Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW:

Homebuilding: We design, sell and build single-family homes in the following geographic regions:

Southeast	West	Central	Mid-Atlantic	Midwest
Florida	Arizona	Texas	Maryland / Delaware	Indiana
Georgia	California		New Jersey	Kentucky
Mississippi	Colorado		New York	Ohio
North Carolina	Nevada		Pennsylvania
South Carolina	New Mexico		Virginia / West Virginia
Tennessee

We intend, subject to market conditions, to expand in our current markets through focused product expansion and price point diversification and to consider entering new markets either through expansion from existing markets or through acquisitions of established homebuilders. Our business strategy emphasizes further increasing our market penetration in those markets in which we currently operate most profitably, while continuously reviewing opportunities to curtail or limit investment in less profitable markets.

Our homes are designed to appeal to homeowners at various price points across various demographic segments, and are generally offered for sale in advance of their construction. Our objective is to provide our customers at each price-point with homes that incorporate exceptional value and quality while seeking to maximize our return on invested capital. To achieve this objective, we have developed a business strategy which focuses on geographic diversity and growth markets, leveraging our national brand, leveraging our size, scale and capabilities in order to optimize efficiencies and providing quality homes at various price points to meet the needs of diverse home buyers.

Our product strategy entails addressing the needs of an increasingly diverse profile of buyers as evidenced by demographic trends including, among others, increased immigration, changing profiles of households, the aging of the baby-boomers, and the rise of the echo-boomers (children of the baby-boomers) into the ranks of homeownership. Our product offering is broken down into three product categories: economy, value and style.

In addition, we also offer homes in all three categories to the ‘active adult’ segment which are targeted to buyers over 55 years of age, in communities with special amenities. Within each product category, we seek to provide exceptional value and to ensure an enjoyable customer experience.

Seasonal and Quarterly Variability: Our homebuilding operating cycle generally reflects escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters.

Financial Services: Recognizing the homebuyer’s desire to simplify the financing process, we originate mortgages on behalf of our customers through our subsidiary Beazer Mortgage Corporation, or Beazer Mortgage. Beazer Mortgage originates, processes and brokers mortgages to third party investors. Beginning in the second quarter of fiscal year 2006, Beazer Mortgage financed certain of our mortgage lending activities under its warehouse line of credit or from general corporate funds prior to selling the loans and their servicing rights to third-party investors.

Additional Products and Services for Homebuyers: In order to maximize our profitability and provide our customers with the additional products and services that they desire, we have incorporated design centers into our business. Recognizing that our customers want to choose certain components of their new home, we offer limited customization through the use of design studios in most of our markets. These design studios allow the customer to select certain non-structural customizations for their homes such as cabinetry, flooring, fixtures, appliances and wall coverings. We also provide title services to our customers in many of our markets.

Recent Accounting Pronouncements: In December 2004, the FASB issued SFAS 123R, Share Based Payment, which we adopted in the first quarter of fiscal 2006. This statement eliminated the ability to account for share-based compensation transactions using APB Opinion 25, Accounting for Stock Issued to Employees , and requires instead that compensation expense be recognized based on the fair value on the date of the grant. The recognition of compensation expense for stock options reduced net income by approximately $1.1 million and $1.8 million for the quarter and six months ended March 31, 2006, respectively. We elected the modified prospective method for our adoption of SFAS 123R. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as both a financing cash flow and an operating cash outflow. This requirement reduced net operating cash flows and increased net financing cash flows beginning with its adoption in the quarter ended December 31, 2005.

RESULTS OF OPERATIONS:

The following presents certain operating and financial data for Beazer Homes by region (dollars in thousands):

Three Months Ended March 31,

Six Months Ended March 31,

2006

Change

2005

2006

Change

2005

Total homebuilding revenue:

Southeast

362,947

50.7

240,893

692,926

45.2

477,151

West

503,337

11.1

452,888

910,826

4.6

870,377

Central

61,416

42.6

43,076

114,202

52.4

74,919

Mid-Atlantic

233,108

48.0

157,514

432,614

51.2

286,185

Midwest

88,783

34.2

66,167

172,450

11.4

154,780

Total

1,249,591

30.1

960,538

2,323,018

24.7

1,863,412

Three Months Ended

Six Months Ended

March 31,

2006

Change

2005

2006

Change

2005

Number of new orders, net of cancellations:

Southeast

1,616

(5.0

1,701

3,180

10.0

2,892

West

1,035

(46.3

)

1,927

2,241

(31.2

)

3,256

Central

518

27.6

406

875

36.1

643

Mid-Atlantic

517

(7.8

)

561

800

(25.1

)

1,068

Midwest

538

(16.5

)

644

1,000

8.1

925

Total

4,224

(19.4

)

5,239

8,096

(7.8

)

8,784

Number of closings

Southeast

1,491

24.7

1,196

2,874

18.0

2,435

West

1,356

(0.1

)

1,358

2,496

(2.1

)

2,550

Central

371

39.0

267

707

54.7

457

Mid-Atlantic

502

37.2

366

955

29.8

736

Midwest

553

33.3

415

1,070

7.2

998

Total

4,273

18.6

3,602

8,102

12.9

7,176

Average sales price per home closed

Southeast

243.4

20.9

201.4

241.1

23.0

196.0

West

371.2

11.3

333.5

364.9

6.9

341.3

Central

165.5

2.6

161.3

161.5

(1.5

)

163.9

Mid-Atlantic

464.4

7.9

430.4

453.0

16.5

388.8

Midwest

160.5

0.7

159.4

161.2

3.9

155.1

Company average

292.4

9.6

266.7

286.7

10.4

259.7

	As of March 31,
	2006	Change		2005
Backlog units:
Southeast	3,380	9.5	%	3,086
West	2,862	(25.6	)	3,846
Central	683	11.1		615
Mid-Atlantic	1,038	(24.7	)	1,379
Midwest	1,264	11.1		1,138
Total	9,227	(8.3	)	10,064

Aggregate sales value of homes in backlog as of:
March 31, 2006	$	2,793,519
March 31, 2005	$	2,898,247

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2006			2005			2006			2005
Revenues:
Homebuilding (a)	$	1,239,859		$	960,538		$	2,313,286		$	1,863,412
Land and lot	20,596			7,763			45,551			8,978
Mortgage origination	13,135			11,310			24,113			22,164
Intercompany elimination - mortgage	(4,499		)	(3,363		)	(8,243		)	(6,479		)
Total	$	1,269,091		$	976,248		$	2,374,707		$	1,888,075

Gross profit
Homebuilding	$	299,226		$	166,083		$	561,376		$	370,658
Land and lot	2,134			2,798			1,836			2,841
Mortgage origination	13,135			11,310			24,113			22,164
Total	$	314,495		$	180,191		$	587,325		$	395,663

Selling, general and administrative (SG&A) expenses:
Homebuilding	$	139,605		$	99,436		$	262,000		$	196,249
Mortgage origination	10,188			8,634			20,871			16,415
Total	$	149,793		$	108,070		$	282,871		$	212,664

As a percentage of total revenue:

Gross profit	24.8		%	18.5		%	24.7		%	21.0		%

SG&A - homebuilding	11.0		%	10.2		%	11.0		%	10.4		%
SG&A - mortgage origination	0.8		%	0.9		%	0.9		%	0.9		%

As a percentage of homebuilding revenue:
Gross profit - homebuilding	24.1		%	17.3		%	24.3		%	19.9		%

(a) Homebuilding revenues for the three and six months ended March 31, 2006 exclude $9.7 million of revenue deferred in accordance with SFAS 66 for certain homes with mortgages originated by Beazer Mortgage for which the sale of the related mortgage loan to a third-party investor had not been completed as of March 31, 2006.

Revenues: Revenues increased by 30.0% for the three months ended March 31, 2006 compared to the same period in the prior year as the number of homes closed and the average sales price of homes closed increased by 18.6% and 9.6%, respectively. Home closings increased in our Central, Mid-Atlantic and Midwest regions, in the majority of our Southeast markets and in Arizona and Nevada in our West region. These increases were partially offset by declines in closings in certain of our California markets in our West region. Prior quarter community opening delays and moderation of demand compared to last year contributed to decreased closings in California. Average sales price increased in most of our regions due to product mix and continued constraints on the supply of available housing in many of our markets. Prices increased most significantly in our Southeast region.

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2006		2005		2006		2005
Effective tax rate	37.37	%	(49.61	)%	37.50	%	125.70	%
Impact of non-cash, non-deductible goodwill impairment	—		87.48	%	—		(87.45	)%
Adjusted effective tax rate	37.37	%	37.87	%	37.50	%	38.25	%

The adjusted effective tax rate presented above is a non-GAAP financial measure. Management believes that this non-GAAP measure is useful to both management and investors in the analysis of the Company’s financial performance when comparing it to prior periods and that it provides investors with an important perspective on the current underlying effective tax rate of the business by isolating the impact of the non-cash, non-tax deductible goodwill impairment charge. The decrease in adjusted effective tax rate between years is primarily due to changes in income concentrations in the various states and the timing of certain state tax initiatives. The principal difference between our effective rate and the U.S. federal statutory rate is due to state income taxes incurred.

FINANCIAL CONDITION AND LIQUIDITY:

Our sources of cash liquidity include, but are not limited to, cash from operations, amounts available under our revolving credit facility, proceeds from senior notes and other bank borrowings, the issuance of equity securities and other external sources of funds. Our short-term and long-term liquidity depend primarily upon our level of net income, working capital management (accounts receivable, accounts payable and other liabilities) and bank borrowings. We believe that available short-term and long-term capital resources are sufficient to fund capital expenditures and working capital requirements, scheduled debt and dividend payments, and interest and tax obligations for the next twelve months. However, any material variance of our operating results or land acquisitions from our projections or investments in or acquisitions of businesses, could require us to obtain additional equity or debt financing. We plan to use cash generated to invest in growing the business, to fund land acquisitions and operations, pay dividends and to repurchase our common stock. We have targeted using $200-$250 million for repurchases of our common stock in fiscal 2006, subject to market conditions and other factors. We will fund this share repurchase program (discussed further below) by limiting or curtailing operations in underperforming markets, reinvesting in higher margin markets and accelerating cash generation through increased profitability. During the quarter, we formally curtailed operations in Memphis, Tennessee and certain Indiana sub-markets, with the expectation of redeploying capital related to these operations into higher returning opportunities prospectively.

At March 31, 2006, we had cash of $15.2 million, compared to $297.1 million at September 30, 2005. The decrease in cash was primarily due to fiscal year-to-date stock repurchases of approximately $133.2 million and the increase in inventory related to an increased land bank. Our net cash used in operating activities for the six months ended March 31, 2006 was $345.7 million compared to $251.4 million in the same period of fiscal 2005, as increased inventory supply and options for future growth and payments of income taxes and incentive compensation more than offset increased net income.

Net cash used in investing activities was $41.1 million for the six months ended March 31, 2006 compared to $39.8 million for the same period of fiscal 2005, as we invested in unconsolidated joint ventures to support our land acquisition strategy. Net cash provided by financing activities was $104.9 million for the six months ended

March 31, 2006 as increased book overdrafts and net borrowings under our Revolving Credit Facility and warehouse line of credit more than offset $133.2 million of common stock repurchases. Net cash used in financing activities of $13.7 million for the six months ended March 31, 2005 related primarily to dividend and other debt repayments.

At March 31, 2006 we had the following borrowings (in thousands) :

	Maturity Date	Amount
Warehouse Line	January 2007	$	28,057
Revolving Credit Facility	August 2009	136,600
8 5/8% Senior Notes*	May 2011	200,000
8 3/8% Senior Notes*	April 2012	350,000
6 1/2% Senior Notes*	November 2013	200,000
6 7/8% Senior Notes*	July 2015	350,000
4 5/8% Convertible Senior Notes*	June 2024	180,000
Other Notes Payable	Various Dates	73,295
Unamortized debt discounts		(3,883		)
Total		$	1,514,069

*Collectively, the “Senior Notes”

