================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended May 31, 2001
Commission file number 1-13223
LNR Property Corporation
(Exact name of registrant as specified in its charter)
Delaware 65-0777234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
760 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 485-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Common shares outstanding as of the end of the current fiscal quarter:
Common 24,372,357
Class B Common 9,998,280
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(In thousands, except per share amounts) May 31, November 30,
2001 2000
------------ ------------
Assets
------
Cash and cash equivalents $ 18,046 1,986
Restricted cash 95,219 85,282
Investment securities 803,993 696,402
Mortgage loans, net 272,419 243,987
Operating properties and equipment, net 786,484 818,486
Land held for investment 41,607 52,969
Investments in and advances to partnerships 362,703 353,975
Other assets 117,084 95,769
------------ ------------
Total assets $ 2,497,555 2,348,856
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Accounts payable and other liabilities $ 148,202 136,546
Mortgage notes and other debts payable 1,477,166 1,404,374
------------ ------------
Total liabilities 1,625,368 1,540,920
------------ ------------
Minority interests 28,645 29,492
------------ ------------
Stockholders' equity
Common stock, $.10 par value, 150,000 shares authorized, 24,372 and 2,437 2,422
24,215 shares issued and outstanding in 2001 and 2000, respectively
Class B common stock, $.10 par value, 40,000 shares authorized, 9,998 1,000 1,000
and 9,999 shares issued and outstanding in 2001 and 2000, respectively
Additional paid-in capital 513,700 516,516
Retained earnings 334,671 272,772
Unamortized value of restricted stock grants (11,872) (13,195)
Accumulated other comprehensive earnings (loss) 3,606 (1,071)
------------ ------------
Total stockholders' equity 843,542 778,444
------------ ------------
Total liabilities and stockholders' equity $ 2,497,555 2,348,856
============ ============
See accompanying notes to unaudited consolidated condensed financial statements.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
------------------------------ -----------------------------
(In thousands, except per share amounts) 2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Rental income $ 29,512 34,606 59,977 63,045
Equity in earnings of partnerships 12,159 25,649 29,501 51,262
Interest income 44,920 35,224 91,104 69,018
Gains on sales of:
Real estate 35,392 293 43,871 3,759
Partnership interests - 23,166 - 23,166
Management and servicing fees 8,264 6,407 17,440 10,166
Other, net (250) 59 (604) 250
----------- ----------- ----------- -----------
Total revenues 129,997 125,404 241,289 220,666
----------- ----------- ----------- -----------
Costs and expenses
Cost of rental operations 15,022 20,251 30,501 36,404
General and administrative 18,955 16,503 36,702 30,349
Depreciation 6,549 8,638 13,374 17,205
Minority interests 849 324 1,692 809
----------- ----------- ----------- -----------
Total costs and expenses 41,375 45,716 82,269 84,767
----------- ----------- ----------- -----------
Operating earnings 88,622 79,688 159,020 135,899
Interest expense 29,136 29,773 59,285 56,348
----------- ----------- ----------- -----------
Earnings before income taxes 59,486 49,915 99,735 79,551
----------- ----------- ----------- -----------
Income taxes 21,112 16,570 35,396 24,661
----------- ----------- ----------- -----------
Net earnings $ 38,374 33,345 64,339 54,890
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 33,356 33,326 33,232 33,589
=========== =========== =========== ===========
Diluted 34,895 34,906 34,825 34,811
=========== =========== =========== ===========
Net earnings per share:
Basic $ 1.15 1.00 1.94 1.63
=========== =========== =========== ===========
Diluted $ 1.10 0.96 1.85 1.58
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated condensed financial statements.
LNR PROPERTY CORPORATION AND SUBSUDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
---------------------- ----------------------
(In thousands) 2001 2000 2001 2000
--------- --------- --------- ---------
Net earnings $ 38,374 33,345 64,339 54,890
Other comprehensive earnings (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities, net and other (3,744) 3,133 4,428 (2,991)
Unrealized loss on hedging activities (660) - (3,869) -
Transition adjustment related to accounting for derivative financial
instruments and hedging activities - - 4,118 -
Less: reclassification adjustment for gains included in net earnings - (5,748) - (5,767)
--------- --------- --------- ---------
Other comprehensive earnings (loss) (4,404) (2,615) 4,677 (8,758)
--------- --------- --------- ---------
Comprehensive earnings $ 33,970 30,730 69,016 46,132
========= ========= ========= =========
See accompanying notes to unaudited consolidated condensed financial statements.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
May 31,
----------------------------
(In thousands) 2001 2000
------------ ------------
Cash flows from operating activities:
Net earnings $ 64,339 54,890
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
Depreciation 13,374 17,205
Minority interests 1,692 809
Amortization of discount on CMBS, mortgage loans and other (21,037) (13,209)
Gains on sales of real estate (43,871) (3,759)
Gains on sales of partnership interests - (23,166)
Equity in earnings of partnerships (29,501) (51,262)
Losses on hedging activities 652 -
Changes in assets and liabilities:
(Increase) decrease in restricted cash (9,983) 17,993
Increase in other assets and deferred taxes (19,563) (25,316)
Decrease in mortgage loans held for sale 12,773 46,390
Increase (decrease) in accounts payable and accrued liabilities 527 18,259
------------ ------------
Net cash provided by (used in) operating activities (30,598) 38,834
------------ ------------
Cash flows from investing activities:
Operating properties and equipment
Additions (86,773) (167,421)
Sales 110,254 13,455
Land held for investment
Additions (3,700) (11,919)
Sales 23,112 6,994
Investments in and advances to partnerships (46,923) (30,494)
Distributions from partnerships 66,743 53,928
Proceeds from sales of partnership interests - 74,731
Purchase of mortgage loans held for investment (15,680) (27,046)
Proceeds from mortgage loans held for investment 21,393 458
Purchase of investment securities (89,173) (42,937)
Proceeds from principal collections on investment securities 35,912 47,040
Interest received on CMBS in excess of income recognized 11,766 7,344
Syndication of affordable housing communities 15,198 9,447
------------ ------------
Net cash provided by (used in) investing activities 42,129 (66,420)
------------ ------------
Cash flows from financing activities:
Proceeds from stock option exercises 1,470 182
Purchase of treasury stock (6,150) (34,064)
Payment of dividends (829) (821)
Net payments under repurchase agreements and revolving credit lines (199,954) (69,127)
