1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
JOINT QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended
DECEMBER 31, 1999
Commission File No. 1-6776
CENTEX CORPORATION
A Nevada Corporation
IRS Employer Identification No. 75-0778259
2728 N. Harwood
Dallas, Texas 75201
(214) 981-5000
Commission File Nos. 1-9624 and 1-9625, respectively
3333 HOLDING CORPORATION
A Nevada Corporation
CENTEX DEVELOPMENT COMPANY, L.P.
A Delaware Limited Partnership
IRS Employer Identification Nos. 75-2178860 and 75-2168471, respectively
3100 McKinnon, Suite 370
Dallas, Texas 75201
(214) 981-6700
The registrants have 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 and
have been subject to such filing requirements for the past 90 days.
Indicate the number of shares of each of the registrants' classes of common
stock (or other similar equity securities) outstanding as of the close of
business on January 31, 2000:
Centex Corporation Common Stock 59,385,282 shares
3333 Holding Corporation Common Stock 1,000 shares
Centex Development Company, L.P. Class A Units of Limited Partnership Interest 32,260 units
Centex Development Company, L.P. Class C Units of Limited Partnership Interest 35,082 units
2
CENTEX CORPORATION AND SUBSIDIARIES
3333 HOLDING CORPORATION AND SUBSIDIARY
CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
DECEMBER 31, 1999
CENTEX CORPORATION AND SUBSIDIARIES
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements 1
Condensed Consolidated Statement of Earnings
for the Three Months Ended December 31, 1999 2
Condensed Consolidated Statement of Earnings
for the Nine Months Ended December 31, 1999 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended December 31, 1999 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 27
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
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3333 HOLDING CORPORATION AND SUBSIDIARY
CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Combining Financial Statements 30
Condensed Combining Statement of Operations
for the Three Months Ended December 31, 1999 31
Condensed Combining Statement of Operations
for the Nine Months Ended December 31, 1999 32
Condensed Combining Balance Sheets 33
Condensed Combining Statements of Cash Flows
for the Nine Months Ended December 31, 1999 34
Notes to Condensed Combining Financial Statements 35
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 41
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 46
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 47
SIGNATURES 48, 49
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CENTEX CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 1.
The condensed consolidated financial statements include the accounts of
Centex Corporation and subsidiaries ("Centex" or the "Company"), and have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. References herein to "Centex" or the
"Company" include references to subsidiaries of Centex Corporation. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest Annual Report
on Form 10-K. In the opinion of the Company, all adjustments necessary to
present fairly the information in the following condensed consolidated financial
statements of the Company have been included. The results of operations for such
interim periods are not necessarily indicative of the results for the full year.
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CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands, except per share data)
(unaudited)
-----------------------------
For the Three Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
REVENUES
Home Building
Conventional Homes $ 863,177 $ 671,404
Manufactured Homes 47,160 39,819
Investment Real Estate 15,908 8,566
Financial Services 106,568 116,234
Construction Products 108,370 84,863
Contracting and Construction Services 287,978 335,200
------------ ------------
1,429,161 1,256,086
------------ ------------
COSTS AND EXPENSES
Home Building
Conventional Homes 789,847 613,305
Manufactured Homes 44,484 36,345
Investment Real Estate 6,991 196
Financial Services 97,345 92,085
Construction Products 63,038 53,314
Contracting and Construction Services 281,178 331,511
Other, net 628 2,844
Corporate General and Administrative 8,483 7,084
Interest Expense 18,467 10,929
Minority Interest 16,971 13,839
------------ ------------
1,327,432 1,161,452
------------ ------------
EARNINGS BEFORE INCOME TAXES 101,729 94,634
Income Taxes 38,553 35,591
------------ ------------
NET EARNINGS $ 63,176 $ 59,043
============ ============
EARNINGS PER SHARE
Basic $ 1.07 $ 0.99
============ ============
Diluted $ 1.04 $ 0.96
============ ============
AVERAGE SHARES OUTSTANDING
Basic 59,230,006 59,410,876
Common Share Equivalents
Options 1,093,566 1,851,083
Convertible Debenture 400,000 400,000
------------ ------------
Diluted 60,723,572 61,661,959
============ ============
CASH DIVIDENDS PER SHARE $ 0.04 $ 0.04
============ ============
See notes to condensed consolidated financial statements.
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CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands, except per share data)
(unaudited)
-----------------------------
For the Nine Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
REVENUES
Home Building
Conventional Homes $ 2,461,533 $ 1,881,586
Manufactured Homes 145,978 130,748
Investment Real Estate 27,357 17,479
Financial Services 343,932 324,133
Construction Products 323,391 256,485
Contracting and Construction Services 928,646 999,343
------------ ------------
4,230,837 3,609,774
------------ ------------
COSTS AND EXPENSES
Home Building
Conventional Homes 2,258,855 1,730,613
Manufactured Homes 138,153 120,522
Investment Real Estate 3,270 (4,752)
Financial Services 301,536 252,508
Construction Products 190,822 163,007
Contracting and Construction Services 911,176 987,939
Other, net 3,529 7,605
Corporate General and Administrative 23,821 19,195
Interest Expense 45,828 29,164
Minority Interest 51,677 42,251
------------ ------------
3,928,667 3,348,052
------------ ------------
EARNINGS BEFORE INCOME TAXES 302,170 261,722
Income Taxes 115,063 97,955
------------ ------------
NET EARNINGS $ 187,107 $ 163,767
============ ============
EARNINGS PER SHARE
Basic $ 3.15 $ 2.75
============ ============
Diluted $ 3.06 $ 2.65
============ ============
AVERAGE SHARES OUTSTANDING
Basic 59,370,180 59,496,866
Common Share Equivalents
Options 1,434,485 1,991,600
Convertible Debenture 400,000 400,000
------------ ------------
Diluted 61,204,665 61,888,466
============ ============
CASH DIVIDENDS PER SHARE $ 0.12 $ 0.12
============ ============
See notes to condensed consolidated financial statements.
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CENTEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
--------------------------------
Centex Corporation
and Subsidiaries
--------------------------------
December 31, March 31,
1999* 1999**
------------ ------------
ASSETS
Cash and Cash Equivalents $ 161,713 $ 111,268
Receivables -
Residential Mortgage Loans 734,885 1,395,616
Other 391,937 459,778
Inventories 2,096,026 1,533,819
Investments -
Centex Development Company, L.P. 72,606 63,207
Joint Ventures and Other 66,674 48,594
Unconsolidated Subsidiaries -- --
Property and Equipment, net 338,025 313,655
Other Assets -
Deferred Income Taxes 28,123 49,107
Goodwill, net 245,719 222,162
Mortgage Securitization
Residual Interest 141,247 80,152
Deferred Charges and Other 124,201 57,388
------------ ------------
$ 4,401,156 $ 4,334,746
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable and
Accrued Liabilities $ 1,044,091 $ 1,018,650
Short-term Debt 1,236,462 1,626,600
Long-term Debt 570,179 284,299
Payables to Affiliates -- --
Minority Stockholders' Interest 133,567 140,721
Negative Goodwill 54,837 66,837
Stockholders' Equity -
Preferred Stock, Authorized 5,000,000
Shares, None Issued -- --
Common Stock $.25 Par
Value; Authorized
100,000,000 Shares; Issued
and Outstanding
59,138,968 and 59,388,350
respectively 14,785 14,847
Capital in Excess of Par Value 5,340 20,822
Retained Earnings 1,341,943 1,161,970
Accumulated Other Comprehensive Loss (48) --
------------ ------------
Total Stockholders' Equity 1,362,020 1,197,639
------------ ------------
$ 4,401,156 $ 4,334,746
============ ============
See notes to condensed consolidated financial statements.
* Unaudited
** Condensed from audited financial statements.
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CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
- ----------------------------------------------------------------------------
Centex Corporation Financial Services
- ----------------------------------- ----------------------------------
December 31, March 31, December 31, March 31,
1999* 1999** 1999* 1999**
- -------------- -------------- -------------- --------------
$ 128,365 $ 72,279 $ 33,348 $ 38,989
-- -- 734,885 1,395,616
359,392 404,043 32,545 55,735
2,096,026 1,533,819 -- --
72,606 63,207 -- --
66,674 48,594 -- --
241,451 221,744 -- --
297,638 285,891 40,387 27,764
20,010 40,541 8,113 8,566
228,888 206,595 16,831 15,567
-- -- 141,247 80,152
64,644 40,962 59,557 16,426
- -------------- -------------- -------------- --------------
$ 3,575,694 $ 2,917,675 $ 1,066,913 $ 1,638,815
============== ============== ============== ==============
$ 974,347 $ 926,377 $ 69,744 $ 92,273
483,322 303,656 753,140 1,322,944
570,179 284,299 -- --
-- -- 73,781 102,652
130,989 138,867 2,578 1,854
54,837 66,837 -- --
-- -- -- --
14,785 14,847 1 1
5,340 20,822 108,467 75,944
1,341,943 1,161,970 59,202 43,147
(48) -- -- --
- -------------- -------------- -------------- --------------
1,362,020 1,197,639 167,670 119,092
- -------------- -------------- -------------- --------------
$ 3,575,694 $ 2,917,675 $ 1,066,913 $ 1,638,815
============== ============== ============== ==============
In the supplemental data presented above, "Centex Corporation" represents the
combining of all subsidiaries other than those included in Financial Services.
Transactions between Centex Corporation and Financial Services have been
eliminated from the Centex Corporation and Subsidiaries balance sheets.
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CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)
-------------------------
For the Nine Months Ended
December 31,
-------------------------
1999 1998
------------ -----------
CASH FLOWS - OPERATING ACTIVITIES
Net Earnings $ 187,107 $ 163,767
Adjustments -
Depreciation and Amortization 34,838 27,180
Deferred Income Taxes 10,941 42,814
Equity in (Earnings) Loss of Centex Development
Company, L.P. and Joint Ventures (648) 396
Minority Interest, net of taxes 33,233 27,674
Decrease (Increase) in Receivables 68,912 (31,774)
Decrease (Increase) in Residential Mortgage Loans 660,731 (287,721)
Increase in Inventories (485,419) (494,997)
Increase in Payables and Accruals 15,268 132,358
Increase in Other Assets (137,737) (152,488)
Other, net (40,387) (32,471)
---------- ---------
346,839 (605,262)
---------- ---------
CASH FLOWS - INVESTING ACTIVITIES
Increase in Advances to Centex Development
Company, L.P. and Joint Ventures (23,566) (44,116)
Acquisition of Home Building Operations (74,119) --
Other Acquisitions (9,349) --
Increase in Property and Equipment, net (55,220) (34,836)
---------- ---------
(162,254) (78,952)
---------- ---------
CASH FLOWS - FINANCING ACTIVITIES
(Decrease) Increase in Debt -
Secured by Residential Mortgage Loans (569,804) 358,321
Other 458,390 357,889
Retirement of Common Stock (29,032) (19,049)
Proceeds from Stock Option Exercises 13,488 7,719
Dividends Paid (7,134) (7,143)
---------- ---------
(134,092) 697,737
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (48) --
---------- ---------
NET INCREASE IN CASH 50,445 13,523
CASH AT BEGINNING OF PERIOD 111,268 98,316
---------- ---------
CASH AT END OF PERIOD $ 161,713 $ 111,839
========== =========
See notes to condensed consolidated financial statements.
