-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MdPydyKFsEsEF1QQuh2sA5lf1Y9xUb+N+4JvgrWFPI6IPkzqzzqjFVYTUzHnBRbI OixCBBsdO3PhebImsxtyMg== 0000950134-98-005471.txt : 19980626 0000950134-98-005471.hdr.sgml : 19980626 ACCESSION NUMBER: 0000950134-98-005471 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980625 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTEX CORP CENTRAL INDEX KEY: 0000018532 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 750778259 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06776 FILM NUMBER: 98653579 BUSINESS ADDRESS: STREET 1: P O BOX 199000 STREET 2: 2728 N HARWOOD CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145596500 MAIL ADDRESS: STREET 1: PO BOX 199000 STREET 2: 2728 N HARWOOD CITY: DALLAS STATE: TX ZIP: 75219 FORMER COMPANY: FORMER CONFORMED NAME: CENTEX CONSTRUCTION CO INC DATE OF NAME CHANGE: 19681211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3333 HOLDING CORP CENTRAL INDEX KEY: 0000818762 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 752178860 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09624 FILM NUMBER: 98653580 BUSINESS ADDRESS: STREET 1: 3333 LEE PKWY STREET 2: SUITE 500 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145596700 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTEX DEVELOPMENT CO LP CENTRAL INDEX KEY: 0000818764 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 752168471 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09625 FILM NUMBER: 98653581 BUSINESS ADDRESS: STREET 1: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145596700 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 10-K405 1 FORM 10-K FOR YEAR ENDED MARCH 31, 1998 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 COMMISSION FILE NO. 1-6776 COMMISSION FILE NOS. 1-9624 AND 1-9625, RESPECTIVELY CENTEX CORPORATION 3333 HOLDING CORPORATION AND CENTEX DEVELOPMENT COMPANY, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS) NEVADA NEVADA AND DELAWARE, RESPECTIVELY (STATE OF INCORPORATION) (STATES OF INCORPORATION OR ORGANIZATION) 75-0778259 75-2178860 AND 75-2168471, RESPECTIVELY (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NOS.) 2728 N. HARWOOD, DALLAS, TEXAS 75201 3100 MCKINNON, SUITE 370, DALLAS, TEXAS 75201 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE) (214) 981-5000 (214) 981-6700 (REGISTRANT'S TELEPHONE NUMBER) (REGISTRANTS' TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH NAME OF EACH EXCHANGE ON WHICH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED TITLE OF EACH CLASS REGISTERED - -------------------- ----------------------- ---------------------------- ----------------------- CENTEX CORPORATION 3333 HOLDING CORPORATION COMMON STOCK NEW YORK STOCK COMMON STOCK NEW YORK STOCK ($.25 PAR VALUE) EXCHANGE ($.01 PAR VALUE) EXCHANGE CENTEX DEVELOPMENT COMPANY, L.P. WARRANTS TO PURCHASE NEW YORK STOCK CLASS B UNITS OF EXCHANGE LIMITED PARTNERSHIP INTEREST EXPIRING NOVEMBER 30, 2007
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether each registrant: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to Form 10-K. [X] The aggregate market value of the tandem traded Centex Corporation common stock, 3333 Holding Corporation common stock and Centex Development Company, L.P. warrants to purchase Class B units of limited partnership interest held by non-affiliates of the registrants on May 29, 1998 was approximately $2.1 billion. 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 May 29, 1998: Centex Corporation Common Stock 59,555,506 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 15,299 units
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in Parts A.I, A.II, A.III, B.I, B.II and B.III of this Report: (a) 1998 Annual Report to Stockholders of Centex Corporation for the fiscal year ended March 31, 1998; (b) 1998 Annual Report to Stockholders of 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. for the fiscal year ended March 31, 1998; and (c) Proxy statements for the annual meetings of stockholders of Centex Corporation and 3333 Holding Corporation to be held on July 23, 1998. ================================================================================ 2 JOINT ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1998 CENTEX CORPORATION AND SUBSIDIARIES AND 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. JOINT EXPLANATORY STATEMENT On November 30, 1987, Centex Corporation ("Centex" or the "Company") distributed as a dividend (the "Distribution") to its stockholders (through a nominee, the "Nominee") all of the issued and outstanding shares of the common stock, par value $.01 per share ("Holding Common Stock"), of 3333 Holding Corporation, a Nevada corporation, ("Holding"), and 900 warrants (the "Stockholder Warrants") to purchase Class B Units of limited partnership interest in Centex Development Company, L.P., a Delaware limited partnership, ("CDC" or the "Partnership"). Pursuant to an agreement with the Nominee (the "Nominee Agreement"), the Nominee is the record holder of the Stockholder Warrants and 1,000 shares of Holding Common Stock, which constitute all of the issued and outstanding capital stock of Holding, on behalf of and for the benefit of persons who are from time to time the holders of the common stock, par value $.25 per share ("Centex Common Stock"), of Centex ("Centex Stockholders"). Each Centex Stockholder owns a beneficial interest in that portion of the 1,000 shares of Holding Common Stock and the Stockholder Warrants that the total number of shares of Centex Common Stock held by such stockholder bears to the total number of shares of Centex Common Stock outstanding from time to time. This beneficial interest is not represented by a separate certificate or receipt. Instead, each Centex Stockholder's beneficial interest in such pro rata portion of the shares of Holding Common Stock and the Stockholder Warrants is represented by the certificate or certificates evidencing such Centex Stockholder's Centex Common Stock, and is currently tradeable only in tandem with, and as a part of, each such Centex Stockholder's Centex Common Stock. The tandem securities are listed and traded on the New York Stock Exchange and The International Stock Exchange of the United Kingdom and the Republic of Ireland, Ltd. and are registered with the Securities and Exchange Commission (the "Commission") separately under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Holding and CDC were each organized in 1987 in connection with the distribution. 3333 Development Corporation, a wholly-owned subsidiary of Holding ("Development"), is the sole general partner of CDC. At present, Centex, Holding and CDC have elected to satisfy their respective periodic reporting obligations under the Exchange Act, and the rules and regulations promulgated thereunder, by preparing and filing joint periodic reports. PART A of this Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the "Report") relates to Centex and its subsidiaries. PART B of this Report relates to Holding (and its subsidiary, Development) and to CDC. This Report should be read in conjunction with the proxy statements of Centex and Holding in connection with their respective 1998 annual meetings of stockholders, the Annual Report to Stockholders of Centex for the fiscal year ended March 31, 1998 (the "Centex 1998 Annual Report") and the Annual Report to Stockholders of Holding and CDC for the fiscal year ended March 31, 1998 (the "Holding/CDC 1998 Annual Report"), portions of which are incorporated by reference into this Report. Portions of the Centex 1998 Annual Report and the Holding/CDC 1998 Annual Report are filed as an Exhibit to this Report. For a complete understanding of the tandem traded securities, PART A and PART B of this Report should be read in combination. Information concerning the earnings and financial condition of the three companies, on an aggregate basis, is included in Note (G) of the Notes to Consolidated Financial Statements of Centex Corporation and subsidiaries on pages 34-36 of the Centex 1998 Annual Report. 2 3 FORM 10-K TABLE OF CONTENTS
PAGE ---- JOINT EXPLANATORY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Part A. CENTEX CORPORATION AND SUBSIDIARIES PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . 22 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . 23 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . 24 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 24 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . 25 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . 25 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . 25 FORWARD LOOKING STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------------- PART B. 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P.
PART I PAGE ---- Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 33
3 4 TABLE OF CONTENTS (CONTINUED)
PART II PAGE ---- Item 5. Market for Registrants' Common Equity and Related Stockholder Matters . . . . . . 34 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . 36 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . 37 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . 40 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . 43 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . 45 FORWARD LOOKING STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ----------------------------- INDICES TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3333 HOLDING CORPORATION AND SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . 52 CENTEX DEVELOPMENT COMPANY, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4 5 PART A. CENTEX CORPORATION AND SUBSIDIARIES PREFATORY STATEMENT PART A of this Report includes information relating to Centex Corporation and subsidiaries ("Centex" or the "Company"), File No. 1-6776. See Joint Explanatory Statement on page 2 of this Report. References to Centex or the Company in this Report shall include Centex and its subsidiaries unless the context otherwise requires. Reference is made to PART B of this Report for information relating separately to 3333 Holding Corporation ("Holding") and its subsidiary, 3333 Development Corporation ("Development"), and to Centex Development Company, L.P. ("CDC" or the "Partnership"). PART I ITEM 1. BUSINESS General Development of Business Centex is incorporated in the State of Nevada. The Company's common stock, par value $.25 per share ("Centex Common Stock") began trading publicly in 1969. As of May 29, 1998, 59,555,506 shares of Centex Common Stock, which are traded on the New York Stock Exchange ("NYSE") and The International Stock Exchange of the United Kingdom and the Republic of Ireland, Ltd., were outstanding. Since its founding in 1950 as a Dallas, Texas-based residential and commercial construction company, Centex has evolved into a multi-industry company. Centex currently operates in five principal business segments: Home Building, Investment Real Estate, Financial Services, Construction Products and Contracting and Construction Services. Centex's Home Building business has expanded to include both Conventional Homes and Manufactured Homes. Centex is one of the nation's largest home builders. Through its subsidiary Centex Homes, Centex built and delivered 12,418 conventional homes during its fiscal year ended March 31, 1998. Centex's Conventional Homes operations currently involve the construction and sale of single-family homes, town homes and low-rise condominiums in 260 neighborhoods in 52 different markets. These activities also include the purchase and development of land. Centex has participated in the conventional home building business since 1950. Centex entered into the Manufactured Homes business during March 1997 when Centex Real Estate Corporation ("CREC") acquired approximately 80% of the common stock of Cavco Industries, Inc., predecessor in interest to Cavco Industries, LLC. As used herein, "Cavco" refers to the manufactured housing group of the Company. Cavco is the largest producer of manufactured homes in Arizona as well as the nation's largest producer of park model homes, having built and delivered 5,751 manufactured housing units during fiscal year ended March 31, 1998. During February 1998, Cavco purchased substantially all of the assets of AAA Homes, Inc., Arizona's largest manufactured homes retailer, marking Cavco's entry into the retailing of manufactured homes. Centex's Investment Real Estate business segment was created during the quarter ended June 30, 1996 when CREC completed a business combination transaction and reorganization with Vista Properties, Inc. ("Vista"), increasing Centex's ownership of Vista's common stock from approximately 53% to 99.975%. During fiscal year 1998, Centex acquired the remaining minority interest in Vista. Vista has changed its name to Centex Real Estate Corporation. Centex's Financial Services operations in fiscal 1998 included mortgage origination and other related services on homes sold by Centex subsidiaries and by third parties, including continuing expansion into home equity and sub-prime lending. Centex has been in the mortgage banking business since 1973. Centex is a leading retail mortgage originator, originating approximately $7.2 billion of residential mortgages and home equity loans in fiscal 1998. 5 6 Centex's involvement in the construction products business started in 1963 when it began construction of its first cement plant. Since that time, this segment has expanded to include additional cement production and distribution facilities and the production, distribution and sale of gypsum wallboard, readymix concrete and aggregates. During the quarter ended June 30, 1994, Centex Construction Products, Inc. ("CXP") completed an initial public offering of 51% of its stock and began trading on the NYSE under the symbol "CXP". As a result of CXP's repurchase of its own stock during the quarter ended June 30, 1996, Centex's ownership interest in CXP has increased to more than 50%, and principally due to the additional repurchases by CXP was 55.6% as of March 31, 1998. Accordingly, CXP's fiscal 1998 and 1997 financial results have been consolidated with those of Centex. Centex entered the contracting and construction services business in 1966 with the acquisition of a Dallas-based contractor which had been in business since 1936. Additional significant acquisitions of construction companies were made in 1978, 1982, 1987 and 1990. Centex currently ranks among the nation's largest general building contractors. The contracting and construction activities of the Company involve the construction of buildings for both private and government interests, including office, commercial and industrial buildings, hospitals, hotels, museums, libraries, airport facilities and educational institutions. In fiscal 1988, Centex established CDC. Reference is made to PART B of this Report for a discussion of the business of CDC. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Note (J) of the Notes to Consolidated Financial Statements of Centex on pages 37-41 of the Centex 1998 Annual Report contain additional information about the Company's business segments for years ended March 31, 1998, 1997 and 1996 and are incorporated herein by reference. NARRATIVE DESCRIPTION OF BUSINESS HOME BUILDING CONVENTIONAL HOMES Centex Homes, Centex's conventional home building operation is primarily involved in the purchase and development of land or lots as well as the construction and sale of single-family homes, town homes and low-rise condominiums. Centex Homes is one of the leading U.S. builders of single-family detached homes, by the number of units produced in a calendar year. Centex Homes is also the only company to rank among Professional Builder's top 10 home builders for each of the past 29 years. Centex Homes sells to both first-time and move-up buyers. Approximately 93% of the houses Centex Homes sells are single-family detached homes and the remainder are town homes and low-rise condominiums. 6 7 Markets Centex Homes follows a strategy of reducing exposure to local market volatility by spreading operations across geographically and economically diverse markets. Centex Homes currently builds in 52 market areas in 19 states. The markets are listed below by geographic areas. WEST California - Vallejo/Fairfield/Napa Visalia/Tulare/Porterville Oakland Riverside/San Bernardino Stockton/Lodi Orange County San Francisco Los Angeles/Long Beach Sacramento Ventura Bakersfield San Diego Fresno Oregon - Washington State - Portland/Vancouver Seattle/Bellevue/Everett Salem Tacoma Reno, Nevada MIDWEST Chicago, Illinois Colorado - Minneapolis/St. Paul, Minnesota Denver Indianapolis, Indiana Boulder/Longmont Columbus, Ohio EAST North Carolina - Virginia - Charlotte/Gastonia/Rock Hill Washington, D.C. Raleigh/Durham/Chapel Hill Norfolk/Virginia Beach/Newport South Carolina - Trenton, New Jersey Columbia Nashville, Tennessee Greenville/Spartanburg Atlanta, Georgia Charleston/N. Charleston SOUTHEAST Florida - Jacksonville Naples Daytona Beach Ft. Myers/Cape Coral Tampa/St. Petersburg West Palm Beach/Boca Raton Sarasota/Bradenton Melbourne/Titusville Orlando Ft. Lauderdale Lakeland/Winter Haven SOUTHWEST Texas - Phoenix/Mesa, Arizona Dallas Albuquerque, New Mexico Ft. Worth/Arlington Houston Austin/San Marcus San Antonio
In fiscal 1998, Centex Homes closed 12,418 houses, including first-time, move-up and, in some markets, custom homes, ranging in price from approximately $54,000 to about $869,000 with the average sale price being approximately $183,300. 7 8 Inventory Turnover Centex Homes' policy has been to acquire land with the intent to complete the sale of housing units within approximately 24 to 36 months from the date of acquisition. Generally this involves acquiring land that is properly zoned and is either ready for development or, to some degree, already developed. Centex Homes has acquired a substantial amount of its finished and partially improved lots and land under option agreements which are exercised over specified time periods, or in certain cases, as the lots are needed. The purchase of finished lots generally allows Centex Homes to shorten the lead time to commence construction and reduces the risks of unforeseen improvement costs and volatile market conditions. Summarized below by geographic area are Centex Homes' home closings, sales (orders) backlog and sales (orders) for each of the five fiscal years ended March 31, 1998.
For the Fiscal Years Ended March 31, ------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- CLOSINGS (IN UNITS): West 2,964 2,955 2,347 2,454 1,973 Midwest 1,147 1,337 1,276 1,283 1,114 East 2,650 2,875 2,804 2,921 2,599 Southeast 2,400 2,334 2,241 2,632 2,895 Southwest 3,257 3,606 3,302 3,674 3,982 ------- ------- ------- ------- ------- 12,418 13,107 11,970 12,964 12,563 ====== ====== ====== ====== ====== AVERAGE SALES PRICE (IN 000'S) $ 183 $ 172 $ 164 $ 159 $ 147 ======= ======= ======= ======= ======= SALES (ORDERS) BACKLOG, AT THE END OF PERIOD (IN UNITS): West 991 968 980 603 756 Midwest 433 441 652 442 622 East 963 861 1,121 918 1,279 Southeast 1,136 919 1,106 892 1,387 Southwest 1,393 1,119 1,674 1,132 1,751 ------- ------- ------- ------- ------- 4,916 4,308 5,533 3,987 5,795 ======= ======= ======= ======= ======= SALES (ORDERS) (IN UNITS): West 2,987 2,943 2,724 2,301 2,066 Midwest 1,139 1,126 1,486 1,103 1,275 East 2,752 2,615 3,007 2,560 2,686 Southeast 2,617 2,147 2,455 2,137 3,022 Southwest 3,531 3,051 3,844 3,055 4,158 ------- ------- ------- ------- ------- 13,026 11,882 13,516 11,156 13,207 ======= ======= ======= ======= =======
Competition and Other Factors The conventional housing industry is essentially a "local" business and is highly competitive. Centex Homes competes in each of its market areas with numerous other home builders. Centex Homes' operations account for approximately 1% of the total housing starts in the United States. The main competitive factors affecting Centex Homes operations are location, price, cost of providing mortgage financing for customers, construction costs, design and quality of homes, marketing expertise, availability of land and reputation. Management believes that Centex Homes competes effectively by maintaining geographic diversity, being responsive to the specific demands of each market and managing the operations at a local level. 8 9 The home building industry is cyclical and is particularly affected by changes in local economic conditions and in long-term and short-term interest rates and, to a lesser extent, changes in property taxes and energy costs, federal income tax laws, federal mortgage financing programs and various demographic factors. The political and economic environment affects both the demand for housing constructed by Centex Homes and Centex Homes' cost of financing. Unexpected climatic conditions, such as unusually heavy or prolonged rain or snow, may affect operations in certain areas. The housing industry is subject to extensive and complex regulations. Centex Homes and its subcontractors must comply with various federal, state and local laws and regulations including worker health and safety, zoning, building, advertising, consumer credit rules and regulations and the extensive and changing federal, state and local laws, regulations and ordinances governing the protection of the environment ("Environmental Laws"), including protection of endangered species. Centex Homes is also subject to other rules and regulations in connection with its manufacturing and sales activities, including requirements as to building materials to be used and building designs. Centex Homes' houses are inspected by local authorities. All of the foregoing regulatory requirements are applicable to all home building companies, and to date, compliance with the foregoing requirements has not had a material impact on Centex Homes. Centex Homes believes that it is in material compliance with all such requirements. Centex purchases materials, services and land from numerous sources and believes that it can deal effectively with any problems it may experience relating to the supply or availability of materials and services as well as land. MANUFACTURED HOMES Cavco operations include the manufacture of quality residential and park model homes and the sale thereof through company-owned retail outlets and a network of independent dealers. The Company entered the manufactured homes industry in March 1997, when CREC acquired approximately 80% of the common stock of Cavco Industries, Inc. (predecessor to Cavco Industries, LLC) for a total of $74.3 million. Prior to the acquisition, the common stock was publicly traded on the NASDAQ National Market. During February 1998, Cavco purchased substantially all of the assets of AAA Homes, Inc., Arizona's largest manufactured homes retailer, marking Cavco's entry into the retailing of manufactured homes. Markets Cavco is the largest producer of manufactured homes in Arizona and New Mexico as well as the nation's largest producer of park model homes, having delivered 5,751 manufactured housing units during fiscal year ended March 31, 1998. Cavco currently operates three manufactured housing plants in the Phoenix area and a plant in Belen, New Mexico, which is that state's first manufactured housing plant. Cavco sells its manufactured homes through company-owned retail outlets and a network of independent dealers. As of March 31, 1998, Cavco had its product in approximately 257 outlets in 12 states, Canada and Japan, of which there were approximately 120 in Arizona, 50 in New Mexico, 25 in Colorado, 23 in Utah, 13 in California, 9 in Texas, 6 in Nevada, 2 each in Washington and Wyoming, 1 each in Idaho, Montana and Oregon, 3 in Canada and 1 in Japan. Nine of these outlets are company-owned, all but one of which sell Cavco's product exclusively: 7 in Arizona, 1 in New Mexico and 1 in Colorado. Many of Cavco's independent dealers operate more than one retail outlet. Most of Cavco's independent dealers sell competing products, although from time to time Cavco also may enter into exclusive agreements with certain dealers. The independent dealers set their own retail prices of Cavco's manufactured homes. Cavco's dealers finance their purchase of manufactured homes through floor plan financing arrangements with third-party lenders. Generally, Cavco receives a commitment from the dealer's lender for each order, which is earmarked for the home ordered, identified by its serial number. Cavco then manufactures the home and ships it to the dealer at the dealer's expense. Payment is due from the third-party floor plan lender upon the dealer's notice of delivery and acceptance of the product. The length of time it takes to manufacture and ship a home after an order is placed varies according to Cavco's backlog. 9 10 Cavco is contingently liable under terms of repurchase agreements with the third-party lenders that provide dealer floor plan financing arrangements. These arrangements, which are customary in the industry, provide for the repurchase of the manufacturer's products in the event the dealer defaults on payments. The risk of loss is spread over numerous dealers and financing institutions and is further offset by the resale value of repurchased units. Cavco has not incurred any significant losses from these arrangements since its inception. Cavco extends a limited warranty to original retail purchasers of its manufactured homes. Cavco warrants structural components for 12 months and nonstructural components for 90 days. Its warranty does not extend to installation, setup or appliances. Appliances are warranted by their original manufacturer. Cavco's backlog of firm orders for manufactured homes as of March 31, 1998 was approximately $6.4 million (300 units) and approximately $5.7 million (210 units) as of March 31, 1997. Cavco currently requires approximately six to eight weeks to fill an order. Cavco currently anticipates that the entire backlog at March 31, 1998 will be filled during the next fiscal year. Competition and Other Factors Cavco estimates that there are approximately five other manufacturers competing for a significant share of the sales in Arizona. Cavco believes that its business represents an approximate 31% share of the total sales in Arizona and a small share of the sales in such other states. Cavco believes the principal factors affecting competition in the manufactured housing market are price, design, product quality and reliability, reputation and service. Cavco has not experienced any material difficulty in purchasing its raw materials or component parts. Cavco buys wood, wood products, aluminum, steel, tires, hardware, windows and doors from manufacturers and distributors located primarily in California and Arizona. Approximately 39% of the unit cost of Cavco's manufactured homes is attributable to raw wood products. The majority of the other component parts of its homes are purchased manufactured components. Cavco believes that compliance with federal, state and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position. INVESTMENT REAL ESTATE In September 1995, the Company acquired certain equity interests in Vista for a net investment of approximately $85 million in cash. At the time of the acquisition, Vista owned a real estate portfolio of properties located in seven states in which the Company has significant operations. Vista's real property portfolio generally consisted of land zoned, planned or developed for single- and multi-family residential, office, retail, industrial and other commercial uses. During the quarter ended June 30, 1996, CREC completed a business combination transaction and reorganization with Vista where CREC's assets and operations were contributed to Vista and Vista changed its name to CREC. As a result of the combination, Centex's Investment Real Estate portfolio, valued in excess of $125 million, was reduced to a nominal "book basis". Accordingly, as these properties are developed or sold, the net sales proceeds are reflected as operating margin. "Negative Goodwill" recorded as a result of the business combination is being amortized to earnings over approximately seven years. As of March 31, 1998, the Investment Real Estate Group's property portfolio consisted of land located in nine states: Texas, Florida, California, Georgia, North Carolina, Virginia, Tennessee, Colorado and New Jersey. The Company has major Conventional Homes operations in each of the markets where Vista owns substantial property. Vista's real property portfolio generally consists of land that is zoned, planned or developed for single-family and multi-family residential, office, retail, industrial and other commercial uses. The Investment Real Estate Group is involved in the acquisition, development and sale of land, the development of industrial, retail, office and other commercial projects, and apartment complexes. 10 11 FINANCIAL SERVICES Financial Services operations involve the financing of conventional and manufactured homes, home equity and sub-prime lending and the sale of title and other insurance coverages. These activities include mortgage origination and other related services for homes sold by subsidiaries and by others. MORTGAGE BANKING CTX Mortgage Company ("CTX") was established in 1973 to provide mortgage financing for homes built by Centex Homes. The opening of CTX mortgage offices in substantially all of Centex Homes' housing markets has enabled it to consistently provide mortgage financing for an average of 71% of the homes built by Centex Homes ("Builder Loans") over the past five years. In 1985, CTX expanded its operations to include third-party loans ("Retail Loans") that are not associated with the sale of homes built by Centex. At March 31, 1998, CTX had 202 offices located in 40 states. The offices vary in size depending on volume in each locality. The unit breakdown of Builder and Retail Loans for the five years ended March 31, 1998 are set forth in the following table:
For the Fiscal Years Ended March 31, -------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- LOAN TYPES: Builder 8,748 9,483 8,440 8,503 9,289 Retail 44,096 33,579 32,706 28,523 49,254 ------- ------- ------- ------- ------- 52,844 43,062 41,146 37,026 58,543 ======= ======= ======= ======= ======= ORIGINATION VOLUME (IN BILLIONS) $ 6.7 $ 5.2 $ 4.9 $ 4.2 $ 6.4 PERCENT OF CENTEX CLOSINGS FINANCED 70% 72% 71% 66% 74%
CTX provides mortgage origination and other mortgage related services for Federal Housing Administration ("FHA"), Department of Veterans' Affairs ("VA") and conventional loans on homes built and sold by the Company or by others, as well as resale homes. CTX mortgage loans are generally first-lien mortgages secured by one- to four-family residences. A majority of the conventional loans are conforming loans which qualify for inclusion in guaranteed programs sponsored by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). The remainder of the conventional loans are pre-approved and individually underwritten by private investors who purchase such loans on a whole-loan basis for their investment portfolios. CTX's principal sources of income are from loan origination fees, revenues from sale of servicing rights, positive carry (discussed below) and marketing gains and losses. Generally, CTX sells its right to service the mortgage loans to various loan servicing companies, and therefore retains no mortgage servicing rights. CTX enters into various financial agreements, in the normal course of business, in order to manage the exposure to changing interest rates as a result of having issued loan commitments to its customers at a specified price and period. By selling the mortgages for future delivery, the interest rate risk is mitigated. CTX borrows money at short-term rates to fund its mortgage loans. During the 30- to 60-day period between the closing of a loan and delivery of such loan to the purchaser, CTX earns the interest accrued on the mortgage, which is normally a higher interest rate than the rate paid on the short-term loans used to fund the mortgage during this 30- to 60-day holding period. This positive spread between the long-term interest rate earned and the short-term interest rate paid is referred to as "positive carry," and generally represents one of the important sources of income. 11 12 Competition and Other Factors The mortgage banking industry in the United States is highly competitive. CTX competes with other mortgage banking companies as well as financial institutions to supply mortgage financing at attractive rates to purchasers of Centex homes as well as to the general public. During fiscal 1998, Mortgage Banking continued to operate in a very competitive environment. CTX is subject to extensive state and federal regulators as well as the rules and regulations of, and examinations by, the FNMA, FHLMC, FHA, VA, Department of Housing and Urban Development ("HUD"), Government National Mortgage Association ("GNMA") and state regulatory authorities with respect to originating, processing, underwriting, making, selling, securitizing and servicing residential mortgage loans. In addition, there are other federal and state statutes and regulations affecting such activities. These rules and regulations, among other things, impose licensing obligations on CTX,specify standards for origination procedures, establish eligibility criteria for mortgage loans, provide for inspection and appraisals of properties, regulate payment features and, in some cases, fix maximum interest rates, fees and loan amounts. CTX is required to maintain specified net worth levels by, and submit annual audited financial statements to HUD, VA, FNMA, FHLMC and GNMA and certain state regulators. CTX's affairs are also subject to examination by the Federal Housing Commissioner at all times to assure compliance with FHA regulations, policies and procedures. Among other federal and state consumer credit laws, mortgage origination and servicing activities are subject to the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act, the Federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act and the regulations promulgated under such statutes, which prohibit discrimination and unlawful kickbacks and referral fees and require the disclosure of certain information to borrowers concerning credit and settlement costs. Many of these regulatory requirements are designed to protect the interest of consumers, while others protect the owners or insurers of mortgage loans. Failure to comply with these requirements can lead to loss of approved status, demands for indemnification or loan repurchases from investors, class action lawsuits by borrowers, administrative enforcement actions and, in some cases, rescission or voiding of the mortgage loan by the mortgagor. Other Financial Services, Inc., the parent of CTX, financial-related services provided by CTX affiliates include acting as an agent for the issuance of homeowners' insurance policies and title insurance policies. As of March 31, 1998, CTX is participating in joint-venture agreements with 16 third-party home builders to provide mortgage originations for homes built by such home builders. At March 31, 1998, these operations had 37 offices in nine states. Centex Financial Services, Inc., the parent of CTX, acquired substantially all of the assets of Advanced Financial Technology, Inc. ("Adfitech") and Loan Processing Technologies, Inc. ("LPT") in April 1996 and Adfinet, Inc. ("Adfinet") in July 1997, all of which are headquartered in Oklahoma City, Oklahoma. Adfitech is one of the largest and lowest cost providers of mortgage quality control services, LPT owns and operates an automated mortgage processing system and Adfinet provides the mortgage industry with regulations and guidelines in an electronic format. These acquisitions have expanded and created more flexible mortgage processing capacity for Financial Services, enhancing Financial Services' existing systems capabilities. LPT, and Adfinet,and Adfitech offer their services to the mortgage industry. HOME EQUITY AND SUB-PRIME LENDING Centex Credit Corporation d/b/a Centex Home Equity Corporation ("CHEC"), a Nevada corporation, is a sub-prime mortgage lender formed in fiscal 1995 that engages in originating primarily non-conforming home equity loans, directly through four major origination sources. CHEC was originally named Nova Credit Corporation and was headquartered in Denver, Colorado. In the first calendar quarter of 1997, CHEC operations were moved to Dallas, Texas and CHEC underwent a reorganization and the hiring of a new management team. In April 1997, the CHEC name was change to Center Credit Corporation d/b/a Centex Home Equity Corporation. Since inception, CHEC has focused on lending to individuals who have substantial equity in their homes but have impaired or limited credit histories. CHEC's mortgage loans to these borrowers are made for such purposes as debt consolidation, refinancing, home improvement or educational expenses. Substantially all of CHEC's mortgage loans are secured by first or second mortgage liens on one- to four-family residences, and have amortization schedules ranging from five years to 30 years. 12 13 At March 31, 1998, CHEC had 92 offices doing business in 47 states. CHEC originates home equity loans through its retail branch network of 28 branch offices located in 24 states. In addition, CHEC originates mortgage loans through a broker referral network from five division offices with a total of 14 regions. A third production source for CHEC is referral of mortgage loans from its affiliated conforming mortgage company, CTX Mortgage. The final source of origination of mortgage loans is CHEC's direct sales unit which sources loans through telemarketing and direct mail efforts. The following table summarizes origination statistics for the four years ended March 31, 1998.
