================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2001
Commission File Number: 1-11749
Lennar Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-4337490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 559-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Common shares outstanding as of March 31, 2001:
Common 53,628,298
Class B Common 9,847,812
================================================================================
Part I. Financial Information
Item 1. Financial Statements
Lennar Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
February 28, November 30,
2001 2000
- -----------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash $ 57,573 287,627
Receivables, net 47,936 42,270
Inventories 2,483,343 2,301,584
Investments in partnerships 292,185 257,639
Other assets 268,082 277,794
-----------------------------
3,149,119 3,166,914
Financial services 543,735 611,000
- -----------------------------------------------------------------------------------------------------
Total assets $ 3,692,854 3,777,914
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 671,155 778,238
Mortgage notes and other debts payable, net 1,291,558 1,254,650
-----------------------------
1,962,713 2,032,888
Financial services 454,110 516,446
- -----------------------------------------------------------------------------------------------------
Total liabilities 2,416,823 2,549,334
Stockholders' equity:
Preferred stock -- --
Common stock of $0.10 par value per share,
63,158 shares issued at February 28, 2001 6,316 6,273
Class B common stock of $0.10 par value per share,
9,848 shares issued at February 28, 2001 985 985
Additional paid-in capital 821,781 812,501
Retained earnings 632,799 582,299
Unearned restricted stock (13,343) (14,535)
Treasury stock, at cost; 9,848 common shares at February 28, 2001 (158,943) (158,943)
Accumulated other comprehensive loss (13,564) --
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 1,276,031 1,228,580
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,692,854 3,777,914
=====================================================================================================
See accompanying notes to consolidated condensed financial statements.
1
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
---------------------------
February 28, February 29,
2001 2000
- -----------------------------------------------------------------------
Revenues:
Homebuilding $1,021,818 580,922
Financial services 82,224 59,445
- -----------------------------------------------------------------------
Total revenues 1,104,042 640,367
- -----------------------------------------------------------------------
Costs and expenses:
Homebuilding 906,180 526,093
Financial services 74,966 58,837
Corporate general and administrative 15,788 9,057
Interest 23,748 9,968
- -----------------------------------------------------------------------
Total costs and expenses 1,020,682 603,955
- -----------------------------------------------------------------------
Earnings before income taxes 83,360 36,412
Income taxes 32,094 14,201
- -----------------------------------------------------------------------
Net earnings $ 51,266 22,211
=======================================================================
Basic earnings per share $ 0.83 0.42
=======================================================================
Diluted earnings per share $ 0.75 0.40
=======================================================================
- -----------------------------------------------------------------------
Cash dividends per common share $ 0.0125 0.0125
- -----------------------------------------------------------------------
Cash dividends per Class B common share $ 0.01125 0.01125
=======================================================================
See accompanying notes to consolidated condensed financial statements.
2
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
---------------------------
February 28, February 29,
2001 2000
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 51,266 22,211
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 10,538 8,135
Amortization of discount on debt 5,866 5,604
Equity in earnings from partnerships (4,081) (4,229)
Increase in deferred income taxes 11,449 1,792
Changes in assets and liabilities:
Increase in receivables (3,108) (11,493)
Increase in inventories (174,766) (121,862)
Increase in other assets (1,293) (2,693)
Decrease in financial services loans held for sale or disposition 53,937 64,992
Decrease in accounts payable and other liabilities (119,506) (23,913)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (169,698) (61,456)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Operating properties and equipment:
Additions (2,790) (4,074)
Sales 435 --
(Increase) decrease in investments in partnerships, net (25,166) 8,407
Decrease in financial services mortgage loans 196 584
Purchases of investment securities (4,237) (2,916)
Receipts from investment securities 3,900 3,700
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (27,662) 5,701
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under revolving credit facilities 18,700 229,600
Net repayments under financial services short-term debt (61,983) (77,837)
Proceeds from other borrowings 57 635
Principal payments on other borrowings (4,406) (13,130)
Limited-purpose finance subsidiaries, net 574 (59)
Common stock:
Issuance 7,237 96
Repurchases -- (150,469)
Dividends (766) (628)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (40,587) (11,792)
- -----------------------------------------------------------------------------------------------------------------
Net decrease in cash (237,947) (67,547)
Cash at beginning of period 333,877 118,167
- -----------------------------------------------------------------------------------------------------------------
Cash at end of period $ 95,930 50,620
=================================================================================================================
3
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows -- Continued
(Unaudited)
(In thousands)
Three Months Ended
---------------------------
February 28, February 29,
2001 2000
- -----------------------------------------------------------------------------------------------------------------
Summary of cash:
Homebuilding $ 57,573 30,179
Financial services 38,357 20,441
- -----------------------------------------------------------------------------------------------------------------
$ 95,930 50,620
- -----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 9,128 --
Cash paid for income taxes $ 64,881 8,868
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers $ 16,447 4,780
=================================================================================================================
See accompanying notes to consolidated condensed financial statements.
