10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

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

For the Quarterly Period Ended March 31, 2005

OR

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

For the Transition Period From                      To                     

Commission file number 1-14122

D.R. Horton, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	75-2386963
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
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)

(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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Common stock, $.01 par value —      312,271,174      shares as of April 28, 2005

This report contains 35 pages.

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION.
ITEM 1.	Financial Statements.
	Consolidated Balance Sheets – March 31, 2005 and September 30, 2004.		3
	Consolidated Statements of Income – Three and Six Months Ended March 31, 2005 and 2004.		4
	Consolidated Statements of Cash Flows – Six Months Ended March 31, 2005 and 2004.		5
	Notes to Consolidated Financial Statements.		6-20
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		21-31
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk.		32
ITEM 4.	Controls and Procedures.		33
PART II.	OTHER INFORMATION.
ITEM 4.	Submission of Matters to a Vote of Security Holders.		33
ITEM 5.	Other Information.		34
ITEM 6.	Exhibits.		34
SIGNATURES.			35
Second Amendment to Amended and Restated Credit Agreement
Form of Annual Executive Compensation Notification - Chairman and CEO
Executive Compensation Summary - Named Executive Officers
Computation of Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,			September 30,
	2005			2004
	(In millions)
	(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents	$	526.1		$	480.1
Inventories:
Construction in progress and finished homes		3,584.5			2,878.5
Residential lots — developed and under development		4,121.2			3,529.0
Land held for development		6.3			6.2
Consolidated land inventory not owned		214.7			153.7
		7,926.7			6,567.4
Property and equipment (net)		94.0			91.9
Earnest money deposits and other assets		690.6			576.6
Goodwill		578.9			578.9
		9,816.3			8,294.9
Financial Services:
Cash and cash equivalents		46.7			37.9
Mortgage loans held for sale		648.3			623.3
Other assets		29.2			29.1
		724.2			690.3
	$	10,540.5		$	8,985.2
LIABILITIES
Homebuilding:
Accounts payable	$	718.2		$	585.2
Accrued expenses and other liabilities		775.2			756.9
Liabilities associated with consolidated land inventory not owned		10.4			—
Notes payable		3,823.6			3,006.5
		5,327.4			4,348.6
Financial Services:
Accounts payable and other liabilities		13.4			16.8
Notes payable to financial institutions		517.0			492.7
		530.4			509.5
		5,857.8			4,858.1
Minority interests		213.3			166.4
STOCKHOLDERS’ EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued		—			—
Common stock, $.01 par value, 400,000,000 shares authorized, 314,789,591 shares issued and 312,136,791 shares outstanding at March 31, 2005 and 236,028,696 shares issued and 233,375,896 shares outstanding at September 30, 2004		3.1			2.4
Additional capital		1,613.1			1,599.9
Retained earnings		2,912.1			2,417.3
Treasury stock, 2,652,800 shares at March 31, 2005 and September 30, 2004, at cost		(58.9	)		(58.9	)
		4,469.4			3,960.7
	$	10,540.5		$	8,985.2

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
				(In millions, except per share data)
				(Unaudited)
Homebuilding:
Revenues:
Home sales	$	2,706.8		$	2,250.5		$	5,155.8		$	4,385.1
Land/lot sales		120.1			42.7			145.2			71.7
		2,826.9			2,293.2			5,301.0			4,456.8
Cost of sales:
Home sales		2,034.7			1,748.8			3,866.1			3,403.1
Land/lot sales		72.7			27.3			88.4			43.4
		2,107.4			1,776.1			3,954.5			3,446.5
Gross profit:
Home sales		672.1			501.7			1,289.7			982.0
Land/lot sales		47.4			15.4			56.8			28.3
		719.5			517.1			1,346.5			1,010.3
Selling, general and administrative expense		267.0			222.7			524.7			435.2
Interest expense		—			3.1			—			3.3
Other (income) expense		(5.9	)		2.8			(10.9	)		0.2
		458.4			288.5			832.7			571.6
Financial Services:
Revenues		49.8			42.0			95.8			83.0
General and administrative expense		33.9			26.2			66.6			51.7
Interest expense		2.6			1.1			5.0			2.4
Other (income)		(6.3	)		(3.4	)		(13.0	)		(7.9	)
		19.6			18.1			37.2			36.8
INCOME BEFORE INCOME TAXES		478.0			306.6			869.9			608.4
Provision for income taxes		184.0			118.0			334.9			234.2
NET INCOME	$	294.0		$	188.6		$	535.0		$	374.2
Basic net income per common share	$	0.94		$	0.61		$	1.72		$	1.21
Net income per common share assuming dilution	$	0.92		$	0.60		$	1.68		$	1.18
Cash dividends declared per common share	$	0.0675		$	0.06		$	0.1275		$	0.095

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months
	Ended March 31,
	2005			2004
	(In millions)
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	535.0		$	374.2
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		26.8			21.9
Amortization of debt premiums, discounts and fees		2.1			4.1
Changes in operating assets and liabilities:
Increase in inventories		(1,278.5	)		(835.3	)
Increase in earnest money deposits and other assets		(70.9	)		(28.3	)
(Increase) decrease in mortgage loans held for sale		(24.9	)		53.0
Increase (decrease) in accounts payable and other liabilities		96.3			(49.2	)
NET CASH USED IN OPERATING ACTIVITIES		(714.1	)		(459.6	)
INVESTING ACTIVITIES
Net purchases of property and equipment		(28.8	)		(24.6	)
NET CASH USED IN INVESTING ACTIVITIES		(28.8	)		(24.6	)
FINANCING ACTIVITIES
Proceeds from notes payable		609.3			1,206.7
Repayment of notes payable		(627.5	)		(1,266.9	)
Issuance of Senior notes payable		843.4			199.4
Proceeds from stock associated with certain employee benefit plans		12.7			10.4
Cash dividends paid		(40.2	)		(29.6	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		797.7			120.0
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		54.8			(364.2	)
Cash and cash equivalents at beginning of period		518.0			582.9
Cash and cash equivalents at end of period	$	572.8		$	218.7
Supplemental disclosures of noncash activities:
Notes payable issued for inventory	$	17.8		$	45.2
Increase (decrease) in consolidated land inventory not owned	$	61.0		$	(80.4	)

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2005

NOTE A — BASIS OF PRESENTATION

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

Historically, the homebuilding industry has experienced seasonal fluctuations, therefore the operating results for the three-month and six-month periods ended March 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2005.

Business - The Company is a national homebuilder that is engaged primarily in the construction and sale of single-family housing in 67 markets and 21 states in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land and lots it has developed or bought. The Company also provides title agency and mortgage brokerage services to its homebuyers. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.

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

NOTE B — SEGMENT INFORMATION

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

NOTE C — EARNINGS PER SHARE

Basic earnings per share for the three months and six months ended March 31, 2005 and 2004 is based on the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive securities outstanding.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

The following table sets forth the denominators used in the computation of basic and diluted earnings per share:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2005		2004		2005		2004
			(In millions)
Denominator for basic earnings per share— weighted average common shares		312.0		310.4		311.8		310.1
Effect of dilutive securities:
Employee stock options		6.0		5.7		5.8		5.8
Denominator for diluted earnings per share— adjusted weighted average common shares		318.0		316.1		317.6		315.9

In February 2005, the Company’s Board of Directors declared a four-for-three stock split (effected as a 33% stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005. The share amounts presented above reflect the effects of the four-for-three stock split.

All options outstanding during the three and six months ended March 31, 2005 and 2004 were included in the computation of diluted earnings per share.

NOTE D – CONSOLIDATED LAND INVENTORY NOT OWNED

In the ordinary course of its homebuilding business, the Company enters into land and lot option purchase contracts in order 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 Company’s option deposits are non-refundable. Under the requirements of Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), certain of the Company’s option purchase contracts result in the acquisition 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 and other inventory obligations added $214.7 million in land inventory not owned, $204.3 million in minority interests related to entities not owned and $10.4 million in liabilities associated with land inventory not owned to the Company’s balance sheet at March 31, 2005. The Company’s obligations related to these land or lot option contracts are guaranteed by cash deposits totaling $26.5 million and performance letters of credit, promissory notes and surety bonds totaling $2.5 million. Creditors of these variable interest entities have no recourse against the Company.

At March 31, 2005, including the deposits with the variable interest entities above, the Company had deposits amounting to $273.1 million to purchase land and lots with a total remaining purchase price of $5.1 billion. 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 $199.7 million at March 31, 2005.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE E – NOTES PAYABLE

The Company’s notes payable (excluding liabilities associated with consolidated land inventory not owned) at their principal amounts, net of unamortized discount or premium, as applicable, consist of the following:

	March 31,		September 30,
	2005		2004
	(In millions)
Homebuilding:
Unsecured:
Revolving credit facility due 2008	$	—	$	—
10.5% Senior notes due 2005, net		200.0		199.9
7.5% Senior notes due 2007		215.0		215.0
5% Senior notes due 2009, net		199.6		199.5
8% Senior notes due 2009, net		384.0		383.8
9.375% Senior notes due 2009, net		241.8		242.5
9.75% Senior subordinated notes due 2010, net		149.2		149.2
4.875% Senior notes due 2010, net		248.5		—
7.875% Senior notes due 2011, net		198.8		198.7
9.375% Senior subordinated notes due 2011, net		199.8		199.8
10.5% Senior subordinated notes due 2011, net		150.6		150.9
8.5% Senior notes due 2012, net		248.3		248.3
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		197.3		197.2
5.625% Senior notes due 2014, net		248.0		247.9
5.25% Senior notes due 2015, net		297.7		—
5.625% Senior notes due 2016, net		297.4		—
Other secured		47.6		73.8
	$	3,823.6	$	3,006.5
Financial Services:
Mortgage warehouse facility due 2006	$	275.5	$	267.7
Commercial paper conduit facility due 2006		241.5		225.0
	$	517.0	$	492.7

Homebuilding:

The Company has a $1.21 billion unsecured revolving credit facility, which includes a $350 million letter of credit sub-facility, that matures on March 25, 2008. The Company’s borrowing capacity under this facility is reduced by the amount of letters of credit outstanding. At March 31, 2005, the Company’s borrowing capacity from this facility was $1.1 billion. The facility is guaranteed by substantially all of the Company’s wholly-owned subsidiaries other than its financial services subsidiaries. Borrowings bear daily interest at rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company’s ratio of debt to tangible net worth and senior unsecured debt rating. The interest rate applicable to the revolving credit facility at March 31, 2005 was 4.2%. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees.

In October 2004, the Company issued $250 million principal amount of 4.875% Senior notes due 2010. The notes, which are due January 15, 2010, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 25 basis points (0.25%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discounts, is 5.1%.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
March 31, 2005

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

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

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

The bank credit facilities and the indentures for most of the Senior and Senior Subordinated Notes contain covenants which, taken together, limit investments in inventory, stock repurchases, cash dividends and other restricted payments, incurrence of indebtedness, asset dispositions and creation of liens, and require certain levels of tangible net worth. At March 31, 2005, under the most restrictive covenants, the additional debt the Company could incur would be limited to $2.4 billion, which included $1.1 billion available under the revolving credit facility. At that date, under the most restrictive covenants, $1.0 billion was available for restricted payments.

Financial Services:

In April 2005, the Company’s mortgage subsidiary renewed its $300 million mortgage warehouse loan facility payable to financial institutions, extending the maturity date to April 7, 2006 and increasing the amount that may be borrowed under the uncommitted accordion feature to $150 million. 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 the Senior and Senior Subordinated Notes. Borrowings bear daily interest at the 30-day LIBOR rate plus a fixed premium. The interest rate of the mortgage warehouse facility at March 31, 2005 was 3.7%.

