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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2000
Commission File Number: 1-11749
Lennar Corporation
(Exact name of registrant as specified in its charter)
Delaware 59-1281887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 559-4000
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__ NO _____
Common shares outstanding as of June 30, 2000:
Common 51,780,326
----------
Class B Common 9,848,112
---------
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Part I. Financial Information
Item 1. Financial Statements
Lennar Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
May 31, November 30,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and cash equivalents $ 72,234 83,256
Receivables, net 43,815 11,162
Inventories 2,641,423 1,274,551
Investments in partnerships 243,829 173,310
Other assets 267,483 97,826
-----------------------------------
3,268,784 1,640,105
Financial services 536,528 417,542
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,805,312 2,057,647
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 596,971 333,532
Mortgage notes and other debts payable, net 1,732,784 523,661
-----------------------------------
2,329,755 857,193
Financial services 421,530 318,955
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,751,285 1,176,148
Stockholders' equity:
Preferred stock - -
Common stock of $0.10 par value per share,
61,626 shares issued at May 31, 2000 6,163 4,851
Class B common stock of $0.10 par value per share,
9,848 shares issued at May 31, 2000 985 985
Additional paid-in capital 792,490 525,623
Retained earnings 413,332 356,058
Treasury stock, at cost; 9,848 shares at May 31, 2000 (158,943) (6,018)
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,054,027 881,499
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Total liabilities and stockholders' equity $ 3,805,312 2,057,647
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See accompanying notes to consolidated condensed financial statements.
1
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
May 31, May 31,
---------------------------- -----------------------------
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ 887,131 670,157 1,468,053 1,201,533
Financial services 81,049 68,200 140,494 127,423
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 968,180 738,357 1,608,547 1,328,956
- -------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding 811,303 594,403 1,337,396 1,067,389
Financial services 66,109 58,748 124,946 112,250
Corporate general and administrative 11,269 8,806 20,326 17,321
Interest 19,760 10,960 29,728 20,503
- -------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 908,441 672,917 1,512,396 1,217,463
- -------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 59,739 65,440 96,151 111,493
Income taxes 23,298 25,849 37,499 44,040
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 36,441 39,591 58,652 67,453
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Basic earnings per share $ 0.69 0.68 1.11 1.16
- -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.64 0.63 1.03 1.08
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ 0.0125 0.0125 0.025 0.025
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends per Class B common share $ 0.01125 0.01125 0.0225 0.0225
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
2
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
May 31,
----------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 58,652 67,453
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 18,127 18,747
Amortization of discount/premium on debt, net 8,317 3,758
Equity in earnings from partnerships (6,494) (4,464)
Increase in deferred income taxes 13,606 13,996
Changes in assets and liabilities, net of effect of acquisitions:
(Increase) decrease in receivables (15,213) 1,094
Increase in inventories (94,615) (180,699)
Increase in other assets (25,023) (12,079)
(Increase) decrease in financial services loans held for sale or disposition (17,312) 18,580
Decrease in accounts payable and other liabilities (94,611) (32,186)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (154,566) (105,800)
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Cash flows from investing activities:
Purchases of operating properties and equipment (10,189) (7,062)
Increase in investments in partnerships, net (3,751) (23,144)
Decrease in financial services mortgage loans 546 2,709
Purchases of investment securities (8,589) (5,181)
Receipts from investment securities 5,238 3,800
Acquisition of U.S. Home Corporation, net of cash acquired (152,386) -
Acquisitions of properties and businesses, net of cash acquired (4,305) (20,172)
Other, net - 178
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Net cash used in investing activities (173,436) (48,872)
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Cash flows from financing activities:
Net borrowings under credit facilities 872,100 41,850
Net borrowings (repayments) under financial services short-term debt 82,730 (7,364)
Payments for tender of U.S. Home's senior notes (514,019) -
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 1,812 1,809
Principal payments on other borrowings (262,868) (146,868)
Limited-purpose finance subsidiaries, net 108 372
Common stock:
Issuance 1,312 480
Repurchases (152,925) -
