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 30, 1995, 28,147,011 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 three business segments: Home Building, Financial Services and Contracting and Construction Services. Centex also has a 49% interest in Centex Construction Products, Inc., a NYSE listed company in the construction products business.
Centex is the nation's largest home builder (having built and delivered, through its wholly-owned subsidiary Centex Real Estate Corporation d/b/a Centex Homes ("CREC" or "Centex Homes"), 12,964 homes in its fiscal year ended March 31, 1995). Centex's Home Building operations currently involve the construction and sale of residential housing in 289 neighborhoods in 44 different markets. These activities also include the purchase and development of land. Centex has participated in the home building business since 1950.
Centex's Financial Services operations in fiscal 1995 included mortgage origination and other related services on homes sold by Centex subsidiaries and by third parties as well as the operation of a savings and loan. Centex has been in the mortgage banking business since 1973. Centex is a leading retail mortgage originator (originating approximately $4.2 billion of residential mortgages in fiscal 1995). In 1988 the Company acquired a savings and loan operation with eight branch offices in central Texas. The savings and loan deposits and branch operations were sold and the savings and loan was liquidated in December 1994.
Centex entered the contracting and construction services business in 1966 with the acquisition of J.W. Bateson Company, Inc. (now known as Centex Bateson Construction Company, Inc.), a Dallas-based contractor which has been in business since 1936. Additional significant acquisitions of construction companies were made in 1978, 1982 and 1990. Centex currently ranks as the nation's largest general building contractor. 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, condominiums and educational institutions.
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 aggregates, readymix concrete and gypsum wallboard. In April 1994, the
Company's formerly wholly-owned Construction Products group, Centex Construction Products, Inc. (CXP), completed an initial public offering of 51% of its stock, which shares are now traded on the New York Stock Exchange. CXP is the 6th largest U.S. owned cement producer and the nation's 13th largest cement producer. Centex retained a 49% interest in this group.
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
Notes (B) and (I) of the Notes to Consolidated Financial Statements of Centex on pages - and - of Exhibit 99 to this Report contain additional information about the savings and loan and the Company's business segments for years ended March 31, 1995, 1994 and 1993 and are incorporated herein by reference.
NARRATIVE DESCRIPTION OF BUSINESS
HOME BUILDING
The Company's Home Building operations primarily involve the construction and sale of residential housing, including the purchase and development of land. The Company's Home Building operations have ranked, by the number of units produced in a calendar year, as the largest U.S. builder of single-family homes since 1989. Centex is also the only company to rank among Professional Builder's top 10 home builders for each of the past 26 years. Centex sells to both first time and move-up buyers. Approximately 95% of the houses Centex sells are single-family detached homes and the remainder are townhomes and low-rise condominiums.
Markets
Centex follows a strategy of reducing exposure to local market volatility by spreading operations across geographically and economically diverse markets. Centex presently builds in 44 market areas in 20 states and the United Kingdom. The markets are listed below by geographic areas.
In fiscal 1995, Centex closed 12,964 houses, including first time, move-up and, in some markets, custom homes, ranging in price from approximately $65,000 to about $650,000, with the average sale price being approximately $159,000. In the Dallas and San Antonio locations Centex has custom home divisions which offer higher-end homes.
Summarized below are Centex's home closings, sales (orders) backlog and sales (orders) by geographic area for each of the five fiscal years ended March 31, 1995.
Inventory Turnover
The Company's policy has been to acquire land with the intent to complete the sale of housing units within 24-36 months from the date of acquisition. Generally, this involves land that is properly zoned and is either ready for development or, to a much lesser degree, already developed.
The Company 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 the Company to shorten the lead time to commence construction and reduces the risks of unforeseen improvement costs and volatile market conditions.
Competition and Other Factors
The residential housing industry is essentially a "local" business and is highly competitive. Centex competes in each of its market areas with numerous other home builders. The Company's Home Building operations account for less than 2% of the total housing starts in the United States. The main competitive factors affecting Centex's Home Building operations are location, price, cost of providing mortgage financing for customers, construction costs, design and quality of homes, marketing expertise, availability of land and a builder's reputation. Management believes the Company competes effectively by maintaining geographic diversity, being responsive to the specific demands of each market and managing the operations at a local level.
