Annual Report (Form 10-K), fiscal year 1993

Item 1. Business
(a) General Development of Business.
Lennar Corporation (together with its subsidiaries, the "Company") is a full service real estate company. It is primarily engaged in homebuilding, in the development and management of commercial and residential income-producing properties and other real estate related assets and in real estate related financial services.
In 1992, the Company, through its Investment Division (formerly referred to as the Asset Management Division) began acquiring portfolios of commercial real estate assets, including real estate related loans, which it believed it could liquidate at a profit. During 1992, Lennar Florida Partners, a partnership between a subsidiary of the Company and the Morgan Stanley Real Estate Fund was formed to acquire and manage a portfolio of assets which it purchased from the Resolution Trust Corporation. During 1993, the Company acquired an interest in LW Real Estate Investments L.P., a partnership between Westinghouse Electric Corporation and an affiliate of Lehman Brothers. This partnership also selected the Company to manage its portfolio of commercial real estate assets. The Company shares in the profits and losses of these partnerships and also receives fees for the management and disposition of the partnerships' assets. The Company has also invested in smaller portfolios of real estate assets for its own account. The Company believes that there will continue to be opportunities to acquire, restructure and manage these types of portfolios on its own and in partnerships.
Also, during 1993, the Company expanded its Homebuilding Division by entering the Houston, Texas and the Port St. Lucie, Florida markets.
(b) Financial Information about Industry Segments.
The Company operates principally in two industry segments. The first of these is reported in the Company's financial statements as the "real estate" segment and includes the activities of the Company's Homebuilding and Investment Divisions, as well as the support staff functions of the parent company (Lennar Corporation). The second industry segment is reported as "financial services" and includes certain activities of Lennar Financial Services ("LFS"), but excludes its limited-purpose finance subsidiaries. The financial information related to these industry segments is contained in the financial statements included in this Report.
(c) Narrative Description of Business.
HOMEBUILDING
The Company and its predecessor have been building homes since 1954. The Company believes that, since its acquisition of Development Corporation of America in 1986, it has each year delivered more homes in Florida than any other homebuilder. The Company has been building homes in Arizona since 1972, where it currently is one of the leading homebuilders. In 1991, the Company began building homes in the Dallas/Fort Worth area of Texas and in 1993 it began building homes in Houston, Texas and Port St. Lucie, Florida. The Company has constructed and sold over 100,000 homes to date.
The Company's homebuilding activities in Florida are principally conducted through Lennar Homes, Inc. In Arizona and Texas, they are conducted through Lennar Homes of Arizona, Inc. and Lennar Homes of Texas, Inc., respectively.
The Company is involved in all phases of planning and building in its residential communities, including land acquisition, site planning, preparation of land, improvement of undeveloped and partially developed acreage, and design, construction and marketing of homes. The Company subcontracts virtually all segments of development and construction to others.
The Company sells single-family attached and detached homes and condominiums in buildings generally one to five stories in height. Homes sold by the Company are primarily in the moderate price range for the areas in which they are located. They are targeted primarily at first time homebuyers, first time move-up homebuyers and, in some communities, retirees. The average sales price of a Lennar home was $111,100 in fiscal 1993.
Current Homebuilding Activities
The table on the following page summarizes information about the Company's recent homebuilding activities:
Property Acquisition
The Company continuously considers the purchase of, and from time to time acquires, land for its development and sales programs. It generally does not acquire land for speculation. In some instances, the Company acquires land by acquiring options enabling it to purchase parcels as they are needed. Although some of the Company's land is held subject to purchase money mortgages or is mortgaged to secure $50 million of term loans, most of the Company's land (including most of the land on which it currently is building or expects to build during the next year) is not subject to mortgages. The Company believes its land inventory gives it a competitive advantage, particularly in Florida.
Construction and Development
The Company supervises and controls the development and building of its own residential communities. It employs subcontractors for site improvements and virtually all of the work involved in the construction of homes. In almost all instances, the arrangements between the Company and the subcontractors commit the subcontractors to complete specified work in accordance with written price schedules. These price schedules normally change to meet changes in labor and material costs. The Company does not own heavy construction equipment and generally has only a small labor force used to supervise development and construction and perform routine maintenance and minor amounts of other work.
The Company generally finances construction with its own funds or borrowings under its unsecured working capital lines, not with secured construction loans.
Marketing
The Company always has an inventory of homes under construction. A majority of these homes are sold (i.e., the Company has received executed sales contracts and deposits) before the Company starts construction.
Subsidiaries of the Company employ salespersons who are paid salaries, commissions or both to make onsite sales of the Company's homes. The Company also sells through independent brokers. The Company advertises its residential communities through local media and sells primarily from models that it has designed and constructed. In addition, the Company advertises its retirement communities in areas in which potential retirees live.
Mortgage Financing
The Company's financial services subsidiaries make conventional, FHA-insured and VA-guaranteed mortgage loans available to qualified purchasers of the Company's homes. Because of the availability of mortgage loans from the Company's financial services subsidiaries, as well as independent mortgage lenders, the Company believes access to financing has not been, and is not, a significant problem for most purchasers of the Company's homes.
Competition
The housing industry is highly competitive. In its activities, the Company competes with other developers and builders in and near the areas where the Company's communities are located, including a number of homebuilders with nationwide operations. The Company has for the past twenty years been one of the largest homebuilders in South Florida and for the past several years has delivered more homes in the State of Florida than any other homebuilder. Further, the Company is a leading homebuilder in Arizona and is establishing a market position in Dallas and Houston, Texas. Nonetheless, the Company is subject to intense competition from a large number of homebuilders in all of its market areas.
INVESTMENT DIVISION
The Company has been engaged for more than 20 years in developing and managing commercial and residential income-producing properties. The Company has also, on a number of occasions, developed properties under arrangements with financial institutions which had acquired the properties through foreclosures or similar means. This Division also leases land to businesses which construct their own facilities.
