Lennar (LEN) 10-Q 2003 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2003

Commission File Number: 1-11749

Lennar Corporation

(Exact name of registrant as specified in its charter)

Delaware	95-4337490
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (305) 559-4000

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. YESþ    NO¨

Common shares outstanding as of September 30, 2003:

Class A	62,575,901
Class B	16,245,343

Part I. Financial Information

Item 1. Financial Statements

Lennar Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

(In thousands, except per share amounts)

	(Unaudited) August 31, 2003			November 30, 2002
ASSETS
Homebuilding:
Cash	$	599,223		731,163
Receivables, net		78,501		48,432
Inventories:
Finished homes and construction in progress		2,367,962		2,044,694
Land under development		1,457,817		1,185,473
Consolidated inventory not owned		35,129		—
Land held for development		7,260		7,410
Total inventories		3,868,168		3,237,577
Investments in unconsolidated partnerships		362,766		285,594
Other assets		404,085		357,738
		5,312,743		4,660,504
Financial services		909,288		1,095,129
Total assets	$	6,222,031		5,755,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	906,655		969,779
Liabilities related to consolidated inventory not owned		32,721		—
Senior notes and other debts payable, net		1,521,706		1,585,309
		2,461,082		2,555,088
Financial services		767,941		971,388
Total liabilities		3,229,023		3,526,476
Stockholders’ equity:
Preferred stock		—		—
Class A common stock of $0.10 par value per share, 72,408 shares issued at August 31, 2003		7,241		6,506
Class B common stock of $0.10 par value per share, 16,243 shares issued at August 31, 2003		1,624		970
Additional paid-in capital		1,519,268		873,502
Retained earnings		1,651,509		1,538,945
Unearned restricted stock		(5,113	)	(7,337	)
Deferred compensation plan; 267 Class A common shares, 27 Class B common shares at August 31, 2003		(4,919	)	(1,103	)
Deferred compensation liability		4,919		1,103
Treasury stock, at cost; 9,857 Class A common shares at August 31, 2003		(159,688	)	(158,992	)
Accumulated other comprehensive loss		(21,833	)	(24,437	)
Total stockholders’ equity		2,993,008		2,229,157
Total liabilities and stockholders’ equity	$	6,222,031		5,755,633

See accompanying notes to consolidated condensed financial statements.

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Lennar Corporation and Subsidiaries

Consolidated Condensed Statements of Earnings

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended August 31,			Nine Months Ended August 31,
	2003		2002 (1)	2003	2002 (1)
Revenues:
Homebuilding	$	2,108,434	1,732,496	5,547,782	4,303,443
Financial services		159,408	115,456	423,638	330,894
Total revenues		2,267,842	1,847,952	5,971,420	4,634,337
Costs and expenses:
Homebuilding		1,836,389	1,525,808	4,902,186	3,855,971
Financial services		110,070	85,382	302,777	250,685
Corporate general and administrative		27,488	19,575	74,879	55,979
Total costs and expenses		1,973,947	1,630,765	5,279,842	4,162,635
Equity in earnings from unconsolidated partnerships		25,060	4,175	44,978	17,083
Management fees and other income, net		4,864	7,102	15,589	25,459
Earnings before provision for income taxes		323,819	228,464	752,145	514,244
Provision for income taxes		122,242	86,245	283,935	194,127
Net earnings	$	201,577	142,219	468,210	320,117
Basic earnings per share (adjusted for 10% stock distribution, see Notes 4 and 9)	$	2.69	2.02	6.49	4.57
Diluted earnings per share (adjusted for 10% stock distribution, see Notes 4 and 9)	$	2.43	1.83	5.87	4.14
Cash dividends per Class A common share	$	0.0125	0.0125	0.0375	0.0375
Cash dividends per Class B common share	$	0.0125	0.01125	0.03625	0.03375

(1) Certain prior year amounts have been reclassified to conform to the 2003 presentation (see Note 1).

See accompanying notes to consolidated condensed financial statements.

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Lennar Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended August 31,
	2003			2002
Cash flows from operating activities:
Net earnings	$	468,210		320,117
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		42,009		32,211
Amortization of discount on debt		18,378		18,889
Tax benefit from exercise of stock options and vesting of restricted stock		8,155		9,550
Equity in earnings from unconsolidated partnerships		(44,978	)	(17,083	)
Deferred income tax provision (benefit)		(22,140	)	6,079
Changes in assets and liabilities, net of effect from acquisitions:
Increase in receivables		(36,988	)	(96,359	)
Increase in inventories		(588,256	)	(627,574	)
(Increase) decrease in other assets		(18,064	)	5,542
Decrease in financial services loans held for sale		236,019		175,525
Increase (decrease) in accounts payable and other liabilities		(71,582	)	802
Net cash used in operating activities		(9,237	)	(172,301	)
Cash flows from investing activities:
Net additions to operating properties and equipment		(13,789	)	(7,420	)
(Increase) decrease in investments in unconsolidated partnerships, net		41,238		(47,283	)
(Increase) decrease in financial services mortgage loans		(1,182	)	12,092
Purchases of investment securities		(18,023	)	(25,924	)
Proceeds from investment securities		6,987		17,452
Acquisitions, net of cash acquired		(106,025	)	(390,393	)
Net cash used in investing activities		(90,794	)	(441,476	)
Cash flows from financing activities:
Net borrowings under revolving credit facilities		—		42,300
Net repayments under financial services short-term debt		(205,756	)	(126,558	)
Net proceeds from issuance of 5.95% senior notes		341,730		—
Proceeds from other borrowings		—		20,075
Principal payments on other borrowings		(163,449	)	(91,573	)
Common stock:
Issuance, net		14,312		17,048
Dividends and other		(2,978	)	(2,383	)
Net cash used in financing activities		(16,141	)	(141,091	)
Net decrease in cash		(116,172	)	(754,868	)
Cash at beginning of period		777,159		877,274
Cash at end of period	$	660,987		122,406

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Lennar Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows — Continued

(Unaudited)

(In thousands)

	Nine Months Ended August 31,
	2003		2002
Summary of cash:
Homebuilding	$	599,223	58,363
Financial services		61,764	64,043
	$	660,987	122,406
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized	$	913	13,836
Cash paid for income taxes	$	350,799	185,714
Supplemental disclosures of non-cash investing and financing activities:
Consolidated inventory not owned	$	32,721	—
Purchases of inventory financed by sellers	$	14,297	9,820
Fair value of guarantees of unconsolidated partnership debt	$	1,815	—

See accompanying notes to consolidated condensed financial statements.

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Lennar Corporation and Subsidiaries

Notes to Consolidated Condensed Financial Statements

(Unaudited)

(1) Basis of Presentation

The accompanying consolidated condensed financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest or is the primary beneficiary (see Note 12). All significant intercompany transactions and balances have been eliminated in consolidation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the November 30, 2002 audited financial statements in the Company’s Annual Report on Form 10-K for the year then ended. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying consolidated condensed financial statements have been made. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform with the current period presentation.

