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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 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 26,060,775
Class B Common 9,966,631
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
May 31, November 30,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
HOMEBUILDING, INVESTMENT AND FINANCIAL SERVICES:
Homebuilding and investment assets:
Cash and cash equivalents $ 15,828 12,960
Receivables, net 52,189 62,158
Inventories:
Construction in progress and model homes 322,096 259,747
Land held for development 516,081 440,136
---------------------------------
Total inventories 838,177 699,883
Land held for investment 60,102 63,615
Operating properties and equipment, net 238,435 221,312
Investments in and advances to partnerships 123,567 139,578
Other assets 163,354 124,539
Financial services assets 379,163 382,083
- ------------------------------------------------------------------------------------------------------------------------
Total assets - homebuilding, investment and financial services 1,870,815 1,706,128
- ------------------------------------------------------------------------------------------------------------------------
LIMITED-PURPOSE FINANCE SUBSIDIARIES - COLLATERAL FOR BONDS AND NOTES PAYABLE 55,022 59,898
- ------------------------------------------------------------------------------------------------------------------------
$ 1,925,837 1,766,026
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
HOMEBUILDING, INVESTMENT AND FINANCIAL SERVICES:
Homebuilding and investment liabilities:
Accounts payable and other liabilities $ 180,492 186,735
Income taxes payable 16,961 26,045
Mortgage notes and other debts payable 669,408 509,672
Financial services liabilities 264,202 291,606
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities - homebuilding, investment and financial services 1,131,063 1,014,058
- ------------------------------------------------------------------------------------------------------------------------
LIMITED-PURPOSE FINANCE SUBSIDIARIES - BONDS AND NOTES PAYABLE 52,257 56,512
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 2,606 2,594
Class B common stock 997 999
Additional paid-in capital 173,126 171,618
Retained earnings 552,027 512,345
Unrealized gain on securities available-for-sale, net 13,761 7,900
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 742,517 695,456
- ------------------------------------------------------------------------------------------------------------------------
$ 1,925,837 1,766,026
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
May 31, May 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Homebuilding $ 247,424 202,220 455,271 377,102
Investment 38,726 33,510 78,437 65,071
Financial services 23,116 20,913 46,404 39,275
Limited-purpose finance subsidiaries 1,384 1,610 2,704 3,329
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 310,650 258,253 582,816 484,777
- -------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Homebuilding 229,066 186,737 422,691 347,661
Investment 20,333 15,722 41,434 31,113
Financial services 11,770 13,665 25,995 25,093
Limited-purpose finance subsidiaries 1,390 1,629 2,704 3,345
Corporate general and administrative 3,255 3,010 6,610 5,980
Interest 8,764 7,501 15,462 13,395
- -------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 274,578 228,264 514,896 426,587
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 36,072 29,989 67,920 58,190
INCOME TAXES 14,068 11,696 26,489 22,694
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 22,004 18,293 41,431 35,496
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 36,319 36,220 36,300 36,213
- -------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE $ .61 .51 1.14 .98
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ .025 .025 .05 .05
- -------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER CLASS B COMMON SHARE $ .0225 .0225 .045 .045
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
May 31,
1997 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 41,431 35,496
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 4,124 6,178
Equity in earnings of partnerships (21,238) (24,471)
Gains on sales of other real estate and investment securities (9,379) (2,532)
Changes in assets and liabilities, net of effect of acquisition:
Decrease (increase) in receivables 12,178 (4,401)
Increase in inventories (118,889) (45,818)
(Increase) decrease in financial services' loans held for sale or disposition (145) 14,718
Decrease in accounts payable and accrued liabilities (67) (4,985)
Decrease in income taxes currently payable (9,084) (9,089)
Other, net (3,107) 1,076
------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (104,176) (33,828)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Operating properties and equipment:
Additions (30,389) (13,401)
Sales 12,496 3,475
Sales of land held for investment 4,713 4,242
Decrease in investments in and advances to partnerships 40,568 4,610
Increase in financial services' loans held for investment (910) (6,270)
Purchase of investment securities (102,034) (73,119)
Receipts from investment securities 121,165 42,137
Acquisition of business - (110,505)
Other, net (1,143) 1,957
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 44,466 (146,874)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement 58,800 220,200
Net repayments under financial services' short-term debt (10,040) (1,707)
Mortgage notes and other debts payable:
Proceeds from borrowings 124,513 51,467
Principal payments (99,534) (96,912)
Limited-purpose finance subsidiaries:
Principal reduction of mortgage loans and other receivables 5,080 8,487
Principal reduction of bonds and notes payable (4,991) (8,188)
Common stock:
Issuance 1,518 724
Dividends (1,749) (1,745)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 73,597 172,326
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 13,887 (8,376)
Cash and cash equivalents at beginning of period 26,520 30,243
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 40,407 21,867
------------------------------------------------------------------------------------------------------------------------------
Summary of cash and cash equivalent balances:
Homebuilding and investment $ 15,828 10,206
Financial services 24,579 11,661
------------------------------------------------------------------------------------------------------------------------------
$ 40,407 21,867
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Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 17,051 15,138
Cash paid for income taxes $ 43,437 36,369
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</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, 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. 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 portion 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
<PAGE>
(4) ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This statement is
effective for financial statements for periods ending after December 15, 1997.
