Exhibit 13
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
Lennar Corporation and Subsidiaries
At or for the Years Ended November 30,
(Dollars in thousands, except per share amounts) 2000 1999 1998 1997 1996
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Results of Operations:
Revenues:
Homebuilding $4,390,034 2,849,207 2,204,428 1,208,570 952,648
Financial services $ 316,934 269,307 212,437 94,512 89,013
Total revenues $4,706,968 3,118,514 2,416,865 1,303,082 1,041,661
Operating earnings:
Homebuilding $ 480,796 340,803 283,369 120,240 91,066
Financial services $ 43,595 31,096 33,335 35,545 28,650
Corporate general and administrative expenses $ 50,155 37,563 28,962 15,850 12,396
Earnings from continuing operations before income taxes $ 375,635 285,477 240,114 85,727 84,429
Earnings from continuing operations $ 229,137 172,714 144,068 50,605 51,502
Earnings from discontinued operations $ -- -- -- 33,826 36,484
Net earnings $ 229,137 172,714 144,068 84,431 87,986
Per share amounts (diluted):
Earnings from continuing operations $ 3.64 2.74 2.49 1.34 1.42
Earnings from discontinued operations $ -- -- -- 0.89 1.01
Net earnings per share $ 3.64 2.74 2.49 2.23 2.43
Cash dividends per share - common stock $ .05 .05 .05 .088 .10
Cash dividends per share - Class B common stock $ .045 .045 .045 .079 .09
Financial Position:
Total assets $3,777,914 2,057,647 1,917,834 1,343,284 1,589,593
Total debt $1,703,510 802,295 798,838 661,695 689,159
Stockholders' equity $1,228,580 881,499 715,665 438,999 695,456
Shares outstanding (000's) 62,731 57,917 58,151 53,160 35,928
Stockholders' equity per share $ 19.58 15.22 12.31 8.26 19.36
Delivery and Backlog Information:
Number of homes delivered 18,578 12,606 10,777 6,702 5,968
Backlog of home sales contracts 8,363 2,903 4,100 3,318 1,929
Dollar value of backlog $2,072,000 662,000 840,000 665,000 312,000
As a result of the Company's spin-off of its commercial real estate investment
and management business, including the Investment Division business segment, the
selected financial data for 1997 and 1996 reflects the Company's Investment
Division as a discontinued operation.
1
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. By their nature, forward-looking statements involve risks,
uncertainties and other factors that may cause actual results to differ
materially from those which are anticipated. With regard to the Company, these
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.
RESULTS OF OPERATIONS
Overview
Lennar Corporation achieved record revenues, profits and earnings per
share in 2000. The Company's net earnings in 2000 were $229.1 million, or $3.64
per share diluted, compared to $172.7 million, or $2.74 per share diluted, in
1999. The increase in net earnings in 2000 primarily resulted from the Company's
$1.2 billion acquisition of U.S. Home Corporation ("U.S. Home") in May 2000.
U.S. Home is primarily a homebuilder, with operations in 13 states. The
acquisition strengthened the Company's position in several of its established
markets and brought the Company positions of strength in a number of attractive
new markets. As a result of the successful integration of U.S. Home, the Company
achieved record earnings in 2000 and further strengthened its balance sheet by
reducing its ratio of net homebuilding debt (homebuilding debt less cash) to
total capital from 61% immediately after it acquired U.S. Home to 44% at
year-end.
Homebuilding
The Company's Homebuilding Division sells and constructs homes
primarily for entry level, move-up, active adult and retiree homebuyers in 13
states. The Company markets under its "Everything's Included SM" and "Design
Studio SM" programs. The Company's land operations include the purchase,
development and sale of land for its homebuilding activities, as well as the
sale of land to third parties. In certain circumstances, the Company minimizes
its risk by forming joint ventures with other entities. The following tables set
forth selected financial and operational information for the periods indicated.
The results of U.S. Home are included in the information since its acquisition
in May 2000.
Selected Homebuilding Division Financial Data
(Dollars in thousands, Years Ended November 30,
except average sales price) 2000 1999 1998
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Revenues:
Sales of homes $4,118,549 2,671,744 2,089,762
Sales of land and other revenues 258,145 157,981 83,758
Equity in earnings from
partnerships 13,340 19,482 30,908
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Total revenues 4,390,034 2,849,207 2,204,428
Costs and expenses:
Cost of homes sold 3,277,183 2,105,422 1,641,741
Cost of land and other expenses 220,948 130,432 69,279
Selling, general and
administrative 411,107 272,550 210,039
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Total costs and expenses 3,909,238 2,508,404 1,921,059
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Operating earnings $ 480,796 340,803 283,369
=================================================================================
Gross margin on home sales* 21.3% 21.2% 21.4%
SG&A expenses as a % of
revenues from home sales 10.0% 10.2% 10.1%
Average sales price $ 226,000 212,000 194,000
=================================================================================
* Fiscal 2000 excludes the effect of purchase accounting related to the U.S.
Home acquisition.
Summary of Home and Backlog Data By Region
(Dollars in thousands) Years Ended November 30,
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Deliveries 2000 1999 1998
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East 6,155 4,241 3,761
Central 5,203 3,107 2,484
West 6,878 5,241 4,532
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Subtotal 18,236 12,589 10,777
Joint ventures 342 17 --
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Total 18,578 12,606 10,777
==============================================================
New Orders
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East 5,676 3,788 4,010
Central 5,089 3,056 2,519
West 6,770 4,536 4,487
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Subtotal 17,535 11,380 11,016
Joint ventures 312 29 --
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Total 17,847 11,409 11,016
==============================================================
Backlog - Homes
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East 2,768 1,091 1,544
Central 1,632 652 703
West 3,451 1,148 1,853
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Subtotal 7,851 2,891 4,100
Joint ventures 512 12 --
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Total 8,363 2,903 4,100
==============================================================
Backlog Dollar Value
(including JVs) $2,072,000 662,000 840,000
==============================================================
2
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. In addition, the Company has
various partnerships in North Carolina and Michigan.
Revenues from sales of homes increased 54% in 2000 and 28% in 1999
compared to the previous years primarily as a result of increases in the number
of new home deliveries and the average sales price. New home deliveries were
higher in 2000 compared to 1999 due to the inclusion of U.S. Home's homebuilding
activity since its acquisition in May 2000. The increase in deliveries in 1999
compared to 1998 reflected growth in California, where the Company made several
acquisitions in 1998, and generally favorable market conditions throughout the
Company's homebuilding markets in the first half of 1999. The higher average
sales price in 2000 compared to 1999 was due primarily to an increase in the
average sales price in most of the Company's existing markets, combined with
changes in product mix as a result of the entry into new markets. The higher
average sales price in 1999 compared to 1998 reflected both price increases and
a shift in product mix in certain markets.
Gross profits on home sales increased to $841.4 million in 2000,
compared to $566.3 million in 1999 and $448.0 million in 1998. Gross profits in
2000 were impacted by purchase accounting associated with the acquisition of
U.S. Home. Gross margin as a percentage of sales of homes in 2000 was 21.3%
(excluding the effect of purchase accounting), and 20.4% (including the effect
of purchase accounting), compared to 21.2% in 1999 and 21.4% in 1998. Gross
margins increased slightly in 2000 excluding the effect of purchase accounting
compared to 1999. The increase was primarily due to improvements in Florida and
success in new markets entered into since the acquisition of U.S. Home. The
slight decrease in gross margin percentage in 1999 compared to 1998 was due
primarily to the Company's expansion into inland areas of California where gross
margin percentages are lower than those in the other areas of California in
which the Company operates.
Revenues from land sales totaled $243.5 million in 2000, compared to
$150.3 million in 1999 and $77.2 million in 1998. Gross profits from land sales
totaled $27.6 million, or 11.3%, in 2000, compared to $22.2 million, or 14.8%,
in 1999 and $12.6 million, or 16.3%, in 1998. Equity in earnings from
partnerships decreased to $13.3 million in 2000, compared to $19.5 million in
1999 and $30.9 million in 1998. Margins achieved on sales of land and equity in
earnings from partnerships may vary significantly from period to period
depending on the timing of land sales by the Company and its partnerships.
