================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2001 ------------ Commission File Number: 1-11749 -------- Lennar Corporation (Exact name of registrant as specified in its charter) Delaware 95-4337490 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 Northwest 107th Avenue, Miami, Florida 33172 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 559-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- Common shares outstanding as of June 30, 2001: Common 54,023,719 ---------- Class B Common 9,772,812 --------- ================================================================================
Part I. Financial Information Item 1. Financial Statements -------------------- <TABLE> Lennar Corporation and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except per share amounts) (Unaudited) May 31, November 30, 2001 2000 -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Homebuilding: Cash $ 219,002 287,627 Receivables, net 47,980 42,270 Inventories 2,521,812 2,301,584 Investments in partnerships 286,480 257,639 Other assets 251,605 277,794 ---------------------------------- 3,326,879 3,166,914 Financial services 673,462 611,000 -------------------------------------------------------------------------------------------------------------------------------- Total assets $ 4,000,341 3,777,914 ================================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 586,205 778,238 Mortgage notes and other debts payable, net 1,496,839 1,254,650 ---------------------------------- 2,083,044 2,032,888 Financial services 528,485 516,446 -------------------------------------------------------------------------------------------------------------------------------- Total liabilities 2,611,529 2,549,334 Stockholders' equity: Preferred stock - - Common stock of $0.10 par value per share, 63,865 shares issued at May 31, 2001 6,386 6,273 Class B common stock of $0.10 par value per share, 9,773 shares issued at May 31, 2001 977 985 Additional paid-in capital 835,720 812,501 Retained earnings 729,031 582,299 Unearned restricted stock (12,573) (14,535) Treasury stock, at cost; 9,847 common shares at May 31, 2001 (158,927) (158,943) Accumulated other comprehensive loss (11,802) - -------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,388,812 1,228,580 -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 4,000,341 3,777,914 ================================================================================================================================ </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 Six Months Ended May 31, May 31, --------------------------------- ------------------------------ 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Homebuilding $ 1,273,349 887,131 2,295,167 1,468,053 Financial services 118,184 81,049 200,408 140,494 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues 1,391,533 968,180 2,495,575 1,608,547 - ----------------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Homebuilding 1,101,518 811,303 2,007,698 1,337,396 Financial services 84,529 66,109 159,495 124,946 Corporate general and administrative 18,387 11,269 34,175 20,326 Interest 29,366 19,760 53,114 29,728 - ----------------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,233,800 908,441 2,254,482 1,512,396 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 157,733 59,739 241,093 96,151 Income taxes 60,727 23,298 92,821 37,499 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings $ 97,006 36,441 148,272 58,652 =================================================================================================================================== Basic earnings per share $ 1.55 0.69 2.38 1.11 =================================================================================================================================== Diluted earnings per share $ 1.40 0.64 2.15 1.03 =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends per common share $ 0.0125 0.0125 0.025 0.025 - ----------------------------------------------------------------------------------------------------------------------------------- Cash dividends per Class B common share $ 0.01125 0.01125 0.0225 0.0225 =================================================================================================================================== </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> Six Months Ended May 31, ------------------------------------- 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 148,272 58,652 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 23,985 18,127 Amortization of discount on debt 8,065 5,244 Equity in earnings from partnerships (6,515) (6,494) Increase in deferred income taxes 31,072 13,606 Changes in assets and liabilities, net of effect of acquisitions: Increase in receivables (124,706) (15,213) Increase in inventories (225,193) (94,615) Increase in other assets (4,693) (25,023) (Increase) decrease in financial services loans held for sale or disposition 54,025 (17,312) Decrease in accounts payable and other liabilities (190,786) (91,538) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (286,474) (154,566) - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Operating