================================================================================
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 FEBRUARY 28, 1998
Commission File Number: 1-11749
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 March 31, 1998:
Common 43,503,594
Class B Common 9,918,631
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
FEBRUARY 28, NOVEMBER 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 53,110 52,926
Receivables, net 18,776 34,646
Inventories 952,394 806,975
Operating properties and equipment, net 8,661 8,598
Investments in partnerships 132,169 108,064
Other assets 121,394 127,631
----------------------------------
1,286,504 1,138,840
FINANCIAL SERVICES 202,855 156,988
LIMITED-PURPOSE FINANCE SUBSIDIARIES - COLLATERAL FOR BONDS AND NOTES PAYABLE 44,754 47,456
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,534,113 1,343,284
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
HOMEBUILDING:
Accounts payable and other liabilities $ 212,154 198,386
Income taxes currently payable 7,749 22,634
Mortgage notes and other debts payable 666,536 527,303
----------------------------------
886,439 748,323
FINANCIAL SERVICES 145,619 108,506
LIMITED-PURPOSE FINANCE SUBSIDIARIES - BONDS AND NOTES PAYABLE 44,754 47,456
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,076,812 904,285
STOCKHOLDERS' EQUITY:
Common stock of $.10 par value per share,
43,443 shares outstanding at February 28, 1998 4,344 4,322
Class B common stock of $.10 par value per share,
9,919 shares outstanding at February 28, 1998 992 994
Additional paid-in capital 391,529 388,797
Retained earnings 60,436 44,886
- ------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 457,301 438,999
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,534,113 1,343,284
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Homebuilding $ 408,538 207,847
Financial services 31,097 23,288
Limited-purpose finance subsidiaries 1,077 1,320
-------------------------------------------------------------------------------------------------------------------------------
Total revenues 440,712 232,455
-------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Homebuilding 368,984 193,625
Financial services 26,740 14,225
Limited-purpose finance subsidiaries 1,077 1,314
Corporate general and administrative 6,289 3,355
Interest 10,617 3,854
-------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 413,707 216,373
-------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 27,005 16,082
Income taxes 10,802 6,272
-------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 16,203 9,810
EARNINGS FROM DISCONTINUED OPERATIONS
(net of income taxes of $6,149 in 1997) - 9,617
-------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 16,203 19,427
-------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
Continuing operations $ .30 .27
Discontinued operations - .27
-------------------------------------------------------------------------------------------------------------------------------
$ .30 .54
-------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Continuing operations $ .30 .27
Discontinued operations - .27
-------------------------------------------------------------------------------------------------------------------------------
$ .30 .54
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ .0125 .025
-------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER CLASS B COMMON SHARE $ .01125 .0225
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $ 16,203 9,810
Earnings from discontinued operations - 9,617
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 4,978 2,240
Equity in earnings of partnerships (4,326) (15,271)
Gain on sales of other real estate (1,392) (1,920)
Deferred income taxes 3,000 489
Changes in assets and liabilities, net of effect of acquisitions:
Decrease in receivables 15,921 1,846
Increase in inventories (64,721) (43,189)
Increase in financial services loans held for sale or disposition (1,581) (4,028)
Decrease in accounts payable and accrued liabilities (15,431) (15,978)
Decrease in income taxes currently payable (14,885) (7,421)
Other, net 1,811 (473)
------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (60,423) (64,278)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Operating properties and equipment:
Additions (1,693) (10,971)
Sales 6 4,001
(Increase) decrease in investments in and advances to partnerships (18,599) 21,198
Increase in financial services loans held for investment (215) (155)
Purchases of investment securities - (47,476)
Receipts from investment securities - 9,725
Acquisitions of businesses, net of cash acquired (48,874) -
Other, net (424) (814)
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (69,799) (24,492)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement 142,150 31,200
Net repayments under financial services short-term debt (1,037) (22,379)
Mortgage notes and other debts payable:
Proceeds from borrowings 9,044 84,635
Principal payments (14,104) (14,363)
Limited-purpose finance subsidiaries:
Principal reduction of mortgage loans and other receivables 2,869 2,467
Principal reduction of bonds and notes payable (2,634) (2,481)
Common stock:
Issuance 2,752 944
Dividends (653) (874)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 138,387 79,149
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 8,165 (9,621)
Cash and cash equivalents at beginning of period 62,599 60,670
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 70,764 51,049
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
LENNAR CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows -- Continued
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Summary of cash and cash equivalent balances:
Homebuilding $ 53,110 35,040
Financial services 17,654 11,753
Discontinued operations - 4,256
------------------------------------------------------------------------------------------------------------------------------
$ 70,764 51,049
------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 5,178 8,079
Cash paid for income taxes $ 20,303 19,364
Supplemental disclosures of non-cash investing and financing activities:
Purchases of inventory financed by sellers $ 10,200 5,800
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
LENNAR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
accounts of Lennar Corporation, its wholly-owned subsidiaries and partnerships
in which it holds a controlling interest (the "Company"). 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. All
significant intercompany transactions and balances have been eliminated. The
financial statements have been prepared by management without audit by
independent public accountants and should be read in conjunction with the
November 30, 1997 audited financial statements in the Company's Annual Report on
Form 10-K for the year then ended. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the accompanying consolidated condensed financial statements
have been made. Certain prior year amounts in the consolidated condensed
financial statements have been reclassified to conform with the current period
presentation.
