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
JUNE 30, 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 July 30, 1999:
Centex Corporation Common Stock 59,593,963 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 29,139 units
2
CENTEX CORPORATION AND SUBSIDIARIES
3333 HOLDING CORPORATION AND SUBSIDIARY
CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
JUNE 30, 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 June 30, 1999 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended June 30, 1999 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
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3
3333 HOLDING CORPORATION AND SUBSIDIARY
CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Combining Financial Statements 24
Condensed Combining Statements of Operations
for the Three Months Ended June 30, 1999 25
Condensed Combining Balance Sheets 26
Condensed Combining Statements of Cash Flows
for the Three Months Ended June 30, 1999 27
Notes to Condensed Combining Financial Statements 28
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 33
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 38
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 38
SIGNATURES 39
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4
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. 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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5
CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands, except per share data)
(unaudited)
-----------------------------------
For the Three Months Ended June 30,
-----------------------------------
1999 1998
-------------- ---------------
REVENUES
Home Building
Conventional Homes $ 754,611 $ 561,194
Manufactured Homes 47,831 42,445
Investment Real Estate 3,807 4,894
Financial Services 116,887 100,133
Construction Products 97,180 79,846
Contracting and Construction Services 351,917 322,094
------------ ------------
1,372,233 1,110,606
------------ ------------
COSTS AND EXPENSES
Home Building
Conventional Homes 695,463 520,526
Manufactured Homes 46,636 39,685
Investment Real Estate (2,352) (2,509)
Financial Services 96,164 76,421
Construction Products 61,853 52,885
Contracting and Construction Services 346,362 318,618
Other, net 1,847 2,306
Corporate General and Administrative 7,208 5,351
Interest Expense 11,828 8,193
Minority Interest 14,114 12,408
------------ ------------
1,279,123 1,033,884
------------ ------------
EARNINGS BEFORE INCOME TAXES 93,110 76,722
Income Taxes 34,674 28,561
------------ ------------
NET EARNINGS $ 58,436 $ 48,161
============ ============
EARNINGS PER SHARE
Basic $ 0.98 $ 0.81
============ ============
Diluted $ 0.95 $ 0.78
============ ============
AVERAGE SHARES OUTSTANDING
Basic 59,446,165 59,530,844
Common Share Equivalents
Options 1,763,126 2,041,701
Convertible Debenture 400,000 400,000
------------ ------------
Diluted 61,609,291 61,972,545
============ ============
CASH DIVIDENDS PER SHARE $ 0.04 $ 0.04
============ ============
See notes to condensed consolidated financial statements.
2
6
CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
----------------------------
Centex Corporation
and Subsidiaries
----------------------------
June 30, March 31,
1999* 1999**
----------- -----------
ASSETS
Cash and Cash Equivalents $ 105,333 $ 111,268
Receivables -
Residential Mortgage Loans 1,362,542 1,395,616
Other 455,077 459,778
Inventories 1,681,439 1,533,819
Investments -
Centex Development Company, L.P. 63,139 63,207
Joint Ventures and Other 49,434 48,594
Unconsolidated Subsidiaries -- --
Property and Equipment, net 322,361 313,655
Other Assets -
Deferred Income Taxes 34,785 49,107
Goodwill, net 232,613 222,162
Mortgage Securitization Residual Interest 100,290 80,152
Deferred Charges and Other 64,857 57,388
----------- -----------
$ 4,471,870 $ 4,334,746
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities $ 967,982 $ 1,018,650
Short-term Debt 1,708,039 1,626,600
Long-term Debt 335,743 284,299
Payables to Affiliates -- --
Minority Stockholders' Interest 143,088 140,721
Negative Goodwill 62,837 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
59,490,725 and 59,388,350 respectively 14,873 14,847
Capital in Excess of Par Value 21,355 20,822
Retained Earnings 1,218,024 1,161,970
Accumulated Other Comprehensive Income (71) --
----------- -----------
Total Stockholders' Equity 1,254,181 1,197,639
----------- -----------
$ 4,471,870 $ 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
-------------------------------------- -----------------------------------
June 30, March 31, June 30, March 31,
1999* 1999** 1999* 1999**
------------------ --------------- --------------- ---------------
$ 80,612 $ 72,279 $ 24,721 $ 38,989
-- -- 1,362,542 1,395,616
417,572 404,043 37,505 55,735
1,681,439 1,533,819 -- --
63,139 63,207 -- --
49,434 48,594 -- --
244,237 221,744 -- --
293,811 285,891 28,550 27,764
24,958 40,541 9,827 8,566
217,122 206,595 15,491 15,567
-- -- 100,290 80,152
46,589 40,962 18,268 16,426
--------------- --------------- --------------- ---------------
$ 3,118,913 $ 2,917,675 $ 1,597,194 $ 1,638,815
=============== =============== =============== ===============
$ 891,403 $ 926,377 $ 76,579 $ 92,273
433,955 303,656 1,274,084 1,322,944
335,743 284,299 -- --
-- -- 122,338 102,652
140,794 138,867 2,294 1,854
62,837 66,837 -- --
-- -- -- --
14,873 14,847 1 1
21,355 20,822 75,944 75,944
1,218,024 1,161,970 45,954 43,147
(71) -- -- --
--------------- --------------- --------------- ---------------
1,254,181 1,197,639 121,899 119,092
--------------- --------------- --------------- ---------------
$ 3,118,913 $ 2,917,675 $ 1,597,194 $ 1,638,815
============== ============== ============== ==============
In the supplemental data presented above, "Centex Corporation" represents the
adding together 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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8
CENTEX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)
-----------------------------------
For the Three Months Ended June 30,
-----------------------------------
1999 1998
-------------- -------------
CASH FLOWS - OPERATING ACTIVITIES
Net Earnings $ 58,436 $ 48,161
Adjustments -
Depreciation and Amortization 10,416 9,096
Deferred Income Taxes 1,308 17,970
Equity in (Earnings) Loss of Centex Development
Company, L.P. and Joint Ventures (142) 555
Minority Interest, net of taxes 9,091 8,118
Decrease (Increase) in Receivables 4,701 (43,045)
Decrease (Increase) in Residential Mortgage Loans 33,074 (138,430)
Increase in Inventories (149,772) (152,973)
(Decrease) Increase in Payables and Accruals (50,668) 55,038
Increase in Other Assets (29,713) (99,486)
Other, net (6,724) (9,385)
------------- -------------
(119,993) (304,381)
------------- -------------
CASH FLOWS - INVESTING ACTIVITIES
Decrease (Increase) in Advances to Centex Development
Company, L.P. and Joint Ventures 1,522 (32,809)
Increase in Property and Equipment, net (18,453) (300)
------------- -------------
(16,931) (33,109)
------------- -------------
CASH FLOWS - FINANCING ACTIVITIES
(Decrease) Increase in Debt -
Secured by Residential Mortgage Loans (48,860) 181,276
Other 181,743 164,339
Retirement of Common Stock (3,279) (3,544)
Proceeds from Stock Option Exercises 3,838 1,052
Dividends Paid (2,382) (2,381)
------------- -------------
131,060 340,742
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (71) --
------------- -------------
NET (DECREASE) INCREASE IN CASH (5,935) 3,252
CASH AT BEGINNING OF PERIOD 111,268 98,316
------------- -------------
CASH AT END OF PERIOD $ 105,333 $ 101,568
============= =============
See notes to condensed consolidated financial statements.
