HORTON D R INC /DE/ - Quarter Report: 2009 June (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

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)

Not Applicable

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

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

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Yes o No þ

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

Common stock, $.01 par value — 317,098,284 shares as of July 31, 2009

 

 

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at June 30, 2009 (unaudited) and September 30, 2008 (unaudited)			3
Consolidated Statements of Operations for the three and nine months ended June 30, 2009 and 2008 (unaudited)			4
Consolidated Statements of Cash Flows for the nine months ended June 30, 2009 and 2008 (unaudited)			5
Notes to Consolidated Financial Statements (unaudited)			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			60
ITEM 4. Controls and Procedures			61
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			62
ITEM 1A. Risk Factors			62
ITEM 6. Exhibits			64
SIGNATURE			65
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

		June 30,				September 30,
		2009				2008
		(In millions)
		(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents		$	1,966.3			$	1,355.6
Inventories:
Construction in progress and finished homes			1,407.7				1,681.6
Residential land and lots — developed and under development			1,875.9				2,409.6
Land held for development			567.0				531.7
Land inventory not owned			22.7				60.3
			3,873.3				4,683.2
Income taxes receivable			124.9				676.2
Restricted cash			62.0				2.0
Deferred income taxes, net of valuation allowance of $1,068.5 million and $961.3 million at June 30, 2009 and September 30, 2008, respectively			165.4				213.5
Property and equipment, net			62.5				65.9
Earnest money deposits and other assets			198.5				245.5
Goodwill			15.9				15.9
			6,468.8				7,257.8
Financial Services:
Cash and cash equivalents			36.0				31.7
Mortgage loans held for sale			222.7				352.1
Other assets			52.0				68.0
			310.7				451.8
Total assets		$	6,779.5			$	7,709.6
LIABILITIES
Homebuilding:
Accounts payable		$	170.6			$	254.0
Accrued expenses and other liabilities			685.9				814.9
Notes payable			3,280.2				3,544.9
			4,136.7				4,613.8
Financial Services:
Accounts payable and other liabilities			46.8				27.5
Mortgage repurchase facility			77.4				203.5
			124.2				231.0
			4,260.9				4,844.8
Commitments and contingencies (Note L)
Minority interests			20.9				30.5
STOCKHOLDERS’ EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued			—				—
Common stock, $.01 par value, 1,000,000,000 shares authorized, 320,647,484 shares issued and 316,992,251 shares outstanding at June 30, 2009 and 320,315,508 shares issued and 316,660,275 shares outstanding at September 30, 2008			3.2				3.2
Additional capital			1,728.7				1,716.3
Retained earnings			861.5				1,210.5
Treasury stock, 3,655,233 shares at June 30, 2009 and September 30, 2008, at cost			(95.7	)			(95.7	)
			2,497.7				2,834.3
Total liabilities and stockholders’ equity		$	6,779.5			$	7,709.6

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
						(In millions, except per share data)
						(Unaudited)
Homebuilding:
Revenues:
Home sales		$	896.6			$	1,415.0			$	2,553.1			$	4,619.8
Land/lot sales			17.5				18.3				36.6				145.1
			914.1				1,433.3				2,589.7				4,764.9
Cost of sales:
Home sales			795.0				1,271.7				2,211.5				4,097.1
Land/lot sales			16.7				14.2				32.6				118.0
Inventory impairments and land option cost write-offs			110.8				330.4				215.2				1,410.0
			922.5				1,616.3				2,459.3				5,625.1
Gross profit (loss):
Home sales			101.6				143.3				341.6				522.7
Land/lot sales			0.8				4.1				4.0				27.1
Inventory impairments and land option cost write-offs			(110.8	)			(330.4	)			(215.2	)			(1,410.0	)
			(8.4	)			(183.0	)			130.4				(860.2	)
Selling, general and administrative expense			134.3				194.7				388.2				616.1
Interest expense			20.3				11.7				68.9				22.9
Loss (gain) on early retirement of debt			3.9				2.6				(4.4	)			2.6
Other (income)			(2.2	)			(3.5	)			(8.7	)			(7.0	)
			(164.7	)			(388.5	)			(313.6	)			(1,494.8	)
Financial Services:
Revenues, net of recourse expense and reinsurance reserves (Note G)			18.8				30.9				39.1				98.8
General and administrative expense			18.1				23.1				58.5				76.4
Interest expense			0.2				0.6				1.2				2.7
Interest and other (income)			(2.3	)			(2.2	)			(8.0	)			(8.5	)
			2.8				9.4				(12.6	)			28.2
Loss before income taxes			(161.9	)			(379.1	)			(326.2	)			(1,466.6	)
(Benefit from) provision for income taxes			(19.6	)			20.2				(12.8	)			367.2
Net loss		$	(142.3	)		$	(399.3	)		$	(313.4	)		$	(1,833.8	)
Basic and diluted net loss per common share		$	(0.45	)		$	(1.26	)		$	(0.99	)		$	(5.81	)
Cash dividends declared per common share		$	0.0375			$	0.075			$	0.1125			$	0.375

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES

		Nine Months Ended
		June 30,
		2009				2008
		(In millions)
		(Unaudited)
OPERATING ACTIVITIES
Net loss		$	(313.4	)		$	(1,833.8	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			20.7				42.1
Amortization of debt discounts and fees			5.0				5.3
Stock option compensation expense			10.0				9.6
Income tax benefit from stock option exercises			(0.3	)			(2.7	)
Deferred income taxes			48.1				345.1
(Gain) loss on early retirement of debt			(4.4	)			2.6
Inventory impairments and land option cost write-offs			215.2				1,410.0
Changes in operating assets and liabilities:
Decrease in construction in progress and finished homes			230.6				991.2
Decrease in residential land and lots — developed, under development, and held for development			325.3				518.8
Decrease in earnest money deposits and other assets			49.2				55.7
Decrease in income taxes receivable			551.3				—
Decrease in mortgage loans held for sale			129.4				277.1
Decrease in accounts payable, accrued expenses and other liabilities			(164.7	)			(423.5	)
Net cash provided by operating activities			1,102.0				1,397.5
INVESTING ACTIVITIES
Purchases of property and equipment			(6.2	)			(9.1	)
(Increase) decrease in restricted cash			(60.0	)			2.9
Cash used in investing activities			(66.2	)			(6.2	)
FINANCING ACTIVITIES
Proceeds from notes payable			487.5				204.4
Repayment of notes payable			(875.0	)			(907.8	)
Proceeds from stock associated with certain employee benefit plans			2.0				9.2
Income tax benefit from stock option exercises			0.3				2.7
Cash dividends paid			(35.6	)			(118.2	)
Net cash used in financing activities			(420.8	)			(809.7	)
INCREASE IN CASH AND CASH EQUIVALENTS			615.0				581.6
Cash and cash equivalents at beginning of period			1,387.3				269.6
Cash and cash equivalents at end of period		$	2,002.3			$	851.2

See accompanying notes to consolidated financial statements.

