-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Em/1zEzpHBO9vOXBaYuG1FPL2fF1+mtN/1zcohCkChGFpEBBSNYvxCNZYRTv0lpT pJscRwKCtBIm6CpG2dv3Yw== 0000950170-97-001235.txt : 19971016 0000950170-97-001235.hdr.sgml : 19971016 ACCESSION NUMBER: 0000950170-97-001235 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971015 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LENNAR CORP CENTRAL INDEX KEY: 0000058696 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 591281887 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06643 FILM NUMBER: 97695641 BUSINESS ADDRESS: STREET 1: 700 NW 107TH AVE CITY: MIAMI STATE: FL ZIP: 33172 BUSINESS PHONE: 3055594000 10-Q 1 =============================================================================== 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, 1997 Commission File Number: 1-6643 LENNAR CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 59-1281887 -------------------------------- ------------------- (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 the end of the current fiscal quarter: Common 26,097,675 Class B Common 9,966,631 ================================================================================
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LENNAR CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (In thousands) (UNAUDITED) AUGUST 31, NOVEMBER 30, 1997 1996 ------------ ------------ ASSETS HOMEBUILDING, INVESTMENT AND FINANCIAL SERVICES: Homebuilding and investment assets: Cash and cash equivalents $ 31,103 12,960 Receivables, net 44,209 62,158 Inventories: Construction in progress and model homes 341,544 259,747 Land held for development 505,579 440,136 ---------- ---------- Total inventories 847,123 699,883 Land held for investment 60,487 63,615 Operating properties and equipment, net 239,065 221,312 Investments in and advances to partnerships 101,380 139,578 Other assets 203,394 124,539 Financial services assets 364,168 382,083 ---------- ---------- Total assets - homebuilding, investment and financial services 1,890,929 1,706,128 ---------- ---------- LIMITED-PURPOSE FINANCE SUBSIDIARIES - COLLATERAL FOR BONDS AND NOTES PAYABLE 52,918 59,898 ---------- ---------- $1,943,847 1,766,026 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY HOMEBUILDING, INVESTMENT AND FINANCIAL SERVICES: Homebuilding and investment liabilities: Accounts payable and other liabilities $ 193,726 186,735 Income taxes payable 7,502 26,045 Mortgage notes and other debts payable 682,789 509,672 Financial services liabilities 234,082 291,606 ---------- ---------- Total liabilities - homebuilding, investment and financial services 1,118,099 1,014,058 ---------- ---------- LIMITED-PURPOSE FINANCE SUBSIDIARIES - BONDS AND NOTES PAYABLE 50,225 56,512 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock 2,610 2,594 Class B common stock 997 999 Additional paid-in capital 173,711 171,618 Retained earnings 579,431 512,345 Unrealized gain on securities available-for-sale, net 18,774 7,900 ---------- ---------- Total stockholders' equity 775,523 695,456 ---------- ---------- $1,943,847 1,766,026 ========== ==========
See accompanying notes to consolidated condensed financial statements. 1
LENNAR CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Earnings (Unaudited) (In thousands, except per share amounts) THREE MONTHS ENDED NINE MONTHS ENDED AUGUST 31, AUGUST 31, 1997 1996 1997 1996 -------- -------- ------- -------- REVENUES: Homebuilding $310,115 261,312 765,386 638,414 Investment 31,727 32,990 98,268 95,279 Financial services 21,577 20,680 67,981 59,955 Limited-purpose finance subsidiaries 928 1,661 3,632 4,990 -------- -------- -------- -------- Total revenues 364,347 316,643 935,267 798,638 -------- -------- -------- -------- COSTS AND EXPENSES: Homebuilding 277,439 234,838 700,130 582,499 Investment 13,534 16,188 43,072 44,519 Financial services 12,508 13,642 38,503 38,735 Limited-purpose finance subsidiaries 924 1,664 3,628 5,009 Corporate general and administrative 3,655 3,321 10,265 9,301 Interest 9,925 7,835 25,387 21,230 -------- -------- -------- -------- Total costs and expenses 317,985 277,488 820,985 701,293 -------- -------- -------- -------- EARNINGS BEFORE INCOME TAXES 46,362 39,155 114,282 97,345 INCOME TAXES 18,081 15,271 44,570 37,965 -------- -------- -------- -------- NET EARNINGS $ 28,281 23,884 69,712 59,380 ======== ======== ======== ======== AVERAGE SHARES OUTSTANDING 36,486 36,222 36,362 36,216 -------- -------- -------- -------- NET EARNINGS PER SHARE $ .78 .66 1.92 1.64 ======== ======== ======== ======== CASH DIVIDENDS PER COMMON SHARE $ .025 .025 .075 .075 -------- -------- -------- -------- CASH DIVIDENDS PER CLASS B COMMON SHARE $ .0225 .0225 .0675 .0675 ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. 2
