**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

# **FORM 10-Q/A**

**(AMENDMENT NO. 1)**

 

**(MarkOne)**

 

| **ý**                                                                                                                                                                                                    | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934.** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                          |                                                                                           |
|                                                                                                                                                                                                          |                                                                                           |
| **For the quarterly period ended December 31, 2003**                                                                                                                                                          |
|                                                                                                                                                                                                          |                                                                                           |
| **OR**                                                                                                                                                                                                        |
|                                                                                                                                                                                                          |                                                                                           |
| **o**                                                                                                                                                                                                         | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934.**  |
|                                                                                                                                                                                                          |                                                                                           |
| **FOR THE TRANSITION  PERIOD                TO                .** |
|                                                                                                                                                                                                          |                                                                                           |
| **Commission File No.  1-6830**                                                                                                                                                                               |

 

**ORLEANS HOMEBUILDERS, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                              |   | **59-0874323**             |
|---------------------------------------------------------------------------|--------|----------------------------|
| (State or other jurisdiction of  incorporation or organization)           |   | (I.R.S. Employer I.D. No.) |
|                                                                      |   |                       |
| **One Greenwood Square, Suite 101  3333 Street Road  Bensalem, PA 19020** |
| (Address of principal executive offices)                                  |
|                                                                      |
| Telephone: **(215) 245-7500**                                             |
| (Registrant’s telephone number, including area code)                 |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  Yes ýNo o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  Yes oNo ý

 

Number of shares of common stock, par value $0.10 per share,outstanding as of

# **February 2, 2004:**15,413,731

(excluding 617,732 shares held in Treasury).

 

 

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EXPLANATORY NOTE

 

 

Orleans Homebuilders,Inc. is filing this Amendment No. 1 (the “Form 10-Q/A”) to its Quarterly Reporton Form 10-Q for the quarter ended December 31, 2003, which was originallyfiled with the Securities and Exchange Commission on February 17, 2004 (the“Quarterly Report”), to amend:  (i) Item1 “Financial Statements” to add the line item “Land deposits and costs offuture developments” to the Consolidated Balance Sheets; (ii) Item 2“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” to add to the “Liquidity and Capital Resources” section additionaldisclosure about credit facilities and land acquisitions; (iii) Item 3“Quantitative and Qualitative Disclosures About Market Risk” to add additionaldisclosure relating to commodities price risk; and (iv) Item 6 “Exhibits andReports on Form 8-K” to add as exhibits material loan agreements.

 

In addition, as required by Rule 12b-15 under the Securities ExchangeAct of 1934, as amended, new certifications by the OHB principal executive officer,principal operating officer and principal financial officer are being filedwith this Form 10-Q/A.

 

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# **ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES**

 

**PART I -FINANCIAL INFORMATION**
| Item 1.  | Financial Statements  (unaudited)                                                                                                       |   |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|     |                                                                                                                                    |   |
|     | Consolidated  Balance Sheets at December 31, 2003 and June 30, 2003                                                                     | 1      |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Operations and Changes in Retained Earnings   for the Three and Six Months Ended December 31, 2003 and 2002 | 2      |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Shareholders’ Equity for the Six Months Ended December 31, 2003                                        | 3      |
|     |                                                                                                                                    |   |
|     | Consolidated  Statements of Cash Flows for the Six Months Ended December 31, 2003 and 2002                                              | 4      |
|     |                                                                                                                                    |   |
|     | Notes  to Consolidated Financial Statements                                                                                             | 5      |
|     |                                                                                                                                    |   |
| Item  2  | Management’s  Discussion and Analysis of Financial   Condition and Results of Operations                                      | 11     |
|     |                                                                                                                                    |   |
| Item  3. | Quantitative  and Qualitative Disclosures About Market Risk                                                                             | 26     |

 

### **PART II – OTHER INFORMATION**

 
| **Item  6.** | **Exhibits  and Reports on Form 8-K** | **27** |
|--------------|---------------------------------------|--------|

 

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**ORLEANS HOMEBUILDERS, INC. ANDSUBSIDIARIES CONSOLIDATED BALANCE SHEETS(in thousands)(Unaudited)**

 
|                                                                                                                                                                                                               |   | **December  31,  2003** |    | **June 30,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------------------|--------|
| Assets                                                                                                                                                                                                             |   |                    |    |               |   |
| Cash and cash equivalents                                                                                                                                                                                          |   | $                       | 13,698  |               | $      | 8,883 |   |
| Restricted cash-customer deposits                                                                                                                                                                                  |   | 16,032                  |    | 15,065             |   |
| Real estate held for development and sale:                                                                                                                                                                         |   |                    |    |               |   |
| Residential properties completed or under construction                                                                                                                                                             |   | 150,021                 |    | 109,895            |   |
| Land held for development or sale and improvements                                                                                                                                                                 |   | 116,776                 |    | 100,791            |   |
| Inventory not owned-Variable Interest Entities                                                                                                                                                                     |   | 19,888                  |    | 18,443             |   |
| Property and equipment, at cost, less accumulated depreciation                                                                                                                                                     |   | 1,390                   |    | 1,257              |   |
| Deferred taxes                                                                                                                                                                                                     |   | 233                     |    | 233                |   |
| Goodwill                                                                                                                                                                                                           |   | 6,848                   |    | 4,180              |   |
| Receivables, deferred charges and other assets                                                                                                                                                                     |   | 7,221                   |    | 11,984             |   |
| Land deposits and costs of future developments                                                                                                                                                                     |   | 34,109                  |    | 19,978             |   |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Total Assets                                                                                                                                                                                                       |   | $                       | 366,216 |               | $      | 290,709 |   |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Liabilities and Shareholders’ Equity                                                                                                                                                                          |   |                    |    |               |   |
| Liabilities:                                                                                                                                                                                                       |   |                    |    |               |   |
| Accounts payable                                                                                                                                                                                                   |   | $                       | 20,986  |               | $      | 29,306 |   |
| Accrued expenses                                                                                                                                                                                                   |   | 25,625                  |    | 27,445             |   |
| Customer deposits                                                                                                                                                                                                  |   | 21,325                  |    | 16,539             |   |
| Obligations related to inventory not owned                                                                                                                                                                         |   | 19,167                  |    | 17,643             |   |
| Mortgage and other note obligations primarily secured by real estate  held for development and sale                                                                                                                |   | 169,302                 |    | 106,707            |   |
| Notes payable-related parties                                                                                                                                                                                      |   | 2,879                   |    | 2,500              |   |
| Other notes payable                                                                                                                                                                                                |   | 116                     |    | 31                 |   |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Total Liabilities                                                                                                                                                                                                  |   | 259,400                 |    | 200,171            |   |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Commitments and contingencies (See Note J)                                                                                                                                                                    |   |                    |    |               |   |
| Redeemable common stock                                                                                                                                                                                            |   | 1,147                   |    | 999                |   |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Shareholders’ Equity:                                                                                                                                                                                         |   |                    |    |               |   |
| Preferred stock, $1 par, 500,000 shares authorized:                                                                                                                                                                |   |                    |    |               |   |
| Series D convertible preferred stock, 7% cumulative annual dividend,  $30 stated value converted on December 29, 2003, issued and outstanding  100,000 shares ($3,000,000 liquidation preference) at June 30, 2003 |   | —                  |    | 3,000              |   |
| Common stock, $.10 par, 20,000,000 shares authorized, 16,031,463 and  13,364,797 shares issued at December 31, 2003 and June 30, 2003, respectively                                                                |   | 1,603                   |    | 1,337              |   |
| Capital in excess of par value—common stock                                                                                                                                                                   |   | 22,481                  |    | 18,659             |   |
| Retained earnings                                                                                                                                                                                                  |   | 82,468                  |    | 67,589             |   |
| Treasury stock, at cost (617,732 and 727,232 shares held at  December 31, 2003 and June 30, 2003, respectively)                                                                                          |   | (883                    | )       | (1,046             | )      |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Total Shareholders’ Equity                                                                                                                                                                                    |   | 105,669                 |    | 89,539             |   |
|                                                                                                                                                                                                               |   |                    |    |               |   |
| Total Liabilities and Shareholders’ Equity                                                                                                                                                                    |   | $                       | 366,216 |               | $      | 290,709 |   |

 

See accompanying notes which are an integral part ofthe consolidated financial statements

 

1

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**ORLEANSHOMEBUILDERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OFOPERATIONSAND CHANGES IN RETAINED EARNINGS (unaudited)(in thousands, except per share amounts)**

 
|                                         |   | **Three  Months Ended  December 31,** |    | **Six Months  Ended  December 31,** |   |
|----------------------------------------------|--------|---------------------------------------|---------|-------------------------------------|--------|
|                                         |   | **2003**                              |    | **2002**                            |   | **2003** |   | **2002** |   |
| Earned revenues                              |   |                                  |    |                                |   |   |   |   |   |
| Residential properties                       |   | $                                     | 121,481 |                                | $      | 86,198 |   | $ | 219,864 |   | $ | 172,228 |   |
| Land sales                                   |   | —                                |    | —                              |   | 457 |   | — |   |
| Other income                                 |   | 1,234                                 |    | 1,252                               |   | 2,829 |   | 2,340 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Total earned revenues                        |   | 122,715                               |    | 87,450                              |   | 223,150 |   | 174,568 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Costs and expenses                           |   |                                  |    |                                |   |   |   |   |   |
| Residential properties                       |   | 95,170                                |    | 67,207                              |   | 169,979 |   | 133,258 |   |
| Land sales                                   |   | —                                |    | —                              |   | 490 |   | — |   |
| Other                                        |   | 1,001                                 |    | 827                                 |   | 2,224 |   | 1,823 |   |
| Selling, general and administrative          |   | 14,110                                |    | 10,277                              |   | 25,558 |   | 20,069 |   |
| Interest                                     |   |                                  |    |                                |   |   |   |   |   |
| Incurred                                     |   | 2,488                                 |    | 1,571                               |   | 4,302 |   | 3,039 |   |
| Less capitalized                             |   | (2,350                                | )       | (1,552                              | )      | (4,092 | ) | (2,956 | ) |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Total costs and expenses                     |   | 110,419                               |    | 78,330                              |   | 198,461 |   | 155,233 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Income from operations before income taxes   |   | 12,296                                |    | 9,120                               |   | 24,689 |   | 19,335 |   |
| Income tax expense                           |   | 4,831                                 |    | 3,467                               |   | 9,706 |   | 7,348 |   |
| Net income                                   |   | 7,465                                 |    | 5,653                               |   | 14,983 |   | 11,987 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Preferred dividends                          |   | 51                                    |    | 52                                  |   | 104 |   | 105 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Net income available for common shareholders |   | 7,414                                 |    | 5,601                               |   | 14,879 |   | 11,882 |   |
| Retained earnings, at beginning of period    |   | 75,054                                |    | 46,783                              |   | 67,589 |   | 40,502 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Retained earnings, at end of period          |   | $                                     | 82,468  |                                | $      | 52,384 |   | $ | 82,468 |   | $ | 52,384 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Basic earnings per share                     |   | $                                     | 0.57    |                                | $      | 0.46 |   | $ | 1.16 |   | $ | 0.98 |   |
|                                         |   |                                  |    |                                |   |   |   |   |   |
| Diluted earnings per share                   |   | $                                     | 0.45    |                                | $      | 0.34 |   | $ | 0.90 |   | $ | 0.72 |   |

 

See accompanying notes which are an integral part ofthe consolidated financial statements

 

2

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**ORLEANSHOMEBUILDERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OFSHAREHOLDERS’ EQUITY(unaudited)(in thousands except share data)**

 
|                                                                            |   | **Preferred  Stock**                |   | **Common  Stock** |   | **Capital in**                      |       |       |   | **Treasury  Stock**                          |   |                   |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|--------|-------------------|--------|-------------------------------------|------------|------------|--------|----------------------------------------------|--------|------------------------|--------|
|                                                                            |   | **Shares  Issued and  Outstanding** |   | **Amount**        |   | **Shares  Issued and  Outstanding** |       | **Amount** |   | **Excess of  Par Value–  Common Stock** |   | **Retained  Earnings** |   | **Share  Held** |   | **Amount** |   | **Total** |   |
| Balance at June 30, 2003                                                        |   | 100,000                             |   | $                 | 3,000  |                                | 13,364,797 |       | $      | 1,337                                        |   | $                      | 18,659 |   | $ | 67,589 |   | 727,232 |   | $ | (1,046 | ) | $ | 89,539 |   |
| Redeemable common stock sold                                                    |   |                                |   |              |   |                                |       |       |   | 171                                          |   |                   |   |   |   |   |   | 171 |   |
| Preferred stock converted to common stock                                       |   | (100,000                            | )      | (3,000            | )      | 2,000,000                           |       | 200        |   | 2,800                                        |   |                   |   |   |   |   |   | — |   |
| Shares issued upon conversion of a portion of Convertible  Subordinated 7% Note |   |                                |   |              |   | 666,666                             |       | 66         |   | 934                                          |   |                   |   |   |   |   |   | 1,000 |   |
| Fair market value of stock options issued                                       |   |                                |   |              |   |                                |       |       |   | 67                                           |   |                   |   |   |   |   |   | 67 |   |
| Stock options exercised                                                         |   |                                |   |              |   |                                |       |       |   |                                         |   |                   |   | (4,500 | ) | 13 |   | 13 |   |
| Shares issued in connection with the acquisition of PLC                         |   |                                |   |              |   |                                |       |       |   | (107                                         | )      |                   |   | (75,000 | ) | 107 |   | — |   |
| Treasury stock sold redeemable at $8 per share                                  |   |                                |   |              |   |                                |       |       |   | (43                                          | )      |                   |   | (30,000 | ) | 43 |   | — |   |
| Net income                                                                      |   |                                |   |              |   |                                |       |       |   |                                         |   | 14,983                 |   |   |   |   |   | 14,983 |   |
| Preferred dividends                                                             |   |                                |   |              |   |                                |       |       |   |                                         |   | (104                   | )      |   |   |   |   | (104 | ) |
|                                                                            |   |                                |   |              |   |                                |       |       |   |                                         |   |                   |   |   |   |   |   |   |   |
| Balance at December 31, 2003                                                    |   | —                              |   | $                 | — |                                | 16,031,463 |       | $      | 1,603                                        |   | $                      | 22,481 |   | $ | 82,468 |   | 617,732 |   | $ | (883 | ) | $ | 105,669 |   |

 

See accompanying notes which are an integral part ofthe consolidated financial statements

 

3

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**ORLEANSHOMEBUILDERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)(in thousands)**
|                                                                                         |   | **Six Months  Ended  December 31,** |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                         |   | **2003**                            |   | **2002** |   |
| Cash flows from operating activities:                                                        |   |                                |   |   |   |
| Net income                                                                                   |   | $                                   | 14,983 |   | $ | 11,987 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operating activities: |   |                                |   |   |   |
| Depreciation and amortization                                                                |   | 292                                 |   | 319 |   |
| Stock based compensation expense                                                             |   | 67                                  |   | 11 |   |
| Changes in operating assets and liabilities:                                                 |   |                                |   |   |   |
| Restricted cash-customer deposits                                                            |   | (967                                | )      | (2,660 | ) |
| Real estate held for development and sale                                                    |   | (39,356                             | )      | (7,237 | ) |
| Receivables, deferred charges and other assets                                               |   | 5,252                               |   | 277 |   |
| Land deposits and costs of future developments                                               |   | (14,131                             | )      | (8,804 | ) |
| Accounts payable and other liabilities                                                       |   | (11,233                             | )      | (4,410 | ) |
| Customer deposits                                                                            |   | 1,866                               |   | 3,024 |   |
|                                                                                         |   |                                |   |   |   |
| Net cash used in operating activities                                                        |   | (43,227                             | )      | (7,493 | ) |
|                                                                                         |   |                                |   |   |   |
| Cash flows from investing activities:                                                        |   |                                |   |   |   |
| Purchases of property and equipment                                                          |   | (212                                | )      | (518 | ) |
| Acquisitions, net of cash acquired                                                           |   | (4,973                              | )      | (156 | ) |
|                                                                                         |   |                                |   |   |   |
| Net cash used in investing activities                                                        |   | (5,185                              | )      | (674 | ) |
|                                                                                         |   |                                |   |   |   |
| Cash flows from financing activities:                                                        |   |                                |   |   |   |
| Borrowings from loans secured by real estate assets                                          |   | 187,758                             |   | 131,131 |   |
| Repayment of loans secured by real estate assets                                             |   | (136,068                            | )      | (121,899 | ) |
| Borrowings from other note obligations                                                       |   | 1,654                               |   | 31 |   |
| Repayment of other note obligations                                                          |   | (266                                | )      | (1,415 | ) |
| Sale of treasury stock                                                                       |   | 240                                 |   | — |   |
| Stock options exercised                                                                      |   | 13                                  |   | — |   |
| Preferred stock dividend                                                                     |   | (104                                | )      | (105 | ) |
|                                                                                         |   |                                |   |   |   |
| Net cash provided by financing activities                                                    |   | 53,227                              |   | 7,743 |   |
|                                                                                         |   |                                |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                         |   | 4,815                               |   | (424 | ) |
| Cash and cash equivalents at beginning of year                                               |   | 8,883                               |   | 7,257 |   |
|                                                                                         |   |                                |   |   |   |
| Cash and cash equivalents at end of period                                                   |   | $                                   | 13,698 |   | $ | 6,833 |   |
|                                                                                         |   |                                |   |   |   |
| Supplemental disclosure of cash flow activities:                                             |   |                                |   |   |   |
| Interest paid, net of amounts capitalized                                                    |   | $                                   | 210    |   | $ | 83 |   |
|                                                                                         |   |                                |   |   |   |
| Income taxes paid                                                                            |   | $                                   | 12,461 |   | $ | 9,082 |   |

 

See accompanying notes which are an integral part ofthe consolidated financial statements

 

4

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**ORLEANSHOMEBUILDERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**(A) Summary of Significant Accounting Policies:**

 

        Theaccompanying unaudited consolidated financial statements are presented inaccordance with the requirements for Form 10-Q and do not include all thedisclosures required by generally accepted accounting principles for completefinancial statements. Reference is made to Form 10-K as of and for theyear ended June 30, 2003 for Orleans Homebuilders, Inc. andsubsidiaries (the “Company”) for additional disclosures, including a summary ofthe Company’s accounting policies.

 

        OnJuly 28, 2003, the Company acquired all of the issued and outstandingshares of Masterpiece Homes, Inc. (“Masterpiece Homes”). Unless otherwiseindicated, the term the “Company” includes the accounts of Masterpiece Homes.Masterpiece is engaged in residential real estate development in centralFlorida. The Consolidated Statements of Operations and Changes in RetainedEarnings and the Consolidated Statements of Cash Flows include the accounts ofMasterpiece from July 28, 2003 through December 31, 2003. TheConsolidated Balance Sheets include the accounts of Masterpiece as ofDecember 31, 2003. All material intercompany transactions and accountshave been eliminated.

 

        Inthe opinion of management, the consolidated financial statements contain alladjustments, consisting only of normal recurring accruals, necessary to presentfairly the consolidated financial position of the Company for the periodspresented. The interim operating results of the Company may not be indicativeof operating results for the full year.

 

        Certainprior year amounts have been reclassified to conform with the fiscal 2004presentation.

 

        Recentaccounting pronouncements:

 

        InJune, 2001, the FASB issued SFAS No. 141, “Business Combinations” (“SFASNo. 141”), which establishes standards for reporting business combinationsentered into after June 30, 2001 and supercedes APB Opinion No. 16,“Business Combinations” and SFAS No. 38, “Accounting for PreacquisitionContingencies of Purchased Enterprises”. Among other things, SFAS No. 141requires that all business combinations be accounted for as purchase transactionsand provides specific guidance on the definition of intangible assets whichrequire separate treatment. The statement is applicable for all businesscombinations entered into after June 30, 2001 and also requires thatcompanies apply its provisions relating to intangibles from pre-existingbusiness combinations.

 

        InJune 2001, the FASB also issued SFAS No. 142, “Goodwill and OtherIntangible Assets” (“SFAS No. 142”), which establishes standards forfinancial accounting and reporting for intangible assets acquired individuallyor with a group of other assets and for the reporting of goodwill and otherintangible assets acquired in a business acquisition subsequent to initialaccounting under SFAS No. 141. SFAS No. 142 supercedes APB OpinionNo.17, “Intangible Assets” and related interpretations. SFAS No. 142 iseffective for fiscal years beginning after December 15, 2001; however,companies with fiscal years beginning after March 15, 2001 may elect toadopt the provision of SFAS No. 142 at the beginning of its new fiscalyear. Accordingly, the Company elected to early adopt SFAS No. 142effective with the beginning of its new fiscal year on July 1, 2001. TheCompany did not recognize any charge to earnings for the cumulative effect uponadoption because, at the time, all such intangibles related to the Company’sacquisition of PLC for which no impairment was required under SFASNo. 142. Upon adoption, such intangibles, which were being amortized overten years prior to adoption, are no longer amortized but continue to be subjectto periodic review for impairment.

 

        InOctober 2001, the FASB issued SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), whichestablishes a single accounting model for the impairment or disposal oflong-lived assets, including discontinued operations. SFAS No. 144supersedes SFAS

 

5

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**(A)Summary of Significant Accounting Policies: (Continued)**

 

No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of” and APB Opinion No. 30, “Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions”. Theprovisions of SFAS No. 144 are effective in fiscal years beginning afterDecember 15, 2001, with early adoption permitted and, in general, are tobe applied prospectively. The Company adopted SFAS No. 144 effectiveJuly 1, 2002 and adoption did not have a material impact on itsconsolidated results of operations and financial position.

 

        InApril 2002, the FASB issued SFAS No. 145, “Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, andTechnical Corrections” (“SFAS No. 145”). SFAS No. 145 rescinds SFASNo. 4, “Reporting Gains and Losses from Extinguishment of Debt” (“SFASNo. 4”), and the amendments to SFAS No. 4, SFAS No. 64,“Extinguishments of Debt made to Satisfy Sinking-Fund Requirements” (“SFAS No. 64”).Through this rescission, SFAS No. 145 eliminates the requirement (in bothSFAS No. 4 and SFAS No. 64) that gains and losses from theextinguishment of debt be aggregated and, if material, classified as anextraordinary item, net of the related income tax effect. An entity is notprohibited from classifying such gains and losses as extraordinary items, solong as they meet the criteria in paragraph 20 of APB Opinion No. 30,“Reporting the Results of Operations—Reporting the Effects of Disposal of a Segmentof a Business, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions” (“APB No. 30”). However, due to the nature of the Company’soperations it is not expected that such treatment will be available to theCompany. Any gains or losses on extinguishments of debt that were previouslyclassified as extraordinary items in prior periods presented that do not meetthe criteria in APB No. 30 for classification as an extraordinary itemwill be reclassified to income from continuing operations. The provisions ofSFAS No. 145 are effective for financial statements issued for fiscalyears beginning after May 15, 2002. The Company adopted the provisions ofthis statement on July 1, 2002 and adoption did not have a material impacton the Company’s results of operations or financial position.

 

        InJuly 2002, the FASB issued SFAS No. 146 “Accounting for CostsAssociated with Exit or Disposal Activities” (“SFAS No. 146”), which iseffective for exit or disposal activities initiated after December 31,2002, with earlier application encouraged. SFAS No. 146 addresses theaccounting for costs associated with exit or disposal activities and nullifiesEmerging Issues Task Force Issue No. 94-3 “Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring)”. The Company does notanticipate a material impact on the results of operations or financial positionfrom the adoption of SFAS No. 146.

 

        InDecember 2002, the FASB issued SFAS No. 148, “Accounting forStock-Based Compensation—Transition and Disclosure” (“SFAS No. 148”) whichprovides alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation andamends the disclosure requirements of SFAS No. 123. The transitionprovisions of SFAS No. 148 are effective for fiscal years ending afterDecember 15, 2002, and the disclosure requirements are effective for interimperiods beginning after December 15, 2002. The Company adopted SFASNo. 148 effective July 1, 2002. The adoption of SFAS No. 148 didnot have a material impact on the financial position or results of operationsof the Company.

 

        InJanuary 2003, the FASB issued FASB Interpretation No. 46“Consolidation of Variable Interest Entities, an interpretation of ARBNo. 51” (“FIN 46”). A Variable Interest Entity (VIE) is created when(i) the equity investment at risk is not sufficient to permit the entityto finance its activities

 

6

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**(A)Summary of Significant Accounting Policies: (Continued)**

 

withoutadditional subordinated financial support from other parties or(ii) equity holders either (a) lack direct or indirect ability tomake decisions about the entity, (b) are not obligated to absorb expectedlosses of the entity or (c) do not have the right to receive expectedresidual returns of the entity if they occur. If an entity is deemed to be aVIE, pursuant to FIN 46, an enterprise that absorbs a majority of the expectedlosses of the VIE is considered the primary beneficiary and must consolidatethe VIE. FIN 46 is effective immediately for VIE’s created afterJanuary 31, 2003. For VIE’s created before January 31, 2003, FIN 46must be applied at the end of the first interim or annual period ending afterMarch 15, 2004. FIN 46 may apply to certain of our contracts to acquireland that we entered into prior to January 31, 2003. We are in the processof evaluating the applicability of FIN 46 to these contracts.

 

        Basedon the provisions of FIN 46, the Company has concluded that whenever it entersinto an option agreement to acquire land or lots from an entity and pays asignificant non-refundable deposit, a VIE is created under condition(ii) (b) of the previous paragraph. The Company has been deemed tohave provided subordinated financial support, which refers to variableinterests that will absorb some or all of an entity’s expected theoreticallosses if they occur. For each VIE created the Company will compute expectedlosses and residual returns based on the probability of future cash flows asoutlined in FIN 46. If the Company is deemed to be the primary beneficiary ofthe VIE it will consolidate the VIE on its balance sheet. The fair value of theVIE’s inventory will be reported as “Inventory Not Owned—Variable InterestEntitity”.

 

        InMay 2003, the FASB issued Statement of Financial Accounting StandardsNo. 150 “Accounting for Certain Financial Instruments With Characteristicsof Both Liabilities and Equity” (“SFAS No. 150”). This standard requiresissuers to classify as liabilities the following three types of freestandingfinancial instruments: (1) mandatorily redeemable financial instruments,(2) obligations to repurchase the issuer’s equity shares by transferringassets; and (3) certain obligations to issue a variable number of shares.The Company adopted the provisions of this statement, as required, onJuly 1, 2003, and adoption did not have a material impact on the financialposition of the Company.

 

**(B) Acquisitions:**

 

        OnJuly 28, 2003, the Company acquired all of the issued and outstandingshares of Masterpiece Homes and entered into an employment agreement with thepresident of Masterpiece Homes. Masterpiece Homes is an established homebuilderlocated in Orange City, Florida. The terms of the stock purchase agreement andemployment agreement are as follows: (i) $3,900,000 in cash, at closing;and (ii) $2,130,000 payable January 1, 2005, unless prior to thatdate the president is terminated for cause or terminates his employment withoutgood reason, as defined in the employment agreement; (iii) sale of 30,000shares of the Company’s common stock at $8 per share with a put option at thesame price, (iv) stock options to purchase 45,000 shares of the Company’scommon stock at $10.64 per share vesting equally on December 31, 2004,2005 and 2006; and (v) contingent payments representing 25% of the pre-taxprofits of Masterpiece Homes for the calendar years ended December 31,2004, 2005 and 2006. The Company also incurred approximately $297,000 inacquisition costs to complete this transaction. The aforementioned costs areconsidered part of the purchase price of Masterpiece Homes, except for the followingitems that are considered part of, and contingent upon, the employmentagreement: (a) $710,000 of the $2,130,000 payable January 1, 2005;(b) stock options to purchase 45,000 shares of the Company’s common stockat $10.64 per share; and (c) contingent

 

7

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**(B) Acquisitions: (Continued)**

 

paymentsrepresenting 25% of the pre-tax profits of Masterpiece Homes for the calendaryears ended December 31, 2004, 2005 and 2006.

 

        TheCompany accounted for these transactions in accordance with SFAS No. 141,“Business Combinations”, whereby approximately $5,700,000 was considered to bepart of the purchase price of the business and the remainder part of employeecompensation. That portion related to employee compensation will be charged toexpense over the period to which it relates. With respect to the amountsallocated to the purchase, such amounts were allocated to the fair value ofassets and liabilities acquired with the excess of approximately $2,668,000 allocatedto goodwill.

 

        Ifthe Masterpiece Homes acquisition occurred on July 1, 2002, unaudited proforma information for the company would have been as follows: 

 
|                                       |   | **Three  Months Ended**                       |    | **Six Months  Ended** |   |
|--------------------------------------------|--------|-----------------------------------------------|---------|-----------------------|--------|
|                                       |   | **December  31,**                             |    |
|                                       |   | **2003**                                      |    | **2002**              |   | **2003** |   | **2002** |   |
|                                       |   | **(in  thousands, except per share amounts)** |    |
| Earned revenues                            |   | $                                             | 121,481 |                  | $      | 92,983 |   | $ | 222,454 |   | $ | 185,736 |   |
| Income from operations before income taxes |   | 12,272                                        |    | 9,180                 |   | 24,588 |   | 19,252 |   |
| Net income                                 |   | 7,450                                         |    | 5,692                 |   | 14,925 |   | 11,936 |   |
| Earnings per share:                        |   |                                          |    |                  |   |   |   |   |   |
| Basic                                      |   | 0.58                                          |    | 0.47                  |   | 1.16 |   | 0.98 |   |
| Diluted                                    |   | 0.45                                          |    | 0.34                  |   | 0.90 |   | 0.72 |   |
|                                            |        |                                               |         |                       |        |  |  |  |  |  |  |  |  |

** **

**(C) Mortgage and Other Note Obligations:**

 

        OnDecember 29, 2003 and in accordance with the terms of the Company’sConvertible Subordinated 7% Note issued to Jeffrey P. Orleans, Chairman andChief Executive Officer of the Company, the second annual installment due of$1,000,000 was converted, at $1.50 per share, into 666,666 shares of theCompany’s common stock. Interest on the remaining principal balance of $1,000,000is payable quarterly and the final installment of principal is due onJanuary 1, 2005.

** **

**(D) Redeemable Common Stock:**

 

        Inconnection with the Company’s acquisition of PLC on October 13, 2000, theCompany issued 300,000 shares of common stock of the Company to the formershareholders of PLC. The former shareholders of PLC have the right to cause theCompany to repurchase the common stock approximately five years after theclosing of the acquisition at a price of $3.33 per share. As of December 31,2003, a former shareholder of PLC sold 51,502 shares of the Company’s CommonStock thereby reducing the number of shares of redeemable common stock inconnection with the PLC acquisition to 248,498 shares.

 

        Inconnection with the Company’s acquisition of Masterpiece Homes on July 28,2003 (see Note B), the Company sold 30,000 shares of common stock of theCompany to the president of Masterpiece Homes at $8 per share. The president ofMasterpiece Homes has the right to cause the Company to repurchase the commonstock at $8 per share by giving notice to the Company no later

 

8

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**(D) Redeemable Common Stock: (Continued)**

 

than theearlier of December 31, 2006 or 30 days after termination of hisemployment, as specified in his employment agreement.

 

**(E) Preferred Stock:**

 

        OnDecember 29, 2003 and in accordance with the conversion features of theCompany’s Series D Preferred Stock, liquidation value of $3,000,000, heldby Mr. Orleans, the Series D Preferred Stock was converted, at $1.50per share, into 2,000,000 shares of the Company’s common stock.

** **

**(F) Earnings Per Share:**

 

        Theweighted average number of shares used to compute basic earnings per commonshare and diluted earnings per common share and a reconciliation of thenumerator and denominator used in the computation for the three and six monthsended December 31, 2003 and 2002, respectively, are shown in the followingtable: 

 
|                                                                                               |   | **Three  Months Ended**         |   | **Six Months  Ended** |   |
|----------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|-----------------------|--------|
|                                                                                               |   | **December  31,**               |   |
|                                                                                               |   | **2003**                        |   | **2002**              |   | **2003** |   | **2002** |   |
|                                                                                               |   | **(Unaudited)  (in thousands)** |   |
| Total common shares issued                                                                         |   | 13,452                          |   | 12,698                |   | 13,408 |   | 12,698 |   |
| Unconditional shares issuable                                                                      |   | 77                              |   | 137                   |   | 107 |   | 137 |   |
| Less: Average treasury shares outstanding                                                          |   | 632                             |   | 737                   |   | 669 |   | 737 |   |
|                                                                                               |   |                            |   |                  |   |   |   |   |   |
| Basic EPS shares                                                                                   |   | 12,897                          |   | 12,098                |   | 12,846 |   | 12,098 |   |
| Effect of assumed shares issued under                                                              |   |                            |   |                  |   |   |   |   |   |
| treasury stock method for stock options                                                            |   | 627                             |   | 552                   |   | 605 |   | 551 |   |
| Effect of December 29, 2003 partial conversion of $3 million  Convertible Subordinated 7% Note (1) |   | 1,312                           |   | 2,000                 |   | 1,322 |   | 2,000 |   |
| Effect of December 29, 2003 conversion of $3 million Series D  Preferred Stock (2)                 |   | 1,935                           |   | 2,000                 |   | 1,967 |   | 2,000 |   |
|                                                                                               |   |                            |   |                  |   |   |   |   |   |
| Diluted EPS shares                                                                                 |   | 16,771                          |   | 16,650                |   | 16,740 |   | 16,649 |   |
|                                                                                               |   |                            |   |                  |   |   |   |   |   |
| Net income available for common shareholders                                                       |   | $                               | 7,414  |                  | $      | 5,601 |   | $ | 14,879 |   | $ | 11,882 |   |
| Effect of December 29, 2003 conversion of $3 million Series D  Preferred Stock (2)            |   | 51                              |   | 52                    |   | 104 |   | 105 |   |
| Effect of December 29, 2003 partial conversion of $3 million Convertible  Subordinated 7% Note (1) |   | 22                              |   | 33                    |   | 43 |   | 65 |   |
|                                                                                               |   |                            |   |                  |   |   |   |   |   |
| Adjusted net income for diluted EPS                                                                |   | $                               | 7,487  |                  | $      | 5,686 |   | $ | 15,026 |   | $ | 12,052 |   |

 

----

| (1) | Refer to Note (C) for a  discussion of the December 29, 2003 partial conversion of the $3 million Convertible  Subordinated 7% Note. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Refer to Note (E) for a  discussion of the December 29, 2003 conversion of the Series D Preferred  Stock.                            |

 

9

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**(G) Supplemental Cash Flow Disclosure:**

 

        Non-cashassets acquired and liabilities assumed as a result of the Masterpieceacquisition were approximately $17,378,000 and $15,035,000, respectively.

 

**(H) Residential Properties Completed or under Construction:**

 

        Residentialproperties completed or under construction consist of the following: 

 
|                                                         |   | **December  31,  2003**         |    | **June 30,  2003** |   |
|--------------------------------------------------------------|--------|---------------------------------|---------|--------------------|--------|
|                                                         |   | **(Unaudited)  (in thousands)** |    |
| Under contract for sale (backlog)                            |   | $                               | 92,416  |               | $      | 76,303 |   |
| Unsold                                                       |   | 57,605                          |    | 33,592             |   |
| Total residential properties completed or under construction |   | $                               | 150,021 |               | $      | 109,895 |   |

** **

**(I) Litigation:**

 

        Fromtime to time the Company is named as a defendant in legal actions arising fromits normal business activities. Although the amount of liability that couldarise with respect to currently pending actions cannot be accurately predicted,in the opinion of the Company any such liability will not have a materialadverse effect on the financial position, operating results or cash flows ofthe Company.

** **

**(J) Commitments and Contingencies:**

 

        Asof December 31, 2003, the Company owned or controlled approximately 11,045building lots. As part of the aforementioned building lots, the Company hadcontracted to purchase, or has under option, undeveloped land and improved lotsfor an aggregate purchase price of approximately $403,622,000 which is expectedto yield approximately 8,024 building lots. Included in these totals are lotssubject to an agreement entered into in December 2003 to purchaseapproximately 300 acres of undeveloped land expected to yield approximately 400building lots with a purchase price of approximately $60,000,000.

