Wci Communities 10-Q 2001 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2001
	OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM               TO

Commission file number 1-9186

WCI COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 59-2857021
(I.R.S. Employer
Identification No.)

24301 Walden Center Drive
Bonita Springs, Florida 34134
(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code) (941) 947-2600

Not applicable (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

         Yes        No

The number of shares outstanding of the issuer’s common stock, as of October 31, 2001 was 25,461,549

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EX-10.8: MASTER REVOLVING NOTE

WCI COMMUNITIES, INC.

Form 10-Q

For the Quarter Ended September 30, 2001

INDEX

		Page No.
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets September 30, 2001 (Unaudited) and December 31, 2000		3
	Consolidated Statements of Income and Comprehensive Income — Unaudited For the Three and Nine Months Ended September 30, 2001 and 2000		4
	Consolidated Statements of Cash Flows — Unaudited For the Nine Months Ended September 30, 2001 and 2000		5
	Notes to Consolidated Unaudited Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33
Part II.	Other Information
Item 1.	Legal Proceedings		34
Item 4.	Submissions of Matters to a Vote of Security Holders		34
Item 6.	Exhibits and Reports on Form 8-K		34
Signature			36

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WCI COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

			September 30,			December 31,
			2001			2000
			(unaudited)
Assets
Cash and cash equivalents			$	43,909		$	55,737
Restricted cash				19,770			15,521
Contracts receivable				324,622			228,742
Mortgage notes and accounts receivable				25,839			33,322
Real estate inventories				818,274			649,007
Investments in amenities				35,106			34,832
Property and equipment				98,696			81,317
Investments in joint ventures				38,896			35,792
Other assets				57,304			46,451
Goodwill and other intangible assets				29,859			32,375
		Total assets	$	1,492,275		$	1,213,096
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses			$	153,211		$	146,432
Customer deposits and other liabilities				202,583			170,860
Deferred income tax liabilities				24,552			15,715
Community development district obligations				38,297			26,944
Senior secured credit facility				250,000			289,000
Senior subordinated notes				355,071			—
Mortgages and notes payable				98,165			115,418
Finance subsidiary debt				—			72,495
Subordinated notes, 81% due to related parties				—			57,010
				1,121,879			893,874
Commitments and contingencies
Shareholders’ equity:
	Common stock, $.01 par value; 50,000,000 shares authorized, 25,461,549 shares issued and outstanding			254			254
	Additional paid-in capital			139,399			139,259
	Retained earnings			234,580			180,504
	Treasury stock, at cost, 92,173 shares			(795	)		(795	)
	Accumulated other comprehensive loss			(3,042	)		—
		Total shareholders’ equity		370,396			319,222
		Total liabilities and shareholders’ equity	$	1,492,275		$	1,213,096

The accompanying notes are an integral part of these consolidated financial statements.

3

WCI COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)

			For the three months ended					For the nine months ended
			September 30,					September 30,
			2001			2000		2001			2000
Revenues
Homebuilding			$	238,621		$	117,406	$	571,396		$	293,846
Parcel and lot				2,430			43,135		30,935			99,993
Amenity membership and operations				10,734			11,225		42,552			49,681
Real estate services and other				19,982			12,505		58,663			43,255
		Total revenues		271,767			184,271		703,546			486,775
Costs of Sales
Homebuilding				157,071			90,343		386,418			224,695
Parcel and lot				2,061			22,026		19,487			42,202
Amenity membership and operations				9,865			10,905		34,580			40,215
Real estate services and other				15,935			12,094		45,813			32,447
		Total costs of sales		184,932			135,368		486,298			339,559
		Contribution margin		86,835			48,903		217,248			147,216
Other Expenses
Interest expense, net				14,501			11,120		39,823			31,190
Selling, general, administrative and other				24,188			16,822		72,503			48,751
Real estate taxes, net				1,933			1,144		5,165			5,012
Depreciation				1,731			1,308		3,948			3,155
Amortization of goodwill and intangible assets				913			806		2,740			2,316
		Total other expenses		43,266			31,200		124,179			90,424
Income before income taxes and extraordinary item				43,569			17,703		93,069			56,792
Income tax expense				17,183			6,585		37,035			22,302
Income before extraordinary item				26,386			11,118		56,034			34,490
Extraordinary item, net of tax Net loss on debt restructuring				—			—		(1,958	)		—
Net income				26,386			11,118		54,076			34,490
Other comprehensive loss, net of tax
	Cumulative effect of a change in accounting principle			—			—		(746	)		—
	Unrealized derivative losses			(925	)		—		(2,296	)		—
Other comprehensive loss				(925	)		—		(3,042	)		—
Comprehensive income			$	25,461		$	11,118	$	51,034		$	34,490

The accompanying notes are an integral part of these consolidated financial statements.

4

WCI COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

				For the nine months ended
				September 30,
				2001			2000
Cash flows from operating activities:
	Net income			$	54,076		$	34,490
	Adjustments to reconcile net income to net cash used in operating activities:
		Net loss on debt restructuring			1,958			—
		Depreciation and amortization			6,688			5,471
		Amortization of debt issue costs to interest expense			2,923			3,661
		Amortization of premium on issuance of senior subordinated notes			(179	)		—
		Deferred director compensation			140			—
		Gain on sale of property and equipment			—			(982	)
		Earnings from investments in joint ventures			(1,648	)		(718	)
		Contributions to investments in joint ventures			(5,262	)		(10,114	)
		Distributions from investments in joint ventures			3,806			1,632
	Real estate inventories:
		Additions to real estate inventories			(523,412	)		(343,632	)
		Capitalized interest and real estate taxes			(27,254	)		(29,753	)
		Cost of sales, including amortization of capitalized interest and real estate taxes			381,399			255,553
	Changes in assets and liabilities:
		Restricted cash			(4,249	)		1,393
		Contracts receivable			(95,880	)		4,160
		Accounts receivable			217			(5,850	)
		Investments in amenities			(274	)		5,890
		Other assets			(5,068	)		(10,154	)
		Accounts payable and accrued expenses			8,012			(9,046	)
		Customer deposits and other liabilities			26,770			50,041
		Deferred income tax liabilities			10,748			11,020
			Net cash used in operating activities		(166,489	)		(36,938	)
Cash flows from investing activities:
	Additions to mortgage notes receivable				(1,261	)		(5,275	)
	Principal reductions on mortgage notes receivable				8,527			4,677
	Additions to property and equipment				(21,327	)		(8,746	)
	Proceeds from sale of property and equipment				—			2,677
	Payment for purchase of assets of real estate brokerages				—			(4,064	)
			Net cash used in investing activities		(14,061	)		(10,731	)

The accompanying notes are an integral part of these consolidated financial statements.

5

WCI COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(unaudited)

				For the nine months ended
				September 30,
				2001			2000
Cash flows from financing activities:
	Senior secured credit facility:
		Net (repayments) borrowings on revolving line of credit		$	(39,000	)	$	11,730
		Borrowing on amortizing term loan			—			50,000
	Proceeds from borrowings on mortgages and notes payable				65,752			46,422
	Principal reductions on mortgages and notes payable				(83,005	)		(50,889	)
	Proceeds from borrowings on senior subordinated notes				355,250			—
	Principal repayments on subordinated notes				(57,010	)		—
	Proceeds from borrowing on finance subsidiary debt				—			72,495
	Principal reduction on finance subsidiary debt				(72,495	)		(98,862	)
	Debt issue costs				(12,123	)		(3,999	)
	Net borrowings on community development district obligations				11,353			1,386
	Purchase of treasury stock				—			(446	)
			Net cash provided by financing activities		168,722			27,837
Net decrease in cash and cash equivalents					(11,828	)		(19,832	)
Cash and cash equivalents at beginning of year					55,737			33,492
Cash and cash equivalents at end of period				$	43,909		$	13,660

The accompanying notes are an integral part of these consolidated financial statements.