Earlier adoption is not permitted. This statement changes the method in which
earnings per share will be determined. Adoption of this statement by the Company
is not expected to have a material impact on earnings per share.
(5) RESTRICTED CASH
Cash includes restricted deposits of $2.2 million and $2.5 million as of May 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.
(6) FINANCIAL SERVICES
The assets and liabilities related to the Company's financial services
operations (as described in Note 2) are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited)
May 31, November 30,
(IN THOUSANDS) 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment securities available-for-sale $ 183,464 193,869
Loans held for sale or disposition, net 125,392 127,606
Loans and mortgage-backed securities
held for investment, net 21,981 21,323
Investments in and advances to partnerships 8,695 11,428
Cash and receivables, net 31,035 22,224
Other 8,596 5,633
-----------------------------------------------------------------------------------------
$ 379,163 382,083
-----------------------------------------------------------------------------------------
Liabilities:
Notes and other debts payable $ 238,070 271,314
Other 26,132 20,292
-----------------------------------------------------------------------------------------
$ 264,202 291,606
-----------------------------------------------------------------------------------------
</TABLE>
(7) SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended May 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. Also in 1997,
the Company acquired commercial mortgage-backed securities for $129.4 million.
Of this amount, $102.0 million was paid in cash and the balance of $27.4 million
was financed by the sellers.
During the same period of 1996, the Company acquired commercial mortgage-backed
securities for $84.2 million. Of this amount, $73.1 million was paid in cash and
the balance of $11.1 million was financed by the sellers. Also in 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
<PAGE>
(8) RECLASSIFICATIONS
Certain prior year amounts in the consolidated condensed financial statements
have been reclassified to conform with the current period presentation.
(9) PENDING DISTRIBUTION OF COMMERCIAL REAL ESTATE INVESTMENT AND
MANAGEMENT BUSINESS
On June 10, 1997, the Company's Board of Directors approved a plan to
restructure its operations by splitting into two companies: (i) the continuing
Lennar Corporation, which will engage in the homebuilding business and related
services and the residential portion of the Financial Services Division and (ii)
a newly formed entity which will engage in the commercial real estate investment
and management business previously conducted by the Company and the portion of
the Financial Services Division involved in commercial mortgages and commercial
mortgage-backed securities. The spin-off will be conducted pursuant to a
separation and distribution agreement that will provide that for each existing
share of Lennar Corporation stock, the shareholders will receive one share of
common stock or Class B common stock.
Consummation of the spin-off is subject to satisfaction of certain conditions,
including the receipt of a ruling from the Internal Revenue Service to the
effect that the spin-off will not result in taxes to the Company or its
shareholders.
Following the spin-off transaction, subsidiaries of Lennar and the newly formed
entity will form a general partnership (the "Land Partnership") to acquire,
develop and sell land. The Company and the newly formed entity 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 Lennar Corporation 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 the newly formed entity 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.
(10) 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 Lennar 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 the newly formed company to which Lennar is transferring its real
estate investment and management business (Note 9) and the Greystone
shareholders will not receive any interest in that company. The distribution of
Lennar's real estate investment and management business is conditioned upon
receipt of a ruling from the Internal Revenue Service that the distribution will
not result in taxes to either Lennar or its shareholders. The merger is
conditioned upon the distribution taking place.
6
<PAGE>
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 FOR A FURTHER DISCUSSION OF THESE AND OTHER
RISKS AND UNCERTAINTIES APPLICABLE TO THE COMPANY'S BUSINESS.
