10-Q 1 d84049e10-q.txt FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q JOINT QUARTERLY REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended DECEMBER 31, 2000 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 2728 N. Harwood Dallas, Texas 75201 (214) 981-6770 The registrants have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and have been subject to such filing requirements for the past 90 days. Indicate the number of shares of each of the registrants' classes of common stock (or other similar equity securities) outstanding as of the close of business on January 31, 2001: Centex Corporation Common Stock 59,308,649 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 38,409 units
2 CENTEX CORPORATION AND SUBSIDIARIES 3333 HOLDING CORPORATION AND SUBSIDIARY CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES Form 10-Q Table of Contents DECEMBER 31, 2000 CENTEX CORPORATION AND SUBSIDIARIES
PAGE PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements 1 Condensed Consolidated Statements of Earnings for the Three Months Ended December 31, 2000 2 Condensed Consolidated Statements of Earnings for the Nine Months Ended December 31, 2000 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2000 6 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 30 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 31 SIGNATURES 32
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 33 Condensed Combining Statements of Operations for the Three Months Ended December 31, 2000 34 Condensed Combining Statements of Operations for the Nine Months Ended December 31, 2000 35 Condensed Combining Balance Sheets 36 Condensed Combining Statements of Cash Flows for the Nine Months Ended December 31, 2000 37 Notes to Condensed Combining Financial Statements 38 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 44 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 49 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 50 SIGNATURES 51
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 and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. References herein to "Centex" or the "Company" will include all subsidiaries of Centex Corporation, through which all operations are conducted, except where the context indicates that such reference is only to the registrant, Centex Corporation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Company suggests 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 STATEMENTS OF EARNINGS (Dollars in thousands, except per share data) (unaudited)
For the Three Months Ended December 31, ------------------------------- 2000 1999 ------------ ------------ REVENUES Home Building Conventional Homes $ 1,038,810 $ 863,177 Manufactured Homes 29,494 47,160 Investment Real Estate 13,023 15,908 Financial Services 121,308 106,568 Construction Products 90,410 108,370 Contracting and Construction Services 345,568 287,978 ------------ ------------ 1,638,613 1,429,161 ------------ ------------ COSTS AND EXPENSES Home Building Conventional Homes 938,170 789,847 Manufactured Homes 32,031 44,484 Investment Real Estate (528) 6,991 Financial Services 118,932 97,345 Construction Products 69,397 63,038 Contracting and Construction Services 337,412 281,178 Other, net (3,123) 628 Corporate General and Administrative 8,458 8,483 Interest Expense 21,076 18,467 Minority Interest 6,294 16,971 ------------ ------------ 1,528,119 1,327,432 ------------ ------------ EARNINGS BEFORE INCOME TAXES 110,494 101,729 Income Taxes 42,027 38,553 ------------ ------------ NET EARNINGS $ 68,467 $ 63,176 ============ ============ EARNINGS PER SHARE Basic $ 1.16 $ 1.07 ============ ============ Diluted $ 1.12 $ 1.04 ============ ============ AVERAGE SHARES OUTSTANDING Basic 59,080,788 59,230,006 Common Share Equivalents Options 1,448,887 1,093,566 Convertible Debenture 400,000 400,000 ------------ ------------ Diluted 60,929,675 60,723,572 ============ ============ CASH DIVIDENDS PER SHARE $ 0.04 $ 0.04 ============ ============
See notes to condensed consolidated financial statements. -2- 6 CENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share data) (unaudited)
For the Nine Months Ended December 31, ------------------------------- 2000 1999 ------------ ------------ REVENUES Home Building Conventional Homes $ 2,952,835 $ 2,461,533 Manufactured Homes 99,777 145,978 Investment Real Estate 19,667 27,357 Financial Services 323,717 343,932 Construction Products 290,507 323,391 Contracting and Construction Services 974,672 928,646 ------------ ------------ 4,661,175 4,230,837 ------------ ------------ COSTS AND EXPENSES Home Building Conventional Homes 2,690,086 2,258,855 Manufactured Homes 103,504 138,153 Investment Real Estate (7,059) 3,270 Financial Services 319,068 301,536 Construction Products 200,752 190,822 Contracting and Construction Services 953,446 911,176 Other, net (5,040) 3,529 Corporate General and Administrative 25,963 23,821 Interest Expense 65,140 45,828 Minority Interest 30,827 51,677 ------------ ------------ 4,376,687 3,928,667 ------------ ------------ EARNINGS BEFORE INCOME TAXES 284,488 302,170 Income Taxes 108,722 115,063 ------------ ------------ NET EARNINGS $ 175,766 $ 187,107 ============ ============ EARNINGS PER SHARE Basic $ 2.98 $ 3.15 ============ ============ Diluted $ 2.91 $ 3.06 ============ ============ AVERAGE SHARES OUTSTANDING Basic 58,946,795 59,370,180 Common Share Equivalents Options 1,016,430 1,434,485 Convertible Debenture 400,000 400,000 ------------ ------------ Diluted 60,363,225 61,204,665 ============ ============ CASH DIVIDENDS PER SHARE $ 0.12 $ 0.12 ============ ============
See notes to condensed consolidated financial statements. -3- 7 CENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
Centex Corporation and Subsidiaries ----------------------------- December 31, March 31, 2000* 2000** ------------ ----------- ASSETS Cash and Cash Equivalents $ 76,945 $ 139,563 Receivables - Residential Mortgage Loans 1,571,790 409,697 Other 576,680 483,381 Inventories 2,276,302 1,954,037 Investments - Centex Development Company, L.P. 94,515 65,550 Joint Ventures and Other 75,178 65,944 Unconsolidated Subsidiaries -- -- Property and Equipment, net 738,055 360,604 Other Assets - Deferred Income Taxes 51,504 49,907 Goodwill, net 279,232 251,780 Mortgage Securitization Residual Interest 153,468 160,999 Deferred Charges and Other 158,624 97,278 ----------- ----------- $ 6,052,293 $ 4,038,740 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 1,134,853 $ 1,125,807 Debt - Non-Financial Services 1,481,887 898,068 Financial Services 1,659,496 415,327 Payable to Affiliates -- -- Minority Stockholders' Interest 142,205 129,352 Negative Goodwill 38,837 50,837 Stockholders' Equity - Preferred Stock, Authorized 5,000,000 Shares, None Issued -- -- Common Stock $.25 Par Value; Authorized 100,000,000 Shares; Issued and Outstanding 59,125,165 and 58,806,217, respectively 14,781 14,702 Capital in Excess of Par Value 6,142 -- Retained Earnings 1,574,582 1,405,895 Accumulated Other Comprehensive Loss (490) (1,248) ----------- ----------- Total Stockholders' Equity 1,595,015 1,419,349 ----------- ----------- $ 6,052,293 $ 4,038,740 =========== ===========
See notes to condensed consolidated financial statements. * Unaudited ** Condensed from audited financial statements. -4- 8 CENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
Centex Corporation Financial Services ----------------------------- ---------------------------- December 31, March 31, December 31, March 31, 2000* 2000** 2000* 2000** ------------ ----------- ------------ ----------- $ 33,011 $ 123,411 $ 43,934 $ 16,152 -- -- 1,571,790 409,697 481,855 418,810 94,825 64,571 2,261,207 1,945,899 15,095 8,138 94,515 65,550 -- -- 75,178 65,944 -- -- 270,455 267,177 -- -- 699,838 319,255 38,217 41,349 8,241 24,018 43,263 25,889 262,413 233,059 16,819 18,721 -- -- 153,468 160,999 125,589 71,302 33,035 25,976 ----------- ----------- ----------- ----------- $ 4,312,302 $ 3,534,425 $ 2,010,446 $ 771,492 =========== =========== =========== =========== $ 1,057,322 $ 1,038,641 $ 77,531 $ 87,166 1,481,887 898,068 -- -- -- -- 1,659,496 415,327 -- -- 34,495 64,246 139,241 127,530 2,964 1,822 38,837 50,837 -- -- -- -- -- -- 14,781 14,702 1 1 6,142 -- 180,467 150,467 1,574,582 1,405,895 55,492 52,463 (490) (1,248) -- -- ----------- ----------- ----------- ----------- 1,595,015 1,419,349 235,960 202,931 ----------- ----------- ----------- ----------- $ 4,312,302 $ 3,534,425 $ 2,010,446 $ 771,492 =========== =========== =========== ===========
In the supplemental data presented above, "Centex Corporation" represents the combining of all subsidiaries other than those included in Financial Services. Transactions between Centex Corporation and Financial Services have been eliminated from the Centex Corporation and Subsidiaries balance sheets. -5- 9 CENTEX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)
For the Nine Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- CASH FLOWS - OPERATING ACTIVITIES Net Earnings $ 175,766 $ 187,107 Adjustments - Depreciation and Amortization 44,717 34,838 Deferred Income Taxes (6,440) 10,941 Equity in Earnings of Centex Development Company, L.P. and Joint Ventures (4,421) (648) Minority Interest, net of taxes 19,605 33,233 (Increase) Decrease in Receivables (31,824) 68,912 (Increase) Decrease in Residential Mortgage Loans (1,162,093) 660,731 Increase in Inventories (310,971) (485,419) (Decrease) Increase in Payables and Accruals (15,311) 15,268 Increase in Other Assets (73,845) (137,737) Other, net (6,752) (40,387) ----------- ----------- (1,371,569) 346,839 ----------- ----------- CASH FLOWS - INVESTING ACTIVITIES Increase in Advances to Centex Development Company, L.P. and Joint Ventures (30,451) (23,566) Acquisition of Construction Products Operations (442,200) -- Acquisition of Home Building Operations -- (74,119) Other Acquisitions -- (9,349) Increase in Property and Equipment, net (46,286) (55,220) ----------- ----------- (518,937) (162,254) ----------- ----------- CASH FLOWS - FINANCING ACTIVITIES Increase (Decrease) in Debt - Secured by Residential Mortgage Loans 1,244,169 (569,804) Other 583,819 458,390 Retirement of Common Stock (784) (29,032) Proceeds from Stock Option Exercises 7,005 13,488 Dividends Paid (7,079) (7,134) ----------- ----------- 1,827,130 (134,092) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 758 (48) ----------- ----------- NET (DECREASE) INCREASE IN CASH (62,618) 50,445 CASH AT BEGINNING OF PERIOD 139,563 111,268 ----------- ----------- CASH AT END OF PERIOD $ 76,945 $ 161,713 =========== ===========
See notes to condensed consolidated financial statements. -6- 10 CENTEX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (Dollars in thousands) (unaudited) (A) A summary of comprehensive income for the three and nine months ended December 31, 2000 is presented below:
For the Three Months Ended For the Nine Months Ended December 31, 2000 December 31, 2000 -------------------------- ------------------------- Net Earnings $ 68,467 $ 175,766 Other Comprehensive Income (Loss): Foreign Currency Translation Adjustments 73 (394) Unrealized (Loss) Gain on Investment (586) 1,152 --------- --------- Comprehensive Income $ 67,954 $ 176,524 ========= =========
