- -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30,
20012002Commission file number 1-11749
----------------LENNAR CORPORATION
(Exact(Exact name of registrant as specified in its charter)
Delaware
95-4337490
(State(State or other jurisdiction of
(I.R.S.(I.R.S. Employer
incorporation or organization)
Identification No.)
700 Northwest 107th Avenue, Miami, Florida 33172
(Address(Address of principal executive offices) (Zip Code)
(305) 559-4000 Registrant'sRegistrant’s telephone number, including area code (305) 559-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange
Title of each classon which registered
------------------- ---------------------Common Stock, par value
10c10¢New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
----------------Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
[X]þ NO[_]¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[_]¨As of January 31,
2002,2003, registrant had outstanding54,460,21155,234,318 shares of common stock and 9,700,462 shares of Class B common stock (which can be converted into common stock). Of the total shares outstanding,53,347,07554,020,863 shares of common stock and19,50110,501 shares of Class B common stock, having a combined aggregate market value (assuming the Class B shares were converted) on that date of$2,959,176,639,$2,910,129,265, were held by non-affiliates of the registrant.Documents incorporated by reference:DOCUMENTS INCORPORATED BY REFERENCE:
Related
Section
Documents
------- ---------III
Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 30,
2002.2003.- -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------PART I
Item 1. Business.
General Development of Business
We are one of the
nation'snation’s largest homebuilders and a provider ofresidentialfinancial services. Our homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through our unconsolidated partnerships. Our financial servicesoperationssubsidiaries provide mortgage financing, title insurance, closing services andclosinginsurance agency services for both buyers of ourhomebuyershomes and others,reselland sell theresidential mortgageloansit originatesthey originate in the secondary mortgagemarket, andmarket. These subsidiaries also provide high-speed Internet access, cable television and alarm installation and monitoring services to residents ofourcommunities we develop and others.The following is a summary of our
growth: 1954--We were founded as a Miami homebuilder. 1972--Entered the Arizona homebuilding market. 1986--Acquired Development Corporation of America in Florida. 1991--Entered the Texas homebuilding market. 1995--Entered the California homebuilding market through the acquisition of Bramalea California, Inc. 1996--Expanded in California through our acquisition of Renaissance Homes, Inc., significantly expanded our operations in Texas with the acquisition of the assets and operations of Houston-based Village Builders (a homebuilder) and Friendswood Development Company (a developer of master-planned communities) and acquired Regency Title. 1997--Continued our expansion in California through homesite acquisitions and unconsolidated partnership investments. We also acquired Pacific Greystone Corporation which further expanded our operations in California and Arizona and brought us into the Nevada homebuilding market. 1998--Acquired the properties of two California homebuilders, ColRich Communities and Polygon Communities, acquired a Northern California homebuilder, Winncrest Homes and acquired North American Title. 1999--Acquired Southwest Land Title and Eagle Home Mortgage. 2000--Acquired U.S. Home Corporation which expanded our operations into New Jersey, Maryland/Virginia, Minnesota, Ohio and Colorado and strengthened our position in other states, and acquired Texas Professional Title. 2002--Acquired Patriot Homes, a homebuilder in the Baltimore marketplace, and expanded into the Carolinas with our acquisition of Don Galloway Homes and the assets and operations of Sunstar Communities.growth history:
1954
—
We were founded as a Miami homebuilder.
1971
—
Completed initial public offering.
1972
—
Entered the Arizona homebuilding market.
1986
—
Acquired Development Corporation of America in Florida.
1991
—
Entered the Texas homebuilding market.
1995
—
Entered the California homebuilding market through the acquisition of Bramalea California, Inc.
1996
—
Expanded in California through our acquisition of Renaissance Homes, Inc., significantly expanded our operations in Texas with the acquisition of the assets and operations of Houston-based Village Builders and Friendswood Development Company and acquired Regency Title in Texas.
1997
—
Completed the spin-off of our commercial real estate investment business to LNR Property Corporation. We continued our expansion in California through homesite acquisitions and unconsolidated partnership investments. We also acquired Pacific Greystone Corporation which further expanded our operations in California and Arizona and brought us into the Nevada homebuilding market.
1998
—
Acquired the properties of two California homebuilders, ColRich Communities and Polygon Communities, acquired a Northern California homebuilder, Winncrest Homes, and acquired North American Title with operations in Arizona, California and Colorado.
1999
—
Acquired Southwest Land Title in Texas and Eagle Home Mortgage with operations in Nevada, Oregon and Washington.
2000
—
Acquired U.S. Home Corporation which expanded our operations in New Jersey, Maryland/Virginia, Minnesota, Ohio and Colorado and strengthened our position in other states, and acquired Texas Professional Title.
2002
—
Acquired Patriot Homes, Sunstar Communities, Don Galloway Homes, Genesee Company, Barry Andrews Homes, Cambridge Homes, Pacific Century Homes, Concord Homes and Summit Homes which expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our position in several of our existing markets. We also acquired Sentinel Title in Maryland.
2003
—
Acquired Seppala Homes which expanded our operations in South Carolina.
Financial Information about Operating Segments
We have two operating
segments--homebuildingsegments—homebuilding and financial services. The financial information related to these operating segments is contained in Item 8.2
Narrative Description of Business
HOMEBUILDING
Under the Lennar Family of Builders banner, we operate using the following brand names: Lennar Homes, U.S. Home, Greystone Homes, Village Builders, Renaissance Homes, Orrin Thompson Homes, Lundgren Bros., Winncrest Homes, Sunstar Communities, Don Galloway Homes, Patriot Homes, NuHome, Barry Andrews Homes, Concord Homes, Summit Homes, Cambridge Homes, Seppala Homes, Genesee and Rutenberg
Homes and NuHome.Homes. Our active adult communities are primarily marketed under the Heritage and Greenbriar brand names.Through our own efforts and unconsolidated partnerships in which we have interests, we are involved in all phases of planning and building in our residential communities, including land acquisition, site planning, preparation and improvement of land, and design, construction and marketing of homes. We subcontract virtually all aspects of development and construction.
We primarily sell single-family attached and detached homes. The homes are targeted primarily to first-time, move-up and active adult homebuyers. The average sales price of a Lennar home was
$237,000$245,000 in fiscal2001.2002.Current Homebuilding Activities
Homes Delivered in the Years Ended November 30, -------------------- Region 2001 2000 1999 - ------ ------ ------ ------Florida.................................................... 6,620 5,361 4,241 Maryland/Virginia.......................................... 692 466 -- New Jersey................................................. 422 328 -- ------ ------ ------ East Region.............................................. 7,734 6,155 4,241 ------ ------ ------ Texas...................................................... 5,972 4,696 3,107 Minnesota.................................................. 745 472 -- Ohio....................................................... 21 35 -- ------ ------ ------ Central Region........................................... 6,738 5,203 3,107 ------ ------ ------ California................................................. 4,372 3,805 3,731 Colorado................................................... 1,524 984 -- Arizona.................................................... 1,944 1,568 1,064 Nevada..................................................... 792 521 446 ------ ------ ------ West Region.............................................. 8,632 6,878 5,241 ------ ------ ------ Subtotal................................................. 23,104 18,236 12,589 Unconsolidated partnerships................................ 795 342 17 ------ ------ ------ Total.................................................... 23,899 18,578 12,606 ====== ====== ======
Homes Delivered in the Years Ended November 30,
Region
2002
2001
2000
East Region
8,842
7,734
6,155
Central Region
7,699
6,738
5,203
West Region
10,284
8,632
6,878
Subtotal
26,825
23,104
18,236
Unconsolidated partnerships
568
795
342
Total
27,393
23,899
18,578
At November 30, 2002, our market regions consisted of the following states:East: Florida, Maryland, Virginia, New Jersey, North Carolina and South Carolina.Central: Texas, Illinois and Minnesota.West: California, Colorado, Arizona and Nevada. In addition, we have interests in unconsolidated partnerships that sell homes in other states.
Management and Operating Structure
We balance a local operating structure with centralized corporate level management. Our local managers, who have significant experience both in the homebuilding industry generally and in their particular markets, are responsible for operating decisions regarding land identification, home design, construction and marketing. Decisions related to our overall strategy, acquisitions of land and businesses, financing, cash management and information systems are centralized at the corporate level.
We view unconsolidated partnerships and similar entities as a means to both expand our market opportunities and manage our risk. For additional information about our unconsolidated partnerships, see
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.Property Acquisition
In our homebuilding operations, we generally acquire land for the development and construction of homes which we sell to homebuyers. We also sell land to third parties. Land acquisitions are subject to strict underwriting criteria and may be made directly or through partnerships with other entities. Through unconsolidated partnerships, we reduce our risk and also the amount invested in owned land and increase our access
3to other land. Partnerships also, in some instances, help us acquire land to which we could not obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. 3
In some instances, we acquire land through option contracts, which
letenables us to deferpurchasingacquiring portions of properties owned by third parties and unconsolidated partnerships. This reduces our financial risk associated with landuntil we are ready to build homes on it.holdings. Most of our land is not subject to mortgages; however, the majority of land acquired by partnerships is subject to purchase money mortgages. We generally do not acquire land for speculation. At November 30,2001,2002, we owned approximately55,00070,000 homesites and had access to an additional73,00088,000 homesites through options or unconsolidated partnerships.Construction and Development
We supervise and control the development and building of our residential communities. We
employhire subcontractors for site improvements and virtually all of the work involved in the construction of homes. In almost all instances, the arrangements with our subcontractors commit the subcontractors to complete specified work in accordance with written price schedules. These price schedules normally change to meet changes in labor and material costs. We generally do not own heavy construction equipment and only have a relatively small labor force used to supervise development and construction and perform routine maintenance and minor amounts of other work. We generally finance construction and land development activities with cash generated from operations as well as from borrowings under our working capital lines and issuances of public debt.Marketing
We offer a diversified line of homes for first-time, move-up and active adult homebuyers. With homes priced from
belowunder $100,000 to above one million dollars and available in a variety of environments ranging from urban infill communities to golf course communities, we are focused on providing homes for a wide spectrum of buyers. Our unique dual marketing strategies of"Everything's Included/SM/"Everything’s Included®and"Design Studio/SM/"Design StudioSMprovide customers with flexibility to choose how they would like to purchase their new home. In ourEverything's Included/SM/Everything’s Included® homes, we make the homebuying experience simple by including desirable, top-of-the-line features as standard items. In our DesignStudio/SM/StudioSM homes, we provide an individualized homebuying experience and personalized design consultation in our design studios, offering a diverse selection of upgrades and options for a new home. We sell our homes primarily from models that we have designed and constructed.We employ sales associates who are paid salaries, commissions or both to make on-site sales of homes. We also sell through independent brokers. We advertise our communities in newspapers and other local and regional publications, on billboards and through our web site, www.lennar.com. The
web sitewebsite allows homebuyers to search for homes with specific design criteria in their price range and desired location. In addition, we advertise our active adult communities in areas where prospective active adult homebuyers live.Our business is somewhat seasonal, with signings of new home sales contracts being strongest in the late winter and spring, resulting in the strongest home deliveries (and therefore, strongest home sales revenues) in the late summer and fall (our third and fourth fiscal quarters).
For a small percentage of our homebuyers (generally less than 5% of our deliveries), we have participated in charitable down-payment assistance programs. Through these programs, we make a donation to a non-profit organization that provides assistance to a homebuyer, who would not otherwise have sufficient funds for a down payment.
Quality Service
We
employstrive to continually improve customer satisfaction by employing a process which is intended to provide a positive experience for eachcustomerhomeowner throughout the pre-sale, sale, building, closing andpost- closingpost-closing periods. The participation of sales associates, on-site construction supervisors and post-closing customer care associates, working in a team effort, is intended to foster our reputation for quality service and ultimately lead to enhanced customer retention and referrals.The quality of our homes is affected substantially more by the efforts of on-site management and others engaged in the construction process than it is by the materials we use in particular homes or similar factors. Currently, all of our management team members’ bonus plans are aligned with achieving customer satisfaction.
4
Our
"Heightened Awareness"“Heightened Awareness” program is a full-time focused initiative designed to objectively evaluate and measure the quality of construction in our communities. The purpose of this program is to ensure that the homes delivered to our customers meet our high standards.Each of ourOur communitiesisare inspected and reviewed on aregularperiodic basis by one of our trained associates. This program is an example of our commitment to provide the finest homes to our customers. In addition to our"Heightened Awareness"“Heightened Awareness” program, we obtain independent surveys of selected customers through a third party consultant and use the survey results to further improve our standard of quality and customer satisfaction.Competition
The housing industry is highly competitive. In our activities, we compete with numerous developers and builders of various sizes, both national and local, who are building homes in and near the areas where our communities are located. Competition is on the basis of location, design, quality, amenities, price, service and
4reputation. Sales of existing homes also provide competition. Some of our principal national competitors include Beazer Homes USA, Inc., Centex Corporation, D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, andM.D.C. Holdings, Inc., NVR, Inc., Pulte Homes, Inc., Standard Pacific Corp., The Ryland Group, Inc. and Toll Brothers, Inc.FINANCIAL SERVICES
Mortgage Financing
We provide conventional, FHA-insured and VA-guaranteed mortgage loans to our homebuyers and others through our financial services
subsidiaries: (1) Universal American Mortgage Companysubsidiaries in Arizona, California, Colorado, Florida,California, Arizona, Texas,Illinois, Maryland, Minnesota, Nevada,Virginia, Maryland,New Jersey,Colorado, Minnesota, Ohio,North Carolina, Ohio, Oregon, South Carolina, Texas, Utah, Virginia, andSouth Carolina; (2) Eagle Home Mortgage, Inc. in Washington, Oregon, Utah, Arizona and Nevada and (3) AmeriStar Financial Services, Inc. in California and Nevada.Washington. In2001,2002, our financial services subsidiaries provided loans to79%approximately 80% of our homebuyers whoseeksought mortgagefinancing.financing in areas where we offered services for the entire year. Because of the availability of mortgage loans from our financial services subsidiaries, as well as independent mortgage lenders, we believe access to financing has not been, and is not, a significantproblemobstacle for most purchasers of our homes.During 2002, we originated approximately 34,000 mortgage loans totaling $6.1 billion. We sell the loans we originate
intoin the secondary mortgage marketgenerallyon a servicing released, non-recourse basis. We have a corporate risk management policy under which we hedge our interest rate risk on rate locked loan commitments and loans held for sale against exposure to interest rate fluctuations. We finance our mortgage loan activities with borrowings under our financial servicessubsidiaries'subsidiaries’ warehouselinelines of credit or from our general corporateliquidity when, on a consolidated basis, this enables us to minimize our overall cost offunds.Title Insurance,
andClosing Services and Insurance Agency ServicesWe
arrangeprovide title insurancefor,andprovideclosing services to our homebuyers and others. We provided these servicesin connection withfor approximately173,000205,000 real estate transactions during2001. We provide these services2002 through ourvarioussubsidiaries of North American TitleCompanyGroup. Closing services are provided by agency subsidiaries in Arizona, California, Colorado, District of Columbia, Florida, Maryland, andTexas and our title insurance underwriters,Texas. North American Title Insurance Corporation in Florida and Texas, and North American Title Insurance Company in Arizona, California andColorado.Colorado provide title insurance underwriting.We provide insurance products through our insurance agency subsidiary, Universal American Insurance Agency, Inc., for our homebuyers and others in Arizona, California, Colorado, Florida and Texas. During 2002, we provided approximately 5,000 homeowner policies.
Strategic Technologies
Our subsidiary, Strategic Technologies, Inc., provides broadband services including high-speed Internet access,
cable televisionas well as alarm installation andalarmmonitoring services to residents of our communities and others. At November 30,2001,2002, we had approximately5,300 cable television4,000 broadband subscribers in California and approximately10,60013,000 alarm monitoring customers in Florida and California.5
RELATIONSHIP WITH LNR PROPERTY CORPORATION
In connection with the 1997 transfer of our commercial real estate investment and management business to LNR Property Corporation
("LNR"(“LNR”), and the spin-off of LNR to our stockholders, we entered into an agreement which, among other things,preventsprevented us from engagingat leastuntil December 2002 in any of the businesses in which LNR was engaged, or anticipated becoming engaged, at the time of the spin-off, and prohibited LNR from engaging, at least until December 2002, in any of the businesses in which we were engaged, or anticipated becoming engaged, at the time of the spin-off (except in limited instances in which our then activities or anticipated activities overlap with LNR).Specifically, we are precluded, at least until December 2002, from engagingWe have no current intention to become involved in thebusinesstypes of(i) acquiring and actively managingactivities in which LNR primarily engages (primarily related to commercial orresidentialmulti-familyrentalresidential real estate,other than as an incident to, or otherwise in connection with, our homebuilding business, (ii) acquiring portfolios ofcommercial mortgage loansor real estate assets acquired through foreclosures of mortgage loans, other than real estate acquired as sites of homes to be built or sold as part of our homebuilding business, (iii) making or acquiring mortgage loans, other than mortgage loans secured by detached or attached homes or residential condominium units, (iv) constructing office buildings or other commercial or industrial buildings, other than small shopping centers, professional office buildingsandsimilar facilities which will be adjuncts to our residential developments, (v) purchasing commercial mortgage-backed securities or real estate asset-backed securities or (vi) acting as a servicer or special servicer with regard to securitizedinvestments in commercial mortgagepools. We are not, however, prevented from owning or leasing office buildingsbacked securities). Further, the agreement delineating activities in which weoccupy a majority of the space; acquiring securities backed by pools of residential mortgages; acquiring an entitycould engage from those in whichwhen it is 5acquired, is engagedLNR could engage helped our two companies work cooperatively inone of the prohibited activities as an incidental part of its activities; owning as a passive investor an interest of less than 10% in a publicly traded company which is engaged in a prohibited business; acquiring commercial paper or short-term debt instruments of entities engaged in one or more of the prohibited businesses; or owning an interest in, and managing,partnerships (including Lennar LandPartners.Partners) and other joint endeavors. Because of this, our Board and LNR’s Board are considering our two companies entering into a new similar agreement.We and LNR are separate publicly-traded companies and neither of us has any financial interest in the other except for partnerships in which we both have investments. Stuart Miller, our President and Chief Executive Officer, is the Chairman of the Board of Directors of LNR and
Steven Saiontz, one of our Directors,is theChief Executive Officersole director and officer of aDirector of LNR. In addition, Leonard Miller, our Chairman of the Board of Directors,family-owned corporation which owns stockwhichthat giveshimit voting control of bothcompanies and is Chairman of the Executive Committee and a Director of LNR, for which he receives a fee. There are provisions both in our by-laws and in those of LNR requiring approval by ancompanies. An Independent Directors Committeeofapproves any significant transactions between us and LNR or any of its subsidiaries.For information about our partnerships with LNR, see
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.REGULATION
Homes and residential communities that we build must comply with state and local laws and regulations relating to, among other things, zoning, treatment of waste, construction materials which must be used, density requirements, building design and minimum elevation of properties. These include laws requiring use of construction materials which reduce the need for
energy- consumingenergy-consuming heating and cooling systems. These laws and regulations are subject to frequent change and often increase construction costs. In some cases, there are laws which require that commitments to provide roads and other offsite infrastructure be in place prior to the commencement of new construction. These laws and regulations are usually administered by individual counties and municipalities and may result in fees and assessments or building moratoriums. In addition, certain new development projects are subject to assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial.The residential homebuilding industry also is subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas.
In recent years, several cities and counties in which we have developments have submitted to voters
"slow growth"“slow growth” initiatives and other ballot measures which could impact the affordability and availability of homes and land within those localities. Although many of these initiatives have been defeated, we believe that if similar initiatives were approved, residential construction by us and others within certain cities or counties could be seriously impacted.In order to make it possible for purchasers of some of our homes to obtain FHA-insured or VA-guaranteed mortgages, we must construct those homes in compliance with regulations promulgated by those agencies.
We have registered condominium communities with the appropriate authorities in Florida and California. Sales in other states would require compliance with laws in those states regarding sales of condominium homes.
6
Our
titleinsuranceagencysubsidiaries must comply with applicable insurance laws and regulations. Our mortgage financing subsidiaries must comply with applicable real estate lending laws and regulations.TheOur mortgage banking and
titleinsurance subsidiaries are licensed in the states in which they do business and must comply with laws and regulations in those states regarding mortgage banking and title insurance companies. These laws and regulations include provisions regarding capitalization, operating procedures, investments, lending and privacy disclosures, forms of policies and premiums.6We can be affected by government regulation that does not directly apply to us such as the possible curtailment of some activities of the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Because these organizations provide significant liquidity to the secondary mortgage market, a serious curtailment of their activities could increase mortgage interest rates and therefore increase the effective cost of purchasing our homes.
CAUTIONARY STATEMENTS
Some of the statements in this Report are
"forward-looking statements"“forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which the statements anticipate.PARTICULAR FACTORS WHICH COULD AFFECT US
The following factors in particular could significantly affect our operations and financial results.
The residential homebuilding industry isWe are subject to the cyclical
and is highly sensitive to changes in economic conditions.nature of the home sales market.The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions, such as levels of employment, consumer confidence and income, availability of financing, interest rate levels and demand for housing. The resale market for used homes, including foreclosed homes, also affects the sale of new
homes.homes or cancellation of contracts in backlog.Although the homebuilding business historically has been cyclical, it has not undergone a down cycle in a number of years. This has led some people to assert that the prices of homes and the stocks of homebuilding companies are overvalued and will decline when or if the market for new homes begins to weaken. A decline in prices of stocks of homebuilding companies could make it more difficult and more expensive for us to raise funds through stock issuances if we needed funds to meet our obligations or otherwise wanted to do so.
We could be affected by prices or shortages of materials or by weather conditions.
The residential homebuilding industry has, from time-to-time, experienced fluctuating lumber prices and supply, as well as shortages of other materials and labor, including insulation, drywall, concrete, carpenters, electricians and plumbers. Delays in construction of homes due to these factors or due to weather conditions could have an adverse effect upon our operations.
We are dependent on the availability of suitable land.
Our ability to build homes depends upon our being able to acquire at acceptable prices land that is suitable for residential development in the areas in which we want to build homes. Because of this, we maintain, directly or through partnerships or similar arrangements, a significant inventory of land, much of which is undeveloped or only partially developed.
We could be affected by government regulations.
All our businesses are subject to substantial government regulation. In particular, the homebuilding business is subject to government regulations relating to land use, water rights, construction materials, building design and minimum elevation of properties, as well as a variety of environmental matters. Changes in government regulations often increase the cost of building homes in areas in which we have communities and could prevent entirely the building of new homes in some areas.
7
We could be affected by inflation or deflation.
Inflation can increase the cost of building materials,
andland, labor and other construction related costs. Conversely, deflation can reduce the value of our land inventory and make it more difficult toincluderecover the full cost of previously purchased land in home sale prices.Customers may be unwilling or unable to purchase our homes at times when mortgage financing costs are high.
Virtually all of our homebuyers finance their acquisitions through our financial services subsidiaries or third-party lenders. In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing. If effective mortgage interest rates increase and the ability or willingness of prospective buyers to finance home purchases is adversely affected, our operating results may be negatively affected. Our homebuilding activities also are dependent upon the availability and cost of mortgage financing for buyers of homes currently owned by potential purchasers of our homes who cannot purchase our homes until they sell their current homes.
A number of things can cause ourOur operating results vary from quarter to
vary.quarter.We have historically experienced, and expect to continue to experience, variability in operating results on a quarterly basis. Factors which may contribute to this variability include, but are not limited to:
. the timing of home deliveries and land sales; . the timing of receipt of regulatory approvals for the construction of homes; . the condition of the real estate market and general economic conditions; . the cyclical nature of the homebuilding and financial services industries; . prevailing interest rates and availability of mortgage financing; . the increase in the number of homes available for sale in the marketplace; . pricing policies of our competitors; . the timing of the opening of new residential communities; . weather conditions; and . the cost and availability of materials and labor.
— the timing of home deliveries and land sales;
— the timing of receipt of regulatory approvals for the construction of homes;
— the condition of the real estate market, prices for homes and general economic conditions;
— the cyclical nature of the homebuilding and financial services industries;
— prevailing interest rates and availability of mortgage financing;
— the increase in the number of homes available for sale in the marketplace;
— pricing policies of our competitors;
— the timing of the opening of new residential communities;
— weather conditions; and
— the cost and availability of materials and labor. Our historical financial performance is not necessarily a meaningful indicator of future results. We expect our financial results to continue to vary from quarter to quarter.
We
depend oncould be hurt by loss of key personnel.Our success depends to a significant degree on the efforts of our senior management. Our operations may be adversely affected if
certainkey members of senior management cease to be active in our Company. We have designed our compensation structure and employee benefit programs to encourage long-term employment byexecutive officers. 7senior management. We have a controlling stockholder.
We have two classes of stock: common stock, which is entitled to one vote per share; and Class B common stock, which is entitled to ten votes per share. Stuart Miller, our President and Chief Executive Officer, has voting control, through family owned entities, of Class B common stock that entitles the holders to approximately 64% of the combined votes that can be cast by the holders of our outstanding common stock and Class B common stock combined. That gives Mr. Miller the power to elect all our directors and to approve most matters that are presented to our stockholders, even if no other stockholders vote in favor of them. Mr. Miller’s voting control might discourage someone from making a significant equity investment in us, even if we needed the investment to meet our obligations and to operate our business.
8
EMPLOYEES
At November 30,
2001,2002, we employed7,7289,419 individuals of whom4,7806,053 were involved in homebuilding operations and2,9483,366 were involved in financial services operations. We do not have collective bargaining agreements relating to any of our employees. However, some of the subcontractors we use have employees who are represented by labor unions.Item 2. Properties.
For information about properties we own for use in our homebuilding activities, see Item 1.
We lease and maintain our executive offices, financial services subsidiary headquarters, certain mortgage and title branches and Miami-Dade County, Florida homebuilding office in an office complex we built which is now owned by an independent third party. The leases for these offices expire
inthrough 2009. Our other homebuilding and financial services offices are located in the markets where we conduct business, generally in our communities or in leased space.Item 3. Legal Proceedings.
We are parties to various claims and lawsuits which arise in the ordinary course of business. Although the specific allegations in the lawsuits differ, most of them involve claims that we failed to construct buildings in particular communities in accordance with plans and specifications or applicable construction codes, and seek reimbursement for sums allegedly needed to remedy the alleged deficiencies, or assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We do not believe that these claims or lawsuits will have a material effect on our business, financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
9
PART II
Item 5. Market for the
Registrant'sRegistrant’s Common Stock and Related Security Holder Matters.
