================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2002 ----------------- Commission File Number: 1-11749 ------- Lennar Corporation (Exact name of registrant as specified in its charter) Delaware 95-4337490 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 Northwest 107th Avenue, Miami, Florida 33172 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 559-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO _____ --- Common shares outstanding as of March 31, 2002: Common 54,636,064 ---------- Class B Common 9,700,462 --------- ================================================================================
Part I. Financial Information Item 1. Financial Statements -------------------- Lennar Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except per share amounts) <TABLE> <CAPTION> (Unaudited) February 28, November 30, 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Homebuilding: Cash $ 483,573 824,013 Receivables, net 30,914 24,345 Inventories 2,660,360 2,416,541 Investments in unconsolidated partnerships 315,878 300,064 Other assets 258,760 253,933 --------------------------------- 3,749,485 3,818,896 Financial services 630,464 895,530 -------------------------------------------------------------------------------------------------------------------------------- Total assets $ 4,379,949 4,714,426 ================================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 660,387 755,726 Senior notes and other debts payable, net 1,505,570 1,505,255 --------------------------------- 2,165,957 2,260,981 Financial services 473,285 794,183 -------------------------------------------------------------------------------------------------------------------------------- Total liabilities 2,639,242 3,055,164 Stockholders' equity: Preferred stock - - Common stock of $0.10 par value per share, 64,423 shares issued at February 28, 2002 6,442 6,412 Class B common stock of $0.10 par value per share, 9,700 shares issued at February 28, 2002 970 974 Additional paid-in capital 852,125 843,924 Retained earnings 1,068,099 996,998 Unearned restricted stock (9,669) (10,833) Treasury stock, at cost; 9,847 common shares at February 28, 2002 (158,927) (158,927) Accumulated other comprehensive loss (18,333) (19,286) -------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,740,707 1,659,262 -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 4,379,949 4,714,426 ================================================================================================================================ </TABLE> 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) <TABLE> <CAPTION> Three Months Ended February 28, ---------------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Revenues: Homebuilding $ 1,142,119 1,021,818 Financial services 105,625 82,224 - ------------------------------------------------------------------------------------------------------------------------------- Total revenues 1,247,744 1,104,042 - ------------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Homebuilding 1,009,384 906,180 Financial services 82,201 74,966 Corporate general and administrative 16,624 15,788 Interest 24,048 23,748 - ------------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,132,257 1,020,682 - ------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 115,487 83,360 Income taxes 43,596 32,094 - ------------------------------------------------------------------------------------------------------------------------------- Net earnings $ 71,891 51,266 =============================================================================================================================== Basic earnings per share $ 1.14 0.83 =============================================================================================================================== Diluted earnings per share $ 1.03 0.75 =============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------- Cash dividends per common share $ 0.0125 0.0125 - ------------------------------------------------------------------------------------------------------------------------------- Cash dividends per Class B common share $ 0.01125 0.01125 =============================================================================================================================== </TABLE> See accompanying notes to consolidated condensed financial statements. 2
Lennar Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (Unaudited) (In thousands) <TABLE> <CAPTION> Three Months Ended February 28, ---------------------------------- 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 71,891 51,266 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 10,206 10,538 Amortization of discount on debt 6,213 3,030 Tax benefit from exercise of stock options 2,670 2,500 Equity in earnings from unconsolidated partnerships (6,213) (4,081) Increase in deferred income taxes 10,676 11,449 Changes in assets and liabilities, net of effects from acquisitions: Increase in receivables (30,908) (3,108) Increase in inventories (154,789) (174,766) Increase in other assets (3,714) (1,293) Decrease in financial services loans held for sale or disposition 298,947 53,937 Decrease in accounts payable and other liabilities (105,768) (119,170) -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 99,211 (169,698) -------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Net additions to operating properties and equipment (1,957) (2,355) Increase in investments in unconsolidated partnerships, net (15,577) (25,166) Decrease in financial services mortgage loans 5,170 196 Purchases of investment securities (8,978) (4,237) Proceeds from investment securities 14,000 3,900 Acquisitions, net of cash acquired (20,839) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (28,181) (27,662) -------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under revolving credit facilities - 18,700 Net repayments under financial services short-term debt (299,659) (61,983) Proceeds from other borrowings 17 57 Principal payments on other borrowings (90,956) (4,406) Limited-purpose finance subsidiaries, net 2 574 Common stock: Issuance 5,944 7,237 Dividends (790) (766) -------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (385,442) (40,587) -------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash (314,412) (237,947) Cash at beginning of period 877,274 333,877 -------------------------------------------------------------------------------------------------------------------------------- Cash at end of period $ 562,862 95,930 ================================================================================================================================ </TABLE> 3
