-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4ggzDXf+GHWZXcm4hGPpIzeM22SwxFha3/Q4e9wWMFP6wNzPsnVuLIa746eHH0T TgXfqg354TvjkhCNN/rcPg== 0000950134-99-007495.txt : 19990817 0000950134-99-007495.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007495 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTEX CORP CENTRAL INDEX KEY: 0000018532 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 750778259 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06776 FILM NUMBER: 99691069 BUSINESS ADDRESS: STREET 1: P O BOX 199000 STREET 2: 2728 N HARWOOD CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2145596500 MAIL ADDRESS: STREET 1: PO BOX 199000 STREET 2: 2728 N HARWOOD CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: CENTEX CONSTRUCTION CO INC DATE OF NAME CHANGE: 19681211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3333 HOLDING CORP CENTRAL INDEX KEY: 0000818762 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 752178860 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09624 FILM NUMBER: 99691070 BUSINESS ADDRESS: STREET 1: PO BOX 199000 STREET 2: 3100 MCKINNON STE 370 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2149816548 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTEX DEVELOPMENT CO LP CENTRAL INDEX KEY: 0000818764 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 752168471 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09625 FILM NUMBER: 99691071 BUSINESS ADDRESS: STREET 1: PO BOX 19000 STREET 2: 3100 MCKINNON STE 370 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2149816548 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 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
i 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
ii 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. -1- 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. -3- 7 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. -4- 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. -5- 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 -6- 10 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. -7- 11 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. -8- 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. -9- 13 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 ======= =======
-10- 14 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. -11- 15 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. -12- 16 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. -13- 17 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. -27- 31 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, -28- 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. -29- 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. -30- 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): -31- 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. -32- 36 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%. -33- 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. -34- 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. -35- 39 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 -36- 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. -38- 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) -39- 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) -40- 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.
EX-27.1 2 FINANCIAL DATA SCHEDULE - CENTEX CORP
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTEX CORPORATION'S JUNE 30, 1999, FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018532 CENTEX CORPORATION 1,000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 105,333 0 1,817,619 0 1,681,439 0 572,621 250,260 4,471,870 0 335,743 0 0 14,873 1,239,308 4,471,870 1,372,233 1,372,233 1,245,973 1,245,973 21,322 0 11,828 93,110 34,674 58,436 0 0 0 58,436 0.98 0.95
EX-27.2 3 FINANCIAL DATA SCHEDULE - 3333 HOLDING CORP.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3333 HOLDING CORPORATION'S JUNE 30, 1999, FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000818762 3333 HOLDING CORPORATION 1,000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 1 0 19 0 451 0 191 61 2,610 0 0 0 0 1 (1,406) 2,610 150 150 723 723 0 0 0 (573) 0 (573) 0 0 0 (573) 0.00 0.00
EX-27.3 4 FINANCIAL DATA SCHEDULE - CENTEX DEVELOPMENT CO LP
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTEX DEVELOPMENT COMPANY, L.P.'S JUNE 30, 1999, FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000818764 CENTEX DEVELOPMENT COMPANY, L.P. 1,000 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 3,431 0 18,480 0 319,721 0 3,957 114 414,455 0 0 0 0 500 64,503 414,455 78,669 78,669 77,815 77,815 0 0 0 854 261 593 0 0 0 593 0.00 0.00
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