The Foreign Currency Translation Adjustments are the result of Centex's investment in Centex Development Company, L.P. and its foreign subsidiaries. For additional information on Centex Development Company L.P. and subsidiaries, see their separate financial statements included elsewhere in this report. The Unrealized (Loss) Gain on Investment is the result of a mark-to-market adjustment to securities available for sale formerly held by the Company's 65.3%-owned subsidiary, Centex Construction Products, Inc. ("Construction Products"). (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 (Loss) Total --------- -------- ------------- ---------- ------------- ---------- Balance, March 31, 2000 $ -- $ 14,702 $ -- $1,405,895 $ (1,248) $1,419,349 Net Earnings -- -- -- 175,766 -- 175,766 Exercise of Stock Options -- 88 6,917 -- -- 7,005 Retirement of 35,400 Shares -- (9) (775) -- -- (784) Cash Dividends -- -- -- (7,079) -- (7,079) Unrealized Gain on -- -- -- -- 1,152 1,152 Investment Foreign Currency Translation Adjustments -- -- -- -- (394) (394) -------- -------- -------- ----------- --------- ---------- BALANCE, DECEMBER 31, 2000 $ -- $ 14,781 $ 6,142 $1,574,582 $ (490) $1,595,015 ======== ======== ======== ========== ========= ==========
(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 for 1,000 Class A Limited Partnership Units. 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. -7- 11 The Partnership is managed by its general partner, 3333 Development Corporation ("Development"), which is in turn wholly-owned by 3333 Holding Corporation ("Holding"). Holding is a separate public company whose stock trades in tandem with Centex's stock. The common stock of Holding was distributed in 1987 (with warrants to purchase approximately 80% of the Class B limited partnership units ("Class B Units") in the Partnership) as a dividend to the stockholders of Centex. These securities are held by a nominee on behalf of the stockholders and 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, unless the detachment date is extended by Centex's board. The stockholders of Centex elect the four-person Board of Directors of Holding. Three of the Board members, representing the majority of the Board, are independent outside directors who are also not directors, affiliates, or employees of Centex. Thus, through Holding, the stockholders of Centex control the general partner of the Partnership. The general partner and independent Board of Holding manage how the Partnership conducts its activities, including the acquisition, development, maintenance, operation, and sale of properties. The general partner, acting on behalf of the Partnership, 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 flow 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 Class C Limited Partnership Units. During fiscal 1998, the 1,000 outstanding Class A Units owned by Centex were converted to 32,260 new Class A Units. As of December 31, 2000, 38,409 Class C Units had been issued in exchange for assets with a fair market value of $38.4 million. These assets were recorded by the Partnership at fair market value. The partnership agreement provides that Centex, as 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 return of capital distributions. As of December 31, 2000, Unrecovered Capital totaled $71.2 million, and preference payments in arrears amounted to $19.6 million. No preference payments were made during fiscal 2000 or fiscal 2001 year to date. Supplementary condensed combined financial statements for Centex and subsidiaries, Holding and subsidiary and the Partnership and subsidiaries are set forth below. For additional information on Holding and subsidiary and the Partnership and subsidiaries, see their separate financial statements and related footnotes included elsewhere in this report. -8- 12 SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS
DECEMBER 31, March 31, 2000 2000* ------------ ----------- ASSETS Cash and Cash Equivalents $ 87,087 $ 197,877 Receivables 2,158,282 907,367 Inventories 2,755,802 2,343,682 Investments in Joint Ventures and Other 75,925 68,539 Property and Equipment, net 741,261 364,182 Other Assets 692,676 599,526 ----------- ----------- $ 6,511,033 $ 4,481,173 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 1,239,775 $ 1,244,500 Debt 3,495,137 1,637,135 Minority Stockholders' Interest 142,269 129,352 Negative Goodwill 38,837 50,837 Stockholders' Equity 1,595,015 1,419,349 ----------- ----------- $ 6,511,033 $ 4,481,173 =========== ===========
* Condensed from audited financial statements SUPPLEMENTARY CONDENSED COMBINED STATEMENTS OF EARNINGS
For the Nine Months Ended December 31, -------------------------------- 2000 1999 ----------- ----------- Revenues $ 4,882,572 $ 4,479,147 Costs and Expenses 4,598,955 4,176,376 ----------- ----------- Earnings Before Income Taxes 283,617 302,771 Income Taxes 107,851 115,664 ----------- ----------- NET EARNINGS 175,766 187,107 Other Comprehensive Income (Loss) 758 (48) ----------- ----------- COMPREHENSIVE INCOME $ 176,524 $ 187,059 =========== ===========
(D) The Company's home building activities include: the acquisition of raw and semi-developed land; the planning, supervision and funding of subcontractors' activities to complete development of that land primarily into single family home sites; and the construction of houses on those sites for sale to individual home purchasers. The Company conducts its land acquisition and development activities directly and via participation in joint ventures in which the Company holds less than a majority interest. -9- 13 The Company had deposited or invested $58.6 million as options toward the purchase of undeveloped land and developed lots having a total purchase price of approximately $1.5 billion in order to ensure the future availability of land for home building. These options expire at various dates through the year 2006. The Company has committed to purchase certain developed lots from the Partnership for approximately $0.4 million. (E) Interest expense relating to the Financial Services operations is included in its costs and expenses. Interest related to operations other than Financial Services is included in interest expense. For the three and nine month periods ending December 31, 2000, Total Interest Expense is net of $5,600 and $8,350, respectively, for interest capitalized to qualifying assets, principally within the Home Building business segment.
For the Three Months Ended December 31, --------------------------- 2000 1999 -------- -------- Total Interest Expense $ 48,508 $ 34,272 Less - Financial Services (27,432) (15,805) -------- -------- Interest Expense, net $ 21,076 $ 18,467 ======== ========
For the Nine Months Ended December 31, --------------------------- 2000 1999 -------- -------- Total Interest Expense $125,550 $ 97,657 Less - Financial Services (60,410) (51,829) -------- -------- Interest Expense, net $ 65,140 $ 45,828 ======== ========
(F) In April 1994 Construction Products completed an initial public offering of its stock which began trading on the New York Stock Exchange under the symbol "CXP." Centex's ownership interest in Construction Products was 65.3% as of December 31, 2000, 64.4% as of March 31, 2000, and 63.2% as of December 31, 1999. (G) In fiscal 1996 the Company acquired an equity interest in Vista Properties, Inc. ("Vista"), which owned a portfolio of properties located in seven states in which the Company has significant operations. The Vista portfolio was reduced to a nominal "book basis" after recording certain deferred tax benefits related to the acquisition. As these properties are developed or sold, the net sales proceeds are reflected as operating margin. Negative Goodwill related to the Vista acquisition is being amortized to earnings over the estimated period over which the land will be developed, sold or realized. All investment property operations are being reported through the "Investment Real Estate" business segment. -10- 14 (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 the Partnership (approximately $94.5 million) is included in the Investment Real Estate segment. The following tables set forth financial information relating to the business segments. 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.
For the Three Months Ended December 31, --------------------------- 2000 1999 -------- -------- (Dollars in millions) Revenues $1,038.8 $ 863.2 Cost of Sales (782.4) (666.6) Selling, General & Administrative Expenses (155.8) (123.3) -------- -------- Operating Earnings $ 100.6 $ 73.3 ======== ========
For the Nine Months Ended December 31, --------------------------- 2000 1999 -------- -------- (Dollars in millions) Revenues $2,952.8 $2,461.5 Cost of Sales (2,251.2) (1,898.9) Selling, General & Administrative Expenses (438.9) (359.9) -------- -------- Operating Earnings $ 262.7 $ 202.7 ======== ========
-11- 15 MANUFACTURED HOMES Manufactured Homes operations involve the construction of single-family homes and, to a lesser degree, commercial structures in factories and the sale of these products through a network of Company-owned and independent dealers.
For the Three Months Ended December 31, -------------------------- 2000 1999 ------ ------ (Dollars in millions) Revenues $ 29.5 $ 47.1 Cost of Sales (24.4) (36.5) Selling, General & Administrative Expenses (6.7) (7.1) Goodwill Amortization (0.9) (0.8) ------ ------ Operating (Loss) Earnings $ (2.5) $ 2.7 ====== ======
For the Nine Months Ended December 31, ---------------------------- 2000 1999 --------- -------- (Dollars in millions) Revenues $ 99.8 $ 146.0 Cost of Sales (82.0) (114.2) Selling, General & Administrative Expenses (18.9) (21.4) Goodwill Amortization (2.6) (2.6) -------- -------- Operating (Loss) Earnings (3.7) 7.8 Minority Interest -- (1.0) -------- -------- Net Operating (Loss) Earnings to Centex $ (3.7) $ 6.8 ======== ========
INVESTMENT REAL ESTATE Investment Real Estate operations involve the acquisition, development, and sale of land primarily for multi-family, industrial, office, retail and mixed-use projects.
For the Three Months Ended December 31, -------------------------- 2000 1999 ----- ----- (Dollars in millions) Revenues $13.0 $15.9 Cost of Sales (1.8) (6.8) Selling, General & Administrative Expenses (1.6) (4.2) Negative Goodwill Amortization 4.0 4.0 ----- ----- Operating Earnings $13.6 $ 8.9 ===== =====
-12- 16
For the Nine Months Ended December 31, ------------------------- 2000 1999 ----- ----- (Dollars in millions) Revenues $19.7 $27.4 Cost of Sales (2.2) (8.0) Selling, General & Administrative Expenses (2.8) (7.3) Negative Goodwill Amortization 12.0 12.0 ----- ----- Operating Earnings $26.7 $24.1 ===== =====
Property sales related to Investment Real Estate's nominally valued assets resulted in operating margins of $4.3 and $9.0 million for the three and nine months ended December 31, 2000 and $7.9 million and $16.8 million for the three and nine month periods last year. As of December 31, 2000, Investment Real Estate had nominally valued assets with an original cost basis of approximately $32.7 million. FINANCIAL SERVICES Financial Services operations involve financing the purchases of conventional 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.
