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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2001

OR

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

For the transaction period from _______ to _______

Commission File Number 1-9186

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

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

Registrant’s telephone number, including area code: (239) 947-2600

Securities registered pursuant to Section 12 (b) of the Act:

Securities registered pursuant to Section 12 (g) of the Act:

NONE

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

As of March 20, 2002, the aggregate market value of the Common Stock held by non-affiliates (all persons other than officers and directors of Registrant) of the Registrant was approximately $335,848,418.

As of March 20, 2002, there were 44,316,715 shares of Common Stock outstanding.

Documents Incorporated by Reference

None

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WCI COMMUNITIES, INC.
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PART I

ITEM 1. BUSINESS

GENERAL

WCI Communities, Inc. (the Company or WCI), a Delaware corporation, is a fully integrated homebuilding and real estate services company with over 50 years of experience in the design, construction and operation of leisure-oriented, amenity-rich master-planned communities. Prior to August 31, 2001, the Company was a wholly owned subsidiary of Watermark Communities Inc. (Watermark). Watermark was formed in August 1998 to buy, manage, own, develop and sell real estate assets and amenity facilities. On August 31, 2001, Watermark was merged into the Company.

We offer a full complement of products and services to enhance our customers’ lifestyles and increase our recurring revenues. We design, sell and build single- and multi-family homes serving move-up, pre-retirement and retirement home buyers. We also design, sell and build luxury residential towers targeting affluent, leisure-oriented home purchasers. We have developed master-planned communities where today there are over 150,000 residents who enjoy lifestyle amenities like award-winning golf courses, country clubs, deep-water marinas, tennis and recreational facilities, luxury hotels, upscale shopping and a variety of restaurants. Our master-planned communities offer a wide range of residential products from moderately priced homes to higher priced semi-custom, single- and multi-family homes and luxury residential towers.

Our master-planned communities are in Florida, a highly sought-after retirement and leisure-oriented home destination, and one of the nation’s fastest growing economies. Our communities are located in prime locations on Florida’s gulf coast near Naples, Ft. Myers, Sarasota and Tampa, and on the East Coast near Ft. Lauderdale, Miami and Palm Beach.

As of December 31, 2001, we had 34 master-planned communities under development. We expect these master-planned communities to contain 612 holes of golf, over 1,000 marina slips and various country clubs, tennis and recreational facilities and other amenities. In total, we control over 15,500 acres of land, where we plan to develop up to 28,200 future residences.

Our business lines include homebuilding, amenities operations, real estate services and parcel and lot sales, each of which contributes to our profitability. See Note 3 to the consolidated financial statements for further information regarding our business segments for each of the three years ended December 31, 2001, 2000 and 1999.

OUR OPERATIONS

We typically begin a master-planned community by purchasing undeveloped or partially developed real estate. We then construct infrastructure improvements and build amenities in accordance with our development permits. Following completion of these improvements and the building of the amenities, we build a full range of homes for sale to primary, second and retirement home buyers. In certain situations, we elect to sell parcels and lots to third party builders or end users.

As part of our marketing strategy, we target primary, second and retirement home buyers for most of our communities. To reach these customers we use national marketing campaigns and local, point of purchase advertising and sales programs. Our national marketing efforts employ a proprietary database marketing system that maintains contact with the thousands of new prospects generated annually by our focused national advertising. We manage our marketing efforts through our in-house creative and production teams.

We profit from the efficiencies created by our integrated delivery of all aspects of community development, including community design, land development, homebuilding, parcel and lot sales, amenities operations and real estate services businesses. We believe that this integrated approach reduces risk and increases our profitability as it provides us with greater control over our costs and provides us with recurring amenities and services revenues.

OUR HOMEBUILDING ACTIVITIES

We design, sell and build single- and multi-family homes serving primary, second and retirement home buyers. Our homes range from approximately 1,100 square feet to 8,000 square feet and are priced from $100,000 to $3.9 million, with an average sales price for the year ended December 31, 2001 of $328,000. We build most of these homes within our master-planned communities, where we create attractive amenities through affiliations with hotel operators and golf course designers

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like The Ritz-Carlton, Raymond Floyd and Greg Norman. We believe that this approach increases the value of our homes and communities and helps us attract affluent purchasers.

We also design, sell and build luxury residential towers targeted to affluent, leisure-oriented home purchasers. Residences in our towers range from approximately 900 square feet to 11,700 square feet and are priced from $100,000 to over $10.0 million, with an average sales price for the year ended December 31, 2001 of approximately $1.1 million. Our towers have ranged in size from six to twenty-two stories and have included 26 to 148 residences. Our sales contracts for these towers require substantial non-refundable cash deposits, generally ranging from 20% to 30% of the purchase price, and we typically do not start construction of towers until there are sufficient pre-sales to cover the majority of the costs to construct the towers.

Single- and multi-family homes

Design. We employ an award-winning in-house design group comprised of experienced architects and computer-assisted design technicians. Our product design experience along with our land planning expertise has enhanced our ability to charge view premiums for homes located on waterfront, conservation and golf course sites within our communities.

Sales. We maintain large sales centers with community scale models and lifestyle and home demonstration displays. The sales centers are staffed with licensed professionals who are employees of WCI. We also maintain professionally decorated model homes, which demonstrate the benefits and features of our products and the community lifestyles. We maintain and carefully manage an inventory both of homes that are available immediately or within a few months and semi-custom and custom-built homes. For semi-custom and custom-built homes or homes selected from inventory at an early stage of construction, we offer customers a wide selection of standard options and upgrades to finish their homes. We also allow customization of the structural design in many of our product lines through our in-house design group. In addition, some of our larger communities offer design studios staffed with professional designers where the many options and upgrades available to purchasers of our products are displayed and demonstrated prior to incorporation into a home. Finally, home closings are typically conducted through our title agency operations.

Construction. We typically act as the general contractor in the construction of single- and multi-family residences. Our employees provide purchasing and quality assurance for, and construction management of, the homes we build, while the material and labor components of our houses are provided by subcontractors. We comply in all material respects with local and state building codes, including Florida’s stringent hurricane and energy efficiency regulations. Depending upon the size and complexity of a home’s design, our construction time ranges from about 90 to 300 calendar days for our single-family homes and up to 250 calendar days for our multi-family homes.

Mid-rise and high-rise tower residences

Design. We commence the design and planning of towers by conducting extensive research relating to the market, customer base, product requirements, pricing and absorption. Our research effort is directed by dedicated project managers specializing in the development of towers. Based on the results of this research, we organize an experienced team of architects, engineers and specialty consultants under the leadership of the project manager to create the design of the mid-rise or high-rise tower. We also contract for the services of an experienced third party general contractor during the early stages of design to assist in design, engineering and the estimation of construction costs.

Sales. Once the design for a mid-rise or high-rise tower has been completed and its construction costs have been estimated, marketing of the residences commences. Brochures, scaled architectural models, walk-in kitchen and bathroom models and other marketing materials are used to assist sales associates in explaining and demonstrating the residences to be built.

Unless we elect to register a tower with the U.S. Department of Housing and Urban Development, Federal and Florida law generally require that condominiums be completed and closed to a consumer within 24 months following a consumer’s execution of a purchase contract. In these cases, because construction of towers typically takes 15 to 22 months, it is necessary to engage in extensive pre-selling activities prior to commencement of construction. Pre-selling ensures that the completion of the construction of a tower coincides with the substantial sell out of the tower and the compliance with statutory requirements relating to the timing of condominium delivery to the consumer. To facilitate our pre-sales process, we engage in a “reservation” selling process by which buyers select specific residences, sign a reservation agreement and pay a refundable deposit. Once a sufficient number of residences are “reserved” indicating substantial consumer acceptance, reservations are converted to contracts and the customer’s deposit becomes nonrefundable after a 15-day rescission period under Florida law.