Dividends (1,378) (1,432)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 321,860 155,000
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Net increase (decrease) in cash and cash equivalents (6,142) 328
Cash and cash equivalents at beginning of period 118,167 61,577
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Cash and cash equivalents at end of period $ 112,025 61,905
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3
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows -- Continued
(Unaudited)
(In thousands)
Six Months Ended
May 31,
--------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------------
Summary of cash and cash equivalent balances:
Homebuilding $ 72,234 27,642
Financial services 39,791 34,263
- --------------------------------------------------------------------------------------------------------------------
$ 112,025 61,905
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 11,778 4,989
Cash paid for income taxes $ 30,726 51,033
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers $ 4,984 19,172
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
4
Lennar Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Lennar Corporation and all subsidiaries and partnerships in which a
controlling interest is held (the "Company"). The Company's investments in
partnerships (and similar entities) in which a significant, but less than
controlling, interest is held are accounted for by the equity method. All
significant intercompany transactions and balances have been eliminated. The
financial statements have been prepared by management without audit by
independent public accountants and should be read in conjunction with the
November 30, 1999 audited financial statements in the Company's Annual Report on
Form 10-K for the year then ended. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the accompanying consolidated condensed financial statements
have been made. Certain prior year amounts in the consolidated condensed
financial statements have been reclassified to conform with the current period
presentation.
The Company historically has experienced, and expects to continue to experience,
variability in quarterly results. The consolidated condensed statements of
earnings for the three and six months ended May 31, 2000 are not necessarily
indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
(2) Business Segments
The Company has two business segments: Homebuilding and Financial Services.
Homebuilding operations include the sale and construction of single-family
attached and detached homes in 13 states. These activities also include the
purchase, development and sale of residential land by the Company and
partnerships in which it has investments.
Financial Services activities are conducted primarily through Lennar Financial
Services, Inc. and its subsidiaries and U.S. Home Mortgage Corporation, which
provide mortgage financing, title insurance and closing services for Lennar
homebuyers and others. The Financial Services Division also packages and resells
residential mortgage loans and mortgage-backed securities, performs mortgage
loan servicing activities and provides cable television and alarm monitoring
services to residents of Lennar communities and others.
5
(3) Acquisition of U.S. Home Corporation
On May 3, 2000, the Company acquired U.S. Home Corporation in a transaction in
which U.S. Home stockholders received a total of approximately $243 million in
cash and 13 million shares of the Company's common stock. U.S. Home is primarily
a homebuilder, with operations in 13 states. 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 joint ventures) 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. Goodwill is being amortized on a straight-line
basis over 20 years. Revenues and net earnings on an unaudited pro forma basis
would have been $2.4 billion and $92.3 million, respectively, for the six months
ended May 31, 2000 and $2.2 billion and $89.7 million, respectively, for the six
months ended May 31, 1999, had the acquisition occurred on December 1, 1998. Pro
forma earnings per share would have been $1.35 per share diluted ($1.45 per
share basic) for the six months ended May 31, 2000 and $1.19 per share diluted
($1.26 per share basic) for the six months ended May 31, 1999. 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.
(4) Debt
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, the Company made
a tender offer for all of the Notes and solicitation of consents to modify
provisions of the indentures relating to the Notes. The Company paid
approximately $514 million, which includes tender and consent fees, for all of
the U.S. Home Notes which were properly tendered in response to the Company's
offer. Pursuant to the requirement described above, after the acquisition was
completed, the Company offered to repurchase the remaining $19 million of U.S.
Home's publicly-held Notes. This offer expires July 27, 2000.
In May 2000, the Company issued $325 million of 9.95% Senior Notes due 2010 at a
price of 92.313% for the purpose of purchasing U.S. Home's publicly-held Notes
that were tendered in response to the Company's offer and consent solicitation
in April 2000, and to pay associated costs and expenses. Proceeds from the
offering, after underwriting discount and expenses, were approximately $295
million.