Selling, general and administrative expenses as a percentage of
revenues from home sales improved 20 basis points in 2000 compared to 1999 and
remained nearly unchanged in 1999 compared to 1998. 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.
New home orders increased 56% in 2000 and 4% in 1999 compared to the
previous years. The significant increase in 2000 was a result of the Company's
acquisition of U.S. Home. The increase in 1999 reflected higher new orders in
the first half of 1999 due primarily to expansion in California and strong
demand in Texas. While new home orders rose in fiscal 1999, they were lower in
the second half of the fiscal year compared to the same period in 1998 due
primarily to lower new orders in Florida and Arizona/Nevada, where there were
decreases in the average number of communities and some softening in demand in
certain markets. Backlog dollar value increased 213% to $2.1 billion at November
30, 2000, compared to $0.7 billion at November 30, 1999, due primarily to the
Company's acquisition of U.S. Home.
Financial Services
The Financial Services Division provides mortgage financing, title
insurance and closing services for Lennar homebuyers and others. The Division
packages and resells residential mortgage loans and performs mortgage loan
servicing activities. The Division also provides high speed Internet access,
cable television and home monitoring services for both Lennar homebuyers and
other customers. The following table sets forth selected financial and
operational information relating to the Financial Services Division. The results
of U.S. Home Mortgage Corporation are included in the information since its
acquisition in May 2000.
Years Ended November 30,
(Dollars in thousands) 2000 1999 1998
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Revenues $ 316,934 269,307 212,437
Costs and expenses 273,339 238,211 179,102
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Operating earnings $ 43,595 31,096 33,335
==================================================================
Dollar value of
mortgages originated $3,240,252 2,162,479 1,031,338
==================================================================
Number of mortgages
originated 20,800 14,900 7,900
==================================================================
Principal balance of
servicing portfolio $2,313,336 3,128,234 3,213,235
==================================================================
Number of loans serviced 29,000 38,000 41,000
==================================================================
Number of title
transactions 120,000 139,000 123,000
==================================================================
3
The 18% increase in revenues from the Financial Services Division in
2000 compared to 1999 reflected higher mortgage services revenues as a result of
the contribution from U.S. Home Mortgage Corporation since its acquisition in
May 2000 combined with higher revenues and an increased capture rate from the
Division's existing mortgage operations. The 27% increase in revenues from the
Financial Services Division in 1999 compared to 1998 reflected higher mortgage
services revenues as a result of the growth in Lennar home deliveries, a higher
capture rate of Lennar homebuyers and acquisitions made in the Division in 1999,
combined with higher title services revenues which resulted from a higher number
of title transactions in the first half of 1999 and acquisitions made in 1998
and 1999.
Operating earnings from the Financial Services Division were higher in
2000 compared to 1999 primarily due to the earnings contribution from U.S. Home
Mortgage Corporation. Operating earnings from the Financial Services Division
were lower in 1999 compared to 1998 primarily due to reduced earnings from title
services as a result of a lower level of refinance activity, and a highly
competitive pricing environment in the mortgage business.
Corporate General and Administrative
Corporate general and administrative expenses as a percentage of total
revenues improved to 1.1% in 2000 from 1.2% in both 1999 and 1998. The
improvement in 2000 was primarily the result of a strong corporate
infrastructure capable of supporting additional growth.
Interest
Interest expense was $98.6 million, or 2.1% of total revenues, in 2000,
$48.9 million, or 1.6% of total revenues, in 1999 and $47.6 million, or 2.0% of
total revenues, in 1998. The increase in interest as a percentage of total
revenues in 2000 was primarily due to higher average debt outstanding and higher
average cost of debt following the U.S. Home acquisition, compared to the same
period last year. The decrease in interest as a percentage of total revenues in
1999 compared to 1998 was mainly due to a lower average borrowing rate in the
first nine months of 1999, primarily as a result of the Company's issuance of
$229 million of zero-coupon senior convertible debt securities late in the third
quarter of 1998. These notes have an effective interest rate of 3 7/8%.
FINANCIAL CONDITION AND CAPITAL RESOURCES
In 2000, $479.4 million in cash was provided by the Company's
operations, compared to $121.3 million in 1999. Cash flows from operations in
2000 consisted primarily of $229.1 million of net earnings, $223.3 million of
cash received from the sale of inventories and an increase in accounts payable
and other liabilities of $101.0 million. This generation of cash was primarily
offset by $75.9 million of cash used to increase loans held for sale or
disposition by the Company's Financial Services Division. Cash flows from
operations in 1999 consisted primarily of $172.7 million of net earnings. This
generation of cash was primarily offset by $77.4 million of cash used to
increase inventories through land purchases, land development and construction
and $41.2 million of cash used to reduce accounts payable and other liabilities.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") were $518.5 million in 2000, $373.3 million in 1999 and $313.0
million in 1998.
Cash used in investing activities totaled $186.7 million in 2000,
compared to cash used in investing activities of $28.5 million in 1999. In 2000,
$158.4 million of cash was used in the acquisitions of properties and
businesses, which includes $152.4 million used for the acquisition of U.S. Home.
In 1999, $19.7 million of cash was used in the acquisitions of properties and
businesses.
The Company finances its land acquisition and development activities,
construction activities, financial services activities and general operating
needs primarily from cash generated from operations as well as from revolving
lines of credit, public debt and equity, financial institution borrowings and
purchase money notes. The Company also buys land under option agreements. Option
agreements permit the Company to acquire portions of properties when it is ready
to build homes on them. The financial risk of adverse market conditions
associated with longer-term land holdings is managed by prudent underwriting of
land purchases in areas that the Company views as desirable growth markets,
diversification of risk through partnerships with other entities and careful
management of the land development process.
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 financings include 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. The Company 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, 2000, there was $399 million outstanding under the term loan B
and there were no amounts outstanding under the revolving 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 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, which includes tender and consent fees, for $508
million of U.S. Home's notes.
4
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. At November 30, 2000, the book value was $300.0
million.
In February 1999, the Company issued $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 under revolving credit facilities and redeeming
outstanding 10 3/4% notes. Proceeds from the offering, after underwriting and
market discounts, expenses and settlement of a related interest rate hedge
agreement, were approximately $266 million. 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, 2000, the book
value related to the 7 5/8% senior notes was $270.5 million.
In July 1998, the Company 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 the Company'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 anniversary dates from the
issue date for the initial issue price plus accrued original issue discount. The
Company has the option to satisfy the repurchases with any combination of cash
and/or shares of the Company's common stock. The Company will have the option to
redeem the Debentures, in cash, at any time after the fifth anniversary date for
the initial issue price plus accrued original issue discount. At November 30,
2000, the amount outstanding, net of unamortized original issue discount, was
$247.2 million.
The Company's ratio of net homebuilding debt to total capital was 44.0%
at November 30, 2000, compared to 33.3% at November 30, 1999. The increase
resulted in part from repurchases of the Company's outstanding common stock and
in part from the new financings related to the acquisition of U.S. Home. In
addition to the use of capital in the Company's ordinary homebuilding and
financial services activities, the Company will continue to actively evaluate
various other uses of capital which fit into its homebuilding and financial
services strategies and meet its 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 the Company's credit
facilities, cash generated from operations, sales of assets or the issuance of
public debt, common stock or preferred stock under existing and future shelf
registrations.
The Financial Services Division finances its mortgage loan and
servicing activities by pledging them as collateral for borrowings under lines
of credit totaling $360 million. Total borrowings under the financial services
lines of credit were $339.4 million and $236.6 million at November 30, 2000 and
1999, respectively.
The Company utilizes interest rate swap agreements to manage interest
costs and hedge against risks associated with changing interest rates. At
November 30, 2000, the Company had six interest rate swap agreements outstanding
with a total notional amount of $400 million, which mature at various dates
through 2007. These agreements fixed the LIBOR index (to which certain of the
Company's debt interest rates are tied) at an average interest rate of 6.6% at
November 30, 2000. The Financial Services Division, in the normal course of
business, also uses derivative financial instruments to reduce its exposure to
fluctuations in interest rates. Counterparties to each of the above agreements
are major financial institutions. Credit loss from counterparty non-performance
is not anticipated.