As a result of the Company's spin-off of its commercial real estate investment
and management business, including the Investment Division business segment, on
October 31, 1997 (the "Spin-off"), the accompanying financial statements have
been restated to reflect the Investment Division as a discontinued operation
(see Note 3). Accordingly, the revenues and expenses of the Investment Division
have been excluded from the respective captions in the consolidated condensed
statement of earnings and have been reported as "earnings from discontinued
operations" for the three months ended February 28, 1997.
The Company historically has experienced, and expects to continue to experience,
variability in quarterly results. The consolidated condensed statement of
earnings for the three months ended February 28, 1998 is not necessarily
indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(2) BUSINESS SEGMENTS
The Company has two business segments: Homebuilding and Financial Services. The
limited-purpose finance subsidiaries are not considered a business segment. See
Note 3 regarding the discontinued Investment Division business segment.
Homebuilding operations include the construction and sale of single-family and
multi-family homes in Florida, California, Texas, Arizona and Nevada. These
activities also include the purchase, development and sale of residential land.
The Company has a non-controlling 50% interest in Lennar Land Partners ("LLP"),
a general partnership formed with LNR Property Corporation ("LNR") at the time
of the Spin-off, to acquire, develop and sell land to Lennar, LNR and others.
The Company manages the day-to-day operations of LLP and receives a management
fee. On October 31, 1997, the Company completed a merger with Pacific Greystone
Corporation. The merger expanded the Company's homebuilding operations in
California and Arizona and provided the Company with operations in Nevada.
5
<PAGE>
Financial services activities are conducted primarily through Lennar Financial
Services, Inc. ("LFS") and its subsidiaries. These companies provide mortgage
financing, title insurance and closing services for Lennar homebuyers and
others; acquire, package and resell mortgage loans and mortgage-backed
securities; perform mortgage loan servicing activities and provide cable
television and alarm monitoring services to residents of Lennar communities and
others.
In prior years, the limited-purpose finance subsidiaries of the Financial
Services Division placed mortgages and other receivables as collateral for
various long-term financings. These limited-purpose finance subsidiaries pay the
principal of, and interest on, these financings primarily from the cash flows
generated by the related pledged collateral which includes a combination of
mortgage notes, mortgage-backed securities and funds held by trustees. These
limited-purpose finance subsidiaries are not considered a part of the financial
services operations and are reported separately.
(3) DISCONTINUED OPERATIONS
On June 10, 1997, the Company's Board of Directors approved a plan to spin-off
the commercial real estate investment and management business, which primarily
consisted of the Investment Division segment. The Spin-off, which was conducted
through the distribution of the stock of LNR Property Corporation to existing
shareholders of the Company in the form of a tax-free distribution, was
completed effective October 31, 1997. The Investment Division was involved in
the development, management and leasing, as well as the acquisition and sale, of
commercial and multi-family residential rental properties and land. The
Investment Division also was a participant and manager in partnerships which
acquired portfolios of commercial mortgage loans and real estate, and the
Division invested in commercial mortgage-backed securities. The components of
earnings from discontinued operations were as follows for the three months ended
February 28, 1997 (unaudited):
(IN THOUSANDS)
-----------------------------------------------------------------
Revenues $ 39,711
Costs and expenses 21,101
-----------------------------------------------------------------
Operating earnings 18,610
Interest 2,844
-----------------------------------------------------------------
Earnings from discontinued operations
before income taxes 15,766
Income taxes 6,149
-----------------------------------------------------------------
Earnings from discontinued operations $ 9,617
-----------------------------------------------------------------
(4) ACQUISITIONS
In February 1998, the Company acquired a Northern California homebuilder,
Winncrest Homes, for $74 million (consisting of $58 million in cash, $9 million
in Lennar common stock and assumption of $7 million of liabilities).
