================================================================================
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 AUGUST 31, 1999
Commission File Number: 1-11749
LENNAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-1281887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 NORTHWEST 107TH AVENUE, MIAMI, FLORIDA 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 559-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _____
Common shares outstanding as of September 30, 1999:
Common 48,508,579
Class B Common 9,848,562
================================================================================
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands, except share amounts)
(Unaudited)
August 31, November 30,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 38,357 34,677
Receivables, net 28,533 23,803
Inventories 1,438,254 1,198,553
Investments in partnerships 158,862 156,536
Other assets 129,210 137,311
-----------------------------------
1,793,216 1,550,880
FINANCIAL SERVICES 410,782 366,954
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,203,998 1,917,834
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
HOMEBUILDING:
Accounts payable and other liabilities $ 327,892 322,267
Income taxes currently payable 16,687 33,440
Mortgage notes and other debts payable, net 711,721 530,630
-----------------------------------
1,056,300 886,337
FINANCIAL SERVICES 319,291 315,832
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,375,591 1,202,169
STOCKHOLDERS' EQUITY:
Common stock of $0.10 par value per share,
48,504,903 shares outstanding at August 31, 1999 4,850 4,824
Class B common stock of $0.10 par value per share,
9,848,562 shares outstanding at August 31, 1999 985 991
Additional paid-in capital 525,590 523,645
Retained earnings 296,982 186,205
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 828,407 715,665
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,203,998 1,917,834
=================================================================================================================================
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 Nine Months Ended
August 31, August 31,
---------------------------- -----------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Homebuilding $ 746,766 558,723 1,948,299 1,443,358
Financial services 72,731 62,212 200,154 150,395
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 819,497 620,935 2,148,453 1,593,753
- -------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Homebuilding 656,183 487,629 1,723,572 1,279,106
Financial services 64,675 53,125 176,925 128,986
Corporate general and administrative 9,929 8,303 27,250 21,095
Interest 13,548 13,437 34,051 36,443
- -------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 744,335 562,494 1,961,798 1,465,630
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 75,162 58,441 186,655 128,123
Income taxes 29,689 23,376 73,729 51,249
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 45,473 35,065 112,926 76,874
===============================================================================================================================
BASIC EARNINGS PER SHARE $ 0.78 0.61 1.94 1.40
===============================================================================================================================
DILUTED EARNINGS PER SHARE $ 0.72 0.59 1.80 1.37
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ 0.0125 0.0125 0.0375 0.0375
- -------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER CLASS B COMMON SHARE $ 0.01125 0.01125 0.03375 0.03375
===============================================================================================================================
See accompanying notes to consolidated condensed financial statements.
2
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
August 31,
---------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 112,926 76,874
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 28,783 15,630
Amortization of discount/premium on debt, net 6,729 (2,167)
Equity in earnings from partnerships (12,571) (8,923)
Increase in deferred income taxes 4,996 11,026
Changes in assets and liabilities, net of effect of acquisitions:
Decrease in receivables 319 7,714
Increase in inventories (234,413) (213,485)
Increase in other assets (13,612) (3,150)
Decrease (increase) in financial services loans held for sale or disposition 9,844 (35,014)
Increase in accounts payable and other liabilities 3,097 55,100
Decrease in income taxes currently payable (16,753) (9,281)
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (110,655) (105,676)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of operating properties and equipment (10,563) (10,432)
Decrease (increase) in investments in partnerships, net 11,570 (21,653)
Decrease in financial services mortgage loans 1,892 428
Purchases of investment securities (10,165) (2,603)
Receipts from investment securities 9,000 1,600
Acquisitions of properties and businesses, net of cash acquired (20,172) (188,725)
Other, net 79 146
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,359) (221,239)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facilities 39,050 35,450
Net (repayments) borrowings under financial services short-term debt (8,109) 59,792
Net proceeds from issuance of senior notes 266,153 -
Net proceeds from issuance of zero-coupon senior convertible debentures - 222,960
Mortgage notes and other debts payable:
Proceeds from borrowings 1,814 113,700
Principal payments (156,427) (121,687)
Limited-purpose finance subsidiaries, net 519 497
Common stock:
Issuance 1,965 40,894
Dividends (2,149) (2,033)
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 142,816 349,573
-------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 13,802 22,658
Cash and cash equivalents at beginning of period 61,577 62,599
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 75,379 85,257
===============================================================================================================================
3
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows -- Continued
(Unaudited)
(In thousands)
Nine Months Ended
August 31,
--------------------------------
1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Summary of cash and cash equivalent balances:
Homebuilding $ 38,357 49,372
Financial services 37,022 35,885
-------------------------------------------------------------------------------------------------------------------------------
$ 75,379 85,257
-------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 1,745 13,078
Cash paid for income taxes $ 83,203 39,002
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers $ 29,210 22,300
===============================================================================================================================
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, 1998 audited financial statements in the Company's Annual Report on
Form 10-K for the year then ended. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the accompanying consolidated condensed financial statements
have been made. Certain prior year amounts in the consolidated condensed
financial statements have been reclassified to conform with the current period
presentation.