The Company's 2000 Stock Option and Restricted Stock Plan (the "Plan"),
which is subject to stockholder approval at the 2001 annual meeting of the
Company's stockholders, provides for the granting of stock options and awards of
restricted stock to certain officers, employees and directors. In the third
quarter of 2000, 860,000 shares of restricted stock were awarded under the Plan.
The stock was valued based on its market price on the date of grant. Unearned
compensation arising from the restricted stock grants is amortized to expense
over the period of the restrictions. The grants vest over 5 years.
In September 1999, the Company's Board of Directors approved the
repurchase of up to 10 million shares of the Company's outstanding common stock
from time-to-time, subject to market conditions. In February 2000, the Company's
Board of Directors approved the repurchase of an additional 5 million shares of
the Company's outstanding common stock. As of November 30, 2000, under these
approvals, the Company had repurchased approximately 9.8 million shares of its
outstanding common stock for an aggregate purchase price of approximately $158.9
million, or $16 per share.
In July 2000 and March 1999, the Company filed shelf registration
statements with the Securities and Exchange Commission ("SEC") under which it
may 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 $1 billion in total. Proceeds can be used for repayment of debt,
acquisitions and general corporate purposes. As of November 30, 2000, no
securities had been issued under these two registration statements.
5
The Company has maintained excellent relationships with the financial
institutions participating in its financing arrangements and has no reason to
believe that such relationships will not continue in the future. Based on the
Company's current financial condition and credit relationships, Lennar believes
that its operations and borrowing resources will provide for its current and
long-term capital requirements at the Company's anticipated levels of growth.
BACKLOG
Backlog represents the number of homes subject to pending sales
contracts. Homes are sold using sales contracts which are usually accompanied by
sales deposits. Before entering into sales contracts, the Company generally
prequalifies its 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. The
Company experienced a cancellation rate of 21% in 2000 and 20% in both 1999 and
1998. Although cancellations can delay the sales of the Company's homes, they
have not had a material impact on sales, operations or liquidity, because the
Company closely monitors the progress of prospective buyers in obtaining
financing and monitors and adjusts construction start plans to match the level
of demand for homes. The Company does not recognize revenue on homes covered by
pending sales contracts until the sales are closed and title passes to the new
homeowners.
SEASONALITY
The Company has historically experienced variability in results of
operations from quarter to quarter due to the seasonal nature of the
homebuilding business. The Company typically experiences 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, the Company typically has a greater percentage
of new home deliveries in the second half of its fiscal year compared to the
first half. As a result, the Company's earnings from sales of homes are
generally higher in the second half of the fiscal year.
INTEREST RATES AND CHANGING PRICES
Inflation can have a long-term impact on the Company 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. Increased construction
costs, 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 the Company. In addition, deflation can impact the value of
real estate. There can be no assurance that changing prices will not have a
material adverse impact on the Company's future results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and
SFAS No. 138, which is required to be adopted 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. The
implementation of SFAS No. 133 will not have a material impact on the Company's
results of operations or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, Revenue Recognition in Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB No. 101 is applicable for the Company beginning in the
fourth quarter of the year ending November 30, 2001. Management does not
currently believe that the implementation of SAB No. 101 will have a material
impact on the Company's results of operations or financial position.
In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS No. 140 replaces SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Management does not currently
believe that the implementation of SFAS No. 140 will have a material impact on
the Company's results of operations or financial position.
6
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") as of November 30, 2000 and 1999,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the three years in the period ended November 30, 2000.
These financial statements are the responsibility of the Company'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, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 2000, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Miami, Florida
January 9, 2001
7
REPORT OF MANAGEMENT
The accompanying consolidated financial statements are the responsibility of
management. The statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and include
amounts that are based on management's best judgments and estimates. Management
relies on internal accounting controls, among other things, to produce records
suitable for the preparation of financial statements. The Company employs
internal auditors whose work includes evaluating and testing internal accounting
controls.
The responsibility of our independent auditors for the financial statements is
limited to their expressed opinion on the fairness of the consolidated financial
statements taken as a whole. Their examination is performed in accordance with
auditing standards generally accepted in the United States of America which
include tests of our accounting records and internal accounting controls and
evaluation of estimates and judgments used to prepare the financial statements.
An Audit Committee of outside members of the Board of Directors periodically
meets with management, the external auditors and internal auditors to evaluate
the scope of auditing activities and review results. Both the external and
internal auditors have full and free access to the Committee, without management
present, to discuss any appropriate matters.
/s/ BRUCE E. GROSS /s/ DIANE J. BESSETTE
Bruce E. Gross Diane J. Bessette
Vice President and Chief Financial Officer Vice President and Controller
8
CONSOLIDATED BALANCE SHEETS
Lennar Corporation and Subsidiaries
November 30, 2000 and 1999
(In thousands, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash $ 287,627 83,256
Receivables, net 42,270 11,162
Inventories:
Construction in progress and model homes 2,284,548 1,234,213
Land held for development 17,036 40,338
---------------------------
Total inventories 2,301,584 1,274,551
Investments in partnerships 257,639 173,310
Other assets 277,794 97,826
---------------------------
3,166,914 1,640,105
Financial services 611,000 417,542
---------------------------
$ 3,777,914 2,057,647
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 778,238 333,532
Mortgage notes and other debts payable, net 1,254,650 523,661
---------------------------
2,032,888 857,193
Financial services 516,446 318,955
---------------------------
Total liabilities 2,549,334 1,176,148
Stockholders' equity:
Preferred stock -- --
Common stock of $0.10 par value per share
Authorized 100,000 shares;
Issued: 2000 - 62,731; 1999 - 48,511 6,273 4,851
Class B common stock of $0.10 par value per share
Authorized 30,000 shares;
Issued: 2000 - 9,848; 1999 - 9,848 985 985
Additional paid-in capital 812,501 525,623
Retained earnings 582,299 356,058
Unearned restricted stock (14,535) --
Treasury stock, at cost;
2000 - 9,848 common shares; 1999 - 442 common shares (158,943) (6,018)
---------------------------
Total stockholders' equity 1,228,580 881,499
---------------------------
$ 3,777,914 2,057,647
===========================
See accompanying notes to consolidated financial statements.
9
CONSOLIDATED STATEMENTS OF EARNINGS
Lennar Corporation and Subsidiaries
Years Ended November 30, 2000, 1999 and 1998
(In thousands, except per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------
Revenues:
Homebuilding $4,390,034 2,849,207 2,204,428
Financial services 316,934 269,307 212,437
--------------------------------------
Total revenues 4,706,968 3,118,514 2,416,865
--------------------------------------
Costs and expenses:
Homebuilding 3,909,238 2,508,404 1,921,059
Financial services 273,339 238,211 179,102
Corporate general and administrative 50,155 37,563 28,962
Interest expense 98,601 48,859 47,628
--------------------------------------
Total costs and expenses 4,331,333 2,833,037 2,176,751
--------------------------------------
Earnings before provision for income taxes 375,635 285,477 240,114
Provision for income taxes 146,498 112,763 96,046
--------------------------------------
Net earnings $ 229,137 172,714 144,068
======================================
Earnings per share:
Basic $ 4.00 2.97 2.59
======================================
Diluted $ 3.64 2.74 2.49
======================================
See accompanying notes to consolidated financial statements.