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Generally, construction is not commenced until a majority of units are under firm contracts. For towers that take more than 18 months to build, we will generally collect from each purchaser a deposit equaling 20% or 30% of a residence purchase price to cover a portion of estimated construction costs. For towers that take less than 18 months to build, generally a 20% deposit is collected. Our experience has been that over 98% of the contracts for which nonrefundable contract deposits have been collected by us close upon the completion of the tower. Once construction is completed, closings of sold residences usually occur within one month, at which time we are paid the balance of the purchase price for the residences sold.

Construction. We hire experienced and bonded third party general contractors specializing in the construction of towers to construct these buildings. Typically, we negotiate a guaranteed maximum price with these contractors for the construction and delivery of completed towers. By hiring experienced general contractors to construct our towers, we mitigate many of the risks associated with the construction of these structures. As the developer of the towers that we build, we manage the entire process from planning and closing of completed residences to turnover of the condominium association to residents.

Financing. We generally obtain separate construction financing for our tower projects. A construction loan is generally available from a commercial lender when the value of sales contracts on a project is sufficient to cover a substantial portion of the cost of the project’s construction. Buyers typically provide deposits equal to 20% to 30% of the purchase price of their residence. Under Florida law, a portion of the deposit representing 10% of the purchase price must be deposited into an escrow account, unless we have provided a letter of credit or surety bond. Any amount of the down payment in excess of this 10% may be used to fund construction. We then generally seek a construction loan commitment to cover remaining construction costs, based on the number of residences sold at the time of the commitment. To the extent that we sell additional residences during the course of construction, subsequent deposits may also be utilized to fund construction, resulting in a lower amount outstanding under the construction loan than originally committed. We have developed a financing concept with banks to bundle multiple high-rise projects in a single construction loan facility.

AMENITIES DEVELOPMENT AND OPERATION

General. The provision of amenities, like championship golf courses with clubhouses, fitness, tennis and recreational facilities, guest lodging, marinas and a variety of restaurants, is central to our mission to deliver high quality residential lifestyles. To ensure that the amenities in our communities are designed, constructed and operated at a level of quality consistent with the residences that we build, we have established an amenities development and operations group.

Ownership. Amenities at our communities are owned by either community residents or non-residents in equity membership programs, or by unaffiliated third parties, or retained by us. In newly developed or acquired communities, ownership of the amenities is structured to cater to the preferences and expectations of community residents.

Due to the high costs of entry at equity clubs, we have found that in communities offering homes at lower price points, residents often prefer non-equity membership programs, which require lower initiation fees, but higher annual dues. Since residents’ preferences change over time, we may choose to sell the ownership and operation of the amenities to a resident group on an equity basis.

An alternative to non-equity programs, bundled home and amenities membership structures allow home buyers in moderately priced communities to receive club memberships bundled with their home purchase. In these cases, the amenities are owned and operated by the community homeowners association.

In communities offering higher-priced homes, all or a select group of residents own the golf and other amenities assets on an equity membership basis. The conveyance of amenities assets to residents is accomplished through an equity subscription and sales process at an established price. These equity membership offerings are usually completed in two to six years, depending upon the pace of residential build-out in the community.

Operation. In communities with bundled or equity ownerships, we typically enter into an operating agreement with the association or club entity which holds title to the facilities. The operating agreements generally provide that we will continue to control, manage and operate the amenities’ facilities until substantially all of the homes in the community, in the case of bundled ownership, or all of the resident equity ownership interests, in the case of equity ownership, have been sold. During this period, we generally receive the net profits, and incur any losses, of the amenities business.

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OTHER REAL ESTATE SERVICES BUSINESSES

Realty brokerage

Prudential Florida WCI Realty. On June 10, 1999, Watermark Realty, Inc., a wholly owned subsidiary of WCI, entered into a six-year franchise agreement with Prudential Real Estates Affiliates, Inc. This agreement, as subsequently amended, allows us to provide exclusive residential brokerage services as Prudential Florida WCI Realty in six geographic areas across eight counties in Florida. The exclusive franchise areas are in Broward, Charlotte, Hillsborough, Manatee, Lee, Collier, Dade and Palm Beach Counties. To maintain this exclusive arrangement we must substantially grow our market share in each of these exclusive areas during the six-year franchise period. As consideration under the agreement, we pay Prudential a royalty based on gross commission revenue on a monthly basis. At December 31, 2001, we had 23 offices, 105 employees and over 1,000 sales agents.

WCI Realty, Inc. WCI Realty, Inc. provides new home and certain resale brokerage services. At December 31, 2001, WCI Realty, Inc. had 24 offices and 133 employees.

Title insurance

First Fidelity Title, Inc. First Fidelity Title, Inc. provides title insurance and closing services to our customers. First Fidelity underwrites its policies on behalf of large national title insurers and derives its revenues from title insurance and closing services provided to our customers, third party residential closings and commercial closings. At December 31, 2001, First Fidelity had seven offices and 58 employees.

Mortgage banking

Financial Resources Group, Inc. Financial Resources Group, Inc. provides residential mortgage banking services to our buyers, as well as third party purchasers. Financial Resources Group originates home mortgages which are subsequently sold to mortgage investors. Generally these mortgages are sold at prices established in commitments obtained from mortgage investors prior to the time the mortgages are originated. At December 31, 2001, Financial Resources Group had 57 employees in six offices located in Naples, Coral Springs, Coral Gables, Palm Beach Gardens, Bonita Springs and Sun City Center. In October of 2001, Financial Resources Group began funding loans through an $18 million warehouse line.

Property management

WCI Communities Management, Inc. We provide management services to our master-planned community developments and oversee the business affairs of over 71 condominium and homeowners’ associations and 14 community master associations encompassing over 12,000 residences throughout Florida. The management companies derive their revenue from fees received for managing homeowner, master and condominium associations. The services provided by the management companies include accounting, security, common area maintenance and insurance policy administration. The companies operate ten regional and community offices located in Collier, Lee, Broward, Palm Beach, Dade and Hillsborough counties, with headquarters located in Bonita Springs, Florida. At December 31, 2001, our property management operations had 226 employees.

Development services

Our development services business derives fee-based income from the supervision of major commercial projects. For a nominal increase in overhead, this business allows us to apply the expertise we have gained directing large-scale real estate projects.

We provide various services for the property owner during both the design and construction phases of a project. We manage, coordinate and supervise each step in the development process. During the design phase we consult on all project aspects from obtaining zoning approvals, to selection of the design team, to managing the design process. We then develop project budgets and schedules and assist in selecting the general contractor. During construction, we act as the owner’s representative to oversee the general contractor.

To date we have provided this service for the Ritz-Carlton Hotels unit of the Host Marriott Corporation and Hyatt Hotels Corporation. It is our intent to expand this business to serve other customers that have a need for high-quality project management, but do not wish to create their own in-house support organization. As we acquire additional properties, we anticipate creating new opportunities for this division to support construction of hotels and other resort-related projects included at new locations.

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PARCEL AND LOT SALES

We leverage our expertise and experience in master-planning by strategically selling lots and parcels at premium prices within our communities for construction of products we do not wish to build. This enables us to create a more well-rounded community by selling parcels and lots to developers who will construct commercial, industrial and rental properties, which we ordinarily do not develop. We sometimes sell selected lots directly to buyers for the design and construction of large custom homes.