The Company historically has experienced, and expects to continue to experience, variability in quarterly results. The consolidated condensed statements of earnings for the three and nine months ended August 31, 2003 are not necessarily indicative of the results to be expected for the full year.

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. Actual results could differ from those estimates.

In the three and nine months ended August 31, 2003, homebuilding results reflect reclassifications within the consolidated condensed statements of earnings that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net. Prior year amounts have been reclassified to conform to the 2003 presentation. These reclassifications have no impact on reported net earnings.

As discussed in Note 9, basic and diluted earnings per share amounts, weighted average shares outstanding and certain other share data have been adjusted for 2003 and 2002 to reflect the effect of the April 2003 Class B stock distribution.

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(2) Operating and Reporting Segments

The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services. Homebuilding operations primarily include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through unconsolidated partnerships.

The Financial Services Division provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of the Company’s homes and others. It sells the loans it originates in the secondary mortgage market. The Financial Services Division also provides high-speed Internet access, cable television, and alarm installation and monitoring services for both the Company’s homebuyers and other customers.

Financial information relating to the Company’s reportable segments is as follows:

	Three Months Ended August 31,			Nine Months Ended August 31,
(In thousands)	2003		2002	2003	2002
Homebuilding revenues:
Sales of homes	$	2,041,378	1,691,282	5,376,528	4,198,652
Sales of land		67,056	41,214	171,254	104,791
Total homebuilding revenues		2,108,434	1,732,496	5,547,782	4,303,443
Homebuilding costs and expenses:
Cost of homes sold		1,557,481	1,313,446	4,148,151	3,281,943
Cost of land sold		59,263	33,025	146,122	102,699
Selling, general and administrative		219,645	179,337	607,913	471,329
Total homebuilding costs and expenses		1,836,389	1,525,808	4,902,186	3,855,971
Equity in earnings from unconsolidated partnerships		25,060	4,175	44,978	17,083
Management fees and other income, net		4,864	7,102	15,589	25,459
Homebuilding operating earnings	$	301,969	217,965	706,163	490,014
Financial services revenues	$	159,408	115,456	423,638	330,894
Financial services costs and expenses		110,070	85,382	302,777	250,685
Financial services operating earnings	$	49,338	30,074	120,861	80,209
Corporate general and administrative		27,488	19,575	74,879	55,979
Earnings before provision for income taxes	$	323,819	228,464	752,145	514,244

In the three and nine months ended August 31, 2003, homebuilding results reflect reclassifications within the consolidated condensed statements of earnings that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net. Prior year amounts have been reclassified to conform to the 2003 presentation. These reclassifications have no impact on reported net earnings.

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(3) Acquisitions

During 2003, the Company acquired two homebuilders, which expanded the Company’s presence in California and South Carolina, and a title company, which expanded the Company’s title and closing business into the Chicago market. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid $106.0 million, net of cash acquired. The results of operations of the acquired companies are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as their effect is not considered material.

Investment in an Unconsolidated Partnership

In July 2003, the Company and LNR Property Corporation (“LNR”) formed a joint venture, and the venture entered into an agreement to acquire The Newhall Land and Farming Company (“Newhall”). Newhall’s primary business is developing two master-planned communities in Los Angeles County, California. Under the terms of the agreement, Newhall’s unitholders will receive $40.50 per partnership unit in cash, which will increase at the rate of 5% per annum commencing 270 days from July 21, 2003. The total purchase consideration, after payments with regard to employee options, will be approximately $990 million plus Newhall’s liabilities. The transaction is subject to approval of Newhall’s unitholders. It is also subject to approval of the California Public Utilities Commission, due to the change of control of Valencia Water Company, a wholly-owned subsidiary of Newhall, that will result from the purchase, and customary closing conditions. The parties expect the transaction to close by the middle of 2004. Simultaneous with the closing of the transaction, LNR will purchase existing income-producing commercial assets and the Company will option certain current homesites from the venture.

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(4) Earnings Per Share

Basic earnings per share is computed by dividing net earnings attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Basic and diluted earnings per share were calculated as follows:

	Three Months Ended August 31,			Nine Months Ended August 31,
(In thousands, except per share amounts)	2003		2002	2003	2002
Numerator:
Numerator for basic earnings per share - net earnings	$	201,577	142,219	468,210	320,117
Interest on zero-coupon senior convertible debentures due 2018, net of tax		810	1,610	4,116	4,787
Interest on zero-coupon convertible senior subordinated notes due 2021, net of tax		2,035	—	2,035	—
Numerator for diluted earnings per share	$	204,422	143,829	474,361	324,904
Denominator (adjusted for 10% stock distribution, see disclosure below):
Denominator for basic earnings per share - weighted average shares		74,909	70,391	72,112	70,040
Effect of dilutive securities:
Employee stock options and restricted stock		1,584	1,592	1,552	1,738
Zero-coupon senior convertible debentures due 2018		3,205	6,778	5,587	6,778
Zero-coupon convertible senior subordinated notes due 2021		4,485	—	1,495	—
Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions		84,183	78,761	80,746	78,556
Basic earnings per share (adjusted for 10% stock distribution)	$	2.69	2.02	6.49	4.57
Diluted earnings per share (adjusted for 10% stock distribution)	$	2.43	1.83	5.87	4.14

Basic and diluted earnings per share amounts and weighted average shares outstanding have been adjusted for 2003 and 2002 to reflect the effect of the April 2003 stock distribution.

In 2001, the Company issued zero-coupon convertible senior subordinated notes due 2021. The indenture relating to the notes provides that the notes are convertible into the Company’s Class A common stock during limited periods after the market price of the Company’s Class A common stock exceeds 110% of the accreted conversion price at the rate of approximately 7.1 Class A common shares per $1,000 face amount of notes at maturity, which would total approximately 4.5 million shares (adjusted for the April 2003 stock distribution). For this purpose, the “market price” is the average closing price of the Company’s Class A common stock over the last twenty trading days of a fiscal quarter.

Other events that would cause the notes to be convertible are: a) a call of the notes for redemption; b) the initial credit ratings assigned to the notes by any two of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch IBCA Duff & Phelps are reduced by two rating levels; c) a distribution to all holders of the Company’s Class A common stock of options expiring within 60 days entitling the holders to purchase common stock for less than its quoted price; or d) a distribution to all holders of the Company’s Class A common stock of

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(4) Earnings Per Share, Continued

common stock, assets, debt, securities or rights to purchase securities with a per share value exceeding 15% of the closing price of the Class A common stock on the day preceding the declaration date for the distribution.

The calculation of diluted earnings per share included 4.5 million shares and 1.5 million shares for the three and nine months ended August 31, 2003, respectively, because the average closing price of the Company’s Class A common stock over the last twenty trading days of the third quarter of 2003 exceeded 110% ($63.75 per share at August 31, 2003) of the accreted conversion price. There were no shares included in the calculation of diluted earnings per share for the three and nine months ended August 31, 2002.