The Company’s mortgage subsidiary also has a $300 million commercial paper conduit facility (the “CP conduit facility”), that expires on June 29, 2006. The CP conduit facility’s terms are renewable annually by the sponsoring banks. 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 the Senior and Senior Subordinated Notes. The mortgage loans pledged to secure the CP conduit facility are used as collateral for asset backed commercial paper issued by multi-seller conduits in the commercial paper market. The interest rate of the CP conduit facility at March 31, 2005 was 3.4%.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE F – 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, charged to cost of sales, and expensed directly during the three-month and six-month periods ended March 31, 2005 and 2004:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
	(In millions)
Capitalized interest, beginning of period	$	168.3		$	170.3		$	152.7		$	168.4
Interest incurred – homebuilding		77.4			63.1			135.9			118.0
Interest expensed:
Directly – homebuilding		—			(3.1	)		—			(3.3	)
Amortized to cost of sales		(56.0	)		(54.9	)		(98.9	)		(107.7	)
Capitalized interest, end of period	$	189.7		$	175.4		$	189.7		$	175.4

NOTE G — WARRANTY

The Company 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 reserve 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 reserve are as follows:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
	(In millions)
Warranty reserve, beginning of period	$	96.6		$	78.0		$	96.0		$	73.1
Warranties issued		14.4			11.7			27.3			23.0
Changes in reserves for pre-existing warranties		—			(3.4	)		(2.1	)		(3.4	)
Settlements made		(10.1	)		(6.6	)		(20.3	)		(13.0	)
Warranty reserve, end of period	$	100.9		$	79.7		$	100.9		$	79.7

NOTE H — STOCK-BASED COMPENSATION

The Company may, with the approval of the Compensation Committee of its Board of Directors, grant to its employees options to purchase a fixed number of shares of its common stock. The Company accounts for stock option grants in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” The exercise price of the Company’s employee stock options generally equals the market price of the underlying stock on the date of grant; therefore, no compensation expense is recognized for the initial grant. The Company adopted the disclosure provisions specified by Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 123 and SFAS No. 148 require disclosure of pro forma net income and pro forma net income per share as if the fair value based method had been applied in measuring compensation expense.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

The following table sets forth the effect on net income and earnings per share (split-adjusted) for the three months and six months ended March 31, 2005 and 2004 as if the fair value based method had been applied:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
	(In millions, except per share data)
Net income as reported	$	294.0		$	188.6		$	535.0		$	374.2
Add: Stock-based employee compensation expense included in reported net income, net of tax		—			0.3			—			0.6
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(1.9	)		(1.4	)		(3.9	)		(2.8	)
Pro forma net income	$	292.1		$	187.5		$	531.1		$	372.0
Reported basic earnings per share	$	0.94		$	0.61		$	1.72		$	1.21
Pro forma basic earnings per share	$	0.94		$	0.60		$	1.70		$	1.20
Reported diluted earnings per share	$	0.92		$	0.60		$	1.68		$	1.18
Pro forma diluted earnings per share	$	0.92		$	0.59		$	1.67		$	1.18

NOTE I – RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R) “Share-Based Payment.” This statement, which replaces SFAS No. 123 and supersedes APB Opinion No. 25, requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The statement is effective for most publicly owned companies for annual periods beginning after June 15, 2005. The Company is currently evaluating the impact of the adoption of SFAS No. 123(R) however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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

-11-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

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

	Year Ended September 30,
	2003			2002			2001
Reported diluted income before cumulative effect of change in accounting principle per share	$	2.05		$	1.44		$	1.10
Per share effect of adoption of EITF 04-8		(0.06	)		(0.05	)		(0.03	)
Adjusted diluted income before cumulative effect of change in accounting principle per share	$	1.99		$	1.39		$	1.07
Reported diluted net income per share	$	2.05		$	1.44		$	1.11
Per share effect of adoption of EITF 04-8		(0.06	)		(0.05	)		(0.03	)
Adjusted diluted net income per share	$	1.99		$	1.39		$	1.08

NOTE J – 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 financial position. However, to the extent the liability arising from the ultimate resolution of any matter exceeds management’s estimates reflected in the reserves relating to such matter, the Company could incur additional charges that could be significant.

-12-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION

All of the Company’s Senior and Senior Subordinated Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s direct and indirect subsidiaries (Guarantor Subsidiaries), other than financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate 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
March 31, 2005

	D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)
ASSETS
Cash and cash equivalents	$	344.1	$	176.2	$	52.5	$	—		$	572.8
Advances to and investments in subsidiaries		6,298.2		559.6		—		(6,857.8	)		—
Inventories		1,857.6		5,827.9		241.2		—			7,926.7
Property and equipment (net)		12.5		65.1		16.4		—			94.0
Earnest money deposits and other assets		292.7		369.0		58.1		—			719.8
Mortgage loans held for sale		—		—		648.3		—			648.3
Goodwill		—		578.9		—		—			578.9
Total Assets	$	8,805.1	$	7,576.7	$	1,016.5	$	(6,857.8	)	$	10,540.5
LIABILITIES & EQUITY
Accounts payable and other liabilities	$	537.8	$	920.4	$	48.6	$	—		$	1,506.8
Advances from parent/subsidiaries		—		4,232.0		93.0		(4,325.0	)		—
Liabilities associated with consolidated. land inventory not owned		—		—		10.4		—			10.4
Notes payable		3,797.9		25.7		517.0		—			4,340.6
Total Liabilities		4,335.7		5,178.1		669.0		(4,325.0	)		5,857.8
Minority interests		—		—		213.3		—			213.3
Total Equity		4,469.4		2,398.6		134.2		(2,532.8	)		4,469.4
Total Liabilities & Equity	$	8,805.1	$	7,576.7	$	1,016.5	$	(6,857.8	)	$	10,540.5

-13-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Balance Sheet
September 30, 2004

	D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)
ASSETS
Cash and cash equivalents	$	338.9	$	131.6	$	47.5	$	—		$	518.0
Advances to and investments in subsidiaries		5,384.5		182.4		—		(5,566.9	)		—
Inventories		1,487.6		4,894.4		185.4		—			6,567.4
Property and equipment (net)		16.3		58.8		16.8		—			91.9
Earnest money deposits and other assets		256.3		299.8		49.6		—			605.7
Mortgage loans held for sale		—		—		623.3		—			623.3
Goodwill		—		578.9		—		—			578.9
Total Assets	$	7,483.6	$	6,145.9	$	922.6	$	(5,566.9	)	$	8,985.2
LIABILITIES & EQUITY
Accounts payable and other liabilities	$	537.1	$	772.3	$	49.5	$	—		$	1,358.9
Advances from parent/subsidiaries		—		3,374.5		90.6		(3,465.1	)		—
Notes payable		2,985.8		18.9		494.5		—			3,499.2
Total Liabilities		3,522.9		4,165.7		634.6		(3,465.1	)		4,858.1
Minority interests		—		—		166.4		—			166.4
Total Equity		3,960.7		1,980.2		121.6		(2,101.8	)		3,960.7
Total Liabilities & Equity	$	7,483.6	$	6,145.9	$	922.6	$	(5,566.9	)	$	8,985.2

-14-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended March 31, 2005

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	618.5		$	2,075.8		$	12.5		$	—		$	2,706.8
Land/lot sales		96.0			24.1			—			—			120.1
		714.5			2,099.9			12.5			—			2,826.9
Cost of sales:
Home sales		449.6			1,577.2			7.9			—			2,034.7
Land/lot sales		61.1			11.6			—			—			72.7
		510.7			1,588.8			7.9			—			2,107.4
Gross profit:
Home sales		168.9			498.6			4.6			—			672.1
Land/lot sales		34.9			12.5			—			—			47.4
		203.8			511.1			4.6			—			719.5
Selling, general and administrative expense		107.7			154.1			1.9			3.3			267.0
Other (income) expense		(381.9	)		(2.8	)		(0.1	)		378.9			(5.9	)
		478.0			359.8			2.8			(382.2	)		458.4
Financial services:
Revenues		—			—			49.8			—			49.8
General and administrative expense		—			—			37.2			(3.3	)		33.9
Interest expense		—			—			2.6			—			2.6
Other (income)		—			—			(6.3	)		—			(6.3	)
		—			—			16.3			3.3			19.6
Income before income taxes		478.0			359.8			19.1			(378.9	)		478.0
Provision for income taxes		184.0			138.5			7.4			(145.9	)		184.0
Net income	$	294.0		$	221.3		$	11.7		$	(233.0	)	$	294.0

-15-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Six Months Ended March 31, 2005

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	1,100.1		$	4,022.9		$	32.8		$	—		$	5,155.8
Land/lot sales		104.7			40.5			—			—			145.2
		1,204.8			4,063.4			32.8			—			5,301.0
Cost of sales:
Home sales		788.1			3,056.0			22.0			—			3,866.1
Land/lot sales		68.4			20.0			—			—			88.4
		856.5			3,076.0			22.0			—			3,954.5
Gross profit:
Home sales		312.0			966.9			10.8			—			1,289.7
Land/lot sales		36.3			20.5			—			—			56.8
		348.3			987.4			10.8			—			1,346.5
Selling, general and administrative expense		199.4			315.3			3.7			6.3			524.7
Other (income) expense		(721.0	)		(8.3	)		(0.1	)		718.5			(10.9	)
		869.9			680.4			7.2			(724.8	)		832.7
Financial services:
Revenues		—			—			95.8			—			95.8
General and administrative expense		—			—			72.9			(6.3	)		66.6
Interest expense		—			—			5.0			—			5.0
Other (income)		—			—			(13.0	)		—			(13.0	)
		—			—			30.9			6.3			37.2
Income before income taxes		869.9			680.4			38.1			(718.5	)		869.9
Provision for income taxes		334.9			262.0			14.6			(276.6	)		334.9
Net income	$	535.0		$	418.4		$	23.5		$	(441.9	)	$	535.0

-16-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended March 31, 2004

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	407.4		$	1,823.3		$	19.8		$	—		$	2,250.5
Land/lot sales		8.6			34.1			—			—			42.7
		416.0			1,857.4			19.8			—			2,293.2
Cost of sales:
Home sales		282.9			1,450.3			15.6			—			1,748.8
Land/lot sales		4.3			23.0			—			—			27.3
		287.2			1,473.3			15.6			—			1,776.1
Gross profit:
Home sales		124.5			373.0			4.2			—			501.7
Land/lot sales		4.3			11.1			—			—			15.4
		128.8			384.1			4.2			—			517.1
Selling, general and administrative expense		77.7			140.6			1.7			2.7			222.7
Interest expense		3.0			(0.1	)		0.2			—			3.1
Other (income) expense		(258.5	)		(1.7	)		1.7			261.3			2.8
		306.6			245.3			0.6			(264.0	)		288.5
Financial services:
Revenues		—			—			42.0			—			42.0
General and administrative expense		—			—			28.9			(2.7	)		26.2
Interest expense		—			—			1.1			—			1.1
Other (income)		—			—			(3.4	)		—			(3.4	)
		—			—			15.4			2.7			18.1
Income before income taxes		306.6			245.3			16.0			(261.3	)		306.6
Provision for income taxes		118.0			94.4			6.2			(100.6	)		118.0
Net income	$	188.6		$	150.9		$	9.8		$	(160.7	)	$	188.6

-17-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Six Months Ended March 31, 2004

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	745.7		$	3,588.1		$	51.3		$	—		$	4,385.1
Land/lot sales		8.6			63.1			—			—			71.7
		754.3			3,651.2			51.3			—			4,456.8
Cost of sales:
Home sales		540.8			2,824.1			38.2			—			3,403.1
Land/lot sales		4.7			38.7			—			—			43.4
		545.5			2,862.8			38.2			—			3,446.5
Gross profit:
Home sales		204.9			764.0			13.1			—			982.0
Land/lot sales		3.9			24.4			—			—			28.3
		208.8			788.4			13.1			—			1,010.3
Selling, general and administrative expense		145.6			279.6			4.6			5.4			435.2
Interest expense		3.0			0.1			0.2			—			3.3
Other (income) expense		(548.2	)		(3.7	)		4.2			547.9			0.2
		608.4			512.4			4.1			(553.3	)		571.6
Financial services:
Revenues		—			—			83.0			—			83.0
General and administrative expense		—			—			57.1			(5.4	)		51.7
Interest expense		—			—			2.4			—			2.4
Other (income)		—			—			(7.9	)		—			(7.9	)
		—			—			31.4			5.4			36.8
Income before income taxes		608.4			512.4			35.5			(547.9	)		608.4
Provision for income taxes		234.2			197.3			13.7			(211.0	)		234.2
Net income	$	374.2		$	315.1		$	21.8		$	(336.9	)	$	374.2

-18-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Six Months Ended March 31, 2005

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
OPERATING ACTIVITIES
Net income	$	535.0		$	418.4		$	23.5		$	(441.9	)	$	535.0
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3.6			21.6			1.6			—			26.8
Amortization of debt premiums, discounts and fees		2.1			—			—			—			2.1
Changes in operating assets and liabilities:
(Increase) decrease in inventories		(361.2	)		(924.5	)		7.2			—			(1,278.5	)
Increase in earnest money deposits and other assets		(20.4	)		(42.1	)		(8.4	)		—			(70.9	)
Increase in mortgage loans held for sale		—			—			(24.9	)		—			(24.9	)
(Decrease) increase in accounts payable and other liabilities		(17.0	)		119.9			(6.6	)		—			96.3
Net cash provided by (used in) operating activities		142.1			(406.7	)		(7.6	)		(441.9	)		(714.1	)
INVESTING ACTIVITIES
Net purchases of property and equipment		(0.3	)		(27.5	)		(1.0	)		—			(28.8	)
Net cash used in investing activities		(0.3	)		(27.5	)		(1.0	)		—			(28.8	)
FINANCING ACTIVITIES
Net change in notes payable		805.5			(2.8	)		22.5			—			825.2
(Decrease) increase in intercompany payables		(914.6	)		481.6			(8.9	)		441.9			—
Proceeds from stock associated with certain employee benefit plans		12.7			—			—			—			12.7
Cash dividends/distributions paid		(40.2	)		—			—			—			(40.2	)
Net cash (used in) provided by financing activities		(136.6	)		478.8			13.6			441.9			797.7
Increase in cash and cash equivalents		5.2			44.6			5.0			—			54.8
Cash and cash equivalents at beginning of period		338.9			131.6			47.5			—			518.0
Cash and cash equivalents at end of period	$	344.1		$	176.2		$	52.5		$	—		$	572.8

-19-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
March 31, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Six Months Ended March 31, 2004

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
OPERATING ACTIVITIES
Net income	$	374.2		$	315.1		$	21.8		$	(336.9	)	$	374.2
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3.6			16.7			1.6			—			21.9
Amortization of debt premiums, discounts and fees		4.1			—			—			—			4.1
Changes in operating assets and liabilities:
(Increase) decrease in inventories		(131.6	)		(705.0	)		1.3			—			(835.3	)
(Increase) decrease in earnest money deposits and other assets		(0.7	)		(29.8	)		2.2			—			(28.3	)
Decrease in mortgage loans held for sale		—			—			53.0			—			53.0
(Decrease) increase in accounts payable and other liabilities		(100.3	)		67.6			(16.5	)		—			(49.2	)
Net cash provided by (used in) operating activities		149.3			(335.4	)		63.4			(336.9	)		(459.6	)
INVESTING ACTIVITIES
Net purchases of property and equipment		(5.0	)		(17.9	)		(1.7	)		—			(24.6	)
Net cash used in investing activities		(5.0	)		(17.9	)		(1.7	)		—			(24.6	)
FINANCING ACTIVITIES
Net change in notes payable		197.0			(24.7	)		(33.1	)		—			139.2
(Decrease) increase in intercompany payables		(467.1	)		183.3			(53.1	)		336.9			—
Proceeds from stock associated with certain employee benefit plans		10.4			—			—			—			10.4
Cash dividends/distributions paid		(29.6	)		—			—			—			(29.6	)
Net cash (used in) provided by financing activities		(289.3	)		158.6			(86.2	)		336.9			120.0
Decrease in cash and cash equivalents		(145.0	)		(194.7	)		(24.5	)		—			(364.2	)
Cash and cash equivalents at beginning of period		196.1			319.0			67.8			—			582.9
Cash and cash equivalents at end of period	$	51.1		$	124.3		$	43.3		$	—		$	218.7

-20-

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

ITEM 2. OVERVIEW

We are the largest homebuilding company in the United States based on domestic homes closed in 2004. We construct and sell single-family homes in metropolitan areas in 21 states and 67 markets through our 42 homebuilding divisions primarily under the name of D.R. Horton, America’s Builder. Our homebuilding operations primarily include the construction and sale of single-family detached and attached homes with sales prices generally ranging from $80,000 to $900,000.

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

We conduct our homebuilding operations in all of the following geographic regions, states and markets, and we conduct our mortgage and title operations in the markets indicated below:

		Mortgage (M)			Mortgage (M)
State	Region/Market	Title (T)	State	Region/Market	Title (T)
	Mid-Atlantic Region			Southwest Region
Maryland	Baltimore	M	Arizona	Casa Grande	M
	Suburban Washington D.C.	M,T		Phoenix	M,T
New Jersey	New Jersey	M,T		Tucson	M
North Carolina	Charlotte	M	New Mexico	Albuquerque	M
	Greensboro	M		Las Cruces	M
	Raleigh/Durham	M	Texas	Austin	M,T
Pennsylvania	Philadelphia			Dallas	M,T
South Carolina	Charleston	M		Fort Worth	M,T
	Columbia	M		Houston	M,T
	Greenville	M		Killeen/Temple	M
	Hilton Head	M		Laredo	M
	Myrtle Beach	M		Rio Grande Valley	M
Virginia	Northern Virginia	M,T		San Antonio	M,T
				Waco	M
	Midwest Region
Illinois	Chicago	M		West Region
Minnesota	Minneapolis/St. Paul	M,T	California	Bakersfield/Lancaster/Palmdale	M
				Fresno/Modesto	M
	Southeast Region			Los Angeles County	M
Alabama	Birmingham	M		Oakland/North Bay	M
	Huntsville	M		Orange County	M
Georgia	Atlanta	M,T		Riverside/San Bernardino	M
	Macon			Sacramento	M
	Savannah	M		San Diego County	M
Florida	Daytona Beach	M		San Francisco	M
	Fort Myers/Naples	M		San Jose/Pleasanton/East Bay	M
	Jacksonville	M,T		Ventura County	M
	Melbourne	M	Colorado	Colorado Springs	M
	Miami/West Palm Beach	M,T		Denver	M
	Orlando	M,T		Ft. Collins	M
	Tampa	M	Hawaii	Hawaii	M
				Maui	M
				Oahu	M
			Nevada	Las Vegas	M,T
				Reno	M
			Oregon	Albany
				Bend	M
				Eugene	M
				Portland	M
			Utah	Salt Lake City	M
			Washington	Seattle/Tacoma	M
				Vancouver	M

-21-

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

We experienced increases in revenues and earnings during the three and six months ended March 31, 2005, driven by the continued growth of our homebuilding operations and by improvements in homebuilding profit margins. Key financial highlights for the three months ended March 31, 2005 as compared to the same period of 2004 were as follows:

•   Net sales orders increased 23% to $4.1 billion

•   Sales order backlog increased 33% to $6.2 billion

•   Homebuilding revenue increased 23% to $2.8 billion

•   Homebuilding gross margins improved 300 basis points to 25.5%

•   Net income increased 56% to $294.0 million

•   Diluted earnings per share increased 53% to $0.92 per share

Key financial highlights for the six months ended March 31, 2005 as compared to the same period of 2004 were as follows:

•   Net sales orders increased 26% to $6.8 billion

•   Homebuilding revenue increased 19% to $5.3 billion

•   Homebuilding gross margins improved 270 basis points to 25.4%

•   Net income increased 43% to $535.0 million

•   Diluted earnings per share increased 42% to $1.68 per share

RESULTS OF OPERATIONS — HOMEBUILDING

The following tables set forth key operating and financial data for our homebuilding operations:

	NET SALES ORDERS
	Three Months Ended March 31,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		1,263		1,034		22	%	$	346.2	$	277.3		25	%	$	274,100	$	268,200		2	%
Midwest		877		620		41	%		224.4		175.1		28	%		255,900		282,400		(9	)%
Southeast		1,974		1,758		12	%		498.0		365.0		36	%		252,300		207,600		22	%
Southwest		5,638		5,435		4	%		1,109.8		906.1		22	%		196,800		166,700		18	%
West		4,649		4,633		—	%		1,920.2		1,610.3		19	%		413,000		347,600		19	%
		14,401		13,480		7	%	$	4,098.6	$	3,333.8		23	%	$	284,600	$	247,300		15	%

	Six Months Ended March 31,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		2,300		1,749		32	%	$	623.1	$	444.0		40	%	$	270,900	$	253,900		7	%
Midwest		1,306		1,031		27	%		349.2		300.3		16	%		267,400		291,300		(8	)%
Southeast		3,733		2,931		27	%		908.6		616.6		47	%		243,400		210,400		16	%
Southwest		9,576		8,715		10	%		1,848.6		1,460.9		27	%		193,000		167,600		15	%
West		7,387		7,288		1	%		3,024.9		2,545.7		19	%		409,500		349,300		17	%
		24,302		21,714		12	%	$	6,754.4	$	5,367.5		26	%	$	277,900	$	247,200		12	%

-22-

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

	SALES ORDER BACKLOG
	As of March 31,
	Homes in Backlog							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		2,337		1,708		37	%	$	696.8	$	452.8		54	%	$	298,200	$	265,100		12	%
Midwest		1,312		1,125		17	%		394.4		340.7		16	%		300,600		302,800		(1	)%
Southeast		3,623		2,351		54	%		917.7		511.8		79	%		253,300		217,700		16	%
Southwest		7,555		7,018		8	%		1,531.2		1,210.9		26	%		202,700		172,500		18	%
West		6,378		5,935		7	%		2,626.9		2,119.5		24	%		411,900		357,100		15	%
		21,205		18,137		17	%	$	6,167.0	$	4,635.7		33	%	$	290,800	$	255,600		14	%

	HOMES CLOSED
	Three Months Ended March 31,
	Homes Closed							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		870		801		9	%	$	209.9	$	180.5		16	%	$	241,300	$	225,300		7	%
Midwest		436		443		(2	)%		113.0		119.2		(5	)%		259,200		269,100		(4	)%
Southeast		1,703		1,282		33	%		383.3		251.5		52	%		225,100		196,200		15	%
Southwest		4,549		4,432		3	%		807.7		729.5		11	%		177,600		164,600		8	%
West		3,043		2,865		6	%		1,192.9		969.8		23	%		392,000		338,500		16	%
		10,601		9,823		8	%	$	2,706.8	$	2,250.5		20	%	$	255,300	$	229,100		11	%

	Six Months Ended March 31,
	Homes Closed							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		1,703		1,643		4	%	$	418.5	$	362.0		16	%	$	245,700	$	220,300		12	%
Midwest		855		887		(4	)%		224.5		238.5		(6	)%		262,600		268,900		(2	)%
Southeast		3,097		2,403		29	%		689.4		469.0		47	%		222,600		195,200		14	%
Southwest		8,653		8,373		3	%		1,512.7		1,370.9		10	%		174,800		163,700		7	%
West		5,973		5,759		4	%		2,310.7		1,944.7		19	%		386,900		337,700		15	%
		20,281		19,065		6	%	$	5,155.8	$	4,385.1		18	%	$	254,200	$	230,000		11	%

-23-

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

HOMEBUILDING OPERATING MARGIN ANALYSIS

	Percentages of Total Homebuilding Revenues
	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
Gross profit:
Home sales		24.8	%		22.3	%		25.0	%		22.4	%
Land/lot sales		39.5			36.1			39.1			39.5
Total homebuilding gross profit		25.5			22.5			25.4			22.7
Selling, general and administrative expense		(9.4	)		(9.7	)		(9.9	)		(9.8	)
Interest expense		—			(0.1	)		—			(0.1	)
Other income (expense)		0.1			(0.1	)		0.2			—
Income before income taxes		16.2	%		12.6	%		15.7	%		12.8	%

Net Sales Orders and Backlog

Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of sales contract cancellations. The value of net sales orders increased 23% to $4,098.6 million (14,401 homes) for the three months ended March 31, 2005, from $3,333.8 million (13,480 homes) for the same period of 2004. The value of net sales orders increased 26% to $6,754.4 million (24,302 homes) for the six months ended March 31, 2005, from $5,367.5 million (21,714 homes) for the same period of 2004. The average price of a net sales order in the three months ended March 31, 2005 was $284,600, up 15% from the $247,300 average in the comparable period of 2004. The average price of a net sales order in the six months ended March 31, 2005 was $277,900, up 12% from the $247,200 average in the comparable period of 2004. The number and value of net sales orders during the three and six-month periods increased in each of our five market regions due to the successful execution of our growth strategies and generally strong demand for our homes. The largest increase in the value of net sales orders during the three and six-month periods occurred in the Southeast region. This increase is the result of our continued efforts to expand our presence in our Florida markets where housing demand is high. The average price of net sales orders during the three and six-month periods increased in four of our five market regions, reflecting our ability to increase prices in the markets where demand for our homes is strongest. In the Midwest region, the average sales price for the three and six-month periods was down 9% and 8%, respectively, due to efforts to offer more lower priced products in the Chicago market.

Sales order backlog represents homes under contract but not yet closed at the end of the period. Some of the contracts in our sales order backlog are subject to contingencies, including mortgage loan approval, that can result in cancellations. In the past, our backlog has been a reliable indicator of the level of closings in our two subsequent fiscal quarters, although contracts in backlog may not all result in closings. At March 31, 2005, the value of our backlog of sales orders was $6,167.0 million (21,205 homes), up 33% from $4,635.7 million (18,137 homes) at March 31, 2004. The average sales price of homes in sales order backlog was $290,800 at March 31, 2005, up 14% from the average price of $255,600 at March 31, 2004. The value of our backlog of sales orders was up in all of our five market regions, with the Southeast and Mid-Atlantic regions showing the largest increases from the prior period, up 79% and 54%, respectively. These increases are the result of our continued efforts to expand our presence in the Florida, Maryland, New Jersey and Virginia markets. The increase in our average selling price is due to our ability to increase prices in the markets where demand for our homes is strongest.

Home Sales Revenue and Gross Profit

Revenues from home sales increased 20%, to $2,706.8 million (10,601 homes closed) for the three months ended March 31, 2005, from $2,250.5 million (9,823 homes closed) for the comparable period of 2004. Revenues from home sales increased 18%, to $5,155.8 million (20,281 homes closed) for the six months ended March 31, 2005,

-24-

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

from $4,385.1 million (19,065 homes closed) for the comparable period of 2004. The average selling price of homes closed during the three months ended March 31, 2005 was $255,300, up 11% from $229,100 for the same period in 2004. The average selling price of homes closed during the six months ended March 31, 2005 was $254,200, up 11% from $230,000 for the same period in 2004. Revenues from home sales increased in four of our five market regions during the three and six-month periods. The increase in our revenues is due to our continued execution of our growth strategies in most of our markets and our ability to increase prices in the markets where demand for our homes is strongest.