6

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

1.	Business Organization
	Prior to August 31, 2001, WCI Communities, Inc. (the Company) was a wholly owned subsidiary of Watermark Communities Inc. (Watermark). Watermark was formed in August 1998 to buy, manage, own, develop and sell real estate assets and amenity facilities. On August 31, 2001, Watermark was merged into the Company. At the time of the merger, Watermark’s only significant asset was its investment in the Company. On August 31, 2001, immediately prior to the merger, the Company filed an amendment to its certificate of incorporation that increased the Company’s authorized capital stock from 200,000 shares of common stock, $.01 par value per share, to 50,000,000 shares of common stock, $.01 par value per share. At the time of the merger, each outstanding share of Watermark stock was exchanged for a share of the Company’s common stock. All share and per share amounts give retroactive effect to the merger.
2.	Basis of Presentation
	The Company’s consolidated financial statements and notes as of September 30, 2001 and for the three months and nine months ended September 30, 2001 and 2000 have been prepared by management without audit by independent certified public accountants and should be read in conjunction with the December 31, 2000 audited financial statements for the year then ended in the Company’s Registration Statement on Form S-4. In the opinion of management, all normal, recurring adjustments necessary for the fair presentation of such financial information have been included. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.
	The Company historically has experienced and expects to experience variability in quarterly results. The consolidated statement of income and comprehensive income for the nine months ended September 30, 2001 is not necessarily indicative of the results to be expected for the full year.
3.	New Accounting Pronouncements
	In June 2001, the Financial Accounting Standards Board (FASB) approved Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Implementation of SFAS 141 did not have an effect on the financial statements of the Company. SFAS 142 provides guidance on accounting for intangible assets and eliminates the amortization of goodwill and certain identifiable intangible assets. Under the provisions of SFAS 142, intangible assets, including goodwill, that are not subject to amortization will be tested for impairment annually. SFAS 142 will be effective for the Company’s fiscal year 2002 and is immediately effective for goodwill and intangible assets acquired after June 30, 2001. Management is in the process of evaluating the effect this standard will have on the Company’s financial position and results of operations.

7

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

	In October 2001, the FASB approved SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets which supercedes SFAS 121 and APB 30. SFAS 144 retains the requirements of SFAS 121 for recognition and measurement of an impairment loss on long-lived assets, and establishes a single accounting model for all long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 will be effective for the Company’s fiscal year 2002. Management is in the process of evaluating the effect this standard will have on the Company’s financial position and results of operations.
4.	Segment Information
	The Company operates in three reportable business segments: homebuilding, parcel and lot, and amenity membership and operations. The homebuilding segment builds and markets single- and multi-family homes and mid-rise and high-rise tower residences. The parcel and lot segment develops and sells land parcels and lots within the Company’s communities primarily to commercial developers and individuals. The amenity membership and operations segment includes the operations and sale of memberships in golf country clubs, marinas, tennis and recreation facilities. The Company’s reportable segments are strategic business operations that offer different products and services. They are managed separately because each business requires different expertise and marketing strategies. Revenues from segments below the quantitative thresholds are primarily attributable to real estate services such as realty brokerage, title company, property management and mortgage banking operations.
	Transfers between segments are recorded at cost. The Company evaluates financial performance based on the segment contribution margin. The table below presents information about reported operating income for the three months and nine months ended September 30, 2001 and 2000. Asset information by reportable segment is not presented since the Company does not prepare such information.

8

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

4.	Segment Information (continued)
	Three months ended September 30, 2001

	Homebuilding
							Amenity
	Mid- and		Single- and		Parcel		Membership		All		Segment
	High-rise		Multi-family		and Lot		and Operations		Other		Totals
Revenues	$	124,991	$	113,630	$	2,430	$	10,734	$	19,821	$	271,606
Interest income										217		217
Contribution margin		56,660		24,890		369		869		4,103		86,891

Three months ended September 30, 2000

	Homebuilding
							Amenity
	Mid- and		Single- and		Parcel		Membership		All		Segment
	High-rise		Multi-family		and Lot		and Operations		Other		Totals
Revenues	$	44,001	$	73,405	$	43,135	$	11,225	$	11,772	$	183,538
Interest income										733		733
Contribution margin		15,476		11,587		21,109		320		411		48,903

Nine months ended September 30, 2001

	Homebuilding
							Amenity
	Mid- and		Single- and		Parcel		Membership		All		Segment
	High-rise		Multi-family		and Lot		and Operations		Other		Totals
Revenues	$	292,985	$	278,411	$	30,935	$	42,552	$	57,855	$	702,738
Interest income										866		866
Contribution margin		130,084		54,894		11,448		7,972		12,908		217,306

Nine months ended September 30, 2000

	Homebuilding
							Amenity
	Mid- and		Single- and		Parcel		Membership		All		Segment
	High-rise		Multi-family		and Lot		and Operations		Other		Totals
Revenues	$	115,319	$	178,527	$	99,993	$	49,681	$	40,206	$	483,726
Interest income										1,832		1,832
Contribution margin		43,369		25,782		57,791		9,466		9,591		145,999

9

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

4. Segment Information (continued)

		For the three months ended					For the nine months ended
		September 30,					September 30,
		2001			2000		2001			2000
Revenue
Total segment revenue		$	271,823		$	184,271	$	703,604		$	485,558
(Loss) gain on assets held for investment			(56	)		—		(58	)		1,217
	Consolidated revenue	$	271,767		$	184,271	$	703,546		$	486,775
Segment contribution margin			86,891			48,903		217,306			145,999
(Loss) gain on assets held for investment			(56	)		—		(58	)		1,217
Corporate overhead and costs			26,121			17,966		77,668			53,763
Interest expense, net			14,501			11,120		39,823			31,190
Depreciation and amortization			2,644			2,114		6,688			5,471
	Income before income taxes and extraordinary item	$	43,569		$	17,703	$	93,069		$	56,792

5.	Real Estate Inventories
	Real estate inventories are summarized as follows:

		September 30,		December 31,
		2001		2000
Land		$	182,813	$	173,226
Work in progress:
	Land and improvements		262,056		284,493
	Tower residences		160,283		35,490
	Homes		134,885		68,401
Completed inventories:
	Land and improvements		48,551		73,382
	Tower residences		11,584		1,274
	Homes		18,102		12,741
		$	818,274	$	649,007

10

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

6.	Capitalized Interest
	The following table is a summary of capitalized and amortized interest.

	As of and for						As of and for
	the three months ended						the nine months ended
	September 30,						September 30,
	2001			2000			2001			2000
Capitalized interest at beginning of period	$	92,344		$	74,123		$	84,873		$	61,506
Interest capitalized		8,104			9,660			24,088			26,483
Interest amortized		(5,014	)		(3,636	)		(13,527	)		(7,842	)
Capitalized interest	$	95,434		$	80,147		$	95,434		$	80,147
Total interest incurred		16,619			15,968			47,461			46,170
Debt issue cost amortization		972			1,176			2,923			3,661
Interest amortized		5,014			3,636			13,527			7,842
Interest capitalized		(8,104	)		(9,660	)		(24,088	)		(26,483	)
Interest expense, net	$	14,501		$	11,120		$	39,823		$	31,190

7.	Debt
	The Company issued $250,000 of 10.625% senior subordinated notes on February 20, 2001 in a private placement (the Initial Notes). On June 8, 2001, the Company issued an additional $100,000 of 10.625% senior subordinated notes (the Additional Notes, together with the Initial Notes, the Notes) for $105,250, plus accrued interest. Effective June 21, 2001, the Company filed a Registration Statement on Form S-4 with the Securities and Exchange Commission offering to exchange the unregistered Notes for notes registered under the Securities Act of 1933, as amended. The exchange was completed on July 31, 2001. The terms of the registered Notes are substantially identical to the unregistered Notes, except the registered Notes do not contain transfer restrictions. The Notes mature on February 15, 2011. Interest on the Notes is payable semi-annually in arrears on each February 15 and August 15, commencing August 15, 2001. The Notes are subordinated to all existing and future senior debt. The indenture relating to the Notes contains certain financial and operational covenants that under certain circumstances limit the Company’s and its subsidiaries’ ability to, among other items, incur additional debt, pay dividends, repurchase capital stock, and make certain investments.
	On August 31, 2001, Financial Resources Group, Inc. (FRG), a wholly owned subsidiary of the Company, entered into a $10,000 warehouse credit facility (Credit Facility) agreement with a commercial bank. The Credit Facility is payable on demand and accrues interest on outstanding advances at FRG’s election of LIBOR plus 2% or the overnight federal funds rate plus 2.15%. The Credit Facility is secured by a blanket first priority lien on all FRG assets, requires the maintenance of an adequate collateral borrowing base and the maintenance of certain financial covenants. At September 30, 2001, no advances were outstanding on the Credit Facility.