LENNAR CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) (In thousands) NINE MONTHS ENDED AUGUST 31, 1997 1996 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 69,712 59,380 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 6,455 9,390 Equity in earnings of partnerships (29,905) (38,455) Gain on sales of other real estate and investment securities (16,160) (2,741) Deferred income taxes (11,823) (11,393) Changes in assets and liabilities, net of effect of acquisitions: Decrease (increase) in receivables 21,422 (7,414) Increase in inventories (134,047) (57,177) Increase in financial services loans held for sale or disposition (5,576) (1,215) Increase in accounts payable and accrued liabilities 14,378 14,500 Decrease in income taxes currently payable (18,543) (399) Other, net (5,922) 6,206 --------- --------- Net cash used in operating activities (110,009) (29,318) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Operating properties and equipment: Additions (43,469) (19,966) Sales 17,319 6,080 Sales of land held for investment 5,253 9,254 Decrease in investments in and advances to partnerships 70,005 20,417 Decrease (increase) in financial services loans held for investment 16 (6,412) Purchase of investment securities (106,056) (81,344) Receipts from investment securities 152,459 44,850 Acquisition of businesses -- (121,405) Other, net (1,211) 1,116 --------- --------- Net cash provided by (used in) investing activities 94,316 (147,410) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under revolving credit agreement 27,900 176,300 Net repayments under financial services short-term debt (7,493) (15,002) Mortgage notes and other debts payable: Proceeds from borrowings 147,254 113,001 Principal payments (133,036) (101,644) Limited-purpose finance subsidiaries: Principal reduction of mortgage loans and other receivables 7,253 12,332 Principal reduction of bonds and notes payable (7,102) (11,881) Common stock: Issuance 2,107 913 Dividends (2,626) (2,618) --------- --------- Net cash provided by financing activities 34,257 171,401 --------- --------- Net increase (decrease) in cash and cash equivalents 18,564 (5,327) Cash and cash equivalents at beginning of period 26,520 30,243 --------- --------- Cash and cash equivalents at end of period $ 45,084 24,916 ========= ========= Summary of cash and cash equivalent balances: Homebuilding and investment $ 31,103 15,351 Financial services 13,981 9,565 --------- --------- $ 45,084 24,916 ========= ========= Supplemental disclosures of cash flow information: Cash paid for interest, net of amounts capitalized $ 23,315 23,831 Cash paid for income taxes $ 74,185 51,178 ========= =========
See accompanying notes to consolidated condensed financial statements. 3 LENNAR CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (1) BASIS OF CONSOLIDATION The accompanying consolidated condensed financial statements include the accounts of Lennar Corporation, all wholly-owned subsidiaries and partnerships in which a controlling interest is held (the "Company"). All significant intercompany transactions and balances have been eliminated. The Company's investments in partnerships (and similar entities) in which less than a controlling interest is held are accounted for by the equity method. The financial statements have been prepared by management without audit by independent public accountants and should be read in conjunction with the November 30, 1996 audited financial statements in the Company's Annual Report on Form 10-K for the year then ended, as amended by Form 10-K/A, dated September 26, 1997. 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. (2) BUSINESS SEGMENTS The Company has three business segments: Homebuilding, Investment and Financial Services. The limited-purpose finance subsidiaries are not considered a business segment. Homebuilding operations include the construction and sale of single-family and multi-family homes. These activities also include the purchase, development and sale of residential land. The Investment Division is involved in the development, management and leasing, as well as the acquisition and sale, of commercial and residential rental properties and land. This division also manages and participates in partnerships with financial institutions. This division acquires, at a discount, issues of the unrated portions of debt securities which are collateralized by commercial real estate loans. The division has only invested in securities in which it is the special servicer on behalf of all the certificate holders of these securities. The division earns interest on its investment as well as fees for the special servicing activities. Financial services activities are conducted primarily through Lennar Financial Services, Inc. ("LFS") and its subsidiaries. These companies provide mortgage financing and arrange title insurance and closing services for Lennar homebuyers and others; acquire, package and resell residential and commercial mortgage loans and mortgage-backed securities and perform mortgage loan servicing activities. This division also invests in issues of rated portions of commercial real estate mortgage-backed securities for which Lennar's Investment Division is the special servicer and an investor in the unrated portion of those securities. The limited-purpose finance subsidiaries of LFS have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries are not considered a part of the financial services operations and are reported separately. (3) NET EARNINGS PER SHARE Net earnings per share is calculated by dividing net earnings by the weighted average number of the total of common shares, Class B common shares and common share equivalents outstanding during the period. 