##### 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, 2008
 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
 TOUSA, INC.
  Delaware
    
    76-0460831(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)4000 Hollywood Blvd., Suite 400 NHollywood, Florida
    
    33021(Address of principal executive offices)
    
    (ZIP code)
 
 
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS:




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##### 



TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
INDEX
 PAGEPART I. Financial Information
    
    
    3ITEM 1. Consolidated Financial Statements (Unaudited)
    
    
    3Consolidated Statements of Financial Condition
    
    
    3Consolidated Statements of Operations
    
    
    5Consolidated Statement of Stockholders Deficit
    
    
    6Consolidated Statements of Cash Flows
    
    
    7Notes to Unaudited Consolidated Financial Statements
    
    
    9ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    41ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    63ITEM 4. Controls and Procedures
    
    
    64PART II. Other Information
    
    
    65ITEM 1. Legal Proceedings
    
    
    65ITEM 1A. Risk Factors
    
    
    67ITEM 6. Exhibits
    
    
    68Signatures
    
    
    69EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (Dollars in millions, except par value)
 September 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSHOMEBUILDING:Cash and cash equivalents:Unrestricted
    
    $
    277.5
    
    
    $
    67.2Restricted
    
    
    19.9
    
    
    
    5.1Inventory:Deposits
    
    
    19.2
    
    
    
    56.9Homesites and land under development
    
    
    235.7
    
    
    
    633.0Residences completed and under construction
    
    
    282.9
    
    
    
    555.9Inventory not owned
    
    
    9.6
    
    
    
    26.0547.4
    
    
    
    1,271.8Property and equipment, net
    
    
    15.2
    
    
    
    24.6Investments in unconsolidated joint ventures
    
    
    3.0
    
    
    
    9.0Receivables from unconsolidated joint ventures
    
    
    
    
    
    
    0.3Other assets
    
    
    62.0
    
    
    
    330.0Goodwill
    
    
    
    
    
    
    11.2Assets held for sale
    
    
    2.7
    
    
    
    6.1927.7
    
    
    
    1,725.3FINANCIAL SERVICES:Cash and cash equivalents:Unrestricted
    
    
    13.6
    
    
    
    9.3Restricted
    
    
    
    
    
    
    5.6Mortgage loans held for sale
    
    
    5.0
    
    
    
    15.0Other assets
    
    
    4.0
    
    
    
    6.822.6
    
    
    
    36.7Total assets
    
    $
    950.3
    
    
    $
    1,762.0LIABILITIES AND STOCKHOLDERS DEFICITHOMEBUILDING:Accounts payable and other liabilities
    
    $
    121.6
    
    
    $
    401.8Customer deposits
    
    
    17.8
    
    
    
    33.9Obligations for inventory not owned
    
    
    
    
    
    
    32.0Notes payable
    
    
    
    
    
    
    1,585.3Bank borrowings
    
    
    
    
    
    
    168.5Liabilities associated with assets held for sale
    
    
    0.4
    
    
    
    0.9139.8
    
    
    
    2,222.4FINANCIAL SERVICES:Accounts payable and other liabilities
    
    
    1.3
    
    
    
    7.3Bank borrowings
    
    
    
    
    
    
    7.81.3
    
    
    
    15.1Total liabilities not subject to compromise
    
    
    141.1
    
    
    
    2,237.5Liabilities subject to compromise (Note 2)
    
    
    2,080.0
    
    
    
    Total liabilities
    
    
    2,221.1
    
    
    
    2,237.5Commitments and contingencies
 3




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##### Table of Contents



September 30, 2008
    
    
    December 31, 2007(Unaudited)Stockholders deficit:Preferred stock  $0.01 par value; 3,000,000
shares authorized; 117,500 issued and
outstanding at September 30, 2008 and December
31, 2007
    
    
    11.6
    
    
    
    3.9Common stock  $0.01 par value; 975,000,000
shares authorized; 59,604,169 shares issued and
outstanding at September 30, 2008 and December
31, 2007
    
    
    0.6
    
    
    
    0.6Additional paid-in capital
    
    
    565.5
    
    
    
    570.7Accumulated deficit
    
    
    (1,848.5
    )
    
    
    (1,050.7
    )Total stockholders deficit
    
    
    (1,270.8
    )
    
    
    (475.5
    )Total liabilities and stockholders deficit
    
    $
    950.3
    
    
    $
    1,762.0
  4




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##### Table of Contents



TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in millions, except per share amounts)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007HOMEBUILDING:Revenues:Home sales
    
    $
    246.6
    
    
    $
    449.6
    
    
    $
    814.4
    
    
    $
    1,542.3Land sales
    
    
    0.3
    
    
    
    43.3
    
    
    
    22.0
    
    
    
    77.0246.9
    
    
    
    492.9
    
    
    
    836.4
    
    
    
    1,619.3Cost of sales:Home sales
    
    
    194.1
    
    
    
    370.1
    
    
    
    713.1
    
    
    
    1,250.0Land sales
    
    
    1.5
    
    
    
    56.5
    
    
    
    18.3
    
    
    
    85.6Inventory impairments and abandonment costs
    
    
    97.1
    
    
    
    504.5
    
    
    
    574.1
    
    
    
    628.4Other
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    (5.0
    )292.7
    
    
    
    930.3
    
    
    
    1,305.5
    
    
    
    1,959.0Gross loss
    
    
    (45.8
    )
    
    
    (437.4
    )
    
    
    (469.1
    )
    
    
    (339.7
    )Selling, general and administrative expenses
    
    
    44.0
    
    
    
    86.0
    
    
    
    153.8
    
    
    
    262.4Loss (income) from unconsolidated joint ventures, net
    
    
    (0.1
    )
    
    
    9.2
    
    
    
    (0.4
    )
    
    
    8.8Impairment of investments in and receivables from
unconsolidated joint ventures
    
    
    9.9
    
    
    
    23.4
    
    
    
    1.1
    
    
    
    28.9Provision for settlement of loss contingency
    
    
    
    
    
    
    40.7
    
    
    
    
    
    
    
    151.6Goodwill impairments
    
    
    
    
    
    
    2.7
    
    
    
    11.2
    
    
    
    40.9Interest expense (see Note 3 for contractual
interest)
    
    
    16.9
    
    
    
    10.0
    
    
    
    53.7
    
    
    
    10.2Other expense (income), net
    
    
    (0.8
    )
    
    
    0.6
    
    
    
    (2.7
    )
    
    
    (1.5
    )Homebuilding pretax loss
    
    
    (115.7
    )
    
    
    (610.0
    )
    
    
    (685.8
    )
    
    
    (841.0
    )FINANCIAL SERVICES:Revenues
    
    
    4.1
    
    
    
    8.3
    
    
    
    13.2
    
    
    
    31.3Expenses
    
    
    4.6
    
    
    
    8.1
    
    
    
    18.0
    
    
    
    26.1Financial Services pretax income (loss)
    
    
    (0.5
    )
    
    
    0.2
    
    
    
    (4.8
    )
    
    
    5.2Loss from continuing operations before
reorganization items and taxes
    
    
    (116.2
    )
    
    
    (609.8
    )
    
    
    (690.6
    )
    
    
    (835.8
    )Reorganization items, net (see Note 2)
    
    
    18.7
    
    
    
    
    
    
    
    105.4
    
    
    
    Provision (benefit) for income taxes
    
    
    (2.7
    )
    
    
    6.0
    
    
    
    (2.0
    )
    
    
    (35.7
    )Loss from continuing operations, net of taxes
    
    
    (132.2
    )
    
    
    (615.8
    )
    
    
    (794.0
    )
    
    
    (800.1
    )Discontinued operations:Loss from discontinued operations
    
    
    (0.6
    )
    
    
    (3.9
    )
    
    
    (3.8
    )
    
    
    (11.8
    )Loss from disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.6
    )Benefit for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.8
    )Loss from discontinued operations, net of taxes
    
    
    (0.6
    )
    
    
    (3.9
    )
    
    
    (3.8
    )
    
    
    (17.6
    )Net loss
    
    
    (132.8
    )
    
    
    (619.7
    )
    
    
    (797.8
    )
    
    
    (817.7
    )Dividends and accretion of discount on preferred
stock
    
    
    2.5
    
    
    
    2.2
    
    
    
    7.7
    
    
    
    2.2Net loss attributable to common stockholders
    
    $
    (135.3
    )
    
    $
    (621.9
    )
    
    $
    (805.5
    )
    
    $
    (819.9
    )LOSS PER COMMON SHARE, BASIC AND DILUTED:Loss from continuing operations
    
    $
    (2.26
    )
    
    $
    (10.36
    )
    
    $
    (13.45
    )
    
    $
    (13.46
    )Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.07
    )
    
    
    (0.07
    )
    
    
    (0.30
    )Loss per common share
    
    $
    (2.27
    )
    
    $
    (10.43
    )
    
    $
    (13.52
    )
    
    $
    (13.76
    )WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:Basic
    
    
    59,604,169
    
    
    
    59,604,169
    
    
    
    59,604,169
    
    
    
    59,601,119Diluted
    
    
    59,604,169
    
    
    
    59,604,169
    
    
    
    59,604,169
    
    
    
    59,601,119
  5




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TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 (Dollars in millions)
 (Unaudited)
 Additional
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    DeficitBalance at January 1, 2008
    
    
    117,500
    
    
    $
    3.9
    
    
    
    59,604,169
    
    
    $
    0.6
    
    
    $
    570.7
    
    
    $
    (1,050.7
    )
    
    $
    (475.5
    )Stock option compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    2.5Dividends and accretion
of preferred stock discount
    
    
    
    
    
    
    7.7
    
    
    
    
    
    
    
    
    
    
    
    (7.7
    )
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797.8
    )
    
    
    (797.8
    )Balance at September 30,
2008
    
    
    117,500
    
    
    $
    11.6
    
    
    
    59,604,169
    
    
    $
    0.6
    
    
    $
    565.5
    
    
    $
    (1,848.5
    )
    
    $
    (1,270.8
    )
  6




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##### Table of Contents



TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in millions)
 (Unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (797.8
    )
    
    $
    (817.7
    )Loss from discontinued operations
    
    
    3.8
    
    
    
    17.6Loss from continuing operations
    
    
    (794.0
    )
    
    
    (800.1
    )Adjustments to reconcile loss from continuing operations to
net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    10.4
    
    
    
    11.2Non-cash compensation expense
    
    
    2.5
    
    
    
    3.0Non-cash interest expense
    
    
    38.4
    
    
    
    8.0Reorganization items, net
    
    
    105.4
    
    
    
    Loss on early termination of debt
    
    
    
    
    
    
    2.4Provision for settlement of loss contingency
    
    
    
    
    
    
    151.6Loss on impairments of inventory and abandonment costs
    
    
    574.1
    
    
    
    628.4Goodwill impairments
    
    
    11.2
    
    
    
    40.9Write-down of receivables
    
    
    5.7
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (160.6
    )Loss (income) from unconsolidated joint ventures
    
    
    (0.4
    )
    
    
    19.2Distributions of earnings from unconsolidated joint ventures
    
    
    0.2
    
    
    