The Company historically has experienced, and expects to continue to experience,
variability in quarterly results. The consolidated condensed statements of
earnings for the three and nine months ended August 31, 1999 are not necessarily
indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(2) BUSINESS SEGMENTS
The Company has two business segments: Homebuilding and Financial Services.
Homebuilding operations include the sale and construction of single-family
attached and detached homes in Florida, California, Texas, Arizona and Nevada.
These activities also include the purchase, development and sale of residential
land by the Company and partnerships in which it has investments.
Financial Services activities are conducted primarily through Lennar Financial
Services, Inc. and its subsidiaries. These companies provide mortgage financing,
title insurance and closing services for Lennar homebuyers and others, package
and resell residential mortgage loans and mortgage-backed securities, perform
mortgage loan servicing activities and provide cable television and alarm
monitoring services to residents of Lennar communities and others.
5
(3) DEBT
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% 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.
(4) 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 Nine Months Ended
August 31, August 31,
-------------------------- --------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------------
NUMERATOR:
Numerator for basic earnings per share -
net earnings $ 45,473 35,065 112,926 76,874
Interest on zero-coupon convertible
debentures 1,389 391 4,131 391
-----------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $ 46,862 35,456 117,057 77,265
-----------------------------------------------------------------------------------------------------------
DENOMINATOR:
Denominator for basic earnings per share -
weighted average shares 58,324 57,447 58,274 54,834
Effect of dilutive securities:
Employee stock options 668 1,059 772 1,034
Zero-coupon convertible debentures 6,105 1,971 6,105 657
-----------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 65,097 60,477 65,151 56,525
===========================================================================================================
Basic earnings per share $ 0.78 0.61 1.94 1.40
===========================================================================================================
Diluted earnings per share $ 0.72 0.59 1.80 1.37
===========================================================================================================
6
(5) FINANCIAL SERVICES
The assets and liabilities related to the Company's financial services
operations (as described in Note 2) are summarized as follows:
(Unaudited)
August 31, November 30,
(IN THOUSANDS) 1999 1998
-----------------------------------------------------------------------------------------------------
ASSETS:
Cash and receivables, net $ 46,624 40,479
Mortgage loans held for sale or disposition, net 227,836 214,954
Mortgage loans, net 19,886 21,370
Mortgage servicing rights, net 19,024 11,080
Title plants 14,587 16,104
Goodwill 20,878 7,935
Other 34,175 20,140
Limited-purpose finance subsidiaries 27,772 34,892
-----------------------------------------------------------------------------------------------------
$ 410,782 366,954
=====================================================================================================
LIABILITIES:
Notes and other debts payable $ 246,076 233,316
Other 45,443 47,624
Limited-purpose finance subsidiaries 27,772 34,892
-----------------------------------------------------------------------------------------------------
$ 319,291 315,832
=====================================================================================================
(6) CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of August 31, 1999 and November 30, 1998 included
$33.6 million and $15.0 million, respectively, of cash held in escrow for
periods of up to three days.
