Lennar Annual Report 1999

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FY1999 Annual Report · Lennar

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A N N U A L R E P O R T

Table
of Contents

Financial highlights 3

Letter to shareholders 4

A simple emphasis: our customers 11

A simple operating model: where, what and how 13

A simple focus: growing strong in America’s fastest
growing markets 14

A simple strategy: “Everything’s IncludedSM”

from A to 17

Simply one stop: financial services 19

...and simply a great place to work 21

Financial information 23

Simply
Lennar

The future belongs to the focused.

It’s our focal point. It’s our strategy. It’s the way we

build homes and sell homes. It’s the way we control

our growth. It’s simply the way we manage

our business.

Simply Lennar

Building a better home
As the nation’s fifth largest residential builder, with operations in Florida, California, Texas,
Arizona and Nevada, we’ve helped to fulfill the home ownership dreams of over 160,000 families
since the company was founded in 1954 - over 12,500 families in 1999 alone. Our fundamental
goal: to build a better home, for the first-time buyer, the family moving up to a larger home, or
the retirees looking for a home and community that fits their active lifestyle. We’ve continually
set our standards higher, with a new generation of quality Zero Defect homes and our
“Everything’s IncludedSM” program of upgraded home features. Keeping it simple and making it
special. That’s what it’s all about.

Building superior financial services
Through our Financial Services Division, we’ve also helped to simplify the homebuying
process with services that include everything from title, mortgage and closing services to cable
television and alarm system installation and monitoring.

Building significant careers
The Lennar family consists of some 4,900 associates. We’re proud of our history of helping our
associates build their careers, reflecting our commitment to being the best in the industry. As
we’ve grown, our associates have grown with us, enriching our unique corporate culture and
bringing high levels of innovation, initiative and expertise to our programs.

Building shareholder value
At Lennar Corporation, our success is based on maintaining consistent and predictable growth
in revenues, earnings and deliveries, while remaining focused on return on capital and return
on equity. We exceeded our goals in all three areas in 1999, building shareholder value by
reducing homebuilding debt, further diversifying our earnings stream, consolidating our national
operations and increasing both new home deliveries and our financial services customer base.

Strong, consistent earnings per share growth has helped to build our reputation on Wall Street,
just as our quality homes have built our reputation on Main Street.

Building one of the best balance sheets in the business
For forty-five years, our reputation has been built on a very simple principle: build the best
homes and provide the best services to our customers, and great financial results will follow.
It’s a simple formula that’s helped us build shareholder value year after year, as well as one of
the best balance sheets in the business.

Financial Highlights

Deliveries

12,589

EBITDA
($ in millions)

$373

10,777

8,943

$313

$170

97 98 99

(pro forma)

97 98 99

(pro forma)

Net Income
($ in millions)

$173

$144

Earnings Per Share
(Diluted)

$2.74

$2.49

$77

$1.44

97 98 99

(pro forma)

97 98 99

(pro forma)

Shareholders’ Equity
($ in millions)
$881

$716

$439

Debt to Total Capital Ratio

55%

43%

37%

97 98 99

Simply another record year

Dear Shareholders:

1999 was another record year for Lennar Corporation, as we continued to expand our customer
base and grow our revenues, earnings and new home deliveries. We further streamlined our
operations, including fully integrating the new operations acquired in 1998 and 1999, while
managing a more balanced and diverse product offering.

Lennar has continued to deliver shareholder value by growing earnings and building a strong
and stable balance sheet. We’ve done it with a simple, prudent financial and business strategy.

In 1999 we...

• Grew total revenues to $3.1 billion, a 29% increase

• Grew net earnings by 20% to $173 million

• Reduced our debt to total capital ratio from 43% to 37%

• Reduced our revolver balance to $0 at November 30, 1999

• Increased shareholders’ equity by $166 million to $881 million

Our growth reflected a four-tiered corporate strategy: a simple operating model, well-paced
expansion of the business, continued diversification of our product offerings and a
conservative fiscal strategy. Our focus is to:

• Maintain a strong balance sheet

• Diversify and grow earnings

• Maintain high gross margins and a low land basis

• Maximize our return on capital investment

• Fully integrate our newly acquired companies, management and associates

• Increase market share in core markets

Simply strategic... By focusing our operating strategy on improving our balance sheet
while we grow earnings per share and generate high returns on capital, we keep our company
positioned for future success. A strong balance sheet is the foundation for seizing opportunities
when market inefficiencies present themselves.

Financial Balance

a l *
v . 1

7 )

p i t
a
e N o
4 %

n o
r
e
a li z

n C
d s i n
1

e t
n

R
( a

EPS Growth
(annualized since Nov. 1997)
38%

Debt to Total Capital
Nov. 1997 - 55%
Nov. 1998 - 43%
Nov. 1999 - 37%

* Net income plus after tax interest/(avg. debt + avg. equity)

Revenues
up 29%

High gross
margin of
21.2%

Net earnings
up 20%

EPS
up 10%

Debt to total capital
ratio reduced to 37%

$0 revolver
balance
Nov. 30, 1999

Low land
basis

Maintained a simple operating strategy...

Simply the best... Buying a home is an investment, and we maximize the value of that
investment with the “Everything’s IncludedSM” program of luxury standard features, from top
name appliances to upgraded carpet in a full range of colors, at a great value to the buyer.
“Everything’s IncludedSM” was introduced at nearly every price level in 1999 at Lennar
communities, and along with our industry-leading Zero Defects homebuilding policy, it’s the
cornerstone of our business philosophy of keeping it simple and making it special. “Everything’s
IncludedSM” means simplicity for the buyer and the builder, with added value to the customer,
reduced necessity of upgrades and changes and an expedited production schedule.

Simply streamlined... Our streamlined business structure creates economies of scale that
benefit our customers, subcontractors and associates alike. Our two divisions: Lennar Homes
and Lennar Financial Services (LFS) allow us to cover nearly every aspect of the homebuilding
and buying process, keeping it simple for the buyer and the builder. Our compact management
structure keeps us lean and highly focused, while leveraging the localized experience of our
team for maximum growth, market by market.

Simply focused... We have remained compact by focusing on the nation’s fastest growing
markets; we’re coast to coast and focused. The housing markets in Florida, California, Texas,
Arizona and Nevada are among the nation’s top markets for the homebuilding industry. Our
strength is bolstered by the acquisition of local builders who bring market expertise to the
table, positioning us for continued strong growth.

Achieved a lot by doing more...

Simply stronger acquisitions... Lennar Corporation grew to approximately 4,900 associates
nationwide in 1999, an increase of about 800 associates. Our expansion included the integration
of our newly acquired LFS companies: Eagle Home Mortgage, Southwest Land Title and North
American Title Guaranty in 1999 and North American Title in 1998.

These strategic acquisitions, along with our 1997 and 1998 acquisitions (Pacific Greystone,
Winncrest Homes, ColRich Communities and Polygon Communities), helped to strengthen
our positions in our Western and Southwestern markets, while adding to our human capital
of experienced, able management.

Simply diversifying... At Lennar, maintaining a diverse business is the key to building long-
term, stable earnings growth. We have built that diversity by applying a “one-stop shopping”
approach to the homebuying experience. By building strong homebuilding operations, and
leveraging them with financial and ancillary services, we are able to create a value-added
business, and capture an increasing percentage of buyers. Again, it’s about simplicity - covering
everything from the home itself to the mortgage to the security and cable television systems.

Our title companies handled nearly 140,000 transactions in 1999. Strategic Technologies, Inc.
(STI) grew its customer base significantly in 1999 and now has approximately 7,600 cable and
6,300 alarm monitoring customers nationwide.

LFS completed nearly 15,000 loan originations in 1999, up 90% versus 1998. The dollar value
of loans originated by LFS grew to $2.2 billion, up a full 110% versus 1998. In addition, the capture
rate of Lennar homebuyers to our mortgage and ancillary services increased from 59% in 1998
to 63% in 1999. And while LFS pretax earnings edged down 7% versus 1998 to $31 million,
revenues grew by 27%, reaching $269 million.

This diverse stream of earnings, and the continued addition of ancillary services in our technologies
division, will help us continue to deliver a high level of profitability and return on equity to
our shareholders.

Simply covering all the demographics... Diversity also means building in a range of
price brackets and consumer markets. We delivered over 12,500 homes nationwide in 1999,
ranging in price from $100,000 to a million-plus, with a majority falling between $100,000 and
$400,000. We cover a broad consumer market that includes first-time buyers, “move-up” buyers
trading up to a larger home, and active adult homebuyers (older buyers, retirees and
“empty-nesters”).

And improved our balance sheet...

Simply achieving more... We achieved record earnings, revenues and earnings per share
in 1999. At the same time, we reduced our debt to total capital ratio to 37% and brought our
revolving credit balance to zero by the end of the year. To put it simply, our highs and lows
were some of the best in the business.

Simply balanced... Lennar Corporation continues to have one of the strongest balance
sheets in the homebuilding industry. We have achieved this through conservative fiscal policies,
which balance short-term growth with long-term earnings stability. Since November 1997, we
have achieved an annualized 38% increase in earnings per share while reducing our debt to
total capital ratio from 55% to 37%.

...While keeping it simple.

At Lennar Corporation, “Keeping it Simple” is more than just a
marketing strategy. It’s a new way of doing business, and one that
we think has revolutionized the homebuilding industry. It’s about
building homes that homebuyers and investors love, and making
the homebuying process simpler and more satisfying for our
customers. It’s about cultivating a prudent financial strategy -
achieving a zero revolver balance and reducing our debt to capital
ratio to less than 40%. It’s also about nurturing a corporate culture
that rewards individual achievement, while working toward a unified
vision. And it’s about rewarding our shareholders with a sound balance

sheet, excellent returns on equity and record earnings.

With so much to look forward to, it’s easy to forget that we’ve been in business for nearly a
half century. But it’s that longevity and our constant emphasis on quality, simplicity and
innovation, which have helped us to build one of the best reputations in the homebuilding
industry.

We would like to thank the almost 5,000 associates of Lennar that have worked so hard to
ensure the success of our company. We would like to thank our customers for putting their
trust in Lennar to build the home of their dreams. We’d also like to thank our shareholders for
your continued investment and belief in our company. We’ve worked hard to earn your trust,
and we’re looking forward to continued shared success in the short and the long-term.

Sincerely,

Stuart A. Miller
President & Chief Executive Officer

P.S. Simply another great deal

On February 17, 2000, we announced the signing of a definitive agreement to acquire U.S.
Home Corporation to create the largest homebuilder in America based on profitability and
revenues.

A simple emphasis:
our customers

For many families, buying a home is the most significant single purchase they will make.
For us, it’s the most significant relationship we will forge. Growing with the homebuyer,
from their first home to their dream home, is the Lennar way.

The Lennar homebuyer spans the entire range, from young families, couples and singles buying
their first home, to growing families moving up to a larger home, to “empty nesters” and active
seniors looking for a resort lifestyle with amenities and activities to suit a lifestyle of
independence and leisure. By making the process simple and satisfying, with unparalleled
customer service before, during and after the sale, we are able to keep many of our homebuyers
in the Lennar family as their housing needs change. We call it TLC - Total Lennar Care. Our
customers call it a great buying experience.

• We strive to offer a quality “Zero Defects” home with “Everything’s IncludedSM” features that

make our homes a great value for the first-time buyer.

• Our spacious floor plans and expanded array of “Everything’s IncludedSM” features packages
are ideal for the move-up homebuyer, who often has children living at home, and thus
requires more space and options.

• We offer a variety of low-maintenance plans with an expanded menu of amenities and

recreational facilities to meet the needs of active adults.

FIRST-TIME BUYERS

MOVE-UP BUYERS

ACTIVE ADULTS

Keeping it simple for the first-
time homebuyer means offering
the best value for the money,
and a no-hassle process for
choosing and purchasing their
new home. Lennar homes targeted
to the first-time buyer often include:

For families “trading up” to a

larger home, Lennar offers an

expanded array of features.

Often, our “move-up” families

started out as first-time Lennar

homebuyers. Enhanced amenities

• A home priced from $100,000

to over $200,000.

often include:

• A spacious home from under

$200,000 to over $400,000.

• “Everything’s IncludedSM”

Every day, 10,000 Americans
reach fifty years of age. And as
the 75-million-plus Baby
Boomers reach this milestone,
they are changing the face of
aging to one that is more affluent,
active, and health conscious.
Lennar communities for America’s
fastest growing population are
built for entertaining and for
play, with convenient features
that make home not just a place
to be, but a place to live. Features
often include:

• The value of our “Everything’s
IncludedSM” upgraded features
packages.

• Well-planned communities
with recreational facilities
suited for young singles,
couples and families, including
tot lots, swimming pools, club-
houses and more.

• The TLC buying experience -
which often means that their
next home will also be a
Lennar home.

options including pre-wired

• Homes priced from $100,000

computer work stations for

students or home offices and

multi-purpose spare rooms.

• Master-planned communities

loaded with amenities and

recreational facilities.

to over $200,000.

• Low maintenance inside and
out, including landscaping
and lawn care.

• State-of-the-art recreational
facilities, including special
golfing communities and
more.

A simple operating model:
where, what and how

Where we build...
Our strategy of keeping things simple will continue to enable us to grow quickly and efficiently.
Lennar is coast to coast and focused on the large and growing markets of Florida, California,
Texas, Arizona and Nevada. By targeting high-growth markets, Lennar has been able to leverage
the expertise of our management teams, enhancing both efficiency and profitability.

• Lennar is one of the largest builders in the top three housing states of California, Texas and
Florida, which accounted for nearly a third of total housing production in the U.S. in 1999.

• According to the Census Bureau, the seventeen fastest growing counties in the country are all

located in the five states we operate in.