10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Lennar Corporation and Subsidiaries
Years Ended November 30, 2000, 1999 and 1998
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Common stock:
Beginning balance $ 4,851 4,824 4,322
Shares issued - U.S. Home acquisition 1,298 -- --
Shares issued - acquisitions -- -- 350
Shares issued - equity draw-down agreement -- -- 114
Shares issued - employee stock plans and restricted stock grants 124 21 35
Conversion of Class B common stock -- 6 3
-------------------------------------------
Balance at November 30 6,273 4,851 4,824
-------------------------------------------
Class B common stock:
Beginning balance 985 991 994
Conversion to common stock -- (6) (3)
-------------------------------------------
Balance at November 30 985 985 991
-------------------------------------------
Additional paid-in capital:
Beginning balance 525,623 523,645 388,797
Shares issued - U.S. Home acquisition 265,569 -- --
Shares issued - acquisitions -- -- 93,746
Payment made under acquisition agreement -- (1,252) --
Shares issued - equity draw-down agreement -- -- 35,957
Shares issued - employee stock plans and restricted stock grants 21,309 3,230 5,145
-------------------------------------------
Balance at November 30 812,501 525,623 523,645
-------------------------------------------
Retained earnings:
Beginning balance 356,058 186,205 44,886
Net earnings 229,137 172,714 144,068
Cash dividends - common stock (2,453) (2,418) (2,302)
Cash dividends - Class B common stock (443) (443) (447)
-------------------------------------------
Balance at November 30 582,299 356,058 186,205
-------------------------------------------
Unearned restricted stock:
Beginning balance -- -- --
Restricted stock grants (15,856) -- --
Amortization of unearned restricted stock 1,321 -- --
-------------------------------------------
Balance at November 30 (14,535) -- --
-------------------------------------------
Treasury stock, at cost:
Beginning balance (6,018) -- --
Repurchases of common stock (152,925) (6,018) --
-------------------------------------------
Balance at November 30 (158,943) (6,018) --
-------------------------------------------
Total stockholders' equity $ 1,228,580 881,499 715,665
===========================================
See accompanying notes to consolidated financial statements.
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lennar Corporation and Subsidiaries
Years Ended November 30, 2000, 1999 and 1998
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 229,137 172,714 144,068
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 44,267 38,956 25,264
Amortization of discount/premium on debt, net 14,264 8,774 (885)
Equity in earnings from partnerships (13,340) (19,482) (30,908)
Increase (decrease) in deferred income taxes (17,223) 28,125 12,469
Changes in assets and liabilities, net of effects
from acquisitions:
(Increase) decrease in receivables (11,912) 8,173 8,636
(Increase) decrease in inventories 223,255 (77,428) (112,347)
Increase in other assets (14,179) (3,639) (1,970)
(Increase) decrease in financial services
loans held for sale or disposition (75,871) 6,293 (111,582)
Increase (decrease) in accounts payable and other
liabilities 101,001 (41,196) 130,451
-------------------------------------
Net cash provided by operating activities 479,399 121,290 63,196
-------------------------------------
Cash flows from investing activities:
Operating properties and equipment:
Additions (16,022) (15,328) (13,233)
Sales 5,520 -- 51
(Increase) decrease in investments in partnerships, net (2,857) 6,524 (6,724)
(Increase) decrease in financial services mortgage loans (11,834) 1,548 286
Purchases of investment securities (18,112) (13,119) (3,361)
Receipts from investment securities 14,946 11,600 3,733
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) (190,524)
-------------------------------------
Net cash used in investing activities (186,716) (28,522) (209,772)
-------------------------------------
Cash flows from financing activities:
Net repayments under revolving credit facilities -- (136,650) (239,850)
Net borrowings (repayments) under financial services
short-term debt 153,155 (856) 136,205
Payments for tender of U.S. Home Corporation's
senior notes (519,759) -- --
Net proceeds from issuance of 9.95% senior notes 294,988 -- --
Net proceeds from issuance of 7 5/8% senior notes -- 266,153 --
Net proceeds from issuance of zero-coupon senior
convertible debentures -- -- 222,960
Proceeds from other borrowings 424,783 1,856 114,581
Principal payments on other borrowings (279,941) (160,570) (127,571)
Limited-purpose finance subsidiaries, net 45 769 727
Common stock:
Issuance 5,577 3,251 41,251
Payment made under acquisition agreement -- (1,252) --
Repurchases (152,925) (6,018) --
Dividends (2,896) (2,861) (2,749)
-------------------------------------
Net cash provided by (used in) financing activities (76,973) (36,178) 145,554
-------------------------------------
12
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 215,710 56,590 (1,022)
Cash at beginning of year 118,167 61,577 62,599
------------------------------------------
Cash at end of year $ 333,877 118,167 61,577
==========================================
Summary of cash:
Homebuilding $ 287,627 83,256 34,677
Financial services 46,250 34,911 26,900
------------------------------------------
$ 333,877 118,167 61,577
------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 1,157 9,647 15,254
Cash paid for income taxes $ 91,742 108,845 60,157
Supplemental disclosures of non-cash investing and
financing activities:
Assumption of mortgages related to acquisitions of
properties $ 5,529 29,342 28,913
Common stock issued in 1998 acquisitions $ -- -- 94,096
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 -- --
------------------------------------------
See accompanying notes to consolidated financial statements.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lennar Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated 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.
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 a
maturity 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, 2000 and
1999 included $65.9 million and $33.5 million, respectively, of cash held in
escrow for periods of up to three days.
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. 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 existed at November 30, 2000 or 1999.
Start-up costs, construction overhead and selling expenses are expensed
as incurred. Homes held for sale are classified as construction in progress
until delivered. Land, land development, amenities and other costs are
accumulated by specific area and allocated proportionately to homes within the
respective area.
Interest and Real Estate Taxes
Interest and real estate taxes attributable to land, homes and
operating properties are capitalized and added to the cost of those properties
as long as the properties are being actively developed. Interest related to
homebuilding, including interest costs relieved from inventories, is included in
interest expense. Interest expense relating to the financial services operations
is included in its respective costs and expenses.
During 2000, 1999 and 1998, interest costs of $128.8 million, $62.9
million and $55.7 million, respectively (excluding the limited-purpose finance
subsidiaries), were incurred and $117.7 million, $54.8 million and $45.9
million, respectively, were capitalized by the Company's homebuilding
operations. Capitalized interest charged to expense in 2000, 1999 and 1998 was
$98.6 million, $49.0 million and $43.1 million, respectively.
14
Operating Properties and Equipment
Operating properties and equipment are recorded at cost and are
included in other assets in the consolidated balance sheets. Depreciation is
calculated to amortize the cost of depreciable assets over their estimated
useful lives using the straight-line method. The estimated useful life for
operating properties is 30 years and for equipment is 2 to 10 years.
Investment 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 are reported in a separate component of
stockholders' equity, net of tax effects, until realized.
At November 30, 2000 and 1999, investment securities classified as
held-to-maturity totaled $12.5 million and $8.9 million, respectively, and were
included in other assets of the Financial Services Division. There were no other
investment securities at November 30, 2000 or 1999.
Derivative Financial Instruments
The Company utilizes interest rate swaps and other agreements to manage
interest costs and hedge against risks associated with changing interest rates.
The Company designates interest rate swaps and other agreements as hedges of
specific debt instruments or anticipated transactions. Interest differentials on
interest rate swaps are recognized as adjustments to interest incurred on the
related debt instruments. The related amounts payable to or receivable from
counterparties are included in other liabilities or other assets in the
consolidated balance sheets. The fair values of the interest rate swap
agreements are not recognized in the consolidated financial statements. Gains or
losses on interest rate hedges on anticipated debt issuances are recorded at the
time the debt is issued as part of the carrying value of the debt and recognized
over the life of the debt as an adjustment to interest incurred.
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 loans held for sale or disposition from
increases in market interest rates. Adjustments are made to the carrying values
of these loans based on changes in the market value of these hedging contracts
(see Note 12).
Goodwill
Goodwill represents the excess of the purchase price over the fair
value of net assets acquired and is amortized by the Company on a straight-line
basis over periods ranging from 15 to 20 years. At November 30, 2000 and 1999,
goodwill was $110.4 million and $61.2 million, respectively (net of accumulated
amortization of $11.6 million and $6.4 million, respectively). In the event that
facts and circumstances indicate that the carrying value of goodwill may be
impaired, an evaluation of recoverability is performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
goodwill would be compared to the carrying amount to determine if a write-down
to fair value based on discounted cash flows was required. No impairment existed
at November 30, 2000 or 1999. Goodwill is included in other assets of the
Homebuilding Division and the assets of the Financial Services Division in the
consolidated balance sheets.
Income Taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between financial reporting 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.