(7) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 requires public
companies to report certain information about their operating segments in their
annual and interim financial statements. It also requires public companies to
report certain information about their products and services, the geographic
areas in which they operate and their major customers. The Company will adopt
the statement in 1999 and will be required to present additional financial
statement disclosures in its 1999 year-end financial statements and for interim
periods thereafter. These additional disclosures will not have an impact on the
Company's results of operations or financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The effective date of this statement, as
amended by SFAS No. 137, is for fiscal years beginning after June 15, 2000. SFAS
No. 133 will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, a change in the fair value of the derivative will either be offset
against the change in the fair value of the hedged asset, liability, or firm
commitment through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. Management does not currently believe
that the implementation of SFAS No. 133 will have a material impact on the
Company's results of operations or financial position.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS CONTAINED IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE
"FORWARD-LOOKING STATEMENTS" AS DEFINED IN THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. SUCH STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE WHICH ARE
ANTICIPATED. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN GENERAL
ECONOMIC CONDITIONS, THE MARKET FOR HOMES GENERALLY AND IN AREAS WHERE THE
COMPANY HAS DEVELOPMENTS, THE AVAILABILITY AND COST OF LAND SUITABLE FOR
RESIDENTIAL DEVELOPMENT, MATERIALS PRICES, LABOR COSTS, INTEREST RATES, CONSUMER
CONFIDENCE, COMPETITION, ENVIRONMENTAL FACTORS AND GOVERNMENT REGULATIONS
AFFECTING THE COMPANY'S OPERATIONS. SEE THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 1998 FOR A FURTHER DISCUSSION OF THESE AND OTHER
RISKS AND UNCERTAINTIES APPLICABLE TO THE COMPANY'S BUSINESS.
(1) RESULTS OF OPERATIONS
OVERVIEW
Net earnings increased to $45.5 million, or $0.72 per share diluted ($0.78 per
share basic), in the third quarter of 1999, from $35.1 million, or $0.59 per
share diluted ($0.61 per share basic), in the third quarter of 1998. For the
nine months ended August 31, 1999, net earnings were $112.9 million, or $1.80
per share diluted ($1.94 per share basic), compared to $76.9 million, or $1.37
per share diluted ($1.40 per share basic), in 1998. Homebuilding operating
earnings increased in both 1999 periods due primarily to an increase in new home
deliveries and average sales prices as a result of generally favorable market
conditions throughout the Company's homebuilding markets in 1999. However, there
was a weakening in demand in certain of these markets late in the third quarter
of 1999, which continued into the fourth quarter. An increase in gross margin
from land sales also contributed to higher homebuilding operating earnings in
both 1999 periods. Financial Services operating earnings decreased in the third
quarter of 1999 compared to the third quarter of 1998 and increased in the nine
months ended August 31, 1999 compared to the same period last year. Third
quarter 1999 title and mortgage operating earnings were impacted by a reduced
level of refinance activity, while the nine month increase primarily reflected
an increase in mortgage originations.
