This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Lennar Corporation (LEN) on January 24, 2008.
Management:
President and CEO: Stuart Miller
CFO: Bruce Gross
Vice President and Controller: Diane Bessette
Director of IR: Scott Shipley
Key Investors Issues
- The company posted a loss of $7.92 a share compared to a loss $1.24 a share last year.
-The company posted a net loss of $1.25 billion compared to a year-earlier loss of $195.6 million.
- Revenue fell 51% to $2 billion.
Fourth Quarter Highlights
Revenues from home sales decreased 51% to $2 billion from $4 billion in 2006.
Revenues were lower primarily due to a 49% decrease in the number of home deliveries and a 4% decrease in the average sales price of homes delivered in 2007.
- New home deliveries, excluding unconsolidated entities, decreased to 6,810 homes from 13,285 homes last year. In the fourth 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 $291,000 from $302,000 in 2006, primarily due to higher sales incentives offered to homebuyers ($58,800 per home delivered compared to $47,300 per home delivered last year).
Gross margins on home sales excluding FAS 144 inventory valuation adjustments were $240.4 million, or 12.1%, compared to $576.6 million, or 14.4%, in the same quarter of 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 $15.6 million, or 0.8%, which included $224.8 million of FAS 144 inventory valuation adjustments, compared to gross margins on home sales of $336.8 million, or 8.4%, in the fourth quarter of 2006, which included $239.8 million of FAS 144 inventory 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 $185.5 million, or 38% compared to the same period last year, primarily due to reductions in associate headcount and variable selling expenses.
As a percentage of revenues from home sales, selling, general and administrative expenses increased to 15.1%, from 12.1% in 2006. The 300 basis point increase was primarily due to lower revenues.
Loss on land sales totaled $1.2 billion, which included $740.4 million of FAS 144 valuation adjustments on the inventory acquired by the Morgan Stanley land investment venture discussed below, $229.7 million of FAS 144 valuation adjustments and $217.6 million of write-offs of deposits and pre-acquisition costs related to 12,500 homesites under option that the company does not intend to purchase.
In the fourth quarter of 2006, loss on land sales totaled $119.9 million, which included $33.3 million of FAS 144 valuation adjustments and $111.1 million of write- offs of deposits and pre-acquisition costs related to 9,400 homesites that were under option.
In November 2007, the company and Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., formed a strategic land investment venture to acquire, develop, manage and sell residential real estate.
The company acquired a 20% ownership interest and 50% voting rights in the land investment venture. Concurrent with the formation of the land investment venture, the company sold a diversified portfolio of its land to the venture for $525 million. The properties acquired by the new entity consist of approximately 11,000 homesites in 32 communities located throughout the country. The properties sold by the company had a net book value of approximately $1.3 billion. As part of the transaction, the company entered into option agreements and obtained rights of first offer providing the company the opportunity to purchase certain finished homesites. The exercise price of the options is based on a fixed percentage of the future home price. The company has no obligation to exercise these options and cannot acquire a majority of the entity''s assets. The company is managing the land investment venture''s operations and receives fees for its services. The company will also receive disproportionate distributions if the investment venture exceeds certain financial targets.
Due to the company''s continuing involvement, the transaction did not qualify as a sale under GAAP.
Thus, the inventory remained on the company''s balance sheet as of November 30, 2007. In connection with the transaction, the company recorded a FAS 144 valuation adjustment of $740.4 million on the inventory acquired by the investment venture.
- Equity in loss from unconsolidated entities was $194.8 million, which included $191.5 million of FAS 144 valuation adjustments related to assets of the company''s investments in unconsolidated entities, compared to equity in loss from unconsolidated entities of $59.6 million in the fourth quarter of 2006, which included $109.7 million of FAS 144 valuation adjustments related to assets of the company''s investments in unconsolidated entities.
- The company recorded goodwill impairments of $173.7 million related to its homebuilding operations.