In May 2000, the Company also entered into new financing arrangements related to
the acquisition of U.S. Home, for working capital and for future growth. The
financing includes senior secured credit facilities with a group of financial
institutions which provides the Company with up to $1.4 billion of financing.
The credit facilities consist of a $700 million five-year revolving credit
facility, a $300 million 364-day revolving credit facility and a $400 million
term loan B. At May 31, 2000, $872.1 million was outstanding under these credit
facilities.
6
(5) Treasury Stock
In September 1999, the Company's Board of Directors approved the repurchase of
up to ten million shares of the Company's outstanding common stock from
time-to-time, subject to market conditions. On February 8, 2000, the Company's
Board of Directors authorized the repurchase of an additional five million
shares of the Company's outstanding common stock. As of May 31, 2000, the
Company had repurchased approximately 9.8 million shares of its outstanding
common stock for an aggregate purchase price of approximately $158.9 million.
(6) Earnings Per Share
Basic earnings per share is computed by dividing earnings attributable to common
shareholders 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. Basic and diluted earnings per share
were calculated as follows (unaudited):
Three Months Ended Six Months Ended
May 31, May 31,
----------------------------- -------------------------
(In thousands, except per share amounts) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic earnings per share -
net earnings $ 36,441 39,591 58,652 67,453
Interest on zero-coupon convertible
debentures, net of tax 1,447 1,380 2,875 2,742
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Numerator for diluted earnings per share $ 37,888 40,971 61,527 70,195
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Denominator:
Denominator for basic earnings per share -
weighted average shares 52,779 58,281 52,970 58,249
Effect of dilutive securities:
Employee stock options 542 772 476 825
Zero-coupon convertible debentures 6,105 6,105 6,105 6,105
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Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 59,426 65,158 59,551 65,179
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Basic earnings per share $ 0.69 0.68 1.11 1.16
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Diluted earnings per share $ 0.64 0.63 1.03 1.08
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7
(7) Financial Services
The assets and liabilities related to the Company's financial services
operations (as described in Note 2) are summarized as follows:
(Unaudited)
May 31, November 30,
(In thousands) 2000 1999
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Assets:
Cash and receivables, net $ 74,591 54,031
Mortgage loans held for sale or disposition, net 317,572 229,042
Mortgage loans, net 30,067 22,562
Mortgage servicing rights, net 15,341 15,564
Title plants 14,606 14,587
Goodwill, net 23,581 20,070
Other 38,004 36,062
Limited-purpose finance subsidiaries 22,766 25,624
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$ 536,528 417,542
-----------------------------------------------------------------------------------------------------
Liabilities:
Notes and other debts payable $ 346,280 253,010
Other 52,484 40,321
Limited-purpose finance subsidiaries 22,766 25,624
-----------------------------------------------------------------------------------------------------
$ 421,530 318,955
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(8) Cash and Cash Equivalents
Cash and cash equivalents as of May 31, 2000 and November 30, 1999 included
$57.8 million and $33.5 million, respectively, of cash held in escrow for
periods of up to three days.
(9) New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The effective date of this statement, as
amended by SFAS No. 137, is for fiscal years beginning after June 15, 2000. SFAS
No. 133 will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, a change in the fair value of the derivative will either be offset
against the change in the fair value of the hedged asset, liability, or firm
commitment through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. Management does not currently believe
that the implementation of SFAS No. 133 will have a material impact on the
Company's results of operations or financial position.
8
(10) Supplemental Financial Information
As discussed in Note 4, the Company sold $325 million of 9.95% Senior Notes due
2010. The Company's obligations to pay principal, premium, if any, and interest
under the Notes 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 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
below. 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.