8
HOMEBUILDING
The following tables set forth selected financial and operational information
related to the Homebuilding Division for the periods indicated (unaudited):
Three Months Ended Nine Months Ended
August 31, August 31,
(DOLLARS IN THOUSANDS, EXCEPT --------------------------- ----------------------------
AVERAGE SALES PRICES) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
REVENUES:
Sales of homes $ 664,677 545,512 1,796,870 1,395,070
Sales of land and other revenues 73,982 11,415 138,858 39,365
Equity in earnings from partnerships 8,107 1,796 12,571 8,923
- -------------------------------------------------------------------------------------------------------
Total revenues 746,766 558,723 1,948,299 1,443,358
COSTS AND EXPENSES:
Cost of homes sold 523,393 427,376 1,414,495 1,100,205
Cost of land and other expenses 63,781 10,293 117,525 34,546
Selling, general and administrative 69,009 49,960 191,552 144,355
- -------------------------------------------------------------------------------------------------------
Total costs and expenses 656,183 487,629 1,723,572 1,279,106
- -------------------------------------------------------------------------------------------------------
OPERATING EARNINGS $ 90,583 71,094 224,727 164,252
=======================================================================================================
Gross margin on home sales - $ $ 141,284 118,136 382,375 294,865
Gross margin on home sales - % 21.3% 21.7% 21.3% 21.1%
S,G&A expenses as a percentage of
homebuilding revenues 9.2% 8.9% 9.8% 10.0%
Operating earnings as a percentage
of homebuilding revenues 12.1% 12.7% 11.5% 11.4%
Average sales price $ 206,000 194,000 205,000 192,000
=======================================================================================================
SUMMARY OF HOME AND BACKLOG DATA
Three Months Ended Nine Months Ended
August 31, August 31,
---------------------------- ----------------------------
DELIVERIES 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
Florida 1,078 851 2,799 2,421
California 910 908 2,614 1,979
Texas 832 662 2,183 1,841
Arizona/Nevada 411 390 1,148 1,043
- -----------------------------------------------------------------------------------------------------
3,231 2,811 8,744 7,284
=====================================================================================================
NEW ORDERS
- -----------------------------------------------------------------------------------------------------
Florida 889 1,069 3,059 3,163
California 771 744 2,727 2,246
Texas 744 603 2,343 2,016
Arizona/Nevada 191 359 985 1,228
- -----------------------------------------------------------------------------------------------------
2,595 2,775 9,114 8,653
=====================================================================================================
BACKLOG - HOMES
- -----------------------------------------------------------------------------------------------------
Florida 1,804 2,037
California 1,261 1,593
Texas 863 843
Arizona/Nevada 542 757
- -----------------------------------------------------------------------------------------------------
4,470 5,230
=====================================================================================================
BACKLOG - DOLLAR VALUE (IN THOUSANDS) $ 1,024,572 1,072,774
=====================================================================================================
9
Homebuilding revenues increased 34% and 35% in the three and nine months ended
August 31, 1999, respectively, compared to the same periods in 1998. Revenues
were higher in both 1999 periods primarily due to increases in the number of
home deliveries, average sales price and revenues from land sales. The third
quarter increase in new home deliveries was due primarily to increases in
Florida and Texas. The nine month increase in new home deliveries was primarily
a result of 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. Average sales prices on homes
delivered in the three and nine months ended August 31, 1999 increased in each
state in which the Company operates.
Gross margins on home sales increased 20% and 30% in the three and nine months
ended August 31, 1999, respectively, compared to the same periods last year.
Gross margin percentages from sales of homes decreased approximately 40 basis
points in the third quarter of 1999, compared to the third quarter of 1998, due
primarily to higher labor and material costs during the quarter. Gross margin
percentages from sales of homes increased 20 basis points in the nine months
ended August 31, 1999, compared to the same period last year.
Revenues from land sales totaled $71.4 million and $132.9 million in the three
and nine months ended August 31, 1999, respectively, compared to $9.6 million
and $33.1 million, in the same periods in 1998, respectively, due primarily to
several large sales in California. Gross margins from land sales totaled $8.1
million, or 11.4%, and $17.7 million, or 13.3%, in the three and nine months
ended August 31, 1999, respectively, compared to $0.2 million, or 2.5%, and $2.4
million, or 7.2%, in the same periods last year, respectively. Equity in
earnings from partnerships increased to $8.1 million and $12.6 million in the
three and nine months ended August 31, 1999, respectively, from $1.8 million and
$8.9 million in the same periods last year, respectively. Margins 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 homebuilding
revenues were 9.2% and 9.8% in the three and nine months ended August 31, 1999,
respectively, compared to 8.9% and 10.0% in the same periods in 1998,
respectively.