Currently, through its Investment Division, the Company owns and manages more than 2,800 rental apartment units (which are approximately 94% occupied) and approximately 1,400,000 square feet of low rise office buildings, warehouses and neighborhood retail centers (which are approximately 85% occupied), as well as a 297 room hotel, a mobile home park, and golf and other recreational facilities in various communities.
In 1992, the Investment Division began acquiring, on its own and through partnerships, pools of real estate assets which it believes it can liquidate at a profit and from which it can generate rental, interest and other income during the liquidation process which is anticipated to last several years. Its first transaction of this type was the acquisition by a partnership between a subsidiary of the Company and The Morgan Stanley Real Estate Fund, L.P. from the Resolution Trust Corporation, of a portfolio consisting of more than 1,000 mortgage loans and 65 properties, many of which had been acquired through foreclosure of mortgage loans or by similar means. In addition to the Company's participating in the purchase, the Investment Division is overseeing the partnership's management of this portfolio. In July 1993, Lennar invested $29 million to acquire a 9.9% equity interest in LW Real Estate Investments L.P., a partnership between Westinghouse Electric Corporation and an affiliate of Lehman Brothers. The partnership selected the Company to manage its portfolio of commercial real estate assets. The management agreement provides for reimbursement to the Company for the direct costs of management and for the payment of fees tied directly to the cash flow performance of the partnership. Additionally, in 1993, the Company purchased a pool of 10 assets from the Resolution Trust Corporation which consisted of commercial properties, performing loans and non performing loans which were collateralized by income-producing properties.
During 1993, the Company purchased the former partners' interest in three of its joint ventures which were formed to develop and build homes, or to develop land or other properties for investment or sale to other builders or developers. The activities related to these former joint ventures have been consolidated into the accounts of the Company as of the respective dates of acquisition.
FINANCIAL SERVICES
The Company's financial services subsidiaries originate mortgage loans, service mortgage loans which they and other lenders originate, purchase and re-sell mortgage loan pools, arrange title insurance and provide closing services for homebuyers.
Mortgage Origination
Through three of the financial services subsidiaries, Universal American Mortgage Company, AmeriStar Financial Services, Inc. and Lennar Funding Corporation, the Company provides conventional, FHA- insured and VA-guaranteed mortgage loans from twenty-one offices located in Florida, California, Arizona, Texas, North Carolina, Illinois and Oregon. The Company entered the mortgage banking business in 1981 primarily to provide financing to Lennar homebuyers. In 1993, loans to buyers of the Company's homes represented approximately 10% of the Company's $1.3 billion of loan originations.
The Company sells the loans it originates in the secondary mortgage market, generally on a non-recourse basis, but usually retains the servicing rights. One of the principal reasons for originating loans is to increase the mortgage servicing portfolio. Until new loan originations can be pooled for sale, they are financed with borrowings under the financial services subsidiaries' $200 million lines of credit (secured by the loans and by certain servicing rights) or from the parent if that will reduce consolidated borrowing costs. In most instances, the Company hedges against any exposure to interest rate fluctuations.
Mortgage Servicing
The Company obtains significant revenues from servicing loans originated by its financial services subsidiaries before and after the loans are sold in the secondary market. In addition, the Company from time to time purchases servicing rights from others (it is approved as a servicer by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and other mortgage investors). Additionally, the Company sometimes purchases and sells mortgage loan pools and retains servicing rights. At November 30, 1993, it had a servicing portfolio of approximately 47,000 loans with an unpaid principal balance of approximately $3.4 billion.
Revenues from servicing mortgage loans include servicing fees, late charges and other ancillary fees and all, or in some states part, of the interest on sums held in escrow for tax, insurance and other payments. However, proposed Federal legislation, if enacted, would establish uniform regulations regarding payment of interest on escrow accounts and otherwise regulate escrow accounts in ways which would reduce the benefit a mortgage servicer derives from those accounts.
Purchase and Sale of Loan Pools
The Company, from time to time, purchases pools of mortgage loans originated by financial institutions and then re-sells the loans in the secondary market. The benefits to the Company from these transactions include gains from the sales of the loans and retention of the right to service the loans after they are sold in the secondary market.
Insurance and Closing Services
The Company arranges title insurance for and provides closing services to customers of the Company and others from offices in Florida.
OTHER ACTIVITIES
The limited-purpose finance subsidiaries of LFS have placed mortgages and other receivables as collateral for various long-term financings. These subsidiaries pay the debt service on the long-term borrowings primarily from the cash flows generated by the related pledged collateral. The Company believes that the cash flows generated by these subsidiaries will be adequate to meet the required debt payment schedules.
REGULATION
Homes and residential communities built by the Company must comply with state and local regulations relating to, among other things, zoning, treatment of waste, construction materials which must be used, certain aspects of building design and minimum elevation of properties and other local ordinances. These include laws in Florida and other states requiring use of construction materials which reduce the need for energy- consuming heating and cooling systems. The State of Florida has also adopted a law which requires that commitments to provide roads and other offsite infrastructure be in place prior to the commencement of new construction. The provisions of this law are currently being implemented and administered by individual counties and municipalities throughout the state and may result in additional fees and assessments or building moratoriums. It is difficult at this time to predict the impact of this law on future operations, or what changes may take place in the law in the future. However, the Company believes that most of its Florida land presently meets the criteria under the law, and it has the financial resources to provide for development of the balance of its land in compliance with the law.
As a result of Hurricane Andrew, there have been changes to various building codes within Florida. These changes have resulted in higher construction costs. To date, these additional costs have been recoverable through increased selling prices without any apparent significant adverse effect on sales volume.
