets. The Company’s proportionate share of a valuation adjustment is reflected in the Company's Homebuilding, Multifamily or Lennar Other equity in earnings (loss) from unconsolidated entities with a corresponding decrease to its Homebuilding, Multifamily or Lennar Other investment in unconsolidated entities.

Additionally, the Company evaluates if a decrease in the value of an investment below its carrying value is other-than-temporary. This evaluation includes certain critical assumptions made by management: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors, which include age of the venture, relationships with the other partners and banks, general economic market conditions, land status and liquidity needs of the unconsolidated entity. If the decline in the fair value of the investment is other-than-temporary, then these losses are included in Homebuilding other income, net, Multifamily other gain (loss) or Lennar Other other gain (loss).

The Company tracks its share of cumulative earnings and distributions of its joint ventures ("JVs"). For purposes of classifying distributions received from JVs in the Company’s consolidated statements of cash flows, cumulative distributions are treated as returns on capital to the extent of cumulative earnings and included in the Company’s consolidated statements of cash flows as operating activities. Cumulative distributions in excess of the Company’s share of cumulative earnings are treated as returns of capital and included in the Company’s consolidated statements of cash flows as cash from investing activities.

Variable Interest Entities

GAAP requires the assessment of whether an entity is a VIE and, if so, if the Company is the primary beneficiary at the inception of the entity or at a reconsideration event. Additionally, GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company’s variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management and development agreements between the Company and a VIE, (4) loans provided by the Company to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. The Company examines specific criteria and uses its judgment when determining if it is the primary beneficiary of a VIE. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality, if any, between the Company and the other partner(s) and contracts to purchase assets from VIEs. The determination whether an entity is a VIE and, if so, whether the Company is the primary beneficiary may require it to exercise significant judgment.

Generally, all major decision making in the Company’s joint ventures is shared among all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by the Company are nominal and believed to be at market and there is no significant economic disproportionality between the Company and other partners. Generally, the Company purchases less than a majority of the JV’s assets and the purchase prices under its option contracts are believed to be at market.

Generally, Homebuilding and Multifamily unconsolidated entities become VIEs and consolidate when the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, the Company continues to fund operations and debt paydowns through partner loans or substituted capital contributions.

Goodwill

Goodwill is recorded with acquisitions of businesses when the purchase price of the business exceeds the fair value of the net tangible and identifiable assets acquired. In accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"), the Company evaluates goodwill for potential impairment on at least an annual basis. Potential impairment is evaluated by comparing the carrying value of each of the Company's reporting units to their estimated fair values. The fair value estimate is derived through various valuation methods, including the use of discounted expected future cash flows of each reporting unit. The expected future cash flows for each segment are significantly impacted by current market conditions. If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each segment could differ from the Company's estimate, which would cause goodwill to be impaired.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Operating Properties and Equipment

Operating properties and equipment are recorded at cost and are included in other assets in the consolidated balance sheets. The assets are depreciated over their estimated useful lives using the straight-line method. At the time operating properties and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful life for operating properties is 30 years, for furniture, fixtures and equipment is two to 10 years and for leasehold improvements is five years or the life of the lease, whichever is shorter. Operating properties are reviewed for possible impairment if there are indicators that their carrying amounts are not recoverable.

Operating properties and equipment are included in Homebuilding other assets in the consolidated balance sheets and were as follows:


	November 30,
(In thousands)	2020		2019
Operating properties (1)	$	386,646	225,256
Leasehold improvements	57,084		63,846
Furniture, fixtures and equipment	145,307		159,007
	589,037		448,109
Accumulated depreciation and amortization	(177,519)		(168,582)
	$	411,518	279,527

(1)Operating properties primarily include solar systems, rental operations and commercial properties.

Investment Securities

The Company holds investment securities classified as available-for-sale or held-to-maturity. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or losses on available-for-sale securities are reported as accumulated other comprehensive gain or loss, which is a separate component of stockholders’ equity, net of tax, until realized. Securities classified as held-to-maturity are carried at amortized cost because they are purchased with the intent and ability to hold to maturity.

At November 30, 2020 and 2019, the Financial Services segment had investment securities classified as held-to-maturity totaling $164.2 million and $190.3 million, respectively, which consist mainly of commercial mortgage-backed securities ("CMBS"), corporate debt obligations, U.S. government agency obligations, certificates of deposit and U.S. treasury securities that mature at various dates, mainly within three years. Also, at November 30, 2019, the Financial Services segment had $3.7 million of available-for-sale securities, which consisted primarily of preferred stock and mutual funds. These investments available-for-sale were carried at fair value with changes recorded as a component of accumulated other comprehensive income (loss).

In addition, at November 30, 2020, the Lennar Other segment had investment securities classified as held-for-sale totaling $53.5 million. The Lennar Other segment held-for-sale securities consist of CMBS. At November 30, 2019, these securities were held-to-maturity with a balance of $54.1 million. The CMBS in the Lennar Other segment were reclassed during the year ended November 30, 2020 due to a change in management's intent to hold.

Interest and Real Estate Taxes

Interest and real estate taxes attributable to land and homes are capitalized as inventory costs while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in costs of homes sold and costs of land sold. Interest expense related to the Financial Services and Multifamily operations is included in its costs and expenses.

During the years ended November 30, 2020, 2019 and 2018, interest incurred by the Company’s homebuilding operations related to homebuilding debt was $353.4 million, $422.7 million and $423.7 million, respectively; interest capitalized into inventories was $331.0 million, $405.1 million and $412.5 million, respectively.

Interest expense was included in costs of homes sold, costs of land sold and other interest expense as follows:


	Years Ended November 30,
(In thousands)	2020		2019	2018
Interest expense in costs of homes sold	$	349,109	371,821	301,339
Interest expense in costs of land sold	2,594		5,554	3,567
Other interest expense (1)	22,401		17,620	11,258
Total interest expense	$	374,104	394,995	316,164

(1)Included in Homebuilding other income (expense), net.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income Taxes

The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. Interest related to unrecognized tax benefits is recognized in the financial statements as a component of income tax expense.

A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed each reporting period by the Company based on the consideration of all available positive and negative evidence using a "more-likely-than-not" standard with respect to whether deferred tax assets will be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, actual earnings, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards not expiring unused and tax planning alternatives.

Based on the analysis of positive and negative evidence, the Company believed that there was enough positive evidence for the Company to conclude that it was more likely than not that the Company would realize the majority of its deferred tax assets. As of November 30, 2020 and 2019, the Company's net deferred tax assets included a valuation allowance of $4.4 million and $4.3 million, respectively. See Note 5 for additional information.

Other Liabilities

Reflected within the consolidated balance sheets, the other liabilities balance as of November 30, 2020 and 2019, included accrued interest payable, product warranty (as noted below), accrued bonuses, accrued wages and benefits, lease liabilities, deferred income, customer deposits, income taxes payable, and other accrued liabilities.

