================================================================================
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, 2001
---------------
Commission File Number: 1-11749
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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 September 30, 2001:
Common 54,193,341
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Class B Common 9,737,812
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================================================================================
Part I. Financial Information
Item 1. Financial Statements
--------------------
Lennar Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
August 31, November 30,
2001 2000
----------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash $ 208,570 287,627
Receivables, net 46,339 42,270
Inventories 2,703,412 2,301,584
Investments in partnerships 349,772 257,639
Other assets 239,554 277,794
-----------------------------
3,547,647 3,166,914
Financial services 624,758 611,000
----------------------------------------------------------------------------------------------------------------------
Total assets $ 4,172,405 3,777,914
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 681,738 778,238
Mortgage notes and other debts payable, net 1,490,385 1,254,650
-----------------------------
2,172,123 2,032,888
Financial services 505,453 516,446
----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,677,576 2,549,334
Stockholders' equity:
Preferred stock - -
Common stock of $0.10 par value per share,
64,039 shares issued at August 31, 2001 6,404 6,273
Class B common stock of $0.10 par value per share,
9,738 shares issued at August 31, 2001 974 985
Additional paid-in capital 839,527 812,501
Retained earnings 834,939 582,299
Unearned restricted stock (11,803) (14,535)
Treasury stock, at cost; 9,847 common shares at August 31, 2001 (158,927) (158,943)
Accumulated other comprehensive loss (16,285) -
----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,494,829 1,228,580
----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 4,172,405 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 Nine Months Ended
August 31, August 31,
---------------------------------- -----------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ 1,466,792 1,288,700 3,761,959 2,756,753
Financial services 110,836 87,515 311,244 228,009
----------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,577,628 1,376,215 4,073,203 2,984,762
==================================================================================================================================
Costs and expenses:
Homebuilding 1,267,745 1,164,305 3,275,443 2,501,701
Financial services 86,169 70,516 245,664 195,462
Corporate general and administrative 19,545 13,554 53,720 33,880
Interest 30,681 27,829 83,795 57,557
----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,404,140 1,276,204 3,658,622 2,788,600
==================================================================================================================================
Earnings before income taxes 173,488 100,011 414,581 196,162
Income taxes 66,793 39,004 159,614 76,503
----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 106,695 61,007 254,967 119,659
----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.69 0.99 4.07 2.14
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Diluted earnings per share $ 1.53 0.90 3.68 1.98
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----------------------------------------------------------------------------------------------------------------------------------
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,
---------------------------------
2001 2000
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 254,967 119,659
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 35,867 30,874
Amortization of discount on debt 14,123 8,198
Equity in earnings from partnerships (8,843) (9,667)
Increase in deferred income taxes 40,901 23,155
Changes in assets and liabilities, net of effect of acquisitions:
Increase in receivables (86,137) (1,703)
Increase in inventories (411,912) (126,841)
Increase in other assets (7,320) (24,253)
Decrease in financial services loans held for sale or disposition 56,138 22,774
Decrease in accounts payable and other liabilities (104,077) (67,413)
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (216,293) (25,217)
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Cash flows from investing activities:
Net additions to operating properties and equipment (11,301) (13,411)
Increase in investments in partnerships, net (70,587) (7,899)
(Increase) decrease in financial services mortgage loans 12,090 (20,678)
Decrease in financial services mortgage servicing rights 10,812 -
Purchases of investment securities (11,124) (14,586)
Receipts from investment securities 10,800 11,946
Acquisitions of properties and businesses, net of cash acquired - (156,691)
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Net cash used in investing activities (59,310) (201,319)
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Cash flows from financing activities:
Net borrowings under revolving credit facilities - 798,700
Net borrowings (repayments) under financial services short-term debt (9,826) 42,072
Payments for tender of U.S. Home's senior notes - (519,759)
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 4,371
Principal payments on other borrowings (25,542) (268,596)
Limited-purpose finance subsidiaries, net 1,962 79
Common stock:
Issuance 18,933 2,408
Repurchases - (152,925)
Dividends (2,327) (2,136)
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Net cash provided by financing activities 207,560 199,202
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Net decrease in cash (68,043) (27,334)
Cash at beginning of period 333,877 118,167