For the Three Months Ended December 31, -------------------------- 2000 1999 ------ ------ (Dollars in millions) Revenues* $121.3 $106.6 Selling, General & Administrative Expenses (91.5) (81.6) Interest Expense (27.4) (15.8) ------ ------ Operating Earnings $ 2.4 $ 9.2 ====== ======
* Financial Services revenues include interest income of $36.8 million and $19.2 million for the three months ended December 31, 2000 and 1999, respectively.
For the Nine Months Ended December 31, -------------------------- 2000 1999 -------- ------- (Dollars in millions) Revenues* $ 323.7 $ 343.9 Selling, General & Administrative Expenses (258.6) (249.7) Interest Expense (60.4) (51.8) ------- ------- Operating Earnings $ 4.7 $ 42.4 ======= =======
* Financial Services revenues include interest income of $78.9 million and $70.2 million for the nine months ended December 31, 2000 and 1999, respectively. -13- 17 Securitizations entered into prior to March 31, 2000 by Financial Services' Centex Home Equity Corporation subsidiary ("Home Equity") were structured in a manner that caused them to be accounted for as sales. The resulting gains on such sales were reported as revenues during the period in which the securitizations closed. Home Equity has changed the structure for securitizations occurring subsequent to March 31, 2000, such that securitizations after that date are being accounted for as borrowings. Although the change in accounting for the securitizations from "sales" to "borrowings" will have no effect on the profit recognized over the life of the mortgages, the change does affect the timing of profit recognition. The approximate impact of this change in fiscal 2001 was to reduce Home Equity's pre-tax earnings by approximately $9.5 million and $31.8 million for the three and nine months ended December 31, 2000, respectively, from the amount it would have reported if the securitizations had been accounted for as sales. CONSTRUCTION PRODUCTS Construction Products operations involve the manufacture, production, distribution, and sale of cement, gypsum wallboard, paperboard, and aggregates and readymix concrete.
For the Three Months Ended December 31, -------------------------- 2000 1999 -------- ------- (Dollars in millions) Revenues $ 90.4 $ 108.4 Interest Income 1.8 1.1 Cost of Sales (69.6) (62.5) Selling, General & Administrative Expenses (1.1) (1.2) Goodwill Amortization (0.5) (0.4) ------- ------- Operating Earnings 21.0 45.4 Minority Interest (6.3) (17.0) ------- ------- Net Operating Earnings to Centex $ 14.7 $ 28.4 ======= =======
For the Nine Months Ended December 31, ------------------------- 2000 1999 ------- ------- (Dollars in millions) Revenues $ 290.5 $ 323.4 Interest Income 5.6 2.4 Cost of Sales (201.5) (188.6) Selling, General & Administrative Expenses (3.5) (3.5) Goodwill Amortization (1.4) (1.1) ------- ------- Operating Earnings 89.7 132.6 Minority Interest (30.8) (50.7) ------- ------ Net Operating Earnings to Centex $ 58.9 $ 81.9 ======= ======= Identifiable Assets $ 752.4 $ 402.6 ======= =======
-14- 18 CONTRACTING AND CONSTRUCTION SERVICES Contracting and Construction Services operations involve the construction of properties for both private and government interests, including (among others) office, commercial and industrial buildings, hospitals, hotels, museums, libraries, airport facilities and educational institutions. As this segment generates significant positive cash flow, intercompany interest income (credited at the prime rate in effect) is reflected in this segment; however, these amounts are eliminated in consolidation.
For the Three Months Ended December 31, -------------------------- 2000 1999 ------- ------- (Dollars in millions) Revenues $ 345.6 $ 288.0 Construction Contract Costs (322.8) (269.6) Selling, General & Administrative Expenses (14.6) (11.6) ------- ------- Operating Income, as reported 8.2 6.8 Intercompany Interest Income* 2.5 2.0 ------- ------- Total Economic Return $ 10.7 $ 8.8 ======= =======
For the Nine Months Ended December 31, ------------------------- 2000 1999 ------- ------- (Dollars in millions) Revenues $ 974.7 $ 928.6 Construction Contract Costs (911.9) (875.5) Selling, General & Administrative Expenses (41.5) (35.6) ------- ------- Operating Income, as reported 21.3 17.5 Intercompany Interest Income* 6.9 6.3 ------- ------- Total Economic Return $ 28.2 $ 23.8 ======= =======
*The "net assets" position of the Contracting and Construction Services segment provides significant cash flow (payables and accruals consistently exceed identifiable assets). Intercompany interest income computed on the segment's cash flow in excess of its equity is reflected above. However, these amounts are eliminated in consolidation. 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 do not merit breaking out as separate business segments.
For the Three Months Ended December 31, -------------------------- 2000 1999 ------ ------ (Dollars in millions) Corporate General and Administrative Expenses $ (8.5) $ (8.5) ====== ====== Operating Earnings (Loss)-Other, net $ 3.1 $ (0.6) ====== ======
-15- 19
For the Nine Months Ended December 31, ------------------------- 2000 1999 ------ ------ (Dollars in millions) Corporate General and Administrative Expenses $(26.0) $(23.8) ====== ====== Operating Earnings (Loss)-Other, net $ 5.0 $ (3.5) ====== ======
(I) The computation of diluted earnings per share excludes anti-dilutive options to purchase 2,823,000 common shares at an average price of $37.44, and 4,416,000 common shares at an average price of $35.24 for the three months and nine months ended December 31, 2000, respectively. All anti-dilutive options have expiration dates ranging from September 2007 to December 2010. (J) Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. This statement addresses 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 SFAS No. 133 for the Company until April 2001. In June 2000, SFAS No. 138 was issued which amends SFAS No. 133 for certain derivative instruments and certain hedging activities. SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued in September 2000. This statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries most of SFAS No. 125's provisions without reconsideration. This statement will become effective for the Company in April 2001. The Company is in the process of assessing the impact SFAS Nos. 133, 138 and 140 will have on its financial statements. (K) During November 2000 Construction Products purchased selected strategic assets summarized below, and assumed certain liabilities. The net purchase price was approximately $392 million. Funding came from cash on hand and borrowings under Construction Products' new $325 million senior credit facility. The principal assets acquired were: a 1.1 billion-square-foot gypsum wallboard plant located in Duke, Oklahoma; a short line railroad and railcars linking the Duke plant to adjacent railroads; a recently completed 220,000 ton-per-year lightweight paper mill in Lawton, Oklahoma; a 50,000 ton-per-year Commerce City (Denver), Colorado paper mill; and three recycled paper fiber collection sites. The gypsum wallboard operations will be operated by Construction Products' American Gypsum Company located in Albuquerque, New Mexico. The paper operations will be located in Lawton, Oklahoma, and will focus primarily on the gypsum wallboard paper business. (L) Certain prior year balances have been reclassified to be consistent with the December 31, 2000 presentation. -16- 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Centex's consolidated revenues for the three months ended December 31, 2000 were $1.6 billion, a 15% increase over $1.4 billion for the same period last year. Earnings before income taxes were $110.5 million, 9% higher than $101.7 million last year. Net earnings for the three months ended December 31, 2000 were $68.5 million, 8% higher than $63.2 million for the same period last year. For the nine months ended December 31, 2000, consolidated revenues totaled $4.7 billion, 10% higher than $4.2 billion for the same period last year. Earnings before income taxes were $284.5 million, 6% lower than $302.2 million for the same period last year. Net earnings were $175.8 million for the nine months ended December 31, 2000, a 6% decrease from net earnings of $187.1 million for the same period last year. HOME BUILDING CONVENTIONAL HOMES The following summarizes Conventional Homes' results for the three and nine months ended December 31, 2000 compared to the same periods last year (dollars in millions, except per unit data):
For the Three Months Ended December 31, --------------------------------------------------------------------------- 2000 1999 -------------------------------- ------------------------------- Conventional Homes Revenues $ 1,038.8 100.0% $ 863.2 100.0% Cost of Sales (782.4) (75.3)% (666.6) (77.2)% Selling, General & Administrative Expenses (155.8) (15.0)% (123.3) (14.3)% ---------- ---------- ---------- ---------- Operating Earnings $ 100.6 9.7% $ 73.3 8.5% ========== ========== ========== ========== Units Closed 4,893 4,495 % Change 8.9% 24.8% Unit Sales Price $ 208,328 $ 189,466 % Change 10.0% 3.2% Operating Earnings Per Unit $ 20,568 $ 16,314 % Change 26.1% 1.1%
For the Nine Months Ended December 31, -------------------------------------------------------------------------- 2000 1999 -------------------------------- ------------------------------ Conventional Homes Revenues $ 2,952.8 100.0% $ 2,461.5 100.0% Cost of Sales (2,251.2) (76.2)% (1,898.9) (77.2)% Selling, General & Administrative Expenses (438.9) (14.9)% (359.9) (14.6)% ---------- ---------- ---------- ---------- Operating Earnings $ 262.7 8.9% $ 202.7 8.2% ========== ========== ========== ========== Units Closed 14,202 12,854 % Change 10.5% 27.9% Unit Sales Price $ 203,071 $ 188,595 % Change 7.7% 2.4% Operating Earnings Per Unit $ 18,501 $ 15,768 % Change 17.3% 5.0%
-17- 21 Conventional Homes' revenues for the three months and nine months ended December 31, 2000 increased by $175.6 million and $491.3 million, respectively, from revenues for the same periods last year. These improvements resulted from an increased number of operating neighborhoods along with an increase in units per neighborhood, and a higher average unit selling price compared to the fiscal 2000 per-unit sales price. Operating earnings for the three and nine months ended December 31, 2000 were 9.7% and 8.9% as a percentage of revenue and approximately $20,568 and $18,501 on a per unit basis compared to operating earnings of 8.5% and 8.2% of revenue and approximately $16,314 and $15,768 on a per-unit basis for the same periods last year. Home sales (orders) totaled 4,351 units during the three months ended December 31, 2000, compared to 4,089 units during the same period last year, representing a 6.4% increase. Home sales (orders) totaled 15,226 units during the nine months ended December 31, 2000 compared to 13,191 units for the same period last year. The backlog of homes sold but not closed at December 31, 2000 was 8,603 units, 16.1% more than the 7,413 units for the same period last year. MANUFACTURED HOMES The following summarizes Manufactured Homes' results for the three and nine months ended December 31, 2000 compared to the same periods last year (dollars in millions):
For the Three Months Ended December 31, -------------------------------------------------------------- 2000 1999 ------------------------- -------------------------- Manufactured Homes Revenues (Construction) $ 18.3 100.0% $ 30.3 100.0% Cost of Sales (15.1) (82.4)% (23.3) (76.9)% Selling, General & Administrative Expenses (3.5) (19.5)% (3.4) (11.3)% ------ ------ ------ ------ (0.3) (1.9)% 3.6 11.8% ------ ====== ------ ====== Retail Sales Revenues 10.2 100.0% 16.8 100.0% Cost of Sales (8.4) (82.6)% (13.2) (78.4)% Selling, General & Administrative Expenses (2.6) (25.4)% (3.7) (21.9)% ------ ------ ------ ------ (0.8) (8.0)% (0.1) (0.3)% ------ ====== ------ ====== Construction and Retail (Loss) Earnings (1.1) 3.5 Subdivision Development Activities (0.5) -- Goodwill Amortization (0.9) (0.8) ------ ------ Group Operating (Loss) Earnings $ (2.5) $ 2.7 ====== ====== Units Sold 1,004 1,501
-18- 22
For the Nine Months Ended December 31, ---------------------------------------------------------------------- 2000 1999 ----------------------------- ------------------------------ Manufactured Homes Revenues (Construction) $ 63.5 100.0% $ 98.1 100.0% Cost of Sales (52.3) (82.4)% (76.2) (77.6)% Selling, General & Administrative Expenses (9.5) (14.9)% (10.8) (11.0)% -------- -------- -------- -------- 1.7 2.7% 11.1 11.4% -------- ======== -------- ======== Retail Sales Revenues 34.2 100.0% 47.9 100.0% Cost of Sales (27.8) (81.4)% (38.0) (79.4)% Selling, General & Administrative Expenses (8.5) (24.8)% (10.6) (22.2)% -------- -------- -------- -------- (2.1) (6.2)% (0.7) (1.6)% -------- ======== -------- ======== Construction and Retail (Loss) Earnings (0.4) 10.4 Subdivision Development Activities (0.7) -- Goodwill Amortization (2.6) (2.6) Minority Interest -- (1.0) -------- -------- Group Operating (Loss) Earnings $ (3.7) $ 6.8 ======== ======== Units Sold 3,328 4,723
Manufactured Homes currently operates four manufacturing plants: three in the Phoenix, Arizona area, and one in central Texas, and also operates 22 retail locations. As a consequence of an oversupply of homes in the total industry distribution pipeline and the reduced availability and higher cost of financing for purchasers of manufactured homes, Manufactured Homes' construction sales and retail sales for the three and nine months ended December 31, 2000 declined from the same periods last year. In response, management has idled its New Mexico plant and slowed production in its other plants until the return of more favorable market conditions. INVESTMENT REAL ESTATE The following summarizes Investment Real Estate's results for the three and nine months ended December 31, 2000 compared to the same periods last year (dollars in millions):
For the Three Months Ended December 31, -------------------------- 2000 1999 ----- ----- Revenues $13.0 $15.9 ===== ===== Operating Earnings $13.6 $ 8.9 ===== =====
For the Nine Months Ended December 31, -------------------------- 2000 1999 ------ ------ Revenues $ 19.7 $ 27.4 ====== ====== Operating Earnings $ 26.7 $ 24.1 ====== ======
-19- 23 For the three and nine months ended December 31, 2000, Centex's Investment Real Estate operations, through which all investment property transactions are reported, had operating earnings of $13.6 and $26.7 million, respectively, 52% and 11% higher than $8.9 and $24.1 million for the same periods 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 $4.3 million and $7.9 million for the three months ended December 31, 2000 and 1999, and $9.0 million and $16.8 million for the nine months ended December 31, 2000 and 1999, respectively. As of December 31, 2000, Investment Real Estate had nominally valued assets with an original cost basis of approximately $32.7 million which are expected to be sold over the next 12 to 24 months. Negative goodwill amortization was $4 million in the three month periods ended December 31, 2000 and 1999, and $12 million in the nine month periods ended December 31, 2000 and 1999. FINANCIAL SERVICES The following summarizes Financial Services' results for the three and nine months ended December 31, 2000 compared to the same periods last year (dollars in millions):
For the Three Months Ended December 31, -------------------------- 2000 1999 ------- ------- Revenues $ 121.3 $ 106.6 ======= ======= Operating Earnings $ 2.4 $ 9.2 ======= ======= Origination Volume $ 2,461 $ 2,168 ======= ======= Number of Loans Originated CTX Mortgage Company Centex-built Homes ("Builder") 2,956 2,449 Non-Centex-built Homes ("Retail") 10,610 10,614 ------- ------- 13,566 13,063 Centex Home Equity Corporation 6,564 5,526 Centex Finance Company (closed during fiscal 2000) -- 202 ------- ------- 20,130 18,791 ======= =======
-20- 24
For the Nine Months Ended December 31, ------------------------- 2000 1999 -------- ------- Revenues $ 323.7 $ 343.9 ======= ======= Operating Earnings $ 4.7 $ 42.4 ======= ======= Origination Volume $ 7,316 $ 7,337 ======= ======= Number of Loans Originated CTX Mortgage Company Builder 8,261 7,489 Retail 33,572 39,093 ------- ------- 41,833 46,582 Centex Home Equity Corporation 20,310 15,506 Centex Finance Company (closed during fiscal 2000) -- 674 ------- ------- 62,143 62,762 ======= =======
Financial Services' operating earnings for the three months ended December 31, 2000 were $2.4 million compared to $9.2 million for the same period last year. For the nine months ended December 31, 2000, operating earnings were $4.7 million compared to $42.4 million for the same period last year. Financial Services' revenues for the third quarter of fiscal 2001 were $121.3 million versus $106.6 million for the third quarter last year, and $323.7 million for the first nine months of fiscal 2001 compared to $343.9 million for the same period last year. Gains on sales of mortgage loans receivable, a component of Financial Services' revenues, decreased to $40.7 million for the quarter ended December 31, 2000 from $65.4 million for the comparable quarter last year, and to $128.7 million for the nine months ended December 31, 2000 compared to $208.3 million for the same period last year. This decline is primarily due to the change, discussed below, in the method of accounting for securitizations completed by Home Equity. CTX Mortgage Company and related companies ("CTX Mortgage") had operating earnings totaling $5.9 million for the three months ended December 31, 2000 compared to operating earnings of $5.8 million for the three months ended December 31, 1999, and $16.7 million for the nine months ended December 31, 2000, which was 45% less than operating earnings of $30.6 million reported for the nine months ended December 31, 1999. The decline in CTX Mortgage's year-to-date operating earnings is primarily due to higher interest rates in the first nine months of fiscal 2001 compared to the same period last year, which has resulted in a decrease in refinancing activity, a more competitive pricing environment, and a change in product mix to a greater volume of adjustable rate loans that have lower profit margins. Originations for the nine months ended December 31, 2000 totaled 41,833 compared to 46,582 originations in the same period last year. The per-loan profit for the nine months ended December 31, 2000 was $400, or 39% lower than $657 for the same period last year. CTX Mortgage's total mortgage applications for the three months ended December 31, 2000 increased 14% to 12,723 from 11,197 applications for the same period last year. For the nine months ended December 31, 2000, CTX Mortgage's applications decreased 1% to 43,919 from 44,210 for the same period last year. -21- 25 Up to December 1999, substantially all of the mortgage loans generated by CTX Mortgage were sold forward upon closing and subsequently delivered to third-party purchasers within approximately 60 days thereafter. In mid-December 1999, CTX Mortgage began to sell, at closing, the majority of its mortgage loans to Harwood Street Funding I, LLC ("HSF-I"), a non-affiliated limited liability company. This arrangement is discussed in more detail in the Financial Condition and Liquidity section below. CTX Mortgage's interest income, earned primarily on loans pending sale, decreased 65% for the quarter ended December 31, 2000 to $4.2 million from $12.0 million for the same quarter last year, and declined 73% for the nine months ended December 31, 2000 to $13.4 million from $49.1 million for the same period last year. CTX Mortgage's interest expense for the quarter ended December 31, 2000 was $4.5 million, a 59% decrease from $10.9 million for the same period last year. Interest expense for the nine months ended December 31, 2000 was $14.3 million, a 63% decrease from $38.3 million for the same period last year. The decrease in CTX Mortgage's net interest income was due to the reduction in its inventory of loans because of the sales arrangement with HSF-I, as discussed in the Financial Condition and Liquidity section. Home Equity reported operating losses of $3.5 million and $12.1 million, respectively, for the quarter and nine months ended December 31, 2000, compared to operating earnings of $3.4 million and $11.8 million, respectively, for the same periods last year. As discussed below, this decline primarily resulted from accounting for $400 million in securitizations completed during the quarter ended December 31, 2000 and $1.15 billion in securitizations during fiscal 2001 as borrowings rather than as sales. Home Equity's originations for the three months ended December 31, 2000 were 6,564, a 19% increase over 5,526 originations for the same period last year. Originations for the nine months ended December 31, 2000 were 20,310, a 31% increase over 15,506 originations for the same period last year. Loan volume for the three months ended December 31, 2000 was $442.8 million, a 25% improvement over the same period last year. Loan volume for the nine months ended December 31, 2000 was $1.3 billion, a 31% improvement over the same period last year. Loan volume for the three and nine months ended December 31, 2000 was favorably impacted by the opening of new operating locations during the later quarters of fiscal 2000, plus generally increased activity. Home Equity's sub-prime applications totaled 35,105 for the quarter ended December 31, 2000, an increase of 9% over the 32,341 applications for the same period last year. Home Equity's sub-prime applications totaled 109,853 for the nine months ended December 31, 2000, an increase of 22% over the 89,785 applications for the same period last year. During the quarter ended December 31, 2000, Home Equity completed $400 million in loan securitizations, compared to $305 million of loan securitizations during the same period last year. For the nine months ended December 31, 2000, Home Equity completed securitizations totaling $1.15 billion, compared to $1.0 billion in securitizations for the same period last year. Home Equity retains the servicing rights associated with these securitized loans and is the long-term servicer of these loans. Service fee income related to this long-term servicing was $6.8 million in the three months ended December 31, 2000, a 70% increase from the $4.0 million in the same period last year. For the nine months ended December 31, 2000, service fee revenue was $17.8 million compared to $10.0 million for the same period last year. Substantially all of the mortgage loans produced by Home Equity are securitized, generally on a quarterly basis. Securitizations entered into prior to March 31, 2000 by Home Equity were structured in a manner that caused them to be accounted for as sales. The resulting gains on such sales were reported as -22- 26 revenues during the period in which the securitizations closed. Home Equity has changed the structure for securitizations occurring subsequent to March 31, 2000, such that securitizations