15
Stock-Based Compensation
The Company grants stock options to certain employees for a fixed
number of shares with 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") 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 the Company's stock on the date of the grant. The impact of the pro
forma disclosures required by SFAS No. 123, Accounting for Stock-Based
Compensation, is included in Note 11. 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
over the period of the restrictions. The grants vest over 5 years. Unearned
restricted stock is shown as a reduction of stockholders' equity in the
consolidated balance sheets.
Earnings per Share
In 1998, the Company adopted SFAS No. 128, Earnings per Share, which
requires a dual presentation of basic and diluted earnings per share on the face
of the statement of earnings. 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.
Financial Services
Mortgage loans held for sale or disposition by the Financial Services
Division are recorded at the lower of cost or market, as determined on an
aggregate basis. 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 into 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. The Division either retains the servicing on the loans it sells and
recognizes servicing fee income as those services are performed or sells the
servicing rights on the loans it originates.
Upon the sale of a mortgage loan, the book value of the mortgage loan
is allocated to the mortgage servicing right and to the loan (without the
mortgage servicing right) based on its estimated relative fair value. Mortgage
servicing rights are periodically evaluated for impairment based on the fair
value of these rights. The fair value of mortgage servicing rights is determined
by discounting the estimated future cash flows using a discount rate
commensurate with the risks involved. This method of valuation incorporates
assumptions that market participants would use in their estimates of future
servicing income and expense, including assumptions about prepayment, default
and interest rates. For purposes of measuring impairment, the loans underlying
the mortgage servicing rights are stratified on the basis of interest rate and
type. The amount of impairment is the amount by which the mortgage servicing
rights, net of accumulated amortization, exceed their fair value by strata.
Impairment, if any, is recognized through a valuation allowance and a charge to
current operations. Mortgage servicing rights are amortized in proportion to,
and over the period of, the estimated net servicing income of the underlying
mortgages. The book value and fair value of mortgage servicing rights was $11.7
million and $13.4 million, respectively, at November 30, 2000 and $15.6 million
and $23.1 million, respectively, at November 30, 1999. A valuation allowance
related to mortgage servicing rights was not required at or for the years ended
November 30, 2000 and 1999.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 137 and SFAS No. 138, which is required to be adopted 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. The implementation of SFAS No. 133 will not have a material impact
on the Company's results of operations or financial position.
16
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101 is
applicable for the Company beginning in the fourth quarter of the year ending
November 30, 2001. Management does not currently believe that the implementation
of SAB No. 101 will have a material impact on the Company's results of
operations or financial position.
In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS No. 140 replaces SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS No. 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Management does not currently
believe that the implementation of SFAS No. 140 will have a material impact on
the Company's results of operations or financial position.
Reclassification
Certain prior year amounts in the consolidated financial statements
have been reclassified to conform with the 2000 presentation.
2. Acquisitions
On May 3, 2000, the Company acquired U.S. Home Corporation ("U.S.
Home") 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 amounting to approximately $267 million. The cash portion of the
acquisition was funded primarily from the Company's revolving credit facilities
(see Note 7). 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. The results of U.S. Home are included in the
Company'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. 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. 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.
During the third quarter of 1998, the Company acquired the properties
of two California homebuilders, ColRich Communities and Polygon Communities.
During the first quarter of 1998, the Company acquired a Northern California
homebuilder, Winncrest Homes, and the North American Asset Development Group of
companies ("NAADC"), which provide title and escrow services in California,
Arizona and Colorado. In September 1998, NAADC acquired a small escrow company
in California. In connection with these transactions, the Company paid $202
million in cash (inclusive of cash acquired of $12 million) and issued $94
million in common stock (3.5 million shares). The cash portion of these
transactions was funded primarily from the Company's revolving credit facilities
and issuance of zero-coupon senior convertible debentures. The Company received
assets with a fair value of $335 million and assumed liabilities totaling $47
million in connection with these transactions. In addition, the Company recorded
goodwill of $8 million relating to the acquisitions of NAADC, Winncrest and the
escrow company. Goodwill is being amortized on a straight-line basis over 20
years. The acquisitions were accounted for using the purchase method of
accounting. In 1999, the Company paid $1.3 million to the sellers of one of the
properties acquired, under an agreement which set a floor on the value of a
portion of the shares of common stock given to the sellers as part of the
consideration for the acquisition. The agreement allowed the Company to settle
the floor in cash or stock. As a result, the payment was recorded as a reduction
in stockholders' equity in 1999. The results of each acquired entity are
included in the Company's consolidated statements of earnings since the
respective acquisition dates. The pro forma effect of the acquisitions on the
results of operations is not presented as it is not considered material.
17
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 implementation of SFAS
No. 131 did not have a significant impact on the Company's definition of
operating and reporting segments and related disclosures.
The Company has two operating and reporting segments: Homebuilding and
Financial Services. The Company's reportable segments are strategic business
units that offer different products and services. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in Note 1.
Homebuilding
Homebuilding operations include the sale and construction of
single-family attached and detached homes. These activities also include the
purchase, development and sale of residential land by the Company and through
partnerships in which it has investments. The following table sets forth
financial information relating to the homebuilding operations:
Years Ended November 30,
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------
Revenues:
Sales of homes $4,118,549 2,671,744 2,089,762
Sales of land and other revenues 258,145 157,981 83,758
Equity in earnings from partnerships 13,340 19,482 30,908
--------------------------------------
Total revenues 4,390,034 2,849,207 2,204,428
Costs and expenses:
Cost of homes sold 3,277,183 2,105,422 1,641,741
Cost of land and other expenses 220,948 130,432 69,279
Selling, general and administrative 411,107 272,550 210,039
--------------------------------------
Total costs and expenses 3,909,238 2,508,404 1,921,059
--------------------------------------
Operating earnings $ 480,796 340,803 283,369
======================================
Depreciation and amortization $ 33,858 29,505 20,762
--------------------------------------
Additions to operating properties and equipment $ 5,779 2,283 5,987
======================================
Financial Services
The Financial Services Division provides mortgage financing, title
insurance and closing services for both the Company's homebuyers and others. The
Division packages and resells residential mortgage loans and performs mortgage
loan servicing activities. The Division also provides high speed Internet
access, cable television, and home monitoring services for both the Company's
homebuyers and other customers. The following table sets forth financial
information relating to the financial services operations:
Years Ended November 30,
(In thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------
Revenues $316,934 269,307 212,437
Costs and expenses 273,339 238,211 179,102
--------------------------------
Operating earnings $ 43,595 31,096 33,335
================================
Depreciation and amortization $ 10,409 9,451 4,502
--------------------------------
Interest income, net $ 15,707 12,301 10,878
--------------------------------
Additions to operating properties and equipment $ 10,243 13,045 7,246
================================
18
4. Receivables
November 30,
(In thousands) 2000 1999
- --------------------------------------------------------
Accounts receivable $ 32,327 10,826
Mortgages and notes receivable 14,846 2,444
---------------------
47,173 13,270
Allowance for doubtful accounts (4,903) (2,108)
---------------------
$ 42,270 11,162
=====================
5. Investments in Partnerships
Summarized financial information on a combined 100% basis related to
the Company's significant investments in partnerships and other similar entities
(collectively the "Partnerships") accounted for by the equity method was as
follows:
November 30,
(In thousands) 2000 1999
- ------------------------------------------------------------------
Assets:
Cash $ 35,504 143,257
Land under development 962,835 389,974
Other assets 145,866 117,939
------------------------
$1,144,205 651,170
========================
Liabilities and equity:
Accounts payable and other liabilities $ 122,597 47,118
Notes and mortgages payable 471,742 227,271
Equity of:
The Company 254,298 171,960
Others 295,568 204,821
------------------------
$1,144,205 651,170
========================
Years Ended November 30,
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------------
Revenues $ 361,684 283,979 277,544
Costs and expenses 295,224 219,100 192,130
------------------------------------
Net earnings of partnerships $ 66,460 64,879 85,414
------------------------------------
Company share of net earnings $ 13,340 19,482 30,908
====================================
At November 30, 2000, the Company's equity interest in each of these
Partnerships ranged from 10% to 50%. At November 30, 2000, these Partnerships
were primarily involved in the acquisition and development of residential land.