For the Fiscal Years Ended March 31, ------------------------------------------------------- 1998 1997 1996 1995 ---------- ---------- ---------- ---------- LOANS 8,005 4,100 450 25 ORIGINATION VOLUME (IN BILLIONS) $ .5 $ .2 $ .03 $ --
Commencing in October 1997, a majority of CHEC volume was accumulated by CHEC for securitization through a Real Estate Mortgage Investment Conduit ("REMIC") Trust for which CHEC retained the residual interest as well as the servicing rights to the "securitized" loans. The remainder of the loans are sold to investors on a whole-loan sale basis. CHEC's principal sources of income are from loan origination fees, revenues from sale of servicing rights, positive carry, gain on sale of ABS and servicing fees. CHEC borrows money at short-term rates to fund its mortgage loans. During the 30-90 day period between the closing of a loan and the delivery to the purchaser or ABS, CHEC earns the interest accrued on the mortgage, which is normally at a higher rate than the rate paid on the short-term loans. The positive spread between the long-term interest rate earned and the short-term interest rate paid is referred to as "positive carry", and generally represents one of the important sources of income. Competition and Other Factors The home equity and sub-prime lending industry in the Unites States is highly competitive. CHEC competes with other sub-prime lending companies as well as financial institutions to supply sub-prime financing at attractive rates. During fiscal 1998, CHEC continued to operate in a very competitive environment. Other Legal Considerations Applicable state laws generally regulate interest rates and other charges, require certain disclosures, and require licensing of CHEC. In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of the loans. Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may entitle the borrower to a refund of amounts previously paid and, in addition, could subject CHEC to damages and administrative enforcement. CHEC loans are also subject to federal laws, including: (i) the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to the borrowers regarding the terms of the loans; 13 14 (ii) the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; and (iii) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower's credit experience. A portion of CHEC's loans are subject to the Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle Act"), which incorporates the Home Ownership and Equity Protection Act of 1994. The Riegle Act adds certain additional provisions to Regulation Z, which is the implementing regulation of the Truth-in-Lending Act. These provisions impose additional disclosure and other requirements on creditors with respect to non-purchase money home equity loans with high interest rates or high up-front fees and charges, as defined. The provisions of the Riegle Act apply on a mandatory basis to all applicable home equity loans originated on or after October 1, 1995. These provisions can impose specific statutory liabilities upon creditors who fail to comply with their provisions and may affect the enforceability of the related loans. In addition, any assignee of the creditor would generally be subject to all claims and defenses that the consumer could assert against the creditor, including, without limitation, the right to rescind the home equity loan. Violations of certain provisions of these federal laws may limit the ability of CHEC to collect all or part of the principal of or interest on the loans and, in addition, could subject CHEC to damages and administrative enforcement. CHEC may be required to repurchase any loans which, at the time of origination, did not comply with such federal laws or regulations if such breach materially and adversely affects the interests of the owners or the certificate insurer in the securitization. SERVICING CHEC has been servicing loans since March 1997, when it assumed the servicing role for certain loans previously serviced by CTX Mortgage. Servicing encompasses, among other activities, the following processes: billing and collection of payments when due, movement and reporting of cash to the payment clearing bank accounts, investor reporting, customer help, reconveyance, recovery of delinquent installments, instituting foreclosure, and liquidation of the underlying collateral. As of March 31, 1998 CHEC was servicing a portfolio of approximately $291 million. CHEC services all loans in its Dallas, Texas headquarters facility using a mid-range AS400 based servicing platform ("LSAMS") for which it purchased a separate user license in August 1997. The LSAMS system is also employed by other large, nonconforming servicers in the sub-prime industry. At the time the new LSAMS license was obtained by CHEC, it purchased an additional servicing system from CheckFree Corporation ("TPLS"), an event-tracking system with separate modules for foreclosure, bankruptcy, and REO property. TPLS has generally increased CHEC's ability to track and monitor loans in the default process. In February 1998, CHEC completed its first securitization of $175 million of sub-prime home equity mortgage loans through Centex Home Equity Trust 1998-1, a REMIC trust. 14 15 CONSTRUCTION PRODUCTS Centex's Construction Products operations include the manufacture, production, distribution and sale of portland cement (a basic construction material which is the essential binding ingredient in concrete), gypsum wallboard, readymix concrete and aggregates (sand and gravel). During the quarter ended June 30, 1994, CXP completed an initial public offering of 51% of its stock and began trading on the NYSE under the symbol "CXP". As a result of CXP's repurchase of its own stock during the quarter ended June 30, 1996, Centex's ownership interest in CXP increased to more than 50%, and principally due to additional repurchases by CXP was 55.6% as of March 31, 1998. Accordingly, CXP's financial statements for the years ended March 31, 1998 and 1997 have been consolidated with those of Centex. References to CXP include its subsidiaries unless the context otherwise requires. CEMENT CXP operates cement plants in or near Buda, Texas; LaSalle, Illinois; Fernley, Nevada and Laramie, Wyoming. The plants in Buda and LaSalle are owned by separate joint ventures in which CXP has a 50% interest. The kiln start-up dates of the cement plants were as follows: Buda, Texas, 1978 (expanded 1983); LaSalle, Illinois, 1974; Fernley, Nevada (2 kilns), 1964 and 1969 and Laramie, Wyoming (2 kilns), 1988 and 1996. All four of the cement plants are fuel- efficient dry process plants. The Company's net cement production, excluding the joint-venture partners' 50% interest in the Buda and LaSalle plants, totaled 2.0 million tons in fiscal 1998 and 1.9 million tons in fiscal 1997. Total net cement sales were 2.1 million tons both in fiscal 1998 and 1997, as all four cement plants sold all of the product they produced. During the past two years, the Company purchased minimal amounts of cement from others to be resold. Raw Materials and Fuel Supplies The principal raw material used in the production of portland cement is calcium carbonate in the form of limestone. Limestone is obtained principally from the quarries owned or leased by CXP or the joint ventures and located in close proximity to the plants. Other raw materials used in substantially smaller quantities than limestone are sand, clay, iron ore and gypsum, which are either obtained from reserves owned or leased by CXP or the joint ventures or are purchased from outside suppliers and are readily available. CXP's management believes that the estimated recoverable limestone reserves owned or leased by it or its joint ventures will permit each of its plants to operate at its present production capacity for at least 30 years or, in the case of the Company's Fernley plant, at least 18 years. The Company expects that additional limestone reserves for its Fernley plant will be available when needed on an economically feasible basis, although they may be more distant and more expensive to transport than the Company's existing reserves. The Company's cement plants use coal and coke as their primary fuel, but are equipped to burn natural gas as an alternative. The Company has not used hazardous waste-derived fuels in its plants. The Buda and LaSalle plants have been permitted to burn scrap tires as a partial fuel alternative. Electric power is also a major cost component in the manufacture of cement. The Company has sought to diminish overall power costs by adopting interruptible power supply agreements which may expose CXP to some production interruptions during periods of power curtailment. 15 16 Sales and Distribution The principal geographic areas for CXP's cement are Texas and western Louisiana (serviced by the Buda, Texas plant); Illinois and southern Wisconsin (serviced by the LaSalle, Illinois plant); Nevada (except Las Vegas) and northern California(Serviced by the Fernley, Nevada plant) and Wyoming, Utah, northern Colorado, western Nebraska and eastern Nevada (serviced by the Laramie, Wyoming plant). Distribution of cement is generally made by common carries, customer pickup and, to a lesser extent, by trucks owned and operated by CXP. In addition, the Company transports cement principally by rail to its storage and distribution terminals located in Roanoke (D/FW), Waco, Corpus Christi, Houston and Orange, Texas; Hartland, Wisconsin; Sacramento, California; Denver, Colorado; Salt Lake City, Utah; Rock Springs, Wyoming and North Platte, Nebraska, from which further distribution occurs. Cement produced by the Company's cement plants is sold primarily to readymix concrete producers and paving contractors. No single customer accounted for as much as 10% of the Company's total cement sales during fiscal 1998. Competition and Other Factors The cement business is extremely competitive. In every geographic area in which Centex sells cement, one or more other domestic producers compete for the available business. In addition, foreign companies compete in most of the Company's sales areas by importing cement into the U.S. The number of principal competitors of the Company's Buda, LaSalle, Fernley and Laramie plants are seven, eight, four and six, respectively, operating in these geographic areas. CXP competes by operating efficient cement plants, merchandising a high quality product and providing good service and competitive pricing. The Company also sells cement from terminals to expand each cement plant's selling area. GYPSUM WALLBOARD CXP owns and operates three gypsum wallboard manufacturing facilities, two located in Albuquerque and nearby Bernalillo, New Mexico and one located in Gypsum, Colorado (near Vail). The Albuquerque plant was acquired in 1985 and was operated until early 1991. Following the start-up of the Bernalillo plant in the spring of 1990, the Company elected to discontinue operations at the Albuquerque plant due to weak market conditions. Operations at the Albuquerque plant were recommenced in May 1993 due to improvements in wallboard demand and pricing. On February 26, 1997, CXP purchased the equity interest of a company that owned the gypsum wallboard plant and accompanying electric power cogeneration facility in Gypsum, Colorado. The plant originally commenced production in early 1990 and had been operated by an independent producer until the acquisition by CXP. CPX mines and extracts gypsum and then manufactures gypsum wallboard by first pulverizing quarried gypsum, then placing it in a calciner for conversion into plaster. The plaster is mixed with various chemicals and water to produce a mixture known as slurry, which is inserted between two continuous sheets of recycled paperboard on a high-speed production line and allowed to harden. The resulting sheets of gypsum wallboard are then cut to appropriate lengths, dried and bundled for sale. Raw Materials and Fuel Supplies The Company mines and extracts gypsum rock, the principal raw material used in the manufacture of wallboard, from mines and quarries owned, leased or subject to claims owned by CXP and located near its plants. The New Mexico and Colorado mines and quarries are estimated to contain approximately 50 million tons and 10 million tons of proven and probable gypsum reserves, respectively. Based on its current production capacity, CXP estimates that the life of its existing gypsum rock reserves is approximately 80 years and 17 years, respectively. The Colorado plant controls 99 unpatented placer mining claims on 1,980 acres of land under the jurisdiction of the U.S. Bureau of Land Management. The land, which is adjacent to the present quarry, has not been drilled and 16 17 therefore, the reserves cannot be classified as proven or probable. Management believes that these claims contain substantial quantities of gypsum rock. Paper used in manufacturing gypsum wallboard is purchased by CXP from third-party suppliers. Approximately 65% of CXP's paper requirements are under two Evergreen paper contracts with one contractor having a six-month notice provision for termination and the other a twelve-month notice provision for termination. The remainder of the Company's paper requirements are purchases on the open market from various suppliers. The Company does not believe that the loss of a supplier would have a material, adverse effect on its business. CXP's wallboard plants use large quantities of natural gas and electrical power. Power for the Gypsum, Colorado plant is supplied by the cogeneration power facility acquired along with the gypsum wallboard plant in February 1997. Sales and Distribution The principal sources for demand for gypsum wallboard are residential construction, repair and remodeling and non-residential construction. While the gypsum wallboard industry remains highly cyclical, recent growth in the repair and remodeling segment, together with certain trends in new residential construction activity, have partially mitigated the impact of fluctuations in overall levels of new construction. CXP sells wallboard to numerous building materials dealers, wallboard specialty distributors, home center chains and other customers located throughout the U.S. One customer with multiple shipping locations accounted for approximately 15% of CXP's total gypsum wallboard sales during fiscal 1998. Although wallboard is distributed principally in regional areas, CXP and certain other producers have the ability to ship wallboard by rail outside their usual regional distribution area to take advantage of these other regional increases in demand. CXP's rail distribution capabilities permit it to reach customers in all states west of the Mississippi River and many eastern states. In addition, CXP maintains a distribution center in Albuquerque, New Mexico and four reload yards in Florida, Alabama and Illinois. Competition and Other Factors There are nine principal manufacturers of wallboard operating a total of 73 plants. The Company estimates that the three largest producers, none of which is CXP, account for over 80% of wallboard sales in the U.S. Competition among wallboard producers is primarily on a regional basis, with local producers benefitting from lower transportation costs and, to a lesser extent, on a national basis. Because of the commodity nature of the product, competition is based principally on price and, to a lesser extent, on product quality and customer service. READYMIX CONCRETE AND AGGREGATES CXP's readymix concrete and aggregates operations are located in Austin, Texas and northern California. The 10,000-acre aggregates deposit in northern California contains an estimated two billion tons of reserves. CXP is engaged in a dispute with two federal government agencies over title to a portion of its principal aggregates deposit in northern California. Of the 10,000 acres and estimated two billion tons of aggregates, approximately 6,500 acres containing reserves which CXP estimates at over one billion tons are not in dispute. CXP sells aggregates from this deposit in the Sacramento, California area and nearby counties. No single customer accounted for as much as 10% of CXP's concrete and aggregates sales during fiscal 1998. Competition among concrete producers within CXP's northern California and Austin markets is strong. The CPX's competitors include five small and four large concrete producers in the northern California and Austin markets, respectively. 17 18 ENVIRONMENTAL MATTERS The construction products industry, including the operations of CXP, is regulated by federal, state and local laws and regulations pertaining to several areas including human health and safety and environmental compliance (collectively, "Environmental Laws"). The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986, as well as analogous laws in certain states, create joint and several liability for the cost of cleaning up or correcting releases to the environment of designated hazardous substances. Among those who may be held jointly and severally liable are those who generated the waste, those who arranged for disposal, those who owned or operated the disposal site or facility at the time of disposal, and current owners. In general, this liability is imposed in a series of governmental proceedings initiated by the identification of a site for initial listing as a "Superfund site" on the National Priorities List or a similar state list and the identification of potentially responsible parties who may be liable for cleanup costs. None of CXP's sites are listed as a "Superfund site." CXP's operations are also potentially affected by the Resource Conservation and Recovery Act ("RCRA"), which is the primary federal statute governing the management of solid waste and which includes stringent regulation of solid waste that is considered hazardous waste. Such operations generate nonhazardous solid waste which may include cement kiln dust ("CKD"). Because of a RCRA exemption, known as the Bevill Amendment, CKD generated in the Company's operations is currently not considered a hazardous waste under RCRA, pending completion of a study and recommendations to Congress by the U.S. Environmental Protection Agency ("U.S. EPA"). Nevertheless, such CKD is still considered a solid waste and is regulated primarily under state environmental laws and regulations. The U.S. EPA completed its review of CKD and has decided to promulgate regulations to govern the handling and disposal of CKD which will supersede the Bevill Amendment. The Bevill Amendment will remain in effect until those regulations are in place. In the past, CXP collected and stored CKD on-site at its cement plants. CPX continues to store such CKD at its Illinois, Nevada and Wyoming cement plants and at a former plant site in Corpus Christi, Texas, which is no longer in operation. CXP's cement kilns utilize coal, natural gas, minimal amounts of self-generated waste oil, and scrap tires in the Illinois and Texas plants, as fuel. Currently, the Company recycles substantially all CKD related to present operations at all of its cement facilities. When the U.S. EPA removes the CKD exemption and develops particular CKD management standards in the future, CXP might be required to incur significant costs in connection with its CKD. CKD that comes in contact with water might produce a leachate with an alkalinity high enough to be classified as hazardous and might also leach certain hazardous trace metals therein. Another RCRA concern in the cement industry involves the historical disposal of refractory brick containing chromium. Such refractory brick was formerly widely used in the cement industry to line cement kilns. CXP currently crushes spent refractory brick and uses it as raw feed, but such brick does not contain chromium. The Clean Air Act Amendments of 1990 (the "Amendments") provided comprehensive federal regulation of all sources of air pollution and established a new federal operating permit and fee program for virtually all manufacturing operations. The Amendments will likely result in increased capital and operational expenses for the Company in the future, the amounts of which are not presently determinable. CXP's U.S. operations have submitted detailed permit applications and will pay increased recurring permit fees. In addition, the U.S. EPA is developing regulations for toxic air pollutants under these Amendments for a broad spectrum of industrial sectors, including portland cement manufacturing. The U.S. EPA has indicated that the new maximum available control technology standards could require significant reduction of air pollutants below existing levels prevalent in the industry. Management has no reason to believe, however, that these new standards would place CXP at a competitive disadvantage. The Federal Water Pollution Control Act, commonly known as the Clean Water Act ("Clean Water Act"), provides comprehensive federal regulation of all sources of water pollution. In September 1992, CXP filed a number of applications under the Clean Water Act for National Pollutant Discharge Elimination System ("NPDES") stormwater permits. 18 19 Management believes that CXP's current procedures and practices in its operations, including those for handling and managing materials, are consistent with industry standards. Nevertheless, because of the complexity of operations and compliance with Environmental Laws, there can be no assurance that past or future operations will not result in operational errors, violations, remediation or other liabilities or claims. Moreover, CXP cannot predict what Environmental Laws will be enacted, adopted or amended in the future or how such future Environmental Laws will be administered or interpreted. Compliance with more stringent Environmental Laws, as well as potentially more vigorous enforcement policies of regulatory agencies or stricter interpretation of existing Environmental Laws, could necessitate significant capital outlays. With respect to some of CXP's quarries used for the extraction of raw materials for its cement and gypsum operations and for the mining of aggregates for its aggregates operations, CXP is obligated under certain of its permits and certain regulations to engage in reclamation of land within the quarries upon completion of extraction and mining. CXP generally accrues the reclamation costs for a specific quarry over the life of the quarry. CONTRACTING AND CONSTRUCTION SERVICES Centex's contracting and construction services work is performed through its construction group nationwide. Centex's Construction Group's subsidiaries rank together as one of the largest building contractors in the country as well as one of the largest U.S.-owned construction groups. The Construction Group is made up of five firms with various geographic locations and project niches. Healthcare facility construction has represented nearly one-third of the Group's business mix during recent years. New contracts for the group for fiscal 1998 totaled $999 million versus $981 million for fiscal 1997. The backlog of uncompleted contracts at March 31, 1998 was $1.16 billion, compared to $1.11 billion at March 31, 1997. The Group's principal subsidiaries are as follows: CENTEX CONSTRUCTION COMPANY, INC. - This entity, which emerged from the combination of Centex Bateson Construction Company, Inc. and Centex-Simpson Construction Company, Inc., is headquartered in Dallas, Texas with an operational office in Virginia. This company pursues competitively-bid projects nationwide in addition to negotiated work in its regional market areas. CENTEX-RODGERS CONSTRUCTION COMPANY - This nationwide healthcare construction specialist is headquartered in Nashville, Tennessee with operational offices in San Diego and Sacramento, California; Detroit, Michigan and West Palm Beach, Florida. CENTEX-ROONEY CONSTRUCTION CO., INC. - This Ft. Lauderdale-based subsidiary performs all types of work, principally within the state of Florida having operational offices in Miami, Orlando, Tampa, Jacksonville and Ft. Myers. CENTEX-LANDIS CONSTRUCTION CO., INC. - This wholly-owned subsidiary of Centex-Rooney Construction Co., Inc. is headquartered in Dallas, Texas with an operational office in Louisiana. This company pursues competitively-bid projects and negotiated work in its regional market area. CENTEX FORCUM LANNOM, INC. - This company, which focuses on industrial client construction projects, is located in Dyersburg, Tennessee and operates in Tennessee and surrounding states with additional marketing offices in Memphis, Tennessee and Lexington, Kentucky. As a general contractor or construction manager, the Construction Group provides the supervisory personnel for the construction of the building or facility. In addition, Centex may perform varying amounts of the actual construction work on a project, but will generally hire subcontractors to perform the majority of the work. As a result, Construction Group's operations require a relatively small asset base. Construction contracts are primarily entered into under two formats: competitively-bid and negotiated jobs. In a competitively-bid format, the Construction Group will bid a fixed amount for which it will agree to construct the project based on an evaluation of detailed plans and specifications. In a negotiated job, the contractor bids a fee (fixed or 19 20 percentage) over the cost of the project and, in many instances, agree that the final cost will not exceed a designated amount. Such contracts may include a provision whereby the owner will pay a part of any savings from the guarantee amount to the contractor. The Construction Group's highest margins (and highest risks) in contracting operations have historically been on competively-bid jobs. Recent years have seen a shift to higher-margin private negotiated projects rather than the competitively-bid public projects. Historically, about one-half of the Construction Group's projects have been competively-bid, public jobs; however, owners. The Construction Group's projects are negotiated contracts with private owners. The Construction Group's projects include hospitals, hotels, office buildings, correctional facilities, apartments, shopping center, airports, parking garages, office buildings, military facilities, post offices and convention and performing arts centers. Competition and Other Factors The construction industry is very competitive, and the Construction Group competes with numerous other companies. With respect to competitively-bid projects and negotiated healthcare work, the Construction Group generally competes throughout the United States and with local, regional and national contractors, depending upon the nature of the project. For negotiated projects other than healthcare, the Construction Group competes primarily in the general geographical area where the entity is located and with other local, regional and national contractors. The Construction Group solicits new projects by attending project bid meetings and meeting with builders and owners and through existing customers. The Construction Group competes successfully on the basis of its reputation, financial strength, knowledge and understanding of its clients' needs. The Construction Group's operations are affected by federal, state and local laws and regulations relating to worker health and workplace safety as well as Environmental Laws. With respect to health and safety matters, the Company believes that the Construction Group has taken appropriate precautions to protect employees and others from workplace hazards. Current Environmental Laws may require the Construction Group's operating subsidiaries to work in concert with project owners to acquire the necessary permits or other authorizations for certain activities, including the construction of projects located in or near wetland areas. The Construction Group's operations are also affected by Environmental Laws regulating the use and disposal of hazardous materials encountered during demolition operations. The Company believes that the Contracting and Construction Services Group's current procedures and practices are consistent with industry standards and that compliance by the Construction Group with the health and safety laws and Environmental Laws does not constitute a material burden or expense for the Company. The Company's Contracting and Construction Services operations obtain materials and services from numerous sources. The Company believes that its construction companies can deal effectively with any problems they may experience in the supply of materials and services. 20 21 EMPLOYEES The following table presents the breakdown of employees employed in each line of business as of March 31, 1998:
Line of Business Employees ---------------- --------- Home Building Conventional Homes 2,542 Manufactured Homes 1,392 Investment Real Estate 21 Financial Services 2,845 Construction Products 1,076 Contracting and Construction Services 1,559 Other Operations 736 Corporate 88 ------- 10,259 =======
Except for the 88 employees in the Corporate Line of Business, who are employees of Centex Corporation, all others are employees of different subsidiaries of Centex Corporation. ITEM 2. PROPERTIES Centex Homes owns property in Carrollton, Texas, a suburb of Dallas. This property consists of office and warehouse buildings situated on approximately 17 acres. Cavco operations consist of four facilities. Two facilities in the Phoenix, Arizona area are owned by Cavco. The remaining two facilities are leased: one in Belen, New Mexico under a capital lease and one in Phoenix, Arizona. CXP operates cement plants, quarries and related facilities at Buda, Texas; LaSalle, Illinois; Fernley, Nevada and Laramie, Wyoming. The Buda and LaSalle plants are owned by separate joint ventures in which CXP has a 50% interest. CXP's principal aggregate plants and quarries are located in Austin, Texas and Marysville, California. In addition, CXP operates gypsum wallboard plants in Albuquerque and nearby Bernalillo, New Mexico and Gypsum, Colorado. Except for encumbrances on Cavco's leasehold interest in the Belen, New Mexico facility (which is not material to the Company), none of Cavco's facilities described above are pledged as security on its debts. See "Item 1. Business" on pages 5-21 of this Report for additional information relating to the Company's properties. ITEM 3. LEGAL PROCEEDINGS Management believes that none of the litigation matters in which the Company or any subsidiary is involved would have a material adverse effect on the consolidated financial condition or operations of the Company. The Harrah's New Orleans Casino contract was suspended on November 22, 1995 due to a bankruptcy filing by the Harrah's Jazz Company partnership, the developer of the casino. Centex Landis Construction Co., Inc. ("Centex Landis") and its subcontractors filed claims against the partnership for completed but unpaid work. Centex Landis also filed a lawsuit against Harrah's Entertainment, Inc., parent company of the major partner in the partnership, to recover its claims. In late November 1996, Centex Landis and Harrah's reached a settlement which is conditioned upon Harrah's plan of reorganization becoming effective. It appears possible that the plan will become effective in the summer, 1998, at which time Harrah's would pay $34 million in settlement of the claims of Centex Landis and its subcontractors. Upon payment of such sum, Centex Landis would resume construction of the casino. 21 22 In October 1992, Martin County sued one of the Company's general contracting subsidiaries, Centex-Rooney Construction Co., Inc. ("Rooney"), alleging defects in the design and construction of the Martin County Courthouse in Stuart, Florida. Rooney was construction manager of the project. In July 1996, a judgment of $14.2 million was returned against Rooney, and in April 1997, Martin County also obtained a judgement of $3.2 million in attorney's fees and costs. Both judgements, together will interest, currently approach $20 million. Recently, the 4th District Court of Appeals affirmed the $14.2 million judgement and Rooney is now awaiting action by the Supreme Court of Florida in response to its petition to take the case on appeal. Rooney's appeal of the $3.2 million award is still pending. At this time, Rooney is prosecuting claims and lawsuits against subcontractors, their insurance carriers and Rooney's own insurance carriers for recovery of the judgements. One of Rooney's carriers has agreed to pay approximately $3.5 million. While there is no assurance that Rooney's appeal will be successful or that it will recover from such subcontractors or other insurance carriers, management believes that Rooney will be able to recover substantially all of both judgments. In any case, these judgements would not have a material impact on the financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 4, 1998, Centex held a Special Meeting of Stockholders. At the meeting, the stockholders voted to amend Centex's Restated Articles of Incorporation to increase the number of authorized shares of common stock from common stock would be available for issuance by Centex in the form of a stock split and for any other proper purpose approved by the Board of Directors. Voting results for this proposal were 23,938 for and 242,902 against with 21,583 abstentions or broker non-votes. Subsequently, Centex declared a two-for-one stock split. The split was effected by the issuance of one additional share of stock for each share outstanding on the record date, February 13, 1998. Distribution of the additional shares occurred on February 27, 1998. 22 23 EXECUTIVE OFFICERS OF CENTEX (SEE ITEM 10 OF PART III) The following is an alphabetical listing of the Company's executive officers, as such term is defined under the rules and regulations of the Securities and Exchange Commission. All of these executive officers have been employed by the Company and/or one or more subsidiary of the Company for at least the past five years. All of these executive officers were elected by the Board of Directors of the Company at its Annual Meeting on July 24, 1997, to serve until the next Annual Meeting of Directors or until their respective successors are duly elected and qualified. There is no family relationship between any of these officers.
NAME AGE POSITIONS WITH CENTEX - ----------------------------------- --- ---------------------------------------------------------------------- CENTEX CORPORATION Laurence E. Hirsch 52 Chairman of the Board and Chief Executive Officer of Centex Corporation (Chairman of the Board since July 1991; Chief Executive Officer since July 1988; President from March 1985 until July 1991) David W. Quinn 56 Vice Chairman of the Board and Chief Financial Officer of Centex Corporation (Vice Chairman of the Board since May 1996; Chief Financial Officer since February 1987; Executive Vice President from February 1987 until May 1996) Raymond G. Smerge 54 Executive Vice President, Chief Legal Officer, General Counsel and Secretary of Centex Corporation (Executive Vice President since July 1997; Chief Legal Officer since September 1985; General Counsel and Secretary since April 1993; Vice President from September 1985 to July 1997) CENTEX REAL ESTATE CORPORATION Timothy R. Eller 49 Chairman of the Board and Chief Executive Officer of Centex Real Estate Corporation (Chairman of the Board since April 1998; Chief Executive Officer since July 1991; President and Chief Operating Officer from January 1990 to March 1998; Executive Vice President from July 1987 to January 1990)
YEAR 2000 CONVERSION The year 2000 conversion is being addressed by the Company for each line of business. The ongoing process of identification, evaluation and implementation of changes to computer systems and software necessary for the year 2000 conversion has been underway since fiscal 1997. Potential software failures due to processing errors potentially arising from calculations using the year 2000 date are not believed to be a significant risk. The total costs of compliance and the effect on the Company's future results of operations are not believed to be material and are expected to be accomplished within the normal process of upgrading hardware and software. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (See Item 7 below.) ITEM 6. SELECTED FINANCIAL DATA (See Item 7 below.) 23 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by Items 5, 6 and 7 is incorporated herein by reference to the information set forth under the following captions (on the page or pages indicated) in the Centex 1998 Annual Report:
ITEMS CAPTION IN THE CENTEX 1998 ANNUAL REPORT Pages ----- ---------------------------------------- ----- 5 Stock Prices and Dividends 1 5 Indebtedness (Note (D) to Consolidated Financial Statements of Centex) 28-29 6 Summary of Selected Financial Data 52-53 7 Short-term Debt and Long-term Debt (Note (D) to Consolidated Financial Statements of Centex) 28-29 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 44-50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item 8 is incorporated herein by reference to the Centex 1998 Annual Report as set forth in the Index to Consolidated Financial Statements and Schedules on page 25 of this Report (see Item 14). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (See Item 11 below.) 24 25 ITEM 11. EXECUTIVE COMPENSATION Except for the information relating to the executive officers of the Company, which follows Item 4 of Part I of this Report, the information called for by Items 10, 11, 12 and 13 is incorporated herein by reference to the information included and referenced under the following captions in the Company's Proxy Statement for the July 23, 1998 Annual Meeting of Stockholders (the "1998 Centex Proxy Statement"):
ITEM CAPTION IN THE 1998 CENTEX PROXY STATEMENT ---- ------------------------------------------ 10 Election of Directors 10 Section 16(a) Compliance 11 Executive Compensation 12 Security Ownership of Management and Certain Beneficial Owners 13 Certain Transactions
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (See Item 11 above.) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (See Item 11 above for information respecting indebtedness to Centex of certain officers and directors.) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) and (2) See the Index to Consolidated Financial Statements and Schedules below for a list of the Financial Statements and Financial Statement schedules filed herewith. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CENTEX 1998 ANNUAL REPORT PAGES ---------------- CENTEX CORPORATION AND SUBSIDIARIES Data incorporated by reference to the Centex 1998 Annual Report: Report of Independent Public Accountants . . . . . . . . . . . 43 Statements of Consolidated Earnings for the Years Ended March 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . 18-19 Consolidated Balance Sheets as of March 31, 1998 and 1997 . . 20-21 Statements of Consolidated Cash Flows for the Years Ended March 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . 22 Statements of Consolidated Stockholders' Equity for the Years Ended March 31, 1998, 1997 and 1996 . . . . . 23 Notes to Consolidated Financial Statements . . . . . . . . . . 24-42 Quarterly Results (Unaudited) . . . . . . . . . . . . . . . . 51
25 26 Consolidated supporting schedules have been omitted either because the required information is contained in notes to the consolidated financial statements or because such schedules are not required or are not applicable. (3) EXHIBITS The information on exhibits required by this Item 14 is set forth in the Centex Index to Exhibits appearing on pages 49-51 of this Report. (b) Reports on Form 8-K: None. FORWARD LOOKING STATEMENT The information contained in this Report and the Centex 1998 Annual Report filed herewith includes forward looking statements involving a number of risks and uncertainties. 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. In addition to the factors discussed elsewhere in this document including the statements contained under the heading "Competition and Other Factors" on pages 8, 9, 10, 12, 13, 16, 17 and 20, "Raw Materials and Fuel Supplies" on pages 15, 16 and 17, "Environmental Matters" on pages 18 and 19, "Legal Proceedings" on pages 21 and 22 and "Year 2000 Conversion" on page 23, other determinants that could cause actual results to differ include increases in short- and/or long-term interest rates or a change in the relationship between short- and long-term interest rates; business conditions; the outcome of litigation discussed herein; growth in the home building, investment real estate, financial services, construction products and contracting and construction services industries in the local markets which the Company through its subsidiaries conducts business and in the economy in general: competitive factors, governmental regulation and the cost and availability of raw materials. 26 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 June 22, 1998 By: /s/ LAURENCE E. HIRSCH --------------------------------------- Laurence E. Hirsch, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. June 22, 1998 /s/ LAURENCE E. HIRSCH --------------------------------------- Laurence E. Hirsch, Chairman of the Board and Chief Executive Officer (principal executive officer) June 22, 1998 /s/ DAVID W. QUINN --------------------------------------- David W. Quinn, Vice Chairman of the Board and Chief Financial Officer (principal financial officer) June 22, 1998 /s/ BARRY G. WILSON --------------------------------------- Barry G. Wilson, Controller (principal accounting officer) Directors: Alan B. Coleman, Dan W. Cook III, Juan L. Elek, Laurence E. Hirsch, Clint W. Murchison, III, Charles H. Pistor, David W. Quinn, Paul R. Seegers, Paul T. Stoffel June 22, 1998 By: /s/ LAURENCE E. HIRSCH --------------------------------------- Laurence E. Hirsch, Individually and as Attorney-in-Fact* - -------------- *Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 27 28 PART B. 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. PREFATORY STATEMENT PART B of this Report includes information relating to 3333 Holding Corporation ("Holding"), File No. 1-9624, and subsidiary, and Centex Development Company, L.P. ("CDC" or the "Partnership"), File No. 1-9625. See the Joint Explanatory Statement on page 2 of this Report. References to Holding in this Report shall include references to its subsidiary, 3333 Development Corporation, a Nevada corporation and the sole general partner of CDC ("Development"), unless the context otherwise requires. Because CDC is a separate reporting entity under the Exchange Act, the information required by Form 10-K is separately included even though CDC may be deemed a "subsidiary" of Holding under the rules and regulations of the Securities and Exchange Commission (the "Commission" or the "SEC") promulgated pursuant to the Exchange Act. Accordingly, information provided with respect to CDC should be deemed provided with respect to Holding to the extent appropriate. Information relating to both Holding and CDC is included herein as a single disclosure where applicable or appropriate; all other information is set forth separately. Reference is made to PART A of this Report for information relating separately to Centex Corporation ("Centex") and its subsidiaries. PART I ITEM 1. BUSINESS (a) Holding Holding is a Nevada corporation incorporated on May 5, 1987. Its executive offices are located at 3100 McKinnon, Suite 370, Dallas, Texas 75201; telephone (214) 981-6700. Holding owns all of the outstanding common stock of Development, and, as a result, has the ability to control Development. Development is the sole general partner of CDC, a Delaware limited partnership engaged in the real estate development business. Information concerning the acquisition of the capital stock of Development by Holding is included in Note (A) of the Notes to Combining Financial Statements of Holding and CDC (the "Holding/CDC Combining Financial Statements") included on pages 59-60 of the Holding/CDC 1998 Annual Report, which Note (A) is incorporated herein by this reference. The principal liabilities of Holding are a note payable to Centex and a note payable to CDC which had unpaid balances of $1,000,000 and $7,921,000, respectively, at March 31, 1998. Subsequent to March 31, 1998, the outstanding principal balance of the note payable to Centex was repaid. See "Item 13. Certain Relationships and Related Transactions". Presently, Holding is not engaged in any business other than its ownership and control of Development. The Second Amended and Restated Agreement of Limited Partnership of Centex Development Company, L.P. (the "Partnership Agreement"), which governs the operations of CDC, provides that neither Holding nor Development shall be permitted, prior to payout (as defined in the Partnership Agreement) ("Payout"), to own business interests or to engage in business activities other than those relating to CDC. Were Holding to engage in any other business activities, the Partnership Agreement would need to be amended to provide for the same. 28 29 (b) CDC GENERAL DEVELOPMENT OF BUSINESS CDC is a Delaware limited partnership formed in March 1987 by Centex to broaden its line of business to include general real estate development. Centex believed that this expansion would improve stockholder value through longer- term real estate investments, real estate development and the benefits of the partnership form of business. Because the real estate development business generally requires a longer time horizon to maximize value than Centex's core home building operations, and typically involves substantial acquisition and development indebtedness, Centex concluded that this new line of business could best be conducted through CDC, an independent, publicly traded entity which is not consolidated with Centex for financial reporting purposes. Development, a wholly-owned subsidiary of Holding, is the sole general partner of CDC. CDC's executive offices are located at 3100 McKinnon, Suite 370, Dallas, Texas 75201; telephone (214) 981-6700. CDC was formed to manage, develop and sell (i) certain real estate, principally nonresidential, undeveloped land (the "Original Properties"), contributed to CDC by certain wholly-owned subsidiaries of Centex (the "Original Limited Partners"), and (ii) other properties acquired by CDC, either directly or indirectly, in the ordinary course of business (the "Additional Properties"). Pursuant to the initial issuance of Partnership units (the "Distribution"), the Original Limited Partners received an aggregate of 1,000 Class A Units of limited partnership interest in CDC (the "Class A Units") in exchange for the Original Properties, which at the time of their contribution to CDC, had a market value of approximately $76 million. All of the Class A Units are currently owned by the Investment Real Estate Group which operates under the name of "Centex Development". Under the Partnership Agreement, the holders of the Class A Units of limited partnership interest are entitled to a 9% preferred return (the "Preferred Return") on their unrecovered capital and certain other distributions of cash and other property and allocations of income and loss in preference to other limited partners. During fiscal year 1998 the Partnership Agreement was amended to create a new class of limited partnership units, Class C Preferred Limited Partnership Units ("Class C Units"), to be issued from time to time in exchange for assets contributed by a limited partner or by an individual or entity who is to be admitted as a limited partner. During the fiscal year, 7,542 Class C Units were issued to Centex Development, the current holder of all outstanding Class A Units, in exchange for assets contributed by Centex Homes valued at $7,542,000. Under the Partnership Agreement, holders of Class C Units are also entitled to a 9% return on their unrecovered capital. Also, as part of the amendment to the Partnership Agreement, the 1,000 Class A Units were converted to 32,260 Class A Units. See Note (F) of the Notes to the Holding/CDC Combining Financial Statements included on pages 63-64 of the Holding/CDC 1998 Annual Report, which Note (F) is incorporated herein by this reference. CDC has actively been developing and selling the Original Properties. Of the 24 Original Properties contributed to the Partnership, only portions of three remain. During fiscal 1998, CDC designed and began construction on a pre-sold 304-unit apartment community on land owned by CDC in The Colony, Texas (one of the three remaining Original Properties). CDC has also been actively acquiring, developing, selling or otherwise disposing of Additional Properties. Additional Properties in which CDC currently has an interest include a 172-unit apartment complex in College Station, Texas, a 38,000 square foot industrial building in Charlotte, North Carolina and 339 acres of land in various stages of development zoned for multi-family residential, light industrial and office uses located in Texas, Florida and California. Initially many of the areas targeted for development included land owned by CDC and Centex affiliates. Given the improved real estate markets and the economy in general, CDC management is continuing to evaluate the potential for development of retail facilities and other types of real estate for investment or sale in certain strategic markets, either directly or through partnerships or joint ventures with others. Management of Centex and CDC and Holding believe that the existing relationships between them, including development and general management assistance, are necessary in order to maximize the potential for these additional development activities. 29 30 DESCRIPTION OF CDC SECURITIES Pursuant to the terms of a nominee agreement among Centex, Holding, CDC and the Nominee (the "Nominee Agreement"), restrictions are imposed on the transfer of the Holding Common Stock and the Stockholder Warrants separate from Centex Common Stock. Centex may, in its sole discretion, terminate the Nominee Agreement as to all or any portion of the Stockholder Warrants and the Holding Common Stock (collectively, the "Deposited Securities") and, unless sooner terminated, the Nominee Agreement will terminate as to the Stockholder Warrants on November 30, 2007 (the "Scheduled Detachment Date"). Centex is not obligated to terminate the Nominee Agreement as to the Holding Common Stock. The termination of the Nominee Agreement as to any of the Deposited Securities will cause a detachment ("Detachment") of such securities from the Centex Common Stock. Upon a termination of the Nominee Agreement, certificates evidencing each Centex Stockholder's pro rata portion of the Deposited Securities in respect of which the Nominee Agreement was terminated will be delivered to the Centex Stockholders of record as of the record date set for the Detachment. From and after such record date, certificates evidencing Centex Common Stock will no longer represent the beneficial interest in the detached Deposited Securities. NARRATIVE DESCRIPTION OF BUSINESS In general, the Partnership Agreement authorizes CDC to engage in all aspects of the real estate business, provided that all activities related to the Original Properties must be conducted pursuant to the Plan for Original Properties, which is an exhibit to the Partnership Agreement (the "Plan"). The Plan prescribes in general terms the manner by which CDC will conduct its activities in respect to the Original Properties, including guidelines as to sales, maintenance and zoning of the Original Properties, and places restrictions on these and other types of activities, including, in certain instances, the sale of any Original Property without the consent of its limited partners. CDC continues to analyze potential uses for certain of the remaining Original Properties in order to determine the highest and best use that can be made of the tracts. CDC will decide whether to seek zoning changes to accommodate a higher use, further develop these properties, or to seek the sale of all or a portion thereof. If not developed sooner, the Plan provides that CDC will generally endeavor to sell the remaining Original Properties over time for the best price available, taking into account the condition of the marketplace and CDC's cash flow requirements. The Partnership had a backlog of land sales of approximately $20 million as of March 31, 1998, and $14 million as of March 31, 1997. The ultimate sales prices may vary due to contractual clauses that adjust the price depending upon the closing date. Pursuant to an agreement with CDC (the "Management Agreement"), Holding is obligated to provide property management and development assistance and expertise to CDC, including seeking zoning changes and special use permits, negotiating utility agreements, and securing necessary rights of way and access on behalf of CDC, and, consistent with the Plan, to develop and/or contract for sale and sell on behalf of CDC some or all of such properties in exchange for compensation for its efforts. Since Holding currently does not have any employees, it contracts with Centex subsidiaries to provide such services to CDC. Management of CDC believes that CDC receives these services at a cost below that which unaffiliated third parties would charge for similar services. See "Item 10. Directors and Executive Officers of the Registrant--Management Agreement". Centex and its affiliates continue to conduct many facets of real estate development and, for this reason, may be in competition with CDC in certain activities and projects. Because the relationship between Centex and its affiliates, on the one hand, and Holding, Development and CDC, on the other hand, involve decisions by Centex and its affiliates, directly or indirectly, on behalf of Holding, Development and CDC, the transactions and activities of Holding, Development and/or CDC may lack the benefit of arm's length bargaining and may involve conflicts of interest. Holding, Development and CDC believe, however, that adequate safeguards, including Boards of Directors of Holding and Development consisting of a majority of independent directors, sufficiently prevent any such conflicts from adversely affecting the business of Holding, Development or CDC. To the extent that any conflict of interest or the lack of arm's length bargaining may 30 31 benefit Centex or its affiliates, on the one hand, or CDC or Holding, on the other hand, the combined value of the three tandem traded securities (Centex Common Stock, Holding Common Stock and Stockholder Warrants) beneficially owned by a Centex Stockholder should not be affected one way or another. See "Competition and Regulation" in this Item 1 below. CDC is not a real estate investment trust, and therefore CDC's activities are not subject to the restrictions imposed on real estate investment trusts qualified under the Internal Revenue Code of 1986, as amended. For additional information concerning material properties owned by CDC at March 31, 1998, see "Item 2. Properties". COMPETITION AND REGULATION Within the geographical areas where the remaining Original Properties and the Additional Properties are located, CDC is subject to substantial competition from other owners of similarly-situated or developed properties who wish to sell or develop their properties, many of whom may hold or be in the process of developing more parcels than CDC, or may have greater financial resources and longer operating histories than CDC. CDC may also compete in the acquisition of additional desirable properties with a variety of investors, including Centex and its affiliates, and institutional investors and developers, seeking similar investments. CDC's properties are generally located in geographical areas where there is moderate to good demand for land suitable for development, including California, Florida, New Jersey and Texas. Management believes the CDC properties are well positioned to compete with similar properties within each of these geographic areas. Ownership and development of each of CDC's properties is subject to licensing and regulation by zoning, land use, environmental, health, sanitation and other agencies in the state and/or municipality in which the property is located. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the development or sale of any of such properties. In addition, certain of the Original Properties and the Additional Properties may be subject to zoning limitations that may not permit development of such properties for their highest and best use. The ability of CDC to obtain favorable zoning changes may affect the ultimate value of such properties to CDC to a third-party purchaser. ITEM 2. PROPERTIES (a) Holding Due to the nature of its business, Holding does not own or hold for investment any real or personal properties other than cash, receivables and other similar assets, and the securities relating to its subsidiary, Development. During fiscal year 1998, through wholly-owned subsidiaries, Development acquired the general partnership interests in entities formed for both multi-family and commercial development activities. In each instance, CDC, for whom Development serves as general partner, is the 99% limited partner. 31 32 (b) CDC The remaining Original Properties and the Additional Properties consist of properties located in Texas, North Carolina, New Jersey, Florida and California. The remaining Original Properties predominantly consist of undeveloped sites zoned for light industrial, agricultural, general retail, office industrial, business park, research and development and single-family and multi-family residential property purposes. The Additional Properties generally consist of land contributed by Centex Development for near-term multi-family and commercial development purposes. At March 31, 1998, there were three remaining Original Properties and nine Additional Properties owned by CDC. Set forth below is a brief description of such properties, including present zoning. ORIGINAL PROPERTIES Colony South Planning Unit. Colony South Planning Unit is located in suburban Dallas, Texas in the cities of The Colony (approximately 136 acres) and Lewisville (approximately 116 acres). The Colony acreage is zoned office, general retail and business park. The Lewisville acreage is zoned light industrial. East Windsor. East Windsor is a development comprised of approximately 600 acres with residential tracts, farm parcels and 100 acres of office industrial zoned property in East Windsor, New Jersey, a township located in the vicinity of Princeton. At March 31, 1998 there were 489 remaining acres owned by CDC. Two hundred quarter-acre lots and 46 half-acre lots have been sold to Centex Homes. Zoning is in place for an additional 248 quarter-acre lots and 76 half-acre lots. Bryan Place. Bryan Place is located in Dallas, Texas just east of downtown and Central Expressway. It is comprised of four non-contiguous parcels, zoned commercial and residential, totaling 76,000 square feet. ADDITIONAL PROPERTIES The Arbors of Wolf Penn Creek. The Arbors of Wolf Penn Creek is a 172- unit apartment complex located in College Station, Texas. The complex is situated on eight acres and was completed in the fall of 1996. The Arbors of Wolf Penn Creek was developed through a joint venture with a third party. The complex is currently being marketed for sale. Heritage Park. Heritage Park is located in a suburb of Dallas, Texas in the city of Allen and consists of approximately 108 acres. The Heritage Park property is zoned single-family residential and commercial. Goodlett-Frank. Goodlett-Frank is located in Naples, Florida and consists of approximately 122 acres developed into 381 lots. Ninety lots were sold to Centex Development during fiscal year 1998. Park West at Gateway Centre. Park West at Gateway Centre is a 24-acre industrial tract situated in a mixed-use development located in St. Petersburg, Florida. During fiscal 1998, a 49.5% interest in a limited partnership, whose only asset is the 24 acres, was contributed to CDC by Centex Development in exchange for Class C Units. Southpointe. The Southpointe property, located in Plantation, Florida, 13 miles west of the Ft. Lauderdale Airport, is comprised of 11 acres zoned for office use. CDC has entered into a contract with the General Services Administration to build and lease a 141,000 square foot office building for use by the Internal Revenue Service. Centex-Rooney Construction Company, Inc., a wholly-owned subsidiary of Centex, is the general contractor for the facility with construction scheduled to begin in early fiscal 1999. During fiscal 1998, a 49.5% interest in a limited partnership, whose only asset is the 11 acres, was contributed to CDC by Centex Development in exchange for Class C Units. 32 33 Westlake. The Westlake property consists of a 38,000 square foot industrial building situated on six acres located in a business park in Charlotte, North Carolina. The facility was pre-leased prior to the start of construction. Construction was completed in December 1997. The six acre parcel was contributed to CDC by Centex Development in exchange for Class C Units. Northfield. Northfield is located in Ventura County, California approximately 60 miles west of downtown Los Angeles and is comprised of 23 acres. Northfield is zoned light industrial and is situated in an industrial business park. Of the 23 acres owned by CDC, 18 acres were contributed to CDC by Centex Development in exchange for Class C Units, while five acres of adjacent land were purchased by CDC during fiscal 1998. Subsequent to March 31, 1998, CDC entered into a joint-venture agreement with a third party to develop approximately 182,000 square feet of industrial inventory buildings on 10 acres in the Northfield business park. Sheffield. Sheffield is an 18-acre multi-family tract located in Grand Prairie, Texas. During fiscal 1998, Sheffield was contributed to CDC by Centex Development in exchange for Class C Units. Vista Ridge. Vista Ridge is a 33-acre multi-family tract located in Dallas and Denton Counties, Texas in the cities of Lewisville and Coppell. During fiscal 1998, 21 acres in the Vista Ridge project were contributed to CDC by Centex Development in exchange for Class C Units. The other 12 acres had previously been acquired through a third-party joint venture. During fiscal 1998, CDC acquired the joint-venture partner's interest in the joint venture. ITEM 3. LEGAL PROCEEDINGS Holding is not a party to, and its assets are not the subject of, any material pending legal proceedings. CDC may be involved from time to time in litigation matters incident to its day-to-day business; however, management of Development believes that such litigation, if determined unfavorably to CDC, would not have a material adverse effect on the financial condition or operations of CDC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF HOLDING AND DEVELOPMENT Information concerning the present executive officers of Holding is set forth below. All of such officers have served in their capacities or other capacities of Holding for at least the past five years, except as indicated. CDC has no executive officers. The executive officers of Holding set forth below hold the same offices in Development, the general partner of CDC, as disclosed in "Item 10. Directors and Executive Officers of the Registrant--Directors and Executive Officers of Development".