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9
CENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Dollars in thousands)
(unaudited)
(A) A summary of comprehensive income for the three months ended June 30, 1999
is presented below:
Net Earnings $ 58,436
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments (71)
--------
Comprehensive Income $ 58,365
========
Other Comprehensive Income is the result of 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) A summary of changes in stockholders' equity is presented below:
Accumulated
Capital in Other
Preferred Common Excess of Par Retained Comprehensive
Stock Stock Value Earnings Income Total
------------ ------------ ------------- ------------ ------------- ------------
Balance, March 31, 1999 $ -- $ 14,847 $ 20,822 $ 1,161,970 $ -- $ 1,197,639
Net Earnings -- -- -- 58,436 -- 58,436
Exercise of Stock
Options -- 50 3,788 -- -- 3,838
Retirement of 95,000
Shares -- (24) (3,255) -- -- (3,279)
Cash Dividends -- -- -- (2,382) -- (2,382)
Foreign Currency
Translation
Adjustments -- -- -- -- (71) (71)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1999 $ -- $ 14,873 $ 21,355 $ 1,218,024 $ (71) $ 1,254,181
============ ============ ============ ============ ============ ============
(C) In March 1987, certain of Centex's subsidiaries contributed to Centex
Development Company, L.P., (the "Partnership") a newly formed master limited
partnership, properties with a historical cost basis (which approximated market
value) of approximately $76 million. 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 a limited partnership which is controlled by its general
partner, 3333 Development Corporation ("Development"), a wholly-owned subsidiary
of 3333 Holding Corporation ("Holding"). Holding is a separate public company
whose stock trades in tandem with Centex's stock. The common stock
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of Holding 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 and is held by a nominee. These securities, held by
the 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 three-person Board of Directors of Holding is elected by the
stockholders of Centex. Two of the Board members, representing the majority of
the Board, are independent outside directors who are also not 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 how the Partnership conducts 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 limited partner 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 year 1998, the agreement governing the Partnership was amended
to allow for the issuance of a new class of limited partnership units, Class C
Limited Partnership Units ("Class C Units"). During fiscal 2000, 2,152 Class C
Units were issued in exchange for assets with a fair market value of $2.2
million. These assets were recorded by the Partnership at fair market value. The
partnership agreement provides that Centex, the 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, defined as its capital
contributions, adjusted for cash distributions representing return of the
capital contributions. Unrecovered Capital as of June 30,1999 was approximately
$62 million and preference payments in arrears as of that date were $10.5
million. No preference payments were made during the quarter.
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
-------------------------
JUNE 30, March 31,
1999 1999*
---------- ----------
ASSETS
Cash and Cash Equivalents $ 108,765 $ 111,632
Receivables 1,832,069 1,860,090
Inventories 2,034,790 1,639,664
Investments in Joint Ventures and Other 50,076 49,266
Property and Equipment, net 326,334 313,886
Other Assets 468,675 410,321
---------- ----------
$4,820,709 $4,384,859
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable and Accrued Liabilities $1,013,096 $1,026,867
Short-term Debt 2,011,764 1,668,496
Long-term Debt 335,743 284,299
Minority Stockholders' Interest 143,088 140,721
Negative Goodwill 62,837 66,837
Stockholders' Equity 1,254,181 1,197,639
---------- ----------
$4,820,709 $4,384,859
========== ==========
* Condensed from audited financial statements
SUPPLEMENTARY CONDENSED COMBINED STATEMENTS OF EARNINGS
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
Revenues $ 1,447,764 $ 1,115,033
Costs and Expenses 1,354,393 1,038,464
------------- -------------
Earnings Before Income Taxes 93,371 76,569
Income Taxes 34,935 28,561
------------- -------------
NET EARNINGS 58,436 48,008
Other Comprehensive Income (Loss) (71) --
------------- -------------
COMPREHENSIVE INCOME $ 58,365 $ 48,008
============= =============
(D) In order to ensure the future availability of land for homebuilding, the
Company has made deposits totaling approximately $53 million as of June 30, 1999
for options to purchase undeveloped land and developed lots having a total
purchase price of approximately $1.4 billion. These options and commitments
expire at various dates to the year 2005. The Company has also committed to
purchase land and developed lots totaling approximately $4 million. In addition,
the Company has executed lot purchase contracts with the Partnership which
aggregate approximately $4 million.
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12
(E) Interest expense relating to the Financial Services operations is included
in its costs and expenses. Interest related to non-financial services is
included in interest expense.
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
Total Interest Incurred $ 28,483 $ 27,778
Less - Financial Services (16,655) (19,585)
--------- ---------
Interest Expense $ 11,828 $ 8,193
========= =========
(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 CXP
was 61.5% as of June 30, 1999 compared to 56.4% as of June 30, 1998.
(G) In fiscal 1996, the Company acquired certain equity interests in Vista
Properties, Inc. At the time of the acquisition, Vista owned a real estate
portfolio of properties located in seven states in which the Company has major
operations. Vista's real property portfolio generally consisted of land zoned,
planned or developed for single- and multi-family residential, office, retail,
industrial, and other commercial uses. During fiscal 1997, Centex's Home
Building subsidiary completed a business combination transaction and
reorganization with Vista whereby Centex's Home Building assets and operations
were contributed to Vista and Vista changed its name to Centex Real Estate
Corporation. As a result of the combination, Centex's Investment Real Estate
portfolio, valued in excess of $125 million, was reduced to a nominal "book
basis" after recording certain deferred tax benefits. Accordingly, as these
properties are developed or sold the net sales proceeds are reflected as
operating margin. Negative Goodwill recorded as a result of the business
combination is being amortized to earnings over approximately seven years which
represents the estimated period over which the land will be developed and/or
sold. 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 $63 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 table sets forth financial information relating to the Conventional
Homes operations.
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Revenues $ 754.6 $ 561.2
Cost of Sales (581.3) (440.3)
Selling, General &
Administrative Expenses (114.2) (80.2)
-------- --------
Operating Earnings $ 59.1 $ 40.7
======== ========
MANUFACTURED HOMES
Manufactured Homes operations involve the manufacture of quality residential
and park model homes and the sale of these homes through a network of Cavco
owned and independent dealers. The Company entered the Manufactured Homes
industry in late March 1997, when a subsidiary acquired approximately 80% of
Cavco Industries.
The following table sets forth financial information relating to the
Manufactured Homes operations.
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Revenues $ 47.8 $ 42.4
Cost of Sales (38.7) (33.4)
Selling, General &
Administrative Expenses (7.9) (6.3)
------- -------
Operating Earnings 1.2 2.7
Minority Interest (0.2) (0.5)
------- -------
Net Operating Earnings to Centex $ 1.0 $ 2.2
======= =======
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INVESTMENT REAL ESTATE
Investment Real Estate operations involve the development of land relating
primarily to multi-family, industrial, office, retail and mixed-use projects.
The following table sets forth financial information relating to the Investment
Real Estate operations.
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Revenues $ 3.8 $ 4.9
Cost of Sales (0.2) (0.1)
Selling, General &
Administrative Expenses (1.4) (1.4)
Negative Goodwill Amortization 4.0 4.0
-------- --------
Operating Earnings $ 6.2 $ 7.4
======== ========
Property sales related to Investment Real Estate's nominally valued assets
resulted in operating margins of $3.0 million for the first quarter of fiscal
2000 and $4.2 million for the first quarter of fiscal 1999. As of June 30, 1999,
the Investment Real Estate Group had approximately $70.7 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 mortgage origination and
other related services for homes sold by Centex subsidiaries and by others. The
following table sets forth financial information relating to the Financial
Services operations.