OTHER INVESTMENTS

Pelican Isle Yacht Club Limited Partnership. We have an investment in Pelican Isle, a community being developed in North Naples, Florida, which includes 137 residences and the Pelican Isle Yacht Club. Our investment includes a 49% interest in a partnership that owns and operates the Pelican Isle Yacht Club.

Walden Woods Business Center Ltd. We are 50% partners with TECO Properties Corporation in Walden Woods Business Center, Ltd., a limited partnership, which was formed to develop a 550-acre mixed-use industrial park in Plant City, Florida.

Tiburon Golf Ventures Limited Partnership. We own a 51% interest in Tiburon Golf Ventures Limited Partnership which was formed with an affiliate of Host Marriott Corporation in 1998 to complete construction of, and then operate a 36-hole, Greg Norman-designed golf course in its Tiburon Naples community. The first 27 holes of the course opened for play in November 1998 and the clubhouse opened in December 2000. The partnership acquired adjacent land in 2000 to construct an additional nine holes of golf expected to be completed in 2002 and for future residential property development.

Norman Estates at Tiburon Limited Partnership. Norman Estates at Tiburon Limited Partnership was formed in 1998 for the purpose of constructing and developing a Norman Estates community which consists of 27 villas. We hold a 49.5% limited partnership interest in the venture as well as have a 50% ownership in the general partner, which holds 1% of the venture.

Pelican Landing Golf Resort Ventures Limited Partnership. Pelican Landing Golf Resort Ventures Limited Partnership was formed with Hyatt Equities, LLC in 1998 to develop and operate a 27-hole golf course. The 18-hole course and clubhouse began operations in 2001 and the additional 9 holes are scheduled for construction in 2002. We retain a 51% interest in the venture.

Pelican Landing Timeshare Ventures Limited Partnership. We own a 51% limited partnership interest in Pelican Landing Timeshare Ventures Limited Partnership, which was formed with HTS-Coconut Point, Inc., an affiliate of the Hyatt Hotels Corporation during 1998 to develop up to 339 upscale timeshare residences on 32 acres within the resort golf course being constructed by Pelican Landing Golf Resort Ventures Limited Partnership. This project is currently in the planning stages.

Bighorn. We have a Class B limited partnership interest in Bighorn Development, L.P., which owns two-thirds of Bighorn Development L.L.C., the owner and developer of Bighorn, an exclusive community located in the heart of Palm Desert, California. Bighorn Development L.L.C. acquired the operating assets of Bighorn Development L.P. and developed a neighboring property with an 18-hole golf course.

MARKETING

Targeting move-up, retirement and affluent second home buyers, we develop and execute award-winning, multi-media marketing plans for our homes and communities for more than 50 years. We employ an experienced staff of copywriters, creative art directors and graphic designers who are responsible for the design and development of most of our marketing materials and advertising messages, including newspaper and magazine print, direct mail and billboards.

We believe our proprietary marketing systems and the depth of experience of our marketing group create an increased number of selling opportunities for us and has generally enhanced our marketing presence and brand recognition. Our marketing program reaches prospective purchasers, locally, nationally and internationally through advertisements placed in demographic specific periodicals and other media. Our Internet website displays a comprehensive review of each of our communities including locations, promotions, amenities, calendars of activities, lifestyle testimonials, product floorplans, elevations and views of most of the homes we build. The advertisements and website include response mechanisms, like a coupon, automatic e-mail or toll-free number, by which a prospective purchaser may request additional information about our

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housing products. When a prospective purchaser responds to one of our advertisements or our web-site, purchaser-specific information is entered into our database creating a personalized customer record, which is used to record every interaction we have with this purchaser.

As a prospective purchaser’s interest in our products and communities evolves, we individualize our marketing program by tailoring direct mail, regular e-mail and telephone follow-up that will apprise the prospective purchaser of relevant activities, developments and products being offered. Our targeted marketing allows us to develop a relationship with prospective purchasers, tending to predispose them toward visits to our communities during their home shopping or vacation trips to Florida.

We believe that our relationship and database marketing results in the efficient use of expenditures. The relative success and productivity of each of our marketing programs is measured to determine which programs yield the most qualified leads, prospects and customers per dollar spent. The results of these measurements are the primary determining factors for where future marketing expenditures will be directed. In addition, our database is a source of ongoing customer research, which influences our homebuilding design and the type and price range of the amenities to be integrated within our master-planned communities.

OUR COMMUNITIES

We have communities under development in eleven Florida counties including Collier County and Lee County on the west coast between Naples and Ft. Myers; Hillsborough County near Tampa; Sarasota County and Manatee County on the west coast near Sarasota; Dade County, Broward County, Palm Beach County, Martin County and St. Lucie County on the east coast encompassing much of Miami, Ft. Lauderdale, Boca Raton and West Palm Beach; and Flagler County on the east coast between St. Augustine and Daytona Beach. The following table sets forth summary information about our communities, including remaining acres, remaining entitled units and remaining number of tower sites.

Our communities
As of December 31, 2001

EMPLOYEES

At December 31, 2001, we had approximately 2,800 employees. We have no unionized employees and believe that our relationship with our employees is good.

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SEASONALITY

We have historically experienced, and in the future expect to continue to experience, seasonal variability in revenue, profit and cash flow. Factors expected to contribute to this variability include:

•		the timing of the introduction and start of construction of new towers;
•		the timing of tower residence sales;
•		the timing of closings of homes, lots and parcels;
•		our ability to continue to acquire land and options on land on acceptable terms;
•		the timing of receipt of regulatory approvals for development and construction;
•		the condition of the real estate market and general economic conditions in Florida;
•		the prevailing interest rates and the availability of financing, both for us and for the purchasers of our homes; and
•		the cost and availability of materials and labor.

Our historical financial performance is not necessarily a meaningful indicator of future results and, in particular, we expect financial results to vary from project to project and from quarter to quarter. Our revenue may therefore fluctuate significantly on a quarterly basis, and we believe that quarter-to-quarter comparisons of our results should not be relied upon as an indication of future performance.

COMPETITION

The homebuilding industry and real estate development is highly competitive. In each of our business components, we compete against numerous developers and others in the real estate business in and near the areas where our communities are located. We, therefore, may be competing for investment opportunities, financing, available land, raw materials and skilled labor with entities that possess greater financial, marketing and other resources. Competition generally may increase the bargaining power of property owners seeking to sell, and industry competition may be increased by future consolidation in the real estate development industry.

REGULATORY AND ENVIRONMENTAL MATTERS

We are subject to various laws and regulations relating to the operation of our properties, which are administered by numerous Federal, state and local governmental agencies. In particular, development of property in Florida is subject to comprehensive Federal and Florida environmental legislation, including wildlife, endangered species and wetlands regulation, as well as other state administrative regulations. This regulatory framework, in general, encompasses areas like water quantity and quality, air quality, traffic considerations, availability of municipal services, use of natural resources, impact of growth, energy conservation and utility services, conformity with local and regional plans, and public building approvals, together with a number of other safety and health regulations. Additionally, each municipality has its own planning and zoning requirements. Permits and approvals mandated by regulation for development of any magnitude are often numerous, significantly time-consuming and onerous to obtain, and not guaranteed. The permit processes are administered by numerous Federal, state, regional and local boards and agencies with independent jurisdictions. Permits, when received, are subject to appeal or collateral attack and are of limited duration. Such permits, once expired, may or may not be renewed and development for which the permit is required may not be completed if such renewal is not granted. These requirements have a direct bearing on our ability to further develop communities in Florida. Although we believe that our operations are in full compliance in all material respects with applicable Federal, state and local requirements, our growth and development opportunities in Florida may be limited and more costly as a result of legislative, regulatory or municipal requirements.