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 the Company and the Company's 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. The Company and its subcontractors must comply with various federal, state and local laws and regulations including zoning, building, environmental, advertising and consumer credit rules and regulations. The Company 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. The Company's homes are inspected by local authorities.
The Company's Home Building operations are subject to numerous federal, state and local regulatory schemes concerning, among other things, worker health and safety, zoning, building design, construction materials, 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. 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 the Company. The Company believes that it is in material compliance with all such requirements.
Centex has numerous suppliers of all the materials and services and sources of lots and land used in home building and believes that it can deal effectively with any problems it may experience relating to the supply of materials and services as well as lots and land.
Vista Acquisition
In December 1994, Centex International, Inc., a wholly-owned subsidiary of Centex Corporation, entered into an agreement with Dallas-based Vista Properties, Inc. under which it would acquire equity interests in Vista and in its affiliated partnership, Vista Partners, as part of a proposed prepackaged bankruptcy structuring by Vista. For an investment of approximately $70 million, Centex would acquire an ownership in a portfolio
of properties, comprising over 4,000 acres in seven states. The land is zoned, planned or developed for: single- and multi-family residential, office and industrial, and retail and commercial. The acquisition would provide Centex with future residential sites in several of its existing markets as well as opportunities in retail, industrial and office segments. The transaction is expected to be completed during the summer of 1995, subject to the satisfaction of the condition stated in the agreement, including approval from Vista's securityholders and bankruptcy court approval.
United Kingdom Joint Venture
In February 1995, Centex announced its wholly-owned subsidiary, Centex Homes (UK) Limited, had entered into a joint venture agreement with a London-area home builder, The Charles Church Group Limited ("Charles Church"), to build homes in the United Kingdom. The venture is the first entry into the international home building marketplace for Centex Homes. Centex Homes (UK) Limited and Charles Church each are contributing $3 million in cash, with the remaining $9 million financed by a United Kingdom bank, which is guaranteed by Centex Homes. In addition, Centex Homes will transfer some personnel to the United Kingdom to work with the venture.
The new operation, Charles Church Homes Limited, acquired its first parcel of undeveloped land in Berkshire County, west of London. Located in Sunningdale, the parcel consists of 2.1 acres. Homes in the 3,500-4,000 square foot range, which will sell for approximately $750,000, should be ready for occupancy late in calendar 1995. Several other potential sites in the London area are currently being evaluated.
FINANCIAL SERVICES
Financial Services consist of mortgage banking and, until December 1994, the savings and loan operations. The Company's mortgage banking activities are conducted through Centex's wholly-owned subsidiary, CTX Mortgage Company ("CTX"), which offers mortgage origination and other related services on homes sold by Centex Homes and by third parties. The savings and loan activities which were conducted through Texas Trust Savings Bank, FSB were sold in December 1994.
CTX Mortgage Company
CTX was created in 1973 to provide mortgage financing for homes built by Centex Homes, Centex's home building operation. The establishment by CTX of mortgage offices in substantially all of Centex Homes' housing markets has enabled it to consistently provide mortgage financing for an average of 73% 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 ("Spot Loans") that are not associated with the sale of homes built by Centex. At March 31, 1995, CTX had 110 offices located in 23 states. The offices vary in size depending on volume in each locality.
During the 1995 fiscal year, due to the increase in mortgage rates and the related decline in refinancings, CTX downsized its operations. The division's operating locations and personnel were reduced by approximately 40%. CTX is updating and expanding its mortgage banking systems, including reautomating its accounting and loan delivery functions. This process will continue during fiscal 1996.
The unit breakdown of Builder and Spot Loans for the five years ended March 31, 1995 are set forth in the following table:
CTX provides mortgage origination and other mortgage related services for Federal Housing Administration ("FHA"), Veterans Administration ("VA") and conventional loans on homes built and sold by the Company or by others. The Company's mortgage loans are first-lien mortgages secured by 1-4 family residences. A majority of the conventional loans are conforming loans which qualify for inclusion in guaranteed programs sponsored by Fannie Mae ("FNMA") or Freddie Mac ("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.