Mortgage notes and other debts payable:
Proceeds from borrowings 290,325 154,029
Principal payments (80,333) (17,065)
------------ ------------
Net cash provided by financing activities 4,529 33,134
------------ ------------
Net increase in cash and cash equivalents 16,060 5,548
Cash and cash equivalents at beginning of period 1,986 8,587
------------ ------------
Cash and cash equivalents at end of period $ 18,046 14,135
============ ============
(Continued)
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
Six Months Ended
May 31,
----------------------------
(In thousands) 2001 2000
------------ ------------
Supplemental disclosure of non-cash investing and financing activities:
Purchases of investment securities financed by seller $ 28,508 27,906
Purchases of mortgage loans financed by seller $ 40,224 80,220
Grant of restricted stock $ 268 9,649
Supplemental disclosure of non-cash transfers:
Transfer of land held for investment to operating properties $ 2,323 17,629
Transfer of certain assets and liabilities to investments in partnerships $ - 10,617
Syndications of affordable housing communities:
Proceeds from sales of partnership interests $ 15,198 9,447
Basis in partnership interests 11,804 8,127
------------ ------------
Cash gain from syndications $ 3,394 1,320
------------ ------------
Net gain reflected in gains on sales of real estate $ 3,088 -
------------ ------------
See accompanying notes to unaudited consolidated condensed financial statements.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
1. Basis of Presentation and Consolidation
The accompanying unaudited consolidated condensed financial statements include
the accounts of LNR Property Corporation and its wholly-owned subsidiaries (the
"Company"). The assets, liabilities and results of operations of entities (both
corporations and partnerships) in which the Company has a controlling interest
have been consolidated. The ownership interests of noncontrolling owners in such
entities are reflected as minority interests. The Company's investments in
partnerships (and similar entities) in which less than a controlling interest is
held or of which control is shared are accounted for by the equity method (when
significant influence can be exerted by the Company), or the cost method. All
significant intercompany transactions and balances have been eliminated. The
financial statements have been prepared by management without audit by
independent public accountants and should be read in conjunction with the
November 30, 2000 audited financial statements in the Company's Annual Report on
Form 10-K for the year then ended. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the accompanying unaudited consolidated condensed financial
statements have been made.
2. Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires that all derivative instruments be recorded as either an asset or
liability on the balance sheet at their fair value, and that changes in the fair
value be recognized currently in earnings unless specified criteria are met.
This statement was effective for fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133"
extended the effective date to all fiscal quarters of fiscal years beginning
after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an Amendment of
FASB Statement No. 133." This statement amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and certain hedging
activities. The Company adopted the provisions of these standards on December 1,
2000. In accordance with these standards, the Company carries all derivative
instruments in the balance sheet at fair value. At May 31, 2001, the Company
has a derivative liability of $14.3 million which is included in accounts
payable and other liabilities in the Consolidated Condensed Balance Sheet.
Periods prior to December 1, 2000 have not been restated. The accounting for
changes in the fair value of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship.
Hedging Objectives and Strategies
With regard to risk management in general, and interest rate risk in particular,
the Company's fundamental philosophy is centered on a desire to tolerate only a
relatively small amount of risk. The Company has an interest rate risk
management policy with the objective of: (1) managing its interest costs and (2)
reducing the impact of unpredictable changes in asset values related to
movements in interest rates on the Company's available-for-sale securities. To
meet these
LNR PROPERTY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
objectives, the Company employs hedging strategies to limit the effects of
changes in interest rates on its operating income and cash flows and on the
value of its available-for-sale securities.
The Company does not acquire derivative instruments for any purpose other than
cash flow and fair value hedging purposes. That is, the Company does not
speculate using derivative instruments.
The Company believes its interest rate risk management policy is generally
effective. Nonetheless, the Company's profitability may be adversely affected
during particular periods as a result of changing interest rates. In addition,
hedging transactions using derivative instruments involve risks such as counter-
party credit risk and legal enforceability of hedging contracts. The counter-
parties to the Company's arrangements are major financial institutions with
which the Company and its affiliates may also have other financial
relationships. These counter-parties potentially expose the Company to loss in
the event of nonperformance.
Cash Flow Hedging Instruments
The Company's approach to managing interest cost is based primarily on match
funding, with the objective that variable-rate assets be primarily financed by
variable-rate liabilities and fixed-rate assets be primarily financed by fixed-
rate liabilities. Management continually identifies and monitors changes in
interest rate exposures that may adversely impact expected future cash flows by
evaluating hedging opportunities. The Company maintains risk management control
systems to monitor interest rate cash flow risk attributable both to the
Company's outstanding or forecasted debt obligations and to the Company's
offsetting hedge positions. The risk management control systems involve the use
of analytical techniques, including cash flow sensitivity analyses, to estimate
the impact of changes in interest rates on the Company's future cash flows.
The Company periodically enters into derivative financial arrangements,
primarily interest rate swap agreements, to manage fluctuations in cash flows
resulting from interest rate risk. These swap agreements effectively change the
variable-rate cash flows on debt obligations to fixed-rate cash flows. Under
the terms of the interest rate swap agreements, the Company receives variable
interest rate payments and makes fixed interest rate payments, thereby creating
the equivalent of fixed-rate debt. At May 31, 2001, the Company had 16 such
interest rate swap agreements with a notional amount of $322.2 million, which
mature through February 2004.