Common Stock Prices
Cash DividendsNew York Stock Exchange
Cash Dividends
Per Share
-------------------------- --------------------------- Fiscal QuarterHigh/Low Price
Common Stock
Class B
- -------------- -------------------------- ------------- -------------Fiscal Quarter
2002
2001
20002002
2001
20002002
2001
2000First.................... $40.75--31.81 18.63--15.25First
$57.45-36.55
$40.75-31.81
1
1/4c11/4c/4¢
1
1/8c11/8c Second................... $46.69--33.80 21.75--16.25/4¢
1
1/4c11/4c/8¢
1
1/8c11/8c Third.................... $49.88--35.02 29.44--17.88/8¢
Second
$60.24-50.67
$46.69-33.80
1
1/4c11/4c/4¢
1
1/8c11/8c Fourth................... $45.44--31.04 34.88--25.63/4¢
1
1/4c11/4c/8¢
1
1/8c11/8c/8¢
Third
$63.97-43.20
$49.88-35.02
1 1/4
¢
1 1/4
¢
1 1/8
¢
1 1/8
¢
Fourth
$59.90-49.25
$45.44-31.04
1 1/4
¢
1 1/4
¢
1 1/8
¢
1 1/8
¢
As of November 30,
2001,2002, there were approximately2,0001,600 holders of record of our common stock.8The following table summarizes our equity compensation plans as of November 30, 2002:
Plan Category
Number of shares to
be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding
shares reflected in
column (a))
(c)
Equity compensation plans approved by stockholders
2,413,674
$
31.96
1,697,300
Equity compensation plans not approved by stockholders
—
—
—
Total
2,413,674
$
31.96
1,697,300
10
Item 6. Selected Financial Data.
At or for the Years Ended November 30, -------------------------------------------------- 2001 2000 1999 1998 1997 ---------- --------- --------- --------- --------- (Dollars in thousands, except per share amounts)Results of Operations: Revenues: Homebuilding............... $5,603,947 4,390,034 2,849,207 2,204,428 1,208,570 Financial services......... $ 425,354 316,934 269,307 212,437 94,512 Total revenues............. $6,029,301 4,706,968 3,118,514 2,416,865 1,303,082 Operating earnings: Homebuilding............... $ 785,626 480,796 340,803 283,369 120,240 Financial services......... $ 89,131 43,595 31,096 33,335 35,545 Corporate general and administrative expenses... $ 75,831 50,155 37,563 28,962 15,850 Earnings from continuing operations before income taxes..................... $ 679,423 375,635 285,477 240,114 85,727 Earnings from continuing operations................ $ 417,845 229,137 172,714 144,068 50,605 Earnings from discontinued operations................ $ -- -- -- -- 33,826 Net earnings............... $ 417,845 229,137 172,714 144,068 84,431 Per share amounts (diluted): Earnings from continuing operations................ $ 6.01 3.64 2.74 2.49 1.34 Earnings from discontinued operations................ $ -- -- -- -- 0.89 Net earnings per share..... $ 6.01 3.64 2.74 2.49 2.23 Cash dividends per share-- common stock.............. $ .05 .05 .05 .05 .088 Cash dividends per share-- Class B common stock...... $ .045 .045 .045 .045 .079 Financial Position: Total assets............... $4,714,426 3,777,914 2,057,647 1,917,834 1,343,284 Debt: Homebuilding............... $1,505,255 1,254,650 523,661 530,630 527,303 Financial services......... $ 707,077 448,860 278,634 268,208 134,392 Stockholders' equity....... $1,659,262 1,228,580 881,499 715,665 438,999 Shares outstanding (000s).. 64,015 62,731 57,917 58,151 53,160 Stockholders' equity per share..................... $ 25.92 19.58 15.22 12.31 8.26 Delivery and Backlog Information (including unconsolidated partnerships): Number of homes delivered.. 23,899 18,578 12,606 10,777 6,702 Backlog of home sales contracts................. 8,339 8,363 2,903 4,100 3,318 Dollar value of backlog.... $1,982,000 2,072,000 662,000 840,000 665,000As a result of the October 1997 spin-off of our commercial real estate investment and management business, including the Investment Division business segment, the selected financial data for 1997 reflects our Investment Division as a discontinued operation.
At or for the Years Ended November 30,
2002
2001
2000
1999
1998
(Dollars in thousands, except per share amounts)
Results of Operations:
Revenues:
Homebuilding
$
6,835,583
5,603,947
4,390,034
2,849,207
2,204,428
Financial services
$
484,219
425,354
316,934
269,307
212,437
Total revenues
$
7,319,802
6,029,301
4,706,968
3,118,514
2,416,865
Operating earnings:
Homebuilding
$
979,623
785,626
480,796
340,803
283,369
Financial services
$
127,611
89,131
43,595
31,096
33,335
Corporate general and administrative expenses
$
85,958
75,831
50,155
37,563
28,962
Earnings before provision for income taxes
$
875,709
679,423
375,635
285,477
240,114
Net earnings
$
545,129
417,845
229,137
172,714
144,068
Net earnings per share (diluted)
$
7.72
6.01
3.64
2.74
2.49
Cash dividends per share—common stock
$
.05
.05
.05
.05
.05
Cash dividends per share—Class B common stock
$
.045
.045
.045
.045
.045
Financial Position:
Total assets
$
5,755,633
4,714,426
3,777,914
2,057,647
1,917,834
Debt:
Homebuilding
$
1,585,309
1,505,255
1,254,650
523,661
530,630
Financial services
$
862,618
707,077
448,860
278,634
268,208
Stockholders’ equity
$
2,229,157
1,659,262
1,228,580
881,499
715,665
Shares outstanding (000s)
64,914
64,015
62,731
57,917
58,151
Stockholders’ equity per share
$
34.34
25.92
19.58
15.22
12.31
Delivery and Backlog Information (including unconsolidated partnerships):
Number of homes delivered
27,393
23,899
18,578
12,606
10,777
Backlog of home sales contracts
12,108
8,339
8,363
2,903
4,100
Dollar value of backlog
$
3,200,000
1,982,000
2,072,000
662,000
840,000
11
Item 7.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.Some of the statements contained in the following
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations are"forward-looking statements"“forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which the statements anticipate. Factors which may affect our results include, but are not limited to, changes in general economic conditions, the market for homes and prices for homes generallyorand in areas where we have developments, the availability and cost of land suitable for residential development, materials prices, labor costs, interest rates, consumer confidence, competition, terrorist acts or other acts of war, environmental factors and government regulations affecting our operations.9RESULTS OF OPERATIONS
Overview
We achieved record revenues, profits and earnings per share in
2001.2002. Our net earnings in20012002 were $545.1 million, or $7.72 per share diluted, compared to $417.8 million, or $6.01 per share diluted,compared to $229.1 million, or $3.64 per share diluted,in2000.2001. In 2002, we acquired nine homebuilders which strengthened our positions in several of our existing markets and provided us with attractive growth opportunities in new markets. The increase in net earnings wasprimarily a result ofalso attributable to strong homebuilding gross margins and increased operating earnings from ouracquisition of U.S. Home Corporation ("U.S. Home"), which contributed a full year of earnings in 2001, compared to seven months contributed in 2000.Financial Services Division. With$824$731 million of cashand our $1 billion revolving credit facilities fully paid down to zero,at year end, our net homebuilding debt (i.e., homebuilding debt less homebuilding cash) to total net capital (i.e., net capital is average net homebuilding debt and stockholders’ equity) ratio(debt is net of homebuilding cash)was29.1%27.7% at November 30,2001,2002, compared to44.0%29.1% last year. Additionally, we had zero outstanding under our $926 million revolving credit facilities at year end. Our record earnings combined with a strong balance sheet contributed to a return on net capital(debt is netofhomebuilding cash) ofapproximately 22% in 2002, compared to approximately 20% in2001, compared to approximately 14% in 2000.2001.Homebuilding
Our Homebuilding Division sells and constructs homes primarily for
entry level,first-time, move-up and active adult homebuyers. Wealsouse a dual marketing strategy in which we sell homes under both our"Everything's Included/SM/"Everything’s Included® and"Design Studio/SM/"Design StudioSM programs. Our land operations include the purchase, development and sale of land for our homebuilding activities, as well as the sale of land to third parties. In certain circumstances, we diversify our operations through strategic alliances and minimize our risk by forming partnerships with other entities. The following tables set forth selected financial and operational information for the years indicated. The results ofU.S. Homeoperations of our acquisitions are included in the information sinceits acquisition in May 2000.the respective dates of the acquisitions.Selected Homebuilding Division Financial Data
Years Ended November 30, -------------------------------- 2001 2000 1999 ---------- --------- --------- (Dollars in thousands, except average sales price)Revenues: Sales of homes.............................. $5,467,548 4,118,549 2,671,744 Sales of land and other revenues............ 109,348 258,145 157,981 Equity in earnings from unconsolidated part- nerships................................... 27,051 13,340 19,482 ---------- --------- --------- Total revenues............................. 5,603,947 4,390,034 2,849,207 Costs and expenses: Cost of homes sold.......................... 4,159,107 3,277,183 2,105,422 Cost of land and other expenses............. 86,010 220,948 130,432 Selling, general and administrative......... 573,204 411,107 272,550 ---------- --------- --------- Total costs and expenses................... 4,818,321 3,909,238 2,508,404 ---------- --------- --------- Operating earnings.......................... $ 785,626 480,796 340,803 ========== ========= ========= Gross margin on home sales.................. 23.9% 20.4% 21.2% SG&A expenses as a % of revenues from home sales...................................... 10.5% 10.0% 10.2% ---------- --------- --------- Operating margin as a % of revenues from home sales................................. 13.4% 10.4% 11.0% ---------- --------- --------- Average sales price......................... $ 237,000 226,000 212,000 ========== ========= =========10
Years Ended November 30,
2002
2001
2000
(Dollars in thousands,
except average sales price)
Revenues:
Sales of homes
$
6,581,703
5,467,548
4,118,549
Sales of land and other revenues
211,229
109,348
258,145
Equity in earnings from unconsolidated partnerships
42,651
27,051
13,340
Total revenues
6,835,583
5,603,947
4,390,034
Costs and expenses:
Cost of homes sold
4,982,726
4,159,107
3,277,183
Cost of land and other expenses
167,333
86,010
220,948
Selling, general and administrative
705,901
573,204
411,107
Total costs and expenses
5,855,960
4,818,321
3,909,238
Operating earnings
$
979,623
785,626
480,796
Gross margin on home sales
24.3
%
23.9
%
20.4
%
SG&A expenses as a % of revenues from home sales
10.7
%
10.5
%
10.0
%
Operating margin as a % of revenues from home sales
13.6
%
13.4
%
10.4
%
Average sales price
$
245,000
237,000
226,000
12
Summary of Home and Backlog Data By Region
Years Ended November 30, ------------------------------ 2001 2000 1999 ----------- --------- ------- (Dollars in thousands)Deliveries East............................................. 7,734 6,155 4,241 Central.......................................... 6,738 5,203 3,107 West............................................. 8,632 6,878 5,241 ----------- --------- ------- Subtotal........................................ 23,104 18,236 12,589 Unconsolidated partnerships...................... 795 342 17 ----------- --------- ------- Total........................................... 23,899 18,578 12,606 =========== ========= ======= New Orders East............................................. 8,058 5,676 3,788 Central.......................................... 6,760 5,089 3,056 West............................................. 8,224 6,770 4,536 ----------- --------- ------- Subtotal........................................ 23,042 17,535 11,380 Unconsolidated partnerships...................... 833 312 29 ----------- --------- ------- Total........................................... 23,875 17,847 11,409 =========== ========= ======= Backlog--Homes East............................................. 3,092 2,768 1,091 Central.......................................... 1,949 1,632 652 West............................................. 3,043 3,451 1,148 ----------- --------- ------- Subtotal........................................ 8,084 7,851 2,891 Unconsolidated partnerships...................... 255 512 12 ----------- --------- ------- Total........................................... 8,339 8,363 2,903 =========== ========= ======= Backlog Dollar Value (including unconsolidated partnerships) $1,982,000 2,072,000 662,000 =========== ========= =======
At or for the Years Ended November 30,
2002
2001
2000
(Dollars in thousands)
Deliveries
East
8,842
7,734
6,155
Central
7,699
6,738
5,203
West
10,284
8,632
6,878
Subtotal
26,825
23,104
18,236
Unconsolidated partnerships
568
795
342
Total
27,393
23,899
18,578
New Orders
East
9,674
8,058
5,676
Central
7,496
6,760
5,089
West
10,466
8,224
6,770
Subtotal
27,636
23,042
17,535
Unconsolidated partnerships
737
833
312
Total
28,373
23,875
17,847
Backlog—Homes
East
4,468
3,092
2,768
Central
2,657
1,949
1,632
West
4,538
3,043
3,451
Subtotal
11,663
8,084
7,851
Unconsolidated partnerships
445
255
512
Total
12,108
8,339
8,363
Backlog Dollar Value
(including unconsolidated partnerships)
$
3,200,000
1,982,000
2,072,000
At November 30,
2001,2002, our market regions consisted of the following states:East: Florida,Maryland/Maryland, Virginia, New Jersey, North Carolina andNew Jersey.South Carolina.Central: Texas,MinnesotaIllinois andOhio.Minnesota.West: California, Colorado, Arizona and Nevada. In addition, we have interests in unconsolidated partnerships that sell homes inGeorgia, Michigan, Missouriother states.During 2002, we acquired nine homebuilders, which expanded our operations into the Carolinas and
North Carolina.the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our positions in several of our existing markets. The results of operations of the acquired homebuilders are included in our results of operations since their respective acquisition dates. During the seven months of fiscal 2000, in which we owned U.S. Home and its subsidiaries, U.S. Home and its subsidiaries contributed 31% of our homebuilding revenues and 32% of our homebuilding expenses.Revenues from sales of homes increased 20% in 2002 and 33% in 2001,
and 54% in 2000compared to the previous years as a result of a27%16% increase and a45%27% increase in the number of home deliveries, and a5%4% increase and a7%5% increase in the average sales price in 2002 and 2001,and 2000,respectively.New2002 new home deliveries were higher primarily due to a strong homebuilding market, combined with our acquisitions this year. 2001 new home deliveries were higher primarily due to the inclusion of a full year of U.S.Home'sHome’s homebuilding activity in 2001, compared to seven months inclusion in 2000. The average sales price of homes delivered increased in20012002 and20002001 primarily due to an increase in the average sales price in most of our existing markets, combined with changes in our product mix.During 2001, U.S. Home and its subsidiaries contributed 40% of both our homebuilding revenues and our homebuilding expenses. During 2000, during which we owned U.S. Home and its subsidiaries for seven months, U.S. Home and its subsidiaries contributed 31% of our homebuilding revenues and 32% of our homebuilding expenses.Gross margin percentages on home sales were
23.9%24.3%, 23.9% and 20.4% in 2002, 2001 and21.2% in 2001,2000,and 1999,respectively. Theincreaseincreases in 2002 and 2001compared to 2000 waswere due to improved operational efficiencies and strength in the homebuilding markets in which we operate. Thedecreaseincrease in 2002 was partially offset by softness in thegross margin percentage in 2000 compared to 1999 was impacted by purchase accounting associated with the acquisition of U.S. Home. The gross margin percentage in 2000 would have been 21.3% excluding the effect of purchase accounting.Texas market.13
Selling, general and administrative expenses as a percentage of revenues from home sales increased to 10.7% in 2002 compared to 10.5% and 10.0% in 2001 and 2000, respectively. The increase in 2002 was primarily due to an increase in insurance costs, compared to
10.0% and 10.2% in 2000 and 1999, respectively.2001. The increase in 2001 was primarily due to higher incentive-based personnel-related expenses, compared to 2000.We provide incentives to our associates to achieve 11the highest levelSales of
financial performanceland andcombined with our record resultsother revenues, net totaled $43.9 million in2001, resulted in significantly higher bonuses when2002, compared to2000. The improvement in 2000 compared to 1999 resulted primarily from the increased volume and efficiencies realized from the acquisition of U.S. Home in May 2000. Revenues from land sales totaled $87.2$23.3 million in 2001compared to $243.5and $37.2 million in2000 and $150.3 million in 1999. Gross profits from land sales totaled $4.6 million, or a 5.2% margin, in 2001, compared to $27.6 million, or an 11.3% margin, in 2000 and $22.2 million, or a 14.8% margin, in 1999.2000. Equity in earnings from unconsolidated partnerships increased to $42.7 million in 2002, compared to $27.1 million in 2001compared toand $13.3 million in2000 and $19.5 million in 1999.2000. Margins achieved on sales of land and equity in earnings from unconsolidated partnerships may vary significantly from period to period depending on the timing of land sales by us and our unconsolidated partnerships.New home orders increased 19% in 2002 and 34% in 2001,
and 56% in 2000compared totheprevious years. Theincreasesincrease in 2002 was primarily due to our recent acquisitions and growth in the number of active communities. The increase in 2001and 2000 werewas due to the inclusion of a full year of U.S.Home'sHome’s homebuilding activity in 2001andwhereas 2000 included only seven months of U.S.Home'sHome’s homebuildingactivityactivity. Due to the increase in2000. Backlognew home orders and the acquired backlog from acquisitions, the backlog dollar valuewasincreased to $3.2 billion at November 30, 2002, compared to $2.0 billion at November 30,2001, compared to $2.1 billion at November 30, 2000, due primarily to lower new orders in the months immediately following the tragic events of September 11,2001.Financial Services
Our Financial Services Division provides mortgage financing, title insurance, closing services and
closinginsurance agency services for both buyers of ourhomebuyershomes andothers. The Division also resellsothers and sells theresidential mortgageloans it originates in the secondary mortgagemarket andmarket. The Division also provides high-speed Internet access, cable television and alarm installation and monitoring servicesfor bothto residents of ourhomebuyerscommunities andother customers.others. The following table sets forth selected financial and operational information relating to our Financial Services Division. The results ofU.S. Home's financial servicesoperations of our acquisitions are included in the information sinceits acquisition in May 2000.the respective dates of the acquisitions.
Years Ended November 30, -------------------------------- 2001 2000 1999 ---------- --------- --------- (Dollars in thousands)Revenues..................................... $ 425,354 316,934 269,307 Costs and expenses........................... 336,223 273,339 238,211 ---------- --------- --------- Operating earnings........................... $ 89,131 43,595 31,096 ---------- --------- --------- Dollar value of mortgages originated......... $5,225,568 3,240,252 2,162,479 ---------- --------- --------- Number of mortgages originated............... 30,600 20,800 14,900 ---------- --------- --------- Mortgage capture rate of Lennar homebuyers... 79% 73% 63% ---------- --------- --------- Number of title transactions................. 173,000 120,000 139,000 ========== ========= =========
Years Ended November 30,
2002
2001
2000
(Dollars in thousands)
Revenues
$
484,219
425,354
316,934
Costs and expenses
356,608
336,223
273,339
Operating earnings
$
127,611
89,131
43,595
Dollar value of mortgages originated
$
6,132,000
5,226,000
3,240,000
Number of mortgages originated
34,100
30,600
20,800
Mortgage capture rate of Lennar homebuyers
80
%
79
%
73
%
Number of title transactions
205,000
173,000
120,000
Operating earnings from our Financial Services Division increased to $127.6 million in 2002, compared to $89.1 million and $43.6 million in 2001 and 2000, respectively. The increase in 2002 was primarily due to improved results from our mortgage and title operations, which benefited from a low interest rate and strong housing environment in 2002. Mortgage and title results increased due to both an increase in the number of transactions and profit per transaction in 2002, compared to 2001. Additionally, Strategic Technologies, Inc. generated a $5.0 million gain on the sale of a cable system. The increase in 2001 compared to
$43.6 million and $31.1 million in2000and 1999, respectively. The increase in 2001was partially attributable to pretax earnings of approximately $16 million primarily related to the sale of our retained mortgage servicing rights. Additionally, the increase reflects the successful operational efficiencies which resulted from the combination of our and U.S.Home'sHome’s mortgage operations under the Universal American Mortgage banner and the consolidation of our title operations under the North American Title banner. The increase also reflects a greater level of refinance activity and a higher capture rate of our homebuyers, as well as a full year of earnings contribution from U.S. Home in 2001. Theincrease in 2000 compared to 1999 was primarily due to the seven months of earnings contribution from U.S. Home. Theearnings contribution from U.S. Home represented26%28% of theDivision'sDivision’s operating earnings in2001 and 28% of the Division's operating earnings in2000.Corporate General and Administrative
Corporate general and administrative expenses as a percentage of total revenues were 1.2% in 2002 compared to 1.3% and 1.1% in 2001
compared to 1.1%and1.2% in2000,and 1999,respectively.1214
Interest
Interest expense was $145.6 million, or 2.0% of total revenues, in 2002, $119.5 million, or 2.0% of total revenues, in 2001 and $98.6 million, or 2.1% of total revenues, in
2000 and $48.9 million, or 1.6% of total revenues, in 1999.2000. Interest incurred was $130.6 million, $127.9 million and $117.4 million in 2002, 2001 and$54.6 million in 2001,2000, respectively. Interest incurred is capitalized as inventories and1999, respectively.relieved as interest expense when homes are delivered. The average rates for interest incurred were 7.6%,6.2%7.6% and 6.2% in 2002, 20012000and1999,2000, respectively. The average debt outstanding was $1.6 billion, $1.5 billion and $1.4 billion in 2002, 2001 and$0.8 billion in 2001,2000,and 1999,respectively.FINANCIAL CONDITION AND CAPITAL RESOURCES
At November 30,
2001,2002, we hadavailablecash of$824.0$731.2 million, compared to$287.6$824.0 million at the end of fiscal2000.2001. Theincreasedecrease in cash was primarily due to$417.8the funding of our acquisition of nine homebuilders during 2002 offset by cash flows provided by operating activities. During 2002, cash flows provided by operating activities amounted to $204.6 million, consisting primarily of net earningsgenerated from operations during 2001.offset in part by increased levels of operating assets to support a significantly higher backlog and a higher number of active communities as we continue to grow. Cash flows provided by operating activities in 2001 were reduced by financial services loans held for saleor dispositionof $211.1 million and $57.1 million in receivables. We sell the loans we originateintoin the secondary mortgage market, generally within thirty days of the closing of theloan.loans. The cash related to these loans and receivables was primarily received in December 2001 and was used to pay down our warehouse lines of credit.Additionally, although inventories decreased $223.3 million in 2000, theyInventories increased $130.7 million in 2001 as we positioned ourselves for future growth.Cash used in investing activities totaled $365.7 million in the year ended November 30, 2002, compared to cash provided by investing activities
wasof $1.9 million in2001, compared to2001. In 2002, we used $424.3 million of cashused in investing activities of $186.7 million in 2000.for acquisitions. In 2001, $10.8 million was provided by the sale of substantially all of our mortgage servicing rights and $5.6 million related to net distributions by unconsolidated partnerships in which we invest. This generation of cash was offset by $13.1 million of net additions to operating properties and equipment.We are always looking at the possibility of acquiring homebuilding or similar companies or their assets. We frequently enter into confidentiality agreements before we begin our exploratory evaluations of possible acquisition opportunities. At November 30, 2002, we were a party to confidentiality agreements relating to a number of homebuilding and other companies, including several publicly-held companies. Our exploratory evaluations under these or future confidentiality agreements may result in acquisition transactions.
During 2002, we acquired nine homebuilders, which expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our positions in several of our existing markets. In
2000, $158.4 millionconnection with these acquisitions, total consideration, including debt ofcash was usedacquired companies, totaled approximately $600 million. The results of operations of the acquired homebuilders are included inthe acquisitionsour results ofproperties and businesses, which included $152.4 million used for theoperations since their respective acquisitionof U.S. Home.dates.We finance our land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from operations and public debt issuances, as well as cash borrowed under revolving credit facilities.