The principal sources of income from CTX's mortgage banking business are: 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, therefore, it retains no mortgage servicing rights. Accordingly, CTX avoids the risk of early payoffs and foreclosures. 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, committing to sell mortgage loans to various investors. By immediately selling the mortgages for future delivery, substantially all interest rate risk is removed at the time of closing.
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 a major source of income.
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. Mortgage Banking results in fiscal 1995 were negatively impacted by an increasingly competitive environment. Rapidly rising interest rates commencing in February 1994, virtually stopped refinancing activity and caused consumers to shift from more profitable fixed-rate mortgages to lower-margin adjustable rate products.
CTX is subject to the rules and regulations of, and examinations by, the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), the Department of Veterans' Affairs ("VA"), the Federal Housing Administration ("FHA"), the 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, 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 FHA, 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 Federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act ("RESPA") 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-related services provided by CTX affiliates include acting as an agent for the issuance of homeowners' insurance policies, title insurance policies and escrow services. CTX Insurance Agency provides hazard insurance to home buyers in Texas and Florida through third party insurance companies. During fiscal 1994, CTX opened its first commercial loan operation. In the current fiscal year, CTX entered into a joint venture agreement with another homebuilder to provide mortgage origination for homes built by this homebuilder. In addition, during fiscal 1995, an affiliate of CTX entered the second lien market whereby this CTX affiliate will originate second mortgages for home improvements and home equity lines of credit. The affiliate utilizes CTX's branch network and telemarketing to solicit potential customers.
Savings and Loan
In December 1988, Centex purchased certain assets and assumed certain liabilities of four Texas savings and loan associations under the Federal Savings and Loan Insurance Corporation's assisted transactions process commonly known as the "Southwest Plan". The acquisition was made by Texas Trust Savings Bank, FSB ("Texas Trust"), a federal stock savings bank and subsidiary of CTX Holding Company ("CTX Holding"), a wholly-owned subsidiary of Centex. The acquisition was made pursuant to acquisition agreements and an assistance agreement (the "Assistance Agreement") with the Federal Savings and Loan Insurance Corporation (the "FSLIC").
During December 1994, Texas Trust negotiated an early termination of the Assistance Agreement with the Federal Deposit Insurance Corporation ("FDIC") (as successor to the FSLIC). On December 30, 1994 Texas Trust's eight branch facilities were sold to a financial institution and all deposit liabilities were assumed by the purchaser. On the same day, immediately following the branch sale, Texas Trust was dissolved, thereby completing Centex's exit from the savings and loan industry.
CONTRACTING AND CONSTRUCTION SERVICES
Centex's contracting and construction services work is performed nationwide. As a group, Centex's Contracting and Construction Services subsidiaries rank 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 seven firms with various geographic locations and project niches. The overall group is heavily weighted towards health care facility construction which represents nearly 40% of its mix. New contracts for fiscal 1995 totaled $1.15 billion versus $1.03 billion for fiscal 1994. The backlog of uncompleted contracts at March 31, 1995 was $1.33 billion, compared to $1.24 billion at March 31, 1994. The group's principal subsidiaries are as follows:
CENTEX BATESON CONSTRUCTION COMPANY, INC. - This Dallas-based contractor (acquired in 1966) has become one of the nation's larger general contractors specializing in government and competitively bid jobs. Its projects are nationwide.
CENTEX-ROONEY CONSTRUCTION COMPANY, INC. - This Ft. Lauderdale-based subsidiary was acquired in 1978 and is one of the largest general contractors in the state of Florida. It operates primarily in Florida and handles predominantly negotiated work for private owners.
CENTEX GOLDEN CONSTRUCTION COMPANY - This company (acquired in fiscal 1982) operates in the San Diego, Los Angeles and Northern California markets, handling both negotiated and competitively bid work.
