01—Abstract
Summary
Summary of the 10-K filed January 29, 2013. Cited figures are marked; the original filing is the authoritative source.
Lennar Corporation reported a year of recovery in fiscal 2012 (year ended November 30, 2012).
Net earnings attributable to Lennar were $679.1 milliona, or $3.11 per diluted share, compared to $92.2 million, or $0.48 per diluted share, in 2011. The result includes a partial reversal of the deferred tax asset valuation allowance of $491.5 million, or $2.25 per diluted share. Excluding that reversal, the company's earnings before income taxes were $222.1 million, compared to $98.0 million in 2011.
Home sales revenues rose 33% to $3.5 billionb, driven by a 28% increase in deliveries excluding unconsolidated entities and a 4% increase in the average sales price to $255,000. New orders increased 37%, and backlog dollar value reached $1.16 billion, up from $560.7 million. The Lennar Homebuilding gross margin on home sales improved to 22.7% from 19.9%, and sales incentives fell to 10.0% of home sales revenue from 12.1%.
Lennar Financial Services operating earnings rose to $84.8 millionc from $20.7 million, and the Rialto Investments segment produced operating earnings of $11.6 million, compared to $63.5 million in 2011. Management described the housing market as having stabilized and begun to recover, and said 2013 should be a year of substantial profitability. Financing activity included issuing $400 million of 4.75% senior notes due 2017, $350 million of 4.750% senior notes due 2022, and an additional $50 million of 3.25% convertible senior notes due 2021, while retiring $204.7 million of 5.95% senior notes through a tender offer.
Lennar Homebuilding debt to total capital was 54.0%, down from 55.5%. The company ended the year with $1.1 billiond of Lennar Homebuilding cash and cash equivalents and a new $525 million unsecured revolving credit facility. Investors should note that the company does not hold an investment grade credit rating, and that most of 2012 earnings came from non-cash tax benefits rather than operating cash flow, since cash used in operating activities was $424.6 million.
02—Key points
Key Highlights
- Net earnings attributable to Lennar of $679.1 million ($3.11 per diluted share) in 2012, versus $92.2 million ($0.48 per diluted share) in 2011, including a $491.5 million partial reversal of the deferred tax asset valuation allowance ($2.25 per diluted share).
- Total revenues of $4.10 billion in 2012, up from $3.10 billion in 2011; home sales revenues increased 33% to $3.5 billion.
- New orders increased 37% year over year to 15,684 homes, and backlog dollar value rose to $1.16 billion from $560.7 million.
- Gross margin on home sales improved to 22.7% from 19.9%, while sales incentives decreased to 10.0% of home sales revenue from 12.1%.
- Lennar Financial Services operating earnings were $84.8 million, up from $20.7 million, on a significant increase in refinance transactions and homebuilding deliveries.
- Cash used in operating activities was $424.6 million in 2012, compared to $259.1 million in 2011, and the company does not have an investment grade credit rating.
- Lennar Homebuilding debt to total capital declined to 54.0% from 55.5%, and the company ended 2012 with $1.1 billion of Lennar Homebuilding cash and cash equivalents.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed January 29, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $4.11B$3.10B | +32.6% |
| Operating Expenses | $3.79B$2.99B | +26.6% |
| Operating Income | $349.45M$193.23M | +80.8% |
| Interest Expense | $181.38M$162.97M | +11.3% |
| Net Income | $679.12M$92.20M | +636.6% |
| EPS (Basic) | $3.58$0.49 | +630.6% |
| EPS (Diluted) | $3.11$0.48 | +547.9% |
| Shares Outstanding (Diluted) | 218.69M195.19M | +12.0% |
05—Questions
Frequently Asked Questions
What drove the increase in Lennar's 2012 net earnings?
Net earnings attributable to Lennar were $679.1 million in 2012, compared to $92.2 million in 2011. A substantial portion came from the reversal of $491.5 million of the deferred tax asset valuation allowance. Earnings before income taxes were $222.1 million, compared to $98.0 million in 2011, reflecting higher home deliveries, improved gross margins and lower sales incentives.
How did home deliveries and pricing change in 2012?
Total deliveries rose to 13,802 homes from 10,845 in 2011. Deliveries excluding unconsolidated entities increased 28%, and the average sales price of homes delivered increased to $255,000 from $244,000.
What is the status of Lennar's deferred tax assets?
At November 30, 2012, net deferred tax assets were $467.6 million, and the deferred tax asset valuation allowance was $88.8 million, which is primarily related to state net operating loss carryforwards. The valuation allowance was $576.9 million at November 30, 2011. The filing notes that the company will realize the benefit only when it has taxable income.
How is Lennar financing its operations and what are its debt maturities?
In 2012 Lennar issued $400 million of 4.75% senior notes due 2017, $350 million of 4.750% senior notes due 2022, and an additional $50 million of 3.25% convertible senior notes due 2021. It repurchased $204.7 million of 5.95% senior notes due 2013 and established a $525 million unsecured revolving credit facility maturing in May 2015. Lennar Homebuilding senior notes and other debts payable totaled $4.0 billion at year end.
What risks does the filing highlight for investors?
The filing highlights risks including limited availability of mortgage financing, a significant inventory of used and foreclosed homes, potential additional land and investment write-downs if market conditions deteriorate, the company's lack of an investment grade credit rating, and the possibility that its net operating loss carryforwards could be limited. Stuart A. Miller holds approximately 46% of the voting power of Class A and Class B common stock.
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