The Company shares in the profits and losses of these Partnerships and, when
appointed the manager of the Partnerships, receives fees for the management of
the assets. Certain of the Partnerships have partnership interests in other
partnerships. The Company provides limited guarantees on debt of twelve of the
Company's Partnerships and one second-tier partnership, amounting to $142.6
million at November 30, 2000.
19
6. Operating Properties and Equipment
November 30,
(In thousands) 2000 1999
- ----------------------------------------------------------------
Furniture, fixtures and equipment $ 47,043 16,351
Community recreational facilities 2,098 3,564
---------------------
49,141 19,915
Accumulated depreciation (30,556) (14,010)
---------------------
$ 18,585 5,905
=====================
Operating properties and equipment are included in other assets in the
consolidated balance sheets.
7. Mortgage Notes and Other Debts Payable
November 30,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------
Zero-coupon senior convertible debentures
due 2018 $ 247,205 237,897
7 5/8% senior notes due 2009 270,480 269,548
9.95% senior notes due 2010 300,017 --
Term Loan B due 2007 399,000 --
U.S. Home senior notes due through 2009 12,913 --
Mortgage notes on land with fixed interest rates from
5.4% to 12.0% due through 2009 25,035 16,216
------------------------
$1,254,650 523,661
========================
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 financings include senior secured credit facilities with a group of
financial institutions which 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 (together the "Facilities"). The Company may elect to
convert borrowings under the 364-day revolving credit facility to a term loan
which would mature in May 2005. The Facilities are collateralized by the
outstanding common stock of certain of the Company's subsidiaries. Certain
Financial Services Division subsidiaries are co-borrowers under the Facilities.
At November 30, 2000, no borrowings were allocated to this Division. At November
30, 2000, $399 million was outstanding under the term loan B and no amounts were
outstanding under the revolving credit facilities. The weighted average interest
rate of the Facilities at November 30, 2000 was 9.2%. The Company utilizes
interest rate swap agreements to manage interest costs and hedge against risks
associated with changing interest rates (see Notes 1 and 12).
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 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, which includes tender and consent fees, for $508
million of U.S. Home's notes.
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.
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 $295 million. At November 30, 2000,
the book value was $300.0 million.
20
In February 1999, the Company issued $282 million of 7 5/8% senior
notes due 2009 for the purpose of reducing amounts outstanding under revolving
credit facilities and redeeming outstanding 10 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 collateralized by the outstanding common stock of certain of
the Company'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, 2000, the book value relating
to the 7 5/8% senior notes was $270.5 million.
In July 1998, the Company 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 the Company'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 anniversary dates from the
issue date for the initial issue price plus accrued original issue discount. The
Company has the option to satisfy the repurchases with any combination of cash
and/or shares of the Company's common stock. The Company will have the option to
redeem the Debentures, in cash, at any time after the fifth anniversary date for
the initial issue price plus accrued original issue discount. The Debentures are
collateralized by the outstanding common stock of certain of the Company's
subsidiaries. At November 30, 2000, the amount outstanding, net of unamortized
original issue discount, was $247.2 million.
The minimum aggregate principal maturities of mortgage notes and other
debts payable during the five years subsequent to November 30, 2000 are as
follows: 2001 - $14.8 million; 2002 - $19.4 million; 2003 - $5.4 million; 2004 -
$5.3 million and 2005 - $6.5 million. The remaining principal obligations are
due subsequent to November 30, 2005. All of the notes secured by land contain
collateral release provisions for accelerated payment which may be made as
necessary to maintain construction schedules.
8. Financial Services
The assets and liabilities related to the Company's financial services
operations (as described in Note 3) were as follows:
November 30,
(In thousands) 2000 1999
- ------------------------------------------------------------------------
Assets:
Cash and receivables, net $ 79,025 54,031
Mortgage loans held for sale or disposition, net 376,452 229,042
Mortgage loans, net 42,504 22,562
Mortgage servicing rights, net 11,653 15,564
Operating properties and equipment, net 18,869 21,378
Title plants 15,530 14,587
Goodwill, net 25,199 20,070
Other 21,874 14,684
Limited-purpose finance subsidiaries 19,894 25,624
--------------------
$611,000 417,542
====================
Liabilities:
Notes and other debts payable $428,966 253,010
Other 67,586 40,321
Limited-purpose finance subsidiaries 19,894 25,624
--------------------
$516,446 318,955
====================
21
At November 30, 2000, the Division had two warehouse lines of credit
totaling $360 million to fund the Division's mortgage loan and servicing
activities. Borrowings under these facilities were $339.4 million and $236.6
million at November 30, 2000 and 1999, respectively, and were collateralized by
mortgage loans with outstanding principal balances of $297.2 million and $221.7
million, respectively, and by servicing rights relating to approximately $1.8
billion and $2.5 billion of loans, respectively. There are several interest rate
pricing options which fluctuate with market rates. The borrowing rate has been
reduced to the extent that custodial escrow balances exceeded required
compensating balance levels. The effective interest rate on these facilities at
November 30, 2000 and 1999 was 6.4% and 4.5%, respectively. The warehouse lines
of credit mature through November 2002 at which time the Company expects these
facilities to be renewed. At November 30, 2000, the Division also had advances
under a repurchase agreement amounting to $51.9 million. Borrowings under the
agreement are collateralized by mortgage loans and had an effective interest
rate of 7.5% at November 30, 2000.
Certain of the Division's servicing agreements require it to pass
through payments on loans even though it is unable to collect such payments and,
in certain instances, be responsible for losses incurred through foreclosure.
Exposure to this credit risk is minimized through geographical diversification
and review of the mortgage loan servicing created or purchased. Management
believes that it has provided adequate reserves for expected losses based on the
fair value of the underlying collateral. Provisions for these losses have not
been material to the Company.
In prior years, limited-purpose finance subsidiaries of the Financial
Services Division 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 primarily 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, 2000 and 1999, the balances outstanding for the bonds and notes
payable were $19.9 million and $25.6 million, respectively. The borrowings
mature in years 2013 through 2018 and carry interest rates ranging from 4.9% to
13.2%. The annual principal repayments are dependent upon collections on the
underlying mortgages, including prepayments, and cannot be reasonably
determined.
9. Income Taxes
The provision for income taxes consisted of the following:
Years Ended November 30,
(In thousands) 2000 1999 1998
- ----------------------------------------------------------
Current:
Federal $ 146,666 71,091 74,739
State 17,055 13,547 9,308
------------------------------------
163,721 84,638 84,047
------------------------------------
Deferred:
Federal (15,672) 24,422 6,493
State (1,551) 3,703 5,506
------------------------------------
(17,223) 28,125 11,999
------------------------------------
$ 146,498 112,763 96,046
====================================
22
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,
(In thousands) 2000 1999
- ----------------------------------------------------------------
Deferred tax assets:
Acquisition adjustments $ 75,997 13,900
Reserves and accruals 74,972 37,557
Net operating loss and capital loss
carryforwards, tax affected 4,466 5,788
Investments in partnerships 3,386 4,099
Deferred gains 1,900 --
Other 7,412 2,923
-----------------------
Deferred tax assets 168,133 64,267
Less: valuation allowance (7,117) (8,508)
-----------------------
Total deferred tax assets, net 161,016 55,759
-----------------------
Deferred tax liabilities:
Capitalized expenses 14,922 14,538
Deferred gains -- 1,065
Installment sales 2,281 2,547
Other 32,361 4,634
-----------------------
Total deferred tax liabilities 49,564 22,784
-----------------------
Net deferred tax asset $ 111,452 32,975
=======================
The Homebuilding Division's net deferred tax asset amounting to $110.0
million and $33.3 million at November 30, 2000 and 1999, respectively, is
included in other assets in the consolidated balance sheets.
At November 30, 2000 and 1999, the Financial Services Division had a
net deferred tax asset of $1.5 million and a net deferred tax liability of $0.3
million, respectively.