Lennar Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows -- Continued (Unaudited) (In thousands) <TABLE> <CAPTION> Three Months Ended February 28, ---------------------------- 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Summary of cash: Homebuilding $ 483,573 57,573 Financial services 79,289 38,357 - --------------------------------------------------------------------------------------------------------------------------- $ 562,862 95,930 - --------------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid for interest, net of amounts capitalized $ 7,897 9,128 Cash paid for income taxes $ 78,595 64,881 Supplemental disclosures of non-cash investing and financing activities: Purchases of inventory financed by sellers $ 2,639 16,447 =========================================================================================================================== </TABLE> 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 unconsolidated partnerships in which a significant, but less than controlling, interest is held are accounted for by the equity method. Controlling interest is determined based on a number of factors, which include the Company's ownership interest and participation in the management of the partnership. 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, 2001 audited financial statements in the Company's Annual Report on Form 10-K for the year then ended. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the accompanying consolidated condensed financial statements have been made. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform with the current period presentation. The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated condensed statement of earnings for the three months ended February 28, 2002 is not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (2) Operating and Reporting Segments -------------------------------- The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company's reportable segments are strategic business units that offer different products and services. Homebuilding operations include the sale and construction of single-family attached and detached homes in 16 states. These activities also include the purchase, development and sale of residential land by the Company and unconsolidated 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 resells the residential mortgage loans it originates in the secondary mortgage market and also provides high-speed Internet access, cable television and alarm 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): <TABLE> <CAPTION> Three Months Ended February 28, ------------------------------- (In thousands, except per share amounts) 2002 2001 ------------------------------------------------------------------------------------------------------ <S> <C> <C> Numerator: Numerator for basic earnings per share - net earnings $ 71,891 51,266 Interest on zero-coupon senior convertible debentures due 2018, net of tax 1,578 1,498 ------------------------------------------------------------------------------------------------------ Numerator for diluted earnings per share $ 73,469 52,764 ====================================================================================================== Denominator: Denominator for basic earnings per share - weighted average shares 63,303 62,097 Effect of dilutive securities: Employee stock options and restricted stock 1,682 1,939 Zero-coupon senior convertible debentures due 2018 6,105 6,105 ------------------------------------------------------------------------------------------------------ Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 71,090 70,141 ====================================================================================================== Basic earnings per share $ 1.14 0.83 ====================================================================================================== Diluted earnings per share $ 1.03 0.75 ====================================================================================================== </TABLE> In the second quarter of 2001, the Company issued zero-coupon convertible senior subordinated notes due 2021 ("Notes"). The Notes are convertible into the Company's common stock if the sale price of the Company's common stock exceeds certain thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity, which would total approximately 4 million shares. These shares were not included in the calculation of diluted earnings per share for the first quarter of 2002 because the average closing price of the Company's common stock over the last twenty trading days of the quarter did not exceed 110% of the accreted conversion price ($65.56 per share at February 28, 2002). 6