properties and equipment: Additions (9,943) (10,189) Sales 1,619 - Increase in investments in partnerships, net (13,073) (3,751) Decrease in financial services mortgage loans 626 546 Decrease in financial services mortgage servicing rights 10,812 - Purchases of investment securities (11,067) (8,589) Receipts from investment securities 10,800 5,238 Acquisitions of properties and businesses, net of cash acquired - (156,691) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (10,226) (173,436) - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under revolving credit facilities - 872,100 Net borrowings under financial services short-term debt 6,144 82,730 Payments for tender of U.S. Home's senior notes - (514,019) Net proceeds from issuance of 5.125% zero coupon convertible senior subordinated notes 224,250 - Net proceeds from issuance of 9.95% senior notes - 294,988 Proceeds from other borrowings 110 1,812 Principal payments on other borrowings (11,122) (262,868) Limited-purpose finance subsidiaries, net 588 108 Common stock: Issuance 16,313 1,312 Repurchases - (152,925) Dividends (1,540) (1,378) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 234,743 321,860 - ------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash (61,957) (6,142) Cash at beginning of period 333,877 118,167 - ------------------------------------------------------------------------------------------------------------------------------- Cash at end of period $ 271,920 112,025 =============================================================================================================================== </TABLE> 3
Lennar Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows -- Continued (Unaudited) (In thousands) <TABLE> <CAPTION> Six Months Ended May 31, ------------------------------------- 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Summary of cash: Homebuilding $ 219,002 72,234 Financial services 52,918 39,791 - ---------------------------------------------------------------------------------------------------------------------------- $ 271,920 112,025 - ---------------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid for interest, net of amounts capitalized $ 10,670 11,778 Cash paid for income taxes $ 116,086 30,726 Supplemental disclosures of non-cash investing and financing activities: Purchases of inventory financed by sellers $ 17,685 4,984 ============================================================================================================================ </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 statements of earnings for the three and six months ended May 31, 2001 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (2) Operating and Reporting Segments -------------------------------- The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company's reportable segments are strategic business units that offer different products and services. Homebuilding operations include the sale and construction of single-family attached and detached homes in 14 states. These activities also include the purchase, development and sale of residential land by the Company and partnerships in which it has investments. The Financial Services Division provides mortgage financing, title insurance and closing services for both the Company's homebuyers and others. The Division also packages and resells residential mortgage loans and provides high-speed Internet access, cable television and home monitoring services for both the Company's homebuyers and other customers. 5
(3) Earnings Per Share ------------------ Basic earnings per share is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Basic and diluted earnings per share were calculated as follows (unaudited): <TABLE> <CAPTION> Three Months Ended Six Months Ended May 31, May 31, --------------------------------- ------------------------------ <S> <C> <C> <C> <C> (In thousands, except per share amounts) 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- Numerator: Numerator for basic earnings per share - net earnings $ 97,006 36,441 148,272 58,652 Interest on zero-coupon convertible debentures due 2018, net of tax 1,518 1,447 3,016 2,875 - ----------------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share $ 98,524 37,888 151,288 61,527 ======================================================================================================================= Denominator: Denominator for basic earnings per share - weighted average shares 62,699 52,779 62,398 52,970 Effect of dilutive securities: Employee stock options and restricted stock 1,776 542 1,857 476 Zero-coupon convertible debentures due 2018 6,105 6,105 6,105 6,105 - ----------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 70,580 59,426 70,360 59,551 ======================================================================================================================= Basic earnings per share $ 1.55 0.69 2.38 1.11 ======================================================================================================================= Diluted earnings per share $ 1.40 0.64 2.15 1.03 ======================================================================================================================= </TABLE> (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) May 