HOVNANIAN ENTERPRISES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Hovnanian Enterprises, Inc. ("HEI") conducts all of its homebuilding and
financial services operations through its subsidiaries (references herein to the
"Company," "we," "us" or "our" refer to HEI and its consolidated subsidiaries
and should be understood to reflect the consolidated business of HEI's
subsidiaries).

Key Performance Indicators

The following key performance indicators are commonly used in the homebuilding
industry and by management as a means to better understand our operating
performance and trends affecting our business and compare our performance with
the performance of other homebuilders. We believe these key performance
indicators also provide useful information to investors in analyzing our
performance:



  ? Net contracts is a volume indicator which represents the number of new
    contracts executed during the period for the purchase of homes, less
    cancellations of contracts in the same period. The dollar value of net

contracts represents the dollars associated with net contracts executed in the

    period. These values are an indicator of potential future revenues;

? Contract backlog is a volume indicator which represents the number of homes

that are under contract, but not yet delivered as of the stated date. The

dollar value of contract backlog represents the dollar amount of the homes in

contract backlog. These values are an indicator of potential future revenues;

? Active selling communities is a volume indicator which represents the number

of communities which are open for sale with ten or more home sites available

as of the end of a period. We identify communities based on product type;

therefore at times there are multiple communities at one land site. These

    values are an indicator of potential revenues;

? Net contracts per average active selling community is used to indicate the

pace at which homes are being sold (put into contract) in active selling

communities and is calculated by dividing the number of net contracts in a

period by the average number of active selling communities in the same period.

    Sales pace is an indicator of market strength and demand; and

? Contract cancellation rates is a volume indicator which represents the number

of sales contracts cancelled in the period divided by the number of gross

sales contracts executed during the period. Contract cancellation rates as a

percentage of backlog is calculated by dividing the number of cancelled

contracts in the period by the contract backlog at the beginning of the

period. Cancellation rates as compared to prior periods can be an indicator of

    market strength or weakness.




Overview



Market Conditions



The demand for new and existing homes is dependent on a variety of demographic
and economic factors, including job and wage growth, household formation,
consumer confidence, mortgage financing, interest rates and overall housing
affordability. In general, at the start of our 2020 fiscal year, factors
including rising levels of household formation, a constrained supply of new and
used homes, wage growth, strong employment conditions and mortgage rates that
continue to be low by historical standards contributed to improving conditions
for new home sales. However, overall economic conditions in the United States
were impacted negatively by the COVID-19 pandemic, which resulted in, among
other things, quarantines, "stay-at-home" or "shelter-in-place" orders, and
similar mandates from national, state and local governments that substantially
restricted daily activities and caused many businesses to curtail or cease
normal operations. While all of the state and local governments in the markets
in which we operate have deemed housing to be an essential business, which has
allowed us to continue with construction and sales of homes, we cannot predict
the magnitude of either the near-term or long-term effects that the pandemic
will have on our business. During this fiscal year, the pandemic has adversely
affected the global supply chain for many industries, including the homebuilding
industry. As a result, our ability to complete construction on homes has been,
and may continue to be, impacted by supply chain delays. The impact and the
particular materials associated with the delays is varied from market to market,
and we are currently experiencing increased construction cycle times by 45 days
in many of our markets.



During the second quarter of fiscal 2020 when we confronted the initial impact
of COVID-19, we experienced adverse business conditions, including a slowdown in
customer traffic and sales pace and an increase in cancellations. That said, the
homebuilding industry generally was only impacted from mid-March through April
of 2020. Towards the end of April, economic conditions in our markets started to
improve, and this improvement continued throughout the second half of fiscal
2020 and through the nine months ended July 31, 2021 due to what we believe is a
combination of factors, including low interest rates, low inventory levels of
existing homes and a general desire for more indoor and outdoor space. Starting
during the second half of fiscal 2020 and continuing to date, we returned to our
normal activities with respect to land purchases, land development and resuming
the construction of unsold homes. As a result, our operating metrics for the
nine months ended July 31, 2021 improved significantly as compared to the nine
months ended July 31, 2020.



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Operating Results

We experienced significant positive operating results for the three and nine months ended July 31, 2021 as follows:

? For the three and nine months ended July 31, 2021, sale of homes revenues
increased 9.5% and 17.8%, respectively, as compared to the same periods of the
prior year, primarily due to an increase in average prices of 13.5% and 7.6%,
respectively, as home prices increased in virtually all of our markets, along
with the geographic and community mix of our deliveries. Also impacting the
increase in sale of homes revenues for the nine months ended July 31, 2021, was
a 9.4% increase in the number of home deliveries compared to the prior year
period, primarily due to our increased sales absorption pace as discussed below.



? Gross margin dollars increased 55.4% and 57.2% for the three and nine months
ended July 31, 2021, respectively, as compared to the same periods of the prior
year, as a result of our increased revenues. Additionally, gross margin
percentage increased to 19.2% for the three months ended July 31, 2021 from
13.6% for the three months ended July 31, 2020 and increased to 18.3% for the
nine months ended July 31, 2021 from 13.7% for the nine months ended July 31,
2020. Gross margin percentage, before cost of sales interest expense and land
charges, increased from 17.5% and 17.7% for the three and nine months ended July
31, 2020, respectively, to 22.1% and 21.4% for the three and nine months ended
July 31, 2021, respectively. The increases were primarily due to price increases
in virtually all of our markets.



? Selling, general and administrative costs (including corporate general and
administrative expenses) ("Total SGA") was $60.3 million, or 8.7% of total
revenues, in the three months ended July 31, 2021 compared with $59.9 million,
or 9.5% of total revenues, in the three months ended July 31, 2020. During the
first nine months of fiscal 2021, total SG&A was $206.6 million, or 10.5% of
total revenues, compared with $176.2 million, or 10.6% of total revenues, in the
same period of the prior fiscal year. Such costs increased $0.4 million and
$30.4 million for the three and nine months ended July 31, 2021,
respectively, as compared to the same periods of the prior year. The increase
for the nine months ended July 31, 2021 was primarily due to increased
compensation costs mainly related to the grants of phantom stock awards under
our 2019 Long Term Incentive Plan ("2019 LTIP") which expense increased due to
the significant increase in our stock price from $51.16 at January 31, 2021 to
$104.39 at July 31, 2021. Had equity shares rather than phantom shares been
utilized for the 2019 LTIP, there would not have been expenses related to the
movement in our stock price. Excluding the $12.7 million of incremental phantom
stock expense associated with the 2019 LTIP due solely to the increase in the
stock price from January 31, 2021 to July 31, 2021, Total SGA would have been
$193.9 million, or 9.8% of total revenues for the nine months ended July 31,
2021.



? Pre-tax income increased to $61.8 million for the three months ended July 31,
2021 from pre-tax income of $16.2 million for the three months ended July 31,
2020, and increased to $112.4 million for the nine months ended July 31, 2021
from pre-tax income of $13.0 million for the nine months ended July 31, 2020.
Net income increased to $47.7 million for the three months ended July 31, 2021
from net income of $15.4 million for the three months ended July 31, 2020, and
increased to $555.3 million for the nine months ended July 31, 2021 from net
income of $10.3 million for the nine months ended July 31, 2020. Earnings per
share, basic and diluted, increased to $6.85 and $6.72, respectively, for the
three months ended July 31, 2021 compared to $2.27 and $2.16, respectively, for
the three months ended July 31, 2020. Earnings per share, basic and diluted,
increased to $80.02 and $78.51, respectively, for the nine months ended July 31,
2021 compared to $1.52 and $1.44, respectively, for the nine months ended July
31, 2020. The significant increase in net income for the nine months ended July
31, 2021 was due to the full reversal of our federal valuation allowance and a
portion of the state valuation allowance in respect of our deferred tax assets
in the second quarter of fiscal 2021 (see Note 16 to the Condensed Consolidated
Financial Statements).

? Net contracts decreased 45.6% and 5.5% for the three and nine months ended July 31, 2021, respectively, compared to the same periods of the prior year.

? Net contracts per average active selling community decreased to 12.0 for the
three months ended July 31, 2021 compared to 17.8 in the same period of the
prior year, and increased to 44.9 for the nine months ended July 31, 2021
compared to 38.1 in the same period of the prior year. The decrease in the third
quarter of fiscal 2021 as compared to the same period of the prior year was due
to consciously restricting sales in many of our communities in the current
period, along with the unprecedented COVID-19 surge in home demand in the third
quarter of fiscal 2020. The strong absorption pace for the nine months ended
July 31, 2021 resulted in our active selling communities at July 31,
2021 decreasing by 11.1% over last year's third quarter. However, we are
actively pursuing replacement communities, and our total lots controlled has
increased each quarter since July 31, 2020.

? Contract backlog increased from 3,056 homes at July 31, 2020 to 3,673 homes at July 31, 2021, with a dollar value of $1.8 billion, representing a 41.8% increase in dollar value compared to the prior year.

? Our cash position allowed us to spend $531.2 million on land purchases and
land development and repurchase $111.7 million of our 10.0% 2022 Notes during
the nine months ended July 31, 2021 and still have total liquidity of $307.7
million, including $172.7 million of homebuilding cash and cash equivalents as
of July 31, 2021 and $125.0 million of borrowing capacity under our senior
secured revolving credit facility.





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CRITICAL ACCOUNTING POLICIES



As disclosed in our annual report on Form 10-K for the fiscal year ended October
31, 2020, our most critical accounting policies relate to income recognition
from mortgage loans; inventories; unconsolidated joint ventures; and warranty
and construction defect reserves. Since October 31, 2020, there have been no
significant changes to those critical accounting policies.

CAPITAL RESOURCES AND LIQUIDITY

Our operations consist primarily of residential housing development and sales in
the Northeast (New Jersey and Pennsylvania), the Mid-Atlantic (Delaware,
Maryland, Virginia, Washington D.C. and West Virginia), the Midwest (Illinois
and Ohio), the Southeast (Florida, Georgia and South Carolina), the Southwest
(Arizona and Texas) and the West (California). In addition, we provide certain
financial services to our homebuilding customers.



