Orleans Homebuilders, Inc., a Delaware corporation, and its subsidiaries (collectively, the "Company", "OHB", "Orleans", "we", "us" or "our") market, develop and build high-quality, single-family homes, townhomes and condominiums to serve various types of homebuyers, including move-up, luxury, empty nester, active adult, first-time move-up and first-time homebuyers. The Company believes this broad range of home designs gives it flexibility to address economic and demographic trends within its markets. The Company has been in operation since 1918 and is currently engaged in residential real estate development in eight states in the following 11 markets: Southeastern Pennsylvania; Central New Jersey; Southern New Jersey; Orange County, New York; Charlotte, Raleigh and Greensboro, North Carolina; Richmond and Tidewater, Virginia; Chicago, Illinois; and Orlando, Florida. The Company's Charlotte, North Carolina market also includes operations in adjacent counties in South Carolina. On December 31, 2007, the Company committed to exiting the Phoenix, Arizona market and, in connection with that decision, on that date disposed of its entire land position and its related work-in-process homes in Phoenix, which constituted substantially all of its assets in the western region. The Consolidated Financial Statements have been reclassified for all prior periods presented to reflect this business as a discontinued operation. See Note 12, Discontinued Operations.

References to a given fiscal year in this Quarterly Report on Form 10-Q is to the fiscal year ended June 30th of that year. For example, the phrases "fiscal 2009", "2009 fiscal year" or "year ended June 30, 2009" refer to the fiscal year ending June 30, 2009. When used in this report, the "northern region" segment refers to our markets in Pennsylvania, New Jersey and New York; the "southern region" segment refers to our markets in North Carolina and Virginia, as well as the adjacent counties in South Carolina; the "midwestern region" segment refers to our market in Illinois; the "Florida region" segment refers to our market in Florida; and the "western region" segment refers to our former market in Arizona.

Results of Operations

New Orders, Residential Revenues and Backlog:

Since the latter part of fiscal year 2006, we and the entire housing industry have faced several significant challenges in the housing and mortgage markets as a whole. These challenges have increased significantly during the three and six months ended December 31, 2008 as these difficulties which previously were confined to certain segments of the economy (including homebuilding) have expanded to a greater portion of the United States and global economy. Economic reports show that the United States economy is suffering from falling wages, rising inflation, weak consumer spending, job losses, tight credit, a lingering malaise in the real estate industry and the worst financial crisis since the 1930s. During the quarter, it was announced that the United States economy had been in a recession since December 2007. As a result, we believe that overall economic conditions and conditions in the housing and mortgage markets will remain difficult and these conditions may continue to have a negative impact on new orders, new order pricing and consumer confidence related to housing in the near term, thereby further reducing revenues, gross margins and net income. We are continuing to respond to these unfavorable market conditions by attempting to maintain absorption levels through the use of sales incentives, reevaluating our individual land holdings, reducing our land expenditures and emphasizing cost reductions to adjust for lower levels of production. Further decreases in demand for our homes may require us to further increase the use of sales incentives and to take other steps to reduce expenditures and expenses, which could result in future inventory impairments.

For the tables below setting forth certain details as to residential sales activities, the information is provided for the three and six months ended December 31, 2008 and 2007 in the case of residential revenue earned and new orders, and as of December 31, 2008 and 2007 in the case of backlog. We consider a sales contract or a potential sale to be classified as a new order and, therefore, become a part of backlog, at the time a homebuyer executes a contract to purchase a home from the Company. Sales contracts are usually accompanied by a sales deposit. In some instances, purchasers are permitted to cancel sales contracts if they are unable to close on the sale of their existing home or fail to qualify for financing and under certain other circumstances.