Consolidating Condensed Balance Sheet
May 31, 2000
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and receivables, net $ 61,073 54,319 657 - 116,049
Inventories - 2,634,761 6,662 - 2,641,423
Investments in partnerships - 243,829 - - 243,829
Other assets 83,199 184,284 - - 267,483
Investments in subsidiaries 1,295,468 180,320 - (1,475,788) -
- -------------------------------------------------------------------------------------------------------------------------
1,439,740 3,297,513 7,319 (1,475,788) 3,268,784
Financial services - 18,651 517,877 - 536,528
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,439,740 3,316,164 525,196 (1,475,788) 3,805,312
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 112,033 482,923 2,015 - 596,971
Mortgage notes and other debts
payable, net 1,684,629 48,155 - - 1,732,784
Intercompany (1,410,949) 1,486,517 (75,568) - -
- -------------------------------------------------------------------------------------------------------------------------
385,713 2,017,595 (73,553) - 2,329,755
Financial services - 3,101 418,429 - 421,530
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 385,713 2,020,696 344,876 - 2,751,285
Stockholders' equity 1,054,027 1,295,468 180,320 (1,475,788) 1,054,027
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 1,439,740 3,316,164 525,196 (1,475,788) 3,805,312
- -------------------------------------------------------------------------------------------------------------------------
9
Supplemental Financial Information, Continued
Consolidating Condensed Balance Sheet
November 30, 1999
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and receivables, net $ 48,343 45,534 541 - 94,418
Inventories - 1,267,050 7,501 - 1,274,551
Investments in partnerships - 173,310 - - 173,310
Other assets 63,143 34,683 - - 97,826
Investments in subsidiaries 573,291 107,900 - (681,191) -
- -------------------------------------------------------------------------------------------------------------------------
684,777 1,628,477 8,042 (681,191) 1,640,105
Financial services - 26,132 391,410 - 417,542
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 684,777 1,654,609 399,452 (681,191) 2,057,647
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 103,002 228,421 2,109 - 333,532
Mortgage notes and other debts
payable, net 507,445 16,216 - - 523,661
Intercompany (807,169) 827,316 (20,147) - -
- -------------------------------------------------------------------------------------------------------------------------
(196,722) 1,071,953 (18,038) - 857,193
Financial services - 9,365 309,590 - 318,955
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities (196,722) 1,081,318 291,552 - 1,176,148
Stockholders' equity 881,499 573,291 107,900 (681,191) 881,499
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 684,777 1,654,609 399,452 (681,191) 2,057,647
- -------------------------------------------------------------------------------------------------------------------------
10
Supplemental Financial Information, Continued
Consolidating Condensed Statement of Earnings
Six Months Ended May 31, 2000
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 1,465,178 2,875 - 1,468,053
Financial services - 25,696 114,798 - 140,494
- -------------------------------------------------------------------------------------------------------------------------
Total revenues - 1,490,874 117,673 - 1,608,547
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding - 1,335,419 1,977 - 1,337,396
Financial services - 24,220 100,726 - 124,946
Corporate general and administrative 20,326 - - - 20,326
Interest - 29,728 - - 29,728
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 20,326 1,389,367 102,703 - 1,512,396
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (20,326) 101,507 14,970 - 96,151
Provision (benefit) for income taxes (8,047) 39,588 5,958 - 37,499
Equity in earnings from subsidiaries 70,931 9,012 - (79,943) -
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $ 58,652 70,931 9,012 (79,943) 58,652
- -------------------------------------------------------------------------------------------------------------------------
Consolidating Condensed Statement of Earnings
Six Months Ended May 31, 1999
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 1,200,432 1,101 - 1,201,533
Financial services - 10,475 116,948 - 127,423
- -------------------------------------------------------------------------------------------------------------------------
Total revenues - 1,210,907 118,049 - 1,328,956
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding - 1,066,174 1,215 - 1,067,389
Financial services - 12,471 99,779 - 112,250
Corporate general and administrative 17,321 - - - 17,321
Interest - 20,503 - - 20,503
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 17,321 1,099,148 100,994 - 1,217,463
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (17,321) 111,759 17,055 - 111,493
Provision (benefit) for income taxes (6,644) 43,586 7,098 - 44,040
Equity in earnings from subsidiaries 78,130 9,957 - (88,087) -
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $ 67,453 78,130 9,957 (88,087) 67,453
- -------------------------------------------------------------------------------------------------------------------------
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations may be
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such statements involve risks, uncertainties and other
factors that may cause actual results to differ materially from those which are
anticipated. Such factors include, but are not limited to, changes in general
economic conditions, the market for homes generally and in areas where the
Company has developments, the availability and cost of land suitable for
residential development, materials prices, labor costs, interest rates, consumer
confidence, competition, environmental factors and government regulations
affecting the Company's operations. See the Company's Annual Report on Form 10-K
for the year ended November 30, 1999 for a further discussion of these and other
risks and uncertainties applicable to the Company's business.