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CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTES
DECEMBER 31, 1999
(Dollars in thousands)
(unaudited)
(A) Comprehensive income is summarized for the three and nine months ended
December 31, 1999 below:
-------------------------- -------------------------
For the Three Months Ended For the Nine Months Ended
December 31, 1999 December 31, 1999
-------------------------- -------------------------
Net Earnings $ 63,176 $ 187,107
Other Comprehensive Loss:
Foreign Currency Translation Adjustments (16) (48)
-------------------- --------------------
Comprehensive Income $ 63,160 $ 187,059
==================== ====================
Other Comprehensive Income results from Centex's investment in Centex
Development Company, L.P. and subsidiaries. For additional information on Centex
Development Company, L.P. and subsidiaries, see their separate financial
statements and related footnotes included elsewhere in this Report.
(B) Changes in stockholders' equity are summarized below:
Accumulated
Capital in Other
Preferred Common Excess of Par Retained Comprehensive
Stock Stock Value Earnings Loss Total
------------- -------------- ------------- ------------- --------------- --------------
Balance, March 31, 1999 $ -- $ 14,847 $ 20,822 $ 1,161,970 $ -- $ 1,197,639
Net Earnings -- -- -- 187,107 -- 187,107
Exercise of Stock Options -- 204 13,284 -- -- 13,488
Retirement of 1,063,300
Shares -- (266) (28,766) -- -- (29,032)
Cash Dividends -- -- -- (7,134) -- (7,134)
Foreign Currency
Translation
Adjustments -- -- -- -- (48) (48)
------------- -------------- ------------- ------------- --------------- --------------
BALANCE, DECEMBER 31, 1999 $ -- $ 14,785 $ 5,340 $ 1,341,943 $ (48) $ 1,362,020
============= ============== ============= ============= =============== ==============
(C) In March 1987, certain of Centex's subsidiaries contributed to Centex
Development Company, L.P. (the "Partnership"), a newly formed master limited
partnership, certain properties at their historical cost basis. The Partnership
was formed to enable stockholders to participate in long-term real estate
development projects, the dynamics of which are inconsistent with Centex's
traditional financial objectives.
The Partnership is controlled by its general partner, 3333 Development
Corporation ("Development"), which is in turn wholly-owned by 3333 Holding
Corporation ("Holding"). Holding is a separate public company whose stock trades
in tandem with Centex's stock. The common stock of Holding (the "Securities")
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was distributed in 1987 (with warrants to purchase approximately 80% of the
Class B limited partnership units in the Partnership) as a dividend to the
stockholders of Centex. The Securities, held by a nominee on behalf of the
stockholders, will trade in tandem with the common stock of Centex until such
time as they are detached. The Securities may be detached at any time by
Centex's Board of Directors but the warrants to purchase Class B Units
automatically become detached in November 2007.
The four-person Board of Directors of Holding is elected by the
stockholders of Centex. The majority of the Board members are independent
outside directors, none of whom are directors of Centex. Accordingly, the
general partner of the Partnership is controlled by the stockholders of Centex.
The general partner and independent board of Holding manage the Partnership's
conduct of its activities including the sales, development, maintenance and
zoning of properties. The general partner may sell or acquire properties,
including the contributed property, and enter into other business transactions
without the consent of the limited partners. In addition, the limited partners
cannot remove the general partner.
The Company accounts for its investment in the Partnership on the
equity method of accounting because the Company's interest in the cash and
earnings of the Partnership is limited to defined amounts, and the Company does
not control the Partnership.
During fiscal 1998, the agreement governing the Partnership was amended
to allow for the issuance of new Class C Limited Partnership Units ("Class C
Units"). During fiscal 2000, 8,095 Class C Units were issued in exchange for
assets with a fair market value of $8.1 million. Gains, if any, related to the
assets acquired by the Partnership from Centex are deferred until the assets are
sold by the Partnership. The partnership agreement provides that Centex, as the
sole Class A and Class C limited partner, is entitled to a cumulative preferred
return of 9% per annum on the average outstanding balance of its Unrecovered
Capital, which is defined as its capital contributions, adjusted for cash
distributions representing return of the capital. Unrecovered Capital as of
December 31, 1999 was approximately $68 million and the unpaid preferred return
as of that date was $13.3 million. No preferred return payments were made during
the three or nine months ended December 31, 1999.
Supplementary condensed combined financial statements for the Company,
3333 Holding Corporation and subsidiary and Centex Development Company, L.P. and
subsidiaries are set forth below. For additional information on 3333 Holding
Corporation and its subsidiary and Centex Development Company, L.P. and
subsidiaries, see their separate financial statements and related footnotes
included elsewhere in this Report.
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SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS OF CENTEX CORPORATION AND
SUBSIDIARIES, 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT
COMPANY, L.P. AND SUBSIDIARIES
------------ ------------
DECEMBER 31, March 31,
1999 1999*
------------ ------------
ASSETS
Cash and Cash Equivalents $ 186,010 $ 111,632
Receivables 1,139,829 1,860,090
Inventories 2,469,072 1,639,664
Investments in Joint Ventures and Other 68,316 49,266
Property and Equipment, net 341,635 313,886
Other Assets 579,655 410,321
------------ ------------
$ 4,784,517 $ 4,384,859
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities $ 1,102,586 $ 1,026,867
Short-term Debt 1,561,328 1,668,496
Long-term Debt 570,179 284,299
Minority Stockholders' Interest 133,567 140,721
Negative Goodwill 54,837 66,837
Stockholders' Equity 1,362,020 1,197,639
------------ ------------
$ 4,784,517 $ 4,384,859
============ ============
* Condensed from audited financial statements.
SUPPLEMENTARY CONDENSED COMBINED STATEMENTS OF EARNINGS
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 4,479,147 $ 3,626,072
Costs and Expenses 4,176,376 3,365,134
------------ ------------
Earnings Before Income Taxes 302,771 260,938
Income Taxes 115,664 97,955
------------ ------------
NET EARNINGS 187,107 162,983
Other Comprehensive Loss (48) --
------------ ------------
COMPREHENSIVE INCOME $ 187,059 $ 162,983
============ ============
(D) In order to ensure the future availability of land for the Company's
homebuilding operations, the Company has made cumulative deposits totaling
approximately $52 million for options to purchase undeveloped land and developed
lots having a total purchase price of approximately $1.3 billion. These options
and commitments expire at various dates through the year 2005.
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(E) Interest cost relating to the Financial Services operations is included in
its costs and expenses. Interest cost related to non-financial services
operations is included in interest expense.
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Total Interest Cost Incurred $ 34,272 $ 30,852
Less - Financial Services Interest Expense (15,805) (19,923)
------------ ------------
Interest Expense, net $ 18,467 $ 10,929
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Total Interest Cost Incurred $ 97,657 $ 89,447
Less - Financial Services Interest Expense (51,829) (60,283)
------------ ------------
Interest Expense, net $ 45,828 $ 29,164
============ ============
(F) In April 1994, Centex Construction Products, Inc. ("Construction Products")
completed an initial public offering of its stock which began trading on the New
York Stock Exchange under the symbol "CXP". Centex's ownership interest in
Construction Products increased to 63.2% as of December 31, 1999 compared to
59.2% as of December 31, 1998 as a consequence of a share repurchase program
authorized by Construction Products' Board of Directors.
(G) In fiscal 1996, the Company acquired an equity interest in Vista Properties,
Inc. ("Vista"), which owned a real estate portfolio of properties located in
seven states in which the Company has significant operations. The Investment
Real Estate portfolio was reduced to a nominal "book basis" after recording
certain deferred tax benefits related to this acquisition. Accordingly, as these
properties are developed or sold the net sales proceeds are reflected as
operating margin.
Negative goodwill related to the Vista acquisition is being amortized to
earnings over the estimated period over which the related assets will be
developed, sold or realized. All investment property operations are being
reported through the "Investment Real Estate" business segment.
(H) The Company operates in five principal business segments: Home Building,
Investment Real Estate, Financial Services, Construction Products, and
Contracting and Construction Services. These segments operate primarily in the
United States and their markets are nationwide. Revenues from any one customer
are not significant to the Company.
Intersegment revenues and investments in joint ventures are not material and
are not shown in the following tables. The investment in Centex Development
Company, L.P. (approximately $73 million) is included in the Investment Real
Estate segment.
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HOME BUILDING
CONVENTIONAL HOMES
Conventional Homes operations involve the purchase and development of
land or lots as well as the construction and sale of single-family homes. The
following tables set forth financial information relating to the Conventional
Homes operations (dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 863.2 $ 671.4
Cost of Sales (666.6) (518.9)
Selling, General & Administrative Expenses (123.3) (94.4)
------------ ------------
Operating Earnings $ 73.3 $ 58.1
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 2,461.5 $ 1,881.6
Cost of Sales (1,898.9) (1,464.3)
Selling, General & Administrative Expenses (359.9) (266.3)
------------ ------------
Operating Earnings $ 202.7 $ 151.0
============ ============
MANUFACTURED HOMES
Manufactured Homes operations involve the manufacture of residential
and park model homes and the sale of these homes through a network of
Company-owned and independent dealers. The Company entered the Manufactured
Homes industry in March 1997, when a subsidiary acquired approximately 80% of
Cavco Industries. Centex purchased the remaining minority interest in Cavco
Industries during the third quarter of fiscal 2000.
The following tables set forth financial information relating to the
Manufactured Homes operations (dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 47.1 $ 39.8
Cost of Sales (36.5) (29.8)
Selling, General & Administrative Expenses (7.1) (5.7)
Goodwill Amortization (0.8) (0.8)
------------ ------------
Operating Earnings 2.7 3.5
Minority Interest -- (0.7)
------------ ------------
Net Operating Earnings to Centex $ 2.7 $ 2.8
============ ============
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------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 146.0 $ 130.8
Cost of Sales (114.2) (101.3)
Selling, General & Administrative Expenses (21.4) (16.9)
Goodwill Amortization (2.6) (2.4)
------------ ------------
Operating Earnings 7.8 10.2
Minority Interest (1.0) (2.0)
------------ ------------
Net Operating Earnings to Centex $ 6.8 $ 8.2
============ ============
INVESTMENT REAL ESTATE
Investment Real Estate operations involve the development of land
primarily for multi-family, industrial, office, retail and mixed-use projects.
The following tables set forth financial information relating to the Investment
Real Estate operations (dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 15.9 $ 8.6
Cost of Sales (6.8) (2.7)
Selling, General & Administrative Expenses (4.2) (1.5)
Negative Goodwill Amortization 4.0 4.0
------------ ------------
Operating Earnings $ 8.9 $ 8.4
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 27.4 $ 17.5
Cost of Sales (8.0) (2.9)
Selling, General & Administrative Expenses (7.3) (4.4)
Negative Goodwill Amortization 12.0 12.0
------------ ------------
Operating Earnings $ 24.1 $ 22.2
============ ============
Property sales related to Investment Real Estate's nominally valued
assets resulted in operating margins of $7.9 million and $16.8 million for the
three and nine months ended December 31, 1999 and $5.6 million and $13.0 million
for the same three and nine month periods last year. As of December 31, 1999,
the Investment Real Estate Group had approximately $60 million of nominally
valued assets.
FINANCIAL SERVICES
Financial Services operations involve the financing of conventional and
manufactured homes, home equity and sub-prime lending and the sale of title and
other insurance coverages. These activities include
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mortgage origination and other related services for homes sold by Centex
subsidiaries and by others. The following tables set forth financial information
relating to the Financial Services operations (dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues, including interest income of $19.2 million
in fiscal 2000 and $25.0 million in fiscal 1999 $ 106.6 $ 116.2
Selling, General & Administrative Expenses (81.6) (72.2)
Interest Expense (15.8) (19.9)
------------ ------------
Operating Earnings $ 9.2 $ 24.1
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues, including interest income of $70.2 million
in fiscal 2000 and $75.0 million in fiscal 1999 $ 343.9 $ 324.1
Selling, General & Administrative Expenses (249.7) (192.2)
Interest Expense (51.8) (60.3)
------------ ------------
Operating Earnings $ 42.4 $ 71.6
============ ============
CONSTRUCTION PRODUCTS
Construction Products operations involve the manufacture and sale of
cement, gypsum wallboard, and concrete and aggregates. The following tables set
forth financial information relating to the Construction Products operations
(dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 108.4 $ 84.9
Interest Income 1.1 0.6
Cost of Sales and Plant Operating Expenses (62.5) (52.3)
Selling, General & Administrative Expenses (1.2) (1.2)
Goodwill Amortization (0.4) (0.5)
------------ ------------
Operating Earnings 45.4 31.5
Minority Interest (17.0) (13.2)
------------ ------------
Net Operating Earnings to Centex $ 28.4 $ 18.3
============ ============
-13-
17
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 323.4 $ 256.5
Interest Income 2.4 2.2
Cost of Sales and Plant Operating Expenses (188.6) (161.7)
Selling, General & Administrative Expenses (3.5) (3.0)
Goodwill Amortization (1.1) (0.5)
------------ ------------
Operating Earnings 132.6 93.5
Minority Interest (50.7) (40.3)
------------ ------------
Net Operating Earnings to Centex $ 81.9 $ 53.2
============ ============
CONTRACTING AND CONSTRUCTION SERVICES
Contracting and Construction Services operations involve the
construction of buildings for both private and government interests including
(among others) office, commercial and industrial buildings, hospitals, hotels,
museums, libraries, airport facilities and educational institutions.
The following tables set forth financial information relating to the
Contracting and Construction Services operations. As this segment generates
significant positive cash flow, intercompany interest income (credited at the
prime rate) is reflected in this segment data, however these amounts are
eliminated in consolidation (dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 288.0 $ 335.2
Construction Contract Costs (269.6) (321.1)
Selling, General & Administrative Expenses (11.6) (10.4)
------------ ------------
Operating Income, as reported 6.8 3.7
Intercompany Interest Income* 2.0 2.1
------------ ------------
Total Economic Return $ 8.8 $ 5.8
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 928.6 $ 999.3
Construction Contract Costs (875.5) (957.5)
Selling, General & Administrative Expenses (35.6) (30.4)
------------ ------------
Operating Income, as reported 17.5 11.4
Intercompany Interest Income* 6.3 4.9
------------ ------------
Total Economic Return $ 23.8 $ 16.3
============ ============
*The "net assets" position of the Contracting and Construction Services segment
provides significant cash flow because payables and accruals consistently exceed
identifiable assets. Intercompany interest income is computed on the group's
cash flow in excess of its equity.
-14-
18
CORPORATE AND OTHER, NET
Corporate general and administrative expenses represent salaries and
other costs not identifiable with a specific segment. Other, net includes new
business initiatives and other businesses which are not mature enough to stand
alone as separate business segments. Assets are primarily cash and cash
equivalents, receivables, property and equipment and other assets not associated
with a business segment.
The following tables summarize financial information relating to the
Corporate and Other, net segments (dollars in millions):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Operating Loss - Other, net $ (0.6) $ (2.8)
============ ============
Corporate General and Administrative Expenses $ (8.5) $ (7.1)
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Operating Loss - Other, net $ (3.5) $ (7.6)
============ ============
Corporate General and Administrative Expenses $ (23.8) $ (19.2)
============ ============
(I) The computation of diluted earnings per share excludes anti-dilutive options
to purchase 4,477,000 common shares at an average price of $36.98, and 3,652,000
common shares at an average price of $37.34 for the three and nine months ended
December 31, 1999, respectively. The anti-dilutive options have expiration dates
ranging from September 2007 to October 2009.
(J) Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued in June 1998.
This statement addressed the accounting for derivative instruments, including
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and hedging activities as well as the disclosure of these
activities. SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the consolidated balance sheet and measure those
instruments at fair value. In June 1999, SFAS No. 137 was issued which delays
the implementation of this statement for the Company until April 2001.
(K) Certain prior period balances have been reclassified to be consistent with
the December 31, 1999 presentation.
-15-
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Centex's consolidated revenues for the three months ended December 31,
1999 were $1.43 billion, a 14% increase over $1.26 billion for the same period
last year. Earnings before income taxes were $101.7 million, 7% higher than
$94.6 million last year. Net earnings for the three months ended December 31,
1999 were $63.2 million, a 7% increase over net earnings of $59.0 million for
the same period last year.
For the nine months ended December 31, 1999, consolidated revenues
totaled $4.23 billion, 17% higher than $3.61 billion for the same period last
year. Earnings before income taxes were $302.2 million, 15% higher than $261.7
million for the same period last year. Net earnings were $187.1 million for the
nine months ended December 31, 1999, a 14% increase over net earnings of $163.8
for the same period last year.
HOME BUILDING
CONVENTIONAL HOMES
The following summarizes Conventional Homes' results for the three and
nine months ended December 31, 1999 compared to the same periods last year
(dollars in millions, except per unit data):
-------------------------------------------------------------
For the Three Months Ended December 31,
-------------------------------------------------------------
1999 1998
--------------------------- ---------------------------
Conventional Homes Revenues $ 863.2 100.0% $ 671.4 100.0%
Cost of Sales (666.6) (77.2)% (518.9) (77.3)%
Selling, General & Administrative Expenses (123.3) (14.3)% (94.4) (14.1)%
---------- ---------- ---------- ----------
Operating Earnings $ 73.3 8.5% $ 58.1 8.6%
========== ========== ========== ==========
Units Closed 4,495 3,601
% Change 24.8% 19.0%
Unit Sales Price $ 189,466 $ 183,522
% Change 3.2% 1.2%
Operating Earnings Per Unit $ 16,314 $ 16,134
% Change 1.1% 15.4%
-16-
20
-------------------------------------------------------------
For the Nine Months Ended December 31,
--------------------------- ---------------------------
1999 1998
--------------------------- ---------------------------
Conventional Homes Revenues $ 2,461.5 100.0% $ 1,881.6 100.0%
Cost of Sales (1,898.9) (77.2)% (1,464.3) (77.8)%
Selling, General & Administrative Expenses (359.9) (14.6)% (266.3) (14.2)%
---------- ---------- ---------- ----------
Operating Earnings $ 202.7 8.2% $ 151.0 8.0%
========== ========== ========== ==========
Units Closed 12,854 10,050
% Change 27.9% 15.4%
Unit Sales Price $ 188,595 $ 184,113
% Change 2.4% 1.3%
Operating Earnings Per Unit $ 15,768 $ 15,022
% Change 5.0% 17.6%
Conventional Homes' revenues for the three and nine months ended
December 31, 1999 increased by $191.8 million and $579.9 million, respectively,
from revenues for the corresponding periods last year. These increases resulted
from an increased number of operating neighborhoods, revenues attributable to
newly acquired operations, and an increased average unit selling price compared
to fiscal 1999's average unit selling price.
Home sales (orders) totaled 4,089 units during the three months ended
December 31, 1999 compared to 3,610 units during the same period a year ago.
Home sales (orders) totaled 13,191 units during the nine months ended December
31, 1999 compared to last year's 10,816 units. The backlog of homes sold but not
closed at December 31, 1999 was 7,413 units, 15% higher than 6,419 units for the
same period a year ago.
-17-
21
MANUFACTURED HOMES
The following summarizes Manufactured Homes' results for the three and
nine months ended December 31, 1999 compared to the same periods last year
(dollars in millions):
-------------------------------------------------------------
For the Three Months Ended December 31,
-------------------------------------------------------------
1999 1998
--------------------------- ---------------------------
Manufactured Homes Revenues (Construction) $ 30.3 100.0% $ 29.5 100.0%
Cost of Sales (23.3) (76.9)% (22.5) (76.3)%
Selling, General & Administrative Expenses (3.4) (11.3)% (2.8) (9.4)%
---------- ---------- ---------- ----------
3.6 11.8% 4.2 14.3%
---------- ---------- ---------- ----------
Retail Sales Revenues 16.8 100.0% 10.3 100.0%
Cost of Sales (13.2) (78.4)% (7.3) (70.6)%
Selling, General & Administrative Expenses (3.7) (21.9)% (2.9) (29.0)%
---------- ---------- ---------- ----------
(0.1) (0.3)% 0.1 0.4%
---------- ---------- ---------- ----------
Construction and Retail Earnings 3.5 4.3
Goodwill Amortization (0.8) (0.8)
Minority Interest -- (0.7)
---------- ----------
Group Operating Earnings $ 2.7 $ 2.8
========== ==========
Units Sold 1,501 1,633
-------------------------------------------------------------
For the Nine Months Ended December 31,
-------------------------------------------------------------
1999 1998
--------------------------- ---------------------------
Manufactured Homes Revenues (Construction) $ 98.1 100.0% $ 101.6 100.0%
Cost of Sales (76.2) (77.6)% (79.6) (78.3)%
Selling, General & Administrative Expenses (10.8) (11.0)% (9.6) (9.5)%
---------- ---------- ---------- ----------
11.1 11.4% 12.4 12.2%
---------- ---------- ---------- ----------
Retail Sales Revenues 47.9 100.0% 29.2 100.0%
Cost of Sales (38.0) (79.4)% (21.7) (74.6)%
Selling, General & Administrative Expenses (10.6) (22.2)% (7.3) (24.7)%
---------- ---------- ---------- ----------
(0.7) (1.6)% 0.2 0.7%
---------- ---------- ---------- ----------
Construction and Retail Earnings 10.4 12.6
Goodwill Amortization (2.6) (2.4)
Minority Interest (1.0) (2.0)
---------- ----------
Group Operating Earnings $ 6.8 $ 8.2
========== ==========
Units Sold 4,723 4,780
Cavco operates five manufacturing plants: three in the Phoenix, Arizona
area, one near Albuquerque, New Mexico, and one in central Texas which was
opened in January, 1999. As of December 31, 1999, Cavco operated 23 retail
locations for the sale of manufactured homes compared to 10 retail locations in
the prior year.