                               Three months ended December 31,
                                  2008                2007           Change     % Change

New orders
Dollars                      $        41,234    $         114,687   $ (73,453 )    (64.0 )%
Units                                    113                  284        (171 )    (60.2 )%
Average sales price          $           365    $             404   $     (39 )     (9.7 )%

Residential revenue earned
Dollars                      $        87,753    $         144,490   $ (56,737 )    (39.3 )%
Units                                    199                  323        (124 )    (38.4 )%
Average sales price          $           441    $             447   $      (6 )     (1.3 )%




                               Six months ended December 31,
                                  2008               2007           Change     % Change

New orders
Dollars                      $        94,864    $       247,263   $ (152,399 )    (61.6 )%
Units                                    248                587         (339 )    (57.8 )%
Average sales price          $           383    $           421   $      (38 )     (9.0 )%

Residential revenue earned
Dollars                      $       176,355    $       263,847   $  (87,492 )    (33.2 )%
Units                                    399                586         (187 )    (31.9 )%
Average sales price          $           442    $           450   $       (8 )     (1.8 )%

As of December 31,

                         2008        2007        Change     % Change

Backlog
Dollars               $  156,818   $ 301,329   $ (144,511 )    (48.0 )%
Units                        335         610         (275 )    (45.1 )%
Average sales price   $      468   $     494   $      (26 )     (5.3 )%

New orders for the three months ended December 31, 2008 decreased $73,453 or 64.0%, to $41,234 on 113 homes, compared to $114,687 on 284 homes for the three months ended December 31, 2007. The average price per home decreased by approximately 9.7% to $365 for the three months ended December 31, 2008 compared to $404 for the three months ended December 31, 2007.

New orders for the six months ended December 31, 2008 decreased $152,399 or 61.6%, to $94,864 on 248 homes, compared to $247,263 on 587 homes for the six months ended December 31, 2007. The average price per home decreased by approximately 9.0% to $383 for the six months ended December 31, 2008 compared to $421 for the six months ended December 31, 2007.

The decrease in new orders for the three and six months ended December 31, 2008 is attributable to the continued deterioration in the overall housing and mortgage markets during the period, significant turmoil in the capital markets, weaker employment statistics and decreased consumer confidence. The decrease in the average sales price on new orders generally represents a response to the deterioration in market conditions by us in an effort to increase absorption through the use of marketing incentives and price reductions.

Residential revenues earned for the three months ended December 31, 2008 decreased $56,737, or 39.3%, to $87,753 on 199 homes,

compared to $144,490 on 323 homes for the three months ended December 31, 2007. The average price per home decreased by approximately 1.3% to $441 for the three months ended December 31, 2008 compared to $447 for the three months ended December 31, 2007.

Residential revenues earned for the six months ended December 31, 2008 decreased $87,492, or 33.2%, to $176,355 on 399 homes, compared to $263,847 on 586 homes for the six months ended December 31, 2007. The average price per home decreased by approximately 1.8% to $442 for the six months ended December 31, 2008 compared to $450 for the six months ended December 31, 2007.

The decrease in residential revenues earned for the three and six months ended December 31, 2008 is also attributable to the continued deterioration in the overall housing and mortgage markets during the period, significant turmoil in the capital markets, weaker employment statistics and decreased consumer confidence.

Changes in backlog are the net result of changes in net new orders and residential revenues earned.

Cancellation rates for the three and six months ended December 31, 2008 were 30.7% and 33.7% of new orders compared to 26.0% and 23.7% for the three and six months ended December 31, 2007. This increase is the result of the deteriorating economy, which is reflected in the lower gross orders in all regions. Cancellations declined from 182 in the six months ended December 31, 2007 to 126 in the six months ended December 31, 2008.

Northern Region:



                               Three months ended December 31,
                                  2008                2007           Change     % Change

New orders
Dollars                      $        16,505    $          45,890   $ (29,385 )    (64.0 )%
Units                                     41                  109         (68 )    (62.4 )%
Average sales price          $           403    $             421   $     (18 )     (4.3 )%

Residential revenue earned
Dollars                      $        33,102    $          57,024   $ (23,922 )    (42.0 )%
Units                                     73                  118         (45 )    (38.1 )%
Average sales price          $           453    $             483   $     (30 )     (6.2 )%

                                Six months ended December 31,
                                  2008                2007           Change     % Change

New orders
Dollars                      $        41,959    $          99,472   $ (57,513 )    (57.8 )%
Units                                     96                  222        (126 )    (56.8 )%
Average sales price          $           437    $             448   $     (11 )     (2.5 )%

Residential revenue earned
Dollars                      $        79,827    $         108,050   $ (28,223 )    (26.1 )%
Units                                    170                  223         (53 )    (23.8 )%
Average sales price          $           470    $             485   $     (15 )     (3.1 )%

                                      As of December 31,
                                  2008                2007           Change     % Change

Backlog
Dollars                      $        71,950    $         136,057   $ (64,107 )    (47.1 )%
Units                                    136                  254        (118 )    (46.5 )%
Average sales price          $           529    $             536   $      (7 )     (1.3 )%

Our northern region is comprised of our Southeastern Pennsylvania; Central New Jersey; Southern New Jersey and Orange County, New York markets. We believe that our geographic mix in this market allows us to compete better than if we were situated in one or two concentrated markets. In the northern region, we currently build homes primarily targeted toward move-up, luxury, empty nester and active adult homebuyers.

The decrease in new orders for the northern region noted above for the three and six months ended December 31, 2008, is the result of a large decrease in the number of units sold, coupled with a slight decline in the average sales price. The decrease in the number of units is primarily the result of deteriorating market conditions. The decrease in residential revenue earned for the three and six months ended December 31, 2008, was also the result of both decreases in the units sold and the average sale price.

We have introduced new smaller-value oriented product in the region and we have also seen a shift in mix to our multi-family townhome products as well as lower priced single family communities.

Southern Region:



                               Three months ended December 31,
                                  2008                2007           Change     % Change

New orders
Dollars                      $        17,472    $          50,183   $ (32,711 )    (65.2 )%
Units                                     52                  119         (67 )    (56.3 )%
Average sales price          $           336    $             422   $     (86 )    (20.4 )%

Residential revenue earned
Dollars                      $        44,227    $          61,827   $ (17,600 )    (28.5 )%
Units                                    100                  127         (27 )    (21.3 )%
Average sales price          $           442    $             487   $     (45 )     (9.2 )%

                                Six months ended December 31,
                                  2008                2007           Change     % Change

New orders
Dollars                      $        35,697    $         108,765   $ (73,068 )    (67.2 )%
Units                                    103                  240        (137 )    (57.1 )%
Average sales price          $           347    $             453   $    (106 )    (23.4 )%

Residential revenue earned
Dollars                      $        71,505    $         110,200   $ (38,695 )    (35.1 )%
Units                                    164                  227         (63 )    (27.8 )%
Average sales price          $           436    $             485   $     (49 )    (10.1 )%

                                      As of December 31,
                                  2008                2007           Change     % Change

Backlog
Dollars                      $        67,951    $         129,093   $ (61,142 )    (47.4 )%
Units                                    155                  256        (101 )    (39.5 )%
Average sales price          $           438    $             504   $     (66 )    (13.1 )%

Our southern region is comprised of our Charlotte, Raleigh and Greensboro, North Carolina and the Richmond and Tidewater, Virginia markets. The Charlotte, North Carolina market also includes operations in adjacent counties in South Carolina. The Company in its southern region currently builds homes targeted toward move-up and luxury homebuyers.

The decrease in new orders for the three and six months ended December 31, 2008, compared to the three and six months ended December 31, 2007, is the result of significant decreases in both the number of units sold and the average price per unit. The decrease in residential revenues earned for the three and six months ended December 31, 2008, compared to the three and six months ended December 31, 2007, is also due to significant decreases in the number of units sold and the average sale price per unit. These decreases are the result of decreases in our luxury product - particularly in the Richmond area.

