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, 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 2006, we and the entire housing industry have faced several significant challenges in the housing and mortgage markets as a whole. The U.S. economy is currently in a recession and national housing starts are at a five decade low. Additionally and notwithstanding continued challenges for housing, the capital markets have improved during and subsequent to the quarter end and there has been some positive news and outlooks from the still challenged financial services industry. Although the homebuilding market remains challenging and order activity remains at relatively low levels, there have been some early signs of improvement that provide a basis for cautious optimism. We experienced a 56% sequential net new order increase in the third quarter of fiscal year 2009 compared to the second quarter of fiscal year 2009, notwithstanding that third quarter net new orders decreased 47% year-over-year. While this improvement in sequential net orders is consistent with the typical seasonality in our industry, they were substantially better than the improvement that we experienced in the same period of the prior fiscal year (6% sequential net new order increase in third quarter versus second quarter during fiscal 2008). Despite these signs, we remain cautious, as we cannot be certain that the worst of the housing downturn is behind us, or that a real and sustained recovery in the economic and housing environment will not still be delayed for some time. Elevated unemployment rates, home foreclosures and the impact on consumer confidence remains a concern, as do the tighter credit markets, notwithstanding the improvement in homeowner affordability from home price declines, and lower current mortgage rates and government homebuyer incentives. We continue to respond to the current market conditions by attempting to drive absorption through the use of sales incentives, reevaluating our individual land holdings, reducing our land expenditures, attempting to monitor and control community spec unit levels and emphasizing operational cost reductions to adjust for lower levels of production. Further decreases in demand for our homes or additional focus on cash flow may require us to further increase the use of sales incentives and to take other steps to reduce cash expenditures and operating expenses.

For the tables below setting forth certain details as to residential sales activities, the information is provided for the three and nine months ended March 31, 2009 and 2008 in the case of residential revenue earned and new orders, and as of March 31, 2009 and 2008 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, fail to qualify for financing or under certain other circumstances.

                                Three months ended March 31,
                                  2009               2008           Change     % Change

New orders
Dollars                      $        64,202    $       121,170   $  (56,968 )    (47.0 )%
Units                                    168                266          (98 )    (36.8 )%
Average sales price          $           382    $           456   $      (74 )    (16.2 )%

Residential revenue earned
Dollars                      $        64,347    $       109,018   $  (44,671 )    (41.0 )%
Units                                    163                243          (80 )    (32.9 )%
Average sales price          $           395    $           449   $      (54 )    (12.0 )%

                                Nine months ended March 31,
                                  2009               2008           Change     % Change

New orders
Dollars                      $       159,066    $       368,433   $ (209,367 )    (56.8 )%
Units                                    416                853         (437 )    (51.2 )%
Average sales price          $           382    $           432   $      (50 )    (11.6 )%

Residential revenue earned
Dollars                      $       240,702    $       372,865   $ (132,163 )    (35.4 )%
Units                                    562                829         (267 )    (32.2 )%
Average sales price          $           428    $           450   $      (22 )     (4.9 )%

                                      As of March 31,
                                  2009               2008           Change     % Change

Backlog
Dollars                      $       156,673    $       313,481   $ (156,808 )    (50.0 )%
Units                                    340                633         (293 )    (46.3 )%
Average sales price          $           461    $           495   $      (34 )     (6.9 )%

New orders for the three months ended March 31, 2009 decreased $56,968, or 47.0%, to $64,202 on 168 homes, compared to $121,170 on 266 homes for the three months ended March 31, 2008. The average price per home decreased by approximately 16.2% to $382 for the three months ended March 31, 2009 compared to $456 for the three months ended March 31, 2008.

New orders for the nine months ended March 31, 2009 decreased $209,367, or 56.8%, to $159,066 on 416 homes, compared to $368,433 on 853 homes for the nine months ended March 31, 2008. The average price per home decreased by approximately 11.6% to $382 for the nine months ended March 31, 2009 compared to $432 for the nine months ended March 31, 2008.

The decrease in new orders for the three and nine months ended March 31, 2009 was 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, price reductions and changes to our product mix toward smaller-value oriented product..

Residential revenues earned for the three months ended March 31, 2009 decreased $44,671, or 41.0%, to $64,347 on 163 homes, compared to $109,018 on 243 homes for the three months ended March 31, 2008. The average price per home decreased by approximately 12.0% to $395 for the three months ended March 31, 2009 compared to $449 for the three months ended March 31, 2008.

Residential revenues earned for the nine months ended March 31, 2009 decreased $132,163, or 35.4%, to $240,702 on 562 homes, compared to $372,865 on 829 homes for the nine months ended March 31, 2008. The average price per home decreased by approximately 4.9% to $428 for the nine months ended March 31, 2009 compared to $450 for the nine months ended March 31, 2008.

The decrease in residential revenues earned for the three and nine months ended March 31, 2009 was also primarily 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 nine months ended March 31, 2009 were 26.6% and 31.0%, respectively of new orders compared to 31.3% and 26.2% for the three and nine months ended March 31, 2008, respectively. Cancellations declined from 303 in the nine months ended March 31, 2008 to 187 in the nine months ended March 31, 2009.

Northern Region:



                                Three months ended March 31,
                                  2009               2008          Change     % Change

New orders
Dollars                      $        35,542    $        48,478   $ (12,936 )    (26.7 )%
Units                                     90                100         (10 )    (10.0 )%
Average sales price          $           395    $           485   $     (90 )    (18.6 )%

Residential revenue earned
Dollars                      $        30,383    $        49,761   $ (19,378 )    (38.9 )%
Units                                     74                102         (28 )    (27.5 )%
Average sales price          $           411    $           488   $     (77 )    (15.8 )%




                                Nine months ended March 31,
                                  2009               2008          Change     % Change

New orders
Dollars                      $        77,501    $       147,950   $ (70,449 )    (47.6 )%
Units                                    186                322        (136 )    (42.2 )%
Average sales price          $           417    $           459   $     (42 )     (9.2 )%

Residential revenue earned
Dollars                      $       110,210    $       157,811   $ (47,601 )    (30.2 )%
Units                                    244                325         (81 )    (24.9 )%
Average sales price          $           452    $           486   $     (34 )     (7.0 )%

As of March 31,

                        2009       2008       Change     % Change

Backlog
Dollars               $ 77,109   $ 134,774   $ (57,665 )    (42.8 )%
Units                      152         252        (100 )    (39.7 )%
Average sales price   $    507   $     535   $     (28 )     (5.2 )%

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 nine months ended March 31, 2009, was 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 was primarily the result of deteriorating market conditions. The decrease in residential revenue earned for the three and nine months ended March 31, 2009, was also the result of both decreases in the units sold and the average sale price. In response to these market conditions, 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 March 31,
                                  2009               2008          Change     % Change

New orders
Dollars                      $        22,804    $        59,124   $ (36,320 )    (61.4 )%
Units                                     62                127         (65 )    (51.2 )%
Average sales price          $           368    $           466   $     (98 )    (21.0 )%

Residential revenue earned
Dollars                      $        27,471    $        47,715   $ (20,244 )    (42.4 )%
Units                                     72                104         (32 )    (30.8 )%
Average sales price          $           382    $           459   $     (77 )    (16.8 )%




                                Nine months ended March 31,
                                  2009              2008           Change     % Change

New orders
Dollars                      $       58,501    $       167,889   $ (109,388 )    (65.2 )%
Units                                   165                367         (202 )    (55.0 )%
Average sales price          $          355    $           457   $     (102 )    (22.3 )%

Residential revenue earned
Dollars                      $       98,976    $       157,915   $  (58,939 )    (37.3 )%
Units                                   236                331          (95 )    (28.7 )%
Average sales price          $          419    $           477   $      (58 )    (12.2 )%

As of March 31,

                        2009       2008       Change     % Change

Backlog
Dollars               $ 63,284   $ 140,502   $ (77,218 )    (55.0 )%
Units                      145         279        (134 )    (48.0 )%
Average sales price   $    436   $     504   $     (68 )    (13.5 )%

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 nine months ended March 31, 2009, compared to the three and nine months ended March 31, 2008, was 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 nine months ended March 31, 2009, compared to the three and nine months ended March 31, 2008, was also due to significant decreases in the number of units sold and the average sale price per unit. The decrease in average sales price has been particularly significant in our Richmond market, where in prior years we were primarily selling luxury product. The decrease in the number of units sold has also been significant in Richmond, as well as our Charlotte market.

Midwestern Region:



                               Three months ended March 31,
                                 2009              2008          Change    % Change

New orders
Dollars                      $       5,435    $        12,704   $ (7,269 )    (57.2 )%
Units                                   14                 34        (20 )    (58.8 )%
Average sales price          $         388    $           374   $     14        3.7 %

Residential revenue earned
Dollars                      $       5,738    $         6,501   $   (763 )    (11.7 )%
Units                                   13                 17         (4 )    (23.5 )%
Average sales price          $         441    $           382   $     59       15.4 %




                               Nine months ended March 31,
                                  2009              2008         Change     % Change

New orders
Dollars                      $       20,362    $       39,672   $ (19,310 )    (48.7 )%
Units                                    52               107         (55 )    (51.4 )%
Average sales price          $          392    $          371   $      21        5.7 %

Residential revenue earned
Dollars                      $       26,414    $       35,062   $  (8,648 )    (24.7 )%
Units                                    61                79         (18 )    (22.8 )%
Average sales price          $          433    $          444   $     (11 )     (2.5 )%

As of March 31,

                        2009       2008      Change     % Change

Backlog
Dollars               $ 15,032   $ 32,542   $ (17,510 )    (53.8 )%
Units                       39         83         (44 )    (53.0 )%
Average sales price   $    385   $    392   $      (7 )     (1.8 )%

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

During the three and nine months ended March 31, 2009, both new order dollars and the number of units sold decreased as compared to the same periods in the prior year. This decrease was primarily the result of the deteriorating economic and market conditions noted above. Average sales price for both new orders and residential revenue was up during the three months ended March 31, 2009. For the nine months ended March 31, 2009, average sale price was up slightly for new orders and down slightly for residential revenue.