D.R. HORTON, INC. AND SUBSIDIARIES

NOTE A — BASIS OF PRESENTATION

     The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and all of its wholly-owned, majority-owned and controlled subsidiaries (which are referred to as the Company, unless the context otherwise requires), as well as certain variable interest entities required to be consolidated pursuant to Interpretation No. 46, “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51,” as amended (FIN 46R), issued by the Financial Accounting Standards Board (FASB). All significant intercompany accounts, transactions and balances have been eliminated in consolidation. The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The Company has evaluated subsequent events through the time of filing these financial statements with the Securities and Exchange Commission (SEC) on August 5, 2009. In the opinion of management, all adjustments (consisting of normal, recurring accruals and the asset impairment charges, loss reserves and deferred tax asset valuation allowance discussed below) considered necessary for a fair presentation have been included.

     These financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2008. Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.

  Seasonality

     Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three and nine-month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2009.

  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 76 markets and 27 states in the United States at June 30, 2009. The Company designs, builds and sells single-family detached homes on lots it developed and on finished lots purchased ready for home construction. To a lesser extent, the Company also builds and sells attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs. Periodically, the Company sells land and lots. The Company also provides title agency and mortgage financing services, principally to its homebuyers. The Company generally does not retain or service the mortgages that it originates but, rather, seeks to sell the mortgages and related servicing rights to purchasers.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE B — INVENTORY IMPAIRMENTS AND LAND OPTION COST WRITE-OFFS

     The factors hurting demand for new homes that prevailed during fiscal 2008 continued in the first nine months of fiscal 2009. High inventory levels of available homes, elevated cancellation rates, low sales absorption rates and overall weak consumer confidence have persisted. The effects of these factors have been further magnified by continued tight credit conditions in the mortgage markets, high levels of home foreclosures and severe shortages of liquidity in the financial markets. The overall economy has weakened significantly and is now in a recession marked by high unemployment levels and reduced consumer spending. These factors caused the Company’s outlook for the homebuilding industry and the impact on its business to remain cautious.

     At June 30, 2009, when the Company performed its quarterly inventory impairment analysis, the assumptions utilized reflected its cautious outlook for the broader homebuilding industry and the Company’s markets, both of which impact its business. This outlook incorporates the Company’s belief that housing market conditions may continue to deteriorate, and that challenging conditions will persist. Accordingly, the Company’s impairment evaluation as of June 30, 2009 again indicated a significant number of communities with impairment indicators. Communities with a combined carrying value of $1,431.2 million as of June 30, 2009, had indicators of potential impairment and were evaluated for impairment. The analysis of the large majority of these communities assumed that sales prices in future periods will be equal to or lower than current sales order prices in each community or in comparable communities in order to generate an acceptable absorption rate. For a minority of communities that the Company does not intend to develop or operate in current market conditions, slight increases over current sales prices were assumed. While it is difficult to determine a timeframe for a given community in the current market conditions, the remaining lives of these communities were estimated to be in a range from six months to in excess of ten years. Through this evaluation process, it was determined that communities with a carrying value of $257.8 million as of June 30, 2009, the largest portion of which was in the West region, were impaired. As a result, during the three months ended June 30, 2009, impairment charges of $102.9 million were recorded to reduce the carrying value of the impaired communities to their estimated fair value, as compared to $323.2 million in the same period of the prior year. During the nine months ended June 30, 2009 and 2008, impairment charges totaled $203.0 million and $1,383.7 million, respectively. In performing its quarterly inventory impairment analyses during fiscal 2009, the Company utilized a range of discount rates for communities of 14% to 20% which reflects an increase from the range of 12% to 18% it would have used for these communities in fiscal 2008. The increased discount rates reflect the Company’s estimate of the increased level of market risk present in the homebuilding and related mortgage lending industries. The impact of the increase in the discount rates on the current quarter inventory impairment charge was an increase of $4.6 million. In the three months ended June 30, 2009, approximately 89% of the impairment charges were recorded to residential land and lots and land held for development, and approximately 11% of the charges were recorded to construction in progress and finished homes inventory, compared to 79% and 21%, respectively, in the same period of 2008. In the nine months ended June 30, 2009 and 2008, approximately 79% of the impairment charges were recorded to residential land and lots and land held for development, and approximately 21% of the charges were recorded to construction in progress and finished homes inventory.

     The Company’s estimate of undiscounted cash flows from communities analyzed may change and could result in a future need to record impairment charges to adjust the carrying value of these assets to their estimated fair value. There are several factors which could lead to changes in the estimates of undiscounted future cash flows for a given community. The most significant of these include pricing and incentive levels actually realized by the community, the rate at which the homes are sold and the costs incurred to construct the homes. The pricing and incentive levels are often inter-related with sales pace within a community such that a price reduction can be expected to increase the sales pace. Further, both of these factors are heavily influenced by the competitive pressures facing a given community from both new homes and existing homes which may result from foreclosures. If conditions in the broader economy, homebuilding industry or specific markets in which the Company operates worsen beyond current expectations, and as the Company re-evaluates specific community pricing and incentives, construction and development plans, and its overall land sale strategies, it may be required to evaluate additional communities or re-evaluate previously impaired communities for potential impairment. These evaluations may result in additional impairment charges, which could be significantly higher than the current quarter charges.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

     At June 30, 2009, the Company had $26.1 million of land held for sale, consisting of land held for development and land under development that has met the criteria of available for sale in accordance with SFAS No. 144.

     During the three-month periods ended June 30, 2009 and 2008, the Company wrote off $7.9 million and $7.2 million, respectively, of earnest money deposits and pre-acquisition costs related to land option contracts which are not expected to be acquired. During the nine-month periods ended June 30, 2009 and 2008, the Company wrote off $12.2 million and $26.3 million, respectively, of such deposits and costs. Should the current weak homebuilding market conditions persist and the Company is unable to successfully renegotiate certain land purchase contracts, additional earnest money deposits and pre-acquisition costs may be written off.

NOTE C — LAND INVENTORY NOT OWNED

     In the ordinary course of its homebuilding business, the Company enters into land and lot option purchase contracts to procure land or lots for the construction of homes. Under these 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.

     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. 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. The expected gains and losses are primarily determined by the amount of deposit required by the contract, the time period or term of the contract, and by analyzing the volatility in home sales prices as well as development and entitlement risk in each specific market. Based on this evaluation, if the Company is the primary beneficiary of an entity with which the Company has entered into a land or lot option purchase contract, the variable interest entity is consolidated.

     The consolidation of these variable interest entities added $14.6 million in land inventory not owned and minority interests related to entities not owned to the Company’s balance sheet at June 30, 2009. The Company’s obligations related to these land or lot option contracts are guaranteed by cash deposits totaling $1.8 million and promissory notes and surety bonds totaling $0.3 million. Creditors, if any, of these variable interest entities have no recourse against the Company.

     For the variable interest entities which are unconsolidated because the Company is not subject to a majority of the risk of loss or entitled to receive a majority of the entities’ residual returns, the maximum exposure to loss is generally limited to the amounts of the Company’s option deposits. At June 30, 2009, the amount of option deposits totaled $15.8 million and are included in homebuilding earnest money deposits and other assets on the Company’s consolidated balance sheet.