(1) RECENT DEVELOPMENTS - PENDING DISTRIBUTION AND MERGER
On June 10, 1997, the Company's Board of Directors approved a plan to
restructure its operations by splitting into two companies: (i) the continuing
Lennar Corporation, which will engage in the homebuilding business and related
services and the residential portion of the Financial Services Division and (ii)
a newly formed entity which will engage in the commercial real estate investment
and management business previously conducted by the Company and the portion of
the Financial Services Division involved in commercial mortgages and commercial
mortgage-backed securities. The spin-off will be conducted pursuant to a
separation and distribution agreement that will provide that for each existing
share of Lennar Corporation stock, the shareholders will receive one share of
common stock or Class B common stock.
Consummation of the spin-off is subject to satisfaction of certain conditions,
including the receipt of a ruling from the Internal Revenue Service to the
effect that the spin-off will not result in taxes to the Company or its
shareholders.
Following the spin-off transaction, subsidiaries of Lennar and the newly formed
entity will form a general partnership (the "Land Partnership") to acquire,
develop and sell land. The Company and the newly formed entity 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 Lennar Corporation 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 the newly formed entity 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.
On June 10, 1997, the Company's Board of Directors also 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 Lennar 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 the newly formed company to which Lennar is transferring its real
estate investment and management business and the Greystone shareholders will
not receive any interest in that company. The distribution of Lennar's real
estate investment and management business is conditioned upon receipt of a
ruling from the Internal Revenue Service that the distribution will not result
in taxes to either Lennar or its shareholders. The merger is conditioned upon
the distribution taking place.
7
<PAGE>
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS
OVERVIEW
Net earnings were $22.0 million and $41.4 million, respectively, for the
three-month and six-month periods ended May 31, 1997, compared to $18.3 million
and $35.5 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 six-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):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(DOLLARS IN THOUSANDS, EXCEPT May 31, May 31,
AVERAGE SALES PRICES) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales of homes $ 221,356 191,745 418,305 361,141
Other 26,068 10,475 36,966 15,961
- --------------------------------------------------------------------------------------------------
Total revenues 247,424 202,220 455,271 377,102
COSTS AND EXPENSES:
Cost of homes sold 179,640 156,739 340,681 294,874
Cost of other revenues 19,499 6,208 24,466 8,964
Selling, general and administrative 29,927 23,790 57,544 43,823
- --------------------------------------------------------------------------------------------------
Total costs and expenses 229,066 186,737 422,691 347,661
- --------------------------------------------------------------------------------------------------
OPERATING EARNINGS $ 18,358 15,483 32,580 29,441
- --------------------------------------------------------------------------------------------------
Gross profit - home sales $ 41,716 35,006 77,624 66,267
Gross profit percentage 18.8% 18.3% 18.6% 18.3%
S,G&A as a percentage of total
homebuilding revenues 12.1% 11.8% 12.6% 11.6%
Average sales price $ 157,700 $ 141,500 157,200 142,700
- --------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF HOME AND BACKLOG DATA
Three Months Ended Six Months Ended
May 31, May 31,
DELIVERIES 1997 1996 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida 759 727 1,371 1,487
Arizona 150 190 292 316
Texas 427 438 898 728
California 68 - 100 -
--------------------------------------------------------------------------------------------------
1,404 1,355 2,661 2,531
==================================================================================================
NEW ORDERS
--------------------------------------------------------------------------------------------------
Florida 1,057 989 1,837 1,821
Arizona 155 219 302 404
Texas 662 593 1,099 1,021
California 225 - 316 -
--------------------------------------------------------------------------------------------------
2,099 1,801 3,554 3,246
==================================================================================================
BACKLOG - HOMES
--------------------------------------------------------------------------------------------------
Florida 1,671 1,651
Arizona 257 390
Texas 639 679
California 255 -
--------------------------------------------------------------------------------------------------
2,822 2,720
--------------------------------------------------------------------------------------------------
BACKLOG - DOLLAR VALUE (IN THOUSANDS) $500,456 428,144
==================================================================================================
</TABLE>
Homebuilding revenues in the three-month and six-month periods ended May 31,
1997 were $247.4 million and $455.3 million, respectively, compared to $202.2
million and $377.1 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 six-month periods were 1,404 and 2,661,
respectively, compared to 1,355 and 2,531, respectively, for the same periods of
1996. The average sales prices of homes delivered during the three-month and
six-month periods ended May 31, 1997 were $157,700 and $157,200, respectively,
compared to $141,500 and $142,700, respectively, in the corresponding periods of
the prior year. The higher average sales price was due to a proportionately
greater number of sales of higher priced homes and price increases for existing
products.
