================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2001 Commission File Number: 1-11749 Lennar Corporation (Exact name of registrant as specified in its charter) Delaware 95-4337490 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 Northwest 107th Avenue, Miami, Florida 33172 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 559-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Common shares outstanding as of March 31, 2001: Common 53,628,298 Class B Common 9,847,812 ================================================================================
Part I. Financial Information Item 1. Financial Statements Lennar Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except per share amounts) <TABLE> <CAPTION> (Unaudited) February 28, November 30, 2001 2000 - ----------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Homebuilding: Cash $ 57,573 287,627 Receivables, net 47,936 42,270 Inventories 2,483,343 2,301,584 Investments in partnerships 292,185 257,639 Other assets 268,082 277,794 ----------------------------- 3,149,119 3,166,914 Financial services 543,735 611,000 - ----------------------------------------------------------------------------------------------------- Total assets $ 3,692,854 3,777,914 ===================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 671,155 778,238 Mortgage notes and other debts payable, net 1,291,558 1,254,650 ----------------------------- 1,962,713 2,032,888 Financial services 454,110 516,446 - ----------------------------------------------------------------------------------------------------- Total liabilities 2,416,823 2,549,334 Stockholders' equity: Preferred stock -- -- Common stock of $0.10 par value per share, 63,158 shares issued at February 28, 2001 6,316 6,273 Class B common stock of $0.10 par value per share, 9,848 shares issued at February 28, 2001 985 985 Additional paid-in capital 821,781 812,501 Retained earnings 632,799 582,299 Unearned restricted stock (13,343) (14,535) Treasury stock, at cost; 9,848 common shares at February 28, 2001 (158,943) (158,943) Accumulated other comprehensive loss (13,564) -- - ----------------------------------------------------------------------------------------------------- Total stockholders' equity 1,276,031 1,228,580 - ----------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 3,692,854 3,777,914 ===================================================================================================== </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) Three Months Ended --------------------------- February 28, February 29, 2001 2000 - ----------------------------------------------------------------------- Revenues: Homebuilding $1,021,818 580,922 Financial services 82,224 59,445 - ----------------------------------------------------------------------- Total revenues 1,104,042 640,367 - ----------------------------------------------------------------------- Costs and expenses: Homebuilding 906,180 526,093 Financial services 74,966 58,837 Corporate general and administrative 15,788 9,057 Interest 23,748 9,968 - ----------------------------------------------------------------------- Total costs and expenses 1,020,682 603,955 - ----------------------------------------------------------------------- Earnings before income taxes 83,360 36,412 Income taxes 32,094 14,201 - ----------------------------------------------------------------------- Net earnings $ 51,266 22,211 ======================================================================= Basic earnings per share $ 0.83 0.42 ======================================================================= Diluted earnings per share $ 0.75 0.40 ======================================================================= - ----------------------------------------------------------------------- Cash dividends per common share $ 0.0125 0.0125 - ----------------------------------------------------------------------- Cash dividends per Class B common share $ 0.01125 0.01125 ======================================================================= See accompanying notes to consolidated condensed financial statements. 2
Lennar Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (Unaudited) (In thousands) <TABLE> <CAPTION> Three Months Ended --------------------------- February 28, February 29, 2001 2000 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 51,266 22,211 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 10,538 8,135 Amortization of discount on debt 5,866 5,604 Equity in earnings from partnerships (4,081) (4,229) Increase in deferred income taxes 11,449 1,792 Changes in assets and liabilities: Increase in receivables (3,108) (11,493) Increase in inventories (174,766) (121,862) Increase in other assets (1,293) (2,693) Decrease in financial services loans held for sale or disposition 53,937 64,992 Decrease in accounts payable and other liabilities (119,506) (23,913) - ----------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (169,698) (61,456) - ----------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Operating properties and equipment: Additions (2,790) (4,074) Sales 435 -- (Increase) decrease in investments in partnerships, net (25,166) 8,407 Decrease in financial services mortgage loans 196 584 Purchases of investment securities (4,237) (2,916) Receipts from investment securities 3,900 3,700 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (27,662) 5,701 - ----------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under revolving credit facilities 18,700 229,600 Net repayments under financial services short-term debt (61,983) (77,837) Proceeds from other borrowings 57 635 Principal payments on other borrowings (4,406) (13,130) Limited-purpose finance subsidiaries, net 574 (59) Common stock: Issuance 7,237 96 Repurchases -- (150,469) Dividends (766) (628) - ----------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (40,587) (11,792) - ----------------------------------------------------------------------------------------------------------------- Net decrease in cash (237,947) (67,547) Cash at beginning of period 333,877 118,167 - ----------------------------------------------------------------------------------------------------------------- Cash at end of period $ 95,930 50,620 ================================================================================================================= </TABLE> 3
Lennar Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows -- Continued (Unaudited) (In thousands) <TABLE> <CAPTION> Three Months Ended --------------------------- February 28, February 29, 2001 2000 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> Summary of cash: Homebuilding $ 57,573 30,179 Financial services 38,357 20,441 - ----------------------------------------------------------------------------------------------------------------- $ 95,930 50,620 - ----------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid for interest, net of amounts capitalized $ 9,128 -- Cash paid for income taxes $ 64,881 8,868 Supplemental disclosures of non-cash investing and financing activities: Purchases of inventory financed by sellers $ 16,447 4,780 ================================================================================================================= </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 in which a controlling interest is held (the "Company"). The Company's investments in partnerships (and similar entities) in which a significant, but less than controlling, interest is held are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated. The financial statements have been prepared by management without audit by independent public accountants and should be read in conjunction with the November 30, 2000 audited financial statements in the Company's Annual Report on Form 10-K for the year then ended. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the accompanying consolidated condensed financial statements have been made. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform with the current period presentation. The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated condensed statement of earnings for the three months ended February 28, 2001 is not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (2) Operating and Reporting Segments The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company's reportable segments are strategic business units that offer different products and services. Homebuilding operations include the sale and construction of single-family attached and detached homes in 13 states. These activities also include the purchase, development and sale of residential land by the Company and partnerships in which it has investments. The Financial Services Division provides mortgage financing, title insurance and closing services for both the Company's homebuyers and others. The Division packages and resells residential mortgage loans and performs mortgage loan servicing activities. The Division also provides high speed Internet access, cable television and home monitoring services for both the Company's homebuyers and other customers. 5
(3) Earnings Per Share Basic earnings per share is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Basic and diluted earnings per share were calculated as follows (unaudited): <TABLE> <CAPTION> Three Months Ended -------------------------- February 28, February 29, (In thousands, except per share amounts) 2001 2000 - ----------------------------------------------------------------------------------------------- <S> <C> <C> Numerator: Numerator for basic earnings per share - net earnings $51,266 22,211 Interest on zero-coupon convertible debentures, net of tax 1,498 1,428 - ----------------------------------------------------------------------------------------------- Numerator for diluted earnings per share $52,764 23,639 =============================================================================================== Denominator: Denominator for basic earnings per share - weighted average shares 62,097 53,160 Effect of dilutive securities: Employee stock options and restricted stock 1,939 411 Zero-coupon convertible debentures 6,105 6,105 - ----------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 70,141 59,676 =============================================================================================== Basic earnings per share $ 0.83 0.42 =============================================================================================== Diluted earnings per share $ 0.75 0.40 =============================================================================================== </TABLE> 6
