UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2007

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

For the Transition Period From                      To                     

D.R. Horton, Inc.

 

(Exact name of registrant as specified in its charter)

Delaware		75-2386963
(State or other jurisdiction of incorporation 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)

Not Applicable (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.

Yes  þ     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ     Accelerated filer  o     Non-accelerated filer  o

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

Yes  o     No  þ

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 — 314,740,604 shares as of August 1, 2007

 

 

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

				Page
PART I.		FINANCIAL INFORMATION
ITEM 1.		Financial Statements
		Consolidated Balance Sheets at June 30, 2007 and September 30, 2006			3
		Consolidated Statements of Income for the three and nine months ended June 30, 2007 and 2006			4
		Consolidated Statements of Cash Flows for the nine months ended June 30, 2007 and 2006			5
		Notes to Consolidated Financial Statements			6
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk			51
ITEM 4.		Controls and Procedures			52
PART II.		OTHER INFORMATION
ITEM 1.		Legal Proceedings			53
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds			53
ITEM 6.		Exhibits			54
SIGNATURE					55
Certification of CEO Provided Pursuant to Section 302(a)
Certification of CFO Provided Pursuant to Section 302(a)
Certification of CEO Provided Pursuant to Section 906
Certification of CFO Provided Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		June 30,				September 30,
		2007				2006
		(In millions)
		(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents		$	4.9			$	457.8
Inventories:
Construction in progress and finished homes			4,207.5				4,322.8
Residential land and lots — developed and under development			5,869.5				6,737.0
Land held for development			359.4				182.9
Land inventory not owned			150.9				100.4
			10,587.3				11,343.1
Property and equipment, net			117.9				131.4
Deferred income taxes			735.9				374.0
Earnest money deposits and other assets			315.3				442.4
Goodwill			153.3				578.9
			11,914.6				13,327.6
Financial Services:
Cash and cash equivalents			55.9				129.8
Restricted cash			—				248.3
Mortgage loans held for sale			469.0				1,022.9
Other assets			54.5				92.1
			579.4				1,493.1
Total assets		$	12,494.0			$	14,820.7
LIABILITIES
Homebuilding:
Accounts payable		$	807.6			$	982.3
Accrued expenses and other liabilities			982.0				1,143.0
Notes payable			4,598.0				4,886.9
			6,387.6				7,012.2
Financial Services:
Accounts payable and other liabilities			24.8				58.8
Notes payable to financial institutions			318.8				1,191.7
			343.6				1,250.5
			6,731.2				8,262.7
Minority interests			85.1				105.1
STOCKHOLDERS’ EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued			—				—
Common stock, $.01 par value, 1,000,000,000 shares authorized, 318,289,660 shares issued and 314,634,427 shares outstanding at June 30, 2007 and 316,899,545 shares issued and 313,246,745 shares outstanding at September 30, 2006			3.2				3.2
Additional capital			1,686.7				1,658.4
Retained earnings			4,083.5				4,887.0
Treasury stock, 3,655,233 shares at June 30, 2007 and 3,652,800 shares at September 30, 2006, at cost			(95.7	)			(95.7	)
			5,677.7				6,452.9
Total liabilities and stockholders’ equity		$	12,494.0			$	14,820.7

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(In millions, except per share data)
		(Unaudited)
Homebuilding:
Revenues:
Home sales		$	2,470.5			$	3,581.4			$	7,753.1			$	9,842.7
Land/lot sales			77.6				12.2				212.7				119.2
			2,548.1				3,593.6				7,965.8				9,961.9
Cost of sales:
Home sales			2,058.8				2,727.8				6,380.2				7,328.8
Land/lot sales			65.6				6.7				187.6				46.2
Inventory impairments and land option cost write-offs			852.0				60.9				1,010.8				71.8
			2,976.4				2,795.4				7,578.6				7,446.8
Gross profit (loss):
Home sales			411.7				853.6				1,372.9				2,513.9
Land/lot sales			12.0				5.5				25.1				73.0
Inventory impairments and land option cost write-offs			(852.0	)			(60.9	)			(1,010.8	)			(71.8	)
			(428.3	)			798.2				387.2				2,515.1
Selling, general and administrative expense			267.5				356.4				858.9				1,046.9
Goodwill impairment			425.6				—				425.6				—
Loss on early retirement of debt			12.1				—				12.1				15.0
Other (income)			(3.9	)			(2.9	)			(5.7	)			(13.4	)
			(1,129.6	)			444.7				(903.7	)			1,466.6
Financial Services:
Revenues			50.0				74.2				158.3				206.6
General and administrative expense			36.0				50.8				119.3				147.6
Interest expense			4.1				8.7				20.5				24.7
Other (income)			(8.3	)			(12.8	)			(34.2	)			(40.4	)
			18.2				27.5				52.7				74.7
Income (loss) before income taxes			(1,111.4	)			472.2				(851.0	)			1,541.3
Provision for (benefit from) income taxes			(287.6	)			179.4				(188.7	)			585.7
Net income (loss)		$	(823.8	)		$	292.8			$	(662.3	)		$	955.6
Basic net income (loss) per common share		$	(2.62	)		$	0.94			$	(2.11	)		$	3.06
Net income (loss) per common share assuming dilution		$	(2.62	)		$	0.93			$	(2.11	)		$	3.02
Cash dividends declared per common share		$	0.15			$	0.10			$	0.45			$	0.29