The Company records the fair value of interest rate swap agreements designated
as hedging instruments for variable-rate debt obligations as a derivative asset
or liability. Changes in the fair value of the interest rate swap agreements
are reported as unrealized gains or losses in stockholders' equity as a
component of accumulated other comprehensive earnings. If a derivative
instrument is not designated as a hedge, the gain or loss resulting from a
change in fair value is recognized in earnings in the period of change. If a
derivative instrument is designated as a hedge but the derivative instrument is
not fully effective in hedging the designated risk, the ineffective portion of
the gain or loss is reported in earnings immediately.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
Interest expense for the quarter and six months ended May 31, 2001 includes no
net gains or losses representing cash flow hedge ineffectiveness arising from
differences between the critical terms of interest rate swap agreements and the
hedged debt obligations, since the terms of the Company's swap agreements and
debt obligations are matched.
Fair Value Hedging Instruments
To manage the risk associated with unpredictable changes in asset values related
to the effect of movements in interest rates on the Company's fixed-rate
available-for-sale securities, the Company periodically uses derivative
financial instruments, primarily interest rate swap agreements. Under the terms
of these swap agreements, the Company receives variable interest rate payments
and makes fixed interest rate payments. At May 31, 2001, the Company had three
such interest rate swap agreements with a notional amount of $189.0 million,
which mature through December 2011.
The Company has designated these interest rate swap agreements as hedges of
interest rates on certain available-for-sale securities and records the fair
value of the agreements as derivative assets or liabilities. Changes in the
fair value of the interest rate swap agreements are recorded in earnings, as are
the changes in the fair value of the hedged available-for-sale securities
resulting from changes in interest rates.
The Company recorded a loss of $0.3 million and $0.7 million, respectively, for
hedge ineffectiveness during the three-month and six-month periods ended May 31,
2001. These amounts are included in other revenue, net in the Consolidated
Condensed Statement of Earnings.
Transition
Upon the adoption of SFAS No. 133, the Company recognized $4.1 million, net of
tax benefit, of deferred hedging losses on derivative instruments. This amount
was offset by $4.1 million, net of tax expense, of realized gains related to the
hedged available-for-sale securities. Both of these amounts were previously
recorded in stockholders' equity as a component of accumulated other
comprehensive earnings. Also upon adoption of SFAS No. 133, the Company
transferred $102.8 million of securities which were previously classified as
held-to-maturity to available-for-sale. Upon this reclassification, the Company
recorded a transition adjustment of $4.1 million, net of tax expense, which was
the difference in the market value and book value of the securities on December
1, 2000, the date the Company adopted SFAS No. 133. This adjustment is reported
in stockholders' equity as a component of accumulated other comprehensive
income.
3. New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 is applicable to the Company
beginning no later than the fourth quarter of the year ending November 30, 2001.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
The Company believes that its revenue recognition policies conform to SAB No.
101.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued in September 2000, and replaces SFAS
No. 125. It revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occuring after March 31, 2001, and is effective
for disclosures relating to securitizations and other transfers of financial
assets and collateral for the fiscal year ended November 30, 2001. Disclosures
about securitizations and other transfers of financial assets and collateral
need not be reported for prior periods presented for comparative purposes. The
adoption of SFAS No. 140 insofar as it relates to accounting for transfers and
servicing of financial assets and extinguishments of liabilities has not had a
material effect on the Company's results of operations or financial position.
The adoption of SFAS No. 140 insofar as it relates to disclosures relating to
securitizations and other transfers of financial assets and collateral is not
expected to have a material effect on the Company's results of operations or
financial position.
4. Reclassifications
Certain reclassifications have been made to the prior year consolidated
condensed financial statements to conform to the current year presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS INFORMATION WHICH CONSTITUTES FORWARD LOOKING STATEMENTS.
FORWARD LOOKING STATEMENTS INHERENTLY INVOLVE RISKS AND UNCERTAINTIES. THE
FACTORS, AMONG OTHERS, THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD LOOKING STATEMENTS IN THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDE (i) CHANGES IN DEMAND FOR COMMERCIAL REAL ESTATE NATIONALLY,
IN AREAS IN WHICH THE COMPANY OWNS PROPERTIES, OR IN AREAS IN WHICH PROPERTIES
SECURING MORTGAGES DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY ARE LOCATED, (ii)
INTERNATIONAL, NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE ABILITY
OF MORTGAGE OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS DUE, (iii) THE
CYCLICAL NATURE OF THE COMMERCIAL REAL ESTATE BUSINESS, (iv) CHANGES IN INTEREST
RATES, AND (v) CHANGES IN THE MARKET FOR VARIOUS TYPES OF REAL ESTATE BASED
SECURITIES. SEE THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
NOVEMBER 30, 2000, FOR A FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES
APPLICABLE TO THE COMPANY'S BUSINESS.
OVERVIEW
LNR Property Corporation (together with its subsidiaries, the "Company") is a
real estate investment, finance and management company. The Company engages
primarily in (i) acquiring, developing, managing and repositioning commercial
and multi-family residential real estate, (ii) investing in high yielding real
estate loans and purchasing at a discount portfolios of loans backed by real
estate, and (iii) investing in unrated and non-investment grade rated commercial
mortgage-backed securities ("CMBS") as to which the Company has the right to be
special servicer (i.e., to oversee workouts of underperforming and non-
performing loans).
1. RESULTS OF OPERATIONS
The following discussion and analysis presents the significant changes in
results of operations of the Company for the three months and six months ended
May 31, 2001 and 2000 after allocating among the core business segments certain
non-corporate general and administrative expenses. The following discussion
should be read in conjunction with the unaudited consolidated condensed
financial statements and notes thereto.
