EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On February 21, 2002, Schuler Homes, Inc. merged with and into D.R.
Horton, Inc., with D.R. Horton as the surviving corporation. The following
unaudited pro forma combined condensed financial statements give effect to the
merger. The merger will be accounted for as a purchase of Schuler by D.R.
Horton. The unaudited pro forma combined condensed financial statements reflect
the financial position of D.R. Horton and Schuler as of December 31, 2001, and
the operations of D.R. Horton and Schuler for the three months ended December
31, 2001. The unaudited pro forma combined condensed balance sheet assumes the
merger occurred on the date of the balance sheet. The unaudited pro forma
combined condensed statement of income for the three months ended December 31,
2001 assumes the merger occurred on October 1, 2001.
This financial information about D.R. Horton and Schuler as of and for
the three months ended December 31, 2001 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 February 14, 2002 and in the Quarterly
Report of Schuler Homes, Inc. on Form 10-Q filed February 14, 2002. The
unaudited pro forma combined condensed financial statements should be read in
conjunction with the accompanying notes, the historical consolidated financial
statements of D.R. Horton and Schuler and the Joint Proxy Statement/Prospectus
of D.R. Horton and Schuler, dated January 17, 2002, filed with the Securities
and Exchange Commission, including the unaudited pro forma combined condensed
balance sheet and statement of income of D.R. Horton, Inc. and Schuler Homes,
Inc. as of September 30, 2001 and for the year ended September 30, 2001 included
therein.
The total merger consideration payable consisted of approximately
20,083,000 shares of D.R. Horton common stock and $168,668,000 in cash. For
purchase accounting purposes, the measurement date of the transaction is deemed
to be December 11, 2001, and the D.R. Horton shares issued in the merger are
valued at $30.93 per share, which represents the average closing price for a
period of 10 trading days beginning December 4, 2001 and ending December 17,
2001.
The unaudited pro forma combined condensed financial statements have
been included for comparative purposes only. As further discussed in the
accompanying notes, the unaudited pro forma combined condensed financial
statements do not purport to show what the financial position or operating
results would have been if the merger had been consummated as of the dates
indicated and should not be construed as representative of a future financial
position or operating results.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2001
<Table>
<Caption>
PRO FORMA
D.R. HORTON SCHULER ADJUSTMENTS COMBINED
------------ ------------ ------------- ------------
(IN THOUSANDS)
ASSETS
HOMEBUILDING:
Cash ........................................................ $ 22,076 $ 11,526 $ -- $ 33,602
Inventories ................................................. 2,980,084 1,032,119 -- 4,012,203
Earnest money deposits and other assets ..................... 263,019 123,758 -- 386,777
Excess of cost over net assets acquired (net) ............... 136,765 65,628 345,162 B(1) 547,555
------------ ------------ ------------- ------------
3,401,944 1,233,031 345,162 4,980,137
------------ ------------ ------------- ------------
FINANCIAL SERVICES:
Cash ........................................................ 9,904 -- -- 9,904
Mortgage loans held for sale ................................ 233,858 -- -- 233,858
Other assets ................................................ 15,100 -- -- 15,100
------------ ------------ ------------- ------------
258,862 -- -- 258,862
------------ ------------ ------------- ------------
$ 3,660,806 $ 1,233,031 $ 345,162 $ 5,238,999
============ ============ ============= ============
LIABILITIES
HOMEBUILDING:
Accounts payable and other liabilities ...................... $ 465,617 $ 175,356 $ -- $ 640,973
Notes payable ............................................... 1,699,899 594,952 (81,915)B(1) 2,478,519
-- -- 265,583 B(1) --
------------ ------------ ------------- ------------
2,165,516 770,308 183,668 3,119,492
------------ ------------ ------------- ------------
FINANCIAL SERVICES:
Notes payable ............................................... 154,786 -- -- 154,786
Other liabilities ........................................... 7,849 -- -- 7,849
------------ ------------ ------------- ------------
162,635 -- -- 162,635
------------ ------------ ------------- ------------
2,328,151 770,308 183,668 3,282,127
------------ ------------ ------------- ------------
Minority interests .......................................... 9,319 -- -- 9,319
------------ ------------ ------------- ------------
STOCKHOLDERS' EQUITY
Preferred stock ............................................. -- -- -- --
Common stock ................................................ 771 -- 201 B(1) 972
Class A common stock ........................................ -- 22 (22)B(1) --
Class B common stock ........................................ -- 19 (19)B(1) --
Unearned compensation ....................................... -- -- (7,512)B(2) (7,512)