(5) Financial Services

The assets and liabilities related to the Company’s financial services operations are summarized as follows:

(In thousands)	(Unaudited) August 31, 2003		November 30, 2002
Assets:
Cash and receivables, net	$	264,661	239,893
Mortgage loans held for sale, net		472,263	708,304
Mortgage loans, net		31,537	30,341
Title plants		18,210	15,586
Goodwill, net		43,577	34,002
Other		72,362	57,801
Limited-purpose finance subsidiaries		6,678	9,202
	$	909,288	1,095,129
Liabilities:
Notes and other debts payable	$	647,891	853,416
Other		113,372	108,770
Limited-purpose finance subsidiaries		6,678	9,202
	$	767,941	971,388

At August 31, 2003, the Financial Services Division had warehouse lines of credit totaling $655 million, which included a $50 million 15-day increase which expired in September 2003, to fund its mortgage loan activities. Borrowings under the facilities were $597.9 million at August 31, 2003. The warehouse lines of credit mature in May 2004 ($250 million) and in October 2004 ($355 million), at which time the Division expects both facilities to be renewed. Additionally, the line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At August 31, 2003, the Division had advances under a conduit funding agreement with a major financial institution amounting to $30.3 million. The Division also had a $20 million revolving line of credit with a bank. Borrowings under the revolving line of credit were $19.4 million at August 31, 2003.

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(6) Cash

Cash as of August 31, 2003 and November 30, 2002 included $49.6 million and $56.2 million, respectively, of funds primarily held in escrow for approximately three days and $14.0 million and $20.9 million, respectively, of restricted deposits.

(7) Debt

In May 2003, the Company amended and restated its senior secured credit facilities (the “Credit Facilities”) to provide the Company with up to $1.3 billion of financing. The Credit Facilities consist of a $712 million revolving credit facility maturing in May 2008, a $315 million 364-day revolving credit facility maturing in May 2004 and a $300 million term loan B maturing in December 2008. The Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in May 2008. The Credit Facilities are collateralized by the stock of certain of the Company’s subsidiaries and are also guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. At August 31, 2003, $297.0 million was outstanding under the term loan B and zero was outstanding under the revolving credit facilities. Interest rates are LIBOR-based and the margins are set by a pricing grid with thresholds that adjust based on changes in the Company’s leverage ratio and the Credit Facilities’ credit rating. At August 31, 2003, the Company had letters of credit outstanding in the amount of $596.8 million. The majority of these letters of credit are posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities or are posted in lieu of cash deposits on option contracts. Of the Company’s total letters of credit, $334.8 million were collateralized against certain borrowings available under the Credit Facilities.

In February 2003, the Company issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%. The senior notes are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. Proceeds from the offering, after underwriting discount and expenses, were approximately $342 million. The Company used $116 million of the proceeds to repay outstanding indebtedness and added the remainder to its general working capital. The senior notes were issued under the Company’s shelf registration statement.

In June 2003, the Company called its 3 ⁷/8% zero-coupon senior convertible debentures due 2018 (the “Debentures”) for redemption. The redemption date for the Debentures was July 29, 2003, which was the earliest date on which the Company had the right to redeem the Debentures. At the option of the holders, the Debentures could have been converted into Class A common stock at any time prior to the redemption date. Each $1,000 principal amount at maturity of Debentures was convertible into 13.7407 shares of Class A common stock (inclusive of the adjustment for the April 2003 stock distribution), which equated to a redemption price of approximately $40.92 per share of Class A common stock. In the third quarter of 2003, substantially all of the Debentures were converted into approximately 6.8 million shares of Class A common stock. The impact of the conversion of the Debentures to Class A common stock on the consolidated condensed balance sheet as of August 31, 2003 was an increase to Class A common stock of $0.7 million, an increase to additional paid-in capital of $270.6 million, a decrease to other assets of $5.6 million and a decrease to senior notes and other debts payable, net of $276.9 million.

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(8) Guarantees

In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Warranty and similar reserves for homes are established in an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The following table sets forth the activity in the Company’s warranty reserve for the nine months ended August 31, 2003:

(In thousands)
Warranty reserve, November 30, 2002	$	93,606
Provision		77,762
Payments		(69,122	)
Warranty reserve, August 31, 2003	$	102,246

In some instances, the Company and/or its partners have provided varying levels of guarantees of debt of unconsolidated partnerships. At August 31, 2003, the Company had recourse guarantees of $85.1 million and limited maintenance guarantees of $117.5 million of debt of unconsolidated partnerships. When the Company provides a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase the Company’s share of any funds the unconsolidated partnership distributes. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

(9) Stockholders’ Equity

On April 8, 2003, at the Company’s Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to its certificate of incorporation that eliminated the restrictions on transfer of the Company’s Class B common stock and eliminated a difference between the dividends on the common stock (renamed Class A common stock) and the Class B common stock. The only significant remaining difference between the Class A common stock and the Class B common stock is that the Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

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(9) Stockholders’ Equity, Continued

Because stockholders approved the change to the terms of the Class B common stock, the Company distributed to the holders of record of its stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. The distribution occurred on April 21, 2003 and the Company’s Class B common stock became listed on the New York Stock Exchange (“NYSE”). The Company’s Class A common stock was already listed on the NYSE.

Additionally, the Company’s stockholders approved an amendment to the certificate of incorporation increasing the number of shares of common stock the Company is authorized to issue to 300 million shares of Class A common stock and 90 million shares of Class B common stock. However, the Company has committed to Institutional Shareholder Services that it will not issue, without a subsequent stockholder vote, shares that would increase the outstanding Class A common stock to more than 170 million shares or increase the outstanding Class B common stock to more than 45 million shares.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128,Earnings per Share, basic and diluted earnings per share amounts and weighted average shares outstanding have been adjusted for 2003 and 2002 to reflect the effect of the distribution of Class B common stock. The impact of the stock distribution on the consolidated condensed balance sheet as of August 31, 2003 was an increase to Class B common stock of $0.7 million, an increase to additional paid-in capital of $352.0 million and a decrease to retained earnings of $352.7 million. Approximately 6.5 million shares of Class B common stock were issued as a result of the stock distribution.

In June 2001, the Company’s Board of Directors increased the previously authorized stock repurchase program to permit future purchases of up to 10 million shares of our outstanding Class A common stock. The Company may repurchase these shares in the open market from time-to-time. During the nine months ended August 31, 2003, the Company did not repurchase any of its outstanding Class A common stock in the open market under these authorizations. During the nine months ended August 31, 2003, the Company’s treasury stock increased by approximately 9,000 Class A common shares related to share reacquisitions at the time of vesting of restricted stock.

In September 2003, the Company’s Board of Directors voted to increase the rate at which dividends are paid with regard to the Company’s Class A and Class B common stock to $1.00 per share per year (payable quarterly) from $0.05 per share per year. Additionally, the Board of Directors voted to retire the Company’s Class A common stock held in treasury.

(10) Comprehensive Income

The Company has various interest rate swap agreements which effectively convert variable interest rates to fixed interest rates on approximately $300 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in the consolidated condensed balance sheets. The related loss is deferred, net of tax, in stockholders’ equity as accumulated other comprehensive loss.

