EXHIBIT 99.1
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton,
Inc., with D.R. Horton being the surviving corporation. The total merger
consideration consisted of the issuance of 20,079,532 shares of D.R. Horton
common stock, valued at $30.93 per share (the average closing price of D.R.
Horton common stock for a period of ten trading days from December 4, 2001 to
December 17, 2001); the payment of $168.7 million in cash; the assumption of
$802.2 million of Schuler's debt, $238.2 million of which was paid at closing;
the assumption of trade payables and other liabilities amounting to $209.1
million; and the assumption of $10.8 million of obligations to the Schuler
entities' minority interest holders. The intrinsic value of unvested stock
options issued to Schuler employees was $7.8 million and was recorded as
unearned compensation. The unearned compensation is being amortized over the
remaining vesting period of the stock options. The number of shares included in
the total merger consideration does not reflect the three-for-two stock split,
effected as a 50% stock dividend, paid on April 9, 2002 to stockholders of
record on March 26, 2002.
The merger was treated as a purchase of Schuler by D.R. Horton for
accounting purposes. Under this method, the Schuler assets acquired and
liabilities assumed were recorded on D.R. Horton's balance sheet at their fair
values as of February 21, 2002. Schuler's results of operations from February
22, 2002 to June 30, 2002 were included in D.R. Horton's results of operations
for the nine months ended June 30, 2002.
The following unaudited pro forma combined condensed statements of income
give effect to the merger and reflect the operations of D.R. Horton and Schuler
for the nine months ended June 30, 2002 and the year ended September 30, 2001.
The unaudited pro forma combined condensed statement of income for the nine
months ended June 30, 2002 assumes the merger occurred on October 1, 2001. The
unaudited pro forma combined condensed statement of income for the year ended
September 30, 2001 assumes the merger occurred on October 1, 2000.
The financial information about D.R. Horton and Schuler for the nine months
ended June 30, 2002 has been derived from the D.R. Horton and Schuler unaudited
financial statements contained in the Quarterly Report of D.R. Horton, Inc. on
Form 10-Q filed August 13, 2002 and in the Quarterly Report of Schuler Homes,
Inc. on Form 10-Q filed February 14, 2002, and the Schuler unaudited statement
of income for the period from January 1, 2002 to February 21, 2002. The
historical financial information about D.R. Horton and Schuler for the year
ended September 30, 2001 has been derived from the D.R. Horton and Schuler (and
its predecessor) audited and unaudited financial statements. The unaudited pro
forma combined condensed statements of income should be read in conjunction with
the accompanying notes and the historical consolidated financial statements of
D.R. Horton and Schuler.
The unaudited pro forma combined condensed statements of income have been
included for comparative purposes only. As further discussed in the accompanying
notes, the unaudited pro forma combined condensed statements of income do not
purport to show what the operating results would have been if the merger had
been consummated as of the dates indicated and should not be construed as
representative of future operating results.
1
D.R. HORTON, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Nine Months Ended June 30, 2002
Pre-acquisition Pro Forma
D.R. Horton Schuler Adjustments Combined
----------- ------- ----------- --------
(In thousands, except per share data)
Homebuilding:
Revenues $4,490,783 $ 575,002 $ - $5,065,785
Cost of sales 3,643,838 451,952 182 B(1) 4,095,972
---------- --------- ---------- ----------
Gross profit 846,945 123,050 (182) 969,813
Selling, general & administrative expense 444,931 69,996 785 B(3) 515,120
(592)B(4)
Interest expense 5,224 960 6,184
Other expense (income) 3,988 (1,560) - 2,428
---------- --------- ---------- ----------
392,802 53,654 (375) 446,081
---------- --------- ---------- ----------
Financial Services:
Revenues 77,651 - - 77,651
Selling, general & administrative expense 48,261 - - 48,261
Interest expense 3,490 - - 3,490
Other (income) (10,576) - - (10,576)
---------- --------- ---------- ----------
36,476 - - 36,476
---------- --------- ---------- ----------
Income before income taxes 429,278 53,654 (375) 482,557
Income taxes 160,979 21,126 (140)B(5) 181,965
---------- --------- ---------- ----------
Net income $ 268,299 $ 32,528 $ (235) $ 300,592
========== ========= ========== ==========
Net income per common share:
Basic $ 2.06 N/A $ - $ 2.01
Diluted $ 1.94 N/A - $ 1.91
========== ========= ========== ==========
Cash dividends per common share $ 0.17 N/A - C $ 0.17
========== ========= ========== ==========
Weighted average number of common shares oustanding:
Basic 130,174 N/A 19,123 D 149,297
Diluted 139,263 N/A 19,288 158,551
========== ========= ========== ==========
2
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Year Ended September 30, 2001
Combined Pro
Forma Pro Forma
D.R. Horton Schuler (E) Adjustments Combined
----------- ----------- ----------- --------
(In thousands, except per share data)
Homebuilding:
Revenues $4,383,552 $1,540,818 $ - $5,924,370
Cost of sales 3,527,142 1,207,165 1,294 B(1) 4,760,833
25,232 B(2)
---------- ---------- -------- ----------
Gross profit 856,410 333,653 (26,526) 1,163,537
Selling, general & administrative expense 432,013 159,450 2,847 B(3) 592,095
(1,500) B(4)
(715) B(6)