Gross profit from home sales increased by 34%, to $672.1 million for the three months ended March 31, 2005, from $501.7 million for the comparable period of 2004. Gross profit from home sales increased by 31%, to $1,289.7 million for the six months ended March 31, 2005, from $982.0 million for the comparable period of 2004. Gross profit from home sales as a percentage of home sales revenues increased 250 basis points, to 24.8% for the three months ended March 31, 2005, from 22.3% for the comparable period of 2004. Gross profit from home sales as a percentage of home sales revenues increased 260 basis points, to 25.0% for the six months ended March 31, 2005, from 22.4% for the comparable period of 2004. The improvement in gross profit from home sales as a percentage of revenue for the three-month and six-month periods is primarily attributable to our ability to increase home prices in many of our markets, as well as our ongoing efforts to control and reduce construction costs through our local, regional and national purchasing programs. It also reflects a reduction in the amortization of capitalized interest and other financing costs as a percentage of revenues, which resulted from our improvement in homebuilding leverage ratios and debt refinancing efforts over the past two years.

Land Sales Revenue and Gross Profit

Land sales revenues increased 181%, to $120.1 million for the three months ended March 31, 2005, and 103%, to $145.2 million for the six months ended March 31, 2005, from $42.7 million and $71.7 million in the comparable periods of 2004. The increase in land sales revenue for the three and six-month periods is due to our sale of a single, commercially-zoned parcel in our West region in March 2005. The gross profit percentage from land sales increased to 39.5% for the three months ended March 31, 2005, from 36.1% in the comparable period of the prior year, and decreased to 39.1% for the six months ended March 31, 2005 from 39.5% in the prior year. The fluctuations in revenues and gross profit percentages from land sales are a function of how we manage our inventory levels in various markets. We generally purchase land and lots with the intent to build and sell homes on them. When we have the opportunity and the need to sell land or lots in our various markets to manage inventories at desired levels, or because the land is not zoned for residential construction, the resulting land sales occur at unpredictable intervals and varying degrees of profitability. Therefore, the revenues and gross profit from land sales can fluctuate significantly from period to period.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 20%, to $267.0 million in the three months ended March 31, 2005, and 21%, to $524.7 million in the six months ended March 31, 2005, from the comparable periods of 2004. As a percentage of homebuilding revenues, SG&A expenses decreased 30 basis points, to 9.4% for the three months ended March 31, 2005, from 9.7% in the comparable period of 2004, and increased 10 basis points, to 9.9% for the six months ended March 31, 2005, from 9.8% in the comparable period of 2004. Our homebuilding SG&A expense as a percentage of revenues can vary between quarters, depending largely on the relative fluctuations in quarterly revenue levels. The improvement in SG&A expenses as a percentage of revenues for the three-month period ending March 31, 2005 is attributable to our ongoing cost control efforts and our ability to generate higher revenue levels, including the land sale in our West region, that served to better leverage our existing fixed SG&A costs.

-25-

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

Interest Expense

Interest incurred related to homebuilding debt increased by 23%, to $77.4 million in the three months ended March 31, 2005, from $63.1 million in the comparable period in 2004, while our average daily homebuilding debt (excluding liabilities associated with consolidated land inventory not owned) increased 29% from the prior year period. Interest incurred related to homebuilding debt increased by 15%, to $135.9 million in the six months ended March 31, 2005, from $118.0 million in the comparable period in 2004, while our average daily homebuilding debt (excluding liabilities associated with consolidated land inventory not owned) increased 28% from the prior year period. Interest incurred increased at a slower rate than average debt because we have replaced certain of our higher interest rate notes with notes bearing lower interest rates, and we have restructured and amended our unsecured revolving credit facility, which lowered our interest costs.

We capitalize interest costs only to inventory under construction or development. During both years, our inventory under construction or development exceeded our interest-bearing debt; therefore, we capitalized virtually all interest from homebuilding debt. Interest expense of $3.3 million for the six-month period of 2004 included $3.1 million of unamortized issuance costs related to restructuring our revolving credit facility during the quarter ended March 31, 2004. Interest amortized to cost of sales was 2.7% of total cost of sales in the three months ended March 31, 2005, compared to 3.1% in the comparable period of 2004. Interest amortized to cost of sales was 2.5% of total cost of sales in the six months ended March 31, 2005, compared to 3.1% in the comparable period of 2004. The reduction in interest amortized to cost of sales as a percentage of total cost of sales for the three and six-month periods is a direct result of the reductions in our homebuilding leverage ratios and our debt refinancing efforts over the past two years, which has also reduced our capitalized interest as a percentage of inventory.

Other Income

Other income associated with homebuilding activities was $5.9 million in the three months ended March 31, 2005, compared to other expense of $2.8 million in the comparable period of 2004. Other income associated with homebuilding activities was $10.9 million in the six months ended March 31, 2005, compared to other expense of $0.2 million in the comparable period of 2004. The major component of other income in the three and six-month periods ending March 31, 2005 was an increase in the fair value of our interest rate swaps.

RESULTS OF OPERATIONS – FINANCIAL SERVICES

The following table summarizes financial information for our financial services operations:

	Three Months Ended March 31,									Six Months Ended March 31,
							%									%
	2005			2004			Change			2005			2004			Change
	(In millions)
Loan origination fees	$	9.2		$	8.1			14	%	$	17.0		$	15.2			12	%
Sale of servicing rights and gains from sale of mortgages		23.5			19.5			21	%		47.0			41.1			14	%
Other revenues		6.7			5.2			29	%		12.7			9.3			37	%
Total mortgage banking revenues		39.4			32.8			20	%		76.7			65.6			17	%
Title policy premiums, net		10.4			9.2			13	%		19.1			17.4			10	%
Total revenues		49.8			42.0			19	%		95.8			83.0			15	%
General and administrative expense		33.9			26.2			29	%		66.6			51.7			29	%
Interest expense		2.6			1.1			136	%		5.0			2.4			108	%
Other (income)		(6.3	)		(3.4	)		85	%		(13.0	)		(7.9	)		65	%
Income before income taxes	$	19.6		$	18.1			8	%	$	37.2		$	36.8			1	%

-26-

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

FINANCIAL SERVICES OPERATING MARGIN ANALYSIS

	Percentages of Total Financial Services Revenues
	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2005			2004			2005			2004
General and administrative expense		68.1	%		62.4	%		69.5	%		62.3	%
Interest expense		5.2			2.6			5.2			2.9
Other (income)		(12.7	)		(8.1	)		(13.5	)		(9.5	)
Income before income taxes		39.4	%		43.1	%		38.8	%		44.3	%

Revenues from the financial services segment increased 19% to $49.8 million in the three months ended March 31, 2005, from the comparable period of 2004. Revenues from the financial services segment increased 15% to $95.8 million in the six months ended March 31, 2005, from the comparable period of 2004. The increase in financial services revenues was primarily due to increases in the number of mortgage loan originations to customers of our homebuilding operations. General and administrative expenses associated with financial services increased 29% in both the three and six-month periods of 2005 from the comparable periods of 2004, to $33.9 million and $66.6 million, respectively. As a percentage of financial services revenues, general and administrative expenses increased 570 basis points, to 68.1% in the three months ended March 31, 2005 from the comparable period of 2004. As a percentage of financial services revenues, general and administrative expenses increased 720 basis points, to 69.5% in the six months ended March 31, 2005 from the comparable period of 2004. The increases in general and administrative expenses as a percentage of financial services revenue were due primarily to changes in the product mix of mortgage loans originated and sold, increased competition in the mortgage industry and our efforts to strengthen our financial services infrastructure to support our growing homebuilding business.

RESULTS OF OPERATIONS — CONSOLIDATED

Income Before Income Taxes

Income before income taxes for the three months ended March 31, 2005, increased 56% from the comparable period of 2004, to $478.0 million. Income before income taxes for the six months ended March 31, 2005, increased 43% from the comparable period of 2004, to $869.9 million. As a percentage of revenues, income before income taxes for the three months ended March 31, 2005 was 16.6%, an increase of 350 basis points from the comparable period of 2004. As a percentage of revenues, income before income taxes for the six months ended March 31, 2005 was 16.1%, an increase of 270 basis points from the comparable period of 2004. The primary factor contributing to these improvements was the homebuilding segment’s pre-tax operating margin, which increased 360 basis points and 290 basis points versus the three and six months ended March 31, 2004, respectively. These increases were partially offset by decreases in the pre-tax operating margin of our financial services segment during both periods.

Provision for Income Taxes

The consolidated provision for income taxes for the three and six months ended March 31, 2005 increased 56% and 43% from the comparable periods of 2004, to $184.0 million and $334.9 million, respectively, due to the corresponding increase in income before income taxes. The effective income tax rate for all periods was 38.5%.

-27-

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

CAPITAL RESOURCES AND LIQUIDITY

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

At March 31, 2005, our ratio of homebuilding debt (excluding liabilities associated with consolidated land inventory not owned) to total capital was 42.5%, an increase from 38.9% at September 30, 2004, and a decrease from 43.3% at March 31, 2004. Homebuilding debt to total capital consists of homebuilding notes payable (net of cash) divided by total capital (homebuilding notes payable net of cash plus stockholders’ equity). The increase in our ratio of homebuilding debt to total capital at March 31, 2005 as compared with the ratio at September 30, 2004 is due to the increase in borrowings associated with funding a planned increase in inventory, and is partially offset by the increase in retained earnings. We increased construction in progress inventory to support higher home closings planned for our third and fourth fiscal quarters, and we increased residential lot inventory to support our planned growth in home closings in future years. For the same reasons, our stockholders’ equity to total assets ratio decreased 170 basis points, to 42.4% at March 31, 2005, from 44.1% at September 30, 2004.

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

Homebuilding Capital Resources

Cash — At March 31, 2005, our available homebuilding cash and cash equivalents amounted to $526.1 million.

Bank Credit Facility – We have a $1.21 billion unsecured revolving credit facility, which includes a $350 million letter of credit sub-facility, that matures on March 25, 2008. The facility is guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries.

We had no outstanding cash borrowings on our homebuilding revolving credit facility at March 31, 2005 and September 30, 2004. Under the debt covenants associated with our revolving credit facility, our additional homebuilding borrowing capacity under the facility is limited to the lesser of the unused portion of the facility, $1.1 billion at March 31, 2005, or an amount determined under a borrowing base arrangement. Under the borrowing base limitation, the sum of our senior debt and the amount drawn on our revolving credit facility may not exceed certain percentages of the various categories of our unencumbered inventory. At March 31, 2005, the borrowing base arrangement would have limited our additional borrowing capacity from any source to $2.4 billion. At March 31, 2005, we were in compliance with all of the covenants, limitations and restrictions that form a part of our public debt obligations and our bank revolving credit facility.

Shelf Registration Statements — At March 31, 2005, we had the capacity to issue new debt or equity securities amounting to $900 million under our universal shelf registration statement. Also, at March 31, 2005, we had the capacity to issue approximately 30 million shares of common stock under our acquisition shelf registration statement, to effect, in whole or in part, possible future business acquisitions.

On April 1, 2005, we repaid the $200 million principal amount of our 10.5% Senior notes which became due on that date.

-28-

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

Financial Services Capital Resources

Cash — At March 31, 2005, we had available financial services cash and cash equivalents of $46.7 million.

Mortgage Warehouse Loan Facility – Our wholly-owned mortgage company has a $300 million mortgage warehouse loan facility payable to financial institutions. The facility was renewed upon its maturity on April 8, 2005. The amendment to the loan agreement extended the maturity date to April 7, 2006 and increased the amount that may be borrowed under the uncommitted accordion feature to $150 million. The committed capacity under this facility remains at $300 million. At March 31, 2005, we had borrowings of $275.5 million outstanding under the mortgage warehouse facility.

Commercial Paper Conduit Facility – Our wholly-owned mortgage company also has a $300 million commercial paper conduit facility (the “CP conduit facility”), which expires on June 29, 2006. The terms of the facility are renewable annually by the sponsoring banks. At March 31, 2005, $241.5 million had been drawn under the CP conduit facility.

The mortgage warehouse loan facility and the CP conduit facility are not guaranteed by either the parent company or any of the subsidiaries that guarantee our homebuilding debt. Borrowings under both facilities are secured by certain mortgage loans held for sale. The mortgage loans pledged to secure the CP conduit facility are used as collateral for asset backed commercial paper issued by multi-seller conduits in the commercial paper market. At March 31, 2005, our total mortgage loans held for sale were $648.3 million. All mortgage company activities are financed with the mortgage warehouse facility, the CP conduit facility or internally generated funds. Both of our financial services credit facilities contain financial covenants with which we are in compliance.

Operating Cash Flow Activities

For the six months ended March 31, 2005, we used $714.1 million of cash in our operating activities, as compared to $459.6 million of cash used in such activities during the comparable period of the prior year. The increase in cash used in operating activities is due to our decision to fund inventory growth with $1,278.5 million to support our planned home closings volume in the remainder of fiscal 2005 and future years.

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

Investing Cash Flow Activities

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

Financing Cash Flow Activities

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

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

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

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

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

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

During the three months ended March 31, 2005, our Board of Directors declared a quarterly cash dividend of $0.0675 per common share (split-adjusted), which was paid on February 11, 2005 to stockholders of record on January 28, 2005. In April 2005, our Board of Directors declared a quarterly cash dividend of $0.09 per common share, payable on May 20, 2005 to stockholders of record on May 6, 2005.

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At March 31, 2005, we had $273.1 million in deposits to purchase land and lots with a total remaining purchase price of $5.1 billion. Only $36.1 million of the remaining purchase price is subject to specific performance clauses which may require us to purchase the land or lots upon the land seller meeting certain obligations. We consolidated certain variable interest entities and other inventory obligations with assets of $214.7 million.

