================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 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 June 30, 2001:
Common 54,023,719
----------
Class B Common 9,772,812
---------
================================================================================
Part I. Financial Information
Item 1. Financial Statements
--------------------
Lennar Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
May 31, November 30,
2001 2000
--------------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash $ 219,002 287,627
Receivables, net 47,980 42,270
Inventories 2,521,812 2,301,584
Investments in partnerships 286,480 257,639
Other assets 251,605 277,794
----------------------------------
3,326,879 3,166,914
Financial services 673,462 611,000
--------------------------------------------------------------------------------------------------------------------------------
Total assets $ 4,000,341 3,777,914
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 586,205 778,238
Mortgage notes and other debts payable, net 1,496,839 1,254,650
----------------------------------
2,083,044 2,032,888
Financial services 528,485 516,446
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,611,529 2,549,334
Stockholders' equity:
Preferred stock - -
Common stock of $0.10 par value per share,
63,865 shares issued at May 31, 2001 6,386 6,273
Class B common stock of $0.10 par value per share,
9,773 shares issued at May 31, 2001 977 985
Additional paid-in capital 835,720 812,501
Retained earnings 729,031 582,299
Unearned restricted stock (12,573) (14,535)
Treasury stock, at cost; 9,847 common shares at May 31, 2001 (158,927) (158,943)
Accumulated other comprehensive loss (11,802) -
--------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,388,812 1,228,580
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 4,000,341 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 Six Months Ended
May 31, May 31,
--------------------------------- ------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ 1,273,349 887,131 2,295,167 1,468,053
Financial services 118,184 81,049 200,408 140,494
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,391,533 968,180 2,495,575 1,608,547
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding 1,101,518 811,303 2,007,698 1,337,396
Financial services 84,529 66,109 159,495 124,946
Corporate general and administrative 18,387 11,269 34,175 20,326
Interest 29,366 19,760 53,114 29,728
- -----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,233,800 908,441 2,254,482 1,512,396
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 157,733 59,739 241,093 96,151
Income taxes 60,727 23,298 92,821 37,499
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 97,006 36,441 148,272 58,652
===================================================================================================================================
Basic earnings per share $ 1.55 0.69 2.38 1.11
===================================================================================================================================
Diluted earnings per share $ 1.40 0.64 2.15 1.03
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ 0.0125 0.0125 0.025 0.025
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends per Class B common share $ 0.01125 0.01125 0.0225 0.0225
===================================================================================================================================
See accompanying notes to consolidated condensed financial statements.
2
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
May 31,
-------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 148,272 58,652
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 23,985 18,127
Amortization of discount on debt 8,065 5,244
Equity in earnings from partnerships (6,515) (6,494)
Increase in deferred income taxes 31,072 13,606
Changes in assets and liabilities, net of effect of acquisitions:
Increase in receivables (124,706) (15,213)
Increase in inventories (225,193) (94,615)
Increase in other assets (4,693) (25,023)
(Increase) decrease in financial services loans held for sale or disposition 54,025 (17,312)
Decrease in accounts payable and other liabilities (190,786) (91,538)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (286,474) (154,566)
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Operating properties and equipment:
Additions (9,943) (10,189)
Sales 1,619 -
Increase in investments in partnerships, net (13,073) (3,751)
Decrease in financial services mortgage loans 626 546
Decrease in financial services mortgage servicing rights 10,812 -
Purchases of investment securities (11,067) (8,589)
Receipts from investment securities 10,800 5,238
Acquisitions of properties and businesses, net of cash acquired - (156,691)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,226) (173,436)
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under revolving credit facilities - 872,100
Net borrowings under financial services short-term debt 6,144 82,730
Payments for tender of U.S. Home's senior notes - (514,019)
Net proceeds from issuance of 5.125% zero coupon convertible
senior subordinated notes 224,250 -
Net proceeds from issuance of 9.95% senior notes - 294,988
Proceeds from other borrowings 110 1,812
Principal payments on other borrowings (11,122) (262,868)
Limited-purpose finance subsidiaries, net 588 108
Common stock:
Issuance 16,313 1,312
Repurchases - (152,925)
Dividends (1,540) (1,378)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 234,743 321,860
- -------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (61,957) (6,142)
