(1) Results of Operations Overview We historically have experienced, and expect to continue to experience, variability in quarterly results. Our results of operations for the three and six months ended May 31, 2009 are not necessarily indicative of the results to be expected for the full year. Our net loss was $125.2 million, or $0.76 per basic and diluted share, in the second quarter of 2009, compared to net loss of $120.9 million, or $0.76 per basic and diluted share, in the second quarter of 2008. Net loss was $281.1 million, or $1.74 per basic and diluted share, in the six months ended May 31, 2009, compared to net loss of $209.1 million, or $1.32 per basic and diluted share, in the six months ended May 31, 2008. The net loss was attributable to challenging market conditions that have persisted during the first half of 2009 and have impacted all of our operations despite an increase in sales and deliveries during the second quarter of 2009, compared to the first quarter of 2009. Our gross margins increased during the second quarter of 2009, compared to the first quarter of 2009, primarily as a result of lower Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Long-lived Assets, ("SFAS 144") valuation adjustments, despite higher sales incentives as a percentage of revenues from home sales and reduced pricing. Our gross margins decreased during the six months ended May 31, 2009, compared to the same period last year, due to higher sales incentives as a percentage of revenues from home sales and reduced pricing as the Company focused on reducing its completed, unsold inventory. Financial information relating to our operations was as follows:

                                                   Three Months Ended                     Six Months Ended
                                                         May 31,                              May 31,
(In thousands)                                   2009              2008               2009               2008
Homebuilding revenues:
Sales of homes                                $  788,600          1,018,854          1,311,358          1,971,920
Sales of land                                     16,629             27,690             22,905             68,400

Total homebuilding revenues                      805,229          1,046,544          1,334,263          2,040,320

Homebuilding costs and expenses:
Cost of homes sold                               712,508            930,488          1,201,084          1,746,859
Cost of land sold                                 14,241             33,093             31,047            100,253
Selling, general and administrative              112,526            156,972            213,703            331,990

Total homebuilding costs and expenses            839,275          1,120,553          1,445,834          2,179,102

Equity in loss from unconsolidated
entities                                         (59,890 )          (18,919 )          (62,807 )          (41,899 )
Other income (expense), net                      (22,522 )          (47,874 )          (70,356 )          (69,667 )
Minority interest income (expense), net            6,520                218              8,254                (16 )

Homebuilding operating loss                   $ (109,938 )         (140,584 )         (236,480 )         (250,364 )

Financial services revenues                   $   86,624             81,372            150,653            150,509
Financial services costs and expenses             70,085             84,386            133,622            163,215

Financial services operating earnings
(loss)                                        $   16,539             (3,014 )           17,031            (12,706 )

Total operating loss                          $  (93,399 )         (143,598 )         (219,449 )         (263,070 )
Corporate general and administrative
expenses                                         (30,239 )          (29,584 )          (58,270 )          (64,406 )

Loss before (provision) benefit for
income taxes                                  $ (123,638 )         (173,182 )         (277,719 )         (327,476 )

Three Months Ended May 31, 2009 versus Three Months Ended May 31, 2008 Revenues from home sales decreased 23% in the second quarter of 2009 to $788.6 million from $1,018.9 million in 2008. Revenues were lower primarily due to a 16% decrease in the number of home deliveries, excluding unconsolidated entities, and an 8% decrease in the average sales price of homes delivered in 2009. New home deliveries, excluding unconsolidated entities, decreased to 3,138 homes in

