##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|           |  |                                                                                                  
|---------- |  | -------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                  
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15 (d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|           |  | For the quarterly period ended September 30, 2005                                                
|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: 001-32322


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 Blvd., Suite 500 N
    Hollywood, Florida           |  | 33021                                   
|(Address of principal executive offices)                           |  | (ZIP code)                              

(954) 364-4000


(Registrants telephone number, including area code)






þ o


þ o


o þ


APPLICABLE ONLY TO CORPORATE ISSUERS:












---










TECHNICAL OLYMPIC USA, INC.


INDEX


|                                                  |  |                                                                                           |  |                                                    |    |  |    | 
|------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | -------------------------------------------------- | -- |  | -- | 
|                                                  |  |                                                                                           |  | PAGE                                               |   
|                                                  |  |                                                                                           |  |                                                    |   
|PART I.                                           |  | Financial Information                                                                     |  |                                                    | 3  | 
|ITEM 1.                                           |  | Financial Statements (Unaudited)                                                          |  |                                                    | 3  | 
|                                                  |  |                                                                                           |  | Consolidated Statements of Financial
    Condition |    |  | 3  | 
|                                                  |  |                                                                                           |  | Consolidated Statements of Income                  |    |  | 4  | 
|                                                  |  |                                                                                           |  | Consolidated Statements of Cash Flows              |    |  | 5  | 
|                                                  |  |                                                                                           |  | Notes to the Consolidated Financial
    Statements |    |  | 6  | 
|ITEM 2.                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |                                                    | 22 | 
|ITEM 3.                                           |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |  |                                                    | 34 | 
|ITEM 4.                                           |  | Controls and Procedures                                                                   |  |                                                    | 34 | 
|                                                 
|PART II.                                          |  | Other Information                                                                         |  |                                                    | 35 | 
|ITEM 6.                                           |  | Exhibits                                                                                  |  |                                                    | 35 | 
|                                                  |  |                                                                                           |  | Signatures                                         |    |  | 36 | 
|Section 302 Chief Executive Officer Certification
|Section 302 Chief Financial Officer Certification
|Section 906 Chief Executive Officer Certification
|Section 906 Chief Financial Officer Certification



2



---



##### Table of Contents






PART I. Financial Information







|        |                     
|------- | --------------------
|ITEM 1. | Financial Statements

TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


(Dollars in millions, except shares and par value)


|                                                                                                                                                                                                |                                             |                    |         |       |                   |   |         |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------ | ------- | ----- | ----------------- | - | ------- | ----- | 
|                                                                                                                                                                                                |                                             | September 30, 2005 |         |       | December 31, 2004 |  
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                                |                                             | (Unaudited)        |         |       |                  
|ASSETS                                                                                                                                                                                         
|HOMEBUILDING:                                                                                                                                                                                   |                                             |                    |         |       |                   |   |         |      
|Cash and cash equivalents:                                                                                                                                                                      |                                             |                    |         |       |                   |   |         |      
|                                                                                                                                                                                                | Unrestricted                                |                    | $       | 43.2  |                   |   | $       | 217.6 | 
|                                                                                                                                                                                                | Restricted                                  |                    |         | 3.1   |                   |   |         | 8.0   | 
|Inventory:                                                                                                                                                                                      |                                             |                    |         |       |                   |   |         |      
|                                                                                                                                                                                                | Deposits                                    |                    |         | 199.4 |                   |   |         | 132.8 | 
|                                                                                                                                                                                                | Homesites and land under development        |                    |         | 614.7 |                   |   |         | 341.2 | 
|                                                                                                                                                                                                | Residences completed and under construction |                    |         | 753.0 |                   |   |         | 671.0 | 
|                                                                                                                                                                                                | Inventory not owned                         |                    |         | 79.5  |                   |   |         | 136.2 | 
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                                |                                             |                    | 1,646.6 |       |                   |   | 1,281.2 |      
|Property and equipment, net                                                                                                                                                                     |                                             |                    | 24.6    |       |                   |   | 26.7    |      
|Investments in unconsolidated joint ventures                                                                                                                                                    |                                             |                    | 188.0   |       |                   |   | 66.6    |      
|Receivables from unconsolidated joint ventures                                                                                                                                                  |                                             |                    | 80.3    |       |                   |   | 3.4     |      
|Other assets                                                                                                                                                                                    |                                             |                    | 122.2   |       |                   |   | 67.7    |      
|Goodwill                                                                                                                                                                                        |                                             |                    | 110.7   |       |                   |   | 110.7   |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                                |                                             |                    | 2,218.7 |       |                   |   | 1,781.9 |      
|FINANCIAL SERVICES:                                                                                                                                                                             |                                             |                    |         |       |                   |   |         |      
|Cash and cash equivalents:                                                                                                                                                                      |                                             |                    |         |       |                   |   |         |      
|                                                                                                                                                                                                | Unrestricted                                |                    |         | 7.0   |                   |   |         | 50.9  | 
|                                                                                                                                                                                                | Restricted                                  |                    |         | 75.7  |                   |   |         | 69.1  | 
|Mortgage loans held for sale                                                                                                                                                                    |                                             |                    | 64.0    |       |                   |   | 75.8    |      
|Other assets                                                                                                                                                                                    |                                             |                    | 13.3    |       |                   |   | 9.8     |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                                |                                             |                    | 160.0   |       |                   |   | 205.6   |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|Total assets                                                                                                                                                                                    |                                             | $                  | 2,378.7 |       |                   | $ | 1,987.5 |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                               
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                           
|HOMEBUILDING:                                                                                                                                                                                   |                                             |                    |         |       |                   |   |         |      
|Accounts payable and other liabilities                                                                                                                                                          |                                             | $                  | 290.7   |       |                   | $ | 188.9   |      
|Customer deposits                                                                                                                                                                               |                                             |                    | 87.2    |       |                   |   | 69.1    |      
|Obligations for inventory not owned                                                                                                                                                             |                                             |                    | 79.5    |       |                   |   | 136.2   |      
|Notes payable                                                                                                                                                                                   |                                             |                    | 811.6   |       |                   |   | 811.4   |      
|Bank borrowings                                                                                                                                                                                 |                                             |                    | 80.0    |       |                   |   |        |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                                |                                             |                    | 1,349.0 |       |                   |   | 1,205.6 |      
|FINANCIAL SERVICES:                                                                                                                                                                             |                                             |                    |         |       |                   |   |         |      
|Accounts payable and other liabilities                                                                                                                                                          |                                             |                    | 77.6    |       |                   |   | 70.2    |      
|Bank borrowings                                                                                                                                                                                 |                                             |                    | 54.6    |       |                   |   | 49.0    |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|                                                                                                                                                                                                |                                             |                    | 132.2   |       |                   |   | 119.2   |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|Total liabilities                                                                                                                                                                               |                                             |                    | 1,481.2 |       |                   |   | 1,324.8 |      
|Stockholders equity:                                                                                                                                                                           |                                             |                    |         |       |                   |   |         |      
|Preferred stock  $0.01 par value;
    3,000,000 shares authorized; none issued or outstanding                                                                                                  |                                             |                    |        |       |                   |   |        |      
|Common stock  $0.01 par value;
    97,000,000 shares authorized and 59,536,227 and
    56,070,510 shares issued and outstanding at
    September 30, 2005, and December 31, 2004, respectively |                                             |                    | 0.6     |       |                   |   | 0.6     |      
|Additional paid-in capital                                                                                                                                                                      |                                             |                    | 485.6   |       |                   |   | 388.3   |      
|Unearned compensation                                                                                                                                                                           |                                             |                    | (11.5   | )     |                   |   | (9.0    | )    
|Retained earnings                                                                                                                                                                               |                                             |                    | 422.8   |       |                   |   | 282.8   |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|Total stockholders equity                                                                                                                                                                      |                                             |                    | 897.5   |       |                   |   | 662.7   |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  
|Total liabilities and stockholders equity                                                                                                                                                      |                                             | $                  | 2,378.7 |       |                   | $ | 1,987.5 |      
|                                                                                                                                                                                                |                                             |                    |         |       |                   |  



3



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME


(Dollars in millions, except share and per share amounts)


|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |         |            | 
|----------------------------------------------------- | ------------------------------- | ------------------ | ----- | ----- | ----------------- | - | ----- | ----- | ---------- | - | ------- | ------- | ---------- | - | ------- | ------- | ---------- | 
|                                                      |                                 | Three Months Ended |       |       | Nine Months Ended |  
|                                                      |                                 | September 30,      |       |       | September 30,     |  
|                                                      |                                 |                    |       |       |                   |  
|                                                      |                                 | 2005               |       |       | 2004              |   |       | 2005  |            |   | 2004    |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|                                                      |                                 | (Unaudited)        |      
|HOMEBUILDING:                                         |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|Revenues:                                             |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|                                                      | Home sales                      |                    | $     | 562.8 |                   |   | $     | 500.1 |            |   | $       | 1,657.3 |            |   | $       | 1,369.3 |           
|                                                      | Land sales                      |                    |       | 99.8  |                   |   |       | 7.1   |            |   |         | 154.7   |            |   |         | 61.0    |           
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|                                                      |                                 |                    | 662.6 |       |                   |   | 507.2 |       |            |   | 1,812.0 |         |            |   | 1,430.3 |        
|Cost of sales:                                        |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|                                                      | Home sales                      |                    |       | 407.5 |                   |   |       | 398.8 |            |   |         | 1,256.7 |            |   |         | 1,104.4 |           
|                                                      | Land sales                      |                    |       | 69.9  |                   |   |       | 6.6   |            |   |         | 116.6   |            |   |         | 47.8    |           
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|                                                      |                                 |                    | 477.4 |       |                   |   | 405.4 |       |            |   | 1,373.3 |         |            |   | 1,152.2 |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|Gross profit                                          |                                 |                    | 185.2 |       |                   |   | 101.8 |       |            |   | 438.7   |         |            |   | 278.1   |        
|Selling, general and administrative expenses          |                                 |                    | 90.2  |       |                   |   | 61.2  |       |            |   | 246.7   |         |            |   | 176.9   |        
|Other income:                                         |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|                                                      | Income from joint ventures, net |                    |       | (13.3 | )                 |   |       | (0.7  | )          |   |         | (24.0   | )          |   |         | (0.7    | )         
|                                                      | Other (income) expense, net     |                    |       | (1.6  | )                 |   |       | (2.2  | )          |   |         | (5.8    | )          |   |         | (2.7    | )         
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|Homebuilding pretax income                            |                                 |                    | 109.9 |       |                   |   | 43.5  |       |            |   | 221.8   |         |            |   | 104.6   |        
|FINANCIAL SERVICES:                                   |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|Revenues                                              |                                 |                    | 13.4  |       |                   |   | 8.2   |       |            |   | 34.8    |         |            |   | 26.4    |        
|Expenses                                              |                                 |                    | 10.4  |       |                   |   | 7.6   |       |            |   | 28.1    |         |            |   | 20.0    |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|Financial Services pretax income                      |                                 |                    | 3.0   |       |                   |   | 0.6   |       |            |   | 6.7     |         |            |   | 6.4     |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|Income before provision for income taxes              |                                 |                    | 112.9 |       |                   |   | 44.1  |       |            |   | 228.5   |         |            |   | 111.0   |        
|Provision for income taxes                            |                                 |                    | 42.6  |       |                   |   | 16.0  |       |            |   | 86.1    |         |            |   | 40.8    |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|Net income                                            |                                 | $                  | 70.3  |       |                   | $ | 28.1  |       |            | $ | 142.4   |         |            | $ | 70.2    |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|EARNINGS PER COMMON SHARE:                            |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|                                                      |                                 | Basic              |       | $     | 1.24              |   |       | $     | 0.50       |   |         | $       | 2.53       |   |         | $       | 1.25       | 
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|                                                      |                                 | Diluted            |       | $     | 1.18              |   |       | $     | 0.49       |   |         | $       | 2.43       |   |         | $       | 1.23       | 
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |                                 |                    |       |       |                   |   |       |       |            |   |         |         |            |   |         |        
|                                                      |                                 | Basic              |       |       | 56,753,826        |   |       |       | 56,064,565 |   |         |         | 56,304,544 |   |         |         | 56,056,943 | 
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|                                                      |                                 | Diluted            |       |       | 59,392,423        |   |       |       | 57,427,500 |   |         |         | 58,569,725 |   |         |         | 57,178,499 | 
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        
|CASH DIVIDENDS PER SHARE                              |                                 | $                  | 0.015 |       |                   | $ | 0.012 |       |            | $ | 0.042   |         |            | $ | 0.024   |        
|                                                      |                                 |                    |       |       |                   |   |       |       |            |   |         |        