     Additionally, the Company evaluated land and lot option purchase contracts in accordance with SFAS No. 49, “Accounting for Product Financing Arrangements,” and added $8.1 million in land inventory not owned, with a corresponding increase to accrued expenses and other liabilities, to the Company’s balance sheet at June 30, 2009 as a result of this evaluation.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE D — NOTES PAYABLE

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

		June 30,				September 30,
		2009				2008
		(In millions)
Homebuilding:
Unsecured:
5% senior notes due 2009, net		$	—			$	200.0
8% senior notes due 2009, net			—				349.6
4.875% senior notes due 2010, net			143.9				249.6
9.75% senior notes due 2010			70.5				96.8
9.75% senior subordinated notes due 2010, net			15.3				15.3
6% senior notes due 2011, net			235.4				249.6
7.875% senior notes due 2011, net			163.2				199.4
5.375% senior notes due 2012			277.8				300.0
6.875% senior notes due 2013			200.0				200.0
5.875% senior notes due 2013			96.0				100.0
6.125% senior notes due 2014, net			198.4				198.2
2% convertible senior notes due 2014			500.0				—
5.625% senior notes due 2014, net			248.8				248.6
5.25% senior notes due 2015, net			298.5				298.3
5.625% senior notes due 2016, net			298.3				298.1
6.5% senior notes due 2016, net			496.9				499.2
Other secured			37.2				42.2
		$	3,280.2			$	3,544.9
Financial Services:
Mortgage repurchase facility, maturing 2010		$	77.4			$	203.5

     The aggregate fair value of the Company’s senior, convertible senior and senior subordinated notes at June 30, 2009 and September 30, 2008 was $2,949.5 million and $2,978.1 million, respectively. For these notes, the Company determines fair value based on quoted market prices. For other secured notes and balances due under the mortgage repurchase facility, the fair values approximate their carrying amounts due to their short maturity or floating interest rate terms, as applicable.

  Homebuilding:

     The Company voluntarily terminated its unsecured revolving credit facility in May 2009. There were no cash borrowings and $61.0 million of standby letters of credit outstanding on the facility at the time of termination. As a result of the termination, the Company recognized $7.6 million of loss on early retirement of debt related to the write-off of unamortized fees in the three months ended June 30, 2009. There were no penalties incurred in connection with the early termination of the revolving credit facility. Concurrent with the termination, the Company entered into secured letter of credit agreements with the three banks that had issued letters of credit under the revolving credit facility. The effect of these agreements was to remove the outstanding letters of credit from the facility and require the Company to deposit cash, in an amount approximating the balance of letters of credit outstanding, as collateral with the issuing banks. At June 30, 2009, the amount of cash restricted for this purpose totaled $60.6 million and is included in homebuilding restricted cash on the Company’s consolidated balance sheet.

     The revolving credit facility imposed restrictions on the Company’s operations and activities by requiring the Company to maintain certain levels of leverage, tangible net worth and components of inventory. As a result of the termination of the facility, these restrictions are no longer in effect.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

     In May 2009, the Company issued $500 million principal amount of 2% convertible senior notes due 2014, with interest payable semi-annually. The notes, which mature May 15, 2014 subject to earlier conversion or repurchase, represent unsecured obligations of the Company. Holders of the 2% convertible senior notes may convert all or any portion of their notes at their option at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. The initial conversion rate for the notes is 76.5697 shares of the Company’s common stock per $1,000 principal amount of senior notes, equivalent to an initial conversion price of approximately $13.06 per share of the Company’s common stock. The conversion rate is subject to adjustment in certain events but will not be adjusted for accrued interest, including any additional interest. Upon conversion of a 2% senior note, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof at the Company’s election. The Company may not redeem the notes prior to the maturity date. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs is 2.6%.

     On January 15, 2009, the Company repaid the remaining $155.2 million principal amount of its 5% senior notes which were due on that date. On February 1, 2009, the Company repaid the remaining $297.7 million principal amount of its 8% senior notes which were due on that date.

     In November 2008, upon expiration of the previous authorization, the Board of Directors authorized the early repurchase of up to $500 million of the Company’s debt securities. The new authorization is effective from December 1, 2008 to November 30, 2009. At June 30, 2009, $294.6 million of the authorization was remaining.

     During the nine months ended June 30, 2009, primarily through unsolicited transactions, the Company repurchased the following senior notes prior to their maturity dates:

		Principal
		Amount of
		Senior Notes
		Repurchased
		(In millions)
5% senior notes due 2009		$	44.8
8% senior notes due 2009			52.0
4.875% senior notes due 2010			106.0
9.75% senior notes due 2010			26.3
6% senior notes due 2011			14.3
7.875% senior notes due 2011			36.4
5.375% senior notes due 2012			22.2
5.875% senior notes due 2013			4.0
6.5% senior notes due 2016			2.3
		$	308.3

     These senior notes were repurchased for an aggregate purchase price of $295.6 million, plus accrued interest. The repurchases resulted in a gain of $12.0 million, which is net of unamortized discounts and fees written off. This gain was partially offset by the $7.6 million loss related to termination of the revolving credit facility as discussed above, and the resulting net gain of $4.4 million is included in the consolidated statement of operations for the nine months ended June 30, 2009.

     In July 2009, through unsolicited transactions, the Company repurchased $1.0 million principal amount of its 4.875% senior notes due 2010 and $0.5 million principal amount of its 6.875% senior notes due 2013, for an aggregate purchase price of $1.47 million, plus accrued interest.

     The indentures governing the Company’s senior notes and senior subordinated notes impose restrictions on the creation of secured debt and liens. At June 30, 2009, the Company was in compliance with all of the limitations and restrictions that form a part of the public debt obligations.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

   Financial Services:

     The Company’s mortgage subsidiary, DHI Mortgage, entered into a mortgage sale and repurchase agreement (the “mortgage repurchase facility”) on March 28, 2008. The mortgage repurchase facility, which is accounted for as a secured financing, provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties against the transfer of funds by the counterparties, thereby becoming purchased loans. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 120 days in accordance with the terms of the mortgage repurchase facility. On March 5, 2009, through an amendment to the repurchase agreement and transfer of the rights of each of the counterparties to one counterparty, the capacity of the facility was reduced from $275 million to $75 million, with a provision allowing an increase in the capacity to $100 million during the last five business days of a fiscal quarter and the first seven business days of the following fiscal quarter. Additionally, the amendment extended the maturity date of the facility to March 4, 2010.

     As of June 30, 2009, $213.4 million of mortgage loans held for sale were pledged under the repurchase arrangement, with a carrying value of $211.3 million. DHI Mortgage has the option to fund a portion of its repurchase obligations in advance. As a result of advance paydowns totaling $127.5 million, DHI Mortgage had an obligation of $77.4 million outstanding under the mortgage repurchase facility at June 30, 2009 at a 3.8% interest rate.

     The mortgage repurchase facility is not guaranteed by either D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable ratio of debt to tangible net worth and its minimum required liquidity. At June 30, 2009, the mortgage subsidiary was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

NOTE E — HOMEBUILDING INTEREST

     The Company capitalizes homebuilding interest costs to inventory during active development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. Additionally, the Company writes off a portion of the capitalized interest related to communities for which inventory impairments are recorded. Due to the Company’s inventory reduction strategies, slowing or suspending land development in certain communities and limiting the construction of unsold homes, the Company’s inventory under active development and construction was lower than its debt level at June 30, 2009 and 2008. Therefore, a portion of the interest incurred was expensed directly to interest expense as reflected below.