In addition, we have in recent years sold convertible and non-convertible debt into public markets, and we have an effective Securities Act registration statement under which we could sell to the public up to $970 million of debt securities, common stock or preferred stock.We also buy land under option agreements, whichpermitenable us to acquireportions of propertieshomesites when we are ready to build homes on them. The financial risks of adverse market conditions associated with land holdings is managed by prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process, and limitation of risk by using partners to share the costs of purchasing and developing land,andas well as obtaining access to land through option arrangements.Our senior secured credit facilities provide us with up to $1.4 billion of financing. The credit facilities consist of a $715 million five-year revolving credit facility, a $300 million 364-day revolving credit facility and a $400 million term loan B. We may elect to convert borrowings under the 364-day revolving credit facility to a term loan which would mature in May 2005. At November 30, 2001, there was $395 million outstanding under the term loan B and we had paid down our revolving credit facilities to zero. In the second quarter of 2001,On February 5, 2003, we issued
for gross proceeds$350 million ofapproximately $230 million, zero-coupon convertible5.95% seniorsubordinatednotes due2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued2013 at a price of$363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%98.287%.Proceeds from the offering, after underwriting discount, were approximately $224 million. We used the proceeds to repay amounts outstanding under our revolving credit facilities and added the balance of the net proceeds to our working capital. The Notes are convertible into our common stock at any time, if the sale price of our common stock exceeds certain thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity, or a total of approximately 4 million shares. The conversion ratio equates to an initial conversion price of $56.93 per share (when our stock price was $43.13 per share). These shares will be included in the calculation of our diluted earnings per share if the average closing price of our common stock over the last twenty trading days of each quarter exceeds 110% of the accreted conversion price. This calculation equated to $64.79 per share at November 30, 2001. Holders have the option to require us to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversaries of the issue date for the initial issue price plus accrued yield to the purchase date. We have the option to satisfy the repurchases with any combination of cash and/or shares of common stock. We have the option to redeem the 13Notes, in cash, at any time after the fifth anniversary for the initial issue price plus accrued yield to redemption. We will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. At November 30, 2001, the carrying value of the outstanding Notes, net of unamortized original issue discount, was $235.9 million. As a result of the U.S. Home acquisition, holders of U.S. Home's publicly- held notes totaling $525 million were entitled to require U.S. Home to repurchase the notes for 101% of their principal amount within 90 days after the transaction was completed. Independent of that requirement, in April 2000, we made a tender offer for all of the notes and a solicitation of consents to modify provisions of the indentures relating to the notes. As a result of the tender offer and required repurchases after the acquisition, we paid approximately $520 million in 2000, which includes tender and consent fees, for $508 million of U.S. Home's notes. In May 2000, we issued $325 million of 9.95% senior notes due 2010 at a price of 92.313% to finance a portion of the purchase price of U.S. Home's publicly-held notes that were tendered in response to our offer and consent solicitation in April 2000, and to pay associated costs and expenses.The senior notes are guaranteed on a joint and several basis by substantially all of our subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. Proceeds from the offering, after underwriting discount and expenses, were approximately$295$342 million. We added the proceeds to our general working capital so that the proceeds will be available for use in our operations, for acquisitions and to purchase or repay outstanding indebtedness. The senior notes were issued under our $970 million shelf registration statement.The majority of our short-term financing needs are met with cash generated from operations and funds available under our senior secured credit facilities. In May 2002, we amended and restated our senior secured
15
credit facilities (the “Credit Facilities”), to provide us with up to $1.3 billion of financing. The Credit Facilities consist of a $653 million revolving credit facility maturing in April 2006, a $273 million 364-day revolving credit facility maturing in April 2003 and a $393 million term loan B maturing in May 2007. We may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in April 2006. At November 30,
2001,2002, $391.0 million was outstanding under thecarrying amount of the senior notes was $301.3 million. In February 1999,term loan B and weissued $282 million of 7 5/8% senior notes. The senior notes are due in 2009 and were issued for the purpose of reducing amounts outstanding underhad paid down our revolving credit facilities to zero. Interest rates are LIBOR-based andredeeming outstanding 10 3/4% notes. Proceeds fromtheoffering, after underwritingmargins are set by a pricing grid with thresholds that adjust based on changes in our leverage ratio andmarket discounts, expenses and settlement of a related interest rate hedge agreement, were approximately $266 million. The senior notes are collateralized bythestock of certain of our subsidiaries. In March 1999, we redeemed all of the outstanding 10 3/4% senior notes due 2004 of one of our subsidiaries, Greystone Homes, Inc., at a price of 105.375% of the principal amount outstanding plus accrued interest. Cash paid to redeem the notes was $132 million, which approximated their carrying value.Credit Facilities’ credit rating. At November 30,2001,2002, we had letters of credit outstanding in thecarrying valueamount of $463.9 million, of which $310.6 million were collateralized against certain borrowings available under the7 5/8%Credit Facilities.The following summarizes our senior notes
was $271.5 million. In July 1998, we issued, for $229 million, zero-coupon senior convertible debentures due 2018 (the "Debentures") with a face amount at maturity of $493 million. The Debentures have an effective interest rate of 3 7/8%. The Debentures are convertible at any time into our common stock at the rate of 12.3768 shares per $1,000 face amount at maturity. If the Debentures are converted during the first five years, we may elect to pay cash equal to the fair value of the common stock at the time of the conversion. Holders have the option to require us to repurchase the Debentures on any of the fifth, tenth or fifteenth anniversaries of the issue date for the initial issue price plus accrued original issue discount. We have the option to satisfy the repurchases with any combination of cash and/or shares of our common stock. We have the option to redeem the Debentures, in cash, at any time after the fifth anniversary for the initial issue price plus accrued original issue discount. The Debentures are collateralized by the stock of certain of our subsidiaries. At November 30, 2001, the carrying value of outstanding Debentures, net of unamortized original issue discount, was $256.9 million.and other debts payable:
November 30,
2002
2001
(In thousands)
3 7/8% zero-coupon senior convertible debentures due 2018
$
266,917
256,877
5.125% zero-coupon convertible senior subordinated notes due 2021
248,138
235,894
7 5/8% senior notes due 2009
272,591
271,493
9.95% senior notes due 2010
300,175
301,346
Term Loan B due 2007
391,000
395,000
U.S. Home senior notes due through 2009
9,366
9,446
The Fortress Group, Inc. senior notes due 2003
12,575
—
Mortgage notes on land
84,547
35,199
$
1,585,309
1,505,255
Our ratio of net homebuilding debt to total net capital was 27.7% at November 30, 2002, compared to 29.1% at November 30,
2001, compared to 44.0% at November 30, 2000.2001. The decrease primarily resulted from cash generated by our operations during2001.2002. In addition to the use of capital in our ordinary homebuilding and financial services activities, we will continue to actively evaluate various other uses of capital which fit into our homebuilding and financial services strategies and appear to meet our profitability and return on capital requirements. This may include acquisitions of or investments in other entities. These activities may be funded through any combination of our credit facilities, cash generated from operations, sales of assets or the issuance of public debt, common stock or preferred stock.OurAt November 30, 2002, our Financial Services Division
finances its mortgage loan activities by pledging them as collateral for borrowings underhad a $500 million warehouse line of credittotaling $500which included a $145 million 30-day increase which expired in December 2002 to fund the Division’s mortgage loan activities. Borrowings under this facility were $489.7 million at November 30, 2002, and were collateralized by mortgage loans and receivables on loans sold not yet funded with outstanding principal balances of $523.8 million. The warehouse line of credit matures in October 2004, at which time we expect the facility to be renewed. At November 30, 2002, we had advances under a conduit funding agreement with a major financial institution amounting to $343.7 million. Borrowings under this agreement are collateralized by mortgage loans. We also had a $20 million revolving line of credit with a bank, collateralized by certain assets of thefinancial servicesDivision and stock of certain title subsidiaries. Borrowings under the line of credit were$483.2 million and $339.4$20.0 million at November 30,2001 and 2000, respectively. During 2001, we sold substantially all2002.The limited-purpose finance subsidiaries of our
retainedFinancial Services Division have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral, which includes a combination of mortgageservicing rightsnotes, mortgage-backed securities andrealizedfunds held by apretax profit of approximately $13trustee. At November 30, 2002, the balance outstanding for the bonds and notes payable was $9.2 million. The borrowings mature in years 2013 through 2018 and the annual principal repayments are dependent upon collections on the underlying mortgages, including prepayments, and cannot be reasonably determined.We have various interest rate swap agreements which effectively convert variable interest rates to fixed interest rates on approximately
$400$300 million of outstanding debt related to our homebuilding operations. The16
interest rate swaps mature at various dates through 2007 and fix the LIBOR index (to which certain of our debt
14interest rates are tied) at an average interest rate of 6.6%6.8% at November 30,2001.2002. The net effect on our operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. Counterparties to each of the above agreements are major financial institutions. At November 30,2001,2002, the fair value of the interest rate swaps, net of tax, was a$19.3$24.4 million liability. Our Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce our exposure to fluctuations in interest rates. The Division enters into forward commitments and option contracts to protect the value of loans held for sale or disposition from increases in market interest rates. We do not anticipate that we will suffer credit losses from counterpartynon- performance.non-performance.Our 2000 Stock Option and Restricted Stock Plan (the
"Plan"“Plan”) provides for the granting of stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights are not less than the market value of the common stock on the date of the grant. No options granted under the 2000 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when the options are granted. Each stock option and stock appreciation right will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant. At November 30,2001, 835,0002002, 740,500 shares of restricted stock were outstanding under the Plan. The restricted stockwasis valued based on its market price on the date of grant. The grants vest over 5years.years from the issuance date. Unearned compensation arising from the restricted stock grants is amortized to expense over the period of restrictions and is shown as a reduction ofstockholders'stockholders’ equity in the consolidated balance sheets.In June 2001, our Board of Directors increased our previously authorized stock repurchase program to permit future purchases of up to 10 million shares of our
outstandingcommon stock. We may repurchase these shares in the open market from time-to-time. During 2002 and 2001, we did not repurchase any of our outstanding commonstock.stock in the open market under these authorizations. As of November 30,2000,2002, in prior years under prior approvals, we had repurchased approximately 9.8 million shares of our outstanding common stock for an aggregate purchase price of approximately $158.9 million, or $16 per share.WeDuring 2002, our treasury stock increased by approximately 1,000 shares related to employee stock plans and share reacquisitions at the time of vesting of restricted stock.In recent years, we have
shelfsold convertible and non-convertible debt into public markets, and at year end, we had effective Securities Act registration statements under which we could sell to theSecurities Act of 1933, as amended, relating topublic up to $970 million ofequity ordebt securities,which we may sell for cashcommon stock, preferred stock or other securities and up to $400 million of equity or debt securities whichweit may issue in connection with acquisitions of companies or interests in them, businesses, or assets.AsOur $970 million shelf registration statement was reduced by $350 million from the issuance ofNovember 30, 2001, no securities had been issued under these registration statements. In March 1998, we entered into an equity draw-down agreement with a major international banking firm (the "Firm") under which we have the option5.95% senior notes in February 2003.Our willingness to use common stock in acquisitions, or to sell common stock,
upcould be adversely affected by the fact that if at any time our Class B common stock (which entitles holders toproceedsten votes per share, is essentially non-transferable other than through conversion into common stock and is almost entirely owned by entities controlled by Stuart Miller, our President and Chief Executive Officer, and his family) is less than 10% of$120 million,the outstanding common stock and Class B common stock taken together, all the Class B common stock will automatically be converted into common stock. We are proposing to increase the outstanding Class B common stock (and therefore, the number of shares of common stock we can issue without endangering the Class B common stock) by distributing to our stockholders one share of Class B common stock for each ten shares of common stock or Class B common stock already held, if our stockholders approve changes to theFirm in increments of up to $15 million (or such higher amount as may be agreed to by the parties) per month. In the event we elect to sellClass B common stock that would enable it to be publicly traded. We are also asking our stockholders to increase thesales price is equalnumber of shares of common stock and Class B common stock we are authorized to98% of the average of the daily high and low stock price from time-to-time. As of November 30, 2001, we had issued 1.1 million shares under the agreement resulting in proceeds to us of $36 million, all of which occurred in fiscal 1998. We believe we maintain excellent relationships with the financial institutions participating in our financing arrangements and have no reason to believe that these relationships will not continue in the future.issue.Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of growth.
Investments in Unconsolidated Partnerships
We frequently enter into partnerships that acquire and develop land for our homebuilding operations or for sale to third parties. Through partnerships, we reduce and share our risk and also the amount invested in land while increasing access to potential future homesites. The use of partnerships also, in some instances, enables us
17
to acquire land to which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Our partners generally are
third partyunrelated homebuilders, land sellersseeking a share of the profits from development of the landor other real estateprofessionals who do not have the capital and/or expertise to develop properties by themselves.professionals. While we view the use of unconsolidated partnerships as beneficial to our homebuilding activities, we do not view them as essential to those activities.15ManyMost of the partnerships in which we invest are accounted for by the equity method of accounting. At November 30,
2001,2002, we had ownership interests of between 10% to 50% in these unconsolidated partnerships. In many instances, we are appointed as the day-to-day manager of the partnerships and receive fees for performing this function. During 2002, 20012000and1999,2000, we received management fees and reimbursement of expenses totaling $29.2 million, $26.1 million$9.7 million,and$6.2$9.7 million, respectively, from unconsolidated partnerships in which we had interests. Wemayand/or our partners sometimes obtain options or enter into other arrangements under which we can purchase portions of the land held by the unconsolidated partnerships. Option prices are generally negotiated prices that approximate fair value when we receive the options. During 2002, 2001 and 2000,and 1999,$419.3 million, $232.6 million$134.6 million,and$111.3$134.6 million, respectively, of the unconsolidatedpartnerships'partnerships’ revenues were from land sales to our homebuilding divisions.At November 30,
2001,2002, the unconsolidated partnerships in which we had interests had total assets of $1.4 billion and total liabilities of$777.1$741.2 million, which included$627.4$563.6 million of notes and mortgages payable. In some instances, we and/or our partners have provided varying levels of guarantees on certain partnership debt.We providedAt November 30, 2002, we had recourse guaranteestotaling $338.7of $50.3 million and limited maintenance guarantees of $162.2 million ofwhich $151.0 million were limited maintenance guarantees.the partnerships’ debts. When we provide guarantees, the partnership generally receives more favorable terms from its lenders.TheseThe limited maintenance guarantees only apply ifthea partnership defaults on its loan arrangements and thefaircarrying value of the collateral (generally land andimprovements thereto)improvements) is less than a specified percentage of the loan balance. If we are required to make a payment underthese guaranteesa limited maintenance guarantee to bring thefaircarrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase our share of any fundsdistributed upon the dissolution of the partnership.it distributes.During
2001,2002, the unconsolidated partnerships in which we were a partner generated$903.3$939.8 million of revenues and incurred$761.7$780.1 million of expenses, resulting in net earnings of$141.6$159.8 million. Our share of those net earnings was$27.1$42.7 million. We do not include in our income our pro rata share of partnership earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from thepartnerships when title passes to a third party homebuyer, whichpartnerships. This in effect defers recognition of our share of the partnership earnings untilwe sell the land.a home is delivered and title passes to a homebuyer.At the time of the 1997 transfer of our commercial real estate investment business to LNR Property Corporation
("LNR"(“LNR”), and the spin-off of LNR to our stockholders, we formed Lennar Land Partners,with LNR,a 50%-50% owned unconsolidated partnership with LNR, which is included in theabove discussion ofunconsolidatedpartnerships.partnerships discussed above. We also have several other unconsolidated partnerships with LNR. In these partnerships, we provide the residential development experience and LNR contributes the commercial property expertise. In 2002, 20012000and1999,2000, we purchased land from Lennar Land Partners for a total of $83.0 million, $104.2 million and $112.3 million,and $109.3 million, respectively. We believe the amounts we paid for land purchased from Lennar Land Partners approximates the amounts we would have paid to independent third parties for similar properties.respectively, which approximated fair value.Contractual Obligations and Commercial Commitments
The following summarizes our contractual obligations at November 30, 2002:
Payments Due by Period
Contractual Obligations
Total
Less than 1 year
1 to 3 years
4 to 5 years
Over 5 years
(Dollars in thousands)
Homebuilding—Senior notes and other debts payable
$
1,585,309
64,054
34,374
397,351
1,089,530
Financial Services—Notes and other debts payable (including limited-purpose finance subsidiaries)
862,618
688,382
165,034
—
9,202
Operating leases
149,686
41,918
56,315
34,110
17,343
Total contractual cash obligations
$
2,597,613
794,354
255,723
431,461
1,116,075
18
We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase,
(including option contracts),development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of landpermitenable us toacquiredefer acquiring portions of propertieswhen we are ready to build homes on them.owned by third parties and unconsolidated partnerships. This reduces our financial risk associated with land holdings. At November 30,2001,2002, we had$180.3$218.3 million of primarilynon- refundablenon-refundable option depositsand advanced costs,with entities,including unconsolidated partnerships,which allows us to acquire approximately31,00045,000 homesites.The minimum aggregate principal maturities of senior notes and other debts payable during the five years subsequent to November 30, 2001 are as follows: 2002--$17.7 million; 2003--$7.3 million; 2004--$22.9 million; 2005--$6.3 million and 2006--$4.0 million. The remaining principal obligations are due subsequent to November 30, 2006. Our debt arrangements contain certain financial covenants with which we were in compliance at November 30, 2001. The minimum aggregate principal maturities of our Financial Services Division's notes and other debts payable during the five years subsequent to November 30, 2001 are as follows: 2002--$343.5 million and 2003--$350.4 million. 16We have entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2002--$30.7 million; 2003--$25.2 million; 2004--$20.0 million; 2005--$14.5 million; 2006--$11.4 million and thereafter-- $24.7 million.We are 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
$154.3$463.9 million at November 30,2001.2002. Additionally, we had outstanding performance and surety bonds related to site improvements at various projects with estimated costs to complete of$750.7$839.4 million. We do not believe that draws upon these bonds, if any,such bonds are likely to be drawn upon. At November 30, 2001,will have a material effect on our financial position, results of operations or cash flows.Our Financial Services
Division'sDivision’s pipeline of loans in process totaled approximately$1.7 billion.$2.3 billion at November 30, 2002. To minimize credit risk, we use the same credit policies in the approval of the commitments as are applied to our lending activities. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements. Loans in the pipeline of loans in process for which interest rates were committed to the borrower totaled approximately$235.0$316.3 million as of November 30,2001.2002. Substantially all of these commitments were for periods of3060 days or less.MandatoryOur Financial Services Division uses mandatory mortgage-backed securities
("MBS")forward commitmentsare used by the Financial Services Division(“MBS”) to hedge our interest rate exposure during the period from when we make an interest rate commitment to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering intoagreementsMBS only with investment bankers with primary dealer status and with permanent investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and current market value. At November 30,2001,2002, we had open commitments amounting to$291.0$314.2 million to sell MBS with varying settlement dates through January2002.2003.ECONOMIC CONDITIONS
Despite difficult economic conditions in large portions of the United States during much of
2001,2002, the homebuilding environment remained strong due to a positive supply/demand relationship as well as low interest rates. As a result of this favorable environment, as well as recent homebuilding acquisitions and growth in the number of our active communities, our new orders increased by34%19% in2001 (6% giving pro forma effect for all of 2000 for2002. Although theMay 2000 acquisition of U.S. Home Corporation). New orders decreased 14% in the fourth quarter of fiscal 2001, compared to the same period in 2000, primarily ashomebuilding business historically has been cyclical, it has not undergone aresult of the tragic events of September 11, 2001, resultingdown cycle in alower backlog at November 30, 2001 than atnumber of years. This has led some people to assert that thesame dateprices of homes and the stocks of homebuilding companies are overvalued and will decline rapidly when the market for new homes begins to weaken. A decline in2000.prices of stocks of homebuilding companies would make it more expensive, and could make it more difficult, for us to raise funds through stock issuances.BACKLOG
Backlog represents the number of homes subject to pending sales contracts. Homes are sold using sales contracts which are generally accompanied by sales deposits. Before entering into sales contracts, we generally prequalify our customers. In some instances, purchasers are permitted to cancel sales contracts if they are unable to close on the sale of their existing home or fail to qualify for financing and under certain other circumstances. We experienced an average cancellation rate of 21% in 2002, compared to 22% and 21% in 2001
compared to 21%and20% in2000,and 1999,respectively. Although cancellations can delay the sales of our homes, they have not had a material impact on sales, operations or liquidity, because we closely monitor the progress of prospective buyers in obtaining financing and use the information to adjust construction start plans to match anticipated deliveries of homes. We do not recognize revenue on homes covered by pending sales contracts until the sales are closed and title passes to the new homeowners.19
SEASONALITY
We have historically experienced variability in results of operations from quarter to quarter due to the seasonal nature of the homebuilding business. We typically experience the highest rate of orders for new homes in the first half of the calendar year, although the rate of orders for new homes is highly dependent on the number of active communities and the timing of new community openings. Because new home deliveries trail orders for new homes by several months, we typically have a greater percentage of new home deliveries in the second half of our fiscal year compared to the first half. As a result, our earnings from sales of homes are generally higher in the second half of the fiscal year.
17INTEREST RATES AND CHANGING PRICES
Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates, as well as increased materials and labor costs, may reduce gross margins. In recent years, the increases in these costs have followed the general rate of inflation and hence have not had a significant adverse impact on us. In addition, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issuedStatement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method and requires acquired intangible assets to be recognized as assets apart from goodwill if certain criteria are met. We adopted SFAS No. 141 for all future acquisitions. SFAS(SFAS) No. 142 no longerrequires orpermits the amortization of goodwill and indefinite-lived assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be DisposedOf.Of. We adopted SFAS No. 142 on December 1, 2001.BecauseNo impairment charges were recognized from the adoption ofthat, amortizationthis statement. As ofgoodwillNovember 30, 2002 and 2001, there are no material identifiable intangible assets, other than goodwill. Pro forma net earnings and earnings per share for both fiscal 2001 and 2000 are discussed in Note 1 ofapproximately $6 million per year will not be incurred in the future. We do not currently believe that the implementation of SFAS No. 142 will have a material impact on our financial condition or results of operations.Notes to Consolidated Financial Statements.In October 2001, the
FASBFinancial Accounting Standards Board (FASB) issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-LivedAssets.Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. SFAS No. 144 is effective for our 2003 fiscal year. We do notcurrentlybelieve that the implementation of SFAS No. 144 will have a material impact on our financial condition, results of operations or cash flows.In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS No. 4,Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement amends SFAS No. 13,Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. We do not believe that the implementation of SFAS No. 145 will have a material impact on our financial condition, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based Compensation— Transition and Disclosure. SFAS No. 148 amends SFAS No. 123Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. We do not believe that the implementation of SFAS No. 148 will have a material impact on our financial condition, results of operations or cash flows.
20
In November 2002, the FASB issued Financial Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 clarifies and expands on existing disclosure requirements for guarantees, including product warranties. FIN No. 45 also requires recognition of a liability at fair value of a company’s obligations under certain guarantee contracts. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The initial recognition and measurement provisions of FIN No. 45 are applied only on a prospective basis to guarantees issued after December 31, 2002, irrespective of the guarantor’s fiscal year-end. We do not believe that the implementation of FIN No. 45 will have a material impact on our financial condition, results of operations or cash flows.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 provides accounting guidance for consolidation of off-balance sheet entities with certain characteristics (variable interest entities). The consolidation requirements apply to variable interest entities created after January 31, 2003 and to variable interest entities in which we maintain an interest after August 31, 2003. We are in the process of evaluating all of our investments and other interests in entities that may be deemed variable interest entities under the provisions of FIN No. 46. These include interests in unconsolidated partnerships with assets totaling approximately $1.4 billion at November 30, 2002. Our maximum exposure to loss represents our recorded investment in these partnerships totaling $285.6 million. We believe that many of these interests and entities will not be consolidated, and may not ultimately fall under the provisions of FIN No. 46. We cannot make any definitive conclusion until we complete our evaluation.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. Listed below are those policies that we believe are critical and require the use of significant judgment in their application.
Homebuilding Division
Revenue Recognition
Sales of homes are recognized when sales are closed and title passes to the new homeowners. Additionally, sales of other real estate (including sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete and collectibility of the receivable is assured. We do not include in our income our pro rata share of partnership earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the partnerships. This in effect defers recognition of our share of the partnership earnings until a home is delivered and title passes to a homebuyer. We believe that the accounting policy related to revenue recognition is a “critical accounting policy” because of the significance of revenue recognition.
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 and interest related to development and construction. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.
We evaluate our inventory for impairment whenever indicators of impairment exist. Accounting standards require that if the sum of the undiscounted future cash flows expected to result from an asset is less than the reported value of the asset, an asset impairment must be recognized in the consolidated financial statements. The amount of impairment to recognize is calculated by subtracting the fair value of the asset from the carrying value of the asset.
21
We believe that the accounting estimate related to inventory valuation and impairment is a “critical accounting estimate” because: (1) it is highly susceptible to change because of the assumptions about future sales and cost of sales and (2) the impact that recognizing an impairment would have on the assets reported in our consolidated balance sheets as well as our net earnings could be material. Our assumptions about future home sales prices and volumes require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. Although the homebuilding business historically has been cyclical, it has not undergone a down cycle in a number of years.
While no impairment existed as of November 30, 2002, there can be no assurances that future economic or financial developments, including general interest rate increases or a continued slowdown in the economy, might not lead to impairment of inventory.
Warranty Costs
We subcontract virtually all segments of construction to others and while our contracts call for the subcontractors to repair or replace any deficient items related to their trade, we are primarily responsible to correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses incurred by subcontractors. Warranty reserves are established in an amount estimated to be adequate to cover expected warranty-related costs for materials and outside labor to be incurred during the warranty period. Reserves are determined based upon historical data and trends with respect to similar product types and geographical areas. We believe the accounting estimate related to the reserve for warranty costs is a “critical accounting estimate” because the estimate requires a large degree of judgment.
At November 30, 2002, the reserve for warranty costs was $93.6 million. While we believe that the reserve for warranty costs is adequate, there can be no assurances that the use of historical data and trends will resemble the actual warranty costs. Additionally, there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve.
Investments in Unconsolidated Partnerships
We frequently enter into partnerships that acquire and develop land for our homebuilding operations or for sale to third parties. Our partners generally are unrelated homebuilders, land sellers or other real estate professionals.
Most of the partnerships through which we acquire and develop land are accounted for by the equity method of accounting, because we have a significant, but less than controlling, interest in the partnerships. We record the investment in these partnerships in the consolidated balance sheets as “Investments in Unconsolidated Partnerships” and our share of the partnerships’ earnings or losses as “Equity in Earnings from Unconsolidated Partnerships” as described in Notes 3 and 5 of Notes to Consolidated Financial Statements. Additionally, advances to these partnerships are included in the investment amount.
Judgment is required in determining controlling interest. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. Due to the judgment required in determining whether we have control or only significant influence, the accounting policy relating to the use of the equity method of accounting is a “critical accounting policy.”
As of November 30, 2002, we believe that the equity method of accounting is appropriate for our investments in unconsolidated partnerships where we do not have a controlling interest but rather share control with our partners. At November 30, 2002, the unconsolidated partnerships in which we had interests had total assets of $1.4 billion and total liabilities of $741.2 million.
Financial Services Division
Revenue Recognition
Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and delivered to an investor. Premiums from title insurance policies are recognized as revenue on the effective date of
22
the policy. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. In all circumstances, we do not recognize revenue until the earnings process is complete and collectibility of the receivable is reasonably assured. We believe that the accounting policy related to revenue recognition is a “critical accounting policy” because of the significance of revenue recognition.
Allowance for Loss Reserves
We provide an allowance for loan losses when and if we determine that loans or portions of them are not likely to be collected. In evaluating the adequacy of the allowance for loan losses, we consider various factors such as past loan loss experience, regulatory examinations, present economic conditions and other factors considered relevant by management. Anticipated changes in economic conditions, which may influence the level of the allowance, are considered in the evaluation by management when the likelihood of the changes can be reasonably determined. This analysis is based on judgments and estimates and may change in response to economic developments or other conditions that may influence borrowers’ financial conditions or prospects. At November 30, 2002, we also had an allowance for title and escrow losses of $0.6 million for both known and incurred but not reported claims which requires management’s judgments and estimates. For these reasons, we believe that the accounting estimate related to the allowance for loss reserves is a “critical accounting estimate.”
At November 30, 2002, the allowance for loan losses was $3.0 million. While we believe that the 2002 year-end allowance was adequate, particularly in view of the fact that we usually sell the loans within 30 days after we originate them, there can be no assurances that future economic or financial developments, including general interest rate increases or a continued slowdown in the economy, might not lead to increased provisions to the allowance or a higher incidence of loan charge-offs.
Homebuilding and Financial Services Divisions
Goodwill Valuation
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. The process of determining goodwill requires judgment. Evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates, including the interpretation of current economic indicators and market valuations, and our strategic plans with regard to our operations. To the extent additional information arises or our strategies change, it is possible that the conclusion regarding goodwill impairment could change, which could result in a material effect on our financial position and results of operations. For those reasons, we believe that the accounting estimate related to goodwill impairment is a “critical accounting estimate.”
During fiscal 2002, we adopted the provisions of SFAS No. 142,Goodwill and Other Intangible Assets. In connection with the adoption of SFAS No. 142, we performed a test for impairment of goodwill as of December 1, 2001, which resulted in no impairment being identified. Goodwill is no longer subject to amortization. Instead, we review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Historically through fiscal 2001, we amortized goodwill on a straight-line basis over periods ranging from 15 to 20 years.