-18-
22
Operating earnings for the three months ended December 31, 1999 were
$2.7 million, a 6% decrease over the same period in the prior year. For the nine
months ended December 31, 1999, Manufactured Homes' operating earnings were $6.8
million compared to $8.2 million for the nine months ended December 31, 1998.
Third quarter and year-to-date operating earnings were negatively impacted by
start-up and marketing costs associated with the new Texas plant and retail
store openings in Texas as well as the extremely competitive market conditions.
INVESTMENT REAL ESTATE
The following summarizes Investment Real Estate's results for the three
and nine months ended December 31, 1999 compared to the same periods last year
(dollars in millions):
-----------------------------
For the Three Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 15.9 $ 8.6
============ ============
Operating Earnings $ 8.9 $ 8.4
============ ============
-----------------------------
For the Nine Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 27.4 $ 17.5
============ ============
Operating Earnings $ 24.1 $ 22.2
============ ============
For the three months ended December 31, 1999, Centex's Investment Real
Estate operations, through which all investment property transactions are
reported, had operating earnings of $8.9 million, 7% higher than $8.4 million
for the same period a year ago. For the nine months ended December 31, 1999,
Centex's Investment Real Estate operations had operating earnings of $24.1
million, 8% higher than $22.2 million for the same period last year. The timing
of land sales is uncertain and can vary significantly from period to period.
Property sales related to Investment Real Estate's nominally valued assets
resulted in operating margins of $7.9 million and $5.6 million for the three
months ended December 31, 1999 and 1998, and $16.8 million and $13.0 million for
the nine months ended December 31, 1999 and 1998, respectively. At December 31,
1999, the Investment Real Estate Group had approximately $60 million of
nominally valued assets, the majority of which are expected to be sold over the
next four years.
Negative goodwill amortization was $4 million for the three months
ended December 31, 1999 and 1998, and $12 million for the nine months ended
December 31, 1999 and 1998.
-19-
23
FINANCIAL SERVICES
The following summarizes Financial Services' results for the three and
nine months ended December 31, 1999 compared to the same periods last year
(dollars in millions):
-----------------------------
For the Three Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 106.6 $ 116.2
============ ============
Operating Earnings $ 9.2 $ 24.1
============ ============
Origination Volume $ 2,176 $ 3,096
============ ============
Number of Loans Originated
CTX Mortgage Company ("CTX Mortgage")
Centex-built Homes ("Builder") 2,449 2,308
Non-Centex-built Homes ("Retail") 10,932 19,117
------------ ------------
13,381 21,425
Centex Home Equity Corporation ("Home Equity") 5,367 4,032
Centex Finance Company 202 255
------------ ------------
18,950 25,712
============ ============
-----------------------------
For the Nine Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 343.9 $ 324.1
============ ============
Operating Earnings $ 42.4 $ 71.6
============ ============
Origination Volume $ 7,359 $ 8,368
============ ============
Number of Loans Originated
CTX Mortgage Company ("CTX Mortgage")
Centex-built Homes ("Builder") 7,489 6,728
Non-Centex-built Homes ("Retail") 39,850 51,450
------------ ------------
47,339 58,178
Centex Home Equity Corporation ("Home Equity") 15,237 11,341
Centex Finance Company 674 610
------------ ------------
63,250 70,129
============ ============
Financial Services' operating earnings for the three months ended
December 31, 1999 were $9.2 million, 62% lower than the $24.1 million of
operating earnings for the three months ended December 31, 1998. For the nine
months ended December 31, 1999, operating earnings were $42.4 million, 41% lower
than the $71.6 million of operating earnings for the same period last year.
-20-
24
CTX Mortgage's operating earnings totaled $5.8 million for the three
months ended December 31, 1999, 76% less than earnings for the same period a
year ago. CTX Mortgage originations for the three months ended December 31, 1999
were 13,381, a 38% decrease from the 21,425 originations for the same period
last year. The per loan profit for the three months ended December 31, 1999 was
$435, 62% lower than the $1,139 per loan for the same period last year. CTX
Mortgage's operating earnings for the nine months ended December 31, 1999
totaled $30.6 million, 54% less than earnings for the same period last year.
Originations from CTX Mortgage were 47,339 for the nine months ended December
31, 1999, compared to 58,178 for the same period last year. The per loan profit
for the nine months ended December 31, 1999 was $646, 43% lower than the $1,141
for the nine months ended December 31, 1998. The decline in CTX Mortgage's
operating earnings is primarily due to the decrease in refinancing activity as a
result of increasing interest rates and the delay in balancing operating costs
with reduced production levels. CTX Mortgage's total mortgage applications for
the three months ended December 31, 1999 decreased 45% to 11,197 from 20,498
applications for the same period last year. For the nine months ended December
31, 1999, CTX Mortgage's applications decreased to 44,210 from 58,371 for the
same period last year. Applications are expected to continue to decline on a
year-over-year basis if mortgage interest rates remain at present levels.
Centex Home Equity ("Home Equity") reported $4.5 million of operating
earnings for the three months ended December 31, 1999, 915% higher than the $0.4
million of operating earnings for the same period last year. Operating earnings
from Home Equity for the nine months ended December 31, 1999 totaled $15.0
million, a 113% increase over the $7.0 million in operating earnings for the
same period last year. Originations for the three months ended December 31, 1999
were 5,367, a 33% increase over the originations for the same period last year.
Originations for the nine months ended December 31, 1999 were 15,237, a 34%
increase over the 11,341 originated for the same period last year. Loan volume
for the three months ended December 31, 1999 was $350 million, a 30% improvement
over the same period a year ago. Loan volume for the nine months ended December
31, 1999 was $990 million, a 34% improvement over the prior year. Loan volume
for the three and nine month periods was favorably impacted by the opening of
new operating locations plus generally increased activity.
Home Equity's sub-prime applications totaled 32,341 for the three
months ended December 31, 1999, an increase of 42% over the 22,746 applications
for the same period last year. Home Equity's sub-prime applications totaled
89,785 for the nine months ended December 31, 1999, a 65% improvement over the
54,433 applications for the same period last year. Per loan profit was $832 and
$985 for the three and nine month periods ending December 31, 1999 compared to
$109 and $621 for the same period last year. The increase is primarily related
to earnings from the servicing operation partially offset by the absorption of
costs related to the expansion of the branch network.
As a consequence of increases in loan volume, during the three months
ended December 31, 1999, Home Equity completed a securitization for $305
million, compared to a $189 million securitization in the prior year. For the
nine months ended December 31, 1999, Home Equity completed securitizations
totaling $1.0 billion, compared to $629 million in securitizations for the same
period last year. As a result of the securitization process, Home Equity sells
the loans but retains a residual interest in the securitization instrument as
well as the servicing rights associated with these loans. Home Equity is the
long-term servicer of these loans. Service fee income related to this long-term
servicing was $4.0 million in the three months ended December 31, 1999 and $1.6
million for the same period last year. For the nine months ended December 31,
1999, service fee income was $10.0 million compared to $2.8 million for the same
period a year ago.
-21-
25
Centex Finance Company, the manufactured homes finance unit that was
closed during the quarter, had an operating loss of approximately $1.1 million
and $3.2 million for the three and nine months ended December 31, 1999.
Revenues include the gains on sales of mortgage loans receivable. Such
gains decreased to $65.4 million for the three months ended December 31, 1999
from $70.3 million for the same period last year. For the nine months ended
December 31, 1999, gains on sales of mortgage loans receivable totaled $208.3
million, a 12% increase over the same period last year. The year to date
increase is due to the expansion of Financial Services' product lines and an
increase in securitization activity, partially offset by decreased loan
origination volume. Gains on sales of mortgage loans includes the gain recorded
upon the completion of securitization, the gain on sale of servicing, and/or
gain on whole loan sales.
Substantially all of the mortgage loans generated by CTX Mortgage are
sold forward upon closing and subsequently delivered to third-party purchasers
within approximately 60 days thereafter, while substantially all the mortgage
loans produced by Home Equity are securitized, generally on a quarterly basis.
In the normal course of its activities, Financial Services carries inventories
of loans pending sale or securitization and earns a positive spread between the
interest income earned on those loans and its cost of financing those loans
(referred to herein as "positive carry"). Interest income decreased 23% for the
three months ended December 31, 1999 to $19.2 million from $25.0 million for the
same period last year. Interest expense for the three months ended December 31,
1999 was $15.8 million, a 20% decrease from $19.9 million for the same period
last year. Interest income for the nine month period ended December 31, 1999 was
$70.2 million, a 6% decrease from $75.0 million for the same period last year.
For the nine month period ended December 31, 1999, interest expense was $51.8
million, a 14% decrease from $60.3 million for the same period last year.
Financial Services' other sources of income include, among other
things, loan origination fees, title policy fees and insurance commissions,
mortgage loan broker fees, and fees for mortgage loan quality control and
processing services.
CONSTRUCTION PRODUCTS
The following summarizes Construction Products' results for the three
and nine months ended December 31, 1999 compared to the same periods last year
(dollars in millions):
-----------------------------
For the Three Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 108.4 $ 84.9
Interest Income 1.1 0.6
Cost of Sales and Expenses (62.5) (52.3)
Selling, General & Administrative Expenses (1.2) (1.2)
Goodwill Amortization (0.4) (0.5)
------------ ------------
Operating Earnings 45.4 31.5
Minority Interest (17.0) (13.2)
------------ ------------
Net Operating Earnings to Centex $ 28.4 $ 18.3
============ ============
-22-
26
-----------------------------
For the Nine Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 323.4 $ 256.5
Interest Income 2.4 2.2
Cost of Sales and Expenses (188.6) (161.7)
Selling, General & Administrative Expenses (3.5) (3.0)
Goodwill Amortization (1.1) (0.5)
------------ ------------
Operating Earnings 132.6 93.5
Minority Interest (50.7) (40.3)
------------ ------------
Net Operating Earnings to Centex $ 81.9 $ 53.2
============ ============
Construction Products' revenues were $108.4 million for the three
months ended December 31, 1999, 28% higher than the same period last year. For
the three months ended December 31, 1999, Construction Products' operating
earnings, net of minority interest, were $28.4 million, a 55% increase over
$18.3 million for the same period last year. Revenues from Construction Products
for the current nine months ended December 31, 1999 were $323.4 million, 26%
higher than the same period last year. For the nine months ended December 31,
1999, Construction Products' operating earnings, net of minority interest, were
$81.9 million, a 54% improvement over results for the same period a year ago.
Construction Products' record operating earnings resulted from improved
results in each of its businesses. Pricing and sales volume improved for
virtually every product, particularly pricing for gypsum wallboard, which rose
33% over pricing for the same three months last year and 32% for the same nine
months last year.
CONTRACTING AND CONSTRUCTION SERVICES
The following summarizes Contracting and Construction Services' results
for the three and nine months ended December 31, 1999 compared to the same
periods last year (dollars in millions):
-----------------------------
For the Three Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 288.0 $ 335.2
============ ============
Operating Earnings $ 6.8 $ 3.7
============ ============
New Contracts Received $ 487 $ 298
============ ============
Backlog of Uncompleted Contracts $ 1,322 $ 1,182
============ ============
-----------------------------
For the Nine Months Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenues $ 928.6 $ 999.3
============ ============
Operating Earnings $ 17.5 $ 11.4
============ ============
New Contracts Received $ 1,314 $ 1,022
============ ============
Backlog of Uncompleted Contracts $ 1,322 $ 1,182
============ ============
-23-
27
Contracting and Construction Services' revenues for the three and nine
months ended December 31, 1999 were $288.0 million and $928.6 million,
respectively. Operating earnings for the group improved 84% to $6.8 million for
the three months and 53% to $17.5 million for the nine months ended December 31,
1999 over the same period last year. This increase was primarily the result of a
continuing shift in recent years to higher-margin private negotiated projects
from lower-margin public bid work.
The Contracting and Construction Services operations provided a
positive average net cash flow in excess of Centex's investment in the group of
$94.7 million for the three months ended December 31, 1999 and $105.5 million
for the same period last year. For the nine months ended December 31, 1999, the
positive average net cash flow in excess of Centex's investment in the group was
$102.8 million, compared to $78.6 million for the same period last year.
YEAR 2000 COMPLIANCE
Beginning in fiscal year 1997, the Company engaged in an ongoing
process of evaluating and implementing changes to its systems in order to ensure
Year 2000 compliance. As a result of this process, the Company and its
subsidiaries tested all critical systems during calendar year 1999 and repaired,
upgraded and/or replaced those found to be not Year 2000 compliant. The cost of
replacing, upgrading or otherwise changing non-compliant systems was not
material to the Company as a whole, or to the Company's individual subsidiaries.
The Company used internally generated cash to fund the correction of all
non-compliant systems. The Company's Year 2000 compliance preparation included
the completion of a contingency plan, the hiring of a third party consultant and
the surveying of material vendors and suppliers.
As a result of the attention that the Company paid to addressing its
Year 2000 readiness, the Company has not, to date, experienced any adverse
impact on the Company's operations or financial condition or the operations or
financial condition of any of its individual subsidiaries as a result of any
Year 2000 compliance issues. In addition, the Company is not aware that any of
its vendors, subcontractors or other third parties experienced any significant
problems as a result of Year 2000 compliance issues. Furthermore, if any of
those third parties were affected by Year 2000 compliance issues, such
compliance issues have not caused, to date, any adverse effects on the Company's
operations or financial condition, or the operations or financial condition of
any of its individual subsidiaries.
Although the Company has not been affected to date by the changes from
December 31, 1999 to January 1, 2000, Year 2000 issues could arise subsequent to
the filing of this report. As an example, the Company's systems could fail to
recognize 2000 as a leap year. The Company believes that such circumstances are
highly unlikely to occur and that, even if they were to occur, it is highly
unlikely that the Company's financial condition or the operations and financial
condition of its subsidiaries would be materially adversely affected.
Nevertheless, the Company intends to continue to monitor Year 2000 related
issues and immediately address any effects that may arise as a result.
Year 2000 Forward-looking Statements
Certain statements in this section, other than historical information,
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by the context of the statement and generally arise when the
Company is discussing its beliefs, estimates or expectations. These statements
involve risks and uncertainties relative to the Company's ability
-24-
28
to assess and remediate any Year 2000 compliance issues, the ability of third
parties to correct material non-compliant systems, and the Company's assessment
of the Year 2000 issue's impact on its financial results and operations.
FINANCIAL CONDITION AND LIQUIDITY
At December 31, 1999, the Company had cash and cash equivalents of
$161.7 million. The net cash provided by or used in the operating, investing,
and financing activities for the nine months ended December 31, 1999 and 1998 is
summarized below (dollars in thousands):
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
NET CASH PROVIDED BY (USED IN):
Operating activities $ 346,839 $ (605,262)
Investing activities (162,254) (78,952)
Financing activities (134,092) 697,737
Effect of exchange rate changes on cash (48) --
------------ ------------
Net increase in cash $ 50,445 $ 13,523
============ ============
For the nine months ended December 31, 1999, cash was provided by a
decreased investment in mortgage loans offset primarily by an increase in
housing inventories. The decrease in mortgage loans is a result of a decrease in
refinancing activity as well as the timing of loan sales and securitizations.
The increase in housing inventories relates to the addition of new neighborhoods
and acquisitions. Cash was used to fund acquisitions (primarily in the Home
Building segment) and to fund additions to property and equipment (primarily for
new production capacity within the Construction Products segment). The funds
used in financing activities included a reduction in mortgage loan debt,
partially offset by new debt raised primarily to fund the increased home
building activity.
Short-term debt as of December 31, 1999 was $1.2 billion, which
included $700 million of debt applicable to the Financial Services operation.
The majority of the Financial Services debt is collateralized by residential
mortgage loans. Most of the Company's other unsecured borrowings are
accomplished at prevailing market interest rates through short-term bank
borrowings and from the Company's commercial paper programs. The Company
maintains $735 million of committed credit facilities which serve as a back-up
for bank and commercial paper borrowings. Under the terms of the agreement on
one of these facilities, $170 million may be borrowed directly by CTX Mortgage.
The Financial Services segment provides most of its own short-term
financing needs through separate facilities which require only limited support
from Centex Corporation. During the third quarter of fiscal 2000, CTX Mortgage
committed to sell, and began selling to Centex Home Mortgage, LLC, a
non-affiliated third party special-purpose Delaware limited liability company
("CHM"), substantially all of the conforming, Jumbo A, and GNMA eligible
mortgages originated by CTX Mortgage. CHM is in the business of acquiring and
then reselling mortgages into secondary markets. This facility gives CTX
Mortgage access, on a revolving basis, to CHM's $1.5 billion of capacity. Sales
to CHM are non-recourse and therefore are accounted for as sales rather than as
financings. CTX Mortgage also maintains $300 million of secured committed
mortgage warehouse facilities and $1.2 billion of uncommitted credit facilities
to finance mortgages not sold to Centex Home Mortgage. Similarly, Centex Home
Equity Corporation has $250 million of committed and $165
-25-
29
million of uncommitted secured mortgage warehouse facilities to finance
sub-prime mortgages held until securitization.
Long-term debt outstanding as of December 31, 1999 was as follows (in
thousands):
Subordinated Debentures, 7.375%, due in 2005 $ 99,735
Subordinated Debentures, 8.75%, due in 2007 99,509
Medium-term Note Programs, 6.4% to 6.95%, due through 2002 341,668
Other Indebtedness, 6.0% to 9.6%, due through 2027 29,267
------------
$ 570,179
============
Maturities of long-term debt during the next five years are as follows
(in thousands):
Fiscal Year ending:
March 31, 2000 $ 18,060
March 31, 2001 331,159
March 31, 2002 849
March 31, 2003 15,147
March 31, 2004 205
------------
$ 365,420
============
The Company believes it has adequate resources and sufficient credit
facilities to satisfy its current needs and to provide for future growth.
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this report on Form 10-Q contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the context of the statement and generally arise when the Company
is discussing its beliefs, estimates or expectations. These statements are not
guarantees of future performance and involve a number of risks and
uncertainties. Actual results and outcomes may differ materially from what is
expressed or forecast in such forward-looking statements. The principal risks
and uncertainties that may affect the Company's actual performance and results
of operations include the following: general economic conditions and interest
rates; the cyclical and seasonal nature of the Company's businesses; adverse
weather; changes in property taxes and energy costs; changes in federal income
tax laws and federal mortgage financing programs; governmental regulation;
changes in governmental and public policy; changes in economic conditions
specific to any one or more of the Company's markets and businesses;
competition; availability of raw materials; and unexpected operations
difficulties. Other risks and uncertainties may also affect the outcome of the
Company's actual performance and results of operations.
-26-
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to fluctuations in
interest rates on mortgage loans receivable, residual interest in mortgage
securitizations, and debt. The Company utilizes forward sale commitments to
mitigate the risk associated with the majority of its mortgage loan portfolio.
The Company has also entered into a swap agreement with Bank of America in order
to manage interest rate risk, non-credit related market value risk, and
prepayment risk associated with certain loans originated by CTX Mortgage
Company. Other than the forward commitments and the swap agreement listed above,
the Company does not utilize interest rate swaps, forward or option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments.
There have been no material changes in the Company's market risk since
March 31, 1999. As of December 31, 1999 the market risk associated with the swap
listed above is considered minimal. For information regarding the Company's
market risk, refer to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999.
-27-
31
CENTEX CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits
Exhibit 10.10 Centex Corporation Amended and Restated 1987
Stock Option Plan (Filed herewith)
Exhibit 10.11 Amended and Restated Centex Corporation
Employee Non-Qualified Stock Option Plan
(Exhibit 4 to Registration Statement of
Centex Corporation ("Centex") on Form S-8
filed with the Securities and Exchange
Commission (the "Commission") on March 10,
1999)
Exhibit 10.12 Second Amended and Restated Centex
Corporation Employee Non-Qualified Stock
Option Plan (Exhibit 4 to Registration
Statement of Centex on Form S-8 filed with
the Commission on August 27, 1999)
Exhibit 27.1 Financial Data Schedule
(2) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1999.
All other items required under Part II are omitted because they are not
applicable.
-28-
32
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 thereunto duly authorized.
CENTEX CORPORATION
--------------------------------------
Registrant
February 11, 2000 /s/ David W. Quinn
--------------------------------------
David W. Quinn
Vice Chairman of the Board and
Chief Financial Officer
(principal financial officer)
February 11, 2000 /s/ John S. Worth
--------------------------------------
John S. Worth
Vice President and Controller
(chief accounting officer)
-29-
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3333 HOLDING CORPORATION AND SUBSIDIARY
CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED COMBINING FINANCIAL STATEMENTS
ITEM 1.
The condensed combining financial statements include the accounts of
3333 Holding Corporation and subsidiary ("Holding") and Centex Development
Company, L.P. and subsidiaries (the "Partnership") (collectively the
"Companies"), and have been prepared by the Companies, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Companies believe that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed combining
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Companies' latest Annual Report on Form 10-K.
In the opinion of the Companies, all adjustments necessary to present fairly the
information in the following condensed financial statements of the Companies
have been included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
-30-
34
3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
CONDENSED COMBINING STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit/share data)
(unaudited)
----------------------------------------------------------------------------------------
For the Three Months Ended December 31,
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -------------------------------------------
Centex Centex
Development Development
Company, L.P. 3333 Holding Company, L.P. 3333 Holding
and Corporation and Corporation
Combined Subsidiaries and Subsidiary Combined Subsidiaries and Subsidiary
------------ ------------ -------------- ------------ ------------ --------------
REVENUES $ 79,450 $ 79,450 $ 153 $ 5,694 $ 5,653 $ 194
COSTS AND EXPENSES 79,533 79,527 159 5,681 5,262 572
------------ ------------ ------------ ------------ ------------ ------------
(LOSS) EARNINGS BEFORE INCOME TAXES (83) (77) (6) 13 391 (378)
INCOME TAXES 29 29 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
NET (LOSS) EARNINGS $ (112) $ (106) $ (6) $ 13 $ 391 $ (378)
============ ============ ============ ============ ============ ============
NET (LOSS) EARNINGS ALLOCABLE TO LIMITED PARTNER $ (106) $ 391
============ ============
(LOSS) EARNINGS PER UNIT/SHARE $ (1.66) $ (6) $ 6.99 $ (378)
============ ============ ============ ============
WEIGHTED-AVERAGE UNITS/SHARES OUTSTANDING 63,773 1,000 55,911 1,000
See notes to condensed combining financial statements.
-31-
35
3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
CONDENSED COMBINING STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit/share data)
(unaudited)
----------------------------------------------------------------------------------------
For the Nine Months Ended December 31,
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -------------------------------------------
Centex Centex
Development Development
Company, L.P. 3333 Holding Company, L.P. 3333 Holding
and Corporation and Corporation
Combined Subsidiaries and Subsidiary Combined Subsidiaries and Subsidiary
------------ ------------ -------------- ------------ ------------ --------------
REVENUES $ 249,249 $ 249,249 $ 457 $ 19,774 $ 19,385 $ 951
COSTS AND EXPENSES 248,684 247,603 1,538 19,732 18,559 1,735
------------ ------------ ------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 565 1,646 (1,081) 42 826 (784)
INCOME TAXES 601 601 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
NET (LOSS) EARNINGS $ (36) $ 1,045 $ (1,081) $ 42 $ 826 $ (784)
============ ============ ============ ============ ============ ============
NET EARNINGS ALLOCABLE TO LIMITED PARTNER $ 1,045 $ 826
============ ============
EARNINGS (LOSS) PER UNIT/SHARE $ 16.99 $ (1,081) $ 15.65 $ (784)
============ ============ ============ ============
WEIGHTED-AVERAGE UNITS/SHARES OUTSTANDING 61,489 1,000 52,783 1,000
See notes to condensed combining financial statements.
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36
3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
CONDENSED COMBINING BALANCE SHEETS
(Dollars in thousands)
--------------------------------------------------------------------------------------
DECEMBER 31, 1999* March 31, 1999**
------------------------------------------ ------------------------------------------
Centex Centex
Development Development
Company, L.P. 3333 Holding Company, L.P. 3333 Holding
and Corporation and Corporation
Combined Subsidiaries and Subsidiary Combined Subsidiaries and Subsidiary
------------ ------------ -------------- ------------ ------------ --------------
ASSETS
Cash $ 24,297 $ 24,278 $ 19 $ 364 $ 331 $ 33
Accounts Receivable 9,647 12,875 10 1,180 3,133 10
Notes Receivable 3,360 3,360 -- 3,554 3,554 --
Investment in Affiliate -- -- 1,702 -- -- 1,616
Investment in Real Estate Joint Ventures 1,642 1,642 -- 672 672 --
Inventories 370,393 369,643 750 104,663 104,288 375
Property and Equipment, net 3,610 3,502 108 231 89 142
Other Assets -
Goodwill, net 29,106 29,106 -- -- -- --
Deferred Charges and Other 11,259 11,084 175 1,512 1,166 346
------------ ------------ ------------ ------------ ------------ ------------
$ 453,314 $ 455,490 $ 2,764 $ 112,176 $ 113,233 $ 2,522
============ ============ ============ ============ ============ ============
LIABILITIES, STOCKHOLDERS' EQUITY
AND PARTNERS' CAPITAL
Accounts Payable and Accrued Liabilities $ 59,707 $ 59,203 $ 4,677 $ 8,968 $ 9,008 $ 2,772
Notes Payable and Long-term Debt 324,866 324,866 -- 42,478 41,896 582
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 384,573 384,069 4,677 51,446 50,904 3,354
------------ ------------ ------------ ------------ ------------ ------------
Stockholders' Equity and Partners' Capital 68,741 71,421 (1,913) 60,730 62,329 (832)
------------ ------------ ------------ ------------ ------------ ------------
$ 453,314 $ 455,490 $ 2,764 $ 112,176 $ 113,233 $ 2,522
============ ============ ============ ============ ============ ============
* Unaudited.
** Condensed from audited financial statements.
See notes to condensed combining financial statements.
-33-
37
3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
CONDENSED COMBINING STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
----------------------------------------------------------------------------------------
For the Nine Months Ended
December 31,
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -------------------------------------------
Centex Centex
Development Development
Company, L.P. 3333 Holding Company, L.P. 3333 Holding
and Corporation and Corporation
Combined Subsidiaries and Subsidiary Combined Subsidiaries and Subsidiary
------------ ------------ -------------- ------------ ------------ --------------
CASH FLOWS - OPERATING ACTIVITIES
Net (Loss) Earnings $ (36) $ 1,045 $ (1,081) $ 42 $ 826 $ (784)
Adjustments:
Depreciation and Amortization 2,752 2,719 33 75 54 21
Earnings from Joint Venture (23) (23) (15) -- -- --
(Increase) Decrease in Receivables (5,662) (5,662) -- (977) 7,424 (690)
Decrease in Notes Receivable 194 194 -- 1,375 1,375 --
Increase in Inventories (11,612) (11,237) (375) (32,938) (31,138) (451)
(Increase) Decrease in Other Assets (2,744) (2,915) 171 (908) (845) (63)
Increase (Decrease) in Payables
and Accruals 12,131 10,313 1,905 5,353 5,357 (7,797)
------------ ------------ ------------ ------------ ------------ ------------
(5,000) (5,566) 638 (27,978) (16,947) (9,764)
------------ ------------ ------------ ------------ ------------ ------------
CASH FLOWS - INVESTING ACTIVITIES
(Increase) Decrease in Advances to
Joint Ventures and Investment in
Affiliate (947) (948) (71) 2,872 1,810 (205)
Decrease (Increase) in Property
and Equipment 318 317 1 (223) (128) (95)
------------ ------------ ------------ ------------ ------------ ------------
(629) (631) (70) 2,649 1,682 (300)
------------ ------------ ------------ ------------ ------------ ------------
CASH FLOWS - FINANCING ACTIVITIES
Increase (Decrease) in Notes Payable 24,719 25,301 (582) 17,301 14,890 2,411
Decrease in Notes Receivable -- -- -- 7,700 -- 7,700
Issuance of Class "C" Partnership Units 4,830 4,830 -- 1,000 1,000 --
------------ ------------ ------------ ------------ ------------ ------------
29,549 30,131 (582) 26,001 15,890 10,111
------------ ------------ ------------ ------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 13 13 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 23,933 23,947 (14) 672 625 47
CASH AT BEGINNING OF PERIOD 364 331 33 260 259 1
------------ ------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 24,297 $ 24,278 $ 19 $ 932 $ 884 $ 48
============ ============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Increase in Notes Payable
Related to an Acquisition $ 253,812 $ 253,812 -- -- -- --
Issuance of Class C Units in
Exchange for Assets $ 3,265 $ 3,265 -- $ 18,445 $ 18,445 --
See notes to condensed combining financial statements.
-34-
38
3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
CONDENSED COMBINING FINANCIAL STATEMENTS NOTES
DECEMBER 31, 1999
(unaudited)
(A) In March 1987, Centex Development Company, L.P. (the "Partnership"), a
master limited partnership, was formed to enable holders of Centex Corporation
("Centex") stock to participate in long-term real estate development projects
whose dynamics are inconsistent with Centex's traditional financial objectives.
Certain of Centex's subsidiaries contributed to the Partnership certain
properties at their historical cost basis in exchange for 1,000 limited
partnership units ("Class A Units").
The Partnership is controlled by its general partner, 3333 Development
Corporation ("Development"), which is in turn wholly-owned by 3333 Holding
Corporation ("Holding"). Holding is a separate public company whose stock trades
in tandem with Centex's stock. The common stock of Holding (the "Securities")
was distributed in 1987 (with warrants to purchase approximately 80% of the
Class B limited partnership units in the Partnership) as a dividend to the
stockholders of Centex. The Securities, held by a nominee on behalf of the
stockholders, will trade in tandem with the common stock of Centex until such
time as they are detached. The securities may be detached at any time by
Centex's Board of Directors but the warrants to purchase Class B Units
automatically become detached in November 2007.
The Board of Directors of Holding is elected by the stockholders of
Centex. In October 1999, the Board of Directors expanded the size of the board
to four directors. The majority of the Board members are independent outside
directors, none of whom are directors of Centex. Accordingly, the general
partner of the Partnership is controlled by the stockholders of Centex. The
general partner and independent Board of Directors of Holding manage the
Partnership's conduct of its activities including the sales, development,
maintenance and zoning of properties. The general partner may sell or acquire
properties, including the contributed property, and enter into other business
transactions without the consent of the limited partners. In addition, the
limited partners cannot remove the general partner.
See Note (C) to the condensed consolidated financial statements of
Centex and subsidiaries included elsewhere in this Form 10-Q for supplementary
condensed combined financial statements for Centex and Subsidiaries, Holding and
Subsidiary, and the Partnership and Subsidiaries.
(B) Holding has a service agreement with Centex Service Company, a wholly-owned
subsidiary of Centex, whereby Centex Service Company provides certain tax,
accounting and other similar services for Holding. This agreement was amended in
fiscal 1999 to include development services and the monthly fee was increased
from $2,500 per month to $30,000 per month.
The Partnership sells lots to Centex Homes pursuant to certain purchase
and sale agreements. Revenues from these sales totaled $669,000 and $5.0 million
for the three and nine months ended
-35-
39
December 31, 1999, and $55,000 and $2.9 million for the three and nine months
ended December 31, 1998, respectively. Gains associated with these sales totaled
$132,000 and $305,000 for the three and nine months ended December 31, 1999 and
$56,000 and $122,000 for the three and nine months ended December 31, 1998,
respectively.
(C) Comprehensive loss is summarized for the three and nine months ended
December 31, 1999 below (dollars in thousands):
-------------------------- -------------------------
For the Three Months Ended For the Nine Months Ended
December 31, 1999 December 31, 1999
-------------------------- -------------------------
Net Loss $ (112) $ (36)
Other Comprehensive Loss:
Foreign Currency Translation Adjustments (16) (48)
-------------------- --------------------
Comprehensive Loss $ (128) $ (84)
==================== ====================
(D) Changes in stockholders' equity and partners' capital are summarized below
(dollars in thousands):
For the Nine Months Ended December 31, 1999
------------------------------------------------------------------------------------
Centex Development Company, L.P. 3333 Holding Corporation
and Subsidiaries and Subsidiary
---------------------------------- ----------------------------------
Class B General Limited Capital In Retained
Unit Partner's Partner's Stock Excess of Earnings
Combined Warrants Capital Capital Warrants Par Value (Deficit)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 $ 60,730 $ 500 $ 767 $ 61,062 $ 1 $ 800 $ (1,633)
Partnership Units Issued in
Exchange for Assets 8,095 -- -- 8,095 -- -- --
Net (Loss) Earnings (36) -- -- 1,045 -- -- (1,081)
Accumulated Other
Comprehensive Loss:
Foreign Currency
Translation Adjustments (48) -- -- (48) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 $ 68,741 $ 500 $ 767 $ 70,154 $ 1 $ 800 $ (2,714)
========== ========== ========== ========== ========== ========== ==========
During fiscal year 1998, the partnership agreement governing the
Partnership was amended to allow for the issuance of new Class C Preferred
Partnership Units ("Class C Units"), to be issued in exchange for assets. During
the nine months ended December 31, 1999, 8,095 Class C Units were issued to
Centex Homes, the Partnership's sole limited partner, in exchange for assets
having a fair market value of $8.1 million.
The partnership agreement provides that Class A and Class C limited
partners are entitled to a cumulative preferred return of 9% per annum on the
average outstanding balance of their Unrecovered Capital. Unrecovered Capital
represents initial capital contributions reduced by repayments thereof, and is
the basis for preference accruals. Unrecovered Capital for Class A and Class C
limited partners was
-36-
40
approximately $68 million as of December 31, 1999 and the unpaid preferred
return as of that date was $13.3 million. No preferred return payments were made
during the three months or nine months ended December 31, 1999.
(E) On April 15, 1999 Centex Development Company UK Limited ("CDC-UK"), a
company incorporated in England and Wales and a wholly-owned subsidiary of the
Partnership, closed its acquisition of all of the voting shares of Fairclough
Homes Group Limited, a British home builder ("Fairclough"). The purchase price
at closing (approximately $218 million) was paid by the delivery of two-year
non-interest bearing promissory notes. Additionally, the seller of the voting
shares retained non-voting preference shares in Fairclough that will entitle it
to receive substantially all of the net after-tax earnings of Fairclough until
March 31, 2001. During that time period CDC-UK may, however, participate in
Fairclough's earnings in excess of certain specified levels.
However, because the non-voting preference shares retained by the
seller have the characteristics of debt, the preference obligations are being
reported as interest expense in the financial statements. A major portion of the
promissory notes is secured by a letter of credit obtained by the Partnership
from a United Kingdom bank.
During the period between April 15, 1999 and March 31, 2001, Fairclough
will be operated by CDC-UK subject to certain guidelines that were negotiated
with the seller. After March 31, 2001, CDC-UK will redeem, for a nominal value,
the preference shares.
The purchase of Fairclough has been accounted for using the purchase
method of accounting, pursuant to which the total cost of the acquisition has
been allocated to the tangible and intangible assets acquired and liabilities
assumed based upon their estimated fair values. The allocation of the purchase
price is as follows (dollars in thousands):
Inventories, Property and Equipment and Other $ 267,720
Goodwill 29,260
Notes Issued and Liabilities Assumed (296,980)
-------------
Cash Paid $ --
=============
The following unaudited pro forma results of operations for the three
and nine months ended December 31, 1998 give effect to the April 15, 1999
acquisition of Fairclough as if such transaction had occurred on April 1, 1998.
The financial information for Fairclough included in the unaudited pro forma
results of operations is derived from Fairclough's operating results for the
three and nine months ended December 31, 1998, in accordance with U.S. generally
accepted accounting principles and translated to U.S. dollars. This information
is based on the historical financial statements of the Companies and the
historical financial statements of Fairclough. The pro forma adjustments are
directly attributable to the transaction referenced above, and are expected to
have a continuing impact on the business, results of operations, and financial
position.
-37-
41
Pro Forma Results of Operations
--------------------------------------------------
For the Three Months Ended
December 31, 1998
--------------------------------------------------
(Dollars in thousands, except per unit/share data)
Centex
Development
Company, L.P. 3333 Holding
and Corporation
Combined Subsidiaries and Subsidiary
---------- ------------ --------------
Revenues $ 122,340 $ 122,311 $ 194
========== ========== ==========
Net (Loss) Earnings $ (23) $ 355 $ (378)
========== ========== ==========
Net Earnings Allocable to Limited Partner $ 355
==========
Earnings (Loss) Per Unit/Share $ 6.35 $ (378)
========== ==========
Pro Forma Results of Operations
--------------------------------------------------
For the Nine Months Ended
December 31, 1998
--------------------------------------------------
(Dollars in thousands, except per unit/share data)
Centex
Development
Company, L.P. 3333 Holding
and Corporation
Combined Subsidiaries and Subsidiary
---------- ------------ --------------
Revenues $ 290,838 $ 290,296 $ 951
========== ========== ==========
Net (Loss) Earnings $ (19) $ 765 $ (784)
========== ========== ==========
Net Earnings Allocable to Limited Partner $ 765
==========
Earnings (Loss) Per Unit/Share $ 14.49 $ (784)
========== ==========
The unaudited pro forma results of operations are not necessarily
indicative of what actual results of operations of the Companies would have been
for the period, nor do they represent the Companies' results of operations for
future periods.
The unaudited pro forma results of operations include the following
adjustments:
o Amortization of goodwill and other intangibles based
upon the Partnership's allocation of the purchase
price. Goodwill is being amortized over a 20-year
period;
o Elimination of the historical interest expense of
Fairclough related to debt not assumed by the
Partnership;
o Additional interest expense representing the
preference payments to the seller;
o Amortization of deferred debt issuance costs which
are being amortized over the term of the debt;
o Income tax adjustments related to the above pro forma
items.
-38-
42
(F) The Partnership operates in five principal business segments: International
Home Building, Domestic Home Building, Commercial Development, Multi-Family
Development and Land Sales. All of the segments, with the exception of
International Home Building, operate in the United States. International Home
Building currently operates in the United Kingdom.
The following tables set forth financial information relating to the
five business segments for the three and nine months ended December 31, 1999 and
December 31, 1998 (dollars in thousands):
-------------------------------------------------------------------------------------------
Three Months Ended December 31, 1999
-------------------------------------------------------------------------------------------
Home Building
----------------------------- Commercial Multi-Family
International Domestic Development Development Land Sales Total
------------- ----------- ----------- ----------- ----------- -----------
Revenues $ 71,298 $ 3,791 $ 3,593 $ -- $ 768 $ 79,450
Cost of Sales (62,294) (3,355) (1,683) -- (539) (67,871)
General & Administrative Expenses (6,433) (369) (974) (475) (125) (8,376)
Interest Expense (2,542) -- (740) (4) -- (3,286)
----------- ----------- ----------- ----------- ----------- -----------
Operating Earnings (Loss) $ 29 $ 67 $ 196 $ (479) $ 104 $ (83)
=========== =========== =========== =========== =========== ===========
Identifiable Assets $ 327,154 $ 7,302 $ 81,175 $ 26,457 $ 11,226 $ 453,314
-------------------------------------------------------------------------------------------
Three Months Ended December 31, 1998
-------------------------------------------------------------------------------------------
Home Building
----------------------------- Commercial Multi-Family
International Domestic Development Development Land Sales Total
------------- ----------- ----------- ----------- ----------- -----------
Revenues * $ 5,403 $ 58 $ 41 $ 192 $ 5,694
Cost of Sales * (4,596) -- -- (15) (4,611)
General & Administrative Expenses * (403) (95) (366) (120) (984)
Interest Expense * -- (32) (54) -- (86)
----------- ----------- ----------- ----------- -----------
Operating Earnings (Loss) $ 404 $ (69) $ (379) $ 57 $ 13
=========== =========== =========== =========== ===========
-39-
43
-------------------------------------------------------------------------------------------
Nine Months Ended December 31, 1999
-------------------------------------------------------------------------------------------
Home Building
----------------------------- Commercial Multi-Family
International Domestic Development Development Land Sales Total
------------- ----------- ----------- ----------- ----------- -----------
Revenues $ 208,389 $ 9,781 $ 7,177 $ 17,154 $ 6,748 $ 249,249
Cost of Sales (182,110) (8,500) (3,065) (17,049) (5,943) (216,667)
General & Administrative Expenses (17,601) (1,088) (1,881) (1,505) (375) (22,450)
Interest Expense (8,077) -- (1,471) (19) -- (9,567)
----------- ----------- ----------- ----------- ----------- -----------
Operating Earnings (Loss) $ 601 $ 193 $ 760 $ (1,419) $ 430 $ 565
=========== =========== =========== =========== =========== ===========
Identifiable Assets $ 327,154 $ 7,302 $ 81,175 $ 26,457 $ 11,226 $ 453,314
-------------------------------------------------------------------------------------------
Nine Months Ended December 31, 1998
-------------------------------------------------------------------------------------------
Home Building
----------------------------- Commercial Multi-Family
International Domestic Development Development Land Sales Total
------------- ----------- ----------- ----------- ----------- -----------
Revenues * $ 13,976 $ 1,744 $ 324 $ 3,730 $ 19,774
Cost of Sales * (11,885) (1,577) -- (3,082) (16,544)
General & Administrative Expenses * (1,205) (292) (1,111) (364) (2,972)
Interest Expense * -- (60) (94) (62) (216)
----------- ----------- ----------- ----------- -----------
Operating Earnings (Loss) $ 886 $ (185) $ (881) $ 222 $ 42
=========== =========== =========== =========== ===========
-------------------------------------------------------------------------------------------
Fiscal Year Ended March 31, 1999
-------------------------------------------------------------------------------------------
Home Building
----------------------------- Commercial Multi-Family
International Domestic Development Development Land Sales Total
------------- ----------- ----------- ----------- ----------- -----------
<C
Identifiable Assets * $ 10,920 $ 44,820 $ 31,337 $ 25,099 $112,176
* Business segment did not exist in prior fiscal year.
(G) Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued in June 1998.
This statement addressed the accounting for derivative instruments, including
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and hedging activities as well as the disclosure of these
activities. SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the consolidated balance sheet and measure those
instruments at fair value. In June 1999, SFAS No. 137 was issued which delays
the implementation of this statement for the Companies until April 2001.
(H) Certain prior period balances have been reclassified to be consistent with
the December 31, 1999 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On a combined basis, the Companies' revenues for the three and nine
months ended December 31, 1999 totaled $79.4 million and $249.2 million,
respectively. Revenues of $5.7 million and $19.8 million were reported for the
three and nine months ended December 31, 1998, respectively. The significant
increase in revenues for the three and nine months ended December 31, 1999
resulted primarily from the Partnership's acquisition of Fairclough.
The Companies had combined net loss for the three and nine months ended
December 31, 1999 of $112,000 and $36,000, respectively, compared to combined
net earnings of $13,000 and $42,000 for the three and nine months ended December
31, 1998, respectively.
HOME BUILDING
INTERNATIONAL -
The following summarizes International Home Building's results for the
three and nine months ended December 31, 1999 (dollars in thousands):
-------------------------- -------------------------
For the Three Months Ended For the Nine Months Ended
December 31, 1999 December 31, 1999
-------------------------- -------------------------
Revenues $ 71,298 $ 208,389
Cost of Sales (62,294) (182,110)
General & Administrative Expenses (6,433) (17,601)
Interest Expense, Paid to Seller (2,542) (8,077)
-------------- --------------
Operating Earnings $ 29 $ 601
============== ==============
Units Closed 377 1,147
============== ==============
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The Partnership acquired this segment in the first quarter of fiscal
2000. The seller received $221.7 million in non-interest bearing promissory
notes due March 31, 2001 and retained preferred non-voting shares in Fairclough.
The preferred shares require a preferred distribution and have a nominal
residual interest value that is mandatorily redeemable on March 31, 2001. During
the three and nine months ended December 31, 1999, Fairclough generated earnings
totaling $2.6 million and $8.1 million, respectively, which are subject to
distribution to the seller under the preferred share arrangement. The Companies
have accounted for the non-interest bearing debt and nominal residual value
preferred shares as if they were a single debt instrument. Accordingly,
distributions attributable to the preferred shares are accrued as interest
expense in the accompanying financial statements.
DOMESTIC -
The following summarizes Domestic Home Building's results for the three
and nine months ended December 31, 1999 compared to the same periods last year
(dollars in thousands):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Sales Revenues $ 3,791 $ 5,403
Cost of Sales (3,355) (4,596)
General & Administrative Expenses (369) (403)
------------ ------------
Operating Earnings $ 67 $ 404
============ ============
Units Closed 11 19
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Sales Revenues $ 9,781 $ 13,976
Cost of Sales (8,500) (11,885)
General & Administrative Expenses (1,088) (1,205)
------------ ------------
Operating Earnings $ 193 $ 886
============ ============
Units Closed 30 48
============ ============
During the three and nine months ended December 31, 1999 and 1998,
sales revenues included revenues from the sale of single-family homes in New
Jersey which completed the build-out of certain communities. In July 1999, the
Partnership obtained final zoning approval for the development of an additional
251 single-family homes.
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COMMERCIAL DEVELOPMENT
The following summarizes Commercial Development's results for the three
and nine months ended December 31, 1999 compared to the same periods last year
(dollars and square feet in thousands):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Sales Revenues $ 1,901 $ (116)
Rental Income 1,692 174
Cost of Sales (1,683) --
General & Administrative Expenses (974) (95)
Interest Expense (740) (32)
------------ ------------
Operating Earnings (Loss) $ 196 $ (69)
============ ============
Operating Square Feet 956 38
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Sales Revenues $ 3,765 $ 1,570
Rental Income 3,412 174
Cost of Sales (3,065) (1,577)
General & Administrative Expenses (1,881) (292)
Interest Expense (1,471) (60)
------------ ------------
Operating Earnings (Loss) $ 760 $ (185)
============ ============
Sales revenues for the three months ended December 31, 1999 included
the sale of certain residential lots in Texas and certain commercial land in
California. Sales revenues for the same period in the prior year included the
sale of industrial land to a joint venture in which the Partnership owns a 10%
interest.
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MULTI-FAMILY DEVELOPMENT
The following summarizes Multi-Family Development's ("Multi-Family")
results for the three and nine months ended December 31, 1999 compared to the
same periods last year (dollars in thousands):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ -- $ 41
Cost of Sales -- --
General & Administrative Expenses (475) (366)
Interest Expense (4) (54)
------------ ------------
Operating Loss $ (479) $ (379)
============ ============
------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Revenues $ 17,154 $ 324
Cost of Sales (17,049) --
General & Administrative Expenses (1,505) (1,111)
Interest Expense (19) (94)
------------ ------------
Operating Loss $ (1,419) $ (881)
============ ============
Revenues during the three and nine months ended December 31, 1999
resulted from the sale of a Texas apartment complex that had been constructed
subject to a pre-sale agreement. Revenues during the three and nine months ended
December 31, 1998 consisted primarily of development fee income.
LAND SALES
The following summarizes Land Sales' operating results for the three
and nine months ended December 31, 1999 compared to the same periods last year
(dollars in thousands):
------------------------------
For the Three Months Ended
December 31,
------------------------------
1999 1998
---------- ----------
Sales Revenues $ 768 $ 192
Cost of Sales (539) (15)
General & Administrative Expenses (125) (120)
Interest Expense -- --
---------- ----------
Operating Earnings $ 104 $ 57
========== ==========
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------------------------------
For the Nine Months Ended
December 31,
------------------------------
1999 1998
------------ ------------
Sales Revenues $ 6,748 $ 3,730
Cost of Sales (5,943) (3,082)
General & Administrative Expenses (375) (364)
Interest Expense -- (62)
------------ ------------
Operating Earnings $ 430 $ 222
============ ============
Revenues for the three months ended December 31, 1999 included the sale
of certain residential lots in Florida, Texas and New Jersey to Centex's
homebuilding operations. Revenues for the nine month period ended December 31,
1999 consisted of $5.0 million in residential lot sales to Centex Homes and the
sale of certain commercial land in Texas. Real Estate sales during the nine
months ended December 31, 1998 included $2.9 million of lot sales to Centex
Homes and the sale of certain commercial property in Texas.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 31, 1999, 8,095 Class C Preferred
Partnership Units were issued in exchange for assets with a fair market value of
$8.1 million. Also during the nine months ended December 31, 1999, the Companies
closed on non-recourse commercial development project loans totaling $49.6
million. The project loans are collateralized by commercial properties and have
ten-year maturities with fixed interest rates ranging from 6.9% to 7.8%.
The Partnership believes that the revenues, earnings, and liquidity
from its current operations and from construction and permanent financings will
be sufficient to provide the necessary funding for the current and future needs.
YEAR 2000 COMPLIANCE
Beginning in fiscal year 1997, the Companies engaged in an ongoing
process of evaluating and implementing changes to their systems in order to
ensure Year 2000 compliance. As a result of this process, the Companies and
their subsidiaries tested all critical systems during calendar year 1999 and
repaired, upgraded and/or replaced those found to be not Year 2000 compliant.
The cost of replacing, upgrading or otherwise changing non-compliant systems was
not material to the Companies as a whole, or to the Companies' individual
subsidiaries. The Companies used internally generated cash to fund the
correction of all non-compliant systems. The Companies' Year 2000 compliance
preparation included the completion of a contingency plan, the hiring of a third
party consultant (through Holding's services agreement with Centex Service
Company) and the surveying of material vendors and suppliers.
As a result of the attention that the Companies paid to addressing
their Year 2000 readiness, the Companies have not, to date, experienced any
adverse impact on the Companies' operations or financial condition or the
operations or financial condition of any of their individual subsidiaries as a
result of any Year 2000 compliance issues. In addition, the Companies are not
aware that any of their vendors, subcontractors
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or other third parties experienced any significant problems as a result of Year
2000 compliance issues. Furthermore, if any of those third parties were affected
by Year 2000 compliance issues, such compliance issues have not caused, to date,
any adverse effects on the Companies' operations or financial condition, or the
operations or financial condition of any of their individual subsidiaries.
Although the Companies have not been affected to date by the changes
from December 31, 1999 to January 1, 2000, Year 2000 issues could arise
subsequent to the filing of this report. As an example, the Companies' systems
could fail to recognize 2000 as a leap year. The Companies believe that such
circumstances are highly unlikely to occur and that, even if they were to occur,
it is highly unlikely that the Companies' operations or financial condition
would be materially adversely affected. Nevertheless, the Companies intend to
continue to monitor Year 2000 related issues and immediately address any effects
that may arise as a result.
Year 2000 Forward-looking Statements
Certain statements in this section, other than historical information,
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995. These statements involve
risks and uncertainties relative to the Companies' ability to assess and
remediate any Year 2000 compliance issues, the ability of third parties to
correct material non-compliant systems, and the Companies' assessment of the
Year 2000 issue's impact on their financial results and operations.
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this report on Form 10-Q contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the context of the statement and generally arise when the
Companies are discussing their beliefs, estimates or expectations. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties. Actual results and outcomes may differ materially from
what is expressed or forecast in such forward-looking statements. The principal
risks and uncertainties that may affect the Companies' actual performance and
results of operations include the following: general economic conditions and
interest rates; the cyclical and seasonal nature of the Companies' businesses;
changes in property taxes; changes in federal income tax laws; governmental
regulation; changes in governmental and public policy; changes in economic
conditions specific to any one or more of the Companies' markets and businesses;
competition; availability of raw materials; and unexpected operations
difficulties. Other risks and uncertainties may also affect the outcome of the
Companies' actual performance and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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50
3333 HOLDING CORPORATION AND SUBSIDIARY
CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(1) Exhibits
Exhibit 27.2 Financial Data Schedule
Exhibit 27.3 Financial Data Schedule
(2) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter
ended December 31, 1999.
All other items required under Part II are omitted because they are not
applicable.
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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 thereunto duly authorized.
3333 HOLDING CORPORATION
-------------------------------------------------
Registrant
February 11, 2000 /s/ Richard C. Decker
-------------------------------------------------
Richard C. Decker
Director, Chairman, President and
Chief Executive Officer
(principal executive officer)
February 11, 2000 /s/ Kimberly A. Pinson
-------------------------------------------------
Kimberly A. Pinson
Vice President, Treasurer, Controller and
Assistant Secretary
(principal financial officer and
chief accounting officer)
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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 thereunto duly authorized.
CENTEX DEVELOPMENT
COMPANY, L.P.
-------------------------------------------------
Registrant
By: 3333 Development Corporation,
General Partner
February 11, 2000 /s/ Richard C. Decker
-------------------------------------------------
Richard C. Decker
Director, Chairman, President and
Chief Executive Officer
(principal executive officer)
February 11, 2000 /s/ Kimberly A. Pinson
-------------------------------------------------
Kimberly A. Pinson
Vice President, Treasurer, Controller and
Assistant Secretary
(principal financial officer and
chief accounting officer)
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
Exhibit 10.10 Centex Corporation Amended and Restated 1987 Stock Option Plan
Exhibit 27.1 Financial Data Schedule - Centex Corporation
Exhibit 27.2 Financial Data Schedule - 3333 Holding Corporation
Exhibit 27.3 Financial Data Schedule - Centex Development Company, L.P.