     The following table summarizes the Company’s homebuilding interest costs incurred, capitalized, expensed as interest expense, charged to cost of sales and written off during the three and nine-month periods ended June 30, 2009 and 2008:

		Three Months Ended June 30,								Nine Months Ended June 30,
		2009				2008				2009				2008
						(In millions)
Capitalized interest, beginning of period		$	155.8			$	253.3			$	160.6			$	338.7
Interest incurred			42.8				58.5				149.8				177.9
Interest expensed:
Directly to interest expense			(20.3	)			(11.7	)			(68.9	)			(22.9	)
Amortized to cost of sales			(30.3	)			(44.9	)			(89.1	)			(178.1	)
Written off with inventory impairments			(3.4	)			(30.4	)			(7.8	)			(90.8	)
Capitalized interest, end of period		$	144.6			$	224.8			$	144.6			$	224.8

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE F — WARRANTY COSTS

     The Company typically provides its homebuyers with a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems, a two-year limited warranty on major mechanical systems, and a one-year limited warranty on other construction components. 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.

     During the three and nine months ended June 30, 2009, the Company recorded charges of $4.0 million and $6.0 million, respectively, as increases in liabilities for pre-existing warranties for the repair of approximately 75 homes in its South Florida and Louisiana markets where certain homes it constructed during 2005 through 2007 contain or are suspected to contain allegedly defective drywall manufactured in China (Chinese Drywall) that may be responsible for the accelerated corrosion of certain metals in the home. The Company first learned of this potential issue in its quarter ended March 31, 2009 through customer inquiries. The Company has identified these homes through a review of the supply channel for its homes constructed in these markets and of the warranty claims received in these markets as well as testing of specific homes. The Company is continuing its investigation to determine if there are additional homes with the Chinese Drywall in these markets, which if found, would likely require the Company to further increase its warranty reserve for this matter in the future. As the actual costs incurred to remediate these homes have been minimal through June 30, 2009, the costs accrued to correct these homes are based on the Company’s expectations of future repair costs. If the actual costs to remediate the homes differ from the estimated costs, it may require the Company to revise its warranty estimate for this matter.

     Through investigation of its supply channels in other markets, the Company has not identified any homes suspected of containing the Chinese Drywall outside of its Florida and Louisiana markets at this time. As of August 5, 2009 the Company has not been included as a defendant in any lawsuit pertaining to the Chinese Drywall, although it is possible that it may in the future be subject to such litigation. While the Company will seek reimbursement for these remediation costs from various sources, it has not recorded a receivable for potential recoveries as of June 30, 2009 given the early stage of this matter.

     Changes in the Company’s warranty liability during the three and nine-month periods ended June 30, 2009 and 2008 were as follows:

		Three Months Ended June 30,								Nine Months Ended June 30,
		2009				2008				2009				2008
		(In millions)
Warranty liability, beginning of period		$	67.0			$	98.7			$	83.4			$	116.0
Warranties issued			4.3				6.7				12.2				21.9
Changes in liability for pre-existing warranties			(1.4	)			(4.8	)			(12.9	)			(16.1	)
Settlements made			(5.3	)			(9.2	)			(18.1	)			(30.4	)
Warranty liability, end of period		$	64.6			$	91.4			$	64.6			$	91.4

NOTE G — MORTGAGE LOANS

     To manage the interest rate risk inherent in its mortgage operations, the Company hedges its risk using various derivative instruments, which include forward sales of mortgage-backed securities (MBS), Eurodollar Futures Contracts (EDFC) and put options on both MBS and EDFC. Use of the term “hedging instruments” in the following discussion refers to these securities collectively, or in any combination. The Company does not enter into or hold derivatives for trading or speculative purposes.

  Mortgage Loans Held for Sale

     Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. Newly originated loans that have been closed but not committed to third-party purchasers are hedged to

mitigate the risk of changes in their fair value. Hedged loans are committed to third-party purchasers typically within three days after origination. Effective October 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” for all loans originated on or after October 1, 2008. These mortgage loans held for sale are initially recorded at fair value based on either sale commitments or current market quotes and are adjusted for subsequent changes in fair value until the loan is sold. While the Company’s risk management policies with respect to interest rate risk and fair value changes in mortgage loans held for sale have not changed, the effect of this standard alleviated the complex documentation requirements to account for these instruments as designated fair value accounting hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Additionally, the recognition of net origination costs and fees associated with mortgage loans originated on or after October 1, 2008 are no longer deferred until the time of sale. There were no required cumulative adjustments to retained earnings because the Company chose to continue to account for mortgage loans held for sale originated prior to October 1, 2008 at the lower of cost or market. The implementation of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     At June 30, 2009, mortgage loans held for sale accounted for under SFAS No. 159 had an aggregate fair value of $222.1 million and an aggregate outstanding principal balance of $220.1 million. During the three months ended June 30, 2009 and 2008, the Company had net gains on sales of loans of $12.2 million and $16.9 million, respectively. During the nine months ended June 30, 2009 and 2008, the Company had net gains on sales of loans of $15.5 million and $52.8 million, respectively, which includes the effect of recording recourse expense, as discussed below in “Other Mortgage Loans,” of $24.2 million and $16.0 million, respectively.

     The notional amounts of the hedging instruments used to hedge mortgage loans held for sale vary in relationship to the underlying loan amounts, depending on the movements in the value of each hedging instrument relative to the value of the underlying mortgage loans. The fair value change related to the hedging instruments generally offsets the fair value change in the mortgage loans held for sale, which for the three and nine months ended June 30, 2009 was not significant, and is recognized in current earnings. As of June 30, 2009, the Company had $80.2 million in mortgage loans held for sale not committed to third-party purchasers and the notional amounts of the hedging instruments related to those loans totaled $79.0 million. Prior to October 1, 2008, in accordance with SFAS No. 133, the effectiveness of the fair value hedge in the prior year was monitored and any ineffectiveness, which for the three and nine months ended June 30, 2008 was not significant, was recognized in current earnings.

  Other Mortgage Loans

     Generally, mortgage loans are sold by the Company with limited recourse provisions which include industry-standard representations and warranties, primarily involving a minimum number of payments to be made by the borrower and/or misrepresentation by the borrower. The Company does not retain any other continuing interest related to mortgage loans sold in the secondary market. Other mortgage loans generally consist of loans repurchased due to these limited recourse obligations. Typically, these loans are impaired and often become real estate owned through the foreclosure process.

     Based on historical performance and current housing and credit market conditions, the Company has recorded reserves for estimated losses on other mortgage loans, real estate owned, future loan repurchase obligations due to the limited recourse provisions and losses for mortgage reinsurance activities, all of which are recorded as reductions of financial services revenue. These reserves totaled $39.5 million and $30.5 million at June 30, 2009 and September 30, 2008, respectively, and were comprised as follows. Other mortgage loans, subject to nonrecurring fair value measurement, totaled $46.4 million and $58.6 million at June 30, 2009 and September 30, 2008, respectively, and had corresponding loss reserves of $14.4 million and $20.1 million, respectively. The Company has established loss reserves for real estate owned of $3.5 million and $4.7 million at June 30, 2009 and September 30, 2008, respectively. The Company’s other mortgage loans and real estate owned are included in financial services other assets in the accompanying consolidated balance sheet. Additional loss reserves at June 30, 2009 and September 30, 2008 included liabilities of $21.6 million and $5.7 million, respectively, for expected losses on future loan repurchase obligations due to the limited recourse provisions.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

     Additionally, a subsidiary of the Company reinsured a portion of private mortgage insurance written on loans originated by DHI Mortgage in prior years. At June 30, 2009 and September 30, 2008, reserves for expected future losses under the reinsurance program totaled $16.3 million and $5.8 million, respectively. The mortgage repurchase and reinsurance loss reserves are included in financial services accounts payable and other liabilities in the accompanying consolidated balance sheet. It is possible that future losses may exceed the amount of reserves and, if so, additional charges will be required.