** **

**(K) Subsequent Events:**

 

        OnJanuary 14, 2004, the Company filed a Form S-2 Registration Statementunder the Securities Act of 1993 for an offering of 2,000,000 shares of theCompany’s common stock, plus an additional 300,000 shares issuable uponunderwriters’ exercise of an over-allotment option granted to the underwriters.The Company’s common stock is traded on the American Stock Exchange under thesymbol “OHB”. On January 13, 2004, the last reported sale price of theCompany’s stock was $24.25 per share. The effective date of this registrationstatement is unknown as of this time and there can be no assurances that theCompany will complete this offering.

 

        OnJanuary 15, 2004, the Company signed an agreement to purchase undevelopedland expected to yield approximately 422 building lots with a purchase price ofapproximately $25,500,000. The Company has deposited in escrow $250,000 whichis refundable through the end of the 60 day due diligence period. At theend of the due diligence period, if the Company determines to proceed, it mustdeposit an additional $2,750,000 and this deposit along with the initial$250,000 deposit shall be released to the seller and be substantiallynon-refundable at that time.

 

10

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ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES

 

Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations

 

Orleans Homebuilders, Inc.and its subsidiaries (collectively, the “Company”, “OHB” or “Orleans”) develop,build and market high-quality single-family homes, townhomes and condominiumsto serve various homebuyer segments, including first-time, move-up, luxury,empty nester and active adult.  TheCompany believes this broad range of home designs and price points allows it tocapitalize on favorable economic and demographic trends within itsmarkets.  The Company is currentlyengaged in residential real estate development in the following nine markets:Southeastern Pennsylvania; Central New Jersey, Southern New Jersey; Charlotte;Raleigh and Greensboro, North Carolina; Richmond and Tidewater, Virginia; andOrlando, Florida.  The Company’s Charlotte,North Carolina market also includes operations in adjacent counties in SouthCarolina.  The Company has operated inits Pennsylvania and New Jersey markets for over 80 years and began operationsin its North Carolina and Virginia markets in fiscal 2001 through theacquisition of Parker & Lancaster Corporation, a privately-held residentialhomebuilder.  On July 28, 2003, theCompany began operations in Florida through the acquisition of MasterpieceHomes, Inc. (“Masterpiece Homes”), an established privately-held homebuilderlocated in Orange City, Florida.  TheResults of Operations include the activity of Masterpiece Homes from July 28,2003 through December 31, 2003.  Unlessotherwise indicated, the term the “Company” includes the accounts ofMasterpiece Homes.  References to agiven fiscal year in this Quarterly Report on Form 10-Q are to the fiscal yearending June 30th of that year.  Forexample, the phrases “fiscal 2003” or “2003 fiscal year” refer to the fiscalyear ended June 30, 2003.  When used inthis report, “northern region” refers to the Company’s Pennsylvania and NewJersey markets, “southern region” refers to the Company’s North Carolina andVirginia markets.  The Company considersits Orlando, Florida market to be a separate market.

 

The Company believes it iswell positioned for continued growth. At December 31, 2003 backlog was $368,324,000 representing 1,079 homescompared to a backlog of $231,831,000 representing 650 homes at December 31,2002.  At December 31, 2003 the Companywas selling in 81 communities and owned or controlled approximately 11,045building lots.

 

The Company has entitled anddeveloped lots in the highly regulated Pennsylvania and New Jersey markets forover 40 years.  As a result, the Companybelieves it has expertise in all aspects of the site selection, land planning,entitlement and land development processes which can be leveraged across allmarkets in which the Company operates. In addition, the Company believes that it holds attractive landpositions in the Pennsylvania and New Jersey markets and that the market valueof these land positions will continue to grow due to the highly regulatedenvironment in these markets.

 

11

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Results of Operations

 

The following table setsforth certain details as to residential sales activity.  The information provided is for the threeand six months ended December 31, 2003 and 2002 in the case of revenues earnedand new orders, and as of December 31, 2003 and 2002 in the case of backlog.

 
|                                          |   | **Six Months  Ended December 31,** |    |
|-----------------------------------------------|--------|------------------------------------|---------|
|                                          |   | **2003**                           |    | **2002** |   |
|                                          |   | **(Dollars  in thousands)**        |    |
|                                          |   |                               |    |   |   | **Average** |   |   |   |   |   | **Average** |   |
|                                          |   | **Amount**                         |    | **Homes** |   | **Price** |   | **Amount** |   | **Homes** |   | **Price** |   |
| Northern Region                               |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| New Jersey and Pennsylvania:                  |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                  | 117,537 |   | 317 |   | $ | 371 |   | $ | 118,376 |   | 390 |   | $ | 304 |   |
| New orders                                    |   | 122,756                            |    | 270 |   | 455 |   | 127,277 |   | 344 |   | 370 |   |
| Backlog                                       |   | 195,153                            |    | 415 |   | 470 |   | 159,525 |   | 421 |   | 379 |   |
|                                          |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Southern Region                               |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| North Carolina, South Carolina and  Virginia: |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                  | 75,756  |   | 245 |   | $ | 309 |   | $ | 53,852 |   | 190 |   | $ | 283 |   |
| New orders                                    |   | 108,485                            |    | 317 |   | 342 |   | 70,718 |   | 239 |   | 296 |   |
| Backlog                                       |   | 128,562                            |    | 362 |   | 355 |   | 72,306 |   | 229 |   | 316 |   |
|                                          |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Florida Region (1)                            |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                  | 26,571  |   | 199 |   | $ | 134 |   | $ | — |   | — |   | $ | — |   |
| New orders                                    |   | 29,518                             |    | 203 |   | 145 |   | — |   | — |   | — |   |
| Backlog                                       |   | 44,609                             |    | 302 |   | 148 |   | — |   | — |   | — |   |
|                                          |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Combined Regions                              |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                  | 219,864 |   | 761 |   | $ | 289 |   | $ | 172,228 |   | 580 |   | $ | 297 |   |
| New orders                                    |   | 260,759                            |    | 790 |   | 330 |   | 197,995 |   | 583 |   | 340 |   |
| Backlog                                       |   | 368,324                            |    | 1,079 |   | 341 |   | 231,831 |   | 650 |   | 357 |   |

 

----

| (1) | Information  on residential revenue earned and new orders is for the period beginning July  28, 2003, the date the Company entered this market through its acquisition of  Masterpiece Homes, through December 31, 2003. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

12

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|                                          |   | **Three  Months Ended December 31,** |    |
|-----------------------------------------------|--------|--------------------------------------|---------|
|                                          |   | **2003**                             |    | **2002** |   |
|                                          |   | **(Dollars  in thousands)**          |    |
|                                          |   |                                 |    |   |   | **Average** |   |   |   |   |   | **Average** |   |
|                                          |   | **Amount**                           |    | **Homes** |   | **Price** |   | **Amount** |   | **Homes** |   | **Price** |   |
| Northern Region                               |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| New Jersey and Pennsylvania:                  |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                    | 64,517  |   | 177 |   | $ | 365 |   | $ | 56,307 |   | 185 |   | $ | 304 |   |
| New orders                                    |   | 60,201                               |    | 124 |   | 485 |   | 52,627 |   | 131 |   | 402 |   |
| Backlog                                       |   | 195,153                              |    | 415 |   | 470 |   | 159,525 |   | 421 |   | 379 |   |
|                                          |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Southern Region                               |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| North Carolina, South Carolina

and Virginia: |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                    | 41,340  |   | 134 |   | $ | 309 |   | $ | 29,891 |   | 99 |   | $ | 302 |   |
| New orders                                    |   | 52,447                               |    | 150 |   | 350 |   | 34,445 |   | 113 |   | 305 |   |
| Backlog                                       |   | 128,562                              |    | 362 |   | 355 |   | 72,306 |   | 229 |   | 316 |   |
|                                          |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Florida Region (1)                            |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                    | 15,624  |   | 115 |   | $ | 136 |   | $ | — |   | — |   | $ | — |   |
| New orders                                    |   | 17,069                               |    | 115 |   | 148 |   | — |   | — |   | — |   |
| Backlog                                       |   | 44,609                               |    | 302 |   | 148 |   | — |   | — |   | — |   |
|                                          |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Combined Regions                              |   |                                 |    |   |   |   |   |   |   |   |   |   |   |
| Residential revenue earned                    |   | $                                    | 121,481 |   | 426 |   | $ | 285 |   | $ | 86,198 |   | 284 |   | $ | 304 |   |
| New orders                                    |   | 129,717                              |    | 389 |   | 333 |   | 87,072 |   | 244 |   | 357 |   |
| Backlog                                       |   | 368,324                              |    | 1,079 |   | 341 |   | 231,831 |   | 650 |   | 357 |   |

 

----

| (1) | Information  on residential revenue earned and new orders is for the period beginning July  28, 2003, the date the Company entered this market through its acquisition of  Masterpiece Homes, through December 31, 2003. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Three Months and Six MonthsEnded December 31, 2003 and 2002

 

Orders and Backlog

 

New orders for the sixmonths ended December 31, 2003 increased $62,764,000 or 31.7%, to $260,759,000on 790 homes, compared to $197,995,000 on 583 homes for the six months endedDecember 31, 2002.  The increase in neworder dollars was attributable to an increase in southern region new orders of$37,767,000, or approximately 53.4% when compared to the six months endedDecember 31, 2002 and an increase in Florida region new orders of $29,518,000due to the Company’s expansion into the Florida region through its acquisitionof Masterpiece Homes.  This increase waspartially offset by a decrease in northern region new orders of$4,521,000.  New orders decreased in thenorthern region due to delays in the opening of new communities as a result ofincreasingly restrictive regulations and moratoriums by governments which the Companybelieves is due to the intensity of development in recent years.  The average price per home of new ordersremains strong with increases in the northern region and southern region ofapproximately 23.0% and 15.5%, respectively, compared with the six months endedDecember 31, 2002.  Although theincrease in the average price per home of new orders on a regional basis wasdue, in part, to the Company’s mix of product offerings, it was also due tooverall sales price increases in the majority of communities open during thefirst six months of fiscal 2004 when compared with the same communities andproducts offered for sale in the first six months of fiscal 2003.  The Company believes sales price increasesare due to the strong demand for new homes as a result of the growingpopulation, fueled in part by immigration. In addition, historically low interest rates have made housing moreaffordable for lower income households thereby increasing the overall demandfor housing.  The aforementioned,coupled with the limited supply of entitled lots for residential housing inPennsylvania and New Jersey due to increased governmental regulations haspositively impacted home pricing trends.

 

13

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Overall the number of neworders for the six months ended December 31, 2003 increased by 207 homes, or35.5%, compared to 583 homes for the six months ended December 31, 2002.  In the northern region, the number of neworders for the six months ended December 31, 2003 decreased to 270 homes from344 homes in the comparable prior year period due to delays in the opening ofnew communities as a result of increasingly restrictive regulations andmoratoriums by governments which the Company believes is due to the intensityof development in recent years.  In thesouthern region, the number of new orders for the six months ended December 31,2003 increased to 317 homes from 239 homes in the six months ended December 31,2002 as the Company continues to expand in this region.  In addition, the Company’s expansion intoFlorida through the acquisition of Masterpiece Homes accounted for an increaseof 203 new home orders for the six months ended December 31, 2003.

 

New orders for the for thethree months ended December 31, 2003 increased $42,645,000 or 49.0%, to$129,717,000 on 389 homes, compared to $87,072,000 on 244 homes for the threemonths ended December 31, 2002.  Theincrease in new orders was attributable to increases in the northern andsouthern region new orders of $7,574,000, or 14.4% and $18,002,000, or 52.3%,respectively when compared to the three months ended December 31, 2002.  In addition, the Company’s expansion intothe Florida region through its acquisition of Masterpiece Homes contributed$17,069,000 to the increase in new orders. The average price per home of new orders remains strong with increasesin the northern region and southern region of 20.6% and 14.8%, respectively,compared to the comparable prior year period. This increase in the average price per home of new orders on a regionalbasis is due to the Company’s mix of product offerings as well as sales priceincreases in the majority of communities open during the three months endedDecember 31, 2003 when compared with the same communities and products offeredfor sale in the comparable prior year period.

 

Overall the number of newhome orders for the three months ended December 31, 2003 increased by 145 homesto 389 homes, or 59.4%, compared to 244 homes for the three months endedDecember 31, 2002.  In the northern region,the number of new home orders for the three months ended December 31, 2003decreased to 124 homes from 131 homes for the three months ended December 31,2002 due to delays in the opening of new communities as a result ofincreasingly restrictive regulations and moratoriums by governments which theCompany believes was due to the intensity of development in recent years.  In the southern region, the number of newhome orders for the three months ended December 31, 2003 increased to 150 homesfrom 113 homes for the three months ended December 31, 2002 as the Companycontinues to expand in this region.  Inaddition, the Company’s expansion into Florida through the acquisition ofMasterpiece Homes accounted for an increase of 115 new home orders for thethree months ended December 31, 2003.

 

The backlog at December 31,2003 increased $136,493,000, or 58.9%, to $368,324,000 on 1,079 homes comparedto the backlog at December 31, 2002 of $231,831,000 on 650 homes.  The increase in backlog was attributable toan increase in new orders, the Company’s obtaining additional backlog of$41,662,000 and 298 homes through its acquisition of Masterpiece Homes on July28, 2003 and favorable economic conditions for the homebuilding industry in theregions where the Company operates. These favorable economic conditions have resulted in positive homepricing trends and consistent customer demand.

 

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Total Earned Revenues

 

Total earned revenues forthe six months ended December 31, 2003 increased $48,582,000 to $223,150,000 or27.8%, compared to $174,568,000 for the six months ended December 31,2002.  Total earned revenues principallyconsist of residential revenue, but also include revenues from land sales,interest income, property management fees and mortgage processing income.  Revenues from the sale of homes included 761homes totaling $219,864,000 during the six months ended December 31, 2003, ascompared to 580 homes totaling $172,228,000 during the six months endedDecember 31, 2002.  The increase inresidential revenue was attributable to an increase in southern regionresidential revenue of $21,904,000, or 40.7% when compared to the six monthsended December 31, 2002 and an increase in Florida region residential revenueof $26,571,000 due to the Company’s expansion into the Florida region throughits acquisition of Masterpiece Homes. The average price per home delivered remains strong with increases inthe northern region and southern region of 22.0% and 9.2%, respectively,compared with the six months ended December 31, 2002.  

 

Overall, the number of homesdelivered for the six months ended December 31, 2003 increased by 181 homes, or31.2%, to 761 homes compared to 580 homes in the six months ended December 31,2002.  In the northern region, the numberof homes delivered in the six months ended December 31, 2003 decreased to 317homes from 390 homes in the six months ended December 31, 2002.  The decrease in the northern region was dueto weather related construction delays for new orders received during the threemonths ended June 30, 2003. Construction delays were the result of an unusually rainy Spring andSummer season with reported precipitation amounts that were significantly abovenormal.  In addition, the number ofhomes delivered also decreased due to delays in the opening of new communitiesas a result of increasingly restrictive regulations and moratoriums bygovernments.  In the southern region,the number of homes delivered in the six months ended December 31, 2003increased to 245 homes from 190 homes in the six months ended December 31, 2002as the Company continues to expand in this region.  Further, the Company’s expansion into Florida through theacquisition of Masterpiece Homes accounted for an increase of 199 homesdelivered in the six months ended December 31, 2003.

 

Total earned revenues forthe three months ended December 31, 2003 increased $35,265,000, to $122,715,000or 40.3% compared to $87,450,000 for the three months ended December 31,2002.  Revenues from the sale of residentialhomes included 426 homes totaling $121,481,000 during the three months endedDecember 31, 2003, as compared to 284 homes totaling $86,198,000 during thethree months ended December 31, 2002. The increase in

 

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residentialrevenue was attributable to increases in the northern and southern regionresidential revenue of $8,210,000, or 14.6% and $11,449,000, or 38.3%,respectively when compared to the three months ended December 31, 2002.  In addition, the Company’s expansion intothe Florida region through its acquisition of Masterpiece Homes contributed$15,624,000 to the increase in residential revenue.  The average selling price per home delivered in three month endedDecember 31, 2003 increased in the northern region and southern region byapproximately 20.1% and 2.3%, respectively, compared with the three monthsended December 31, 2002.

 

The number of homesdelivered in the three months ended December 31, 2003 increased by 142 homes,or 50.0%, to 426 homes compared to 284 homes in the three months ended December31, 2002.  The overall increase wasattributable to an increase in the number homes delivered in the southernregion to 134 homes compared to 99 homes in the three months ended December 31,2002 as well as the delivery of 115 homes in the Florida region due to theCompany’s expansion into the Florida region through its acquisition ofMasterpiece Homes.  This increase waspartially offset by a decrease in the number of homes delivered in the northernregion to 177 homes from 185 homes in the three months ended December 31,2002.  The decrease in the number ofhomes delivered in the northern region was attributable to weather relatedconstruction delays and delays in the opening of new communities as a result ofincreasingly restrictive regulations and moratoriums by governments as notedabove.

 

Costs and Expenses

 

Costs and expenses for thesix months ended December 31, 2003 increased $43,228,000 to $198,461,000, or27.8%, compared with the six months ended December 31, 2002.  The cost of residential properties for thesix months ended December 31, 2003 increased $36,721,000 to $169,979,000, or27.6%, when compared with the six months ended December 31, 2002.  The increase in cost of residential propertieswas primarily attributable to increased residential revenue in the southern andFlorida regions noted above.  Theconsolidated gross profit margin for the six months ended December 31, 2003increased 0.1% to 22.7% compared to 22.6% for the six months ended December 31,2002.  The consolidated gross profitmargin excluding the Florida region was 23.7% for the six months ended December31, 2003.  The increase in gross profitmargins is primarily a result of the average selling price per home increasingat a greater rate than the average cost per home.  Increased costs of land, insurance and certain buildingmaterials, primarily lumber, have been outpaced by an increase in the averageselling price per home and a decrease in the cost of borrowing therebypositively impacting gross profit margin. The Company sells a variety of home types in various communities andregions, each yielding a different gross profit margin.  As a result, depending on the mix of bothcommunities and of

 

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hometypes delivered, the consolidated gross profit margin may fluctuate up or downon a periodic basis and periodic profit margins may not be representative ofthe consolidated gross profit margin for the year.

 

Interest included in thecosts and expenses of residential properties and land sold for the six monthsended December 31, 2003 and December 31, 2002 were $3,336,000 and $4,323,000,respectively.

 

For the six months endedDecember 31, 2003, selling, general and administrative expenses increased$5,489,000 to $25,558,000, or 27.4%, when compared with the six months endedDecember 31, 2002.  The increase inselling, general and administrative expenses was due to an increase in Floridaregion expenses of $2,683,000 due to increased sales volume resulting from theCompany’s expansion into Florida through its acquisition of Masterpiece Homeson July 28, 2003, and an increase in sales commissions and selling costs in thesouthern region of approximately $2,007,000 as a result of the Company’scontinued expansion in this region.  Theremaining increase in selling, general and administrative expenses wasprimarily attributable to increases in general and administrative payroll andincentive compensation in the northern and southern regions.

 

The selling, general andadministrative expenses as a percentage of residential revenue for the sixmonths ended December 31, 2003 of 11.6% is relatively consistent with theselling, general and administrative expenses as a percentage of residentialrevenue for the six months ended December 31, 2002 of 11.7%.

 

Costs and expenses for thethree months ended December 31, 2003 increased $32,089,000 to $110,419,000, or41.0%, compared with the three months ended December 31, 2002.  The cost of residential properties for thethree months ended December 31, 2003 increased $27,963,000 to $95,170,000, or41.6%, when compared with the three months ended December 31, 2002.  The increase in cost of residential propertieswas primarily attributable to increased residential revenue in the northern andsouthern regions as noted above as well as the increase in residential revenueresulting from the Company’s expansion into Florida through its acquisition ofMasterpiece Homes.  The consolidatedgross profit margin for the three months ended December 31, 2003 decreased 0.3%to 21.7% compared to 22.0% for the three months ended December 31, 2002.  The consolidated gross profit marginexcluding the Florida region was 22.5% for the three months ended December 31,2003.  The increase in gross profitmargins, excluding the Florida region, is primarily a result of the averageselling price per home increasing at a greater rate than the average cost perhome.  Increased costs of land,insurance and certain building materials, primarily lumber, have been outpacedby an increase in the average selling price per home and a decrease in the costof borrowing thereby positively impacting gross profit margin.  The Company sells a variety of home types invarious communities and regions, each yielding a different gross profitmargin.  As a result, depending on themix of both communities and of home types delivered, the consolidated grossprofit margin may fluctuate up or down on a quarterly basis and quarterlyprofit margins may not be representative of the consolidated gross profitmargin for the year.  Interest includedin the costs and expenses of residential properties and land sold for the threemonths ended December 31, 2003 and December 31, 2002 were $1,763,000 and$2,051,000, respectively.

 

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For the three months endedDecember 31, 2003, selling, general and administrative expenses increased$3,833,000 to $14,110,000, or 37.3%, when compared with the three months endedDecember 31, 2002.  The increase inselling, general and administrative expenses was due to an increase in Floridaregion expenses of $1,797,000 due to increased sales volume resulting from theCompany’s expansion into Florida through its acquisition of Masterpiece Homeson July 28, 2003, and an increase in sales commissions and selling costs in thesouthern region of approximately $1,022,000 as a result of the Company’scontinued expansion in this region.  Theremaining increase in selling, general and administrative expenses wasprimarily attributable to increases in general and administrative payroll andincentive compensation in the northern and southern regions.

 

The selling, general andadministrative expenses as a percentage of residential property revenue for thethree months ended December 31, 2003 decreased 0.3% to 11.6% from 11.9% for thethree months ended December 31, 2002. The decrease in selling, general and administrative expenses as apercentage of residential property revenue was primarily attributable to anincrease in revenues in excess of an increase in the fixed portion of selling,general and administrative expenses when compared with the three months endedDecember 31, 2002.

 

Income Tax Expense

 

As a result of changes instate tax laws in the states in which the Company operates and the Company’sexpansion into Florida, the Company adjusted its effective tax rate to 39.3% ofincome from operations before income taxes for fiscal year 2004.  This change resulted in an increase inincome tax expense of $324,000 for the six months ended December 31, 2003 whencompared with the effective tax rate of 38.0% for the six months ended December31, 2002.

 

The change to the effectiveincome tax rate for fiscal year 2004 resulted in an increase in income taxexpense of $159,000 and an effective income tax rate of 39.3% for the threemonths ended December 31, 2003 compared with a 38.0% effective income tax ratefor the three months ended December 31, 2002.

 

Net Income

 

Net income for the sixmonths ended December 31, 2003 increased $2,996,000, or 25.0%, to $14,983,000,compared with $11,987,000 for the six months ended December 31, 2002.  This increase in net income was attributableto an increase in residential revenue primarily as a result of favorable conditionsin the homebuilding industry, resulting in strong customer demand and positivehome pricing trends.  The Companybelieves the primary factors resulting in favorable conditions in thehomebuilding industry include: the strong demand  for new homes as a result of an increase in immigration and newhousehold  formation; historically lowinterest rates which enhance the affordability of  homes; and the limited supply of entitled lots for residentialhousing due to  increased governmentalregulation, which increases the value of lots already  owned by companies such as us.

 

The Company’s expansion intoFlorida through its acquisition of Masterpiece Homes on July 28, 2003 alsocontributed to the increase in net income.

 

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Costs resulting from theacquisition of Masterpiece reduced the consolidated net income for the threeand six month periods ended December 31, 2003 by $205,000 and $430,000respectively.

 

 

Liquidity and CapitalResources

 

The Company requires capitalto purchase and develop land, to construct units, to fund related carryingcosts and overhead and to fund various advertising and marketing programs tofacilitate sales.  These expendituresinclude site preparation, roads, water and sewer lines, impact fees andearthwork, as well as the construction costs of the homes and amenities.  The Company’s sources of capital includefunds derived from operations, sales of assets and various borrowings, most ofwhich are secured.

 

At December 31, 2003, theCompany had approximately $163,746,000 available under existing securedrevolving and construction loans for planned development expenditures.  In addition, the Company had $4,000,000available under an existing unsecured line of credit and working capitalarrangement with Jeffrey P. Orleans, Chairman, Chief Executive Officer andmajority shareholder of the Company.  Amajority of the Company’s debt is variable rate, based on LIBOR or the primerate, and therefore, the Company is exposed to market risk in the area ofinterest rate changes.  At December 31,2003, the LIBOR and prime rates of interest were 1.13% and 4.0%, respectively.

 

Generally, the Companyfinances its development and construction activities on acommunity-by-community basis so that, for each community the Company builds, ithas a separate credit facility. Accordingly, the Company has numerous credit facilities.  While the loan agreements relating to thesefacilities contain certain covenants, they generally contain few, if any,material financial covenants. Typically, the Company’s loan agreements contain covenants requiring itto:

 
| • | obtain  agreements of sale for a specified number of homes within a specified time  period, with the number of homes and time period varying by community;                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                       |
| • | not  distribute dividends greater than 5% of each year’s net income;                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                       |
| • | not permit a  change in control of the Company or of any subsidiary that is a party to the  applicable loan agreement;                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                       |
| • | complete any  construction which is the subject of the loan agreement without significant  delay and in accordance with the previously submitted constructions plans;                                                                                                      |
|   |                                                                                                                                                                                                                                                                       |
| • | notify the  lender, in writing, immediately if the Company receives a claim of lien with  respect to any services, labor or material furnished in connection with  applicable construction, and to remove any such lien within 10 days after the  date the lien was filed; |

 

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| • | maintain  certain minimum levels of insurance;                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | when  requested by lender, provide inventory status reports and financial  statements and other inventory and financial information reasonably requested  by lender;                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | furnish the  lender with copies of all notices received by the Company claiming any breach  or potential breach of any contracts related to the construction, claiming or  asserting a right to a lien for work performed or materials provided in  connection with construction, or from any governmental authority asserting  that the land or construction which is the subject of the loan agreements may  or does violate any law or regulations; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | not enter  into leases affecting the land or the construction which is the subject of  the applicable loan documents without the prior written consent of the  lender;                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | not obtain  subordinate financing on the land, construction or other property granted as  security under applicable loan documents with the prior approval of the  lender; and                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | not sell or  otherwise dispose of any of the land or the construction which is the subject  of the applicable loan documents.                                                                                                                                                                                                                                                                                                                          |

 

On July 28, 2003, theCompany acquired all of the issued and outstanding shares of Masterpiece Homesand entered into an employment agreement with the president of MasterpieceHomes, Robert Fitzsimmons.  MasterpieceHomes is an established homebuilder located in Orange City, Florida.  The terms of the stock purchase agreementand employment agreement are as follows: (i) $3,900,000 in cash to the sellingshareholders at closing; and (ii) $2,130,000 to the selling shareholderspayable January 1, 2005, unless prior to that date Mr. Fitzsimmons isterminated for cause or terminates his employment without good reason, asdefined in the employment agreement; (iii) sale of 30,000 shares of theCompany’s common stock at $8 per share with an option for Mr. Fitzsimmons torequire the Company to repurchase the shares at the same price; (iv) an optionin favor of Mr. Fitzsimmons to purchase 45,000 shares of the Company’s commonstock at $10.64 per share vesting equally on December 31, 2004, 2005 and 2006;and (v) contingent payments to Mr. Fitzsimmons representing 25% of MasterpieceHome’s pre-tax profits for the calendar years ended December 31, 2004, 2005 and2006.  To fund the acquisition, the Companyborrowed $2,000,000, at an annual rate of LIBOR plus 4%, from Jeffrey P.Orleans, Chairman and Chief Executive Officer of the Company, under theCompany’s existing unsecured line of credit agreement and used funds fromoperations to fund the remaining payments due. As of December 31, 2003 the unsecured line of credit with Mr. Orleanshas been completely repaid.

 

Net cash used in operatingactivities for the six months ended December 31, 2003 was $43,227,000, comparedto net cash used by operating activities for the prior fiscal year period of$7,493,000.  The increase in net cashused in operating activities was primarily attributable to the acquisition ofapproximately 818 building lots for future development with an aggregate

 

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purchaseprice of approximately $42,981,000 during the six months ended December 31,2003.  The remaining increase in netcash used in operating activities was attributable to increases in receivables,deferred charges and other assets as well as a decrease in accounts payable andother liabilities, partially offset by an increase in customer deposits and netincome when compared with the prior fiscal year period.  Net cash used in investing activities forthe six months ended December 31, 2003 was $5,185,000, compared to $674,000 forthe prior fiscal year period.  Thisincrease was primarily related to the acquisition of Masterpiece Homes on July28, 2003.  Net cash provided byfinancing activities for the six months ended December 31, 2003 was$53,227,000, compared to $7,743,000 for the prior fiscal year period.  The increase in net cash provided byfinancing activities is primarily attributable to an increase in financing tosupport the increase in real estate held for development as noted above.

 

Lot Positions

 

As of December 31, 2003 theCompany owned or controlled approximately 11,045 building lots.  Included in the aforementioned lots, theCompany had contracted to purchase, or has under option, undeveloped land andimproved building lots for an aggregate purchase price of approximately$403,622,000 that are expected to yield approximately 8,024 building lots.  Generally, the Company structures its landacquisitions so that it has the right to cancel its agreements to purchaseundeveloped land by forfeiture of its deposit under the agreement.

 

Undeveloped LandAcquisitions

 

In recent years, the processof acquiring desirable undeveloped land has become extremely competitiveparticularly in the northern region, mostly due to the lack of availableparcels suitable for development.  Inaddition, expansion of regulation in the housing industry has increased thetime it takes to acquire undeveloped land with all of the necessarygovernmental approvals required to begin construction.  For the six months ended December 31, 2003the Company forfeited approximately $75,000 in land deposits related to thecancellation of contracts to purchase undeveloped land.  Included in the balance sheet captionsInventory not owned — Variable Interest Entities and Land deposits and costs offuture developments, at December 31, 2003 the Company had $29,179,000 investedin 43 parcels of undeveloped land, of which $13,140,000 is deposits, a portionof which is non-refundable.  Theacquisition of these parcels is expected to yield approximately 5,632 buildinglots.  The Company attempts to mitigatethe risks involved in acquiring undeveloped land by structuring its undevelopedland acquisitions so that the deposits required under the agreements coincide withcertain benchmarks in the governmental approval process, thereby limiting theamount at risk.  This process allows theCompany to periodically review the approval process and make a decision on theviability of developing the acquired parcel based upon expectedprofitability.  In some circumstancesthe Company may be required to make deposits solely due to the passage oftime.  This structure still provides theCompany an opportunity to periodically review the viability of developing theparcel of land.  In addition, theCompany primarily structures its agreements to purchase undeveloped landcontingent upon obtaining all governmental approvals necessary forconstruction.  Undermost agreements, theCompany secures the responsibility for obtaining the required governmentalapprovals as the Company believes that it has significant expertise in thisarea.  It’s the Company’s intent tocomplete the acquisition of undeveloped land after all governmental approvalsare in place.  In certain circumstanceshowever, when all extensions

 

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havebeen exhausted, the Company must make a decision on whether to proceed with thepurchase even though all governmental approvals have not yet beenreceived.  In these circumstances, theCompany performs reasonable due diligence to ascertain the likelihood that thenecessary governmental approvals will be granted.  At December 31, 2003, the Company had preliminary approval forall of the parcels included in the balance sheet caption Land held fordevelopment or sale and improvements.

 

In December 2003, theCompany signed an agreement to purchase approximately 300 acres of undevelopedland expected to yield approximately 400 building lots for a purchase price ofapproximately $60,000,000.

 

In January 2004, the Companysigned an agreement to purchase undeveloped land expected to yieldapproximately 422 building lots for a purchase price of approximately$25,500,000.  The Company has depositedin escrow $250,000 which is refundable through the end of the 60 day duediligence period.  At the end of the duediligence period, if the Company determines to proceed, it must deposit anadditional $2,750,000 and this deposit along with the initial $250,000 depositshall be released to the seller and be substantially non-refundable at thattime.

 

Improved Lot Acquisitions

 

The process of acquiringimproved building lots from developers is extremely competitive.  The Company competes with many nationalhomebuilders to acquire improved building lots, some of which have greaterfinancial resources than the Company. The acquisition of improved lots is usually less risky than theacquisition of undeveloped land as the contingencies and risks involved in theland development process are borne by the developer.  In addition, governmental approvals are generally in place whenthe improved building lots are acquired.

 

At December 31, 2003, theCompany had contracted to purchase or had under option approximately 2,392improved building lots for an aggregate purchase price of approximately $142,102,000,including $5,651,000 of deposits.

 

The Company expects toutilize purchase money mortgages, secured financings and existing capitalresources to finance the acquisitions described above.  Contingent on the aforementioned, theCompany anticipates completing a majority of these acquisitions during the nextseveral years.

 

Other

 

On January 14, 2004, theCompany filed a Form S-2 Registration Statement under the Securities Act of1993 for an offering of 2,000,000 shares of the Company’s common stock, plus anadditional 300,000 shares issuable upon underwriters’ exercise of anover-allotment option granted to the underwriters.  On February 17, 2003, the Company filed Amendment No. 1 to theRegistration Statement.  The Companyintends to repay debt, primarily mortgage facilities secured by real estateheld for development, with the net proceeds of this offering.  These mortgage facilities will continue tobe available to the Company after repayment. The Company’s common stock is traded on the American Stock Exchangeunder the symbol “OHB”.

 

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OnFebruary 17, 2004, the last reported sale price of the Company’s stock was$22.52 per share.  The effective date ofthis registration statement is unknown as of this time and there can be noassurances that the Company will complete this offering.

 

Recent AccountingPronouncements

 

In June, 2001, the FASBissued SFAS No. 141, “Business Combinations” (“SFAS No. 141”), whichestablishes standards for reporting business combinations entered into afterJune 30, 2001 and supercedes APB Opinion No. 16, “Business Combinations” andSFAS No. 38, “Accounting for Preacquisition Contingencies of PurchasedEnterprises”.  Among other things, SFASNo. 141 requires that all business combinations be accounted for as purchasetransactions and provides specific guidance on the definition of intangibleassets which require separate treatment. The statement is applicable for all business combinations entered intoafter June 30, 2001 and also requires that companies apply its provisionsrelating to intangibles from pre-existing business combinations.

 

In June 2001, the FASB alsoissued SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”),which establishes standards for financial accounting and reporting forintangible assets acquired individually or with a group of other assets and forthe reporting of goodwill and other intangible assets acquired in a businessacquisition subsequent to initial accounting under SFAS No. 141. SFAS No. 142supercedes APB Opinion No.17, “Intangible Assets” and related interpretations.SFAS No. 142 is effective for fiscal years beginning after December 15, 2001;however, companies with fiscal years beginning after March 15, 2001 may electto adopt the provision of SFAS No. 142 at the beginning of its new fiscalyear.  Accordingly, the Company electedto early adopt SFAS No. 142 effective with the beginning of its new fiscal yearon July 1, 2001.  The Company did notrecognize any charge to earnings for the cumulative effect upon adoptionbecause, at the time, all such intangibles related to the Company’s acquisitionof PLC for which no impairment was required under SFAS No. 142.  Upon adoption, such intangibles, which werebeing amortized over ten years prior to adoption, are no longer amortized butcontinue to be subject to periodic review for impairment.

 

In October 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets” (“SFAS No. 144”), which establishes a single accounting model for theimpairment or disposal of long-lived assets, including discontinuedoperations.  SFAS No. 144 supersedesSFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of” and APB Opinion No. 30, “Reporting theResults of Operations - Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions”.  The provisions of SFASNo. 144 are effective in fiscal years beginning after December 15, 2001, withearly adoption permitted and, in general, are to be applied prospectively.  The Company adopted SFAS No. 144 effectiveJuly 1, 2002 and adoption did not have a material impact on its consolidatedresults of operations and financial position.

 

In April 2002, the FASBissued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS No.145”).  SFAS No. 145 rescinds SFAS No.4, “Reporting Gains and Losses from Extinguishment of Debt” (“SFAS No. 4”), andthe amendments to SFAS No. 4, SFAS No. 64, “Extinguishments 

 

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ofDebt made to Satisfy Sinking-Fund Requirements” (“SFAS No. 64”).  Through this rescission, SFAS No. 145eliminates the requirement (in both SFAS No. 4 and SFAS No. 64) that gains andlosses from the extinguishment of debt be aggregated and, if material,classified as an extraordinary item, net of the related income tax effect.  An entity is not prohibited from classifyingsuch gains and losses as extraordinary items, so long as they meet the criteriain paragraph 20 of APB Opinion No. 30, “Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions”(“APB No. 30”).  However, due to thenature of the Company’s operations it is not expected that such treatment willbe available to the Company.  Any gainsor losses on extinguishments of debt that were previously classified asextraordinary items in prior periods presented that do not meet the criteria inAPB No. 30 for classification as an extraordinary item will be reclassified toincome from continuing operations.  Theprovisions of SFAS No. 145 are effective for financial statements issued forfiscal years beginning after May 15, 2002. The Company adopted the provisions of this statement on July 1, 2002 andadoption did not have a material impact on the Company’s results of operationsor financial position.

 

In July 2002, the FASBissued SFAS No. 146 “Accounting for Costs Associated with Exit or DisposalActivities” (“SFAS No. 146”), which is effective for exit or disposalactivities initiated after December 31, 2002, with earlier applicationencouraged.  SFAS No. 146 addresses theaccounting for costs associated with exit or disposal activities and nullifiesEmerging Issues Task Force Issue No. 94-3 “Liability Recognition for CertainEmployee Termination Benefits and Other Costs to Exit an Activity (includingCertain Costs Incurred in a Restructuring)”. The Company does not anticipate a material impact on the results ofoperations or financial position from the adoption of SFAS No. 146.

 

In December 2002, the FASBissued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition andDisclosure” (“SFAS No. 148”) which provides alternative methods of transitionfor a voluntary change to the fair value based method of accounting forstock-based employee compensation and amends the disclosure requirements ofSFAS No. 123.  The transition provisionsof SFAS No. 148 are effective for fiscal years ending after December 15, 2002,and the disclosure requirements are effective for interim periods beginningafter December 15, 2002.  The Companyadopted SFAS No. 148 effective July 1, 2002. The adoption of SFAS No. 148 did not have a material impact on thefinancial position or results of operations of the Company.

 

In January 2003, the FASBissued FASB Interpretation No. 46 “Consolidation of Variable Interest Entities,an interpretation of ARB No. 51” (“FIN 46”). A Variable Interest Entity (VIE) is created when (i) the equityinvestment at risk is not sufficient to permit the entity to finance itsactivities without additional subordinated financial support from other partiesor (ii) equity holders either (a) lack direct or indirect ability to makedecisions about the entity, (b) are not obligated to absorb expected losses ofthe entity or (c) do not have the right to receive expected residual returns ofthe entity if they occur.  If an entityis deemed to be a VIE, pursuant to FIN 46, an enterprise that absorbs amajority of the expected losses of the VIE is considered the primarybeneficiary and must consolidate the VIE. Fin 46 is effective immediately forVIE’s created after January 31, 2003. For VIE’s created before January 31, 2003, FIN 46 must be applied at theend of the first interim or annual period ending after March 15, 2004.  FIN 46 may

 

24

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applyto certain of our contracts to acquire land that we entered into prior toJanuary 31, 2003.  We are in the processof evaluating the applicability of FIN 46 to these contracts.

 

Based on the provisions ofFIN 46, the Company has concluded that whenever it enters into an optionagreement to acquire land or lots from an entity and pays a significantnon-refundable deposit, a VIE is created under condition (ii) (b) of theprevious paragraph.  The Company hasbeen deemed to have provided subordinated financial support, which refers tovariable interests that will absorb some or all of an entity’s expectedtheoretical losses if they occur.  Foreach VIE created the Company will compute expected losses and residual returnsbased on the probability of future cash flows as outlined in FIN 46.  If the Company is deemed to be the primarybeneficiary of the VIE it will consolidate the VIE on its balance sheet.  The fair value of the VIE’s inventory willbe reported as “Inventory Not Owned - Variable Interest Entities”.

 

In May 2003, the FASB issuedStatement of Financial Accounting Standards No. 150 “Accounting for CertainFinancial Instruments With Characteristics of Both Liabilities and Equity”(“SFAS No. 150”).  This standard requiresissuers to classify as liabilities the following three types of freestandingfinancial instruments: (1) mandatorily redeemable financial instruments, (2)obligations to repurchase the issuer’s equity shares by transferring assets;and (3) certain obligations to issue a variable number of shares.  The Company adopted the provisions of thisstatement, as required, on July 1, 2003, and adoption did not have a materialimpact on the financial position of the Company.

 

CautionaryStatement for Purposes of the “Safe Harbor” Provisions of the PrivateSecurities Litigation Reform Act of 1995

 

In addition to historicalinformation, this report contains statements relating to future events or ourfuture results.  These statements areforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended(the “Exchange Act”), and are subject to the Safe Harbor provisions created bystatute.  Generally words such as “may”,“will”, “should”, “could”, “anticipate”, “expect”, “intend”, “estimate”,“plan”, “continue”, and “believe” or the negative of or other variation onthese and other similar expressions identify forward-looking statements.  These forward-looking statements are madeonly as of the date of this report.  TheCompany does not undertake to update or revise the forward-looking statements,whether as a result of new information, future events or otherwise.

 

Forward-looking statementsare based on current expectations and involve risks and uncertainties and theCompany’s future results could differ significantly from those expressed orimplied by the Company’s forward-looking statements.

 

Many factors, includingthose listed below, could cause the Company’s actual consolidated results todiffer materially from those expressed in any forward-looking statements madeby, or on behalf of, the Company:

 
| • | changes in  consumer confidence due to perceived uncertainty of future employment  opportunities and other factors; |
|--------|---------------------------------------------------------------------------------------------------------------------|

 

25

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| • | competition  from national and local homebuilders in the Company’s market areas;                                                                                                                                                                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                  |
| • | changes in  price and availability of building material;                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                  |
| • | changes in  mortgage interest rates charged to buyers of the Company’s homes;                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                  |
| • | changes in  the availability and cost of financing for the Company’s operations,  including land acquisitions;                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                  |
| • | revisions in  federal, state and local tax laws which provide incentives for home  ownership;                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                  |
| • | inability to  successfully integrate acquired businesses;                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                  |
| • | delays in  obtaining land development permits as a result of (i) federal, state and  local environmental and other land development regulations, (ii) actions  taken or failed to be taken by governmental agencies having authority to  issue such permits, and (iii) opposition from third parties; |
|   |                                                                                                                                                                                                                                                                                                  |
| • | increased  cost of suitable development land; and                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                  |
| • | possible  liabilities relating to environmental laws or other applicable regulatory  provisions.                                                                                                                                                                                                      |

 

Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk

 

Market risk represents therisk of loss that may impact the financial position, results of operations orcash flows of the Company, due to adverse changes in financial and commoditymarket prices and interest rates.  TheCompany’s principal market risk exposure continues to be interest raterisk.  A majority of the Company’s debtis variable based on LIBOR and prime rate, and, therefore, affected by changesin market interest rates.  Based oncurrent operations, an increase / decrease in interest rates of 100 basispoints will result in a corresponding increase / decrease in cost of sales andinterest charges incurred by the Company of approximately $1,475,000 in afiscal year, a portion of which will be capitalized and included in cost ofsales as homes are delivered.  TheCompany believes that reasonably possible near-term interest rate changes willnot result in a material negative effect on future earnings, fair values orcash flows of the Company.  Generally, theCompany has been able to recover any increased costs of borrowing throughincreased selling prices however, there is no assurance the Company will beable to continue to increase selling prices to cover the effects of anyincrease in near-term interest rates.

 

Changes in the prices ofcommodities that are a significant component of home construction costs,particularly lumber, may result in unexpected short term increases inconstruction costs.  Since the salesprice of the Company's homes is fixed at the time a buyer enters into acontract to acquire a home and because the Company contracts to sell its homesbefore construction begins, any increase in costs in excess of thoseanticipated may result in lower gross margins for the homes in the Company's backlog.  The Company attempts to mitigate the marketrisks of price fluctuation of commodities by entering into fixed-pricecontracts with its subcontractors and material suppliers for a specified periodof time, generally commensurate with the building cycle.

 

There have been no materialadverse changes to the Company’s (1) exposure to risk and (2) management ofthese risks, since June 30, 2003.

 

26

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Item 6.                                                        Exhibitsand Reports on Form 8-K.

 

(a)                                                          Exhibits.

 
| 10.1**  |   | $39,040,921 Mortgage Note  dated November 7, 2003 by Orleans at Lambertville, LLC in favor of Wachovia  Bank, National Association.                                                                                             |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                            |
| 10.2**  |   | Construction Loan  Agreement dated November 7, 2003 by and between Wachovia Bank, National  Association and Orleans at Lambertville, LLC.                                                                                       |
|    |   |                                                                                                                                                                                                                            |
| 10.3**  |   | $17,500,000 Promissory  Note (Revolving Line of Credit) dated March 9, 2000 by Parker &  Lancaster Corporation in favor of Bank of America, N.A.                                                                  |
|    |   |                                                                                                                                                                                                                            |
| 10.4**  |   | Master Loan Agreement  dated March 9, 2000 by and between Parker & Lancaster Corporation and  Bank of America, N.A.                                                                                                         |
|    |   |                                                                                                                                                                                                                            |
| 10.5**  |   | First Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated May 30,  2001 by and among Parker & Lancaster Corporation, Parker Lancaster &  Orleans, Inc. and Bank of America, N.A.          |
|    |   |                                                                                                                                                                                                                            |
| 10.6**  |   | Second Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated October  25, 2002 by and among Parker & Lancaster Corporation, Parker Lancaster  & Orleans, Inc. and Bank of America, N.A.     |
|    |   |                                                                                                                                                                                                                            |
| 10.7**  |   | Third Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated  September 22, 2003 by and among Parker & Lancaster Corporation, Parker  Lancaster & Orleans, Inc. and Bank of America, N.A.    |
|    |   |                                                                                                                                                                                                                            |
| 10.8**  |   | Fourth Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated November  18, 2003 by and among Parker & Lancaster Corporation, Parker &  Orleans Homebuilders, Inc. and Bank of America, N.A. |
|    |   |                                                                                                                                                                                                                            |
| 10.9**  |   | Promissory Note  ($15,500,000 Revolving Line of Credit - Master) dated May 29, 1998  by Parker & Lancaster Corporation in favor of SouthTrust Bank N.A.                                                           |
|    |   |                                                                                                                                                                                                                            |
| 10.10** |   | $4,500,000 Credit Line  Deed of Trust Note dated May 29, 1998 by Parker & Lancaster Corporation  in favor of SouthTrust Bank, N.A.                                                                                          |
|    |   |                                                                                                                                                                                                                            |
| 10.11** |   | Loan Agreement  ($20,000,000 Revolving Line of Credit - Master) dated May 29, 1998  by and between Parker & Lancaster Corporation and SouthTrust Bank, N.A.                                                       |

 

27

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| 10.12** |   | First Loan Modification  Agreement (Master) dated November 4,1998  by and between Parker  & Lancaster Corporation and SouthTrust Bank, N.A.                                                                                                       |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                            |
| 10.13** |   | Second Loan Modification  Agreement (Master) dated November 30,1998  by and among Parker  & Lancaster Corporation, Troy A. Gambril, as Trustee and SouthTrust Bank,  N.A.                                                                         |
|    |   |                                                                                                                                                                                                                                                            |
| 10.14** |   | Third Loan Modification  Loan Agreement (Master) dated March 2, 1998  by and between Parker &  Lancaster Corporation and SouthTrust Bank, N.A.                                                                                                         |
|    |   |                                                                                                                                                                                                                                                            |
| 10.15** |   | Extension Agreement  (Master) dated November 22, 1999 by and between Parker & Lancaster  Corporation and SouthTrust Bank, N.A.                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                            |
| 10.16** |   | Fourth Loan Modification  Agreement (Master) dated December 21, 1999 by and among Parker  & Lancaster Corporation, Troy A. Gambril, as Trustee and SouthTrust Bank,  N.A.                                                                         |
|    |   |                                                                                                                                                                                                                                                            |
| 10.17** |   | Loan Modification  Agreement (Master Line) dated October 12, 2000 by and among Parker &  Lancaster Corporation, J. Russell Parker, III, Barbara H. Parker, and  SouthTrust Bank, N.A.                                                                       |
|    |   |                                                                                                                                                                                                                                                            |
| 10.18** |   | Loan Modification  Agreement (Master) dated November 6, 2000 by and among Parker & Lancaster  Corporation, Orleans Homebuilders, Inc. and SouthTrust Bank.                                                                                                  |
|    |   |                                                                                                                                                                                                                                                            |
| 10.19** |   | Loan  Assumption/Modification Agreement (Master Line) dated  February 26, 2001 by and among Parker & Lancaster Corporation,  Parker Lancaster & Orleans, Inc., Orleans Homebuilders, Inc., Troy A.  Gambril, as Trustee and SouthTrust Bank.  |
|    |   |                                                                                                                                                                                                                                                            |
| 10.20** |   | Modification Agreement  (Master Line) dated March 9, 2001 by and among Parker & Lancaster  Corporation, Parker Lancaster & Orleans, Inc., Orleans Homebuilders,  Inc., Troy A. Gambril, as Trustee and SouthTrust Bank.                                 |
|    |   |                                                                                                                                                                                                                                                            |
| 10.21** |   | Modification Agreement  (Master Line) dated May 31, 2001 by and among Parker & Lancaster  Corporation, Parker Lancaster & Orleans, Inc., Orleans Homebuilders, Inc.  and SouthTrust Bank.                                                               |
|    |   |                                                                                                                                                                                                                                                            |
| 10.22** |   | Fifth Modification  Agreement and Substitution of Trustee dated June 15, 2001 by and  among Parker & Lancaster Corporation, Parker Lancaster & Orleans,  Inc., Orleans Homebuilders, Inc., J. Cleve Barrett, as Trustee and SouthTrust  Bank. |
|    |   |                                                                                                                                                                                                                                                            |
| 10.23** |   | Sixth Loan Modification  Agreement (Master Line) dated March 8, 2002 by and among Parker  & Lancaster Corporation, Parker Lancaster & Orleans, Inc., Orleans  Homebuilders, Inc., J. Cleve Barrett,                                           |

 

28

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|    |   | as Trustee and SouthTrust  Bank.                                                                                                                                                                                                         |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                     |
| 10.24** |   | Loan Modification  Agreement (Master Line) dated November 11, 2003 by and among Parker &  Lancaster Corporation, Parker Lancaster & Orleans, Inc., Orleans  Homebuilders, Inc., and SouthTrust Bank.                             |
|    |   |                                                                                                                                                                                                                                     |
| 31.1*   |   | Certification of Jeffrey  P. Orleans pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                          |
|    |   |                                                                                                                                                                                                                                     |
| 31.2*   |   | Certification of Michael  T. Vesey pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                     |
| 31.3*   |   | Certification of Joseph A.  Santangelo pursuant to Section 302 Sarbanes-Oxley Act of 2002.                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                     |
| 32.1*   |   | Certification of Jeffrey  P. Orleans pursuant to Section 906 Sarbanes-Oxley Act of 2002.                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                     |
| 32.2*   |   | Certification of Michael  T. Vesey pursuant to Section 906 Sarbanes-Oxley Act of 2002.                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                     |
| 32.3*   |   | Certification of Joseph A.  Santangelo pursuant to Section 906 Sarbanes-Oxley Act of 2002.                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                     |
| 99.1    |   | Press Release Announcing  Results of Operations for the Three and Six Months Ending December 31, 2003  (incorporated by reference to Exhibit 99.1 to the Company’s Quarterly on Form  10-Q for the period ended December 31, 2003). |

 

----

*                                         Exhibits filed herewithelectronically.

 

**                                  Incorporated byreference to Exhibits 10.8 through 10.31, respectively, to the Company’sRegistration Statement, Amendment No. 2, filed with Securities and ExchangeCommission on March 1, 2004; Registration Statement No. 333-111916.

 

29

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SIGNATURES

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|           |   | ORLEANS  HOMEBUILDERS, INC. |
|----------------|--------|-----------------------------|
|           |   | (Registrant)                |
|           |   |                        |
| March  1, 2004 | By:    | Joseph A. Santangelo        |   |
|           |   | Joseph A. Santangelo        |
|           |   | Chief Financial Officer     |

 

30

----

 

**EXHIBITINDEX**

 
| 10.1**  |   | $39,040,921 Mortgage Note  dated November 7, 2003 by Orleans at Lambertville, LLC in favor of Wachovia  Bank, National Association.                                                                                                                             |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                            |
| 10.2**  |   | Construction Loan  Agreement dated November 7, 2003 by and between Wachovia Bank, National  Association and Orleans at Lambertville, LLC.                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                            |
| 10.3**  |   | $17,500,000 Promissory  Note (Revolving Line of Credit) dated March 9, 2000 by Parker &  Lancaster Corporation in favor of Bank of America, N.A.                                                                                                  |
|    |   |                                                                                                                                                                                                                                                            |
| 10.4**  |   | Master Loan Agreement  dated March 9, 2000 by and between Parker & Lancaster Corporation and  Bank of America, N.A.                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                            |
| 10.5**  |   | First Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated May 30,  2001 by and among Parker & Lancaster Corporation, Parker Lancaster &  Orleans, Inc. and Bank of America, N.A.                                          |
|    |   |                                                                                                                                                                                                                                                            |
| 10.6**  |   | Second Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated October  25, 2002 by and among Parker & Lancaster Corporation, Parker Lancaster  & Orleans, Inc. and Bank of America, N.A.                                     |
|    |   |                                                                                                                                                                                                                                                            |
| 10.7**  |   | Third Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated  September 22, 2003 by and among Parker & Lancaster Corporation, Parker  Lancaster & Orleans, Inc. and Bank of America, N.A.                                    |
|    |   |                                                                                                                                                                                                                                                            |
| 10.8**  |   | Fourth Allonge and  Modification to Master Loan Agreement and Other Loan Documents dated November  18, 2003 by and among Parker & Lancaster Corporation, Parker &  Orleans Homebuilders, Inc. and Bank of America, N.A.                                 |
|    |   |                                                                                                                                                                                                                                                            |
| 10.9**  |   | Promissory Note  ($15,500,000 Revolving Line of Credit - Master) dated May 29, 1998  by Parker & Lancaster Corporation in favor of SouthTrust Bank N.A.                                                                                           |
|    |   |                                                                                                                                                                                                                                                            |
| 10.10** |   | $4,500,000 Credit Line  Deed of Trust Note dated May 29, 1998 by Parker & Lancaster Corporation  in favor of SouthTrust Bank, N.A.                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                            |
| 10.11** |   | Loan Agreement  ($20,000,000 Revolving Line of Credit - Master) dated May 29, 1998  by and between Parker & Lancaster Corporation and SouthTrust Bank, N.A.                                                                                       |
|    |   |                                                                                                                                                                                                                                                            |
| 10.12** |   | First Loan Modification  Agreement (Master) dated November 4,1998  by and between Parker  & Lancaster Corporation and SouthTrust Bank, N.A.                                                                                                       |
|    |   |                                                                                                                                                                                                                                                            |
| 10.13** |   | Second Loan Modification  Agreement (Master) dated November 30, 1998  by and among Parker  & Lancaster Corporation, Troy A. Gambril, as Trustee and SouthTrust Bank,  N.A.                                                                        |
|    |   |                                                                                                                                                                                                                                                            |
| 10.14** |   | Third Loan Modification  Loan Agreement (Master) dated March 2, 1998  by and between Parker &  Lancaster Corporation and SouthTrust Bank, N.A.                                                                                                         |
|    |   |                                                                                                                                                                                                                                                            |
| 10.15** |   | Extension Agreement  (Master) dated November 22, 1999 by and between Parker & Lancaster  Corporation and SouthTrust Bank, N.A.                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                            |
| 10.16** |   | Fourth Loan Modification  Agreement (Master) dated December 21, 1999 by and among Parker  & Lancaster Corporation, Troy A. Gambril, as Trustee and SouthTrust Bank,  N.A.                                                                         |
|    |   |                                                                                                                                                                                                                                                            |
| 10.17** |   | Loan Modification  Agreement (Master Line) dated October 12, 2000 by and among Parker &  Lancaster Corporation, J. Russell Parker, III, Barbara H. Parker and  SouthTrust Bank, N.A.                                                                        |
|    |   |                                                                                                                                                                                                                                                            |
| 10.18** |   | Loan Modification  Agreement (Master) dated November 6, 2000 by and among Parker & Lancaster  Corporation, Orleans Homebuilders, Inc. and SouthTrust Bank.                                                                                                  |
|    |   |                                                                                                                                                                                                                                                            |
| 10.19** |   | Loan  Assumption/Modification Agreement (Master Line) dated  February 26, 2001 by and among Parker & Lancaster Corporation,  Parker Lancaster & Orleans, Inc., Orleans Homebuilders, Inc., Troy A.  Gambril, as Trustee and SouthTrust Bank.  |
|    |   |                                                                                                                                                                                                                                                            |
| 10.20** |   | Modification Agreement  (Master Line) dated March 9, 2001 by and among Parker & Lancaster  Corporation, Parker Lancaster & Orleans, Inc., Orleans Homebuilders,  Inc., Troy A. Gambril, as Trustee and SouthTrust Bank.                                 |
|    |   |                                                                                                                                                                                                                                                            |
| 10.21** |   | Modification Agreement  (Master Line) dated May 31, 2001 by and among Parker & Lancaster  Corporation, Parker Lancaster & Orleans, Inc., Orleans Homebuilders, Inc.  and SouthTrust Bank.                                                               |
|    |   |                                                                                                                                                                                                                                                            |
| 10.22** |   | Fifth Modification  Agreement and Substitution of Trustee dated June 15, 2001 by and  among Parker & Lancaster Corporation, Parker Lancaster & Orleans,  Inc., Orleans Homebuilders, Inc., J. Cleve Barrett, as Trustee and SouthTrust  Bank. |
|    |   |                                                                                                                                                                                                                                                            |
| 10.23** |   | Sixth Loan Modification  Agreement (Master Line) dated March 8, 2002 by and among Parker  & Lancaster Corporation, Parker Lancaster & Orleans, Inc., Orleans  Homebuilders, Inc., J. Cleve Barrett, as Trustee and SouthTrust Bank.           |

 

1

----

 
| 10.24** |   | Loan Modification  Agreement (Master Line) dated November 11, 2003 by and among Parker &  Lancaster Corporation, Parker Lancaster & Orleans, Inc., Orleans  Homebuilders, Inc., and SouthTrust Bank.                                                                  |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                          |
| 31.1*   |   | Certification  of Jeffrey P. Orleans pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                          |
| 31.2*   |   | Certification  of Michael T. Vesey pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                          |
| 31.3*   |   | Certification  of Joseph A. Santangelo pursuant to Section 302 Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                          |
| 32.1*   |   | Certification  of Jeffrey P. Orleans pursuant to Section 906 Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                          |
| 32.2*   |   | Certification  of Michael T. Vesey pursuant to Section 906 Sarbanes-Oxley Act of 2002.                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                          |
| 32.3*   |   | Certification  of Joseph A. Santangelo pursuant to Section 906 Sarbanes-Oxley Act of 2002.                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                          |
| 99.1    |   | Press  Release Announcing Results of Operations for the Three and Six Months Ending  December 31, 2003 (incorporated by reference to Exhibit 99.1 to the Company’s  Current Report on Form 8-K filed with the Securities and Exchange Commission  on February 11, 2004). |

 

----

*                                         Exhibits filed herewithelectronically.

 

**                                  Incorporated byreference to the Company’s Registration Statement, Amendment No. 2, filed withSecurities and Exchange Commission on March 1, 2004; Registration Statement No.333-111916.

 

2

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