11

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

8.	Income Taxes
	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. A reconciliation of the statutory rate and the effective tax rate follows:

		% of Pre-tax Income
		September 30,
		2001		2000
Statutory rate			35.0		35.0
State income taxes net of federal income tax benefit			3.6		3.6
Goodwill amortization and other			1.2		.7
	Effective rate		39.8		39.3

9.	Comprehensive Income and Implementation of SFAS 133
	Effective January 1, 2001, the Company adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be measured at fair value and recognized in the balance sheet. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. The Company does not enter into or hold derivatives for trading or speculative purposes.
	The Company’s policy is to designate at a derivative’s inception the specific liabilities being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles.
	The Company has various interest rate swap agreements totaling $250,000. The swap agreements effectively fix the variable interest rate on approximately $200,000 of the senior secured credit facility. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in the consolidated balance sheet. The related gains or losses are recorded in stockholders’ equity as accumulated other comprehensive loss. The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS 133. Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The net effect on the Company’s operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. In accordance with the transition provisions of SFAS 133, on January 1, 2001, the Company recorded a cumulative-effect type adjustment of $746 (net of tax benefit of $469) in customer deposits and

12

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

	other liabilities and accumulated other comprehensive loss to recognize the fair value of the interest rate swaps. Subsequent to the Company’s adoption of SFAS 133 through September 30, 2001, the liability and accumulated other comprehensive loss increased $2,296 (net of tax benefit of $1,442) to $3,042.
10.	Supplemental Guarantor Information
	Obligations to pay principal and interest on the Company’s Notes are guaranteed fully and unconditionally by the Company’s wholly-owned subsidiaries, including its only significant subsidiary, Bay Colony-Gateway, Inc. Separate financial statements of the guarantors are not provided, as subsidiary guarantors are 100% owned by the Company and guarantees are full, unconditional, and joint and several. Supplemental consolidating financial information of the Company’s guarantors follows:

13

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands, except share data)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING BALANCE SHEET

		September 30, 2001
									Consolidated
		WCI							WCI
		Communities,		Guarantor		Eliminating			Communities,
		Inc.		Subsidiaries		Entries			Inc.
Assets
Cash and cash equivalents		$	27,103	$	16,806	$	—		$	43,909
Restricted cash			1,860		17,910		—			19,770
Contracts receivable			158,141		166,481		—			324,622
Mortgage notes and accounts receivable			11,886		13,953		—			25,839
Real estate inventories			461,688		356,586		—			818,274
Investments in amenities			21,029		14,077		—			35,106
Property and equipment			39,148		59,548		—			98,696
Investments in joint ventures			8,993		29,903		—			38,896
Investment in guarantor subsidiaries			217,222		—		(217,222	)		—
Other assets			257,673		33,309		(233,678	)		57,304
Goodwill and other intangible assets			21,912		7,947		—			29,859
	Total assets	$	1,226,655	$	716,520	$	(450,900	)	$	1,492,275
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses		$	70,469	$	82,742	$	—		$	153,211
Customer deposits and other liabilities			108,205		313,523		(219,145	)		202,583
Deferred income tax liabilities			28,303		10,782		(14,533	)		24,552
Community development district obligations			20,666		17,631		—			38,297
Senior secured credit facility			250,000		—		—			250,000
Senior subordinated notes			355,071		—		—			355,071
Mortgages and notes payable			23,545		74,620		—			98,165
			856,259		499,298		(233,678	)		1,121,879
Commitments and contingencies
Shareholders’ equity			370,396		217,222		(217,222	)		370,396
	Total liabilities and shareholders’ equity	$	1,226,655	$	716,520	$	(450,900	)	$	1,492,275

14

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING BALANCE SHEET

		December 31, 2000
									Consolidated
		WCI							WCI
		Communities,		Guarantor		Eliminating			Communities,
		Inc.		Subsidiaries		Entries			Inc.
Assets
Cash and cash equivalents		$	49,143	$	6,594	$	—		$	55,737
Restricted cash			1,549		13,972		—			15,521
Contracts receivable			155,882		72,860		—			228,742
Mortgage notes and accounts receivable			17,775		16,439		(892	)		33,322
Real estate inventories			405,809		243,198		—			649,007
Investments in amenities			9,849		24,983		—			34,832
Property and equipment			25,513		55,804		—			81,317
Investments in joint ventures			10,712		25,080		—			35,792
Investment in guarantor subsidiaries			192,904		—		(192,904	)		—
Investment in parent entities			—		44,572		(44,572	)		—
Other assets			118,274		30,336		(102,159	)		46,451
Goodwill and other intangible assets			23,263		9,112		—			32,375
	Total assets	$	1,010,673	$	542,950	$	(340,527	)	$	1,213,096
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses		$	105,352	$	41,972	$	(892	)	$	146,432
Customer deposits and other liabilities			92,185		173,295		(94,620	)		170,860
Deferred income tax liabilities			23,254		—		(7,539	)		15,715
Community development district obligations			26,944		—		—			26,944
Senior secured credit facility			289,000		—		—			289,000
Mortgages and notes payable			53,134		62,284		—			115,418
Finance subsidiary debt			—		72,495		—			72,495
Subordinated notes			100,783		—		(43,773	)		57,010
			690,652		350,046		(146,824	)		893,874
Commitments and contingencies
Shareholders’ equity			320,021		192,904		(193,703	)		319,222
	Total liabilities and shareholders’ equity	$	1,010,673	$	542,950	$	(340,527	)	$	1,213,096

15

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

		For the three months ended September 30, 2001
										Consolidated
		WCI								WCI
		Communities,		Guarantor			Eliminating			Communities,
		Inc.		Subsidiaries			Entries			Inc.
Revenues
Homebuilding		$	162,754	$	75,867		$	—		$	238,621
Parcel and lot			1,825		605			—			2,430
Amenity membership and operations			2,279		8,455			—			10,734
Real estate services and other			1,254		18,728			—			19,982
	Total revenues		168,112		103,655			—			271,767
Costs of Sales
Homebuilding			106,865		50,206			—			157,071
Parcel and lot			1,658		403			—			2,061
Amenity membership and operations			2,536		7,329			—			9,865
Real estate services and other			244		15,691			—			15,935
	Total costs of sales		111,303		73,629			—			184,932
	Contribution margin		56,809		30,026			—			86,835
Other Expenses
Interest expense, net			15,856		(1,355	)		—			14,501
Selling, general, administrative and other			18,950		5,238			—			24,188
Real estate taxes, net			1,171		762			—			1,933
Depreciation			851		880			—			1,731
Amortization of goodwill and intangible assets			450		463			—			913
	Total other expenses		37,278		5,988			—			43,266
Income before income taxes and equity in income of guarantor subsidiaries			19,531		24,038			—			43,569
Income tax expense			6,576		10,607			—			17,183
Equity in income of guarantor subsidiaries, net of tax			13,431		—			(13,431	)		—
Net Income		$	26,386	$	13,431		$	(13,431	)	$	26,386

16

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

		For the three months ended September 30, 2000
										Consolidated
		WCI								WCI
		Communities,		Guarantor			Eliminating			Communities,
		Inc.		Subsidiaries			Entries			Inc.
Revenues
Homebuilding		$	92,609	$	24,797		$	—		$	117,406
Parcel and lot			33,326		9,809			—			43,135
Amenity membership and operations			2,214		9,011			—			11,225
Real estate services and other			2,810		11,817			(2,122	)		12,505
	Total revenues		130,959		55,434			(2,122	)		184,271
Costs of Sales
Homebuilding			71,137		19,206			—			90,343
Parcel and lot			16,454		5,572			—			22,026
Amenity membership and operations			2,008		8,897			—			10,905
Real estate services and other			1,303		10,791			—			12,094
	Total costs of sales		90,902		44,466			—			135,368
	Contribution margin		40,057		10,968			(2,122	)		48,903
Other Expenses
Interest expense, net			11,666		1,576			(2,122	)		11,120
Selling, general, administrative and other			12,151		4,671			—			16,822
Real estate taxes, net			1,527		(383	)		—			1,144
Depreciation			897		411			—			1,308
Amortization of goodwill and intangible assets			451		355			—			806
	Total other expenses		26,692		6,630			(2,122	)		31,200
Income before income taxes and equity in income of guarantor subsidiaries			13,365		4,338			—			17,703
Income tax expense			4,867		1,718			—			6,585
Equity in income of guarantor subsidiaries, net of tax			2,620		—			(2,620	)		—
Net income		$	11,118	$	2,620		$	(2,620	)	$	11,118