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(10) Comprehensive Income, Continued

Comprehensive income represents changes in stockholders’ equity from non-owner sources. For the three and nine months ended August 31, 2003 and 2002, the change in the fair value of interest rate swaps was the only other amount besides the Company’s net earnings in deriving comprehensive income. Comprehensive income was $210.1 million and $470.8 million for the three and nine months ended August 31, 2003, respectively, compared to $134.1 million and $314.1 million for the same periods last year.

(11) Stock-Based Compensation

The Company accounts for its stock option grants under the recognition and measurement principles of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations. No compensation expense is recognized because all stock options granted have exercise prices not less than the market value of the Company’s stock on the date of the grant. Restricted stock grants are valued based on the market price of the common stock on the date of the grant. Unearned compensation arising from the restricted stock grants is amortized to expense using the straight-line method over the period of the restrictions. Unearned restricted stock is shown as a reduction of stockholders’ equity in the consolidated condensed balance sheets.

The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation, as amended by SFAS No. 148,Accounting for Stock-Based Compensation – Transition and Disclosure, to stock-based employee compensation:

	Three Months Ended August 31,					Nine Months Ended August 31,
(In thousands, except per share amounts)	2003			2002		2003		2002
Net earnings, as reported	$	201,577		142,219		468,210		320,117
Add: Total stock-based employee compensation expense included in reported net earnings, net of related tax affects		416		484		1,384		1,452
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,482	)	(1,695	)	(6,888	)	(4,830	)
Pro forma net earnings	$	199,511		141,008		462,706		316,739
Earnings per share:
Basic—as reported (adjusted for 10% stock distribution)	$	2.69		2.02		6.49		4.57
Basic—pro forma (adjusted for 10% stock distribution)	$	2.66		2.00		6.42		4.52
Diluted—as reported (adjusted for 10% stock distribution)	$	2.43		1.83		5.87		4.14
Diluted—pro forma (adjusted for 10% stock distribution)	$	2.40		1.81		5.81		4.09

13

(12) Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”),Consolidation of Variable Interest Entities. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interest entities created after January 31, 2003, and with respect to variable interests held before February 1, 2003, FIN 46 will apply in the Company’s first quarter ending February 29, 2004.

The Company evaluated partnership agreements and option contracts entered into subsequent to January 31, 2003 under FIN 46. The Company did not consolidate any of its partnerships created after January 31, 2003 as the Company determined it was not the primary beneficiary, as defined in FIN 46. Additionally, the Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46, the Company, as the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). The effect of the consolidation was an increase of $32.7 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated condensed balance sheet as of August 31, 2003. The liabilities represent the difference between the exercise price of the optioned land and the Company’s deposits. Additionally, to reflect the fair value of the inventory consolidated under FIN 46, the Company reclassified $2.4 million of related option deposits from land under development to consolidated inventory not owned.

The Company is in the process of evaluating the remainder of its investments in unconsolidated partnerships and option contracts that may be deemed variable interest entities under the provisions of FIN 46. At August 31, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $362.8 million plus the guarantees discussed in Note 8. Additionally, at August 31, 2003, the Company had non-refundable option deposits and/or letters of credit related to inventory with estimated aggregate exercise prices totaling approximately $2 billion. The Company has not yet determined the impact of adopting FIN 46 for its partnership agreements and option contracts that existed as of January 31, 2003. However, it may require the consolidation of the assets, liabilities and operations of certain of its unconsolidated partnerships and consolidation of land held under certain of its option contracts. Although the Company does not believe the full adoption of FIN 46 will have an impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

14

(13) New Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. The implementation of SFAS No. 150 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

15

(14) Supplemental Financial Information

The Company’s obligations to pay principal, premium, if any, and interest under certain debt instruments are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.

Consolidating Condensed Balance Sheet

August 31, 2003

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
ASSETS
Homebuilding:
Cash and receivables, net	$	497,282		180,442	—		—		677,724
Inventories		—		3,861,569	6,599		—		3,868,168
Investments in unconsolidated partnerships		—		362,766	—		—		362,766
Other assets		85,394		318,691	—		—		404,085
Investments in subsidiaries		3,308,460		369,687	—		(3,678,147	)	—
		3,891,136		5,093,155	6,599		(3,678,147	)	5,312,743
Financial services		—		16,784	896,948		(4,444	)	909,288
Total assets	$	3,891,136		5,109,939	903,547		(3,682,591	)	6,222,031
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	237,120		669,449	92		(6	)	906,655
Liabilities related to consolidated inventory not owned		—		32,721	—		—		32,721
Senior notes and other debts payable, net		1,470,781		55,363	—		(4,438	)	1,521,706
Intercompany		(809,773	)	1,040,795	(231,022	)	—		—
		898,128		1,798,328	(230,930	)	(4,444	)	2,461,082
Financial services		—		3,151	764,790		—		767,941
Total liabilities		898,128		1,801,479	533,860		(4,444	)	3,229,023
Stockholders’ equity		2,993,008		3,308,460	369,687		(3,678,147	)	2,993,008
Total liabilities and stockholders’ equity	$	3,891,136		5,109,939	903,547		(3,682,591	)	6,222,031

16

(14) Supplemental Financial Information, Continued

Consolidating Condensed Balance Sheet

November 30, 2002

(In thousands)	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
ASSETS
Homebuilding:
Cash and receivables, net	$	622,019		157,566	10		—		779,595
Inventories		—		3,231,015	6,562		—		3,237,577
Investments in unconsolidated partnerships		—		285,594	—		—		285,594
Other assets		84,122		273,616	—		—		357,738
Investments in subsidiaries		2,584,512		302,655	—		(2,887,167	)	—
		3,290,653		4,250,446	6,572		(2,887,167	)	4,660,504
Financial services		—		35,933	1,074,241		(15,045	)	1,095,129
Total assets	$	3,290,653		4,286,379	1,080,813		(2,902,212	)	5,755,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	333,746		635,842	222		(31	)	969,779
Senior notes and other debts payable, net		1,478,821		121,502	—		(15,014	)	1,585,309
Intercompany		(751,071	)	931,951	(180,880	)	—		—
		1,061,496		1,689,295	(180,658	)	(15,045	)	2,555,088
Financial services		—		12,572	958,816		—		971,388
Total liabilities		1,061,496		1,701,867	778,158		(15,045	)	3,526,476
Stockholders’ equity		2,229,157		2,584,512	302,655		(2,887,167	)	2,229,157
Total liabilities and stockholders’ equity	$	3,290,653		4,286,379	1,080,813		(2,902,212	)	5,755,633

17

(14) Supplemental Financial Information, Continued

Consolidating Condensed Statement of Earnings

Three Months Ended August 31, 2003

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
Revenues:
Homebuilding	$	—		2,108,434	—	—		2,108,434
Financial services		—		4,315	157,932	(2,839	)	159,408
Total revenues		—		2,112,749	157,932	(2,839	)	2,267,842
Costs and expenses:
Homebuilding		—		1,837,097	136	(844	)	1,836,389
Financial services		—		3,095	108,970	(1,995	)	110,070
Corporate general and administrative		27,488		—	—	—		27,488
Total costs and expenses		27,488		1,840,192	109,106	(2,839	)	1,973,947
Equity in earnings from unconsolidated partnerships		—		25,060	—	—		25,060
Management fees and other income, net		—		4,864	—	—		4,864
Earnings (loss) before income taxes		(27,488	)	302,481	48,826	—		323,819
Provision (benefit) for income taxes		(9,916	)	114,186	17,972	—		122,242
Equity in earnings from subsidiaries		219,149		30,854	—	(250,003	)	—
Net earnings (loss)	$	201,577		219,149	30,854	(250,003	)	201,577