We have historically funded our homebuilding and financial services operations
with cash flows from operating activities, borrowings under our credit
facilities, the issuance of new debt and equity securities and other financing
activities. Due to covenant restrictions in our debt instruments, we are
currently limited in the amount of debt we can incur that does not qualify as
refinancing indebtedness, even if market conditions, including then-current
market available interest rates (in recent years, we have not been able to
access the traditional capital and bank lending markets at competitive interest
rates due to our highly leveraged capital structure), would otherwise be
favorable, which could also impact our ability to grow our business.

Operating, Investing and Financing Activities - Overview

Our total liquidity at July 31, 2021 was $307.7 million, including $172.7
million in homebuilding cash and cash equivalents and $125.0 million of
borrowing capacity under our senior secured revolving credit facility, after
using $111.7 million in the third quarter of fiscal 2021 to repurchase all of
our 10.0% 2022 Notes. Our total liquidity was above our target liquidity range
of $170.0 to $245.0 million. The unprecedented public health and governmental
efforts to contain the COVID-19 pandemic have created significant uncertainty as
to general economic and housing market conditions for fiscal 2021 and beyond. We
believe that these sources of cash together with available borrowings on our
senior secured revolving credit facility will be sufficient through fiscal
2021 to finance our working capital requirements.



We spent $531.2 million on land and land development during the first three
quarters of fiscal 2021. After considering this land and land development and
all other operating activities, including revenue received from deliveries,
cash provided by operations was $82.3 million. During the first three quarters
of fiscal 2021, cash provided by in investing activities was $7.0 million,
primarily due to distributions from existing unconsolidated joint ventures,
partially offset by investments in two new unconsolidated joint ventures. Cash
used in financing activities was $163.6 million during the first three
quarters of fiscal 2021, which was primarily due to the redemption of the 10.0%
2022 Notes, along with net payments for nonrecourse mortgage financings and land
banking and model sale leaseback financings during the period, partially offset
by net proceeds from our mortgage warehouse lines of credit. We intend to
continue to use nonrecourse mortgage financings, model sale leaseback, joint
ventures, and, subject to covenant restrictions in our debt instruments, land
banking programs as our business needs dictate.



Our cash uses during the nine months ended July 31, 2021 and 2020 were for
operating expenses, land purchases, land deposits, land development,
construction spending, state income taxes, interest payments, financing
transaction costs, debt repurchases and redemptions, litigation matters and
investments in unconsolidated joint ventures. During these periods, we provided
for our cash requirements from available cash on hand, housing and land sales,
financing transactions, model sale leasebacks, land banking transactions,
unconsolidated joint ventures, financial service revenues and other revenues.



Our net income (loss) historically does not approximate cash flow from operating
activities. The difference between net income (loss) and cash flow from
operating activities is primarily caused by changes in inventory levels together
with changes in receivables, prepaid and other assets, mortgage loans held for
sale, interest and other accrued liabilities, deferred income taxes, accounts
payable and other liabilities, noncash charges relating to depreciation and
stock compensation awards and impairment losses for inventory. When we are
expanding our operations, inventory levels, prepaids and other assets increase
causing cash flow from operating activities to decrease. Certain liabilities
also increase as operations expand and partially offset the negative effect on
cash flow from operations caused by the increase in inventory levels, prepaids
and other assets. Similarly, as our mortgage operations expand, net income from
these operations increases, but for cash flow purposes net income is partially
offset by the net change in mortgage assets and liabilities. The opposite is
true as our investment in new land purchases and development of new communities
decrease, causing us to generate positive cash flow from operations.



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Debt Transactions



Senior notes and credit facilities balances as of July 31, 2021 and October 31,
2020, were as follows:



                                                              July 31,      October 31,
(In thousands)                                                    2021             2020
Senior Secured Notes:
10.0% Senior Secured Notes due July 15, 2022               $         -     $    111,214
10.5% Senior Secured Notes due July 15, 2024                    69,683      

69,683

10.0% Senior Secured 1.75 Lien Notes due November 15, 2025

                                                           158,502      

158,502

7.75% Senior Secured 1.125 Lien Notes due February 15, 2026

                                                           350,000      

350,000

10.5% Senior Secured 1.25 Lien Notes due February 15, 2026

                                                           282,322      

282,322

11.25% Senior Secured 1.5 Lien Notes due February 15,
2026                                                           162,269          162,269
Total Senior Secured Notes                                 $ 1,022,776     $  1,133,990
Senior Notes:
8.0% Senior Notes due November 1, 2027 (1)                 $         -     $          -
13.5% Senior Notes due February 1, 2026                         90,590      

90,590

5.0% Senior Notes due February 1, 2040                          90,120      

90,120

Total Senior Notes                                         $   180,710

$ 180,710 Senior Unsecured Term Loan Credit Facility due February 1, 2027

$    39,551

$ 39,551 Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028

$    81,498     $     81,498
Senior Secured Revolving Credit Facility (2)               $         -     $          -
Subtotal notes payable                                     $ 1,324,535     $  1,435,749
Net (discounts) premiums                                   $    11,661     $     17,521
Net debt issuance costs                                    $   (18,672 )   $    (22,160 )
Total notes payable, net of discounts, premiums and debt
issuance costs                                             $ 1,317,524     $  1,431,110




(1) $26.0 million of 8.0% Senior Notes due 2027 (the "8.0% 2027 Notes") are
owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance
with GAAP, such notes are not reflected on the Condensed Consolidated Balance
Sheets of HEI. On November 1, 2019, the maturity of the 8.0% 2027 Notes was
extended to November 1, 2027.

(2) At July 31, 2021, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. Availability thereunder will terminate on December 28, 2022.

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit
Facilities (as defined below), our home mortgage subsidiaries, certain of our
title insurance subsidiaries, joint ventures and subsidiaries holding interests
in our joint ventures, we and each of our subsidiaries are guarantors of the
Credit Facilities, the senior secured notes (except that certain of the Notes
Guarantors (as defined below) do not guarantee the 10.5% Senior Secured Notes
due 2024 as discussed in Note 12 to the Condensed and Consolidated Financial
Statements included elsewhere in this Quarterly Report on Form 10-Q subject 

and

senior notes (except for the 8.0% 2027 Notes which are not guaranteed by K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company) outstanding at July 31, 2021 (collectively, the "Notes Guarantors").

The credit agreements governing the Credit Facilities and the indentures
governing the senior secured and senior notes (together, the "Debt Instruments")
outstanding at July 31, 2021 do not contain any financial maintenance covenants,
but do contain restrictive covenants that limit, among other things, the ability
of HEI and certain of its subsidiaries, including K. Hovnanian, to incur
additional indebtedness (other than non-recourse indebtedness, certain permitted
indebtedness and refinancing indebtedness), pay dividends and make distributions
on common and preferred stock, repay certain indebtedness prior to its
respective stated maturity, repurchase (including through exchanges) common and
preferred stock, make other restricted payments (including investments), sell
certain assets (including in certain land banking transactions), incur liens,
consolidate, merge, sell or otherwise dispose of all or substantially all of
their assets and enter into certain transactions with affiliates. The Debt
Instruments also contain customary events of default which would permit the
lenders or holders thereof to exercise remedies with respect to the collateral
(as applicable), declare the loans made under the Unsecured Term Loan Facility
(defined below) (the "Unsecured Term Loans"), loans made under the Secured Term
Loan Facility (defined below) (the "Secured Term Loans") and loans made under
the Secured Credit Agreement (as defined below) (the "Secured Revolving Loans")
or notes to be immediately due and payable if not cured within applicable grace
periods, including the failure to make timely payments on the Unsecured Term
Loans, Secured Term Loans, Secured Revolving Loans or notes or other material
indebtedness, cross default to other material indebtedness, the failure to
comply with agreements and covenants and specified events of bankruptcy and
insolvency, with respect to the Unsecured Term Loans, Secured Term Loans and
Secured Revolving Loans, material inaccuracy of representations and warranties
and with respect to the Unsecured Term Loans, Secured Term Loans and Secured
Revolving Loans, a change of control, and, with respect to the Secured Term
Loans, Secured Revolving Loans and senior secured notes, the failure of the
documents granting security for the obligations under the secured Debt
Instruments to be in full force and effect, and the failure of the liens on any
material portion of the collateral securing the obligations under the secured
Debt Instruments to be valid and perfected. As of July 31, 2021, we believe we
were in compliance with the covenants of the Debt Instruments.



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If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as
defined in the applicable Debt Instrument, we are restricted from making certain
payments, including dividends (in the case of the payment of dividends, our
secured debt leverage ratio must also be less than 4.0 to 1.0), and from
incurring indebtedness other than certain permitted indebtedness, refinancing
indebtedness and nonrecourse indebtedness. As a result of this ratio
restriction, we are currently restricted from paying dividends, which are not
cumulative, on our 7.625% Series A Preferred Stock. Our inability to pay
dividends is in accordance with covenant restrictions and will not result in a
default under our Debt Instruments or otherwise affect compliance with any of
the covenants contained in our Debt Instruments.



Under the terms of our Debt Instruments, we have the right to make certain
redemptions and prepayments and, depending on market conditions, our strategic
priorities and covenant restrictions, may do so from time to time. We also
continue to actively analyze and evaluate our capital structure and explore
transactions to simplify our capital structure and to strengthen our balance
sheet, including those that reduce leverage, interest rates and/or extend
maturities, and will seek to do so with the right opportunity. We may also
continue to make debt purchases and/or exchanges for debt or equity from time to
time through tender offers, exchange offers, redemptions, open market purchases,
private transactions, or otherwise, or seek to raise additional debt or equity
capital, depending on market conditions and covenant restrictions.