Cash at beginning of period 333,877 118,167
- -------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 271,920 112,025
===============================================================================================================================
3
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows -- Continued
(Unaudited)
(In thousands)
Six Months Ended
May 31,
-------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Summary of cash:
Homebuilding $ 219,002 72,234
Financial services 52,918 39,791
- ----------------------------------------------------------------------------------------------------------------------------
$ 271,920 112,025
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 10,670 11,778
Cash paid for income taxes $ 116,086 30,726
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers $ 17,685 4,984
============================================================================================================================
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 statements of
earnings for the three and six months ended May 31, 2001 are 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 14 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
also packages and resells residential mortgage loans and 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 Six Months Ended
May 31, May 31,
--------------------------------- ------------------------------
(In thousands, except per share amounts) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic earnings per share -
net earnings $ 97,006 36,441 148,272 58,652
Interest on zero-coupon convertible
debentures due 2018, net of tax 1,518 1,447 3,016 2,875
- -----------------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $ 98,524 37,888 151,288 61,527
=======================================================================================================================
Denominator:
Denominator for basic earnings per share -
weighted average shares 62,699 52,779 62,398 52,970
Effect of dilutive securities:
Employee stock options and restricted stock 1,776 542 1,857 476
Zero-coupon convertible debentures due 2018 6,105 6,105 6,105 6,105
- -----------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 70,580 59,426 70,360 59,551
=======================================================================================================================
Basic earnings per share $ 1.55 0.69 2.38 1.11
=======================================================================================================================
Diluted earnings per share $ 1.40 0.64 2.15 1.03
=======================================================================================================================
(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)
May 31, November 30,
(In thousands) 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Assets:
Cash and receivables, net $ 204,685 79,025
Mortgage loans held for sale or disposition, net 322,537 376,452
Mortgage loans, net 41,775 42,504
Mortgage servicing rights, net - 11,653
Title plants 15,530 15,530
Goodwill, net 25,989 25,199
Other 46,806 40,743
Limited-purpose finance subsidiaries 16,140 19,894
- ------------------------------------------------------------------------------------------------------------------
$ 673,462 611,000
==================================================================================================================
Liabilities:
Notes and other debts payable $ 434,811 428,966
Other 77,534 67,586
Limited-purpose finance subsidiaries 16,140 19,894
- ------------------------------------------------------------------------------------------------------------------
$ 528,485 516,446
==================================================================================================================
6
(5) Cash
----
Cash as of May 31, 2001 and November 30, 2000 included $36.9 million and $65.9
million, respectively, of cash held in escrow for approximately three days.
(6) Debt
----
In the second quarter of 2001, the Company issued, for gross proceeds of
approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes
due 2021 ("Notes") with a face amount at maturity of approximately $633 million.
The Notes were issued at a price of $363.46 per $1,000 face amount at maturity,
which equates to a yield to maturity over the life of the Notes of 5.125%.
Proceeds from the offering, after underwriting discount, were approximately $224
million. The 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.
7
(7) 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.
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 at May 31, 2001. 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 May 31, 2001, the
liability and accumulated other comprehensive loss increased $8.3 million (net
of tax benefit of $5.2 million) to $11.8 million. Total comprehensive income
was $136.5 million for the six months ended May 31, 2001 and $58.7 million for
the six months ended May 31, 2000.
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 ("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 was effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The implementation of SFAS No. 140 did not have a material
impact on the Company's results of operations or financial position.
In June 2001, the FASB approved SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. SFAS No. 142 is effective
for the Company's fiscal year 2003. Management is in the process of evaluating
the effect the adoption of these standards will have on its financial
statements.