At November 30, 2002, goodwill was $189.4 million (net of accumulated amortization of $18.0 million). While we believe that no impairment existed as of November 30, 2002, there can be no assurances that future economic or financial developments, including general interest rate increases or a continued slowdown in the economy, might not lead to impairment of goodwill.
Valuation of Deferred Tax Assets
We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for 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 those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
23
We believe that the accounting policy for the valuation of deferred tax assets is a “critical accounting policy” because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect our ability to realize anticipated tax results and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents our best estimate of future events. Although it is possible there will be changes that are not anticipated in our current estimates, we believe it is unlikely such changes would have a material period-to-period impact on our financial position or results of operations.
At November 30, 2002, we had a valuation allowance of $7.0 million for net operating loss and capital loss carryforwards and certain acquisition adjustments. Based on our assessment, it appears more likely than not that the net deferred tax asset will be realized through future taxable earnings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks related to fluctuations in interest rates on our debt obligations, mortgage loans and mortgage loans held for
sale or disposition.sale. We utilize derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage our exposure to changes in interest rates. We also utilize forward commitments and option contracts to mitigate the risk associated with our mortgage loan portfolio.The tables on the following pages provide information at November 30,
20012002 and20002001 about our significant derivative financial instruments and other financial instruments used for purposes that are sensitive to changes in interest rates. For mortgage loans held for sale,or disposition,mortgage loans and investments, senior notes andseniornotes and other debts payable, the tables present principal cash flows and related weighted average effective interest rates by expected maturity dates and estimated fair market values at November 30,20012002 and2000.2001. Weighted average variable interest rates are based on the variable interest rates at November 30,20012002 and2000.2001. Our term loan B is presented as fixed rate debt because the interest rate swaps changed the majority of the debt from variable interest rates to fixed interest rates. For interest rate swaps, the tables present notional amounts and weighted average interest rates by contractual maturity dates and estimated fair market values at November 30,20012002 and2000.2001. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contracts. Our limited-purpose finance subsidiaries have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral and therefore, they received little more than is required to pay that debt service and are excluded from the following tables.See
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Notes 1 and1314 of Notes to Consolidated Financial Statements in Item 8 for a further discussion of these items and our strategy of mitigating our interest rate risk.1824
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by
Expected Maturity and Average Interest Rate
November 30,
2001
Years Ending November 30, Fair Market Value -------------------------------- at November 30, 2002 2003 2004 2005 2006 Thereafter Total 2001 ------ ----- ---- ----- ---- ---------- ------- ----------------- (Dollars in millions)ASSETS Financial Services: Mortgage loans held for sale or disposition, net: Fixed rate............. $ -- -- -- -- -- 573.9 573.9 574.1 Average interest rate.. -- -- -- -- -- 6.9% -- -- Variable rate.......... $ -- -- -- -- -- 13.8 13.8 13.8 Average interest rate.. -- -- -- -- -- 5.9% -- -- Mortgage loans and in- vestments: Fixed rate............. $ 18.4 4.8 1.2 0.3 5.9 24.2 54.8 54.2 Average interest rate.. 6.9% 9.9% 7.0% 9.2% 9.1% 10.7% -- -- LIABILITIES Homebuilding: Senior notes and other debts payable: Fixed rate............. $ 17.7 7.3 22.9 6.3 4.0 1,447.1 1,505.3 1,611.5 Average interest rate.. 5.6% 5.0% 7.6% 6.4% 5.7% 6.8% -- -- Financial Services: Notes and other debts payable: Fixed rate............. $ -- -- -- -- -- -- -- -- Average interest rate.. -- -- -- -- -- -- -- -- Variable rate.......... $343.5 350.4 -- -- -- -- 693.9 693.9 Average interest rate.. 3.0% 3.1% -- -- -- -- -- -- OTHER FINANCIAL INSTRUMENTS Homebuilding: Interest rate swaps: Variable to fixed-- notional amount....... $ -- -- -- 100.0 -- 300.0 400.0 (31.4) Average pay rate....... -- -- -- 6.7% -- 6.6% -- -- Average receive rate... -- -- -- LIBOR -- LIBOR -- --192002
Years Ending November 30,
Fair Market
Value at November 30, 2002
2003
2004
2005
2006
2007
Thereafter
Total
(Dollars in millions)
ASSETS
Financial services:
Mortgage loans held for sale, net:
Fixed rate
$
—
—
—
—
—
616.6
616.6
616.6
Average interest rate
—
—
—
—
—
6.2
%
—
—
Variable rate
$
—
—
—
—
—
91.7
91.7
91.7
Average interest rate
—
—
—
—
—
5.2
%
—
—
Mortgage loans and investments:
Fixed rate
$
22.1
6.3
0.3
6.0
0.6
17.4
52.7
52.1
Average interest rate
2.9
%
2.6
%
13.7
%
10.4
%
14.7
%
11.1
%
—
—
LIABILITIES
Homebuilding:
Senior notes and other debts payable:
Fixed rate
$
64.1
19.7
14.6
17.5
379.8
1,089.6
1,585.3
1,779.7
Average interest rate
10.1
%
4.3
%
15.2
%
13.0
%
4.0
%
7.1
%
—
—
Financial services:
Notes and other debts payable:
Fixed rate
$
—
—
—
—
—
—
—
—
Average interest rate
—
—
—
—
—
—
—
—
Variable rate
$
688.4
165.0
—
—
—
—
853.4
853.4
Average interest rate
2.3
%
2.3
%
—
—
—
—
—
—
OTHER FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps:
Variable to fixed—notional amount
$
—
—
100.0
—
200.0
—
300.0
(39.3
)
Average pay rate
—
—
6.7
%
—
6.8
%
—
—
—
Average receive rate
—
—
LIBOR
—
LIBOR
—
—
—
25
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by
Expected Maturity and Average Interest Rate
November 30,
2000
Years Ending November 30, Fair Market Value ------------------------------- at November 30, 2001 2002 2003 2004 2005 Thereafter Total 2000 ------ ---- ---- ---- ----- ---------- ------- ----------------- (Dollars in millions)ASSETS Financial Services: Mortgage loans held for sale or disposition, net: Fixed rate............. $ -- -- -- -- -- 374.5 374.5 377.5 Average interest rate.. -- -- -- -- -- 7.8% -- -- Variable rate.......... $ -- -- -- -- -- 2.0 2.0 2.0 Average interest rate.. -- -- -- -- -- 7.9% -- -- Mortgage loans and investments: Fixed rate............. $ 23.6 1.1 3.3 1.3 0.3 25.4 55.0 54.5 Average interest rate.. 6.4% 9.6% 8.3% 7.2% 9.4% 9.2% -- -- LIABILITIES Homebuilding: Senior notes and other debts payable: Fixed rate............. $ 14.8 19.4 5.4 5.3 6.5 1,203.3 1,254.7 1,287.9 Average interest rate.. 9.0% 8.3% 8.2% 9.0% 8.7% 7.9% -- -- Financial Services: Notes and other debts payable: Fixed rate............. $ 0.7 0.1 0.1 -- -- -- 0.9 0.9 Average interest rate.. 4.9% 9.8% 9.8% -- -- -- -- -- Variable rate.......... $428.1 -- -- -- -- -- 428.1 428.1 Average interest rate.. 6.7% -- -- -- -- -- -- -- OTHER FINANCIAL INSTRUMENTS Homebuilding: Interest rate swaps: Variable to fixed-- notional amount....... $ -- -- -- -- 100.0 300.0 400.0 (5.7) Average pay rate....... -- -- -- -- 6.7% 6.6% -- -- Average receive rate... -- -- -- -- LIBOR LIBOR -- --202001
Years Ending November 30,
Thereafter
Total
Fair Market Value at November 30,
2001
2002
2003
2004
2005
2006
(Dollars in millions)
ASSETS
Financial services:
Mortgage loans held for sale, net:
Fixed rate
$
—
—
—
—
—
573.9
573.9
574.1
Average interest rate
—
—
—
—
—
6.9
%
—
—
Variable rate
$
—
—
—
—
—
13.8
13.8
13.8
Average interest rate
—
—
—
—
—
5.9
%
—
—
Mortgage loans and investments:
Fixed rate
$
18.4
4.8
1.2
0.3
5.9
24.2
54.8
54.2
Average interest rate
6.9
%
9.9
%
7.0
%
9.2
%
9.1
%
10.7
%
—
—
LIABILITIES
Homebuilding:
Senior notes and other debts payable:
Fixed rate
$
17.7
7.3
22.9
6.3
4.0
1,447.1
1,505.3
1,611.5
Average interest rate
5.6
%
5.0
%
7.6
%
6.4
%
5.7
%
6.8
%
—
—
Financial services:
Notes and other debts payable:
Fixed rate
$
—
—
—
—
—
—
—
—
Average interest rate
—
—
—
—
—
—
—
—
Variable rate
$
343.5
350.4
—
—
—
—
693.9
693.9
Average interest rate
3.0
%
3.1
%
—
—
—
—
—
—
OTHER FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps:
Variable to fixed—notional amount
$
100.0
—
—
100.0
—
200.0
400.0
(31.4
)
Average pay rate
6.0
%
—
—
6.7
%
—
6.8
%
—
—
Average receive rate
LIBOR
—
—
LIBOR
—
LIBOR
—
—
26
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Lennar Corporation:
We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the
"Company"“Company”) as of November 30,20012002 and2000,2001, and the related consolidated statements of earnings,stockholders'stockholders’ equity and cash flows for each of the three years in the period ended November 30,2001.2002. These financial statements are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30,
20012002 and2000,2001, and the results of its operations and its cash flows for each of the three years in the period ended November 30,2001,2002, in conformity with accounting principles generally accepted in the United States of America./s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
January
9, 2002 217, 2003, except for Note 18, as to which the date is February 5, 2003
27
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Lennar Corporation and SubsidiariesNovember 30,
20012002 and20002001
2001 2000 ---------- --------- (In thousands, except per share amounts)ASSETS Homebuilding: Cash..................................................... $ 824,013 287,627 Receivables, net......................................... 24,345 42,270 Inventories: Housing................................................. 2,410,058 2,284,548 Land held for development............................... 6,483 17,036 ---------- --------- Total inventories...................................... 2,416,541 2,301,584 Investments in unconsolidated partnerships............... 300,064 257,639 Other assets............................................. 253,933 277,794 ---------- --------- 3,818,896 3,166,914 Financial services....................................... 895,530 611,000 ---------- --------- $4,714,426 3,777,914 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities................... $ 755,726 778,238 Senior notes and other debts payable, net................ 1,505,255 1,254,650 ---------- --------- 2,260,981 2,032,888 Financial services....................................... 794,183 516,446 ---------- --------- Total liabilities........................................ 3,055,164 2,549,334 Stockholders' equity: Preferred stock.......................................... -- -- Common stock of $0.10 par value per share Authorized 100,000 shares; Issued: 2001--64,124; 2000--62,731...................... 6,412 6,273 Class B common stock of $0.10 par value per share Authorized 30,000 shares; Issued: 2001--9,738; 2000--9,848........................ 974 985 Additional paid-in capital............................... 843,924 812,501 Retained earnings........................................ 996,998 582,299 Unearned restricted stock................................ (10,833) (14,535) Treasury stock, at cost; 2001--9,847 common shares; 2000--9,848 common shares.... (158,927) (158,943) Accumulated other comprehensive loss..................... (19,286) -- ---------- --------- Total stockholders' equity............................... 1,659,262 1,228,580 ---------- --------- $4,714,426 3,777,914 ========== =========
2002
2001
(In thousands, except per
share amounts)
ASSETS
Homebuilding:
Cash
$
731,163
824,013
Receivables, net
48,432
24,345
Inventories:
Finished homes and construction in progress
2,044,694
1,596,407
Land under development
1,185,473
813,651
Land held for development
7,410
6,483
Total inventories
3,237,577
2,416,541
Investments in unconsolidated partnerships
285,594
300,064
Other assets
357,738
253,933
4,660,504
3,818,896
Financial services
1,095,129
895,530
Total assets
$
5,755,633
4,714,426
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities
$
969,779
755,726
Senior notes and other debts payable, net
1,585,309
1,505,255
2,555,088
2,260,981
Financial services
971,388
794,183
Total liabilities
3,526,476
3,055,164
Stockholders’ equity:
Preferred stock
—
—
Common stock of $0.10 par value per share
Authorized 100,000 shares; Issued: 2002-65,061; 2001-64,124
6,506
6,412
Class B common stock of $0.10 par value per share
Authorized 30,000 shares; Issued: 2002-9,700; 2001-9,738
970
974
Additional paid-in capital
873,502
843,924
Retained earnings
1,538,945
996,998
Unearned restricted stock
(7,337
)
(10,833
)
Deferred compensation plan—60 common shares
(1,103
)
—
Deferred compensation liability
1,103
—
Treasury stock, at cost; 2002-9,848 common shares; 2001-9,847 common shares
(158,992
)
(158,927
)
Accumulated other comprehensive loss
(24,437
)
(19,286
)
Total stockholders’ equity
2,229,157
1,659,262
$
5,755,633
4,714,426
See accompanying notes to consolidated financial statements.
2228
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Lennar Corporation and SubsidiariesYears Ended November 30, 2002, 2001
2000and19992000
2001 2000 1999 ---------- --------- --------- (In thousands, except per share amounts)Revenues: Homebuilding.................................... $5,603,947 4,390,034 2,849,207 Financial services.............................. 425,354 316,934 269,307 ---------- --------- --------- Total revenues.................................. 6,029,301 4,706,968 3,118,514 ---------- --------- --------- Costs and expenses: Homebuilding.................................... 4,818,321 3,909,238 2,508,404 Financial services.............................. 336,223 273,339 238,211 Corporate general and administrative............ 75,831 50,155 37,563 Interest expense................................ 119,503 98,601 48,859 ---------- --------- --------- Total costs and expenses........................ 5,349,878 4,331,333 2,833,037 ---------- --------- --------- Earnings before provision for income taxes...... 679,423 375,635 285,477 Provision for income taxes...................... 261,578 146,498 112,763 ---------- --------- --------- Net earnings.................................... $ 417,845 229,137 172,714 ========== ========= ========= Earnings per share: Basic........................................... $ 6.66 4.00 2.97 ========== ========= ========= Diluted......................................... $ 6.01 3.64 2.74 ========== ========= =========
2002
2001
2000
(In thousands, except per share amounts)
Revenues:
Homebuilding
$
6,835,583
5,603,947
4,390,034
Financial services
484,219
425,354
316,934
Total revenues
7,319,802
6,029,301
4,706,968
Costs and expenses:
Homebuilding
5,855,960
4,818,321
3,909,238
Financial services
356,608
336,223
273,339
Corporate general and administrative
85,958
75,831
50,155
Interest expense
145,567
119,503
98,601
Total costs and expenses
6,444,093
5,349,878
4,331,333
Earnings before provision for income taxes
875,709
679,423
375,635
Provision for income taxes
330,580
261,578
146,498
Net earnings
$
545,129
417,845
229,137
Earnings per share:
Basic
$
8.55
6.66
4.00
Diluted
$
7.72
6.01
3.64
See accompanying notes to consolidated financial statements.
2329
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS'STOCKHOLDERS’ EQUITYLennar Corporation and SubsidiariesYears Ended November 30, 2002, 2001
2000and19992000
2001 2000 1999 ---------- --------- ------- (In thousands)Common stock: Beginning balance............................. $ 6,273 4,851 4,824 U.S. Home acquisition......................... -- 1,298 -- Employee stock plans and restricted stock grants....................................... 128 124 21 Conversion of Class B common stock............ 11 -- 6 ---------- --------- ------- Balance at November 30........................ 6,412 6,273 4,851 ---------- --------- ------- Class B common stock: Beginning balance............................. 985 985 991 Conversion to common stock.................... (11) -- (6) ---------- --------- ------- Balance at November 30........................ 974 985 985 ---------- --------- ------- Additional paid-in capital: Beginning balance............................. 812,501 525,623 523,645 U.S. Home acquisition......................... -- 265,569 -- Payment made under acquisition agreement...... -- -- (1,252) Employee stock plans and restricted stock grants....................................... 19,273 20,204 2,210 Tax benefit from exercise of stock options.... 12,150 1,105 1,020 ---------- --------- ------- Balance at November 30........................ 843,924 812,501 525,623 ---------- --------- ------- Retained earnings: Beginning balance............................. 582,299 356,058 186,205 Net earnings.................................. 417,845 229,137 172,714 Cash dividends--common stock.................. (2,705) (2,453) (2,418) Cash dividends--Class B common stock.......... (441) (443) (443) ---------- --------- ------- Balance at November 30........................ 996,998 582,299 356,058 ---------- --------- ------- Unearned restricted stock: Beginning balance............................. (14,535) -- -- Restricted stock (grants) cancellations....... 415 (15,856) -- Amortization of unearned restricted stock..... 3,287 1,321 -- ---------- --------- ------- Balance at November 30........................ (10,833) (14,535) -- ---------- --------- ------- Treasury stock, at cost: Beginning balance............................. (158,943) (6,018) -- Repurchases of common stock................... -- (152,925) (6,018) Shares issued................................. 16 -- -- ---------- --------- ------- Balance at November 30........................ (158,927) (158,943) (6,018) ---------- --------- ------- Accumulated other comprehensive loss: Beginning balance............................. -- -- -- SFAS No. 133 transition adjustment, net of tax.......................................... (3,510) -- -- Change in fair value of interest rate swaps, net of tax................................... (15,776) -- -- ---------- --------- ------- Balance at November 30........................ (19,286) -- -- ---------- --------- ------- Net earnings.................................. 417,845 229,137 172,714 ---------- --------- ------- Comprehensive income.......................... 398,559 229,137 172,714 Total stockholders' equity.................... $1,659,262 1,228,580 881,499 ========== ========= =======
2002
2001
2000
(In thousands)
Common stock:
Beginning balance
$
6,412
6,273
4,851
U.S. Home acquisition
—
—
1,298
Employee stock plans and restricted stock grants
90
128
124
Conversion of Class B common stock
4
11
—
Balance at November 30,
6,506
6,412
6,273
Class B common stock:
Beginning balance
974
985
985
Conversion to common stock
(4
)
(11
)
—
Balance at November 30,
970
974
985
Additional paid-in capital:
Beginning balance
843,924
812,501
525,623
U.S. Home acquisition
—
—
265,569
Employee stock plans and restricted stock grants
18,840
19,273
20,204
Tax benefit from employee stock plans and vesting of restricted stock
10,728
12,150
1,105
Conversion of debt
10
—
—
Balance at November 30,
873,502
843,924
812,501
Retained earnings:
Beginning balance
996,998
582,299
356,058
Net earnings
545,129
417,845
229,137
Cash dividends—common stock
(2,746
)
(2,705
)
(2,453
)
Cash dividends—Class B common stock
(436
)
(441
)
(443
)
Balance at November 30,
1,538,945
996,998
582,299
Unearned restricted stock:
Beginning balance
(10,833
)
(14,535
)
—
Restricted stock (grants) cancellations
387
415
(15,856
)
Amortization of unearned restricted stock
3,109
3,287
1,321
Balance at November 30,
(7,337
)
(10,833
)
(14,535
)
Deferred compensation plan:
Beginning balance
—
—
—
Deferred compensation activity
(1,103
)
—
—
Balance at November 30,
(1,103
)
—
—
Deferred compensation liability:
Beginning balance
—
—
—
Deferred compensation activity
1,103
—
—
Balance at November 30,
1,103
—
—
30
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)
Years Ended November 30, 2002, 2001 and 2000
2002
2001
2000
(In thousands)
Treasury stock, at cost:
Beginning balance
(158,927
)
(158,943
)
(6,018
)
Repurchases of common stock
—
—
(152,925
)
Employee stock plans and vesting of restricted stock, net
(65
)
—
—
Shares issued
—
16
—
Balance at November 30,
(158,992
)
(158,927
)
(158,943
)
Accumulated other comprehensive loss:
Beginning balance
(19,286
)
—
—
SFAS No. 133 transition adjustment, net of tax
—
(3,510
)
—
Change in fair value of interest rate swaps, net of tax
(5,151
)
(15,776
)
—
Balance at November 30,
(24,437
)
(19,286
)
—
Net earnings
545,129
417,845
229,137
Comprehensive income
539,978
398,559
229,137
Total stockholders’ equity
$
2,229,157
1,659,262
1,228,580
See accompanying notes to consolidated financial statements.
2431
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lennar Corporation and SubsidiariesYears Ended November 30, 2002, 2001
2000and1999
2001 2000 1999 -------- -------- -------- (In thousands)Cash flows from operating activities: Net earnings.................................... $417,845 229,137 172,714 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization................... 48,383 44,267 38,956 Amortization of discount/premium on debt, net... 20,287 11,186 8,774 Equity in earnings from unconsolidated partner- ships.......................................... (27,051) (13,340) (19,482) Tax benefit from exercise of stock options...... 12,150 1,105 1,020 Increase (decrease) in deferred income taxes.... 9,769 (17,223) 28,125 Changes in assets and liabilities, net of ef- fects from acquisitions: (Increase) decrease in receivables.............. (57,100) (11,912) 8,173 (Increase) decrease in inventories.............. (130,725) 223,255 (77,428) (Increase) decrease in other assets............. 48 (14,179) (3,639) (Increase) decrease in financial services loans held for sale or disposition.................... (211,143) (75,871) 6,293 Increase (decrease) in accounts payable and other liabilities.............................. (23,267) 104,079 (41,196) -------- -------- -------- Net cash provided by operating activities....... 59,196 480,504 122,310 -------- -------- -------- Cash flows from investing activities: Net additions to operating properties and equip- ment........................................... (13,110) (10,502) (15,328) (Increase) decrease in investments in unconsoli- dated partnerships, net........................ 5,601 (2,857) 6,524 (Increase) decrease in financial services mort- gage loans..................................... (997) (11,834) 1,548 Purchases of investment securities.............. (18,143) (18,112) (13,119) Receipts from investment securities............. 17,700 14,946 11,600 Decrease in financial services mortgage servic- ing rights..................................... 10,812 -- -- Acquisition of U.S. Home Corporation, net of cash acquired.................................. -- (152,386) -- Acquisitions of properties and businesses, net of cash acquired............................... -- (5,971) (19,747) -------- -------- -------- Net cash provided by (used in) investing activi- ties........................................... 1,863 (186,716) (28,522) -------- -------- -------- Cash flows from financing activities: Net repayments under revolving credit facili- ties........................................... -- -- (136,650) Net borrowings (repayments) under financial services short-term debt....................... 265,607 153,155 (856) Payments for tender of U.S. Home Corporation's senior notes................................... -- (519,759) -- Net proceeds from issuance of 5.125% zero-coupon convertible senior subordinated notes............................. 224,250 -- -- Net proceeds from issuance of 9.95% senior notes.......................................... -- 294,988 -- Net proceeds from issuance of 7 5/8% senior notes.......................................... -- -- 266,153 Proceeds from other borrowings.................. 110 424,783 1,856 Principal payments on other borrowings.......... (26,382) (279,941) (160,570) Limited-purpose finance subsidiaries, net....... 2,110 45 769 Common stock: Issuance........................................ 19,789 4,472 2,231 Payment made under acquisition agreement........ -- -- (1,252) Repurchases..................................... -- (152,925) (6,018) Dividends....................................... (3,146) (2,896) (2,861) -------- -------- -------- Net cash provided by (used in) financing activi- ties........................................... 482,338 (78,078) (37,198) -------- -------- --------252000
2002
2001
2000
(In thousands)
Cash flows from operating activities:
Net earnings
$
545,129
417,845
229,137
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
47,031
48,383
44,267
Amortization of discount/premium on debt, net
25,358
20,287
11,186
Equity in earnings from unconsolidated partnerships
(42,651
)
(27,051
)
(13,340
)
Tax benefit from employee stock plans and vesting of restricted stock
10,728
12,150
1,105
Deferred income tax provision (benefit)
(5,672
)
9,769
(17,223
)
Changes in assets and liabilities, net of effect from acquisitions:
Increase in receivables
(101,817
)
(57,100
)
(11,912
)
(Increase) decrease in inventories
(242,330
)
(130,725
)
223,255
(Increase) decrease in other assets
(11,122
)
48
(14,179
)
Increase in financial services loans held for sale
(119,379
)
(211,143
)
(75,871
)
Increase (decrease) in accounts payable and other liabilities
99,293
(23,267
)
104,079
Net cash provided by operating activities
204,568
59,196
480,504
Cash flows from investing activities:
Net additions to operating properties and equipment
(4,085
)
(13,110
)
(10,502
)
(Increase) decrease in investments in unconsolidated partnerships, net
57,902
5,601
(2,857
)
(Increase) decrease in financial services mortgage loans
13,886
(997
)
(11,834
)
Purchases of investment securities
(31,545
)
(18,143
)
(18,112
)
Receipts from investment securities
22,442
17,700
14,946
Decrease in financial services mortgage servicing rights
—
10,812
—
Acquisition of U.S. Home Corporation, net of cash acquired
—
—
(152,386
)
Acquisitions, net of cash acquired
(424,277
)
—
(5,971
)
Net cash provided by (used in) investing activities
(365,677
)
1,863
(186,716
)
Cash flows from financing activities:
Net borrowings under financial services short-term debt
156,120
265,607
153,155
Payments for tender of U.S. Home Corporation’s senior notes
—
—
(519,759
)
Net proceeds from issuance of 5.125% zero-coupon convertible senior subordinated notes
—
224,250
—
Net proceeds from issuance of 9.95% senior notes
—
—
294,988
Proceeds from other borrowings
20,103
110
424,783
Principal payments on other borrowings
(131,299
)
(24,272
)
(279,896
)
Common stock:
Issuance
19,317
19,789
4,472
Repurchases
(65
)
—
(152,925
)
Dividends
(3,182
)
(3,146
)
(2,896
)
Net cash provided by (used in) financing activities
60,994
482,338
(78,078
)
32
LENNAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS--(CONTINUED) Lennar Corporation and SubsidiariesFLOWS—(Continued)Years Ended November 30, 2002, 2001
2000and19992000
2001 2000 1999 -------- ---------- ------- (In thousands)Net increase in cash............................. 543,397 215,710 56,590 Cash at beginning of year........................ 333,877 118,167 61,577 -------- ---------- ------- Cash at end of year.............................. $877,274 333,877 118,167 ======== ========== ======= Summary of cash: Homebuilding..................................... $824,013 287,627 83,256 Financial services............................... 53,261 46,250 34,911 -------- ---------- ------- $877,274 333,877 118,167 -------- ---------- ------- Supplemental disclosures of cash flow informa- tion: Cash paid for interest, net of amounts capital- ized............................................ $ 17,546 1,157 9,647 Cash paid for income taxes....................... $234,549 91,742 108,845 Supplemental disclosures of non-cash investing and financing activities: Assumption of mortgages related to acquisitions of properties...................................... $ 28,993 5,529 29,342 Acquisition of U.S. Home Corporation: Fair value of assets acquired, inclusive of cash of $90,997...................................... $ -- 1,654,444 -- Goodwill recorded................................ -- 47,809 -- Liabilities assumed.............................. -- (1,192,004) -- -------- ---------- ------- $ -- 510,249 -- ======== ========== ======= Common stock issued.............................. $ -- 266,867 -- Cash paid........................................ -- 243,382 -- -------- ---------- ------- Total consideration.............................. $ -- 510,249 -- ======== ========== =======
2002
2001
2000
(In thousands)
Net increase (decrease) in cash
(100,115
)
543,397
215,710
Cash at beginning of year
877,274
333,877
118,167
Cash at end of year
$
777,159
877,274
333,877
Summary of cash:
Homebuilding
$
731,163
824,013
287,627
Financial services
45,996
53,261
46,250
$
777,159
877,274
333,877
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized
$
18,589
17,546
1,157
Cash paid for income taxes
$
307,073
234,549
91,742
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers
$
21,087
28,993
5,529
Acquisitions:
Fair value of assets acquired, inclusive of cash of $37,986 in 2002 and $90,996 in 2000
$
664,424
—
1,654,444
Goodwill recorded
83,560
—
47,809
Fair value of liabilities assumed
(285,721
)
—
(1,192,004
)
$
462,263
—
510,249
Common stock issued
$
—
—
266,867
Cash paid
462,263
—
243,382
Total consideration
$
462,263
—
510,249
See accompanying notes to consolidated financial statements.