Virtually all areas of the United States have adopted regulations intended to assure that construction and other activities will not have an adverse effect on local ecology and other environmental conditions. These regulations have had an effect on the manner in which the Company has developed certain properties and may have a continuing influence on the Company's development activities in the future.
In order to make it possible for purchasers of some of the Company's homes to obtain FHA-insured or VA-guaranteed mortgages, the Company must construct those homes in compliance with regulations promulgated by those agencies.
The Company has registered condominium communities with the appropriate authorities in Florida. It has registered some of its Florida communities with authorities in New Jersey and New York. Sales in other states would require compliance with laws in those states regarding sales of condominium homes.
Both the Company's title insurance agency and general insurance agency subsidiaries must comply with the applicable insurance laws and regulations.
EMPLOYEES
At November 30, 1993, the Company employed 1,660 individuals, of whom 457 were management, supervisory and other professional personnel, 181 were construction supervisory personnel, 238 were real estate salespersons, 136 were hospitality personnel and 648 were professional support personnel, accounting, office clericals and skilled workers.
Some of the subcontractors utilized by the Company may employ members of labor unions. The Company does not have collective bargaining agreements relating to its employees.
Item 2.



Item 2. Properties.
For information about properties owned by the Company for use in its residential and commercial activities, see Item 1.
The Company maintains its executive offices, financial services subsidiary headquarters, Investment Division headquarters, Dade County homebuilding division offices and Dade County mortgage and title company branch offices at 700 and 730 Northwest 107th Avenue, Miami, Florida in office buildings built and owned by the Company. These offices occupy approximately 58,000 square feet. Other regional offices or financial services branch offices are located either in Company-owned communities or retail centers, or in leased office facilities.
Item 3.

Item 3. Legal Proceedings.
The Company is a defendant in various lawsuits brought by condominium and homeowner associations in communities constructed by the Company. Although the specific allegations in the lawsuits differ, in general, each of the lawsuits asserts that the Company failed to construct the community involved in accordance with plans and specifications and applicable construction codes, and each of them seeks reimbursement for sums the plaintiff association claims it will have to spend to remedy the alleged construction deficiencies. Associations in other communities have threatened similar suits. The Company views suits of this type as a normal incident to the business of building homes. The Company does not believe that these lawsuits or threatened lawsuits will have a material effect upon the Company.
During 1993, the Company settled two lawsuits and a number of claims in which owners of approximately 550 homes built by the Company sought damages as a result of Hurricane Andrew. There still remain approximately 125 additional homeowners who have asserted claims. Other homeowners or homeowners' insurers are not precluded from making similar claims against the Company. Four insurance companies have contacted the Company seeking reimbursement for sums paid by them with regard to homes built by the Company and damaged by the storm. There are two pending lawsuits in which homeowners or homeowners' insurers seek relatively minor damages. Other claims of this type may be asserted. The Company's insurers have asserted that their policies cover some, but not all, aspects of these claims. However, to date, the Company's insurers have made all payments required under settlements. Even if the Company were required to make any payments with regard to Hurricane Andrew related claims, the Company believes that the amount it would pay would not be material to the results of operations or financial position of the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following people were the executive officers of Lennar Corporation on February 7, 1994:
Mr. Leonard Miller has been the Chief Executive Officer and a director of the Company since it was founded.
Mr. Cole was, until December, 1983, a member of Mershon, Sawyer, Johnston, Dunwody & Cole, a firm of attorneys in Miami, Florida. Since then he has been of counsel to that firm and has been a consultant to the Company on business and legal affairs, as well as Chairman of the Company's Executive Committee and the Company's Secretary and General Counsel.
Messrs. Bolotin, Pekor, Kronick, Ames, Krasnoff and Saleda have each held substantially their present positions with the Company for more than five years.
Mr. Stuart Miller (who is the son of Leonard Miller) has held various executive positions with the Company for more than five years.
Mr. Timmons has been employed by the Company since 1992. Prior to joining Lennar Corporation Mr. Timmons was employed as a Financial Auditor with Burger King Corporation and KPMG Peat Marwick.
Mr. Saiontz (who is the son-in-law of Leonard Miller) has held substantially the same position with the Company for more than five years.
PART II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters.
The Company's common stock is traded on the New York Stock Exchange under the symbol LEN. The following table sets forth, for the periods indicated, the high and low sales prices as reported on the New York Stock Exchange Composite Tape and per share cash dividends paid by the Company.
Item 7.


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
OVERVIEW
Lennar's earnings increased in 1993 to $52.5 million ($2.27 per share) from 1992 earnings of $29.1 million ($1.42 per share) on total revenues in 1993 of $666.9 million compared to $429.4 million of revenues in 1992. Fiscal 1992 earnings had increased from 1991 earnings of $21.1 million ($1.05 per share), and revenues in 1992 had increased from 1991 revenues of $325.7 million.
REAL ESTATE OPERATIONS
Homebuilding
The Homebuilding Division constructs and sells single family attached and detached and multi-family homes. These activities accounted for 87%, 86% and 84% of total real estate operations revenues for the fiscal years ended November 30, 1993, 1992 and 1991, respectively.
Revenues from the sale of homes increased 71% in 1993 and 37% in 1992, due primarily to the number of homes delivered (4,634, 3,039 and 2,480 in 1993, 1992 and 1991, respectively). Additionally, the average price of a home delivered in 1993 increased 9% to $111,100 from $101,700 in 1992, having increased 9% during 1992 from $93,100 in 1991. The higher average sales prices were due to price increases for existing products, as well as a proportionately greater number of sales of higher-priced homes.
In fiscal 1993, new sales orders increased by 31% when compared to 1992, which had increased by 40% over 1991. The 1993 increase resulted in an increase of 18% in the Company's backlog of home sales contracts to 2,105 at November 30, 1993, as compared to a backlog of 1,788 contracts a year earlier. The dollar value of contracts in backlog increased 39% to $264.3 million at November 30, 1993 from $190.7 million a year earlier.