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Revenues* $116.9 $100.1
Selling, General &
Administrative Expenses (79.5) (56.8)
Interest Expense (16.7) (19.6)
------ ------
Operating Earnings $ 20.7 $ 23.7
====== ======
* Financial Services revenues include interest income of $23.6 million and
$24.0 million for the three months ended June 30, 1999 and 1998,
respectively.
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CONSTRUCTION PRODUCTS
Construction Products operations involve the manufacture and sale of cement,
gypsum wallboard and aggregates and readymix concrete. The following table sets
forth financial information relating to the Construction Products operations:
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Revenues* $ 97.2 $ 79.9
Cost of Sales and Expenses (61.0) (52.8)
Selling, General &
Administrative Expenses (0.8) (0.1)
---------- ----------
Operating Earnings 35.4 27.0
Minority Interest (13.9) (11.9)
---------- ----------
Net Operating Earnings to Centex $ 21.5 $ 15.1
========== ==========
* Construction Products revenues include interest income of $0.5 million
and $0.8 million for the three months ended June 30, 1999 and 1998,
respectively.
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 table sets forth financial information relating to the
Contracting and Construction Services operation. As this segment generates
significant levels of balance sheet related cash flow, intercompany interest
income (credited at the prime rate in effect) is reflected in this segment.
These amounts are eliminated in consolidation.
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Revenues $ 351.9 $ 322.1
Construction Contract Costs (333.6) (309.3)
Selling, General &
Administrative Expenses (12.8) (9.3)
------- -------
Operating Income, as reported 5.5 3.5
Intercompany Interest Income* 2.2 1.4
------- -------
Total Economic Return $ 7.7 $ 4.9
======= =======
*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.
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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 table summarizes financial information relating to the
Corporate and Other, net segments:
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
(Dollars in millions)
Operating Loss, Other, net $ (1.8) $ (2.3)
======= =======
Corporate General and
Administrative Expenses $ (7.2) $ (5.4)
======= =======
(I) Options to purchase approximately two million shares of common stock at
approximately $38.58 per share (expiring April 2008) were outstanding during the
quarter ended and as of June 30, 1999 but were not included in the computation
of diluted EPS because they were anti-dilutive.
(J) Statement of Financial Accounting Standards 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. It 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.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," was issued in October 1998.
This statement requires that an entity engaged in mortgage banking classify the
resulting mortgage-backed security or other retained interest based on its
ability and intent to sell or hold the investments. The Company implemented SFAS
No. 134 as of June 30, 1999.
(K) Certain prior year balances have been reclassified to be consistent with the
June 30, 1999 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Centex's consolidated revenues for the quarter were $1.4 billion, a 24%
increase over $1.1 billion for the same quarter last year. Earnings before
income taxes were $93.1 million, 21% higher than $76.7 million last year. Net
earnings for the first quarter of fiscal 2000 were $58.4 million, a 21% increase
over net earnings of $48.2 million for the first quarter of fiscal 1999.
HOME BUILDING
CONVENTIONAL HOMES
The following summarizes Conventional Homes's results for the quarter ended
June 30, 1999 compared to the quarter ended June 30, 1998 (dollars in millions,
except per unit data):
----------------------------------------------------------------
For the Three Months Ended June 30,
----------------------------------------------------------------
1999 1998
--------------------------- -------------------------------
Conventional Homes Revenues $ 754.6 100.0% $ 561.2 100.0%
Cost of Sales (581.3) (77.0%) (440.3) (78.5%)
Selling, General & Administrative (114.2) (15.2%) (80.2) (14.3%)
---------- ---------- ----------- ----------
Operating Earnings $ 59.1 7.8% $ 40.7 7.2%
========== ========== ========== ==========
Units Closed 3,934 2,982
% Change 31.9% 16.2%
Unit Sales Price $ 188,608 $ 184,363
% Change 2.3% 3.9%
Operating Earnings per Unit $ 15,035 $ 13,638
% Change 10.2% 27.4%
Home sales (orders) were 4,774 for the quarter this year compared to 3,589
units for the same quarter a year ago. The backlog of homes sold but not closed
at June 30, 1999 was 7,612 units, 26% higher than 6,058 units at June 30, 1998.
Operating earnings for June 30, 1999 were 0.6% higher as a percentage of
revenue and approximately $1,400 higher on a per unit basis in comparison to
June 30, 1998. This was as a result of the division's continued focus on
improving gross margins, which increased by 15% or $3,500. This was offset by an
increase in selling, general and administrative expenses of 0.9% or $2,100.
Relatively low interest rates, an expanding economy and a reduction in direct
costs as a percentage of revenue are some of the major factors that impacted the
operating results of the conventional homes operations. Margin improvement
initiatives include, among others, engineering the homes to reduce material and
labor cost components, designing the product around consumer preferences, and
the adoption of special purchasing and land development programs. The increase
in sales price of approximately $4,200 is primarily a result of increased
pricing in the California market. The remainder of the increase in average
sales price is due to recent acquisitions which have higher average sales
prices. These acquisitions also had a positive impact on the number of units
sold.
-14-
18
MANUFACTURED HOMES
The following summarizes Manufactured Homes's results for the quarter ended
June 30, 1999 compared to the quarter ended June 30, 1998 (dollars in millions):
------------------------------------------------------
For the Three Months Ended June 30,
------------------------------------------------------
1999 1998
--------------------------- ------------------------
Manufactured Homes Revenues (Construction) $ 34.8 100.0% $ 33.4 100.0%
Cost of Sales (28.2) (81.0%) (26.4) (79.0%)
Selling, General & Administrative Expenses (3.7) (10.7%) (3.5) (10.5%)
-------- -------- -------- --------
2.9 8.3% 3.5 10.5%
-------- -------- -------- --------
Retail Sales Revenues 13.0 100.0% 9.0 100.0%
Cost of Sales (10.5) (80.8%) (7.0) (77.8%)
Selling, General & Administrative Expenses (3.4) (26.2%) (1.9) (21.1%)
-------- -------- -------- --------
(0.9) (7.0%) 0.1 1.1%
-------- -------- -------- --------
Construction and Retail Earnings 2.0 3.6
Goodwill Amortization (0.8) (0.9)
Minority Interest (0.2) (0.5)
-------- --------
Group Operating Earnings $ 1.0 $ 2.2
======== ========
Units Sold 1,784 1,611
Cavco operates five manufactured home plants: three in the Phoenix, Arizona
area, one near Albuquerque, New Mexico, and a recently opened plant in central
Texas. Cavco also operates 22 retail locations for the sale of manufactured
homes, including seven recently opened locations in Texas.
Operating earnings for Manufactured Homes were $1.0 million for the quarter
ended June 30, 1999 compared to $2.2 million for the quarter ended June 30,
1998. The decrease in operating earnings was primarily due to start-up costs
associated with a new manufacturing facility and the new retail store openings
in Texas. In addition, manufacturing margins were negatively impacted in the
current quarter by higher material and labor costs.
INVESTMENT REAL ESTATE
The following summarizes Investment Real Estate's results for the quarter
ended June 30, 1999 compared to the quarter ended June 30, 1998 (dollars in
millions):
----------------------------
For the Three Months Ended
June 30,
----------------------------
1999 1998
------- -------
Revenues $ 3.8 $ 4.9
======= =======
Operating Earnings $ 6.2 $ 7.4
======= =======
-15-
19
For the quarter ended June 30, 1999, Centex's Investment Real Estate
operation, through which all investment property transactions are reported, had
operating earnings of $6.2 million, 17% lower than $7.4 million for the same
quarter a year ago. 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 $3.0 million
in the first quarter of fiscal 2000 and $4.2 million in the first quarter of
fiscal 1999. As of June 30, 1999, the Investment Real Estate Group has
approximately $70.7 million of nominally valued assets which are expected to be
sold over the next four years.
Negative goodwill amortization was $4 million in the first quarter of both
fiscal 2000 and 1999.
FINANCIAL SERVICES
The following summarizes Financial Services's results for the quarter ended
June 30, 1999 compared to the quarter ended June 30, 1998 (dollars in millions):
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
Revenues $ 116.9 $ 100.1
======= =======
Operating Earnings $ 20.7 $ 23.7
======= =======
Origination Volume $ 2,773 $ 2,597
======= =======
Number of Loans Originated
CTX Mortgage Company ("CTX Mortgage")
Centex-built Homes ("Builder") 2,469 2,081
Non-Centex-built Homes ("Retail") 15,849 16,242
------- -------
18,318 18,323
Centex Home Equity Corporation ("Home Equity") 4,839 3,516
Centex Finance Company 168 143
------- -------
23,325 21,982
======= =======
Financial Services's operating earnings for the quarter ended June 30, 1999
were $20.7 million, 13% lower than June 30, 1998 operating earnings of $23.7
million. The following paragraphs provide a detailed analysis of this change.
Operating earnings from CTX Mortgage totaled $17.1 million for the first
quarter of this year, 19% less than earnings for the same quarter a year ago.
CTX Mortgage originations for the first quarter of fiscal 2000 were 18,318,
which was a slight decrease from the 18,323 originations for the first quarter
of fiscal 1999. The per loan margin for the three months ended June 30, 1999 was
$936, 19% lower that the $1,159 per loan for
-16-
20
the same quarter last year, due to a more competitive pricing environment and
the delay in balancing operating costs with current production levels. CTX
Mortgage's total mortgage applications for the first quarter of fiscal 2000
decreased slightly to 18,994 from 19,191 applications for the first quarter of
fiscal 1999 and are expected to continue to decline on a year-over-year basis as
a result of the recent increases in mortgage interest rates. 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.
Home Equity reported $4.6 million of operating earnings for the quarter
ended June 30, 1999, 55% higher than earnings for the same quarter last year.
Originations for the first quarter of fiscal 2000 were 4,839, which is a 38%
increase over the originations for the first quarter of fiscal 1999. Loan volume
for the quarter was $320 million, a 39% improvement over the same quarter a year
ago. Per loan profit reached $942, 13% higher than last year's first quarter
profit per loan of $834 primarily as a result of increased originations. Home
Equity's sub-prime applications totaled 28,663 for this quarter, which is an
increase of 119% over the 13,088 applications for the first quarter of fiscal
1999. During the first quarter of fiscal 2000, Home Equity completed a
securitization for $285 million, compared to a $200 million securitization in
the prior year. Home Equity is the long-term servicer of these loans. Service
fee income related to this long-term servicing was $2.6 million in the first
quarter of fiscal 2000 and $0.4 million in the same quarter last year.
Centex Finance Company, the manufactured homes finance unit, had an
operating loss of approximately $977,000, compared to a loss of $453,000 for the
same quarter last year, due to expansion costs. During the first quarter of
fiscal 2000, Centex Finance Company originated 168 loans, a 17% increase over
the 143 loans for the same quarter last year.
Revenues include the gain on sale of mortgage loan receivables that
increased to $66.3 million in the first quarter of fiscal 2000 from $57.1
million in the same quarter last year. This increase is attributable to the
expansion of Financial Services's product lines and the increased origination
volume. The gain on sale of mortgage loans includes the gain recorded upon the
completion of securitizations, gain on sale of servicing, and whole loan sales.
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
slightly in the first quarter of fiscal 2000 to $23.6 million. Interest expense
for the first quarter of fiscal 2000 was $16.7 million, a 16% decrease from the
same quarter last year. As a result, positive carry increased to $6.9 million in
the first quarter of fiscal 2000, a 57% increase over the first quarter of
fiscal 1999.
Financial Services's 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
Construction Products's revenues were $97.2 million for the quarter this
year, 22% higher than last year. For the current quarter, Construction
Products's pretax earnings net to the Company's ownership were $21.5 million, a
43% increase over $15.0 for the same quarter last year.
-17-
21
Construction Products's record operating earnings resulted from improved
results in each of its businesses. Pricing and sales volume improved for every
product, particularly pricing for Gypsum Wallboard, which rose 28% over pricing
for the same quarter last year.
CONTRACTING AND CONSTRUCTION SERVICES
The following summarizes Contracting and Construction Services's results for
the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998
(dollars in millions):
--------------------------------
For the Three Months Ended
June 30,
--------------------------------
1999 1998
------------- -------------
Revenues $ 351.9 $ 322.1
========= =========
Operating Earnings $ 5.5 $ 3.5
========= =========
New Contracts Received $ 567 $ 391
========= =========
Backlog of Uncompleted Contracts $ 1,152 $ 1,228
========= =========
Contracting and Construction Services's revenues for the quarter ended June
30, 1999 were $351.9 million, a 9% increase over revenues for the same quarter
last year. Operating earnings for the group improved 60% to $5.5 million for the
first quarter of fiscal 1999. This increase is primarily the result of a
continuing shift in recent years to higher-margin private negotiated projects
rather than the lower margin public bid work that has historically been its
specialty.
The Contracting and Construction Services operation provided a positive
average net cash flow in excess of Centex's investment in the group of $116
million for the first quarter of fiscal 2000 and $65 million for the first
quarter in fiscal 1999.
YEAR 2000 COMPLIANCE
The Company has a variety of operating systems, computer software
applications, computer hardware equipment (collectively, "IT Systems") and other
equipment with embedded electronic circuits, including applications that the
Company uses in its administrative functions and in the operations of its
various subsidiaries (collectively, the "Non-IT Systems" and together with the
IT Systems, the "Systems"). Because resolution of Year 2000 issues is considered
a priority of the Company, the Company created a Year 2000 Task Force to oversee
the Company's Year 2000 compliance. The Task Force, consisting of members of the
Company's management and accounting, financial planning, legal, and internal
audit departments, has oversight of the information systems managers and other
administrative personnel charged with implementing the Company's Year 2000
compliance program (collectively, the "Year 2000 Compliance Team").
The Task Force has surveyed the Year 2000 Compliance Team regarding the Year
2000 compliance of the Systems. The surveys indicated that a small number of the
Systems are not Year 2000 compliant. Affected Systems are primarily Non-IT
Systems that are not critical to the material operations of the Company and its
subsidiaries. The Company and its subsidiaries have replaced many of these
Systems and are in the process of replacing others. Substantially all
non-compliant Systems that are material will be replaced and the replacement
Systems tested no later than the second quarter of fiscal 2000 (i.e., the
quarter ending September
-18-
22
30, 1999). In substantially all of the cases, the replacement or upgrading of,
or other changes to, the non-compliant Systems (i) has occurred or will occur
for reasons unrelated to the non-compliance of the Systems and (ii) has not been
accelerated as a result of the non-compliance of such Systems. To date, the
timetable for addressing non-compliance of Systems has been substantially the
same for both IT Systems and Non-IT Systems. The Company anticipates that this
will continue to be the case as it sees its Year 2000 program through to its
completion.
The Company does not believe (i) that the non-compliant Systems pose a
material risk to the financial condition of the Company and its subsidiaries as
a whole, or of the individual operations of subsidiaries that currently have
non-compliant Systems or (ii) that the cost of replacing, upgrading or otherwise
changing the non-compliant Systems is material to the Company and its
subsidiaries as a whole, or to any of the individual subsidiaries. The Company
and its subsidiaries have used, and believe that they will be able to continue
to use, internally generated cash to fund the correction of Systems that are not
compliant.
In order to further confirm the Company's Year 2000 readiness, the Company
engaged the services of a third-party consulting firm to evaluate its Year 2000
readiness program. The consulting firm's review was completed during the fourth
quarter of fiscal 1999. The firm's conclusions are consistent with the Company's
internal determinations of its Year 2000 readiness. The Company is implementing
the consulting firm's recommendations for achieving Year 2000 compliance.
The Task Force is currently developing its Year 2000 contingency plan. The
Task Force has completed many of the preliminary components of the contingency
plan and anticipates that the entire contingency plan will be completed no later
than September 30, 1999.
As a result of the Company's Year 2000 compliance program, the Company
believes that it is highly unlikely that any interruption to its subsidiaries'
operations resulting from a compliance failure will have a material adverse
effect on the financial condition of the Company and its subsidiaries as a whole
or the financial condition or operations of any operating subsidiary. Achieving
Year 2000 compliance is dependent on many factors, however, and some of these
factors are not completely within the Company's control. Although the Company's
subsidiaries obtain information, materials and services from numerous sources
and provide goods and services to numerous customers, the failure of these
third-parties (including U.S. government agencies) to achieve Year 2000
readiness may adversely impact the Company's subsidiaries' operations. Although
most of the Company's Year 2000 readiness program is substantially the same
across the businesses of the Company's various subsidiaries, the Company
believes that non-compliance of third parties in its financial services
operations could have a greater effect on the Company than the non-compliance of
third parties in its less technology-intensive subsidiary operations such as
general contracting and home building.
The Company believes the most likely Year 2000 worst-case scenario would be
the failure of some significant vendors, subcontractors or other third parties
to achieve compliance, resulting in a slowdown of the Company's subsidiaries'
operations. The Company is not aware of any such third parties that are not Year
2000 compliant. In order to address the potential non-compliance of third
parties affecting the Company's subsidiaries' operations, the Company's
subsidiaries continue to survey their largest customers, subcontractors, and
vendors by sending questionnaires or requests for disclosure of Year 2000
readiness. The number of surveys sent as well as the form of survey varies by
the Company subsidiary making the request for confirmation of compliance. The
responses received to date range from detailed analyses of readiness with
-19-
23
descriptions of contingency plans to general statements of readiness. With
respect to unanswered surveys throughout the Company's subsidiaries, the
management of the respective subsidiaries will continue to follow-up throughout
the remainder of the year either through a second request or direct
conversations with those parties whose operations are material to the Company or
its subsidiaries in order to ascertain the Y2K readiness of such parties. The
Task Force has engaged the services of a third party to survey owners and
managers of facilities leased by the Company's subsidiaries. To date, the
Company has received responses from approximately 30% of the total number of
owners and managers surveyed, including responses from substantially all of the
surveyed owners and managers that lease material facilities to the Company's
subsidiaries. The completed surveys from the owners and managers of the material
facilities indicate that such facilities are Y2K compliant.
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 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 June 30, 1999, the Company had cash and cash equivalents of $105.3
million. The net cash provided or used by the operating, investing, and
financing activities for the three months ended June 30, 1999 and 1998 is
summarized below (dollars in thousands):
--------------------------
For the Three Months Ended
June 30,
--------------------------
1999 1998
------------- ----------
NET CASH (USED IN) PROVIDED BY:
Operating activities $(119,993) $(304,381)
Investing activities (16,931) (33,109)
Financing activities 131,060 340,742
Effect of exchange rate changes on cash (71) --
--------- ---------
Net (decrease) increase in cash $ (5,935) $ 3,252
========= =========
For the first quarter of fiscal 2000, cash was used in the operations to
finance the increase in housing inventories. The increase in housing inventories
relates to the increased level of sales and resultant units under construction
during the year and the acquisition of expansion land. Cash was also used to
fund additions to property and equipment (primarily in the Construction Products
segment for new production capacity). The funds provided by financing activities
included new debt used to fund the increased home building activity.
Short-term debt as of June 30, 1999 was $1.7 billion, which included $1.3
billion of debt applicable to the Financial Services operation. The majority of
the Financial Services debt is collateralized by residential mortgage loans, and
thus requires only limited support by Centex Corporation. Most of the Company's
corporate borrowings are accomplished at prevailing market interest rates
through short-term borrowings from
-20-
24
uncommitted bank facilities and the Company's commercial paper programs. The
Company maintains $660 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 provide for limited support from Centex
Corporation. CTX Mortgage Company has its own $1.2 billion of secured committed
mortgage warehouse facilities which includes a $300 million asset-backed
commercial paper program. In addition, it has another $665 million of
uncommitted credit facilities. All of these facilities are used to finance
mortgages that are held during the period they are being securitized and readied
for delivery against forward sale commitments. Centex Home Equity Corporation
has its own $260 million of committed and $160 million of uncommitted secured
mortgage warehouse facilities to finance sub-prime mortgages held until
securitization.
The long-term debt outstanding as of June 30, 1999 was as follows (in
thousands):
Subordinated Debentures, 7.375%, due in 2005 $ 99,711
Subordinated Debentures, 8.75%, due in 2007 99,484
Other Indebtedness, 5.82% to 9.6%, due through 2027 136,548
---------
$ 335,743
=========
Maturities of long-term debt during the next five years (in thousands) are:
2000, $1,212; 2001, $113,086; 2002, $1,221; 2003, $15,309; and 2004, $205.
The Company believes it has adequate resources and sufficient credit
facilities to satisfy its current needs and to provide for future growth.
OTHER DEVELOPMENTS AND OUTLOOK
In July 1999, Centex Homes, the home building subsidiary of Centex
Corporation, completed the acquisition of substantially all of the suburban
Chicago, Illinois home building operating assets of Chicago-based Sundance
Homes, Inc. for approximately $50 million in cash. The acquisition includes land
and lots sufficient for about 1,100 homes and work-in-progress comprising about
200 homes.
Centex Homes also signed a letter of intent to acquire the operating assets
of Real Homes, Inc., located in Las Vegas, Nevada, in July 1999. The acquisition
price of approximately $20 million will be paid in cash at the time of closing,
currently scheduled to occur before September 30, 1999. Real Homes builds
approximately 500 homes annually for first-time buyers in the Las Vegas market.
-21-
25
- --------------------------------------------------------------------------------
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.
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.
Other than the forward commitments 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 from March
31, 1999. For information regarding the Company's market risk, refer to Form
10-K for the fiscal year ended March 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits
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 June 30, 1999.
All other items required under Part II are omitted because they are not
applicable.