NAME POSITION AGE ---- -------- --- Richard C. Decker President and Chief Executive Officer(1) 45 J. Stephen Bilheimer Vice Chairman (2) 66 Kimberly A. Pinson Vice President, Treasurer, Controller 33 and Assistant Secretary (3)
(1) Mr. Decker is an employee of Centex Development and has been President and Chief Executive Officer of both Holding and Development, the general partner of CDC, since April 1, 1998. Mr. Decker was elected Director of both Holding and Development effective June 10, 1998. Mr. Decker has also been a director and officer of various Centex subsidiaries engaged in real estate development since July 1996. Prior thereto, Mr. Decker was a partner 33 34 with Dallas-based Trammel Crow Company, a commercial real estate development firm, for 15 years, and served as Principal from 1990 until 1995. From 1995 until July 1996, Mr. Decker operated Decker & Company, a Phoenix, Arizona-based real estate development company. (2) Mr. Bilheimer is an employee of Centex Service Company, a wholly-owned subsidiary of Centex. Mr. Bilheimer was appointed to the position of Vice Chairman for Holding effective April 1, 1998. Prior thereto, Mr. Bilheimer served as President of Holding and Development from 1987 to 1998. Mr. Bilheimer was a director of Holding and Development from its date of incorporation until his resignation as of June 1, 1987. Mr. Bilheimer was re-elected to the Board of Directors on May 24, 1989. Mr. Bilheimer also served as Executive Vice President of Centex Real Estate Corporation ("CREC") from April 1987 until March 31, 1988. Mr. Bilheimer is also a director of both Holding and Development. (3) Ms. Pinson is an employee of Centex Development and serves as Vice President, Treasurer, Controller and Assistant Secretary of Centex Development as well as of Holding and Development. Ms. Pinson joined Vista Properties, Inc. (now CREC) in March 1993 and was elected to her present positions with Holding and Development as of July 23, 1996. All executive officers of Holding are elected annually by the Board of Directors to serve until the next annual meeting of the Board of Directors or until their successors have been duly elected. There are no family relationships among or between such executive officers or the directors. Holding's executive officers hold the same positions with its subsidiary, Development. Holding has no full-time employees. The directors and executive officers perform all executive management functions; all other services necessary to the conduct of Holding's business are performed by employees of a subsidiary of Centex or its designee under a services agreement. See "Item 10. Directors and Executive Officers of the Registrant--Services Agreement". YEAR 2000 CONVERSION The year 2000 conversion is being addressed by the Company for each line of business. The ongoing process of identification, evaluation and implementation of changes to computer systems and software necessary for the year 2000 conversion has been underway since fiscal 1997. Potential software failures due to processing errors potentially arising from calculations using the year 2000 date are not believed to be a significant risk. The total costs of compliance and the effect on the Company's future results of operations are not believed to be material and are expected to be accomplished within the normal process of upgrading hardware and software. PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Holding Except as additionally provided below, the information called for by this Item 5 with respect to Holding is incorporated herein by reference to (1) the Joint Explanatory Statement on page 2 of this Report, (2) the information included and referenced under the caption "Stock Prices and Dividends" on page 1 of the Centex 1998 Annual Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements on pages 63-64 of the Holding/CDC 1998 Annual Report. Prior to the date of the distribution, Centex owned all of the issued and outstanding shares of Holding Common Stock and, accordingly, there was no public market for such shares. Following the distribution by Centex, shares of Holding Common Stock have been tradeable only in tandem with, and as a part of, shares of Centex Common Stock, and may not be separately sold or otherwise transferred. Therefore, except with respect to the trading market established for the tandem 34 35 traded securities, there is no separate market for shares of Holding Common Stock. Because of the tandem trading arrangement, it is not possible to identify precisely the portion of the market price of the tandem traded securities allocable to shares of Holding Common Stock. The restrictions on the transfer of the Holding Common Stock and the Stockholder Warrants separate from Centex Common Stock are imposed by the terms of the Nominee Agreement. Centex Common Stock certificates issued after the date of the Nominee Agreement bear a legend referring to the restrictions on transfer imposed thereby. No dividends have been paid on shares of Holding Common Stock since the incorporation of Holding. Future cash dividends on Holding Common Stock will depend on the earnings, financial condition, capital requirements and other factors affecting Holding and Development. The provisions of the loan agreement and pledge and security agreement relating to Holding's $7,700,000 note to Centex (the "Holding Note"), which had a balance of $1,000,000 at March 31, 1998, included certain restrictive covenants that limit the extent to which Holding and its subsidiaries (including Development but not CDC or any Operating Partnership) may create, assume or guarantee additional indebtedness, pledge or encumber certain of their assets or otherwise take certain corporate actions. Holding's obligations under the Holding Note were secured by a pledge of all of the issued and outstanding shares of the common stock of Development pursuant to a pledge and security agreement under which a default by Holding in the performance of its obligations would give Centex the right to vote such shares, to seek the registration under the Securities Act of 1933, as amended, of all or a portion thereof, and to sell such shares to satisfy Holding's obligations. Subsequent to March 31, 1998, the outstanding principal balance of the Holding Note was repaid and the pledge agreement with respect to the Development Common Stock was terminated. See "Item 13. Certain Relationships and Related Transactions" and Note (G) of the Notes to the Holding/CDC Combining Financial Statements included on page 64 of the Holding/CDC 1998 Annual Report, which Note (G) is incorporated herein by reference. (b) CDC Except as additionally provided below, the information called for by this Item 5 with respect to CDC is incorporated herein by reference to (1) the Joint Explanatory Statement on page 2 of this Report, (2) the information included and referenced under the caption "Stock Prices and Dividends" on page 1 of the Centex 1998 Annual Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements on pages 63-64 of the Holding/CDC 1998 Annual Report. The Stockholder Warrants were issued to Centex immediately prior to the November 30, 1987 Distribution to Centex Stockholders and, accordingly, there was no public market for the Stockholder Warrants prior to the Distribution. Following the Distribution by Centex, the Stockholder Warrants have been tradeable only in tandem with, and as part of, shares of Centex Common Stock, and may not be separately sold or otherwise transferred. Therefore, except with respect to the trading market established for the tandem traded securities, there is no separate market for the Stockholder Warrants. Because of the tandem trading arrangement, it is not possible to identify precisely the portion of the market price of the tandem traded securities allocable to the Stockholder Warrants. The restrictions on the transfer of the Stockholder Warrants and the Holding Common Stock separate from Centex Common Stock are imposed by the terms of the Nominee Agreement among Centex, Holding, CDC and the Nominee. Centex Common Stock certificates issued after the date of the Nominee Agreement bear a legend referring to the restrictions on transfer imposed thereby. No dividends or distributions have been made on the Stockholder Warrants since their issuance. Centex Development is the present holder of all of the Class A Units and Class C Units, and accordingly, at this time there is no public market for such securities. At March 31, 1998, there were 32,260 Class A Units and 7,542 Class C Units outstanding. As of May 29, 1998 an additional 7,757 Class C Units had been issued to Centex Development in exchange for assets contributed to the Partnership valued at $7,757,000. See "Item 1. Business--General Development of Business". 35 36 In July 1995, in conjunction with the extension of the automatic detachment date from 1997 to 2007, CREC (subsequently 2728 Holding Corporation, liquidated in fiscal 1998), the then sole holder of all Class A Units, reduced its unrecovered capital, which is defined as the limited partners' initial capital contributions adjusted for repayments and other reductions, to $47,261,000 and waived all unpaid preference totaling $37,523,000. Unrecovered capital was reduced by an additional $4,500,000 during fiscal 1997 and $10,000,000 during fiscal 1996 through distributions made by the partnership. The partnership made preference payments during fiscal 1998 totaling $4,500,000. Preference payments in arrears at March 31, 1998 amounted to $4,185,000. ITEM 6. SELECTED FINANCIAL DATA (a) Holding The information called for by this Item 6 with respect to Holding is incorporated herein by reference to the Combining Balance Sheets and the Combining Statements of Operations included in the Holding/CDC Combining Financial Statements on pages 57-58 of the Holding/CDC 1998 Annual Report. (b) CDC The information called for by this Item 6 with respect to CDC is incorporated herein by reference to the Combining Balance Sheets and the Combining Statements of Operations included in the Holding/CDC Combining Financial Statements on pages 57-58 of the Holding/CDC 1998 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Holding The information called for by this Item 7 with respect to Holding is incorporated herein by reference to the information included and referenced under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 66 of the Holding/CDC 1998 Annual Report. (b) CDC The information called for by this Item 7 with respect to CDC is incorporated herein by reference to the information included and referenced under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 66 of the Holding/CDC 1998 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item 8 is incorporated herein by reference to portions of the Holding/CDC 1998 Annual Report indicated in the Index to Financial Statements on page 45 of this Report (see Item 14). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 36 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Holding DIRECTORS AND EXECUTIVE OFFICERS OF HOLDING Except as additionally provided below, the information called for by this Item 10 with respect to Holding is incorporated herein by reference to the information included under the caption "Election of Directors" and the information included under the caption "Section 16(a) Compliance" in Holding's proxy statement for the 1998 Annual Meeting of Stockholders of Holding to be held on July 23, 1998 (the "1998 Holding Proxy Statement"); however, as required by Instruction 3 to Item 401(b) of Regulation S-K, information regarding executive officers of Holding is included under the caption "Executive Officers of Holding" included in Part B of this Report following Item 4. SERVICES AGREEMENT Holding has no full-time employees. The directors and executive officers of Holding, who hold the same directorships and offices in Development, perform all executive management functions. See "Item 11. Executive Compensation". All tax, accounting, bookkeeping, clerical and similar services that are necessary to operate the business of Holding are provided pursuant to a services agreement (the "Services Agreement") entered into between Holding and Centex Service Company ("CSC"). See "Item 13. Certain Relationships and Related Transactions". The term of the Services Agreement is subject to automatic renewal for successive one-year terms unless either party elects to terminate the Services Agreement upon at least 30 days written notice prior to December 31 of any year. However, the Services Agreement may not be terminated by Holding (other than in the event of a breach by CSC constituting gross negligence or willful or wanton misconduct) prior to the payment in full of the Holding Note, the full and complete detachment of the Stockholder Warrants from Centex Common Stock or the occurrence of Payout. Service fees of $30,000 were paid pursuant to the Services Agreement during fiscal 1998. (b) CDC GENERAL PARTNER AND MANAGEMENT CDC has no directors, officers or employees and, instead, is managed by Development, its sole general partner. Directors and officers of Development perform all executive management functions required for CDC. Except as provided in the Plan with respect to the Original Properties, the limited partners of CDC have no power to direct or participate in the control of CDC, and Development makes all decisions regarding the acquisition, disposition or development of real estate belonging to CDC and all other decisions regarding CDC's business or operations. See "Item 1. Business". CDC has entered into a management agreement pursuant to which Holding will operate, manage and develop the properties of CDC for and on behalf of CDC. See "Management Agreement" below in this Item 10. Except for the allocations of profit and loss and distributions of cash and other property to which Development is entitled under the Partnership Agreement, and except for the right to be reimbursed for certain expenses, Development does not receive any compensation from CDC in respect of its duties and obligations as general partner of CDC. See "Item 11. Executive Compensation". 37 38 DIRECTORS AND EXECUTIVE OFFICERS OF DEVELOPMENT Information concerning the present directors and executive officers of Development is set forth below. All of such persons have served in their capacities since the organization of Development, except as indicated.
NAME POSITION AGE ---- -------- --- Richard C. Decker . . . . . . . . . Director, President and Chief Executive Officer (1) 45 J. Stephen Bilheimer . . . . . . . Director and Vice Chairman (2) 66 Josiah O. Low, III . . . . . . . . Director (3)* 59 David M. Sherer . . . . . . . . . . Director (4)* 61 Kimberly A. Pinson . . . . . . . . Vice President, Treasurer, Controller and Assistant 33 Secretary (5)
- ------------- * Member of the audit committee of the Board of Directors. (1) Mr. Decker is an employee of Centex Development and has been President and Chief Executive Officer of both Holding and Development, the general partner of CDC, since April 1, 1998. Mr. Decker was elected Director of both Holding and Development effective June 10, 1998. Mr. Decker has also been a director and officer of various Centex subsidiaries engaged in real estate development since July 1996. Prior thereto, Mr. Decker was a partner with Dallas-based Trammell Crow Company, a commercial real estate development firm for 15 years, and served as Principal from 1990 until 1995. From 1995 until July 1996, Mr. Decker operated Decker & Company, a Phoenix, Arizona-based real estate development company. (2) Mr. Bilheimer is an employee of Centex Service Company, a wholly-owned subsidiary of Centex. Mr. Bilheimer was appointed to the position of Vice Chairman for Holding effective April 1, 1998. Prior thereto, Mr. Bilheimer served as President of Holding and Development from 1987 to 1998. Mr. Bilheimer was a director of Holding and Development from its date of incorporation until his resignation as of June 1, 1987. Mr. Bilheimer was re-elected to the Board of Directors on May 24, 1989. Mr. Bilheimer also served as Executive Vice President of CREC from April 1987 until March 31, 1988. Mr. Bilheimer is also a director of both Holding and Development. (3) Mr. Low serves as Senior Vice President of Donaldson, Lufkin & Jenrette Securities Corporation since February 1988. Mr. Low is also a director of Holding. Mr. Low was elected as a director of Development as of June 1, 1987. (4) Mr. Sherer has been President of David M. Sherer Associates, Inc., a commercial real estate, investment and brokerage firm, for 19 years. Mr. Sherer is also a director of Holding. Mr. Sherer was elected as a director of Development as of June 1, 1987. (5) Ms. Pinson is an employee of Centex Development and serves as Vice President, Treasurer, Controller and Assistant Secretary of Centex Development as well as Holding and Development. Ms. Pinson joined Vista Properties, Inc. (now CREC) in March 1993 and was elected to her present positions with Holding and Development as of July 23, 1996. All directors are elected annually by the stockholders to serve until the next annual meeting of stockholders and until their successors have been elected and qualified, subject to removal by a vote of the holders of not less than two-thirds of the outstanding shares of the common stock, par value $1.00 per share, of Development. Effective June 10, 1998, the Board of Directors expanded the size of the board to four directors until the next annual meeting of stockholders. The board elected Richard C. Decker to fill the vacancy created by the expansion. J. Stephen Bilheimer has declined to stand for re-election at the next annual meeting of stockholders. All executive officers of Development are elected annually by the Board of Directors to serve until the next annual meeting of the Board of Directors or until their successors have been 38 39 duly elected and qualified. There are no family relationships among or between Development's directors or executive officers. The current executive officers of Development are employees of one of the subsidiaries of Centex, and it is presently anticipated that this arrangement will continue. See "Item 11. Executive Compensation". MANAGEMENT AGREEMENT All services (other than executive management decision-making) necessary to operate CDC's business are provided to CDC pursuant to a management agreement (the "Management Agreement") entered into with Holding. Under the Management Agreement, Holding keeps all necessary books and records, and provides all additional accounting and clerical services that Development may deem necessary. Holding's responsibilities related to real estate management also include ensuring that CDC's properties are operated, managed and maintained in full compliance with all relevant laws and regulations, that all real property and any improvements thereon are maintained and repaired, that all income produced by CDC's properties is collected and that any development on any property is done in an efficient manner. Because Holding currently does not have any employees, it contracts with Centex subsidiaries to provide such services to CDC. Holding is entitled to reimbursement from CDC for all reasonable costs and expenses incurred and paid by Holding in connection with the performance of its duties and obligations under the Management Agreement, plus a $25,000 quarterly managerial fee. During fiscal 1998, Holding received $640,000 from CDC for its services. The Management Agreement also provides that Holding will provide, consistent with the Plan, pre-development and development services on behalf of CDC, and the Management Agreement specifically provides that Holding is delegated full authority to carry out and perform on behalf of CDC all aspects of the Plan. The term of the Management Agreement is subject to automatic renewal for successive one-year terms unless either party elects to terminate the Management Agreement upon at least 30 days written notice prior to December 31 of any year. However, it may not be terminated by CDC (other than in the event of a breach by Holding constituting gross negligence or willful or wanton misconduct) prior to the latest of the complete detachment of the Stockholder Warrants from Centex Common Stock, Payout or the payment in full of the Holding Note. From time to time, Holding delegates the performance of certain of its responsibilities to CSC and Centex Development, upon terms and conditions to be determined. These responsibilities may include enhancement of properties owned or controlled by CDC, for which reasonable additional compensation may be paid by CDC to Holding pursuant to terms to be negotiated between them. In turn, some or all of such additional compensation may be paid by Holding to CSC or Centex Development. ITEM 11. EXECUTIVE COMPENSATION Holding and CDC The information called for by this Item 11 with respect to Holding and CDC is incorporated herein by reference to the information included and referenced under the caption "Executive Compensation" in the 1998 Holding Proxy Statement. CDC does not have any directors, officers or employees, and is managed by its sole general partner, Development. Except for the allocations of profit and loss and distributions of cash and other property to which Development is entitled under the Partnership Agreement, and except for the right to be reimbursed for certain expenses, Development does not receive any compensation from CDC with respect to its duties and obligations as general partner for CDC. As general partner, Development is entitled to be allocated certain items of income and loss of CDC and to receive certain distributions of cash from CDC depending upon the level of income and cash available for distribution and whether Payout has occurred. The terms and conditions upon which Development will be allocated items of income and loss and will receive distributions 39 40 are set forth in the Partnership Agreement. For a summary of these rights and benefits, see Note (F) of the Notes to the Holding/CDC Combining Financial Statements included on pages 63-64 of the Holding/CDC 1998 Annual Report, which Note (F) is incorporated herein by this reference. The directors and executive officers of Development perform all executive management functions for CDC. See "Item 10. Directors and Executive Officers of the Registrant". Services required by CDC in its operations are also provided pursuant to a Management Agreement with Holding pursuant to which Holding operates, manages and develops the properties of CDC for and on behalf of CDC. See "Item 10. Directors and Executive Officers of the Registrant--Management Agreement". The executive officers of Development did not receive any remuneration from Development or CDC for the year ended March 31, 1998. Directors of Development who are neither officers nor employees of Development, Centex or Centex's subsidiaries received compensation from Development in the form of directors' and committee members' fees. During the 1998 fiscal year, each executive officer of Development received remuneration from Centex or one of its subsidiaries in his capacity as a director, officer or employee thereof. None of the directors or executive officers of Development received any additional compensation from Centex or any of its subsidiaries for services rendered on behalf of Development or CDC during the 1998 fiscal year. During fiscal 1998, J. Stephen Bilheimer, President, until his resignation effective March 31, 1998, and Director and Kimberly A. Pinson, Vice President, Treasurer, Controller and Assistant Secretary of Development, both of whom are employees of subsidiaries of Centex, have devoted a majority of their time and attention to the management of Development and Holding. Mr. Bilheimer and Ms. Pinson provided such services to Development on behalf of and in their capacities as officers of Holding pursuant to the Management Agreement. Each current executive officer of Development continues to receive remuneration from Centex or one of its subsidiaries in his capacity as an officer or employee thereof and is not compensated by Development or CDC. The directors of Development, who also hold the same directorships in Holding and are neither officers nor employees of Development, Centex or Centex's subsidiaries, each receive annually in the form of directors' and committee members' fees in their capacities as directors and/or committee members of Development ($10,000) and Holding ($10,000). In addition, Development reimburses these directors for the reasonable expenses incurred in attending directors' and committee meetings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Holding The information called for by this Item 12 with respect to Holding is incorporated herein by reference to the information included and referenced under the caption "Security Ownership of Management and Certain Beneficial Owners" in the 1998 Holding Proxy Statement. (b) CDC The following table sets forth certain information with respect to the ownership of the equity securities of CDC as of May 29, 1998 by Development, the directors of Development, individually itemized, all directors and executive officers of Development as a group, and any person known to CDC to be the beneficial owner of more than 5% of any class of CDC's equity securities. Except as otherwise indicated, all securities are owned directly, and the beneficial owner of such securities has the sole voting and investment power with respect thereto. 40 41
NAME OF NUMBER OF UNITS PERCENT TITLE OF CLASS* BENEFICIAL OWNER** OR WARRANTS OWNED OF CLASS --------------- ------------------ ----------------- -------- General Partner Interest (1) 3333 Development Corporation . . . . . . . . All 100% 3100 McKinnon, Suite 370 Dallas, Texas 75201 Class A Units (2) Centex Development . . . . . . . . . . . . . 32,260.085 100% 2728 N. Harwood Dallas, Texas 75201 Stockholder Warrants (3) 3333 Development Corporation . . . . . . . . -- *** J. Stephen Bilheimer . . . . . . . . . . . . -- *** Richard C. Decker . . . . . . . . . . . . . . -- *** Josiah O. Low, III . . . . . . . . . . . . . -- *** David M. Sherer . . . . . . . . . . . . . . . -- *** All directors and executive officers of Development as a group (5 persons) . . . . . -- *** Sanford C. Bernstein & Co., Inc. (4) . . . . 45 4.96% 767 Fifth Avenue New York, New York 10153 FMR Corp. (5) . . . . . . . . . . . . . . . . 88 9.80% 82 Devonshire Street Boston, Massachusetts 02109 The Prudential Insurance Company of America (6). . . . . . . . . . . . . . . . 53 5.94% Prudential Plaza Newark, New Jersey 07102-3777 Centex Class B Unit Centex Corporation . . . . . . . . . . . . . 100 100% Warrants (7) 2728 N. Harwood Dallas, Texas 75201 Class B Units (8) Centex Corporation (9) . . . . . . . . . . . 350 (10) 28% (9) 2728 N. Harwood Dallas, Texas 75201 Class C Units (11) Centex Development . . . . . . . . . . . . . 15,299 100% 2728 N. Harwood Dallas, Texas 75201
- ---------------- * Under the terms of the Partnership Agreement, CDC is managed by a sole corporate general partner and none of the present classes of CDC's securities are "voting securities" within the meaning of the rules and regulations of the Commission promulgated pursuant to the Exchange Act. Nonetheless, information with respect to each class of CDC's equity securities has been set forth in accordance with such rules and regulations. ** The address of any person who is the beneficial owner of more than five percent of a class of CDC's securities is also included. *** Less than 1%. 41 42 (1) In connection with the formation of CDC, Development made a capital contribution to CDC of $767,182, in exchange for Development's general partner interest in CDC. As general partner, Development is entitled to receive allocations of income and loss and distributions of property from CDC. (2) The Class A Units were issued to the Original Limited Partners in exchange for the contribution to CDC of the Original Properties. Record title to the Class A Units presently is held by Centex Development. See "Item 1. Business--General Development of Business". As of the date or dates when the Stockholder Warrants are deemed to have been exercised, the Class A Units and Class C Units will be automatically converted collectively into (i) a number of Class B Units equal to 20% of the total number of Class B Units that would be outstanding after conversion based on the actual exercise of the Stockholder Warrants and the assumed exercise of all the then exercisable Centex Class B Unit Warrants (see footnote (3)) and (ii) a like number of Class A Units and Class C Units. The Class A Units and Class C Units will be automatically canceled upon Payout and the exercise and/or expiration of all of the Stockholder Warrants and the Centex Class B Unit Warrants. (3) The Nominee holds record title to the Stockholder Warrants, which are exercisable for Class B Units, for the benefit of Centex Stockholders pursuant to the Nominee Agreement. See "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters". However, the Nominee has no power to vote the Class B Units issuable upon exercise of the Stockholder Warrants or to direct the investment of the Stockholder Warrants or such Class B Units. Beneficial ownership of the Stockholder Warrants is, by virtue of the Nominee arrangement, indirect and undivided. The number of Stockholder Warrants listed as beneficially owned has been rounded to the nearest whole warrant. The Class B Units issuable upon exercise of the Stockholder Warrants have not been shown as "beneficially owned" under the rules and regulations of the Commission promulgated pursuant to the Exchange Act because the beneficial owners of the Stockholder Warrants have no present right to exercise the Stockholder Warrants and acquire Class B Units. (4) Based solely upon information contained in the Schedule 13G/A of Sanford C. Bernstein & Co., Inc. ("Bernstein") filed with the SEC on February 4, 1998 (the "Bernstein 13G") with respect to Centex Common Stock owned as of December 31, 1997. According to the Bernstein 13G, such number includes 1,512,792 shares (and therefore to own a beneficial interest in 22.9 Stockholder Warrants) over which Bernstein had the sole power to direct the vote, 388,280 shares (and therefore to own a beneficial interest in 5.9 Stockholder Warrants) over which Bernstein had shared voting power and 2,953,404 shares (and therefore to own a beneficial interest in 44.6 Stockholder Warrants) over which Bernstein had sole dispositive power. (5) Based solely upon information contained in the Schedule 13G/A (Amendment No. 10) of FMR Corp. filed with the SEC on February 14, 1998 with respect to Centex Common Stock owned as of December 31, 1997 (the "FMR 13G"). According to the FMR 13G, such number includes 128,636 shares (and therefore to own a beneficial interest in 2.0 Stockholder Warrants) over which FMR Corp. had the sole power to vote or direct the vote and 5,835,416 shares (and therefore to own a beneficial interest in 88.2 Stockholder Warrants) over which FMR Corp. had sole dispositive power. (6) Based solely upon information contained in the Schedule 13G/A (Amendment No. 2) of The Prudential Insurance Company of America ("Prudential") filed with the SEC on February 10, 1998 with respect to Centex Common Stock owned as of December 31, 1997 (the "Prudential 13G"). According to the Prudential 13G, such number includes 396,400 shares (and therefore to own a beneficial interest in 6.0 Stockholder Warrants) over which Prudential had sole voting or dispositive power, 3,065,632 shares (and therefore to own a beneficial interest in 46.4 Stockholder Warrants) over which Prudential had shared voting power and 3,142,032 shares (and therefore to own a beneficial interest in 47.5 Stockholder Warrants) over which Prudential had shared dispositive power. According to the Prudential 13G, Prudential holds 25,400 shares (and therefore to own a beneficial interest in .4 Stockholder Warrants) for the benefit of its general account. Prudential holds the remaining shares for the benefit of its clients. 42 43 (7) On November 30, 1987, Centex acquired from CDC 100 warrants (the "Centex Class B Unit Warrants") to purchase a like number of Class B Units, subject to adjustment, pursuant to an agreement for purchase of warrants. The Centex Class B Unit Warrants are generally in the same form as, and contain the same terms as, the Stockholder Warrants, except for the manner in which they may be subdivided (and the corresponding exercise price) and the applicable exercise period. See Note (F) of the Notes to the Holding/CDC Combining Financial Statements included on pages 63-64 of the Holding/CDC 1998 Annual Report, which Note (F) is herein incorporated by this reference. (8) Presently, there are no Class B Units issued or outstanding. (9) When issued, record title to 200 of these Class B Units will be held collectively by the owners of the Class A Units and Class C Units. See footnote (2). (10) The Class B Units that may be acquired upon conversion of outstanding Class A Units and Class C Units as of the date of the exercise of the Stockholder Warrants, which date Centex may indirectly determine by virtue of its ability, in its sole and absolute discretion, to determine the date of detachment of the Stockholder Warrants from Centex Common Stock, and the Class B Units that may be acquired upon exercise of the Centex Class B Unit Warrants, are included as "beneficially owned" pursuant to the rules and regulations of the Commission promulgated pursuant to the Exchange Act. See footnotes (2) and (3). The number of Class B Units and the percentage of class listed assume that the Stockholder Warrants and the Centex Class B Unit Warrants have been exercised in full for Class B Units but that no subdivision of any of the warrants has occurred; however, both the Stockholder Warrants and the Centex Class B Unit Warrants may be subdivided or combined and any such subdivision or combination would necessarily change the number of Class B Units beneficially owned and the percent of class represented thereby. (11) The Class C Units were issued in exchange for assets contributed to CDC by Centex Development. See "Item 1. Business--General Development of Business". As of the date or dates when the Stockholder Warrants are deemed to have been exercised, the Class A Units and Class C Units will be automatically converted collectively into (i) a number of Class B Units equal to 20% of the total number of Class B Units that would be outstanding after conversion based on the actual exercise of the Stockholder Warrants and the assumed exercise of all the then exercisable Centex Class B Unit Warrants (see footnote (3)) and (ii) a like number of Class A Units and Class C Units. The Class A Units and Class C Units will be automatically canceled upon Payout and the exercise and/or expiration of all of the Stockholder Warrants and the Centex Class B Unit Warrants. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Holding The information called for by this Item 13 with respect to Holding is incorporated herein by reference to the information included under the caption "Certain Transactions" in the 1998 Holding Proxy Statement. (b) CDC Holding entered into a services agreement in May 1987 with CSC, whereby CSC provides certain tax, accounting and other services for Holding at a fee of $2,500 per month. Service fees of $30,000 were paid pursuant to this agreement for fiscal year 1998. CDC has entered into an agreement with Holding to provide management services to CDC in connection with the development, operation and maintenance of CDC property and other administrative services. Management fees and reimbursable costs totaling $640,000 were incurred under this agreement during fiscal 1998. In connection with Holding's acquisition of additional shares of common stock of Development in 1987, Holding borrowed $7,700,000 from Centex pursuant to a secured promissory note (the "Holding Note"). The Holding Note, which 43 44 had a fluctuating balance during 1998, bore interest, payable quarterly, at the prime rate of interest of NationsBank, N.A. ("NationsBank") plus 1%. On May 29, 1998, the outstanding principal balance of the Holding Note was repaid. The Holding Note was secured by a pledge of all the issued and outstanding shares of Development, and such pledge has been terminated. There was interest expense of $372,000 related to the Holding Note for the year ended March 31, 1998. In 1987, Development advanced $7,700,000 to a wholly-owned subsidiary of Centex pursuant to an unsecured note and related loan agreement. The note bore interest, payable quarterly, at the prime rate of interest of NationsBank plus 7/8%. On May 29, 1998, the outstanding principal balance on the note was repaid. Fiscal year 1998 interest income on the note totaled $732,000. In January 1998, Development purchased all of the stock of a wholly-owned subsidiary of CREC for $1,134,000. The entity acquired indirectly owns real estate development assets with a value of $1,134,000. In fiscal year 1998, CDC sold to Centex Homes certain tracts of land for $6,494,000 and has agreements to purchase an additional 649 lots from CDC. Centex Homes had guaranteed a $5,000,000 bank line of credit for CDC to utilize in conjunction with development of lots to be sold to Centex Homes. This line of credit, which had a balance of $1,500,000 as of March 31, 1998, was repaid and canceled on April 15, 1998. The line of credit bore interest at LIBOR plus 3/4%. CDC owned property in the City of Carrollton, a suburb of Dallas, Texas, which consisted of one office and five fabrication-warehouse buildings situated on approximately 17 acres. CDC leased this property to Centex Homes pursuant to a five-year lease terminating on March 31, 1998. In April 1997, this property was sold to Centex Homes for $2,866,000. During fiscal year 1998, the Partnership Agreement governing CDC was amended to allow for the issuance of Class C Units to be issued in exchange for assets contributed by a limited partner or by an individual or entity who is to be admitted as a limited partner. During the fiscal year, Centex Development contributed assets valued at $7,542,000 to CDC in exchange for 7,542 Class C Units. Subsequent to March 31, 1998 (through May 29, 1998), Centex Development contributed additional assets valued at $7,757,000 in exchange for an additional 7,757 Class C Units. During fiscal year 1998, Centex Multi-Family Company, L.P. ("Multi- Family"), a subsidiary of CDC, executed a construction contract with one of Centex's construction subsidiaries in the amount of $13,167,244 for the construction of a 304-unit apartment project north of Dallas. Multi-Family paid Centex's construction subsidiary $5,907,029 during fiscal year 1998 pursuant to the construction contract. 44 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) and (2) See the Index to Financial Statements below for a list of the Financial Statements filed herewith. INDEX TO FINANCIAL STATEMENTS
HOLDING/CDC 1998 ANNUAL REPORT PAGES ------------ 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. Data incorporated by reference to the Holding/CDC 1998 Annual Report: Report of Independent Public Accountants . . . . . . . . . . . 55 Combining Balance Sheets as of March 31, 1998 and 1997 . . . . 57 Combining Statements of Operations and Cash Flows for the Years Ended March 31, 1998, 1997 and 1996 . . . . 58 Combining Statements of Stockholders' Equity and Partners' Capital for the Years Ended March 31, 1998, 1997 and 1996 . . . . . . . . . . . 59 Notes to Combining Financial Statements . . . . . . . . . . . 59-64 Quarterly Results (Unaudited) . . . . . . . . . . . . . . . . 65
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) EXHIBITS (A) Holding The information on exhibits required by this Item 14 is set forth in the Holding Index to Exhibits appearing on pages 52-53 of this Report. (B) CDC The information on exhibits required by this Item 14 is set forth in the CDC Index to Exhibits appearing on pages 54-57 of this Report. (b) Reports on Form 8-K: Neither Holding nor CDC filed any reports on Form 8-K during the quarter ended March 31, 1998. 45 46 FORWARD LOOKING STATEMENT The information contained in this Report and the Holding/CDC 1998 Annual Report filed herewith includes forward looking statements involving a number of risks and uncertainties, including the statements contained under the heading "Competition and Regulation" on page 31 and "Year 2000 Conversion" on page 34. Forward looking statements may be identified by the context of the statement and generally arise when the Holding/CDC is discussing its beliefs or expectations. In addition to the factors discussed elsewhere in this document, other determinants that could cause actual results to differ include increases in short- and/or long-term interest rates or a change in the relationship between short- and long-term interest rates; business conditions; growth in the investment real estate industry in the local markets which Holding/CDC conducts business and in the economy in general: competitive factors and governmental regulation. 46 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 June 22, 1998 By: /s/ RICHARD C. DECKER --------------------------------------- Richard C. Decker, Director,President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. June 22, 1998 /s/ RICHARD C. DECKER --------------------------------------- Richard C. Decker, Director, President and Chief Executive Officer (principal executive officer) June 22, 1998 /s/ KIMBERLY A. PINSON --------------------------------------- Kimberly A. Pinson, Vice President, Treasurer, Controller and Assistant Secretary (principal financial officer and principal accounting officer) Directors: J. Stephen Bilheimer, Josiah O. Low, III and David M. Sherer June 22, 1998 By: /s/ J. STEPHEN BILHEIMER --------------------------------------- J. Stephen Bilheimer, Individually and as Attorney-in-Fact* - --------------- *Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 47 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 June 22, 1998 By: /s/ RICHARD C. DECKER --------------------------------------- Richard C. Decker, Director, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of 3333 Development Corporation, as general partner of, and on behalf of, the registrant in the capacities and on the dates indicated. June 22, 1998 /s/ RICHARD C. DECKER --------------------------------------- Richard C. Decker, Director, President and Chief Executive Officer (principal executive officer) June 22, 1998 /s/ KIMBERLY A. PINSON --------------------------------------- Kimberly A. Pinson, Vice President, Treasurer, Controller and Assistant Secretary (principal financial officer and principal accounting officer) Directors: J. Stephen Bilheimer, Josiah O. Low, III and David M. Sherer June 22, 1998 By: /s/ J. STEPHEN BILHEIMER --------------------------------------- J. Stephen Bilheimer, Individually and as Attorney-in-Fact* - --------------- *Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 48 49 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------- ------- ------------------------- 3.1 Restated Articles of Incorporation of Exhibit 4.1 to Joint Registration Centex. Statement of Centex Corporation ("Centex"), 3333 Holding Corporation ("Holding") and Centex Development Company, L.P. ("CDC") on Form S-8 filed with the Securities and Exchange Commission (the "Commission") on June 1, 1998 (the "1998 Form S-8") 3.2 By-laws of Centex. Exhibit 3.2 to Annual Report on Form 10-K of Centex (File No. 1-6776) for fiscal year ended March 31, 1993 ("Centex 1993 Form 10-K") 4.1 Specimen Centex common stock certificate Exhibit 4.3 to Joint Registration (with tandem trading legend and Rights Statement of Centex, Holding and CDC, on Agreement legend). Form S-8 filed with the Commission on June 2, 1997 (the "1997 Form S-8") 4.2 Nominee Agreement, dated November 30, Exhibit 4.2 to Centex 1993 Form 10-K 1987, by and between Centex, Holding and CDC, and Chemical Bank, as successor nominee. 4.3 Agreement for Purchase of Warrants, dated Exhibit 4.3 to Centex 1993 Form 10-K as of November 30, 1987, by and between Holding and Centex. 4.4 Rights Agreement, dated as of October 2, Exhibit 1 to Form 8-A Registration 1996, between Centex and ChaseMellon Statement of Centex dated October 2, 1996 Shareholder Services, LLC, as rights agent. 4.5 Instruments with respect to long-term debt Not Applicable which do not exceed 10% of the total assets of Centex and its subsidiaries have not been filed. Centex agrees to furnish a copy of such instruments to the Commission upon request.