Consolidating Condensed Statement of Earnings

Three Months Ended August 31, 2002

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
Revenues:
Homebuilding	$	—		1,732,496	—	—		1,732,496
Financial services		—		14,764	101,750	(1,058	)	115,456
Total revenues		—		1,747,260	101,750	(1,058	)	1,847,952
Costs and expenses:
Homebuilding		—		1,526,729	137	(1,058	)	1,525,808
Financial services		—		13,999	71,383	—		85,382
Corporate general and administrative		19,575		—	—	—		19,575
Total costs and expenses		19,575		1,540,728	71,520	(1,058	)	1,630,765
Equity in earnings from unconsolidated partnerships		—		4,175	—	—		4,175
Management fees and other income, net		—		7,102	—	—		7,102
Earnings (loss) before income taxes		(19,575	)	217,809	30,230	—		228,464
Provision (benefit) for income taxes		(7,458	)	82,223	11,480	—		86,245
Equity in earnings from subsidiaries		154,336		18,750	—	(173,086	)	—
Net earnings (loss)	$	142,219		154,336	18,750	(173,086	)	142,219

18

(14) Supplemental Financial Information, Continued

Consolidating Condensed Statement of Earnings

Nine Months Ended August 31, 2003

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
Revenues:
Homebuilding	$	—		5,547,782	—	—		5,547,782
Financial services		—		11,199	421,413	(8,974	)	423,638
Total revenues		—		5,558,981	421,413	(8,974	)	5,971,420
Costs and expenses:
Homebuilding		—		4,904,741	429	(2,984	)	4,902,186
Financial services		—		10,311	298,456	(5,990	)	302,777
Corporate general and administrative		74,879		—	—	—		74,879
Total costs and expenses		74,879		4,915,052	298,885	(8,974	)	5,279,842
Equity in earnings from unconsolidated partnerships		—		44,978	—	—		44,978
Management fees and other income, net		—		15,589	—	—		15,589
Earnings (loss) before income taxes		(74,879	)	704,496	122,528	—		752,145
Provision (benefit) for income taxes		(27,967	)	265,947	45,955	—		283,935
Equity in earnings from subsidiaries		515,122		76,573	—	(591,695	)	—
Net earnings (loss)	$	468,210		515,122	76,573	(591,695	)	468,210

Consolidating Condensed Statement of Earnings

Nine Months Ended August 31, 2002

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
Revenues:
Homebuilding	$	—		4,303,437	6	—		4,303,443
Financial services		—		39,135	292,817	(1,058	)	330,894
Total revenues		—		4,342,572	292,823	(1,058	)	4,634,337
Costs and expenses:
Homebuilding		—		3,856,605	424	(1,058	)	3,855,971
Financial services		—		34,266	216,419	—		250,685
Corporate general and administrative		55,979		—	—	—		55,979
Total costs and expenses		55,979		3,890,871	216,843	(1,058	)	4,162,635
Equity in earnings from unconsolidated partnerships		—		17,083	—	—		17,083
Management fees and other income, net		—		25,459	—	—		25,459
Earnings (loss) before income taxes		(55,979	)	494,243	75,980	—		514,244
Provision (benefit) for income taxes		(21,012	)	186,577	28,562	—		194,127
Equity in earnings from subsidiaries		355,084		47,418	—	(402,502	)	—
Net earnings (loss)	$	320,117		355,084	47,418	(402,502	)	320,117

19

(14) Supplemental Financial Information, Continued

Consolidating Condensed Statement of Cash Flows

Nine Months Ended August 31, 2003

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Cash flows from operating activities:
Net earnings (loss)	$	468,210		515,122		76,573		(591,695	)	468,210
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities		(565,022	)	(738,897	)	245,353		581,119		(477,447	)
Net cash provided by (used in) operating activities		(96,812	)	(223,775	)	321,926		(10,576	)	(9,237	)
Cash flows from investing activities:
Decrease in investments in unconsolidated partnerships, net		—		41,238		—		—		41,238
Acquisitions, net of cash acquired		—		(95,860	)	(10,165	)	—		(106,025	)
Other		(11,496	)	(1,237	)	(13,274	)	—		(26,007	)
Net cash used in investing activities		(11,496	)	(55,859	)	(23,439	)	—		(90,794	)
Cash flows from financing activities:
Net borrowings (repayments) under other borrowings		(94,237	)	(79,934	)	146		10,576		(163,449	)
Net repayments under financial services short-term debt		—		—		(205,756	)	—		(205,756	)
Net proceeds from issuance of 5.95% senior notes		341,730		—		—		—		341,730
Common stock:
Issuance, net		14,312		—		—		—		14,312
Dividends and other		(2,978	)	—		—		—		(2,978	)
Intercompany		(274,506	)	351,626		(77,120	)	—		—
Net cash provided by (used in) financing activities		(15,679	)	271,692		(282,730	)	10,576		(16,141	)
Net increase (decrease) in cash		(123,987	)	(7,942	)	15,757		—		(116,172	)
Cash at beginning of period		621,163		109,995		46,001		—		777,159
Cash at end of period	$	497,176		102,053		61,758		—		660,987

20

(14) Supplemental Financial Information, Continued

Consolidating Condensed Statement of Cash Flows

Nine Months Ended August 31, 2002

(Unaudited)

(In thousands)	Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Cash flows from operating activities:
Net earnings (loss)	$	320,117		355,084		47,418		(402,502	)	320,117
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities		(312,434	)	(642,277	)	89,354		372,939		(492,418	)
Net cash provided by (used in) operating activities		7,683		(287,193	)	136,772		(29,563	)	(172,301	)
Cash flows from investing activities:
Increase in investments in unconsolidated partnerships, net		—		(47,283	)	—		—		(47,283	)
Acquisitions, net of cash acquired		—		(387,406	)	(2,987	)	—		(390,393	)
Other		(624	)	(2,345	)	(831	)	—		(3,800	)
Net cash used in investing activities		(624	)	(437,034	)	(3,818	)	—		(441,476	)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings		39,300		(98,163	)	102		29,563		(29,198	)
Net repayments under financial services short-term debt		—		—		(126,558	)	—		(126,558	)
Common stock:
Issuance, net		17,048		—		—		—		17,048
Dividends		(2,383	)	—		—		—		(2,383	)
Intercompany		(848,837	)	844,526		4,311		—		—
Net cash provided by (used in) financing activities		(794,872	)	746,363		(122,145	)	29,563		(141,091	)
Net increase (decrease) in cash		(787,813	)	22,136		10,809		—		(754,868	)
Cash at beginning of period		710,325		113,722		53,227		—		877,274
Cash at end of period	$	(77,488	)	135,858		64,036		—		122,406

21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Some of the statements contained in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which the statements anticipate. Factors which may affect our results include, but are not limited to, changes in general economic conditions, the market for homes and prices for homes generally and in areas where we have developments, the availability and cost of land suitable for residential development, materials prices, labor costs, interest rates, consumer confidence, competition, terrorist acts or other acts of war, environmental factors and government regulations affecting our operations. See our Annual Report on Form 10-K for the year ended November 30, 2002 for a further discussion of these and other risks and uncertainties applicable to our business.