Three Months Ended Six Months Ended
May 31, May 31,
-------------------------------- ---------------------------------
(In thousands) 2001 2000 2001 2000
------------- ------------- ------------- --------------
Revenues
Real estate properties $ 67,419 45,638 111,584 86,956
Real estate loans 11,581 36,300 31,373 51,615
Real estate securities 50,997 43,466 98,332 82,095
------------- ------------- ------------- --------------
Total revenues 129,997 125,404 241,289 220,666
------------- ------------- ------------- --------------
Operating expenses
Real estate properties 29,816 33,567 59,760 62,940
Real estate loans 1,917 2,715 3,688 4,814
Real estate securities 4,034 2,933 7,607 5,537
Corporate and other 5,608 6,501 11,214 11,476
------------- ------------- ------------- --------------
Total operating expenses 41,375 45,716 82,269 84,767
------------- ------------- ------------- --------------
Operating earnings
Real estate properties 37,603 12,071 51,824 24,016
Real estate loans 9,664 33,585 27,685 46,801
Real estate securities 46,963 40,533 90,725 76,558
Corporate and other (5,608) (6,501) (11,214) (11,476)
------------- ------------- ------------- --------------
Total operating earnings 88,622 79,688 159,020 135,899
Interest expense 29,136 29,773 59,285 56,348
Income tax expense 21,112 16,570 35,396 24,661
------------- ------------- ------------- --------------
Net earnings $ 38,374 33,345 64,339 54,890
============= ============= ============= ==============
Three months and six months ended May 31, 2001 compared to three months and six
months ended May 31, 2000
The Company reported net earnings of $38.4 million and $64.3 million for the
three- and six-month periods ended May 31, 2001, respectively, compared to $33.3
million and $54.9 million for the same periods in 2000. The year-over-year
improvements in net earnings are primarily attributable to (i) an increase in
gains on sales of real estate, (ii) an increase in interest income and servicing
fees derived from the Company's growing CMBS portfolio and (iii) an increase in
interest income from a growing portfolio of high-yielding loans. These increases
were offset somewhat by (i) a decrease in gains on sales of partnerships
interests due to the sale of the Company's investment interests in its Japanese
discount loan portfolios in April of 2000, (ii) a decrease in equity in earnings
of partnerships due primarily to the sale of the Company's Japanese loan
portfolios, lower earnings from the Company's real estate property partnerships
and lower earnings from the Company's domestic discount loan portfolios and
(iii) an increase in general and administrative expenses from the Company's
growing businesses.
Real estate properties
Three Months Ended Six Months Ended
May 31, May 31,
----------------------------------- -----------------------------------
(In thousands) 2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Rental income $ 29,512 34,606 59,977 63,045
Equity in earnings of partnerships 1,478 7,271 5,601 16,345
Gains on sales of real estate 35,392 293 43,871 3,759
Gains on sales of partnership
interests - 2,830 - 2,830
Management fees 1,037 638 2,135 977
--------------- --------------- --------------- ---------------
Total revenues 67,419 45,638 111,584 86,956
--------------- --------------- --------------- ---------------
Cost of rental operations 15,022 20,251 30,501 36,404
Other operating expenses 8,220 5,247 15,853 10,196
Minority interests 25 (569) 32 (865)
Depreciation 6,549 8,638 13,374 17,205
--------------- --------------- --------------- ---------------
Total operating expenses (1) 29,816 33,567 59,760 62,940
--------------- --------------- --------------- ---------------
Operating earnings $ 37,603 12,071 51,824 24,016
=============== =============== =============== ===============
Balance sheet data:
Operating properties and
equipment, net $ 786,484 1,100,740 786,484 1,100,740
Land held for investment 41,607 113,187 41,607 113,187
Investments in and advances to
partnerships 245,797 168,881 245,797 168,881
--------------- --------------- --------------- ---------------
Total segment assets $ 1,073,888 1,382,808 1,073,888 1,382,808
=============== =============== =============== ===============
(1) Operating expenses do not include interest expense.
Real estate properties include rental apartment communities (market-rate and
affordable housing communities), office buildings, industrial/warehouse
facilities, hotels, retail centers and land that the Company acquires and
develops, redevelops or repositions. These properties may be wholly owned or
owned through a partnership that is either consolidated or reflected as an
investment in partnership. Real estate properties also include the Company's 50%
interest in Lennar Land Partners ("LLP"), a partnership engaged in the
acquisition, development and sale of land. Total revenues from real estate
properties include rental income from operating properties, equity in earnings
of partnerships that own and operate real estate properties, gains on sales of
the properties and the partnership interests and fees earned from managing the
partnerships. Operating expenses include the direct costs of operating the real
estate properties, the related depreciation and the overhead associated with
managing the properties and partnerships.
Three months and six months ended May 31, 2001 compared to three months and six
months ended May 31, 2000
Overall, operating earnings from real estate properties were $37.6 million and
$51.8 million for the three-month period and six-month periods ended May 31,
2001, respectively, compared to $12.1 million and $24.0 million for the same
periods in 2000. This growth in operating earnings from real estate properties
is primarily due to higher gains on sales of real estate, partially offset by a
decrease in equity in earnings and gains on sales of partnerships, and an
increase in other operating expenses.
Gains on sales of real estate increased by $35.1 million and $40.1 million for
the three-month and six-month periods ended May 31, 2001, respectively, over the
same periods in 2000, reflecting a significant increase in real estate property
sales activity during 2001. For the three-month and six-month periods ended May
31, 2001, respectively, compared to the same periods in 2000, $32.0 million and
$31.4 million of these increases were from the sale of stabilized market rate
operating properties, $2.9 million and $2.0 million of these increases were from
the Company's low income housing tax credit syndication program and the rest of
the increases were from sales of land.
Recurring income in the real estate property segment (net rents and fees
including the Company's pro-rata share of net rents and fees from properties
owned through partnerships that are reflected as investments in partnerships),
increased to $22.2 million and $44.6 million for the three- and six-month
periods ended May 31, 2001, respectively, from $16.9 million and $32.7 million
for the same periods in 2000. Recurring income grew despite increased property
sale activity, reflecting the Company's success in leasing up newly developed
and repositioned properties. At May 31, 2001, approximately 58% of the Company's
consolidated properties were still undergoing development or repositioning. Most
of that development pipeline is pre-leased and should add to net operating
income and cash flow as the properties are completed and tenants move in.