after that date are being accounted for as borrowings. Although the change in accounting for the securitizations from "sales" to "borrowings" will have no effect on the profit recognized over the life of the mortgages, the change does affect the timing of profit recognition. The approximate impact of this change in fiscal 2001 was to reduce Home Equity's pre-tax earnings by approximately $9.5 million and $31.8 million for the three and nine months ended December 31, 2000, respectively, from the amount it would have reported if the securitizations had been structured as sales. Among other effects, the loans thus securitized are reflected as loans receivable on the Company's balance sheet, and the Company's income statement reflects the interest income and the interest expense associated with this loan portfolio. Such net interest income, rather than gain on sale of loans as in past periods, is Home Equity's primary source of operating income. Primarily as a result of this change, Home Equity's interest income increased 353% for the quarter ended December 31, 2000 to $32.6 million from $7.2 million for the same period last year, and increased 210% for the nine months ended December 31, 2000 to $65.5 million from $21.1 million for the same period last year. Interest expense for the quarter ended December 31, 2000 was $22.9 million, a 367% increase from $4.9 million for the same period last year, and for the nine months ended December 31, 2000, was $46.1 million, a 241% increase from $13.5 million for the same period last year. Therefore, Home Equity's net interest income increased 322% to $9.7 million for the quarter ended December 31, 2000 from $2.3 million for the same period last year, and increased 155% for the nine months ended December 31, 2000 to $19.4 million from $7.6 million for the same period last year. Financial Services' other sources of revenue include, among other things, loan origination fees, servicing fee income, title policy fees and insurance commissions, mortgage loan broker fees, and fees for mortgage loan quality control and processing services. CONSTRUCTION PRODUCTS The following summarizes Construction Products' results for the three and nine months ended December 31, 2000 compared to the same periods last year (dollars in millions):
For the Three Months Ended December 31, ------------------------- 2000 1999 ------- ------- Revenues $ 90.4 $108.4 Interest Income 1.8 1.1 Cost of Sales and Expenses (69.6) (62.5) Selling, General & Administrative Expenses (1.1) (1.2) Goodwill Amortization (0.5) (0.4) ------ ------ Operating Earnings 21.0 45.4 Minority Interest (6.3) (17.0) ------ ------ Net Operating Earnings to Centex $ 14.7 $ 28.4 ====== ======
-23- 27
For the Nine Months Ended December 31, ------------------------- 2000 1999 ------- ------- Revenues $ 290.5 $ 323.4 Interest Income 5.6 2.4 Cost of Sales (201.5) (188.6) Selling, General & Administrative Expenses (3.5) (3.5) Goodwill Amortization (1.4) (1.1) ------- ------- Operating Earnings 89.7 132.6 Minority Interest (30.8) (50.7) ------- ------- Net Operating Earnings to Centex $ 58.9 $ 81.9 ======= =======
Construction Products' revenues were $90.4 million for the three months ended December 31, 2000, a 17% decrease from the same period last year. For the three months ended December 31, 2000, Construction Products' operating earnings, net of minority interest, were $14.7 million, a 48% decrease from the $28.4 million reported for the same period last year. Revenues from Construction Products for the nine months ended December 31, 2000 were $290.5 million, 10% lower than revenues for the same period last year. For the nine months ended December 31, 2000, Construction Products' operating earnings, net of minority interest, were $58.9 million, 28% lower than the results for the same period last year. The decrease in revenues and operating earning for the three and nine month periods ending December 31, 2000 are primarily the result of lower pricing, particularly in gypsum wallboard. Construction Products' results for both the current year quarter and nine month period were also adversely impacted by higher fuel and energy costs. During November 2000, Construction Products purchased selected strategic assets summarized below, and assumed certain liabilities. The net purchase price was approximately $392 million. Funding came from cash on hand and borrowings under Construction Products' new $325 million senior credit facility. The principal assets acquired were: a 1.1 billion-square-foot gypsum wallboard plant located in Duke, Oklahoma; a short line railroad and railcars linking the Duke plant to adjacent railroads; a recently completed 220,000 ton-per-year lightweight paper mill in Lawton, Oklahoma; a 50,000 ton-per-year Commerce City (Denver), Colorado paper mill; and three recycled paper fiber collection sites. The gypsum wallboard operations will be operated by Construction Products' American Gypsum Company located in Albuquerque, New Mexico. The paper operations will be located in Lawton, Oklahoma, and will focus primarily on the gypsum wallboard paper business. -24- 28 \ CONTRACTING AND CONSTRUCTION SERVICES The following summarizes Contracting and Construction Services' results for the three and nine months ended December 31, 2000 compared to the same periods last year (dollars in millions):
For the Three Months Ended December 31, -------------------------------------------- 2000 1999 ----------------- ----------------- Revenues $ 345.6 $ 288.0 ================= ================= Operating Earnings $ 8.2 $ 6.8 ================= ================= New Contracts Received $ 318.5 $ 486.8 ================= ================= Backlog of Uncompleted Contracts $ 1,445 $ 1,322 ================= =================
For the Nine Months Ended December 31, -------------------------------------------- 2000 1999 ----------------- ----------------- Revenues $ 974.7 $ 928.6 ================= ================= Operating Earnings $ 21.3 $ 17.5 ================= ================= New Contracts Received $ 1,037.6 $ 1,313.5 ================= ================= Backlog of Uncompleted Contracts $ 1,445 $ 1,322 ================= =================
Contracting and Construction Services' revenues for the three and nine months ended December 31, 2000 were $345.6 million and $974.7 million, respectively. Operating earnings for the group improved 20% to $8.2 million for the three months and 21% to $21.3 million for the nine months ended December 31, 2000 over the same periods last year. This increase was primarily the result of a continuing shift in recent years to higher-margin private negotiated projects from lower-margin public bid work. The Contracting and Construction Services operations provided a positive average net cash flow in excess of Centex's investment in the group of $99.3 million for the three months ended December 31, 2000 and $94.7 million for the same period last year. For the nine months ended December 31, 2000, the positive average net cash flow in excess of Centex's investment in the group was $95.1 million, compared to $102.8 million for the same period last year. -25 29 FINANCIAL CONDITION AND LIQUIDITY At December 31, 2000, the Company had cash and cash equivalents of $76.9 million, including $30.4 million of restricted cash and $11.8 million belonging to the Company's 65.3%-owned Construction Products subsidiary. The net cash used in or provided by the operating, investing, and financing activities for the nine months ended December 31, 2000 and 1999 is summarized below (dollars in thousands):
For the Nine Months Ended December 31, --------------------------------- 2000 1999 ----------- ----------- Net cash provided by (used in) Traditional Operations* Operating Activities $ (149,354) $ (233,472) Investing Activities (513,888) (142,454) Financing Activities 572,084 432,060 ----------- ----------- (91,158) 56,134 ----------- ----------- Financial Services Operating Activities (1,222,215) 590,311 Investing Activities (5,049) (19,800) Financing Activities 1,255,046 (576,152) ----------- ----------- 27,782 (5,641) ----------- ----------- Effect of exchange rates on cash 758 (48) ----------- ----------- Net (decrease) increase in cash $ (62,618) $ 50,445 =========== ===========
* Traditional operations is the combining of all subsidiaries other than those included in the Financial Services business segment. For the first nine months of fiscal 2001, cash was used in the Operating Activities to finance increases in residential mortgage loans and housing inventories. The increase in housing inventories relates to the increased level of sales and resulting units under construction during the year and to the acquisition of expansion land. The funds provided by Financing Activities included new debt used to fund both residential mortgage loans and the increased home building activity. Short-term debt as of December 31, 2000 was $817.8 million, which included $542.0 million of debt applicable to the Financial Services operation (see below). Excluding Financial Services, the Company's short-term borrowings are generally accomplished at prevailing market interest rates from the Company's commercial paper programs and from uncommitted bank facilities. In August, the Company entered into a $600 million committed multi-bank revolving credit facility expiring in 2005 which serves as backup for commercial paper borrowings. The Financial Services segment obtains most of its own short-term liquidity needs through separate facilities which require only limited support from Centex Corporation. During the third quarter of fiscal 2000, CTX Mortgage began selling to HSF-I substantially all of the Conforming, Jumbo A, and GNMA eligible mortgages originated by CTX Mortgage under a revolving sales agreement. HSF-I, an unaffiliated special purpose entity, acquires and then resells mortgages originated by CTX Mortgage into secondary -26- 30 markets. Under the sales agreement between CTX Mortgage and HSF-I, which has a five year term with certain renewal options, CTX Mortgage is not required to sell its mortgage loans to HSF-I; however, HSF-I has committed to purchase all eligible loans offered by CTX Mortgage. This arrangement gives CTX Mortgage daily access, on a revolving basis, to HSF-I's $1.5 billion of capacity. CTX Mortgage also maintains $190 million of secured committed mortgage warehouse facilities. In February 2001, Home Equity began selling mortgage loans to Harwood Street Funding II, LLC ("HSF-II") under a revolving sales agreement. HSF-II, an affiliated special purpose limited liability company, acquires mortgages originated or acquired by Home Equity and then resells them into the secondary market or to securitization structures. Under the sales agreement between Home Equity and HSF-II, Home Equity is not required to sell its mortgage loans to HSF-II; however, HSF-II has committed to purchase all eligible loans offered by Home Equity. This arrangement gives Home Equity daily access, on a revolving basis, to HSF-II's $550 million of capacity. HSF-II's funding for the purchase of the loans is provided through the sale by it in the capital markets of five-year subordinated notes and short-term secured liquidity notes. Home Equity continues to service the loans acquired by HSF-II. Home Equity also has $325 million of committed secured mortgage warehouse facilities to finance sub-prime mortgages held until securitization. In addition, Financial Services has $90 million of uncommitted unsecured credit facilities under which it can borrow and, in turn, allocate such borrowed