HORTON D R INC /DE/ (Form: 10-Q, Received: 02/02/2006 06:00:30)

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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 December 31, 2005


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

For the Transition Period From To

Commission file 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 or organization)		(I.R.S. Employer Identification No.)

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

(Address of principal executive offices)		(Zip Code)

(817) 390-8200

(Registrant’s telephone number, including area code)

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

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

Yes þ No o

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

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

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

Yes o No þ

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 — 312,422,971 shares as of January 27, 2006

This report contains 36 pages.

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX


		Page
PART I.	FINANCIAL INFORMATION.

ITEM 1.	Financial Statements.

	Consolidated Balance Sheets — December 31, 2005 and September 30, 2005.		3

	Consolidated Statements of Income — Three Months Ended December 31, 2005 and 2004.		4

	Consolidated Statements of Cash Flows — Three Months Ended December 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.		21-32

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

ITEM 4.	Controls and Procedures.		34

PART II.	OTHER INFORMATION.

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		34

ITEM 6.	Exhibits.		35

SIGNATURES.			36
Amended and Restated Certificate of Incorporation
Twenty-Fifth Supplemental Indenture
Fifth Supplemental Indenture
Second Supplemental Indenture
Second Supplemental Indenture
2006 Stock Incentive Plan
Computation of Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


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

		10,074.1			8,486.8
Property and equipment (net)		112.9			107.2
Earnest money deposits and other assets		812.1			756.0
Goodwill		578.9			578.9

		11,760.5			11,040.5

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

		1,052.8			1,474.3

	$	12,813.3		$	12,514.8

LIABILITIES
Homebuilding:
Accounts payable	$	765.5		$	820.7
Accrued expenses and other liabilities		1,123.9			1,196.9
Notes payable		4,300.0			3,660.1

		6,189.4			5,677.7

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

		835.0			1,273.5

		7,024.4			6,951.2

Minority interests		176.0			203.2


STOCKHOLDERS’ EQUITY

Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued		—			—
Common stock, $.01 par value, 400,000,000 shares authorized, 315,872,995 shares issued and 312,220,195 shares outstanding at December 31, 2005 and 315,591,668 shares issued and 312,938,868 shares outstanding at September 30, 2005		3.2			3.2
Additional capital		1,632.2			1,624.8
Retained earnings		4,073.2			3,791.3
Treasury stock, 3,652,800 shares at December 31, 2005 and 2,652,800 shares at September 30, 2005, at cost		(95.7	)		(58.9	)

		5,612.9			5,360.4

	$	12,813.3		$	12,514.8

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	Three Months
	Ended December 31,
	2005			2004
	(In millions, except per share data)
	(Unaudited)
Homebuilding:
Revenues:
Home sales	$	2,789.1		$	2,449.1
Land/lot sales		52.7			25.0

		2,841.8			2,474.1


Cost of sales:
Home sales		2,017.1			1,831.5
Land/lot sales		19.3			15.6

		2,036.4			1,847.1


Gross profit:
Home sales		772.0			617.6
Land/lot sales		33.4			9.4

		805.4			627.0

Selling, general and administrative expense		325.7			257.7
Interest expense		4.5			—
Other (income)		(4.9	)		(4.9	)

		480.1			374.2


Financial Services:
Revenues		61.3			46.0
General and administrative expense		47.3			32.7
Interest expense		8.2			2.4
Other (income)		(14.2	)		(6.7	)

		20.0			17.6

INCOME BEFORE INCOME TAXES		500.1			391.8
Provision for income taxes		190.0			150.8

NET INCOME	$	310.1		$	241.0


Net income per common share:
Basic	$	0.99		$	0.77

Diluted	$	0.98		$	0.76


Weighted average number of common shares outstanding:
Basic		312.9			311.3

Diluted		317.6			317.0


Cash dividends declared per common share	$	0.09		$	0.06

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


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


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


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


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


FINANCING ACTIVITIES
Proceeds from notes payable		958.9			653.7
Repayment of notes payable		(795.2	)		(229.0	)
Purchase of treasury stock		(36.8	)		—
Proceeds from stock associated with certain employee benefit plans		4.9			6.2
Income tax benefit from exercise of stock options		2.8			—
Cash dividends paid		(28.2	)		(18.7	)


NET CASH PROVIDED BY FINANCING ACTIVITIES		106.4			412.2


DECREASE IN CASH		(924.6	)		(161.0	)
Cash at beginning of period		1,149.8			518.0

Cash at end of period	$	225.2		$	357.0

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

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2005

NOTE A — BASIS OF PRESENTATION

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

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

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

Business - The Company is a national homebuilder that is engaged primarily in the construction and sale of single-family housing in 77 markets and 26 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 ¹ / ₃ % stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005. The earnings per share and cash dividends declared per share for the three months ended December 31, 2004 have been adjusted to reflect the effects of the stock split.

NOTE B — SEGMENT INFORMATION

The Company’s reportable business segments consist of homebuilding and financial services. Homebuilding is the Company’s core business, generating 98% of consolidated revenues and 96% of consolidated income before income taxes during both three-month periods ended December 31, 2005 and 2004. The homebuilding reporting segment is comprised of the aggregate of the Company’s regional homebuilding operations and generates most of its revenues from the sale of completed homes, with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services.

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

NOTE C — EARNINGS PER SHARE

Basic earnings per share for the three months ended December 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.

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


	Three Months Ended
	December 31,
	2005		2004
	(In millions)
Denominator for basic earnings per share— weighted average shares		312.9		311.3
Effect of dilutive securities:
Employee stock options		4.7		5.7

Denominator for diluted earnings per share— adjusted weighted average shares		317.6		317.0

In February 2005, the Company’s Board of Directors declared a four-for-three stock split (effected as a 33 ¹ / ₃ % 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.

Options to purchase 30,000 shares of common stock at $36.92 outstanding during the three months ended December 31, 2005 were not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and, therefore, their effect would be antidilutive. All options outstanding during the three months ended December 31, 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 option deposits are not refundable at the Company’s discretion. 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 creation of a variable interest in the entity holding the land parcel under option.

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

The consolidation of these variable interest entities and other inventory obligations added $173.9 million in land inventory not owned and minority interests related to entities not owned to the Company’s balance sheet at December 31, 2005. The Company’s obligations related to these land or lot option contracts are guaranteed by cash deposits totaling $20.0 million and performance letters of credit, promissory notes and surety bonds totaling $7.2 million. Creditors of these variable interest entities have no recourse against the Company.

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

At December 31, 2005, including the deposits with the variable interest entities above, the Company had deposits amounting to $324.9 million to purchase land and lots with a total remaining purchase price of $6.2 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 $226.3 million at December 31, 2005.

NOTE E — NOTES PAYABLE

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


	December 31,		September 30,
	2005		2005
	(In millions)
Homebuilding:
Unsecured:
Revolving credit facility due 2010	$	600.0	$	—
7.5% senior notes due 2007		215.0		215.0
5% senior notes due 2009, net		199.6		199.6
8% senior notes due 2009, net		384.1		384.1
4.875% senior notes due 2010, net		248.7		248.7
9.75% senior subordinated notes due 2010, net		149.3		149.3
7.875% senior notes due 2011, net		198.9		198.8
9.375% senior subordinated notes due 2011, net		199.8		199.8
10.5% senior subordinated notes due 2011, net		150.0		150.2
8.5% senior notes due 2012, net		248.5		248.4
5.375% senior notes due 2012		300.0		300.0
6.875% senior notes due 2013		200.0		200.0
5.875% senior notes due 2013		100.0		100.0
6.125% senior notes due 2014, net		197.5		197.4
5.625% senior notes due 2014, net		248.2		248.1
5.25% senior notes due 2015, net		297.8		297.8
5.625% senior notes due 2016, net		297.6		297.5
Other secured		65.0		25.4

	$	4,300.0	$	3,660.1


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

	$	814.7	$	1,249.5

The Company filed with the Securities and Exchange Commission a universal shelf registration statement registering $3.0 billion in debt and equity securities effective in September 2005. At December 31, 2005, the capacity to issue new debt or equity securities remained at $3.0 billion.

Homebuilding:

In December 2005, the Company entered into a $2.15 billion unsecured revolving credit facility, which includes a $1.0 billion letter of credit sub-facility. The revolving credit facility has an uncommitted $750 million accordion feature which could be used to increase the facility to $2.9 billion. The new credit facility, which matures on December 16, 2010, replaced the Company’s previous $1.21 billion credit facility. The Company’s borrowing capacity under the new facility is reduced by the amount of letters of credit outstanding. At December 31, 2005, the Company’s borrowing capacity under the facility was $1.44 billion. The facility is guaranteed by substantially all of the Company’s wholly-owned subsidiaries other than its financial services subsidiaries. Borrowings bear interest at

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D.R. HORTON, INC. AND SUBSIDIARIES

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

rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company’s ratio of homebuilding debt to total capitalization and its senior unsecured debt rating. The interest rate applicable to the revolving credit facility at December 31, 2005 was 5.3% per annum. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees.

The bank credit facilities and the indentures for most of the senior and senior subordinated notes contain covenants which, taken together, limit cash dividends, certain investments, stock repurchases and other restricted payments, asset dispositions, and creation of liens, and require certain levels of leverage, interest coverage and tangible net worth. At December 31, 2005, under the most restrictive covenants, cash dividend payments for the remainder of fiscal 2006 were limited to $707.1 million, and a maximum of $1.5 billion was available for all restricted payments in the future.

Financial Services:

The Company’s mortgage subsidiary has a $300 million mortgage warehouse loan facility that matures April 7, 2006. During fiscal 2005, the Company obtained additional commitments of $150 million from its lenders through the facility’s accordion provision and additional temporary commitments of $225 million from its lenders through amendments to the credit agreement, resulting in total capacity of $675 million at September 30, 2005. Through amendments to the credit agreement in October and November 2005, the commitments under the facility were adjusted to $450 million, effective from October 28, 2005 through January 15, 2006. On January 16, 2006, the total capacity returned to $300 million. On January 30, 2006, the Company obtained additional commitments of $150 million from its lenders through an amendment to the credit agreement, resulting in total capacity of $450 million through the maturity of the facility on April 7, 2006.

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

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

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

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D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 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, capitalized, charged to cost of sales and expensed directly during the three-month periods ended December 31, 2005 and 2004:


	Three Months Ended
	December 31,
	2005			2004
	(In millions)
Capitalized interest, beginning of period	$	200.6		$	152.7
Interest incurred — homebuilding		73.7			58.5
Interest expensed:
Directly — homebuilding		(4.5	)		—
Amortized to cost of sales		(43.8	)		(42.9	)

Capitalized interest, end of period	$	226.0		$	168.3

NOTE G — WARRANTY

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

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


	Three Months Ended
	December 31,
	2005			2004
	(In millions)
Warranty liability, beginning of period	$	121.6		$	96.0
Warranties issued		14.7			12.9
Changes in liabilities for pre-existing warranties		(3.1	)		(2.1	)
Settlements made		(11.7	)		(10.2	)

Warranty liability, end of period	$	121.5		$	96.6

NOTE H — MORTGAGE LOANS

Mortgage Loans - Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. Loans that have been closed but not committed to a third-party investor are matched with either forward sales of mortgage backed securities (FMBS) or Eurodollar Futures Contracts (EDFC) that are designated as fair value hedges. Hedged loans are either committed to third-party investors within three days of origination or pooled and committed in bulk to third-party investors typically within 30 days of origination. The notional amounts of the FMBS and the EDFC used to hedge mortgage loans held for sale can vary in relationship to the underlying loan amounts, depending on the typical movements in the value of each hedging instrument relative to the value of the underlying mortgage loans. As of December 31, 2005, the Company had $196.6 million in loans not committed to third-party investors which were hedged with $317.5 million of FMBS and EDFC.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

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

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

NOTE I — STOCKHOLDERS’ EQUITY

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

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

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

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

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

NOTE J — STOCK-BASED COMPENSATION

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

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

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D.R. HORTON, INC. AND SUBSIDIARIES

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

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

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


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

Pro forma net income	$	239.0


Reported basic earnings per share	$	$0.77

Pro forma basic earnings per share	$	0.77


Reported diluted earnings per share	$	0.76

Pro forma diluted earnings per share	$	0.75

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


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

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

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

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

-12-

D.R. HORTON, INC. AND SUBSIDIARIES

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

A summary of the Company’s nonvested options as of and for the three-month period ended December 31, 2005 is as follows:


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

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

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

NOTE K — RECENT ACCOUNTING PRONOUNCEMENTS

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

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

-13-

D.R. HORTON, INC. AND SUBSIDIARIES

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

NOTE L — CONTINGENCIES AND COMMITMENTS

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

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

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

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

-14-

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

NOTE M — SUMMARIZED FINANCIAL INFORMATION

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

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

Consolidating Balance Sheet
December 31, 2005


	D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)
ASSETS
Cash and cash equivalents	$	68.2	$	111.6	$	45.4	$	—		$	225.2
Investments in subsidiaries		2,765.0		—		—		(2,765.0	)		—
Inventories		2,496.0		7,386.8		191.3		—			10,074.1
Property and equipment (net)		14.5		79.9		18.5		—			112.9
Earnest money deposits and other assets		427.4		358.7		129.0		—			915.1
Mortgage loans held for sale		—		—		907.1		—			907.1
Goodwill		—		578.9		—		—			578.9
Intercompany receivables		4,907.3		—		—		(4,907.3	)		—

Total Assets	$	10,678.4	$	8,515.9	$	1,291.3	$	(7,672.3	)	$	12,813.3


LIABILITIES & EQUITY
Accounts payable and other liabilities	$	782.2	$	1,064.6	$	62.9	$	—		$	1,909.7
Intercompany payables		—		4,822.4		84.9		(4,907.3	)		—
Notes payable		4,283.3		16.7		814.7		—			5,114.7

Total Liabilities		5,065.5		5,903.7		962.5		(4,907.3	)		7,024.4

Minority interests		—		—		176.0		—			176.0

Total Equity		5,612.9		2,612.2		152.8		(2,765.0	)		5,612.9

Total Liabilities & Equity	$	10,678.4	$	8,515.9	$	1,291.3	$	(7,672.3	)	$	12,813.3

-15-

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

NOTE M — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Balance Sheet
September 30, 2005


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

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


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

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

Minority interests		—		—		203.2		—			203.2

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

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

-16-

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

NOTE M — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended December 31, 2005


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

		688.3			2,151.2			2.3			—			2,841.8


Cost of sales:
Home sales		427.8			1,588.1			1.2			—			2,017.1
Land/lot sales		8.1			11.2			—			—			19.3

		435.9			1,599.3			1.2			—			2,036.4


Gross profit:
Home sales		222.3			548.6			1.1			—			772.0
Land/lot sales		30.1			3.3			—			—			33.4

		252.4			551.9			1.1			—			805.4

Selling, general and administrative expense		77.0			246.6			2.1			—			325.7
Equity in income of subsidiaries		(325.9	)		—			—			325.9			—
Interest expense		4.5			—			—			—			4.5
Other (income) expense		(3.3	)		(1.0	)		(0.6	)		—			(4.9	)

		500.1			306.3			(0.4	)		(325.9	)		480.1


Financial services:
Revenues		—			—			61.3			—			61.3
General and administrative expense		—			—			47.3			—			47.3
Interest expense		—			—			8.2			—			8.2
Other (income)		—			—			(14.2	)		—			(14.2	)