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Cash at end of period $ 265,834 90,833
===============================================================================================================================
3
Lennar Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows -- Continued
(Unaudited)
(In thousands)
Nine Months Ended
August 31,
-------------------------
2001 2000
---------------------------------------------------------------------------------------------------------------
Summary of cash:
Homebuilding $ 208,570 58,134
Financial services 57,264 32,699
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$ 265,834 90,833
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Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 21,114 888
Cash paid for income taxes $ 146,102 60,106
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers $ 19,480 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 (and
similar entities) in which a controlling interest is held (the "Company"). The
Company's investments in partnerships 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 nine months ended August 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 Nine Months Ended
August 31, August 31,
--------------------------------- ------------------------------
(In thousands, except per share amounts) 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------------------
Numerator:
Numerator for basic earnings per share -
net earnings $ 106,695 61,007 254,967 119,659
Interest on zero-coupon convertible
debentures due 2018, net of tax 1,529 1,457 4,545 4,332
-----------------------------------------------------------------------------------------------------------------------
Numerator for diluted earnings per share $ 108,224 62,464 259,512 123,991
=======================================================================================================================
Denominator:
Denominator for basic earnings per share -
weighted average shares 63,025 61,650 62,607 55,863
Effect of dilutive securities:
Employee stock options and restricted stock 1,695 1,390 1,803 781
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 70,825 69,145 70,515 62,749
=======================================================================================================================
Basic earnings per share $ 1.69 0.99 4.07 2.14
=======================================================================================================================
Diluted earnings per share $ 1.53 0.90 3.68 1.98
=======================================================================================================================
(4) Financial Services
------------------
The assets and liabilities related to the Company's Financial Services Division
(as described in Note 2) are summarized as follows:
(Unaudited)
August 31, November 30,
(In thousands) 2001 2000
-------------------------------------------------------------------------------------------------------
Assets:
Cash and receivables, net $ 172,094 79,025
Mortgage loans held for sale or disposition, net 320,419 376,452
Mortgage loans, net 30,329 42,504
Mortgage servicing rights, net - 11,653
Title plants 15,530 15,530
Goodwill, net 25,574 25,199
Other 48,200 40,743
Limited-purpose finance subsidiaries 12,612 19,894
-----------------------------------------------------------------------------------------------------
$ 624,758 611,000
=====================================================================================================
Liabilities:
Notes and other debts payable $ 418,521 428,966
Other 74,320 67,586
Limited-purpose finance subsidiaries 12,612 19,894
-----------------------------------------------------------------------------------------------------
$ 505,453 516,446
=====================================================================================================
6
(5) Cash
----
Cash as of August 31, 2001 and November 30, 2000 included $45.4 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) 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 No. 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 August 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.
7
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 Company
believes that there will be no ineffectiveness related to the interest rate
swaps and therefore no portion of the accumulated other comprehensive loss would
be reclassified into future earnings. 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 August 31, 2001,
the liability and accumulated other comprehensive loss increased $12.8 million
(net of tax benefit of $8.0 million) to $16.3 million. Total comprehensive
income was $238.7 million for the nine months ended August 31, 2001 and $119.7
million for the nine months ended August 31, 2000.
(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. The Company's conformity with the requirements of SAB No. 101 will
not 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 issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method and requires acquired intangible assets to be recognized as
assets apart from goodwill if certain criteria are met. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001 and provides
guidance on accounting for intangible assets and eliminates the amortization of
goodwill and certain identifiable intangible assets. Under the provisions of
SFAS No. 142, intangible assets,
8
including goodwill, that are not subject to amortization will be tested for
impairment annually at the reporting unit level. Impairment testing must be
performed more frequently if events or changes in circumstances indicate that
the asset might be impaired. Management is in the process of evaluating the
effect the adoption of SFAS No. 142 will have on the Company's 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.