SFAS No. 109 requires the reduction of the 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, 2000 and 1999, the Company had a valuation allowance
of $7.1 million and $8.5 million, respectively, for net operating loss and
capital loss carryforwards and certain acquisition adjustments which currently
are not expected to be realized. Based on management'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:
% of Pre-tax Income
- -------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
Statutory rate 35.0 35.0 35.0
State income taxes, net of federal income
tax benefit 3.4 3.9 4.0
Other 0.6 0.6 1.0
------------------------
Effective rate 39.0 39.5 40.0
========================
23
10. Earnings Per Share
Basic and diluted earnings per share for the years ended November 30,
2000, 1999 and 1998 were calculated as follows:
(In thousands, except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------
Numerator:
Numerator for basic earnings per share-
net earnings $229,137 172,714 144,068
Interest on zero-coupon convertible
debentures, net of tax 5,808 5,538 1,732
--------------------------------
Numerator for diluted earnings per share $234,945 178,252 145,800
================================
Denominator:
Denominator for basic earnings per share-
weighted average shares 57,341 58,246 55,660
Effect of dilutive securities:
Employee stock options and restricted stock 1,053 684 945
Zero-coupon convertible debentures 6,105 6,105 2,019
--------------------------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 64,499 65,035 58,624
================================
Basic earnings per share $ 4.00 2.97 2.59
================================
Diluted earnings per share $ 3.64 2.74 2.49
================================
11. 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 have been issued as of November 30, 2000.
Common Stock
The Company has two classes of common stock. The common stockholders
have one vote for each share owned in matters requiring stockholder approval and
during both 2000 and 1999 received quarterly dividends of $0.0125 per share. The
Class B common stockholders have ten votes for each share of stock owned and
during both 2000 and 1999 received quarterly dividends of $0.01125 per share. As
of November 30, 2000, Mr. Leonard Miller, Chairman of the Board of the Company,
owned or controlled 9.8 million shares of common stock and Class B common stock,
which represented approximately 65% voting control of the Company.
In September 1999, the Company's Board of Directors approved the
repurchase of up to 10 million shares of the Company's outstanding common stock.
The Company may repurchase shares, from time-to-time, subject to market
conditions. In February 2000, the Company's Board of Directors approved the
repurchase of an additional 5 million shares of the Company's outstanding common
stock. During 2000 and 1999, under these approvals, the Company repurchased
approximately 9,406,000 and 442,000 shares of its outstanding common stock for
an aggregate purchase price of approximately $152.9 million and $6.0 million,
respectively.
24
In July 2000 and March 1999, the Company filed shelf registration
statements and prospectuses with the SEC 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 $1 billion in total. Proceeds can
be used for repayment of debt, acquisitions and general corporate purposes. As
of November 30, 2000, no securities had been issued under these two registration
statements.
In March 1998, the Company entered into an equity draw-down agreement
with a major international banking firm (the "Firm") under which the Company has
the option to sell common stock, up to proceeds of $120 million, to the Firm in
increments of up to $15 million (or such higher amount as may be agreed to by
the parties) per month. In the event the Company elects to sell common stock,
the sales price is equal to 98% of the average of the daily high and low stock
price from time-to-time. As of November 30, 2000, the Company had issued 1.1
million shares under the agreement resulting in proceeds to the Company of $36
million, all of which occurred in fiscal 1998.
Restrictions on Payment of Dividends
Other than as required to maintain the financial ratios and net worth
requirements under the revolving credit facilities, there are no restrictions on
the payment of dividends on common stock by the Company. The cash dividends paid
with regard to a share of Class B common stock in a calendar year may not be
more than 90% of the 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's warehouse lines of credit.
Stock Option Plans
The Lennar Corporation 2000 Stock Option and Restricted Stock Plan (the
"2000 Plan"), which is subject to stockholder approval which will be sought at
the 2001 annual meeting of the Company's stockholders, provides for the granting
of stock options and awards of restricted stock of the Company's common stock to
certain officers, employees and directors. 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 varying installments, on a cumulative
basis. 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. In the third quarter of 2000, 860,000 shares of restricted
stock were awarded under the 2000 Plan. The stock was valued based on its market
price on the date of the grant. The grants vest over 5 years. Unearned
compensation arising from the restricted stock is shown as a reduction of
stockholders' equity in the consolidated balance sheets.
The Lennar Corporation 1997 Stock Option Plan (the "1997 Plan")
provides for the granting of options or stock appreciation rights to certain key
employees of the Company to purchase shares at prices not less than market value
as of 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 varying installments, on a cumulative basis. 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.
The Lennar Corporation 1991 Stock Option Plan (the "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 as of 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
varying installments, on a cumulative basis. 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.
25
A summary of the Company's stock option activity for the years ended
November 30, 2000, 1999 and 1998 was as follows:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 3,445,230 $ 16.20 3,679,256 $ 15.52 2,815,880 $ 10.60
Grants 671,000 $ 17.68 211,000 $ 23.95 1,372,500 $ 24.12
Terminations (256,652) $ 19.43 (235,108) $ 19.83 (201,498) $ 16.60
Exercises (380,895) $ 11.74 (209,918) $ 10.05 (307,626) $ 8.41
-----------------------------------------------------------------------------------
Outstanding, end of year 3,478,683 $ 16.68 3,445,230 $ 16.20 3,679,256 $ 15.52
-----------------------------------------------------------------------------------
Exercisable, end of year 1,422,734 $ 14.14 1,299,743 $ 11.87 1,142,616 $ 10.69
-----------------------------------------------------------------------------------
Available for grant, end of year 3,890,822 1,310,072 1,334,622
---------- --------- ---------
Weighted average fair value per share
of options granted during the year
under SFAS No. 123 $ 7.84 $ 9.40 $ 9.03
- ----------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about fixed stock options
outstanding at November 30, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------------- --------------------------------------
Number Outstanding Weighted Average Weighted Average Number Outstanding Weighted Average
Range of Per Share at November 30, Remaining Per Share at November 30, Per Share
Exercise Prices 2000 Contractual Life Exercise Price 2000 Exercise Price
- ------------------ ------------------ ---------------- ---------------- ------------------ ----------------
$ 2.56 - $ 4.56 272,426 0.6 years $ 3.27 128,250 $ 2.79
$ 7.28 - $ 9.97 384,171 2.3 years $ 9.43 288,829 $ 9.77
$10.14 - $18.53 1,641,151 6.4 years $15.03 683,875 $13.04
$19.47 - $34.13 1,180,935 4.1 years $24.42 321,780 $24.94
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its fixed 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's stock on the date of the grant. Under SFAS No.
123, compensation cost for the Company's stock-based compensation plans would be
determined based on the fair value at the grant dates for awards under those
plans. Had the Company adopted SFAS No. 123 in accounting for fixed stock option
plans, the pro forma effect would not be material to the Company's reported net
earnings and earnings per share for the years ended November 30, 2000, 1999 and
1998.
26
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
- -------------------------------------------------------------------------------------------
Dividend yield 0.2% - 0.3% 0.2% - 0.3% 0.1% - 0.3%
Volatility rate 39% - 44% 40% - 42% 32% - 39%
Risk-free interest rate 7.1% - 7.5% 4.8% - 6.1% 4.7% - 6.0%
Expected option life (years) 3.9 - 7.7 3.9 - 7.7 3.9 - 7.7
Employee Stock Ownership/401(k) Plan
Prior to 1998, the Employee Stock Ownership/401(k) Plan (the "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. 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
funds, and 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 the Company's contribution to the 401(k) portion of the Plan.
This amount was $4.7 million in 2000, $3.1 million in 1999 and $2.9 million in
1998.
12. Financial Instruments
The following table presents the carrying amounts and estimated fair
values of financial instruments held by the Company at November 30, 2000 and
1999, 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 herein
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 may 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.
27
November 30,
(In thousands) 2000 1999
- -------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------
ASSETS
Financial services:
Mortgage loans held for sale or disposition, net $ 376,452 379,499 229,042 231,116
Mortgage loans, net 42,504 42,014 22,562 22,112
Investments held-to-maturity 12,488 12,507 8,902 8,904
Limited-purpose finance subsidiaries -
collateral for bonds and notes payable 19,894 20,320 25,624 26,499
LIABILITIES
Homebuilding:
Mortgage notes and other debts payable $1,254,650 1,287,902 523,661 466,311
Financial services:
Notes and other debts payable $ 428,966 428,966 253,010 252,865
Limited-purpose finance subsidiaries -
bonds and notes payable 19,894 20,169 25,624 26,638
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS
Homebuilding:
Interest rate swap agreements $ -- (5,707) -- 1,724
Financial services:
Commitments to originate loans $ -- 445 -- (197)
Forward commitments to sell loans -- (119) -- 434
- -------------------------------------------------------------------------------------------------------------
The following methods and assumptions are used by the Company in
estimating fair values:
Mortgage 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 thereby approximate fair value.