4 (4) RESTRICTED CASH Cash includes restricted deposits of $2.3 million and $2.5 million as of August 31, 1997 and November 30, 1996, respectively. These balances are comprised primarily of escrow deposits held related to sales of homes and security deposits from tenants of commercial and apartment properties. (5) FINANCIAL SERVICES The assets and liabilities related to the Company's financial services operations (as described in Note 2) are summarized as follows: (UNAUDITED) AUGUST 31, NOVEMBER 30, (IN THOUSANDS) 1997 1996 ---------- ------------ Assets: Investment securities available-for-sale $174,008 193,869 Loans held for sale or disposition, net 131,252 127,606 Loans and mortgage-backed securities held for investment, net 20,551 21,323 Investments in and advances to partnerships 10,474 11,428 Cash and receivables, net 19,172 22,224 Other 8,711 5,633 -------- -------- $364,168 382,083 ======== ======== Liabilities: Notes and other debts payable $205,341 271,314 Other 28,741 20,292 -------- -------- $234,082 291,606 ======== ======== (6) SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES During the nine months ended August 31, 1997, the Company acquired certain land held for development for $35.9 million. Of this amount, $10.6 million was paid in cash and the balance of $25.3 million was financed by the sellers. During the same period of 1997, the Company acquired commercial mortgage-backed securities for $153.2 million. Of this amount, $106.1 million was paid in cash and the balance of $47.1 million was financed by the sellers. Also during the nine months ended August 31, 1997, the Company entered into a like-kind tax deferred exchange agreement, under Section 1031 of the Internal Revenue Code, in which an operating property valued at $28.2 million was exchanged for an operating property valued at $11.9 million and a commitment to receive additional operating properties totaling $16.3 million. The value of such additional properties are being held in escrow by a third party and have been reported in other assets on the consolidated condensed balance sheet. It is anticipated that closings on the additional properties will take place in the fourth quarter of 1997. During the nine months ended August 31, 1996, the Company acquired commercial mortgage-backed securities for $106.9 million. Of this amount, $81.3 million was paid in cash and the balance of $25.6 million was financed by the sellers. During the same period of 1996, the Company acquired a commercial property for $26.1 million, of which $8.7 million was paid in cash and the Company assumed a $17.4 million mortgage. 5 (7) RECLASSIFICATIONS Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform with the current period presentation. (8) PENDING SPIN-OFF OF THE REAL ESTATE INVESTMENT AND MANAGEMENT BUSINESS On June 10, 1997, the Company's Board of Directors approved a plan to spin-off its real estate investment and management business consisting of the Investment Division, the portions of the Financial Services Division involved in commercial mortgage lending and investments (but not the portions of its Financial Services Division which are involved in lending to homeowners, servicing residential mortgages or providing services to homebuyers or homeowners) and certain assets of the Company's Homebuilding Division utilized in related businesses. The spin-off will be conducted through the distribution of the stock of LNR Property Corporation ("LNR") pursuant to a separation and distribution agreement that will provide that for each existing share of the Company, the shareholders will receive one share of common stock of LNR, with the right during a limited period after the spin-off to exchange that common stock for Class B common stock of LNR. On August 20, 1997, the Company received a ruling from the Internal Revenue Service that the spin-off will not result in taxes to the Company or its shareholders. The spin-off will be completed on or about October 31, 1997. Following the spin-off transaction, the Company and LNR will form a general partnership (the "Land Partnership") to acquire, develop and sell land. The Company and LNR will contribute properties to the Land Partnership in exchange for 50% general partnership interests in the Land Partnership. Pursuant to a management agreement, a subsidiary of the Company will manage the day-to-day operations of the Land Partnership and will receive a management fee. The partnership agreement for the Land Partnership will permit the Company and LNR to (i) engage in business activities which conflict with or are in direct competition with the Land Partnership and (ii) acquire properties from, or sell properties to, the Land Partnership. The Company will have options to purchase a portion of the assets originally contributed to the Land Partnership and may be granted options to purchase all or portions of properties which subsequently are acquired by the Land Partnership. In the fourth quarter of 1997, the Company will record a restructuring charge to continuing operations for the estimated costs of the spin-off and formation of the Land Partnership. The Company currently estimates this charge will be $20 million to $30 million and will consist of expenses incurred for professional fees, transaction costs, the write-off of deferred loan costs on mortgages and notes which will be paid off to effect the spin-off and an impairment charge resulting from the change in use of the land held for development or investment to be contributed to the Land Partnership. The impairment charge is a result of the change from the Company's previous intended use of the property for development and sale of homes to the new intended use in the Land Partnership where the land will be developed for sale as lots. No impairment charge will be recorded for the portions of the land that the Company will have options to purchase from the Land Partnership. 6 (9) PENDING MERGER WITH PACIFIC GREYSTONE CORPORATION On June 10, 1997, the Company's Board of Directors approved a plan to acquire Pacific Greystone Corporation ("Greystone") through a merger in which the shareholders of the Company will receive one share of common stock or Class B common stock of the corporation which survives the merger for each share of common stock or Class B common stock of the Company held by them, and the shareholders of Greystone will receive 1.138 shares of common stock of the surviving corporation for each currently outstanding share of Greystone common stock. This merger will result in the Company's shareholders owning approximately 68% of the surviving corporation and Greystone shareholders owning the remaining 32% of that corporation. The merger will take place after the distribution of the stock of LNR to which the Company is transferring its real estate investment and management business (Note 8) and the Greystone shareholders will not receive any interest in LNR. The merger is conditioned upon the distribution taking place. (10) NEW FINANCING The Company has received a commitment from The First National Bank of Chicago ("First Chicago") to provide the surviving corporation with unsecured revolving credit facilities (together the "New Facilities") in the aggregate amount of $550 million, which may be used to refinance existing indebtedness, for working capital, for acquisitions and for general corporate purposes. Of the total New Facilities, $450 million will be structured as a five-year revolving credit facility maturing June 30, 2002. The second facility (up to $100 million) will be structured as a revolving credit facility maturing 364 days after the closing date of the facility, subject to extension for two one-year periods at the request of the surviving corporation and with the consent of the lenders. The surviving corporation may elect, at the maturity of the second facility, to convert borrowings under that facility to a term loan which amortizes in equal quarterly amounts and matures on June 30, 2002. First Chicago has also committed to provide the Land Partnership with two secured credit facilities (together the "Land Facilities") in the aggregate amount of $225 million which may be used to refinance existing indebtedness, for working capital, for interest payments and for general partnership purposes. One facility will be structured as a $125 million secured revolving credit facility which will mature four years after the closing date of the facility, subject to a one year extension at the request of the Land Partnership and with the consent of the lenders. The second facility is a $100 million secured term loan facility, which amortizes in equal quarterly amounts and matures four years after the closing date of the facility. Advances under the Land Facilities are limited by certain borrowing base calculations, and will be secured by security interests in all real and personal property in the borrowing base. The surviving corporation and LNR each will guarantee the obligations of the Land Partnership with regard to the Land Facilities. 7 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. SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN GENERAL ECONOMIC CONDITIONS, MATERIAL 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, 1996, AS AMENDED BY FORM 10-K/A (DATED SEPTEMBER 26, 1997), FOR A FURTHER DISCUSSION OF THESE AND OTHER RISKS AND UNCERTAINTIES APPLICABLE TO THE COMPANY'S BUSINESS. (1) RECENT DEVELOPMENTS: PENDING SPIN-OFF AND MERGER On June 10, 1997, the Company's Board of Directors approved a plan to spin-off its real estate investment and management business consisting of the Investment Division, the portions of the Financial Services Division involved in commercial mortgage lending and investments (but not the portions of its Financial Services Division which are involved in lending to homeowners, servicing residential mortgages or providing services to homebuyers or homeowners) and certain assets of the Company's Homebuilding Division utilized in related businesses. The spin-off will be conducted through the distribution of the stock of LNR Property Corporation ("LNR") pursuant to a separation and distribution agreement that will provide that for each existing share of the Company, the shareholders will receive one share of common stock of LNR, with the right during a limited period after the spin-off to exchange that common stock for Class B common stock of LNR. On August 20, 1997, the Company received a ruling from the Internal Revenue Service that the spin-off will not result in taxes to the Company or its shareholders. The spin-off will be completed on or about October 31, 1997. Following the spin-off transaction, the Company and LNR will form a general partnership (the "Land Partnership") to acquire, develop and sell land. The Company and LNR will contribute properties to the Land Partnership in exchange for 50% general partnership interests in the Land Partnership. Pursuant to a management agreement, a subsidiary of the Company will manage the day-to-day operations of the Land Partnership and will receive a management fee. The partnership agreement for the Land Partnership will permit the Company and LNR to (i) engage in business activities which conflict with or are in direct competition with the Land Partnership and (ii) acquire properties from, or sell properties to, the Land Partnership. The Company will have options to purchase a portion of the assets originally contributed to the Land Partnership and may be granted options to purchase all or portions of properties which subsequently are acquired by the Land Partnership. In the fourth quarter of 1997, the Company will record a restructuring charge to continuing operations for the estimated costs of the spin-off and formation of the Land Partnership. The Company currently estimates this charge will be $20 million to $30 million and will consist of expenses incurred for professional fees, transaction costs, the write-off of deferred loan costs on mortgages and notes which will be paid off to effect the spin-off and an impairment charge resulting from the change in use of the land held for development or investment to be contributed to the Land Partnership. The impairment charge is a result of the change from the Company's previous intended use of the property for development and sale of homes to the new intended use in the Land Partnership where the land will be developed for sale as lots. No impairment charge will be recorded for the portions of the land that the Company will have options to purchase from the Land Partnership. 8 On June 10, 1997, the Company's Board of Directors approved a plan to acquire Pacific Greystone Corporation ("Greystone") through a merger in which the shareholders of the Company will receive one share of common stock or Class B common stock of the corporation which survives the merger for each share of common stock or Class B common stock of the Company held by them, and the shareholders of Greystone will receive 1.138 shares of common stock of the surviving corporation for each currently outstanding share of Greystone common stock. This merger will result in the Company's shareholders owning approximately 68% of the surviving corporation and Greystone shareholders owning the remaining 32% of that corporation. The merger will take place after the distribution of the stock of LNR to which the Company is transferring its real estate investment and management business and the Greystone shareholders will not receive any interest in LNR. The merger is conditioned upon the distribution taking place. (2) RESULTS OF OPERATIONS OVERVIEW Net earnings were $28.3 million and $69.7 million, respectively, for the three-month and nine-month periods ended August 31, 1997, compared to $23.9 million and $59.4 million, respectively, for the same periods in 1996. All three of the Company's divisions, Homebuilding, Investment and Financial Services, experienced increases in operating earnings in the 1997 quarterly and nine-month periods. These increases were partially offset by higher interest expense and higher corporate general and administrative expenses. HOMEBUILDING The following tables set forth selected financial and operational information related to the Homebuilding Division for the periods indicated (unaudited):
THREE MONTHS ENDED NINE MONTHS ENDED (DOLLARS IN THOUSANDS, EXCEPT AUGUST 31, AUGUST 31, AVERAGE SALES PRICES) 1997 1996 1997 1996 -------- --------- -------- ------- REVENUES: Sales of homes $290,687 248,798 708,992 609,939 Other 19,428 12,514 56,394 28,475 -------- -------- -------- -------- Total revenues 310,115 261,312 765,386 638,414 COSTS AND EXPENSES: Cost of homes sold 232,606 200,688 573,287 495,562 Cost of other revenues 12,565 7,029 37,031 15,993 Selling, general and administrative 32,268 27,121 89,812 70,944 -------- -------- -------- -------- Total costs and expenses 277,439 234,838 700,130 582,499 -------- -------- -------- -------- OPERATING EARNINGS $ 32,676 26,474 65,256 55,915 ======== ======== ======== ======== Gross profit - home sales $ 58,081 48,110 135,705 114,377 Gross profit percentage 20.0% 19.3% 19.1% 18.8% S,G&A as a percentage of total homebuilding revenues 10.4% 10.4% 11.7% 11.1% Average sales price $164,800 152,600 160,200 146,600 ======== ======== ======== ======== 9 SUMMARY OF HOME AND BACKLOG DATA THREE MONTHS ENDED NINE MONTHS ENDED AUGUST 31, AUGUST 31, DELIVERIES 1997 1996 1997 1996 -------- -------- -------- -------- Florida 915 828 2,286 2,315 Arizona 158 201 450 517 Texas 582 587 1,480 1,315 California 109 14 209 14 -------- -------- -------- -------- 1,764 1,630 4,425 4,161 ======== ======== ======== ======== NEW ORDERS Florida 861 751 2,698 2,572 Arizona 119 139 421 543 Texas 696 470 1,795 1,491 California 174 19 490 19 -------- -------- -------- -------- 1,850 1,379 5,404 4,625 ======== ======== ======== ======== BACKLOG - HOMES Florida 1,617 1,574 Arizona 218 328 Texas 753 562 California 320 40 -------- -------- 2,908 2,504 ======== ======== BACKLOG - DOLLAR VALUE (IN THOUSANDS) $537,928 404,474 ======== ========
Homebuilding revenues in the three-month and nine-month periods ended August 31, 1997 were $310.1 million and $765.4 million, respectively, compared to $261.3 million and $638.4 million, respectively, for the same periods in 1996. Homebuilding revenues were higher in both of the 1997 periods due to a higher number of home deliveries and an increase in the average sales price. New home deliveries for the 1997 three-month and nine-month periods were 1,764 and 4,425, respectively, compared to 1,630 and 4,161, respectively, for the same periods of 1996. The increase in home deliveries is primarily reflective of the Company's expanding presence in California. The average sales prices of homes delivered during the three-month and nine-month periods ended August 31, 1997 were $164,800 and $160,200, respectively, compared to $152,600 and $146,600, respectively, in the corresponding periods of the prior year. The higher average sales price was due to price increases for existing products and a proportionately greater number of sales of higher priced homes, particularly in our California market. Gross profit percentages from the sales of homes were 20.0% and 19.1%, respectively, in the three-month and nine-month periods ended August 31, 1997, compared to 19.3% and 18.8%, respectively, in the corresponding periods of the prior year. These increases were primarily attributable to increasing contributions from the Company's California operations, combined with strong margins in the Company's other markets. Other revenues in the three-month and nine-month periods ended August 31, 1997 were $19.4 million and $56.4 million, respectively, compared to $12.5 million and $28.5 million, respectively, for the same periods in 1996. Revenues were higher in both of the 1997 periods primarily due to an increase in third party land sales, particularly in California. Gross margins from other revenues were 35.3% and 34.3%, respectively, in the three-month and nine-month periods ended August 31, 1997, compared to 43.8% for each of the same periods in 1996. Margins achieved on sales of land may vary from period to period. 10 Selling, general and administrative expenses increased to $32.3 million and $89.8 million for the three-month and nine-month periods ended August 31, 1997, respectively, from $27.1 million and $70.9 million, respectively, for the comparable periods in 1996. The higher level of expenses in 1997 was attributable to additional expenses associated with the increased sales revenues, additional expenses resulting from start-up and operating costs in California, as well as additional expenses associated with new communities in the Company's other markets. When entering a new market or community, it is the Company's policy to expense rather than capitalize most start-up expenses. Therefore, such expenses are recognized prior to the delivery of homes. As a percentage of homebuilding revenues, selling, general and administrative expenses remained relatively constant at 10.4% and 11.7%, respectively, for the three-month and nine-month periods ended August 31, 1997, compared to 10.4% and 11.1%, respectively, for the same periods in 1996. At August 31, 1997, the Company had approximately $537.9 million (2,908 homes) of sales contracts in backlog, as compared to $404.5 million (2,504 homes) at the end of the same period a year ago. The increase in the backlog was attributable to an increase in new orders, particularly from our California and Texas operations. INVESTMENT The following table presents the selected financial data related to the Investment Division for the periods indicated (unaudited): THREE MONTHS ENDED NINE MONTHS ENDED AUGUST 31, AUGUST 31, (DOLLARS IN THOUSANDS) 1997 1996 1997 1996 ------- ------ ------- ------- REVENUES: Rental income $13,387 13,617 42,687 42,245 Equity in earnings of partnerships 4,906 11,394 18,698 26,962 Management fees 4,417 4,428 10,842 14,586 Gain on sales of real estate, net 4,722 209 11,160 2,741 Other 4,295 3,342 14,881 8,745 ------- ------- ------- ------- Total revenues 31,727 32,990 98,268 95,279 COSTS AND EXPENSES 13,534 16,188 43,072 44,519 ------- ------- ------- ------- OPERATING EARNINGS $18,193 16,802 55,196 50,760 ======= ======= ======= ======= 11 For the three-month and nine-month periods ended August 31, 1997, Investment Division revenues were $31.7 million and $98.3 million, respectively, compared to $33.0 million and $95.3 million, respectively, in the same periods of 1996. Gain on sales of real estate and total revenues are shown net of the cost of such sales, which amounted to $33.7 million and $45.6 million for the three-month and nine-month periods ended August 31, 1997, respectively, and $3.4 million and $6.2 million for