01—Abstract
Summary
Summary of the 10-K filed January 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Lennar Corporation (LEN) reported a net loss of $1.94 billiona, or $12.31 per basic and diluted share, for the fiscal year ended November 30, 2007, compared with net earnings of $593.9 million, or $3.69 per diluted share, in 2006.
Revenues fell to $10.19 billionb from $16.27 billion. Homebuilding revenues were $9.73 billion, down from $15.62 billion, and the filing attributes the decline to weak market conditions, with new home deliveries down to 33,283 from 49,568 and the average sales price down to $297,000 from $315,000. The company recorded $2.4 billion of inventory adjustments, $496.4 million of adjustments to unconsolidated entities, and $190.2 million of goodwill impairments, and it wrote off its remaining homebuilding goodwill of $173.7 million in the fourth quarter.
Balance sheet pressure is significant. Total stockholders' equity fell to $3.82 billionc from $5.70 billion, and homebuilding debt to total capital rose to 37.5% from 31.4%. Moody's and S&P downgraded senior debt to Ba1 and BB+ in October and November 2007, so the company no longer has investment-grade ratings from those agencies and has lost access to commercial paper.
In January 2008 the company amended its credit facility, reducing the commitment to $1.5 billiond from $3.1 billion and requiring joint venture recourse debt to be reduced by $300 million in fiscal 2008 and a further $200 million by the end of fiscal 2009. The company also sold a land portfolio to a Morgan Stanley land venture for $525 million, which did not qualify as a sale under GAAP. Cash generation was positive, with $444.5 million from operating activities and $307.0 million from investing activities, and cash at year-end was $795.2 million.
The company expects to receive $852 million of tax refunds from NOL carryback claims, and it reports a net deferred tax asset of $746.9 million with no valuation allowance. Workforce was cut to 6,934 employees at January 11, 2008, from 13,000 at November 30, 2006.
02—Key points
Key Highlights
- Net loss of $1.94 billion ($12.31 per share) in fiscal 2007, versus net earnings of $593.9 million ($3.69 per diluted share) in fiscal 2006.
- Total revenues declined to $10.19 billion from $16.27 billion; home deliveries fell to 33,283 from 49,568 and new orders to 25,753 from 42,212.
- Inventory valuation adjustments and write-offs totaled $3.16 billion in 2007, including $2.4 billion of inventory adjustments and $190.2 million of goodwill impairments.
- Credit ratings cut: Moody's lowered senior debt to Ba1 and S&P to BB+, removing investment-grade status from both; the company no longer has access to commercial paper or unsecured fixed-rate note markets.
- January 2008 credit facility amendment reduced the commitment to $1.5 billion from $3.1 billion and requires reducing joint venture recourse debt by $300 million in fiscal 2008 and $500 million total by fiscal 2009.
- Stockholders' equity fell to $3.82 billion from $5.70 billion, and homebuilding debt to total capital rose to 37.5% from 31.4%.
- Operating cash flow was $444.5 million; cash at year-end was $795.2 million, and NOL carryback claims produced $852 million of tax refunds after year-end.
03—Questions
Frequently Asked Questions
Why did Lennar report a large loss in fiscal 2007?
The filing attributes the loss to weak homebuilding market conditions that persisted through 2007, including high cancellation rates of 30%, new orders down 39%, and higher sales incentives averaging $48,000 per home delivered. These drove $2.4 billion of inventory adjustments, $496.4 million of joint venture adjustments, and $190.2 million of goodwill impairments.
How did the credit rating downgrades affect Lennar's financing?
Moody's lowered senior debt to Ba1 in October 2007 and S&P lowered it to BB+ in November 2007, so senior debt is no longer investment grade at those agencies. Lennar no longer has access to the commercial paper market or unsecured fixed-rate notes, although Fitch still rates its senior debt investment grade.
What changes were made to Lennar's credit facility?
In January 2008 the company amended its credit facility, reducing the commitment to $1.5 billion from $3.1 billion, modifying the minimum tangible net worth requirement and restructuring the borrowing base. Joint venture recourse debt must be reduced by $300 million in fiscal 2008 and by a total of $500 million by the end of fiscal 2009, and failure to meet this schedule would be a violation of the amended facility.
What is the Morgan Stanley land venture transaction?
In November 2007 Lennar formed a strategic land investment venture with Morgan Stanley Real Estate Fund II, L.P., acquiring a 20% ownership interest and 50% voting rights, and sold land to it for $525 million. Because of Lennar's continuing involvement, the transaction did not qualify as a sale under GAAP, and the company recorded a $740.4 million valuation adjustment on the inventory sold.
Does Lennar have enough liquidity to weather the downturn?
The filing reports $795.2 million of cash at November 30, 2007, $444.5 million of operating cash flow, and a $1.5 billion revolving credit commitment with no outstanding balance at year-end. It also expects $852 million of NOL carryback tax refunds. The company believes its operations and borrowing resources will meet current and long-term capital requirements, but it says that further market deterioration could require additional waivers or amendments.
04—Continue