(1) Results of Operations

Overview

Net earnings were $201.6 million, or $2.43 per share diluted ($2.69 per share basic), in the third quarter of 2003, compared to $142.2 million, or $1.83 per share diluted ($2.02 per share basic), in the third quarter of 2002. For the nine months ended August 31, 2003, net earnings were $468.2 million, or $5.87 per share diluted ($6.49 per share basic), compared to $320.1 million, or $4.14 per share diluted ($4.57 per share basic) in 2002. Basic and diluted earnings per share amounts and weighted average shares outstanding have been adjusted for 2003 and 2002 to reflect the effect of the April 2003 10% stock distribution.

22

Homebuilding

The following tables set forth selected financial and operational information related to our Homebuilding Division for the periods indicated (unaudited):

	Three Months Ended August 31,					Nine Months Ended August 31,
(Dollars in thousands, except average sales price)	2003			2002		2003		2002
Revenues:
Sales of homes	$	2,041,378		1,691,282		5,376,528		4,198,652
Sales of land		67,056		41,214		171,254		104,791
Total revenues		2,108,434		1,732,496		5,547,782		4,303,443
Costs and expenses:
Cost of homes sold		1,557,481		1,313,446		4,148,151		3,281,943
Cost of land sold		59,263		33,025		146,122		102,699
Selling, general and administrative		219,645		179,337		607,913		471,329
Total costs and expenses		1,836,389		1,525,808		4,902,186		3,855,971
Equity in earnings from unconsolidated partnerships		25,060		4,175		44,978		17,083
Management fees and other income, net		4,864		7,102		15,589		25,459
Operating earnings	$	301,969		217,965		706,163		490,014
Gross margin on home sales		23.7	%	22.3	%	22.8	%	21.8	%
S,G&A expenses as a % of revenues from home sales		10.8	%	10.6	%	11.3	%	11.2	%
Operating margin as a % of revenues from home sales		12.9	%	11.7	%	11.5	%	10.6	%
Average sales price	$	257,000		242,000		257,000		237,000

In the three and nine months ended August 31, 2003, homebuilding results reflect reclassifications within the consolidated condensed statements of earnings that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net. Prior year amounts have been reclassified to conform to the 2003 presentation. These reclassifications have no impact on reported net earnings.

23

Summary of Home and Backlog Data By Region

(Dollars in thousands)

	Three Months Ended August 31,		At or for the Nine Months Ended August 31,
Deliveries	2003	2002	2003		2002
East	2,590	2,408		6,596	6,129
Central	2,727	1,993		7,040	5,272
West	2,800	2,726		7,882	6,652
Total	8,117	7,127		21,518	18,053
Of the deliveries listed above, 188 and 562 deliveries relate to unconsolidated partnerships for the three and nine months ended August 31, 2003, respectively, compared to 134 and 370 deliveries in the same periods last year.
New Orders
East	3,057	2,698		9,053	8,010
Central	2,503	1,854		7,412	5,526
West	3,668	3,025		9,272	8,306
Total	9,228	7,577		25,737	21,842
Of the new orders listed above, 253 and 1,168 new orders relate to unconsolidated partnerships for the three and nine months ended August 31, 2003, respectively, compared to 201 and 554 new orders in the same periods last year.
Backlog – Homes
East				7,286	5,765
Central				3,085	3,053
West				6,345	6,010
Total				16,716	14,828
Of the homes in backlog listed above, 1,051 homes in backlog relate to unconsolidated partnerships at August 31, 2003, compared to 460 homes at August 31, 2002.
Backlog Dollar Value
(including unconsolidated partnerships)			$	4,559,385	3,910,682

At August 31, 2003, our market regions consisted primarily of the following states:East: Florida, Maryland, Virginia, New Jersey, North Carolina and South Carolina.Central: Texas, Illinois and Minnesota.West: California, Colorado, Arizona and Nevada.

Revenues from sales of homes increased 21% and 28% in the three and nine months ended August 31, 2003, respectively, compared to the same periods in 2002. Revenues were higher due primarily to a 13% and 19% increase in the number of home deliveries and a 6% and 8% increase in the average sales price for the three and nine months ended August 31, 2003, respectively, compared to the same periods in 2002. New home deliveries were higher in most of our markets, primarily in California and Illinois, compared to 2002. The average sales price of homes delivered increased primarily due to an increase in the average sales price in some of our markets, combined with changes in product and geographic mix.

24

Gross margins on home sales were $483.9 million, or 23.7%, and $1.2 billion, or 22.8%, in the three and nine months ended August 31, 2003, respectively, compared to $377.8 million, or 22.3%, and $0.9 billion, or 21.8%, in the same periods last year. Margins were positively impacted by a greater contribution from a strong California market, combined with lower interest costs due to a lower debt leverage ratio while we continue to grow.

Selling, general and administrative expenses as a percentage of revenues from home sales were 10.8% and 11.3% in the three and nine months ended August 31, 2003, respectively, compared to 10.6% and 11.2% in the same periods last year.

Gross profits on land sales totaled $7.8 million and $25.1 million in the three and nine months ended August 31, 2003, respectively, compared to $8.2 million and $2.1 million in the same periods last year. Equity in earnings from unconsolidated partnerships was $25.1 million and $45.0 million in the three and nine months ended August 31, 2003, respectively, compared to $4.2 million and $17.1 million in the same periods last year. Management fees and other income, net totaled $4.9 million and $15.6 million in the three and nine months ended August 31, 2003, respectively, compared to $7.1 million and $25.5 million in the same periods last year. Land sales, equity in earnings from unconsolidated partnerships and management fees and other income, net may vary significantly from period to period depending on the timing of land sales and other transactions by us and our unconsolidated partnerships.

At August 31, 2003, we had approximately 77,000 homesites owned and 119,000 homesites controlled through either option contracts or unconsolidated partnerships. At August 31, 2003, approximately 20% of our homesites owned were subject to home purchase contracts. Our backlog of sales contracts was 16,716 homes ($4.6 billion) at August 31, 2003, compared to 14,828 homes ($3.9 billion) at August 31, 2002. The higher backlog was primarily attributable to our homebuilding acquisitions and growth in the number of active communities, which resulted in higher new orders in 2003, compared to 2002. As a result of these acquisitions combined with our organic growth, inventories increased 19% from November 30, 2002 to August 31, 2003, while revenues from sales of homes increased 28% for the nine months ended August 31, 2003, compared to the same period last year.