31, November 30, (In thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> Assets: Cash and receivables, net $ 204,685 79,025 Mortgage loans held for sale or disposition, net 322,537 376,452 Mortgage loans, net 41,775 42,504 Mortgage servicing rights, net - 11,653 Title plants 15,530 15,530 Goodwill, net 25,989 25,199 Other 46,806 40,743 Limited-purpose finance subsidiaries 16,140 19,894 - ------------------------------------------------------------------------------------------------------------------ $ 673,462 611,000 ================================================================================================================== Liabilities: Notes and other debts payable $ 434,811 428,966 Other 77,534 67,586 Limited-purpose finance subsidiaries 16,140 19,894 - ------------------------------------------------------------------------------------------------------------------ $ 528,485 516,446 ================================================================================================================== </TABLE> 6
(5) Cash ---- Cash as of May 31, 2001 and November 30, 2000 included $36.9 million and $65.9 million, respectively, of cash held in escrow for approximately three days. (6) Debt ---- In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital and will use the cash for general corporate purposes. The Notes are convertible into the Company's common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $56.93 per share. Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company's common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary date for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. 7
(7) Comprehensive Income and Implementation of SFAS No. 133 ------------------------------------------------------- Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. The Company's policy is to designate at a derivative's inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes. The Company has various interest rate swap agreements which effectively fix the variable interest rate on approximately $400 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in the consolidated condensed balance sheet at May 31, 2001. The related loss is deferred in stockholders' equity as accumulated other comprehensive loss. The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS No. 133. Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The net effect on the Company's operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and option contracts to protect the value of loans held for sale or disposition from increases in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. In accordance with the transition provisions of SFAS No. 133, on December 1, 2000, the Company recorded a cumulative-effect type adjustment of $3.5 million (net of tax benefit of $2.2 million) in accounts payable and other liabilities and accumulated other comprehensive loss to recognize the fair value of the interest rate swaps. The effect of the implementation of SFAS No. 133 on the Company's Financial Services Division's operating earnings was not significant. Subsequent to the Company's adoption of SFAS No. 133 through May 31, 2001, the liability and accumulated other comprehensive loss increased $8.3 million (net of tax benefit of $5.2 million) to $11.8 million. Total comprehensive income was $136.5 million for the six months ended May 31, 2001 and $58.7 million for the six months ended May 31, 2000. 8
(8) New Accounting Pronouncements ----------------------------- In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 is applicable for the Company beginning in the fourth quarter of the current fiscal year. Management does not currently believe that the conformity with the requirements of SAB No. 101 will have a material impact on the Company's results of operations or financial position. In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The implementation of SFAS No. 140 did not have a material impact on the Company's results of operations or financial position. In June 2001, the FASB approved SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. SFAS No. 142 is effective for the Company's fiscal year 2003. Management is in the process of evaluating the effect the adoption of these standards will have on its financial statements. (9) Supplemental Financial Information ---------------------------------- During May 2000, the Company issued $325 million of 9.95% senior notes due 2010. The Company's obligations to pay principal, premium, if any, and interest under the notes are guaranteed on a joint and several basis by substantially all of its subsidiaries, other than subsidiaries engaged in mortgage and title reinsurance activities. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented. Consolidating statements of cash flows are not presented because cash flows for the non-guarantor subsidiaries were not significant for any of the periods presented. 9