• In the South and West, the children of the Baby Boom generation, the so-called Echo Boomers,
are well-educated, increasingly affluent, and acquiring homes at a heated pace, driving housing
markets such as Florida, California, Texas, Arizona and Nevada to record growth. We are taking
the lead by constantly modernizing our floor plans and amenities to meet the needs of these
technologically savvy, younger buyers.

What we build...
A home with “Everything’s IncludedSM”. It just doesn’t get any simpler than that. Our
“Everything’s IncludedSM” program benefits our customers by ensuring consistent quality, timely
delivery and great value, while still allowing them to personalize, not customize their home.
From that simple framework, Lennar Corporation has built a reputation as one of the leading
homebuilders in the U.S.

How we build...
It’s all about Zero Defects. And that means that every home we build, every mortgage loan we
make, everything we do, and every element of our business is approached with the attitude that
there will be zero tolerance for error. Yes, errors are still made from time to time... we’re human.
But Zero Defects is about attitude. It’s a determination that we will always strive to be
the best.

The high quality of our homes, encapsulated in our Zero Defects policy, combined with the
upgraded features of our “Everything’s IncludedSM” program, encourage many of our customers
to refer family and friends to Lennar, or to purchase another Lennar home as they move along
the income and demographic spectrum. The way we see it, we’re building more than just
homes - we’re building relationships that will last for years to come.

A simple focus: growing strong in
America’s fastest growing markets

California
In just a few years, Lennar has become the second

largest builder in the state of California. Our 1997 merger with

Pacific Greystone, the parent company of Greystone Homes, created one of

the nation’s largest homebuilding and financial services companies. Other

California acquisitions include Bramalea (1995), Renaissance Homes (1996) and

Polygon Communities, ColRich Communities and Winncrest Homes (1998).

California ranked first in the nation in annualized total personal income (TPI)

through the 3rd quarter of 1999. TPI was up 5.5% through the 3rd quarter.

The state also ranked 3rd in residential building permits and 1st

in single family home sales with over 700,000homes

in 1999.

Florida
Lennar is Florida’s largest

homebuilder, with ten

divisions throughout the state,

including Miami, Fort

Lauderdale, Palm Beach,

Melbourne, Tampa Bay, Fort Myers

(Southwest Florida) and Orlando.

Florida is the nation’s 4th most

populous state, and also ranked

4th in annualized TPI through

the 3rd quarter of 1999. The

state ranked 1st in residential

permits and third in sin-

gle family home

sales in 1999.

Arizona/Nevada
Lennar has over 25 years experience building

in Arizona. Arizona ranked 6th in residential permits

in 1999, and 8th in single family home sales. The state

also had the second highest increase in annualized total

personal income through the 3rd quarter of 1999 (up 8.6%).

Lennar has a strong presence in Nevada, which was the fastest

growing state in terms of annualized TPI growth through

the 3rd quarter of 1999, with a 10.4% increase.

Both Arizona and Nevada provide excellent

opportunities to expand our retirement

communities.

Texas
Lennar builds throughout Texas, in

Dallas, Fort Worth, Houston and Austin. Lennar

acquired local builder Village Builders

of Houston and Friendswood Development

Company in 1996.

Texas ranked 3rd nationwide in annualized total

personal income through the 3rd quarter of 1999.

The state had a 5.6% increase in per capita income, the

fourth highest rate in the U.S. Texas ranked 2nd

in both residential permits and single

family home sales in 1999.

S M

V E R Y T H I N G ’ S
N C L U D E D
G E N E R A L E L E C T R I C ®
I C E m a k e r
R E F R I G E R A T O R W I T H

1 8 C U .

F T .

“I
was
surprised
on opening
day, when
these people would actually
come up to me and talk
about how delighted they
were about the things that
were included in the home.
They were just amazed.
They’d never seen anybody
do that.”

Denis Cullumber
Division President,
South Coast Division

“Zero Defects and Z-Values mean to me
focusing on all the right things. It means
focusing on delivering the highest quality
product in the industry today. It means
delivering unparalleled service to our
homebuyers and friends. It means
focusing on teamwork and working
hard, but always having fun and
working as a team towards both our
personal and professional goals.”

Mike Levesque
Division President,
San Diego Division

A simple strategy:
“Everything’s IncludedSM” from A to

Simply “Everything’s IncludedSM”
At Lennar, building the best home starts with a simple strategy: know your customer. We put our

market research expertise to work to determine what home features will offer the best value to

the customer on a market by market basis, whether it’s upgraded carpeting or top name kitchen

appliances. By pre-selecting optimal home features for inclusion in our standard homes, we are

able to deliver a home that’s personalized for the homebuyer, without the need for customization.
We sum it up in two words: “E VERYTHING’S INCLUDEDSM”.

• For the subcontractor,

“E VERYTHING’S INCLUDEDSM”

means a simplified construction process. By eliminating

the need for customization, they are able to

achieve the consistent quality and timely delivery

that benefits their bottom line, while building

homes that customers love.

• For the customer,

“E VERYTHING’S INCLUDEDSM”

means the best value in the market. The cost savings

from bulk purchases from suppliers results in added

value which is passed on to our customers.

• For Lennar,

“E VERYTHING’S INCLUDEDSM” means

profitibility. Even flow production and lower costs

Market Research
Know your buyer

Customer
Better value

“Everything’s
IncludedSM”
Home

Subcontractor
Simplify
construction process

Lennar
More profitable

translate into higher margins and lower overhead for Lennar.

Simply Zero Defects
Our quest to build the home of our customers’ dreams where

“E VERYTHING’S INCLUDEDSM” is part
of our larger mission; a mission we call Zero Defects. Our commitment to Zero Defects encompasses

everything we do, from the way we build our homes to the way we service them prior to and

even after closing. From our timely response to service requests to our professionalism and Total

Lennar Care, Zero Defects is a commitment to excellence; a commitment that shapes our values,

even as it grows our business.

Zero Defects is also about the pride our associates share in every aspect of what we do. When

they put on their Lennar name badge, our associates can be proud of the company they represent.

Pride in ownership. Pride in our commitment to quality. Pride in our company’s past, present

and unlimited future.

It’s a simple strategy. Build

the best. Be the best... with

Zero Defects.

“We were able to purchase
the home and start the
paperwork immediately
with representatives from
Lennar. And they handled
the complete financing for
us. They gave us extremely
competitive rates. We had
many options in that
respect, and they handled
the whole program for us.
So we didn’t have to go
outside and shop for
ourselves. They took care
of all of that.”

Clyde Collins
Homeowner, Coto de Caza

Simply one stop:
financial services

A simpler process...
Enhancing the homebuying experience for our customers means simplifying the process of
choosing, financing and closing on a new home. Offering the customer a single source for all
their financial and residential services needs is just one more way we’re earning the trust of our
homebuyers. At the same time, we’re diversifying our revenue base.

Our Financial Services Division had $31 million in pretax earnings in 1999, and that success
came as a result of “capturing” an increasing percentage of Lennar homebuyers (63% in 1999,
versus 59% in 1998).

• Our mortgage division had just under 15,000 mortgage loan originations in 1999, up 90%

versus 1998.

• The dollar value of loan originations reached $2.2 billion, a 110% increase versus 1998.

• STI increased its customer base in 1999 and now has approximately 7,600 cable and 6,300

alarm monitoring customers.

• Our title services business completed 139,000 title transactions in 1999.

All of this resulted in a revenue increase for LFS of 27% to $269 million.

...at a faster pace
Lennar is focused on utilizing the internet to simplify the process of purchasing a home.
By focusing on internet solutions, we will enable our customers to benefit from the latest
technology. With the majority of our customers being internet users, we have focused attention
on providing broadband services to deliver high-speed internet access to our homebuyers.

Mortgage Services

Title Services

Technologies

Universal American Mortgage
Company (UAMC), Eagle Home
Mortgage (Eagle)

TitleAmerica, Regency Title Company,
North American Title, Southwest
Land Title, Universal Title Insurers
and North American Title Guaranty

The acquisition of Eagle in 1999
added to the strength of our portfolio
of mortgage services that started with
the establishment of UAMC in 1981.
UAMC and Eagle originated almost
15,000 loans in 1999 with a dollar
value of $2.2 billion. The Division’s
servicing portfolio totaled $3.1 billion
(38,000 loans) at November 30, 1999.

LFS added two new companies to its
title group in 1999: Southwest Land
Title and North American Title
Guaranty. Combined, LFS title
companies handled 139,000
transactions in 1999, versus 123,000
in 1998.

Strategic Technologies, Inc. (STI)

STI provides cable TV, home security
systems and monitoring services to
both Lennar and other communities
in California and Florida. STI was
founded in 1996, and represents a
key growth engine for the company.
STI’s customer base grew to 7,600
cable customers and 6,300 alarm
customers at the end of 1999.

...and simply a great place to work

Our associates
For our 4,900 associates, Lennar Corporation is more than just a place to work. It’s a family.
And as our associates grow their careers, they can take pride in being part of a company with
a proud history, and an unlimited future.

Our able management team is among the most experienced in the business. Collectively, our
senior managers have many years of combined real estate, homebuilding and home finance
experience. Like our management, our associates know their stuff -
they have the regional and demographic expertise to maximize our
programs. And by integrating the local management of the
businesses we acquire, we are able to leverage their expertise,
adding to it unparalleled support and the Lennar way of doing
business.

Our culture
Our corporate culture is unique. We like to say that we
have more smiles per hour worked than any other
company in the industry, bar-none. At Lennar, it’s
about integrity, a passion for excellence, and a
commitment to rewarding both teamwork and indi-
vidual achievement.

We keep the atmosphere positive, bringing an
entrepreneurial spirit to each business challenge.
We have been able to achieve great results because our
management and associates work together to be the best in
everything we do.

FINANCIAL TABLE OF CONTENTS

Five Year Summary of Selected Financial Data

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Report of Independent Auditors

Report of Management

Consolidated Balance Sheets

Consolidated Statements of Earnings

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements

Supplemental Pro Forma Financial Information (Unaudited)

Shareholder Information & Comparative

Common Stock Data

F I V E Y E A R S U M M A R Y O F S E L E C T E D F I N A N C I A L D A T A

Lennar Corporation and Subsidiaries
At or for the Years Ended November 30,

(Dollars in thousands, except per share amounts)

1999

1998

1997

1996

1995

Results of Operations:

Revenues:

Homebuilding

Financial services

Total revenues

Operating earnings – business segments:

Homebuilding

Financial services

Corporate general and administrative expenses

$ 2,849,207

2,204,428

1,208,570

952,648

665,510

$ 269,307

212,437

94,512

89,013

65,476

$ 3,118,514

2,416,865

1,303,082

1,041,661

730,986

$ 340,803

283,369

120,240

31,096

37,563

33,335

28,962

35,545

15,850

85,727

50,605

33,826

84,431

1.34

0.89

2.23

.088

.079

91,066

28,650

12,396

84,429

51,502

36,484

87,986

1.42

1.01

2.43

.10

.09

58,530

19,015

10,523

53,310

32,519

37,908

70,427

0.90

1.05

1.95

.10

.09

Earnings from continuing operations before income taxes

$ 285,477

240,114

Earnings from continuing operations

Earnings from discontinued operations

Net earnings

Per share amounts (diluted):

Earnings from continuing operations

Earnings from discontinued operations

Net earnings per share

Cash dividends per share – common stock

Cash dividends per share – Class B common stock

$ 172,714

144,068

–

$ 172,714

144,068

2.74

–

2.74

.05

.045

2.49

–

2.49

.05

.045

Financial Position:

Total assets

Total debt

Stockholders’ equity

Shares outstanding (000’s)

Stockholders’ equity per share

Delivery and Backlog Information:

Number of homes delivered

Backlog of home sales contracts

Dollar value of backlog

$ 2,057,647

1,917,834

1,343,284

1,589,593

1,341,065

$ 802,295

798,838

661,695

689,159

557,055

$ 881,499

715,665

438,999

695,456

607,794

57,917

15.22

58,151

12.31

53,160

8.26

35,928

19.36

35,864

16.95

12,589

2,891

10,777

4,100

6,702

3,318

5,968

1,929

4,680

1,802

$ 652,000

840,000

665,000

312,000

255,000

As a result of the Company’s spin-off of its commercial real estate investment and management business, including the Investment Division business segment,
the selected financial data for 1996 and 1995 has been restated to reflect the Company’s Investment Division as a discontinued operation.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N
A N D R E S U L T S O F O P E R A T I O N S

Certain statements contained in the following Management’s
Discussion and Analysis of Financial Condition and Results of
Operations 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.

RESULTS OF OPERATIONS

Overview

Lennar achieved record net earnings in 1999 of $172.7
million, or $2.74 per share diluted, compared to $144.1
million, or $2.49 per share diluted, in 1998. The increase in net
earnings in 1999 primarily reflected the Company’s growth in
California and a generally strong housing market in the first
half of the year. The Company achieved record earnings in
1999 while further strengthening its balance sheet by reducing
the ratio of homebuilding debt to total capital to 37% at
November 30, 1999, compared to 43% at November 30, 1998.

Homebuilding

The Homebuilding Division sells and constructs single-
family attached and detached homes. These activities also
include the purchase, development and sale of residential land.
The following tables set forth selected financial and
operational information for the periods indicated:

Selected Homebuilding Division Financial Data
(Dollars in thousands,
except average sales prices)
Revenues:

1999

Years Ended November 30,
1997
1998

Sales of homes
Sales of land
Equity in earnings from

$2,671,744
150,315

2,089,762
77,185

1,130,989
63,797

partnerships

Other
Total revenues

19,482
7,666
$2,849,207
Gross margin – home sales ($) $ 566,322
Gross margin – home sales (%)
21.2%
Gross margin – land sales ($) $ 22,228
Selling, general &

30,908
6,573
2,204,428
448,021
21.4%
12,617

4,024
9,760
1,208,570
223,298
19.7%
16,168

administrative expenses ($) $ 272,550

210,039

130,006

Selling, general &

administrative expenses (%)

Operating earnings ($)
Operating earnings (%)
Average sales price

10.2%
$ 340,803
12.0%
$ 212,000

10.1%
283,369
12.9%
194,000

11.5%
120,240
10.0%
169,000

Summary of Home and Backlog Data
1999
Deliveries
4,241
Florida
3,731
California
3,107
Texas
1,510
Arizona/Nevada
12,589

New Orders
Florida
California
Texas
Arizona/Nevada

Backlog – Homes
Florida
California
Texas
Arizona/Nevada

3,788
3,362
3,056
1,174
11,380

1,091
779
652
369
2,891

1998
3,761
3,029
2,484
1,503
10,777

4,010
2,851
2,519
1,636
11,016

1,544
1,148
703
705
4,100

1997
3,367
587
2,075
673
6,702

3,457
758
2,305
592
7,112

1,295
783
668
572
3,318

Backlog – Dollar Value
(In thousands)

$ 652,000

840,000

665,000

Revenues from sales of homes increased 28% in 1999 and
85% in 1998 compared to the previous years, primarily as a
result of increases in the number of new home deliveries and
the average sales price. The increase in deliveries in 1999
reflected growth in California, where the Company made
several acquisitions in 1998, and generally favorable market
conditions throughout the Company’s homebuilding markets
in the first half of 1999. The primary increases in 1998
occurred in California and Arizona/Nevada as a result of the
merger with Pacific Greystone in 1997, and additional
acquisitions made in 1998. The higher average sales price in
1999 reflected both price increases and a shift in product mix
in certain markets. The increase in the average sales price in
1998 was due primarily to a greater percentage of deliveries in
the California market, where average sales prices are higher.

Gross margin as a percentage of sales of homes decreased
20 basis points in 1999 compared to 1998, and increased 170
basis points in 1998 compared to 1997. The slight decrease in
gross margin percentage in 1999 was due primarily to the
Company’s recent expansion into inland areas of California
where gross margin percentages are lower than those in the
other areas of California in which the Company operates. The
Company continues to generate its highest overall gross
margin percentages in the California market. The increase in
gross margin percentage in 1998 was primarily attributable to
a greater percentage of deliveries from the California market
as a result of the merger with Pacific Greystone and other
acquisitions, and higher gross margin percentages in the
Company’s Texas homebuilding market.

Gross margins from sales of land were higher in 1999
compared to 1998 due primarily to the increase in revenues from
sales of land. Equity in earnings from partnerships decreased in
1999 compared to 1998 due primarily to a lower level of land
sales by the Company’s partnerships. The increase in equity in
earnings from partnerships in 1998 compared to 1997 reflected
a full year of earnings from Lennar Land Partners, which was
formed on October 31, 1997. Margins achieved on sales of land

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N
A N D R E S U L T S O F O P E R A T I O N S

and equity in earnings from partnerships may vary significantly
from period to period depending on the timing of land sales by
the Company and its partnerships.

Selling, general and administrative expenses as a
percentage of revenues from sales of homes were nearly
unchanged in 1999 compared to 1998, and were 140 basis
points lower in 1998 compared to 1997. The decrease in 1998
compared to 1997 resulted primarily from the increase in
revenues in 1998 as a result of the Company’s expansion.

New home orders increased 3% in 1999 and 55% in 1998
compared to the previous years. The increase in 1999 reflected
higher new orders in the first half of 1999 due primarily to
expansion in California and strong demand in Texas. While
new home orders rose in fiscal 1999, they were lower in the
second half of the fiscal year compared to the same period in
1998 due primarily to lower new orders in Florida and
Arizona/Nevada, where there were decreases in the average
number of communities and some softening in demand in
certain markets. The Company expects new home orders in
early fiscal 2000 to be below comparable 1999 levels.
However, assuming there are no significant changes in
economic conditions or demand for new homes, new order
trends are expected to improve with the addition of new
communities throughout the year. The growth in new home
orders in 1998 compared to 1997 was primarily attributable to
the Company’s growth in California, where the Company
made several acquisitions in 1997 and 1998. Backlog dollar
value decreased 22% to $652.0 million at November 30, 1999,
compared to $840.0 million at November 30, 1998, due
primarily to an improved backlog conversion rate of 86% in
the fourth quarter of 1999 compared to 67% in the fourth
quarter of 1998.

Financial Services

The Financial Services Division provides mortgage
financing, title insurance and closing services for Lennar
homebuyers and others. The Division also packages and
resells residential mortgage loans and mortgage-backed
securities, performs mortgage loan servicing activities and
provides cable television and alarm monitoring services to
residents of Lennar communities and others. The following
table sets forth selected financial and operational information
relating to the Financial Services Division:

(Dollars in thousands)
Revenues
Costs and expenses
Operating earnings

Dollar value of
mortgages originated

Number of mortgages
originated

Principal balance of
servicing portfolio

1999

Years Ended November 30,
1997
1998
94,512
212,437
58,967
179,102
35,545
33,335

$ 269,307
238,211
31,096

$2,162,479

1,031,338

419,933

14,900

7,900

3,500

$3,128,234

3,213,235

3,073,010

Number of loans serviced

38,000

41,000

39,700

Number of title
transactions

139,000

123,000

12,000

The 27% increase in revenues from the Financial Services
Division in 1999 compared to 1998 reflected higher mortgage
services revenues as a result of the growth in Lennar home
deliveries, a higher capture rate of Lennar homebuyers and
acquisitions made by the Division in 1999, combined with
higher title services revenues which resulted from a higher
number of title transactions in the first half of 1999 and
acquisitions made in 1998 and 1999. Operating earnings from
the Financial Services Division were lower in 1999 compared
to 1998 primarily due to reduced earnings from title services
as a result of a lower level of refinance activity, and a highly
competitive pricing environment in the mortgage business.

Revenues and operating earnings from the Financial
Services Division in 1998 included a significant contribution
from North American Title, which was acquired in January
1998. Additionally, the Division experienced improved profits
from mortgage services primarily due
increased
homebuilding volume and a greater capture rate of Lennar
homebuyers and others. These improvements in 1998 were
offset by the absence of the portions of this Division
previously involved in commercial mortgage lending and
investments, which were spun-off on October 31, 1997.

Corporate General and Administrative

Corporate general and administrative expenses as a
percentage of total revenues were 1.2% in 1999, 1998 and 1997.

Interest

Interest expense was $48.9 million, or 1.6% of total
revenues, in 1999, $47.6 million, or 2.0% of total revenues, in
1998 and $25.0 million (for continuing operations), or 1.9% of
total revenues, in 1997. The decrease in interest as a
percentage of total revenues in 1999 was mainly due to a
lower average borrowing rate in the first nine months of 1999,
primarily as a result of the Company’s issuance of $229
million of zero-coupon senior convertible debt securities late
in the third quarter of 1998. These notes have an effective
interest rate of 3 7/8%. Interest incurred was $54.6 million in
1999, $50.5 million in 1998 and $36.1 million (for continuing
operations) in 1997. The 1999 increase was primarily due to
an increase in average debt outstanding in 1999. The increases
in interest expense and interest incurred in 1998 compared to
1997 were primarily due to an increase in average debt
outstanding as a result of the Company’s growth in 1998.

Spin-off, Formation of Partnership and Merger

On June 10, 1997, the Company’s Board of Directors
approved a plan to spin-off its commercial real estate
investment and management business consisting of the
Investment Division (which is classified as a discontinued
operation in the accompanying consolidated statements of
earnings and cash flows), the portions of the Financial
Services Division involved in commercial mortgage lending
and investments and certain assets of the Homebuilding
Division utilized in related businesses. The spin-off was
conducted through a tax-free distribution of the stock of LNR
Property Corporation (“LNR”) to the stockholders of Lennar
and was completed on October 31, 1997. The Investment
Division was involved in the development, management and

leasing, as well as the acquisition and sale of commercial and
multi-family residential rental properties and land. The
Investment Division also was a participant and manager in a
number of partnerships which acquired portfolios of
commercial mortgage loans and real estate and acquired, at a
discount, the unrated portions of debt securities which were
collateralized by commercial real estate loans. Operating
earnings from the discontinued Investment Division were
$68.4 million in 1997.

At the time of the spin-off transaction, Lennar and LNR
formed a general partnership to acquire, develop and sell land.
Lennar and LNR contributed properties to the partnership in
exchange for 50% general partnership interests. 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”.

In the fourth quarter of 1997, the Company recorded a
restructuring charge to continuing operations for the estimated
costs of the spin-off of LNR and formation of Lennar Land
Partners. The restructuring charge was $29.2 million and
consisted of professional fees, transaction costs, the write-off
of deferred loan costs on mortgages and notes which were paid
off to effect the spin-off and an impairment charge relating to
the change in use of land that was contributed to Lennar Land
Partners. The liabilities recorded as part of the restructuring
charge had been paid as of November 30, 1999.

On October 31, 1997, the Company also completed a
merger with Pacific Greystone Corporation. The merger
significantly expanded
in
California and Arizona and provided the Company with
operations in Nevada.

the Company’s operations

FINANCIAL CONDITION AND CAPITAL RESOURCES

In 1999, $121.3 million in cash was provided by the
Company’s operations, compared to $63.2 million in 1998.
Cash flows from operations in 1999 consisted primarily of
$172.7 million of net earnings. This generation of cash was
primarily offset by $77.4 million of cash used to increase
inventories through land purchases, land development and
construction and $41.2 million of cash used to reduce accounts
payable and other liabilities. Cash flows from operations in
1998 consisted primarily of $144.1 million of net earnings and
an increase in accounts payable and other liabilities of $130.5
million. This generation of cash was primarily offset by
$112.3 million of cash used to increase inventories through
land purchases, land development and construction and $111.6
million of cash used to increase loans held for sale or
disposition by the Company’s Financial Services Division.

In 1999, $28.5 million in cash was used in the Company’s
investing activities compared to $209.8 million in 1998. Cash
flows used in investing activities in 1999 and 1998 included
$19.7 million and $190.5 million, respectively, of cash used
for acquisitions.

The Company

land acquisition and
development activities, construction activities, financial

finances

its

services activities and general operating needs primarily from
cash generated from operations as well as from revolving lines
of credit, public debt and equity, financial institution
borrowings and purchase money notes. The Company also
buys land under option agreements. Option agreements permit
the Company to acquire portions of properties when it is ready
to build homes on them. The financial risk of adverse market
conditions associated with longer-term land holdings is
managed by prudent underwriting of land purchases in areas
that the Company views as desirable growth markets,
diversification of risk through partnerships with other entities
and careful management of the land development process.
Based on its current financing capabilities, the Company does
not believe that its land holdings have a significant adverse
effect on its liquidity.

At November 30, 1999, the Company had unsecured
revolving credit facilities in the aggregate amount of $645
million, which may be used
refinance existing
indebtedness, for working capital, for acquisitions and for
general corporate purposes. At November 30, 1999, there were
no amounts outstanding under the Company’s unsecured
revolving credit facilities, compared to $136.7 million
outstanding at November 30, 1998. In February 1999, the
Company issued $282 million of 7 5/8% Senior Notes. The
Senior Notes are due in 2009 and were issued for the purpose
of reducing amounts outstanding under revolving credit
facilities and redeeming outstanding 10 3/4% notes. Proceeds
from the offering, after underwriting and market discounts,
expenses and settlement of a related interest rate hedge
agreement were approximately $266 million. In March 1999,
the Company redeemed all of the outstanding 10 3/4% Senior
Notes due 2004 of one of its subsidiaries, Greystone Homes,
Inc., at a price of 105.375% of the principal amount
outstanding plus accrued interest. Cash paid to redeem the
notes was $132 million, which approximated their carrying
value.

In the third quarter of 1998, the Company issued, for $229
million, zero-coupon senior convertible debentures due 2018
(“Debentures”) with a face amount at maturity of $493
million. The Debentures were issued at a price of $464.13 per
$1,000 face amount at maturity, which equates to a yield to
maturity over the life of the Debentures of 3 7/8%. Proceeds
from the offering, after underwriting discount and expenses,
were approximately $223 million. The Debentures are
convertible at any time into the Company’s common stock at
the rate of 12.3768 shares per $1,000 face amount at maturity.
If the Debentures are converted during the first five years, the
Company may elect to pay cash equal to the fair value of the
common stock at the time of the conversion. Holders have the
option to require the Company to repurchase the Debentures
on any of the fifth, tenth or fifteenth anniversary dates from
the issue date for the initial issue price plus accrued original
issue discount. The Company has the option to satisfy the
repurchases with any combination of cash and/or shares of the
Company’s common stock. The Company will have the option
to redeem the Debentures, in cash, at any time after the fifth
anniversary date for the initial issue price plus accrued

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N
A N D R E S U L T S O F O P E R A T I O N S

original issue discount. At November 30, 1999, the amount
outstanding, net of unamortized original issue discount, was
$237.9 million.

The Company’s ratio of homebuilding debt to total capital
was 37% at November 30, 1999, compared to 43% at
November 30, 1998. In addition to the use of capital in the
Company’s ordinary homebuilding and financial services
activities, the Company will continue to actively evaluate
various other uses of capital which fit into its homebuilding
and financial services strategies and meet its profitability and
return on capital requirements. This may include acquisitions
of or investments in other entities and continued repurchases
of shares of the Company’s outstanding common stock. These
activities may be funded through any combination of the
Company’s currently available credit facilities, cash generated
from operations, sales of assets or the issuance of public debt,
common stock or preferred stock under existing and future
shelf registrations.

Lennar Financial Services finances its mortgage loans and
servicing activities by pledging them as collateral for
borrowings under a line of credit totaling $315 million. Total
borrowings under the financial services line of credit were
$236.6 million and $196.7 million at November 30, 1999 and
1998, respectively.

Limited-purpose finance subsidiaries of Lennar Financial
Services have placed mortgage loans 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. Therefore, the related interest income and interest
expense substantially offset one another in each of the years in
the three-year period ended November 30, 1999. As part of the
spin-off of the Company’s commercial real estate investment
and management business, the Company transferred to LNR
its interest in the assets of the limited-purpose finance
subsidiaries to the extent such assets exceeded the related
liabilities. The Company believes that the cash flows
generated by these subsidiaries will be adequate to meet the
required debt payment schedules.

The Company utilizes interest rate swap agreements to
manage interest costs and hedge against risks associated with
changing interest rates. At November 30, 1999, the Company
had three interest rate swap agreements outstanding with a
total notional amount of $200 million, which will mature in
2002. These agreements fixed the LIBOR index (to which
certain of the Company’s debt interest rates are tied) at
approximately 6.1%. The Financial Services Division, in the
normal course of business, also uses derivative financial
instruments to meet the financing needs of its customers and
reduce its own exposure to fluctuations in interest rates.
Counterparties to each of the above agreements are major
financial institutions. Credit loss from counterparty non-
performance is not anticipated.

In March 1999, the Company filed a shelf registration
statement and prospectus with the Securities and Exchange
Commission to offer, from time-to-time, its common stock,
preferred stock, depositary shares, debt securities or warrants at

an aggregate initial offering price not to exceed $500 million.
Proceeds can be used for repayment of debt, acquisitions and
general corporate purposes. As of November 30, 1999, no
securities had been issued under this registration statement.

In September 1999, the Company’s Board of Directors
approved the repurchase of up to ten million shares of the
Company’s outstanding common stock. The Company may
repurchase shares, from time-to-time, subject to market
conditions. As of February 8, 2000, the Company had
repurchased 9.7 million shares of its outstanding common
stock for an aggregate purchase price of approximately $155.9
million (including approximately 442,000 shares for an
aggregate purchase price of approximately $6.0 million during
fiscal 1999). On February 8, 2000, the Company’s Board of
Directors authorized the repurchase of an additional five
million shares of the Company’s outstanding common stock.
The Company has maintained excellent relationships with
the financial institutions participating in its financing
arrangements and has no reason to believe that such
relationships will not continue in the future. Based on the
Company’s current financial condition and credit relationships,
Lennar believes that its operations and borrowing resources will
provide for its current and long-term capital requirements at the
Company’s anticipated levels of growth.

PLAN AND AGREEMENT OF MERGER

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 approx-
imately $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.

BACKLOG

Backlog represents the number of homes subject to
pending sales contracts. Homes are sold using sales contracts
which are usually accompanied by sales deposits. Before
entering into sales contracts, the Company generally
prequalifies its customers. In some instances, purchasers are
permitted to cancel sales contracts if they are unable to close
on the sale of their existing home or fail to qualify for
financing and under certain other circumstances. The

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. The
financial impact of becoming Year 2000 compliant has not
been and is not expected to be material to the Company’s
financial position or results of operations.

NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board
(“FASB”)
issued Statement of Financial Accounting
Standards (“SFAS”) No. 133, Accounting for Derivative
Instruments and Hedging Activities. The effective date of this
statement, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities – Deferral of
the Effective Date of FASB Statement No. 133 – an amendment
of FASB Statement No. 133, is for fiscal years beginning after
June 15, 2000. SFAS No. 133 will require the Company to
recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the
nature of the hedge, a change in the fair value of the derivative
will either be offset against the change in the fair value of the
hedged asset, liability or firm commitment through earnings
or recognized in other comprehensive income until the hedged
item is recognized in earnings. Management does not
currently believe that the implementation of SFAS No. 133
will have a material impact on the Company’s results of
operations or financial position.

Company experienced a cancellation rate of 20% in 1999,
20% in 1998 and 19% in 1997. Although cancellations can
delay the sales of the Company’s homes, they have not had a
material impact on sales, operations or liquidity, because the
Company closely monitors the progress of prospective buyers
in obtaining financing and monitors and adjusts construction
start plans to match the level of demand for homes. The
Company does not recognize revenue on homes covered by
pending sales contracts until the sales are closed and title
passes to the new homeowners.

SEASONALITY

The Company has historically experienced variability in
results of operations from quarter to quarter due to the
seasonal nature of the homebuilding business. The Company
typically experiences the highest rate of orders for new homes
in the first half of the calendar year although the rate of orders
for new homes is highly dependent on the number of active
communities and the timing of new community openings.
Because new home deliveries trail orders for new homes by
several months, the Company typically has a greater
percentage of new home deliveries in the second half of its
fiscal year compared to the first half. As a result, the
Company’s earnings from sales of homes are generally higher
in the second half of the fiscal year.

INTEREST RATES AND CHANGING PRICES

Inflation can have a long-term impact on the Company
because increasing costs of land, materials and labor result in
a need to increase the sales prices of homes. In addition,
inflation is often accompanied by higher interest rates, which
can have a negative impact on housing demand and the costs
of financing land development activities and housing
construction. Increased construction costs, rising interest
rates, as well as increased materials and labor costs, may
reduce gross margins. In recent years the increases in these
costs have followed the general rate of inflation and hence
have not had a significant adverse impact on the Company. In
addition, deflation can impact the value of real estate. There
can be no assurance that changing prices will not have a
material adverse impact on the Company’s future results of
operations.

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,
software applications, computer hardware
computer
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

R E P O R T O F I N D E P E N D E N T A U D I T O R S

To the Board of Directors and Stockholders of Lennar Corporation:

We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries
(the “Company”) as of November 30, 1999 and 1998, and the related consolidated statements of earnings,
cash flows and stockholders’ equity for each of the three years in the period ended November 30, 1999.
These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Lennar Corporation and subsidiaries at November 30, 1999 and 1998,
and the results of their operations and their cash flows for each of the three years in the period ended
November 30, 1999, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective December 1, 1996, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

Miami, Florida
January 11, 2000, except for Note 15, as to which the date is February 16, 2000

R E P O R T O F M A N A G E M E N T

The accompanying consolidated financial statements are the responsibility of management. The statements
have been prepared in accordance with generally accepted accounting principles and include amounts
that are based on management’s best judgments and estimates. Management relies on internal accounting
controls, among other things, to produce records suitable for the preparation of financial statements.
The Company employs internal auditors whose work includes evaluating and testing internal
accounting controls.

The responsibility of our independent auditors for the financial statements is limited to their expressed
opinion on the fairness of the consolidated financial statements taken as a whole. Their examination is
performed in accordance with generally accepted auditing standards which include tests of our accounting
records and internal accounting controls and evaluation of estimates and judgments used to prepare the
financial statements.

An Audit Committee of outside members of the Board of Directors periodically meets with management,
the external auditors and internal auditors to evaluate the scope of auditing activities and review results.
Both the external and internal auditors have full and free access to the Committee, without management
present, to discuss any appropriate matters.

Bruce E. Gross
Chief Financial Officer

Diane J. Bessette
Controller

C O N S O L I D A T E D B A L A N C E S H E E T S

Lennar Corporation and Subsidiaries
November 30, 1999 and 1998

(In thousands, except per share amounts)

1999

1998

11,162

23,803

ASSETS
Homebuilding:

Cash and cash equivalents

Receivables, net

Inventories:
Construction in progress and model homes
Land held for development

Total inventories

Investments in partnerships
Other assets

Financial services assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:

Accounts payable and other liabilities
Mortgage notes and other debts payable, net

Financial services liabilities

Stockholders’ equity:

Preferred stock
Common stock of $0.10 par value per share

Authorized 100,000 shares;
Issued: 1999 – 48,511; 1998 – 48,241

Class B common stock of $0.10 par value per share

Authorized 30,000 shares;
Issued: 1999 – 9,848; 1998 – 9,910

Additional paid-in capital
Retained earnings
Treasury stock, at cost; 442 shares of common stock

83,256

34,677

1,234,213
40,338
1,274,551
173,310
97,826

1,131,540
67,013
1,198,553
156,536
137,311

1,640,105
417,542

1,550,880
366,954

2,057,647

1,917,834

333,532
523,661

857,193
318,955

355,707
530,630

886,337
315,832

–

4,851

4,824

985
525,623
356,058
(6,018)

991
523,645
186,205
–

881,499

715,665

2,057,647

1,917,834

See accompanying notes to consolidated financial statements.

C O N S O L I D A T E D S T A T E M E N T S O F E A R N I N G S
Lennar Corporation and Subsidiaries
Years Ended November 30, 1999, 1998 and 1997

(In thousands, except per share amounts)

1999

1998

1997

Revenues:

Homebuilding

Financial services

Total revenues

Costs and expenses:

Homebuilding

Financial services

Corporate general and administrative

Interest

Restructuring charge

Total costs and expenses

Earnings from continuing operations before

provision for income taxes

Provision for income taxes

Earnings from continuing operations

Earnings from discontinued operations

(net of income taxes of $21,166)

Net earnings

Basic earnings per share:

Continuing operations

Discontinued operations

Diluted earnings per share:

Continuing operations

Discontinued operations

See accompanying notes to consolidated financial statements.

$ 2,849,207

269,307

3,118,514

2,508,404

238,211

37,563

48,859

–

2,204,428

212,437

2,416,865

1,921,059

179,102

28,962

47,628

–

1,208,570

94,512

1,303,082

1,088,330

58,967

15,850

24,979

29,229

2,833,037

2,176,751

1,217,355

285,477

112,763

172,714

240,114

96,046

144,068

–

172,714

144,068

2.97

–

2.97

2.74

–

2.74

2.59

–

2.59

2.49

–

2.49

85,727

35,122

50,605

33,826

84,431

1.35

0.90

2.25

1.34

0.89

2.23

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Lennar Corporation and Subsidiaries
Years Ended November 30, 1999, 1998 and 1997

(In thousands)

Cash flows from operating activities:

Earnings from continuing operations

Earnings from discontinued operations

Adjustments to reconcile net earnings to net cash

provided by (used in) operating activities:

Depreciation and amortization

Amortization of discount/premium on debt, net

Equity in earnings from partnerships

Investment Division gain on sales of other real estate

Restructuring charge

1999

1998

1997

172,714)

144,068)

–)

50,605)

33,826)

38,956)

8,774)

(19,482)

–)

25,264)

(885)

(30,908)

–)

Increase (decrease) in deferred income taxes

28,125)

12,469)

Changes in assets and liabilities, net of effects from acquisitions:

(Increase) decrease in receivables

Increase in inventories

(Increase) decrease in other assets

(Increase) decrease in financial services loans held for sale or disposition

Increase (decrease) in accounts payable and other liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Operating properties and equipment:

Additions

Sales

Sales of land held for investment

(Increase) decrease in investments in partnerships, net

Decrease in financial services mortgage loans

Purchases of investment securities

Receipts from investment securities

Acquisitions of properties and businesses, net of cash acquired

Acquisition of Pacific Greystone Corporation – cash acquired

Other, net

8,173)

(77,428)

(3,639)

6,293)

(41,196)

121,290)

8,636)

(112,347)

(1,970)

(111,582)

130,451)

63,196)

(15,328)

(13,233)

–)

6,524)

1,587)

(13,119)

11,600)

(19,747)

–)

(39)

51)

–)

(6,724)

136)

(3,361)

3,733)

(190,524)

–)

150)

9,352)

(313)

(32,947)

(25,401)

29,229)

(30,086)

(22,468)

(106,995)

5,194)

(32,358)

31,297)

(91,065)

(70,773)

48,178)

6,253)

131,777)

745)

(113,011)

158,053)

–

7,764)

2,279)

Net cash provided by (used in) investing activities

(28,522)

(209,772)

171,265)

Cash flows from financing activities:

Net borrowings (repayments) under revolving credit facilities

Net borrowings (repayments) under financial services short-term debt

Net proceeds from issuance of senior notes

Net proceeds from issuance of zero-coupon senior convertible debentures

Proceeds from other borrowings

Principal payments on other borrowings

Limited-purpose finance subsidiaries, net

Spin-off transaction – assets distributed, cash

Common stock:

Issuance

Payment made under acquisition agreement

Repurchases of common stock

Dividends

Net cash provided by (used in) financing activities

(136,650)

(856)

266,153)

–)

1,856)

(160,570)

769)

–)

3,251)

(1,252)

(6,018)

(2,861)

(36,178)

(239,850)

136,205)

–)

222,960)

114,581)

(127,571)

727)

–)

7,600)

30,641)

–)

164,873)

(212,206)

304)

(69,035)

41,251)

2,829)

–)

(2,749)

145,554)

–)

(3,277)

(78,271)

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S ( C O N T I N U E D )

(In thousands)

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Summary of cash and cash equivalent balances:

Homebuilding

Financial services

Supplemental disclosures of cash flow information:

Cash paid for interest, net of amounts capitalized

Cash paid for income taxes

Supplemental disclosures of non-cash investing and financing activities:

Purchases of investment securities financed by sellers

Assumption of mortgages related to acquisitions of properties

Exchange transactions – like kind tax deferred

Contribution to Lennar Land Partners

Common stock issued in 1998 acquisitions

Acquisition of Pacific Greystone Corporation:

Fair value of assets acquired, inclusive of cash of $7,764

Goodwill recorded

Liabilities assumed

Common stock issued

Spin-off of commercial real estate investment and management business:

Assets distributed, non-cash

Assets distributed, cash

Liabilities distributed

Net unrealized gain on securities available-for-sale distributed

Distribution

See accompanying notes to consolidated financial statements.

1999

56,590)

61,577)

118,167)

83,256)

34,911)

118,167)

9,647)

108,845)

–)

29,342)

–)

1998

(1,022)

62,599)

61,577)

34,677)

26,900)

61,577)

15,254)

60,157)

–)

28,913)

–)

94,096)

–)

1997

1,929)

60,670)

62,599)

52,926)

9,673)

62,599)

27,511)

86,796)

23,366)

25,348)

46,000)

146,803)

–)

394,786)

45,803)

(224,516)

216,073)

(959,752)

(69,035)

461,400)

18,774)

(548,613)

C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S ’ E Q U I T Y
Lennar Corporation and Subsidiaries
Years Ended November 30, 1999, 1998 and 1997

1999

1998

1997

4,824)

4,322)

–)

21)

–)

350)

114)

35)

2,594)

1,703)

–)

20)

4,851)

4,824)

4,322)

991)

(6)

985)

994)

(3)

991)

523,645)

388,797)

–)

(1,252)

–)

3,230)

525,623)

186,205)

172,714)

–)

(2,418)

(443)

–)

93,746)

–)

35,957)

5,145)

523,645)

44,886)

144,068)

(2,302)

(447)

356,058)

186,205)

–)

(6,018)

–)

999)

(5)

994)

171,618)

214,370)

–)

2,809)

388,797)

512,345)

84,431)

(2,493)

(784)

44,886)

–)

7,900)

10,874)

(18,774)

–)

(548,613)

881,499)

715,665)

438,999)

(In thousands)

Common stock:

Beginning balance

Shares issued – merger with Pacific Greystone Corporation

Shares issued – acquisitions

Shares issued – equity draw-down agreement

Shares issued – employee stock plans

Conversion of Class B common stock

Balance at November 30

Class B common stock:

Beginning balance

Conversion to common stock

Balance at November 30

Additional paid-in capital:

Beginning balance

Shares issued – merger with Pacific Greystone Corporation

Shares issued – acquisitions

Payment made under acquisition agreement

Shares issued – equity draw-down agreement

Shares issued – employee stock plans

Balance at November 30

Retained earnings:

Beginning balance

Net earnings

Spin-off of commercial real estate investment and management business

Cash dividends – common stock

Cash dividends – Class B common stock

Balance at November 30

Treasury stock:

Beginning balance

Repurchases of common stock

Balance at November 30

Unrealized gain on securities available-for-sale, net:

Beginning balance

Net unrealized gains for the year

Spin-off of commercial real estate investment and management business

Balance at November 30

Total stockholders’ equity

See accompanying notes to consolidated financial statements.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

1. Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements include
the accounts of Lennar Corporation and all subsidiaries and
partnerships in which a controlling interest is held (the
“Company”). The Company’s investments in partnerships (and
similar entities) in which a significant, but less than a
controlling, interest is held are accounted for by the equity
method. All significant intercompany transactions and balances
have been eliminated.

As a result of the Company’s spin-off of its commercial real
estate investment and management business, including the
Investment Division business segment, the accompanying 1997
financial statements have been restated to reflect the Investment
Division as a discontinued operation (see Note 2).

Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Revenue Recognition

Revenues from sales of homes are recognized when the sales
are closed and title passes to the new homeowners. Revenues
from sales of other real estate (including the sales of land and
operating properties) are recognized when a significant down
payment is received, the earnings process is complete and the
collection of any remaining receivables is reasonably assured.

Cash and Cash Equivalents

the carrying amount of

The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash
equivalents. Due to the short maturity period of the cash
equivalents,
instruments
approximates their fair values. Cash and cash equivalents as of
November 30, 1999 and 1998 included $33.5 million and $15.0
million, respectively, of cash held in escrow for periods of up to
three days and $1.7 million and $1.6 million at November 30,
1999 and 1998, respectively, of restricted deposits.

these

Inventories

The Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
in the first quarter of 1997. Under this standard, inventories to be
held and used are stated at cost unless the inventory within a
community is determined to be impaired, in which case the
impaired inventory is written down to fair value. SFAS No. 121
requires companies to evaluate long-lived assets for impairment
based on the undiscounted future cash flows of the assets. Write-
downs of inventories deemed to be impaired are recorded as
adjustments to the cost basis of the respective inventories. The
Company’s adoption of SFAS No. 121 in the first quarter of
1997 had no effect on the Company’s financial position or
results of operations.

Start-up costs, construction overhead and selling expenses
are expensed as incurred. Homes held for sale are classified

as construction in progress until delivered. Land, land
development, amenities and other costs are accumulated by
specific area and allocated proportionately to homes within the
respective area.

Interest and Real Estate Taxes

Interest and real estate taxes attributable to land, homes and
operating properties are capitalized and added to the cost of
those properties as long as the properties are being actively
developed. Interest related to homebuilding, including interest
costs relieved from inventories, is included in interest expense.
Interest expense relating to the financial services operations is
included in its respective costs and expenses.

During 1999, 1998 and 1997, interest costs of $62.9 million,
$55.7 million and $62.8 million, respectively (excluding the
limited-purpose finance subsidiaries), were incurred and $54.8
million, $45.9 million and $33.5 million, respectively, were
capitalized by the Company’s homebuilding and discontinued
investment operations. Capitalized interest charged to expense,
including amounts charged
investment
operations, in 1999, 1998 and 1997 was $49.0 million, $43.1
million and $25.7 million, respectively.

to discontinued

Operating Properties and Equipment

Operating properties and equipment are recorded at cost.
Depreciation is calculated to amortize the cost of depreciable
assets over their estimated useful lives using the straight-line
method. The estimated useful life for operating properties is 30
years and for equipment is 2 to 5 years.

Investment Securities

Investment securities are accounted for in accordance with
SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under SFAS No. 115, debt and equity
securities that have determinable fair values are classified as
available-for-sale unless they are classified as held-to-maturity.
Securities classified as held-to-maturity are carried at amortized
cost because they are purchased with the intent and ability to
hold to maturity. Available-for-sale securities are recorded at fair
value. Any unrealized holding gains or losses on available-for-
sale securities are reported in a separate component of
stockholders’ equity, net of tax effects, until realized.

Historically, the majority of investment securities were held
by the commercial real estate investment and management
business, which was spun-off in 1997. At November 30, 1999
and 1998, investment securities classified as held-to-maturity
totaled $8.9 million and $5.2 million, respectively, and were
included in other assets of the Financial Services Division.
There were no other investment securities at November 30, 1999
or 1998.

Derivative Financial Instruments

The Company utilizes interest rate swaps and other
agreements to manage interest costs and hedge against risks
associated with changing interest rates. The Company
designates interest rate swaps and other agreements as hedges of
specific debt instruments or anticipated transactions. Interest
differentials on interest rate swaps are recognized as adjustments
to interest incurred on the related debt instruments. The related

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

amounts payable to or receivable from counterparties are
included in other liabilities or other assets in the consolidated
balance sheets. The fair values of the interest rate swap
agreements are not recognized in the financial statements. Gains
or losses on interest rate hedges on anticipated debt issuances
are recorded at the time the debt is issued as part of the carrying
value of the debt and recognized over the life of the debt as an
adjustment to interest incurred.

The Financial Services Division, in the normal course of
business, uses derivative financial instruments to meet the
financing needs of its customers and reduce its own exposure to
fluctuations in interest rates. The Division enters into forward
commitments and option contracts to protect the value of loans
held for sale or disposition from increases in market interest
rates. Adjustments are made to the carrying values of these loans
based on changes in the market value of these hedging contracts
(see Note 13).

Goodwill

Goodwill represents the excess of the purchase price over the
fair value of net assets acquired and is amortized by the
Company on a straight-line basis over periods ranging from 15
to 20 years. At November 30, 1999 and 1998, goodwill was
$61.2 million and $50.7 million, respectively (net of
accumulated amortization of $6.4 million and $3.1 million,
respectively). In the event that facts and circumstances indicate
that the carrying value of goodwill may be impaired, an
evaluation of recoverability is performed. If an evaluation is
required, the estimated future undiscounted cash flows
associated with the goodwill are compared to the carrying
amount to determine if a write-down to fair value based on
discounted cash flows is required. No impairment existed at
November 30, 1999 or 1998. Goodwill is included in other
assets of the Homebuilding Division and the assets of the
Financial Services Division in the consolidated balance sheets.

Income Taxes

Income taxes are accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes. Under SFAS No. 109,
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets
and liabilities, and are measured by using enacted tax rates
expected to apply to taxable income in the years in which those
differences are expected to reverse.

Stock-Based Compensation

The Company grants stock options to certain employees for
a fixed number of shares with an exercise price not less than the
fair value of the shares at the date of grant. The Company
accounts for the stock option grants in accordance with
Accounting Principles Board (“APB”) Opinion No. 25,
Accounting for Stock Issued to Employees. No compensation
expense is recognized because all stock options granted have
exercise prices not less than the market value of the Company’s
stock on the date of the grant. The impact of the pro forma
disclosures required by SFAS No. 123, Accounting for Stock-
Based Compensation, is included in Note 12.

Earnings per Share

In 1998, the Company adopted SFAS No. 128, Earnings per
Share, which requires a dual presentation of basic and diluted
earnings per share on the face of the statement of earnings.
Basic earnings per share is computed by dividing earnings
attributable to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company. Earnings per share for 1997 has been restated to
conform with SFAS No. 128 (see Note 11).

Financial Services

Mortgage loans held for sale or disposition by the Financial
Services Division are recorded at the lower of cost or market, as
determined on an aggregate basis. Premiums and discounts
recorded on these loans are presented as an adjustment to the
carrying amount of the loans and are not amortized.

When the Division sells loans or mortgage-backed securities
into the secondary market, a gain or loss is recognized to the
extent that the sales proceeds exceed, or are less than, the book
value of the loans or the securities. Loan origination fees, net of
direct origination costs, are deferred and recognized as a
component of the gain or loss when loans are sold. The Division
either retains the servicing on the loans and mortgage-backed
securities it sells and recognizes servicing fee income as those
services are performed or sells the servicing rights on the loans
or mortgage-backed securities it originates on a flow basis.

On December 1, 1996, the Company adopted SFAS No. 122,
Accounting for Mortgage Servicing Rights. On January 1, 1997,
the Company adopted SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities, which superceded SFAS No. 122, and requires,
among other things, that the book value of loans be allocated
between the mortgage servicing right and the related loan at the
time of sale or securitization, if servicing is retained. The
adoption of both SFAS No. 122 and SFAS No. 125 resulted in
an increase of $1.5 million in after-tax net earnings in the year
ended November 30, 1997.

Mortgage servicing rights are periodically evaluated for
impairment based on the fair value of these rights. The fair value
of mortgage servicing rights is determined by discounting the
estimated future cash flows using a discount rate commensurate
with the risks involved. This method of valuation incorporates
assumptions that market participants would use in their
estimates of future servicing income and expense, including
assumptions about prepayment, default and interest rates. For
purposes of measuring impairment, the loans underlying the
mortgage servicing rights are stratified on the basis of interest
rate and type. The amount of impairment is the amount by
which the mortgage servicing rights, net of accumulated
amortization, exceed their fair value by strata. Impairment, if
any, is recognized through a valuation allowance and a charge to
current operations. The book value and fair value of mortgage
servicing rights was $15.6 million and $23.1 million,

respectively, at November 30, 1999 and $11.1 million and $14.8
million, respectively, at November 30, 1998. A valuation
allowance related to mortgage servicing rights was not required
at or for the years ended November 30, 1999 and 1998.

Mortgage servicing rights are amortized in proportion to, and
over the period of, the estimated net servicing income of the
underlying mortgages.

New Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The effective date of this
statement, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities – Deferral of the
Effective Date of FASB Statement No. 133 – an amendment of
FASB Statement No. 133, is for fiscal years beginning after June
15, 2000. SFAS No. 133 will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If
the derivative is a hedge, depending on the nature of the hedge,
a change in the fair value of the derivative will either be offset
against the change in the fair value of the hedged asset, liability
or firm commitment through earnings or recognized in other
comprehensive income until the hedged item is recognized in
earnings. Management does not currently believe that the
implementation of SFAS No. 133 will have a material impact on
the Company’s results of operations or financial position.

Reclassification

Certain prior year amounts in the consolidated financial
statements have been reclassified to conform with the
1999 presentation.

2. Spin-Off of Commercial Real Estate Investment
and Management Business and Formation of
Lennar Land Partners

On June 10, 1997, the Company’s Board of Directors
approved a plan to spin-off the commercial real estate
investment and management business consisting of the
Investment Division, the portions of the Financial Services
Division involved in commercial mortgage lending and
investments and certain assets of the Company’s Homebuilding
Division utilized in related businesses. The spin-off was
conducted through a distribution of the stock of LNR Property
Corporation (“LNR”) to the stockholders of Lennar pursuant to
a separation and distribution agreement that provided that for
each existing share of the Company, the shareholders received
one share of common stock of LNR, with the right during a
limited period after the spin-off to exchange that common stock
for Class B common stock of LNR. The spin-off, in the form of
a tax-free distribution, was completed on October 31, 1997 and
was recorded as an adjustment to stockholders’ equity.

On October 31, 1997, the Company and LNR formed a
general partnership to acquire, develop and sell land. The
Company and LNR contributed properties to the partnership in
exchange for 50% general partnership interests. 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”. Pursuant to management
agreements, the Company manages the day-to-day operations of
Lennar Land Partners and receives a management fee. The
partnership agreements for Lennar Land Partners permit the
Company and LNR to (i) engage in business activities which
conflict with or are in direct competition with Lennar Land
Partners and (ii) acquire properties from, or sell properties to,
Lennar Land Partners. The Company has options to purchase a
portion of the assets originally contributed to Lennar Land
Partners and may be granted options to purchase all or portions
of properties which subsequently are acquired by Lennar Land
Partners.

The Company’s 1997 consolidated financial statements were
restated to reflect the Investment Division business segment as a
discontinued operation. Accordingly, the revenues and expenses
have been excluded from the respective captions in the
consolidated statements of earnings, and have been reported
through the date of disposition as “earnings from discontinued
operations”.

