Lennar Reports Third Quarter Results

MIAMI, Sept. 25 /PRNewswire-FirstCall/ -- Lennar Corporation , one of the nation's largest homebuilders, today reported results for its third quarter ended August 31, 2007. Third quarter net loss in 2007 was $513.9 million, or $3.25 per diluted share, compared to third quarter net earnings of $206.7 million, or $1.30 per diluted share, in 2006.

Stuart Miller, President and Chief Executive Officer of Lennar Corporation, said, "It is already well documented that the housing market has continued to deteriorate throughout our third quarter. Heavy discounting by builders, and now the existing home market as well, has continued to drive pricing downward. Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates."

Mr. Miller continued, "Our response to, and primary focus in, this environment continues to be to adjust pricing to meet current market conditions in order to keep inventories low and to keep our balance sheet positioned for the future. The net effect has been a continued deterioration of our net margin and accordingly, higher impairments to our inventory."

"We also have, and continue to, reduce overhead to be 'right-sized' for new and anticipated lower volume levels. While it has been challenging to stay ahead of rapidly adjusting market conditions and resulting revenue reductions, we have reduced our workforce to date by approximately 35% and expect continued reductions in the fourth quarter."

Mr. Miller concluded, "The combination of moving our stated inventory to current market valuations, 'right-sizing' our overhead to reduced volume levels and a stabilization of market conditions should ultimately bring us back to profitability."

RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 2007 COMPARED TO THREE MONTHS ENDED AUGUST 31, 2006 Homebuilding

Revenues from home sales decreased 44% in the third quarter of 2007 to $2.2 billion from $3.9 billion in 2006. Revenues were lower primarily due to a 41% decrease in the number of home deliveries and a 6% decrease in the average sales price of homes delivered in 2007. New home deliveries, excluding unconsolidated entities, decreased to 7,266 homes in the third quarter of 2007 from 12,337 homes last year. In the third quarter of 2007, new home deliveries were lower in each of the Company's homebuilding segments and Homebuilding Other, compared to 2006. The average sales price of homes delivered decreased to $296,000 in the third quarter of 2007 from $316,000 in the same period last year, primarily due to higher sales incentives offered to homebuyers ($46,000 per home delivered in the third quarter of 2007, compared to $35,900 per home delivered in the same period last year).

Gross margins on home sales excluding FAS 144 valuation adjustments were $304.1 million, or 14.0%, in the third quarter of 2007, compared to $761.2 million, or 19.5%, in 2006. Gross margin percentage on home sales decreased compared to last year in all of the Company's homebuilding segments primarily due to higher sales incentives offered to homebuyers. Gross margins on home sales were $1.0 million in the third quarter of 2007, which included $303.1 million of FAS 144 valuation adjustments, compared to gross margins on home sales of $729.2 million, or 18.7%, in the third quarter of 2006, which included $32.0 million of FAS 144 valuation adjustments. Gross margins on home sales excluding FAS 144 valuation adjustments is a non-GAAP financial measure disclosed by certain of the Company's competitors and has been presented because the Company finds it useful in evaluating its performance and believes that it helps readers of the Company's financial statements compare its operations with those of its competitors.

Selling, general and administrative expenses were reduced by $122.3 million, or 29%, in the third quarter of 2007, compared to the same period last year, primarily due to reductions in associate headcount and variable compensation expense. As a percentage of revenues from home sales, selling, general and administrative expenses increased to 14.0% in the third quarter of 2007, from 10.9% in 2006. The 310 basis point increase was primarily due to lower revenues.

Loss on land sales totaled $344.7 million in the third quarter of 2007, which included $114.6 million of FAS 144 valuation adjustments and $242.5 million of write-offs of deposits and pre-acquisition costs related to 15,000 homesites under option that the Company does not intend to purchase. In the third quarter of last year, loss on land sales totaled $0.3 million, which included $11.8 million of FAS 144 valuation adjustments and $15.8 million of write-offs of deposits and pre-acquisition costs related to 8,400 homesites that were under option.

Equity in loss from unconsolidated entities was $127.4 million in the third quarter of 2007, which included $138.7 million of FAS 144 valuation adjustments to the Company's investments in unconsolidated entities, compared to equity in loss from unconsolidated entities of $5.9 million, which included $16.5 million of FAS 144 valuation adjustments to the Company's investments in unconsolidated entities last year. Management fees and other expense, net, totaled $10.5 million in the third quarter of 2007 (including $32.1 million of valuation adjustments and $16.5 million of goodwill write-offs, partially offset by the recognition of $24.7 million of profit deferred at the time of the recapitalization of the LandSource joint venture), compared to management fees and other income, net of $21.8 million in the third quarter of 2006. Minority interest expense, net was $1.8 million and $1.1 million, respectively, in the third quarter of 2007 and 2006. Sales of land, equity in loss from unconsolidated entities, management fees and other income (expense), net and minority interest expense, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by the Company and unconsolidated entities in which it has investments.

Financial Services

Operating loss for the Financial Services segment was $5.2 million in the third quarter of 2007, compared to operating earnings of $61.7 million last year, which included a $17.7 million pretax gain generated from monetizing the segment's personal lines insurance policies. The decrease was primarily due to a decline in profitability from both the segment's mortgage and title operations and $9.3 million of partial write-offs of land seller notes receivable. The decline in profitability was due to the overall weakness in the homebuilding market, which led to a decrease in volume and transactions for the mortgage and title operations compared to last year.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were reduced by $6.2 million, or 12%, in the third quarter of 2007, compared to the same period last year. As a percentage of total revenues, corporate general and administrative expenses increased to 1.9% in the third quarter of 2007, from 1.2% in 2006, primarily due to lower revenues.

NINE MONTHS ENDED AUGUST 31, 2007 COMPARED TO NINE MONTHS ENDED AUGUST 31, 2006 Homebuilding

Revenues from home sales decreased 31% in the nine months ended August 31, 2007 to $7.5 billion from $10.8 billion in 2006. Revenues were lower primarily due to a 27% decrease in the number of home deliveries and a 7% decrease in the average sales price of homes delivered in 2007. New home deliveries, excluding unconsolidated entities, decreased to 24,772 homes in the nine months ended August 31, 2007 from 33,747 homes last year. In the nine months ended August 31, 2007, new home deliveries were lower in each of the Company's homebuilding segments and Homebuilding Other, compared to 2006. The average sales price of homes delivered decreased to $299,000 in the nine months ended August 31, 2007 from $321,000 in 2006 primarily due to higher sales incentives offered to homebuyers ($45,000 per home delivered in 2007, compared to $25,900 per home delivered in 2006).

Gross margins on home sales excluding inventory valuation adjustments were $1.1 billion, or 14.4%, in the nine months ended August 31, 2007, compared to $2.4 billion, or 22.5%, in 2006. Gross margin percentage on home sales decreased compared to last year in all of the Company's homebuilding segments and Homebuilding Other primarily due to higher sales incentives offered to homebuyers. Gross margins on home sales were $555.1 million, or 7.4%, in the nine months ended August 31, 2007, which included $523.0 million of FAS 144 valuation adjustments, compared to gross margins on home sales of $2.4 billion, or 22.2%, in the nine months ended August 31, 2006, which included $40.7 million of FAS 144 valuation adjustments.

Selling, general and administrative expenses were reduced by $211.1 million, or 16%, in the nine months ended August 31, 2007, compared to the same period last year, primarily due to reductions in associate headcount and variable compensation expense. As a percentage of revenues from home sales, selling, general and administrative expenses increased to 14.3% in the nine months ended August 31, 2007, from 11.8% in 2006. The 250 basis point increase was primarily due to lower revenues.

Loss on land sales totaled $480.0 million in the nine months ended August 31, 2007, which included $197.2 million of FAS 144 valuation adjustments and $312.4 million of write-offs of deposits and pre-acquisition costs related to 24,400 homesites under option that the Company does not intend to purchase. In the nine months ended August 31, 2006, gross profit from land sales totaled $89.9 million, net of $35.8 million of FAS 144 valuation adjustments and $41.1 million of write-offs of deposits and pre-acquisition costs related to 14,800 homesites that were under option.

Equity in loss from unconsolidated entities was $168.1 million in the nine months ended August 31, 2007, which included $172.7 million of FAS 144 valuation adjustments to the Company's investments in unconsolidated entities, compared to equity in earnings from unconsolidated entities of $47.1 million, net of $16.7 million of FAS 144 valuation adjustments to the Company's investments in unconsolidated entities last year. Management fees and other expense, net, totaled $9.5 million in the nine months ended August 31, 2007 (including $46.4 million of valuation adjustments and $16.5 million of goodwill write-offs, partially offset by the recognition of $24.7 million of profit deferred at the time of the recapitalization of the LandSource joint venture), compared to management fees and other income, net of $57.7 million in 2006. Minority interest expense, net was $3.2 million and $12.1 million, respectively, in the nine months ended August 31, 2007 and 2006. Sales of land, equity in earnings (loss) from unconsolidated entities, management fees and other income (expense), net and minority interest expense, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by the Company and unconsolidated entities in which it has investments.

In February 2007, the Company's LandSource joint venture admitted MW Housing Partners as a new strategic partner. The transaction resulted in a cash distribution to the Company of $707.6 million. The Company's resulting ownership of LandSource is 16%. If LandSource reaches certain financial targets, the Company will have a disproportionate share of the entity's future positive net cash flow. As a result of the recapitalization, the Company recognized a pretax gain of $175.9 million in 2007 and could potentially recognize additional profits in future years, in addition to profits from its continuing ownership interest.

Financial Services

Operating earnings for the Financial Services segment were $24.8 million in the nine months ended August 31, 2007, compared to $106.9 million last year, which included a $17.7 million pretax gain generated from monetizing the segment's personal lines insurance policies. The decrease was primarily due to a decline in profitability from both the segment's mortgage and title operations and $27.9 million of partial write-offs of land seller notes receivable. The decline in profitability was due to the overall weakness in the homebuilding market, which led to a decrease in volume and transactions for the mortgage and title operations compared to last year.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were reduced by $21.8 million, or 14%, for the nine months ended August 31, 2007, compared to 2006. As a percentage of total revenues, corporate general and administrative expenses increased to 1.7% in the nine months ended August 31, 2007, from 1.3% in the same period last year, primarily due to lower revenues.

Lennar Corporation, founded in 1954, is one of the nation's leading builders of quality homes for all generations. The Company builds affordable, move-up and retirement homes primarily under the Lennar brand name. Lennar's Financial Services segment provides primarily mortgage financing, title insurance and closing services for both buyers of the Company's homes and others. Previous press releases and further information about the Company may be obtained at the "Investor Relations" section of the Company's website, http://www.lennar.com/.

Some of the statements in this press release are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption "Risk Factors" in Item 1A of our Annual Report on Form 10-K for our fiscal year ended November 30, 2006. We do not undertake any obligation to update forward-looking statements.

A conference call to discuss the Company's third quarter earnings will be held at 11:00 a.m. Eastern time on Tuesday, September 25, 2007. The call will be broadcast live on the Internet and can be accessed through the Company's website at http://www.lennar.com/. If you are unable to participate in the conference call, the call will be archived at http://www.lennar.com/ for 90 days. A replay of the conference call will also be available later that day by calling 320-365- 3844 and entering 887014 as the confirmation number.

LENNAR CORPORATION AND SUBSIDIARIES Selected Revenues and Earnings Information (In thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended August 31, August 31, 2007 2006 2007 2006 Revenues: Homebuilding $2,229,188 3,996,791 7,634,168 11,520,811 Financial services 112,665 185,644 375,708 479,786 Total revenues $2,341,853 4,182,435 8,009,876 12,000,597 Homebuilding operating earnings (loss) $ (787,698) 317,222 (999,388) 1,305,507 Financial services operating earnings (loss) (5,245) 61,694 24,834 106,910 Corporate general and administrative expenses 44,700 50,861 137,436 159,284 Earnings (loss) before provision (benefit) for income taxes (837,643) 328,055 (1,111,990) 1,253,133 Provision (benefit) for income taxes (323,791) 121,380 (422,556) 463,659 Net earnings (loss) $ (513,852) 206,675 (689,434) 789,474 Average shares outstanding: Basic 157,973 157,634 157,600 158,344 Diluted 157,973 159,225 157,600 162,231 Earnings (loss) per share: Basic $ (3.25) 1.31 (4.37) 4.99 Diluted $ (3.25) 1.30 (4.37) 4.88 Supplemental information: Interest incurred (1) $ 45,191 59,453 157,460 171,940 EBIT before valuation adjustments and write-offs of option deposits and pre-acquisition costs, goodwill and financial services notes receivable (2): Earnings (loss) before provision (benefit) for income taxes $ (837,643) 328,055 (1,111,990) 1,253,133 Interest expense 40,299 60,868 155,659 177,960 Valuation adjustments and write-offs of option deposits and pre- acquisition costs, goodwill and financial services notes receivable 856,758 76,170 1,296,101 134,325 EBIT before valuation adjustments and write- offs of option deposits and pre-acquisition costs, goodwill and financial services notes receivable $ 59,414 465,093 339,770 1,565,418 (1) Amount represents interest incurred related to homebuilding debt, which is capitalized to inventories and relieved as cost of sales when homes are delivered or land is sold. (2) EBIT before valuation adjustments and write-offs of option deposits and pre-acquisition costs, goodwill and financial services notes receivable is a non-GAAP financial measure derived by adding back interest expense, valuation adjustments and write-offs of option deposits and pre-acquisition costs, goodwill and financial services notes receivable reflected in earnings (loss) before provision (benefit) for income taxes. This financial measure is used in the Company's revolving credit facility's covenant calculation. LENNAR CORPORATION AND SUBSIDIARIES Homebuilding Information (In thousands) (unaudited) Three Months Ended Nine Months Ended August 31, August 31, 2007 2006 2007 2006 Revenues: Sales of homes $2,169,443 3,902,540 7,479,322 10,846,508 Sales of land 59,745 94,251 154,846 674,303 Total revenues 2,229,188 3,996,791 7,634,168 11,520,811 Costs and expenses: Cost of homes sold 2,168,446 3,173,342 6,924,224 8,442,879 Cost of land sold 404,444 94,547 634,808 584,425 Selling, general administrative 304,254 426,520 1,069,575 1,280,676 Total costs and expenses 2,877,144 3,694,409 8,628,607 10,307,980 Gain on recapitalization of unconsolidated entity - - 175,879 - Equity in earnings (loss) from unconsolidated entities(127,409) (5,903) (168,137) 47,079 Management fees and other income (expense), net (10,511) 21,844 (9,501) 57,652 Minority interest expense, net 1,822 1,101 3,190 12,055 Operating earnings (loss) $ (787,698) 317,222 (999,388) 1,305,507 LENNAR CORPORATION AND SUBSIDIARIES Valuation Adjustments and Write-offs (In thousands) (unaudited) Three Months Ended Nine Months Ended August 31, August 31, 2007 2006 2007 2006 FAS 144 valuation adjustments to finished homes, CIP and land the Company intends to build homes on: East $ 92,542 10,918 211,950 16,816 Central 35,645 - 63,112 1,578 West 149,893 19,292 216,071 20,507 Other 25,056 1,802 31,899 1,802 Total FAS 144 valuation adjustments to finished homes, CIP and land the Company intends to build homes on 303,136 32,012 523,032 40,703 FAS 144 valuation adjustments to land the Company intends to sell to third parties: East 32,228 5,116 72,306 8,137 Central 16,334 614 19,044 13,319 West 41,242 - 64,041 - Other 24,755 6,084 41,827 14,311 Total FAS 144 valuation adjustments to land the Company intends to sell to third parties 114,559 11,814 197,218 35,767 Write-offs of option deposits and pre-acquisition costs: East 44,553 3,955 74,331 7,122 Central 38,205 2,232 49,413 2,822 West 139,719 8,522 164,459 16,786 Other 20,037 1,109 24,182 14,411 Total write-offs of option deposits and pre-acquisition costs 242,514 15,818 312,385 41,141 FAS 144 valuation adjustments to investments in unconsolidated entities: East 3,178 926 7,011 926 Central 9,445 - 10,588 - West 126,062 14,395 155,113 14,395 Other - 1,205 - 1,393 Total FAS 144 valuation adjustments to investments in unconsolidated entities 138,685 16,526 172,712 16,714 Valuation adjustments to investments in unconsolidated entities: East 19,850 - 26,719 - Central 5,752 - 5,752 - West 2,990 - 10,396 - Other 3,505 - 3,505 - Total valuation adjustments to investments in unconsolidated entities: 32,097 - 46,372 - Goodwill write-offs: East - - - - Central 2,828 - 2,828 - West - - - - Other 13,669 - 13,669 - Total goodwill write-offs 16,497 - 16,497 - Financial services write-offs of notes receivable 9,270 - 27,885 - Total valuation adjustments and write-offs of option deposits and pre-acquisition costs, goodwill and financial services notes receivable $856,758 76,170 1,296,101 134,325 LENNAR CORPORATION AND SUBSIDIARIES Summary of Deliveries, New Orders and Backlog (Dollars in thousands) (unaudited) At or for the Three Months Ended Nine Months Ended August 31, August 31, 2007 2006 2007 2006 Deliveries: East 2,089 3,679 7,753 10,083 Central 2,739 4,485 9,137 12,439 West 2,043 3,565 6,884 9,923 Other 765 1,309 2,465 3,117 Total 7,636 13,038 26,239 35,562 Of the total deliveries listed above, 370 and 1,467, respectively, represent deliveries from unconsolidated entities for the three and nine months ended August 31, 2007, compared to 701 and 1,815 deliveries in the same periods last year. New Orders: East 1,552 2,747 6,295 8,615 Central 2,064 4,353 7,073 12,419 West 1,591 2,937 5,347 8,761 Other 597 1,019 2,277 2,811 Total 5,804 11,056 20,992 32,606 Of the total new orders listed above, 232 and 968, respectively, represent new orders from unconsolidated entities for the three and nine months ended August 31, 2007, compared to 532 and 1,433 new orders in the same periods last year. Backlog - Homes: East 2,687 6,240 Central 1,534 4,527 West 1,454 4,043 Other 692 1,198 Total 6,367 16,008 Of the total homes in backlog listed above, 550 represents homes in backlog from unconsolidated entities at August 31, 2007, compared to 1,335 homes in backlog at August 31, 2006. Backlog - Dollar Value: East $ 922,909 2,190,137 Central 340,236 1,089,275 West 686,393 1,866,180 Other 276,510 458,463 Total $2,226,048 5,604,055 Of the total dollar value of homes in backlog listed above, $268,698 represents the backlog dollar value from unconsolidated entities at August 31, 2007, compared to $577,630 of backlog dollar value at August 31, 2006. Lennar's reportable homebuilding segments and homebuilding other consist of homebuilding divisions located in the following states: East: Florida, Maryland, New Jersey and Virginia Central: Arizona, Colorado and Texas West: California and Nevada Other: Illinois, Minnesota, New York, North Carolina and South Carolina LENNAR CORPORATION AND SUBSIDIARIES Supplemental Data (Dollars in thousands) (unaudited) August 31, 2007 2006 Homebuilding debt $2,571,291 2,784,074 Stockholders' equity 5,097,259 5,930,798 Total capital $7,668,550 8,714,872 Homebuilding debt to total capital 33.5% 31.9% Homebuilding debt $2,571,291 2,784,074 Less: Homebuilding cash 128,049 143,677 Net homebuilding debt $2,443,242 2,640,397 Net homebuilding debt to total capital (1) 32.4% 30.8% (1) Net homebuilding debt to total capital consists of net homebuilding debt (homebuilding debt less homebuilding cash) divided by total capital (net homebuilding debt plus stockholders' equity).