the corresponding periods of 1996. Operating earnings were $18.2 million and $55.2 million, respectively, in the third quarter and first nine months of 1997, compared to $16.8 million and $50.8 million, respectively, in the corresponding periods of 1996. The decrease in revenues for the 1997 three-month period was primarily due to a decrease in equity in earnings of partnerships, which was partially offset by an increase in gain on sales of other real estate. The increase in revenues for the 1997 nine-month period was primarily due to the increase in the gain on sales of other real estate and the increase in other revenues generated primarily as a result of the division's increased investment in commercial mortgage-backed securities (including the sale of a portion of its commercial mortgage-backed securities through a re-REMIC in conjunction with the Company's Financial Services Division in the second quarter of 1997). This increase was partially offset by decreases in equity in earnings of partnerships and management fees. A significant portion of partnership earnings and management fees are derived from loan payoffs and asset sales which can vary substantially from period to period. Costs and expenses decreased for the three-month and nine-month periods ended August 31, 1997, as compared to 1996, primarily due to decreases in operating expenses of owned real estate and professional fees. FINANCIAL SERVICES The following table presents the selected financial data related to the Financial Services Division for the periods indicated (unaudited):
THREE MONTHS ENDED NINE MONTHS ENDED AUGUST 31, AUGUST 31, (DOLLARS IN THOUSANDS) 1997 1996 1997 1996 ---------- ---------- ---------- ---------- REVENUES $ 21,577 20,680 67,981 59,955 COSTS AND EXPENSES 12,508 13,642 38,503 38,735 INTERCOMPANY INTEREST EXPENSE 48 24 69 210 ---------- ---------- ---------- ---------- OPERATING EARNINGS $ 9,021 7,014 29,409 21,010 ========== ========== ========== ========== Dollar volume of mortgages originated $ 100,849 135,876 256,896 431,653 ---------- ---------- ---------- ---------- Number of mortgages originated 870 1,193 2,259 3,794 ---------- ---------- ---------- ---------- Principal balance of servicing portfolio $3,146,945 3,340,983 ---------- ---------- Number of loans serviced 40,170 42,600 ========== ==========
Operating earnings of the Financial Services Division were $9.0 million and $29.4 million, respectively, for the three-month and nine-month periods ended August 31, 1997, compared to $7.0 million and $21.0 million, respectively, for the same periods of 1996. These increases were primarily attributable to higher operating earnings from the division's investment in commercial mortgage-backed securities (including the sale of a portion of its commercial mortgage-backed securities through a re-REMIC in conjunction with the Company's Investment Division in the second quarter of 1997) and increased earnings from its traditional mortgage banking and title services. Mortgage loan originations were lower for the third quarter and nine-month period ended August 31, 1997 when compared to 1996 due to a decrease in the division's involvement in the less profitable wholesale loan origination business and continued competitive pressures in the origination marketplace. 12 INTEREST EXPENSE Interest expense relating to the Homebuilding and Investment Divisions for the three-month and nine-month periods ended August 31, 1997 was $9.9 million and $25.4 million, respectively, compared to $7.8 million and $21.2 million, respectively, in the corresponding periods of the prior year. The increase in interest expense was the result of higher debt levels and an increase in the number of homes delivered which increased the amount of previously capitalized interest charged to expense. Previously capitalized interest charged to interest expense during the third quarter and first nine months of 1997 was $6.9 million and $16.1 million, respectively, compared to $5.0 million and $13.6 million, respectively, for the comparable periods last year. Interest expense related to the financial services operations and the limited-purpose finance subsidiaries is included in their respective costs and expenses. (3) PRO FORMA RESULTS On a pro forma basis, as though the spin-off had taken place on December 1, 1996 (but not giving pro forma effect to the proposed merger with Greystone), the Company had revenues of $306.2 million and $760.2 million and net earnings of $13.4 million ($0.37 per share) and $27.0 million ($0.74 per share), in the three-month and nine-month periods ended August 31, 1997, respectively. (4) FINANCIAL CONDITION Net cash used in operating activities during the nine-months ended August 31, 1997 increased by $80.7 million, compared to the corresponding period of the prior year. The primary cause of this increase was increased investment in inventories through land purchases, land development and seasonal increases in construction in progress. This increase in inventories was primarily a result of the Company's continued expansion in California. Net cash provided by investing activities during the first nine-months of 1997 increased by $241.7 million, compared to the corresponding