(1) Results of Operations
Overview
In May 2000, the Company acquired U.S. Home Corporation. See Note 3 of Notes to
Consolidated Condensed Financial Statements for additional information.
Second quarter net earnings were $36.4 million, or $0.64 per share diluted
($0.69 per share basic), compared to $39.6 million, or $0.63 per share diluted
($0.68 per share basic), in 1999. For the six months ended May 31, 2000, net
earnings were $58.7 million, or $1.03 per share diluted ($1.11 per share basic),
compared to $67.5 million, or $1.08 per share diluted ($1.16 per share basic),
in 1999.
Homebuilding
The following tables set forth selected financial and operational information
related to the Homebuilding Division for the periods indicated (unaudited):
Three Months Ended Six Months Ended
May 31, May 31,
(Dollars in thousands, except -----------------------------------------------------
average sales prices) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------
Revenues:
Sales of homes $ 843,426 625,424 1,367,374 1,132,193
Sales of land and other revenues 41,440 43,329 94,185 64,876
Equity in earnings from partnerships 2,265 1,404 6,494 4,464
- -------------------------------------------------------------------------------------------
Total revenues 887,131 670,157 1,468,053 1,201,533
Costs and expenses:
Cost of homes sold 690,133 490,684 1,111,100 891,102
Cost of land and other expenses 32,822 37,159 77,985 53,744
Selling, general and administrative 88,348 66,560 148,311 122,543
- -------------------------------------------------------------------------------------------
Total costs and expenses 811,303 594,403 1,337,396 1,067,389
- -------------------------------------------------------------------------------------------
Operating earnings $ 75,828 75,754 130,657 134,144
- -------------------------------------------------------------------------------------------
Gross margin on home sales - $ $ 153,293 134,740 256,274 241,091
Gross margin on home sales - % 18.2% 21.5% 18.7% 21.3%
S,G&A expenses as a percentage of
homebuilding revenues 10.0% 9.9% 10.1% 10.2%
Operating earnings as a percentage
of homebuilding revenues 8.5% 11.3% 8.9% 11.2%
Average sales price $ 219,000 201,000 218,000 205,000
- -------------------------------------------------------------------------------------------
12
Summary of Home and Backlog Data By Region
(Dollars in thousands) Three Months Ended Six Months Ended
May 31, May 31,
---------------------------- --------------------------
Deliveries 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------
East 1,334 962 2,103 1,721
Central 1,155 827 1,919 1,351
West 1,370 1,327 2,248 2,441
- -----------------------------------------------------------------------------------------------------
Subtotal 3,859 3,116 6,270 5,513
Joint Ventures 58 - 58 -
- -----------------------------------------------------------------------------------------------------
Total 3,917 3,116 6,328 5,513
=====================================================================================================
New Orders
- -----------------------------------------------------------------------------------------------------
East 1,359 1,140 2,210 2,170
Central 1,233 945 2,009 1,599
West 1,617 1,547 2,748 2,750
- -----------------------------------------------------------------------------------------------------
Subtotal 4,209 3,632 6,967 6,519
Joint Ventures 73 11 73 11
- -----------------------------------------------------------------------------------------------------
Total 4,282 3,643 7,040 6,530
=====================================================================================================
Backlog - Homes
- -----------------------------------------------------------------------------------------------------
East 3,598 1,993
Central 1,836 951
West 4,059 2,162
- -----------------------------------------------------------------------------------------------------
Subtotal 9,493 5,106
Joint Ventures 313 11
- -----------------------------------------------------------------------------------------------------
Total 9,806 5,117
=====================================================================================================
Backlog dollar value (includes joint ventures) $ 2,316,154 1,124,254
=====================================================================================================
The Company's market regions consist of the following states:
East: Primarily Florida and also includes Maryland/Virginia and New Jersey
Central: Primarily Texas and also includes Minnesota and Ohio