2633
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lennar Corporation and Subsidiaries1. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and
partnerships (and similar entities)other entities in which a controlling interest is held (the"Company"“Company”). TheCompany'sCompany’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held are accounted for by the equity method. Controlling interest is determined based on a number of factors, which include theCompany'sCompany’s ownership interest and participation in the management of the partnership. All significant intercompany transactions and balances have been eliminated.Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate (including the sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.
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 the cash equivalents, the carrying amount of these instruments approximates their fair values. Cash as of November 30, 2002 and 2001
and 2000included$64.4$56.2 million and$65.9$64.4 million, respectively, of cash primarily held in escrow for approximately threedays.days and $20.9 million and $6.3 million, respectively, of restricted deposits.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 and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment
existedwas recorded during the years ended November 30, 2002, 20012000or1999. Start-up costs, construction2000.Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as
housinginventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.Interest and Real Estate Taxes
Interest and real estate taxes attributable to land
homesandoperating propertieshomes are capitalized as inventories while they are being actively developed. Interest related to homebuilding, including interest costs relieved from inventories, is included in interest expense. Interest expense related to the financial services operations is included in its costs and expenses.During 2002, 2001
2000and1999,2000, interest incurred by theCompany'sCompany’s homebuilding operations was $130.6 million, $127.9 million and $117.4 million, respectively, and$54.6interest expense was $145.6 million, $119.5 million and $98.6 million, respectively.CapitalizedInterest incurred is capitalized as inventories and relieved as interestcharged toexpensein 2001, 2000 and 1999 was $119.5 million, $98.6 million and $48.9 million, respectively.when homes are delivered.34
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 charged to earnings. The estimated useful life for operating properties is 30 years, for leasehold improvements is 5 years and for equipment is 2 to 10 years.
27Investment Securities
Investment securities that have determinable fair values are classified as available-for-sale unless they are classified as held-to-maturity. Securities classified as held-to-maturity are carried at amortized cost because they are purchased with the intent and ability to hold to maturity. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or losses on available-for-sale securities
arewould be reported in a separate component ofstockholders'stockholders’ equity, net of tax effects, until realized.At November 30,
20012002 and2000,2001, investment securities classified asheld-to- maturityheld-to-maturity totaled$13.2$22.4 million and$12.5$13.2 million, respectively, and were included in other assets of the Financial Services Division. There were nootheravailable-for-sale investment securities at November 30,20012002 or2000.2001.Derivative Financial Instruments
Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards
("SFAS")(SFAS) No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.The
Company'sCompany’s policy is to designate at aderivative'sderivative’s inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes.The Company has various interest rate swap agreements which effectively convert variable interest rates to fixed interest rates on approximately
$400$300 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in the consolidated balancesheetsheets at November 30, 2002 and 2001. The related loss is deferred instockholders'stockholders’ equity as accumulated other comprehensive loss (see Note 11). The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS No. 133. Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The Company believes that there will be no ineffectiveness related to the interest rate swaps and therefore no portion of the accumulated other comprehensive loss will be reclassified into future earnings. The net effect on theCompany'sCompany’s operating results is that interest on the variable rate debt being hedged is recorded based on fixed interest rates.The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and option contracts to protect the value of fixed rate locked loan commitments and loans held for sale
or dispositionfrom fluctuations in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. The effect of the implementation of SFAS No. 133 on the Financial ServicesDivision'sDivision’s operating earnings was not significant.35
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired and was previously amortized by the Company through fiscal 2001 on a straight-line basis over periods ranging from 15 to 20 years. At November 30,
20012002 and2000,2001, goodwill was$105.8$189.4 million and$110.4$105.8 million, respectively (net of accumulated amortization of $18.0 million at November 30, 2002 and$11.62001). During fiscal 2002, the Company’s goodwill increased $83.6 million due to acquisitions. Goodwill is included in other assets of the Homebuilding Division ($155.4 million and $80.6 million at November 30, 2002 and 2001, respectively). Inand the assets of the Financial Services Division ($34.0 million and $25.2 million at November 30, 2002 and 2001, respectively) in the consolidated balance sheets. Historically through fiscal 2001, in the event that facts and circumstances indicated that the carrying value of goodwill might be impaired, an evaluation of recoverabilityiswas performed. If an evaluation was required, the estimated future undiscounted cash flows associated with the goodwillwould bewas compared to the carrying amount to determine if a write-down to fair value based on discounted cash flows was required. No impairmentexistedwas recorded during the years ended November 30, 2002, 20012000or1999.2000.The Company adopted SFAS No. 142,Goodwill
is includedand Other Intangible Assets on December 1, 2001. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment inother 28assetsaccordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. No impairment charges were recognized from theHomebuilding Division ($80.6 million and $85.2 million atadoption of this statement. As of November 30, 2002 and 2001, there were no material identifiable intangible assets, other than goodwill. Net earnings and earnings per share for fiscal 2001 and 2000respectively) and the assetsadjusted to exclude goodwill amortization, net ofthe Financial Services Division ($25.2 million at both November 30, 2001 and 2000) in the consolidated balance sheets. Subsequent to the Company's adoption of SFAS No. 141 and SFAS No. 142, goodwill and its amortization will be accounted for in accordance with the standards they prescribe which will discontinue the Company's amortization of goodwill. See the New Accounting Pronouncements section of Note 1.taxes, is as follows:
Years Ended
November 30,
2001
2000
(In thousands, except per share amounts)
Net earnings:
Reported net earnings
$
417,845
229,137
Goodwill amortization, net of tax
6,148
5,037
Adjusted net earnings
$
423,993
234,174
Basic earnings per share:
Reported basic earnings per share
$
6.66
4.00
Goodwill amortization, net of tax
0.10
0.08
Adjusted basic earnings per share
$
6.76
4.08
Diluted earnings per share:
Reported diluted earnings per share
$
6.01
3.64
Goodwill amortization, net of tax
0.08
0.08
Adjusted diluted earnings per share
$
6.09
3.72
Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109,Accounting for Income
Taxes.Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.36
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Warranty Costs
Warranty reserves for homes are established in an amount estimated to be adequate to cover expected warranty-related costs for materials and outside labor to be incurred during the warranty period. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas.
Self-Insurance
Certain insurable risks such as 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 reported.
Stock-Based Compensation
The Company grants stock options to certain employees for fixed numbers of shares with, in each instance, an exercise price not less than the fair value of the shares at the date of the grant. The Company accounts for the stock option grants in accordance with Accounting Principles Board
("APB")(APB) Opinion No. 25,Accounting for Stock Issued to Employees. No compensation expense is recognized because all stock options granted have exercise prices not less than the market value of theCompany'sCompany’s stock on the date of the grant. The pro forma disclosures required by SFAS No. 123,Accounting for Stock-Based Compensation, are included in Note 12. Restricted stock grants are valued based on the market price of the common stock on the date of grant. Unearned compensation arising from the restricted stock grants is amortized to expense using the straight-line method over the period of the restrictions. Unearned restricted stock is shown as a reduction ofstockholders'stockholders’ equity in the consolidated balance sheets.Earnings per Share
Earnings per share is accounted for in accordance with SFAS No. 128,Earnings per Share, which requires a dual presentation of basic and diluted earnings per share on the face of the consolidated statement of earnings. Basic earnings per share is computed by dividing earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.
Financial Services
Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and delivered to an investor. Premiums from title insurance policies are recognized as revenue on the effective date of the policy. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.
Mortgage loans held for sale
or dispositionby the Financial Services Division that are designated as hedged assets are carried at market value, asdetermined on an aggregate basis.the effect of changes in fair value are reflected in the carrying amount of the loans and 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.When the Division sells loans
intoin the secondary market, a gain or loss is recognized to the extent that the sales proceeds exceed, or are less than, the book value of the loans. Loan origination fees, net of direct origination costs, are deferred and recognized as a component of the gain or loss when loans are sold. In prior years, theDivisionCompany retained servicing rights from some of the loans it originated and maintained a portfolio of mortgage servicing rights. During 2001, theDivisionCompany sold substantially all of its existing portfolio of mortgage servicing rights and realized a pretax profit of approximately $13 million from the sale of the servicing rights.Subsequent to the sale, the Division has sold the servicing rights together with the loans it originated.Prior to the sale of the mortgage servicing rights portfolio, the book value of each mortgage loan theDivisionCompany37
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
sold was allocated partly to the mortgage servicing right and partly to the loan (separately from the mortgage servicing right) based on their estimated relative fair values at the time the loan was sold and the servicing rights retained. The fair value of mortgage servicing rights was determined by discounting the estimated future cash flows using a discount rate commensurate with the risks involved. This method of valuation incorporated assumptions that market participants would use in their estimates of future servicing income and expense, including assumptions about prepayment, default and interest rates. Impairment, if any, was recognized through a valuation allowance and a charge to current operations. Mortgage servicing rights were amortized in proportion to, and over the period of, the estimated net servicing income of the underlying mortgages.
The book value and estimated fair 29value of mortgage servicing rights was $11.7 million and $13.4 million, respectively, at November 30, 2000. A valuation allowance related to mortgage servicing rights was not required at or for the year ended November 30, 2000.New Accounting Pronouncements
In
JuneOctober 2001, the Financial Accounting Standards Board("FASB")(FASB) issued SFAS No.141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method and requires acquired intangible assets to be recognized as assets apart from goodwill if certain criteria are met. The Company adopted SFAS No. 141 for all future acquisitions. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted SFAS No. 142 on December 1, 2001. Because of that, amortization of goodwill of approximately $6 million per year will not be incurred in the future. Management does not currently believe that the implementation of SFAS No. 142 will have a material impact on the Company's financial condition or results of operations. In October 2001, the FASB issued SFAS No.144,Accounting for the Impairment or Disposal of Long-LivedAssets.Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. SFAS No. 144 is effective for the Company in fiscal 2003. Management does notcurrentlybelieve that the implementation of SFAS No. 144 will have a material impact on theCompany'sCompany’s financial condition,orresults ofoperations.operations or cash flows.In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS No. 4,Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement amends SFAS No. 13,Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Management does not believe that the implementation of SFAS No. 145 will have a material impact on the Company’s financial condition, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based Compensation— Transition and Disclosure. SFAS No. 148 amends SFAS No. 123Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. Management does not believe that the implementation of SFAS No. 148 will have a material effect on the Company’s financial position, results of operations or cash flows.
In November 2002, the FASB issued Financial Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 clarifies and expands on existing disclosure requirements for guarantees, including product warranties. FIN No. 45 also requires recognition of a liability at fair value of a company’s obligations under certain guarantee contracts. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The initial recognition and measurement provisions of FIN No. 45 are applied only on a prospective basis to guarantees issued after December 31, 2002, irrespective of the guarantor’s fiscal year-end. Management does not believe that the implementation of FIN No. 45 will have a material impact on the Company’s financial condition, results of operations or cash flows.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 provides accounting guidance for consolidation of off-balance sheet entities with certain characteristics (variable interest entities). The consolidation requirements apply to variable interest entities created after January 31, 2003 and to variable interest entities in which the Company maintains an interest after August 31, 2003. The Company is in the process of evaluating all of its investments and other interests in entities that may be deemed variable
38
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
interest entities under the provisions of FIN No. 46. These include interests in unconsolidated partnerships with assets totaling approximately $1.4 billion at November 30, 2002 as discussed in Note 5. The Company’s maximum exposure to loss represents its recorded investment in these partnerships totaling $285.6 million. The Company believes that many of these interests and entities will not be consolidated, and may not ultimately fall under the provisions of FIN No. 46. The Company cannot make any definitive conclusion until it completes its evaluation.
Reclassification
Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the
20012002 presentation.2.
AcquisitionAcquisitionsDuring 2002, the Company acquired nine homebuilders, which expanded the Company’s operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened the Company’s positions in several of its existing markets. In connection with these acquisitions, total consideration, including debt of acquired companies, totaled approximately $600 million. The results of operations of the acquired homebuilders are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as their effect is not considered material. Total goodwill associated with these acquisitions was $74.7 million.
On May 3, 2000, the Company acquired U.S. Home Corporation
("(“U.S.Home"Home”) in a transaction in which U.S. Home stockholders received a total of approximately $243 million in cash and 13 million shares of theCompany'sCompany’s common stock with a value of approximately $267 million. The cash portion of the acquisition was funded primarily from theCompany's revolvingCompany’s credit facilities (see Note 7). U.S. Home is primarily a homebuilder and had operations in 13 states at the acquisition date.On an unaudited basis, U.S. Home had total revenues of $1.8 billion and net income of $72.4 million in 1999, and it delivered 9,246 homes (including unconsolidated partnerships) during that year.The acquisition was accounted for using the purchase method of accounting. In connection with the transaction, the Company acquired assets with a fair value of $1.7 billion, assumed liabilities with a fair value of $1.2 billion and recorded goodwill of $48 million. Through November 30, 2001, goodwill was being amortized on a straight-line basis over 20 years. The results of U.S. Home are included in theCompany'sCompany’s consolidated statements of earnings since the acquisition date. Revenues and net earnings on an unaudited pro forma basis would have been $5.5 billion and $260.4 million, respectively, for the year ended November 30,2000 and $4.9 billion and $233.2 million, respectively, for the year ended November 30, 1999, had the acquisition occurred on December 1, 1998.2000. Pro forma earnings per share would have been $3.81 per share diluted ($4.15 per share basic) for the year ended November 30,2000 and $3.07 per share diluted ($3.28 per share basic) for the year ended November 30, 1999.2000. The pro forma information gives effect to actual operating results prior to the acquisition, adjusted for the pro forma effect of interest expense, amortization of goodwill, and certain other adjustments, together with their related income tax effect. The pro forma information does not purport to be indicative of the results of operations which would have actually been reported had the acquisition occurred on December 1,1998. 301999. 3. Operating and Reporting Segments
In 1999, the Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which establishes new standards for the way that public enterprises report information about operating and reporting segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers.The Company has two operating and reporting segments: Homebuilding and Financial Services. The
Company'sCompany’s reportable segments are strategic business units that offer different products and services. The accounting policies of the segments are described in the summary of significant accounting policies in Note 1. Segment amounts include all elimination adjustments made in consolidation.39
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Homebuilding
Homebuilding operations include the sale and construction of single-family attached and detached
homes. These activities also includehomes, as well as the purchase, development and sale of residential landby the Companydirectly and through unconsolidatedpartnerships in which it has investments.partnerships. The following table sets forth financial information relating to the homebuilding operations:
Years Ended November 30, ------------------------------ 2001 2000 1999 ---------- --------- --------- (In thousands)Revenues: Sales of homes................................. $5,467,548 4,118,549 2,671,744 Sales of land and other revenues............... 109,348 258,145 157,981 Equity in earnings from unconsolidated partner- ships......................................... 27,051 13,340 19,482 ---------- --------- --------- Total revenues............................... 5,603,947 4,390,034 2,849,207 Costs and expenses: Cost of homes sold............................. 4,159,107 3,277,183 2,105,422 Cost of land and other expenses................ 86,010 220,948 130,432 Selling, general and administrative............ 573,204 411,107 272,550 ---------- --------- --------- Total costs and expenses..................... 4,818,321 3,909,238 2,508,404 ---------- --------- --------- Operating earnings............................. $ 785,626 480,796 340,803 ========== ========= ========= Depreciation and amortization.................. $ 38,733 33,858 29,505 ---------- --------- --------- Additions to operating properties and equip- ment.......................................... $ 8,173 5,779 2,283 ========== ========= =========
Years Ended November 30,
2002
2001
2000
(In thousands)
Revenues:
Sales of homes
$
6,581,703
5,467,548
4,118,549
Sales of land and other revenues
211,229
109,348
258,145
Equity in earnings from unconsolidated partnerships
42,651
27,051
13,340
Total revenues
6,835,583
5,603,947
4,390,034
Costs and expenses:
Cost of homes sold
4,982,726
4,159,107
3,277,183
Cost of land and other expenses
167,333
86,010
220,948
Selling, general and administrative
705,901
573,204
411,107
Total costs and expenses
5,855,960
4,818,321
3,909,238
Operating earnings
$
979,623
785,626
480,796
Depreciation and amortization
$
39,779
38,733
33,858
Additions to operating properties and equipment
$
4,466
8,173
5,779
Financial Services
The Financial Services Division provides mortgage financing, title insurance, closing services and
closinginsurance agency services for both buyers of theCompany's homebuyersCompany’s homes andothers. The Division resellsothers and sells theresidential mortgageloans it originates in the secondary mortgagemarket andmarket. The Division also provides high-speed Internet access, cable television, and alarm installation and monitoring services for both theCompany'sCompany’s homebuyers and other customers. The following table sets forth financial information relating to the financial services operations:
Years Ended November 30, ------------------------ 2001 2000 1999 -------- ------- ------- (In thousands)Revenues.............................................. $425,354 316,934 269,307 Costs and expenses.................................... 336,223 273,339 238,211 -------- ------- ------- Operating earnings.................................... $ 89,131 43,595 31,096 ======== ======= ======= Depreciation and amortization......................... $ 9,650 10,409 9,451 -------- ------- ------- Interest income, net.................................. $ 21,279 15,707 12,301 -------- ------- ------- Additions to operating properties and equipment....... $ 7,087 10,243 13,045 ======== ======= =======31
Years Ended November 30,
2002
2001
2000
(In thousands)
Revenues
$
484,219
425,354
316,934
Costs and expenses
356,608
336,223
273,339
Operating earnings
$
127,611
89,131
43,595
Depreciation and amortization
$
7,252
9,650
10,409
Interest income, net
$
28,000
21,279
15,707
Additions to operating properties and equipment
$
10,270
7,087
10,243
4. Receivables
November 30, ---------------- 2001 2000 -------- ------ (In thousands)Accounts receivable........................................... $ 20,076 32,327 Mortgages and notes receivable................................ 8,549 14,846 -------- ------ 28,625 47,173 Allowance for doubtful accounts............................... (4,280) (4,903) -------- ------ $ 24,345 42,270 ======== ======
November 30,
2002
2001
(In thousands)
Accounts receivable
$
43,931
20,076
Mortgages and notes receivable
6,912
8,549
50,843
28,625
Allowance for doubtful accounts
(2,411
)
(4,280
)
$
48,432
24,345
40
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Investments in Unconsolidated Partnerships
Summarized condensed financial information on a combined 100% basis related to
the Company's investments inunconsolidated partnerships and other similar entities (collectively the"Partnerships"“Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:
November 30, --------------------- 2001 2000 ----------- --------- (In thousands)Assets: Cash...................................................... $ 37,782 35,504 Land under development.................................... 1,203,089 962,835 Other assets.............................................. 161,598 145,866 ----------- --------- $ 1,402,469 1,144,205 =========== ========= Liabilities and equity: Accounts payable and other liabilities.................... $ 149,691 122,597 Notes and mortgages payable............................... 627,383 471,742 Equity of: The Company.............................................. 300,064 257,639 Others................................................... 325,331 292,227 ----------- --------- $ 1,402,469 1,144,205 =========== =========
Years Ended November 30, ------------------------ 2001 2000 1999 -------- ------- ------- (In thousands)Revenues............................................... $903,293 361,684 283,979 Costs and expenses..................................... 761,704 295,224 219,100 -------- ------- ------- Net earnings of unconsolidated partnerships............ $141,589 66,460 64,879 -------- ------- ------- Company share of net earnings.......................... $ 27,051 13,340 19,482 ======== ======= =======
November 30,
2002
2001
(In thousands)
Assets:
Cash
$
47,502
37,782
Inventories
1,170,782
1,203,089
Other assets
136,579
161,598
$
1,354,863
1,402,469
Liabilities and equity:
Accounts payable and other liabilities
$
177,673
149,691
Notes and mortgages payable
563,563
627,383
Equity of:
The Company
285,594
300,064
Others
328,033
325,331
$
1,354,863
1,402,469
Years Ended November 30,
2002
2001
2000
(In thousands)
Revenues
$
939,847
903,293
361,684
Costs and expenses
780,093
761,704
295,224
Net earnings of unconsolidated partnerships
$
159,754
141,589
66,460
Company share of net earnings
$
42,651
27,051
13,340
At November 30,
2001,2002, theCompany'sCompany’s equity interest ineach ofthese Partnerships ranged from 10% to 50%. TheCompany'sCompany’s partners generally arethird partyunrelated homebuilders, land sellersseeking a share of the profits from development of the landor other real estateprofessionals who do not have the capital and/or expertise to develop properties by themselves.professionals. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnershipsand, whengenerally in accordance with its ownership interest. In many instances, the Company is appointed as the day-to-day manager of the Partnerships and receives fees forthe management of the assets.performing this function. During 2002, 20012000and1999,2000, the Company received management fees and reimbursement of expenses from the Partnerships totaling $29.2 million, $26.1 million and $9.7 million,and $6.2 million,respectively.TheIn determining its share of the Partnerships’ net earnings, the Company does not include in its incometheits pro rataPartnershipshare of partnership earnings resulting from land sales to its homebuilding divisions. Instead, theCompany. These amounts are recordedCompany accounts for those earnings as a reduction of the cost of purchasing the land from thePartnerships which increases profits whenpartnerships. This in effect defers recognition of the Company’s share of the partnership earnings relating to these sales until a home is delivered and title passes to athird partyhomebuyer.32The Company
mayand/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value whenthe Company receives the options.options are purchased. During 2002, 2001 and 2000,and 1999,$419.3 million, $232.6 million$134.6 million,and$111.3$134.6 million, respectively, of thePartnerships'Partnerships’ revenues were from land sales to the Company. In some instances, the Company and/or its partners have provided varying levels of guarantees on certainpartnershipPartnership debt. At November 30,2001,2002, the Companyprovidedhad recourse guaranteeson $338.7of $50.3 million and limited maintenance guarantees of $162.2 million of Partnership debt. When the Company provides guarantees, the Partnerships generally receive more favorable terms from its lenders. The limited maintenance guarantees41
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership
debt,and increase the Company’s share ofwhich $151.0 million were limited maintenance guarantees.any funds it distributes.At the time of the 1997 transfer of the
Company'sCompany’s commercial real estate investment business to LNR Property Corporation("LNR"(“LNR”), and the spin-off of LNR to theCompany'sCompany’s stockholders, the Companyand LNRformed Lennar Land Partners, a 50%-50% owned unconsolidated partnership with LNR, which is included in theabove discussion of Partnerships.Partnerships discussed above. At November 30,2001,2002, the Company also had several other unconsolidated partnerships with LNR. In 2002, 20012000and1999,2000, the Company purchased land from Lennar Land Partners for a total of $83.0 million, $104.2 million and $112.3 million,and $109.3 million, respectively. The Company believes the amounts it paid for land purchased from Lennar Land Partners approximates the amounts it would have paid to independent third parties for similar properties.respectively, which approximated fair value.6. Operating Properties and Equipment
November 30, ----------------- 2001 2000 -------- ------- (In thousands)Furniture, fixtures and equipment............................ $ 45,267 47,043 Community recreational facilities............................ 8,774 2,098 -------- ------- 54,041 49,141 Accumulated depreciation..................................... (36,097) (30,556) -------- ------- $ 17,944 18,585 ======== =======
November 30,
2002
2001
(In thousands)
Furniture, fixtures and equipment
$
43,492
39,577
Community recreational facilities
8,077
8,774
Leasehold improvements
7,510
5,690
59,079
54,041
Accumulated depreciation and amortization
(41,919
)
(36,097
)
$
17,160
17,944
Operating properties and equipment are included in other assets in the consolidated balance sheets.