(4) Financial Services ------------------ The assets and liabilities related to the Company's financial services operations are summarized as follows: <TABLE> <CAPTION> (Unaudited) February 28, November 30, (In thousands) 2002 2001 ------------------------------------------------------------------------------------------------------------- <S> <C> <C> Assets: Cash and receivables, net $ 209,506 161,060 Mortgage loans held for sale or disposition, net 288,743 587,694 Mortgage loans, net 36,420 41,590 Title plants 15,545 15,530 Goodwill, net 25,190 25,158 Other 42,744 51,352 Limited-purpose finance subsidiaries 12,316 13,146 ------------------------------------------------------------------------------------------------------------- $ 630,464 895,530 ============================================================================================================= Liabilities: Notes and other debts payable $ 374,248 693,931 Other 86,721 87,106 Limited-purpose finance subsidiaries 12,316 13,146 ------------------------------------------------------------------------------------------------------------- $ 473,285 794,183 ============================================================================================================= </TABLE> (5) Cash ---- Cash as of February 28, 2002 and November 30, 2001 included $43.8 million and $64.4 million, respectively, of cash held in escrow for approximately three days. (6) Comprehensive Income -------------------- 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 sheets. The related loss is deferred in stockholders' equity as accumulated other comprehensive loss. Comprehensive income consists of net earnings adjusted for the change in accumulated other comprehensive loss in the consolidated condensed balance sheets. Comprehensive income was $72.8 million and $37.7 million for the three months ended February 28, 2002 and 2001, respectively. (7) New Accounting Pronouncements ----------------------------- In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted SFAS No. 142 on December 1, 2001. Because of that, amortization of goodwill of approximately $6 million per year will not be incurred in the future. Management does not currently believe that the implementation of SFAS No. 142 will have a material impact on the Company's financial condition or results of operations. 7
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supercedes SFAS No. 121. SFAS No. 144 is effective for the Company in fiscal 2003. Management does not currently believe that the implementation of SFAS No. 144 will have a material impact on the Company's financial condition or results of operations. (8) 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 February 28, 2002 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> ASSETS Homebuilding: Cash and receivables, net $ 436,422 78,065 - - 514,487 Inventories - 2,653,876 6,484 - 2,660,360 Investments in unconsolidated partnerships - 315,878 - - 315,878 Other assets 80,306 178,454 - - 258,760 Investments in subsidiaries 2,074,048 212,718 - (2,286,766) - - ------------------------------------------------------------------------------------------------------------------------- 2,590,776 3,438,991 6,484 (2,286,766) 3,749,485 Financial services - 28,292 602,172 - 630,464 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 2,590,776 3,467,283 608,656 (2,286,766) 4,379,949 ========================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 227,531 432,767 89 - 660,387 Senior notes and other debts payable, net 1,465,648 39,922 - - 1,505,570 Intercompany (843,110) 909,044 (65,934) - - - ------------------------------------------------------------------------------------------------------------------------- 850,069 1,381,733 (65,845) - 2,165,957 Financial services - 11,502 461,783 - 473,285 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities 850,069 1,393,235 395,938 - 2,639,242 Stockholders' equity 1,740,707 2,074,048 212,718 (2,286,766) 1,740,707 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 2,590,776 3,467,283 608,656 (2,286,766) 4,379,949 ========================================================================================================================= </TABLE> 8
Supplemental Financial Information, Continued - --------------------------------------------- Consolidating Condensed Balance Sheet November 30, 2001 <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> ASSETS Homebuilding: Cash and receivables, net $ 710,748 137,610 - - 848,358 Inventories - 2,410,117 6,424 - 2,416,541 Investments in unconsolidated partnerships - 300,064 - - 300,064 Other assets 83,983 169,950 - - 253,933 Investments in subsidiaries 1,955,678 197,821 - (2,153,499) - - -------------------------------------------------------------------------------------------------------------------------- 2,750,409 3,215,562 6,424 (2,153,499) 3,818,896 Financial services - 24,762 870,768 - 895,530 - -------------------------------------------------------------------------------------------------------------------------- Total assets $ 2,750,409 3,240,324 877,192 (2,153,499) 4,714,426 ========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 295,188 460,320 218 - 755,726 Senior notes and other debts payable, net 1,460,610 44,645 - - 1,505,255 Intercompany (664,651) 773,091 (108,440) - - - -------------------------------------------------------------------------------------------------------------------------- 1,091,147 1,278,056 (108,222) - 2,260,981 Financial services - 6,590 787,593 - 794,183 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,091,147 1,284,646 679,371 - 3,055,164 Stockholders' equity 1,659,262 1,955,678 197,821 (2,153,499) 1,659,262 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 2,750,409 3,240,324 877,192 (2,153,499) 4,714,426 ========================================================================================================================== </TABLE> 9