Financial Services

The following table presents selected financial data related to our Financial Services Division for the periods indicated (unaudited):

	Three Months Ended August 31,					Nine Months Ended August 31,
(Dollars in thousands)	2003			2002		2003		2002
Revenues	$	159,408		115,456		423,638		330,894
Costs and expenses		110,070		85,382		302,777		250,685
Operating earnings	$	49,338		30,074		120,861		80,209
Dollar value of mortgages originated	$	2,177,000		1,536,000		5,606,000		3,956,000
Number of mortgages originated		11,700		8,400		30,400		22,600
Mortgage capture rate of Lennar homebuyers		71	%	80	%	71	%	80	%
Number of title transactions		121,000		75,000		313,000		234,000

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Operating earnings from our Financial Services Division increased to $49.3 million and $120.9 million in the three and nine months ended August 31, 2003, respectively, compared to $30.1 million and $80.2 million in the same periods last year. The increase in both periods was primarily due to a strong refinance and housing environment. The Division’s mortgage capture rate decreased in the three and nine months ended August 31, 2003 primarily due to the transitioning of the mortgage business related to the homebuilders we have acquired since the beginning of fiscal 2002.

Corporate General and Administrative

Corporate general and administrative expenses as a percentage of total revenues were 1.2% and 1.3% in the three and nine months ended August 31, 2003, respectively, compared to 1.1% and 1.2% in the same periods last year.

(2) Liquidity and Financial Resources

In the nine months ended August 31, 2003, cash flows used in operating activities amounted to $9.2 million, consisting primarily of net earnings offset by increases in operating assets to support a significantly higher backlog and a higher number of active communities as we continued to grow. In particular, inventories at August 31, 2003 had increased by $588.3 million since November 30, 2002, due to an increase in backlog and the expansion of operations in our market areas. We finance our inventory acquisitions, development and construction activities from operations, public debt issuances and existing credit agreements. Additionally, operating cash was used to reduce accounts payable and other liabilities. In the nine months ended August 31, 2003, accounts payable and other liabilities decreased $71.6 million, compared to an increase of $0.8 million in the same period last year.

Cash used in investing activities totaled $90.8 million in the nine months ended August 31, 2003, compared to $441.5 million in the corresponding period in 2002. In the nine months ended August 31, 2003, net cash paid for acquisitions was $106.0 million, compared to $390.4 million in the same period last year. During the nine months ended August 31, 2003, this use of cash was primarily offset by $41.2 million in net distributions from unconsolidated partnerships in which we invest. During the same period last year, we contributed $47.3 million to our unconsolidated partnerships.

We finance our land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from operations and public debt issuances, as well as cash borrowed under our revolving credit facilities. We also buy land under option agreements, which enables us to acquire homesites when we are ready to build homes on them. The financial risks of adverse market conditions associated with land holdings is managed by prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process and limitation of risk by using partners to share the costs of purchasing and developing land, as well as obtaining access to land through option arrangements.

The majority of our short-term financing needs are met with cash generated from operations and funds available under our senior secured credit facilities. In May 2003, we amended and restated our senior secured credit facilities (the “Credit Facilities”) to provide us with up to $1.3 billion of financing. The Credit Facilities consist of a $712 million revolving credit facility maturing in May 2008, a $315 million 364-day revolving credit facility maturing in May 2004 and a $300 million term loan B maturing in December 2008. We may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in May 2008. The Credit Facilities are collateralized by the stock of certain of our subsidiaries and are also guaranteed on a joint and several basis by substantially all of our subsidiaries, other than our subsidiaries

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primarily engaged in mortgage and title reinsurance activities. At August 31, 2003, $297.0 million was outstanding under the term loan B and zero was outstanding under the revolving credit facilities. Interest rates are LIBOR-based and the margins are set by a pricing grid with thresholds that adjust based on changes in our leverage ratio and the Credit Facilities’ credit rating. At August 31, 2003, we had letters of credit outstanding in the amount of $596.8 million. The majority of these letters of credit are posted with regulatory bodies to guarantee our performance of certain development and construction activities or are posted in lieu of cash deposits on option contracts. Of our total letters of credit, $334.8 million were collateralized against certain borrowings available under the Credit Facilities.

In February 2003, we issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%. The senior notes are guaranteed on a joint and several basis by substantially all of our subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. Proceeds from the offering, after underwriting discount and expenses, were approximately $342 million. We used $116 million of the proceeds to repay outstanding indebtedness and added the remainder to our general working capital. The senior notes were issued under our shelf registration statement.

In June 2003, we called our 3 ⁷/8% zero-coupon senior convertible debentures due 2018 (the “Debentures”) for redemption. The redemption date for the Debentures was July 29, 2003, which was the earliest date on which we had the right to redeem the Debentures. At the option of the holders, the Debentures could have been converted into Class A common stock at any time prior to the redemption date. Each $1,000 principal amount at maturity of Debentures was convertible into 13.7407 shares of Class A common stock (inclusive of the adjustment for the April 2003 stock distribution), which equated to a redemption price of approximately $40.92 per share of Class A common stock. In the third quarter of 2003, substantially all of the Debentures were converted into approximately 6.8 million shares of Class A common stock.

At August 31, 2003, our Financial Services Division had warehouse lines of credit totaling $655 million, which included a $50.0 million 15-day increase which expired in September 2003, to fund our mortgage loan activities. Borrowings under the facilities were $597.9 million at August 31, 2003. Our warehouse lines of credit mature in May 2004 ($250 million) and in October 2004 ($355 million), at which time we expect both facilities to be renewed. Additionally, our line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At August 31, 2003, we had advances under a conduit funding agreement with a major financial institution amounting to $30.3 million. We also had a $20 million revolving line of credit with a bank. Borrowings under the revolving line of credit were $19.4 million at August 31, 2003.

We frequently enter into partnerships that acquire and develop land for our homebuilding operations or for sale to third parties. While we view the use of unconsolidated partnerships as beneficial to our homebuilding activities, we do not view them as essential to those activities. Most of the partnerships in which we invest are accounted for by the equity method of accounting.At August 31, 2003, the unconsolidated partnerships in which we had interests had total assets of $2.0 billion and total liabilities of $1.2 billion, which included $864.1 million of notes and mortgages payable. In some instances, we and/or our partners have provided varying levels of guarantees of debt of unconsolidated partnerships. At August 31, 2003, we had recourse guarantees of $85.1 million and limited maintenance guarantees of $117.5 million of debt of unconsolidated partnerships. When we provide a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If we are required to make a payment under a limited

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maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase our share of any funds the unconsolidated partnership distributes.

During 2003, we acquired two homebuilders, which expanded our presence in California and South Carolina, and a title company, which expanded our title and closing business into the Chicago market. In connection with these acquisitions and contingent consideration related to prior period acquisitions, we paid $106.0 million, net of cash acquired. The results of operations of the acquired companies are included in our results of operations since their respective acquisition dates.