7. Senior Notes and Other Debts Payable
November 30, --------------------- 2001 2000 ----------- --------- (In thousands)3 7/8% zero-coupon se- nior convertible deben- tures due 2018............... $ 256,877 247,205 5.125% zero-coupon con- vertible senior subor- dinated notes due 2021............... 235,894 -- 7 5/8% senior notes due 2009................... 271,493 270,480 9.95% senior notes due 2010................... 301,346 300,017 Term loan B due 2007.... 395,000 399,000 U.S. Home senior notes due through 2009....... 9,446 12,913 Mortgage notes on land with fixed interest rates from 5.4% to 10.0% due through 2009........... 35,199 25,035 ----------- --------- $ 1,505,255 1,254,650 =========== =========
November 30,
2002
2001
(In thousands)
3 7/8% zero-coupon senior convertible debentures due 2018
$
266,917
256,877
5.125% zero-coupon convertible senior subordinated notes due 2021
248,138
235,894
7 5/8% senior notes due 2009
272,591
271,493
9.95% senior notes due 2010
300,175
301,346
Term Loan B due 2007
391,000
395,000
U.S. Home senior notes due through 2009
9,366
9,446
The Fortress Group, Inc. senior notes due 2003
12,575
—
Mortgage notes on land
84,547
35,199
$
1,585,309
1,505,255
In May
2000,2002, the Companyentered into new financing arrangements related to the acquisition of U.S. Home, for working capitalamended andfor future growth. The financings includerestated its senior secured credit facilitieswith a group of financial institutions which(the “Credit Facilities”), to provide the Company with up to$1.4$1.3 billion of financing. Thecredit facilitiesCredit Facilities consist of a$715$653 millionfive-yearrevolving credit facility maturing in April 2006, a$300$273 million 364-day revolving credit facility maturing in April 2003 and a$400$393 million term loan B(collectively the "Facilities").maturing in May 2007. The Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature inMay 2005.April 2006. The Credit Facilities are collateralized by theoutstanding commonstock of certain of theCompany's subsidiaries. Certain Financial Services DivisionCompany’s subsidiaries and areco-borrowers underalso guaranteed on a joint and several basis by substantially all of theFacilities.Company’s subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. At November 30,2001, no borrowings were allocated to this Division. At November 30, 2001, $3952002, $391.0 million was outstanding under the term loan B andno amounts werezero was outstanding under the revolving credit facilities.The weighted average interest rate 33Interest rates are LIBOR-based and the margins are set by a pricing grid with thresholds that adjust based on changes in the Company’s leverage ratio and the Credit Facilities’ credit rating. At November 30, 2002, the Company had letters of credit outstanding in the amount of $463.9 million, of which $310.6 million were collateralized against certain borrowings available under the Credit Facilities. 42
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As a result of the
Facilities atacquisition of The Fortress Group, Inc. (“Fortress”) in 2002, the Company assumed Fortress’s publicly held notes totaling $33.8 million. Subsequent to the acquisition, the Company repurchased approximately $21.2 million of the notes. At November 30,20012002, the carrying value of outstanding notes was5.7%. The Company utilizes interest rate swap agreements to manage interest costs and hedge against risks associated with changing interest rates.$12.6 million.In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, zero-coupon convertible senior subordinated notes due 2021
("Notes"(“Notes”) with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. The Notes are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital. The Notes are convertible into theCompany'sCompany’s common stock at any time, if the sale price of theCompany'sCompany’s common stock exceeds certain thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity, or a total of approximately 4 million shares. The conversion ratio equates to an initial conversion price of $56.93 per share (when theCompany'sCompany’s stock price was $43.13 per share). These shareswillwould be included in the calculation of theCompany'sCompany’s diluted earnings per share for a quarter if the average closing price of theCompany'sCompany’s common stock over the last twenty trading days of the quarter exceeds 110% of the accreted conversion price. These shares were not included in the calculation of diluted earnings per share for the years ended November 30, 2002 and 2001 because the average closing price of the Company’s common stock over the last twenty trading days of each quarterexceedsof each of those years did not exceed 110% ($68.09 per share at November 30, 2002) of the accreted conversion price.This calculation equated to $64.79 per share at November 30, 2001.Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversaries of the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of theCompany'sCompany’s common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. At November 30,2001,2002, the carrying value of outstanding Notes, net of unamortized original issue discount, was$235.9$248.1 million.As a result of the U.S. Home acquisition, holders of U.S.
Home's publicly- heldHome’s publicly-held notes totaling $525 million were entitled to require U.S. Home to repurchase the notes for 101% of their principal amount within 90 days after the transaction was completed. Independent of that requirement, in April 2000, the Company made a tender offer for all of the notes and a solicitation of consents to modify provisions of the indentures relating to the notes. As a result of the tender offer and required repurchases after the acquisition, the Company paid approximately $520 million,in 2000,which includes tender and consent fees, for $508 million of U.S.Home'sHome’s notes. At November 30, 2002, the carrying value of U.S. Home’s notes was $9.4 million.In May 2000, the Company issued $325 million of 9.95% senior notes due 2010 at a price of 92.313% to finance a portion of the purchase price of U.S.
Home'sHome’s publicly-held notes that were tendered in response to theCompany'sCompany’s offer and consent solicitation in April 2000, and to pay associated costs and expenses. The senior notes are callable in 2005 at a price of $104.975. The senior notes are guaranteed on a joint and several basis by substantially all of theCompany'sCompany’s subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. Proceeds from the offering, after underwriting discount and expenses, were approximately $295 million. At November 30,2001,2002, the carrying value of the senior notes was$301.3$300.2 million.In February 1999, the Company issued $282 million of 7
5/8%5/8% senior notes. The senior notes are due in 2009 and were issued for the purpose of reducing amounts outstanding under revolving credit facilities and redeeming outstanding 103/4%3/4% senior notes. Proceeds from the offering, after underwriting and market discounts, expenses and settlement of a related interest rate hedge agreement, were approximately $266 million. The senior notes are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. The senior notes are collateralized by the stock of certain of theCompany'sCompany’s subsidiaries.In March 1999, the Company redeemed all of the outstanding 10 3/4% senior notes due 2004 of one of its subsidiaries, Greystone Homes, Inc., at a price of 105.375% of the principal amount outstanding plus accrued interest. Cash paid to redeem the notes was $132 million, which approximated their carrying value.At November 30,2001,2002, the carrying value of the 75/8%5/8% senior notes was$271.5$272.6 million.43
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In July 1998, the Company issued, for $229 million, zero-coupon senior convertible debentures due 2018 (the
"Debentures"“Debentures”) with a face amount at maturity of $493 million. The Debentures have an effective interest rate of 37/8%7/8%. The Debentures are convertible at any time into theCompany'sCompany’s common stock at the rate of 12.3768 shares per $1,000 face amount at maturity. If the Debentures are converted during the first five years, the Company may elect to pay cash equal to the fair value of the common stock at the time of the conversion. Holders have the option to require the Company to repurchase the Debentures on any of the fifth, tenth, or fifteenth anniversaries of the issue date for the initial issue price plus accrued original issue discount. At the fifth anniversary in July 2003, this amount is $562.31 per bond on an accreted conversion price per share of $45.43. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of theCompany's 34Company’s common stock. The Company will have the option to redeem the Debentures, in cash, at any time after the fifth anniversary for the initial issue price plus accrued original issue discount. The Debentures are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. The Debentures are collateralized by the stock of certain of the Company'sCompany’s subsidiaries. At November 30,2001,2002, the carrying value of outstanding Debentures, net of unamortized original issue discount, was$256.9$266.9 million.At November 30, 2002, the Company had mortgage notes on land bearing interest at fixed interest rates ranging from 1.7% to 30.0% with an average rate of 10.9%. The notes are due through 2009 and are collateralized by land. At November 30, 2002, the carrying value of the mortgage notes was $84.5 million.
The minimum aggregate principal maturities of senior notes and other debts payable during the five years subsequent to November 30,
20012002 are as follows:2002--2003-$17.764.1 million;2003--2004-$7.319.7 million;2004--2005-$22.914.6 million;2005--2006-$6.317.5 million and2006--2007-$4.0379.8 million. The remaining principal obligations are due subsequent to November 30,2006.2007. TheCompany'sCompany’s debt arrangements contain certain financial covenants with which the Company was in compliance at November 30,2001.2002.8. Financial Services
The assets and liabilities related to the
Company'sCompany’s financial services operations were as follows:
November 30, ----------------- 2001 2000 --------- ------- (In thousands)Assets: Cash and receivables, net..................................... $ 161,060 79,025 Mortgage loans held for sale or disposition, net.............. 587,694 376,452 Mortgage loans, net........................................... 41,590 42,504 Mortgage servicing rights, net................................ -- 11,653 Operating properties and equipment, net....................... 18,592 18,869 Title plants.................................................. 15,530 15,530 Goodwill, net................................................. 25,158 25,199 Other......................................................... 32,760 21,874 Limited-purpose finance subsidiaries.......................... 13,146 19,894 --------- ------- $ 895,530 611,000 ========= ======= Liabilities: Notes and other debts payable................................. $ 693,931 428,966 Other......................................................... 87,106 67,586 Limited-purpose finance subsidiaries.......................... 13,146 19,894 --------- ------- $ 794,183 516,446 ========= =======
November 30,
2002
2001
(In thousands)
Assets:
Cash and receivables, net
$
239,893
161,060
Mortgage loans held for sale, net
708,304
587,694
Mortgage loans, net
30,341
41,590
Title plants
15,586
15,530
Goodwill, net
34,002
25,158
Other
57,801
51,352
Limited-purpose finance subsidiaries
9,202
13,146
$
1,095,129
895,530
Liabilities:
Notes and other debts payable
$
853,416
693,931
Other
108,770
87,106
Limited-purpose finance subsidiaries
9,202
13,146
$
971,388
794,183
At November 30,
2001,2002, the Financial Services Division had a $500 million warehouse line of credit which included a $145 million 30-day increase which expired in December20012002 to fund theDivision'sDivision’s mortgage loan activities. Borrowings under this facility were$483.2$489.7 million and$339.4$483.2 million at November 30,20012002 and2000,2001, respectively, and were collateralizedprimarilyby mortgage loans and receivables on loans sold not yet funded with44
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
outstanding principal balances of $523.8 million and $518.8 million,
and $297.2 million, respectively, and in 2000, by servicing rights relating to approximately $1.8 billion of loans.respectively. There are several interest rate pricing options which fluctuate with market rates. Theborrowing rate has been reduced to the extent that custodial escrow balances exceeded required compensating balance levels. Theeffective interest rate on this facility at November 30, 2002 and 2001 was 2.3% and2000 was3.1%and 6.4%, respectively. The warehouse line of credit matures inJune 2003,October 2004, at which time theCompanyDivision expects the facility to be renewed. At November 30,20012002 and2000,2001, the Division had advances under a conduit fundingagreementsagreement withcertaina major financialinstitutionsinstitution amounting to$190.6$343.7 million and$58.8$190.6 million, respectively. Borrowings underthese agreementsthis agreement are collateralized by mortgage loans and had an effective interest rate of3.0%2.3% and7.5%3.0% at November 30,20012002 and2000,2001, respectively. The Division also had a $20 million revolving line of credit with a bank, collateralized by certain assets of the Division and stock of certain titleinsurancesubsidiaries. Borrowings under the line of credit were$20$20.0 million at both November 30,20012002 and20002001 and had an effective interest rate of3.1%2.4% and7.8%3.1% at November 30, 2002 and 2001,and 2000,respectively.The limited-purpose finance subsidiaries of the Financial Services Division have placed mortgages and other receivables as collateral for various
long- termlong-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral, which includes a combination of mortgage notes, mortgage-backed securities and funds held by a trustee. At November 30,20012002 and2000,2001, the balances outstanding for the bonds and notes payable were35$13.1$9.2 million and$19.9$13.1 million, respectively. The borrowings mature in years 2013 through 2018 and carry interest rates ranging from8.6%8.5% to11.6%11.7%. The annual principal repayments are dependent upon collections on the underlying mortgages, including prepayments, and cannot be reasonably determined.The minimum aggregate principal maturities of the
Company'sFinancial ServicesDivision'sDivision’s notes and other debts payable (including limited-purpose finance subsidiaries) during the five years subsequent to November 30,20012002 are as follows:2002--2003-$343.5688.4 million and2003--2004-$350.4165.0 million. The remaining principal obligations are due subsequent to November 30, 2007.9. Income Taxes
The provision (benefit) for income taxes consisted of the following:
Years Ended November 30, -------------------------- 2001 2000 1999 --------- ------- ------- (In thousands)Current: Federal.............................................. $ 220,124 146,666 71,091 State................................................ 31,685 17,055 13,547 --------- ------- ------- 251,809 163,721 84,638 --------- ------- ------- Deferred: Federal.............................................. 9,281 (15,672) 24,422 State................................................ 488 (1,551) 3,703 --------- ------- ------- 9,769 (17,223) 28,125 --------- ------- ------- $ 261,578 146,498 112,763 ========= ======= =======
Years Ended November 30,
2002
2001
2000
(In thousands)
Current:
Federal
$
295,052
220,124
146,666
State
41,200
31,685
17,055
336,252
251,809
163,721
Deferred:
Federal
(5,036
)
9,281
(15,672
)
State
(636
)
488
(1,551
)
(5,672
)
9,769
(17,223
)
$
330,580
261,578
146,498
45
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 asset are as follows:
November 30, ----------------- 2001 2000 -------- ------- (In thousands)Deferred tax assets: Acquisition adjustments.................................... $ 41,202 75,997 Reserves and accruals...................................... 104,758 74,972 Net operating loss and capital loss carryforwards, tax af- fected.................................................... 4,466 4,466 Investments in unconsolidated partnerships................. 5,414 3,386 Deferred gains............................................. -- 1,900 Other...................................................... 6,555 7,412 -------- ------- Deferred tax assets........................................ 162,395 168,133 Less: valuation allowance.................................. (7,117) (7,117) -------- ------- Total deferred tax assets, net............................. 155,278 161,016 -------- ------- Deferred tax liabilities: Capitalized expenses....................................... 4,273 14,922 Deferred gains............................................. 115 -- Installment sales.......................................... 1,506 2,281 Section 461 deductions and other........................... 47,701 32,361 -------- ------- Total deferred tax liabilities............................. 53,595 49,564 -------- ------- Net deferred tax asset..................................... $101,683 111,452 ======== =======
November 30,
2002
2001
(In thousands)
Deferred tax assets:
Acquisition adjustments
$
22,875
41,202
Reserves and accruals
104,014
104,758
Net operating loss and capital loss carryforwards, tax affected
4,379
4,466
Investments in unconsolidated partnerships
17,466
5,414
Other
22,363
6,555
Deferred tax assets
171,097
162,395
Less: valuation allowance
(6,978
)
(7,117
)
Total deferred tax assets, net
164,119
155,278
Deferred tax liabilities:
Capitalized expenses
3,069
4,273
Deferred gains
—
115
Installment sales
698
1,506
Section 461 deductions and other
38,178
47,701
Total deferred tax liabilities
41,945
53,595
Net deferred tax asset
$
122,174
101,683
The Homebuilding
Division'sDivision’s net deferred tax asset amounting to$90.4$114.4 million and$110.0$90.4 million at November 30,20012002 and2000,2001, respectively, is included in other assets in the consolidated balance sheets.At November 30,
20012002 and2000,2001, the Financial Services Division had a net deferred tax asset of $7.8 million and $11.3 million,and $1.5 million, respectively. 36respectively, which is included in the assets of the Financial Services Division. SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax asset will not be realized. At November 30,
20012002 and2000,2001, the Company had a valuation allowance of $7.0 million and $7.1 million, respectively, for net operating loss and capital loss carryforwards and certain acquisition adjustments which currently are not expected to be realized. Based onmanagement'smanagement’s assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings.A reconciliation of the statutory rate and the effective tax rate follows:
Percentage of Pre-tax Income -------------- 2001 2000 1999 ---- ---- ----Statutory rate................................................... 35.0 35.0 35.0 State income taxes, net of federal income tax benefit............ 3.1 3.4 3.9 Other............................................................ 0.4 0.6 0.6 ---- ---- ---- Effective rate................................................... 38.5 39.0 39.5 ==== ==== ====10.Earnings
Percentage of
Pre-tax Income
2002
2001
2000
Statutory rate
35.00
35.00
35.00
State income taxes, net of federal income tax benefit
2.75
3.10
3.40
Other
—
0.40
0.60
Effective rate
37.75
38.50
39.00
46
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10. Earnings Per Share
Basic and diluted earnings per share for the years ended November 30, 2002, 2001
2000and19992000 were calculated as follows:
2001 2000 1999 -------- ------- ------- (In thousands, except per share amounts)Numerator: Numerator for basic earnings per share--net earnings.. $417,845 229,137 172,714 Interest on zero-coupon senior convertible debentures due 2018, net of tax................................. 6,094 5,808 5,538 -------- ------- ------- Numerator for diluted earnings per share.............. $423,939 234,945 178,252 ======== ======= ======= Denominator: Denominator for basic earnings per share--weighted av- erage shares......................................... 62,737 57,341 58,246 Effect of dilutive securities: Employee stock options and restricted stock.......... 1,737 1,053 684 Zero-coupon senior convertible debentures due 2018... 6,105 6,105 6,105 -------- ------- ------- Denominator for diluted earnings per share--adjusted weighted average shares and assumed conversions...... 70,579 64,499 65,035 ======== ======= ======= Basic earnings per share.............................. $ 6.66 4.00 2.97 ======== ======= ======= Diluted earnings per share............................ $ 6.01 3.64 2.74 ======== ======= =======11.Comprehensive
2002
2001
2000
(In thousands, except per share amounts)
Numerator:
Numerator for basic earnings per share—net earnings
$
545,129
417,845
229,137
Interest on zero-coupon senior convertible debentures due 2018, net of tax
6,418
6,094
5,808
Numerator for diluted earnings per share
$
551,547
423,939
234,945
Denominator:
Denominator for basic earnings per share—weighted average shares
63,786
62,737
57,341
Effect of dilutive securities:
Employee stock options and restricted stock
1,535
1,737
1,053
Zero-coupon senior convertible debentures due 2018
6,105
6,105
6,105
Denominator for diluted earnings per share—adjusted weighted average shares and assumed conversions
71,426
70,579
64,499
Basic earnings per share
$
8.55
6.66
4.00
Diluted earnings per share
$
7.72
6.01
3.64
In the second quarter of 2001, the Company issued zero-coupon convertible senior subordinated notes due 2021. The Notes are convertible at any time into the Company’s common stock if the sale price of the Company’s common stock exceeds certain thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity, which would total approximately 4 million shares. These shares were not included in the calculation of diluted earnings per share for the years ended November 30, 2002 and 2001 because the average closing price of the Company’s common stock over the last twenty trading days of each quarter of each of those years did not exceed 110% ($68.09 per share at November 30, 2002) of the accreted conversion price.
11. Comprehensive Income
Comprehensive income represents changes in stockholders’ equity from non-owner sources. For the years ended November 30, 2002 and 2001, the change in the fair value of interest rate swaps was the only adjustment to the Company’s net earnings in deriving comprehensive income. In accordance with the transition provisions of SFAS No. 133, on December 1, 2000, the Company recorded a cumulative-effect type adjustment of $3.5 million (net of tax benefit of $2.2 million) in accounts payable and other liabilities and accumulated other comprehensive loss to recognize the fair value of interest rate swaps. Subsequent to the
Company'sCompany’s adoption of SFAS No. 133 through November 30, 2001, the liability and accumulated other comprehensive loss increased $15.8 million (net of tax benefit of $9.9 million) to $19.3 million. For the year ended November 30, 2002, the liability and accumulated other comprehensive loss increased $5.2 million (net of tax benefit of $2.7 million) to $24.4 million. Comprehensive income was $540.0 million, $398.6 million$229.1 millionand$172.7$229.1 million for the years ended November 30, 2002, 2001 and 2000,and 1999,respectively.12.Capital12. Capital Stock
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,
2001. 372002. 47
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Common Stock
The Company has two classes of common stock consisting of common stock and Class B common stock. The common stockholders have one vote for each share owned in matters requiring stockholder approval and during both
20012002 and20002001 received quarterly dividends of $0.0125 per share. The Class B common stockholders have ten votes for each share of stock owned and during both20012002 and20002001 received quarterly dividends of $0.01125 per share. As of November 30,2001,2002, Mr.LeonardStuart Miller,Chairman oftheBoard of the Company,Company’s President and Chief Executive Officer, owned or controlled9.7as the director and officer of a family-owned corporation, approximately 10.0 million shares of common stock and Class B common stock, which represented approximately 64% voting control of the Company.In June 2001, the
Company'sCompany’s Board of Directors increased theCompany'sCompany’s previously authorized stock repurchase program to permit future purchases of up to 10 million shares of theCompany's outstandingCompany’s common stock. The Company may repurchase these shares in the open market from time-to-time. During 2002 and 2001, the Company did not repurchase any of its outstanding commonstock. During 2000 and 1999,stock in the open market under these authorizations. As of November 30, 2002, in prior years under prior approvals, the Company had repurchased approximately9,406,000 and 442,0009.8 million shares of its outstanding common stock for an aggregate purchase price of approximately$152.9$158.9 million, or $16 per share. During 2002, the Company’s treasury stock increased by approximately 1,000 shares related to employee stock plans and$6.0 million, respectively. Theshare reacquisitions at the time of vesting of restricted stock.At November 30, 2002, the Company
hashad shelf registration statements under the Securities Act of 1933, as amended, relating to up to $970 million of equity or debt securities which it may sell for cash and up to $400 million of equity or debt securities which it may issue in connection with acquisitions of companies or interests in them, businesses, or assets. At November 30,2001,2002, no securities had been issued under these registration statements.Restrictions on Payment of Dividends
Other than as required to maintain the financial ratios and net worth required by the revolving credit facilities, there are no restrictions on the payment of dividends on common stock by the Company. The cash dividends per share paid with regard to a share of Class B common stock in a calendar year may not be more than 90% of the per share cash dividends paid with regard to a share of common stock in that calendar year. There are no agreements which restrict the payment of dividends by subsidiaries of the Company other than as required to maintain the financial ratios and net worth requirements under the Financial Services
Division'sDivision’s warehouse lines of credit.Stock Option Plans
The Lennar Corporation 2000 Stock Option and Restricted Stock Plan (the
"2000 Plan"“2000 Plan”) provides for the granting of stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights are not less than the market value of the common stock on the date of the grant. No options granted under the 2000 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option and stock appreciation right will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant. At November 30,2001, 835,0002002, 740,500 shares of restricted stock were outstanding under the2000Plan. The stock was valued based on its market price on the date of the grant. The grants vest over 5years.years from the date of issuance. Unearned compensation arising from the restricted stock grants is amortized to expense over the period of the restrictions and is shown as a reduction ofstockholders'stockholders’ equity in the consolidated balance sheets.The Lennar Corporation 1997 Stock Option Plan (the
"1997 Plan"“1997 Plan”) provided for the granting of stock options and stock appreciation rights to key employees of the Company to purchase shares at prices not less than market value of the common stock on the date of the grant. No options granted under the 1997 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option and stock appreciation right granted will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant.48
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Lennar Corporation 1991 Stock Option Plan (the
"1991 Plan"“1991 Plan”) provided for the granting of options to certain key employees of the Company to purchase shares at prices not less than market value of the common stock on the date of the grant. No options granted under the 1991 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option granted will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant.38A summary of the
Company'sCompany’s stock option activity for the years ended November 30, 2002, 2001 and 2000and 1999 wasis as follows:
2001 2000 1999 -------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Stock Exercise Stock Exercise Stock Exercise Options Price Options Price Options Price ---------- -------- --------- -------- --------- --------Outstanding, beginning of year................ 3,478,683 $16.68 3,445,230 $16.20 3,679,256 $15.52 Grants.................. 791,600 $37.47 671,000 $17.68 211,000 $23.95 Terminations............ (101,389) $29.33 (256,652) $19.43 (235,108) $19.83 Exercises............... (1,303,138) $14.14 (380,895) $11.74 (209,918) $10.05 ---------- ------ --------- ------ --------- ------ Outstanding, end of year................... 2,865,756 $23.13 3,478,683 $16.68 3,445,230 $16.20 ---------- ------ --------- ------ --------- ------ Exercisable, end of year................... 748,812 $15.60 1,422,734 $14.14 1,299,743 $11.87 ---------- ------ --------- ------ --------- ------ Available for grant, end of year................ 2,216,500 3,890,822 1,310,072 ---------- --------- --------- Weighted average fair value per share of options granted during the year under SFAS No. 123 ................... $18.41 $ 7.84 $ 9.40
2002
2001
2000
Stock Options
Weighted Average Exercise Price
Stock Options
Weighted Average Exercise Price
Stock Options
Weighted Average Exercise Price
Outstanding, beginning of year
2,865,756
$
23.13
3,478,683
$
16.68
3,445,230
$
16.20
Grants
550,000
$
52.73
791,600
$
37.47
671,000
$
17.68
Terminations
(62,012
)
$
32.02
(101,389
)
$
29.33
(256,652
)
$
19.43
Exercises
(940,070
)
$
17.19
(1,303,138
)
$
14.14
(380,895
)
$
11.74
Outstanding, end of year
2,413,674
$
31.96
2,865,756
$
23.13
3,478,683
$
16.68
Exercisable, end of year
468,037
$
25.57
748,812
$
15.60
1,422,734
$
14.14
Available for grant, end of year
1,697,300
2,216,500
3,890,822
Weighted average fair value per share of options granted during the year under SFAS No. 123
$
23.43
$
18.41
$
7.84
The following table summarizes information about stock options outstanding at November 30,
2001:2002:
Options Outstanding Options Exercisable ----------------------------------------- ----------------------------- Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Per Outstanding at Average Per Range of Per Share November 30, Contractual Share November 30, Share Exercise Prices 2001 Life Exercise Price 2001 Exercise Price - ------------------ -------------- ----------- -------------- -------------- --------------$ 4.56 - $11.42 417,756 1.9 years $ 9.14 322,478 $ 9.91 $13.95 - $19.59 1,038,700 5.6 years $16.60 289,534 $15.94 $20.35 - $28.32 464,550 5.0 years $21.04 60,550 $21.03 $32.84 - $41.85 944,750 8.2 years $36.91 76,250 $34.03
Options Outstanding
Options Exercisable
Range of Per Share
Exercise Prices
Number Outstanding at November 30, 2002
Weighted Average Remaining Contractual Life
Weighted Average Per Share
Exercise Price
Number Outstanding at November 30, 2002
Weighted
Average Per Share
Exercise Price
$ 8.03-$11.42
72,874
2.4 years
$ 9.85
27,810
$10.50
$13.95-$19.59
727,379
5.1 years
$16.66
199,796
$16.46
$20.35-$28.32
270,050
4.1 years
$22.12
53,000
$21.67
$32.84-$41.85
803,371
7.8 years
$37.18
187,431
$38.62
$46.41-$57.90
540,000
9.2 years
$52.73
—
$ —
The Company applies APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. No compensation expense is recognized because all stock options granted have exercise prices not less than the market value of the
Company'sCompany’s stock on the date of grant. SFAS No. 123 requires"as adjusted"“as adjusted” information regarding net earnings and earnings per share to be disclosed for new options granted. The Company determined this information using the fair value method of that statement. The fair value of these options was determined at the date of the grant using the Black-Scholes option-pricing model. The significant weighted average assumptions for the years ended November 30, 2002, 20012000and19992000 were as follows:
2001 2000 1999 ----------- ----------- -----------Dividend yield.............................. 0.1% 0.2% - 0.3% 0.2% - 0.3% Volatility rate............................. 40% - 42% 39% - 44% 40% - 42% Risk-free interest rate..................... 4.5% - 5.8% 7.1% - 7.5% 4.8% - 6.1% Expected option life (years)................ 6.4 3.9 - 7.7 3.9 - 7.7
2002
2001
2000
Dividend yield
0.1%
0.1%
0.2%-0.3%
Volatility rate
42%-47%
40%-42%
39%-44%
Risk-free interest rate
3.2%-5.1%
4.5%-5.8%
7.1%-7.5%
Expected option life (years)
2.0-5.0
6.4
3.9-7.7
49
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The estimated fair value of the options is recognized in expense over the
options'options’ vesting period for"as adjusted"“as adjusted” disclosures. The earnings per share"as adjusted"“as adjusted” for the effects of SFAS No. 123 is not indicative of the effects on reported net earnings for future years. TheCompany'sCompany’s reported"as adjusted"“as adjusted” information for the years ended November 30, 2002, 20012000and19992000 was as follows:39
2001 2000 1999 -------- ------- ------- (In thousands, except per share amounts)Net earnings........................................... $417,845 229,137 172,714 Net earnings "as adjusted"............................. $414,049 226,568 170,620 Earnings per share as reported-- basic................. $ 6.66 4.00 2.97 Earnings per share "as adjusted"--basic................ $ 6.60 3.95 2.93 Earnings per share as reported--diluted................ $ 6.01 3.64 2.74 Earnings per share "as adjusted"--diluted.............. $ 5.95 3.60 2.71
2002
2001
2000
(In thousands, except per share amounts)
Net earnings as reported
$
545,129
417,845
229,137
Net earnings “as adjusted”
$
540,508
414,049
226,568
Earnings per share as reported—basic
$
8.55
6.66
4.00
Earnings per share “as adjusted”—basic
$
8.47
6.60
3.95
Earnings per share as reported—diluted
$
7.72
6.01
3.64
Earnings per share “as adjusted”—diluted
$
7.66
5.95
3.60
Employee Stock Ownership/401(k) Plan
Prior to 1998, the Employee Stock Ownership/401(k) Plan (the
"Plan"“Plan”) provided shares of stock to employees who had completed one year of continuous service with the Company. During 1998, the Plan was amended to exclude any new shares from being provided to employees. At November 30,2001,2002, the Plan held inemployees'employees’ accounts146,325122,582 shares of theCompany'sCompany’s common stock. All prior year contributions to employees actively employed on or after October 1, 1998 vest at a rate of 20% per year over a five year period. All active participants in the Plan whose employment terminated prior to October 1, 1998 vested based upon the Plan that was active prior to their termination of employment. Under the 401(k) portion of the Plan, contributions made by employees can be invested in a variety of mutual fundsandor proprietary funds provided by the Plan trustee. The Company may also make contributions for the benefit of employees. The Company records as compensation expense an amount which approximates the vesting of the contributions to the Employee Stock Ownership portion of the Plan, as well as theCompany'sCompany’s contribution to the 401(k) portion of the Plan. This amount was $7.0 million in 2002, $6.5 million in 2001 and $4.7 million in20002000.13. Deferred Compensation Plan
In June 2002, the Company adopted the Lennar Corporation Nonqualified Deferred Compensation Plan (the “Plan”) that allows a selected group of members of management to defer a portion of their salaries and
$3.1bonuses and up to 100% of their restricted stock. All participant contributions to the Plan are vested. Salaries and bonuses that are deferred under the Plan are credited with earnings or losses based on investment decisions made by the participants.Restricted stock is deferred under the Plan by surrendering the restricted stock in exchange for the right to receive in the future a number of shares equal to the number of restricted shares that are surrendered. The surrender is reflected as a reduction in stockholders’ equity equal to the value of the restricted stock when it was issued, with an offsetting increase in stockholders’ equity to reflect a deferral of the compensation expense related to the surrendered restricted stock. Changes in the value of the shares that will be issued in the future are not reflected in the financial statements.