Equity in earnings of partnerships decreased to $1.5 million and $5.6 million
for the three- and six-month periods ended May 31, 2001, respectively, from $7.3
million and $16.3 million for the same periods in 2000. This decrease is partly
due to lower earnings from LLP. Equity in earnings from LLP may vary from
period to period depending on the timing of housing starts. The Company expects
these earnings to pick up significantly in the second half of the year. The
decrease in equity in earnings is also due to an increase in the Company's
stabilized affordable housing partnership investments. These partnerships
typically generate pre-tax operating losses which are more than offset by the
tax credits and benefits which directly reduce the Company's overall income
taxes.
Gains on sales of partnership interests decreased $2.8 million for the three-and
six-month periods ended May 31, 2001 compared to the same periods in 2000 due to
the sale of the Company's interest in a single-asset partnership in the second
quarter of 2000.
Other operating expenses, which represent an allocation of salary, professional
and other administrative expenses, increased to $8.2 million and $15.9 million
for the three- and six-month periods ended May 31, 2001, respectively, from $5.2
million and $10.2 million for the same periods in 2000. These increases were
due to additional personnel and administrative costs necessary to support the
growth in the overall real estate portfolio managed by the Company.
The net book value of market-rate operating properties and equipment, excluding
affordable housing communities, at May 31, 2001 and the annualized net operating
income for the six-month period ended on that date with regard to various types
of property owned by the Company were as follows:
Annualized Annualized
Net NOI as a %
Operating of Net
Net Book Occupancy Income Book
(In thousands, except percentages) Value Rate (NOI) (1) Value
---------------------------------------------------
Stabilized operating properties
Office $ 160,706 95% $ 22,845 14%
Retail 29,773 93% 4,040 14%
Industrial / Warehouse 49,911 100% 6,613 13%
Ground Leases 18,951 100% 2,945 16%
----------------------- -------------------------
Commercial 259,341 98% 36,443 14%
Hotel 15,640 65% 1,932 12%
----------- -------------------------
274,981 38,375 14%
Under development or repositioning
Office 268,174 12,273
Retail 30,188 1,991
Industrial / Warehouse 11,671 -
----------- -----------
Commercial 310,033 14,264
Multi-family 72,661 -
Hotel 29,593 -
----------- -----------
412,287 14,264
----------- -----------
Furniture, fixtures and equipment 7,228 -
----------- -----------
Total (2) $ 694,496 $ 52,639
=========== ===========
____________________
(1) Annualized NOI for purposes of this schedule is rental income less cost of
rental operations before commissions and non-operating expenses during the
six-month period ended May 31, 2001, multiplied by two.
(2) Total market-rate operating properties and equipment, net, excluding
affordable housing communities.
As of May 31, 2001, approximately 40% of the Company's market-rate operating
properties, based on net book value, had reached stabilized occupancy levels and
were yielding in total 14% on net book cost. The anticipated improvements in the
earnings of the not yet stabilized market-rate operating properties are not
expected to be recognized until future periods.
Pre-tax operating margins for the affordable housing communities, which qualify
for Low-Income Housing Tax Credits, are generally lower than for market-rate
rentals. However, the Company receives its desired yield from these investments
after adding in (1) the impact of lower income taxes as a result of the tax
credits and other related tax deductions and (2) profits from sales of tax
credits to others.
The net investment in the Company's affordable housing communities at May 31,
2001 and the annualized yield on the stabilized affordable housing communities
for the six-month period then ended, were as follows:
(In thousands, except percentages)
Net book value of apartment communities $ 51,670
Investments in partnerships 46,644
Debt and other (35,027)
-----------
Net investment in stabilized apartment communities 63,287
Net investment in apartment communities under development 40,661
-----------
Net investment in affordable housing communities $ 103,948
===========
Stabilized apartment communities:
Annualized NOI as a % of net book value 11%
Annualized adjusted NOI as a % of net book value (1) 17%
_____________
(1) Annualized adjusted NOI includes the annualized effect of tax credits and
other related tax deductions.
As of May 31, 2001, the Company had been awarded and held rights to over $205
million in gross tax credits, with approximately 68% relating to apartment
communities that have not yet reached stabilized occupancy levels.
At the time of the acquisition of the Affordable Housing Group ("AHG") in 1998,
the Company's strategy was to retain the tax credits generated through owning
the partnership interests in the affordable housing communities and then use
those credits to reduce the Company's overall effective tax rate. However, the
demand for credits has since increased significantly and the Company found it
could generate higher returns on its investment by selling the credits than by
using them. The Company began to shift its strategy away from owning the
partnership interests in the affordable housing communities toward syndicating
such interests. The Company expects to generate fee income and gains in future
years from such syndications. As a result, the Company expects its investment
in affordable housing communities, as well as the amount of tax credits it holds
and utilizes to reduce its tax rate, to decline during 2001.
Real estate loans
Three Months Ended Six Months Ended
May 31, May 31,
------------------------------------ -----------------------------------
(In thousands) 2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Interest income $ 11,368 8,902 27,361 16,831
Equity in earnings of partnerships (185) 6,732 1,188 13,706
Gains on sales of partnership
interests - 20,336 - 20,336
Management fees 357 271 2,776 492
Other income 41 59 48 250
--------------- --------------- --------------- ---------------
Total revenues 11,581 36,300 31,373 51,615
--------------- --------------- --------------- ---------------
Operating expenses (1) 1,325 2,086 2,456 3,612
Minority interests 592 629 1,232 1,202
--------------- --------------- --------------- ---------------
Total operating expenses 1,917 2,715 3,688 4,814
--------------- --------------- --------------- ---------------
Operating earnings $ 9,664 33,585 27,685 46,801
=============== =============== =============== ===============
Balance sheet data:
Mortgage loans, net $ 272,419 213,306 272,419 213,306
Other investments 52,348 50,093 52,348 50,093
Investments in and advances to
partnerships 14,015 15,167 14,015 15,167
--------------- --------------- --------------- ---------------
Total segment assets $ 338,782 278,566 338,782 278,566
=============== =============== =============== ===============
(1) Operating expenses do not include interest expense.
Real estate loans include the Company's direct investments in high yielding
loans, as well as its domestic and foreign discount loan portfolio investments,
owned primarily through partnerships, and related loan workout operations.
Total revenues include interest income, equity in earnings of partnerships and
management fees earned from those partnerships. Operating expenses include the
overhead associated with servicing the loans and managing the partnerships.
Three months and six months ended May 31, 2001 compared to three months and six
months ended May 31, 2000
Operating earnings from real estate loans were $9.7 million and $27.7 million
for the three- and six-month periods ended May 31, 2001, respectively, compared
to $33.6 million and $46.8 million for the same periods in 2000. The decrease
was because LNR sold its investment interests in its Japanese discount loan
portfolios in 2000, and therefore had no earnings or gains from its discount
loan portfolio investment business in the 2001 period.
Interest income increased to $11.4 million and $27.4 million for the three- and
six-month periods ended May 31, 2001, respectively, from $8.9 million and $16.8
million for the same periods in 2000. Interest income includes interest earned
on investments in structured junior participations in high-quality short- to
medium-term variable rate first mortgage real estate loans. During the second
quarter of 2001, the Company funded three of these investments for $55.9 million
and one investment paid off in full, bringing the total investment at May 31,
2001 to $251.3 million. These investments contributed approximately $6.6 million
and $13.5 million to interest income for the three-and six-month periods ended
May 31, 2001, respectively, compared to $5.7 million and $8.4 million for the
comparable periods in 2000. For the six-month period ended May 31, 2001,
interest income also included $4.2 million from the early payoff of a discounted
mortgage loan in the first quarter of 2001.
Equity in earnings of partnerships decreased $6.9 million and $12.5 million for
the three- and six-month periods ending May 31, 2001, respectively, compared to
the same periods in 2000. This
decrease is primarily due to earnings recognized from the Company's Japanese
discount loan portfolios prior to their sale in April 2000 and a decrease in
earnings from the Company's domestic discount loan portfolios, as expected, due
to the liquidation of most of the assets in those portfolios.
Gains on sales of partnership interests of $20.3 million for the three- and
six-months periods ended May 31, 2000 represents the gain on sale of the
Company's investment interests in its Japanese discount loan portfolios.
Management fees increased slightly to $0.4 million for the three-month period
ended May 31, 2001 and increased to $2.8 million for the six-month period ended
May 31, 2001 compared to $0.3 million and $0.5 million for the same periods in
2000. The increase in the six-month period was primarily due to fees earned
from the disposition of assets in one of the domestic discount loan portfolios.
Operating expenses decreased to $1.3 million and $2.5 million for the three- and
six-month periods ended May 31, 2001, respectively, from $2.1 million and $3.6
million for the same periods in 2000, primarily due to the sale of the Company's
interests in its Japanese discount loan portfolios in April 2000, partially
offset by increased general and administrative expenses to support the growth in
the Company's mortgage loan portfolio.
Real estate securities
Three Months Ended Six Months Ended
May 31, May 31,
------------------------------------ ------------------------------------
(In thousands) 2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Interest income $ 33,552 26,322 63,743 52,187
Equity in earnings of partnerships 10,866 11,646 22,712 21,211
Management and servicing fees 6,870 5,498 12,529 8,697
Other, net (291) - (652) -
--------------- --------------- --------------- ---------------
Total revenues 50,997 43,466 98,332 82,095
--------------- --------------- --------------- ---------------
Operating expenses 3,802 2,669 7,179 5,065
Minority interests 232 264 428 472
--------------- --------------- --------------- ---------------
Total operating expenses (1) 4,034 2,933 7,607 5,537
--------------- --------------- --------------- ---------------
Operating earnings $ 46,963 40,533 90,725 76,558
=============== =============== =============== ===============
Balance sheet data:
Investment securities $ 803,993 535,729 803,993 535,729
Investments in and advances to
partnerships 102,892 105,994 102,892 105,994
Other investments 13,143 26,787 13,143 26,787
--------------- --------------- --------------- ---------------
Total segment assets $ 920,028 668,510 920,028 668,510
=============== =============== =============== ===============
(1) Operating expenses do not include interest expense.
Real estate securities include unrated and non-investment grade rated
subordinated CMBS which are collateralized by pools of mortgage loans on
commercial and multi-family residential real estate properties. It also
includes the Company's investment in Madison Square Company LLC ("Madison"), a
limited liability company that invests in CMBS, as well as investments in
entities in related businesses. Total revenues from real estate securities
include interest income, equity in the earnings of Madison, gains on sales of
securities, servicing fees from acting as special servicer for CMBS transactions
and fees earned from managing Madison. Operating expenses include the
overhead associated with managing the investments and Madison, and costs of the
special servicing responsibilities.
Three months and six months ended May 31, 2001 compared to three months and six
months ended May 31, 2000
Overall, operating earnings from real estate securities increased to $47.0
million and $90.7 million for the three- and six-month periods ended May 31,
2001, respectively, from $40.5 million and $76.6 million for the same periods in
2000. Earnings were higher primarily due to (i) increased interest income
resulting from the growth of the Company's CMBS portfolio, (ii) greater
recognition of earnings due to actual CMBS performance continuing to exceed
original expectations and (iii) an increase in servicing fees due to the growth
of the Company's CMBS portfolio. These increases were partially offset by
higher operating expenses.
In recording CMBS interest income, the Company recognizes interest received plus
the amortization of the difference between the carrying value and the face
amount of the securities to achieve a level yield. To date, this has resulted in
less recognition of interest income than interest received. The excess interest
received is applied to reduce the Company's CMBS investment. The Company's
initial and ongoing estimates of its returns on CMBS investments are based on a
number of assumptions that are subject to various business and economic
conditions, the most significant of which is the timing and magnitude of credit
losses on the underlying mortgages.
The Company has already begun to receive principal payments from some of its
securities, and some have matured entirely. Actual loss experience to date,
particularly for older transactions (3 to 8 years in age), is significantly
lower than originally underwritten by the Company. Therefore, changes to
original estimated yields have resulted, and the Company believes they should
continue to result, in improved earnings from these transactions. The Company
believes these improvements resulted from its success in managing and working
out the underlying loans and strong real estate fundamentals. However, the
positive experience on these older transactions will not necessarily translate
into yield improvements on newer investments.
During the quarter ended May 31, 2001, the Company acquired $56.4 million face
amount of fixed-rate CMBS for $25.9 million and $12.0 million face amount of
short-term floating-rate CMBS for $10.6 million. The following is a summary of
the CMBS portfolio held by the Company at May 31, 2001:
Weighted Weighted Weighted
Average Average Average
Face Interest Book % of Face Cash Book
Amount Rate Value Amount Yield (1) Yield (2)
---------------------------------------------------------------------
(In thousands, except percentages)
Fixed-rate
BB rated or above $ 303,582 7.03% $219,630 72.3% 9.7% 13.7%
B rated 516,555 6.61% 280,771 54.4% 12.2% 12.8%
Unrated 843,609 7.15% 196,788 23.3% 28.5% 31.6%
-------------------- ---------------------------------------------
Total 1,663,746 6.96% 697,189 41.9% 16.0% 18.3%
Floating-rate/short-
term
BB rated or above $ 12,789 6.30% $ 11,105 86.8% 7.3% 15.1%
B rated 10,880 7.52% 9,247 85.0% 8.9% 9.1%
Unrated 74,157 11.55% 59,991 80.9% 14.3% 9.9%
-------------------- ---------------------------------------------
Total 97,826 10.42% 80,343 82.1% 12.7% 10.5%
Unrealized gains on
securities - 26,461
---------- --------
Total CMBS
portfolio (3) $1,761,572 7.17% $803,993 45.6% 15.1% 17.0%
========== ========
______________________
(1) Cash yield is determined by annualizing the actual cash received during the
month of May 2001, and dividing the result by the book value at May 31, 2001.
(2) Book yield is determined by annualizing the interest income for the month
of May 2001, and dividing the result by the book value at May 31, 2001.
(3) This table excludes CMBS owned through non-consolidated partnerships.
Equity in earnings of partnerships primarily represents the Company's
participation in Madison, which was formed in April 1999. The venture owns
approximately $1.5 billion of real estate related securities. The Company's
investment in the venture at May 31, 2001 was $102.9 million, representing a
25.8% ownership interest. In addition to its investment in the venture, the
Company maintains a significant ongoing role in the venture, for which it earns
fees, both as the special servicer for the purchased CMBS transactions and as
the provider of management services. Madison contributed $10.9 million and $22.7
million of equity in earnings of partnerships to the real estate securities line
of business for the three- and six-month periods ended May 31, 2001,
respectively.
Management and servicing fees increased to $6.9 million and $12.5 million for
the three- and six-month periods ended May 31, 2001, respectively, from $5.5
million and $8.7 million for the same periods in 2000. This increase was
primarily attributable to an increase in the number of CMBS mortgage pools (75
at May 31, 2001 versus 60 at May 31, 2000) for which the Company acts as special
servicer.
Operating expenses increased to $3.8 million and $7.2 million for the three- and
six-month periods ended May 31, 2001, respectively, from $2.7 million and $5.1
million for the same periods in 2000. This increase is primarily due to
increased personnel and out-of-pocket expenses directly related to the growth of
the Company's CMBS portfolio.
Corporate, Other, Interest and Income Tax Expenses
Three months and six months ended May 31, 2001 compared to three months and six
months ended May 31, 2000
Corporate and other operating expenses were $5.6 million and $11.2 million for
the three- and six-month periods ended May 31, 2001, respectively, compared to
$6.5 million and $11.5 million for the same periods in 2000.
Interest expense remained relatively flat for the three-month period ended May
31, 2001 compared to the same period in 2000. Interest expense increased
slightly to $59.3 million for the six-month period ended May 31, 2001 from $56.3
million for the same period in 2000, reflecting a decrease in capitalized
interest as a result of more operating properties leasing up.
Income tax expense increased to $21.1 million and $35.4 million for the three-
and six-month periods ended May 31, 2001, respectively, from $16.6 million and
$24.7 million for the same periods in 2000, primarily due to an increase in pre-
tax earnings, and to a lesser extent, a lower level of Low Income Housing Tax
Credits utilized. The Company's effective tax rate was 35% for the three- and
six-month periods ended May 31, 2001 compared to 33% and 31% for the same
periods in 2000, respectively.
2. LIQUIDITY AND FINANCIAL RESOURCES
The Company's operating activities used $30.6 million of cash during the six
months ended May 31, 2001, and provided $38.8 million of cash during the six
months ended May 31, 2000. This increase in cash used for operating activities
is primarily due to fewer payoffs of mortgage loans held for sale, an increase
in restricted cash resulting from sales of operating properties and a decrease
in accounts payable and accrued liabilities.
The Company's investing activities provided $42.1 million of cash during the six
months ended May 31, 2001, and used $66.4 million of cash during the same period
in 2000. This increase in
cash provided by investing activities is primarily due to more sales of
operating properties and land held for investment, less spending on operating
properties and more proceeds from mortgage loans held for investment. These
increases were partially offset by fewer proceeds from sales of partnership
interests and additional purchases of investment securities.
The Company's financing activities provided cash flows of $4.5 million and $33.1
million during the six months ended May 31, 2001 and 2000, respectively. This
decrease in cash provided by financing activities is primarily due to $130.8
million more of net payments under the Company's repurchase agreements and
revolving credit lines and $63.3 million more of principal payments made on
mortgage notes and other debt. These decreases were offset by $136.3 million
less proceeds from borrowings under the Company's mortgage notes and other debts
payable and $27.9 million less in purchases of treasury stock.