		—			—			20.0			—			20.0

Income before income taxes		500.1			306.3			19.6			(325.9	)		500.1
Provision for income taxes		190.0			116.4			7.4			(123.8	)		190.0

Net income	$	310.1		$	189.9		$	12.2		$	(202.1	)	$	310.1

-17-

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

NOTE M — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended December 31, 2004


	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	481.7		$	1,947.1		$	20.3		$	—		$	2,449.1
Land/lot sales		8.7			16.3			—			—			25.0

		490.4			1,963.4			20.3			—			2,474.1


Cost of sales:
Home sales		338.6			1,478.8			14.1			—			1,831.5
Land/lot sales		7.3			8.3			—			—			15.6

		345.9			1,487.1			14.1			—			1,847.1


Gross profit:
Home sales		143.1			468.3			6.2			—			617.6
Land/lot sales		1.4			8.0			—			—			9.4

		144.5			476.3			6.2			—			627.0

Selling, general and administrative expense		91.7			161.2			1.8			3.0			257.7
Equity in income of subsidiaries		(339.5	)		—			—			339.5			—
Other (income) expense		0.5			(5.4	)		—			—			(4.9	)

		391.8			320.5			4.4			(342.5	)		374.2


Financial services:
Revenues		—			—			46.0			—			46.0
General and administrative expense		—			—			35.7			(3.0	)		32.7
Interest expense		—			—			2.4			—			2.4
Other (income)		—			—			(6.7	)		—			(6.7	)

		—			—			14.6			3.0			17.6


Income before income taxes		391.8			320.5			19.0			(339.5	)		391.8
Provision for income taxes		150.8			123.4			7.3			(130.7	)		150.8

Net income	$	241.0		$	197.1		$	11.7		$	(208.8	)	$	241.0

-18-

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

NOTE M — SUMMARIZED FINANCIAL INFORMATION — (Continued)

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


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

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

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

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

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

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

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

-19-

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

NOTE M — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Three Months Ended December 31, 2004


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

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

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

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

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

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

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

-20-


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

We are the largest homebuilding company in the United States based on domestic homes closed in 2005. We construct and sell single-family homes in metropolitan areas in 26 states and 77 markets primarily under the name of D.R. Horton, America’s Builder . Our homebuilding operations primarily include the construction and sale of single-family homes with sales prices generally ranging from $90,000 to $900,000. Approximately 84% of home sales revenues were generated from the sale of single-family detached homes for the three months ended December 31, 2005 and 2004. The remainder of home sales revenues were generated from the sale of attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs.

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

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

-21-

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


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

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

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


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

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

We experienced increases in revenues and earnings during the three months ended December 31, 2005 (the first quarter of fiscal 2006), as compared to the same period of fiscal 2005, driven by the continued growth of our homebuilding operations and by improvements in homebuilding profit margins. Key financial highlights as of and for the three months ended December 31, 2005 were as follows:

	•		Net sales orders increased 19% to $3.2 billion

	•		Sales order backlog increased 30% to $6.2 billion

	•		Consolidated revenue increased 15% to $2.9 billion

	•		Homebuilding operating margin (homebuilding income before income taxes divided by total homebuilding revenues) improved 180 basis points to 16.9%

	•		Net income increased 29% to $310.1 million

	•		Diluted earnings per share increased 29% to $0.98 per share

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RESULTS OF OPERATIONS — HOMEBUILDING

The following tables set forth key operating and financial data for our homebuilding operations by geographic region as of and for the three months ended December 31, 2005 and 2004:


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

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


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

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


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

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

HOMEBUILDING OPERATING MARGIN ANALYSIS


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

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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 19%, to $3,166.8 million (11,463 homes) for the three months ended December 31, 2005, from $2,655.7 million (9,901 homes) for the same period of 2004. The number and value of net sales orders during the three-month period increased in each of our five market regions, reflecting the successful execution of our organic growth strategies and the generally solid demand for our homes. The largest percentage increases in the value of net sales orders during the three-month period occurred in our Southwest and Midwest regions, which achieved increases of 37% and 25%, respectively. The increase in the value of net sales orders in our Southwest region was due to particularly strong sales performances from our operating divisions in Arizona, New Mexico and Texas. The increase in the value of net sales orders in our Midwest region, which also generated our largest percentage increase in the number of net sales orders of 30%, was due to strong sales increases from our Chicago division.

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

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

At December 31, 2005, the value of our backlog of sales orders was $6,213.0 million (20,816 homes), up 30% from $4,775.2 million (17,405 homes) at December 31, 2004. The average sales price of homes in backlog was $298,500 at December 31, 2005, up 9% from the $274,400 average at December 31, 2004. All regions produced double-digit percentage increases in the value of sales order backlog, led by increases of 57% in our Southwest region and 49% in our Midwest region, as a result of particularly strong sales in both regions.

Home Sales Revenue and Gross Profit

Revenues from home sales increased 14%, to $2,789.1 million (9,891 homes closed) for the three months ended December 31, 2005, from $2,449.1 million (9,680 homes closed) for the comparable period of 2004. The average selling price of homes we closed during the three months ended December 31, 2005 was $282,000, up 11% from $253,000 for the same period in 2004. Revenues from home sales increased in all five of our market regions, due to our continued execution of our organic growth strategies in most of our markets and our ability to increase prices in the markets where demand for our homes is strongest. The number of homes closed increased 2%, with increases in four of our five market regions. Only the Southwest region experienced a decline in home closings during the quarter, due primarily to the extraordinarily strong volume of home closings in several markets in Texas and Arizona during the fourth quarter of fiscal 2005, which depleted the number of homes available for closing during the three months ended December 31, 2005.

Gross profit from home sales increased by 25%, to $772.0 million for the three months ended December 31, 2005, from $617.6 million for the comparable period of 2004. Gross profit from home sales as a percentage of home sales revenues increased 250 basis points, to 27.7% for the three months ended December 31, 2005, from 25.2% for the comparable period of 2004. The improvement in gross profit from home sales as a percentage of revenue for the three-month period was attributable to our ability to increase home prices in many of our markets, our ongoing efforts to control and reduce construction costs through our local, regional and national purchasing programs, our

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

Land Sales Revenue and Gross Profit

Land sales revenues increased 111%, to $52.7 million for the three months ended December 31, 2005, from $25.0 million for the three months ended December 31, 2004. The gross profit percentage from land sales increased to 63.4% for the three months ended December 31, 2005, from 37.6% in the comparable period of 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; however, we occasionally purchase land that includes commercially zoned parcels which we typically sell to commercial developers. Our land sales during the three-month period ended December 31, 2005 were primarily commercially zoned properties adjacent to our homebuilding projects in various markets. When we have the opportunity or need to sell land or lots, 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 26%, to $325.7 million in the three months ended December 31, 2005, from the comparable period of 2004. As a percentage of homebuilding revenues, SG&A expenses increased 110 basis points, to 11.5% for the three months ended December 31, 2005, from 10.4% in the comparable period of 2004. Our homebuilding SG&A expense as a percentage of revenues can vary significantly between quarters, depending largely on the relative fluctuations in quarterly revenue levels. Our homebuilding SG&A expense is typically at its highest percentage of revenues in the first fiscal quarter. Throughout fiscal 2005 and the first quarter of fiscal 2006, we increased the infrastructure of our homebuilding operations to support the delivery of over 51,000 homes in fiscal 2005, a 17% increase over the previous year, and in anticipation of further planned growth in home closings in fiscal 2006. Much of our fiscal 2006 growth in home closings is planned to occur during the second half of fiscal 2006. As home closings increased only 2% during the quarter ended December 31, 2005, our SG&A expenses as a percentage of revenues increased during the quarter. We expect our SG&A expense ratio to decline later in fiscal 2006 from our first quarter levels.

Interest Expense

Interest incurred related to homebuilding debt increased by 26%, to $73.7 million in the three months ended December 31, 2005, from $58.5 million in the comparable period of 2004, which primarily resulted from a 21% increase in our average daily homebuilding debt from the prior year period. Interest incurred increased at a faster rate than our debt due to increases over the past year in the London Interbank Offered Rate (LIBOR), which is the basis of our interest rate on our revolving credit facility.

We capitalize interest costs only to inventory under construction or development. During both years, our inventory under construction or development exceeded our interest-bearing debt; therefore, we capitalized virtually all interest from homebuilding debt. Interest amortized to cost of sales was 2.2% of total cost of sales in the three months ended December 31, 2005, compared to 2.3% in the same period of 2004.

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Other Income

Other income, net of other expenses, associated with homebuilding activities was $4.9 million in both of the three-month periods ended December 31, 2005 and 2004. The major components of other income in both periods were interest income and increases in the fair values of our interest rate swaps.

RESULTS OF OPERATIONS — FINANCIAL SERVICES

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


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


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

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

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

Income before income taxes	$	20.0		$	17.6			14	%

FINANCIAL SERVICES OPERATING MARGIN ANALYSIS


	Percentages of
	Financial Services Revenues
	Three Months Ended
	December 31,
	2005			2004
General and administrative expense		77.2	%		71.1	%
Interest expense		13.4	%		5.2	%
Other (income)		(23.2	)%		(14.6	)%
Income before income taxes		32.6	%		38.3	%

Mortgage Loan Activity

The volume of loans originated and brokered by our mortgage operations is directly related to the number and value of homes closed by our homebuilding operations. Total first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 6% in the three months ended December 31, 2005, from the comparable period of 2004. This increase was greater than the 2% increase in the number of homes closed because our mortgage capture rate

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

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

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

Financial Services Revenues and Expenses

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

General and administrative expenses associated with financial services increased 45% to $47.3 million in the three months ended December 31, 2005, from the comparable period of 2004. As a percentage of financial services revenues, general and administrative expenses was 77.2%, an increase of 610 basis points over the comparable period of 2004. The increase in general and administrative expense as a percentage of financial services revenue was due primarily to our efforts to ensure that our financial services infrastructure will support our planned growth in our homebuilding business, much of which is planned to occur during the second half of fiscal 2006.

RESULTS OF OPERATIONS — CONSOLIDATED

Income Before Income Taxes

Income before income taxes for the three months ended December 31, 2005, increased 28% from the comparable period of 2004, to $500.1 million. As a percentage of revenues, income before income taxes for the three months ended December 31, 2005 was 17.2%, an increase of 170 basis points from the comparable period of 2004. The primary factor contributing to these improvements was a 180 basis point increase in the homebuilding segment’s pre-tax operating margin, which was slightly offset by a decrease in the pre-tax operating margin of our financial services segment.

Provision for Income Taxes

The consolidated provision for income taxes for the three months ended December 31, 2005, increased 26% from the comparable period of 2004, to $190.0 million, due to the corresponding increase in income before income taxes. The effective income tax rate for the three months ended December 31, 2005 decreased to 38.0%, from 38.5% for the comparable period of 2004, due to the expected tax benefits of the American Jobs Creation Act of 2004, which became effective in our first quarter of fiscal 2006.

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

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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 net homebuilding debt to total capital at December 31, 2005 as compared with the ratio at September 30, 2005 was due to the decrease in cash and the increase in borrowings associated with funding our planned first quarter increase in inventory, and was partially offset by the increase in retained earnings. The 42.3% net homebuilding debt to total capital ratio at December 31, 2005 is in line with our targeted fiscal year-end operating leverage level of less than 45%.

We believe that the ratio of net homebuilding debt to total capital is useful in understanding the leverage employed in our homebuilding operations and comparing us with other homebuilders. We exclude the debt of our financial services business because the business is separately capitalized, its debt is substantially collateralized and our financial services debt is not guaranteed by our parent company or any of our homebuilding entities. We include cash because of its capital function. For comparison, at December 31, 2005 and 2004, our ratios of homebuilding debt to total capital were 43.4% and 45.7%, respectively. At September 30, 2005, our ratio of homebuilding debt to total capital was 40.6%.

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

Homebuilding Capital Resources

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

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

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

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

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

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Financial Services Capital Resources

Cash — At December 31, 2005, we had available financial services cash and cash equivalents of $42.7 million.

Mortgage Warehouse Loan Facility – Our wholly-owned mortgage company has a $300 million mortgage warehouse loan facility that matures April 7, 2006. During fiscal 2005, we obtained additional commitments of $150 million from our lenders through the facility’s accordion provision and additional temporary commitments of $225 million from our lenders through amendments to the credit agreement, resulting in total capacity of $675 million at September 30, 2005. Through amendments to the credit agreement in October and November 2005, the commitments under the facility were adjusted to $450 million, effective from October 28, 2005 through January 15, 2006. On January 16, 2006, the total capacity returned to $300 million. On January 30, 2006, we obtained additional commitments of $150 million from our lenders through an amendment to the credit agreement, resulting in total capacity of $450 million through the maturity of the facility on April 7, 2006. At December 31, 2005, we had borrowings of $419.7 million outstanding under the mortgage warehouse facility.

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

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

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

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

Operating Cash Flow Activities

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

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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, we believe that cash flows from operating activities before increases in residential land and lot inventories is currently a better indicator of our liquidity.

Investing Cash Flow Activities

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

Financing Cash Flow Activities

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

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

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

Changes in Capital Structure

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

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

OFF-BALANCE SHEET ARRANGEMENTS

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

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

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LAND AND LOT POSITION AND INVENTORY

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


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

Total land/lots controlled	359,000


Percentage controlled under option	51	%

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

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


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

Total		74	%

CRITICAL ACCOUNTING POLICIES

As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2005, our most critical accounting policies relate to revenue recognition, inventories and cost of sales, the consolidation of variable interest entities, warranty and insurance claim costs, goodwill, income taxes and stock-based compensation. Since September 30, 2005, there have been no significant changes to the assumptions and estimates related to those critical accounting policies, other than those related to our accounting for stock-based compensation.

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

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SEASONALITY

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

SAFE HARBOR STATEMENT AND RISKS

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

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

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

	•		the effects of governmental regulations and environmental matters;

	•		our substantial debt;

	•		competitive conditions within our industry;

	•		the availability of capital;

	•		our ability to effect our growth strategies successfully; and

	•		the uncertainties inherent in warranty and product liability claims matters.

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

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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. We generally do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt.

Our interest rate swaps are not designated as hedges under SFAS No. 133. We are exposed to market risk associated with changes in the fair values of the swaps, and such changes must be reflected in our income statements.

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

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


	Nine Months
	Ending																					Fair value
	September 30,			Fiscal Year Ending September 30,																		at
	2006			2007			2008			2009			2010			Thereafter			Total			12/31/05
							($ in millions)
Debt:
Fixed rate	$	29.3		$	9.5		$	221.9		$	589.7		$	400.0		$	2,459.4		$	3,709.8		$	3,756.2
Average interest rate		8.3	%		7.3	%		7.6	%		7.3	%		6.9	%		6.8	%		7.0	%
Variable rate	$	814.7		$	—		$	—		$	—		$	—		$	600.0		$	1,414.7		$	1,414.7
Average interest rate		5.0	%		—			—			—			—			5.3	%		5.1	%

Interest Rate Swaps:
Variable to fixed	$	200.0		$	200.0		$	200.0		$	—		$	—		$	—		$	—		$	1.7
Average pay rate		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 December 31, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in the Company’s periodic filings with the Securities and Exchange Commission. There have been no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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

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

(c)

(d)

Total Number of

Approximate

Dollar Value of

Purchased as

Shares that may

(a)

Part of Publicly

yet be Purchased

Total Number of

(b)

Announced

Under the Plans

Average Price

Plans or

or Programs (1)

Purchased

Paid per Share

Programs

(In millions)

December 1, 2005 through December 31, 2005

1,000,000

36.81

1,000,000

463.2

Total

1,000,000

36.81

1,000,000

463.2


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

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ITEM 6. EXHIBITS

(a) Exhibits.


