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, and for the year ended September 30, 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. The unaudited pro forma combined condensed statement of income
for the year ended September 30, 2001 assumes the merger occurred on October 1,
2000.
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 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 financial statements should be read in conjunction with the
accompanying notes and the historical consolidated financial statements of D.R.
Horton and Schuler.
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.
1
D.R. HORTON, INC.
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 65,628 345,162B(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
-- -- 265,583B(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>
2
D.R. HORTON, INC.
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>
3
D.R. HORTON, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
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(3) 4,735,601
----------- ----------- ----------- -----------
Gross profit .......................................... 856,410 333,653 (1,294) 1,188,769
Selling, general & administrative expense ............. 432,013 159,450 2,847 B(2) 592,095
(1,500) B(4)
(715) B(6)
Interest expense ...................................... 8,809 6,856 302 B(3) 15,967
Other expense ......................................... 34,747 13,985 -- 48,732
----------- ----------- ----------- -----------
380,841 153,362 (2,228) 531,975
----------- ----------- ----------- -----------
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 (2,228) 558,931
Income taxes .......................................... 152,924 61,204 (844) B(5) 213,284
----------- ----------- ----------- -----------
Income before cumulative effect of change in
accounting principle .................................. $ 254,873 $ 92,158 $ (1,384) $ 345,647
=========== =========== =========== ===========
Income before cumulative effect of change in
accounting principle per common share:
Basic ......................................... $ 3.37 $ 2.28 -- $ 3.61
Diluted ....................................... $ 3.31 2.18 -- $ 3.56
=========== =========== =========== ===========
Cash dividends per common share ....................... $ 0.19 -- -- D $ 0.19
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic ......................................... 75,677 40,399 20,083 C 95,760
Diluted ....................................... 76,953 43,174 20,204 C 97,157
=========== =========== =========== ===========
</Table>
4
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS 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 statements of income reflect
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, 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 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.
5
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND 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 balance sheet and statements of income as of and for the
three months ended December 31, 2001, and for the year ended September 30, 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>
6
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS 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 three months and twelve months
following the respective assumed dates of the merger is $835,000 and $2,847,000,
respectively.
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 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.
(4) Represents the estimated savings in compensation expense that would
have occurred during the three 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 effective income tax rate
of 38% for the three months ended December 31, 2001, 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 will be
eliminated in the merger with D.R. Horton.
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>
7
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AND UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME - (CONTINUED)
The pro forma combined basic net income per share for the three months
ended December 31, 2001 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 three months ended December 31, 2001 and the year ended September 30,
2001, assuming the issuance of approximately 20,083,000 shares of D.R. Horton
common stock on October 1, 2001 for the three months ending December 31, 2001,
and on October 1, 2000, for the year ended September 30, 2001.
The pro forma combined diluted net income per share for the three months
ended December 31, 2001 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 three months ended December 31, 2001, and year ended September 30, 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 for the three months ended December 31, 2001, and 121,000 shares
for the year ended September 30, 2001.
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.
NOTE E. COMBINED PRO FORMA SCHULER
Schuler was formed in April 2001 when Schuler Residential combined with
Western Pacific. 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.
8
D.R. HORTON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AND UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF INCOME - (CONTINUED)
<Table>
<Caption>
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
=========== =============== =========== ========= ============= =============
</Table>
(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.
9