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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
       THE SECURITIES EXCHANGE ACT OF 1934

 

         For the quarterly period ended May 31, 2003

 

Commission File Number: 1-11749

 

 

Lennar Corporation

(Exact name of registrant as specified in its charter)

 

Delaware       95-4337490

(State or other jurisdiction of

incorporation or organization)

      

(I.R.S. Employer

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 June 30, 2003:

 

Class A

    57,416,276

Class B

    16,229,267

 

Part I. Financial Information

Item 1.   Financial Statements

 

Lennar Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

(In thousands, except per share amounts)

 

    

(Unaudited)

May 31,

2003

    

November 30,

2002

  
ASSETS               

Homebuilding:

               

Cash

    $ 480,719     731,163  

Receivables, net

      69,814     48,432  

Inventories:

               

Finished homes and construction in progress

      2,351,311     2,044,694  

Land under development

      1,378,966     1,185,473  

Consolidated inventory not owned

      14,578     —    

Land held for development

      7,247     7,410  
    
 

Total inventories

      3,752,102     3,237,577  

Investments in unconsolidated partnerships

      313,093     285,594  

Other assets

      420,977     357,738  
    
 
       5,036,705     4,660,504  

Financial services

      902,356     1,095,129  
    
 

Total assets

    $ 5,939,061     5,755,633  
    
 
LIABILITIES AND STOCKHOLDERS’ EQUITY               

Homebuilding:

               

Accounts payable and other liabilities

    $ 866,813     969,779  

Liabilities related to consolidated inventory not owned

      12,186     —    

Senior notes and other debts payable, net

      1,798,198     1,585,309  
    
 
       2,677,197     2,555,088  

Financial services

      760,320     971,388  
    
 

Total liabilities

      3,437,517     3,526,476  

Stockholders’ equity:

               

Preferred stock

      —       —    

Class A common stock of $0.10 par value per share, 65,398 shares issued at May 31, 2003

      6,540     6,506  

Class B common stock of $0.10 par value per share, 16,220 shares issued at May 31, 2003

      1,622     970  

Additional paid-in capital

      1,237,617     873,502  

Retained earnings

      1,450,917     1,538,945  

Unearned restricted stock

      (5,782 )   (7,337 )

Deferred compensation plan; 73 Class A common shares, 7 Class B common shares at May 31, 2003

      (1,342 )   (1,103 )

Deferred compensation liability

      1,342     1,103  

Treasury stock, at cost; 9,849 Class A common shares at May 31, 2003

      (159,038 )   (158,992 )

Accumulated other comprehensive loss

      (30,332 )   (24,437 )
    
 

Total stockholders’ equity

      2,501,544     2,229,157  
    
 

Total liabilities and stockholders’ equity

    $ 5,939,061     5,755,633  
    
 

 

See accompanying notes to consolidated condensed financial statements.

 

1

Lennar Corporation and Subsidiaries

Consolidated Condensed Statements of Earnings

(Unaudited)

(In thousands, except per share amounts)

 

    

Three Months Ended

May 31,

   

Six Months Ended

May 31,

     2003
    2002
    2003
    2002

Revenues:

                      

Homebuilding

    $ 1,985,073    1,461,804    3,473,808    2,603,923

Financial services

      136,095    109,813    264,230    215,438
    
  
  
  

Total revenues

      2,121,168    1,571,617    3,738,038    2,819,361
    
  
  
  

Costs and expenses:

                      

Homebuilding

      1,702,724    1,267,912    3,003,146    2,277,296

Financial services

      98,917    83,102    192,707    165,303

Corporate general and administrative

      25,727    19,780    47,391    36,404

Interest

      36,266    30,530    66,468    54,578
    
  
  
  

Total costs and expenses

      1,863,634    1,401,324    3,309,712    2,533,581
    
  
  
  

Earnings before provision for income taxes

      257,534    170,293    428,326    285,780

Provision for income taxes

      97,219    64,286    161,693    107,882
    
  
  
  

Net earnings

    $ 160,315    106,007    266,633    177,898
    
  
  
  

Basic earnings per share (adjusted for 10% stock distribution, see Notes 4 and 9)

    $ 2.26    1.51    3.77    2.55
    
  
  
  

Diluted earnings per share (adjusted for 10% stock distribution, see Notes 4 and 9)

    $ 2.05    1.37    3.42    2.31
    
  
  
  

Cash dividends per Class A common share

    $ 0.0125    0.0125    0.025    0.025
    
  
  
  

Cash dividends per Class B common share

    $ 0.0125    0.01125    0.02375    0.0225
    
  
  
  

 

See accompanying notes to consolidated condensed financial statements.

 

 

2

Lennar Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

    

Six Months Ended

May 31,

  
     2003
     2002
  

Cash flows from operating activities:

               

Net earnings

    $ 266,633     177,898  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

               

Depreciation and amortization

      29,850     20,002  

Amortization of discount on debt

      12,911     12,516  

Tax benefit from exercise of stock options and vesting of restricted stock

      4,255     8,410  

Equity in earnings from unconsolidated partnerships

      (19,918 )   (12,908 )

Deferred income tax provision (benefit)

      (15,066 )   16,565  

Changes in assets and liabilities, net of effect from acquisitions:

               

Increase in receivables

      (21,006 )   (40,020 )

Increase in inventories

      (468,352 )   (304,596 )

Increase in other assets

      (25,300 )   (17,304 )

Decrease in financial services loans held for sale

      224,485     253,373  

Decrease in accounts payable and other liabilities

      (117,130 )   (83,550 )
    
 

Net cash provided by (used in) operating activities

      (128,638 )   30,386  
    
 

Cash flows from investing activities:

               

Net additions to operating properties and equipment

      (8,923 )   (5,746 )

(Increase) decrease in investments in unconsolidated partnerships, net

      35,914     (14,094 )

(Increase) decrease in financial services mortgage loans

      (1,908 )   14,462  

Purchases of investment securities

      (8,026 )   (20,934 )

Proceeds from investment securities

      3,992     15,000  

Acquisitions, net of cash acquired

      (107,929 )   (21,251 )
    
 

Net cash used in investing activities

      (86,880 )   (32,563 )
    
 

Cash flows from financing activities:

               

Net repayments under financial services short-term debt

      (211,681 )   (264,927 )

Net proceeds from issuance of 5.95% senior notes

      341,730     —    

Proceeds from other borrowings

      —       17  

Principal payments on other borrowings

      (158,690 )   (100,913 )

Common stock:

               

Issuance, net

      7,832     15,585  

Dividends and other

      (1,993 )   (1,586 )
    
 

Net cash used in financing activities

      (22,802 )   (351,824 )
    
 

Net decrease in cash

      (238,320 )   (354,001 )

Cash at beginning of period

      777,159     877,274  
    
 

Cash at end of period

    $ 538,839     523,273  
    
 

 

3

Lennar Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows—Continued

(Unaudited)

(In thousands)

 

    

Six Months Ended

May 31,

     2003
    2002

Summary of cash:

            

Homebuilding

    $ 480,719    461,497

Financial services

      58,120    61,776
    
  
     $ 538,839    523,273
    
  

Supplemental disclosures of cash flow information:

            

Cash paid for interest, net of amounts capitalized

    $ 1,017    5,944

Cash paid for income taxes

    $ 266,112    120,943

Supplemental disclosures of non-cash investing and financing activities:

            

Consolidated inventory not owned

    $ 12,186    —  

Purchases of inventory financed by sellers

    $ 14,251    3,351

Fair value of guarantees of unconsolidated partnership debt

    $ 1,344    —  
    
  

 

See accompanying notes to consolidated condensed financial statements.

 

 

4

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 and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest or is the primary beneficiary (see Note 12). All significant intercompany transactions and balances have been eliminated in consolidation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the November 30, 2002 audited financial statements in the Company’s Annual Report on Form 10-K for the year then ended. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the 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.

 

The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated condensed statements of earnings for the three and six months ended May 31, 2003 are not necessarily indicative of the results to be expected for the full year.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

 

As discussed in Note 9, basic and diluted earnings per share amounts, weighted average shares outstanding and certain other share data have been adjusted for the three and six months ended May 31, 2003 and 2002 to reflect the effect of an April 2003 stock distribution.

 

(2) Operating and Reporting Segments

 

The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services.

 

Homebuilding operations primarily include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through unconsolidated partnerships.

 

The Financial Services Division provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of the Company’s homes and others. It sells the loans it originates in the secondary mortgage market. The Financial Services Division also provides high-speed Internet access, cable television, and alarm installation and monitoring services for both the Company’s homebuyers and other customers.

 

5

(3) Acquisitions

 

During 2003, the Company acquired two homebuilders which expanded the Company’s presence in California and South Carolina. In connection with these acquisitions, total consideration, including debt of the acquired companies, amounted to approximately $100 million. The results of operations of the acquired homebuilders are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as their effect is not considered material.

 

(4) Earnings Per Share

 

Basic earnings per share is computed by dividing net 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. Basic and diluted earnings per share were calculated as follows:

 

     Three Months Ended
May 31,
    Six Months Ended
May 31,

(In thousands, except per share amounts)

    2003
    2002
    2003
    2002

Numerator:

                      

Numerator for basic earnings per share—net earnings

    $ 160,315    106,007    266,633    177,898

Interest on zero-coupon senior convertible debentures due 2018, net of tax

      1,664    1,599    3,306    3,177
    
  
  
  

Numerator for diluted earnings per share

    $ 161,979    107,606    269,939    181,075
    
  
  
  

Denominator (adjusted for 10% stock distribution, see disclosure below):

                      

Denominator for basic earnings per share—weighted average shares

      70,795    70,096    70,714    69,865

Effect of dilutive securities:

                      

Employee stock options and restricted stock

      1,605    1,773    1,535    1,811

Zero-coupon senior convertible debentures due 2018

      6,778    6,778    6,778    6,778