3.1*		Certificate of Amendment of the Amended and Restated Certificate of Incorporation, as amended, of the Company dated January 31, 2006, and the Amended and Restated Certificate of Incorporation, as amended, of the Company dated March 18, 1992.

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

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

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

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

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

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

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

10.3		Revolving Credit Agreement by and among D.R. Horton, Inc., Wachovia Bank, National Association, as administrative agent, and the Lenders named in the Revolving Credit Agreement dated December 16, 2005. (3)

10.4		Executive Compensation Summary – Named Executive Officers. (4)

10.5		Director Compensation Summary – Directors. (5)

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

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

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

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

†		Management compensatory plan.

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

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

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

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

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

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

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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: February 1, 2006	By:	/s/ Bill W. Wheat

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

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EXHIBIT 3.1

CERTIFICATE OF AMENDMENT

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED,

D.R. HORTON, INC.

D.R. Horton, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY :

FIRST : That on November 17, 2005, at a meeting of the Board of Directors of the Corporation, resolutions were adopted proposing and declaring advisable the following amendment to the Corporation’s Amended and Restated Certificate of Incorporation, as amended (the “Amendment”):

RESOLVED , that Article Fourth of the Corporation’s Amended and Restated Certificate of Incorporation, as amended, be amended to read in its entirety as follows:

“FOURTH: The Corporation shall be authorized to issue two classes of shares of stock to be designated, respectively, “Preferred Stock” and “Common Stock”; the total number of shares which the Corporation shall be authorized to issue is One Billion Thirty Million (1,030,000,000); the total number of shares of Preferred Stock shall be Thirty Million (30,000,000) and each such share shall have a par value of ten cents ($.10); and the total number of shares of Common Stock shall be One Billion (1,000,000,000) and each such share shall have a par value of one cent ($.01). Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix the voting rights, designations, powers, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock, and to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding).”

SECOND : That upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at the Annual Meeting of Stockholders of the Corporation held on January 26, 2006, a majority of all of the shares entitled to vote at the meeting and a majority of the shares entitled to vote at the meeting as a class voted in favor of the Amendment.

THIRD : That said Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF , the Corporation has caused this Certificate to be signed by Donald R. Horton, its Chairman of the Board, and attested by Thomas B. Montano, an Assistant Secretary, this 31 ^st day of January 2006.


	D.R. Horton, Inc.
	By:	/s/ Donald R. Horton
		Donald R. Horton,
		Chairman of the Board


ATTEST:

/s/ Thomas B. Montano
Thomas B. Montano,
Assistant Secretary

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF D.R. HORTON, INC.

D.R. Horton, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT :

	I.		The present name of the corporation is D.R. Horton, Inc.

	II.		The amendment and restatement of the corporation’s Certificate of Incorporation as set forth in Section III below have been duly adopted in accordance with the provisions of Section 242 and 245 of the General Corporation Law of the State of Delaware.

The provisions set forth below supersede the corporation’s original Certificate of Incorporation, all amendments thereto and all restatements thereof and constitute the Amended and Restated Certificate of Incorporation of the corporation:

FIRST : The name of the corporation (the “Corporation”) is D.R. Horton, Inc.

SECOND : The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.

THIRD : The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH : The Corporation shall be authorized to issue two classes of shares of stock to be designated, respectively, “Preferred Stock” and “Common Stock”; the total number of shares which the Corporation shall be authorized to issue is One Hundred Twenty Million (120,000,000); the total number of shares of Preferred Stock shall be Twenty Million (20,000,000) and each such share shall have a par value of ten cents ($.10); and the total number of shares of Common Stock shall be One Hundred Million (100,000,000) and each such share shall have a par value of one cent ($.01). Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix the voting rights, designations, powers, preferences and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock; and to fix the number of shares constituting such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding).

FIFTH : Elections of directors shall be by written ballot. Stockholders shall not have the power to take action by written consent without a meeting of the Corporation’s stockholders.

SIXTH : To the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws presently or hereafter in effect, no director of the Corporation shall be personally liable to the Corporation or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a director of the Corporation. Any repeal or modification of this Article SIXTH shall not adversely affect any right or protection of a director of the Corporation existing immediately prior to such repeal or modification.

SEVENTH : Each person who is or was or had agreed to become a director or officer of the Corporation, or each such person who is or was serving or who had agreed to serve at the written request of the Board of Directors or an officer of the Corporation as an employee or agent of the Corporation or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in any such case owned or controlled by the Corporation (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect; provided, however, that the Corporation shall not indemnify any person with respect to service as a director, officer, employee or agent of Provident Bancorp of Texas, Inc. or any subsidiary thereof. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article SEVENTH. Any repeal or modification of this Article SEVENTH shall not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification.

EIGHTH : In furtherance and not in limitation of the rights, powers, privileges and discretionary authority granted or conferred by the General Corporation Law of the State of Delaware or other statutes or laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, amend or repeal the bylaws of the Corporation, without any action on the part of the stockholders, but, subject to Article NINTH of this Amended and Restated Certificate of Incorporation, the stockholders may make additional bylaws and may alter, amend or repeal any bylaw whether adopted by them or otherwise. The Corporation may in its bylaws confer powers upon its Board of Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by applicable law.

NINTH : The number of directors which shall constitute the whole Board of Directors shall be as determined from time to time by resolution of the directors of the Corporation or as specified in a bylaw of the Corporation adopted by the affirmative vote of not less than sixty-six and two-thirds percent (66 2/3%) of the total voting power of all outstanding shares of voting stock of the Corporation. No director may be removed without the affirmative vote of not less than sixty-six and two-thirds percent (66 2/3%) of the total voting power of all outstanding shares of voting stock of the Corporation.

TENTH : Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors, or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors, in the bylaws of the Corporation, or by law, include the power to call such meetings, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of this Amended and Restated Certificate of Incorporation or any amendment thereto or any certificate filed under Section 151(g) of the General Corporate Law of the State of Delaware (or its successor statute as in effect from time to time hereafter), then such special meeting may also be called by the person or persons, in the manner, at the time and for the purposes so specified.

ELEVENTH : The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in

force may be added or inserted, in the manner now or hereafter prescribed herein or by applicable law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles FIFTH, EIGHTH, NINTH, TENTH and this Article ELEVENTH may not be repealed or amended in any respect unless such repeal or amendment is approved by the affirmative vote of the holders of not less than sixty-six and two thirds percent
(66 2/3%) of the total voting power of all outstanding shares of voting stock of this corporation.

IN WITNESS WHEREOF , the corporation has caused this Amended and Restated Certificate of Incorporation to be signed by Donald R. Horton, its President, and attested by Alan Jacobs, its Secretary, this 18th day of March, 1992.


	D.R. HORTON, INC.
(Seal)	By:	/s/ Donald R. Horton
	Donald R. Horton, President


ATTEST:
By:		/s/ Alan Jacobs
Alan Jacobs, Secretary

EXHIBIT 4.1

D.R. HORTON, INC.,

THE GUARANTORS PARTY HERETO,

and

AMERICAN STOCK TRANSFER & TRUST COMPANY,
as
Trustee

TWENTY-FIFTH SUPPLEMENTAL INDENTURE

Dated as of January 23, 2006

Supplementing the Indenture
Dated as of June 9, 1997
with respect to the
7.5% Senior Notes Due 2007
8% Senior Notes Due 2009
5% Senior Notes due 2009
4.875% Senior Notes due 2010
7.875% Senior Notes due 2011
5.375% Senior Notes due 2012
6.875% Senior Notes due 2013
5.875% Senior Notes due 2013
6.125% Senior Notes due 2014
5.625% Senior Notes due 2014
5.25% Senior Notes due 2015
5.625% Senior Notes due 2016

THIS TWENTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of January 23, 2006, to the Indenture, dated as of June 9, 1997 (as amended, modified or supplemented from time to time in accordance therewith, the “ Indenture ”), by and among D.R. HORTON, INC., a Delaware corporation (the “ Company ”), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (which includes all entities listed as an Existing Guarantor on the signature pages hereof) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the “ Trustee ”).

RECITALS

WHEREAS, the Company and the Trustee entered into the Indenture to provide for the issuance from time to time of senior debt securities (the “ Securities ”) to be issued in one or more series as the Indenture provides;

WHEREAS, pursuant to the Sixth Supplemental Indenture, dated as of February 4, 1999, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 8% Senior Notes due 2009 (the “ 8% Notes ”);

WHEREAS, pursuant to the Seventh Supplemental Indenture, dated as of August 31, 1999, among the Company, the guarantors party thereto and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the 8% Notes for all purposes under the Indenture;

WHEREAS, pursuant to the Twelfth Supplemental Indenture, dated as of May 21, 2001, among the Company, the guarantors party thereto and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the 8% Notes for all purposes under the Indenture;

WHEREAS, pursuant to the Thirteenth Supplemental Indenture, dated as of August 15, 2001, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 7.875% Senior Notes due 2011 (the “ 7.875% Notes ”);

WHEREAS, pursuant to the Fourteenth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors party thereto and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the 8% Notes and 7.875% Notes for all purposes under the Indenture;

WHEREAS, pursuant to the Fifteenth Supplemental Indenture, dated as of December 3, 2002, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 7.5% Senior Notes due 2007 (the “ 7.5% Notes ”);

WHEREAS, pursuant to the Sixteenth Supplemental Indenture, dated as of April 17, 2003, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 6.875% Senior Notes due 2013 (the “ 6.875% Notes ”);

WHEREAS, pursuant to the Seventeenth Supplemental Indenture, dated as of June 25, 2003, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 5.875% Senior Notes due 2013 (the “ 5.875% Notes ”);

WHEREAS, pursuant to the Eighteenth Supplemental Indenture, dated as of January 13, 2004, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 5% Senior Notes due 2009 (the “ 5% Notes ”);

WHEREAS, pursuant to the Nineteenth Supplemental Indenture, dated as of July 12, 2004, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 6.125% Senior Notes due 2014 (the “ 6.125% Notes ”);

WHEREAS, pursuant to the Twentieth Supplemental Indenture, dated as of September 21, 2004, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 5.625% Senior Notes due 2014 (the “ 5.625% Notes due 2014 ”);

WHEREAS, pursuant to the Twenty-First Supplemental Indenture, dated as of October 15, 2004, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 4.875% Senior Notes due 2010 (the “ 4.875% Notes ”);

WHEREAS, pursuant to the Twenty-Second Supplemental Indenture, dated as of December 15, 2004, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 5.625% Senior Notes due 2016 (the “ 5.625% Notes due 2016 ”);

WHEREAS, pursuant to the Twenty-Third Supplemental Indenture, dated as of February 11, 2005, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 5.25% Senior Notes due 2015 (the “ 5.25% Notes ”);

WHEREAS, pursuant to the Twenty-Fourth Supplemental Indenture, dated as of July 7, 2005, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 5.375% Senior Notes due 2012 (the “ 5.375% Notes ,” and together with the 8% Notes, 7.875% Notes, 7.5% Notes, 6.875% Notes, 5.875% Notes, 5% Notes, 6.125% Notes, 5.625% Notes due 2014, 4.875% Notes, 5.625% Notes due 2016 and 5.25% Notes, the “ Notes ”);

WHEREAS, pursuant to Section 4.05 of the Indenture, any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary by the Board of Directors of the Company (which includes an authorized committee thereof) is required to guarantee the Notes for all purposes under the Indenture;

WHEREAS, the Board of Directors of the Company has redesignated certain Unrestricted Subsidiaries of the Company as Restricted Subsidiaries of the Company;

WHEREAS, pursuant to Section 4.05 of the Indenture, in order for such former Unrestricted Subsidiaries to be bound by those terms applicable to a Guarantor under the Indenture, such former Unrestricted Subsidiaries (the “ Additional Guarantors ”) must execute and deliver a supplemental indenture pursuant to which such Additional Guarantors shall unconditionally guarantee all of the Company’s obligations under the Notes on the terms set forth in the Indenture;

WHEREAS, the execution of this Twenty-Fifth Supplemental Indenture has been duly authorized by the Board of Directors of the Company and the Boards of Directors or other governing bodies of the Additional Guarantors and all things necessary to make this Twenty-Fifth Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed;

NOW THEREFORE, for and in consideration of the premises, the Company, the Existing Guarantors and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Notes as follows:

ARTICLE I.

ADDITIONAL GUARANTORS

1.1. In accordance with Section 4.05 of the Indenture and as provided in ARTICLE NINE of the Indenture and the form of notation on security relating to Guarantee attached thereto, the following Additional Guarantors hereby unconditionally guarantee, effective as of December 16, 2005, all of the Company’s obligations under the Notes and the Indenture, as it relates to the Notes, on the terms set forth in the Indenture, including without limitation, Article Nine thereof:


Name		Jurisdiction of Organization
DRH Regrem IX, Inc.		Delaware
DRH Regrem X, Inc.		Delaware
DRH Regrem XI, Inc.		Delaware
DRH Regrem XII, LP		Texas

1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the Notes.

ARTICLE II.

MISCELLANEOUS

3.1. This Twenty-Fifth Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Twenty-Fifth Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument.

3.2 The parties may sign any number of copies of this Twenty-Fifth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

3.3 In the event that any provision in this Twenty-Fifth Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

3.4 The article headings herein are for convenience only and shall not affect the construction hereof.

3.5 Any capitalized term used in this Twenty-Fifth Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require.

3.6 All covenants and agreements in this Twenty-Fifth Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Twenty-Fifth Supplemental Indenture shall bind its successors and assigns.

3.7 The laws of the State of New York shall govern this Twenty-Fifth Supplemental Indenture, the Notes and the Guarantees.

3.8 Except as amended by this Twenty-Fifth Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect.

3.9 This Twenty-Fifth Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Twenty-Fifth Supplemental Indenture.

3.10 All liability described in paragraph 13 of the Notes of any director, officer, employee or stockholder, as such, of the Company is waived and released.

3.11 The Trustee accepts the modifications of the trust effected by this Twenty-Fifth Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Twenty-Fifth Supplemental Indenture and the Trustee makes no representation with respect thereto.

[SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING]

IN WITNESS WHEREOF, the parties hereto have caused this Twenty-Fifth Supplemental Indenture to be duly executed, all as of the day and year first above written.