Any liquidity-enhancing or other capital raising or refinancing transaction will
depend on identifying counterparties, negotiation of documentation and
applicable closing conditions and any required approvals. Due to covenant
restrictions in our Debt Instruments, we are currently limited in the amount of
debt we can incur that does not qualify as refinancing indebtedness, even if
market conditions, including then-current market available interest rates (in
recent years, we have not been able to access the traditional capital and bank
lending markets at competitive interest rates due to our highly leveraged
capital structure), would otherwise be favorable, which could also impact our
ability to grow our business.



We have certain stand-alone cash collateralized letter of credit agreements and
facilities under which there was a total of $9.8 million and $11.3 million
letters of credit outstanding at July 31, 2021 and October 31, 2020,
respectively. These agreements and facilities require us to maintain specified
amounts of cash as collateral in segregated accounts to support the letters of
credit issued thereunder, which will affect the amount of cash we have available
for other uses. At July 31, 2021 and October 31, 2020, the amount of cash
collateral in these segregated accounts was $10.0 million and $11.6 million,
respectively, which is reflected in "Restricted cash and cash equivalents" on
the Condensed Consolidated Balance Sheets.



See Note 12 to the Condensed Consolidated Financial Statements included
elsewhere in this Quarterly Report on Form 10-Q for a discussion of the
Unsecured Term Loans, the Secured Term Loans and Secured Revolving Loans and K.
Hovnanian's senior secured notes and senior notes, including information with
respect to the collateral securing our secured Debt Instruments.



Mortgages and Notes Payable



We have nonrecourse mortgage loans for certain communities totaling
$118.0 million and $135.1 million (net of debt issuance costs) at July 31, 2021
and October 31, 2020, respectively, which are secured by the related real
property, including any improvements, with an aggregate book value of $421.9
million and $368.1 million, respectively. The weighted-average interest rate on
these obligations was 4.8% and 6.4% at July 31, 2021 and October 31, 2020,
respectively, and the mortgage loan payments on each community primarily
correspond to home deliveries.



Our wholly owned mortgage banking subsidiary, K. Hovnanian American Mortgage,
LLC ("K. Hovnanian Mortgage"), originates mortgage loans primarily from the sale
of our homes. Such mortgage loans and related servicing rights are sold in the
secondary mortgage market within a short period of time. In certain instances,
we retain the servicing rights for a small amount of loans. K. Hovnanian
Mortgage finances the origination of mortgage loans through various master
repurchase agreements, which are recorded in "Financial services" liabilities on
the Condensed Consolidated Balance Sheets. The loans are secured by the
mortgages held for sale and are repaid when we sell the underlying mortgage
loans to permanent investors. As of July 31, 2021 and October 31, 2020, we had
an aggregate of $116.4 million and $87.2 million, respectively, outstanding
under several of K. Hovnanian Mortgage's short-term borrowing facilities.

See Note 11 to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of these agreements.

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Inventory Activities



Total inventory, excluding consolidated inventory not owned, increased $201.7
million during the nine months ended July 31, 2021 from October 31, 2020. Total
inventory, excluding consolidated inventory not owned, increased in the
Northeast by $34.5 million, in the Mid-Atlantic by $0.4 million, in the Midwest
by $16.3 million, in the Southeast by $37.6 million and in the Southwest by
$118.9 million. The increase was partially offset by a decrease in the West of
$6.0 million. The net increase was primarily attributable to new land purchases
and land development, partially offset by home deliveries during the period.
During the nine months ended July 31, 2021, we recorded impairment losses for
three communities in the amount of $2.0 million, and wrote-off costs in the
amount of $1.3 million related to land options that expired or that we
terminated, as the communities' forecasted profitability was not projected to
produce adequate returns on investment commensurate with the risk. In the last
few years, we have been able to acquire new land parcels at prices that we
believe will generate reasonable returns under current homebuilding market
conditions. This trend may not continue in either the near or the long term.
Substantially all homes under construction or completed and included in
inventory at July 31, 2021 are expected to be delivered during the next six to
nine months.



Consolidated inventory not owned decreased $84.1 million. Consolidated inventory
not owned consists of options related to land banking and model financing
transactions that were added to our Condensed Consolidated Balance Sheet in
accordance with US GAAP. The decrease from October 31, 2020 to July 31, 2021 was
primarily due to a decrease in land banking transactions and a decrease in the
sale and leaseback of certain model homes during the period. We have land
banking arrangements, whereby we sell land parcels to the land bankers and they
provide us an option to purchase back finished lots on a predetermined
schedule. Because of our options to repurchase these parcels, for accounting
purposes in accordance with ASC 606-10-55-70, these transactions are considered
a financing rather than a sale. For purposes of our Condensed Consolidated
Balance Sheet, at July 31, 2021, inventory of $62.1 million was recorded to
"Consolidated inventory not owned," with a corresponding amount of $34.7 million
(net of debt issuance costs) recorded to "Liabilities from inventory not owned"
for the amount of net cash received from the transactions. In addition, we sell
and lease back certain of our model homes with the right to participate in the
potential profit when each home is sold to a third party at the end of the
respective lease. As a result of our continued involvement, for accounting
purposes in accordance with ASC 606-10-55-68, these sale and leaseback
transactions are considered a financing rather than a sale. Therefore, for
purposes of our Condensed Consolidated Balance Sheet, at July 31, 2021,
inventory of $36.0 million was recorded to "Consolidated inventory not owned,"
with a corresponding amount of $34.9 million (net of debt issuance costs)
recorded to "Liabilities from inventory not owned" for the amount of net cash
received from the transactions.



When possible, we option property for development prior to acquisition. By
optioning property, we are only subject to the loss of the cost of the option
and predevelopment costs if we choose not to exercise the option. As a result,
our commitment for major land acquisitions is reduced. The costs associated with
optioned properties are included in "Land and land options held for future
development or sale" on the Condensed Consolidated Balance Sheets. Also included
in "Land and land options held for future development or sale" are amounts
associated with inventory in mothballed communities. We mothball (or stop
development on) certain communities when we determine the current performance
does not justify further investment at the time. That is, we believe we will
generate higher returns if we decide against spending money to improve land
today and save the raw land until such time as the markets improve or we
determine to sell the property. As of July 31, 2021, we had mothballed land in
eight communities. The book value associated with these communities at July 31,
2021 was $4.4 million, which was net of impairment charges recorded in prior
periods of $61.5 million. We continually review communities to determine if
mothballing is appropriate. During the first three quarters of fiscal 2021, we
did not mothball any additional communities, but we sold two previously
mothballed communities and we re-activated two previously mothballed communities
and portions of two previously mothballed communities.



Inventories held for sale, which are land parcels where we have decided not to
build homes and are actively marketing the land for sale, represented $0.1
million and $2.0 million of our total inventories held for sale at July 31, 2021
and October 31, 2020, respectively, and are reported at the lower of carrying
amount or fair value less costs to sell. In determining fair value for land held
for sale, management considers, among other things, prices for land in recent
comparable sale transactions, market analysis studies, which include the
estimated price a willing buyer would pay for the land (other than in a forced
liquidation sale) and recent bona fide offers received from outside third
parties.



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The following tables summarize home sites included in our total residential real
estate. The increase in total home sites available at July 31, 2021 compared
to October 31, 2020 is attributable to acquiring new land parcels, partially
offset by delivering homes and terminating certain option agreements during the
period.



                                                                  Active           Proposed
                                               Active           Communities       Developable        Total
                                           Communities(1)          Homes             Homes           Homes
July 31, 2021:

Northeast                                                6               753             2,626         3,379
Mid-Atlantic                                            12             2,083             5,847         7,930
Midwest                                                  9             1,199               972         2,171
Southeast                                               18             1,885             2,059         3,944
Southwest                                               45             4,717             5,142         9,859
West                                                    14             2,277             1,825         4,102

Consolidated total                                     104            12,914            18,471        31,385

Unconsolidated joint ventures (2)                       17             4,186                 -         4,186

Owned                                                                  7,631             2,838        10,469
Optioned                                                               4,900            15,633        20,533

Controlled lots                                                       12,531            18,471        31,002

Construction to permanent financing lots                                 383                 -           383

Consolidated total                                                    12,914            18,471        31,385

(1) Active communities are open for sale communities with ten or more home sites

      available. We identify communities based on product type. Therefore, at
      times there are multiple communities at one land site.




  (2) Represents active communities and home sites for our unconsolidated
      homebuilding joint ventures for the period. We provide this data as a

supplement to our consolidated results as an indicator of the volume managed

      in our unconsolidated joint ventures. See Note 18 to the Condensed
      Consolidated Financial Statements for a further discussion of our
      unconsolidated joint ventures.




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                                                                  Active           Proposed
                                               Active           Communities       Developable        Total
                                           Communities(1)          Homes             Homes           Homes
October 31, 2020:

Northeast                                                2               424             2,619         3,043
Mid-Atlantic                                            17             2,164             3,764         5,928
Midwest                                                 11             1,267               899         2,166
Southeast                                                9             1,599             1,472         3,071
Southwest                                               52             4,451             3,190         7,641
West                                                    25             2,000             2,495         4,495

Consolidated total                                     116            11,905            14,439        26,344

Unconsolidated joint ventures (2)                       20             4,724                 -         4,724

Owned                                                                  6,008             3,737         9,745
Optioned                                                               5,602            10,702        16,304

Controlled lots                                                       11,610            14,439        26,049

Construction to permanent financing lots                                 295                 -           295

Consolidated total                                                    11,905            14,439        26,344

(1) Active communities are open for sale communities with ten or more home sites

available. We identify communities based on product type. Therefore, at

      times there are multiple communities at one land site.

  (2) Represents active communities and home sites for our unconsolidated
      homebuilding joint ventures for the period. We provide this data as a

supplement to our consolidated results as an indicator of the volume managed

      in our unconsolidated joint ventures. See Note 18 to the Condensed
      Consolidated Financial Statements for a further discussion of our
      unconsolidated joint ventures.