Product Warranty

Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company regularly monitors the warranty reserve and makes adjustments to its pre-existing warranties in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in Homebuilding other liabilities in the consolidated balance sheets. The activity in the Company’s warranty reserve was as follows:


	Years Ended November 30,
(In thousands)	2020		2019
Warranty reserve, beginning of year	$	294,138	319,109
Warranties issued	191,311		189,105
Adjustments to pre-existing warranties from changes in estimates (1)	29,461		(8,156)
Payments	(173,145)		(205,920)
Warranty reserve, end of year	$	341,765	294,138

(1)The adjustments to pre-existing warranties from changes in estimates during the years ended November 30, 2020 and 2019 primarily related to specific claims in certain of the Company's homebuilding communities and other adjustments.

Self-Insurance

Certain insurable risks such as construction defects, general liability, medical and workers’ compensation are self-insured by the Company up to certain limits. Undiscounted accruals for claims under the Company’s self-insurance program are based on claims filed and estimates for claims incurred but not yet reported. The Company’s self-insurance reserve as of November 30, 2020 and 2019 was $125.4 million and $109.6 million which is included in Homebuilding other liabilities. Amounts incurred in excess of the Company's self-insurance occurrence or aggregate retention limits are covered by insurance up to the Company's purchased coverage levels. The Company's insurance policies are maintained with highly-rated underwriters for whom the Company believes counterparty default risk is not significant.

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 earnings of the Company.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Preferred Stock

The Company is authorized to issue 500,000 shares of preferred stock with a par value of $10 per share and 100 million shares of participating preferred stock with a par value of $0.10 per share. No shares of preferred stock or participating preferred stock have been issued as of November 30, 2020 and 2019.

Common Stock

During the year ended November 30, 2020, the Company’s Class A and Class B common stockholders received a per share annual dividend of $0.625. During the years ended 2019 and 2018, the Company’s Class A and Class B common stockholders received a per share annual dividend of $0.16. The only significant difference between the Class A common stock and Class B common stock is that Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

As of November 30, 2020, Stuart Miller, the Company’s Executive Chairman, directly owned, or controlled through family-owned entities, shares of Class A and Class B common stock, which represented approximately 34% voting power of the Company’s stock.

In January 2019, the Company's Board of Directors authorized a stock repurchase program, which replaced a June 2001 stock repurchase program, under which the Company is authorized to purchase up to the lesser of $1 billion in value, or 25 million in shares, of the Company’s outstanding Class A or Class B common stock. The repurchase authority 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 year ended November 30, 2020 and 2019:


	Years Ended
	November 30, 2020				November 30, 2019
(Dollars in thousands, except price per share)	Class A		Class B		Class A		Class B
Shares repurchased	4,250,000		115,000		9,774,729		—
Principal	$	282,274	$	6,155	$	492,938	$	—
Average price per share	$	66.42	$	53.52	$	50.41	$	—

Restrictions on Payment of Dividends

There are no restrictions on the payment of dividends on common stock by the Company. There are no agreements which restrict the payment of dividends by subsidiaries of the Company other than the need to maintain the financial ratios and net worth requirements under the Financial Services segment’s warehouse lines of credit, which restrict the payment of dividends from the Company’s mortgage subsidiaries following the occurrence and during the continuance of an event of default thereunder and limit dividends to 50% of net income in the absence of an event of default.

401(k) Plan

Under the Company’s 401(k) Plan (the "Plan"), contributions made by associates can be invested in a variety of mutual funds or proprietary funds provided by the Plan trustee. The Company may also make contributions for the benefit of associates. The Company records as compensation expense its contribution to the Plan. For the years ended November 30, 2020, 2019 and 2018, this amount was $27.3 million, $24.5 million and $25.3 million, respectively.

Share-Based Payments

Compensation expense related to the Company’s share-based awards was as follows:


	Years Ended November 30,
(In thousands)	2020		2019	2018
Total compensation expense for nonvested share-based awards	$	107,131	86,940	72,655

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of nonvested shares is determined based on the trading price of the Company’s common stock on the grant date. The weighted average fair value of nonvested shares granted during the years ended November 30, 2020, 2019 and 2018 was $60.10, $48.26 and $55.84, respectively. A summary of the Company’s nonvested shares activity for the year ended November 30, 2020 was as follows:


	Shares	Weighted Average Grant Date Fair Value
Nonvested shares at November 30, 2019	3,290,863	$	50.64
Grants	1,801,630	$	60.10
Vested	(1,425,049)	$	51.71
Forfeited	(120,868)	$	50.61
Nonvested shares at November 30, 2020	3,546,576	$	55.01

At November 30, 2020, there was $114.3 million of unrecognized compensation expense related to unvested share-based awards granted under the Company’s share-based payment plan, all of which relates to nonvested shares with a weighted average remaining contractual life of 1.8 years. For the years ended November 30, 2020, 2019 and 2018, 1.4 million, 1.4 million and 2.2 million nonvested shares, respectively, vested each year.

Financial Services

Revenue Recognition

Title premiums on policies issued directly by the Company are recognized as revenue on the effective date of the title policies. Escrow fees and loan origination revenues are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Revenues from title policies issued by independent agents are recognized as revenue when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. Expected gains and losses from the sale of loans and their related servicing rights are included in the measurement of all written loan commitments that are accounted for at fair value through earnings at the time of commitment. Interest income on loans held-for-sale and loans held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual interest rates.

Loans Held-for-Sale

Loans held-for-sale by the Financial Services segment, including the rights to service the mortgage loans, are carried at fair value and changes in fair value are reflected in earnings. Premiums and discounts recorded on these loans are presented as an adjustment to the carrying amount of the loans and are not amortized. 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 Financial Services segment 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' other assets as of November 30, 2020 and 2019. Fair value of the servicing rights is determined based on values in the Company’s servicing sales contracts.

Provision for Losses

The Company establishes reserves for possible losses associated with mortgage loans previously originated and sold to investors 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. Loan origination liabilities are included in Financial Services’ liabilities in the consolidated balance sheets. The activity in the Company’s loan origination liabilities was as follows:


	Years Ended November 30,
(In thousands)	2020		2019
Loan origination liabilities, beginning of year	$	9,364	48,584
Provision for losses	11,924		3,813


Payments/settlements	(13,719)		(43,033)
Loan origination liabilities, end of year	$	7,569	9,364

Loans Held-for-Investment, Net

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Loans for which the Company has the positive intent and ability to hold to maturity consist of mortgage loans carried at the principal amount outstanding, net of unamortized discounts and allowance for loan losses. Discounts are amortized over the estimated lives of the loans using the interest method.

The Financial Services segment also provides an allowance for loan losses. The provision recorded and the adequacy of the related allowance is determined by management’s continuing evaluation of the loan portfolio in light of past loan loss experience, credit worthiness and nature of underlying collateral, present economic conditions and other factors considered relevant by the Company’s management. Anticipated changes in economic factors, which may influence the level of the allowance, are considered in the evaluation by the Company’s management when the likelihood of the changes can be reasonably determined. While the Company’s management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary as a result of future economic and other conditions that may be beyond management’s control.

Derivative Financial Instruments

The Financial Services segment, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in mortgage-related interest rates. The segment uses mortgage-backed securities ("MBS") forward commitments, option contracts, future contracts and investor commitments to protect the value of fixed rate-locked loan commitments and loans held-for-sale from fluctuations in mortgage-related interest rates. These derivative financial instruments are carried at fair value with the changes in fair value included in Financial Services revenues.

LMF Commercial - Loans Held-for-Sale

The originated mortgage loans are classified as loans held-for-sale and are recorded at fair value. The Company elected the fair value option for LMF Commercial's loans held-for-sale in accordance with Accounting Standards Codification ("ASC") 825, Financial Instruments, which permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Management believes that 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, which are also carried at fair value, used to economically hedge them without having to apply complex hedge accounting provisions. Changes in fair values of the loans are reflected in Financial Services revenues in the accompanying consolidated statements of operations. Interest income on these loans is calculated based on the interest rate of the loan and is recorded in Financial Services revenues in the accompanying consolidated statements of operations. Substantially all of the mortgage loans originated are sold within a short period of time in a securitization on a servicing released, non-recourse basis; although, the Company remains liable for certain limited industry-standard representations and warranties related to loan sales. The Company recognizes revenue on the sale of loans into securitization trusts when control of the loans has been relinquished.

Multifamily

Management Fees and General Contractor Revenue

The Multifamily segment provides management services with respect to the development, construction and property management of rental projects in joint ventures in which the Company has investments. As a result, the Multifamily segment earns and receives fees, which are generally based upon a stated percentage of development and construction costs and a percentage of gross rental collections. In addition, the Multifamily segment provides general contractor services for the construction of some of its rental projects. Both management fees and general contractor revenue are recognized over the period in which the services are performed using an input method, which properly depicts the level of effort required to complete the management or construction services. These customer contracts require the Company to provide management and general contractor services which represents a performance obligation that the Company satisfies over time. Management fees and general contractor services in the Multifamily segment are included in Multifamily revenue.

Recently Adopted Accounting Pronouncements

In March 2016, 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 adopted using the modified retrospective approach and 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 the Company's consolidated statements of operations and comprehensive income (loss) or the Company's 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 consolidated balance sheets within other assets and other liabilities of the respective segments.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 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 does not anticipate the impact of the adoption of ASU 2017-04 will have a material impact on the Company's 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 consolidated financial statements.

Reclassifications

Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2020 presentation. The Company's segments were adjusted 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. Additionally, the Company's self insurance subsidiary which was previously within the Financial Services segment is now within Homebuilding. This was to better align the self insurance reserve related to homebuilding warranty, construction defect and liability claims within the Homebuilding segments. Both changes are effective December 1, 2018 for the Company's balance sheets. The Homebuilding segments' statements of operations were adjusted effective December 1, 2017 for the reclass of the North Carolina divisions. The statements of operations were not adjusted for previous periods for the self-insurance subsidiary reclass due to immateriality. These reclassifications were between segments and had no impact on the Company's total assets, total equity, revenues or net earnings in the consolidated financial statements.

Subsequent Events

Subsequent to November 30, 2020, one of the Company's strategic investments, Opendoor, began trading on the Nasdaq stock market for which the Company expects to record a significant unrealized gain in the first quarter of fiscal 2021.

Subsequent to November 30, 2020, the Company entered into a venture that will invest in single family rental homes.

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

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The assets and liabilities related to the Company’s segments were as follows:


(In thousands)	November 30, 2020
Assets:	Homebuilding		Financial Services	Multifamily	Lennar Other	Total
Cash and cash equivalents	$	2,703,986	116,171	38,963	3,918	2,863,038
Restricted cash	15,211		54,481	—	—	69,692
Receivables, net (1)	298,671		552,779	86,629	—	938,079
Inventories	16,925,228		—	249,920	—	17,175,148
Loans held-for-sale (2)	—		1,490,105	—	—	1,490,105
Loans held-for-investments, net	—		72,626	—	—	72,626
Investments held-to-maturity	—		164,230	—	—	164,230
Investments available-for-sale (3)	—		—	—	53,497	53,497
Investments in unconsolidated entities	953,177		68,869	724,647	386,999	2,133,692
Goodwill	3,442,359		189,699	—	—	3,632,058
Other assets (4)	1,190,793		68,027	75,749	8,443	1,343,012
	$	25,529,425	2,776,987	1,175,908	452,857	29,935,177
Liabilities:
Notes and other debts payable, net	$	5,955,758	1,463,919	—	1,906	7,421,583
Other liabilities	3,969,893		180,329	252,911	11,060	4,414,193
	$	9,925,651	1,644,248	252,911	12,966	11,835,776


(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-investments, 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	1,009,035		—	561,190	403,688	1,973,913
Goodwill	3,442,359		215,516	—	—	3,657,875
Other assets (4)	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	3,298,527		242,568	196,030	14,860	3,751,985
	$	11,075,165	1,988,323	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 November 30, 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 consolidated balance sheets.

(4)As of November 30, 2020 and November 30, 2019, Financial Services other assets included mortgage loan commitments carried at fair value of $29.1 million and $16.3 million, respectively, and mortgage servicing rights carried at fair value of $2.1 million and $24.7 million, respectively.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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


	Year ended November 30, 2020
(In thousands)	Homebuilding		Financial Services	Multifamily	Lennar Other (1)	Corporate and unallocated (2)	Total
Revenues	$	20,981,136	890,311	576,328	41,079	—	22,488,854
Operating earnings (loss)	2,988,907		480,952	22,681	(10,334)	—	3,482,206
Corporate general and administrative expenses	—		—	—	—	(358,418)	(358,418)
Earnings (loss) before income taxes	2,988,907		480,952	22,681	(10,334)	(358,418)	3,123,788


	Year ended November 30, 2019
(In thousands)	Homebuilding		Financial Services	Multifamily	Lennar Other	Corporate and unallocated (2)	Total
Revenues	$	20,793,216	824,810	604,700	36,835	—	22,259,561
Operating earnings	2,502,905		224,642	16,390	31,469	—	2,775,406
Corporate general and administrative expenses	—		—	—	—	(341,114)	(341,114)
Earnings before income taxes	2,502,905		224,642	16,390	31,469	(341,114)	2,434,292


	Year ended November 30, 2018
(In thousands)	Homebuilding		Financial Services	Multifamily	Lennar Other	Corporate and unallocated (2)	Total
Revenues	$	19,077,597	954,631	421,132	118,271	—	20,571,631
Operating earnings (loss)	2,254,487		199,716	42,695	(33,707)	—	2,463,191
Gain on sale of Rialto investment and asset management platform	—		—	—	—	296,407	296,407
Acquisition and integration costs related to CalAtlantic	—		—	—	—	(152,980)	(152,980)
Corporate general and administrative expenses	—		—	—	—	(343,934)	(343,934)
Earnings (loss) before income taxes	2,254,487		199,716	42,695	(33,707)	(200,507)	2,262,684

(1)Operating loss for Lennar Other for the year ended November 30, 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.

(2)Corporate and unallocated expenses primarily represent costs of operations at the Company's corporate headquarters in Miami. These operations include the Company's executive offices, information technology, treasury, corporate accounting and tax, legal, internal audit, human resources. Also included are property expenses related to the leases of corporate offices, data processing and general corporate expenses.

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, equity in earnings (loss) from unconsolidated entities and other income (expense), net, less the cost of homes sold and land sold, selling, general and administrative expenses incurred by the segment.

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, Tennessee 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 Five Point Holdings, LLC ("FivePoint")

The assets related to the Company's homebuilding segments were as follows:


(In thousands)	East		Central	Texas	West	Other	Corporate and Unallocated	Total Homebuilding
Balance at November 30, 2020	$	5,308,114	3,438,600	2,150,916	10,504,374	1,301,618	2,825,803	25,529,425
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

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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


	Year ended November 30, 2020
(In thousands)	East		Central	Texas	West	Other	Total Homebuilding
Revenues	$	5,715,028	4,093,693	2,709,681	8,437,167	25,567	20,981,136
Operating earnings (loss)	933,297		482,929	421,594	1,241,494	(90,407)	2,988,907
Interest expense	93,245		58,777	29,901	178,498	13,683	374,104
Depreciation and amortization	21,504		13,659	9,366	50,316	249	95,094
Net additions to (disposals of) operating properties and equipment	955		(11,370)	712	165,869	(32)	156,134


	Year ended November 30, 2019
(In thousands)	East		Central	Texas	West	Other	Total Homebuilding
Revenues	$	5,717,858	4,120,085	2,578,962	8,227,304	149,007	20,793,216
Operating earnings (loss)	830,619		431,372	285,874	1,050,850	(95,810)	2,502,905
Interest expense	96,569		64,104	37,144	183,906	13,272	394,995
Depreciation and amortization	20,623		11,356	8,395	45,456	369	86,199
Net additions to (disposals of) operating properties and equipment	(31,338)		89	950	63,803	(1,214)	32,290


	Year ended November 30, 2018
(In thousands)	East		Central	Texas	West	Other	Total Homebuilding
Revenues	$	5,016,944	3,523,807	2,421,399	8,059,850	55,597	19,077,597
Operating earnings	621,724		320,105	172,449	1,082,302	57,907	2,254,487
Interest expense	82,024		44,925	32,930	151,823	4,462	316,164
Depreciation and amortization	17,995		7,904	9,041	36,013	1,022	71,975
Net additions to operating properties and equipment	26,387		14,692	200	42,525	15,549	99,353

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

At November 30, 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 (1)	$	500,000
March 2021	500,000
June 2021	600,000
July 2021	200,000
Total - Residential facilities	$	1,800,000
LMF Commercial facilities maturing:
December 2020 (2)	$	500,000
November 2021	100,000
December 2021	200,000
Total - LMF Commercial facilities	$	800,000
Total	$	2,600,000

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(1)Subsequent to November 30, 2020, the maturity date was extended to December 2021.

(2)Includes $50 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 November 30, 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 renewed or replaced with other facilities when they mature. The LMF Commercial facilities, which are guaranteed by Lennar Corporation, finance LMF Commercial loan originations and securitization activities and are secured by an up to 80% interest in the originated commercial loans financed.

Borrowings and collateral under the facilities and their prior year predecessors were as follows:


	November 30,
(In thousands)	2020		2019
Borrowings under the residential facilities	$	1,185,797	1,374,063
Collateral under the residential facilities	1,231,619		1,423,650
Borrowings under the LMF Commercial facilities	124,617		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 consolidated balance sheets.

LMF Commercial - loans held-for-sale

During the year ended November 30, 2020, LMF Commercial originated commercial loans with a total principal balance of $703.8 million, all of which were recorded as loans held-for-sale and sold $705.1 million of commercial loans into five separate securitizations. As of November 30, 2020, there were no unsettled transactions.

During the year ended November 30, 2019, LMF Commercial originated commercial loans with a total principal balance of $1.6 billion, nearly all of which were recorded as loans held-for-sale except $15.3 million which were recorded as accrual loans receivables, net, and sold $1.4 billion of loans into 11 separate securitizations. As of November 30, 2019, originated loans with an unpaid balance of $158.4 million which were sold into a securitization trust but not settled and thus were included as receivables, net.

Investments held-to-maturity

At November 30, 2020 and 2019, the carrying value of Financial Services' commercial mortgage-backed securities ("CMBS") was $164.2 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 year ended November 30, 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 November 30, 2020 and 2019, the carrying amount, net of debt issuance costs, of

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

outstanding debt in these agreements was $153.5 million and $154.7 million, respectively, and interest 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 land sales, revenue from construction activities and management fees generated from joint ventures, and equity in earnings from unconsolidated entities, less the cost of land sold, expenses related to construction activities and general and administrative expenses.

Lennar Other

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

Each reportable segment follows the same accounting policies described in Note 1—"Summary of Significant Accounting Policies" to the consolidated financial statements. 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.

3. Investments in Unconsolidated Entities

Homebuilding Unconsolidated Entities

The investments in Company's Homebuilding unconsolidated entities were as follows:


	November 30,
(In thousands)	2020		2019
Investments in unconsolidated entities (1) (2)	$	953,177	1,009,035
Underlying equity in unconsolidated entities' net assets (1)	1,269,701		1,313,892

(1)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.

(2)Included in the Company's recorded investments in Homebuilding unconsolidated entities is the Company's 40% ownership of FivePoint. As of November 30, 2020 and 2019, the carrying amount of the Company's investment was $392.1 million and $374.0 million, respectively.

The Company’s partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. The unconsolidated entities follow accounting principles that are in all material respects the same as those used by the Company. The Company shares in the profits and losses of these unconsolidated entities generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager under the direction of a management committee that has shared powers among the partners of the unconsolidated entities and the Company receives management fees and/or reimbursement of expenses for performing this function. The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the unconsolidated entities. Option prices are generally negotiated prices that approximate fair value when the Company receives the options. The details of the activity was as follows:


	Years Ended November 30,
(In thousands)	2020		2019	2018
Land sales revenues (1)	$	99,935	82,966	169,521
Management fees and reimbursement of expenses, net of deferrals	2,363		2,716	7,026

(1)The Company does not include in its Homebuilding equity in loss from unconsolidated entities its pro-rata share of unconsolidated entities’ earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the unconsolidated entities. This in effect defers recognition of the Company’s share of the unconsolidated entities’ earnings related to these sales until the Company delivers a home and title passes to a third-party homebuyer.

The total debt of the Homebuilding unconsolidated entities in which the Company has investments was $1.1 billion as of both November 30, 2020 and 2019, respectively, of which the Company's maximum recourse exposure was $4.9 million and $10.8 million as of November 30, 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.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

If the Company is 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 the Company's investment in the unconsolidated entity and its share of any funds the entity distributes.

As of both November 30, 2020 and 2019, the fair values of the repayment, maintenance guarantees and completion guarantees were not material. The Company believes that as of November 30, 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 should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture. In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 4).

Financial Services Unconsolidated Entity

In connection with the sale of the majority of its retail title agency business and title insurance underwriter in the first quarter of 2019, the Company provided seller financing and received a substantial minority equity ownership stake in the buyer. The combination of both the equity and debt components of this transaction caused the transaction not to meet the accounting requirements for sale treatment and, therefore, the Company was required to consolidate the buyer’s results at that time. During the year ended November 30, 2020, there was a significant equity raise that was completed, which resulted in the entity’s deconsolidation. Upon deconsolidation, the Company recorded a gain of $61.4 million.

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 November 30, 2020 and November 30, 2019, the fair value of the completion guarantees was immaterial. As of November 30, 2020 and November 30, 2019, Multifamily segment's unconsolidated entities had non-recourse debt with completion guarantees of $722.9 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. 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 investments. The details of the activity was as follows:


	Years Ended November 30,
(In thousands)	2020		2019	2018
General contractor services, net of deferrals	$	400,808	355,388	353,194
General contractor costs	383,649		340,081	338,717
Management fee income	56,253		53,597	48,801

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 year ended November 30, 2020 are included below:


	November 30, 2020
(In thousands)	LMV I		LMV II
Lennar's carrying value of investments	$	328,365	288,476
Equity commitments	2,204,016		1,257,700
Equity commitments called	2,139,322		995,206
Lennar's equity commitments	504,016		381,000
Lennar's equity commitments called	496,483		300,393
Lennar's remaining commitments	7,533		80,607
Distributions to Lennar during the year ended November 30, 2020	39,988		—

Lennar Other

Lennar Other primarily includes fund investments the Company retained when it sold the Rialto asset and investment management platform, as well as strategic investments in technology companies.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Condensed Financial Information of Unconsolidated Entities

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


(In thousands)	November 30, 2020
Assets:	Homebuilding		Financial Services	Multifamily	Lennar Other	Total
Cash and cash equivalents	$	546,013	111,109	94,801	173,408	814,222
Loans receivable	—		—	—	95,281	95,281
Real estate owned	—		—	—	295,391	295,391
Investment securities	—		75,714	—	2,093,766	2,093,766
Investments in partnerships	—		—	—	260,721	260,721
Inventories	4,527,371		—	—	—	4,527,371
Operating properties and equipment	148,020		—	5,392,681	23,968	5,564,669
Other assets	862,875		164,782	115,968	1,099,099	2,077,942
	$	6,084,279	351,605	5,603,450	4,041,634	15,729,363
Liabilities and equity:
Accounts payable and other liabilities	$	866,812	159,271	219,522	31,113	1,117,447

Debt (1)	1,085,639		—	2,519,567	292,313	3,897,519
Equity	4,131,828		192,334	2,864,361	3,718,208	10,714,397
	$	6,084,279	351,605	5,603,450	4,041,634	15,729,363
Investments in unconsolidated entities	$	953,177	68,869	724,647	386,999	2,133,692


(In thousands)	November 30, 2019
Assets:	Homebuilding		Financial Services	Multifamily	Lennar Other	Total
Cash and cash equivalents	$	602,480	—	74,726	122,089	799,295
Loans receivable	—		—	—	690,270	690,270
Real estate owned	—		—	—	282,832	282,832
Investment securities	—		—	—	2,404,987	2,404,987
Investments in partnerships	—		—	—	768,219	768,219
Inventories	4,514,885		—	—	—	4,514,885
Operating properties and equipment	—		—	4,618,518	—	4,618,518
Other assets	1,007,698		—	66,960	204,009	1,278,667
	$	6,125,063	—	4,760,204	4,472,406	15,357,673
Liabilities and equity:
Accounts payable and other liabilities	$	816,719	—	212,706	38,770	1,068,195

Debt (1)	1,094,588		—	2,113,696	775,648	3,983,932
Equity	4,213,756		—	2,433,802	3,657,988	10,305,546
	$	6,125,063	—	4,760,204	4,472,406	15,357,673
Investments in unconsolidated entities	$	1,009,035	—	561,190	403,688	1,973,913

(1)Debt noted above is net of debt issuance costs. As of November 30, 2020 and 2019 this includes $11.8 million and $13.0 million, respectively, for Homebuilding, $31.1 million and $26.8 million, respectively, for Multifamily and an immaterial amount of debt issuance costs for Lennar Other.


(In thousands)
Statement of Operations Years Ended:	Revenues		Cost and expenses	Other income (1)	Net earnings (loss) of unconsolidated entities	Equity in earnings (loss) from unconsolidated entities
November 30, 2020	$	1,362,686	1,221,873	(244,680)	(103,867)	(13,939)
November 30, 2019	782,712		774,550	347,018	355,180	13,393
November 30, 2018	1,017,271		1,004,927	222,003	234,347	(14,777)

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

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. Homebuilding Senior Notes and Other Debts Payable


	November 30,
(Dollars in thousands)	2020		2019

6.25% senior notes due December 2021	$	305,221	310,252
4.125% senior notes due 2022	598,876		597,885
5.375% senior notes due 2022	255,342		258,198
4.750% senior notes due 2022	572,724		571,644
4.875% senior notes due December 2023	397,347		396,553
4.500% senior notes due 2024	647,528		646,802
5.875% senior notes due 2024	443,484		448,158
4.750% senior notes due 2025	498,002		497,558
5.25% senior notes due 2026	406,709		407,921
5.00% senior notes due 2027	352,508		352,892
4.75% senior notes due 2027	894,760		893,046
6.625% senior notes due 2020	—		303,668
2.95% senior notes due 2020	—		299,421
8.375% senior notes due 2021	—		418,860
4.750% senior notes due 2021	—		498,893
Mortgage notes on land and other debt	583,257		874,887
	$	5,955,758	7,776,638

The carrying amounts of the senior notes listed above are net of debt issuance costs of $15.9 million and $22.9 million, as of November 30, 2020 and 2019, respectively.