	D.R. HORTON, INC.
	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

EXISTING GUARANTORS:

C. RICHARD DOBSON BUILDERS, INC.
CHI CONSTRUCTION COMPANY
CHTEX OF TEXAS, INC.
CONTINENTAL HOMES, INC.
CONTINENTAL RESIDENTIAL, INC.
D.R. HORTON, INC. — BIRMINGHAM
D.R. HORTON, INC. — CHICAGO
D.R. HORTON, INC. — DENVER
D.R. HORTON, INC. — DIETZ-CRANE
D.R. HORTON, INC. — FRESNO
D.R. HORTON, INC. — GREENSBORO
D.R. HORTON, INC. — GULF COAST
D.R. HORTON, INC. — JACKSONVILLE
D.R. HORTON, INC. — LOUISVILLE
D.R. HORTON, INC. — MINNESOTA
D.R. HORTON, INC. — NEW JERSEY
D.R. HORTON, INC. — PORTLAND
D.R. HORTON, INC. — SACRAMENTO
D.R. HORTON, INC. — TORREY
D.R. HORTON LOS ANGELES HOLDING COMPANY, INC.
D.R. HORTON MATERIALS, INC.
D.R. HORTON SAN DIEGO HOLDING COMPANY, INC.
DRH CAMBRIDGE HOMES, INC.
DRH CONSTRUCTION, INC.
DRH ENERGY, INC.
DRH SOUTHWEST CONSTRUCTION, INC.
DRH TUCSON CONSTRUCTION, INC.
DRHI, INC.
KDB HOMES, INC.
MEADOWS I, LTD.
MEADOWS VIII, LTD.
MEADOWS IX, INC.
MEADOWS X, INC.
MELMORT CO.
MELODY HOMES, INC.
SCHULER HOMES OF CALIFORNIA, INC.
SCHULER HOMES OF OREGON, INC.
SCHULER HOMES OF WASHINGTON, INC.
SCHULER MORTGAGE, INC.
SCHULER REALTY HAWAII, INC.
SHLR OF CALIFORNIA, INC.
SHLR OF COLORADO, INC.
SHLR OF NEVADA, INC.
SHLR OF UTAH, INC.
SHLR OF WASHINGTON, INC.
VERTICAL CONSTRUCTION CORPORATION
WESTERN PACIFIC FUNDING, INC.
WESTERN PACIFIC HOUSING, INC.
WESTERN PACIFIC HOUSING MANAGEMENT, INC.



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

CH INVESTMENTS OF TEXAS, INC.
MEADOWS II, LTD.
THE CLUB AT PRADERA, INC.



	By:	/s/ ROBERT E. COLTIN
		Robert E. Coltin
		Vice President

Twenty-Fifth Supplemental Indenture — D.R. Horton Senior Debt Securities

CONTINENTAL HOMES OF TEXAS, L.P.

By: CHTEX of Texas, Inc., its General Partner



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

D.R. HORTON MANAGEMENT COMPANY, LTD.
D.R. HORTON — EMERALD, LTD.
D.R. HORTON — TEXAS, LTD.
DRH REGREM VII, LP

By: Meadows I, Ltd., its General Partner



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

SGS COMMUNITIES AT GRANDE QUAY, LLC

By: Meadows IX, Inc., a Member



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

and

By: Meadows X, Inc., a Member



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

DRH CAMBRIDGE HOMES, LLC
DRH REGREM VIII, LLC

By: D.R. Horton, Inc. — Chicago, its Member



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

Twenty-Fifth Supplemental Indenture — D.R. Horton Senior Debt Securities

HPH HOMEBUILDERS 2000 L.P.
WESTERN PACIFIC HOUSING CO., A CALIFORNIA LIMITED PARTNERSHIP
WESTERN PACIFIC HOUSING—ANTIGUA, LLC
WESTERN PACIFIC HOUSING—AVIARA, L.P.
WESTERN PACIFIC HOUSING—BOARDWALK, LLC
WESTERN PACIFIC HOUSING—BROADWAY, LLC
WESTERN PACIFIC HOUSING—CANYON PARK, LLC
WESTERN PACIFIC HOUSING—CARMEL, LLC
WESTERN PACIFIC HOUSING—CARRILLO, LLC
WESTERN PACIFIC HOUSING—COMMUNICATIONS HILL, LLC
WESTERN PACIFIC HOUSING—COPPER CANYON, LLC
WESTERN PACIFIC HOUSING—CREEKSIDE, LLC
WESTERN PACIFIC HOUSING—CULVER CITY, L.P.
WESTERN PACIFIC HOUSING—DEL VALLE, LLC
WESTERN PACIFIC HOUSING—LOMAS VERDES, LLC
WESTERN PACIFIC HOUSING—LOST HILLS PARK, LLC
WESTERN PACIFIC HOUSING—MCGONIGLE CANYON, LLC
WESTERN PACIFIC HOUSING—MOUNTAINGATE, L.P.
WESTERN PACIFIC HOUSING—NORCO ESTATES, LLC
WESTERN PACIFIC HOUSING—OSO, L.P.
WESTERN PACIFIC HOUSING—PACIFIC PARK II, LLC
WESTERN PACIFIC HOUSING—PARK AVENUE EAST, LLC
WESTERN PACIFIC HOUSING—PARK AVENUE WEST, LLC
WESTERN PACIFIC HOUSING—PLAYA VISTA, LLC
WESTERN PACIFIC HOUSING—POINSETTIA, L.P.
WESTERN PACIFIC HOUSING—RIVER RIDGE, LLC
WESTERN PACIFIC HOUSING—ROBINHOOD RIDGE, LLC
WESTERN PACIFIC HOUSING—SANTA FE, LLC
WESTERN PACIFIC HOUSING—SCRIPPS, L.P.
WESTERN PACIFIC HOUSING—SCRIPPS II, LLC
WESTERN PACIFIC HOUSING—SEACOVE, L.P.
WESTERN PACIFIC HOUSING—STUDIO 528, LLC
WESTERN PACIFIC HOUSING—TERRA BAY DUETS, LLC
WESTERN PACIFIC HOUSING—TORRANCE, LLC
WESTERN PACIFIC HOUSING—TORREY COMMERCIAL, LLC
WESTERN PACIFIC HOUSING—TORREY MEADOWS, LLC
WESTERN PACIFIC HOUSING—TORREY MULTI-FAMILY, LLC
WESTERN PACIFIC HOUSING—TORREY VILLAGE CENTER, LLC
WESTERN PACIFIC HOUSING—VINEYARD TERRACE, LLC
WESTERN PACIFIC HOUSING—WINDEMERE, LLC
WESTERN PACIFIC HOUSING—WINDFLOWER, L.P.
WPH-CAMINO RUIZ, LLC

By: Western Pacific Housing Management, Inc.,
its Manager, Member or General Partner



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

Twenty-Fifth Supplemental Indenture — D.R. Horton Senior Debt Securities

SCHULER HOMES OF ARIZONA LLC
SHA CONSTRUCTION LLC

By: SRHI LLC,
its Member

By: SHLR of Nevada, Inc.
its Member



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

D.R. HORTON-SCHULER HOMES, LLC

By: Vertical Construction Corporation,
its Manager



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

SRHI LLC

By: SHLR of Nevada, Inc.,
its Member



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

SSHI LLC

By: SHLR of Washington, Inc.,
its Member



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

Twenty-Fifth Supplemental Indenture — D.R. Horton Senior Debt Securities

ADDITIONAL GUARANTORS :

DRH REGREM IX, INC.
DRH REGREM X, INC.
DRH REGREM XI, INC.



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

DRH REGREM XII, LP

By: Meadows I, Ltd.,
its General Partner



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

Twenty-Fifth Supplemental Indenture — D.R. Horton Senior Debt Securities


AMERICAN STOCK TRANSFER & TRUST COMPANY , as Trustee

By:	/s/ YEHUDA L. NEUBERGER

Name:		Yehuda Neuberger

Title:		Senior Vice President

Twenty-Fifth Supplemental Indenture — D.R. Horton Senior Debt Securities

EXHIBIT 4.2

D.R. HORTON, INC.,

THE GUARANTORS PARTY HERETO,

and

AMERICAN STOCK TRANSFER & TRUST COMPANY,
as
Trustee

FIFTH SUPPLEMENTAL INDENTURE

Dated as of January 23, 2006

Supplementing the Indenture
Dated as of September 11, 2000
with respect to the
9.75% Senior Subordinated Notes Due 2010
9.375% Senior Subordinated Notes Due 2011

THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of January 23, 2006, to the Indenture, dated as of September 11, 2000 (as amended, modified or supplemented from time to time in accordance therewith, the “ Indenture ”), by and among D.R. HORTON, INC., a Delaware corporation (the “ Company ”), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (which includes all entities listed as an Existing Guarantor on the signature pages hereof) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the “ Trustee ”).

RECITALS

WHEREAS, the Company and the Trustee entered into the Indenture to provide for the issuance from time to time of senior subordinated debt securities (the “ Securities ”) to be issued in one or more series as the Indenture provides;

WHEREAS, pursuant to the First Supplemental Indenture, dated as of September 11, 2000, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 9.75% Senior Subordinated Notes due 2010 (the “ 9.75% Notes ”);

WHEREAS, pursuant to the Second Supplemental Indenture, dated as of March 12, 2001, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 9.375% Senior Subordinated Notes due 2011 (the “ 9.375% Notes ,” and together with the 9.75% Notes, the “ Notes ”);

WHEREAS, pursuant to the Third Supplemental Indenture, dated as of May 21, 2001 and effective as of March 31, 2001, among the Company, the guarantors party thereto and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the Notes for all purposes under the Indenture;

WHEREAS, pursuant to the Fourth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors party thereto and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the Notes for all purposes under the Indenture;

WHEREAS, the Board of Directors of the Company has redesignated certain Unrestricted Subsidiaries of the Company as Restricted Subsidiaries of the Company;

WHEREAS, the execution of this Fifth Supplemental Indenture has been duly authorized by the Board of Directors of the Company and the Boards of Directors or other governing bodies of the Additional Guarantors and all things necessary to make this Fifth Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed;

ARTICLE I.

ADDITIONAL GUARANTORS


Name		Jurisdiction of Organization
DRH Regrem IX, Inc.		Delaware
DRH Regrem X, Inc.		Delaware
DRH Regrem XI, Inc.		Delaware
DRH Regrem XII, LP		Texas

1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the Notes.

ARTICLE II.

MISCELLANEOUS

3.1. This Fifth Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Fifth Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument.

3.2 The parties may sign any number of copies of this Fifth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

3.3 In the event that any provision in this Fifth Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

3.4 The article headings herein are for convenience only and shall not affect the construction hereof.

3.5 Any capitalized term used in this Fifth Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require.

3.6 All covenants and agreements in this Fifth Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Fifth Supplemental Indenture shall bind its successors and assigns.

3.7 The laws of the State of New York shall govern this Fifth Supplemental Indenture, the Notes and the Guarantees.

3.8 Except as amended by this Fifth Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect.

3.9 This Fifth Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Fifth Supplemental Indenture.

3.10 All liability described in paragraph 13 of the Notes of any director, officer, employee or stockholder, as such, of the Company is waived and released.

3.11 The Trustee accepts the modifications of the trust effected by this Fifth Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Fifth Supplemental Indenture and the Trustee makes no representation with respect thereto.

[SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING]

IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Indenture to be duly executed, all as of the day and year first above written.


	D.R. HORTON, INC.
	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

EXISTING GUARANTORS:


		C. RICHARD DOBSON BUILDERS, INC.
		CHI CONSTRUCTION COMPANY
		CHTEX OF TEXAS, INC.
		CONTINENTAL HOMES, INC.
		CONTINENTAL RESIDENTIAL, INC.
		D.R. HORTON, INC. — BIRMINGHAM
		D.R. HORTON, INC. — CHICAGO
		D.R. HORTON, INC. — DENVER
		D.R. HORTON, INC. — DIETZ-CRANE
		D.R. HORTON, INC. — FRESNO
		D.R. HORTON, INC. — GREENSBORO
		D.R. HORTON, INC. — GULF COAST
		D.R. HORTON, INC. — JACKSONVILLE
		D.R. HORTON, INC. — LOUISVILLE
		D.R. HORTON, INC. — MINNESOTA
		D.R. HORTON, INC. — NEW JERSEY
		D.R. HORTON, INC. — PORTLAND
		D.R. HORTON, INC. — SACRAMENTO
		D.R. HORTON, INC. — TORREY
		D.R. HORTON LOS ANGELES HOLDING COMPANY, INC.
		D.R. HORTON MATERIALS, INC.
		D.R. HORTON SAN DIEGO HOLDING COMPANY, INC.
		DRH CAMBRIDGE HOMES, INC.
		DRH CONSTRUCTION, INC.
		DRH ENERGY, INC.
		DRH SOUTHWEST CONSTRUCTION, INC.
		DRH TUCSON CONSTRUCTION, INC.
		DRHI, INC.
		KDB HOMES, INC.
		MEADOWS I, LTD.
		MEADOWS VIII, LTD.
		MEADOWS IX, INC.
		MEADOWS X, INC.
		MELMORT CO.
		MELODY HOMES, INC.
		SCHULER HOMES OF CALIFORNIA, INC.
		SCHULER HOMES OF OREGON, INC.
		SCHULER HOMES OF WASHINGTON, INC.
		SCHULER MORTGAGE, INC.
		SCHULER REALTY HAWAII, INC.
		SHLR OF CALIFORNIA, INC.
		SHLR OF COLORADO, INC.
		SHLR OF NEVADA, INC.
		SHLR OF UTAH, INC.
		SHLR OF WASHINGTON, INC.
		VERTICAL CONSTRUCTION CORPORATION
		WESTERN PACIFIC FUNDING, INC.
		WESTERN PACIFIC HOUSING, INC.
		WESTERN PACIFIC HOUSING MANAGEMENT, INC.



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


		CH INVESTMENTS OF TEXAS, INC.
		MEADOWS II, LTD.
		THE CLUB AT PRADERA, INC.



	By:	/s/ ROBERT E. COLTIN
		Robert E. Coltin
		Vice President


		CONTINENTAL HOMES OF TEXAS, L.P.