(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
May 31, 2001
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and receivables, net $ 160,216 106,573 193 - 266,982
Inventories - 2,515,457 6,355 - 2,521,812
Investments in partnerships - 286,480 - - 286,480
Other assets 85,807 165,798 - - 251,605
Investments in subsidiaries 1,657,459 239,582 - (1,897,041) -
- -------------------------------------------------------------------------------------------------------------------------------
1,903,482 3,313,890 6,548 (1,897,041) 3,326,879
Financial services - 22,129 651,333 - 673,462
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,903,482 3,336,019 657,881 (1,897,041) 4,000,341
===============================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other
liabilities $ 166,168 419,957 80 - 586,205
Mortgage notes and other debts
payable, net 1,450,819 46,020 - - 1,496,839
Intercompany (1,102,317) 1,202,872 (100,555) - -
- -------------------------------------------------------------------------------------------------------------------------------
514,670 1,668,849 (100,475) - 2,083,044
Financial services - 9,711 518,774 - 528,485
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 514,670 1,678,560 418,299 - 2,611,529
Stockholders' equity 1,388,812 1,657,459 239,582 (1,897,041) 1,388,812
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 1,903,482 3,336,019 657,881 (1,897,041) 4,000,341
===============================================================================================================================
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
Six Months Ended May 31, 2001
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 2,295,163 4 - 2,295,167
Financial services - 25,073 175,335 - 200,408
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues - 2,320,236 175,339 - 2,495,575
- ------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding - 2,007,442 256 - 2,007,698
Financial services - 31,263 128,232 - 159,495
Corporate general and administrative 34,175 - - - 34,175
Interest - 53,114 - - 53,114
- ------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 34,175 2,091,819 128,488 - 2,254,482
- ------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (34,175) 228,417 46,851 - 241,093
Provision (benefit) for income taxes (12,411) 87,941 17,291 - 92,821
Equity in earnings from subsidiaries 170,036 29,560 - (199,596) -
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 148,272 170,036 29,560 (199,596) 148,272
==============================================================================================================================
Consolidating Condensed Statement of Earnings
Six Months Ended May 31, 2000
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 1,465,178 2,875 - 1,468,053
Financial services - 25,696 114,798 - 140,494
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues - 1,490,874 117,673 - 1,608,547
- ------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Homebuilding - 1,335,419 1,977 - 1,337,396
Financial services - 24,220 100,726 - 124,946
Corporate general and administrative 20,326 - - - 20,326
Interest - 29,728 - - 29,728
- ------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 20,326 1,389,367 102,703 - 1,512,396
- ------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (20,326) 101,507 14,970 - 96,151
Provision (benefit) for income taxes (8,047) 39,588 5,958 - 37,499
Equity in earnings from subsidiaries 70,931 9,012 - (79,943) -
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 58,652 70,931 9,012 (79,943) 58,652
==============================================================================================================================
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 $97.0 million, or $1.40 per share diluted ($1.55 per share
basic), in the second quarter of 2001, compared to $36.4 million, or $0.64 per
share diluted ($0.69 per share basic), in the second quarter of 2000. For the
six months ended May 31, 2001, net earnings were $148.3 million, or $2.15 per
share diluted ($2.38 per share basic), compared to $58.7 million, or $1.03 per
share diluted ($1.11 per share basic) in 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 Six Months Ended
May 31, May 31,
(Dollars in thousands, except --------------------------- --------------------------
average sales price) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Revenues:
Sales of homes $ 1,255,356 843,426 2,252,850 1,367,374
Sales of land and other revenues 15,559 41,440 35,802 94,185
Equity in earnings from partnerships 2,434 2,265 6,515 6,494
- ---------------------------------------------------------------------------------------------------------------
Total revenues 1,273,349 887,131 2,295,167 1,468,053
Costs and expenses:
Cost of homes sold 956,047 690,133 1,731,348 1,111,100
Cost of land and other expenses 10,333 32,822 28,278 77,985
Selling, general and administrative 135,138 88,348 248,072 148,311