At August 31, 1999, the Company's backlog of sales contracts decreased to 4,470
homes compared to 5,230 homes at August 31, 1998. New orders in the third
quarter of 1999 were 6% lower than in the third quarter of 1998 due to a
combination of softening demand and a lower number of communities. Orders
weakened toward the end of the third quarter, and this trend has continued into
the beginning of the fourth quarter.
10
FINANCIAL SERVICES
The following table presents selected financial data related to the Financial
Services Division for the periods indicated (unaudited):
Three Months Ended Nine Months Ended
August 31, August 31,
--------------------------- ---------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Revenues $ 72,731 62,212 200,154 150,395
Costs and expenses 64,675 53,125 176,925 128,986
- ----------------------------------------------------------------------------------------------------------
Operating earnings $ 8,056 9,087 23,229 21,409
==========================================================================================================
Dollar value of mortgages originated $ 614,356 262,818 1,554,323 676,565
- ----------------------------------------------------------------------------------------------------------
Number of mortgages originated 4,270 1,987 10,831 5,212
- ----------------------------------------------------------------------------------------------------------
Principal balance of servicing portfolio $ 3,442,000 3,119,000
- ----------------------------------------------------------------------------------------------------------
Number of loans serviced 41,000 41,000
- ----------------------------------------------------------------------------------------------------------
Number of title transactions 35,000 34,000 109,000 87,000
==========================================================================================================
Operating earnings from the Financial Services Division decreased in the three
months ended August 31, 1999, compared to the same period last year, primarily
as a result of a reduced level of refinance activity across the country which
impacted the Division's title operations and created a highly competitive
pricing environment for the Division's mortgage operations. Operating earnings
from the Financial Services Division increased in the nine months ended August
31, 1999, compared to the same period last year, due primarily to higher loan
production profits. The improvement in loan production profits resulted
primarily from an increase in mortgage originations, somewhat offset by a highly
competitive pricing environment.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Corporate general and administrative expenses as a percentage of total revenues
were 1.2% and 1.3% in the three and nine months ended August 31, 1999,
respectively, compared to 1.3% in both the three and nine months ended August
31, 1998.
INTEREST EXPENSE
Interest expense in the three months ended August 31, 1999 was $13.5 million, or
1.7% of total revenues, compared to interest expense of $13.4 million, or 2.2%
of total revenues, in the same period in 1998. In the nine months ended August
31, 1999, interest expense was $34.1 million, or 1.6% of total revenues,
compared to interest expense of $36.4 million, or 2.3% of total revenues, in the
same period last year. The decrease in interest as a percentage of total
revenues for both 1999 periods was primarily due to a reduction in interest per
home delivered which resulted from a lower average borrowing cost over the last
several quarters. The Company continued to benefit from the issuance late in the
third quarter of 1998 of $229 million of zero-coupon senior convertible debt
securities. These notes have an effective interest rate of 3.875%. Interest
incurred was $14.9 million in the third quarter of 1999, compared to $15.0
million in the same period last year, reflecting a lower average borrowing cost
offset by an increase in average debt outstanding in 1999. Interest incurred was
$40.9 million in the nine months ended August 31, 1999, compared to $38.3
million in the same period last year. The increase in interest incurred was
primarily due to an increase in average debt outstanding in 1999 as a result of
the Company's continued growth.
11
(2) LIQUIDITY AND FINANCIAL RESOURCES
In the nine months ended August 31, 1999, $110.7 million in cash was used in the
Company's operating activities, compared to $105.7 million in the corresponding
period in 1998. In the nine months ended August 31, 1999, $234.4 million of cash
was used to increase inventories through land purchases, land development and
construction. This use of cash was partially offset by $112.9 million of net
earnings. In the nine months ended August 31, 1998, $213.5 million of cash was
used to increase inventories through land purchases, land development and
construction and $35.0 million was used by the Company's Financial Services
Division in its mortgage loan origination operations. These uses of cash were
partially offset by $76.9 million of net earnings and an increase in accounts
payable and other liabilities of $55.1 million.