-22-
26
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
August 16, 1999 /s/ David W. Quinn
----------------------------------------
David W. Quinn
Vice Chairman of the Board and
Chief Financial Officer
(principal financial officer)
August 16, 1999 /s/ Barry G. Wilson
----------------------------------------
Barry G. Wilson
Controller
(chief accounting officer)
-23-
27
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.
-24-
28
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 June 30,
----------------------------------------------------------------------------------------
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 $ 78,669 $ 78,669 $ 150 $ 6,308 $ 6,076 $ 476
COSTS AND EXPENSES 78,388 77,815 723 6,654 6,269 629
-------- -------- -------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES 281 854 (573) (346) (193) (153)
INCOME TAXES 261 261 -- -- -- --
-------- -------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ 20 $ 593 $ (573) $ (346) $ (193) $ (153)
======== ======== ======== ======== ======== ========
NET EARNINGS (LOSS) ALLOCABLE TO
LIMITED PARTNERS $ 593 $ (193)
======== ========
EARNINGS (LOSS) PER UNIT/SHARE $ 10.01 $ (573) $ (3.93) $ (153)
======== ======== ======== ========
WEIGHTED-AVERAGE UNITS/SHARES
OUTSTANDING 59,270 1,000 49,119 1,000
See notes to condensed combining financial statements.
-25-
29
3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
CONDENSED COMBINING BALANCE SHEETS
(Dollars in thousands)
--------------------------------------------------------------------------------------
JUNE 30, 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 $ 3,432 $ 3,431 $ 1 $ 364 $ 331 $ 33
Accounts Receivable 12,226 14,933 19 1,180 3,133 10
Notes Receivable 3,547 3,547 -- 3,554 3,554 --
Investment in Affiliate -- -- 1,114 -- -- 1,616
Investment in Real Estate Joint Venture 642 642 524 672 672 --
Commercial Properties, net 32,579 32,579 -- 1,899 1,899 --
Projects Under Development and
Held for Sale 320,172 319,721 451 102,764 102,389 375
Property and Equipment, net 3,973 3,843 130 231 89 142
Other Assets -
Goodwill, net 29,064 29,064 -- -- -- --
Deferred Charges and Other 7,066 6,695 371 1,512 1,166 346
--------- --------- --------- --------- --------- ---------
$ 412,701 $ 414,455 $ 2,610 $ 112,176 $ 113,233 $ 2,522
========= ========= ========= ========= ========= =========
LIABILITIES, STOCKHOLDERS' EQUITY
AND PARTNERS' CAPITAL
Accounts Payable and Accrued Liabilities $ 46,066 $ 45,727 $ 3,936 $ 8,968 $ 9,008 $ 2,772
Notes Payable 303,804 303,725 79 42,478 41,896 582
--------- --------- --------- --------- --------- ---------
Total Liabilities 349,870 349,452 4,015 51,446 50,904 3,354
--------- --------- --------- --------- --------- ---------
Stockholders' Equity and Partners' Capital 62,831 65,003 (1,405) 60,730 62,329 (832)
--------- --------- --------- --------- --------- ---------
$ 412,701 $ 414,455 $ 2,610 $ 112,176 $ 113,233 $ 2,522
========= ========= ========= ========= ========= =========
* Unaudited.
** Condensed from audited financial statements.
See notes to condensed combining financial statements.
-26-
30
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 Three Months Ended June 30,
---------------------------------------------------------------------------------------
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 Earnings (Loss) $ 20 $ 593 $ (573) $ (346) $ (193) $ (153)
Adjustments:
Depreciation and Amortization 808 797 11 20 10 10
(Increase) Decrease in Receivables (4,500) (2,904) (1,596) (879) 5,759 36
Decrease (Increase) in Notes Receivables 7 7 -- (225) (225) --
Increase in Projects Held for Development
and Sale and Commercial Properties (3,397) (3,321) (76) (14,182) (13,000) (159)
Decrease (Increase) in Other Assets 425 450 (25) (608) (512) (96)
(Decrease) Increase in Payables
and Accruals (3,923) (6,652) 2,751 4,703 5,214 (6,987)
--------- --------- --------- --------- --------- ---------
(10,560) (11,030) 492 (11,517) (2,947) (7,349)
--------- --------- --------- --------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
Decrease (Increase) in Advances to
Joint Venture and Investment in
Affiliate 30 30 (22) 2,874 1,812 (159)
Property and Equipment Additions, net 89 88 1 (49) (25) (24)
--------- --------- --------- --------- --------- ---------
119 118 (21) 2,825 1,787 (183)
--------- --------- --------- --------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
(Decrease) Increase in Notes Payable 13,568 14,071 (503) 610 779 (169)
Decrease in Notes Receivable -- -- -- 7,700 -- 7,700
Issuance of Class "C" Partnership Units -- -- -- 1,000 1,000 --
--------- --------- --------- --------- --------- ---------
13,568 14,071 (503) 9,310 1,779 7,531
--------- --------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (59) (59) -- -- -- --
--------- --------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 3,068 3,100 (32) 618 619 (1)
CASH AT BEGINNING OF PERIOD 364 331 33 260 259 1
--------- --------- --------- --------- --------- ---------
CASH AT END OF PERIOD $ 3,432 $ 3,431 $ 1 $ 878 $ 878 $ --
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Increase in Notes Payable
Related to an Acquisition $ 248,339 $ 248,339 -- -- -- --
Issuance of Class C Units in
Exchange for Assets $ 2,151 $ 2,151 -- $ 12,454 $ 12,454 --
See notes to condensed combining financial statements.
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3333 HOLDING CORPORATION AND SUBSIDIARY
AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED COMBINING FINANCIAL STATEMENTS
JUNE 30, 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 properties with
a historical cost basis (which approximated market value) of approximately $76
million in exchange for 1,000 limited partnership units ("Class A Units").
The Partnership is a limited partnership which is controlled by its general
partner, 3333 Development Corporation ("Development"), a wholly-owned subsidiary
of 3333 Holding Corporation ("Holding"). Holding is a separate public company
whose stock trades in tandem with Centex's stock. The common stock of Holding
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 and is held by a nominee. These securities, held by the
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 three-person Board of Directors of Holding is elected by the
stockholders of Centex. Two of the Board members, representing the majority of
the Board, are independent outside directors who are also not 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 how the Partnership conducts 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
Corporation and subsidiaries included elsewhere in this Form 10-Q for
supplementary condensed combined financial statements for Centex Corporation 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 $3.1 million and $1.9 million
for the three months ended June 30, 1999 and 1998,
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32
respectively. Gains associated with these sales totaled $108,000 and $66,000 for
the three months ended June 30, 1999 and 1998, respectively.
(C) A summary of comprehensive income for the three months ended June 30, 1999
is presented below (dollars in thousands):
Net Earnings $ 20
Accumulated Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments (71)
-----
Comprehensive Income (Loss) $ (51)
=====
(D) A summary of changes in stockholders' equity and partners' capital is
presented below (dollars in thousands):
For the Three Months Ended June 30, 1999
-------------------------------------------------------------------------------------------------
Centex Development Company, L.P. 3333 Holding Corporation
and Subsidiaries and Subsidiary
--------------------------------------- ---------------------------------------
Class B General Limited Capital In Retained
Units 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 2,152 -- -- 2,152 -- -- --
Net Earnings 20 -- -- 593 -- -- (573)
Accumulated Other
Comprehensive Income (Loss)
Foreign Currency
Translation Adjustments (71) -- -- (71) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 $ 62,831 $ 500 $ 767 $ 63,736 $ 1 $ 800 $ (2,206)
=========== =========== =========== =========== =========== =========== ===========
During fiscal year 1998, the partnership agreement governing the Partnership
was amended to allow for the issuance of a new class of limited partnership
units, Class C Preferred Partnership Units ("Class C Units"), to be issued in
exchange for assets. During the June 1999 quarter, 2,152 Class C Units were
issued in exchange for assets with a fair market value of $2.2 million to Centex
Homes, the Partnership's sole limited partner.
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 as reduced by repayments and is the basis for
preference accruals. Unrecovered Capital for Class A and Class C limited
partners aggregated approximately $62 million as of June 30, 1999 and as of that
date preference payments in arrears totaled $10.5 million. No preference
payments were made during the quarter.
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33
(E) On April 15, 1999 Centex Development Company UK Limited ("CDCUK"), 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 seller of the
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. However, if during that time period the operating earnings of
Fairclough exceed certain levels, then CDCUK will participate in the surplus.
The purchase price at closing (approximately $213 million) was paid by the
delivery of two-year non-interest bearing promissory notes. However, because the
non-voting preference shares retained by the seller have the characteristics of
debt, the preference payments are being reflected 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 time period between April 15, 1999 and March 31, 2001 Fairclough
will be operated by CDCUK subject to certain guidelines that were negotiated
with the seller. After March 31, 2001, CDCUK 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 preliminary allocation of the
purchase price is as follows (in thousands):
Current Assets and Property and Equipment $ 270,902
Other Assets 3,469
Goodwill 30,525
Notes Issued and Liabilities Assumed (304,896)
-----------
Cash Paid $ --
===========
The following unaudited pro forma results of operations for the three months
ended June 30, 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 months ended June 30,
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. The above
preliminary allocation of the purchase price will be finalized upon completion
of the acquisition date balance sheet audit.
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34
Pro Forma Results of Operations
---------------------------------------------------
Three Months Ended
---------------------------------------------------
June 30, 1998
---------------------------------------------------
Centex
Development
Company, L.P. 3333 Holding
and Corporation
Combined Subsidiaries and Subsidiary
----------- ------------- --------------
Revenues $ 52,669 $ 52,437 $ 476
=========== ========== ===========
Net Loss $ (321) $ (168) $ (153)
=========== ========== ===========
Net Loss Allocable to Limited Partners $ (168)
==========
Loss Per Unit/Share $ (3.43) $ (153)
========== ===========
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.
(F) As a result of the Company's acquisition of Fairclough Homes, the Company
now operates in five principal business segments: Commercial Development,
Multi-Family Development, Land Sales, and Domestic Home Building and
International Home Building. 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 ("UK"). Any differences
between UK generally accepted accounting principles ("GAAP") and US GAAP have
been identified, and where necessary, adjustments made so that the financial
information included for International Home Building is consistent with US GAAP.
The following tables set forth financial information relating to the five
business segments for the three months ended June 30, 1999 and June 30, 1998
(dollars in thousands):
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35
--------------------------------------------------------------------------------------------
Three Months Ended June 30, 1999
--------------------------------------------------------------------------------------------
Commercial Multi-Family Home Building
-----------------------------
Development Development Land Sales Domestic International Total
------------ ------------ ------------ ------------ ------------- ------------
Revenues $ 1,086 $ -- $ 4,653 $ 3,403 $ 69,527 $ 78,669
Cost of Sales (288) -- (4,247) (2,933) (61,096) (68,564)
General & Administrative (332) (535) (104) (380) (5,165) (6,516)
Interest (291) (12) -- -- (3,005) (3,308)
------------ ------------ ------------ ------------ ------------ ------------
Operating Earnings (Loss) $ 175 $ (547) $ 302 $ 90 $ 261 $ 281
============ ============ ============ ============ ============ ============
Identifiable Assets $ 52,150 $ 36,799 $ 25,764 $ 10,367 $ 287,621 $ 412,701
-------------------------------------------------------------------------------------
Three Months Ended June 30, 1998
-------------------------------------------------------------------------------------
Home Building
Commercial Multi-Family ---------------------------
Development Development Land Sales Domestic International Total
----------- ----------- ----------- ----------- ------------- -----------
Revenues $ 1,628 $ 116 $ 2,488 $ 2,076 * $ 6,308
Cost of Sales (1,577) -- (2,184) (1,805) * (5,566)
General & Administrative (100) (372) (137) (392) * (1,001)
Interest (6) (19) (62) -- * (87)
----------- ----------- ----------- ----------- -----------
Operating Earnings (Loss) $ (55) $ (275) $ 105 $ (121) $ (346)
=========== =========== =========== =========== ===========
-------------------------------------------------------------------------------------
Fiscal Year Ended March 31, 1999
-------------------------------------------------------------------------------------
Home Building
Commercial Multi-Family ---------------------------
Development Development Land Sales Domestic International Total
----------- ----------- ----------- ----------- ------------- -----------
Identifiable Assets $44,820 $31,337 $25,099 $10,920 * $112,176
* Business segment did not exist in prior fiscal year.
(G) Statement of Financial Accounting Standards 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. It 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 year balances have been reclassified to be consistent with the
June 30, 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 reported revenues for the quarter ended
June 30, 1999 of $78.7 million compared to $6.3 million for the quarter ended
June 30, 1998. Net earnings for the current year period were $20,000 compared to
a loss of $346,000 for the same period last year. The significant increase in
revenues for the quarter ended June 30, 1999 primarily resulted from the
Partnership's acquisition of Fairclough Homes, a United Kingdom home builder, on
April 15, 1999.
Commercial Development
The following summarizes Commercial Development's results for the quarter
ended June 30, 1999 compared to the quarter ended June 30, 1998 (dollars and
square feet in thousands):
----------------------------
For the Three Months Ended
June 30,
----------------------------
1999 1998
----------- -----------
Sales Revenues $ 442 $ 1,570
Rental Income 644 58
Cost of Sales (288) (1,577)
General & Administrative (332) (100)
Interest (291) (6)
----------- -----------
Operating Earnings $ 175 $ (55)
=========== ===========
Operating Square Feet 490 38
=========== ===========
During the June 1999 quarter, construction was completed on 377,000 square
feet of office and industrial space, making the total amount of operating square
feet 490,000 at June 30, 1999. Sales revenues for the quarter ended June 30,
1999 consisted of eight lots in a north Dallas suburb. Sales revenues in the
prior year period consisted of industrial land sold to a joint venture for
development, in which the Partnership owns 10%.
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37
Multi-Family Development
The following summarizes Multi-Family Development's ("Multi-Family") results
for the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998
(dollars in thousands):
--------------------------
For the Three Months Ended
June 30,
--------------------------
1999 1998
----------- -----------
Sales Revenue $ -- $ 116
General & Administrative (535) (372)
Interest (12) (19)
----------- -----------
Operating Loss $ (547) $ (275)
----------- -----------
During the quarter ended June 30, 1999, Multi-Family was in the process of
constructing a 400-unit apartment complex located in Grand Prairie, Texas.
Revenues for the three months ended June 30, 1998 relates to a 304-unit complex
constructed in The Colony, Texas.