4
Lennar Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Lennar Corporation and all subsidiaries and partnerships in which a
controlling interest is held (the "Company"). The Company's investments in
partnerships (and similar entities) in which a significant, but less than
controlling, interest is held are accounted for by the equity method. All
significant intercompany transactions and balances have been eliminated. The
financial statements have been prepared by management without audit by
independent public accountants and should be read in conjunction with the
November 30, 2000 audited financial statements in the Company's Annual Report on
Form 10-K for the year then ended. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the accompanying consolidated condensed financial statements
have been made. Certain prior year amounts in the consolidated condensed
financial statements have been reclassified to conform with the current period
presentation.
The Company historically has experienced, and expects to continue to experience,
variability in quarterly results. The consolidated condensed statement of
earnings for the three months ended February 28, 2001 is not necessarily
indicative of the results to be expected for the full year.
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.
(2) Operating and Reporting Segments
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.
Homebuilding operations include the sale and construction of single-family
attached and detached homes in 13 states. These activities also include the
purchase, development and sale of residential land by the Company and
partnerships in which it has investments.
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.
5
(3) Earnings Per Share
Basic earnings per share is computed by dividing earnings attributable to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. Basic and diluted earnings per share
were calculated as follows (unaudited):
Three Months Ended
--------------------------
February 28, February 29,
(In thousands, except per share amounts) 2001 2000
- -----------------------------------------------------------------------------------------------
Numerator:
Numerator for basic earnings per share - net earnings $51,266 22,211
Interest on zero-coupon convertible debentures, net of tax 1,498 1,428
- -----------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $52,764 23,639
===============================================================================================
Denominator:
Denominator for basic earnings per share -
weighted average shares 62,097 53,160
Effect of dilutive securities:
Employee stock options and restricted stock 1,939 411
Zero-coupon convertible debentures 6,105 6,105
- -----------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 70,141 59,676
===============================================================================================
Basic earnings per share $ 0.83 0.42
===============================================================================================
Diluted earnings per share $ 0.75 0.40
===============================================================================================
6
(4) Financial Services
The assets and liabilities related to the Company's financial services
operations (as described in Note 2) are summarized as follows:
(Unaudited)
February 28, November 30,
(In thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------------
Assets:
Cash and receivables, net $ 68,573 79,025
Mortgage loans held for sale or disposition, net 322,620 376,452
Mortgage loans, net 42,211 42,504
Mortgage servicing rights, net 11,488 11,653
Title plants 15,530 15,530
Goodwill, net 24,854 25,199
Other 40,975 40,743
Limited-purpose finance subsidiaries 17,484 19,894
- -------------------------------------------------------------------------------------------------------------
$ 543,735 611,000
- -------------------------------------------------------------------------------------------------------------
Liabilities:
Notes and other debts payable $ 366,709 428,966
Other 69,917 67,586
Limited-purpose finance subsidiaries 17,484 19,894
- -------------------------------------------------------------------------------------------------------------
$ 454,110 516,446
=============================================================================================================
(5) Cash
Cash as of February 28, 2001 and November 30, 2000 included $35.6 million and
$65.9 million, respectively, of cash held in escrow for periods of up to three
days.
(6) Comprehensive Income and Implementation of SFAS No. 133
Effective December 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities by requiring
that all derivatives be recognized in the balance sheet and measured at fair
value. Gains or losses resulting from changes in the fair value of derivatives
are recognized in earnings or recorded in other comprehensive income, and
recognized in the statement of earnings when the hedged item affects earnings,
depending on the purpose of the derivatives and whether they qualify for hedge
accounting treatment.
The Company's policy is to designate at a derivative's inception the specific
assets, liabilities, or future commitments being hedged and monitor the
derivative to determine if it remains an effective hedge. The effectiveness of a
derivative as a hedge is based on high correlation between changes in its value
and changes in the value of the underlying hedged item. The Company recognizes
gains or losses for amounts received or paid when the underlying transaction
settles. The Company does not enter into or hold derivatives for trading or
speculative purposes.