Additional capital .......................................... 708,346 255,858 (255,858)B(1) 1,339,874
620,966 B(1)
10,562 B(2)
Retained earnings ........................................... 614,219 206,824 (206,824)B(1) 614,219
------------ ------------ ------------- ------------
1,323,336 462,723 161,494 1,947,553
------------ ------------ ------------- ------------
$ 3,660,806 $ 1,233,031 $ 345,162 $ 5,238,999
============ ============ ============= ============
</Table>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
<Table>
<Caption>
PRO FORMA
D.R. HORTON SCHULER ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HOMEBUILDING:
Revenues ................................... $ 1,134,968 $ 415,371 $ -- $ 1,550,339
Cost of sales .............................. 906,805 325,644 364 B(3) 1,232,813
------------ ------------ ------------ ------------
Gross profit ............................... 228,163 89,727 (364) 317,526
Selling, general & administrative expense .. 118,417 46,368 835 B(2) 165,245
(375) B(4)
Interest expense ........................... 1,196 521 -- 1,717
Other expense (income) ..................... 2,572 (1,909) -- 663
------------ ------------ ------------ ------------
105,978 44,747 (824) 149,901
------------ ------------ ------------ ------------
FINANCIAL SERVICES:
Revenues ................................... 24,922 -- -- 24,922
Selling, general & administrative expense .. 15,123 -- -- 15,123
Interest expense ........................... 1,336 -- -- 1,336
Other (income) ............................. (3,044) -- -- (3,044)
------------ ------------ ------------ ------------
11,507 -- -- 11,507
------------ ------------ ------------ ------------
Income before income taxes ................. 117,485 44,747 (824) 161,408
Income taxes ............................... 44,057 17,610 (313) B(5) 61,354
------------ ------------ ------------ ------------
Net income ................................. $ 73,428 $ 27,137 $ (511) $ 100,054
============ ============ ============ ============
Net income per common share:
Basic .............................. $ 0.95 $ 0.67 -- $ 1.03
Diluted ............................ $ 0.94 $ 0.66 -- $ 1.02
============ ============ ============ ============
Cash dividends per common share ............ $ 0.05 -- -- D $ 0.05
============ ============ ============ ============
Weighted average number of common shares
outstanding:
Basic .............................. 76,961 40,790 20,083 C 97,044
Diluted ............................ 78,337 41,325 20,186 C 98,523
============ ============ ============ ============
</Table>
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME
NOTE A. BASIS OF PRESENTATION
The unaudited pro forma combined condensed balance sheet reflects the
combined financial position of D.R. Horton and Schuler as of December 31, 2001,
on a pro forma basis assuming that the merger had taken place on December 31,
2001. The unaudited pro forma combined condensed statement of income reflects
the combined results of operations of D.R. Horton and Schuler for the three
months ended December 31, 2001, assuming that the merger had taken place on
October 1, 2001.
Under accounting principles generally accepted in the United States,
the merger of Schuler into D.R. Horton will be accounted for under the purchase
method of accounting. Accordingly, the purchase price will be allocated to the
Schuler assets acquired and liabilities assumed based on their respective fair
values, with the excess to be allocated to goodwill. The valuations and other
studies required to determine the fair value of the Schuler assets acquired and
liabilities assumed have not been performed and accordingly, the related
adjustments reflected in the unaudited pro forma combined condensed financial
statements are preliminary and subject to further revisions and adjustments. The
adjustments are described in Note B.
The adjustment to reflect the preliminary purchase price allocation,
described in Note B (1), uses the book value of the Schuler assets acquired and
liabilities assumed. This is a preliminary assumption, which will be adjusted
based on the valuation analysis to be performed after the completion of the
merger. Changes to the purchase price allocation as a result of such analysis
will be recorded as corresponding increases or decreases in 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 will no longer be amortized but will be
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 balance sheet and statement of income.
Other identifiable intangibles are assumed to be insignificant.
Under the terms of Schuler's senior and senior subordinated notes, of
which $500 million principal amount is outstanding at December 31, 2001, the
merger represents a "change of control" that provides the holders of such notes
the right to require D.R. Horton to repurchase the Schuler notes at a purchase
price in cash equal to 101% of the principal amount of the notes. D.R. Horton
does not anticipate it will be required to repurchase a significant amount of
the Schuler notes. Accordingly, no adjustment is included in the unaudited pro
forma combined condensed financial statements to reflect the repurchase of any
of the Schuler notes.