4



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in millions)


|                                                                                            |                                                     |                                        |        |      |        |   |        |     |        |  
|------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------- | ------ | ---- | ------ | - | ------ | --- | ------ | -
|                                                                                            |                                                     | Nine Months Ended                      |       
|                                                                                            |                                                     | September 30,                          |       
|                                                                                            |                                                     |                                        |       
|                                                                                            |                                                     | 2005                                   |        |      | 2004   |  
|                                                                                            |                                                     |                                        |        |      |        |  
|                                                                                            |                                                     | (Unaudited)                            |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                                     |                                        |        |      |        |   |        |    
|Net income                                                                                  |                                                     | $                                      | 142.4  |      |        | $ | 70.2   |    
|Adjustments to reconcile net income to net cash used in
    operating activities:           |                                                     |                                        |        |      |        |   |        |    
|                                                                                            | Depreciation and amortization                       |                                        |        | 9.6  |        |   |        | 9.5 |       
|                                                                                            | Non-cash compensation expense                       |                                        |        | 7.6  |        |   |        | 4.0 |       
|                                                                                            | Equity in earnings from unconsolidated subsidiaries |                                        |        | (8.9 | )      |   |        |    |       
|                                                                                            | Changes in operating assets and liabilities:        |                                        |        |      |        |   |        |     |       
|                                                                                            |                                                     | Restricted cash                        |        |      | (1.7   | ) |        |     | 5.1    |  
|                                                                                            |                                                     | Inventory                              |        |      | (422.0 | ) |        |     | (266.6 | )
|                                                                                            |                                                     | Other assets                           |        |      | (113.9 | ) |        |     | (13.2  | )
|                                                                                            |                                                     | Accounts payable and other liabilities |        |      | 105.5  |   |        |     | 3.5    |  
|                                                                                            |                                                     | Customer deposits                      |        |      | 18.1   |   |        |     | 33.7   |  
|                                                                                            |                                                     | Mortgage loans held for sale           |        |      | 11.8   |   |        |     | 5.0    |  
|                                                                                            |                                                     |                                        |        |      |        |  
|Net cash used in operating activities                                                       |                                                     |                                        | (251.5 | )    |        |   | (148.8 | )  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                                     |                                        |        |      |        |   |        |    
|Net additions to property and equipment                                                     |                                                     |                                        | (8.1   | )    |        |   | (14.7  | )  
|Investments in unconsolidated joint ventures                                                |                                                     |                                        | (112.5 | )    |        |   | (20.1  | )  
|Earn out consideration paid for acquisitions                                                |                                                     |                                        |       |      |        |   | (6.6   | )  
|Loans to unconsolidated joint ventures                                                      |                                                     |                                        | (20.0  | )    |        |   |       |    
|                                                                                            |                                                     |                                        |        |      |        |  
|Net cash used in investing activities                                                       |                                                     |                                        | (140.6 | )    |        |   | (41.4  | )  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                                     |                                        |        |      |        |   |        |    
|Net borrowings from revolving credit facilities                                             |                                                     |                                        | 80.0   |      |        |   | 48.0   |    
|Proceeds from notes offerings                                                               |                                                     |                                        |       |      |        |   | 125.0  |    
|Net proceeds from equity offering                                                           |                                                     |                                        | 89.3   |      |        |   |       |    
|Net proceeds from (repayments on) Financial Services bank
    borrowings                    |                                                     |                                        | 5.6    |      |        |   | (5.1   | )  
|Payments for deferred financing costs                                                       |                                                     |                                        | (0.3   | )    |        |   | (2.1   | )  
|Dividends paid                                                                              |                                                     |                                        | (2.4   | )    |        |   | (1.3   | )  
|Other                                                                                       |                                                     |                                        | 1.6    |      |        |   | (6.5   | )  
|                                                                                            |                                                     |                                        |        |      |        |  
|Net cash provided by financing activities                                                   |                                                     |                                        | 173.8  |      |        |   | 158.0  |    
|                                                                                            |                                                     |                                        |        |      |        |  
|Decrease in cash and cash equivalents                                                       |                                                     |                                        | (218.3 | )    |        |   | (32.2  | )  
|Unrestricted cash and cash equivalents at beginning of period                               |                                                     |                                        | 268.5  |      |        |   | 76.8   |    
|                                                                                            |                                                     |                                        |        |      |        |  
|Unrestricted cash and cash equivalents at end of period                                     |                                                     | $                                      | 50.2   |      |        | $ | 44.6   |    
|                                                                                            |                                                     |                                        |        |      |        |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY                                      |                                                     |                                        |        |      |        |   |        |    
|Decrease in obligations for inventory not owned and
    corresponding decrease in inventory |                                                     | $                                      | (56.7  | )    |        | $ | (44.6  | )  
|                                                                                            |                                                     |                                        |        |      |        |  



5



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2005




|   |                          
|-- | -------------------------
|1. | Business and Organization



| |         
| | --------
| | Business





| |             
| | ------------
| | Organization





|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation













| |                     
| | --------------------
| | Interim Presentation





6



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | Earnings Per Share





|                                                    |  |                    |            |  |                   |  |            |      |  |  |            |  |  |  |            | 
|--------------------------------------------------- |  | ------------------ | ---------- |  | ----------------- |  | ---------- | ---- |  |  | ---------- |  |  |  | ---------- | 
|                                                    |  | Three Months Ended |            |  | Nine Months Ended | 
|                                                    |  | September 30,      |            |  | September 30,     | 
|                                                    |  |                    |            |  |                   | 
|                                                    |  | 2005               |            |  | 2004              |  |            | 2005 |  |  | 2004       | 
|                                                    |  |                    |            |  |                   |  |            |      |  |  |            | 
|Basic weighted average shares outstanding           |  |                    | 56,753,826 |  |                   |  | 56,064,565 |      |  |  | 56,304,544 |  |  |  | 56,056,943 | 
|Net effect of stock options assumed to be exercised |  |                    | 2,638,597  |  |                   |  | 1,362,935  |      |  |  | 2,265,181  |  |  |  | 1,121,556  | 
|                                                    |  |                    |            |  |                   |  |            |      |  |  |            | 
|Diluted weighted average shares outstanding         |  |                    | 59,392,423 |  |                   |  | 57,427,500 |      |  |  | 58,569,725 |  |  |  | 57,178,499 | 
|                                                    |  |                    |            |  |                   |  |            |      |  |  |            | 







| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation


7



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                         |         |                    |      |      |                   |   |      |      |  |   |       |      |  |   |      |      | 
|-------------------------------------------------------------------------------------------------------- | ------- | ------------------ | ---- | ---- | ----------------- | - | ---- | ---- |  | - | ----- | ---- |  | - | ---- | ---- | 
|                                                                                                         |         | Three Months Ended |      |      | Nine Months Ended |  
|                                                                                                         |         | September 30,      |      |      | September 30,     |  
|                                                                                                         |         |                    |      |      |                   |  
|                                                                                                         |         | 2005               |      |      | 2004              |   |      | 2005 |  |   | 2004  |     
|                                                                                                         |         |                    |      |      |                   |   |      |      |  |   |       |     
|Net income as reported                                                                                   |         | $                  | 70.3 |      |                   | $ | 28.1 |      |  | $ | 142.4 |      |  | $ | 70.2 |     
|Add: Stock-based employee compensation included in reported net
    income, net of tax                   |         |                    | 1.8  |      |                   |   | 1.5  |      |  |   | 4.6   |      |  |   | 2.6  |     
|Deduct: Stock-based employee compensation expense determined
    under the fair value method, net of tax |         |                    | (1.4 | )    |                   |   | (0.7 | )    |  |   | (3.3  | )    |  |   | (1.8 | )   
|                                                                                                         |         |                    |      |      |                   |   |      |      |  |   |       |     
|Pro forma net income                                                                                     |         | $                  | 70.7 |      |                   | $ | 28.9 |      |  | $ | 143.7 |      |  | $ | 71.0 |     
|                                                                                                         |         |                    |      |      |                   |   |      |      |  |   |       |     
|Reported earnings per common share:                                                                      |         |                    |      |      |                   |   |      |      |  |   |       |      |  |   |      |     
|                                                                                                         | Basic   |                    | $    | 1.24 |                   |   | $    | 0.50 |  |   | $     | 2.53 |  |   | $    | 1.25 | 
|                                                                                                         | Diluted |                    | $    | 1.18 |                   |   | $    | 0.49 |  |   | $     | 2.43 |  |   | $    | 1.23 | 
|Pro forma earnings per common share:                                                                     |         |                    |      |      |                   |   |      |      |  |   |       |      |  |   |      |     
|                                                                                                         | Basic   |                    | $    | 1.24 |                   |   | $    | 0.51 |  |   | $     | 2.55 |  |   | $    | 1.27 | 
|                                                                                                         | Diluted |                    | $    | 1.19 |                   |   | $    | 0.50 |  |   | $     | 2.45 |  |   | $    | 1.24 | 



|                        |  |              
|----------------------- |  | -------------
|Expected life           |  | 4  10 years 
|Risk-free interest rate |  | 1.47%  4.02%
|Expected volatility     |  | 0.42%  0.48%
|Expected dividend yield |  | 0.0%         

Share Based Payment


8



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |          
|-- | ---------
|3. | Inventory



|                                          |               |                    |      |       |                   |   |      |       |   |   |      |       |   |   |      |       |  
|----------------------------------------- | ------------- | ------------------ | ---- | ----- | ----------------- | - | ---- | ----- | - | - | ---- | ----- | - | - | ---- | ----- | -
|                                          |               | Three Months Ended |      |       | Nine Months Ended |  
|                                          |               | September 30,      |      |       | September 30,     |  
|                                          |               |                    |      |       |                   |  
|                                          |               | 2005               |      |       | 2004              |   |      | 2005  |   |   | 2004 |      
|                                          |               |                    |      |       |                   |   |      |       |   |   |      |      
|Interest capitalized, beginning of period |               | $                  | 43.1 |       |                   | $ | 35.7 |       |   | $ | 36.8 |       |   | $ | 29.7 |      
|Interest incurred                         |               |                    | 21.1 |       |                   |   | 16.7 |       |   |   | 59.8 |       |   |   | 48.4 |      
|Less interest included in:                |               |                    |      |       |                   |   |      |       |   |   |      |       |   |   |      |      
|                                          | Cost of sales |                    |      | (16.5 | )                 |   |      | (12.6 | ) |   |      | (48.9 | ) |   |      | (36.1 | )
|                                          | Other*        |                    |      | (4.3  | )                 |   |      | (1.4  | ) |   |      | (4.3  | ) |   |      | (3.6  | )
|                                          |               |                    |      |       |                   |   |      |       |   |   |      |      
|Interest capitalized, end of period       |               | $                  | 43.4 |       |                   | $ | 38.4 |       |   | $ | 43.4 |       |   | $ | 38.4 |      
|                                          |               |                    |      |       |                   |   |      |       |   |   |      |      






|  |                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included in Other for the three and nine months
    ended September 30, 2005 is interest which was capitalized
    to inventory that was subsequently contributed to an
    unconsolidated joint venture.



Consolidation of Variable Interest Entities




Accounting for the Sales of Real
Estate


9



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                             
|-- | --------------------------------------------
|4. | Investments in Unconsolidated Joint Ventures



|                                       |                             |                    |       |      |              |   |         |       |  |   |         |       | 
|-------------------------------------- | --------------------------- | ------------------ | ----- | ---- | ------------ | - | ------- | ----- |  | - | ------- | ----- | 
|                                       |                             | September 30, 2005 |      
|                                       |                             |                    |      
|                                       |                             | Land               |       |      | Home         |   |         |      
|                                       |                             | Development        |       |      | Construction |   |         | Total | 
|                                       |                             |                    |       |      |              |   |         |       | 
|Assets:                                |                             |                    |       |      |              |   |         |       |  |   |         |      
|Cash                                   |                             | $                  | 13.4  |      |              | $ | 122.0   |       |  | $ | 135.4   |      
|Inventories                            |                             |                    | 203.9 |      |              |   | 941.2   |       |  |   | 1,145.1 |      
|Other assets                           |                             |                    | 3.6   |      |              |   | 230.4   |       |  |   | 234.0   |      
|                                       |                             |                    |       |      |              |   |         |       | 
|Total assets                           |                             | $                  | 220.9 |      |              | $ | 1,293.6 |       |  | $ | 1,514.5 |      
|                                       |                             |                    |       |      |              |   |         |       | 
|                                      
|Liabilities and equity:                |                             |                    |       |      |              |   |         |       |  |   |         |      
|Accounts payable and other liabilities |                             | $                  | 11.5  |      |              | $ | 194.1   |       |  | $ | 205.6   |      
|Notes payable                          |                             |                    | 143.6 |      |              |   | 782.7   |       |  |   | 926.3   |      
|Equity of:                             |                             |                    |       |      |              |   |         |       |  |   |         |      
|                                       | Technical Olympic USA, Inc. |                    |       | 32.0 |              |   |         | 153.7 |  |   |         | 185.7 | 
|                                       | Others                      |                    |       | 33.8 |              |   |         | 163.1 |  |   |         | 196.9 | 
|                                       |                             |                    |       |      |              |   |         |       | 
|Total equity                           |                             |                    | 65.8  |      |              |   | 316.8   |       |  |   | 382.6   |      
|                                       |                             |                    |       |      |              |   |         |       | 
|Total liabilities and equity           |                             | $                  | 220.9 |      |              | $ | 1,293.6 |       |  | $ | 1,514.5 |      
|                                       |                             |                    |       |      |              |   |         |       | 

|                                       |                             |                   |      |      |              |   |       |       |  |   |       |      | 
|-------------------------------------- | --------------------------- | ----------------- | ---- | ---- | ------------ | - | ----- | ----- |  | - | ----- | ---- | 
|                                       |                             | December 31, 2004 |     
|                                       |                             |                   |     
|                                       |                             | Land              |      |      | Home         |   |       |      
|                                       |                             | Development       |      |      | Construction |   |       | Total | 
|                                       |                             |                   |      |      |              |   |       |       | 
|Assets:                                |                             |                   |      |      |              |   |       |       |  |   |       |     
|Cash                                   |                             | $                 | 1.4  |      |              | $ | 14.8  |       |  | $ | 16.2  |     
|Inventories                            |                             |                   | 74.0 |      |              |   | 196.8 |       |  |   | 270.8 |     
|Other assets                           |                             |                   | 1.4  |      |              |   | 8.4   |       |  |   | 9.8   |     
|                                       |                             |                   |      |      |              |   |       |       | 
|Total assets                           |                             | $                 | 76.8 |      |              | $ | 220.0 |       |  | $ | 296.8 |     
|                                       |                             |                   |      |      |              |   |       |       | 
|                                      
|Liabilities and equity:                |                             |                   |      |      |              |   |       |       |  |   |       |     
|Accounts payable and other liabilities |                             | $                 | 11.0 |      |              | $ | 10.0  |       |  | $ | 21.0  |     
|Notes payable                          |                             |                   | 32.0 |      |              |   | 81.8  |       |  |   | 113.8 |     
|Equity of:                             |                             |                   |      |      |              |   |       |       |  |   |       |     
|                                       | Technical Olympic USA, Inc. |                   |      | 15.6 |              |   |       | 51.0  |  |   |       | 66.6 | 
|                                       | Others                      |                   |      | 18.2 |              |   |       | 77.2  |  |   |       | 95.4 | 
|                                       |                             |                   |      |      |              |   |       |       | 
|Total equity                           |                             |                   | 33.8 |      |              |   | 128.2 |       |  |   | 162.0 |     
|                                       |                             |                   |      |      |              |   |       |       | 
|Total liabilities and equity           |                             | $                 | 76.8 |      |              | $ | 220.0 |       |  | $ | 296.8 |     
|                                       |                             |                   |      |      |              |   |       |       | 

10



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |     |  |       |   |     |  |  |   |      | 
|------------------------------------------------ |  | ------------------ | ---- | - | ------------------ | - | ----- | ----- |  | ---- | ----------- |  | ---- | ------------ | --- |  | ----- | - | --- |  |  | - | ---- | 
|                                                 |  | Three Months Ended |      |   | Three Months Ended |  
|                                                 |  | September 30, 2005 |      |   | September 30, 2004 |  
|                                                 |  |                    |      |   |                    |  
|                                                 |  | Land               |      |   | Home               |   |       |       |  | Land |             |  | Home |              |     | 
|                                                 |  | Development        |      |   | Construction       |   |       | Total |  |      | Development |  |      | Construction |     |  | Total |  
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |     |  |       |  
|Revenues                                         |  | $                  | 10.6 |   |                    | $ | 169.1 |       |  | $    | 179.7       |  |      | $            | 8.9 |  |       | $ | 7.6 |  |  | $ | 16.5 | 
|Cost and expenses                                |  |                    | 11.4 |   |                    |   | 158.4 |       |  |      | 169.8       |  |      |              | 7.8 |  |       |   | 7.1 |  |  |   | 14.9 | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |     |  |       |  
|Net earnings (losses) of unconsolidated entities |  | $                  | (0.8 | ) |                    | $ | 10.7  |       |  | $    | 9.9         |  |      | $            | 1.1 |  |       | $ | 0.5 |  |  | $ | 1.6  | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |     |  |       |  
|Our share of net earnings (losses)               |  | $                  | (0.6 | ) |                    | $ | 5.7   |       |  | $    | 5.1         |  |      | $            | 0.0 |  |       | $ | 0.0 |  |  | $ | 0.0  | 
|Management fees earned                           |  |                    | 0.8  |   |                    |   | 7.4   |       |  |      | 8.2         |  |      |              | 0.0 |  |       |   | 0.7 |  |  |   | 0.7  | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |     |  |       |  
|Income from joint ventures                       |  | $                  | 0.2  |   |                    | $ | 13.1  |       |  | $    | 13.3        |  |      | $            | 0.0 |  |       | $ | 0.7 |  |  | $ | 0.7  | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |     |  |       |  

|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |      |  |       |   |     |  |  |   |      | 
|------------------------------------------------ |  | ------------------ | ---- | - | ------------------ | - | ----- | ----- |  | ---- | ----------- |  | ---- | ------------ | ---- |  | ----- | - | --- |  |  | - | ---- | 
|                                                 |  | Nine Months Ended  |      |   | Nine Months Ended  |  
|                                                 |  | September 30, 2005 |      |   | September 30, 2004 |  
|                                                 |  |                    |      |   |                    |  
|                                                 |  | Land               |      |   | Home               |   |       |       |  | Land |             |  | Home |              |      | 
|                                                 |  | Development        |      |   | Construction       |   |       | Total |  |      | Development |  |      | Construction |      |  | Total |  
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |      |  |       |  
|Revenues                                         |  | $                  | 20.8 |   |                    | $ | 272.5 |       |  | $    | 293.3       |  |      | $            | 11.9 |  |       | $ | 8.2 |  |  | $ | 20.1 | 
|Cost and expenses                                |  |                    | 23.2 |   |                    |   | 251.3 |       |  |      | 274.5       |  |      |              | 10.9 |  |       |   | 7.8 |  |  |   | 18.7 | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |      |  |       |  
|Net earnings (losses) of unconsolidated entities |  | $                  | (2.4 | ) |                    | $ | 21.2  |       |  | $    | 18.8        |  |      | $            | 1.0  |  |       | $ | 0.4 |  |  | $ | 1.4  | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |      |  |       |  
|Our share of net earnings (losses)               |  | $                  | (1.4 | ) |                    | $ | 10.3  |       |  | $    | 8.9         |  |      | $            | 0.0  |  |       | $ | 0.0 |  |  | $ | 0.0  | 
|Management fees earned                           |  |                    | 2.3  |   |                    |   | 12.8  |       |  |      | 15.1        |  |      |              | 0.0  |  |       |   | 0.7 |  |  |   | 0.7  | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |      |  |       |  
|Income from joint ventures                       |  | $                  | 0.9  |   |                    | $ | 23.1  |       |  | $    | 24.0        |  |      | $            | 0.0  |  |       | $ | 0.7 |  |  | $ | 0.7  | 
|                                                 |  |                    |      |   |                    |   |       |       |  |      |             |  |      |              |      |  |       |  