By November 30, 2002, approximately 60,000 shares of restricted stock had been surrendered under the Plan, resulting in a reduction in stockholders’ equity of $1.1 million fully offset by an increase in
1999. 13.Financialstockholders’ equity to reflect the deferral of compensation in that amount. Shares that the Company is obligated to issue in the future under the Plan are treated as outstanding shares in both the Company’s basic and diluted earnings per share calculations for the year ended November 30, 2002.50
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Financial Instruments
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at November 30,
20012002 and2000,2001, using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. 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, receivables and accounts payable, which had fair values approximating their carrying values.
November 30, ------------------------------------------ 2001 2000 --------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- --------- --------- --------- (In thousands)ASSETS Financial services: Mortgage loans held for sale or disposition, net................. $ 587,694 587,916 376,452 379,499 Mortgage loans, net............... 41,590 40,886 42,504 42,014 Investments held-to-maturity...... 13,235 13,284 12,488 12,507 Limited-purpose finance subsidiaries--collateral for bonds and notes payable.......... 13,146 13,730 19,894 20,320 LIABILITIES Homebuilding: Senior notes and other debts pay- able............................. $1,505,255 1,611,460 1,254,650 1,287,902 Financial services: Notes and other debts payable..... $ 693,931 693,931 428,966 428,966 Limited-purpose finance subsidiaries--bonds and notes payable.......................... 13,146 13,682 19,894 20,169 OTHER FINANCIAL INSTRUMENTS Homebuilding: Interest rate swap liability...... $ (31,359) (31,359) -- (5,707) Financial services assets (liabil- ities): Commitments to originate loans.... $ (1,085) (1,085) -- 445 Forward commitments to sell loans............................ 2,351 2,351 -- (119) ========== ========= ========= =========40
November 30,
2002
2001
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(In thousands)
ASSETS
Financial services:
Mortgage loans held for sale, net
$
708,304
708,304
587,694
587,916
Mortgage loans, net
30,341
29,666
41,590
40,886
Investments held-to-maturity
22,379
22,412
13,235
13,284
Limited-purpose finance subsidiaries—collateral for bonds and notes payable
9,202
9,703
13,146
13,730
LIABILITIES
Homebuilding:
Senior notes and other debts payable
$
1,585,309
1,779,705
1,505,255
1,611,460
Financial services:
Notes and other debts payable
$
853,416
853,416
693,931
693,931
Limited-purpose finance subsidiaries—bonds and notes payable
9,202
9,703
13,146
13,682
OTHER FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps
$
(39,256
)
(39,256
)
(31,359
)
(31,359
)
Financial services assets (liabilities):
Commitments to originate loans
$
(717
)
(717
)
(1,085
)
(1,085
)
Forward commitments to sell loans and option contracts
1,430
1,430
2,351
2,351
The following methods and assumptions are used by the Company in estimating fair values:
Homebuilding--SeniorHomebuilding—Senior notes and other debts payable: The fair value of fixed rate borrowings is based on quoted market prices. Variable rate borrowings are tied to market indices and therefore approximate fair value. Interest rate
swap agreements:swaps: The fair value is based on dealer quotations and generally represents an estimate of the amount the Company would pay or receive to terminate the agreement at the reporting date.Financial
services--Theservices—The fair values are based on quoted market prices, if available. The fair values for instruments which do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.The Company utilizes interest rate swap agreements to manage interest costs and hedge against risks associated with changing interest rates. Counterparties to these agreements are major financial institutions. Credit loss from counterparty non-performance is not anticipated. A majority of the
Company'sCompany’s available variable rate borrowings are based on the London Interbank Offered Rate("LIBOR"(“LIBOR”) index. At November 30,2001,2002, the Company hadsixfour interest rate swap agreements outstanding with a total notional amount of$400$300 million, which will mature at various dates through 2007. These agreements fixed the LIBOR index at an average interest rate of6.6%6.8% at November 30,2001.2002. The effect of the interest rate swap agreements on interest incurred and on the average interest rate was an increase for the year ended November 30,20012002 of $17.0 million and 1.08%, an51
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
increase of $7.2 million and 0.48%
,for the year ended November 30, 2001 and a decrease of $1.2 million and 0.08% for the year ended November 30,2000 and an increase of $1.8 million and 0.22% for the year ended November 30, 1999.2000.As of November 30,
2001,2002, the Financial ServicesDivision'sDivision’s pipeline of loans in process totaled approximately$1.7$2.3 billion. To minimize credit risk, the Division uses the same credit policies in the approval of the commitments as are applied to all lending activities. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements. Loans in the pipeline of loans in process for which interest rates were committed to the borrower totaled approximately$235.0$316.3 million as of November 30,2001.2002. Substantially all of these commitments were for periods of3060 days or less.Mandatory mortgage-backed securities
("MBS")forward commitments (“MBS”) are used by the Company to hedge its interest rate exposure during the period from when the Company makes an interest rate commitment to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering intoagreementsMBS only with investment bankers with primary dealer status and with permanent investors meeting the credit standards of the Company. At any time, the risk to the Company, in the event of default by the purchaser, is the difference between the contract price and current market value. At November 30,2001,2002, the Company had open commitments amounting to$291.0$314.2 million to sell MBS with varying settlement dates through January2002. 14.Commitments2003.15. Commitments and Contingent Liabilities
The Company and certain subsidiaries are parties 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 financial condition,
orresults of operations or cash flows of the Company.The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase,
(including option contracts),development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company toacquiredefer acquiring portions of propertieswhen it is ready to build homes on them.owned by third parties and certain unconsolidated partnerships. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At November 30,2001,2002, the Company had$180.3$218.3 million of primarily non-refundable option depositsand advanced costs,with entities,including unconsolidated partnerships,which allows the Company to acquire approximately31,00045,000 homesites.41The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows:
2002--2003-$30.741.9 million;2003--2004-$25.232.3 million;2004--2005-$20.024.0 million;2005--2006-$14.519.3 million;2006--2007-$11.414.9 million andthereafter-- $24.7thereafter—$17.3 million. Rental expense for the years ended November 30, 2002, 2001 and 2000and 1999was $55.0 million, $42.3 million and $36.6 million,and $24.3 million,respectively.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
$154.3$463.9 million at November 30,2001.2002. The Company also had outstanding performance and surety bonds with estimated costs to complete of$750.7$839.4 million related principally to its obligations for site improvements at various projects at November 30,2001.2002. The Company does not believe that draws upon these bonds, if any,such bonds are likely to be drawn upon. 15.Supplementalwill have a material effect on the Company’s financial position, results of operations or cash flows.16. Supplemental Financial Information
As discussed in Note 7, the
Company issued $325 million of 9.95% senior notes due 2010. The Company'sCompany’s obligations to pay principal, premium, if any, and interest underthe notescertain debt are guaranteed on a joint and several basis by substantially all of its subsidiaries, other than subsidiaries engaged in mortgage and title reinsurance activities. The guarantees are full and unconditional and52
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the guarantor subsidiaries are 100% owned by Lennar Corporation. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.
Consolidating
statements of cash flows are not presented because cash flows for the non-guarantor subsidiaries were not significant for any of the periods presented. 42CONSOLIDATING BALANCE SHEETBalance SheetNovember 30, 2002
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
ASSETS
Homebuilding:
Cash and receivables, net
$
622,019
157,566
10
—
779,595
Inventories
—
3,231,015
6,562
—
3,237,577
Investments in unconsolidated partnerships
—
285,594
—
—
285,594
Other assets
84,122
273,616
—
—
357,738
Investments in subsidiaries
2,584,512
302,655
—
(2,887,167
)
—
3,290,653
4,250,446
6,572
(2,887,167
)
4,660,504
Financial services
—
35,933
1,074,241
(15,045
)
1,095,129
$
3,290,653
4,286,379
1,080,813
(2,902,212
)
5,755,633
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities
$
333,746
635,842
222
(31
)
969,779
Senior notes and other debts payable, net
1,478,821
121,502
—
(15,014
)
1,585,309
Intercompany
(751,071
)
931,951
(180,880
)
—
—
1,061,496
1,689,295
(180,658
)
(15,045
)
2,555,088
Financial services
—
12,572
958,816
—
971,388
Total liabilities
1,061,496
1,701,867
778,158
(15,045
)
3,526,476
Stockholders’ equity
2,229,157
2,584,512
302,655
(2,887,167
)
2,229,157
$
3,290,653
4,286,379
1,080,813
(2,902,212
)
5,755,633
53
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Balance Sheet
November 30, 2001
Non- Lennar Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------ ------------ ---------- (In thousands)ASSETS Homebuilding: Cash and receivables, net.................... $ 710,748 137,610 -- -- 848,358 Inventories............. -- 2,410,117 6,424 -- 2,416,541 Investments in unconsolidated partnerships........... -- 300,064 -- -- 300,064 Other assets............ 83,983 169,950 -- -- 253,933 Investments in subsidi- aries.................. 1,955,678 197,821 -- (2,153,499) -- ---------- ---------- --------- ----------- ---------- 2,750,409 3,215,562 6,424 (2,153,499) 3,818,896 Financial services...... -- 24,762 870,768 -- 895,530 ---------- ---------- --------- ----------- ---------- $2,750,409 3,240,324 877,192 (2,153,499) 4,714,426 ========== ========== ========= =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities...... $ 295,188 460,320 218 -- 755,726 Senior notes and other debts payable, net..... 1,460,610 44,645 -- -- 1,505,255 Intercompany............ (664,651) 773,091 (108,440) -- -- ---------- ---------- --------- ----------- ---------- 1,091,147 1,278,056 (108,222) -- 2,260,981 Financial services...... -- 6,590 787,593 -- 794,183 ---------- ---------- --------- ----------- ---------- Total liabilities....... 1,091,147 1,284,646 679,371 -- 3,055,164 Stockholders' equity.... 1,659,262 1,955,678 197,821 (2,153,499) 1,659,262 ---------- ---------- --------- ----------- ---------- $2,750,409 3,240,324 877,192 (2,153,499) 4,714,426 ========== ========== ========= =========== ==========43CONSOLIDATING BALANCE SHEET
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
ASSETS
Homebuilding:
Cash and receivables, net
$
710,748
137,610
—
—
848,358
Inventories
—
2,410,117
6,424
—
2,416,541
Investments in unconsolidated partnerships
—
300,064
—
—
300,064
Other assets
83,983
169,950
—
—
253,933
Investments in subsidiaries
1,955,678
197,821
—
(2,153,499
)
—
2,750,409
3,215,562
6,424
(2,153,499
)
3,818,896
Financial services
—
24,762
870,768
—
895,530
$
2,750,409
3,240,324
877,192
(2,153,499
)
4,714,426
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities
$
295,188
460,320
218
—
755,726
Senior notes and other debts payable, net
1,460,610
44,645
—
—
1,505,255
Intercompany
(664,651
)
773,091
(108,440
)
—
—
1,091,147
1,278,056
(108,222
)
—
2,260,981
Financial services
—
6,590
787,593
—
794,183
Total liabilities
1,091,147
1,284,646
679,371
—
3,055,164
Stockholders’ equity
1,659,262
1,955,678
197,821
(2,153,499
)
1,659,262
$
2,750,409
3,240,324
877,192
(2,153,499
)
4,714,426
54
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Earnings
Year Ended November 30,
2000
Non- Lennar Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------ ------------ ---------- (In thousands)ASSETS Homebuilding: Cash and receivables, net.................... $ 211,635 117,649 613 -- 329,897 Inventories............. -- 2,295,191 6,393 -- 2,301,584 Investments in unconsolidated partnerships........... -- 257,639 -- -- 257,639 Other assets............ 85,936 191,858 -- -- 277,794 Investments in subsidi- aries.................. 1,495,680 200,488 -- (1,696,168) -- ---------- ---------- --------- ----------- ---------- 1,793,251 3,062,825 7,006 (1,696,168) 3,166,914 Financial services...... -- 16,604 594,396 -- 611,000 ---------- ---------- --------- ----------- ---------- $1,793,251 3,079,429 601,402 (1,696,168) 3,777,914 ========== ========== ========= =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities...... $ 225,362 550,659 2,217 -- 778,238 Senior notes and other debts payable, net..... 1,216,703 37,947 -- -- 1,254,650 Intercompany............ (877,394) 993,477 (116,083) -- -- ---------- ---------- --------- ----------- ---------- 564,671 1,582,083 (113,866) -- 2,032,888 Financial services...... -- 1,666 514,780 -- 516,446 ---------- ---------- --------- ----------- ---------- Total liabilities....... 564,671 1,583,749 400,914 -- 2,549,334 Stockholders' equity.... 1,228,580 1,495,680 200,488 (1,696,168) 1,228,580 ---------- ---------- --------- ----------- ---------- $1,793,251 3,079,429 601,402 (1,696,168) 3,777,914 ========== ========== ========= =========== ==========CONSOLIDATING STATEMENT OF EARNINGS2002
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
Revenues:
Homebuilding
$
—
6,835,577
6
—
6,835,583
Financial services
—
66,577
420,604
(2,962
)
484,219
Total revenues
—
6,902,154
420,610
(2,962
)
7,319,802
Costs and expenses:
Homebuilding
—
5,855,396
564
—
5,855,960
Financial services
—
54,434
302,174
—
356,608
Corporate general and administrative
85,958
—
—
—
85,958
Interest
—
148,529
—
(2,962
)
145,567
Total costs and expenses
85,958
6,058,359
302,738
(2,962
)
6,444,093
Earnings (loss) before provision (benefit) for income taxes
(85,958
)
843,795
117,872
—
875,709
Provision (benefit) for income taxes
(32,391
)
318,533
44,438
—
330,580
Equity in earnings from subsidiaries
598,696
73,434
—
(672,130
)
—
Net earnings
$
545,129
598,696
73,434
(672,130
)
545,129
Consolidating Statement of Earnings
Year Ended November 30, 2001
Non- Lennar Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------ ------------ --------- (In thousands)Revenues: Homebuilding............ $ -- 5,603,943 4 -- 5,603,947 Financial services...... -- 55,146 370,208 -- 425,354 -------- --------- -------- -------- --------- Total revenues.......... -- 5,659,089 370,212 -- 6,029,301 -------- --------- -------- -------- --------- Costs and expenses: Homebuilding............ -- 4,817,778 543 -- 4,818,321 Financial services...... -- 62,358 273,865 -- 336,223 Corporate general and administrative......... 75,831 -- -- -- 75,831 Interest................ -- 119,503 -- -- 119,503 -------- --------- -------- -------- --------- Total costs and ex- penses................. 75,831 4,999,639 274,408 -- 5,349,878 -------- --------- -------- -------- --------- Earnings (loss) before income taxes........... (75,831) 659,450 95,804 -- 679,423 Provision (benefit) for income taxes........... (27,829) 253,888 35,519 -- 261,578 Equity in earnings from subsidiaries........... 465,847 60,285 -- (526,132) -- -------- --------- -------- -------- --------- Net earnings............ $417,845 465,847 60,285 (526,132) 417,845 ======== ========= ======== ======== =========44CONSOLIDATING STATEMENT OF EARNINGS
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
Revenues:
Homebuilding
$
—
5,603,943
4
—
5,603,947
Financial services
—
55,146
370,208
—
425,354
Total revenues
—
5,659,089
370,212
—
6,029,301
Costs and expenses:
Homebuilding
—
4,817,778
543
—
4,818,321
Financial services
—
62,358
273,865
—
336,223
Corporate general and administrative
75,831
—
—
—
75,831
Interest
—
119,503
—
—
119,503
Total costs and expenses
75,831
4,999,639
274,408
—
5,349,878
Earnings (loss) before provision (benefit) for income taxes
(75,831
)
659,450
95,804
—
679,423
Provision (benefit) for income taxes
(27,829
)
253,888
35,519
—
261,578
Equity in earnings from subsidiaries
465,847
60,285
—
(526,132
)
—
Net earnings
$
417,845
465,847
60,285
(526,132
)
417,845
55
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Earnings
Year Ended November 30, 2000
Non- Lennar Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------ ------------ --------- (In thousands)Revenues: Homebuilding............ $ -- 4,387,157 2,877 -- 4,390,034 Financial services...... -- 47,818 269,116 -- 316,934 -------- --------- -------- --------- --------- Total revenues.......... -- 4,434,975 271,993 -- 4,706,968 -------- --------- -------- --------- --------- Costs and expenses: Homebuilding............ -- 3,906,772 2,466 -- 3,909,238 Financial services...... -- 52,533 220,806 -- 273,339 Corporate general and administrative......... 50,155 -- -- -- 50,155 Interest................ -- 98,601 -- -- 98,601 -------- --------- -------- --------- --------- Total costs and ex- penses................. 50,155 4,057,906 223,272 -- 4,331,333 -------- --------- -------- --------- --------- Earnings (loss) before income taxes........... (50,155) 377,069 48,721 -- 375,635 Provision (benefit) for income taxes........... (20,298) 147,057 19,739 -- 146,498 Equity in earnings from subsidiaries........... 258,994 28,982 -- (287,976) -- -------- --------- -------- --------- --------- Net earnings............ $229,137 258,994 28,982 (287,976) 229,137 ======== ========= ======== ========= =========45CONSOLIDATING STATEMENT OF EARNINGS
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
Revenues:
Homebuilding
$
—
4,387,157
2,877
—
4,390,034
Financial services
—
47,818
269,116
—
316,934
Total revenues
—
4,434,975
271,993
—
4,706,968
Costs and expenses:
Homebuilding
—
3,906,772
2,466
—
3,909,238
Financial services
—
52,533
220,806
—
273,339
Corporate general and administrative
50,155
—
—
—
50,155
Interest
—
98,601
—
—
98,601
Total costs and expenses
50,155
4,057,906
223,272
—
4,331,333
Earnings (loss) before provision (benefit) for income taxes
(50,155
)
377,069
48,721
—
375,635
Provision (benefit) for income taxes
(20,298
)
147,057
19,739
—
146,498
Equity in earnings from subsidiaries
258,994
28,982
—
(287,976
)
—
Net earnings
$
229,137
258,994
28,982
(287,976
)
229,137
56
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Cash Flows
Year Ended November 30,
1999
Non- Lennar Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------ ------------ ---------- (In thousands)Revenues: Homebuilding............ $ -- 2,848,105 1,102 -- 2,849,207 Financial services...... -- 31,025 238,282 -- 269,307 -------- --------- -------- --------- ---------- Total revenues.......... -- 2,879,130 239,384 -- 3,118,514 -------- --------- -------- --------- ---------- Costs and expenses: Homebuilding............ -- 2,506,332 2,072 -- 2,508,404 Financial services...... -- 34,115 204,096 -- 238,211 Corporate general and administrative......... 37,563 -- -- -- 37,563 Interest................ -- 48,859 -- -- 48,859 -------- --------- -------- --------- ---------- Total costs and expenses............... 37,563 2,589,306 206,168 -- 2,833,037 -------- --------- -------- --------- ---------- Earnings (loss) before income taxes........... (37,563) 289,824 33,216 -- 285,477 Provision (benefit) for income taxes........... (15,823) 114,480 14,106 -- 112,763 Equity in earnings from subsidiaries........... 194,454 19,110 -- (213,564) -- -------- --------- -------- --------- ---------- Net earnings............ $172,714 194,454 19,110 (213,564) 172,714 ======== ========= ======== ========= ==========16.2002
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
Cash flows from operating activities:
Net earnings (loss)
$
545,129
598,696
73,434
(672,130
)
545,129
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities
(500,149
)
(299,043
)
(198,513
)
657,144
(340,561
)
Net cash provided by (used in) operating activities
44,980
299,653
(125,079
)
(14,986
)
204,568
Cash flows from investing activities:
Decrease in investments in unconsolidated partnerships, net
—
57,891
11
—
57,902
Acquisitions, net of cash acquired
—
(415,607
)
(8,670
)
—
(424,277
)
Other
(1,759
)
3,382
(925
)
—
698
Net cash used in investing activities
(1,759
)
(354,334
)
(9,584
)
—
(365,677
)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings
(6,806
)
(119,635
)
—
14,986
(111,455
)
Net borrowings under financial services debt
—
—
156,379
—
156,379
Common stock:
Issuance
19,317
—
—
—
19,317
Repurchases
(65
)
—
—
—
(65
)
Dividends
(3,182
)
—
—
—
(3,182
)
Intercompany
(141,647
)
170,593
(28,946
)
—
—
Net cash provided by (used in) financing activities
(132,383
)
50,958
127,433
14,986
60,994
Net decrease in cash
(89,162
)
(3,723
)
(7,230
)
—
(100,115
)
Cash at beginning of year
710,325
113,718
53,231
—
877,274
Cash at end of year
$
621,163
109,995
46,001
—
777,159
57
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Cash Flows
Year Ended November 30, 2001
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
Cash flows from operating activities:
Net earnings (loss)
$
417,845
465,847
60,285
(526,132
)
417,845
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities
(393,618
)
(217,936
)
(273,227
)
526,132
(358,649
)
Net cash provided by (used in)
operating activities
24,227
247,911
(212,942
)
—
59,196
Cash flows from investing activities:
Decrease in investments in unconsolidated partnerships, net
—
5,582
19
—
5,601
Other
17
(7,913
)
4,158
—
(3,738
)
Net cash provided by (used in) investing activities
17
(2,331
)
4,177
—
1,863
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings
219,974
(21,385
)
—
—
198,589
Net borrowings under financial services debt
—
—
267,106
—
267,106
Common stock:
Issuance
19,789
—
—
—
19,789
Dividends
(3,146
)
—
—
—
(3,146
)
Intercompany
243,681
(198,242
)
(45,439
)
—
—
Net cash provided by (used in) financing activities
480,298
(219,627
)
221,667
—
482,338
Net increase in cash
504,542
25,953
12,902
—
543,397
Cash at beginning of year
205,783
87,765
40,329
—
333,877
Cash at end of year
$
710,325
113,718
53,231
—
877,274
58
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Consolidating Statement of Cash Flows
Year Ended November 30, 2000
Lennar Corporation
Guarantor Subsidiaries
Non-Guarantor Subsidiaries
Eliminations
Total
(In thousands)
Cash flows from operating activities:
Net earnings (loss)
$
229,137
258,994
28,982
(287,976
)
229,137
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities
(137,914
)
178,586
(77,281
)
287,976
251,367
Net cash provided by (used in) operating activities
91,223
437,580
(48,299
)
—
480,504
Cash flows from investing activities:
Increase in investments in unconsolidated partnerships, net
—
(2,857
)
—
—
(2,857
)
Acquisitions, net of cash acquired
—
(152,386
)
(5,971
)
—
(158,357
)
Other
(1,409
)
(4,148
)
(19,945
)
—
(25,502
)
Net cash used in investing activities
(1,409
)
(159,391
)
(25,916
)
—
(186,716
)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings
179,259
(271,485
)
—
—
(92,226
)
Net borrowings under financial services debt
—
—
165,497
—
165,497
Common stock:
Issuance
4,472
—
—
—
4,472
Repurchases
(152,925
)
—
—
—
(152,925
)
Dividends
(2,896
)
—
—
—
(2,896
)
Intercompany
42,210
44,189
(86,399
)
—
—
Net cash provided by (used in) financing activities
70,120
(227,296
)
79,098
—
(78,078
)
Net increase in cash
159,934
50,893
4,883
—
215,710
Cash at beginning of year
45,849
36,872
35,446
—
118,167
Cash at end of year
$
205,783
87,765
40,329
—
333,877
59
LENNAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. Quarterly Data (unaudited)
First Second Third Fourth ---------- --------- --------- --------- (In thousands, except per share amounts)2001 Revenues............................... $1,104,042 1,391,533 1,577,628 1,956,098 Earnings before income taxes........... $ 83,360 157,733 173,488 264,842 Net earnings........................... $ 51,266 97,006 106,695 162,878 Earnings per share: Basic................................ $ 0.83 1.55 1.69 2.58 Diluted.............................. $ 0.75 1.40 1.53 2.32 ========== ========= ========= ========= 2000 Revenues............................... $ 640,367 968,180 1,376,215 1,722,206 Earnings before income taxes........... $ 36,412 59,739 100,011 179,473 Net earnings........................... $ 22,211 36,441 61,007 109,478 Earnings per share: Basic................................ $ 0.42 0.69 0.99 1.77 Diluted.............................. $ 0.40 0.64 0.90 1.59 ========== ========= ========= =========
First
Second
Third
Fourth
(In thousands, except per share amounts)
2002
Revenues
$
1,247,744
1,571,617
1,860,803
2,639,638
Earnings before provision for income taxes
$
115,487
170,293
228,464
361,465
Net earnings
$
71,891
106,007
142,219
225,012
Earnings per share:
Basic
$
1.14
1.66
2.22
3.51
Diluted
$
1.03
1.51
2.01
3.16
2001
Revenues
$
1,104,042
1,391,533
1,577,628
1,956,098
Earnings before provision for income taxes
$
83,360
157,733
173,488
264,842
Net earnings
$
51,266
97,006
106,695
162,878
Earnings per share:
Basic
$
0.83
1.55
1.69
2.58
Diluted
$
0.75
1.40
1.53
2.32
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.