Gross profit percentages from the sales of homes were 18.8% and 18.6%,
respectively, in the three-month and six-month periods ending May 31, 1997,
compared to 18.3% in both of the corresponding periods of the prior year. These
increases were primarily attributable to improved margins in the Company's
Florida market.
Other revenues in the three-month and six-month periods ended May 31, 1997 were
$26.1 million and $37.0 million, respectively, compared to $10.5 million and
$16.0 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 our California market. Gross margins from other revenues
were 25.2% and 33.8%, respectively, in the three-month and six-month periods
ending May 31, 1997, compared to 40.7% and 43.8%, respectively, in the same
periods in 1996. Margins achieved on sales of land may vary from period to
period.
Selling, general and administrative expenses increased to $29.9 million and
$57.5 million for the three-month and six-month periods ended May 31, 1997,
respectively, from $23.8 million and $43.8 million, respectively, for the
comparable periods in 1996. The higher level of expenses in 1997 was
attributable additional expenses associated with new communities, primarily in
California. As a result of these factors, selling, general and administrative
expenses as a percentage of total homebuilding revenues increased from 11.8% in
the second quarter of 1996 to 12.1% in the second quarter of 1997 and from 11.6%
for the six months ended May 31, 1996 to 12.6% for the six months ended May 31,
1997. Increased revenues from closings in California in the second half of the
year should result in a selling, general and administrative expense percentage
which is more consistent with 1996 levels.
9
<PAGE>
At May 31, 1997, the Company had approximately $500.5 million (2,822 homes) of
sales contracts in backlog, as compared to $428.1 million (2,720 homes) at the
end of the same period a year ago. The increase in the backlog was attributable
to an increase in new orders, including orders from our new California
operations, which produced 225 sales for the quarter and 316 sales year to date.
INVESTMENT
The following table presents the selected financial data related to the
Investment Division for the periods indicated (unaudited):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
(DOLLARS IN THOUSANDS) 1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 14,684 15,216 29,300 28,628
Equity in earnings of partnerships 4,932 6,394 13,792 15,568
Management fees 2,141 5,828 6,425 10,158
Sales of other real estate 10,681 3,205 18,334 5,314
Other 6,288 2,867 10,586 5,403
---------------------------------------------------------------------------------------------------------
Total revenues 38,726 33,510 78,437 65,071
COST OF SALES AND EXPENSES 20,333 15,722 41,434 31,113
---------------------------------------------------------------------------------------------------------
OPERATING EARNINGS $ 18,393 17,788 37,003 33,958
---------------------------------------------------------------------------------------------------------
</TABLE>
For the three-month and six-month periods ended May 31, 1997, Investment
Division revenues were $38.7 million and $78.4 million, respectively, compared
to $33.5 million and $65.1 million, respectively, in the same periods of 1996.
Operating earnings were $18.4 million and $37.0 million, respectively, in the
second quarter and first six months of 1997, compared to $17.8 million and $34.0
million, respectively, in the corresponding periods of 1996. The increases in
revenues and operating earnings for the 1997 three-month and six-month periods
were primarily due to the increase in sales of other real estate and the
increase in other revenues generated 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). The increases in
revenues and operating earnings from sales of other real estate and other
revenues were 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.
10
<PAGE>
FINANCIAL SERVICES
The following table presents the selected financial data related to the
Financial Services Division for the periods indicated (unaudited):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
(DOLLARS IN THOUSANDS) 1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 23,116 20,913 46,404 39,275
COSTS AND EXPENSES 11,770 13,665 25,995 25,093
INTERCOMPANY INTEREST EXPENSE 5 46 21 186
---------------------------------------------------------------------------------------------------------
OPERATING EARNINGS $ 11,341 7,202 20,388 13,996
---------------------------------------------------------------------------------------------------------
Dollar volume of mortgages originated $ 88,228 141,909 156,047 295,777
---------------------------------------------------------------------------------------------------------
Number of mortgages originated 792 1,296 1,389 2,601
---------------------------------------------------------------------------------------------------------
Principal balance of servicing portfolio $ 3,184,952 3,332,331
---------------------------------------------------------------------------------------------------------
Number of loans serviced 40,720 43,000
---------------------------------------------------------------------------------------------------------
</TABLE>
Operating earnings of the Financial Services Division were $11.3 million and
$20.4 million, respectively, for the three-month and six-month periods ended May
31, 1997, compared to $7.2 million and $14.0 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) and
increased earnings from its traditional mortgage banking and title services.