Additionally, a joint venture was formed between Lennar Land Partners and a
Winncrest entity to develop and sell finished homesites to third party builders
as well as Lennar homebuilding operations. The Company financed the cash
component of this transaction through borrowings under its existing revolving
credit facilities. The Company accounted for this acquisition using the purchase
method of accounting. At February 28, 1998, $24 million of the purchase price
(cash of $15 million and Lennar common stock of $9 million) was payable to the
seller. This consideration is expected to be paid in the second quarter of 1998.
6
<PAGE>
(5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
requires a dual presentation of basic and diluted earnings per share on the face
of the statement of earnings. Basic earnings per share is computed by dividing
earnings attributable to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company.
The Company adopted SFAS No. 128 during the quarter ended February 28, 1998.
Earnings per share for all prior periods presented have been restated to conform
with SFAS No. 128.
The following table provides a reconciliation of the number of shares used in
computing basic and diluted earnings per share for the periods indicated
(unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
(IN THOUSANDS) 1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average shares - basic 53,248 35,958
Effect of potentially dilutive employee stock options 909 324
-------------------------------------------------------------------------------------------------------
Weighted average shares - diluted 54,157 36,282
-------------------------------------------------------------------------------------------------------
</TABLE>
(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)
February 28, November 30,
(IN THOUSANDS) 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and receivables, net $ 24,509 14,993
Mortgage loans, net 20,308 19,600
Loans held for sale or disposition, net 106,993 106,020
U.S. Treasury securities held-to-maturity 9,461 -
Title plants 15,917 800
Servicing acquisition costs 3,846 2,471
Other 21,821 13,104
--------------------------------------------------------------------------------------------------------
$ 202,855 156,988
--------------------------------------------------------------------------------------------------------
LIABILITIES:
Notes and other debts payable $ 97,968 86,936
Other 47,651 21,570
--------------------------------------------------------------------------------------------------------
$ 145,619 108,506
--------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
(7) SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC.
Greystone Homes, Inc. ("Greystone") is a wholly-owned subsidiary of the Company.
Greystone is the obligor on 10.75% Senior Notes with a current aggregate
principal amount of $124.8 million. The Notes were recorded at fair value of
$138.2 million at the time of the merger between the Company and Pacific
Greystone Corporation. The Notes are fully and unconditionally guaranteed by the
Company. Separate financial statements and other related disclosures for
Greystone are not presented, as the Company's management does not consider the
information material to investors. Summarized financial information for
Greystone for the periods indicated is presented below.
SUMMARY CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
FEBRUARY 28, NOVEMBER 30,
(IN THOUSANDS) 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 8,052 5,565
Inventories 350,617 330,568
Goodwill, net 45,039 45,612
Other assets 37,740 42,521
--------------------------------------------------------------------------------------------------------
$ 441,448 424,266
--------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable and other liabilities $ 51,817 47,460
Intercompany payable to Lennar Corporation 31,850 19,600
Notes payable 152 4,160
Senior unsecured notes payable 136,625 137,812
--------------------------------------------------------------------------------------------------------
220,444 209,032
Stockholder's equity 221,004 215,234
--------------------------------------------------------------------------------------------------------
$ 441,448 424,266
--------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
(PRO FORMA)
FEBRUARY 28, MARCH 31,
(IN THOUSANDS) 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOMEBUILDING REVENUES $ 139,767 101,672
COSTS AND EXPENSES:
Costs of homes sold 109,648 80,558
Selling, general and administrative 17,778 11,939
Interest and other, net 2,724 2,345
--------------------------------------------------------------------------------------------------------
Total costs and expenses 130,150 94,842
EARNINGS BEFORE INCOME TAXES 9,617 6,830
Income taxes 3,847 2,958
--------------------------------------------------------------------------------------------------------
NET EARNINGS $ 5,770 3,872
--------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma results for the three months ended March 31, 1997 reflect all
relevant purchase accounting adjustments relating to the Company's merger with
Pacific Greystone Corporation.
