================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1999
Commission file number 1-11749
LENNAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-1281887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 NORTHWEST 107TH AVENUE, MIAMI, FLORIDA 33172
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 559-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, par value 10(cents) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of February 8, 2000, registrant had outstanding 38,810,618 shares of
common stock and 9,848,562 shares of Class B common stock (which can be
converted into common stock). Of the total shares outstanding, 31,159,142 shares
of common stock and 29,701 shares of Class B common stock, having a combined
aggregate market value (assuming the Class B shares were converted) on that date
of $502,920,093, were held by non-affiliates of the registrant.
Documents incorporated by reference:
Related
Section Documents
- --------------------------------------------------------------------------------
II Pages 24 through 50 of the Annual Report to
Stockholders for the year ended November 30, 1999.
III Definitive Proxy Statement to be filed pursuant to
Regulation 14A on or before March 29, 2000.
================================================================================
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Lennar Corporation (together with its subsidiaries, the "Company") is one
of the nation's premier homebuilders and is a provider of residential financial
services. The Company's homebuilding operations include the sale and
construction of single-family attached and detached homes, as well as the
purchase, development and sale of residential land. The purchase, development
and sale of residential land is conducted through its own efforts and its
partnership interests. The financial services operations provide mortgage
financing, title insurance and closing services for Lennar homebuyers and
others, package and resell residential mortgage loans and mortgage-backed
securities, perform mortgage loan servicing activities and provide cable
television and alarm monitoring services to residents of Lennar communities and
others.
In February 2000, the Company entered into a definitive agreement to
acquire U.S. Home Corporation through a merger in which the U.S. Home
stockholders will receive a total of approximately $476 million, of which
approximately one-half will be in cash and the remainder will be in common stock
of the Company (with the common stock portion, and therefore the total purchase
price, subject to adjustment if the price of the Company's stock is greater or
lower than specified levels) in exchange for their stock. U.S. Home will become
a wholly-owned subsidiary of the Company. When the acquisition takes place, U.S.
Home's debt is expected to include bank debt and approximately $525 million of
publicly-held debt. The holders of the publicly-held debt have the right to
require U.S. Home to redeem such debt within 90 days of the completion of the
transaction. The Company has access to the resources required to close the
transaction and, if necessary, refinance U.S. Home's debt. The transaction is
subject to approval by the stockholders of both companies, as well as expiration
or termination of waiting periods under antitrust laws and other regulatory
matters. If the necessary stockholder and regulatory approvals are obtained, the
Company expects the transaction to close by the end of May 2000. U.S. Home is
primarily a homebuilder, with operations in 11 states. U.S. Home has announced
that in 1999 it had total revenues of $1.82 billion and net income of $72
million and that it delivered 9,069 homes during that year.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
The Company has two operating segments - homebuilding and financial
services. The financial information related to these operating segments is
contained in the financial statements incorporated by reference to pages 32
through 48 of the Company's 1999 Annual Report to Stockholders.
NARRATIVE DESCRIPTION OF BUSINESS
HOMEBUILDING
The Company and its predecessor have been building homes since 1954. The
Company believes that since its acquisition of Development Corporation of
America in 1986, it has delivered more homes in Florida each year than any other
homebuilder. The Company has been building homes in Arizona since 1972, where it
currently is one of the leading homebuilders. In 1991, the Company began
building homes in Dallas, Texas. In 1992, it started homebuilding operations in
Houston, Texas. During 1995, the Company entered the California homebuilding
market through the acquisition of Bramalea California, Inc. and expanded in this
market in 1996 through the acquisition of Renaissance Homes, Inc. and through
several partnership investments. During 1996, the Company significantly expanded
its operations in Texas with the acquisition of the assets and operations of
Houston-based Village Builders (a homebuilder) and Friendswood Development
Company (a developer of master-planned communities). During 1997, the Company
continued its expansion in California through homesite acquisitions and
additional partnership investments. Additionally during 1997, the Company
further expanded its operations in the California and Arizona homebuilding
markets and entered the Nevada homebuilding market with the acquisition of
Pacific Greystone Corporation. During 1998, the Company acquired the properties
of two California homebuilders, ColRich Communities and Polygon Communities, and
acquired a Northern California homebuilder, Winncrest Homes. The Company has
constructed and sold approximately 163,000 homes to date.
1
The Company's homebuilding activities in Florida are principally
conducted through Lennar Homes, Inc. In Arizona, these activities are conducted
through Lennar Homes of Arizona, Inc. and Greystone Homes, Inc. In Texas, these
activities are conducted through Lennar Homes of Texas, Inc. and Village
Builders, Inc. Homebuilding activities in California are principally conducted
through Lennar Homes of California, Inc., Lennar Renaissance, Inc., Greystone
Homes, Inc. and Winncrest Homes. In Nevada, these activities are conducted
through Greystone Nevada LLC.
The Company, through its own efforts and its partnership interests, is
involved in all phases of planning and building in its residential communities,
including land acquisition, site planning, preparation and improvement of land,
and design, construction and marketing of homes. The Company subcontracts
virtually all segments of development and construction to others.
The Company primarily sells single-family attached and detached homes.
The homes are targeted primarily at first-time homebuyers, move-up homebuyers
and, in some communities, active adults. The average sales price of a Lennar
home was $212,000 in fiscal 1999.