(4) Financial Services The assets and liabilities related to the Company's financial services operations (as described in Note 2) are summarized as follows: <TABLE> <CAPTION> (Unaudited) February 28, November 30, (In thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> Assets: Cash and receivables, net $ 68,573 79,025 Mortgage loans held for sale or disposition, net 322,620 376,452 Mortgage loans, net 42,211 42,504 Mortgage servicing rights, net 11,488 11,653 Title plants 15,530 15,530 Goodwill, net 24,854 25,199 Other 40,975 40,743 Limited-purpose finance subsidiaries 17,484 19,894 - ------------------------------------------------------------------------------------------------------------- $ 543,735 611,000 - ------------------------------------------------------------------------------------------------------------- Liabilities: Notes and other debts payable $ 366,709 428,966 Other 69,917 67,586 Limited-purpose finance subsidiaries 17,484 19,894 - ------------------------------------------------------------------------------------------------------------- $ 454,110 516,446 ============================================================================================================= </TABLE> (5) Cash Cash as of February 28, 2001 and November 30, 2000 included $35.6 million and $65.9 million, respectively, of cash held in escrow for periods of up to three days. (6) Comprehensive Income and Implementation of SFAS No. 133 Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. The Company's policy is to designate at a derivative's inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes. 7
The Company has various interest rate swap agreements which effectively fix the variable interest rate on approximately $400 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in the consolidated condensed balance sheet. The related loss is deferred in stockholders' equity as accumulated other comprehensive loss. The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS No. 133. Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The net effect on the Company's operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and option contracts to protect the value of loans held for sale or disposition from increases in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. In accordance with the transition provisions of SFAS No. 133, on December 1, 2000, the Company recorded a cumulative-effect type adjustment of $3.5 million (net of tax benefit of $2.2 million) in accounts payable and other liabilities and accumulated other comprehensive loss to recognize the fair value of the interest rate swaps. The effect of the implementation of SFAS No. 133 on the Company's Financial Services Division's operating earnings was not significant. Subsequent to the Company's adoption of SFAS No. 133 through February 28, 2001, the liability and accumulated other comprehensive loss increased $10.1 million (net of tax benefit of $6.3 million) to $13.6 million. Total comprehensive income was $37.7 million for the three months ended February 28, 2001 and $22.2 million for the three months ended February 29, 2000. (7) Subsequent Event In April 2001, the Company issued, for gross proceeds of approximately $200 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $550 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $195 million. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital and will use the cash for general corporate purposes. The Notes are convertible into the Company's common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $56.93 per share. Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company's common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary date for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. The Company has granted the underwriter a 30-day option to purchase up to an aggregate of $82.5 million principal amount at maturity of additional Notes to cover over-allotments, if any. 8
(8) New Accounting Pronouncements In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 is applicable for the Company beginning in the fourth quarter of the current fiscal year. Management does not currently believe that the conformity with the requirements of SAB No. 101 will have a material impact on the Company's results of operations or financial position. In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The implementation of SFAS No. 140 will not have a material impact on the Company's results of operations or financial position. (9) Supplemental Financial Information During May 2000, the Company issued $325 million of 9.95% senior notes due 2010. The Company's obligations to pay principal, premium, if any, and interest under the notes are guaranteed on a joint and several basis by substantially all of its subsidiaries, other than subsidiaries engaged in mortgage and title reinsurance activities. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented. Consolidating statements of cash flows are not presented because cash flows for the non-guarantor subsidiaries were not significant for any of the periods presented. 9