CENTEX-SIMPSON CONSTRUCTION COMPANY - This contractor (organized in 1966) is based in the Washington D. C. area and is engaged primarily in competitive bid work for the public sector.
CENTEX-RODGERS CONSTRUCTION COMPANY - This company (organized in 1987) is headquartered in Nashville, Tennessee, and is active nationally in the private medical construction services market.
CENTEX GREAT SOUTHWEST CORPORATION - This subsidiary (acquired in 1978) builds principally in the Tampa and Orlando areas and is a leading builder of airport terminals.
CENTEX FORCUM LANNOM, INC. - This industrial contracting company (acquired in 1990) is located in Dyersburg, Tennessee and operates in Tennessee and surrounding states.
As a general contractor or construction manager, Centex 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, the Company's Contracting and Construction Services operation requires a relatively small asset base.
Construction contracts are primarily entered into under two formats: competitively bid and negotiated jobs. In a competitively bid format, Centex 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 on a fixed fee over the cost of the project and, in many instances, agrees 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 guaranteed amount to the contractor. The Company's highest margins in contracting operations have historically been on competitively bid jobs. Currently, the margins on competitive bid and negotiated jobs are about equal. On average, about half of Centex's projects are competitively bid, public jobs and the other half are negotiated contracts with private owners. The Company's public work for federal, state and local governments includes hospitals, jails, airports, parking garages, office buildings, military facilities, post offices and convention and performing arts centers. Most of Centex's private owner contracts are for hotels, medical facilities and office buildings, plus some shopping centers and condominiums.
Competition and Other Factors
The construction industry has become increasingly competitive, and Centex competes with numerous other companies. With respect to competitively bid projects, Centex generally competes for projects throughout the United States and with local, regional or national contractors, depending upon the nature of the project. For negotiated projects, Centex's subsidiaries compete primarily in the general geographical area where they are located and with other local, regional and national contractors. Centex solicits new projects by attending project bid meetings and meeting with builders and owners and through existing customers. Centex competes successfully on the basis of its reputation and financial strength.
The Company's Contracting and Construction Services 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 appropriate precautions are taken to protect employees and others from
workplace hazards. Current Environmental Laws may require the Company'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 Company's Contracting and Construction Services 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.
EMPLOYEES
The breakdown of employees by line of business as of March 31, 1995 is presented in the following table:
The following is a summary of average balances and average interest rates for the periods ended December 31, 1994, March 31, 1994 and 1993.
TEXAS TRUST SAVINGS BANK, FSB AVERAGE BALANCES AND INTEREST RATES ($ IN THOUSANDS)
ITEM 2.
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.
(b) CDC
The remaining Original Properties and the Additional Properties consist of properties located in Illinois, Texas, New Jersey, Florida and California. Such properties predominantly consist of undeveloped sites zoned for light industrial, agricultural, general retail, office industrial, business park, research and development and single- and multi-family residential property purposes.
At March 31, 1995, there were four remaining Original Properties and one Additional Property owned by CDC of material value. Set forth below is a brief description, including the present zoning therefor, of such properties.
Colony South Planning Unit. Colony South Planning Unit is an Original Property and is located in suburban Dallas, Texas in the cities of The Colony (approximately 520 acres) and Lewisville (approximately 152 acres). The Colony acreage is zoned office, general retail, business park and residential. The Lewisville acreage is zoned light industrial.
East Windsor. East Windsor is an Original Property comprising approximately 600 acres with four separate residential tracts, 13 farm parcels and 100 acres of office industrial zoned property in East Windsor, New Jersey, a township located in the vicinity of Princeton. The residential tracts have final plan approval for a total of 75 half-acre lots and 174 quarter-acre lots and preliminary plan approval for 426 multi-family units. Forty-eight of the quarter-acre lots have been sold to CREC, which has a contract with CDC to purchase the remaining 126. The farm parcels vary in size from 11 to 35 acres and total 313 acres.
Bryan Place. Bryan Place is an Original Property and is located in Dallas, Texas just east of downtown and Central Expressway. It is comprised of 28 non-contiguous parcels zoned office, commercial, retail and residential ranging from approximately 2,000 square feet to 80,000 square feet. The total area of the property is approximately 622,000 square feet.
Carrollton Property. The Carrollton Property is an Original Property located in the City of Carrollton, a suburb of Dallas, Texas. This property consists of one office and five fabrication-warehouse buildings on approximately 17 acres, zoned industrial, with a rail spur.
Forster Ranch. Forster Ranch, located in San Clemente, California, is an Additional Property that included 1,077 acres when it was purchased in March 1989. CDC's Development Agreement with the City of San Clemente allows a series of residential villages containing a total of approximately 2,200 lots and 78 acres of mixed use property. As of March 31, 1995, 580 of these lots had been sold to CREC and 21 acres of mixed use property had been sold to other entities. CDC has entered an agreement with the holder of the Forster Ranch non-recourse purchase money notes that may result in the transfer of the real estate to it in satisfaction of the debt, a portion of which is past due. The lender in turn may sell the real estate to CREC pursuant to an agreement between them.
Recent Write-Down of Properties. In March 1995, CDC recorded a pre-tax adjustment to reduce the book value of certain properties in the amount of approximately $15,500,000 to reflect CDC's view that development activity has not reached anticipated levels during the current economic cycle in order to continue to support the historical carrying value of such properties. This adjustment results in carrying values that will facilitate a nearer-term disposition or development of these properties. A substantial portion of the adjustment related to the book values of the Colony South Planning Unit and Bryan Place properties.
CDC's principal assets consist of the Original Properties and the Additional Properties remaining unsold.
ITEM 3.
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.
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 since the organization of Holding, 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".
(1) Mr. Bilheimer is an employee of Centex Development Management Company ("CDMC"), a wholly-owned subsidiary of Centex, and served as Executive Vice President of CREC from April 1987 until March 31, 1988. Mr. Bilheimer was a director of Development from its date of incorporation until his resignation as of June 1, 1987 and was re-elected to the Board of Directors of Development on May 24, 1989. Since April 1, 1988, Mr. Bilheimer has devoted a majority of his time to the business and affairs of Holding and Development.
(2) Mr. Sefzik is an employee of CDMC and was a Vice President of CTX Mortgage Company from May 1987 to March 1988 and Executive Vice President of Centex Title Company from July 1986 to March 1988. Prior thereto
he held various offices with various Centex subsidiaries since March 1983. Mr. Sefzik was elected to his present positions with Holding as of April 1, 1988. Since April 1, 1988, Mr. Sefzik has devoted a majority of his time to the business and affairs of Holding and Development.
(3) Mr. Arcisz is an employee of CDMC and was a Division President of CREC, a wholly-owned subsidiary of Centex, from October 1985 until February 28, 1995. Prior thereto he held various offices with CREC since April 1983. Mr. Arcisz was elected to his present position with Holding as of March 10, 1995. Since March 1, 1995, Mr. Arcisz has devoted a majority of his time to the business and affairs of Holding and Development.
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".
PART II
ITEM 5.
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 of Exhibit 99 to this Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements on pages - of Exhibit 99 to this 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 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 a nominee agreement (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 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 $7,600,000 at March 31, 1995, include 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. These covenants include limitations on (a) incurring, assuming or guaranteeing any other indebtedness, except indebtedness which provides for all payments of principal to be made after April 1, 1994, indebtedness that is fully and completely subordinated on terms satisfactory to Centex, and certain trade debt, (b) creating any additional liens other than statutory liens for taxes, certain mechanics' and materialmen's liens and other similar liens, (c) effecting a merger or consolidation, (d) selling property and (e) declaring any dividends or making certain other shareholder payments, as defined. Holding's obligations under the Holding Note are 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 could 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. See "Item 13. Certain Relationships and Related Transactions" and Note (G) of the Notes to the Holding/CDC Combining Financial Statements included on page of Exhibit 99 to this Report, which 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 included herein in (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 of Exhibit 99 to this Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements on pages - of Exhibit 99 to this 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 a nominee agreement (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.
