Lennar Corporation (NYSE: LEN and LEN.B), one of the nation's largest homebuilders, today reported results for its third quarter ended August 31, 2012. Third quarter net earnings attributable to Lennar in 2012 were $87.1 million, or $0.40 per diluted share, compared to third quarter net earnings attributable to Lennar of $20.7 million, or $0.11 per diluted share, in 2011.

Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "The housing market has stabilized and the recovery is well underway. Low mortgage rates, affordable home prices, increased buyer confidence and an extremely favorable rent-to-own comparison are driving growth in each of our markets. Additionally, reduced foreclosures and declining distressed home inventory are further contributing to the improvement in the housing market."

"Our third quarter reflects solid profitability in all of our business segments. In homebuilding, we continue to see strong sales trends translating into increased deliveries, stronger gross margins and improved operating leverage. While materials and labor costs are moving higher, sales price increases and incentive reductions should continue to offset the impact of increasing costs. In addition, we will continue to benefit from our opportunistic land acquisitions."

Mr. Miller continued, "Our financial services group has continued to derive earnings from our expanding homebuilding platform and by participating in the robust refinancing market. We are now starting to see great operating leverage in this business as well."

"Rialto has continued to contribute directly to the profitability of the company while providing our homebuilding segment with new opportunities to acquire attractive land parcels. Additionally, Rialto has benefitted from the unwinding of our PPIP program which has driven profitability and has recycled cash back to the company."

Mr. Miller concluded, "Overall, our third quarter reflects excellent overall results and strengthens the financial position of our company, as we grow volume and drive profitability in a recovering market."

RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 2012 COMPARED TO

THREE MONTHS ENDED AUGUST 31, 2011

Lennar Homebuilding

Revenues from home sales increased 33% in the third quarter of 2012 to $932.8 million from $700.6 million in 2011. Revenues were higher primarily due to a 28% increase in the number of home deliveries, excluding unconsolidated entities, and a 4% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 3,617 homes in the third quarter of 2012 from 2,832 homes last year. There was an increase in home deliveries in all the Company's Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $258,000 in the third quarter of 2012 from $247,000 in the same period last year. Sales incentives offered to homebuyers were $26,100 per home delivered in the third quarter of 2012, or 9.2% as a percentage of home sales revenue, compared to $33,600 per home delivered in the same period last year, or 12.0% as a percentage of home sales revenue, and $29,800 per home delivered in the second quarter of 2012, or 10.7% as a percentage of home sales revenue.

Gross margins on home sales were $216.2 million, or 23.2%, in the third quarter of 2012, compared to $147.6 million, or 21.1%, in the third quarter of 2011, which included a 120 basis point benefit related to changes in the Company's cost-to-complete estimates for homebuilding communities in the close-out phase. This benefit primarily impacted the Company's Homebuilding West segment and was offset by valuation adjustments that impacted the gross margin percentage by 130 basis points in the third quarter of 2011. Gross margin percentage on home sales improved compared to last year, primarily due to a greater percentage of deliveries from the Company's new higher margin communities, a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales, an increase in the average sales price of homes delivered and lower valuation adjustments. Gross profits on land sales totaled $1.3 million in the third quarter of 2012, compared to $1.5 million in the third quarter of 2011.

Selling, general and administrative expenses were $112.2 million in the third quarter of 2012, compared to $100.3 million in the third quarter of 2011. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 12.0% in the third quarter of 2012, from 14.3% in the third quarter of 2011, due to improved operating leverage.

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($6.0) million in the third quarter of 2012, primarily related to the Company's share of operating losses of Lennar Homebuilding unconsolidated entities, compared to Lennar Homebuilding equity in earnings (loss) of ($4.6) million in the third quarter of 2011.

Lennar Homebuilding other income (expense), net, totaled ($5.4) million in the third quarter of 2012, which included a pre-tax loss of $6.5 million related to the repurchase of $204.7 million aggregate principal amount of 5.95% senior notes due 2013 through a tender offer, compared to Lennar Homebuilding other income (expense), net, of $6.9 million in the third quarter of 2011, net of $2.1 million of valuation adjustments to the Company's investments in Lennar Homebuilding unconsolidated entities.