Gross profits from the sales of homes, as a percentage of total homebuilding revenues, averaged 12.3% in 1993, 12.1% in 1992 and 10.2% in 1991. The increases in the gross profit percentages were mainly attributable to the higher volume of homes delivered in both years as construction and selling overhead were absorbed by a greater number of home deliveries. Start-up costs, construction overhead and selling costs are expensed as incurred and included in cost of homes sold. The increase in 1993 gross profits was achieved despite start-up costs in the Company's new homebuilding operations in Houston, Texas and Port St. Lucie, Florida and increases in lumber prices on homes which were under contract for sale at the time of the price increases. Gross profit percentages are not significantly different for the various types of homes which the Company builds.
During 1993, 1992 and 1991, interest costs of $19.7 million, $16.8 million and $14.2 million, respectively, were incurred, and $17.1 million, $15.0 million and $14.2 million, respectively, were capitalized by the Company's real estate operations. Previously capitalized interest charged to cost of sales was $13.1 million in 1993, $9.5 million in 1992 and $9.3 million in 1991.
Interest amounts incurred in 1993 were higher than those incurred in 1992 and 1991 due to higher debt levels in both the real estate and financial services operations. The higher debt at November 30, 1993 is a reflection of the expansion of both the real estate and financial services operations along with the assumption of debt related to the Company's acquisition of partners' interests in various joint ventures. The higher amount of interest charged to cost of sales in 1993, when compared to 1992 and 1991, is a result of the higher volume of homes delivered. This increase was partially offset by lower interest rates and the increase in land and construction inventories as the Company's business volume increased. The amount of interest capitalized by the Company's real estate operations in any one year is a function of the assets under development, outstanding debt levels and interest rates.
In August 1992, Hurricane Andrew, which had winds believed to be substantially in excess of those contemplated by the South Florida Building Code, severely damaged a wide range of homes, commercial structures and schools, and substantially destroyed a United States Air Force base in south Dade County, Florida. Damage was incurred at several communities which were in the process of being built by the Company and at several of the Company's commercial properties. In the third quarter of fiscal 1992, the Company made an unusual charge against pre-tax earnings of $7.6 million ($4.9 million after taxes or $.24 per share) to provide for the damage to Company properties and other associated costs, net of insurance recoveries, due to the storm.
During 1993, the Company was involved in the repairing or rebuilding of homes in south Dade County communities that were damaged by Hurricane Andrew. Revenues and costs related to this activity are included in other sales and revenues and cost of other sales and revenues. These activities did not have a significant impact on the Company's net earnings during 1993 and were substantially completed by November 30, 1993.
Investment
The Investment Division (formerly referred to as Asset Management), is involved in the development, management and leasing, as well as the acquisition and sale, of commercial and residential rental properties and land. During 1992 and 1993, the Company became a participant in two partnerships which manage portfolios of mortgage loans, real properties and business loans. The Company shares in the profits or losses of the partnerships and also receives fees for the management and disposition of the partnerships' assets. These partnerships are capitalized primarily by long-term debt of which none is guaranteed by the Company.
Other sales and revenues which include, for the most part, the activities of the Investment Division increased in 1993 to $79.8 million from $50.8 million in 1992. The higher revenues were partially the result of additional management fees and earnings from the Company's two Investment Division partnerships. Additionally, rental income on operating properties owned directly by the Company increased during 1993 due to the addition of operating properties, increased occupancy rates and rent increases. As previously discussed, 1993 amounts also include revenues from the repair or rebuilding of homes damaged by Hurricane Andrew in the amount of $13.7 million. Other sales and revenues increased from $42.9 million in 1991 to $50.8 million in 1992 primarily as a result of increases in rental income, revenues from the Company's hotel operation and management fees.
Gross profits from other sales and revenues increased to $33.9 million in 1993 from $23.2 million in 1992 and $14.4 million in 1991. These increases were due primarily to increases in earnings and management fees from the Company's partnerships as well as increases in rental income. These increases were partially offset by lower sales of real estate in 1993 when compared to the prior two periods.
General and administrative expenses increased during 1993 to $28.1 million from $20.4 million in 1992. In 1991, these expenses totaled $17.3 million. The increase in general and administrative expenses in 1993, as compared to 1992, was due primarily to increases in personnel and other costs resulting from the expansion of the Company's operations. However, as a percentage of real estate revenues, these expenses decreased in 1993 to 4.7%, compared to 5.8% in 1992 and 6.6% in 1991.
FINANCIAL SERVICES
Financial services activities are conducted primarily through five subsidiaries of Lennar Financial Services, Inc. ("LFS"). LFS subsidiaries perform mortgage servicing activities, and arrange mortgage financing, title insurance and closing services for a wide variety of borrowers and homebuyers.
Financial services' earnings before income taxes decreased to $12.9 million in 1993, from $14.0 million and $13.2 million in 1992 and 1991, respectively. The decrease in 1993 earnings was the result of fewer sales of packages of home mortgage loans. Gains recorded on these dispositions contributed $0.7 million, $2.0 million, and $4.1 million to earnings in 1993, 1992 and 1991, respectively. Also contributing to the decrease in earnings in financial services were lower earnings from servicing and origination activities. Earnings from these activities have decreased due to higher costs associated with the expansion of loan origination activities and increased mortgage payoffs. The aforementioned decreases in earnings were partially offset by increases in interest income and gains on bulk sales of mortgage loan servicing rights which contributed $3.3 million to earnings in 1993. There were no bulk sales of mortgage servicing rights in 1992 or 1991.