West: Primarily California and also includes Colorado, Arizona and Nevada
Homebuilding revenues increased 32% and 22% in the three and six months ended
May 31, 2000, respectively, compared to the same periods in 1999. Revenues were
higher primarily due to increases in the number of home deliveries and average
sales price in both periods. New home deliveries were higher due to the
inclusion of U.S. Home's homebuilding activity in May 2000. The increase in
average sales price on homes delivered during both periods was due primarily to
an increase in the average sales price in some of the Company's existing markets
combined with changes in product mix. Revenues from land sales totaled $38.9
million and $90.2 million in the three and six months ended May 31, 2000,
respectively, compared to $41.7 million and $61.4 million, in the same periods
in 1999, respectively. Equity in earnings from partnerships increased to $2.3
million and $6.5 million in the three and six months ended May 31, 2000,
respectively, from $1.4 million and $4.5 million in the same periods last year,
respectively.
13
Gross margins on home sales increased to $153.3 million and $256.3 million in
the three and six months ended May 31, 2000, respectively, compared to $134.7
million and $241.1 million in the three and six months ended May 31, 1999,
respectively. Gross margins were impacted by purchase accounting associated with
the acquisition of U.S. Home. Gross margin percentages on home sales were 20.8%
(excluding the effect of purchase accounting) and 18.2% (including the effect of
purchase accounting) in the second quarter of 2000, compared to 21.5% in 1999.
Gross margin percentages on home sales were 20.3% (excluding the effect of
purchase accounting) and 18.7% (including the effect of purchase accounting) in
the six months ended May 31, 2000, compared to 21.3% in 1999. Gross margins from
land sales totaled $6.7 million, or 17.3%, and $13.2 million, or 14.6%, in the
three and six months ended May 31, 2000, respectively, compared to $5.9 million,
or 14.1%, and $9.6 million, or 15.6%, in the same periods last year,
respectively. Margins achieved on sales of land may vary significantly from
period to period.
Selling, general and administrative expenses as a percentage of homebuilding
revenues were 10.0% and 10.1% in the three and six months ended May 31, 2000,
respectively, compared to 9.9% and 10.2% in the three and six months ended May
31, 1999, respectively.
At May 31, 2000, the Company's backlog of sales contracts increased to 9,806
homes ($2.3 billion) compared to 5,117 homes ($1.1 billion) at May 31, 1999. The
higher backlog was attributable to the acquisition of U.S. Home in May 2000.
Financial Services
The following table presents selected financial data related to the Financial
Services Division for the periods indicated (unaudited):
Three Months Ended Six Months Ended
May 31, May 31,
--------------------------- ---------------------------
(Dollars in thousands) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------
Revenues $ 81,049 68,200 140,494 127,423
Costs and expenses 66,109 58,748 124,946 112,250
----------------------------------------------------------------------------------------------------------
Operating earnings $ 14,940 9,452 15,548 15,173
----------------------------------------------------------------------------------------------------------
Dollar value of mortgages originated $ 686,835 670,300 1,169,853 939,967
----------------------------------------------------------------------------------------------------------
Number of mortgages originated 4,600 4,700 7,800 6,600
----------------------------------------------------------------------------------------------------------
Principal balance of servicing portfolio $ 2,687,000 3,323,000
----------------------------------------------------------------------------------------------------------
Number of loans serviced 33,000 40,000
----------------------------------------------------------------------------------------------------------
Number of title transactions 31,000 36,000 57,000 74,000
----------------------------------------------------------------------------------------------------------
Operating earnings from the Financial Services Division increased in the three
and six months ended May 31, 2000 compared to the same periods last year. The
increase was primarily due to a $5.3 million contribution from Strategic
Technologies, Inc. which included the sale of three Florida cable systems.
