Why did Lennar restate its cash flow statements, and does the restatement change reported earnings or cash?

The filing states that distributions of earnings received from unconsolidated equity-method entities are reclassified from investing to operating activities, as management determined SFAS No. 95 requires. The restatement does not change the net change in cash for 2004, 2003 or 2002, and it has no effect on the balance sheets, statements of earnings, earnings per share or stockholders' equity.

How did operating cash flow change after the restatement?

Net cash provided by operating activities for 2004 is $401.3 million as restated, compared with $272.7 million as originally reported. For 2003 it is $718.5 million as restated versus $580.8 million as originally reported, and for 2002 it is $282.5 million versus $204.6 million. Net cash used in investing activities also changed, as the reclassified amounts moved out of investing activities.

What is the status of internal controls, and why is it significant?

Management concluded that internal control over financial reporting was effective as of November 30, 2004. Deloitte & Touche LLP disagreed, expressed an adverse opinion on both management's assessment and the effectiveness of internal control, and identified a material weakness in controls over the classification of cash flows from unconsolidated entities. Deloitte also withdrew its February 11, 2005 reports and issued new ones.

What do the backlog and deliveries indicate about near-term demand?

The backlog of sales contracts was 15,546 homes ($5.1 billion) at November 30, 2004, compared with 13,905 homes ($3.9 billion) a year earlier, and the filing states the dollar value was 30% higher. Management said it anticipates demand to remain strong in fiscal 2005. The cancellation rate was 16% in 2004, compared with 20% in 2003 and 21% in 2002.

LEN/LEN-B 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed October 24, 2005. Cited figures are marked; the original filing is the authoritative source.

Lennar Corporation's amended annual report (Form 10-K/A) for the fiscal year ended November 30, 2004 restates its consolidated statements of cash flows.

The company reclassifies distributions of earnings from unconsolidated equity-method entities from investing to operating activities: $128.5 million^a for 2004, $137.7 million for 2003 and $77.9 million for 2002. Net change in cash, the balance sheets, statements of earnings and stockholders' equity are unaffected. Restated net cash provided by operating activities for 2004 is $401.3 million, versus $272.7 million as originally reported.

The operating results described in the filing were strong. Net earnings for 2004 were $945.6 million^b, or $5.70 per diluted share, compared with $751.4 million, or $4.65 per diluted share, in 2003. Revenues from home sales rose 19% to $9.6 billion, driven by a 12% increase in home deliveries and a 6% increase in average sales price.

Homebuilding gross margin on home sales was 23.9%. The backlog of sales contracts reached 15,546 homes ($5.1 billion^c) at November 30, 2004, and the filing states that its dollar value was 30% higher than a year earlier. Cash related to homebuilding and financial services operations was $1.4 billion, and homebuilding debt to total capital was 33.3%, up from 32.2%.

The filing's most significant investor-relevant disclosure concerns internal controls. Management concluded that internal control over financial reporting was effective as of November 30, 2004 and did not consider the restatement a material weakness.

Deloitte & Touche LLP disagreed, issued an adverse opinion on management's assessment, and identified a material weakness in controls over the classification of cash flows from unconsolidated entities. Deloitte also withdrew its prior reports dated February 11, 2005.

02—Key points

Key Highlights

Restatement reclassifies $128.5 million (2004), $137.7 million (2003) and $77.9 million (2002) of distributions of earnings from unconsolidated entities from investing to operating cash flows; net change in cash is unchanged.
Net earnings rose to $945.6 million ($5.70 diluted EPS) in 2004 from $751.4 million ($4.65 diluted EPS) in 2003.
Revenues from home sales increased 19% to $9.6 billion, on a 12% increase in home deliveries and a 6% increase in average sales price to $272,000.
Backlog reached 15,546 homes worth $5.1 billion at November 30, 2004, versus 13,905 homes worth $3.9 billion a year earlier.
Deloitte & Touche issued an adverse opinion on management's internal control assessment, citing a material weakness in cash flow classification that management did not acknowledge.
Homebuilding debt to total capital was 33.3% at November 30, 2004, up from 32.2%, and the Credit Facilities provide up to $1.2 billion with no amounts outstanding at year-end.
The annual dividend rate was increased to $0.55 per share from $0.50, and 17.6 million Class A shares remained available for repurchase under the program.

03—Questions

Frequently Asked Questions

Why did Lennar restate its cash flow statements, and does the restatement change reported earnings or cash?
The filing states that distributions of earnings received from unconsolidated equity-method entities are reclassified from investing to operating activities, as management determined SFAS No. 95 requires. The restatement does not change the net change in cash for 2004, 2003 or 2002, and it has no effect on the balance sheets, statements of earnings, earnings per share or stockholders' equity.
How did operating cash flow change after the restatement?
Net cash provided by operating activities for 2004 is $401.3 million as restated, compared with $272.7 million as originally reported. For 2003 it is $718.5 million as restated versus $580.8 million as originally reported, and for 2002 it is $282.5 million versus $204.6 million. Net cash used in investing activities also changed, as the reclassified amounts moved out of investing activities.
What is the status of internal controls, and why is it significant?
Management concluded that internal control over financial reporting was effective as of November 30, 2004. Deloitte & Touche LLP disagreed, expressed an adverse opinion on both management's assessment and the effectiveness of internal control, and identified a material weakness in controls over the classification of cash flows from unconsolidated entities. Deloitte also withdrew its February 11, 2005 reports and issued new ones.
What do the backlog and deliveries indicate about near-term demand?
The backlog of sales contracts was 15,546 homes ($5.1 billion) at November 30, 2004, compared with 13,905 homes ($3.9 billion) a year earlier, and the filing states the dollar value was 30% higher. Management said it anticipates demand to remain strong in fiscal 2005. The cancellation rate was 16% in 2004, compared with 20% in 2003 and 21% in 2002.

04—Continue

← View all 10-K filings