The components of earnings from discontinued operations

were as follows:

(In thousands)
Revenues:
Rental income
Equity in earnings from partnerships
Management fees
Gain on sales of real estate, net
Other

Total revenues

Costs and expenses

Operating earnings
Interest
Earnings from discontinued operations

before income taxes

Income taxes
Earnings from discontinued operations

Year Ended
November 30,
1997

$ 51,254
21,071
13,343
20,401
18,418
124,487

56,099

68,388
13,396

54,992
21,166
$ 33,826

Earnings from discontinued operations include the results of
operations through October 31, 1997, the measurement and
disposal date. Accordingly, the Company did not recognize a
loss on disposal of the discontinued Investment Division.
During the fourth quarter of 1997, the Company recorded a
restructuring charge to continuing operations for the estimated
costs of the spin-off and formation of Lennar Land Partners. The
restructuring charge was $29.2 million and consisted of
professional fees, transaction costs, the write-off of deferred
loan costs on mortgages and notes which were paid off to effect
the spin-off and an impairment charge of $13.7 million relating
to the change in use of land that was contributed to Lennar Land
Partners. The liabilities recorded as part of the restructuring
charge had been paid as of November 30, 1999.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

its commercial real estate

received 1.138 shares of common stock of the surviving
corporation for each outstanding share of Greystone common
stock. The surviving corporation was renamed Lennar
the Company’s
Corporation. This merger resulted
shareholders owning approximately 68% of the surviving
corporation and Greystone shareholders owning the remaining
32% of that corporation. The merger became effective after the
distribution of the stock of LNR to which the Company
transferred
investment and
management business and the Greystone shareholders did not
receive any interest in LNR. The merger was conditioned upon
the distribution taking place. Such merger became effective on
October 31, 1997. Total consideration for this acquisition was
$216.1 million, of which $45.8 million was assigned to the
excess of the purchase price over the fair value of net assets
acquired and recorded as goodwill. Goodwill is being amortized
on a straight-line basis over 20 years. The consideration
consisted of $213.7 million (17 million shares) for newly issued
common stock and $2.4 million for Greystone stock options
which vested at the acquisition date.

The Company accounted for the merger using the purchase
method of accounting and the results of Greystone’s operations
have been included in the Company’s consolidated statements of
earnings since November 1, 1997. Revenues and net earnings on
an unaudited pro forma basis would have increased by $580.6
million and $28.5 million, respectively, during 1997 had the
acquisition occurred on December 1, 1996. The pro forma
earnings per share would have been $2.13 per share diluted
($2.16 per share basic) in 1997.

4. Operating Segments

In 1999, the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information,
which establishes new standards for the way that public
enterprises report information about operating segments. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. The
implementation of SFAS No. 131 did not have a significant
impact on the Company’s definition of operating segments and
related disclosures.

The Company has two operating segments: Homebuilding
and Financial Services. The Company’s reportable segments are
strategic business units that offer different products and
services. The accounting policies of the segments are the same
as those described in the summary of significant accounting
policies in Note 1.

Homebuilding

Homebuilding operations include the sale and construction
of single-family attached and detached homes. These activities
also include the purchase, development and sale of residential
land.

In addition to the Investment Division business segment,
assets and liabilities of the Homebuilding and Financial Services
Divisions utilized in the commercial real estate investment and
management business were distributed in the spin-off of LNR.
For the year ended November 30, 1997, revenues of $39.9
million and expenses of $15.5 million were associated with the
assets and liabilities of the Financial Services Division
distributed in the spin-off of LNR. The revenues and expenses
associated with the assets and liabilities of the Homebuilding
Division distributed in the spin-off of LNR were not significant
for the year ended November 30, 1997.

3. Acquisitions

During the third quarter of 1998, the Company acquired
the properties of two California homebuilders, ColRich
Communities and Polygon Communities. During the first
quarter of 1998, the Company acquired a Northern California
homebuilder, Winncrest Homes, and the North American Asset
Development Group of companies (“NAADC”), which provide
title and escrow services in California, Arizona and Colorado. In
September 1998, NAADC acquired a small escrow company in
California. In connection with these transactions, the Company
paid $202 million in cash (inclusive of cash acquired of $12
million) and issued $94 million in common stock (3.5 million
shares). The cash portion of these transactions was funded
primarily from the Company’s revolving credit facilities and
issuance of zero-coupon senior convertible debentures. The
Company received assets with a fair value of $335 million and
assumed liabilities totaling $47 million in connection with these
transactions. In addition, the Company recorded goodwill of $8
million relating to the acquisitions of NAADC, Winncrest and
the escrow company. Goodwill is being amortized on a straight-
line basis over 20 years. The acquisitions were accounted for
using the purchase method of accounting. In 1999, the Company
paid $1.3 million to the sellers of one of the properties acquired,
under an agreement which set a floor on the value of a portion
of the shares of common stock given to the sellers as part of the
consideration for the acquisition. The agreement allowed the
Company to settle the floor in cash or stock. As a result, the
payment was recorded as a reduction in stockholders’ equity in
1999. The results of each acquired entity are included in the
Company’s consolidated statements of earnings since the
respective acquisition dates. The pro forma effect of the
acquisitions on the results of operations are not presented as they
are not considered material.

On June 10, 1997, the Company’s Board of Directors
approved a plan to acquire Pacific Greystone Corporation
(“Greystone”) through a merger in which the shareholders of the
Company received one share of common stock or Class B
common stock of the corporation which survived the merger for
each share of common stock or Class B common stock of the
Company held by them, and the shareholders of Greystone

The following table sets forth financial information relating

6. Partnerships

to the homebuilding operations:

(In thousands)
Revenues:
Sales of homes
Sales of land and
other revenues
Equity in earnings
from partnerships

Years Ended November 30,
1997
1998
1999

$2,671,744 2,089,762 1,130,989

157,981

83,758

73,557

19,482

30,908

4,024

Total revenues

2,849,207 2,204,428 1,208,570

Costs and expenses:
Cost of homes sold
Cost of land and other expenses 130,432
Selling, general

2,105,422 1,641,741
69,279

907,691
50,633

and administrative

272,550

210,039

130,006

Total costs and expenses

2,508,404 1,921,059 1,088,330

Operating earnings

$ 340,803

283,369

120,240

Depreciation and amortization $

29,505

20,762

2,085

Additions to operating

properties and equipment

2,283

5,987

1,579

Financial Services

Lennar Financial Services provides mortgage financing, title
insurance and closing services for Lennar homebuyers and
others. The Division also packages and resells residential
mortgage loans and mortgage-backed securities, performs
mortgage loan servicing activities and provides cable television
and alarm monitoring services to residents of Lennar
communities and others. The following table sets forth financial
information relating to the financial services operations:

(In thousands)
Revenues
Costs and expenses

Years Ended November 30,
1997
1998
1999
94,512
212,437
$269,307
58,967
179,102
238,211

Operating earnings

$ 31,096

33,335

35,545

Depreciation and amortization $

9,451

4,502

594

Interest income, net
Additions to operating

$ 12,301

10,878

24,935

properties and equipment

$ 13,045

7,246

2,598

5. Receivables

(In thousands)
Accounts receivable
Mortgages and notes receivable

Allowance for doubtful accounts

November 30,
1998
9,374
17,962
27,336
(3,533)

1999
$ 10,826
2,444
13,270
(2,108)

$ 11,162

23,803

Summarized financial information on a combined 100%
basis related to the Company’s significant partnerships and other
similar entities (collectively the “Partnerships”) accounted for
by the equity method was as follows:

(In thousands)
Assets:
Cash
Land under development
Other assets

Liabilities and equity:
Accounts payable and other liabilities
Notes and mortgages payable
Equity of:

The Company
Others

November 30,
1998

1999

$ 143,257
389,974
117,939
$ 651,170

16,880
353,850
105,154
475,884

$ 47,118
227,271

43,867
143,286

171,960
204,821
$ 651,170

154,544
134,187
475,884

Years Ended November 30,
1999
(In thousands)
$283,979
Revenues
219,100
Costs and expenses
Pre-tax earnings of partnerships $ 64,879
Company share of
pre-tax earnings

1998
277,544
192,130
85,414

1997
227,517
173,951
53,566

$ 19,482

30,908

11,876

At November 30, 1999, the Company’s equity interest in each
of these Partnerships ranged from 15% to 50%. At November 30,
1999, these Partnerships were primarily involved in the acquisition
and development of residential land. The Company shares in the
profits and losses of these Partnerships and, when appointed the
manager of the Partnerships, receives fees for the management of
the assets. In most cases, when the Company is involved in a
partnership, it is through a subsidiary which is the general partner
and whose only asset is its interest in the partnership. Certain of the
Partnerships have partnership interests in other partnerships. The
outstanding debt of one of the Company’s Partnerships and one
second-tier partnership, amounting to $192.5 million at November
30, 1999, is guaranteed by the Company.

As manager of Lennar Land Partners, the Company is entitled
to reimbursement for all out-of-pocket expenses directly incurred in
its capacity as manager (the “Direct Expenses”) including but not
limited to costs and expenses of employees (salary, bonus and
benefits), contractors, agents, professional fees, telephone, travel,
productions and reproductions of documents and postage. In
addition to the Direct Expenses, the Company shares some of its
employees, contractors, agents, facilities and equipment and other
expenses with Lennar Land Partners (the “Indirect Expenses”). The
reimbursement for the Indirect Expenses is $0.5 million per month.
In 1999 and 1998, Lennar Land Partners reimbursed the Company
$1.5 million and $1.7 million, respectively, of Direct Expenses and
$6.0 million of Indirect Expenses in both 1999 and 1998. The
Company, in the ordinary course of business, purchases developed
land from Lennar Land Partners for use in its homebuilding

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

activities. In 1999 and 1998, these land purchases amounted to
$109.3 million and $90.7 million, respectively. The Company
believes amounts paid to Lennar Land Partners for land purchases
approximate amounts that would have been paid to independent
third parties.

7. Operating Properties and Equipment

(In thousands)
Furniture, fixtures and equipment
Community recreational facilities

November 30,
1998
17,996
7,905
25,901
(11,300)
14,601
Operating properties and equipment are included in other assets
in the consolidated balance sheets.

1999
$ 16,351
3,564
19,915
(14,010)
5,905

Accumulated depreciation

8. Mortgage Notes and Other Debts Payable

(In thousands)
Unsecured:

Zero-coupon senior convertible debentures

due 2018

7 5/8% senior notes due 2009
Revolving credit facilities with

floating interest rates

10 3/4% senior notes

November 30,
1998
1999

$237,897
269,548

231,897
–

–
–

136,650
133,812

Mortgage notes on land with fixed interest

rates from 6.0% to 10.0% due through 2001
– no recourse to the Company

16,216
$523,661

28,271
530,630

In February 1999, the Company issued $282 million of
7 5/8% Senior Notes due 2009 for the purpose of reducing
amounts outstanding under revolving credit facilities and
redeeming outstanding 10 3/4% Senior Notes. Proceeds from
the offering, after underwriting and market discounts, expenses
and settlement of a related interest rate hedge agreement, were
approximately $266 million. In March 1999, the Company
redeemed all of the outstanding 10 3/4% Senior Notes due 2004
of one of its subsidiaries, Greystone Homes, Inc., at a price of
105.375% of the principal amount outstanding plus accrued
interest. Cash paid to redeem the notes was $132 million, which
approximated their carrying value.

In July 1998, the Company issued, for $229 million, zero-
coupon senior convertible debentures due 2018 (“Debentures”)
with a face amount at maturity of $493 million. The Debentures
were issued at a price of $464.13 per $1,000 face amount at
maturity, which equates to a yield to maturity over the life of the
Debentures of 3 7/8%. Proceeds from the offering, after
underwriting discount and expenses, were approximately $223
million. The Debentures are convertible at any time into the
Company’s common stock at the rate of 12.3768 shares per
$1,000 face amount at maturity. If the Debentures are converted
during the first five years, the Company may elect to pay cash
equal to the fair value of the common stock at the time of the
conversion. Holders have the option to require the Company to
repurchase the Debentures on any of the fifth, tenth, or fifteenth
anniversary dates from the issue date for the initial issue price

plus accrued original issue discount. The Company has the
option to satisfy the repurchases with any combination of cash
and/or shares of the Company’s common stock. The Company
will have the option to redeem the Debentures, in cash, at any
time after the fifth anniversary date for the initial issue price plus
accrued original issue discount.

At November 30, 1999, the Company had unsecured
revolving credit facilities (together the “Facilities”) in the
aggregate amount of $645 million, which may be used to
refinance existing indebtedness, for working capital, for
acquisitions and for general corporate purposes. The Facilities
agreement is with 16 financial institutions. Of the total Facilities,
$500 million is structured as a five-year revolving credit facility
maturing June 30, 2002. The second facility (up to $145 million)
is structured as a revolving credit facility, maturing October 27,
2000. The Company may elect, at the maturity of the second
facility, to convert borrowings under that facility to a term loan
which amortizes in equal quarterly amounts and matures on June
30, 2002. Certain Financial Services Division subsidiaries are co-
borrowers under this facility. At November 30, 1999 and 1998,
no borrowings were allocated to this Division. No amounts were
outstanding under the Facilities at November 30, 1999. The
weighted average interest rate of the Facilities at November 30,
1998 was 6.4%. The Company utilizes interest rate swap
agreements to manage interest costs and hedge against risks
associated with changing interest rates.

The minimum aggregate principal maturities of mortgage
notes and other debts payable during the five years subsequent
to November 30, 1999 are as follows: 2000 – $11.3 million and
2001 – $4.9 million. The remaining principal obligations are due
subsequent to November 30, 2004. All of the notes secured by
land contain collateral release provisions for accelerated
payment which may be made as necessary to maintain
construction schedules.

9. Financial Services

The assets and liabilities related to the Company’s financial

services operations (as described in Note 4) were as follows:

(In thousands)

Assets:
Cash and receivables, net
Mortgage loans held for sale

or disposition, net
Mortgage loans, net
Mortgage servicing rights, net
Operating properties and equipment, net
Title plants
Goodwill, net
Other
Limited-purpose finance subsidiaries

Liabilities:
Notes and other debts payable

Other
Limited-purpose finance subsidiaries

November 30,
1998
1999

$ 54,031

40,479

229,042
22,562
15,564
21,378
14,587
20,070
14,684
25,624
$417,542

214,954
21,370
11,080
11,165
16,104
7,935
8,975
34,892
366,954

$253,010

233,316

40,321
25,624

47,624
34,892

$318,955

315,832

A $315 million warehouse line of credit is used to fund the
Division’s mortgage loans and servicing activities. Borrowings
under this agreement were $236.6 million and $196.7 million at
November 30, 1999 and 1998, respectively, and were
collateralized by mortgage loans with outstanding principal
balances of $221.7 million and $196.9 million, respectively, and
by servicing rights relating to approximately $2.5 billion and
$2.7 billion of loans, respectively. There are several interest rate
pricing options which fluctuate with market rates. The
borrowing rate has been reduced to the extent that custodial
escrow balances exceeded required compensating balance
levels. The effective interest rate on this agreement at November
30, 1999 and 1998 was 4.5% and 5.1%, respectively. The
warehouse line of credit facility matures April 28, 2000 at which
time the Company expects this facility to be renewed.

Certain of the Division’s servicing agreements require it to
pass through payments on loans even though it is unable to
collect such payments and, in certain instances, be responsible
for losses incurred through foreclosure. Exposure to this credit
risk is minimized through geographical diversification and
review of the mortgage loan servicing created or purchased.
Management believes that it has provided adequate reserves for
expected losses based on the fair value of the underlying
collateral. Provisions for these losses have not been material to
the Company.

In prior years, limited-purpose finance subsidiaries of the
Financial Services Division placed mortgages and other
receivables as collateral for various long-term financings. These
limited-purpose finance subsidiaries pay the principal of, and
interest on, these financings primarily from the cash flows
generated by the related pledged collateral, which includes a
combination of mortgage notes, mortgage-backed securities and
funds held by a trustee.

At November 30, 1999 and 1998, the balances outstanding
for the bonds and notes payable were $25.6 million and $34.9
million, respectively. The borrowings mature in years 2013
through 2018 and carry interest rates ranging from 6.1% to
13.4%. The annual principal repayments are dependent upon
collections on
including
prepayments, and cannot be reasonably determined. As part of
the spin-off of the Company’s commercial real estate investment
and management business in 1997, LNR received an interest in
the assets of the limited-purpose finance subsidiaries to the
extent such assets exceeded the related liabilities. This interest
amounted to $3.0 million at the date of the spin-off.

the underlying mortgages,

10. Income Taxes

The provision for income taxes, including the provision
relating to discontinued operations in 1997, consisted of the
following:

(In thousands)
Current:
Federal
State

Deferred:
Federal
State

Years Ended November 30,
1998
1999

1997

$ 71,091
13,547
84,638

24,422
3,703
28,125
$112,763

74,739
9,308
84,047

6,493
5,506
11,999
96,046

75,769
7,239
83,008

(26,043)
(677)
(26,720)
56,288

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of the assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. The tax effects of significant temporary
differences that give rise to the net deferred tax asset are as
follows:

(In thousands)
Deferred tax assets:

Acquisition adjustments
Reserves and accruals

Net operating loss and capital loss

carryforwards, tax affected

Investments in partnerships
Other

Deferred tax assets
Less: valuation allowance
Total deferred tax assets, net

Deferred tax liabilities:
Capitalized expenses
Deferred gains
Installment sales
Other

Total deferred tax liabilities
Net deferred tax asset

November 30,

1999

1998

$13,900
37,557

24,630
41,722

5,788
4,099
2,923

64,267
(8,508)
55,759

14,538
1,065
2,547
4,634

22,784
$32,975

6,340
4,943
3,229

80,864
(7,659)
73,205

5,538
1,203
2,386
2,978

12,105
61,100

The Homebuilding Division’s net deferred tax asset
amounting to $33.3 million and $57.5 million at November 30,
1999 and 1998, respectively, is included in other assets in the
consolidated balance sheets.

At November 30, 1999 and 1998, the Financial Services
Division had a net deferred tax liability of $0.3 million and a net
deferred tax asset of $3.6 million, respectively.

SFAS No. 109 requires the reduction of the deferred tax asset
by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that a portion or all of the
deferred tax asset will not be realized. At November 30, 1999
and 1998, the Company had a valuation allowance of $8.5
million and $7.7 million, respectively, for net operating loss and

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

capital loss carryforwards and certain acquisition adjustments
which currently are not expected to be realized. Based on
management’s assessment, it is more likely than not that the net
deferred tax asset will be realized through future taxable
earnings.

A reconciliation of the statutory rate and the effective tax rate

follows:

Statutory rate
State income taxes, net

of federal income tax benefit

Other

% of Pre-tax Income
1998
35.0

1997
35.0

1999
35.0

3.9
0.6

4.0
1.0

Effective rate

39.5

40.0

11. Earnings Per Share

The Company adopted SFAS No. 128 in the first quarter of
1998. Earnings per share for 1997 has been restated to conform
with SFAS No. 128. Basic and diluted earnings per share for the
years ended November 30, 1999, 1998 and 1997 were calculated
as follows:

(In thousands,
except per share amounts)

Numerator:
Numerator for basic earnings

1999

1998

1997

per share – net earnings

$ 172,714

144,068

84,431

Interest on zero-coupon
convertible debentures,
net of tax

Numerator for diluted earnings

5,538

1,732

–

per share

$ 178,252

145,800

84,431

Denominator:
Denominator for basic earnings
per share – weighted average
shares

Effect of dilutive securities:
Employee stock options
Zero-coupon convertible

debentures

Denominator for diluted earnings
per share – adjusted weighted
average shares and assumed
conversions

58,246

55,660

37,473

684

945

410

6,105

2,019

–

65,035

58,624

37,883

Basic earnings per share

Diluted earnings per share

2.97

2.74

2.59

2.49

2.25

2.23

12. Capital Stock

Preferred Stock

The Company is authorized to issue 500,000 shares of
preferred stock with a par value of $10 per share and
100 million shares of participating preferred stock with a par
value of $0.10 per share. No shares of preferred stock have
been issued as of November 30, 1999.

Common Stock

The Company has two classes of common stock. The
common stockholders have one vote for each share owned in
matters requiring stockholder approval and during both 1999
and 1998 received quarterly dividends of $0.0125 per share. The
Class B common stockholders have ten votes for each share of
stock owned and during both 1999 and 1998 received quarterly
dividends of $0.01125 per share. As of November 30, 1999, Mr.
Leonard Miller, Chairman of the Board of the Company, owned
or controlled 9.8 million shares of common stock and Class B
common stock, which represented approximately 67% voting
control of the Company.

In September 1999, the Company’s Board of Directors
approved the repurchase of up to ten million shares of the
Company’s outstanding common stock. The Company may
repurchase shares, from time-to-time, subject to market
conditions. During fiscal 1999, the Company repurchased
approximately 442,000 shares of its outstanding common stock
for an aggregate purchase price of approximately $6.0 million.
In March 1999, the Company filed a shelf registration
statement and prospectus with the Securities and Exchange
Commission to offer, from time-to-time, its common stock,
preferred stock, depositary shares, debt securities or warrants at
an aggregate initial offering price not to exceed $500 million.
Proceeds can be used for repayment of debt, acquisitions and
general corporate purposes. As of November 30, 1999, no
securities had been issued under this registration statement.

In March 1998, the Company entered into an equity
draw-down agreement with a major international banking firm
(the “Firm”) under which the Company has the option to sell
common stock, up to proceeds of $120 million, to the Firm in
increments of up to $15 million (or such higher amount as may
be agreed to by the parties) per month. In the event the Company
elects to sell common stock, the sales price is equal to 98% of
the average of the daily high and low stock price from time-to-
time. As of November 30, 1999, the Company had issued 1.1
million shares under the agreement resulting in proceeds to the
Company of $36 million, all of which occurred in fiscal 1998.

Restrictions on Payment of Dividends

Other than as required to maintain the financial ratios and net
worth requirements under the revolving credit facilities, there
are no restrictions on the payment of dividends on common
stock by the Company. The cash dividends paid with regard to a
share of Class B common stock in a calendar year may not be
more than 90% of the cash dividends paid with regard to a share
of common stock in that calendar year. Furthermore, there are no
agreements which restrict the payment of dividends by
subsidiaries of the Company.

Stock Option Plans

The Lennar Corporation 1991 Stock Option Plan (the “1991
Plan”) provided for the granting of options to certain key
employees of the Company to purchase shares at prices not less
than market value as of the date of the grant. No options granted
under the 1991 Plan may be exercisable until at least six months
after the date of the grant. Thereafter, exercises are permitted in
varying installments, on a cumulative basis. Each stock option
granted will expire on a date determined at the time of the grant,
but not more than 10 years after the date of the grant.

The Lennar Corporation 1997 Stock Option Plan (the “1997
Plan”) provides for the granting of options or stock appreciation
rights to certain key employees of the Company to purchase
shares at prices not less than market value as of the date of the
grant. No options granted under the 1997 Plan may be
exercisable until at least six months after the date of the grant.
Thereafter, exercises are permitted in varying installments, on a
cumulative basis. Each stock option and stock appreciation right
granted will expire on a date determined at the time of the grant,
but not more than 10 years after the date of the grant.

A summary of the Company’s stock option activity for the years ended November 30, 1999, 1998 and 1997 was as follows:

1999

1998 1997

Outstanding, beginning of year

Granted

Forfeited:

Terminations

Spin-off transaction

Exercised

Spin-off adjustment

Greystone options assumed

Outstanding, end of year

Exercisable, end of year

Available for grant, end of year

Weighted average fair value per share
of options granted during the year
under SFAS No. 123

Weighted
Average
Exercise
Price

Stock
Options

$ 15.52

$ 23.95

2,815,880)

1,372,500)

Weighted
Average
Exercise
Price

$ 10.60

$ 24.12

Stock
Options

3,679,256)

211,000)

(235,108)

$ 19.83

(201,498)

$ 16.60

–)

–

–)

–

(209,918)

$ 10.05

(307,626)

$ 8.41

–)

3,445,230)

1,299,743)

1,310,072)

–

$ 16.20

$ 11.87

–)

3,679,256)

1,142,616)

1,334,622)

–

$ 15.52

$ 10.69

Stock
Options

1,056,350)

972,500)

(13,900)

(249,150)

(173,850)

459,030)

764,900)

2,815,880)

1,012,946)

2,611,122)

Weighted
Average
Exercise
Price

$ 12.65)

$ 19.52)

$ 19.47)

$ 12.55)

$ 11.17)

$(11.45)

$ 11.58)

$ 10.60)

$ 10.24)

$ 9.40

$ 9.03

$ 7.96

The following table summarizes information about fixed stock options outstanding at November 30, 1999:

Range of
Per Share
Exercise Prices

$ 2.56 – $ 4.56
$ 6.66 – $ 9.97
$10.14 – $18.16
$19.47 – $ 34.13

Options Outstanding Options Exercisable

Number
Outstanding at
November 30,
1999

Weighted Average
Remaining
Contractual
Life

Weighted
Average
Per Share
Exercise Price

Number
Outstanding at
November 30,
1999

Weighted
Average
Per Share
Exercise Price

347,586
469,270
1,343,494
1,284,880

1.7 years
3.2 years
6.8 years
4.7 years

$ 3.47
$ 9.22
$14.02
$24.46

135,843
310,362
745,658
107,880

$ 3.23
$ 9.61
$12.55
$24.54

The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its fixed stock option plans.
No compensation expense is recognized because all stock
options granted have exercise prices not less than the market
value of the Company’s stock on the date of the grant. Under
SFAS No. 123, compensation cost for the Company’s stock-
based compensation plans would be determined based on the
fair value at the grant dates for awards under those plans. Had
the Company adopted SFAS No. 123 in accounting for fixed
stock option plans, the pro forma effect would not be material
to the Company’s reported earnings from continuing

operations, net earnings and earnings per share for the years
ended November 30, 1999, 1998 and 1997.

The fair value of each option grant was estimated on the
grant date using the Black-Scholes option-pricing model with
the following assumptions:

1999 1998 1997

Dividend yield

0.2% - 0.3% 0.1% - 0.3% 0.3% - 0.4%

Volatility rate

40%- 42% 32% - 39%

25% - 28%

Risk-free interest rate 4.8% - 6.1% 4.7% - 6.0% 5.8% - 6.1%

Expected option life (years) 3.9 - 7.7

3.9 - 7.7

3.9 - 8.6

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

Employee Stock Ownership/401(k) Plan

Prior to 1998, the Employee Stock Ownership/401(k) Plan
(the “Plan”) provided shares of stock to employees who had
completed one year of continuous service with the Company.
During 1998, the Plan was amended to exclude any new shares
from being provided to employees. All prior year contributions
to employees actively employed on or after October 1, 1998
vest at a rate of 20% per year over a five year period. All active
participants in the plan whose employment terminated prior to
October 1, 1998 vested based upon the plan that was active
prior to their termination of employment. Under the 401(k)
portion of the Plan, contributions made by employees can be
invested in a variety of mutual funds, and the Company may
also make contributions for the benefit of employees. The
Company records as compensation expense an amount which
approximates the vesting of the contributions to the Employee
Stock Ownership portion of the Plan, as well as the Company’s
contribution to the 401(k) portion of the Plan. This amount was

$3.1 million in 1999, $2.9 million in 1998 and $1.7 million in
1997. In 1997, 34,469 shares of Lennar common stock were
contributed to participants’ accounts.