17

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

		For the nine months ended September 30, 2001
										Consolidated
		WCI								WCI
		Communities,		Guarantor			Eliminating			Communities,
		Inc.		Subsidiaries			Entries			Inc.
Revenues
Homebuilding		$	401,584	$	169,812		$	—		$	571,396
Parcel and lot			14,221		16,714			—			30,935
Amenity membership and operations			11,532		31,020			—			42,552
Real estate services and other			3,922		73,298			(18,557	)		58,663
	Total revenues		431,259		290,844			(18,557	)		703,546
Costs of Sales
Homebuilding			270,949		115,469			—			386,418
Parcel and lot			9,736		9,751			—			19,487
Amenity membership and operations			8,785		25,795			—			34,580
Real estate services and other			551		45,262			—			45,813
	Total costs of sales		290,021		196,277			—			486,298
	Contribution margin		141,238		94,567			(18,557	)		217,248
Other Expenses
Interest expense, net			60,657		(2,277	)		(18,557	)		39,823
Selling, general, administrative and other			55,335		17,168			—			72,503
Real estate taxes, net			2,633		2,532			—			5,165
Depreciation			2,031		1,917			—			3,948
Amortization of goodwill and intangible assets			1,351		1,389			—			2,740
	Total other expenses		122,007		20,729			(18,557	)		124,179
Income before income taxes, equity in income of guarantor subsidiaries and extraordinary item			19,231		73,838			—			93,069
Income tax expense			6,974		30,061			—			37,035
Equity in income of guarantor subsidiaries, net of tax			41,819		—			(41,819	)		—
Income before extraordinary item			54,076		43,777			(41,819	)		56,034
Extraordinary item Net loss on debt restructuring			—		(1,958	)		—			(1,958	)
Net income		$	54,076	$	41,819		$	(41,819	)	$	54,076

18

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING STATEMENT OF OPERATIONS

		For the nine months ended September 30, 2000
									Consolidated
		WCI							WCI
		Communities,		Guarantor		Eliminating			Communities,
		Inc.		Subsidiaries		Entries			Inc.
Revenues
Homebuilding		$	222,854	$	70,992	$	—		$	293,846
Parcel and lot			65,977		34,016		—			99,993
Amenity membership and operations			9,633		40,048		—			49,681
Real estate services and other			6,049		41,267		(4,061	)		43,255
	Total revenues		304,513		186,323		(4,061	)		486,775
Costs of Sales
Homebuilding			172,658		52,037		—			224,695
Parcel and lot			24,364		17,838		—			42,202
Amenity membership and operations			5,895		34,320		—			40,215
Real estate services and other			1,608		30,839		—			32,447
	Total costs of sales		204,525		135,034		—			339,559
	Contribution margin		99,988		51,289		(4,061	)		147,216
Other Expenses
Interest expense, net			30,898		4,353		(4,061	)		31,190
Selling, general, administrative and other			38,247		10,504		—			48,751
Real estate taxes, net			2,609		2,403		—			5,012
Depreciation			1,961		1,194		—			3,155
Amortization of goodwill and intangible assets			1,351		965		—			2,316
	Total other expenses		75,066		19,419		(4,061	)		90,424
Income before income taxes and equity in income of guarantor subsidiaries			24,922		31,870		—			56,792
Income tax expense			9,681		12,621		—			22,302
Equity in income of guarantor subsidiaries, net of tax			19,249		—		(19,249	)		—
Net income		$	34,490	$	19,249	$	(19,249	)	$	34,490

19

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

				For the nine months ended September 30, 2001
													Consolidated
				WCI									WCI
				Communities,			Guarantor			Eliminating			Communities,
				Inc.			Subsidiaries			Entries			Inc.
Cash flows from operating activities:
	Net income			$	54,076		$	41,819		$	(41,819	)	$	54,076
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization			5,866			3,566			—			9,432
		Net loss on debt restructuring			—			1,958			—			1,958
		Other			140			—			—			140
		Losses (earnings) from investments in joint ventures			129			(1,777	)		—			(1,648	)
		Distributions from (contributions to) investments in joint ventures, net			1,590			(3,046	)		—			(1,456	)
		Equity in earnings of guarantor subsidiaries			(41,819	)		—			41,819			—
		Distributions from guarantor subsidiaries (contributions to parent), net			17,501			(17,501	)		—			—
		Repayment of investments in parent entities			—			44,572			(44,572	)		—
	Changes in assets and liabilities:
		Restricted cash			(311	)		(3,938	)		—			(4,249	)
		Contracts and accounts receivable			(2,377	)		(92,394	)		(892	)		(95,663	)
		Real estate inventories			(55,879	)		(113,388	)		—			(169,267	)
		Investments in amenities			(11,180	)		10,906			—			(274	)
		Other assets			(130,738	)		(6,648	)		132,318			(5,068	)
		Accounts payable and accrued expenses			(34,883	)		42,003			892			8,012
		Customer deposits and other liabilities			11,067			140,228			(124,525	)		26,770
		Deferred income tax liabilities			6,960			10,782			(6,994	)		10,748
			Net cash (used in) provided by operating activities		(179,858	)		57,142			(43,773	)		(166,489	)
Cash flows from investing activities:
	Principal reductions on mortgages and notes receivable				6,007			1,259			—			7,266
	Additions to property and equipment				(15,666	)		(5,661	)		—			(21,327	)
			Net cash used in investing activities		(9,659	)		(4,402	)		—			(14,061	)
Cash flows from financing activities:
	Net repayments on senior secured credit facility				(39,000	)		—			—			(39,000	)
	Net (reductions) borrowings on mortgages and notes payable				(29,589	)		12,336			—			(17,253	)
	Proceeds from borrowings on senior subordinated notes				355,250			—			—			355,250
	Principal repayments on subordinated notes				(100,783	)		—			43,773			(57,010	)
	Principal reductions on finance subsidiary debt				—			(72,495	)		—			(72,495	)
	Debt issue costs				(12,123	)		—			—			(12,123	)
	Net (reductions) borrowings on community development district obligations				(6,278	)		17,631			—			11,353
			Net cash provided by (used in) financing activities		167,477			(42,528	)		43,773			168,722
Net (decrease) increase in cash and cash equivalents					(22,040	)		10,212			—			(11,828	)
Cash and cash equivalents at beginning of year					49,143			6,594			—			55,737
Cash and cash equivalents at end of year				$	27,103		$	16,806		$	—		$	43,909

20

WCI COMMUNITIES, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(dollars in thousands)

10. Supplemental Guarantor Information (continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

					For the nine months ended September 30, 2000
														Consolidated
					WCI									WCI
					Communities,			Guarantor			Eliminating			Communities,
					Inc.			Subsidiaries			Entries			Inc.
Cash flows from operating activities:
	Net income				$	34,490		$	19,249		$	(19,249	)	$	34,490
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation and amortization				5,335			3,797			—			9,132
		Gain on disposal of property and equipment				(982	)		—			—			(982	)
		(Earnings) losses from investments in joint ventures				(2,464	)		1,746			—			(718	)
		Contributions to investments in joint ventures, net				(33	)		(8,449	)		—			(8,482	)
		Equity in earnings in guarantor subsidiaries				(19,249	)		—			19,249			—
		Distributions from guarantor subsidiaries (contributions to parent), net				12,172			(12,172	)		—			—
	Changes in assets and liabilities:
		Restricted cash				5,678			(4,285	)		—			1,393
		Contracts and accounts receivable				(63,177	)		62,267			(780	)		(1,690	)
		Real estate inventories				(72,733	)		(45,099	)		—			(117,832	)
		Investments in amenities				(604	)		6,494			—			5,890
		Other assets				(37,511	)		13,491			13,866			(10,154	)
		Accounts payable and accrued expenses				(9,568	)		(258	)		780			(9,046	)
		Customer deposits and other liabilities				49,229			23,345			(22,533	)		50,041
		Deferred income tax liabilities				(17,949	)		21,858			7,111			11,020
			Net cash (used in) provided by operating activities			(117,366	)		81,984			(1,556	)		(36,938	)
Cash flows from investing activities:
	(Additions to) reductions on mortgage and notes receivable					(1,408	)		810			—			(598	)
	Disposals of (additions to) property and equipment					8,750			(17,496	)		—			(8,746	)
	Proceeds from sale of property and equipment					2,677			—			—			2,677
	Payment for purchase of assets of real estate brokerages					—			(4,064	)		—			(4,064	)
				Net cash provided by (used in) investing activities		10,019			(20,750	)		—			(10,731	)
Cash flows from financing activities:
	Net borrowings on senior secured credit facility					61,730			—			—			61,730
	Net borrowings (reductions) on mortgages and notes payable					22,263			(28,286	)		1,556			(4,467	)
	Net reductions on finance subsidiary debt					—			(26,367	)		—			(26,367	)
	Debt issue costs					(2,676	)		(1,323	)		—			(3,999	)
	Net borrowings (reductions) on community development district obligations					2,034			(648	)		—			1,386
	Purchase of treasury stock					(446	)		—			—			(446	)
				Net cash provided by (used in) financing activities		82,905			(56,624	)		1,556			27,837
Net (decrease) increase in cash and cash equivalents						(24,442	)		4,610			—			(19,832	)
Cash and cash equivalents at beginning of year						30,190			3,302			—			33,492
Cash and cash equivalents at end of year					$	5,748		$	7,912		$	—		$	13,660

21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Total revenues for the three months ended September 30, 2001, increased 47.5% to $271.8 million, from $184.3 million for the comparable period in 2000, primarily due to an increase in homebuilding revenues. Total contribution margin for the three months ended September 30, 2001, increased 77.5% to $86.8 million, from $48.9 million for the comparable period in 2000, primarily due to an increase in homebuilding contribution margin. Income before income taxes for the three months ended September 30, 2001, increased 146.3% to $43.6 million, from $17.7 million for the comparable period in 2000. Income tax expense increased 160.6% to $17.2 million, from $6.6 million for the comparable period in 2000. The effective income tax rate was 39.4% and 37.2% for the three months ended September 30, 2001 and 2000, respectively. Net income for the three months ended September 30, 2001, increased 137.8% to $26.4 million, from $11.1 million for the comparable period in 2000. The increase in net income was primarily the result of increased homebuilding revenue and related contribution margin.