8
<PAGE>
(8) CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of February 28, 1998 and November 30, 1997 included
$32.8 million and $41.9 million, respectively, of cash held in escrow for
periods of up to three days.
(9) SUBSEQUENT EVENTS
In March 1998, the Company entered into an equity draw-down agreement with a
major international banking firm (the "Firm") under which the Company will have
the option to sell common stock, up to a value of $120 million, to the Firm in
increments of up to $15 million per month.
On April 8, 1998, the Company announced it had signed an agreement or agreed in
principal to acquire the properties of three separate companies. The approximate
purchase prices, which are subject to adjustments, and locations of properties
being acquired from each of the three companies are as follows: (1) $100 million
for properties located primarily in San Diego, California, (2) $90 million for
properties located throughout California and (3) $150 million and the assumption
of $30 million of debt for homesites in Phoenix, Arizona and Southern
California. Each of the transactions is subject to due diligence and if all
three are completed, the aggregate consideration will include the issuance of
approximately eight million shares of Lennar common stock, with the remainder to
be paid in cash. All of the transactions are expected to close in the third
quarter of 1998.
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, THE MARKET FOR HOMES GENERALLY AND IN AREAS WHERE THE
COMPANY HAS DEVELOPMENTS, THE AVAILABILITY AND COST OF LAND SUITABLE FOR
RESIDENTIAL DEVELOPMENT, MATERIALS PRICES, LABOR COSTS, INTEREST RATES, CONSUMER
CONFIDENCE, COMPETITION, ENVIRONMENTAL FACTORS AND GOVERNMENT REGULATIONS
AFFECTING THE COMPANY'S OPERATIONS. SEE THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 1997 FOR A FURTHER DISCUSSION OF THESE AND OTHER
RISKS AND UNCERTAINTIES APPLICABLE TO THE COMPANY'S BUSINESS.
(1) RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the 1998 first quarter were $16.2 million, or $.30 per share
(basic and diluted), compared to $19.4 million, or $.54 per share (basic and
diluted), in 1997. The 1997 first quarter included net earnings of $9.6 million,
or $.27 per share (basic and diluted), generated from the discontinued
Investment Division segment. The Investment Division was part of the Company's
commercial real estate investment and management business which was spun-off on
October 31, 1997 through the distribution of the stock of LNR Property
Corporation to existing Lennar stockholders. Earnings from continuing operations
for the 1998 first quarter were $16.2 million, or $.30 per share (basic and
diluted), compared to $9.8 million, or $.27 per share (basic and diluted), in
1997. Lennar's operating results for the 1998 first quarter reflect the addition
of the operations of Pacific Greystone Corporation, which merged with the
Company effective October
9
<PAGE>
31, 1997, and the Company's 50% interest in earnings from Lennar Land Partners,
a general partnership which was formed effective October 31, 1997 between the
Company and LNR Property Corporation.
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
(DOLLARS IN THOUSANDS, EXCEPT FEBRUARY 28,
AVERAGE SALES PRICES) 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Sales of homes $ 393,826 196,949
Sales of land and other revenues 10,386 8,861
Equity in earnings from partnerships 4,326 2,037
------------------------------------------------------------------------------------------------
Total revenues 408,538 207,847
COSTS AND EXPENSES:
Cost of homes sold 314,470 161,041
Cost of land and other expenses 8,890 4,967
Selling, general and administrative 45,624 27,617
------------------------------------------------------------------------------------------------
Total costs and expenses 368,984 193,625
------------------------------------------------------------------------------------------------
OPERATING EARNINGS $ 39,554 14,222
------------------------------------------------------------------------------------------------
Gross profit - home sales $ 79,356 35,908
Gross profit percentage 20.2% 18.2%
S,G&A as a percentage of total
homebuilding revenues 11.2% 13.3%
Average sales price $ 193,000 157,000
------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF HOME AND BACKLOG DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
DELIVERIES 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
Florida 717 612
California 468 32
Texas 517 471
Arizona 266 142
Nevada 76 -
------------------------------------------------------------------------------------------------
2,044 1,257
------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
THREE MONTHS ENDED
FEBRUARY 28,
NEW ORDERS 1998 1997
- ------------------------------------------------------------------------------
Florida 937 780
California 693 91
Texas 573 437
Arizona 280 147
Nevada 75 -
- ------------------------------------------------------------------------------
2,558 1,455
- ------------------------------------------------------------------------------
BACKLOG - HOMES
- ------------------------------------------------------------------------------
Florida 1,515 1,373
California 1,212 98
Texas 724 404
Arizona 468 252
Nevada 117 -
- ------------------------------------------------------------------------------
4,036 2,127
- ------------------------------------------------------------------------------
BACKLOG - DOLLAR VALUE (IN THOUSANDS) $ 790,833 350,616
- ------------------------------------------------------------------------------
Homebuilding revenues increased in the first quarter of 1998 to $408.5 million
from $207.8 million in 1997. This increase was primarily attributable to a
greater number of home deliveries and an increase in the average sales price.