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,101,518 811,303 2,007,698 1,337,396
- ---------------------------------------------------------------------------------------------------------------
Operating earnings $ 171,831 75,828 287,469 130,657
===============================================================================================================
Gross profit on home sales - $ $ 299,309 153,293 521,502 256,274
Gross margin on home sales - % 23.8% 18.2% 23.1% 18.7%
S,G&A expenses as a percentage of
revenues from home sales 10.8% 10.5% 11.0% 10.8%
Operating margin percentage on
revenues from home sales 13.1% 7.7% 12.1% 7.9%
Average sales price $ 235,000 219,000 234,000 218,000
===============================================================================================================
13
Summary of Home and Backlog Data By Region
(Dollars in thousands) Three Months Ended Six Months Ended
May 31, May 31,
--------------------------- -------------------------
Deliveries 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
East 1,839 1,334 3,198 2,103
Central 1,531 1,155 2,745 1,919
West 1,983 1,370 3,667 2,248
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 5,353 3,859 9,610 6,270
Joint Ventures 265 58 521 58
- --------------------------------------------------------------------------------------------------------------------------------
Total 5,618 3,917 10,131 6,328
================================================================================================================================
New Orders
- --------------------------------------------------------------------------------------------------------------------------------
East 2,409 1,359 4,385 2,210
Central 2,033 1,233 3,760 2,009
West 2,437 1,617 4,539 2,748
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 6,879 4,209 12,684 6,967
Joint Ventures 351 73 629 73
- --------------------------------------------------------------------------------------------------------------------------------
Total 7,230 4,282 13,313 7,040
================================================================================================================================
Backlog - Homes
- --------------------------------------------------------------------------------------------------------------------------------
East 3,955 3,598
Central 2,647 1,836
West 4,323 4,059
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 10,925 9,493
Joint Ventures 620 313
- --------------------------------------------------------------------------------------------------------------------------------
Total 11,545 9,806
================================================================================================================================
Backlog Dollar Value (including JVs) $ 2,769,624 2,316,154
================================================================================================================================
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, Michigan
and Missouri.
Revenues from sales of homes increased 49% and 65% in the three and six months
ended May 31, 2001, respectively, compared to the same periods in 2000.
Revenues were higher due primarily to a 39% and 53% increase in the number of
home deliveries for the three and six months ended May 31, 2001, respectively,
and a 7% increase in the average sales price in both the three and six months
ended May 31, 2001, compared to the same periods in 2000. New home deliveries
were higher due primarily to the inclusion of a full period of U.S. Home's
homebuilding activity in the three and six months ended May 31, 2001, compared
to one month's inclusion in 2000. The increase in the average sales price on
homes delivered 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 with the acquisition of U.S. Home.
14
Gross profits on home sales increased to $299.3 million and $521.5 million in
the three and six months ended May 31, 2001, respectively, compared to $153.3
million and $256.3 million in the same periods in 2000. Gross profits in 2000
were impacted by purchase accounting associated with the acquisition of U.S.
Home. Gross margin percentages on home sales were 23.8% and 23.1% in the three
and six months ended May 31, 2001, compared to 18.2% and 18.7%, respectively,
(including the effect of purchase accounting), and 20.8% and 20.3%, respectively
(excluding the effect of purchase accounting) in the same periods last year. The
increase was also due to improvements in the Company's existing markets and
success in new markets entered into with the acquisition of U.S. Home.
Additionally, the Company continued to realize benefits from the national
purchasing program which has been expanded with the U.S. Home acquisition.
Selling, general and administrative expenses as a percentage of revenues from
home sales were 10.8% and 11.0% in the three and six months ended May 31, 2001,
respectively, compared to 10.5% and 10.8% in the same periods last year.