49 50 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES--CONTINUED
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 10.1 Centex Corporation Stock Option Plan, as Exhibit 10.1 to Centex 1993 Form 10-K amended.* 10.2 Centex Corporation 1987 Stock Option Plan, Exhibit 4.7 to the 1997 Form S-8 as amended.* 10.3 Centex Corporation 1998 Stock Option Plan Exhibit 4.7 to the 1998 Form S-8 10.4 Credit Agreement, dated as of May 1, 1987, Exhibit 10.2 to Amendment No. 3, dated by and between Holding and Centex and November 24, 1987, to Registration related (i) Promissory Note, dated May 1, Statement of Holding on Form 10 (File No. 1987, executed by Holding and payable to 1-9624), dated July 12, 1987 the order of Centex in the principal amount of $7,700,000 and (ii) Pledge and Security Agreement, dated as of May 1, 1987, executed by Holding in favor of Centex. 10.5 Executive Employment Agreement, dated as Exhibit 10.6 to Centex 1993 Form 10-K of September 17, 1990, between Centex and Laurence E. Hirsch.* 10.6 Executive Employment Agreement, dated as Exhibit 10.7 to Centex 1993 Form 10-K of January 18, 1991, between Centex and David W. Quinn.* 10.7 Termination of Employment and Consulting Filed Herewith. Agreement, dated as of December 4, 1997, between Centex and William J Gillilan III.* 10.8 Centex Corporation $2,000,000 Subordinated Exhibit 10.8 to Centex 1995 Form 10-K Convertible Note issued to Laurence E. Hirsch on March 1, 1995.* 10.9 Supplemental Executive Retirement Plan of Exhibit 10.9 to Centex 1995 Form 10-K Centex Corporation.* 13 Portions of Centex 1998 Annual Report and Filed Herewith. Holding/CDC 1998 Annual Report.** 21.1 List of Subsidiaries of Centex. Filed Herewith.
50 51 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES--CONTINUED
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 23 Consent of Independent Public Accountants. Filed Herewith. 24.1 Powers of Attorney. Filed Herewith. 27.1 Financial Data Schedule. Filed Herewith.
- ------------------ * Management contract or compensatory plan or arrangement. ** With the exception of the information expressly incorporated by reference in this Report from the Centex 1998 Annual Report and the Holding/CDC 1998 Annual Report, these two annual reports are not deemed filed with the Commission as part of this Report. 51 52 INDEX TO EXHIBITS 3333 HOLDING CORPORATION AND SUBSIDIARY
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 3.1 Articles of Incorporation of Holding. Exhibit 3.2a to Amendment No. 1, dated October 14, 1987 ("Amendment No. 1"), to the Registration Statement of Holding on Form 10 (File No. 1-9624), dated July 12, 1987 (the "Holding Registration Statement") 3.2 By-laws of Holding, as amended. Exhibit 3.2 to Annual Report on Form 10-K of Holding (File No. 1-9624) for fiscal year ended March 31, 1993 (the "Holding Form 10-K") 4.1 Specimen Holding common stock Exhibit 4.1 to Amendment No. 1 certificate. 4.2 Specimen Centex common stock certificate Exhibit 4.3 to 1997 Form S-8 (with tandem trading legend and Rights Agreement legend). 4.3 Nominee Agreement, dated as of November Exhibit 4.3 to Holding Form 10-K 30, 1987, by and between Centex, Holding and CDC, and Chemical Bank, as successor nominee. 4.4 Agreement for Purchase of Warrants, dated Exhibit 4.4 to Holding Form 10-K as of November 30, 1987, by and between Holding and Centex. 10.1 Services Agreement, dated as of May 5, Exhibit 10.1 to Amendment No. 3, dated 1987, by and between Holding and Centex November 24, 1987 ("Amendment No. 3"), to Service Company. the Holding Registration Statement 10.2 Credit Agreement, dated as of May 1, 1987, Exhibit 10.2 to Amendment No. 3 by and between Holding and Centex and related (i) Promissory Note, dated May 1, 1987, executed by Holding and payable to the order of Centex in the principal amount of $7,700,000 and (ii) Pledge and Security Agreement, dated as of May 1, 1987, executed by Holding in favor of Centex.
52 53 INDEX TO EXHIBITS 3333 HOLDING CORPORATION AND SUBSIDIARY--CONTINUED
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 10.3 Credit Agreement, dated as of May 1, 1987, Exhibit 10.3 to the Holding Registration by and between 3333 Development Statement Corporation ("Development") and Centex Real Estate Corporation ("CREC") and related Promissory Note, dated May 1, 1987, executed by Centex International, Inc. (as assignee), payable to the order of Development in the principal amount of $7,700,000. 10.4 Management Agreement by and between Filed Herewith. Holding and CDC dated as of April 1, 1994. 10.5 Amendment No.1 to Management Agreement by Filed Herewith. and between CDC and Holding dated as of October 1, 1996. 13 Portions of Centex 1998 Annual Report and Exhibit 13 of Centex Exhibits filed Holding/CDC 1998 Annual Report.* herewith 21.2 Subsidiaries of Holding. Filed Herewith. 23 Consent of Independent Public Accountants. Exhibit 23 of Centex Exhibits filed herewith 24.2 Powers of Attorney. Filed Herewith. 27.2 Financial Data Schedule. Filed Herewith.
- ------------- * With the exception of the information expressly incorporated by reference in this Report from the Centex 1998 Annual Report and the Holding/CDC 1998 Annual Report, these two annual reports are not deemed filed with the Commission as part of this report. 53 54 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 2.1 Option Agreement, dated as of November 3, Exhibit 2.1 to Centex 1994 Form 10-K 1988, by and between CDC and Estrella Properties, Ltd. 2.2 Additional Interest Agreement, dated March Exhibit 2.2 to Centex 1994 Form 10-K 30, 1989, by and between CDC and Westinghouse Credit Corporation. 2.3 Construction Loan Agreement, dated March Exhibit 2.3 to Centex 1994 Form 10-K 30, 1989, by and among Westinghouse Credit Corporation and CDC. 2.4 Forster Ranch Development Agreement, dated Exhibit 2.4 to Centex 1994 Form 10-K March 31, 1989, by and between the City of San Clemente, California and CDC. 3.1 Articles of Incorporation, as amended, of Exhibit 3.2a to Amendment No. 1, dated Development as currently in effect. October 14, 1987 ("CDC Amendment No. 1"), to the Registration Statement of CDC on Form 10 (File No. 1-9625), dated July 12, 1987 (the "CDC Registration Statement") 3.2 By-laws of Development, as amended. Exhibit 3.2 to Annual Report on Form 10-K of CDC (File No. 1-9625) for fiscal year ended March 31, 1993 (the "CDC Form 10-K") 4.1 Certificates of Limited Partnership of Exhibit 4.1 to the CDC Registration CDC. Statement 4.2 Second Amended and Restated Agreement of Exhibit 4.4 to 1998 Form S-8 Limited Partnership of CDC. 4.3 Specimen certificate for Class A limited Exhibit 4.3 to the CDC Registration partnership units. Statement 4.4 Specimen certificate for Class B limited Exhibit 4.4 to the CDC Registration partnership units. Statement 4.5 Specimen certificate for Class C limited Exhibit 4.7 to 1998 Form S-8 partnership units.
54 55 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.--CONTINUED
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 4.6 Warrant Agreement, dated as of November Exhibit 4.5 to CDC Form 10-K 30, 1987, by and between CDC and Centex. 4.7 Specimen warrant certificate. Exhibit 4.6 to CDC Amendment No. 3 4.8 Specimen Centex common stock certificate Exhibit 4.3 to 1997 Form S-8 (with tandem trading legend and Rights Agreement legend). 4.9 Nominee Agreement, dated as of November Exhibit 4.8 to CDC Form 10-K 30, 1987, by and between Centex, Holding and CDC, and Chemical Bank, as successor nominee. 4.10 Agreement for Purchase of Warrants, dated Exhibit 4.9 to CDC Form 10-K as of November 30, 1987, by and between CDC and Centex. 4.11 Form of Operating Partnership Agreement. Exhibit 4.9 to the CDC Registration Statement 10.1 Management Agreement, dated as of April 1, Exhibit 10.4 of Holding Exhibits 1994, by and between CDC and Holding. filed herewith 10.2 Amendment No. 1 to Management Agreement, Exhibit 10.5 of Holding Exhibits dated as of October 1, 1996, by and filed herewith between CDC and Holding. 10.3 Documents of Conveyance of Property from Exhibit 10.2 to CDC Amendment No. 1 Centex Land Corporation to CDC. 10.4 Documents of Conveyance of Property from Exhibit 10.3 to the CDC Registration Centex Homes Corporation to CDC. Statement 10.5 Documents of Conveyance of Property from Exhibit 10.4 to the CDC Registration Fox & Jacobs, Inc. to CDC. Statement 10.6 Documents of Conveyance of Property from Exhibit 10.5 to the CDC Registration Great Lakes Development Co., Inc. to CDC. Statement 10.7 Agreement, dated as of April 1, 1987, by Exhibit 10.6 to the CDC Registration and among CDC, CREC, Centex Homes Statement Corporation and Centex Land Company.
55 56 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.--CONTINUED
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 10.8 Agreement, dated as of April 1, 1987, by Exhibit 10.7 to the CDC Registration and between CDC and Centex Homes of New Statement Jersey, Inc. 10.9 Waiver Agreement, dated as of July 28, Exhibit 10.9 to Annual Report on Form 10- 1995, by and between CDC, CREC and K of CDC (File No. 1-9625) for the fiscal Development. year ended March 31, 1996 (the "1996 CDC 10-K") 10.10 Waiver Agreement, dated as of September Exhibit 10.10 to 1996 CDC 10-K 13, 1995, but effective as of July 1, 1995, by and between CDC, CREC and Development. 10.11 Waiver Agreement, dated as of September Exhibit 10.11 to 1996 CDC 10-K 27, 1995, but effective as of July 1, 1995, by and between CDC, CREC and Development. 10.12 Waiver Agreement, dated as of December 31, Exhibit 10.12 to 1996 CDC 10-K 1995, by and between CDC, CREC and Development. 10.13 Waiver Agreement, dated as of March 29, Exhibit 10.13 to 1996 CDC 10-K 1996, by and between CDC, CREC and Development. 10.14 Waiver Agreement, dated as of January 8, Exhibit 10.14 to 1996 CDC 10-K 1996, but effective as of January 1, 1996, by and between CDC, CREC and Development. 10.15 Waiver Agreement, dated as of June 30, Filed Herewith. 1996, by and between CDC, CREC and Development. 10.16 Waiver Agreement, dated as of September Filed Herewith. 30, 1996, by and between CDC, Centex Homes, 2728 Holding Corporation ("2728 Holding") and Development. 10.17 Waiver Agreement, dated as of March 31, Filed Herewith. 1997, by and between CDC, Centex Homes, 2728 Holding and Development. 13 Portions of Centex 1998 Annual Report and Exhibit 13 of Centex Exhibits filed Holding/CDC 1998 Annual Report.* herewith
56 57 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.--CONTINUED
EXHIBIT FILED HEREWITH OR NUMBER EXHIBIT INCORPORATED BY REFERENCE ------ ------- ------------------------- 23 Consent of Independent Public Accountants. Exhibit 23 of Centex Exhibits filed herewith 24.3 Powers of Attorney. Filed Herewith. 27.3 Financial Data Schedule. Filed Herewith.
- ------------- * With the exception of the information expressly incorporated by reference in this Report from the Centex 1998 Annual Report and the Holding/CDC 1998 Annual Report, these two annual reports are not deemed filed with the Commission as part of this report. 57 EX-10.4 2 MANAGEMENT AGREEMENT BETWEEN HOLDING & CDC 1 EXHIBIT 10.4 MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT (this "Agreement"), made and entered into as of April 1, 1994, by and between CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership (the "Partnership"), and 3333 Holding Corporation, a Nevada corporation ("Manager"); W I T N E S S E T H: WHEREAS, the Partnership was formed for the purpose of engaging in commercial and residential real estate development and related activities; and WHEREAS, the Partnership desires to engage the services of Manager to operate, manage and develop the Partnership's real estate and for certain other purposes, and Manager desires to accept such engagement, upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Partnership and Manager do hereby agree as follows: 1. Term of Agreement. The initial term of this Agreement shall extend from the date hereof to the close of business on March 31, 1995, provided that this Agreement shall continue thereafter for successive one-year terms unless written notice to the Partnership prior to March 31 of any year, and, provided further, that this Agreement may be sooner terminated in accordance with the provisions of Section 15 hereof. Notwithstanding anything in this Agreement to the contrary, except subsections (b), (c) and (d) of Section 15 hereof, the Partnership may not terminate this Agreement prior to the latest of: (a) the date of Detachment of the Warrants (following which no Warrants remain in the Deposit Account) pursuant to Section 8.3(b) of that certain Nominee Agreement (the "Nominee Agreement") dated July 15, 1987, by and between Centex Corporation, a Nevada corporation of which Manager is a subsidiary ("Centex Corporation"), the Partnership and certain other parties. As used in this subsection (a), capitalized terms shall have the meanings assigned to them in the Nominee Agreement; (b) the date of Payout, as that term is defined in Article II of that certain Amended and Restated Agreement of Limited Partnership of Centex Development Company, L.P. ("the Partnership Agreement"), dated March 31, 1987, pursuant to which the Partnership was established; and -1- 2 (c) the date on which Centex Corporation shall have received full payment from 3333 Holding Corporation, a Nevada corporation, of the obligation evidenced by the Note, as that term is defined in Section 1.1 of that certain Credit Agreement dated May 1, 1987, by and between such corporations. 2. Management Services. Unless the Partnership shall instruct it otherwise, Manager shall perform the services hereinafter described in this Section 2 with respect to all real estate and improvements thereon now or hereafter owned or controlled by the Partnership (the "Properties"). (a) Development of the Properties. Enhancement of Value of the Properties. Manager shall use reasonable efforts to protect and enhance the value of the Properties. Such efforts shall include, but not be limited to, efforts to obtain the release of any encumbrances on the Properties at the expense of the Partnership, to ensure that all utilities are available to the Properties (including making arrangements for the granting of all necessary easements), to obtain favorable changes in zoning and land use regulations and, if appropriate, to cause the Properties to be properly platted in the records of appropriate governmental authorities and to obtain map approval from such authorities. Development. In the event that the Partnership shall determine to develop the Properties in any respect, Manager shall perform such services and take such actions as may be necessary or proper for the efficient development of the Properties as contemplated by the Partnership, including but not limited to the hiring, discharge and supervision, in the name of the Partnership, of independent contractors and consultants and the purchase of all materials, equipment, tools, appliances, supplies and services necessary for such development, subject to such guidelines and limitations as may be established by the Partnership. Manager shall perform such additional services and take such additional actions in connection with the development of the Properties as the Partnership may from time to time direct. Implementation of Business Plan. The Partnership hereby delegates to Manager full authority (1) to take all actions necessary to carry out -2- 3 and perform on behalf of the Partnership the Plan for Original Properties of the Partnership set forth in Exhibit A to the Partnership Agreement with respect to the Properties heretofore contributed to the Partnership by certain affiliates of Centex Corporation and (2) to take actions similar to those contemplated by, and to accomplish the purposes stated in, such Plan with respect to the Properties not heretofore contributed to the Partnership. (b) General. Bookkeeping and Accounting. Manager shall keep books, accounts and records that reflect accurately and in reasonable detail all revenues received and all expenditures incurred in connection with the operation, management and development of the Properties and shall provide any additional accounting and clerical services that the Partnership may deem necessary or desirable for the efficient operation, management and development of the Properties. The books, accounts and records shall be maintained at the principal place of business of Manager. Manager shall, during regular business hours, make such books, accounts and records available to the Partnership or the representatives of the Partnership for examination. Within forty-five (45) days after the end of each calendar quarter, beginning with the quarter ending June 30, 1994, Manager shall prepare and deliver to the Partnership a detailed statement of revenues received and expenditures incurred or paid during the calendar quarter in connection with the operation, management and development of the Properties. Within ninety (90) days after the end of each calendar year, Manager shall prepare and deliver to the Partnership a detailed statement of revenues received and expenditures incurred or paid during the calendar year in connection with the operation, management and development of the Properties. Manager shall furnish such additional information as may be reasonably requested by the Partnership from time to time with respect to the financial, physical or operational condition of the Properties. All bookkeeping, clerical and other general and administrative expenses (including but not limited to costs of office supplies and equipment, data processing services, postage, transportation for managerial -3- 4 personnel and telephone services) shall be borne by Manager out of its own funds. Notwithstanding the foregoing, the portion of the bookkeeping, clerical and other general and administrative expenses that is reasonably allocable to the performance by Manager of its duties and obligations under this Agreement shall be borne by the Partnership and shall be paid by Manager out of the funds held in the Account (as defined in Section 10 hereof). Employment. Manager shall hire, discharge and supervise the work of all management, clerical, operating and other employees necessary for the efficient operation, management and development of the Properties and for the performance of any additional duties and obligations that Manager may be required to perform under this Agreement. All such employees shall be employees of Manager, subject to its sole discretion and control, and Manager shall pay the salaries of all such employees out of its own funds. It shall be the duty and responsibility of Manager to prepare and file all forms for withholding taxes, unemployment insurance, workers' compensation and social security taxes and all other forms required by federal, state or municipal authorities in connection with its employees employed in the operation, management and development of the Properties. Taxes. Manager shall pay out of funds held in the Account all real property and other taxes levied and assessed against the Properties and prepare and file all necessary returns and statements in connection therewith. Any fees or penalties assessed against the Properties or against the Partnership because of Manager's failure to timely pay any taxes shall be borne by the Partnership and paid by Manager out of the funds held in the Account, unless such failure by Manager constitutes gross negligence or willful or wanton misconduct, in which event Manager shall pay such fees or penalties out of its own funds. Permits and Statutory Compliance. Manager shall operate, manage and develop the Properties in full compliance with all applicable laws and regulations of federal, state, county and municipal authorities and shall obtain and maintain, in the name of the Partnership, all permits and licenses required in connection with the operation, management and development -4- 5 of the Properties. Manager shall take such actions as may be necessary to comply promptly with any and all governmental orders or other requirements affecting the Properties, whether imposed by federal, state, county or municipal authority; provided, however, that Manager shall take no such actions so long as the Partnership is contesting, or has expressed its intention to contest, any such order or requirement. Manager shall promptly notify the Partnership in writing of all notices it receives regarding such orders or requirements. Maintenance. Manager shall maintain and repair the Properties in accordance with sound management practices and local codes. Manager is authorized to purchase all materials, equipment, tools, appliances, supplies and services necessary to the proper physical maintenance and repair of the Properties. Notwithstanding the foregoing, Manager shall not, except in accordance with subsections (a)(ii) and (a)(iii) of this Section 2 or with the prior written consent of the Partnership, (1) make any capital addition or improvement requiring the expenditure of funds in excess of $500,000 during any three-month period or (2) purchase any materials, equipment, tools, appliances, supplies or services in connection with the maintenance and repair of the Properties requiring an expenditure in excess of $100,000 in any one instance, except for expenditures for emergency repairs in circumstances involving manifest danger to persons or property. Manager shall inform the Partnership of any such emergency repairs as promptly as possible. Collection of Income: Legal Actions. Manager shall use its best efforts to collect all income produced by the Properties or the operation thereof when such income becomes due. It is understood, however, that Manager does not guarantee the collection of such income. Manager shall, in the name and at the expense of the Partnership, execute and serve such notices and demands as Manager may deem necessary or proper, and institute, prosecute, settle or compromise any legal actions that may be necessary, to enforce the collection of such income. Manager shall, in the name and at the expense of the Partnership, institute, prosecute, settle or compromise any other legal actions and make use of any methods of legal process that may be necessary in connection with the operation, management or development of the Properties, including any legal action necessary to -5- 6 recover possession of any part of the Properties and protect the rights and interest of the Partnership in the Properties. Manager shall promptly inform the Partnership of any such legal action or use of legal process, and of any claim asserted by any party affecting the rights and interest of the Partnership in the Properties. Notwithstanding the foregoing provisions of this subsection (b)(vi), Manager shall not settle or compromise any legal action or controversy, or make any adjustment of any matters involved therein, without the prior written consent of the Partnership, unless such settlement, compromise or adjustment involves an amount not exceeding $100,000. Additional Duties. In addition to the foregoing, manager shall perform all services that are necessary or proper for the efficient operation and management of the Properties, and shall report to the Partnership promptly any conditions concerning the Properties that, in the opinion of Manager, require the attention of the Partnership. 3. Additional Services. Manager shall provide such additional tax, accounting, bookkeeping, clerical, financial reporting, legal and similar services to the Partnership (whether or not in connection with the operation, management or development of the Properties) as may from time to time be requested by the Partnership. 4. Authority of Manager to Act on General Instructions. The authority granted to Manager by the terms of this Agreement, or by the Partnership as contemplated by this Agreement, shall be deemed to include the authority to take, without further authorization from the partnership, such specific actions as may be reasonably necessary or appropriate in connection with the performance by Manager of its duties and obligations under this Agreement and the carrying out of the instructions given to it by the Partnership in accordance with this Agreement, notwithstanding the fact that such actions may not have been specifically authorized by the provisions of this Agreement or by the Partnership. 5. Power of Attorney. The undersigned general partner of the Partnership hereby (a) constitutes and appoints Manager as its attorney-in-fact, with full power and authority to take, in the name and on behalf of the Partnership, any and all actions that Manager is required or permitted to take on behalf of the Partnership under this Agreement and with respect to the Properties, and (b) authorizes Manager to designate from time to time by resolution of Manager's Board of Directors such of the officers, employees and agents (including the appropriate divisional managers) of Manager who shall be authorized to take -6- 7 such actions in the name and on behalf of Manager, as attorney-in-fact for the undersigned general partner of the Partnership. The foregoing power of attorney may be filed and recorded by Manager or by its authorized officers, employees and agents in such counties or other jurisdictions as Manager or such persons may deem necessary or appropriate. In addition, the undersigned general partner of the Partnership agrees to execute from time to time such additional written powers of attorney as Manager and its authorized officers, employees and agents shall deem necessary or appropriate to carry out the purposes of the foregoing power of attorney and this Agreement. The power of attorney granted by the Partnership to Manager pursuant to this Section 5 and each subsequently issued power of attorney, if any, shall be irrevocable and deemed to be coupled with an interest, and shall remain in full force and effect until a revocation thereof is filed of record in each county in which such power of attorney is effective. 6. Use of Affiliates. Manager shall have the right to hire any affiliate of Manager to perform any services in connection with the operation, management or development of the Properties, provided, however, that the fees paid to any affiliate of Manager for such services shall be competitive with fees charged by nonaffiliate entities providing the same or similar services in the area. 7. Liability of Manager. Manager shall not be liable, responsible or accountable in damages or otherwise to the Partnership for any act performed by Manager on behalf of the Partnership and in a manner reasonably believed by Manager to be within the scope of the authority granted to it by this Agreement and in the best interests of the Partnership, provided that Manager was not guilty of gross negligence or willful or wanton misconduct with respect to such act. 8. Indemnification. The Partnership shall indemnify, save harmless and defend Manager and each of Manager's shareholders, directors, officers, employees, agents, attorneys, insurers and any affiliate of Manager hired or authorized by Manager pursuant to the terms of this Agreement to perform any services in connection with the operation, management or development of the Properties (individually, and "Indemnitee") against any and all losses, damages, liabilities, judgments, fines, penalties, amounts paid in settlement and expenses (including reasonable attorneys' fees), including losses, damages, liabilities, judgments, fines, penalties, amounts paid in settlement and expenses (including reasonable attorneys' fees) incurred as the result of the negligence of any Indemnitee, arising out of or in connection with anything done or omitted by such Indemnitee in connection with the performance by Manager of its duties and obligations under this agreement, provided that such Indemnitee's conduct did not constitute gross negligence or willful or wanton misconduct. -7- 8 Any indemnification hereunder shall be made only out of the assets of the Partnership. To the extent that the funds held in the Account are adequate therefor, any payments that the Partnership is required to make under this Section 8 may, at the direction of the Partnership, be made out of such funds by Manager on behalf of the Partnership. In no event may any Indemnitee subject the limited partners of the Partnership to personal liability by reason of the indemnification provisions of this Section 8. The terms of this Section 8 shall survive, and remain in effect following, the termination of this Agreement. 9. Working Capital. The Partnership at all times shall provide Manager with working capital, whether by way of cash or through bank credit, sufficient to constitute normal working capital for the uninterrupted and efficient operation, management and development of the Properties and the performance of any additional duties and obligations that Manager may be required to perform under this agreement. 10. Bank Account: Payment of Costs and Expenses. All monies received by Manager for or on behalf of the Partnership shall be deposited in a special account (the "Account") to be maintained by Manager in such bank or other financial institution as Manager shall determine. All funds received by Manager from the Partnership pursuant to Section 9 hereof shall be deposited into the Account. Funds held by Manager for the Partnership's account shall in no event be commingled with Manager's own funds or with funds held by Manager for the account of any other party, and all funds held by Manager for the Partnership's account shall be trust funds in the hands of Manager. Manager shall make available to the Partnership upon its request all records relating to the Account in the possession of Manager. Except as otherwise provided in subsections (b)(i), (b)(ii) and (b)(iii) of Section 2 hereof, and subject to the limitations set forth in subsection (b)(v) of Section 2 and in Sections 6, 7 and 8 hereof, all reasonable costs and expenses incurred by Manager in connection with the performance of its duties and obligations under this Agreement shall be borne exclusively by the Partnership and shall be paid by Manager out of the funds held in the Account. If Manager reasonably determines that the funds held in the Account are inadequate for the efficient performance of its duties and obligations under this Agreement, it shall so inform the Partnership and the Partnership shall provide promptly such additional funds as may be necessary for such purpose. Manager shall remit to the Partnership, on or before the 10th day of each month, all funds held in the Account and not applied to the payment of costs and expenses as provided in this Agreement, provided, however, that Manager shall retain in the Account such -8- 9 reserves as it may deem necessary or appropriate for working capital and the payment of taxes, assessments, debt service, insurance premiums, repairs, refundable deposits and other contingencies. If the Partnership determines and informs Manager at any time that the funds held in the Account are excessive, after taking into account such reserves as Manager shall have determined to retain in the Account pursuant to the immediately preceding sentence, Manager shall deliver promptly such excess funds to the Partnership. Manager shall submit invoices to the Partnership on a monthly basis setting forth in reasonable detail the costs and expenses, including the fees and charges of independent contractors or consultants. 11. Reimbursement of Manager. Manager shall in no event be required to advance any of its own funds for the payment of the costs and expenses that it is authorized by Section 10 hereof to pay out of the funds held in the Account. If, however, Manager shall at any time advance any of its own funds in payment of such costs and expenses (which Manger shall have the right but not the obligation to do), Manager may submit an invoice to the Partnership for the amount of such advance (which invoice shall describe in reasonable detail the costs and expenses so paid by Manager and shall be accompanied by the receipt(s) for such payment), and the Partnership shall pay such amount to Manager within ten (10) days after its receipt of such invoice and accompanying receipts. If the Partnership fails to make such payment within such ten (10)- day period, the amount so owing by the Partnership to Manager shall bear interest from and after the day on which Manager paid such costs and expenses on behalf of the Partnership until such amount has been paid in full at a rate equal to the lesser of the prime rate announced or published by NationsBank of Texas, N.A. (or its successor) from time to time or the maximum rate of interest permitted under applicable law. 12. Insurance. Manager may (but shall not be obligated to) maintain, at the expense of the Partnership, a program of insurance approved by the Partnership, which program may include, without limitation, such insurance as Manager shall deem prudent to protect against liability of Manager that may be occasioned by its activities under this Agreement. Manager shall not make any material change in such program of insurance without the prior written consent of the Partnership (which consent shall not be unreasonably withheld or delayed), unless such change does not result in an increase in the potential liability of the Partnership in any respect. Unless otherwise specifically authorized by the Partnership, Manager shall obtain the insurance authorized by this Section 12 from the insurance carriers that currently provide similar types of insurance coverage to Centex Corporation and its subsidiary corporations, and, to the extent practicable, Manager shall, in lieu of obtaining separate insurance coverage, be added as an -9- 10 insured under the policies constituting the program of insurance maintained by the Partnership (which program, as in effect on the date hereof, is hereby approved by the Partnership for purposes of this Section 12), whether such policies were obtained directly by the Partnership or through Centex Corporation or its subsidiary corporations. Manager shall provide to the Partnership, promptly after obtaining any insurance policy pursuant to this Section 12 (other than a policy under which the Partnership is also an insured), a description, in reasonable detail, of the terms and provisions of such policy. Manager shall give written notice to the Partnership of the expiration or anticipated termination of any insurance policy maintained by Manager in connection with its performance of this Agreement at least fifteen (15) days before such expiration or anticipated termination. Manager shall not be liable to the Partnership or its general partner or to any other person for damages, including consequential damages, for its failure to obtain or maintain adequate insurance coverage. 13. Compensation. (a) Management Fee. Manager shall receive a fee for its services under this Agreement equal to all costs incurred by the Manager in performing this Agreement plus 25% of such cost. To the extent that the funds held in the Account (excluding the amount of the reserves required to be maintained therein and after the payment of all costs and expenses required to be paid therefrom) are adequate therefor, Manager may withhold all or a portion of such fee from the amount remitted each month by Manager to the Partnership pursuant to Section 10 hereof. Manager shall indicate clearly any amounts so withheld on the monthly invoices that it is required by Section 10 hereof to deliver to the Partnership. The Partnership shall deduct the amount so withheld from the fee payable to Manager under this Section 13. (b) Additional Compensation. It is understood that all actions taken by Manager pursuant to the provisions of this Agreement shall be on behalf and for the sole benefit of the Partnership and that Manager shall not be entitled to any compensation for such actions except as expressly provided in this Agreement. Notwithstanding the foregoing, the Partnership shall negotiate with Manager from time to time in good faith regarding the payment by the Partnership to Manager of, and shall pay to Manager, reasonable additional compensation for the efforts taken or to be taken by Manager pursuant to the provisions of this Agreement that the parties agree have resulted or will result in the enhancement of the value of the Properties; provided, however, that any such payments shall be approved in advance by the Board of Directors of 3333 Development Corporation, General Partner of the Partnership. -10- 11 14. Assignment and Subcontracting. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by either party without the prior written consent of the other party hereto. Any consent granted by either party to an assignment by the other party shall not be deemed a consent to any subsequent assignment. Notwithstanding the foregoing, Manager may, without the consent of the Partnership, assign and delegate the performance of and the responsibility for any duties and obligations of Manager hereunder to any corporation, firm, joint venture or partnership fifty percent (50%) or more of whose voting stock (or its equivalent) is owned directly or indirectly by, or which is otherwise controlled by, Centex Corporation. Upon execution of any such assignment and delegation, notice thereof in the form of an executed copy of the document or instrument effecting such assignment and delegation shall be delivered promptly by Manager to the Partnership and Manager shall be released from any further obligation or responsibility under this Agreement for the performance of the duties and obligations so assigned and delegated. 15. Termination. This Agreement may be terminated by any of the following methods: (a) This agreement may be terminated by notice of Manager as provided in Section 1 hereof. (b) This Agreement may be terminated at any time by written agreement of the parties hereto. (c) If the Partnership breaches any of the terms of this Agreement, or if Manager breaches any of the terms of this Agreement and such breach results from either the gross negligence or willful or wanton misconduct of Manager, the other party hereto shall give the breaching party written notice of such breach. If the breaching party fails to remedy the breach within thirty (30) days after receiving such notice, the other party may terminate this Agreement; provided, however, that if at the expiration of such thirty (30) day period the breaching party is diligently using its best efforts to remedy the breach, the other party may not terminate this Agreement on account of such breach during the additional period, not to exceed sixty (60) days, in which the breaching party continues without interruption to use its best efforts to remedy the breach. (d) If either party hereto shall be dissolved and its business terminated, this Agreement shall automatically terminate upon the effectiveness of such dissolution. -11- 12 No termination of this Agreement shall have the effect of terminating Manager's right to collect any amounts owed to it under this Agreement. Within ninety (90) days following the termination of this Agreement, Manager shall deliver to the Partnership the originals of all books, accounts and records in its possession or under its control pertaining to the Properties. The Manager may, at its expense, retain copies of any such documents. 16. Notices. Any notice statement or demand required or permitted to be given under this Agreement shall be in writing and shall be personally delivered, sent by mail, or sent by telegram or telex, confirmed by letter, addressed to the party in the manner and at the address shown below, or at such other address as the party shall have designated in writing to the other party: To the Partnership: Centex Development Company, L.P. c/o 3333 Development Corporation 3333 Lee Parkway Suite 500 Dallas, Texas 75219 Attention: General Partner To Manager: 3333 Holding Corporation 3333 Lee Parkway Suite 500 Dallas, Texas 75219 Attention: President 17. Nature of Relationship. The parties hereto intend that Manager's relationship to the Partnership shall be that of an independent contractor. Nothing contained in this Agreement shall constitute or be construed to be or create a partnership or joint venture between Manager and the Partnership or their successors or assigns, and neither Manager nor any officer or employee of Manager shall be considered at any time to be an employee of the Partnership. 18. Amendments. This Agreement cannot be amended, changed or modified except by another agreement in writing, duly signed by both parties hereto. 19. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. -12- 13 20. Headings. The section headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 21. Governing Law. This agreement shall be construed and interpreted in accordance with the laws of the State of Texas. 22. Severability. Any provision of this Agreement that is prohibited or unenforceable under the laws of any jurisdiction shall be ineffective in such jurisdiction to the extent necessary to render such provision valid and enforceable, and if such provision cannot be rendered valid and enforceable in such jurisdiction by limitation it shall be ineffective therein. The invalidity or unenforceability of any provision of this Agreement shall not render invalid or unenforceable any other provision of this Agreement. IN WITNESS WHEREOF, the Partnership and Manager have duly executed this Agreement as of the day and year first set forth above. CENTEX DEVELOPMENT COMPANY, L.P. By: 3333 Development Corporation, General Partner By: /s/ J.S. BILHEIMER --------------------------------- J.S. Bilheimer, President 3333 HOLDING CORPORATION By: /s/ ROGER D. SEFZIK --------------------------------- Roger D. Sefzik, Vice President -13- 14 STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this 1st day of April, 1994 by J.S. Bilheimer, President of 3333 Development Corporation, a Nevada corporation, on behalf of said corporation acting as general partner of Centex Development Company, L.P., a Delaware limited partnership. /s/ LEIGH ARMSTRONG ------------------------------- Notary Public in and for Dallas County, Texas STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on this 1st day of April, 1994 by Roger D. Sefzik, Vice President of 3333 Holding Corporation, a Nevada corporation, on behalf of said corporation. /s/ LEIGH ARMSTRONG ------------------------------- Notary Public in and for Dallas County, Texas -14- EX-10.5 3 AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT 1 EXHIBIT 10.5 AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT THIS AMENDMENT NO. 1 TO MANAGEMENT AGREEMENT (the "Amendment") is made and entered into as of October 1, 1996, by and between CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership (the "Partnership"), and 3333 Holding Corporation, a Nevada corporation ("Manager"). WITNESSETH: WHEREAS, the Partnership and Manager entered into that certain Management Agreement dated as of April 1, 1994 (the "Management Agreement"); WHEREAS, the Partnership and Manager now desire to amend certain terms of the Management Agreement as set forth in this Amendment, effective as of October 1, 1996; NOW, THEREFORE, in consideration of the premises above and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Partnership and Manager do hereby agree as follows: 1. The first sentence of Section 13(a) of the Management Agreement is hereby deleted in its entirety and replaced with the following: "(a) Management Fee. Manager shall receive a fee for its services under this Agreement equal to all costs incurred by the Manager in performing this Agreement plus $25,000 for each quarter covered by this Agreement, such fee to be payable quarterly." 2. Except as expressly modified and amended by this Amendment, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. CENTEX DEVELOPMENT COMPANY, L.P. By: 3333 Development Corporation, its sole general partner By: /s/ J. STEPHEN BILHEIMER ------------------------------- J. Stephen Bilheimer President 3333 HOLDING CORPORATION By: /s/ KIMBERLY PINSON ------------------------------------ Kimberly Pinson Vice President EX-10.7 4 TERMINIATION OF EMPLOYMENT & CONS. AGREEMENT 1 EXHIBIT 10.7 TERMINATION OF EMPLOYMENT AND CONSULTING AGREEMENT This Termination of Employment and Consulting Agreement (the "Agreement") is made and entered into on December 4, 1997 by and between William J Gillilan III ("Gillilan"), an individual residing in Dallas, Texas, and Centex Corporation ("Centex"), a Nevada corporation, with offices in Dallas, Texas. RECITALS Gillilan has been employed by Centex and its Affiliates (as defined below) in various capacities since 1973; and Centex and Gillilan have agreed that Gillilan's employment by Centex and its Affiliates will end on December 31, 1997; and Centex and Gillilan have agreed that beginning January 1, 1998 Centex will retain Gillilan as a consultant, subject to the terms and conditions of this Agreement. WITNESSETH NOW, THEREFORE, in consideration of the covenants herein set forth, Centex and Gillilan agree as follows: 1. DEFINITIONS. For the purposes of the Agreement, the following definitions shall apply unless the context requires otherwise: a. "Affiliate" shall mean any entity or corporation that controls, is controlled by, or is under common control with Centex Corporation. b. "Consulting Period" shall mean the period beginning on January 1, 1998 and ending on December 31, 1998 (or earlier, as provided below) subject to any mutual extensions thereof. 2. RESIGNATION. Gillilan does hereby resign, effective on the close of business on December 31, 1997, all of his positions and employment with Centex and its Affiliates, including his position as a member of the Board of Directors of Centex 2 Corporation and those Affiliates for which he serves on the Board of Directors, and his position as Chairman of the Centex Housing Group. Effective January 1, 1998 Gillilan shall be appointed as Chairman-Emeritus of the Centex Housing Group. 3. CONSULTING SERVICES AND COMPENSATION. a. Consulting Period: As of January 1, 1998 Gillilan shall be retained by Centex for the Consulting Period. The term of the Consulting Period can be terminated at any point in time for any reason by either party, upon delivery of written notice to the other. The effective date of such termination will be thirty days following the date of delivery of such notice. b. Services During Consulting Period: Gillilan agrees to provide consulting services to Centex and its Affiliates and in exchange therefor Centex and its Affiliates will pay the compensation described below. During the Consulting Period Gillilan will assist Centex from time to time in connection with the homebuilding and real estate operations of Centex and its Affiliates. The primary responsibilities of Gillilan will be to continue to supervise and build the real estate and homebuilding operations of Centex Affiliates in Mexico and to help assess, investigate and develop homebuilding opportunities presented to Centex and its Affiliates in Europe. Further, from time to time Gillilan will assist the Chief Executive Officer of Centex Homes to address homebuilding issues on an as needed basis and will assist Centex and its Affiliates to address manufactured housing issues on an as needed basis. It is understood that Gillilan will not be required to provide consulting services for more than two weeks during any one month period. c. Compensation: Subject to all appropriate deductions for taxes, if any, Gillilan shall receive during the Consulting Period the sum of $10,000 per week (or $2,000 per day if Gillilan does not work on each business day during such week) for any week during which Gillilan provides consulting services at the request of Centex or any of its Affiliates. In addition, the Company will pay for, or reimburse Gillilan, as the case may be, all reasonable costs and expenses incurred by him in the performance of consulting services under this Agreement. As noted above Gillilan, without his consent, will not be required to provide consulting services more than two weeks during any one month period. -2- 3 4. INDEMNIFICATION OF GILLILAN. Centex and its Affiliates will indemnify and defend Gillilan, at Centex' expense, to the full extent allowed by applicable laws of the United States, applicable corporate law of Nevada and the Bylaws of Centex existing at the time Gillilan makes a demand hereunder, against liabilities which Gillilan may incur arising by reason of the fact that he is or was an employee or director of Centex or its Affiliates. In addition, the Indemnification Agreement made July 20, 1989 between Centex and Gillilan remains in full force and effect. Further, Centex and its Affiliates will indemnify and defend Gillilan, at Centex' expense, against all claims and damages which may arise from the performance by Gillilan of consulting services under this Agreement, excluding however claims arising from gross negligence or willful misconduct. 5. EXISTING EMPLOYMENT AGREEMENT AND TERMINATION PAY. Centex and Gillilan are parties to that certain Executive Employment Agreement dated January 18, 1991 which, except as provided below, will terminate as of December 31, 1997. Gillilan and Centex acknowledge and agree that, as provided in Section 9 of said Executive Employment Agreement, Gillilan is entitled to receive his Base Salary (as defined therein) for two years commencing January 1, 1998 at the rate of $425,000 per year. Payments will be made in accordance with the salary payment procedures of Centex during that two year time period. These payments are in addition to whatever consulting payments are made to Gillilan pursuant to Section 3.c above. The terms, provisions and conditions of Section 10 of said Executive Employment Agreement, which addresses trade secrets and non-competition, will survive termination of employment of Gillilan by Centex and its Affiliates and will remain binding upon and enforceable against Gillilan from and after January 1, 1998, upon the terms and conditions provided in said Section 10. Gillilan acknowledges and agrees that, with regard to enforcing the non-competition provisions of Section 10, the termination of his employment with Centex did not result from a Change in Control or Breach of the Executive Employment Agreement by Centex. Further, Section 10.b of the Executive Employment Agreement, which is captioned "Non-Competition," is hereby modified by adding the following thereto: The foregoing non-competition covenant is limited to the business of homebuilding. Further, businesses that are deemed to be "significant competitors" of the Corporation or any of the Corporation's Affiliates or -3- 4 principal divisions are limited to the top ten competitors of the Corporation's principal homebuilding subsidiary on a nationwide basis, as well as the top two homebuilding companies (other than the Corporation or its Affiliates) in the ten largest markets of the Corporation's principal homebuilding subsidiary. These "significant competitors" are listed on Exhibit A attached hereto. In the event that Gillilan dies prior to December 31, 1999, Centex shall make any remaining payments which are due to Gillilan hereunder to the heirs, devisees and legatees of Gillilan, with preference given to the instructions of Gillilan in his will. 6. RELEASE OF CENTEX. In consideration of the foregoing, Gillilan does hereby fully and finally release and forever discharge Centex and its Affiliates, together with all directors, officers, employees and agents of the same, from any and all claims, demands, liability, damages, causes of action, costs and expenses of every kind and nature whatsoever, past, present or future, whether known or unknown, arising out of or relating to his employment by Centex and Affiliates since 1973. The foregoing release does not extend to breaches by Centex of its obligations under this Agreement, nor does it extend to any vested interest Gillilan may have in the Centex Corporation Profit Sharing and Retirement Plan or the Centex Corporation Supplemental Executive Retirement Plan. This release includes, without limiting the generality of the same, all claims, demands and actions under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Civil Rights Act of 1986, and all other federal, state and local statutes, ordinances and regulations regarding employment, discrimination in employment, or the termination of employment, and the common law of the State of California. Gillilan acknowledges that before signing this Agreement they gave him at least twenty-one (21) days to consider it and that he is entitled to revoke the waiver of rights under the Age Discrimination in Employment Act if Centex receives notice of his revocation within seven (7) days after his execution this Agreement and that this Agreement does not become effective or enforceable until this seven-day revocation period has expired without Gillilan revoking his waiver of rights under the Act. 7. CONFIDENTIALITY OF AGREEMENT. Gillilan and Centex understand and agree that the existence and terms of this Agreement are confidential and they will, to -4- 5 the extent reasonably practical, maintain this confidentiality. 8. APPLICABLE LAW. This Agreement shall be governed by and construed in accord with the laws of the State of Texas. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible. 9. BINDING ON SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of Centex and its Affiliates and Gillilan, as well as their respective heirs, personal representatives, successors and assigns. However, except as provided in this Agreement, neither party may assign any rights hereunder nor delegate any duties without the prior written consent of the other, which consent will not be unreasonably withheld, conditioned or delayed. 10. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties respecting the subject matters contained herein and supersedes all other agreements, written or oral, respecting such subject matters. 11. ACKNOWLEDGMENT BY GILLILAN. Gillilan acknowledges that before signing this Agreement he has had adequate opportunity to review it with persons of his choosing, including an attorney, and was advised to do so by Centex so that he would be fully advised of the implications of this Agreement; that he fully understands its terms; that he was not coerced into signing it; and that he has signed it knowingly and voluntarily. 12. NOTICE. Any notice to be given to Centex hereunder shall be deemed sufficient if addressed to Centex in writing and personally delivered or mailed by certified mail to its office at 2728 North Harwood, Dallas, Texas 75201-1516. Any notice to be given to Gillilan hereunder shall be deemed sufficient if addressed to him in writing and personally delivered to him or mailed by certified mail to 6115 Shadycliff Dr., Dallas, TX 75240. Either party may, by notice as aforesaid, designate a different address or addresses. -5- 6 IN WITNESS WHEREOF, the parties hereto executed this Agreement on the day first above written. WITNESS CENTEX CORPORATION /s/ JUDY L. EVANS By: /s/ LAURENCE E. HIRSCH - ------------------------------------------- ---------------------------- Laurence E. Hirsch Chairman & Chief Executive Officer WITNESS /s/ JUDY L. EVANS /s/ WILLIAM J GILLILAN III - ------------------------------------------- ---------------------------- William J Gillilan III -6- 7 Top Ten National Competitors: o Pulte Home Corporation o Ryland Group o Kaufman and Broad o U.S. Home Corporation o NVR o Beazer Homes U.S.A. o Lennar Corporation o Del Webb Corporation o M.D.C. Holdings o Continental Homes Top Two Competitors in Centex's Top Ten Homebuilding Markets: o Dallas/Fort Worth: Highland Homes, David Weekley Homes o Southern California: Lewis Homes, California Pacific o Orlando: Cambridge Homes, Mercedes Homes o Phoenix: Shea Homes, Robinson Homes o D.C. Metro: Washington Homes, Winchester Homes o S.E. Florida: G.L. Homes, Engle Homes o Charlotte: John Wieland Homes, Ryan Homes o Central Valley, CA: Kyle Cantor Homes, Coleman Homes o N. California: Standard Pacific, Shea Homes o Denver: Melody Homes, Oakwood Homes EXHIBIT A EX-10.15 5 WAIVER AGREEMENT JUNE 30, 1996 1 EXHIBIT 10.15 WAIVER AGREEMENT This Waiver Agreement (this "Agreement") dated as of June 30, 1996 by and between Centex Real Estate Corporation ("CREC") and 3333 Development Corporation ("3333 Development"). WHEREAS, 3333 Development is the general partner and CREC is the limited partner of Centex Development Company, L.P. ("CDC"). The Amended and Restated Agreement of Limited Partnership of CDC (the "Partnership Agreement") provides, among other things, that CREC is collectively entitled to receive from CDC an amount equal to 9% per annum cumulative preferred return (the "Preferred Return") on the outstanding difference from time to time between $76 million (the value of the properties initially contributed to CDC by CREC and its predecessors in interest) (the "Capital Contribution") and the aggregate cash distributions previously received by CREC and its predecessors with respect thereto, payments to return the Capital Contributions, and a reduction in the Unrecovered Capital in the Partnership which was done in conjunction with the extension of the detachment date in July 1995. WHEREAS, the Partnership Agreement provides that all payments by CDC to the Limited Partner shall first be applied to the payment of the Preferred Return; and WHEREAS, CREC has agreed to apply payment from CDC as a reduction to the Capital Contribution rather than to Preferred Return; NOW, THEREFORE, for and in consideration of the premises and other good valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The $1.5 million payment made by CDC to CREC on June 30, 1996, shall be applied to reduce the Capital Contribution by that amount. From and after the effective date of such payment, the calculation of Preferred Return payable by CDC shall reflect such reduction in the Capital Contribution. 2. The Partnership Agreement is hereby amended to reflect the foregoing waiver. Except as specifically modified hereby, all terms, provisions and conditions of the Partnership Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto hereby execute and deliver this agreement as of the date first written above. CENTEX REAL ESTATE CORPORATION 3333 DEVELOPMENT CORPORATION By: /s/ RICHARD C. DECKER By: /s/ KIMBERLY A. PINSON - ------------------------------- --------------------------- Name: Richard C. Decker Name: Kimberly A. Pinson Title: President Title: Vice President CENTEX DEVELOPMENT COMPANY, L.P. By: 3333 Development Company, General Partner By: /s/ KIMBERLY A. PINSON - ------------------------------- Name: Kimberly A. Pinson Title: Vice President EX-10.16 6 WAIVER AGREEMENT SEPTEMBER 30, 1996 1 EXHIBIT 10.16 WAIVER AGREEMENT This Waiver Agreement (this "Agreement") dated as of September 30, 1996 by and between Vista Properties Company, a division of Centex Homes ("Vista"), 2728 Holding Corporation f/k/a CREC ("Old CREC"), and 3333 Development Corporation ("3333 Development"). WHEREAS, 3333 Development is the general partner and Vista, a division of Centex Homes, and Old CREC are limited Partners of Centex Development Company, L.P. ("CDC"). The Amended and Restated Agreement of Limited Partnership of CDC (the "Partnership Agreement") provides, among other things, that Old CREC and Vista collectively are entitled to receive from CDC an amount equal to 9% per annum cumulative preferred return (the "Preferred Return") on the outstanding difference from time to time between $76 million (the value of the properties initially contributed to CDC by Old CREC and its predecessors in interest) (the "Capital Contribution") and the aggregate cash distributions previously received by Old CREC and its predecessors with respect thereto, payments to return the Capital Contributions, and a reduction in the Unrecovered Capital in the Partnership which was done in conjunction with the extension of the detachment date in July 1995. WHEREAS, the Partnership Agreement provides that all payments by CDC to the Limited Partner shall first be applied to the payment of the Preferred Return; and WHEREAS, Old CREC and Vista have agreed to apply payment from CDC as a reduction to the Capital Contribution rather than to Preferred Return; NOW, THEREFORE, for and in consideration of the premises and other good valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Each of the $250,000 payments made by CDC to Vista and Old CREC on September 30, 1996, shall be applied to reduce the Capital Contribution by that amount. From and after the effective date of such payment, the calculation of Preferred Return payable by CDC shall reflect such reduction in the Capital Contribution. 2. The Partnership Agreement is hereby amended to reflect the foregoing waiver. Except as specifically modified hereby, all terms, provisions and conditions of the Partnership Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto hereby execute and deliver this agreement as of the date first written above. VISTA PROPERTIES COMPANY 3333 DEVELOPMENT CORPORATION By: /s/ RICHARD C. DECKER By: /s/ KIMBERLY A. PINSON --------------------------------- ---------------------------- Name: Richard C. Decker Name: Kimberly A. Pinson Title: President Title: Vice President CENTEX DEVELOPMENT COMPANY, L.P. By: 3333 Development Company, General Partner By: /s/ KIMBERLY A. PINSON --------------------------------- Name: Kimberly A. Pinson Title: Vice President EX-10.17 7 WAIVER AGREEMENT MARCH 31, 1997 1 EXHIBIT 10.17 WAIVER AGREEMENT This Waiver Agreement (this "Agreement") dated as of March 31, 1997 by and between Vista Properties Company, a division of Centex Homes ("Vista") 2728 Holding Corporation f/k/a CREC ("Old CREC"), and 3333 Development Corporation ("3333 Development"). WHEREAS, 3333 Development is the general partner and Vista, a division of Centex Homes, and Old CREC are limited Partners of Centex Development Company, L.P. ("CDC"). The Amended and Restated Agreement of Limited Partnership of CDC (the "Partnership Agreement") provides, among other things, that Old CREC and Vista collectively are entitled to receive from CDC an amount equal to 9% per annum cumulative preferred return (the "Preferred Return") on the outstanding difference from time to time between $76 million (the value of the properties initially contributed to CDC by Old CREC and its predecessors in interest) (the "Capital Contribution") and the aggregate cash distributions previously received by Old CREC and its predecessors with respect thereto, payments to return the Capital Contributions, and a reduction in the Unrecovered Capital in the Partnership which was done in conjunction with the extension of the detachment date in July 1995. WHEREAS, the Partnership Agreement provides that all payments by CDC to the Limited Partner shall first be applied to the payment of the Preferred Return; and WHEREAS, Old CREC and Vista have agreed to apply payment from CDC as a reduction to the Capital Contribution rather than to Preferred Return; NOW, THEREFORE, for and in consideration of the premises and other good valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Each of the $1 million payments made by CDC to Vista and Old CREC on March 31, 1997, shall be applied to reduce the Capital Contribution by that amount. From and after the effective date of such payment, the calculation of Preferred Return payable by CDC shall reflect such reduction in the Capital Contribution. 2. The Partnership Agreement is hereby amended to reflect the foregoing waiver. Except as specifically modified hereby, all terms, provisions and conditions of the Partnership Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto hereby execute and deliver this agreement as of the date first written above. VISTA PROPERTIES COMPANY 3333 DEVELOPMENT CORPORATION By: /s/ RICHARD C. DECKER By: /s/ KIMBERLY A. PINSON ------------------------------------- ------------------------ Name: Richard C. Decker Name: Kimberly A. Pinson Title: President Title: Vice President CENTEX DEVELOPMENT COMPANY, L.P. By: 3333 Development Company, General Partner By: /s/ KIMBERLY A. PINSON ------------------------------------- Name: Kimberly A. Pinson Title: Vice President EX-13 8 PORTIONS OF CENTEX 1998 ANNUAL REPORT 1 EXHIBIT 13 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Amounts in thousands, except per share data)
For the Years Ended March 31, ------------------------------------------------------------------ 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Revenues $3,975,450 $3,784,991 $3,102,987 $3,277,504 $3,039,709 Earnings Before Income Taxes $ 231,634 $ 163,743 $ 87,786 $ 145,788 $ 135,013 Net Earnings Before Gain on CXP's IPO $ 144,806 $ 106,563 $ 53,365 $ 54,753 $ 85,162 Gain on CXP's IPO, net of tax -- -- -- 37,495 -- ---------- ---------- ---------- ---------- ---------- Net Earnings $ 144,806 $ 106,563 $ 53,365 $ 92,248 $ 85,162 ========== ========== ========== ========== ========== Earnings Per Share - Diluted Before Gain on CXP's IPO $ 2.36 $ 1.80 $ .91 $ .90 $ 1.29 Gain on CXP's IPO, net of tax -- -- -- .61 -- ---------- ---------- ---------- ---------- ---------- Earnings Per Share - Diluted $ 2.36 $ 1.80 $ .91 $ 1.51 $ 1.29 ========== ========== ========== ========== ========== Cash Dividends Per Share $ .135 $ .10 $ .10 $ .10 $ .10 Average Shares Outstanding - Diluted 61,265 59,259 58,582 61,054 65,980 Debt $ 311,538 $ 283,769 $ 408,253 $ 427,381 $ 429,470 Stockholders' Equity $ 991,172 $ 835,777 $ 722,836 $ 668,227 $ 668,659 Book Value Per Share at Year End $ 16.65 $ 14.40 $ 12.72 $ 11.90 $ 10.56
Reflects the two-for-one stock split effective March 2, 1998. Debt represents Centex Corporation's debt with the Financial Services Group reflected on the equity method versus consolidation. See Note A to financial statements. - -------------------------------------------------------------------------------- STOCK PRICES AND DIVIDENDS
YEAR ENDED MARCH 31, 1998 Year Ended March 31, 1997 ---------------------------------------------------------------------------------- PRICE Price --------------------- ------------------------ HIGH LOW DIVIDENDS High Low Dividends -------- -------- --------- --------- --------- --------- QUARTER First $21 7/8 $16 3/4 $.025 $16 3/8 $12 15/16 $.025 Second $29 3/16 $20 9/16 $.035 $16 13/16 $13 1/16 $.025 Third $32 7/16 $28 3/16 $.035 $18 13/16 $15 $.025 Fourth $40 3/4 $29 7/8 $.04 $20 7/8 $17 5/8 $.025
The common stock of Centex Corporation is traded on the New York Stock Exchange (ticker symbol CTX) and The International Stock Exchange (London). The approximate number of record holders of the common stock of Centex Corporation at May 8, 1998 was 2,637. On November 30, 1987, Centex Corporation distributed as a dividend to its stockholders securities relating to Centex Development Company, L.P. (See Note G to the Consolidated Financial Statements of Centex Corporation and Subsidiaries). Since this distribution, such securities have traded in tandem with, and as a part of, the common stock of Centex Corporation. Amounts represent cash dividends per share paid by Centex Corporation on the common stock of Centex Corporation. 3333 Holding Corporation has paid no dividends on its common stock since its incorporation. Reflects the two-for-one stock split effective March 2, 1998. 1 2 FINANCIAL INFORMATION CENTEX CORPORATION AND SUBSIDIARIES Consolidated Revenues and Operating Earnings by Line of Business 18 Statements of Consolidated Earnings 19 Consolidated Balance Sheets 20 Statements of Consolidated Cash Flows 22 Statements of Consolidated Stockholders' Equity 23 Notes to Consolidated Financial Statements 24 Report of Independent Public Accountants 43 Management's Discussion and Analysis of Results of Operations and Financial Condition 44 Quarterly Results 51 Summary of Selected Financial Data 52 CENTEX DEVELOPMENT COMPANY (3333 HOLDING CORPORATION, 3333 DEVELOPMENT CORPORATION, CENTEX DEVELOPMENT COMPANY, L.P.) Letter to Our Stockholders 54 Report of Independent Public Accountants 55 Financial Highlights 56 Combining Balance Sheets 57 Combining Statements of Operations and Cash Flows 58 Combining Statements of Stockholders' Equity and Partners' Capital 59 Notes to Combining Financial Statements 59 Quarterly Results 65 Management's Discussion and Analysis of Results of Operations and Financial Condition 66
17 3 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- CONSOLIDATED REVENUES AND OPERATING EARNINGS BY LINE OF BUSINESS (Dollars in thousands)
For the Years Ended March 31, -------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------- REVENUES Home Building Conventional Homes $ 2,312,045 $ 2,299,592 $ 1,989,929 $ 2,110,735 $ 1,869,754 58% 61% 64% 65% 61% Manufactured Homes 140,621 -- -- -- -- 4% --% --% --% --% Investment Real Estate 25,403 9,032 -- -- -- 1% --% --% --% --% Financial Services 246,278 168,722 129,546 106,841 203,393 6% 5% 4% 3% 7% Construction Products (A) 297,322 239,380 -- -- -- 7% 6% --% --% --% Contracting and Construction Services 953,781 1,068,265 983,512 1,059,928 966,562 24% 28% 32% 32% 32% ------------ ------------ ------------ ------------ ------------ $ 3,975,450 $ 3,784,991 $ 3,102,987 $ 3,277,504 $ 3,039,709 ============ ============ ============ ============ ============ 100% 100% 100% 100% 100% OPERATING EARNINGS Home Building Conventional Homes $ 170,531 $ 144,043 $ 106,695 $ 112,149 $ 95,977 60% 67% 74% 83% 53% Manufactured Homes (B) 8,741 -- -- -- -- 3% --% --% --% --% Investment Real Estate 28,231 17,896 -- -- -- 10% 8% --% --% --% Financial Services 31,371 24,410 17,155 9,399 73,550 11% 12% 12% 7% 41% Construction Products (A) (B) 47,746 32,716 25,628 16,577 16,626 17% 15% 18% 12% 9% Contracting and Construction Services 7,152 (2,183) (4,995) (1,790) (4,500) 2% (1%) (3%) (1%) (2%) Other, net (7,621) (2,260) (866) (1,608) (1,799) (3%) (1%) (1%) (1%) (1%) ------------ ------------ ------------ ------------ ------------ OPERATING EARNINGS 286,151 214,622 143,617 134,727 179,854 100% 100% 100% 100% 100% Corporate General and Administrative 21,261 16,817 14,969 15,253 15,158 Interest 33,256 34,062 40,862 33,014 29,683 ------------ ------------ ------------ ------------ ------------ Earnings Before Gain on CXP's Initial Public Offering and Income Taxes 231,634 163,743 87,786 86,460 135,013 Gain on CXP's Initial Public Offering -- -- -- 59,328 -- ------------ ------------ ------------ ------------ ------------ EARNINGS BEFORE INCOME TAXES $ 231,634 $ 163,743 $ 87,786 $ 145,788 $ 135,013 ============ ============ ============ ============ ============
Applicable segment overhead costs have been deducted from lines of business operating earnings. (A) As a result of Centex Construction Products, Inc.'s (CXP) repurchases of its own stock during the June 30, 1996 quarter, Centex's ownership interest in CXP increased to more than 50%, (55.6% as of March 31, 1998). Accordingly, beginning with the quarter ended June 30, 1996, CXP's financial results have been consolidated with those of Centex and are reflected in Centex's revenues and operating earnings. In order to facilitate comparisons between years, CXP's operating earnings and the related minority interest in CXP have been reclassified to reflect the total amounts for the years ended March 31, 1996, 1995 and 1994. Had CXP's revenues been consolidated for the years ended March 31, 1996, 1995 and 1994, Centex's consolidated revenues for those years would have increased by $222,594, $194,313 and $166,826, respectively. (B) Operating earnings for Manufactured Housing and Construction Products are reflected in this summary net of their respective minority interests. Operating earnings related to those minority interests were $2,678 for Manufactured Housing in 1998. Minority interest for Construction Products was $40,587, $31,690, $26,676 and $17,252 for 1998, 1997, 1996 and 1995, respectively. A small amount of minority interest is reflected in Other, net in 1998. 18 4 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED EARNINGS (Dollars in thousands, except per share data)
For the Years Ended March 31, -------------------------------------------- 1998 1997 1996 -------------------------------------------- REVENUES Home Building Conventional Homes $ 2,312,045 $ 2,299,592 $ 1,989,929 Manufactured Homes 140,621 -- -- Investment Real Estate 25,403 9,032 -- Financial Services 246,278 168,722 129,546 Construction Products(A) 297,322 239,380 -- Contracting and Construction Services 953,781 1,068,265 983,512 ------------ ------------ ------------ 3,975,450 3,784,991 3,102,987 ------------ ------------ ------------ COSTS AND EXPENSES Home Building Conventional Homes 2,141,514 2,155,549 1,883,234 Manufactured Homes 129,202 -- -- Investment Real Estate (2,828) (8,864) -- Financial Services 214,907 144,312 112,391 Construction Products (A) 208,989 174,974 -- Contracting and Construction Services 946,629 1,070,448 988,507 Other, net 7,439 2,260 866 Corporate General and Administrative 21,261 16,817 14,969 Interest 33,256 34,062 40,862 Minority Interest (Equity) 43,447 31,690 (25,628) ------------ ------------ ------------ 3,743,816 3,621,248 3,015,201 ------------ ------------ ------------ EARNINGS BEFORE INCOME TAXES 231,634 163,743 87,786 Income Taxes 86,828 57,180 34,421 ------------ ------------ ------------ NET EARNINGS $ 144,806 $ 106,563 $ 53,365 ============ ============ ============ EARNINGS PER SHARE Basic $ 2.45 $ 1.86 $ .94 ============ ============ ============ Diluted $ 2.36 $ 1.80 $ .91 ============ ============ ============ AVERAGE SHARES OUTSTANDING Basic 59,007,158 57,280,710 56,512,732 Common Share Equivalents Options 1,857,785 1,578,192 1,669,107 Convertible Debenture 400,000 400,000 400,000 ------------ ------------ ------------ Diluted 61,264,943 59,258,902 58,581,839 ============ ============ ============
See notes to consolidated financial statements. (A) As a result of Centex Construction Products, Inc.'s (CXP) repurchases of its own stock during the June 30, 1996 quarter, Centex's ownership interest in CXP increased to more than 50%, (55.6% as of March 31, 1998). Accordingly, beginning with the quarter ended June 30, 1996, CXP's financial results have been consolidated with those of Centex and are reflected in Centex's revenues and operating earnings. Had CXP's revenues been consolidated for the year ended March 31, 1996, Centex's consolidated revenues for that year would have increased by $222,594. 19 5 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
Centex Corporation and Subsidiaries ----------------------------------- March 31, ----------------------------------- 1998 1997 ----------------------------------- ASSETS Cash and Cash Equivalents $ 98,316 $ 31,320 Receivables - Residential Mortgage Loans 1,191,450 632,657 Construction Contracts 207,688 208,847 Trade, including Notes of $12,904 and $19,244 183,203 145,881 Affiliates -- -- Inventories - Housing Projects 970,290 943,054 Land Held for Development and Sale 48,844 26,061 Construction Products 32,537 31,482 Other 12,883 1,162 Investments - Centex Development Company 34,526 32,664 Joint Ventures 7,558 5,277 Unconsolidated Subsidiaries -- -- Property and Equipment, net 295,992 293,143 Other Assets - Deferred Income Taxes 147,607 197,413 Goodwill, net 133,847 103,622 Mortgage Securitization Residual Interest 14,747 -- Deferred Charges and Other 36,731 26,246 ------------ ------------ $ 3,416,219 $ 2,678,829 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 799,154 $ 737,698 Short-term Debt 1,152,873 627,518 Long-term Debt 237,715 236,769 Minority Stockholders' Interest 152,468 142,230 Negative Goodwill 82,837 98,837 Stockholders' Equity - Preferred Stock, Authorized 5,000,000 Shares, None Issued -- -- Common Stock, $.25 Par Value; Authorized 100,000,000 Shares; Issued and Outstanding 59,531,758 and 58,032,178 Shares 14,883 14,508 Capital in Excess of Par Value 36,761 18,553 Retained Earnings 939,528 802,716 ------------ ------------ Total Stockholders' Equity 991,172 835,777 ------------ ------------ $ 3,416,219 $ 2,678,829 ============ ============
See notes to consolidated financial statements. 20 6 Centex Corporation and Subsidiaries - --------------------------------------------------------------------------------
Centex Corporation Financial Services - ------------------------------------------------------------------- March 31, March 31, - ------------------------------------------------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------- $ 87,491 $ 21,679 $ 10,825 $ 9,641 -- -- 1,191,450 632,657 207,688 208,847 -- -- 129,870 122,244 53,333 23,637 -- -- (58,299) (19,985) 970,290 943,054 -- -- 48,844 26,061 -- -- 32,537 31,482 -- -- 12,883 1,162 -- -- 34,526 32,664 -- -- 7,558 5,277 -- -- 146,592 68,171 -- -- 276,008 276,627 19,984 16,516 144,090 195,983 3,517 1,430 123,709 91,442 10,138 12,180 -- -- 14,747 -- 23,730 18,233 13,001 8,013 - -------------- -------------- -------------- -------------- $ 2,245,816 $ 2,042,926 $ 1,258,696 $ 684,089 ============== ============== ============== ============== $ 711,564 $ 685,050 $ 87,590 $ 52,648 73,823 47,000 1,079,050 580,518 237,715 236,769 -- -- 148,705 139,493 3,763 2,737 82,837 98,837 -- -- - -------------- -------------- -------------- -------------- 14,883 14,508 1 1 36,761 18,553 74,944 44,075 939,528 802,716 13,348 4,110 - -------------- -------------- -------------- -------------- 991,172 835,777 88,293 48,186 - -------------- -------------- -------------- -------------- $ 2,245,816 $ 2,042,926 $ 1,258,696 $ 684,089 ============== ============== ============== ==============
In the supplemental data presented above, "Centex Corporation" represents the adding together of all subsidiaries other than those included in Financial Services as described in Note A to the consolidated financial statements. Transactions between Centex Corporation and Financial Services have been eliminated from the Centex Corporation and Subsidiaries balance sheets. 21 7 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in thousands)
For the Years Ended March 31, -------------------------------------------- 1998 1997 1996 -------------------------------------------- CASH FLOWS - OPERATING ACTIVITIES Net Earnings $ 144,806 $ 106,563 $ 53,365 Adjustments - Depreciation, Depletion and Amortization 25,638 13,512 12,499 Deferred Income Taxes 59,181 42,843 (6,542) Equity in Earnings of CDC, Joint Ventures and CXP (1996 only) (3,796) (996) (16,603) Minority Interest 43,447 31,690 -- Increase in Receivables (36,163) (22,834) (42,503) Increase in Residential Mortgage Loans (558,793) (2,901) (215,954) (Increase) Decrease in Inventories (62,795) 99,260 55,463 Increase in Payables and Accruals 61,456 12,833 46,772 Increase in Other Assets, net (72,445) (40,988) (660) Other, net (33,209) 18,526 (436) ------------ ------------ ------------ (432,673) 257,508 (114,599) ------------ ------------ ------------ CASH FLOWS - INVESTING ACTIVITIES (Increase) Decrease in Advances to CDC and Joint Ventures (347) 4,725 11,580 Acquisitions - Cavco, Wallboard Facility and Vista -- (104,894) (85,422) Property and Equipment Additions, net (36,874) (16,137) (7,025) ------------ ------------ ------------ (37,221) (116,306) (80,867) ------------ ------------ ------------ CASH FLOWS - FINANCING ACTIVITIES Increase (Decrease) in Debt - Secured by Residential Mortgage Loans 498,532 5,502 203,607 Other 27,769 (135,804) (19,128) Proceeds from Stock Option Exercises 18,583 12,122 6,903 Dividends Paid (7,994) (5,744) (5,659) ------------ ------------ ------------ 536,890 (123,924) 185,723 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH 66,996 17,278 (9,743) CASH AT BEGINNING OF YEAR 31,320 14,042 23,785 ------------ ------------ ------------ CASH AT END OF YEAR $ 98,316 $ 31,320 $ 14,042 ============ ============ ============
See notes to consolidated financial statements. 22 8 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (Dollars in thousands)
Capital In Excess Preferred Common Of Retained Stock Stock Par Value Earnings Total --------- --------- --------- --------- --------- Balance, March 31, 1995 $ -- $ 14,036 $ -- $ 654,191 $ 668,227 Exercise of Stock Options -- 178 6,725 -- 6,903 Net Earnings -- -- -- 53,365 53,365 Cash Dividends -- -- -- (5,659) (5,659) --------- --------- --------- --------- --------- Balance, March 31, 1996 -- 14,214 6,725 701,897 722,836 Exercise of Stock Options -- 294 11,828 -- 12,122 Net Earnings -- -- -- 106,563 106,563 Cash Dividends -- -- -- (5,744) (5,744) --------- --------- --------- --------- --------- Balance, March 31, 1997 -- 14,508 18,553 802,716 835,777 EXERCISE OF STOCK OPTIONS -- 375 18,208 -- 18,583 NET EARNINGS -- -- -- 144,806 144,806 CASH DIVIDENDS -- -- -- (7,994) (7,994) --------- --------- --------- --------- --------- BALANCE, MARCH 31, 1998 $ -- $ 14,883 $ 36,761 $ 939,528 $ 991,172 ========= ========= ========= ========= =========