INCOME TAXES
The provision for income taxes was 36.0% of pre-tax income in 1993, 35.7% in 1992 and 36.0% in 1991. The 1993 provision was higher than that of 1992 due to the increase in the federal tax rate from 34% to 35% during the Company's fiscal year. This increase was partially offset by additional differences between book and tax basis deductions during 1993. Fiscal 1991 had fewer book and tax basis deductions when compared to the other two periods.
IMPACT OF ECONOMIC CONDITIONS
Real estate development during 1993, both nationally and in Florida, continued to be affected by the reduced number of thrift institutions and more restrictive credit criteria of commercial banks. The Company does not, however, borrow from thrift institutions to finance any of its activities. Instead, the Company finances its land acquisition and development activities, construction activities, mortgage banking activities and general operating needs primarily from its own base of $467.5 million of equity at November 30, 1993, as well as from commercial bank borrowings. The Company has maintained excellent relationships with the commercial banks participating in its financing arrangements, and has no reason to believe that such relationships will not continue in the future. The availability of financing based on corporate banking relationships may provide a competitive advantage to the Company. The Company anticipates that there will be adequate mortgage financing available for the purchasers of its homes during 1994 through the Company's own financial services subsidiaries as well as external sources.
Low interest rates during 1993 increased demand for the Company's homes. In addition, the Company's financial services subsidiaries originated a larger volume of new mortgage loans and benefited from reduced borrowing costs. The Company's mortgage servicing operations were adversely affected by lower interest rates as an increased number of borrowers prepaid their mortgage loan. The prepayment of a loan results in the termination of the future stream of servicing revenue from such loans and reduces the value of the Company's servicing portfolio. The Company expects the refinancing trend to slow during 1994 and believes that the lower interest rate loans originated during 1993 will be less susceptible to refinancing and will therefore increase the stability and value of its servicing portfolio.
Total revenues and earnings in 1994 will be affected by both the new sales order rate during the year and the backlog of home sales contracts at the beginning of the year. The Company is entering fiscal 1994 with a backlog of $264.3 million, which is 39% higher than at the beginning of the prior fiscal year. Revenues and earnings will also be positively affected by the increased activities of the Company's Investment Division partnerships as 1994 will be the first year in which both partnerships will contribute a full fiscal year of earnings.
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. In general, 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.
GOVERNMENT REGULATIONS
Governmental bodies in the areas where the Company conducts its business have at times imposed laws and other regulations that affect the development of real estate. These laws and regulations are often subject to change. The State of Florida has adopted a law which requires that commitments to provide roads and other offsite infrastructure be in place prior to the commencement of new construction. This law is being administered by individual counties and municipalities throughout the State and may result in additional fees and assessments, or building moratoriums. It is difficult to predict the impact of this law on future operations, or what changes may take place in the law in the future. The Company may have a competitive advantage in that it believes that most of its Florida land presently meets the criteria under the law, and it has the financial resources to provide for development of the balance of its land in compliance with the law.
As a result of Hurricane Andrew, there have been changes to the various building codes within Florida. These changes have resulted in higher construction costs. The Company believes these additional costs have been recoverable through increased selling prices without any significant, adverse effect on sales volume.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Lennar meets its short-term financing needs for its real estate activities with cash generated from operations and funds available under its unsecured revolving credit agreement. During 1993, the Company entered into a new $175 million unsecured revolving credit agreement with nine banks. The agreement currently extends until July 29, 1996, however, on each annual anniversary date of the agreement each bank has the option to participate in a one year extension. On December 3, 1993, this agreement was expanded to $190 million by admitting an additional bank. At November 30, 1993, there was $129.7 million outstanding under this agreement as compared to $44.9 million outstanding under a similar agreement as of the same date in the prior year.
During 1993, a net of $68.5 million of cash was used in the Company's operations, compared to a net of $72.3 million used by operations in 1992. Cash of $87.4 million was used in 1993 to increase inventories through construction of homes, land purchases and land development. This compares to $54.5 million of cash used in 1992 to increase inventories. Additionally, $49.7 million in cash was used in 1993 to increase loans held for sale or disposition by the financial services subsidiaries, compared to $65.3 million used to increase the balance of these loans in 1992. Partially offsetting these uses of cash in 1993 was $27.2 million of cash provided by an increase in accounts payable and accrued liabilities in 1993, compared to an increase of $15.3 million in 1992. This resulted from a significant increase in real estate accounts payable due to the increased volume of homebuilding activities, and a large increase in mortgage fundings payable due to a higher volume of loan originations in the last few days of the year. Net cash used in investing activities increased during 1993 to $58.3 million from $48.7 million in 1992. In 1993, investing activities included a $21.4 million use of cash for the acquisition of additional operating properties. In addition, $20.2 million of cash was used to increase investments in and advances to partnerships and joint ventures. This increase includes $28.8 million of cash used for the acquisition of a 9.9% equity interest in a new Investment Division partnership. The increase in investments in and advances to partnerships and joint ventures was partially offset by capital distributions from the Investment Division partnership entered into in 1992.
During 1993, the Company further strengthened its financial position with a successful public offering of 3,450,000 additional shares of common stock which generated net proceeds to the Company of approximately $97 million. The proceeds were used for the expansion of the Company's operations as well as the investing activities discussed above.
REAL ESTATE OPERATIONS
The Company finances its land acquisitions with its revolving lines of credit or purchase money mortgages or buys land under option agreements, which 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 strategic purchasing in areas that the Company has identified as desirable growth markets along with careful management of the land development process. The Company believes that its land inventories give it a competitive advantage, especially in Florida, where developers face government constraints and regulations which will limit the number of available homesites in future years. Based on its current financing capabilities, the Company does not believe that its land holdings have any adverse effect on its liquidity.