    0.9Impairment of investments in and receivables from unconsolidated joint ventures
    
    
    1.1
    
    
    
    28.9Changes in operating assets and liabilities:Restricted cash
    
    
    (9.2
    )
    
    
    28.6Inventory
    
    
    143.2
    
    
    
    (72.1
    )Receivables from unconsolidated joint ventures
    
    
    (1.4
    )
    
    
    (29.9
    )Other assets
    
    
    216.2
    
    
    
    82.4Mortgage loans held for sale
    
    
    10.0
    
    
    
    10.9Accounts payable and other liabilities
    
    
    (4.5
    )
    
    
    (26.7
    )Customer deposits
    
    
    (16.1
    )
    
    
    (15.6
    )Net cash provided by (used in) operating activities
    
    
    292.8
    
    
    
    (88.6
    )Cash flows from investing activities:Acquisitions, net of cash acquired
    
    
    
    
    
    
    (7.7
    )Net disposals (additions) to property and equipment
    
    
    0.8
    
    
    
    (9.4
    )Investments in unconsolidated joint ventures
    
    
    (1.6
    )
    
    
    (29.2
    )Capital distributions from unconsolidated joint ventures
    
    
    
    
    
    
    12.4Net cash used in investing activities
    
    
    (0.8
    )
    
    
    (33.9
    )Cash flows from financing activities:Net borrowings from (repayments of) revolving credit facilities
    
    
    (28.1
    )
    
    
    150.3Principal payments on notes payable
    
    
    (37.7
    )
    
    
    (0.5
    )Net repayments of Financial Services bank borrowings
    
    
    (7.8
    )
    
    
    (13.0
    )Payments for deferred financing costs
    
    
    (2.9
    )
    
    
    (32.1
    )Payment for
issuance of convertible preferred stock and warrants
    
    
    
    
    
    
    (2.9
    )Net cash provided by (used in) financing activities
    
    
    (76.5
    )
    
    
    101.8Net cash provided by (used in) continuing operations
    
    
    215.5
    
    
    
    (20.7
    )Cash flows from discontinued operations:Net cash used in operating activities
    
    
    (0.9
    )
    
    
    (12.4
    )Net cash provided by financing activities
    
    
    
    
    
    
    56.5Net cash provided by (used in) discontinued operations
    
    
    (0.9
    )
    
    
    44.1Increase in cash and cash equivalents
    
    
    214.6
    
    
    
    23.4Cash and cash equivalents at beginning of period
    
    
    76.5
    
    
    
    54.2Cash and cash equivalents at end of period
    
    $
    291.1
    
    
    $
    77.6
 7




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    
    2007Supplemental disclosure of non-cash financing activities:Increase (decrease) in obligations for inventory not owned
    
    $
    (15.9
    )
    
    $
    44.5Increase (decrease) in inventory not owned
    
    $
    (16.4
    )
    
    $
    39.8Supplemental disclosure of non-cash activities:Refer to Note 3 for the consolidation of variable
interest entities in accordance with FIN 46(R)Refer to Note 4 for the settlement of the Transeastern
joint venture and related acquisition of assets
  8




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TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2008
 1. Business and Organization
 Business
   Chapter 11 Cases
  www.kccllc.net/tousa
  
    
    severely curtailing land purchases;
    
    abandoning or in some cases renegotiating our rights under option and land bank contracts;
    
    engaging in bulk sales of land and unsold homes;
    
    reducing the number of unsold homes under construction and limiting and/or curtailing
land development activities;
    
    completing other asset dispositions; and
    
    pursuing other initiatives designed to monetize our assets.
  9




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##### Table of Contents



http://www.tousa.com/reorg
  Mortgage Joint Venture
  2. Summary of Significant Accounting Policies
 Principles of Consolidation and Basis of Presentation
   10




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##### Table of Contents



Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code Accounting for Contingencies
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2008Professional fees
    
    $
    19.7
    
    
    $
    42.5Write-off of deferred finance costs
    
    
    
    
    
    
    54.4Write-off of debt premium and discounts
    
    
    
    
    
    
    11.9Interest income
    
    
    (1.6
    )
    
    
    (1.7
    )Lease rejections
    
    
    0.6
    
    
    
    0.6Reversal of previously recorded interest expense
    
    
    
    
    
    
    (2.3
    )Total reorganization items, net
    
    $
    18.7
    
    
    $
    105.4
   Revolving Loan Facility(1)
    
    $
    223.1First Lien Term Loan Facility due 2012(1)
    
    
    161.3Second Lien Term Loan Facility due 2013(1)
    
    
    352.6Senior notes due 2010, at 9% (1)
    
    
    300.0Senior notes due 2011, at 8 1/4%(1)
    
    
    250.0Senior subordinated notes due 2012, at 10 3/8%(1)
    
    
    185.0Senior subordinated notes due 2011, at 7 1/2%(1)
    
    
    125.0Senior subordinated notes due 2015, at 7 1/2%(1)
    
    
    200.0Senior Subordinated PIK Notes due 2015, at 14 3/4%(1)
    
    
    24.0Accrued interest on notes payable
    
    
    47.2Accounts payable and other liabilities
    
    
    195.7Obligations for inventory not owned(2)
    
    
    16.1Total liabilities subject to compromise
    
    $
    2,080.0
 
 (1)
    
    See Note 9(2)
    
    See Note 3  
    
    impairment assessments of investments in unconsolidated joint
ventures, long-lived assets, including our inventory, and goodwill;
    
    loss exposures associated with the abandonment of our rights under
option and/or land bank contracts, the relinquishment of our rights
under certain joint ventures and obligations under joint venture debt
agreements and under performance bonds;
 11




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##### Table of Contents




    
    classification of liabilities subject to compromise;
    
    insurance and litigation related contingencies;
    
    realization of deferred income tax assets and liability for unrecognized tax benefits; and
    
    estimated costs associated with construction and development activities in connection
with our homebuilding operations.
   Interim Presentation
  Loss per Common Share
   Revenue Recognition
  Accounting for the Sales of Real Estate
 Fair Value Disclosures
 Fair Value Measurements
   
 12




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##### Table of Contents



Fair ValueFinancial Instrument
    
    Hierarchy
    
    
    Fair ValueAssets:Mortgage loans held for sale
    
    Level 2
    
    $
    5.0
  Recent Accounting Pronouncements
 Effective Date
of FASB Statement No. 157 Accounting
for Leases
 Applicability of the Assessment of a Buyers
Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales
of Condominiums
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin No. 51
 , Accounting
for Transfers of Financial Assets and Repurchase Financing Transactions Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities )
 Disclosures about Derivative Instruments and
Hedging Activities
 An Amendment of AICPA Statement of
Position 90-7
 13




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##### Table of Contents



Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants
 Equity Method Investment Accounting
Considerations
  Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly (
 Interim Disclosures about Fair
Value of Financial Instruments (
 3. Inventory
  September 30, 2008ResidencesHomesites and
    
    
    Completed andLand Under
    
    
    Under
    
    
    Inventory
    
    
    TotalDeposits
    
    
    Development
    
    
    Construction
    
    
    Not Owned
    
    
    InventoryRegionFlorida
    
    $
    0.1
    
    
    $
    105.7
    
    
    $
    105.1
    
    
    $
    
    
    
    $
    210.9Mid-Atlantic
    
    
    3.8
    
    
    
    10.3
    
    
    
    18.5
    
    
    
    
    
    
    
    32.6Texas
    
    
    2.2
    
    
    
    54.8
    
    
    
    98.7
    
    
    
    1.0
    
    
    
    156.7West
    
    
    13.1
    
    
    
    64.9
    
    
    
    60.6
    
    
    
    8.6
    
    
    
    147.2Total
    
    $
    19.2
    
    
    $
    235.7
    
    
    $
    282.9
    
    
    $
    9.6
    
    
    $
    547.4
 December 31, 2007ResidencesHomesites and
    
    
    Completed andLand Under
    
    
    Under
    
    
    Inventory
    
    
    TotalDeposits
    
    
    Development
    
    
    Construction
    
    
    Not Owned
    
    
    InventoryRegionFlorida
    
    $
    10.2
    
    
    $
    294.7
    
    
    $
    320.1
    
    
    $
    8.1
    
    
    $
    633.1Mid-Atlantic
    
    
    7.9
    
    
    
    21.8
    
    
    
    28.6
    
    
    
    
    
    
    
    58.3Texas
    
    
    15.6
    
    
    
    73.3
    
    
    
    111.9
    
    
    
    3.1
    
    
    
    203.9West
    
    
    23.2
    
    
    
    243.2
    
    
    
    95.3
    
    
    
    14.8
    
    
    
    376.5Total
    
    $
    56.9
    
    
    $
    633.0
    
    
    $
    555.9
    
    
    $
    26.0
    
    
    $
    1,271.8
 14




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest capitalized, beginning of period
    
    $
    70.1
    
    
    $
    81.6
    
    
    $
    77.8
    
    
    $
    68.7Interest incurred(1)(2)
    
    
    26.9
    
    
    
    43.5
    
    
    
    92.1
    
    
    
    100.2Less interest included in:Cost of sales
    
    
    (8.0
    )
    
    
    (35.2
    )
    
    
    (43.8
    )
    
    
    (78.6
    )Interest expense
    
    
    (16.9
    )
    
    
    (10.0
    )
    
    
    (53.7
    )
    
    
    (10.2
    )Other adjustments
    
    
    0.1
    
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.6
    )Interest capitalized, end of period(3)
    
    $
    72.2
    
    
    $
    79.5
    
    
    $
    72.2
    
    
    $
    79.5
 
 (1)
    
    Included in interest incurred is the amortization of deferred finance costs which
amounted to $3.5 million for the three months ended September 30, 2007, and $4.3 million and
$6.2 million for the nine months ended September 30, 2008 and September 30, 2007,
respectively. There was no amortization of deferred finance costs for the three months
ended September 30, 2008 due to the write-off of our deferred finance costs.(2)
    
    Had we not filed voluntary petitions for relief under Chapter 11, contractual
interest incurred for the three and nine months ended September 30, 2008 would have been
$53.4 million and $162.9 million, respectively, a portion of which would have been
capitalized. Interest on our senior and senior subordinated notes stopped accruing upon
filing for Chapter 11. See Note 9.(3)
    
    We have incurred significant inventory impairments in recent years, which are
determined based on total inventory, including capitalized interest. However, the
capitalized interest amounts above are gross amounts before allocating any portion of the
impairments to capitalized interest.  Financing Transactions under SFAS 66
   Consolidation of Variable Interest Entities Under FIN 46(R)
 Consolidation of Variable Interest Entities
 15




---



##### Table of Contents



Inventory Impairments and Abandonment Costs
 Accounting for the Impairment or Disposal of Long-Lived
Assets
   16




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Impairment charges on active communities:Florida
    
    $
    58.1
    
    
    $
    15.7
    
    
    $
    264.0
    
    
    $
    44.4Mid-Atlantic
    
    
    2.1
    
    
    
    4.4
    
    
    
    14.6
    
    
    
    11.0Texas
    
    
    1.7
    
    
    
    
    
    
    
    4.8
    
    
    
    0.6West
    
    
    3.1
    
    
    
    43.2
    
    
    
    58.8
    
    
    
    56.765.0
    
    
    
    63.3
    
    
    
    342.2
    
    
    
    112.7Write-offs of deposits and abandonment costs:Florida
    
    
    10.0
    
    
    
    274.5
    
    
    
    46.4
    
    
    
    287.3Mid-Atlantic
    
    
    4.6
    
    
    
    33.9
    
    
    
    14.0
    
    
    
    47.8Texas
    
    
    13.5
    
    
    
    
    
    
    
    20.3
    
    
    
    0.3West
    
    
    4.0
    
    
    
    132.8
    
    
    
    151.2
    
    
    
    180.332.1
    
    
    
    441.2
    
    
    
    231.9
    
    
    
    515.7Inventory impairments and abandonment costs
    
    $
    97.1
    
    
    $
    504.5
    
    
    $
    574.1
    
    
    $
    628.4Remaining carrying value of inventory
impaired at end of period
    
    $
    502.2
    
    
    $
    728.0
    
    
    $
    502.2
    
    
    $
    728.0Number of projects impaired during the period
    
    
    98
    
    
    
    131
    
    
    
    257
    
    
    
    171Total number of projects included in
inventory and reviewed for impairment during
the period
    
    
    361
    
    
    
    481
    
    
    
    361
    
    
    
    481
 4. Transeastern Joint Venture
     
    
    the Transeastern JV became a wholly-owned subsidiary of ours by merger
into one of our subsidiaries, which became a guarantor on our credit
facilities and note indentures (the acquisition was accounted for
using the purchase method of accounting and results of operations have
been included in our consolidated results beginning on July 31, 2007);
    
    the senior secured lenders of the Transeastern JV were repaid in full,
including accrued interest (approximately $400.0 million in cash);
    
    the senior mezzanine lenders to the Transeastern JV received
$20.0 million in aggregate principal amount of 14.75% Senior
Subordinated PIK Election Notes due 2015 and $117.5 million in initial
aggregate liquidation preference of 8% Series A Convertible Preferred
PIK Preferred Stock;
    
    the junior mezzanine lenders to the Transeastern JV received warrants
to purchase shares of our common stock which had an estimated fair
value of $8.2 million at issuance (based on the Black-Scholes option
pricing model and before issuance costs);
    
    we entered into settlement and release agreements with the senior
mezzanine lenders and the junior mezzanine lenders to the Transeastern
JV which released us from our potential obligations to them; and
 17




---



##### Table of Contents




    
    we entered into a settlement and mutual release agreement with
Falcone/Ritchie LLC and certain of its affiliates (the Falcone
Entities) concerning the Transeastern JV, one of which owned 50% of
the equity interests in the Transeastern JV and, among other things,
released the Falcone Entities from claims under the 2005 asset
purchase agreement pursuant to which we acquired our interest in the
Transeastern JV. Pursuant to the settlement agreement, we remain
obligated on certain indemnification obligations, including, without
limitation, certain land bank arrangements.
  
    
    an amendment to our $800.0 million revolving loan facility dated January 30, 2007;
    
    a new $200.0 million aggregate principal amount first lien term loan facility; and
    
    a new $300.0 million aggregate principal amount second lien term loan facility.
   
    
    $50.2 million in cash to purchase land under existing land bank
arrangements with the former Transeastern JV partner; and
    
    $33.5 million in interest and expenses.
    Purchase price:Cash consideration paid to Senior Lenders of the Transeastern JV
    
    $
    400.0Fair value of convertible preferred stock issued
    
    
    84.0Fair value of senior subordinated notes issued
    
    
    10.9Fair value of common stock warrants issued
    
    
    8.2Payment to purchase land under existing land bank arrangements
    
    
    50.2Transaction costs including accrued interest paid to the Senior Lenders
    
    
    33.5Total estimated purchase price
    
    $
    586.8Allocation of purchase consideration:Cash and cash equivalents
    
    $
    10.3Restricted cash
    
    
    28.4Inventory(1)
    
    
    149.8Property and equipment
    
    
    1.0Accounts payable and other liabilities
    
    
    (27.4
    )Customer deposits
    
    
    (1.9
    )Previously accrued loss contingency(2)
    
    
    385.9Additional loss on TE Acquisition(3)
    
    
    40.7$
    586.8
 
 (1)
    
    The fair value of the inventory was determined by estimating future cash flows expected to
result from the use of the asset and its eventual disposition, discounted at a market rate
of interest.(2)
    
    In accordance with SFAS 5 and other authoritative guidance, as of September 30, 2007, we
accrued $385.9 million for settlement of a loss contingency (determined by computing the
difference between the estimated fair value of the consideration paid in connection with
the global settlement less the estimated fair value of the business acquired).(3)
    
    There were no identifiable intangible assets or goodwill associated with the TE Acquisition. 18




---



##### Table of Contents



5. Investments in Unconsolidated Joint Ventures
   Accounting by Creditors for Impairment of a Loan
 Engle/Sunbelt Joint Venture
      TOUSA/Kolter Joint Venture
  19




---



##### Table of Contents



Centex/TOUSA at Wellington, LLC
    Layton Lakes Joint Venture
   20




---



##### Table of Contents



Other
  6. Other Assets
  September 30,
    
    
    December 31,2008
    
    
    2007Homebuilding:Income taxes receivable
    
    $
    
    
    
    $
    218.4Accounts receivable
    
    
    26.5
    
    
    
    34.7Deferred finance costs, net
    
    
    
    
    
    
    55.8Prepaid expenses
    
    
    13.3
    
    
    
    20.3Deposits and other assets
    
    
    22.2
    
    
    
    0.8Total other assets
    
    $
    62.0
    
    
    $
    330.0
   7. Goodwill
  Goodwill and Other Intangible Assets
  21




---



##### Table of Contents



8. Accounts Payable and Other Liabilities
  September 30,
    
    
    December 31,2008
    
    
    2007Homebuilding:Accounts payable
    
    $
    36.8
    
    
    $
    41.8Interest
    
    
    9.7
    
    
    
    48.4Compensation
    
    
    10.7
    
    
    
    14.8Taxes, including income and real estate
    
    
    12.7
    
    
    
    22.6Accrual for unpaid invoices on delivered homes
    
    
    19.6
    
    
    
    27.9Accrued expenses
    
    
    2.6
    
    
    
    90.7Community development district bond obligations
    
    
    26.7
    
    
    
    29.6Obligations related to unconsolidated joint ventures
    
    
    
    
    
    
    74.6Accrued letters of credit expected to be drawn
    
    
    
    
    
    
    43.6Warranty costs
    
    
    2.7
    
    
    
    5.0Deferred revenue
    
    
    0.1
    
    
    
    2.8Total accounts payable and other liabilities(1)
    
    $
    121.6
    
    
    $
    401.8
 
 (1)
    
    Certain accounts payable and other liabilities at September 30, 2008 have
been classified as liabilities subject to compromise (see Note 2). Accounting for Special Assessments and Tax Increment Financing
  9. Homebuilding and Financial Services Borrowings
 Homebuilding Borrowings
  September 30,
    
    
    December 31,2008
    
    
    2007Revolving Loan Facility
    
    $
    223.1
    
    
    $
    168.5First Lien Term Loan Facility due 2012
    
    
    161.3
    
    
    
    199.0Discount on First Lien Term Loan Facility(1)
    
    
    
    
    
    
    (1.8
    )Second Lien Term Loan Facility due 2013
    
    
    352.6
    
    
    
    317.1Discount on Second Lien Term Loan Facility(1)
    
    
    
    
    
    
    (2.8
    )Senior notes due 2010, at 9%
    
    
    300.0
    
    
    
    300.0Senior notes due 2011, at 8 1/4%
    
    
    250.0
    
    
    
    250.0Discount on senior notes(1)
    
    
    
    
    
    
    (2.5
    )Senior subordinated notes due 2012, at 10 3/8%
    
    
    185.0
    
    
    
    185.0Senior subordinated notes due 2011, at 7 1/2%
    
    
    125.0
    
    
    
    125.0Senior subordinated notes due 2015, at 7 1/2%
    
    
    200.0
    
    
    
    200.0Premium on senior subordinated notes(1)
    
    
    
    
    
    
    3.7Senior Subordinated PIK Notes due 2015, at 14 3/4%
    
    
    24.0
    
    
    
    21.3Discount on Senior Subordinated PIK Notes(1)
    
    
    
    
    
    
    (8.7
    )1,821.0
    
    
    
    1,753.8Less: Amounts classified as liabilities subject to compromise (see Note 2)
    
    
    (1,821.0
    )
    
    
    $
    
    
    
    $
    1,753.8
 22




---



##### Table of Contents



(1)
    Revolving Loan Facility and First and Second Lien Term Loan Facilities
   Senior Notes and Senior Subordinated Notes
 pari passu pari passu
 Special Interest
  23




---



##### Table of Contents



Senior Subordinated PIK Notes
     Financial Services Borrowings
   10. Income Taxes
 Accounting for Income Taxes Accounting for Uncertainty in Income
Taxes
  24




---



##### Table of Contents



11. Commitments and Contingencies
  Warranty
   Nine Months EndedSeptember 30,2008
    
    
    2007Accrued warranty costs at January 1
    
    $
    5.0
    
    
    $
    7.4Liability recorded for warranties issued during the period
    
    
    2.1
    
    
    
    4.4Warranty work performed
    
    
    (8.4
    )
    
    
    (4.4
    )Adjustments
    
    
    4.0
    
    
    
    (2.0
    )Accrued warranty costs at September 30
    
    $
    2.7
    
    
    $
    5.4
  Letters of Credit and Performance Bonds
  25




---



##### Table of Contents



Exposure on Abandoned Homesite Option Contracts
  Chapter 11 Cases
  Securities Class Action Lawsuit
 Durgin, et al.,
v. TOUSA, Inc., et al., No. 06-61844-CIV.
    Proceeding by Official Committee of Unsecured Creditors
  26




---



##### Table of Contents



27




---



##### Table of Contents



Potential Claim by the Official Committee of Unsecured Creditors of TOUSA
  Vista Lakes
     Chinese Drywall
  Other Litigation
  Informal Inquiry
 In the Matter of TOUSA, Inc. SEC Inquiry
 28




---



##### Table of Contents



PHMC Settlement
  12. Stockholders Deficit
 Convertible PIK Preferred Stock
   Accounting for Registration Payment Arrangements
 Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios Application of Issue No. 98-5 to Certain Convertible
Instruments
   Earnings per
Share Participating Securities and the Two-Class Method under FASB Statement
No. 128
 Warrants
  NYSE Delisting
  29




---



##### Table of Contents



13. Stock-Based Compensation
   14. Operating and Reporting Segments
 Disclosures About Segments of an Enterprise and Related Information
  Florida
 Mid-Atlantic:Baltimore / Southern Pennsylvania, Nashville, Northern Virginia (on September
25, 2007, we sold in bulk, home sites in our Mid-Atlantic (excluding Nashville) and
Virginia divisions)
 Texas:
 West:
   30




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Homebuilding:Florida(2)
    
    $
    79.3
    
    
    $
    195.6
    
    
    $
    309.8
    
    
    $
    671.1Mid-Atlantic
    
    
    17.7
    
    
    
    81.4
    
    
    
    48.3
    
    
    
    196.1Texas(1)
    
    
    101.5
    
    
    
    149.0
    
    
    
    313.8
    
    
    
    469.0West
    
    
    48.4
    
    
    
    66.9
    
    
    
    164.5
    
    
    
    283.1Total Homebuilding
    
    
    246.9
    
    
    
    492.9
    
    
    
    836.4
    
    
    
    1,619.3Financial Services
    
    
    4.1
    
    
    
    8.3
    
    
    
    13.2
    
    
    
    31.3Total revenues
    
    $
    251.0
    
    
    $
    501.2
    
    
    $
    849.6
    
    
    $
    1,650.6Loss (income) from unconsolidated joint ventures:Florida
    
    $
    
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    2.1Mid-Atlantic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.2
    )Texas
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (0.3
    )West
    
    
    
    
    
    
    9.3
    
    
    
    (0.1
    )
    
    
    9.2(0.1
    )
    
    
    9.2
    
    
    
    (0.4
    )
    
    
    8.8Impairments (recoveries) on unconsolidated joint
ventures:Florida
    
    
    (1.9
    )
    
    
    16.4
    
    
    
    (12.6
    )
    
    
    20.4Mid-Atlantic
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5Texas
    
    
    6.6
    
    
    
    
    
    
    
    8.9
    
    
    
    West(3)
    
    
    5.2
    
    
    
    7.0
    
    
    
    4.8
    
    
    
    7.09.9
    
    
    
    23.4
    
    
    
    1.1
    
    
    
    28.9Loss from unconsolidated joint ventures after
impairments
    
    $
    9.8
    
    
    $
    32.6
    
    
    $
    0.7
    
    
    $
    37.7Results of Operations:Homebuilding:Florida(2)
    
    $
    (53.9
    )
    
    $
    (299.4
    )
    
    $
    (301.4
    )
    
    $
    (290.3
    )Mid-Atlantic
    
    
    (7.9
    )
    
    
    (52.0
    )
    
    
    (36.2
    )
    
    
    (97.7
    )Texas(1)
    
    
    (11.6
    )
    
    
    14.6
    
    
    
    (28.9
    )
    
    
    43.3West
    
    
    (17.1
    )
    
    
    (199.4
    )
    
    
    (235.5
    )
    
    
    (276.2
    )Total Homebuilding
    
    
    (90.5
    )
    
    
    (536.2
    )
    
    
    (602.0
    )
    
    
    (620.9
    )Financial Services
    
    
    (0.5
    )
    
    
    0.2
    
    
    
    (4.8
    )
    
    
    5.2Corporate and unallocated
    
    
    (25.2
    )
    
    
    (73.8
    )
    
    
    (83.8
    )
    
    
    (220.1
    )Loss from continuing operations before
reorganization items and taxes
    
    $
    (116.2
    )
    
    $
    (609.8
    )
    
    $
    (690.6
    )
    
    $
    (835.8
    )
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    The results of operations for Transeastern for the three and nine months ended September 30,
2008 have been included in our consolidated results. Results of operations for the three and nine months
ended September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4.(3)
    
    We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint
venture results for the three and nine months ended September 30, 2008 due to the settlement agreement reached
in 2008. See Note 5. 31




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##### Table of Contents



September
    
    
    December 31,30, 2008
    
    
    2007Assets:Homebuilding:Florida
    
    $
    241.7
    
    
    $
    631.3Mid-Atlantic
    
    
    42.9
    
    
    
    73.0Texas(1)
    
    
    171.1
    
    
    
    220.0West
    
    
    156.5
    
    
    
    381.3Assets held for sale
    
    
    2.7
    
    
    
    6.1Financial Services
    
    
    22.6
    
    
    
    36.7Corporate and unallocated
    
    
    312.8
    
    
    
    413.6Total assets
    
    $
    950.3
    
    
    $
    1,762.0Investments in Unconsolidated Joint Ventures:Mid-Atlantic
    
    $
    0.1
    
    
    $
    0.1Texas
    
    
    2.9
    
    
    
    8.6West
    
    
    
    
    
    
    0.3Total Investments in Unconsolidated Joint Ventures
    
    $
    3.0
    
    
    $
    9.0
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation. 15. Discontinued Operations
    16. Summarized Financial Information
  32




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##### Table of Contents



Consolidated Statement of Financial Condition
September 30, 2008
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(in millions)ASSETSHOMEBUILDING:Cash and cash equivalents
    
    $
    276.7
    
    
    $
    20.7
    
    
    $
    
    
    
    $
    
    
    
    $
    297.4Inventory
    
    
    
    
    
    
    547.4
    
    
    
    
    
    
    
    
    
    
    
    547.4Property and equipment, net
    
    
    1.3
    
    
    
    13.9
    
    
    
    
    
    
    
    
    
    
    
    15.2Investments in unconsolidated joint
ventures
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0Investments in/ advances to
consolidated subsidiaries
    
    
    346.5
    
    
    
    (404.8
    )
    
    
    (8.2
    )
    
    
    66.5
    
    
    
    Other assets
    
    
    22.9
    
    
    
    39.1
    
    
    
    
    
    
    
    
    
    
    
    62.0Assets held for sale
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    2.7647.4
    
    
    
    222.0
    
    
    
    (8.2
    )
    
    
    66.5
    
    
    
    927.7FINANCIAL SERVICES:Cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    13.6
    
    
    
    
    
    
    
    13.6Mortgage loans held for sale
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    5.0Other assets
    
    
    
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    22.6
    
    
    
    
    
    
    
    22.6Total assets
    
    $
    647.4
    
    
    $
    222.0
    
    
    $
    14.4
    
    
    $
    66.5
    
    
    $
    950.3LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)HOMEBUILDING:Accounts payable and other liabilities
    
    $
    27.8
    
    
    $
    93.8
    
    
    $
    
    
    
    $
    
    
    
    $
    121.6Customer deposits
    
    
    
    
    
    
    17.8
    
    
    
    
    
    
    
    
    
    
    
    17.8Liabilities associated with assets
held for sale
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.427.8
    
    
    
    112.0
    
    
    
    
    
    
    
    
    
    
    
    139.8FINANCIAL SERVICES:Accounts payable and other liabilities
    
    
    
    
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    1.3Total liabilities not subject to
compromise
    
    
    27.8
    
    
    
    112.0
    
    
    
    1.3
    
    
    
    
    
    
    
    141.1Liabilities subject to compromise
    
    
    1,890.4
    
    
    
    189.6
    
    
    
    
    
    
    
    
    
    
    
    2,080.0Total liabilities
    
    
    1,918.2
    
    
    
    301.6
    
    
    
    1.3
    
    
    
    
    
    
    
    2,221.1Total stockholders equity (deficit)
    
    
    (1,270.8
    )
    
    
    (79.6
    )
    
    
    13.1
    
    
    
    66.5
    
    
    
    (1,270.8
    )Total liabilities and stockholders
equity (deficit)
    
    $
    647.4
    
    
    $
    222.0
    
    
    $
    14.4
    
    
    $
    66.5
    
    
    $
    950.3
 33




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##### Table of Contents



Consolidated Statement of Financial Condition
December 31, 2007
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(in millions)ASSETSHOMEBUILDING:Cash and cash equivalents
    
    $
    81.3
    
    
    $
    (9.0
    )
    
    $
    
    
    
    $
    
    
    
    $
    72.3Inventory
    
    
    
    
    
    
    1,271.8
    
    
    
    
    
    
    
    
    
    
    
    1,271.8Property and equipment, net
    
    
    3.3
    
    
    
    21.3
    
    
    
    
    
    
    
    
    
    
    
    24.6Investments in unconsolidated joint
ventures
    
    
    
    
    
    
    9.0
    
    
    
    
    
    
    
    
    
    
    
    9.0Receivables from unconsolidated joint
ventures, net
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Investments in/ advances to
consolidated subsidiaries
    
    
    989.7
    
    
    
    (372.5
    )
    
    
    (5.5
    )
    
    
    (611.7
    )
    
    
    Other assets
    
    
    287.7
    
    
    
    42.3
    
    
    
    
    
    
    
    
    
    
    
    330.0Goodwill
    
    
    
    
    
    
    11.2
    
    
    
    
    
    
    
    
    
    
    
    11.2Assets held for sale
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    
    
    
    
    6.11,362.0
    
    
    
    980.5
    
    
    
    (5.5
    )
    
    
    (611.7
    )
    
    
    1,725.3FINANCIAL SERVICES:Cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    14.9
    
    
    
    
    
    
    
    14.9Mortgage loans held for sale
    
    
    
    
    
    
    
    
    
    
    15.0
    
    
    
    
    
    
    
    15.0Other assets
    
    
    
    
    
    
    
    
    
    
    6.8
    
    
    
    
    
    
    
    6.8
    
    
    
    
    
    
    
    36.7
    
    
    
    
    
    
    
    36.7Total assets
    
    $
    1,362.0
    
    
    $
    980.5
    
    
    $
    31.2
    
    
    $
    (611.7
    )
    
    $
    1,762.0LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)HOMEBUILDING:Accounts payable and other liabilities
    
    $
    83.7
    
    
    $
    318.1
    
    
    $
    
    
    
    $
    
    
    
    $
    401.8Customer deposits
    
    
    
    
    
    
    33.9
    
    
    
    
    
    
    
    
    
    
    
    33.9Obligations for inventory not owned
    
    
    
    
    
    
    32.0
    
    
    
    
    
    
    
    
    
    
    
    32.0Notes payable
    
    
    1,585.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,585.3Bank borrowings
    
    
    168.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168.5Liabilities associated with assets
held for sale
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.91,837.5
    
    
    
    384.9
    
    
    
    
    
    
    
    
    
    
    
    2,222.4FINANCIAL SERVICES:Accounts payable and other liabilities
    
    
    
    
    
    
    
    
    
    
    8.0
    
    
    
    (0.7
    )
    
    
    7.3Bank borrowings
    
    
    
    
    
    
    
    
    
    
    7.8
    
    
    
    
    
    
    
    7.8
    
    
    
    
    
    
    
    15.8
    
    
    
    (0.7
    )
    
    
    15.1Total liabilities not subject to
compromise
    
    
    1,837.5
    
    
    
    384.9
    
    
    
    15.8
    
    
    
    (0.7
    )
    
    
    2,237.5Liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stockholders equity (deficit)
    
    
    (475.5
    )
    
    
    595.6
    
    
    
    15.4
    
    
    
    (611.0
    )
    
    
    (475.5
    )Total liabilities and stockholders
equity (deficit)
    
    $
    1,362.0
    
    
    $
    980.5
    
    
    $
    31.2
    
    
    $
    (611.7
    )
    
    $
    1,762.0
 34




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##### Table of Contents



Consolidated Statement of Operations
Three Months Ended September 30, 2008
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(in millions)HOMEBUILDING:Revenues
    
    $
    
    
    
    $
    246.9
    
    
    $
    
    
    
    $
    
    
    
    $
    246.9Cost of sales
    
    
    
    
    
    
    292.7
    
    
    
    
    
    
    
    
    
    
    
    292.7Gross loss
    
    
    
    
    
    
    (45.8
    )
    
    
    
    
    
    
    
    
    
    
    (45.8
    )Selling, general and
administrative expenses
    
    
    10.7
    
    
    
    33.9
    
    
    
    
    
    
    
    (0.6
    )
    
    
    44.0Recovery from unconsolidated
joint ventures, net
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Impairments on investments in
unconsolidated joint ventures
    
    
    
    
    
    
    9.9
    
    
    
    
    
    
    
    
    
    
    
    9.9Interest expense
    
    
    16.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.9Other expenses, net
    
    
    89.2
    
    
    
    61.2
    
    
    
    
    
    
    
    (151.2
    )
    
    
    (0.8
    )Homebuilding pretax loss
    
    
    (116.8
    )
    
    
    (150.7
    )
    
    
    
    
    
    
    151.8
    
    
    
    (115.7
    )FINANCIAL SERVICES:Revenues
    
    
    
    
    
    
    
    
    
    
    4.7
    
    
    
    (0.6
    )
    
    
    4.1Expenses
    
    
    
    
    
    
    
    
    
    
    5.5
    
    
    
    (0.9
    )
    
    
    4.6Financial Services pretax loss
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    0.3
    
    
    
    (0.5
    )Loss from continuing operations
before reorganization items and
taxes
    
    
    (116.8
    )
    
    
    (150.7
    )
    
    
    (0.8
    )
    
    
    152.1
    
    
    
    (116.2
    )Reorganization items, net
    
    
    18.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.7Benefit for income taxes
    
    
    (2.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.7
    )Loss from continuing
operations, net of taxes
    
    
    (132.8
    )
    
    
    (150.7
    )
    
    
    (0.8
    )
    
    
    152.1
    
    
    
    (132.2
    )Discontinued operations:Loss from discontinued
operations
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Net loss
    
    
    (132.8
    )
    
    
    (151.3
    )
    
    
    (0.8
    )
    
    
    152.1
    
    
    
    (132.8
    )Dividends and accretion of
discount on preferred stock
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Loss attributable to common
stockholders
    
    $
    (135.3
    )
    
    $
    (151.3
    )
    
    $
    (0.8
    )
    
    $
    152.1
    
    
    $
    (135.3
    )
 35




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##### Table of Contents



Consolidated Statement of Operations
Nine Months Ended September 30, 2008
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(in millions)HOMEBUILDING:Revenues
    
    $
    
    
    
    $
    836.4
    
    
    $
    
    
    
    $
    
    
    
    $
    836.4Cost of sales
    
    
    
    
    
    
    1,305.5
    
    
    
    
    
    
    
    
    
    
    
    1,305.5Gross loss
    
    
    
    
    
    
    (469.1
    )
    
    
    
    
    
    
    
    
    
    
    (469.1
    )Selling, general and
administrative expenses
    
    
    35.6
    
    
    
    121.2
    
    
    
    
    
    
    
    (3.0
    )
    
    
    153.8Recovery from unconsolidated
joint ventures, net
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Impairments on investments in
unconsolidated joint ventures
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    1.1Goodwill impairments
    
    
    
    
    
    
    11.2
    
    
    
    
    
    
    
    
    
    
    
    11.2Interest expense
    
    
    53.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53.7Other (income) expenses, net
    
    
    605.1
    
    
    
    67.4
    
    
    
    
    
    
    
    (675.2
    )
    
    
    (2.7
    )Homebuilding pretax loss
    
    
    (694.4
    )
    
    
    (669.6
    )
    
    
    
    
    
    
    678.2
    
    
    
    (685.8
    )FINANCIAL SERVICES:Revenues
    
    
    
    
    
    
    
    
    
    
    16.1
    
    
    
    (2.9
    )
    
    
    13.2Expenses
    
    
    
    
    
    
    
    
    
    
    20.3
    
    
    
    (2.3
    )
    
    
    18.0Financial Services pretax loss
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    (0.6
    )
    
    
    (4.8
    )Loss from continuing operations
before reorganization items and
taxes
    
    
    (694.4
    )
    
    
    (669.6
    )
    
    
    (4.2
    )
    
    
    677.6
    
    
    
    (690.6
    )Reorganization items, net
    
    
    105.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105.4Benefit for income taxes
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.0
    )Loss from continuing
operations, net of taxes
    
    
    (797.8
    )
    
    
    (669.6
    )
    
    
    (4.2
    )
    
    
    677.6
    
    
    
    (794.0
    )Discontinued operations:Loss from discontinued
operations
    
    
    
    
    
    
    (3.8
    )
    
    
    
    
    
    
    
    
    
    
    (3.8
    )Loss from discontinued
operations, net of taxes
    
    
    
    
    
    
    (3.8
    )
    
    
    
    
    
    
    
    
    
    
    (3.8
    )Net loss
    
    
    (797.8
    )
    
    
    (673.4
    )
    
    
    (4.2
    )
    
    
    677.6
    
    
    
    (797.8
    )Dividends and accretion of
discount on preferred stock
    
    
    7.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.7Loss attributable to common
stockholders
    
    $
    (805.5
    )
    
    $
    (673.4
    )
    
    $
    (4.2
    )
    
    $
    677.6
    
    
    $
    (805.5
    )
 36




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##### Table of Contents



Consolidated Statement of Operations
Three Months Ended September 30, 2007
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(in millions)HOMEBUILDING:Revenues
    
    $
    
    
    
    $
    492.9
    
    
    $
    
    
    
    $
    
    
    
    $
    492.9Cost of sales
    
    
    
    
    
    
    930.3
    
    
    
    
    
    
    
    
    
    
    
    930.3Gross loss
    
    
    
    
    
    
    (437.4
    )
    
    
    
    
    
    
    
    
    
    
    (437.4
    )Selling, general and administrative
expenses
    
    
    23.3
    
    
    
    66.3
    
    
    
    
    
    
    
    (3.6
    )
    
    
    86.0Loss from unconsolidated joint ventures,
net
    
    
    
    
    
    
    9.2
    
    
    
    
    
    
    
    
    
    
    
    9.2Impairments on investments in
unconsolidated joint ventures
    
    
    
    
    
    
    23.4
    
    
    
    
    
    
    
    
    
    
    
    23.4Provision for settlement of loss
contingency
    
    
    40.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40.7Goodwill impairment
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    2.7Interest expense
    
    
    10.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.0Other expenses, net
    
    
    547.5
    
    
    
    30.2
    
    
    
    
    
    
    
    (577.1
    )
    
    
    0.6Homebuilding pretax loss
    
    
    (621.5
    )
    
    
    (569.2
    )
    
    
    
    
    
    
    580.7
    
    
    
    (610.0
    )FINANCIAL SERVICES:Revenues
    
    
    
    
    
    
    
    
    
    
    11.9
    
    
    
    (3.6
    )
    
    
    8.3Expenses
    
    
    
    
    
    
    
    
    
    
    8.2
    
    
    
    (0.1
    )
    
    
    8.1Financial Services pretax income
    
    
    
    
    
    
    
    
    
    
    3.7
    
    
    
    (3.5
    )
    
    
    0.2Income (loss) from continuing
operations before income taxes
    
    
    (621.5
    )
    
    
    (569.2
    )
    
    
    3.7
    
    
    
    577.2
    
    
    
    (609.8
    )Provision (benefit) for income taxes
    
    
    (1.8
    )
    
    
    6.0
    
    
    
    1.8
    
    
    
    
    
    
    
    6.0Income (loss) from continuing operations
    
    
    (619.7
    )
    
    
    (575.2
    )
    
    
    1.9
    
    
    
    577.2
    
    
    
    (615.8
    )Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    (3.9
    )
    
    
    
    
    
    
    
    
    
    
    (3.9
    )Loss from discontinued operations, net
of taxes
    
    
    
    
    
    
    (3.9
    )
    
    
    
    
    
    
    
    
    
    
    (3.9
    )Net income (loss)
    
    
    (619.7
    )
    
    
    (579.1
    )
    
    
    1.9
    
    
    
    577.2
    
    
    
    (619.7
    )Dividends and accretion of discount on
preferred stock
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2Net income (loss) attributable to common
stockholders
    
    $
    (621.9
    )
    
    $
    (579.1
    )
    
    $
    1.9
    
    
    $
    577.2
    
    
    $
    (621.9
    )
 37




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##### Table of Contents



Consolidated Statement of Operations
Nine Months Ended September 30, 2007
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(in millions)HOMEBUILDING:Revenues
    
    $
    
    
    
    $
    1,619.3
    
    
    $
    
    
    
    $
    
    
    
    $
    1,619.3Cost of sales
    
    
    
    
    
    
    1,959.0
    
    
    
    
    
    
    
    
    
    
    
    1,959.0Gross loss
    
    
    
    
    
    
    (339.7
    )
    
    
    
    
    
    
    
    
    
    
    (339.7
    )Selling, general and administrative
expenses
    
    
    63.1
    
    
    
    210.1
    
    
    
    
    
    
    
    (10.8
    )
    
    
    262.4Loss from unconsolidated joint
ventures, net
    
    
    
    
    
    
    8.8
    
    
    
    
    
    
    
    
    
    
    
    8.8Impairments on investments in
unconsolidated joint ventures
    
    
    
    
    
    
    28.9
    
    
    
    
    
    
    
    
    
    
    
    28.9Provision for settlement of loss
contingency
    
    
    151.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151.6Goodwill impairment
    
    
    
    
    
    
    40.9
    
    
    
    
    
    
    
    
    
    
    
    40.9Interest expense
    
    
    10.0
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    10.2Other (income) expenses, net
    
    
    605.4
    
    
    
    40.5
    
    
    
    
    
    
    
    (647.4
    )
    
    
    (1.5
    )Homebuilding pretax loss
    
    
    (830.1
    )
    
    
    (669.1
    )
    
    
    
    
    
    
    658.2
    
    
    
    (841.0
    )FINANCIAL SERVICES:Revenues
    
    
    
    
    
    
    
    
    
    
    42.0
    
    
    
    (10.7
    )
    
    
    31.3Expenses
    
    
    
    
    
    
    
    
    
    
    30.0
    
    
    
    (3.9
    )
    
    
    26.1Financial Services pretax income
    
    
    
    
    
    
    
    
    
    
    12.0
    
    
    
    (6.8
    )
    
    
    5.2Income (loss) from continuing
operations before income taxes
    
    
    (830.1
    )
    
    
    (669.1
    )
    
    
    12.0
    
    
    
    651.4
    
    
    
    (835.8
    )Provision (benefit) for income taxes
    
    
    (12.4
    )
    
    
    (28.7
    )
    
    
    5.4
    
    
    
    
    
    
    
    (35.7
    )Income (loss) from continuing
operations
    
    
    (817.7
    )
    
