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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended December 31, 2001

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

For the transition period from to

Commission file number 0-32461

SCHULER HOMES, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or jurisdiction of incorporation or organization)		99-0351900 (I.R.S. employer identification no.)
400 Continental Boulevard, Suite 100 El Segundo, California (Address of principal executive offices)		90245 (Zip code)

(310) 648-7200
(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 /x/ NO / /

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

Class of Common Stock		Outstanding at January 31, 2002

Class A Common Stock, $.001 par value		22,366,022
Class B Common Stock, $.001 par value		18,754,727

SCHULER HOMES, INC.
INDEX

PART I.	FINANCIAL INFORMATION
	Background Information about the Company	3
Item 1.	Financial Statements
	Independent Accountants' Review Report	5
	Consolidated Balance Sheets—December 31, 2001 and March 31, 2001	6
	Consolidated Statements of Income—Three and nine months ended December 31, 2001 and 2000	7
	Consolidated Statement of Stockholders' Equity—Nine months ended December 31, 2001	8
	Consolidated Statements of Cash Flows—Nine months ended December 31, 2001 and 2000	9
	Notes to Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Items 2 through 5	Not applicable
Item 6.	Exhibits and Reports on Form 8-K	27
SIGNATURES		28

PART I—FINANCIAL INFORMATION

Background Information about the Company

We design, build, and market single-family attached and detached homes to entry-level and first-time move-up buyers and, to a lesser extent, second-time move-up buyers in major suburban markets in California, Colorado, Hawaii, Washington, Oregon and Arizona. We were formed in order to effect the combination of the operations of Western Pacific and Schuler Residential, Inc. (formerly Schuler Homes, Inc.). On April 3, 2001, the operations of the two entities were combined. On June 21, 2001, we effectuated the upstream merger of Schuler Residential into ourselves.

Proposed Merger with D.R. Horton, Inc.

On October 22, 2001, we entered into a definitive agreement under which we would merge with D.R. Horton, Inc. (NYSE: DHI), through a cash and stock transaction and the assumption of debt. Under the terms of the transaction, each Schuler Homes stockholder shall have the right to elect to receive a combination of cash and stock, or all cash or all stock. However, all cash and all stock elections will be subject to proration in order to limit the total amount of cash consideration to be paid by D.R. Horton to an aggregate of $4.09 multiplied by total Schuler Homes shares outstanding. The merger is expected to close on February 21, 2002, subject to the satisfaction of all closing conditions, including approval of the stockholders of each of Schuler Homes and D.R. Horton at the stockholder meetings of each company, which are scheduled for February 21, 2002.

This summary description of the terms and conditions of the proposed merger with D.R. Horton, Inc. is qualified in its entirety by reference to the Agreement and Plan of Merger which has been filed as an exhibit to the Joint Proxy Statement/Prospectus of Schuler Homes, Inc. and D.R. Horton, Inc., which is included within the D.R. Horton, Inc. Amendment No. 3 to Form S-4 filed with the SEC on January 16, 2002.

Schuler Residential

Our co-Chairman, President and CEO, James K. Schuler, originally began business in the Hawaii market in 1973. In 1992, the former Schuler Homes, Inc. completed its initial public offering and in late 1996 adopted a strategic expansion plan designed to geographically diversify its operations outside of the Hawaii market. As part of its diversification strategy, the California, Colorado, Washington, Oregon and Arizona housing markets were entered either by acquiring existing homebuilders or starting new homebuilding divisions.

Western Pacific

Western Pacific was formed in December 1993 by Eugene S. Rosenfeld, our co-Chairman, with the objective of taking advantage of the anticipated recovery of the residential real estate market in California. Mr. Rosenfeld began his career in homebuilding in 1963 at Kaufman & Broad, Inc., later serving as its CEO from 1968 to 1976. Western Pacific began operations in Orange County and the Inland Empire in 1993 and expanded its presence in southern California by entering San Diego County in 1995, Los Angeles County in 1996 and Ventura County in 1997. In order to achieve geographic diversification outside Southern California, Western Pacific began operations in northern California in 1996 in the South Bay area of San Francisco and entered San Jose in 1997.

2001 Notes Offering

On June 28, 2001, we consummated the issuance and sale of our 9³/8% Senior Notes due 2009, in the aggregate principal amount of $250 million and of our 10¹/2% Senior Subordinated Notes due 2011, in the aggregate principal amount of $150 million (collectively, the "Notes"). The proceeds of the

offering of the Notes were used to repay a substantial portion of our and our subsidiaries' outstanding indebtedness, other than our 9% Senior Notes due 2008.

New Banking Revolving Credit Facility

In conjunction with the offerings of the Notes, on June 28, 2001, we also closed a $225 million senior unsecured revolving credit facility with Bank of America, N.A., Fleet National Bank, First Hawaiian Bank and California Bank & Trust. In August 2001, as a result of further syndication efforts, we increased the amount committed under the facility to $360 million.

Convertible Subordinated Debentures

During the quarter ended September 30, 2001, we redeemed all of our 6¹/2% convertible subordinated debentures which were then outstanding in the aggregate principal amount of $57.5 million. We paid a redemption premium of $546,000 and recorded a charge against income of $330,000, representing unamortized offering costs.

Financial Information included in this Form 10-Q

The financial information in this Form 10-Q for the three and nine months ended December 31, 2001 is consolidated as a result of the April 3, 2001 merger. However, the comparison to prior periods is shown in two different ways. In "Item 1. Financial Statements", the prior period presented includes the predecessor only, as required by accounting principles generally accepted in the United States. In "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", the prior period is shown on a pro forma combined basis to give effect to the merger as if it had occurred on April 1, 2000. Accordingly, the discussion of the results of operations in Item 2 is based on a comparison of the results for the three and nine months ended December 31, 2001 to pro forma combined results for the three and nine months ended December 31, 2000.

Item 1. Financial Statements

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Stockholders
Schuler Homes, Inc.