Consolidating Condensed Balance Sheet February 28, 2001 (Unaudited) <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 $ 6,714 98,248 547 - 105,509 Inventories - 2,476,975 6,368 - 2,483,343 Investments in partnerships - 292,185 - - 292,185 Other assets 83,704 184,378 - - 268,082 Investments in subsidiaries 1,541,334 207,942 - (1,749,276) - - ------------------------------------------------------------------------------------------------------------------------- 1,631,752 3,259,728 6,915 (1,749,276) 3,149,119 Financial services - 16,051 527,684 - 543,735 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,631,752 3,275,779 534,599 (1,749,276) 3,692,854 ========================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 163,930 505,189 2,036 - 671,155 Mortgage notes and other debts payable, net 1,240,268 51,290 - - 1,291,558 Intercompany (1,048,477) 1,171,566 (123,089) - - - ------------------------------------------------------------------------------------------------------------------------- 355,721 1,728,045 (121,053) - 1,962,713 Financial services - 6,400 447,710 - 454,110 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities 355,721 1,734,445 326,657 - 2,416,823 Stockholders' equity 1,276,031 1,541,334 207,942 (1,749,276) 1,276,031 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,631,752 3,275,779 534,599 (1,749,276) 3,692,854 ========================================================================================================================= </TABLE> 10
Supplemental Financial Information, Continued Consolidating Condensed Balance Sheet November 30, 2000 <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 $ 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 ========================================================================================================================= </TABLE> 11
Supplemental Financial Information, Continued 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> Consolidating Condensed Statement of Earnings Three Months Ended February 29, 2000 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues: Homebuilding $ - 578,047 2,875 - 580,922 Financial services - 8,524 50,921 - 59,445 - ------------------------------------------------------------------------------------------------------------------------- Total revenues - 586,571 53,796 - 640,367 - ------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Homebuilding - 524,130 1,963 - 526,093 Financial services - 10,890 47,947 - 58,837 Corporate general and administrative 9,057 - - - 9,057 Interest - 9,968 - - 9,968 - ------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 9,057 544,988 49,910 - 603,955 - ------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (9,057) 41,583 3,886 - 36,412 Provision (benefit) for income taxes (3,448) 16,217 1,432 - 14,201 Equity in earnings from subsidiaries 27,820 2,454 - (30,274) - - ------------------------------------------------------------------------------------------------------------------------- Net earnings $22,211 27,820 2,454 (30,274) 22,211 ========================================================================================================================= </TABLE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which are anticipated. With regard to the Company, these factors include, but are not limited to, changes in general economic conditions, the market for homes generally and in areas where the Company has developments, the availability and cost of land suitable for residential development, materials prices, labor costs, interest rates, consumer confidence, competition, environmental factors and government regulations affecting the Company's operations. See the Company's Annual Report on Form 10-K for the year ended November 30, 2000 for a further discussion of these and other risks and uncertainties applicable to the Company's business. (1) Results of Operations Overview Net earnings were $51.3 million, or $0.75 per share diluted ($0.83 per share basic), in the first quarter of 2001, compared to $22.2 million, or $0.40 per share diluted ($0.42 per share basic), in the first quarter of 2000. Homebuilding The following tables set forth selected financial and operational information related to the Homebuilding Division for the periods indicated (unaudited): <TABLE> <CAPTION> Three Months Ended ------------------------------ (Dollars in thousands, except February 28, February 29, average sales price) 2001 2000 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Revenues: Sales of homes $ 997,494 523,948 Sales of land and other revenues 20,243 52,745 Equity in earnings from partnerships 4,081 4,229 - ------------------------------------------------------------------------------------------------------------------- Total revenues 1,021,818 580,922 Costs and expenses: Cost of homes sold 775,301 420,967 Cost of land and other expenses 17,945 45,163 Selling, general and administrative 112,934 59,963 - ------------------------------------------------------------------------------------------------------------------- Total costs and expenses 906,180 526,093 - ------------------------------------------------------------------------------------------------------------------- Operating earnings $ 115,638 54,829 =================================================================================================================== Gross profit on home sales - $ $ 222,193 102,981 Gross margin on home sales - % 22.3% 19.7% S,G&A expenses as a percentage of revenues from home sales 11.3% 11.4% Operating margin percentage on revenues from home sales 11.0% 8.2% Average sales price $ 234,000 217,000 ==================================================================================================================== </TABLE> 13
