##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

|           |  |   |  |                                                                                         
|---------- |  | - |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |   |  |                                                                                         
|           |  | x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  |   |  |                                                                                         
|           |  |   |  | For the fiscal year ended December 31, 2002                                             
|           |  |   |  |                                                                                         
|OR        
|           |  |   |  |                                                                                         
|           |  | o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  |   |  |                                                                                         
|           |  |   |  | For the transition period from  to                                                      

Commission file number: 000-23677

Technical Olympic USA, Inc.

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 76-0460831                          
|                                                               |  |                                     
|(State or Other Jurisdiction
of Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

|                                                             |  |           
|------------------------------------------------------------ |  | ----------
|4000 Hollywood Boulevard,
Suite 500 North
Hollywood, Florida |  | 33021     
|                                                             |  |           
|(Address of Principal Executive Offices)                     |  | (Zip Code)

Registrants telephone number, including area code: (954) 364-4000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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   x   No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes   o   No   x

The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $32.4 million as of February 6, 2003.

As of February 3, 2003, there were 27,878,787 shares of the Registrants
common stock outstanding.

Documents Incorporated By Reference

Portions of the Registrants definitive proxy statement for its 2003
annual meeting of shareholders, which proxy statement will be filed no later
than 120 days after the close of the Registrants fiscal year ended December
31, 2002, are hereby incorporated by reference in Part III of this Annual
Report on Form 10-K.





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TABLE OF CONTENTS



|                                                   |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. BUSINESS                                                                                       
|RISK FACTORS                                      
|                                                   | ITEM 2. PROPERTIES                                                                                     
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|PART II                                           
|                                                   | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          
|                                                   | ITEM 6. SELECTED FINANCIAL DATA                                                                        
|                                                   | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                                   | ITEM 7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK                                   
|                                                   | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|PART III                                          
|                                                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                                   | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                                   | ITEM 14. CONTROLS AND PROCEDURES                                                                       
|                                                   | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                              
|SIGNATURES                                        
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS        
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION    
|CONSOLIDATED STATEMENTS OF INCOME                 
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        
|Supplemental Indenture for 9 % Senior Notes       
|Supplemental Indenture 10 3/8 %                   
|Indenture dated February 3, 2003                  
|Registration Rights Agreement                     
|Employment Ageement with Yannis Delikanakis       
|Credit Agreement                                  
|First Amendment to Credit Agreement               
|Second Amendment to Credit Agreement              
|Third Amendment to Credit Agreement               
|Guaranty dated August 1, 2002                     
|Mortgage Loan Purchase Agreement & Sale Agreement 
|First Amendment to Mortgage Loan Purchase         
|Mortgage Loan Purchase & Sale Agreement 08/01/2002
|First Amendment to Mortgage Loan Purchase         
|List of Subsidiaries                              
|Consent of Ernst & Young LLP                      
|Consent of BDO Siedman, LLP                       
|Certification of CEO                              
|Certification of CFO                              



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##### Table of Contents






PART I




ITEM 1. BUSINESS

We are the twelfth largest homebuilder in the United States, based on the
number of homes we closed in 2001 and have a geographically diversified,
national presence. We operate in 14 metropolitan markets located in four major
geographic regions: Florida, Texas, the West and the Mid-Atlantic. We seek to
operate in rapidly growing markets characterized by strong projected population
and employment growth and relatively high income levels. Currently, we conduct
homebuilding operations in five of the top ten U.S. homebuilding states ranked
by total permit activity. For the twelve months ended December 31, 2002, we
delivered 5,085 homes, with an average sales price of $265,000, and generated
approximately $1.3 billion in revenues from home sales and $67.0 million in
income from continuing operations.

We design, build and market high quality detached single-family
residences, town homes and condominiums primarily for move-up homebuyers. We
also offer homes to homebuyers who are relocating to a new city or state,
first-time homebuyers, buyers of vacation homes and homebuyers with grown
children who want a smaller home (empty nesters). We market our homes under
various brand names, including Newmark®, Fedrick Harris Estate Homes, Engle, DS
Ware and Masonry. As of December 31, 2002, we owned, or had options to
acquire, 26,320 lots, and we were actively building or marketing in 159
communities. Our backlog of homes sold but not closed at December 31, 2002,
was 2,280, representing approximately $636.9 million in expected revenues.

In addition to our homebuilding operations, we also offer a variety of
financial services, including mortgage financing, title insurance and closing
services, to homebuyers in the majority of our markets. Our mortgage financing
operation derives most of its revenues from buyers of our homes although it
also offers its services to other homebuyers and existing homeowners
refinancing their mortgages. Our title insurance and closing services are
subscribed to by buyers of our homes and other people purchasing or refinancing
residential or commercial real estate.

Company History

Our predecessor company was founded in Houston, Texas in 1983. Our
company was formed in 1994 as a Nevada corporation under the name Newmark Homes
Corp. We completed our initial public offering of common stock in March 1998.
In December 1999, Technical Olympic, Inc. acquired 80% of our common stock.
Technical Olympic is a wholly-owned subsidiary of Technical Olympic (UK) PLC, a
corporation formed under the laws of Great Britain, which is a wholly-owned
subsidiary of Technical Olympic S.A., a publicly-traded Greek corporation. In
March 2001, we changed the state of our incorporation from Nevada to Delaware.

On April 15, 2002, we sold the stock of our wholly-owned subsidiary,
Westbrooke Acquisition Corp., to Standard Pacific. Westbrooke Acquisition and
its subsidiaries build homes in South Florida under the name of Westbrooke
Homes.

On June 25, 2002, Engle Holdings Corp., a wholly-owned subsidiary of our
majority stockholder, Technical Olympic, merged with and into us and we changed
our name to Technical Olympic USA, Inc. As a result of the merger, Technical
Olympic currently owns 91.75% of our outstanding common stock.

On October 4, 2002, we acquired the net assets of DS Ware Homes LLC, a
homebuilder operating in Jacksonville, Florida, for $35.6 million in cash, of
which $30.0 million was funded with proceeds from our revolving credit
facility. In addition, if certain earnings targets are met for the five-month
period after the closing, we will be obligated to pay an additional $5.2
million in cash to the sellers in 2003.

On November 18, 2002, we acquired the net assets of Masonry Homes, Inc., a
homebuilder operating in the northwestern suburbs of Baltimore, Maryland and
southern Pennsylvania, for $17.1 million in cash, of which approximately $15.0
million was funded with proceeds from our revolving credit facility. In
addition, if certain targets are met regarding home closings, the development
and/or subdivision of certain lots and earnings for the

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2003 and 2004 fiscal years, we will be obligated to pay up to an
additional $21.3 million in cash to the sellers over a two-year period, of
which $11.3 million has been paid as of February 5, 2003.

Business Strategies

Focus on Growth in Current Markets

Unlike many large homebuilders that concentrate on achieving national
scale, we focus primarily on expanding our homebuilding operations in our
current regions in Florida, Texas, the West and the Mid-Atlantic. These areas
are generally characterized by high job growth and in-migration trends,
creating strong demand for new housing. We seek to expand our product
offerings, enter into new communities and branch out into adjacent markets as a
means to establish ourselves as a top-five builder in each of the markets in
which we compete. We believe that this strategy will permit us to further
strengthen our competitive position, expand overall economies of scale and
increase our revenues and profitability. We believe that we can capitalize on
attractive opportunities to grow in our current markets, both organically and
through complementary acquisitions.

Implement Profit Improvement and Other Efficiency Initiatives

As part of our goal of strengthening our return on assets, we have
recently adopted a detailed performance improvement plan that includes
initiatives to realize enhanced operating efficiencies. We are implementing
best practices across our companies, and believe that this operating strategy
will allow us to:



| |  |  | reduce the time necessary to complete each stage in the home construction cycle;                      
| | - |  | ------------------------------------------------------------------------------------------------------
|
| |  |  | minimize our inventory of unsold homes;                                                               
|
| |  |  | use our volume purchasing power to achieve favorable terms with our vendors;                          
|
| |  |  | achieve more favorable pricing of lot premiums and options; and                                       
|
| |  |  | implement innovative information systems to monitor homebuilding
production, scheduling and budgeting.

Grow Our Financial Services Businesses

Our Financial Services operation is a relatively high-margin transactional
business that complements our homebuilding operations. We believe that we have
an opportunity to grow our Financial Services business by:



| |  |  | increasing the percentage of our homebuyers using our Financial
Services;                                                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | marketing our Financial Services more actively to buyers of homes
built by other homebuilders, including smaller homebuilders who do not
provide their own financial services; and
|
| |  |  | offering services that complement our existing Financial Services
business, such as homeowners insurance and mortgage refinancing, in
all our markets.                           

Expand Into New Markets

We intend to supplement our primary growth strategy of expansion in our
current markets with a disciplined, return-on-assets focused approach to
entering new markets through organic growth and strategic acquisitions of other
homebuilders. We will focus on entering metropolitan areas that have
favorable homebuilding characteristics, including substantial job and
population growth, significant single-family home permit activity, a
diversified economy, an abundant supply of obtainable lots and an availability
of strong management with local market expertise. We believe this long-term
emphasis on geographic diversification across a range of fast growing markets
with strong fundamentals will enable us to minimize our exposure to adverse
economic conditions, seasonality and housing cycles in individual local
markets.

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Homebuilding Operations

Markets

We operate in 14 metropolitan markets located in four major geographic
regions: Florida, Texas, the West and the Mid-Atlantic. For the twelve months
ended December 31, 2002, none of our metropolitan markets represented more than
18% of our total revenues. We select our target geographic markets based on,
among other things, historical and projected population growth, projected job
growth, regional economic conditions, availability of strong management with
local expertise, land availability, single-family home permit activity and
price, the local land development process, consumer tastes, competition,
housing inventory and secondary home sales activity.

Florida. Our Florida region is comprised of four metropolitan markets:
South Florida, which is comprised of Fort Lauderdale, Palm Beach and Martin
Counties; Orlando; Jacksonville; and Southwest Florida, which is comprised of
Fort Myers and Naples. We conduct business in our South Florida, Orlando and
Southwest Florida markets under the Engle name. We entered the Jacksonville
market in October 2002 through the acquisition of DS Ware and continue to
conduct business in Jacksonville under the DS Ware name. For the twelve months
ended December 31, 2002, we closed 2,024 homes in Florida, generating $496.7
million, or 36.8% of our revenues from home sales.

Texas. Our Texas region is comprised of four metropolitan markets:
Houston; Austin; Dallas/Ft. Worth; and San Antonio. We conduct business in all
of our markets in Texas under the Newmark name and conduct business under the
Engle name in the Dallas/Fort Worth market. We build in both mini-master and
master plan communities in Texas. Approximately half of our homes in the
Houston market are speculative homes which means we build the homes prior to
having sold them to a homebuyer. All four of our Texas markets have design
centers and interior designers who are available for consultations with our
homebuyers. For the twelve months ended December 31, 2002, we closed 1,539
homes in Texas, generating $397.1 million, or 29.4% of our revenues from home
sales.

West. Our West region is comprised of three metropolitan markets:
Phoenix, Arizona; and Denver and Colorado Springs, Colorado. We conduct
business in all of our markets in the West region under the Engle name. Our
Phoenix market has a design center located near the sales office that features
vendors for carpeting, pools, home theaters, landscape and light fixtures who
work in the design center and have a representative on-site to assist
homebuyers. For the twelve months ended December 31, 2002, we closed 958 homes
in our West region generating $258.1 million, or 19.1% of our revenues from
home sales.

Mid-Atlantic. Our Mid-Atlantic region is comprised of three metropolitan
markets: Northern Virginia/Washington D.C.; Baltimore, Maryland; and Nashville,
Tennessee. We conduct business in Northern Virginia/Washington D.C. under the
Engle name. We entered the Baltimore market in November 2002 through the
acquisition of Masonry and continue to conduct business in Baltimore under the
Masonry name. We conduct business in Nashville under the Newmark name. For
the twelve months ended December 31, 2002, we closed 564 homes in our
Mid-Atlantic region generating $197.8 million, or 14.7% of our revenues from
home sales.

Product Mix

We select our product mix in a particular geographic market based on the
demographics of the market, demand for a particular product, margins and the
economic strength of the market. We regularly review our product mix in each
of our markets so that we can quickly respond to market changes and
opportunities.

Of our 2002 revenues from home sales, 42% were generated from sales of
homes in the $200,000 to $300,000 price range, 16% were generated from sales of
homes in the under $200,000 price range; 26% were generated from sales of homes
in the $300,000 to $400,000 price range; and 16% were generated from sales of
homes in the over $400,000 price range.

Land Policies and Positions

Land Acquisition.To support our homebuilding operations, we only acquire
entitled land. Land is entitled when all of the necessary approvals for
residential homebuilding have been obtained for it. We attempt to acquire
entitled lots that have sewage systems, drainage and other similar
infrastructure in place (we refer to these lots as

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developed lots) because these lots are ready to have houses constructed
on them. Before we can build a house on entitled land that is not developed,
we must construct sewage systems, drainage and other infrastructure.

We generally acquire multiple developed lots that are located adjacent to
or near each other in a community, which enables us to build and market our
homes more cost efficiently than if the lots were located in separate
locations. Cost efficiencies arise from economies of scale, such as shared
marketing expenses and project management.

We have experienced management teams at each of our divisions who do
extensive analysis on the local market and evaluate and identify land in
desirable locations that are consistent with our strategy for the particular
market.

We have adopted land acquisition policies and procedures that cover all
land acquisitions including land acquired through option contracts. The
policies and procedures are strictly enforced by our Management Executive
Committee, which employs strict standards for assessing all proposed land
purchases with the goal of minimizing risk and maximizing our return on
capital. The Management Executive Committee is comprised of our Chief
Executive Officer, Chief Financial Officer, General Counsel and representatives
of our Homebuilding, Financial Services and Land Development departments. Our
land acquisition policies and procedures require that a division president
submit each land acquisition proposal in writing to our Vice President of Land
Development and that such proposal contains specific information relating to
the property. Our Vice President of Land Development then assesses the
proposal and submits both the proposal and his or her recommendation to the
Management Executive Committee. All land acquisitions must be approved as
follows:

|                                                              |  |                                                                            
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------
|Value of Acquisition                                          |  | Approval Required                                                          
|                                                              |  |                                                                            
|Up to $10 million
$10 million to $20 million
Over $20 million |  | Management Executive Committee
Board Executive Committee
Board of Directors

We select land for development based on a variety of factors, including:



| |  |  | historical and projected population and employment rates for the surrounding area;                        
| | - |  | ----------------------------------------------------------------------------------------------------------
|
| |  |  | demographic information such as age, education and economic status of the homebuyers in the area;         
|
| |  |  | suitability for development within two to four years of acquisition;                                      
|
| |  |  | desirability of location, including proximity to metropolitan area, local traffic corridors and amenities;
|
| |  |  | results of financial analysis, such as projected profit margins and return on capital;                    
|
| |  |  | prices of comparable new and resale houses in the area;                                                   
|
| |  |  | estimated costs of completed lot development; and                                                         
|
| |  |  | competition in the area.                                                                                  

In addition, before we acquire property, we conduct extensive
environmental due diligence, including on-site inspection and soil testing, and
we confirm that the land has the necessary zoning and other governmental
entitlements required to develop and use the property for home construction.
The results of this due diligence are submitted to our Management Executive
Committee together with the land acquisition proposal.

Land Supply. We acquire the developed lots and the other entitled land we
require for our homebuilding operations through a combination of purchases and
option contracts. Our objective is to own approximately one and one half to
two years supply of land and option an additional two to four years supply.

Purchases are financed through traditional bank financing or working
capital. Under the option contracts, we purchase the right, but not the
obligation, to buy land at predetermined prices on a predetermined takedown
schedule anticipated to be commensurate with home closings. Lot option
contracts are generally non-recourse, thereby limiting our financial exposure
to non-refundable deposits, which are typically 10-15% of the sales price.
This enables us to control significant lot positions with a minimal capital
investment and reduces the risks associated with land ownership and
development. Historically, we have been able to acquire a majority of our

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developed lots through option contracts rather than purchase contracts due
to the awareness of our brand names among developers and their willingness to
option lots. There has been increased competition for available lots and
increasingly, we have been required to acquire more of our developed lots under
purchase contracts. At December 31, 2002, approximately 62.6% of our total lot
supply was controlled under option or similar contracts, and we had
approximately $56.1 million in deposits on real estate under those option
contracts.

Occasionally, we sell a portion of the entitled land we purchase and
develop to third-party builders to provide a source of additional revenue and
to reduce the risk we incur by holding these lots in inventory.

The table below shows our lot inventory by region and in total for the
periods indicated:

|             |          |  |                 |        |      |  |       |        |  |  |        |        | 
|------------ | -------- |  | --------------- | ------ | ---- |  | ----- | ------ |  |  | ------ | ------ | 
|             |          |  | At December 31,
|             |          |  |                
|             |          |  | 2000(1)         |        | 2001 |  | 2002 
|             |          |  |                 |        |      |  |      
|Florida      |          |  | 6,580           |        |      |  | 4,750 |        |  |  | 11,312 |       
|Texas        |          |  | 3,720           |        |      |  | 3,940 |        |  |  | 5,048  |       
|West         |          |  | 4,042           |        |      |  | 4,136 |        |  |  | 5,025  |       
|Mid-Atlantic |          |  | 1,879           |        |      |  | 2,158 |        |  |  | 4,935  |       
|             |          |  |                 |        |      |  |       |        |  |  |        |       
|             | Total(2) |  |                 | 16,221 |      |  |       | 14,984 |  |  |        | 26,320 | 
|             |          |  |                 |        |      |  |       |        |  |  |        |       



---

|(1) |  | The lot inventory as stated for 2000 reflects Newmarks lot position
as of December 31 and Engles lot position as of October 31.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 7,062, 7,644 and 16,474 lots under option contracts as of
December 31, 2000, 2001 and 2002, respectively.               

Operating Structure

Our homebuilding operations are decentralized to give more flexibility to
our local operations. We have 13 separate operating divisions, some of which
are located in the same state. Each operating division is headed by a division
president. We believe in giving our division presidents autonomy to conduct
the operations of our divisions because we are confident that they will make
sound business decisions based on their knowledge and experience in the local
and regional markets. Our division presidents and local operators have an
average of over 20 years of experience in their local and regional markets.
The compensation of our division presidents is integrally tied to achieving
certain targeted levels of return on assets.

Each operating division is responsible for:



| |                                                                                      |  | selecting sites;                                                                                             
| | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------
|
| |                                                                                      |  | negotiating lot option or similar contracts;                                                                 
|
| |                                                                                      |  | overseeing land development;                                                                                 
|
| |                                                                                      |  | planning homebuilding schedule;                                                                              
|
| |                                                                                      |  | selecting building plans and architectural schemes;                                                          
|
| |                                                                                      |  | obtaining all necessary building approvals; and                                                              
|
| |                                                                                      |  | developing a marketing plan.                                                                                 
|
| | The following functions are centralized at the corporate level for all our divisions: |  |                                                                                                              
|
| |                                                                                      |  | evaluation and selection of geographic markets;                                                              
|
| |                                                                                      |  | final approval of land and lot acquisitions;                                                                 
|
| |                                                                                      |  | allocation of capital resources to the markets where we operate,
including with respect to land acquisitions;
|
| |                                                                                      |  | financing;                                                                                                   
|
| |                                                                                      |  | purchasing;                                                                                                  

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| |  |  | maintenance of strong centralized controls on accounting and financial policies and procedures; and
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | monitoring the return on assets achieved by our operating divisions.                               

Purchasing

We utilize centralized purchasing to leverage our purchasing power into
volume discounts, and thereby reduce costs, ensure timely deliveries and reduce
the risk of supply shortages due to allocations of materials. We have
negotiated price arrangements, which we believe are favorable, to purchase
lumber, sheetrock, appliances, heating and air conditioning, counter tops,
bathroom fixtures, roofing and insulation products, concrete, bricks, floor
coverings and other housing equipment and materials. Our purchase contracts
are with high quality national and regional suppliers, including E.I. du Pont
de Nemours & Company, General Electric Appliances, Moen Incorporated, Mohawk
Industries, Inc., National Gypsum Company, Owens Corning, Rheem Manufacturing
Sales, Inc., Royal Baths Manufacturing Co., Schlage Lock Company, a subsidiary
of Ingersoll-Rand Company, The Dow Chemical Company, The Sherwin-Williams
Company and Weyerhaeuser Company. There are no minimum purchase requirements
for these arrangements.

Design

To appeal to the tastes and preferences of local communities, we expend
considerable effort in developing an appropriate design and marketing concept
for each of our subdivisions, including determining the size, style and price
range of the homes and, in certain projects, the layout of streets, individual
lots and overall community design. In addition, in certain markets, outside
architects who are familiar with the local communities in which we build,
prepare some of our home designs and floor plans. We also have the capability
to change our standard floor plans to accommodate individual homebuyers. While
most design modifications are significant to homebuyers, they typically involve
relatively minor adjustments by us that allow us to maintain construction
efficiencies and result in greater profitability due to increased margins. The
product line that we offer in a particular subdivision depends upon many
factors, including the housing generally available in the area, the needs of
the particular market and our costs of lots in the subdivision.

In most of our markets, we provide design centers to assist our homebuyers
with options and upgrades. These design centers are convenient to homebuyers
because it brings many of the choices for flooring, carpeting, light fixtures,
and hardware to one location. In keeping with our regional approach, each
region decides what types of design center is suitable for the local area. For
example, in the Phoenix market, vendors specializing in landscape, pools and
home theaters work at the design center to assist homebuyers. The design
center displays samples of carpeting, ceramic tile and hardwood floors as well
as countertop surfaces, cabinetry and paint colors. While design centers are
varied in each market, the focus in all of our design centers is on making the
homebuyers selection process less complicated and an enjoyable experience.

Construction

Subcontractors perform substantially all of our construction work. Our
construction superintendents monitor the construction of each home, coordinate
the activities of subcontractors and suppliers, subject the work of
subcontractors to quality and cost controls and monitor compliance with zoning
and building codes. We typically retain subcontractors pursuant to a contract
that obligates the subcontractor to complete construction at a fixed price in a
workmanlike manner. In addition, under these contracts the subcontractor
provides us with standard indemnifications and warranties. Typically, we work
with the same subcontractors within each market, which provides us with a
stable and reliable work force and better control over the costs and quality of
the work performed. Although we compete with other homebuilders for qualified
subcontractors, we have established long-standing relationships with many of
our subcontractors and have not experienced any material difficulties in
obtaining the services of desired subcontractors.

We typically complete the construction of a home within four to five
months. Construction time, however, depends on weather, availability of labor,
materials, supplies and other factors. We do not maintain significant
inventories of construction materials, except for materials related to work in
progress for homes under construction. Generally, the construction materials
used in our operations are readily available from numerous sources. We have
price arrangements or contracts, which we believe are favorable, with suppliers
of certain of our building materials,

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but we are not under specific purchasing requirements. In recent years,
we have not experienced significant delays in construction due to shortages of
materials.

Marketing and Sales

We build and market different types of homes to meet the needs of
different homebuyers and the needs of different markets. We employ a variety
of marketing techniques to attract potential homebuyers through numerous
avenues, including Internet web sites for our various homebuilding brands and
subsidiaries, extensive telemarketing and advertising and other marketing
programs. We advertise on television, in newspapers and other publications,
through our own brochures and newsletters, on billboards and in brochures and
newsletters produced and distributed by real estate and mortgage brokers. Some
of our suppliers participate in our advertising and promotional materials,
either through co-branding, cost-sharing or through rebates.

We typically conduct home sales from sales offices located in furnished
model homes in each community. We use commissioned sales personnel who assist
prospective buyers by providing them with floor plans, price information, tours
of model homes and information on the available options and other custom
features. We provide our sales personnel with extensive training, and we keep
them updated as to the availability of financing, construction schedules and
marketing and advertising plans to facilitate their marketing and sales
activities. We supplement our in-house training program with training by
outside sales and marketing consultants.

In addition to using model homes, we build a limited number of speculative
homes in most communities in advance of any specific customer order or contract
to enhance our marketing and sales activity. We build speculative homes to
satisfy the requirements of relocated buyers, move-up homebuyers, and other
buyers who need completed homes prior to the completion of the typical four to
five month construction period. The number of speculative homes we build in
any given community is influenced by local market factors, such as new
employment opportunities, significant job relocations, housing demand and the
length of time we have operated in the market.

We market and sell homes through our own commissioned sales personnel and
in cooperation with independent real estate brokers. Because a significant
portion of our sales originate from independent real estate brokers, we sponsor
a variety of programs and events, including breakfasts, contests and other
events to provide the brokers with a level of familiarity with our communities,
homes and financing options necessary to successfully market our homes. We
also offer other incentives to brokers to actively market our homes.

Sales of our homes generally are made pursuant to a standard sales
contract that is tailored to the requirements of each jurisdiction. Generally,
our sales contracts require a down payment of a fixed amount (typically between
$1,000 and $5,000) on our less expensive homes and as a percentage of the sales
price (typically 5% to 10%) on our more expensive customized homes. The
contract includes a financing contingency which permits the customer to cancel
in the event mortgage financing at prevailing interest rates cannot be obtained
within a specified period, typically four to six weeks from the signing. The
contract may include other contingencies, such as the prior sale of a buyers
existing home. We estimate that the average period between the execution of a
sales contract for a home and closing is approximately four to six months for
presold homes.

Customer Service and Quality Control

Our operating divisions are responsible for both pre-closing quality
control inspections and responding to customers post-closing needs. We
believe that the prompt, courteous response to homebuyers needs reduces
post-closing repair costs, enhances our reputation for quality and service and
ultimately leads to significant repeat and referral business. We conduct home
orientations and pre-closing inspections with homebuyers immediately before
closing. In conjunction with these inspections, we create a list of unfinished
construction items and address outstanding issues promptly.

An integral part of our customer service program includes post-closing
interviews. In most markets, we send a customer service representative into
each new home within 45 days of closing to evaluate the homeowners
satisfaction with the home, as well as their experience with our sales
personnel, construction department and title and mortgage services. Typically,
approximately one year after we sell a house we conduct a follow-up interview
with the homeowner to determine the level of the homeowners continued
satisfaction. These interviews provide us

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with a direct link to the customers perception of the entire buying
experience as well as valuable feedback on the quality of the homes we deliver
and the services we provide.

Warranty Program

For the homes we build under the Engle brand, we generally provide a
one-year limited warranty of workmanship and materials. We generally provide a
two-year limited warranty of workmanship and materials for the homes we build
under all our other brand names. We subcontract homebuilding work to
subcontractors who provide us with an indemnity and a certificate of insurance
before receiving payments for their work and, therefore, claims relating to
workmanship and materials are the primary responsibility of our subcontractors.
We generally provide an additional eight-year limited homeowners warranty
covering major structural defects for all of the homes we build except those
built under the Engle brand. For the homes we build under the Engle name, we
generally provide a ten-year structural warranty. The extent of the warranties
we offer relating to workmanship and materials and structural defects may
differ in some or all of the states in which we operate. We generally have not
had any material litigation or claims regarding warranties or latent defects
with respect to construction of homes. Current claims and litigation are
expected to be substantially covered by our reserve or insurance. After we
close a home, we process all warranty requests through our customer service
departments located in each of our markets. In most instances, a customer
service manager inspects the warranty request within 48 hours of receipt. If a
warranty repair is necessary, the construction superintendent who built the
particular home manages and supervises the repair to ensure that the
appropriate subcontractor takes prompt and appropriate corrective action.

Financial Services

In addition to our homebuilding operations, we also offer a variety of
financial services, including mortgage financing, title insurance and closing
services, to homebuyers in the majority of our markets. Our mortgage
origination operation derives most of its revenues from buyers of our homes,
although it also offers its services to other homebuyers and existing
homeowners refinancing their mortgages. Our title insurance and closing
services are more broadly subscribed to by buyers of our homes and other people
purchasing or refinancing residential or commercial real estate.

Our mortgage business consists of providing our homebuyers and third party
homebuyers with loan origination services, purchase financing and, to a lesser
extent, mortgage refinancing. We conduct this business through our
subsidiaries, Preferred Home Mortgage Company and its subsidiary, Technical
Mortgage, L.P. Preferred Home has its headquarters in Boca Raton, Florida and
has eight additional offices.

We are an approved seller/servicer of Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Federal Housing
Administration, Veterans Association and U.S. Department of Housing and Urban
Development loans. We generally sell substantially all of our loans and
substantially all of the servicing rights.

Currently, approximately 69% of our homebuyers buying homes under the
Engle brand use our mortgage business. A significantly smaller percentage of
our homebuyers buying homes under our other brand names use our mortgage
services. Accordingly, we believe we have an opportunity to expand this
business. We originated approximately $782.8 million aggregate principal
amount of mortgage loans for the twelve months ended December 31, 2002. Our
mortgage business generated pre-tax income of $13.5 million for the twelve
months ended December 31, 2002.

Our title insurance business consists of providing our homebuyers, third
party homebuyers and buyers of commercial properties with competitive title
insurance and closing services. We conduct this business through our
subsidiary, Universal Land Title, Inc., and its subsidiaries. Universal Land
Title has its headquarters in West Palm Beach, Florida and has 23 additional
offices.

Universal Land Title works with many national underwriters and lenders to
facilitate client service and coordinate closings at its offices. It is
equipped to handle e-commerce applications, e-mail closing packages, digital
document delivery and web-based closings. The principal sources of revenues
generated by our title insurance business are fees paid to Universal Land Title
for title insurance provided to our homebuyers, third party residential
purchasers and commercial real estate purchasers.

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Currently, approximately 96% of our homebuyers buying homes under the
Engle brand use Universal Land Title for their title insurance and closing
services. A significantly smaller percentage of our homebuyers buying homes
under our other brand names use our title insurance services. Accordingly, we
believe we have an opportunity to expand this business. Approximately 87% of
our revenues for the twelve months ended December 31, 2002 were derived from
customers who were third party homebuyers or buyers of commercial properties.
Our title insurance business generated pre-tax income of $5.9 million for the
twelve months ended December 31, 2002.

Governmental Regulation

Our homes must comply with state and local laws and regulations relating
to, among other things, zoning, treatment of waste, construction materials
which must be used, density requirements, building design and minimum elevation
of properties. These include laws requiring use of construction materials that
reduce the need for energy- consuming heating and cooling systems. These laws
and regulations are subject to frequent change and often increase construction
costs. In some cases, there are laws that require that commitments to provide
roads and other offsite infrastructure be in place prior to the commencement of
new construction. These laws and regulations are usually administered by
individual counties and municipalities and may result in fees and assessments
or building moratoriums. In addition, certain new development projects are
subject to assessments for schools, parks, streets and highways and other
public improvements, the costs of which can be substantial.

The residential homebuilding industry also is subject to a variety of
local, state and federal statutes, ordinances, rules and regulations concerning
the protection of health and the environment. Environmental laws and conditions
may result in delays, may cause us to incur substantial compliance and other
costs and can prohibit or severely restrict homebuilding activity in
environmentally sensitive regions or areas.

In recent years, several cities and counties in which we have developments
have submitted to voters slow growth or no growth initiatives and other
ballot measures which could impact the affordability and availability of homes
and land within those localities.

In order to make it possible for purchasers of some of our homes to obtain
FHA-insured or VA-guaranteed mortgages, we must construct those homes in
compliance with regulations promulgated by those agencies.

Our title insurance agency subsidiaries must comply with applicable
insurance laws and regulations. Our mortgage financing subsidiaries must comply
with applicable real estate lending laws and regulations. The mortgage banking
and title insurance subsidiaries are licensed in the states in which they do
business and must comply with laws and regulations in those states regarding
mortgage banking and title insurance companies. These laws and regulations
include provisions regarding capitalization, operating procedures, investments,
forms of policies and premiums.

Competition and Market Forces

The development and sale of residential properties is a highly competitive
business. We compete in each of our markets with numerous national, regional
and local builders on the basis of a number of interrelated factors including
location, price, reputation, amenities, design, quality and financing.
Builders of new homes compete for homebuyers, as well as for desirable
properties, raw materials and reliable, skilled subcontractors. We also
compete with resales of existing homes, available rental housing and, to a
lesser extent, resales of condominiums. We believe we generally compare
favorably to other builders in the markets in which we operate, due primarily
to:



| |  |  | our experience within our geographic markets;                                                    
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | the ability of our local managers to identify and quickly respond to local market conditions; and
|
| |  |  | our reputation for service and quality.                                                          

The housing industry is cyclical and is affected by consumer confidence
levels and prevailing economic conditions, including interest rate levels. A
variety of other factors affect the housing industry and demand for new homes,
including the availability of labor and materials and increases in the costs
thereof, changes in costs associated with home ownership such as increases in
property taxes, energy costs, changes in consumer preferences, demographic
trends and the availability of and changes in mortgage financing programs.

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We compete with other mortgage lenders, including national, regional and
local mortgage bankers, savings and loan associations and other financial
institutions, in the origination, sale and servicing of mortgage loans.
Principal competitive factors include interest rates and other features of
mortgage loan products available to the consumer. We compete with other
insurance companies, including national, regional and local insurance companies
and agencies, in the sale of title insurance, homeowner insurance and related
insurance services. Principal competitive factors include cost and other
features of insurance products available to the consumer.

Seasonality

The homebuilding industry tends to be seasonal, as generally there are
more homes sold in the spring and summer months when the weather is milder,
although the rate of sales contracts for new homes is highly dependent on the
number of active communities and the timing of new community openings. We
operate primarily in the Southwest and Southeast, where weather conditions are
more suitable to a year-round construction process than in other parts of the
country. Because new home closings trail new home sales by several months, we
typically have a greater percentage of home closings in the fall months.

Backlog

Our sales backlog at December 31, 2002 was 2,280 homes compared to 2,149
homes at December 31, 2001. Backlog represents home purchase contracts that
have been executed and for which earnest money deposits have been received, but
for which the sale has not yet closed. We do not record home sales as revenues
until the closings occur. Historically, substantially all of the homes in our
backlog at any given point in time have been closed in the following 12-month
period. Although cancellations can disrupt anticipated home closings, we
believe that cancellations have not had a material negative impact on our
operations or liquidity during the last several years. We attempt to reduce
the cancellations by reviewing each homebuyers ability to obtain mortgage
financing early in the sales process and by closely monitoring the mortgage
approval process.

Employees

At December 31, 2002, we employed 1,418 people, 377 of whom were sales and
marketing personnel, 669 of whom were executive, administrative and clerical
personnel and 372 of whom were construction personnel. None of our employees
are covered by collective bargaining agreements. We believe our relations with
our employees are good.

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RISK FACTORS

Risks Related to Our Business

Our significant level of debt could adversely affect our financial condition and prevent us from fulfilling our debt service obligations

We currently have a significant amount of debt, and our ability to meet
our debt service obligations will depend on our future performance. Numerous
factors outside of our control, including changes in economic or other business
conditions generally or in the markets or industry in which we do business, may
adversely affect our operating results and cash flows, which in turn may affect
our ability to meet our debt service obligations. As of December 31, 2002, on
a consolidated basis and as adjusted for our February 2003 offering of 9%
Senior Notes, we had approximately $506.4 million aggregate principal amount of
debt outstanding (including our revolving credit facility, our June 2002 Notes,
our warehouse line of credit and our other credit facilities, but excluding
consolidated land bank obligations of $16.3 million). At December 31, 2002, as
adjusted for our February 2003 offering of 9% Senior Notes, we also had the
capacity to borrow an additional $140.1 million under our revolving credit
facility and $16.7 million under our warehouse line of credit, subject to our
satisfying the relevant borrowing conditions in those facilities. In addition,
subject to restrictions in our financing documents, we may incur additional
debt.

If we are unable to meet our debt service obligations, we may need to
restructure or refinance our debt, seek additional equity financing or sell
assets. We may be unable to restructure or refinance our debt, obtain
additional equity financing or sell assets on satisfactory terms or at all.

The indentures governing our outstanding notes and our credit facility impose
significant operating and financial restrictions which may limit our ability to
finance future operations or capital needs and pursue business opportunities
thereby limiting our growth.

The indentures governing our outstanding notes and our credit facility
impose significant operating and financial restrictions on us. These
restrictions limit our ability to, among other things:



| |  |  | incur additional debt;                                                                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | pay dividends or make other restricted payments;                                                                               
|
| |  |  | create or permit certain liens;                                                                                                
|
| |  |  | sell assets;                                                                                                                   
|
| |  |  | create or permit restrictions on the ability of our restricted
subsidiaries to pay dividends or make other distributions to us;
|
| |  |  | engage in transactions with affiliates; and                                                                                    
|
| |  |  | consolidate or merge with or into other companies or sell all or substantially all of our assets.                              

The agreements governing the debt of some of the subsidiary guarantors
contain similar restrictions applicable to those guarantors. These
restrictions could limit our ability to finance our future operations or
capital needs, make acquisitions or pursue available business opportunities.
In addition, our credit facility requires us to maintain specified financial
ratios and satisfy certain financial covenants, the indentures governing our
outstanding notes require us to maintain a specified minimum consolidated net
worth and our warehouse line of credit requires us to maintain the collateral
value of our borrowing base. We may be required to take action to reduce our
debt or to act in a manner contrary to our business objectives to meet these
ratios and satisfy these covenants. A breach of any of the covenants in, or
our inability to maintain the required financial ratios under, our credit
facility would prevent us from borrowing additional money under the facility
and could result in a default under it. Our failure to maintain the specified
minimum consolidated net worth under the indentures will require us to offer to
purchase a portion of our outstanding notes. If we fail to purchase these
notes, it would result in a default under the indentures and may result in a
default under other debt facilities.

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Economic downturns in the geographic areas in which we operate could adversely
affect demand and prices for new homes in those areas and could have an adverse
effect on our revenues and earnings.

Although we operate in 14 major metropolitan areas, our operations are
concentrated in the southwestern and southeastern United States. Adverse
economic or other business conditions in these regions or in the particular
markets in which we operate, all of which are outside of our control, could
have an adverse effect on our revenues and earnings.

We may not be able to acquire suitable land at reasonable prices, which could
increase our costs and reduce our profit margins.

We have experienced an increase in competition for available land and
developed lots in some of our markets as a result of the strength of the
economy in many of these markets over the past few years and the availability
of more capital to major homebuilders. Our ability to continue our development
activities over the long term depends upon our ability to locate suitable
parcels of land or developed lots and acquire them to support our homebuilding
operations. As competition for land increases, the cost of acquiring it may
rise and the availability of suitable parcels at acceptable prices may decline.
If we are unable to acquire suitable land or developed lots at reasonable
prices, it could limit our ability to develop new projects or result in
increased land costs which we may not be able to pass through to our customers.
Consequently, it could reduce our profit margins.

We may not be successful in our effort to identify, complete or integrate
acquisitions, which could adversely affect our results of operations and future
growth.

A principal component of our strategy is to continue to grow profitably in
a controlled manner, including, where appropriate, by acquiring other property
developers or homebuilders. We may not be successful in implementing our
acquisition strategy, and growth may not continue at historical levels or at
all. We completed the merger with Engle on June 25, 2002, and we acquired the
assets of DS Ware and Masonry in the fourth quarter of 2002. The failure to
identify, complete or successfully integrate the businesses we acquire could
adversely affect our results of operations and future growth. Specifically,
any delays or difficulties in converting our various information systems or
implementing our internal policies and procedures could increase costs and
otherwise affect our results of operations. Even if we overcome these
challenges and risks, we may not realize the expected benefits of the
acquisitions.

We may need additional financing to fund our operations or for the expansion of
our business, and if we are unable to obtain sufficient financing, we may not
be able to operate or expand our business as planned, which could adversely
affect our results of operations and future growth.

Our operations require significant amounts of cash. If our business does
not achieve the levels of profitability or generate the amount of cash that we
anticipate or if we expand through acquisitions or organic growth faster than
anticipated, we may need to seek additional debt or equity financing to operate
and expand our business. If we are unable to obtain sufficient financing to
fund our operations or expansion, it could adversely affect our results of
operations and future growth. We may be unable to obtain additional financing
on satisfactory terms or at all. If we raise additional funds through the
incurrence of debt, we will incur increased debt service costs and may become
subject to additional restrictive financial and other covenants.

Technical Olympic, our principal stockholder, can cause us to take certain
actions or preclude us from taking actions without the approval of the other
stockholders and may have interests that could conflict with your interests.

Technical Olympic currently owns 91.75% of the voting power of our common
stock. As a result, Technical Olympic has the ability to control the outcome
of virtually all corporate actions requiring stockholder approval, including
the election of a majority of our directors, the approval of any merger and
other significant corporate action. Technical Olympic may authorize actions or
have interests that could conflict with your interests.

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Risks Related to Our Industry

Changes in economic or other business conditions could adversely affect demand
and prices for new homes, which could decrease our revenues.

The homebuilding industry historically has been cyclical and is affected
significantly by adverse changes in general and local economic conditions, such
as:



| |  |  | employment levels;                                                                    
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | population growth;                                                                    
|
| |  |  | consumer confidence and stability of income levels;                                   
|
| |  |  | availability of financing for land acquisitions, construction and permanent mortgages;
|
| |  |  | interest rates;                                                                       
|
| |  |  | inventory levels of both new and existing homes;                                      
|
| |  |  | supply of rental properties; and                                                      
|
| |  |  | conditions in the housing resale market.                                              

One or more of these conditions, all of which are outside of our control,
could adversely affect demand and the prices for new homes in some or all of
the regions in which we operate. A decline in demand or the prices we can
obtain for our homes could decrease our revenues.

We are subject to substantial risks with respect to the land and home
inventories we maintain, and fluctuations in market conditions may affect our
ability to sell our land and home inventories at expected prices, if at all,
which would reduce our profit margins.

As a homebuilder, we must constantly locate and acquire new tracts of land
for development and developed lots to support our homebuilding operations.
There is often a lag time between the time we acquire land for development or
developed lots and the time that we can bring the developed properties to
market and sell them. Lag time varies on a project-by-project basis; however,
historically, we have experienced a lag time of approximately 9 to 12 months.
As a result, we face the risk that demand for housing may decline during this
period and that we will not be able to dispose of developed properties or
undeveloped land or lots acquired for development at expected prices or within
anticipated time frames or at all. The market value of housing inventories,
undeveloped land and developed lots can fluctuate significantly because of
changing market conditions. In addition, inventory carrying costs (including
interest on funds used to acquire land or build homes) can be significant and
can adversely affect our performance. Because of these factors, we may be
forced to sell homes or other property at a loss or for prices that generate
lower profit margins than we anticipate. We may also be required to make
material write-downs of the book value of our real estate assets in accordance
with generally accepted accounting principles if values decline.

Supply risks and shortages relating to labor and materials can harm our
business by delaying construction and increasing costs.

The homebuilding industry from time to time has experienced significant difficulties with respect to:



| |  |  | shortages of qualified trades people and other labor;                                                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | inadequately capitalized local contractors;                                                                                                            
|
| |  |  | shortages of materials; and                                                                                                                            
|
| |  |  | volatile increases in the cost of certain materials, including
lumber, framing and cement, which are significant components of home
construction costs.

These difficulties can, and often do, cause unexpected short-term
increases in construction costs and cause construction delays. We are
generally unable to pass on any unexpected increases in construction costs to
those

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customers who have already entered into sales contracts, as those contracts
generally fix the price of the house at the time the contract is signed, which
may be up to one year in advance of the delivery of the home. Furthermore,
sustained increases in construction costs may, over time, erode our profit
margins. We have historically been able to offset sustained increases in the
costs of materials with increases in the prices of our homes and through
operating efficiencies. However, in the future, pricing competition may
restrict our ability to pass on any additional costs and we may not be able to
achieve sufficient operating efficiencies to maintain our current profit
margins.

Future increases in interest rates or a decrease in the availability of
government-sponsored mortgage financing could prevent potential customers from
purchasing our homes, which would adversely affect our revenues.

Almost all of our customers finance their purchases through mortgage
financing obtained from us or other sources. Increases in interest rates or
decreases in the availability of Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, Federal Housing Administration or Veterans
Association mortgage financing could cause a decline in the market for new
homes as potential homebuyers may not be able to obtain affordable financing.
Increased interest rates can also limit our ability to realize our backlog
because our sales contracts typically provide our customers with a financing
contingency. Financing contingencies allow customers to cancel their home
purchase contracts in the event they cannot arrange for financing at interest
rates that were prevailing when they signed their contracts. In particular,
because the availability of mortgage financing is an important factor in
marketing many of our homes, any limitations or restrictions on the
availability of those types of financing could reduce our home sales and the
lending volume at our mortgage subsidiary. Even if our potential customers do
not need financing, changes in interest rates and mortgage availability could
make it harder for them to sell their existing homes to potential buyers who
need financing. Interest rates currently are at their lowest level in decades,
and any future increases in interest rates could adversely affect our revenues.

The competitive conditions in the homebuilding industry could increase our
costs, reduce our revenues and otherwise adversely affect our results of
operations.

The homebuilding industry is highly competitive and fragmented. We
compete in each of our markets with numerous national, regional and local
builders, including some builders with greater financial resources, more
experience and more established market positions than ours and who have lower
costs of capital, labor and material than us and better opportunities for land
acquisitions. Builders of new homes compete for homebuyers, as well as for
desirable properties, raw materials and skilled subcontractors. The
competitive conditions in the homebuilding industry could among other things:



| |  |  | increase our costs and reduce our revenues;                                                             
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | make it difficult for us to acquire suitable land at acceptable prices;                                 
|
| |  |  | require us to increase selling commissions and other incentives;                                        
|
| |  |  | result in delays in construction if we experience a delay in procuring materials or hiring laborers; and
|
| |  |  | result in lower sales volumes.                                                                          

We also compete with resales of existing homes, available rental housing
and, to a lesser extent, condominium resales. An oversupply of attractively
priced resale or rental homes in the markets in which we operate could
adversely affect our ability to sell homes profitably.

Our financial services operations are also subject to competition from
third-party providers, many of which are substantially larger, may have a lower
cost of funds or overhead than we do and may focus exclusively on providing
such services.

We are subject to product liability and warranty claims arising in the ordinary
course of business that could adversely affect our results of operations.

As a homebuilder, we are subject in the ordinary course of our business to
product liability and home warranty claims. These claims are common in the
homebuilding industry and can be costly. While we maintain product liability
insurance and generally seek to require our subcontractors and design
professionals to indemnify us for liabilities arising from their work, there
can be no assurance that these insurance rights and indemnities will be

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adequate to cover all product liability and warranty claims for which we
may be liable. For example, we may be unable to enforce contractual
indemnities and be responsible for applicable self-insured retentions, and
certain claims may not be covered by insurance or may exceed applicable
coverage limits. Additionally, the coverage offered by, and availability of,
product liability insurance for construction defects is currently limited and
where coverage is available, it may be costly. There can be no assurance that
coverage will not be further restricted and become more costly. Uninsured and
unindemnified product liability and warranty claims as well as the cost of
product liability insurance could adversely affect our results of operations.

States, cities and counties in which we operate have, or may adopt, slow or no
growth initiatives reducing our ability to build in these areas, which could
adversely affect our future revenues.

Several states, cities and counties in which we operate have approved, and
others in which we operate may approve, various slow growth or no growth
initiatives and other ballot measures that could negatively impact the
availability of land and building opportunities within those localities.
Approval of slow or no growth measures would reduce our ability to build and
sell homes in the affected markets and create additional costs and
administration requirements, which in turn could have an adverse effect on our
future revenues.

Our business is subject to governmental regulations that may delay, increase
the cost of, or prohibit or severely restrict our development and homebuilding
projects.

We are subject to extensive and complex laws and regulations that affect
the land development and homebuilding process, including laws and regulations
related to zoning, permitted land uses, levels of density, building design,
elevation of properties, water and waste disposal and use of open spaces. We
also are subject to a variety of local, state and federal laws and regulations
concerning the protection of health and the environment. In some of the
markets in which we operate, we are required to pay environmental impact fees,
use energy saving construction materials and give commitments to provide
certain infrastructure such as roads and sewage systems. We must also obtain
permits and approvals from local authorities to complete residential
development or home construction. The laws and regulations under which we
operate and our obligations to comply with them may result in delays in
construction and development, cause us to incur substantial compliance and
other increased costs and prohibit or severely restrict development and
homebuilding activity in certain areas in which we operate.

Our financial services operations are subject to numerous federal, state
and local laws and regulations. Failure to comply with these requirements can
lead to administrative enforcement actions, the loss of required licenses and
claims for monetary damages.

Our business revenues and profitability may be adversely affected by natural
disasters or weather conditions.

The climates in Florida and Texas present risks of natural disasters. To
the extent that hurricanes, severe storms, floods, tornadoes or other natural
disasters or similar weather events occur, our business may be adversely
affected. To the extent our insurance is not adequate to cover business
interruption or losses resulting from these events, our revenues and
profitability may be adversely affected.

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ITEM 2. PROPERTIES

Our executive offices are located at 4000 Hollywood Blvd., Suite 500-N,
Hollywood, Florida 33021. We own a 19,000 square foot facility in Sugar Land,
Texas, which houses our Houston homebuilding operations and a design center,
which allows a prospective homebuyer to view samples of some of the products
and features we offer in our homes in Houston. We lease an aggregate of
approximately 100,000 square feet of additional office space in our markets for
our homebuilding and financial services operations and our corporate and
executive offices. We believe our existing facilities are adequate for our
current and planned levels of operations.




ITEM 3. LEGAL PROCEEDINGS

We are involved in various claims and legal actions arising in the
ordinary course of business. We do not believe that the ultimate resolution of
these matters will have a material adverse effect on our financial condition or
results of operations.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On October 29, 2002, we held our Annual Meeting of Stockholders (the
Meeting). At the Meeting, the Stockholders voted on the election of ten
directors to serve until the 2003 Annual Meeting of Stockholders.

The voting results were as follows:

|                    |  |     |            |          |  |  |         | 
|------------------- |  | --- | ---------- | -------- |  |  | ------- | 
|Name of Nominee     |  | For |            | Withheld
|                    |  |     |            |         
|Constantine Stengos |  |     | 17,985,796 |          |  |  | 109,584 | 
|Antonio B. Mon      |  |     | 17,985,796 |          |  |  | 109,584 | 
|Yannis Delikanakis  |  |     | 17,909,073 |          |  |  | 186,307 | 
|Lonnie M. Fedrick   |  |     | 17,985,796 |          |  |  | 109,584 | 
|Andreas Stengos     |  |     | 17,909,073 |          |  |  | 186,307 | 
|George Stengos      |  |     | 17,909,073 |          |  |  | 186,307 | 
|Larry D. Horner     |  |     | 18,077,845 |          |  |  | 17,535  | 
|William A. Hasler   |  |     | 18,077,845 |          |  |  | 17,535  | 
|Michael J. Poulos   |  |     | 18,077,845 |          |  |  | 17,535  | 
|Michael S. Stevens  |  |     | 18,077,845 |          |  |  | 17,535  | 

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the Nasdaq National Market on March 12,
1998 under the symbol NHCH. Following the merger on June 25, 2002, our
common stock began trading under the symbol TOUS. The table below sets forth
the high and low sales price for our common stock as reported by the Nasdaq
National Market for the periods indicated:

|                                    |                |  |      |       |     |  |   |       | 
|----------------------------------- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                    |                |  | High |       | Low
|                                    |                |  |      |       |    
|Fiscal Year Ended December 31, 2001 |                |  |      |       |     |  |   |      
|                                    | First Quarter  |  | $    | 12.38 |     |  | $ | 9.11  | 
|                                    | Second Quarter |  |      | 17.00 |     |  |   | 10.52 | 
|                                    | Third Quarter  |  |      | 13.29 |     |  |   | 8.75  | 
|                                    | Fourth Quarter |  |      | 14.50 |     |  |   | 9.60  | 
|                                    |                |  |      |       |     |  |   |      
|                                    |                |  |      |       |     |  |   |      
|Fiscal Year Ended December 31, 2002 |                |  |      |       |     |  |   |      
|                                    | First Quarter  |  | $    | 17.84 |     |  | $ | 13.48 | 
|                                    | Second Quarter |  |      | 18.48 |     |  |   | 14.01 | 
|                                    | Third Quarter  |  |      | 16.73 |     |  |   | 14.28 | 
|                                    | Fourth Quarter |  |      | 17.00 |     |  |   | 13.10 | 

As of February 5, 2003, there were approximately 33 record holders of our
common stock.

We declared a dividend on March 6, 2001 of $0.54 per share of common stock
in the twelve months ended December 31, 2001, which would have been equal to
$0.22 per share as restated to reflect the total shares outstanding as a result
of the merger. We did not declare or pay any cash dividends on our common
stock in the twelve months ended December 31, 2002. Any future determination
as to the declaration and payment of cash dividends will be at the discretion
of our board of directors and will depend on then existing conditions,
including our financial condition, results of operations, contractual
restrictions, capital requirements, business prospects, and any other factors
our board of directors deems relevant. The credit agreement relating to our
revolving credit facility and the indentures governing our senior notes and
senior subordinated notes generally contain covenants that limit the amount of
dividends or distributions we can pay on our common stock and the amount of
common stock we can repurchase.

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ITEM 6. SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data)

|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |           |  
|------------------------------------------------------------------------ | -------------------------------------------- | - | ----------------------- | ------- | ------- | - | ---------- | ------- | ---------- | - | ---------- | ------- |  | - | ---------- | --------- | - |  |  |  |  | - | ---------- | --------- | -
|                                                                         |                                              |   | Year Ended December 31,
|                                                                         |                                              |   |                        
|                                                                         |                                              |   | 1998                    |         | 1999(1) |   | 2000(2)(3) |         | 2001(2)(3) |   | 2002(2)(3)
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |           
|Statement of Income Data:                                                |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Homebuilding:                                                            |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|                                                                         | Revenues                                     |   | $                       | 406,353 |         |   | $          | 420,748 |            |   | $          | 546,666 |  |   | $          | 1,392,912 |   |  |  |  |  |   | $          | 1,377,092 |  
|                                                                         | Cost of sales                                |   |                         | 339,094 |         |   |            | 345,592 |            |   |            | 440,939 |  |   |            | 1,108,286 |   |  |  |  |  |   |            | 1,100,305 |  
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|                                                                         | Gross profit                                 |   |                         | 67,259  |         |   |            | 75,156  |            |   |            | 105,727 |  |   |            | 284,626   |   |  |  |  |  |   |            | 276,787   |  
|                                                                         | Selling, general and administrative expenses |   |                         | 43,614  |         |   |            | 47,503  |            |   |            | 63,832  |  |   |            | 152,063   |   |  |  |  |  |   |            | 163,726   |  
|                                                                         | Depreciation and amortization                |   |                         | 3,287   |         |   |            | 2,239   |            |   |            | 3,112   |  |   |            | 8,849     |   |  |  |  |  |   |            | 5,952     |  
|                                                                         | Severance and merger related expenses        |   |                         |        |         |   |            |        |            |   |            |        |  |   |            | 2,643     |   |  |  |  |  |   |            | 19,963    |  
|                                                                         | Loss on early retirement of debt             |   |                         |        |         |   |            |        |            |   |            |        |  |   |            |          |   |  |  |  |  |   |            | 5,411     |  
|                                                                         | Other (income) expense, net                  |   |                         | (74     | )       |   |            | 867     |            |   |            | 2,264   |  |   |            | (3,941    | ) |  |  |  |  |   |            | (5,838    | )
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|                                                                         | Homebuilding pretax income                   |   |                         | 20,432  |         |   |            | 24,547  |            |   |            | 36,519  |  |   |            | 125,012   |   |  |  |  |  |   |            | 87,573    |  
|Financial services:                                                      |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|                                                                         | Revenues                                     |   |                         |        |         |   |            |        |            |   |            | 2,562   |  |   |            | 32,659    |   |  |  |  |  |   |            | 40,214    |  
|                                                                         | Expenses                                     |   |                         |        |         |   |            |        |            |   |            | 1,635   |  |   |            | 17,688    |   |  |  |  |  |   |            | 20,846    |  
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|                                                                         | Financial services pretax income             |   |                         |        |         |   |            |        |            |   |            | 927     |  |   |            | 14,971    |   |  |  |  |  |   |            | 19,368    |  
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Income from continuing operations before income taxes                    |                                              |   | 20,432                  |         |         |   | 24,547     |         |            |   | 37,446     |         |  |   | 139,983    |           |   |  |  |  |  |   | 106,941    |          
|Income tax expense                                                       |                                              |   | 7,637                   |         |         |   | 8,721      |         |            |   | 13,672     |         |  |   | 52,218     |           |   |  |  |  |  |   | 39,900     |          
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Income from continuing operations                                        |                                              | $ | 12,795                  |         |         | $ | 15,826     |         |            | $ | 23,774     |         |  | $ | 87,765     |           |   |  |  |  |  | $ | 67,041     |          
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Share Data:                                                              |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Income from continuing operations per share
(basic and diluted)          |                                              | $ | 1.16                    |         |         | $ | 1.38       |         |            | $ | 1.79       |         |  | $ | 3.15       |           |   |  |  |  |  | $ | 2.40       |          
|Income from discontinued operations per share
(basic and diluted)        |                                              | $ |                        |         |         | $ | 0.13       |         |            | $ | 0.48       |         |  | $ | 0.22       |           |   |  |  |  |  | $ | 0.18       |          
|Net income per share (basic and diluted)                                 |                                              | $ | 1.16                    |         |         | $ | 1.51       |         |            | $ | 2.27       |         |  | $ | 3.37       |           |   |  |  |  |  | $ | 2.58       |          
|Book value per share based on shares outstanding at
end of period        |                                              | $ | 7.84                    |         |         | $ | 9.53       |         |            | $ | 12.74      |         |  | $ | 14.83      |           |   |  |  |  |  | $ | 14.53      |          
|Cash dividends per share(4)                                              |                                              | $ |                        |         |         | $ |           |         |            | $ |           |         |  | $ | 0.22       |           |   |  |  |  |  | $ |           |          
|Weighted average number of common shares outstanding
(basic and diluted) |                                              |   | 11,035,342              |         |         |   | 11,500,000 |         |            |   | 13,250,062 |         |  |   | 27,878,787 |           |   |  |  |  |  |   | 27,878,787 |          
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Operating Data:                                                          |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Homes closed                                                             |                                              |   | 1,874                   |         |         |   | 1,620      |         |            |   | 1,994      |         |  |   | 5,304      |           |   |  |  |  |  |   | 5,085      |          
|Average sales price, per home closed                                     |                                              | $ | 216                     |         |         | $ | 255        |         |            | $ | 271        |         |  | $ | 259        |           |   |  |  |  |  | $ | 265        |          
|New sales contracts, net of cancellations                                |                                              |   | 2,036                   |         |         |   | 1,569      |         |            |   | 1,819      |         |  |   | 4,967      |           |   |  |  |  |  |   | 5,009      |          
|Backlog at end of period, number of homes                                |                                              |   | 591                     |         |         |   | 540        |         |            |   | 2,486      |         |  |   | 2,149      |           |   |  |  |  |  |   | 2,280      |          
|Backlog at end of period, sales value                                    |                                              | $ | 141,643                 |         |         | $ | 137,582    |         |            | $ | 629,348    |         |  | $ | 573,405    |           |   |  |  |  |  | $ | 636,922    |          
|                                                                         |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Statement of Financial Condition Data:                                   |                                              |   |                         |         |         |   |            |         |            |   |            |         |  |   |            |           |   |  |  |  |  |   |            |          
|Inventory                                                                |                                              | $ | 141,069                 |         |         | $ | 166,676    |         |            | $ | 613,095    |         |  | $ | 645,986    |           |   |  |  |  |  | $ | 753,872    |          
|Total assets                                                             |                                              | $ | 245,337                 |         |         | $ | 328,892    |         |            | $ | 868,553    |         |  | $ | 999,170    |           |   |  |  |  |  | $ | 1,034,888  |          
|Homebuilding borrowings (5)                                              |                                              | $ | 84,681                  |         |         | $ | 105,876    |         |            | $ | 337,649    |         |  | $ | 308,697    |           |   |  |  |  |  | $ | 413,110    |          
|Total borrowings (5)                                                     |                                              | $ | 84,681                  |         |         | $ | 105,876    |         |            | $ | 346,720    |         |  | $ | 347,386    |           |   |  |  |  |  | $ | 461,419    |          
|Stockholders equity                                                     |                                              | $ | 90,112                  |         |         | $ | 109,618    |         |            | $ | 355,059    |         |  | $ | 413,370    |           |   |  |  |  |  | $ | 405,145    |          

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|(1) |  | Technical Olympic acquired 80% of our common stock on December 15,
1999. Consequently, our audited financial statements for 1999 present the
results of operations in two columns on a predecessor and successor basis. The
predecessor column includes the results of operations from January 1, 1999 to
December 15, 1999. The successor column includes the results of operations
from December 16, 1999 to December 31, 1999. In the above table, the financial
data reflects our operations on a full-year basis, which represents the total
of the predecessor and successor columns.                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | On June 25, 2002, we completed the merger with Engle. As both
entities were under the common control of Technical Olympic, the merger was
accounted for as a reorganization of entities under common control. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, we recognized the acquired assets and liabilities of
Engle at their historical carrying amounts. As both entities became under
common control of Technical Olympic on November 22, 2000, our financial
statements and other operating data have been restated to include the
operations of Engle from November 22, 2000. See note 1 to our consolidated
financial statements included elsewhere in this Form 10-K.
|   
|(3) |  | On April 15, 2002, we completed the sale of Westbrooke, formerly one
of our Florida homebuilding subsidiaries. In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the results
of Westbrookes operations have been classified as discontinued operations, and
prior periods have been restated. See note 8 to our consolidated financial
statements included elsewhere in this Form 10-K.                                                                                                                                                                                                                                                                                               
|   
|(4) |  | Cash dividends per share have been restated to reflect the total
shares outstanding as a result of the merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(5) |  | Homebuilding borrowings and total borrowings do not include the
consolidated land bank obligations of $30.0 million and $16.3 million as of
December 31, 2001 and 2002, respectively. For information concerning the
consolidated land bank obligations, see Managements Discussion and Analysis
of Financial Condition and Results of Operations  Critical Accounting
Policies.                                                                                                                                                                                                                                                                                                                                                    

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with Selected Financial
Data and the consolidated financial statements and related notes included
elsewhere in this report.

We generate our revenues from our homebuilding operations
(Homebuilding) and financial services operations (Financial Services). In
accordance with Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information, we have
determined that Homebuilding and Financial Services comprise our operating
segments. Through our Homebuilding operations, we design, build and sell
single-family homes, town homes and patio homes in 14 metropolitan markets
located in four major geographic regions: Florida, Texas, the West and the
Mid-Atlantic.

|                                                     |  |                                             |  |                                                              |  |                                                           
|---------------------------------------------------- |  | ------------------------------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------------------------
|Florida                                              |  | Texas                                       |  | West                                                         |  | Mid-Atlantic                                              
|                                                     |  |                                             |  |                                                              |  |                                                           
|South Florida
Southwest Florida
Orlando
Jacksonville |  | Houston
Austin
Dallas/Ft. Worth
San Antonio |  | Phoenix, Arizona
Denver, Colorado
Colorado Springs, Colorado |  | Northern Virginia
Baltimore, Maryland
Nashville, Tennessee

Our Homebuilding operation generates the majority of its revenues from the
sale of homes to homebuyers and to a lesser degree from the sale of land to
other homebuilders. The majority of our homes are offered for sale in advance
of their construction. Once a sales contract has been signed, we classify the
transaction as a sale and include the home in backlog. Such sales
contracts are usually subject to certain contingencies such as the buyers
ability to qualify for financing. Revenue from the sale of homes and the sale
of land is recognized at closing when title passes to the buyer. The principal
expenses of our Homebuilding operations are (i) cost of sales and (ii) SG&A
expenses. Homebuilding cost of sales consists primarily of the cost of home
construction and land purchases. SG&A expenses for our Homebuilding operations
include administrative costs, advertising expenses, on-site marketing expenses,
commission costs and closing costs.

At December 31, 2002, we were marketing homes in 159 communities, by
comparison at December 31, 2001 we were marketing homes in 146 communities, and
at December 31, 2000 we were marketing in 161 communities.

Through our Financial Services operations, we offer a variety of financial
services products, including
mortgage banking and title insurance agency and closing services. Our Financial
Services operations generate
their revenues from their mortgage and title operations. Our mortgage
operations revenues consist primarily
of origination and premium fee income, credit application fee income and the
gain on the sale of the mortgages. Revenue from our mortgage operations is
generally recognized when the mortgage loans and related servicing rights are
sold to third-party investors. Substantially all of our mortgages are sold to
private investors within 30 days. Title operations revenues consist primarily
of title insurance and closing services and are recognized as homes are closed.
All of our underwriting risk associated with title insurance policies is
transferred to third-party insurers. The principal expenses of our Financial
Services operations are SG&A expenses. SG&A expenses for our Financial Services
operations consist primarily of compensation and interest expense on our
warehouse line of credit.

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Critical Accounting Policies

In the preparation of our consolidated financial statements, we apply
accounting principles generally accepted in the United States. The application
of generally accepted accounting principles may require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying results. Listed below are those policies that we
believe are critical and require the use of complex judgment in their
application.

Homebuilding Revenues and Cost of Sales

Our Homebuilding operations generates the majority of its revenues from
the sale of homes to homebuyers and to a lesser degree from the sale of land to
other homebuilders. The majority of our homes are designed to appeal to move-up
homebuyers and are generally offered for sale in advance of their construction.
Once a sales contract has been signed, we classify the transaction as a sale
and include the home in backlog. Such sales contracts are usually subject to
certain contingencies such as the buyers ability to qualify for financing.
Revenue from the sale of homes and the sale of land is recognized at closing
when title passes to the buyer and all of the following conditions are met: a
sale is consummated, a significant down payment is received, the earnings
process is complete and the collection of any remaining receivables is
reasonably assured. As a result, our revenue recognition process does not
involve significant judgments or estimates. However, we do rely on certain
estimates to determine the related construction and land costs and resulting
gross margins associated with revenues recognized. Our construction and land
costs are comprised of direct and allocated costs, including estimated costs
for future warranties and indemnities. Our estimates are based on historical
results, adjusted for current factors. Land, land improvements and other common
costs are generally allocated on a relative fair value basis to units within a
parcel or subdivision. Land and land development costs generally include
related interest and property taxes incurred until construction is
substantially completed.

Financial Services Revenues and Expenses

Our Financial Services operations generates its revenues from its mortgage
and title operations. Our mortgage operations revenues consist primarily of
origination and premium fee income, credit application fee income and the gain
on the sale of the mortgages. Revenue from our mortgage operations is generally
recognized when the mortgage loans and related servicing rights are sold to
third-party investors. Substantially all of our mortgages are sold to private
investors within 30 days. Title operations revenues consist primarily of title
insurance and closing services which are recognized as homes are closed. All of
our underwriting risk associated with title insurance policies is transferred
to third-party insurers. Expenses associated with our Financial Services
operations consists primarily of selling, general & administrative (SG&A)
expenses, which consist primarily of compensation and interest expense related
to our mortgage warehouse line of credit.

Goodwill

Effective January 1, 2002, we adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Upon the adoption of SFAS No. 142, goodwill is no longer subject to
amortization. Goodwill is subject to at least an annual assessment for
impairment by applying a fair value-based test. If the carrying amount exceeds
the fair value, goodwill is considered to be impaired. We continually evaluate
whether events and circumstances have occurred that indicate the remaining
balance of goodwill may not be recoverable. In evaluating impairment, we
estimate the sum of the expected future cash flows derived from such goodwill.
Such evaluations for impairment are significantly impacted by estimates of
future revenues, costs and expenses and other factors. If the goodwill is
considered to be impaired, the impairment loss to be recognized is measured by
the amount by which the carrying amount of the goodwill exceeds the fair value
of the expected future cash flows.

Impairment of Long-Lived Assets

Housing projects and land/lots under development are stated at the lower
of costs or net realizable value. Property and equipment is carried at cost
less accumulated depreciation. We assess these assets for impairment in
accordance with the provisions of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets
be reviewed for impairment whenever events or changes in

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circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by comparing the carrying
amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. These evaluations for impairment are significantly
impacted by estimates of revenues, costs and expenses and other factors. If
these assets are considered to be impaired, the impairment loss to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.

During March 2002, we committed to a plan to dispose of Westbrooke.
Pursuant to this plan of disposition, we would sell 100% of the common stock of
Westbrooke. On April 15, 2002, we completed the sale of Westbrooke to Standard
Pacific. Accordingly, as of March 31, 2002, we had determined that in
accordance with SFAS No. 144, the criteria to classify the Westbrooke assets as
held for sale were met. Results of Westbrookes operations have been classified
as discontinued operations and prior periods have been restated.

Lot Option Contracts

We enter into option contracts with land sellers and third-party financial
entities as a method of acquiring developed lots. From time to time to leverage
our ability to acquire and finance the development of these lots, we transfer
our option right to third parties. Option contracts generally require the
payment of a non-refundable cash deposit or the issuance of a letter of credit
for the right to acquire lots over a specified period of time at predetermined
prices. Typically, our deposits or letter of credit are less than 20% of the
option price. We generally have the right at our discretion to terminate our
obligations under these option agreements by forfeiting our cash deposit or
repaying amounts drawn under the letter of credit with no further financial
responsibility. We do not have legal title to these assets. Additionally, we do
not have an investment in the third-party acquirer and do not guarantee their
liabilities. However, if certain conditions are met, including the deposit
and/or letters of credit exceeding certain significance levels as compared to
the remaining lots under the option contract, we will include the lots in
inventory with a corresponding liability in consolidated land bank obligations.

Warranty Reserves

In the normal course of business we will incur warranty related costs
associated with homes which have previously closed. Warranty reserves are
established by charging cost of sales and recognizing a liability for the
estimated warranty costs for each home that is closed. We monitor this reserve
on a monthly basis by evaluating the historical warranty experience in each
market in which we operate and the reserve is adjusted as appropriate for
current quantitative and qualitative factors. Actual future warranty costs
could differ from our currently estimated amounts.

Recent Transactions

On November 18, 2002, we acquired the net assets of Masonry Homes, Inc., a
homebuilder operating in the northwestern suburbs of Baltimore and southern
Pennsylvania, for $17.1 million in cash. In addition, if certain targets are
met regarding home sale closings, the development and/or subdivision of certain
lots and earnings for the 2003 and 2004 fiscal years, we will be obligated to
pay up to an additional $21.3 million in cash to the sellers over a two-year
period. Based on our preliminary allocation of the purchase price, this
acquisition resulted in no material amount of goodwill being recorded.

On October 4, 2002, we acquired the net assets of DS Ware Homes LLC, a
homebuilder operating in Jacksonville, Florida, for $35.0 million in cash. In
addition, if certain earnings targets are met for the five-month period after
the closing, we will be obligated to pay an additional $5.1 million in cash to
the sellers in 2003. Based on our preliminary allocation of the purchase price,
this acquisition resulted in $21.0 million of goodwill being recorded.

On June 25, 2002, Engle merged with and into us and we changed our name
from Newmark Homes Corp. to Technical Olympic USA, Inc. Each issued and
outstanding share of Engle common stock was exchanged for 1,724.08294 shares of
our common stock. At the date of the merger, there were 9,500 shares of Engle
common stock issued and outstanding, all of which were held by Technical
Olympic, Inc. (TOI). As a result of the merger, 16,378,787 of additional shares
were issued to TOI. In addition, we assumed approximately $75.4 million of debt
incurred by TOI. As both we and Engle were under the control of TOI, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, the merger was accounted for in a manner

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similar to a pooling of interests, whereby we recognized the acquired
assets and liabilities of Engle at their historical carrying amounts. As both
entities came under common control of TOI on November 22, 2000, our financial
statements and other operating data has been restated to include the operations
of Engle from November 22, 2000. The assumption of the $75.4 million of debt
incurred by TOI was accounted for as a distribution as of June 25, 2002. See
Note 1 to the consolidated financial statements included elsewhere in this Form
10-K.

On April 15, 2002, we sold all the stock of Westbrooke Acquisition Corp.,
formerly one of our Florida homebuilding subsidiaries, to Standard Pacific
Corp. for consideration consisting of $41.0 million in cash and the repayment
by Standard Pacific of $54.4 million of Westbrookes debt, including $14.2
million of intercompany liabilities owed to us. We sold Westbrooke to eliminate
operating redundancies in our South Florida markets which would arise as a
result of the merger with Engle and to strengthen our financial position. In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the results of Westbrookes operations have been classified
as discontinued operations, and prior periods have been restated. See Note 8 to
the consolidated financial statements included elsewhere in this Form 10-K.

Results of Operations

Selected Financial and Other Information

The following table includes selected statement of income and other data
(dollars in thousands):

|                                                                |                |   |                         |         |      |   |           |           |  |   |           |           | 
|--------------------------------------------------------------- | -------------- | - | ----------------------- | ------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                |                |   | Year ended December 31,
|                                                                |                |   |                        
|                                                                |                |   | 2000                    |         | 2001 |   | 2002     
|                                                                |                |   |                         |         |      |   |          
|Homebuilding:                                                   |                |   |                         |         |      |   |           |           |  |   |           |          
|Revenues:                                                       |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                | Home sales     |   | $                       | 540,323 |      |   | $         | 1,374,551 |  |   | $         | 1,349,713 | 
|                                                                | Land/lot sales |   |                         | 6,343   |      |   |           | 18,361    |  |   |           | 27,379    | 
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                |                |   | 546,666                 |         |      |   | 1,392,912 |           |  |   | 1,377,092 |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Cost of sales:                                                  |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                | Home sales     |   |                         | 434,736 |      |   |           | 1,091,626 |  |   |           | 1,075,875 | 
|                                                                | Land/lot sales |   |                         | 6,203   |      |   |           | 16,660    |  |   |           | 24,430    | 
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                |                |   | 440,939                 |         |      |   | 1,108,286 |           |  |   | 1,100,305 |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Gross profit                                                    |                |   | 105,727                 |         |      |   | 284,626   |           |  |   | 276,787   |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Selling, general & administrative expenses                      |                |   | 63,832                  |         |      |   | 152,063   |           |  |   | 163,726   |          
|Depreciation and amortization                                   |                |   | 3,112                   |         |      |   | 8,849     |           |  |   | 5,952     |          
|Severance and merger related expenses                           |                |   |                        |         |      |   | 2,643     |           |  |   | 19,963    |          
|Loss on early retirement of debt                                |                |   |                        |         |      |   |          |           |  |   | 5,411     |          
|Other (income) expense, net                                     |                |   | 2,264                   |         |      |   | (3,941    | )         |  |   | (5,838    | )        
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Homebuilding pretax income                                      |                |   | 36,519                  |         |      |   | 125,012   |           |  |   | 87,573    |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Financial Services:                                             |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                | Revenues       |   |                         | 2,562   |      |   |           | 32,659    |  |   |           | 40,214    | 
|                                                                | Expenses       |   |                         | 1,635   |      |   |           | 17,688    |  |   |           | 20,846    | 
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Financial Services pretax income                                |                |   | 927                     |         |      |   | 14,971    |           |  |   | 19,368    |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Income from continuing operations before income taxes           |                |   | 37,446                  |         |      |   | 139,983   |           |  |   | 106,941   |          
|Income tax expense                                              |                |   | 13,672                  |         |      |   | 52,218    |           |  |   | 39,900    |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Income from continuing operations                               |                | $ | 23,774                  |         |      | $ | 87,765    |           |  | $ | 67,041    |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|                                                                |                |   |                         |         |      |   |           |           |  |   |           |          
|Other Data:                                                     |                |   |                         |         |      |   |           |           |  |   |           |          
|Homes closed                                                    |                |   | 1,994                   |         |      |   | 5,304     |           |  |   | 5,085     |          
|Average sales price per home closed                             |                | $ | 271                     |         |      | $ | 259       |           |  | $ | 265       |          
|Gross margin on home sales                                      |                |   | 19.5                    | %       |      |   | 20.6      | %         |  |   | 20.3      | %        
|Ratio of SG&A expenses to revenues from home sales              |                |   | 11.8                    | %       |      |   | 11.1      | %         |  |   | 12.1      | %        
|Ratio of Homebuilding pretax income to revenues from home sales |                |   | 6.8                     | %       |      |   | 9.1       | %         |  |   | 6.5       | %        
|Backlog at end of period in number of homes                     |                |   | 2,486                   |         |      |   | 2,149     |           |  |   | 2,280     |          
|Backlog at end of period in sales value                         |                | $ | 629,348                 |         |      | $ | 573,405   |           |  | $ | 636,922   |          
|Total active communities at year end                            |                |   | 161                     |         |      |   | 146       |           |  |   | 159       |          

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Selected Homebuilding Operating Data

The following table sets forth home sales and backlog data by region (dollars
in thousands):

|                                             |              |  |                         |         |      |  |      |           |  |  |   |           | 
|-------------------------------------------- | ------------ |  | ----------------------- | ------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                             |              |  | Year ended December 31,
|                                             |              |  |                        
|                                             |              |  | 2000                    |         | 2001 |  | 2002
|                                             |              |  |                         |         |      |  |     
|Homes closed:                                |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Florida      |  |                         | 178     |      |  |      | 1,931     |  |  |   | 2,024     | 
|                                             | Texas        |  |                         | 1,441   |      |  |      | 1,623     |  |  |   | 1,539     | 
|                                             | West         |  |                         | 95      |      |  |      | 1,057     |  |  |   | 958       | 
|                                             | Mid-Atlantic |  |                         | 280     |      |  |      | 693       |  |  |   | 564       | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Total        |  |                         | 1,994   |      |  |      | 5,304     |  |  |   | 5,085     | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|Average sales price per home closed:         |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Florida      |  | $                       | 215     |      |  | $    | 227       |  |  | $ | 245       | 
|                                             | Texas        |  | $                       | 273     |      |  | $    | 267       |  |  | $ | 258       | 
|                                             | West         |  | $                       | 259     |      |  | $    | 274       |  |  | $ | 269       | 
|                                             | Mid-Atlantic |  | $                       | 259     |      |  | $    | 308       |  |  | $ | 351       | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Total        |  | $                       | 299     |      |  | $    | 259       |  |  | $ | 265       | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|Revenues from home sales:                    |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Florida      |  | $                       | 38,216  |      |  | $    | 437,784   |  |  | $ | 496,731   | 
|                                             | Texas        |  |                         | 393,873 |      |  |      | 433,389   |  |  |   | 397,129   | 
|                                             | West         |  |                         | 24,563  |      |  |      | 289,807   |  |  |   | 258,080   | 
|                                             | Mid-Atlantic |  |                         | 83,671  |      |  |      | 213,571   |  |  |   | 197,773   | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Total        |  | $                       | 540,323 |      |  | $    | 1,374,551 |  |  | $ | 1,349,713 | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|New sales contracts, net of cancellations:   |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Florida      |  |                         | 154     |      |  |      | 1,987     |  |  |   | 1,809     | 
|                                             | Texas        |  |                         | 1,362   |      |  |      | 1,511     |  |  |   | 1,515     | 
|                                             | West         |  |                         | 98      |      |  |      | 945       |  |  |   | 1,116     | 
|                                             | Mid-Atlantic |  |                         | 205     |      |  |      | 524       |  |  |   | 569       | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Total        |  |                         | 1,819   |      |  |      | 4,967     |  |  |   | 5,009     | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|Backlog at end of period in number of homes: |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Florida      |  |                         | 1,217   |      |  |      | 1,273     |  |  |   | 1,195     | 
|                                             | Texas        |  |                         | 514     |      |  |      | 402       |  |  |   | 378       | 
|                                             | West         |  |                         | 417     |      |  |      | 305       |  |  |   | 463       | 
|                                             | Mid-Atlantic |  |                         | 338     |      |  |      | 169       |  |  |   | 244       | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Total        |  |                         | 2,486   |      |  |      | 2,149     |  |  |   | 2,280     | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|Backlog at end of period in sales value:     |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Florida      |  | $                       | 286,100 |      |  | $    | 326,026   |  |  | $ | 314,253   | 
|                                             | Texas        |  |                         | 135,517 |      |  |      | 105,283   |  |  |   | 103,017   | 
|                                             | West         |  |                         | 111,900 |      |  |      | 82,105    |  |  |   | 129,968   | 
|                                             | Mid-Atlantic |  |                         | 95,831  |      |  |      | 59,991    |  |  |   | 89,684    | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          
|                                             | Total        |  | $                       | 629,348 |      |  | $    | 573,405   |  |  | $ | 636,922   | 
|                                             |              |  |                         |         |      |  |      |           |  |  |   |          

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Fiscal Year 2002 Compared to Fiscal Year 2001

Net income decreased to $72.0 million (or $2.58 per share) during Fiscal
Year 2002 from $94.0 million (or $3.37 per share) during Fiscal Year 2001.
Income from continuing operations decreased to $67.0 million (or $2.40 per
share) during Fiscal Year 2002 from $87.8 million (or $3.15 per share) during
Fiscal Year 2001. The decrease in income from continuing operations is
attributable to a decrease in Homebuilding pretax income to $87.6 million
during Fiscal Year 2002 from $125.0 million during Fiscal Year 2001. The
decrease in Homebuilding pretax income was partially offset by an increase in
Financial Services pretax income to $19.4 million during Fiscal Year 2002 from
$15.0 million during Fiscal Year 2001.

Total revenues decreased to $1.42 billion during Fiscal Year 2002 from
$1.43 billion during Fiscal Year 2001. The decrease of 1% is attributable to a
decline in Homebuilding revenues which was offset by an increase in Financial
Services revenues.

Our provision for income taxes remained consistent at 37.3% during Fiscal
Year 2002 from Fiscal Year 2001.

Homebuilding

Homebuilding revenues decreased to $1.38 billion during Fiscal Year 2002
from $1.39 billion during Fiscal Year 2001. The decrease of 1% was due to a
decline in revenues from home sales, to $1.35 billion in Fiscal Year 2002 from
$1.37 billion during Fiscal Year 2001, which was offset by an increase in
revenues from land/lot sales, to $27.4 million from $18.4 million during the
same periods. Home closings decreased to 5,085 during Fiscal Year 2002 from
5,304 during Fiscal Year 2001.

The decrease in home
closings and revenue from home sales was primarily
attributable to a decline in the number of communities in which we were
actively marketing during Fiscal Year 2002 as compared to Fiscal Year 2001 and
a weakening in housing demand in the Texas and Western regions. These factors
were partially offset by a strong housing demand in Florida.

At the beginning of Fiscal Year 2002, we were actively marketing in 146
communities. As a result of our prior strategic decision to consolidate our
home sales activities and reduce our lot acquisitions during Fiscal Year 2001
and throughout the first half of Fiscal Year 2002, our active communities
declined to a low of 132 in June 2002. In the second half of Fiscal Year 2002,
we began to increase the number of communities in which we were marketing, both
through organic growth and through acquisition. Consequently, at December 31,
2002 we were actively marketing in 159 communities. However, due to a lag time
between the date we begin marketing homes in a community and the date that we
begin to close homes, home closings from these new communities will not begin
to contribute to our home sales revenue until 2003.

During Fiscal Year 2002, our Texas region generated revenues from home
sales of $397.1 million on 1,539 home closings as compared to revenues of
$433.4 million on home closings of 1,623 during Fiscal Year 2001. The weakening
in demand in this market also caused an increase in the level of incentives
offered which is reflected in the decline in the average sales price per home
closed to $258,000 during Fiscal Year 2002 from $267,000 during Fiscal Year
2001. Additionally, our West region experienced a decline in revenues from home
sales to $258.1 million on 958 home closings during Fiscal Year 2002 from
$289.8 million on 1,057 home closings during Fiscal Year 2001. The decline in
revenues in the West region is primarily due to a decline in the average number
of active selling communities during the first part of Fiscal Year 2002, as
compared to the prior year and a continued weakness in demand in our Colorado
markets. This softness in the market caused us to increase incentives offered
to homebuyers resulting in a slight decrease in the average sales price per
home closed, to $269,000 in Fiscal Year 2002 from $274,000 in Fiscal Year 2001.

These declines in revenue from the Texas and West regions were partially
offset by an increase in revenues generated in our Florida region to $496.7
million on 2,024 home closings during Fiscal Year 2002 from $437.8 million on
1,931 home closings during Fiscal Year 2001. The revenue increase in this
region is primarily due to the increase in our average sales price per home
closed to $245,000 during Fiscal year 2002 from $227,000 during Fiscal Year
2001. Additionally, we generated revenue from home sales of $13.7 million as a
result of our acquisition of DS Ware during October 2002.

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Our average sales price per home closed increased 2% to $265,000 during
Fiscal Year 2002 as compared to $259,000 during Fiscal Year 2001. The increase
is primarily attributable to increases in our Florida and Mid-Atlantic regions,
where we have continued to realize higher average sales prices from steady
demand for product. The increase in average sales price in these regions were
partially offset by declines in our Texas and West regions, where during Fiscal
Year 2002 we experienced significant increases in incentives provided to
homebuyers as compared to Fiscal Year 2001.

Homebuilding cost of sales decreased to $1.10 billion during Fiscal Year
2002 from $1.11 billion during Fiscal Year 2001. The decline of 1% is
attributable to the decline in the number of home closings offset by an
increase in cost of land/lot sales. Our gross margin on home sales decreased to
20.3% during Fiscal Year 2002 as compared to 20.6% during Fiscal Year 2001. The
decline in gross margin is primarily attributable to increased incentives and
an increase in the average lot cost per closing, partially offset by an
increase in our gross margin on options and upgrades.

SG&A expenses increased by 8% to $163.7 million during Fiscal Year 2002
from $152.1 million for Fiscal Year 2001. As a percentage of revenues from home
sales, SG&A expenses increased to 12.1% for Fiscal Year 2002 from 11.1% for
Fiscal Year 2001. The increase in SG&A expenses is primarily attributable to
increases in compensation, information technology, insurance and professional
fees.

Depreciation and amortization expenses decreased to $6.0 million during
Fiscal Year 2002 from $8.8 million during Fiscal Year 2001. The decrease of
$2.8 million is primarily due to the elimination of goodwill amortization as a
result of the adoption of SFAS 142 effective January 1, 2002. If we had not
recorded goodwill amortization expense during Fiscal Year 2001, it would have
resulted in an increase in net income per common share for Fiscal Year 2001 of
$0.05.

During Fiscal Year 2002 we incurred $20.0 million in severance and merger
related charges as compared to $2.6 million in Fiscal Year 2001. These charges
include severance accrued related to the termination of executives who were
employed by either us or Engle prior to the merger. Additionally, in connection
with our merger with Engle, we incurred approximately $6.0 million in legal,
consulting and advisory fees.

During Fiscal Year 2002, in connection with our offering of the June 2002
Senior Notes and the June 2002 Senior Subordinated Notes, we recognized a loss
on the early retirement of debt of $5.4 million. This charge relates to the
exit fees incurred and the write off of unamortized deferred finance costs
associated with the then existing borrowings.

Financial Services

Financial Services revenues increased to $40.2 million during Fiscal Year
2002 from $32.7 million during Fiscal Year 2001. The increase of 23% is
primarily attributable to an increase in the mortgage and title operations
capture of our home sale closings. The increase in the capture ratio of our
mortgage operations is due primarily to the expansion into the Texas region.

Financial Services expenses increased to $20.8 million during Fiscal Year
2002 from $17.7 million during Fiscal Year 2001. The increase of 18% is
primarily attributable to increased expenses incurred in connection with our
expansion of the Financial Services operations.

Discontinued Operations

During March 2002, we committed to a plan to dispose of Wesbrooke to
eliminate operating redundancies in our South Florida markets and to strengthen
our financial position. Pursuant to this plan of disposition, we would sell
100% of the common stock of Westbrooke. On April 8, 2002, we signed a
definitive agreement for the sale of Westbrooke to Standard Pacific Corp.
(Standard Pacific) for $41.0 million in cash. This sale was completed on April
15, 2002. In addition, Standard Pacific satisfied $54.4 million of Westbrookes
debt that included $14.2 of intercompany liabilities owed to us. Upon
completion of this sale, we realized a gain of $4.3 million. We have
determined that in accordance with SFAS 144, as of March 31, 2002, the criteria
to classify the Westbrooke assets as held for sale were met.

Results of Westbrookes operations have been classified as discontinued
operations, and prior periods have

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been restated. Selected financial data of our discontinued operations are
as follows (dollars in thousands):

|                                                         |  |                         |         |      |  |      |         |  |  |   |        | 
|-------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------ | 
|                                                         |  | Year Ended December 31,
|                                                         |  |                        
|                                                         |  | 2000                    |         | 2001 |  | 2002
|                                                         |  |                         |         |      |  |     
|Revenues                                                 |  | $                       | 178,213 |      |  | $    | 205,661 |  |  | $ | 44,197 | 
|Income from discontinued operations, net of taxes        |  | $                       | 6,321   |      |  | $    | 6,272   |  |  | $ | 4,963  | 
|Net income per common share from discontinued operations |  | $                       | 0.48    |      |  | $    | 0.22    |  |  | $ | 0.18   | 

Fiscal Year 2001 Compared to Fiscal Year 2000

Net income increased to $94.0 million (or $3.37 per share) during Fiscal
Year 2001 from $30.1 million (or $2.27 per share) during Fiscal Year 2000.
Income from continuing operations increased to $87.8 million (or $3.15 per
share) during Fiscal Year 2001 from $23.8 million (or $1.79 per share) during
Fiscal Year 2000. The increase in income from continuing operations is
attributable to significant increases in our Homebuilding pretax income to
$125.0 million during Fiscal Year 2001 from $36.5 million during Fiscal Year
2000 and an increase in Financial Services pretax income to $15.0 million
during Fiscal Year 2001 from $0.9 million during Fiscal Year 2000.

Total revenues increased to $1.4 billion during Fiscal Year 2001 from $0.6
billion during Fiscal Year 2000. The increases in income and revenues were
primarily a result of the inclusion of a full year of Engles results of
operations during Fiscal Year 2001 as compared to approximately 40 days during
Fiscal Year 2000. As a result of our merger with Engle, which is being
accounted for as a reorganization of entities under common control, Engles
results of operations are included from November 22, 2000, the earliest date
that both we and Engle were under common control.

Our provision for income taxes increased to 37.3% during Fiscal Year 2001
from 36.5% during Fiscal Year 2000. This increase in our effective rate was
primarily a result of an increase in state taxes, due to a higher proportion of
our pretax income being generated from states which are subject to state income
tax.

Homebuilding

Homebuilding revenues increased to $1.39 billion during Fiscal Year 2001
from $0.55 billion during Fiscal Year 2000 primarily as a result of the
inclusion of a full year of Engle operations. This increase of 153% was due to
an increase in revenues from home sales, to $1.37 billion in Fiscal Year 2001
from $0.54 billion in Fiscal Year 2000, and an increase in revenues from
lot/land sales, to $18.3 million during Fiscal Year 2001 from $6.3 million in
Fiscal Year 2000. Home closings increased to 5,304 during Fiscal Year 2001
from 1,994 during Fiscal Year 2000.

This increase in revenues from home sales is primarily attributable to the
increase in the number of home closings which was slightly offset by a decrease
in our average sale price per home closed. The average sales price per home
closed for Fiscal Year 2001 decreased to $259,000 from $271,000 during Fiscal
Year 2000. The decrease was primarily attributable to the change in the mix of
closings between our regions. During Fiscal Year 2000, 72.2% of our closings
occurred in Texas, which realized an average sales price per home closed of
$273,000, while only 8.9% of the closings occurred in Florida, which realized
an average sales price per home closed of $215,000. During Fiscal Year 2001,
closings in Texas, which had an average sales price per home closed of
$267,000, decreased to 30.6%, while closings in Florida, which had an average
sales price per home closed of $227,000, increased to 36.4%. This was partially
offset by the increase in our closings occurring in the West region. During
Fiscal Year 2000, we generated 4.8% of our closings in the West, which realized
an average sales price per home closed of $259,000. During Fiscal Year 2001,
closings in the West increased to 19.9%, with an average selling price per home
closed of $274,000.

As a result of the inclusion of a full year of Engle operations,
Homebuilding cost of sales increased to $1.11 billion during Fiscal Year 2001
from $0.44 billion during Fiscal Year 2000. During Fiscal Year 2001 the cost
of home sales was $1.09 billion as compared to $0.43 billion during Fiscal Year
2000. Our gross margin on home sales increased to 20.6% during Fiscal Year
2001 from 19.5% during Fiscal Year 2000. This increase in gross margin is
primarily due to the shift in the product mix of homes closed to higher margin
homes.

SG&A expenses increased to $152.1 million during Fiscal Year 2001 from
$63.8 million for Fiscal Year

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2000. This increase of 138% is primarily due to the inclusion of a full
year of Engle operations. As a percentage of revenues from home sales, SG&A
expenses remained relatively consistent, decreasing to 11.1% for Fiscal Year
2001 from 11.8% for Fiscal Year 2000.

During Fiscal Year 2001 depreciation and amortization expense was $8.8
million as compared to $3.1 million during Fiscal Year 2000. Of these amounts,
amortization of goodwill was $2.4 million in Fiscal Year 2001 and $1.6 million
in Fiscal Year 2000. As a result of the adoption of SFAS 142 effective January
1, 2002, we ceased amortization of goodwill. The elimination of this
amortization expense would have resulted in an increase in net income per
common share of $0.05 during Fiscal Year 2001 and $0.08 during Fiscal Year
2000.

During Fiscal Year 2001, we incurred $2.6 million in severance and merger
related expenses. These expenses relate primarily to legal, consulting and
related costs incurred in connection with the merger with Engle.

Financial Services

As a result of the inclusion of a full year of Engle operations, Financial
Services revenues increased to $32.7 million during Fiscal Year 2001 from $2.6
million during Fiscal Year 2000. Financial Services expenses increased to $17.7
million from $1.6 million.

Financial Condition, Liquidity and Capital Resources

Statement of Financial Condition and Cash Flow Data

The following table includes selected statement of financial condition and
other information (dollars in thousands):

|                                                 |  |                         |         |      |  |      |         |   |  |   |           |  
|------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | --------- | -
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  | 2000                    |         | 2001 |  | 2002
|                                                 |  |                         |         |      |  |     
|Cash-unrestricted                                |  | $                       | 24,251  |      |  | $    | 75,136  |   |  | $ | 49,211    |  
|Inventory                                        |  | $                       | 613,095 |      |  | $    | 645,986 |   |  | $ | 753,872   |  
|Total assets                                     |  | $                       | 868,553 |      |  | $    | 999,170 |   |  | $ | 1,034,888 |  
|Homebuilding borrowings                          |  | $                       | 337,649 |      |  | $    | 308,697 |   |  | $ | 413,110   |  
|Total borrowings (2)                             |  | $                       | 346,720 |      |  | $    | 347,386 |   |  | $ | 461,419   |  
|Stockholders equity                             |  | $                       | 355,059 |      |  | $    | 413,370 |   |  | $ | 405,145   |  
|Cash flow from operating activities              |  | $                       | 2,314   |      |  | $    | 24,657  |   |  | $ | 5,701     |  
|Cash flow from investing activities              |  | $                       | 32,130  |      |  | $    | (6,382  | ) |  | $ | (60,064   | )
|Cash flow from financing activities              |  | $                       | (18,525 | )    |  | $    | 30,756  |   |  | $ | (21,885   | )
|EBITDA (1)                                       |  | $                       | 53,551  |      |  | $    | 184,160 |   |  | $ | 142,757   |  
|Ratio of Homebuilding borrowings to total assets |  |                         | 38.9    | %    |  |      | 30.9    | % |  |   | 39.9      | %
|Ratio of Homebuilding borrowings to capital (3)  |  |                         | 48.7    | %    |  |      | 42.8    | % |  |   | 50.5      | %



---

|(1) |  | EBITDA represents earnings from continuing operations before interest,
taxes, depreciation, and amortization and consists of the sum of income
from continuing operations before: (a) income taxes, (b) amortization of
capitalized interest in cost of sales, (c) Homebuilding interest expense
and (d) depreciation and amortization. We have included information
concerning EBITDA because it is used by some investors as a measure of a
companys ability to service and incur debt. EBITDA is not required by
generally accepted accounting principles (GAAP), and other companies may
calculate EBITDA differently. EBITDA should not be considered as an
alternative to operating income or to cash flows from operating activities
(as determined in accordance with GAAP) and should not be construed as an
indication of our operating performance or a measure of our liquidity.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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(2)

Following is a reconciliation of income from continuing operations to
EBITDA (dollars in thousands):

|                                            |  |                         |        |      |  |      |         |  |  |   |         | 
|------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                            |  | Year Ended December 31,
|                                            |  |                        
|                                            |  | 2000                    |        | 2001 |  | 2002
|                                            |  |                         |        |      |  |     
|Income from continuing operations           |  | $                       | 23,774 |      |  | $    | 87,765  |  |  | $ | 67,041  | 
|Add: income taxes                           |  |                         | 13,672 |      |  |      | 52,218  |  |  |   | 39,900  | 
|Add: interest in cost of sales              |  |                         | 9,711  |      |  |      | 34,241  |  |  |   | 28,133  | 
|Add: interest expense                       |  |                         | 3,282  |      |  |      | 1,087   |  |  |   | 257     | 
|Add: amortization of deferred finance costs |  |                         |       |      |  |      |        |  |  |   | 1,474   | 
|Add: depreciation and amortization expense  |  |                         | 3,112  |      |  |      | 8,849   |  |  |   | 5,952   | 
|                                            |  |                         |        |      |  |      |         |  |  |   |         | 
|EBITDA                                      |  | $                       | 53,551 |      |  | $    | 184,160 |  |  | $ | 142,757 | 
|                                            |  |                         |        |      |  |      |         |  |  |   |         | 



---

|(3) |  | Total borrowings include Homebuilding borrowings and Financial Services
borrowings.                               
|--- |  | ------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | Capital includes Homebuilding borrowings and stockholders equity.
Capital excludes Financial Services borrowings.

Discussion of Financial Condition, Liquidity and Capital Resources

Our Homebuilding operations primary uses of cash have been for land
acquisitions, construction and development expenditures, and SG&A expenditures.
Our sources of cash to finance these requirements have been primarily cash
generated from operations and cash borrowed under our credit facilities. Our
Financial Services segment relies primarily on internally generated funds,
which include the proceeds generated from the sale of mortgages, and from the
mortgage operations warehouse line of credit to fund our operations.

At December 31, 2002, we had unrestricted cash and cash equivalents of
$49.2 million as compared to $75.1 million at December 31, 2001. The decrease
in unrestricted cash was primarily attributable to cash used in investing and
financing activities. Our primary investing activities consisted of the cash
used to fund acquisitions. Our primary financing activities consisted of the
repayment of the majority of the debt existing prior to the Merger with the
proceeds from the June 2002 notes offering and cash on hand.

During Fiscal Year 2002, we generated cash of $5.7 million from our
operating activities, which primarily consisted of cash generated from income
from operations offset by increases in inventory as part of our strategy to
increase the number of active communities and our land positions. During
Fiscal Year 2002, inventory increased by $107.9 million as our controlled lots
increased from 14,984 to 26,320. This use of cash was partially offset by the
cash generated from our sale of Westbrooke during April 2002 and income
generated from continuing operations. This, along with the proceeds from our
senior and senior subordinated notes (as described below) offering, were used
to repay $379.6 million in existing Homebuilding borrowings and Technical
Olympic debt assumed in the merger. During Fiscal Year 2002 we generated EBITDA
of $142.8 million as compared to $184.2 million during Fiscal Year 2001. The
decline in EBITDA is primarily a result of $20.0 million in severance and
merger related charges incurred during Fiscal Year 2002 as compared to $2.6
million incurred during Fiscal Year 2001 and a $5.4 million loss on the early
retirement of debt associated with our refinancing. Excluding these unusual
charges, EBITDA during Fiscal Year 2002 would have been $168.2 million as
compared to $186.8 million during Fiscal Year 2001. The decline of 10%
primarily relates to the decline in our Homebuilding pretax income, after
excluding these unusual charges, during Fiscal Year 2002 as compared to Fiscal
Year 2001. The decline in our Homebuilding pretax income during Fiscal Year
2002 was partially offset by an increase in our Financial Services pretax
income.

Cash used in investing activities was $60.1 million during Fiscal Year
2002 and $6.4 million during Fiscal Year 2001 as compared to cash provided by
investing activities of $32.1 million during Fiscal Year 2000. During Fiscal
Year 2002, the cash used in investing activities related primarily to the cash
used to fund 2002 acquisitions. During 2001 cash provided by investing
activities relates primarily to Engle cash on hand of $35.5 million which was
acquired at the time of the Merger. During Fiscal Year 2001, cash used in
investing activities relates primarily to net additions to property and
equipment.

On November 18, 2002, we acquired the net assets of Masonry Homes, Inc., a
homebuilder operating in the northwestern suburbs of Baltimore and southern
Pennsylvania, for $17.1 million in cash, of which approximately

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$15.0 million was funded with proceeds from the revolving credit facility.
In addition, if certain targets are met regarding home sale closings, the
development and/or subdivision of certain lots and earnings for the 2003 and
2004 fiscal years, we will be obligated to pay up to an additional $21.3
million in cash to the sellers over a two-year period, of which $11.3 million
has been paid as of February 5, 2003.

On October 4, 2002, we acquired the net assets of DS Ware Homes LLC, a
homebuilder operating in Jacksonville, Florida, for $35.0 million in cash, of
which $30.0 million was funded with proceeds from our revolving credit
facility. In addition, if certain earnings targets are met for the five-month
period after the closing, we will be obligated to pay an additional $5.2
million in cash to the sellers in 2003.

As a result of the increases in our land positions and the recent
acquisitions, our ratio of Homebuilding borrowings to total assets was 39.9% at
December 31, 2002 as compared to 30.9% and 38.9% at December 31, 2001 and 2000,
respectively. Our ratio of Homebuilding borrowings to capital was 50.5% at
December 31, 2002 as compared to 42.8% and 48.7% at December 31, 2001 and
December 31, 2000, respectively.

On June 25, 2002, we completed a private placement of $200.0 million 9%
Senior Notes due 2010 (referred to as our June 2002 Senior Notes) and $150.0
million 10-3/8% Senior Subordinated Notes due 2012 (referred to as our June 2002
Senior Subordinated Notes). The net proceeds of approximately $335.0 million
and cash on hand were used to repay existing Homebuilding borrowings and
approximately $75.4 million in debt assumed from Technical Olympic in the
merger.

On February 3, 2003, we completed a private placement of an additional
$100.0 million of 9% Senior Notes (referred to as our February 2003 Senior
Notes) at a price of 94.836%. The net proceeds of approximately $93.6 million
were used to repay the $55.0 million outstanding under our credit facility as
of December 31, 2002 and approximately $35.0 million of an additional $50.0
million which was drawn down from January 1, 2003 through the date of closing.
The February 2003 Senior Notes were issued pursuant to an indenture with the
same terms and conditions as the June 2002 Senior Notes.

Interest on our outstanding 9% senior notes (both those issued in June
2002 and February 2003) and senior subordinated notes is payable on January 1
and July 1 of each year. The senior notes are guaranteed by all of our
material domestic subsidiaries. The senior notes rank pari passuin right of
payment with all of our existing and future senior debt and senior in right of
payment to the senior subordinated notes and any future subordinated debt. The
senior subordinated notes rank pari passuin right of payment with all of our
existing and future subordinated debt and are guaranteed on a senior
subordinated basis by all of our material domestic subsidiaries. The
indentures governing the senior and senior subordinated notes require us to
maintain a minimum net worth and place certain restrictions on our ability,
among other things, to incur additional debt, pay or make dividends or other
distributions, sell assets, enter into transactions with affiliates and merge
or consolidate with other entities. The interest rates on our outstanding
senior and senior subordinated notes are higher than the collective interest
rates on the obligations that were repaid. As a result of the higher interest
rates and the assumption of the Technical Olympic debt, we anticipate that
interest incurred will exceed the amounts which would have been incurred under
the prior borrowings. Therefore, the increased interest incurred will have an
effect on gross margins in future periods.

On June 25, 2002, we entered into a revolving credit facility that permits
us to borrow up to the lesser of (i) $220.0 million or (ii) our borrowing base
(calculated in accordance with the revolving credit facility agreement) minus
our outstanding senior debt. The revolving credit facility expires on June 26,
2005. As of December 31, 2002, we had drawn down $55.0 million and had issued
letters of credit of $24.9 million and as a result, had $140.1 million in
availability under the revolving credit facility. As of February 3, 2003, as a
result of the issuance and sale of the February 2003 Senior Notes and the
application of the proceeds, we had $15.0 million outstanding under our credit
facility and $175.5 million in availability. Loans outstanding under the
facility may be base rate loans or Eurodollar loans, at our election. Base
rate loans accrue interest at a rate per annum equal to (i) an applicable
margin plus (ii) the higher of (A) Citibank, N.A.s base rate, (B) 0.5% plus
the three week average of reserve-adjusted three-month certificate of deposit
rate and (C) 0.5% plus the Federal Funds Rate. Eurodollar loans accrue
interest at a rate per annum equal to (i) an applicable margin plus (ii) the
reserve-adjusted Eurodollar rate for the interest period. Applicable margins
will be adjusted based on the ratio of our liabilities to our tangible worth.
At

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December 31, 2002, our loans outstanding under the revolving credit
facility accrued interest at a rate of 3.6% per annum. The revolving credit
facility requires us to (1) maintain specified financial ratios regarding
leverage, interest coverage, consolidated tangible net worth and certain
operational measurements and (2) satisfy certain financial condition tests.
The revolving credit facility also places certain restrictions on, among other
things, our ability to incur additional debt or liens, pay or make dividends or
other distributions, sell assets, enter into transactions with affiliates and
merge or consolidate with other entities. The revolving credit facility is
secured by a first-priority perfected lien on all capital stock of subsidiaries
owned by us. Our obligations under the revolving credit facility are
guaranteed by all our domestic subsidiaries (subject to certain limited
restrictions).

To fund the origination of residential mortgage loans, our subsidiaries,
Preferred Home Mortgage Company (Preferred Home) and Technical Mortgage, L.P.
(Technical Mortgage) entered into a $65.0 million revolving warehouse line of
credit, which we refer to as our warehouse line of credit. The warehouse line
of credit is comprised of (1) a credit facility providing for revolving loans
of up to $40.0 million, subject to meeting borrowing base requirements based on
the value of collateral provided and (2) mortgage loan purchase and sale
agreements which provide for the purchase by the lender of up to $25.0 million
in mortgage loans generated by Preferred Home and Technical Mortgage. At no
time may the amount outstanding under the facility plus the amount of purchased
loans pursuant to the purchase and sale agreements exceed $65.0 million. The
warehouse line of credit expires on June 24, 2003. As of December 31, 2002, we
had $48.3 million outstanding under the warehouse line of credit. The
warehouse line of credit bears interest, at Preferred Homes and Technical
Mortgages option, at either, (1) the Federal Funds rate plus 1.375% or (2) a
Eurodollar rate plus 1.25%. At December 31, 2002, our loans outstanding under
the warehouse line of credit accrued interest at a rate of 2.543% per annum.
The warehouse line of credit requires Preferred Home to maintain certain
financial ratios and minimums. The warehouse line of credit is secured by a
guarantee from us and by funded mortgages which are pledged as collateral.

We believe that as a result of the merger, the June 2002 notes offering
and the February 2003 notes offering, we will have adequate financial
resources, including cash from operations and availability under the revolving
credit facility and the warehouse line of credit, to meet our current working
capital and land acquisition and development needs based on current market
conditions into the near future. However, there can be no assurance that the
amounts available from such sources will be sufficient. If we identify new
acquisition opportunities, or if our operations do not generate sufficient cash
from operations at levels currently anticipated, we may need to seek additional
debt or equity financing to operate and expand our business.

Maturities on Homebuilding borrowings at December 31, 2002 are as follows
(dollars in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 1,975   | 
|2004       |  |   | 1,800   | 
|2005       |  |   | 59,162  | 
|2006       |  |   | 10      | 
|2007       |  |   | 7       | 
|Thereafter |  |   | 350,156 | 
|           |  |   |         | 
|           |  | $ | 413,110 | 
|           |  |   |         | 

At December 31, 2002, the amount of our annual debt service payments was
$37.0 million. This amount included debt service payments on the June 2002
Senior Notes and June 2002 Senior Subordinated Notes of $33.6 million and
interest payments on the revolving credit facility and the warehouse line of
credit of $3.4 million based on the balances outstanding as of December 31,
2002. The amount of our annual debt service payments on the revolving credit
facility fluctuates based on the principal outstanding under the facility and
the interest rate. An increase or decrease of 1% in interest rates will change
our annual debt service payments by $1.0 million per year. The revolving
credit facility terminates in June 2005 at which time we will be required to
repay all outstanding principal. Under certain circumstances, we may extend
the facility in one-year increments, for up to two additional years.

Backlog

As of December 31, 2002, we have 2,280 units in backlog representing
$636.9 million in revenue, as compared to 2,149 units in backlog representing
$573.4 million in revenue as of December 31, 2001. This increase

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in revenue in backlog of 11% is attributable to several factors: we experienced
a slow down in new sales contracts during the 4th quarter of 2001 as a result
of the effects of September 11th; we increased our active selling communities
to 159 as of December 31, 2002 as compared to 146 as of December 31, 2001; and
we experienced an increase in the average selling price of units in backlog to
$279,000 from $267,000. This increase in the average selling price of our units
in backlog relates primarily to an increase in backlog in our Mid-Atlantic and
West regions where our average selling prices are higher. As of December 31,
2002, 31% of our units in backlog are from our Mid-Atlantic and West regions,
where our average selling prices are $368,000 and $281,000 respectively. As of
December 31, 2001, 22% of our units in backlog were from these regions.

Dividends

We did not declare or pay any dividends during Fiscal Year 2002. We paid
a dividend of $0.54 per share of common stock (on a pre-restatement basis and
$0.22 per share on a restated basis) in Fiscal Year 2001 ($6.2 million in the
aggregate). We did not pay any cash dividends on our common stock in Fiscal
Year 2000. Prior to its merger with us, Engle made net distributions of $4.8
million during Fiscal Year 2002, $29.5 million during Fiscal Year 2001 and $0.4
million during Fiscal Year 2000.

Impact of Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires the use of
the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations initiated
after June 30, 2001. SFAS 141 also requires companies to recognize acquired
intangible assets apart from goodwill if the acquired intangible assets meet
certain criteria. SFAS 141 applies to all business combinations completed on or
after July 1, 2001. It also requires, upon adoption of SFAS 142, that companies
reclassify the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141. The adoption of SFAS 141 did not have a material impact
on our consolidated financial statements.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead review goodwill for impairment at least annually. SFAS
142 prescribes a two-phase process for impairment testing of goodwill. The
first phase, required to be completed by June 30, 2002, screens for impairment.
The second phase (if necessary), required to be completed by December 31, 2002,
measures the impairment. The impairment loss is the amount, if any, by which
the implied fair value of goodwill is less than the book carrying value. In
addition, SFAS 142 requires companies to identify reporting units for the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. Companies are also required to reassess the useful lives
of other intangible assets within the first interim quarter after adoption of
SFAS 142.

We adopted SFAS 142 as of January 1, 2002. We completed the first phase
impairment analysis during the second quarter of 2002 and found no instances of
impairment on our recorded goodwill.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes the
rules on asset impairment under SFAS No. 121, Accounting for Long Lived Assets
and for Long Lived Assets to Be Disposed Of, but retains many of our
fundamental provisions. Additionally this Statement expands the scope of
discontinued operations to include more disposal transactions. SFAS 144
provides a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an important
distinction since such assets are not depreciated and are stated at the lower
of fair value or carrying amount. SFAS 144 also requires expected future
operating losses from discontinued operations to be displayed in the periods in
which the losses are incurred, rather than as of the measurement date as
previously required. The provisions of this Statement are effective for
financial statements issued beginning after December 15, 2001. The adoption of
SFAS 144 on January 1, 2002 did not have a material impact on our consolidated
financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4,
44 and 64, Amendment of

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FASB Statement No. 13 and Technical Corrections. SFAS 145 prevents gains
or losses on extinguishment of debt not meeting the criteria of APB 30 to be
treated as extraordinary. SFAS 145 amends SFAS No. 13, Accounting for Leases,
to eliminate inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. In
addition, SFAS 145 rescinds SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers and amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings or describe their applicability
under changed conditions. SFAS 145 is effective for fiscal years beginning
after May 15, 2002. The adoption of SFAS 145 does not have a material impact on
our previously issued financial statements. However, the adoption of SFAS 145
could impact the financial statements of subsequent periods, although it is not
expected to be material.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including certain costs incurred in a restructuring). SFAS 146
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred as opposed to when the entity
commits to an exit plan under EITF No. 94-3. SFAS 146 is effective for exit or
disposal activities initiated after December 31, 2002. We believe the adoption
of SFAS 146 will not have a significant effect on our consolidated financial
statements.

In January 2003, the FASB issued FASB Interpretation (Interpretation) No.
46, Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial Statements.
Interpretation No. 46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics:

|   |  |                                                                                                                                                                                                                                                                        
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | The equity investment at risk is not sufficient to permit the entity
to finance its activities without additional subordinated support from
other parties, which is provided through other interests that will
absorb some or all of the expected losses of the entity.
|   |  |                                                                                                                                                                                                                                                                        
|2. |  | The equity investors lack one or more of the following essential
characteristics of a controlling financial interest:                                                                                                                                                  

| |  |   |  |                                                                                                                                                         
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a |  | The direct or indirect ability to make decisions about
the entities activities through voting rights or similar rights                                  
| |  |   |  |                                                                                                                                                         
| |  | b |  | The obligation to absorb the expected losses of the
entity if they occur, which makes it possible for the entity to
finance its activities              
| |  |   |  |                                                                                                                                                         
| |  | c |  | The right to receive the expected residual returns of the
entity if they occur, which is the compensation for the risk of
absorbing the expected losses.

Interpretation No. 46 also requires expanded disclosures by the primary
beneficiary (as defined) of a variable interest entity and by an enterprise
that holds a significant variable interest in a variable interest entity but is
not the primary beneficiary. Interpretation No. 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. Interpretation No. 46 may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. As Interpretation No. 46 has just been
issued, we have not completed our evaluation as to the potential impact on our
consolidated financial statements. However, based on our preliminary review, we
do not believe that the adoption of Interpretation No. 46 will have a
significant effect on our consolidated financial statements.

Seasonality of Operations

The homebuilding industry tends to be seasonal, as generally there are
more homes sold in the spring and summer months when the weather is milder,
although the rate of sales contracts for new homes is highly dependent

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on the number of active communities and the timing of new community
openings. We operate primarily in the southwest and southeast, where weather
conditions are more suitable to a year-round construction process than in other
parts of the country. Because new home closings trail new home sales by several
months, we typically have a greater percentage of home closings in the fall.

Inflation

We and the homebuilding industry in general, may be adversely affected
during periods of high inflation, primarily because of higher land and
construction costs. Inflation also increases our financing, labor and material
costs, which may reduce gross margins. In addition, higher mortgage rates
significantly affect the affordability of permanent mortgage financing to
prospective homebuyers. We attempt to pass through to our customers any
increases in our costs through increased sales prices. To date, inflation has
not had a material adverse effect on our results of operations. However, there
is no assurance that it will not have a material adverse impact on our future
results of operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of the senior and senior subordinated notes offerings, $350.0
million of our outstanding borrowings are based on fixed interest rates. We
are exposed to market risk primarily related to potential adverse changes in
interest rates on our existing construction loan and warehouse line of credit
and our revolving credit facility. The interest rates relative to these
borrowings fluctuate with the prime and Eurodollar lending rates, both upwards
and downwards. As of December 31, 2002, we had an aggregate of approximately
$103.3 million drawn under our revolving credit facility and our warehouse line
of credit that is subject to changes in interest rates. An increase or decrease
of 1% in interest rates will change our annual debt service payments by $1.0
million per year.

We do not enter into, or intend to enter into, derivative financial
instruments for trading or speculative purposes.

The following table presents the future principal payment obligations and
weighted average interest rates associated with our long-term debt instruments
assuming our actual level of long-term debt indebtedness as of December 31,
2002:

|               |                                                                     |  |   |        |  |      |  |      |  |      |   |        |  |            |  |                        |  |  |  |   |  |  |   |         |  |  |   |         |  | 
|-------------- | ------------------------------------------------------------------- |  | - | ------ |  | ---- |  | ---- |  | ---- | - | ------ |  | ---------- |  | ---------------------- |  |  |  | - |  |  | - | ------- |  |  | - | ------- |  | 
|               |                                                                     |  |   |        |  |      |  |      |  |      |   |        |  |            |  | Expected Maturity Date |  |  |  |   |  |  |   |        
|               |                                                                     |  |   |        |  |      |  |      |  |      |   |        |  |            |  | (in thousands)         |  |  |  |   |  |  |   |        
|               |                                                                     |  |   | 2003   |  | 2004 |  | 2005 |  | 2006 |   | 2007   |  | Thereafter |  | Fair Value            
|               |                                                                     |  |   |        |  |      |  |      |  |      |   |        |  |            |  |                       
|Liabilities    |                                                                     |  |   |        |  |      |  |      |  |      |   |        |  |            |  |                        |  |  |  |   |  |  |   |         |  |  |   |        
|Long-term debt |                                                                     |  |   |        |  |      |  |      |  |      |   |        |  |            |  |                        |  |  |  |   |  |  |   |         |  |  |   |        
|               | Fixed rate (9.0%)                                                   |  |   |       |  |      |  |     |  |      |   |       |  |            |  |                       |  |  |  |  |  |  | $ | 200,000 |  |  | $ | 194,000 | 
|               | Fixed rate (10-3/8%)                                                |  |   |       |  |      |  |     |  |      |   |       |  |            |  |                       |  |  |  |  |  |  | $ | 150,000 |  |  | $ | 141,750 | 
|               | Revolving loan, variable rate
(3.6% at December 31, 2002)           |  |   |       |  |      |  |     |  |      | $ | 55,000 |  |            |  |                       |  |  |  |  |  |  |   |        |  |  | $ | 55,000  | 
|               | Variable rate, warehouse line
of credit (2.9% at December
31, 2002) |  | $ | 48,309 |  |      |  |     |  |      |   |       |  |            |  |                       |  |  |  |  |  |  |   |        |  |  | $ | 48,309  | 

Our operations are interest rate sensitive. Overall housing demand is
adversely affected by increases in interest rates. If mortgage interest rates
increase significantly, this may negatively affect the ability of homebuyers to
secure adequate financing. Higher interest rates will adversely affect our
revenues, gross margins and net income. Higher interest rates also increase our
borrowing costs because, as indicated above, our bank loans will fluctuate with
the prime and Eurodollar lending rates, both upwards and downwards.

Special Note Regarding Forward Looking Statements

This annual report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Discussions containing
forward-looking statements may be found in the material set forth in the
sections entitled Summary, Business and Managements Discussion and
Analysis of Financial Condition and Results of Operations.

These statements concern expectations, beliefs, projections, future plans
and strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. Specifically, this annual report
contains forward-looking statements including those regarding:



| |  |  | our expectations regarding certain financial and operating data for
the year ended December 31, 2002;                                                                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our expectations regarding the
time period when home closings from new communities will begin
contributing to our home sales revenue;                                             
|
| |  |  | our expectations regarding growth opportunities in the homebuilding
industry and our ability to successfully take advantage of such
opportunities;                                
|
|
| |  |  | our ability to successfully integrate our current operations and
any future acquisitions, and to recognize anticipated operating
efficiencies, cost savings and revenue increases;
|
| |  |  | our expectations regarding our lot acquisition strategy and its impact on our business;                                                                                           

35



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##### Table of Contents





| |  |  | our intention to grow the financial services business;                                                                                                                                           
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our expectations regarding the impact of our business initiatives
on our ability to capture repeat business, to minimize our exposure to
adverse economic conditions and to increase our revenue;
|
| |  |  | our belief that we have adequate financial resources to meet our
current working capital and land acquisition and development needs for
the foreseeable future;                                  
|
| |  |  | the impact of inflation on our future results of operations; and                                                                                                                                 
|
| |  |  | our ability to pass through to our customers in the form of
increased sales prices any increases in our costs.                                                                                   

These forward-looking statements reflect our current views about future
events and are subject to risks, uncertainties and assumptions. We caution
readers that certain important factors may have affected and could in the
future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The most
important factors that could prevent us from achieving our goals, and cause the
assumptions underlying forward-looking statements and the actual results to
differ materially from those expressed in or implied by those forward-looking
statements include, but are not limited to, the following:



| |  |  | our significant level of debt and the impact of the restrictions
imposed on us by the terms of this debt;                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | economic or other business conditions that affect the desire or
ability of our customers to purchase new homes in markets in which we
conduct our business;
|
| |  |  | our ability to identify and acquire, at anticipated prices, additional homebuilding opportunities;                                                         
|
| |  |  | our ability to successfully integrate and to realize the expected benefits of recent acquisitions;                                                         
|
| |  |  | our ability to access sufficient capital to finance our growth;                                                                                            
|
| |  |  | an increase in the cost of, or shortages in the availability of, skilled labor or construction materials;                                                  
|
| |  |  | an increase in interest rates;                                                                                                                             
|
| |  |  | a decline in the demand for, or the prices of, housing;                                                                                                    
|
| |  |  | our ability to successfully dispose of developed properties or
undeveloped land or lots at expected prices and within anticipated time
frames;             
|
| |  |  | our ability to compete in our existing and future markets;                                                                                                 
|
| |  |  | an increase or change in governmental regulations; and                                                                                                     
|
| |  |  | the results of our pending litigation.                                                                                                                     




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements
and supplementary data for us are on pages F-1 through F-24.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

36



---



##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The items required by Part III, Item 10 are incorporated herein by
reference from the Registrants Proxy Statement for its 2003 Annual Meeting of
Stockholders to be filed on or before April 30, 2003.




ITEM 11. EXECUTIVE COMPENSATION

The items required by Part III, Item 11 are incorporated herein by
reference from the Registrants Proxy Statement for its 2003 Annual Meeting of
Stockholders to be filed on or before April 30, 2003.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The items required by Part III, Item 12 are incorporated herein by
reference from the Registrants Proxy Statement for its 2003 Annual Meeting of
Stockholders to be filed on or before April 30, 2003.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The items required by Part III, Item 13 are incorporated herein by
reference from the Registrants Proxy Statement for its 2003 Annual Meeting of
Stockholders to be filed on or before April 30, 2003.




ITEM 14. CONTROLS AND PROCEDURES

In order to ensure that the information the Company must disclose in its
filings with the Securities and Exchange Commission is recorded, processed,
summarized and reported on a timely basis, the Company has formalized its
disclosure controls and procedures. The Companys principal executive officer
and principal financial officer have reviewed and evaluated the effectiveness
of the Companys disclosure controls and procedures, as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c), as of a date within 90 days prior to the filing
date of this report (the Evaluation Date). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, the Companys
disclosure controls and procedures were effective in timely alerting them to
material information relating to the Company (and its consolidated
subsidiaries) required to be included in the Companys periodic SEC filings.
Since the Evaluation Date, there have not been any significant changes in the
internal controls of the Company, or in other factors that could significantly
affect these controls subsequent to the Evaluation Date.




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |                                        
|--- |  | ---------------------------------------
|(a) |  | Documents filed as part of this report:

| |  |     |  |                                                                                                                                  
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------
| |  | (1) |  | Financial Statements                                                                                                             
| |  |     |  |                                                                                                                                  
| |  |     |  | See Item 8. Financial Statements and Supplementary Data for Financial
Statements included with this Annual Report on Form 10-K.
| |  |     |  |                                                                                                                                  
| |  | (2) |  | Financial Statement Schedules                                                                                                    
| |  |     |  |                                                                                                                                  
| |  |     |  | None.                                                                                                                            
| |  |     |  |                                                                                                                                  
| |  | (3) |  | Exhibits                                                                                                                         

|       |  |                                                                                                                                         
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit Description                                                                                                                     
|       |  |                                                                                                                                         
|2.1    |  | Agreement and Plan of Merger dated April 8, 2002, by and among Newmark
Homes Corp., Engle Holdings Corp., and Technical Olympic, Inc.(1)
|       |  |                                                                                                                                         
|3.1    |  | Certificate of Incorporation of Newmark Homes Corp.(2)                                                                                  
|       |  |                                                                                                                                         
|3.2    |  | Certificate of Amendment to the Certificate of Incorporation.(3)                                                                        

37



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##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit Description                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                  
|3.3    |  | Amended and Restated Bylaws.(3)                                                                                                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                  
|4.1    |  | Indenture, dated as of June 25, 2002, by and among Technical Olympic USA,
Inc. and the subsidiaries named therein and Wells Fargo Bank Minnesota,
National Association, as Trustee covering up to $200,000,000 9% Senior
Notes due 2010.(4)                                                      
|       |  |                                                                                                                                                                                                                                                                                                  
|4.2    |  | Indenture, dated as of June 25, 2002, by and among Technical Olympic USA,
Inc., the subsidiaries name therein and Wells Fargo Bank Minnesota,
National Association, as Trustee covering up to $150,000,000 10-3/8 Senior
Subordinated Notes due 2012.(4)                                         
|       |  |                                                                                                                                                                                                                                                                                                  
|4.3    |  | Registration Rights Agreement, dated June 25, 2002, among Technical
Olympic USA, Inc., certain direct and indirect subsidiaries of Technical
Olympic USA, Inc., Salomon Smith Barney, Inc., Deutsche Bank Securities,
Inc. and Fleet Securities, Inc. relating to the Senior Notes.(4)           
|       |  |                                                                                                                                                                                                                                                                                                  
|4.4    |  | Supplemental Indenture for the 9% Senior Notes due 2010, dated July 24,
2002, by and among Technical Olympic USA, Inc. and the subsidiaries named
therein and Wells Fargo Bank Minnesota, National Association, as
Trustee.(3)                                                                   
|       |  |                                                                                                                                                                                                                                                                                                  
|4.5    |  | Supplemental Indenture for the 10-3/8 Senior Subordinated Notes due 2012,
dated July 24, 2002 by and among Technical Olympic USA, Inc. and the
subsidiaries named therein and Wells Fargo Bank Minnesota, National
Association, as Trustee.(3)                                                   
|       |  |                                                                                                                                                                                                                                                                                                  
|4.6    |  | Form of Technical Olympic USA, Inc. 9% Senior Note due 2010 (included in
Exhibit A to Exhibit 4.1).(4)                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                  
|4.7    |  | Form of Technical Olympic USA, Inc. 10-3/8 Senior Subordinated Note due 2012
(included in Exhibit A of Exhibit 4.2).(4)                                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                  
|4.8    |  | Registration Rights Agreement, dated June 25, 2002, among Technical
Olympic USA, Inc., certain direct and indirect subsidiaries of Technical
Olympic USA, Inc., Salomon Smith Barney Inc., Deutsche Bank Securities
Inc. and Fleet Securities, Inc. relating to the Senior Subordinated
Notes.(5)
|       |  |                                                                                                                                                                                                                                                                                                  
|4.9    |  | Registration Rights Agreement, dated June 25, 2002, among Technical
Olympic USA, Inc. and Technical Olympic, Inc.(6)                                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                  
|4.10   |  | Specimen of Stock Certificate of Technical Olympic USA, Inc.(7)                                                                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                  
|4.11   |  | Supplemental Indenture for the 9% Senior Notes due 2010, dated as of
February 3, 2003, by and among Technical Olympic USA, Inc. and the
subsidiaries named therein and Wells Fargo Bank Minnesota, National
Association, as Trustee. **                                                          
|       |  |                                                                                                                                                                                                                                                                                                  
|4.12   |  | Supplemental Indenture for the 103/8% Senior Subordinated Notes due 2012,
dated as of February 3, 2003, by and among Technical Olympic USA, Inc. and
the subsidiaries named therein and Wells Fargo Bank, National Association,
as Trustee. **                                                   
|       |  |                                                                                                                                                                                                                                                                                                  
|4.13   |  | Indenture, dated as of February 3, 2003, by and among Technical Olympic
USA, Inc. and the subsidiaries named therein and Wells Fargo Bank
Minnesota, National Association, as Trustee covering up to $100,000,000 9%
Senior Notes due 2010. **                                                   
|       |  |                                                                                                                                                                                                                                                                                                  
|4.14   |  | Registration Rights Agreement, dated February 3, 2003, among Technical
Olympic USA, Inc., the subsidiaries named therein, Salomon Smith Barney
Inc., Deutsche Bank Securities Inc., Fleet Securities, Inc. and Credit
Lyonnais Securities (USA) Inc. **                                          
|       |  |                                                                                                                                                                                                                                                                                                  
|4.15   |  | Form of Technical Olympic USA, Inc. 9% Senior Note due 2010 (included in
Exhibit A to Exhibit 4.13). **                                                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                  
|10.1   |  | Form of Indemnification Agreement.(8)                                                                                                                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                  
|10.9   |  | Employment Agreement between Newmark Homes Corp. and Antonio B. Mon dated
April 5, 2002, effective June 25, 2002.(9)                                                                                                                                                                             

38



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|       |  |                                                                                                                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit Description                                                                                                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                           
|10.10  |  | Employment Agreement between Technical Olympic USA, Inc. and Tommy L.
McAden dated July 12, 2002, effective June 25, 2002.(10)                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                           
|10.11  |  | Employment Agreement between Technical Olympic USA, Inc. and Yannis
Delikanakis dated January 1, 2003. **                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                           
|10.12  |  | Credit Agreement dated June 25, 2002, among Technical Olympic USA, Inc.,
the Lenders and Issuers named therein, Citicorp North America, Inc. as
Administrative Agent, Fleet National Bank as Documentation Agent and
Salomon Smith Barney Inc. as Sole Arranger and Sole Book Manager.(11)
|       |  |                                                                                                                                                                                                                                                                                           
|10.13  |  | Technical Olympic USA, Inc. Annual and Long-Term Incentive Plan.(12)                                                                                                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                           
|10.14  |  | Credit Agreement, dated August 1, 2002, between Preferred Home Mortgage
Company, Technical Mortgage, L.P. and Guaranty Bank. **                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                           
|10.15  |  | First Amendment to Credit Agreement, dated October 15, 2002, between
Preferred Home Mortgage Company, Technical Mortgage, L.P. and Guaranty
Bank. **                                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                           
|10.16  |  | Second Amendment to Credit Agreement, dated November 22, 2002, between
Preferred Home Mortgage Company, Technical Mortgage, L.P. and Guaranty
Bank. **                                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                                           
|10.17  |  | Third Amendment to Credit Agreement, dated January 5, 2003, between
Preferred Home Mortgage Company, Technical Mortgage, L.P. and Guaranty
Bank. **                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                           
|10.18  |  | Guaranty of Technical Olympic USA, Inc., dated August 1, 2002, in favor
of Guaranty Bank. **                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                           
|10.19  |  | Mortgage Loan Purchase and Sale Agreement, dated August 1, 2002, between
Preferred Home Mortgage Company and Guaranty Bank. **                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                           
|10.20  |  | First Amendment to Mortgage Loan Purchase and Sale Agreement, dated
October 15, 2002, between Preferred Home Mortgage Company and Guaranty
Bank. **                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                           
|10.21  |  | Mortgage Loan Purchase and Sale Agreement, dated August 1, 2002, between
Technical Mortgage, L.P. and Guaranty Bank. **                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                           
|10.22  |  | First Amendment to Mortgage Loan Purchase and Sale Agreement, dated
October 15, 2002, between Technical Mortgage, L.P. and Guaranty Bank. **                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                           
|21     |  | List of Subsidiaries. **                                                                                                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                           
|23.1   |  | Consent of Ernst & Young LLP independent certified public accountants. **                                                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                           
|23.2   |  | Consent of BDO Seidman, LLP independent certified public accountants. **                                                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                           
|99.1   |  | Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **                                                                                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                                           
|99.2   |  | Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. **                                                                                                                                                                                    



---

|**  |  | Filed herewith.                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Incorporated by reference to Exhibit 99.A to the Information Statement on
Schedule 14-C, dated June 3, 2002, filed by the Registrant.         
|   
|(2) |  | Incorporated by reference to the Form 8-K, dated March 23, 2001,
previously filed by the Registrant.                                          
|   
|(3) |  | Incorporated by reference to the Registration Statement on Form S-4
previously filed by the Registrant (Registration Statement No. 333-100013)
|   
|(4) |  | Incorporated by reference to the Form 8-K, dated July 9, 2002, previously
filed by the Registrant.                                            
|   
|(5) |  | Incorporated by reference to Exhibit 4.4 to the Form 8-K, dated July 9,
2002, previously filed by the Registrant.                             
|   
|(6) |  | Incorporated by reference to Exhibit 2.2 to the Form 8-K, dated July 9,
2002, previously filed by the Registrant.                             

39



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##### Table of Contents



|(7)  |  | Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-8 previously filed by the Registrant (Registration No. 333-99307). 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(8)  |  | Incorporated by reference to the Form 10-Q for the quarter ended
September 30, 2001, previously filed by the Registrant.                            
|    
|(9)  |  | Incorporated by reference to Exhibit 99.E to the Information Statement on
Schedule 14-C, dated June 3, 2002, previously filed by the Registrant.    
|    
|(10) |  | Incorporated by reference to the Form 10-Q for the quarter ended June 30,
2002, previously filed by the Registrant.                                 
|    
|(11) |  | Incorporated by reference to Exhibit 99.2 to the Form 8-K, dated July 9,
2002, previously filed by the Registrant.                                  
|    
|(12) |  | Incorporated by reference to Exhibit 10.1 to the Registration Statement
on Form S-8 previously filed by the Registrant (Registration No.
333-99307).

(b)  Reports on Form 8-K:

We filed a report on Form 8-K on November 13, 2002. In the report, we
reported under Item 5, certain financial results for the quarter ended
September 30, 2002.

40



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  |                                                         
| |  | --------------------------------------------------------
| |  | TECHNICAL OLYMPIC USA, INC.                             
| |  |                                                         
| |  |                                                         
| |  |                                                         
| |  | /s/ Antonio B. Mon                                      
| |  |                                                         
| |  | By: Antonio B. Mon
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

|                                             |  |                                                                                                        |  |                  
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | -----------------
|Signature                                    |  | Title                                                                                                  |  | Date             
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Antonio B. Mon

Antonio B. Mon           |  | Executive Vice Chairman,
President, Chief Executive Officer
(Principal Executive Officer) and
Director |  | February 12, 2003
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Tommy L. McAden

Tommy L. McAden         |  | Vice President  Finance and
Administration and Chief Financial
Officer (Principal Financial
Officer)  |  | February 12, 2003
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Randy L. Kotler

Randy L. Kotler         |  | Vice President  Chief Accounting
Officer (Principal Accounting
Officer)                               |  | February 12, 2003
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Constantine Stengos

Constantine Stengos |  | Chairman of the Board                                                                                  |  | February 12, 2003
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Yannis Delikanakis

Yannis Delikanakis   |  | Executive Vice Chairman, Executive
Vice President and Director                                         |  | February 12, 2003
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Lonnie M. Fedrick

Lonnie M. Fedrick     |  | Emeritus Vice Chairman and Director                                                                    |  | February 12, 2003
|                                             |  |                                                                                                        |  |                  
|                                             |  |                                                                                                        |  |                  
|/s/ Andreas Stengos

Andreas Stengos         |  | Director                                                                                               |  | February 12, 2003

41



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##### Table of Contents



|                                           |  |          |  |                  
|------------------------------------------ |  | -------- |  | -----------------
|Signature                                  |  | Title    |  | Date             
|                                           |  |          |  |                  
|                                           |  |          |  |                  
|/s/ George Stengos

George Stengos         |  | Director |  | February 12, 2003
|                                           |  |          |  |                  
|                                           |  |          |  |                  
|/s/ Larry D. Horner

Larry D. Horner       |  | Director |  | February 12, 2003
|                                           |  |          |  |                  
|                                           |  |          |  |                  
|/s/ William A. Hasler

William A. Hasler   |  | Director |  | February 12, 2003
|                                           |  |          |  |                  
|                                           |  |          |  |                  
|/s/ Michael J. Poulos

Michael J. Poulos   |  | Director |  | February 12, 2003
|                                           |  |          |  |                  
|                                           |  |          |  |                  
|/s/ Michael S. Stevens

Michael S. Stevens |  | Director |  | February 12, 2003

42



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##### Table of Contents



Certifications

I, Antonio B. Mon,Chief Executive Officer, certify that:

1.     I have reviewed this annual report on Form 10-K of Technical Olympic USA,
Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual
report;

4.     The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The Registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent functions):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material weaknesses
in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrants
internal controls; and

6.     The Registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|                        |  |                                                    
|----------------------- |  | ---------------------------------------------------
|Date: February 12, 2003 |  |                                                    
|                        |  |                                                    
|                        |  |                                                    
|                        |  | By: /s/ Antonio B. Mon                             
|                        |  |                                                    
|                        |  | Name: Antonio B. Mon
Title: Chief Executive Officer

43



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##### Table of Contents



I, Tommy L. McAden,Chief Financial Officer, certify that:

1.     I have reviewed this annual report on Form 10-K of Technical Olympic USA,
Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual
report;

4.     The Registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the Registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The Registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons performing the
equivalent functions):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data and
have identified for the Registrants auditors any material weaknesses
in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrants
internal controls; and

6.     The Registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|                        |  |                                                  
|----------------------- |  | -------------------------------------------------
|Date: February 12, 2003 |  |                                                  
|                        |  |                                                  
|                        |  |                                                  
|                        |  |                                                  
|                        |  | By: /s/ Tommy L. McAden                          
|                        |  |                                                  
|                        |  | Name: Tommy McAden
Title: Chief Financial Officer

44



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                     |  |      |     | 
|---------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Report of Independent Certified Public Accountants                                                   |  |      | F-2 | 
|                                                                                                     |  |      |     | 
|Report of Independent Certified Public Accountants                                                   |  |      | F-3 | 
|                                                                                                     |  |      |     | 
|Consolidated Statements of Financial Condition as of
December 31, 2001 and 2002                      |  |      | F-4 | 
|                                                                                                     |  |      |     | 
|Consolidated Statements of Income for the years ended
December 31, 2000, 2001 and 2002               |  |      | F-5 | 
|                                                                                                     |  |      |     | 
|Consolidated Statements of Stockholders Equity for the
years ended December 31, 2000, 2001 and 2002 |  |      | F-6 | 
|                                                                                                     |  |      |     | 
|Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 2001 and 2002           |  |      | F-7 | 
|                                                                                                     |  |      |     | 
|Notes to Consolidated Financial Statements                                                           |  |      | F-8 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Technical Olympic USA, Inc.

We have audited the accompanying consolidated statements of financial
condition of Technical Olympic USA, Inc. (formerly known as Newmark Homes
Corp.) and subsidiaries as of December 31, 2002 and 2001 and the related
consolidated statements of income, stockholders equity, and cash flows for
each of the two years in the period ended December 31, 2002. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Technical
Olympic USA, Inc. (formerly known as Newmark Homes Corp.) and subsidiaries at
December 31, 2002 and 2001, and the consolidated results of their operations
and their cash flows for each of the two years in the period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States.

|               |  |                  
|-------------- |  | -----------------
|               |  | ERNST & YOUNG LLP
|Miami, Florida |  |                  

January 31, 2003 except for
     Note 5, as to which the date
     is February 3, 2003


F-2



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Technical Olympic USA, Inc.

We have audited the
accompanying consolidated statements of income,
stockholders equity, and cash flows of Technical Olympic USA, Inc. (formerly known as Newmark Homes
Corp.) and subsidiaries (the Company) for the year ended
December 31, 2000. These
consolidated financial statements are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation of the financial statements. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above, present fairly, in all material respects, the results of
operations and cash flows of
the Company for the year ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

|                        |  |                 
|----------------------- |  | ----------------
|                        |  | BDO SEIDMAN, LLP
|Los Angeles, California |  |                 

January 31, 2001, except for Note 1
and Note 5, as to which the date
is June 25, 2002


F-3



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

|                                                                                                         |              |   |                        |        |      |   |           |        | 
|-------------------------------------------------------------------------------------------------------- | ------------ | - | ---------------------- | ------ | ---- | - | --------- | ------ | 
|                                                                                                         |              |   | December 31,          
|                                                                                                         |              |   |                       
|                                                                                                         |              |   | 2001                   |        | 2002
|                                                                                                         |              |   |                        |        |     
|                                                                                                         |              |   | (Dollars in thousands,
|                                                                                                         |              |   | except share data)    
|ASSETS                                                                                                  
|Homebuilding:                                                                                            |              |   |                        |        |      |   |           |       
|Cash and cash equivalents:                                                                               |              |   |                        |        |      |   |           |       
|                                                                                                         | Unrestricted |   | $                      | 67,206 |      |   | $         | 44,825 | 
|                                                                                                         | Restricted   |   |                        | 7,738  |      |   |           | 23,645 | 
|Inventory                                                                                                |              |   | 645,986                |        |      |   | 753,872   |       
|Property and equipment, net                                                                              |              |   | 10,694                 |        |      |   | 13,862    |       
|Other assets                                                                                             |              |   | 10,897                 |        |      |   | 30,681    |       
|Goodwill, net                                                                                            |              |   | 57,726                 |        |      |   | 78,252    |       
|Westbrooke assets held for sale                                                                          |              |   | 117,160                |        |      |   |          |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|                                                                                                         |              |   | 917,407                |        |      |   | 945,137   |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|Financial Services:                                                                                      |              |   |                        |        |      |   |           |       
|Cash and cash equivalents:                                                                               |              |   |                        |        |      |   |           |       
|                                                                                                         | Unrestricted |   |                        | 7,930  |      |   |           | 4,386  | 
|                                                                                                         | Restricted   |   |                        | 19,605 |      |   |           | 22,866 | 
|Mortgage loans held for sale                                                                             |              |   | 50,933                 |        |      |   | 58,840    |       
|Other assets                                                                                             |              |   | 3,295                  |        |      |   | 3,659     |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|                                                                                                         |              |   | 81,763                 |        |      |   | 89,751    |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|Total assets                                                                                             |              | $ | 999,170                |        |      | $ | 1,034,888 |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                    
|Homebuilding:                                                                                            |              |   |                        |        |      |   |           |       
|Accounts payable and other liabilities                                                                   |              | $ | 56,295                 |        |      | $ | 96,820    |       
|Customer deposits                                                                                        |              |   | 25,674                 |        |      |   | 24,564    |       
|Consolidated land bank obligations                                                                       |              |   | 30,022                 |        |      |   | 16,288    |       
|Homebuilding borrowings                                                                                  |              |   | 308,697                |        |      |   | 413,110   |       
|Westbrooke liabilities associated with assets held for
sale                                              |              |   | 71,800                 |        |      |   |          |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|                                                                                                         |              |   | 492,488                |        |      |   | 550,782   |       
|Financial Services:                                                                                      |              |   |                        |        |      |   |           |       
|Accounts payable and other liabilities                                                                   |              |   | 18,828                 |        |      |   | 21,560    |       
|Financial services borrowings                                                                            |              |   | 38,689                 |        |      |   | 48,309    |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|                                                                                                         |              |   | 57,517                 |        |      |   | 69,869    |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|Total liabilities                                                                                        |              |   | 550,005                |        |      |   | 620,651   |       
|Minority interest                                                                                        |              |   | 35,795                 |        |      |   | 9,092     |       
|Commitments and contingencies                                                                            |              |   |                       |        |      |   |          |       
|Stockholders equity:                                                                                    |              |   |                        |        |      |   |           |       
|Common stock  $.01 par value; 67,000,000 shares
authorized and 27,878,787 shares issued and outstanding |              |   | 279                    |        |      |   | 279       |       
|Additional paid-in capital                                                                               |              |   | 322,400                |        |      |   | 322,400   |       
|Retained earnings                                                                                        |              |   | 90,691                 |        |      |   | 82,466    |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|Total stockholders equity                                                                               |              |   | 413,370                |        |      |   | 405,145   |       
|                                                                                                         |              |   |                        |        |      |   |           |       
|Total liabilities and stockholders equity                                                               |              | $ | 999,170                |        |      | $ | 1,034,888 |       
|                                                                                                         |              |   |                        |        |      |   |           |       

See accompanying notes to consolidated financial statements.

F-4



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME

|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |            | 
|----------------------------------------------------- | ------------------------------------------------- | - | ----------------------------------------- | ---------- | ---- | - | --------- | ---------- |  | - | --------- | ---------- | 
|                                                      |                                                   |   | Year Ended December 31,                  
|                                                      |                                                   |   |                                          
|                                                      |                                                   |   | 2000                                      |            | 2001 |   | 2002     
|                                                      |                                                   |   |                                           |            |      |   |          
|                                                      |                                                   |   | (Dollars in thousands, except share data)
|Homebuilding:                                         |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Revenues:                                             |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | Homes sales                                       |   | $                                         | 540,323    |      |   | $         | 1,374,551  |  |   | $         | 1,349,713  | 
|                                                      | Land/lot sales                                    |   |                                           | 6,343      |      |   |           | 18,361     |  |   |           | 27,379     | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      |                                                   |   | 546,666                                   |            |      |   | 1,392,912 |            |  |   | 1,377,092 |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Cost of sales:                                        |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | Home sales                                        |   |                                           | 434,736    |      |   |           | 1,091,626  |  |   |           | 1,075,875  | 
|                                                      | Land/lot sales                                    |   |                                           | 6,203      |      |   |           | 16,660     |  |   |           | 24,430     | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      |                                                   |   | 440,939                                   |            |      |   | 1,108,286 |            |  |   | 1,100,305 |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Gross profit                                          |                                                   |   | 105,727                                   |            |      |   | 284,626   |            |  |   | 276,787   |           
|Selling, general and administrative
expenses          |                                                   |   | 63,832                                    |            |      |   | 152,063   |            |  |   | 163,726   |           
|Depreciation and amortization                         |                                                   |   | 3,112                                     |            |      |   | 8,849     |            |  |   | 5,952     |           
|Severance and merger related expenses                 |                                                   |   |                                          |            |      |   | 2,643     |            |  |   | 19,963    |           
|Loss on early retirement of debt                      |                                                   |   |                                          |            |      |   |          |            |  |   | 5,411     |           
|Other (income) expense                                |                                                   |   | 2,264                                     |            |      |   | (3,941    | )          |  |   | (5,838    | )         
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Homebuilding pretax income                            |                                                   |   | 36,519                                    |            |      |   | 125,012   |            |  |   | 87,573    |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Financial Services:                                   |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Revenues                                              |                                                   |   | 2,562                                     |            |      |   | 32,659    |            |  |   | 40,214    |           
|Expenses                                              |                                                   |   | 1,635                                     |            |      |   | 17,688    |            |  |   | 20,846    |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Financial Services pretax income                      |                                                   |   | 927                                       |            |      |   | 14,971    |            |  |   | 19,368    |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Income from continuing operations before
income taxes |                                                   |   | 37,446                                    |            |      |   | 139,983   |            |  |   | 106,941   |           
|Income tax expense                                    |                                                   |   | 13,672                                    |            |      |   | 52,218    |            |  |   | 39,900    |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Income from continuing operations                     |                                                   |   | 23,774                                    |            |      |   | 87,765    |            |  |   | 67,041    |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Discontinued operations:                              |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | Income from discontinued operations               |   |                                           | 10,265     |      |   |           | 10,118     |  |   |           | 7,922      | 
|                                                      | Income tax expense                                |   |                                           | 3,944      |      |   |           | 3,846      |  |   |           | 2,959      | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | Income from discontinued operations,
net of taxes |   |                                           | 6,321      |      |   |           | 6,272      |  |   |           | 4,963      | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Net income                                            |                                                   | $ | 30,095                                    |            |      | $ | 94,037    |            |  | $ | 72,004    |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Earnings per common share (basic and
diluted):        |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | From continuing operations                        |   | $                                         | 1.79       |      |   | $         | 3.15       |  |   | $         | 2.40       | 
|                                                      | From discontinued operations                      |   |                                           | 0.48       |      |   |           | 0.22       |  |   |           | 0.18       | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | Net income                                        |   | $                                         | 2.27       |      |   | $         | 3.37       |  |   | $         | 2.58       | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|Weighted average number of common shares
outstanding: |                                                   |   |                                           |            |      |   |           |            |  |   |           |           
|                                                      | Basic and diluted                                 |   |                                           | 13,250,062 |      |   |           | 27,878,787 |  |   |           | 27,878,787 | 
|                                                      |                                                   |   |                                           |            |      |   |           |            |  |   |           |           

See accompanying notes to consolidated financial statements.

F-5



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                             |                                                                                                |  |              |            |            |   |                        |     |          |   |         |         |   |   |        |         |   |   |         |         |  
|---------------------------- | ---------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---------- | - | ---------------------- | --- | -------- | - | ------- | ------- | - | - | ------ | ------- | - | - | ------- | ------- | -
|                             |                                                                                                |  | Common Stock |            | Additional |   |                        |     |          |   |         |         |  
|                             |                                                                                                |  |              |            | Paid-In    |   | Retained               |     |          |   |        
|                             |                                                                                                |  | Shares       |            | Amount     |   | Capital                |     | Earnings |   | Total  
|                             |                                                                                                |  |              |            |            |   |                        |     |          |   |        
|                             |                                                                                                |  |              |            |            |   | (Dollars in thousands) |     |          |   |        
|Balance at January 1, 2000   |                                                                                                |  | 11,500,000   |            |            | $ | 115                    |     |          | $ | 106,855 |         |   | $ | 2,648  |         |   | $ | 109,618 |        
|                             | Combination of stockholders equity of
Engle Holdings upon consummation of
merger (see Note 1) |  |              |           |            |   |                        |    |          |   |         | 215,709 |   |   |        |        |   |   |         | 215,709 |  
|                             | Conversion of Engle Holdings shares
exchanged in connection with merger
(see Note 1)           |  |              | 16,378,787 |            |   |                        | 164 |          |   |         | (164    | ) |   |        |        |   |   |         |        |  
|                             | Distributions by Engle Holdings                                                                |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | (363    | ) |   |         | (363    | )
|                             | Net income                                                                                     |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | 30,095  |   |   |         | 30,095  |  
|                             |                                                                                                |  |              |            |            |   |                        |     |          |   |         |         |   |   |        |         |   |   |         |        
|Balance at December 31, 2000 |                                                                                                |  | 27,878,787   |            |            |   | 279                    |     |          |   | 322,400 |         |   |   | 32,380 |         |   |   | 355,059 |        
|                             | Distributions by Engle Holdings                                                                |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | (29,516 | ) |   |         | (29,516 | )
|                             | Dividends paid                                                                                 |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | (6,210  | ) |   |         | (6,210  | )
|                             | Net income                                                                                     |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | 94,037  |   |   |         | 94,037  |  
|                             |                                                                                                |  |              |            |            |   |                        |     |          |   |         |         |   |   |        |         |   |   |         |        
|Balance at December 31, 2001 |                                                                                                |  | 27,878,787   |            |            |   | 279                    |     |          |   | 322,400 |         |   |   | 90,691 |         |   |   | 413,370 |        
|                             | Assumption of Technical Olympic debt
(see Note 1)                                              |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | (75,416 | ) |   |         | (75,416 | )
|                             | Distributions by Engle Holdings                                                                |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | (4,813  | ) |   |         | (4,813  | )
|                             | Net income                                                                                     |  |              |           |            |   |                        |    |          |   |         |        |   |   |        | 72,004  |   |   |         | 72,004  |  
|                             |                                                                                                |  |              |            |            |   |                        |     |          |   |         |         |   |   |        |         |   |   |         |        
|Balance at December 31, 2002 |                                                                                                |  | 27,878,787   |            |            | $ | 279                    |     |          | $ | 322,400 |         |   | $ | 82,466 |         |   | $ | 405,145 |        
|                             |                                                                                                |  |              |            |            |   |                        |     |          |   |         |         |   |   |        |         |   |   |         |        

See accompanying notes to consolidated financial statements.

F-6



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##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |        |         |  
|--------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | -------- | ----------------------- | ------- | ---- | ------- | ------ | ------- | - |  | ---- |  | - | -------- | ------ | ------- | -
|                                                                                  |                                              |                                        |          | Year Ended December 31,
|                                                                                  |                                              |                                        |          |                        
|                                                                                  |                                              |                                        |          | 2000                    |         | 2001 |         |        |         |   |  | 2002
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |     
|Cash flows from operating activities:                                             |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net income                                                                        |                                              | $                                      | 30,095   |                         |         | $    | 94,037  |        |         |   |  |      |  | $ | 72,004   |       
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|                                                                                  | Income from discontinued operations          |                                        |          | (6,321                  | )       |      |         | (6,272 | )       |   |  |      |  |   |          | (4,963 | )      
|                                                                                  | Depreciation and amortization                |                                        |          | 3,112                   |         |      |         | 8,849  |         |   |  |      |  |   |          | 5,952  |        
|                                                                                  | Amortization of deferred finance costs       |                                        |          |                        |         |      |         |       |         |   |  |      |  |   |          | 1,474  |        
|                                                                                  | Deferred income taxes                        |                                        |          | 2,404                   |         |      |         | 5,121  |         |   |  |      |  |   |          | (2,061 | )      
|                                                                                  | Other adjustments                            |                                        |          | (592                    | )       |      |         | (819   | )       |   |  |      |  |   |          | 1,095  |        
|                                                                                  | Changes in operating assets and liabilities: |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |        |        
|                                                                                  |                                              | Restricted cash                        |          |                         | (494    | )    |         |        | (17,138 | ) |  |      |  |   |          |        | (19,126 | )
|                                                                                  |                                              | Inventories                            |          |                         | 14,054  |      |         |        | (25,691 | ) |  |      |  |   |          |        | (75,910 | )
|                                                                                  |                                              | Other assets                           |          |                         | (6,490  | )    |         |        | (8,678  | ) |  |      |  |   |          |        | (2,359  | )
|                                                                                  |                                              | Accounts payable and other liabilities |          |                         | (19,838 | )    |         |        | 12,728  |   |  |      |  |   |          |        | 39,077  |  
|                                                                                  |                                              | Customer deposits                      |          |                         | (7,554  | )    |         |        | (953    | ) |  |      |  |   |          |        | (1,575  | )
|                                                                                  |                                              | Mortgage loans held for sale           |          |                         | (6,062  | )    |         |        | (36,527 | ) |  |      |  |   |          |        | (7,907  | )
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net cash provided by operating activities                                         |                                              |                                        | 2,314    |                         |         |      | 24,657  |        |         |   |  |      |  |   | 5,701    |       
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Cash flows from investing activities:                                             |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net additions to property and equipment                                           |                                              |                                        | (1,300   | )                       |         |      | (6,713  | )      |         |   |  |      |  |   | (8,749   | )     
|Amounts paid for acquisitions, net of cash acquired                               |                                              |                                        |         |                         |         |      |        |        |         |   |  |      |  |   | (51,315  | )     
|Increase in cash as a result of the merger with
Engle Holdings Corp.              |                                              |                                        | 35,456   |                         |         |      |        |        |         |   |  |      |  |   |         |       
|Additional purchase price paid in connection with
Westbrooke acquisition          |                                              |                                        | (1,230   | )                       |         |      |        |        |         |   |  |      |  |   |         |       
|Other                                                                             |                                              |                                        | (796     | )                       |         |      | 331     |        |         |   |  |      |  |   |         |       
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net cash provided by (used in) investing activities                               |                                              |                                        | 32,130   |                         |         |      | (6,382  | )      |         |   |  |      |  |   | (60,064  | )     
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Cash flows from financing activities:                                             |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net (repayments on) proceeds from revolving
credit facilities                     |                                              |                                        | (22,872  | )                       |         |      | 12,026  |        |         |   |  |      |  |   | 58,574   |       
|Proceeds from notes offering                                                      |                                              |                                        |         |                         |         |      |        |        |         |   |  |      |  |   | 350,000  |       
|Proceeds from unsecured borrowings from banks                                     |                                              |                                        | 215,000  |                         |         |      | 27,001  |        |         |   |  |      |  |   |         |       
|Principal payments on unsecured borrowings and
senior notes                       |                                              |                                        | (214,925 | )                       |         |      | (66,764 | )      |         |   |  |      |  |   | (379,577 | )     
|Principal payments on acquisition notes payable                                   |                                              |                                        | (950     | )                       |         |      | (1,216  | )      |         |   |  |      |  |   |         |       
|Net proceeds from (payments on) consolidated land bank
obligations                |                                              |                                        |         |                         |         |      | 30,022  |        |         |   |  |      |  |   | (13,734  | )     
|Net proceeds from financial services borrowings                                   |                                              |                                        | 5,585    |                         |         |      | 29,618  |        |         |   |  |      |  |   | 9,620    |       
|Payments for deferred financing costs                                             |                                              |                                        |         |                         |         |      |        |        |         |   |  |      |  |   | (15,252  | )     
|Minority interest in consolidated subsidiaries                                    |                                              |                                        |         |                         |         |      | 35,795  |        |         |   |  |      |  |   | (26,703  | )     
|Dividends paid                                                                    |                                              |                                        |         |                         |         |      | (6,210  | )      |         |   |  |      |  |   |         |       
|Distributions by Engle Holdings                                                   |                                              |                                        | (363     | )                       |         |      | (29,516 | )      |         |   |  |      |  |   | (4,813   | )     
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net cash (used in) provided by financing activities                               |                                              |                                        | (18,525  | )                       |         |      | 30,756  |        |         |   |  |      |  |   | (21,885  | )     
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Net cash provided by (used in) operations                                         |                                              |                                        | 15,919   |                         |         |      | 49,031  |        |         |   |  |      |  |   | (76,248  | )     
|Net cash provided by discontinued operations                                      |                                              |                                        | 748      |                         |         |      | 1,854   |        |         |   |  |      |  |   | 50,323   |       
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Increase (decrease) in cash and cash equivalents                                  |                                              |                                        | 16,667   |                         |         |      | 50,885  |        |         |   |  |      |  |   | (25,925  | )     
|Cash and cash equivalents at beginning of period                                  |                                              |                                        | 7,584    |                         |         |      | 24,251  |        |         |   |  |      |  |   | 75,136   |       
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       
|Cash and cash equivalents at end of period                                        |                                              | $                                      | 24,251   |                         |         | $    | 75,136  |        |         |   |  |      |  | $ | 49,211   |       
|                                                                                  |                                              |                                        |          |                         |         |      |         |        |         |   |  |      |  |   |          |       

See accompanying notes to consolidated financial statements.

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TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

1. Business and Organization

Business

Technical Olympic USA, Inc., formerly known as Newmark Homes Corp., is a
Delaware corporation. We are a homebuilder with a geographically diversified
national presence. We operate in 14 metropolitan markets located in four major
geographic regions: Florida, Texas, the West and the Mid-Atlantic. We design,
build and market detached single-family residences, town homes and
condominiums. We also provide title and mortgage brokerage services to our
homebuyers and others. We do not retain or service the mortgages that we
originate but, rather, sell the mortgages and related servicing rights to
investors.

Organization

The Merger and Notes Offering

On June 25, 2002, Engle Holdings Corp. (Engle) merged with and into
Newmark Homes Corp. (Newmark). The combined company was renamed Technical
Olympic USA, Inc. Each issued and outstanding share of Engle common stock was
exchanged for 1,724.08294 shares of Newmark common stock (the Merger). At the
date of the Merger, there were 9,500 shares of Engle common stock issued and
outstanding, all of which were held by Technical Olympic, Inc. (Technical
Olympic). As a result of the Merger, 16,378,787 of additional shares were
issued to Technical Olympic. In addition, we assumed $75.4 million of debt
incurred by Technical Olympic (the Technical Olympic Debt). The Technical
Olympic Debt accrued interest at rates ranging from 13.5% to 14.875% and was to
mature on September 30, 2004. As both Engle and Newmark were under the control
of Technical Olympic, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, the Merger was accounted for
in a manner similar to a pooling of interests, whereby we recognized the
acquired assets and liabilities of Engle at their historical carrying amounts.
As both entities came under common control of Technical Olympic on November 22,
2000, the financial statements and other operating data have been restated to
include the operations of Engle from November 22, 2000. Our assumption of the
$75.4 million of Technical Olympic Debt has been accounted for as a
distribution.

As a result of the exchange of equity interests, Technical Olympic owns
91.75% of us. Technical Olympic is a wholly-owned subsidiary of Technical
Olympic (UK) PLC, an English company, which is a wholly-owned subsidiary of
Technical Olympic S.A., a Greek company that is publicly traded on the Athens
Stock Exchange.

Concurrently with the Merger, we completed a private placement of $200.0
million 9% senior notes and $150.0 million 10 3/8% senior subordinated notes
(the Notes Offering). The net proceeds of approximately $335.0 million from the
Notes Offering were used to repay certain indebtedness of both Newmark and
Engle and the Technical Olympic Debt that was assumed in connection with the
Merger. Additionally, we entered into a revolving credit facility to fund
working capital, which provides for loans up to $220.0 million.

Subsequently, all outstanding privately placed senior and senior
subordinated notes were exchanged for an equivalent amount of notes at their
respective interest rates, which are registered under the Securities Act of
1933.

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Engle Acquisition

On November 22, 2000, Engle became a wholly-owned subsidiary of Technical
Olympic. Engles stockholders received $19.10 for each share of Engles common
stock at the time of acquisition. Following the acquisition, the common stock
of Engle ceased to be publicly traded. The acquisition of Engle was accounted
for using the purchase method of accounting. Total consideration for the
acquisition approximated $542.0 million, including $216.0 million in cash and
the assumption of $326.0 million of liabilities. The push down basis of
accounting resulted in us allocating approximately $527.0 million to
inventories and other identifiable assets and $15.0 million to goodwill.

As a result of the change in control of Engle, Engle was required by the
indentures governing its senior notes to offer to repurchase all of its
outstanding senior notes at a price of 101% of the principal plus accrued
interest. Upon termination of the offer in January 2001, Engle repurchased
approximately $237.0 million of $250.0 million of its senior notes.
Approximately $13.0 million of the senior notes were not tendered and remained
outstanding as of December 31, 2001. These notes were discharged with the
proceeds from the Notes Offering.

2. Summary of Significant Accounting Policies

Our accounting and reporting policies conform to accounting principles
generally accepted in the United States and general practices within the
homebuilding industry. The following summarizes the more significant of these
policies.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include our accounts and those of
our subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements. As a result of the
Merger being accounted for as a reorganization of entities under common
control, the consolidated financial statements have been restated to present
our combined results as if the Merger had been in effect from November 22,
2000, the date at which both entities came under the control of Technical
Olympic.

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Due to our normal operating cycle being in excess of one year, we present
unclassified statements of financial condition.

Segment Reporting

In accordance SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, we have concluded that our operating segments consist
of homebuilding and financial services. These two segments are segregated in
the accompanying consolidated financial statements under Homebuilding and
Financial Services, respectively.

Homebuilding

Inventory

Inventory is stated at the lower of cost or fair value. Inventory under
development or held for development is stated at an accumulated cost unless
such cost would not be recovered from the cash flows generated by future
disposition. In this instance, such inventories are recorded at fair value.
Inventory to be disposed of is carried at the lower of cost or fair value less
cost to sell. We utilize the specific identification method of charging
construction

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costs to cost of sales as units are sold. Common construction project
costs are allocated to each individual home in the various subdivisions based
upon the total number of homes to be constructed in each subdivision community.
Interest, real estate taxes and certain development costs are capitalized to
land and construction costs during the development and construction period and
are amortized to costs of sales as closings occur.

Homebuilding Borrowings

Homebuilding borrowings represent financing arrangements utilized to
support our homebuilding activities. These arrangements have been executed by
subsidiaries whereby we have an ownership interest.

Consolidated Land Bank Obligations

Consolidated land bank obligations represent liabilities associated with
our land banking activities, including obligations in special-purpose entities
which have been consolidated by us, for which we have no ownership interest.

Revenue Recognition

Our primary source of revenue is the sale of homes to homebuyers. To a
lesser degree, we engage in the sale of land to other homebuilders. Revenue is
recognized on home sales and land sales at closing when title passes to the
buyer and all of the following conditions are met: a sale is consummated, a
significant down payment is received, the earnings process is complete and the
collection of any remaining receivables is reasonably assured.

Warranty Costs

We provide homebuyers with a limited warranty of workmanship and materials
from the date of sale for up to two years. We generally have recourse against
the subcontractors for claims relating to workmanship and materials. We also
provide up to a ten-year homebuyers warranty which covers major structural
defects. Estimated warranty costs are recorded at the time of sale. Total
warranty expense for the years ended December 31, 2000, 2001 and 2002 were $4.1
million, $7.4 million and $7.5 million, respectively. See Note 4.

Advertising Costs

Advertising costs, consisting primarily of newspaper and trade
publications, signage and the cost of maintaining an internet web-site, are
expensed as incurred. Advertising expense included in selling, general and
administrative expenses and income from discontinued operations for the years
ended December 31, 2000, 2001 and 2002 amounted to $9.0 million, $16.3 million
and $15.3 million, respectively.

Financial Services

Mortgage Loans Held for Sale

Mortgage loans held for sale are stated at the lower of aggregate cost or
fair value based upon such commitments for loans to be delivered or prevailing
market rates for uncommitted loans. Substantially all of the loans originated
by us are sold to private investors within 30 days of origination.

Revenue Recognition

Fees derived from our Financial Services segment, including title and
mortgage origination services, are generally recognized as revenue in the month
of closing of the sale of the mortgage. Financial Service revenue and expenses
consist of the following (dollars in thousands):

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|                                      |                   |   |                        |       |      |   |        |        |  |   |        |        | 
|------------------------------------- | ----------------- | - | ---------------------- | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                      |                   |   | Year Ended December 31
|                                      |                   |   |                       
|                                      |                   |   | 2000                   |       | 2001 |   | 2002  
|                                      |                   |   |                        |       |      |   |       
|Revenue:                              |                   |   |                        |       |      |   |        |        |  |   |        |       
|                                      | Mortgage services |   | $                      | 1,265 |      |   | $      | 16,400 |  |   | $      | 21,530 | 
|                                      | Title services    |   |                        | 1,297 |      |   |        | 16,259 |  |   |        | 18,684 | 
|                                      |                   |   |                        |       |      |   |        |        |  |   |        |       
|Total Financial Service revenue       |                   |   | 2,562                  |       |      |   | 32,659 |        |  |   | 40,214 |       
|Expenses:                             |                   |   |                        |       |      |   |        |        |  |   |        |       
|                                      | Mortgage services |   |                        | 545   |      |   |        | 6,800  |  |   |        | 8,076  | 
|                                      | Title services    |   |                        | 1,090 |      |   |        | 10,888 |  |   |        | 12,770 | 
|                                      |                   |   |                        |       |      |   |        |        |  |   |        |       
|Total Financial Service expense       |                   |   | 1,635                  |       |      |   | 17,688 |        |  |   | 20,846 |       
|                                      |                   |   |                        |       |      |   |        |        |  |   |        |       
|Total Financial Service pretax income |                   | $ | 927                    |       |      | $ | 14,971 |        |  | $ | 19,368 |       
|                                      |                   |   |                        |       |      |   |        |        |  |   |        |       

General

Cash and Supplemental Cash Flow Information

Cash includes amounts in transit from title companies for home closings
and highly liquid investments with an initial maturity of three months or less.

Restricted cash consists of amounts held in escrow as required by purchase
contracts or by law for escrow deposits held by our title company and
compensating balances for various open letters of credit.

Supplemental disclosures of cash flow information (dollars in thousands):

|               |                                       |  |                         |        |      |  |      |        |  |  |   |        | 
|-------------- | ------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|               |                                       |  | Year Ended December 31,
|               |                                       |  |                        
|               |                                       |  | 2000                    |        | 2001 |  | 2002
|               |                                       |  |                         |        |      |  |     
|Cash paid for: |                                       |  |                         |        |      |  |      |        |  |  |   |       
|               | Interest (net of amounts capitalized) |  | $                       | 8,755  |      |  | $    | 2,372  |  |  | $ |       | 
|               |                                       |  |                         |        |      |  |      |        |  |  |   |       
|               | Income taxes                          |  | $                       | 15,802 |      |  | $    | 52,830 |  |  | $ | 39,245 | 
|               |                                       |  |                         |        |      |  |      |        |  |  |   |       

Accounting for the Impairment of Long-Lived Assets

In the first quarter of 2002, we adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets(SFAS 144). The Statement
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, however, it retains the fundamental
provisions of that statement related to the recognition and measurement of the
impairment of long-lived assets to be held and used. In addition, the
Statement provides more guidance on estimating cash flows when performing a
recoverability test, requires that a long-lived asset to be disposed of other
than by sale (e.g., abandoned) be classified as held and used until it is
disposed of, and establishes more restrictive criteria to classify an asset as
held for sale.

In accordance with SFAS 144, we carry long-lived assets at the lower of
the carrying amount or fair value. Impairment is evaluated by estimating future
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected undiscounted future cash flows
is less than the carrying amount of the assets, an impairment loss is
recognized. Fair value, for purposes of calculating impairment, is measured
based on estimated future cash flows, discounted at a market rate of interest.

Concentration of Credit Risk

We conduct business primarily in four geographical regions: Florida,
Texas, the Mid-Atlantic, Texas, and the West. Accordingly, the market value of
our inventory is susceptible to changes in market conditions that may occur in
these locations. With regards to the mortgage loans held for sale, we will
generally only originate loans which have met underwriting criteria required by
purchasers of its loan portfolios. Additionally, we generally sell our mortgage
loans held for sale within 30 days which minimizes our credit risk.

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Property and Equipment

Property and equipment, consisting primarily of office premises,
transportation equipment, office furniture and fixtures, and model home
furniture, are stated at cost net of accumulated depreciation. Repairs and
maintenance are expensed as incurred.

Depreciation generally is provided using the straight-line method over the
estimated useful life of the asset, which ranges from 18 months to 30 years. At
December 31, 2001 and 2002, accumulated depreciation approximated $7.2 million
and $8.0 million, respectively.

Goodwill

Goodwill represents the excess of the purchase price of the Companys
acquisitions over the fair value of the net assets acquired.

In June 2001, the Financial Accounting Standards Board finalized SFAS No.
141, Business Combinations(SFAS 141), and No. 142, Goodwill and Other
Intangible Assets(SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that companies recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that companies reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that companies identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized.

We adopted SFAS 142 on January 1, 2002. The impairment test of goodwill
performed by us during the second quarter of 2002, indicated no impairment. Our
application of the provisions of SFAS 142 resulted in the elimination of
goodwill amortization expense beginning in the first quarter of 2002.

The following table sets forth reported net income and earnings per share from
continuing operations, as adjusted to exclude goodwill amortization expense
(dollars in thousands):

|                                                           |  |                         |        |      |  |   |        | 
|---------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | - | ------ | 
|                                                           |  | Year Ended December 31,
|                                                           |  |                        
|                                                           |  | 2000                    |        | 2001
|                                                           |  |                         |        |     
|Income from continuing operations, as
reported             |  | $                       | 23,774 |      |  | $ | 87,765 | 
|Add back of amortization expense, net of
taxes             |  |                         | 1,037  |      |  |   | 1,504  | 
|                                                           |  |                         |        |      |  |   |        | 
|                                                           |  | $                       | 24,811 |      |  | $ | 89,269 | 
|                                                           |  |                         |        |      |  |   |        | 
|Earnings per common share (basic and
diluted), as reported |  | $                       | 1.79   |      |  | $ | 3.15   | 
|                                                           |  |                         |        |      |  |   |        | 
|Earnings per common share (basic and
diluted), as adjusted |  | $                       | 1.87   |      |  | $ | 3.20   | 
|                                                           |  |                         |        |      |  |   |        | 

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Income Taxes

We are included in the consolidated federal income tax return with
Technical Olympic pursuant to a Tax Allocation Agreement between Technical
Olympic and us.

As a result of this Tax Allocation Agreement, income taxes are accounted
for using the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.

The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

Earnings Per Share

We present earnings per share data in accordance with the provisions of
SFAS No. 128, Earnings Per Share. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period.

Diluted earnings per share is computed based on the weighted average
number of shares of common stock and dilutive securities outstanding during the
period. Dilutive securities are options that are freely exercisable into common
stock at less than market exercise prices. Dilutive securities are not included
in the weighted average number of shares when inclusion would increase the
earnings per share or decrease the loss per share. For the years ended December
31, 2000, 2001 and 2002, we had no dilutive securities outstanding. All of the
options granted during the year ended December 31, 2002 are anti-dilutive as
their exercise prices are above market.

Stock-Based Compensation

We account for our stock option plan in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. As such, compensation expense would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price.

Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires companies to disclose the estimated fair value of their financial
instrument assets and liabilities. Fair value estimates are made at a specific
point in time, based upon relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time our entire holdings of a particular
instrument. The carrying values of cash and mortgage loans held for sale,
approximate their fair values due to their short-term nature. The carrying
value of homebuilding and financial service borrowings and consolidated land
bank obligations, excluding the senior and senior subordinated notes,
approximate their fair value as substantially all of the debt has a fluctuating
interest rate based upon a current market index. The fair value of the $200.0
million senior and $150.0 million senior subordinated notes at December 31,
2002 is $194.0 million and $141.8 million, respectively, as determined by
quoted market prices.

Impact of Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical Corrections.SFAS 145
prevents gains or losses on extinguishment of debt not meeting the criteria of
Accounting Principles Bulletin No. 30 to be treated as extraordinary. SFAS 145
amends

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SFAS No. 13, Accounting for Leases, to eliminate inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. In addition, SFAS 145 rescinds SFAS No. 44,
Accounting for Intangible Assets of Motor Carriersand amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. SFAS 145 is
effective for fiscal years beginning after May 15, 2002 with early adoption
encouraged. We adopted the provisions of SFAS 145 during the quarter ended June
30, 2002. As a result of the adoption of SFAS 145, we have included the loss
associated with the early extinguishment of debt in the determination of income
from continuing operations.

In January 2003, the FASB issued FASB Interpretation (Interpretation) No.
46, Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial Statements.
Interpretation No. 46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics: (i) the equity investment at risk is not sufficient to permit
the entity to finance its activities without additional subordinated support
from other parties, which is provided through other interests that will absorb
some or all of the expected losses of the entity; (ii) the equity investors
lack one or more of the following essential characteristics of a controlling
financial interest: the direct or indirect ability to make decisions about the
entities activities through voting rights or similar rights; the obligation to
absorb the expected losses of the entity if they occur, which makes it possible
for the entity to finance its activities; the right to receive the expected
residual returns of the entity if they occur, which is the compensation for the
risk of absorbing the expected losses.

Interpretation No. 46 also requires expanded disclosures by the primary
beneficiary (as defined) of a variable interest entity and by an enterprise
that holds a significant variable interest in a variable interest entity but is
not the primary beneficiary. Interpretation No. 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. Interpretation No. 46 may be
applied prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. As Interpretation No. 46 has just been
issued, we have not completed our evaluation as to the potential impact on our
consolidated financial statements. However, based on preliminary review,
management does not believe that the adoption of Interpretation No. 46 will
have a significant effect on our consolidated financial statements.

3. Inventory

Inventory consists of the following (dollars in thousands):

|                                             |  |              |         |      |  |   |         | 
|-------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                             |  | December 31,
|                                             |  |             
|                                             |  | 2001         |         | 2002
|                                             |  |              |         |     
|Deposits and lots and land under development |  | $            | 264,893 |      |  |   | 397,362 | 
|Residences completed and under construction  |  |              | 381,093 |      |  |   | 356,510 | 
|                                             |  |              |         |      |  |   |         | 
|                                             |  | $            | 645,986 |      |  | $ | 753,872 | 
|                                             |  |              |         |      |  |   |         | 

A summary of homebuilding interest capitalized in inventory is as follows
(dollars in thousands):

|                                          |                  |   |                         |       |      |   |        |        |  |   |        |        | 
|----------------------------------------- | ---------------- | - | ----------------------- | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                          |                  |   | Year Ended December 31,
|                                          |                  |   |                        
|                                          |                  |   | 2000                    |       | 2001 |   | 2002  
|                                          |                  |   |                         |       |      |   |       
|Interest capitalized, beginning of period |                  | $ | 3,003                   |       |      | $ | 25,487 |        |  | $ | 12,226 |       
|Interest incurred                         |                  |   | 35,477                  |       |      |   | 22,067 |        |  |   | 27,742 |       
|Less interest included in:                |                  |   |                         |       |      |   |        |        |  |   |        |       
|                                          | Cost of sales    |   |                         | 9,711 |      |   |        | 34,241 |  |   |        | 28,133 | 
|                                          | Interest expense |   |                         | 3,282 |      |   |        | 1,087  |  |   |        | 257    | 
|                                          |                  |   |                         |       |      |   |        |        |  |   |        |       
|Interest capitalized, end of period       |                  | $ | 25,487                  |       |      | $ | 12,226 |        |  | $ | 11,578 |       
|                                          |                  |   |                         |       |      |   |        |        |  |   |        |       

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In the ordinary course of business, we enter into contracts to purchase
lots and land held for lot development. At December 31, 2001 and 2002, we had
nonrefundable deposits aggregating $22.5 million and $56.1 million,
respectively, included in inventory in the accompanying consolidated statements
of financial condition. Our liability for nonperformance under such contracts
is limited to forfeiture of the related deposits.

During 2001, through Westbrooke Acquisition Corp. (Westbrooke), we entered
into an option arrangement with Durham-Florida Properties, LLC (Durham) to
acquire developed lots with a total estimated contract price of $16.4 million.
Under this option arrangement, we placed a $3.7 million financial guarantee
bond with Durham, which was reduced on a pro rata basis as lots were purchased
by Westbrooke. This bond was guaranteed by us. Under this arrangement,
Westbrooke could cancel this agreement to purchase the land by forfeiture of
Westbrookes bond. Although Westbrooke did not have legal title to the assets
of Durham and had not guaranteed the liabilities, Westbrooke did exercise
certain rights of ownership over Durhams assets, and as a result, we included
these assets in inventory at December 31, 2001, which were classified as
Westbrooke assets held for sale with a corresponding liability in consolidated
land bank obligations, which was classified as Westbrooke liabilities
associated with assets held for sale. See Note 8.

During 2001, through Westbrooke, we sold to Park/Walnut Creek Investors,
LLC (Walnut Creek) certain undeveloped real estate tracts. Walnut Creek was
owned by several of the executive officers of Westbrooke. We placed deposits
and entered into a number of agreements, including an option contract and
construction contract with Walnut Creek, to develop and buy back fully
developed lots from time to time subject to the terms and conditions of such
agreements. Additionally, under these agreements, we could cancel the agreement
to purchase the land by forfeiture of our deposits. We believe that the terms
of the purchase contract and the terms of the related option and development
contracts were comparable to those available from unaffiliated parties. As of
December 31, 2001, the remaining value of lots that could be acquired by us
approximated $4.3 million. Although Westbrooke did not have legal title to the
assets of Walnut Creek, Westbrooke did exercise certain rights of ownership,
and as a result, we included these assets in inventory with a corresponding
liability in consolidated land bank obligations in the accompanying
consolidated statement of financial condition.

As a result of the above transactions, we included in Westbrooke assets
held for sale in the December 31, 2001 consolidated statement of financial
condition inventory of approximately $13.0 million and in Westbrooke
liabilities associated with assets held for sale consolidated land bank
obligations of approximately $13.0 million. These obligations were at market
interest rates and were repaid based on lot closings with a final maturity
through January 31, 2004. See Note 8.

During 2001, Engle sold to an investment limited liability company
(Investment Company) certain undeveloped real estate tracts. The Investment
Company is owned by several of the current and former executive officers of
Engle, including without limitation related trusts of management. As of
December 31, 2002, the remaining value of lots that can be acquired by us
approximates $7.0 million. Engle placed deposits, entered into a number of
agreements, including option contracts and construction contracts with the
Investment Company, to develop and buy back fully developed lots from time to
time subject to the terms and conditions of such agreements. Additionally,
under these agreements, Engle can cancel these agreements to purchase the land
by forfeiture of its deposit. Engle believes that the terms of the purchase
contract and the terms of the related option and development contracts were
comparable to those available from unaffiliated parties. Although Engle does
not have legal title to the assets of the Investment Company and has not
guaranteed the liabilities of the Investment Company, Engle does exercise
certain rights of ownership over the Investment Company assets. Consequently,
the assets and associated liabilities of the Investment Company have been
recorded in the accompanying consolidated statements of financial condition as
of December 31, 2001 and 2002. Minority interest in consolidated subsidiaries,
includes the equity provided by members of management.

During 2001, we entered into option arrangements with independent third
parties to acquire developed lots. Under these option arrangements, we placed
deposits, which provide the right to acquire developed lots at market prices.
Additionally, under these arrangements, we can cancel these arrangements to
purchase the land by forfeiture

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of the deposit. Although we do not have legal title to the assets of
these independent third parties and have not guaranteed the liabilities, we do
exercise certain rights of ownership over the entitys assets. Consequently,
the assets and associated liabilities of these entities have been recorded in
the accompanying consolidated statements of financial condition.

As a result of the above transactions, we have included on our
consolidated statement of financial condition inventory and land deposits of
approximately $25.4 million, minority interest of approximately $9.1 million,
which represents the equity of investors, and consolidated land bank obligation
of approximately $16.3 million. These obligations are at market interest rates
and are repaid on lot closings with a final maturity through 2004. At December 31, 2001,
we had included in our consolidated statement of financial
condition inventory and land deposits of approximately $66.0 million, minority interest of approximately
$36.0 million, and consolidated land bank obligations of approximately $30.0 million.

4. Accounts Payable and Other Liabilities

Accounts payable and other liabilities consists of the following (dollars in
thousands):

|              |                                         |   |              |        |      |   |        |        | 
|------------- | --------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | 
|              |                                         |   | December 31,
|              |                                         |   |             
|              |                                         |   | 2001         |        | 2002
|              |                                         |   |              |        |     
|Homebuilding: |                                         |   |              |        |      |   |        |       
|              | Trade accounts payable                  |   | $            | 19,775 |      |   | $      | 29,746 | 
|              | Interest                                |   |              | 1,921  |      |   |        | 17,341 | 
|              | Compensation                            |   |              | 9,261  |      |   |        | 11,176 | 
|              | Taxes, including income and real estate |   |              | 13,315 |      |   |        | 14,262 | 
|              | Warranty costs                          |   |              | 2,138  |      |   |        | 4,795  | 
|              | Accrued expenses                        |   |              | 9,484  |      |   |        | 16,101 | 
|              | Other                                   |   |              | 401    |      |   |        | 3,399  | 
|              |                                         |   |              |        |      |   |        |       
|              |                                         | $ | 56,295       |        |      | $ | 96,820 |       
|              |                                         |   |              |        |      |   |        |       

Accounts payable and other liabilities for Financial Services consists
primarily of title company escrows.

During the year ended December 31, 2002, changes in our warranty accrual
consisted of the following (dollars in thousands):

|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Accrued warranty costs at January 1, 2002   |  | $ | 2,138  |  
|Estimated liability recorded                |  |   | 7,523  |  
|Settlements made                            |  |   | (4,866 | )
|                                            |  |   |        |  
|Accrued warranty costs at December 31, 2002 |  | $ | 4,795  |  
|                                            |  |   |        |  

5. Homebuilding and Financial Services Borrowings

Homebuilding Borrowings

Homebuilding borrowings, excluding the construction loans payable of
Westbrooke which are included in Westbrooke liabilities associated with assets
held for sale, consists of the following (dollars in thousands):

|                                                                                                                                                                                                                                                                                                       |  |              |         |      |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | 
|                                                                                                                                                                                                                                                                                                       |  | December 31,
|                                                                                                                                                                                                                                                                                                       |  |             
|                                                                                                                                                                                                                                                                                                       |  | 2001         |         | 2002
|                                                                                                                                                                                                                                                                                                       |  |              |         |     
|Senior notes due 2010, at 9% (a)                                                                                                                                                                                                                                                                       |  | $            |        |      |  | $ | 200,000 | 
|Senior subordinated notes due 2012, at 10 3/8% (a)                                                                                                                                                                                                                                                     |  |              |        |      |  |   | 150,000 | 
|Revolving credit facility (b)                                                                                                                                                                                                                                                                          |  |              |        |      |  |   | 55,000  | 
|Unsecured borrowings from banks(c)                                                                                                                                                                                                                                                                     |  |              | 202,000 |      |  |   |         | 
|Senior notes due 2008, at 9 1/4%(d)                                                                                                                                                                                                                                                                    |  |              | 12,897  |      |  |   |        | 
|Construction and lot loans with financial institutions,
collateralized by lots and single family residences
completed or under construction, bearing interest at LIBOR
plus 175 basis points to prime rate (4.20% to 4.75% at
December 31, 2001), maturing upon completion and closing
of the homes(e) |  |              | 81,643  |      |  |   |        | 
|Acquisition notes payable(f)                                                                                                                                                                                                                                                                           |  |              | 5,434   |      |  |   |        | 
|Other                                                                                                                                                                                                                                                                                                  |  |              | 6,723   |      |  |   | 8,110   | 
|                                                                                                                                                                                                                                                                                                       |  |              |         |      |  |   |         | 
|                                                                                                                                                                                                                                                                                                       |  | $            | 308,697 |      |  | $ | 413,110 | 
|                                                                                                                                                                                                                                                                                                       |  |              |         |      |  |   |         | 

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Maturities on homebuilding borrowings at December 31, 2002 are as follows
(dollars in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 1,975   | 
|2004       |  |   | 1,800   | 
|2005       |  |   | 59,162  | 
|2006       |  |   | 10      | 
|2007       |  |   | 7       | 
|Thereafter |  |   | 350,156 | 
|           |  |   |         | 
|           |  | $ | 413,110 | 
|           |  |   |         | 



---

|(a) |  | Interest on the senior and senior
subordinated notes (the Notes) is payable
semi-annually, commencing on January 1,
2003. The Notes are fully and
unconditionally guaranteed by all of our
material domestic subsidiaries. Any
subsidiaries, other than the subsidiary
guarantors, are minor and we have no
independent assets or operations. There are
no restrictions on our ability to obtain
funds from our subsidiaries by dividend or
loan.                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The indentures governing the Notes require
us to maintain a minimum net worth and
place certain restrictions on our ability
to, among other things, incur additional
debt, pay or make dividends or other
distributions, sell assets and enter into
transactions with affiliates and merge or
consolidate with other entities.                                                                                                                                                                                                                                                                                                                                                            
|   
|(b) |  | The revolving credit facility permits us to
borrow up to the lesser of (i) $220,000 or
(ii) our borrowing base (as calculated in
accordance with the revolving credit
facility agreement) minus our outstanding
senior debt. The revolving credit facility
expires on June 26, 2005. At our election,
loans outstanding under the facility may be
either base rate loans or Eurodollar loans,
in accordance with the revolving credit
facility agreement. At December 31, 2002,
the loans outstanding under the credit
facility accrue interest at a weighted
average rate of 3.64%.                                                                                                      
|   
|    |  | The revolving credit facility requires us
to maintain specified financial ratios
regarding leverage, interest coverage,
consolidated tangible net worth and certain
operational measurements and satisfy
certain financial condition tests. The
revolving credit facility also places
certain restrictions on, among other
things, our ability to incur additional
debt or liens, pay or make dividends or
other distributions, sell assets, enter
into transactions with affiliates and merge
or consolidate with other entities. The
revolving credit facility is secured by a
first-priority lien on all capital stock of
subsidiaries owned by us.                                    
|   
|    |  | On February 3, 2003, we completed a private
placement of an additional $100.0 million
of 9% Senior Notes at a price of 94.836%.
The net proceeds of approximately $93.6
million were used to repay the $55.0
million outstanding under our credit
facility as of December 31, 2002 and
approximately $35.0 million of an
additional $50.0 million which was drawn
down from January 1, 2003 through the date
of closing. As a result, as of February 3,
2003, we have $15.0 million outstanding
under our credit facility and $175.5
million in availability.                                                                                                                             
|   
|(c) |  | In connection with the acquisition of Engle
by Technical Olympic on November 22, 2000,
we entered into a Credit Agreement (the
Credit Agreement) with a bank providing for
a $100.0 million term loan commitment and a
$275.0 million revolving credit facility
(subject to reduction based upon periodic
determinations of a borrowing base).
Proceeds from these facilities provided
working capital and financed the required
repurchase offer made to holders of Engles
then outstanding $250.0 million principal
amount of 9 1/4% Senior Notes due 2008 (the
Engle Senior Notes). The term loan and
revolving credit facility were repaid with
the proceeds from the Notes Offering.

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|(d) |  | As a result of the change in control of
Engle Homes, Engle was required by the
indentures governing the Engle Senior Notes
to offer to repurchase all of its
outstanding Senior Notes at a price of 101%
of the principal plus accrued interest.
Upon termination of the offer in January
2001, Engle repurchased approximately
$237.0 million of the Engle Senior Notes.
Funds to repurchase the Engle Senior Notes
were provided from the issuance of the
$100.0 term loan under the Credit Agreement
and additional advances under Engles
revolving credit facility. Approximately
$13.0 million of the Engle Senior Notes
were not tendered and remained outstanding
as of December 31, 2001. These notes were
discharged with the proceeds from the Notes
Offering.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(e) |  | On June 27, 2000, the Company entered into
a syndicated $150.0 million secured
revolving credit facility with six banks.
This credit facility was used to finance
the acquisition and development of
residential subdivisions, the purchase of
developed lots and the construction of
homes in the Texas, Tennessee and North
Carolina markets. The credit facility was
repaid with the proceeds from the Notes
Offering.                                                                                                                                                                                                                                                                                                                                                
|   
|(f) |  | The acquisition notes represent amounts
payable to Westbrookes prior majority
owner incurred in connection with our
acquisition of Westbrooke. At December 31,
2001, the total of acquisition notes
payable was approximately $7.4 million of
which $2.0 million is included in
Westbrooke liabilities associated with
assets held for sale. The notes were repaid
with the proceeds from the sale of
Westbrooke. See Note 8.                                                                                                                                                                                                                                                                                                                                           

Financial Services Borrowings

In order to fund the origination of residential mortgage loans, one of our
subsidiaries, Preferred Home Mortgage Company (PHMC), entered into a $65.0
million revolving warehouse line of credit. The warehouse line of credit is
comprised of (1) a credit facility providing for revolving loans of up to $40.0
million, subject to meeting borrowing base requirements based on the value of
collateral provided and (2) a mortgage loan purchase and sale agreement which
provides for the purchase by the lender of up to $25.0 million in mortgage
loans generated by PHMC. At no time may the amount outstanding under the
facility plus the amount of purchased loans pursuant to the purchase and sale
agreement exceed $65.0 million. As of December 31, 2002, the Company had $48.3
million outstanding under the warehouse line of credit. The warehouse line of
credit bears interest, at PHMCs option, at either (1) the Federal Funds rate
plus 1.375% or (2) a Eurodollar rate plus 1.25%. At December 31, 2001 and
2002, the loans outstanding under the warehouse line of credit accrued interest
at a weighted average rate of 2.895% and 2.543% per annum, respectively. The
warehouse line of credit requires PHMC to maintain certain financial ratios and
minimums. The warehouse line of credit is secured by a guarantee from us and
by funded mortgages which are pledged as collateral.

The line of credit includes restrictions including maintenance of certain
financial covenants. We are required to fund 2% of all mortgages originated and
to sell all funded mortgages within 90 days. As of December 31, 2002, the
Company was committed to selling its entire portfolio of mortgage loans held
for sale. The warehouse line of credit was originally scheduled to expire on
July 5, 2002. On June 25, 2002, the warehouse line of credit was amended to
extend the expiration to June 24, 2003.

Borrowing Capacity

At December 31, 2002 the Company had the capacity to borrow an additional
$140.1 million under the revolving credit facility and $16.7 million under the
warehouse line of credit, subject to the Company satisfying the relevant
borrowing conditions in those facilities.

6. Acquisitions

On October 4, 2002, we acquired the net assets of DS Ware Homes LLC, a
homebuilder operating in Jacksonville, Florida. We paid $35.6 million in cash,
of which $30.0 million was funded with proceeds from our revolving credit
facility. In addition, if certain earnings targets are met for the five-month
period after the closing, we will be

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obligated to pay up to an additional $5.2 million in cash to the sellers in
2003. Based on our preliminary allocation of the purchase price, this
acquisition resulted in approximately $21.0 million of goodwill. The results of
operations of DS Ware Homes LLC for the period from October 4, 2002 through
December 31, 2002 are included in the accompanying consolidated statement of
income for the year ended December 31, 2002.

On November 18, 2002, we acquired the net assets of Masonry Homes, Inc., a
homebuilder operating in the northwestern suburbs of Baltimore and southern
Pennsylvania. We paid $17.1 million in cash, which was funded with proceeds
from our revolving credit facility. In addition, if certain targets are met
regarding home sale closings, the development and/or subdivision of certain
lots and earnings for the 2003 and 2004 fiscal years, we will be obligated to
pay up to an additional $21.3 million in cash to the sellers over a two-year
period. This acquisition resulted in no material amount of goodwill being
recorded. The results of operations of Masonry Homes, Inc. for the period from
November 18, 2002 through December 31, 2002 are included in the accompanying
consolidated statement of income for the year ended December 31, 2002.

7. Severance and Merger Related Expenses

During 2001, in connection with the Merger, we incurred approximately $2.6
million in legal, consulting, and related costs. These costs are included in
severance and merger related expenses in the accompanying statement of income.

Included in severance and merger related expenses in the accompanying
consolidated statement of income for the year ended December 31, 2002 are costs
of the merger and integration, such as professional fees and investment banking
fees. These fees approximate $6.1 million. Additionally, we incurred
approximately $4.8 million in severance charges attributable to former
executives of the Company whose employment was terminated in connection with
the Merger and $7.6 million for severance payments with respect to Mr.
Engelstein and Mr. Shapiro. See Note 9.

8. Sale of Westbrooke

During March 2002, we committed to a plan to dispose of Westbrooke to
eliminate operating redundancies in the South Florida market and to strengthen
our financial position. Pursuant to this plan of disposition, we would sell
100% of the common stock of Westbrooke. On April 8, 2002, we signed a
definitive agreement for the sale of Westbrooke to Standard Pacific Corp.
(Standard Pacific) for approximately $41.0 million in cash. This sale was
completed on April 15, 2002. In addition, Standard Pacific satisfied
approximately $54.4 million of Westbrookes debt that included approximately
$14.2 million of intercompany liabilities owed to us. Upon completion of this
sale, we realized a gain of $4.3 million. We determined that in accordance with
SFAS 144, as of March 31, 2002, the criteria to classify the Westbrooke assets
as held for sale were met.

Results of Westbrookes operations have been classified as discontinued
operations, and prior periods have been restated. Discontinued operations
include Westbrooke revenues, which totaled $178.2 million, $205.7 million and
$44.2 million for the years ended December 31, 2000, 2001 and 2002,
respectively.

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As of December 31, 2001, the following major classes of assets and
liabilities have been classified as held for sale in the accompanying statement
of financial condition (dollars in thousands):

|                                                            |  |   |         | 
|----------------------------------------------------------- |  | - | ------- | 
|Cash                                                        |  | $ | 15,103  | 
|Inventory                                                   |  |   | 90,540  | 
|Property and equipment                                      |  |   | 2,765   | 
|Other assets                                                |  |   | 8,752   | 
|                                                            |  |   |         | 
|Westbrooke assets held for sale                             |  | $ | 117,160 | 
|                                                            |  |   |         | 
|                                                            |  |   |         | 
|Accounts payable and accrued liabilities                    |  | $ | 10,419  | 
|Customer deposits                                           |  |   | 7,671   | 
|Consolidated land bank obligations                          |  |   | 13,122  | 
|Construction and acquisition loans payable                  |  |   | 36,166  | 
|Other liabilities                                           |  |   | 4,422   | 
|                                                            |  |   |         | 
|Westbrooke liabilities associated with assets held for
sale |  | $ | 71,800  | 
|                                                            |  |   |         | 

9. Commitments and Contingencies

We provide homebuyers with a limited warranty of workmanship and materials
from the date of sale for up to two years. We generally have recourse against
our subcontractors for claims relating to workmanship and materials. We also
provide up to a ten-year homeowners warranty which covers major structural
defects.

We are subject to the normal obligations associated with entering into
contracts for the purchase, development and sale of real estate in the routine
conduct of our business. We are committed under various letters of credit and
performance bonds which are required for certain development activities,
deposits on land and lot purchase contract deposits. At December 31, 2002,
outstanding letters of credit and performance / surety bonds under these
arrangements totaled approximately $35.9 million and $57.8 million,
respectively.

We entered into an agreement with an insurance company to underwrite
private mortgage insurance on certain loans originated by our mortgage services
subsidiary. Under the terms of the agreement, we share in the premiums
generated on the loans and are exposed to losses in the event of a loan
default.

At December 31, 2002, our maximum exposure to losses relating to loans
insured is approximately $1.8 million, which is further limited to the amounts
held in trust of approximately $589,000. We minimize the credit risk associated
with such loans through credit investigations of customers as part of the loan
origination process and by monitoring the status of the loans and related
collateral on a continuous basis.

We are involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on our
consolidated financial position or results of operations.

In early February 2002, Alec Engelstein, then Chief Executive Officer of
Engle Homes, Inc., and David Shapiro, then Vice President-Chief Financial
Officer of Engle Homes, Inc., resigned from their executive positions with
Engle Homes, Inc. and alleged that they were entitled to receive severance
packages in the aggregate amount of approximately $9.4 million, plus other
benefits, including a claim by Mr. Engelstein of a monthly retirement benefit
equal to 1/12th of his annual salary with such payments to continue for a
period of 60 consecutive months. During September 2002, we reached an agreement
whereby we would pay $7.6 million which was accrued and the related expense was
recorded in severance and merger related expenses in the accompanying
consolidated statement of income for the year ended December 31, 2002.

In connection with our announcement in March 2001 of our proposed merger
with Engle, there was a class action suit filed in District Court, Clark
County, Nevada, and a class action suit filed in the 80th Judicial District
Court of Harris County, Texas, each of which challenged the merger as a breach
of fiduciary duty. In addition, two

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interveners filed interventions in the Texas class action. In March 2002,
we reached an agreement in principle for the settlement of the class actions
and interventions. Under the terms of the settlement, we have agreed to pay the
plaintiffs attorneys fees and expenses in an amount not to exceed $350,000 in
the aggregate. The settlement was subject to a number of conditions, including
the closing of the Merger, providing notice to the class, conducting
confirmatory discovery, executing a definitive settlement agreement and
obtaining final approval by the court. The parties originally contemplated that
the settlement would be consummated in the Texas action. In the third quarter,
the parties learned that the anticipated Texas forum was unavailable due to a
prior dismissal. The parties are negotiating a settlement relating to the
Nevada action and we anticipate executing a settlement agreement similar to the
original agreement in principle. After payments made by our insurance provider,
we anticipate being obligated to pay $125,000 in connection with the settlement
of this litigation. This amount has been accrued for in our financial
statements.

10. Related Party Transactions

In 2000, we entered into a purchasing agreement with our ultimate parent,
Technical Olympic S.A. The agreement provided that Technical Olympic S.A. would
purchase certain of the materials and supplies necessary for operations and
sell them to our entities, all in an effort to consolidate the purchasing
function. Although Technical Olympic S.A. would incur certain franchise tax
expense, we would not be required to pay such additional purchasing liability.
Technical Olympic S.A. purchased $70.5 million, $342.6 million and $191.6
million of materials and supplies on our behalf during the years ended December
31, 2000, 2001 and 2002, respectively. These materials and supplies bought by
Technical Olympic S.A. under the purchasing agreement are provided to us at
Technical Olympic S.A.s cost. We do not pay a fee or other consideration to
Technical Olympic S.A. under the purchasing agreement. We may terminate the
purchasing agreement upon 60 days prior notice.

In 2000, we entered into a management services agreement with Technical
Olympic, whereby Technical Olympic will provide certain advisory,
administrative and other services. For the years ended December 31, 2000, 2001
and 2002, we paid $1.5 million, $1.9 million and $1.4 million, respectively.
These expenses are included in selling, general and administrative expenses in
the accompanying statements of income.

During 2001, through Westbrooke, we sold to Park/Walnut Creek Investors,
LLC certain undeveloped real estate tracts. Walnut Creek is owned by several of
the executive officers of Westbrooke. Additionally, during 2001, Engle entered
into certain transactions to acquire developed lots from an entity owned by
several of the current and former executive officers of Engle. See Note 3.

11. Income Taxes

Components of income tax expense (benefit) from continuing operations
consist of the following (dollars in thousands):

|          |         |   |                         |        |      |   |        |        |  |   |        |        |  
|--------- | ------- | - | ----------------------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | -
|          |         |   | Year Ended December 31,
|          |         |   |                        
|          |         |   | 2000                    |        | 2001 |   | 2002  
|          |         |   |                         |        |      |   |       
|Current:  |         |   |                         |        |      |   |        |        |  |   |        |       
|          | Federal |   | $                       | 10,865 |      |   | $      | 47,055 |  |   | $      | 38,272 |  
|          | State   |   |                         | 403    |      |   |        | 4,343  |  |   |        | 3,689  |  
|          |         |   |                         |        |      |   |        |        |  |   |        |       
|          |         |   | 11,268                  |        |      |   | 51,398 |        |  |   | 41,961 |       
|          |         |   |                         |        |      |   |        |        |  |   |        |       
|Deferred: |         |   |                         |        |      |   |        |        |  |   |        |       
|          | Federal |   |                         | 2,089  |      |   |        | 667    |  |   |        | (1,880 | )
|          | State   |   |                         | 315    |      |   |        | 153    |  |   |        | (181   | )
|          |         |   |                         |        |      |   |        |        |  |   |        |       
|          |         |   | 2,404                   |        |      |   | 820    |        |  |   | (2,061 | )     
|          |         |   |                         |        |      |   |        |        |  |   |        |       
|          |         | $ | 13,672                  |        |      | $ | 52,218 |        |  | $ | 39,900 |       
|          |         |   |                         |        |      |   |        |        |  |   |        |       

The difference between total reported income taxes and expected income tax
expense computed by applying the federal statutory income tax rate of 35% for
2000, 2001 and 2002 to income from continuing operations is reconciled as
follows (dollars in thousands):

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|                                              |  |                         |        |      |  |      |        |  |  |   |        | 
|--------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                              |  | Year Ended December 31,
|                                              |  |                        
|                                              |  | 2000                    |        | 2001 |  | 2002
|                                              |  |                         |        |      |  |     
|Computed income tax expense at statutory rate |  | $                       | 13,106 |      |  | $    | 48,994 |  |  | $ | 37,429 | 
|State income taxes                            |  |                         | 467    |      |  |      | 2,922  |  |  |   | 2,269  | 
|Other, net                                    |  |                         | 99     |      |  |      | 302    |  |  |   | 202    | 
|                                              |  |                         |        |      |  |      |        |  |  |   |        | 
|Income taxes                                  |  | $                       | 13,672 |      |  | $    | 52,218 |  |  | $ | 39,900 | 
|                                              |  |                         |        |      |  |      |        |  |  |   |        | 

Significant temporary differences that give rise to the deferred tax
assets and liabilities from continuing operations are as follows (dollars in
thousands):

|                               |                                                                        |   |              |        |      |   |        |        |  
|------------------------------ | ---------------------------------------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | -
|                               |                                                                        |   | December 31,
|                               |                                                                        |   |             
|                               |                                                                        |   | 2001         |        | 2002
|                               |                                                                        |   |              |        |     
|Deferred tax assets:           |                                                                        |   |              |        |      |   |        |       
|                               | Warranty reserve                                                       |   | $            | 725    |      |   | $      | 602    |  
|                               | Property and equipment, principally due to differences in
depreciation |   |              | 325    |      |   |        | 259    |  
|                               | Inventory                                                              |   |              | 4,939  |      |   |        | 4,534  |  
|                               | Net operating loss carry forward                                       |   |              |       |      |   |        | 3,345  |  
|                               | Other                                                                  |   |              | 154    |      |   |        | 94     |  
|                               |                                                                        |   |              |        |      |   |        |       
|Total deferred tax assets      |                                                                        |   | 6,143        |        |      |   | 8,834  |       
|Deferred tax liabilities:      |                                                                        |   |              |        |      |   |        |       
|                               | Amortizable intangibles                                                |   |              | (3,874 | )    |   |        | (3,919 | )
|                               | Differences in reporting selling and marketing                         |   |              | (744   | )    |   |        | (1,433 | )
|                               | Other                                                                  |   |              | (120   | )    |   |        | (16    | )
|                               |                                                                        |   |              |        |      |   |        |       
|Total deferred tax liabilities |                                                                        |   | (4,738       | )      |      |   | (5,368 | )     
|                               |                                                                        |   |              |        |      |   |        |       
|Net deferred tax asset         |                                                                        | $ | 1,405        |        |      | $ | 3,466  |       
|                               |                                                                        |   |              |        |      |   |        |       

The net deferred tax asset included in other assets in the accompanying
consolidated statements of financial condition at December 31, 2001 and 2002
was $1.4 million and $3.5 million, respectively. We believe that it is more
likely than not that the gross deferred tax assets will be realized or settled
due to our ability to generate taxable income exclusive of reversing timing
differences. Accordingly, no valuation allowance has been established at
December 31, 2001 and 2002.

Payments of $15.3 million, $47.2 million and $37.7 million were made to
Technical Olympic for federal income taxes during 2000, 2001 and 2002,
respectively.

12. Stock Option Plan

During 2001, we adopted the Technical Olympic USA, Inc. Annual and
Long-Term Incentive Plan, formerly known as the Newmark Homes Corp. Annual and
Long-Term Incentive Plan (the Plan) pursuant to which our employees,
consultants and directors, and those of our subsidiaries and affiliated
entities are eligible to receive options to purchase shares of common stock.
Under the Plan, subject to adjustment as defined, the maximum number of shares
with respect to which awards may be granted is 4,000,000. Pursuant to the Plan,
no shares could be granted prior to consummation of the aforementioned merger
between us and Engle. As a result, as of December 31, 2001, no options had been
granted.

Activity under the Plan for the year ended December 31, 2002 is as
follows:

|                                 |  |                   |           |                |  |                  |       | 
|-------------------------------- |  | ----------------- | --------- | -------------- |  | ---------------- | ----- | 
|                                 |  |                   |           |                |  | Weighted Average
|                                 |  | Number of Options |           | Exercise Price
|                                 |  |                   |           |               
|Outstanding at beginning of year |  |                   |          |                |  |                  |      | 
|Granted                          |  |                   | 2,195,455 |                |  | $                | 19.37 | 
|                                 |  |                   |           |                |  |                  |       | 
|Outstanding at end of year       |  |                   | 2,195,455 |                |  | $                | 19.37 | 
|                                 |  |                   |           |                |  |                  |       | 
|                                 |  |                   |           |                |  |                  |       | 
|Exerciseable at end of year      |  |                   | 285,402   |                |  | $                | 17.17 | 
|                                 |  |                   |           |                |  |                  |       | 

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Exercise prices for options outstanding at December 31, 2002 range from $17.17
- $22.86 and had a weighted average remaining contractual life of ten years.

Included in the 2,195,455 options granted during the year are 592,776 options
granted to executives which contain accelerated vesting criteria. These options
are being accounted for under the variable accounting method as provided for by
APB Opinion No. 25. No expense has been recorded during the year ended December
31, 2002 as the exercise price is greater than the current market price of the
stock.

We have elected to follow APB Opinion No. 25 in accounting for employee stock
options. The exercise price of our employee stock options equal or exceed the
market price of the underlying stock on the date of grant, and therefore no
compensation expense is recognized. SFAS No. 123, Accounting For Stock Based
Compensation, requires disclosure of pro forma income and pro forma income per
share as if the fair value based method had been applied in measuring
compensation expense.

|                                               |                              |   |             |      |           |   |        |      | 
|---------------------------------------------- | ---------------------------- | - | ----------- | ---- | --------- | - | ------ | ---- | 
|                                               |                              |   | As Reported |      | Pro Forma
|                                               |                              |   |             |      |          
|Income from continuing operations              |                              | $ | 67,041      |      |           | $ | 64,748 |     
|Income from discontinued operations            |                              |   | 4,963       |      |           |   | 4,963  |     
|                                               |                              |   |             |      |           |   |        |     
|Net income                                     |                              | $ | 72,004      |      |           | $ | 69,711 |     
|                                               |                              |   |             |      |           |   |        |     
|Earnings per common share (basic and diluted): |                              |   |             |      |           |   |        |     
|                                               | From continuing operations   |   | $           | 2.35 |           |   | $      | 2.32 | 
|                                               | From discontinued operations |   |             | .18  |           |   |        | .18  | 
|                                               |                              |   |             |      |           |   |        |     
|                                               | Net income                   |   | $           | 2.53 |           |   | $      | 2.50 | 
|                                               |                              |   |             |      |           |   |        |     

The weighted average fair value of each option granted during the year ended
December 31, 2002 was $5.40. The fair values of options granted were estimated
on the date of their grant using the Black-Scholes option pricing model based
on the following weighted average assumptions:

|                                                                                  |  |                               
|--------------------------------------------------------------------------------- |  | ------------------------------
|Expected volatility
Expected dividend yield
Risk-free interest rate
Expected life |  | 0.48%
0%
3.0%  4.0%
4-7 years

On January 1, 2003, we granted 900,000 options to one of our executives. The
weighted average exercise price of these options is $19.37 with a contractual
life of ten years.

13. Employee Benefit Plans

We have two defined contribution plans established pursuant to Section
401(k) of the Internal Revenue Code. Employees contribute to the plan a
percentage of their salaries, subject to certain dollar limitations, and we
match a portion of the employees contributions. Our contributions to the plans
for the years ended December 31, 2000, 2001 and 2002, amounted to $0.6 million,
$1.1 million and $1.3 million, respectively.

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14. Quarterly Results (Unaudited)

Quarterly results for the years ended December 31, 2001 and 2002, which
have been restated for the Merger, are reflected below (dollars in thousands):

|                                      |                                   |   |         |      |        |   |         |      |  |  |       |  |  |   |         |      |        |  |  |  |  |   |         |      | 
|------------------------------------- | --------------------------------- | - | ------- | ---- | ------ | - | ------- | ---- |  |  | ----- |  |  | - | ------- | ---- | ------ |  |  |  |  | - | ------- | ---- | 
|                                      |                                   |   | First   |      | Second |   |         |      |  |  | Third |  |  |   |         |      | Fourth
|                                      |                                   |   |         |      |        |   |         |      |  |  |       |  |  |   |         |      |       
|2001:                                 |                                   |   |         |      |        |   |         |      |  |  |       |  |  |   |         |      |        |  |  |  |  |   |         |     
|Revenue                               |                                   | $ | 316,564 |      |        | $ | 367,016 |      |  |  |       |  |  | $ | 369,409 |      |        |  |  |  |  | $ | 372,582 |     
|Homebuilding gross profit             |                                   |   | 61,680  |      |        |   | 73,970  |      |  |  |       |  |  |   | 76,883  |      |        |  |  |  |  |   | 72,093  |     
|Income from continuing operations     |                                   |   | 18,026  |      |        |   | 23,067  |      |  |  |       |  |  |   | 24,959  |      |        |  |  |  |  |   | 21,713  |     
|Discontinued operations(a)            |                                   |   | 1,180   |      |        |   | 597     |      |  |  |       |  |  |   | 1,297   |      |        |  |  |  |  |   | 3,198   |     
|Net income                            |                                   |   | 19,206  |      |        |   | 23,664  |      |  |  |       |  |  |   | 26,256  |      |        |  |  |  |  |   | 24,911  |     
|Basic and diluted earnings per share: |                                   |   |         |      |        |   |         |      |  |  |       |  |  |   |         |      |        |  |  |  |  |   |         |     
|                                      | Income from continuing operations |   |         | 0.64 |        |   |         | 0.83 |  |  |       |  |  |   |         | 0.90 |        |  |  |  |  |   |         | 0.78 | 
|                                      | Net income                        |   |         | 0.68 |        |   |         | 0.85 |  |  |       |  |  |   |         | 0.95 |        |  |  |  |  |   |         | 0.89 | 
|2002:                                 |                                   |   |         |      |        |   |         |      |  |  |       |  |  |   |         |      |        |  |  |  |  |   |         |     
|Revenue                               |                                   |   | 310,317 |      |        |   | 363,563 |      |  |  |       |  |  |   | 351,444 |      |        |  |  |  |  |   | 391,982 |     
|Homebuilding gross profit             |                                   |   | 61,607  |      |        |   | 72,051  |      |  |  |       |  |  |   | 70,105  |      |        |  |  |  |  |   | 73,024  |     
|Income from continuing operations     |                                   |   | 8,929   |      |        |   | 11,563  |      |  |  |       |  |  |   | 26,338  |      |        |  |  |  |  |   | 20,211  |     
|Discontinued operations(a)            |                                   |   | 640     |      |        |   | 4,323   |      |  |  |       |  |  |   |        |      |        |  |  |  |  |   |        |     
|Net income                            |                                   |   | 9,569   |      |        |   | 15,886  |      |  |  |       |  |  |   | 26,338  |      |        |  |  |  |  |   | 20,211  |     
|Basic and diluted earnings per share: |                                   |   |         |      |        |   |         |      |  |  |       |  |  |   |         |      |        |  |  |  |  |   |         |     
|                                      | Income from continuing operations |   |         | 0.32 |        |   |         | 0.41 |  |  |       |  |  |   |         | 0.95 |        |  |  |  |  |   |         | 0.72 | 
|                                      | Net income                        |   |         | 0.34 |        |   |         | 0.57 |  |  |       |  |  |   |         | 0.95 |        |  |  |  |  |   |         | 0.72 | 

Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with the per share amounts for the year.



---

|(a) |  | Discontinued operations include the after-tax operations of Westbrooke. See Note 8.
|--- |  | -----------------------------------------------------------------------------------

F-24