- Revenues of $2.3 billion
- down 44%
- Loss per share of $3.25 (includes a $3.33 per share charge related to
valuation adjustments and write-offs of option deposits and pre-
acquisition costs, goodwill and financial services notes receivable)
- Homebuilding operating loss of $787.7 million (includes $847.5 million of
homebuilding valuation adjustments and write-offs noted above)
- Financial Services operating loss of $5.2 million (includes $9.3 million
of write-offs of notes receivable)
- Homebuilding debt decreased $212.8 million; homebuilding debt to total
capital of 33.5%
- Deliveries of 7,636 homes - down 41%
- New orders of 5,804 homes - down 48%; cancellation rate of 32%
- Backlog dollar value of $2.2 billion - down 60%
MIAMI, Sept. 25 /PRNewswire-FirstCall/ -- Lennar Corporation (NYSE: LEN
and LEN.B), one of the nation's largest homebuilders, today reported
results for its third quarter ended August 31, 2007. Third quarter net loss
in 2007 was $513.9 million, or $3.25 per diluted share, compared to third
quarter net earnings of $206.7 million, or $1.30 per diluted share, in
2006.
Stuart Miller, President and Chief Executive Officer of Lennar
Corporation, said, "It is already well documented that the housing market
has continued to deteriorate throughout our third quarter. Heavy
discounting by builders, and now the existing home market as well, has
continued to drive pricing downward. Consumer confidence in housing has
remained low, while the mortgage market has continued to redefine itself,
creating higher cancellation rates."
Mr. Miller continued, "Our response to, and primary focus in, this
environment continues to be to adjust pricing to meet current market
conditions in order to keep inventories low and to keep our balance sheet
positioned for the future. The net effect has been a continued
deterioration of our net margin and accordingly, higher impairments to our
inventory."
"We also have, and continue to, reduce overhead to be 'right-sized' for
new and anticipated lower volume levels. While it has been challenging to
stay ahead of rapidly adjusting market conditions and resulting revenue
reductions, we have reduced our workforce to date by approximately 35% and
expect continued reductions in the fourth quarter."
Mr. Miller concluded, "The combination of moving our stated inventory
to current market valuations, 'right-sizing' our overhead to reduced volume
levels and a stabilization of market conditions should ultimately bring us
back to profitability."
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 2007 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 2006
Homebuilding
Revenues from home sales decreased 44% in the third quarter of 2007 to
$2.2 billion from $3.9 billion in 2006. Revenues were lower primarily due
to a 41% decrease in the number of home deliveries and a 6% decrease in the
average sales price of homes delivered in 2007. New home deliveries,
excluding unconsolidated entities, decreased to 7,266 homes in the third
quarter of 2007 from 12,337 homes last year. In the third quarter of 2007,
new home deliveries were lower in each of the Company's homebuilding
segments and Homebuilding Other, compared to 2006. The average sales price
of homes delivered decreased to $296,000 in the third quarter of 2007 from
$316,000 in the same period last year, primarily due to higher sales
incentives offered to homebuyers ($46,000 per home delivered in the third
quarter of 2007, compared to $35,900 per home delivered in the same period
last year).
Gross margins on home sales excluding FAS 144 valuation adjustments
were $304.1 million, or 14.0%, in the third quarter of 2007, compared to
$761.2 million, or 19.5%, in 2006. Gross margin percentage on home sales
decreased compared to last year in all of the Company's homebuilding
segments primarily due to higher sales incentives offered to homebuyers.
Gross margins on home sales were $1.0 million in the third quarter of 2007,
which included $303.1 million of FAS 144 valuation adjustments, compared to
gross margins on home sales of $729.2 million, or 18.7%, in the third
quarter of 2006, which included $32.0 million of FAS 144 valuation
adjustments. Gross margins on home sales excluding FAS 144 valuation
adjustments is a non-GAAP financial measure disclosed by certain of the
Company's competitors and has been presented because the Company finds it
useful in evaluating its performance and believes that it helps readers of
the Company's financial statements compare its operations with those of its
competitors.
Selling, general and administrative expenses were reduced by $122.3
million, or 29%, in the third quarter of 2007, compared to the same period
last year, primarily due to reductions in associate headcount and variable
compensation expense. As a percentage of revenues from home sales, selling,
general and administrative expenses increased to 14.0% in the third quarter
of 2007, from 10.9% in 2006. The 310 basis point increase was primarily due
to lower revenues.