Interest expense 8,809 6,856 302 B(1) 15,967
Other expense (income) 34,747 13,985 - 48,732
---------- ---------- -------- ----------
380,841 153,362 (27,460) 506,743
---------- ---------- -------- ----------
Financial Services:
Revenues 71,962 - - 71,962
Selling, general & administrative expense 47,387 - - 47,387
Interest expense 5,288 - - 5,288
Other (income) (7,669) - - (7,669)
---------- ---------- -------- ----------
26,956 - - 26,956
---------- ---------- -------- ----------
Income before income taxes and cumulative
effect of change in accounting principle 407,797 153,362 (27,460) 533,699
Income taxes 152,924 61,204 (10,407) B(5) 203,721
---------- ---------- -------- ----------
Income before cumulative effect of change in
in accounting principle $ 254,873 $ 92,158 $(17,053) $ 329,978
========== ========= ======== ==========
Income before cumulative effect of change
in accounting principle per common share:
Basic $ 2.24 N/A - $ 2.30
Diluted $ 2.21 N/A - $ 2.26
========== ========= ======== ==========
Cash dividends per common share $ 0.19 N/A - C $ 0.19
========== ========= ======== ==========
Weighted average number of common Shares oustanding:
Basic 113,515 N/A 30,119 D 143,634
Diluted 115,430 N/A 30,284 D 145,714
========== ========= ======== ==========
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D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF INCOME
Note A. Basis of Presentation
The unaudited pro forma combined condensed statements of income reflect the
combined results of operations of D.R. Horton and Schuler for the nine months
ended June 30, 2002, assuming that the merger had taken place on October 1,
2001, and for the year ended September 30, 2001, assuming that the merger had
taken place on October 1, 2000.
Under accounting principles generally accepted in the United States, the
merger of Schuler into D.R. Horton was accounted for under the purchase method
of accounting. Accordingly, the purchase price was allocated to the Schuler
assets acquired and liabilities assumed based on their respective fair values,
with the excess allocated to goodwill.
On October 1, 2001, D.R. Horton adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." In accordance
with SFAS No. 142, goodwill is no longer amortized but is subject to periodic
review for impairment, and as such, no pro forma adjustment for amortization of
the goodwill resulting from the merger is presented in the unaudited pro forma
combined condensed statements of income. Other identifiable intangibles are
insignificant.
In March 2002, the Company's Board of Directors declared a three-for-two
stock split (effected as a 50% stock dividend), payable on April 9, 2002 to
common stockholders of record on March 26, 2002. All D. R. Horton share amounts
presented have been restated to reflect the effects of the three-for-two stock
split.
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D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF INCOME - (Continued)
Note B. Pro Forma Adjustments
The following adjustments are included in the unaudited pro forma combined
condensed statements of income for the nine months ended June 30, 2002, and for
the year ended September 30, 2001.
(1) Represents the pro forma nine-month and twelve-month impact of
additional interest costs assumed to have been incurred to finance the cash
portion of the merger consideration and other merger costs, at a 3.5% marginal
interest rate, which approximates D.R. Horton's current floating rate on its
revolving line of credit. Most of such assumed additional interest costs were
assumed to have been capitalized in inventory and a portion thereof subsequently
amortized to cost of sales. Those assumed additional interest costs that were
not capitalized in inventory were expensed.
(2) Represents the pro forma effect on results of operations related to the
recording of the Schuler inventory acquired at its fair value on D.R. Horton's
balance sheet as of October 1, 2000.
(3) Represents the effect of the issuance of options to purchase
approximately 791,000 (split adjusted) shares of D.R. Horton common stock to
Schuler employees to replace outstanding Schuler stock options. The fair value
of the D.R. Horton stock options issued was $10.4 million and was recorded as
additional capital. The intrinsic value of the unvested options issued was $7.8
million and was recorded as unearned compensation. The unearned compensation is
being amortized over the remaining vesting period of the stock options. The
estimated incremental compensation expense related thereto for the nine months
and twelve months following the respective assumed dates of the merger is
$785,000 and $2,847,000, respectively.
(4) Represents the estimated savings in compensation expense that would
have occurred during the nine months and twelve months following the respective
assumed dates of the merger, related to D.R. Horton employment agreements with
two members of Schuler management, as described in the Joint Proxy
Statement/Prospectus of D.R. Horton and Schuler, dated January 17, 2002, filed
with the Securities and Exchange Commission.
(5) Represents the net effect on income tax expense of the pro forma
adjustments, calculated using the pro forma combined incremental income tax rate
of 37.5% for the nine months ended June 30, 2002, and 37.9% for the year ended
September 30, 2001.
(6) Represents the elimination of the goodwill amortization expense
included in the Combined Pro Forma Schuler statement of income for the year
ended September 30, 2001, as all of Schuler's prior goodwill balances were
eliminated in the merger with D.R. Horton.
Note C. Dividends
The pro forma combined cash dividends per common share are not necessarily
indicative of dividends to be paid to holders of D.R. Horton common stock in
future periods. Future dividends will be determined by the D.R. Horton board of
directors based on the earnings and financial condition of D.R. Horton and its
subsidiaries, as well as other factors.
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D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME - (Continued)
Note D. Pro Forma Weighted Average Number of Shares and Net Income Per Share
The pro forma combined basic net income per share for the nine months ended
June 30, 2002 and for the year ended September 30, 2001 is based on the weighted
average number of shares of D.R. Horton common stock outstanding for the nine
months ended June 30, 2002 and the year ended September 30, 2001, assuming the
issuance of 30,119,298 (split adjusted) shares of D.R. Horton common stock on
October 1, 2001 for the nine months ending June 30, 2002, and on October 1,
2000, for the year ended September 30, 2001.
The pro forma combined diluted net income per share for the nine months
ended June 30, 2002 and the year ended September 30, 2001 is based on the
weighted average number of shares of D.R. Horton common stock outstanding during
the nine months ended June 30, 2002 and the year ended September 30, 2001,
adjusted for the effects of dilutive securities outstanding, plus the 30,119,298
(split adjusted) shares of D.R. Horton common stock issued in the merger and the
dilutive effect of D.R. Horton stock options issued in the merger. Options to
purchase approximately 791,000 (split adjusted) shares of D.R. Horton common
stock were issued in the merger, which resulted in an incremental dilutive
effect of 165,000 (split adjusted) shares for the nine months ended June 30,
2002 and for the year ended September 30, 2001.
Note E. Combined Pro Forma Schuler
Schuler was formed in April 2001 when Schuler Residential combined with
Western Pacific Housing. Schuler Residential is the predecessor of Schuler.
Therefore, the Schuler statement of income for the year ended September 30, 2001
is presented on a pro forma combined basis to include the combined operations of
Schuler, Schuler Residential and Western Pacific for the year ended September
30, 2001 assuming that the combination had taken place on October 1, 2000.
Following are the historical statements of income of Schuler, Schuler
Residential and Western Pacific and the pro forma adjustments which comprise the
combined pro forma Schuler statement of income for the year ended September 30,
2001.
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D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF INCOME - (Continued)
Six Months
Ended Year Ended
September 30, September 30,
Six Months Ended March 31, 2001 2001 2001
----------------------------------------------------------------------------------------------
Pro Forma Pro Forma
Schuler Pro Forma Combined Combined
Residential Western Pacific Adjustments Schuler Schuler Schuler
----------------------------------------------------------------------------------------------
(In thousands, except per share data)
Revenues ............................ $ 298,807 $ 543,190 $ - $ 841,997 $ 698,821 $ 1,540,818
Cost of sales ....................... 226,305 424,088 - 650,393 556,772 1,207,165
------------ ------------- ------------ ------------ ----------- --------------
Gross profit ........................ 72,502 119,102 - 191,604 142,049 333,653
Selling, general &
administrative expense ............ 35,417 48,943 (4,207)(a) 80,153 79,297 159,450
Interest expense .................... 3,316 - - 3,316 3,540 6,856
Other expense ....................... 704 14,003 - 14,707 (722) 13,985
------------ ------------- ------------ ------------ ----------- --------------
Income before income
taxes ............................. 33,065 56,156 4,207 93,428 59,934 153,362
Income taxes ........................ 12,785 - 24,580 (b) 37,365 23,839 61,204
------------ ------------- ------------ ------------ ----------- --------------
Net income .......................... $ 20,280 $ 56,156 $ (20,373) $ 56,063 $ 36,095 $ 92,158
============ ============= ============ ============ =========== ==============
Net income per common share:
Basic ......................... $ 1.01 N/A - $ 1.39 $ 0.89 $ 2.28
Diluted ....................... $ 0.93 N/A - $ 1.33 $ 0.86 $ 2.18
============ ============= ============ ============ =========== ==============
Cash dividends per
common share ...................... - N/A - - - -
============ ============= ============ ============ =========== ==============
Weighted average number of
common shares outstanding:
Basic ......................... 20,114 N/A 20,166 (c) 40,280 40,517 40,399
Diluted ....................... 22,972 N/A 20,166 (c) 43,138 43,209 43,174
============ ============= ============ ============ =========== ==============
(a) Represents the exclusion of a non-cash charge for compensation expense
recognized in conjunction with equity interests granted to Western Pacific
executives related to the combination with Schuler Residential. This charge is a
nonrecurring item and is not indicative of future operating results.
(b) Represents the pro forma effect on the combined provision for income taxes
resulting from the operations of Western Pacific and Schuler Residential for the
six months ended March 31, 2001 and the other pro forma adjustment, based on an
effective tax rate of 40.7%. Prior to its combination with Schuler Residential,
Western Pacific was operated through a series of partnerships and was not
subject to taxation at the entity level.
(c) Represents the issuance of 20,166,000 Schuler shares of Class B common stock
in the Western Pacific/Schuler Residential combination, assuming such shares
were outstanding beginning on October 1, 2000.
7