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME - (CONTINUED)
NOTE B. PRO FORMA ADJUSTMENTS
The following adjustments are included in the unaudited pro forma
combined condensed balance sheet and statement of income as of and for the three
months ended December 31, 2001.
(1) Represents the preliminary purchase allocation, which reflects the
cash and equity merger consideration paid by D.R. Horton, the elimination of the
December 31, 2001 Schuler equity balance, and the recording of goodwill
resulting from the transaction, as summarized below:
<Table>
<Caption>
IN
THOUSANDS,
EXCEPT
PER SHARE
AMOUNTS
----------
Cash Consideration ...................................................... $ 168,668
---------
Equity Consideration:
Total number of D.R. Horton shares issued ............................. 20,083
D.R. Horton per share value at purchase accounting measurement date ... x$ 30.93
---------
Total equity consideration ............................................ 621,167
---------
Total cash and equity merger consideration .............................. 789,835
Estimated transaction costs related to merger ........................... 15,000
D.R. Horton stock options to be issued in connection with the merger (see
Note B(2) below)..................................................... 3,050
---------
Total merger costs ...................................................... 807,885
Less Schuler equity balance at December 31, 2001 ........................ (462,723)
---------
Increase in excess of purchase price over net assets acquired (goodwill) 345,162
Schuler goodwill balance at December 31, 2001 ........................... 65,628
---------
Total goodwill resulting from the merger ................................ $ 410,790
=========
Uses and Sources of Cash for Merger Consideration and Merger Costs:
Cash consideration for Schuler equity ................................... $ 168,668
Pay off December 31, 2001 balance of Schuler revolving credit facility .. 81,915
Merger costs ............................................................ 15,000
---------
Total uses of cash ...................................................... $ 265,583
=========
Additional draws on D.R. Horton revolving credit facility ............... $ 265,583
=========
</Table>
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME - (CONTINUED)
(2) Represents the estimated effect of the issuance of options to
purchase approximately 533,000 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 to be issued ($10,562,000) was estimated using the
Black-Scholes option pricing model and is recorded as additional capital, the
intrinsic value related to unvested options to be issued ($7,512,000) is
recorded as unearned compensation and the remainder ($3,050,000) is recorded as
a merger cost, which increases goodwill. The unearned compensation will be
amortized over the remaining vesting period of the stock options. The estimated
compensation expense related thereto for the first three months following the
merger is $835,000.
The following assumptions were used in the Black-Scholes model to determine the
fair value of the D.R. Horton stock options to be issued in the merger:
<Table>
Risk-free interest rate: ....................................................4.1%
Expected volatility of D.R. Horton Stock: ..................................49.5%
Weighted average expected dividend yield: ...................................1.4%
Weighted average expected life (in years): ..................................4.4
</Table>
(3) Represents the pro forma three-month impact of additional interest
costs assumed to be 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.
(4) Represents the estimated savings in compensation expense that would
have occurred during the first three months following 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 effective income tax rate
of 38%.
NOTE C. PRO FORMA NUMBER OF SHARES OUTSTANDING AND NET INCOME PER SHARE
The following table provides the pro forma number of shares issued in
connection with the merger, and the pro forma number of shares of D.R. Horton
common stock outstanding after the merger:
<Table>
<Caption>
SHARES IN
THOUSANDS
Number of D.R. Horton common stock shares issued in the merger.......................... 20,083
Number of shares of D.R. Horton common stock outstanding as of December 31, 2001........ 77,093
------
Number of shares of D.R. Horton common stock outstanding after the merger............... 97,176
======
</Table>
The pro forma combined basic net income per share for the three months
ended December 31, 2001 is based on the weighted average number of shares of
D.R. Horton common stock outstanding for the three months ended December 31,
2001, assuming the issuance of approximately 20,083,000 shares of D.R. Horton
common stock on October 1, 2001.
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME - (CONTINUED)
The pro forma combined diluted net income per share for the three months
ended December 31, 2001 is based on the weighted average number of shares of
D.R. Horton common stock outstanding during the three months ended December 31,
2001, adjusted for the effects of dilutive securities outstanding, plus the
approximately 20,083,000 shares of D.R. Horton common stock issued in the merger
and the dilutive effect of D.R. Horton stock options to be issued in the merger.
Options to purchase approximately 533,000 shares of D.R. Horton common stock
will be issued in the merger, which results in an incremental dilutive effect of
103,000 shares.
NOTE D. 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.