funds to its CTX Mortgage, Home Equity, and other subsidiaries. At December 31, 2000, Financial Services had borrowed $90 million under these facilities; $45 million of such borrowings were allocated to CTX Mortgage and $45 million to Home Equity. All borrowings under these unsecured facilities are guaranteed by Centex Corporation. CTX Mortgage and Home Equity share a $175 million uncommitted secured credit facility to finance mortgage inventory. At December 31, 2000, CTX Mortgage had borrowed $25 million and Home Equity had borrowed $145 million under this facility. This facility has limited recourse to Centex Corporation. The Company is exposed to market risks related to fluctuations in interest rates on mortgage loans receivable, residual interest in mortgage securitizations, and in debt. The Company utilizes forward sale commitments to mitigate the risk associated with the majority of CTX Mortgage's mortgage loan portfolio and forward starting interest rate swaps for most of the unsecuritized mortgage portfolio of Home Equity. The Company does not utilize forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. There have been no material changes in the Company's market risk since March 31, 2000. At December 31, 2000, market risk associated with the swaps mentioned above is considered minimal. -27- 31 Debt outstanding as of December 31, 2000 was as follows (dollars in thousands): Non-Financial Services: Short-Term Notes Payable $ 275,810 Senior Debt: Medium-Term Note Programs, 6.94% to 7.95%, due through 2006 486,991 Long-Term Notes, 6.4% to 9.75%, due through 2006 214,966 Other Indebtedness, weighted-average 8.9%, due through 2027 294,768 Subordinated Debt: Subordinated Debentures, 7.375%, due in 2006 99,784 Subordinated Debentures, 8.75%, due in 2007 99,560 Subordinated Debentures, 9.5%, due in 2009 10,008 ---------- 1,481,887 ---------- Financial Services: Short-Term Notes Payable 541,970 Home Equity Loans Asset-backed Certificates, 6.60% to 8.48%, due through 2031 327,518 Home Equity Loans Asset-backed Certificates, 6.60% to 7.99%, due through 2030 390,008 Home Equity Loans Asset-backed Certificates, 6.74% to 7.17%, due through 2031 400,000 ---------- 1,659,496 ---------- Centex Corporation and Subsidiaries $3,141,383 ==========
Maturities of long-term debt (in thousands) are fiscal: 2001, $118,286; 2002, $702,452; 2003, $268,178; 2004, $413,342; 2005, $105,720; and $715,625 thereafter. The Company believes it has adequate resources and sufficient credit facilities to satisfy its current needs and to provide for future growth. On February 1, 2001, Centex issued $250 million in 7.875% senior notes due February 1, 2011. Proceeds of the bond issue were used to reduce commercial paper and short term bank borrowings. OTHER DEVELOPMENTS AND OUTLOOK In October 2000, Centex Homes, a Nevada General Partnership ("Centex Homes") signed a letter of intent to acquire the home building assets of The Selective Group, based in Farmington Hills, Michigan. The closing is scheduled for March 2001, subject to customary conditions. As part of its increased focus on serving urban markets, Centex Homes announced in January 2001 that it had signed a letter of intent to acquire CityHome Builders, Inc. ("CityHomes"), a leading builder of upscale urban townhomes in Dallas. The acquisition would include all homes under construction as well as land or lots for approximately 300 homes. CityHomes, founded in 1997, has been nationally recognized for its sophisticated luxury homes, generally priced from $250,000 to $450,000. -28- 32 Also during the quarter, Centex HomeTeam Pest Control acquired four pest management companies, three in Florida and one in North Carolina. The acquisitions added a total of 8,200 customers to HomeTeam Pest Control's existing customer bases in these markets, bringing its total number of customers nationwide to 121,000. The Company expects home sales to remain strong and closings and margins to continue to increase. Fiscal 2001 home building results should exceed fiscal 2000's record levels, and the Company also expects all-time high results from its contracting and construction services operations. In addition, operating earnings from Financial Services are expected to increase as interest rates fall and its sub-prime loan portfolio grows. However, despite strong product volumes, earnings from Construction Products will be negatively impacted by higher fuel and energy costs and lower product pricing in gypsum wallboard. -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations, the Other Developments and Outlook 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. -29- 33 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks related to fluctuations in interest rates on its direct debt obligations, on mortgage loans receivable, residual interest in mortgage securitizations, and securitizations classified as debt. The Company utilizes derivative instruments, including interest rate swaps, in conjunction with its overall strategy to manage the debt outstanding that is subject to changes in interest rates. The Company utilizes forward sale commitments to mitigate the risk associated with the majority of its mortgage loan portfolio. Other than the forward commitments and interest rate swaps discussed earlier, the Company does not utilize 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, 2000. For further information regarding the Company's market risk, refer to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. -30- 34 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (1) Exhibits None (2) Reports on Form 8-K Current Report on Form 8-K of Centex Corporation dated October 25, 2000, filed with the SEC on October 26, 2000. Current Report on Form 8-K of Centex Corporation dated November 16, 2000, and filed with the SEC on that date. Current Report on Form 8-K of Centex Corporation dated November 17, 2000, and filed with the SEC on November 20, 2000. -31- 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTEX CORPORATION ---------------------------- Registrant February 13, 2001 /s/ Leldon E. Echols ---------------------------- Leldon E. Echols Executive Vice President and Chief Financial Officer (principal financial officer) February 13, 2001 /s/ Mark A. Blinn ---------------------------- Mark A. Blinn Vice President - Controller and Financial Strategy (chief accounting officer) -32- 36 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. The Companies suggest 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 combining 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. -33- 37 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES CONDENSED COMBINING STATEMENTS OF OPERATIONS (Dollars in thousands, except per unit/share data) (unaudited)
For the Three Months Ended December 31, --------------------------------------------------------------------------------------------- 2000 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 -------- ------------ -------------- -------- ------------- -------------- REVENUES $ 80,752 $ 80,752 $ -- $ 79,450 $ 79,450 $ 153 COSTS AND EXPENSES 78,031 77,894 137 79,533 79,527 159 -------- -------- -------- -------- -------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES 2,721 2,858 (137) (83) (77) (6) INCOME TAXES (928) (928) -- 29 29 -- -------- -------- -------- -------- -------- -------- NET EARNINGS (LOSS) $ 3,649 $ 3,786 $ (137) $ (112) $ (106) $ (6) ======== ======== ======== ======== ======== ======== NET EARNINGS (LOSS) ALLOCABLE TO LIMITED PARTNER $ 3,786 $ (106) ======== ======== EARNINGS (LOSS) PER UNIT/SHARE $ 53.57 $ (137) $ (1.66) $ (6) ======== ======== ======== ======== WEIGHTED-AVERAGE UNITS/SHARES OUTSTANDING 70,669 1,000 63,773 1,000
See notes to condensed combining financial statements. -34- 38 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES CONDENSED COMBINING STATEMENTS OF OPERATIONS (Dollars in thousands, except per unit/share data) (unaudited)
For the Nine Months Ended December 31, ---------------------------------------------------------------------------------------------- 2000 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 --------- ------------ -------------- --------- ------------- -------------- REVENUES $ 222,510 $ 222,509 $ 1 $ 249,249 $ 249,249 $ 457 COSTS AND EXPENSES 219,517 219,157 360 248,684 247,603 1,538 --------- --------- --------- --------- --------- --------- EARNINGS (LOSS) BEFORE INCOME TAXES 2,993 3,352 (359) 565 1,646 (1,081) INCOME TAXES (871) (871) -- 601 601 -- --------- --------- --------- --------- --------- --------- NET EARNINGS (LOSS) $ 3,864 $ 4,223 $ (359) $ (36) $ 1,045 $ (1,081) ========= ========= ========= ========= ========= ========= NET EARNINGS ALLOCABLE TO LIMITED PARTNER $ 4,223 $ 1,045 ========= ========= EARNINGS (LOSS) PER UNIT/SHARE $ 60.70 $ (359) $ 16.99 $ (1,081) ========= ========= ========= ========= WEIGHTED-AVERAGE UNITS/SHARES OUTSTANDING 69,573 1,000 61,489 1,000
See notes to condensed combining financial statements. -35- 39 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES CONDENSED COMBINING BALANCE SHEETS (Dollars in thousands)
DECEMBER 31, 2000* March 31, 2000** --------------------------------------------- --------------------------------------------- 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 $ 10,142 $ 10,137 $ 5 $ 58,314 $ 58,298 $ 16 Accounts Receivable 8,582 13,859 1 13,077 17,948 6 Notes Receivable 1,019 1,019 -- 3,131 3,131 -- Inventories 400,496 398,860 1,636 329,941 328,928 1,013 Investments - Commercial Properties, net 70,099 70,099 -- 61,420 61,420 -- Real Estate Joint Ventures 3,069 3,069 -- 2,595 2,595 -- Affiliate -- -- 1,716 -- -- 1,716 Property and Equipment, net 3,206 3,138 68 3,578 3,481 97 Other Assets - Goodwill, net 29,515 29,515 -- 30,727 30,727 -- Deferred Charges and Other 14,009 13,859 150 8,835 8,660 175 --------- --------- --------- --------- --------- --------- $ 540,137 $ 543,555 $ 3,576 $ 511,618 $ 515,188 $ 3,023 ========= ========= ========= ========= ========= ========= LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Accounts Payable and Accrued Liabilities $ 116,769 $ 116,727 $ 5,894 $ 118,693 $ 119,162 $ 4,982 Notes Payable 347,386 347,386 -- 323,740 323,740 -- --------- --------- --------- --------- --------- --------- Total Liabilities 464,155 464,113 5,894 442,433 442,902 4,982 --------- --------- --------- --------- --------- --------- Stockholders' Equity and Partners' Capital 75,982 79,442 (2,318) 69,185 72,286 (1,959) --------- --------- --------- --------- --------- --------- $ 540,137 $ 543,555 $ 3,576 $ 511,618 $ 515,188 $ 3,023 ========= ========= ========= ========= ========= =========
* Unaudited. ** Condensed from audited financial statements. See notes to condensed combining financial statements. -36- 40 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES CONDENSED COMBINING STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)