the second quarter of 2009 from 3,729 homes last year. In the second quarter of 2009, new home deliveries were lower in each of our homebuilding segments and Homebuilding Other, compared to 2008. The average sales price of homes delivered decreased to $251,000 in the second quarter of 2009 from $274,000 in the same period last year, primarily due to reduced pricing. Sales incentives offered to homebuyers were $52,600 per home delivered in the second quarter of 2009, compared to $48,700 per home delivered in the same period last year.
Gross margins on home sales were $76.1 million, or 9.6%, in the second quarter of 2009, which included $34.6 million of SFAS 144 valuation adjustments, compared to gross margins on home sales of $88.4 million, or 8.7%, in the second quarter of 2008, which included $73.6 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $110.7 million, or 14.0%, in the second quarter of 2009, compared to $162.0 million, or 15.9%, in 2008. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year primarily due to higher sales incentives offered to homebuyers as a percentage of revenues from home sales as we focused on reducing our completed, unsold inventory. Gross margins on home sales excluding SFAS 144 valuation adjustments is a non-GAAP financial measure which is discussed below in the Non-GAAP Financial Measure section.
Homebuilding interest expense (included in cost of homes sold, cost of land sold and other income (expense), net) was $41.9 million in the second quarter of 2009, compared to $37.9 million in 2008. Despite a decrease in deliveries during the second quarter of 2009, compared to the second quarter of 2008, interest expense increased primarily due to the issuance of $400 million of 12.25% senior notes due 2017 and a reduction in qualifying assets eligible for interest capitalization as a result of a decrease in inventories.
Selling, general and administrative expenses were reduced by $44.4 million, or 28%, in the second quarter of 2009, compared to the same period last year, primarily due to reductions in associate headcount, variable selling expenses and fixed costs. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 14.3% in the second quarter of 2009, from 15.4% in 2008.
Gross profits on land sales totaled $2.4 million in the second quarter of 2009, net of $5.6 million of SFAS 144 valuation adjustments and $1.8 million of write-offs of deposits and pre-acquisition costs related to homesites under option that we do not intend to purchase. In the second quarter of 2008, losses on land sales totaled $5.4 million, which included $2.1 million of SFAS 144 valuation adjustments and $6.6 million of write-offs of deposits and pre-acquisition costs related to homesites that were under option.
Equity in loss from unconsolidated entities was $59.9 million in the second quarter of 2009, which included $50.1 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments, compared to equity in loss from unconsolidated entities of $18.9 million in the second quarter of 2008, which included $8.0 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments.
Other income (expense), net, totaled ($22.5) million in the second quarter of 2009, which included $7.0 million of APB 18 valuation adjustments to our investments in unconsolidated entities, compared to other income (expense), net, of ($47.9) million in the second quarter of 2008, which included $46.9 million of APB 18 valuation adjustments to our investments in unconsolidated entities.
Minority interest income, net was $6.5 million and $0.2 million, respectively, in the second quarter of 2009 and 2008.
Sales of land, equity in loss from unconsolidated entities, other income (expense), net and minority interest income, net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.
Operating earnings for the Financial Services segment was $16.5 million in the second quarter of 2009, compared to an operating loss of $3.0 million in the same period last year. Improved consumer confidence and lower interest rates resulted in increased volume and a higher profit per transaction in the

segment. The segment was also able to leverage lower fixed costs as a result of its successful cost reduction initiatives implemented throughout the downturn.
Corporate general and administrative expenses as a percentage of total revenues increased to 3.4% in the second quarter of 2009, from 2.6% in 2008, primarily due to lower revenues.
SFAS 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on available evidence, it is more likely than not that such assets will not be realized. As a result of our net loss during the three months ended May 31, 2009, we generated deferred tax assets of $44.4 million and recorded a non-cash valuation allowance in accordance with SFAS 109 against the entire amount of deferred tax assets generated.
In March 2009, we retired our $281 million 7 5/8% senior notes due March 2009 for 100% of the outstanding principal amount, plus accrued interest as of the maturity date.
In April 2009, we issued $400 million of 12.25% senior notes due 2017 in a private placement under SEC Rule 144A.
As of May 31, 2009, we had issued a total of 12.8 million shares of our Class A common stock under an equity offering into the market from time to time for gross proceeds of $126.3 million, or an average of $9.86 per share. We are authorized to sell shares for up to $275 million under the equity offering. We will use the proceeds from the equity offering for general corporate purposes which may include acquisitions.
Our overall effective income tax rates were (1.25%) and 30.18%, respectively, for the three months ended May 31, 2009 and 2008. The decrease in the effective tax rate, compared with the same period during 2008, resulted primarily from the establishment of a deferred tax asset valuation allowance. Six Months Ended May 31, 2009 versus Six Months Ended May 31, 2008 Revenues from home sales decreased 33% in the six months ended May 31, 2009 to $1.3 billion from $2.0 billion in 2008. Revenues were lower primarily due to a 26% decrease in the number of home deliveries, excluding unconsolidated entities, and a 10% decrease in the average sales price of homes delivered in 2009. New home deliveries, excluding unconsolidated entities, decreased to 5,274 homes in the six months ended May 31, 2009 from 7,166 homes last year. In the six months ended May 31, 2009, new home deliveries were lower in each of our homebuilding segments and Homebuilding Other, compared to 2008. The average sales price of homes delivered decreased to $248,000 in the six months ended May 31, 2009 from $276,000 in 2008, primarily due to reduced pricing. Sales incentives offered to homebuyers were $51,800 per home delivered in 2009, compared to $48,400 per home delivered in 2008.
Gross margins on home sales were $110.3 million, or 8.4%, in the six months ended May 31, 2009, which included $75.3 million of SFAS 144 valuation adjustments, compared to gross margins on home sales of $225.1 million, or 11.4%, in the six months ended May 31, 2008, which included $99.8 million of SFAS 144 valuation adjustments. Gross margins on home sales excluding SFAS 144 valuation adjustments were $185.6 million, or 14.2%, in the six months ended May 31, 2009, compared to $324.9 million, or 16.5%, in 2008. Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, decreased compared to last year, primarily due to higher sales incentives offered to homebuyers as a percentage of revenues from home sales as we focused on reducing our completed, unsold inventory. Gross margins on home sales excluding SFAS 144 valuation adjustments is a non-GAAP financial measure which is discussed below in the Non-GAAP Financial Measure section.
Homebuilding interest expense (included in cost of homes sold, cost of land sold and other income (expense), net) was $58.8 million in the six months ended May 31, 2009, compared to $70.4 million in the same period last year. The decrease in interest expense was due to decreased deliveries during the six months ended May 31, 2009, compared to the same period last year, despite the issuance of $400 million of 12.25% senior notes due 2017 and a reduction in qualifying assets eligible for interest capitalization as a result of a decrease in inventories.

Our homebuilding debt to total capital ratio as of May 31, 2009 was 51.8%, compared to 49.2% and 39.5%, respectively, as of November 30, 2008 and May 31, 2008. Our net homebuilding debt to total capital ratio as of May 31, 2009 was 32.9%, compared to 35.7% and 28.7%, respectively, as of November 30, 2008 and May 31, 2008. Net homebuilding debt to total capital ratio consists of net homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders' equity).
Selling, general and administrative expenses were reduced by $118.3 million, or 36%, in the six months ended May 31, 2009, compared to the same period last year, primarily due to reductions in associate headcount, variable selling expenses and fixed costs. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 16.3% in the six months ended May 31, 2009, from 16.8% in 2008.
Losses on land sales totaled $8.1 million in the six months ended May 31, 2009, which included $5.8 million of SFAS 144 valuation adjustments and $12.1 million of write-offs of deposits and pre-acquisition costs related to homesites under option that we do not intend to purchase. In the six months ended May 31, 2008, losses on land sales totaled $31.9 million, which included $17.6 million of SFAS 144 valuation adjustments and $23.4 million of write-offs of deposits and pre-acquisition costs related to homesites that were under option.
Equity in loss from unconsolidated entities was $62.8 million in the six months ended May 31, 2009, which included $50.1 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments, compared to equity in loss from unconsolidated entities of $41.9 million in the six months ended May 31, 2008, which included $26.9 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which we have investments.
Other income (expense), net, totaled ($70.4) million in the six months ended May 31, 2009, which included $44.2 million of APB 18 valuation adjustments to our investments in unconsolidated entities, compared to other income (expense), net, of ($69.7) million in the six months ended May 31, 2008, which included $76.5 million of APB 18 valuation adjustments to our investments in unconsolidated entities.
Minority interest income (expense), net totaled $8.3 million and ($16) thousand, respectively, in the six months ended May 31, 2009 and 2008.
Sales of land, equity in loss from unconsolidated entities, other income (expense), net and minority interest income (expense), net may vary significantly from period to period depending on the timing of land sales and other transactions entered into by us and unconsolidated entities in which we have investments.
Operating earnings for the Financial Services segment were $17.0 million in the six months ended May 31, 2009, compared to an operating loss of $12.7 million in the same period last year. Improved consumer confidence and lower interest rates resulted in increased volume and a higher profit per transaction in the segment. The segment was also able to leverage lower fixed costs as a result of its successful cost reduction initiatives implemented throughout the downturn.
Corporate general and administrative expenses were reduced by $6.1 million, or 10%, for the six months ended May 31, 2009, compared to the same period last year. As a percentage of total revenues, corporate general and administrative expenses increased to 3.9% in the six months ended May 31, 2009, from 2.9% in the same period last year, due to lower revenues.
SFAS 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on available evidence, it is more likely than not that such assets will not be realized. As a result of our net loss during the six months ended May 31, 2009, we generated deferred tax assets of $102.2 million and recorded a non-cash valuation allowance in accordance with SFAS 109 against the entire amount of deferred tax assets generated.

Our overall effective income tax rates were (1.22%) and 36.14%, respectively, for the six months ended May 31, 2009 and 2008. The decrease in the effective tax rate, compared to same period during 2008, resulted primarily from the establishment of a deferred tax asset valuation allowance. Non-GAAP Financial Measure
Gross margins on home sales excluding SFAS 144 valuation adjustments is a non-GAAP financial measure, and is defined by us as sales of homes revenue less costs of homes sold excluding SFAS 144 valuation adjustments recorded during the period. Management finds this to be an important and useful measure in evaluating our performance because it discloses the profit we generate on homes we actually delivered during the period, as our SFAS 144 valuation adjustments relate to inventory that we did not deliver during the period. Gross margins on home sales excluding SFAS 144 valuation adjustments also is important to our management, because it assists our management in making strategic decisions regarding our construction pace, product mix and product pricing based upon the profitability we generated on homes we actually delivered during previous periods. We believe investors also find gross margins on home sales excluding SFAS 144 valuation adjustments to be important and useful because it discloses a profitability measure on homes we actually delivered in a period that can be compared to the profitability on homes we delivered in a prior period without regard to the variability of SFAS 144 valuation adjustments recorded from period to period. In addition, to the extent that our competitors provide similar information, disclosure of our gross margins on home sales excluding SFAS 144 valuation adjustments helps readers of our financial statements compare our ability to generate profits with regard to the homes we deliver in a period to our competitors' ability to generate profits with regard to the homes they deliver in the same period.
Although management finds gross margins on home sales excluding SFAS 144 valuation adjustments to be an important measure in conducting and evaluating our operations, this measure has limitations as an analytical tool as it is not reflective of the actual profitability generated by our company during the period. This is because it excludes charges we recorded, in accordance with SFAS 144, relating to inventory that was impaired during the period. In addition, because gross margins on home sales excluding SFAS 144 valuation adjustments is a financial measure that is not calculated in accordance with GAAP, it may not be completely comparable to similarly titled measures of our competitors due to differences in methods of calculation and charges being excluded. Our management compensates for the limitations of using gross margins on home sales excluding SFAS 144 valuation adjustments by using this non-GAAP measure only to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our operations. In order to analyze our overall performance and actual profitability relative to our homebuilding operations, we also compare our gross margins on home sales during the period, inclusive of SFAS 144 valuation adjustments, with the same measure during prior comparable periods. Due to the limitations discussed above, gross margins on home sales excluding SFAS 144 valuation adjustments should not be viewed in isolation as it is not a substitute for GAAP measures of gross margins.
The table set forth below reconciles our gross margins on home sales excluding SFAS 144 valuation adjustments for the three and six months ended May 31, 2009 and 2008 to our gross margins on home sales for the three and six months ended May 31, 2009 and 2008:

                                                   Three Months Ended                    Six Months Ended
                                                        May 31,                              May 31,
(In thousands)                                  2009              2008               2009               2008
Sales of homes                                $ 788,600          1,018,854          1,311,358          1,971,920
Costs of homes sold                             712,508            930,488          1,201,084          1,746,859

Gross margins on home sales                      76,092             88,366            110,274            225,061
SFAS 144 valuation adjustments to
finished homes, CIP and land on which we
intend to build homes                            34,558             73,620             75,338             99,849

Gross margins on home sales excluding
SFAS 144 valuation adjustments                $ 110,650            161,986            185,612            324,910

Homebuilding Segments
We have grouped our homebuilding activities into four reportable segments, which we refer to as Homebuilding East, Homebuilding Central, Homebuilding West and Homebuilding Houston, based primarily upon similar economic characteristics, geography and product type. Information about homebuilding activities in states that do not have economic characteristics that are similar to those in other states in the same geographic area is grouped under "Homebuilding Other," which is not considered a reportable segment. References in this Management's Discussion and Analysis of Financial Condition and Results of Operations to homebuilding segments are to those reportable segments.
At May 31, 2009, our reportable homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in:
East: Florida, Maryland, New Jersey and Virginia Central: Arizona, Colorado and Texas (1) West: California and Nevada
Houston: Houston, Texas
Other: Illinois, Minnesota, New York, North Carolina and South Carolina

(1) Texas in the Central reportable segment excludes Houston, Texas, which is its own reportable segment.

The following tables set forth selected financial and operational information related to our homebuilding operations for the periods indicated:
Selected Financial and Operational Data

                                    Three Months Ended              Six Months Ended
. . .