Loss on land sales totaled $344.7 million in the third quarter of 2007,
which included $114.6 million of FAS 144 valuation adjustments and $242.5
million of write-offs of deposits and pre-acquisition costs related to
15,000 homesites under option that the Company does not intend to purchase.
In the third quarter of last year, loss on land sales totaled $0.3 million,
which included $11.8 million of FAS 144 valuation adjustments and $15.8
million of write-offs of deposits and pre-acquisition costs related to
8,400 homesites that were under option.
Equity in loss from unconsolidated entities was $127.4 million in the
third quarter of 2007, which included $138.7 million of FAS 144 valuation
adjustments to the Company's investments in unconsolidated entities,
compared to equity in loss from unconsolidated entities of $5.9 million,
which included $16.5 million of FAS 144 valuation adjustments to the
Company's investments in unconsolidated entities last year. Management fees
and other expense, net, totaled $10.5 million in the third quarter of 2007
(including $32.1 million of valuation adjustments and $16.5 million of
goodwill write-offs, partially offset by the recognition of $24.7 million
of profit deferred at the time of the recapitalization of the LandSource
joint venture), compared to management fees and other income, net of $21.8
million in the third quarter of 2006. Minority interest expense, net was
$1.8 million and $1.1 million, respectively, in the third quarter of 2007
and 2006. Sales of land, equity in loss from unconsolidated entities,
management fees and other income (expense), net and minority interest
expense, net may vary significantly from period to period depending on the
timing of land sales and other transactions entered into by the Company and
unconsolidated entities in which it has investments.
Financial Services
Operating loss for the Financial Services segment was $5.2 million in
the third quarter of 2007, compared to operating earnings of $61.7 million
last year, which included a $17.7 million pretax gain generated from
monetizing the segment's personal lines insurance policies. The decrease
was primarily due to a decline in profitability from both the segment's
mortgage and title operations and $9.3 million of partial write-offs of
land seller notes receivable. The decline in profitability was due to the
overall weakness in the homebuilding market, which led to a decrease in
volume and transactions for the mortgage and title operations compared to
last year.
Corporate General and Administrative Expenses
Corporate general and administrative expenses were reduced by $6.2
million, or 12%, in the third quarter of 2007, compared to the same period
last year. As a percentage of total revenues, corporate general and
administrative expenses increased to 1.9% in the third quarter of 2007,
from 1.2% in 2006, primarily due to lower revenues.
NINE MONTHS ENDED AUGUST 31, 2007 COMPARED TO
NINE MONTHS ENDED AUGUST 31, 2006
Homebuilding
Revenues from home sales decreased 31% in the nine months ended August
31, 2007 to $7.5 billion from $10.8 billion in 2006. Revenues were lower
primarily due to a 27% decrease in the number of home deliveries and a 7%
decrease in the average sales price of homes delivered in 2007. New home
deliveries, excluding unconsolidated entities, decreased to 24,772 homes in
the nine months ended August 31, 2007 from 33,747 homes last year. In the
nine months ended August 31, 2007, new home deliveries were lower in each
of the Company's homebuilding segments and Homebuilding Other, compared to
2006. The average sales price of homes delivered decreased to $299,000 in
the nine months ended August 31, 2007 from $321,000 in 2006 primarily due
to higher sales incentives offered to homebuyers ($45,000 per home
delivered in 2007, compared to $25,900 per home delivered in 2006).
Gross margins on home sales excluding inventory valuation adjustments
were $1.1 billion, or 14.4%, in the nine months ended August 31, 2007,
compared to $2.4 billion, or 22.5%, in 2006. Gross margin percentage on
home sales decreased compared to last year in all of the Company's
homebuilding segments and Homebuilding Other primarily due to higher sales
incentives offered to homebuyers. Gross margins on home sales were $555.1
million, or 7.4%, in the nine months ended August 31, 2007, which included
$523.0 million of FAS 144 valuation adjustments, compared to gross margins
on home sales of $2.4 billion, or 22.2%, in the nine months ended August
31, 2006, which included $40.7 million of FAS 144 valuation adjustments.
Selling, general and administrative expenses were reduced by $211.1
million, or 16%, in the nine months ended August 31, 2007, compared to the
same period last year, primarily due to reductions in associate headcount
and variable compensation expense. As a percentage of revenues from home
sales, selling, general and administrative expenses increased to 14.3% in
the nine months ended August 31, 2007, from 11.8% in 2006. The 250 basis
point increase was primarily due to lower revenues.
Loss on land sales totaled $480.0 million in the nine months ended
August 31, 2007, which included $197.2 million of FAS 144 valuation
adjustments and $312.4 million of write-offs of deposits and
pre-acquisition costs related to 24,400 homesites under option that the
Company does not intend to purchase. In the nine months ended August 31,
2006, gross profit from land sales totaled $89.9 million, net of $35.8
million of FAS 144 valuation adjustments and $41.1 million of write-offs of
deposits and pre-acquisition costs related to 14,800 homesites that were
under option.
Equity in loss from unconsolidated entities was $168.1 million in the
nine months ended August 31, 2007, which included $172.7 million of FAS 144
valuation adjustments to the Company's investments in unconsolidated
entities, compared to equity in earnings from unconsolidated entities of
$47.1 million, net of $16.7 million of FAS 144 valuation adjustments to the
Company's investments in unconsolidated entities last year. Management fees
and other expense, net, totaled $9.5 million in the nine months ended
August 31, 2007 (including $46.4 million of valuation adjustments and $16.5
million of goodwill write-offs, partially offset by the recognition of
$24.7 million of profit deferred at the time of the recapitalization of the
LandSource joint venture), compared to management fees and other income,
net of $57.7 million in 2006. Minority interest expense, net was $3.2
million and $12.1 million, respectively, in the nine months ended August
31, 2007 and 2006. Sales of land, equity in earnings (loss) from
unconsolidated entities, management fees and other income (expense), net
and minority interest expense, net may vary significantly from period to
period depending on the timing of land sales and other transactions entered
into by the Company and unconsolidated entities in which it has
investments.
In February 2007, the Company's LandSource joint venture admitted MW
Housing Partners as a new strategic partner. The transaction resulted in a
cash distribution to the Company of $707.6 million. The Company's resulting
ownership of LandSource is 16%. If LandSource reaches certain financial
targets, the Company will have a disproportionate share of the entity's
future positive net cash flow. As a result of the recapitalization, the
Company recognized a pretax gain of $175.9 million in 2007 and could
potentially recognize additional profits in future years, in addition to
profits from its continuing ownership interest.
Financial Services
Operating earnings for the Financial Services segment were $24.8
million in the nine months ended August 31, 2007, compared to $106.9
million last year, which included a $17.7 million pretax gain generated
from monetizing the segment's personal lines insurance policies. The
decrease was primarily due to a decline in profitability from both the
segment's mortgage and title operations and $27.9 million of partial
write-offs of land seller notes receivable. The decline in profitability
was due to the overall weakness in the homebuilding market, which led to a
decrease in volume and transactions for the mortgage and title operations
compared to last year.
Corporate General and Administrative Expenses
Corporate general and administrative expenses were reduced by $21.8
million, or 14%, for the nine months ended August 31, 2007, compared to
2006. As a percentage of total revenues, corporate general and
administrative expenses increased to 1.7% in the nine months ended August
31, 2007, from 1.3% in the same period last year, primarily due to lower
revenues.
Lennar Corporation, founded in 1954, is one of the nation's leading
builders of quality homes for all generations. The Company builds
affordable, move-up and retirement homes primarily under the Lennar brand
name. Lennar's Financial Services segment provides primarily mortgage
financing, title insurance and closing services for both buyers of the
Company's homes and others. Previous press releases and further information
about the Company may be obtained at the "Investor Relations" section of
the Company's website, http://www.lennar.com.
Some of the statements in this press release are "forward-looking
statements," as that term is defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include statements
regarding our business, financial condition, results of operations,
strategies and prospects. You can identify forward-looking statements by
the fact that these statements do not relate strictly to historical or
current matters. Rather, forward-looking statements relate to anticipated
or expected events, activities, trends or results. Because forward-looking
statements relate to matters that have not yet occurred, these statements
are inherently subject to risks and uncertainties. Many factors could cause
our actual activities or results to differ materially from the activities
and results anticipated in forward-looking statements. These factors
include those described under the caption "Risk Factors" in Item 1A of our
Annual Report on Form 10-K for our fiscal year ended November 30, 2006. We
do not undertake any obligation to update forward-looking statements.
A conference call to discuss the Company's third quarter earnings will
be held at 11:00 a.m. Eastern time on Tuesday, September 25, 2007. The call
will be broadcast live on the Internet and can be accessed through the
Company's website at http://www.lennar.com. If you are unable to participate in
the conference call, the call will be archived at http://www.lennar.com for 90
days. A replay of the conference call will also be available later that day
by calling 320-365- 3844 and entering 887014 as the confirmation number.
LENNAR CORPORATION AND SUBSIDIARIES
Selected Revenues and Earnings Information
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
2007 2006 2007 2006
Revenues:
Homebuilding $2,229,188 3,996,791 7,634,168 11,520,811
Financial services 112,665 185,644 375,708 479,786
Total revenues $2,341,853 4,182,435 8,009,876 12,000,597
Homebuilding operating
earnings (loss) $ (787,698) 317,222 (999,388) 1,305,507
Financial services
operating earnings (loss) (5,245) 61,694 24,834 106,910
Corporate general and
administrative expenses 44,700 50,861 137,436 159,284
Earnings (loss) before
provision (benefit) for
income taxes (837,643) 328,055 (1,111,990) 1,253,133
Provision (benefit) for
income taxes (323,791) 121,380 (422,556) 463,659
Net earnings (loss) $ (513,852) 206,675 (689,434) 789,474
Average shares outstanding:
Basic 157,973 157,634 157,600 158,344
Diluted 157,973 159,225 157,600 162,231
Earnings (loss) per share:
Basic $ (3.25) 1.31 (4.37) 4.99
Diluted $ (3.25) 1.30 (4.37) 4.88
Supplemental information:
Interest incurred (1) $ 45,191 59,453 157,460 171,940
EBIT before valuation
adjustments and write-offs
of option deposits and
pre-acquisition costs,
goodwill and financial services
notes receivable (2):
Earnings (loss) before
provision (benefit) for
income taxes $ (837,643) 328,055 (1,111,990) 1,253,133
Interest expense 40,299 60,868 155,659 177,960
Valuation adjustments and
write-offs of option
deposits and pre-
acquisition costs,
goodwill and financial
services notes receivable 856,758 76,170 1,296,101 134,325
EBIT before valuation
adjustments and write-
offs of option deposits
and pre-acquisition
costs, goodwill and
financial services
notes receivable $ 59,414 465,093 339,770 1,565,418
(1) Amount represents interest incurred related to homebuilding debt,
which is capitalized to inventories and relieved as cost of sales when
homes are delivered or land is sold.
(2) EBIT before valuation adjustments and write-offs of option deposits
and pre-acquisition costs, goodwill and financial services notes
receivable is a non-GAAP financial measure derived by adding back
interest expense, valuation adjustments and write-offs of option
deposits and pre-acquisition costs, goodwill and financial services
notes receivable reflected in earnings (loss) before provision
(benefit) for income taxes. This financial measure is used in the
Company's revolving credit facility's covenant calculation.
LENNAR CORPORATION AND SUBSIDIARIES
Homebuilding Information
(In thousands)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
2007 2006 2007 2006
Revenues:
Sales of homes $2,169,443 3,902,540 7,479,322 10,846,508
Sales of land 59,745 94,251 154,846 674,303
Total revenues 2,229,188 3,996,791 7,634,168 11,520,811
Costs and expenses:
Cost of homes sold 2,168,446 3,173,342 6,924,224 8,442,879
Cost of land sold 404,444 94,547 634,808 584,425
Selling, general
administrative 304,254 426,520 1,069,575 1,280,676
Total costs and
expenses 2,877,144 3,694,409 8,628,607 10,307,980
Gain on recapitalization of
unconsolidated entity - - 175,879 -
Equity in earnings (loss)
from unconsolidated entities(127,409) (5,903) (168,137) 47,079
Management fees and other
income (expense), net (10,511) 21,844 (9,501) 57,652
Minority interest expense,
net 1,822 1,101 3,190 12,055
Operating earnings (loss) $ (787,698) 317,222 (999,388) 1,305,507
LENNAR CORPORATION AND SUBSIDIARIES
Valuation Adjustments and Write-offs
(In thousands)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
2007 2006 2007 2006
FAS 144 valuation adjustments to
finished homes,
CIP and land the Company intends to
build homes on:
East $ 92,542 10,918 211,950 16,816
Central 35,645 - 63,112 1,578
West 149,893 19,292 216,071 20,507
Other 25,056 1,802 31,899 1,802
Total FAS 144 valuation adjustments
to finished homes,
CIP and land the Company intends to
build homes on 303,136 32,012 523,032 40,703
FAS 144 valuation adjustments to land
the Company intends to sell to
third parties:
East 32,228 5,116 72,306 8,137
Central 16,334 614 19,044 13,319
West 41,242 - 64,041 -