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months
		Ended June 30,
		2007				2006
		(In millions)
		(Unaudited)
OPERATING ACTIVITIES
Net income (loss)		$	(662.3	)		$	955.6
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			48.3				40.7
Amortization of debt discounts and fees			4.9				3.6
Stock option compensation expense			9.1				8.1
Income tax benefit from stock option exercises			(8.0	)			(8.2	)
Deferred income taxes			(361.9	)			(28.5	)
Loss on redemption of senior and senior subordinated notes			12.1				10.6
Inventory impairments and land option cost write-offs			1,010.8				71.8
Goodwill impairment			425.6				—
Changes in operating assets and liabilities:
Increase in construction in progress and finished homes			(96.7	)			(2,192.7	)
Increase in residential land and lots — developed, under development, and held for development			(84.2	)			(1,379.2	)
Decrease (increase) in earnest money deposits and other assets			129.4				(12.2	)
Decrease in mortgage loans held for sale			553.9				512.6
Decrease in accounts payable, accrued expenses and other liabilities			(433.8	)			(46.3	)
Net Cash Provided By (Used In) Operating Activities			547.2				(2,064.1	)
INVESTING ACTIVITIES
Purchases of property and equipment			(32.7	)			(66.2	)
Cash Used In Investing Activities			(32.7	)			(66.2	)
FINANCING ACTIVITIES
Proceeds from notes payable			2,560.0				4,829.2
Repayment of notes payable			(3,745.3	)			(3,577.9	)
Decrease in restricted cash			248.3				—
Increase in book overdraft			18.9				—
Purchase of treasury stock			—				(36.8	)
Proceeds from stock associated with certain employee benefit plans			10.0				8.5
Income tax benefit from stock option exercises			8.0				8.2
Cash dividends paid			(141.2	)			(90.6	)
Net Cash (Used In) Provided By Financing Activities			(1,041.3	)			1,140.6
DECREASE IN CASH AND CASH EQUIVALENTS			(526.8	)			(989.7	)
Cash and cash equivalents at beginning of period			587.6				1,149.8
Cash and cash equivalents at end of period		$	60.8			$	160.1
Supplemental disclosures of noncash activities:
Notes payable issued for inventory		$	4.3			$	38.8

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2007

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 (which are referred to as the Company, unless the context otherwise requires), as well as certain variable interest entities required to be consolidated pursuant to Interpretation No. 46, “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51,” as amended (FIN 46), issued by the Financial Accounting Standards Board (FASB). All significant intercompany accounts, transactions and balances have been eliminated in consolidation. The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal, recurring accruals and the asset impairment charges discussed below) considered necessary for a fair presentation have been included. These financial statements do not include all of the information and notes required by GAAP 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, 2006. Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.

Seasonality

     Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three and nine-month periods ended June 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2007.

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 83 markets and 27 states in the United States at June 30, 2007. The Company designs, builds and sells single-family detached houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. To a lesser extent, the Company also builds and sells attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs. Periodically, the Company sells land and lots it has developed or bought. The Company also provides title agency and mortgage brokerage services, principally to its homebuyers. The Company generally does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.

NOTE B — INVENTORIES AND COST OF SALES

     In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” land inventory and related communities under development are reviewed for potential write-downs when impairment indicators are present. SFAS No. 144 requires that in the event the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, impairment charges are required to be recorded if the fair value of such assets is less than their carrying amounts. These estimates of cash flows are significantly impacted by estimates of the amounts and timing of revenues and costs and other factors which, in turn, are impacted by local market economic conditions and the actions of competitors. Due to uncertainties in the estimation process, actual results could differ from such estimates. For those assets deemed to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company’s determination of fair value is primarily based on discounting the

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

     In accordance with SFAS No. 144, valuation adjustments are recorded on finished homes in substantially completed projects when events or circumstances indicate that the carrying values are greater than the fair value less costs to sell these homes.

     During the third quarter of fiscal 2007, the difficult conditions within the homebuilding industry became more challenging. Continued high inventory levels of both new and existing homes, elevated cancellation rates, low sales absorption rates, affordability issues and overall weak consumer confidence persisted, and the effects of these factors were further magnified by a decline in availability of mortgage products due to further credit tightening in the mortgage markets. These factors, combined with the Company’s disappointing sales results, further declines in sales order prices and the decline in gross profits from home sales revenues during the quarter, have led to the Company’s more cautious outlook for the homebuilding industry and its impact on the Company’s business. This outlook reflects the Company’s belief that housing market conditions will continue to be challenging and may deteriorate further, and that the timing of a recovery in the housing market is increasingly unclear.

     When the Company performed its quarterly inventory impairment analysis in accordance with SFAS No. 144, the assumptions utilized in the analysis incorporated this more cautious outlook, which reflects the expectation that the challenging conditions in the homebuilding industry will last longer and have a greater impact than the Company believed in prior periods. Consequently, the Company’s strategy to reduce its inventory and lot position will likely take longer and require additional price concessions and incentives than previously anticipated. Therefore, the Company’s impairment evaluation indicated a significantly greater number of projects with impairment indicators than in prior periods. The analysis of each of these projects assumed that sales prices in future periods will be equal to or lower than current sales order prices in each project or for comparable projects. While it is difficult to determine a timeframe for a given project in the current market conditions, the Company estimated the remaining lives of these projects to range from six months to in excess of ten years. Through this evaluation process, the Company determined that projects with a carrying value of $2,117.4 million, the largest portions of which were in the California, West, Southeast and Southwest regions, were impaired. As a result, during the three months ended June 30, 2007, the Company recorded impairment charges totaling $835.8 million to reduce the carrying value of the impaired projects to their estimated fair value. During the nine months ended June 30, 2007 and 2006, impairment charges totaled $943.9 million and $4.2 million, respectively.

     If conditions in the homebuilding industry or specific markets in which the Company operates worsen in the future beyond current expectations, and as the Company re-evaluates specific project pricing and incentive strategies, the Company may be required to evaluate additional projects or re-evaluate previously impaired projects for potential impairment. These evaluations may result in additional impairment charges, and such charges could be material.

     From time to time, the Company writes off earnest money deposits and pre-acquisition costs related to land and lot option contracts which it no longer plans to pursue. During the three-month periods ended June 30, 2007 and 2006, the Company wrote off $16.2 million and $57.1 million, respectively, of earnest money deposits and pre-acquisition costs related to land option contracts. During the nine-month periods ended June 30, 2007 and 2006, the Company wrote off $66.9 million and $67.6 million of such deposits and costs, respectively.

NOTE C — GOODWILL

     Goodwill represents the excess of purchase price over net assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company tests goodwill for potential impairment annually as of September 30 or more frequently if an event occurs or circumstances change that indicate the remaining balance of goodwill may not be recoverable. At June 30, 2007, the Company determined that an interim test to assess the recoverability of goodwill was necessary because of the significant amount of inventory tested for impairment under SFAS No. 144, the current market conditions in the homebuilding industry and the decline in the Company’s stock price.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

     In analyzing the potential impairment of goodwill, SFAS No. 142 prescribes a two-step process that begins with the estimation of the fair value of the reporting units. If the results of the first step indicate that impairment potentially exists, the second step is performed to measure the amount of the impairment, if any. Impairment is determined to exist when the estimated fair value of goodwill is less than its carrying value. At June 30, 2007, the Company, with the assistance of an independent valuation firm, completed the first step of its goodwill impairment analysis.

     The Company estimated the fair value of its reporting units primarily utilizing the expected present values of future cash flows, supported with a market based assessment of fair value for the reporting units, and concluded an impairment loss was probable and could be reasonably estimated for reporting units within its Northeast, Southeast, California and West reporting segments. Based on the results of the first step of the Company’s goodwill impairment analysis, the goodwill balances in the Southeast, California and West reporting segments were estimated to be completely impaired, and the goodwill balance related to the Northeast reporting segment was estimated to be partially impaired. As a result, during the three months ended June 30, 2007, the Company recorded non-cash impairment charges totaling $425.6 million related to the write-off of goodwill in these reporting segments. Only approximately 17% of these goodwill impairment charges is deductible for tax purposes.

     The Company, with the assistance of an independent valuation firm, is still in the process of finalizing its goodwill evaluation, and expects to complete the full evaluation during the fourth quarter of fiscal 2007. It is possible that there may be additional impairment in the Northeast reporting segment, up to the balance of the remaining goodwill, or other adjustments to the Company’s preliminary estimates once the second step of the goodwill impairment analysis has been completed. Any further adjustments to the Company’s preliminary estimates as a result of completing this evaluation will be recorded in the financial statements and disclosed in the Company’s annual report on Form 10-K for the year ended September 30, 2007.

     After recording the current quarter write-offs, the Company’s goodwill balances by reporting segment as of June 30, 2007 and September 30, 2006 were as follows:

		June 30,				September 30,
		2007				2006
		(In millions)
Goodwill:
Northeast		$	35.0			$	74.4
Southeast			—				11.5
South Central			15.9				15.9
Southwest			102.4				102.4
California			—				300.3
West			—				74.4
Total Goodwill		$	153.3			$	578.9

NOTE D — EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is based on the weighted average number of shares of common stock and dilutive securities outstanding during the period.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

     The following table sets forth the denominators used in the computation of basic earnings (loss) and diluted earnings per share for the three and nine months ended June 30, 2007 and 2006:

		Three Months Ended June 30,								Nine Months Ended June 30,
		2007				2006				2007				2006
						(In millions)
Denominator for basic earnings (loss) per share— weighted average common shares			314.3				312.8				313.9				312.7
Effect of dilutive securities:
Employee stock options			—				3.0				—				4.0
Denominator for diluted earnings (loss) per share— adjusted weighted average common shares			314.3				315.8				313.9				316.7

     For the three and nine months ended June 30, 2007, all outstanding stock options were excluded from the computation of the diluted loss per share because they were antidilutive due to the net losses recorded during the periods. For the three and nine months ended June 30, 2006, options to purchase 3.0 million shares of common stock were excluded from the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares and, therefore, their effect would have been antidilutive.

NOTE E —LAND INVENTORY NOT OWNED

     In the ordinary course of its homebuilding business, the Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under such option purchase contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the option deposits are not refundable at the Company’s discretion. Under the requirements of FIN 46, certain of the Company’s option purchase contracts result in the creation of a variable interest in the entity holding the land parcel under option.

     In applying the provisions of FIN 46, the Company evaluates those land and lot option purchase contracts with variable interest entities to determine whether the Company is the primary beneficiary based upon analysis of the variability of the expected gains and losses of the entity. Based on this evaluation, if the Company is the primary beneficiary of an entity with which the Company has entered into a land or lot option purchase contract, the variable interest entity is consolidated.

     The consolidation of these variable interest entities added $82.5 million in land inventory not owned and minority interests related to entities not owned to the Company’s balance sheet at June 30, 2007. The Company’s obligations related to these land or lot option contracts are guaranteed by cash deposits totaling $13.0 million and performance letters of credit, promissory notes and surety bonds totaling $0.8 million. Creditors, if any, of these variable interest entities have no recourse against the Company.

     For the variable interest entities which are unconsolidated because the Company is not subject to a majority of the risk of loss or entitled to receive a majority of the entities’ residual returns, the maximum exposure to loss is generally limited to the amounts of the Company’s option deposits, which totaled $87.5 million at June 30, 2007.

     Additionally, the Company evaluates land and lot option purchase contracts in accordance with SFAS No. 49, “Accounting for Product Financing Arrangements,” and added $68.4 million in land inventory not owned, with a corresponding increase to accrued expenses and other liabilities, to the Company’s balance sheet at June 30, 2007 as a result of this evaluation.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE F — NOTES PAYABLE

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

		June 30,				September 30,
		2007				2006
		(In millions)
Homebuilding:
Unsecured:
Revolving credit facility		$	750.0			$	800.0
7.5% senior notes due 2007			215.0				215.0
5% senior notes due 2009, net			199.8				199.7
8% senior notes due 2009, net			384.5				384.3
4.875% senior notes due 2010, net			249.2				249.0
9.75% senior subordinated notes due 2010, net			149.5				149.4
7.875% senior notes due 2011, net			199.1				199.0
6% senior notes due 2011, net			249.5				249.4
8.5% senior notes due 2012, net			—				248.6
5.375% senior notes due 2012			300.0				300.0
6.875% senior notes due 2013			200.0				200.0
5.875% senior notes due 2013			100.0				100.0
6.125% senior notes due 2014, net			197.8				197.7
5.625% senior notes due 2014, net			248.4				248.3
5.25% senior notes due 2015, net			298.1				297.9
5.625% senior notes due 2016, net			297.8				297.7
6.5% senior notes due 2016, net			499.1				499.0
Secured and other			60.2				51.9
		$	4,598.0			$	4,886.9
Financial Services:
Mortgage warehouse facility		$	118.8			$	371.7
Commercial paper conduit facility			200.0				820.0
		$	318.8			$	1,191.7

     The Company has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.

Homebuilding:

     In November 2006, the Company increased the size of its $2.15 billion unsecured revolving credit facility, which includes a $1.0 billion letter of credit sub-facility, to $2.5 billion and extended its maturity by one year to December 16, 2011. The revolving credit facility has an uncommitted $400 million accordion provision which could be used, with the consent of the lenders, to increase the facility to $2.9 billion. The Company’s borrowing capacity under this facility is reduced by the amount of letters of credit outstanding. At June 30, 2007, the Company’s borrowing capacity under the facility was $1.7 billion. The facility is guaranteed by substantially all of the Company’s wholly-owned subsidiaries other than its financial services subsidiaries. Borrowings bear interest at rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company’s ratio of homebuilding debt to total capitalization and its senior unsecured debt rating. The interest rate of the unsecured revolving credit facility at June 30, 2007 was 6.1% per annum. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

     In November 2006, the Board of Directors authorized the repurchase of up to $500 million of the Company’s outstanding debt securities, replacing the previous debt securities repurchase authorization of $200 million, and extending its term to November 30, 2007. All of the $500 million authorization was remaining at June 30, 2007.

     On April 15, 2007, the Company redeemed its 8.5% senior notes due 2012 at an aggregate redemption price of approximately $260.6 million, plus accrued interest. Concurrent with the redemption, the Company recorded a loss related to the early retirement of debt of approximately $12.1 million, representing the call premium and the unamortized discount and fees related to the redeemed notes.

     The revolving credit facility and the indenture governing the senior subordinated notes impose restrictions on the Company’s operations and activities. The most significant restrictions relate to limits on investments, cash dividends, stock repurchases and other restricted payments, incurrence of indebtedness, creation of liens and asset dispositions, and require maintenance of certain levels of leverage, interest coverage and tangible net worth. In addition, the indentures governing the senior notes impose restrictions on the creation of liens.

     At June 30, 2007, under the most restrictive covenants in effect, cash dividend payments for the remainder of fiscal 2007 were limited to $442.3 million, and approximately $2.4 billion was available for all restricted payments in the future.

     In July 2007, the Company amended its revolving credit facility agreement to change the restriction on cash dividends. Under the amended agreement, payment of dividends is permitted provided there is no payment default under the facility, the Company is in compliance with certain financial covenants under the agreement, and such payments do not cause the Company not to be in compliance with those financial covenants.

  Financial Services:

     The Company’s mortgage subsidiary has a $540 million mortgage warehouse loan facility, which was renewed on March 30, 2007 to extend its maturity from April 6, 2007 to March 28, 2008. Under the accordion provision of the credit agreement, the total capacity may be increased to $750 million upon consent of the lenders. 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. The 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 the 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. Borrowings bear daily interest at the 30-day LIBOR rate plus a fixed premium. The interest rate of the mortgage warehouse line payable at June 30, 2007 was 6.1% per annum.

     The Company’s mortgage subsidiary also has a $600 million commercial paper conduit facility (the CP conduit facility), that matures June 27, 2009, subject to the annual renewal of the 364-day backup liquidity feature. This credit facility, which previously had a capacity of $1.2 billion, was amended in December 2006 to reduce the capacity to $800 million, and upon renewal of the backup liquidity feature in June 2007, was further amended to reduce the capacity to $600 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. Additionally, at September 30, 2006, borrowings under the CP conduit facility were secured by cash arising from borrowings under the facility made prior to the assignment of mortgage loans held for sale as collateral. At June 30, 2007, there were no borrowings under the facility prior to the assignment of mortgage loans held for sale, and therefore, no cash was restricted under this facility. The mortgage loans 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 line payable at June 30, 2007 was 5.6% per annum.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE G — HOMEBUILDING INTEREST

     The Company capitalizes homebuilding interest costs to inventory during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. Additionally, the Company impairs a portion of the capitalized interest related to projects for which inventory impairments are recorded in accordance with SFAS No. 144. The following table summarizes the Company’s homebuilding interest costs incurred (which does not include losses on early retirement of debt), capitalized, charged to cost of sales and impaired during the three and nine-month periods ended June 30, 2007 and 2006:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(In millions)
Capitalized interest, beginning of period		$	334.7			$	246.8			$	288.9			$	200.6
Interest incurred			76.0				85.4				232.5				236.0
Interest amortized to cost of sales			(60.8	)			(60.1	)			(171.5	)			(164.5	)
Interest impaired			(25.1	)			—				(25.1	)			—
Capitalized interest, end of period		$	324.8			$	272.1			$	324.8			$	272.1

NOTE H — WARRANTY COSTS

     The Company typically provides its homebuyers a one-year comprehensive limited warranty for all parts and labor and a ten-year limited warranty for major construction defects. The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built.

     Changes in the Company’s warranty liability were as follows:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
		(In millions)
Warranty liability, beginning of period		$	120.8			$	124.7			$	130.4			$	121.6
Warranties issued			11.6				18.8				36.9				51.7
Changes in liability for pre-existing warranties			(4.2	)			(1.8	)			(12.8	)			(7.7	)
Settlements made			(12.2	)			(13.3	)			(38.5	)			(37.2	)
Warranty liability, end of period		$	116.0			$	128.4			$	116.0			$	128.4

NOTE I — MORTGAGE LOANS

     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 primarily 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 notional amounts of the 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 each hedging instrument relative to the value of the underlying mortgage loans. The effectiveness of the fair value hedges is continuously monitored and any ineffectiveness, which for the three and nine months ended June 30, 2007 and 2006 was not significant, is recognized in current earnings. As of June 30, 2007, the Company had $126.3 million in loans not committed to third-party investors which were hedged with $209.0 million of FMBS, EDFC and put options on both EDFC and mortgage-backed securities (MBS).

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

     Mortgage loans held for sale are stated at the lower of aggregate cost or fair market value. Some of the loans sold by DHI Mortgage are sold with limited recourse provisions and may be required to be repurchased under certain conditions including if certain specified payment(s), generally initial payment(s), are not made by the borrowers. The Company records loss allowances for loans held in portfolio and loans held for sale, and reserves for losses related to loans sold with recourse, utilizing estimates based on historical experience and current market conditions. The Company has recorded total loss allowances and reserves for loans held in portfolio, loans held for sale and loans sold with recourse of $26.5 million and $15.6 million at June 30, 2007 and September 30, 2006, respectively.

     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 SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and related Derivatives Implementation Group conclusions, the Company classifies and accounts for IRLCs as non-designated derivative instruments at fair value. At June 30, 2007, the Company’s IRLCs totaled $419.2 million.

     The Company manages interest rate risk related to its IRLCs through the use of best-efforts whole loan delivery commitments, FMBS and the purchase of EDFC. These instruments are considered non-designated derivatives and are accounted for at fair value with gains and losses recognized in current earnings. As of June 30, 2007, the Company had approximately $159.2 million of best-efforts whole loan delivery commitments and $398.7 million outstanding of FMBS, EDFC and put options on both EDFC and MBS related to its uncommitted IRLCs.

     In an effort to stimulate home sales by potentially offering homebuyers a below market interest rate on their home financing, the Company began a program during the third quarter of fiscal 2006 which protects it from future increases in interest rates related to potential mortgage originations. To accomplish this, the Company purchases forward rate agreements (FRAs) and economic interest rate hedges in the form of FMBS and put options on both EDFC and MBS. Additionally, during the second quarter of fiscal 2007, in response to heightened volatility in the secondary mortgage markets, the Company entered into FRAs to secure the delivery and sale of certain potential non-traditional mortgage originations, characterized by high combined loan-to-value ratios in combination with less required documentation. These FRAs generally related to loan commitments for borrowers with sales contracts in the Company’s homebuilding backlog. At June 30, 2007, these potential mortgage loan originations totaled approximately $115.0 million. The notional amount of the FRAs was $78.4 million, while the remaining $36.6 million in mortgage loan commitments was hedged with economic interest rate hedges of $516.0 million in EDFC put options and $14.0 million in MBS put options. Both the FRAs and economic interest rate hedges have various maturities not exceeding twelve months. These instruments are considered non-designated derivatives and are accounted for at fair value with gains and losses recognized in current earnings. The gains and losses for the three and nine months ended June 30, 2007 were not significant.