Our operating costs may also be affected by the cost of complying with existing environmental laws, ordinances and regulations, which require a current or previous owner or operator of real property to bear the costs of removal or remediation

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of hazardous or toxic substances on, under or in property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to remediate property properly, may adversely affect the owner’s ability to borrow by using the real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of any substance at the disposal or treatment facility, whether or not the facility is or ever was owned or operated by the person. Environmental laws and common law principles could be used to impose liability for releases of hazardous materials, including asbestos-containing materials, into the environment, and third parties may seek recovery from owners as operators of real properties for personal injury associated with exposure to released materials containing asbestos or other hazardous materials.

Environmental site assessments conducted at our properties have not revealed any environmental liability or compliance concerns that we believe would have a material adverse effect on our business, assets, results of operations or liquidity, nor are we aware of any material environmental liability or concerns. Although we conduct environmental site assessments with respect to our own properties, there can be no assurance that the environmental assessments that we have undertaken have revealed all potential environmental liabilities, or that an environmental condition does not otherwise exist as to any one or more of our properties that could have a material adverse effect on our business, results of operations and financial condition.

ITEM 2. PROPERTIES

As of December 31, 2001, we own and use a 26,670 square foot office building in Sun City Center, Florida which is subject to a lien under our senior secured credit facility. In addition, we lease 97,180 square feet of office space in Bonita Springs, which serves as our corporate headquarters, and approximately 241,000 square feet of office space in other locations throughout Florida, which serve our divisional homebuilding operations and as branch office space for our related real estate services businesses.

ITEM 3. LEGAL PROCEEDINGS

The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions arising in the normal course of business. In the opinion of management the outcome of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

In addition, in May 2000, Richard Ahlborg, Carol Ahlborg, and other individuals who purchased lots in Pelican Landing filed a lawsuit against us in the United States District Court for the Middle District of Florida, Ft. Myers Division. The lawsuit seeks class action status and was instituted against us and a subsidiary, WCI Realty, Inc. It arose out of a preferred builder program under which plaintiffs purchased vacant lots and then contracted with a builder of their choice to construct a residence on their lots. In consideration of the extensive costs incurred by us and WCI Realty associated with the marketing, sales and advertising of the community for the benefit of the builders who participated in the program, these builders were required to pay a marketing fee to WCI Realty based on a percentage of the construction cost of the home. The plaintiffs asserted that we had an obligation to disclose to them that the preferred builder would pay a marketing fee to us. The plaintiffs have demanded unspecified money damages and have alleged, among other things, violation of the federal Racketeering, Influenced and Corrupt Organizations Act and the Real Estate Settlement Procedures Act. In March 2002, the Court denied plaintiffs’ preliminary motion for class certification, however, plaintiffs have thirty days to appeal this ruling. This litigation is still in its early stages and accordingly, we are not able to estimate the range of possible loss. Therefore, we are not yet able to determine whether the resolution of this matter will have a material adverse effect on our financial condition or results of operations. We believe we have meritorious defenses and intend to vigorously defend this action.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the quarter ended December 31, 2001.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s common stock is traded on the New York Stock Exchange (Symbol:WCI).

On March 11, 2002, the Company issued 7,935,000 shares of common stock at $19.00 per share in an initial public offering realizing net proceeds of approximately $140.2 million. The net proceeds were used to repay approximately $51.1 million of outstanding construction loans and $62.1 million of outstanding balance of the revolver portion of our senior secured credit facility. The Company incurred approximately $10.6 million in underwriting discounts and commissions. The primary underwriters for the offering were UBS Warburg, Credit Suisse First Boston and Deutsche Banc Alex. Brown. The effective date of the Form S-1 registration statement under the Securities Act of 1933 was March 11, 2002. The commission file number was 1-9186.

On February 7, 2002, our board of directors declared a 1.43408 for 1 stock split. Unless otherwise indicated, all references to the number of shares, options for purchase of common stock and per-share information have been adjusted to reflect this stock split on a retroactive basis.

The Company has not paid any cash dividends on its common stock to date and expects that, for the foreseeable future, it will not do so; rather it expects to follow a policy of retaining earnings in order to finance the continued development of its business.

The payment of dividends is within the discretion of the Company’s Board of Directors and any decision to pay dividends in the future will depend upon an evaluation of a number of factors, including the earnings, capital requirements, operating and financial condition of the Company, and any contractual limitations then in effect. In this regard, the Company’s senior subordinated notes contain restrictions on the amount of dividends the Company may pay on its common stock. In addition, the Company’s senior secured credit facility and senior subordinated debt require the maintenance of minimum consolidated stockholders’ equity, which restricts the amount of dividends the Company may pay.

As of March 11, 2002, there were approximately 46 record holders of the Company’s common stock.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected historical consolidated financial data for each of the five years in the period ended December 31, 2001. Balance sheet data as of December 31, 2001 and 2000 and statements of operations data for the years ended December 31, 2001, 2000 and 1999 have been derived from our audited consolidated financial statements which are included in Item 8 of this report. The following information should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our audited historical consolidated financial statements, including the introductory paragraphs and related notes thereto, appearing in Items 7 and 8 of this report.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Percentage-of-Completion. Revenue for tower residences under construction is recognized on the percentage-of-completion method and recorded when (1) construction is beyond a preliminary stage, (2) the buyer is committed to the extent of being unable to require a refund except for nondelivery of the residence, (3) a substantial percentage of residences are under firm contracts, (4) collection of the sales price is assured and (5) costs can be reasonably estimated. Revenue recognized is calculated based upon the percentage of total costs incurred in relation to estimated total costs. We must apply the percentage-of-completion method since the duration of tower construction exceeds twelve months and reasonably dependable estimates of the revenues and costs can be made. If our estimates of tower revenues and development costs are significantly different from our actual revenues and costs then our revenues and costs of sales may be over or understated.

Real estate inventories and cost of sales. Real estate inventories including land, common development costs and estimates for costs to complete are allocated to each parcel or lot based on the relative sales value of each parcel or lot as compared to the sales value of the total project, while site specific development costs are allocated directly to the benefited land. Estimates for costs to complete for sold homes are recorded at the time of closing. If our estimates of sales values or costs to complete are significantly different from actual results, our real estate inventories, revenues and costs of sales may be over or understated.

Community development district obligations. In connection with certain development activities, bond financing is utilized in many of our communities to construct on-site and off-site infrastructure improvements. Although we are not obligated directly to repay some of the bonds, we guarantee district shortfalls under certain bond debt service agreements. We annually estimate the amount of bond obligations that we may be required to fund in the future. If our estimates of the amount of bond obligations that we may be required to fund are significantly different from actual amounts funded our real estate inventories and costs of sales may be over or understated.