18. Subsequent Event
On February 5, 2003, the Company issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%. The senior notes are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries engaged in mortgage and reinsurance activities. Proceeds from the offering, after underwriting discount and expenses, were approximately $342 million. The Company added the proceeds to its general working capital so that the proceeds are available for use in the Company’s operations, for acquisitions and to purchase or repay outstanding indebtedness.
60
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
46PART III
Item 10. Directors and Executive Officers of the Registrant.
Information about our directors and their compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30,
20022003 (120 days after the end of our fiscal year). The following people were our executive officers on February 20,2002:2003:
Name/Position Age Year of Election - ------------- --- ----------------Stuart A. Miller, President and Chief Executive Officer..................... 44 1997 Robert J. Strudler, Vice Chairman and Chief Operating Officer................. 59 2000 Bruce E. Gross, Vice President and Chief Financial Officer................ 43 1997 Marshall H. Ames, Vice President............................................ 58 1982 Diane J. Bessette, Vice President and Controller............................. 41 1997 Jonathan M. Jaffe, Vice President............................................ 42 1994 Craig M. Johnson, Vice President, Community Development..................... 48 2000 Waynewright Malcolm, Vice President and Treasurer.............................. 38 1997 David B. McCain, Vice President, General Counsel and Secretary............. 41 1998 Allan J. Pekor, Vice President............................................ 65 1997
Name/Position
Age
Year of
Election
Stuart A. Miller,
President and Chief Executive Officer
45
1997
Robert J. Strudler,
Vice Chairman and Chief Operating Officer
60
2000
Bruce E. Gross,
Vice President and Chief Financial Officer
44
1997
Marshall H. Ames,
Vice President
59
1982
Diane J. Bessette,
Vice President and Controller
42
1997
Jonathan M. Jaffe,
Vice President
43
1994
Craig M. Johnson,
Vice President, Community Development
49
2000
Waynewright Malcolm,
Vice President and Treasurer
39
1997
David B. McCain,
Vice President, General Counsel and Secretary
42
1998
Allan J. Pekor,
Vice President
66
1997
The year of election represents the year that the executive officer was elected to his or her current position.
Mr. Stuart Miller
(who is the son of Leonard Miller, our Chairman of the Board of Directors)has been our President and Chief Executive Officer since April 1997 and is one of our Directors. Prior to that, Mr. Miller held various executive positions with us and had been a Vice President since 1985. Mr. Miller is also the Chairman of the Board of LNR Property Corporation.Mr. Strudler has been Vice Chairman of the Board of Directors and Chief Operating Officer since May 2000. Prior to that, Mr. Strudler was the Chairman and Co-Chief Executive Officer of U.S. Home Corporation.
Mr. Gross has been a Vice President and our Chief Financial Officer since 1997. Prior to that, Mr. Gross was employed as Senior Vice President, Controller and Treasurer of Pacific Greystone Corporation.
Mr. Ames has been a Vice President since 1982 and has held various positions in our Homebuilding Division.
Ms. Bessette has been employed by us since 1995, has been our Controller since 1997 and became a Vice President in 2000.
61
Mr. Jaffe has been a Vice President since 1994 and serves as a Regional President in our Homebuilding Division. Mr. Jaffe is one of our Directors.
Mr. Johnson has been a Vice President since May 2000 and is President of Strategic Technologies, Inc. Prior to that, Mr. Johnson was a Senior Vice President of U.S. Home Corporation.
Mr. Malcolm joined us as Treasurer in 1997 and became a Vice President in 2000. Prior to that, Mr. Malcolm was employed as Director, Finance and Regulatory Affairs, at Citizens Utilities Company.
Mr. McCain joined us in 1998 as a Vice President, General Counsel and Secretary. Prior to joining us, Mr. McCain was employed at John Alden Asset Management Company for more than 10 years, where he last served as Vice President, General Counsel and Secretary.
Mr. Pekor has held various executive positions with us since 1979. Mr. Pekor presently serves as a Vice President and has served as President of Lennar Financial Services,
Inc.LLC since 1997.47Item 11. Executive Compensation.
Item 11. Executive Compensation. The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30,
20022003 (120 days after the end of our fiscal year).Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30,
20022003 (120 days after the end of our fiscal year).Item 13. Certain Relationships and Related Transactions.
Item 13. Certain Relationships and Related Transactions. The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30,
20022003 (120 days after the end of our fiscal year).Item 14. Controls and Procedures.
Within 90 days prior to the filing of this report on Form 10-K, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of November 30, 2002 to ensure that required information was disclosed on a timely basis in our reports filed under the Securities Exchange Act.
Our CEO and CFO have determined, based upon their most recent evaluation, that there have been no significant changes in our internal controls that could significantly affect our internal controls and procedures subsequent to that evaluation.
62
PART IV
Item
14.15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.(a) Documents filed as part of this Report.
1. The following financial statements are contained in Item 8:
Financial Statements
Page in this Report
-------------------- -------------------Report of Independent
Auditors......................... 21Auditors27
Consolidated Balance Sheets as of November 30,
20012002 and2000.................................................. 22200128
Consolidated Statements of Earnings for the Years Ended November 30, 2002, 2001
2000and1999.............................................. 23200029
Consolidated Statements of
Stockholders'Stockholders’ Equity for the Years Ended November 30, 2002, 20012000and1999.......... 24200030
Consolidated Statements of Cash Flows for the Years Ended November 30, 2002, 2001
2000and1999................ 25200032
Notes to Consolidated Financial
Statements............. 27Statements34
2. The following financial statement schedule is included in this Report:
Financial Statement Schedule
Page in this Report
---------------------------- -------------------Independent
Auditors'Auditors’ Reporton Schedule................. 52 II -69
Schedule II—Valuation and Qualifying
Accounts................... 53Accounts70
Information required by other schedules has either been incorporated in the consolidated financial statements and accompanying notes or is not applicable to us.
3. The following exhibits are filed with this Report or incorporated by reference:
3(a). Amended and Restated Certificate of Incorporation, dated April 28, 1998--Incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended November 30, 1998. 3(b). Certificate of Amendment to Certificate of Incorporation, dated April 9, 1999--Incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended November 30, 1999. 3(c). Bylaws--Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated November 17, 1997, file number 1-06643. 4(a). Indenture, dated as of December 31, 1997, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee-- Incorporated by Reference to Registration Statement No. 333- 45527. 484(b). First Supplemental Indenture, dated as of July 29, 1998, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee (relating to Lennar's Zero Coupon Senior Convertible Debentures due 2018)--Incorporated by reference to the Current Report on Form 8-K dated July 24, 1998, file number 1-11749. 4(c). Second Supplemental Indenture, dated as of February 19, 1999, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee (relating to Lennar's 7 5/8% Senior Notes due 2009)-- Incorporated by reference to the Current Report on Form 8-K dated February 19, 1999, file number 1-11749. 4(d). Third Supplemental Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as successor trustee to The First National Bank of Chicago (relating to Lennar's 7 5/8% Senior Notes due 2009)--Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000. 4(e). Fourth Supplemental Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as successor trustee to The First National Bank of Chicago (relating to Lennar's Zero Coupon Senior Convertible Debentures due 2018)-- Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000. 4(f). Fifth Supplemental Indenture, dated April 4, 2001, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee (relating to Lennar's Zero Coupon Convertible Senior Subordinated Notes due 2021)--Incorporated by reference to the Current Report on Form 8-K dated April 4, 2001, file number 1-11749. 4(g). Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee, including Form of 9.95% Series A Senior Notes due 2010 and Form of 9.95% Series B Senior Notes due 2010--Incorporated by reference to Registration Statement No. 333-41316. 4(h). Registration Rights Agreement, dated May 3, 2000, by and among Lennar Corporation and the Initial Purchasers--Incorporated by reference to Registration Statement No. 333-41316. 10(a). Lennar Corporation 2000 Stock Option and Restricted Stock Plan-- Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended February 28, 2001. 10(b). Amended and Restated Lennar Corporation 1997 Stock Option Plan-- Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended November 30, 1997. 10(c). Lennar Corporation 1991 Stock Option Plan--Incorporated by reference to Registration Statement No. 33-45442. 10(d). Lennar Corporation Employee Stock Ownership Plan and Trust-- Incorporated by reference to Registration Statement No. 2-89104. 10(e). Amendment dated December 13, 1989 to Lennar Corporation Employee Stock Ownership Plan--Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended November 30, 1990. 10(f). Lennar Corporation Employee Stock Ownership/401(k) Trust Agreement dated December 13, 1989--Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended November 30, 1990. 10(g). Amendment dated April 18, 1990 to Lennar Corporation Employee Stock Ownership/401(k) Plan--Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended November 30, 1990. 10(h). Partnership Agreement for Lennar Land Partners by and between Lennar Land Partners Sub, Inc. and LNR Land Partners Sub, Inc., dated October 24, 1997--Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended November 30, 1997. Lennar Land Partners Sub II, Inc. and LNR Land Partners Sub II, Inc. entered into an identical Partnership Agreement for Lennar Land Partners II on June 28, 1999. 10(i). Separation and Distribution Agreement, dated June 10, 1997, between Lennar Corporation and LNR Property Corporation-- Incorporated by reference to Registration Statement No. 333- 35671. 4910(j). Credit Agreement, dated October 31, 1997, by and among Lennar Land Partners and the Lenders named therein--Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended November 30, 1997. 10(k). Credit Agreement, dated May 3, 2000, among Lennar Corporation and various lenders--Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000. 10(l). Plan and Agreement of Merger, dated as of February 16, 2000, between Lennar Corporation, U.S. Home Corporation and Len Acquisition Corporation--Incorporated by reference to Current Report on Form 8-K dated February 23, 2000, file number 1-11749. 10(m). Warehousing Credit and Security Agreement dated June 25, 2001 between Universal American Mortgage Company, Eagle Home Mortgage, Inc., Ameristar Financial Services, Inc., Universal American Mortgage Company of California, UAMC Asset Corp. II and Residential Funding Corporation. 21. List of subsidiaries. 23. Independent Auditors' Consent. 99. Financial statements of Lennar Corporation's guarantor subsidiaries.
3
(a).
Amended and Restated Certificate of Incorporation, dated April 28, 1998—Incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended November 30, 1998.
3
(b).
Certificate of Amendment to Certificate of Incorporation, dated April 9, 1999—Incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
3
(c).
Bylaws—Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated November 17, 1997, file number 1-06643.
4
(a).
Indenture, dated as of December 31, 1997, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee—Incorporated by Reference to Registration Statement No. 333-45527.
4
(b).
First Supplemental Indenture, dated as of July 29, 1998, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee (relating to Lennar’s Zero Coupon Senior Convertible Debentures due 2018)—Incorporated by reference to the Current Report on Form 8-K dated July 24, 1998, file number 1-11749.
4
(c).
Second Supplemental Indenture, dated as of February 19, 1999, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee (relating to Lennar’s 7 5/8% Senior Notes due 2009)—Incorporated by reference to the Current Report on Form 8-K dated February 19, 1999, file number 1-11749.
4
(d).
Third Supplemental Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as successor trustee to The First National Bank of Chicago (relating to Lennar’s 7 5/8% Senior Notes due 2009)—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000.
63
4
(e).
Fourth Supplemental Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as successor trustee to The First National Bank of Chicago (relating to Lennar’s Zero Coupon Senior Convertible Debentures due 2018)—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000.
4
(f).
Fifth Supplemental Indenture, dated April 4, 2001, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee (relating to Lennar’s Zero Coupon Convertible Senior Subordinated Notes due 2021)—Incorporated by reference to the Current Report on Form 8-K dated April 4, 2001, file number 1-11749.
4
(g).
Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee, including Form of 9.95% Series A Senior Notes due 2010 and Form of 9.95% Series B Senior Notes due 2010—Incorporated by reference to Registration Statement No. 333-41316.
4
(h).
Registration Rights Agreement, dated May 3, 2000, by and among Lennar Corporation and the Initial Purchasers—Incorporated by reference to Registration Statement No. 333-41316.
10
(a).
Lennar Corporation 2000 Stock Option and Restricted Stock Plan—Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended February 28, 2001.
10
(b).
Amended and Restated Lennar Corporation 1997 Stock Option Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1997.
10
(c).
Lennar Corporation 1991 Stock Option Plan—Incorporated by reference to Registration Statement No. 33-45442.
10
(d).
Lennar Corporation Employee Stock Ownership Plan and Trust—Incorporated by reference to Registration Statement No. 2-89104.
10
(e).
Amendment dated December 13, 1989 to Lennar Corporation Employee Stock Ownership Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.
10
(f).
Lennar Corporation Employee Stock Ownership/401(k) Trust Agreement dated December 13, 1989—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.
10
(g).
Amendment dated April 18, 1990 to Lennar Corporation Employee Stock Ownership/401(k) Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.
10
(h).
Partnership Agreement for Lennar Land Partners by and between Lennar Land Partners Sub, Inc. and LNR Land Partners Sub, Inc., dated October 24, 1997—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1997. Lennar Land Partners Sub II, Inc. and LNR Land Partners Sub II, Inc. entered into an identical Partnership Agreement for Lennar Land Partners II on June 28, 1999.
10
(i).
Separation and Distribution Agreement, dated June 10, 1997, between Lennar Corporation and LNR Property Corporation—Incorporated by reference to Registration Statement No. 333-35671.
10
(j).
Credit Agreement, dated October 31, 1997, by and among Lennar Land Partners and the Lenders named therein—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1997.
10
(k).
Credit Agreement, dated May 3, 2000, among Lennar Corporation and various lenders—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000.
10
(l).
Plan and Agreement of Merger, dated as of February 16, 2000, between Lennar Corporation, U.S. Home Corporation and Len Acquisition Corporation—Incorporated by reference to the Current Report on Form 8-K dated February 23, 2000, file number 1-11749.
64
10(m).
Warehousing credit and security agreement dated June 25, 2001 between Universal American Mortgage Company, Eagle Home Mortgage, Inc., Ameristar Financial Services, Inc., Universal American Mortgage Company of California, UAMC Asset Corp. II and Residential Funding Corporation—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2001.
10(n).
Lennar Corporation Nonqualified Deferred Compensation Plan—Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended August 31, 2002.
10(o).
Amended and Restated Credit Agreement, dated May 24, 2002 among Lennar Corporation and various lenders.
21.
List of subsidiaries.
23.
Independent Auditors’ Consent.
99.
Financial statements of Lennar Corporation’s affiliates whose securities collateralize Lennar’s 3 7/8% Zero-Coupon Senior Convertible Debentures due 2018, Lennar’s 7 5/8 % Senior Notes due 2009 and Lennar’s Credit Facilities.
99.1.
Certification by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Current Reports on Form 8-K filed during the quarter ended November 30,
2001. We2002. Registrant was not required to file, and has not filed, aCurrent Report onForm 8-Kdated October 5, 2001, file number 1-11749, which contained our earnings release forduring the quarterended August 31, 2001.for which this report is being filed.(c) The exhibits to this Report are listed in Item
14(a)15(a)3.(d) The financial statement schedules required by Regulation S-X which are excluded from the Annual Report to Stockholders as permitted by Rule 14a-3(b)(1) are listed in Item
14(a)15(a)2.5065
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Report to be signed on our behalf by the undersigned, thereunto duly authorized.
LENNAR CORPORATION /s/ Stuart A. Miller _______________________________________ Stuart A. Miller President, Chief Executive Officer and Director
LENNAR CORPORATION
By:
/s/ STUART A. MILLER
Stuart A. Miller
President, Chief Executive Officer and Director
Date: February 28,
20022003Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on our behalf and in the capacities and on the dates indicated:
Name
Title
Date
Principal Executive Officer:
/s/ STUART A. MILLER
Stuart A. Miller
/s/ Stuart A. MillerPresident, Chief Executive Officer and
Direc- --------------------------------- tor Date:DirectorFebruary 28,
20022003Principal Financial Officer:
/s/ BRUCE E. GROSS
Bruce E. Gross
/s/ Bruce E. GrossVice President and Chief Financial Officer
--------------------------------- Date:February 28,
20022003Principal Accounting Officer:
/s/ DIANE J. BESSETTE
Diane J. Bessette
/s/ Diane J. BessetteVice President and Controller
--------------------------------- Date:February 28,
20022003Directors:
/s/ IRVING BOLOTIN
Irving Bolotin
/s/ Irving Bolotin --------------------------------- Date:February 28,
20022003/s/ STEVEN L. GERARD
Steven L. Gerard
/s/ Steven L. Gerard --------------------------------- Date:February 28,
20022003/s/ JONATHAN M. JAFFE
Jonathan M. Jaffe
/s/ Jonathan M. Jaffe --------------------------------- Date:February 28,
20022003/s/ R. KIRK LANDON
R. Kirk Landon
/s/ R. Kirk Landon --------------------------------- Date:February 28,
20022003/s/ SIDNEY LAPIDUS
Sidney Lapidus
/s/ Sidney Lapidus --------------------------------- Date:February 28,
2002 Leonard Miller /s/ Leonard Miller --------------------------------- Date:2003/s/ HERVÉ RIPAULT
Hervé Ripault
February 28,
2002 Herve Ripault /s/ Herve Ripault --------------------------------- Date: February 28, 20022003/s/ STEVEN J. SAIONTZ
Steven J. Saiontz
/s/ Steven J. Saiontz --------------------------------- Date:February 28,
20022003/s/ DONNA SHALALA
Donna Shalala
/s/ Donna Shalala --------------------------------- Date:February 28,
20022003/s/ ROBERT J. STRUDLER
Robert J. Strudler
/s/ Robert J. Strudler --------------------------------- Date:February 28,
200220035166
CHIEF EXECUTIVE OFFICER’S CERTIFICATION
I, Stuart A. Miller, certify that:
1. I have reviewed this annual report on Form 10-K of Lennar Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the registrant’s periodic reports are being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By:
/s/ STUART A. MILLER
Stuart A. Miller
President and Chief Executive Officer
Date: February 28, 2003
67
CHIEF FINANCIAL OFFICER’S CERTIFICATION
I, Bruce E. Gross, certify that:
1. I have reviewed this annual report on Form 10-K of Lennar Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the registrant’s periodic reports are being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By:
/s/ BRUCE E. GROSS
Bruce E. Gross
Vice President and Chief Financial Officer
Date: February 28, 2003
68
INDEPENDENT
AUDITORS'AUDITORS’ REPORTTo the Board of Directors and Stockholders of
Lennar Corporation:
We have audited the consolidated financial statements of Lennar Corporation and subsidiaries (the
"Company"“Company”) as of November 30,20012002 and20002001 and for each of the three years in the period ended November 30,2001,2002, and have issued our report thereon dated January9, 2002;7, 2003, except for Note 18, as to which the date is February 5, 2003; such report is included elsewhere in this Form 10-K. Our audits also included the financial statement schedule of the Company, listed in Item14(a)15(a)2. The financial statement schedule is the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein./s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
January
9, 2002 52Schedule II7, 200369
LENNAR CORPORATION AND SUBSIDIARIES
Valuation and Qualifying AccountsSCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Years Ended November 30, 2002, 2001
2000and1999
Additions ---------------------- Charged Charged Beginning to costs to other Ending Description balance and expenses accounts Deductions balance - ----------- ---------- ------------ --------- ---------- ---------Year ended November 30, 2001 Allowances deducted from assets to which they apply: Allowances for doubtful accounts and notes receivable......... $5,188,000 2,368,000 -- (2,801,000) 4,755,000 ---------- --------- --------- ---------- --------- Deferred income and unamortized discounts.......... $8,345,000 7,000 254,000 (3,965,000) 4,641,000 ---------- --------- --------- ---------- --------- Loan loss reserve... $3,645,000 655,000 9,000 (244,000) 4,065,000 ---------- --------- --------- ---------- --------- Valuation allowance.......... $1,377,000 -- -- (118,000) 1,259,000 ---------- --------- --------- ---------- --------- Deferred tax asset valuation allowance.......... $7,117,000 -- -- -- 7,117,000 ---------- --------- --------- ---------- --------- Year ended November 30, 2000 Allowances deducted from assets to which they apply: Allowances for doubtful accounts and notes receivable......... $2,471,000 3,834,000 28,000 (1,145,000) 5,188,000 ---------- --------- --------- ---------- --------- Deferred income and unamortized discounts.......... $1,128,000 -- 7,896,000 (679,000) 8,345,000 ---------- --------- --------- ---------- --------- Loan loss reserve... $3,778,000 -- -- (133,000) 3,645,000 ---------- --------- --------- ---------- --------- Valuation allowance.......... $1,249,000 -- 903,000 (775,000) 1,377,000 ---------- --------- --------- ---------- --------- Deferred tax asset valuation allowance.......... $8,508,000 -- -- (1,391,000) 7,117,000 ---------- --------- --------- ---------- --------- Year ended November 30, 1999 Allowances deducted from assets to which they apply: Allowances for doubtful accounts and notes receivable......... $4,075,000 2,011,000 38,000 (3,653,000) 2,471,000 ---------- --------- --------- ---------- --------- Deferred income and unamortized discounts.......... $ 231,000 -- 1,156,000 (259,000) 1,128,000 ---------- --------- --------- ---------- --------- Loan loss reserve... $3,090,000 1,200,000 21,000 (533,000) 3,778,000 ---------- --------- --------- ---------- --------- Valuation allowance.......... $1,903,000 93,000 56,000 (803,000) 1,249,000 ---------- --------- --------- ---------- --------- Deferred tax asset valuation allowance.......... $7,659,000 -- 849,000 -- 8,508,000 ---------- --------- --------- ---------- ---------53SHAREHOLDER INFORMATION Lennar Corporation and Subsidiaries Annual Meeting The Annual Stockholders' Meeting will be held at 11:00 a.m. on April 2, 2002 at the Doral Park Golf and Country Club, 5001 N.W. 104th Avenue Miami, Florida 33178 Registrar and Transfer Agent EquiServe, Inc. P.O. Box 43010 Providence, Rhode Island 02940 Listing New York Stock Exchange (LEN) Corporate Counsel Clifford Chance Rogers & Wells LLP 200 Park Avenue New York, New York 10166 Independent Auditors Deloitte & Touche LLP 200 South Biscayne Boulevard, Suite 400 Miami, Florida 33131 542000
Additions
Description
Beginning balance
Charged to costs and expenses
Charged to other accounts
Deductions
Ending balance
Year ended November 30, 2002
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable
$
4,755,000
1,602,000
260,000
(3,451,000
)
3,166,000
Deferred income and unamortized discounts
$
4,641,000
6,156,000
20,000
(2,204,000
)
8,613,000
Loan loss reserve
$
4,065,000
190,000
—
(1,254,000
)
3,001,000
Valuation allowance
$
1,259,000
71,000
—
(1,254,000
)
76,000
Deferred tax asset valuation allowance
$
7,117,000
—
—
(139,000
)
6,978,000
Year ended November 30, 2001
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable
$
5,188,000
2,368,000
—
(2,801,000
)
4,755,000
Deferred income and unamortized discounts
$
8,345,000
7,000
254,000
(3,965,000
)
4,641,000
Loan loss reserve
$
3,645,000
655,000
9,000
(244,000
)
4,065,000
Valuation allowance
$
1,377,000
—
—
(118,000
)
1,259,000
Deferred tax asset valuation allowance
$
7,117,000
—
—
—
7,117,000
Year ended November 30, 2000
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable
$
2,471,000
3,834,000
28,000
(1,145,000
)
5,188,000
Deferred income and unamortized discounts
$
1,128,000
—
7,896,000
(679,000
)
8,345,000
Loan loss reserve
$
3,778,000
—
—
(133,000
)
3,645,000
Valuation allowance
$
1,249,000
—
903,000
(775,000
)
1,377,000
Deferred tax asset valuation allowance
$
8,508,000
—
—
(1,391,000
)
7,117,000
70
Exhibit Index
Exhibit Number Exhibit Description -------------- ------------------- 10(m). Warehousing Credit and Security Agreement dated June 25, 2001 between Universal American Mortgage Company, Eagle Home Mortgage, Inc., Ameristar Financial Services, Inc., Universal American Mortgage Company of California, UAMC Asset Corp. II and Residential Funding Corporation. 21. List of subsidiaries. 23. Independent Auditors' Consent. 99. Financial statements of Lennar Corporation's guarantor subsidiaries.
Exhibit | Description | |
10(o). | Amended and Restated Credit Agreement, dated May 24, 2002 among Lennar Corporation and various lenders. | |
21. | List of subsidiaries. | |
23. | Independent Auditors’ Consent. | |
99. | Financial statements of Lennar Corporation’s affiliates whose securities collateralize Lennar’s 3 7/8% Zero-Coupon Senior Convertible Debentures due 2018, Lennar’s 7 5/8% Senior Notes due 2009 and Lennar’s Credit Facilities. | |
99.1. | Certification by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |