FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30,~~December 31, 2005


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 number1-14122

D.R. Horton, Inc.

(Exact name of registrant as specified in its charter)


DELAWARE		75-2386963

(State or other jurisdiction of incorporation or or organization)		(I.R.S. Employer Identification No.)


301 Commerce Street, Suite 500, Fort Worth, Texas		76102

(Address of principal executive offices)		(Zip Code)

(817) 390-8200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

~~Yes~~Large accelerated filerþ Accelerated filero Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

YesoNooþ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $.01 par value — ~~312,824,500~~ 312,422,971 shares as of ~~August 3, 2005~~January 27, 2006

This report contains 3536 pages.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30,			September 30,			December 31,			September 30,
	2005			2004			2005			2005
	(In millions)						(In millions)
	(Unaudited)						(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents	$	109.8		$	480.1		$	182.5		$	1,111.6
Inventories:
Construction in progress and finished homes		3,945.3			2,878.5			3,564.8			3,105.9
Residential lots — developed and under development		4,485.6			3,529.0
Residential land and lots — developed and under development								6,274.5			5,174.3
Land held for development		6.3			6.2			60.9			6.2
Consolidated land inventory not owned		185.2			153.7			173.9			200.4

		8,622.4			6,567.4			10,074.1			8,486.8
Property and equipment (net)		97.8			91.9			112.9			107.2
Earnest money deposits and other assets		706.7			576.6			812.1			756.0
Goodwill		578.9			578.9			578.9			578.9

		10,115.6			8,294.9			11,760.5			11,040.5

Financial Services:
Cash and cash equivalents		62.0			37.9			42.7			38.2
Mortgage loans held for sale		828.7			623.3			907.1			1,358.7
Other assets		38.2			29.1			103.0			77.4

		928.9			690.3			1,052.8			1,474.3

	$	11,044.5		$	8,985.2		$	12,813.3		$	12,514.8

LIABILITIES
Homebuilding:
Accounts payable	$	722.6		$	585.2		$	765.5		$	820.7
Accrued expenses and other liabilities		929.3			756.9			1,123.9			1,196.9
Notes payable		3,654.7			3,006.5			4,300.0			3,660.1

		5,306.6			4,348.6			6,189.4			5,677.7

Financial Services:
Accounts payable and other liabilities		16.8			16.8			20.3			24.0
Notes payable to financial institutions		708.4			492.7			814.7			1,249.5

		725.2			509.5			835.0			1,273.5

		6,031.8			4,858.1			7,024.4			6,951.2

Minority interests		192.4			166.4			176.0			203.2


STOCKHOLDERS’ EQUITY

Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued		—			—			—			—
Common stock, $.01 par value, 400,000,000 shares authorized, 315,328,863 shares issued and 312,676,063 shares outstanding at June 30, 2005 and 236,028,696 shares issued and 233,375,896 shares outstanding at September 30, 2004		3.2			2.4
Common stock, $.01 par value, 400,000,000 shares authorized, 315,872,995 shares issued and 312,220,195 shares outstanding at December 31, 2005 and 315,591,668 shares issued and 312,938,868 shares outstanding at September 30, 2005								3.2			3.2
Additional capital		1,620.3			1,599.9			1,632.2			1,624.8
Retained earnings		3,255.7			2,417.3			4,073.2			3,791.3
Treasury stock, 2,652,800 shares at June 30, 2005 and September 30, 2004, at cost		(58.9	)		(58.9	)
Treasury stock, 3,652,800 shares at December 31, 2005 and 2,652,800 shares at September 30, 2005, at cost								(95.7	)		(58.9	)

		4,820.3			3,960.7			5,612.9			5,360.4

	$	11,044.5		$	8,985.2		$	12,813.3		$	12,514.8

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended						Nine Months Ended						Three Months
	June 30,						June 30,						Ended December 31,
	2005			2004			2005			2004			2005			2004
				(In millions, except per share data)									(In millions, except per share data)
				(Unaudited)									(Unaudited)
Homebuilding:
Revenues:
Home sales	$	3,277.1		$	2,695.5		$	8,432.9		$	7,080.7		$	2,789.1		$	2,449.1
Land/lot sales		32.4			46.2			177.5			117.8			52.7			25.0

		3,309.5			2,741.7			8,610.4			7,198.5			2,841.8			2,474.1


Cost of sales:
Home sales		2,413.7			2,086.8			6,279.8			5,490.0			2,017.1			1,831.5
Land/lot sales		17.0			29.1			105.4			72.4			19.3			15.6

														2,036.4			1,847.1
		2,430.7			2,115.9			6,385.2			5,562.4

Gross profit:
Home sales		863.4			608.7			2,153.1			1,590.7			772.0			617.6
Land/lot sales		15.4			17.1			72.1			45.4			33.4			9.4

		878.8			625.8			2,225.2			1,636.1			805.4			627.0

Selling, general and administrative expense		302.0			244.3			826.7			679.5			325.7			257.7
Interest expense		—			—			—			3.3			4.5			—
Other (income)		(0.5	)		(7.4	)		(11.4	)		(7.1	)		(4.9	)		(4.9	)

														480.1			374.2
		577.3			388.9			1,409.9			960.4

Financial Services:
Revenues		60.7			48.7			156.5			131.7			61.3			46.0
General and administrative expense		38.5			32.2			105.1			83.8			47.3			32.7
Interest expense		4.1			1.6			9.1			4.0			8.2			2.4
Other (income)		(9.0	)		(4.8	)		(22.0	)		(12.7	)		(14.2	)		(6.7	)

		27.1			19.7			64.3			56.6			20.0			17.6

INCOME BEFORE INCOME TAXES		604.4			408.6			1,474.2			1,017.0			500.1			391.8
Provision for income taxes		232.7			157.3			567.5			391.5			190.0			150.8

NET INCOME	$	371.7		$	251.3		$	906.7		$	625.5		$	310.1		$	241.0


Basic net income per common share	$	1.19		$	0.81		$	2.91		$	2.02
Net income per common share:
Basic													$	0.99		$	0.77

Diluted													$	0.98		$	0.76


Net income per common share assuming dilution	$	1.17		$	0.80		$	2.85		$	1.98
Weighted average number of common shares outstanding:
Basic														312.9			311.3

Diluted														317.6			317.0


Cash dividends declared per common share	$	0.09		$	0.06		$	0.2175		$	0.155		$	0.09		$	0.06

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months						Three Months
	Ended June 30,						Ended December 31,
	2005			2004			2005			2004
	(In millions)						(In millions)
	(Unaudited)						(Unaudited)
OPERATING ACTIVITIES
Net income	$	906.7		$	625.5		$	310.1		$	241.0
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		39.2			34.4			12.7			14.0
Amortization of debt premiums, discounts and fees		3.1			5.0			1.1			1.0
Stock option compensation expense								2.5			—
Income tax benefit from exercise of stock options								(2.8	)		—
Changes in operating assets and liabilities:
Increase in inventories		(2,003.8	)		(1,334.1	)
Increase in construction in progress and finished homes								(458.9	)		(263.6	)
Increase in residential land and lots – developed, under development and held for development								(1,119.6	)		(578.0	)
Increase in earnest money deposits and other assets		(133.3	)		(39.6	)		(67.4	)		(40.0	)
(Increase) decrease in mortgage loans held for sale		(205.4	)		71.9
Increase in accounts payable and other liabilities		292.6			73.9
Decrease in mortgage loans held for sale								451.6			89.7
Decrease in accounts payable and other liabilities								(141.9	)		(23.2	)


NET CASH USED IN OPERATING ACTIVITIES		(1,100.9	)		(563.0	)		(1,012.6	)		(559.1	)


INVESTING ACTIVITIES
Net purchases of property and equipment		(44.7	)		(39.3	)		(18.4	)		(14.1	)


NET CASH USED IN INVESTING ACTIVITIES		(44.7	)		(39.3	)		(18.4	)		(14.1	)


FINANCING ACTIVITIES
Proceeds from notes payable		2,344.0			2,313.9			958.9			653.7
Repayment of notes payable		(1,497.8	)		(2,017.7	)		(795.2	)		(229.0	)
Purchase of treasury stock								(36.8	)		—
Proceeds from stock associated with certain employee benefit plans		21.5			11.5			4.9			6.2
Income tax benefit from exercise of stock options								2.8			—
Cash dividends paid		(68.3	)		(48.2	)		(28.2	)		(18.7	)


NET CASH PROVIDED BY FINANCING ACTIVITIES		799.4			259.5			106.4			412.2


DECREASE IN CASH AND CASH EQUIVALENTS		(346.2	)		(342.8	)
Cash and cash equivalents at beginning of period		518.0			582.9
DECREASE IN CASH								(924.6	)		(161.0	)
Cash at beginning of period								1,149.8			518.0

Cash and cash equivalents at end of period	$	171.8		$	240.1

Cash at end of period							$	225.2		$	357.0

Supplemental disclosures of noncash activities:
Notes payable issued for inventory	$	17.8		$	63.8		$	35.3		$	3.8

D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~June 30,~~December 31, 2005

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and all of its wholly-owned, majority-owned and controlled subsidiaries (the “Company”), as well as certain variable interest entities from which we are purchasing land or lots under option purchase contracts. All significant intercompany accounts, transactions and balances have been eliminated in consolidation. The statements have been prepared in accordance with ~~generally accepted accounting principles~~U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and the instructions to Form 10-Q and Regulation S-X. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included. These statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, ~~2004. Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.~~2005.

Seasonality- Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three-month ~~and nine-month periods~~period ended ~~June 30,~~December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, ~~2005.~~2006.

Use of Estimates- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

Business- The Company is a national homebuilder that is engaged primarily in the construction and sale of single-family housing in 7177 markets and 2326 states in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land and lots it has developed or bought. The Company also provides title agency and mortgage brokerage services to its homebuyers. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.

Stock Split– In February 2005, the Company’s Board of Directors declared a four-for-three stock split (effected as a ~~33%~~33¹/₃% stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005. The earnings per share and cash dividends declared per share for the three ~~and nine~~ months ended ~~June 30, 2005 and~~December 31, 2004 have been adjusted to reflect the effects of the stock split.

NOTE B — SEGMENT INFORMATION

The Company’s reportable business segments consist of homebuilding and financial services. Homebuilding is the Company’s core business, generating 98% of consolidated revenues ~~during the nine months ended June 30, 2005 and 2004,~~ and 96% ~~and 94%~~ of consolidated income before income taxes during ~~the nine months~~both three-month periods ended ~~June 30,~~December 31, 2005 and ~~2004, respectively.~~2004. The homebuilding reporting segment is comprised of the aggregate of the Company’s regional homebuilding operations and generates most of its revenues from the sale of completed homes, with a lesser amount from the sale of land and lots. Approximately 85% and 84% of home sales revenues were generated from the sale of single-family detached homes for the nine months ended June 30, 2005 and 2004, respectively, and the remainder of home sales revenues were generated from the sale of attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services.

-6-

~~D.R. HORTON, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)~~
~~June 30, 2005~~

NOTE E –— NOTES PAYABLE

The Company’s notes payable at their principal amounts, net of unamortized discount or premium, as applicable, consist of the following:


	June 30,		September 30,		December 31,		September 30,
	2005		2004		2005		2005
	(In millions)				(In millions)
Homebuilding:
Unsecured:
Revolving credit facility due 2008	$	50.0	$	—
10.5% senior notes due 2005, net		—		199.9
Revolving credit facility due 2010					$	600.0	$	—
7.5% senior notes due 2007		215.0		215.0		215.0		215.0
5% senior notes due 2009, net		199.6		199.5		199.6		199.6
8% senior notes due 2009, net		384.0		383.8		384.1		384.1
9.375% senior notes due 2009, net		241.5		242.5
4.875% senior notes due 2010, net						248.7		248.7
9.75% senior subordinated notes due 2010, net		149.2		149.2		149.3		149.3
4.875% senior notes due 2010, net		248.6		—
7.875% senior notes due 2011, net		198.8		198.7		198.9		198.8
9.375% senior subordinated notes due 2011, net		199.8		199.8		199.8		199.8
10.5% senior subordinated notes due 2011, net		150.4		150.9		150.0		150.2
8.5% senior notes due 2012, net		248.4		248.3		248.5		248.4
5.375% senior notes due 2012						300.0		300.0
6.875% senior notes due 2013		200.0		200.0		200.0		200.0
5.875% senior notes due 2013		100.0		100.0		100.0		100.0
6.125% senior notes due 2014, net		197.3		197.2		197.5		197.4
5.625% senior notes due 2014, net		248.1		247.9		248.2		248.1
5.25% senior notes due 2015, net		297.8		—		297.8		297.8
5.625% senior notes due 2016, net		297.4		—		297.6		297.5
Other secured		28.8		73.8		65.0		25.4

	$	3,654.7	$	3,006.5	$	4,300.0	$	3,660.1


Financial Services:
Mortgage warehouse facility due 2006	$	308.4	$	267.7	$	419.7	$	549.5
Commercial paper conduit facility due 2006		400.0		225.0		395.0		700.0

	$	708.4	$	492.7	$	814.7	$	1,249.5

~~D.R. HORTON, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)~~
~~June 30, 2005~~

In December 2004, the Company issued $300 million principal amount of 5.625% senior notes due 2016. The notes, which are due January 15, 2016, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 30 basis points (0.30%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discounts, is 5.8%.

In February 2005, the Company issued $300 million principal amount of 5.25% senior notes due 2015. The notes, which are due February 15, 2015, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 25 basis points (0.25%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discounts, is 5.4%.

~~On April 1, 2005, the Company repaid the $200 million principal amount of its 10.5% senior notes which were due on that date.~~

The bank credit facilities and the indentures for most of the senior and senior subordinated notes contain covenants which, taken together, limit cash dividends, certain investments, ~~in inventory,~~ stock repurchases ~~cash dividends~~ and other restricted payments, ~~incurrence of indebtedness,~~ asset dispositions, and creation of liens, and require certain levels of leverage, interest coverage and tangible net worth. At ~~June 30,~~December 31, 2005, under the most restrictive covenants, cash dividend payments for the ~~additional debt the Company could incur would be~~remainder of fiscal 2006 were limited to ~~$3.1 billion, which included $1.04 billion available under the revolving credit facility. At that date, under the most restrictive covenants, $1.2~~$707.1 million, and a maximum of $1.5 billion was available for all restricted ~~payments.~~payments in the future.

Financial Services:

~~In April 2005, the~~The Company’s mortgage subsidiary ~~renewed its~~has a $300 million mortgage warehouse loan facility ~~payable to financial institutions, extending the maturity date to~~that matures April 7, ~~2006~~2006. During fiscal 2005, the Company obtained additional commitments of $150 million from its lenders through the facility’s accordion provision and ~~increasing~~additional temporary commitments of $225 million from its lenders through amendments to the ~~amount that may be borrowed~~credit agreement, resulting in total capacity of $675 million at September 30, 2005. Through amendments to the credit agreement in October and November 2005, the commitments under the ~~uncommitted accordion feature~~facility were adjusted to ~~$150 million. In June~~$450 million, effective from October 28, 2005 through January 15, 2006. On January 16, 2006, the total capacity returned to $300 million. On January 30, 2006, the Company obtained additional commitments of $150 million from its lenders through an amendment to the credit agreement, resulting in total capacity of $450 million through the ~~Company exercised the accordion feature and obtained commitments from its lenders that increased the total size~~maturity of the facility ~~to $450 million.~~ on April 7, 2006.

The mortgage warehouse facility is secured by certain mortgage loans held for sale and is not guaranteed by D.R. Horton, Inc. or any of the guarantors of its homebuilding debt. Borrowings bear daily interest at the 30-day LIBOR rate plus a fixed premium. The interest rate of the mortgage warehouse ~~facility~~line payable at ~~June 30,~~December 31, 2005 was ~~4.2%.~~5.2% per annum.

The Company’s mortgage subsidiary also has a $500 million commercial paper conduit facility (the CP conduit facility), that expires on June 29, 2006. ~~In June 2005,~~A temporary increase of $200 million was obtained through ~~amendment~~amendments to the credit agreement ~~the Company increased~~in September 2005, resulting in a total capacity of $700 million. The temporary increase was effective through October 14, 2005, when the capacity decreased to $600 million available ~~under this facility from $300 million~~through November 10, 2005. Beginning on November 11, 2005, the total capacity returned to $500 million.

The CP conduit facility is secured by certain mortgage loans held for sale and is not guaranteed by D.R. Horton, Inc. or any of the guarantors of its homebuilding debt. The mortgage loans ~~pledged~~assigned to secure the CP conduit facility are used as collateral for asset backed commercial paper issued by multi-seller conduits in the commercial paper market. The interest rate of the CP conduit facility at ~~June 30,~~December 31, 2005 was ~~3.9%.~~4.8% per annum.

-9-

Mortgage Loans-Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. Loans that have been closed but not committed to a third-party investor are matched with either forward sales of mortgage backed securities (FMBS) or Eurodollar Futures Contracts (EDFC) that are designated as fair value hedges. Hedged loans are either committed to third-party investors within three days of origination or pooled and committed in bulk to third-party investors typically within 30 days of origination. The ~~Company may, with the approval~~notional amounts of the ~~Compensation Committee~~FMBS and the EDFC used to hedge mortgage loans held for sale can vary in relationship to the underlying loan amounts, depending on the typical movements in the value of ~~its Board of Directors, grant~~each hedging instrument relative to its employees options to purchase a fixed number of shares of its common stock. The Company accounts for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” The exercise price of the ~~Company’s employee stock options generally equals the market price~~value of the underlying ~~stock on~~mortgage loans. As of December 31, 2005, the ~~date~~Company had $196.6 million in loans not committed to third-party investors which were hedged with $317.5 million of grant; therefore, no compensation expense is recognized for the initial grant. The Company adopted the disclosure provisions specified by Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — TransitionFMBS and Disclosure.” SFAS No. 123 and SFAS No. 148 require disclosure of pro forma net income and pro forma net income per share as if the fair value based method had been applied in measuring compensation expense.EDFC.

D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

Loan Commitments-To meet the financing needs of its customers, the Company is party to interest rate lock commitments (IRLCs) which are extended to borrowers who have applied for loan funding and meet certain defined credit and underwriting criteria. In accordance with Statement of Financial Accounting Standards (SFAS) No. 133 and related Derivatives Implementation Group conclusions, the Company classifies and accounts for IRLCs as non-designated derivative instruments at fair value. The effectiveness of the fair value hedges is continuously monitored and any ineffectiveness, which for the three months ended December 31, 2005 and 2004 was not significant, is recognized in current earnings. At December 31, 2005, the Company’s IRLCs totaled $489.9 million.

The Company manages interest rate risk related to its IRLCs through the use of best-efforts whole loan delivery commitments, forward sales of mortgage-backed securities and the purchase of Eurodollar futures contracts. These instruments are considered non-designated derivatives and are accounted for at fair market value with gains and losses recorded in current earnings. As of December 31, 2005, the Company had approximately $91.0 million outstanding of FMBS and EDFC, and $363.7 million of best efforts whole loan delivery commitments related to its IRLCs.

NOTE I — STOCKHOLDERS’ EQUITY

During the three months ended December 31, 2005, the Board of Directors declared a quarterly cash dividend of $0.09 per common share, which was paid on October 31, 2005 to stockholders of record on October 20, 2005. A quarterly cash dividend of $0.06 per common share (split-adjusted) was declared during the three months ended December 31, 2004.

In January 2006, the Board of Directors declared a quarterly cash dividend of $0.10 per common share, payable on February 10, 2006 to stockholders of record on January 27, 2006. A quarterly cash dividend of $0.0675 per common share (split-adjusted) was declared in the comparable quarter of fiscal 2005.

At December 31, 2005, the Company had the capacity to issue new debt or equity securities amounting to $3.0 billion under its universal shelf registration statement. Also, at December 31, 2005, the Company had the capacity to issue approximately 22.5 million shares of common stock under its acquisition shelf registration statement, to effect, in whole or in part, possible future business acquisitions.

In November 2005, the Board of Directors authorized the repurchase of up to $500 million of the Company’s common stock, replacing the previous common stock repurchase authorization. During the three months ended December 31, 2005, the Company repurchased 1,000,000 shares of its common stock at a total cost of $36.8 million. As of December 31, 2005, the Company had $463.2 million remaining of the Board of Directors’ authorization for repurchases of common stock.

On January 26, 2006, the Company’s shareholders approved an amendment to the Company’s charter which increased the number of authorized shares of common stock to one billion shares.

NOTE J — STOCK-BASED COMPENSATION

On October 1, 2005, the Company adopted the provisions of SFAS No. 123(R), “Share Based Payment,” which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. Prior to October 1, 2005, the Company accounted for stock option grants using the intrinsic value method in accordance with the Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and recognized no compensation expense for stock option grants since all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

SFAS No. 123(R) was adopted using the “modified prospective” method. Under this method, the provisions of SFAS No. 123(R) apply to all awards granted or modified after the date of adoption. In addition, compensation

-11-

D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2005

expense must be recognized for any unvested stock option awards outstanding as of the date of adoption on a straight-line basis over the remaining vesting period. The fair values of the options are calculated using a Black-Scholes option pricing model. Results of prior periods have not been restated. For the three months ended December 31, 2005, the Company’s compensation expense related to stock option grants was $2.5 million. At December 31, 2005, there was $59.0 million of total unrecognized compensation expense related to unvested stock option awards. This expense is expected to be recognized over a weighted average period of 7.1 years. In addition, SFAS No. 123(R) requires the benefits of tax deductions in excess of recognized compensation expense to be reported in the Statement of Cash Flows as a financing cash flow rather than an operating cash flow as previously reported.

SFAS No. 123(R) requires disclosure of pro forma information for periods prior to the adoption. The following table sets forth the effect on net income and earnings per share ~~(split-adjusted)~~as if SFAS No. 123(R) had been applied to the three-month period ended December 31, 2004:


	Three Months Ended
	December 31, 2004
	(In millions,
	except per share data)
Net income as reported	$	$241.0
Add: Stock-based employee compensation expense included in reported net income, net of tax		—
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(2.0	)

Pro forma net income	$	239.0


Reported basic earnings per share	$	$0.77

Pro forma basic earnings per share	$	0.77


Reported diluted earnings per share	$	0.76

Pro forma diluted earnings per share	$	0.75

The Company Stock Incentive Plans provide for the granting of stock options to certain key employees of the Company to purchase shares of common stock. Options are granted at exercise prices which equal the market value of the Company’s common stock at the date of grant. Options generally expire 10 years after the dates on which they were granted. Options generally vest over periods of 5 to 9.75 years. The following table provides additional information related to the Company Stock Incentive Plans:


	Three Months Ended December 31, 2005
						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contract Life		Value
	Options			Price		(Years)		(In millions)
Stock Options
Outstanding at beginning of period		13,965,644		$	11.55		6.0
Granted		—			—
Exercised		(281,327	)		6.80
Canceled or expired		(149,386	)		14.53

Outstanding at end of period		13,534,931		$	11.62		5.7	$	326.4

Exercisable at end of period		4,519,432		$	7.64		4.4	$	127.0

The total intrinsic value of options exercised during the three months ~~and nine months~~ ended ~~June 30,~~December 31, 2005 and 2004 was $8.2 million and $11.4 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

-12-

D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2005

A summary of the Company’s nonvested options as ifof and for the ~~fair value based method had been applied:~~three-month period ended December 31, 2005 is as follows:

Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
(In millions, except per share data)
Net income as reported $ 371.7 $ 251.3 $ 906.7 $ 625.5
Add: Stock-based employee compensation expense included in reported net income, net of tax — 0.3 — 1.0
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax (1.9 ) (2.0 ) (5.9 ) (4.8 )

Pro forma net income $ 369.8 $ 249.6 $ 900.8 $ 621.7

Reported basic earnings per share $ 1.19 $ 0.81 $ 2.91 $ 2.02

Pro forma basic earnings per share $ 1.18 $ 0.80 $ 2.89 $ 2.00

Reported diluted earnings per share $ 1.17 $ 0.80 $ 2.85 $ 1.98

Pro forma diluted earnings per share $ 1.16 $ 0.79 $ 2.83 $ 1.97


				Weighted
				Average
				Grant-Date
	Options			Fair Value
Nonvested at beginning of period		9,527,341		$	7.52
Granted		—			—
Vested		(362,456	)		2.46
Canceled or expired		(149,386	)		8.31

Nonvested at end of period		9,015,499		$	7.72

On January 26, 2006, the Company’s shareholders approved the D.R. Horton, Inc. 2006 Stock Incentive Plan, which replaced the Company’s 1991 Stock Incentive Plan. The aggregate number of shares available under the 2006 Stock Incentive Plan include the new authorization of 28.0 million shares, plus 1.9 million shares that remained available for awards under the 1991 Stock Incentive Plan on that date. Total shares available for awards under the 2006 Stock Incentive Plan are subject to increase by subsequent specified terminations of awards under the 1991 Stock Incentive Plan that were outstanding on January 26, 2006. For awards other than options or stock appreciation rights, availability will be reduced at the rate of 1.75 shares for each share subject to the award.

NOTE ~~I –~~K — RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This statement, which replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” changes the requirements for the accounting for and reporting of a change in accounting principle. The statement requires retrospective application of changes in accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 ~~is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.~~

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This statement, which replaces SFAS No. 123 and supersedes APB Opinion No. 25, requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The statement will be effective beginning in the Company’s first quarter of fiscal year 2006. The Company is currently evaluating the impact of the adoption of SFAS No. 123(R); however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued Staff Position 109-1, “Application of FASB Statement No. 109,Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP 109-1). The American Jobs Creation Act, which was signed into law in October 2004, provides a tax deduction on qualified domestic production activities. When fully phased-in, the deduction will be up to 9% of the lesser of “qualified production activities income” or taxable income. Based on the guidance provided by FSP 109-1, this deduction should be accounted for as a special deduction under SFAS No. 109 and will reduce tax expense in the period or periods that the amounts are deductible on the tax return. The tax ~~benefits, if any,~~benefit resulting from the new deduction ~~will be~~was effective beginning in the Company’s first quarter of fiscal ~~year 2006.~~2006, and is reflected in the effective income tax rate of 38.0% for the three months ended December 31, 2005, reduced from 38.5% for the three months ended December 31, 2004. The Company is ~~currently evaluating~~continuing to evaluate the impact of this law on its future financial ~~statements.~~statements and currently estimates the fiscal 2006 reduction in its federal income tax rate from fiscal 2005 will be in the range of 0.50% to 0.75% of taxable income.

~~-11-~~-13-

D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

In October 2004, the FASB ratified Emerging Issues Task Force Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (EITF 04-8). EITF 04-8 requires that shares underlying contingently convertible debt be included in diluted earnings per share computations using the if-converted method regardless of whether the market price trigger, or other contingent features, has been met. The effective date for EITF 04-8 is for reporting periods ending after December 15, 2004. EITF 04-8 also requires restatement of earnings per share amounts for prior periods presented during which the instrument was outstanding. In May 2001, the Company issued 381,113 zero coupon convertible senior notes, which were converted into shares of its common stock in June 2003. During certain quarters of the years ended September 30, 2003, 2002 and 2001, the market price trigger was not met and the convertible shares were not included in the computation of diluted earnings per share.

The following table sets forth the effect of the adoption of EITF 04-8 on diluted income before cumulative effect of change in accounting principle per share and net income per share for the periods affected. Per share amounts have been adjusted to reflect the effects of all stock splits paid subsequent to the date these per share amounts were originally reported.

Year Ended September 30,
2003 2002 2001
Reported diluted income per share before cumulative effect of change in accounting principle $ 2.05 $ 1.44 $ 1.10
Per share effect of adoption of EITF 04-8 (0.06 ) (0.05 ) (0.03 )

Adjusted diluted income per share before cumulative effect of change in accounting principle $ 1.99 $ 1.39 $ 1.07

Reported diluted net income per share $ 2.05 $ 1.44 $ 1.11
Per share effect of adoption of EITF 04-8 (0.06 ) (0.05 ) (0.03 )

Adjusted diluted net income per share $ 1.99 $ 1.39 $ 1.08

NOTE ~~J –~~L — CONTINGENCIES AND COMMITMENTS

The Company has been named as defendant in various claims, complaints and other legal actions arising in the ordinary course of business, including warranty and construction defect claims on closed homes. The Company has established reserves for such contingencies, based on the expected costs of the self-insured portion of such claims. The Company’s estimates of such reserves are based on the facts and circumstances of individual pending claims and historical data and trends, including estimates of the costs of unreported claims related to past operations. These reserve estimates are subject to ongoing revision as the circumstances of individual pending claims and historical data and trends change. Adjustments to estimated reserves are recorded in the accounting period in which the change in estimate occurs.

Management believes that, while the outcome of such contingencies cannot be predicted with certainty, the liabilities arising from these matters will not have a material adverse effect on the Company’s financial position. However, to the extent the liability arising from the ultimate resolution of any matter exceeds management’s estimates reflected in the reserves relating to such matter, the Company could incur additional charges that could be significant.

In the ordinary course of business, the Company enters into land and lot option purchase contracts in order to procure land or lots for the construction of homes. At December 31, 2005, the Company had cash deposits of $293.8 million, promissory notes of $19.0 million, and letters of credit and surety bonds of $12.1 million to purchase land and lots with a total remaining purchase price of $6.2 billion. Only $148.6 million of the $6.2 billion in land and lot option purchase contracts contain specific performance clauses which may require the Company to purchase the land or lots upon the land seller meeting certain obligations. The majority of land and lots under contract are expected to be purchased within three years.

Additionally, in the normal course of its business activities, the Company provides standby letters of credit and surety bonds, issued by third parties, to secure performance under various contracts. At December 31, 2005, outstanding standby letters of credit were $127.4 million and surety bonds were $2.0 billion.

~~-12-~~-14-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

NOTE KM — SUMMARIZED FINANCIAL INFORMATION

All of the Company’s senior and senior subordinated notes and ~~borrowings under~~ the ~~homebuilding~~$2.15 billion unsecured revolving credit facility are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s direct and indirect subsidiaries (Guarantor Subsidiaries), other than financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.

Certain balances in the following Consolidating Statement of Income and Consolidating Statement of Cash Flows for the three months ended December 31, 2004 have been revised to conform with the current presentation and the presentation in the Company’s consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2005. These revisions primarily consist of separate reporting of equity in income of subsidiaries and other income/expense in the Consolidating Statement of Income and the reclassification of equity in income of subsidiaries from cash flows from financing activities to cash flows from operating activities in the Consolidating Statement of Cash Flows. Such reclassifications on the Statement of Cash Flows resulted in a decrease in operating cash flows and an increase in financing cash flows for the D.R. Horton, Inc. column of $208.8 million for the three months ended December 31, 2004.

Consolidating Balance Sheet
~~June 30,~~December 31, 2005


	D.R.		Guarantor		Non-Guarantor							D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total		Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)											(In millions)
ASSETS
Cash and cash equivalents	$	47.0	$	58.7	$	66.1	$	—		$	171.8	$	68.2	$	111.6	$	45.4	$	—		$	225.2
Advances to and investments in subsidiaries		6,615.6		157.8		—		(6,773.4	)		—
Investments in subsidiaries													2,765.0		—		—		(2,765.0	)		—
Inventories		2,121.0		6,291.5		209.9		—			8,622.4		2,496.0		7,386.8		191.3		—			10,074.1
Property and equipment (net)		13.0		68.3		16.5		—			97.8		14.5		79.9		18.5		—			112.9
Earnest money deposits and other assets		304.7		367.9		72.3		—			744.9		427.4		358.7		129.0		—			915.1
Mortgage loans held for sale		—		—		828.7		—			828.7		—		—		907.1		—			907.1
Goodwill		—		578.9		—		—			578.9		—		578.9		—		—			578.9
Intercompany receivables													4,907.3		—		—		(4,907.3	)		—

Total Assets	$	9,101.3	$	7,523.1	$	1,193.5	$	(6,773.4	)	$	11,044.5	$	10,678.4	$	8,515.9	$	1,291.3	$	(7,672.3	)	$	12,813.3


LIABILITIES & EQUITY
Accounts payable and other liabilities	$	634.3	$	980.4	$	54.0	$	—		$	1,668.7	$	782.2	$	1,064.6	$	62.9	$	—		$	1,909.7
Advances from parent/subsidiaries		—		4,535.1		91.3		(4,626.4	)		—
Intercompany payables													—		4,822.4		84.9		(4,907.3	)		—
Notes payable		3,646.7		8.0		708.4		—			4,363.1		4,283.3		16.7		814.7		—			5,114.7

Total Liabilities		4,281.0		5,523.5		853.7		(4,626.4	)		6,031.8		5,065.5		5,903.7		962.5		(4,907.3	)		7,024.4

Minority interests		—		—		192.4		—			192.4		—		—		176.0		—			176.0

Total Equity		4,820.3		1,999.6		147.4		(2,147.0	)		4,820.3		5,612.9		2,612.2		152.8		(2,765.0	)		5,612.9

Total Liabilities & Equity	$	9,101.3	$	7,523.1	$	1,193.5	$	(6,773.4	)	$	11,044.5	$	10,678.4	$	8,515.9	$	1,291.3	$	(7,672.3	)	$	12,813.3

~~D.R. HORTON, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)~~
~~June 30, 2005~~

~~NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)~~

~~Consolidating Balance Sheet~~
~~September 30, 2004~~

D.R. Guarantor Non-Guarantor
Horton, Inc. Subsidiaries Subsidiaries Eliminations Total
(In millions)
ASSETS

Cash and cash equivalents $ 338.9 $ 131.6 $ 47.5 $ — $ 518.0
Advances to and investments in subsidiaries 5,384.5 182.4 — (5,566.9 ) —
Inventories 1,487.6 4,894.4 185.4 — 6,567.4
Property and equipment (net) 16.3 58.8 16.8 — 91.9
Earnest money deposits and other assets 256.3 299.8 49.6 — 605.7
Mortgage loans held for sale — — 623.3 — 623.3
Goodwill — 578.9 — — 578.9

Total Assets
$ 7,483.6 $ 6,145.9 $ 922.6 $ (5,566.9 ) $ 8,985.2

LIABILITIES & EQUITY

Accounts payable and other liabilities $ 537.1 $ 772.3 $ 49.5 $ — $ 1,358.9
Advances from parent/subsidiaries — 3,374.5 90.6 (3,465.1 ) —
Notes payable 2,985.8 18.9 494.5 — 3,499.2

Total Liabilities
3,522.9 4,165.7 634.6 (3,465.1 ) 4,858.1

Minority interests — — 166.4 — 166.4

Total Equity
3,960.7 1,980.2 121.6 (2,101.8 ) 3,960.7

Total Liabilities & Equity
$ 7,483.6 $ 6,145.9 $ 922.6 $ (5,566.9 ) $ 8,985.2

~~-14-~~

~~D.R. HORTON, INC. AND SUBSIDIARIES~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)~~
~~June 30, 2005~~

~~NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)~~

~~Consolidating Statement of Income~~
~~Three Months Ended June 30, 2005~~

D.R. Guarantor Non-Guarantor
Horton, Inc. Subsidiaries Subsidiaries Eliminations Total
(In millions)
Homebuilding:

Revenues:
Home sales $ 743.1 $ 2,528.7 $ 5.3 $ — $ 3,277.1
Land/lot sales 14.4 18.0 — — 32.4

757.5 2,546.7 5.3 — 3,309.5

Cost of sales:
Home sales 496.2 1,913.7 3.8 — 2,413.7
Land/lot sales 6.7 10.3 — — 17.0

502.9 1,924.0 3.8 — 2,430.7

Gross profit:
Home sales 246.9 615.0 1.5 — 863.4
Land/lot sales 7.7 7.7 — — 15.4

254.6 �� 622.7 1.5 — 878.8

Selling, general and administrative expense 121.8 174.5 1.8 3.9 302.0
Other (income) expense (471.6 ) (0.5 ) (0.5 ) 472.1 (0.5 )

604.4 448.7 0.2 (476.0 ) 577.3

Financial services:

Revenues — — 60.7 — 60.7
General and administrative expense — — 42.4 (3.9 ) 38.5
Interest expense — — 4.1 — 4.1
Other (income) — — (9.0 ) — (9.0 )

— — 23.2 3.9 27.1

Income before income taxes 604.4 448.7 23.4 (472.1 ) 604.4
Provision for income taxes 232.7 172.9 8.9 (181.8 ) 232.7

Net income $ 371.7 $ 275.8 $ 14.5 $ (290.3 ) $ 371.7

-15-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

NOTE KM — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating ~~Statement of Income~~Balance Sheet
~~Nine Months Ended June~~September 30, 2005

D.R. Guarantor Non-Guarantor
Horton, Inc. Subsidiaries Subsidiaries Eliminations Total
(In millions)
Homebuilding:

Revenues:
Home sales $ 1,843.2 $ 6,551.6 $ 38.1 $ — $ 8,432.9
Land/lot sales 119.1 58.4 — — 177.5

1,962.3 6,610.0 38.1 — 8,610.4

Cost of sales:
Home sales 1,284.4 4,969.6 25.8 — 6,279.8
Land/lot sales 75.1 30.3 — — 105.4

1,359.5 4,999.9 25.8 — 6,385.2

Gross profit:
Home sales 558.8 1,582.0 12.3 — 2,153.1
Land/lot sales 44.0 28.1 — — 72.1

602.8 1,610.1 12.3 — 2,225.2

Selling, general and administrative expense 321.2 489.8 5.5 10.2 826.7
Other (income) expense (1,192.6 ) (8.8 ) (0.6 ) 1,190.6 (11.4 )

1,474.2 1,129.1 7.4 (1,200.8 ) 1,409.9

Financial services:

Revenues — — 156.5 — 156.5
General and administrative expense — — 115.3 (10.2 ) 105.1
Interest expense — — 9.1 — 9.1
Other (income) — — (22.0 ) — (22.0 )

— — 54.1 10.2 64.3

Income before income taxes 1,474.2 1,129.1 61.5 (1,190.6 ) 1,474.2
Provision for income taxes 567.5 434.9 23.5 (458.4 ) 567.5

Net income $ 906.7 $ 694.2 $ 38.0 $ (732.2 ) $ 906.7


	D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)
ASSETS
Cash and cash equivalents	$	726.6	$	381.0	$	42.2	$	—		$	1,149.8
Investments in subsidiaries		2,563.4		—		—		(2,563.4	)		—
Inventories		2,157.4		6,113.4		216.0		—			8,486.8
Property and equipment (net)		13.8		74.8		18.6		—			107.2
Earnest money deposits and other assets		364.3		369.6		99.5		—			833.4
Mortgage loans held for sale		—		—		1,358.7		—			1,358.7
Goodwill		—		578.9		—		—			578.9
Intercompany receivables		3,969.3		—		—		(3,969.3	)		—

Total Assets	$	9,794.8	$	7,517.7	$	1,735.0	$	(6,532.7	)	$	12,514.8


LIABILITIES & EQUITY
Accounts payable and other liabilities	$	782.4	$	1,194.2	$	65.0	$	—		$	2,041.6
Intercompany payables		—		3,893.3		76.0		(3,969.3	)		—
Notes payable		3,652.0		8.1		1,249.5		—			4,909.6

Total Liabilities		4,434.4		5,095.6		1,390.5		(3,969.3	)		6,951.2

Minority interests		—		—		203.2		—			203.2

Total Equity		5,360.4		2,422.1		141.3		(2,563.4	)		5,360.4

Total Liabilities & Equity	$	9,794.8	$	7,517.7	$	1,735.0	$	(6,532.7	)	$	12,514.8

-16-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

NOTE KM — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended ~~June 30, 2004~~December 31, 2005


	D.R.			Guarantor			Non-Guarantor						D.R.				Guarantor				Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total			Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
	(In millions)																	(In millions)
Homebuilding:
Revenues:
Home sales	$	527.8		$	2,121.1		$	46.6		$	—		$	2,695.5			$	650.1			$	2,136.7			$	2.3			$	—			$	2,789.1
Land/lot sales		2.3			43.9			—			—			46.2				38.2				14.5				—				—				52.7

		530.1			2,165.0			46.6			—			2,741.7				688.3				2,151.2				2.3				—				2,841.8


Cost of sales:
Home sales		378.1			1,677.6			31.1			—			2,086.8				427.8				1,588.1				1.2				—				2,017.1
Land/lot sales		2.3			26.8			—			—			29.1				8.1				11.2				—				—				19.3

																		435.9				1,599.3				1.2				—				2,036.4
		380.4			1,704.4			31.1			—			2,115.9

Gross profit:
Home sales		149.7			443.5			15.5			—			608.7				222.3				548.6				1.1				—				772.0
Land/lot sales		—			17.1			—			—			17.1				30.1				3.3				—				—				33.4

		149.7			460.6			15.5			—			625.8				252.4				551.9				1.1				—				805.4

Selling, general and administrative expense		89.9			147.5			3.7			3.2			244.3				77.0				246.6				2.1				—				325.7
Equity in income of subsidiaries																		(325.9	)			—				—				325.9				—
Interest expense																		4.5				—				—				—				4.5
Other (income) expense		(348.8	)		(3.6	)		3.4			341.6			(7.4	)			(3.3	)			(1.0	)			(0.6	)			—				(4.9	)

																		500.1				306.3				(0.4	)			(325.9	)			480.1
		408.6			316.7			8.4			(344.8	)		388.9

Financial services:
Revenues		—			—			48.7			—			48.7				—				—				61.3				—				61.3
General and administrative expense		—			—			35.4			(3.2	)		32.2				—				—				47.3				—				47.3
Interest expense		—			—			1.6			—			1.6				—				—				8.2				—				8.2
Other (income)		—			—			(4.8	)		—			(4.8	)			—				—				(14.2	)			—				(14.2	)

		—			—			16.5			3.2			19.7				—				—				20.0				—				20.0

Income before income taxes		408.6			316.7			24.9			(341.6	)		408.6				500.1				306.3				19.6				(325.9	)			500.1
Provision for income taxes		157.3			121.9			9.6			(131.5	)		157.3				190.0				116.4				7.4				(123.8	)			190.0

Net income	$	251.3		$	194.8		$	15.3		$	(210.1	)	$	251.3			$	310.1			$	189.9			$	12.2			$	(202.1	)		$	310.1

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

NOTE KM — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
~~Nine~~Three Months Ended ~~June 30,~~December 31, 2004


	D.R.			Guarantor			Non-Guarantor									D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total			Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)																(In millions)
Homebuilding:
Revenues:
Home sales	$	1,273.4		$	5,709.3		$	98.0		$	—		$	7,080.7		$	481.7		$	1,947.1		$	20.3		$	—		$	2,449.1
Land/lot sales		10.9			106.9			—			—			117.8			8.7			16.3			—			—			25.0

		1,284.3			5,816.2			98.0			—			7,198.5			490.4			1,963.4			20.3			—			2,474.1


Cost of sales:
Home sales		918.8			4,501.7			69.5			—			5,490.0			338.6			1,478.8			14.1			—			1,831.5
Land/lot sales		7.0			65.4			—			—			72.4			7.3			8.3			—			—			15.6

																	345.9			1,487.1			14.1			—			1,847.1
		925.8			4,567.1			69.5			—			5,562.4

Gross profit:
Home sales		354.6			1,207.6			28.5			—			1,590.7			143.1			468.3			6.2			—			617.6
Land/lot sales		3.9			41.5			—			—			45.4			1.4			8.0			—			—			9.4

		358.5			1,249.1			28.5			—			1,636.1			144.5			476.3			6.2			—			627.0

Selling, general and administrative expense		235.5			427.2			8.2			8.6			679.5			91.7			161.2			1.8			3.0			257.7
Interest expense		3.0			—			0.3			—			3.3
Equity in income of subsidiaries																	(339.5	)		—			—			339.5			—
Other (income) expense		(897.0	)		(7.2	)		7.6			889.5			(7.1	)		0.5			(5.4	)		—			—			(4.9	)

																	391.8			320.5			4.4			(342.5	)		374.2
		1,017.0			829.1			12.4			(898.1	)		960.4

Financial services:
Revenues		—			—			131.7			—			131.7			—			—			46.0			—			46.0
General and administrative expense		—			—			92.4			(8.6	)		83.8			—			—			35.7			(3.0	)		32.7
Interest expense		—			—			4.0			—			4.0			—			—			2.4			—			2.4
Other (income)		—			—			(12.7	)		—			(12.7	)		—			—			(6.7	)		—			(6.7	)

		—			—			48.0			8.6			56.6			—			—			14.6			3.0			17.6


Income before income taxes		1,017.0			829.1			60.4			(889.5	)		1,017.0			391.8			320.5			19.0			(339.5	)		391.8
Provision for income taxes		391.5			319.2			23.2			(342.4	)		391.5			150.8			123.4			7.3			(130.7	)		150.8

Net income	$	625.5		$	509.9		$	37.2		$	(547.1	)	$	625.5		$	241.0		$	197.1		$	11.7		$	(208.8	)	$	241.0

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

NOTE KM — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
~~Nine~~Three Months Ended ~~June 30,~~December 31, 2005

D.R. Guarantor Non-Guarantor
Horton, Inc. Subsidiaries Subsidiaries Eliminations Total
(In millions)
OPERATING ACTIVITIES

Net income $ 906.7 $ 694.2 $ 38.0 $ (732.2 ) $ 906.7
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 5.0 31.8 2.4 — 39.2
Amortization of debt premiums, discounts and fees 3.1 — — — 3.1
Changes in operating assets and liabilities:
(Increase) decrease in inventories (624.6 ) (1,388.1 ) 8.9 — (2,003.8 )
Increase in earnest money deposits and other assets (42.9 ) (67.3 ) (23.1 ) — (133.3 )
Increase in mortgage loans held for sale — — (205.4 ) — (205.4 )
Increase (decrease) in accounts payable and other liabilities 87.6 208.0 (3.0 ) — 292.6

Net cash provided by (used in) operating activities 334.9 (521.4 ) (182.2 ) (732.2 ) (1,100.9 )

INVESTING ACTIVITIES

Net purchases of property and equipment (2.2 ) (40.9 ) (1.6 ) — (44.7 )

Net cash used in investing activities (2.2 ) (40.9 ) (1.6 ) — (44.7 )

FINANCING ACTIVITIES

Net change in notes payable 645.2 (12.9 ) 213.9 — 846.2
(Decrease) increase in intercompany payables (1,223.0 ) 1,177.3 (11.5 ) 57.2 —
Proceeds from stock associated with certain employee benefit plans 21.5 — — — 21.5
Cash dividends/distributions paid (68.3 ) (675.0 ) — 675.0 (68.3 )

Net cash (used in) provided by financing activities (624.6 ) 489.4 202.4 732.2 799.4

(Decrease) increase in cash and cash equivalents (291.9 ) (72.9 ) 18.6 — (346.2 )
Cash and cash equivalents at beginning of period 338.9 131.6 47.5 — 518.0

Cash and cash equivalents at end of period $ 47.0 $ 58.7 $ 66.1 $ — $ 171.8


	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations		Total
	(In millions)
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities		(259.1	)		(1,184.2	)		430.7			—		(1,012.6	)

INVESTING ACTIVITIES
Net purchases of property and equipment		(3.1	)		(14.5	)		(0.8	)		—		(18.4	)

Net cash used in investing activities		(3.1	)		(14.5	)		(0.8	)		—		(18.4	)

FINANCING ACTIVITIES
Net change in notes payable		598.8			(0.2	)		(434.9	)		—		163.7
Net change in intercompany receivables/payables		(937.7	)		929.5			8.2			—		—
Purchase of treasury stock		(36.8	)		—			—			—		(36.8	)
Proceeds from stock associated with certain employee benefit plans		4.9			—			—			—		4.9
Income tax benefit from exercise of stock options		2.8			—			—			—		2.8
Cash dividends paid		(28.2	)		—			—			—		(28.2	)

Net cash (used in) provided by financing activities		(396.2	)		929.3			(426.7	)		—		106.4

(Decrease) increase in cash and cash equivalents		(658.4	)		(269.4	)		3.2			—		(924.6	)
Cash and cash equivalents at beginning of period		726.6			381.0			42.2			—		1,149.8

Cash and cash equivalents at end of period	$	68.2		$	111.6		$	45.4		$	—	$	225.2

-19-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) –— (Continued)
~~June 30,~~December 31, 2005

NOTE KM — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
~~Nine~~Three Months Ended ~~June 30,~~December 31, 2004

D.R. Guarantor Non-Guarantor
Horton, Inc. Subsidiaries Subsidiaries Eliminations Total
(In millions)
OPERATING ACTIVITIES

Net income $ 625.5 $ 509.9 $ 37.2 $ (547.1 ) $ 625.5
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 5.9 26.0 2.5 — 34.4
Amortization of debt premiums, discounts and fees 5.0 — — — 5.0
Changes in operating assets and liabilities:
(Increase) decrease in inventories (310.1 ) (1,042.6 ) 18.6 — (1,334.1 )
Increase in earnest money deposits and other assets (5.9 ) (32.8 ) (0.9 ) — (39.6 )
Decrease in mortgage loans held for sale — — 71.9 — 71.9
(Decrease) increase in accounts payable and other liabilities (44.6 ) 130.6 (12.1 ) — 73.9

Net cash provided by (used in) operating activities 275.8 (408.9 ) 117.2 (547.1 ) (563.0 )

INVESTING ACTIVITIES

Net purchases of property and equipment (7.0 ) (29.5 ) (2.8 ) — (39.3 )

Net cash used in investing activities (7.0 ) (29.5 ) (2.8 ) — (39.3 )

FINANCING ACTIVITIES

Net change in notes payable 414.3 (29.4 ) (88.7 ) — 296.2
(Decrease) increase in intercompany payables (769.0 ) 751.6 (29.7 ) 47.1 —
Proceeds from stock associated with certain employee benefit plans 11.5 — — — 11.5
Cash dividends/distributions paid (48.2 ) (500.0 ) — 500.0 (48.2 )

Net cash (used in) provided by financing activities (391.4 ) 222.2 (118.4 ) 547.1 259.5

Decrease in cash and cash equivalents (122.6 ) (216.2 ) (4.0 ) — (342.8 )
Cash and cash equivalents at beginning of period 196.1 319.0 67.8 — 582.9

Cash and cash equivalents at end of period $ 73.5 $ 102.8 $ 63.8 $ — $ 240.1


	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations		Total
	(In millions)
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities		(258.0	)		(397.7	)		96.6			—		(559.1	)

INVESTING ACTIVITIES
Net purchases of property and equipment		(0.7	)		(13.0	)		(0.4	)		—		(14.1	)

Net cash used in investing activities		(0.7	)		(13.0	)		(0.4	)		—		(14.1	)

FINANCING ACTIVITIES
Net change in notes payable		518.0			(0.6	)		(92.7	)		—		424.7
Net change in intercompany receivables/payables		(332.8	)		330.2			2.6			—		—
Proceeds from stock associated with certain employee benefit plans		6.2			—			—			—		6.2
Cash dividends paid		(18.7	)		—			—			—		(18.7	)

Net cash provided by (used in) financing activities		172.7			329.6			(90.1	)		—		412.2

(Decrease) increase in cash and cash equivalents		(86.0	)		(81.1	)		6.1			—		(161.0	)
Cash and cash equivalents at beginning of period		338.9			131.6			47.5			—		518.0

Cash and cash equivalents at end of period	$	252.9		$	50.5		$	53.6		$	—	$	357.0

-20-

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~ITEM 2. OVERVIEW~~


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are the largest homebuilding company in the United States based on domestic homes closed in ~~2004.~~2005. We construct and sell single-family homes in metropolitan areas in 2326 states and 7177 markets primarily under the name of D.R. Horton,America’s Builder. Our homebuilding operations primarily include the construction and sale of single-family ~~detached and attached~~ homes with sales prices generally ranging from ~~$80,000~~$90,000 to $900,000. Approximately 84% of home sales revenues were generated from the sale of single-family detached homes for the three months ended December 31, 2005 and 2004. The remainder of home sales revenues were generated from the sale of attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs.

Through our financial services operations, we provide mortgage banking and title agency services to homebuyers in many of our homebuilding markets. DHI Mortgage, our wholly-owned subsidiary, provides mortgage financing services principally to purchasers of homes we build and sell. We originate mortgage loans, then package and sell them and their servicing rights to third-party investors shortly after origination. Our subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services primarily to purchasers of homes we build and sell.

Our operating strategy in fiscal 2006 remains focused on taking advantage of opportunities to grow our homebuilding business profitability through capturing greater market share, while continuing to maintain a strong balance sheet. We plan to execute our growth strategy primarily by investing our available capital in our existing homebuilding markets through our capital allocation process and entering new markets, mainly through the opening of satellite operations in smaller markets near our existing operating divisions, as opportunities are available. We will also continue to evaluate homebuilding acquisition opportunities as they arise.

-21-

We conduct our homebuilding operations in all of the ~~following~~ geographic regions, states and markets listed below, and we conduct our mortgage and title operations in many of these markets as indicated below. New markets entered in the ~~markets indicated below:~~first quarter of fiscal 2006 are denoted by an asterisk (*).


		Mortgage (M)
State	Region/Market	Title (T)
	Mid-Atlantic Region
Delaware	Delaware Valley		M,T
Maryland	Baltimore		M,T
	Suburban Washington D.C.		M,T
New Jersey	New Jersey		M,T
New York	Sullivan County *
North Carolina	Brunswick County
	Charlotte		M
	Greensboro/Winston-Salem		M
	Raleigh/Durham		M
Pennsylvania	Philadelphia
	~~York/~~Lancaster		M
South Carolina	Charleston		M
	Columbia		M
	Greenville		M
	Hilton Head		M
	Myrtle Beach		M
Virginia	Northern Virginia		M,T

	Midwest Region
Illinois	Chicago		M
Minnesota	Minneapolis/St. Paul		M,T
Wisconsin	Kenosha

	Southeast Region
Alabama	Birmingham		M
	Huntsville		M
Georgia	Atlanta		M,T
	Macon
	Savannah		M
Florida	Daytona Beach		M
	Fort Myers/Naples		M,T
	Jacksonville		M,T
	Melbourne		M,T
	Miami/West Palm Beach		M,T
	Orlando		M,T
	Pensacola *
	Tampa		M,T
Louisiana	Baton Rouge


		Mortgage (M)
State	Region/Market	Title (T)
	Southwest Region
Arizona	Casa Grande		M,T
	Phoenix		M,T
	Tucson		M
New Mexico	Albuquerque		M
	Las Cruces		M
Oklahoma	Oklahoma City		M
Texas	Austin		M,T
	Dallas		M,T
	Fort Worth		M,T
	Houston		M,T
	Killeen/Temple		M,T
	Laredo		M,T
	Rio Grande Valley		M,T
	San Antonio		M,T
	Waco		M,T

	West Region
California	Bakersfield/Lancaster/Palmdale		M
	Fresno/Modesto		M
	Imperial Valley *
	Los Angeles County		M
	Oakland/North Bay		M
	Orange County		M
	Riverside/San Bernardino		M
	Sacramento		M
	San Diego County		M
	San Francisco		M
	San Jose/Pleasanton/East Bay		M
	Ventura County		M
Colorado	Colorado Springs		M
	Denver		M
	Ft. Collins		M
Hawaii	Hawaii		M
	Maui		M
	Oahu		M
Nevada	Las Vegas		M,T
	Reno		M
Oregon	Albany		M
	Bend		M
	Eugene		M
	Portland		M
Utah	Salt Lake City		M
Washington	Olympia		M
	Seattle/Tacoma		M
	Vancouver		M

~~-22-~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

SALES ORDER BACKLOG

As of June 30,
Homes in Backlog Value (In millions) Average Selling Price
% % %
2005 2004 Change 2005 2004 Change 2005 2004 Change
Mid-Atlantic 2,812 1,861 51 % $ 825.3 $ 523.5 58 % $ 293,500 $ 281,300 4 %
Midwest 1,701 1,177 45 % 502.3 355.5 41 % 295,300 302,000 (2 )%
Southeast 4,027 2,730 48 % 1,047.0 624.0 68 % 260,000 228,600 14 %
Southwest 8,543 7,415 15 % 1,796.9 1,280.8 40 % 210,300 172,700 22 %
West 6,833 6,348 8 % 2,853.2 2,372.7 20 % 417,600 373,800 12 %

23,916 19,531 22 % $ 7,024.7 $ 5,156.5 36 % $ 293,700 $ 264,000 11 %

HOMES CLOSED

Three Months Ended June 30,
Homes Closed Value (In millions) Average Selling Price
% % %
2005 2004 Change 2005 2004 Change 2005 2004 Change
Mid-Atlantic 978 994 (2 )% $ 253.1 $ 226.0 12 % $ 258,800 $ 227,400 14 %
Midwest 563 534 5 % 146.7 147.3 — % 260,600 275,800 (6 )%
Southeast 1,942 1,360 43 % 447.9 281.9 59 % 230,600 207,300 11 %
Southwest 4,819 4,565 6 % 892.8 769.3 16 % 185,300 168,500 10 %
West 3,967 3,597 10 % 1,536.6 1,271.0 21 % 387,300 353,400 10 %

12,269 11,050 11 % $ 3,277.1 $ 2,695.5 22 % $ 267,100 $ 243,900 10 %

Nine Months Ended June 30,
Homes Closed Value (In millions) Average Selling Price
% % %
2005 2004 Change 2005 2004 Change 2005 2004 Change
Mid-Atlantic 2,681 2,637 2 % $ 671.6 $ 588.0 14 % $ 250,500 $ 223,000 12 %
Midwest 1,418 1,421 — % 371.2 385.8 (4 )% 261,800 271,500 (4 )%
Southeast 5,039 3,763 34 % 1,137.3 750.8 51 % 225,700 199,500 13 %
Southwest 13,472 12,938 4 % 2,405.5 2,140.3 12 % 178,600 165,400 8 %
West 9,940 9,356 6 % 3,847.3 3,215.8 20 % 387,100 343,700 13 %

32,550 30,115 8 % $ 8,432.9 $ 7,080.7 19 % $ 259,100 $ 235,100 10 %

~~HOMEBUILDING OPERATING MARGIN ANALYSIS~~

Percentages of Total Homebuilding Revenues
Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
Gross profit:
Home sales 26.3 % 22.6 % 25.5 % 22.5 %
Land/lot sales 47.5 % 37.0 % 40.6 % 38.5 %

Total homebuilding gross profit 26.6 % 22.8 % 25.8 % 22.7 %
Selling, general and administrative expense 9.1 % 8.9 % 9.6 % 9.4 %
Interest expense — % — % — % — %
Other (income) — % (0.3 )% (0.1 )% (0.1 )%
Income before income taxes 17.4 % 14.2 % 16.4 % 13.3 %

~~-24-~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Net Sales Orders and Backlog

Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of sales contract cancellations. The value of net sales orders increased ~~29%~~19%, to ~~$4,134.8~~$3,166.8 million ~~(14,980~~(11,463 homes) for the three months ended ~~June 30,~~December 31, 2005, from ~~$3,216.3~~$2,655.7 million ~~(12,444~~(9,901 homes) for the same period of 2004. The value of net sales orders increased 27% to $10,889.2 million (39,282 homes) for the nine months ended June 30, 2005, from $8,583.8 million (34,158 homes) for the same period of 2004. The average price of a net sales order in the three months ended June 30, 2005 was $276,000, up 7% from the $258,500 average in the comparable period of 2004. The average price of a net sales order in the nine months ended June 30, 2005 was $277,200, up 10% from the $251,300 average in the comparable period of 2004. The number and value of net sales orders during the ~~three and nine-month periods~~three-month period increased in each of our five market regions, ~~with all regions producing double-digit increases in both categories during the three-month period. These results reflect~~reflecting the successful execution of our organic growth strategies and the ~~overall strong~~generally solid demand for our homes.

The largest percentage ~~increase~~increases in the value of net sales orders during the three-month period occurred in our Southwest and Midwest ~~region,~~regions, which ~~is comprised~~achieved increases of ~~only three markets,~~37% and ~~where our efforts to offer more lower priced products in the Chicago market helped contribute to a 62% increase in the number of units sold for the region.~~25%, respectively. The ~~largest percentage~~ increase in the value of net sales orders ~~during the nine-month period occurred~~in our Southwest region was due to particularly strong sales performances from our operating divisions in Arizona, New Mexico and Texas. The increase in the ~~Southeast region, as we continue to expand our presence~~value of net sales orders in our ~~Florida markets where housing demand is high.~~ Midwest region, which also generated our largest percentage increase in the number of net sales orders of 30%, was due to strong sales increases from our Chicago division.

The average price of a net sales ~~orders during~~order in the three months ended December 31, 2005 was $276,300, up 3% from the $268,200 average in the comparable period of 2004. The overall increase in the average price of a net sales order was due to increases of 13% in both our Southeast and ~~nine-month periods increased~~Southwest regions. Our other three regions experienced slight decreases in ~~four~~average net sales order prices, reflecting our efforts to continually adjust our product and geographic mix and pricing within many of our ~~five market regions, demonstrating~~homebuilding markets to ensure that our ~~ability to increase prices in the markets where demand~~core product offerings remain affordable for our ~~homes is strongest.~~target customer base, typically first-time and move-up homebuyers. In the ~~Midwest~~West region, home price appreciation in many California markets more than offset the impact of our product affordability strategies during fiscal 2005, resulting in an increase in the average sales order price ~~for~~in the region. During the three ~~and nine-month periods was down 3% and 7%, respectively, due~~months ended December 31, 2005, home price appreciation moderated in several of these California markets, which contributed to ~~efforts to offer more lower priced products~~the decline in the ~~Chicago market.~~West region average sales order price during the quarter.

Sales order backlog represents homes under contract but not yet closed at the end of the period. Some of the contracts in our sales order backlog are subject to contingencies, including mortgage loan approval, ~~that~~which can result in cancellations. In the past, our backlog has been a reliable indicator of the level of closings in our two subsequent fiscal quarters, although some contracts in backlog will not result in closings.

At ~~June 30,~~December 31, 2005, the value of our backlog of sales orders was ~~$7,024.7~~$6,213.0 million ~~(23,916~~(20,816 homes), up ~~36%~~30% from ~~$5,156.5~~$4,775.2 million ~~(19,531~~(17,405 homes) at ~~June 30,~~December 31, 2004. The average sales price of homes in backlog was $298,500 at December 31, 2005, up 9% from the $274,400 average at December 31, 2004. All regions produced double-digit percentage increases in the value of sales order backlog, ~~was $293,700 at June 30, 2005, up 11% from the average price~~led by increases of ~~$264,000 at June 30, 2004. The value of~~57% in our ~~backlog of sales orders was up~~Southwest region and 49% in ~~all of~~ our ~~five market regions, with the Southeast and Mid-Atlantic regions showing the largest percentage increases from the prior period, up 68% and 58%, respectively. These increases are the~~Midwest region, as a result of ~~our continued efforts to expand our presence~~particularly strong sales in ~~our Florida, New Jersey and Northern Virginia markets. The increase in our average selling price is due to our ability to increase prices in the markets where demand for our homes is strongest.~~both regions.

Home Sales Revenue and Gross Profit

Revenues from home sales increased ~~22%~~14%, to ~~$3,277.1~~$2,789.1 million ~~(12,269~~(9,891 homes closed) for the three months ended ~~June 30,~~December 31, 2005, from ~~$2,695.5~~$2,449.1 million (11,050 homes closed) for the comparable period of 2004. Revenues from home sales increased 19%, to $8,432.9 million (32,550 homes closed) for the nine months ended June 30, 2005, from $7,080.7 million (30,115(9,680 homes closed) for the comparable period of 2004. The average selling price of homes we closed during the three months ended ~~June 30,~~December 31, 2005 was ~~$267,100,~~$282,000, up ~~10%~~11% from ~~$243,900 for the same period in 2004. The average selling price of homes closed during the nine months ended June 30, 2005 was $259,100, up 10% from $235,100~~$253,000 for the same period in 2004. Revenues from home sales increased in ~~four~~all five of our ~~five~~ market regions, ~~during the three and nine-month periods. The increase in our revenues is~~ due to our continued execution of our organic growth strategies in most of our markets and our ability to increase prices in the markets where demand for our homes is strongest. The number of homes closed increased 2%, with increases in four of our five market regions. Only the Southwest region experienced a decline in home closings during the quarter, due primarily to the extraordinarily strong volume of home closings in several markets in Texas and Arizona during the fourth quarter of fiscal 2005, which depleted the number of homes available for closing during the three months ended December 31, 2005.

Gross profit from home sales increased by ~~42%~~25%, to ~~$863.4~~$772.0 million for the three months ended ~~June 30,~~December 31, 2005, from ~~$608.7 million for the comparable period of 2004. Gross profit from home sales increased by 35%, to $2,153.1 million for the nine months ended June 30, 2005, from $1,590.7~~$617.6 million for the comparable period of 2004. Gross profit from home sales as a percentage of home sales revenues increased ~~370~~250 basis points, to ~~26.3%~~27.7% for the three

~~-25-~~

ongoing efforts to re-allocate capital to our more profitable ~~markets. The gross profit improvement also reflects~~markets and a decrease in ~~the~~ capitalized interest amortized to cost of sales ~~resulting~~as a percentage of revenues. Additionally, our home sales revenues and gross profit in the three-month period ended December 31, 2005 benefited from ~~improvement~~the recognition of $14.9 million which had been previously deferred in accordance with Statement of Financial Accounting Standards (SFAS) No. 66. Our goal is to increase our ~~homebuilding leverage ratios~~gross profits as a percentage of revenue in fiscal 2006 as compared to fiscal 2005; however, we expect that our gross profit percentage changes will vary from quarter to quarter in fiscal 2006. Our gross profit percentage may not increase as significantly in future quarters as we experienced in the first quarter of fiscal 2006, and it is possible that our ~~debt refinancing efforts over~~gross profit percentage in a future quarter may decline as compared to the ~~past two years.~~same quarter in the prior year or as compared to the first quarter of fiscal 2006. Our gross profit percentages in the third and fourth quarters of fiscal 2006 will be determined to a significant extent by our net sales orders during our second and third quarters of fiscal 2006.

Land Sales Revenue and Gross Profit

Land sales revenues ~~decreased 30%~~increased 111%, to ~~$32.4~~$52.7 million for the three months ended ~~June 30,~~December 31, 2005, ~~and increased 51%, to $177.5~~from $25.0 million for the ~~nine~~three months ended ~~June 30, 2005, from $46.2 million and $117.8 million in the comparable periods of~~December 31, 2004. ~~The increase in land sales revenue for the nine-month period is due to our sale of a single, commercially-zoned parcel in our West region in March 2005.~~ The gross profit percentage from land sales increased to ~~47.5%~~63.4% for the three months ended ~~June 30,~~December 31, 2005, from ~~37.0%~~37.6% in the comparable period of ~~the prior year, and increased to 40.6% for the nine months ended June 30, 2005 from 38.5% in~~ the prior year. The fluctuations in revenues and gross profit percentages from land sales are a function of how we manage our inventory levels in various markets. We generally purchase land and lots with the intent to build and sell homes on ~~them.~~them; however, we occasionally purchase land that includes commercially zoned parcels which we typically sell to commercial developers. Our land sales during the three-month period ended December 31, 2005 were primarily commercially zoned properties adjacent to our homebuilding projects in various markets. When we have the opportunity ~~and the~~or need to sell land or lots, ~~in our various markets to manage inventories at desired levels, or because the land is not zoned for residential construction,~~ the resulting land sales occur at unpredictable intervals and varying degrees of profitability. Therefore, the revenues and gross profit from land sales can fluctuate significantly from period to period.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expenses from homebuilding activities increased by ~~24%~~26%, to ~~$302.0~~$325.7 million in the three months ended ~~June 30, 2005, and 22%, to $826.7 million in the nine months ended June 30,~~December 31, 2005, from the comparable ~~periods~~period of 2004. As a percentage of homebuilding revenues, SG&A expenses increased 20110 basis points, ~~in both the three months and nine months ended June 30, 2005,~~ to ~~9.1% and 9.6%~~11.5% for the three months ~~and nine months~~ ended ~~June 30,~~December 31, 2005, ~~respectively,~~ from 10.4% in the comparable ~~periods~~period of 2004. Our homebuilding SG&A expense as a percentage of revenues can vary significantly between quarters, depending largely on the relative fluctuations in quarterly revenue levels. ~~The increases~~Our homebuilding SG&A expense is typically at its highest percentage of revenues in the first fiscal quarter. Throughout fiscal 2005 and the first quarter of fiscal 2006, we increased the infrastructure of our homebuilding operations to support the delivery of over 51,000 homes in fiscal 2005, a 17% increase over the previous year, and in anticipation of further planned growth in home closings in fiscal 2006. Much of our fiscal 2006 growth in home closings is planned to occur during the second half of fiscal 2006. As home closings increased only 2% during the quarter ended December 31, 2005, our SG&A expenses as a percentage of ~~homebuilding~~ revenues increased during the quarter. We expect our SG&A expense ratio to decline later in ~~the three and nine-month periods are due primarily to costs associated with the growth of~~fiscal 2006 from our ~~infrastructure to support our planned growth in home deliveries.~~first quarter levels.

Interest Expense

Interest incurred related to homebuilding debt increased by ~~15%~~26%, to ~~$68.8~~$73.7 million in the three months ended ~~June 30,~~December 31, 2005, from ~~$59.7~~$58.5 million in the comparable period inof 2004, ~~while~~which primarily resulted from a 21% increase in our average daily homebuilding debt increased 23% from the prior year period. Interest incurred related to homebuilding debt also increased by 15%, to $204.7 million in the nine months ended June 30, 2005, from $177.7 million in the comparable period in 2004, while our average daily homebuilding debt increased 26% from the prior year period. Interest incurred increased at a ~~slower~~faster rate than ~~average~~our debt ~~because we have replaced certain~~due to increases over the past year in the London Interbank Offered Rate (LIBOR), which is the basis of our ~~higher~~ interest rate ~~notes with notes bearing lower interest rates, and we restructured and amended~~on our ~~unsecured~~ revolving credit ~~facility in March 2004, which lowered our interest costs.~~facility.

We capitalize interest costs only to inventory under construction or development. During both years, our inventory under construction or development exceeded our interest-bearing debt; therefore, we capitalized virtually all interest from homebuilding debt. Interest expense of $3.3 million for the nine-month period of 2004 included $3.1 million of unamortized issuance costs related to restructuring our revolving credit facility during the quarter ended March 31, 2004. Interest amortized to cost of sales was ~~2.5%~~2.2% of total cost of sales in ~~both~~ the three ~~and nine month periods~~months ended ~~June 30,~~December 31, 2005, compared to ~~3.1%~~2.3% in ~~both~~the same period of ~~the comparable periods of~~ 2004. ~~The reduction in interest amortized to cost of sales as a percentage of total cost of sales for the three and nine-month periods is a direct result~~

~~-26-~~-25-

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~of the reductions in our homebuilding leverage ratios and our debt refinancing efforts over the past two years, which has also reduced our capitalized interest as a percentage of inventory.~~

Other Income

Other income, net of other expenses, associated with homebuilding activities was ~~$0.5~~$4.9 million in both of the ~~three months~~three-month periods ended ~~June 30,~~December 31, 2005 compared to $7.4 million in the comparable period of 2004. Other income associated with homebuilding activities was $11.4 million in the nine months ended June 30, 2005, compared to $7.1 million in the comparable period ofand 2004. The ~~largest component~~major components of other income ~~for the nine-month period is the change~~in both periods were interest income and increases in the fair ~~value~~values of our interest rate swaps.