Impairment of long-lived assets and long-lived assets to be disposed of. Real estate inventories, including capitalized interest and real estate taxes, are carried at the lower of cost or fair value determined by evaluation of individual projects. Property and equipment are recorded at cost less accumulated depreciation and depreciated on the straight-line method over their estimated useful lives. Whenever events or circumstances indicate that the carrying value of our long-lived assets may not be recoverable, we compare the carrying amount of the asset to the undiscounted expected future cash flows. If this comparison indicates that the asset is impaired, the amount of the impairment is calculated using discounted expected future cash flows. If our estimate of the future cash flows is significantly different from actual cash flows, we may prematurely impair the value of the asset, we may underestimate the value of the calculated impairment or we may fail to record an impairment.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) approved SFAS 141, Business Combinations and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Implementation of SFAS 141 did not have an affect on the financial statements of the Company. SFAS 142 provides guidance on accounting for intangible assets and eliminates the amortization of goodwill and certain identifiable intangible assets. Under the provisions of SFAS 142, intangible assets, including

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goodwill, that are not subject to amortization will be tested for impairment annually. SFAS 142 will be effective for our fiscal year 2002 and is immediately effective for goodwill and intangible assets acquired after June 30, 2001. Application of the provision prohibiting the amortization of goodwill is expected to result in an increase in income before income taxes of approximately $3.2 million in the year ended December 31, 2002. We will complete the required tests for impairment of goodwill during 2002. We do not currently believe our goodwill is impaired.

In October 2001, the FASB approved SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets which supercedes SFAS 121 and APB 30. SFAS 144 retains the requirements of SFAS 121 for recognition and measurement of an impairment loss on long-lived assets, and established a single accounting model for all long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 will be effective for our fiscal year 2002. We expect the adoption of SFAS 144 will not have a significant adverse effect on our financial position or results of operations.

RESULTS OF OPERATIONS

Year ended December 31, 2001 compared to year ended December 31, 2000

Overview

Throughout 2001, we continued to strengthen our balance sheet and improve the efficiency of our operations. Total revenues for the year ended December 31, 2001, increased 25.9% to $1,110.3 million, from $882.2 million for 2000, primarily due to an increase in homebuilding revenues. Total contribution margin for 2001 increased 25.2% to $344.6 million from $275.2 million for 2000 primarily due to an increase in homebuilding contribution margin. Income before income taxes and extraordinary item increased 28.3% to $172.4 million in 2001, from $134.4 million for 2000. Income tax expense increased 29.9% to $68.2 million, from $52.5 million for 2000. The effective income tax rate was 39.6% and 39.0% for 2001 and 2000, respectively. For the year ended 2001, the Company recognized a $2.0 million (net of tax) extraordinary item related to the write-off of unamortized debt issue costs associated with debt restructuring in conjunction with the offering of $250 million and $100 million in senior subordinated notes. Net income increased 24.8% to $102.2 million in 2001, from $81.9 million for 2000. The Company’s 2001 operating results contributed to a 31.3% increase in shareholders’ equity to $419.0 million at December 31, 2001. The increase in shareholders’ equity contributed to a reduction in the debt-to-total capitalization ratio to 62.0% at December 31, 2001 compared to 63.4% at December 31, 2000.

Revenues and sales

Homebuilding. Total homebuilding revenues increased 47.4% to $906.1 million for 2001 compared with $614.7 million for 2000. Single- and multi-family homebuilding revenues increased 29.2% to $492.6 million for 2001 compared with $381.2 million for 2000.

The increase in single- and multi-family homebuilding revenues is primarily attributable to a 118 unit or 7.3% increase in the number of homes closed and a 20.3% increase in the average price of homes closed to $284,000 in 2001 from $236,000 in 2000. The increase in the number of homes closed was a direct result of the larger backlog at January 1, 2001 as compared to January 1, 2000 and increased home sales in newly introduced subdivisions in our Heron Bay community and in our newly introduced master-planned communities of Tarpon Bay and Sun City Center Fort Myers. The increase in the average selling price was primarily attributable to increasing prices in our existing communities that were possible due to strong market demand, an increase in the number of higher priced units sold and an increase in the dollar amount of options and lot premiums that our home buyers selected. During 2001, the Company’s homebuyers purchased options and lot premiums valued at approximately 14.8% of the base selling price of homes sold compared to 11.8% in 2000.

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The value of net new contracts for single- and multi-family homes increased 10.1% to $522.6 million for 2001 compared to $474.7 million for 2000. The increase in the value of net new contracts was primarily the result of a 21.0% increase in the average price of homes contracted to $328,000 for 2001 from $271,000 in 2000. The increase in the average price was the result of both price increases and sales mix factors such as location, size and product demand. The decline in the number of net new contracts to 1,595 in 2001 from 1,754 in 2000 was primarily the result of the final close out of our Jensen Beach, St. James and Parkland Isle communities and reduced sales traffic and contract activity due to travel disruption after September 11. Backlog at December 31, 2001 was $265.4 million or 12.7% higher than the $235.4 million at December 31, 2000. The increase in backlog was primarily the result of a 37.7% increase in the average sales price of homes under contract to $431,000 in 2001 compared to $313,000 in 2000.

Mid-rise and high-rise homebuilding revenues increased 77.1% to $413.5 million in 2001 compared to $233.5 million in 2000.

The increase in mid-rise and high-rise homebuilding revenues was attributable primarily to an increase in the number of towers that qualified for revenue recognition and an increase in the value of sold units in those towers. We delivered tower units or met the requirements for percentage-of-completion revenue recognition in 17 towers in 2001 compared to 14 towers in 2000.

The value of net new contracts for mid-rise and high-rise homebuilding increased 48.2% to $595.6 million for 2001 compared to $402.0 million for 2000. This increase in net new contracts was primarily the result of an increase in the number of towers that converted from reservation to contract during the period. Ten towers converted from reservation to contract in 2001 compared to six towers in 2000. Backlog at December 31, 2001 was $472.8 million or 62.6% higher than the $290.7 million at December 31, 2000. The increase in backlog was due primarily to the increased number of net new contracts and the 16.7% increase in the average price of total tower units under contract to $1.4 million in 2001 compared to $1.2 million in 2000. The increase in the average price of units under contract was primarily attributable to our focus on more expensive, luxury residential towers.

Parcel and lot. Total parcel and lot revenues decreased 63.4% to $47.9 million for 2001 compared to $130.9 million for 2000. Sales of lots decreased 62.9% to $18.9 million for 2001 compared to $50.9 million for 2000. The decrease in the lot sales was primarily due to the sell out of lots in subdivisions located in Bay Colony, Pelican Landing and Heron Bay communities which was offset by the introduction of a new lot sales program in Tiburon.

Sales of residential and commercial parcels decreased 63.8% to $29.0 million for 2001 compared to $80.0 million in 2000. Sales of residential parcels continued to decrease due to management’s decision to hold most developed and undeveloped land inventory for homebuilding purposes and the sell-out of the few residential parcels that were not designated for homebuilding, while commercial parcel sales decreased primarily as a result of fewer available parcels for sale.

Amenity membership and operations. Total amenity membership and operating revenues increased 6.1% to $75.3 for 2001 compared to $71.0 million for 2000. Equity membership and marina slip sales increased 28.7% to $33.6 million for 2001 compared to $26.1 million for 2000 while membership dues and amenity services revenue decreased 6.9% to $41.8 million for 2001 compared to $44.9 million for 2000. The increase in membership sales revenue was primarily attributed to the introduction of a marina slip sales program in the Gulf Harbour community offset by a decrease in the Bay Colony Golf Club and Pelican Marsh Club which was the result of sell-out of memberships. The decrease in operating revenues was attributable primarily to turnover of the Bay Colony Golf Club to its members and the sale of the Burnt Store Marina and restaurant operations in December 2000, respectively.

Real estate services and other. Total real estate services and other revenues increased 23.5% to $81.0 million for 2001 compared to $65.6 million in 2000. Other revenues included $6.9 million and $5.8 million in gains recognized from the sale

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of property and equipment and equity in earnings from investments in joint ventures recorded in 2001 and 2000, respectively. The increase in real estate services and other revenues was primarily attributed to a $13.0 million increase in real estate brokerage revenues and a $2.3 million increase in the mortgage banking operations offset by a $1.0 million decrease in title and other revenues. The increase in real estate brokerage revenues was primarily attributed to establishing two new offices and increasing the overall sales force. The increase in mortgage banking revenues was primarily the result of increased home purchases and mortgage refinancings during 2001.