Mortgage loan originations were lower for the second quarter and six-month
period ended May 31, 1997 when compared to 1996 due to a decrease in the
division's involvement in the less profitable wholesale loan origination
business.
INTEREST EXPENSE
Interest expense relating to the Homebuilding and Investment Divisions for the
three-month and six-month periods ended May 31, 1997 was $8.8 million and $15.5
million, respectively, compared to $7.5 million and $13.4 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 second quarter and first six months of 1997 was $5.4 million and $9.2
million, respectively, compared to $4.5 million and $8.6 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) MATERIAL CHANGES IN FINANCIAL CONDITION
During the six months ended May 31, 1997, $104.2 million was used in the
Company's operations, compared to $33.8 million used during the corresponding
period of the prior year. The primary use of cash in the first half of 1997 was
$118.9 million to increase inventories through land purchases, land development
and seasonal increases in construction in progress. The use of cash was
partially offset by $41.4 million provided by net earnings and $12.2 million
provided by a decrease in receivables.
11
<PAGE>
In the fiscal 1996 period, the primary use of cash was $45.8 million to increase
inventories through land purchases, land development and seasonal increases in
construction in progress. The use of cash was partially offset by a $14.7
million decrease in loans held for sale or disposition by the Company's
Financial Services Division.
Cash provided by investing activities was $44.5 million in the first six months
of 1997, compared to $146.9 million used in the first six months of 1996. During
1997, cash was provided primarily from $121.2 million of sales and principal
payments generated by the Company's portfolio of commercial mortgage-backed
securities and $40.6 million provided by the Company's investments in
partnerships. Cash provided by the Company's partnerships was comprised of $48.1
million of distributions from such partnerships, partially offset by $7.5
million of investments in the partnerships. These sources of cash were partially
offset by $102.0 million used to purchase investment securities by both the
Investment and Financial Services Divisions, and $30.4 million used to purchase
operating properties and equipment.
During 1996, the use of cash was primarily due to the $110.5 million acquisition
of the assets and operations of Friendswood Development Company and $73.1
million used to purchase commercial mortgage-backed securities by both the
Investment and Financial Services Divisions. These uses of cash were partially
offset by $42.1 million of sales and principal payments generated by the
Company's portfolio of investment securities. In addition, $4.6 million of cash
was provided by the Company's partnerships. This was comprised of $40.6 million
of distributions from partnerships, partially offset by investment in two
Southern California residential land development partnerships totaling $36.0
million.
At May 31, 1997 the Company had three unsecured revolving credit agreements: a
five-year commitment of $450.0 million, a two-year commitment of $35.0 million
and a one-year commitment of $40.0 million. Certain Financial Services Division
subsidiaries are co-borrowers under these facilities and at May 31, 1997 their
borrowings under this agreement amounted to $60.5 million. The total amount
outstanding under the Company's revolving credit agreements at May 31, 1997 was
$383.7 million.
The Company has commitments for $550 million of new financing at the time it
distributes the shares of the company to which it is transferring its real
estate investment and management business. Proceeds of this financing will be
used to repay the outstanding balance under its current revolving credit
facilities and to meet subsequent cash needs.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has been 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 claims 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
is 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.
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.
13
<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, 1997 CORY J. BOYDSTON
--------------------------------
Cory J. Boydston
Vice President - Finance
Date: JULY 14, 1997 DIANE J. BESSETTE
--------------------------------
Diane J. Bessette
Controller
14
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 15,828
<SECURITIES> 0
<RECEIVABLES> 52,189
<ALLOWANCES> 0
<INVENTORY> 838,177
<CURRENT-ASSETS> 906,194
<PP&E> 283,586
<DEPRECIATION> (45,151)
<TOTAL-ASSETS> 1,925,837
<CURRENT-LIABILITIES> 197,453
<BONDS> 959,735
0
0
<COMMON> 3,603
<OTHER-SE> 738,914
<TOTAL-LIABILITY-AND-EQUITY> 1,925,837
<SALES> 418,305
<TOTAL-REVENUES> 582,816
<CGS> 340,681
<TOTAL-COSTS> 406,581
<OTHER-EXPENSES> 92,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,462
<INCOME-PRETAX> 67,920
<INCOME-TAX> 26,489
<INCOME-CONTINUING> 41,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,431
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