Corporate General and Administrative Expenses
Corporate general and administrative expenses as a percentage of total revenues
were 1.2% in both the three months ended May 31, 2000 and 1999 and 1.3% in both
the six months ended May 31, 2000 and 1999.
14
Interest Expense
In the second quarter of 2000, interest expense was $19.8 million, or 2.0% of
total revenues, compared to interest expense of $11.0 million, or 1.5% of total
revenues, in 1999. In the first six months of 2000, interest expense was $29.7
million, or 1.8% of total revenues, compared to interest expense of $20.5
million, or 1.5% of total revenues, in 1999. The increase in interest as a
percentage of total revenues in both periods was primarily due to an increase in
interest per home delivered which resulted from higher average debt outstanding
compared to the same periods last year.
(2) Liquidity and Financial Resources
In the six months ended May 31, 2000, $154.6 million in cash was used in the
Company's operating activities, compared to $105.8 million in the corresponding
period in 1999. In the six months ended May 31, 2000, $94.6 million of cash was
used to increase inventories through land purchases, land development and
construction and $94.6 million was used to reduce accounts payable and other
liabilities. These uses of cash were offset by $58.7 million of net earnings. In
the six months ended May 31, 1999, $180.7 million of cash was used to increase
inventories through land purchases, land development and construction and $32.2
million was used to reduce accounts payable and other liabilities. These uses of
cash were partially offset by $67.5 million of net earnings, $18.6 million of
cash received from the sale or disposition of loans by the Company's Financial
Services Division and an increase in deferred income taxes of $14.0 million.
Cash used in investing activities totaled $173.4 million in the six months ended
May 31, 2000, compared to cash used in investing activities of $48.9 million in
the corresponding period in 1999. In the six months ended May 31, 2000, $156.7
million of cash was used in the acquisitions of properties and businesses. In
the six months ended May 31, 1999, $20.2 million of cash was used in the
acquisitions of properties and businesses and $23.1 million was used to increase
the Company's investments in partnerships.
The Company meets the majority of its short-term financing needs with cash
generated from operations and funds available under its credit facilities. In
May 2000, the Company entered into new financing arrangements related to the
acquisition of U.S. Home, for working capital and for future growth. The
financing includes senior secured credit facilities with a group of financial
institutions which will provide the Company with up to $1.4 billion of
financing. The credit facilities consist of a $700 million five-year revolving
credit facility, a $300 million 364-day revolving credit facility and a $400
million term loan B. At May 31, 2000, $872.1 million was outstanding under these
credit facilities.
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, the Company made
a tender offer for all of the Notes and solicitation of consents to modify
provisions of the indentures relating to the Notes. The Company paid
approximately $514 million, which includes tender and consent fees, for all of
the U.S. Home Notes which were properly tendered in response to the Company's
offer. Pursuant to the requirement described above, after the acquisition was
completed, the Company offered to repurchase the remaining $19 million of U.S.
Home's publicly-held Notes. This offer expires July 27, 2000.
In May 2000, the Company issued $325 million of 9.95% Senior Notes due 2010 at a
price of 92.313% for the purpose of purchasing U.S. Home's publicly-held Notes
that were tendered in response to the Company's offer and consent solicitation
in April 2000, and to pay associated costs and expenses. Proceeds from the
offering, after underwriting discount and expenses, were approximately $295
million.
