We conduct our homebuilding operations in all of the geographic regions, states and markets listed below, and we conduct our mortgage and title operations in many of these markets. Our homebuilding operating divisions are aggregated into six reporting segments, which are comprised of the markets below. Our financial statements contain additional information regarding segment performance.

 State            Reporting Region/Market     State         Reporting Region/Market

                  East Region                               South Central Region
 Delaware         Central Delaware            Louisiana     Baton Rouge
                  Delaware Shore              Mississippi   Mississippi Gulf Coast
 Georgia          Savannah                    Oklahoma      Oklahoma City
 Maryland         Baltimore                   Texas         Austin
                  Suburban Washington, D.C.                 Dallas
 New Jersey       North New Jersey                          Fort Worth
                  South New Jersey                          Houston
 North Carolina   Brunswick County                          Killeen/Temple
                  Charlotte                                 Laredo
                  Greensboro/Winston-Salem                  Rio Grande Valley
                  Raleigh/Durham                            San Antonio
 Pennsylvania     Lancaster                                 Waco
                  Philadelphia
 South Carolina   Charleston                                Southwest Region
                  Columbia                    Arizona       Phoenix
                  Hilton Head                               Tucson
                  Myrtle Beach                New Mexico    Albuquerque
 Virginia         Northern Virginia                         Las Cruces

                  Midwest Region                            West Region
 Colorado         Colorado Springs            California    Bay Area
                  Denver                                    Central Valley
                  Fort Collins                              Imperial Valley
 Illinois         Chicago                                   Los Angeles County
 Minnesota        Minneapolis/St. Paul                      Riverside/San Bernardino
 Wisconsin        Kenosha                                   Sacramento
                                                            San Diego County
                  Southeast Region                          Ventura County
 Alabama          Birmingham                  Hawaii        Hawaii
                  Mobile                                    Kauai
 Florida          Daytona Beach                             Maui
                  Fort Myers/Naples                         Oahu
                  Jacksonville                Idaho         Boise
                  Melbourne                   Nevada        Las Vegas
                  Miami/West Palm Beach                     Laughlin
                  Ocala                                     Reno
                  Orlando                     Oregon        Albany
                  Pensacola                                 Central Oregon
                  Tampa                                     Portland
 Georgia          Atlanta                     Utah          Salt Lake City
                  Macon                       Washington    Bellingham
                                                            Eastern Washington
                                                            Seattle/Tacoma
                                                            Vancouver

OVERVIEW
During the second quarter of fiscal 2009, conditions within the homebuilding industry remained very challenging. The decline in demand for new homes continues to be reflected in the volume of our net sales orders, which was 45% lower than in the second quarter of fiscal 2008, and the average selling price of those orders was down 8%. Consequently, the value of our sales order backlog at March 31, 2009 was 54% lower than a year ago.
The factors hurting demand for new homes are pervasive across the United States. High inventory levels of both new and existing homes, elevated cancellation rates, low sales absorption rates and overall weak consumer confidence have persisted. The effects of these factors have been magnified by reduced availability of credit in the mortgage markets, high levels of home foreclosures and severe shortages of liquidity in the financial markets. The overall economy has weakened significantly and is now in a recession marked by high unemployment levels, further deterioration in consumer confidence and reduced consumer spending. These factors have caused our sales volume to be significantly reduced from the prior year.
We continue to remain cautious regarding our outlook for the homebuilding industry. We believe that housing market conditions may continue to deteriorate, that challenging conditions will persist for some time and that the timing of a recovery in the housing market remains unclear. Our outlook incorporates several factors, including continued margin pressure from sales price reductions and incentives; continued high levels of new and existing homes available for sale; weak demand from new home consumers; continued high sales cancellations; significant restrictions on the availability of certain mortgage products and an overall increase in the underwriting requirements for home financing as a result of the credit tightening in the mortgage markets.
Due to the challenging market conditions discussed above, we have continued to evaluate our homebuilding and financial services assets for recoverability in accordance with the appropriate accounting standards. Our significant assets, excluding cash, and those whose recoverability are most impacted by market conditions include inventory, earnest money deposits and pre-acquisition costs related to land and lot option contracts, tax assets, both on amounts reflected as deferred and as a receivable, and owned mortgage loans, which collectively comprise 95% of our total non-cash assets. Our evaluations reflected our expectation of continued and increasing challenges in the homebuilding industry, and our belief that these challenging conditions will persist for some time. Based on our evaluations, we recorded inventory impairment charges of $45.0 million, wrote-off earnest money deposits and pre-acquisition costs related to land and lot option contracts we no longer plan to pursue of $3.1 million, and recorded additional reserve for losses of $16.1 million associated with limited recourse provisions on previously sold mortgage loans during the three months ended March 31, 2009. While these impairment charges and write-offs are generally less than amounts recognized in the prior year periods, they reflect the continued weakness in market conditions. We will evaluate whether further impairment charges, valuation adjustments or write-offs are necessary on these assets in the coming quarters. Additional discussion of these evaluations and charges is presented below.
STRATEGY
We believe the long-term fundamentals which support housing demand, namely population growth and household formation, remain solid. However, it is not possible to predict how long the negative effects of the current market conditions will persist or to what extent they will continue to deteriorate. Consequently, we have aggressively sought to reduce our inventory levels and increase our cash balances. We have been successful in generating substantial cash flow from operations primarily through inventory reductions, as well as from the receipt of a tax refund from a loss carryback, allowing us to increase our cash balances and decrease debt levels. This increase in our liquidity provides us with flexibility in determining the appropriate operating strategy for each of our communities and markets to strike the best balance between cash flow generation and potential profit. With this flexibility, we remain committed to the following initiatives related to our operating strategy in the current homebuilding business environment:
• Maintaining a strong cash balance and overall liquidity position.

• Managing the sales prices and level of sales incentives on our homes as necessary to optimize the balance of sales volumes, returns and cash flows.

• Reducing our land and lot inventory from current levels by:

- selling and constructing homes;

- opportunistically selling excess land and lots;

- significantly restricting our spending for land purchases;

- decreasing our land development spending or suspending development in many communities until market conditions improve;

- renegotiating or canceling land option purchase contracts; and

- limiting purchases of finished lots to those needed to meet immediate demand for homes in selected markets and submarkets.

• Controlling our inventory of homes under construction by closely monitoring the construction of unsold homes and aggressively marketing our unsold, completed homes in inventory.

• Decreasing our cost of goods purchased from both vendors and subcontractors.

• Modifying our product offerings to provide more affordable homes.

• Decreasing our SG&A infrastructure to be in line with our reduced expectations of production levels.

These initiatives allowed us to generate cash flows from operations during the six months ended March 31, 2009, which we utilized to increase our liquidity and reduce our outstanding debt. Although we cannot provide any assurances that these initiatives will be successful, we expect that our operating strategy will allow us to continue to maintain a strong balance sheet and liquidity position.
KEY RESULTS
Key financial results as of and for the three months ended March 31, 2009, as compared to the same period of 2008, were as follows:
Homebuilding Operations:
• Homebuilding revenues decreased 52% to $775.3 million.

• Homes closed decreased 47% to 3,585 homes and the average selling price of those homes decreased 10% to $215,000.

• Net sales orders decreased 45% to 4,160 homes.

• Sales order backlog decreased 54% to $963.0 million.

• Home sales gross margins increased 390 basis points to 13.3%.

• Inventory impairments and land option cost write-offs were $48.1 million, compared to $834.1 million.

• Homebuilding SG&A expenses decreased 39% to $126.9 million, but increased as a percentage of homebuilding revenues by 360 basis points to 16.4%.

• Homebuilding pre-tax loss was $90.6 million, compared to pre-tax loss of $896.5 million.

• Homes in inventory declined by 4,800 to 10,300.

• Owned lots declined by 46,000 to 95,000.

• Homebuilding debt decreased by $713.2 million to $2.9 billion.

• Net homebuilding debt to total capital decreased 860 basis points to 34.3%, and gross homebuilding debt to total capital increased 520 basis points to 52.0%.

• Homebuilding cash was $1.5 billion, compared to $518.9 million at March 31, 2008.

Financial Services Operations:
• Total financial services revenues, net of recourse expense, decreased 92% to $2.7 million, reflecting an increase in recourse expense.

• Financial services pre-tax loss was $12.4 million, compared to pre-tax income of $11.9 million.

• Financial services debt decreased by $119.6 million to $44.4 million.

Consolidated Results:
• Net loss per share was $0.34, compared to net loss per share of $4.14.

• Net loss was $108.6 million, compared to net loss of $1.3 billion.

• Stockholders' equity decreased 35% to $2.65 billion.

• Net cash provided by operations was $161.0 million, compared to $452.3 million.

Key financial results for the six months ended March 31, 2009, as compared to the same period of 2008, were as follows:
Homebuilding Operations:
• Homebuilding revenues decreased 50% to $1,675.6 million.

• Homes closed decreased 42% to 7,653 homes and the average selling price of those homes decreased 10% to $216,400.