Lennar Homebuilding interest expense was $45.0 million in the third quarter of 2012 ($21.9 million was included in cost of homes sold, $0.4 million in cost of land sold and $22.7 million in other interest expense), compared to $42.4 million in the third quarter of 2011 ($17.8 million was included in cost of homes sold, $0.5 million in cost of land sold and $24.1 million in other interest expense). Interest expense increased due to an increase in the Company's outstanding debt compared to the same period last year.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $25.3 million in the third quarter of 2012, compared to $8.0 million in the third quarter of 2011. The increase in profitability was primarily due to increased volume and margins in the segment's mortgage operations and increased volume in the segment's title operations, as a result of an increase in refinance transactions and homebuilding deliveries.

Rialto Investments

In the third quarter of 2012, operating earnings (loss) for the Rialto Investments segment were $7.7 million (which is comprised of a $5.7 million operating loss and an add back of $13.4 million of net loss attributable to noncontrolling interests), compared to operating earnings (loss) of $5.7 million (which included $11.7 million of operating earnings offset by $6.1 million of net earnings attributable to noncontrolling interests) in the same period last year. In the third quarter of 2012, revenues in this segment were $37.2 million, which consisted primarily of accretable interest income associated with the segment's portfolio of real estate loans and fees for managing and servicing assets, including $8.1 million in fees earned from Rialto's role as sub-advisor to the AllianceBernstein L.P. ("AB") fund formed under the Federal government's Public-Private Investment Program ("PPIP"), compared to revenues of $42.1 million in the same period last year. In the third quarter of 2012, Rialto Investments other income (expense), net, was ($10.1) million, which consisted primarily of expenses related to owning and maintaining real estate owned ("REO") and impairments on REO, partially offset by gains from sales of REO and rental income. In the third quarter of 2011, Rialto Investments other income (expense), net, was $9.7 million, which consisted primarily of gains from acquisition of REO through foreclosure, as well as gains from sales of REO, partially offset by expenses related to owning and maintaining REO.

The segment also had equity in earnings (loss) from unconsolidated entities of $13.6 million during the third quarter of 2012, which included $8.1 million of net gains primarily related to realized gains from the sale of investments in the portfolio underlying the AB PPIP fund, $1.2 million of interest income earned by the AB PPIP fund and $6.2 million of equity in earnings related to the Company's share of earnings from the Rialto Real Estate Fund (the "Fund"). This compared to equity in earnings (loss) from unconsolidated entities of ($6.5) million in the third quarter of 2011, which included $10.2 million of net losses primarily related to unrealized losses for the Company's share of the mark-to-market adjustments of the investment portfolio underlying the AB PPIP fund, partially offset by $2.8 million of interest income earned by the AB PPIP fund. In the third quarter of 2012, expenses in this segment were $46.4 million, which consisted primarily of costs related to its portfolio operations, loan impairments of $20.3 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests) and other general and administrative expenses, compared to expenses of $33.6 million in the same period last year.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $32.3 million, or 2.9% as a percentage of total revenues, in the third quarter of 2012, compared to $22.8 million, or 2.8% as a percentage of total revenues, in the third quarter of 2011. The increase in corporate general and administrative expenses was primarily due to an increase in personnel related expenses as a result of an increase in share-based and variable compensation expense.

Noncontrolling Interests

Net earnings (loss) attributable to noncontrolling interests were ($15.7) million and $2.8 million, respectively, in the third quarter of 2012 and 2011. Net loss attributable to noncontrolling interests during the third quarter of 2012 was primarily related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC. Net earnings attributable to noncontrolling interests during the third quarter of 2011 were related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC, partially offset by a net loss attributable to noncontrolling interests in the Company's homebuilding operations.

Income Taxes

During the third quarter of 2012, the Company concluded that it was more likely than not that a portion of its state deferred tax assets would be utilized. This conclusion was based on additional positive evidence including actual and forecasted earnings. Accordingly, during the third quarter of 2012, the Company reversed $35.4 million of its valuation allowance against its state deferred tax assets and $8.6 million of its valuation allowance that was previously maintained to be utilized in remaining interim periods of 2012. The total reversal for the third quarter of 2012 was $44.0 million. This reversal was offset by a tax provision of $31.2 million primarily related to third quarter 2012 pre-tax earnings. Therefore, the Company had a $12.8 million net benefit for income taxes for the third quarter of 2012.

Debt Transactions

During the third quarter of 2012, the Company issued $400 million of 4.75% senior notes due 2017 in a private offering under SEC Rule 144A. The Company used a portion of the proceeds to repurchase $204.7 million aggregate principal amount of its 5.95% senior notes due 2013 through a tender offer and the remainder of the proceeds will be used for working capital and general corporate purposes.

NINE MONTHS ENDED AUGUST 31, 2012 COMPARED TO

NINE MONTHS ENDED AUGUST 31, 2011

Lennar Homebuilding

Revenues from home sales increased 29% in the nine months ended August 31, 2012 to $2.3 billion from $1.8 billion in 2011. Revenues were higher primarily due to a 26% increase in the number of home deliveries, excluding unconsolidated entities, and a 3% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 9,281 homes in the nine months ended August 31, 2012 from 7,387 homes last year. There was an increase in home deliveries in all of the Company's Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $252,000 in the nine months ended August 31, 2012 from $245,000 in the same period last year. Sales incentives offered to homebuyers were $29,500 per home delivered in the nine months ended August 31, 2012, or 10.5% as a percentage of home sales revenue, compared to $33,600 per home delivered in the same period last year, or 12.1% as a percentage of home sales revenue.

Gross margins on home sales were $523.0 million, or 22.4%, in the nine months ended August 31, 2012, compared to $365.0 million, or 20.2%, in the nine months ended August 31, 2011. Gross margin percentage on home sales improved compared to last year, primarily due to a greater percentage of deliveries from the Company's new higher margin communities, a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales, an increase in the average sales price of homes delivered and lower valuation adjustments. Gross profits on land sales totaled $6.9 million for both the nine months ended August 31, 2012 and 2011.

Selling, general and administrative expenses were $308.7 million in the nine months ended August 31, 2012, compared to $272.3 million in the same period last year. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 13.2% in the nine months ended August 31, 2012, from 15.1% in the nine months ended August 31, 2011, due to improved operating leverage.

In the nine months ended August 31, 2012, Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($14.3) million, primarily related to the Company's share of operating losses of Lennar Homebuilding unconsolidated entities, which included $5.4 million of valuation adjustments related to asset sales at Lennar Homebuilding's unconsolidated entities, compared to Lennar Homebuilding equity in earnings (loss) of $6.5 million in the nine months ended August 31, 2011, which included the Company's share of a gain on debt extinguishment at one of Lennar Homebuilding's unconsolidated entities totaling $15.4 million, partially offset by the Company's share of operating losses of Lennar Homebuilding unconsolidated entities, which included $5.2 million of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities.

Lennar Homebuilding other income (expense), net, totaled $11.4 million in the nine months ended August 31, 2012, primarily due to a $15.0 million gain on the sale of an operating property, partially offset by a pre-tax loss of $6.5 million related to the repurchase of $204.7 million aggregate principal amount of 5.95% senior notes due 2013 through a tender offer. This compared to Lennar Homebuilding other income (expense), net, of $46.4 million in the nine months ended August 31, 2011, which included $29.5 million related to the receipt of a litigation settlement, $5.1 million related to the favorable resolution of a joint venture and the recognition of $10.0 million of deferred management fees related to management services previously performed for one of Lennar Homebuilding's unconsolidated entities. These amounts were partially offset by $15.3 million of valuation adjustments to the Company's investments in Lennar Homebuilding's unconsolidated entities and write-offs of other assets in the nine months ended August 31, 2011.

Lennar Homebuilding interest expense was $131.1 million in the nine months ended August 31, 2012 ($58.4 million was included in cost of homes sold, $1.4 million in cost of land sold and $71.3 million in other interest expense), compared to $119.7 million in the nine months ended August 31, 2011 ($49.8 million was included in cost of homes sold, $1.2 million in cost of land sold and $68.7 million in other interest expense). Interest expense increased due to an increase in the Company's outstanding debt compared to the same period last year.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $51.6 million in the nine months ended August 31, 2012, compared to $11.7 million in the same period last year. The increase in profitability was primarily due to increased volume and margins in the segment's mortgage operations and increased volume in the segment's title operations, as a result of an increase in refinance transactions and homebuilding deliveries.

Rialto Investments

In the nine months ended August 31, 2012, operating earnings (loss) for the Rialto Investments segment were $21.4 million (which is comprised of $6.8 million of operating earnings and an add back of $14.6 million of net loss attributable to noncontrolling interests), compared to operating earnings (loss) of $26.5 million (which included $57.4 million of operating earnings offset by $30.9 million of net earnings attributable to noncontrolling interests) in the same period last year. In the nine months ended August 31, 2012, revenues in this segment were $102.9 million, which consisted primarily of accretable interest income associated with the segment's portfolio of real estate loans and fees for managing and servicing assets, compared to revenues of $118.3 million in the same period last year. In the nine months ended August 31, 2012, Rialto Investments other income (expense), net, was ($23.7) million, which consisted primarily of expenses related to owning and maintaining REO and impairments on REO, partially offset by gains from sales of REO and rental income. In the nine months ended August 31, 2011, Rialto Investments other income (expense), net, was $38.3 million, which consisted primarily of gains from acquisition of REO through foreclosure, as well as gains from sales of REO, partially offset by expenses related to owning and maintaining REO, and a $4.7 million gain on the sale of investment securities.

The segment also had equity in earnings (loss) from unconsolidated entities of $37.6 million during the nine months ended August 31, 2012, which included $17.0 million of net gains primarily related to realized gains from the sale of investments in the portfolio underlying the AB PPIP fund, $6.3 million of interest income earned by the AB PPIP fund and $16.8 million of equity in earnings related to the Company's share of earnings from the Fund. This compared to equity in earnings (loss) from unconsolidated entities of ($5.0) million in the nine months ended August 31, 2011, which included $13.0 million of net losses primarily related to unrealized losses for the Company's share of the mark-to-market adjustments of the investment portfolio underlying the AB PPIP fund, partially offset by $8.2 million of interest income earned by the AB PPIP fund. In the nine months ended August 31, 2012, expenses in this segment were $110.0 million, which consisted primarily of costs related to its portfolio operations, loan impairments of $22.6 million primarily associated with the segment's FDIC loan portfolio (before noncontrolling interests) and other general and administrative expenses, compared to expenses of $94.2 million in the same period last year.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $88.3 million, or 3.2% as a percentage of total revenues, in the nine months ended August 31, 2012, compared to $66.7 million, or 3.1% as a percentage of total revenues, in the nine months ended August 31, 2011. The increase in corporate general and administrative expenses was primarily due to an increase in personnel related expenses as a result of an increase in share-based and variable compensation expense.

Noncontrolling Interests

Net earnings (loss) attributable to noncontrolling interests were ($21.0) million and $25.2 million, respectively, in the nine months ended August 31, 2012 and 2011. Net loss attributable to noncontrolling interests during the nine months ended August 31, 2012 was attributable to noncontrolling interests related to the Company's homebuilding and Rialto Investments operations. Net earnings attributable to noncontrolling interests during the nine months ended August 31, 2011 were primarily related to the FDIC's interest in the portfolio of real estate loans that the Company acquired in partnership with the FDIC, partially offset by a net loss attributable to noncontrolling interests in the Company's homebuilding operations.

Deferred Tax Asset Valuation Allowance

During the nine months ended August 31, 2012, the Company concluded that it was more likely than not that the majority of its deferred tax assets would be utilized. This conclusion was based on a detailed evaluation of all relevant evidence, both positive and negative, including such factors as ten consecutive quarters of earnings, the expectation of continued earnings and signs of recovery in the housing markets the Company operates in. Accordingly, the Company reversed $447.0 million of its valuation allowance against its deferred tax assets. As of August 31, 2012, the Company's remaining valuation allowance against its deferred tax assets was $133.3 million, which in future periods could be reversed if additional sufficient positive evidence is present indicating that it is more likely than not that such assets would be realized.

Revolving Credit Facility

In May 2012, the Company entered into a 3-year unsecured revolving credit facility (the "Credit Facility") with certain financial institutions that expires in May 2015. The maximum aggregate commitment under the Credit Facility is $525 million, of which $440 million was committed and $85 million was available through an accordion feature, subject to additional commitments as of August 31, 2012. Subsequent to August 31, 2012, the committed amount under the Credit Facility was increased to $500 million.

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 mortgage financing, title insurance and closing services for both buyers of the Company's homes and others. Lennar's Rialto Investments segment is focused on distressed real estate asset investments, asset management and workout strategies. Previous press releases and further information about the Company may be obtained at the "Investor Relations" section of the Company's website, www.lennar.com.

Source: Lennar