Costs, Expense and Contribution Margin

Homebuilding. Homebuilding cost of sales increased 40.2% to $624.6 million for 2001 compared to $445.4 million for 2000. Single- and multi-family homebuilding cost of sales increased 24.5% to $389.2 million for 2001 compared to $312.5 million for 2000. Mid- and high-rise cost of sales increased 77.1% to $235.3 million for 2001 compared to $132.9 million for 2000. Cost of sales as a percentage of revenue was 68.9% for 2001 compared to 72.5% for 2000. The 3.6% decrease in homebuilding cost of sales percentage was primarily due to the increase in the average sales price of single- and multi-family homes which resulted in higher contribution margins, and our ongoing efforts to reduce construction and land development costs and improve operating efficiencies.

Overall, homebuilding contribution margin as a percentage of revenue increased to 31.1% for 2001 compared to 27.5% for 2000. Contribution margin percentage from single- and multi-family homebuilding increased to 21.0% in 2001 from 18.0% in 2000 due primarily to a higher average sales price and reduced costs of construction and land development as a percentage of related revenue. Contribution margin percentage from mid-rise and high-rise homebuilding remained unchanged at 43.1% for 2001 and 2000.

Parcel and lot. Total costs of sales decreased to $30.2 million for 2001 compared to $59.4 million for 2000 due primarily to a decrease in total revenue for 2001. The cost of parcel and lot sales increased to 63.0% of related revenue for 2001 compared to 45.4% for 2000. The increase in cost of sales percentage and the associated decrease in contribution margin percentage was due primarily to the change in mix of parcel and lot sales closed in the respective periods.

Amenity membership and operations. The amenity cost of membership and marina slip sales decreased to $50.5 million for 2001 compared to $55.8 million for 2000 due primarily to the turnover of Bay Colony Golf Club to its members and the sale of the Burnt Store marina and restaurant operations in December 2000, respectively. The associated contribution margin increased to 32.9% for 2001 compared to 21.4% for 2000, primarily due to the introduction of a high margin marina slip sales program in the Gulf Harbour community offset by the sell-out of high margin equity memberships in the Bay Colony Golf Club.

Real estate services and other. The real estate services and other costs increased 30.2% to $60.4 million for 2001 compared to $46.4 million for 2000 due primarily to the costs associated with the increased volume of real estate brokerage transactions and mortgage banking operations. The associated contribution margin decreased to 25.4% for 2001 compared to 29.3% for 2000, primarily due to an increase in the proportion of lower margin real estate brokerage operations compared to the combined real estate services and other operations for 2001 compared to 2000.

Selling, general and administrative expenses, including real estate taxes. Selling, general and administrative expenses, including real estate taxes, increased to $110.5 million for 2001 compared to $89.8 million for 2000. This increase was primarily due to increased wages, benefits costs and administrative expenses associated with the increase in personnel to support our growth and increased sales and marketing expenditures related to newly introduced communities, subdivisions and towers under development. Selling, general and administrative expenses, including real estate taxes, as a percentage of revenues decreased slightly to 10.0% for 2001 compared to 10.2% for 2000.

Interest expense. Interest expense, net of capitalization, increased 21.0% to $52.5 million for 2001 compared to $43.4 million for 2000. Interest incurred increased 1.9% to $63.3 million for 2001 compared to $62.1 million for 2000. The increase in interest incurred was primarily the result of an increase in average debt outstanding offset by a decrease in our effective borrowing rate. As a percentage of total revenue, interest incurred declined to 5.7% for 2001 compared to 7.0% for 2000. Amortization of previously capitalized interest increased by $4.2 million to 1.7% of total revenue for 2001 compared to 1.6% of total revenue for 2000 due to the change in the mix of real estate sold between the two periods. Interest capitalized decreased 11.7% to $33.2 million for 2001 compared to $37.6 million in 2000 due primarily to a change in the mix of properties undergoing active development.

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Year ended December 31, 2000 compared to year ended December 31, 1999

Overview

Total revenues for the year ended December 31, 2000, increased 29.5% to $882.2 million, from $681.4 for 1999, primarily due to an increase in homebuilding revenues. Total contribution margin for 2000 increased 39.3% to $275.2 million from $197.5 million for 1999 primarily due to an increase in homebuilding contribution margin. Income before income taxes and extraordinary items increased 76.8% to $134.4 from $76.0 million in 1999. During 1999, we recognized a tax benefit primarily due to the reversal of a previously established valuation reserve of $35.2 million. This reserve was established for built-in tax losses and net operating loss carryforwards originally purchased from Westinghouse Electric in 1995. The basis for the release of the deferred tax allowance results from improved profitability during 1999 and increasing taxable income, resulting in cumulative taxable income over the prior two years and the current year and projected future taxable income. In March 1999, $1.7 million of prepayment penalties were paid and included as an extraordinary item associated with the early retirement of the Marbella construction loan. Net income increased 2.5% to $81.9 million in 2000 from $79.9 million for 1999.

Revenues and sales

Homebuilding. Total homebuilding revenues increased 43.4% to $614.7 million for 2000 compared with $428.8 million for 1999. Single- and multi-family homebuilding revenues increased 41.3% to $381.2 million in 2000 compared with $269.7 million for 1999. The increase in single- and multi-family homebuilding revenue is primarily attributable to a 282 unit or 21.2% increase in the number of homes closed and the continuation of the trend towards delivering a greater proportion of larger, higher priced homes as seen in the 28.4% increase in the average sales price between the periods.

The increase in the number of homes closed was due primarily to increased home sales in newly introduced subdivisions in our Heron Bay, West Jensen, Parkland Isles, Gulf Harbour and Waterlefe communities and in our existing master-planned communities of Pelican Sound and Tiburón.

The value of net new contracts for single- and multi-family homes increased by $190.9 million or 67.3% from 1999 to 2000. Backlog at December 31, 2000 was $235.4 million or 65.9% higher than at December 31, 1999. These increases were due primarily to strong sales at existing master-planned communities including Pelican Sound, Heron Bay and Parkland Isles, and initial sales at our Waterlefe community where we are the only homebuilder.

Mid-rise and high-rise homebuilding revenues increased 46.8% to $233.5 million in 2000 compared to $159.1 million in 1999.

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The increase in mid-rise and high-rise homebuilding revenue was attributable to an increase in the number of towers in which we recognized revenue and an increase in the average price of these tower residences. We delivered tower units or met the requirements for percentage-of-completion revenue recognition in 14 towers in 2000 and 11 towers in 1999. We began construction of five new residential towers — Trieste, Montego, Seasons, Pointe and Siena — which met the requirement for recognizing percentage-of-completion revenue in 2000 and contributed $87.1 million in additional revenue.

The value of net new contracts for mid-rise and high-rise homebuilding increased by $189.4 million or 89.1% from 1999 to 2000. Backlog at December 31, 2000 was $290.7 million or 137.9% higher than at December 31, 1999. Both increases were primarily due to the 88.4% increase in the average price of tower units sold from $690,000 in 1999 to $1.3 million in 2000. We began taking contracts for three towers — Montenero, Caribe and Harbor Towers II — during 1999 and began taking contracts for five towers — Trieste, Montego, Seasons, Pointe and Siena — during 2000. The 249 residential units in towers introduced in 1999 had a projected sellout value of $183.3 million compared to the projected sellout value of $514.0 million for the 303 units in towers introduced in 2000.