  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 defined credit and underwriting criteria. At June 30, 2009, the Company’s IRLCs totaled $217.3 million which are accounted for as derivative instruments recorded at fair value.

     The Company manages interest rate risk related to its IRLCs through the use of best-efforts whole loan delivery commitments and hedging instruments. These instruments are considered derivatives in an economic hedge and are accounted for at fair value with gains and losses recognized in current earnings. As of June 30, 2009, the Company had approximately $18.2 million of best-efforts whole loan delivery commitments and $267.2 million of hedging instruments related to its IRLCs not yet committed to purchasers.

     At June 30, 2009, the Company had $301.6 million in EDFC options and MBS which were acquired as part of a program to potentially offer homebuyers a below market interest rate on their home financing. These hedging instruments and the related commitments are accounted for at fair value with gains and losses recognized in current earnings. These gains and losses for the three and nine months ended June 30, 2009 and 2008 were not material.

NOTE H — FAIR VALUE MEASUREMENTS

     Effective October 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” for fair value measurements of certain financial instruments. In accordance with FASB Staff Position No. FAS 157-2, the Company will adopt the provisions of SFAS No. 157 that relate to nonfinancial assets and liabilities on October 1, 2009. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This standard establishes a three-level hierarchy for fair value measurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market participants while unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions.

•

Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.

•

Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.

•

Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

     When available, the Company uses quoted market prices in active markets to determine fair value. The Company considers the principal market and nonperformance risk associated with the Company’s counterparties when determining the fair value measurements. Fair value measurements are used for IRLCs, mortgage loans held for sale, other mortgage loans and hedging instruments.

     The value of mortgage loans held for sale includes changes in estimated fair value from the date the loan is closed until the date the loan is sold. The fair value of mortgage loans held for sale is generally calculated by

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics; therefore, they have been classified as a Level 2 valuation. After consideration of nonperformance risk, no additional adjustments have been made by the Company to the fair value measurement of mortgage loans held for sale. Closed mortgage loans are typically sold within 30 days of origination, limiting any nonperformance exposure period. In addition, the Company actively monitors the financial strength of its counterparties and has limited the number of counterparties utilized in loan sale transactions due to the current market volatility in the mortgage and bank environment.

     The hedging instruments utilized by the Company to manage its interest rate risk and hedge the changes in the fair value of mortgage loans held for sale are publicly traded derivatives with fair value measurements based on quoted market prices. Exchange-traded derivatives are considered Level 1 valuations because quoted prices for identical assets are used for fair value measurements. Over-the-counter derivatives, such as MBS, are classified as Level 2 valuations because quoted prices for similar assets are used for fair value measurements. The Company mitigates exposure to nonperformance risk associated with over-the-counter derivatives by limiting the number of counterparties and actively monitoring their financial strength and creditworthiness while requiring them to be well-known institutions with credit ratings equal to or better than AA- or equivalent. Further, the Company’s derivative contracts typically have short-term durations with maturities from one to four months. Accordingly, the Company’s risk of nonperformance relative to its derivative positions is also not significant. Nonperformance risk associated with exchange-traded derivatives is considered minimal as these items are traded on the Chicago Mercantile Exchange. After consideration of nonperformance risk, no additional adjustments have been made to the fair value measurement of hedging instruments.

     The fair values of IRLCs are also calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics; therefore, they have been classified as Level 2 valuations. These valuations do not contain adjustments for expirations as any expired commitments are excluded from the fair value measurement. After consideration of nonperformance risk, no additional adjustments have been made by the Company to the fair value measurements of IRLCs. The Company generally only issues IRLCs for products that meet specific purchaser guidelines. Should any purchaser become insolvent, the Company would not be required to close the transaction based on the terms of the commitment. Since not all IRLCs will become closed loans, the Company adjusts its fair value measurements for the estimated amount of IRLCs that will not close.

     A summary of assets and liabilities at June 30, 2009 measured at fair value on a recurring basis were as follows:

Fair Value

Fair Value at

Hierarchy

Balance Sheet Location

June 30, 2009

(In millions)

Financial Services:

Mortgage Loans Held for Sale (a)

Level 2

Mortgage Loans Held for Sale

$

222.1

Derivatives not Designated as Hedging Instruments under SFAS No. 133 (b):

Interest Rate Lock Commitments

Level 2

Other Assets

$

0.8

Forward Sales of MBS

Level 2

Other Liabilities

$

(0.3

)

EDFC Options

Level 1

Other Liabilities

$

—

Best-Efforts Commitments

Level 2

Other Liabilities

$

(0.6

)

     Additional information regarding the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategies is included in Note G “Mortgage Loans” and in Item 3 “Quantitative and Qualitative Disclosures about Market Risk” of this quarterly report on Form 10-Q.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

     Interest income earned on mortgage loans held for sale is based on contractual interest rates and included in financial services revenues.

     Other mortgage loans are measured at the lower of cost or fair value on a nonrecurring basis and include performing and nonperforming mortgage loans. Other mortgage loans are reported in other assets based on the Company’s assessment of the value of the underlying collateral and are classified as Level 3 valuations.

NOTE I — INCOME TAXES

     The Company’s benefit from income taxes for the three and nine months ended June 30, 2009 was $19.6 million and $12.8 million, respectively. The provision for income taxes for the three and nine months ended June 30, 2008 was $20.2 million and $367.2 million, respectively. The Company’s effective tax rate for the three and nine-month periods ended June 30, 2009 was 12.1% and 3.9%, respectively. The effective tax rate for the three and nine-month periods ended June 30, 2008 was negative 5.3% and negative 25.0%, respectively. The difference in the Company’s effective tax rate for the nine-month periods is primarily the result of recording a $714.3 million valuation allowance on its deferred tax assets at March 31, 2008, of which $385.0 million related to deferred tax assets existing as of the beginning of fiscal year 2008. The benefit from income taxes for the three and nine-month periods ended June 30, 2009 relates primarily to adjustments to the tax provision recorded for fiscal year 2008 resulting from the finalization and filing of the tax return for that year. A portion of the benefit recognized in the current fiscal year periods in the amount of approximately $6.8 million represents an underaccrual of income taxes receivable at September 30, 2008, which had the effect of decreasing income tax expense and increasing net income during the periods. This adjustment is not material to any of the impacted periods.

     At June 30, 2009, the Company had a federal income tax receivable of $124.9 million, relating to a net operating loss carryback from its 2008 year. In December 2008, the Company received a federal income tax refund of $621.7 million with respect to its 2008 year. The Company expects to receive the majority of the $124.9 million receivable in the form of a refund during the fourth quarter of fiscal 2009.