7
The Company has various interest rate swap agreements which effectively fix the
variable interest rate on approximately $400 million of outstanding debt related
to its homebuilding operations. The swap agreements have been designated as cash
flow hedges and, accordingly, are reflected at their fair value in the
consolidated condensed balance sheet. The related loss is deferred in
stockholders' equity as accumulated other comprehensive loss. The Company
accounts for its interest rate swaps using the shortcut method, as described in
SFAS No. 133. Amounts to be received or paid as a result of the swap agreements
are recognized as adjustments to interest incurred on the related debt
instruments. The net effect on the Company's operating results is that interest
on the variable-rate debt being hedged is recorded based on fixed interest
rates.
The Financial Services Division, in the normal course of business, uses
derivative financial instruments to reduce its exposure to fluctuations in
interest rates. The Division enters into forward commitments and option
contracts to protect the value of loans held for sale or disposition from
increases in market interest rates. These derivative financial instruments are
designated as fair value hedges, and, accordingly, for all qualifying and highly
effective fair value hedges, the changes in the fair value of the derivative and
the loss or gain on the hedged asset relating to the risk being hedged are
recorded currently in earnings.
In accordance with the transition provisions of SFAS No. 133, on December 1,
2000, the Company recorded a cumulative-effect type adjustment of $3.5 million
(net of tax benefit of $2.2 million) in accounts payable and other liabilities
and accumulated other comprehensive loss to recognize the fair value of the
interest rate swaps. The effect of the implementation of SFAS No. 133 on the
Company's Financial Services Division's operating earnings was not significant.
Subsequent to the Company's adoption of SFAS No. 133 through February 28, 2001,
the liability and accumulated other comprehensive loss increased $10.1 million
(net of tax benefit of $6.3 million) to $13.6 million. Total comprehensive
income was $37.7 million for the three months ended February 28, 2001 and $22.2
million for the three months ended February 29, 2000.
(7) Subsequent Event
In April 2001, the Company issued, for gross proceeds of approximately $200
million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes")
with a face amount at maturity of approximately $550 million. The Notes were
issued at a price of $363.46 per $1,000 face amount at maturity, which equates
to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the
offering, after underwriting discount, were approximately $195 million. The
Company used the proceeds to repay amounts outstanding under its revolving
credit facilities and added the balance of the net proceeds to working capital
and will use the cash for general corporate purposes. The Notes are convertible
into the Company's common stock at any time, if the sale price of the common
stock exceeds specified thresholds or in other specified instances, at the rate
of approximately 6.4 shares per $1,000 face amount at maturity. The conversion
ratio equates to an initial conversion price of $56.93 per share. Holders have
the option to require the Company to repurchase the Notes on any of the fifth,
tenth, or fifteenth anniversary dates from the issue date for the initial issue
price plus accrued yield to the purchase date. The Company has the option to
satisfy the repurchases with any combination of cash and/or shares of the
Company's common stock. The Company will have the option to redeem the Notes, in
cash, at any time after the fifth anniversary date for the initial issue price
plus accrued yield to redemption. The Company will pay contingent interest on
the Notes during specified six-month periods beginning on April 4, 2006 if the
market price of the Notes exceeds specified levels. The Company has granted the
underwriter a 30-day option to purchase up to an aggregate of $82.5 million
principal amount at maturity of additional Notes to cover over-allotments, if
any.
8
(8) New Accounting Pronouncements
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 current fiscal
year. Management does not currently believe that the conformity with the
requirements of SAB No. 101 will have a material impact on the Company's results
of operations or financial position.
In September 2000, the Financial Accounting Standards Board 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. The implementation of SFAS No. 140
will not have a material impact on the Company's results of operations or
financial position.
(9) Supplemental Financial Information
During May 2000, 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.