RESULTS OF OPERATIONS — FINANCIAL SERVICES

The following tables set forth key operating and financial data for our financial services ~~operations:~~operations, comprising DHI Mortgage and our subsidiary title companies, for the three months ended December 31, 2005 and 2004:

Three Months Ended June 30, Nine Months Ended June 30,
% %
2005 2004 Change 2005 2004 Change
($ in millions)
Loan origination fees $ 11.0 $ 9.4 17 % $ 28.0 $ 24.7 13 %
Sale of servicing rights and gains from sale of mortgages 29.1 23.9 22 % 76.1 64.9 17 %
Other revenues 8.5 6.1 39 % 21.2 15.3 39 %

Total mortgage banking revenues 48.6 39.4 23 % 125.3 104.9 19 %
Title policy premiums, net 12.1 9.3 30 % 31.2 26.8 16 %

Total revenues 60.7 48.7 25 % 156.5 131.7 19 %
General and administrative expense 38.5 32.2 20 % 105.1 83.8 25 %
Interest expense 4.1 1.6 156 % 9.1 4.0 128 %
Other (income) (9.0 ) (4.8 ) 88 % (22.0 ) (12.7 ) 73 %

Income before income taxes $ 27.1 $ 19.7 38 % $ 64.3 $ 56.6 14 %


	Three Months Ended December 31,
	2005		2004		% Change
Number of first-lien loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers		6,346		5,982		6	%
Number of homes closed by D.R. Horton		9,891		9,680		2	%
Mortgage capture rate		64%		62%
Number of total loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers		8,798		7,633		15	%
Total number of loans originated or brokered by DHI Mortgage		9,476		8,281		14	%
Captive business percentage		93%		92%
Loans sold by DHI Mortgage to third parties		10,815		7,261		49	%


	Three Months Ended December 31,
	2005			2004			% Change
	(In millions)
Loan origination fees	$	11.4		$	7.8			46	%
Sale of servicing rights and gains from sale of mortgages		31.9			23.5			36	%
Other revenues		7.4			5.9			25	%

Total mortgage banking revenues		50.7			37.2			36	%
Title policy premiums, net		10.6			8.8			20	%

Total revenues		61.3			46.0			33	%
General and administrative expenses		47.3			32.7			45	%
Interest expense		8.2			2.4			242	%
Other (income)		(14.2	)		(6.7	)		112	%

Income before income taxes	$	20.0		$	17.6			14	%

FINANCIAL SERVICES OPERATING MARGIN ANALYSIS


													Percentages of
	Percentages of Total Financial Services Revenues												Financial Services Revenues
	Three Months Ended						Nine Months Ended						Three Months Ended
	June 30,						June 30,						December 31,
	2005			2004			2005			2004			2005			2004
General and administrative expense		63.4	%		66.1	%		67.2	%		63.6	%		77.2	%		71.1	%
Interest expense		6.8	%		3.3	%		5.8	%		3.0	%		13.4	%		5.2	%
Other (income)		(14.8	)%		(9.9	)%		(14.1	)%		(9.6	)%		(23.2	)%		(14.6	)%
Income before income taxes		44.6	%		40.5	%		41.1	%		43.0	%		32.6	%		38.3	%

(the percentage of total home closings from our own homebuyers for which DHI Mortgage handled the financing) increased to 64% in the three months ended December 31, 2005, from 62% in the comparable prior year period.

Home closings from our own homebuyers constituted 93% of DHI Mortgage loan originations in the three months ended December 31, 2005, compared to 92% in the comparable period of 2004, reflecting DHI Mortgage’s continued focus on supporting the captive business provided by our homebuilding operations.

The number of loans sold to third-party investors increased 49% in the three months ended December 31, 2005 from the comparable period of 2004. This increase was primarily attributable to the high volume of mortgage loans held at September 30, 2005, most of which were sold in the three-month period ended December 31, 2005 and were the result of our homebuilding operations’ significant increase in home closings during the fourth quarter of fiscal 2005, compared to the same period of fiscal 2004.

Financial Services ~~Revenue~~Revenues and Expenses

Revenues from the financial services segment increased ~~25%~~33% to ~~$60.7~~$61.3 million in the three months ended ~~June 30, 2005, from the comparable period of 2004. Revenues from the financial services segment increased 19% to $156.5 million in the nine months ended June 30,~~December 31, 2005, from the comparable period of 2004. The increase in financial services revenues was primarily due to increases in the number of mortgage loans originated and sold, ~~to third-party investors and title policy premiums, resulting from~~while the ~~growth of our homebuilding operations.~~average mortgage revenues earned per loan sold remained relatively constant. The majority of the revenues associated with our mortgage operations are recognized when the mortgage loans and related servicing rights are sold to third-party investors.

~~-27-~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~General and Administrative Expense~~

General and administrative expenses associated with financial services increased ~~20% and 25%,~~45% to ~~$38.5 million and $105.1~~$47.3 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2005, respectively, from the comparable periods of 2004. As a percentage of financial services revenues, general and administrative expenses in the three-month period ended June 30, 2005 was 63.4%, an improvement of 270 basis points from the comparable period of 2004. As a percentage of financial services revenues, general and administrative expenses ~~in the nine-month period ended June 30, 2005~~ was ~~67.2%~~77.2%, an increase of ~~360~~610 basis points ~~from~~over the comparable period of 2004. The ~~decrease~~increase in general and administrative ~~expenses~~expense as a percentage of financial services revenue ~~during the three-month period~~ was due primarily to the quarterly increase in revenues, which better leveraged our fixed costs than in the prior year quarter. The increase in general and administrative expenses as a percentage of financial services revenue during the nine-month period was due primarily to changes in the product mix of mortgage loans originated and sold, increased competition in the mortgage industry and our efforts to ~~strengthen~~ensure that our financial services infrastructure towill support our ~~growing~~planned growth in our homebuilding ~~business.~~business, much of which is planned to occur during the second half of fiscal 2006.

RESULTS OF OPERATIONS — CONSOLIDATED

Income Before Income Taxes

Income before income taxes for the three months ended ~~June 30,~~December 31, 2005, increased ~~48%~~28% from the comparable period of 2004, to ~~$604.4 million. Income before income taxes for the nine months ended June 30, 2005, increased 45% from the comparable period of 2004, to $1,474.2~~$500.1 million. As a percentage of revenues, income before income taxes for the three months ended ~~June 30,~~December 31, 2005 was ~~17.9%~~17.2%, an increase of ~~330 basis points from the comparable period of 2004. As a percentage of revenues, income before income taxes for the nine months ended June 30, 2005 was 16.8%, an increase of 290~~170 basis points from the comparable period of 2004. The primary factor contributing to these improvements was a 180 basis point increase in the homebuilding segment’s pre-tax operating margin, which ~~increased 320 basis points and 310 basis points versus~~was slightly offset by a decrease in the ~~three and nine months ended June 30, 2004, respectively.~~pre-tax operating margin of our financial services segment.

Provision for Income Taxes

The consolidated provision for income taxes for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2005, increased ~~48% and 45%~~26% from the comparable ~~periods~~period of 2004, to ~~$232.7~~$190.0 million, ~~and $567.5 million, respectively,~~ due to the corresponding increase in income before income taxes. The effective income tax rate for ~~all periods was~~the three months ended December 31, 2005 decreased to 38.0%, from 38.5%.

~~During~~ for the comparable period of 2004, due to the expected tax benefits of the American Jobs Creation Act ~~was signed into law. The tax benefits, if any, resulting from this legislation will be~~of 2004, which became effective ~~for~~in our first quarter of fiscal ~~year ending September 30,~~ 2006. ~~We are currently evaluating the impact of this law on our future effective income tax rate and consolidated financial statements.~~

CAPITAL RESOURCES AND LIQUIDITY

We fund our homebuilding and financial services operations with cash flows from operating activities, borrowings under our bank credit facilities and the issuance of new debt securities. As we utilize our capital resources and liquidity to fund the growth of our operations, we have focused on maintaining strong balance sheet leverage ratios.

At ~~June 30,~~December 31, 2005, our ratio of net homebuilding debt to total capital was ~~42.4%~~42.3%, increasing from ~~38.9%~~32.2% at September 30, ~~2004,~~2005, and decreasing from ~~43.6%~~43.4% at ~~June 30,~~December 31, 2004. Net homebuilding debt to total capital

-27-

consists of homebuilding notes payable ~~(net~~net of ~~cash)~~cash divided by total capital (homebuilding notes payable net of cash plus stockholders’ equity). The increase in our ratio of net homebuilding debt to total capital at ~~June 30,~~December 31, 2005 as compared with the ratio at September 30, ~~2004 is~~2005 was due to the decrease in cash and the increase in borrowings associated with funding aour planned first quarter increase in inventory, and iswas partially offset by the increase in retained earnings. We increased construction in progress inventory to support higher home closings planned for our fourth fiscal quarter, and we increased residential lot inventory to support our planned growth in home closings in future years. For the same reasons, our stockholders’ equityThe 42.3% net homebuilding debt to total ~~assets~~capital ratio ~~decreased 50 basis points,~~at December 31, 2005 is in line with our targeted fiscal year-end operating leverage level of less than 45%.

We believe that the ratio of net homebuilding debt to ~~43.6%~~total capital is useful in understanding the leverage employed in our homebuilding operations and comparing us with other homebuilders. We exclude the debt of our financial services business because the business is separately capitalized, its debt is substantially collateralized and our financial services debt is not guaranteed by our parent company or any of our homebuilding entities. We include cash because of its capital function. For comparison, at ~~June~~December 31, 2005 and 2004, our ratios of homebuilding debt to total capital were 43.4% and 45.7%, respectively. At September 30, 2005, ~~from 44.1% at September 30, 2004.~~

~~-28-~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~our ratio of homebuilding debt to total capital was 40.6%.

We believe that we will be able to continue to fund our homebuilding and financial services operations and our future cash needs (including debt maturities) through a combination of our existing cash resources, cash flows from operations, our existing or renewed credit facilities and the issuance of new debt securities through the public capital markets.

Homebuilding Capital Resources

Cash —At ~~June 30,~~December 31, 2005, our available homebuilding cash and cash equivalents amounted to ~~$109.8~~$182.5 million.

Bank Credit Facility —–We have a ~~$1.21~~$2.15 billion unsecured revolving credit facility, which includes a ~~$350 million~~$1.0 billion letter of credit sub-facility, that matures on ~~March 25, 2008.~~December 16, 2010. The revolving credit facility has an uncommitted $750 million accordion provision which could be used to increase the facility to $2.9 billion. The facility is guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries. We borrow funds through the revolving credit facility throughout the year to fund working capital requirements, and we repay such borrowings with cash generated from our operations and from the issuance of public debt securities.

We had ~~$50~~$600.0 million in cash borrowings outstanding on our homebuilding revolving credit facility at ~~June 30,~~December 31, 2005 and no outstanding ~~cash~~ borrowings on the facility at ~~September 30,~~December 31, 2004. Under the debt covenants associated with our revolving credit facility, when we have fewer than two investment grade senior unsecured debt ratings from Moody’s Investors Service, Fitch Ratings and Standard and Poor’s Corporation, our additional homebuilding borrowing capacity under the facility is limited to the lesser of the unused portion of the facility, ~~$1.04~~$1.44 billion at ~~June 30,~~December 31, 2005, or an amount determined under a borrowing base arrangement. Under the borrowing base limitation, the sum of our senior debt and the amount drawn on our revolving credit facility may not exceed certain percentages of the various categories of our unencumbered inventory. ~~At June 30,~~Beginning November 7, 2005, we had the two required investment grade debt ratings, so the borrowing base ~~arrangement would have limited our additional borrowing capacity from any source to $3.1 billion.~~limitation is not currently in effect. At ~~June 30,~~December 31, 2005, we were in compliance with all of the covenants, limitations and restrictions that form a part of our public debt obligations and our bank revolving credit facility.

Redeemable Public Unsecured Debt –Our 9.375% senior subordinated notes due 2011 become redeemable on March 15, 2006 at their principal amount of $200 million plus a 4.688% premium. Our 10.5% senior subordinated notes due 2011 become redeemable on July 15, 2006 at their principal amount of $144.8 million plus a 5.25% premium. We are currently evaluating whether to redeem these notes during fiscal 2006, as well as our capital resource requirements if we choose to redeem these notes.

Shelf Registration Statements —At ~~June 30,~~December 31, 2005, we had the capacity to issue new debt or equity securities amounting to ~~$900 million~~$3.0 billion under our universal shelf registration statement. ~~In July 2005, we issued $300 million of 5.375% senior notes which reduced our capacity under the universal shelf registration statement to $600 million.~~ Also, at ~~June 30,~~December 31, 2005, we had the capacity to issue approximately 22.5 million shares of common stock under our acquisition shelf registration statement, to effect, in whole or in part, possible future business acquisitions. We intend to maintain sufficient capacity under our universal shelf registration statement and our acquisition shelf registration statement to meet our anticipated capital needs, which may result in our updating or filing of additional registration statements.

-28-

Mortgage Warehouse Loan Facility~~- In April 2005, our~~– Our wholly-owned mortgage company ~~restructured and amended its~~has a $300 million mortgage warehouse loan facility ~~increasing the accordion feature to $150 million and extending its maturity to~~that matures April 7, 2006. ~~In June~~During fiscal 2005, we obtained additional commitments of $150 million from our lenders through the facility’s accordion provision and additional temporary commitments of $225 million from our lenders through amendments to the credit agreement, resulting in total capacity of $675 million at September 30, 2005. Through amendments to the credit agreement in October and November 2005, the commitments under the facility were adjusted to $450 million, effective from October 28, 2005 through January 15, 2006. On January 16, 2006, the total capacity returned to $300 million. On January 30, 2006, we obtained additional commitments of $150 million from our lenders through an amendment to the credit agreement, ~~we exercised~~resulting in total capacity of $450 million through the ~~accordion feature and obtained commitments from our lenders that increased the total size~~maturity of the facility to $450 million. We expect the additional $150 million related to the exercise of the accordion feature to remain in place through October 2005, the period in which we expect our highest number of home closings and loan originations to occur.on April 7, 2006. At ~~June 30,~~December 31, 2005, we had borrowings of ~~$308.4~~$419.7 million outstanding under the mortgage warehouse facility.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Our borrowing capacity under this facility is limited to the lesser of the unused portion of the facility or an amount determined under a borrowing base arrangement. Under the borrowing base limitation, the amount drawn on our mortgage warehouse facility may not exceed 98% of all eligible mortgage loans held for sale and made available to the lenders to secure any borrowings under the facility. We are planning to renew and extend this mortgage warehouse loan facility with a group of financial institutions prior to its maturity, at a size and with terms similar to the current facility.

Commercial Paper Conduit Facility-– Our wholly-owned mortgage company also has a $500 million commercial paper conduit facility (the “CP conduit facility”), which expires on June 29, 2006. ~~In June 2005,~~A temporary increase of $200 million was obtained through ~~amendment~~amendments to the credit agreement ~~we increased~~in September 2005, resulting in a total capacity of $700 million effective through October 14, 2005, when the capacity decreased to $600 million available ~~under this facility~~through November 10, 2005. Beginning on November 11, 2005, the total capacity returned to $500 ~~million from its previous capacity of $300~~ million. At ~~June 30,~~December 31, 2005, ~~$400~~we had borrowings of $395.0 million ~~had been drawn~~outstanding under the CP conduit facility. We are evaluating our mortgage subsidiary’s financing needs, and we are planning to renew and extend the CP conduit facility prior to its maturity or ensure sufficient borrowing capacity from other potential debt capital sources.

In the past, we have been able to renew or extend the mortgage warehouse loan facility and the CP conduit facility on satisfactory terms prior to their maturities and obtain temporary additional commitments through amendments of the respective credit agreements during periods of higher than normal volumes of mortgages held for sale. Although we do not anticipate any problems in renewing or extending these facilities or obtaining temporary additional commitments in the future, the liquidity of our financial services business depends upon our continued ability to do so.

The mortgage warehouse loan facility and the CP conduit facility are not guaranteed by either ~~the~~our parent company or any of the subsidiaries that guarantee our homebuilding debt. Borrowings under both facilities are secured by certain mortgage loans held for sale. The mortgage loans ~~pledged~~assigned to secure the CP conduit facility are used as collateral for asset backed commercial paper issued by multi-seller conduits in the commercial paper market. At ~~June 30,~~December 31, 2005, our total mortgage loans held for sale were ~~$828.7~~$907.1 million. All mortgage company activities are financed with the mortgage warehouse facility, the CP conduit facility or internally generated funds. Both of our financial services credit facilities contain financial covenants as to our mortgage subsidiary’s minimum required tangible net worth, its maximum allowable ratio of debt to tangible net worth and its minimum required net income. Our mortgage subsidiary is in compliance with ~~which we are in compliance.~~each of these covenants.

Operating Cash Flow Activities

For the ~~nine~~three months ended ~~June 30,~~December 31, 2005, we used ~~$1.1~~$1.0 billion of cash in our operating activities, as compared to ~~$563.0~~$559.1 million of cash used in such activities during the comparable period of the prior year. The increase in cash used in operating activities iswas due to our decision to fund inventory growth with ~~$2.0~~$1.6 billion to support our planned growth in home closings volume in the remainder of fiscal ~~2005~~2006 and future years.

-29-

A large portion of our cash invested in inventories represents purchases of land and lots that will be used to generate revenues and cash flows in future years. Since we control the amounts and timing of our investments in land and lots based on our inventory growth goals and our market opportunities, ~~and because much of our investments in land and lots will not generate revenues in this fiscal year,~~ we believe that cash flows from operating activities before ~~inventory additions~~increases in residential land and lot inventories is currently a better indicator of our ~~operational~~ liquidity.

Investing Cash Flow Activities

For the ~~nine~~three months ended ~~June 30,~~December 31, 2005 and 2004, cash used in investing activities represented net purchases of property and equipment, primarily model home furniture and office equipment. Such purchases are not significant relative to our total assets or cash flows and typically do not vary significantly from period to period.

Financing Cash Flow Activities

The majority of our short-term financing needs are funded with cash generated from operations and funds available under our homebuilding and financial services credit facilities. Long-term financing needs are generally funded with the issuance of new senior unsecured debt securities through the public capital markets. Our homebuilding senior and senior subordinated notes and borrowings under our homebuilding revolving credit facility are guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries.

In October 2004, we issued $250 million of 4.875% senior notes due 2010. We used the proceeds from this offering for general corporate purposes, including land acquisition and development, home construction and homebuilding operations and other working capital needs.

In December 2004, we issued $300 million of 5.625% senior notes due 2016. We used the proceeds from this offering to repay borrowings under the revolving credit facility and for general corporate purposes, including land acquisition and development, home construction and homebuilding operations and other working capital needs.

In February 2005, we issued $300 million of 5.25% senior notes due 2015. We used the proceeds from this offering to repay borrowings under the revolving credit facility and for general corporate purposes, including land acquisition and development, home construction and homebuilding operations and other working capital needs.

~~In February 2005, our Board of Directors declared a four-for-three stock split (effected as a 33% stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005.~~

~~-30-~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

In July 2005, we issued $300 million of 5.375% senior notes due 2012. We used the proceeds from this offering for general corporate purposes, including the repayment of borrowings under our revolving credit facility and for the early redemption of our 9.375% senior notes due 2009.

During the three months ended ~~June 30,~~December 31, 2005, our Board of Directors declared a quarterly cash dividend of $0.09 per common share, which was paid on ~~May 20,~~October 31, 2005 to stockholders of record on ~~May 6,~~October 20, 2005. A quarterly cash dividend of $0.06 per common share (split-adjusted) was declared during the three months ended December 31, 2004.

In ~~July 2005,~~January 2006, our Board of Directors declared a quarterly cash dividend of ~~$0.09~~$0.10 per common share, payable on ~~August 19, 2005~~February 10, 2006 to stockholders of record on ~~August 5,~~January 27, 2006. A quarterly cash dividend of $0.0675 per common share (split-adjusted) was declared in the comparable quarter of fiscal 2005.

Changes in Capital Structure

In ~~May~~November 2005, our Board of Directors authorized the repurchase of up to ~~$175.6~~$500 million of our common stock and up to $200 million of ~~our~~ outstanding debt securities, ~~as market conditions warrant.~~replacing the previous common stock and debt securities repurchase authorizations. During the three months ended December 31, 2005, we repurchased 1,000,000 shares of our common stock at a total cost of $36.8 million. As of ~~June 30,~~December 31, 2005, we had ~~$175.6~~$463.2 million remaining of the Board of Directors’ authorization for repurchases of common stock and $200 million remaining of the authorization for repurchases of debt securities. We continue to evaluate the amount and timing of our future capital investment alternatives, including common stock repurchases, based on market conditions and other circumstances.

On January 26, 2006, our shareholders approved an amendment to the D.R. Horton, Inc. charter which increased the number of authorized shares of common stock to one billion shares.

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At ~~June 30,~~December 31, 2005, we had ~~$284.0~~$324.9 million in deposits to purchase land and lots with a total remaining purchase price of ~~$5.7~~$6.2 billion. Only ~~$64.7~~$148.6 million of the total remaining purchase price iswas subject to specific performance clauses which may require us to purchase the land or lots upon the land seller meeting certain obligations. WePursuant to FIN 46, we consolidated certain variable interest entities and other inventory obligations with assets of ~~$185.2~~$173.9 million.

In the normal course of business, we provide standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At ~~June 30,~~December 31, 2005, outstanding standby letters of credit and performance bonds, the majority of which mature in less than one year, were ~~$138.6~~$127.4 million and ~~$1.6~~$2.0 billion, respectively.

-30-

LAND AND LOT POSITION AND ~~HOMES IN~~ INVENTORY

At ~~June 30,~~December 31, 2005, ~~about 54%~~we controlled approximately 359,000 lots, 51% of ~~our total lot position of 323,000~~which were lots ~~was controlled~~ under option or similar contracts. The following is a summary of our land/lot position at ~~June 30,~~December 31, 2005:


Lots owned —– developed and under development	~~150,000~~177,000
Lots controlled under lot option and similar contracts	~~173,000~~182,000

Total land/lots controlled	~~323,000~~359,000


Percentage controlled under option	~~54%~~51	%

~~At June 30, 2005, we~~We had a total of approximately 30,000 homes under construction and in inventory at December 31, 2005, including approximately 1,700 model homes and approximately ~~350~~250 unsold homes that had been completed for more than six months.

The major part of our homebuilding operations is in six states. The following are the percentages of our total owned homebuilding inventory in those states:


	As of
State	December 31, 2005
Arizona		9	%
California		28	%
Colorado		8	%
Florida		9	%
Nevada		8	%
Texas		12	%

Total		74	%

CRITICAL ACCOUNTING POLICIES

~~There have been no significant changes to our critical accounting policies during the nine months ended June 30, 2005, as compared to those we~~As disclosed in ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the~~our annual report on Form 10-K for the fiscal year ended September 30, ~~2004.~~2005, our most critical accounting policies relate to revenue recognition, inventories and cost of sales, the consolidation of variable interest entities, warranty and insurance claim costs, goodwill, income taxes and stock-based compensation. Since September 30, 2005, there have been no significant changes to the assumptions and estimates related to those critical accounting policies, other than those related to our accounting for stock-based compensation.

On October 1, 2005, we adopted the provisions of SFAS No. 123(R), “Share Based Payment,” which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. We calculate the fair value of stock options using the Black-Scholes option pricing model. Determining the fair value of share-based awards at the grant date requires judgment in developing assumptions, which involve a number of variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, the expected dividend yield and expected stock option exercise behavior. In addition, we also use judgment in estimating the number of share-based awards that are expected to be forfeited. Prior to October 1, 2005, we accounted for stock option grants using the intrinsic value method in accordance with the Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and recognized no compensation expense for stock option grants since all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

-31-

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~
~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

SEASONALITY

We have historically experienced variability in our results of operations from quarter to quarter due to the seasonal nature of the homebuilding business. ~~Historically, we~~We typically have closed a greater number of homes in our third and fourth fiscal quarters than in our first and second fiscal quarters. As a result, our revenues and net income have been higher in the third and fourth quarters of our fiscal year. In fiscal ~~2004, 58%~~2005, 61% of our consolidated revenues and ~~62%~~64% of our net income were attributable to our operations in the third and fourth fiscal quarters. ~~However,~~We expect similar seasonal fluctuations in our results of operations to occur in fiscal 2006; however, we can make no assurances that this trend will continue in this or any future fiscal years. The operating results for the three-month period ended December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2006.

SAFE HARBOR STATEMENT AND RISKS

Certain statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking statements” ~~as defined in~~within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of ~~1934.~~1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management. These forward-looking statements typically include the words ~~“anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy”,~~“anticipate,” “believe,” “consider,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “projection,” “seek,” “strategy,” “target” or other words of similar meaning. Any or all of the forward-looking statements included in this report and in any other of our reports or public statements may not approximate actual experience, and the expectations derived from them may not be realized, due to ~~known or~~ unknown risks, uncertainties and ~~uncertainties.~~other factors. As a result, actual results may differ materially from the expectations or results ~~discussed~~we discuss in ~~and anticipated by~~ the forward-looking statements. ~~The following~~These risks, uncertainties and ~~uncertainties relevant to our business~~other factors include, ~~factors we believe could adversely affect us. Other factors beyond those listed below could also adversely affect us.~~but are not limited to:

	•		-changes in general economic, real estate and other conditions;

	•		-changes in interest rates, ~~and~~ the availability of mortgage ~~financing;~~financing or the effective cost of owning a home;

	•		-the effects of governmental regulations and environmental matters;

	•		- ~~the uncertainties inherent in warranty and product liability claims matters;~~our substantial debt;

	•		-competitive conditions within our industry;

	•		- ~~our substantial debt;~~the availability of capital;

	•		- ~~the availability of capital;~~our ability to effect our growth strategies successfully; and

	•		- ~~our ability to effect our growth strategies successfully.~~the uncertainties inherent in warranty and product liability claims matters.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained in our annual report on Form 10-K, which is filed with the Securities and Exchange Commission.

-32-

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk on our ~~long-term~~long term debt. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows.

We have mitigated our exposure to changes in interest rates on our variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate borrowings. We generally do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt.

Our interest rate swaps ~~were~~are not designated as hedges under SFAS No. ~~133 when it was adopted on October 1, 2000.~~133. We are exposed to market risk associated with changes in the fair values of the swaps, and such changes must be reflected in our income statements.

Our mortgage company is exposed to interest rate risk associated with its mortgage loan origination services. Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan funding and who meet defined credit and underwriting criteria. Typically, the IRLCs have a duration of less than ~~nine~~six months. Some IRLCs are committed immediately to a specific investor through the use of best-efforts whole loan delivery commitments, while other IRLCs are funded prior to being committed to third-party investors. ~~Forward~~We manage interest rate risk related to uncommitted IRLCs through the use of forward sales of ~~mortgage backed~~mortgage-backed securities (FMBS) ~~are used to protect uncommitted IRLCs against~~and the ~~risk~~purchase of ~~changes in interest rates.~~Eurodollar Futures Contracts (EDFC) on certain loan types. FMBS and EDFC related to IRLCs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings. FMBS and EDFC related to funded, uncommitted loans are designated as fair value hedges, with changes in the value of the derivative instruments recognized in current earnings, along with changes in the value of the funded, uncommitted loans. The effectiveness of the fair value hedges is continuously monitored and any ineffectiveness, which for the three months ~~and nine months~~ ended ~~June 30,~~December 31, 2005 and 2004 was not significant, is recognized in current earnings. At December 31, 2005, FMBS and EDFC to mitigate interest rate risk related to uncommitted mortgage loans held for sale and uncommitted IRLCs totaled $408.5 million. Uncommitted IRLCs, the duration of which was less than six months, totaled approximately $126.2 million, and uncommitted mortgage loans held for sale totaled approximately $196.6 million at December 31, 2005. At December 31, 2005, the fair value of the FMBS, EDFC and IRLCs was an insignificant amount.

The following table sets forth, as of ~~June 30,~~December 31, 2005, for our debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts, weighted average interest rates and estimated fair market value of our interest rate swaps. At ~~June 30,~~December 31, 2005, the fair value of the interest rate swaps was a ~~$6.4~~$1.7 million liability.


	Three Months																							Nine Months
	Ending																					Fair value			Ending																												Fair value
	September 30,			Fiscal Year Ending September 30,																		at		September 30,				Fiscal Year Ending September 30,																								at
	2005			2006			2007			2008			2009			Thereafter			Total			6/30/05		2006				2007				2008				2009				2010				Thereafter				Total				12/31/05
										($ in millions)																							($ in millions)																		��
Debt:
Fixed rate	$	249.9		$	9.0		$	3.5		$	215.3		$	586.0		$	2,544.8		$	3,608.5		$	3,757.4		$	29.3			$	9.5			$	221.9			$	589.7			$	400.0			$	2,459.4			$	3,709.8			$	3,756.2
Average interest rate		8.4	%		7.5	%		5.6	%		7.6	%		7.3	%		7.0	%		7.2	%					8.3	%			7.3	%			7.6	%			7.3	%			6.9	%			6.8	%			7.0	%
Variable rate	$	—		$	708.4		$	—		$	50.0		$	—		$	—		$	758.4		$	758.4		$	814.7			$	—			$	—			$	—			$	—			$	600.0			$	1,414.7			$	1,414.7
Average interest rate		—			4.0	%		—			4.6	%		—			—			4.1	%					5.0	%			—				—				—				—				5.3	%			5.1	%

Interest Rate Swaps:
Variable to fixed	$	200.0		$	200.0		$	200.0		$	200.0		$	—		$	—		$	—		$	6.4		$	200.0			$	200.0			$	200.0			$	—			$	—			$	—			$	—			$	1.7
Average pay rate		5.1	%		5.1	%		5.1	%		5.0	%		—			—			—						5.1	%			5.1	%			5.0	%			—				—				—				—
Average receive rate	90-day LIBOR																													90-day LIBOR

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management has long recognized its responsibilities for developing, implementing and monitoring effective and efficient controls and procedures. As part of those responsibilities, as of ~~June 30,~~December 31, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule ~~13a — 15(e)~~13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in the Company’s periodic filings with the Securities and Exchange Commission. There have been no changes in the Company’s internal controls over financial reporting during the quarter ended ~~June 30,~~December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company may repurchase shares of its common stock from time to time pursuant to our publicly announced share repurchase program. The following table sets forth information concerning the Company’s common stock repurchases during the three months ended December 31, 2005. All share repurchases were made in accordance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934 and pursuant to the Company’s publicly announced program. The Company did not make any common stock repurchases during October or November, 2005.

(c)

(d)

Total Number of

Approximate

Dollar Value of

Purchased as

Shares that may

(a)

Part of Publicly

yet be Purchased

Total Number of

(b)

Announced

Under the Plans

Average Price

Plans or

or Programs (1)

Purchased

Paid per Share

Programs

(In millions)

December 1, 2005 through December 31, 2005

1,000,000

36.81

1,000,000

463.2

Total

1,000,000

36.81

1,000,000

463.2


(1)		On November 29, 2005, the Company publicly announced that our Board of Directors approved increasing our common stock repurchase authorization to up to $500 million. The increased repurchase authorization replaced the Company’s previous repurchase authorization. The new repurchase authorization will expire on November 30, 2006, unless renewed by the Board of Directors prior to such expiration. At December 31, 2005, we had approximately $463.2 million remaining on our $500 million common stock repurchase authorization.

-34-

ITEM 6. EXHIBITS

(a) Exhibits.


~~3.1~~3.1*		Certificate of Amendment of the Amended and Restated Certificate of Incorporation, as amended, of the Company ~~is incorporated by reference from Exhibit 3.1 to~~dated January 31, 2006, and the ~~Company’s Quarterly Report on Form 10-Q/A, filed with the Commission on February 18, 2003.~~

~~3.1(a)~~		~~Amendment to~~ Amended and Restated Certificate of Incorporation, as amended, of the Company ~~effective February 6, 2003, is incorporated by reference from Exhibit 3.1(a) to the Company’s Quarterly Report on Form 10-Q/A, filed with the Commission on February~~dated March 18, ~~2003.~~1992.

3.2		Amended and Restated Bylaws of the Company are incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, filed with the Commission on February 16, 1999.

~~4.1~~4.1*		~~Twenty-Fourth~~Twenty-Fifth Supplemental Indenture, dated ~~July 7, 2005, by and~~as of January 23, 2006, among the Company, the ~~Guarantors~~guarantors named therein and American Stock Transfer & Trust Company, as ~~trustee, relating~~Trustee.

4.2*		Fifth Supplemental Indenture, dated as of January 23, 2006, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as Trustee.

4.3*		Second Supplemental Indenture, dated as of January 23, 2006, among the Company, the guarantors named therein and U.S. Bank National Association.

4.4*		Second Supplemental Indenture, dated as of January 23, 2006, to the ~~5.375% Senior Notes due 2012 issued by~~Indenture, among the Company, ~~(1).~~the guarantors named therein and American Stock Transfer & Trust Company, as Trustee.

10.1		~~Second~~Sixth Amendment to Amended and Restated Credit Agreement between DHI Mortgage Company, Ltd. and U.S. Bank National Association dated ~~April 8, 2005 (2).~~October 28, 2005. (1)

10.2*10.2		~~Third~~Seventh Amendment to Amended and Restated Credit Agreement between DHI Mortgage Company, Ltd. and U.S. Bank National Association dated ~~June 23,~~November 30, 2005. (2)

10.3*10.3		~~Seventh Omnibus Amendment, dated June 29, 2005, to Master Repurchase~~Revolving Credit Agreement by and among D.R. Horton, Inc., Wachovia Bank, National Association, as administrative agent, and the Lenders named in the Revolving Credit Agreement dated July 9, 2002, as amended, among CH Funding LLC. Calyon New York Branch (as successor in interest to Credit Lyonnais New York Branch), Atlantic Asset Securitization Corp., La Fayette Asset Securitization LLC, Falcon Asset Securitization Corporation, U.S. Bank National Bank Association, Lloyds TSB Bank PLC and DHI Mortgage Company, Ltd.December 16, 2005. (3)

10.4*10.4		Executive Compensation Summary —– Named Executive ~~Officers (COOs).~~Officers. (4)

10.5		Director Compensation Summary – Directors. (5)

10.6*†		D.R. Horton, Inc. 2006 Stock Incentive Plan, effective January 26, 2006.

10.7		Eighth Amendment to the Amended and Restated Credit Agreement dated January 30, 2006, by and among DHI Mortgage Company, Ltd., U.S. Bank National Association and the Lenders thereto. (6)

12.1*		Statement of Computation of Ratio of Earnings to Fixed Charges.

31.1*		Certificate of Chief Executive Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of ~~2002.~~2002, is filed herewith.

31.2*		Certificate of Chief Financial Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of ~~2002.~~2002, is filed herewith.

32.1*		Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Executive ~~Officer.~~Officer, is filed herewith.

32.2*		Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Financial ~~Officer.~~Officer, is filed herewith.


*		Filed ~~herewith~~herewith.

†		Management compensatory plan.

(1)		Incorporated by reference from Exhibit ~~4.1~~10.39 to the Company’s ~~Current~~Annual Report on Form ~~8-K dated June 29,~~10-K for the annual period ended September 30, 2005 and filed with the SEC on ~~July 6,~~December 14, 2005.

(2)		Incorporated by reference from Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the annual period ended September 30, 2005 and filed with the SEC on December 14, 2005.

(3)		Incorporated by reference from Exhibit 10.1 to the Company’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K dated ~~May 4,~~December 16, 2005 and filed with the SEC on ~~May 4,~~December 21, 2005.

(4)		Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 17, 2005 and filed with the SEC on November 23, 2005.

(5)		Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 17, 2005 and filed with the SEC on November 23, 2005.

(6)		Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 30, 2006 and filed with the SEC on February 1, 2006.


		Page
PART I.	FINANCIAL INFORMATION.

ITEM 1.	Financial Statements.

	Consolidated Balance Sheets ~~– June 30,~~— December 31, 2005 and September 30, ~~2004.~~2005.		3

	Consolidated Statements of Income –— Three ~~and Nine~~ Months Ended ~~June 30,~~December 31, 2005 and 2004.		4

	Consolidated Statements of Cash Flows ~~– Nine~~— Three Months Ended ~~June 30,~~December 31, 2005 and 2004.		5

	Notes to Consolidated Financial Statements.		~~6-21~~6-20

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		~~22-32~~21-32

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk.		33

ITEM 4.	Controls and Procedures.		34

PART II.	OTHER INFORMATION.

ITEM 6.2.	~~Exhibits.~~Unregistered Sales of Equity Securities and Use of Proceeds.		34

ITEM 6.	Exhibits.		35

SIGNATURES.			3536
~~Third Amendment to Amended/~~Amended and Restated ~~Credit Agreement~~Certificate of Incorporation
~~Seventh Omnibus Agreement~~Twenty-Fifth Supplemental Indenture
~~Executive Compensation Summary~~Fifth Supplemental Indenture
~~Statement of~~ Second Supplemental Indenture
Second Supplemental Indenture
2006 Stock Incentive Plan
Computation of Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906


	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In millions)
Warranty reserve, beginning of period	$	100.9		$	79.7		$	96.0		$	73.1
Warranties issued		17.2			14.0			44.5			36.9
Changes in reserves for pre-existing warranties		(1.2	)		(5.9	)		(3.3	)		(9.2	)
Settlements made		(10.9	)		(7.8	)		(31.2	)		(20.8	)

Warranty reserve, end of period	$	106.0		$	80.0		$	106.0		$	80.0


	Year Ended September 30,
	2003			2002			2001
Reported diluted income per share before cumulative effect of change in accounting principle	$	2.05		$	1.44		$	1.10
Per share effect of adoption of EITF 04-8		(0.06	)		(0.05	)		(0.03	)

Adjusted diluted income per share before cumulative effect of change in accounting principle	$	1.99		$	1.39		$	1.07


Reported diluted net income per share	$	2.05		$	1.44		$	1.11
Per share effect of adoption of EITF 04-8		(0.06	)		(0.05	)		(0.03	)

Adjusted diluted net income per share	$	1.99		$	1.39		$	1.08

	•		Net sales orders increased ~~29%~~19% to ~~$4.1~~$3.2 billion

	•		Sales order backlog increased ~~36%~~30% to ~~$7.0~~$6.2 billion

	•		Consolidated revenue increased 15% to $2.9 billion

	•		Homebuilding ~~revenue increased 21% to $3.3 billion~~

	•		~~Home sales gross profit~~operating margin (homebuilding income before income taxes divided by total homebuilding revenues) improved ~~370~~180 basis points to ~~26.3%~~16.9%

	•		Net income increased ~~48%~~29% to ~~$371.7~~$310.1 million

	•		Diluted earnings per share increased ~~46%~~29% to ~~$1.17~~$0.98 per share

	•		~~Net sales orders increased 27% to $10.9 billion~~

	•		~~Homebuilding revenue increased 20% to $8.6 billion~~

	•		~~Home sales gross profit margin improved 300 basis points to 25.5%~~

	•		~~Net income increased 45% to $906.7 million~~

	•		~~Diluted earnings per share increased 44% to $2.85 per share~~


	NET SALES ORDERS
	Three Months Ended December 31,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		1,111		1,037		7	%	$	289.5	$	276.9		5	%	$	260,600	$	267,000		(2	)%
Midwest		558		429		30	%		156.4		124.8		25	%		280,300		290,900		(4	)%
Southeast		1,820		1,759		3	%		479.5		410.6		17	%		263,500		233,400		13	%
Southwest		4,783		3,938		21	%		1,014.3		738.8		37	%		212,100		187,600		13	%
West		3,191		2,738		17	%		1,227.1		1,104.6		11	%		384,600		403,400		(5	)%

		11,463		9,901		16	%	$	3,166.8	$	2,655.7		19	%	$	276,300	$	268,200		3	%


	SALES ORDER BACKLOG
	As of December 31,
	Homes in Backlog							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		2,669		1,944		37	%	$	776.6	$	560.5		39	%	$	291,000	$	288,300		1	%
Midwest		1,410		871		62	%		422.0		283.1		49	%		299,300		325,000		(8	)%
Southeast		3,375		3,352		1	%		995.7		802.9		24	%		295,000		239,500		23	%
Southwest		8,367		6,466		29	%		1,933.7		1,229.1		57	%		231,100		190,100		22	%
West		4,995		4,772		5	%		2,085.0		1,899.6		10	%		417,400		398,100		5	%

		20,816		17,405		20	%	$	6,213.0	$	4,775.2		30	%	$	298,500	$	274,400		9	%


	HOMES CLOSED
	Three Months Ended December 31,
	Homes Closed							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		958		833		15	%	$	260.7	$	208.6		25	%	$	272,100	$	250,400		9	%
Midwest		509		419		21	%		136.7		111.5		23	%		268,600		266,100		1	%
Southeast		1,581		1,394		13	%		392.2		306.2		28	%		248,100		219,700		13	%
Southwest		3,689		4,104		(10	)%		745.5		705.0		6	%		202,100		171,800		18	%
West		3,154		2,930		8	%		1,254.0		1,117.8		12	%		397,600		381,500		4	%

		9,891		9,680		2	%	$	2,789.1	$	2,449.1		14	%	$	282,000	$	253,000		11	%


	Three Months Ended June 30,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		1,453		1,147		27	%	$	381.6	$	296.7		29	%	$	262,600	$	258,700		2	%
Midwest		952		586		62	%		254.5		162.2		57	%		267,300		276,800		(3	)%
Southeast		2,346		1,739		35	%		577.3		394.1		46	%		246,100		226,600		9	%
Southwest		5,807		4,962		17	%		1,158.5		839.2		38	%		199,500		169,100		18	%
West		4,422		4,010		10	%		1,762.9		1,524.1		16	%		398,700		380,100		5	%

		14,980		12,444		20	%	$	4,134.8	$	3,216.3		29	%	$	276,000	$	258,500		7	%


	Nine Months Ended June 30,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		3,753		2,896		30	%	$	1,004.7	$	740.6		36	%	$	267,700	$	255,700		5	%
Midwest		2,258		1,617		40	%		603.8		462.5		31	%		267,400		286,000		(7	)%
Southeast		6,079		4,670		30	%		1,485.8		1,010.7		47	%		244,400		216,400		13	%
Southwest		15,383		13,677		12	%		3,007.1		2,300.2		31	%		195,500		168,200		16	%
West		11,809		11,298		5	%		4,787.8		4,069.8		18	%		405,400		360,200		13	%

		39,282		34,158		15	%	$	10,889.2	$	8,583.8		27	%	$	277,200	$	251,300		10	%


	Percentages of
	Related Revenues
	Three Months Ended
	December 31,
	2005			2004
Gross profit — Home sales		27.7	%		25.2	%
Gross profit — Land/lot sales		63.4	%		37.6	%
Gross profit — Total homebuilding		28.3	%		25.3	%
Selling, general and administrative expense		11.5	%		10.4	%
Interest and other (income) expense		—	%		(0.2	)%
Income before income taxes		16.9	%		15.1	%


	SALES ORDER BACKLOG

	As of June 30,
	Homes in Backlog				Value (In millions)						Average Selling Price
			%						%						%
	2005	2004	Change		2005		2004		Change		2005		2004		Change
Mid-Atlantic	2,812	1,861	51	%	$	825.3	$	523.5	58	%	$	293,500	$	281,300	4	%
Midwest	1,701	1,177	45	%	502.3		355.5		41	%	295,300		302,000		(2	)%
Southeast	4,027	2,730	48	%	1,047.0		624.0		68	%	260,000		228,600		14	%
Southwest	8,543	7,415	15	%	1,796.9		1,280.8		40	%	210,300		172,700		22	%
West	6,833	6,348	8	%	2,853.2		2,372.7		20	%	417,600		373,800		12	%

	23,916	19,531	22	%	$	7,024.7	$	5,156.5	36	%	$	293,700	$	264,000	11	%


	D.R. HORTON, INC.

Date: ~~August 9, 2005~~February 1, 2006	By:	/s/ Bill W. Wheat

		Bill W. Wheat, on behalf of D.R. Horton, Inc.,
		as Executive Vice President and
		Chief Financial Officer (Principal Financial and
		Principal Accounting Officer)