    
    (640.4
    )
    
    
    6.6
    
    
    
    651.4
    
    
    
    (800.1
    )Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    (11.8
    )
    
    
    
    
    
    
    
    
    
    
    (11.8
    )Loss from disposal of discontinued
operations
    
    
    
    
    
    
    (13.6
    )
    
    
    
    
    
    
    
    
    
    
    (13.6
    )Benefit for income taxes
    
    
    
    
    
    
    (7.8
    )
    
    
    
    
    
    
    
    
    
    
    (7.8
    )Loss from discontinued operations,
net of taxes
    
    
    
    
    
    
    (17.6
    )
    
    
    
    
    
    
    
    
    
    
    (17.6
    )Net income (loss)
    
    
    (817.7
    )
    
    
    (658.0
    )
    
    
    6.6
    
    
    
    651.4
    
    
    
    (817.7
    )Dividends and accretion of discount
on preferred stock
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2Net income (loss) attributable to
common stockholders
    
    $
    (819.9
    )
    
    $
    (658.0
    )
    
    $
    6.6
    
    
    $
    651.4
    
    
    $
    (819.9
    )
 38




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##### Table of Contents



Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2008
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    Total( in millions)Net cash provided by (used in)
operating activities
    
    $
    (389.5
    )
    
    $
    (5.3
    )
    
    $
    9.4
    
    
    $
    678.2
    
    
    $
    292.8Cash flows from investing
activities:Net disposals of property and
equipment
    
    
    0.6
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.8Investments in unconsolidated
joint ventures
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    (1.6
    )Net cash provided by (used
in) investing activities
    
    
    0.6
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Cash flows from financing
activities:Net borrowings from revolving
credit facilities
    
    
    (28.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28.1
    )Principal payments on term loans
    
    
    (37.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37.7
    )Net repayments of from
Financial Services bank
borrowings
    
    
    
    
    
    
    
    
    
    
    (7.8
    )
    
    
    
    
    
    
    (7.8
    )Payments for deferred financing
costs
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Increase (decrease) in
intercompany transactions
    
    
    643.2
    
    
    
    32.3
    
    
    
    2.7
    
    
    
    (678.2
    )
    
    
    Net cash provided by (used in)
financing activities
    
    
    574.5
    
    
    
    32.3
    
    
    
    (5.1
    )
    
    
    (678.2
    )
    
    
    (76.5
    )Net cash provided by continuing
operations
    
    
    185.6
    
    
    
    25.6
    
    
    
    4.3
    
    
    
    
    
    
    
    215.5Net cash used in discontinued
operations
    
    
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Increase in cash and cash
equivalents
    
    
    185.6
    
    
    
    24.7
    
    
    
    4.3
    
    
    
    
    
    
    
    214.6Cash and cash equivalents at
beginning of period
    
    
    79.1
    
    
    
    (11.9
    )
    
    
    9.3
    
    
    
    
    
    
    
    76.5Cash and cash equivalents at
end of period
    
    $
    264.7
    
    
    $
    12.8
    
    
    $
    13.6
    
    
    $
    
    
    
    $
    291.1
 39




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##### Table of Contents



Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2007
 Non-TOUSA,
    
    
    Guarantor
    
    
    Guarantor
    
    
    IntercompanyInc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    Total(in millions)Net cash provided by (used in)
operating activities
    
    $
    (569.4
    )
    
    $
    (173.9
    )
    
    $
    3.4
    
    
    $
    651.3
    
    
    $
    (88.6
    )Cash flows from investing
activities:Acquisitions, net of cash acquired
    
    
    
    
    
    
    (7.7
    )
    
    
    
    
    
    
    
    
    
    
    (7.7
    )Net additions to property and
equipment
    
    
    (0.8
    )
    
    
    (7.9
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (9.4
    )Investments in unconsolidated
joint
ventures
    
    
    
    
    
    
    (29.2
    )
    
    
    
    
    
    
    
    
    
    
    (29.2
    )Capital distributions from
unconsolidated joint ventures
    
    
    
    
    
    
    12.4
    
    
    
    
    
    
    
    
    
    
    
    12.4Net cash used in investing
activities
    
    
    (0.8
    )
    
    
    (32.4
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (33.9
    )Cash flows from financing
activities:Net borrowings from revolving
credit facilities
    
    
    150.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.3Principal payments on notes
payable
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Net repayments of Financial
Services bank borrowings
    
    
    
    
    
    
    
    
    
    
    (13.0
    )
    
    
    
    
    
    
    (13.0
    )Payments for deferred financing
costs
    
    
    (32.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32.1
    )Payments for issuance of
convertible preferred stock and
warrants
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Increase (decrease) in
intercompany transactions
    
    
    494.0
    
    
    
    149.8
    
    
    
    7.5
    
    
    
    (651.3
    )
    
    
    Net cash provided by (used in)
financing activities
    
    
    608.8
    
    
    
    149.8
    
    
    
    (5.5
    )
    
    
    (651.3
    )
    
    
    101.8Net cash provided by (used in)
continuing operations
    
    
    38.6
    
    
    
    (56.5
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    (20.7
    )Net cash provided by discontinued
operations
    
    
    
    
    
    
    44.1
    
    
    
    
    
    
    
    
    
    
    
    44.1Increase (decrease) in cash and
cash equivalents
    
    
    38.6
    
    
    
    (12.4
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    23.4Cash and cash equivalents at
beginning of period
    
    
    50.6
    
    
    
    (3.2
    )
    
    
    6.8
    
    
    
    
    
    
    
    54.2Cash and cash equivalents at end
of period
    
    $
    89.2
    
    
    $
    (15.6
    )
    
    $
    4.0
    
    
    $
    
    
    
    $
    77.6
 40




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Explanatory Note
  Executive Summary
  Florida
    
    Mid-Atlantic
    
    Texas
    
    WestCentral Florida
    
    Baltimore/Southern Pennsylvania
    
    Austin
    
    ColoradoJacksonville
    
    Nashville
    
    Houston
    
    Las VegasSoutheast Florida
    
    Northern Virginia
    
    San Antonio
    
    PhoenixSouthwest FloridaTampa/St. Petersburg
      41




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##### Table of Contents



Chapter 11 Cases
    
    
    severely curtailing land purchases;
    
    abandoning or in some cases renegotiating our rights under option and land bank contracts;
    
    engaging in bulk sales of land and unsold homes;
    
    reducing the number of unsold homes under construction and limiting and/or curtailing
land development activities;
    
    completing other asset dispositions; and
    
    pursuing other initiatives designed to monetize our assets.
     42




---



##### Table of Contents



http://www.tousa.com/reorg
   www.kccllc.net/tousa
 Total Controlled Homesites by our Homebuilding Operations
  September 30, 2008
    
    December 31, 2007Total
    
    
    
    
    
    
    
    
    
    TotalOwned
    
    Optioned
    
    Controlled
    
    Owned
    
    Optioned
    
    ControlledRegion:Florida
    
    
    7,600
    
    
    
    
    
    
    
    7,600
    
    
    
    8,600
    
    
    
    600
    
    
    
    9,200Mid-Atlantic
    
    
    300
    
    
    
    200
    
    
    
    500
    
    
    
    400
    
    
    
    800
    
    
    
    1,200Texas(1)
    
    
    2,000
    
    
    
    700
    
    
    
    2,700
    
    
    
    2,500
    
    
    
    4,000
    
    
    
    6,500West
    
    
    9,300
    
    
    
    200
    
    
    
    9,500
    
    
    
    9,900
    
    
    
    5,400
    
    
    
    15,300Continuing operations
    
    
    19,200
    
    
    
    1,100
    
    
    
    20,300
    
    
    
    21,400
    
    
    
    10,800
    
    
    
    32,200Discontinued operations(1)
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    200Total
    
    
    19,300
    
    
    
    1,100
    
    
    
    20,400
    
    
    
    21,500
    
    
    
    10,900
    
    
    
    32,400
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.  Residences Completed or
    
    Homesites Finished or
    
    Raw Land Held forUnder Construction
    
    Under Construction
    
    Future Development
    
    Total9/30/08
    
    12/31/07
    
    9/30/08
    
    12/31/07
    
    9/30/08
    
    12/31/07
    
    9/30/08
    
    12/31/07RegionFlorida
    
    
    700
    
    
    
    1,400
    
    
    
    5,900
    
    
    
    6,600
    
    
    
    1,000
    
    
    
    600
    
    
    
    7,600
    
    
    
    8,600Mid-Atlantic
    
    
    100
    
    
    
    100
    
    
    
    200
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    400Texas(1)
    
    
    600
    
    
    
    700
    
    
    
    1,000
    
    
    
    1,400
    
    
    
    400
    
    
    
    400
    
    
    
    2,000
    
    
    
    2,500West
    
    
    400
    
    
    
    700
    
    
    
    2,200
    
    
    
    2,500
    
    
    
    6,700
    
    
    
    6,700
    
    
    
    9,300
    
    
    
    9,900Continuing operations
    
    
    1,800
    
    
    
    2,900
    
    
    
    9,300
    
    
    
    10,800
    
    
    
    8,100
    
    
    
    7,700
    
    
    
    19,200
    
    
    
    21,400Discontinued
operations(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Consolidated total
    
    
    1,800
    
    
    
    2,900
    
    
    
    9,300
    
    
    
    10,800
    
    
    
    8,200
    
    
    
    7,800
    
    
    
    19,300
    
    
    
    21,500
 
 (1)
    
    The Texas region excludes the Dallas/Fort Worth division, which is classified as a discontinued operation. 43




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##### Table of Contents



Homebuilding Operations
       Financial Services Operations
  44




---



##### Table of Contents



Critical Accounting Policies
  Impairment of Long-Lived Assets
 Accounting
for the Impairment or Disposal of Long-Lived Assets
    45




---



##### Table of Contents



Financial Reporting Under SOP 90-7
 Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code Accounting for Contingencies
  Results of Operations  Consolidated
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
     Homebuilding
  46




---



##### Table of Contents



Net Sales Orders and Homes in Backlog (Consolidated)
    Net Sales Orders and Homes in Backlog (Unconsolidated Joint Ventures)
   Discontinued Operations
  Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
     47




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##### Table of Contents



Homebuilding
      Net Sales Orders and Homes in Backlog (Consolidated)
   Net Sales Orders and Homes in Backlog (Unconsolidated Joint Ventures)
  Discontinued Operations
  48




---



##### Table of Contents



Reportable Segments
 Disclosures About Segments of an Enterprise
and Related Information
 Homebuilding Operations
  Florida:
 Mid-Atlantic:
 Texas:
 West:
 Selected Homebuilding Operations and Financial Data
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Homebuilding revenues:Florida(2) :Sales of homes
    
    $
    79.3
    
    
    $
    188.3
    
    
    $
    306.7
    
    
    $
    637.4Sales of land
    
    
    
    
    
    
    7.3
    
    
    
    3.1
    
    
    
    33.7Total Florida
    
    
    79.3
    
    
    
    195.6
    
    
    
    309.8
    
    
    
    671.1Mid-Atlantic:Sales of homes
    
    
    17.7
    
    
    
    49.9
    
    
    
    46.1
    
    
    
    164.5Sales of land
    
    
    
    
    
    
    31.5
    
    
    
    2.2
    
    
    
    31.6Total Mid-Atlantic
    
    
    17.7
    
    
    
    81.4
    
    
    
    48.3
    
    
    
    196.1Texas(1) :Sales of homes
    
    
    101.5
    
    
    
    147.8
    
    
    
    306.7
    
    
    
    461.7Sales of land
    
    
    
    
    
    
    1.2
    
    
    
    7.1
    
    
    
    7.3Total Texas
    
    
    101.5
    
    
    
    149.0
    
    
    
    313.8
    
    
    
    469.0West:Sales of homes
    
    
    48.1
    
    
    
    63.6
    
    
    
    154.9
    
    
    
    278.7Sales of land
    
    
    0.3
    
    
    
    3.3
    
    
    
    9.6
    
    
    
    4.4Total West
    
    
    48.4
    
    
    
    66.9
    
    
    
    164.5
    
    
    
    283.1Total homebuilding revenues
    
    $
    246.9
    
    
    $
    492.9
    
    
    $
    836.4
    
    
    $
    1,619.3
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    The results of operations for Transeastern for the three and nine months ended September 30, 2008 have been included in our consolidated results.
Results of operations for the three and nine months ended September 30, 2007 are included in the results for the unconsolidated joint ventures.
See Note 4 of the notes to the unaudited consolidated financial statements. 49




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Results of Operations:Homebuilding:Florida(2)
    
    $
    (53.9
    )
    
    $
    (299.4
    )
    
    $
    (301.4
    )
    
    $
    (290.3
    )Mid-Atlantic
    
    
    (7.9
    )
    
    
    (52.0
    )
    
    
    (36.2
    )
    
    
    (97.7
    )Texas(1)
    
    
    (11.6
    )
    
    
    14.6
    
    
    
    (28.9
    )
    
    
    43.3West
    
    
    (17.1
    )
    
    
    (199.4
    )
    
    
    (235.5
    )
    
    
    (276.2
    )Total Homebuilding
    
    
    (90.5
    )
    
    
    (536.2
    )
    
    
    (602.0
    )
    
    
    (620.9
    )Financial Services
    
    
    (0.5
    )
    
    
    0.2
    
    
    
    (4.8
    )
    
    
    5.2Corporate and unallocated
    
    
    (25.2
    )
    
    
    (73.8
    )
    
    
    (83.8
    )
    
    
    (220.1
    )Loss from continuing
operations before
reorganization items and
taxes
    
    $
    (116.2
    )
    
    $
    (609.8
    )
    
    $
    (690.6
    )
    
    $
    (835.8
    )
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    The results of operations for Transeastern for the three and nine months ended September 30, 2008 have been included in our consolidated results. Results of operations for the
three and nine months ended September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements. Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Impairment charges on active communities:Florida
    
    $
    58.1
    
    
    $
    15.7
    
    
    $
    264.0
    
    
    $
    44.4Mid-Atlantic
    
    
    2.1
    
    
    
    4.4
    
    
    
    14.6
    
    
    
    11.0Texas
    
    
    1.7
    
    
    
    
    
    
    
    4.8
    
    
    
    0.6West
    
    
    3.1
    
    
    
    43.2
    
    
    
    58.8
    
    
    
    56.765.0
    
    
    
    63.3
    
    
    
    342.2
    
    
    
    112.7Write-offs of deposits and abandonment costs:Florida
    
    
    10.0
    
    
    
    274.5
    
    
    
    46.4
    
    
    
    287.3Mid-Atlantic
    
    
    4.6
    
    
    
    33.9
    
    
    
    14.0
    
    
    
    47.8Texas
    
    
    13.5
    
    
    
    
    
    
    
    20.3
    
    
    
    0.3West
    
    
    4.0
    
    
    
    132.8
    
    
    
    151.2
    
    
    
    180.332.1
    
    
    
    441.2
    
    
    
    231.9
    
    
    
    515.7Inventory impairments and abandonment costs
    
    $
    97.1
    
    
    $
    504.5
    
    
    $
    574.1
    
    
    $
    628.4Remaining carrying value of inventory
impaired at end of period
    
    $
    502.2
    
    
    $
    728.0
    
    
    $
    502.2
    
    
    $
    728.0Number of projects impaired during the period
    
    
    98
    
    
    
    131
    
    
    
    257
    
    
    
    171Total number of projects included in
inventory and reviewed for impairment during
the period
    
    
    361
    
    
    
    481
    
    
    
    361
    
    
    
    481
 50




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Homes
    
    
    $
    
    
    Homes
    
    
    $
    
    
    Homes
    
    
    $
    
    
    Homes
    
    
    $Deliveries:Consolidated:Florida(2)
    
    
    270
    
    
    $
    79.3
    
    
    
    551
    
    
    $
    188.3
    
    
    
    1,132
    
    
    $
    306.7
    
    
    
    1,780
    
    
    $
    637.4Mid-Atlantic
    
    
    61
    
    
    
    17.7
    
    
    
    138
    
    
    
    49.9
    
    
    
    147
    
    
    
    46.1
    
    
    
    458
    
    
    
    164.5Texas(1)
    
    
    369
    
    
    
    101.5
    
    
    
    563
    
    
    
    147.8
    
    
    
    1,170
    
    
    
    306.7
    
    
    
    1,784
    
    
    
    461.7West
    
    
    181
    
    
    
    48.1
    
    
    
    207
    
    
    
    63.6
    
    
    
    571
    
    
    
    154.9
    
    
    
    811
    
    
    
    278.7Continuing operations
    
    
    881
    
    
    
    246.6
    
    
    
    1,459
    
    
    
    449.6
    
    
    
    3,020
    
    
    
    814.4
    
    
    
    4,833
    
    
    
    1,542.3Discontinued operations(1)
    
    
    1
    
    
    
    0.2
    
    
    
    7
    
    
    
    1.1
    
    
    
    8
    
    
    
    1.2
    
    
    
    189
    
    
    
    44.7Consolidated total
    
    
    882
    
    
    
    246.8
    
    
    
    1,466
    
    
    
    450.7
    
    
    
    3,028
    
    
    
    815.6
    
    
    
    5,022
    
    
    
    1,587.0Unconsolidated joint ventures:Florida (excluding
Transeastern)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    11.3Transeastern(2)
    
    
    
    
    
    
    
    
    
    
    132
    
    
    
    28.5
    
    
    
    
    
    
    
    
    
    
    
    739
    
    
    
    174.8Mid-Atlantic
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    4.0West(3)
    
    
    
    
    
    
    
    
    
    
    136
    
    
    
    36.5
    
    
    
    
    
    
    
    
    
    
    
    774
    
    
    
    230.9Total unconsolidated joint
ventures
    
    
    
    
    
    
    
    
    
    
    274
    
    
    
    66.1
    
    
    
    
    
    
    
    
    
    
    
    1,569
    
    
    
    421.0Combined total
    
    
    882
    
    
    $
    246.8
    
    
    
    1,740
    
    
    $
    516.8
    
    
    
    3,028
    
    
    $
    815.6
    
    
    
    6,591
    
    
    $
    2,008.0
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    The results of operations for Transeastern for the three and nine months ended September 30, 2008 have been included in our consolidated results.
Results of operations for the three and nine months ended September 30, 2007 are included in the results for the unconsolidated joint ventures.
See Note 4 of the notes to the unaudited consolidated financial statements.(3)
    
    We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine months
ended September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements. Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Homes
    
    
    $
    
    
    Homes
    
    
    $
    
    
    Homes
    
    
    $
    
    
    Homes
    
    
    $Net Sales Orders(1):Consolidated:Florida(3)(4)
    
    
    172
    
    
    $
    32.8
    
    
    
    226
    
    
    $
    43.6
    
    
    
    295
    
    
    $
    19.5
    
    
    
    1,263
    
    
    $
    398.9Mid-Atlantic
    
    
    2
    
    
    
    (2.3
    )
    
    
    57
    
    
    
    17.4
    
    
    
    139
    
    
    
    42.0
    
    
    
    485
    
    
    
    170.0Texas(2)
    
    
    226
    
    
    
    61.8
    
    
    
    376
    
    
    
    99.1
    
    
    
    1,019
    
    
    
    267.0
    
    
    
    1,658
    
    
    
    417.3West
    
    
    159
    
    
    
    39.4
    
    
    
    233
    
    
    
    59.5
    
    
    
    446
    
    
    
    114.0
    
    
    
    789
    
    
    
    219.4Continuing operations
    
    
    559
    
    
    
    131.7
    
    
    
    892
    
    
    
    219.6
    
    
    
    1,899
    
    
    
    442.5
    
    
    
    4,195
    
    
    
    1,205.6Discontinued operations(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    9
    
    
    
    1.0
    
    
    
    70
    
    
    
    18.9Consolidated total
    
    
    559
    
    
    
    131.7
    
    
    
    892
    
    
    
    219.1
    
    
    
    1,908
    
    
    
    443.5
    
    
    
    4,265
    
    
    
    1,224.5Unconsolidated joint ventures:Florida (excluding Transeastern)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    1.7Transeastern(3)
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    9.2
    
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    27.1Mid-Atlantic
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    3.8West(5)
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    21.5
    
    
    
    
    
    
    
    
    
    
    
    480
    
    
    
    116.8Total unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    31.7
    
    
    
    
    
    
    
    
    
    
    
    759
    
    
    
    149.4Combined total
    
    
    559
    
    
    $
    131.7
    
    
    
    1,045
    
    
    $
    250.8
    
    
    
    1,908
    
    
    $
    443.5
    
    
    
    5,024
    
    
    $
    1,373.9
 
 (1)
    
    Net of cancellations.(2)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(3)
    
    The results of operations for Transeastern for the three and nine months ended September 30, 2008 have been included in our consolidated results.
Results of operations for the three and nine months ended September 30, 2007 are included in the results for the unconsolidated joint ventures.
See Note 4 of the notes to the unaudited consolidated financial statements.(4)
    
    In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in the
United Kingdom. Of the 511 contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007. Accordingly, included in net
sales orders for the three and nine months ended September 30, 2008 are 511 cancellations related to these contracts.(5)
    
    We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine months
ended September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements. 51




---



##### Table of Contents



September 30, 2008
    
    
    September 30, 2007Average
    
    
    
    
    
    
    
    
    
    
    AverageHomes
    
    
    $
    
    
    Price
    
    
    Homes
    
    
    $
    
    
    PriceSales Backlog:Consolidated:Florida(3)
    
    
    493
    
    
    $
    148.5
    
    
    $
    301
    
    
    
    1,935
    
    
    $
    664.4
    
    
    $
    343Mid-Atlantic
    
    
    72
    
    
    
    24.0
    
    
    $
    334
    
    
    
    239
    
    
    
    87.1
    
    
    $
    365Texas(1)
    
    
    398
    
    
    
    115.1
    
    
    $
    289
    
    
    
    848
    
    
    
    229.2
    
    
    $
    270West
    
    
    295
    
    
    
    76.8
    
    
    $
    260
    
    
    
    463
    
    
    
    135.3
    
    
    $
    292Continuing operations
    
    
    1,258
    
    
    
    364.4
    
    
    $
    290
    
    
    
    3,485
    
    
    
    1,116.0
    
    
    $
    320Discontinued operations(1)
    
    
    4
    
    
    
    0.6
    
    
    $
    148
    
    
    
    14
    
    
    
    4.3
    
    
    $
    305Consolidated total
    
    
    1,262
    
    
    
    365.0
    
    
    $
    289
    
    
    
    3,499
    
    
    
    1,120.3
    
    
    $
    320Unconsolidated joint ventures:West(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    37.0
    
    
    $
    274Total unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    37.0
    
    
    $
    274Combined total
    
    
    1,262
    
    
    $
    365.0
    
    
    $
    289
    
    
    
    3,634
    
    
    $
    1,157.3
    
    
    $
    318
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine months ended September 30, 2008 due to the
settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.(3)
    
    In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in the United Kingdom. Of the 511
contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007. Three
Months Ended September 30,
    

Nine
Months Ended September 30,2008
    
    2007
    
    2008
    
    2007Cancellation rates:Consolidated:Florida(2)
    
    
    38
    %
    
    
    56
    %
    
    
    78
    %
    
    
    38
    %Mid-Atlantic
    
    
    97
    %
    
    
    59
    %
    
    
    49
    %
    
    
    26
    %Texas(1)
    
    
    35
    %
    
    
    43
    %
    
    
    27
    %
    
    
    33
    %West
    
    
    36
    %
    
    
    35
    %
    
    
    40
    %
    
    
    36
    %Continuing Operations
    
    
    40
    %
    
    
    46
    %
    
    
    49
    %
    
    
    34
    %
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to
customers in the United Kingdom. Of the 511 contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007.
Accordingly, included in cancellation rates for the three and nine months ended September 30, 2008 are 511 cancellations related to these
contracts. 52




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##### Table of Contents



Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007Sales
    
    
    
    
    
    Sales
    
    
    
    
    
    Sales
    
    
    
    
    
    SalesDeliveries
    
    Orders
    
    Deliveries
    
    Orders
    
    Deliveries
    
    Orders
    
    Deliveries
    
    OrdersAverage Price:Consolidated:Florida(2)(4)
    
    $
    294
    
    
    $
    190
    
    
    $
    342
    
    
    $
    193
    
    
    $
    271
    
    
    $
    66
    
    
    $
    358
    
    
    $
    316Mid-Atlantic(5)
    
    $
    290
    
    
    $
    (1,132
    )
    
    $
    362
    
    
    $
    305
    
    
    $
    313
    
    
    $
    302
    
    
    $
    359
    
    
    $
    351Texas(1)
    
    $
    275
    
    
    $
    273
    
    
    $
    262
    
    
    $
    264
    
    
    $
    262
    
    
    $
    262
    
    
    $
    259
    
    
    $
    252West
    
    $
    266
    
    
    $
    248
    
    
    $
    308
    
    
    $
    255
    
    
    $
    271
    
    
    $
    256
    
    
    $
    344
    
    
    $
    278Continuing operations
    
    $
    280
    
    
    $
    236
    
    
    $
    308
    
    
    $
    246
    
    
    $
    270
    
    
    $
    233
    
    
    $
    319
    
    
    $
    287Discontinued
operations(1)
    
    $
    160
    
    
    
    
    
    
    $
    158
    
    
    
    
    
    
    $
    146
    
    
    $
    112
    
    
    $
    237
    
    
    $
    270Consolidated total
    
    $
    280
    
    
    $
    236
    
    
    $
    307
    
    
    $
    246
    
    
    $
    269
    
    
    $
    232
    
    
    $
    316
    
    
    $
    287Unconsolidated joint ventures:Florida (excluding
Transeastern)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    282
    
    
    $
    142Transeastern(2)
    
    
    
    
    
    
    
    
    
    $
    216
    
    
    $
    171
    
    
    
    
    
    
    
    
    
    
    $
    237
    
    
    $
    109Mid-Atlantic
    
    
    
    
    
    
    
    
    
    $
    193
    
    
    $
    172
    
    
    
    
    
    
    
    
    
    
    $
    249
    
    
    $
    202West(3)
    
    
    
    
    
    
    
    
    
    $
    268
    
    
    $
    231
    
    
    
    
    
    
    
    
    
    
    $
    298
    
    
    $
    243Total
unconsolidated joint ventures
    
    
    
    
    
    
    
    
    
    $
    241
    
    
    $
    207
    
    
    
    
    
    
    
    
    
    
    $
    268
    
    
    $
    197Combined total
    
    $
    280
    
    
    $
    236
    
    
    $
    297
    
    
    $
    240
    
    
    $
    269
    
    
    $
    232
    
    
    $
    305
    
    
    $
    273
 
 (1)
    
    The Texas region excludes the Dallas division, which is classified as a discontinued operation.(2)
    
    The results of operations for Transeastern for the three and nine months ended September 30, 2008 have been included in our
consolidated results. Results of operations for the three and nine months ended September 30, 2007 are included in the results
for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.(3)
    
    We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine
months ended September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial
statements.(4)
    
    In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in
the United Kingdom. Of the 511 contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007. Accordingly,
included in net sales orders for the three and nine months ended September 30, 2008 are 511 cancellations related to these contracts.(5)
    
    During the three months ended September 30, 2008, our Mid-Atlantic region experienced a 97% cancellation rate with only two net sales. Three Months Ended September 30, 2008 compared to Three Months Ended September 30, 2007
 Florida:
   Mid-Atlantic:
 53




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##### Table of Contents



Texas:
   West:
   Nine Months Ended September 30, 2008 compared to Nine Months Ended September 30, 2007
 Florida:
   54




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##### Table of Contents



Mid-Atlantic:
   Texas:
   West:
   Seasonality
  55




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##### Table of Contents



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 Sources and Uses of Cash
      
    
    the availability of and our ability to operate subject to the terms of the cash collateral
order and related budget;
    
    limitations on our ability to implement and execute our business plans and strategy;
    
    our ability to obtain and maintain normal terms with existing and potential homebuyers,
vendors and service providers and maintain contracts and leases that are critical to our
operations;
    
    our ability to obtain needed approval from the Bankruptcy Court for transactions outside of
the ordinary course of business, which may limit our ability to respond on a timely basis to
certain events or take advantage of certain opportunities;
    
    limitations on our ability to obtain Bankruptcy Court approval with respect to motions in
the Chapter 11 cases that we may seek from time to time or potentially adverse decisions by
the Bankruptcy Court with respect to such motions, including as a result of the actions of
our creditors and other third parties, who may oppose our requested relief or who may seek
to require us to take actions that we oppose;
    
    limitations on our ability to reject contracts or leases that are burdensome or uneconomical;
    
    limitations on our ability to raise capital, including through sales of assets; and
    
    our ability to motivate and retain key and essential personnel is impacted by the Bankruptcy
Code which limits our ability to implement a retention program or take other measures
intended to motivate employees to remain with us.
    56




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Financing Activities
      Revolving Loan Facility and First and Second Lien Term Loan Facilities
   57




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##### Table of Contents



Senior Notes and Senior Subordinated Notes
  pari passu pari passu
 Senior Subordinated PIK Notes
     Financial Services Borrowings
   58




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##### Table of Contents



Liquidity Needs
    http://www.tousa.com/reorg
 Off Balance Sheet Arrangements
 Land and Homesite Option Contracts
  59




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Investments in Unconsolidated Joint Ventures
   60




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##### Table of Contents



Accounting by Creditors for Impairment of a Loan
 Engle/Sunbelt Joint Venture
      TOUSA/Kolter Joint Venture
    61




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##### Table of Contents



Centex/TOUSA at Wellington, LLC
    Layton Lakes Joint Venture
     Other
  62




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##### Table of Contents



DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our expectations regarding future land sales;
    
    our expectations regarding the housing market in 2009 and beyond.
   
    
    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 rates or unemployment rates or
declines in median income growth, consumer confidence or the demand for,
or the price of, housing;
    
    the risks and uncertainties associated with our Chapter 11 cases;
    
    the inability to obtain confirmation of our Chapter 11 plan;
    
    our ability to motivate and retain key and essential personnel is
impacted by the Bankruptcy Code which limits our ability to implement a
retention program or take other measures intended to motivate employees
to remain with us;
    
    we require a significant amount of cash, which may not be available to us;
    
    a further decline in the value of our land and home inventories;
    
    our ability to dispose successfully of developed properties or
undeveloped land or homesites at expected prices and within anticipated
time frames;
    
    our ability to compete in our existing markets;
    
    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;
    
    an increase or change in government regulations or in the interpretation
and/or enforcement of existing government regulations;
    
    a change in ownership of our stock, as defined in Section 382 of the
Internal Revenue Code, which would limit our ability to receive
anticipated income tax refunds.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    63




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 .
 Changes In Internal Control
  
    
    Our Chapter 11 proceedings have had a significant impact on our
business processes and internal control over financial reporting
related to the proper separation and payment of pre-petition and
post-petition obligations and the preparation of unaudited
consolidated financial statements reflecting the accounting required
for the restructuring activities and reorganization expenses resulting
from the Chapter 11 proceedings. Management continues to take actions
necessary to address the resources, processes and controls related to
these restructuring activities, while maintaining controls over
routine daily operations.
 64




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Chapter 11 Cases
  Securities Class Action Lawsuit
 Durgin, et al.,
v. TOUSA, Inc., et al., No. 06-61844-CIV.
    Proceeding by Official Committee of Unsecured Creditors
    65




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66




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##### Table of Contents



Potential Claim by the Official Committee of Unsecured Creditors of TOUSA
  Vista Lakes
     Chinese Drywall
  Other Litigation
  
 ITEM 1A. RISK FACTORS
 Set forth below is a discussion of the material changes in our risk factors as previously
disclosed in Item 1A of Part 1 of our Annual Report on Form 10-K for the fiscal year ended December
31, 2007 (2007 Form 10-K).
  Our cash collateral order includes operating budgets and financial covenants that limit our
operating flexibility
  
    
    incur indebtedness;
    
    incur liens and enter sale/leaseback transactions except for model homes subject to certain limitations;
    
    make or own investments;
    
    enter into transactions with affiliates;
    
    engage in new lines of business;
    
    consolidate, merge, sell all or substantially all of our assets;
    
    issue guarantees of debt;
    
    agree to amendment or modification to our organizational documents;
    
    incur or create claims; and
    
    make additional payments on pre-petition indebtedness.
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##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    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.
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SIGNATURES
  TOUSA, Inc.Date:  May 26, 2009
    By:
    /s/ Tommy L. McAdenName:
    Tommy L. McAdenTitle:
    Executive Vice President, Director and
Chief Financial OfficerDate:  May 26, 2009
    By:
    /s/ Angela F. ValdesName:
    Angela F. ValdesTitle:
    Vice President and Chief Accounting  Officer 69