Financial services assets, liabilities and off-balance sheet financial
instruments: 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.
Interest rate swap agreements: 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.
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's available variable rate borrowings are based on the London Interbank
Offered Rate ("LIBOR") index. At November 30, 2000, Lennar had six interest rate
swap agreements outstanding with a total notional amount of $400 million, which
will mature at various dates through 2007. These agreements fixed the LIBOR
index at an average interest rate of 6.6% at November 30, 2000. The effect of
the interest rate swap agreements on interest incurred and on the average cost
of borrowing was a decrease for the year ended November 30, 2000 of $1.2 million
and 0.08% and an increase of $1.8 million and 0.22% and $0.8 million and 0.11%
for the years ended November 30, 1999 and 1998, respectively. During 1998, the
Company entered into a contract to hedge the interest rate risk associated with
the anticipated issuance of $200 million of 10-year senior notes. The contract
fixed the yield on the 10-year U.S. Treasury Note (which was used as a basis for
determining the interest rate on the Company's issuance of the senior notes) at
5.8%. In February 1999, the Company issued $282 million of 10-year senior notes
(see Note 7). The payment made to the counterparty to this agreement at the time
the senior notes were issued was $11.2 million. Such amount was recorded as a
reduction of the carrying value of the senior notes and will be amortized as an
adjustment to interest incurred over the life of the senior notes.
28
As of November 30, 2000, the Financial Services Division's pipeline of
loans in process totaled approximately $1.2 billion. There is no exposure to
credit risk in this type of commitment until the loans are funded. However, 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 borrower, the total
commitments do not necessarily represent future cash requirements. There is no
exposure to market risk until a rate commitment is extended by the Company to a
borrower. Loans in the pipeline of loans in process for which interest rates
were committed to the borrower totaled approximately $106.0 million as of
November 30, 2000. Substantially all of these commitments are for periods of 30
days or less.
Mandatory mortgage-backed securities ("MBS") forward commitments are
used by the Company to hedge its interest rate exposure during the period from
when the Company extends an interest rate lock 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 the Company by entering into agreements 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, 2000, the Company had open commitments amounting to
$360.1 million to sell MBS with varying settlement dates through February 2001.
13. 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 of the Company.
The Company is subject to the usual obligations associated with
entering into contracts for the purchase (including option contracts),
development and sale of real estate in the routine conduct of its business.
Option contracts for the purchase of land permit the Company to acquire portions
of properties when it is ready to build homes on them. The use of option
contracts allows the Company to manage the financial risk of adverse market
conditions associated with longer-term land holdings.
The 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: 2001 - $26.2 million; 2002 - $20.3
million; 2003 - $14.9 million; 2004 - $10.2 million; 2005 - $5.7 million and
thereafter - $14.4 million. Rental expense for the years ended November 30,
2000, 1999 and 1998 was $36.6 million, $24.3 million and $14.4 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 $98.8 million at November 30, 2000. The Company also had
outstanding performance and surety bonds with estimated costs to complete of
$622.4 million related principally to its obligations for site improvements at
various projects at November 30, 2000. The Company does not believe that any
such bonds are likely to be drawn upon.
14. Supplemental Financial Information
As discussed in Note 7, the Company issued $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. 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.
29
Consolidating Balance Sheet
November 30, 2000
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and receivables, net $ 211,635 117,649 613 -- 329,897
Inventories -- 2,295,191 6,393 -- 2,301,584
Investments in partnerships -- 257,639 -- -- 257,639
Other assets 85,936 191,858 -- -- 277,794
Investments in subsidiaries 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
Mortgage 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
===========================================================================
30
Consolidating Balance Sheet
November 30, 1999
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
---------------------------------------------------------------------------
$ 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
---------------------------------------------------------------------------
$ 684,777 1,654,609 399,452 (681,191) 2,057,647
===========================================================================
31
Consolidating Statement of Earnings
Year Ended November 30, 2000
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -----------------------------------------------------------------------------------------------------------
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 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
===============================================================
Consolidating Statement of Earnings
Year Ended November 30, 1999
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -----------------------------------------------------------------------------------------------------------
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
===============================================================
32
Consolidating Statement of Earnings
Year Ended November 30, 1998
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -----------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ -- 2,l67,869 36,559 -- 2,204,428
Financial services -- 19,889 192,548 -- 212,437
---------------------------------------------------------------
Total revenues -- 2,187,758 229,107 -- 2,416,865
---------------------------------------------------------------
Costs and expenses:
Homebuilding -- 1,890,532 30,527 -- 1,921,059
Financial services -- 23,674 155,428 -- 179,102
Corporate general and administrative 28,962 -- -- -- 28,962
Interest -- 47,628 -- -- 47,628
---------------------------------------------------------------
Total costs and expenses 28,962 1,961,834 185,955 -- 2,176,751
---------------------------------------------------------------
Earnings (loss) before income taxes (28,962) 225,924 43,152 -- 240,114
Provision (benefit) for income taxes (11,472) 90,369 17,149 -- 96,046
Equity in earnings from subsidiaries 161,558 26,003 -- (187,561) --
---------------------------------------------------------------
Net earnings $ 144,068 161,558 26,003 (187,561) 144,068
===============================================================
15. Quarterly Data (unaudited)
(In thousands, except per share amounts) First Second Third Fourth
- ------------------------------------------------------------------------------------------------------
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
================================================
1999
Revenues $ 590,599 738,357 819,497 970,061
Earnings before income taxes $ 46,053 65,440 75,162 98,822
Net earnings $ 27,862 39,591 45,473 59,788
Earnings per share:
Basic $ 0.48 0.68 0.78 1.03
Diluted $ 0.45 0.63 0.72 0.95
================================================
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.
33
SHAREHOLDER INFORMATION
Lennar Corporation and Subsidiaries
ANNUAL MEETING INDEPENDENT AUDITORS
The Annual Stockholders' Meeting Deloitte & Touche LLP
will be held at 11:00 a.m. on 200 South Biscayne Boulevard, Suite 400
April 3, 2001 at the Doral Park Miami, Florida 33131
Golf and Country Club,
5001 N.W. 104th Avenue FORM 10-K AVAILABLE
Miami, Florida 33178 A copy of the Company's Annual Report
on Form 10-K as filed with the
REGISTRAR AND TRANSFER AGENT Securities and Exchange Commission is
BankBoston, N.A. available without charge to any
EquiServe L.P. stockholder upon written request to:
150 Royall Street Investor Relations
Canton, Massachusetts 02021 Lennar Corporation
700 N.W. 107th Avenue
LISTING Miami, Florida 33172
New York Stock Exchange (LEN) Telephone: (305) 559-4000
CORPORATE COUNSEL
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
COMPARATIVE COMMON STOCK DATA
- -------------------------------------------------------------------------------------------------------------------
Common Stock Prices Cash Dividends
New York Stock Exchange Per Share
- -------------------------------------------------------------------------------------------------------------------
Fiscal High/Low Price Common Stock Class B
Quarter 2000 1999 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
First $18.63 - 15.25 27.88 - 21.63 1 1/4 cent 1 1/4 cent 1 1/8 cent 1 1/8 cent
Second 21.75 - 16.25 27.81 - 20.50 1 1/4 cent 1 1/4 cent 1 1/8 cent 1 1/8 cent
Third 29.44 - 17.88 24.94 - 17.50 1 1/4 cent 1 1/4 cent 1 1/8 cent 1 1/8 cent
Fourth 34.88 - 25.63 19.44 - 13.06 1 1/4 cent 1 1/4 cent 1 1/8 cent 1 1/8 cent
- -------------------------------------------------------------------------------------------------------------------
As of November 30, 2000, there were approximately 2,200 holders of record of the
Company's common stock.
34