13. Financial Instruments

The following table presents the carrying amounts and
estimated fair values of financial instruments held by the
Company at November 30, 1999 and 1998, using available
market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data
to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts. The table excludes cash and
cash equivalents, receivables and accounts payable, which had
fair values approximating their carrying values.

(In thousands)

ASSETS

Financial services:

November 30,

1999

1998

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Mortgage loans held for sale or disposition, net
Mortgage loans, net
Investments held-to-maturity
Limited-purpose finance subsidiaries -
collateral for bonds and notes payable

$229,042
22,562
8,902

231,116)
22,112)
8,904)

214,954
21,370
5,240

219,395)
21,100)
5,297)

25,624

26,499)

34,892

38,221)

LIABILITIES

Homebuilding:

Mortgage notes and other debts payable

$523,661

466,311)

530,630

511,019)

Financial services:

Notes and other debts payable
Limited-purpose finance subsidiaries -

bonds and notes payable

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

Homebuilding:

Interest rate swap agreements
Interest rate hedge agreement

Financial services:

Commitments to originate loans
Forward commitments to sell loans

$253,010

252,865)

233,316

233,188)

25,624

26,638)

34,892

35,591)

$ –
–

1,724)
–)

(197)
434)

–
–

(6,423)
(15,578)

18)
(539)

The following methods and assumptions are used by the

basis of discounted cash flows or other financial information.

Company in estimating fair values:

Mortgage notes and other debts payable: The fair value of
fixed rate borrowings is based on quoted market prices.
Variable rate borrowings are tied to market indices and thereby
approximate fair value.

Financial services assets, liabilities and off-balance sheet
financial instruments: The fair values are based on quoted market
prices, if available. The fair values for instruments which do not
have quoted market prices are estimated by the Company on the

Interest rate swap and hedge agreements: The fair value is
based on dealer quotations and generally represents an
estimate of the amount the Company would pay or receive to
terminate the agreement at the reporting date.

During 1997, proceeds from the sale of available-for-sale
securities amounted to $122.5 million and resulted in gross
realized gains of $2.9 million. In 1997, available-for-sale
securities were held by the commercial real estate investment
and management business, which was spun-off in 1997.

The Company utilizes interest rate swap agreements to
manage interest costs and hedge against risks associated with
changing interest rates. Counterparties to these agreements are
major financial institutions. Credit loss from counterparty non-
performance is not anticipated. A majority of the Company’s
available variable rate borrowings are based on the London
Interbank Offered Rate (“LIBOR”) index. At November 30, 1999,
Lennar had three interest rate swap agreements outstanding with
a total notional amount of $200 million, which will mature in
2002. These agreements fixed the LIBOR index at approximately
6.1%. The effect of the interest rate swap agreements on interest
incurred and on the average cost of borrowing was an increase of
$1.8 million and 0.22%, $0.8 million and 0.11% and $0.8 million
and 0.17% for the years ended November 30, 1999, 1998 and
1997, respectively. During 1998, the Company entered into a
contract to hedge the interest rate risk associated with the
anticipated issuance of $200 million of 10-year senior notes. The
contract fixed the yield on the 10-year U.S. Treasury Note (which
was used as a basis for determining the interest rate on the
Company’s issuance of the senior notes) at 5.8%. In February
1999, the Company issued $282 million of 10-year Senior Notes
(see Note 8). The payment made to the counterparty to this
agreement at the time the Senior Notes were issued was $11.2
million. Such amount was recorded as a reduction of the carrying
value of the Senior Notes and will be amortized as an adjustment
to interest incurred over the life of the Senior Notes.

As of November 30, 1999, the Financial Services Division’s
pipeline of loans in process totaled approximately $371.8 million.
There is no exposure to credit risk in this type of commitment
until the loans are funded. However, the Division uses the same
credit policies in the approval of the commitments as are applied
to all lending activities. Since a portion of these commitments is
expected to expire without being exercised by the borrower, the
total commitments do not necessarily represent future cash
requirements. There is no exposure to market risk until a rate
commitment is extended by the Company to a borrower. Loans in
the pipeline of loans in process for which interest rates were
committed to the borrower totaled approximately $79.4 million as
of November 30, 1999. Substantially all of these commitments are
for periods of 30 days or less.

Mandatory mortgage-backed securities (“MBS”) forward
commitments are used by the Company to hedge its interest rate
exposure during the period from when the Company extends an
interest rate lock to a loan applicant until the time at which the
loan is sold to an investor. These instruments involve, to varying
degrees, elements of credit and interest rate risk. Credit risk is
managed by the Company by entering into agreements with
investment bankers with primary dealer status and with
permanent investors meeting the credit standards of the Company.
At any time, the risk to the Company, in the event of default by
the purchaser, is the difference between the contract price and
current market value. At November 30, 1999, the Company had
open commitments amounting to $235.5 million to sell MBS with
varying settlement dates through January 2000. The mortgage
loan inventory and pipeline will be used to form the MBS that will
fill the forward delivery contracts.

14. Commitments and Contingent Liabilities

The Company and certain subsidiaries are parties to various
claims, legal actions and complaints arising in the ordinary course
of business. In the opinion of management, the disposition of
these matters will not have a material adverse effect on the
financial condition of the Company.

The Company is subject to the usual obligations associated
with entering into contracts for the purchase (including option
contracts), development, and sale of real estate in the routine
conduct of its business. Option contracts for the purchase of land
permit the Company to acquire portions of properties when it is
ready to build homes on them. The use of option contracts allows
the Company to manage the financial risk of adverse market
conditions associated with longer-term land holdings.

The Company has entered into agreements to lease certain
office facilities and equipment under operating leases. Future
minimum payments under the noncancelable leases are as
follows: 2000 - $18.9 million; 2001 - $15.6 million; 2002 - $11.8
million; 2003 - $7.6 million; 2004 - $5.0 million and thereafter -
$9.5 million. Rental expense for the years ended November 30,
1999, 1998 and 1997 was $24.3 million, $14.3 million and $2.5
million, respectively.

The Company is committed, under various letters of credit, to
perform certain development and construction activities and
provide certain guarantees in the normal course of business.
Outstanding letters of credit under these arrangements totaled
$85.1 million at November 30, 1999. The Company also had
outstanding performance and surety bonds with estimated costs to
complete of $361.3 million related principally to its obligations
for site improvements at various projects at November 30, 1999.
The Company does not believe that any such bonds are likely to
be drawn upon.

15. Subsequent Event

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
their stock. U.S. Home will become a
exchange for
the
wholly-owned subsidiary of
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
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 reg-
ulatory matters. If the necessary stockholder and regulatory
approvals are obtained, the Company expects the transaction to
close by the end of May 2000.

the Company. When

transaction and,

to close

the

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Lennar Corporation and S ubsidiaries

16. Quarterly Data (unaudited)
(In thousands, except per share amounts)

1999
Revenues
Earnings before income taxes
Net earnings
Earnings per share:

Basic
Diluted

1998
Revenues
Earnings before income taxes
Net earnings
Earnings per share:

Basic
Diluted

First

Second

Third

Fourth

$
$
$

$
$

$
$
$

$
$

590,599
46,053
27,862

0.48
0.45

440,712
27,005
16,203

0.30
0.30

738,357
65,440
39,591

0.68
0.63

532,106
42,677
25,606

0.48
0.47

819,497
75,162
45,473

0.78
0.72

620,935
58,441
35,065

0.61
0.59

970,061
98,822
59,788

1.03
0.95

823,112
111,991
67,194

1.16
1.06

Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts

for the quarters may not agree with per share amounts for the year.

S U P P L E M E N T A L P R O F O R M A F I N A N C I A L I N F O R M A T I O N ( U N A U D I T E D )

On June 10, 1997, the Company’s Board of Directors
approved a plan to spin-off its commercial real estate
investment and management business through the distribution
of the stock of LNR. The spin-off, in the form of a tax-free
distribution, was completed effective October 31, 1997.
Following the spin-off transaction, the Company and LNR
formed Lennar Land Partners to acquire, develop and sell
land. The Company and LNR contributed properties to Lennar
Land Partners in exchange for 50% general partnership
interests in Lennar Land Partners. The formation of Lennar
Land Partners was effective as of October 31, 1997. On June
10, 1997, the Company’s Board of Directors also approved a
plan to acquire Pacific Greystone Corporation. The merger
became effective after the spin-off of the commercial real
estate investment and management business. Such merger
became effective on October 31, 1997.

(In thousands, except per share amounts)

Revenues:

Homebuilding
Financial services
Total revenues

Operating earnings:

Homebuilding
Financial services

Total operating earnings

Corporate general and administrative expenses
Interest expense
Earnings before income taxes
Provision for income taxes

Net earnings

Basic earnings per share

Diluted earnings per share

The following pro forma information for 1997 is presented
to report results on a more comparable basis to 1999 and 1998.
Results for 1997 have been adjusted to give pro forma effect
to these transactions as if such transactions had been
completed as of the beginning of 1997. The pro forma results
for Lennar were derived from the 12 months ended November
30, 1997 and the pro forma results for Greystone were derived
from the 12 months ended December 31, 1997. The following
pro forma financial information does not purport to be
indicative of the results of operations which would actually
have been reported if the transactions had occurred on the date
or for the period indicated:

1999

1998

Pro Forma
1997

$ 2,849,207
269,307
$ 3,118,514

2,204,428
212,437
2,416,865

1,692,083
57,448
1,749,531

$ 340,803
31,096
371,899

37,563
48,859
285,477
112,763

$ 172,714

2.97

2.74

283,369
33,335
316,704

28,962
47,628
240,114
96,046

144,068

2.59

2.49

172,141
11,655
183,796

23,212
30,657
129,927
52,646

77,281

1.46

1.44

S H A R E H O L D E R I N F O R M A T I O N
Lennar Corporation and S ubsidiaries

Annual Meeting
The Annual Stockholders’ Meeting will be
held at 11:00 a.m. on April 4, 2000
at the Doral Park Golf and Country Club,
5001 N.W. 104th Avenue
Miami, Florida 33178

Registrar and Transfer Agent
BankBoston, N.A.
EquiServe L.P.
150 Royall Street
Canton, Massachusetts 02021

Listing
New York Stock Exchange (LEN)

Corporate Counsel
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, New York 10166

Independent Auditors
Deloitte & Touche LLP
200 South Biscayne Boulevard, Suite 400
Miami, Florida 33131

Form 10-K Available
A copy of the Company’s Annual Report on
Form 10-K as filed with the Securities and Exchange
Commission is available without charge to any stockholder
upon written request to:
Investor Relations
Lennar Corporation
700 N.W. 107th Avenue
Miami, Florida 33172
Telephone: (305) 559-4000

C O M P A R A T I V E C O M M O N S T O C K D A T A

Fiscal
Quarter

First
Second
Third
Fourth

Common Stock Prices
New York Stock Exchange

High/Low Price

1999

1998

$27.88 – 21.63
27.81 – 20.50
24.94 – 17.50
19.44 – 13.06

28.75 – 19.00
36.19 – 24.19
34.38 – 18.13
24.38 – 14.88

Cash Dividends
Per Share

Common Stock
1998
1999

11/4 ¢
11/4 ¢
11/4 ¢
11/4 ¢

Class B

1999

11/8 ¢
11/8 ¢
11/8 ¢
11/8 ¢

1998

11/8 ¢
11/8 ¢
11/8 ¢
11/8 ¢

As of November 30, 1999, there were approximately 800 holders of record of the Company’s common stock.

Directors

Leonard Miller
Chairman of the Board, Lennar Corporation

Reuben S. Leibowitz
Managing Director, E.M. Warburg, Pincus & Co., LLC

Leonard Miller

Irving Bolotin
Retired Senior Vice President, Lennar Corporation

Jonathan M. Jaffe
Vice President and Regional President, Lennar
Corporation

R. Kirk Landon
Chairman of the Board, Innovative Surveillance
Technology; Former Chairman of the Board, American
Bankers Insurance Group

Sidney Lapidus
Managing Director, E.M. Warburg, Pincus & Co., LLC

Stuart A. Miller
President and Chief Executive Officer, Lennar
Corporation

Arnold P. Rosen
Retired Executive Vice President, Lennar Corporation

Irving Bolotin

Steven J. Saiontz
Chief Executive Officer, LNR Property Corporation

Officers and Senior Management

Lennar Corporate

Lennar Homebuilding

Lennar Financial Services

Stuart A. Miller
President and Chief Executive Officer

Marshall Ames
Vice President

Bruce E. Gross
Vice President and Chief Financial
Officer

David B. McCain
Vice President, General Counsel
and Secretary

Diane J. Bessette
Controller

Waynewright Malcolm
Treasurer

Jonathan M. Jaffe
Vice President and Regional President

Emile Haddad
Regional President

Michael Hutchison
Regional President

David M. Kitnick
Regional President

Jeff Roos
Regional President

Mark Shevory
Regional President

Jay Wissink
Regional President

Marc Chasman
Chief Financial Officer, Western Region

Allan J. Pekor
Vice President, Lennar Corporation;
President, Lennar Financial Services, Inc.

Nancy A. Kaminsky
Executive Vice President
and Chief Financial Officer,
Lennar Financial Services, Inc.

Linda Reed
Executive Vice President,
Lennar Financial Services, Inc.;
President, Lennar Title Services, Inc.

Robert D. Rubin
President, Strategic Technologies, Inc.

Statement Regarding Forward-Looking Information
Certain statements contained in this annual 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.

Jonathan M. Jaffe

R. Kirk Landon

Sidney Lapidus

Reuben S. Leibowitz

Stuart A. Miller

Arnold P. Rosen

Steven J. Saiontz

700 N.W. 107th Avenue, Miami, FL 33172

3890-AR-00