Consolidating Condensed Balance Sheet May 31, 2001 (Unaudited) <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 $ 160,216 106,573 193 - 266,982 Inventories - 2,515,457 6,355 - 2,521,812 Investments in partnerships - 286,480 - - 286,480 Other assets 85,807 165,798 - - 251,605 Investments in subsidiaries 1,657,459 239,582 - (1,897,041) - - ------------------------------------------------------------------------------------------------------------------------------- 1,903,482 3,313,890 6,548 (1,897,041) 3,326,879 Financial services - 22,129 651,333 - 673,462 - ------------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,903,482 3,336,019 657,881 (1,897,041) 4,000,341 =============================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 166,168 419,957 80 - 586,205 Mortgage notes and other debts payable, net 1,450,819 46,020 - - 1,496,839 Intercompany (1,102,317) 1,202,872 (100,555) - - - ------------------------------------------------------------------------------------------------------------------------------- 514,670 1,668,849 (100,475) - 2,083,044 Financial services - 9,711 518,774 - 528,485 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 514,670 1,678,560 418,299 - 2,611,529 Stockholders' equity 1,388,812 1,657,459 239,582 (1,897,041) 1,388,812 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,903,482 3,336,019 657,881 (1,897,041) 4,000,341 =============================================================================================================================== </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 Six Months Ended May 31, 2001 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding $ - 2,295,163 4 - 2,295,167 Financial services - 25,073 175,335 - 200,408 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues - 2,320,236 175,339 - 2,495,575 - ------------------------------------------------------------------------------------------------------------------------------ Costs and expenses: Homebuilding - 2,007,442 256 - 2,007,698 Financial services - 31,263 128,232 - 159,495 Corporate general and administrative 34,175 - - - 34,175 Interest - 53,114 - - 53,114 - ------------------------------------------------------------------------------------------------------------------------------ Total costs and expenses 34,175 2,091,819 128,488 - 2,254,482 - ------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) before income taxes (34,175) 228,417 46,851 - 241,093 Provision (benefit) for income taxes (12,411) 87,941 17,291 - 92,821 Equity in earnings from subsidiaries 170,036 29,560 - (199,596) - - ------------------------------------------------------------------------------------------------------------------------------ Net earnings $ 148,272 170,036 29,560 (199,596) 148,272 ============================================================================================================================== </TABLE> Consolidating Condensed Statement of Earnings Six Months Ended May 31, 2000 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total - ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding $ - 1,465,178 2,875 - 1,468,053 Financial services - 25,696 114,798 - 140,494 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues - 1,490,874 117,673 - 1,608,547 - ------------------------------------------------------------------------------------------------------------------------------ Costs and expenses: Homebuilding - 1,335,419 1,977 - 1,337,396 Financial services - 24,220 100,726 - 124,946 Corporate general and administrative 20,326 - - - 20,326 Interest - 29,728 - - 29,728 - ------------------------------------------------------------------------------------------------------------------------------ Total costs and expenses 20,326 1,389,367 102,703 - 1,512,396 - ------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) before income taxes (20,326) 101,507 14,970 - 96,151 Provision (benefit) for income taxes (8,047) 39,588 5,958 - 37,499 Equity in earnings from subsidiaries 70,931 9,012 - (79,943) - - ------------------------------------------------------------------------------------------------------------------------------ Net earnings $ 58,652 70,931 9,012 (79,943) 58,652 ============================================================================================================================== </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 $97.0 million, or $1.40 per share diluted ($1.55 per share basic), in the second quarter of 2001, compared to $36.4 million, or $0.64 per share diluted ($0.69 per share basic), in the second quarter of 2000. For the six months ended May 31, 2001, net earnings were $148.3 million, or $2.15 per share diluted ($2.38 per share basic), compared to $58.7 million, or $1.03 per share diluted ($1.11 per share basic) in 2000. Homebuilding The following tables set forth selected financial and operational information related to the Homebuilding Division for the periods indicated (unaudited): <TABLE> <CAPTION> Three Months Ended Six Months Ended May 31, May 31, (Dollars in thousands, except --------------------------- -------------------------- average sales price) 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Sales of homes $ 1,255,356 843,426 2,252,850 1,367,374 Sales of land and other revenues 15,559 41,440 35,802 94,185 Equity in earnings from partnerships 2,434 2,265 6,515 6,494 - --------------------------------------------------------------------------------------------------------------- Total revenues 1,273,349 887,131 2,295,167 1,468,053 Costs and expenses: Cost of homes sold 956,047 690,133 1,731,348 1,111,100 Cost of land and other expenses 10,333 32,822 28,278 77,985 Selling, general and administrative 135,138 88,348 248,072 148,311 - --------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,101,518 811,303 2,007,698 1,337,396 - --------------------------------------------------------------------------------------------------------------- Operating earnings $ 171,831 75,828 287,469 130,657 =============================================================================================================== Gross profit on home sales - $ $ 299,309 153,293 521,502 256,274 Gross margin on home sales - % 23.8% 18.2% 23.1% 18.7% S,G&A expenses as a percentage of revenues from home sales 10.8% 10.5% 11.0% 10.8% Operating margin percentage on revenues from home sales 13.1% 7.7% 12.1% 7.9% Average sales price $ 235,000 219,000 234,000 218,000 =============================================================================================================== </TABLE> 13
Summary of Home and Backlog Data By Region <TABLE> <CAPTION> (Dollars in thousands) Three Months Ended Six Months Ended May 31, May 31, --------------------------- ------------------------- Deliveries 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> East 1,839 1,334 3,198 2,103 Central 1,531 1,155 2,745 1,919 West 1,983 1,370 3,667 2,248 - -------------------------------------------------------------------------------------------------------------------------------- Subtotal 5,353 3,859 9,610 6,270 Joint Ventures 265 58 521 58 - -------------------------------------------------------------------------------------------------------------------------------- Total 5,618 3,917 10,131 6,328 ================================================================================================================================ New Orders - -------------------------------------------------------------------------------------------------------------------------------- East 2,409 1,359 4,385 2,210 Central 2,033 1,233 3,760 2,009 West 2,437 1,617 4,539 2,748 - -------------------------------------------------------------------------------------------------------------------------------- Subtotal 6,879 4,209 12,684 6,967 Joint Ventures 351 73 629 73 - -------------------------------------------------------------------------------------------------------------------------------- Total 7,230 4,282 13,313 7,040 ================================================================================================================================ Backlog - Homes - -------------------------------------------------------------------------------------------------------------------------------- East 3,955 3,598 Central 2,647 1,836 West 4,323 4,059 - -------------------------------------------------------------------------------------------------------------------------------- Subtotal 10,925 9,493 Joint Ventures 620 313 - -------------------------------------------------------------------------------------------------------------------------------- Total 11,545 9,806 ================================================================================================================================ Backlog Dollar Value (including JVs) $ 2,769,624 2,316,154 ================================================================================================================================ </TABLE> The Company's market regions consist of the following states: East: Florida, Maryland/Virginia and New Jersey Central: Texas, Minnesota and Ohio West: California, Colorado, Arizona and Nevada In addition, the Company has various joint ventures in North Carolina, Michigan and Missouri. Revenues from sales of homes increased 49% and 65% in the three and six months ended May 31, 2001, respectively, compared to the same periods in 2000. Revenues were higher due primarily to a 39% and 53% increase in the number of home deliveries for the three and six months ended May 31, 2001, respectively, and a 7% increase in the average sales price in both the three and six months ended May 31, 2001, compared to the same periods in 2000. New home deliveries were higher due primarily to the inclusion of a full period of U.S. Home's homebuilding activity in the three and six months ended May 31, 2001, compared to one month's inclusion in 2000. The increase in the average sales price on homes delivered was due primarily to an increase in the average sales price in most of the Company's existing markets, combined with changes in product mix as a result of the entry into new markets with the acquisition of U.S. Home. 14