Total revenues for the nine months ended September 30, 2001, increased 44.5% to $703.5 million, from $486.8 million for the comparable period in 2000, primarily due to an increase in homebuilding revenues. Total contribution margin for the nine months ended September 30, 2001, increased 47.6% to $217.2 million, from $147.2 million for the comparable period in 2000, primarily due to an increase in homebuilding contribution margin. Income before income taxes and extraordinary item for the nine months ended September 30, 2001, increased 63.9% to $93.1 million, from $56.8 million for the comparable period in 2000. Income tax expense increased 65.9% to $37.0 million, from $22.3 million for the comparable period in 2000. The effective income tax rate was 39.8% and 39.3% for the nine months ended September 30, 2001 and 2000, respectively. For the nine months ended September 30, 2001, the Company recognized a $2.0 million (net of tax) extraordinary item related to the write-off of unamortized debt issue costs associated with the debt restructuring in conjunction with the offering of $250 million and $100 million in senior subordinated notes. Net income for the nine months ended September 30, 2001, increased 56.8% to $54.1 million, from $34.5 million for the comparable period in 2000. The increase in net income was primarily the result of increased homebuilding revenue and related contribution margin.

Three months ended September 30, 2001 compared to three months ended September 30, 2000

Revenues and Sales

Homebuilding. Total homebuilding revenues increased 103.2% to $238.6 million for the three months ended September 30, 2001 compared to $117.4 million for the same period in 2000. Single- and multi-family homebuilding revenues increased 54.8% to $113.6 million for the three months ended September 30, 2001 compared with $73.4 million for the same period in 2000. The increase in single- and multi-family homebuilding revenues was primarily attributable to a 56 unit or 16.9% increase in the number of homes closed and a 32.4% increase in the average selling price of homes closed to $294,000 in 2001 from $222,000 in 2000.

22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

	Three months ended September 30, 2001						Three months ended September 30, 2000
					Average						Average
Single- and multi-family homebuilding	Number		Value*		Price*		Number		Value*		Price*
Number of communities with active homebuilding at period end		15		—		—		16		—		—
Net new contracts		361	$	118,675	$	329		357	$	97,767	$	274
Closed sales		387		113,630		294		331		73,405		222
Ending backlog		1,115		398,632		358		1,179		330,740		281

* Dollar amounts in thousands.

The increase in closings was primarily the result of an increase in the number of inventory homes that were both contracted and closed within the third quarter 2001 as compared to the same period in 2000. The increase in the average selling price was primarily attributable to increasing prices in certain of the Company’s existing communities that were possible due to strong market demand and an increase in the number of higher-priced units sold.

The value of net new contracts for single- and multi-family homebuilding increased 21.4% to $118.7 million for the three months ended September 30, 2001 compared to $97.8 million for the same period in 2000. The increase in the value of net new contracts was primarily the result of an increase in the average price of homes contracted to $329,000 from $274,000. The increase in the average price was primarily the result of both price increases and sales mix factors such as home location, size and community appeal.

Mid-rise and high-rise homebuilding revenues increased 184.1% to $125.0 million for the three months ended September 30, 2001 compared to $44.0 million for the same period in 2000.

	For the three months ended				For the three months ended
	September 30, 2001				September 30, 2000
Mid-rise and high-rise homebuilding	Number		Value*		Number		Value*
Number of towers under construction		11		—		10		—
Net new contracts		224	$	304,139		181	$	299,589
Reported revenues		—		124,991		—		44,001
Ending backlog		—		482,190		—		366,158

* Dollar amounts in thousands.

The increase in mid-rise and high-rise homebuilding revenues was attributable primarily to an increase in the number of tower residences that qualified for recognition of revenue and the increase in the value of sold units in those towers. The Company delivered tower units or met the requirements for percentage of completion revenue recognition in eleven towers in the three months ended September 30, 2001 as compared to seven towers in the same period in 2000.

The value of net new contracts for mid-rise and high-rise homebuilding increased 1.5% to $304.1 million for the three months ended September 30, 2001 compared to $299.6 million for the same period in 2000. The increase in net new contracts was primarily the result of an increase in the number of towers that converted from reservation to contract during the period. Four towers converted from reservation to contract in the quarter ended September 30, 2001 compared to three in the same period in 2000. Backlog at September 30, 2001 was $482.2 million or 31.7% higher than the $366.2 million at September 30, 2000. The increase in backlog was due primarily to the 16.7% increase in the average price of total tower units under contract to $1.4 million in 2001 from $1.2 million in 2000.

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Parcel and lot. Total parcel and lot revenues decreased 94.4% to $2.4 million for the three months ended September 30, 2001 compared to $43.1 million for the same period in 2000. Sales of lots decreased 88.2% to $1.8 million for the three months ended September 30, 2001 compared to $15.3 million for the same period in 2000. The decrease was primarily due to the sell-out of lots in subdivisions located in Bay Colony, Pelican Landing and Heron Bay communities and the near sell-out of lots in the final phase of the Harbour Isles community. Sales of residential and commercial parcels for the three months ended September 30, 2001 decreased 97.5% to $660,000 compared to $27.8 million for the same period in 2000. Sales of residential parcels continued to decrease due to management’s decision to hold most developed and undeveloped land inventory for homebuilding purposes and the sell-out of the few residential parcels that were not designated for homebuilding, while commercial parcel sales decreased primarily as a result of fewer available parcels for sale.

Amenity membership and operations. Total amenity membership and operating revenues decreased 4.5% to $10.7 million for the three months ended September 30, 2001 compared to $11.2 million for the same period in 2000. Equity membership revenue increased slightly to $3.1 million for the three months ended September 30, 2001 compared to $3.0 million for the same period in 2000, while membership dues and amenity services revenue decreased 7.3% to $7.6 million from $8.2 million. The decrease in operating revenue was attributable primarily to turnover of the Bay Colony Golf Club to its members at the beginning of 2001 and the sale of the Burnt Store marina and restaurant operations in December 2000.

Real estate services and other. Real estate services and other revenues increased 60.0% to $20.0 million for the three months ended September 30, 2001 compared to $12.5 million for the same period in 2000. The increase in revenues was primarily attributable to a $3.4 million increase in real estate brokerage revenues that was generated by the increased volume of transactions closed by the real estate brokerage operations and an increase in equity in earnings of joint ventures for the three months ended September 30, 2001 compared to the same period in 2000.

Costs, Expense and Contribution Margin

Homebuilding. Homebuilding cost of sales increased 74.0% to $157.1 million for the three months ended September 30, 2001 compared to $90.3 million for the same period in 2000. Cost of sales as a percentage of revenue was 65.8% for the three months ended September 30, 2001 compared to 76.9% for the same period in 2000. The decrease in cost of sales percentage was primarily due to the increase in the average sales price of single- and multi-family homes and tower residence units and the Company’s ongoing efforts to reduce construction and land development costs and improve operating efficiencies.

Overall, homebuilding contribution margin as a percentage of revenue increased to 34.2% for the three months ended September 30, 2001 compared to 23.1% for the same period in 2000. Contribution margin percentage from single- and multi-family homebuilding increased to 21.9% compared to 15.8% for the same period in 2000, due primarily to a higher average sales price and reduced cost of construction as a percentage of revenue. The mid-rise and high-rise homebuilding contribution margin percentage for the three months ended September 30, 2001 increased to 45.3% compared to 35.2% for the same period in 2000 reflecting the greater proportion of higher margin, ultra-luxury towers under construction.