period of the prior year. In the 1996 period, the Company used $121.4 million of cash to acquire businesses (primarily Friendswood Development Company) and no such acquisitions occurred in the 1997 period. Additionally, increased cash of $107.6 million was provided in 1997 by increased sales and principal payments of commercial mortgage-backed securities. At August 31, 1997 the Company had three unsecured revolving credit agreements: a five-year commitment of $450 million, a two-year commitment of $35 million and a one-year commitment of $40 million. Certain Financial Services Division subsidiaries are co-borrowers under these facilities and at August 31, 1997 their borrowings under this agreement amounted to $30 million. The total amount outstanding under the Company's revolving credit agreements at August 31, 1997 was approximately $353 million. The Company has received a commitment from The First National Bank of Chicago ("First Chicago") to provide the surviving corporation with unsecured revolving credit facilities (together the "New Facilities") in the aggregate amount of $550 million, which may be used to refinance existing indebtedness, for working capital, for acquisitions and for general corporate purposes. Of the total New Facilities, $450 million will be structured as a five year revolving credit facility maturing June 30, 2002. The second facility (up to $100 million) will be structured as a revolving credit facility maturing 364 days after the closing date of the facility, subject to extension for two one-year periods at the request of the surviving corporation and with the consent of the lenders. The surviving corporation may elect, at the maturity of the second facility, to convert borrowings under that facility to a term loan which amortizes in equal quarterly amounts and matures on June 30, 2002. 13 First Chicago has also committed to provide the Land Partnership with two secured credit facilities (together the "Land Facilities") in the aggregate amount of $225 million which may be used to refinance existing indebtedness, for working capital, for interest payments and for general partnership purposes. One facility will be structured as a $125 million revolving credit facility which will mature four years after the closing date of the facility, subject to a one year extension at the request of the Land Partnership and with the consent of the lenders. The second facility is a $100 million secured term loan facility, which amortizes in equal quarterly amounts and matures four years after the closing date of the facility. Advances under the Land Facilities are limited by certain borrowing base calculations, and will be secured by security interests in all real and personal property in the borrowing base. The surviving corporation and LNR each will guarantee the obligations of the Land Partnership with regard to the Land Facilities. Prior to the spin-off, the Company will transfer to LNR sufficient assets to reduce the Company's stockholders' equity at the time of the merger with Pacific Greystone (which is expected to take place on or about October 31, 1997) to approximately $213 million. The merger should increase the stockholders' equity of the surviving corporation to an amount in excess of $400 million. 14 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company was named as a defendant in Connor v. Kaplan, Civil Action No. 15738-NC in the Delaware Court of Chancery. This is an alleged class action in which a stockholder of Pacific Greystone Corporation claimed that principal stockholders and the directors of Pacific Greystone breached their fiduciary obligations in connection with the proposed merger of Pacific Greystone with the Company. The allegation against the Company was that it knowingly aided and abetted breaches of fiduciary duty committed by Pacific Greystone's principal stockholder and directors, and that the proposed merger could not take place without the knowing participation of the Company. On July 30, 1997, the plaintiff filed with the court a notice dismissing the lawsuit as to the Company. Subsequently, the other parties entered into a memorandum of understanding containing an agreement in principle regarding settlement of the lawsuit. ITEMS 2-5. NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: (27) Financial Data Schedule. (b) Reports on Form 8-K: Registrant was not required to file, and has not filed, a Form 8-K during the quarter for which this report is being filed. 15 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LENNAR CORPORATION ------------------------ (Registrant) Date: OCTOBER 13, 1997 /s/ CORY J. BOYDSTON ------------------------------- Cory J. Boydston Vice President - Finance Date: OCTOBER 13, 1997 /s/ DIANE J. BESSETTE -------------------------------- Diane J. Bessette Controller 16 EXHIBIT INDEX EXHIBIT DESCRIDPTION - ------- ------------ 27 Financial Data Schedule EX-27 2
5 1,000 9-MOS NOV-30-1997 DEC-01-1996 AUG-31-1997 31,103 0 44,209 0 847,123 922,435 283,499 (44,434) 1,943,847 201,228 938,355 0 0 3,607 771,916 1,943,847 708,992 935,267 573,287 653,390 142,208 0 25,387 114,282 44,570 69,712 0 0 0 69,712 1.92 1.92
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