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 period ended May 31, 1994
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 107 Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
(305) 559-4000
(Registrant's telephone number, including area code)
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 end of current fiscal quarter:
Common 25,771,065
Class B Common 9,986,631
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
------------------- ----------------
May 31, May 31,
1994 1993 1994 1993
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Real estate operations:
Sales of homes $ 162,468 101,101 309,910 185,865
Other sales and revenues 28,237 20,852 55,663 37,385
Financial services operations 14,933 16,161 29,661 28,256
Limited-purpose finance subsidiaries 2,388 3,851 5,102 7,909
------- ------- ------- -------
Total revenues 208,026 141,965 400,336 259,415
------- ------- ------- -------
COSTS AND EXPENSES:
Real estate operations:
Cost of homes sold 144,342 90,609 274,881 166,032
Cost of other sales and revenues 11,601 13,037 26,668 21,130
General and administrative expenses 8,260 6,630 16,355 12,826
Financial services operations 11,911 11,075 23,546 20,557
Limited-purpose finance subsidiaries 2,369 3,808 5,159 7,882
------- ------- ------- -------
Total costs and expenses 178,483 125,159 346,609 228,427
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 29,543 16,806 53,727 30,988
INCOME TAXES 11,522 6,134 20,954 11,311
------- ------- ------- -------
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 18,021 10,672 32,773 19,677
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES FOR:
Income taxes - - 4,745 -
Purchased mortgage servicing rights - - (3,784) -
------- ------- ------- -------
NET EARNINGS $ 18,021 10,672 33,734 19,677
======= ======= ======= =======
AVERAGE SHARES OUTSTANDING 36,180 35,868 36,134 33,349
======= ======= ======= =======
NET EARNINGS PER SHARE:
BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES $ 0.50 0.30 0.91 0.59
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES - - 0.03 -
------- ------- ------- -------
NET EARNINGS PER SHARE $ 0.50 0.30 0.94 0.59
======= ======= ======= =======
CASH DIVIDENDS PER COMMON SHARE $ 0.025 0.02 0.045 0.04
======= ======= ======= =======
CASH DIVIDENDS PER CLASS B COMMON SHARE $ 0.023 0.017 0.039 0.033
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
<TABLE>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
(In thousands)
<CAPTION>
May 31, November 30,
ASSETS 1994 1993
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE AND FINANCIAL SERVICES:
Real estate assets:
Cash $ 10,910 10,606
Receivables, net 24,428 53,136
Inventories:
Construction in progress and model homes 169,486 175,085
Land held for development 313,539 269,449
--------- ---------
Total Inventories 483,025 444,534
Land held for investment 74,056 61,697
Operating properties and equipment, net 158,772 156,174
Investments in and advances to partnerships and joint ventures 57,766 39,410
Other assets 31,024 17,699
Financial services assets 207,855 284,391
--------- ---------
Total assets - real estate and financial services 1,047,836 1,067,647
--------- ---------
LIMITED-PURPOSE FINANCE SUBSIDIARIES:
Collateral for bonds and notes payable 101,699 127,075
Other 764 768
--------- ---------
Total assets - limited-purpose finance subsidiaries 102,463 127,843
--------- ---------
$ 1,150,299 1,195,490
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE AND FINANCIAL SERVICES:
Real estate liabilities:
Accounts payable and accrued liabilities $ 84,207 79,680
Customer deposits 16,024 16,796
Income taxes:
Currently payable 4,178 8,247
Deferred 55,836 59,638
Mortgage notes and other debts payable 295,821 242,193
Financial services liabilities 98,265 199,737
--------- ---------
Total liabilities - real estate and financial services 554,331 606,291
--------- ---------
LIMITED-PURPOSE FINANCE SUBSIDIARIES:
Bonds and notes payable 95,511 121,361
Other 107 365
--------- ---------
Total liabilities - limited-purpose finance subsidiaries 95,618 121,726
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 2,577 1,715
Class B common stock 999 666
Additional paid-in capital 169,522 170,023
Retained earnings 327,252 295,069
--------- ---------
Total stockholders' equity 500,350 467,473
--------- ---------
$ 1,150,299 1,195,490
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
<TABLE>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
------------------
May 31, May 31,
1994 1993
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 33,734 19,677
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,338 4,718
Gain on sales of other real estate (963) (366)
Equity in earnings of partnerships and joint ventures (11,423) (3,153)
Decrease in deferred income taxes (3,111) (1,588)
Cumulative effect of changes in accounting principles (961) --
Changes in assets and liabilities, net of effects from accounting changes:
Decrease (increase) in receivables 19,628 (1,625)
Increase in inventories (40,629) (50,282)
Decrease (increase) in loans held for sale or disposition 91,995 (59,275)
Increase (decrease) in customer deposits (772) 8,277
Decrease in accounts payable and accrued liabilities (29,687) (1,547)
Decrease in income taxes currently payable (4,069) (3,494)
------- -------
Net cash provided by (used in) operating activities 58,080 (88,658)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to operating properties and equipment (8,343) (4,861)
Decrease (increase) in investments in and advances to partnerships
and joint ventures (4,055) 1,455
Increase in loans held for investment (8,359) (4,989)
Other investing activities, net (6,433) (5,248)
------- -------
Net cash used in investing activities (27,190) (13,643)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement 6,500 12,800
Net borrowings (repayments) under financial services lines of credit (84,875) 20,943
Mortgage notes and other debts payable:
Proceeds from borrowings 57,106 4,188
Principal payments (9,978) (28,716)
Limited-purpose finance subsidiaries:
Principal reduction of mortgage loans and other receivables 26,925 27,718
Principal reduction of bonds and notes payable (25,407) (26,319)
Common stock:
Issuance 694 98,063
Dividends (1,551) (1,257)
------- -------
Net cash provided by (used in) financing activities (30,586) 107,420
------- -------
Net increase in cash 304 5,119
Cash at beginning of period 10,606 4,913
------- -------
Cash at end of period $ 10,910 10,032
======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 7,701 9,289
Cash paid for income taxes $ 27,620 14,984
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
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 and all wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions and balances have
been eliminated. The Company's investments in partnerships and joint
ventures 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, 1993
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.
(2) Lines of business
The Company operates principally in two lines of business: (1) real
estate, which includes the activities of the parent company (Lennar
Corporation), the Homebuilding Division and the Investment Division; and
(2) financial services, which includes certain activities of Lennar
Financial Services, Inc. ("LFS"), but excludes the limited-purpose finance
subsidiaries.
The Homebuilding Division constructs and sells single-family (attached
and detached) and multi-family homes. The Investment Division is involved
in the development, management and leasing, as well as the acquisition and
sale, of commercial and residential properties and land. This division
also manages and participates in partnerships with financial institutions.
Financial services activities are conducted primarily through five LFS
subsidiaries: Universal American Mortgage Company, AmeriStar Financial
Services, Inc., Universal Title Insurors, Inc., Lennar Funding Corporation
and Loan Funding, Inc. These subsidiaries arrange mortgage financing,
title insurance, and closing services for Lennar homebuyers and others,
acquire, package and resell home mortgage loans, and perform mortgage loan
servicing activities.
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 for lines of business purposes and, as such,
are reported separately.
(3) Stock split
All references in the consolidated condensed financial statements and
notes to the number of shares outstanding and per share amounts have been
restated to reflect a three-for-two stock split effective April 20, 1994.
(4) Net earnings per share
Net earnings per share is calculated by dividing net earnings by the
weighted average number of total common shares and Class B common shares
outstanding and common equivalent shares outstanding during the period.
4
<PAGE>
(5) Restricted cash
Cash includes restricted deposits of $3.0 million and $4.2 million as
of May 31, 1994 and November 30, 1993, respectively. These balances are
comprised primarily of escrow deposits held related to condominium
purchases and security deposits from tenants of commercial and apartment
properties.
(6) Financial services
The assets and liabilities related to the Company's financial services
operations (as described in Note 2) are summarized as follows:
May 31, November 30,
1994 1993
- - -------------------------------------------------------------------------
Assets:
Loans held for sale or disposition, net $ 151,262 243,095
Servicing acquisition costs 5,057 12,249
Cash and receivables 9,027 9,949
Other 42,509 19,098
------- -------
$ 207,855 284,391
======= =======
Liabilities:
Notes payable $ 82,686 167,561
Other 15,579 32,176
------- -------
$ 98,265 199,737
======= =======
(7) Accounting changes
Effective December 1 ,1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This change in accounting principle resulted in an
increase to net earnings of $4.7 million in the first quarter of 1994.
The change in accounting for income taxes did not have a significant
impact on the Company's results of operations.
The first quarter of 1994 also included a charge of $3.8 million (net
of income taxes of $2.4 million) for the cumulative effect on prior years
of a change in accounting for purchased mortgage servicing rights. During
the first quarter of 1994, the Company changed the way in which it
evaluates these assets from an undiscounted and disaggregated cash flow
basis to a discounted and disaggregated cash flow basis. Excluding the
cumulative effect, this change increased net earnings in the second quarter
and first six months of 1994 by $0.4 million and $0.8 million,
respectively.
(8) Reclassifications
Certain prior year amounts in the consolidated condensed financial
statements have been reclassified to conform with the current period
presentation.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
(1) Material changes in results of operations.
Revenues in the three months and six months ended May 31, 1994 were
$208.0 million and $400.3 million, respectively, including sales of homes
of $162.5 million and $309.9 million, respectively, compared with revenues
of $142.0 million and $259.4 million, respectively, and sales of homes of
$101.1 million and $185.9 million, respectively, in the same periods of
fiscal 1993.
The increased homebuilding revenues in the three-month and six-month
periods resulted primarily from an increase in the number of deliveries to
1,298 and 2,474, respectively, from 982 and 1,798, respectively, in the
corresponding periods of 1993. Additionally, the average price of a home
delivered during the three-month and six-month periods ended May 31, 1994,
was $125,200 and $125,300, respectively, compared with $103,000 and
$104,000, respectively, in the corresponding periods of the prior year.
Other sales and revenues increased to $28.2 million and $55.7 million,
respectively, in the second quarter and first six months of 1994, compared
to $20.9 million and $37.4 million, respectively, in the same periods of
1993. The higher revenues were partially attributable to partnership
earnings and management fee income which increased in the second quarter
and first six months of 1994 by $9.1 million and $12.9 million,
respectively, when compared to the same periods of 1993. These increases
resulted primarily from the addition of the Company's partnership with
Westinghouse Electric Corporation and an affiliate of Lehman Brothers
during the third quarter of 1993, as well as an increase in earnings from
the Company's partnership with The Morgan Stanley Real Estate Fund, L.P.
Rental income increased by $1.6 million and $3.9 million, respectively, for
the second quarter and first six months of 1994 due primarily to the
addition of operating properties. Also contributing to the increased
revenues in the six-month period were sales of other real estate. These
sales amounted to $7.9 million in the first six months of 1994 compared to
$1.2 million during the first half of 1993. Partially offsetting these
increases was a decrease in revenues from the repair or rebuilding of homes
which were damaged by Hurricane Andrew. These revenues were $4.7 million
and $6.4 million, respectively, during the three-month and six-month
periods ended May 31, 1993. These activities were substantially completed
during 1993 and revenues from these activities during the 1994 periods were
not material.
Gross profits from the sales of homes increased in the second quarter
and first six months of 1994 to $18.1 million ($14,000 per home) and $35.0
million ($14,200 per home), respectively, compared to $10.5 million
($10,700 per home) and $19.8 million ($11,100 per home), respectively, in
the same periods of fiscal 1993. These increases were primarily
attributable to an increase in the number of deliveries, an increase in the
gross profit percentage on higher average sales prices and the absorption
of construction and selling overhead by a higher number of home deliveries.
Gross profit percentages were 11.2% and 11.3%, respectively, in the second
quarter and first six months of 1994, compared to 10.4% and 10.7%,
respectively, in the 1993 periods.
At May 31, 1994, the Company had approximately $270 million (2,070
homes) of sales contracts in backlog, as compared to $328 million (2,780
homes) at May 31, 1993. The decrease in backlog was the result of a higher
number of closings in the first half of the year, as compared with 1993, as
well as a lower number of new orders. The decrease in the dollar value of
backlog was partially offset by an increase in the average sales price of
homes in backlog to $130,600 from $118,100.
Gross profits from other sales and revenues increased to $16.6 million
and $29.0 million, respectively, for the second quarter and first six
months of 1994 from $7.8 million and $16.3 million, respectively, in the
same periods of 1993. These increases were primarily attributable to the
increase in earnings by the Company's Investment Division partnerships and
increases in rental income resulting from the addition of operating
properties as discussed above.
6
<PAGE>
General and administrative expenses were $8.3 million and $16.4
million, respectively, in the three-month and six-month periods ended May
31, 1994, compared with $6.6 million and $12.8 million, respectively, in
the same periods of 1993. The increase was primarily attributable to
increases in personnel and other costs resulting from the expansion of the
Company's operations. However, as a percentage of real estate revenues,
these expenses decreased in the three months and six months ended May 31,
1994, to 4.3% and 4.5%, respectively, compared to 5.4% and 5.7%,
respectively, in the corresponding periods of 1993.
Earnings before income taxes from financial services operations were
$3.0 million and $6.1 million, respectively, for the three months and six
months ended May 31 1994, compared to $5.1 million and $7.7 million for the
same periods one year ago. The decrease in 1994 earnings was due primarily
to lower gains on bulk sales of mortgage loan servicing rights. In 1993,
these gains totaled $2.0 million for both the second quarter and first six
months, compared to gains of $0.4 million and $0.9 million, respectively,
in the comparable periods of 1994. Also contributing to the lower 1994
earnings were higher general and administrative costs associated with the
expansion of loan origination operations and increased mortgage payoffs.
Partially offsetting these decreases was a reduction of amortization
expense for purchased mortgage servicing rights. This amortization
decreased as a result of the change in accounting for purchased mortgage
servicing rights during the first quarter of 1994.
The provision for income taxes was 39.0% of pre-tax income for the
second quarter and the first six months of 1994. This compares to a
provision of 36.5% of pre-tax income for the same periods of 1993. The
higher 1994 tax rate was due primarily to the Company's adoption of the
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", which required the Company to adjust the assets and
liabilities for prior business combinations from net-of-tax to pre-tax
amounts.
(2) Material changes in financial condition.
During the six months ended May 31, 1994, $58.1 million of cash
was provided by the Company's operations, compared to $88.7 million of cash
used in operations during the first six months of the prior year. In
addition to higher earnings, cash flow from operations during the 1994
period increased primarily as a result of cash generated from a $92.0
million decrease in loans held for sale or disposition by one of the
Company's mortgage banking subsidiaries, Universal American Mortgage
Company, ("UAMC"). This compares to $59.3 million used in the 1993 period
to increase the balance of such loans. During 1994, $19.6 million of cash
was provided by a decrease in receivables, which compares to a $1.6 million
use of cash to increase receivables during the same period of the prior
year. The significant decrease in receivables was primarily related to the
collection of an $11.3 million note receivable during the second quarter of
1994. Additionally, the Company used $40.6 million, during 1994, to
increase inventories through land purchases, land development and
construction. This compares to $50.3 million used in the 1993 period to
increase inventories. Partially offsetting the increases in cash flow
during the 1994 period was cash used to decrease accounts payable and
accrued liabilities from both the real estate and mortgage banking
activities of $29.7 million (net of effects from accounting changes), $1.5
million was used to decrease accounts payable and accrued liabilities
during the 1993 period.
Cash used in investing activities increased to $27.2 million in the
first six months of 1994, compared to $13.6 million in the first six months
of 1993. This increase was attributable to an increase in operating
properties, an increase in loans held for investment by the Company's
financial services operations, as well as an increase in other assets
primarily due to the Company's purchase of participation certificates in
two commercial real estate securitizations.
The Company's ratio of real estate debt to total equity increased to
59.1% at May 31, 1994, compared with 51.8% at November 30, 1993. The
increase in this ratio was due primarily to borrowings made to finance the
increases in real estate operating assets and the investing activities
discussed above.
7
<PAGE>
As of May 31, 1994, UAMC was a party to warehouse loan agreements
under which it could borrow up to $200 million. Borrowings under these
agreements, which are secured by certain mortgage loans held for sale and
servicing rights to certain loans serviced by UAMC, were $82.7 million at
May 31, 1994 and $167.6 million at November 30, 1993.
At May 31, 1994 and November 30, 1993, UAMC was servicing a portfolio
of loans with an unpaid principal balance of $3.5 billion and $3.4 billion,
respectively. These loans were originated through LFS' mortgage loan
origination activities or acquired from unaffiliated third parties. The
balance of this portfolio as of May 31, 1993 was $3.5 billion.
8
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
During 1993, the Company settled two lawsuits and a number of claims
in which owners of approximately 550 homes built by the Company sought
damages as a result of Hurricane Andrew. There still remain approximately
125 additional homeowners who have asserted claims. Other homeowners or
homeowners' insurers are not precluded from making similar claims against
the Company. Five insurance companies have contacted the Company seeking
reimbursement for sums paid by them with regard to homes built by the
Company and damaged by the storm. The Company has settled all outstanding
claims with two of these insurance companies which represented the majority
of the claims made. In addition to the claims, there are five pending
lawsuits in which homeowners or homeowners' insurers seek damages. Other
claims of this type may be asserted. The Company's insurers have
asserted that their policies cover some, but not all, aspects of these
claims. However, to date, the Company's insurers have made all payments
required under settlements. Even if the Company were required to make any
payments with regard to Hurricane Andrew related claims, the Company
believes that the amount it would pay would not be material to the
results of operations or financial position of the Company.
Items 2-5. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K: During the second quarter of 1994 the
Company filed a Current Report on Form 8-K relating to the
Company's change of Independent Auditors.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LENNAR CORPORATION
------------------------
(Registrant)
Date: July 14, 1994 ALLAN J. PEKOR
------------------------
Allan J. Pekor
Financial Vice President
Chief Financial Officer
Date: July 14, 1994 JAMES T. TIMMONS
------------------------
James T. Timmons
Controller
Chief Accounting Officer
10