Gross profits on home sales increased to $299.3 million and $521.5 million in the three and six months ended May 31, 2001, respectively, compared to $153.3 million and $256.3 million in the same periods in 2000. Gross profits in 2000 were impacted by purchase accounting associated with the acquisition of U.S. Home. Gross margin percentages on home sales were 23.8% and 23.1% in the three and six months ended May 31, 2001, compared to 18.2% and 18.7%, respectively, (including the effect of purchase accounting), and 20.8% and 20.3%, respectively (excluding the effect of purchase accounting) in the same periods last year. The increase was also due to improvements in the Company's existing markets and success in new markets entered into with the acquisition of U.S. Home. Additionally, the Company continued to realize benefits from the national purchasing program which has been expanded with the U.S. Home acquisition. Selling, general and administrative expenses as a percentage of revenues from home sales were 10.8% and 11.0% in the three and six months ended May 31, 2001, respectively, compared to 10.5% and 10.8% in the same periods last year. Revenues from land sales totaled $11.1 million and $28.0 million in the three and six months ended May 31, 2001, respectively, compared to $38.9 million and $90.2 million in the same periods in 2000. Gross profits from land sales totaled $1.8 million, or a 16.4% margin, and $2.1 million, or a 7.5% margin, for the three and six months ended May 31, 2001, respectively, compared to $6.7 million, or a 17.3% margin, and $13.2 million, or a 14.6% margin, respectively, in the same periods last year. Equity in earnings from partnerships was $2.4 million and $6.5 million in the three and six months ended May 31 2001, respectively, compared to $2.3 million and $6.5 million in the same periods last year. Profits achieved on land sales and equity in earnings from partnerships may vary significantly from period to period depending on the timing of land sales by the Company and its partnerships. At May 31, 2001, the Company's backlog of sales contracts was 11,545 homes ($2.8 billion), compared to 9,806 homes ($2.3 billion) at May 31, 2000. The higher backlog was primarily attributable to increased customer demand for homes which led to higher new orders in 2001 compared to 2000. Financial Services The following table presents selected financial data related to the Financial Services Division for the periods indicated (unaudited): <TABLE> <CAPTION> Three Months Ended Six Months Ended May 31, May 31, ---------------------- --------------------- (Dollars in thousands) 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues $ 118,184 81,049 200,408 140,494 Costs and expenses 84,529 66,109 159,495 124,946 - ---------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 33,655 14,940 40,913 15,548 ============================================================================================================================ Dollar value of mortgages originated $ 1,343,905 686,835 2,242,140 1,169,853 - ---------------------------------------------------------------------------------------------------------------------------- Number of mortgages originated 8,300 4,600 13,900 7,800 - ---------------------------------------------------------------------------------------------------------------------------- Number of title transactions 46,000 31,000 78,000 57,000 ============================================================================================================================ </TABLE> 15
Operating earnings from the Financial Services Division increased to $33.7 million and $40.9 million in the three and six months ended May 31, 2001, respectively, compared to $14.9 million and $15.5 million in the same periods last year. The increase was partially attributable to the sale of the Company's remaining mortgage servicing which generated a pre-tax profit of approximately $13 million. The Company's ongoing mortgage and title operations also generated greater earnings, which included a full period of earnings contribution from U.S. Home in the three and six months ended May 31, 2001, compared to one month's inclusion in the prior year. Corporate General and Administrative Expenses Corporate general and administrative expenses as a percentage of total revenues were 1.3% and 1.4% in the three and six months ended May 31, 2001, respectively, and 1.2% and 1.3% in the three and six months ended May 31, 2000, respectively. Interest Expense Interest expense totaled $29.4 million, or 2.1% of total revenues, and $53.1 million, or 2.1% of total revenues, in the three and six months ended May 31, 2001, respectively, compared to interest expense of $19.8 million, or 2.0% of total revenues, and $29.7 million, or 1.8% of total revenues, respectively, in the same periods last year. The increase in interest as a percentage of total revenues in both periods was primarily due to higher average debt outstanding, compared to the same periods last year. (2) Liquidity and Financial Resources In the six months ended May 31, 2001, $286.5 million of cash was used in the Company's operating activities, compared to $154.6 million in the corresponding period in 2000. In the six months ended May 31, 2001, $225.2 million of cash was used to increase inventories through land purchases, land development and construction, receivables increased by $124.7 million and $190.8 million was used to reduce accounts payable and other liabilities. These uses of cash were partially offset by $148.3 million of net earnings and $54.0 million of cash received