11



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |         
|-- | --------
|5. | Goodwill



|                                                       |  |                   |       |  |      |   |       | 
|------------------------------------------------------ |  | ----------------- | ----- |  | ---- | - | ----- | 
|                                                       |  | Nine Months Ended |      
|                                                       |  | September 30,     |      
|                                                       |  |                   |      
|                                                       |  | 2005              |       |  | 2004 |  
|                                                       |  |                   |       |  |      |  
|Balance at January 1                                   |  | $                 | 110.7 |  |      | $ | 100.1 | 
|Earn out consideration paid or accrued on acquisitions |  |                   |      |  |      |   | 6.6   | 
|                                                       |  |                   |       |  |      |  
|Balance at September 30                                |  | $                 | 110.7 |  |      | $ | 106.7 | 
|                                                       |  |                   |       |  |      |  



|   |           
|-- | ----------
|6. | Borrowings







|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies



12



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                           |  |                   |      |   |      |   |      |  
|---------------------------------------------------------- |  | ----------------- | ---- | - | ---- | - | ---- | -
|                                                           |  | Nine Months Ended |     
|                                                           |  | September 30,     |     
|                                                           |  |                   |     
|                                                           |  | 2005              |      |   | 2004 |  
|                                                           |  |                   |      |   |      |  
|Accrued warranty costs at January 1                        |  | $                 | 6.4  |   |      | $ | 5.2  |  
|Liability recorded for warranties issued during the period |  |                   | 8.2  |   |      |   | 10.4 |  
|Warranty work performed                                    |  |                   | (6.1 | ) |      |   | (5.7 | )
|Adjustments                                                |  |                   | (1.5 | ) |      |   | (3.6 | )
|                                                           |  |                   |      |   |      |  
|Accrued warranty costs at September 30                     |  | $                 | 7.0  |   |      | $ | 6.3  |  
|                                                           |  |                   |      |   |      |  



|   |                                                  
|-- | -------------------------------------------------
|8. | Stockholders Equity and Stock-Based Compensation





|   |                                 
|-- | --------------------------------
|9. | Summarized Financial Information



13



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Financial Condition


September 30, 2005


|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|----------------------------------------------------- |  | --------------------- | ------- |  | ------------ | - | ------- | ------------- |  | - | ------------ | - |  | ----- | -------- | - |  | - | ------- | 
|                                                      |  | Technical             |         |  |              |   |         |               |  |   |             
|                                                      |  | Olympic               |         |  | Guarantor    |   |         | Non-guarantor |  |   | Intercompany |   |  |      
|                                                      |  | USA, Inc.             |         |  | Subsidiaries |   |         | Subsidiaries  |  |   | Eliminations |   |  | Total |         
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  | (Dollars in millions) |        
|ASSETS                                               
|HOMEBUILDING:                                         |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Cash and cash equivalents                             |  | $                     | 10.8    |  |              | $ | 35.5    |               |  | $ |             |   |  | $     |         |   |  | $ | 46.3    | 
|Inventory                                             |  |                       |        |  |              |   | 1,646.6 |               |  |   |             |   |  |       |         |   |  |   | 1,646.6 | 
|Property and equipment, net                           |  |                       | 6.8     |  |              |   | 17.8    |               |  |   |             |   |  |       |         |   |  |   | 24.6    | 
|Investments in unconsolidated joint ventures          |  |                       |        |  |              |   | 188.0   |               |  |   |             |   |  |       |         |   |  |   | 188.0   | 
|Receivables from unconsolidated joint ventures        |  |                       |        |  |              |   | 80.3    |               |  |   |             |   |  |       |         |   |  |   | 80.3    | 
|Investments in/ Advances to consolidated subsidiaries |  |                       | 1,843.7 |  |              |   | (402.8  | )             |  |   | (6.0         | ) |  |       | (1,434.9 | ) |  |   |        | 
|Other assets                                          |  |                       | 19.8    |  |              |   | 102.4   |               |  |   |             |   |  |       |         |   |  |   | 122.2   | 
|Goodwill                                              |  |                       |        |  |              |   | 110.7   |               |  |   |             |   |  |       |         |   |  |   | 110.7   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       | 1,881.1 |  |              |   | 1,778.5 |               |  |   | (6.0         | ) |  |       | (1,434.9 | ) |  |   | 2,218.7 | 
|FINANCIAL SERVICES:                                   |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Cash and cash equivalents                             |  |                       |        |  |              |   |        |               |  |   | 82.7         |   |  |       |         |   |  |   | 82.7    | 
|Mortgage loans held for sale                          |  |                       |        |  |              |   |        |               |  |   | 64.0         |   |  |       |         |   |  |   | 64.0    | 
|Other assets                                          |  |                       |        |  |              |   |        |               |  |   | 13.3         |   |  |       |         |   |  |   | 13.3    | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       |        |  |              |   |        |               |  |   | 160.0        |   |  |       |         |   |  |   | 160.0   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|Total Assets                                          |  | $                     | 1,881.1 |  |              | $ | 1,778.5 |               |  | $ | 154.0        |   |  | $     | (1,434.9 | ) |  | $ | 2,378.7 | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                     
|LIABILITIES AND STOCKHOLDERS EQUITY                 
|HOMEBUILDING:                                         |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Accounts payable and other liabilities                |  | $                     | 92.0    |  |              | $ | 198.7   |               |  | $ |             |   |  | $     |         |   |  | $ | 290.7   | 
|Customer deposits                                     |  |                       |        |  |              |   | 87.2    |               |  |   |             |   |  |       |         |   |  |   | 87.2    | 
|Obligations for inventory not owned                   |  |                       |        |  |              |   | 79.5    |               |  |   |             |   |  |       |         |   |  |   | 79.5    | 
|Notes payable                                         |  |                       | 811.6   |  |              |   |        |               |  |   |             |   |  |       |         |   |  |   | 811.6   | 
|Bank borrowings                                       |  |                       | 80.0    |  |              |   |        |               |  |   |             |   |  |       |         |   |  |   | 80.0    | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       | 983.6   |  |              |   | 365.4   |               |  |   |             |   |  |       |         |   |  |   | 1,349.0 | 
|FINANCIAL SERVICES:                                   |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Accounts payable and other liabilities                |  |                       |        |  |              |   |        |               |  |   | 77.6         |   |  |       |         |   |  |   | 77.6    | 
|Bank borrowings                                       |  |                       |        |  |              |   |        |               |  |   | 54.6         |   |  |       |         |   |  |   | 54.6    | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       |        |  |              |   |        |               |  |   | 132.2        |   |  |       |         |   |  |   | 132.2   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|Total liabilities                                     |  |                       | 983.6   |  |              |   | 365.4   |               |  |   | 132.2        |   |  |       |         |   |  |   | 1,481.2 | 
|Total stockholders equity                            |  |                       | 897.5   |  |              |   | 1,413.1 |               |  |   | 21.8         |   |  |       | (1,434.9 | ) |  |   | 897.5   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|Total liabilities and stockholders equity            |  | $                     | 1,881.1 |  |              | $ | 1,778.5 |               |  | $ | 154.0        |   |  | $     | (1,434.9 | ) |  | $ | 2,378.7 | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         

14



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Financial Condition


December 31, 2004


|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|----------------------------------------------------- |  | --------------------- | ------- |  | ------------ | - | ------- | ------------- |  | - | ------------ | - |  | ----- | -------- | - |  | - | ------- | 
|                                                      |  | Technical             |         |  |              |   |         |               |  |   |             
|                                                      |  | Olympic               |         |  | Guarantor    |   |         | Non-guarantor |  |   | Intercompany |   |  |      
|                                                      |  | USA, Inc.             |         |  | Subsidiaries |   |         | Subsidiaries  |  |   | Eliminations |   |  | Total |         
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  | (Dollars in millions) |        
|ASSETS                                               
|HOMEBUILDING:                                         |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Cash and cash equivalents                             |  | $                     | 159.3   |  |              | $ | 66.3    |               |  | $ |             |   |  | $     |         |   |  | $ | 225.6   | 
|Inventory                                             |  |                       |        |  |              |   | 1,281.2 |               |  |   |             |   |  |       |         |   |  |   | 1,281.2 | 
|Property and equipment, net                           |  |                       | 6.8     |  |              |   | 19.9    |               |  |   |             |   |  |       |         |   |  |   | 26.7    | 
|Investments in unconsolidated joint ventures          |  |                       |        |  |              |   | 66.6    |               |  |   |             |   |  |       |         |   |  |   | 66.6    | 
|Receivables from unconsolidated joint ventures        |  |                       |        |  |              |   | 3.4     |               |  |   |             |   |  |       |         |   |  |   | 3.4     | 
|Investments in/ Advances to consolidated subsidiaries |  |                       | 1,349.9 |  |              |   | 24.0    |               |  |   | (62.8        | ) |  |       | (1,311.1 | ) |  |   |        | 
|Other assets                                          |  |                       | 22.4    |  |              |   | 45.3    |               |  |   |             |   |  |       |         |   |  |   | 67.7    | 
|Goodwill                                              |  |                       |        |  |              |   | 110.7   |               |  |   |             |   |  |       |         |   |  |   | 110.7   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       | 1,538.4 |  |              |   | 1,617.4 |               |  |   | (62.8        | ) |  |       | (1,311.1 | ) |  |   | 1,781.9 | 
|FINANCIAL SERVICES:                                   |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Cash and cash equivalents                             |  |                       |        |  |              |   |        |               |  |   | 120.0        |   |  |       |         |   |  |   | 120.0   | 
|Mortgage loans held for sale                          |  |                       |        |  |              |   |        |               |  |   | 75.8         |   |  |       |         |   |  |   | 75.8    | 
|Other assets                                          |  |                       |        |  |              |   |        |               |  |   | 9.8          |   |  |       |         |   |  |   | 9.8     | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       |        |  |              |   |        |               |  |   | 205.6        |   |  |       |         |   |  |   | 205.6   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|Total assets                                          |  | $                     | 1,538.4 |  |              | $ | 1,617.4 |               |  | $ | 142.8        |   |  | $     | (1,311.1 | ) |  | $ | 1,987.5 | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                     
|LIABILITIES AND STOCKHOLDERS EQUITY                 
|HOMEBUILDING:                                         |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Accounts payable and other liabilities                |  | $                     | 64.3    |  |              | $ | 124.6   |               |  | $ |             |   |  | $     |         |   |  | $ | 188.9   | 
|Customer deposits                                     |  |                       |        |  |              |   | 69.1    |               |  |   |             |   |  |       |         |   |  |   | 69.1    | 
|Obligations for inventory not owned                   |  |                       |        |  |              |   | 136.2   |               |  |   |             |   |  |       |         |   |  |   | 136.2   | 
|Notes payable                                         |  |                       | 811.4   |  |              |   |        |               |  |   |             |   |  |       |         |   |  |   | 811.4   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       | 875.7   |  |              |   | 329.9   |               |  |   |             |   |  |       |         |   |  |   | 1,205.6 | 
|FINANCIAL SERVICES:                                   |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |          |   |  |   |         | 
|Accounts payable and other liabilities                |  |                       |        |  |              |   |        |               |  |   | 70.2         |   |  |       |         |   |  |   | 70.2    | 
|Bank borrowings                                       |  |                       |        |  |              |   |        |               |  |   | 49.0         |   |  |       |         |   |  |   | 49.0    | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|                                                      |  |                       |        |  |              |   |        |               |  |   | 119.2        |   |  |       |         |   |  |   | 119.2   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|Total liabilities                                     |  |                       | 875.7   |  |              |   | 329.9   |               |  |   | 119.2        |   |  |       |         |   |  |   | 1,324.8 | 
|Total stockholders equity                            |  |                       | 662.7   |  |              |   | 1,287.5 |               |  |   | 23.6         |   |  |       | (1,311.1 | ) |  |   | 662.7   | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         
|Total liabilities and stockholders equity            |  | $                     | 1,538.4 |  |              | $ | 1,617.4 |               |  | $ | 142.8        |   |  | $     | (1,311.1 | ) |  | $ | 1,987.5 | 
|                                                      |  |                       |         |  |              |   |         |               |  |   |              |   |  |       |         

15



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Income


Three Months Ended September 30, 2005


|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |       |  
|-------------------------------------------------- | ------------------------------- | --------------------- | ---- | ----- | ------------ | - | ----- | ------------- | - | - | ------------ | - |  | ----- | ----- | ---- |  | - | ----- | ----- | -
|                                                   |                                 | Technical             |      |       |              |   |       |               |   |   |             
|                                                   |                                 | Olympic               |      |       | Guarantor    |   |       | Non-guarantor |   |   | Intercompany |   |  |      
|                                                   |                                 | USA, Inc.             |      |       | Subsidiaries |   |       | Subsidiaries  |   |   | Eliminations |   |  | Total |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|                                                   |                                 | (Dollars in millions) |     
|HOMEBUILDING:                                      |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |      
|Revenues                                           |                                 | $                     |     |       |              | $ | 662.6 |               |   | $ |             |   |  | $     |      |      |  | $ | 662.6 |      
|Cost of sales                                      |                                 |                       |     |       |              |   | 477.4 |               |   |   |             |   |  |       |      |      |  |   | 477.4 |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Gross profit                                       |                                 |                       |     |       |              |   | 185.2 |               |   |   |             |   |  |       |      |      |  |   | 185.2 |      
|Selling, general and administrative expenses       |                                 |                       | 23.5 |       |              |   | 69.4  |               |   |   |             |   |  |       | (2.7  | )    |  |   | 90.2  |      
|Other income:                                      |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |      
|                                                   | Income from joint ventures, net |                       |      |      |              |   |       | (13.3         | ) |   |              |  |  |       |       |     |  |   |       | (13.3 | )
|                                                   | Other (income) expense, net     |                       |      | (92.1 | )            |   |       | 15.4          |   |   |              |  |  |       |       | 75.1 |  |   |       | (1.6  | )
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Homebuilding pretax income                         |                                 |                       | 68.6 |       |              |   | 113.7 |               |   |   |             |   |  |       | (72.4 | )    |  |   | 109.9 |      
|FINANCIAL SERVICES:                                |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |      
|Revenues                                           |                                 |                       |     |       |              |   |      |               |   |   | 16.1         |   |  |       | (2.7  | )    |  |   | 13.4  |      
|Expenses                                           |                                 |                       |     |       |              |   |      |               |   |   | 12.4         |   |  |       | (2.0  | )    |  |   | 10.4  |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Financial Services pretax income                   |                                 |                       |     |       |              |   |      |               |   |   | 3.7          |   |  |       | (0.7  | )    |  |   | 3.0   |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Income before provision (benefit) for income taxes |                                 |                       | 68.6 |       |              |   | 113.7 |               |   |   | 3.7          |   |  |       | (73.1 | )    |  |   | 112.9 |      
|Provision (benefit) for income taxes               |                                 |                       | (1.7 | )     |              |   | 42.9  |               |   |   | 1.4          |   |  |       |      |      |  |   | 42.6  |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Net income                                         |                                 | $                     | 70.3 |       |              | $ | 70.8  |               |   | $ | 2.3          |   |  | $     | (73.1 | )    |  | $ | 70.3  |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      

16



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Income


Three Months Ended September 30, 2004


|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |      |  
|-------------------------------------------------- | ------------------------------- | --------------------- | ---- | ----- | ------------ | - | ----- | ------------- | - | - | ------------ | - |  | ----- | ----- | ---- |  | - | ----- | ---- | -
|                                                   |                                 | Technical             |      |       |              |   |       |               |   |   |             
|                                                   |                                 | Olympic               |      |       | Guarantor    |   |       | Non-guarantor |   |   | Intercompany |   |  |      
|                                                   |                                 | USA, Inc.             |      |       | Subsidiaries |   |       | Subsidiaries  |   |   | Eliminations |   |  | Total |      
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|                                                   |                                 | (Dollars in millions) |     
|HOMEBUILDING:                                      |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |     
|Revenues                                           |                                 | $                     |     |       |              | $ | 507.2 |               |   | $ |             |   |  | $     |      |      |  | $ | 507.2 |     
|Cost of sales                                      |                                 |                       |     |       |              |   | 405.4 |               |   |   |             |   |  |       |      |      |  |   | 405.4 |     
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Gross profit                                       |                                 |                       |     |       |              |   | 101.8 |               |   |   |             |   |  |       |      |      |  |   | 101.8 |     
|Selling, general and administrative expenses       |                                 |                       | 12.1 |       |              |   | 50.4  |               |   |   |             |   |  |       | (1.3  | )    |  |   | 61.2  |     
|Other income:                                      |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |     
|                                                   | Income from joint ventures, net |                       |      |      |              |   |       | (0.7          | ) |   |              |  |  |       |       |     |  |   |       | (0.7 | )
|                                                   | Other (income) expense, net     |                       |      | (35.3 | )            |   |       | (3.3          | ) |   |              |  |  |       |       | 36.4 |  |   |       | (2.2 | )
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Homebuilding pretax income                         |                                 |                       | 23.2 |       |              |   | 55.4  |               |   |   |             |   |  |       | (35.1 | )    |  |   | 43.5  |     
|FINANCIAL SERVICES:                                |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |       |      |  |   |       |     
|Revenues                                           |                                 |                       |     |       |              |   |      |               |   |   | 10.0         |   |  |       | (1.8  | )    |  |   | 8.2   |     
|Expenses                                           |                                 |                       |     |       |              |   |      |               |   |   | 8.8          |   |  |       | (1.2  | )    |  |   | 7.6   |     
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Financial Services pretax income                   |                                 |                       |     |       |              |   |      |               |   |   | 1.2          |   |  |       | (0.6  | )    |  |   | 0.6   |     
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Income before provision (benefit) for income taxes |                                 |                       | 23.2 |       |              |   | 55.4  |               |   |   | 1.2          |   |  |       | (35.7 | )    |  |   | 44.1  |     
|Provision (benefit) for income taxes               |                                 |                       | (4.9 | )     |              |   | 20.2  |               |   |   | 0.7          |   |  |       |      |      |  |   | 16.0  |     
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      
|Net income                                         |                                 | $                     | 28.1 |       |              | $ | 35.2  |               |   | $ | 0.5          |   |  | $     | (35.7 | )    |  | $ | 28.1  |     
|                                                   |                                 |                       |      |       |              |   |       |               |   |   |              |   |  |       |      

17



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Income


Nine Months Ended September 30, 2005


|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |        |       |  |   |         |       |  
|-------------------------------------------------- | ------------------------------- | --------------------- | ----- | ------ | ------------ | - | ------- | ------------- | - | - | ------------ | - |  | ----- | ------ | ----- |  | - | ------- | ----- | -
|                                                   |                                 | Technical             |       |        |              |   |         |               |   |   |             
|                                                   |                                 | Olympic               |       |        | Guarantor    |   |         | Non-guarantor |   |   | Intercompany |   |  |      
|                                                   |                                 | USA, Inc.             |       |        | Subsidiaries |   |         | Subsidiaries  |   |   | Eliminations |   |  | Total |       
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       
|                                                   |                                 | (Dollars in millions) |      
|HOMEBUILDING:                                      |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |        |       |  |   |         |      
|Revenues                                           |                                 | $                     |      |        |              | $ | 1,812.0 |               |   | $ |             |   |  | $     |       |       |  | $ | 1,812.0 |      
|Cost of sales                                      |                                 |                       |      |        |              |   | 1,373.3 |               |   |   |             |   |  |       |       |       |  |   | 1,373.3 |      
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       
|Gross profit                                       |                                 |                       |      |        |              |   | 438.7   |               |   |   |             |   |  |       |       |       |  |   | 438.7   |      
|Selling, general and administrative expenses       |                                 |                       | 60.0  |        |              |   | 193.2   |               |   |   |             |   |  |       | (6.5   | )     |  |   | 246.7   |      
|Other income:                                      |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |        |       |  |   |         |      
|                                                   | Income from joint ventures, net |                       |       |       |              |   |         | (24.0         | ) |   |              |  |  |       |        |      |  |   |         | (24.0 | )
|                                                   | Other (income) expense, net     |                       |       | (199.5 | )            |   |         | 32.6          |   |   |              |  |  |       |        | 161.1 |  |   |         | (5.8  | )
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       
|Homebuilding pretax income                         |                                 |                       | 139.5 |        |              |   | 236.9   |               |   |   |             |   |  |       | (154.6 | )     |  |   | 221.8   |      
|FINANCIAL SERVICES:                                |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |        |       |  |   |         |      
|Revenues                                           |                                 |                       |      |        |              |   |        |               |   |   | 41.3         |   |  |       | (6.5   | )     |  |   | 34.8    |      
|Expenses                                           |                                 |                       |      |        |              |   |        |               |   |   | 32.5         |   |  |       | (4.4   | )     |  |   | 28.1    |      
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       
|Financial Services pretax income                   |                                 |                       |      |        |              |   |        |               |   |   | 8.8          |   |  |       | (2.1   | )     |  |   | 6.7     |      
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       
|Income before provision (benefit) for income taxes |                                 |                       | 139.5 |        |              |   | 236.9   |               |   |   | 8.8          |   |  |       | (156.7 | )     |  |   | 228.5   |      
|Provision (benefit) for income taxes               |                                 |                       | (2.9  | )      |              |   | 86.2    |               |   |   | 2.8          |   |  |       |       |       |  |   | 86.1    |      
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       
|Net income                                         |                                 | $                     | 142.4 |        |              | $ | 150.7   |               |   | $ | 6.0          |   |  | $     | (156.7 | )     |  | $ | 142.4   |      
|                                                   |                                 |                       |       |        |              |   |         |               |   |   |              |   |  |       |       

18



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Income


Nine Months Ended September 30, 2004


|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |       |      |  |   |         |      |  
|-------------------------------------------------- | ------------------------------- | --------------------- | ----- | ----- | ------------ | - | ------- | ------------- | - | - | ------------ | - |  | ----- | ----- | ---- |  | - | ------- | ---- | -
|                                                   |                                 | Technical             |       |       |              |   |         |               |   |   |             
|                                                   |                                 | Olympic               |       |       | Guarantor    |   |         | Non-guarantor |   |   | Intercompany |   |  |      
|                                                   |                                 | USA, Inc.             |       |       | Subsidiaries |   |         | Subsidiaries  |   |   | Eliminations |   |  | Total |      
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      
|                                                   |                                 | (Dollars in millions) |      
|HOMEBUILDING:                                      |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |       |      |  |   |         |     
|Revenues                                           |                                 | $                     |      |       |              | $ | 1,430.3 |               |   | $ |             |   |  | $     |      |      |  | $ | 1,430.3 |     
|Cost of sales                                      |                                 |                       |      |       |              |   | 1,152.2 |               |   |   |             |   |  |       |      |      |  |   | 1,152.2 |     
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      
|Gross profit                                       |                                 |                       |      |       |              |   | 278.1   |               |   |   |             |   |  |       |      |      |  |   | 278.1   |     
|Selling, general and administrative expenses       |                                 |                       | 33.5  |       |              |   | 148.7   |               |   |   |             |   |  |       | (5.3  | )    |  |   | 176.9   |     
|Other income:                                      |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |       |      |  |   |         |     
|                                                   | Income from joint ventures, net |                       |       |      |              |   |         | (0.7          | ) |   |              |  |  |       |       |     |  |   |         | (0.7 | )
|                                                   | Other (income) expense, net     |                       |       | (90.1 | )            |   |         | (5.9          | ) |   |              |  |  |       |       | 93.3 |  |   |         | (2.7 | )
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      
|Homebuilding pretax income                         |                                 |                       | 56.6  |       |              |   | 136.0   |               |   |   |             |   |  |       | (88.0 | )    |  |   | 104.6   |     
|FINANCIAL SERVICES:                                |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |       |      |  |   |         |     
|Revenues                                           |                                 |                       |      |       |              |   |        |               |   |   | 31.8         |   |  |       | (5.4  | )    |  |   | 26.4    |     
|Expenses                                           |                                 |                       |      |       |              |   |        |               |   |   | 24.0         |   |  |       | (4.0  | )    |  |   | 20.0    |     
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      
|Financial Services pretax income                   |                                 |                       |      |       |              |   |        |               |   |   | 7.8          |   |  |       | (1.4  | )    |  |   | 6.4     |     
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      
|Income before provision (benefit) for income taxes |                                 |                       | 56.6  |       |              |   | 136.0   |               |   |   | 7.8          |   |  |       | (89.4 | )    |  |   | 111.0   |     
|Provision (benefit) for income taxes               |                                 |                       | (13.6 | )     |              |   | 49.9    |               |   |   | 4.5          |   |  |       |      |      |  |   | 40.8    |     
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      
|Net income                                         |                                 | $                     | 70.2  |       |              | $ | 86.1    |               |   | $ | 3.3          |   |  | $     | (89.4 | )    |  | $ | 70.2    |     
|                                                   |                                 |                       |       |       |              |   |         |               |   |   |              |   |  |       |      

19



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


Nine Months Ended September 30, 2005


|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |        |   |   |   |        |      |        |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------- | ------ | --- | ------------ | - | ------ | ------------- | ------ | - | ------------ | --- | ---- | ----- | ------ | - | - | - | ------ | ---- | ------ | -
|                                                                                                |                                                     | Technical                              |        |     |              |   |        |               |        |   |             
|                                                                                                |                                                     | Olympic                                |        |     | Guarantor    |   |        | Non-guarantor |        |   | Intercompany |     |      |      
|                                                                                                |                                                     | USA, Inc.                              |        |     | Subsidiaries |   |        | Subsidiaries  |        |   | Eliminations |     |      | Total |       
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       
|                                                                                                |                                                     | (Dollars in millions)                  |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |        |   |   |   |        |     
|Net income                                                                                      |                                                     | $                                      | 142.4  |     |              | $ | 150.7  |               |        | $ | 6.0          |     |      | $     | (156.7 | ) |   | $ | 142.4  |     
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |        |   |   |   |        |     
|                                                                                                | Depreciation and amortization                       |                                        |        | 2.9 |              |   |        | 5.9           |        |   |              | 0.8 |      |       |        |  |   |   |        | 9.6  |       
|                                                                                                | Non-cash compensation expense                       |                                        |        | 7.6 |              |   |        |              |        |   |              |    |      |       |        |  |   |   |        | 7.6  |       
|                                                                                                | Equity in earnings from unconsolidated subsidiaries |                                        |        |    |              |   |        | (8.9          | )      |   |              |    |      |       |        |  |   |   |        | (8.9 | )     
|                                                                                                | Changes in operating assets and liabilities:        |                                        |        |     |              |   |        |               |        |   |              |     |      |       |        |   |   |   |        |      |       
|                                                                                                |                                                     | Restricted cash                        |        |     | (1.5         | ) |        |               | 6.3    |   |              |     | (6.5 | )     |        |   |  |   |        |      | (1.7   | )
|                                                                                                |                                                     | Inventory                              |        |     |             |   |        |               | (422.0 | ) |              |     |     |       |        |   |  |   |        |      | (422.0 | )
|                                                                                                |                                                     | Other assets                           |        |     | 2.9          |   |        |               | (114.0 | ) |              |     | (2.8 | )     |        |   |  |   |        |      | (113.9 | )
|                                                                                                |                                                     | Accounts payable and other liabilities |        |     | 24.0         |   |        |               | 74.1   |   |              |     | 7.4  |       |        |   |  |   |        |      | 105.5  |  
|                                                                                                |                                                     | Customer deposits                      |        |     |             |   |        |               | 18.1   |   |              |     |     |       |        |   |  |   |        |      | 18.1   |  
|                                                                                                |                                                     | Mortgage loans held for sale           |        |     |             |   |        |               |       |   |              |     | 11.8 |       |        |   |  |   |        |      | 11.8   |  
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       
|Net cash (used in) provided by operating activities                                             |                                                     |                                        | 178.3  |     |              |   | (289.8 | )             |        |   | 16.7         |     |      |       | (156.7 | ) |   |   | (251.5 | )   
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                           |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |        |   |   |   |        |     
|Net additions to property and equipment                                                         |                                                     |                                        | (2.9   | )   |              |   | (3.8   | )             |        |   | (1.4         | )   |      |       |       |   |   |   | (8.1   | )   
|Investments in unconsolidated joint ventures                                                    |                                                     |                                        |       |     |              |   | (112.5 | )             |        |   |             |     |      |       |       |   |   |   | (112.5 | )   
|Loans to unconsolidated joint ventures                                                          |                                                     |                                        |       |     |              |   | (20.0  | )             |        |   |             |     |      |       |       |   |   |   | (20.0  | )   
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       
|Net cash used in investing activities                                                           |                                                     |                                        | (2.9   | )   |              |   | (136.3 | )             |        |   | (1.4         | )   |      |       |       |   |   |   | (140.6 | )   
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |        |   |   |   |        |     
|Net borrowings on revolving credit facilities                                                   |                                                     |                                        | 80.0   |     |              |   |       |               |        |   |             |     |      |       |       |   |   |   | 80.0   |     
|Proceeds from equity offering                                                                   |                                                     |                                        | 89.3   |     |              |   |       |               |        |   |             |     |      |       |       |   |   |   | 89.3   |     
|Net proceeds from Financial Services bank borrowings                                            |                                                     |                                        |       |     |              |   |       |               |        |   | 5.6          |     |      |       |       |   |   |   | 5.6    |     
|Payments for deferred financing costs                                                           |                                                     |                                        | (0.3   | )   |              |   |       |               |        |   |             |     |      |       |       |   |   |   | (0.3   | )   
|Dividends paid                                                                                  |                                                     |                                        | (2.4   | )   |              |   |       |               |        |   | (8.0         | )   |      |       | 8.0    |   |   |   | (2.4   | )   
|Increase (decrease) in intercompany transactions                                                |                                                     |                                        | (493.6 | )   |              |   | 401.7  |               |        |   | (56.8        | )   |      |       | 148.7  |   |   |   |       |     
|Other                                                                                           |                                                     |                                        | 1.6    |     |              |   |       |               |        |   |             |     |      |       |       |   |   |   | 1.6    |     
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       
|Net cash provided by (used in) financing activities                                             |                                                     |                                        | (325.4 | )   |              |   | 401.7  |               |        |   | (59.2        | )   |      |       | 156.7  |   |   |   | 173.8  |     
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       
|Decrease in cash and cash equivalents                                                           |                                                     |                                        | (150.0 | )   |              |   | (24.4  | )             |        |   | (43.9        | )   |      |       |       |   |   |   | (218.3 | )   
|Unrestricted cash and cash equivalents at beginning of period                                   |                                                     |                                        | 159.3  |     |              |   | 58.3   |               |        |   | 50.9         |     |      |       |       |   |   |   | 268.5  |     
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       
|Unrestricted cash and cash equivalents at end of period                                         |                                                     | $                                      | 9.3    |     |              | $ | 33.9   |               |        | $ | 7.0          |     |      | $     |       |   |   | $ | 50.2   |     
|                                                                                                |                                                     |                                        |        |     |              |   |        |               |        |   |              |     |      |       |       

20



---



##### Table of Contents



TECHNICAL OLYMPIC USA, INC. AND SUBSIDIARIES


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidating Statement of Cash Flows


Nine Months Ended September 30, 2004


|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |       |   |       |   |        |     |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | --------------------- | ------------ | - | ------ | ------------- | ------ | - | ------------ | - | ----- | ----- | ----- | - | ----- | - | ------ | --- | ------ | -
|                                                                                                |                                              | Technical                              |        |                       |              |   |        |               |        |   |             
|                                                                                                |                                              | Olympic                                |        |                       | Guarantor    |   |        | Non-guarantor |        |   | Intercompany |   |       |      
|                                                                                                |                                              | USA, Inc.                              |        |                       | Subsidiaries |   |        | Subsidiaries  |        |   | Eliminations |   |       | Total |      
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      
|                                                                                                |                                              |                                        |        | (Dollars in millions) |              |   |        |               |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |       |   |       |   |        |    
|Net income                                                                                      |                                              | $                                      | 70.2   |                       |              | $ | 86.1   |               |        | $ | 3.3          |   |       | $     | (89.4 | ) |       | $ | 70.2   |    
|Adjustments to reconcile net income to net cash (used in)
    provided by operating activities: |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |       |   |       |   |        |    
|                                                                                                | Depreciation and amortization                |                                        |        | 2.2                   |              |   |        | 7.3           |        |   |              |  |       |       |       |  |       |   |        | 9.5 |       
|                                                                                                | Non-cash compensation expense                |                                        |        | 4.0                   |              |   |        |              |        |   |              |  |       |       |       |  |       |   |        | 4.0 |       
|                                                                                                | Changes in operating assets and liabilities: |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |       |   |       |   |        |     |       
|                                                                                                |                                              | Restricted cash                        |        |                       | 1.5          |   |        |               | 17.5   |   |              |   | (13.9 | )     |       |   |      |   |        |     | 5.1    |  
|                                                                                                |                                              | Inventory                              |        |                       | 0.6          |   |        |               | (267.2 | ) |              |   |      |       |       |   |      |   |        |     | (266.6 | )
|                                                                                                |                                              | Other assets                           |        |                       | 46.8         |   |        |               | (5.0   | ) |              |   | (2.5  | )     |       |   | (52.5 | ) |        |     | (13.2  | )
|                                                                                                |                                              | Accounts payable and other liabilities |        |                       | (2.8         | ) |        |               | (58.4  | ) |              |   | 12.2  |       |       |   | 52.5  |   |        |     | 3.5    |  
|                                                                                                |                                              | Customer deposits                      |        |                       |             |   |        |               | 33.7   |   |              |   |      |       |       |   |      |   |        |     | 33.7   |  
|                                                                                                |                                              | Mortgage loans held for sale           |        |                       |             |   |        |               |       |   |              |   | 5.0   |       |       |   |      |   |        |     | 5.0    |  
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      
|Net cash (used in) provided by operating activities                                             |                                              |                                        | 122.5  |                       |              |   | (186.0 | )             |        |   | 4.1          |   |       |       | (89.4 | ) |       |   | (148.8 | )  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                           |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |       |   |       |   |        |    
|Net additions to property and equipment                                                         |                                              |                                        | (1.5   | )                     |              |   | (13.2  | )             |        |   |             |   |       |       |      |   |       |   | (14.7  | )  
|Investments in unconsolidated joint ventures                                                    |                                              |                                        |       |                       |              |   | (20.1  | )             |        |   |             |   |       |       |      |   |       |   | (20.1  | )  
|Earn out consideration paid for acquisitions                                                    |                                              |                                        |       |                       |              |   | (6.6   | )             |        |   |             |   |       |       |      |   |       |   | (6.6   | )  
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      
|Net cash used in investing activities                                                           |                                              |                                        | (1.5   | )                     |              |   | (39.9  | )             |        |   |             |   |       |       |      |   |       |   | (41.4  | )  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |       |   |       |   |        |    
|Net borrowings on revolving credit facilities                                                   |                                              |                                        | 48.0   |                       |              |   |       |               |        |   |             |   |       |       |      |   |       |   | 48.0   |    
|Proceeds from notes offering                                                                    |                                              |                                        | 125.0  |                       |              |   |       |               |        |   |             |   |       |       |      |   |       |   | 125.0  |    
|Net repayments on Financial Services bank borrowings                                            |                                              |                                        |       |                       |              |   |       |               |        |   | (5.1         | ) |       |       |      |   |       |   | (5.1   | )  
|Payments for deferred financing costs                                                           |                                              |                                        | (2.1   | )                     |              |   |       |               |        |   |             |   |       |       |      |   |       |   | (2.1   | )  
|Dividends paid                                                                                  |                                              |                                        | (1.3   | )                     |              |   |       |               |        |   |             |   |       |       |      |   |       |   | (1.3   | )  
|Increase (decrease) in intercompany transactions                                                |                                              |                                        | (340.3 | )                     |              |   | 253.0  |               |        |   | (2.1         | ) |       |       | 89.4  |   |       |   |       |    
|Other                                                                                           |                                              |                                        | 0.3    |                       |              |   | (6.8   | )             |        |   |             |   |       |       |      |   |       |   | (6.5   | )  
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      
|Net cash provided by (used in) financing activities                                             |                                              |                                        | (170.4 | )                     |              |   | 246.2  |               |        |   | (7.2         | ) |       |       | 89.4  |   |       |   | 158.0  |    
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      
|Increase (decrease) in cash and cash equivalents                                                |                                              |                                        | (49.4  | )                     |              |   | 20.3   |               |        |   | (3.1         | ) |       |       |      |   |       |   | (32.2  | )  
|Unresticted cash and cash equivalents at beginning of period                                    |                                              |                                        | 46.0   |                       |              |   | 27.7   |               |        |   | 3.1          |   |       |       |      |   |       |   | 76.8   |    
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      
|Unresticted cash and cash equivalents at end of period                                          |                                              | $                                      | (3.4   | )                     |              | $ | 48.0   |               |        | $ |             |   |       | $     |      |   |       | $ | 44.6   |    
|                                                                                                |                                              |                                        |        |                       |              |   |        |               |        |   |              |   |       |       |      

21



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Executive Summary




|                     |  |                                 |  |                  |  |                 
|-------------------- |  | ------------------------------- |  | ---------------- |  | ----------------
|Florida              |  | Mid-Atlantic                    |  | Texas            |  | West            
|                     |  |                                 |  |                  |  |                 
|Jacksonville         |  | Baltimore/Southern Pennsylvania |  | Austin           |  | Central Colorado
|Orlando              |  | Delaware                        |  | Dallas/Ft. Worth |  | Las Vegas       
|Southeast Florida    |  | Nashville                       |  | Houston          |  | Phoenix         
|Southwest Florida    |  | Northern Virginia               |  | San Antonio      |  |                 
|Tampa/St. Petersburg |  |                                 |  |                  |  |                 









22



---



##### Table of Contents









Critical Accounting Policies




Recent Developments




23



---



##### Table of Contents





Results of Operations  Consolidated




| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Three Months Ended September 30, 2005 Compared to
    Three Months Ended September 30, 2004











| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2005 Compared to Nine
    Months Ended September 30, 2004









24



---



##### Table of Contents



Results of Operations




|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         |  |  |  |       |  |  |   |         | 
|---------------------------------- |  | -------------------------------- | ----- |  | ------------------------------- | - | ----- | ----- |  |  | ----- |  |  | ----- | ----- |  | - |  | ----- | ----- |  | - | ------- |  |  |  | ----- |  |  | - | ------- | 
|                                   |  | Three Months Ended September 30, |       |  | Nine Months Ended September 30, |  
|                                   |  |                                  |       |  |                                 |  
|                                   |  | 2005                             |       |  | 2004                            |   |       | 2005  |  |  | 2004  | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       | 
|Deliveries:                        |  | Homes                            |       |  | $                               |   |       | Homes |  |  | $     |  |  | Homes |       |  | $ |  |       | Homes |  |   | $       | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Florida                            |  |                                  | 627   |  |                                 | $ | 190.8 |       |  |  | 541   |  |  | $     | 149.9 |  |   |  | 2,144 |       |  | $ | 627.0   |  |  |  | 1,641 |  |  | $ | 438.6   | 
|Mid-Atlantic                       |  |                                  | 171   |  |                                 |   | 75.1  |       |  |  | 143   |  |  |       | 62.9  |  |   |  | 448   |       |  |   | 186.3   |  |  |  | 378   |  |  |   | 151.5   | 
|Texas                              |  |                                  | 555   |  |                                 |   | 134.3 |       |  |  | 489   |  |  |       | 127.2 |  |   |  | 1,402 |       |  |   | 338.6   |  |  |  | 1,378 |  |  |   | 348.5   | 
|West                               |  |                                  | 528   |  |                                 |   | 162.6 |       |  |  | 611   |  |  |       | 160.1 |  |   |  | 1,766 |       |  |   | 505.4   |  |  |  | 1,586 |  |  |   | 430.7   | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Consolidated total                 |  |                                  | 1,881 |  |                                 | $ | 562.8 |       |  |  | 1,784 |  |  | $     | 500.1 |  |   |  | 5,760 |       |  | $ | 1,657.3 |  |  |  | 4,983 |  |  | $ | 1,369.3 | 
|From unconsolidated joint ventures |  |                                  | 528   |  |                                 |   | 169.1 |       |  |  | 25    |  |  |       | 7.6   |  |   |  | 872   |       |  |   | 272.5   |  |  |  | 27    |  |  |   | 8.2     | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Total                              |  |                                  | 2,409 |  |                                 | $ | 731.9 |       |  |  | 1,809 |  |  | $     | 507.7 |  |   |  | 6,632 |       |  | $ | 1,929.8 |  |  |  | 5,010 |  |  | $ | 1,377.5 | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 

|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         |  |  |  |       |  |  |   |         | 
|---------------------------------- |  | -------------------------------- | ----- |  | ------------------------------- | - | ----- | ----- |  |  | ----- |  |  | ----- | ----- |  | - |  | ----- | ----- |  | - | ------- |  |  |  | ----- |  |  | - | ------- | 
|                                   |  | Three Months Ended September 30, |       |  | Nine Months Ended September 30, |  
|                                   |  |                                  |       |  |                                 |  
|                                   |  | 2005                             |       |  | 2004                            |   |       | 2005  |  |  | 2004  | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       | 
|Net Sales Orders(1):               |  | Homes                            |       |  | $                               |   |       | Homes |  |  | $     |  |  | Homes |       |  | $ |  |       | Homes |  |   | $       | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Florida                            |  |                                  | 714   |  |                                 | $ | 239.0 |       |  |  | 952   |  |  | $     | 301.2 |  |   |  | 2,196 |       |  | $ | 753.9   |  |  |  | 3,008 |  |  | $ | 890.3   | 
|Mid-Atlantic                       |  |                                  | 95    |  |                                 |   | 35.7  |       |  |  | 83    |  |  |       | 31.7  |  |   |  | 491   |       |  |   | 209.1   |  |  |  | 595   |  |  |   | 252.7   | 
|Texas                              |  |                                  | 709   |  |                                 |   | 175.8 |       |  |  | 480   |  |  |       | 117.7 |  |   |  | 2,133 |       |  |   | 532.2   |  |  |  | 1,468 |  |  |   | 371.2   | 
|West                               |  |                                  | 303   |  |                                 |   | 106.3 |       |  |  | 828   |  |  |       | 243.2 |  |   |  | 2,121 |       |  |   | 691.0   |  |  |  | 2,646 |  |  |   | 731.2   | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Consolidated total                 |  |                                  | 1,821 |  |                                 | $ | 556.8 |       |  |  | 2,343 |  |  | $     | 693.8 |  |   |  | 6,941 |       |  | $ | 2,186.2 |  |  |  | 7,717 |  |  | $ | 2,245.4 | 
|From unconsolidated joint ventures |  |                                  | 871   |  |                                 |   | 309.6 |       |  |  | 51    |  |  |       | 21.3  |  |   |  | 1,671 |       |  |   | 591.8   |  |  |  | 281   |  |  |   | 91.5    | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 
|Total                              |  |                                  | 2,692 |  |                                 | $ | 866.4 |       |  |  | 2,394 |  |  | $     | 715.1 |  |   |  | 8,612 |       |  | $ | 2,778.0 |  |  |  | 7,998 |  |  | $ | 2,336.9 | 
|                                   |  |                                  |       |  |                                 |   |       |       |  |  |       |  |  |       |       |  |   |  |       |       |  |   |         | 






|    |                     
|--- | --------------------
|(1) | Net of cancellations

|                                   |  |                    |        |  |                    |   |         |               |  |   |       |  |  |   |       |  |               |   |         |  |  |   |     | 
|---------------------------------- |  | ------------------ | ------ |  | ------------------ | - | ------- | ------------- |  | - | ----- |  |  | - | ----- |  | ------------- | - | ------- |  |  | - | --- | 
|                                   |  | September 30, 2005 |        |  | September 30, 2004 |  
|                                   |  |                    |        |  |                    |  
|Sales Backlog:                     |  | Homes              |        |  | $                  |   |         | Average Price |  |   | Homes |  |  | $ |       |  | Average Price |  
|                                   |  |                    |        |  |                    |   |         |               |  |   |       |  |  |   |       |  |               |  
|Florida                            |  |                    | 2,980  |  |                    | $ | 1,033.9 |               |  | $ | 347   |  |  |   | 2,913 |  |               | $ | 875.5   |  |  | $ | 301 | 
|Mid-Atlantic                       |  |                    | 389    |  |                    |   | 164.6   |               |  | $ | 423   |  |  |   | 447   |  |               |   | 190.3   |  |  | $ | 426 | 
|Texas                              |  |                    | 1,274  |  |                    |   | 331.0   |               |  | $ | 260   |  |  |   | 584   |  |               |   | 146.1   |  |  | $ | 250 | 
|West                               |  |                    | 965    |  |                    |   | 318.1   |               |  | $ | 330   |  |  |   | 1,924 |  |               |   | 521.1   |  |  | $ | 271 | 
|                                   |  |                    |        |  |                    |   |         |               |  |   |       |  |  |   |       |  |               |  
|Consolidated total                 |  |                    | 5,608  |  |                    | $ | 1,847.6 |               |  | $ | 329   |  |  |   | 5,868 |  |               | $ | 1,733.0 |  |  | $ | 295 | 
|From unconsolidated joint ventures |  |                    | 5,205  |  |                    |   | 1,660.4 |               |  | $ | 319   |  |  |   | 303   |  |               |   | 95.4    |  |  | $ | 315 | 
|                                   |  |                    |        |  |                    |   |         |               |  |   |       |  |  |   |       |  |               |  
|Total*                             |  |                    | 10,813 |  |                    | $ | 3,508.0 |               |  | $ | 324   |  |  |   | 6,171 |  |               | $ | 1,828.4 |  |  | $ | 296 | 
|                                   |  |                    |        |  |                    |   |         |               |  |   |       |  |  |   |       |  |               |  






|  |                                          
|- | -----------------------------------------
|* | Includes 3,070 homes of acquired backlog.

25



---



##### Table of Contents



|                                   |  |                                  |     |  |                                 |   |     |            |  |   |              |  |  |            |     |  |              |   |     |            |  |   |              |  |  |   |     |  |  |   |     | 
|---------------------------------- |  | -------------------------------- | --- |  | ------------------------------- | - | --- | ---------- |  | - | ------------ |  |  | ---------- | --- |  | ------------ | - | --- | ---------- |  | - | ------------ |  |  | - | --- |  |  | - | --- | 
|                                   |  | Three Months Ended September 30, |     |  | Nine Months Ended September 30, |  
|                                   |  |                                  |     |  |                                 |  
|                                   |  | 2005                             |     |  | 2004                            |   |     | 2005       |  |   | 2004         | 
|                                   |  |                                  |     |  |                                 |   |     |            |  |   |              | 
|Average Price:                     |  | Deliveries                       |     |  | Sales Orders                    |   |     | Deliveries |  |   | Sales Orders |  |  | Deliveries |     |  | Sales Orders |   |     | Deliveries |  |   | Sales Orders | 
|                                   |  |                                  |     |  |                                 |   |     |            |  |   |              |  |  |            |     |  |              |   |     |            |  |   |              | 
|Florida                            |  | $                                | 304 |  |                                 | $ | 335 |            |  | $ | 277          |  |  | $          | 316 |  |              | $ | 292 |            |  | $ | 343          |  |  | $ | 267 |  |  | $ | 296 | 
|Mid-Atlantic                       |  | $                                | 439 |  |                                 | $ | 376 |            |  | $ | 440          |  |  | $          | 382 |  |              | $ | 416 |            |  | $ | 426          |  |  | $ | 401 |  |  | $ | 425 | 
|Texas                              |  | $                                | 242 |  |                                 | $ | 248 |            |  | $ | 260          |  |  | $          | 245 |  |              | $ | 241 |            |  | $ | 250          |  |  | $ | 253 |  |  | $ | 253 | 
|West                               |  | $                                | 308 |  |                                 | $ | 351 |            |  | $ | 262          |  |  | $          | 294 |  |              | $ | 286 |            |  | $ | 326          |  |  | $ | 272 |  |  | $ | 276 | 
|Consolidated total                 |  | $                                | 299 |  |                                 | $ | 306 |            |  | $ | 280          |  |  | $          | 296 |  |              | $ | 288 |            |  | $ | 315          |  |  | $ | 275 |  |  | $ | 291 | 
|From unconsolidated joint ventures |  | $                                | 320 |  |                                 | $ | 355 |            |  | $ | 304          |  |  | $          | 418 |  |              | $ | 312 |            |  | $ | 354          |  |  | $ | 304 |  |  | $ | 326 | 
|Total                              |  | $                                | 304 |  |                                 | $ | 322 |            |  | $ | 281          |  |  | $          | 299 |  |              | $ | 291 |            |  | $ | 323          |  |  | $ | 275 |  |  | $ | 292 | 



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Three Months Ended September 30, 2005 Compared to
    Three Months Ended September 30, 2004







26



---



##### Table of Contents









| |                                                                                 
| | --------------------------------------------------------------------------------
| | Net Sales Orders and Backlog Homes (including unconsolidated
    joint ventures)









| |                                                                  
| | -----------------------------------------------------------------
| | Backlog Sales Value (excluding unconsolidated joint
    ventures)





| |                                  
| | ---------------------------------
| | Joint Venture Backlog Sales Value





| |                   
| | ------------------
| | Financial Services



27



---



##### Table of Contents









| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine months Ended September 30, 2005 Compared to
    Nine Months Ended September 30, 2004







28



---



##### Table of Contents











| |                                                           
| | ----------------------------------------------------------
| | Net Sales Orders (including unconsolidated joint ventures)





| |                   
| | ------------------
| | Financial Services



29



---



##### Table of Contents





FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES




| |                         
| | ------------------------
| | Sources and Uses of Cash















| |                     
| | --------------------
| | Financing Activities

3 8 1 2 1 2


pari passu pari passu


30



---



##### Table of Contents







|                           |  |                                  |         |   |              |   |         |  
|-------------------------- |  | -------------------------------- | ------- | - | ------------ | - | ------- | -
|                           |  | Homebuilding Net Debt to Capital |        
|                           |  |                                  |        
|                           |  | September 30,                    |         |   | December 31, |  
|                           |  | 2005                             |         |   | 2004         |  
|                           |  |                                  |         |   |              |  
|Notes payable              |  | $                                | 811.6   |   |              | $ | 811.4   |  
|Bank borrowings            |  |                                  | 80.0    |   |              |   |        |  
|                           |  |                                  |         |   |              |  
|Homebuilding borrowings(1) |  | $                                | 891.6   |   |              | $ | 811.4   |  
|Less: unrestricted cash    |  |                                  | 43.2    |   |              |   | 217.6   |  
|                           |  |                                  |         |   |              |  
|Homebuilding net debt      |  | $                                | 848.4   |   |              | $ | 593.8   |  
|Stockholders equity       |  |                                  | 897.5   |   |              |   | 662.7   |  
|                           |  |                                  |         |   |              |  
|Total capital(2)           |  | $                                | 1,745.9 |   |              | $ | 1,256.5 |  
|                           |  |                                  |         |   |              |  
|Ratio                      |  |                                  | 48.6    | % |              |   | 47.3    | %






|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include obligations for inventory not owned of
    $79.5 million at September 30, 2005 and
    $136.2 million at December 31, 2004, all of which are
    non-recourse to us.
|   
|(2) | Does not include Financial Services bank borrowings of
    $54.6 million at September 30, 2005 and
    $49.0 million at December 31, 2004.                                           





31



---



##### Table of Contents











| |                               
| | ------------------------------
| | Off Balance Sheet Arrangements



| |                                   
| | ----------------------------------
| | Land and Homesite Option Contracts







| |                                             
| | --------------------------------------------
| | Investments in Unconsolidated Joint Ventures



32



---



##### Table of Contents







DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding our continued use of option
    contracts, investments in unconsolidated joint ventures and
    other off-balance sheet arrangements to control homesites and
    manage our business and their effect on our business;
|
| |  | our expectations regarding the labor and supply shortages and
    increases in costs of materials caused by the recent hurricanes
    and rising costs of petroleum;                                                                              
|
| |  | our expectations regarding the impact of Hurricane Wilma on our
    sales, home deliveries and community openings in the Florida
    Region;                                                                                                      
|
| |  | our expectations regarding our use of cash in operations;                                                                                                                                                                                         
|
| |  | our expectations regarding future land sales;                                                                                                                                                                                                     
|
| |  | our expectations regarding the future sales volume of the
    Transeastern JV;                                                                                                                                                                    
|
| |  | our estimate that we have adequate financial resources to meet
    our current and anticipated working capital, including our
    annual debt service payments, and land acquisition and
    development needs; and                               
|
| |  | our expectations regarding the impact on our business and
    profits of phasing our sales and limiting our early sales
    activities.                                                                                                           





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | our significant level of debt and the impact of the restrictions
    imposed on us by the terms of this debt;
|
| |  | our ability to borrow or otherwise finance our business in the
    future;                                   

33



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to identify and acquire, at anticipated prices,
    additional homebuilding opportunities and/or to effect our
    growth strategies;                                                                                                                                                                          
|
| |  | our relationship with Technical Olympic S.A. and its
    control over our business activities;                                                                                                                                                                                                                             
|
| |  | 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, such as increases in interest,
    inflation, or unemployment rates or decline in consumer
    confidence or the demand for, or the prices of, housing;
|
| |  | events which would impede our ability to open new communities
    and/or deliver homes within anticipated timeframes and/or within
    anticipated budgets;                                                                                                                                                                
|
| |  | an increase in interest rates;                                                                                                                                                                                                                                                                                             
|
| |  | an increase in the cost, or shortages in the availability, of
    labor and materials;                                                                                                                                                                                                                                     
|
| |  | our ability to compete in our existing and future markets;                                                                                                                                                                                                                                                                 
|
| |  | our ability to successfully utilize and recognize the
    anticipated benefits of joint venture and option contracts;                                                                                                                                                                                                      
|
| |  | currently unanticipated delays, disruptions, cost increases
    and/or labor and material shortages caused by Hurricane Wilma;                                                                                                                                                                                             
|
| |  | the impact of hurricanes, tornadoes or other natural disasters
    or weather conditions on our business, including the potential
    for shortages and increased costs of materials and qualified
    labor and the potential for delays in construction and obtaining
    government approvals; and                      
|
| |  | an increase or change in governmental regulations, or in the
    interpretation and/or enforcement of existing governmental
    regulations.                                                                                                                                                                               






|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | Quantitative and Qualitative Disclosures About Market
    Risk












|        |                        
|------- | -----------------------
|ITEM 4. | Controls and Procedures



34



---



##### Table of Contents








PART II.     OTHER
INFORMATION







|        |         
|------- | --------
|ITEM 6. | Exhibits

|        |    |             |  |                                                                                                        
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 32 | .1          |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 32 | .2          |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.

35



---



##### Table of Contents






SIGNATURES






| |                            
| | ---------------------------
| | Technical Olympic USA, Inc.



| |     |                    
| | --- | -------------------
| | By: | /s/ David J. Keller

| |                      
| | ---------------------
| |                      
| | Name: David J. Keller

| |                                                                       | 
| | --------------------------------------------------------------------- | 
| | Title:   Senior Vice President, Chief Financial Officer and Treasurer | 





| |     |                    
| | --- | -------------------
| | By: | /s/ Randy L. Kotler

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Name: Randy L. Kotler                           
| | Title:   Vice President-Chief Accounting Officer



36