Midwestern Region:



                         Three months ended December 31,
                           2008                  2007              Change         % Change

New orders
Dollars              $           6,767     $          13,532   $       (6,765 )         (50.0 )%
Units                               17                    33              (16 )         (48.5 )%
Average sales
price                $             398     $             410   $          (12 )          (2.9 )%

Residential
revenue earned
Dollars              $           9,198     $          15,725   $       (6,527 )         (41.5 )%
Units                               20                    34              (14 )         (41.2 )%
Average sales
price                $             460     $             463   $           (3 )          (0.6 )%

                          Six months ended December 31,
                           2008                  2007              Change         % Change

New orders
Dollars              $          14,927     $          26,968   $      (12,041 )         (44.6 )%
Units                               38                    73              (35 )         (47.9 )%
Average sales
price                $             393     $             369   $           24             6.5 %

Residential
revenue earned
Dollars              $          20,676     $          28,561   $       (7,885 )         (27.6 )%
Units                               48                    62              (14 )         (22.6 )%
Average sales
price                $             431     $             461   $          (30 )          (6.5 )%

                               As of December 31,
                           2008                  2007              Change         % Change

Backlog
Dollars              $          15,335     $          26,339   $      (11,004 )         (41.8 )%
Units                               38                    66              (28 )         (42.4 )%
Average sales
price                $             404     $             399   $            5             1.3 %

In our midwestern region, we have operations in the Chicago area. The Company in its midwestern region currently builds homes primarily targeted toward the move-up homebuyer.

During the three and six months ended December 31, 2008, both new order dollars and the number of units sold decreased as compared to the same periods in the prior year. This decrease is primarily the result of the deteriorating economic and market conditions noted above. Average sales price was down slightly during the three months ended December 31, 2008, but increased during the six months ended December 31, 2008. During our first quarter of fiscal year 2008, market prices of new homes in the Chicago market declined significantly. This increase was due to the significant price declines that occurred during the early part of fiscal year 2008. The decrease in residential revenues earned during the three and six months ended December 31, 2008, was due to declines in units sold and average sale price.

Florida Region:



                         Three months ended December 31,
                           2008                  2007              Change         % Change

New orders
Dollars              $            490     $            5,082   $       (4,592 )         (90.4 )%
Units                               3                     23              (20 )         (87.0 )%
Average sales
price                $            163     $              221   $          (58 )         (26.2 )%

Residential
revenue earned
Dollars              $          1,226     $            9,914   $       (8,688 )         (87.6 )%
Units                               6                     44              (38 )         (86.4 )%
Average sales
price                $            204     $              225   $          (21 )          (9.3 )%

                          Six months ended December 31,
                           2008                  2007              Change         % Change

New orders
Dollars              $          2,281     $           12,058   $       (9,777 )         (81.1 )%
Units                              11                     52              (41 )         (78.8 )%
Average sales
price                $            207     $              232   $          (25 )         (10.8 )%

Residential
revenue earned
Dollars              $          4,347     $           17,036   $      (12,689 )         (74.5 )%
Units                              17                     74              (57 )         (77.0 )%
Average sales
price                $            256     $              230   $           26            11.3 %

                               As of December 31,
                           2008                  2007              Change         % Change

Backlog
Dollars              $          1,582     $            9,840   $       (8,258 )         (83.9 )%
Units                               6                     34              (28 )         (82.4 )%
Average sales
price                $            264     $              289   $          (25 )          (8.7 )%

The above table reflects results from our Florida region for the three and six months ended December 31, 2008 and 2007. In the Florida region, we have operations in the Orlando market. The six months ended December 31, 2007, also reflects results from the Palm Bay market from which we substantially exited during the first quarter of fiscal 2008. The three and six months ended December 31, 2007, also reflects results from the Palm Coast market from which we substantially exited during the second quarter of fiscal 2008. The Company in the Florida region currently builds homes primarily targeted toward first-time, move-up and entry level homebuyers.

The decrease in new orders for the three and six months ended December 31, 2008, as compared to the three and six months ended December 31, 2007, is primarily the result of the continued deterioration of market conditions in this region. New orders were also negatively impacted by our exit from the Palm Bay and Palm Coast markets, as noted above. The decline in residential revenue earned is also the result of the overall decline in market conditions, as well as our exit from the Palm Bay and Palm Coast markets, as noted above.

Costs and Expenses:



Residential Properties:



                       Three months ended December 31,
                           2008                2007              Change         % Change

Residential
Properties
Earned revenue       $         87,753    $        144,490    $      (56,737 )         (39.3 )%
Cost of
residential
properties                     87,248             147,425           (60,177 )         (40.8 )%
Gross profit
margin               $            505    $         (2,935 )  $        3,440          (117.2 )%
Gross profit
margin %                          0.6 %              (2.0 )%

                        Six months ended December 31,
                           2008                2007              Change         % Change

Residential
Properties
Earned revenue       $        176,355    $        263,847    $      (87,492 )         (33.2 )%
Cost of
residential
properties                    174,955             250,378           (75,423 )         (30.1 )%
Gross profit
margin               $          1,400    $         13,469    $      (12,069 )         (89.6 )%
Gross profit
margin %                          0.8 %               5.1 %

The costs of residential properties for the three and six months ended December 31, 2008, compared to the three and six months ended December 31, 2007 decreased primarily as a result of decreased residential revenue earned. Impairments of residential property in the amount of $8,670 and $22,917 were recorded in the three months ended December 31, 2008 and 2007, respectively. Impairments of residential property in the amount of $18,088 and $23,629 were recorded in the six months ended December 31, 2008 and 2007, respectively. Gross profit percentage for the three and six months ended December 31, 2008 was 0.6% and 0.8%, as compared to (2.0)% and 5.1% for the three and six months ended December 31, 2007. Without recording the impairments, the gross profit percentage would have been 10.5% and 11.1% for the three and six months ended December 31, 2008, as compared to 13.8% and 14.1% for the three and six months ended December 31, 2007.

We sell a variety of home types in various communities and regions, each yielding a different gross profit margin. As a result, depending on the mix of both communities and home types delivered, the consolidated gross profit margin may fluctuate up and down on a periodic basis and periodic profit margins may not be representative of the consolidated gross profit margin for the entire year or future years.

We capitalize interest costs to inventory during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. Historically, our inventory eligible for interest capitalization exceeded our debt levels. As a result of our reduction of inventories in recent quarters the Company's active inventory has been lower than its debt level; therefore, a portion of the interest incurred during those periods was expensed directly to interest expense. As all interest incurred is ultimately expensed, this occurrence only accelerated the expense recognition of the interest incurred during the period. Interest included in the costs and expenses of residential properties and land sold for the three months ended December 31, 2008 and December 31, 2007 was $4,535 and $5,114, respectively. Interest included in the costs and expenses of residential properties and land sold for the six months ended December 31, 2008 and December 31, 2007 was $8,679 and $8,923, respectively. Interest charged directly to interest expense during the three and six months ended December 31, 2008 was $1,019 and $2,883, respectively. Included in interest expense during the six months ended December 31, 2008, was the write-off of debt acquisition costs in the amount of $784. This charge was recognized due to the decrease in borrowing capacity as a result of the September 30, 2008 amendment to the Revolving Credit Facility. There was no interest charged directly to interest expense during the three and six months ended December 31, 2007.

Selling, General and Administrative:



                                 Three months ended December 31,
                                   2008                  2007             Change       % Change

Selling, General and
Administrative
Selling and advertising      $           4,665     $           8,219   $     (3,554 )       (43.2 )%
Commissions                              3,537                 5,644         (2,107 )       (37.3 )%
General and administrative               7,919                10,725         (2,806 )       (26.2 )%
Total                        $          16,121     $          24,588   $     (8,467 )       (34.4 )%




                               Six months ended December 31,
                                  2008               2007            Change       % Change

. . .