Revenues from land sales totaled $11.1 million and $28.0 million in the three
and six months ended May 31, 2001, respectively, compared to $38.9 million and
$90.2 million in the same periods in 2000. Gross profits from land sales totaled
$1.8 million, or a 16.4% margin, and $2.1 million, or a 7.5% margin, for the
three and six months ended May 31, 2001, respectively, compared to $6.7 million,
or a 17.3% margin, and $13.2 million, or a 14.6% margin, respectively, in the
same periods last year. Equity in earnings from partnerships was $2.4 million
and $6.5 million in the three and six months ended May 31 2001, respectively,
compared to $2.3 million and $6.5 million in the same periods last year.
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.
At May 31, 2001, the Company's backlog of sales contracts was 11,545 homes ($2.8
billion), compared to 9,806 homes ($2.3 billion) at May 31, 2000. The higher
backlog was primarily attributable to increased customer demand for homes which
led to higher new orders in 2001 compared to 2000.
Financial Services
The following table presents selected financial data related to the Financial
Services Division for the periods indicated (unaudited):
Three Months Ended Six Months Ended
May 31, May 31,
---------------------- ---------------------
(Dollars in thousands) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Revenues $ 118,184 81,049 200,408 140,494
Costs and expenses 84,529 66,109 159,495 124,946
- ----------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 33,655 14,940 40,913 15,548
============================================================================================================================
Dollar value of mortgages originated $ 1,343,905 686,835 2,242,140 1,169,853
- ----------------------------------------------------------------------------------------------------------------------------
Number of mortgages originated 8,300 4,600 13,900 7,800
- ----------------------------------------------------------------------------------------------------------------------------
Number of title transactions 46,000 31,000 78,000 57,000
============================================================================================================================
15
Operating earnings from the Financial Services Division increased to $33.7
million and $40.9 million in the three and six months ended May 31, 2001,
respectively, compared to $14.9 million and $15.5 million in the same periods
last year. The increase was partially attributable to the sale of the Company's
remaining mortgage servicing which generated a pre-tax profit of approximately
$13 million. The Company's ongoing mortgage and title operations also generated
greater earnings, which included a full period of earnings contribution from
U.S. Home in the three and six months ended May 31, 2001, compared to one
month's inclusion in the prior year.
Corporate General and Administrative Expenses
Corporate general and administrative expenses as a percentage of total revenues
were 1.3% and 1.4% in the three and six months ended May 31, 2001, respectively,
and 1.2% and 1.3% in the three and six months ended May 31, 2000, respectively.
Interest Expense
Interest expense totaled $29.4 million, or 2.1% of total revenues, and $53.1
million, or 2.1% of total revenues, in the three and six months ended May 31,
2001, respectively, compared to interest expense of $19.8 million, or 2.0% of
total revenues, and $29.7 million, or 1.8% of total revenues, respectively, in
the same periods last year. The increase in interest as a percentage of total
revenues in both periods was primarily due to higher average debt outstanding,
compared to the same periods last year.
(2) Liquidity and Financial Resources
In the six months ended May 31, 2001, $286.5 million of cash was used in the
Company's operating activities, compared to $154.6 million in the corresponding
period in 2000. In the six months ended May 31, 2001, $225.2 million of cash was
used to increase inventories through land purchases, land development and
construction, receivables increased by $124.7 million and $190.8 million was
used to reduce accounts payable and other liabilities. These uses of cash were
partially offset by $148.3 million of net earnings and $54.0 million of cash
received from the sale or disposition of loans by the Company's Financial
Services Division. In the six months ended May 31, 2000, $94.6 million of cash
was used to increase inventories through land purchases, land development and
construction and $91.5 million was used to reduce accounts payable and other
liabilities. These uses of cash were offset by $58.7 million of net earnings.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
were $200.5 million and $318.2 million in the three and six months ended May 31,
2001, respectively, compared to $89.5 million and $144.0 million in the three
and six months ended May 31, 2000, respectively.