		D.R. HORTON MANAGEMENT COMPANY, LTD.
		D.R. HORTON — EMERALD, LTD.
		D.R. HORTON — TEXAS, LTD.
		DRH REGREM VII, LP


		SGS COMMUNITIES AT GRANDE QUAY, LLC


By: Meadows IX,Inc., a Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer

and

By: Meadows X, Inc.,a Member
	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer


		DRH CAMBRIDGE HOMES, LLC
		DRH REGREM VIII, LLC


		HPH HOMEBUILDERS 2000 L.P.
		WESTERN PACIFIC HOUSING CO., A CALIFORNIA LIMITED PARTNERSHIP
		WESTERN PACIFIC HOUSING—ANTIGUA, LLC
		WESTERN PACIFIC HOUSING—AVIARA, L.P.
		WESTERN PACIFIC HOUSING—BOARDWALK, LLC
		WESTERN PACIFIC HOUSING—BROADWAY, LLC
		WESTERN PACIFIC HOUSING—CANYON PARK, LLC
		WESTERN PACIFIC HOUSING—CARMEL, LLC
		WESTERN PACIFIC HOUSING—CARRILLO, LLC
		WESTERN PACIFIC HOUSING—COMMUNICATIONS HILL, LLC
		WESTERN PACIFIC HOUSING—COPPER CANYON, LLC
		WESTERN PACIFIC HOUSING—CREEKSIDE, LLC
		WESTERN PACIFIC HOUSING—CULVER CITY, L.P.
		WESTERN PACIFIC HOUSING—DEL VALLE, LLC
		WESTERN PACIFIC HOUSING—LOMAS VERDES, LLC
		WESTERN PACIFIC HOUSING—LOST HILLS PARK, LLC
		WESTERN PACIFIC HOUSING—MCGONIGLE CANYON, LLC
		WESTERN PACIFIC HOUSING—MOUNTAINGATE, L.P.
		WESTERN PACIFIC HOUSING—NORCO ESTATES, LLC
		WESTERN PACIFIC HOUSING—OSO, L.P.
		WESTERN PACIFIC HOUSING—PACIFIC PARK II, LLC
		WESTERN PACIFIC HOUSING—PARK AVENUE EAST, LLC
		WESTERN PACIFIC HOUSING—PARK AVENUE WEST, LLC
		WESTERN PACIFIC HOUSING—PLAYA VISTA, LLC
		WESTERN PACIFIC HOUSING—POINSETTIA, L.P.
		WESTERN PACIFIC HOUSING—RIVER RIDGE, LLC
		WESTERN PACIFIC HOUSING—ROBINHOOD RIDGE, LLC
		WESTERN PACIFIC HOUSING—SANTA FE, LLC
		WESTERN PACIFIC HOUSING—SCRIPPS, L.P.
		WESTERN PACIFIC HOUSING—SCRIPPS II, LLC
		WESTERN PACIFIC HOUSING—SEACOVE, L.P.
		WESTERN PACIFIC HOUSING—STUDIO 528, LLC
		WESTERN PACIFIC HOUSING—TERRA BAY DUETS, LLC
		WESTERN PACIFIC HOUSING—TORRANCE, LLC
		WESTERN PACIFIC HOUSING—TORREY COMMERCIAL, LLC
		WESTERN PACIFIC HOUSING—TORREY MEADOWS, LLC
		WESTERN PACIFIC HOUSING—TORREY MULTI-FAMILY, LLC
		WESTERN PACIFIC HOUSING—TORREY VILLAGE CENTER, LLC
		WESTERN PACIFIC HOUSING—VINEYARD TERRACE, LLC
		WESTERN PACIFIC HOUSING—WINDEMERE, LLC
		WESTERN PACIFIC HOUSING—WINDFLOWER, L.P.
		WPH-CAMINO RUIZ, LLC


By: Western Pacific Housing Management, Inc.,
its Manager, Member or General Partner

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer


		SCHULER HOMES OF ARIZONA LLC
		SHA CONSTRUCTION LLC


By: SRHI LLC,
its Member

	By: SHLR of Nevada, Inc.
	its Member

		By:	/s/ BILL W. WHEAT

			Bill W. Wheat
			Executive Vice President and Chief Financial Officer


		D.R. HORTON-SCHULER HOMES, LLC


By: Vertical Construction Corporation,
its Manager

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer


		SRHI LLC


By: SHLR of Nevada, Inc.,
its Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer


		SSHI LLC


By: SHLR of Washington, Inc.,
its Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer

ADDITIONAL GUARANTORS :


		DRH REGREM IX, INC.
		DRH REGREM X, INC.
		DRH REGREM XI, INC.



	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


		DRH REGREM XII, LP


By: Meadows I, Ltd.,
its General Partner

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat Executive Vice President and Chief Financial Officer


AMERICAN STOCK TRANSFER & TRUST COMPANY ,
as Trustee

By:	/s/ YEHUDA L. NEUBERGER

Name:		Yehuda L. Neuberger

Title:		Senior Vice President

EXHIBIT 4.3

D.R. HORTON, INC.,

THE GUARANTORS PARTY HERETO,

and

U.S. BANK NATIONAL ASSOCIATION,
(successor by merger to U.S. Bank Trust National Association),
as
Trustee

SECOND SUPPLEMENTAL INDENTURE

Dated as of January 23, 2006

Supplementing the Indenture
Dated as of June 28, 2001
with respect to the
10.5% Senior Subordinated Notes Due 2011

THIS SECOND SUPPLEMENTAL INDENTURE, dated as of January 23, 2006, by and among D.R. HORTON, INC., a Delaware corporation (the “ Company ”), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (which includes all entities listed as an Existing Guarantor on the signature pages hereof) and U.S. BANK NATIONAL ASSOCIATION, as successor by merger to U.S. Bank Trust National Association, as trustee (the “ Trustee ”).

RECITALS

WHEREAS, Schuler Homes, Inc., a Delaware corporation (“ Schuler ”), the guarantors signatory thereto and the Trustee entered into the Indenture, dated as of June 28, 2001 (as amended, modified or supplemented from time to time in accordance therewith, the “ Indenture ”), pursuant to which Schuler issued 10.5% Senior Subordinated Notes due 2009 (the “ Securities ”);

WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended, by and between the Company and Schuler, Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the “ Merger ”);

WHEREAS, as a result of the Merger, the Company succeeded to all obligations, duties and liabilities of Schuler under the Indenture and the Securities as if incurred or contracted by the Company;

WHEREAS, pursuant to the First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors party thereto and the Trustee, the Company amended the Indenture to provide for the assumption by the Company of all Obligations of Schuler pursuant to Section 5.01 of the Indenture;

WHEREAS, pursuant to Sections 4.18 and 11.13 of the Indenture, the Company is required to cause any Subsidiary which is designated by the Board of Directors (which includes an authorized committee thereof) as a Restricted Subsidiary, simultaneously with its designation as a Restricted Subsidiary (each, an “ Additional Guarantor ”), to guarantee the payment of the Securities pursuant to the terms of Articles 10 and 11 and Exhibit B of the Indenture by executing and delivering (1) a supplemental indenture providing for the guarantee of payment of the Securities by such Additional Guarantors pursuant to the terms of Article 10 and Exhibit B thereto and subjecting such Additional Guarantors to the provisions of Article 11 thereto as a Guarantor and (2) a Guarantee in the form of Exhibit B thereto;

WHEREAS, the Board of Directors of the Company has redesignated certain Unrestricted Subsidiaries of the Company as Restricted Subsidiaries of the Company;

WHEREAS, the execution of this Second Supplemental Indenture has been duly authorized by the Board of Directors of the Company and the Boards of Directors or other governing bodies of the Additional Guarantors and all things necessary to make this Second Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed;

ARTICLE I.

ADDITIONAL GUARANTORS

1.1. In accordance with Sections 4.18 and 11.13 of the Indenture, the following Additional Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee, effective as of December 16, 2005, on a senior, unsecured basis the payment of the Securities pursuant to the terms of Articles 10 and 11 of the Indenture:


Name		Jurisdiction of Organization
DRH Regrem IX, Inc.		Delaware
DRH Regrem X, Inc.		Delaware
DRH Regrem XI, Inc.		Delaware
DRH Regrem XII, LP		Texas

1.2 The Additional Guarantors shall execute and deliver a Guarantee, which shall be incorporated by reference herein in the form set forth in Exhibit B to the Indenture.

ARTICLE II.

MISCELLANEOUS

3.1. This Second Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Second Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument.

3.2 The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

3.3 In the event that any provision in this Second Supplemental Indenture or the Securities shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

3.4 The article headings herein are for convenience only and shall not affect the construction hereof.

3.5 Any capitalized term used in this Second Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require.

3.6 All covenants and agreements in this Second Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Second Supplemental Indenture shall bind its successors and assigns.

3.7 The laws of the State of New York, without regard to principles of conflicts of laws, shall govern this Second Supplemental Indenture, the Securities and the Guarantees.

3.8 Except as amended by this Second Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect.

3.9 This Second Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Second Supplemental Indenture.

3.10 NO RECOURSE AGAINST OTHERS. A director, officer, controlling person, employee or stockholder, as such, of the Company or any Guarantor or any successor person thereof shall not have any liability for any Obligations, covenants or agreements of the Company or any Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations, covenants or agreements or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and releases are part of the consideration for the issue of the Securities.

3.11 The Trustee accepts the modifications of the trust effected by this Second Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Second Supplemental Indenture and the Trustee makes no representation with respect thereto.

[SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING]

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the day and year first above written.


D.R. HORTON, INC.

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and
		Chief Financial Officer

EXISTING GUARANTORS:


		C. RICHARD DOBSON BUILDERS, INC.
		CHI CONSTRUCTION COMPANY
		CHTEX OF TEXAS, INC.
		CONTINENTAL HOMES, INC.
		CONTINENTAL RESIDENTIAL, INC.
		D.R. HORTON, INC. — BIRMINGHAM
		D.R. HORTON, INC. — CHICAGO
		D.R. HORTON, INC. — DENVER
		D.R. HORTON, INC. — DIETZ-CRANE
		D.R. HORTON, INC. — FRESNO
		D.R. HORTON, INC. — GREENSBORO
		D.R. HORTON, INC. – GULF COAST
		D.R. HORTON, INC. — JACKSONVILLE
		D.R. HORTON, INC. — LOUISVILLE
		D.R. HORTON, INC. — MINNESOTA
		D.R. HORTON, INC. — NEW JERSEY
		D.R. HORTON, INC. — PORTLAND
		D.R. HORTON, INC. — SACRAMENTO
		D.R. HORTON, INC. — TORREY
		D.R. HORTON LOS ANGELES HOLDING COMPANY, INC.
		D.R. HORTON MATERIALS, INC.
		D.R. HORTON SAN DIEGO HOLDING COMPANY, INC.
		DRH CAMBRIDGE HOMES, INC.
		DRH CONSTRUCTION, INC.
		DRH ENERGY, INC.
		DRH SOUTHWEST CONSTRUCTION, INC.
		DRH TUCSON CONSTRUCTION, INC.
		DRHI, INC.
		KDB HOMES, INC.
		MEADOWS I, LTD.
		MEADOWS VIII, LTD.
		MEADOWS IX, INC.
		MEADOWS X, INC.
		MELMORT CO.
		MELODY HOMES, INC.
		SCHULER HOMES OF CALIFORNIA, INC.
		SCHULER HOMES OF OREGON, INC.
		SCHULER HOMES OF WASHINGTON, INC.
		SCHULER MORTGAGE, INC.
		SCHULER REALTY HAWAII, INC.
		SHLR OF CALIFORNIA, INC.
		SHLR OF COLORADO, INC.
		SHLR OF NEVADA, INC.
		SHLR OF UTAH, INC.
		SHLR OF WASHINGTON, INC.
		VERTICAL CONSTRUCTION CORPORATION
		WESTERN PACIFIC FUNDING, INC.
		WESTERN PACIFIC HOUSING, INC.
		WESTERN PACIFIC HOUSING MANAGEMENT, INC.


		By:		/s/ BILL W. WHEAT

				Bill W. Wheat
				Executive Vice President and
				Chief Financial Officer


		CH INVESTMENTS OF TEXAS, INC.
		MEADOWS II, LTD.
		THE CLUB AT PRADERA, INC.

		By:		/s/ ROBERT E. COLTIN

				Robert E. Coltin
				Vice President


CONTINENTAL HOMES OF TEXAS, L.P.

By: CHTEX of Texas, Inc., its General Partner

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

D.R. HORTON MANAGEMENT COMPANY, LTD.
D.R. HORTON — EMERALD, LTD.
D.R. HORTON — TEXAS, LTD.
DRH REGREM VII, LP

By: Meadows I, Ltd., its General Partner

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

SGS COMMUNITIES AT GRANDE QUAY, LLC

By: Meadows IX, Inc., a Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


and

By: Meadows X, Inc., a Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


DRH CAMBRIDGE HOMES, LLC
DRH REGREM VIII, LLC

By: D.R. Horton, Inc. — Chicago, its Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


		HPH HOMEBUILDERS 2000 L.P.
		WESTERN PACIFIC HOUSING CO., A CALIFORNIA LIMITED PARTNERSHIP
		WESTERN PACIFIC HOUSING—ANTIGUA, LLC
		WESTERN PACIFIC HOUSING—AVIARA, L.P.
		WESTERN PACIFIC HOUSING—BOARDWALK, LLC
		WESTERN PACIFIC HOUSING—BROADWAY, LLC
		WESTERN PACIFIC HOUSING—CANYON PARK, LLC
		WESTERN PACIFIC HOUSING—CARMEL, LLC
		WESTERN PACIFIC HOUSING—CARRILLO, LLC
		WESTERN PACIFIC HOUSING—COMMUNICATIONS HILL, LLC
		WESTERN PACIFIC HOUSING—COPPER CANYON, LLC
		WESTERN PACIFIC HOUSING—CREEKSIDE, LLC
		WESTERN PACIFIC HOUSING—CULVER CITY, L.P.
		WESTERN PACIFIC HOUSING—DEL VALLE, LLC
		WESTERN PACIFIC HOUSING—LOMAS VERDES, LLC
		WESTERN PACIFIC HOUSING—LOST HILLS PARK, LLC
		WESTERN PACIFIC HOUSING—MCGONIGLE CANYON, LLC
		WESTERN PACIFIC HOUSING—MOUNTAINGATE, L.P.
		WESTERN PACIFIC HOUSING—NORCO ESTATES, LLC
		WESTERN PACIFIC HOUSING—OSO, L.P.
		WESTERN PACIFIC HOUSING—PACIFIC PARK II, LLC
		WESTERN PACIFIC HOUSING—PARK AVENUE EAST, LLC
		WESTERN PACIFIC HOUSING—PARK AVENUE WEST, LLC
		WESTERN PACIFIC HOUSING—PLAYA VISTA, LLC
		WESTERN PACIFIC HOUSING—POINSETTIA, L.P.
		WESTERN PACIFIC HOUSING—RIVER RIDGE, LLC
		WESTERN PACIFIC HOUSING—ROBINHOOD RIDGE, LLC
		WESTERN PACIFIC HOUSING—SANTA FE, LLC
		WESTERN PACIFIC HOUSING—SCRIPPS, L.P.
		WESTERN PACIFIC HOUSING—SCRIPPS II, LLC
		WESTERN PACIFIC HOUSING—SEACOVE, L.P.
		WESTERN PACIFIC HOUSING—STUDIO 528, LLC
		WESTERN PACIFIC HOUSING—TERRA BAY DUETS, LLC
		WESTERN PACIFIC HOUSING—TORRANCE, LLC
		WESTERN PACIFIC HOUSING—TORREY COMMERCIAL, LLC
		WESTERN PACIFIC HOUSING—TORREY MEADOWS, LLC
		WESTERN PACIFIC HOUSING—TORREY MULTI-FAMILY, LLC
		WESTERN PACIFIC HOUSING—TORREY VILLAGE CENTER, LLC
		WESTERN PACIFIC HOUSING—VINEYARD TERRACE, LLC
		WESTERN PACIFIC HOUSING—WINDEMERE, LLC
		WESTERN PACIFIC HOUSING—WINDFLOWER, L.P.
		WPH-CAMINO RUIZ, LLC


By: Western Pacific Housing Management, Inc.,
its Manager, Member or General Partner

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


SCHULER HOMES OF ARIZONA LLC
SHA CONSTRUCTION LLC

By: SRHI LLC,
its Member

	By: SHLR of Nevada, Inc.
	its Member

		By:	/s/ BILL W. WHEAT

			Bill W. Wheat
			Executive Vice President and Chief Financial Officer


D.R. HORTON-SCHULER HOMES, LLC

By: Vertical Construction Corporation,
its Manager

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


SRHI LLC

By: SHLR of Nevada, Inc.,
its Member

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


SSHI LLC
By: SHLR of Washington, Inc.,
its Member
	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer

ADDITIONAL GUARANTORS :


		DRH REGREM IX, INC.
		DRH REGREM X, INC.
		DRH REGREM XI, INC.