CREC, a subsidiary of Centex, is the present holder of all of the Class A Units, and accordingly, at this time there is no public market for such securities. See "Item 1. Business--General Development of Business". CDC has not made any payment to the holder of the Class A Units with respect to the Preferred Return during the last four fiscal years. Preference payments in arrears at March 31, 1995 amounted to $35,818,000.
ITEM 6.
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 - of Exhibit 99 to this 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 - of Exhibit 99 to this report.
ITEM 7.
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 of Exhibit 99 to this 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 of Exhibit 99 to this report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is incorporated herein by reference to Exhibit 99 to this report as set forth in the Index to Financial Statements on page 35 to this Report (see Item 14).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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" on page 25 and the information included under the caption "Section 16(a) Compliance" on page 29 of Holding's proxy statement dated June 15, 1995 for the 1995 Annual Meeting of Stockholders of Holding to be held on July 27, 1995 (the "1995 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.
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 1995 Holding Proxy Statement on pages 27-28 thereof.
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 in respect of 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 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 page of Exhibit 99 to this report, which 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 11 - -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, 1995. 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 1995 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 1995 fiscal year.
During fiscal 1995, J. Stephen Bilheimer, a Director and the President of Development, and Roger D. Sefzik, Vice President and Treasurer 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. Messrs. Bilheimer and Sefzik 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. As of March 10, 1995, Joseph J. Arcisz joined Holding as a Vice President. It is expected that during fiscal year 1996, he will devote a majority of his time to Development and Holding.
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 approximately $8,000 annually in the form of directors' and committee members' fees in their capacities as directors and/or committee members of Development. In addition, Development reimburses these directors for the reasonable expenses incurred in attending directors' and committee meetings.
ITEM 12.
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 1995 Holding Proxy Statement on pages 26-27.
(b) CDC
The following table sets forth certain information with respect to the ownership of the equity securities of CDC as of December 31, 1994 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.
- -------------------- *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%.
(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. See "Item 11. Executive Compensation".
(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 CREC, a subsidiary of Centex. 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 will be automatically converted 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. The Class A Units will be automatically cancelled 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 and is based on the assumption that options to purchase Centex Common Stock, presently exercisable, or exercisable within 60 days, have been exercised. 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) Centex has received information from FMR Corp. ("FMR") stating that, as of December 31, 1994, FMR may be deemed to beneficially own 4,611,272 shares of Centex Common Stock, (and therefore to own a beneficial interest in 161 Stockholder Warrants) acquired solely for investment purposes, as a parent holding company with respect to holdings of wholly-owned investment adviser subsidiaries of FMR or other entities affiliated with FMR. FMR stated that it held 145,684 shares of Centex Common Stock with sole voting power (and therefore held a beneficial interest in 5 Stockholder Warrants with sole voting power), 156,284 shares of Centex Common Stock with sole dispositive power (and therefore held a beneficial interest in 5 Stockholder Warrants with sole dispositive power), 10,600 shares of Centex Common Stock with no power to vote (and therefore held a beneficial interest in 0 Stockholder Warrants with no power to vote), and no shares with shared voting power. The remaining shares (and therefore Stockholder Warrants) that FMR may beneficially own may be voted by (i) the Board of Trustees of certain Fidelity Funds, or (ii) certain institutions whose funds are managed by Fidelity Management Trust Company, a wholly-owned subsidiary of FMR.
(5) Centex has received information from The Prudential Insurance Company of America ("Prudential") stating that, as a result of shares of Centex Common Stock held by Prudential for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates, as of December 31, 1994, Prudential may be deemed to beneficially own 1,789,100 shares of Centex Common Stock (and therefore to own a beneficial interest in 62 Stockholder Warrants). Prudential stated that it held 331,300 shares of Centex Common Stock with sole voting and dispositive power (and therefore held a beneficial interest in 12 Stockholder Warrants with sole voting and dispositive power, 1,456,900 shares of Centex Common Stock with shared voting power (and therefore held a beneficial interest in 51 Stockholder Warrants with shared voting power), and 1,457,800 shares of Centex Common Stock with shared dispositive power (and therefore held a beneficial interest in 51 Stockholder Warrants with shared dispositive power).
(6) 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 page of Exhibit 99 to this report, which is herein incorporated by this reference.
(7) Presently, there are no Class B Units issued or outstanding.
(8) When issued, record title to 200 of these Class B Units will be held by the owners of the Class A Units. See footnote (2).
(9) The Class B Units that may be acquired upon conversion of outstanding Class A 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.
All of the issued and outstanding shares of Development have been pledged to secure the Holding Note. See "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters".
ITEM 13.
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 1995 Holding Proxy Statement on pages 29-30.
(b) CDC
Holding entered into a services agreement in May, 1987 with Centex Service Company ("CSC"), 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 were paid pursuant to this agreement for fiscal year 1995.
CDC has entered into an agreement with Holding for it to provide management services to CDC in connection with the development and operation of properties acquired by CDC, maintenance of CDC property, and accounting and clerical services. Management fees and development costs totaling $922,000 were incurred in fiscal 1995.
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 had a fluctuating balance during 1995, bears interest, payable quarterly, at the prime rate of interest of NationsBank of Texas, N.A. ("NationsBank") plus 1% (10% at May 30, 1995). As of May 30, 1995, the outstanding principal balance of the Holding Note was $5,927,000. The Holding Note is secured by a pledge of all of the issued and outstanding shares of Development. The Holding Note, as amended, matures on the earlier to occur of April 1, 1996 or the last detachment of Holding Common Stock and the Stockholder Warrants from Centex Common Stock pursuant to the Nominee Agreement. There was interest expense of $611,000 related to the Holding Note for the year ended March 31, 1995.
In fiscal year 1995, CDC sold to CREC 254 lots for $5,423,000. CREC has contracts to purchase an additional 364 lots from CDC.
In 1987, Development loaned $7,700,000 to CREC, pursuant to an unsecured note (the "CREC Note") and related loan agreement. The CREC Note bears interest, payable quarterly, at the prime rate of interest of NationsBank plus 7/8% (9 7/8% at May 30, 1995). As of May 30, 1995, the outstanding principal balance on the CREC Note was $7,700,000. The CREC Note matures on April 30, 1996. There was interest income of $680,000 related to the CREC Note for the year ended March 31,1995.
In July 1992, on behalf of CDC, CREC guaranteed a $10,000,000 bank line of credit for CDC to utilize in conjunction with development of lots to be sold to CREC. In July 1993, the amount of such line of credit was reduced to $5,000,000. This line of credit, which had an outstanding balance of $1,539,000 at May 30, 1995, bears interest at LIBOR plus 3/4% (6 13/16% at May 30, 1995), is unsecured and matures in July 1995.
PART IV
ITEM 14.
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.
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 42-43 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 44-46 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, 1995.
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.
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.
- -------------------- *Pursuant to authority granted by powers of attorney, copies of which are filed herewith, except for Mr. Low's Power of Attorney which will be filed upon execution.
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.
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.
- -------------------- *Pursuant to authority granted by powers of attorney, copies of which are filed herewith, except for Mr. Low's Power of Attorney which will be filed upon execution.
INDEX TO EXHIBITS
CENTEX CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
CENTEX CORPORATION AND SUBSIDIARIES--CONTINUED
INDEX TO EXHIBITS
CENTEX CORPORATION AND SUBSIDIARIES--CONTINUED
INDEX TO EXHIBITS
CENTEX CORPORATION AND SUBSIDIARIES--CONTINUED
- -------------------- * Required to be filed as an exhibit pursuant to Item 14(c).
INDEX TO EXHIBITS
3333 HOLDING CORPORATION AND SUBSIDIARY
INDEX TO EXHIBITS
3333 HOLDING CORPORATION AND SUBSIDIARY--CONTINUED
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INDEX TO EXHIBITS
CENTEX DEVELOPMENT COMPANY, L.P.
INDEX TO EXHIBITS
CENTEX DEVELOPMENT COMPANY, L.P.
INDEX TO EXHIBITS
CENTEX DEVELOPMENT COMPANY, L.P.--CONTINUED
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