Parcel and lot. Total parcel and lot sales revenues decreased 0.6% to $130.9 million for 2000 compared to $131.7 million for 1999. Sales of lots for 2000 increased 48.8% to $50.9 million compared to $34.2 million for 1999; residential parcel sales for 2000 increased 88.0% to $28.2 million compared to $15.0 million for 1999 while sales of commercial parcels decreased by 37.2% to $51.8 million compared to $82.5 million for 1999. The increase in lot sales is attributable to the implementation of our program for sale of waterfront, custom home lots in our Harbour Isles community, while residential parcel sales increased as a result of the sale of land in The Colony at Pelican Landing community. Sales of commercial parcels decreased due to the sell-out of Pelican Marsh in 1999 and as a result of the reduction in sales of the MacArthur parcels which is attributable to the sell-down of this inventory of parcels.

Amenity membership and operations. Total amenity membership and operating revenues for 2000 decreased 6.9% to $71.0 million compared to $76.3 million for 1999. Equity membership revenue decreased 10.0% to $26.1 million for 2000 compared to $29.0 million for 1999 while membership dues and amenity services revenue decreased 5.1% to $44.9 million from $47.3 million. The decrease in membership revenue is attributable primarily to decreased sales at our Pelican Marsh and Gulf Harbour clubs, which were converted to equity clubs in 1999, while the decrease in operating revenues is the result of the turnover of the Deering Bay and Pelican’s Nest clubs to their members.

Real estate services and other. Total real estate services and other revenues increased 47.1% to $65.6 million for 2000 compared to revenues of $44.6 million in 1999. This increase in revenues is primarily attributable to a $26.4 million increase in real estate brokerage revenue, an increase in mortgage banking revenue of $1.9 million and a $4.5 million increase in other income from the sale of Burnt Store Marina, which was offset by the reduction of the brokerage commission received in 1999 of $13.2 million from the sale of the MacArthur properties.

Costs, expenses and contribution margin

Homebuilding. Homebuilding cost of sales increased 37.1% to $445.4 million for 2000 compared to $324.8 million for 1999. Cost of sales as a percentage of revenue was 72.5% in 2000 compared to 75.7% in 1999. This decrease in cost of sales percentage was primarily due to improved homebuilding margins relating to the increase in the average sales price of single- and multi-family as well as tower residence units.

Overall, homebuilding contribution margin as a percentage of revenue increased 3.2% to 27.5% in 2000 from 24.3% in 1999. Contribution margin percentage from single- and multi-family homebuilding increased to 18.0% in 2000 from 17.6% in 1999, due to a higher average sales price and, consequently, improved contribution margins particularly at our Pelican Sound, Harbor Isles and Tiburón communities. For our mid-rise and high-rise homebuilding products, contribution margin percentage increased to 43.1% in 2000 compared to 35.6% for 1999, as a result of a higher average selling price.

Parcel and lot. Total costs of sales decreased to $59.4 million for 2000 compared to $75.9 million for 1999 due to a decrease in total revenue for 2000. The cost of parcel and lot sales decreased to 45.4% of related revenue for 2000 compared to 57.6% for 1999. The decrease in cost of sales percentage and the associated increase in contribution margin percentage are due primarily to the change in mix of land sales. Contribution margin percentage from sales of our lots and residential parcels increased as a larger portion of these sales occurred in our high-end communities of Harbour Isles and The Colony at Pelican Landing. Contribution margin for commercial parcels improved primarily due to increased margins on the sale of the MacArthur parcels in 2000. In 1999, commercial parcel contribution margins were lower because a greater proportion of the

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cost of the MacArthur land portfolio purchased in March 1999 was allocated to immediately saleable parcels which closed during that year.

Amenity membership and operations. The 12.3% decrease in the cost of amenity sales to $55.8 million for 2000 compared to $63.6 million for 1999 was primarily due to a decrease in membership sales and operating revenues. The associated contribution margin increased to 21.4% for 2000 from 16.6% in 1999, primarily due to an increase in membership sales at our Bay Colony and Deering Bay clubs, which generate a higher margin than amenity service revenue and an increase in membership dues revenue of $4.9 million.

Real estate services and other. The 135.5% increase in real estate services and other costs to $46.4 million for 2000 compared to $19.7 million for 1999 was due to the costs associated with the increased volume of real estate brokerage transactions. Cost as a percentage of related revenues increased to 70.7% in 2000 compared to 44.2% in 1999 due primarily to the net brokerage revenue earned from the sale of the MacArthur properties in 1999 and increased overhead costs incurred in 2000 to operate our new or expanded realty brokerage, title insurance and mortgage banking offices.

Selling, general and administrative expenses, including real estate taxes. Selling, general and administrative expenses, including real estate taxes, increased to $89.8 million for 2000 compared to $72.1 million for 1999. This increase was primarily due to increased professional fees for legal and accounting services, increased sales and marketing expenditures relating to newly introduced communities under development and an increase in management incentive compensation. Selling, general and administrative expenses, including real estate taxes, decreased to 10.2% for 2000 compared to 10.6% for 1999.

Interest expense. Interest expense, net of capitalization, increased 1.9% to $43.4 million in 2000 from $42.6 million in 1999. Interest incurred increased 2.6% over the same period due to a marginal increase in our level of debt as well as a small increase in our effective borrowing rate. As a percentage of total revenue, interest incurred declined to 7.0% for 2000 compared to 8.9% for 1999. Amortization of previously capitalized interest decreased to 1.6% for 2000 compared to 2.3% of total revenue for 1999 due to the change in the mix of real estate sold between the two years. Interest capitalized decreased 1.6% to $37.6 million for 2000 compared to $38.2 million in 1999 due to a change in the mix of properties undergoing active development.

LIQUIDITY AND CAPITAL RESOURCES

We assess our liquidity in terms of our ability to generate cash to fund our operating and investing activities. We finance our land acquisitions, land improvements, homebuilding, development and construction activities from internally generated funds, credit agreements with financial institutions and other debt. As of December 31, 2001, we had cash and cash equivalents of $58.0 million.

Net cash used in operations was $128.1 million for the year ended December 31, 2001 as compared to cash provided by operations of $28.8 million for the comparable period in the prior year. Cash flow from operations before net inventory additions, contracts receivable and mortgages held for resale improved to $203.3 million for the year ended December 31, 2001 compared to $187.4 million for the comparable period in 2000. Net inventory additions increased to $125.4 million for the year ended December 31, 2001 compared to $48.5 million in 2000. The increase in net inventory additions is primarily related to increased single- and multi-family home inventories that are under contract for delivery during the next six to nine months and, to a lesser degree, tower inventories that have not yet qualified for revenue recognition and land acquisitions. Likewise, the increase in contracts receivable of $171.0 million for 2001 compared to $110.1 million during 2000 reflects the substantial increase in the value of tower units under contract that are now being constructed and that have met the requirements for percentage of completion revenue recognition. Land acquisitions for the year ended December 31, 2001 and 2000 totaled approximately $80.7 million and $74.3 million, respectively. We expect real estate inventories will continue to increase as we are currently negotiating and searching for additional opportunities to obtain control of land for future communities.

Investing activities for the year ended December 31, 2001 included $24.3 million of net additions to property and equipment compared to $2.0 million in the same period in the prior year. For the year ended December 31, 2001, cash was provided from net mortgage notes receivable collections of $8.4 million compared to $1.8 million in the same period in 2000. We anticipate cash flows used in investing activities will increase with development of current and future amenity operations.

