We are well aware that the housing market has continued its down turn during fiscal year 2008. The economy is fragile, the capital markets and financial institutions are challenged and, media coverage has continued to negatively impact home buyers' psyche.

Our Company has not been immune to this down turn as we have experienced reductions in deliveries, new orders and backlog for the year. However, the Company responded well to the daunting challenges that were faced and remains focused on our strategic objectives. Ultimately, a market recovery will depend on improved consumer confidence and employment, supported by a stabilized capital markets environment.

OPERATIONAL AND FINANCIAL OVERVIEW

In anticipation of the continued softening of buyer demand, our Company has refocused our operations by targeting home buyers with smaller, more value-oriented single family home designs. In addition, we have expanded our offerings of our multi-family product as a means of providing more affordable homes.

In December 2007, we completed our portfolio optimization strategy. This strategy included the disposal of underperforming communities in order to reduce debt and cut costs. The strategy also resulted in significant tax refunds. It resulted in the disposal of approximately 1,400 lots in ten transactions; approximately 94% were located in Florida, Arizona and the Illinois markets. The transactions resulted in approximately $35 million of cash proceeds and over $34 million of related tax refunds. The sale also facilitated cost reductions as we eliminated operations in Phoenix, Arizona, while significantly curtailing our operations in Florida and significantly reducing exposure in Chicago, Illinois. We have remained focused on improving operational efficiencies and achieving cost reductions:

• Since the 2005/2006 peak, we have reduced our lot count by 57%
• Spec inventory levels at June 2008 have been reduced to approximately 219 units (2.4 specs per community) as compared to 274 units on June 30, 2007 and 509 units at September 30, 2006, or a reduction of 20% and 57%, respectively
• Headcount has been reduced by over 50% since our peak in 2006. This includes a 14% reduction in January 2008, as well as an additional 10% reduction in August 2008

• 85% of our fiscal year residential revenues
• 90% of our backlog
• 88% of our owned lots

Our consolidated fiscal 2008 highlights include: Total revenue of $583 million Residential revenue of $562 million - down 13% Deliveries of 1,262 homes - down 15% Backlog of $238 million (486 homes) - down 25% Fiscal year net orders of $483 million (1,139 homes) - down 24% Fiscal year cancellation rate of 26% The consolidated results for fiscal year 2008 resulted in a net loss of $7.78 per diluted share ($143 million), which included $133 million net of tax related to charges for inventory impairments, write-offs of abandoned projects and other preacquisition costs, severance costs and discontinued operations. Excluding these charges, fiscal year 2008 would have resulted in a net loss of $10 million ($0.57 per diluted share).

While the challenging mortgage market continues to generally affect our buyers, our customers tend to have strong credit profiles with limited exposure to the subprime mortgage market.

STRATEGIC OBJECTIVES - View Graphs >>

We continue to measure ourselves on four key objectives: liquidity, capital structure, balance sheet and cost structure. We continue to achieve positive results on each of these objectives.

• Liquidity. In fiscal year 2008, we reduced our net bank debt by $119 million, while our liquidity remained strong at June 30, 2008. In the last six quarters, we have reduced our net debt by approximately $174 million, or 30% of the net debt on January 1, 2008. We remain cautious with our liquidity, as continued negative order trends could reduce our liquidity levels. We remain focused on identifying means to maintain our liquidity.
• Capital Structure. We completed bank amendments to our credit facility during the year that have provided us with the flexibility to complete our "portfolio optimization" strategy, as well as provide additional flexibility for fiscal year 2009.
• Balance Sheet. We have reduced our overall lot count and have kept our spec inventory levels under control. We refocused our land portfolio by reducing our exposure in Florida, Arizona and Illinois. This repositioning has allowed us to concentrate our resources on our core Northern and Southern regions.
• Cost Structure. We have reduced our cost structure through headcount reductions, a focus on cycle time and other savings initiatives. We continue to seek ways to further reduce our cost structure while maintaining the high-quality of our homes.

Calendar 2008 is our 90th year in the housing industry. We are extremely proud of that long history. My own 40+ years in the Company have been enormously gratifying. I am indebted to our strong, loyal and experienced management team and confident that we have the necessary pieces in place to guide us through this difficult period.

The past few years have been unusually challenging both for our Company and for the industry as a whole. While the present downward trend may continue in the near-term, I believe that there is an increasingly pent-up demand for new houses in the areas in which we build. We know that the housing market will ultimately improve. We remain confident in our long-term opportunities with the belief that obstacles can become gateways to success, and the night is darkest right before the dawn.

Sincerely,
Jeffrey P. Orleans
Chairman of the Board