Summary of Home and Backlog Data By Region (Dollars in thousands) Three Months Ended --------------------------- February 28, February 29, Deliveries 2001 2000 - ------------------------------------------------------------------ East 1,359 769 Central 1,214 764 West 1,684 878 - ------------------------------------------------------------------ Subtotal 4,257 2,411 Joint ventures 256 - - ------------------------------------------------------------------ Total 4,513 2,411 ================================================================== New Orders - ------------------------------------------------------------------ East 1,976 851 Central 1,727 776 West 2,102 1,131 - ------------------------------------------------------------------ Subtotal 5,805 2,758 Joint ventures 278 - - ------------------------------------------------------------------ Total 6,083 2,758 ================================================================== Backlog - Homes - ------------------------------------------------------------------ East 3,385 1,173 Central 2,145 664 West 3,869 1,401 - ------------------------------------------------------------------ Subtotal 9,399 3,238 Joint ventures 534 - - ------------------------------------------------------------------ Total 9,933 3,238 ================================================================== Backlog Dollar Value (including JVs) $2,436,469 772,937 ================================================================== The Company's market regions consist of the following states: East: Florida, Maryland/Virginia and New Jersey Central: Texas, Minnesota and Ohio West: California, Colorado, Arizona and Nevada In addition, the Company has various joint ventures in North Carolina and Michigan. Revenues from sales of homes increased 90% in the first quarter of 2001 to $997.5 million from $523.9 million in 2000. Revenues were higher due primarily to increases in the number of home deliveries and average sales price in 2001, compared to 2000. New home deliveries were higher due primarily to the inclusion of U.S. Home's homebuilding activity in the first quarter of 2001. The increase in the average sales price on homes delivered was due primarily to an increase in the average sales price in the Company's existing markets, combined with changes in product mix as a result of the entry into new markets since the acquisition of U.S. Home. 14
Gross profits on home sales increased to $222.2 million in the three months ended February 28, 2001, compared to $103.0 million in the three months ended February 29, 2000. Gross margin percentages on home sales were 22.3% in the three months ended February 28, 2001, compared to 19.7% in the three months ended February 29, 2000. The increase was primarily due to improvements in the Company's existing markets and success in new markets entered into since the acquisition of U.S. Home. Additionally, the Company continued to realize benefits from the national purchasing program which has been expanded since the U.S. Home acquisition. Revenues from land sales totaled $16.8 million in the first quarter of 2001, compared to $51.3 million in the same period in 2000. Gross profits from land sales totaled $0.3 million, or a 1.7% margin, in the first quarter of 2001, compared to $6.4 million, or a 12.5% margin, last year. Equity in earnings from partnerships was $4.1 million in the first quarter of 2001, compared to $4.2 million in the first quarter of 2000. Profits achieved on land sales and equity in earnings from partnerships may vary significantly from period to period depending on the timing of land sales by the Company and its partnerships. Selling, general and administrative expenses as a percentage of revenues from home sales improved to 11.3% in the first quarter of 2001 from 11.4% in 2000. At February 28, 2001, the Company's backlog of sales contracts was 9,933 homes ($2.4 billion), compared to 3,238 homes ($773 million) at February 29, 2000. The higher backlog was primarily attributable to the acquisition of U.S. Home in May 2000. Financial Services The following table presents selected financial data related to the Financial Services Division for the periods indicated (unaudited): Three Months Ended ------------------------------- February 28, February 29, (Dollars in thousands) 2001 2000 - -------------------------------------------------------------------------------- Revenues $ 82,224 59,445 Costs and expenses 74,966 58,837 - -------------------------------------------------------------------------------- Operating earnings $ 7,258 608 ================================================================================ Dollar value of mortgages originated $ 898,235 483,018 - -------------------------------------------------------------------------------- Number of mortgages originated 5,600 3,200 - -------------------------------------------------------------------------------- Principal balance of servicing portfolio $ 2,131,333 2,969,355 - -------------------------------------------------------------------------------- Number of loans serviced 28,000 37,000 - -------------------------------------------------------------------------------- Number of title transactions 32,000 26,000 ================================================================================ Operating earnings from the Financial Services Division increased in the first quarter of 2001 to $7.3 million from $0.6 million in the same period in 2000. The increase was primarily due to greater earnings from the Company's mortgage and title operations, including the earnings contribution from U.S. Home Mortgage Corporation in the first quarter of 2001. 15