See notes to consolidated financial statements. 23 9 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (A) SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Centex Corporation and subsidiaries (Centex or the Company) after the elimination of all significant intercompany balances and transactions. Balance sheet data are presented in the following categories: o Centex Corporation and Subsidiaries. This represents the adding together of Centex Corporation, Financial Services and all of their consolidated subsidiaries. The effects of transactions among related companies within the consolidated group have been eliminated. o Centex Corporation. This information is presented as supplemental information and represents the adding together of all subsidiaries other than those included in Financial Services which are presented on an equity basis of accounting. o Financial Services. This represents Centex Financial Services and subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION Revenues from Home Building projects and Investment Real Estate are recognized as homes and properties are sold and title passes. Earnings from the sale of mortgage servicing rights and from loan origination fees are recognized when the related loan is sold and delivered to third-party purchasers. Long-term Construction contract revenues are recognized on the percentage-of-completion method based on the costs incurred relative to total estimated costs. Full provision is made for any anticipated losses. Billings for long-term construction contracts are rendered monthly, including the amount of retainage withheld by the customer until contract completion. As a general contractor, the Company withholds similar retainages from each subcontractor. Retainages of $65 million included in construction contracts receivable and $63 million included in accounts payable at March 31, 1998 are generally receivable and payable within one year. Claims are recognized as revenue only after management is confident of collection or when agreement has been reached with the customer. Notes receivable at March 31, 1998 are collectible primarily over two years with $7.7 million being due within one year. The weighted average interest rate at March 31, 1998 was 9.3%. 24 10 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- INVENTORY, CAPITALIZATION AND SEGMENT EXPENSES Housing projects and land held for development and sale are stated at the lower of cost (including direct construction costs and capitalized interest and real estate taxes) or market. The capitalized costs, other than interest, are included in Home Building and Investment Real Estate costs and expenses in the statement of consolidated earnings as related revenues are recognized. Interest costs relieved from inventories are included as interest expense. Construction Products inventories are stated at the lower of average cost (including applicable material, labor and plant overhead) or market. General operating expenses associated with each segment of business are expensed as incurred and are included in the appropriate segment of business. JOINT VENTURES Earnings or losses of joint ventures are not significant and are included in the appropriate segment of business revenues. Investments in non-controlled joint ventures are carried on the equity method in the consolidated financial statements except for Centex Construction Products, Inc.'s (CXP) 50% joint venture interests in its cement plants in Illinois and Texas. CXP has proportionately consolidated its pro rata interest in the revenues, expenses, assets and liabilities of those ventures. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and improvements are capitalized and depreciated. Repairs and maintenance are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of depreciable assets. Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts and any resulting gains or losses are recognized at such time. GOODWILL AND NEGATIVE GOODWILL Goodwill represents the excess of purchase price over net assets of businesses acquired. Goodwill is amortized over various periods between 10 years and 30 years. Goodwill and other intangibles are reassessed annually to determine whether any potential impairment exists. Negative goodwill arose in conjunction with Centex's Home Building subsidiary's combination transaction with Vista Properties, Inc. (Vista). Negative goodwill is being amortized over approximately seven years which represents the estimated period over which Vista's land will be developed and/or sold. Amortization is reflected as a reduction of costs and expenses in the accompanying statements of consolidated earnings. EARNINGS PER SHARE In December 1997, Centex adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." All per share data has been restated to conform to the provisions of this Statement. Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding. Diluted earnings per share, computed similarly to fully diluted earnings per share, is computed based upon basic plus the dilution of the stock options and the convertible debenture. RESIDENTIAL MORTGAGE LOANS RECEIVABLE Residential mortgage loans of $1.19 billion at March 31, 1998 are stated at the lower of aggregate cost or market. Market is determined based on forward sale commitments. Substantially all of the mortgage loans are sold forward upon closing and subsequently delivered to third-party purchasers within 60 days thereafter. Due to the fact that defaults of new loans within the first 60 days are minimal, no significant reserves are required. 25 11 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- MORTGAGE SECURITIZATION RESIDUAL INTEREST In February 1998, Centex Home Equity Corporation (CHEC) completed a $175 million securitization of sub-prime home equity loans. As a result, CHEC holds a $14.7 million residual interest in this security. The residual interest is valued and recorded at the discounted present value of the cash flows expected to be realized over the anticipated average life of the assets sold after estimated future credit losses, prepayments and normal servicing and other related fees. The discounted present value of such residual interest is computed using management's assumptions of market discount rates, prepayment rates, default rates, credit losses and other costs. The residual interest is periodically analyzed by CHEC to determine whether historical prepayment and loss experience, economic conditions and trends, collateral values and other relevant factors require any adjustment to the carrying value. Any such adjustments are reflected in earnings. OFF-BALANCE-SHEET RISK CTX Mortgage enters into various financial agreements, in the normal course of business, in order to manage the exposure to changing interest rates as a result of having issued loan commitments to its customers at a specified price and period, and committing to sell mortgage loans to various investors. CTX Mortgage had commitments to mortgagors of approximately $408 million and commitments to investors against these loan commitments of approximately $338 million at March 31, 1998. The Company does not engage in the trading of securities or other financial instruments. STATEMENTS OF CONSOLIDATED CASH FLOWS - SUPPLEMENTAL DISCLOSURES Interest expenses relating to the Financial Services operations are included in their respective costs and expenses. Interest related to non-financial services operations are included as interest expense as summarized below:
For the Years Ended March 31, -------------------------------------------- 1998 1997 1996 -------------------------------------------- Total Interest Incurred $ 78,128 $ 65,517 $ 69,724 Less - Financial Services (44,872) (31,455) (28,862) ------------ ------------ ------------ Interest Expense $ 33,256 $ 34,062 $ 40,862 ============ ============ ============
Net payments made for federal, state and foreign income taxes during the fiscal years ended March 31, 1998, 1997 and 1996 were $23.3 million, $16.0 million, and $28.0 million, respectively. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No.121, issued in March 1995, established methods of accounting for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This Statement was implemented in April 1996 and did not have a material impact on the Company's financial statements. Statement of Financial Accounting Standards No. 122, issued in May 1995, eliminated the accounting distinction between mortgage servicing rights acquired through loan origination and those acquired through purchase. This Statement was adopted in January 1996 and did not have a material impact on the Company's financial statements. 26 12 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- Statement of Financial Accounting Standards No. 125, issued in June 1996, superseded SFAS No. 122 in establishing standards for resolving issues relating to the accounting for continuing involvement arising from the transfer of financial assets. Under SFAS No. 125, an entity that undertakes an obligation to service financial assets recognizes a financial asset or servicing liability for that servicing contract and amortizes the estimated net servicing income or loss over the projected contract period. The servicing asset or liability is periodically reviewed for impairment or increased obligation based on its fair value. This Statement is effective for transfers and servicing of financial assets occurring after December 31, 1996. The actual effects of implementing this new Statement did not have a material effect on the Company's financial position or results of operations. Statement of Financial Accounting Standards No. 130, issued in June 1997, requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. This Statement is effective for fiscal years beginning after December 15, 1997. The Company does not expect adoption of the Statement to have a material effect on the presentation of its financial statements. Statement of Financial Accounting Standards No. 131, issued in June 1997, changes the way public companies report information about segments. SFAS No. 131, which is based on the management approach to segment reporting, requires companies to report selected quarterly segment information and entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. This Statement is effective for financial statements for fiscal years beginning after December 15, 1997. The Company does not expect adoption of the Statement to have a material effect on the presentation of its financial statements. RECLASSIFICATIONS Certain prior year balances have been reclassified to be consistent with the fiscal 1998 presentation. (B) INVESTMENT IN CXP In April 1994, the Company's construction products subsidiary, Centex Construction Products, Inc. (CXP), completed the sale of 51% of its common stock in an Initial Public Offering (IPO). CXP's operations include Cement, Gypsum Wallboard, Concrete and Aggregate facilities, including its 50% joint venture interests in its Texas and Illinois cement plants. In connection with CXP's IPO, Centex received a dividend and other payments from CXP of $186.5 million, which was used by Centex to reduce outstanding indebtedness. As a result of Centex Construction Products, Inc.'s repurchases of its own stock during the June 30, 1996 quarter, Centex's ownership interest in CXP increased to more than 50%, (55.6% as of March 31, 1998). Accordingly, beginning with the quarter ended June 30, 1996, CXP's financial statements have been consolidated with those of Centex. In February 1997, CXP acquired a gypsum wallboard facility, a gypsum mine and a cogeneration power facility located in Eagle County, Colorado together with the working capital assets, for a total purchase price of approximately $56 million. 27 13 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- (C) PROPERTY AND EQUIPMENT Property and equipment cost by major category and accumulated depreciation are summarized below:
March 31, ---------------------------- 1998 1997 ---------------------------- Land, Buildings and Improvements $ 43,291 $ 42,474 Machinery, Equipment and Other 174,403 153,112 Plants 299,895 294,117 ------------ ------------ 517,589 489,703 Accumulated Depreciation (221,597) (196,560) ------------ ------------ $ 295,992 $ 293,143 ============ ============
(D) INDEBTEDNESS SHORT-TERM DEBT Balances of short-term debt were:
March 31, -------------------------------------------------- 1998 1997 -------------------------------------------------- CENTEX FINANCIAL Centex Financial CORPORATION SERVICES Corporation Services -------------------------------------------------- Banks $ -- $ 406,546 $ 34,000 $ 273,147 Commercial Paper 65,000 -- 13,000 -- Other Financial Institutions 8,823 672,504 -- 307,371 ---------- ---------- ---------- ---------- $ 73,823 $1,079,050 $ 47,000 $ 580,518 ---------- ---------- ---------- ---------- Consolidated Short-term Debt $1,152,873 $627,518 ========== ========
The Company borrows on a short-term basis from banks under uncommitted lines which bear interest at prevailing market rates. The weighted average interest rates of the short-term indebtedness outstanding during fiscal 1998 and 1997 were 6.2% and 6.0%, respectively. The weighted average rates of balances outstanding for both March 31, 1998 and 1997 were 6.2%. 28 14 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- LONG-TERM DEBT Balances of long-term debt were:
March 31, --------------------------- 1998 1997 --------------------------- Subordinated Debentures, 8.75% to 8.8% Due in 2007 $ 119,428 $ 119,387 Subordinated Debentures, 7.375% Due in 2005 99,650 99,601 Other Indebtedness, 7.0% to 8.0% Due through 2027 18,637 17,781 ------------ ------------ $ 237,715 $ 236,769 ============ ============
Maturities of long-term debt during the next five fiscal years are: 1999, $4,918; 2000, $6,146; 2001, $2,829; 2002, $929; 2003, $195. Included in other long-term debt is a $2.1 million convertible subordinated debenture sold in August 1985 to a corporate officer at par. The indebtedness bears interest at LIBOR plus 1.5% and is convertible into 400,000 shares of the Company's common stock. In connection with this transaction, the Company has guaranteed the payment of a $2.1 million note payable to a bank by the officer. CREDIT FACILITIES Centex maintains a $425 million revolving credit agreement expiring in August 2001. Under the terms of the agreement, $170 million may be borrowed directly by CTX Mortgage. There were no borrowings outstanding to Centex Corporation under this facility during the fiscal years ended March 31, 1998 and 1997. CTX Mortgage has borrowed under this facility during fiscal years ended March 31, 1998 and 1997. CTX Mortgage has a $300 million committed and secured mortgage warehouse facility with a bank group, expiring in October 1999. CTX Mortgage also maintains a committed mortgage warehouse facility of $300 million expiring December 1998 with one investment bank. In addition, CTX Mortgage has a $200 million asset-backed commercial paper program that expires in April 2001. CTX Mortgage's warehouse facilities provide for limited support from Centex which, under certain conditions, may require Centex's purchase of up to 10% of the outstanding collateral from time to time. CHEC has a $100 million committed and secured mortgage warehouse facility with a bank, expiring in November 1998. In April 1998, CHEC entered into a new $300 million committed and secured mortgage warehouse facility with a bank group, expiring in April 1999. Under the most restrictive covenants of the various debt agreements, retained earnings of $524 million were free of restrictions at March 31, 1998. 29 15 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- (E) CAPITAL STOCK SHAREHOLDER RIGHTS PLAN On October 2, 1996, the Board of Directors of the Company adopted a new stockholder rights plan (Plan) to replace the original rights plan which expired on October 1,1996. In connection with the Plan, the Board authorized and declared a dividend of one right (Right) for each share of Common Stock, par value $.25 per share, of the Company (Common Stock) to all stockholders of record at the close of business on October 15, 1996. After giving effect to the Company's two-for-one stock split effective March 2, 1998, each Right entitles its holder to purchase one twohundredths of a share of a new series of preferred stock designated Junior Participating Preferred Stock, Series D, at an exercise price of $67.50. The Rights will become exercisable upon the earlier of 10 days after the first public announcement that a person or group has acquired beneficial ownership of 15 percent or more of the Common Stock, or 10 business days after a person or group announces an offer the consummation of which would result in such person or group beneficially owning 15 percent or more of the Common Stock (even if no purchases actually occur), unless such time periods are deferred by appropriate Board action. The Plan excludes FMR Corp. from causing the rights to become exercisable until such time as FMR Corp., together with certain affiliated and associated persons, collectively own 20 percent or more of the Common Stock. If the Company is involved in a merger or other business combination at any time after a person or group has acquired beneficial ownership of 15 percent or more (or, in the case of FMR Corp., 20 percent or more) of Common Stock, the Rights will entitle a holder to buy a number of shares of common stock of the acquiring Company having a market value of twice the exercise price of each Right. If any person or group acquires beneficial ownership of 15 percent or more (or, in the case of FMR Corp., 20 percent or more) of Common Stock, the Rights will entitle a holder (other than such person or any member of such group) to buy a number of additional shares of Common Stock having a market value of twice the exercise price of each Right. Alternatively, if a person or group has acquired 15 percent or more (or, in the case of FMR Corp., 20 percent or more) of the Common Stock, but less than 50 percent of the Common Stock, the Company may at its option exchange each Right of a holder (other than such person or any member of such group) for one share of Common Stock. In general, the rights are redeemable at $0.01 per right until 15 days after the Rights become exercisable as described above. Unless earlier redeemed, the Rights will expire on October 12, 2006. STOCK SPLIT On March 2, 1998, the Company declared a two-for-one common stock split effected in the form of a 100% stock distribution for stockholders of record as of February 13, 1998. The effect of the stock split is reflected retroactively for all periods presented. STOCK OPTIONS The Company has three stock option plans: the Centex Corporation 1998 Stock Option Plan (the 1998 Plan), the Centex Corporation 1987 Stock Option Plan (the 1987 Plan) and the Centex Corporation Stock Option Plan (the Centex Plan). Options granted under the Centex Plan were not granted at less than the fair market value at the date of the grant. Although the 1987 Plan provides that option grants may be at less than the fair market value at the date of the grant, the Company has consistently followed the practice of issuing options at the fair market value at the date of grant. Options granted under the 1998 Plan may not be granted at less than fair market value at the date of grant. Under all three plans, option periods and exercise dates may vary within a maximum period of ten years. The Company records proceeds from the exercise of options as additions to common stock and capital in excess of par value. The federal tax benefit, if any, is considered additional capital in excess of par value. No charges or credits would be made to earnings unless options were to be granted at less than fair market value at the date of the grant. 30 16 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- A summary of the activity of the three stock option plans is presented below:
1998 1997 1996 ----------------------------------------------------------------------------------- WEIGHTED- Weighted- Weighted- AVERAGE Average Average NUMBER EXERCISE Number Exercise Number Exercise OF SHARES PRICE of shares Price of Shares Price ----------------------------------------------------------------------------------- Options Outstanding, Beginning of Year 5,360,058 $ 10.89 6,051,818 $ 9.47 6,794,146 $ 8.93 Options Granted 1,804,890 $ 18.36 715,750 $ 16.01 340,000 $ 14.56 Options Exercised (1,660,518) $ 7.80 (1,190,630) $ 6.47 (745,746) $ 6.84 Options Forfeited/Expired (244,374) $ 15.18 (216,880) $ 12.61 (336,582) $ 9.28 ------------ ------------- ------------- Options Outstanding, End of Year 5,260,056 $ 14.22 5,360,058 $ 10.89 6,051,818 $ 9.47 ============ ============= ============= Options Exercisable, End of Year 2,045,732 2,045,684 3,000,316 ============ ============= ============= Weighted-Average Fair Value of Options Granted during the Year $ 9.31 $ 7.09 $ 6.90
Using the treasury stock method, which assumes that any proceeds together with the related tax benefits from the exercise of options would be used to purchase common stock at current prices, the dilutive effect of the options on outstanding shares as of March 31, 1998 would have been 3.6%. This is significantly less than appears on a gross basis when compared to the 59,531,758 common shares outstanding as of March 31, 1998. The following table summarizes information about stock options outstanding at March 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- -------------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE Range of Exercise Prices OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE - ----------------------------------------------------------------------------------------------------------------------- $ 6.75 - $ 9.1875 1,687,410 2.60 $ 8.64 1,320,340 $ 8.64 $11.5625 - $16.9375 1,690,484 6.56 $15.00 419,872 $ 14.34 $17.3438 - $20.4375 1,783,162 8.98 $17.81 305,520 $ 17.71 $26.5313 - $37.50 99,000 9.68 $31.06 - $ -- ----------- ----------- 5,260,056 6.17 $14.22 2,045,732 $ 11.17 =========== ===========
The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had 31 17 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- compensation cost for the Company's three stock option plans been determined based on the fair value at the grant date for awards in 1998, 1997 and 1996 consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ------------------------------------------ Net Earnings - as Reported $ 144,806 $ 106,563 $ 53,365 Net Earnings - Pro Forma $ 140,034 $ 105,063 $ 52,576 Earnings Per Share - as Reported Basic $ 2.45 $ 1.86 $ 0.94 Diluted $ 2.36 $ 1.80 $ 0.91 Earnings Per Share - Pro Forma Basic $ 2.37 $ 1.83 $ 0.93 Diluted $ 2.29 $ 1.77 $ 0.90
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1998 1997 1996 ------------------------------------------ Expected Volatility 35.3% 35.7% 35.7% Risk-Free Interest Rate 6.9% 6.8% 6.3% Dividend Yield .6% .6% .7% Expected Life (Years) 8 8 8
(F) INCOME TAXES The provision for income taxes includes the following components:
For the Years Ended March 31, ------------------------------------------- 1998 1997 1996 ------------------------------------------- Current Provision (Benefit) Federal $ 18,555 $ 11,216 $ 41,805 State 9,092 3,121 (842) ------------ ------------ ------------ 27,647 14,337 40,963 ------------ ------------ ------------ Deferred Provision (Benefit) Federal 57,780 38,771 (10,438) State 1,401 4,072 3,896 ------------ ------------ ------------ 59,181 42,843 (6,542) ------------ ------------ ------------ Provision for Income Taxes $ 86,828 $ 57,180 $ 34,421 ============ ============ ============
32 18 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- The effective tax rate is greater than the federal statutory rate of 35% in 1998 and 1996 due to the following items:
For the Years Ended March 31, ---------------------------------------------- 1998 1997 1996 ---------------------------------------------- Financial Income Before Taxes $ 231,634 $ 163,743 $ 87,786 ============ ============ ============ Income Taxes at Statutory Rate $ 81,072 $ 57,311 $ 30,724 Increases (Decreases) in Tax Resulting From - State Income Taxes, net 5,822 4,131 1,966 Negative Goodwill Amortization (6,000) (6,000) -- Other 5,934 1,738 1,731 ------------ ------------ ------------ Provision for Income Taxes $ 86,828 $ 57,180 $ 34,421 ============ ============ ============ Effective Tax Rate 37% 35% 39%
The deferred income tax provision (benefit) results from the following temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes:
For the Years Ended March 31, -------------------------------------------- 1998 1997 1996 -------------------------------------------- Utilization of Net Operating Loss Carryforwards $ 43,771 $ 46,865 $ -- Tax Basis in Excess of Book Basis 9,207 3,648 -- Uniform Capitalization for Tax Reporting 7,379 (2,893) (5,112) Excess Tax Depreciation and Amortization 4,097 2,257 502 Financial Accrual Changes and Other (5,273) 1,679 (4,793) Software Development Costs Expensed as Incurred -- (4,067) 1,728 Equity Adjustments - CXP -- 1,329 (254) Alternative Minimum Tax -- (1,973) (349) Interest and Real Estate Taxes Expensed as Incurred -- (4,002) 1,736 ------------ ------------ ------------ $ 59,181 $ 42,843 $ (6,542) ============ ============ ============
33 19 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- Components of deferred income taxes are as follows:
March 31, --------------------------- 1998 1997 --------------------------- Deferred Tax Liabilities Excess Tax Depreciation and Amortization $ 30,517 $ 23,413 Interest and Real Estate Taxes Expensed as Incurred 20,828 23,571 Equity Adjustments 24,714 22,575 Consolidated Return Regulation Deferrals 6,864 6,870 All Other 14,413 9,173 ------------ ------------ Total Deferred Tax Liabilities 97,336 85,602 ------------ ------------ Deferred Tax Assets Tax Basis in Excess of Book Basis 99,281 108,488 Net Operating Loss Carryforwards 43,536 77,256 Uniform Capitalization for Tax Reporting 34,493 41,889 Financial Accruals 50,084 43,098 State Income Taxes -- 4,610 All Other 17,549 7,674 ------------ ------------ Total Deferred Tax Assets 244,943 283,015 ------------ ------------ Net Deferred Tax Asset $ 147,607 $ 197,413 ============ ============
At March 31, 1998, Centex had $124.4 million of net operating loss carryforwards available to reduce future federal taxable income which expire if unused as follows: 2010, $109.2 million; 2011, $15.2 million. (G) CENTEX DEVELOPMENT COMPANY, L.P. In March 1987, certain of the Company's subsidiaries contributed to Centex Development Company, L.P. (CDC or the Partnership), a newly formed master limited partnership, properties with a historical cost basis (which approximated market value) of approximately $76 million. CDC was formed to enable stockholders to participate in long-term real estate development projects whose dynamics are inconsistent with Centex's traditional financial objectives. In November 1987, the Company distributed as a dividend to its stockholders securities relating to CDC. These securities included all of the issued and outstanding shares of common stock of 3333 Holding Corporation and warrants to purchase approximately 80% of the Class B units of limited partnership interest in CDC. A wholly-owned subsidiary of 3333 Holding Corporation serves as general partner of CDC. These securities are held by a nominee on behalf of the stockholders and will trade in tandem with the common stock of the Company 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. 34 20 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- During fiscal year 1998, the agreement governing the Partnership was amended to allow for the issuance of a new class of limited partnership units, Class C Limited Partnership Units (Class C Units). On March 31, 1998, 7,542 Class C Units were issued in exchange for assets valued at $7,542,000. Additionally, on this date, the 1,000 Class A Units were converted to 32,260 new Class A Units. The partnership agreement provides that Centex, the Class A and Class C limited partner, is entitled to a cumulative preferred return of 9% per annum on the average outstanding balance of its unrecovered capital, defined as its capital contributions, adjusted for cash distributions representing return of the capital contributions. In July 1995, in conjunction with the extension of the automatic detachment date from 1997 to 2007, Centex reduced its unrecovered capital to $47.3 million and waived unpaid preference as of that date of $37.5 million. Unrecovered capital was reduced by an additional $4.5 million during fiscal 1998, $4.5 million during fiscal 1997 and $10 million during fiscal 1996 through capital distributions and preference payments. Preference payments in arrears at March 31, 1998 amounted to $4.2 million. Supplementary condensed combined financial statements for the Company, 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. are set forth below. For additional information on 3333 Holding Corporation and its subsidiary and Centex Development, L.P., see their separate financial statements and related footnotes included elsewhere in this annual report. SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS
March 31, --------------------------- 1998 1997 --------------------------- ASSETS Cash and Cash Equivalents $ 98,576 $ 31,950 Receivables 1,588,247 989,886 Inventories 1,107,941 1,041,855 Investments in Joint Ventures 10,598 5,479 Property and Equipment, net 296,080 293,143 Other Assets 333,044 327,281 ------------ ------------ $ 3,434,486 $ 2,689,594 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 802,547 $ 740,230 Short-term Debt 1,166,694 634,573 Long-term Debt 237,715 236,769 Minority Stockholders' Interest 152,468 142,230 Negative Goodwill 82,837 98,837 Stockholders' Equity 992,225 836,955 ------------ ------------ $ 3,434,486 $ 2,689,594 ============ ============
35 21 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- SUPPLEMENTARY CONDENSED COMBINED STATEMENTS OF EARNINGS
For the Years Ended March 31, ------------------------------------------ 1998 1997 1996 ------------------------------------------ Revenues $ 3,991,954 $ 3,793,621 $ 3,111,486 Costs and Expenses 3,760,445 3,629,672 3,023,447 ------------ ------------ ------------ Earnings Before Income Taxes 231,509 163,949 88,039 Income Taxes 86,828 57,180 34,421 ------------ ------------ ------------ Net Earnings $ 144,681 $ 106,769 $ 53,618 ============ ============ ============
(H) ACQUISITION OF VISTA PROPERTIES, INC. In September 1995, the Company acquired certain equity interests in Vista for a net investment of approximately $85 million in cash. At the time of the acquisition, Vista owned a real estate portfolio of properties located in seven states in which the Company has major operations. Vista's real property portfolio generally consisted of land zoned, planned or developed for single- and multi-family residential, office, retail, industrial and other commercial uses. During the quarter ended June 30, 1996, Centex's Home Building subsidiary completed a business combination transaction and reorganization with Vista where Centex's Home Building assets and operations were contributed to Vista and Vista changed its name to Centex Real Estate Corporation. As a result of the combination, Centex's Investment Real Estate portfolio, valued in excess of $125 million, was reduced to a nominal "book basis" after recording certain deferred tax benefits. Accordingly, as these properties are developed or sold, the net sales proceeds are reflected as operating margin. "Negative Goodwill" recorded as a result of the business combination is being amortized to earnings over approximately seven years which represents the estimated period over which the land will be developed and/or sold. All investment property operations are being reported through the "Investment Real Estate" business segment which operates under the Centex Development Company name. (I) ACQUISITION OF CAVCO INDUSTRIES, INC. During March 1997, Centex Real Estate Corporation acquired approximately 80% of Cavco Industries, Inc.'s (Cavco) outstanding common stock at $26.75 per share for a total of $74.3 million. Prior to the acquisition, Cavco's common stock was publicly traded on the NASDAQ National Market. Cavco is the largest producer of manufactured homes in Arizona and New Mexico as well as the nation's largest producer of park model homes. Cavco currently operates three manufactured housing facilities in the Phoenix area and a plant near Albuquerque, New Mexico, which is that state's first manufactured housing plant. Goodwill of approximately $76 million was recorded in connection with the Cavco acquisition (approximately $61 million relates to the 80% acquired by Centex) and is being amortized over 30 years. 36 22 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- (J) BUSINESS SEGMENTS 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. Intersegment revenues and investments in joint ventures are not material and are not shown in the following tables. The investment in Centex Development Company, L.P. is included in the Investment Real Estate segment. HOME BUILDING CONVENTIONAL HOMES Conventional Homes operations involve the purchase and development of land or lots as well as the construction and sale of single-family homes. The following table sets forth financial information relating to the Conventional Homes operations.
For the Years Ended March 31, ------------------------------------------ 1998 1997 1996 ------------------------------------------ (Dollars in millions) Revenues $ 2,312.0 $ 2,299.6 $ 1,989.9 Cost of Sales & Expenses 2,141.5 2,155.6 1,883.2 ------------ ------------ ------------ Operating Earnings $ 170.5 $ 144.0 $ 106.7 ============ ============ ============ Identifiable Assets $ 1,098.9 $ 1,036.5 $ 1,318.7 ============ ============ ============ Capital Expenditures $ 7.7 $ 4.2 $ 4.9 ============ ============ ============ Depreciation and Amortization $ 4.0 $ 3.4 $ 3.1 ============ ============ ============
MANUFACTURED HOMES Manufactured Homes operations involve the manufacture of quality residential and park model homes and the sale of these homes through a network of independent dealers. The Company entered the Manufactured Homes industry in late March 1997, when a subsidiary acquired approximately 80% of Cavco's outstanding common stock. (See Note I). 37 23 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- The following table sets forth financial information relating to the Manufactured Homes operations.
For the Years Ended March 31, ---------------------------- 1998 1997 * ---------------------------- (Dollars in millions) Revenues $ 140.6 $ -- Cost of Sales & Expenses 129.2 -- ------------ ------------ Operating Earnings 11.4 -- Minority Interest (2.7) -- ------------ ------------ Net Operating Earnings to Centex $ 8.7 $ -- ============ ============ Identifiable Assets $ 118.5 $ 93.3 ============ ============ Capital Expenditures $ 7.2 $ -- ============ ============ Depreciation and Amortization $ 3.7 $ -- ============ ============
*Cavco had no effect on Centex's earnings as this acquisition was not effective until late March 1997. INVESTMENT REAL ESTATE Investment Real Estate operations involve the development of land relating primarily to multi-family, industrial, office, retail and mixed-use projects. The following table sets forth financial information relating to the Investment Real Estate operations.
For the Years Ended March 31, ---------------------------- 1998 1997 ---------------------------- (Dollars in millions) Revenues $ 25.4 $ 9.0 Cost of Sales & Expenses 13.2 7.1 Negative Goodwill Amortization (16.0) (16.0) ------------ ------------ Operating Earnings $ 28.2 $ 17.9 ============ ============ Identifiable Assets $ 227.9 $ 269.3 ============ ============ Capital Expenditures $ -- $ .2 ============ ============ Depreciation and Amortization, including Negative Goodwill $ (15.9) $ (15.9) ============ ============
38 24 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- FINANCIAL SERVICES Financial Services operations involve the financing of conventional and manufactured homes, home equity and sub- prime lending and the sale of title and other insurance coverages. These activities include mortgage origination and other related services for homes sold by subsidiaries and by others. The following table sets forth financial information relating to the Financial Services operations.
For the Years Ended March 31, ------------------------------------------ 1998 1997 1996 ------------------------------------------ (Dollars in millions) Revenues $ 246.3 $ 168.7 $ 129.6 Cost of Sales & Expenses 214.9 144.3 112.4 ------------ ------------ ------------ Operating Earnings $ 31.4 $ 24.4 $ 17.2 ============ ============ ============ Identifiable Assets $ 1,317.0 $ 704.1 $ 674.2 ============ ============ ============ Capital Expenditures $ 11.2 $ 11.1 $ 2.5 ============ ============ ============ Depreciation and Amortization $ 9.3 $ 7.6 $ 5.7 ============ ============ ============
CONSTRUCTION PRODUCTS Construction Products operations involve the manufacture and sale of cement, gypsum wallboard and aggregates and readymix concrete. The following table sets forth financial information relating to the Construction Products operations.
For the Years Ended March 31, -------------------------------------------- 1998 1997 1996 -------------------------------------------- (Dollars in millions) Revenues $ 297.3 $ 239.4 $ -- Cost of Sales & Expenses 209.0 175.0 -- ------------ ------------ ------------ Operating Earnings 88.3 64.4 52.3 Minority Interest (40.6) (31.7) (26.7) ------------ ------------ ------------ Net Operating Earnings to Centex $ 47.7 $ 32.7 $ 25.6 ============ ============ ============ Identifiable Assets $ 328.5 $ 286.8 $ 106.5* ============ ============ ============ Capital Expenditures $ 13.5 $ 6.3 $ -- ============ ============ ============ Depreciation and Amortization $ 15.9 $ 13.8 $ -- ============ ============ ============
*Amount represented Centex's 49% Investment in CXP. As a result of Centex Construction Products, Inc.'s (CXP) repurchases of its own stock during the quarter ended June 30, 1996, Centex's ownership interest in CXP increased to more than 50%, (55.6% as of March 31, 1998). Accordingly, CXP's financial results have been consolidated with those of Centex beginning in fiscal 1997. 39 25 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- CONTRACTING AND CONSTRUCTION SERVICES Contracting and Construction Services operations involve the construction of buildings for both private and government interests, including (among others) office, commercial and industrial buildings, hospitals, hotels, museums, libraries, airport facilities and educational institutions. The following table sets forth financial information relating to the Contracting and Construction Services operation. As this segment generates significant levels of balance sheet related cash flow, intracompany interest income (credited at the prime rate in effect) is reflected in this segment. These amounts are eliminated in consolidation.
For the Years Ended March 31, ------------------------------------------- 1998 1997 1996 ------------------------------------------- (Dollars in millions) Revenues $ 953.8 $ 1,068.3 $ 983.5 Cost of Sales & Expenses 946.6 1,070.5 988.5 ------------ ------------ ------------ Operating Income (Loss), as reported 7.2 (2.2) (5.0) Intracompany Interest Income* 5.2 5.3 4.9 ------------ ------------ ------------ Total Economic Return $ 12.4 $ 3.1 $ (.1) ============ ============ ============ Identifiable Assets* $ 228.3 $ 227.5 $ 216.1 ============ ============ ============ Capital Expenditures $ 2.3 $ 2.0 $ 1.7 ============ ============ ============ Depreciation and Amortization $ 2.2 $ 2.5 $ 2.9 ============ ============ ============
*The "net assets" position of the Contracting and Construction Services segment provides significant cash flow because payables and accruals consistently exceed identifiable assets. Intracompany interest income is computed on the group's cash flow in excess of its equity. CORPORATE AND OTHER, NET Corporate general and administrative expenses represent salaries and other costs not identifiable with a specific segment. Other, net includes new business initiatives and other businesses which are not mature enough to stand alone as separate business segments. Assets are primarily cash and cash equivalents, receivables, property and equipment and other assets not associated with a business segment. 40 26 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- The following table summarizes financial information relating to the Corporate and Other, net segments.