     At June 30, 2009 and September 30, 2008, the Company had net deferred tax assets of $1,233.9 million and $1,174.8 million, respectively, offset by valuation allowances of $1,068.5 million and $961.3 million, respectively. A substantial portion of the remaining net deferred tax asset of $165.4 million at June 30, 2009 is expected to be recovered through the carryback of federal tax losses to be generated in fiscal 2009, primarily through the sale of inventories which have been impaired in previous periods. Federal tax losses realized in fiscal 2009 can be carried back to fiscal 2007 when the Company had taxable income. The remainder of the net deferred tax asset relates to state income tax loss carrybacks. The accounting for deferred taxes is based upon an estimate of future results. Differences between the anticipated and actual outcome of these future tax consequences could have a material impact on the Company’s consolidated results of operations or financial position. The Company’s ability to sell and close an adequate amount of previously impaired homes in fiscal 2009 is a significant assumption required for full recovery of the net deferred tax asset. Changes in existing tax laws also affect actual tax results and the valuation of deferred tax assets over time.

     The total amount of unrecognized tax benefits was $16.0 million and $18.7 million as of June 30, 2009 and September 30, 2008, respectively, which includes interest, penalties, and the tax benefit relating to the deductibility of interest and state income taxes. All tax positions, if recognized, would affect the Company’s effective income tax rate. The Company does not expect the total amount of unrecognized tax benefits to significantly decrease or increase within twelve months of the current reporting date.

     The Company is subject to federal income tax and to income tax in multiple states. The statute of limitations for the Company’s major tax jurisdictions remains open for examination for fiscal years 2004 through 2009. The Company is currently being audited by various states. The IRS concluded its examination of the Company’s tax returns for 2004 and 2005 in February 2009 which resulted in the assessment of $7.5 million of additional federal and state income tax and interest. Also, the Company recorded a reduction of $2.7 million to the amount of unrecognized tax benefits during the second quarter of fiscal 2009 as a result of the conclusion of the audit.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE J — LOSS PER SHARE

     The following table sets forth the numerators and denominators used in the computation of basic and diluted loss per share for the three and nine months ended June 30, 2009 and 2008. In all four periods, all outstanding stock options and convertible senior notes were excluded from the computation because they were antidilutive due to the net loss recorded during each period.

		Three Months Ended June 30,								Nine Months Ended June 30,
		2009				2008				2009				2008
						(In millions)
Numerator:
Net loss		$	(142.3	)		$	(399.3	)		$	(313.4	)		$	(1,833.8	)
Denominator:
Denominator for basic and diluted loss per share— adjusted weighted average common shares			316.9				316.0				316.8				315.5

NOTE K — STOCKHOLDERS’ EQUITY

     The Company had an automatically effective universal shelf registration statement filed with the SEC, registering debt and equity securities which expired in June 2009. Also, at June 30, 2009, 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 2008, upon expiration of the previous authorization, the Board of Directors authorized the repurchase of up to $100 million of the Company’s common stock. The new authorization is effective from December 1, 2008 to November 30, 2009. All of the $100 million authorization was remaining at June 30, 2009.

     During the three months ended June 30, 2009, the Board of Directors approved a quarterly cash dividend of $0.0375 per common share, which was paid on May 27, 2009 to stockholders of record on May 19, 2009. In July 2009, the Board of Directors approved a quarterly cash dividend of $0.0375 per common share, payable on August 28, 2009 to stockholders of record on August 19, 2009. Quarterly cash dividends of $0.075 per common share were declared in the comparable quarters of fiscal 2008.

     On February 9, 2009, stock options were granted to executive officers, certain other officers and employees, and outside directors of the Company by the Compensation Committee of the Board of Directors or the Board of Directors. The recipients of these stock options may purchase approximately 6.1 million shares of the Company’s common stock, at an exercise price of $9.03 per share, the closing market price of the Company’s common stock on the date of grant.

NOTE L — COMMITMENTS AND CONTINGENCIES

     The Company has been named as defendant in various claims, complaints and other legal actions arising in the ordinary course of business, including warranty and construction defect claims on closed homes and claims related to its mortgage activities. The Company has established reserves for such contingencies, based on the expected costs of the self-insured portion of such claims. The Company’s estimates of such reserves are based on the facts and circumstances of individual pending claims and historical data and trends, including costs relative to revenues, home closings and product types, and include 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.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

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

     On June 15, 2007, a putative class action, John R. Yeatman, et al. v. D.R. Horton, Inc., et al., was filed by one of the Company’s customers against it and its affiliated mortgage company subsidiary in the United States District Court for the Southern District of Georgia. The complaint sought certification of a class alleged to include persons who, within the year preceding the filing of the suit, purchased a home from the Company and obtained a mortgage for such purchase from its affiliated mortgage company subsidiary. The complaint alleged that the Company violated Section 8 of the Real Estate Settlement Procedures Act by effectively requiring its homebuyers to use its affiliated mortgage company to finance their home purchases by offering certain discounts and incentives. The action sought damages in an unspecified amount and injunctive relief. On April 23, 2008, the Court ruled on the Company’s motion to dismiss and dismissed this complaint with prejudice. The plaintiffs filed a notice of appeal, which is currently pending.

     On March 24, 2008, a putative class action, James Wilson, et al. v. D.R. Horton, Inc., et al., was filed by five customers of Western Pacific Housing, Inc., one of the Company’s wholly-owned subsidiaries, against the Company, Western Pacific Housing, Inc., and the Company’s affiliated mortgage company subsidiary, in the United States District Court for the Southern District of California. The complaint sought certification of a class alleged to include persons who, within the four years preceding the filing of the suit, purchased a home from the Company, or any of its subsidiaries, and obtained a mortgage for such purchase from the Company’s affiliated mortgage company subsidiary. The complaint alleged that the Company violated Section 1 of the Sherman Antitrust Act and Sections 16720, 17200 and 17500 of the California Business and Professions Code by effectively requiring its homebuyers to apply for a loan through its affiliated mortgage company. In June 2009 the complaint was amended to limit the putative class to California customers only and the claims asserted were limited to alleged violations of the California Business and Professions code. The complaint alleges that the homebuyers were either deceived about loan costs charged by the Company’s affiliated mortgage company or coerced into using its affiliated mortgage company, or both, and that discounts and incentives offered by the Company or its subsidiaries to buyers who obtained financing from its affiliated mortgage company were illusory. The action seeks treble damages in an unspecified amount and injunctive relief. Management believes the claims alleged in this action are without merit and will defend them vigorously. However, as the action is still in its early stages, the Company is unable to express an opinion as to the likelihood of an unfavorable outcome or the amount of damages, if any.

     In the ordinary course of business, the Company enters into land and lot option purchase contracts in order to procure land or lots for the construction of homes. At June 30, 2009, the Company had total deposits of $35.0 million, comprised of cash deposits of $31.9 million, promissory notes of $2.1 million, and letters of credit and surety bonds of $1.0 million, to purchase land and lots with a total remaining purchase price of $726.2 million. Within the land and lot option purchase contracts in force at June 30, 2009, there were a limited number of contracts, representing only $9.9 million of remaining purchase price, subject to specific performance clauses which may require the Company to purchase the land or lots upon the land sellers meeting their obligations.

     Included in the total deposits of $35.0 million were $17.3 million of deposits related to land and lot option purchase contracts for which the Company does not expect to exercise its option to purchase the land or lots, but the contract has not yet been terminated. The remaining purchase price of land and lots subject to those contracts was $148.6 million. Consequently, the deposits relating to these contracts have been written off, resulting in a net deposit balance of $17.7 million at June 30, 2009, which is included in homebuilding earnest money deposits and other assets on the Company’s consolidated balance sheet. The majority of land and lots under contract are currently expected to be purchased within three years, based on the Company’s assumptions as to the extent it will exercise its options to purchase such land and lots.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

     Additionally, in the normal course of its business activities, the Company provides standby letters of credit and surety bonds, issued by third parties, to secure performance under various contracts. At June 30, 2009, outstanding standby letters of credit were $59.3 million, all of which were cash collateralized, and surety bonds were $1.19 billion.

NOTE M — RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” The statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective as of the beginning of an entity’s fiscal year that begins after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, which partially deferred the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. The partial adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows (see Note H). The Company is currently evaluating the impact of adopting the remaining provisions of SFAS No. 157; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” The statement clarifies the accounting for noncontrolling interests and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, including classification as a component of equity. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and earlier adoption is prohibited. The Company is currently evaluating the impact of the adoption of SFAS No. 160; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (SFAS No. 141(R)). The statement replaces SFAS No. 141, “Business Combinations” and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008, and is to be applied prospectively. The Company does not expect the adoption of SFAS No. 141(R) to have a material impact on its consolidated financial position, results of operations or cash flows.

     In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60.” The statement requires that an insurance entity recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS No. 163 also clarifies the application of SFAS No. 60 “Accounting and Reporting by Insurance Enterprises” to financial guarantee insurance contracts and expands disclosure requirements surrounding such contracts. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of SFAS No. 163; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 and early adoption is not permitted. The Company will retrospectively apply the provisions of FSP APB 14-1 as a cumulative effect of a change in accounting principle upon its adoption on October 1, 2009. This will require the Company to record the debt component of its 2% convertible senior notes at its fair value on the date of issuance, assuming no conversion features. The remaining value of the equity component of the 2% senior notes will be recorded as a reduction in the carrying value of the

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

notes and an increase to additional paid-in-capital. The reduction in the carrying value of the notes and the fees related to the notes will be amortized as interest incurred and expensed or capitalized to inventory over the remaining life of the notes. Assuming the provisions of FSP APB 14-1 had been applied at the date of issuance, the amount of the reduction in the carrying value of the notes would have been $140.5 million and the increase in additional paid-in-capital would have been approximately $136.7 million, net of tax.

     In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” The staff position amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to require public entities to provide additional disclosures about transfers of financial assets. It also amends FIN 46(R) to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. This position is effective for financial statements issued for interim periods and fiscal years ending after December 15, 2008. The adoption of this pronouncement, which is related to disclosure only, did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 changes the method for determining whether an other-than-temporary impairment exists for debt securities and the amount of the impairment to be recorded in earnings. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009 and therefore, was effective for the Company this quarter. The adoption of this pronouncement did not impact the Company’s consolidated financial position, results of operations or cash flows.

     In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures About Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 requires fair value disclosures in both interim as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. FSP FAS 107-1 and APB 28-1 is effective for interim and annual periods ending after June 15, 2009 and therefore, was effective for the Company this quarter. The adoption of this pronouncement, which required additional disclosures in this report, did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In April 2009, the FASB issued FSP FAS 157-4, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed” (FSP 157-4). FSP 157-4 provides additional guidance on factors to consider in estimating fair value when there has been a significant decrease in market activity for a financial asset. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009 and therefore, was effective for the Company this quarter. The adoption of FSP 157-4 did not impact the Company’s consolidated financial position, results of operations or cash flows.

     In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” The statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the date that the financial statements are issued or are available to be issued, and requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009, and therefore, was effective for the Company this quarter. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets.” The statement is a revision to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and will require more information about transfers of financial assets, including securitization transactions, and where there is continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS No. 166 is effective at the start of a company’s first fiscal year beginning after November 15, 2009 and early adoption is not permitted. The Company is currently evaluating the impact of the

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

adoption of SFAS No. 166; however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

     In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” The statement is a revision to FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS No. 167 is effective at the start of a company’s first fiscal year beginning after November 15, 2009 and early adoption is not permitted. The Company is currently evaluating the impact the adoption of SFAS No. 167 will have on its consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS No. 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the SFAS No. 168 will not impact the Company’s consolidated financial position, results of operations or cash flows.

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE N — SEGMENT INFORMATION

     The Company’s 32 homebuilding operating divisions and its financial services operation are its operating segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” As reflected in the current year presentation, the homebuilding operating segments are aggregated into six reporting segments and the financial services operating segment is its own reporting segment. Previously, the Company presented seven homebuilding reporting segments, based on its seven operating regions which had been determined to be its operating segments. During the fourth quarter of fiscal 2008, the Company reassessed the level at which the SFAS No. 131 operating segment criteria are met, and as a result, changed its operating segments from the operating regions to the operating divisions. This determination was based on changes to the Company’s management structure and decision-making processes, which have evolved primarily due to the difficult market conditions and the decrease in size of the Company’s operations.

     As a result of the change in operating segments described above, the composition of the Company’s reporting segments was also revised. The California markets, which were previously presented as a separate reporting segment are now included in the West reporting segment. Additionally, the Salt Lake City, Utah market, which was previously included in the Southwest reporting segment, is now included in the West reporting segment. Furthermore, the name of the Northeast reporting segment has been changed to the East reporting segment, although the markets comprising it remain the same.

     Under the revised presentation, the Company’s reportable homebuilding segments are: East, Midwest, Southeast, South Central, Southwest and West. These reporting segments have homebuilding operations located in the following states:

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

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

     Homebuilding is the Company’s core business, generating 99% and 98% of consolidated revenues during the nine months ended June 30, 2009 and 2008, respectively. The Company’s homebuilding segments are primarily engaged in the acquisition and development of land for residential purposes and the construction and sale of residential homes on such land in 27 states and 76 markets in the United States. The homebuilding segments generate most of their revenues from the sale of completed homes, with a lesser amount from the sale of land and lots.

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

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

     The accounting policies of the reporting segments are described throughout Note A in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2008.

		Three Months Ended June 30,								Nine Months Ended June 30,
						Restated								Restated
		2009				2008				2009				2008
		(In millions)
Revenues
Homebuilding revenues:
East		$	84.8			$	135.1			$	241.7			$	447.1
Midwest			76.9				117.2				210.3				403.6
Southeast			146.5				189.0				414.2				625.8
South Central			270.6				345.0				747.5				1,058.0
Southwest			86.8				251.2				307.0				904.4
West			248.5				395.8				669.0				1,326.0
Total homebuilding revenues		$	914.1			$	1,433.3			$	2,589.7			$	4,764.9
Financial services revenues		$	18.8			$	30.9			$	39.1			$	98.8
Consolidated revenues		$	932.9			$	1,464.2			$	2,628.8			$	4,863.7
Inventory Impairments
East		$	9.5			$	19.3			$	15.1			$	128.6
Midwest			18.2				67.5				31.3				93.0
Southeast			19.7				45.5				25.7				243.8
South Central			11.3				1.0				13.6				30.5
Southwest			11.9				29.6				19.6				56.6
West			32.3				160.3				97.7				831.2
Total inventory impairments		$	102.9			$	323.2			$	203.0			$	1,383.7
Income (Loss) Before Income Taxes (1)
Homebuilding income (loss) before income taxes:
East		$	(22.5	)		$	(38.6	)		$	(39.2	)		$	(180.9	)
Midwest			(41.0	)			(74.7	)			(73.8	)			(107.3	)
Southeast			(30.5	)			(62.9	)			(47.9	)			(286.4	)
South Central			(6.1	)			13.6				7.0				6.7
Southwest			(15.6	)			(34.9	)			(24.8	)			(14.1	)
West			(49.0	)			(191.0	)			(134.9	)			(912.8	)
Total homebuilding loss before income taxes		$	(164.7	)		$	(388.5	)		$	(313.6	)		$	(1,494.8	)
Financial services income (loss) before income taxes		$	2.8			$	9.4			$	(12.6	)		$	28.2
Consolidated loss before income taxes		$	(161.9	)		$	(379.1	)		$	(326.2	)		$	(1,466.6	)

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

		June 30,				September 30,
		2009				2008
		(In millions)
Homebuilding Inventories (2):
East		$	558.8			$	594.5
Midwest			401.1				473.8
Southeast			686.3				799.6
South Central			792.7				939.7
Southwest			288.8				423.6
West			973.6				1,258.4
Corporate and unallocated (3)			172.0				193.6
Total homebuilding inventory		$	3,873.3			$	4,683.2

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION

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

Consolidating Balance Sheet
June 30, 2009

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
ASSETS
Cash and cash equivalents		$	1,921.4			$	40.8			$	40.1			$	—			$	2,002.3
Investments in subsidiaries			966.4				—				—				(966.4	)			—
Inventories			1,212.0				2,618.0				43.3				—				3,873.3
Income taxes receivable			124.9				—				—				—				124.9
Restricted cash			61.5				0.5				—				—				62.0
Deferred income taxes, net			52.7				112.7				—				—				165.4
Property and equipment, net			19.9				22.7				19.9				—				62.5
Earnest money deposits and other assets			61.6				97.9				91.0				—				250.5
Mortgage loans held for sale			—				—				222.7				—				222.7
Goodwill			—				15.9				—				—				15.9
Intercompany receivables			1,600.7				—				—				(1,600.7	)			—
Total Assets		$	6,021.1			$	2,908.5			$	417.0			$	(2,567.1	)		$	6,779.5
LIABILITIES & EQUITY
Accounts payable and other liabilities		$	244.4			$	536.4			$	122.5			$	—			$	903.3
Intercompany payables			—				1,560.5				40.2				(1,600.7	)			—
Notes payable			3,279.0				1.2				77.4				—				3,357.6
Total Liabilities			3,523.4				2,098.1				240.1				(1,600.7	)			4,260.9
Minority interests			—				—				20.9				—				20.9
Total Equity			2,497.7				810.4				156.0				(966.4	)			2,497.7
Total Liabilities & Equity		$	6,021.1			$	2,908.5			$	417.0			$	(2,567.1	)		$	6,779.5

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION — (Continued)

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
ASSETS
Cash and cash equivalents		$	1,261.5			$	90.1			$	35.7			$	—			$	1,387.3
Investments in subsidiaries			1,073.4				—				—				(1,073.4	)			—
Inventories			1,443.8				3,177.8				61.6				—				4,683.2
Income taxes receivable			676.2				—				—				—				676.2
Restricted cash			1.2				0.8				—				—				2.0
Deferred income taxes, net			67.2				146.3				—				—				213.5
Property and equipment, net			16.1				29.1				20.7				—				65.9
Earnest money deposits and other assets			89.9				117.4				109.5				(3.3	)			313.5
Mortgage loans held for sale			—				—				352.1				—				352.1
Goodwill			—				15.9				—				—				15.9
Intercompany receivables			2,056.4				—				—				(2,056.4	)			—
Total Assets		$	6,685.7			$	3,577.4			$	579.6			$	(3,133.1	)		$	7,709.6
LIABILITIES & EQUITY
Accounts payable and other liabilities		$	307.9			$	681.7			$	110.1			$	(3.3	)		$	1,096.4
Intercompany payables			—				2,008.1				48.3				(2,056.4	)			—
Notes payable			3,543.5				1.4				203.5				—				3,748.4
Total Liabilities			3,851.4				2,691.2				361.9				(2,059.7	)			4,844.8
Minority interests			—				—				30.5				—				30.5
Total Equity			2,834.3				886.2				187.2				(1,073.4	)			2,834.3
Total Liabilities & Equity		$	6,685.7			$	3,577.4			$	579.6			$	(3,133.1	)		$	7,709.6

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION — (Continued)

Consolidating Statement of Operations
Three Months Ended June 30, 2009

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
Homebuilding:
Revenues		$	222.3			$	686.0			$	5.8			$	—			$	914.1
Cost of sales			241.7				669.5				11.3				—				922.5
Gross profit (loss)			(19.4	)			16.5				(5.5	)			—				(8.4	)
Selling, general and administrative expense			56.4				76.1				1.8				—				134.3
Equity in loss of subsidiaries			63.0				—				—				(63.0	)			—
Interest expense			20.3				—				—				—				20.3
Loss on early retirement of debt			3.9				—				—				—				3.9
Other (income) expense			(1.1	)			(0.2	)			(0.9	)			—				(2.2	)
			(161.9	)			(59.4	)			(6.4	)			63.0				(164.7	)
Financial Services:
Revenues			—				—				18.8				—				18.8
General and administrative expense			—				—				18.1				—				18.1
Interest expense			—				—				0.2				—				0.2
Interest and other (income)			—				—				(2.3	)			—				(2.3	)
			—				—				2.8				—				2.8
Loss before income taxes			(161.9	)			(59.4	)			(3.6	)			63.0				(161.9	)
Benefit from income taxes			(19.6	)			(14.8	)			(0.4	)			15.2				(19.6	)
Net loss		$	(142.3	)		$	(44.6	)		$	(3.2	)		$	47.8			$	(142.3	)

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
June 30, 2009

NOTE O — SUPPLEMENTAL GUARANTOR INFORMATION — (Continued)

Consolidating Statement of Operations
Nine Months Ended June 30, 2009

		D.R.				Guarantor				Non-Guarantor
		Horton, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
										(In millions)
Homebuilding:
Revenues		$	592.5			$	1,982.1			$	15.1			$	—			$	2,589.7
Cost of sales			594.7				1,844.7				19.9				—				2,459.3
Gross profit (loss)			(2.2	)			137.4				(4.8	)			—				130.4
Selling, general and administrative expense			158.5				225.1				4.6				—				388.2
Equity in loss of subsidiaries			106.4				—				—				(106.4	)			—
Interest expense			68.9				—				—				—				68.9
(Gain) on early retirement of debt			(4.4	)			—				—				—				(4.4	)
Other (income) expense			(5.4	)			—				(3.3	)			—				(8.7	)
			(326.2	)			(87.7	)			(6.1	)			106.4				(313.6	)
Financial Services:
Revenues			—				—				39.1				—				39.1
General and administrative expense			—				—				58.5				—				58.5
Interest expense			—				—				1.2				—				1.2
Interest and other (income)			—				—				(8.0	)			—				(8.0	)
			—				—				(12.6	)			—				(12.6	)
Loss before income taxes			(326.2	)			(87.7	)			(18.7	)			106.4				(326.2	)
Benefit from income taxes			(12.8	)			(9.6	)			(0.3	)			9.9				(12.8	)
Net loss		$	(313.4	)		$	(78.1	)		$	(18.4	)		$	96.5			$	(313.4	)