Home deliveries increased to 2,044 in the current quarter from 1,257 for the
same period in the prior year. The increase in home deliveries was primarily
reflective of the Company's expanding presence in California. The average sales
price of homes delivered during the 1998 first quarter was $193,000 compared to
$157,000 in 1997. The higher average sales price was due to a greater percentage
of deliveries in the California market, which has higher average priced homes.
The fourth quarter 1997 merger with Pacific Greystone (which has operations
primarily in California) significantly contributed to the increases in both new
home deliveries and the average sales price of homes delivered.
Gross margin percentages on home sales increased in the first quarter of 1998 to
20.2% from 18.2% in 1997. This increase was primarily attributable to a greater
percentage of new home deliveries in the California market, where the Company
currently generates higher average gross margins.
Sales of land and other revenues in the first quarter of 1998 were $10.4 million
compared to $8.9 million in 1997. This increase was primarily due to higher
third party land sales in 1998 of $8.1 million compared to $6.8 million in 1997.
Gross margin percentages from sales of land were 17.1% and 31.2% for the 1998
and 1997 first quarters, respectively. Margins achieved on sales of land may
vary from period to period. Equity in earnings from partnerships increased to
$4.3 million in the first quarter of 1998 from $2.0 million in the first quarter
of 1997. This increase was primarily attributable to the Company's share of
earnings from Lennar Land Partners, which was formed in the fourth quarter of
1997.
Selling, general and administrative expenses were $45.6 million in the first
quarter of 1998 compared to $27.6 million in the first quarter of 1997. The
higher level of expenses in 1998 was primarily attributable to the addition of
Pacific Greystone's operations and the increased level of
11
<PAGE>
sales activity resulting from the Company's expansion. Selling, general and
administrative expenses, as a percentage of homebuilding revenues, decreased to
11.2% in the first quarter of 1998 from 13.3% in the first quarter of 1997 due
primarily to the increase in revenues.
At February 28, 1998, the Company's backlog of sales contracts increased to
4,036 compared to 2,127 contracts a year earlier. The increase in backlog was
primarily attributable to an increase in new orders combined with the addition
of Pacific Greystone's backlog. The acquisition of Winncrest Homes in February
1998 also contributed to the increase in backlog, adding 235 homes at February
28, 1998. The dollar value of contracts in backlog increased 126% to $790.8
million at February 28, 1998 from $350.6 million a year earlier.
FINANCIAL SERVICES
The following table presents the selected financial data related to the
Financial Services Division for the periods indicated (unaudited):
THREE MONTHS ENDED
FEBRUARY 28,
(DOLLARS IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------
Revenues $ 31,097 23,288
Costs and expenses 26,740 14,225
- ------------------------------------------------------------------------------
Operating earnings $ 4,357 9,063
- ------------------------------------------------------------------------------
Dollar volume of mortgage loans originated $ 174,461 67,819
- ------------------------------------------------------------------------------
Number of mortgage loans originated 1,384 597
- ------------------------------------------------------------------------------
Principal balance of servicing portfolio $ 3,077,298 3,236,862
- ------------------------------------------------------------------------------
Number of loans serviced 41,600 41,400
- ------------------------------------------------------------------------------
Operating earnings in the first quarter of 1998 were $4.4 million compared to
$9.1 million in 1997. Operating earnings in the 1997 first quarter included $5.6
million relating to the Financial Services Division's investment in commercial
real estate mortgage-backed securities, partnerships and commercial loans
("Distributed Investments") which were distributed as part of the spin-off of
the Company's commercial real estate investment and management business in 1997.
Excluding the 1997 operating results related to the Distributed Investments,
operating earnings increased $0.9 million in the 1998 first quarter compared to
the corresponding period in 1997. The increase was primarily attributable to
higher mortgage profits and increased earnings from the Division's title
insurance business. Mortgage loan originations increased to $174 million in the
1998 first quarter from $68 million in the same quarter of 1997. This increase
was attributable to a combination of: (1) a greater capture rate of Lennar
homebuyers, (2) a higher volume of homebuilding deliveries, and (3) a higher
average sales price of homes delivered. The Division's title insurance business
provided increased operating earnings due primarily to greater contributions
from Regency Title in Houston.
12
<PAGE>
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Corporate general and administrative expenses increased to $6.3 million in the
1998 first quarter from $3.4 million in the first quarter of 1997. The higher
level of expenses in 1998 was primarily attributable to the addition of Pacific
Greystone's operations and the Company's expansion. Corporate general and
administrative expenses as a percentage of total revenues was 1.4% in the first
quarter of both 1998 and 1997.
INTEREST EXPENSE
In the first quarter of 1998, interest expense was $10.6 million compared to
interest expense from continuing operations in the first quarter of 1997 of $3.9
million. The increase in interest expense was primarily attributable to an
increase in the amount of previously capitalized interest charged to expense due
to a greater number of homes delivered and land sales in 1998.
DISCONTINUED OPERATIONS
On June 10, 1997, the Company's Board of Directors approved a plan to spin-off
the commercial real estate investment and management business, which primarily
consisted of the Investment Division segment. The spin-off, which was conducted
through the distribution of the stock of LNR Property Corporation to existing
shareholders of the Company in the form of a tax-free distribution, was
completed effective October 31, 1997. Net earnings from the Company's
discontinued operations for the first quarter of 1997 were $9.6 million, or $.27
per share (basic and diluted).
(2) PRO FORMA RESULTS OF OPERATIONS
The following pro forma results of operations for the 1997 first quarter give
effect to the spin-off of the Company's commercial real estate investment and
management business, the merger with Pacific Greystone Corporation and the
formation of Lennar Land Partners, all of which were completed on October 31,
1997, as if such transactions had occurred at the beginning of the period.
Lennar Corporation pro forma results were derived from the three months ended
February 28; Pacific Greystone Corporation pro forma results were derived from
the three months ended March 31. The following pro forma information is
presented to show results of operations for the 1998 and 1997 first quarters on
a more comparable basis. The following pro forma financial information for the
1997 first quarter is not necessarily indicative of the results of operations
which would have been reported if the transactions had occurred on the dates or
for the periods indicated.
13
<PAGE>
The 1998 actual and 1997 pro forma first quarter results of operations were as
follows (unaudited):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28/
FEBRUARY 28, MARCH 31,
(IN THOUSANDS) 1998 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Homebuilding $ 408,538 304,822
Financial services 31,097 11,746
Limited-purpose finance subsidiaries 1,077 1,320
-------------------------------------------------------------------------------------------------
Total revenues $ 440,712 317,888
-------------------------------------------------------------------------------------------------
OPERATING EARNINGS:
Homebuilding $ 39,554 24,404
Financial services 4,357 3,314
Limited-purpose finance subsidiaries - 6
-------------------------------------------------------------------------------------------------
Total operating earnings 43,911 27,724
Corporate general and
administrative expenses 6,289 5,222
Interest expense 10,617 4,692
-------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 27,005 17,810
Income taxes 10,802 7,350
-------------------------------------------------------------------------------------------------
NET EARNINGS $ 16,203 10,460
-------------------------------------------------------------------------------------------------
</TABLE>
HOMEBUILDING
Homebuilding revenues increased in the first quarter of 1998 to $408.5 million
from $304.8 million (pro forma) in 1997. Revenues were higher due to a greater
number of home deliveries and an increase in the average sales price. New home
deliveries increased to 2,044 homes in the current quarter from 1,705 homes (pro
forma) for the same period in the prior year. The greatest increases in
deliveries were generated from growth in the California and Florida homebuilding
markets. The average sales price on homes delivered increased to $193,000 in
1998 from $175,000 (pro forma) in 1997. The higher average sales price was
primarily due to a greater percentage of deliveries in the California market,
which has higher average priced homes. The Company recorded land sales totaling
$8.1 million and $1.8 million (pro forma) in 1998 and 1997, respectively.