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The following table summarizes our started or completed unsold homes and models,
excluding unconsolidated joint ventures, in active and substantially completed
communities.



                                     July 31, 2021                               October 31, 2020:

                          Unsold                                       Unsold
                          Homes          Models         Total           Homes          Models         Total

Northeast                        6              5             11               1              5              6
Mid-Atlantic                    18             19             37              31             10             41
Midwest                          -             10             10              11              8             19
Southeast                       17             25             42              42             17             59
Southwest                      107             24            131             174             16            190
West                             6             18             24              14             19             33

Total                          154            101            255             273             75            348


Started or completed
unsold homes and
models per active
selling communities
(1)                            1.5            1.0            2.5             2.4            0.6            3.0

(1) Active selling communities (which are communities that are open for sale with

ten or more home sites available) were 104 and 116 at July 31, 2021 and

October 31, 2020, respectively. This ratio does not include substantially

completed communities, which are communities with less than ten home sites

    available.

Other Balance Sheet Activities

Investments in and advances to unconsolidated joint ventures decreased
$34.3 million to $68.9 million at July 31, 2021 compared to October 31, 2020.
The decrease was primarily due to our purchase of the remaining equity interest
in one of our unconsolidated joint ventures in the third quarter of fiscal 2021.
As a result of this transaction, we took control of four communities, including
three active communities. The unconsolidated joint venture was subsequently
dissolved. Also contributing to the decrease were partnership distributions
during the period. These decreases were partially offset by an increase due to
our entry into two new unconsolidated joint ventures during the first half of
fiscal 2021. As of July 31, 2021 and October 31, 2020, we had investments in 11
and ten unconsolidated homebuilding joint ventures, respectively, and one
unconsolidated land development joint venture for both periods. We have no
guarantees associated with our unconsolidated joint ventures, other than
guarantees limited to performance and completion of development activities,
environmental indemnification and standard warranty and representation against
fraud, misrepresentation and similar actions, including a voluntary bankruptcy.



Receivables, deposits and notes, net increased $4.0 million from October 31,
2020 to $37.7 million at July 31, 2021. The increase was primarily due to an
increase in receivables due to the timing of home closings, along with increased
escrow and municipal deposits during the period, partially offset by a
receivable for a settlement which was received in the third quarter of fiscal
2021.

Prepaid expenses and other assets were as follows as of:

                           July 31,       October 31,       Dollar
(In thousands)               2021            2020           Change

Prepaid insurance          $   4,730     $       2,687     $  2,043
Prepaid project costs         26,806            28,549       (1,743 )
Other prepaids                 8,555             7,022        1,533
Other assets                     372               431          (59 )
Lease right of use asset      18,108            20,016       (1,908 )
Total                      $  58,571     $      58,705     $   (134 )




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Prepaid insurance increased during the nine months ended July 31, 2021 due to
the timing of premium payments. These costs are amortized over the life of the
associated insurance policy, which can be one to three years. Prepaid project
costs consist of community specific expenditures that are used over the life of
the community. Such prepaid costs are expensed as homes are delivered. Other
prepaids increased primarily due to new premiums for the renewal of certain
software and related services during the period, partially offset by the
amortization of these costs. Lease right of use asset represents the net present
value of our operating leases which, in accordance with ASC 842, are required to
be recorded as an asset on our Condensed Consolidated Balance Sheets. See Note 9
to the Condensed Consolidated Financial Statements for further information.



Financial services assets consist primarily of residential mortgages receivable
held for sale of which $129.8 million and $101.8 million at July 31, 2021 and
October 31, 2020, respectively, were being temporarily warehoused and are
awaiting sale in the secondary mortgage market. The increase in mortgage loans
held for sale from October 31, 2020 was related to an increase in the volume of
loans originated during the third quarter of 2021 compared to the fourth quarter
of 2020, along with an increase in the average loan value.



Deferred tax assets, net, was $447.5 million at July 31, 2021, and zero at
October 31, 2020, due to the full reversal of our federal valuation allowance
and the reversal of a portion of our state valuation allowance in the second
quarter of fiscal 2021.



Nonrecourse mortgages secured by inventory decreased to $118.0 million at July
31, 2021 from $135.1 million at October 31, 2020. The decrease was primarily due
to the payment of existing mortgages, partially offset by additional loan
borrowings on existing mortgages, along with new mortgages for communities in
most of our segments obtained during the nine months ended July 31, 2021.

Accounts payable and other liabilities were as follows as of:

                       July 31,       October 31,       Dollar
(In thousands)           2021            2020           Change

Accounts payable       $ 166,140     $     148,541     $ 17,599
Reserves                  98,302            89,985        8,317
Lease liability           19,135            21,049       (1,914 )
Accrued expenses          16,815            10,680        6,135
Accrued compensation      78,821            68,641       10,180
Other liabilities         22,070            20,378        1,692
Total                  $ 401,283     $     359,274     $ 42,009




The increase in accounts payable was primarily due to an increase in
construction spending, which correlates with the increase in backlog for the
nine months ended July 31, 2021. Reserves increased due to new accruals
primarily for warranty and construction defect claims, partially offset by claim
payments during the period. Lease liability represents the net present value of
our minimum lease obligations, which as discussed above, are required to be
recorded on our Condensed Consolidated Balance Sheets in accordance with ASC
842. Accrued expenses increased primarily due to an accrual for a sales reward
program, along with an increase in accrued property taxes. The increase in
accrued compensation was primarily due to expenses associated with our 2019 LTIP
plan based on the increase in our stock price during fiscal 2021, along with the
accrual of fiscal 2021 bonuses, partially offset by the payment of our fiscal
year 2020 bonuses during the first quarter of fiscal 2021. Other liabilities
increased primarily due to deferred payroll tax withholdings during the period.

Customers' deposits increased $28.4 million from October 31, 2020 to $76.7 million at July 31, 2021. The increase was primarily related to the increase in backlog during the period.

Liabilities from inventory not owned decreased $61.6 million to $69.6 million at
July 31, 2021. The decrease was primarily due to a decrease in land banking
activity during the period and a decrease in the sale and leaseback of certain
model homes, both accounted for as financing transactions as described above.



Financial Services (liabilities) increased $39.2 million from $119.0 million at
October 31, 2020 to $158.2 million at July 31, 2021. The increase was primarily
due to an increase in amounts outstanding under our mortgage warehouse lines of
credit and directly correlates to the increase in the volume of mortgage loans
held for sale during the period.



Accrued interest increased $11.9 million from $35.6 million at October 31, 2020,
to $47.5 at July 31, 2021. The increase was primarily due to timing of new
accruals, partially offset by payments, related to our senior notes during the
period.



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RESULTS OF OPERATIONS FOR THE three and nine months ended July 31, 2021 COMPARED TO THE three and nine months ended July 31, 2020

Total Revenues

Compared to the same prior period, revenues increased as follows:

                                                 Three Months Ended

                                July 31,      July 31,       Dollar       Percentage
(Dollars in thousands)            2021          2020         Change         Change
Homebuilding:
Sale of homes                   $ 663,279     $ 605,933     $ 57,346              9.5 %
Land sales and other revenues       7,559           908        6,651            732.5 %
Financial services                 19,845        21,295       (1,450 )           (6.8 )%

Total revenues                  $ 690,683     $ 628,136     $ 62,547             10.0 %




                                                    Nine Months Ended

                                 July 31,        July 31,        Dollar        Percentage
(Dollars in thousands)             2021            2020          Change          Change
Homebuilding:
Sale of homes                   $ 1,894,159     $ 1,608,513     $ 285,646             17.8 %
Land sales and other revenues        13,280           2,360        10,920            462.7 %
Financial services                   61,070          49,670        11,400             23.0 %

Total revenues                  $ 1,968,509     $ 1,660,543     $ 307,966             18.5 %




Homebuilding



For the three and nine months ended July 31, 2021, sale of homes revenues
increased $57.3 million, or 9.5%, and $285.6 million, or 17.8%, respectively, as
compared to the same periods of the prior year. These increases were primarily
due to a 13.5% and 7.6% increase in the average price per home for the three and
nine months ended July 31, 2021, respectively, compared with the respective
prior year periods. The average price per home increased to $442,776 in the
three months ended July 31, 2021 from $390,169 in the three months ended July
31, 2020. The average price per home increased to $420,831 in the nine months
ended July 31, 2021 from $390,985 in the nine months ended July 31, 2020. The
increase in average price was the result of increases in home prices in
virtually all of our markets along with the geographic and community mix of our
deliveries. Also, impacting the increase in sale of homes revenues for the nine
months ended July 31, 2021 was a 9.4% increase in the number of home deliveries
compared to the prior year period. Land sales are ancillary to our homebuilding
operations and are expected to continue in the future but may significantly
fluctuate up or down. For further details on the decrease in land sales and
other revenues, see the section titled "Land Sales and Other Revenues" below.