We have reviewed the accompanying interim consolidated balance sheet of Schuler Homes, Inc. as of December 31, 2001, and the related consolidated statements of income for the three and nine months ended December 31, 2001 and 2000, the consolidated statement of stockholders' equity for the nine months ended December 31, 2001, and the consolidated statements of cash flows for the nine months ended December 31, 2001 and 2000. These financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Schuler Residential, Inc. (formerly Schuler Homes, Inc.) as of March 31, 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated May 16, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of March 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

ERNST & YOUNG LLP

Los Angeles, California
January 23, 2002

SCHULER HOMES, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

		December 31, 2001		March 31, 2001 (predecessor only)
		(unaudited)
ASSETS
Cash and cash equivalents		$	11,526	$	5,366
Real estate inventories			1,032,119		526,842
Investments in unconsolidated joint ventures			29,300		9,724
Deferred income taxes			9,253		17,389
Goodwill			65,628		9,431
Other assets			85,205		27,139

Total assets		$	1,233,031	$	595,891

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities		$	175,356	$	70,211
Notes payable			594,952		294,047

Total liabilities			770,308		364,258
Commitments and contingencies
Stockholders' equity:
	Common stock, $.01 par value; 30,000,000 shares authorized; 21,466,130 shares issued at March 31, 2001		—		215
	Class A common stock, $.001 par value; 120,000,000 shares authorized; 22,322,362 shares issued and outstanding at December 31, 2001		22		—
	Class B common stock, $.001 par value; 50,000,000 shares authorized; 18,754,727 shares issued and outstanding at December 31, 2001		19		—
	Additional paid-in capital		255,858		96,543
	Retained earnings		206,824		143,592
	Treasury stock, at cost; 1,299,700 shares at March 31, 2001		—		(8,717	)

Total stockholders' equity			462,723		231,633

Total liabilities and stockholders' equity		$	1,233,031	$	595,891

See accompanying notes.

SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)

		Three months ended December 31,						Nine months ended December 31,
		2001			2000			2001			2000
					(predecessor only)						(predecessor only)
Revenues		$	415,371		$	153,493		$	1,114,192		$	487,040
Cost of sales			(325,644	)		(117,207	)		(882,416	)		(371,147	)

	Gross profit		89,727			36,286			231,776			115,893
Non-cash charge for impairment of long-lived assets			—			—			—			(36,398	)
Selling, general and administrative expenses			(46,368	)		(17,349	)		(125,665	)		(55,619	)

	Operating income		43,359			18,937			106,111			23,876
Interest and other income (expense), net			1,348			(1,987	)		(654	)		(6,441	)

	Income before minority interests in loss (income) of consolidated joint ventures and provision for income taxes		44,707			16,950			105,457			17,435
Minority interests in loss (income) of consolidated joint ventures			40			(372	)		(776	)		(999	)

	Income before provision for income taxes		44,747			16,578			104,681			16,436
Provision for income taxes			(17,610	)		(6,455	)		(41,449	)		(6,175	)

	Net income	$	27,137		$	10,123		$	63,232		$	10,261

Net income per share:
Basic		$	0.67		$	0.50		$	1.56		$	0.51

Diluted		$	0.66		$	0.46		$	1.51		$	0.51

See accompanying notes.

SCHULER HOMES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(dollars in thousands)

(unaudited)

						Class A Common Stock			Class B Common Stock
	Common Stock																	Treasury Stock
	Common Stock													Additional Paid-in Capital		Retained Earnings		Treasury Stock
	Shares		Amount			Shares	Amount		Shares		Amoun t			Additional Paid-in Capital		Retained Earnings		Shares		Amount			Total
Balance at March 31, 2001 (predecessor only)	20,166,430		$	215		—	$	—	—		$	—		$	96,543	$	143,592	(1,299,700	)	($	8,717	)	$	231,633
Merger with Western Pacific	(20,166,430	)		(215	)	20,166,430		21	20,166,430			20			154,402		—	1,299,700			8,717			162,945
Conversion of Class B shares to Class A shares	—			—		1,411,703		1	(1,411,703	)		(1	)		—		—	—			—			—
Issuance of shares from exercise of stock options	—			—		717,721		—	—			—			4,733		—	—			—			4,733
Issuance of shares from employee stock purchase plan	—			—		26,508		—	—			—			180		—	—			—			180
Net income	—			—		—		—	—			—			—		63,232	—			—			63,232

Balance at December 31, 2001	—		$	—		22,322,362	$	22	18,754,727		$	19		$	255,858	$	206,824	—		$	—			462,723

See accompanying notes.

SCHULER HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

				Nine months ended December 31,
				2001			2000
							(predecessor only)
Operating activities:
	Net income			$	63,232		$	10,261
	Adjustments to reconcile net income to net cash used in operating activities:
		Depreciation and amortization expense			13,372			4,957
		Income distribution received from unconsolidated joint ventures in excess of income recognized			3,761			1,476
		Change in principal balance of notes receivable			490			748
		Forgiveness of note receivable			—			921
		Minority interests in income of consolidated joint ventures			776			999
		Non-cash charge for impairment of long-lived assets			—			36,398
	Changes in assets and liabilities, net of effects of purchase of Western Pacific:
		Increase in real estate inventories			(196,327	)		(68,281	)
		Increase in deferred income taxes			(623	)		(13,805	)
		Increase in other assets			(35,547	)		(12,893	)
		Increase in accounts payable and accrued liabilities			15,588			233

			Net cash used in operating activities		(135,278	)		(38,986	)
Investing activities:
Cash acquired in purchase of Western Pacific, net of acquisition costs paid					41,554			—
Advances to unconsolidated joint ventures					(4,036	)		(2,078	)
Repayments of advances to unconsolidated joint ventures					1,776			1,976
Investments in unconsolidated joint ventures					(3,329	)		(2,777	)
Capital distributions from unconsolidated joint ventures					6,031			603
Purchase of furniture, fixtures, and equipment					(854	)		(1,572	)
Repayment of advances to affiliates					320			351

			Net cash provided by (used in) investing activities		41,462			(3,497	)
Financing activities:
Proceeds from bank borrowings					823,800			238,697
Principal payments on bank borrowings					(994,403	)		(194,691	)
Principal payments on convertible debt					(57,500	)		—
Proceeds from issuance of senior and senior subordinated notes, net of offering costs					391,200			—
Net decrease in discount on issuance of senior notes					121			120
Proceeds from notes payables to others					42,709			—
Principal payments on notes payables to others					(92,208	)		(2,910	)
Proceeds from participating debt					317			—
Principal payments on participating debt					(10,627	)		—
Contributions by minority partners in consolidated joint ventures					1,768			—
Distributions to minority partners in consolidated joint ventures					(10,114	)		—
Proceeds from issuance of common stock under Employee Stock Purchase Plan					180			118
Proceeds from issuance of common stock from exercise of stock options					4,733			92

			Net cash provided by financing activities		99,976			41,426

Increase (decrease) in cash and cash equivalents					6,160			(1,057	)
Cash and cash equivalents at beginning of period					5,366			4,737

Cash and cash equivalents at end of period				$	11,526		$	3,680

See accompanying notes.

SCHULER HOMES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands, except per share data)

1. General

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

These interim financial statements should be read in conjunction with the financial statements of Schuler Residential, Inc. (previously Schuler Homes, Inc.) and Western Pacific contained in the Company's March 31, 2001 annual report on Form 10-K.

The Company has experienced, and expects to continue to experience, significant variability in quarterly sales and net income. The results of any interim period are not necessarily indicative of the results that can be expected for the entire year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain amounts in the prior period's financial statements have been reclassified to conform with the financial statement presentations in the current period.

In June 2001, the Financial Accounting Standards Board issued Statements No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company has early-adopted the new rules on accounting for goodwill and other intangible assets beginning April 1, 2001. As a result, the Company has allocated its goodwill to its single homebuilding reporting unit and performed the required goodwill impairment test. During the nine months ended December 31, 2001, the Company has not recognized any impairment losses related to its goodwill. Application of the nonamortization provisions of the Statement has resulted in a reduction in amortization expense of approximately $1,374 and $4,122, including amortization of the goodwill result from the Western Pacific merger, for the three and nine months ended December 31, 2001 respectively compared to the results had the Statement not been adopted. The following summarizes

the pro forma impact of the nonamortization approach for the three and nine months ended December 31, 2000 as if the Statement was adopted on April 1, 2000:

		Three months ended December 31, 2000		Nine months ended December 31, 2000
Net income, as previously reported		$	10,123	$	10,261
Amortization of goodwill, net of tax (excluding impairment charge of $482 in nine months ended December 31, 2000)			96		293

Net income, as adjusted		$	10,219	$	10,554

Net income per share, as adjusted
	Basic	$	0.51	$	0.52

	Diluted	$	0.47	$	0.52

Additionally, the Company has separately identified the following intangible asset which is reflected in other assets:

		Gross amount			Accumulated amortization			Net amount
Non-compete agreement		$	5,000		$	(1,250	)	$	3,750

At December 31, 2001, the remaining estimated useful life of the non-compete agreement was 15 years.

For the three and nine months ended December 31, 2001, amortization expense related to the intangible asset totaled $62 and $186, respectively.

The future estimated amortization expense for the intangible asset for the years ended March 31 is as follows:

2002	$	63
2003		250
2004		250
2005		250
2006		250
Thereafter		2,687

	$	3,750

2. Merger with Western Pacific

On September 12, 2000, Schuler Residential, Inc. (previously Schuler Homes, Inc., "Schuler Residential") and the owners of Western Pacific Housing ("Western Pacific") entered into an agreement and plan of merger in which the parties agreed to combine their separate businesses. Schuler Homes, Inc., a Delaware corporation (previously Schuler Holdings, Inc., the "Company") was formed on October 12, 2000. The Company was formed to own the businesses of Schuler Residential

and under the merger, which occurred on April 2, 2001, the Schuler Residential stockholders received one share of Class A common stock of the Company for each share of Schuler Residential common stock they held. As a result of the merger, Schuler Residential became a wholly-owned subsidiary of the Company and the Company changed its name to Schuler Homes, Inc. In connection with the merger, the Company acquired all of the ownership interests in Western Pacific, effectively combining the operations of Schuler Residential and Western Pacific. The Company issued to the owners of Western Pacific and to one of its lenders an aggregate number of shares of the Company's Class B common stock equal to the number of shares of the Company's Class A common stock issued to Schuler Residential stockholders as a result of the merger. On June 21, 2001, Schuler Residential merged into the Company.

As a result of the transactions described above, the historical results of Western Pacific are not reflected in those of the Company prior to April 3, 2001. As such, the accompanying consolidated financial statements reflect the historical results of Schuler Residential (the predecessor entity) as of March 31, 2001 and for the three and nine months ended December 31, 2000 and the historical results of the Company (including the combined businesses of Schuler Residential and Western Pacific) as of December 31, 2001 and for the three and nine months ended December 31, 2001. See Note 9 for pro forma condensed combined financial data for the three and nine months ended December 31, 2000 giving effect to the transactions described above as if they had occurred on April 1, 2000.

The merger of Schuler Residential with the Company is accounted for on a historical cost basis, with the historical results of Schuler Residential prior to the merger presented as those of the Company. The contribution of Western Pacific to the Company is treated as a "purchase" by the Company of Western Pacific for accounting purposes. Under this method, the Western Pacific assets acquired and liabilities assumed were recorded on the Company's balance sheet at their fair market value as of April 3, 2001 based on the following:

(in thousands, except per share data)

Shares of Class B common stock		20,166
Fair market value per share	$	8.08

Purchase price of Western Pacific		162,945
Acquisition costs		7,630
Purchase of minority interests		9,000

Total purchase price and acquisition costs		179,575
Less Western Pacific historical equity		(138,370	)
Adjustment to reduce historical cost of Western Pacific other assets to fair value		3,691
Deferred income tax liability		8,500

Excess of purchase price over net assets acquired (goodwill)	$	53,396

The actual number of shares of Class B common stock issued in connection with the merger equaled the number of shares of Schuler Residential common stock outstanding at the consummation of the merger. The estimated fair market value per share of the Class B common stock reflected a

nominal discount to the average market price of the Schuler Residential common stock for several days before and after the announcement of the merger on September 12, 2000. The nominal discount is based on the different terms of the Class A and Class B common stock, as well as the trading restrictions on the Class B common stock.

In connection with the merger with Western Pacific, the Company purchased minority interests for $9,000, which is payable as follows: $2,500 upon completion of the merger (paid in April 2001), $2,000 on the one-year anniversary of the completion of the merger, and a note for $4,500 that matures four years after the completion of the merger and that bears interest at 7%. The note payable can be offset against a related note receivable in other assets and, as a result, the Company has a net liability of $2,000, which is reflected in accounts payable and accrued liabilities at December 31, 2001.

The deferred income tax liability is related to the income tax effect of timing differences created as a result of the contribution to the Company of the ownership interests in Western Pacific that were previously held in limited partnerships and limited liability companies.

3. Real Estate Inventories

The purchase price for certain of the land parcels purchased by the Company during the nine months ended December 31, 2001 and 2000 included notes payable to land sellers in the aggregate amount of $10,729 and $7,607, respectively.

Information regarding interest and amortized debt expense are as follows:

	For the three months ended December 31,				For the nine months ended December 31,
	2001		2000		2001		2000
			(Predecessor only)				(Predecessor only)
Amount incurred	$	14,042	$	5,809	$	43,881	$	16,229
Amount capitalized	$	13,521	$	4,237	$	39,821	$	11,678
Amount expensed, not capitalized	$	521	$	1,572	$	4,060	$	4,551
Previously capitalized amount charged to cost of sales	$	13,303	$	3,855	$	37,904	$	12,852
Capitalized amount in real estate inventories at end of period	$	45,306	$	16,006	$	45,306	$	16,006
Interest paid	$	6,043	$	6,531	$	23,956	$	16,066

4. Notes payable

Notes payable consists of the following at December 31, 2001:

Revolving credit facility	$	81,915
9% senior notes due 2008		98,991
9³/8% senior notes due 2009		250,000
10¹/2% senior subordinated notes due 2011		150,000
Notes payable to others		14,046

	$	594,952

On June 28, 2001, the Company obtained a new senior unsecured revolving credit facility from a consortium of banks in the amount of $225,000 (the "Revolving Credit Facility") for general corporate and working capital purposes. In August 2001, as a result of further syndication efforts, the amount committed under the facility was increased to $360,000. Up to $50,000 of the Revolving Credit Facility may be used for letters of credit. Amounts available under the Revolving Credit Facility are subject to certain borrowing base limitations based upon, among other things, the amount of certain outstanding debt and the amount of the Company's eligible inventory, multiplied by advance rates determined by reference to the stage of development of each item of eligible inventory.

The Company may select an interest rate applicable to the borrowings under the Revolving Credit Facility based on either LIBOR, for a one, two, three or six-month term, or the prime rate. Subject to the Company's then-effective leverage ratio, as defined, the interest rate may vary from LIBOR plus 1.75% to 2.50% or the prime rate plus 0% to 0.50%.

The Revolving Credit Facility is guaranteed by certain of our wholly-owned subsidiaries. It has a three-year term, extendible out to a full three-year term on each anniversary of the closing date at the banks' discretion. Under the terms of the Revolving Credit Facility, the Company is required to meet certain covenants and financial tests on an ongoing basis. As of December 31, 2001, the Company met such covenants and financial tests.

At December 31, 2001, there were $81.9 million outstanding borrowings under the Revolving Credit Facility. At that date, the Company's maximum limit for borrowings and additional financial letters of credit was $330.5 million pursuant to the borrowing base limit.

On June 28, 2001, the Company consummated the issuance and sale of its 9³/8% Senior Notes due 2009, in the aggregate principal amount of $250,000, and of its 10¹/2% Senior Subordinated Notes due 2011, in the aggregate principal amount of $150,000 (collectively, the "Notes"). In connection with the issuance and sale of the Notes, the Company entered into (i) a Purchase Agreement with the Company's subsidiaries, and with UBS Warburg LLC, Banc of America Securities LLC, Fleet Securities, Inc. and Salomon Smith Barney, Inc. (collectively, the "Initial Purchasers") providing for the purchase of the Notes by the Initial Purchasers; (ii) Registration Rights Agreements with the Company's subsidiaries and the Initial Purchasers, pursuant to which the Company agreed to file a registration statement within 90 days after June 28, 2001 with the Securities and Exchange Commission with respect to the offer and sale of $400,000 in aggregate principal amount of notes (the "Exchange Notes") to be issued and offered in exchange for the Notes in an exchange offer, as well as to register the Notes pursuant to one or more shelf registrations under certain circumstances, all at the Company's

expense; and (iii) Indentures with U.S. Bank Trust National Association, as Trustee, pursuant to which the Notes and the Exchange Notes will be governed. The Company received net proceeds from the offering of approximately $391,200. The Company repaid a substantial portion of its and its subsidiaries' outstanding indebtedness, other than the 9% Senior Notes due 2008, with the proceeds of the offering of the Notes. The offering costs are amortized over the term of the Notes using the effective interest method. In September, 2001, the Company filed a Form S-4 Registration Statement with the U.S. Securities and Exchange Commission to register the Exchange Notes.

During the quarter ended September 30, 2001, the Company redeemed the entire outstanding principal amount of its
6¹/2% convertible subordinated debentures due 2003. In connection with the redemption, the Company paid a redemption premium of $546, which is reflected in interest and other income (expense) on the statement of operations, in addition to a charge against income of $330, representing unamortized offering costs.

5. Commitments and Contingencies

Commitments and contingencies consist of those normal and usual to real estate developers and include such items as land purchase contracts, subdivision improvement agreements and guarantees, bond guarantees and warranties to homebuyers. In addition, the Company has continuing litigation matters incurred in the ordinary course of business and records the liability for those contingencies when such amounts can be estimated and are considered to be material to the results of operations. Management believes that the disposition of the various matters will not have a material effect on the consolidated financial position or operations of the Company.

6. Income Taxes

During the nine months ended December 31, 2001 and 2000, the Company made income tax payments, net of refunds, of $36,295 and $25,609, respectively.

7. Net Income Per Share

Basic net income per share for the three and nine months ended December 31, 2001 were computed using the weighted average number of common shares outstanding during the periods of 40,790,342 and 40,608,130, respectively. Basic net income per share for the three and nine months ended December 31, 2000 were computed using the weighted average number of common shares outstanding of 20,131,249 and 20,113,543, respectively.

Diluted net income per share for the three and nine months ended December 31, 2001 and the three months ended December 31, 2000, were computed by adding to net income the interest expense of $0, $898 and $600, respectively (net of related income taxes), which is applicable to convertible subordinated debentures, and dividing by 41,324,937, 42,581,268 and 23,080,686, respectively, which represents the weighted average number of shares assuming conversion of all convertible subordinated debentures and the exercise under the treasury stock method of all in-the-money stock options outstanding. The computation of diluted net income per share for the nine months ended

December 31, 2000 resulted in amounts of greater than the basic net income per share. Accordingly, the basic net income per share for these periods is also presented as the diluted net income per share.

During the nine months ended December 31, 2001, the Company redeemed its 6¹/2% convertible subordinated debentures, decreasing the related interest added to net income and the number of incremental shares assuming conversion of the debentures for the calculation of diluted earnings per share.

8. Related Party Transactions

During the quarter ended June 30, 2001, the Company loaned $321 to certain senior members of management for the payment of taxes in connection with their admittance as partners to a limited partner of one of the Company's stockholders. The loans are secured by the individuals' partnership interests in the related entity and bear interest at 10.0% per annum. Initial payment of one-third of accrued interest and principal are due May 15, 2002, and remaining accrued interest and principal are due May 15, 2003.

9. Unaudited Pro Forma Condensed Combined Financial Data

The following unaudited pro forma condensed combined financial data for the three and nine months ended December 31, 2000 are derived from the historical financial statements of Schuler Residential and Western Pacific. The unaudited pro forma condensed combined financial data give effect to the merger with Western Pacific as if it had occurred at April 1, 2000. Pro forma adjustments to historical financial data include adjustments that we deem appropriate, reflecting items of recurring significance and which are factually supported based on currently available information. Pro forma adjustments typically include an adjustment to include provision for income taxes.

The unaudited pro forma condensed combined financial data are presented for illustrative purposes only and do not purport to represent our results of operations for the three-month and nine-month periods ended December 31, 2000 that would actually have occurred had the merger been completed on April 1, 2000, nor do they represent a forecast of our results of operations for any future period. The data below does not include amortization of goodwill resulting from the merger with Western Pacific.

	Three months ended December 31, 2000		Nine months ended December 31, 2000
Revenues	$	353,585	$	853,092
Net income	$	21,083	$	25,546

Net income per share:
Basic	$	0.52	$	0.64

Diluted	$	0.50	$	0.64

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We design, build and market single-family attached and detached homes to entry-level and first-time move-up buyers and, to a lesser extent, second-time move-up buyers in major suburban markets in Northern California, Southern California, Colorado, Hawaii, Washington, Oregon and Arizona.

We were formed in connection with the April 3, 2001 merger in which the businesses of Western Pacific Housing and Schuler Residential, Inc. (formerly Schuler Homes, Inc.) were combined. As our combined operating history began at that time, comparisons to our financial condition and results of operations at and for the quarter and nine months ended December 31, 2000 described in this section are based upon the pro forma combined historical operations of Schuler Residential and Western Pacific at and for the quarter and nine months ended December 31, 2000.

We recorded revenues of $415.4 million, primarily from the closings of 1,495 new homes during the three months ended December 31, 2001, a 17.5% increase as compared to pro forma combined revenues of $353.6 million, primarily from the pro forma combined closings of 1,188 new homes during the three months ended December 31, 2000. Net income during the three months ended December 31, 2001 totaled $27.1 million, or diluted earnings of $0.66 per share, a 28.7% increase from pro forma combined net income of $21.1 million, or $0.50 diluted earnings per share during the same three months in 2000.

During the nine months ended December 31, 2001, we recorded revenues of $1.1 billion, primarily from the closings of 3,967 new homes, a 30.6% increase as compared to pro forma combined revenues of $853.1 million, primarily from the pro forma combined closings of 3,303 new homes during the nine months ended December 31, 2000. Net income during the nine months ended December 31, 2001 totaled $63.2 million, or diluted earnings of $1.51 per share, a 32.4% increase from pro forma combined net income of $47.7 million, before non-cash impairment charges of $22.2 million net of tax provision, or $1.15 diluted earnings per share during the same nine months in 2000.

At December 31, 2001, we had 1,692 sales in backlog with an aggregate dollar value of $524.0 million, 90 active projects in the sales stage, and control of over 29,500 lots, approximately 49% of which are under option.

Results of Operations

The financial statements included herein in "PART I. Item 1. Financial Statements" include comparisons to predecessor-only financial statements at and for the quarter and nine months ended December 31, 2000, as required by accounting principles generally accepted in the United States. In order to provide a more meaningful comparison, included below is statements of income data, which includes a comparison to unaudited proforma combined statement of income data that give effect to the merger as if it had occurred on April 1, 2000.

While this pro forma information is based on adjustments deemed appropriate and which are factually supported based on currently available data, the pro forma information may not be indicative of what actual results would have been, nor does this information purport to present financial results for future periods.

Statement Of Income Data

		Three months ended December 31,						Nine months ended December 31,
		2001			2000			2001			2000(1)
		(Unaudited) (in 000s, except per share data)						(Unaudited) (in 000s, except per share data)
Revenues		$	415,371		$	353,585		$	1,114,192		$	853,092
Cost of sales			(325,644	)		(275,089	)		(882,416	)		(665,073	)

	Gross profit		89,727			78,496			231,776			188,019
Selling, general and administrative expenses			(46,368	)		(34,838	)		(125,665	)		(93,796	)

	Operating income		43,359			43,658			106,111			94,223
Interest and other income (expense), net			1,348			(2,622	)		(654	)		(7,219	)

	Income before minority interests in loss (income) of consolidated joint ventures and provision for income taxes		44,707			41,036			105,457			87,004
Minority interests in loss (income) of consolidated joint ventures			40			(5,971	)		(776	)		(8,388	)

	Income before provision for income taxes		44,747			35,065			104,681			78,616
Provision for income taxes (2)			(17,610	)		(13,982	)		(41,449	)		(30,872	)

	Net income	$	27,137		$	21,083		$	63,232		$	47,744


Net income per share:
Basic (3)		$	0.67		$	0.52		$	1.56		$	1.19

Diluted (4)		$	0.66		$	0.50		$	1.51		$	1.15

(1): Results are shown on a pro forma combined basis to include Western Pacific Housing, which merged with Schuler Homes on April 3, 2001. In addition, results for the nine months ended December 31, 2000 exclude a non-cash charge for impairment of long-lived assets of $36,398.
(2): Includes the pro forma effect on combined provision for income taxes resulting from the operations of Western Pacific and Schuler Residential, based on an effective tax rate for Western Pacific of 40.72% based on federal and California tax rates. Prior to the merger, Western Pacific was operated through a series of partnerships and therefore was not subject to taxation at the entity level.

(3): Basic net income per share was computed using weighted average number of shares of 40,790 and 40,608 for the three and nine month periods ended December 31, 2001, respectively and 40,262 and 40,227 for the three month and nine month periods ended December 31, 2000, respectively.
(4): Diluted net income per share for the three and nine month periods ended December 31, 2001 was computed by adding to net income the interest expense applicable to convertible subordinated debentures of $0 and $898 and using the weighted average number of shares outstanding of 41,325 and 42,581, respectively. Diluted net income per share for the three and six month periods ended December 31 2000 was computed by adding to net income the interest expense applicable to convertible subordinated debentures of $600 and $1,799 and using the weighted average number of shares outstanding of 43,212 and 42,966, respectively. The convertible debentures were redeemed by the Company in August, 2001.

Our number of new home orders, homes closed and backlog (including joint ventures) are set forth below for the periods indicated.

		Three Months Ended December 31,		Nine Months Ended December 31,
New Home Orders:		2001	2000 (1)	2001	2000 (1)
Southern California		445	283	1,361	1,034
Northern California		301	340	913	1,016
Colorado		256	332	981	989
Hawaii		76	97	281	289
Washington		56	55	215	214
Oregon		28	42	96	192
Arizona		23	3	87	3

	Total	1,185	1,152	3,934	3,737

		Three Months Ended December 31,		Nine Months Ended December 31,
Home Closings:		2001	2000 (1)	2001	2000 (1)
Southern California		419	344	1,121	786
Northern California		379	346	972	687
Colorado		461	268	1,150	1,097
Hawaii		90	95	271	265
Washington		76	89	245	281
Oregon		39	46	149	187
Arizona		31	—	59	—

	Total	1,495	1,188	3,967	3,303

		At December 31,
		2001			2000(1)
Backlog (2)		Homes	Sales Value		Homes	Sales Value
Southern California		658	$	221,368	562	$	168,572
Northern California		325		122,478	620		233,541
Colorado		416		98,709	538		110,998
Hawaii		155		45,876	111		33,001
Washington		65		19,649	70		24,199
Oregon		14		2,791	50		9,865
Arizona		59		13,085	3		691

	Total	1,692	$	523,956	1,954	$	580,867

(1): December 2000 results are shown on a pro forma combined basis to include Western Pacific, which merged with Schuler Homes on April 3, 2001.
(2): Backlog represents homes subject to pending sales contracts, some which are subject to contingencies, including mortgage loan approval, the sale of existing homes by customers and government project approvals and, accordingly, no assurances can be made that homes in backlog will result in actual closing. The sales values are in thousands.

Our number of projects in the sales stage and land position (including joint ventures) as of December 31, 2001 are as follows:

		As of December 31, 2001 (1)
Market		Total Number of Projects for Development (2)	Number of Projects in Sales Stage (3)	Building Sites Owned or Controlled (4)
Southern California		63	19	8,100
Northern California		67	22	8,400
Colorado		44	25	7,400
Hawaii		29	7	3,600
Washington		20	6	1,300
Oregon		5	4	200
Arizona		8	7	600

	Total	236	90	29,600

(1): Includes information relating to 100% of the operations of our unconsolidated joint ventures.
(2): Reflects the total number of projects owned or under option or similar contract, including projects with homes in the sales stage, under construction and projects in various stages of planning.
(3): Represents the number of active projects in respect of which home or lot sales closed or homebuyers have entered into standard sales contracts and there remain at least seven unsold homes in the project.
(4): Represents the estimated number of homes based on approximately 0 lots relating to land owned and approximately 0 lots relating to land under option or similar contracts, including homes under construction and backlog. Although we currently intend to consummate the purchase of the parcels under purchase options or similar contracts, we cannot assure you that we will complete the purchases or acquire the land purchase option.

New Home Orders and Backlog

New home orders during the three months ended December 31, 2001 totaled 1,185, a 2.9% increase as compared to pro forma combined new home orders of 1,152 during the same three months in 2000. The increase in new home orders is mainly attributable to a strong sales performance in southern California, where we have increased our focus on first-time buyers, partially offset by decreased sales in northern California and Colorado.

New home orders during the nine months ended December 31, 2001 totaled 3,934, a 5.3% increase as compared to pro forma combined new home orders of 3,737 during the same nine months in 2000. The increase in new home orders reflects the strength in southern California, where we have increased our focus on first-time buyers.

The aggregate sales value of homes in backlog at December 31, 2001 decreased by 9.8% from a year ago, primarily reflecting a 13.4% decrease in the number of homes in backlog offset by a 4.2% increase in the average sales price of homes in backlog.

Revenues

We recorded revenues of $415.4 million during the three months ended December 31, 2001, or 17.5% increase as compared to pro forma combined revenues of $353.6 million during the three months ended December 31, 2000. This is a result of a 25.8% increase in the number of homes closed

offset by a 3.9% decrease in the average sales price of homes closed, reflecting our increased presence in the first-time buyer segment in southern California where the average sales price of homes closed in that area decreased from $329,000 during the three months ended December 31, 2000 on a pro forma combined basis to $302,000 during the three months ended December 31, 2001. Revenues for the three months ended December 31, 2001 include $.5 million from the sale of land in Arizona. Revenues for the three months ended December 31, 2000 include $10.8 million from the sale of land in California.

We recorded revenues of $1.1 billion during the nine months ended December 31, 2001, or 30.6% increase as compared to pro forma combined revenues of $853.1 million during the nine months ended December 31, 2000. This is a result of a 20.1% increase in the number of homes closed and a 5.7% increase in the average sales price of homes closed, reflecting a larger portion of homes closed in California and a smaller portion of homes closed in Colorado in the nine months ended December 31, 2001 as compared to the nine months ended December 31, 2000 on a pro forma combined basis.

Gross Profit

Gross profit as a percentage of revenues decreased from 22.9% during the three months ended December 31, 2000 on a pro forma combined basis to 21.6% (excluding the land sales) during the three months ended December 31, 2001, primarily reflecting a differing product mix between the periods as well as a return to more historically typical gross profit margins earned in northern California as compared to the unusually high margins earned during the three months ended December 31, 2000. Gross profit as a percentage of revenues decreased from 22.3% during the nine months ended December 31, 2000 on a pro forma combined basis to 21.3% (excluding the land sales) during the nine months ended December 31, 2001, for the same reasons mentioned in the preceding sentence.

Selling, General and Administrative Expense

As a percentage of revenues (excluding the land sales), our selling, general and administrative expense increased from 10.2% during the three months ended December 31, 2000 on a pro forma combined basis to 11.2%, and increased slightly from 11.1% during the nine months ended December 31, 2000 on a pro forma combined basis, excluding the land sales, to 11.5%. The increase during the three months ended December 31, 2001 as compared to the three months ended December 31, 2000 is a result of higher selling expenses because of more actively selling projects and due to incurring more marketing costs in advance of closings, in addition to increased selling concessions. At December 31, 2001, there were 90 actively selling projects as compared to 86 actively selling projects at December 31, 2000.

Interest and Other Income (Expense)

Interest and other income (expense) increased by $4.0 million from the three months ended December 31, 2000 on a pro forma combined basis to the same period in 2001. This was primarily due to decreased financing costs expensed, limited use of joint venture financing and increased income from unconsolidated joint ventures due to more deliveries in these projects during the three months ended December 31, 2001 as compared to the three months ended December 31, 2000 on a pro forma combined basis. There were 60 deliveries in unconsolidated joint ventures in the three months ended December 31, 2001 as compared to 43 deliveries in the three months ended December 31, 2000 on a pro forma combined basis.

Interest and other income (expense) increased by $6.6 million from the nine months ended December 31, 2000 on a pro forma combined basis to the nine months ended December 31, 2001. This was primarily due to a) amortization of intangibles and forgiveness of a portion of a note receivable during the nine months ended December 31, 2000 relating to the departure of the former president of our Oregon division, b) increased marketing fees earned during the nine months ended December 31,

2001 relating to the sale of model homes previously under leaseback, and c) limited use of joint venture financing.

Minority Interest in Income of Consolidated Joint Ventures

Minority interest in income of consolidated joint ventures decreased by $6.0 million from the three months ended December 31, 2000 on a pro forma combined basis compared to the three months ended December 31, 2001. The decrease was primarily due to there being no deliveries from consolidated joint ventures during the three months ended December 31, 2001 as compared to 56 deliveries from consolidated joint ventures during the three months ended December 31, 2000.

Minority interest in income of consolidated joint ventures decreased by $7.6 million from the nine months ended December 31, 2000 on a pro forma combined basis compared to the nine months ended December 31, 2001. The decrease was primarily due to there being only six deliveries from consolidated joint ventures during the nine months ended December 31, 2001 as compared to 106 deliveries from consolidated joint ventures during the nine months ended December 31, 2000.

Provision for Income Taxes

Our effective income tax rate was 39.4% and 39.9% for the three months ended December 31, 2001 and 2000, respectively, and, 39.6% and 39.3% for the nine months ended December 31, 2001 and 2000, respectively.

Liquidity and Capital Resources

We require significant capital resources to acquire land, develop land into building lots, construct and market our homes and pay our overhead and administrative expenses. In addition, funds are required for market expansion and to make interest and principal payments on outstanding debt.

On June 28, 2001, we consummated the issuance and sale of our 9³/8% Senior Notes due 2009, in the aggregate principal amount of $250 million and our 10¹/2% Senior Subordinated Notes due 2011, in the aggregate principal amount of $150 million (collectively, the "Notes"). The Company received net proceeds from the offering of approximately $391.2 million.

In conjunction with the offerings of the Notes, we also closed a new credit facility with Bank of America, N.A., Fleet National Bank, First Hawaiian Bank and California Bank & Trust for them to provide us with $225 million senior unsecured revolving borrowings during a three year period (the "Revolving Credit Facility"). We have the ability to increase the amount of the Revolving Credit Facility to an amount not exceeding $400 million. During the quarter ended September 30, 2001, eight additional banks joined as participants, increasing the credit facility to $360 million. We may use up to $50 million of the Revolving Credit Facility for letters of credit. Amounts available under the Revolving Credit Facility are subject to certain borrowing base limitations based upon, among other things, the amount of certain outstanding debt and the amount of our eligible inventory, multiplied by advance rates determined by reference to the stage of development of each item of eligible inventory. At December 31, 2001, our maximum limit for borrowings and additional financial letters of credit was $330.5 million.

We may select an interest rate applicable to the borrowings under the Revolving Credit Facility based on either LIBOR, for a one, two, three or six-month term, or the prime rate. Subject to our then-effective leverage ratio, as defined, the interest rate may vary from LIBOR plus 1.75% to 2.50% or the prime rate plus 0% to 0.50%. We obtained the Revolving Credit Facility to retire our former credit facilities and other outstanding indebtedness previously incurred by us or our subsidiaries and for general corporate and working capital purposes.

In May 1998, Schuler Residential issued $100 million principal amount of 9% Senior Notes due April 15, 2008. As a result of the merger of Schuler Residential into us, these notes were assumed by us and guaranteed by the same subsidiaries guaranteeing the notes issued in the June 2001 offerings. The 9% Senior Notes are senior unsecured obligations and interest on these notes is due and payable on April 15 and October 15 of each year. The 9% Senior Notes are not redeemable at our option prior to April 15, 2003. Thereafter, these notes may be redeemed at a price initially equal to 104.50% of the principal amount, decreasing in stages to 100% of the principal amount from and after April 15, 2006, in each case together with accrued and unpaid interest. We will be obligated to make an offer to purchase a portion of the 9% Senior Notes if we do not maintain a minimum consolidated net worth, as defined, of at least $75 million. We may also be required to offer to purchase these notes upon a change of control. In addition, the 9% Senior Notes contain other restrictive covenants that, among other things, impose certain limitations on our liability to incur additional indebtedness, create liens, make restricted payments, as defined, or sell assets.

We acquire land for future homebuilding operations through takedowns of lots subject to option purchase contracts. The use of option contracts generally lessens land-related risk and improves liquidity by allowing us to control a large number of lots with contract deposits. As of December 31, 2001, we controlled approximately 29,600 lots in 236 communities. Of these lots, approximately 49% were under option contracts with deposits totaling $43.3 million, which is included in real estate inventories. We expect to utilize a combination of cash flow from operations and our revolving credit facility to acquire these land parcels.

We have also entered into financial joint ventures to acquire and develop residential communities, typically with financial partners who fund the acquisition and development of land and sell finished building sites to us pursuant to option purchase contracts and with sellers of land who contribute their property to the joint venture in exchange for a profits interest upon completion and sale of the homes. As of December 31, 2001, we were participating in 9 joint ventures totaling 702 building lots with an investment of $29.3 million. We have guaranteed approximately $4.0 million of joint venture debt of which total joint venture debt is $31.5 million.

During the quarter ended December 31, 2001, we incurred new debt secured by land purchased of approximately $10.2 million.

We have no other material commitments or material off-balance sheet financing arrangements that would tend to affect future liquidity and anticipate that we can satisfy our current and near-term capital requirements based on our current capital resources and additional liquidity available under our new credit facility. We believe we can meet our long-term capital needs, including meeting debt payments and refinancing or paying off other long-term debt, from operations and external financing sources, assuming that no significant adverse changes in our business or general economic conditions occur. However, we cannot assure you that we will not require additional financing and may need additional funds to support more rapid expansion, respond to competitive pressures or respond to unanticipated requirements. We cannot assure you that additional funding will be available on attractive terms, or at all.

New Developments

On October 22, 2001, we entered into a definitive agreement under which we would merge with D.R. Horton, Inc. through a cash and stock transaction and the assumption of debt. Under the terms of the transaction, each Schuler Homes stockholder will have the right to elect to receive a combination of cash and stock, or all cash or all stock. However, all cash and all stock elections will be subject to proration in order to limit the total amount of cash consideration to be paid by D.R. Horton to an aggregate of $4.09 multiplied by total Schuler Homes shares outstanding. The merger is expected to close on February 21, 2002, subject to the satisfaction of all closing conditions, including approval of

the stockholders of each of Schuler Homes and D.R. Horton at the stockholder meetings of each company, which are scheduled for February 21, 2002. This summary description of the terms and conditions of the proposed merger with D.R. Horton, Inc. is qualified in its entirety by reference to the Agreement and Plan of Merger which has been filed as an exhibit to the Joint Proxy Statement/Prospectus of Schuler Homes, Inc. and D.R. Horton, Inc., which is included within the D.R. Horton, Inc. Amendment No. 3 to Form S-4 filed with the SEC on January 16, 2002.

Terrorist attacks in New York City and Washington, D.C. on September 11, 2001 disrupted business and commerce throughout the U.S., resulted in significant loss of life and caused significant volatility and declines in U.S. and foreign securities markets. The continued threat of terrorism within the U.S. and abroad, and the potential for military action and heightened security measures in response to that threat, may cause additional disruptions to commerce, reduce economic activity and result in continued volatility in markets throughout the world. Our decline in new home orders in certain of our markets for the quarter ended December 31, 2001 as compared to the pro forma number of new home orders for the quarter ended December 31, 2000 suggests these events have adversely affected our rate of new home orders and may continue to do so in coming months.

Disclosure Regarding Forward-Looking Statements

All statements other than statements of historical or current fact included herein, including without limitation, statements regarding our future financial position and profitability, business strategy and management's plans and objectives for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations ("cautionary statements") are set forth below. These factors include, among others:

•: our ability to continue profitable, growing operations on a combined company basis;
•: our ability to pay interest and principal on our substantial debt;
•: our ability to borrow or otherwise finance our operations in the future;
•: our ability to compete in our existing or future markets;
•: our ability to retain or replace key executives or operational management;
•: our ability to locate parcels of land at prices to sustain the profitability of our operations;
•: an increase in the level of governmental regulation, particularly with respect to the land approval process;
•: significant increases in labor costs, the cost of construction materials and the cost of financing; or
•: general economic trends negatively affecting our customers' ability or desire to purchase a new home.

For further discussion relating to risk factors, please see our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We assume no, and hereby disclaim any, obligation to update any of the foregoing or any other forward-looking statements. We nonetheless

reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this quarterly report on Form 10-Q. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("Statement No. 144"), effective for fiscal years beginning after December 15, 2001. Statement No. 144 supersedes Statement of Financial Accounting Standards No. 121. The Company does not believe Statement No. 144 will have a significant impact on the earnings or financial position of the Company upon adoption.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There have been no other material changes in our market risk from March 31, 2001. For information regarding our market risk, refer to our Form 10-K for the fiscal year ended March 31, 2001.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved from time to time in routine litigation or threatened litigation arising in the ordinary course of our business. Any such currently pending matters, if decided adversely to us, would not, in the opinion of management, have a material adverse effect on our financial condition or results of operations.

Item 2 through 5.

Not Applicable

Item 6. Exhibits and Reports on Form 8-K.

(a)

Exhibits. None.

(b)

Reports on Form 8-K.

1.: A Current Report on Form 8-K dated October 4, 2001 reported the Company's operational results for the quarter and six months ended September 30, 2001. This event was reported under Item 5 of such Form 8-K.
2.: A Current Report on Form 8-K dated October 22, 2001 reported the signing of an Agreement and Plan of Merger with D.R. Horton, Inc. This event was reported under Item 5 of such Form 8-K.
3.: A Current Report on Form 8-K dated October 25, 2001 reported the Company's financial results for the quarter and six months ended September 30, 2001. This event was reported under Item 5 of such Form 8-K.
4.: A Current Report on Form 8-K dated November 8, 2001 reported an amendment to the Agreement and Plan of Merger with D.R. Horton, Inc. This event was reported under Item 5 of such Form 8-K.
5.: A Current Report on Form 8-K dated December 10, 2001 reported the Company's announcement to extend the expiration of its exchange offer relating to its 9³/8% Senior Notes due 2009 and 10¹/2% Senior Subordinated Notes due 2011. This event was reported under Item 5 of such Form 8-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

	SCHULER HOMES, INC.
Date: February 14, 2002	By:	/s/ JAMES K. SCHULER James K. Schuler Co-Chairman of the Board, President and Chief Executive Officer (principal executive officer)
Date: February 14, 2002	By:	/s/ THOMAS CONNELLY Thomas Connelly Senior Vice President and Chief Financial Officer (principal financial officer)
Date: February 14, 2002	By:	/s/ DOUGLAS M. TONOKAWA Douglas M. Tonokawa Vice President of Finance and Chief Accounting Officer (principal accounting officer)

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SCHULER HOMES, INC. INDEX
PART I—FINANCIAL INFORMATION
SCHULER HOMES, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
SCHULER HOMES, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)
SCHULER HOMES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (dollars in thousands) (unaudited)
SCHULER HOMES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited)
SCHULER HOMES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (dollars in thousands, except per share data)
PART II. OTHER INFORMATION
SIGNATURES

SCHULER HOMES INC 10-Q