Gross margin percentages on home sales increased in the first quarter of 1998 to
20.2% from 18.8% (pro forma) in 1997. This increase was primarily attributable
to increased margins in the Company's California market. Gross margins from land
sales totaled $1.4 million, or 17%, and $0.8 million, or 46% (pro forma), in
1998 and 1997, respectively. Margins achieved on sales of land may vary
significantly from period to period.
Selling, general and administrative expenses as a percentage of homebuilding
revenues decreased in the quarter to 11.2% in 1998 from 11.6% (pro forma) in
1997. This improvement was primarily attributable to the increase in revenues in
1998.
FINANCIAL SERVICES
Operating earnings for the Financial Services Division increased in the quarter
to $4.4 million in 1998 from $3.3 million (pro forma) in 1997. Mortgage loan
originations increased to $174 million in the first quarter of 1998 from $68
million in the same quarter of 1997. This increase
14
<PAGE>
was attributable to a combination of: (1) a greater capture rate of Lennar
homebuyers, (2) a higher volume of homebuilding deliveries, and (3) a higher
average sales price of homes delivered.
The title insurance business also added to the Division's overall performance,
as contributions from Regency Title Company in Houston began to take effect.
North American Title is expected to make a greater impact in subsequent quarters
as its volume increases throughout the year.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Corporate general and administrative expenses as a percentage of total revenues
decreased in the quarter to 1.4% in 1998 from 1.6% (pro forma) in 1997. The
reduction in expenses as a percentage of revenues was largely attributable to
the increased revenues in 1998.
INTEREST EXPENSE
During the first quarter of 1998, interest incurred was $11.0 million and
interest expense was $10.6 million. This compares to interest incurred of $7.9
million (pro forma) and interest expense of $4.7 million (pro forma) in the
first quarter of 1997. The increase in interest expense was primarily the result
of higher debt levels due to the Company's expansion and an increase in the
amount of previously capitalized interest charged to expense due to a greater
number of homes delivered and land sales in the quarter.
(3) LIQUIDITY AND FINANCIAL RESOURCES
In the first quarter of 1998, $60.4 million in cash was used in the Company's
operating activities compared to $64.3 million in the corresponding period in
1997. In the first quarter of 1998, $64.7 million of cash was used to increase
inventories through land purchases, land development and construction, $15.4
million was used to reduce accounts payable and other liabilities, and $14.9
million was used to reduce current income taxes payable. These uses of cash were
partially offset by $15.9 million in cash collected from receivables during the
quarter. In the 1997 first quarter, cash flow used in operating activities
related primarily to $43.2 million of cash used to increase inventories through
land purchases, land development and construction, $16.0 million used to reduce
accounts payable and other liabilities, and $7.4 million used to reduce current
income taxes payable.
Cash used in investing activities totaled $69.8 million in the first quarter of
1998, compared to $24.5 million in the corresponding period in 1997. In the 1998
first quarter, $48.9 million of cash was used in the acquisitions of businesses
and $18.6 million was used to increase the Company's investments in
partnerships. In the first quarter of 1997, $47.5 million of cash was used to
purchase investment securities by both the discontinued Investment Division and
the Financial Services Division and $11.0 million was used to purchase operating
properties and equipment, primarily by the discontinued Investment Division.
These purchases were partially offset by $9.7 million of sales and principal
payments provided by the Company's portfolio of investment securities and $21.2
million of cash provided by the Company's investments in partnerships.
The Company meets the majority of its short-term financing needs with cash
generated from operations and funds available under its unsecured revolving
credit agreement. At February 28, 1998, the Company had unsecured revolving
credit facilities in the aggregate amount of $600.0 million, which may be used
to refinance existing indebtedness, for working capital, for acquisitions and
for general corporate purposes. At February 28, 1998, $518.7 million was
outstanding under the Company's revolving credit facilities, compared to $376.5
million outstanding at November 30, 1997. The increase was a result of the
Company's continued
15
<PAGE>
growth, including acquisitions. In March 1998, the Company amended the unsecured
revolving credit facilities, increasing the amount to $650.0 million.
In February 1998, the Company filed a shelf registration statement and
prospectus with the Securities and Exchange Commission to offer, from time to
time, its common stock, preferred stock, depositary shares, debt securities or
warrants at an aggregate initial offering price not to exceed $500 million.