The Company has also borrowed on a secured term loan basis in order to supplement its short-term borrowings. These term loans, which are collateralized principally by certain real estate held for future use and operating properties, amounted to $50 million at November 30, 1993 and are due in 1996. Total secured borrowings, which include the term loan debt, as well as mortgage notes payable on certain operating properties and land, were $108.4 million at fiscal year-end 1993 and $132.8 million at November 30, 1992. A significant portion of inventories, land held for investment, model homes and operating properties remained unencumbered at the end of the current fiscal year. Total real estate operations borrowings increased to $242.2 million at November 30, 1993 from $177.7 million at November 30, 1992. However, due to increased equity, the real estate debt-to-equity ratio improved to 51.8% at the end of fiscal 1993, compared to 55.6% one year earlier. The increase in real estate debt is attributable to increases in construction in progress, land inventories, partnership investments, and the assumption of liabilities upon the purchase of three former real estate joint ventures.
FINANCIAL SERVICES
Lennar Financial Services subsidiaries finance their mortgage loans held for sale on a short-term basis by either pledging them as collateral for borrowings under two lines of credit totaling $200 million or borrowing funds from Lennar in instances where, on a consolidated basis, the overall cost of funds is minimized. Total borrowings under the two lines of credit were $167.6 million and $144.4 million at November 30, 1993 and 1992, respectively. This increase is due mainly to the $52.7 million increase in loans held for sale or disposition described below.
LFS subsidiaries dispose of the mortgage loans they originate or purchase and convert the majority of such mortgage loans to cash within thirty to sixty days of origination or purchase. At November 30, 1993, the balance of loans held for sale or disposition was $243.1 million, compared with $190.4 million one year earlier. The increase represents greater mortgage production by LFS' mortgage banking subsidiaries.
LIMITED-PURPOSE FINANCE SUBSIDIARIES
Limited-purpose finance subsidiaries of LFS 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; and therefore, the related interest income and interest expense, for the most part, offset one another in each of the three years ended November 30, 1993. The Company believes that the cash flows generated by these subsidiaries will be adequate to meet the required debt payment schedules.
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.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", becomes effective for fiscal years beginning after December 15, 1992, and SFAS No. 112, "Employers' Accounting for Postemployment Benefits", becomes effective for fiscal years beginning after December 15, 1993. Neither SFAS No. 106 nor SFAS No. 112 will have a material impact on the Company's financial statements.
SFAS No. 109, "Accounting for Income Taxes", must be adopted by the Company in fiscal 1994. SFAS No. 109 requires a change from the deferred method under APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS No. 109, deferred income taxes are recognized for future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date.
Upon adoption of SFAS No. 109, the Company plans to apply the provisions of the Statement without restating prior years' financial statements. It is estimated that the adoption of SFAS No. 109 will result in a reduction of the net deferred tax liability by approximately $5.0 million and that this amount will be reported separately as the cumulative effect of a change in the method of accounting for income taxes in the consolidated statement of earnings for the year ending November 30, 1994.
KPMG PEAT MARWICK
CERTIFIED PUBLIC ACCOUNTANTS
ONE BISCAYNE TOWER TELEPHONE 305 358-2300 TELEFAX 305 577 0544 SUITE 2900 2 SOUTH BISCAYNE BOULEVARD MIAMI, FL 33131
INDEPENDENT AUDITORS' REPORT
The Board of Directors Lennar Corporation:
We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries as of November 30, 1993 and 1992, and the related consolidated statements of earnings, cash flows and stockholders' equity for each of the years in the three-year period ended November 30, 1993. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in Item 14(a)2. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 as of November 30, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1993, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK January 18, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------- Lennar Corporation and Subsidiaries November 30, 1993, 1992 and 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Lennar Corporation and all wholly-owned subsidiaries (the "Company"). The Company's investments in partnerships and joint ventures are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated.
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.
INVENTORIES
Inventories are stated at the lower of accumulated costs or market. Market value is evaluated at the community level and is defined as the estimated proceeds upon disposition less all future costs to complete and sell. Inventory adjustments to market value in 1993, 1992 and 1991 were not material to the Company. Start-up costs, construction overhead and selling expenses are expensed as incurred and are included in cost of homes sold. 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.
CAPITALIZATION OF 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.
During 1993, 1992 and 1991 interest costs of $19.7 million, $16.8 million and $14.2 million, respectively, were incurred, and $17.1 million, $15.0 million and $14.2 million, respectively, were capitalized by the Company's real estate operations. Previously capitalized interest charged to cost of sales was $13.1 million in 1993, $9.5 million in 1992 and $9.3 million in 1991.
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 range of estimated useful lives for operating properties is 15 to 40 years and for equipment is 2 to 10 years.
WARRANTIES
Warranty liabilities are not significant as the Company subcontracts virtually all segments of construction to others and its contracts call for the subcontractors to repair or replace any deficient items related to their trade. Extended warranties are offered in some communities through independent homeowner warranty insurance companies. The costs of these warranties are expensed in the period the homes are delivered.
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INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return. Income taxes are accounted for under the Accounting Principles Board Opinion ("APB") No. 11, however, the Company will be required to adopt Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which supersedes APB No. 11 effective December 1, 1993.
NET EARNINGS PER SHARE
Net earnings per share is calculated by dividing net earnings by the weighted average number of the total of common shares and Class B common shares outstanding during the year. The weighted average number of shares outstanding was 23,139,000, 20,495,000 and 20,114,000 in 1993, 1992 and 1991, respectively.
FINANCIAL SERVICES
Mortgage loans held for sale or disposition by Lennar Financial Services Inc. ("LFS") are recorded at the lower of cost or market, as determined on an aggregate basis. Discounts recorded on these loans are presented as a reduction of the carrying amount of the loans and are not amortized.
LFS enters into forward sales and option contracts to protect the value of loans held for sale or disposition from increases in market interest rates. Adjustments are made to these loans based on changes in the market value of these hedging contracts.