Corporate General and Administrative Expenses Corporate general and administrative expenses as a percentage of total revenues were 1.4% in both the first quarter of 2001 and 2000. Interest Expense In the first quarter of 2001, interest expense was $23.7 million, or 2.2% of total revenues, compared to interest expense of $10.0 million, or 1.6% of total revenues, in 2000. The increase in interest as a percentage of total revenues was primarily due to higher average debt outstanding and higher average cost of debt following the U.S. Home acquisition, compared to the same period last year. (2) Liquidity and Financial Resources In the first quarter of 2001, $169.7 million of cash was used in the Company's operating activities, compared to $61.5 million in the first quarter of 2000. In the first quarter of 2001, $174.8 million of cash was used to increase inventories through land purchases, land development and construction and $119.5 million was used to reduce accounts payable and other liabilities. These uses of cash were partially offset by $51.3 million of net earnings and $53.9 million of cash received from the sale or disposition of loans by the Company's Financial Services Division. In the first quarter of 2000, $121.9 million of cash was used to increase inventories through land purchases, land development and construction and $23.9 million was used to reduce accounts payable and other liabilities. These uses of cash were partially offset by $22.2 million of net earnings and $65.0 million of cash received from the sale or disposition of loans by the Company's Financial Services Division. Earnings before interest, income taxes, depreciation and amortization ("EBITDA") were $117.6 million in the first quarter of 2001 compared to $54.5 million in the first quarter of 2000. Cash used in investing activities totaled $27.7 million in the first quarter of 2001, compared to cash provided by investing activities of $5.7 million in the corresponding period in 2000. In the first quarter of 2001, $25.2 million of cash was used to increase the Company's investments in partnerships. In the first quarter of 2000, $8.4 million of cash was provided by the Company's investments in partnerships. The Company meets the majority of its short-term financing needs with cash generated from operations and funds available under its credit facilities. The Company's senior secured credit facilities provide the Company with up to $1.4 billion of financing. The credit facilities consist of a $700 million five-year revolving credit facility, a $300 million 364-day revolving credit facility and a $400 million term loan B. The Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan which would mature in May 2005. At February 28, 2001, $398.0 million was outstanding under the term loan B and $18.7 million was outstanding under the revolving credit facilities. 16
In April 2001, the Company issued, for gross proceeds of approximately $200 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $550 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $195 million. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital and will use the cash for general corporate purposes. The Notes are convertible into the Company's common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $56.93 per share. Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company's common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary date for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. The Company has granted the underwriter a 30-day option to purchase up to an aggregate of $82.5 million principal amount at maturity of additional Notes to cover over-allotments, if any. In July 2000 and March 1999, the Company filed shelf registration statements and prospectuses with the SEC to offer, from time-to-time, its common stock, preferred stock, depositary shares, debt securities or warrants at an aggregate initial offering price not to exceed $1 billion in total. Proceeds can be used for repayment of debt, acquisitions and general corporate purposes. As of April 2001, the Company had $800 million in total available under these registration statements. Based on the Company's current financial condition and financial market resources, management believes that its operations and capital resources will provide for its current and long-term capital requirements at the Company's anticipated levels of growth. (3) Market Risk The information included in "Item 7A. Market Risk" in the Company's Annual Report on Form 10-K for the year ended November 30, 2000 is incorporated herein by reference. Part II. Other Information Items 1-5. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: (10) Lennar Corporation 2000 Stock Option and Restricted Stock Plan, as amended. (b) Reports on Form 8-K: Registrant was not required to file, and has not filed, a Form 8-K during the quarter for which this report is being filed. 17
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LENNAR CORPORATION ---------------------------------------- (Registrant) Date: April 16, 2001 /s/ BRUCE E. GROSS -------------- ---------------------------------------- Bruce E. Gross Vice President and Chief Financial Officer Date: April 16, 2001 /s/ DIANE J. BESSETTE -------------- ---------------------------------------- Diane J. Bessette Vice President and Controller 18
EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- (10) Lennar Corporation 2000 Stock Option and Restricted Stock Plan, as amended.