In July 2003, we formed a joint venture with LNR Property Corporation (“LNR”), and the venture entered into an agreement to acquire The Newhall Land and Farming Company (“Newhall”). Newhall’s primary business is developing two master-planned communities in Los Angeles County, California. Under the terms of the agreement, Newhall’s unitholders will receive $40.50 per partnership unit in cash, which will increase at the rate of 5% per annum commencing 270 days from July 21, 2003. The total purchase consideration, after payments with regard to employee options, will be approximately $990 million plus Newhall’s liabilities. The transaction is subject to approval of Newhall’s unitholders. It is also subject to approval of the California Public Utilities Commission, due to the change of control of Valencia Water Company, a wholly-owned subsidiary of Newhall, that will result from the purchase, and customary closing conditions. The parties expect the transaction to close by the middle of 2004. Simultaneous with the closing of the transaction, LNR will purchase existing income-producing commercial assets and we will option certain current homesites from the venture.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN 46”),Consolidation of Variable Interest Entities. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interest entities created after January 31, 2003, and with respect to variable interests held before February 1, 2003, FIN 46 will apply in our first quarter ending February 29, 2004.

We evaluated partnership agreements and option contracts entered into subsequent to January 31, 2003 under FIN 46. We did not consolidate any of our partnerships created after January 31, 2003 as we determined that we were not the primary beneficiary, as defined in FIN 46. Additionally, we evaluated our option contracts for land entered into subsequent to January 31, 2003 and determined we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, under FIN 46, we, as the primary beneficiary, are required to consolidate the land under option at fair value (the exercise price). The effect of the consolidation was an increase of $32.7 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated condensed balance sheet as of August 31, 2003. The liabilities represent the difference between the exercise price of the optioned land and our deposits. Additionally, to reflect the fair value of the inventory consolidated under FIN 46, we reclassified $2.4 million of related option deposits from land under development to consolidated inventory not owned.

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We are in the process of evaluating the remainder of our investments in unconsolidated partnerships and option contracts that may be deemed variable interest entities under the provisions of FIN 46. At August 31, 2003, our estimated maximum exposure to loss with regard to unconsolidated partnerships was our recorded investment in these partnerships totaling $362.8 million plus the guarantees discussed in Note 8 of Notes to Consolidated Condensed Financial Statements. Additionally, at August 31, 2003, we had non-refundable option deposits and/or letters of credit related to inventory with estimated aggregate exercise prices totaling approximately $2 billion. We have not yet determined the impact of adopting FIN 46 for our partnership agreements and option contracts that existed as of January 31, 2003. However, it may require the consolidation of the assets, liabilities and operations of certain of our unconsolidated partnerships and consolidation of land held under certain of our option contracts. Although we do not believe the full adoption of FIN 46 will have an impact on net earnings, we cannot make any definitive determination until we complete our evaluation.

In June 2001, our Board of Directors increased our previously authorized stock repurchase program to permit future purchases of up to 10 million shares of our outstanding Class A common stock. We may repurchase these shares in the open market from time-to-time. During the nine months ended August 31, 2003, we did not repurchase any of our outstanding Class A common stock in the open market under these authorizations. During the nine months ended August 31, 2003, our treasury stock increased by approximately 9,000 Class A common shares related to share reacquisitions at the time of vesting of restricted stock.

In September 2003, our Board of Directors voted to increase the rate at which dividends are paid with regard to our Class A and Class B common stock to $1.00 per share per year (payable quarterly) from $0.05 per share per year. Additionally, our Board of Directors voted to retire our Class A common stock held in treasury.

In recent years, we have sold convertible and non-convertible debt into public markets, and at August 31, 2003, we had effective Securities Act registration statements under which we could sell to the public up to $620 million of debt securities, common stock, preferred stock or other securities and could issue up to $400 million of equity or debt securities in connection with acquisitions of companies or interests in them, businesses, or assets.

On April 8, 2003, at our Annual Meeting of Stockholders, our stockholders approved an amendment to our certificate of incorporation that eliminated the restrictions on transfer of our Class B common stock and eliminated a difference between the dividends on the common stock (renamed Class A common stock) and the Class B common stock. The only significant remaining difference between the Class A common stock and the Class B common stock is that the Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

Because stockholders approved the change to the terms of the Class B common stock, we distributed to the holders of record of our stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. The distribution occurred on April 21, 2003 and our Class B common stock became listed on the New York Stock Exchange (“NYSE”). Our Class A common stock was already listed on the NYSE.

Additionally, our stockholders approved an amendment to our certificate of incorporation increasing the number of shares of common stock we are authorized to issue to 300 million shares of Class A common stock and 90 million shares of Class B common stock. However, we

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have committed to Institutional Shareholder Services that we will not issue, without a subsequent stockholder vote, shares that would increase the outstanding Class A common stock to more than 170 million shares or increase the outstanding Class B common stock to more than 45 million shares.

The principal purpose of the distribution and the amendments to our certificate of incorporation was to make a greater number of authorized shares available for us to use in acquisitions, to sell in order to raise capital, to issue under stock option or other incentive programs or otherwise to issue.

Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of growth.

(3) Critical Accounting Policies

Listed below are significant changes to our critical accounting policies during the nine months ended August 31, 2003, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 30, 2002.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”),Consolidation of Variable Interest Entities. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interest entities created after January 31, 2003, and with respect to variable interests held before February 1, 2003, FIN 46 will apply in our first quarter ending February 29, 2004. We believe the accounting for partnerships and option contracts for land is a “critical accounting policy” because the application of FIN 46 requires significant judgment and estimates (see our discussion in Liquidity and Financial Resources).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our debt obligations, mortgage loans and mortgage loans held for sale. We utilize derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage our exposure to changes in interest rates. We also utilize forward commitments and option contracts to mitigate the risk associated with our mortgage loan portfolio.

Our Annual Report on Form 10-K for the year ended November 30, 2002 contains information about market risks under “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.” There have been no material changes in our market risks during the three and nine months ended August 31, 2003.

Item 4. Controls and Procedures

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter that ended on August 31, 2003. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of August 31, 2003 to ensure that required information is disclosed on a timely basis in our reports filed under the Securities Exchange Act.

Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2003. That evaluation did not identify any changes that have materially affected, or are likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Items 1-5. Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:

31.1.	Rule 13a-14(a) certification by Stuart A. Miller, President and Chief Executive Officer.
31.2.	Rule 13a-14(a) certification by Bruce E. Gross, Vice President and Chief Financial Officer.
32.	Section 1350 certifications by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer.

(b) Reports on Form 8-K:

Report dated June 10, 2003, furnishing information under Items 7 and 9.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

	Lennar Corporation
	(Registrant)
Date: October 15, 2003	/s/    Bruce E. Gross
	Bruce E. Gross
	Vice President and Chief Financial Officer
Date: October 15, 2003	/s/    Diane J. Bessette
	Diane J. Bessette
	Vice President and Controller

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Exhibit Index

Exhibit Number	Description
31.1.	Rule 13a-14(a) certification by Stuart A. Miller, President and Chief Executive Officer.
31.2.	Rule 13a-14(a) certification by Bruce E. Gross, Vice President and Chief Financial Officer.
32.	Section 1350 certifications by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer.