CalAtlantic Group, Inc.

On October 30, 2017, the Company announced that it has entered into a definitive merger agreement with Lennar Corporation ("Lennar") pursuant to which each share of CalAtlantic stock will be exchanged for 0.885 shares of Lennar Class A common stock.  CalAtlantic's stockholders will also have the option to elect to exchange all or a portion of their shares for cash in the amount of $48.26 per share, subject to a maximum cash amount of approximately $1.2 billion.  This business combination will create the nation's largest homebuilder.  The transaction, which is subject to the satisfaction or waiver of certain customary conditions, including the approval of the merger by the Company's stockholders and the stockholders of Lennar, is expected to close in the first calendar quarter of 2018.

In July 2017, Weyerhaeuser Company notified the building community of an issue with a specific type of fire rated I-joist product manufactured after December 1, 2016.  Weyerhaueser has estimated that approximately 2,200 homes nationwide contain the joist.  The Company estimates that the joist is present in approximately 370 Company homes located in our Colorado, Twin Cities and Philadelphia markets.  Of the identified 370 impacted homes, 53 have been delivered to homeowners, 6 are model homes, and the remainder are in various stages of construction.  Weyerhaeuser has committed to us that they will absorb the costs and directly pay for the repair of the affected homes, and as a result, we do not believe we will incur any material costs, expenses or charges as a result of this issue.  Weyerhaeuser has hired a national restoration general contractor to remediate the affected homes, however, we do not yet know the ultimate timing for delivering the remaining homes impacted by this issue. 

During the 2017 third quarter, deliveries within our North and Southwest regions were negatively impacted by the Weyerhauser I-joist issue discussed above, which caused a reduction in deliveries in each region of approximately 45 and 50 units, respectively.  Our Southwest region also experienced a reduction in deliveries of approximately 30 units as a result of Hurricane Harvey's impact on our Houston division.  Additionally our Southeast region experienced a reduction in deliveries of approximately 115 units as a result of Hurricane Irma.  In the West, the majority of divisions within the region experienced double digit percentage decreases in deliveries, which were partially offset by double digit percentage increases in Phoenix.

Our 2017 third quarter SG&A expenses (including Corporate G&A) were $168.4 million compared to $170.8 million for the prior year period, up 80 basis points as a percentage of home sale revenues to 11.1% compared to 10.3% for the 2016 third quarter.  Isolating G&A from selling expenses, G&A expenses increased as a percentage of home sale revenues to 5.6% for the 2017 third quarter compared to 5.2% for the prior year period, primarily as a result of a decrease in home sale revenues, driven by the effects of Hurricanes Harvey and Irma and the Weyerhaeuser I-joist issue.  Our selling expenses as a percentage of home sale revenues increased to 5.5% for the 2017 third quarter compared to 5.1% in the prior year period, as we continue to experience higher co-broker participation, driving an approximately 20 basis point increase compared to the prior year period.  In addition, internal commissions for the 2017 third quarter were up approximately 10 basis points compared to the prior year period, driven by a timing related increase due to a large order/delivery imbalance, primarily in the West region where our orders exceeded our deliveries by 16%.

On October 29, 2017, CalAtlantic, Lennar Corporation ("Lennar") and Cheetah Cub Group Corp., a wholly owned subsidiary of Lennar ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which CalAtlantic, subject to the terms and conditions set forth in the Merger Agreement, would merge with and into Merger Sub (the "Merger").  At the effective time of the Merger, each share of common stock of CalAtlantic issued and outstanding will be converted into and become the right to receive 0.885 shares (the "Exchange Ratio") of Class A common stock of Lennar ("Lennar stock"). Holders of CalAtlantic common stock will also have the option to elect to exchange all or a portion of their shares for cash in the amount of $48.26 per share, subject to proration to the extent cash to be paid to all such holders electing to receive cash consideration would exceed $1.16 billion.  At the effective time of the Merger, (i) CalAtlantic's options, restricted stock units and stock appreciation rights will be converted into the option to acquire or right to receive in lieu of CalAtlantic common stock, the number of shares of Lennar stock, as determined in accordance with the Exchange Ratio, and (ii) CalAtlantic's convertible notes will remain outstanding and become convertible in lieu of CalAtlantic common stock, the number of shares of Lennar stock, as determined in accordance with the Exchange Ratio, unless the indenture relating to a particular issue of convertible debt provides otherwise, in which case the holder of convertible debt of that issue will receive what is provided in the indenture.  The consummation of the Merger is subject to the satisfaction or waiver of certain customary conditions, including the approval of the Merger by CalAtlantic's stockholders and the stockholders of Lennar, and the Merger cannot be completed until all of the conditions to closing are satisfied or waived.  The obligation of each of the parties to the Merger Agreement to consummate the Merger is conditioned, among other things, on the other party's representations and warranties being true and correct (subject to certain materiality exceptions) and the performance in all material respects by the other party of its obligations imposed under the Merger Agreement.  If the Merger is not completed for any reason, the holders of our common stock will not receive any payment for their shares of our common stock in connection with the proposed Merger. Instead, CalAtlantic will remain an independent public company and holders of our common stock will continue to own their shares of our common stock.