Land Sales
The following summarizes Land Sales's results for the three months ended
June 30, 1999 compared to the same period for the prior year (dollars in
thousands):
---------------------------
For the Three Months Ended
June 30,
---------------------------
1999 1998
----------- -----------
Sales Revenue $ 4,653 $ 2,488
Cost of Sales (4,247) (2,184)
General & Administrative (104) (137)
Interest -- (62)
----------- -----------
Operating Earnings $ 302 $ 105
=========== ===========
Sales for the quarter ended June 30, 1999 consisted of lot sales to Centex
Homes in Naples, Florida totaling $3.1 million and 5 acres of commercial
property in The Colony, Texas. Real Estate sales during the June 1998 quarter
included $1.9 million in lot sales to Centex Homes and 4 acres of commercial
property in The Colony.
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38
Home Building
Domestic -
The following summarizes Home Building's results for the three months ended
June 30, 1999 compared to the same period for the prior year (dollars in
thousands):
---------------------------
For the Three Months Ended
June 30,
---------------------------
1999 1998
----------- -----------
Revenues $ 3,403 $ 2,076
Cost of Sales (2,933) (1,805)
General & Administrative (380) (392)
----------- -----------
Operating Earnings (Loss) $ 90 $ (121)
=========== ===========
Units Closed 11 7
=========== ===========
Gross Margin Per Unit $ 43 $ 39
=========== ===========
International -
The following summarizes International Home Building's results for the three
months ended June 30, 1999 (dollars in thousands):
---------------------------
For the Three Months Ended
June 30, 1999
---------------------------
Revenues $ 69,527
Costs and Expenses (61,096)
General & Administrative (5,165)
Interest, including preference payments of $2.7 million (3,005)
-----------
Operating Earnings $ 261
===========
The Partnership acquired this segment during the quarter ended June 30,
1999. For the three months ended June 30, 1999, Fairclough closed on the sale of
409 single family homes. The preferred distribution to the seller totaled $2.7
million. Although preferred stock is ordinarily treated as an equity security,
in this case the preferred stock has the essential characteristics of debt and,
among other things, it has a nominal residual interest value which is
mandatorily redeemable in two years. Therefore, the preferred stock has been
treated as debt and the preferred distribution has been recorded as interest
expense.
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LIQUIDITY AND CAPITAL RESOURCES
During the three months ended June 30, 1999, 2,152 Class C Preferred
Partnership Units were issued in exchange for assets with a fair market value of
$2.2 million. Also during the quarter ended June 30, 1999, the Companies closed
on non-recourse project loans totaling $10.3 million. The project loans are
collateralized by commercial properties and have ten-year maturities with fixed
interest rates ranging from 7.3% to 7.4%.
The recently initiated development operations are not anticipated to provide
a significant source of earnings or liquidity for the Companies for the next 12
to 18 months. As a result, the revenues, earnings and liquidity of the Companies
will continue to be largely dependent on the sale of single-family homes, land
sales, and the sale and permanent financing of development projects. The
Companies believe that the revenues, earnings, and liquidity from these sources
will be sufficient to provide the necessary funding for current and future
needs.
YEAR 2000 COMPLIANCE
The Companies have a variety of operating systems, computer software
applications, computer hardware equipment (collectively, "IT Systems"), and
other equipment with embedded electronic circuits (collectively, the "Non-IT
Systems" and together with the IT Systems, the "Systems"). Pursuant to the
services agreement Holding has with Centex Service Company, Year 2000 compliance
issues are being addressed by a Year 2000 Task Force Team comprised of key
personnel in the management information systems, legal, internal audit, and
accounting areas of Centex as well as by management of the Companies. Since
fiscal 1997, the Companies have been engaged in an ongoing process of
identifying, evaluating, and implementing changes to their Systems in order to
ensure Year 2000 compliance. As a result of this process, a small number of
Systems were identified as being unable to interpret dates after December 31,
1999. The affected Systems were primarily IT Systems that are not critical to
the material operations of the Companies. In all of the cases, the replacement
or upgrading of the non-compliant Systems has already occurred as part of their
normal ongoing updating. The Companies anticipate that all non-compliant Systems
will be replaced and the replacement Systems tested no later than September 30,
1999. To date, the timetable for addressing non-compliance of Systems has been
substantially the same for both IT Systems and Non-IT Systems. The Companies
anticipate that this will continue to be the case as they see their Year 2000
program through to its completion.
The Companies do not believe (i) that the non-compliant Systems pose a
material risk to the financial condition of the Companies as a whole, or of the
individual operations of subsidiaries or operating divisions that currently have
non-compliant Systems or (ii) that the cost of replacing, upgrading or otherwise
changing the non-compliant Systems is material to the Companies as a whole, or
to the individual subsidiaries or operating divisions. The Companies have used,
and believe that they will be able to continue to use, internally generated cash
to fund the correction of Systems that are not compliant.
The Companies engaged the services of a third-party consulting firm to
evaluate their Year 2000 readiness. The consulting firm's review was completed
during the fourth quarter of fiscal 1999. The firm's
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40
conclusions are consistent with the Companies' internal determinations of their
Year 2000 readiness. The Companies have adopted the consulting firm's
recommendations for achieving Year 2000 compliance.
The Year 2000 Task Force Team is currently developing its Year 2000
contingency plan. The Task Force Team has completed many of the preliminary
components of the contingency plan and anticipates that the entire contingency
plan will be completed no later than September 30, 1999.
Achieving Year 2000 compliance is dependent on many factors, some of which
are not completely within the Companies' control. The Companies obtain
information, materials, and services from numerous sources, and provide goods
and services to numerous customers. The failure of these third parties
(including U. S., state, and local governments and agencies) to achieve Year
2000 readiness could adversely affect the Companies' financial condition and
results of operations.
The Companies believe the most likely Year 2000 worst-case scenario would be
the failure of some significant vendors, subcontractors or other third parties
to achieve compliance, resulting in a slowdown of the Companies' operations. The
Companies are not aware of any such third parties that are not Year 2000
compliant. In order to address the potential non-compliance by third parties,
the Companies will continue to survey their largest customers, contractors, and
vendors by sending requests for disclosure of Year 2000 readiness. The Companies
have surveyed many of their largest customers, contractors and vendors during
the last year and anticipate completing such survey by September 30, 1999. The
number of surveys sent as well as the form of survey used varies by the
subsidiary or operating division of the Companies making the request for
confirmation of compliance. The responses received to date range from detailed
analyses of readiness with descriptions of contingency plans to general
statements of readiness. With respect to unanswered surveys, the management of
the respective subsidiaries and divisions will continue to follow-up throughout
the remainder of the year either through a second request or direct
conversations with those parties whose operations are material to the Companies
or their respective subsidiaries or divisions in order to ascertain the Y2K
readiness of such parties.
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
-37-
41
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.
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
Current Report on Form 8-K of Centex Development Company, L.P.
dated April 29, 1999.
Current Report on Form 8-K/A of Centex Development Company, L.P.
dated June 29, 1999.
All other items required under Part II are omitted because they are not
applicable.
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42
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
August 16, 1999 /s/ Richard C. Decker
-----------------------------------------------
Richard C. Decker
Director, Chairman, President and
Chief Executive Officer
(principal executive officer)
August 16, 1999 /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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43
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
August 16, 1999 /s/ Richard C. Decker
------------------------------------------------
Richard C. Decker
Director, Chairman, President and
Chief Executive Officer
(principal executive officer)
August 16, 1999 /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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44
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------
27.1 Financial Data Schedule - Centex Corporation
27.2 Financial Data Schedule - 3333 Holding Corporation
27.3 Financial Data Schedule - Centex Development Company, L.P.