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 December 31, 2006

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		(I.R.S. Employer Identification No.)
incorporation or organization)
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 – 313,823,358 shares as of January 31, 2007

 

 

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

				Page
PART I.		FINANCIAL INFORMATION
ITEM 1.		Financial Statements
		Consolidated Balance Sheets at December 31, 2006 and September 30, 2006			3
		Consolidated Statements of Income for the Three Months Ended December 31, 2006 and 2005			4
		Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2006 and 2005			5
		Notes to Consolidated Financial Statements			6
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk			40
ITEM 4.		Controls and Procedures			41
PART II.		OTHER INFORMATION
ITEM 5.		Other Information			42
ITEM 6.		Exhibits			42
SIGNATURE					43
Agreement and General Release
Statement of Computation of Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302(a)
Certification of CFO Pursuant to Section 302(a)
Certification Pursuant to Section 906 - CEO
Certification Pursuant to Section 906 - CFO

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

		December 31,				September 30,
		2006				2006
		(In millions)
		(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents		$	65.5			$	457.8
Inventories:
Construction in progress and finished homes			4,160.9				4,322.8
Residential land and lots — developed and under development			6,878.4				6,737.0
Land held for development			198.7				182.9
Consolidated land inventory not owned			104.6				100.4
			11,342.6				11,343.1
Property and equipment (net)			127.4				131.4
Earnest money deposits and other assets			777.9				816.4
Goodwill			578.9				578.9
			12,892.3				13,327.6
Financial Services:
Cash and cash equivalents			74.3				129.8
Restricted cash			—				248.3
Mortgage loans held for sale			652.2				1,022.9
Other assets			49.9				92.1
			776.4				1,493.1
Total assets		$	13,668.7			$	14,820.7
LIABILITIES
Homebuilding:
Accounts payable		$	812.4			$	982.3
Accrued expenses and other liabilities			1,051.0				1,143.0
Notes payable			4,644.9				4,886.9
			6,508.3				7,012.2
Financial Services:
Accounts payable and other liabilities			21.1				58.8
Notes payable to financial institutions			504.0				1,191.7
			525.1				1,250.5
			7,033.4				8,262.7
Minority interests			110.5				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, 317,313,003 shares issued and 313,660,203 shares outstanding at December 31, 2006 and 316,899,545 shares issued and 313,246,745 shares outstanding at September 30, 2006			3.2				3.2
Additional capital			1,667.6				1,658.4
Retained earnings			4,949.7				4,887.0
Treasury stock, 3,652,800 shares at December 31, 2006 and September 30, 2006, at cost			(95.7	)			(95.7	)
			6,524.8				6,452.9
Total liabilities and stockholders’ equity		$	13,668.7			$	14,820.7

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES

		Three Months
		Ended December 31,
		2006				2005
		(In millions, except per share data)
		(Unaudited)
Homebuilding:
Revenues:
Home sales		$	2,761.1			$	2,789.1
Land/lot sales			40.4				52.7
			2,801.5				2,841.8
Cost of sales:
Home sales			2,246.9				2,013.4
Land/lot sales			32.9				19.3
Inventory impairments and land option cost write-offs			77.7				3.7
			2,357.5				2,036.4
Gross profit:
Home sales			514.2				775.7
Land/lot sales			7.5				33.4
Inventory impairments and land option cost write-offs			(77.7	)			(3.7	)
			444.0				805.4
Selling, general and administrative expense			295.3				325.7
Interest expense			—				4.5
Other (income)			(1.1	)			(4.9	)
			149.8				480.1
Financial Services:
Revenues			66.5				61.3
General and administrative expense			45.0				47.3
Interest expense			9.7				8.2
Other (income)			(15.3	)			(14.2	)
			27.1				20.0
Income before income taxes			176.9				500.1
Provision for income taxes			67.2				190.0
Net income		$	109.7			$	310.1
Basic net income per common share		$	0.35			$	0.99
Net income per common share assuming dilution		$	0.35			$	0.98
Cash dividends declared per common share		$	0.15			$	0.09

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES

		Three Months
		Ended December 31,
		2006				2005
		(In millions)
		(Unaudited)
OPERATING ACTIVITIES
Net income		$	109.7			$	310.1
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			15.7				12.7
Amortization of debt discounts and fees			1.6				1.1
Stock option compensation expense			3.0				2.5
Income tax benefit from stock option exercises			(2.4	)			(2.8	)
Inventory impairments and land option cost write-offs			77.7				3.7
Changes in operating assets and liabilities:
Decrease (increase) in construction in progress and finished homes			149.1				(458.9	)
Increase in residential land and lots – developed, under development, and held for development			(208.2	)			(1,123.1	)
Decrease (increase) in earnest money deposits and other assets			65.3				(67.6	)
Decrease in mortgage loans held for sale			370.7				451.6
Decrease in accounts payable, accrued expenses and other liabilities			(286.7	)			(141.9	)
Net Cash Provided By (Used In) Operating Activities			295.5				(1,012.6	)
INVESTING ACTIVITIES
Purchases of property and equipment			(11.2	)			(18.4	)
Cash Used In Investing Activities			(11.2	)			(18.4	)
FINANCING ACTIVITIES
Proceeds from notes payable			800.0				958.9
Repayment of notes payable			(1,739.1	)			(795.2	)
Decrease in restricted cash			248.3				—
Purchase of treasury stock			—				(36.8	)
Proceeds from stock associated with certain employee benefit plans			3.3				4.9
Income tax benefit from stock option exercises			2.4				2.8
Cash dividends paid			(47.0	)			(28.2	)
Net Cash (Used In) Provided By Financing Activities			(732.1	)			106.4
DECREASE IN CASH AND CASH EQUIVALENTS			(447.8	)			(924.6	)
Cash and cash equivalents at beginning of period			587.6				1,149.8
Cash and cash equivalents at end of period		$	139.8			$	225.2
Supplemental disclosures of noncash activities:
Notes payable issued for inventory		$	—			$	35.3

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES

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) 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.

  Seasonality

     Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three-month period ended December 31, 2006 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 85 markets and 27 states in the United States at December 31, 2006. 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 does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.

  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 revenues, costs, and other factors. 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 estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2006

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

     During the three months ended December 31, 2006, several communities under development that demonstrated potential impairment indicators were evaluated for potential impairment. It was determined that projects with a carrying value of $168.0 million, substantially all of which were in California and Colorado, were impaired. Consequently, an impairment charge of $40.9 million was recorded to reduce the carrying value of the impaired projects to their estimated fair value. If conditions in the homebuilding industry or specific markets in which the Company operates worsen in the future, the Company may be required to evaluate additional projects for potential impairment which may result in additional impairment charges and such charges could be significant.

     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 December 31, 2006 and 2005, the Company wrote off $36.8 million and $3.7 million, respectively, of earnest money deposits and pre-acquisition costs related to land option contracts.

NOTE B — EARNINGS PER SHARE

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

     The following table sets forth the denominators used in the computation of basic and diluted earnings per share for the three months ended December 31, 2006 and 2005:

		Three Months Ended
		December 31,
		2006				2005
		(In millions)
Denominator for basic earnings per share— weighted average common shares			313.4				312.9
Effect of dilutive securities:
Employee stock options			2.2				4.7
Denominator for diluted earnings per share— adjusted weighted average common shares			315.6				317.6

     For the three months ended December 31, 2006, options to purchase 2.8 million shares of common stock at various prices were not included in 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 be antidilutive. For the three months ended December 31, 2005, options to purchase 30,000 shares of common stock at $36.92 were not included in the computation of diluted earnings per share because their effect would be antidilutive.

NOTE C – CONSOLIDATED 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

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2006

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 and other inventory obligations added $104.6 million in land inventory not owned and minority interests related to entities not owned to the Company’s balance sheet at December 31, 2006. The Company’s obligations related to these land or lot option contracts are guaranteed by cash deposits totaling $15.6 million and performance letters of credit, promissory notes and surety bonds totaling $2.4 million. Creditors, if any, of these variable interest entities have no recourse against the Company.

     At December 31, 2006, including the deposits with the variable interest entities above, the Company had deposits amounting to $189.1 million to purchase land and lots with a total remaining purchase price of $3.2 billion. Included in the total deposits at December 31, 2006, were deposits aggregating $38.8 million related to purchase contracts representing $772 million of remaining purchase price 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. Consequently, $38.8 million of deposits relating to these contracts have been written off, $15.2 million of which occurred in the three months ended December 31, 2006, resulting in a net deposit balance of $150.3 million at December 31, 2006. 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 $117.2 million at December 31, 2006.

NOTE D – NOTES PAYABLE

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

		December 31,				September 30,
		2006				2006
		(In millions)
Homebuilding:
Unsecured:
Revolving credit facility due 2011		$	550.0			$	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			384.4				384.3
4.875% senior notes due 2010, net			249.0				249.0
9.75% senior subordinated notes due 2010, net			149.4				149.4
7.875% senior notes due 2011, net			199.1				199.0
6% senior notes due 2011, net			249.4				249.4
8.5% senior notes due 2012, net			248.7				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			197.7				197.7
5.625% senior notes due 2014, net			248.3				248.3
5.25% senior notes due 2015, net			298.0				297.9
5.625% senior notes due 2016, net			297.7				297.7
6.5% senior notes due 2016, net			499.1				499.0
Secured and other			59.3				51.9
		$	4,644.9			$	4,886.9
Financial Services:
Mortgage warehouse facility due 2007		$	254.0			$	371.7
Commercial paper conduit facility due 2007			250.0				820.0
		$	504.0			$	1,191.7

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

     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 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 December 31, 2006, the Company’s borrowing capacity under the facility was $1.8 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 bank debt at December 31, 2006 was 6.1% per annum. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees.

     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 December 31, 2006.

     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 December 31, 2006, under the most restrictive covenants in effect, cash dividend payments for the remainder of fiscal 2007 are limited to $536.5 million, and approximately $3.2 billion was available for all restricted payments in the future.

Financial Services:

     The Company’s mortgage subsidiary has a $540 million mortgage warehouse loan facility that matures April 6, 2007. 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 December 31, 2006 was 6.1% per annum.

     The Company’s mortgage subsidiary also has an $800 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, adjusting its size to seasonal volume levels. 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 December 31, 2006, there were no borrowings under the facility prior to the assignment of mortgage loans held for

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

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 December 31, 2006 was 5.6% per annum.

NOTE E – 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. The following table summarizes the Company’s homebuilding interest costs incurred, capitalized, charged to cost of sales and expensed directly during the three-month periods ended December 31, 2006 and 2005:

		Three Months Ended
		December 31,
		2006				2005
		(In millions)
Capitalized interest, beginning of period		$	288.9			$	200.6
Interest incurred – homebuilding			78.0				73.7
Interest expensed:
Directly – homebuilding			—				(4.5	)
Amortized to cost of sales			(54.2	)			(43.8	)
Capitalized interest, end of period		$	312.7			$	226.0

NOTE F – 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
		December 31,
		2006				2005
		(In millions)
Warranty liability, beginning of period		$	130.4			$	121.6
Warranties issued			13.2				14.7
Changes in liabilities for pre-existing warranties			(5.0	)			(3.1	)
Settlements made			(12.5	)			(11.7	)
Warranty liability, end of period		$	126.1			$	121.5

NOTE G – 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 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

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

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 months ended December 31, 2006 and 2005 was not significant, is recognized in current earnings. As of December 31, 2006, the Company had $263.2 million in loans not committed to third-party investors which were hedged with $659.6 million of FMBS and EDFC.

     Some of the loans sold by DHI Mortgage are sold with limited recourse provisions. Based on historical experience, the Company has estimated and recorded a total allowance or reserve for loans held in portfolio or loans held for sale, or for losses related to loans sold with recourse of $17.3 million and $15.6 million at December 31, 2006 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 December 31, 2006, the Company’s IRLCs totaled $342.5 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 December 31, 2006, the Company had approximately $163.0 million of best-efforts whole loan delivery commitments and $795.6 million outstanding of FMBS and EDFC 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 of approximately $261 million. 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 mortgage-backed securities (MBS). At December 31, 2006, the notional amount of the FRAs was $219 million, while economic interest rate hedges totaled $808 million in EDFC put options and $13 million in MBS put options, hedging a notional principal of $42 million in mortgage loan commitments. 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 months ended December 31, 2006 were not significant.

NOTE H – STOCKHOLDERS’ EQUITY

     During the three months ended December 31, 2006, the Board of Directors declared a quarterly cash dividend of $0.15 per common share, which was paid on November 1, 2006 to stockholders of record on October 23, 2006. A quarterly cash dividend of $0.09 per common share was declared during the three months ended December 31, 2005.

     In January 2007, the Board of Directors declared a quarterly cash dividend of $0.15 per common share, payable on February 9, 2007 to stockholders of record on January 26, 2007. A quarterly cash dividend of $0.10 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 December 31, 2006, 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)
December 31, 2006

     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 December 31, 2006.

NOTE I – RECENT ACCOUNTING PRONOUNCEMENTS

     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 July 2006, the FASB issued FASB 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.

NOTE J – 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. 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.

     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, 2006, the Company had total deposits of $189.1 million, comprised of cash deposits of $165.1 million, promissory notes of $13.2 million, and letters of credit and surety bonds of $10.8 million to purchase land and lots with a total remaining purchase price of $3.2 billion. Included in the total deposits at December 31, 2006 were deposits aggregating $38.8 million related to purchase contracts representing $772 million of remaining purchase price 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. Consequently, $38.8 million of deposits relating to these contracts have been written off, $15.2 million of which occurred in the three months ended December 31, 2006, resulting in a net deposit balance of $150.3 million at December 31, 2006. Only $40.4 million of the $3.2 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, to the extent the Company chooses to exercise its options to purchase such land and lots.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

     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, 2006, outstanding standby letters of credit were $122.5 million and surety bonds were $2.3 billion. The Company has additional capacity of $888.4 million for standby letters of credit under its revolving credit facility.

NOTE K — 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 regions have historically been 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 regions were aggregated into one reporting segment based on their economic similarities. Under this revised presentation, the Company’s reportable homebuilding segments are: Northeast, Southeast, South Central, Southwest, California and West. These reporting segments have homebuilding operations located in the following states:

		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, Texas (Lubbock only) and Utah
		California:		California and Nevada (Reno only)
		West:		Hawaii, Idaho, Nevada, Oregon and Washington

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

     Homebuilding is the Company’s core business, generating 98% of consolidated revenues during both three-month periods ended December 31, 2006 and 2005, and 85% and 96% of consolidated income before income taxes for the three months ended December 31, 2006 and 2005, respectively. 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 85 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 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)
December 31, 2006

     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 December 31,
						Restated
		2006				2005
		(In millions)
Revenues
Homebuilding revenues:
Northeast		$	396.0			$	401.2
Southeast			371.3				393.6
South Central			450.6				397.1
Southwest			602.3				573.1
California			699.3				727.0
West			282.0				349.8
Total homebuilding revenues		$	2,801.5			$	2,841.8
Financial services revenues		$	66.5			$	61.3
Consolidated revenues		$	2,868.0			$	2,903.1
Inventory Impairments
Northeast		$	0.8			$	—
Southeast			—				—
South Central			—				—
Southwest			27.1				—
California			13.0				—
West			—				—
Total inventory impairments		$	40.9			$	—
Income Before Income Taxes (1)
Homebuilding income before income taxes:
Northeast		$	24.0			$	32.0
Southeast			27.7				78.0
South Central			32.5				26.9
Southwest			13.5				110.4
California			22.7				123.9
West			29.4				108.9
Total homebuilding income before income taxes		$	149.8			$	480.1
Financial services income before income taxes		$	27.1			$	20.0
Consolidated income before income taxes		$	176.9			$	500.1

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

		December 31,				September 30,
		2006				2006
		(In millions)
Homebuilding Inventories (2):
Northeast		$	1,704.9			$	1,698.3
Southeast			1,893.8				1,808.4
South Central			1,450.8				1,405.3
Southwest			1,817.1				1,883.5
California			2,371.1				2,535.7
West			1,743.3				1,684.8
Corporate and unallocated (3)			361.6				327.1
Total homebuilding inventory		$	11,342.6			$	11,343.1

     In accordance with SFAS No. 142, the Company has allocated its goodwill to its reporting segments as of December 31, 2006 and September 30, 2006 as follows: Northeast $74.4 million, Southeast $11.5 million, South Central $15.9 million, Southwest $102.4 million, California $300.3 million and West $74.4 million.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

NOTE L — SUMMARIZED FINANCIAL 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
December 31, 2006

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
		(In millions)
ASSETS
Cash and cash equivalents		$	—			$	130.1			$	78.8			$	(69.1	)		$	139.8
Investments in subsidiaries			3,523.6				—				—				(3,523.6	)			—
Inventories			3,325.7				7,884.0				132.9				—				11,342.6
Property and equipment (net)			39.1				70.9				17.4				—				127.4
Earnest money deposits and other assets			459.5				298.8				83.0				(13.5	)			827.8
Mortgage loans held for sale			—				—				652.2				—				652.2
Goodwill			—				578.9				—				—				578.9
Intercompany receivables			4,607.6				—				—				(4,607.6	)			—
Total Assets		$	11,955.5			$	8,962.7			$	964.3			$	(8,213.8	)		$	13,668.7
LIABILITIES & EQUITY
Accounts payable and other liabilities		$	794.6			$	1,076.3			$	96.2			$	(82.6	)		$	1,884.5
Intercompany payables			—				4,550.4				57.2				(4,607.6	)			—
Notes payable			4,636.1				8.8				504.0				—				5,148.9
Total Liabilities			5,430.7				5,635.5				657.4				(4,690.2	)			7,033.4
Minority interests			—				—				110.5				—				110.5
Total Equity			6,524.8				3,327.2				196.4				(3,523.6	)			6,524.8
Total Liabilities & Equity		$	11,955.5			$	8,962.7			$	964.3			$	(8,213.8	)		$	13,668.7

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

NOTE L — SUMMARIZED FINANCIAL 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
Earnest money deposits and other assets			500.1				299.0				122.9				(13.5	)			908.5
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)
December 31, 2006

NOTE L — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended December 31, 2006

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
Homebuilding:
Revenues		$	575.6			$	2,218.1			$	7.8			$	—			$	2,801.5
Cost of sales			441.8				1,910.9				4.8				—				2,357.5
Gross profit			133.8				307.2				3.0				—				444.0
Selling, general and administrative expense			111.0				181.7				2.6				—				295.3
Equity in income of subsidiaries			(153.2	)			—				—				153.2				—
Interest expense			—				—				—				—				—
Other (income) expense			(0.9	)			(0.9	)			0.7				—				(1.1	)
			176.9				126.4				(0.3	)			(153.2	)			149.8
Financial services:
Revenues			—				—				66.5				—				66.5
General and administrative expense			—				—				45.0				—				45.0
Interest expense			—				—				9.7				—				9.7
Other (income)			—				—				(15.3	)			—				(15.3	)
			—				—				27.1				—				27.1
Income before income taxes			176.9				126.4				26.8				(153.2	)			176.9
Provision for income taxes			67.2				48.0				10.2				(58.2	)			67.2
Net income		$	109.7			$	78.4			$	16.6			$	(95.0	)		$	109.7

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

NOTE L — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended December 31, 2005

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
		(In millions)
Homebuilding:
Revenues		$	688.3			$	2,151.2			$	2.3			$	—			$	2,841.8
Cost of sales			435.9				1,599.3				1.2				—				2,036.4
Gross profit			252.4				551.9				1.1				—				805.4
Selling, general and administrative expense			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)			(3.3	)			(1.0	)			(0.6	)			—				(4.9	)
			500.1				306.3				(0.4	)			(325.9	)			480.1
Financial services:
Revenues			—				—				61.3				—				61.3
General and administrative expense			—				—				47.3				—				47.3
Interest expense			—				—				8.2				—				8.2
Other (income)			—				—				(14.2	)			—				(14.2	)
			—				—				20.0				—				20.0
Income before income taxes			500.1				306.3				19.6				(325.9	)			500.1
Provision for income taxes			190.0				116.4				7.4				(123.8	)			190.0
Net income		$	310.1			$	189.9			$	12.2			$	(202.1	)		$	310.1

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

NOTE L — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Three Months Ended December 31, 2006

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
		(In millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities		$	16.2			$	(44.6	)		$	393.0			$	(69.1	)		$	295.5
INVESTING ACTIVITIES
Purchases of property and equipment			(4.1	)			(6.8	)			(0.3	)			—				(11.2	)
Net cash used in investing activities			(4.1	)			(6.8	)			(0.3	)			—				(11.2	)
FINANCING ACTIVITIES
Net change in notes payable			(251.4	)			—				(687.7	)			—				(939.1	)
Decrease in restricted cash			—				—				248.3				—				248.3
Net change in intercompany receivables/payables			207.1				(198.3	)			(8.8	)			—				—
Proceeds from stock associated with certain employee benefit plans			3.3				—				—				—				3.3
Income tax benefit from stock option exercises			2.4				—				—				—				2.4
Cash dividends paid			(47.0	)			—				—				—				(47.0	)
Net cash used in financing activities			(85.6	)			(198.3	)			(448.2	)			—				(732.1	)
Decrease in cash and cash equivalents			(73.5	)			(249.7	)			(55.5	)			(69.1	)			(447.8	)
Cash and cash equivalents at beginning of period			73.5				379.8				134.3				—				587.6
Cash and cash equivalents at end of period		$	—			$	130.1			$	78.8			$	(69.1	)		$	139.8

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

NOTE L — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Three Months Ended December 31, 2005

		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
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 stock option exercises			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

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, 2006

NOTE M – OTHER EVENTS

     As previously disclosed in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 and in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2006, the staff of the Securities and Exchange Commission (SEC Staff) conducted a review of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2005 and quarterly reports on Form 10-Q for the respective quarters ended December 31, 2005 and March 31, 2006 and issued a letter commenting on certain aspects of those reports. The Company believes that all matters addressed in the comment letter and its subsequent discussions with the SEC Staff have been resolved, except with regard to the Company’s reporting of its operating segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” As a result of the discussions, beginning with its annual report on Form 10-K for the fiscal year ended September 30, 2006, the Company has disaggregated the disclosure regarding its homebuilding operations from one reportable homebuilding segment to six separate reportable homebuilding segments. The disclosures within this quarterly report on Form 10-Q for all periods presented reflect this revised aggregation. However, in the discussions, the SEC Staff also commented that similar disclosures should be made in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2005. The Company has not agreed to the SEC Staff’s comment because, among other reasons, the information in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2006 includes, in addition to fiscal 2006 segment information, prior year comparable revised segment information related to revenues, inventory impairments and income before income taxes for both fiscal 2005 and 2004, revised segment inventories as of September 30, 2005, and additional presentation and discussion of segment information in the management discussion and analysis section for fiscal years 2006, 2005 and 2004. The prior year segment information has no effect on the Company’s previously reported consolidated financial position, results of operations or cash flows. The Company’s discussions with the SEC Staff on this remaining matter have not been concluded.

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 during the twelve months ended December 31, 2006. We construct and sell high quality homes through our operating divisions in 27 states and 85 metropolitan markets of the United States as of December 31, 2006, primarily under the name of D.R. Horton, America’s Builder. Our homebuilding operations primarily include the construction and sale of single-family homes with sales prices generally ranging from $90,000 to $900,000, with an average closing price of $270,600 during the three months ended December 31, 2006. Approximately 81% and 84% of home sales revenues were generated from the sale of single-family detached homes for the three months ended December 31, 2006 and 2005, respectively. 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 on a non-recourse or limited recourse basis. 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.

     We conduct our homebuilding operations in all of the geographic regions, states and markets listed below, and we conduct our mortgage and title operations in many of these markets. The names of the regions and the markets comprising each region reflect the aggregation of our homebuilding operating segments into six separate reportable regions.

State		Reporting Region/Market		State		Reporting Region/Market
		Northeast Region				Southwest Region
Delaware		Central Delaware		Arizona		Casa Grande
		Delaware Shore				Phoenix
Georgia		Savannah				Tucson
Illinois		Chicago		Colorado		Colorado Springs
Maryland		Baltimore				Denver
		Suburban Washington, D.C.				Ft. Collins
Minnesota		Minneapolis/St. Paul		New Mexico		Albuquerque
New Jersey		North New Jersey				Las Cruces
		South New Jersey		Texas		Lubbock
North Carolina		Brunswick County		Utah		Salt Lake City
		Charlotte
		Greensboro/Winston-Salem				California Region
		Raleigh/Durham		California		Bay Area
Pennsylvania		Philadelphia				Central Valley
		Lancaster				Lancaster/Palmdale
South Carolina		Charleston				Imperial Valley
		Columbia				Los Angeles County
		Greenville				Orange County
		Hilton Head				Riverside/San Bernardino
		Myrtle Beach				Sacramento
Virginia		Northern Virginia				San Diego County
Wisconsin		Kenosha				Ventura County
				Nevada		Reno
		Southeast Region
Alabama		Birmingham				West Region
		Huntsville		Hawaii		Hawaii
		Mobile				Maui
Florida		Daytona Beach				Oahu
		Fort Myers/Naples		Idaho		Boise
		Jacksonville		Nevada		Las Vegas
		Melbourne				Laughlin
		Miami/West Palm Beach		Oregon		Albany
		Ocala				Bend
		Orlando				Eugene
		Pensacola				Portland
		Tampa		Washington		Bellingham
Georgia		Atlanta				Eastern Washington
		Macon				Olympia
						Seattle/Tacoma
		South Central Region				Vancouver
Louisiana		Baton Rouge
Mississippi		Mississippi Gulf Coast
Oklahoma		Oklahoma City
Texas		Austin
		Bryan/College Station
		Dallas
		Fort Worth
		Houston
		Killeen/Temple
		Laredo
		Rio Grande Valley
		San Antonio
		Waco