9
Consolidating Condensed Balance Sheet
February 28, 2001
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and receivables, net $ 6,714 98,248 547 - 105,509
Inventories - 2,476,975 6,368 - 2,483,343
Investments in partnerships - 292,185 - - 292,185
Other assets 83,704 184,378 - - 268,082
Investments in subsidiaries 1,541,334 207,942 - (1,749,276) -
- -------------------------------------------------------------------------------------------------------------------------
1,631,752 3,259,728 6,915 (1,749,276) 3,149,119
Financial services - 16,051 527,684 - 543,735
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,631,752 3,275,779 534,599 (1,749,276) 3,692,854
=========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 163,930 505,189 2,036 - 671,155
Mortgage notes and other debts
payable, net 1,240,268 51,290 - - 1,291,558
Intercompany (1,048,477) 1,171,566 (123,089) - -
- -------------------------------------------------------------------------------------------------------------------------
355,721 1,728,045 (121,053) - 1,962,713
Financial services - 6,400 447,710 - 454,110
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 355,721 1,734,445 326,657 - 2,416,823
Stockholders' equity 1,276,031 1,541,334 207,942 (1,749,276) 1,276,031
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 1,631,752 3,275,779 534,599 (1,749,276) 3,692,854
=========================================================================================================================
10
Supplemental Financial Information, Continued
Consolidating Condensed 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
- -------------------------------------------------------------------------------------------------------------------------
Total assets $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
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,793,251 3,079,429 601,402 (1,696,168) 3,777,914
=========================================================================================================================
11
Supplemental Financial Information, Continued
Consolidating Condensed Statement of Earnings
Three Months Ended February 28, 2001
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 1,021,816 2 - 1,021,818
Financial services - 10,897 71,327 - 82,224
- -------------------------------------------------------------------------------------------------------------------------
Total revenues - 1,032,713 71,329 - 1,104,042
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding - 906,053 127 - 906,180
Financial services - 15,820 59,146 - 74,966
Corporate general and administrative 15,788 - - - 15,788
Interest - 23,748 - - 23,748
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 15,788 945,621 59,273 - 1,020,682
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (15,788) 87,092 12,056 - 83,360
Provision (benefit) for income taxes (6,156) 33,530 4,720 - 32,094
Equity in earnings from subsidiaries 60,898 7,336 - (68,234) -
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $51,266 60,898 7,336 (68,234) 51,266
=========================================================================================================================
Consolidating Condensed Statement of Earnings
Three Months Ended February 29, 2000
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 578,047 2,875 - 580,922
Financial services - 8,524 50,921 - 59,445
- -------------------------------------------------------------------------------------------------------------------------
Total revenues - 586,571 53,796 - 640,367
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding - 524,130 1,963 - 526,093
Financial services - 10,890 47,947 - 58,837
Corporate general and administrative 9,057 - - - 9,057
Interest - 9,968 - - 9,968
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 9,057 544,988 49,910 - 603,955
- -------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (9,057) 41,583 3,886 - 36,412
Provision (benefit) for income taxes (3,448) 16,217 1,432 - 14,201
Equity in earnings from subsidiaries 27,820 2,454 - (30,274) -
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $22,211 27,820 2,454 (30,274) 22,211
=========================================================================================================================
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations may be
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. 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. See the Company's Annual Report on Form 10-K for the year ended
November 30, 2000 for a further discussion of these and other risks and
uncertainties applicable to the Company's business.
(1) Results of Operations
Overview
Net earnings were $51.3 million, or $0.75 per share diluted ($0.83 per share
basic), in the first quarter of 2001, compared to $22.2 million, or $0.40 per
share diluted ($0.42 per share basic), in the first quarter of 2000.
Homebuilding
The following tables set forth selected financial and operational information
related to the Homebuilding Division for the periods indicated (unaudited):
Three Months Ended
------------------------------
(Dollars in thousands, except February 28, February 29,
average sales price) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Revenues:
Sales of homes $ 997,494 523,948
Sales of land and other revenues 20,243 52,745
Equity in earnings from partnerships 4,081 4,229
- -------------------------------------------------------------------------------------------------------------------
Total revenues 1,021,818 580,922
Costs and expenses:
Cost of homes sold 775,301 420,967
Cost of land and other expenses 17,945 45,163
Selling, general and administrative 112,934 59,963
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 906,180 526,093
- -------------------------------------------------------------------------------------------------------------------
Operating earnings $ 115,638 54,829
===================================================================================================================
Gross profit on home sales - $ $ 222,193 102,981
Gross margin on home sales - % 22.3% 19.7%
S,G&A expenses as a percentage of revenues from home sales 11.3% 11.4%
Operating margin percentage on revenues from home sales 11.0% 8.2%
Average sales price $ 234,000 217,000
====================================================================================================================
13
Summary of Home and Backlog Data By Region
(Dollars in thousands)
Three Months Ended
---------------------------
February 28, February 29,
Deliveries 2001 2000
- ------------------------------------------------------------------
East 1,359 769
Central 1,214 764
West 1,684 878
- ------------------------------------------------------------------
Subtotal 4,257 2,411
Joint ventures 256 -
- ------------------------------------------------------------------
Total 4,513 2,411
==================================================================
New Orders
- ------------------------------------------------------------------
East 1,976 851
Central 1,727 776
West 2,102 1,131
- ------------------------------------------------------------------
Subtotal 5,805 2,758
Joint ventures 278 -
- ------------------------------------------------------------------
Total 6,083 2,758
==================================================================
Backlog - Homes
- ------------------------------------------------------------------
East 3,385 1,173
Central 2,145 664
West 3,869 1,401
- ------------------------------------------------------------------
Subtotal 9,399 3,238
Joint ventures 534 -
- ------------------------------------------------------------------
Total 9,933 3,238
==================================================================
Backlog Dollar Value (including JVs) $2,436,469 772,937
==================================================================
The Company's market regions consist of the following states:
East: Florida, Maryland/Virginia and New Jersey
Central: Texas, Minnesota and Ohio
West: California, Colorado, Arizona and Nevada
In addition, the Company has various joint ventures in North Carolina and
Michigan.
Revenues from sales of homes increased 90% in the first quarter of 2001 to
$997.5 million from $523.9 million in 2000. Revenues were higher due primarily
to increases in the number of home deliveries and average sales price in 2001,
compared to 2000. New home deliveries were higher due primarily to the inclusion
of U.S. Home's homebuilding activity in the first quarter of 2001. The increase
in the average sales price on homes delivered was due primarily to an increase
in the average sales price in the Company's existing markets, combined with
changes in product mix as a result of the entry into new markets since the
acquisition of U.S. Home.
14
Gross profits on home sales increased to $222.2 million in the three months
ended February 28, 2001, compared to $103.0 million in the three months ended
February 29, 2000. Gross margin percentages on home sales were 22.3% in the
three months ended February 28, 2001, compared to 19.7% in the three months
ended February 29, 2000. The increase was primarily due to improvements in the
Company's existing markets and success in new markets entered into since the
acquisition of U.S. Home. Additionally, the Company continued to realize
benefits from the national purchasing program which has been expanded since the
U.S. Home acquisition.
Revenues from land sales totaled $16.8 million in the first quarter of 2001,
compared to $51.3 million in the same period in 2000. Gross profits from land
sales totaled $0.3 million, or a 1.7% margin, in the first quarter of 2001,
compared to $6.4 million, or a 12.5% margin, last year. Equity in earnings from
partnerships was $4.1 million in the first quarter of 2001, compared to $4.2
million in the first quarter of 2000. Profits achieved on land sales 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 to 11.3% in the first quarter of 2001 from 11.4% in 2000.
At February 28, 2001, the Company's backlog of sales contracts was 9,933 homes
($2.4 billion), compared to 3,238 homes ($773 million) at February 29, 2000. The
higher backlog was primarily attributable to the acquisition of U.S. Home in May
2000.
Financial Services
The following table presents selected financial data related to the Financial
Services Division for the periods indicated (unaudited):
Three Months Ended
-------------------------------
February 28, February 29,
(Dollars in thousands) 2001 2000
- --------------------------------------------------------------------------------
Revenues $ 82,224 59,445
Costs and expenses 74,966 58,837
- --------------------------------------------------------------------------------
Operating earnings $ 7,258 608
================================================================================
Dollar value of mortgages originated $ 898,235 483,018
- --------------------------------------------------------------------------------
Number of mortgages originated 5,600 3,200
- --------------------------------------------------------------------------------
Principal balance of servicing portfolio $ 2,131,333 2,969,355
- --------------------------------------------------------------------------------
Number of loans serviced 28,000 37,000
- --------------------------------------------------------------------------------
Number of title transactions 32,000 26,000
================================================================================
Operating earnings from the Financial Services Division increased in the first
quarter of 2001 to $7.3 million from $0.6 million in the same period in 2000.
The increase was primarily due to greater earnings from the Company's mortgage
and title operations, including the earnings contribution from U.S. Home
Mortgage Corporation in the first quarter of 2001.
15
Corporate General and Administrative Expenses
Corporate general and administrative expenses as a percentage of total revenues
were 1.4% in both the first quarter of 2001 and 2000.