Consolidating Condensed Balance Sheet
August 31, 2001
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and receivables, net $ 120,148 134,602 159 - 254,909
Inventories - 2,697,005 6,407 - 2,703,412
Investments in partnerships - 349,772 - - 349,772
Other assets 52,298 187,256 - - 239,554
Investments in subsidiaries 1,910,601 184,240 - (2,094,841) -
-------------------------------------------------------------------------------------------------------------------------------
2,083,047 3,552,875 6,566 (2,094,841) 3,547,647
Financial services - 27,189 597,569 - 624,758
-------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,083,047 3,580,064 604,135 (2,094,841) 4,172,405
-------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 185,169 496,389 180 - 681,738
Mortgage notes and other debts payable,
net 1,455,709 34,676 - - 1,490,385
Intercompany (1,052,660) 1,135,371 (82,711) - -
-------------------------------------------------------------------------------------------------------------------------------
588,218 1,666,436 (82,531) - 2,172,123
Financial services - 3,027 502,426 - 505,453
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities 588,218 1,669,463 419,895 - 2,677,576
Stockholders' equity 1,494,829 1,910,601 184,240 (2,094,841) 1,494,829
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 2,083,047 3,580,064 604,135 (2,094,841) 4,172,405
-------------------------------------------------------------------------------------------------------------------------------
9
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
===============================================================================================================================
10
Supplemental Financial Information, Continued
---------------------------------------------
Consolidating Condensed Statement of Earnings
Nine Months Ended August 31, 2001
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 3,761,955 4 - 3,761,959
Financial services - 40,941 270,303 - 311,244
------------------------------------------------------------------------------------------------------------------------------
Total revenues - 3,802,896 270,307 - 4,073,203
==============================================================================================================================
Costs and expenses:
Homebuilding - 3,275,071 372 - 3,275,443
Financial services - 47,127 198,537 - 245,664
Corporate general and administrative 53,720 - - - 53,720
Interest - 83,795 - - 83,795
------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 53,720 3,405,993 198,909 - 3,658,622
==============================================================================================================================
Earnings (loss) before income taxes (53,720) 396,903 71,398 - 414,581
Provision (benefit) for income taxes (20,497) 152,807 27,304 - 159,614
Equity in earnings from subsidiaries 288,190 44,094 - (332,284) -
------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 254,967 288,190 44,094 (332,284) 254,967
==============================================================================================================================
Consolidating Condensed Statement of Earnings
Nine Months Ended August 31, 2000
(Unaudited)
Lennar Guarantor Non-Guarantor
(In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------------------------------------------------------------------
Revenues:
Homebuilding $ - 2,753,878 2,875 - 2,756,753
Financial services - 36,180 191,829 - 228,009
------------------------------------------------------------------------------------------------------------------------------
Total revenues - 2,790,058 194,704 - 2,984,762
==============================================================================================================================
Costs and expenses:
Homebuilding - 2,499,717 1,984 - 2,501,701
Financial services - 35,540 159,922 - 195,462
Corporate general and administrative 33,880 - - - 33,880
Interest - 57,557 - - 57,557
------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 33,880 2,592,814 161,906 - 2,788,600
==============================================================================================================================
Earnings (loss) before income taxes (33,880) 197,244 32,798 - 196,162
Provision (benefit) for income taxes (13,425) 76,925 13,003 - 76,503
Equity in earnings from subsidiaries 140,114 19,795 - (159,909) -
------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 119,659 140,114 19,795 (159,909) 119,659
==============================================================================================================================
11
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Some of the statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations are "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 the statements anticipated. Factors which may affect our results include,
but are not limited to, changes in general economic conditions, the market for
homes generally and in areas where we have 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 our operations. See our Annual Report on
Form 10-K/A for the year ended November 30, 2000 for a further discussion of
these and other risks and uncertainties applicable to our business.
(1) Results of Operations
Overview
Net earnings were $106.7 million, or $1.53 per share diluted ($1.69 per share
basic), in the third quarter of 2001, compared to $61.0 million, or $0.90 per
share diluted ($0.99 per share basic), in the third quarter of 2000. For the
nine months ended August 31, 2001, net earnings were $255.0 million, or $3.68
per share diluted ($4.07 per share basic), compared to $119.7 million, or $1.98
per share diluted ($2.14 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 Nine Months Ended
August 31, August 31,
(Dollars in thousands, except ----------------------------- ------------------------------
average sales price) 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------------
Revenues:
Sales of homes $ 1,422,056 1,243,408 3,674,906 2,610,782
Sales of land and other revenues 42,408 42,119 78,210 136,304
Equity in earnings from partnerships 2,328 3,173 8,843 9,667
---------------------------------------------------------------------------------------------------------------
Total revenues 1,466,792 1,288,700 3,761,959 2,756,753
Costs and expenses:
Cost of homes sold 1,082,643 998,390 2,813,991 2,109,490
Cost of land and other expenses 38,196 36,113 66,474 114,098
Selling, general and administrative 146,906 129,802 394,978 278,113