Proceeds are expected to be used for general corporate purposes, which may
include the repayment of debts, acquisitions and other general corporate
purposes.
In March 1998, the Company entered into an equity draw-down agreement with a
major international banking firm (the "Firm")under which the Company will have
the option to sell common stock, up to a value of $120 million, to the Firm in
increments of up to $15 million per month. Proceeds are expected to be used in
conjunction with potential acquisitions of assets and businesses. The Company
has filed a prospectus supplement to the shelf registration statement regarding
this agreement. No other securities have been offered for sale under the shelf
registration statement as of March 31, 1998.
Based on the Company's current financial condition and financial market
resources, Lennar believes that its operations and capital resources will
provide for its current and long-term capital requirements at the Company's
anticipated levels of growth.
16
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1-3. NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were resolved by vote at the April 7, 1998 annual
meeting of stockholders of Lennar Corporation:
(1) The following members of the Board of Directors were re-elected to
hold office until 2001:
Irving Bolotin
Leonard Miller
Other directors whose term of office continued after the meeting:
Jonathan M. Jaffe
Sidney Lapidus
Reuben S. Leibowitz
Stuart A. Miller
Arnold P. Rosen
Steven J. Saiontz
(2) The Company's stockholders approved the Lennar Corporation 1997
Stock Option Plan with 116,974,155 votes cast in favor, 6,115,323
votes cast against and 215,664 shares present but abstaining.
(3) The Company's stockholders approved the Lennar Corporation 1998
Incentive Compensation Plan with 127,650,483 votes cast in favor,
1,047,063 votes cast against and 66,882 shares present but
abstaining.
(4) The Company's stockholders approved an amendment to the Company's
Certificate of Incorporation which requires that a merger,
consolidation or business combination in which holders of Common
Stock and holders of Class B Common Stock receive different
consideration be approved by holders of a majority of the
outstanding shares of Common stock with 122,173,108 votes cast in
favor, 1,070,777 votes cast against and 82,757 shares present but
abstaining.
ITEM 5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule.
(b) Reports on Form 8-K: A report on Form 8-K dated December 18, 1997
was filed by the Registrant providing pro forma financial
information
17
<PAGE>
reflecting the merger of Lennar Corporation with Pacific
Greystone Corporation, the spin-off of LNR Property
Corporation and the transfer of assets to Lennar Land
Partners, a general partnership formed between Lennar
Corporation and LNR Property Corporation.
18
<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: APRIL 14, 1998 /S/ BRUCE GROSS
-------------------------------
Bruce Gross
Chief Financial Officer
Date: APRIL 14, 1998 /S/ DIANE J. BESSETTE
-------------------------------
Diane J. Bessette
Controller
19
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LENNAR
CORPORATION UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS AND STATEMENTS OF
EARNINGS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(RESTATED FOR DISCONTINUED OPERATIONS) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997
<PERIOD-END> FEB-28-1998 FEB-28-1997
<CASH> 53,110 19,969
<SECURITIES> 0 0
<RECEIVABLES> 18,776 47,421
<ALLOWANCES> 0 0
<INVENTORY> 952,394 750,139
<CURRENT-ASSETS> 1,024,280 817,529
<PP&E> 18,639 270,294
<DEPRECIATION> 9,978 43,923
<TOTAL-ASSETS> 1,534,113 1,845,234
<CURRENT-LIABILITIES> 219,903 186,472
<BONDS> 809,258 920,445
0 0
0 0
<COMMON> 5,336 3,599
<OTHER-SE> 451,965 711,675
<TOTAL-LIABILITY-AND-EQUITY> 1,534,113 1,845,234
<SALES> 393,826 196,949
<TOTAL-REVENUES> 440,712 232,455
<CGS> 314,470 161,041
<TOTAL-COSTS> 323,360 166,008
<OTHER-EXPENSES> 79,730 46,511
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,617 3,854
<INCOME-PRETAX> 27,005 16,082
<INCOME-TAX> 10,802 6,272
<INCOME-CONTINUING> 16,203 9,810
<DISCONTINUED> 0 9,617
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,203 19,427
<EPS-PRIMARY> 0.30<F1> 0.54<F1>
<EPS-DILUTED> 0.30 0.54
<FN>
F1 - REPRESENTS BASIC EPS
</FN>
</TABLE>