For the Years Ended March 31, -------------------------------------------- 1998 1997 1996 -------------------------------------------- (Dollars in millions) Operating Loss, Other, net $ (7.4) $ (2.3) $ (.9) Minority Interest (.2) -- -- ------------ ------------ ------------ Net Operating Loss to Centex $ (7.6) $ (2.3) $ (.9) ============ ============ ============ Corporate General and Administrative Expenses $ 21.3 $ 16.8 $ 15.0 ============ ============ ============ Identifiable Assets $ 97.1 $ 61.4 $ 21.4 ============ ============ ============ Capital Expenditures $ 18.3 $ 6.6 $ .1 ============ ============ ============ Depreciation and Amortization $ 5.3 $ 2.3 $ .8 ============ ============ ============
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires companies to disclose the estimated fair value of their financial instrument assets and liabilities. The estimated fair values shown below have been determined using current quoted market prices where available and, where necessary, estimates based on present value methodology suitable for each category of financial instruments. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. All assets and liabilities which are not considered financial instruments have been valued using historical cost accounting. There is no material difference between the recorded amount and the estimated fair value of Centex Financial Services' off-balance-sheet unfunded loan commitments. These are generally priced at market at the time of funding. The consolidated carrying values of Cash and Cash Equivalents, Other Receivables, Accounts Payable and Accrued Liabilities and Short-term Debt approximate their fair values. The carrying values and estimated fair values of other financial assets and liabilities were as follows:
March 31, -------------------------------------------------------------------- 1998 1997 -------------------------------------------------------------------- CARRYING FAIR Carrying Fair VALUE VALUE Value Value -------------------------------------------------------------------- (Dollars in thousands) Financial Assets Residential Mortgage Loans $ 1,191,450 $ 1,213,455(A) $ 632,657 $ 645,604(A) Financial Liabilities Long-term Debt $ 237,715 $ 256,779(B) $ 236,769 $ 233,757(B)
(A) Fair values are based on quoted market prices for similar instruments. (B) Fair values are based on a present value discounted cash flow with the discount rate approximating current market for similar instruments. 41 27 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- (L) COMMITMENTS AND CONTINGENCIES In order to assure the future availability of land for home building, the Company has made deposits totaling approximately $30 million as of March 31, 1998 for options to purchase undeveloped land and developed lots having a total purchase price of approximately $707 million. These options and commitments expire at various dates to 2003. The Company has also committed to purchase land and developed lots totaling approximately $7 million. In addition, the Company has executed lot purchase contracts with CDC (see Note G) which aggregate approximately $7 million. Management believes that none of the litigation matters in which it or any subsidiary is involved, if determined unfavorably to Centex or any subsidiary, would have a material adverse effect on the consolidated financial condition or results of operations of the Company. The Harrah's New Orleans Casino contract was suspended on November 22, 1995 due to a bankruptcy filing by the Harrah's Jazz Company partnership, the developer of the casino. Centex and its subcontractors filed claims against the partnership for completed but unpaid work. Centex also filed a lawsuit against Harrah's Entertainment, Inc., parent company of the major partner in the partnership, to recover its claims. In late November 1996, Centex and Harrah's reached a settlement which is conditioned upon Harrah's plan of reorganization becoming effective. It appears possible that the plan will become effective in the summer, 1998, at which time Harrah's will pay $34 million in settlement of the claims of Centex and its subcontractors. Upon payment of such sum, Centex will resume construction of the casino. In October 1992, Martin County sued one of the Company's general contracting subsidiaries, Centex-Rooney Construction Co., Inc. (Rooney), alleging defects in the design and construction of the Martin County Courthouse in Stuart, Florida. Rooney was construction manager of the project. In July 1996, a judgment of $14.2 million was returned against Rooney, and in April 1997, Martin County also obtained a judgment of $3.2 million in attorney's fees and costs. Both judgments, together with interest, currently approach $20 million. Recently, the 4th District Court of Appeals affirmed the $14.2 million judgment and Rooney is now awaiting action by the Supreme Court of Florida in response to its petition to take the case on appeal. Rooney's appeal of the $3.2 million award is still pending. At this time, Rooney is prosecuting claims and lawsuits against subcontractors, their insurance carriers and Rooney's own insurance carriers for recovery of the judgments. One of the carriers has agreed to pay Rooney approximately $3.5 million. While there is no assurance that Rooney's appeal will be successful or that it will recover from such subcontractors or other insurance carriers, management believes that Rooney will be able to recover substantially all of both judgments. In any case, these judgments would not have a material impact on the financial condition of the Company. The Company has certain deductible limits under its workers' compensation and automobile and general liability insurance policies for which reserves are established based on the estimated costs of known and anticipated claims. 42 28 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF CENTEX CORPORATION: We have audited the accompanying consolidated balance sheets of Centex Corporation (a Nevada corporation) and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Centex Corporation and subsidiaries as of March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental balance sheet data of Centex Corporation and Financial Services are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. This information has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas, May 8, 1998 43 29 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION See notes to consolidated financial statements for additional segment information. FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997 Centex reported consolidated revenues of $4.0 billion for fiscal 1998, 5% above $3.8 billion for fiscal 1997. Earnings before income taxes were $231.6 million, 42% more than $163.7 for last year. Net earnings for fiscal 1998 reached $144.8 million, a historical high and a 36% improvement over net earnings of $106.6 million in fiscal 1997. Earnings per share for fiscal year 1998 were $2.45 and $2.36 for Basic and Diluted, respectively, compared to $1.86 and $1.80 for the prior year. HOME BUILDING CONVENTIONAL HOMES The following summarizes Conventional Homes' results for the two-year period ended March 31, 1998 (dollars in millions, except per unit data):
1998 1997 ------------------------------------------------------ Conventional Homes Revenues $ 2,312.0 100.0% $ 2,299.6 100.0% Cost of Sales (1,839.8) (79.6%) (1,877.3) (81.6%) Selling, General & Administrative (301.7) (13.0%) (278.3) (12.1%) ---------- ---------- ---------- ---------- Operating Earnings $ 170.5 7.4% $ 144.0 6.3% ========== ========== ========== ========== Units Closed 12,418 13,107 Unit Sales Price $ 183,321 $ 172,296 % Change 6.4% 5.1% Operating Earnings per Unit $ 13,733 $ 10,990 % Change 25% 23.3% Backlog Units 4,916 4,308 % Change 14.1% (22.1%)
Operating earnings for fiscal 1998 were higher as a percentage of revenues and on a per unit basis in comparison to fiscal 1997 as a result of the divisions's continued focus on improving operating margins and more closings of higher price and margin units in the Western region. Conventional Homes reported 12,418 closings for fiscal 1998, 5% less than fiscal 1997 closings. Home orders improved 10% to 13,026 units from 11,882 units in fiscal 1997 even though slightly fewer neighborhoods were operating in fiscal 1998. MANUFACTURED HOMES During March 1997, Centex Real Estate Corporation acquired approximately 80% of Cavco Industries, Inc. (Cavco), which operates three manufactured homes facilities in the Phoenix area and a plant near Albuquerque, New Mexico. 44 30 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- The following summarizes Manufactured Homes' results for the year ended March 31, 1998 (dollars in millions):
1998 --------------------- Manufactured Homes Revenues $ 140.6 100.0% Cost of Sales (113.7) (80.9%) Selling, General & Administrative (13.2) (9.4%) ------- -------- Earnings before Goodwill and Minority Interest 13.7 9.7% ======== Goodwill Amortization (2.3) Minority Interest (2.7) ------- Operating Earnings $8.7 ======= Units Produced 5,751
During February 1998, Cavco purchased substantially all of the assets of AAA Homes, Inc., Arizona's largest manufactured homes retailer, marking Cavco's entry into the retailing of manufactured homes. INVESTMENT REAL ESTATE For fiscal 1998, operating earnings from Investment Real Estate improved 58% to $28.2 million from $17.9 million for fiscal 1997 as a result of increased land sale activity during the current year. FINANCIAL SERVICES The Financial Services segment consists primarily of home financing, home equity and sub-prime lending and the sale of title and other insurance coverages. The following summarizes Financial Services results for the two-year period ended March 31, 1998 (dollars in millions):
1998 1997 --------------------------- Revenues $ 246.3 $ 168.7 ============ ============ Operating Earnings $ 31.4 $ 24.4 ============ ============ Origination Volume $ 7,182.0 $ 5,394.9 ============ ============ Number of Loans Originated CTX Mortgage Company (CTX) - Centex-built Homes (Builder) 8,748 9,483 Non-Centex-built Homes (Retail) 44,096 33,579 ------------ ------------ 52,844 43,062 Centex Home Equity Corporation (CHEC) 8,005 4,100 ------------ ------------ 60,849 47,162 ============ ============
45 31 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- Financial Services operating earnings for fiscal 1998 were $31.4 million, 29% higher than fiscal 1997 operating earnings of $24.4 million, after expensing net expansion costs of $8.1 million related to CHEC and the new manufactured homes finance operation, Centex Finance Company. CTX originations for fiscal 1998 increased 23% compared to fiscal 1997. The per loan margin for fiscal 1998 was $748, 15% higher than $650 per loan in fiscal 1997. CTX's total mortgage applications for fiscal 1998 increased 41% to 58,835 from 41,782 applications reported for fiscal 1997. During fiscal year 1997, Centex substantially expanded CHEC's sub-prime mortgage business. This expansion continued during fiscal 1998 resulting in a 98% increase in loan originations. CHEC generated 28,089 sub-prime loan applications for fiscal 1998, an increase of 82% over fiscal 1997. In February 1998, CHEC completed its first securitization of $175 million of sub-prime home equity mortgage loans through Centex Home Equity Loan Trust 1998-1, a REMIC trust. CONSTRUCTION PRODUCTS CXP's revenues were $297.3 million for fiscal 1998, 24% above fiscal 1997 revenues of $239.4 million. For the current year, CXP's pretax earnings, net to Centex's ownership interest, were $47.7 million, a 46% increase over $32.7 million last year. Record results in the current year were attributable to higher product sales pricing, increased operating efficiency and continued strong product demand. CONTRACTING AND CONSTRUCTION SERVICES The following summarizes Contracting and Construction Services results for the two-year period ended March 31, 1998 (dollars in millions):
1998 1997 --------------------------- Revenues $ 953.8 $ 1,068.3 ============ ============ Operating Earnings (Loss) $ 7.2 $ (2.2) ============ ============ New Contracts Received $ 999.4 $ 981.0 ============ ============ Backlog of Uncompleted Contracts $ 1,159.6 $ 1,114.1 ============ ============
Contracting and Construction Services revenues for fiscal 1998 were $953.8 million, 11% less than last year's revenues. Operating earnings for the group improved in fiscal 1998 as a result of a shift in recent years to higher- margin private negotiated projects rather than the lower-margin public bid work that has historically been its specialty. The Contracting and Construction Services operation provided a positive net cash flow in excess of Centex's investment in the group of $60.3 million in fiscal 1998 and $64.2 million in fiscal 1997. 46 32 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996 Centex reported consolidated revenues of $3.8 billion for fiscal 1997, 22% above $3.1 billion for fiscal 1996. Earnings before income taxes were $163.7 million, 87% more than $87.8 million for fiscal 1996. Net earnings for fiscal 1997 reached $106.6 million, a 100% improvement over net earnings of $53.4 million for the prior year. Earnings per share for fiscal year 1997 were $1.86 and $1.80 for Basic and Diluted, respectively, compared to $.94 and $.91 for the prior year. HOME BUILDING CONVENTIONAL HOMES The following summarizes Conventional Homes' results for the two-year period ended March 31, 1997 (dollars in millions, except per unit data):
1997 1996 ------------------------------------------------------------- Conventional Homes Revenues $ 2,299.6 100.0% $ 1,989.9 100.0% Cost of Sales (1,877.3) (81.6%) (1,640.0) (82.4%) Selling, General & Administrative (278.3) (12.1%) (243.2) (12.2%) ------------ ------------ ------------ ------------ Operating Earnings $ 144.0 6.3% $ 106.7 5.4% ============ ============ ============ ============ Units Closed 13,107 11,970 Unit Sales Price $ 172,296 $ 163,912 % Change 5.1% 2.9% Operating Earnings per Unit $ 10,990 $ 8,914 % Change 23.3% 3.0% Backlog Units 4,308 5,533 % Change (22.1%) 38.8%
The operating earnings for fiscal 1997 were higher as a percentage of revenues and on a per unit basis compared to fiscal 1996 as a result of the divisions' focus on improving operating margins. Fiscal 1997 home closings of 13,107 were the highest in company history. Impacted by higher interest rates and fewer neighborhoods, home orders declined 12% to 11,882 units from 13,516 units in fiscal 1996. 47 33 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- INVESTMENT REAL ESTATE In June 1996, by completing a business combination transaction and reorganization with Vista Properties, Inc., Centex created an Investment Real Estate operation through which all investment property transactions are reported. For fiscal 1997, operating earnings from Investment Real Estate totaled $17.9 million. FINANCIAL SERVICES The Financial Services segment consists primarily of home financing, home equity lending and the sale of title and other insurance coverages. The following summarizes Financial Services' results for the two-year period ended March 31, 1997 (dollars in millions):
1997 1996 --------------------------- Revenues $ 168.7 $ 129.6 ============ ============ Operating Earnings $ 24.4 $ 17.2 ============ ============ Origination Volume $ 5,394.9 $ 4,886.1 ============ ============ Number of Loans Originated CTX Mortgage Company - Centex-built Homes (Builder) 9,483 8,440 Non-Centex-built Homes (Retail) 33,579 32,706 ------------ ------------ 43,062 41,146 Centex Home Equity Corporation 4,100 450 ------------ ------------ 47,162 41,596 ============ ============
Total mortgage originations for fiscal 1997 increased 13% to 47,162 from 41,596 for fiscal 1996. The per loan margin for fiscal 1997 was $518, 26% higher than $412 per loan in fiscal 1996. Total mortgage applications for fiscal 1997 increased 20% to 57,276 from 47,763 applications reported for fiscal 1996. CONSTRUCTION PRODUCTS As a result of Centex Construction Products, Inc.'s (CXP) repurchases of its own stock during the quarter ended June 30, 1996, Centex's ownership interest in CXP increased to more than 50%, (51.4% as of March 31, 1997). Accordingly, beginning with the June 30, 1996 quarter, CXP's financial results have been consolidated with those of Centex and are reflected in Centex's financial statements. For fiscal 1997, CXP's revenues were $239.4 million. CXP's revenues for fiscal 1996, which were not consolidated with Centex's results, were $222.6 million. For the current year, CXP's pretax earnings, net to Centex's ownership interest, were $32.7 million, a 28% increase over $25.6 million last year. CXP's record results for fiscal 1997 were due to higher pricing for all its products, particularly gypsum wallboard, along with continued strong product demand. 48 34 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- CONTRACTING AND CONSTRUCTION SERVICES The following summarizes Contracting and Construction Services results for the two-year period ended March 31, 1997 (dollars in millions):
1997 1996 ---------------------------- Revenues $ 1,068.3 $ 983.5 ============ ============ Operating Loss $ (2.2) $ (5.0) ============ ============ New Contracts Received $ 981.0 $ 857.0 ============ ============ Backlog of Uncompleted Contracts $ 1,114.1 $ 1,201.5 ============ ============
The Contracting and Construction Services operation provided a positive average net cash flow in excess of Centex's investment in the group of $64.2 million in fiscal 1997 and $55.4 million in fiscal 1996. FINANCIAL CONDITION AND LIQUIDITY Centex fulfills its short-term financing requirements with cash generated from its operations and funds available under its credit facilities. These credit facilities also serve as back-up lines for overnight borrowings under its uncommitted bank facilities and commercial paper program. Centex maintains a $425 million bank revolving credit facility expiring in fiscal year 2001. There were no borrowings to Centex under this or the prior facilities during fiscal 1998, 1997 or 1996. CTX Mortgage Company has periodically borrowed under this agreement during fiscal 1998, 1997 and 1996. In addition, CTX Mortgage Company has its own $700 million of credit facilities to finance mortgages which are held during the period while they are being securitized and readied for delivery against forward sale commitments. CHEC has its own $300 million credit facility to finance sub-prime mortgages which are held until securitization. The $526.3 million increase in debt was primarily used to fund the increase in residential mortgage loans. The increase in residential mortgage loans was primarily attributed to continuing favorable mortgage interest rates. The Company believes it has adequate resources and sufficient credit facilities to satisfy its current needs and provide for future growth. 49 35 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- OTHER DEVELOPMENTS AND OUTLOOK During April 1998, the Company's Home Building subsidiary purchased approximately 90% of the assets of Wayne Homes for approximately $60 million through its acquisition of 90% of the equity in Wayne Homes, a limited liability company. Prior to the acquisition, Wayne Homes was a privately owned company. Wayne Homes, a 25-year-old builder that constructs homes on customer-owned sites in widely diverse locations, operates in eight Ohio markets. The company delivers approximately 600 homes annually at an average sales price of approximately $100,000. This acquisition is consistent with Centex's strategy of diversifying into more segments of the home building market. Centex noted that favorable interest rate levels during much of fiscal 1998 had positively impacted all of Centex's major business lines. Centex entered fiscal 1999 with high backlog levels in its Home Building, Financial Services and Contracting and Construction Services businesses. If interest rates remain at or close to current levels, these and Centex's other operations should continue to report improved results, positioning Centex for another excellent financial performance in fiscal 1999. - -------------------------------------------------------------------------------- FORWARD LOOKING STATEMENT The information contained in this Annual Report includes forward looking statements involving a number of risks and uncertainties. Forward looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs or expectations. In addition to the factors discussed elsewhere in this document, other determinants that could cause actual results to differ include: increases in short- and/or long-term interest rates or a change in the relationship between short- and long-term interest rates; business conditions; the outcome of litigation discussed herein; growth in the home building, investment real estate, financial services, contracting and construction services and construction products industries in the local markets in which the Company conducts business and in the economy in general; competitive factors; governmental regulation; and the cost and availability of raw materials. 50 36 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- QUARTERLY RESULTS (UNAUDITED) (Dollars in thousands, except per share data)
March 31, --------------------------- 1998 1997 --------------------------- FIRST QUARTER Revenues $ 861,375 $ 892,411 Earnings Before Income Taxes $ 42,419 $ 33,351 Net Earnings $ 27,010 $ 21,819 Earnings Per Share Basic $ .46 $ .39 Diluted $ .45 $ .37 Average Shares Outstanding Basic 58,180,810 56,899,554 Diluted 60,131,752 58,783,910 SECOND QUARTER Revenues $ 991,746 $ 1,001,603 Earnings Before Income Taxes $ 58,695 $ 43,319 Net Earnings $ 36,391 $ 28,240 Earnings Per Share Basic $ .62 $ .49 Diluted $ .59 $ .48 Average Shares Outstanding Basic 59,008,196 57,056,216 Diluted 61,246,630 58,985,268 THIRD QUARTER Revenues $ 983,083 $ 939,107 Earnings Before Income Taxes $ 58,923 $ 42,494 Net Earnings $ 37,380 $ 27,463 Earnings Per Share Basic $ .63 $ .48 Diluted $ .61 $ .47 Average Shares Outstanding Basic 59,366,822 57,340,840 Diluted 61,759,472 59,341,366 FOURTH QUARTER Revenues $ 1,139,246 $ 951,870 Earnings Before Income Taxes $ 71,597 $ 44,579 Net Earnings $ 44,025 $ 29,041 Earnings Per Share Basic $ .74 $ .50 Diluted $ .71 $ .48 Average Shares Outstanding Basic 59,473,972 57,834,118 Diluted 61,923,084 59,932,950
Reflects the two-for-one stock split effective March 2, 1998. 51 37 Centex Corporation and Subsidiaries - -------------------------------------------------------------------------------- SUMMARY OF SELECTED FINANCIAL DATA (UNAUDITED) (Dollars in thousands, except per share data)
1998 1997 1996 1995 -------------------------------------------------------------- Revenues $ 3,975,450 $ 3,784,991 $ 3,102,987 $ 3,277,504 Net Earnings Before 1995 CXP Gain $ 144,806 $ 106,563 $ 53,365 $ 54,753 Gain on CXP's IPO, net of tax -- -- -- 37,495 ------------ ------------ ------------ ------------ Net Earnings $ 144,806 $ 106,563 $ 53,365 $ 92,248 ============ ============ ============ ============ Total Assets $ 3,416,219 $ 2,678,829 $ 2,336,966 $ 2,049,698 Total Long-term Debt, Including Debentures $ 237,715 $ 236,769 $ 321,002 $ 222,530 Total Debt $ 311,538 $ 283,769 $ 408,253 $ 427,381 Deferred Income Tax (Asset) Liability $ (144,090) $ (195,983) $ 16,085 $ 27,795 Stockholders' Equity $ 991,172 $ 835,777 $ 722,836 $ 668,227 Total Debt as a Percent of Total Capitalization (Total Debt, Deferred Income Tax Liability, Negative Goodwill, Minority Interest and Stockholders' Equity) 20.3% 20.9% 35.6% 38.0% Net Earnings as a Percent of Beginning Stockholders' Equity 17.3% 14.7% 8.0% 13.8% Per Common Share Earnings Per Share - Diluted Before Gain on CXP's IPO $ 2.36 $ 1.80 $ .91 $ .90 Gain on CXP's IPO, net of tax -- -- -- .61 ------------ ------------ ------------ ------------ Earnings Per Share - Diluted $ 2.36 $ 1.80 $ .91 $ 1.51 ============ ============ ============ ============ Cash Dividends $ .135 $ .10 $ .10 $ .10 Book Value Based on Shares Outstanding at Year End $ 16.65 $ 14.40 $ 12.72 $ 11.90 Stock Prices High $ 40 3/4 $ 20 7/8 $ 17 13/16 $ 16 3/16 Low $ 16 3/4 $ 12 15/16 $ 11 3/4 $ 10 1/8
On November 30, 1987, Centex Corporation distributed as a dividend to its stockholders securities relating to Centex Development Company, L.P. (See Note G to the Consolidated Financial Statements of Centex Corporation and Subsidiaries). Since this distribution, such securities have traded in tandem with, and as a part of, the common stock of Centex Corporation. Debt and deferred income taxes reflect Centex Corporation only, with Financial Services reflected on the equity method versus consolidation. Reflects the two-for-one stock split effective March 2, 1998. 52 38 Centex Corporation and Subsidiaries - --------------------------------------------------------------------------------
For the Years Ended March 31, - -------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 - -------------------------------------------------------------------------------- $3,039,709 $2,363,325 $2,028,646 $2,089,110 $1,925,423 $1,707,989 $ 85,162 $ 61,038 $ 34,557 $ 43,605 $ 62,003 $ 40,020 -- -- -- -- -- -- - ---------- ---------- ---------- ---------- ---------- ---------- $ 85,162 $ 61,038 $ 34,557 $ 43,605 $ 62,003 $ 40,020 ========== ========== ========== ========== ========== ========== $2,580,356 $2,272,093 $2,347,452 $2,037,486 $2,045,141 $1,800,522 $ 222,832 $ 223,988 $ 232,294 $ 137,235 $ 140,112 $ 140,192 $ 429,470 $ 368,988 $ 298,508 $ 267,946 $ 267,739 $ 240,457 $ 35,088 $ 55,722 $ 56,627 $ 80,205 $ 59,311 $ 74,487 $ 668,659 $ 578,415 $ 518,494 $ 483,677 $ 447,911 $ 384,174 37.9% 35.8% 33.0% 30.9% 33.0% 32.6% 14.7% 11.8% 7.1% 9.7% 16.1% 11.0% $ 1.29 $ .95 $ .55 $ .71 $ 1.00 $ .65 -- -- -- -- -- -- - ---------- ---------- ---------- ---------- ---------- ---------- $ 1.29 $ .95 $ .55 $ .71 $ 1.00 $ .65 ========== ========== ========== ========== ========== ========== $ .10 $ .10 $ .10 $ .10 $ .10 $ .07 $ 10.56 $ 9.29 $ 8.50 $ 8.04 $ 7.43 $ 6.64 $ 22 13/16 $ 17 1/16 $ 13 11/16 $ 10 15/16 $ 10 7/16 $ 7 7/16 $ 13 3/4 $ 10 $ 8 1/2 $ 4 7/8 $ 7 $ 5
53 39 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- TO OUR STOCKHOLDERS: Fiscal 1998 was a year of significant accomplishments during which the foundation for future growth and expansion was put in place. As a result of the continued improvement in some of the markets in which Centex Development Company, L.P. (the Partnership or CDC) owns real estate, revenues for the combined entities increased to $20.1 million from the $9.5 million reported a year ago. Margins on land sales increased to 28% from 18% a year ago, resulting in increased net earnings of $4.4 million versus $925,000 in the prior year. Real estate sales during the current year totaled $18.9 million and included the sale of 122 acres of commercial land in The Colony located near Dallas, Texas, and approximately 10 acres of multi-family zoned land in Dallas, Texas. Also included was the $2.9 million sale to Centex Homes of a north Dallas property which consisted of office and warehouse buildings situated on 17 acres. During the year, 3333 Holding Corporation (Holding), through its wholly-owned subsidiary 3333 Development Corporation (Development), and CDC (together the Companies) expanded both their multi-family and commercial development efforts. Holding's Board of Directors approved the issuance of a new class of preferred limited partnership units and as of March 31, 1998, 7,542 new units were issued to Centex, CDC's sole limited partner, in exchange for land valued at $7,542,000. The contributed land is located in Texas, Florida, California and North Carolina, is zoned for multi-family and commercial projects and is ready for immediate development. During fiscal 1998, CDC began development of a 304 unit multi-family complex on CDC land in The Colony, Texas and completed development of a 38,000 square foot pre-leased industrial building located in Charlotte, North Carolina. Additionally, during the year, CDC successfully bid and obtained an agreement for a 141,000 square foot build-to-suit office building for the Internal Revenue Service in Ft. Lauderdale, Florida under a 10-year lease with the General Services Administration. Subsequent to year-end, CDC acquired 55 industrial acres in Ventura County, California. Agreements have been negotiated for the development of two build-to-suit industrial/office facilities totaling 212,500 square feet on 12 acres of the Ventura County property. During fiscal 1998, CDC positioned itself strategically to maximize the value of its existing land holdings, initiated significant new development projects which will enhance earnings in fiscal 1999 and subsequent years and continued a high focus on identifying development opportunities in new markets. At the end of the fiscal year, J.S. (Steve) Bilheimer, who has been President of the Companies since their inception in 1987, retired from this full-time role. In his more than 40 years with Centex and the Centex Development entities, Steve has made significant contributions in the home building and the real estate development areas, all with great distinction. We are grateful to him for his dedicated service and are pleased that he is continuing his association with the Companies on a consulting basis. Richard C. Decker President and Chief Executive Officer May 8, 1998 54 40 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS OF 3333 HOLDING CORPORATION: We have audited the accompanying combining balance sheets of 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. as of March 31, 1998 and 1997, and the related combining statements of operations and cash flows and stockholders' equity and partners' capital for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the individual and combined financial positions of 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. as of March 31, 1998 and 1997, and the individual and combined results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Dallas, Texas May 8, 1998 55 41 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share/unit data)
For the Years Ended March 31, ---------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------------------------------------------------------------- REVENUES 3333 Holding Corporation and Subsidiary $ 1,505 $ 1,664 $ 2,045 $ 1,602 $ 537 Centex Development Company, L.P. $ 19,618 $ 9,026 $ 13,943 $ 9,796 $ 12,859 Combined Revenues $ 20,121 $ 9,529 $ 14,470 $ 10,342 $ 13,249 OPERATING EARNINGS (LOSS) 3333 Holding Corporation and Subsidiary $ (125) $ 206 $ 253 $ 96 $ (114) Centex Development Company, L.P. $ 4,524 $ 719 $ 24 $ (16,323) $ (1,510) Combined Operating Earnings (Loss) $ 4,399 $ 925 $ 277 $ (16,227) $ (1,624) TOTAL ASSETS 3333 Holding Corporation and Subsidiary $ 10,423 $ 8,648 $ 8,652 $ 8,673 $ 8,600 Centex Development Company, L.P. $ 59,260 $ 42,978 $ 43,168 $ 105,946 $ 121,027 Combined Assets $ 60,497 $ 50,127 $ 50,786 $ 113,282 $ 128,092 TOTAL DEBT 3333 Holding Corporation and Subsidiary $ 1,480 $ 7,000 $ 7,600 $ 7,600 $ 7,600 Centex Development Company, L.P. $ 13,821 $ 7,055 $ 3,326 $ 56,485 $ 54,149 Combined Debt $ 15,301 $ 14,055 $ 10,926 $ 64,085 $ 61,749 OPERATING EARNINGS (LOSS) PER SHARE/UNIT 3333 Holding Corporation and Subsidiary $ (125) $ 206 $ 253 $ 96 $ (114) Centex Development Company, L.P. $ 140.14 $ 22.29 $ .74 $ (505.98) $ (46.81) AVERAGE SHARES/UNITS OUTSTANDING 3333 Holding Corporation and Subsidiary (shares) 1,000 1,000 1,000 1,000 1,000 Centex Development Company, L.P. (units) 32,281 32,260 32,260 32,260 32,260
Reflects conversion of Class A preferred units and issuance of Class C preferred units. 56 42 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- COMBINING BALANCE SHEETS (Dollars in thousands)
March 31, -------------------------------------------------------------------- 1998 1997 1998 1997 1998 1997 -------------------------------------------------------------------- Centex Development 3333 Holding Corporation Combined Company, L.P. and Subsidiary -------------------------------------------------------------------- ASSETS Cash $ 260 $ 630 $ 259 $ 625 $ 1 $ 5 Accounts Receivable - Affiliates -- -- 7,921 732 416 -- Centex Corporation and Subsidiaries 180 176 -- -- 180 176 Other 796 136 631 136 165 -- Notes Receivable - Centex Corporation and Subsidiaries 7,700 7,700 -- -- 7,700 7,700 Other 5,110 2,365 5,110 2,365 -- -- Investment in Affiliate -- -- -- -- 849 767 Investment in Real Estate Joint Ventures 3,040 202 2,478 202 562 -- Commercial Properties, net 1,946 -- 1,946 -- -- -- Projects Under Development and Held for Sale 41,265 38,918 40,815 38,918 450 -- Property and Equipment, net 88 -- -- -- 88 -- Other Assets 112 -- 100 -- 12 -- -------- -------- -------- -------- -------- -------- $ 60,497 $ 50,127 $ 59,260 $ 42,978 $ 10,423 $ 8,648 ======== ======== ======== ======== ======== ======== LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Accounts Payable and Accrued Liabilities - Affiliates $ -- $ -- $ 503 $ -- $ 7,916 $ 732 Centex Corporation and Subsidiaries 948 126 877 -- 71 126 Other 3,393 2,532 2,990 2,420 403 112 Notes Payable - Centex Corporation and Subsidiaries 1,480 7,000 -- -- 1,480 7,000 Other 13,821 7,055 13,821 7,055 -- -- Stockholders' Equity and Partners' Capital - Stock and Stock/Class B Unit Warrants 501 501 500 500 1 1 Capital in Excess of Par Value 800 800 -- -- 800 800 Retained Earnings (Deficit) (248) (123) -- -- (248) (123) Partners' Capital 39,802 32,236 40,569 33,003 -- -- -------- -------- -------- -------- -------- -------- Total Stockholders' Equity and Partners' Capital 40,855 33,414 41,069 33,503 553 678 -------- -------- -------- -------- -------- -------- $ 60,497 $ 50,127 $ 59,260 $ 42,978 $ 10,423 $ 8,648 ======== ======== ======== ======== ======== ========
See notes to combining financial statements. 57 43 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- COMBINING STATEMENTS OF OPERATIONS AND CASH FLOWS (Dollars in thousands, except per share/unit data)
For the Years Ended March 31, -------------------------------------------------------------------------------- 1998 1997 1996 1998 1997 1996 -------------------------------------------------------------------------------- Centex Development Combined Company, L.P. -------------------------------------------------------------------------------- COMBINING STATEMENTS OF OPERATIONS REVENUES Real Estate Sales $ 18,939 $ 8,270 $ 13,018 $ 18,939 $ 8,270 $ 13,018 Interest and Other Income 1,182 1,259 1,452 679 756 925 ---------- ---------- ---------- ---------- ---------- ---------- 20,121 9,529 14,470 19,618 9,026 13,943 ---------- ---------- ---------- ---------- ---------- ---------- COSTS AND EXPENSES Real Estate Sales 13,585 6,772 11,861 13,585 6,772 11,861 Selling and Administrative 1,745 1,324 1,774 1,489 1,535 2,058 Interest 392 508 558 20 -- -- ---------- ---------- ---------- ---------- ---------- ---------- 15,722 8,604 14,193 15,094 8,307 13,919 ---------- ---------- ---------- ---------- ---------- ---------- EARNINGS (LOSS) BEFORE INCOME TAXES 4,399 925 277 4,524 719 24 Income Taxes -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- NET EARNINGS (LOSS) $ 4,399 $ 925 $ 277 $ 4,524 $ 719 $ 24 ========== ========== ========== ========== ========== ========== NET EARNINGS (LOSS) PER UNIT/SHARE $ 140.14 $ 22.29 $ 0.74 ========== ========== ========== WEIGHTED-AVERAGE UNITS/ SHARES OUTSTANDING 32,281 32,260 32,260 COMBINING STATEMENTS OF CASH FLOWS CASH FLOWS - OPERATING ACTIVITIES Net Earnings (Loss) $ 4,399 $ 925 $ 277 $ 4,524 $ 719 $ 24 Net Change in Payables, Receivables, Deposits, and Other 819 (165) 213 (5,834) (558) 479 (Increase) Decrease in Notes Receivable (2,745) 1,444 216 (2,745) 1,444 216 Increase in Advances to Joint Venture (2,838) (22) (180) (2,276) (22) (180) Increase in Commercial Properties (1,946) -- -- (1,946) -- -- (Increase) Decrease in Projects Held for Development and Sale (2,347) (412) 7,949 (1,897) (412) 7,949 ---------- ---------- ---------- ---------- ---------- ---------- (4,658) 1,770 8,475 (10,174) 1,171 8,488 ---------- ---------- ---------- ---------- ---------- ---------- CASH FLOWS - FINANCING ACTIVITIES (Decrease) Increase in Notes Payable - Centex Corporation and Subsidiaries (5,520) (600) -- -- -- -- Other 6,766 3,729 334 6,766 3,729 334 Issuance of Class C Partnership Units 7,542 -- -- 7,542 -- -- Capital Distributions - Return of Capital -- (4,500) (10,000) -- (4,500) (10,000) Preference Payments (4,500) -- -- (4,500) -- -- ---------- ---------- ---------- ---------- ---------- ---------- 4,288 (1,371) (9,666) 9,808 (771) (9,666) ---------- ---------- ---------- ---------- ---------- ---------- NET (DECREASE) INCREASE IN CASH (370) 399 (1,191) (366) 400 (1,178) CASH AT BEGINNING OF YEAR 630 231 1,422 625 225 1,403 ---------- ---------- ---------- ---------- ---------- ---------- CASH AT END OF YEAR $ 260 $ 630 $ 231 $ 259 $ 625 $ 225 ========== ========== ========== ========== ========== ========== For the Years Ended March 31, -------------------------------------- 1998 1997 1996 -------------------------------------- 3333 Holding Corporation and Subsidiary -------------------------------------- COMBINING STATEMENTS OF OPERATIONS REVENUES Real Estate Sales $ -- $ -- $ -- Interest and Other Income 1,505 1,664 2,045 ---------- ---------- ---------- 1,505 1,664 2,045 ---------- ---------- ---------- COSTS AND EXPENSES Real Estate Sales -- -- -- Selling and Administrative 913 740 1,011 Interest 717 718 781 ---------- ---------- ---------- 1,630 1,458 1,792 ---------- ---------- ---------- EARNINGS (LOSS) BEFORE INCOME TAXES (125) 206 253 Income Taxes -- -- -- ---------- ---------- ---------- NET EARNINGS (LOSS) $ (125) $ 206 $ 253 ========== ========== ========== NET EARNINGS (LOSS) PER UNIT/SHARE $ (125) $ 206 $ 253 ========== ========== ========== WEIGHTED-AVERAGE UNITS/ SHARES OUTSTANDING 1,000 1,000 1,000 COMBINING STATEMENTS OF CASH FLOWS CASH FLOWS - OPERATING ACTIVITIES Net Earnings (Loss) $ (125) $ 206 $ 253 Net Change in Payables, Receivables, Deposits, and Other 6,735 393 (266) (Increase) Decrease in Notes Receivable -- -- -- Increase in Advances to Joint Venture (644) -- -- Increase in Commercial Properties -- -- -- (Increase) Decrease in Projects Held for Development and Sale (450) -- -- ---------- ---------- ---------- 5,516 599 (13) ---------- ---------- ---------- CASH FLOWS - FINANCING ACTIVITIES (Decrease) Increase in Notes Payable - Centex Corporation and Subsidiaries (5,520) (600) -- Other -- -- -- Issuance of Class C Partnership Units -- -- -- Capital Distributions - Return of Capital -- -- -- Preference Payments -- -- -- ---------- ---------- ---------- (5,520) (600) -- ---------- ---------- ---------- NET (DECREASE) INCREASE IN CASH (4) (1) (13) CASH AT BEGINNING OF YEAR 5 6 19 ---------- ---------- ---------- CASH AT END OF YEAR $ 1 $ 5 $ 6 ========== ========== ==========
See notes to combining financial statements. 58 44 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- COMBINING STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL (Dollars in thousands)
For the Years Ended March 31, 1998, 1997 and 1996 -------------------------------------------------------------------------------------------------------- Centex Development 3333 Holding Company, L.P. Corporation and Subsidiary -------------------------------------------------------------------------------------------------------- Class B General Limited Capital In Retained Unit Partner's Partners' Stock Common Excess Of Earnings Combined Warrants Capital Capital Warrants Stock Par Value (Deficit) -------------------------------------------------------------------------------------------------------- Balance at March 31, 1995 $ 46,712 $ 500 $ 767 $ 45,993 $ 1 $ -- $ 800 $ (582) Return of Capital (10,000) -- -- (10,000) -- -- -- -- Net Earnings 277 -- -- 24 -- -- -- 253 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 1996 36,989 500 767 36,017 1 -- 800 (329) Return of Capital (4,500) -- -- (4,500) -- -- -- -- Net Earnings 925 -- -- 719 -- -- -- 206 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at March 31, 1997 33,414 500 767 32,236 1 -- 800 (123) PREFERENCE PAYMENTS (4,500) -- -- (4,500) -- -- -- -- ISSUANCE OF CLASS C PARTNERSHIP UNITS 7,542 -- -- 7,542 -- -- -- -- NET EARNINGS 4,399 -- -- 4,524 -- -- -- (125) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT MARCH 31, 1998 $ 40,855 $ 500 $ 767 $ 39,802 $ 1 $ -- $ 800 $ (248) ========== ========== ========== ========== ========== ========== ========== ==========
See notes to combining financial statements. - -------------------------------------------------------------------------------- NOTES TO COMBINING FINANCIAL STATEMENTS (A) ORGANIZATION In March 1987, Centex Development Company, L.P. (CDC or the Partnership), a master limited partnership, was formed to enable holders of Centex Corporation (Centex) stock to participate in long-term real estate development projects whose dynamics are inconsistent with Centex's traditional financial objectives. Certain of Centex's subsidiaries contributed to CDC properties with a historical cost basis (which approximated market value) of approximately $76 million in exchange for 1,000 limited partnership units (Class A Units). In November 1987, Centex distributed as a dividend to its stockholders securities relating to CDC. These securities included all of the issued and outstanding shares of common stock of 3333 Holding Corporation (Holding) and warrants to purchase approximately 80% of the Class B units of limited partnership interest in CDC. 3333 Development Corporation (Development), a wholly-owned subsidiary of Holding, serves as general partner of CDC. 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 will automatically become detached on the scheduled detachment date which is in November 2007. During fiscal 1998, the agreement governing the Partnership was amended to allow for the issuance of a new class of limited partnership units, Class C Preferred Limited Partnership Units (Class C Units). The Class C Units are to be issued in connection with the contribution of assets from the limited partner. On March 31, 1998, 7,542 Class C Units were issued in exchange for assets valued at $7,542,000. Under the Second Amended and Restated Agreement of Limited Partnership (Partnership Agreement), holders of Class C Units are entitled to substantially the same rights as holders of Class A Units in connection with matters in common, such as voting, allocations, and distributions. Supplementary condensed combined financial statements of Centex Corporation and subsidiaries, 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. are set forth below. For additional information on Centex Corporation and subsidiaries, see their separate financial statements and related footnotes. 59 45 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS (Dollars in thousands)
March 31, ----------------------------- 1998 1997 ------------ ------------ ASSETS Cash and Cash Equivalents $ 98,576 $ 31,950 Receivables 1,588,247 989,886 Inventories 1,107,941 1,041,855 Investments in Joint Ventures 10,598 5,479 Property and Equipment, net 296,080 293,143 Other Assets 333,044 327,281 ------------ ------------ $ 3,434,486 $ 2,689,594 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 802,547 $ 740,230 Short-term Debt 1,166,694 634,573 Long-term Debt 237,715 236,769 Minority Stockholders' Interest 152,468 142,230 Negative Goodwill 82,837 98,837 Stockholders' Equity 992,225 836,955 ------------ ------------ $ 3,434,486 $ 2,689,594 ============ ============
SUPPLEMENTARY CONDENSED COMBINED STATEMENTS OF EARNINGS (Dollars in thousands)
For the Years ended March 31, ---------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Revenues $ 3,991,954 $ 3,793,621 $ 3,111,486 Costs and Expenses 3,760,445 3,629,672 3,023,447 ------------ ------------ ------------ Earnings Before Income Taxes 231,509 163,949 88,039 Income Taxes 86,828 57,180 34,421 ------------ ------------ ------------ Net Earnings $ 144,681 $ 106,769 $ 53,618 ============ ============ ============
60 46 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- (B) BASIS OF PRESENTATION The accompanying combining financial statements present the individual and combined financial statements of Holding and its subsidiary and the Partnership as of March 31, 1998 and 1997 and results of operations for each of the three years ended March 31, 1998. The financial statements of the Partnership are included in the combined statements since Development, as general partner of the Partnership, is able to exercise effective control over the Partnership. (C) SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenue from real estate sales is recognized as required payments are received and title passes. INVENTORY CAPITALIZATION AND COST ALLOCATION Projects under development and held for sale are stated at the lower of cost (including development costs and, where appropriate, capitalized interest and real estate taxes) or market. The capitalized costs are included in cost of sales in the combining statements of operations as related revenues are recognized. EARNINGS (LOSS) PER SHARE/UNIT Earnings (loss) per share/unit are based on the weighted-average number of outstanding shares of common stock of 1,000 for Holding and the weighted-average number of outstanding Class A and Class C limited partnership units of 32,281 in 1998 and 32,260 for all other periods presented for the Partnership. There are no common stock/unit equivalents outstanding. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 121, issued in March 1995, establishes methods of accounting for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. This Statement was implemented on April 1, 1996 and did not have a material impact on the individual or combined financial statements of Holding and its subsidiary and the Partnership. Statement of Financial Accounting Standards No. 130, issued in June 1997, requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. This Statement is effective for fiscal years beginning after December 15, 1997. The Company does not expect adoption of the Statement to have a material effect on the presentation of its financial statements. COMBINING STATEMENTS OF OPERATIONS AND CASH FLOWS - SUPPLEMENTAL DISCLOSURES Interest capitalized by the Partnership during fiscal years ended March 31, 1998, 1997 and 1996 totaled $22,000, $22,000 and $98,000, respectively. No income taxes were paid during the years ended March 31, 1998, 1997 and 1996. 61 47 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- (D) NOTES RECEIVABLE Development issued common stock to Holding and used the proceeds to advance $7.7 million to a wholly-owned subsidiary of Centex, as evidenced by a note receivable due April 30, 1999 bearing interest at prime plus .875%. Interest is due in quarterly installments. Interest income of $732,000, $713,000 and $750,000 related to this note is included in the accompanying combining financial statements for the years ended March 31, 1998, 1997 and 1996, respectively. Notes Receivable - Other at March 31, 1998 and 1997 have stated interest rates ranging up to 10% and are due in monthly or quarterly installments. Discounts and allowances totaled $21,000 at both March 31, 1998 and 1997. The weighted average interest rate, inclusive of discounts, was 9% at both March 31, 1998 and 1997. Notes receivable at March 31, 1998 are collectible over three years, with $1,654,000 being due within one year. (E) NOTES PAYABLE Centex had advanced Holding $1.0 million as of March 31, 1998 which is evidenced by a note secured by the common stock of Development (the Holding Note). The Holding Note with an average balance of $3.9 million and $5.3 million during fiscal 1998 and 1997, respectively, bears interest at prime plus 1% that is payable quarterly. The principal balance together with all unpaid accrued interest is due on the earlier of April 1, 1999 or the date on which the warrants to purchase Class B Units of limited partnership interests are detached from shares of the common stock of Centex. Interest expense of $372,000, $508,000, and $558,000 related to this note is included in the accompanying combining financial statements for the years ended March 31, 1998, 1997 and 1996, respectively. In addition, Centex Multi-family Company, a wholly-owned subsidiary of Development, has a $1 million note agreement with Centex (the MF Note) to fund certain predevelopment costs. The MF Note is unsecured and bears interest at prime, payable quarterly and had an outstanding balance of $480,000 at March 31, 1998. Under the most restrictive covenants of the Holding Note agreement, Holding and its subsidiary (excluding the Partnership) may not, without Centex's consent, (i) create any additional liens on or sell real estate properties contributed by the limited partner, (ii) effect a merger or consolidation, (iii) declare dividends or make certain other shareholder payments or (iv) allow tangible net worth, as defined, to be less than $7.7 million for Development. All notes payable are non-recourse, secured solely by the underlying real estate. As land is sold, a portion of the proceeds is restricted for repayment of the notes. The prime rate in effect was 8.50% at March 31, 1998 and March 31, 1997. The 30 day LIBOR rate at March 31, 1998 and 1997 was 5 14/20% and 5 9/16%, respectively. The note balances and rates in effect were as follows (dollars in thousands):
March 31, ------------------------- 1998 1997 ------------------------- Credit Line at LIBOR plus 3/4%, Maturing in Fiscal Year 1999, Unsecured, Guaranteed by CREC $ 1,500 $ -- Note Payable at 9%, Matured in Fiscal Year 1998 -- 555 Credit Line at LIBOR Plus 1 13/20%, Maturing in Fiscal Year 1999 7,821 -- Note Payable at 8%, Maturing in Fiscal Year 2000 4,500 6,500 ---------- ---------- $ 13,821 $ 7,055 ========== ==========
62 48 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- (F) STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL EQUITY SECURITIES The Partnership Agreement contemplates the issuance of three classes of limited partnership units, Class A Units, Class B Units, and Class C Units. In March 1987, one thousand Class A Units were issued to Centex subsidiaries in exchange for assets valued at approximately $76 million. The Class B Units, held by a nominee on behalf of the stockholders, will detach and trade separate from Centex stock on the earlier of Payout (as defined below) or November 30, 2007, the scheduled detachment date. As of February 24, 1998, the 1,000 Class A Units were converted to 32,260 new Class A Units. As of March 31, 1998, 7,542 Class C Units were issued in exchange for assets valued at $7,542,000. PREFERRED RETURN The partnership agreement provides that the Class A and Class C limited partners are entitled to a cumulative preferred return of 9% per annum on the average outstanding balance of their Unrecovered Capital. Unrecovered Capital represents initial capital contributions as reduced by repayments and is the basis for preference accruals. In July 1995, in conjunction with the extension of the detachment date, Centex Real Estate Corporation (CREC), the sole limited partner, waived preference totaling $37.5 million and reduced the Class A Unrecovered Capital in the Partnership, as defined, to $47.3 million. Distributions made by the Partnership reduced Unrecovered Capital by an additional $4.5 million during fiscal 1997 and $10 million during fiscal 1996. During fiscal 1998, the Partnership made preference payments to its limited partner totaling $4.5 million. Preference payments in arrears at March 31, 1998 amounted to $4.2 million and Unrecovered Capital for Class A and Class C limited partners totaled $32.8 million and $7.5 million, respectively. ALLOCATION OF PROFITS AND LOSSES As provided in the Partnership Agreement, prior to Payout (as defined below), net income of the Partnership is to be allocated to the partners in the following order of priority: [i] To the Class A and Class C limited partners to the extent of the cumulative preferred return. [ii] To the partners to the extent and in the same ratio that cumulative net losses were allocated. [iii] To the partners in accordance with their percentage interests, as defined. Currently, this would be a combined 20% to the Class A and Class C limited partners and 80% to the general partner. All loss allocations and allocations of net income after Payout shall be made to the partners in accordance with their percentage interests, as defined. DISTRIBUTIONS Distributions of cash or other property are to be made at the discretion of the general partner and are to be distributed in the following order of priority: [i] Prior to the time at which the Class A and Class C limited partners have received aggregate distributions equal to their original capital contribution (Payout), distributions of cash or other property shall be made as follows: [a] To the Class A and Class C limited partners with respect to their preferred return, then [b] To the partners in an amount equal to the maximum marginal corporate tax rate times the amount of taxable income allocated to the partners, then [c] To the Class A and Class C limited partners with their Unrecovered Capital as reduced to zero. [ii] After Payout, distributions of cash shall be made to the partners in accordance with their percentage interests, as defined. 63 49 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- WARRANTS In November 1987, Centex acquired from the partnership 100 warrants to purchase 100 Class B Units in the Partnership at an exercise price of $500 per Class B Unit, and Centex acquired from Holding 100 warrants to purchase 100 shares of Holding common stock at an exercise price of $800 per share. These warrants are subject to future adjustment to provide the holders of options to purchase Centex common stock with the opportunity to acquire Class B Units and shares of Holding. These warrants will generally become exercisable upon the detachment of the tandem-traded securities from Centex common stock. (G) RELATED PARTY TRANSACTIONS SERVICE AND MANAGEMENT AGREEMENTS Holding entered into a service agreement in May 1987 with Centex Service Company (CSC), a wholly-owned subsidiary of Centex, whereby CSC will provide certain tax, accounting and other similar services for Holding at a fee of $2,500 per month. Service fees of $30,000 for each of fiscal years 1998, 1997, and 1996 are reflected as administrative expenses in the accompanying combining financial statements. The Partnership paid $640,000, $951,000, and $1,295,000 to Holding during fiscal years 1998, 1997 and 1996, respectively, pursuant to an agreement whereby Holding provides management services to the Partnership in connection with the development and operation of properties acquired by the Partnership, maintenance of partnership property and accounting and clerical services. SALES AND PURCHASES Partnership revenues during fiscal years 1998, 1997, and 1996 include land sales to Centex Homes of $6,494,000, $3,814,000, and $4,416,000, respectively. Included in the 1998 sales to Centex Homes, CDC sold a north Dallas property which consisted of office and warehouse buildings situated on 17 acres for $2.9 million. Additionally, at March 31, 1998, Centex Homes had contracts to purchase lots for the aggregate price of approximately $7 million to be paid as lots are delivered. In January 1998, Development purchased all of the stock of a wholly-owned subsidiary of CREC for $1,134,000. The acquired entity indirectly owns real estate development assets with a value of $1,134,000. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE Included in Accounts Receivable-Affiliates and Accounts Payable-Affiliates in the accompanying combining financial statements are $7,921,000 at March 31, 1998 and $732,000 at March 31, 1997, which the Partnership advanced to Holding. Interest of $345,000 and $210,000 was accrued on advances during fiscal years 1998 and 1997, respectively. (H) INCOME TAXES At March 31, 1998, Holding had operating loss carryforwards for income tax reporting purposes of $204,000. If unused, the loss carryforwards will expire in fiscal years 2009 through 2019. Holding joins with its subsidiary in filing consolidated income tax returns. The taxable income of the Partnership has been allocated to the holders of the Class A and Class C Units. Accordingly, no tax provision for Partnership earnings is shown in the combining financial statements. 64 50 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- QUARTERLY RESULTS (UNAUDITED) (Dollars in thousands, except per share/unit data)
March 31, ------------------------------------------------------------------------------- 1998 1997 1998 1997 1998 1997 ------------------------------------------------------------------------------- Centex Development 3333 Holding Corporation Combined Company, L.P. and Subsidiary ------------------------------------------------------------------------------- FIRST QUARTER Revenues $ 3,741 $ 3,472 $ 3,623 $ 3,322 $ 412 $ 579 Earnings Before Taxes $ 791 $ 356 $ 699 $ 176 $ 92 $ 180 Net Earnings $ 791 $ 356 $ 699 $ 176 $ 92 $ 180 Earnings Per Unit/Share $ 21.67 $ 5.46 $ 92 $ 180 Average Units Outstanding 32,260 32,260 -- -- Average Shares Outstanding -- -- 1,000 1,000 SECOND QUARTER Revenues $ 3,094 $ 825 $ 3,002 $ 691 $ 337 $ 445 Earnings (Loss) Before Taxes $ 348 $ (91) $ 360 $ (190) $ (12) $ 99 Net Earnings (Loss) $ 348 $ (91) $ 360 $ (190) $ (12) $ 99 Earnings (Loss) Per Unit/Share $ 11.15 $ (5.89) $ (12) $ 99 Average Units Outstanding 32,260 32,260 -- -- Average Shares Outstanding -- -- 1,000 1,000 THIRD QUARTER Revenues $ 9,228 $ 4,026 $ 9,123 $ 3,932 $ 310 $ 307 Earnings (Loss) Before Taxes $ 3,034 $ 644 $ 3,054 $ 708 $ (20) $ (64) Net Earnings (Loss) $ 3,034 $ 644 $ 3,054 $ 708 $ (20) $ (64) Earnings (Loss) Per Unit/Share $ 94.67 $ 21.95 $ (20) $ (64) Average Units Outstanding 32,260 32,260 -- -- Average Shares Outstanding -- -- 1,000 1,000 FOURTH QUARTER Revenues $ 4,058 $ 1,206 $ 3,870 $ 1,081 $ 446 $ 333 Earnings (Loss) Before Taxes $ 226 $ 16 $ 411 $ 25 $ (185) $ (9) Net Earnings (Loss) $ 226 $ 16 $ 411 $ 25 $ (185) $ (9) Earnings (Loss) Per Unit/Share $ 12.73 $ .78 $ (185) $ (9) Average Units Outstanding 32,286 32,260 -- -- Average Shares Outstanding -- -- 1,000 1,000
Reflects conversion of Class A preferred units and issuance of Class C preferred units. 65 51 Centex Development Company (3333 Holding Corporation, 3333 Development Corporation, Centex Development Company, L.P.) - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997 Although revenues for the Partnership are largely dependent on land sales, the timing of which are uncertain and can vary significantly from period to period, management feels that the sales volume achieved in fiscal 1998 is a result of the continued improvement in certain of the markets in which CDC owns real estate. On a combined basis, revenues increased to $20.1 million for the year ended March 31, 1998 from $9.5 million reported a year earlier. Fiscal 1998 revenues included the sale of 122 acres of commercial land in The Colony, Texas, and approximately six acres of commercial and ten acres of multi-family land in Dallas, Texas. Sales to Centex Homes during fiscal 1998 included the $2.9 million sale of a north Dallas property consisting of office and warehouse buildings situated on approximately 17 acres, and 193 residential lots in New Jersey and Florida. Revenues of $9.5 million in fiscal 1997 included the sale of 632 acres of commercial land in The Colony, Texas, and 153 residential lots to Centex Homes. Net earnings for the year ended March 31, 1998 totaled $4.4 million compared to $925,000 for the year ended March 31, 1997. The increased earnings are primarily a result of increased margins on land sales, 28% in 1998 versus 18% in 1997. FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996 For the year ended March 31, 1997, Holding, Development and the Partnership reported combined revenues of $9.5 million compared to $14.5 million reported in fiscal 1996, a 34.5% decrease. Fiscal 1997 land sales included the sale of 63.2 acres of commercial land in The Colony, Texas, and 153 lots sold to Centex Homes in Florida and New Jersey. Fiscal year 1996 sales included the sale of 121 acres of residential and 52.2 acres of commercial land in The Colony, Texas; 399 acres of agricultural land in New Braunfels, Texas; 7.2 acres of agricultural land in Fate, Texas; and 180 residential lots to Centex Homes in Florida and New Jersey. Notwithstanding the decreased revenues for the year ended March 31, 1997, the combined earnings for fiscal 1997 increased to $925,000 compared to $277,000. The improvement in earnings for fiscal year 1997 primarily related to a reduction in administrative costs and higher margins on real estate sales as a result of the improved real estate markets in areas in which land sales occurred. LIQUIDITY AND CAPITAL RESOURCES During fiscal year 1998, the agreement governing the Partnership was amended to allow for the issuance of a new class of limited partnership units, Class C Preferred Limited Partnership Units (Class C Units). In the March 1998 quarter, 7,542 Class C Units were issued in exchange for land valued at $7,542,000. The contributed land has been identified for near term light industrial and office development. The Companies believe that they will be able to provide or obtain the necessary funding for their current operations and future expansion needs. Initially, development operations are not anticipated to be a significant source of earnings or liquidity for the Companies; and therefore, the revenues, earnings and liquidity of the Companies will continue to be largely dependent on future land sales, the timing of which are uncertain. The ability to obtain external debt or equity capital is subject to the provisions of Holding's loan agreement with Centex and the partnership agreement (as amended) governing the Partnership. During the fiscal years ended March 31, 1998 and 1997, the Partnership made capital distributions and preference payments to its limited partner totaling $4.5 million each year. 66 EX-21.1 9 LIST OF SUBSIDIARIES OF CENTEX CORPORATION 1 EXHIBIT 21.1 CENTEX CORPORATION SUBSIDIARY LIST The following list of subsidiaries of Centex Corporation ("Centex"), wholly-owned unless otherwise stated, includes all of the significant subsidiaries of Centex as of June 22, 1998.
CORPORATIONS JURISDICTION OF INCORPORATION AAA Holdings, Inc. Delaware d/b/a Vista Mortgage & Realty, Inc. ADFINET, Inc. Nevada Advanced Financial Technology, Inc. Nevada d/b/a Affiliated Advanced Technology, Inc. Advanced Protection Systems, Inc. Nevada d/b/a Home Team Security Apartment Protection Systems American Gypsum Company New Mexico d/b/a Centex American Gypsum Arlington Mortgage, Inc. Ohio Armor Insurance Company Vermont B P Sand & Gravel, Inc. Delaware Bradfield Farms Water Company North Carolina Braewood Development Corp. Nevada CCP Cement Company Nevada CCP Concrete/Aggregates Company Nevada CCP Gypsum Company Nevada CCP Land Company Nevada CDMC Holding, Inc. Nevada CEGC Holding Company Delaware Centech Solutions, Inc. Nevada
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CORPORATIONS JURISDICTION OF INCORPORATION Centex Acceptance Corporation Nevada Centex Building Services, Inc. Nevada Centex Cement Corporation Nevada Centex Construction Company, Inc. Nevada Centex Construction Group, Inc. Nevada Centex Construction Group Services, Inc. Nevada Centex Construction Products, Inc. Delaware Centex Credit Corporation Nevada d/b/a Centex Home Equity Corporation Centex Development Management Company Nevada Centex Eagle Gypsum Company Delaware Centex Equity Corporation Nevada Centex Finance Company Nevada Centex Financial Corporation Nevada Centex Financial Management Corporation Nevada Centex Financial Services, Inc. Nevada Centex Forcum Lannom, Inc. Nevada Centex Golden Construction Company Nevada d/b/a M.H. Golden Company Centex-Great Southwest Corporation Florida Centex-Hamby Construction, Inc. Georgia Centex Home Services Company Nevada d/b/a HomeTeam Services Centex Homes, Inc. Texas
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CORPORATIONS JURISDICTION OF INCORPORATION Centex Homes Marketing, Inc. Georgia Centex Homes Realty Company Nevada Centex Homes International Limited United Kingdom Centex Homes International B.V. Netherlands Centex Hometeam, Inc. Nevada Centex International, Inc. Nevada d/b/a Nevada Centex International, Inc. Centex Landis Construction Co., Inc. Louisiana Centex Life Solutions, Inc. Nevada Centex Materials, Inc. Nevada Centex New Jersey Realty, Inc. Nevada Centex Real Estate Construction Company Nevada Centex Real Estate Corporation Nevada d/b/a Centex Homes CTX Builders Supply New Home Research Group Fox & Jacobs Fox & Jacobs Homes Centex Homes Corporation Centex-Crosland Homes Centex Custom Homes Vista Homes Centex Realty Company Nevada Centex Realty, Inc. Florida Centex Repair & Remodel Corporation Nevada Centex-Rodgers Construction Company Nevada Centex-Rooney Construction Co., Inc. Florida d/b/a Centex Rooney Facilities Group
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CORPORATIONS JURISDICTION OF INCORPORATION Centex-Rooney Construction Co. of Georgia, Inc. Georgia Centex Seismic Services, Inc. Nevada Centex Senior Services Corporation Nevada d/b/a Kensington Cottages at Chandler Creek Kensington Cottages by Centex Kensington Cottages at Clear Creek Centex Service Company Nevada Centex Technology, Inc. Nevada Centex Title & Ancillary Services, Inc. Nevada Charles Church Homes Limited United Kingdom CHEC Asset Receivable Corporation Nevada CHEC Residual Corporation Nevada Commerce Land Title, Inc. Nevada Crosland Bond Company North Carolina CTX Holding Company Nevada CTX Insurance Agency, Inc. Texas CTX Mortgage Company Nevada d/b/a Frost Mortgage Banking Group Houston Appraisal, Inc. Crane Financial Group CTX Mortgage Ventures Corporation Nevada Dundee Insurance Agency, Inc. Texas Enhanced Safetysystems, Inc. Nevada d/b/a Cactus Valley Pest Control Environmental Safetysystems, Inc. HomeTeam Services Results Pest Control
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CORPORATIONS JURISDICTION OF INCORPORATION Fox & Jacobs, Inc. Texas Genbond Two, Inc. North Carolina GHQ Company, Inc. Nevada Great Lakes Development Co., Inc. Nevada Illinois Cement Company Illinois Independent General Agency, Inc. Texas Integrated Project Solutions, Inc. Nevada John Crosland Acceptance Corporation Three North Carolina John Crosland Company North Carolina Loan Processing Technologies, Inc. Nevada M & W Drywall Supply Company Nevada d/b/a Rio Grande Drywall Supply Co. M&W General Construction Company Nevada Mathews Readymix, Inc. California Metropolitan Tax Service, Inc. Nevada Metropolitan Title & Guaranty Company Florida d/b/a Metropolitan Tax & Abstract Services, Inc. Mountain Cement Company Nevada Nevada Cement Company Nevada 900 Development Corporation Cayman Islands 111 E. Chestnut Corporation Illinois 1629 Service Corporation Texas Panoramic Land, Inc. Nevada Radar Exterminating Company, Incorporated Georgia d/b/a Radar Home Team Services Residential Contractors, Inc. Nevada San Juan Land Company Nevada
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CORPORATIONS JURISDICTION OF INCORPORATION Texas Cement Company Nevada d/b/a CP Service Company Texas-Lehigh Cement Company Texas-Lehigh Cement Company Texas 21 Housing Corporation Nevada d/b/a Cavtex Homes Centex Community Development Company Integrity Homes Integrity Homes of Utah Vista Homes Western Aggregates, Inc. Nevada Western Cement Company of California California Westwood Insurance Agency Nevada Westwood Insurance Agency California Westwood Insurance Agency of Arizona, Inc. Arizona Wisconsin Cement Company Wisconsin
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LIMITED LIABILITY COMPANIES JURISDICTION OF ORGANIZATION BRG Holdings, LLC Delaware CAV Holdings, LLC Delaware Cavco Industries, LLC Delaware CRG Holdings, LLC Delaware d/b/a AAA Homes Centex-Aim Construction, L.L.C. Michigan Centex Construction Company/Washington, LLC Virginia Centex Development 1, LLC Florida Centex Eagle Gypsum Company, L.L.C. Delaware d/b/a American Gypsum Company Centex Landis Limited Liability Company No. 1 Louisiana Centex Multi-Family Construction Company, L.L.C. Texas Centex Rodgers No.1, LLC Tennessee Centex Urban, LLC Tennessee IPS Group Texas Wayne Homes, LLC Delaware Westfest, LLC Arizona
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INTEREST IN PARTNERSHIPS, LIMITED PARTNERSHIPS AND JOINT VENTURES JURISDICTION OF ORGANIZATION A. W. Mortgage, L.P. Texas All Home Mortgage, L.P. Texas American Priority Mortgage Company, L.P. Texas Anderson Funding Services, L.P. Texas Blakeney Heath Limited Partnership North Carolina Builder's Mortgage Services, L.P. Texas Centex Auchter, a Joint Venture Florida Centex Concord Tennessee Centex-Corrigan Multi-Family II Joint Venture Texas Centex-Draper 156 Partnership California Centex-Draper 162 Partnership California Centex Engle Joint Venture, a Florida Florida General Partnership Centex/Goins Rash Cain, a Joint Venture Tennessee Centex-Great Southwest Corporation/Construct Two, Florida a Joint Venture Centex-Great Southwest Corporation Polote, California a Joint Venture Centex Homes, a Nevada General Partnership Nevada d/b/a Centex Development Company Fox & Jacobs New Homes Research Group Timbercreek Forest Products Vista Homes Vista Properties Company Centex Homes Company, an Indiana General Partnership Indiana Centex Lennar Joint Venture Florida Centex-Rodgers Construction Company-Construction North Carolina Control Services Corporation, a Joint Venture
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INTEREST IN PARTNERSHIPS, LIMITED PARTNERSHIPS AND JOINT VENTURES JURISDICTION OF ORGANIZATION Centex-Rodgers/Sorenson Gross, a Joint Venture Michigan Centex Rodgers/Sylla, a Joint Venture Florida Centex Rooney Construction Co., Inc./Construct Florida Two Construction Managers, Inc., a Joint Venture Centex Rooney Construction Co., Inc./Huber, Florida Hunt & Nichols, Inc., a Joint Venture Centex Rooney Jones, a joint venture Florida Centex Rooney Construction Co., Inc./Landis Louisiana Company, Inc., a Joint Venture Centex-Rooney National Development, J.V. Florida Centex Rooney/Sierra, Joint Venture Florida CRB Trust Mortgage, Ltd. Florida Crosland Acceptance Associates V North Carolina Golden-C A B, Joint Venture California Golden Turner, a Joint Venture California Grand Lending Group, L.P. Texas HMP Home Loans, L.P. Tennessee Harvard Mortgage Company, Limited Partnership New Mexico Heartland Mortgage, L.P. California Illinois Cement Company, Joint Venture Illinois Integrity Homes, a Texas General Partnership Texas IPS Group No.1, LLC Texas LMX Financial Services, Ltd. Florida Masters Lending Group, L.P. Texas Morrison Financial Services, L.P. Texas
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INTEREST IN PARTNERSHIPS, LIMITED PARTNERSHIPS AND JOINT VENTURES JURISDICTION OF ORGANIZATION Mortgage Acceptance Associates No. 2, North Carolina a North Carolina General Partnership Mortgage Collateral Associates No. 1 North Carolina Mortgage Collateral Associates No. 3 North Carolina NHC Mortgage Group, L.P. Texas New Dimension Financial Services, L.P. Texas PHS Mortgage Company New Mexico Palmdale 101 Venture California Pride Financial Services, L.P. Texas Santa Fe Mortgage Group, L.P. Texas Texas-Lehigh Cement Company Texas TG Mortgage Group, L.P. Texas T.W. Lewis Mortgage Company, L.P. Texas
All of Centex's subsidiaries are included in the Combined Financial Statements of Centex incorporated by reference into this Form 10-K from the Centex 1998 Annual Report to Stockholders. EX-21.2 10 LIST OF SUBSIDIARIES OF 3333 HOLDING CORPORATION 1 EXHIBIT 21.2 3333 HOLDING CORPORATION SUBSIDIARY LIST The following list of subsidiaries of 3333 Holding Corporation ("Holding"), wholly-owned unless otherwise stated, includes all of the significant subsidiaries of Holding as of June 22, 1998.
CORPORATIONS AND LIMITED LIABILITY COMPANIES JURISDICTION OF ORGANIZATION CC Rowlett MOB, LLC Delaware Centex-Kirco Industrial Summit I, LLC Delaware Centex Industrial Westlake I, LLC Delaware Centex Industrial Westlake II, LLC Delaware CDC General Partner, Inc. Nevada CDC MF1, LLC Nevada Centex Multi-Family Company Nevada GV Northfield I, LLC Delaware 3333 Development Corporation Nevada PARTNERSHIPS JURISDICTION OF ORGANIZATION Arbors of Wolf Pen Creek Partners Texas Centex-Corrigan Multi-Family II Joint Venture Texas Centex Development Company, L.P. Delaware Centex Funding Company, L.P. Delaware Centex Industrial Camarillo I, L.P. Delaware Centex Industrial Camarillo II, L.P. Delaware Centex Industrial Development Company, L.P. Delaware d/b/a Vista Industrial Development Company Centex Industrial Gateway I, L.P. Delaware Centex Medical Office Development Company I, L.P. Delaware Centex Multi-Family Company, L.P. Delaware
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PARTNERSHIPS JURISDICTION OF ORGANIZATION Centex Northfield Investment Company I, L.P. Delaware Centex Office Development Company, L.P. Delaware Centex Office Southpointe I, L.P. Delaware Centex Retail Development Company, L.P. Delaware Centex Retail Vista Ridge I., L.P. Delaware Vista Realty Development Company, L.P. Delaware
All of Holding's subsidiaries are included in the Combined Financial Statements of 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. ("Holding/CDC") incorporated by reference into this Form 10-K from the Holding/CDC 1998 Annual Report to Stockholders. EX-23 11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in the previously filed registration statements on Form S-3 (number 33-61223) and on Form S-8 (numbers 33-44575; 33-29174; 2-95271; 2-51637; 2-54043; 2-59535; 2-68747; 2-78831; 33-55083; 33-55083-01; 33-55083-02; 333-28229; 333-28229-01; 333-28229-02; 333-55717; 333-55717-01; and 333-55717-02 of our report dated May 8, 1998, incorporated by reference to the Joint Annual Report of Centex Corporation, 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. on Form 10-K for the fiscal year ended March 31, 1998, and to all references to our firm included in these registration statements. Arthur Andersen LLP Dallas, Texas June 22, 1998 EX-24.1 12 CENTEX CORPORATION - POWERS OF ATTORNEY 1 EXHIBIT 24.1 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Alan B. Coleman -------------------------------- Alan B. Coleman Director Centex Corporation 2 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Dan W. Cook III -------------------------------- Dan W. Cook III Director Centex Corporation 3 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Juan L. Elek -------------------------------- Juan L. Elek Director Centex Corporation 4 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Clint W. Murchison, III --------------------------------------- Clint W. Murchison, III Director Centex Corporation 5 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Charles H. Pistor -------------------------------- Charles H. Pistor Director Centex Corporation 6 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch, with full power of substitution in the premises, as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ David W. Quinn -------------------------------- David W. Quinn Director Centex Corporation 7 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Paul R. Seegers ----------------------------------- Paul R. Seegers Director Centex Corporation 8 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Paul T. Stoffel ----------------------------------- Paul T. Stoffel Director Centex Corporation EX-24.2 13 3333 HOLDING CORPORATION POWERS OF ATTORNEY 1 EXHIBIT 24.2 3333 HOLDING CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer, with full power of substitution in the premises, as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of 3333 Holding Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Josiah O. Low, III ------------------------------------- Josiah O. Low, III Director 3333 Holding Corporation 2 3333 HOLDING CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer, with full power of substitution in the premises, as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of 3333 Holding Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ David M. Sherer --------------------------------- David M. Sherer Director 3333 Holding Corporation EX-24.3 14 CENTEX DEVELOPMENT CORPORATION POWERS OF ATTORNEY 1 EXHIBIT 24.3 CENTEX DEVELOPMENT COMPANY, L.P. POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer, with full power of substitution in the premises, as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Development Company, L.P. (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ Josiah O. Low, III ------------------------------------- Josiah O. Low, III Director Centex Development Company, L.P. 2 CENTEX DEVELOPMENT COMPANY, L.P. POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer, with full power of substitution in the premises, as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Development Company, L.P. (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1998, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 22nd day of June, 1998. /s/ David M. Sherer ---------------------------------- David M. Sherer Director Centex Development Company, L.P. EX-27.1 15 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTEX CORPORATION'S MARCH 31, 1998, FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018532 CENTEX CORPORATION 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 98,316 0 1,582,341 0 1,064,554 0 517,589 221,597 3,416,219 0 237,715 0 0 14,883 976,289 3,416,219 3,975,450 3,975,450 3,645,852 3,645,852 64,708 0 33,256 231,634 86,828 144,806 0 0 0 144,806 2.45 2.36
EX-27.2 16 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3333 HOLDING CORPORATION'S MARCH 31, 1998, FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000818762 3333 HOLDING CORPORATION 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 1 0 8,461 0 450 0 101 13 10,423 0 0 0 0 1 552 10,423 1,505 1,505 1,630 1,630 0 0 0 (125) 0 (125) 0 0 0 (125) 0.00 0.00
EX-27.3 17 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTEX DEVELOPMENT COMPANY, L.P.'S MARCH 31, 1998, FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000818764 CENTEX DEVELOPMENT COMPANY, L.P. 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 259 0 13,662 0 42,761 0 0 0 59,260 0 0 0 0 500 40,569 59,260 19,618 19,618 15,094 15,094 0 0 0 4,524 0 4,524 0 0 0 4,524 0.00 0.00
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