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Financing activities provided cash of $146.3 million for the year ended December 31, 2001 compared to cash uses of $6.3 million in the same period in 2000. The net cash inflow was primarily the result of the issuance of $350 million in senior subordinated notes due February 15, 2011, proceeds from construction and other loans of $90.4 million, net of repayments totaling $287.3 million for mortgages and notes payable, revolving line of credit, subordinated notes and finance subsidiary debt.

The senior secured credit facility includes a $250 million amortizing term loan and $200 million revolving loan. The facility allows us to borrow and repay up to the maximum amount under the $200 million revolving loan subject to maintaining an adequate collateral borrowing base. The term loan requires semi-annual principal payments of $5.0 million commencing January 2002. As of December 31, 2001, we had $193.7 million available for borrowing under the senior secured credit facility and $6.3 million committed pursuant to letters of credit.

Our wholly owned finance subsidiary, Financial Resources Group, Inc. has an $18.0 million bank warehouse facility, which is payable on demand and is secured primarily by mortgage loans held for sale. The warehouse facility is not guaranteed by us. As of December 31, 2001, $18.0 million was available for borrowing under the warehouse facility.

To finance the construction of certain on-site and off-site infrastructure improvements at many of our projects, we have used community development district and improvement district bond financing. User fees and special assessments payable upon sale of the property benefited by the underlying improvements are designed to fund bond debt service, including principal and interest payments, as well as program operating and maintenance cost. Although we are not obligated directly to repay all of the outstanding bonds, we do pay a portion of the fees and assessments securing the bonds and have guaranteed debt service shortfalls of certain district bond programs. The amount of bond obligations issued with respect to our communities total $204.2 million at December 31, 2001. We have accrued $36.3 million as of December 31, 2001, as our estimate of the amount of bond obligations that we may be required to fund. We may, subject to limitations in the senior secured credit facility, use district financing to a greater extent in the future.

We released 10 towers for reservation and commenced construction on 10 towers during 2001. We intend to use construction loans and customer deposits to construct high-rise towers. After the construction loans are repaid from the proceeds of closings with buyers, remaining proceeds will be available for general use. As of December 31, 2001, we had construction loans in place for 8 towers with $51.6 million outstanding and $275.2 million of remaining undrawn commitments. We expect to begin construction on 5 towers and are scheduled to close 6 towers in 2002 which will generate significant cash flow after repayment of the related construction loans.

During the course of future operations, we plan to acquire developed and undeveloped land, which will be used in the homebuilding, tower and amenities lines of business. As of December 31, 2001, we had contracts or options aggregating $106.5 million, including deposits of $2.6 million, to acquire approximately 1,900 acres of land that are expected to yield approximately 3,900 residential units. Payments of approximately $72.0 million are expected to be made during 2002 with the balance paid in future years. We will incur land development costs for improving overall community infrastructure such as water, sewer, streets and landscaping and for developing the amenity packages such as golf courses, marinas and club facilities. A significant portion of these costs are incurred in the initial phases of a project. We recently commenced development of two new projects, Sun City Center Fort Myers and Tarpon Bay and expect to commence development of four to six other communities this year, including Evergrene, Tuscany Reserve, Hammock Bay and Venetian Golf and River Club, where we anticipate closings to start in 2003.

Our real estate development is dependent upon the availability of funds to finance current and future development. We plan to continue to grow and expect to fund this growth through the generation of cash flow from operations, from the availability of funds under our credit facilities, from new construction loans and from future debt and equity offerings. We believe we have adequate resources and sufficient credit facilities to satisfy our current and reasonably anticipated future requirements to acquire capital assets and land, to develop land improvements and construction activities and to meet any other needs of our business, both on a short- and long-term basis. If we do not have sufficient capital resources to fund our development and expansion, projects may be delayed, resulting in possible adverse effects on our results of operations. No assurance can be given as to the terms, availability or cost of any future financing we may need. If we are at any time unable to service our debt, refinancing or obtaining additional financing may be required and may not be available or available on terms acceptable to us. Furthermore, as a result of the events of September 11, 2001, considerable economic and political uncertainties could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting us and the homebuilding industry generally.

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We selectively enter into business relationships through the form of partnerships and joint ventures with unrelated parties. These partnerships and joint ventures are utilized to acquire, develop, market and operate homebuilding, amenities and real estate services projects. We do not consolidate partnerships and joint ventures where unanimous consent by both partners is required for making major decisions, and where we do not have control directly or indirectly, over major decisions. In connection with the operation of these partnerships and joint ventures, the partners may agree to make additional cash contributions to the partnerships pursuant to the partnership agreements. We believe that future contributions, if required, will not have a significant impact to our liquidity or financial position. If we fail to make required contributions, we may lose some or all of our interest in such partnerships or joint ventures. At December 31, 2001, none of our partnerships or joint ventures had outstanding debt. However, the partners may agree to incur debt to fund partnership and joint venture operations in the future.

INFLATION

Our costs of operations may be impacted by inflation as the strength of the current economic environment places upward pressure on the cost of labor and materials. In addition, certain raw materials used by us in our homebuilding operations are susceptible to commodity price increases. Unless these cost increases are passed on to customers through increased home and service prices, our operating margins may be reduced. In addition, in times of inflation, the reduced availability of attractive mortgage financing for purchasers of our homes may have an adverse effect on sales. If interest rates increase, construction and financing costs, as well as the cost of borrowings, also would increase, which can result in lower operating margins. Increases in interest rates also may affect adversely the volume of mortgage loan originations.

The volatility of interest rates could have an adverse effect on our future operations and liquidity. Among other things, these conditions may affect adversely the demand for housing and the availability of mortgage financing and may reduce the credit facilities offered to us by banks, investment bankers and mortgage bankers.

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FORWARD-LOOKING STATEMENTS

Investors are cautioned that certain statements contained in this document, as well as some statements by the Company in periodic press releases and some oral statements by Company officials to securities analysts and stockholders during presentations about the Company are “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “hopes”, and similar expressions constitute forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by management are also forward-looking statements. Forward-looking statements are based on current expectations and beliefs concerning future events and are subject to risks and uncertainties about the Company, economic and market factors and the homebuilding industry, among other things. These statements are not guaranties of future performance.

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

•		the ability to raise capital and grow the Company’s operations on a profitable basis;
•		the ability to compete in the Florida real estate market;
•		the ability to obtain necessary permits and approvals for the development of our land;
•		the ability to pay principal and interest on outstanding debt;
•		the ability to borrow and obtain surety bonds in the future;
•		adverse legislation or regulation;
•		availability of labor or material costs or significant increase in their costs;
•		increases in interest rates;
•		the level of consumer confidence;
•		the availability and cost of land in desirable areas and ability to expand successfully into these areas;
•		natural disasters;
•		unanticipated litigation or legal proceedings;
•		conditions in the capital, credit and homebuilding markets;
•		the ability to sustain or increase historical revenues and profit margins;
•		risks associated with increased insurance costs or unavailability of adequate coverage, perceived risk of travel and changes in economic conditions due to recent events; and
•		the continuation of current trends and the general economic conditions.

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

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

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

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The following table sets forth, as of December 31, 2001, WCI debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts and weighted average interest rates of WCI interest rate swaps.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
WCI Communities, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of WCI Communities, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida

January 31, 2002, except as to changes in shares authorized and issued described in Note 1 and the status of litigation described in Note 19 which are as of March 15, 2002

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WCI Communities, Inc.
Consolidated Balance Sheets
(dollars in thousands, except share data)

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

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WCI Communities, Inc.
Consolidated Statements of Income
(dollars in thousands, except share data)