		By:		/s/ BILL W. WHEAT

				Bill W. Wheat
				Executive Vice President and Chief Financial Officer


DRH REGREM XII, LP

By: Meadows I, Ltd.,
its General Partner

	By:	/s/ BILL W. WHEAT

		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


		U.S. BANK NATIONAL ASSOCIATION , as Trustee

		By:		/s/ FONDA HALL

		Name:		Fonda Hall

		Title:		Vice President

EXHIBIT 4.4

D.R. HORTON, INC.,

THE GUARANTORS PARTY HERETO,

and

AMERICAN STOCK TRANSFER & TRUST COMPANY,
as
Trustee

SECOND SUPPLEMENTAL INDENTURE

Dated as of January 23, 2006

Supplementing the Indenture
Dated as of April 11, 2002
with respect to the
8.5% Senior Notes Due 2012

THIS SECOND SUPPLEMENTAL INDENTURE, dated as of January 23, 2006, to the Indenture, dated as of April 11, 2002 (as amended, modified or supplemented from time to time in accordance therewith, the “ Indenture ”), by and among D.R. HORTON, INC., a Delaware corporation (the “ Company ”), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (which includes all entities listed as an Existing Guarantor on the signature pages hereof) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the “ Trustee ”).

RECITALS

WHEREAS, pursuant to the First Supplemental Indenture, dated as of April 11, 2002, among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 8.5% Senior Notes due 2012 (the “ Notes ”);

WHEREAS, the Board of Directors of the Company has redesignated certain Unrestricted Subsidiaries of the Company as Restricted Subsidiaries of the Company;

ARTICLE I.

ADDITIONAL GUARANTORS


Name		Jurisdiction of Organization
DRH Regrem IX, Inc.		Delaware
DRH Regrem X, Inc.		Delaware
DRH Regrem XI, Inc.		Delaware
DRH Regrem XII, LP		Texas

1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the Notes.

ARTICLE II.

MISCELLANEOUS

3.2 The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

3.3 In the event that any provision in this Second Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

3.4 The article headings herein are for convenience only and shall not affect the construction hereof.

3.7 The laws of the State of New York shall govern this Second Supplemental Indenture, the Notes and the Guarantees.

3.8 Except as amended by this Second Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect.

3.10 All liability described in paragraph 13 of the Notes of any director, officer, employee or stockholder, as such, of the Company is waived and released.

[SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING]

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the day and year first above written.

EXISTING GUARANTORS:



		C. RICHARD DOBSON BUILDERS, INC.
		CHI CONSTRUCTION COMPANY
		CHTEX OF TEXAS, INC.
		CONTINENTAL HOMES, INC.
		CONTINENTAL RESIDENTIAL, INC.
		D.R. HORTON, INC. — BIRMINGHAM
		D.R. HORTON, INC. — CHICAGO
		D.R. HORTON, INC. — DENVER
		D.R. HORTON, INC. — DIETZ-CRANE
		D.R. HORTON, INC. — FRESNO
		D.R. HORTON, INC. — GREENSBORO
		D.R. HORTON, INC. – GULF COAST
		D.R. HORTON, INC. — JACKSONVILLE
		D.R. HORTON, INC. — LOUISVILLE
		D.R. HORTON, INC. — MINNESOTA
		D.R. HORTON, INC. — NEW JERSEY
		D.R. HORTON, INC. — PORTLAND
		D.R. HORTON, INC. — SACRAMENTO
		D.R. HORTON, INC. — TORREY
		D.R. HORTON LOS ANGELES HOLDING COMPANY, INC.
		D.R. HORTON MATERIALS, INC.
		D.R. HORTON SAN DIEGO HOLDING COMPANY, INC.
		DRH CAMBRIDGE HOMES, INC.
		DRH CONSTRUCTION, INC.
		DRH ENERGY, INC.
		DRH SOUTHWEST CONSTRUCTION, INC.
		DRH TUCSON CONSTRUCTION, INC.
		DRHI, INC.
		KDB HOMES, INC.
		MEADOWS I, LTD.
		MEADOWS VIII, LTD.
		MEADOWS IX, INC.
		MEADOWS X, INC.
		MELMORT CO.
		MELODY HOMES, INC.
		SCHULER HOMES OF CALIFORNIA, INC.
		SCHULER HOMES OF OREGON, INC.
		SCHULER HOMES OF WASHINGTON, INC.
		SCHULER MORTGAGE, INC.
		SCHULER REALTY HAWAII, INC.
		SHLR OF CALIFORNIA, INC.
		SHLR OF COLORADO, INC.
		SHLR OF NEVADA, INC.
		SHLR OF UTAH, INC.
		SHLR OF WASHINGTON, INC.
		VERTICAL CONSTRUCTION CORPORATION
		WESTERN PACIFIC FUNDING, INC.
		WESTERN PACIFIC HOUSING, INC.
		WESTERN PACIFIC HOUSING MANAGEMENT, INC.


		CH INVESTMENTS OF TEXAS, INC.
		MEADOWS II, LTD.
		THE CLUB AT PRADERA, INC.


		CONTINENTAL HOMES OF TEXAS, L.P.

		By: CHTEX of Texas, Inc., its General Partner


		D.R. HORTON MANAGEMENT COMPANY, LTD.
		D.R. HORTON — EMERALD, LTD.
		D.R. HORTON — TEXAS, LTD.
		DRH REGREM VII, LP

		By: Meadows I, Ltd., its General Partner


		SGS COMMUNITIES AT GRANDE QUAY, LLC

		By: Meadows IX, Inc., a Member


		and

		By: Meadows X, Inc., a Member


		DRH CAMBRIDGE HOMES, LLC
		DRH REGREM VIII, LLC

		By: D.R. Horton, Inc. — Chicago, its Member


		HPH HOMEBUILDERS 2000 L.P.
		WESTERN PACIFIC HOUSING CO., A CALIFORNIA LIMITED PARTNERSHIP
		WESTERN PACIFIC HOUSING—ANTIGUA, LLC
		WESTERN PACIFIC HOUSING—AVIARA, L.P.
		WESTERN PACIFIC HOUSING—BOARDWALK, LLC
		WESTERN PACIFIC HOUSING—BROADWAY, LLC
		WESTERN PACIFIC HOUSING—CANYON PARK, LLC
		WESTERN PACIFIC HOUSING—CARMEL, LLC
		WESTERN PACIFIC HOUSING—CARRILLO, LLC
		WESTERN PACIFIC HOUSING—COMMUNICATIONS HILL, LLC
		WESTERN PACIFIC HOUSING—COPPER CANYON, LLC
		WESTERN PACIFIC HOUSING—CREEKSIDE, LLC
		WESTERN PACIFIC HOUSING—CULVER CITY, L.P.
		WESTERN PACIFIC HOUSING—DEL VALLE, LLC
		WESTERN PACIFIC HOUSING—LOMAS VERDES, LLC
		WESTERN PACIFIC HOUSING—LOST HILLS PARK, LLC
		WESTERN PACIFIC HOUSING—MCGONIGLE CANYON, LLC
		WESTERN PACIFIC HOUSING—MOUNTAINGATE, L.P.
		WESTERN PACIFIC HOUSING—NORCO ESTATES, LLC
		WESTERN PACIFIC HOUSING—OSO, L.P.
		WESTERN PACIFIC HOUSING—PACIFIC PARK II, LLC
		WESTERN PACIFIC HOUSING—PARK AVENUE EAST, LLC
		WESTERN PACIFIC HOUSING—PARK AVENUE WEST, LLC
		WESTERN PACIFIC HOUSING—PLAYA VISTA, LLC
		WESTERN PACIFIC HOUSING—POINSETTIA, L.P.
		WESTERN PACIFIC HOUSING—RIVER RIDGE, LLC
		WESTERN PACIFIC HOUSING—ROBINHOOD RIDGE, LLC
		WESTERN PACIFIC HOUSING—SANTA FE, LLC
		WESTERN PACIFIC HOUSING—SCRIPPS, L.P.
		WESTERN PACIFIC HOUSING—SCRIPPS II, LLC
		WESTERN PACIFIC HOUSING—SEACOVE, L.P.
		WESTERN PACIFIC HOUSING—STUDIO 528, LLC
		WESTERN PACIFIC HOUSING—TERRA BAY DUETS, LLC
		WESTERN PACIFIC HOUSING—TORRANCE, LLC
		WESTERN PACIFIC HOUSING—TORREY COMMERCIAL, LLC
		WESTERN PACIFIC HOUSING—TORREY MEADOWS, LLC
		WESTERN PACIFIC HOUSING—TORREY MULTI-FAMILY, LLC
		WESTERN PACIFIC HOUSING—TORREY VILLAGE CENTER, LLC
		WESTERN PACIFIC HOUSING—VINEYARD TERRACE, LLC
		WESTERN PACIFIC HOUSING—WINDEMERE, LLC
		WESTERN PACIFIC HOUSING—WINDFLOWER, L.P.
		WPH-CAMINO RUIZ, LLC


		By:		Western Pacific Housing Management, Inc.,
				its Manager, Member or General Partner


		SCHULER HOMES OF ARIZONA LLC
		SHA CONSTRUCTION LLC

		By: SRHI LLC,
		its Member


By:	SHLR of Nevada, Inc.
	its Member

	By:	/s/ BILL W. WHEAT
		Bill W. Wheat
		Executive Vice President and Chief Financial Officer


		D.R. HORTON-SCHULER HOMES, LLC

		By: Vertical Construction Corporation,
		its Manager


		By:		/s/ BILL W. WHEAT Bill W. Wheat
				Executive Vice President and Chief Financial Officer


		SRHI LLC

		By: SHLR of Nevada, Inc.,
		its Member


		By:		/s/ BILL W. WHEAT Bill W. Wheat
				Executive Vice President and Chief Financial Officer


		SSHI LLC

		By: SHLR of Washington, Inc.,
		its Member

ADDITIONAL GUARANTORS :


		DRH REGREM IX, INC.
		DRH REGREM X, INC.
		DRH REGREM XI, INC.


		By:		/s/ BILL W. WHEAT Bill W. Wheat
				Executive Vice President and Chief Financial Officer


		DRH REGREM XII, LP

		By: Meadows I, Ltd.,
		its General Partner


		By:		/s/ BILL W. WHEAT Bill W. Wheat
				Executive Vice President and Chief Financial Officer


		AMERICAN STOCK TRANSFER & TRUST COMPANY ,
		as Trustee

		By:		/s/ YEHUDA L. NEUBERGER
		Name:		Yehuda Neuberger
		Title:		Senior Vice President

Exhibit 10.6

D. R. HORTON, INC.
2006 STOCK INCENTIVE PLAN

1. Purpose

The purpose of D. R. Horton, Inc. 2006 Stock Incentive Plan (the “ Plan ”) is to advance the interests of D. R. Horton, Inc. (the “ Company ”) by stimulating the efforts of employees, officers and, to the extent provided by Sections 5(e) and (f), non-employee directors and certain other service providers, in each case who are selected to be participants, by heightening the desire of such persons to continue in working toward and contributing to the success and progress of the Company. The Plan supersedes the Company’s 1991 Stock Incentive Plan with respect to future awards, and provides for the grant of Incentive and Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock and Restricted Stock Units, any of which may be performance-based, and for Incentive Bonuses, which may be paid in cash or stock or a combination thereof, as determined by the Administrator.

2. Definitions

As used in the Plan, the following terms shall have the meanings set forth below:

(a) “ Administrator ” means the Administrator of the Plan in accordance with Section 17.

(b) “ Award ” means an Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit or Incentive Bonus granted to a Participant pursuant to the provisions of the Plan, any of which the Administrator may structure to qualify in whole or in part as a Performance Award.

(c) “ Award Agreement ” means a written agreement or other instrument as may be approved from time to time by the Administrator implementing the grant of each Award. An Agreement may be in the form of an agreement to be executed by both the Participant and the Company (or an authorized representative of the Company) or certificates, notices or similar instruments as approved by the Administrator.

(d) “ Board ” means the board of directors of the Company.

(e) “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issues thereunder.

(f) “ Company ” means D. R. Horton, Inc., a Delaware corporation.

(g) “ Incentive Bonus ” means a bonus opportunity awarded under Section 9 pursuant to which a Participant may become entitled to receive an amount based on satisfaction of such performance criteria as are specified in the Award Agreement.

(h) “ Incentive Stock Option ” means a stock option that is intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.

(i) “ Nonemployee Director ” means each person who is, or is elected to be, a member of the Board and who is not an employee of the Company or any Subsidiary.

(j) “ Nonqualified Stock Option ” means a stock option that is not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.

(k) “ Option ” means an Incentive Stock Option and/or a Nonqualified Stock Option granted pursuant to Section 6.

(l) “ Participant ” means any individual described in Section 3 to whom Awards have been granted from time to time by the Administrator and any authorized transferee of such individual.

(m) “ Performance Award ” means an Award, the grant, issuance, retention, vesting or settlement of which is subject to satisfaction of one or more Qualifying Performance Criteria established pursuant to Section 13.

(n) “ Plan ” means D. R. Horton, Inc. 2006 Stock Incentive Plan as set forth herein and as amended from time to time.

(o) “ Prior Plan ” means D. R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated on February 21, 2002.

(p) “ Qualifying Performance Criteria ” has the meaning set forth in Section 13(b).

(q) “ Restricted Stock ” means Shares granted pursuant to Section 8.

(r) “ Restricted Stock Unit ” means an Award granted to a Participant pursuant to Section 8 pursuant to which Shares or cash in lieu thereof may be issued in the future.

(s) “ Service Provider ” means a consultant or advisor to the Company or any Subsidiary who (i) is a natural person, (ii) provides bona fide services to the Company or any Subsidiary, (iii) provides services other than in connection with the offer or sale of securities in a capital-raising transaction, and (iv) does not directly or indirectly promote or maintain a market for the Company’s securities, in each case, within the meaning of the General Instructions to Form S-8 under the Securities Act of 1933, as amended.

(t) “ Share ” means a share of the Company’s common stock, par value $.01, subject to adjustment as provided in Section 12.

(u) “ Stock Appreciation Right ” means a right granted pursuant to Section 7 that entitles the Participant to receive, in cash or Shares or a combination thereof, as determined by the Administrator, value equal to or otherwise based on the excess of (i) the market price of a specified number of Shares at the time of exercise over (ii) the exercise price of the right, as established by the Administrator on the date of grant.

(v) “ Subsidiary ” means (i) any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company where each of the corporations in the unbroken chain other than the last corporation owns stock possessing at least 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) other than with respect to Incentive Stock Options, any limited liability company, limited partnership, general partnership or other entity, the majority of the equity or ownership interests in which are owned, directly or indirectly, by the Company, and (iii) if specifically determined by the Administrator in the context other than with respect to Incentive Stock Options, any entity in which the Company has a significant ownership interest or that is directly or indirectly controlled by the Company.

(w) “Substitute Awards ” means Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a person or entity acquired by the Company or any Subsidiary or with which the Company or any Subsidiary merges or combines.

(x) “ Termination of Employment ” means ceasing to serve as a full-time employee of the Company and its Subsidiaries or, with respect to a Nonemployee Director or other Service Provider, ceasing to serve as such for the Company, except that with respect to all or any Awards held by a Participant (i) the Administrator may determine, subject to Section 6(d), that an approved leave of absence or approved employment on a less than full-time basis is not considered a “Termination of Employment,” (ii) the Administrator may determine that a transition of employment to service with a partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which the Company or a Subsidiary is a party is not considered a “Termination of Employment,” (iii) service as a member of the Board shall constitute continued employment with respect to Awards granted to a Participant while he or she served as an employee and (iv) service as an employee of the Company or a Subsidiary shall constitute continued employment with respect to Awards granted to a Participant while he or she served as a member of the Board. The Administrator shall determine whether any corporate transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a Termination of Employment with the Company and its Subsidiaries for purposes of any affected Participant’s Options, and the Administrator’s decision shall be final and binding.

3. Eligibility

Any person who is a current or prospective officer or employee (including, without limitation, any director who is also an employee, in his or her capacity as such) of the Company or of any Subsidiary shall be eligible for selection by the Administrator for the grant of Awards hereunder. To the extent provided by Section 5(e), any Nonemployee Director shall be eligible for the grant of Awards hereunder as determined by the Administrator. In addition, to the extent provided by Section 5(f), any Service Provider shall be eligible for selection by the Administrator for the grant of Awards hereunder. Options intending to qualify as Incentive Stock Options may only be granted to employees of the Company or any Subsidiary within the meaning of Section 424(f) the Code, as selected by the Administrator.

4. Effective Date and Termination of Plan

This Plan was adopted by the Board on November 17, 2005, and it will become effective (the “ Effective Date ”) when it is approved by the Company’s stockholders. All Awards granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date of the adoption date of the Plan, by the affirmative vote of the holders of a majority of the outstanding Shares of the Company present, or represented by proxy, and entitled to vote, at a meeting of the Company’s stockholders in accordance with the laws of the State of Delaware; provided that if such approval by the stockholders of the Company is not forthcoming, all Awards previously granted under this Plan shall be void. The Plan shall remain available for the grant of Awards until the tenth (10th) anniversary of the Effective Date. Notwithstanding the foregoing, the Plan may be terminated at such earlier time as the Board may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising under Awards theretofore granted and then in effect.

5. Shares Subject to the Plan and to Awards

(a) Aggregate Limits . The aggregate number of Shares issuable pursuant to all Awards shall not exceed 28,000,000, plus (i) any Shares that were authorized for issuance under the Prior Plan that, as of January 26, 2006, remain available for issuance under the Prior Plan (not including any Shares that are subject to, as of January 26, 2006, outstanding awards under the Prior Plan or any Shares that prior to January 26, 2006 were issued pursuant to awards granted under the Prior Plan) and (ii) any Shares subject to outstanding awards under the Prior Plan as of January 26, 2006 that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares); provided that any Shares granted under Options or Stock Appreciation Rights shall be counted against this limit on a one-for-one basis and any Shares granted as Awards other than Options or Stock Appreciation Rights shall be counted against this limit as 1.75 Shares for every one Share subject to such Award. The aggregate number of Shares available for grant under this Plan and the number of Shares subject to outstanding Awards shall be subject to adjustment as provided in Section 12. The Shares issued pursuant to Awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including, without limitation, shares purchased in the open market.

(b) Issuance of Shares . For purposes of Section 5(a), the aggregate number of Shares issued under this Plan at any time shall equal only the number of Shares actually issued upon exercise or settlement of an Award. Notwithstanding the foregoing, Shares subject to an Award under the Plan may not again be made available for issuance under the Plan if such Shares are: (i) Shares that were subject to a stock-settled Stock Appreciation Right and were not issued upon the net settlement or net exercise of such Stock Appreciation Right, (ii) Shares used to pay the exercise price of a Stock Option, (iii) Shares delivered to or withheld by the Company to pay the withholding taxes related to a Stock Option or a Stock Appreciation Right, or (iv) Shares repurchased on the open market with the proceeds of a Stock Option exercise. Shares subject to Awards that have been canceled, expired, forfeited or otherwise not issued under an Award and Shares subject to Awards settled in cash shall not count as Shares issued under this Plan.

(c) Substitute Awards . Substitute Awards shall not reduce the Shares authorized for issuance under the Plan or authorized for grant to a Participant in any calendar year. In addition, in the event that a person or entity acquired by the Company or any Subsidiary, or with which the Company or any Subsidiary merges or combines, has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition, merger or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition, merger or combination to determine the consideration payable to the holders of common stock of the entities party to such transaction) may be used for Awards under the Plan and, notwithstanding any other provision hereof, shall not reduce the Shares authorized for issuance under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition, merger or combination, and shall only be made to individuals who were employees, directors or Service Providers of such acquired, merged or combined company before such acquisition, merger or combination.

(d) Tax Code Limits . The aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Participant shall not exceed 500,000, which number shall be calculated and adjusted pursuant to Section 12 only to the extent that such calculation or adjustment will not affect the status of any Award intended to qualify as “performance based compensation” under Section 162(m) of the Code but which number shall not count any tandem SARs (as defined in Section 7). The aggregate number of Shares that may be issued pursuant to the exercise of Incentive Stock Options granted under this Plan shall not exceed 28,000,000, which number shall be calculated and adjusted pursuant to Section 12 only to the extent that such calculation or adjustment will not affect the status of any option intended to qualify as an Incentive Stock Option under Section 422 of the Code. The maximum amount payable pursuant to that portion of an Incentive Bonus granted with respect any specified performance period to any Participant under this Plan that is intended to satisfy the requirements for “performance based compensation” under Section 162(m) of the Code shall not exceed two percent (2%) of the Company’s consolidated pre-tax income for such performance period.

(e) Director Awards . The aggregate number of Shares subject to Awards granted under this Plan during any calendar year to any one Nonemployee Director shall not exceed 10,000, which limit shall not count any tandem SARs (as defined in Section 7).

(f) Awards to Service Providers . The aggregate number of Shares issued under this Plan pursuant to all Awards granted to Service Providers shall not exceed 300,000.

(g) Effect on Prior Plan . From and after the Effective Date, no further grants or awards shall be made under the Prior Plan. Grants and awards made under the Prior Plan before the Effective Date, however, shall continue in effect in accordance with their terms.

6. Options

(a) Option Awards . Options may be granted at any time and from time to time prior to the termination of the Plan to Participants as determined by the Administrator. No Participant shall have any rights as a stockholder with respect to any Shares subject to Options hereunder

until such Shares have been issued, except that the Administrator may authorize dividend equivalent accruals with respect to such Shares. Each Option shall be evidenced by an Award Agreement. Options granted pursuant to the Plan need not be identical but each Option must contain and be subject to the terms and conditions set forth below.

(b) Price . The Administrator will establish the exercise price per Share under each Option, which, in no event will be less than the fair market value of the Shares on the date of grant; provided, however, that the exercise price per Share with respect to an Option that is granted in connection with a merger or other acquisition as a substitute or replacement award for options held by optionees of the acquired entity may be less than 100% of the market price of the Shares on the date such Option is granted if such exercise price is based on a formula set forth in the terms of the options held by such optionees or in the terms of the agreement providing for such merger or other acquisition. The exercise price of any Option may be paid in Shares, cash or a combination thereof, as determined by the Administrator, including, without limitation, an irrevocable commitment by a broker to pay over such amount from a sale of the Shares issuable under an Option, the delivery of previously owned Shares and withholding of Shares deliverable upon exercise.

(c) No Repricing . Other than in connection with a change in the Company’s capitalization (as described in Section 12), the exercise price of an Option may not be reduced without stockholder approval (including, without limitation, canceling previously awarded Options and regranting them with a lower exercise price).

(d) Provisions Applicable to Options . The date on which Options become exercisable shall be determined at the sole discretion of the Administrator and set forth in an Award Agreement. Unless provided otherwise in the applicable Award Agreement, to the extent that the Administrator determines that an approved leave of absence or employment on a less than full-time basis is not a Termination of Employment, the vesting period and/or exercisability of an Option shall be adjusted by the Administrator during or to reflect the effects of any period during which the Participant is on an approved leave of absence or is employed on a less than full-time basis.

(e) Term of Options and Termination of Employment . The Administrator shall establish the term of each Option, which in no case shall exceed a period of ten (10) years from the date of grant. In addition, the Award Agreement evidencing the grant of each Option shall set forth the terms and conditions applicable to such Option upon a Participant’s Termination of Employment.

(f) Incentive Stock Options . Notwithstanding anything to the contrary in this Section 6, in the case of the grant of an Option intending to qualify as an Incentive Stock Option: (i) if the Participant owns stock possessing more than 10 percent of the combined voting power of all classes of stock of the Company (a “10% Shareholder”), the exercise price of such Option must be at least 110 percent of the fair market value of the Shares on the date of grant and the Option must expire within a period of not more than five (5) years from the date of grant, and (ii) Termination of Employment will occur when the person to whom an Award was granted ceases to be an employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company and its Subsidiaries. Notwithstanding

anything in this Section 6 to the contrary, options designated as Incentive Stock Options shall not be eligible for treatment under the Code as Incentive Stock Options (and will be deemed to be Nonqualified Stock Options) to the extent that either (a) the aggregate fair market value of Shares (determined as of the time of grant) with respect to which such Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking Options into account in the order in which they were granted, or (b) such Options otherwise remain exercisable but are not exercised within three (3) months of Termination of Employment (or such other period of time provided in Section 422 of the Code).

7. Stock Appreciation Rights

Stock Appreciation Rights may be granted to Participants from time to time either in tandem with or as a component of other Awards granted under the Plan (“ tandem SARs ”) or not in conjunction with other Awards (“ freestanding SARs ”) and may, but need not, relate to a specific Option granted under Section 6. The provisions of Stock Appreciation Rights need not be the same with respect to each grant or each recipient. Any Stock Appreciation Right granted in tandem with an Award may be granted at the same time such Award is granted or at any time thereafter before exercise or expiration of such Award. All freestanding SARs shall be granted subject to the same terms and conditions applicable to Options as set forth in Section 6 (including, without limitation, no repricing) and all tandem SARs shall have the same exercise price, vesting, exercisability, forfeiture and termination provisions as the Award to which they relate. Subject to the provisions of Section 6 and the immediately preceding sentence, the Administrator may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. Stock Appreciation Rights may be settled in Shares, cash or a combination thereof, as determined by the Administrator and set forth in the applicable Award Agreement.

8. Restricted Stock and Restricted Stock Units

(a) Restricted Stock and Restricted Stock Unit Awards . Restricted Stock and Restricted Stock Units may be granted at any time and from time to time prior to the termination of the Plan to Participants as determined by the Administrator. Restricted Stock is an award or issuance of Shares the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions (including, without limitation, continued employment or performance conditions) and terms as the Administrator deems appropriate. Restricted Stock Units are Awards denominated in units of Shares under which the issuance of Shares is subject to such conditions (including, without limitation, continued employment or performance conditions) and terms as the Administrator deems appropriate. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Unless determined otherwise by the Administrator, each Restricted Stock Unit will be equal to one Share and will entitle a Participant to either the issuance of Shares or payment of an amount of cash determined with reference to the value of Shares. To the extent determined by the Administrator, Restricted Stock and Restricted Stock Units may be satisfied or settled in Shares, cash or a combination thereof. Restricted Stock and Restricted Stock Units granted pursuant to the Plan need not be identical but each grant of Restricted Stock and Restricted Stock Units must contain and be subject to the terms and conditions set forth below.

(b) Contents of Agreement . Each Award Agreement shall contain provisions regarding (i) the number of Shares or Restricted Stock Units subject to such Award or a formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares or Restricted Stock Units granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance, vesting and/or forfeiture of the Shares or Restricted Stock Units as may be determined from time to time by the Administrator, (v) the term of the performance period, if any, as to which performance will be measured for determining the number of such Shares or Restricted Stock Units, and (vi) restrictions on the transferability of the Shares or Restricted Stock Units. Shares issued under a Restricted Stock Award may be issued in the name of the Participant and held by the Participant or held by the Company, in each case as the Administrator may provide.

(c) Vesting and Performance Criteria . The grant, issuance, retention, vesting and/or, subject to Section 10, settlement of shares of Restricted Stock and Restricted Stock Units will occur when and in such installments as the Administrator determines or under criteria the Administrator establishes, which may include Qualifying Performance Criteria. The grant, issuance, retention, vesting and/or settlement of Shares under any such Award that is based on performance criteria and level of achievement versus such criteria will be subject to a performance period of not less than one (1) year, and the grant, issuance, retention, vesting and/or settlement of Shares under any Restricted Stock or Restricted Stock Unit Award that is based solely upon continued employment and/or the passage of time may not vest or be settled in full over a period of less than three (3) years but may be subject to pro-rata vesting over such period, except that the Administrator may provide for the satisfaction and/or lapse of all conditions under any such Award in the event of the Participant’s death, disability, retirement or in connection with a change in control of the Company, and the Administrator may provide that any such restriction or limitation will not apply in the case of a Restricted Stock or Restricted Stock Unit Award that is issued in payment or settlement of compensation that has been earned by the Participant or that qualifies as a Substitute Award. Notwithstanding anything in this Plan to the contrary, the performance criteria for any Restricted Stock or Restricted Stock Unit that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure based on one or more Qualifying Performance Criteria selected by the Administrator and specified when the Award is granted.

(d) Discretionary Adjustments and Limits . Subject to the limits imposed under Section 162(m) of the Code for Awards that are intended to qualify as “performance based compensation,” notwithstanding the satisfaction of any performance goals, the number of Shares granted, issued, retainable and/or vested under an Award of Restricted Stock or Restricted Stock Units on account of either financial performance or personal performance evaluations may, to the extent specified in the Award Agreement, be reduced by the Administrator on the basis of such further considerations as the Administrator shall determine.

(e) Voting Rights . Unless otherwise determined by the Administrator, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares during the period of restriction. Participants shall have no voting rights with respect to Shares underlying Restricted Stock Units unless and until such Shares are reflected as issued and outstanding shares on the Company’s stock ledger.

(f) Dividends and Distributions . Participants in whose name Restricted Stock is granted shall be entitled to receive all dividends and other distributions paid with respect to those Shares, unless determined otherwise by the Administrator. The Administrator will determine whether any such dividends or distributions will be automatically reinvested in additional shares of Restricted Stock and subject to the same restrictions on transferability as the Restricted Stock with respect to which they were distributed or whether such dividends or distributions will be paid in cash. Shares underlying Restricted Stock Units shall be entitled to dividends or dividend equivalents only to the extent provided by the Administrator.

(g) Termination of Employment . The Award Agreement evidencing the grant of an Award of Restricted Stock or Restricted Stock Units shall set forth the terms and conditions applicable to such Award upon a Participant’s Termination of Employment.

9. Incentive Bonuses

(a) General . Each Incentive Bonus Award will confer upon the Participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one year (if payable in Shares), and not less than one calendar quarter (if payable solely in cash).

(b) Incentive Bonus Document . The terms of any Incentive Bonus will be set forth in an Award Agreement. Each Award Agreement evidencing an Incentive Bonus shall contain provisions regarding (i) the target and maximum amount payable to the Participant as an Incentive Bonus, (ii) the performance criteria and level of achievement versus these criteria that shall determine the amount of such payment, (iii) the term of the performance period as to which performance shall be measured for determining the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Incentive Bonus prior to actual payment, (vi) forfeiture provisions and (vii) such further terms and conditions, in each case not inconsistent with this Plan as may be determined from time to time by the Administrator.

(c) Performance Criteria . The Administrator shall establish the performance criteria and level of achievement versus these criteria that shall determine the target and maximum amount payable under an Incentive Bonus, which criteria may be based on financial performance and/or personal performance evaluations. The Administrator may specify the percentage of the target Incentive Bonus that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding anything to the contrary herein, the performance criteria for any portion of an Incentive Bonus that is intended by the Administrator to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance Criteria (as defined in Section 13(b)) selected by the Administrator and specified at the time the Incentive Bonus is granted. The Administrator shall certify the extent to which any Qualifying Performance Criteria has been satisfied, and the amount payable as a result thereof, prior to payment of any Incentive Bonus that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code.

(d) Timing and Form of Payment . The Administrator shall determine the timing of payment of any Incentive Bonus. Payment of the amount due under an Incentive Bonus may be made in cash or in Shares, as determined by the Administrator. Subject to Section 10, the Administrator may provide for or, subject to such terms and conditions as the Administrator may specify, may permit a Participant to elect for the payment of any Incentive Bonus to be deferred to a specified date or event.

(e) Discretionary Adjustments . Notwithstanding satisfaction of any performance goals, the amount paid under an Incentive Bonus on account of either financial performance or personal performance evaluations may, to the extent specified in the Award Agreement, be reduced by the Administrator on the basis of such further considerations as the Administrator shall determine.

10. Deferral of Gains

The Administrator may, in an Award Agreement or otherwise, provide for the deferred delivery of Shares or cash upon settlement, vesting or other events with respect to Restricted Stock or Restricted Stock Units, or in payment or satisfaction of an Incentive Bonus. Notwithstanding anything herein to the contrary, in no event will any deferral of the delivery of Shares or any other payment with respect to any Award be allowed if the Administrator determines that the deferral would result in the imposition of the additional tax under Section 409A(a)(1)(B) of the Code.

11. Conditions and Restrictions Upon Securities Subject to Awards

The Administrator may provide that the Shares issued upon exercise of an Option or Stock Appreciation Right or otherwise subject to or issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Administrator in its discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award, including, without limitation, conditions on vesting or transferability, forfeiture or repurchase provisions and method of payment for the Shares issued upon exercise, vesting or settlement of such Award (including, without limitation, the actual or constructive surrender of Shares already owned by the Participant) or payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Shares issued under an Award, including, without limitation (i) restrictions under an insider trading policy or pursuant to applicable law, (ii) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and holders of other Company equity compensation arrangements, (iii) restrictions as to the use of a specified brokerage firm for such resales or other transfers and (iv) provisions requiring Shares to be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.

12. Adjustment of and Changes in the Stock

The number and kind of Shares available for issuance under this Plan (including, without limitation, under any Awards then outstanding), and the number and kind of Shares subject to the individual limits set forth in Section 5 of this Plan, may be adjusted by the Administrator as it

determines appropriate to reflect any reorganization, reclassification, combination or exchange of shares, repurchase of shares, stock split, reverse stock split, spin-off, dividend or other distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of Shares of the Company outstanding. Such adjustment may be designed to comply with Section 425 of the Code or, except as otherwise expressly provided in Section 5(d) of this Plan, may be designed to treat the Shares available under the Plan and subject to Awards as if they were all outstanding on the record date for such event or transaction or to increase the number of such Shares to reflect a deemed reinvestment in Shares of the amount distributed to the Company’s securityholders. The terms of any outstanding Award may also be adjusted by the Administrator as to price, number or kind of Shares subject to such Award and other terms to reflect the foregoing events, which adjustments need not be uniform as between different Awards or different types of Awards.

In the event there shall be any change in the number or kind of outstanding Shares, or any stock or other securities into which such Shares shall have been changed, or for which it shall have been exchanged, by reason of a change of control, merger, consolidation or otherwise, then the Administrator may, in its sole discretion, determine the appropriate adjustment, if any, to be effected. Without limiting the generality of the foregoing, in the event of any such change, the Administrator may, in its sole discretion, (i) provide for the assumption or substitution of, or adjustment to, each outstanding Award; (ii) accelerate the vesting of and terminate any restrictions on outstanding Awards; (iii) provide for cancellation of accelerated Awards that are not exercised within a time prescribed by the Administrator; or (iv) provide for the cancellation of any outstanding Awards in exchange for a cash payment to the holders thereof.

No right to purchase fractional shares shall result from any adjustment in Awards pursuant to this Section 12. In case of any such adjustment, the Shares subject to the Award shall be rounded down to the nearest whole share. The Company shall notify Participants holding Awards subject to any adjustments pursuant to this Section 12 of such adjustment, but (whether or not notice is given) such adjustment shall be effective and binding for all purposes of the Plan.

13. Qualifying Performance-Based Compensation

(a) General . The Administrator may establish performance criteria and level of achievement versus such criteria that shall determine the number of Shares to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an Award, which criteria may be based on Qualifying Performance Criteria or other standards of financial performance and/or personal performance evaluations. In addition, the Administrator may specify that an Award or a portion of an Award is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, provided that the performance criteria for such Award or portion of an Award that is intended by the Administrator to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance Criteria selected by the Administrator and specified at the time the Award is granted. The Administrator shall certify the extent to which any Qualifying Performance Criteria has been satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting of any Award that is intended to satisfy the requirements for “performance-based compensation”

under Section 162(m) of the Code. Notwithstanding satisfaction of any performance goals, the number of Shares issued under or the amount paid under an award may, to the extent specified in the Award Agreement, be reduced by the Administrator on the basis of such further considerations as the Administrator in its sole discretion shall determine.

(b) Qualifying Performance Criteria . For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Subsidiary, either individually, alternatively or in any combination, and measured either quarterly, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Administrator: (i) cash flow (before or after dividends), (ii) earnings per share (including, without limitation, earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) stockholder return or total stockholder return, (vi) return on capital (including, without limitation, return on total capital or return on invested capital), (vii) return on investment, (viii) return on assets or net assets, (ix) market capitalization, (x) economic value added, (xi) debt leverage (debt to capital), (xii) revenue, (xiii) sales or net sales, (xiv) backlog, (xv) income, pre-tax income or net income, (xvi) operating income or pre-tax profit, (xvii) operating profit, net operating profit or economic profit, (xviii) gross margin, operating margin or profit margin, (xix) return on operating revenue or return on operating assets, (xx) cash from operations, (xxi) operating ratio, (xxii) operating revenue, (xxiii) market share improvement, (xxiv) general and administrative expenses or (xxv) customer service. To the extent consistent with Section 162(m) of the Code, the Administrator may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation, claims, judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs and (v) any extraordinary, unusual, non-recurring or non-comparable items (A) as described in Accounting Principles Board Opinion No. 30, (B) as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s Annual Report to stockholders for the applicable year, or (C) publicly announced by the Company in a press release or conference call relating to the Company’s results of operations or financial condition for a completed quarterly or annual fiscal period.

14. Transferability

Unless the Administrator specifies otherwise and to the extent permitted under the General Instructions to Form S-8 under the Securities Act of 1933, as amended, an Award may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a Participant other than by will or the laws of descent and distribution, and each Option or Stock Appreciation Right shall be exercisable only by the Participant during his or her lifetime, and thereafter by the legal representative of the Participant’s estate or the individual to whom such Award was transferred by the Participant’s will or the laws of descent and distribution.

15. Compliance with Laws and Regulations

This Plan, the grant, issuance, vesting, exercise and settlement of Awards thereunder, and the obligation of the Company to sell, issue or deliver Shares under such Awards, shall be subject to all applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant’s name or deliver any Shares prior to the completion of any registration or qualification of such shares under any foreign, federal, state or local law or any ruling or regulation of any government body which the Administrator shall determine to be necessary or advisable. To the extent the Company is unable to or the Administrator deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, the Company and its Subsidiaries shall be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. No Option shall be exercisable and no Shares shall be issued and/or transferable under any other Award unless a registration statement with respect to the Shares underlying such Option is effective and current or the Company has determined that such registration is unnecessary.

In the event an Award is granted to or held by a Participant who is employed or providing services outside the United States, the Administrator may, in its sole discretion, modify the provisions of the Plan or of such Award as they pertain to such individual to comply with applicable foreign law or to recognize differences in local law, currency or tax policy. The Administrator may also impose conditions on the grant, issuance, exercise, vesting, settlement or retention of Awards in order to comply with such foreign law and/or to minimize the Company’s obligations with respect to tax equalization for Participants employed outside their home country.

16. Withholding

To the extent required by applicable federal, state, local or foreign law, a Participant shall be required to satisfy, in a manner satisfactory to the Company, any withholding tax obligations that arise by reason of an Option exercise, disposition of Shares issued under an Incentive Stock Option, the vesting of or settlement of an Award, an election pursuant to Section 83(b) of the Code or otherwise with respect to an Award. The Company and its Subsidiaries shall not be required to issue Shares, make any payment or to recognize the transfer or disposition of Shares until such obligations are satisfied. The Administrator may provide for or permit these obligations to be satisfied through the mandatory or elective sale of Shares and/or by having the Company withhold a portion of the Shares that otherwise would be issued to him or her upon exercise of the Option or the vesting or settlement of an Award, or by tendering Shares previously acquired.

17. Administration of the Plan

(a) Administrator of the Plan . The Plan shall be administered by the Administrator who shall be the Compensation Committee of the Board or, in the absence of a Compensation Committee, the Board itself; provided, however, that with respect to Awards to Nonemployee

Directors, the Administrator shall be the full Board. Any power of the Administrator may also be exercised by the Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Securities Exchange Act of 1934 or cause an Award designated as a Performance Award not to qualify for treatment as performance-based compensation under Section 162(m) of the Code. To the extent that any permitted action taken by the Board conflicts with action taken by the Administrator, the Board action shall control. The Administrator may by resolution authorize one or more officers of the Company to grant Awards under the Plan, which shall be on the terms and within the limits provided in the authorizing resolution to the extent required by Delaware General Corporation Law. No such officer shall designate himself or herself or any executive officer or director of the Company as a recipient of any Awards granted under authority delegated to such officer. In addition, the Administrator may delegate any or all aspects of the day-to-day administration of the Plan to one or more officers or employees of the Company or any Subsidiary, and/or to one or more agents.

(b) Powers of Administrator . Subject to the express provisions of this Plan, the Administrator shall be authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of this Plan, including, without limitation: (i) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein; (ii) to determine which persons are Participants, to which of such Participants, if any, Awards shall be granted hereunder and the timing of any such Awards; (iii) to grant Awards to Participants and determine the terms and conditions thereof, including, without limitation, the number of Shares subject to Awards and the exercise or purchase price of such Shares and the circumstances under which Awards become exercisable or vested or are forfeited or expire, which terms may but need not be conditioned upon the passage of time, continued employment, the satisfaction of performance criteria, the occurrence of certain events (including, without limitation, events which the Board or the Administrator determine constitute a change of control), or other factors; (iv) to establish and verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Award; (v) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under this Plan (which need not be identical) and the terms of or form of any document or notice required to be delivered to the Company by Participants under this Plan; (vi) to determine whether, and the extent to which, adjustments are required pursuant to Section 12; (vii) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and (viii) to make all other determinations deemed necessary or advisable for the administration of this Plan.

(c) Determinations by the Administrator . All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan and the terms and conditions of or operation of any Award granted hereunder, shall be final and binding on all Participants, beneficiaries, heirs, assigns or other persons holding or claiming rights under the Plan or any Award. The Administrator shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select.

(d) Subsidiary Awards . In the case of a grant of an Award to any Participant employed by a Subsidiary, such grant may, if the Administrator so directs, be implemented by the Company issuing any subject Shares to the Subsidiary, for such lawful consideration as the Administrator may determine, upon the condition or understanding that the Subsidiary will transfer the Shares to the Participant in accordance with the terms of the Award specified by the Administrator pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Award may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Administrator shall determine.

18. Amendment of the Plan or Awards

The Board or the Compensation Committee of the Board may amend, alter or discontinue this Plan, and the Administrator may amend or alter any agreement or other document evidencing an Award made under this Plan but, except as provided pursuant to the provisions of Section 12, no such amendment shall, without the approval of the stockholders of the Company:

(a) increase the maximum number of Shares for which Awards may be granted under this Plan;

(b) reduce the price at which Options or Stock Appreciation Rights may be granted below the price provided for in Section 6(b);

(d) extend the term of this Plan;

(e) change the class of persons eligible to be Participants;

(f) otherwise amend the Plan in any manner requiring stockholder approval by law or under the New York Stock Exchange listing requirements; or

(g) increase the individual maximum limits in Sections 5(d) and (e).

No amendment or alteration to the Plan or an Award or Award Agreement shall be made which would impair the rights of the holder of an Award, without such holder’s consent, provided that no such consent shall be required if (i) the Administrator determines in its sole discretion and prior to the date of any change of control (as defined in the applicable Award Agreement) that such amendment or alteration either is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or (ii) the Administrator determines in its sole discretion that such amendment or alteration is not reasonably likely to significantly diminish the benefits provided under the Award, or that any such diminution has been adequately compensated.

19. No Liability of Company

The Company and any Subsidiary or affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant or any other person as to: (i) the non-issuance or

sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder; and (ii) any tax consequence expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted hereunder.

20. Non-Exclusivity of Plan

Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Administrator to adopt such other incentive arrangements as either may deem desirable, including, without limitation, the granting of restricted stock or stock options otherwise than under this Plan or an arrangement that is or is not intended to qualify under Code Section 162(m), and such arrangements may be either generally applicable or applicable only in specific cases.

21. Governing Law

This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the Delaware and applicable federal law. Any reference in this Plan or in the agreement or other document evidencing any Awards to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability.

22. No Right to Employment, Reelection or Continued Service

Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its affiliates to terminate any Participant’s employment, service on the Board or service for the Company at any time or for any reason not prohibited by law, nor shall this Plan or an Award itself confer upon any Participant any right to continue his or her employment or service for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, any Subsidiary and/or its affiliates. Subject to Sections 4 and 18, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board without giving rise to any liability on the part of the Company, its Subsidiaries and/or its affiliates.

23. Unfunded Plan

The Plan is intended to be an unfunded plan. Participants are and shall at all times be general creditors of the Company with respect to their Awards. If the Administrator or the Company chooses to set aside funds in a trust or otherwise for the payment of Awards under the Plan, such funds shall at all times be subject to the claims of the creditors of the Company in the event of its bankruptcy or insolvency.

Exhibit 12.1

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


	Three Months
	Ended			For the fiscal year ended September 30,
	December 31, 2005			2005			2004			2003			2002			2001
				($ in millions)
Consolidated pretax income before cumulative effect of change in accounting principle	$	500.1		$	2,378.6		$	1,582.9		$	1,008.2		$	647.5		$	407.8

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		(0.1	)		(0.3	)		(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		43.8			225.0			249.1			219.4			136.1			91.4

Interest expensed		16.5			33.9			17.5			19.5			17.8			17.7


Earnings	$	560.3		$	2,637.2		$	1,854.0		$	1,255.6		$	803.2		$	516.9


Interest incurred	$	85.7		$	306.8		$	250.9		$	253.8		$	210.6		$	139.9


Fixed charges	$	85.7		$	306.8		$	250.9		$	253.8		$	210.6		$	139.9


Ratio of earnings to fixed charges		6.54			8.60			7.39			4.95			3.81			3.69

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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) 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 the audit committee of the 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 reasonably 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: February 1, 2006


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

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.;

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: February 1, 2006


/s/ Bill W. Wheat
By: Bill W. Wheat Executive Vice President and Chief Financial Officer

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 December 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: February 1, 2006		/s/ Donald J. Tomnitz

		By: Donald J. Tomnitz Vice Chairman, President and Chief Executive Officer

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 December 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: February 1, 2006		/s/ Bill W. Wheat

		By: Bill W. Wheat Executive Vice President and Chief Financial Officer

By: CHTEX of Texas,Inc., its General Partner

/s/ BILL W. WHEAT

Bill W. Wheat
Executive Vice President and Chief Financial Officer