When LFS sells loans or mortgage-backed securities in 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.
LFS generally retains the servicing on the loans and mortgage-backed securities it sells. LFS recognizes servicing fee income as those services are performed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments", requires companies to disclose the estimated fair value of their financial instrument assets and liabilities.
The estimated fair values have been determined by the Company using available market information and appropriate valuation methodologies. The fair values are significantly affected by the assumptions used including the discount rate and estimates of cash flow. Accordingly, the use of different assumptions may have a material effect on the estimated fair values. The estimated fair values presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.
RECLASSIFICATION
Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 1993 presentation.
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2. LINES OF BUSINESS
The Company operates principally in two lines of business: (1) real estate, which includes the activities of the parent company (Lennar Corporation), the Homebuilding Division and the Investment Division (formerly referred to as Asset Management); and (2) financial services, which includes certain activities of LFS, but excludes the limited-purpose finance subsidiaries.
The Homebuilding Division constructs and sells single-family (attached and detached) and multi-family homes. The Investment Division is involved in the development, management and leasing, as well as the acquisition and sale, of commercial and residential properties and land. This division also manages and participates in partnerships with financial institutions.
Financial services activities are conducted primarily through five LFS Subsidiaries: Universal American Mortgage Company ("UAMC"), AmeriStar Financial Services, Inc., Universal Title Insurors, Inc., Lennar Funding Corporation and Loan Funding, Inc. These subsidiaries arrange mortgage financing, title insurance, and closing services for Lennar homebuyers and others, acquire, package and resell home mortgage loans, and perform mortgage loan servicing activities.
The limited-purpose finance subsidiaries of LFS have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries are not considered a part of the financial services operations for lines of business purposes and, as such, are reported separately.
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3. UNUSUAL ITEM - HURRICANE DAMAGE
On August 24, 1992, the South Florida area was hit by a severe hurricane which affected a portion of the Company's Dade County real estate operations. The results of operations for the year ended November 30, 1992 include an unusual charge of $7.6 million, before income taxes, representing the cost of the damage to the Company's inventories, properties and similar costs associated with the destruction caused by Hurricane Andrew.
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4. RESTRICTED CASH
Cash includes restricted deposits of $4,154,000 and $2,041,000 as of November 30, 1993 and 1992, respectively. These balances are comprised primarily of escrow deposits held related to condominium purchases and security deposits from tenants of commercial and apartment properties.
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5. SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the first quarter of 1993, the Company acquired a portfolio of loans from the Resolution Trust Corporation for $24.8 million. Of this amount, $5.0 million was paid in cash, and the Company issued a non-recourse note in the amount of $19.8 million for the remainder.
Also, during 1993, the Company purchased the other partners' interests in three of its joint ventures. As a result, the operations of these ventures were consolidated into the accounts of the Company as of the respective dates of acquisition. The net result of these transactions was to decrease investments in and advances to partnerships and joint ventures by $34.9 million, increase all other assets by $73.7 million and increase liabilities by $38.8 million.
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7. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES (CONTINUED)
During 1993, the Company acquired a 9.9% equity interest in LW Real Estate Investments L.P., a partnership between Westinghouse Electric Corporation and an affiliate of Lehman Brothers. This partnership has selected the Company to manage its portfolio of commercial real estate assets. During 1992, Lennar Florida Partners, a partnership between a subsidiary of the Company and The Morgan Stanley Real Estate Fund, L.P., was formed to acquire and manage a portfolio of mortgage loans, business loans and real property. The Company's initial contribution to this partnership amounted to 25% of the partnership's total equity. After the partners have recovered their investment, plus a return, the Company will be entitled to 50% of the partnership's cash flows. The Company shares in the profits or losses of both partnerships, and also receives fees for the management and disposition of the assets. The outstanding debt of the partnerships is not guaranteed by the Company.
The Company acquired the other partners interest in three of its joint ventures during 1993. As a result, the operations of the ventures have been consolidated into the accounts of the Company as of the respective dates of acquisition.
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9. MORTGAGE NOTES AND OTHER DEBTS PAYABLE (CONTINUED)
On July 29, 1993, the Company entered into a new $175 million unsecured revolving credit agreement with nine banks. The agreement was expanded to $190 million on December 3, 1993 by admitting an additional bank. The term of the agreement is three years. On every anniversary date of the agreement each bank has the option to participate in a one year extension. The interest rate under this agreement fluctuates with market rates and was 4.8% at November 30, 1993.
At November 30, 1993, the Company was party to interest rate swap agreements which replaced the floating interest rates on $45 million of debt, with fixed rates ranging from 8.7% to 10.2%. These agreements expire in 1994 and 1996.
The minimum aggregate principal maturities of mortgage notes and other debts payable required during the five years subsequent to November 30, 1993, assuming that the revolving credit agreement is not extended, are as follows (in thousands): 1994-$23,027; 1995-$5,551; 1996-$180,284; 1997- $8,439 and 1998-$12,419. All of the notes secured by land contain collateral release provisions for accelerated payment which may be made as necessary to maintain construction schedules.
The fair value of interest rate swaps at November 30, 1993 was $3.5 million. The estimated fair values represent a net unrealized loss. The value is based on dealer quotes and generally represents an estimate of the amount the Company would pay to terminate the agreement at the reporting date, taking into account current interest rates and the credit worthiness of the counterparties.
The fair values of the Company's fixed rate borrowings are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates of similar type of borrowing arrangements. The fair values of these borrowings at November 30, 1993 approximated their carrying value.
The interest rates on variable rate borrowings are tied to market indices. Accordingly, fair value approximates their carrying value.