Florida Region:



                                Three months ended March 31,
                                 2009               2008           Change    % Change

New orders
Dollars                      $        421     $             864   $   (443 )    (51.3 )%
Units                                   2                     5         (3 )    (60.0 )%
Average sales price          $        211     $             173   $     38       22.0 %

Residential revenue earned
Dollars                      $        755     $           5,041   $ (4,286 )    (85.0 )%
Units                                   4                    20        (16 )    (80.0 )%
Average sales price          $        189     $             252   $    (63 )    (25.0 )%




                               Nine months ended March 31,
                                 2009              2008          Change     % Change

New orders
Dollars                      $       2,702    $        12,922   $ (10,220 )    (79.1 )%
Units                                   13                 57         (44 )    (77.2 )%
Average sales price          $         208    $           227   $     (19 )     (8.4 )%

Residential revenue earned
Dollars                      $       5,102    $        22,077   $ (16,975 )    (76.9 )%
Units                                   21                 94         (73 )    (77.7 )%
Average sales price          $         243    $           235   $       8        3.4 %

As of March 31,

                        2009       2008      Change    % Change

Backlog
Dollars               $   1,248   $ 5,663   $ (4,415 )    (78.0 )%
Units                         4        19        (15 )    (78.9 )%
Average sales price   $     312   $   298   $     14        4.7 %

The above table reflects results from our Florida region for the three and nine months ended March 31, 2009 and 2008. In the Florida region, we have operations in the Orlando market. The nine months ended March 31, 2008, also reflects results from the Palm Bay market from which we substantially exited during the first quarter of fiscal 2008 and 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 nine months ended March 31, 2009, as compared to the three and nine months ended March 31, 2008, was 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 was 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 March 31,
                                       2009               2008            Change        % Change

Residential Properties
Earned revenue                    $       64,347    $        109,018    $   (44,671 )       (41.0 )%
Cost of residential properties            62,558             110,908        (48,350 )       (43.6 )%
Gross profit margin               $        1,789    $         (1,890 )  $     3,679        (194.7 )%
Gross profit margin %                        2.8 %              (1.7 )%




                                     Nine months ended March 31,
                                       2009               2008            Change        % Change

Residential Properties
Earned revenue                    $       240,702    $       372,865    $  (132,163 )       (35.4 )%
Cost of residential properties            237,513            361,286       (123,773 )       (34.3 )%
Gross profit margin               $         3,189    $        11,579    $    (8,390 )       (72.5 )%
Gross profit margin %                         1.3 %              3.1 %

The costs of residential properties for the three and nine months ended March 31, 2009, compared to the three and nine months ended March 31, 2008 decreased primarily as a result of decreased residential revenue earned. Impairments of residential property in the amount of $3,009 and $15,267 were recorded in the three months ended March 31, 2009 and 2008, respectively. Impairments of residential property in the amount of $21,097 and $38,896 were recorded in the nine months ended March 31, 2009 and 2008, respectively. Gross profit percentage for the three and nine months ended March 31, 2009 was 2.8% and 1.3%, as compared to (1.7)% and 3.1% for the three and nine months ended March 31, 2008. Without recording the impairments, the gross profit percentage would have been 7.5% and 10.1% for the three and nine months ended March 31, 2009, as compared to 12.3% and 13.5% for the three and nine months ended March 31, 2008.

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 March 31, 2009 and March 31, 2008 was $3,831 and $7,817, respectively. Interest included in the costs and expenses of residential properties and land sold for the nine months ended March 31, 2009 and March 31, 2008 was $12,510 and $16,740, respectively. Interest charged directly to interest expense during the three and nine months ended March 31, 2009 was $1,955 and $4,838, respectively. Included in interest expense during the three and nine months ended March 31, 2009, was the write-off of debt acquisition costs in the amount of $274 and $1,058. These charges were recognized due to the decreases in borrowing capacity as a result of both the September 30, 2008 and February 11, 2009 amendments to the Revolving Credit Facility. There was no interest charged directly to interest expense during the three and nine months ended March 31, 2008.

Selling, General and Administrative:



                                          Three months ended March 31,
                                            2009               2008            Change      % Change

Selling, General and Administrative
Selling and advertising                $         4,065    $         6,629    $   (2,564 )      (38.7 )%
Commissions                                      2,549              4,181        (1,632 )      (39.0 )%
General and administrative                       4,865              8,499        (3,634 )      (42.8 )%
Total                                  $        11,479    $        19,309    $   (7,830 )      (40.6 )%




                                         Nine months ended March 31,
                                            2009              2008           Change      % Change

Selling, General and Administrative
. . .