Other 24,755 6,084 41,827 14,311
Total FAS 144 valuation adjustments
to land the Company intends to sell
to third parties 114,559 11,814 197,218 35,767
Write-offs of option deposits and
pre-acquisition costs:
East 44,553 3,955 74,331 7,122
Central 38,205 2,232 49,413 2,822
West 139,719 8,522 164,459 16,786
Other 20,037 1,109 24,182 14,411
Total write-offs of option deposits
and pre-acquisition costs 242,514 15,818 312,385 41,141
FAS 144 valuation adjustments to
investments in unconsolidated entities:
East 3,178 926 7,011 926
Central 9,445 - 10,588 -
West 126,062 14,395 155,113 14,395
Other - 1,205 - 1,393
Total FAS 144 valuation adjustments
to investments in
unconsolidated entities 138,685 16,526 172,712 16,714
Valuation adjustments to investments
in unconsolidated entities:
East 19,850 - 26,719 -
Central 5,752 - 5,752 -
West 2,990 - 10,396 -
Other 3,505 - 3,505 -
Total valuation adjustments to
investments in unconsolidated
entities: 32,097 - 46,372 -
Goodwill write-offs:
East - - - -
Central 2,828 - 2,828 -
West - - - -
Other 13,669 - 13,669 -
Total goodwill write-offs 16,497 - 16,497 -
Financial services write-offs of
notes receivable 9,270 - 27,885 -
Total valuation adjustments and
write-offs of option deposits and
pre-acquisition costs, goodwill and
financial services notes receivable $856,758 76,170 1,296,101 134,325
LENNAR CORPORATION AND SUBSIDIARIES
Summary of Deliveries, New Orders and Backlog
(Dollars in thousands)
(unaudited)
At or for the
Three Months Ended Nine Months Ended
August 31, August 31,
2007 2006 2007 2006
Deliveries:
East 2,089 3,679 7,753 10,083
Central 2,739 4,485 9,137 12,439
West 2,043 3,565 6,884 9,923
Other 765 1,309 2,465 3,117
Total 7,636 13,038 26,239 35,562
Of the total deliveries listed above, 370 and 1,467, respectively,
represent deliveries from unconsolidated entities for the three and
nine months ended August 31, 2007, compared to 701 and 1,815 deliveries
in the same periods last year.
New Orders:
East 1,552 2,747 6,295 8,615
Central 2,064 4,353 7,073 12,419
West 1,591 2,937 5,347 8,761
Other 597 1,019 2,277 2,811
Total 5,804 11,056 20,992 32,606
Of the total new orders listed above, 232 and 968, respectively,
represent new orders from unconsolidated entities for the three and nine
months ended August 31, 2007, compared to 532 and 1,433 new orders in
the same periods last year.
Backlog - Homes:
East 2,687 6,240
Central 1,534 4,527
West 1,454 4,043
Other 692 1,198
Total 6,367 16,008
Of the total homes in backlog listed above, 550 represents homes in
backlog from unconsolidated entities at August 31, 2007, compared to 1,335
homes in backlog at August 31, 2006.
Backlog - Dollar Value:
East $ 922,909 2,190,137
Central 340,236 1,089,275
West 686,393 1,866,180
Other 276,510 458,463
Total $2,226,048 5,604,055
Of the total dollar value of homes in backlog listed above, $268,698
represents the backlog dollar value from unconsolidated entities at
August 31, 2007, compared to $577,630 of backlog dollar value at August
31, 2006.
Lennar's reportable homebuilding segments and homebuilding other consist
of homebuilding divisions located in the following states:
East: Florida, Maryland, New Jersey and Virginia
Central: Arizona, Colorado and Texas
West: California and Nevada
Other: Illinois, Minnesota, New York, North Carolina and South
Carolina
LENNAR CORPORATION AND SUBSIDIARIES
Supplemental Data
(Dollars in thousands)
(unaudited)
August 31,
2007 2006
Homebuilding debt $2,571,291 2,784,074
Stockholders' equity 5,097,259 5,930,798
Total capital $7,668,550 8,714,872
Homebuilding debt to total capital 33.5% 31.9%
Homebuilding debt $2,571,291 2,784,074
Less: Homebuilding cash 128,049 143,677
Net homebuilding debt $2,443,242 2,640,397
Net homebuilding debt to total
capital (1) 32.4% 30.8%
(1) Net homebuilding debt to total capital consists of net homebuilding
debt (homebuilding debt less homebuilding cash) divided by total
capital (net homebuilding debt plus stockholders' equity).
SOURCE Lennar Corporation
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