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Information on homes delivered by segment is set forth below:

                              Three Months Ended July 31,                    Nine Months Ended July 31,
(Dollars in
thousands)                 2021          2020         % Change          2021            2020          % Change

Northeast:
Dollars                 $   35,255     $  41,354          (14.7 )%   $    95,157     $   133,409          (28.7 )%
Homes                           44            95          (53.7 )%           139             270          (48.5 )%

Mid-Atlantic:
Dollars                 $  106,195     $ 111,160           (4.5 )%   $   311,230     $   288,426            7.9 %
Homes                          189           213          (11.3 )%           581             536            8.4 %

Midwest:
Dollars                 $   60,588     $  62,901           (3.7 )%   $   181,191     $   165,836            9.3 %
Homes                          190           197           (3.6 )%           576             540            6.7 %

Southeast:
Dollars                 $   61,978     $  65,595           (5.5 )%   $   188,489     $   158,592           18.9 %
Homes                          139           155          (10.3 )%           408             379            7.7 %

Southwest:
Dollars                 $  212,773     $ 214,608           (0.9 )%   $   620,120     $   548,796           13.0 %
Homes                          593           641           (7.5 )%         1,808           1,649            9.6 %

West:
Dollars                 $  186,490     $ 110,315           69.1 %    $   497,972     $   313,454           58.9 %
Homes                          343           252           36.1 %            989             740           33.6 %

Consolidated total:
Dollars                 $  663,279     $ 605,933            9.5 %    $ 1,894,159     $ 1,608,513           17.8 %
Homes                        1,498         1,553           (3.5 )%         4,501           4,114            9.4 %

Unconsolidated joint
ventures (1)
Dollars                 $  102,262     $ 132,014          (22.5 )%   $   264,442     $   330,559          (20.0 )%
Homes                          179           228          (21.5 )%           453             565          (19.8 )%




(1) Represents housing revenues and home deliveries for our unconsolidated
homebuilding joint ventures for the period. We provide this data as a supplement
to our consolidated results as an indicator of the volume managed in our
unconsolidated joint ventures. See Note 18 to the Condensed Consolidated
Financial Statements included elsewhere in this Quarterly Report on Form 10-Q
for a further discussion of our unconsolidated joint ventures.



As discussed above, the overall increase in consolidated housing revenues during
the three and nine months ended July 31, 2021 as compared to the same periods of
the prior year was attributed to the increase in average sales price, due to
raising prices in virtually all of our markets, and the geographic and community
mix of deliveries.





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An important indicator of our future results are recently signed contracts and
our home contract backlog for future deliveries. Our sales contracts and homes
in contract backlog by segment are set forth below:



                           Net Contracts (1) for the          Net Contracts (1) for the
                               Three Months Ended                 Nine Months Ended              Contract Backlog as of
                                    July 31,                           July 31,                         July 31,
(Dollars in thousands)       2021               2020             2021      

      2020            2021            2020

Northeast:
Dollars                  $      52,066       $   51,586     $      135,684     $   107,855     $   122,638     $    61,002
Homes                               62              102                169             231             160             113

Mid-Atlantic:
Dollars                  $     117,341       $  152,511     $      414,059     $   374,865     $   361,329     $   269,972
Homes                              176              307                647             737             572             523

Midwest:
Dollars                  $      56,848       $   79,394     $      216,775     $   192,171     $   205,101     $   149,016
Homes                              165              263                628             624             648             534

Southeast:
Dollars                  $      58,522       $   79,846     $      223,201     $   195,512     $   211,859     $   145,947
Homes                              124              172                487             436             440             304

Southwest:
Dollars                  $     196,481       $  260,891     $      783,924     $   626,817     $   524,029     $   308,918
Homes                              469              814              2,034           1,924           1,292             938

West:
Dollars                  $     127,872       $  258,067     $      453,557     $   488,317     $   325,472     $   299,564
Homes                              215              568                795           1,083             561             644

Consolidated total:
Dollars                  $     609,130       $  882,295     $    2,227,200     $ 1,985,537     $ 1,750,428     $ 1,234,419
Homes                            1,211            2,226              4,760           5,035           3,673           3,056

Unconsolidated joint
ventures:(2)
Dollars                  $     140,913       $  135,869     $      408,804     $   384,910     $   502,999     $   271,222
Homes                              380              374              1,112           1,078           2,065           1,030

(1) Net contracts are defined as new contracts executed during the period for the purchase of homes, less cancellations of contracts in the same period.

(2) Represents net contract dollars, net contract homes and contract backlog
dollars and homes for our unconsolidated homebuilding joint ventures for the
period. We provide this data as a supplement to our consolidated results as an
indicator of the volume managed in our unconsolidated joint ventures. See Note
18 to the Condensed Consolidated Financial Statements included elsewhere in this
Quarterly Report on Form 10-Q for a further discussion of our unconsolidated
joint ventures.



In the first three quarters of 2021, our open for sale community count decreased
to 104 from 116 at October 31, 2020, which was the net result of opening 48 new
communities, closing 60 communities, contributing three active selling
communities to an unconsolidated joint venture and transitioning three joint
venture communities to wholly owned since the beginning of fiscal 2021. High
demand accelerated the close out of our communities, which contributed to the
decrease in community count. While our open for sale community count decreased
from October 31, 2020, it increased sequentially from 97 at April 30, 2021 as a
result of opening 17 new communities, closing 13 communities and adding three
communities through the acquisition of one of our unconsolidated joint ventures
during the third quarter of fiscal 2021. Our reported level of sales contracts
(net of cancellations) was impacted by an increase in sales pace per community
for the nine months ended July 31, 2021 as compared to the same period of the
prior year. Net contracts per average active selling community for the nine
months ended July 31, 2021 increased to 44.9 compared to 38.1 for the same
period in the prior year, while net contracts per average active selling
community for the three months ended July 31, 2021 decreased to 12.0 compared to
17.8 for the same period in the prior year. The decrease in the third quarter of
fiscal 2021 as compared to the same period of the prior year was due to
consciously restricting sales in many of our communities in the current period,
along with the unprecedented COVID-19 surge in home demand in the third quarter
of fiscal 2020.





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Cancellation rates represent the number of cancelled contracts in the quarter divided by the number of gross sales contracts executed in the quarter. For comparison, the following are historical cancellation rates, excluding unconsolidated joint ventures:

Quarter   2021      2020      2019      2018      2017

First        17 %      19 %      24 %      18 %      19 %
Second       16 %      23 %      19 %      17 %      18 %
Third        16 %      18 %      19 %      19 %      19 %
Fourth                 18 %      21 %      23 %      22 %

Another common and meaningful way to analyze our cancellation trends is to compare the number of contract cancellations as a percentage of the beginning backlog. The following table provides this historical comparison, excluding unconsolidated joint ventures:

Quarter   2021      2020      2019      2018      2017

First        11 %      14 %      16 %      12 %      12 %
Second        9 %      20 %      20 %      15 %      16 %
Third         6 %      21 %      16 %      14 %      13 %
Fourth                 14 %      14 %      13 %      12 %




Most cancellations occur within the legal rescission period, which varies by
state but is generally less than two weeks after the signing of the contract.
Cancellations also occur as a result of a buyer's failure to qualify for a
mortgage, which generally occurs during the first few weeks after signing. As
shown in the tables above, contract cancellations over the past several years
have been within what we believe to be a normal range, with fiscal 2021
cancellation rates, in particular, being below historical norms as a result of
the strong market conditions. However, it is difficult to predict what
cancellation rates will be in the future.



Total cost of sales on our Condensed Consolidated Statements of Operations
includes expenses for consolidated housing and land and lot sales, including
inventory impairment loss and land option write-offs (defined as "land charges"
in the tables below). A breakout of such expenses for housing sales and
homebuilding gross margin is set forth below.



Homebuilding gross margin before cost of sales interest expense and land charges
is a non-GAAP financial measure. This measure should not be considered as an
alternative to homebuilding gross margin determined in accordance with GAAP as
an indicator of operating performance.



Management believes this non-GAAP measure enables investors to better understand
our operating performance. This measure is also useful internally, helping
management evaluate our operating results on a consolidated basis and relative
to other companies in our industry. In particular, the magnitude and volatility
of land charges for the Company, and for other homebuilders, have been
significant and, as such, have made financial analysis of our industry more
difficult. Homebuilding metrics excluding land charges, as well as interest
amortized to cost of sales, and other similar presentations prepared by analysts
and other companies are frequently used to assist investors in understanding and
comparing the operating characteristics of homebuilding activities by
eliminating many of the differences in companies' respective level of
impairments and levels of debt.





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                                             Three Months Ended             Nine Months Ended
                                                  July 31,                      July 31,
(Dollars in thousands)                       2021          2020           2021            2020

Sale of homes                              $ 663,279     $ 605,933     $ 1,894,159     $ 1,608,513
Cost of sales, excluding interest
expense and land charges                     516,530       499,654       1,488,919       1,323,916
Homebuilding gross margin, before cost
of sales interest expense and land
charges                                      146,749       106,279         405,240         284,597
Cost of sales interest expense,
excluding land sales interest expense         17,821        21,794          56,242          58,467
Homebuilding gross margin, after cost of
sales interest expense, before land
charges                                      128,928        84,485         348,998         226,130
Land charges                                   1,309         2,364           3,267           6,202
Homebuilding gross margin                  $ 127,619     $  82,121     $   345,731     $   219,928
Homebuilding gross margin percentage            19.2 %        13.6 %          18.3 %          13.7 %
Homebuilding gross margin percentage,
before cost of sales interest expense
and land charges                                22.1 %        17.5 %          21.4 %          17.7 %
Homebuilding gross margin percentage,
after cost of sales interest expense,
before land charges                             19.4 %        13.9 %          18.4 %          14.1 %




Cost of sales expenses as a percentage of consolidated home sales revenues are
presented below:



                                              Three Months Ended            Nine Months Ended
                                                   July 31,                      July 31,
                                              2021           2020           2021          2020

Sale of homes                                   100.0 %        100.0 %        100.0 %       100.0 %

Cost of sales, excluding interest
expense and land charges:
Housing, land and development costs              69.6 %         72.8 %         70.1 %        72.6 %
Commissions                                       3.7 %          3.9 %          3.6 %         3.7 %
Financing concessions                             1.0 %          1.5 %          1.2 %         1.4 %
Overheads                                         3.6 %          4.3 %          3.7 %         4.6 %
Total cost of sales, before interest
expense and land charges                         77.9 %         82.5 %         78.6 %        82.3 %
Cost of sales interest                            2.7 %          3.6 %          3.0 %         3.6 %
Land charges                                      0.2 %          0.3 %          0.1 %         0.4 %

Homebuilding gross margin percentage             19.2 %         13.6 %         18.3 %        13.7 %
Homebuilding gross margin percentage,
before cost of sales interest expense
and land charges                                 22.1 %         17.5 %         21.4 %        17.7 %
Homebuilding gross margin percentage,
after cost of sales interest expense,
before land charges                              19.4 %         13.9 %         18.4 %        14.1 %




We sell a variety of home types in various communities, each yielding a
different gross margin. As a result, depending on the mix of communities
delivering homes, consolidated gross margin may fluctuate up or down. Total
homebuilding gross margin percentage increased to 19.2% during the three months
ended July 31, 2021 compared to 13.6% for the same period last year and
increased to 18.3% during the nine months ended July 31, 2021 compared to 13.7%
for the same period last year. Homebuilding gross margin percentage, before cost
of sales interest expense and land charges, increased from 17.5% for the three
months ended July 31, 2020 to 22.1% for the three months ended July 31, 2021,
and increased from 17.7% for the nine months ended July 31, 2020 to 21.4% for
the nine months ended July 31, 2021. The increases for the three and nine months
ended July 31, 2021 for both gross margin percentage and gross margin
percentage, before cost of sales interest expense and land charges, were
primarily due to increases in home prices across virtually all our operating
segments, along with the mix of communities delivering compared to the prior
year periods.



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Reflected as inventory impairment loss and land option write-offs in cost of
sales, we wrote-off or wrote-down certain inventories totaling $1.3 million and
$2.4 million during the three months ended July 31, 2021 and 2020, respectively,
and $3.3 million and $6.2 million during the nine months ended July 31, 2021 and
2020, respectively, to their estimated fair value. During the three and nine
months ended July 31, 2021, we wrote-off residential land options and approval
and engineering costs amounting to $0.1 million and $1.3 million, respectively,
compared to $2.4 million and $6.2 million for the three and nine months ended
July 31, 2020, respectively, which are included in the total land charges
discussed above. Option, approval and engineering costs are written-off when a
community's pro forma profitability is not projected to produce adequate returns
on the investment commensurate with the risk and when we believe it is probable
we will cancel the option or when a community is redesigned engineering costs
related to the initial design are written-off. Such write-offs were located in
the Mid-Atlantic, Southeast, Southwest and West segments in the first three
quarters of fiscal 2021 and all of our segments in the first three quarters of
fiscal 2020. We recorded inventory impairments of $1.2 million and $2.0 million
during the three and nine months ended July 31, 2021, respectively, which were
related to two communities in the Southeast segment for the three and nine
months ended July 31, 2021, and one community in the West segment for the nine
months ended July 31, 2021. We did not record any inventory impairments during
the three and nine months ended July 31, 2020. It is difficult to predict
impairment levels, and should it become necessary or desirable to have
additional land sales, lower prices, or should the estimates or expectations
used in determining estimated cash flows or fair value decrease or differ from
current estimates in the future, we may need to recognize additional
impairments.

Land Sales and Other Revenues

Land sales and other revenues consist primarily of land and lot sales. A breakout of land and lot sales is set forth below:

                                               Three Months Ended              Nine Months Ended
                                                    July 31,                       July 31,
(In thousands)                                2021             2020           2021           2020

Land and lot sales                         $     6,819       $      25     $    11,730     $     100
Cost of sales, excluding interest                5,338              41           9,121           161
Land and lot sales gross margin,
excluding interest                               1,481             (16 )         2,609           (61 )
Land and lot sales interest expense              1,419              20           1,888            72
Land and lot sales gross margin,
including interest                         $        62       $     (36 )   $       721     $    (133 )




Land sales are ancillary to our residential homebuilding operations and are
expected to continue in the future but may significantly fluctuate up or down.
Although we budget land sales, they are often dependent upon receiving approvals
and entitlements, the timing of which can be uncertain. As a result, projecting
the amount and timing of land sales is difficult. Revenue associated with land
sales can vary significantly due to the mix of land parcels sold. There were
two land sales in the three months ended July 31, 2021 compared to one land sale
in the same period of the prior year, resulting in an increase of $6.8 million
in land sales revenues. There were eight land sales in the nine months ended
July 31, 2021 compared to four land sales in the same period of the prior year,
resulting in an increase of $11.6 million in land sales revenues.



Land sales and other revenues increased $6.7 million and $10.9 million for the
three and nine months ended July 31, 2021, respectively, as compared to the same
periods in the prior year. Other revenues include income from contract
cancellations where the deposit has been forfeited due to contract terminations,
interest income, cash discounts and miscellaneous one-time receipts.  The
increase for the three and nine months ended July 31, 2021, compared to the
three and nine months ended July 31, 2020, was mainly due to the increase in
land sales discussed above.

Homebuilding Selling, General and Administrative

Homebuilding selling, general and administrative ("SGA") expenses increased $2.4
million and $3.5 million for the three and nine months ended July 31, 2021,
respectively, compared to the same periods last year. The increase for the three
and nine months ended July 31, 2021 was primarily due to a decrease of
unconsolidated joint venture management fees received, which offset general and
administrative expenses, as a result of fewer unconsolidated joint venture
deliveries during the respective periods. The increase for the nine months ended
July 31, 2021 was also due to an increase in compensation expense, mostly
attributed to our long-term incentive programs now forecasted to achieve above
target metrics as a result of the recent improved operating results and our
higher stock price. SGA expenses as a percentage of homebuilding revenues
decreased to 6.4% and 6.6% for the three and nine months ended July 31, 2021,
respectively, compared to 6.7% and 7.6% for the three and nine months ended July
31, 2020, respectively, as a result of the 10.5% and 18.4% increase in
homebuilding revenue for the same periods, respectively.



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HOMEBUILDING OPERATIONS BY SEGMENT

Segment Analysis



                                                        Three Months Ended July 31,

(Dollars in thousands, except average
sales price)                                 2021          2020        

Variance Variance %

Northeast

Homebuilding revenue                       $  35,255     $  41,370     $  (6,115 )         (14.8 )%
Income before income taxes                 $   6,765     $   5,240     $   1,525            29.1 %
Homes delivered                                   44            95           (51 )         (53.7 )%
Average sales price                        $ 801,250     $ 435,305     $ 365,945            84.1 %

Mid-Atlantic

Homebuilding revenue                       $ 106,419     $ 111,402     $  (4,983 )          (4.5 )%
Income before income taxes                 $  15,907     $  11,024     $   4,883            44.3 %
Homes delivered                                  189           213           (24 )         (11.3 )%
Average sales price                        $ 561,878     $ 521,878     $  40,000             7.7 %

Midwest

Homebuilding revenue                       $  60,659     $  63,003     $  (2,344 )          (3.7 )%
Income before income taxes                 $   3,358     $     765     $   2,593           339.0 %
Homes delivered                                  190           197            (7 )          (3.6 )%
Average sales price                        $ 318,884     $ 319,294     $    (410 )          (0.1 )%

Southeast
Homebuilding revenue                       $  68,854     $  65,790     $   3,064             4.7 %
Income (loss) before income taxes          $   2,682     $    (253 )   $   2,935         1,160.1 %
Homes delivered                                  139           155           (16 )         (10.3 )%
Average sales price                        $ 445,885     $ 423,194     $  22,691             5.4 %

Southwest
Homebuilding revenue                       $ 213,127     $ 214,918     $  (1,791 )          (0.8 )%
Income before income taxes                 $  28,523     $  20,072     $   8,451            42.1 %
Homes delivered                                  593           641           (48 )          (7.5 )%
Average sales price                        $ 358,808     $ 334,802     $  24,006             7.2 %

West
Homebuilding revenue                       $ 186,519     $ 110,323     $  76,196            69.1 %
Income before income taxes                 $  27,189     $     226     $  26,963        11,930.5 %
Homes delivered                                  343           252            91            36.1 %
Average sales price                        $ 543,703     $ 437,758     $ 105,945            24.2 %




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                                                        Nine Months Ended July 31,

(Dollars in thousands, except average
sales price)                              2021          2020        

Variance Variance %

Northeast

Homebuilding revenue                    $  97,488     $ 133,444     $ (35,956 )              (26.9 )%
Income before income taxes              $  16,427     $  17,703     $  (1,276 )               (7.2 )%
Homes delivered                               139           270          (131 )              (48.5 )%
Average sales price                     $ 684,583     $ 494,107     $ 190,476                 38.5 %

Mid-Atlantic
Homebuilding revenue                    $ 311,564     $ 288,899     $  22,665                  7.8 %
Income before income taxes              $  38,618     $  20,548     $  18,070                 87.9 %
Homes delivered                               581           536            45                  8.4 %
Average sales price                     $ 535,680     $ 538,108     $  (2,428 )               (0.5 )%

Midwest
Homebuilding revenue                    $ 183,895     $ 166,120     $  17,775                 10.7 %
Income (loss) before income taxes       $  11,070     $  (3,063 )   $  14,133                461.4 %
Homes delivered                               576           540            36                  6.7 %
Average sales price                     $ 314,568     $ 307,104     $   7,464                  2.4 %

Southeast
Homebuilding revenue                    $ 195,545     $ 158,933     $  36,612                 23.0 %

Income (loss) before income taxes $ 9,540 $ (4,514 ) $ 14,054

                311.3 %
Homes delivered                               408           379            29                  7.7 %
Average sales price                     $ 461,983     $ 418,449     $  43,534                 10.4 %

Southwest
Homebuilding revenue                    $ 620,848     $ 549,471     $  71,377                 13.0 %
Income before income taxes              $  78,848     $  41,744     $  37,104                 88.9 %
Homes delivered                             1,808         1,649           159                  9.6 %
Average sales price                     $ 342,987     $ 332,805     $  10,182                  3.1 %

West
Homebuilding revenue                    $ 498,084     $ 313,547     $ 184,537                 58.9 %
Income before income taxes              $  58,729     $   4,560     $  54,169              1,187.9 %
Homes delivered                               989           740           249                 33.6 %
Average sales price                     $ 503,511     $ 423,586     $  79,925                 18.9 %




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Homebuilding Results by Segment

Northeast - Homebuilding revenues decreased 14.8% for the three months ended
July 31, 2021 compared to the same period of the prior year. The decrease for
the three months ended July 31, 2021 was attributed to a 53.7% decrease in homes
delivered, partially offset by a 84.1% increase in average sales price. The
increase in average sales price was mainly the result of price increases in
certain communities.