15
In September 1999, the Company's Board of Directors approved the repurchase of
up to ten million shares of the Company's outstanding common stock from
time-to-time, subject to market conditions. On February 8, 2000, the Company's
Board of Directors authorized the repurchase of an additional five million
shares of the Company's outstanding common stock. As of May 31, 2000, the
Company had repurchased approximately 9.8 million shares of its outstanding
common stock for an aggregate purchase price of approximately $158.9 million.
In March 1999, the Company filed a shelf registration statement and prospectus
with the Securities and Exchange Commission to offer, from time-to-time, its
common stock, preferred stock, depositary shares, debt securities or warrants at
an aggregate initial offering price not to exceed $500 million. Proceeds can be
used for repayment of debt, acquisitions and general corporate purposes. As of
May 31, 2000, no securities had been issued under this registration statement.
Based on the Company's current financial condition and financial market
resources, management believes that its operations and capital resources will
provide for its current and long-term capital requirements at the Company's
anticipated levels of growth.
(3) Market Risk
The information included in "Item 7A. Market Risk" in the Company's Annual
Report on Form 10-K for the year ended November 30, 1999 is incorporated herein
by reference.
During the three months ended May 31, 2000, the Company entered into new
financing arrangements as a result of the acquisition of U.S. Home. As discussed
in the Liquidity and Financial Resources section, in May 2000, the Company
issued $325 million of 9.95% Senior Notes due 2010 at a price of 92.313%.
Proceeds from the offering, after underwriting discount and expenses, were
approximately $295 million. In May 2000, the Company also entered into new
financing arrangements related to the acquisition of U.S. Home, for working
capital and for future growth. The financing includes senior secured credit
facilities with a group of financial institutions which will provide the Company
with up to $1.4 billion of financing. The credit facilities consist of a $700
million five-year revolving credit facility, a $300 million 364-day revolving
credit facility and a $400 million term loan B. At May 31, 2000, $872.1 million
was outstanding under these credit facilities.
Part II. Other Information
Items 1-3. Not applicable.
16
Item 4. Submission of Matters to a Vote of Security Holders.
(1) The following matter was resolved by vote at the April 4, 2000 annual
meeting of stockholders of Lennar Corporation:
The following members of the Board of Directors were re-elected to hold office
until 2003:
Votes For Votes Withheld
----------- --------------
Jonathan M. Jaffe 131,974,382 2,372,079
Sidney Lapidus 133,900,401 446,060
Arnold P. Rosen 132,686,973 1,659,488
Other directors whose term of office continued after the meeting:
Irving Bolotin
R. Kirk Landon
Reuben S. Leibowitz
Leonard Miller
Stuart A. Miller
Steven J. Saiontz
(2) The following matter was resolved by vote at the April 28, 2000 special
meeting of stockholders of Lennar Corporation:
Approval of the issuance of common stock of Lennar Corporation to holders of
common stock of U.S. Home Corporation as contemplated by a plan and agreement of
merger dated as of February 16, 2000, as amended, among Lennar Corporation, Len
Acquisition Corporation and U.S. Home Corporation. The results of the vote were
as follows:
Votes Votes Votes
For Against Abstaining
------------- ------------- -------------
Common shares 31,060,102 239,548 21,381
Class B Common shares 98,239,610 27,000 0
Common and Class B combined 129,299,712 266,548 21,381
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(27) Financial Data Schedule.
(b) Reports on Form 8-K: A report on Form 8-K dated May 2, 2000
was filed by the Registrant providing information in
connection with the Company's acquisition of U.S. Home
Corporation.
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENNAR CORPORATION
---------------------------------
(Registrant)
Date: July 17, 2000 /s/ BRUCE E. GROSS
---------------------------------
Bruce E. Gross
Vice President and
Chief Financial Officer
Date: July 17, 2000 /s/ DIANE J. BESSETTE
---------------------------------
Diane J. Bessette
Vice President and
Controller
18
Exhibit Index
Exhibit No. Exhibit Description
27 Financial Data Schedule