from the sale or disposition of loans by the Company's Financial Services Division. In the six months ended May 31, 2000, $94.6 million of cash was used to increase inventories through land purchases, land development and construction and $91.5 million was used to reduce accounts payable and other liabilities. These uses of cash were offset by $58.7 million of net earnings. Earnings before interest, income taxes, depreciation and amortization ("EBITDA") were $200.5 million and $318.2 million in the three and six months ended May 31, 2001, respectively, compared to $89.5 million and $144.0 million in the three and six months ended May 31, 2000, respectively. Cash used in investing activities totaled $10.2 million in the six months ended May 31, 2001, compared to $173.4 million in the corresponding period in 2000. In the six months ended May 31, 2000, $156.7 million of cash was used in the acquisitions of properties and businesses. The Company meets the majority of its short-term financing needs with cash generated from operations and funds available under its credit facilities. The Company's senior secured credit facilities provide the Company with up to $1.4 billion of financing. The credit facilities consist of a $715 million five-year revolving credit facility, a $300 million 364-day revolving credit facility and a $400 million term loan B. The Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan which would mature in May 2005. At May 31, 2001, $397.0 million was outstanding under the term loan B and there was no balance outstanding under the revolving credit facilities. In June 2001, the Company's Board of Directors increased the Company's existing stock repurchase authorization to 10 million shares of the Company's outstanding common stock. The Company may repurchase these shares in the open market from time-to-time. 16
In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital and will use the cash for general corporate purposes. The Notes are convertible into the Company's common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $56.93 per share. Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company's common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary date for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. In July 2000, the Company filed a shelf registration statement and prospectus with the SEC to offer, from time-to-time, its common stock, preferred stock, depositary shares, debt securities or warrants at an aggregate initial offering price not to exceed $500 million. Proceeds can be used for repayment of debt, acquisitions and general corporate purposes. As of May 31, 2001, the Company had $270 million available under this registration statement. Based on the Company's current financial condition and financial market resources, management believes that its operations and capital resources will provide for its current and long-term capital requirements at the Company's anticipated levels of growth. (3) Market Risk The information included in "Item 7A. Market Risk" in the Company's Annual Report on Form 10-K for the year ended November 30, 2000 is incorporated herein by reference. In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. See Note 6 of Notes to Consolidated Condensed Financial Statements for additional information. 17
Part II. Other Information Items 1-3. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. The following matters were resolved by vote at the April 3, 2001 annual meeting of stockholders of Lennar Corporation: (1) The following members of the Board of Directors were re-elected to hold office until 2004: <TABLE> <CAPTION> Votes For Votes Withheld ----------- -------------- <S> <C> <C> Irving Bolotin 144,139,653 2,072,137 R. Kirk Landon 135,919,220 10,292,570 Leonard Miller 144,140,184 2,071,606 </TABLE> Other directors whose term of office continued after the meeting: Steven L. Gerard Jonathan M. Jaffe Sidney Lapidus Stuart A. Miller Herve Ripault Arnold P. Rosen Steven J. Saiontz Robert J. Strudler (2) Approval of the Lennar Corporation 2000 Stock Option and Restricted Stock Plan. The results of the vote were as follows: <TABLE> <CAPTION> Votes Votes Votes Broker For Against Abstaining Non-votes ------------- ---------- ---------- --------- <S> <C> <C> <C> <C> Common shares 24,045,781 16,494,592 109,538 7,612,769 Class B Common shares 97,838,610 0 0 110,500 Common and Class B combined 121,884,391 16,494,592 109,538 7,723,269 </TABLE> Item 5. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Not applicable. (b) Reports on Form 8-K: The Registrant filed a report on Form 8-K dated April 3, 2001 and a report on Form 8-K dated April 4, 2001. Both reports provided information in connection with the Company's offering of Zero Coupon Convertible Senior Subordinated Notes due 2021. 18
SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LENNAR CORPORATION -------------------------- (Registrant) Date: July 16, 2001 /s/ BRUCE E. GROSS ------------- -------------------------- Bruce E. Gross Vice President and Chief Financial Officer Date: July 16, 2001 /s/ DIANE J. BESSETTE ------------- -------------------------- Diane J. Bessette Vice President and Controller 19