For the Nine Months Ended December 31, ---------------------------------------------------------------------------------------------- 2000 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 --------- ------------ -------------- --------- ------------- -------------- CASH FLOWS - OPERATING ACTIVITIES Net Earnings (Loss) $ 3,864 $ 4,223 $ (359) $ (36) $ 1,045 $ (1,081) Adjustments: Depreciation and Amortization 3,622 3,592 30 2,752 2,719 33 Equity in Earnings from Joint Ventures (446) (446) -- (23) (23) (15) Decrease (Increase) in Receivables 2,149 2,144 5 (5,662) (5,662) -- Decrease in Notes Receivable 2,112 2,112 -- 194 194 -- Increase in Inventories (84,340) (83,717) (623) (11,612) (11,237) (375) Increase in Commercial Properties (10,064) (10,064) -- -- -- -- (Increase) Decrease in Other Assets (8,273) (8,298) 25 (2,744) (2,915) 171 Increase in Payables and Accruals 6,238 5,326 912 12,131 10,313 1,905 --------- --------- --------- --------- --------- --------- (85,138) (85,128) (10) (5,000) (5,566) 638 --------- --------- --------- --------- --------- --------- CASH FLOWS - INVESTING ACTIVITIES Increase in Advances to Joint Ventures and Investment in Affiliate (28) (28) -- (947) (948) (71) (Increase) Decrease in Property and Equipment, net (175) (174) (1) 318 317 1 --------- --------- --------- --------- --------- --------- (203) (202) (1) (629) (631) (70) --------- --------- --------- --------- --------- --------- CASH FLOWS - FINANCING ACTIVITIES Increase (Decrease) in Notes Payable 39,341 39,341 -- 24,719 25,301 (582) Issuance of Class "C" Partnership Units -- -- -- 4,830 4,830 -- --------- --------- --------- --------- --------- --------- 39,341 39,341 -- 29,549 30,131 (582) --------- --------- --------- --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,172) (2,172) -- 13 13 -- --------- --------- --------- --------- --------- --------- NET (DECREASE) INCREASE IN CASH (48,172) (48,161) (11) 23,933 23,947 (14) CASH AT BEGINNING OF PERIOD 58,314 58,298 16 364 331 33 --------- --------- --------- --------- --------- --------- CASH AT END OF PERIOD $ 10,142 $ 10,137 $ 5 $ 24,297 $ 24,278 $ 19 ========= ========= ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURES: Increase in Notes Payable Related to an Acquisition $ -- $ -- $ -- $ 253,812 $ 253,812 $ -- Issuance of Class C Units in Exchange for Assets $ 3,327 $ 3,327 $ -- $ 3,265 $ 3,265 $ --
See notes to condensed combining financial statements. -37- 41 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONDENSED COMBINING FINANCIAL STATEMENTS DECEMBER 31, 2000 (unaudited) (A) In March 1987, Centex Development Company, L.P. (the "Partnership"), a master limited partnership, was formed to enable holders of common stock of Centex Corporation (together with its subsidiaries, "Centex") to participate in long-term real estate development projects whose dynamics are inconsistent with Centex's traditional financial objectives. Certain of Centex's subsidiaries contributed to the Partnership certain properties at their historical cost basis in exchange for 1,000 limited partnership units ("Class A Units"). The Partnership is managed by its general partner, 3333 Development Corporation ("Development"), which is in turn wholly-owned by 3333 Holding Corporation ("Holding"). Holding is a separate public company whose stock trades in tandem with Centex's stock. The common stock of Holding was distributed in 1987 (with warrants to purchase approximately 80% of the Class B limited partnership units ("Class B Units") in the Partnership) as a dividend to the stockholders of Centex. These securities are held by a nominee on behalf of the stockholders and 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, unless the detachment date is extended by Centex's board. The stockholders of Centex elect the four-person Board of Directors of Holding. Three of the Board members, representing the majority of the Board, are independent outside directors who are also not directors, affiliates or employees of Centex. Thus, through Holding, the stockholders of Centex control the general partner of the Partnership. The general partner and the independent board of Holding manage how the Partnership conducts its activities, including the acquisition, development, maintenance, operation, and sale of properties. The general partner, acting on behalf of the Partnership, 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 included elsewhere in this Form 10-Q for supplementary condensed combined financial statements for Centex and subsidiaries, Holding and subsidiary, and the Partnership and subsidiaries. -38- 42 (B) Holding has a service agreement with Centex Service Company, a wholly-owned subsidiary of Centex, whereby Centex Service Company provides certain development, tax, accounting and other similar services for Holding. Through December 31, 2000, Holding had paid Centex Service Company $772,500 for services provided in fiscal 2001. The Partnership sells lots to Centex Homes, a Nevada General Partnership ("Centex Homes") pursuant to certain purchase and sale agreements. Revenues from these sales were zero for the three and nine months ended December 31, 2000, and $669,000 and $5.0 million for the three and nine months ended December 31, 1999, respectively. Gains associated with the sales for the same periods last year were $132,000 and $305,000, respectively. (C) A summary of comprehensive income for the three and nine months ended December 31, 2000 is presented below (dollars in thousands):
For the Three Months Ended For the Nine Months Ended December 31, 2000 December 31, 2000 -------------------------- ------------------------- Net Earnings $ 3,649 $ 3,864 Accumulated Other Comprehensive Income (Loss): Foreign Currency Translation Adjustments 73 (394) ------- ------- Comprehensive Income $ 3,722 $ 3,470 ======= =======
(D) A summary of changes in stockholders' equity and partners' capital is presented below (dollars in thousands):
For the Nine Months Ended December 31, 2000 ------------------------------------------------------------------------------------ Centex Development Company, 3333 Holding Corporation L.P. and Subsidiaries and Subsidiary ----------------------------------- -------------------------------- Class B General Limited Capital In Retained Unit Partner's Partner's Stock Excess of Earnings Combined Warrants Capital Capital Warrants Par Value (Deficit) -------- -------- --------- --------- -------- ---------- --------- Balance at March 31, 2000 $ 69,185 $ 500 $ 1,142 $ 70,644 $ 1 $ 800 $ (2,760) Partnership Units Issued in Exchange for Assets 3,327 -- -- 3,327 -- -- -- Net Earnings (Loss) 3,864 -- -- 4,223 -- -- (359) Accumulated Other Comprehensive Loss: Foreign Currency Translation Adjustments (394) -- -- (394) -- -- -- -------- -------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 2000 $ 75,982 $ 500 $ 1,142 $ 77,800 $ 1 $ 800 $ (3,119) ======== ======== ======== ======== ======== ======== ========
-39- 43 During fiscal 1998, the partnership agreement governing the Partnership was amended to allow for the issuance of Class C Limited Partnership Units ("Class C Units") to be issued in exchange for assets. During the nine months ended December 31, 2000, 3,327 Class C Units were issued to Centex Homes, the Partnership's sole limited partner, in exchange for assets with a fair market value of $3.3 million. The partnership agreement provides that Centex, as 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 return of capital distributions. As of December 31, 2000, Unrecovered Capital totaled $71.2 million, and preference payments in arrears amounted to $19.6 million. No preference payments were made during fiscal 2000 or fiscal 2001 year to date. (E) On April 15, 1999 Centex Development Company UK Limited ("CDC-UK"), a company incorporated in England and Wales and a wholly-owned subsidiary of the Partnership, closed its acquisition of all of the voting shares of Fairclough Homes Group Limited, a United Kingdom home builder ("Fairclough"). The purchase price at closing (approximately $225 million) was paid by the delivery of two-year non-interest bearing promissory notes. A major portion of the promissory note obligation is secured by a letter of credit obtained by the Partnership from a United Kingdom bank. Additionally, the seller of the voting shares retained non-voting preference shares in Fairclough that will entitle it to receive substantially all of the net, after tax earnings of Fairclough until March 31, 2001. During this time period CDC-UK may, however, participate in Fairclough's earnings in excess of certain specified levels. Because the non-voting preference shares retained by the seller have the characteristics of debt, the preference obligations are being reported as interest expense in the financial statements. During the period between April 15, 1999 to March 31, 2001, Fairclough's operations will be carried out subject to certain guidelines negotiated with the seller. After March 31, 2001, CDC-UK will redeem, for a nominal value, the preference shares. The purchase of Fairclough has been accounted for using the purchase method of accounting, pursuant to which the total cost of the acquisition has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values. The allocation of the purchase price is as follows (dollars in thousands): Inventories, Property and Equipment, and Other $ 270,450 Goodwill 34,904 Notes Issued and Liabilities Assumed (303,649) --------- Cash Paid $ 1,705 =========
(F) The Companies operate in five principal business segments: International Home Building, Domestic Home Building, Commercial Development, Multi-Family Development, and Land Sales. All of the segments operate in the United States except for International Home Building, which acquires and develops residential properties and constructs single and multi-family housing units in the United Kingdom. -40- 44 The following tables set forth financial information relating to the business segments for the three and nine months ended December 31, 2000 and 1999 (dollars in thousands). INTERNATIONAL HOME BUILDING
For the Three Months Ended December 31, -------------------------- 2000 1999 -------- -------- Revenues $ 49,939 $ 71,298 Costs and Expenses (45,301) (62,294) Selling, General & Administrative Expenses (5,590) (6,433) Interest 62 (2,542) -------- -------- Operating (Loss) Earnings $ (890) $ 29 ======== ========
For the Nine Months Ended December 31, -------------------------- 2000 1999 --------- --------- Revenues $ 173,813 $ 208,389 Costs and Expenses (153,892) (182,110) Selling, General & Administrative Expenses (16,774) (17,601) Interest (4,234) (8,077) --------- --------- Operating (Loss) Earnings $ (1,087) $ 601 ========= =========
DOMESTIC HOME BUILDING
For the Three Months Ended December 31, -------------------------- 2000 1999 --------- --------- Revenues $ 9,751 $ 3,791 Cost of Sales (8,087) (3,355) Selling, General & Administrative Expenses (529) (369) --------- -------- Operating Earnings $ 1,135 $ 67 ========= ========
For the Nine Months Ended December 31, -------------------------- 2000 1999 -------- ---------- Revenues $ 21,450 $ 9,781 Cost of Sales (18,228) (8,500) Selling, General & Administrative Expenses (1,502) (1,088) -------- ---------- Operating Earnings $ 1,720 $ 193 ======== ==========
-41- 45 COMMERCIAL DEVELOPMENT
For the Three Months Ended December 31, -------------------------- 2000 1999 -------- -------- Sales Revenues $ 17,383 $ 1,901 Rental Income 2,791 1,692 Cost of Sales (14,833) (1,683) Selling, General & Administrative Expenses (1,897) (974) Interest (1,112) (740) -------- -------- Operating Earnings $ 2,332 $ 196 ======== ========
For the Nine Months Ended December 31, -------------------------- 2000 1999 -------- -------- Sales Revenues $ 17,383 $ 3,765 Rental Income 7,709 3,412 Cost of Sales (14,833) (3,065) Selling, General & Administrative Expenses (4,832) (1,881) Interest (3,137) (1,471) -------- -------- Operating Earnings $ 2,290 $ 760 ======== ========
MULTI-FAMILY DEVELOPMENT
For the Three Months Ended December 31, -------------------------- 2000 1999 ---------- ----------- Revenues $ 654 $ -- Selling, General & Administrative Expenses (574) (475) Interest -- (4) --------- ----------- Operating Earnings (Loss) $ 80 $ (479) ========= ===========
For the Nine Months Ended December 31, ------------------------- 2000 1999 -------- -------- Revenues $ 1,662 $ 17,154 Cost of Sales -- (17,049) Selling, General & Administrative Expenses (1,605) (1,505) Interest -- (19) -------- -------- Operating Earnings (Loss) $ 57 $ (1,419) ======== ========
-42- 46 LAND SALES
For the Three Months Ended December 31, ------------------------- 2000 1999 ------- ------- Sales Revenues $ -- $ 670 Other Revenues 234 98 Cost of Sales -- (539) Selling, General & Administrative Expenses (170) (125) ------- ------- Operating Earnings $ 64 $ 104 ======= =======
For the Nine Months Ended December 31, ------------------------- 2000 1999 ------- ------- Sales Revenues $ -- $ 6,416 Other Revenues 493 332 Cost of Sales -- (5,943) Selling, General & Administrative Expenses (480) (375) ------- ------- Operating Earnings $ 13 $ 430 ======= =======
(G) Certain prior year balances have been reclassified to be consistent with the December 31, 2000 presentation. -43- 47 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS On a combined basis, the Companies' revenues for the three and nine months ended December 31, 2000 totaled $80.7 million and $222.5 million, respectively. Revenues of $79.4 million and $249.2 million were reported for the three and nine months ended December 31, 1999, respectively. Operating results for the three and nine months ended December 31, 2000 reflect net earnings of $3,649,000 for the quarter and $3,864,000 of net earnings for the year to date period, respectively, compared to net losses of $112,000 and $36,000 for the same periods last year. The significant decrease in revenues for the nine months ended December 31, 2000 compared to the same period last year primarily resulted from decreased sales revenue in the Companies' Land Sales, Multi-Family and International Home Building business segments, offset by increased sales revenue in the Companies' Domestic Home Building and Commercial Development business segments. INTERNATIONAL HOME BUILDING The following summarizes International Home Building's results for the three and nine months ended December 31, 2000, compared to the same periods last year (dollars in thousands):
For the Three Months Ended December 31, -------------------------- 2000 1999 -------- -------- Revenues $ 49,939 $ 71,298 Costs and Expenses (45,301) (62,294) Selling, General & Administrative Expenses (5,590) (6,433) Interest 62 (2,542) -------- -------- Operating (Loss) Earnings $ (890) $ 29 ======== ========
For the Nine Months Ended December 31, ------------------------- 2000 1999 --------- --------- Revenues $ 173,813 $ 208,389 Costs and Expenses (153,892) (182,110) Selling, General & Administrative Expenses (16,774) (17,601) Interest (4,234) (8,077) --------- --------- Operating (Loss) Earnings $ (1,087) $ 601 ========= =========
-44- 48 International Home Building's operating results include results for Fairclough, its parent holding company, and goodwill amortization attributable to the Fairclough acquisition. The preferred distribution to the seller totaled $(0.1) and $4.2 million for the three and nine months ended December 31, 2000, respectively. 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, has a nominal residual interest value that is subject to mandatory redemption in two years. Therefore, the preferred stock has been treated as debt and the preferred distribution has been recorded as interest expense. For the three and nine months ended December 31, 2000, the decrease in operating earnings is attributable to declining unit completions resulting from severe weather conditions, a tight labor market, and a generally slower economy. DOMESTIC HOME BUILDING The following summarizes Domestic Home Building's results for the three and nine months ended December 31, 2000, compared to the same periods last year (dollars in thousands):
For the Three Months Ended December 31, -------------------------- 2000 1999 ------- ------- Revenues $ 9,751 $ 3,791 Cost of Sales (8,087) (3,355) Selling, General & Administrative Expenses (529) (369) ------- ------- Operating Earnings $ 1,135 $ 67 ======= ======= Units Closed 36 11 ======= ======= Gross Margin Per Unit $ 46 $ 40 ======= =======
For the Nine Months Ended December 31, ------------------------- 2000 1999 -------- -------- Revenues $ 21,450 $ 9,781 Cost of Sales (18,228) (8,500) Selling, General & Administrative Expenses (1,502) (1,088) -------- -------- Operating Earnings $ 1,720 $ 193 ======== ======== Units Closed 85 30 ======== ======== Gross Margin Per Unit $ 38 $ 43 ======== ========
During the three and nine months ended December 31, 2000 and 1999, revenues resulted from sales of single-family homes in New Jersey. -45- 49 COMMERCIAL DEVELOPMENT The following summarizes Commercial Development's results for the three and nine months ended December 31, 2000, compared to the same periods last year (dollars and square feet in thousands):
For the Three Months Ended December 31, -------------------------- 2000 1999 -------- -------- Sales Revenues $ 17,383 $ 1,901 Rental Income 2,791 1,692 Cost of Sales (14,833) (1,683) Selling, General & Administrative Expenses (1,897) (974) Interest (1,112) (740) -------- -------- Operating Earnings $ 2,332 $ 196 ======== ======== Operating Square Feet 1,512 956 ======== ========
For the Nine Months Ended December 31, ------------------------- 2000 1999 -------- -------- Sales Revenues $ 17,383 $ 3,765 Rental Income 7,709 3,412 Cost of Sales (14,833) (3,065) Selling, General & Administrative Expenses (4,832) (1,881) Interest (3,137) (1,471) -------- -------- Operating Earnings $ 2,290 $ 760 ======== ======== Operating Square Feet 1,512 956 ======== ========
During the three and nine months ended December 31, 2000, respectively, construction was completed on 397,000 and 564,000 square feet of office and industrial space. At December 31, 2000, the Company owned, either directly or through interests in joint ventures, 1,512,000 square feet of office and industrial space in California, Texas, Florida, North Carolina and Massachusetts. As of December 31, 2000, the occupancy level averaged 92%. The rental income from these properties increased during the three and nine months ended December 31, 2000, compared to the same period last year due to the addition of 565,000 square feet of operating properties. Sales revenues for the three and nine months ended December 31, 2000 and December 31, 1999 consisted of the sale of land in Texas and California. -46- 50 MULTI-FAMILY DEVELOPMENT The following summarizes Multi-Family Development's results for the three and nine months ended December 31, 2000, compared to the same periods last year (dollars in thousands):
For the Three Months Ended December 31, -------------------------- 2000 1999 ----- ----- Revenues $ 654 $ -- Selling, General & Administrative Expenses (574) (475) Interest -- (4) ----- ----- Operating Earnings (Loss) $ 80 $(479) ===== =====
For the Nine Months Ended December 31, ------------------------- 2000 1999 -------- -------- Revenues $ 1,662 $ 17,154 Cost of Sales -- (17,049) Selling, General & Administrative Expenses (1,605) (1,505) Interest -- (19) -------- -------- Operating Earnings (Loss) $ 57 $ (1,419) ======== ========
During the nine months ended December 31, 2000, a Multi-Family Development joint venture closed on the sale of a 182-unit apartment complex in College Station, Texas and received an earn-out payment related to the 1999 sale of an apartment community located in The Colony, Texas. LAND SALES The following summarizes Land Sales' results for the three and nine months ended December 31, 2000, compared to the same periods last year (dollars in thousands):
For the Three Months Ended December 31, -------------------------- 2000 1999 ----- ----- Sales Revenues $ -- $ 670 Other Revenues 234 98 Cost of Sales -- (539) Selling, General & Administrative Expenses (170) (125) ----- ----- Operating Earnings $ 64 $ 104 ===== =====
-47- 51
For the Nine Months Ended December 31, ------------------------- 2000 1999 ------- ------- Sales Revenues $ -- $ 6,416 Other Revenues 493 332 Cost of Sales -- (5,943) Selling, General & Administrative Expenses (480) (375) ------- ------- Operating Earnings $ 13 $ 430 ======= =======
Other Revenues for the three and nine months ended December 31, 2000 included $86,000 and $231,000 of earnings in joint ventures, respectively, and $148,000 and $262,000 in interest income, respectively. Sales for the three months ended December 31, 1999 included the sale of certain residential lots in Florida, Texas and New Jersey to Centex Homes and the sale of certain land in Texas. Sales for the nine months ended December 31, 1999 comprised lot sales to Centex Homes in Florida, Texas and New Jersey totaling $5.0 million, plus the sale of 5 acres of commercial property in Texas. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended December 31, 2000, 3,327 Class C Preferred Partnership Units were issued in exchange for assets with a fair market value of $3.3 million. Also during the nine months ended December 31, 2000, the Companies funded $35.5 million of construction costs with its interim construction facilities and closed a $3.7 million permanent loan. 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 or permanent financing of development projects. The Companies believe that the cash flows from these sources will be sufficient to provide the necessary funding for current and future needs. FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Companies are discussing their beliefs, estimates or expectations. These statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Companies' actual performance and results of operations include the following: general economic conditions and interest rates; the cyclical and -48- 52 seasonal nature of the Companies' business; 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 There have been no material changes in the Companies' market risk from March 31, 2000. For more information regarding the Companies' market risk, refer to the Companies' Annual Report on Form 10-K for the fiscal year ended March 31, 2000. -49- 53 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (1) Exhibits None (2) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the quarter ended December 31, 2000. -50- 54 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 3333 HOLDING CORPORATION -------------------------------------- Registrant February 13, 2001 /s/ Stephen M. Weinberg -------------------------------------- Stephen M. Weinberg Director and President (principal executive officer) February 13, 2001 /s/ Todd D. Newman -------------------------------------- Todd D. Newman Senior Vice President, Chief Financial Officer and Treasurer (principal financial officer and chief accounting officer) -51- 55 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, 3333 Development Corporation, as general partner of, and on behalf of the Registrant, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTEX DEVELOPMENT COMPANY, L.P. -------------------------------------- Registrant By: 3333 Development Corporation, General Partner February 13, 2001 /s/ Stephen M. Weinberg -------------------------------------- Stephen M. Weinberg Director and President (principal executive officer) February 13, 2001 /s/ Todd D. Newman -------------------------------------- Todd D. Newman Senior Vice President, Chief Financial Officer and Treasurer (principal financial officer and chief accounting officer) -52-