Cash used in investing activities totaled $18.4 million in the nine months ended
August 31, 1999, compared to cash used in investing activities of $221.2 million
in the corresponding period in 1998. In the nine months ended August 31, 1999,
$20.2 million of cash was used in acquisitions of properties and businesses. In
the nine months ended August 31, 1998, $188.7 million of cash was used in
acquisitions of properties and businesses and $21.7 million was used to increase
the Company's investments in partnerships.
The Company meets the majority of its short-term financing needs with cash
generated from operations and funds available under its unsecured revolving
credit facilities. Total homebuilding debt increased to $711.7 million at August
31, 1999, compared to $530.6 million at November 30, 1998. This increase was a
result of the Company's continued growth in 1999 and the timing of homebuilding
construction activity and deliveries. The Company's ratio of homebuilding debt
to total capital at August 31, 1999 was 46.2%, compared to 42.6% at November 30,
1998 and 55.3% at August 31, 1998.
At August 31, 1999, the Company had unsecured revolving credit facilities in the
aggregate amount of $645 million, which may be used to refinance existing
indebtedness, for working capital, for acquisitions and for general corporate
purposes. At August 31, 1999, $175.7 million was outstanding under the Company's
revolving credit facilities, compared to $136.7 million outstanding at November
30, 1998.
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% 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.
In March 1999, the Company filed a shelf registration statement and prospectus
with the Securities and Exchange Commission to offer, from time-to-time, its
common stock, preferred stock, depositary shares, debt securities or warrants at
an aggregate initial offering price not to exceed $500 million. Proceeds can be
used for repayment of debt, acquisitions and general corporate purposes. As of
August 31, 1999, no securities had been issued under this registration
statement.
In September 1999, the Company's Board of Directors approved the repurchase of
up to ten million shares of the Company's common stock. The Company may
repurchase shares, from time-to-time, if and when it believes prices make
purchases advisable.
12
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) YEAR 2000
The "Year 2000 issue" relates to issues which may arise from the inability of
existing computer systems to properly recognize the year 2000. If not corrected,
computer systems may fail or miscalculate data.
The Company uses a variety of operating systems, computer software applications,
computer hardware equipment and other equipment in conjunction with its
homebuilding and financial services operations. In addition, the Company uses
other non-information technology internal office systems. The Company is in the
process of converting the majority of its computer information systems to one
company-wide system. This new system is Year 2000 compliant. The Company has
completed a significant portion of the implementation of this new system and
expects to complete the implementation by the end of 1999. The Company is also
making modifications to its existing computer information systems to make them
Year 2000 compliant in the event it is not able to complete the conversion to
the new company-wide system before the year 2000. While the Company expects to
successfully complete the remediation process by the end of 1999, there can be
no assurance that the Company's computer information systems will operate
properly in the year 2000. The financial impact of becoming Year 2000 compliant
has not been and is not expected to be material to the Company's financial
position or results of operations.
The Company is surveying certain of its significant vendors, subcontractors,
suppliers and others ("third parties") to assess their state of readiness for
the year 2000. Although the Company is unaware of any significant issues
regarding the third parties' state of readiness for the year 2000, the Company
cannot assure that all third parties will be Year 2000 compliant. Failure of
third parties to be Year 2000 ready could have an adverse effect on the Company.
Disruptions of financial markets or computer system failures at government
agencies, financial institutions, utilities and others on which the Company is
dependent could also adversely impact the Company. The effects of a potential
disruption cannot be determined at this time.
PART II. OTHER INFORMATION
ITEMS 1-5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule.
(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.
13
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: OCTOBER 14, 1999 /s/ BRUCE E. GROSS
--------------------------------------------
Bruce E. Gross
Chief Financial Officer
Date: OCTOBER 14, 1999 /s/ DIANE J. BESSETTE
--------------------------------------------
Diane J. Bessette
Controller
14
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule