HOVNANIAN ENTERPRISES INC MANAGEMENT REPORT OF FINANCIAL POSITION 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 represent the dollars associated with the net contracts executed in

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



? The order book is a volume indicator that represents the number of dwellings

which are under contract, but not yet delivered on the date indicated. The

the dollar value of the backlog represents the dollar amount of the houses

backlog. These values ​​are an indicator of potential future earnings;

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

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

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

there are therefore sometimes several communities on the same land site. These

    values are an indicator of potential revenues;



? Net contracts per average active community of sellers are used to indicate the

rate at which homes are sold (put into contract) in active sale

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

period by the average number of active sales communities during the same period.

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



? The contract termination rate is a volume indicator that represents the number

of sales contracts terminated over the period divided by the number of gross contracts

sales contracts entered into during the period. Contract termination rate as

the percentage of backlog is calculated by dividing the number of cancellations

contracts for the period by the order book at the start of the

period. Cancellation rates compared to previous 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, inflation and overall
housing affordability. In general, at the start of fiscal year 2020, factors
including rising levels of household formation, a constrained supply of new and
used homes, wage growth, strong employment conditions and mortgage rates that
were low by historical standards were contributing to improving conditions for
new home sales.



In March 2020, as a result of 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. However, beginning in May 2020, the
homebuilding market rapidly improved, 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. During the third quarter and
continuing through the fourth quarter of fiscal 2020, 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 improved
significantly in fiscal 2020 as compared to fiscal 2019, and improved even
further in fiscal 2021. However, since early January 2022, 30-year mortgage
rates have increased rapidly from 3.2% to 5.3% at the end of July 2022. While
these rates are still low by historical standards, the increase in rates, along
with record high inflation levels and consumer fears of an economic recession,
has had a negative impact on our net contracts and net contracts per average
active selling community. Despite the decrease in net contracts, our revenues,
gross margin percentage and pretax profit results have continued to show strong
improvement over the prior year through July 31, 2022, though it is difficult to
predict the impact of these and other factors on our future results which may be
negatively impacted.



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Operating Results


The table below highlights our overall positive operating results for the three and nine months ended July 31, 2022:



? For the three and nine months ended July 31, 2022, sale of homes revenues
increased 11.1% and 4.2%, respectively, as compared to the same periods of the
prior year, primarily resulting from an increase in average prices of 17.8% and
19.1%, respectively, as home prices increased in virtually all of our markets,
along with the geographic and community mix of our deliveries, partially offset
by respective decreases of 5.7% and 12.5% in the number of home deliveries. The
decreases in home deliveries were due in part to the prior year deliveries being
unusually high as a result of the unsustainable and extremely strong sales pace
in late fiscal 2020 and early fiscal 2021, and also due to supply chain
challenges extending construction cycle times and delaying some deliveries.



? Gross margin dollars increased 33.2% and 27.2% for the three and nine months
ended July 31, 2022, respectively, as compared to the same period of the prior
year, as a result of the increase in gross margin percentage to 23.1% for the
three months ended July 31, 2022 from 19.2% for the three months ended July 31,
2021, and increased to 22.3% for the nine months ended July 31, 2022 from 18.3%
for the nine months ended July 31, 2021. Gross margin percentage, before cost of
sales interest expense and land charges, increased from 22.1% and 21.4% for the
three and nine months ended July 31, 2021 to 26.3% and 25.3% for the three and
nine months ended July 31, 2022. The increases were primarily due to price
increases in virtually all of our markets, along with the mix of communities
delivering homes in each period.



? Selling, general and administrative costs (including corporate general and
administrative expenses) ("Total SGA") was $74.9 million, or 9.8% of total
revenues, in the three months ended July 31, 2022 compared with $60.3 million,
or 8.7% of total revenues, in the three months ended July 31, 2021. For the nine
months ended July 31, 2022, Total SGA was $215.3 million, or 10.6% of total
revenues, compared with $206.6 million, or 10.5% of total revenues, in the same
period of the prior fiscal year. Such costs increased $14.6 million and $8.7
million for the three and nine months ended July 31, 2022, respectively, as
compared to the same periods of the prior year. Excluding the impact in each of
the three months ended July 31, 2022 and 2021 related to the grants of phantom
stock awards under our 2019 Long Term Incentive Plan ("2019 LTIP"), SGA as a
percentage of total revenues would have been 9.7% for each period. Had equity
shares rather than phantom shares been utilized for the 2019 LTIP, there would
not have been any expenses or benefit related to the movement in our stock
price.



? Other interest decreased to $9.6 million and $35.4 million for the three and
nine months ended July 31, 2022, respectively, from $19.2 million and $65.2
million for the three and nine months ended July 31, 2021, respectively, as we
incurred less interest and had less debt in excess of inventory, as a result of
the reduction of our debt in fiscal 2021 and fiscal 2022, and an increase in
average inventory not owned during the three and nine months ended July 31, 2022
compared to the three and nine months ended July 31, 2021.



? Pre-tax income increased to $111.9 million for the three months ended July 31,
2022 from pre-tax income of $61.8 million for the three months ended July 31,
2021, and increased to $228.3 million for the nine months ended July 31, 2022
from pre-tax income of $112.4 million for the nine months ended July 31, 2021.
Net income increased to $82.6 million for the three months ended July 31, 2022
from net income of $47.7 million for the three months ended July 31, 2021, and
decreased to $169.9 million for the nine months ended July 31, 2022 from net
income of $555.3 million for the nine months ended July 31, 2021. Earnings per
share, basic and diluted, increased to $10.92 and $10.82, respectively, for the
three months ended July 31, 2022 compared to $6.85 and $6.72, respectively, for
the three months ended July 31, 2021. Earnings per share, basic and diluted,
decreased to $22.05 and $21.77, respectively, for the nine months ended July 31,
2022 compared to $80.02 and $78.51, respectively, for the nine months ended July
31, 2021. While pretax income increased in fiscal 2022, the significant decrease
in net income for the nine months ended July 31, 2022 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 34.0% and 18.6% for the three and nine months ended
July 31, 2022, respectively, compared to the same periods of the prior year, as
sales pace slowed to below normal levels during the third quarter of fiscal
2022, due to an overall slow-down in home demand.



? Net contracts per average active selling community decreased to 7.6 for the
three months ended July 31, 2022 compared to 12.0 in the same period of the
prior year, and decreased to 34.9 for the nine months ended July 31, 2022
compared to 44.9 in the same period of the prior year. The decreases were due to
the decreases in net contracts discussed above.



? Active selling communities at July 31, 2022 increased by 3.8% compared to July
31, 2021. We continue to actively pursue new communities, and our total lots
controlled increased to 31,913 at July 31, 2022 compared to 31,002 at July 31,
2021.



? Contract backlog decreased from 3,673 homes at July 31, 2021 to 3,183 homes at
July 31, 2022. Despite this decrease, as a result of price increases in
virtually all of our markets, the dollar value of contract backlog increased
2.4% to $1.8 billion compared to the prior year.



? Our cash position allowed us to spend $554.1 million on land purchases and
land development during the nine months ended July 31, 2022, redeem $100 million
principal amount of our senior secured notes, and still have total liquidity of
$357.4 million, including $225.1 million of homebuilding cash and cash
equivalents as of July 31, 2022 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, 2021, 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, 2021, there have been no
significant changes to those critical accounting policies.



CAPITAL AND LIQUIDITY RESOURCES



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. We may not be able to obtain desired financing 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, 2022 was $357.4 million, including $225.1
million in homebuilding cash and cash equivalents and $125.0 million of
borrowing capacity under our senior secured revolving credit facility. Our total
liquidity was above our target liquidity range of $170.0 to $245.0 million. The
lingering macro economic effects of the COVID-19 pandemic, including inflation
and labor and supply market constraints, as well as geopolitical tensions have
created significant uncertainty as to general economic and housing market
conditions for fiscal 2022 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 2022 to finance our working capital
requirements.



We spent $554.1 million on land and land development during the first three
quarters of fiscal 2022, along with $105.5 million for the $100.0 million
partial redemption of our 7.75% Senior Secured 1.125 Lien Notes due 2026. After
considering this land and land development, debt payment and all other operating
activities, including revenue received from deliveries, cash used for operations
was $28.6 million. During the first three quarters of fiscal 2022, cash used for
investing activities was $3.3 million, primarily due to the acquisition of
certain fixed assets, partially offset by distributions from existing
unconsolidated joint ventures. Cash used for financing activities was $0.9
million during the first three quarters of fiscal 2022, which in addition to the
$100.0 million debt redemption mentioned above, was due primarily to net
payments related to our mortgage warehouse lines of credit, partially offset by
net proceeds from nonrecourse mortgage financings and land banking and model
sale leaseback financings during the period. 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, 2022 and 2021 were for
operating expenses, land purchases, land deposits, land development,
construction spending, debt payments, state income taxes, interest payments,
preferred dividend payments, 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, model sale
leasebacks, land banking transactions, unconsolidated joint ventures, financial
service revenues and other revenues.



Our net income historically does not approximate cash flow from operating
activities. The difference between net income 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, 2022 and October 31,
2021, were as follows:



                                                              July 31,      October 31,
(In thousands)                                                    2022             2021

Senior Secured Notes: 10.0% 1.75% Senior Secured Lien Notes Due November 15, 2025

                                                       $   158,502     

$158,502
7.75% Senior Secured 1.125 Lien bonds due February 15, 2026

                                                           250,000      

350,000

10.5% Senior Secured 1.25 Privil 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                                 $   853,093     $    953,093
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 credit facility February 1, 2027

                                                    $    39,551     

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

                                           $    81,498     $     81,498
Senior Secured Revolving Credit Facility (2)               $         -     $          -
Subtotal notes payable                                     $ 1,154,852     $  1,254,852
Net (discounts) premiums                                   $     6,266     $     10,769
Net debt issuance costs                                    $   (13,246 )   $    (17,248 )
Total notes payable, net of discounts, premiums and debt
issuance costs                                             $ 1,147,872     $  1,248,373




(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.



(2) At July 31, 2022, provides for up to $125.0 million in aggregate amount of
senior secured first lien revolving loans. On August 19, 2022, the maturity of
the Senior Secured Revolving Credit Facility was extended from December 28, 2022
to June 30, 2024 and the fixed interest rate was replaced with a floating
interest rate in each case, effective upon the satisfaction of customary
conditions in respect of the collateral securing the borrowings thereunder. See
Note 22 to the Condensed Consolidated Financial Statements included elsewhere in
this Quarterly Report on Form 10-Q.



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 and senior notes outstanding at July
31, 2022 (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)
(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, 2022 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, pay dividends and make distributions on common and
preferred stock, repay/repurchase 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, 2022, 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 each such case, our secured debt leverage
ratio must also be less than 4.0 to 1.0), and from incurring indebtedness other
than certain permitted indebtedness and nonrecourse indebtedness. Beginning as
of October 31, 2021, as a result of our improved operating results, our fixed
coverage ratio was above 2.0 to 1.0 and our secured debt leverage ratio was
below 4.0 to 1.0, therefore we were no longer restricted from paying dividends.
As such, we made dividend payments of $2.7 million to preferred shareholders in
each of the first, second and third quarters of fiscal 2022.



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 (for example,
we redeemed $100 million aggregate principal amount of our senior secured notes
during the second quarter of fiscal 2022). 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, 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.



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
$187.8 million and $125.1 million (net of debt issuance costs) at July 31, 2022
and October 31, 2021, respectively, which are secured by the related real
property, including any improvements, with an aggregate book value of $527.6
million and $448.5 million, respectively. The weighted-average interest rate on
these obligations was 6.1% and 4.4% at July 31, 2022 and October 31, 2021,
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, 2022 and October 31, 2021, we had
an aggregate of $70.7 million and $134.9 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 arrangements.



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Inventory Activities



Total inventory, excluding consolidated inventory not owned, increased $148.8
million during the nine months ended July 31, 2022 from October 31, 2021. Total
inventory, excluding consolidated inventory not owned, increased in the
Northeast by $35.6 million, in the Mid-Atlantic by $51.5 million, in the
Southeast by $46.4 million and in the Southwest by $29.6 million. The increase
was partially offset by decreases in the Midwest of $10.1 million and in the
West of $4.2 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, 2022, we wrote-off costs in the
amount of $1.8 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. There were no
impairment losses during the nine months ended July 31, 2022. 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,
2022 are expected to be delivered during the next six to nine months.



Consolidated inventory not owned increased $182.2 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 increase from October 31, 2021 to July 31,
2022 was primarily due to an increase in land banking transactions along with an
increase 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, 2022, inventory of $237.1 million was recorded to
"Consolidated inventory not owned," with a corresponding amount of $131.3
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, 2022,
inventory of $43.8 million was recorded to "Consolidated inventory not owned,"
with a corresponding amount of $47.2 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, 2022, we had mothballed land in
two communities. The book value associated with these communities at July 31,
2022 was $1.4 million, which was net of impairment charges recorded in prior
periods of $20.3 million. We continually review communities to determine if
mothballing is appropriate. During the first three quarters of fiscal 2022, we
did not mothball any additional communities, nor did we sell any previously
mothballed communities, however, we re-activated four previously mothballed
communities.



Inventories held for sale, which are land parcels where we have decided not to
build homes and we are actively marketing the land for sale, are reported at the
lower of carrying amount or fair value less costs to sell. There were no
inventories held for sale at both July 31, 2022 and October 31, 2021. 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, 2022 compared
to October 31, 2021 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, 2022:

Northeast                                                4               704             3,187         3,891
Mid-Atlantic                                            19             2,013             6,591         8,604
Midwest                                                  6               975             1,615         2,590
Southeast                                               19             2,141             1,320         3,461
Southwest                                               44             5,208             4,714         9,922
West                                                    16             2,330             1,499         3,829

Consolidated total                                     108            13,371            18,926        32,297

Unconsolidated joint ventures (2)                       17             3,535                 -         3,535

Owned                                                                  7,375             2,708        10,083
Optioned                                                               5,612            16,218        21,830

Controlled lots                                                       12,987            18,926        31,913

Construction to permanent financing lots                                 384                 -           384

Consolidated total                                                    13,371            18,926        32,297



(1) Active communities are communities open for sale 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

addition 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, 2021:

Northeast                                                6               821             2,525         3,346
Mid-Atlantic                                            20             2,160             6,083         8,243
Midwest                                                  8             1,263             1,120         2,383
Southeast                                               22             1,736             2,043         3,779
Southwest                                               53             4,728             4,680         9,408
West                                                    15             2,225             1,859         4,084

Consolidated total                                     124            12,933            18,310        31,243

Unconsolidated joint ventures (2)                       17             4,030                 -         4,030

Owned                                                                  7,257             3,194        10,451
Optioned                                                               5,307            15,116        20,423

Controlled lots                                                       12,564            18,310        30,874

Construction to permanent financing lots                                 369                 -           369

Consolidated total                                                    12,933            18,310        31,243



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

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

      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

addition 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. The increase in unsold homes was primarily due to a conscious
effort to increase our number of started unsold homes per community to provide
buyers the opportunity to close quickly, so they may lock in a lower mortgage
rate, thereby making our homes more affordable as mortgage rates continue to
rise.



                                     July 31, 2022                               October 31, 2021:

                          Unsold                                       Unsold
                          Homes          Models         Total           Homes          Models         Total

Northeast                       14              7             21               8             10             18
Mid-Atlantic                    38             20             58              26             22             48
Midwest                         14              2             16               8              9             17
Southeast                       47              6             53              24             22             46
Southwest                      172             13            185             114             29            143
West                            65             14             79               7             12             19

Total                          350             62            412             187            104            291


Started or completed
unsold homes and
models per active
selling communities
(1)                            3.2            0.6            3.8             1.5            0.8            2.3



(1) Active Selling Communities (which are open selling communities with

ten or more home sites available) were 108 and 124 at July 31, 2022 and

October 31, 2021, respectively. This ratio does not substantially include

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

    available.





Other balance sheet activities



Investments in and advances to unconsolidated joint ventures increased $13.8
million to $74.7 million at July 31, 2022 compared to October 31, 2021. The
increase was primarily due to income recorded from one of our unconsolidated
joint ventures during the period, partially offset by partner distributions. As
of July 31, 2022 and October 31, 2021, we had investments in seven and nine
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.



Prepaid expenses and other assets were as follows at:


                           July 31,       October 31,      Dollar
(In thousands)               2022            2021          Change

Prepaid insurance          $   4,272     $       2,577     $ 1,695
Prepaid project costs         29,321            25,880       3,441
Other prepaids                11,349             9,140       2,209
Other assets                     506               745        (239 )
Lease right of use asset      18,898            17,844       1,054
Total                      $  64,346     $      56,186     $ 8,160




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Prepaid insurance increased for the nine months ended July 31, 2022, 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. The
increase was primarily due to costs incurred for communities not yet open for
sale. 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. Other prepaids also increased related to a new
program for the bulk purchase of mortgage lock commitments to be used for
qualifying homebuyers and expensed on future deliveries. 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. The increase in lease right of use
assets was primarily due to lease renewals, partially offset by lease payments
during the period.



Financial services assets consist primarily of residential mortgages receivable
held for sale of which $85.1 million and $149.2 million at July 31, 2022 and
October 31, 2021, respectively, were being temporarily warehoused and are
awaiting sale in the secondary mortgage market. The decrease in mortgage loans
held for sale from October 31, 2021 was primarily due to a decrease in the
volume of loans originated during the third quarter of fiscal 2022 compared to
the fourth quarter of fiscal 2021, partially offset by an increase in the
average loan value.



Deferred tax assets, net, decreasing $49.1 million of October 31, 2021 at July 31, 2022due to the use of our deferred tax assets to offset taxable income tax expense during the period.



Nonrecourse mortgages secured by inventory increased to $187.8 million at July
31, 2022 from $125.1 million at October 31, 2021. The increase was primarily due
to new mortgages for communities in all of our segments obtained during the nine
months ended July 31, 2022, along with additional loan borrowings on existing
mortgages, partially offset by the payment of existing mortgages during the
period.



Accounts payable and other liabilities were as follows at:


                       July 31,       October 31,       Dollar
(In thousands)           2022            2021           Change

Accounts payable       $ 197,673     $     163,898     $  33,775
Reserves                  98,990            98,831           159
Lease liability           19,940            18,952           988
Accrued expenses          14,836            17,588        (2,752 )
Accrued compensation      74,648           102,862       (28,214 )
Other liabilities         18,421            24,250        (5,829 )
Total                  $ 424,508     $     426,381     $  (1,873 )




The increase in accounts payable was primarily due to the increase in backlog
dollars from October 31, 2021 to July 31, 2022, as homes are under construction
for future delivery. 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. The
increase corresponds to the increase in the lease right of use asset discussed
above. Accrued expenses decreased primarily due to the timing of certain
accruals for profit and price participation programs, along with a decrease in
accrued property taxes and a decrease in an accrual for a sales reward program.
The decrease in accrued compensation was primarily due to the payment of our
fiscal year 2021 bonuses during the first quarter of fiscal 2022, partially
offset by the accrual of fiscal 2022 bonuses in the first three quarters of
fiscal 2022. Other liabilities decreased primarily due to deferred payroll tax
withholdings which were paid during the period.



Customer deposits increased $31.2 million of October 31, 2021 at
$99.5 million at July 31, 2022. The increase is mainly related to the increase in the backlog during the period.



Liabilities from inventory not owned increased $115.7 million from October 31,
2021 to $178.5 million at July 31, 2022. The increase was primarily due to an
increase in land banking activity during the period and an increase in the sale
and leaseback of certain model homes, both accounted for as financing
transactions as described above.



Financial Services (liabilities) decreased $73.6 million to $108.6 million at
July 31, 2022 from $182.2 million at October 31, 2021. The decrease was
primarily due to a decrease in amounts outstanding under our mortgage warehouse
lines of credit and directly correlates to the decrease in the volume of
mortgage loans held for sale during the period.



Accrued interest increased $19.4 million from $28.2 million at October 31, 2021,
to $47.6 million at July 31, 2022. The increase was primarily due to timing of
new accruals, partially offset by payments, related to our senior secured,
senior notes and the term loan during the period.



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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED July 31, 2022 COMPARED TO THE THREE AND NINE MONTHS ENDED July 31, 2021


Total Revenues



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



                                                 Three Months Ended

                                July 31,      July 31,       Dollar       Percentage
(Dollars in thousands)            2022          2021         Change         Change
Homebuilding:
Sale of homes                   $ 736,654     $ 663,279     $ 73,375             11.1 %
Land sales and other revenues      16,406         7,559        8,847            117.0 %
Financial services                 14,533        19,845       (5,312 )          (26.8 )%

Total revenues                  $ 767,593     $ 690,683     $ 76,910             11.1 %




                                                    Nine Months Ended

                                 July 31,        July 31,        Dollar        Percentage
(Dollars in thousands)             2022            2021          Change          Change
Homebuilding:
Sale of homes                   $ 1,973,843     $ 1,894,159     $  79,684              4.2 %

Land sales and other income 18,052 13,280 4,772

          35.9 %
Financial services                   43,548          61,070       (17,522 )          (28.7 )%

Total revenues                  $ 2,035,443     $ 1,968,509     $  66,934              3.4 %




Homebuilding



For the three and nine months ended July 31, 2022, sale of homes revenues
increased by 11.1% and 4.2%, respectively, compared to the same periods of the
prior year due to a 17.8% and 19.1% increase in the average price per home,
respectively, partially offset by a 5.7% and 12.5% decrease in homes delivered,
respectively, for the three and nine months ended July 31, 2022, compared with
the respective prior year period. The average price per home increased to
$521,710 in the three months ended July 31, 2022 from $442,776 in the three
months ended July 31, 2021. The average price per home increased to $501,103 in
the nine months ended July 31, 2022 from $420,831 in the nine months ended July
31, 2021. 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. 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 increase in land sales and other revenues, see
the section titled "Land Sales and Other Revenues" below.



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The information on the homes delivered by segment is presented below:



                              Three Months Ended July 31,                    Nine Months Ended July 31,
(Dollars in
thousands)                 2022          2021         % Change          2022            2021          % Change

Northeast:
Dollars                 $   60,266     $  35,255           70.9 %    $   135,671     $    95,157           42.6 %
Homes                           78            44           77.3 %            184             139           32.4 %

Mid-Atlantic:
Dollars                 $  168,076     $ 106,195           58.3 %    $   396,180     $   311,230           27.3 %
Homes                          251           189           32.8 %            610             581            5.0 %

Midwest:
Dollars                 $   61,375     $  60,588            1.3 %    $   172,987     $   181,191           (4.5 )%
Homes                          166           190          (12.6 )%           483             576          (16.1 )%

Southeast:
Dollars                 $   71,484     $  61,978           15.3 %    $   200,133     $   188,489            6.2 %
Homes                          148           139            6.5 %            402             408           (1.5 )%

Southwest:
Dollars                 $  266,107     $ 212,773           25.1 %    $   692,093     $   620,120           11.6 %
Homes                          590           593           (0.5 )%         1,643           1,808           (9.1 )%

West:
Dollars                 $  109,346     $ 186,490          (41.4 )%   $   376,779     $   497,972          (24.3 )%
Homes                          179           343          (47.8 )%           617             989          (37.6 )%

Consolidated total:
Dollars                 $  736,654     $ 663,279           11.1 %    $ 1,973,843     $ 1,894,159            4.2 %
Homes                        1,412         1,498           (5.7 )%         3,939           4,501          (12.5 )%

Unconsolidated joint
ventures (1)
Dollars                 $   78,390     $ 102,262          (23.3 )%   $   228,984     $   264,442          (13.4 )%
Homes                          121           179          (32.4 )%           372             453          (17.9 )%




(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.



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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)       2022               2021             2022      
      2021            2022            2021

Northeast:
Dollars                  $      47,109       $   52,066     $      181,641     $   135,684     $   184,366     $   122,638
Homes                               66               62                249             169             237             160

Mid-Atlantic:
Dollars                  $      91,100       $  117,341     $      384,950     $   414,059     $   330,960     $   361,329
Homes                              139              176                608             647             506             572

Midwest:
Dollars                  $      29,999       $   56,848     $      144,833     $   216,775     $   166,291     $   205,101
Homes                               60              165                371             628             493             648

Southeast:
Dollars                  $      67,402       $   58,522     $      326,727     $   223,201     $   348,019     $   211,859
Homes                              114              124                555             487             574             440

Southwest:
Dollars                  $     179,005       $  196,481     $      742,953     $   783,924     $   510,681     $   524,029
Homes                              336              469              1,533           2,034             966           1,292

West:
Dollars                  $      53,324       $  127,872     $      345,642     $   453,557     $   251,293     $   325,472
Homes                               84              215                559             795             407             561

Consolidated total:
Dollars                  $     467,939       $  609,130     $    2,126,746     $ 2,227,200     $ 1,791,610     $ 1,750,428
Homes                              799            1,211              3,875           4,760           3,183           3,673

Unconsolidated joint
ventures:(2)
Dollars                  $      84,392       $  140,913     $      315,015     $   408,804     $   628,034     $   502,999
Homes                              133              380                683           1,112           2,599           2,065



(1) Net contracts are defined as new contracts executed during the period for the purchase of housing, less contract terminations during 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 fiscal 2022, our open for sale community count
decreased to 108 from 124 at October 31, 2021, which was the net result of
opening 35 new communities and closing 51 communities since the beginning of
fiscal 2022. The decrease in open for sale communities is a result of delays in
land development as a result of supply chain and other issues that initially
arose during the pandemic and have persisted. We expect community count to grow
during the fourth quarter of 2022. Our reported level of sales contracts (net of
cancellations) we have seen through the nine months ended July 31, 2022 was
impacted by a decrease in sales pace per community for the nine months ended
July 31, 2022 as compared to the same period of the prior year. Net contracts
per average active selling community for the three months ended July 31, 2022
decreased to 7.6 compared to 12.0 for the same period in the prior year which
was during a peak in sales pace during the pandemic. Net contracts per average
active selling community for the nine months ended July 31, 2022 decreased to
34.9 compared to 44.9 for the same period in the prior year which was during a
peak in sales pace during the pandemic.





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Cancellation rates represent the number of contracts canceled during the quarter divided by the number of gross sales contracts executed during the quarter. For comparison, here are the historical termination rates, excluding unconsolidated joint ventures:


Quarter   2022      2021      2020      2019      2018

First        14 %      17 %      19 %      24 %      18 %
Second       17 %      16 %      23 %      19 %      17 %
Third        27 %      16 %      18 %      19 %      19 %
Fourth                 15 %      18 %      21 %      23 %



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


Quarter   2022      2021      2020      2019      2018

First         8 %      11 %      14 %      16 %      12 %
Second        9 %       9 %      20 %      20 %      15 %
Third         8 %       6 %      21 %      16 %      14 %
Fourth                  6 %      14 %      14 %      13 %




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 and the
first half of fiscal 2022 cancellation rates, in particular, being below
historical norms as a result of the strong market conditions. Fiscal 2020 had
varying cancellation rates due to the COVID-19 pandemic and its effects. During
the third quarter of fiscal 2022, due to the sharp decline in gross sales, our
cancellation rate as a percentage of gross sales increased significantly to 27%,
which is higher than our historical normal range. However, due to our strong
backlog position, our cancellation rate as a percentage of beginning backlog
decreased slightly from the prior quarter to 8%, which is below our historical
normal range. Market conditions remain uncertain and 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)                       2022          2021           2022            2021

Sale of homes                              $ 736,654     $ 663,279     $ 1,973,843     $ 1,894,159
Cost of sales, excluding interest
expense and land charges                     543,064       516,530       1,474,403       1,488,919
Homebuilding gross margin, before cost
of sales interest expense and land
charges                                      193,590       146,749         499,440         405,240
Cost of sales interest expense,
excluding land sales interest expense         22,453        17,821          57,855          56,242
Homebuilding gross margin, after cost of
sales interest expense, before land
charges                                      171,137       128,928         441,585         348,998
Land charges                                   1,173         1,309           1,837           3,267
Homebuilding gross margin                  $ 169,964     $ 127,619     $   439,748     $   345,731
Homebuilding gross margin percentage            23.1 %        19.2 %          22.3 %          18.3 %
Homebuilding gross margin percentage,
before cost of sales interest expense
and land charges                                26.3 %        22.1 %          25.3 %          21.4 %
Homebuilding gross margin percentage,
after cost of sales interest expense,
before land charges                             23.2 %        19.4 %          22.4 %          18.4 %




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,
                                              2022           2021           2022          2021

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              66.3 %         69.6 %         66.8 %        70.1 %
Commissions                                       3.2 %          3.7 %          3.4 %         3.6 %
Financing concessions                             0.8 %          1.0 %          0.9 %         1.2 %
Overheads                                         3.4 %          3.6 %          3.6 %         3.7 %
Total cost of sales, before interest
expense and land charges                         73.7 %         77.9 %         74.7 %        78.6 %
Cost of sales interest                            3.1 %          2.7 %          2.9 %         3.0 %
Land charges                                      0.1 %          0.2 %          0.1 %         0.1 %

Homebuilding gross margin percentage             23.1 %         19.2 %         22.3 %        18.3 %
Homebuilding gross margin percentage,
before cost of sales interest expense
and land charges                                 26.3 %         22.1 %         25.3 %        21.4 %
Homebuilding gross margin percentage,
after cost of sales interest expense,
before land charges                              23.2 %         19.4 %         22.4 %        18.4 %




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 23.1% during the three months
ended July 31, 2022 compared to 19.2% for the same period last year.
Homebuilding gross margin percentage, before cost of sales interest expense and
land charges, increased from 22.1% for the three months ended July 31, 2021 to
26.3% for the three months ended July 31, 2022. Total homebuilding gross margin
percentage increased to 22.3% during the nine months ended July 31, 2022
compared to 18.3% for the same period last year. Homebuilding gross margin
percentage, before cost of sales interest expense and land charges, increased
from 21.4% for the nine months ended July 31, 2021 to 25.3% for the nine months
ended July 31, 2022. The increases for the three and nine months ended July 31,
2022 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 $1.1 million and
$1.3 million during the three months ended July 31, 2022 and 2021, respectively,
and $1.8 million and $3.3 million during the nine months ended July 31, 2022 and
2021, respectively, to their estimated fair value. During the three and nine
months ended July 31, 2022, we wrote-off residential land options and approval
and engineering costs amounting to $1.1 million and $1.8 million, respectively,
compared to $0.1 million and $1.3 million for the three and nine months ended
July 31, 2021, 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
all the segments in the first three quarters of fiscal 2022 and in the
Mid-Atlantic, Southeast, Southwest and West segments in the first three quarters
of fiscal 2021. There were no inventory impairments during the three and nine
months ended July 31, 2022. 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. 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 income

Land sales and other income consist mainly of land and lot sales. A breakdown of land and lot sales is presented below:


                                              Three Months Ended            Nine Months Ended
                                                   July 31,                      July 31,
(In thousands)                                2022           2021           2022          2021

Land and lot sales                         $    15,788     $   6,819     $   16,187     $  11,730
Cost of sales, excluding interest                5,512         5,338          5,772         9,121
Land and lot sales gross margin,
excluding interest                              10,276         1,481         10,415         2,609
Land and lot sales interest expense                  -         1,419             21         1,888
Land and lot sales gross margin,
including interest                         $    10,276     $      62     $   10,394     $     721




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 one
and two land sales in the three months ended July 31, 2022 and 2021,
respectively, resulting in an increase of $9.0 million in land sales revenues.
There were four and eight land sales in the nine months ended July 31, 2022 and
2021, respectively, resulting in an increase of $4.5 million in land sales
revenues. During the third quarter of fiscal 2022, we had a more significant
land sale in the Northeast segment causing the increase in land sales revenue
for both the three and nine months ended July 31, 2022.



Land sales and other revenues increased $8.8 million and $4.8 million for the
three and nine months ended July 31, 2022 compared to the same period 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, 2022, compared to the three and nine months ended
July 31, 2021, was mainly due to the increase in land sales discussed above.



Sale of residential, general and administrative construction



Homebuilding selling, general and administrative ("SGA") expenses increased $7.2
million and $14.0 million for the three and nine months ended July 31, 2022,
respectively, compared to the same period last year. The increase for the three
and nine months ended July 31, 2022 was due to an increase in total compensation
expense as a result of an increase in headcount and bonuses related to market
conditions and company performance and an increase in insurance costs as a
result of an increase in premiums to obtain insurance during fiscal 2022. Also
impacting the increase in the three months ended July 31, 2022 was 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, while the same remained flat for the
nine months ended July 31, 2022 compared to same period in the prior year. SGA
expenses as a percentage of homebuilding revenues increased to 6.7% and 7.0% for
the three and nine months ended July 31, 2022 compared to 6.4% and 6.6% for the
three and nine months ended July 31, 2021, respectively, as a result of the
increase in expense for the current periods compared to the prior year periods.



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RESIDENTIAL CONSTRUCTION ACTIVITIES BY SEGMENT


Segment Analysis



                                                        Three Months Ended July 31,

(Dollars in thousands, except average
sales price)                                 2022          2021        Variance       Variance %

Northeast
Homebuilding revenue                       $  76,032     $  35,255     $  40,777            115.7 %
Income before income taxes                 $  20,179     $   6,765     $  13,414            198.3 %
Homes delivered                                   78            44            34             77.3 %
Average sales price                        $ 772,641     $ 801,250     $ (28,609 )           (3.6 )%

Mid-Atlantic
Homebuilding revenue                       $ 168,135     $ 106,419     $  61,716             58.0 %
Income before income taxes                 $  37,756     $  15,907     $  21,849            137.4 %
Homes delivered                                  251           189            62             32.8 %
Average sales price                        $ 669,625     $ 561,878     $ 107,747             19.2 %

Midwest
Homebuilding revenue                       $  61,410     $  60,659     $     751              1.2 %
Income before income taxes                 $   2,023     $   3,358     $  (1,335 )          (39.8 )%
Homes delivered                                  166           190           (24 )          (12.6 )%
Average sales price                        $ 369,729     $ 318,884     $  50,845             15.9 %

Southeast
Homebuilding revenue                       $  71,542     $  68,854     $   2,688              3.9 %
Income before income taxes                 $  15,263     $   2,682     $  12,581            469.1 %
Homes delivered                                  148           139             9              6.5 %
Average sales price                        $ 483,000     $ 445,885     $  37,115              8.3 %

Southwest
Homebuilding revenue                       $ 266,374     $ 213,127     $  53,247             25.0 %
Income before income taxes                 $  42,725     $  28,523     $  14,202             49.8 %
Homes delivered                                  590           593            (3 )           (0.5 )%
Average sales price                        $ 451,029     $ 358,808     $  92,221             25.7 %

West
Homebuilding revenue                       $ 109,410     $ 186,519     $ (77,109 )          (41.3 )%
Income before income taxes                 $  19,223     $  27,189     $  (7,966 )          (29.3 )%
Homes delivered                                  179           343          (164 )          (47.8 )%
Average sales price                        $ 610,872     $ 543,703     $  67,169             12.4 %




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                                                         Nine Months Ended July 31,

(Dollars in thousands, except average
sales price)                                 2022          2021         

Deviation Deviation %

Northeast

Homebuilding revenue                       $ 151,517     $  97,488     $   54,029             55.4 %
Income before income taxes                 $  31,052     $  16,427     $   14,625             89.0 %
Homes delivered                                  184           139             45             32.4 %
Average sales price                        $ 737,342     $ 684,583     $   52,759              7.7 %

Environment-Atlantic

Homebuilding revenue                       $ 396,750     $ 311,564     $   85,186             27.3 %
Income before income taxes                 $  82,441     $  38,618     $   43,823            113.5 %
Homes delivered                                  610           581             29              5.0 %
Average sales price                        $ 649,475     $ 535,680     $  113,795             21.2 %

Midwest

Homebuilding revenue                       $ 173,175     $ 183,895     $  (10,720 )           (5.8 )%
Income before income taxes                 $   4,303     $  11,070     $   (6,767 )          (61.1 )%
Homes delivered                                  483           576            (93 )          (16.1 )%
Average sales price                        $ 358,151     $ 314,568     $   43,583             13.9 %

South East

Homebuilding revenue                       $ 200,359     $ 195,545     $    4,814              2.5 %
Income before income taxes                 $  36,185     $   9,540     $   26,645            279.3 %
Homes delivered                                  402           408             (6 )           (1.5 )%
Average sales price                        $ 497,843     $ 461,983     $   35,860              7.8 %

South West

Homebuilding revenue                       $ 692,766     $ 620,848     $   71,918             11.6 %
Income before income taxes                 $  99,370     $  78,848     $   20,522             26.0 %
Homes delivered                                1,643         1,808           (165 )           (9.1 )%
Average sales price                        $ 421,237     $ 342,987     $   78,250             22.8 %

West

Homebuilding revenue                       $ 377,151     $ 498,084     $ (120,933 )          (24.3 )%
Income before income taxes                 $  70,002     $  58,729     $   11,273             19.2 %
Homes delivered                                  617           989           (372 )          (37.6 )%
Average sales price                        $ 610,663     $ 503,511     $  107,152             21.3 %




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Residential construction results by segment



Northeast - Homebuilding revenues increased 115.7% for the three months ended
July 31, 2022 compared to the same period of the prior year. The increase for
the three months ended July 31, 2022 was attributed to a $15.8 million increase
in land sales and other revenue and a 77.3% increase in homes delivered,
partially offset by a 3.6% decrease in average sales price. The decrease 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 three months ended July 31, 2022 compared to some communities delivering
in the three months ended July 31, 2021 that had smaller single family homes in
mid to higher-end submarkets of the segment with higher location premiums that
are no longer delivering.



 Income before income taxes increased $13.4 million to $20.2 million for the
three months ended July 31, 2022 as compared to the prior year period. This was
primarily due to the increase in homebuilding revenue discussed above, partially
offset by a decrease in gross margin percentage before interest expense for the
period compared to the same period of the prior year.



Homebuilding revenues increased 55.4% for the nine months ended July 31, 2022
compared to the same period of the prior year. The increase for the nine months
ended July 31, 2022 was attributed to a $13.5 million increase in land sales and
other revenue, a 32.4% increase in homes delivered and a 7.7% increase in
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, 2022
compared to some communities delivering in the nine months ended July 31,
2021 that had smaller single family homes, townhomes and affordable-housing
homes in mid to higher-end submarkets of the segment that are no longer
delivering. Also impacting the increase in average sales price was price
increases in certain communities.



Income before income taxes increased $14.6 million to $31.1 million for the nine
months ended July 31, 2022 as compared to the prior year period. This was
primarily due to the increase in homebuilding revenue discussed above, partially
offset by a decrease in gross margin percentage before interest expense for the
period compared to the same period of the prior year.



Mid-Atlantic - Homebuilding revenues increased 58.0% for the three months ended
July 31, 2022 compared to the same period in the prior year period. The increase
was primarily due to a 19.2% increase in average sales price and a 32.8%
increase in homes delivered for the three months ended July 31, 2022 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 $21.8 million to $37.8 million for the
three months ended July 31, 2022 compared to the same period in the prior year.
This was primarily due to the increase in homebuilding revenue discussed above,
a $4.1 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, 2022 compared to the same period of the prior year.



Homebuilding revenues increased 27.3% for the nine months ended July 31, 2022
compared to the same period in the prior year period. The increase was primarily
due to a 21.2% increase in average sales price and a 5.0% increase in homes
delivered for the nine months ended July 31, 2022 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 $43.8 million to $82.4 million for the nine
months ended July 31, 2022  compared to the same period in the prior year. This
was primarily due to the increase in homebuilding revenue discussed above,
a $7.7 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, 2022 compared to the same period of the prior year.



Midwest - Homebuilding revenues increased 1.2% for the three months ended July
31, 2022 compared to the same period in the prior year. The increase was due to
a 15.9% increase in average sales price, partially offset by a 12.6% decrease in
homes delivered for the three months ended July 31, 2022. 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 $2.0 million for the three
months ended July 31, 2022 compared to the same period in the prior year. The
decrease was primarily due to a $0.4 million increase in selling, general and
administrative costs and a decrease in gross margin percentage before interest
expense for the period compared to the same period of the prior year.



Homebuilding revenues decreased 5.8% for the nine months ended July 31, 2022
compared to the same period in the prior year. The decrease was due to a
$2.5 million decrease in land sales and other revenue, a 16.1% decrease in homes
delivered, partially offset by a 13.9% increase in average sales price for the
nine months ended July 31, 2022. The increase in average sales price was mainly
the result of price increases in certain communities.



Income before income taxes decreased $6.8 million to $4.3 million for the nine
months ended July 31, 2022  compared to the same period in the prior year. The
decrease was primarily due to the decrease in homebuilding revenue discussed
above, a $2.0 million increase in selling, general and administrative costs and
a decrease in gross margin percentage before interest expense for the period
compared to the same period of the prior year.



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Southeast - Homebuilding revenues increased 3.9% for the three months ended July
31, 2022 compared to the same period in the prior year. The increase was due to
a 6.5% increase in homes delivered and an 8.3% increase in average sales price,
partially offset by a $6.8 million decrease in land sales and other revenue for
the three months ended July 31, 2022 compared to the same period of the prior
year. The increase in average price was mainly the result of price increases in
certain communities.



Income before income taxes increased $12.6 million to $15.3 million for the
three months ended July 31, 2022 compared to the prior year period, primarily
due to the increase in homebuilding revenue discussed above, a $6.1 million
increase in income from unconsolidated joint ventures 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 2.5% for the nine months ended July 31, 2022
compared to the same period in the prior year. The increase was due to a 7.8%
increase in average sales price, partially offset by a 1.5% decrease in homes
delivered and a $6.8 million decrease 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, 2022 compared to some communities
delivering in the nine months ended July 31, 2021 that had lower priced, smaller
single family homes in higher-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 $26.6 million to $36.2 million for the nine
months ended July 31, 2022 compared to the prior year period, primarily due to
the increase in homebuilding revenue discussed above, a $10.7 million
increase in income from unconsolidated joint ventures and an increase in gross
margin percentage before interest expense for the period compared to the same
period of the prior year.



Southwest - Homebuilding revenues increased 25.0% for the three months ended
July 31, 2022 compared to the same period in the prior year. The increase was
primarily due to a 25.7% increase in average sales price, partially offset by a
0.5% decrease in homes delivered for the three months ended July 31,
2022 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 $14.2 million to $42.7 million for the
three months ended July 31, 2022 compared to the same period in the prior
year. The increase was primarily due to the increase in homebuilding revenues
discussed above and an increase in gross margin percentage before interest
expense for the three months ended July 31, 2022 compared to the same period of
the prior year.



Homebuilding revenues increased 11.6% for the nine months ended July 31, 2022
compared to the same period in the prior year. The increase was primarily due to
a 22.8% increase in average sales price, partially offset by a 9.1% decrease in
homes delivered for the nine months ended July 31, 2022 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 $20.5 million to $99.4 million for the nine
months ended July 31, 2022 compared to the same period in the prior year. The
increase was primarily due to the increase in homebuilding revenues discussed
above and an increase in gross margin percentage before interest expense for
the nine months ended July 31, 2022 compared to the same period of the prior
year.







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West - Homebuilding revenues decreased 41.3% for the three months ended July 31,
2022 compared to the same period in the prior year. The decrease was due to a
47.8% decrease in homes delivered, partially offset by a 12.4% 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 $8.0 million to $19.2 million for the three
months ended July 31, 2022 compared to the prior year period. The decrease
is primarily due to the decrease in homebuilding revenues discussed above and a
$2.2 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.



Homebuilding revenues decreased 24.3% for the nine months ended July 31, 2022
compared to the same period in the prior year. The decrease was due to a 37.6%
decrease in homes delivered, partially offset by a 21.3% 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 $11.3 million to $70.0 million for the nine
months ended July 31, 2022 compared to the prior year period. The increase
is primarily due to a $1.3 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.



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 2022 and
2021, Federal Housing Administration and Veterans Administration ("FHA/VA")
loans represented 24.0% and 29.6%, respectively, of our total loans. The
origination of FHA/VA loans decreased from the first three quarters of fiscal
2021 to the first three quarters of fiscal 2022, and our conforming conventional
loan originations as a percentage of our total loans increased from 69.7% to
75.2% for this period, respectively. The origination of loans which exceed
conforming conventions was relatively flat at 0.8% for the first three quarters
of fiscal 2021 compared to fiscal 2022. 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, 2022, financial services
provided a $3.7 million and $11.6 million pretax profit, respectively, compared
to $8.6 million and $28.1 million, respectively, of pretax profit for the same
periods of fiscal 2021. The decrease in pretax profit 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. In
the market areas served by our wholly owned mortgage banking subsidiaries, 52.5%
and 65.6% of our noncash homebuyers obtained mortgages originated by these
subsidiaries during the three months ended July 31, 2022 and 2021, respectively,
and 59.0% and 68.6% of our noncash homebuyers obtained mortgages originated by
these subsidiaries during the nine months ended July 31, 2022 and 2021,
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 increased to $24.8 million
for the three months ended July 31, 2022 compared to $17.3 million for the three
months ended July 31, 2021 and decreased to $75.9 million for the nine months
ended July 31, 2022 compared to $81.1 million for the nine months ended July 31,
2021. The increase for the three months ended July 31, 2022 compared to the same
period in the prior fiscal year was primarily due to increased compensation and
bonuses related to market conditions and company performance. The decrease for
the nine months ended July 31, 2022 compared to the same period in the prior
fiscal year was primarily due to decreases in compensation expense,
mainly related to the grants of phantom stock awards under our 2019 LTIP, for
which expense is impacted by the change in our stock price each period. The
expense decreased as a result of the significant decrease in our stock price
during the third quarter of fiscal 2022, versus a significant increase in stock
price during the same period of the prior year.



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Other Interest



Other interest decreased $9.5 million for the three months ended July 31, 2022
compared to the three months ended July 31, 2021 and decreased $29.7 million for
the nine months ended July 31, 2022 compared to the nine months ended July 31,
2021. 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. Other interest decreased
because we incurred less interest and had less debt in excess of inventory as a
result of the reduction of our debt and increase in our qualifying assets during
fiscal 2021 and 2022.


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 increased $7.5 million to $12.6 million for the three months ended July
31, 2022 and increased $14.4 million to $23.9 million for the nine months ended
July 31, 2022 compared to the same respective periods of the prior year. The
increase was primarily due to the recognition of our share of income from two of
our unconsolidated joint ventures during the three and nine months ended July
31, 2022 based on the joint venture partner achieving certain return hurdles, in
compliance with the joint venture agreement, and as a result, the Company was
able to recognize a higher share of the unconsolidated joint venture's profit.



Loss on extinguishment of debt



On April 29, 2022, K. Hovnanian redeemed $100.0 million aggregate principal
amount of its 7.75% Senior Secured 1.125 Lien Notes due 2026. The aggregate
purchase price for this redemption was $105.5 million, which included accrued
and unpaid interest and which was funded with cash on hand. This redemption
resulted in a loss on extinguishment of debt of $6.8 million for the nine months
ended July 31, 2022, 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".



Total Taxes



The total income tax expense for the three and nine months ended July 31,
2022 was $29.3 million and $58.4 million, respectively. The expense was
primarily due to federal and state tax expense recorded as a result of our
pretax income. The federal tax expense is not paid in cash as it is offset by
the use of our existing NOL carryforwards. The total income tax expense for the
three months ended July 31, 2021 was $14.1 million. The federal tax expense was
primarily related to pretax income generated during the quarter 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 benefit for the nine
months ended July 31, 2021 was $442.9 million. The benefit was primarily due to
the reversal of a substantial portion of our valuation allowance previously
recorded against our deferred tax assets.



Inflation



The annual rate of inflation in the United States hit 8.5% in July 2022, nearly
the highest in more than three decades, as measured by the Consumer Price Index
(CPI). Inflation has a long-term effect, because increasing costs of land,
materials and labor result in increasing sale prices of our homes. Historically,
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 56.9% of our homebuilding cost of sales for the nine months ended
July 31, 2022.



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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:


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

the impacts of a significant slowdown in residential construction;

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

due to geopolitical events, changes in trade policies, including the

the imposition of tariffs and duties on residential building materials and products, and

related trade disputes and retaliatory actions taken by others

countries;

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

the agencies, law enforcement and/or health authorities take action to remedy it,

as well as the lingering macroeconomic effects of the pandemic;

? Adverse weather and other environmental conditions and natural disasters;

? The seasonality of the Company’s activities;

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

cash to invest in such land and lots;

? Dependence on subcontractors and their performance;

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

of the economy and employment levels affecting home prices and sales

activity in markets where the Company builds homes;

? Increase in terminations of promises to sell;

? Interest rate fluctuations 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 favour, such as

product liability disputes, warranty claims and mortgage claims

     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 operations and activities of the Company

imposed by the agreements governing the Company’s outstanding debt;

? Availability and terms of financing of the Company;

? The Company’s sources of liquidity;

? Changes in credit ratings;

? Government regulations, including regulations regarding land development,

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

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

? Loss of key management personnel or inability to attract qualified personnel;

     and
  ?  Increases in inflation.




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, 2021. 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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