---------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,267,745 1,164,305 3,275,443 2,501,701
---------------------------------------------------------------------------------------------------------------
Operating earnings $ 199,047 124,395 486,516 255,052
===============================================================================================================
Gross margin on home sales 23.9% 19.7% 23.4% 19.2%
S,G&A expenses as a percentage of
revenues from home sales 10.3% 10.4% 10.7% 10.7%
Operating margin percentage on
revenues from home sales 13.5% 9.3% 12.7% 8.5%
Average sales price $ 232,000 224,000 233,000 221,000
===============================================================================================================
12
Summary of Home and Backlog Data By Region
(Dollars in thousands) Three Months Ended Nine Months Ended
August 31, August 31,
------------------------------- ----------------------------
Deliveries 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------------------------------
East 2,046 1,794 5,244 3,897
Central 1,969 1,694 4,714 3,613
West 2,119 2,056 5,786 4,304
--------------------------------------------------------------------------------------------------------------------------------
Subtotal 6,134 5,544 15,744 11,814
Joint ventures 154 135 675 193
--------------------------------------------------------------------------------------------------------------------------------
Total 6,288 5,679 16,419 12,007
================================================================================================================================
New Orders
--------------------------------------------------------------------------------------------------------------------------------
East 2,128 1,820 6,513 4,030
Central 1,562 1,511 5,322 3,520
West 2,059 1,935 6,598 4,683
--------------------------------------------------------------------------------------------------------------------------------
Subtotal 5,749 5,266 18,433 12,233
Joint ventures 113 94 742 167
--------------------------------------------------------------------------------------------------------------------------------
Total 5,862 5,360 19,175 12,400
================================================================================================================================
Backlog - Homes
--------------------------------------------------------------------------------------------------------------------------------
East 4,037 3,624
Central 2,535 1,653
West 4,263 3,938
--------------------------------------------------------------------------------------------------------------------------------
Subtotal 10,835 9,215
Joint ventures 284 272
--------------------------------------------------------------------------------------------------------------------------------
Total 11,119 9,487
================================================================================================================================
Backlog Dollar Value (including JVs) $ 2,701,382 2,288,779
================================================================================================================================
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.
13
Revenues from sales of homes increased 14% and 41% in the three and nine months
ended August 31, 2001, respectively, compared to the same periods in 2000.
Revenues were higher due primarily to an 11% and 33% increase in the number of
home deliveries for the three and nine months ended August 31, 2001,
respectively, and a 3% and 6% increase in the average sales price in the three
and nine months ended August 31, 2001, respectively, compared to the same
periods in 2000. New home deliveries were higher in the three months ended
August 31, 2001 primarily due to increases in home deliveries in Florida and
Texas, compared to the same period in 2000. New home deliveries were higher in
the nine months ended August 31, 2001 primarily due to the inclusion of a full
nine months of U.S. Home's homebuilding activity in 2001, compared to four
months inclusion in 2000. The increase in the average sales price on homes
delivered in both periods 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.
In the nine months ended August 31, 2001, U.S. Home and its subsidiaries
contributed 42% of both the Company's homebuilding revenues and its homebuilding
expenses. In the nine months ended August 31, 2000, during which the Company
owned U.S. Home and its subsidiaries for four months, U.S. Home and its
subsidiaries contributed 29% of both the Company's homebuilding revenues and its
homebuilding expenses.
Gross margin percentages on home sales were 23.9% and 23.4% in the three and
nine months ended August 31, 2001, respectively, compared to 19.7% and 19.2%,
respectively, (including the effect of purchase accounting), and 20.7% and
20.5%, respectively, (excluding the effect of purchase accounting) in the same
periods last year. The increase was due to improved operational efficiencies
and strength in the homebuilding markets in which the Company operates.
As a result of the increase in gross margin percentage in the three and nine
months ended August 31, 2001, operating margin as a percentage of home sales
increased to 13.5% and 12.7%, respectively, compared to 9.3% and 8.5% in the
same periods in 2000, respectively, an increase of 420 basis points in both
periods.
Selling, general and administrative expenses as a percentage of revenues from
home sales were 10.3% and 10.7% in the three and nine months ended August 31,
2001, respectively, compared to 10.4% and 10.7% in the same periods last year.
Revenues from land sales totaled $39.9 million and $67.8 million in the three
and nine months ended August 31, 2001, respectively, compared to $38.3 million
and $128.5 million in the same periods in 2000. Gross profits from land sales
totaled $2.1 million, or a 5.2% margin, and $4.2 million, or a 6.2% margin, in
the three and nine months ended August 31, 2001, respectively, compared to $3.8
million, or a 9.9% margin, and $16.9 million, or a 13.2% margin, respectively,
in the same periods last year. Equity in earnings from partnerships was $2.3
million and $8.8 million in the three and nine months ended August 31 2001,
respectively, compared to $3.2 million and $9.7 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 August 31, 2001, the Company's backlog of sales contracts was 11,119 homes
($2.7 billion), compared to 9,487 homes ($2.3 billion) at August 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.