Parcel and lot. The cost of parcel and lot sales increased to 84.8% of related revenue for the three months ended September 30, 2001 compared to 51.1% for the same period in 2000. Total costs of sales decreased to $2.1 million for the three months ended September 30, 2001 compared to $22.0 million for the same period in 2000. The decrease in contribution margin percentage to 15.2% for 2001 compared to

24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

48.9% for 2000 was due primarily to the change in mix of parcel and lot sales closed in the respective periods.

Amenity membership and operations. The amenity cost of sales decreased to $9.9 million for the three months ended September 30, 2001 compared to $10.9 million for the same period in 2000 due primarily to the turnover of the Bay Colony Golf Club to its members in January 2001 and the sale of the Burnt Store marina and restaurant operations in December 2000. The associated contribution margin increased to 8.1% for the three months ended September 30, 2001 compared to 2.9% for the same period in 2000, due primarily to an increase in membership sales at higher margin equity clubs.

Real estate services and other.The real estate services and other costs increased 31.4% to $15.9 million for the three months ended September 30, 2001 compared to $12.1 million for the same period in 2000 due primarily to costs associated with the increased volume of real estate brokerage transactions. The associated contribution margin increased to 20.3% for the three months ended September 30, 2001 compared to 3.3% for the same period in 2000, due primarily to an increase in real estate brokerage and mortgage banking contribution margins. The increase in real estate brokerage contribution margin is primarily the result of growth in volume of transactions and production per agent. The increase in mortgage banking contribution margin is primarily the result of increased refinancing and purchase mortgage closings with non-WCI customers.

Selling, general and administrative expenses, including real estate taxes, as a percentage of revenues were 9.6% for the three months ended September 30, 2001 compared to 9.7% for the same period in 2000. The increase to $26.1 million for 2001 compared to $18.0 million for 2000 was primarily due to increased wages, benefit costs and administrative expenses associated with the increase in personnel to support the Company’s growth and increased sales and marketing expenditures related to newly introduced communities, subdivisions and towers under development.

Interest expense,net of capitalization, increased 30.6% to $14.5 million for the three months ended September 30, 2001 compared to $11.1 million for the same period in 2000. Interest incurred increased 3.8% to $16.6 million for the three months ended September 30, 2001 compared to $16.0 million for the same period in 2000. The increase is the result of an increase in average debt outstanding offset by a decrease in the effective borrowing rate. As a percentage of total revenue, interest incurred declined to 6.1% for 2001 compared to 8.7% of total revenue for 2000. Amortization of previously capitalized interest increased by $1.4 million to 1.8% of total revenue for 2001 compared to 2.0% of total revenue for 2000 due primarily to the change in the mix of real estate sold between the two periods. Interest capitalized decreased 16.5% to $8.1 million for 2001 compared to $9.7 million in 2000 due primarily to a change in the mix of properties undergoing active development.

Nine months ended September 30, 2001 compared to nine months ended September 30, 2000

Revenues and Sales

Homebuilding. Total homebuilding revenues increased 94.5% to $571.4 million for the nine months ended September 30, 2001 compared to $293.8 million for the same period in 2000. Single- and multi-family homebuilding revenues increased 56.0% to $278.4 million for the nine months ended September 30, 2001 compared with $178.5 million for the same period in 2000. The increase in single- and multi-family homebuilding revenues was primarily attributable to a 175 unit or 21.4% increase in the number of homes closed and a 28.5% increase in the average selling price of homes closed to $280,000 in 2001 from $218,000 in 2000.

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

	Nine months ended September 30, 2001						Nine months ended September 30, 2000
					Average						Average
Single- and multi-family homebuilding	Number		Value*		Price*		Number		Value*		Price*
Number of communities with active homebuilding at period end		15		—		—		16		—		—
Net new contracts		1,356	$	441,678	$	326		1,385	$	367,407	$	265
Closed sales		994		278,411		280		819		178,527		218
Ending backlog		1,115		398,632		358		1,179		330,740		281

* Dollar amounts in thousands.

The increase in closings was a direct result of the larger backlog at the beginning of the period as compared to the beginning of the same period in 2000 and increased home sales in newly introduced subdivisions in the Harbour Isles, Pelican Sound and Waterlefe communities. The increase in the average selling price was primarily attributable to increasing prices in certain of the Company’s existing communities that were possible due to strong market demand and an increase in the number of higher-priced units sold.

The value of net new contracts for single- and multi-family homebuilding increased 20.2% to $441.7 million for the nine months ended September 30, 2001 compared to $367.4 million for the same period in 2000. The increase in the value of net new contracts was primarily the result of an increase in the average price of homes contracted to $326,000 from $265,000. The increase in the average price was primarily the result of both price increases and sales mix factors such as home location, size and community appeal.

Mid-rise and high-rise homebuilding revenues increased 154.1% to $293.0 million in the nine months ended September 30, 2001 compared to $115.3 million for the same period in 2000.

	For the nine months ended				For the nine months ended
	September 30, 2001				September 30, 2000
Mid-rise and high-rise homebuilding	Number		Value*		Number		Value*
Number of towers under construction		11		—		10		—
Net new contracts		409	$	484,457		261	$	359,293
Reported revenues		—		292,985		—		115,319
Ending backlog		—		482,190		—		366,158

* Dollar amounts in thousands.

The increase in mid-rise and high-rise homebuilding revenues was attributable primarily to an increase in the number of tower residences that qualified for recognition of revenue and an increase in the value of sold units in those towers. The Company delivered tower units or met the requirements for percentage of completion revenue recognition in 13 towers for the nine months ended September 30, 2001 compared to 11 towers in the same period in 2000.

The value of net new contracts for mid-rise and high-rise homebuilding increased 34.8% to $484.5 million for the nine months ended September 30, 2001, compared to $359.3 million for the same period in 2000. The increase in net new contracts was primarily the result of an increase in the number of tower units that converted from reservation to contract during the period. Eight towers converted from reservation to contract in the nine months ended September 30, 2001 compared to five in the same period in 2000. Backlog at September 30, 2001 was $482.2 million or 31.7% higher than the $366.2 million at

26

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

September 30, 2000. The increase in backlog was due primarily to the 16.7% increase in the average price of total tower units under contract from $1.2 million in 2000 to $1.4 million in 2001.

Parcel and lot. Total parcel and lot revenues decreased 69.1% to $30.9 million for the nine months ended September 30, 2001 compared to $100.0 million for the same period in 2000. Sales of lots decreased 66.9% to $11.8 million for the nine months ended September 30, 2001 compared to $35.7 million for the same period in 2000. The decrease was primarily due to the sell-out of lots in our subdivisions located in Bay Colony, Pelican Landing and Heron Bay communities and the near sell-out of lots in the final phase of the Harbour Isles community. Sales of residential and commercial parcels decreased 70.3% to $19.1 million for the nine months ended September 30, 2001 compared to $64.3 million for the same period in 2000. Sales of residential parcels continued to decrease due primarily to management’s decision to hold most developed and undeveloped land inventory for homebuilding purposes and the sell-out of the few residential parcels that were not designated for homebuilding, while commercial parcel sales decreased primarily as a result of fewer available parcels for sale.

Amenity membership and operations. Total amenity membership and operating revenues decreased 14.3% to $42.6 million for the nine months ended September 30, 2001 compared to $49.7 million for the same period in 2000. Equity membership revenues decreased 31.5% to $11.3 million for the nine months ended September 30, 2001 compared to $16.5 million for the same period in 2000, while membership dues and amenity services revenue decreased 6.0% to $31.2 million for the nine months ended September 30, 2001 compared to $33.2 million for the same period in 2000. The decrease in equity membership revenues was primarily the result of the final sell-out of Bay Colony Golf Club memberships which was offset by price increases in certain equity club membership programs in 2001 and an increase in equity membership revenues at the Colony Golf Club. The decrease in operating revenues was attributable primarily to the turnover of Bay Colony Golf Club to its members at the beginning of 2001 and the sale of the Burnt Store marina and restaurant operations in December 2000.

Real estate services and other. Real estate services and other revenues increased 35.6% to $58.7 million for the nine months ended September 30, 2001 compared to $43.3 million for the same period in 2000. The increase in revenues was primarily attributable to a $13.4 million increase in real estate brokerage revenues that was generated by the increased volume of transactions closed by the real estate brokerage operation. The increase in real estate brokerage transactions was primarily the result of establishing additional Prudential Florida WCI Realty offices during the period subsequent to September 30, 2000.

Costs, Expense and Contribution Margin

Homebuilding. Homebuilding cost of sales increased 72.0% to $386.4 million for the nine months ended September 30, 2001 compared to $224.7 million for the same period in 2000. Cost of sales as a percentage of revenue was 67.6% for the nine months ended September 30, 2001 compared to 76.5% for the same period in 2000. The decrease in cost of sales percentage was primarily due to the increase in the average sales price of single- and multi-family homes and tower residence units and the Company’s ongoing efforts to reduce construction and land development costs and improve operating efficiencies.

Overall, homebuilding contribution margin as a percentage of revenue increased to 32.4% for the nine months ended September 30, 2001 compared to 23.5% for the same period in 2000. Contribution margin percentage from single- and multi-family homebuilding increased to 19.7% in 2001 from 14.4% in 2000 due primarily to a higher average sales price and reduced costs of construction and land development as a percentage of related revenue. Contribution margin percentage from mid-rise and high-rise

27

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

homebuilding increased to 44.4% compared to 37.6% for the same period in 2000 reflecting the greater proportion of higher margin, ultra-luxury towers under construction.

Parcel and lot. The cost of parcel and lot sales increased to 63.0% of related revenue for the nine months ended September 30, 2001 compared to 42.2% for the same period in 2000. Total costs of sales decreased to $19.5 million for the nine months ended September 30, 2001 compared to $42.2 million for the same period in 2000 due primarily to a decrease in total revenue for the nine months ended September 30, 2001. The increase in cost of sales percentage and the associated decrease in contribution margin percentage were due primarily to the change in mix of parcel and lot sales closed in the respective periods.

Amenity membership and operations. The amenity cost of sales decreased to $34.6 million for the nine months ended September 30, 2001 compared to $40.2 million for the same period in 2000 due primarily to the turnover of Bay Colony Golf Club to its members in January 2001 and the sale of the Burnt Store marina and restaurant operations in December 2000. The associated contribution margin decreased to 18.7% for the nine months ended September 30, 2001 compared to 19.1% for the same period in 2000, primarily due to an increase in the lower margin amenity operations as a percentage of the total amenity membership and operations contribution margin for the respective periods.

Real estate services and other.The real estate services and other costs increased 41.4% to $45.8 million for the nine months ended September 30, 2001 compared to $32.4 million for the same period in 2000 due primarily to the costs associated with the increased volume of real estate brokerage transactions. The associated contribution margin decreased to 21.9% for the nine months ended September 30, 2001 compared to 25.0% for the same period in 2000, primarily due to an increase in the lower margin real estate brokerage operations compared to the combined real estate services and other operations for the respective periods.

Selling, general and administrative expenses,including real estate taxes, as a percentage of revenues were 11.0% for the nine months ended September 30, 2001 and was unchanged compared to the same period in 2000. The increase to $77.7 million for 2001 compared to $53.8 million for 2000 was primarily due to increased wages, benefits costs and administrative expenses associated with the increase in personnel to support the Company’s growth and increased sales and marketing expenditures related to newly introduced communities, subdivisions and towers under development.

Interest expense,net of capitalization, increased 27.6% to $39.8 million for the nine months ended September 30, 2001 compared to $31.2 million for the same period in 2000. Interest incurred increased 2.8% to $47.5 million for the nine months ended September 30, 2001 compared to $46.2 million for the same period in 2000. The increase is primarily the result of an increase in average debt outstanding offset by a decrease in the effective borrowing rate. As a percentage of total revenue, interest incurred declined to 6.7% for 2001 compared to 9.5% of total revenue for 2000. Amortization of previously capitalized interest increased by $5.7 million to 1.9% of total revenue for 2001 compared to 1.6% of total revenue for 2000 due to the change in the mix of real estate sold between the two periods. Interest capitalized decreased 9.1% to $24.1 million for 2001 compared to $26.5 million in 2000 due primarily to a change in the mix of properties undergoing active development.

Liquidity and Capital Resources

The Company assesses its liquidity in terms of its ability to generate cash to fund its operating and investing activities. The Company finances its land acquisitions, land improvements, homebuilding,

28

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

development and construction activities from internally generated funds, credit agreements with financial institutions and public debt. As of September 30, 2001, the Company had cash and cash equivalents of $43.9 million.

Cash flows from operations used $166.5 million for the nine months ended September 30, 2001 as compared to $36.9 million for the same period in the prior year. Cash flow from operations before net inventory additions and contracts receivable has improved to $98.7 million for the nine months ended September 30, 2001 compared to $76.7 million for the comparable period in 2000. Net inventory additions increased to $169.3 million for the nine months ended September 30, 2001 compared to $117.8 million added in the first nine months of 2000. The $51.5 million increase is primarily related to increased single- and multi-family home inventories that are under contract for delivery during the next six months and, to a lesser degree, tower inventories that have not yet qualified for revenue recognition and land acquisitions. Land acquisitions for the nine months ended September 30, 2001 and 2000 totaled approximately $74.0 million and $63.0 million, respectively. Likewise, the increase in contracts receivable of $95.9 million for the first nine months of 2001 compared to a decrease of $4.2 million during the first nine months of 2000 reflects the substantial increase in the value of tower units under contract that are now being constructed and that have met the requirements for percentage of completion revenue recognition. The Company expects real estate inventories will continue to increase as it is currently negotiating and searching for additional opportunities to obtain control of land for future communities.

Investing activities for the nine months ended September 30, 2001 included $21.3 million of net additions to property and equipment compared to $6.1 million in the same period in the prior year. For the nine months ended September 30, 2001, cash was provided from net mortgage notes receivable collections of $7.3 million compared to cash uses of $598,000 in the same period in 2000. The Company anticipates cash flows used in investing activities will increase with development of current and future amenity operations.

Financing activities provided cash of $168.7 million for the nine months ended September 30, 2001 compared to cash provided of $27.8 million in the same period in 2000. The cash inflow was primarily the result of the issuance of $350 million in senior subordinated notes, repayments of $197.9 million for mortgages and notes payable, revolving line of credit, subordinated notes, finance subsidiary debt, debt issue costs associated with borrowings and net borrowings of $11.4 million on community development district obligations. A portion of the net cash proceeds from the senior subordinated notes were used to repay the outstanding balance of the revolving line of credit, mortgages and notes payable and land repurchase obligations.

The senior secured credit facility allows the Company to borrow and repay up to the maximum amount under the $200 million revolving loan subject to maintaining an adequate collateral borrowing base. As of September 30, 2001, the Company had $193.7 million available for borrowing under the senior secured credit facility and $6.3 million committed pursuant to letters of credit.

The Company released 11 towers for reservation during the first nine months of 2001, of which five are expected to commence construction prior to the end of the year and the remaining in 2002. The Company intends to use construction loans and customer deposits to construct high-rise towers. After the construction loans are repaid from the proceeds of closings with buyers, remaining proceeds will be available for general use. As of September 30, 2001, the Company had construction loans in place for six towers with $68.7 million outstanding and $124.9 million of remaining undrawn commitments. In

29

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

addition, the Company has three towers scheduled to close in the balance of 2001 or early 2002 which will generate significant cash flow after repayment of the related construction loans.

During the course of future operations, the Company plans to acquire developed and undeveloped land, which will be used in the homebuilding, tower and amenities lines of business. As of September 30, 2001, the Company had contracts or options aggregating $111.1 million to acquire approximately 2,259 acres of land that are expected to yield approximately 4,000 residential units. Payments of approximately $3.4 million are expected to be made during 2001 with the balance paid in future years. The Company will incur land development costs for improving overall community infrastructure such as water, sewer, streets and landscaping and for developing the amenity packages such as golf courses, marinas and club facilities. A significant portion of these costs are incurred in the initial phases of a project. The Company has recently commenced development of two new projects, Sun City Center – Fort Myers and Tarpon Bay, with anticipated initial home closings in late 2001 or 2002, and expects to commence development of two other communities this year, Evergrene and Tuscany Reserve, where we anticipate closings to start in 2003.

The Company incurs costs to improve lots and to construct residences for the traditional homebuilding business several months in advance of delivering the home to the buyers and closing the sale. The Company has historically experienced, and in the future expects to continue to experience, variability in results on a quarterly basis. A substantial percentage of homes are targeted towards retirement and second-home buyers who frequently prefer to take ownership of their homes during the fall. Therefore, although new home contracts are obtained throughout the year, a significant portion of single- and multi-family home closings will occur during the fourth calendar quarter. As of September 30, 2001, the Company has 1,115 units in backlog, a substantial portion of which are under construction for delivery during the balance of 2001. Accordingly, the Company expects to incur significant costs in the next few months and receive cash proceeds from the closing of these units later in the year.

The Company’s real estate development is dependent upon the availability of funds to finance current and future development. The Company plans to continue to grow and expects to fund this growth through the generation of cash flow from operations, from the availability of funds under its credit facility and from new construction loans and from future public offerings. The Company believes it has adequate resources and sufficient credit line facilities to satisfy its current and reasonably anticipated future requirements to acquire capital assets and land, to develop land improvements and construction activities and to meet any other needs of its business, both on a short- and long-term basis. If the Company does not have sufficient capital resources to fund its development and expansion, projects may be delayed, resulting in possible adverse effects on the Company’s results of operations. No assurance can be given as to the terms, availability or cost of any future financing the Company may need. If the Company is at any time unable to service its debt, refinancing or obtaining additional financing may be required and may not be available or available on terms acceptable to the Company. Furthermore, as a result of the September 11, 2001 terrorist attacks in New York, Pennsylvania and Washington, D.C., considerable economic and political uncertainties could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting the Company and the homebuilding industry generally.

FORWARD-LOOKING STATEMENTS

Investors are cautioned that certain statements contained in this document, as well as some statements by the Company in periodic press releases and some oral statements by Company officials to securities analysts and stockholders during presentations about the Company are “forward-looking statements.”

30

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “hopes”, and similar expressions constitute forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by management are also forward-looking statements. Forward-looking statements are based on current expectations and beliefs concerning future events and are subject to risks and uncertainties about the Company, economic and market factors and the homebuilding industry, among other things. These statements are not guaranties of future performance.

Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements made by the Company or Company officials due to a number of factors. The principal factors that could cause the Company’s actual results to differ materially from the forward-looking statements include:

• the ability to raise capital and grow the Company’s operations on a profitable basis;

• the ability to compete in the Florida real estate market;

• the ability to obtain necessary permits and approvals for the development of our land;

• the ability to pay principal and interest on outstanding debt;

• the ability to borrow in the future;

• availability of cash;

• adverse legislation or regulation;

• material increase in labor and material costs;

• increases in interest rates;

• the level of consumer confidence;

• the availability and cost of land in desirable areas and ability to expand successfully into these areas;

• natural disasters;

• unanticipated litigation or legal proceedings;

• conditions in the capital, credit and homebuilding markets;

• the ability to sustain or increase historical revenues and profit margins; and

• the continuation of trends and the general economic conditions.

31

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

All forward-looking statements attributable to the Company or any persons acting on behalf of the Company are expressly qualified in their entirety by these cautionary statements.

If one or more of these risks or uncertainties materializes, or if underlying assumptions provide incorrect, the Company’s actual results may vary materially from those expected, estimated or projected.

The Company undertakes no obligation to update any forward-looking statements in this Report or elsewhere.

32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk on the variable rate portion of our debt. We hedge a portion of our exposure to changes in interest rates by entering into interest rate swap agreements to lock in a fixed interest rate.

The following table sets forth, as of September 30, 2001, the Company’s debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts and weighted average interest rates of the Company’s interest rate swaps.

		Year Ended December 31,
																						FMV at
		2001			2002			2003			2004			2005		Thereafter			Total			9/30/01
Debt:
	Fixed rate	$	1,000		$	2,250		$	—		$	—		$	—	$	350,000		$	353,250		$	337,500
	Average interest rate		10.58	%		10.61	%		—			—			—		10.63	%		10.62	%
	Variable rate	$	208		$	54,435		$	34,977		$	255,333		$	—	$	—		$	344,953		$	344,953
	Average interest rate		5.28	%		5.29	%		5.41	%		5.52	%		—		—			5.35	%
Interest Rate Swaps:
	Variable to fixed	$	—		$	160,000		$	40,000		$	50,000		$	—	$	—		$	250,000		$	(4,952	)
	Average pay rate		—			5.70	%		5.70	%		5.68	%		—		—			5.67	%
	Average receive rate		*			*			*			*			*		*			*

* 90-Day Libor

33

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

In May 2000, Richard Ahlborg, Carol Ahlborg and other individuals who purchased lots in Pelican Landing filed a lawsuit against the Company in the United States District Court for the Middle District of Florida, Fort Myers Division. The lawsuit seeks class action status and was instituted against the Company and its subsidiary, WCI Realty, Inc. The lawsuit arose out of a preferred builder program under which plaintiffs purchased vacant lots and then contracted with a builder of their choice to construct a residence on their lots. In consideration of the extensive costs incurred by the Company and WCI Realty associated with the marketing, sales and advertising of the community for the benefit of the builders, who participated in the program, these builders were required to pay a marketing fee to WCI Realty based on a percentage of the construction cost of the home. Plaintiffs assert that the Company had an obligation to disclose to them that the preferred builder would pay a marketing fee to the Company. The plaintiffs have demanded unspecified money damages and have alleged, among other things, violation of the federal Racketeering, Influenced and Corrupt Organizations Act and the Real Estate Settlement Procedures Act. Since the Court has not yet ruled on whether to certify this lawsuit as a class, the litigation is still in its early stages. Accordingly, the Company is not able to estimate the range of possible loss. The Company is not yet able to determine whether the resolution of this matter will have a material adverse effect on the Company’s financial condition or results of operations. The Company has objected to the certification of this lawsuit as a class action. The Company believes it has meritorious defenses and intends to vigorously defend this action.

Item 4.

Submission of Matters to a Vote of Security Holders

On August 24, 2001, Watermark Communities Inc. (Watermark), the sole stockholder of the Company, upon waiver of notice of time, place and purpose of a special meeting of stockholders adopted by unanimous written consent of the sole stockholder to increase the total number of shares of common stock, par value $0.01 per share, which the Company has the authority to issue from two hundred thousand (200,000) shares to fifty million (50,000,000) shares. This action resulted in Watermark and the Company both being authorized to issue fifty million shares of $0.01 par value common stock. Prior to August 31, 2001, the Company was a wholly owned subsidiary of Watermark. On August 31, 2001, Watermark was merged into the Company. At the time of the merger, each outstanding share of Watermark common stock was exchanged for one share of common stock of the Company.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

3.1*	Certificate of Incorporation of WCI Communities, Inc.
3.2*	By-laws of WCI Communities, Inc.
4.1*	Indenture, dated as of February 20, 2001, by and among WCI Communities, Inc., certain of its subsidiaries and The Bank of New York, relating to $250,000,000 in aggregate principal amount of 10 5/8% Senior Subordinated Notes due 2011.
4.2*	Supplemental Indenture, dated June 8, 2001, by and among WCI Communities, Inc., certain of its subsidiaries and The Bank of New York.

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PART II. OTHER INFORMATION (continued)

4.3*	Form of Specimen Certificate for common stock of WCI Communities, Inc.
9.1*	Investors’ Agreement, dated as of November 30, 1998, by and among Watermark Communities, Inc. and certain other parties.
9.2*	First Amendment to Investors’ Agreement, dated as of February 23, 1999, by and among Watermark Communities, Inc. and certain other parties.
9.3*	Second Amendment to Investors’ Agreement, dated as of August 27, 2001, by and among Watermark Communities, Inc. and certain other parties.
10.1*	Primary Tax Allocation Agreement, dated January 1, 2001, among Watermark Communities, Inc., WCI Communities, Inc., Bay Colony-Gateway, Inc. and certain other subsidiaries of WCI Communities, Inc. and Bay Colony-Gateway, Inc.
10.2*	Third Consolidated Amended and Restated Senior Secured Facilities Credit Agreement, dated as of February 20, 2001, among WCI Communities, Inc., Bay Colony-Gateway, Inc., Communities Finance Company, LLC and Fleet National Bank, as lender and agent.
10.3*	Employment Agreement, dated as of July 24, 1995, between WCI Communities Limited Partnership and Don E. Ackerman.
10.4*	Amended and Restated Employment Agreement, dated as of January 1, 1999, between Watermark Communities, Inc. and Alfred Hoffman, Jr.
10.5*	Non-Employee Directors’ Stock Incentive Plan.
10.6*	1998 Stock Purchase and Option Plan for Key Employees.
10.7*	Management Incentive Compensation Plan.
10.8	Master Revolving Note between Financial Resources Group, Inc. and Comerica Bank, dated as of August 31, 2001

* Incorporated by reference to the exhibits in the Registration Statement on Form S-1 previously filed by WCI Communities, Inc. (Registration No. 333-69048)

(b)	Reports on Form 8-K
	No reports on Form 8-K were filed during the quarter ended September 30, 2001.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		WCI COMMUNITIES, INC.
Date:	November 5, 2001	/s/ JAMES P. DIETZ James P. Dietz Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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