The Company continues to diversify its capital structure and to manage its debt
position with a combination of short-, medium- and long-term financings with a
goal of properly matching the maturities of its debt with the expected lives of
its assets.
At May 31, 2001, the Company had approximately $830 million of available
liquidity, which included approximately $710 million of cash and availability
under credit facilities, and approximately $120 million of committed
project level term financing.
The Company has a $350 million unsecured revolving credit facility, which
matures in July 2004 assuming a one-year extension option is exercised. At May
31, 2001, $0 was outstanding under this facility, although the Company had
issued and outstanding $30.0 million of standby letters of credit utilizing the
facility.
The Company has various secured revolving lines of credit with an aggregate
commitment of $364.6 million, of which $186.8 million was outstanding at May 31,
2001. These lines are collateralized by CMBS and mortgage loans and mature
through January 2006.
The Company has financed some of its purchases of CMBS under reverse repurchase
obligation facilities ("repos"). The repo agreements contain provisions which
may require the Company to repay amounts or post additional collateral prior to
the scheduled maturity dates if the market values of the bonds which
collateralize them significantly decline. At May 31, 2001, the Company had
three repo lines through which it financed selected CMBS. The first facility
had a commitment of $80.4 million, of which $49.9 million was outstanding, and
is required to be paid in full by June 2004. The second facility had a
commitment of $50.0 million of which $0 was outstanding. This facility matures
in June 2002. The third facility is a $150 million non-recourse facility, which
matures in March 2003, and had an outstanding balance of $99.8 million at May
31, 2001. Additionally, the Company has received seller financing in the form of
term repos for nine specific CMBS transactions. These agreements had an
aggregate commitment of $140.9 million with an outstanding balance of $124.7
million at May 31, 2001 and expire through August 2004.
Because the Company borrows significant sums in connection with its activities,
the Company could be adversely affected by reluctance of lenders to make loans
to companies in real estate related businesses. Difficulty obtaining financing
can reduce the Company's ability to take advantage of investment opportunities.
In February 2001, the Company issued $150 million of long-term unsecured senior
subordinated notes, bringing the Company's total long-term unsecured senior
subordinated notes to $450 million. The $150 million of notes bear interest at
10.5% and are due in January 2009. The Company used the proceeds from the
issuance to pay down debt, primarily secured credit facilities, and for general
corporate purposes.
During the second quarter of 2001, Standard and Poor's upgraded the Company's
senior unsecured credit rating to BB from BB- and the Company's senior
subordinated note rating to B+ from B.
At May 31, 2001, the Company had scheduled maturities on existing debt of $88.2
million through May 31, 2002, assuming the Company takes advantage of extensions
which are exercisable at the Company's option. The Company's ability to make
scheduled payments of principal or interest on or to refinance this indebtedness
depends on its future performance, which to a certain extent, is subject to
general economic, financial, competitive and other factors beyond the Company's
control. The Company believes its borrowing availability under existing credit
facilities, operating cash flow and unencumbered assets, and its ability to
obtain new borrowings and/or raise new capital, should provide the funds
necessary to meet its working capital requirements, debt service and maturities
and short-and long-term needs based upon currently anticipated levels of growth.
Approximately 63% of the Company's existing indebtedness bears interest at
variable rates. However, most of the Company's investments generate interest or
rental income at essentially fixed rates. The Company has entered into
derivative financial instruments to manage its interest costs and hedge against
risks associated with changing interest rates on its debt portfolio. At May 31,
2001, 35% of the Company's variable-rate debt had been swapped to fixed rates
and 43% was match-funded against floating-rate assets. After considering the
variable-rate debt that had been swapped or was match-funded, 14% of the
Company's debt remained variable-rate and 86% of the debt was fixed-rate or
match-funded. Therefore, a 100 basis point change in LIBOR would impact net
earnings by $2 million and earnings per share by approximately 1.5% of the
Company's 2001 earnings per share goal of $3.70 to $3.85.
The weighted average interest rate on outstanding debt, after giving
consideration to the interest rate swap agreements mentioned above, at May 31,
2001 and May 31, 2000 was 7.7% and 8.4%, respectively.
In December 2000, the Company purchased 300,000 shares of its common stock,
bringing the total purchases to date under the Company's buy-back program to
3,244,100 shares. This represents 59% of the Company's repurchase authorization
and over 9% of the Company's total stock outstanding when the buy-back program
began. At the end of the quarter, the Company had authorization under its buy-
back program to purchase an additional 2,255,900 shares.
3. NEW ACCOUNTING PRONOUCEMENTS
The Company adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, on December 1,
2000.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101 is applicable to the Company
beginning no later than the fourth quarter of the year ending November 30, 2001.
The Company believes that its revenue recognition policies conform to SAB No.
101.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued in September 2000, and replaces SFAS
No. 125. It revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures.
SFAS No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occuring after March 31, 2001, and is effective
for disclosures relating to securitizations and other transfers of financial
assets and collateral for the fiscal year ended November 30, 2001.
Disclosures about securitizations and other transfers of financial assets and
collateral need not be reported for prior periods presented for comparative
purposes. The adoption of SFAS No. 140 with regard to accounting for transfers
and servicing of financial assets and extinguishments of liabilities has not had
a material effect on the Company's results of operations or financial position.
The adoption of SFAS No. 140 with regard to disclosures relating to
securitizations and other transfers of financial assets and collateral is not
expected to have a material effect on the Company's results of operations or
financial position.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not subject to any legal proceedings other than suits in the
ordinary course of its business, most of which are covered by insurance. The
Company believes these suits will not, in the aggregate, have a material adverse
effect upon the Company.
Items 2-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
Signature and Title Date
------------------- ----
/s/ Shelly Rubin July 16, 2001
----------------------------------------
Shelly Rubin
Chief Financial Officer (Principal
Financial Officer)