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The Financial Services Division finances its activities through its two bank lines of credit, which amount to $200 million, or borrowings from Lennar Corporation, when on a consolidated basis the Company can minimize its cost of funds. The two lines of credit expire in March and July 1994, unless otherwise extended. Borrowings under these agreements were $167.6 million and $144.4 million at November 30, 1993 and 1992, respectively, and were collateralized by mortgage loans with outstanding principal balances of $155.9 million and $137.4 million, respectively, and by servicing rights to approximately $2.2 billion and $1.8 billion, respectively, of loans serviced by LFS. 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 these agreements at November 30, 1993 was 2.4%.
The Financial Services Division is party to financial instruments in the management of its exposure to interest rate fluctuations. Forward sales contracts and options are used by the division to hedge mortgage loans held for sale and in its pipeline of loan applications in process. By hedging in the instruments that the division will create, market interest rate risk is reduced. Gains and losses on these hedging transactions have not been material to the Company. Exposure to credit risk is managed through evaluation of trading partners, limits of exposure, and monitoring procedures. At November 30, 1993 and 1992, the Financial Services Division was a party to approximately $212 million and $183 million, respectively, of forward sales contracts and options.
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 geographic 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 net realizable value of the underlying collateral. Provisions for these losses have not been material to the Company. The division is also subject to prepayment risk on the servicing portfolio. Exposure to prepayment risk is managed by the division's ongoing evaluation of prepayment possibilities, and by the Company's active involvement in the refinancing business.
The fair value of loans held for sale at November 30, 1993 approximated carrying value. The fair value was based on quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics, net of the difference between the settlement value and the quoted market values of forward commitments and options to buy and sell mortgage-backed securities.
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12. LIMITED-PURPOSE FINANCE SUBSIDIARIES
In prior years, limited-purpose finance subsidiaries of LFS 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 trustee. The fair value of the collateral for the bonds and notes payable at November 30, 1993 was $135.5 million and was based on quoted market prices for similar securities.
BONDS AND NOTES PAYABLE
At November 30, 1993 and 1992, the balances outstanding for the bonds and notes payable were $121.4 million and $174.2 million, respectively. The borrowings mature in years 2013 through 2018 and carry interest rates ranging from 5.1% to 14.3%. The annual principal repayments are dependent upon collections on the underlying mortgages, including prepayments, and cannot be reasonably determined. The fair value of the bonds and notes payable at November 30, 1993 was $128.0 million and was based on quoted market prices for similar securities.
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14. CAPITAL STOCK
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 1993 received quarterly dividends of $.03 per share. Class B common stockholders have ten votes for each share of stock owned and during 1993 received quarterly dividends of $.025 per share. As of November 30, 1993, Mr. Leonard Miller, Chairman of the Board and President of the Company, owned 6.6 million shares of Class B common stock, which represents approximately 79% voting control of the Company.
STOCK OPTION PLANS
The Lennar Corporation 1980 Stock Option Plan ("1980 Plan") expired on December 8, 1990. However, under the terms of the 1980 Plan, certain options granted prior to the plan termination date are still outstanding. Unless exercised or cancelled, the last options granted under the 1980 Plan will expire in December 1995.
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The Lennar Corporation 1991 Stock Option Plan ("1991 Plan") provides 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.
- --------------------------------------------------------------------------- EMPLOYEE STOCK OWNERSHIP/401(K) PLAN
The Employee Stock Ownership / 401(k) Plan ("Plan") provides shares of stock to employees who have completed one year of continuous service with the Company. All contributions for employees with five years or more of service are fully vested. The Plan was amended in 1989 to add a cash or deferred program under Section 401(k) of the Internal Revenue Code. Under the 401(k) portion of the Plan, employees may make contributions which are invested on their behalf, 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 (in thousands): $361 in 1993, $366 in 1992 and $356 in 1991. In 1993, 1992 and 1991, 9,200, 39 and 5,968 shares, respectively, were contributed to participants' accounts. Additionally, in 1992 and 1991, 8,716 and 5,340 shares, respectively, were credited to participants' accounts from previously forfeited shares.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Other than as required to maintain the financial ratios and net worth requirements under the revolving credit and term loan agreements, there are no restrictions on the payment of common stock dividends 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 to the Company. As of November 30, 1993, the Company's share of undistributed earnings from partnerships was not significant.
15. 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.
During 1993, the Company settled two lawsuits and a number of claims in which owners of approximately 550 homes built by the Company sought damages as a result of Hurricane Andrew. There still remain approximately 125 additional homeowners who have asserted claims. Other homeowners or homeowners' insurers are not precluded from making similar claims against the Company. Four insurance companies have contacted the Company seeking reimbursement for sums paid by them with regard to homes built by the Company and damaged by the storm. Other claims of this type may be asserted. The Company's insurers have asserted that their policies cover some, but not all, aspects of these claims. However, to date, the Company's insurers have made all payments required under settlements. Even if the Company were required to make any payments with regard to Hurricane Andrew related claims, the Company believes that the amount it would pay would not be material.
15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company is subject to the usual obligations associated with entering into contracts for the purchase, development and sale of real estate in the routine conduct of its business.
The Company is committed, under various letters of credit, to perform certain development and construction activities in the normal course of business. Outstanding letters of credit under these arrangements totaled approximately $41.0 million at November 30, 1993.
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.
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Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Information about the Company's directors is incorporated by reference to the Company's definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 1994 (120 days after the end of the Company's fiscal year). Information about the Company's executive officers is contained in Part I of this Report under the caption "Executive Officers of the Registrant".
Item 11. Executive Compensation.
The information called for by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 1994 (120 days after the end of the Company's fiscal year).
Item 12. Security Holdings of Certain Beneficial Owners and Management.
The information called for by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 1994 (120 days after the end of the Company's fiscal year).
Item 13. Certain Relationships and Related Transactions.
The information called for by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 30, 1994 (120 days after the end of the Company's fiscal year).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this Report.
1. The following financial statements are included in Item 8: