##### 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 1934For the quarterly period ended
    September 30, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   COMMISSION FILE NUMBER:
    001-32322
  TECHNICAL OLYMPIC USA,
    INC.
 (Exact name of registrant as
    specified in its charter)
   Delaware

76-0460831(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)4000 Hollywood Blvd.,
    Suite 500 N
    Hollywood, Florida(Address of principal
    executive offices)

33021(ZIP code)   (Registrants telephone number, including area code)(954) 364-4000
  (Former name, former address and former fiscal year, if
    changed since last report)
  þ o
  non-accelerated Rule 12b-2
 o þ o
  Rule 12b-2 o þ
  APPLICABLE
    ONLY TO CORPORATE ISSUERS:




---



##### 



TECHNICAL
    OLYMPIC USA, INC.
  INDEX
  
  PagePART I.

Financial
    Information


3ITEM 1.

Financial
    Statements (Unaudited)


3Consolidated
    Statements of Financial Condition


3Consolidated
    Statements of Operations


4Consolidated
    Statements of Cash Flows


5Notes to Unaudited
    Consolidated Financial Statements


6ITEM 2.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


30ITEM 3.

Quantitative and
    Qualitative Disclosures about Market Risk


54ITEM 4.

Controls and
    Procedures


54PART II.

Other
    Information


55ITEM 1A.

Risk
    Factors


55ITEM 6.

Exhibits


56Signatures


57EX-10.2 Credit AgreementEX-10.3 Sr. Mezzanine Credit AgreementEX-10.4 Jr Mezzanine Credit AgreementEX-10.5 Completion AgreementEX-10.6 Carve Out GuarantyEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO   2




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##### Table of Contents



PART I.  FINANCIAL
    INFORMATION  ITEM 1.
    FINANCIAL
    STATEMENTS  TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF FINANCIAL
    CONDITION
 (Dollars in millions, except par value)
  September 30,


December 31,2006


2005(Unaudited)ASSETSHOMEBUILDING:Cash and cash equivalents:Unrestricted

$
27.4


$
26.2Restricted


3.0



3.1Inventory:Deposits


224.0



218.5Homesites and land under development


720.6



650.3Residences completed and under
    construction


1,003.6



747.4Inventory not owned


304.0



124.62,252.2



1,740.8Property and equipment, net


30.3



27.1Investments in unconsolidated joint
    ventures


134.1



254.5Receivables from unconsolidated
    joint ventures, net of allowance of $73.6 million at
    September 30, 2006


20.3



60.5Other assets


158.6



133.2Goodwill


104.0



108.82,729.9



2,354.2FINANCIAL SERVICES:Cash and cash equivalents:Unrestricted


6.7



8.7Restricted


3.3



3.1Mortgage loans held for sale


49.2



43.9Other assets


12.9



12.872.1



68.5Total assets

$
2,802.0


$
2,422.7LIABILITIES AND
    STOCKHOLDERS EQUITYHOMEBUILDING:Accounts payable and other
    liabilities

$
299.2


$
329.4Customer deposits


70.7



79.3Obligations for inventory not owned


304.0



124.6Notes payable


1,060.6



811.6Bank borrowings






65.01,734.5



1,409.9FINANCIAL SERVICES:Accounts payable and other
    liabilities


6.3



6.4Bank borrowings


42.5



35.148.8



41.5Total liabilities


1,783.3



1,451.4Stockholders equity:Preferred stock 
    $0.01 par value; 3,000,000 shares authorized; none
    issued or outstanding






Common stock 
    $0.01 par value; 97,000,000 shares authorized and
    59,590,519 and 59,554,977 shares issued and outstanding at
    September 30, 2006, and December 31, 2005, respectively


0.6



0.6Additional paid-in capital


480.4



480.5Unearned compensation






(7.7
)Retained earnings


537.7



497.9Total stockholders equity


1,018.7



971.3Total liabilities and
    stockholders equity

$
2,802.0


$
2,422.7    3




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars
    in millions, except per share amounts)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Unaudited)HOMEBUILDING:Revenues:Home sales

$
597.9


$
562.8


$
1,825.8


$
1,657.3Land sales


13.8



99.8



59.8



154.7611.7



662.6



1,885.6



1,812.0Cost of sales, including inventory
    impairments and abandonment costs:Home sales


494.4



407.5



1,415.6



1,256.7Land sales


32.7



69.9



70.4



116.6527.1



477.4



1,486.0



1,373.3Gross profit


84.6



185.2



399.6



438.7Selling, general and
    administrative expenses


85.3



90.2



287.1



246.7(Income) loss from joint ventures,
    net


119.4



(13.3
)


53.7



(24.0
)Other (income) expenses, net


0.1



(1.6
)


(4.3
)


(5.8
)Goodwill impairment


5.7







5.7



Homebuilding pretax income (loss)


(125.9
)


109.9



57.4



221.8FINANCIAL SERVICES:Revenues


15.8



13.4



48.4



34.8Expenses


10.8



10.4



32.5



28.1Financial Services pretax income


5.0



3.0



15.9



6.7Income (loss) before provision
    (benefit) for income taxes


(120.9
)


112.9



73.3



228.5Provision (benefit) for income
    taxes


(40.9
)


42.6



30.7



86.1Net income (loss)

$
(80.0
)

$
70.3


$
42.6


$
142.4EARNINGS (LOSS) PER COMMON SHARE:Basic

$
(1.34
)

$
1.24


$
0.72


$
2.53Diluted

$
(1.34
)

$
1.18


$
0.70


$
2.43WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING:Basic


59,590,519



56,753,826



59,580,062



56,304,544Diluted


59,590,519



59,392,423



61,150,782



58,569,725CASH DIVIDENDS PER SHARE

$
0.015


$
0.015


$
0.045


$
0.042    4




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in millions)
  Nine Months EndedSeptember 30,2006


2005(Unaudited)Cash flows from operating
    activities:Net income

$
42.6


$
142.4Adjustments to reconcile net
    income to net cash used in operating activities:Depreciation and amortization


10.7



9.6Non-cash compensation


7.8



7.6Loss on impairment of inventory
    and abandonment costs


57.6



1.9Impairment of investments
    in/receivables from unconsolidated joint ventures


148.4



Impairment of goodwill


5.7



Deferred income taxes


(69.5
)


Undistributed equity in earnings
    from unconsolidated joint ventures


(5.3
)


(8.9
)Distributions of earnings from
    unconsolidated joint ventures


19.7



Changes in operating assets and
    liabilities:Restricted cash


(0.1
)


(1.7
)Inventory


(388.5
)


(423.9
)Receivables from unconsolidated
    joint ventures


(1.9
)


Other assets


47.3



(113.9
)Mortgage loans held for sale


(5.3
)


11.8Accounts payable and other
    liabilities


(39.9
)


105.5Customer deposits


(8.6
)


18.1Net cash used in operating
    activities


(179.3
)


(251.5
)Cash flows from investing
    activities:Earn-out consideration paid for
    acquisitions


(0.9
)


Net additions to property and
    equipment


(13.4
)


(8.1
)Loans to unconsolidated joint
    ventures


(11.3
)


(20.0
)Investments in unconsolidated
    joint ventures


(13.8
)


(122.6
)Capital distributions from
    unconsolidated joint ventures


32.3



10.1Net cash used in investing
    activities


(7.1
)


(140.6
)Cash flows from financing
    activities:Net (repayments on) borrowings
    from revolving credit facility


(65.0
)


80.0Net proceeds from notes offering


248.8



Net proceeds from equity offering






89.3Net proceeds from Financial
    Services bank borrowings


7.4



5.6Payments for deferred financing
    costs


(3.2
)


(0.3
)Excess income tax benefit from
    exercise of stock options


0.1



Proceeds from stock option
    exercises


0.2



Dividends paid


(2.7
)


(2.4
)Other






1.6Net cash provided by financing
    activities


185.6



173.8Decrease in cash and cash
    equivalents


(0.8
)


(218.3
)Cash and cash equivalents at
    beginning of period


34.9



268.5Cash and cash equivalents at end
    of period

$
34.1


$
50.2Supplemental disclosure of
    non-cash financing activity:Increase (decrease) in obligations
    for inventory not owned and corresponding increase (decrease) in
    inventory not owned

$
179.4


$
(56.7
)    5




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2006
  1.
    Business
    and Organization  Business
  Mid-Atlantic,
  Organization
    2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
          Segment
    Reporting
  Disclosures About Segments of an Enterprise and Related
    Information
  Interim
    Presentation
   6




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form 10-Q Form 10-K
    Earnings
    Per Share
      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Basic weighted average shares
    outstanding


59,590,519



56,753,826



59,580,062



56,304,544Net effect of common stock
    equivalents assumed to be exercised






2,638,597



1,570,720



2,265,181Diluted weighted average shares
    outstanding


59,590,519



59,392,423



61,150,782



58,569,725   Revenue
    Recognition
  Accounting for the
    Sales of Real Estate
  Stock-Based
    Compensation
  Accounting for Stock Issued to Employees Accounting for
    Stock-Based Compensation
 7




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based
    Payment
  Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes-an interpretation
    of SFAS 109
  Fair Value Measurements
   8




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Inventory    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005Interest capitalized, beginning of
    period

$
59.3


$
43.1


$
47.7


$
36.8Interest incurred


26.9



21.1



75.2



59.8Less interest included in:Cost of sales


(18.8
)


(16.5
)


(55.4
)


(48.9
)Other


(0.3
)


(4.3
)


(0.4
)


(4.3
)Interest capitalized, end of period

$
67.1


$
43.4


$
67.1


$
43.4     Consolidation of Variable Interest Entities
     9




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for the
    Impairment or Disposal of Long-Lived Assets
 Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Impairment charges on active
    communities:Homebuilding:Florida

$
4.5


$
0.2


$
5.2


$
0.2Mid-Atlantic


10.4







13.5



Texas


0.5







0.5



West


14.4



1.1



16.1



1.1Total impairment charges on
    active communities

$
29.8


$
1.3


$
35.3


$
1.3   Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Write-offs of deposits and
    abandonment costs:Homebuilding:Florida

$
0.2


$



$
1.3


$
Mid-Atlantic


7.5







8.0



Texas










0.3



0.6West


12.3







12.7



Total write-offs of deposits
    and abandonment costs

$
20.0


$



$
22.3


$
0.6   4.
    Transeastern
    Joint Venture   10




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        The
    Equity Method of Accounting for Investments in Common Stock
      Limited
    Guarantees
   11




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Accounting for
    Contingencies
 12




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5.
    Investments
    in Unconsolidated Joint Ventures (Excluding the Transeastern
    JV)    September 30, 2006Land


HomeDevelopment


Construction


TotalAssets:Cash and cash equivalents

$
6.1


$
27.3


$
33.4Inventories


381.2



325.1



706.3Other assets


7.9



5.4



13.3Total assets

$
395.2


$
357.8


$
753.0Liabilities and partners
    equity:Accounts payable and other
    liabilities

$
78.6


$
51.6


$
130.2Notes payable


165.7



175.6



341.3Equity of:Technical Olympic USA, Inc.


67.2



72.0



139.2Others


83.7



58.6



142.3Total equity


150.9



130.6



281.5Total liabilities and
    partners equity

$
395.2


$
357.8


$
753.0   December 31, 2005Land


HomeDevelopment


Construction


TotalAssets:Cash and cash equivalents

$
13.4


$
30.9


$
44.3Inventories


306.1



375.9



682.0Other assets


3.3



7.1



10.4Total assets

$
322.8


$
413.9


$
736.7Liabilities and partners
    equity:Accounts payable and other
    liabilities

$
6.6


$
43.6


$
50.2Notes payable


142.0



196.5



338.5Equity of:Technical Olympic USA, Inc.


86.1



85.2



171.3Others


88.1



88.6



176.7Total equity


174.2



173.8



348.0Total liabilities and
    partners equity

$
322.8


$
413.9


$
736.7   13




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Three Months Ended


Three Months EndedSeptember 30, 2006


September 30, 2005Land


Home





Land


HomeDevelopment


Construction


Total


Development


Construction


TotalRevenues

$
0.1


$
144.7


$
144.8


$
10.6


$
135.2


$
145.8Cost and expenses


1.8



127.9



129.7



11.4



117.4



128.8Net earnings (losses) of
    unconsolidated entities

$
(1.7
)

$
16.8


$
15.1


$
(0.8
)

$
17.8


$
17.0Our share of net earnings (losses)

$
(0.4
)

$
14.3


$
13.9


$
(0.6
)

$
9.2


$
8.6Management fees earned


0.8



6.6



7.4



0.8



7.0



7.8Income from joint ventures

$
0.4


$
20.9


$
21.3


$
0.2


$
16.2


$
16.4   Nine Months Ended


Nine Months EndedSeptember 30, 2006


September 30, 2005Land


Home





Land


HomeDevelopment


Construction


Total


Development


Construction


TotalRevenues

$
13.9


$
514.4


$
528.3


$
20.8


$
238.6


$
259.4Cost and expenses


17.6



438.2



455.8



23.2



210.3



233.5Net earnings (losses) of
    unconsolidated entities

$
(3.7
)

$
76.2


$
72.5


$
(2.4
)

$
28.3


$
25.9Our share of net earnings (losses)

$
(1.7
)

$
58.1


$
56.4


$
(1.4
)

$
13.9


$
12.5Management fees earned


2.4



24.4



26.8



2.3



12.3



14.6Income from joint ventures

$
0.7


$
82.5


$
83.2


$
0.9


$
26.2


$
27.1   and/or
  day-to-day
   14




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting Changes and Error
    Corrections, a replacement of Opinion No. 20 and FASB
    Statement No. 3
      6.
    Goodwill      Nine Months EndedSeptember 30,2006


2005Balance at January 1

$
108.8


$
110.7Earn out consideration paid on
    acquisitions


0.9



Impairment


(5.7
)


Balance at September 30

$
104.0


$
110.7   Goodwill and Other
    Intangible Assets
 15




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      7.
    Borrowings         16




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    1 4 pari passu
  1 4 90-day 90-day
  8.  Income
    Taxes  Accounting for Income Taxes
      9.
    Commitments
    and Contingencies   17




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Warranty
      Nine Months EndedSeptember 30,2006


2005Accrued warranty costs at January 1

$
7.0


$
6.4Liability recorded for warranties
    issued during the period


7.4



8.2Warranty work performed


(6.6
)


(6.1
)Liability recorded for
    pre-existing warranties


0.8



(1.5
)Accrued warranty costs at
    September 30

$
8.6


$
7.0   One-Time
    Termination Benefits
    Liquidity
     18




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        10.
    Stockholders
    Equity and Stock-Based Compensation     19




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Nine Months EndedSeptember 30, 2005Net income as reported

$
142.4Add: Stock-based employee
    compensation included in reported net income, net of tax


4.6Deduct: Stock-based employee
    compensation expense determined under the fair value method, net
    of tax


(3.3
)Pro forma net income

$
143.7Reported basic earnings per share

$
2.53Pro forma basic earnings per share

$
2.55Reported diluted earnings per share

$
2.43Pro forma diluted earnings per
    share

$
2.45     Expected volatility

0.33% - 0.42%Expected dividend yield

0.0%Risk-free interest rate

1.47% - 4.85%Expected life

3 - 10 years  20




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedWeighted


AverageAverage


RemainingExercise


Contractual


AggregateOptions


Price


Term


Intrinsic Value(In millions)Options outstanding at beginning
    of year


6,606,611


$
11.06Granted


1,339,708


$
23.58Exercised


(23,750
)

$
10.84Forfeited


(150,000
)

$
18.79Options outstanding at end of
    period


7,772,569


$
13.07



5.81


$
1.6Vested and expected to vest in the
    future at end of period


7,772,569


$
13.07



5.81


$
1.6Options exercisable at end of
    period


5,020,734


$
10.90



6.30


$
0.8Weighted average fair market value
    per share of options granted during the period

$
7.90       11.
    Operating
    and Reporting Segments        Florida:
  Mid-Atlantic:
  Texas:
  West:
   21




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##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(As restated)





(As restated)Revenues:Homebuilding:Florida

$
218.1


$
196.7


$
772.9


$
633.1Mid-Atlantic


70.2



75.4



211.4



186.9Texas


191.6



143.0



542.5



351.6West


131.8



247.5



358.8



640.4Financial Services


15.8



13.4



48.4



34.8Total revenues

$
627.5


$
676.0


$
1,934.0


$
1,846.8Results of
    Operations:Homebuilding:Florida(1)

$
(116.0
)

$
33.0


$
(5.5
)

$
94.3Mid-Atlantic


(9.9
)


10.9



2.3



25.6Texas


15.5



10.3



45.1



20.4West(2)


(3.4
)


77.4



72.9



135.7Financial Services


5.0



3.0



15.9



6.7Corporate and unallocated


(12.1
)


(21.7
)


(57.4
)


(54.2
)Income (loss) before provision
    (benefit) for income taxes

$
(120.9
)

$
112.9


$
73.3


$
228.5     (1)
    
    Included in the three months and nine months ended
    September 30, 2006, is a $143.6 million impairment
    charge related to our investment in and receivables from the
    Transeastern joint venture and an impairment charge of
    $4.8 million related to our investment in joint venture in
    Southwest Florida.(2)
    
    Included in the three and nine months ended September 30,
    2006, is a charge of $5.7 million related to the impairment
    of goodwill at our Colorado division.  September 30,


December 31,2006


2005(As restated)Assets:Homebuilding:Florida

$
854.1


$
858.7Mid-Atlantic


284.0



252.4Texas


348.2



325.9West


802.6



659.7Financial Services


72.1



68.5Corporate and unallocated


441.0



257.5Total assets

$
2,802.0


$
2,422.7  22




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   12.
    Summarized
    Financial Information    Consolidating
    Statement of Financial Condition
    September 30, 2006
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)ASSETSHOMEBUILDING:Cash and cash equivalents

$
16.2


$
14.2


$



$



$
30.4Inventory






2,252.2











2,252.2Property and equipment, net


6.7



23.6











30.3Investments in unconsolidated
    joint ventures






134.1











134.1Receivables from unconsolidated
    joint ventures






20.3











20.3Investments in/ advances to
    consolidated subsidiaries


2,017.1



(250.5
)


7.2



(1,773.8
)


Other assets


101.6



57.0











158.6Goodwill






104.0











104.02,141.6



2,354.9



7.2



(1,773.8
)


2,729.9FINANCIAL SERVICES:Cash and cash equivalents










10.0







10.0Mortgage loans held for sale










49.2







49.2Other assets










12.9







12.9







72.1







72.1Total assets

$
2,141.6


$
2,354.9


$
79.3


$
(1,773.8
)

$
2,802.0LIABILITIES AND STOCKHOLDERS
    EQUITYHOMEBUILDING:Accounts payable and other
    liabilities

$
62.3


$
236.9


$



$



$
299.2Customer deposits






70.7











70.7Obligations for inventory not owned






304.0











304.0Notes payable


1,060.6















1,060.61,122.9



611.6











1,734.5FINANCIAL SERVICES:Accounts payable and other
    liabilities










6.3







6.3Bank borrowings










42.5







42.5







48.8







48.8Total liabilities


1,122.9



611.6



48.8







1,783.3Total stockholders equity


1,018.7



1,743.3



30.5



(1,773.8
)


1,018.7Total liabilities and
    stockholders equity

$
2,141.6


$
2,354.9


$
79.3


$
(1,773.8
)

$
2,802.0  23




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Financial Condition
    December 31, 2005
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)ASSETSHOMEBUILDING:Cash and cash equivalents

$
21.9


$
7.4


$



$



$
29.3Inventory






1,740.8











1,740.8Property and equipment, net


7.3



19.8











27.1Investments in unconsolidated
    joint ventures






254.5











254.5Receivables from unconsolidated
    joint ventures






60.5











60.5Investments in/ advances to
    consolidated subsidiaries


1,946.8



(427.7
)


(3.7
)


(1,515.4
)


Other assets


26.3



106.9











133.2Goodwill






108.8











108.82,002.3



1,871.0



(3.7
)


(1,515.4
)


2,354.2FINANCIAL SERVICES:Cash and cash equivalents










11.8







11.8Mortgage loans held for sale










43.9







43.9Other assets










12.8







12.8







68.5







68.5Total assets

$
2,002.3


$
1,871.0


$
64.8


$
(1,515.4
)

$
2,422.7LIABILITIES AND STOCKHOLDERS
    EQUITYHOMEBUILDING:Accounts payable and other
    liabilities

$
154.4


$
175.0


$



$



$
329.4Customer deposits






79.3











79.3Obligations for inventory not owned






124.6











124.6Notes payable


811.6















811.6Bank borrowings


65.0















65.01,031.0



378.9











1,409.9FINANCIAL SERVICES:Accounts payable and other
    liabilities










6.4







6.4Bank borrowings










35.1







35.1







41.5







41.5Total liabilities


1,031.0



378.9



41.5







1,451.4Total stockholders equity


971.3



1,492.1



23.3



(1,515.4
)


971.3Total liabilities and
    stockholders equity

$
2,002.3


$
1,871.0


$
64.8


$
(1,515.4
)

$
2,422.7  24




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Operations
    Three Months Ended September 30, 2006
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)HOMEBUILDING:Revenues

$



$
611.7


$



$



$
611.7Cost of sales






527.1











527.1Gross profit






84.6











84.6Selling, general and
    administrative expenses


12.3



74.4







(1.4
)


85.3(Income) loss from joint ventures,
    net






119.4











119.4Other (income) expenses, net


66.4



4.8







(71.1
)


0.1Goodwill impairment






5.7











5.7Homebuilding pretax income (loss)


(78.7
)


(119.7
)






72.5



(125.9
)FINANCIAL SERVICES:Revenues










17.2



(1.4
)


15.8Expenses










13.0



(2.2
)


10.8Financial Services pretax income










4.2



0.8



5.0Income (loss) before provision
    (benefit) for income taxes


(78.7
)


(119.7
)


4.2



73.3



(120.9
)Provision (benefit) for income
    taxes


1.3



(44.0
)


1.8







(40.9
)Net income (loss)

$
(80.0
)

$
(75.7
)

$
2.4



73.3


$
(80.0
)   Consolidating
    Statement of Operations
    Three Months Ended September 30, 2005
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)HOMEBUILDING:Revenues

$



$
662.6


$



$



$
662.6Cost of sales






477.4











477.4Gross profit






185.2











185.2Selling, general and
    administrative expenses


23.5



69.4







(2.7
)


90.2(Income) from joint ventures, net






(13.3
)










(13.3
)Other (income) expense, net


(92.1
)


15.4







75.1



(1.6
)Homebuilding pretax income


68.6



113.7







(72.4
)


109.9FINANCIAL SERVICES:Revenues










16.1



(2.7
)


13.4Expenses










12.4



(2.0
)


10.4Financial Services pretax income










3.7



(0.7
)


3.0Income before provision (benefit)
    for income taxes


68.6



113.7



3.7



(73.1
)


112.9Provision (benefit) for income
    taxes


(1.7
)


42.9



1.4







42.6Net income

$
70.3


$
70.8


$
2.3


$
(73.1
)

$
70.3  25




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Operations
    Nine Months Ended September 30, 2006
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)HOMEBUILDING:Revenues

$



$
1,885.6


$



$



$
1,885.6Cost of sales






1,486.0











1,486.0Gross profit






399.6











399.6Selling, general and
    administrative expenses


58.6



232.1







(3.6
)


287.1(Income) from joint ventures, net






53.7











53.7Other (income) expense, net


(96.3
)


26.9







65.1



(4.3
)Goodwill impairment






5.7











5.7Homebuilding pretax income


37.7



81.2







(61.5
)


57.4FINANCIAL SERVICES:Revenues










52.0



(3.6
)


48.4Expenses










39.2



(6.7
)


32.5Financial Services pretax income










12.8



3.1



15.9Income before provision (benefit)
    for income taxes


37.7



81.2



12.8



(58.4
)


73.3Provision (benefit) for income
    taxes


(4.9
)


30.1



5.5







30.7Net income

$
42.6


$
51.1


$
7.3


$
(58.4
)

$
42.6  26




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Operations
    Nine Months Ended September 30, 2005
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)HOMEBUILDING:Revenues

$



$
1,812.0


$



$



$
1,812.0Cost of sales






1,373.3











1,373.3Gross profit






438.7











438.7Selling, general and
    administrative expenses


60.0



193.2







(6.5
)


246.7(Income) from joint ventures, net






(24.0
)










(24.0
)Other (income) expense, net


(199.5
)


32.6







161.1



(5.8
)Homebuilding pretax income


139.5



236.9







(154.6
)


221.8FINANCIAL SERVICES:Revenues










41.3



(6.5
)


34.8Expenses










32.5



(4.4
)


28.1Financial Services pretax income










8.8



(2.1
)


6.7Income before provision (benefit)
    for income taxes


139.5



236.9



8.8



(156.7
)


228.5Provision (benefit) for income
    taxes


(2.9
)


86.2



2.8







86.1Net income

$
142.4


$
150.7


$
6.0


$
(156.7
)

$
142.4  27




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Cash Flows
    Nine Months Ended September 30, 2006
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)Cash flows from operating
    activities:Net income

$
42.6


$
51.1


$
7.3


$
(58.4
)

$
42.6Adjustments to reconcile net income
    to net cash (used in) provided by operating activities:Depreciation and amortization


2.5



7.0



1.2







10.7Non-cash compensation


7.8















7.8Loss on impairment of inventory and
    deposit write-offs






57.6











57.6Impairment of investments in
    unconsolidated joint ventures






148.4











148.4Impairment of goodwill






5.7











5.7Deferred income taxes


(69.5
)














(69.5
)Undistributed equity in earnings
    from unconsolidated joint ventures






(5.3
)










(5.3
)Distributions of earnings from
    unconsolidated joint ventures






19.7











19.7Changes in operating assets and
    liabilities:Restricted cash


(0.7
)


0.8



(0.2
)






(0.1
)Inventory


0.3



(388.8
)










(388.5
)Receivables from unconsolidated
    joint ventures






(1.9
)










(1.9
)Other assets


(2.7
)


49.9



0.1







47.3Mortgage loans held for sale










(5.3
)






(5.3
)Accounts payable and other
    liabilities


(92.7
)


52.8











(39.9
)Customer deposits






(8.6
)










(8.6
)Net cash (used in) provided by
    operating activities


(112.4
)


(11.6
)


3.1



(58.4
)


(179.3
)Cash flows from investing
    activities:Earn-out consideration paid for
    acquisitions






(0.9
)










(0.9
)Net additions to property and
    equipment


(1.9
)


(10.2
)


(1.3
)






(13.4
)Loans to unconsolidated joint
    ventures






(11.3
)










(11.3
)Investments in unconsolidated joint
    ventures






(13.8
)










(13.8
)Capital distributions from
    unconsolidated joint ventures






32.3











32.3Net cash used in investing
    activities


(1.9
)


(3.9
)


(1.3
)






(7.1
)Cash flows from financing
    activities:Net repayments on revolving credit
    facility


(65.0
)














(65.0
)Net proceeds from notes offering


248.8















248.8Net proceeds from Financial
    Services bank borrowings










7.4







7.4Payments for deferred financing
    costs


(3.2
)














(3.2
)Excess income tax benefit from
    exercise of stock options


0.1















0.1Proceeds from stock option exercises


0.2















0.2Dividends paid


(2.7
)














(2.7
)Increase (decrease) in intercompany
    transactions


(70.3
)


23.1



(11.2
)


58.4



Net cash provided by (used in)
    financing activities


107.9



23.1



(3.8
)


58.4



185.6Increase (decrease) in cash and
    cash equivalents


(6.4
)


7.6



(2.0
)






(0.8
)Cash and cash equivalents at
    beginning of period


20.2



6.0



8.7







34.9Cash and cash equivalents at end of
    period

$
13.8


$
13.6


$
6.7


$



$
34.1  28




---



##### Table of Contents



TECHNICAL
    OLYMPIC USA, INC. AND SUBSIDIARIES
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Statement of Cash Flows
    Nine Months Ended September 30, 2005
  TechnicalOlympic


Guarantor


Non-Guarantor


IntercompanyUSA, Inc.


Subsidiaries


Subsidiaries


Eliminations


Total(Dollars in millions)Cash flows from operating
    activities:Net income

$
142.4


$
150.7


$
6.0


$
(156.7
)

$
142.4Adjustments to reconcile net
    income to net cash (used in) provided by operating activities:Depreciation and amortization


2.9



5.9



0.8







9.6Non-cash compensation


7.6















7.6Loss on impairment of inventory






1.9











1.9Undistributed equity in earnings
    from unconsolidated joint ventures






(8.9
)










(8.9
)Changes in operating assets and
    liabilities:Restricted cash


(1.5
)


6.3



(6.5
)






(1.7
)Inventory






(423.9
)










(423.9
)Other assets


2.9



(114.0
)


(2.8
)






(113.9
)Mortgage loans held for sale










11.8







11.8Accounts payable and other
    liabilities


24.0



74.1



7.4







105.5Customer deposits






18.1











18.1Net cash (used in) provided by
    operating activities


178.3



(289.8
)


16.7



(156.7
)


(251.5
)Cash flows from investing
    activities:Net additions to property and
    equipment


(2.9
)


(3.8
)


(1.4
)






(8.1
)Loans to unconsolidated joint
    ventures






(20.0
)










(20.0
)Investments in unconsolidated
    joint ventures






(122.6
)










(122.6
)Capital distributions from
    unconsolidated joint ventures






10.1











10.1Net cash used in investing
    activities


(2.9
)


(136.3
)


(1.4
)






(140.6
)Cash flows from financing
    activities:Net borrowings on revolving credit
    facilities


80.0















80.0Proceeds from equity offering


89.3















89.3Net proceeds from Financial
    Services bank borrowings










5.6







5.6Payments for deferred financing
    costs


(0.3
)














(0.3
)Dividends paid


(2.4
)






(8.0
)


8.0



(2.4
)Increase (decrease) in
    intercompany transactions


(493.6
)


401.7



(56.8
)


148.7



Other


1.6















1.6Net cash (used in) provided by
    financing activities


(325.4
)


401.7



(59.2
)


156.7



173.8Decrease in cash and cash
    equivalents


(150.0
)


(24.4
)


(43.9
)






(218.3
)Cash and cash equivalents at
    beginning of period


159.3



58.3



50.9







268.5Cash and cash equivalents at end
    of period

$
9.3


$
33.9


$
7.0


$



$
50.2  29




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Executive
    Summary
    Florida

Mid-Atlantic

Texas

WestJacksonville

Baltimore/Southern Pennsylvania

Austin

ColoradoOrlando

Delaware

Dallas/Ft. Worth

Las VegasSoutheast Florida

Nashville

Houston

PhoenixSouthwest Florida

Northern Virginia

San AntonioTampa/St. Petersburg   Form 10-Q,
      Total
    Controlled Homesites by our Homebuilding Operations (Excluding
    the Transeastern Joint Venture)
   30




---



##### Table of Contents



September 30, 2006


December 31, 2005Total








TotalOwned


Optioned


Controlled


Owned


Optioned


ControlledConsolidated


23,300



44,000



67,300



22,000



46,900



68,900Unconsolidated joint ventures


3,200



2,200



5,400



2,900



2,300



5,200Combined total


26,500



46,200



72,700



24,900



49,200



74,100   Owned and
    Optioned Land Summary for our Consolidated Operations
    September 30, 2006


December 31, 2005Total








TotalRegion

Owned


Optioned


Controlled


Owned


Optioned


ControlledFlorida


7,000



11,700



18,700



5,300



14,800



20,100Mid-Atlantic


1,000



3,000



4,000



600



6,700



7,300Texas


4,100



9,700



13,800



5,600



6,800



12,400West


11,200



19,600



30,800



10,500



18,600



29,100Total


23,300



44,000



67,300



22,000



46,900



68,900     Homesites


Raw LandResidences Completed or


Finished or


Held for FutureUnder Construction


Under Development


Development


TotalRegion

9/30/06


12/31/05


9/30/06


12/31/05


9/30/06


12/31/05


9/30/06


12/31/05Florida


2,000



2,000



3,300



3,100



1,700



200



7,000



5,300Mid-Atlantic


600



300



300



300



100







1,000



600Texas


1,500



1,200



1,400



2,900



1,200



1,500



4,100



5,600West


1,000



900



2,400



2,100



7,800



7,500



11,200



10,500Total


5,100



4,400



7,400



8,400



10,800



9,200



23,300



22,000   Owned and
    Optioned Land Summary for our Homebuilding Joint Ventures
    (Excluding the Transeastern Joint Venture)
    September 30, 2006


December 31, 2005Total








TotalRegion

Owned


Optioned


Controlled


Owned


Optioned


ControlledFlorida


200







200



200







200Mid-Atlantic


100







100



400







400West


2,900



2,200



5,100



2,300



2,300



4,600Total


3,200



2,200



5,400



2,900



2,300



5,200    31




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##### Table of Contents



Operations.
      Homebuilding Operations.
  on-site
  Outlook.
   32




---



##### Table of Contents



Financial Services Operations.
  Critical
    Accounting Policies
  Accounting for Stock
    Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
   33




---



##### Table of Contents



Form 10-K
  Recent
    Developments
        1 4 pari passu
  Transeastern
    Joint Venture
   34




---



##### Table of Contents



The
    Equity Method of Accounting for Investments in Common Stock
    Limited
    Guarantees
   35




---



##### Table of Contents



Accounting for
    Contingencies
  Results
    of Operations  Consolidated
  Three
    Months Ended September 30, 2006 Compared to Three Months
    Ended September 30, 2005
   36




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##### Table of Contents



Nine
    Months Ended September 30, 2006 Compared to Nine Months
    Ended September 30, 2005
          Three
    Months Ended September 30, 2006 Compared to Three Months
    Ended September 30, 2005
   37




---



##### Table of Contents



and/or
          Net Sales
    Orders and Homes in Backlog (consolidated)
   38




---



##### Table of Contents



Net Sales
    Orders and Homes in Backlog (unconsolidated joint ventures
    excluding the Transeastern JV)
        Financial
    Services
   39




---



##### Table of Contents



Nine
    Months Ended September 30, 2006 Compared to Nine Months
    Ended September 30, 2005
       40




---



##### Table of Contents



Net Sales
    Orders (consolidated)
      Net Sales
    Orders (unconsolidated joint ventures excluding the Transeastern
    JV)
    Financial
    Services
   41




---



##### Table of Contents



Homebuilding
    Segments
  Disclosures About
    Segments of an Enterprise and Related Information,
    Florida:
  Mid-Atlantic:
  Texas:
  West:
 42




---



##### Table of Contents



Selected
    Homebuilding Operations and Financial Data
  Nine MonthsThree Months Ended


EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Revenues:Homebuilding Florida:Sales of homes

$
214.0


$
190.8


$
758.9


$
627.0Sales of land


4.1



5.9



14.0



6.1Total Homebuilding
    Florida

$
218.1


$
196.7


$
772.9


$
633.1Homebuilding Mid-Atlantic:Sales of homes

$
70.0


$
75.1


$
204.7


$
186.3Sales of land


0.2



0.3



6.7



0.6Total Homebuilding
    Mid-Atlantic

$
70.2


$
75.4


$
211.4


$
186.9Homebuilding Texas:Sales of homes

$
185.3


$
134.3


$
530.1


$
338.6Sales of land


6.3



8.7



12.4



13.0Total Homebuilding
    Texas

$
191.6


$
143.0


$
542.5


$
351.6Homebuilding West:Sales of homes

$
128.6


$
162.6


$
332.1


$
505.4Sales of land


3.2



84.9



26.7



135.0Total Homebuilding
    West

$
131.8


$
247.5


$
358.8


$
640.4Total Homebuilding
    Revenues

$
611.7


$
662.6


$
1,885.6


$
1,812.0   Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Results of
    Operations:Homebuilding:Florida(1)

$
(116.0
)

$
33.0


$
(5.5
)

$
94.3Mid-Atlantic


(9.9
)


10.9



2.3



25.6Texas


15.5



10.3



45.1



20.4West(2)


(3.4
)


77.4



72.9



135.7Financial Services


5.0



3.0



15.9



6.7Corporate and unallocated


(12.1
)


(21.7
)


(57.4
)


(54.2
)Income (loss) before provision
    (benefit) for income taxes

$
(120.9
)

$
112.9


$
73.3


$
228.5     (1)
    
    Includes impairment on Transeastern joint venture of
    $143.6 million for the three and nine months ended
    September 30, 2006 and an impairment charge of
    $4.8 million related to our investment in joint ventures in
    Southwest Florida.(2)
    
    Included in the three and nine months ended September 30,
    2006 is a charge of $5.7 million related to the impairment
    of goodwill at our Colorado division. 43




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##### Table of Contents



Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Impairment charges on active
    communities:Homebuilding:Florida

$
4.5


$
0.2


$
5.2


$
0.2Mid-Atlantic


10.4







13.5



Texas


0.5







0.5



West


14.4



1.1



16.1



1.1Total impairment charges on
    active communities

$
29.8


$
1.3


$
35.3


$
1.3   Three Months Ended


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(In millions)Write-offs of deposits and
    abandonment costs:Homebuilding:Florida

$
0.2


$



$
1.3


$
Mid-Atlantic


7.5







8.0



Texas










0.3



0.6West


12.3







12.7



Total write-offs of deposits
    and abandonment costs

$
20.0


$



$
22.3


$
0.6   Three Months Ended September 30,


Nine Months Ended September 30,2006


2005


2006


2005Homes


$


Homes


$


Homes


$


Homes


$Deliveries:Consolidated:Florida


580


$
214.0



627


$
190.8



2,079


$
758.9



2,144


$
627.0Mid-Atlantic


189



70.0



171



75.1



522



204.7



448



186.3Texas


757



185.3



555



134.3



2,170



530.1



1,402



338.6West


395



128.6



528



162.6



1,058



332.1



1,766



505.4Consolidated total


1,921


$
597.9



1,881


$
562.8



5,829


$
1,825.8



5,760


$
1,657.3Unconsolidated joint ventures:Florida*






























Mid-Atlantic


12



3.1



71



20.1



100



28.9



118



33.9West


422



141.9



331



115.1



1,358



485.6



628



204.7Total unconsolidated joint ventures


434



145.0



402



135.2



1,458



514.5



746



238.6Combined total


2,355


$
742.9



2,283


$
698.0



7,287


$
2,340.3



6,506


$
1,895.9     *
    
    Excludes 586 deliveries and revenues of $180.2 million from
    the Transeastern JV for the three months ended
    September 30, 2006; 1,647 deliveries and revenues of
    $501.2 million for the nine months ended September 30,
    2006, and 126 deliveries and revenues of $33.9 million for
    the three and nine months ended September 30, 2005.  44