• Net sales orders decreased 41% to 6,937 homes.

• Home sales gross margins increased 270 basis points to 14.5%.

• Inventory impairments and land option cost write-offs were $104.4 million, compared to $1,079.5 million.

• Homebuilding SG&A expenses decreased 40% to $253.9 million, but increased as a percentage of homebuilding revenues by 260 basis points to 15.2%.

• Homebuilding pre-tax loss was $149.0 million, compared to pre-tax loss of $1.1 billion.

Financial Services Operations:
• Total financial services revenues, net of recourse expense, decreased 70% to $20.4 million, reflecting an increase in recourse expense.

• Financial services pre-tax loss was $15.3 million, compared to pre-tax income of $18.8 million.

Consolidated Results:
• Net loss per share was $0.54, compared to net loss per share of $4.55.

• Net loss was $171.1 million, compared to net loss of $1.4 billion.

• Net cash provided by operations was $978.6 million, compared to $1,010.0 million.

RESULTS OF OPERATIONS - HOMEBUILDING
   The following tables and related discussion set forth key operating and
financial data for our homebuilding operations by reporting segment as of and
for the three and six months ended March 31, 2009 and 2008. We have restated the
2008 amounts between reporting segments to conform to the 2009 presentation.

                                                                          Net Sales Orders (1)
                                                                      Three Months Ended March 31,
                                Net Homes Sold                           Value (In millions)                         Average Selling Price
                       2009         2008        % Change         2009          2008         % Change          2009           2008         % Change
East                      289          509            (43 )%    $  67.3      $   131.5            (49 )%    $ 232,900      $ 258,300            (10 )%
Midwest                   300          442            (32 )%       79.7          129.8            (39 )%      265,700        293,700            (10 )%
Southeast                 716        1,164            (38 )%      130.6          228.3            (43 )%      182,400        196,100             (7 )%
South Central           1,488        2,407            (38 )%      256.8          426.3            (40 )%      172,600        177,100             (3 )%
Southwest                 520        1,288            (60 )%       87.2          233.7            (63 )%      167,700        181,400             (8 )%
West                      847        1,718            (51 )%      222.9          512.4            (56 )%      263,200        298,300            (12 )%

                        4,160        7,528            (45 )%    $ 844.5      $ 1,662.0            (49 )%    $ 203,000      $ 220,800             (8 )%




                                                                         Six Months Ended March 31,
                                 Net Homes Sold                            Value (In millions)                          Average Selling Price
                       2009          2008        % Change          2009           2008         % Change          2009           2008         % Change
East                      542           853            (36 )%    $   123.6      $   220.3            (44 )%    $ 228,000      $ 258,300            (12 )%
Midwest                   465           739            (37 )%        124.5          210.5            (41 )%      267,700        284,800             (6 )%
Southeast               1,301         1,745            (25 )%        233.6          336.1            (30 )%      179,600        192,600             (7 )%
South Central           2,474         3,992            (38 )%        430.0          703.7            (39 )%      173,800        176,300             (1 )%
Southwest                 872         2,017            (57 )%        146.4          370.1            (60 )%      167,900        183,500             (9 )%
West                    1,283         2,427            (47 )%        353.9          747.4            (53 )%      275,800        308,000            (10 )%

                        6,937        11,773            (41 )%    $ 1,412.0      $ 2,588.1            (45 )%    $ 203,500      $ 219,800             (7 )%




                                                                   Sales Order Cancellations
                                                                 Three Months Ended March 31,
                                Cancelled Sales Orders                Value (In millions)                Cancellation Rate (2)
                               2009                2008               2009             2008             2009                2008
East                                138                 373        $     32.5         $  85.0                32 %                42 %
Midwest                              53                 102              14.2            31.8                15 %                19 %
Southeast                           307                 536              59.4           121.9                30 %                32 %
South Central                       812               1,108             136.5           191.0                35 %                32 %
Southwest                           212                 945              39.1           195.6                29 %                42 %
West                                279                 657              82.3           242.6                25 %                28 %

                                  1,801               3,721        $    364.0         $ 867.9                30 %                33 %




                                                                   Six Months Ended March 31,
                                Cancelled Sales Orders                 Value (In millions)                Cancellation Rate (2)
                               2009                2008              2009              2008              2009                2008
East                                247                 644        $    61.1         $   152.6                31 %                43 %
Midwest                             136                 230             37.5              73.3                23 %                24 %
Southeast                           606               1,051            118.9             255.2                32 %                38 %
South Central                     1,484               2,043            249.0             352.5                37 %                34 %
Southwest                           439               1,944             85.1             417.6                33 %                49 %
West                                572               1,207            176.7             453.4                31 %                33 %

                                  3,484               7,119        $   728.3         $ 1,704.6                33 %                38 %

(1) Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of sales contract cancellations.

(2) Cancellation rate represents the number of cancelled sales orders divided by gross sales orders.

Net Sales Orders
Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of sales contract cancellations. The value of net sales orders decreased 49%, to $844.5 million (4,160 homes) for the three months ended March 31, 2009, from $1,662.0 million (7,528 homes) for the same period of 2008. The value of net sales orders decreased 45%, to $1,412.0 million (6,937 homes) for the six months ended March 31, 2009, from $2,558.1 million (11,773 homes) for the same period of 2008. The number of net sales orders decreased 45% and 41% for the three and six-month periods ended March 31, 2009, respectively, reflecting the continued reduction of demand for new homes in most homebuilding markets. The volume of our net sales orders for the month ended April 30, 2009 continued to reflect the weak market conditions and decreased 18% compared to the month ended April 30, 2008. We believe the most significant factors contributing to the slowing of demand for new homes in most of our markets include a continued high level of new and existing homes for sale, which includes foreclosed homes for sale, a decrease in the availability of mortgage financing for many potential homebuyers, the continued uncertainty in the financial markets and a decline in homebuyer consumer confidence. Many prospective homebuyers continue to approach the purchase decision more tentatively due to continued increases in price concessions and sales incentives offered on both new and existing homes, concern over their ability to sell an existing home or obtain mortgage financing, the general uncertainty surrounding the housing market, increasing unemployment and weakness in the overall economy. We continue to manage our sales incentives and pricing on a community by community basis in an attempt to optimize the balance of sales volumes, profits, returns and cash flows. However, the factors above, combined with the continued pricing responses of our competitors, have limited the impact of our pricing efforts on sales. Further contributing to the decline in sales has been the elimination of seller funded down payment assistance programs for FHA insured loans, as discussed below.
In comparing the three and six-month periods ended March 31, 2009 to the same periods of 2008, the value of net sales orders decreased in all six of our market regions. These decreases were primarily due to substantially similar decreases in the number of homes sold in the respective regions. To a much lesser extent, the decline in average selling price also contributed to the decline in the value of net sales orders.
The average price of our net sales orders in the three months ended March 31, 2009 was $203,000, a decrease of 8% from the $220,800 average in the comparable period of 2008. The average price of our net sales orders in the six months ended March 31, 2009 was $203,500, a decrease of 7% from the $219,800 average in the comparable period of 2008. The average price of our net sales orders decreased in all of our market regions, due primarily to price reductions and increased incentives in our California, Maryland, Nevada, New Jersey and Arizona markets. In general, our pricing is dependent on the demand for our homes, and declines in our average selling prices are due in large part to increases in the use of price reductions and sales incentives in order to attempt to achieve an appropriate sales absorption pace. Further, as the inventory of existing homes for sale, which includes an increasing number of foreclosed homes, has continued to be high, it has led to the need to ensure our pricing is competitive with comparable existing home sales prices. We monitor and may adjust our product mix, geographic mix and pricing within our homebuilding markets in an effort to keep our core product offerings affordable for our target customer base, typically first-time and move-up homebuyers. To a lesser extent than the competitive factors discussed above, this has also contributed to decreases in the average selling price.
Our sales order cancellation rates (cancelled sales orders divided by gross sales orders for the period) during the three and six months ended March 31, 2009 were 30% and 33%, respectively, compared to 33% and 38% during the same periods of fiscal 2008. While an improvement from prior year periods, these elevated cancellation rates reflect the ongoing challenges in most of our homebuilding markets, including the inability of many prospective homebuyers to sell their existing homes, the erosion of buyer confidence, the credit tightening in the mortgage markets and the shortage of liquidity in the financial markets which has further restricted the availability of credit. We anticipate that cancellation rates will remain elevated and may continue to fluctuate substantially until market conditions improve.
In July 2008, Congress passed and the President signed into law H.R. 3221, which includes the "American Housing Rescue and Foreclosure Prevention Act of 2008." Among other provisions, this law eliminated seller-funded down payment assistance on FHA insured loans approved on or after October 1, 2008. Of our total home closings in fiscal 2008, approximately 25% were funded with mortgage loans whereby the homebuyer used a seller-financed down payment assistance program. While we will seek other down payment assistance and mortgage financing alternatives for our buyers, we expect the elimination of the seller-financed . . .