Supplemental Financial Information, Continued - --------------------------------------------- Consolidating Condensed Statement of Earnings Three Months Ended February 28, 2002 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Homebuilding $ - 1,142,113 6 - 1,142,119 Financial services - 11,088 94,537 - 105,625 - ---------------------------------------------------------------------------------------------------------------------- Total revenues - 1,153,201 94,543 - 1,247,744 - ---------------------------------------------------------------------------------------------------------------------- Costs and expenses: Homebuilding - 1,009,234 150 - 1,009,384 Financial services - 10,517 71,684 - 82,201 Corporate general and administrative 16,624 - - - 16,624 Interest - 24,048 - - 24,048 - ---------------------------------------------------------------------------------------------------------------------- Total costs and expenses 16,624 1,043,799 71,834 - 1,132,257 - ---------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (16,624) 109,402 22,709 - 115,487 Provision (benefit) for income taxes (6,262) 41,299 8,559 - 43,596 Equity in earnings from subsidiaries 82,253 14,150 - (96,403) - - ---------------------------------------------------------------------------------------------------------------------- Net earnings $ 71,891 82,253 14,150 (96,403) 71,891 ====================================================================================================================== </TABLE> Consolidating Condensed Statement of Earnings Three Months Ended February 28, 2001 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Homebuilding $ - 1,021,816 2 - 1,021,818 Financial services - 10,897 71,327 - 82,224 - ----------------------------------------------------------------------------------------------------------------------- Total revenues - 1,032,713 71,329 - 1,104,042 - ----------------------------------------------------------------------------------------------------------------------- Costs and expenses: Homebuilding - 906,053 127 - 906,180 Financial services - 15,820 59,146 - 74,966 Corporate general and administrative 15,788 - - - 15,788 Interest - 23,748 - - 23,748 - ----------------------------------------------------------------------------------------------------------------------- Total costs and expenses 15,788 945,621 59,273 - 1,020,682 - ----------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (15,788) 87,092 12,056 - 83,360 Provision (benefit) for income taxes (6,156) 33,530 4,720 - 32,094 Equity in earnings from subsidiaries 60,898 7,336 - (68,234) - - ----------------------------------------------------------------------------------------------------------------------- Net earnings $ 51,266 60,898 7,336 (68,234) 51,266 ======================================================================================================================= </TABLE> 10
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 that term is 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 anticipate. 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 for the year ended November 30, 2001 for a further discussion of these and other risks and uncertainties applicable to our business. (1) Results of Operations Overview Net earnings were $71.9 million, or $1.03 per share diluted ($1.14 per share basic), in the first quarter of 2002, compared to $51.3 million, or $0.75 per share diluted ($0.83 per share basic), in the first quarter of 2001. Homebuilding The following tables set forth selected financial and operational information related to our Homebuilding Division for the periods indicated (unaudited): <TABLE> <CAPTION> Three Months Ended February 28, (Dollars in thousands, except ------------------------------ average sales price) 2002 2001 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Revenues: Sales of homes $ 1,109,774 997,494 Sales of land and other revenues 26,132 20,243 Equity in earnings from unconsolidated partnerships 6,213 4,081 - ------------------------------------------------------------------------------------------------------------------- Total revenues 1,142,119 1,021,818 Costs and expenses: Cost of homes sold 853,396 775,301 Cost of land and other expenses 21,467 17,945 Selling, general and administrative 134,521 112,934 - ------------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,009,384 906,180 - ------------------------------------------------------------------------------------------------------------------- Operating earnings $ 132,735 115,638 =================================================================================================================== Gross margin on home sales 23.1% 22.3% S,G&A expenses as a % of revenues from home sales 12.1% 11.3% ------------------------------ Operating margin as a % of revenues from home sales 11.0% 11.0% ------------------------------ Average sales price $ 232,000 234,000 =================================================================================================================== </TABLE> 11
<TABLE> <CAPTION> Summary of Home and Backlog Data By Region At or for the (Dollars in thousands) Three Months Ended February 28, --------------------------- Deliveries 2002 2001 ---------------------------------------------------------------------------------------------------------- <S> <C> <C> East 1,540 1,359 Central 1,488 1,214 West 1,763 1,684 ---------------------------------------------------------------------------------------------------------- Subtotal 4,791 4,257 Unconsolidated partnerships 119 256 ---------------------------------------------------------------------------------------------------------- Total 4,910 4,513 ========================================================================================================== New Orders ---------------------------------------------------------------------------------------------------------- East 2,135 1,976 Central 1,659 1,727 West 2,287 2,102 ---------------------------------------------------------------------------------------------------------- Subtotal 6,081 5,805 Unconsolidated partnerships 122 278 ---------------------------------------------------------------------------------------------------------- Total 6,203 6,083 ========================================================================================================== Backlog - Homes ---------------------------------------------------------------------------------------------------------- East 4,121 3,385 Central 2,120 2,145 West 3,571 3,869 ---------------------------------------------------------------------------------------------------------- Subtotal 9,812 9,399 Unconsolidated partnerships 253 534 ---------------------------------------------------------------------------------------------------------- Total 10,065 9,933 ========================================================================================================== Backlog Dollar Value (including unconsolidated partnerships) $ 2,450,070 2,436,469 ========================================================================================================== </TABLE> Our market regions consist of the following states: East: Florida, Maryland, Virginia, New Jersey, North Carolina and South Carolina. Central: Texas, Minnesota and Ohio. West: California, Colorado, Arizona and Nevada. In addition, we have unconsolidated partnerships in Georgia, Michigan and Missouri. Revenues from sales of homes increased 11% in the first quarter of 2002 to $1.1 billion from $1.0 billion in 2001. Revenues were higher primarily as a result of a 13% increase in the number of home deliveries, partially offset by a 1% decrease in the average sales price in 2002, compared to 2001. New home deliveries increased to 4,791 homes in the first quarter of 2002 from 4,257 homes last year. New home deliveries were higher primarily due to increases in home deliveries in Florida and Texas, compared to the same period in 2001. The average sales price on homes delivered decreased to $232,000 in the first quarter of 2002 from $234,000 last year primarily due to a lower average sales price in Texas. 12
Gross margin percentages on home sales were 23.1% in the first quarter of 2002, compared to 22.3% in the same period last year. The increase in 2002 was primarily due to improved operational efficiencies. Selling, general and administrative expenses as a percentage of revenues from home sales were 12.1% in the first quarter of 2002, compared to 11.3% in 2001. The increase in 2002 was primarily due to an increase in insurance costs and broker commissions compared to the same period last year. Revenues from land sales totaled $21.5 million in the first quarter of 2002, compared to $16.8 million in the same period in 2001. Gross profits from land sales totaled $0.4 million, or a 1.8% margin, in the first quarter of 2002, compared to $0.3 million, or a 1.7% margin, in the same period last year. Equity in earnings from unconsolidated partnerships was $6.2 million in the first quarter of 2002, compared to $4.1 million in the same period last year. Margins achieved on sales of land and equity in earnings from unconsolidated partnerships may vary significantly from period to period depending on the timing of land sales by us and our unconsolidated partnerships. At February 28, 2002, our backlog of sales contracts was 10,065 homes ($2.5 billion), compared to 9,933 homes ($2.4 billion) at February 28, 2001. Financial Services The following table presents selected financial data related to our Financial Services Division for the periods indicated (unaudited): Three Months Ended February 28, ----------------------- (Dollars in thousands) 2002 2001 ------------------------------------------------------------------------- Revenues $ 105,625 82,224 Costs and expenses 82,201 74,966 ------------------------------------------------------------------------- Operating earnings $ 23,424 7,258 ========================================================================= Dollar value of mortgages originated $ 1,150,457 898,235 ------------------------------------------------------------------------- Number of mortgages originated 6,700 5,600 ------------------------------------------------------------------------- Mortgage capture rate of Lennar homebuyers 81% 78% ------------------------------------------------------------------------- Number of title transactions 47,000 32,000 ========================================================================= Operating earnings from our Financial Services Division increased to $23.4 million in the first quarter of 2002 from $7.3 million in 2001. The increase reflects the successful operational efficiencies which resulted from the combination of our and U.S. Home's mortgage operations under the Universal American Mortgage banner and the consolidation of our title operations under the North American Title banner. Additionally, the increase was a result of a greater level of refinance activity, a higher volume of sales of homes and a higher capture rate of our homebuyers. 13
Corporate General and Administrative Expenses Corporate general and administrative expenses as a percentage of total revenues improved to 1.3% in the first quarter of 2002 from 1.4% in the same period last year. Interest In the first quarter of 2002, interest expense was $24.0 million, or 1.9% of total revenues, compared to interest expense of $23.7 million, or 2.2% of total revenues, in 2001. Interest incurred was $30.7 million for both the three months ended February 28, 2002 and 2001. The average interest rates for interest incurred were 7.7% in the first quarter of 2002, compared to 8.1% in the first quarter of 2001. The average debt outstanding was $1.5 billion in the first quarter of 2002, compared to $1.4 billion in the first quarter of 2001. (2) Liquidity and Financial Resources In the three months ended February 28, 2002, $99.2 million of cash was provided by operating activities, compared to $169.7 million of cash used in operating activities in 2001. Cash generated in 2002 was primarily due to net earnings of $71.9 million and $298.9 million of cash received from the sale of loans in 2002, which we originated near the end of fiscal 