Cash used in investing activities totaled $10.2 million in the six months ended
May 31, 2001, compared to $173.4 million in the corresponding period in 2000.
In the six months ended May 31, 2000, $156.7 million of cash was used in the
acquisitions of properties and businesses.
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 $715 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 May 31, 2001, $397.0 million was outstanding under the term loan B and
there was no balance outstanding under the revolving credit facilities.
In June 2001, the Company's Board of Directors increased the Company's existing
stock repurchase authorization to 10 million shares of the Company's outstanding
common stock. The Company may repurchase these shares in the open market from
time-to-time.
16
In the second quarter of 2001, the Company issued, for gross proceeds of
approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes
due 2021 ("Notes") with a face amount at maturity of approximately $633 million.
The Notes were issued at a price of $363.46 per $1,000 face amount at maturity,
which equates to a yield to maturity over the life of the Notes of 5.125%.
Proceeds from the offering, after underwriting discount, were approximately $224
million. The 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.
In July 2000, the Company filed a shelf registration statement and prospectus
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 $500 million. Proceeds can be used for repayment of debt,
acquisitions and general corporate purposes. As of May 31, 2001, the Company
had $270 million available under this registration statement.
Based on the Company's current financial condition and financial market
resources, management believes that its operations and capital resources will
provide for its current and long-term capital requirements at the Company's
anticipated levels of growth.
(3) Market Risk
The information included in "Item 7A. Market Risk" in the Company's Annual
Report on Form 10-K for the year ended November 30, 2000 is incorporated herein
by reference. In the second quarter of 2001, the Company issued, for gross
proceeds of approximately $230 million, Zero Coupon Convertible Senior
Subordinated Notes due 2021 ("Notes") with a face amount at maturity of
approximately $633 million. The Notes were issued at a price of $363.46 per
$1,000 face amount at maturity, which equates to a yield to maturity over the
life of the Notes of 5.125%. Proceeds from the offering, after underwriting
discount, were approximately $224 million. See Note 6 of Notes to Consolidated
Condensed Financial Statements for additional information.
17
Part II. Other Information
Items 1-3. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were resolved by vote at the April 3, 2001 annual meeting
of stockholders of Lennar Corporation:
(1) The following members of the Board of Directors were re-elected to hold
office until 2004:
Votes For Votes Withheld
----------- --------------
Irving Bolotin 144,139,653 2,072,137
R. Kirk Landon 135,919,220 10,292,570
Leonard Miller 144,140,184 2,071,606
Other directors whose term of office continued after the meeting:
Steven L. Gerard
Jonathan M. Jaffe
Sidney Lapidus
Stuart A. Miller
Herve Ripault
Arnold P. Rosen
Steven J. Saiontz
Robert J. Strudler
(2) Approval of the Lennar Corporation 2000 Stock Option and Restricted Stock
Plan. The results of the vote were as follows:
Votes Votes Votes Broker
For Against Abstaining Non-votes
------------- ---------- ---------- ---------
Common shares 24,045,781 16,494,592 109,538 7,612,769
Class B Common shares 97,838,610 0 0 110,500
Common and Class B combined 121,884,391 16,494,592 109,538 7,723,269
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: Not applicable.
(b) Reports on Form 8-K: The Registrant filed a report on Form 8-K
dated April 3, 2001 and a report on Form 8-K dated April 4, 2001.
Both reports provided information in connection with the Company's
offering of Zero Coupon Convertible Senior Subordinated Notes due
2021.
18
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENNAR CORPORATION
--------------------------
(Registrant)
Date: July 16, 2001 /s/ BRUCE E. GROSS
------------- --------------------------
Bruce E. Gross
Vice President and
Chief Financial
Officer
Date: July 16, 2001 /s/ DIANE J. BESSETTE
------------- --------------------------
Diane J. Bessette
Vice President and
Controller
19