Warehouse Line: Effective January 11, 2006, Beazer Mortgage entered into a 364-day credit agreement with a number of banks to fund the origination of residential mortgage loans (the “Warehouse Line”). The Warehouse Line provides for a maximum available borrowing capacity of $250 million to $350 million based on commitment periods as defined in the Warehouse Line and is secured by certain mortgage loan sales and related property. The Warehouse Line is not guaranteed by Beazer Homes USA, Inc. or any of its subsidiaries that are guarantors of the Senior Notes or Revolving Credit Facility. Beginning in the current quarter, Beazer Mortgage finances certain of its mortgage lending activities with borrowings under the Warehouse Line. Beazer Mortgage had a pipeline of loans in process of $1.6 billion, and borrowings under the Warehouse Line were $28.1 million as of March 31, 2006 which may be financed either through the Warehouse Line or third party investors.

The Warehouse Line contains various operating and financial covenants. The Company was in compliance with such covenants at March 31, 2006.

Revolving Credit Facility: In August 2005 we entered into a new $750 million (expandable up to $1 billion), four-year unsecured revolving credit facility (the “Revolving Credit Facility”) with a group of banks, which matures in August 2009. The Revolving Credit Facility replaced our former $550 million revolving credit facility and $200 million term loan. The Revolving Credit Facility includes a $50 million swing line commitment and has a $350 million sublimit for the issuance of standby letters of credit. Substantially all of the Company’s significant subsidiaries are guarantors of the obligations under the Revolving Credit Facility (see Note 11 of the Unaudited Condensed Consolidated Financial Statements). The Revolving Credit Facility contains various operating and financial covenants. The Company was in compliance with such covenants at March 31, 2006. The Company has the option to elect two types of loans under the Revolving Credit Facility which incur interest as applicable based on either the Alternative Base Rate or the Applicable Eurodollar Margin (both as defined in the Revolving Credit Facility).

Available borrowings under the Revolving Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots, lots under development, raw land and accounts receivable. At March 31, 2006, we had $136.6 million of borrowings outstanding, and had available borrowings of $481.6 million under the Revolving Credit Facility. The borrowings outstanding under the Revolving Credit Facility bore interest at 5.78% as of March 31, 2006. There were no borrowings outstanding under the Revolving Credit Facility at September 30, 2005.

Senior Notes: The Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and our obligations under the Revolving Credit Facility, and are jointly and severally liable for obligations under the Senior Notes, and the Revolving Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.

The indentures under which the Senior Notes were issued contain certain restrictive covenants, including limitations on payment of dividends. At March 31, 2006, under the most restrictive covenants of each indenture, approximately $221.3 million of our retained earnings was available for cash dividends and for share repurchases. Each indenture provides that, in the event of defined changes in control or if our consolidated tangible net worth falls below a specified level or in certain circumstances upon a sale of assets, we are required to offer to repurchase certain specified amounts of outstanding Senior Notes.

We periodically acquire land through the issuance of notes payable. As of March 31, 2006 and September 30, 2005, we had outstanding notes payable of $73.3 million and $46.1 million related to land acquisitions and development, respectively. These notes payable mature at various times through 2010 at variable rates ranging from 5.0% to 10.3% at March 31, 2006.

The following table illustrates changes to our contractual obligations related to debt as of March 31, 2006 due to the new Warehouse Line and additional notes entered into by the Company :

	Payments Due by Period (in Thousands)
			Less than 1						More than 5
	Total		year		1-3 years		3-5 years		years
Senior Notes, Revolving Credit Facility, Warehouse Line and Other Notes Payable	$	1,517,952	$	51,081	$	49,901	$	136,970	$	1,280,000
Interest commitments under interest bearing notes	791,476		112,863		208,753		187,991		281,869
Total contractual cash obligations relating to debt	$	2,309,428	$	163,944	$	258,654	$	324,961	$	1,561,869

Our long-term debt and other contractual obligations (principally operating leases) are further described in notes 7, 8 and 10 to our Consolidated Financial Statements which appear in our Annual Report on Form 10-K for the year ended September 30, 2005.

On November 18, 2005, as part of an acceleration of Beazer’s comprehensive plan to enhance stockholder value, the Company’s Board of Directors authorized an increase in the Company’s stock repurchase plan to ten million shares of the Company’s common stock. The Company has entered into a plan under Rule 10b5-1 of the Securities Act of 1934 to execute a portion of the share repurchase program, and may also make opportunistic purchases in the open market or in privately negotiated transactions. During the six months ended March 31, 2006, the Company repurchased 2,021,800 shares for an aggregate purchase price of $133.2 million or approximately $66 per share pursuant to the plan.

We believe that our cash and cash equivalents on hand and current borrowing capacity, together with anticipated cash flows from operations, is sufficient to meet liquidity needs for the foreseeable future. There can be no assurance, however, that amounts available in the future from our sources of liquidity will be sufficient to meet future capital needs. The amount and types of indebtedness that we may incur may be limited by the terms of the indentures governing our Senior Notes and our Revolving Credit Facility. We may consider expansion opportunities through acquisition of established regional homebuilders and such opportunities could require us to seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financing and/or securities offerings.

OFF-BALANCE SHEET ARRANGEMENTS:

We acquire certain lots by means of option contracts. Option contracts generally require the payment of cash for the right to acquire lots during a specified period of time at a certain price and the purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our obligation with respect to options with specific performance provisions is included on our consolidated balance sheets in other liabilities. Under option contracts without specific performance obligations, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $351.8 million at March 31, 2006. This amount includes letters of credit of approximately $55.6 million. As of March 31, 2006, the aggregate exercise price of our option contracts, net of cash deposits, was approximately $3.1 billion.

We expect, subject to market conditions, to exercise substantially all of our option contracts. We have historically funded the exercise of land options through a combination of operating cash flows and borrowings under our Revolving Credit Facility. We expect these sources to continue to be adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the exercise of our land options will have a material adverse effect on our liquidity.

Certain of our option contracts are with sellers who are deemed to be Variable Interest Entities (“VIE”s) under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). We have determined that we are the primary beneficiary of certain of these option contracts. Our risk is generally limited to the option deposits that we pay, and creditors of the sellers generally have no recourse to the general credit of the Company. Although we do not have legal title to the optioned land, for those option contracts for which we are the primary beneficiary, we are required to consolidate the land under option at fair value. We believe that the exercise prices of our option contracts approximate their fair value. Our consolidated balance sheets at March 31, 2006 and September 30, 2005 reflect consolidated inventory not owned of $336.5 million and $230.1 million, respectively. Obligations related to consolidated inventory not owned totaled $244.4 million at March 31, 2006 and $166.2 million at September 30, 2005. The difference between the balances of consolidated inventory not owned and obligations related to consolidated inventory not owned represents cash deposits paid under the option agreements.

We participate in a number of land development joint ventures in which we have less than a controlling interest. We enter into joint ventures in order to acquire attractive land positions, to manage our risk profile and to leverage our capital base. Our joint ventures are typically entered into with developers, other homebuilders and financial partners to develop finished lots for sale to the joint venture’s members and other third parties. We

account for our interest in these joint ventures under the equity method. Our consolidated balance sheets include investments in joint ventures totaling $114.6 million and $78.6 million at March 31, 2006 and September 30, 2005 respectively.

Our joint ventures typically obtain secured acquisition and development financing. In some instances, we and our joint venture partners have provided varying levels of guarantees of debt of our unconsolidated joint ventures. At March 31, 2006, we had a repayment guarantee of $10.7 million related to our portion of debt of one of our unconsolidated joint ventures and loan-to-value maintenance guarantees of $32.9 million related to certain of our unconsolidated joint ventures (see Note 4 to the Condensed Consolidated Financial Statements for additional information regarding our joint ventures and related guarantees).

There have been no material changes to our aggregate contractual commitments as disclosed in our Annual Report on Form 10-K for the year ended September 30, 2005.

CRITICAL ACCOUNTING POLICIES:

As discussed in our annual report on Form 10-K for the fiscal year ended September 30, 2005, s ome of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters and relate to inventory valuation, goodwill, homebuilding revenues and costs and warranty reserves. Although our accounting policies are in compliance with accounting principles generally accepted in the United States of America, a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. There have been no material changes to the assumptions and estimates related to these critical accounting policies other than those related to revenue recognition and our accounting for stock-based compensation.

Revenue and related profit are generally recognized at the time of the closing of a sale, when title to and possession of the property are transferred to the buyer. In situations where the buyer’s financing is originated by Beazer Mortgage, our wholly-owned mortgage subsidiary, and the buyer has not made a sufficient down payment as prescribed by SFAS No. 66, the gross profit on such sales is deferred until the sale of the related mortgage loan to a third-party investor has been completed. We recognize loan origination fees and expenses and gains and losses on mortgage loans when the related loans are sold.

Effective October 1, 2005, we adopted the provision of SFAS 123R , which requires that compensation expense be recognized based on the fair value on the date of the grant. We calculate the fair value of stock options using the Black-Scholes pricing model and the fair value of performance-based share awards using the Monte Carlo valuation method. Determining the fair value of share-based awards at the grant date requires judgment in developing assumptions, which include, but are not limited to, estimated forfeiture rates, expected stock price volatility over the term of the awards, expected dividend yield and expected stock option exercise behavior. Prior to October 1, 2005, we accounted for stock option grants in accordance with APB 25 and recognized no compensation expense for stock options since the exercise price of the options was equal to the market value of the underlying stock on the date of grant. For the six months ended March 31, 2006, the recognition of compensation expense for stock options reduced net income by approximately $1.8 million.

OUTLOOK:

The current sales environment in many markets is more difficult than previously anticipated. In addition, as we proactively optimize our capital base and are exiting those markets and selling certain land positions returning less than our overall cost of capital, we do incur some incremental period costs. As such, we now have broadened our range for fiscal 2006 diluted earnings per share to $10.00 - $10.50 per share to explicitly address these factors. This represents growth over adjusted 2005 earnings per share of $8.72 of 15-20%. This outlook assumes no further deterioration in new order trends during the remaining spring and summer months of this year.

We remain committed to our stated goal of enhancing margins and profitability by executing our Profitable Growth Strategy. As part of this strategy, we will continue to reallocate capital to those investments which will yield the highest returns, and return capital to our stockholders through our share repurchase program while maintaining a sound financial position.

Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this quarterly report will not be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or other similar words or phrases. All forward-looking statements are based upon information available to us on the date of this quarterly report. Except as may be required under applicable law, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this quarterly report in the sections captioned “Outlook” and “Financial Condition and Liquidity.” Additional information about factors that could lead to material changes in performance is contained in Item 1A. Risk Factors of our Annual Report on Form 10-K as of September 30, 2005. Such factors may include:

• economic changes nationally or in local markets;

• volatility of mortgage interest rates and inflation;

• increased competition;

• shortages of skilled labor or raw materials used in the production of houses;

• increased prices for labor, land and raw materials used in the production of houses;

• increased land development costs on projects under development;

• the cost and availability of insurance, including the availability of insurance for the presence of mold;

• the impact of construction defect and home warranty claims;

• a material failure on the part of Trinity Homes LLC to satisfy the conditions of the class action

settlement agreement;

• any delays in reacting to changing consumer preference in home design;

• terrorist acts and other acts of war;

• changes in consumer confidence;

• changes in levels of demand;

• delays or difficulties in implementing initiatives to reduce production and overhead cost structure;

• delays in land development or home construction resulting from adverse weather conditions;

• potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations, or governmental policies and possible penalties for failure to comply with such laws, regulations and governmental policies;

• changes in accounting policies, standards, guidelines or principles, as may be adopted by regulatory agencies as well as the FASB; or

• other factors over which the Company has little or no control.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to a number of market risks in the ordinary course of business. Our primary market risk exposure relates to fluctuations in interest rates. We do not believe that our exposure in this area is material to cash flows or earnings. As of March 31, 2006, we had $233.5 million of variable rate debt outstanding. Based on our outstanding borrowings under our variable rate debt at March 31, 2006, a one-percentage point increase in interest rates would negatively impact our annual pre-tax interest cost by approximately $2.3 million.

Item 4. Controls and Procedures

As of the end of the period covered by this report on Form 10-Q, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Further our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures have been designed to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure. There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Southeast

West

Central

Mid-Atlantic

Midwest

Florida

Arizona

Texas

Maryland / Delaware

Indiana

Georgia

California

New Jersey

Kentucky