14
Financial Services
The following table presents selected financial data related to the Financial
Services Division for the periods indicated (unaudited):
Three Months Nine
Ended Months Ended
August 31, August 31,
--------------------- ----------------------
(Dollars in thousands) 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Revenues $ 110,836 87,515 311,244 228,009
Costs and expenses 86,169 70,516 245,664 195,462
---------------------------------------------------------------------------------------------------------------------------------
Operating earnings $ 24,667 16,999 65,580 32,547
=================================================================================================================================
Dollar value of mortgages originated $1,348,992 971,473 3,591,132 2,141,326
---------------------------------------------------------------------------------------------------------------------------------
Number of mortgages originated 8,000 6,100 21,900 13,900
---------------------------------------------------------------------------------------------------------------------------------
Number of title transactions 47,000 31,000 125,000 88,000
=================================================================================================================================
Operating earnings from the Financial Services Division increased to $24.7
million and $65.6 million in the three and nine months ended August 31, 2001,
respectively, compared to $17.0 million and $32.5 million in the same periods
last year. In both the three and nine months ended August 31, 2001, the
increase reflects the successful operational efficiencies which resulted from
the combination of Lennar's and U.S. Home's mortgage operations and the
consolidation of the Company's title operations under the North American Title
banner. The increase in both periods also reflects a greater level of refinance
activity. The nine month increase was also attributable to the sale of the
Company's mortgage servicing operations, which generated a pre-tax profit of
approximately $13 million, as well as nine months of earnings contribution from
U.S. Home in 2001, compared to four months inclusion in the prior year. The
earnings contribution from U.S. Home represented 26% of the Division's operating
earnings in the nine months ended August 31, 2001 and 21% of the Division's
operating earnings in the nine months ended August 31, 2000.
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, 2001,
respectively, and 1.0% and 1.1% in the three and nine months ended August 31,
2000, respectively.
Interest Expense
Interest expense totaled $30.7 million, or 1.9% of total revenues, and $83.8
million, or 2.1% of total revenues, in the three and nine months ended August
31, 2001, respectively, compared to interest expense of $27.8 million, or 2.0%
of total revenues, and $57.6 million, or 1.9% of total revenues, respectively,
in the same periods last year. The average debt outstanding and the average
interest rate for the nine months ended August 31, 2001 was $1.6 billion and
7.8%, respectively, compared to $1.3 billion and 6.2% in the same period last
year.
15
(2) Liquidity and Financial Resources
In the nine months ended August 31, 2001, $216.3 million of cash was used in the
Company's operating activities, compared to $25.2 million in the corresponding
period in 2000. In the nine months ended August 31, 2001, inventories increased
$285.1 million more than in the same period of 2000 primarily due to increased
land purchases, land development and construction as a result of increased new
orders and a higher backlog. In 2001, receivables increased $84.4 million and
financial services loans held for sale or disposition decreased $33.4 million
more than in the same period in 2000 primarily due to an increase in loans sold
and proceeds that have not yet been collected.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
were $216.1 million and $534.2 million in the three and nine months ended August
31, 2001, respectively, compared to $140.6 million and $284.6 million in the
three and nine months ended August 31, 2000, respectively.
Cash used in investing activities totaled $59.3 million in the nine months ended
August 31, 2001, compared to $201.3 million in the corresponding period in 2000.
In the nine months ended August 31, 2000, $156.7 million of cash was used in
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 August 31, 2001, $396.0 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.
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
16
specified six-month periods beginning on April 4, 2006 if the market price of
the Notes exceeds specified levels.
The Company has filed shelf registration statements under the Securities Act of
1933, as amended, relating to up to $970 million of equity or debt securities
which it may sell for cash and up to $400 million of equity or debt securities
which it may issue in connection with acquisitions of companies or interests in
them, businesses, or assets.
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 Company is exposed to market risks related to fluctuations in interest rates
on its debt obligations, mortgage loans and mortgage loans held for sale or
disposition. The Company utilizes derivative instruments, including interest
rate swaps, in conjunction with its overall strategy to manage the debt
outstanding that is subject to changes in interest rates. The Company also
utilizes forward commitments and option contracts to mitigate the risk
associated with its mortgage loan portfolio. The Company does not utilize any
other types of derivative financial instruments.
The Company's Annual Report on Form 10-K for the year ended November 30, 2000
contains information about markets risks under "Item 7A. Market Risk." 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.
Part II. Other Information
Items 1-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: Not applicable.
17
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENNAR CORPORATION
------------------------
(Registrant)
Date: October 15, 2001 /s/ Bruce E. Gross
---------------- -----------------------
Bruce E. Gross
Vice President and
Chief Financial Officer
Date: October 15, 2001 /s/ Diane J. Bessette
---------------- -------------------------
Diane J. Bessette
Vice President and
Controller
18