CURRENT HOMEBUILDING ACTIVITIES
The table on the following page summarizes information about the
Company's recent homebuilding activities:
2
HOMEBUILDING ACTIVITIES
HOMESITES AT NOVEMBER 30, 1999
------------------------------------------------------
LENNAR CORPORATION PARTNERSHIPS
NOVEMBER 30, 1999 ------------------- ----------------------
------------------------------ Estimated number Estimated number
Homes completed or of homes that could of homes that could
Homes delivered under construction be constructed on be constructed on land
in years ended ------------------ land currently owned currently owned or
November 30, Available Sold homes or controlled (2)(4) controlled (2)(3)(4)(5) Total
-------------------------- for not yet ------------------- ---------------------- owned and
Region 1999 1998 1997 Sold (1) sale started(1) Owned Controlled Owned Controlled controlled
- -------------- ------ ------ ------ -------- --------- ---------- ------ ---------- ------- ---------- ----------
Florida 4,241 3,761 3,367 768 783 323 6,143 4,787 14,076 1,600 26,606
California 3,731 3,029 587 742 695 37 13,424 434 15,545 2,250 31,653
Texas 3,107 2,484 2,075 546 903 106 6,113 1,581 4,880 -- 12,574
Arizona/Nevada 1,510 1,503 673 286 90 83 1,818 245 486 -- 2,549
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Totals 12,589 10,777 6,702 2,342 2,471 549 27,498 7,047 34,987 3,850 73,382
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== ======
Notes:
(1) Although firm contracts relating to these homes were executed,
there can be no assurance that purchasers will meet their
obligations under the contracts.
(2) Based on current management estimates, which are subject to
change.
(3) As of November 30, 1999, one of the Company's partnerships had
equity interests in other partnerships that owned and
controlled approximately 7,400 homesites for sale to the
Company and other builders.
(4) Includes homesites that are currently designated for sale to
other builders.
(5) Represents partnerships and similar entities in which the
Company has less than a controlling interest and are accounted
for by the equity method.
3
MANAGEMENT AND OPERATING STRUCTURE
The Company balances its local operating structure with centralized
corporate-level management. The Company's local managers, who have significant
experience in the homebuilding industry generally and in their respective
markets, are responsible for operating decisions regarding land identification,
home design, construction and marketing. Decisions related to overall Company
strategy, acquisitions of land and businesses, financing and disbursements are
centralized at the corporate level.
PARTNERSHIPS AND SIMILAR ENTITIES
The Company views partnerships and similar entities as a means to both
expand its market opportunities and manage its risk profile. Typically, the
Company acts as the general partner and the day-to-day manager.
In October 1997, the Company, directly and through LNR Property
Corporation ("LNR"), transferred to a new partnership, which is 50% owned by the
Company and 50% owned by LNR, parcels of land or interests in land and other
assets which had a total book value on the Company's books of approximately
$372.4 million. In 1999, certain assets and liabilities of this partnership were
contributed at net book value to a second general partnership, and the Company
and LNR each received 50% general partnership interests in the second
partnership. The two partnerships are collectively referred to as "Lennar Land
Partners". The Company has an agreement with Lennar Land Partners under which,
for a fee, the Company administers all its day-to-day activities, including
overseeing planning and development of properties and overseeing sales of land
to the Company and other builders. The Company is reimbursed for costs incurred
related to these activities and certain other costs incurred on behalf of Lennar
Land Partners. Such reimbursements totaled $7.5 million in 1999. In addition,
the Company, in the ordinary course of business, purchases developed land at
market prices from Lennar Land Partners. During the year ended November 30,
1999, Lennar Land Partners had land sale revenues of $219 million, of which $109
million was from sales to the Company. An Independent Directors Committee,
comprised of non-employee members of the Board of Directors of the Company and
LNR, approves significant transactions of Lennar Land Partners.
PROPERTY ACQUISITION
The Company continuously considers the purchase of, and from time-to-time
acquires, land for its development and sales programs. These acquisitions may be
made directly or through the Company's partnership interests. The Company
generally does not acquire land for speculation. In some instances, the Company
acquires land by acquiring options enabling it to purchase parcels as they are
needed. Although some of the Company's land is held subject to purchase money
mortgages, most of the Company's land is not subject to mortgages. The majority
of land acquired by partnerships is subject to purchase money mortgages.
CONSTRUCTION AND DEVELOPMENT
The Company supervises and controls the development and building of its
own residential communities. It employs subcontractors for site improvements and
virtually all of the work involved in the construction of homes. In almost all
instances, the arrangements between the Company and the subcontractors commit
the subcontractors to complete specified work in accordance with written price
schedules. These price schedules normally change to meet changes in labor and
material costs. The Company does not own heavy construction equipment and
generally only has a labor force used to supervise development and construction
and perform routine maintenance and minor amounts of other work.
The Company generally finances construction with its own funds or
borrowings under its unsecured working capital lines.
4
MARKETING
The Company generally has an inventory of homes under construction. A
majority of these homes are sold (I.E., the Company has received executed sales
contracts and deposits) before the Company starts construction.
The Company employs sales associates who are paid salaries, commissions
or both to make onsite sales of the Company's homes. The Company also sells
through independent brokers. The Company advertises its residential communities
through local media and sells primarily from models that it has designed and
constructed. In addition, the Company advertises its active adult communities in
areas where potential active adults live.
MORTGAGE FINANCING
The Company's financial services subsidiaries make conventional,
FHA-insured and VA-guaranteed mortgage loans available to qualified purchasers
of the Company's homes. Because of the availability of mortgage loans from the
Company's financial services subsidiaries, as well as independent mortgage
lenders, the Company believes access to financing has not been, and is not, a
significant problem for most purchasers of the Company's homes.
QUALITY SERVICE
The Company employs a process which is intended to provide a positive
atmosphere for each customer throughout the pre-sale, sale, building, closing
and post-closing periods. The participation of sales representatives, on-site
construction supervisors and post-closing customer personnel, working in a team
effort, is intended to foster the Company's reputation for quality service and
ultimately lead to enhanced customer retention and referrals.
COMPETITION
The housing industry is highly competitive. In its activities, the
Company competes with numerous developers and builders in and near the areas
where the Company's communities are located, including homebuilders with
nationwide operations. Competition is on the basis of location, design, quality,
amenities and price. The Company is the largest homebuilder in Florida and a
leading homebuilder in California, Texas, Arizona and Nevada. Some of the
Company's principal competitors include Kaufman and Broad Home Corporation,
Centex Corporation, D.R. Horton, Inc., Pulte Corporation and U.S. Home
Corporation (which, as described above, the Company is seeking to acquire).
FINANCIAL SERVICES
The Company's financial services subsidiaries provide mortgage financing,
title insurance and closing services for Lennar homebuyers and others, package
and resell residential mortgage loans and mortgage-backed securities, perform
mortgage loan servicing activities and provide cable television and alarm
monitoring services to residents of Lennar communities and others.
MORTGAGE ORIGINATION
The Company provides conventional, FHA-insured and VA-guaranteed mortgage
loans to buyers of the Company's homes and others through the Company's
financial services subsidiaries, Universal American Mortgage Company in Florida,
California, Arizona, Texas and Nevada and Eagle Home Mortgage, Inc. in Nevada,
Oregon, Utah and Washington. In 1999, loans to buyers of the Company's homes
represented approximately 51% of the Company's $2.2 billion of loan
originations.
The Company sells the loans it originates into the secondary mortgage
market, generally on a non-recourse basis. The Company either retains the
servicing on the loans it sells or sells the servicing rights on the loans it
originates on a flow basis. The Company has an interest rate risk management
policy under which it hedges its interest rate locked loan commitments and loans
held for sale against exposure to interest rate fluctuations. The Company
finances its mortgage loans and servicing activities with borrowings under the
financial services subsidiaries' $315 million line of credit (secured by the
loans and by certain servicing rights).
5
MORTGAGE SERVICING
The Company generates earnings from servicing loans originated or
acquired by its financial services subsidiaries. The Company services loans for
the Government National Mortgage Association (Ginnie Mae), the Federal National
Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation
(Freddie Mac) and other mortgage investors. At November 30, 1999, it had a
servicing portfolio of approximately 38,000 loans with an unpaid principal
balance of approximately $3.1 billion.
TITLE INSURANCE AND CLOSING SERVICES
The Company arranges title insurance for, and provides closing services
to, buyers of the Company's homes and others. It provided these services in
connection with approximately 139,000 real estate transactions during 1999. The
Company provides these services through Universal Title Insurors in Florida,
Regency Title in Texas, TitleAmerica Insurance in Florida and Texas, North
American Title in California, Arizona and Colorado and Southwest Land Title in
Texas.
STRATEGIC TECHNOLOGIES
The Company's subsidiary, Strategic Technologies, Inc., provides cable
television and alarm monitoring services to residents of Lennar communities and
others. At November 30, 1999, the Company had approximately 7,600 cable
television subscribers and approximately 6,300 alarm monitoring customers in
Florida and California.
LIMITED-PURPOSE FINANCE SUBSIDIARIES
The Company has a number of limited-purpose finance subsidiaries which
have placed mortgages and other receivables as collateral for various long-term
financings. These subsidiaries pay the debt service on the long-term borrowings
primarily from the cash flows generated by the related pledged collateral. The
Company believes that the cash flows generated by these subsidiaries will be
adequate to meet the required debt payment schedules.
RELATIONSHIP WITH LNR
In connection with the transfer of the Company's commercial real estate
investment and management business to LNR, and the spin-off of LNR to the
Company's stockholders, the Company entered into an agreement which, among other
things, prevents the Company from engaging at least until 2002 in any of the
businesses in which LNR was engaged, or anticipated becoming engaged, at the
time of the spin-off, and prohibited LNR from engaging, at least until 2002, in
any businesses in which the Company was engaged, or anticipated becoming
engaged, at the time of the spin-off (except in limited instances in which the
activities or anticipated activities of the Company and LNR overlapped).
Specifically, the Company is precluded, at least until 2002, from engaging in
the business of (i) acquiring and actively managing commercial or residential
multi-family rental real estate, other than as an incident to, or otherwise in
connection with, their homebuilding business, (ii) acquiring portfolios of
commercial mortgage loans or real estate assets acquired through foreclosures of
mortgage loans, other than real estate acquired as sites of homes to be built or
sold as part of its homebuilding business, (iii) making or acquiring mortgage
loans, other than mortgage loans secured by detached or attached homes or
residential condominium units, (iv) constructing office buildings or other
commercial or industrial buildings, other than small shopping centers,
professional office buildings and similar facilities which will be adjuncts to
its residential developments, (v) purchasing commercial mortgage-backed
securities or real estate asset-backed securities or (vi) acting as a servicer
or special servicer with regard to securitized commercial mortgage pools. The
Company is not, however, prevented from owning or leasing office buildings in
which it occupies a majority of the space; acquiring securities backed by pools
of residential mortgages; acquiring an entity which, when it is acquired, is
engaged in one of the prohibited activities as an incidental part of its
activities; owning as a passive investor an interest of less than 10% of a
publicly traded company which is engaged in a prohibited business; acquiring
commercial paper or short-term debt instruments of entities engaged in one or
more of the prohibited businesses; or owning an interest in, and managing,
Lennar Land Partners.
6
Although the Company and LNR are separate companies, Stuart Miller, the
Company's President and Chief Executive Officer, is the Chairman of the Board of
Directors of LNR, and Steven Saiontz, one of the Company's Directors, is the
Chief Executive Officer and a Director of LNR. In addition, Leonard Miller owns
stock which gives him voting control of both companies. There are provisions
both in the by-laws of Lennar and in those of LNR requiring approval by an
Independent Directors Committee of any significant transactions between the
Company and LNR or any of its subsidiaries.
The Company leases some office space, including its principal offices,
from LNR.
REGULATION
Homes and residential communities built by the Company must comply with
state and local regulations relating to, among other things, zoning, treatment
of waste, construction materials which must be used, density requirements,
certain aspects of building design and minimum elevation of properties and other
local ordinances. These include laws requiring use of construction materials
which reduce the need for energy-consuming heating and cooling systems. These
laws and regulations are subject to frequent change and often increase
construction costs. In some cases, there are laws which require that commitments
to provide roads and other offsite infrastructure be in place prior to the
commencement of new construction. The provisions of these laws are usually
administered by individual counties and municipalities and may result in
additional fees and assessments or building moratoriums. In addition, certain
new development projects, particularly in Southern California, are subject to
assessments for schools, parks, streets and highways and other public
improvements, the costs of which can be substantial.
The residential homebuilding industry also is subject to a variety of
local, state and federal statutes, ordinances, rules and regulations concerning
the protection of health and the environment. Environmental laws and conditions
may result in delays, may cause the Company to incur substantial compliance and
other costs, and can prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas. Additionally, the climate
and geology of some parts of Florida, California and Texas present risks of
natural disasters that could adversely affect the homebuilding industry in those
areas in general, and the Company's business in particular.
In recent years, several cities and counties in which the Company has
developments have approved submission to voters of "slow growth" initiatives and
other ballot measures which could impact the affordability and availability of
homes and land within those localities. Although many of these initiatives have
been defeated, the Company believes that if similar initiatives are introduced
and approved, future residential construction by the Company and others within
certain cities or counties could be negatively impacted.
In order to make it possible for purchasers of some of the Company's
homes to obtain FHA-insured or VA-guaranteed mortgages, the Company must
construct those homes in compliance with regulations promulgated by those
agencies.
The Company has registered condominium communities with the appropriate
authorities in Florida. Sales in other states would require compliance with laws
in those states regarding sales of condominium homes.
The Company's title insurance agency subsidiaries must comply with
applicable insurance laws and regulations. The Company's mortgage financing
subsidiaries must comply with applicable real estate lending laws and
regulations.
The Company's subsidiaries which underwrite title insurance are licensed
in the states in which they do business and must comply with laws and
regulations in those states regarding title insurance companies. These laws and
regulations include provisions regarding capitalization, investments, forms of
policies and premiums.
7
MARKET RISK
The tables on the following pages provide information at November 30,
1999 and 1998 about the Company's significant derivative financial instruments
and other financial instruments used for purposes other than trading that are
sensitive to changes in interest rates. For mortgage loans held for sale or
disposition, mortgage loans, investments and mortgage notes and other debts
payable, the tables present principal cash flows and related weighted average
effective interest rates by expected maturity dates and estimated fair market
values at November 30, 1999 and 1998. Weighted average variable interest rates
are based on the variable interest rates at November 30, 1999 and 1998. For
interest rate swaps and hedges, the tables present notional amounts and weighted
average interest rates by contractual maturity dates and estimated fair market
values at November 30, 1999 and 1998. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the contract.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 and Notes 1 and 13 of Notes to Consolidated
Financial Statements in Item 14 for a further discussion of these items and the
Company's strategy of mitigating its interest rate risk.
8
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest Rate
Fair Market
Years Ending November 30, Value at
-------------------------------------------- There - November 30,
(DOLLARS IN MILLIONS) 2000 2001 2002 2003 2004 after Total 1999
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Financial Services:
Mortgage loans held for sale or
disposition, net:
Fixed rate $ -- -- -- -- -- 191.8 191.8 193.9
Average interest rate -- -- -- -- -- 7.8% -- --
Variable rate $ -- -- -- -- -- 37.2 37.2 37.2
Average interest rate -- -- -- -- -- 7.2% -- --
Mortgage loans and investments:
Fixed rate $ 8.4 1.3 0.3 1.5 1.4 18.6 31.5 31.0
Average interest rate 5.3% 7.3% 9.4% 7.0% 7.3% 9.4% -- --
LIABILITIES
Homebuilding:
Mortgage notes and other
debts payable:
Fixed rate $ 11.3 4.9 -- -- -- 507.5 523.7 466.3
Average interest rate 7.4% 9.3% -- -- -- 6.2% -- --
Financial Services:
Notes and other debts payable:
Fixed rate $ 0.7 0.7 0.1 0.2 -- -- 1.7 1.6
Average interest rate 7.2% 4.9% 11.0% 9.0% -- -- -- --
Variable rate $ 248.8 1.4 1.1 -- -- -- 251.3 251.3
Average interest rate 5.1% 8.3% 8.3% -- -- -- -- --
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps:
Variable to fixed - notional
amount $ -- -- 200.0 -- -- -- 200.0 1.7
Average pay rate -- -- 6.1% -- -- -- -- --
Average receive rate 30-day LIBOR
9
Information Regarding Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest Rate
Fair Market
Years Ending November 30, Value at
-------------------------------------------- There- November 30,
(DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 after Total 1998
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Financial Services:
Mortgage loans held for sale or
disposition, net:
Fixed rate $ -- -- -- -- -- 215.0 215.0 219.4
Average interest rate -- -- -- -- -- 7.0% -- --
Mortgage loans and investments:
Fixed rate $ 6.8 0.3 1.3 0.4 1.5 16.3 26.6 26.4
Average interest rate 5.8% 8.2% 6.9% 8.2% 6.7% 8.0% -- --
LIABILITIES
Homebuilding:
Mortgage notes and other
debts payable:
Fixed rate $ 13.7 7.7 0.7 0.2 2.5 367.6 392.4 372.8
Average interest rate 6.4% 9.3% 9.3% 10.0% 10.0% 5.3% -- --
Variable rate $ 1.5 -- -- 136.7 -- -- 138.2 138.2
Average interest rate 5.4% -- -- 6.4% -- -- -- --
Financial Services:
Notes and other debts payable:
Fixed rate $ 0.3 0.3 0.5 -- -- -- 1.1 1.0
Average interest rate 1.2% 0.3% 0.2% -- -- -- -- --
Variable rate $ 227.5 1.4 1.4 1.4 0.5 -- 232.2 232.2
Average interest rate 6.4% 7.8% 7.8% 7.8% 7.8% -- -- --
OFF-BALANCE SHEET
FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps:
Variable to fixed - notional
amount $ -- -- -- 200.0 -- -- 200.0 (6.4)
Average pay rate -- -- -- 6.1% -- -- -- --
Average receive rate 30-day LIBOR
Interest rate hedge:
Notional amount $ 200.0 -- -- -- -- -- 200.0 (15.6)
Average pay rate 5.8% -- -- -- -- -- -- --
Average receive rate 10-year U.S. Treasury Note rate
10
CAUTIONARY STATEMENTS
Certain statements contained in this Report may be "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Such statements involve risks, uncertainties and other factors that may cause
actual results to differ materially from those which are anticipated. Such
factors include, but are not limited to, changes in general economic conditions,
the market for homes generally and in areas where the Company has developments,
the availability and cost of land suitable for residential development,
materials prices, labor costs, interest rates, consumer confidence, competition,
environmental factors and government regulations affecting the Company's
operations.
The following factors, among others, could particularly affect the
Company's operations and financial results and cause results to differ from
those anticipated by "forward-looking statements" in this Report.
REAL ESTATE, ECONOMIC AND CERTAIN OTHER CONDITIONS
The residential homebuilding industry is cyclical and is highly
sensitive to changes in general economic conditions, such as levels of
employment, consumer confidence and income, availability of financing for
acquisition, construction and permanent mortgages, interest rate levels and
demand for housing. Sales of new homes are also affected by the condition of the
resale market for used homes, including foreclosed homes.
The residential homebuilding industry has, from time-to-time,
experienced fluctuating lumber prices and supply, as well as shortages of labor
and other materials, including insulation, drywall, concrete, carpenters,
electricians and plumbers. Delays in construction of homes due to these factors
or to inclement weather conditions could have an adverse effect upon the
Company's operations.
Inflation can increase the cost of building materials, labor and other
construction related costs. Conversely, deflation can reduce the value of the
Company's inventory and can make it more difficult to include the full cost of
previously purchased land in home sale prices.
INTEREST RATES AND MORTGAGE FINANCING
Virtually all of the purchasers of the Company's homes finance their
acquisitions through third-party lenders or the Company's financial services
subsidiaries. In general, housing demand is adversely affected by increases in
interest rates, housing costs and unemployment and by decreases in the
availability of mortgage financing. In addition, various proposals for changes
in the federal income tax laws have been discussed, some of which would remove
or limit the deduction for home mortgage interest. If effective mortgage
interest rates increase and the ability or willingness of prospective buyers to
finance home purchases is adversely affected, the Company's operating results
may also be negatively affected. The Company's homebuilding activities also are
dependent upon the availability and cost of mortgage financing for buyers of
homes owned by potential customers permitting those customers to sell their
existing homes and purchase homes from the Company. Any limitations or
restrictions on the availability of such financing could adversely affect the
Company's sales.
VARIABILITY OF RESULTS
The Company has historically experienced, and in the future expects to
continue to experience, variability in operating results on a quarterly basis.
Factors which may contribute to this variability include, among others (i) the
timing of home closings; (ii) the timing of receipt of regulatory approvals for
the construction of homes; (iii) the condition of the real estate market and
general economic conditions; (iv) the cyclical nature of the homebuilding
industry; (v) the prevailing interest rates and the availability of mortgage
financing; (vi) pricing policies of the Company's competitors; (vii) the timing
of the opening of new residential communities; (viii) weather and (ix) the cost
and availability of materials and labor. The Company's historical financial
performance is not necessarily a meaningful indicator of future results and, in
particular, the Company expects its financial results to continue to vary from
quarter to quarter.
11
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a significant degree on the
efforts of the Company's senior management, especially its president and chief
executive officer and other officers. The Company's operations may be adversely
affected if one or more members of senior management cease to be active in the
Company. The Company has designed its compensation structure and employee
benefit programs to encourage long-term employment of executive officers.
YEAR 2000
The "Year 2000 issue" relates to issues which may arise from the
inability of existing computer systems to properly recognize the year 2000. If
not corrected, computer systems may fail or miscalculate data. The Company uses
a variety of operating systems, computer software applications, computer
hardware equipment and other equipment in conjunction with its homebuilding and
financial services operations. In addition, the Company uses other
non-information technology internal office systems. The Company converted the
majority of its computer information systems to one company-wide system which is
Year 2000 compliant and made modifications to its other computer information
systems to make them Year 2000 compliant. The Company is not currently aware of
any issues which have arisen in any of its computer systems or other
non-information technology systems as a result of the Year 2000 issue. In
addition, the Company has not experienced or been notified of any significant
Year 2000 issues relating to its significant vendors, subcontractors, suppliers
and others.
EMPLOYEES
At November 30, 1999, the Company employed 4,859 individuals of whom
2,368 related to homebuilding operations and 2,491 related to financial services
operations. Some of the subcontractors utilized by the Company may employ
members of labor unions. The Company does not have collective bargaining
agreements relating to its employees.
ITEM 2. PROPERTIES.
For information about properties owned by the Company for use in its
homebuilding activities, see Item 1.
The Company leases and maintains its executive offices, financial
services subsidiary headquarters and principal Miami-Dade County, Florida
homebuilding office in an office complex built by the Company and now owned by
LNR. The leases for these offices expire in 2002. Other Company offices are
located in Company-owned communities or in leased space.
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain subsidiaries are parties to various claims,
lawsuits, legal actions and complaints arising in the ordinary course of
business. Although the specific allegations in the lawsuits differ, in general
the majority of the lawsuits assert that the Company failed to construct
buildings in the community involved in accordance with plans and specifications
and applicable construction codes, and seek reimbursement for sums allegedly
necessary to spend to remedy the alleged construction deficiencies, or assert
contract issues or relate to personal injuries. Suits of these types are common
within the homebuilding industry. The Company does not believe that these
lawsuits or threatened lawsuits will have a material effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Information concerning the market data for the Company's common stock
and related security holder matters is incorporated by reference to page 50 of
the Company's 1999 Annual Report to Stockholders.
12
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is incorporated by reference to page 24 of the
Company's 1999 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and results
of operations is incorporated by reference to pages 25 through 29 of the
Company's 1999 Annual Report to Stockholders.
ITEM 7A. MARKET RISK.
For information on the Company's market risk, see Item 1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated financial statements and supplementary data about the
Company are incorporated by reference to pages 32 through 49 of the Company's
1999 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about the Company's directors is incorporated by reference
to the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year). The following people were the executive
officers of Lennar Corporation on February 22, 2000:
NAME/POSITION AGE YEAR OF ELECTION
------------- --- ----------------
Stuart A. Miller,
President and Chief Executive Officer 42 1997
Bruce E. Gross,
Vice President and Chief Financial Officer 41 1997
Marshall H. Ames,
Vice President 56 1982
Jonathan M. Jaffe,
Vice President 40 1994
David B. McCain,
Vice President, General Counsel and Secretary 39 1998
Allan J. Pekor,
Vice President 63 1997
Diane J. Bessette,
Controller 39 1997
Waynewright Malcolm,
Treasurer 36 1997
The year of election represents the year that the executive officer was
elected to his/her current position.
Mr. Stuart Miller (who is the son of Leonard Miller, the Chairman of
the Board of Directors of the Company) has been President and Chief Executive
Officer since April 1997. Prior to that, Mr. Miller held various executive
positions with the Company and had been a Vice President since 1985. Mr. Miller
is also the Chairman of the Board of LNR Property Corporation.
13
Mr. Gross has been Vice President and Chief Financial Officer since
1997. Prior to joining the Company in 1997, Mr. Gross was employed as Senior
Vice President, Controller and Treasurer of Pacific Greystone Corporation since
its inception in 1991.
Mr. Ames has been a Vice President since 1982 and has held various
positions in the Company's Homebuilding Division.
Mr. Jaffe has been a Vice President since 1994 and serves as a Regional
President in the Company's Homebuilding Division.
Mr. McCain has been employed by the Company since 1998 as Vice
President, General Counsel and Secretary. Prior to joining the Company, Mr.
McCain was employed at John Alden Asset Management Company for more than 10
years, where he last served as Vice President, General Counsel and Secretary.
Mr. Pekor has held various executive positions with the Company since
1979. Mr. Pekor presently serves as Vice President of the Company and has served
as President of Lennar Financial Services, Inc. since 1997.
Ms. Bessette has been employed by the Company since 1995 and has been
the Company's Controller since 1997. Prior to joining the Company, Ms. Bessette
was employed as a Financial Senior Manager at the Holson Burnes Group, Inc. and
before that, was employed by Price Waterhouse LLP.
Mr. Malcolm joined the Company as Treasurer in 1997. Prior to joining
the Company, Mr. Malcolm was employed as Director, Finance and Regulatory
Affairs at Citizens Utilities Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year).
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report.
1. The following financial statements are incorporated by
reference in Item 8:
PAGE IN 1999
ANNUAL REPORT TO
FINANCIAL STATEMENTS STOCKHOLDERS
-------------------- ----------------
Report of Independent Auditors 30
Consolidated Balance Sheets as of November 30,
1999 and 1998 32
Consolidated Statements of Earnings for the
years ended November 30, 1999, 1998 and 1997 33
Consolidated Statements of Cash Flows for the
years ended November 30, 1999, 1998 and 1997 34
Consolidated Statements of Stockholders' Equity
for the years ended November 30, 1999, 1998
and 1997 36
Notes to Consolidated Financial Statements 37
2. The following financial statement schedule is included in this
Report:
FINANCIAL STATEMENT SCHEDULE PAGE IN THIS REPORT
---------------------------- -------------------
Independent Auditors' Report on Schedule 19
II - Valuation and Qualifying Accounts 20
Information required by other schedules has either been
incorporated in the financial statements and accompanying notes or
is not applicable to the Company.
3. The following exhibits are filed with this Report or
incorporated by reference:
3(a). Certificate of Amendment of Certificate of
Incorporation, dated April 9, 1999.
3(b). Amended and Restated Certificate of
Incorporation, dated April 28, 1998 -
Incorporated by reference to Annual Report
on Form 10-K for the year ended November 30,
1998.
3(c). Bylaws - Incorporated by reference to Form
8-K dated October 31, 1997, file number
1-11749.
4(a). Indenture, dated as of December 31, 1997,
between Lennar Corporation and First
National Bank of Chicago, as trustee -
Incorporated by Reference to Registration
Statement No. 333-45527.
15
4(b). First Supplemental Indenture, dated as of
July 29, 1998, between Lennar Corporation
and First National Bank of Chicago, as
trustee (relating to Lennar's Zero Coupon
Senior Convertible Debentures due 2018) -
Incorporated by reference to Form 8-K dated
July 24, 1998, file number 1-11749.
4(c). Second Supplemental Indenture, dated as of
February 19, 1999, between Lennar
Corporation and First National Bank of
Chicago, as trustee (relating to Lennar's
7 5/8% Senior Notes due 2009) - Incorporated
by reference to Form 8-K dated February 19,
1999, file number 1-11749.
10(a). Amended and Restated Lennar Corporation 1997
Stock Option Plan - Incorporated by
reference to Annual Report on Form 10-K for
the year ended November 30, 1997.
10(b). Lennar Corporation 1991 Stock Option Plan -
Incorporated by reference to Registration
Statement No. 33-45442.
10(c). Lennar Corporation Employee Stock Ownership
Plan and Trust - Incorporated by reference
to Registration Statement No. 2-89104.
10(d). Amendment dated December 13, 1989 to Lennar
Corporation Employee Stock Ownership Plan -
Incorporated by reference to Annual Report
on Form 10-K for the year ended November 30,
1990.
10(e). Lennar Corporation Employee Stock
Ownership/401k Trust Agreement dated
December 13, 1989 - Incorporated by
reference to Annual Report on Form 10-K for
the year ended November 30, 1990.
10(f). Amendment dated April 18, 1990 to Lennar
Corporation Employee Stock Ownership/401k
Plan - Incorporated by reference to Annual
Report on Form 10-K for the year ended
November 30, 1990.
10(g). Partnership Agreement for Lennar Land
Partners by and between Lennar Land Partners
Sub, Inc. and LNR Land Partners Sub, Inc.,
dated October 24, 1997 - Incorporated by
reference to Annual Report on Form 10-K for
the year ended November 30, 1997. Lennar
Land Partners Sub II, Inc. and LNR Land
Partners Sub II, Inc. entered into an
identical Partnership Agreement for Lennar
Land Partners II on June 28, 1999.
10(h). Separation and Distribution Agreement, dated
June 10, 1997, between Lennar Corporation
and LNR Property Corporation - Incorporated
by reference to Registration Statement No.
333-35671.
10(i). Credit Agreement, dated October 31, 1997, by
and among Lennar Land Partners and the
Lenders named therein and a Guaranty
Agreement of Lennar Corporation, dated
October 31, 1997 - Incorporated by reference
to Annual Report on Form 10-K for the year
ended November 30, 1997. Lennar Land
Partners II was added as a borrower to this
agreement effective July 1, 1999.
10(j). Revolving Credit Agreement (Facilities A and
B), dated October 31, 1997, among Lennar
Corporation and Certain Subsidiaries and the
First National Bank of Chicago, as agent -
Incorporated by reference to Annual Report
on Form 10-K for the year ended November 30,
1997.
16
10(k). First Amendment to Revolving Credit
Agreement (Facilities A and B) dated January
20, 1998, among Lennar Corporation and
Certain Subsidiaries and the First National
Bank of Chicago, as agent - Incorporated by
reference to Annual Report on Form 10-K for
the year ended November 30, 1997.
10(l). Equity Draw-Down Agreement, dated March 25,
1998, between Lennar Corporation and HSBC
James Capel Canada, Inc. - Incorporated by
reference to Annual Report on Form 10-K for
the year ended November 30, 1998.
10(m). Voting Agreement, dated June 10, 1997,
between Lennar Corporation, Warburg Pincus
Investors, L.P. and Pacific Greystone
Corporation - Incorporated by reference to
Form 8-K dated June 10, 1997, file number
1-11749.
10(n). Plan and Agreement of Merger, dated as of
February 16, 2000, between Lennar
Corporation, U.S. Home Corporation and Len
Acquisition Corporation - Incorporated by
reference to Form 8-K dated February 23,
2000, file number 1-11749.
13. Pages 24 through 50 of the 1999 Annual
Report to Stockholders.
21. List of subsidiaries.
23. Independent Auditors' Consent.
27. Financial Data Schedule.
(b) Reports on Form 8-K filed during the quarter ended November
30, 1999. Not applicable.
(c) The exhibits to this Report are listed in Item 14(a)3.
(d) The financial statement schedules required by Regulation S-X
which are excluded from the Annual Report to Stockholders as
permitted by Rule 14a-3(b)(1) are listed in Item 14(a)2.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LENNAR CORPORATION
/S/ STUART A. MILLER
-------------------------------
Stuart A. Miller
President, Chief Executive
Officer and Director
Date: February 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Principal Executive Officer:
Stuart A. Miller /S/ Stuart A. Miller
President, Chief Executive -------------------------------
Officer and Director Date: February 28, 2000
Principal Financial Officer:
Bruce E. Gross /S/ Bruce E. Gross
Vice President -------------------------------
and Chief Financial Officer Date: February 28, 2000
Principal Accounting Officer:
Diane J. Bessette /S/ Diane J. Bessette
Controller -------------------------------
Date: February 28, 2000
Directors:
Irving Bolotin /S/ Irving Bolotin
-------------------------------
Date: February 28, 2000
Jonathan M. Jaffe /S/ Jonathan M. Jaffe
-------------------------------
Date: February 28, 2000
R. Kirk Landon /S/ R. Kirk Landon
-------------------------------
Date: February 28, 2000
Sidney Lapidus /S/ Sidney Lapidus
-------------------------------
Date: February 28, 2000
Reuben S. Leibowitz /S/ Reuben S. Leibowitz
-------------------------------
Date: February 28, 2000
Leonard Miller /S/ Leonard Miller
-------------------------------
Date: February 28, 2000
Arnold P. Rosen /S/ Arnold P. Rosen
-------------------------------
Date: February 28, 2000
Steven J. Saiontz /S/ Steven J. Saiontz
-------------------------------
Date: February 28, 2000
18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Lennar Corporation:
We have audited the consolidated financial statements of Lennar Corporation (the
"Corporation") as of November 30, 1999 and 1998 and for each of the three years
in the period ended November 30, 1999, and have issued our report thereon dated
January 11, 2000, except for Note 15, as to which the date is February 16, 2000;
such financial statements and report are included in your 1999 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also included
the financial statement schedule of Lennar Corporation, listed in Item 14(a)2.
The financial statement schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
January 11, 2000
19
LENNAR CORPORATION AND SUBSIDIARIES SCHEDULE II
Valuation and Qualifying Accounts
Years ended November 30, 1999, 1998 and 1997
Additions
---------------------------
Charged Charged
Beginning to costs to other Ending
Description balance and expenses accounts Deductions balance
- ------------------------------------------------------ ------------- ------------- ------------- ------------- -----------
Year ended November 30, 1999
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 4,075,000 2,011,000 38,000 (3,653,000) 2,471,000
============= ============= ============= ============= ===========
Deferred income and unamortized discounts $ 231,000 -- 1,156,000 (259,000) 1,128,000
============= ============= ============= ============= ===========
Loan loss reserve $ 3,090,000 1,200,000 21,000 (533,000) 3,778,000
============= ============= ============= ============= ===========
Valuation allowance $ 1,903,000 93,000 56,000 (803,000) 1,249,000
============= ============= ============= ============= ===========
Deferred tax asset valuation allowance $ 7,659,000 -- 849,000 -- 8,508,000
============= ============= ============= ============= ===========
Year ended November 30, 1998
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 1,952,000 1,505,000 1,091,000 (473,000) 4,075,000
============= ============= ============= ============= ===========
Deferred income and unamortized discounts $ 85,000 -- 146,000 -- 231,000
============= ============= ============= ============= ===========
Loan loss reserve $ 3,531,000 722,000 -- (1,163,000) 3,090,000
============= ============= ============= ============= ===========
Valuation allowance $ 2,176,000 -- 290,000 (563,000) 1,903,000
============= ============= ============= ============= ===========
Deferred tax asset valuation allowance $ 7,659,000 -- -- -- 7,659,000
============= ============= ============= ============= ===========
Year ended November 30, 1997
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 3,037,000 552,000 -- (1,637,000) (A) 1,952,000
============= ============= ============= ============= ===========
Deferred income and unamortized discounts $ 601,000 -- -- (516,000) (A) 85,000
============= ============= ============= ============= ===========
Loan loss reserve $ 5,840,000 1,220,000 -- (3,529,000) (A) 3,531,000
============= ============= ============= ============= ===========
Valuation allowance $ 2,745,000 1,119,000 -- (1,688,000) 2,176,000
============= ============= ============= ============= ===========
Deferred tax asset valuation allowance $ -- -- 7,659,000 -- 7,659,000
============= ============= ============= ============= ===========
(A) Includes amounts that were distributed in connection with the spin-off of the commercial real estate investment and management
business as follows:
Allowances for doubtful accounts and notes receivable $ 739,000
Deferred income and unamortized discounts $ 493,000
Loan loss reserve $1,996,000
20
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3(a). Certificate of Amendment of Certificate of Incorporation, dated
April 9, 1999.
13. Pages 24 through 50 of the 1999 Annual Report to Stockholders.
21. List of subsidiaries.
23. Independent Auditors' Consent.
27. Financial Data Schedule.