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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 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
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(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
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<PAGE>
<TABLE>
<CAPTION>
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
------------ ------------
<S> <C> <C>
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
========== ==========
</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 NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
1997 1996 1997 1996
-------- -------- ------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</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)
NINE MONTHS ENDED
AUGUST 31,
1997 1996
--------- --------
<S> <C> <C>
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
========= =========
</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, 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
<PAGE>
(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
<PAGE>
(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
<PAGE>
(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
<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, 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
<PAGE>
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(DOLLARS IN THOUSANDS, EXCEPT AUGUST 31, AUGUST 31,
AVERAGE SALES PRICES) 1997 1996 1997 1996
-------- --------- -------- -------
<S> <C> <C> <C> <C>
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
<PAGE>
SUMMARY OF HOME AND BACKLOG DATA
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
DELIVERIES 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ========
</TABLE>
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
<PAGE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
(DOLLARS IN THOUSANDS) 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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: 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
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIDPTION
- ------- ------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 31,103
<SECURITIES> 0
<RECEIVABLES> 44,209
<ALLOWANCES> 0
<INVENTORY> 847,123
<CURRENT-ASSETS> 922,435
<PP&E> 283,499
<DEPRECIATION> (44,434)
<TOTAL-ASSETS> 1,943,847
<CURRENT-LIABILITIES> 201,228
<BONDS> 938,355
0
0
<COMMON> 3,607
<OTHER-SE> 771,916
<TOTAL-LIABILITY-AND-EQUITY> 1,943,847
<SALES> 708,992
<TOTAL-REVENUES> 935,267
<CGS> 573,287
<TOTAL-COSTS> 653,390
<OTHER-EXPENSES> 142,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,387
<INCOME-PRETAX> 114,282
<INCOME-TAX> 44,570
<INCOME-CONTINUING> 69,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,712
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.92
</TABLE>