NOTE J — STOCKHOLDERS’ EQUITY

     During the three months ended June 30, 2007, the Board of Directors declared a quarterly cash dividend of $0.15 per common share, which was paid on May 18, 2007 to stockholders of record on May 4, 2007. A quarterly cash dividend of $0.10 per common share was declared during the three months ended June 30, 2006.

     In August 2007, the Board of Directors declared a quarterly cash dividend of $0.15 per common share, payable on August 27, 2007 to stockholders of record on August 17, 2007. A quarterly cash dividend of $0.15 per common share was declared in the comparable quarter of fiscal 2006.

     The Company has an automatically effective universal shelf registration statement registering debt and equity securities that it may issue from time to time in amounts to be determined. Also, at June 30, 2007, 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.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

     In November 2006, the Board of Directors authorized the repurchase of up to $463.2 million of the Company’s common stock, representing the remaining amount of the previous common stock repurchase authorization of $500 million, and extended its term to November 30, 2007. All of the $463.2 million authorization was remaining at June 30, 2007.

     Under the terms of the Company’s 2006 Stock Incentive Plan and 1991 Stock Incentive Plan, employees may use shares owned to satisfy the exercise price of stock options, which results in the Company’s purchase of those shares. Treasury stock at June 30, 2007 included 2,433 shares delivered to the Company during the three months ended June 30, 2007 due to such transactions. These shares were not purchased under the Company’s share repurchase program and therefore, had no effect on the remaining stock repurchase authorization.

NOTE K — PROVISION FOR (BENEFIT FROM) INCOME TAXES

     The Company’s effective income tax rate for the three and nine-month periods of 2007 was 25.9% and 22.2%, respectively, compared to an effective tax rate of 38.0% in the same periods of 2006. The effective tax rates during the three and nine-month periods of 2007 were lower, resulting in a reduced benefit from income taxes related to the losses in these periods, because only approximately 17% of the $425.6 million goodwill impairment charge recorded in the three months ended June 30, 2007 is deductible for tax purposes. Excluding the goodwill impairment charge, the effective tax rate was 38.0% for the three and nine months ended June 30, 2007.

NOTE L — RECENT ACCOUNTING PRONOUNCEMENTS

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” The statement permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective as of the beginning of an entity’s fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of the adoption of SFAS No. 159; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In November 2006, the FASB issued Emerging Issues Task Force Issue (EITF) No. 06-8, “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66 for Sales of Condominiums.” EITF 06-8 establishes that an entity should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007. The Company is currently evaluating the impact of the adoption of EITF 06-8; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” The statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective as of the beginning of an entity’s fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of the adoption of SFAS No. 157; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109.” FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision whether to file or not to file in a particular jurisdiction. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of the adoption of FIN 48; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE M — COMMITMENTS AND CONTINGENCIES

     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 and claims related to its mortgage activities. 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 consolidated financial position, results of operations or cash flows. 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.

     On June 15, 2007, a putative class action, John R. Yeatman, et al. v. D.R. Horton, Inc., et al., was filed by one of the Company’s customers against it and its affiliated mortgage company subsidiary in the United States District Court for the Southern District of Georgia. The complaint seeks certification of a class alleged to include persons who, within the year preceding the filing of the suit, purchased a home from the Company and obtained a mortgage for such purchase from its affiliated mortgage company subsidiary. The complaint alleges that the Company violated Section 8 of the Real Estate Settlement Procedures Act by effectively requiring its homebuyers to use its affiliated mortgage company to finance their home purchases by offering certain discounts and incentives. The action seeks damages in an unspecified amount and injunctive relief. Management believes the claims alleged in this action are without merit and will defend them vigorously. However, due to the early stages of this matter, the Company is unable to express an opinion as to the likelihood of an unfavorable outcome or the amount of damages, if any; consequently, the Company has not recorded any associated liabilities in the accompanying consolidated balance sheet.

     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 June 30, 2007, the Company had total deposits of $133.7 million, comprised of cash deposits of $119.7 million, promissory notes of $7.3 million, and letters of credit and surety bonds of $6.7 million to purchase land and lots with a total remaining purchase price of $2.3 billion. Within the land and lot option purchase contracts in force at June 30, 2007, there were a limited number of contracts, representing only $64.8 million of remaining purchase price, subject to specific performance clauses which may require the Company to purchase the land or lots upon the land sellers meeting their obligations.

     Included in the total deposits of $133.7 million, were $29.6 million of deposits related to land option purchase contracts for which the Company does not expect to exercise its option to purchase the land or lots, but the contract has not yet been terminated. The remaining purchase price of those contracts was $598.4 million. Consequently, the deposits relating to these contracts have been written off, resulting in a net deposit balance of $104.1 million at June 30, 2007. The majority of land and lots under contract are currently expected to be purchased within three years, based on the Company’s assumptions as to the extent it will exercise its options to purchase such land and lots.

     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 June 30, 2007, outstanding standby letters of credit were $96.6 million and surety bonds were $2.2 billion. The Company has additional capacity of $903.4 million for standby letters of credit under its revolving credit facility.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE N — REPORTABLE SEGMENT INFORMATION

     The Company’s seven homebuilding operating regions and its financial services operation are its operating segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The homebuilding operating segments were historically aggregated into a single reportable homebuilding segment. During the fourth quarter of fiscal 2006, the Company reassessed the aggregation of its operating segments, and as a result, restated its disclosure to include six separate reportable homebuilding segments and one financial services segment. Two of the homebuilding operating segments were aggregated into one reporting segment based on their economic similarities. Under this revised presentation, the Company’s reportable homebuilding segments and the states in which they have homebuilding operations are as follows:

		Northeast:		Delaware, Georgia (Savannah only), Illinois, Maryland, Minnesota, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia and Wisconsin
		Southeast:		Alabama, Florida and Georgia
		South Central:		Louisiana, Mississippi, Oklahoma and Texas
		Southwest:		Arizona, Colorado, New Mexico and Utah
		California:		California and Nevada (Reno only)
		West:		Hawaii, Idaho, Nevada, Oregon and Washington

     Consequently, the Company has restated the prior period segment information provided in this note to conform to the current period presentation.

     The Company’s homebuilding operations are by far the most substantial part of its business, generating approximately 98% of consolidated revenues during the nine months ended June 30, 2007 and 2006. The Company’s homebuilding segments are primarily engaged in the acquisition and development of land for residential purposes and the construction and sale of residential homes on such land, in 27 states and 83 markets in the United States. The homebuilding segments generate most of their revenues from the sale of completed homes, with a lesser amount from the sale of land and lots.

     The Company’s financial services segment provides mortgage banking and title agency services principally to customers of the Company’s homebuilding segments. The Company generally does not retain or service the mortgages that it originates, but, rather, sells the mortgages and related servicing rights to investors. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

     The accounting policies of the reporting segments are described throughout Note A in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2006.

		Three Months Ended June 30,								Nine Months Ended June 30,
						Restated								Restated
		2007				2006				2007				2006
		(In millions)
Revenues
Homebuilding revenues:
Northeast		$	389.7			$	561.7			$	1,204.9			$	1,480.2
Southeast			367.9				497.1				1,082.3				1,422.3
South Central			493.4				623.9				1,422.4				1,557.2
Southwest			559.2				745.7				1,778.6				1,985.0
California			473.9				791.4				1,671.9				2,431.2
West			264.0				373.8				805.7				1,086.0
Total homebuilding revenues		$	2,548.1			$	3,593.6			$	7,965.8			$	9,961.9
Financial services revenues		$	50.0			$	74.2			$	158.3			$	206.6
Consolidated revenues		$	2,598.1			$	3,667.8			$	8,124.1			$	10,168.5
Inventory Impairments
Northeast		$	79.4			$	—			$	88.9			$	—
Southeast			136.5				0.4				138.9				0.4
South Central			—				—				0.3				—
Southwest			119.0				—				146.1				—
California			319.4				3.4				388.2				3.8
West			181.5				—				181.5				—
Total inventory impairments		$	835.8			$	3.8			$	943.9			$	4.2
Goodwill Impairments
Northeast		$	39.4			$	—			$	39.4			$	—
Southeast			11.5				—				11.5				—
South Central			—				—				—				—
Southwest			—				—				—				—
California			300.3				—				300.3				—
West			74.4				—				74.4				—
Total goodwill impairments		$	425.6			$	—			$	425.6			$	—
Income (Loss) Before Income Taxes (1)
Homebuilding income (loss) before income taxes:
Northeast		$	(105.2	)		$	57.3			$	(76.4	)		$	137.6
Southeast			(129.6	)			83.2				(83.0	)			278.1
South Central			38.1				50.1				101.2				114.9
Southwest			(84.0	)			120.2				(34.1	)			343.7
California			(619.0	)			54.4				(632.2	)			320.1
West			(229.9	)			79.5				(179.2	)			272.2
Total homebuilding income (loss) before income taxes		$	(1,129.6	)		$	444.7			$	(903.7	)		$	1,466.6
Financial services income before income taxes		$	18.2			$	27.5			$	52.7			$	74.7
Consolidated income (loss) before income taxes		$	(1,111.4	)		$	472.2			$	(851.0	)		$	1,541.3

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

		June 30,				September 30,
		2007				2006
		(In millions)
Homebuilding Inventories (2):
Northeast		$	1,568.7			$	1,698.3
Southeast			1,801.6				1,808.4
South Central			1,421.0				1,405.3
Southwest			1,738.2				1,883.5
California			2,004.4				2,535.7
West			1,671.8				1,684.8
Corporate and unallocated (3)			381.6				327.1
Total homebuilding inventory		$	10,587.3			$	11,343.1

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION

     All of the Company’s senior and senior subordinated notes and the $2.5 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 (collectively, 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.

Consolidating Balance Sheet
June 30, 2007

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
		(In millions)
ASSETS
Cash and cash equivalents		$	—			$	89.7			$	60.6			$	(89.5	)		$	60.8
Investments in subsidiaries			2,891.9				—				—				(2,891.9	)			—
Inventories			3,139.2				7,334.9				113.2				—				10,587.3
Property and equipment, net			35.7				65.1				17.1				—				117.9
Deferred income taxes			232.2				503.7				—				—				735.9
Earnest money deposits and other assets			98.0				184.9				91.4				(4.5	)			369.8
Mortgage loans held for sale			—				—				469.0				—				469.0
Goodwill			—				153.3				—				—				153.3
Intercompany receivables			4,574.0				—				—				(4,574.0	)			—
Total Assets		$	10,971.0			$	8,331.6			$	751.3			$	(7,559.9	)		$	12,494.0
LIABILITIES & EQUITY
Accounts payable and other liabilities		$	701.4			$	1,117.3			$	89.7			$	(94.0	)		$	1,814.4
Intercompany payables			—				4,535.8				38.2				(4,574.0	)			—
Notes payable			4,591.9				6.1				318.8				—				4,916.8
Total Liabilities			5,293.3				5,659.2				446.7				(4,668.0	)			6,731.2
Minority interests			—				—				85.1				—				85.1
Total Equity			5,677.7				2,672.4				219.5				(2,891.9	)			5,677.7
Total Liabilities & Equity		$	10,971.0			$	8,331.6			$	751.3			$	(7,559.9	)		$	12,494.0

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION — (Continued)

Consolidating Balance Sheet
September 30, 2006

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
ASSETS
Cash and cash equivalents		$	73.5			$	379.8			$	134.3			$	—			$	587.6
Restricted cash			—				—				248.3				—				248.3
Investments in subsidiaries			3,428.5				—				—				(3,428.5	)			—
Inventories			3,249.8				7,964.1				129.2				—				11,343.1
Property and equipment, net			40.5				73.2				17.7				—				131.4
Deferred income taxes			374.0				—				—				—				374.0
Earnest money deposits and other assets			126.1				299.0				122.9				(13.5	)			534.5
Mortgage loans held for sale			—				—				1,022.9				—				1,022.9
Goodwill			—				578.9				—				—				578.9
Intercompany receivables			4,814.7				—				—				(4,814.7	)			—
Total Assets		$	12,107.1			$	9,295.0			$	1,675.3			$	(8,256.7	)		$	14,820.7
LIABILITIES & EQUITY
Accounts payable and other liabilities		$	776.3			$	1,288.6			$	132.7			$	(13.5	)		$	2,184.1
Intercompany payables			—				4,748.5				66.2				(4,814.7	)			—
Notes payable			4,877.9				9.0				1,191.7				—				6,078.6
Total Liabilities			5,654.2				6,046.1				1,390.6				(4,828.2	)			8,262.7
Minority interests			—				—				105.1				—				105.1
Total Equity			6,452.9				3,248.9				179.6				(3,428.5	)			6,452.9
Total Liabilities & Equity		$	12,107.1			$	9,295.0			$	1,675.3			$	(8,256.7	)		$	14,820.7

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended June 30, 2007

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
Homebuilding:
Revenues		$	557.9			$	1,974.2			$	16.0			$	—			$	2,548.1
Cost of sales			715.0				2,252.0				9.4				—				2,976.4
Gross profit			(157.1	)			(277.8	)			6.6				—				(428.3	)
Selling, general and administrative expense			85.6				178.8				3.1				—				267.5
Goodwill impairment			—				425.6				—				—				425.6
Equity in loss of subsidiaries			860.7				—				—				(860.7	)			—
Loss on early retirement of debt			12.1				—				—				—				12.1
Other (income) expense			(4.1	)			(0.4	)			0.6				—				(3.9	)
			(1,111.4	)			(881.8	)			2.9				860.7				(1,129.6	)
Financial Services:
Revenues			—				—				50.0				—				50.0
General and administrative expense			—				—				36.0				—				36.0
Interest expense			—				—				4.1				—				4.1
Other (income)			—				—				(8.3	)			—				(8.3	)
			—				—				18.2				—				18.2
Income (loss) before income taxes			(1,111.4	)			(881.8	)			21.1				860.7				(1,111.4	)
Provision for (benefit from) income taxes			(287.6	)			(200.2	)			8.0				192.2				(287.6	)
Net income (loss)		$	(823.8	)		$	(681.6	)		$	13.1			$	668.5			$	(823.8	)

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2007

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION — (Continued)

Consolidating Statement of Income
Nine Months Ended June 30, 2007

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
Homebuilding:
Revenues		$	1,654.0			$	6,283.8			$	28.0			$	—			$	7,965.8
Cost of sales			1,539.4				6,022.0				17.2				—				7,578.6
Gross profit			114.6				261.8				10.8				—				387.2
Selling, general and administrative expense			301.7				549.7				7.5				—				858.9
Goodwill impairment			—				425.6				—				—				425.6
Equity in loss of subsidiaries			656.8				—				—				(656.8	)			—
Loss on early retirement of debt			12.1				—				—				—				12.1
Other (income) expense			(5.0	)			(1.9	)			1.2				—				(5.7	)
			(851.0	)			(711.6	)			2.1				656.8				(903.7	)
Financial Services:
Revenues			—				—				158.3				—				158.3
General and administrative expense			—				—				119.3				—				119.3
Interest expense			—				—				20.5				—				20.5
Other (income)			—				—				(34.2	)			—				(34.2	)
			—				—				52.7				—				52.7
Income (loss) before income taxes			(851.0	)			(711.6	)			54.8				656.8				(851.0	)
Provision for (benefit from) income taxes			(188.7	)			(135.5	)			20.8				114.7				(188.7	)
Net income (loss)		$	(662.3	)		$	(576.1	)		$	34.0			$	542.1			$	(662.3	)