Income before income taxes increased $1.5 million to $6.8 million for the three
months ended July 31, 2021 as compared to the prior year period. This was
primarily due to a $1.2 million decrease in inventory impairment loss and land
option write-offs and an increase in gross margin percentage before interest
expense for the period compared to the same period of the prior year.



Homebuilding revenues decreased 26.9% for the nine months ended July 31, 2021
compared to the same period of the prior year. The decrease was attributed to a
48.5% decrease in homes delivered, partially offset by a 38.5% increase in
average sales price. The increase in average sales price was mainly the result
of price increases in certain communities.



Income before income taxes decreased $1.3 million to $16.4 million for the nine
months ended July 31, 2021 as compared to the prior year period. This was
primarily due to the decrease in homebuilding revenues discussed above and a
$7.7 million decrease in income from unconsolidated joint ventures and a $0.7
million increase in selling, general and administrative costs, partially offset
by an increase in gross margin percentage before interest expense for the period
compared to the same period of the prior year.



Mid-Atlantic - Homebuilding revenues decreased 4.5% for the three months ended
July 31, 2021 compared to the same period in the prior year period. The decrease
was primarily due to an 11.3% decrease in homes delivered, partially offset by a
7.7% increase in average sales price for the three months ended July 31, 2021
compared to the same period in the prior year. The increase in average sales
price was mainly the result of price increases in certain communities.



Income before income taxes increased $4.9 million to $15.9 million for the three
months ended July 31, 2021 compared to the same period in the prior year. This
was primarily due to an increase in gross margin percentage before interest
expense for the three months ended July 31, 2021 compared to the same period of
the prior year.



Homebuilding revenues increased 7.8% for the nine months ended July 31, 2021
compared to the same period in the prior year. The increase was primarily due to
an 8.4% increase in homes delivered, while average sales price was essentially
flat with a 0.5% decrease for the nine months ended July 31, 2021.

Income before income taxes increased $18.1 million to $38.6 million for the nine months ended July 31, 2021 as compared to the prior year period, which was primarily due to the increase in homebuilding revenues discussed above, a $0.2 million decrease in selling, general and administrative costs and an increase in gross margin percentage before interest expense.

Midwest - Homebuilding revenues decreased 3.7% for the three months ended July
31, 2021 compared to the same period in the prior year. The decrease was due to
a 3.6% decrease in homes delivered while average sales price was essentially
flat with a 0.1% decrease for the nine months ended July 31, 2021.



Income before income taxes increased $2.6 million to $3.4 million for the three
months ended July 31, 2021 compared to the same period in the prior year. The
increase was primarily due to a $0.8 million decrease in selling, general and
administrative costs and a $0.7 million decrease in inventory impairment loss
and land option write-offs, while gross margin percentage before interest
expense was flat compared with the same period of the prior year.



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Homebuilding revenues increased 10.7% for the nine months ended July 31, 2021
compared to the same period in the prior year. The increase was primarily due to
a 6.7% increase in homes delivered and a 2.4% increase in the average sales
price. The increase in average sales price was the result of new communities
delivering higher priced, larger single family homes and townhomes in higher-end
submarkets of the segment in the nine months ended July 31, 2021 compared to
some communities delivering in the nine months ended July 31, 2020 that had
lower priced, single family homes in lower-end submarkets of the segment that
are no longer delivering. Also impacting the increase in the average sales price
was price increases in certain communities.



Loss before income taxes improved $14.1 million to income of $11.1 million for
the nine months ended July 31, 2021 as compared to the prior year period,
primarily due to the increase in homebuilding revenue discussed above, a
$3.3 million decrease in selling, general and administrative costs, a
$3.5 million decrease in inventory impairment loss and land option write-offs
and a slight increase in gross margin percentage before interest expense.



Southeast - Homebuilding revenues increased 4.7% for the three months ended July
31, 2021 compared to the same period in the prior year. The increase was due to
a 5.4% increase in average sales price and a $6.7 million increase in land sales
and other revenue, partially offset by a 10.3% decrease in homes delivered. The
increase in average sales price was the result of new communities delivering
higher priced, larger single family homes in higher-end submarkets of the
segment in the three months ended July 31, 2021 compared to some communities
delivering in the three months ended July 31, 2020 that had lower priced,
smaller single family homes and townhomes in lower-end submarkets of the segment
that are no longer delivering. Also impacting the increase in the average sales
price was price increases in certain communities.



Loss before income taxes improved $2.9 million to income of $2.7 million for the
three months ended July 31, 2021 compared to the prior year period, primarily
due to the increase in homebuilding revenue discussed above and an increase in
gross margin percentage before interest expense for the period compared to the
same period of the prior year.



Homebuilding revenues increased 23.0% for the nine months ended July 31, 2021
compared to the same period in the prior year. The increase for the nine months
ended July 31, 2021 was due to a 7.7% increase in homes delivered, a 10.4%
increase in average sales price and a $6.7 million increase in land sales and
other revenue. The increase in average sales price was the result of new
communities delivering higher priced, larger single family homes in higher-end
submarkets of the segment in the nine months ended July 31, 2021 compared to
some communities delivering in the nine months ended July 31, 2020 that had
lower priced, smaller single family homes and townhomes in lower-end submarkets
of the segment that are no longer delivering. Also impacting the increase in the
average sales price was price increases in certain communities.



Loss before income taxes improved $14.1 million to income of $9.5 million for
the nine months ended July 31, 2021 compared to the prior year period, primarily
due to the increase in homebuilding revenue discussed above, a $1.9 million
increase in income from unconsolidated joint ventures and an increase in gross
margin percentage before interest expense.



Southwest - Homebuilding revenues decreased 0.8% for the three months ended July
31, 2021 compared to the same period in the prior year. The slight decrease in
homebuilding revenues was primarily due to a 7.5% decrease in homes delivered,
partially offset by a 7.2% increase in average sales price. The increase in the
average sales price was due to price increases in certain communities.



Income before income taxes increased $8.5 million to $28.5 million for the three
months ended July 31, 2021 compared to the same period in the prior year. The
increase was primarily due to a $0.5 million increase in income from
unconsolidated joint ventures and an increase in gross margin percentage before
interest expense for the three months ended July 31, 2021 compared to the same
period of the prior year.



Homebuilding revenues increased 13.0% for the nine months ended July 31, 2021
compared to the same period in the prior year. The increase was primarily due to
a 9.6% increase in homes delivered and a 3.1% increase in average sales
price. The increase in the average sales price was due to price increases in
certain communities.



Income before income taxes increased $37.1 million to $78.8 million for the nine
months ended July 31, 2021 compared to the same period in the prior year. The
increase was due to the increase in homebuilding revenues discussed above, a
$0.4 million increase in income from unconsolidated joint ventures and an
increase in gross margin percentage before interest expense for the nine months
ended July 31, 2021 compared to the same period of the prior year.





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West - Homebuilding revenues increased 69.1% for the three months ended July 31,
2021 compared to the same period in the prior year. The increase was due to a
36.1% increase in homes delivered and a 24.2% increase in average sales
price. The increase in average sales price was the result of new communities
delivering higher priced, larger single family homes in higher-end submarkets of
the segment in the three months ended July 31, 2021 compared to some communities
delivering in the three months ended July 31, 2020 that had lower priced,
smaller single family homes in lower-end submarkets of the segment that are no
longer delivering. Also impacting the increase in the average sales price was
price increases in certain communities.



Income before income taxes increased $27.0 million to $27.2 million for the
three months ended July 31, 2021 compared to the prior year period, primarily
due to the increase in homebuilding revenue discussed above and an increase in
gross margin percentage before interest expense for the period compared to the
same period of the prior year.



Homebuilding revenues increased 58.9% for the nine months ended July 31, 2021
compared to the same period in the prior year. The increase was due to a 33.6%
increase in homes delivered and a 18.9% increase in average sales price. The
increase in average sales price was the result of new communities delivering
higher priced, larger single family homes in higher-end submarkets of the
segment in the nine months ended July 31, 2021 compared to some communities
delivering in the nine months ended July 31, 2020 that had lower priced, smaller
single family homes in lower-end submarkets of the segment that are no longer
delivering. Also impacting the increase in the average sales price was price
increases in certain communities.



Income before income taxes increased $54.2 million to $58.7 million for the nine
months ended July 31, 2021 compared to the prior year period, primarily due to
the increase in homebuilding revenue discussed above and an increase in gross
margin percentage before interest expense for the period compared to the same
period of the prior year, partially offset by a $1.3 million increase in
inventory impairment loss and land option write-offs.



Financial Services



Financial services consist primarily of originating mortgages from our home
buyers, selling such mortgages in the secondary market, and title insurance
activities. We use mandatory investor commitments and forward sales of
mortgage-backed securities ("MBS") to hedge our mortgage-related interest rate
exposure on agency and government loans. These instruments involve, to varying
degrees, elements of credit and interest rate risk. Credit risk associated with
MBS forward commitments and loan sales transactions is managed by limiting our
counterparties to investment banks, federally regulated bank affiliates and
other investors meeting our credit standards. Our risk, in the event of default
by the purchaser, is the difference between the contract price and fair value of
the MBS forward commitments. For the first three quarters of fiscal 2021 and
2020, Federal Housing Administration and Veterans Administration ("FHA/VA")
loans represented 29.6% and 30.2%, respectively, of our total loans. The
origination of FHA/VA loans decreased slightly from the first three quarters of
fiscal 2020 to the first three quarters of fiscal 2021, and our conforming
conventional loan originations as a percentage of our total loans increased from
68.4% to 69.7% for these periods, respectively. The origination of loans which
exceed conforming conventions decreased from 1.4% for the first three
quarters of fiscal 2020 to 0.7% for the first three quarters of fiscal 2021.
Profits and losses relating to the sale of mortgage loans are recognized when
legal control passes to the buyer of the mortgage and the sales price is
collected.



During the three and nine months ended July 31, 2021, financial services
provided a $8.6 million and $28.1 million pretax profit, respectively, compared
to $10.8 million and $20.0 million, respectively, of pretax profit for the same
periods of fiscal 2020. The decrease in pretax profit for the three months ended
July 31, 2021 was attributed to the decrease in the homebuilding deliveries and
a decrease in the basis point spread between the loans originated and the
implied rate from the sale of the loans. The increase in pretax profit for the
nine months ended July 31, 2021 was attributed to the increase in the
homebuilding deliveries and an increase in the average price of the loans
settled. Also impacting the increase for the nine months ended July 31, 2021,
was the increase in the basis point spread between the loans originated and the
implied rate from the sale of the loans. In the market areas served by our
wholly owned mortgage banking subsidiaries, 65.6% and 68.2% of our noncash
homebuyers obtained mortgages originated by these subsidiaries during the three
months ended July 31, 2021 and 2020, respectively, and 68.6% of our noncash
homebuyers obtained mortgages originated by these subsidiaries for both the nine
months ended July 31, 2021 and 2020, respectively.

Corporate General and Administrative

Corporate general and administrative expenses include the operations at our
headquarters in New Jersey. These expenses include payroll, stock compensation,
facility costs and rent and other costs associated with our executive offices,
legal expenses, information services, human resources, corporate accounting,
training, treasury, process redesign, internal audit, national and digital
marketing, construction services and administration of insurance, quality and
safety. Corporate general and administrative expenses decreased to $17.3 million
for the three months ended July 31, 2021 compared to $19.3 million for the three
months ended July 31, 2020 and increased to $81.1 million for the nine months
ended July 31, 2021 compared to $54.3 million for the nine months ended July 31,
2020. The decrease for the three months ended July 31, 2021 was due to a
reduction in reserves for self-insured medical claims, which were reduced based
on actual claims, as well a decrease in compensation expense related to the
grants of phantom stock awards under our 2019 Long Term Incentive Plan ("2019
LTIP"), which expense decreased due to the decrease in our stock price during
the period. The increase for the nine months ended July 31, 2021 was primarily
due to an increase in compensation expense, mainly related to the grants of
phantom stock awards under our 2019 LTIP which expense increased due to the
significant increase in our stock price from $51.16 at January 31, 2021 to
$104.39 at July 31, 2021. Had equity shares rather than phantom shares been
utilized for the 2019 LTIP, there would not have been expenses related to the
movement in our stock price.



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Other Interest



Other interest decreased $7.9 million for the three months ended July 31, 2021
compared to the three months ended July 31, 2020 and decreased $13.8 million for
the nine months ended July 31, 2021 compared to the nine months ended July 31,
2020 primarily due to the decrease in nonrecourse mortgages and
inventory financing arrangements at July 31, 2021 compared to July 31, 2020. Our
assets that qualify for interest capitalization (inventory under development)
are less than our debt, and therefore the portion of interest not covered by
qualifying assets is directly expensed.

(Loss) Gain on Extinguishment of Debt

On July 30, 2021, the Company redeemed in full all of the $111.2 million
aggregate principal amount of 10.0% 2022 Notes. The aggregate purchase price for
this redemption was $111.7 million, which included accrued and unpaid interest.
This redemption resulted in a loss on extinguishment of debt of $0.3 million for
the three months ended July 31,2021, net of the write-off of unamortized
financing costs and fees. The loss from the redemption is included in the
Condensed Consolidated Statement of Operations as "Loss on extinguishment of
debt".



On December 10, 2019, the Company entered into a credit agreement providing for
$81.5 million of senior secured 1.75 lien term loans in exchange for $163.0
million of senior unsecured term loans. On December 10, 2019, the Company also
issued $158.5 million of 10.0% Senior Secured 1.75 Lien Notes due 2025 in
exchange for $23.2 million of 10.0% Senior Secured Notes due 2022 and $141.7
million 10.5% Senior Secured Notes due 2024. These transactions were accounted
for in accordance with ASC 470-60, resulting in a gain on extinguishment of debt
of $9.5 million. Additional costs incurred pertaining to this transaction
resulted in a $0.2 million and less than $0.1 million loss on extinguishment of
debt during the three months ended April 30, 2020 and July 31, 2020,
respectively. During the three months ended July 31, 2020, the Company
repurchased in open market transactions $25.5 million aggregate principal amount
of 10.0% 2022 Notes. The aggregate repurchase price for these repurchases was
$21.4 million, which included accrued and unpaid interest. These repurchases
resulted in a gain on extinguishment of debt of $4.1 million for the three
months ended July 31, 2020, net of the write-off of unamortized financing costs
and fees. The gains from the repurchases are included in the Condensed
Consolidated Statement of Operations as "Gain of extinguishment of debt".

Income from Unconsolidated Joint Ventures

Income from unconsolidated joint ventures consists of our share of the earnings
or losses of our unconsolidated joint ventures. Income from unconsolidated joint
ventures decreased $0.6 million to $5.0 million for the three months ended July
31, 2021 and decreased $3.9 million to $9.6 million for the nine months ended
July 31, 2021 compared to the same respective periods of the prior year. The
decrease was primarily due to the recognition of our share of income from
certain of our joint ventures delivering fewer homes in the current fiscal year
as compared to the prior fiscal year.



Total Taxes



The total income tax expense for the three months ended July 31, 2021 was
$14.1 million, primarily related to federal tax expense from pretax income
generated during the third quarter of fiscal 2021 and state tax expense from
income generated in states where we do not have net operating loss carryforwards
to offset the current year income. The total income tax benefit for the nine
months ended July 31, 2021 was $442.9 million, primarily due to the reversal of
a substantial portion of our valuation allowance previously recorded against our
deferred tax assets, as discussed in Note 16 to the Condensed Consolidated
Financial Statements.



Inflation



Inflation has a long-term effect, because increasing costs of land, materials
and labor result in increasing sale prices of our homes. In general, these price
increases have been commensurate with the general rate of inflation in our
housing markets and have not had a significant adverse effect on the sale of our
homes. A significant risk faced by the housing industry generally is that rising
house construction costs, including land and interest costs, will substantially
outpace increases in the income of potential purchasers and therefore limit our
ability to raise home sale prices, which may result in lower gross margins.



Inflation has a lesser short-term effect, because we generally negotiate
fixed-price contracts with many, but not all, of our subcontractors and material
suppliers for the construction of our homes. These prices usually are applicable
for a specified number of residential buildings or for a time period of between
three to twelve months. Construction costs for residential buildings represented
approximately 52.9% of our homebuilding cost of sales for the nine months ended
July 31, 2021.





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Safe Harbor Statement



All statements in this Quarterly Report on Form 10-Q that are not historical
facts should be considered as "Forward-Looking Statements" within the meaning of
the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties and other
factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
forward-looking statements include but are not limited to statements related to
the Company's goals and expectations with respect to its financial results for
future financial periods. Although we believe that our plans, intentions and
expectations reflected in, or suggested by, such forward-looking statements are
reasonable, we can give no assurance that such plans, intentions or expectations
will be achieved. By their nature, forward-looking statements: (i) speak only as
of the date they are made, (ii) are not guarantees of future performance or
results and (iii) are subject to risks, uncertainties and assumptions that are
difficult to predict or quantify. Therefore, actual results could differ
materially and adversely from those forward-looking statements as result of a
variety of factors. Such risks, uncertainties and other factors include, but are
not limited to:

? The outbreak and spread of COVID-19 and the measures that governments,

agencies, law enforcement and/or health authorities implement to address it;

? Changes in general and local economic, industry and business conditions and

impacts of a significant homebuilding downturn;

? Adverse weather and other environmental conditions and natural disasters;

? The seasonality of the Company's business;

? The availability and cost of suitable land and improved lots and sufficient

liquidity to invest in such land and lots;

? Shortages in, and price fluctuations of, raw materials and labor, including

due to changes in trade policies, including the imposition of tariffs and

duties on homebuilding materials and products and related trade disputes with

and retaliatory measures taken by other countries;

? Reliance on, and the performance of, subcontractors;

? Regional and local economic factors, including dependency on certain sectors

of the economy, and employment levels affecting home prices and sales

activity in the markets where the Company builds homes;

? Increases in cancellations of agreements of sale;

? Fluctuations in interest rates and the availability of mortgage financing;

? Changes in tax laws affecting the after-tax costs of owning a home;

? Legal claims brought against us and not resolved in our favor, such as

product liability litigation, warranty claims and claims made by mortgage

     investors;
  ?  Levels of competition;
  ?  Utility shortages and outages or rate fluctuations;
  ?  Information technology failures and data security breaches;
  ?  Negative publicity;

? High leverage and restrictions on the Company's operations and activities

imposed by the agreements governing the Company's outstanding indebtedness;

? Availability and terms of financing to the Company;

? The Company's sources of liquidity;

? Changes in credit ratings;

? Government regulations, including regulations concerning development of land,

the home building, sales and customer financing processes, tax laws and the

     environment;
  ?  Operations through unconsolidated joint ventures with third parties;
  ?  Significant influence of the Company's controlling stockholders;
  ?  Availability of net operating loss carryforwards; and

? Loss of key management personnel or failure to attract qualified personnel.

Certain risks, uncertainties and other factors are described in detail in Part
I, Item 1 "Business" and Part I, Item 1A "Risk Factors" in our Annual Report on
Form 10-K for the fiscal year ended October 31, 2020. Except as otherwise
required by applicable securities laws, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, changed circumstances or any other reason after the
date of this Quarterly Report on Form 10-Q.



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