In the normal course of business, we provide standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At March 31, 2005, outstanding standby letters of credit and performance bonds, the majority of which mature in less than one year, were $120.1 million and $1.5 billion, respectively.

LAND AND LOT POSITION AND HOMES IN INVENTORY

At March 31, 2005, about 52% of our total lot position of 296,000 lots was controlled under option or similar contracts. The following is a summary of our land/lot position at March 31, 2005:

Lots owned – developed and under development	143,000
Lots controlled under lot option and similar contracts	153,000
Total land/lots controlled	296,000
Percentage controlled under option	52	%

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

At March 31, 2005, we had a total of approximately 28,000 homes under construction, including approximately 1,700 model homes and approximately 300 unsold homes that had been completed for more than six months.

CRITICAL ACCOUNTING POLICIES

There have been no significant changes to our critical accounting policies during the six months ended March 31, 2005, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K for the year ended September 30, 2004.

SEASONALITY

We have historically experienced variability in our results of operations from quarter to quarter due to the seasonal nature of the homebuilding business. Historically, we have closed a greater number of homes in our third and fourth fiscal quarters than in our first and second fiscal quarters. As a result, our revenues and net income have been higher in the third and fourth quarters of our fiscal year. In fiscal 2004, 58% of our consolidated revenues and 62% of our net income were attributable to our operations in the third and fourth fiscal quarters. However, we can make no assurances that this trend will continue in this or any future fiscal years.

SAFE HARBOR STATEMENT AND RISKS

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

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

- changes in interest rates and the availability of mortgage financing;

- governmental regulations and environmental matters;

- competitive conditions within our industry;

- warranty and product liability claims;

- our substantial debt;

- the availability of capital; and

- our ability to effect our growth strategies successfully.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

We have mitigated our exposure to changes in interest rates on our variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate borrowings. Our interest rate swaps were not designated as hedges under SFAS No. 133 when it was adopted on October 1, 2000. We are exposed to market risk associated with changes in the fair values of the swaps, and such changes must be reflected in our income statements.

Our mortgage company is exposed to interest rate risk associated with its mortgage loan origination services. Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan funding and who meet defined credit and underwriting criteria. Typically, the IRLCs have a duration of less than six months. Some IRLCs are committed immediately to a specific investor through the use of best-efforts whole loan delivery commitments, while other IRLCs are funded prior to being committed to third-party investors. Forward sales of mortgage backed securities (“FMBS”) are used to protect uncommitted IRLCs against the risk of changes in interest rates. FMBS related to IRLCs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings. FMBS related to funded, uncommitted loans are designated as fair value hedges, with changes in the value of the derivative instruments recognized in current earnings, along with changes in the value of the funded, uncommitted loans. The effectiveness of the fair value hedges is continuously monitored and any ineffectiveness, which for the three months and six months ended March 31, 2005 and 2004 was not significant, is recognized in current earnings.

The following table sets forth, as of March 31, 2005, for our debt obligations (excluding liabilities associated with consolidated land inventory not owned), principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts, weighted average interest rates and estimated fair market value of our interest rate swaps.

	Six Months
	Ending																					Fair value
	September 30,			Fiscal Year Ending September 30,																		at
	2005			2006			2007			2008			2009			Thereafter			Total			3/31/05
	($ in millions)
Debt:
Fixed rate	$	231.1		$	9.6		$	4.3		$	215.7		$	821.3		$	2,545.4		$	3,827.4		$	3,884.0
Average interest rate		10.5	%		7.5	%		5.8	%		7.6	%		7.6	%		7.0	%		7.4	%
Variable rate	$	517.0		$	—		$	—		$	—		$	—		$	—		$	517.0		$	517.0
Average interest rate		3.6	%		—			—			—			—			—			3.6	%
Interest Rate Swaps:
Variable to fixed	$	200.0		$	200.0		$	200.0		$	200.0		$	—		$	—		$	—		$	(5.1	)
Average pay rate		5.1	%		5.1	%		5.1	%		5.0	%		—			—			—
Average receive rate	90-day LIBOR

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ITEM 4. CONTROLS AND PROCEDURES

The Company’s management has long recognized its responsibilities for developing, implementing and monitoring effective and efficient controls and procedures. As part of those responsibilities, as of March 31, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in the Company’s periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to March 31, 2005. Accordingly, there have been no corrective actions taken as no significant deficiencies or material weaknesses were detected in these controls.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          (a) At the Company’s Annual Meeting, the stockholders re-elected each of the seven members of the Board of Directors of the Company to serve until the Company’s next annual meeting of stockholders and until their respective successors are elected and qualified. The names of the seven directors, the votes cast for and the number of votes withheld were as follows:

Name	Votes For		Votes Withheld
Donald R. Horton		205,824,035		4,404,741
Bradley S. Anderson		200,500,233		9,728,543
Michael R. Buchanan		200,503,980		9,724,796
Richard I. Galland		194,952,495		15,276,281
Francine I. Neff		200,546,175		9,682,601
Donald J. Tomnitz		206,052,249		4,176,527
Bill W. Wheat		202,048,447		8,180,329

          (b) At the Company’s Annual Meeting, the stockholders voted against a proposal to amend and restate the D.R. Horton, Inc. 1991 Stock Incentive Plan. The votes cast for, cast against and withheld were as follows:

Votes For	Votes Against		Votes Withheld
64,042,848		115,910,359		307,804

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ITEM 5. OTHER INFORMATION

Donald R. Horton and his family have agreed to allow the employees of the Company and their families and their invited guests to use, for certain recreational activities, the personal ranch of Mr. Horton and his family. Mr. Horton and his family will not receive any compensation for their agreement to allow such use. The Company will pay the expenses related to this use of the ranch. To protect Mr. Horton and his family from any claim, loss or damage resulting from this use of Mr. Horton’s ranch by the employees of the Company, their families or their invited guests, on April 29, 2005, the Board of Directors of the Company, with Mr. Horton abstaining, approved the Company’s indemnification of, and securing of insurance in accordance with the Company’s customary insurance practices for, Mr. Horton, his family and certain affiliated entities associated with the ranch from any claim, loss or damage resulting from this use of Mr. Horton’s ranch by any of the employees of the Company, their families or their invited guests.

ITEM 6. EXHIBITS

(a)	Exhibits.
		3.1	Amended and Restated Certificate of Incorporation, as amended, of the Company is incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q/A, filed with the Commission on February 18, 2003.
		3.1(a)	Amendment to Amended and Restated Certificate of Incorporation, as amended, of the Company, effective February 6, 2003, is incorporated by reference from Exhibit 3.1(a) to the Company’s Quarterly Report on Form 10-Q/A, filed with the Commission on February 18, 2003.
		3.2	Amended and Restated Bylaws of the Company are incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, filed with the Commission on February 16, 1999.
		4.1	Twenty-Third Supplemental Indenture, dated February 11, 2005, by and among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the 5.25% Senior Notes due 2015 issued by the Company (1)
		10.1*	Second Amendment to Amended and Restated Credit Agreement between DHI Mortgage Company, Ltd. and U.S. Bank National Association dated April 8, 2005.
		10.2*	Form of Annual Executive Compensation Notification — Chairman and CEO.
		10.3*	Executive Compensation Summary — Named Executive Officers.
		12.1*	Statement of Computation of Ratio of Earnings to Fixed Charges.
		31.1*	Certificate of Chief Executive Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, is filed herewith.
		31.2*	Certificate of Chief Financial Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, is filed herewith.
		32.1*	Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Executive Officer, is filed herewith.
		32.2*	Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Financial Officer, is filed herewith.

*	Filed herewith
(1)	Incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 4, 2005 and filed with the SEC on February 10, 2005.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	D.R. HORTON, INC.
Date: May 4, 2005	By:	/s/ Bill W. Wheat
		Bill W. Wheat, on behalf of D.R. Horton, Inc.,
		as Executive Vice President and
		Chief Financial Officer (Principal Financial and
		Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

          This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), made and entered into as of April 8, 2005, is by and between DHI Mortgage Company, Ltd., a Texas limited partnership (the “Borrower”), and U.S. Bank National Association, a national banking association (the “Agent” and a “Lender”) and the other Lenders party hereto (collectively, the “Lenders”).

RECITALS

          1. The Lenders and the Borrower entered into an Amended and Restated Credit Agreement dated as of April 9, 2004 as amended by a First Amendment to Amended and Restated Credit Agreement dated as of September 22, 2004, (as amended, the “Credit Agreement”); and

          2. The Borrower desires to change certain provisions of the Credit Agreement and the Lenders have agreed to make such amendments, subject to the terms and conditions set forth in this Amendment.

AGREEMENT

          NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:

          Section 1. Capitalized Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement, unless the context shall otherwise require.

          Section 2. Amendments. The Credit Agreement is hereby amended as follows:

     2.1 The definitions of “Aggregate Commitment Amounts”, “Change of Control”, “Collateral Value”, “Conforming Mortgage Loan”, “Drawdown Termination Date”, “HELOC Mortgage Loan Sublimit”, “Nonconforming Mortgage Loan” and “Nonconforming Sublimit” are amended in their entireties to read as follows:

     “Aggregate Commitment Amounts” means the total of the Commitment Amounts of the Lenders, which is $300,000,000, subject to increase in accordance with Section 10.11(d), but not to exceed $450,000,000.

     “Change of Control” means the occurrence of the Parent not owning, directly or indirectly, (1) a majority of the issued and outstanding ownership interests of the Company or (2) a controlling interest in any other Borrower.

     “Collateral Value” means with respect to each Eligible Mortgage Loan that is included in the Borrowing Base, ninety-eight percent (98%) (ninety-five percent (95%) for each Eligible Mortgage Loan that is included in the Borrowing Base and that is an Aged Loan) of the least of: (i) the outstanding principal balance of the Mortgage Note for such Eligible Mortgage Loan; (ii) the amount at which an Investor has committed to purchase the Eligible Mortgage Loan pursuant to a Take-out Commitment or the weighted average commitment price under the applicable Take-Out Commitment (excluding from the commitment price any stated servicing release premium); or (iii) at the election of the Agent, the Market Value of the Mortgage Note constituting such Eligible Mortgage Loan.

     “Conforming Mortgage Loan” means a first priority or second priority Mortgage Loan that has been FHA-insured or VA-guaranteed or that has been underwritten in accordance with Fannie Mae guidelines and/or meets all applicable requirements for sale to Fannie Mae or Freddie Mac or for guaranty by Ginnie Mae.

     “Drawdown Termination Date” means the earlier of April 7, 2006, or the day on which the Notes first become due and payable in full.

     “HELOC Mortgage Loan Sublimit” means ten percent (10%) of the Aggregate Commitment Amounts.

     “Nonconforming Sublimit” means twenty-five percent (25%) of the Aggregate Commitment Amounts.

     The definition of “CP Facility Documents” in Section 1.01 of the Credit Agreement is amended by deleting the period at the end thereof and adding the following:

     (which consent shall not be unreasonably withheld or delayed).

     Subpart (a) of the definition of “Nonconforming Mortgage Loan” is amended to read as follows:

     (a) is neither a Conforming Mortgage Loan, a Conforming Non-Agency Mortgage Loan nor a Jumbo Mortgage Loan,

     The following new definitions are added to Section 1.01 of the Credit Agreement in appropriate alphabetical order:

     “Aged Loans” means Mortgage Loans outstanding for more than (i) 90 days if such Mortgage Loans are Nonconforming Mortgage Loans or HELOC Mortgage Loans, and (ii) 120 days for all other types of Mortgage Loans, and, in all cases, less than 360 days.

     “Aged Loan Sublimit” means five percent (5%) of the Aggregate Commitment Amounts.

     “Conforming Non-Agency Mortgage Loan” means a Mortgage Loan, including an interest only loan and a loan made under housing bond program, that would be a Conforming Mortgage Loan except that it is not eligible for purchase by Fannie Mae or Freddie Mac.

     2.2 Section 6.02 of the Credit Agreement is amended by deleting the word “and” at the end of subsection (c), changing the period at the end of subsection (d) to a semi-colon and by adding the following subsection (e) at the end thereof:

     (e) with the prior written consent of the Majority Lenders (which consent shall not be unreasonably withheld or delayed), GAAP Indebtedness under another mortgage warehousing facility or off-balance sheet indebtedness under another financing arrangement, other than those described in subsections (c) and (d) of this Section 6.02, provided that the Lenders are given a right of first refusal regarding only similarly structured syndicated mortgage warehousing facilities.

     2.3 Section 6.09 of the Credit Agreement is amended to delete the word “and” before subsection (d) thereof, and to add the following before the period at the end thereof:

          and (e) Liens granted under mortgage warehousing facilities or off-balance sheet financing arrangements approved under Section 6.02 (d) or (e)

     2.4 Section 6.12 of the Credit Agreement is amended in its entirety to read as follows:

     Section 6.12 Distributions. The Company shall make no Distributions if either before or after giving effect thereto an Event of Default exists or shall be caused thereby

     2.5 Section 6.13 of the Credit Agreement is amended in its entirety to read as follows:

     Section 6.13 Tangible Net Worth. As of the end of each calendar month, the Company’s Consolidated Tangible Net Worth shall not be less than $70,000,000.

     2.6 Section 10.11(d) of the Credit Agreement is amended by deleting therefrom the dollar amount “$350,000,000” and inserting in its place the dollar amount “$450,000,000”.

     2.7 Schedule 1 to the Credit Agreement is deleted and Schedule 1 attached hereto is inserted in its place as Schedule 1 to the Credit Agreement.

     2.8 Schedule 2 to the Credit Agreement is deleted and Schedule 2 attached hereto is inserted in its place as Schedule 2 to the Credit Agreement.

     2.9 Schedule 5 to the Credit Agreement is deleted and Schedule 5 attached hereto is inserted in its place as Schedule 5 to the Credit Agreement.

     2.10 Exhibit C to the Credit Agreement is deleted and Exhibit C hereto is inserted in its place as Exhibit C to the Credit Agreement.

     2.11 Exhibit D to the Credit Agreement is deleted and Exhibit D hereto is inserted in its place as Exhibit D to the Credit Agreement.

     2.12 Attachment 2 to the Amended and Restated Pledge and Security Agreement is deleted and Attachment 2 hereto is inserted in its place as Attachment 2 to the Amended and Restated Pledge and Security Agreement.

          Section 3. Effectiveness of Amendments. The amendments contained in this Amendment shall become effective on April 8, 2005 once executed by the Borrower and the Lenders and once the Agent has received the following:

               (a) This Amendment and a Note in the principal amount of each Lender’s Commitment Amount from the Borrower to the each such Lender substantially in the form of Exhibit A to the Credit Agreement (together with this Amendment, the “Amendment Documents”);

               (b) A copy of the resolutions of the Board of Directors of the General Partner of the Borrower authorizing the execution, delivery and performance of this Amendment and the Notes certified as true and accurate by its Secretary or Assistant Secretary, along with a certification by such Secretary or Assistant Secretary (i) certifying that there has been no amendment to the Articles of Organization or operating agreement of the Borrower since true and accurate copies of the same were delivered to the Lender with a certificate of the Secretary of the Borrower dated April 9, 2004, and (ii) identifying each officer of the general partner of the Borrower authorized to execute this Amendment, the Notes and any other instrument or agreement executed by the Borrower in connection with this Amendment, and certifying as to specimens of such officer’s signature and such officer’s incumbency in such offices as such officer holds; and

               (c) The Borrower shall have satisfied such other conditions as specified by the Agent, including payment of all unpaid legal fees and expenses incurred by the Agent through the date of this Amendment in connection with the Credit Agreement and the Amendment Documents.

          Section 4. Representations, Warranties, Authority, No Adverse Claim.

     4.1 Reassertion of Representations and Warranties, No Default. The Borrower hereby represents that on and as of the date hereof and after giving effect to this Amendment (a) all of the representations and warranties contained in the Credit Agreement are true, correct and complete in all respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Credit Agreement, and (b) there will exist no Default or Event of Default under the Credit Agreement as amended by this Amendment on such date which has not been waived by the Lenders.

     4.2 Authority, No Conflict, No Consent Required. The Borrower represents and warrants that the Borrower has the power and legal right and authority to enter into this Amendment and has duly authorized as appropriate the execution and delivery of this

Amendment and other agreements and documents executed and delivered by the Borrower in connection herewith by proper partnership action, and none of the Amendment Documents nor the agreements contained herein or therein contravenes or constitutes a default under any agreement, instrument or indenture to which the Borrower is a party or a signatory or a provision of the Borrower’s partnership agreement or any other agreement or requirement of law, or result in the imposition of any Lien on any of its property under any agreement binding on or applicable to the Borrower or any of its property except, if any, in favor of the Lenders. The Borrower represents and warrants that no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of the Amendment Documents or other agreements and documents executed and delivered by the Borrower in connection therewith or the performance of obligations of the Borrower therein described, except for those which the Borrower has obtained or provided and as to which the Borrower has delivered certified copies of documents evidencing each such action to the Lenders.

     4.3 No Adverse Claim. The Borrower warrants, acknowledges and agrees that no events have taken place and no circumstances exist at the date hereof which would give the Borrower a basis to assert a defense, offset or counterclaim to any claim of the Lenders with respect to the Obligations.

          Section 5. Affirmation of Credit Agreement, Further References, Affirmation of Security Interest. The Agent on behalf of the Lenders and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Borrower confirms to the Lenders that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Lenders under the Security Agreement, and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower.

          Section 6. Merger and Integration, Superseding Effect. This Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto and supersedes and has merged into this Amendment all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Amendment, shall control with respect to the specific subjects hereof and thereof.

          Section 7. Severability. Whenever possible, each provision of this Amendment and the other Amendment Documents and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment, the other Amendment Documents or any other statement,

instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment, the other Amendment Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

          Section 8. Successors. The Amendment Documents shall be binding upon the Borrower and the Lenders and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Lenders and the successors and assigns of the Lenders.

          Section 9. Legal Expenses. The Borrower agrees to pay or reimburse the Agent, upon execution of this Amendment, for all reasonable out-of-pocket expenses paid or incurred by the Agent, including filing and recording costs and fees, charges and disbursements of outside counsel to the Agent (determined on the basis of such counsel’s generally applicable rates, which may be higher than the rates such counsel charges the Agent in certain matters) and/or the allocated costs of in-house counsel incurred from time to time, in connection with the Credit Agreement, including in connection with the negotiation, preparation, execution, collection and enforcement of the Amendment Documents and all other documents negotiated, prepared and executed in connection with the Amendment Documents, and in enforcing the obligations of the Borrower under the Amendment Documents, and to pay and save the Agent harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Amendment Documents, which obligations of the Borrower shall survive any termination of the Credit Agreement.

          Section 10. Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.

          Section 11. Counterparts. The Amendment Documents may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and either party to the Amendment Documents may execute any such agreement by executing a counterpart of such agreement.

          Section 12. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.

BORROWER:

	DHI MORTGAGE COMPANY, LTD.
	By: DHI Mortgage Company GP, Inc.
	Its: General Partner
	By:	/s/ Mark Winter
	Title: EVP/CFO
STATE OF TEXAS
COUNTY OF TRAVIS

On this the 5th day of April, 2005, personally appeared Mark C. Winter, as EVP/CFO of DHI Mortgage Company, GP, Inc., a Delaware corporation, as general partner of DHI Mortgage Company , Ltd., a Texas limited partnership (the “Company”), and before me executed this Second Amendment to Amended and Restated Credit Agreement, on behalf of the Company.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

     /s/ Melody A. Hansen

Signature of Notary Public, State of Texas

     Melody A. Hansen

(Print, Type or Stamp Commissioned Name of Notary

Public)

Personally known þ; OR Produced Identification o

Type of ID produced

(NOTARIAL SEAL)

AGENT & LENDER:

	U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Kathleen Connor
	Kathleen Connor
	Vice President

(USB Signature Page Second Amendment)

COMERICA BANK
By:	/s/ Robert W. Marr
	Robert W. Marr
	Vice President

NATIONAL CITY BANK OF KENTUCKY
By:	/s/ Jerry W. Johnston
Name:	Jerry W. Johnston
Title:	Executive Vice President

COLONIAL BANK, N.A.
By:	/s/ Amy J. Nunneley
	Amy Nunneley
	Senior Vice President

STATE OF Alabama

COUNTY OF Jefferson

On this the 5^th day of April, 2005, personally appeared Amy J. Nunneley, as Senior Vice President of Colonial Bank, N.A., an Alabama corporation (the “Bank”), and before me executed this Amended and Restated Credit Agreement, on behalf of the Bank.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

     /s/ Terence J. Bryant

Signature of Notary Public, State of Alabama

Terence J. Bryant

(Print, Type or Stamp Commissioned Name of Notary Public)

Personally known þ: OR Produced Identification

Type of ID produced

(NOTARIAL SEAL)

BANK OF AMERICA, N.A.
By:	/s/ Elizabeth Kurilecz
	Elizabeth Kurilecz
	Managing Director

BNP PARIBAS
By:	/s/ Jeff Tebeaux
	Jeff Tebeaux
	Vice President
By:	/s/ Henry Setina
	Henry Setina
	Director

WASHINGTON MUTUAL BANK, FA
By:	/s/ Cyndi Lopez
	Cyndi Lopez
	Vice President

JPMORGAN CHASE BANK
By:	/s/ Cynthia E. Crites
	Cynthia E. Crites
	Senior Vice President

SCHEDULE 1

ELIGIBLE MORTGAGE LOAN

     “Eligible Mortgage Loan” means a Mortgage Loan with respect to which each of the following statements is accurate and complete (and the Borrowers by including such Mortgage Loan in any computation of the Borrowing Base shall be deemed to so represent to Agent and Lenders at and as of the date of such computation):

     (i) Such Mortgage Loan is a binding and valid obligation of the Obligor thereon, in full force and effect and enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar terms affecting creditor’s rights in general and by general principles of equity;

     (ii) Such Mortgage Loan is genuine in all respects as appearing on its face and as represented in the books and records of the Borrowers, and all information set forth therein is true and correct;

     (iii) To the best knowledge of the Borrowers, such Mortgage Loan is free of any default (other than as permitted by subparagraph (iv) below) of any party thereto (including the Borrowers), counterclaims, offsets and defenses, including the defense of usury, and from any rescission, cancellation or avoidance, and all right thereof, whether by operation of law or otherwise;

     (iv) No payment under such Mortgage Loan is more than thirty (30) days past due the payment due date set forth in the underlying Mortgage Note and Mortgage;

     (v) Such Mortgage Loan contains the entire agreement of the parties thereto with respect to the subject matter thereof, has not been modified or amended in any respect not expressed in writing therein and is free of concessions or understandings with the Obligor thereon of any kind not expressed in writing therein;

     (vi) Such Mortgage Loan is in all respects in accordance with all Requirements of Law applicable thereto, including, without limitation, the federal Consumer Credit Protection Act and the regulations promulgated thereunder and all applicable usury laws and restrictions, and all notices, disclosures and other statements or information required by law or regulation to be given, and any other act required by law or regulation to be performed, in connection with such Mortgage Loan have been given and performed as required;

     (vii) All advance payments and other deposits on such Mortgage Loan have been paid in cash, and no part of said sums has been loaned, directly or indirectly, by the Borrowers to the Obligor, and, other than as disclosed to Agent in writing, there have been no prepayments;

     (viii) Such Mortgage Loan was originated, purchased by the Borrowers or converted from a variable rate Mortgage Loan to a fixed rate Mortgage Loan, whichever is latest not more than ninety (90) days prior to the inclusion of such Mortgage Loan in any computation of the Borrowing Base and matures within 30 years after such date of origination;

     (ix) At all times such Mortgage Loan will be free and clear of all Liens, except in favor of Agent for the benefit of Lenders and any other Lien which has been disclosed to Agent in writing and is permitted hereunder;

     (x) The Property covered by such Mortgage Loan is insured against loss or damage by fire and all other hazards normally included within standard extended coverage in accordance with the provisions of such Mortgage Loan with the Borrowers named as a loss payee thereon;

     (xi) The Required Mortgage Documents have been delivered to Agent prior to the inclusion of such Mortgage Loan in any computation of the Borrowing Base or, if such items have not been delivered to Agent on or prior to the date such Mortgage Loan is first included in any computation of the Borrowing Base, (1) the Borrower has agreed to pledge and deliver all Required Mortgage Documents pursuant to an Agreement to Pledge delivered to Agent prior to such inclusion, and (2) the Collateral Value of such Mortgage Loan when added to the Collateral Value of all other Mortgage Loans for which Agent has not received the Required Mortgage Documents does not exceed the Wet Warehousing Sublimit, provided that, all Required Documents with respect to such Mortgage Loan shall be delivered to Agent within seven (7) Business Days after the date of the borrowing request with respect thereto and all other documents requested by Agent pursuant to Section 4.02 of the Security Agreement shall be delivered to Agent within five Business Days after such request.

     (xii) If such Mortgage Loan is included in the Borrowing Base and has been withdrawn from the possession of Agent on terms and subject to conditions set forth in the Security Agreement:

     (1) If such Mortgage Loan was withdrawn by the Borrowers for purposes of correcting clerical or other non-substantive documentation problems, the promissory note and other documents relating to such Mortgage Loan are returned to Agent within nineteen (19) calendar days from the date of withdrawal; and the Collateral Value of such Mortgage Loan when added to the Collateral Value of other Mortgage Loans which have been similarly released to the Borrowers and have not been returned does not exceed $5,000,000;

     (2) If such Mortgage Loan was shipped by Agent directly to a permanent investor for purchase or to a custodian for the formation of a pool, the full purchase price therefor has been received by Agent (or such Mortgage Loan has been returned to Agent) within forty-five (45) days (seventy-five (75) days in the case if such Mortgage Loan is a housing bond program) from the date of shipment by Agent.

     (xiii) If such Mortgage Loan is a Jumbo Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all other Jumbo Mortgage Loans does not exceed the Jumbo Sublimit.

     (xiv) If such Mortgage Loan is a Nonconforming Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all the Nonconforming Mortgage Loans does not exceed the Nonconforming Sublimit;

     (xv) If such Mortgage Loan is a HELOC Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all other HELOC Mortgage Loans does not exceed the HELOC Mortgage Loan Sublimit.

     (xvi) If such Mortgage Loan is an Aged Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all Mortgage Loans that are Aged Loans does not exceed the Aged Loan Sublimit;

     (xvii) Such Mortgage Loan has not been included in the Borrowing Base for more than (A) ninety (90) days, if such Mortgage Loan is a Nonconforming Mortgage Loan or a HELOC Mortgage Loan, (B) one hundred twenty (120) days, if such Mortgage Loan is a Jumbo Mortgage Loan, (C) one hundred twenty (120) days, if such Mortgage Loan is a Conforming Mortgage Loan, Conforming Non-Agency Mortgage Loan or (D) three hundred sixty (360) days, if such Mortgage Loan is an Aged Loan;

     (xviii) Such Mortgage Loan is covered by a Take-Out Commitment which is in full force and effect, and the Borrowers and such Mortgage Loan are in full compliance therewith;

     (xix) Such Mortgage Loan is secured by a first or second Mortgage on Property consisting of a completed one-to-four unit single family residence which is not used for commercial purposes and which is not a construction loan; and

     (xx) The face amount of the Mortgage Note underlying such Mortgage Loan does not exceed $1,000,000.

     Agent may, in its discretion, waive one or more of the foregoing eligibility requirements with respect to any Mortgage Loan, provided that the aggregate Collateral Value of all Mortgage Loans with respect to which such eligibility requirements have been waived shall not at any time exceed $3,000,000.

SCHEDULE 2

Approved Investors

Investor Set CHM – DHI Mortgage Approved Investors		Disable Date:		Disable
Investor Code/Investor Description	Primary Location	Rating	Limit	Date
— UNKNOWN	PEND – UNKNOWN
ARGE – Argent Mortgage Company LLC	ARGE1 – Argent Mortgage Company
	2550 Gulf Road
	East Tower 7th Floor
	Rolling Meadows IL
CHBK – Charter Bank	CHBK1 – Charter Bank
	5200 Eubank Blvd., NE
	Albuquerque NM 87111
CHFA – CALIFORNIA HOUSING FINANCE AGEN	CHFA1 – CALIFORNIA HOUSING FINANCE AGENCY
	1121 L STREET
	7TH Floor
	SACRAMENTO CA 95814
CHMB – Chase Manhattan Bank USA, N.A.	CHB1 – Chase Manhattan Bank USA, N.A.
	c/o Chase Home Equity
	8934 Brecksville Rd. Suite 498
	Brecksville OH 44113
CHMM – Chase Manhattan Mortgage Corp.	CHMM1 – Chase Manhattan Mortgage Corp.
	10151 Deerwood Park Blvd.
	Building 300, 4th Floor
	Jacksonville FL 32256
CIIN – CITIMORTGAGE, INC.	CIIN1 – CITIMORTGAGE, INC.
	27555 FARMINGTON ROAD
	SUITE 300
	FARMINGTON HILLS MI 48334
COHF – Colorado Housing & Finance Authority	COHF1 – Colorado Housing & Finance Authority
	Loan Purchase Department
	1981 Blake Street Denver CO 80202
COHL – Countrywide Home Loans, Inc.	COHL1 – Countrywide Home Loans, Inc.
	8501 Fallbrook Avenue
	West Hills CA 91304
DEUT – Deutsche Bank	DEUT1 – Deutsche Bank
	31 W. 52nd St.
	6th Floor, Room 28
	New York NY 10019
EMC – EMC Mortgage Corporation	EMC1- EMC Mortgage Corporation
	222 Las Colinas Blv
	Suite 600
	Irving TX 75039
EMPI – Empire Mortgage, Inc.	EMPI1 – Empire Mortgage, Inc.
	11350 McCormick Road
	Suite 502
	Hunt Valley MD 21031
ENCC – Encore Credit Corporation	ENCC1 – Freemont Investment and Loan
FHMC – Federal Home Loan Mortgage Corp	FHMC1 – Federal Home Loan Mortgage

Investor Set CHM – DHI Mortgage Approved Investors		Disable Date:		Disable
Investor Code/Investor Description	Primary Location	Rating	Limit	Date
	8100 Jones Branch Drive
	Mailstop B4D
	McLean VA 10022
FIBA – First Bank of Arizona	FIBA1 – First Bank of Arizona
	17600 N Perimeter Drive
	Attn: Correspondent Lending
	Scottsdale AZ 85255
FIHH – First Horizon Home Loan Corporation	FIHH1 – First Horizon Home Loan Corporation
	4000 Horizon Way
	Mail Code 4700 Irving TX 75063
GHFA – Georgia Housing & Finance Authority	GHFA1 – Georgia Housing & Finance Authority
	60 Executive Parkway South
	Suite 250 Atlanta GA 30329
GRMF – Greenpoint Mortgage Funding, Inc.	GRMF1 – Greenpoint Mortgage Funding, Inc.
	1100 Larkspur Landing Circle
	Suite 101
	Attn: Correspondent Lending
	Department Larkspur CA 94939
IMPA – IMPAC Funding Corp.	IMPA1 – IMPAC Funding Corp.
	1401 Dove St
	Suite 100
	Newport Beach CA 92660
INDY – IndyMac Bank	INDY1 – IndyMac Bank
	7667 Folsom Blvd.
	Suite 101
	Sacramento CA 95826
MAFS – Matrix Financial Services Corp	MAFS1 – Matrix Financial Services Corp
	700 Corporate Park Drive
	St. Louis MO 63105
NACM – National City Mortgage Co.	NACM1 – National City Mortgage Co.
	LOC#06-671
	116 Allegheny Center
	Pittsburgh PA 15212
NCHA – North Carolina Housing Finance	NCHA1 – North Carolina Housing Finance
	3508 Bush Street
	Raleigh NC 27609
NCMG – New Century Mortgage Corporation	NCMG1 – New Century Mortgage Corporation
	Attn: Lisa Spaid
	1000 Plaza Drive, Suite 40
	Schaumburg IL 60173
NOMI – Novastar Mortgage, Inc.	NOMI1 – Novastar Mortgage, Inc.
	23046 Avenida De La Carlotta
	3rd Floor
	Laguna Hills CA 92653
OPFS – Opteum Financial Services, LLC	OPFS1 – Opteum Financial Services, LLC
	27442 Portola Parkway
	Suite 250
	Foothill Ranch CA 92610
OPOM – Option One Mortgage Corporation	OPOM1 – Option One Mortgage Corporation

Investor Set CHM – DHI Mortgage Approved Investors		Disable Date:		Disable
Investor Code/Investor Description	Primary Location	Rating	Limit	Date
	3333 East CamelBack Road
	Suite 260
	Phoenix AZ 85018
PRRM – Principal Residential Mortgage,	PRRM1 – Principal Residential Mortgage,
	699 Walnut Street
	Des Moines IA 50309
RBMG — Resource Bancshares Mortgage Gro	RBMG1 – Resource Bancshares Mortgage Group, Inc.
	7909 Parklane Road Columbia SC 29223
SOCS — South Carolina State Housing Finance	SOCS1 – South Carolina State Housing Finance
	Loan Purchasing
	711 Bluff Road
	Columbia SC 29201
SOFU – Southstar Funding	SOFU1 – Southstar Funding
	400 Northridge Road
	Suite 1000
	Atlanta GA 30350
UPMI – Union Planters Mortgage, Inc.	UPMI1 – Union Planters Mortgage, Inc.
	251 Forrest Street
	Hattiesburg MS 39401
USBK — USBK	USBK1 – USBK
	4801 Frederica St
	Owensboro KY 42301
WAMU – Washington Mutual	WAMU1 – Washington Mutual
	3333 N. Mayfair
	Milwaukee WI 53222
WEFB – Wells Fargo Bank West, N.A.	WEFB1 – Wells Fargo Bank West, N.A.
	4455 Arrow West Drive
	Colorado Springs CO 80907
WEFH – Wells Fargo Bank, N.A.	WEFH1 – Wells Fargo Bank, N.A.
	3200 Robbins Road
	Springfield IL 62704
WFHE – Wells Fargo Bank, N.A.	WFHE1 – Wells Fargo Bank, N.A.
	16454 N. 28th Ave.
	MAC S3826-012
	Phoenix AZ 85023

SCHEDULE 5

COMMITMENT AMOUNTS AND PERCENTAGE SHARES

	Commitment		Percentage
	Amount		Share
U.S. Bank National Association	$				%
Comerica Bank	$				%
National City Bank of Kentucky	$				%
Colonial Bank, N.A.	$				%
Bank of America, N.A.	$				%
BNP Paribas	$				%
Washington Mutual Bank, FA	$				%
JPMorgan Chase Bank	$				%
	$	300,000,000		100	%

EXHIBIT C TO

CREDIT AGREEMENT

FORM OF
BORROWING BASE CERTIFICATE

[On the Company’s Letterhead]

U.S. Bank National Association, as Agent
800 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services Division BC-MN-HO3B

Ladies and Gentlemen:

     We submit this certificate to you in accordance with the terms of the Amended and Restated Credit Agreement dated as of April 9, 2004 (as amended and as the same may be amended, supplemented or restated from time to time, the “Credit Agreement”) between DHI Mortgage Company, Ltd., the lenders party thereto (the “Lenders”) and U.S. Bank National Association, as Agent for the Lenders (in such capacity, the “Agent”). Each capitalized term used herein and not defined herein has the same meaning ascribed to such term in the Credit Agreement or the Security Agreement.

     The undersigned hereby certifies the following as of the close of business on                                         ,                     the Borrowing Base was calculated as follows:

		Note Amount
(a) Pledged Mortgage Loans		$
Conforming Mortgage Loans	$
Conforming Non-Agency Loans	$
Nonconforming Mortgage Loans	$
Jumbo Mortgage Loans	$
HELOC Mortgage Loans	$
Aged Loans (included above)$
Agent Waived (included above) $
Less:

(b) Pledged Mortgage Loans with No Collateral Value (i.e., not Eligible Mortgage Loans)		$
Conforming Mortgage Loans and Jumbo Mortgage Loans – 120 days or more since origination or acquisition;
Nonconforming Mortgage Loans 90 days or more since origination or acquisition $_____
Jumbo Mortgage Loans – 120 days or more since origination or acquisition $_____
Nonconforming Mortgage Loans – 90 days or more since origination or acquisition $_____
Pledged more than 90 days	$
Promissory Note and/or Collateral Documents not returned or purchased by an Investor
(90/120/360 days for Aged Loans)	$	(less than 120
days)	$		(from 120 to
360 days)
Collateral Document not returned (19 days)	$
In default (30 days or more past due)	$
Requested documents not delivered (5 Business Days) $_____
Promissory Note and/or Collateral Documents not delivered (wet funding loans; 7 Business Days) $_____
Wet funding loans in excess of sublimit	$
Wet funding loans not closed	$
Jumbo Mortgage Loans in excess of applicable sublimit $_____
Nonconforming Mortgage Loans in excess of applicable sublimit $_____

HELOC Mortgage Loans in excess of applicable sublimit $_____
Aged Loans in excess of Aged Loan Sublimit $__________
Not marketable	$
Agent does not have perfected, first priority security interest	$
Other ineligible (document exceptions)	$
(c) Eligible Mortgage Loans ((a) — (b))		$
(d) 2% of (c)		$
(e) 3% of Aged Loans included in Borrowing Base		$
(f) Total Collateral Value (Borrowing Base) ((c) minus (d)) minus (e)		$

     Attached hereto is a schedule of the “Pledged Mortgage Loans” (as defined in the Security Agreement) that have no Collateral Value at the date hereof.

Dated: ___, 20___
	DHI MORTGAGE COMPANY, LTD.
	By
	Its

EXHIBIT D TO Second Amendment

and to Credit Agreement

FORM OF
COMPLIANCE CERTIFICATE

[On the Company’s Letterhead]

U.S. Bank National Association, as Agent
800 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services
Division BC-MN-HO3B
Ladies and Gentlemen:

     We submit this certificate to you in accordance with the terms of the Amended and Restated Credit Agreement dated as of April 9, 2004 (as the same may be amended, supplemented or restated from time to time, the “Credit Agreement”) between DHI Mortgage Company, Ltd., the lenders party thereto (the “Lenders”) and U.S. Bank National Association, as Agent for the Lenders (in such capacity, the “Agent”). Each capitalized term used herein and not defined herein has the same meaning ascribed to such term in the Credit Agreement.

     The undersigned hereby certifies the following as of the close of business on                                         ,                     the Company’s compliance and/or noncompliance with Sections 6.13, 6.14 and 6.15 of the Credit Agreement was as follows:

			Actual (or in
Financial Covenants	Required Compliance
1) Tangible Net
Worth (6.13)	$	70,000,000	$
2) Tangible Net
Worth Ratio (6.14)
not more than 12.0 to 1.0			__to 1.0
3) Net Income (6.15)	not less than $1.00		$

     The undersigned further certifies as follows:

(a)   The undersigned is the duly elected President, Chief Financial Officer or Controller of the General Partner of the Company.

(b)   The undersigned has reviewed the terms of the Credit Agreement and has made, or has caused to be made under the supervision of the undersigned, a detailed review of the

- 2 -

transactions and conditions of the Company during the accounting period covered by this Certificate; and

(c)

These examinations did not disclose, and the undersigned has no knowledge, whether arising out of such examinations or otherwise, of the existence of any condition or event that constitutes an Event of Default or a Default during or at the end of the accounting period covered by this Certificate, except as described in a separate attachment to this Certificate, the exceptions listing, in detail, the nature of the condition or event, the period during which it has existed and the action that the Company has taken, is taking, or proposes to take with respect to each such condition or event.

Dated:                     ,___
	DHI MORTGAGE COMPANY, LTD.
	By
	Its

- 3 -

ATTACHMENT 2 TO

AMENDED AND RESTATED PLEDGE AGREEMENT

FORM OF BAILEE LETTER

[Letterhead of U.S. Bank National Association]

[Date]

[NAME OF CUSTODIAN], as Custodian	{	include if applicable
for [NAME OF INVESTOR]
[ADDRESS OF CUSTODIAN]
[NAME AND ADDRESS OF INVESTOR]	{	include if no Custodian

Re:	Mortgage Loan No(s).
	Seller: [DHI Mortgage Company, Ltd.] [Name of Co-Borrower]

Ladies/Gentlemen:

     Pursuant to the terms and conditions set forth below, we hereby deliver to [                                                            , as Custodian (in such capacity, the “Custodian”) for]                                                                                  (the “Investor”), with this letter, the original executed promissory note(s) (the “Note(s)”) (and the other Loan Documents (defined below)) evidencing the mortgage loan(s) described on the schedule attached hereto (the “Loan(s)”). U.S. Bank National Association, as agent for certain lenders (in such capacity, the “Agent”) has a perfected first lien security interest in the Loan(s) for the benefit of such lenders pursuant to an Amended and Restated Pledge and Security Agreement between the Agent and the Seller [and a Joinder Agreement between DHI Mortgage Company, Ltd., the Agent and the Seller]. The Agent expressly retains and reserves all of its rights in the Loan(s), the Note(s) and all related security instruments, files, and documents (the “Loan Documents”) until the Investor has paid the Agent the Warehouse Purchase Amount (as hereinafter defined) for the Loan(s) in accordance with this letter (“this Bailee Letter”).

     By taking physical possession of this Bailee Letter, the Note(s) and the other Loan Documents, [the Investor] [the Custodian] hereby agrees:

     (i) to hold in trust, as bailee for the Agent, the Note(s) and all other Loan Documents which it receives related to the Loan(s), until its status as bailee is terminated as set forth herein;

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     (ii) not to release or deliver, or authorize the release or delivery of, the Note(s) or any other Loan Document to the Seller or any other entity or person or take any other action with respect to the Note(s) or any other Loan Document which release, delivery or other action could cause the security interest of the Agent to become unperfected or which could otherwise jeopardize the perfected security interest of the Agent in the Loan(s);

     (iii) in the case of any Note(s) that are endorsed in blank, not to complete such blank endorsements unless and until (A) the Loan(s) evidenced by such Note(s) have been accepted for purchase by the Investor and (B) the Warehouse Purchase Amount has been irrevocably paid to the Agent in accordance with the terms hereof;

     (iv) to return the Note(s) and any related Loan Documents immediately to the Agent (A) upon receipt of a written request by the Agent or (B) in the event that the Note(s) require completion and/or correction;

     (v) not to honor any requests or instructions from the Seller relating to any Note (other than for correction), or any other documents relating thereto (other than for correction or replacement thereof or to supplement such documents);

     (vi) promptly upon the Investor’s acceptance or rejection of the Loan(s) for purchase, and in any event within forty-five (45) days after the date of delivery of this Bailee Letter, to either (A) remit the Warehouse Purchase Amount to the Agent or (b) return the Notes and any related Loan Documents to the Agent;

     (vii) to deliver, or to cause to be delivered, the Warehouse Purchase Amount or the Notes and related Loan Documents, as the case may be, only to the Agent pursuant to the terms set forth below and to honor a change in such terms only upon receipt of written instructions from the Agent; and

     (viii) that any interest it may have in the Loan(s), the Note(s) and/or the Loan Documents, including without limitation any claim of setoff it may at any time have, is subject to and subordinate to the security interest of the Agent in the Loan(s), the Note(s) and the other Loan Document(s) and that it will not exercise any right with respect to the Loan(s), the Note(s) or the other Loan Documents without the prior written consent of the Agent.

     Please note that should the Investor remit the Warehouse Purchase Amount to any other entity or person, the Agent will not consider the Warehouse Purchase Amount to have been paid and will not release its security interest or terminate the responsibilities of the [Investor] [Custodian] as bailee for the Agent until the Warehouse Purchase Amount has been properly remitted to the Agent as set forth herein.

     The Agent agrees that its security interest in the Loan(s) shall be fully released and the responsibilities of the [Investor] [Custodian] as bailee shall terminate upon the Investor’s irrevocable payment to the Agent of an amount (the “Warehouse Purchase Amount”) equal to the

- 5 -

greater of (1) the purchase price for the Loan(s) agreed to by the Investor and the Seller and (2) $________, which is the aggregate collateral value assigned by the Agent to the Loan(s). All payments by the Investor shall be remitted via federal funds pursuant to the following wire transfer instructions:

Receiving Bank:	U.S. Bank National Association
Address:	Minneapolis, Minnesota
ABA Number:	091000022
Account Name:	DHI Mortgage Company, Ltd. Funding and Settlement
Account
Account Number:	104756234365

     Note(s) and other Loan Documents which are to be returned to the Agent should be delivered, by overnight air courier, to:

U.S. Bank National Association
Mortgage Banking Services Division
U.S. Bancorp Center –BC-MN-HO3B
800 Nicollet Mall
Minneapolis, Minnesota 55402

     If you have any questions, please address your inquiries to Jeannine L. Coyne, Mortgage Banking Officer of the Agent, whose phone number is (612) 303-3958 or Kathleen M. Connor, Vice President, whose phone number is (612) 303-3581.

     We request that you acknowledge receipt of this Bailee Letter by signing in the space provided at the foot of the enclosed counterpart hereof and returning it to the Agent at the address set forth above (but your failure to do so in no way nullifies your agreements resulting from your acceptance of the enclosed Note(s), as set forth in this Bailee Letter).

     In the event of any inconsistency between the provisions of this Bailee Letter and the provisions of any other instrument or document delivered by the Agent to the Investor [or the Custodian] with this letter or in connection with the Loan(s), including, without limitation, any “release” or similar document, the provisions of this Bailee Letter shall control.

U.S. BANK NATIONAL ASSOCIATION,

as Agent

By

Its

- 6 -

Receipt acknowledged:
[	,	{include if no Custodian
as Investor
By
Title
Date
[	,	{include if applicable
as Custodian
By
Title
Date
Enclosures
cc: [NAME AND ADDRESS OF INVESTOR ]		{include if letter is addressed to Custodian

- 7 -

EX-10.2

Exhibit 10.2

Form of Annual Executive Compensation Notification
200__ FISCAL YEAR EXECUTIVE OFFICER BASE SALARY, INCENTIVE BONUS PROGRAM
and DEFERRED COMPENSATION

Name:                                         

Base Salary

$                     per year

200[ ] Incentive Bonus Program

You shall have the opportunity to earn additions to your base salary through the award of the following bonus pursuant to the D.R. Horton, Inc. Amended and Restated 2000 Incentive Bonus Plan (the “Plan”).

(1)	___percent (___%) of consolidated pre-tax income of the Company for the month of December 200___.
(2)	___percent (___%) of consolidated pre-tax income of the Company for the quarter ending March 31, 200___.
(3)	___percent (___%) of consolidated pre-tax income of the Company for the quarter ending June 30, 200___.
(4)	___percent (___%) of consolidated pre-tax income of the Company for the quarter ending September 30, 200___.

The foregoing award (up to the limit in (ii) in the following sentence) is intended to satisfy the requirements for “Performance-Based Compensation” under the Plan. In accordance with the provisions of the Plan: (i) the Compensation Committee retains the discretion to adjust your award, in a manner that does not increase the value of such award, at any time prior to the payment thereof, and (ii) the maximum awards payable to you under the Plan with respect to any fiscal year of the Company shall not exceed 2.0% of consolidated pre-tax income for that year, calculated in accordance with generally accepted accounting principles.

Deferred Compensation

The Company has established two Deferred Compensation Plans in which you may participate.

The D.R. Horton Deferred Compensation Plan provides for voluntary income deferrals by you.

SERP No. 2 is a promise by the Company to pay retirement benefits to you. If you are employed by the Company on September 30, 200___, the Company will establish a liability to you equal to 10% of your annual base pay as of October 1, 200___. This liability will accrue earnings in future years at a rate established by the administrative committee.

Please refer to the plan summaries and prospectuses related to the plans and the formal plan documents, each of which has previously been provided to you, for a more detailed description of the terms and conditions of each plan.

EX-10.3

Exhibit 10.3

Summary of Compensation — Named Executive Officers

Chairman and Vice Chairman, President and Chief Executive Officer.

The Compensation Committee of the Board sets the base salaries and performance bonus criteria of the Executive Officers in Table I on an annual basis. For fiscal 2005, the Compensation Committee did not take any action that would increase the salary or bonus payable to Mr. Horton or to Mr. Tomnitz beyond what was approved at the beginning of the prior fiscal year.

Table I

Name	Office	Annual Base Salary		Performance Bonus
		(Fiscal 2005)		Under the Amended
				and Restated 2000
				Incentive Bonus
				Plan
Donald R. Horton	Chairman of the Board	$	400,000	See Note 1
Donald J. Tomnitz	Vice Chairman, President and CEO	$	300,000	See Note 1

Note 1: Under the Amended and Restated 2000 Incentive Bonus Plan, Mr. Horton and Mr. Tomnitz will each receive a bonus payment based upon achieving certain performance goals with respect to quarterly consolidated pre-tax income of the Company. These goals are set by the Compensation Committee and ratified and approved by the Board of Directors at the beginning of each fiscal year.

In addition, Mr. Horton and Mr. Tomnitz may participate in two separate deferred compensation plans. The first plan allows the executive to make voluntary income deferrals. The second plan is a promise by the Company to pay retirement benefits to the executive. If the executive is employed by the Company on the last day of the current fiscal year (for example September 30, 2005), then the Company will establish a liability to him equal to 10% of his annual base pay as of first day of the current fiscal year (for example October 1, 2004). This liability will accrue earnings in future years at a rate established by the administrative committee.

Other Named Executive Officers

For the six month period ended March 31, 2005, the Board of Directors, on recommendation of the Compensation Committee, approved discretionary bonuses to the Executive Officers listed in Table II. The annual base salaries of these Executive Officers are set by the Board of Directors, on recommendation from the Compensation Committee, on an annual basis.

Table II

Name	Office	Annual Base Salary		Discretionary Bonus
		(Fiscal 2005)		for the six-month
				period ended
				March 31, 2005
Samuel R. Fuller	Senior Executive Vice President	$	200,000	$	125,000
Bill W. Wheat	Executive Vice President & CFO	$	200,000	$	125,000
Stacey H. Dwyer	Executive Vice President & Treasurer	$	200,000	$	125,000

EX-12.1

Exhibit 12.1

D.R. HORTON, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Six Months
	Ended			For the Fiscal Years Ended September 30,
	March 31, 2005			2004			2003			2002			2001		2000
							($ in millions)
Consolidated pretax income before cumulative effect of change in accounting principle	$	869.9		$	1,582.9		$	1,008.2		$	647.5		$	407.8	$	309.2
Minority interests in pretax income of subsidiaries which have incurred fixed charges		—			4.8			8.8			1.3			—		—
Minority interests in pretax losses of majority owned subsidiaries which have incurred losses		(0.2	)		(0.3	)		(0.9	)		(0.2	)		—		—
Distributed income of 50%-or-less-owned affiliates, net of equity income or loss		—			—			0.6			0.7			—		—
Amortization of capitalized interest		98.9			249.1			219.4			136.1			91.4		69.6
Interest expensed		11.0			17.5			19.5			17.8			17.7		18.7
Earnings	$	979.6		$	1,854.0		$	1,255.6		$	803.2		$	516.9	$	397.5
Interest incurred	$	146.9		$	250.9		$	253.8		$	210.6		$	139.9	$	112.8
Fixed charges	$	146.9		$	250.9		$	253.8		$	210.6		$	139.9	$	112.8
Ratio of earnings to fixed charges		6.67			7.39			4.95			3.81			3.69		3.52

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002

I, Donald J. Tomnitz, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of D.R. Horton, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report on Form 10-K) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2005		/s/ Donald J. Tomnitz
	By:	Donald J. Tomnitz
		Vice Chairman, President and
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002

I, Bill W. Wheat, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of D.R. Horton, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report on Form 10-K) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2005		/s/ Bill W. Wheat
	By: Bill W. Wheat
		Executive Vice President and
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of D.R. Horton, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald J. Tomnitz, Vice Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2005		/s/ Donald J. Tomnitz
	By: Donald J. Tomnitz
		Vice Chairman, President and
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of D.R. Horton, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bill W. Wheat, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2005		/s/ Bill W. Wheat
	By: Bill W. Wheat
		Executive Vice President and
		Chief Financial Officer