2001. Cash received from the sale of loans was used to pay down our financial services warehouse lines of credit. The generation of cash was offset primarily by $154.8 million of cash used to increase inventories and $105.8 million used to reduce accounts payable and other liabilities. Earnings before interest, income taxes, depreciation and amortization ("EBITDA") were $149.7 million in the first quarter of 2002 compared to $117.6 million in the first quarter of 2001. Cash used in investing activities was $28.2 million in the first quarter of 2002, compared to $27.7 million in the first quarter of 2001. In the first quarter of 2002, we used $20.8 million of cash for acquisitions. In the first quarter of 2001, $25.2 million of cash was used to increase our investments in unconsolidated partnerships. We meet the majority of our short-term financing needs with cash generated from operations and funds available under our credit facilities. Our senior secured credit facilities provide us 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. We may elect to convert borrowings under the 364-day revolving credit facility to a term loan which would mature in May 2005. At February 28, 2002, $394.0 million was outstanding under the term loan B and there was no balance outstanding under the revolving credit facilities. Our Financial Services Division finances its mortgage loan activities by pledging them as collateral for borrowings under a line of credit totaling $500 million. Borrowings under the financial services line of credit were $367.5 million at February 28, 2002. In the normal course of business, we enter into partnerships that acquire and develop land for our homebuilding operations or for sale to third parties. Through partnerships, we reduce and share our risk and the amount invested in land while increasing access to potential future homesites. Partnerships are either consolidated with our operations or accounted for by the equity method of accounting. The selection between these two methods involves judgment as to the level of control we have over the partnerships. Controlling interest is determined based on a number of factors, which include our ownership interest and participation in the management of the partnership. Our investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held are accounted for by the equity method of accounting. Many of the partnerships in which we invest are accounted for by the equity method of accounting. We do not include in our income our pro rata partnership earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the partnerships when title passes to a third party homebuyer, which in effect defers recognition of the partnership earnings until we sell the land. In some instances, we and/or our partners in unconsolidated partnerships have provided varying levels of guarantees on certain partnership debt. At February 28, 2002, we had guarantees totaling $291.8 million of which $187.9 million were limited maintenance guarantees. When we provide guarantees, the partnership generally receives more favorable terms from its lenders. A limited maintenance guarantee only applies if the partnership defaults on its loan arrangements and the fair value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If we are required to make a payment under one of these guarantees to bring the fair value of the collateral above the specified percentage of the loan 14
balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase our share of any funds distributed by the partnership. In June 2001, our Board of Directors increased our previously authorized stock repurchase program to permit future purchases of up to 10 million shares of our outstanding common stock. We may repurchase these shares in the open market from time-to-time. During the first quarter of 2002, we did not repurchase any of our outstanding common stock. We have shelf registration statements under the Securities Act of 1933, as amended, relating to up to $970 million of equity or debt securities which we may sell for cash and up to $400 million of equity or debt securities which we may issue in connection with acquisitions of companies or interests in them, businesses or assets. As of February 28, 2002, no securities had been issued under these registration statements. Based on our current financial condition and financial market resources, management believes that our operations and capital resources will provide for our current and long-term capital requirements at our currently anticipated levels of growth. (3) Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks related to fluctuations in interest rates on our debt obligations, mortgage loans and mortgage loans held for sale or disposition. We utilize derivative instruments, including interest rate swaps, to manage our exposure to changes in interest rates. We also utilize forward commitments and option contracts to mitigate the risk associated with our mortgage loan portfolio. Our Annual Report on Form 10-K for the year ended November 30, 2001 contains information about market risks under "Item 7A. Quantitative and Qualitative Disclosures About Market Risk." There have been no material changes in our market risks during the three months ended February 28, 2002. Part II. Other Information Items 1-5. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Reports on Form 8-K: Registrant was not required to file, and has not filed, a Form 8-K during the quarter for which this report is being filed. 15
SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LENNAR CORPORATION ----------------------- (Registrant) Date: April 15, 2002 /s/ BRUCE E. GROSS -------------- ---------------------------------- Bruce E. Gross Vice President and Chief Financial Officer Date: April 15, 2002 /s/ DIANE J. BESSETTE -------------- ---------------------------------- Diane J. Bessette Vice President and Controller 16