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##### Table of Contents



Three Months Ended September 30,


Nine Months Ended September 30,2006


2005


2006


2005Homes


$


Homes


$


Homes


$


Homes


$Net Sales
    Orders(1):Consolidated:Florida


377


$
150.4



714


$
239.0



1,627


$
642.3



2,196


$
753.9Mid-Atlantic


146



53.5



95



35.7



480



190.9



491



209.1Texas


741



186.2



709



175.8



2,384



598.1



2,133



532.2West


206



63.7



303



106.3



982



334.4



2,121



691.0Consolidated total


1,470


$
453.8



1,821


$
556.8



5,473


$
1,765.7



6,941


$
2,186.2Unconsolidated joint ventures:Florida*


1



0.5











13



5.2







Mid-Atlantic


13



2.7



49



16.0



71



17.5



149



50.4West


134



28.7



555



211.5



718



214.1



1,255



459.3Total unconsolidated joint ventures


148



31.9



604



227.5



802



236.8



1,404



509.7Combined total


1,618


$
485.7



2,425


$
784.3



6,275


$
2,002.5



8,345


$
2,695.9     (1)
    
    Net of cancellations*
    
    Excludes 23 net cancellations with a sales value of
    $13.0 million from the Transeastern JV for the three months
    ended September 30, 2006; 85 net sales orders with a sales
    value of $50.6 million for the nine months ended
    September 30, 2006, and 267 net sales orders with a
    sales value of $82.1 million for the three and nine months
    ended September 30, 2005.  September 30, 2006


September 30, 2005Avg








AvgHomes


$


Price


Homes


$


PriceSales Backlog:Consolidated:Florida


2,485


$
920.1


$
370



2,980


$
1,033.9


$
347Mid-Atlantic


259



98.5


$
380



389



164.6


$
423Texas


1,452



387.3


$
267



1,274



331.0


$
260West


775



306.1


$
395



965



318.1


$
330Consolidated total


4,971


$
1,712.0


$
344



5,608


$
1,847.6


$
329Unconsolidated joint ventures:Florida*


49



14.6


$
298



32



7.7


$
242Mid-Atlantic


8



2.4


$
304



167



56.0


$
335West


903



313.9


$
348



1,827



674.1


$
369Total unconsolidated joint ventures


960



330.9


$
345



2,026



737.8


$
364Combined total


5,931


$
2,042.9


$
344



7,634


$
2,585.4


$
339     *
    
    Excludes 1,516 homes in backlog with a sales value of
    $435.6 million from the Transeastern JV at
    September 30, 2006 and 3,179 homes in backlog with a sales
    value of $922.6 million at September 30, 2005.  45




---



##### Table of Contents



Three Months Ended September 30,


Nine Months Ended September 30,2006


2005


2006


2005Sales





Sales





Sales





SalesDeliveries


Orders


Deliveries


Orders


Deliveries


Orders


Deliveries


OrdersAverage Price:Consolidated:Florida

$
369


$
399


$
304


$
335


$
365


$
395


$
292


$
343Mid-Atlantic

$
370


$
366


$
439


$
376


$
392


$
398


$
416


$
426Texas

$
245


$
251


$
242


$
248


$
244


$
251


$
241


$
250West

$
326


$
309


$
308


$
351


$
314


$
341


$
286


$
326Consolidated total

$
311


$
309


$
299


$
306


$
313


$
323


$
288


$
315Unconsolidated joint ventures:Florida





$
456














$
400







Mid-Atlantic

$
254


$
210


$
284


$
327


$
289


$
247


$
287


$
338West

$
336


$
214


$
348


$
381


$
358


$
298


$
326


$
366Total unconsolidated joint ventures

$
334


$
216


$
336


$
377


$
353


$
295


$
320


$
363Combined total

$
315


$
300


$
306


$
323


$
321


$
319


$
291


$
323   Three
    Months Ended September 30, 2006 compared to Three Months
    Ended September 30, 2005
  Florida:
      Mid-Atlantic:
   46




---



##### Table of Contents



Texas:
    West:
      Nine
    Months Ended September 30, 2006 compared to Nine Months
    Ended September 30, 2005
  Florida:
      Mid-Atlantic:
 47




---



##### Table of Contents



Texas:
    West:
      Financial
    Services Segment
    Three MonthsEnded


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(Dollars in millions)Revenues

$
15.8


$
13.4


$
48.4


$
34.8Expenses


10.8



10.4



32.5



28.1Financial Services pretax income

$
5.0


$
3.0


$
15.9


$
6.7   FINANCIAL
    CONDITION, LIQUIDITY AND CAPITAL RESOURCES
  Sources
    and Uses of Cash
     48




---



##### Table of Contents



Financing
    Activities
  1 4 3 8 1 2 1 2
       49




---



##### Table of Contents



1 4 1 4 90-day 90-day
  pari passu pari
    passu
    Homebuilding
    Net Debt to Capital
  September 30,


December 31,2006


2005(Dollars in millions)Notes payable

$
1,060.6


$
811.6Bank borrowings






65.0Homebuilding borrowings(1)

$
1,060.6


$
876.6Less: unrestricted cash


27.4



26.2Homebuilding net debt

$
1,033.2


$
850.4Stockholders equity


1,018.7



971.3Total capital(2)

$
2,051.9


$
1,821.7Ratio


50.4
%


46.7
%     (1)
    
    Does not include obligations for inventory not owned of
    $304.0 million at September 30, 2006 and
    $124.6 million at December 31, 2005, all of which are
    non-recourse to us.(2)
    
    Does not include Financial Services bank borrowings of
    $42.5 million at September 30, 2006 and
    $35.1 million at December 31, 2005.   50




---



##### Table of Contents



Off
    Balance Sheet Arrangements
  Land and
    Homesite Option Contracts
   51




---



##### Table of Contents



and/or
    Investments
    in Unconsolidated Joint Ventures
  and/or
  Transeastern
    JV Limited Guarantees
    DISCLOSURE
    REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-Q
  
    our belief that our obligations pursuant to the guarantees we
    rendered in connection with the Transeastern joint venture have
    not been triggered or that we can successfully reach an
    agreement with the Lenders without a material adverse effect on
    us, our consolidated financial position or results of operations; 52




---



##### Table of Contents




    our expectations regarding the timing of Transeastern JVs
    completion of its impairment analysis as it relates to inventory
    and other intangible assets and its impact on the total assets
    of the joint venture;
    our expectation that the Transeastern JV will not provide a
    contribution to our future results;
    our expectations regarding the timing of filing all liens and
    security interests on the borrowing base assets under the credit
    facility;
    our expectations regarding our continued use of option contracts
    and investments in unconsolidated joint ventures to control
    homesites, reduce and share the risks associated with land
    ownership and development, and manage our business, and their
    effect on our business;
    our response to the challenging housing market;
    our expectation that decreased demand in certain markets and
    higher cancellation rates will continue to negatively impact our
    combined net sales orders until the markets normalize;
    our expectation that the average selling price of homes in
    backlog will decrease in the future as cancellations continue to
    increase and higher incentives are offered to move home
    inventory;
    our expectation that we will see a decline in inventory as we
    align our land holdings to the current declining housing demand;
    our expectation that our gross margins on home sales will be
    negatively impacted due to increased sales incentives and
    product mix shifts;
    our expectations regarding our use of cash in operations;
    our beliefs and expectations regarding our land acquisition
    strategy, future land sales and opportunities for profit;
    our estimate that we have adequate financial resources to meet
    our current and anticipated working capital, including our
    annual debt service payments, and land acquisition and
    development needs;
    our estimates of the amount of pre-tax expense we will record in
    accordance with FAS 123R for the remainder of the year
    ending December 31, 2006; and
    our expectations regarding the timing of recognition of
    compensation expense related to unvested stock option awards.    
    our significant level of debt and the impact of the restrictions
    imposed on us by the terms of this debt;
    our ability to prevail in our belief that our obligations
    pursuant to the Guarantees have not been triggered or
    successfully reach an agreement with the Lenders without a
    material adverse effect on us, our consolidated financial
    position or results of operations;
    our ability to successfully respond to the challenging housing
    market;
    our ability to borrow or otherwise finance our business in the
    future;
    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, inflation, or unemployment rates or declines in consumer
    confidence or the demand for, or the prices of, housing;
    our ability to identify and acquire, at anticipated prices,
    additional homebuilding opportunities
    and/or to
    effect our growth strategies in our homebuilding operations and
    financial services business; 53




---



##### Table of Contents




    our ability to successfully dispose of developed properties or
    undeveloped land or homesites at expected prices and within
    anticipated time frames;
    our relationship with Technical Olympic S.A. and its control
    over our business activities;
    events which would impede our ability to open new communities
    and/or
    deliver homes within anticipated timeframes
    and/or
    within anticipated budgets;
    an increase in the cost, or shortages in the availability, of
    qualified labor and materials;
    our ability to compete in our existing and future markets;
    our ability to successfully enter into, utilize, and recognize
    the anticipated benefits of, joint ventures and option contracts;
    a decline in the value of the land and home inventories we
    maintain;
    currently unanticipated delays or disruptions in the land
    development, permitting or construction process;
    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 governmental regulations; and
    the impact of any or all of the above risks on the operations or
    financial results of our unconsolidated joint ventures.  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      Form 10-K
  ITEM 4.
    CONTROLS
    AND PROCEDURES   54




---



##### Table of Contents



PART II.  OTHER
    INFORMATION  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 I
    of our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2005 (2005
    Form 10-K)
    and Item 1A of Part II of our Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2006 (the 2nd Quarter
    2006
    Form 10-Q).
  Form 10-K Form 10-Q.
  Form 10-K Form 10-Q, Form 10-K,
  If our obligations pursuant to the guarantees rendered in
    connection with the Transeastern JV have been triggered, we may
    have significant obligations under those guarantees which would
    have a material adverse effect on our consolidated financial
    position and results of operations.
       55




---



##### Table of Contents



ITEM 6.
    EXHIBITS  ExhibitNumber

Description10
.1

Amendment No. 1 to Credit
    Agreement dated October 23, 2006 among Technical Olympic
    USA; Inc., certain of its subsidiaries, the Lenders party
    thereto and Citigroup North America, Inc. (Incorporated by
    reference to Exhibit 10.2 of our Current Report on
    Form 8-K
    dated October 17, 2006.10
.2

$450,000,000 Credit Agreement
    dated as of August 1, 2005, by and among EH/Transeastern,
    LLC and TE/TOUSA Senior, LLC, as the Borrowers, Deutsche Bank
    Trust Company Americas and the Institutions from time to
    time party thereto, as Lenders, Deutsche Bank Trust Company
    Americas, as Administrative Agent and Deutsche Bank Securities,
    Inc., as sole Lead Arranger and Sole Book Running Manager10
.3

$137,500,000 Senior Mezzanine
    Credit Agreement dated as of August 1, 2005, by and among
    TE/TOUSA Mezzanine, LLC, as the Borrower, Deutsche Bank
    Trust Company Americas and the Institutions from time to
    time party thereto, as Lenders, Deutsche Bank Trust Company
    Americas, as Administrative Agent and Deutsche Bank Securities,
    Inc., as sole Lead Arranger and Sole Book Running Manager10
.4

$87,500,000 Junior Mezzanine
    Credit Agreement dated as of August 1, 2005, by and among
    TE/TOUSA Mezzanine Two, LLC, as the Borrower, Deutsche Bank
    Trust Company Americas and the Institutions from time to
    time party thereto, as Lenders, Deutsche Bank Trust Company
    Americas, as Administrative Agent and Deutsche Bank Securities,
    Inc., as sole Lead Arranger and Sole Book Running Manager10
.5

Completion Guaranty dated as of
    August 1, 2005 made by Tousa Homes, L.P. and Technical
    Olympic USA, Inc. in favor of Deutsche Bank Trust Company
    Americas, as Administrative Agent. (Additional guaranties of the
    same obligations in substantially identical forms were executed
    in connection with the $137,500,000 Senior Mezzanine Credit
    Agreement and the $87,500,000 Junior Mezzanine Credit Agreement)10
.6

Carve-out Guaranty dated as of
    August 1, 2005 made by Tousa Homes, L.P. and Technical
    Olympic USA, Inc. in favor of Deutsche Bank Trust Company
    Americas, as Administrative Agent. (Additional guaranties of the
    same obligations in substantially identical forms were executed
    in connection with the $137,500,000 Senior Mezzanine Credit
    Agreement and the $87,500,000 Junior Mezzanine Credit Agreement)31
.1

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2

Certification of Interim 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 Interim Chief
    Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.  56




---



##### Table of Contents



SIGNATURES      By:
    /s/  Randy
    L. Kotler    Title:
    Senior Vice President, Interim Chief Financial Officer and Chief
    Accounting Officer   57