================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2001 --------------- Commission File Number: 1-11749 ------- Lennar Corporation (Exact name of registrant as specified in its charter) Delaware 95-4337490 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 Northwest 107th Avenue, Miami, Florida 33172 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (305) 559-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO___ --- Common shares outstanding as of September 30, 2001: Common 54,193,341 ---------- Class B Common 9,737,812 ---------- ================================================================================
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) August 31, November 30, 2001 2000 ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Homebuilding: Cash $ 208,570 287,627 Receivables, net 46,339 42,270 Inventories 2,703,412 2,301,584 Investments in partnerships 349,772 257,639 Other assets 239,554 277,794 ----------------------------- 3,547,647 3,166,914 Financial services 624,758 611,000 ---------------------------------------------------------------------------------------------------------------------- Total assets $ 4,172,405 3,777,914 ====================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 681,738 778,238 Mortgage notes and other debts payable, net 1,490,385 1,254,650 ----------------------------- 2,172,123 2,032,888 Financial services 505,453 516,446 ---------------------------------------------------------------------------------------------------------------------- Total liabilities 2,677,576 2,549,334 Stockholders' equity: Preferred stock - - Common stock of $0.10 par value per share, 64,039 shares issued at August 31, 2001 6,404 6,273 Class B common stock of $0.10 par value per share, 9,738 shares issued at August 31, 2001 974 985 Additional paid-in capital 839,527 812,501 Retained earnings 834,939 582,299 Unearned restricted stock (11,803) (14,535) Treasury stock, at cost; 9,847 common shares at August 31, 2001 (158,927) (158,943) Accumulated other comprehensive loss (16,285) - ---------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 1,494,829 1,228,580 ---------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 4,172,405 3,777,914 ====================================================================================================================== </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 Nine Months Ended August 31, August 31, ---------------------------------- ----------------------------- 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Homebuilding $ 1,466,792 1,288,700 3,761,959 2,756,753 Financial services 110,836 87,515 311,244 228,009 ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 1,577,628 1,376,215 4,073,203 2,984,762 ================================================================================================================================== Costs and expenses: Homebuilding 1,267,745 1,164,305 3,275,443 2,501,701 Financial services 86,169 70,516 245,664 195,462 Corporate general and administrative 19,545 13,554 53,720 33,880 Interest 30,681 27,829 83,795 57,557 ---------------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,404,140 1,276,204 3,658,622 2,788,600 ================================================================================================================================== Earnings before income taxes 173,488 100,011 414,581 196,162 Income taxes 66,793 39,004 159,614 76,503 ---------------------------------------------------------------------------------------------------------------------------------- Net earnings $ 106,695 61,007 254,967 119,659 ---------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 1.69 0.99 4.07 2.14 ---------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 1.53 0.90 3.68 1.98 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- Cash dividends per common share $ 0.0125 0.0125 0.0375 0.0375 ---------------------------------------------------------------------------------------------------------------------------------- Cash dividends per Class B common share $ 0.01125 0.01125 0.03375 0.03375 ================================================================================================================================== </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> Nine Months Ended August 31, --------------------------------- 2001 2000 ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 254,967 119,659 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 35,867 30,874 Amortization of discount on debt 14,123 8,198 Equity in earnings from partnerships (8,843) (9,667) Increase in deferred income taxes 40,901 23,155 Changes in assets and liabilities, net of effect of acquisitions: Increase in receivables (86,137) (1,703) Increase in inventories (411,912) (126,841) Increase in other assets (7,320) (24,253) Decrease in financial services loans held for sale or disposition 56,138 22,774 Decrease in accounts payable and other liabilities (104,077) (67,413) ------------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (216,293) (25,217) ------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Net additions to operating properties and equipment (11,301) (13,411) Increase in investments in partnerships, net (70,587) (7,899) (Increase) decrease in financial services mortgage loans 12,090 (20,678) Decrease in financial services mortgage servicing rights 10,812 - Purchases of investment securities (11,124) (14,586) Receipts from investment securities 10,800 11,946 Acquisitions of properties and businesses, net of cash acquired - (156,691) ------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (59,310) (201,319) ------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under revolving credit