At November 30, 2020, the Company had an unsecured revolving credit facility (the "Credit Facility") with maximum borrowings of $2.4 billion maturing in 2024. The credit agreement also provides that up to $500 million in commitments may be used for letters of credit. As of both November 30, 2020 and 2019, the Company had no outstanding borrowings under the Credit Facility. Subsequent to November 30, 2020, the maximum borrowings were increased by $100 million to $2.5 billion and included a $300 million accordion feature, subject to additional commitments, thus the maximum borrowings could be $2.8 billion. Under the Credit Facility agreement, the Company is required to maintain a minimum consolidated tangible net worth, a maximum leverage ratio and either a liquidity or an interest coverage ratio. These ratios are calculated per the Credit Facility agreement, which involves adjustments to GAAP financial measures. The Company believes it was in compliance with its debt covenants at November 30, 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 November 30, 2020, the Company had outstanding surety bonds including performance surety bonds related to site improvements at various projects (including certain projects of 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)	November 30,
	2020		2019
Performance letters of credit	$	752,096	715,793
Surety bonds	3,087,711		2,946,167
Anticipated future costs primarily for site improvements related to performance surety bonds	1,584,642		1,427,145

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The terms of each of the Company's senior notes outstanding at November 30, 2020 were as follows:


Senior Notes Outstanding (1)	Principal Amount		Net Proceeds (2)	Price		Dates Issued
(Dollars in thousands)
6.25% senior notes due December 2021	$	300,000	(3)	(3)		(3)
4.125% senior notes due 2022	600,000		595,160	100	%	January 2017
5.375% senior notes due 2022	250,000		(3)	(3)		(3)
4.750% senior notes due 2022	575,000		567,585	(4)		October 2012, February 2013, April 2013
4.875% senior notes due December 2023	400,000		393,622	99.169	%	November 2015
4.500% senior notes due 2024	650,000		644,838	100	%	April 2017
5.875% senior notes due 2024	425,000		(3)	(3)		(3)
4.750% senior notes due 2025	500,000		495,528	100	%	April 2015
5.25% senior notes due 2026	400,000		(3)	(3)		(3)
5.00% senior notes due 2027	350,000		(3)	(3)		(3)
4.75% senior notes due 2027	900,000		894,650	100	%	November 2017

(1)Interest is payable semi-annually for each of the series of senior notes. The senior notes are unsecured and unsubordinated, but are guaranteed by substantially all of the Company's 100% owned homebuilding subsidiaries.

(2)The Company generally uses the net proceeds for working capital and general corporate purposes, which can include the repayment or repurchase of other outstanding senior notes.

(3)These notes were obligations of CalAtlantic when it was acquired, and were subsequently exchanged in part for notes of the Company. As part of purchase accounting, the senior notes have been recorded at their fair value as of the date of acquisition (February 12, 2018).

(4)The Company issued $350 million aggregate principal amount at a price of 100%, $175 million aggregate principal amount at a price of 98.073% and $50 million aggregate principal amount at a price of 98.250%.

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 have its guarantee suspended at any time when it is not directly or indirectly guaranteeing at least $75 million of debt of Lennar Corporation (the parent company) other than senior notes, 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.

At November 30, 2020, the Company had mortgage notes on land and other debt due at various dates through 2036 bearing interest at rates up to 11.0% with an average interest rate of 4.8%. At November 30, 2020 and 2019, the carrying amount of the mortgage notes on land and other debt was $583.3 million and $874.9 million, respectively. During the years ended November 30, 2020 and 2019, the Company retired $555.6 million and $172.5 million, respectively, of mortgage notes on land and other debt.

The minimum aggregate principal maturities of Homebuilding senior notes and other debts payable during the five years subsequent to November 30, 2020 and thereafter are as follows:


(In thousands)	Debt Maturities
2021	$	293,177
2022	1,805,848
2023	58,850
2024	1,518,748
2025	583,800
Thereafter	1,672,839

The Company expects to pay its near-term maturities as they come due through cash generated from operations, the issuance of additional debt or equity offerings as well as borrowings under the Company's Credit Facility.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. Income Taxes

The provision for income taxes consisted of the following:


	Years Ended November 30,
(In thousands)	2020		2019	2018
Current:
Federal	$	428,907	298,701	246,604
State	135,246		53,400	30,530
	$	564,153	352,101	277,134
Deferred:
Federal	$	59,065	165,080	189,096
State	33,017		74,992	78,941
	92,082		240,072	268,037
	$	656,235	592,173	545,171

A reconciliation of the statutory rate and the effective tax rate was as follows:


	Percentage of Pretax Income
	2020		2019		2018
Statutory rate	21.00	%	21.00	%	22.22	%
State income taxes, net of federal income tax benefit	4.00		4.17		3.81
Tax credits (1)	(4.46)		(1.49)		(1.60)
Nondeductible compensation	0.57		0.45		—
Domestic production activities deduction	—		—		(1.71)
Tax reserves and interest expense, net	—		(0.03)		(0.39)
Deferred tax asset valuation allowance, net	—		(0.02)		(0.03)
Accounting method changes	—		—		(1.47)
Changes in tax law (2)	—		—		3.06
Other	(0.09)		0.18		0.44
Effective rate	21.02	%	24.26	%	24.33	%

(1)In December 2019, the Congress retroactively extended the new energy efficient home tax credit for homes delivered in 2018 to 2020.

(2)In December 2017, the Tax Cuts and Jobs Act was enacted which reduced the maximum federal corporate income tax rate to 21%, which reduced the value of the Company's deferred tax assets. As a result, the Company recorded a non-cash one-time write down of deferred tax assets that resulted in income tax expense of $68.6 million in fiscal year 2018.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax assets were as follows:


	November 30,
(In thousands)	2020		2019
Deferred tax assets:
Inventory valuation adjustments	$	136,868	201,408
Reserves and accruals	161,984		148,477
Net operating loss carryforwards	88,021		108,250

Capitalized expenses	130,910		72,054
Investments in unconsolidated entities	67,405		55,306
Other assets	76,715		84,454
Total deferred tax assets	661,903		669,949
Valuation allowance	(4,411)		(4,341)
Total deferred tax assets after valuation allowance	657,492		665,608
Deferred tax liabilities:
Capitalized expenses	181,729		152,208
Deferred income	240,903		198,503



Other liabilities	47,478		35,432
Total deferred tax liabilities	470,110		386,143
Net deferred tax assets	$	187,382	279,465

The detail of the Company's net deferred tax assets was as follows:


	November 30,
(In thousands)	2020		2019
Net deferred tax assets: (1)
Homebuilding	$	119,467	224,859
Financial Services	1,024		17,551
Multifamily	38,155		34,291
Lennar Other	28,736		2,764
Net deferred tax assets	$	187,382	279,465

(1)Net deferred tax assets and net deferred tax liabilities detailed above are included within other assets and other liabilities in the respective segments.


	November 30,
(In thousands)	2020		2019
Valuation allowance (1)	$	(4,411)	(4,341)
Federal tax effected NOL carryforwards (2)	36,264		39,080
State tax effected NOL carryforwards (3)	51,757		69,170

(1)As of November 30, 2020 and 2019, the net deferred tax assets included valuation allowances primarily related to state net operating loss ("NOL") carryforwards that are not more likely than not to be utilized due to an inability to carry back these losses in most states and short carryforward periods that exist in certain states.

(2)At November 30, 2020 and 2019, the Company had federal tax effected NOL carryforwards that may be carried forward to offset future taxable income and begin to expire in 2029.

(3)At November 30, 2020 and 2019, the Company had state tax effected NOL carryforwards that may be carried forward from 5 to 20 years, depending on the tax jurisdiction, with losses expiring between 2021 and 2039.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the changes in gross unrecognized tax benefits:


	Years Ended November 30,
(In thousands)	2020		2019	2018
Gross unrecognized tax benefits, beginning of year	$	12,856	14,667	12,285
Lapse of statute of limitations	(349)		(1,811)	(2,052)
Decreases due to tax positions taken during prior period	—		—	(2,805)


Decreases due to settlements with tax authorities	(222)		—	(6,493)

Increases due to the CalAtlantic acquisition	—		—	13,510
Increases due to tax positions taken during prior period	—		—	222
Gross unrecognized tax benefits, end of year	$	12,285	12,856	14,667

If the Company were to recognize its gross unrecognized tax benefits as of November 30, 2020, $9.7 million would affect the Company’s effective tax rate. The Company does not expect the total amount of unrecognized tax benefits to increase or decrease by a material amount within the following twelve months.

The following summarizes the changes in interest and penalties accrued with respect to gross unrecognized tax benefits:


	November 30,
(In thousands)	2020		2019
Accrued interest and penalties, beginning of the year	$	55,333	52,942

Accrual of interest and penalties (primarily related to state audits)	2,802		3,029
Reduction of interest and penalties	(371)		(638)
Accrued interest and penalties, end of the year	$	57,764	55,333

The IRS is currently examining the Company's federal tax income tax returns for fiscal year 2019, and certain state taxing authorities are examining various fiscal years. The final outcome of these examinations is not yet determinable. The statute of limitations for the Company's major tax jurisdictions remains open for examination for fiscal year 2005 and subsequent years. The Company participates in an IRS examination program, Compliance Assurance Process, "CAP". This program operates as a contemporaneous exam throughout the year in order to keep exam cycles current and achieve a higher level of compliance.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Earnings Per Share

Basic and diluted earnings per share were calculated as follows:


	Years Ended November 30,
(In thousands, except per share amounts)	2020		2019	2018
Numerator:
Net earnings attributable to Lennar	$	2,465,036	1,849,052	1,695,831
Less: distributed earnings allocated to nonvested shares	1,658		420	429
Less: undistributed earnings allocated to nonvested shares	26,731		15,722	14,438
Numerator for basic earnings per share	2,436,647		1,832,910	1,680,964
Less: net amount attributable to noncontrolling interests in Rialto's Carried Interest Incentive Plan (1)	8,971		4,204	3,320

Plus: interest on convertible senior notes	—		—	80
Plus: undistributed earnings allocated to convertible shares	—		—	2,904
Less: undistributed earnings reallocated to convertible shares	—		—	2,899
Numerator for diluted earnings per share	$	2,427,676	1,828,706	1,677,729
Denominator:
Denominator for basic earnings per share - weighted average common shares outstanding	309,406		318,419	307,968
Effect of dilutive securities:
Share-based payments	1		3	48
Convertible senior notes	—		—	549
Denominator for diluted earnings per share - weighted average common shares outstanding	309,407		318,422	308,565
Basic earnings per share	$	7.88	5.76	5.46
Diluted earnings per share	$	7.85	5.74	5.44

(1)The amounts presented above relate to Rialto's Carried Interest Incentive Plan and represent the difference between the advanced tax distributions received by Lennar Other segment and the amount Lennar, as the parent company, is assumed to own.

For the years ended November 30, 2020, 2019 and 2018, there were no options to purchase shares of common stock that were outstanding and anti-dilutive.

7. 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 November 30, 2020 and 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.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


		November 30,
		2020			2019
	Fair Value	Carrying		Fair	Carrying	Fair
(In thousands)	Hierarchy	Amount		Value	Amount	Value
ASSETS

Financial Services:
Loans held-for-investment, net	Level 3	$	72,626	70,808	73,867	69,708
Investments held-to-maturity	Level 3	164,230		196,047	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	Level 2	$	5,955,758	6,581,798	7,776,638	8,144,632
Financial Services notes and other debts payable	Level 2	1,463,919		1,464,850	1,745,755	1,745,782
Multifamily note payable	Level 2	—		—	36,125	36,125
Lennar Other notes and other debts payable	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 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.

Multifamily—For the note payable, the fair value approximates the carrying value due to variable interest pricing terms and the short-term nature of the borrowing.

Lennar Other—The fair value for investments held-to-maturity is based on discounted cash flows. For notes and other debts payable, the fair value is calculated based on discounted cash flows using quoted interest rates and for the warehouse repurchase financing agreements fair values approximate their carrying value due to their short-term maturities.

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:


		Fair Value at November 30,
(In thousands)	Fair Value Hierarchy	2020		2019
Financial Services Assets:
Residential loans held-for-sale	Level 2	$	1,296,517	1,447,715
LMF Commercial loans held-for-sale	Level 3	193,588		197,224
Mortgage servicing rights	Level 3	2,113		24,679
Lennar Other:
Investments available-for-sale	Level 3	53,497		—

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Residential and LMF Commercial loans held-for-sale in the table above include:


	November 30,
	2020		2019
(In thousands)	Aggregate Principal Balance		Change in Fair Value	Aggregate Principal Balance	Change in Fair Value





Residential loans held-for-sale	$	1,232,548	63,969	1,405,511	42,204
LMF Commercial loans held-for-sale	194,362		(774)	196,275	949

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

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 November 30, 2020 and 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.

Financial Services 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:


	November 30, 2020
Unobservable inputs
Mortgage prepayment rate	18	%
Discount rate	12	%
Delinquency rate	4	%

Lennar Other investments available-for-sale— The fair value of these investments is based on the quoted market prices for similar financial instruments.

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:

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Years Ended November 30,
(In thousands)	2020		2019	2018
Changes in fair value included in Financial Services revenues:
Loans held-for-sale	$	21,765	4,891	8,621
Mortgage loan commitments	12,774		(85)	6,500
Forward contracts	(9,805)		6,504	(12,041)








Changes in fair value included in other comprehensive income (loss), net of tax:
Lennar Other investments available-for-sale	(805)		—	—
Financial Services investments available-for-sale	(46)		1,040	(1,634)

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 loan and recorded as revenues in the Financial Services’ statement of operations and LMF Commercial's statement of operations, respectively.

The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements:


	Years Ended November 30,
	2020		2019

(In thousands)	Mortgage servicing rights		LMF Commercial loans held-for-sale	Mortgage servicing rights	LMF Commercial loans held-for-sale
Beginning of year	$	24,679	197,224	37,206	61,691
Purchases/loan originations	2,378		703,777	3,417	1,593,655
Sales/loan originations sold, including those not settled	—		(705,089)	—	(1,447,818)
Disposals/settlements (1)	(10,322)		—	(5,326)	(9,920)
Changes in fair value (2)	(14,622)		(25)	(10,618)	430
Interest and principal paydowns	—		(2,299)	—	(814)
End of year	$	2,113	193,588	24,679	197,224

(1)Includes $7.5 million related to the sale of a servicing portfolio for the year ended November 30, 2020.

(2)Changes in fair value for LMF Commercial loans held-for-sale and Financial Services mortgage servicing rights are included in Financial Services' revenues.

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 tables 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:


	Years Ended November 30,
		2020				2019			2018
(In thousands)	Fair Value Hierarchy	Carrying Value		Fair Value	Total Losses, Net (1)	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 (2)	Level 3	$	176,637	148,684	(27,953)	218,942	205,201	(13,741)	4,019	3,473	(546)
Land and land under development (2)	Level 3	182,227		92,355	(89,872)	121,564	82,816	(38,748)	96,093	62,850	(33,243)
Other assets (2)	Level 3	—		—	—	60,363	56,727	(3,636)	—	—	—

Lennar Other:
REO, net

Upon management periodic valuations	Level 3	—		—	—	—	—	—	58,721	25,632	(33,089)

(1)Represents losses due to valuation adjustments, write-offs, gains (losses) from transfers or acquisitions of real estate through foreclosure and REO impairments recorded during the year.

(2)Valuation adjustments were included in Homebuilding costs and expenses in the Company's consolidated statements of operations for the years ended November 30, 2020, 2019 and 2018.

See Note 1 for a detailed description of the Company’s process for identifying and recording valuation adjustments related to Homebuilding inventory.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. 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 year ended November 30, 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 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 the Company's consolidated VIE's assets and non-recourse liabilities are disclosed in the footnote to the 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 and 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 the VIE’s banks. Other than debt guarantee agreements with a VIE’s banks, 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 November 30, 2020 and 2019, the Company’s recorded investments in VIEs that are unconsolidated and its estimated maximum exposure to loss were as follows:


	November 30,
	2020			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	$	89,654	89,828	80,939	81,118
Multifamily (2)	619,540		717,271	533,018	768,651
Financial Services (3)	233,099		287,253	166,012	166,012
Lennar Other	7,154		7,154	60,882	60,882
	$	949,447	1,101,506	840,851	1,076,663

(1)Limited to investments in unconsolidated VIEs, except as noted below.

(2)As of November 30, 2020 and 2019, the maximum exposure to loss of Multifamily's investments in unconsolidated VIEs was generally limited to its investments in the unconsolidated VIEs, except with regard to the remaining equity commitment of $88.1 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)At November 30, 2020, the maximum exposure to loss of Financial Services' investments in unconsolidated VIEs included a note receivable.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 year ended November 30, 2020, consolidated inventory not owned increased by $523.4 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2020. The increase was primarily due to homesites sold to an investor group. This strategic relationship is a continuation of the Company's land light strategy and allows the Company to offer the investor group the opportunity to acquire the property and give the Company an option to purchase all or a portion of it in the future. 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 loss related to its option contracts with third parties and unconsolidated entities consisted of its non-refundable option deposits and pre-acquisition costs totaling $414.2 million and $320.5 million at November 30, 2020 and 2019, respectively. Additionally, the Company had posted $87.5 million and $75.0 million of letters of credit in lieu of cash deposits under certain land and option contracts as of November 30, 2020 and 2019, respectively.

9. Commitments and Contingent Liabilities

The Company is 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.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts generally enable the Company to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company determines whether to exercise the option. The use of option contracts allows the Company to reduce the financial risks associated with long-term land holdings. At November 30, 2020, the Company had $414.2 million of non-refundable option deposits and pre-acquisition costs related to certain of these homesites, which were included in inventories in the consolidated balance sheet.

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 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:

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


(Dollars in thousands)	November 30, 2020
Right-of-use assets	$	113,390
Lease liabilities	$	122,836
Weighted-average remaining lease term (in years)	2.6
Weighted-average discount rate	3.1%

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 November 30, 2020 were as follows:


(Dollars in thousands)	Lease Payments
2021	$	33,616
2022	27,525
2023	21,601
2024	15,982
2025 and thereafter	34,775
Total future minimum lease payments (1)	$	133,499
Less: Interest (2)	10,663
Present value of lease liabilities (2)	$	122,836

(1)Future minimum lease payments exclude variable lease costs and short-term lease costs, which were $16.1 million and $2.6 million, respectively, for the year ended November 30, 2020. This also does not include minimum lease payments for executed and legally enforceable leases that have not yet commenced. As of November 30, 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. The Company recognized the lease liabilities on its balance sheets within other liabilities of the respective segments.

Rental expense for the years ended November 30, 2020, 2019 and 2018 was $82.1 million, $92.2 million and $98.4 million, respectively. Payments on lease liabilities during the year ended November 30, 2020 totaled $48.8 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 ended November 30, 2020, the Company had an immaterial amount of sublease income.

The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $1.0 billion at November 30, 2020. Additionally, at November 30, 2020, the Company had outstanding surety bonds of $3.1 billion including performance surety bonds related to site improvements at various projects (including certain projects in the Company’s joint ventures) and financial surety bonds. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of November 30, 2020, there were approximately $1.6 billion, or 51%, of anticipated future costs to complete related to these site improvements. The Company does not presently anticipate any draws upon these bonds that would have a material effect on its consolidated financial statements.

Substantially all of the 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. Over the last decade there has been an industry-wide effort by purchasers to defray their losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements. Mortgage investors or others could seek to have the Company buy back mortgage loans or compensate them for losses incurred on mortgage loans that the Company has sold based on claims that the Company breached its limited representations or warranties. The Company’s mortgage operations have established accruals for possible losses associated with mortgage loans previously originated and sold to investors. The Company establishes accruals for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans as well as previous settlements. While the Company believes that it has adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed the Company’s expectations, additional recourse expense may be incurred. Loan origination liabilities are included in Financial Services’ liabilities in the Company's consolidated balance sheets.

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. Quarterly Data (unaudited)


	First		Second	Third	Fourth
(In thousands, except per share amounts)
2020
Revenues	$	4,505,337	5,287,373	5,870,254	6,825,890
Gross profit from sales of homes	848,988		1,062,310	1,262,550	1,574,242
Earnings before income taxes	423,552		676,577	859,013	1,164,646
Net earnings attributable to Lennar	398,452		517,406	666,418	882,760
Earnings per share:
Basic	1.27		1.66	2.13	2.82
Diluted	1.27		1.65	2.12	2.82
2019
Revenues	$	3,868,082	5,562,890	5,857,058	6,971,531
Gross profit from sales of homes	726,079		1,038,587	1,085,633	1,385,859
Earnings before income taxes	319,124		559,399	667,083	888,686
Net earnings attributable to Lennar	239,910		421,472	513,366	674,304
Earnings per share:
Basic	0.74		1.31	1.60	2.13
Diluted	0.74		1.30	1.59	2.13

Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year.

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