Interest Expense
In the first quarter of 2001, interest expense was $23.7 million, or 2.2% of
total revenues, compared to interest expense of $10.0 million, or 1.6% of total
revenues, in 2000. The increase in interest as a percentage of total revenues
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.
(2) Liquidity and Financial Resources
In the first quarter of 2001, $169.7 million of cash was used in the Company's
operating activities, compared to $61.5 million in the first quarter of 2000. In
the first quarter of 2001, $174.8 million of cash was used to increase
inventories through land purchases, land development and construction and $119.5
million was used to reduce accounts payable and other liabilities. These uses of
cash were partially offset by $51.3 million of net earnings and $53.9 million of
cash received from the sale or disposition of loans by the Company's Financial
Services Division. In the first quarter of 2000, $121.9 million of cash was used
to increase inventories through land purchases, land development and
construction and $23.9 million was used to reduce accounts payable and other
liabilities. These uses of cash were partially offset by $22.2 million of net
earnings and $65.0 million of cash received from the sale or disposition of
loans by the Company's Financial Services Division.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
were $117.6 million in the first quarter of 2001 compared to $54.5 million in
the first quarter of 2000.
Cash used in investing activities totaled $27.7 million in the first quarter of
2001, compared to cash provided by investing activities of $5.7 million in the
corresponding period in 2000. In the first quarter of 2001, $25.2 million of
cash was used to increase the Company's investments in partnerships. In the
first quarter of 2000, $8.4 million of cash was provided by the Company's
investments in partnerships.
The Company meets the majority of its short-term financing needs with cash
generated from operations and funds available under its credit facilities. The
Company's senior secured credit facilities 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 February 28, 2001, $398.0 million was outstanding under the term loan B
and $18.7 million was outstanding under the revolving credit facilities.
16
In April 2001, the Company issued, for gross proceeds of approximately $200
million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes")
with a face amount at maturity of approximately $550 million. The Notes were
issued at a price of $363.46 per $1,000 face amount at maturity, which equates
to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the
offering, after underwriting discount, were approximately $195 million. The
Company used the proceeds to repay amounts outstanding under its revolving
credit facilities and added the balance of the net proceeds to working capital
and will use the cash for general corporate purposes. The Notes are convertible
into the Company's common stock at any time, if the sale price of the common
stock exceeds specified thresholds or in other specified instances, at the rate
of approximately 6.4 shares per $1,000 face amount at maturity. The conversion
ratio equates to an initial conversion price of $56.93 per share. Holders have
the option to require the Company to repurchase the Notes on any of the fifth,
tenth, or fifteenth anniversary dates from the issue date for the initial issue
price plus accrued yield to the purchase date. The Company has the option to
satisfy the repurchases with any combination of cash and/or shares of the
Company's common stock. The Company will have the option to redeem the Notes, in
cash, at any time after the fifth anniversary date for the initial issue price
plus accrued yield to redemption. The Company will pay contingent interest on
the Notes during specified six-month periods beginning on April 4, 2006 if the
market price of the Notes exceeds specified levels. The Company has granted the
underwriter a 30-day option to purchase up to an aggregate of $82.5 million
principal amount at maturity of additional Notes to cover over-allotments, if
any.
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 April
2001, the Company had $800 million in total available under these registration
statements.
Based on the Company's current financial condition and financial market
resources, management believes that its operations and capital resources will
provide for its current and long-term capital requirements at the Company's
anticipated levels of growth.
(3) Market Risk
The information included in "Item 7A. Market Risk" in the Company's Annual
Report on Form 10-K for the year ended November 30, 2000 is incorporated herein
by reference.
Part II. Other Information
Items 1-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(10) Lennar Corporation 2000 Stock Option and
Restricted Stock Plan, as amended.
(b) Reports on Form 8-K: Registrant was not required to
file, and has not filed, a Form 8-K during the quarter
for which this report is being filed.
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENNAR CORPORATION
----------------------------------------
(Registrant)
Date: April 16, 2001 /s/ BRUCE E. GROSS
-------------- ----------------------------------------
Bruce E. Gross
Vice President and
Chief Financial Officer
Date: April 16, 2001 /s/ DIANE J. BESSETTE
-------------- ----------------------------------------
Diane J. Bessette
Vice President and
Controller
18
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(10) Lennar Corporation 2000 Stock Option and Restricted Stock Plan,
as amended.