facilities - 798,700 Net borrowings (repayments) under financial services short-term debt (9,826) 42,072 Payments for tender of U.S. Home's senior notes - (519,759) Net proceeds from issuance of 5.125% zero coupon convertible senior subordinated notes 224,250 - Net proceeds from issuance of 9.95% senior notes - 294,988 Proceeds from other borrowings 110 4,371 Principal payments on other borrowings (25,542) (268,596) Limited-purpose finance subsidiaries, net 1,962 79 Common stock: Issuance 18,933 2,408 Repurchases - (152,925) Dividends (2,327) (2,136) ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 207,560 199,202 ------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash (68,043) (27,334) Cash at beginning of period 333,877 118,167 ------------------------------------------------------------------------------------------------------------------------------- Cash at end of period $ 265,834 90,833 =============================================================================================================================== </TABLE> 3
<TABLE> <CAPTION> Lennar Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows -- Continued (Unaudited) (In thousands) Nine Months Ended August 31, ------------------------- 2001 2000 <S> <C> <C> --------------------------------------------------------------------------------------------------------------- Summary of cash: Homebuilding $ 208,570 58,134 Financial services 57,264 32,699 --------------------------------------------------------------------------------------------------------------- $ 265,834 90,833 --------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid for interest, net of amounts capitalized $ 21,114 888 Cash paid for income taxes $ 146,102 60,106 Supplemental disclosures of non-cash investing and financing activities: Purchases of inventory financed by sellers $ 19,480 4,984 --------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes to consolidated condensed financial statements. 4
Lennar Corporation and Subsidiaries Notes to Consolidated Condensed Financial Statements (Unaudited) (1) Basis of Presentation --------------------- The accompanying consolidated condensed financial statements include the accounts of Lennar Corporation and all subsidiaries and partnerships (and similar entities) in which a controlling interest is held (the "Company"). The Company's investments in partnerships in which a significant, but less than controlling, interest is held are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated. The financial statements have been prepared by management without audit by independent public accountants and should be read in conjunction with the November 30, 2000 audited financial statements in the Company's Annual Report on Form 10-K for the year then ended. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the accompanying consolidated condensed financial statements have been made. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform with the current period presentation. The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated condensed statements of earnings for the three and nine months ended August 31, 2001 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (2) Operating and Reporting Segments -------------------------------- The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company's reportable segments are strategic business units that offer different products and services. Homebuilding operations include the sale and construction of single-family attached and detached homes in 14 states. These activities also include the purchase, development and sale of residential land by the Company and partnerships in which it has investments. The Financial Services Division provides mortgage financing, title insurance and closing services for both the Company's homebuyers and others. The Division also packages and resells residential mortgage loans and provides high-speed Internet access, cable television and home monitoring services for both the Company's homebuyers and other customers. 5
(3) Earnings Per Share ------------------ Basic earnings per share is computed by dividing earnings attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Basic and diluted earnings per share were calculated as follows (unaudited): <TABLE> <CAPTION> Three Months Ended Nine Months Ended August 31, August 31, --------------------------------- ------------------------------ (In thousands, except per share amounts) 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Numerator: Numerator for basic earnings per share - net earnings $ 106,695 61,007 254,967 119,659 Interest on zero-coupon convertible debentures due 2018, net of tax 1,529 1,457 4,545 4,332 ----------------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings per share $ 108,224 62,464 259,512 123,991 ======================================================================================================================= Denominator: Denominator for basic earnings per share - weighted average shares 63,025 61,650 62,607 55,863 Effect of dilutive securities: Employee stock options and restricted stock 1,695 1,390 1,803 781 Zero-coupon convertible debentures due 2018 6,105 6,105 6,105 6,105 ----------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 70,825 69,145 70,515 62,749 ======================================================================================================================= Basic earnings per share $ 1.69 0.99 4.07 2.14 ======================================================================================================================= Diluted earnings per share $ 1.53 0.90 3.68 1.98 ======================================================================================================================= </TABLE> (4) Financial Services ------------------ The assets and liabilities related to the Company's Financial Services Division (as described in Note 2) are summarized as follows: <TABLE> <CAPTION> (Unaudited) August 31, November 30, (In thousands) 2001 2000 ------------------------------------------------------------------------------------------------------- <S> <C> <C> Assets: Cash and receivables, net $ 172,094 79,025 Mortgage loans held for sale or disposition, net 320,419 376,452 Mortgage loans, net 30,329 42,504 Mortgage servicing rights, net - 11,653 Title plants 15,530 15,530 Goodwill, net 25,574 25,199 Other 48,200 40,743 Limited-purpose finance subsidiaries 12,612 19,894 ----------------------------------------------------------------------------------------------------- $ 624,758 611,000 ===================================================================================================== Liabilities: Notes and other debts payable $ 418,521 428,966 Other 74,320 67,586 Limited-purpose finance subsidiaries 12,612 19,894 ----------------------------------------------------------------------------------------------------- $ 505,453 516,446 ===================================================================================================== </TABLE> 6
(5) Cash ---- Cash as of August 31, 2001 and November 30, 2000 included $45.4 million and $65.9 million, respectively, of cash held in escrow for approximately three days. (6) Debt ---- In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital and will use the cash for general corporate purposes. The Notes are convertible into the Company's common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $56.93 per share. Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company's common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary date for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. (7) Comprehensive Income and Implementation of SFAS No. 133 ------------------------------------------------------- Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. The Company's policy is to designate at a derivative's inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes. The Company has various interest rate swap agreements which effectively fix the variable interest rate on approximately $400 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in the consolidated condensed balance sheet at August 31, 2001. The related loss is deferred in stockholders' equity as accumulated other comprehensive loss. The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS No. 133. 7
Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The Company believes that there will be no ineffectiveness related to the interest rate swaps and therefore no portion of the accumulated other comprehensive loss would be reclassified into future earnings. The net effect on the Company's operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and option contracts to protect the value of loans held for sale or disposition from increases in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. In accordance with the transition provisions of SFAS No. 133, on December 1, 2000, the Company recorded a cumulative-effect type adjustment of $3.5 million (net of tax benefit of $2.2 million) in accounts payable and other liabilities and accumulated other comprehensive loss to recognize the fair value of the interest rate swaps. The effect of the implementation of SFAS No. 133 on the Company's Financial Services Division's operating earnings was not significant. Subsequent to the Company's adoption of SFAS No. 133 through August 31, 2001, the liability and accumulated other comprehensive loss increased $12.8 million (net of tax benefit of $8.0 million) to $16.3 million. Total comprehensive income was $238.7 million for the nine months ended August 31, 2001 and $119.7 million for the nine months ended August 31, 2000. (8) New Accounting Pronouncements ----------------------------- In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 is applicable for the Company beginning in the fourth quarter of the current fiscal year. The Company's conformity with the requirements of SAB No. 101 will not have a material impact on the Company's results of operations or financial position. In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The implementation of SFAS No. 140 did not have a material impact on the Company's results of operations or financial position. In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method and requires acquired intangible assets to be recognized as assets apart from goodwill if certain criteria are met. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and provides guidance on accounting for intangible assets and eliminates the amortization of goodwill and certain identifiable intangible assets. Under the provisions of SFAS No. 142, intangible assets, 8
including goodwill, that are not subject to amortization will be tested for impairment annually at the reporting unit level. Impairment testing must be performed more frequently if events or changes in circumstances indicate that the asset might be impaired. Management is in the process of evaluating the effect the adoption of SFAS No. 142 will have on the Company's financial statements. (9) Supplemental Financial Information ---------------------------------- During May 2000, the Company issued $325 million of 9.95% senior notes due 2010. The Company's obligations to pay principal, premium, if any, and interest under the notes are guaranteed on a joint and several basis by substantially all of its subsidiaries, other than subsidiaries engaged in mortgage and title reinsurance activities. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented. Consolidating statements of cash flows are not presented because cash flows for the non-guarantor subsidiaries were not significant for any of the periods presented. Consolidating Condensed Balance Sheet August 31, 2001 (Unaudited) <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 $ 120,148 134,602 159 - 254,909 Inventories - 2,697,005 6,407 - 2,703,412 Investments in partnerships - 349,772 - - 349,772 Other assets 52,298 187,256 - - 239,554 Investments in subsidiaries 1,910,601 184,240 - (2,094,841) - ------------------------------------------------------------------------------------------------------------------------------- 2,083,047 3,552,875 6,566 (2,094,841) 3,547,647 Financial services - 27,189 597,569 - 624,758 ------------------------------------------------------------------------------------------------------------------------------- Total assets $ 2,083,047 3,580,064 604,135 (2,094,841) 4,172,405 ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 185,169 496,389 180 - 681,738 Mortgage notes and other debts payable, net 1,455,709 34,676 - - 1,490,385 Intercompany (1,052,660) 1,135,371 (82,711) - - ------------------------------------------------------------------------------------------------------------------------------- 588,218 1,666,436 (82,531) - 2,172,123 Financial services - 3,027 502,426 - 505,453 ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 588,218 1,669,463 419,895 - 2,677,576 Stockholders' equity 1,494,829 1,910,601 184,240 (2,094,841) 1,494,829 ------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 2,083,047 3,580,064 604,135 (2,094,841) 4,172,405 ------------------------------------------------------------------------------------------------------------------------------- </TABLE> 9
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> 10
Supplemental Financial Information, Continued --------------------------------------------- Consolidating Condensed Statement of Earnings Nine Months Ended August 31, 2001 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total ------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Revenues: Homebuilding $ - 3,761,955 4 - 3,761,959 Financial services - 40,941 270,303 - 311,244 ------------------------------------------------------------------------------------------------------------------------------ Total revenues - 3,802,896 270,307 - 4,073,203 ============================================================================================================================== Costs and expenses: Homebuilding - 3,275,071 372 - 3,275,443 Financial services - 47,127 198,537 - 245,664 Corporate general and administrative 53,720 - - - 53,720 Interest - 83,795 - - 83,795 ------------------------------------------------------------------------------------------------------------------------------ Total costs and expenses 53,720 3,405,993 198,909 - 3,658,622 ============================================================================================================================== Earnings (loss) before income taxes (53,720) 396,903 71,398 - 414,581 Provision (benefit) for income taxes (20,497) 152,807 27,304 - 159,614 Equity in earnings from subsidiaries 288,190 44,094 - (332,284) - ------------------------------------------------------------------------------------------------------------------------------ Net earnings $ 254,967 288,190 44,094 (332,284) 254,967 ============================================================================================================================== </TABLE> Consolidating Condensed Statement of Earnings Nine Months Ended August 31, 2000 (Unaudited) <TABLE> <CAPTION> Lennar Guarantor Non-Guarantor (In thousands) Corporation Subsidiaries Subsidiaries Eliminations Total ------------------------------------------------------------------------------------------------------------------------------ Revenues: <S> <C> <C> <C> <C> <C> Homebuilding $ - 2,753,878 2,875 - 2,756,753 Financial services - 36,180 191,829 - 228,009 ------------------------------------------------------------------------------------------------------------------------------ Total revenues - 2,790,058 194,704 - 2,984,762 ============================================================================================================================== Costs and expenses: Homebuilding - 2,499,717 1,984 - 2,501,701 Financial services - 35,540 159,922 - 195,462 Corporate general and administrative 33,880 - - - 33,880 Interest - 57,557 - - 57,557 ------------------------------------------------------------------------------------------------------------------------------ Total costs and expenses 33,880 2,592,814 161,906 - 2,788,600 ============================================================================================================================== Earnings (loss) before income taxes (33,880) 197,244 32,798 - 196,162 Provision (benefit) for income taxes (13,425) 76,925 13,003 - 76,503 Equity in earnings from subsidiaries 140,114 19,795 - (159,909) - ------------------------------------------------------------------------------------------------------------------------------ Net earnings $ 119,659 140,114 19,795 (159,909) 119,659 ============================================================================================================================== </TABLE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Some of the statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which the statements anticipated. Factors which may affect our results include, but are not limited to, changes in general economic conditions, the market for homes generally and in areas where we have developments, the availability and cost of land suitable for residential development, materials prices, labor costs, interest rates, consumer confidence, competition, environmental factors and government regulations affecting our operations. See our Annual Report on Form 10-K/A for the year ended November 30, 2000 for a further discussion of these and other risks and uncertainties applicable to our business. (1) Results of Operations Overview Net earnings were $106.7 million, or $1.53 per share diluted ($1.69 per share basic), in the third quarter of 2001, compared to $61.0 million, or $0.90 per share diluted ($0.99 per share basic), in the third quarter of 2000. For the nine months ended August 31, 2001, net earnings were $255.0 million, or $3.68 per share diluted ($4.07 per share basic), compared to $119.7 million, or $1.98 per share diluted ($2.14 per share basic) in 2000. Homebuilding The following tables set forth selected financial and operational information related to the Homebuilding Division for the periods indicated (unaudited): <TABLE> <CAPTION> Three Months Ended Nine Months Ended August 31, August 31, (Dollars in thousands, except ----------------------------- ------------------------------ average sales price) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues: Sales of homes $ 1,422,056 1,243,408 3,674,906 2,610,782 Sales of land and other revenues 42,408 42,119 78,210 136,304 Equity in earnings from partnerships 2,328 3,173 8,843 9,667 --------------------------------------------------------------------------------------------------------------- Total revenues 1,466,792 1,288,700 3,761,959 2,756,753 Costs and expenses: Cost of homes sold 1,082,643 998,390 2,813,991 2,109,490 Cost of land and other expenses 38,196 36,113 66,474 114,098 Selling, general and administrative 146,906 129,802 394,978 278,113 --------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,267,745 1,164,305 3,275,443 2,501,701 --------------------------------------------------------------------------------------------------------------- Operating earnings $ 199,047 124,395 486,516 255,052 =============================================================================================================== Gross margin on home sales 23.9% 19.7% 23.4% 19.2% S,G&A expenses as a percentage of revenues from home sales 10.3% 10.4% 10.7% 10.7% Operating margin percentage on revenues from home sales 13.5% 9.3% 12.7% 8.5% Average sales price $ 232,000 224,000 233,000 221,000 =============================================================================================================== </TABLE> 12
<TABLE> <CAPTION> Summary of Home and Backlog Data By Region (Dollars in thousands) Three Months Ended Nine Months Ended August 31, August 31, ------------------------------- ---------------------------- <S> <C> <C> <C> <C> Deliveries 2001 2000 2001 2000 -------------------------------------------------------------------------------------------------------------------------------- East 2,046 1,794 5,244 3,897 Central 1,969 1,694 4,714 3,613 West 2,119 2,056 5,786 4,304 -------------------------------------------------------------------------------------------------------------------------------- Subtotal 6,134 5,544 15,744 11,814 Joint ventures 154 135 675 193 -------------------------------------------------------------------------------------------------------------------------------- Total 6,288 5,679 16,419 12,007 ================================================================================================================================ New Orders -------------------------------------------------------------------------------------------------------------------------------- East 2,128 1,820 6,513 4,030 Central 1,562 1,511 5,322 3,520 West 2,059 1,935 6,598 4,683 -------------------------------------------------------------------------------------------------------------------------------- Subtotal 5,749 5,266 18,433 12,233 Joint ventures 113 94 742 167 -------------------------------------------------------------------------------------------------------------------------------- Total 5,862 5,360 19,175 12,400 ================================================================================================================================ Backlog - Homes -------------------------------------------------------------------------------------------------------------------------------- East 4,037 3,624 Central 2,535 1,653 West 4,263 3,938 -------------------------------------------------------------------------------------------------------------------------------- Subtotal 10,835 9,215 Joint ventures 284 272 -------------------------------------------------------------------------------------------------------------------------------- Total 11,119 9,487 ================================================================================================================================ Backlog Dollar Value (including JVs) $ 2,701,382 2,288,779 ================================================================================================================================ </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. 13
Revenues from sales of homes increased 14% and 41% in the three and nine months ended August 31, 2001, respectively, compared to the same periods in 2000. Revenues were higher due primarily to an 11% and 33% increase in the number of home deliveries for the three and nine months ended August 31, 2001, respectively, and a 3% and 6% increase in the average sales price in the three and nine months ended August 31, 2001, respectively, compared to the same periods in 2000. New home deliveries were higher in the three months ended August 31, 2001 primarily due to increases in home deliveries in Florida and Texas, compared to the same period in 2000. New home deliveries were higher in the nine months ended August 31, 2001 primarily due to the inclusion of a full nine months of U.S. Home's homebuilding activity in 2001, compared to four months inclusion in 2000. The increase in the average sales price on homes delivered in both periods was due primarily to an increase in the average sales price in most of the Company's existing markets, combined with changes in product mix. In the nine months ended August 31, 2001, U.S. Home and its subsidiaries contributed 42% of both the Company's homebuilding revenues and its homebuilding expenses. In the nine months ended August 31, 2000, during which the Company owned U.S. Home and its subsidiaries for four months, U.S. Home and its subsidiaries contributed 29% of both the Company's homebuilding revenues and its homebuilding expenses. Gross margin percentages on home sales were 23.9% and 23.4% in the three and nine months ended August 31, 2001, respectively, compared to 19.7% and 19.2%, respectively, (including the effect of purchase accounting), and 20.7% and 20.5%, respectively, (excluding the effect of purchase accounting) in the same periods last year. The increase was due to improved operational efficiencies and strength in the homebuilding markets in which the Company operates. As a result of the increase in gross margin percentage in the three and nine months ended August 31, 2001, operating margin as a percentage of home sales increased to 13.5% and 12.7%, respectively, compared to 9.3% and 8.5% in the same periods in 2000, respectively, an increase of 420 basis points in both periods. Selling, general and administrative expenses as a percentage of revenues from home sales were 10.3% and 10.7% in the three and nine months ended August 31, 2001, respectively, compared to 10.4% and 10.7% in the same periods last year. Revenues from land sales totaled $39.9 million and $67.8 million in the three and nine months ended August 31, 2001, respectively, compared to $38.3 million and $128.5 million in the same periods in 2000. Gross profits from land sales totaled $2.1 million, or a 5.2% margin, and $4.2 million, or a 6.2% margin, in the three and nine months ended August 31, 2001, respectively, compared to $3.8 million, or a 9.9% margin, and $16.9 million, or a 13.2% margin, respectively, in the same periods last year. Equity in earnings from partnerships was $2.3 million and $8.8 million in the three and nine months ended August 31 2001, respectively, compared to $3.2 million and $9.7 million in the same periods last year. Profits achieved on land sales and equity in earnings from partnerships may vary significantly from period to period depending on the timing of land sales by the Company and its partnerships. At August 31, 2001, the Company's backlog of sales contracts was 11,119 homes ($2.7 billion), compared to 9,487 homes ($2.3 billion) at August 31, 2000. The higher backlog was primarily attributable to increased customer demand for homes which led to higher new orders in 2001 compared to 2000. 14
Financial Services The following table presents selected financial data related to the Financial Services Division for the periods indicated (unaudited): <TABLE> <CAPTION> Three Months Nine Ended Months Ended August 31, August 31, --------------------- ---------------------- (Dollars in thousands) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Revenues $ 110,836 87,515 311,244 228,009 Costs and expenses 86,169 70,516 245,664 195,462 --------------------------------------------------------------------------------------------------------------------------------- Operating earnings $ 24,667 16,999 65,580 32,547 ================================================================================================================================= Dollar value of mortgages originated $1,348,992 971,473 3,591,132 2,141,326 --------------------------------------------------------------------------------------------------------------------------------- Number of mortgages originated 8,000 6,100 21,900 13,900 --------------------------------------------------------------------------------------------------------------------------------- Number of title transactions 47,000 31,000 125,000 88,000 ================================================================================================================================= </TABLE> Operating earnings from the Financial Services Division increased to $24.7 million and $65.6 million in the three and nine months ended August 31, 2001, respectively, compared to $17.0 million and $32.5 million in the same periods last year. In both the three and nine months ended August 31, 2001, the increase reflects the successful operational efficiencies which resulted from the combination of Lennar's and U.S. Home's mortgage operations and the consolidation of the Company's title operations under the North American Title banner. The increase in both periods also reflects a greater level of refinance activity. The nine month increase was also attributable to the sale of the Company's mortgage servicing operations, which generated a pre-tax profit of approximately $13 million, as well as nine months of earnings contribution from U.S. Home in 2001, compared to four months inclusion in the prior year. The earnings contribution from U.S. Home represented 26% of the Division's operating earnings in the nine months ended August 31, 2001 and 21% of the Division's operating earnings in the nine months ended August 31, 2000. Corporate General and Administrative Expenses Corporate general and administrative expenses as a percentage of total revenues were 1.2% and 1.3% in the three and nine months ended August 31, 2001, respectively, and 1.0% and 1.1% in the three and nine months ended August 31, 2000, respectively. Interest Expense Interest expense totaled $30.7 million, or 1.9% of total revenues, and $83.8 million, or 2.1% of total revenues, in the three and nine months ended August 31, 2001, respectively, compared to interest expense of $27.8 million, or 2.0% of total revenues, and $57.6 million, or 1.9% of total revenues, respectively, in the same periods last year. The average debt outstanding and the average interest rate for the nine months ended August 31, 2001 was $1.6 billion and 7.8%, respectively, compared to $1.3 billion and 6.2% in the same period last year. 15
(2) Liquidity and Financial Resources In the nine months ended August 31, 2001, $216.3 million of cash was used in the Company's operating activities, compared to $25.2 million in the corresponding period in 2000. In the nine months ended August 31, 2001, inventories increased $285.1 million more than in the same period of 2000 primarily due to increased land purchases, land development and construction as a result of increased new orders and a higher backlog. In 2001, receivables increased $84.4 million and financial services loans held for sale or disposition decreased $33.4 million more than in the same period in 2000 primarily due to an increase in loans sold and proceeds that have not yet been collected. Earnings before interest, income taxes, depreciation and amortization ("EBITDA") were $216.1 million and $534.2 million in the three and nine months ended August 31, 2001, respectively, compared to $140.6 million and $284.6 million in the three and nine months ended August 31, 2000, respectively. Cash used in investing activities totaled $59.3 million in the nine months ended August 31, 2001, compared to $201.3 million in the corresponding period in 2000. In the nine months ended August 31, 2000, $156.7 million of cash was used in acquisitions of properties and businesses. The Company meets the majority of its short-term financing needs with cash generated from operations and funds available under its credit facilities. The Company's senior secured credit facilities provide the Company with up to $1.4 billion of financing. The credit facilities consist of a $715 million five-year revolving credit facility, a $300 million 364-day revolving credit facility and a $400 million term loan B. The Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan which would mature in May 2005. At August 31, 2001, $396.0 million was outstanding under the term loan B and there was no balance outstanding under the revolving credit facilities. In June 2001, the Company's Board of Directors increased the Company's existing stock repurchase authorization to 10 million shares of the Company's outstanding common stock. The Company may repurchase these shares in the open market from time-to-time. In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital and will use the cash for general corporate purposes. The Notes are convertible into the Company's common stock at any time, if the sale price of the common stock exceeds specified thresholds or in other specified instances, at the rate of approximately 6.4 shares per $1,000 face amount at maturity. The conversion ratio equates to an initial conversion price of $56.93 per share. Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversary dates from the issue date for the initial issue price plus accrued yield to the purchase date. The Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company's common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary date for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during 16
specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. The Company has filed shelf registration statements under the Securities Act of 1933, as amended, relating to up to $970 million of equity or debt securities which it may sell for cash and up to $400 million of equity or debt securities which it may issue in connection with acquisitions of companies or interests in them, businesses, or assets. Based on the Company's current financial condition and financial market resources, management believes that its operations and capital resources will provide for its current and long-term capital requirements at the Company's anticipated levels of growth. (3) Market Risk The Company is exposed to market risks related to fluctuations in interest rates on its debt obligations, mortgage loans and mortgage loans held for sale or disposition. The Company utilizes derivative instruments, including interest rate swaps, in conjunction with its overall strategy to manage the debt outstanding that is subject to changes in interest rates. The Company also utilizes forward commitments and option contracts to mitigate the risk associated with its mortgage loan portfolio. The Company does not utilize any other types of derivative financial instruments. The Company's Annual Report on Form 10-K for the year ended November 30, 2000 contains information about markets risks under "Item 7A. Market Risk." In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, Zero Coupon Convertible Senior Subordinated Notes due 2021 ("Notes") with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the offering, after underwriting discount, were approximately $224 million. See Note 6 of Notes to Consolidated Condensed Financial Statements for additional information. Part II. Other Information Items 1-5. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Not applicable. 17
SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LENNAR CORPORATION ------------------------ (Registrant) Date: October 15, 2001 /s/ Bruce E. Gross ---------------- ----------------------- Bruce E. Gross Vice President and Chief Financial Officer Date: October 15, 2001 /s/ Diane J. Bessette ---------------- ------------------------- Diane J. Bessette Vice President and Controller 18