ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
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 business segments: Home Building, Mortgage Banking, Contracting and Construction Services, Construction Products and Savings and Loan. 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 June 15, 1994, 31,201,520 shares of Centex Common Stock, which are traded on the New York Stock Exchange and The International Stock Exchange of the United Kingdom and the Republic of Ireland, Ltd., were outstanding.
Centex's Home Building and Mortgage Banking operations involve the construction, sale and financing of residential housing. These activities include the purchase and development of land, mortgage originations and other related services on homes sold by subsidiaries and by others. Centex has participated in the home building business since 1950 and the mortgage banking business since 1973.
Centex entered the contracting and construction services business in 1966 with the acquisition of J. W. Bateson Company, Inc. (now Centex Bateson Construction Company, Inc.), a Dallas-based contractor which has been in business since 1936. Its contracting and construction activities involve the construction of buildings for both government and private 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 dates to 1963 when it began construction on its first cement plant. Since that time, the Company's Construction Products operations have been 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 Construction Products group completed an initial public offering of its common stock, resulting in the reduction of Centex's ownership interest in this group to 49%. Centex received payments totaling $186.5 million in the transaction.
Centex's Saving and Loan operations were acquired in December 1988 under the Federal Savings and Loan Insurance Corporation's Southwest Plan. These operations include CTX Holding Company and its subsidiary, Texas Trust Savings Bank, FSB.
Centex established CDC in fiscal year 1988. 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 (H) of the Notes to Consolidated Financial Statements of Centex on pages 28-29 and 36-37 of this Report contain additional information about the savings and loan acquisition and the Company's business segments for the years ended March 31, 1994, 1993 and 1992 and are incorporated herein by reference.
NARRATIVE DESCRIPTION OF BUSINESS
HOME BUILDING
The Company's Home Building operation primarily involves the construction, sale and financing of residential housing, including the purchase and development of land. The Company's home building operation ranks, by the number of units produced in calendar 1993, as the largest U.S. builder of single-family homes. Centex sells to both first time and move-up home buyers. Approximately 95% of the houses Centex sells are single-family detached homes and the remainder are townhomes and low-rise condominiums.
Centex follows a strategy of reducing exposure to local market volatility by spreading operations across geographically and economically diverse markets. Centex presently builds houses in 44 market areas in 20 states. These markets include Phoenix, Arizona; Ft. Lauderdale, Orlando, Jacksonville, Naples/Ft. Myers, Tampa, Palm Beach, Titusville and Sarasota/Bradenton, Florida; East San Francisco Bay, Sacramento, Bakersfield, Southern California, Los Angeles/Ventura, Central Valley and San Diego, California; Chicago, Illinois; Seattle, Washington; Reno, Nevada; Minneapolis, Minnesota; Portland, Oregon; Nashville, Tennessee; Atlanta, Georgia; Northern Virginia; Hampton Roads, Virginia; Central Maryland; Western Maryland; Austin, Dallas/Fort Worth, Houston, Killeen and San Antonio, Texas; Denver, Colorado; Albuquerque, New Mexico; Charlotte and Raleigh/Durham, North Carolina; Indianapolis, Indiana; Columbus, Ohio; Charleston, Columbia and Greenville, South Carolina; and East Windsor, New Jersey.
In fiscal 1994, Centex closed 12,563 houses, including first-time, move-up and, in some markets, custom homes, ranging in price from approximately $64,000 to about $805,000, with the average sale price being approximately $147,500. In several locations including Denver, Dallas, San Antonio and West Palm Beach, Centex has opened custom home divisions which offer the higher-end homes.
The table below sets forth information regarding Centex's house closings, sales (orders) backlog and sales (orders) by geographic area for its fiscal years ended March 31, 1994 and 1993.
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 operations account for less than 2% of the total housing starts in the United States. The main competitive factors affecting Centex's operation 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. Although Centex's Home Building operations, in the aggregate, are not generally seasonal, certain phases of home construction are seasonal in certain geographic
areas where Centex's Home Building operations are located. Unexpected climatic conditions, such as unusually heavy or prolonged rain or snow, may affect Home Building operations in certain areas.
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.
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, where required, and homes eligible for insurance or guarantees provided by the Federal Housing Administration ("FHA") and the Veterans Administration ("VA") are inspected by the FHA and VA.
MORTGAGE BANKING
The Mortgage Banking operation offers mortgage origination and other related services on homes sold by subsidiaries and by others.
Through CTX Mortgage Company ("CTX"), Centex provides mortgage origination and other mortgage related services for FHA and VA and conventional loans on homes built and sold by the Company as well as for purchases of homes not built by the Company. During fiscal 1994, CTX opened 50 new operating locations, raising the number of CTX offices and "satellite" locations to 152 as of March 31, 1994. CTX originates mortgage loans, securitizes and sells them on the secondary market shortly after closing and also sells the servicing rights. Revenues come primarily from three sources: the loan origination fee, the positive spread between short-term and long-term rates during the securitization period (the time between the loan's closing and its delivery to the secondary market), and the sale of servicing rights. The establishment by CTX of mortgage operations in substantially all of Centex's housing markets has enabled it to expand the solicitation of mortgage business that is not associated with the sale of a Centex home. In fiscal 1994 CTX provided financing for 9,289 Centex-built homes, representing approximately 74% of Centex's total closings. In addition CTX provided 49,254 loans to others. The 58,543 loans for fiscal 1994 aggregated approximately $6.4 billion, compared to $4.2 billion in the prior year. Other financial-related services provided by CTX affiliates include acting as an agent for the issuance of homeowners' insurance policies and title insurance policies and escrow services. CTX Insurance Agency provides hazard insurance to home buyers in Texas and Florida. During fiscal 1994, CTX opened its first commercial loan operation.
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 the general public.
The origination of mortgage loans by CTX is subject to rules and regulations promulgated by FHA, VA, Government National Mortgage Association ("Ginnie Mae"), Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac").
CONTRACTING AND CONSTRUCTION SERVICES
Centex's construction contracting work is performed nationwide. Centex entered the contracting and construction services industry in 1966 with the acquisition of J. W. Bateson Company, Inc. (now called Centex Bateson Construction Company, Inc.), a Dallas-based contractor which has become one of the nation's larger general contractors specializing in public facilities. Centex's participation in the industry was expanded in 1978 with the acquisition of Frank J. Rooney, Inc. (now Centex-Rooney Construction Co., Inc.), one of the larger general contractors in Florida, followed in fiscal 1982 by the purchase of M. H. Golden Company (now Centex Golden Construction Company), a general contractor with operations in the San Diego and Los Angeles markets, and Eugene Simpson & Brother, Inc., a contractor in the Washington, D.C. area, which had been engaged primarily
in negotiated work for the private sector. Centex also had a subsidiary company, Centex Construction Company, Inc., in the Washington, D.C. area which had been engaged primarily in construction of buildings for the federal government. In the first half of fiscal 1991, the two Washington, D.C. area subsidiaries, Centex Construction Company, Inc. and Eugene Simpson & Brother, Inc. merged into a single entity, now known as Centex-Simpson Construction Company, Inc. In 1987, the Company formed a subsidiary, Centex-Rodgers Construction Company in Nashville, Tennessee, which is active nationally in the private medical construction services market. Centex also has another Florida subsidiary, Centex-Great Southwest Corporation (formerly Great Southwest Corporation), which does work principally in the Tampa and Orlando areas. During its 1990 fiscal year, Centex's Contracting and Construction Service operations were expanded into the industrial contracting area with the acquisition of the working assets of Forcum-Lannom Associates Inc. of Dyersburg, Tennessee.
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 usually been on competitively bid jobs. 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.
Centex Contracting and Construction Services companies participate in a diversified range of building construction in both the public and private sectors across broad geographic lines. Among the buildings which Centex's general construction group has completed are: Cinderella's Castle, the Land Pavilion at Epcot Center, the Grand Floridian and Caribbean Beach Resorts in the Disney World complex; portions of the Department of Labor and the Library of Congress; the CIA Buildings in Washington, D.C.; a number of Veterans Affairs Medical Centers and major airport terminals; Texas Stadium, the Dallas Museum of Art and the Morton H. Meyerson Symphony Center in Dallas; the Tampa Convention Center and the Tampa Bay Performing Arts Center in Florida; Wilshire Court in Los Angeles and America Plaza in San Diego.
New contracts for fiscal 1994 totaled $1.03 billion versus $1.17 billion in fiscal 1993. At March 31,1994, the backlog of uncompleted construction contracts was $1.24 billion, a record for any fiscal year end, compared to the $1.17 billion backlog at March 31, 1993. The new contracts included the $153.9 million Acute Care Naval Hospital in Portsmouth, Virginia; a $100 million Clinical Addition and Spinal Cord Injury Center at the Veterans Affairs Medical Center in Dallas, Texas; the $90.2 million Genesys Regional Medical Center in Flint, Michigan; a $41.8 million Airside Terminal for Tampa International Airport in Tampa, Florida; the $35.9 million Brittany Condominiums in Naples, Florida; the $32.1 million State Farm Insurance Regional Center in Frederick, Maryland; the $30.5 million Martin Luther King Trauma Center in Los Angeles, California; the $29.5 million El Centro Southwest High School in El Centro, California; a $26 million addition to Medical City Dallas Hospital; $24.1 million Veterans Affairs Medical Center in El Paso, Texas; a $23.5 million Performing Arts Center for California Polytechnic in San Luis Obispo, California; $20.8 million of additions to our current contract at Donelson Hospital in Nashville, Tennessee; a $20.8 million middle school and elementary school complex in Naples, Florida; a $20.3 million medical center in Odessa, Texas; the $16.2 million Catoma Water Pollution Control plant in Montgomery, Alabama; a $14.1 million addition to the Audubon Institute's Aquarium of the Americas in New Orleans, Louisiana; a $13.9 million police facility in Alhambra, California; the $13.0 million Eastern Idaho Regional Medical Center in Idaho Falls; and a $6.6 million Wal-Mart store in Fayetteville, Arkansas.
As a group, Centex's Contracting and Construction Services subsidiaries rank as the second largest general building contractor in the country as well as the third largest constructor of healthcare facilities.
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. In negotiated contract 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, meetings 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 obtain materials and services from numerous sources. The Company believes that its construction companies can deal effectively with problems that they may experience in the supply of materials and services.
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), aggregates (sand and gravel), readymix concrete and gypsum wallboard.
Centex operates cement plants in Buda, Texas, LaSalle, Illinois, Fernley, Nevada and Laramie, Wyoming. The plants in LaSalle and Buda are owned by joint ventures in which the Company has 50% interest. In fiscal 1992, Centex completed the purchase of the remaining 1% interest in the joint venture that owns the Laramie, Wyoming plant. As a result, Centex currently owns 100% of this plant.
The cement plants operated by the Company use coal as their primary source of energy. Natural gas can also be used as a backup or primary source of fuel. All four of the cement plants are fuel efficient dry process plants. The kiln start-up dates of the cement plants were: Buda, Texas, 1978 (expanded in 1983); LaSalle, Illinois, 1974; Fernley, Nevada (2 kilns), 1964 and 1969; and Laramie, Wyoming, 1988.
The principal raw material used in the production of portland cement is calcium carbonate in the form of limestone. Limestone is obtained principally from quarries owned or leased by Centex 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 Centex or the joint ventures or are purchased from outside suppliers and are readily available. Centex's management estimates that its primary raw material reserves, either owned, leased or available, will be adequate to permit production at present capacities for the foreseeable future at all four of the existing plants.
The Company's net cement production, which excludes the joint venture partners' 50% shares in the LaSalle and Buda plants, totaled 1.8 million tons in fiscal 1994 and 1.6 million tons in fiscal 1993. Total net cement sales were 1.9 million tons in fiscal 1994 and 1.8 million tons in fiscal 1993. In fiscal 1994 and 1993 all four cement plants sold all of the product that they produced and each had supplemental sales with outside cement purchases.
Cement produced by cement plants operated by Centex is sold principally to readymix concrete producers and paving contractors. No single customer accounts for as much as 10% of Centex's total cement sales.
The principal markets for Centex's cement are Texas and the Western portion of 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, Southern Idaho, Northern Colorado and Western Nebraska (serviced by the Laramie, Wyoming plant).
Distribution of cement is generally made by common carriers or customer pick up and, to a lesser degree, by trucks owned and operated by Centex. In addition, the Company transports cement principally by rail to its storage and distribution terminals located in Roanoke, Waco, Corpus Christi, Houston and Orange, Texas; Hartland, Wisconsin; Sacramento, California; Denver, Colorado; Salt Lake City, Utah; Rock Springs, Wyoming; North Platte, Nebraska and Bliss, Idaho, from which further distribution occurs.
The cement business is highly competitive. In every regional market 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 markets by importing cement into the United States. Centex 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 marketing area.
Demand for cement has generally been cyclical and is closely related to the general level of the economy, new housing starts, government construction programs and other construction activities. The cement business is seasonal and requires some build-up of inventory during the winter (particularly in northern states) to meet peak demands from spring into the fall. Significant increases in the Texas market price have occurred during fiscal 1994 and 1993 primarily as a result of improved levels of business activity.
Centex's readymix concrete and aggregate operations are located in Austin, Texas and in northern California. Centex also operates an aggregate-only production facility south of the Dallas/Fort Worth, Texas metropolitan area. In addition, Centex has a 10,000 acre aggregate deposit in Northern California which contains in excess of 2 billion tons of reserves. Centex sells aggregates from this deposit in the Sacramento, California market.
Centex operates two gypsum wallboard manufacturing facilities in Albuquerque, New Mexico and nearby Bernilillo, New Mexico. These facilities use natural gas as their primary energy source. The Company has lease rights and owns mineral rights to extract gypsum rock, which is the principal ingredient of gypsum wallboard, from quarries in close proximity to its plants. Other materials required to manufacture gypsum wallboard are readily available to the Company, and no problems relating to material supply are anticipated in the foreseeable future.
The newer gypsum wallboard manufacturing facility in Bernalillo, New Mexico, north of the original plant, more than doubled Centex's total productive capacity. The newer plant commenced operation at the beginning of fiscal 1991 and has made encouraging progress toward correcting design deficiencies and attaining stable production. Centex's older Albuquerque wallboard plant did not operate during fiscal 1993, but began operating on a limited production schedule in early fiscal 1994. The gypsum wallboard industry is highly competitive and subject to cyclical pricing based upon supply and demand. During fiscal 1994, demand and pricing for gypsum wallboard continued to increase, and the company's wallboard operation reported a profitable fiscal year for the first time since 1990.
Subsequent to fiscal year end, 51% of the stock of Centex Construction Products, Inc., the entity in which the Company had consolidated its cement-related and gypsum wallboard operations, was sold through an initial public offering, raising $164 million. Including a dividend and other payments, Centex received $186.5 million from the transaction, which was used to pay down corporate debt.
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 Federal Savings and Loan Insurance Corporation (the "FSLIC") received a warrant to purchase a 20% interest in Texas Trust's common stock for $400,000 through December 2003.
The acquisition was made pursuant to acquisition agreements and an assistance agreement (the "Assistance Agreement") with the FSLIC. Under the terms of these agreements, the FSLIC provided assistance to Texas Trust in the form of a note (the "Note") in the original principal amount of $172.3 million representing the aggregate negative capital (as defined in the agreements) of the insolvent associations as of December 29, 1988. This note, which was due on December 29, 1998, was prepaid in fiscal 1991 and 1992.
In August 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was enacted which abolished the FSLIC and established the FSLIC Resolution Fund (the "Fund") to assume all reserves, assets, debts, obligations and other liabilities of the FSLIC. The Fund is managed by the Federal Deposit Insurance Corporation (the "FDIC"). All subsequent references to the Fund include its obligations created pursuant to previous agreements with the FSLIC.
Certain of the acquired assets are subject to Fund assistance through December 1998 ("Covered Assets"). Subject to the terms of the Assistance Agreement, the Fund will reimburse Texas Trust for any write-downs, losses or costs incurred in connection with the operations and disposition of these assets. Disposition gains, if any, will be shared by the Fund and Texas Trust. In addition, the Fund will supplement the actual yield on Covered Assets to provide a guaranteed yield equal to the Texas Cost of Funds plus a designated spread until December 29, 1998. At that time, any remaining Covered Assets will be adjusted to their then fair market value and retained by Texas Trust. The Fund will reimburse Texas Trust for any required valuation adjustments.
Yield maintenance on Covered Assets for the years ended March 31, 1994, 1993 and 1992 were $2.8, $8.5 and $22.0 million, respectively. In addition, $12.1, $86.1 and $80.1 million of assistance was provided in fiscal 1994, 1993 and 1992, respectively, as reimbursement for losses relating to Covered Assets.
Fund agreements also provide for maintenance by Texas Trust of certain minimum capital levels; reimbursement by the Fund of certain amounts over a 10-year period; sharing by the Fund in a portion of the tax benefits realized by Centex in connection with the acquisitions by Texas Trust; and indemnification by the Fund against unassumed liabilities and claims.
Under the terms of a related capital maintenance agreement, Texas Trust is prohibited from declaring or paying dividends that would cause its regulatory capital to fall below specified levels. Centex has no obligations to make additional capital contributions to CTX Holding or Texas Trust.
During fiscal 1990, certain forbearances previously granted by regulatory authorities were rescinded by FIRREA. In addition, more stringent capital requirements were established. At March 31, 1994, and throughout the period since their establishment, Texas Trust has been in full compliance with the new federally-mandated capital requirements. The elimination of forbearances does not significantly impact Texas Trust. Also, under FIRREA, all 1988 transactions and their agreements, including the Texas Trust transaction, became subject to further review by the Resolution Trust Corporation (the "RTC"). Cost reduction options exercised to date by the RTC include the early payoff of the $172.3 million Fund note, substantial Covered Asset write-downs and directed dispositions. Texas Trust and the RTC are currently negotiating to terminate the Assistance Agreement. In connection therewith, the RTC would prepay a non-interest-bearing obligation at a discounted value, purchase all remaining Covered Assets and sell its 20% warrant to Texas Trust. Management anticipates that the termination process will be concluded during fiscal year 1995 without a significant impact on the Company's financial condition or results of operations.
Texas Trust, currently headquartered in Dallas, Texas, operates eight savings and loan branch offices in the central Texas cities of Buchanan Dam, Burnet, Giddings, Kingsland, Llano, Marble Falls, Mason and San Angelo. In fiscal 1993, Texas Trust expanded its financial services businesses with the formation of a new mortgage banking operation, TxT Mortgage Company, and the initiation of an interim lending program for single-family home builders. TxT Mortgage Company, also headquartered in Dallas, Texas, currently has offices in Arlington, Austin, Hurst, and, Tyler, Texas, Denver, Colorado and three offices in California. Texas Trust offers a number of services and products including checking accounts, savings accounts, certificates of deposit, residential mortgage loans, consumer loans and interim construction loans to single-family home builders. Subsequent to March 31, 1994, Texas Trust commenced negotiations to sell the assets and related liabilities of its TXT Mortgage Company division to CTX Mortgage Company.
The financial services industry in Texas is highly competitive. Competition for customer deposits is intense among commercial banks, credit unions, savings and loan associations, mutual funds and insurance companies. After the acquisition, Texas Trust lowered the rates that it offers on variable rate accounts and new fixed rate certificates of deposit. As expected, some depositors responded to these changes by withdrawing or choosing not to renew maturing deposits. Total deposits increased by $6.9 million from April 1, 1993 to March 31, 1994, and decreased by $31.8 million from April 1, 1992 to March 31, 1993, by $120.4 million from April 1, 1991 to March 31, 1992, and by $30.1 million from April 1, 1990 to March 31, 1991, and were replaced with funds generated by the disposition of certain assets and with lower-cost funds from the Federal Home Loan Bank of Dallas ("FHLBD") advances. At March 31, 1994, total deposits of $207.1 million included $130.1 million of deposits which mature
during the next twelve months. At March 31, 1993, the total deposits of $200.1 million included $144.3 million of deposits, which matured during fiscal year 1994.
Texas Trust, chartered as a federal savings bank, is required to be a member of the Federal Home Loan Bank System and to have its deposits insured by the Savings Association Insurance Fund administered by the FDIC. Texas Trust is subject to extensive regulation by the Office of Thrift Supervision ("OTS"), a bureau in the U.S. Department of Treasury. Such regulatory supervision includes, among other things, net worth and regulatory capital maintenance requirements, liquidity maintenance requirements, limitations on the rate of growth of deposit liabilities and limitations on the type and amount of its investments. Regulations promulgated under the Home Owners Loan Act and other federal laws limit Texas Trust's ability to engage in transactions with, and pay dividends to, Centex and Centex's affiliates. Texas Trust is also subject to regulations of the Federal Reserve Board governing reserves required to be maintained on deposits and other matters. The FDIC and OTS conduct periodic examinations to test compliance with these and other regulatory requirements.
Centex and CTX Holding, as savings and loan holding companies, are subject to certain regulation by the OTS.
Negotiations are underway with the Federal Deposit Insurance Corporation (FDIC) to terminate the agreement under which Texas Trust was acquired. It is expected that the termination of the Assistance Agreement will be completed sometime during fiscal 1995. The Savings and Loan group has established adequate reserves for the costs associated with this transaction.
The following is a summary of average balances and average interest rates for the year ended March 31, 1994, 1993 and 1992.
TEXAS TRUST SAVINGS BANK, FSB AVERAGE BALANCES AND INTEREST RATES ($ IN THOUSANDS)
EMPLOYEES
The Company and its subsidiaries had approximately 8,430 employees at March 31, 1994.
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 Original Properties transferred to CDC by the Original Limited Partners and the Additional Properties consist of properties located in Illinois, Texas, New Jersey, Florida, California and Puerto Rico. Such properties predominantly consist of undeveloped sites zoned for light manufacturing, agricultural, general retail, office, research and development, single- and multi-family uses and resort property purposes.
The description set forth below of the remaining Original Properties and the Additional Properties owned by CDC at March 31, 1994 includes the present zoning therefor. Also, in those cases where CDC is considering seeking a change in zoning, an alternate zoning classification is set forth.
Illinois Properties:
Fox Hills Lots--Originally 100 acres in Cook County, Illinois fronting 131st Street that have been subdivided into 118 residential lots. These lots are located adjacent to an existing development of single-family detached housing. CDC has installed residential improvements such as streets, street signs, water, sanitary sewer and energy lines and other typical pre- construction subdivision improvements. CDC still owned 20 of these lots at March 31, 1994.
Bolingbrook Commercial--Two non-contiguous tracts totaling 33.92 acres in Bolingbrook located at the intersection of Interstate 55 and State highway 355. This acreage is zoned for commercial use.
Texas Properties:
Colony South Planning Unit--located in suburban Dallas in the cities of The Colony (519.87 acres) and Lewisville (151.95 acres). The Lewisville acreage is zoned light industrial. The acreage in The Colony is zoned office (26.84 acres), general retail (21.70 acres), business park (350.04 acres), residential (119.22 acres) and open space (2.07 acres). CREC acquired 113 residential lots in March 1994.
Bryan Place--located in Dallas just east of downtown and Central Expressway. This property is comprised of 28 parcels zoned industrial and office 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--30,028 square foot office building and five fabrication-warehouse buildings containing a total of 95,178 square feet on 17.413 paved acres, zoned industrial, with a rail spur located in Carrollton, a suburb of Dallas; however, the buildings do not necessarily add value to the property.
New Braunfels Acreage--398 acres of unzoned, wooded land on FM 306 and Hoffman Lane near the north city limits of New Braunfels. CDC may seek to have this tract zoned for a mixed use planned development, including residential, commercial and retail uses.
Fate Lots and Acreage--18 developed single-family residential detached lots on Pecan and Ellis Streets and 7.152 cleared acres, to be zoned prior to development, on State Highway 66 located in or near Fate, a community located east of Dallas.
New Jersey Property:
East Windsor--a 600 acre parcel with four separate residential tracts, 13 farm parcels and 100 acres of office industrial zoned property in East Windsor, a township located in the vicinity of Princeton. The residential tracts have final plan approval for a total of 75 half-acre lots, 174 quarter-acre lots and preliminary plan approval for 426 multi-family units. The farm parcels vary in size from 11 to 35 acres and total 313 acres. Two of the quarter-acre lots have been sold to CREC, which has a contract for the remaining 172.
Puerto Rico Property:
116.5 acres of land (approximately 6 acres zoned commercial and the remainder zoned residential) in Canovanas and Rio Grande, Puerto Rico.
In most cases, CDC has acquired record title to the Original Properties. However, CDC has acquired only beneficial title rather than record title to the New Jersey and Puerto Rico properties. Pursuant to agreements dated as of March 31, 1987 among CDC and the entities holding record title, the parties agreed that CDC shall have all of the benefits and burdens of ownership of such properties. Upon the direction of CDC, title to such properties will be conveyed to CDC or its designee or transferee.
The descriptions set forth below of the Additional Properties owned by CDC at March 31, 1994 include present zoning therefor. Also, in cases where CDC is considering seeking a change in zoning, an alternate zoning classification is set forth.
California Properties:
Forster Ranch--This property was purchased on March 31, 1989 and originally included 1,077 acres primarily zoned agricultural. The Partnership'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, 1994, 580 of these lots had been sold to CREC and 21 acres of mixed use property had been sold to other entities. The Partnership
has entered an agreement with the holder of the Forster Ranch non-recourse notes that may result in the transfer of the underlying real estate to them in satisfaction of the debt, a portion of which is past due.
Sonora Shopping Center--In March of 1992, the Partnership acquired 9.45 acres of commercial property that it developed into a 116,000 square foot shopping center in Sonora, California. As of March 31, 1994, all of this property had been sold except for a half-acre restaurant site which sold in June 1994.
Florida Property:
Deerfield--This property, located in Orlando, Florida, was originally purchased by CREC for the account of CDC. CDC purchased the property from CREC at its cost utilizing bank financing. This 345 acre parcel included 994 residential lots, a 10 acre church site, a 14 acre school site and 20 acres of commercial property. As of March 31, 1994, CREC had acquired 906 residential lots and had the remaining 88 lots under contract. All other Deerfield properties have been sold to outside entities.
Kingsbridge--CDC acquired 340 developed residential lots in the Orlando area in January, 1993 utilizing seller provided non-recourse financing. The Partnership sold 131 of these lots to CREC in April, 1993 and the remainder in April, 1994.
Lake Down--In April, 1992, CDC purchased 18 developed residential lots with non-recourse financing. As of March 31, 1994, 5 of these Orlando area lots had been sold to CREC.
Texas Property:
Allen Property--In December 1991, CDC acquired 108 acres of residential property in Allen, Texas, principally through an exchange of a portion of the Bryan Place property. CDC anticipates developing this property into a residential subdivision.
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 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.
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 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
The information called for by this Item 5 with respect to Holding is included herein in (1) the Joint Explanatory Statement on page 2 of this Report, (2) the information included under the caption "Stock Prices and Dividends" is on page 15 of this Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements is on pages 70-71 of 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, 1994, 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 71 of this Report.
(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 15 of this Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements on pages 70-71 of 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, 1994 amounted to $28,995,000.
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 Statements of Operations and the Combining Balance Sheets included in the Holding/CDC Combining Financial Statements on pages 65-66 of this Report.
(b) CDC
The information called for by this Item 6 with respect to CDC is incorporated herein by reference to the Combining Statements of Operations and the Combining Balance Sheets included in the Holding/CDC Combining Financial Statements on pages 65-66 of 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 72 of 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 72 of this Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is included herein on pages 64-72 of 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 20 and the information included under the caption "Section 16(a) Compliance" on page 24 of Holding's proxy statement dated July 1, 1994
for the 1994 Annual Meeting of Stockholders of Holding to be held on July 28, 1994 (the "1994 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 1994 Holding Proxy Statement on pages 22-24 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 pages 70-71 of this Report.
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 CDMC pursuant to which CDMC 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, 1994. 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 1994 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 1994 fiscal year.
During fiscal 1994, 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, who are the only executive officers of Development, provided such services to Development on behalf of and in their capacities as officers and employees of CDMC 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 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 1994 Holding Proxy Statement on pages 21-22.
(b) CDC
The following table sets forth certain information with respect to the ownership of the equity securities of CDC as of June 15, 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 June 15, 1994, FMR may be deemed to beneficially own 4,514,872 shares of Centex Common Stock, (and therefore to own a beneficial interest in 145 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 147,284 shares of Centex Common Stock with sole voting power (and therefore held a beneficial interest in 5 Stockholder Warrants with sole voting power) and no shares with shared voting power. The remaining shares 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) 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 54-55 of this Report.
(6) Presently, there are no Class B Units issued or outstanding.
(7) 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).
(8) 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 1994 Holding Proxy Statement on pages 24-25.
(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 1994.
CDC has entered into agreements with certain Centex subsidiaries for them 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 $785,000 were incurred in fiscal 1994, and remain unpaid as of June 15, 1994.
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 1994, bears interest, payable quarterly, at the prime rate of interest of NationsBank of Texas, N.A. ("NationsBank") plus 1% (8 1/4% at June 15, 1994). As of June 15, 1994, the outstanding principal balance of the Holding Note was $6,710,000. 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 $439,000 related to the Holding Note for the year ended March 31, 1994.
In fiscal year 1994, CDC sold to CREC 246 lots for $2,354,000. CREC acquired 209 lots for $2,050,000 in April 1994, and has contracts to purchase an additional 260 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% (8 1/8% at June 15 , 1994). As of June 15, 1994, 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 $537,000 related to the CREC Note for the year ended March 31,1994.
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 $2,165,000 at June 15, 1994, bears interest at LIBOR plus 3/4% (5 1/16% at June 15, 1994), is unsecured and matures in July 1994.
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 80-81 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 82-84 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, 1994.
3333 Holding Corporation and Subsidiary and Centex Development Company, L.P.
AUDITORS'REPORT
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, 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, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Dallas, Texas, May 11, 1994
3333 Holding Corporation and Subsidiary and Centex Development Company, L.P.
COMBINING BALANCE SHEETS
See notes to combining financial statements.
3333 Holding Corporation and Subsidiary and Centex Development Company, L.P.
COMBINING STATEMENTS OF OPERATIONS AND CASH FLOWS
See notes to combining financial statements.
3333 Holding Corporation and Subsidiary and Centex Development Company, L.P.
COMBINING STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
See notes to combining financial statements.
NOTES TO COMBINING FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
(A) ORGANIZATION
Centex Development Company, L.P. (the Partnership) was formed on March 31, 1987 to invest in, acquire, develop, operate and sell residential and commercial real estate. Centex Real Estate Corporation (CREC), its limited partner, is a subsidiary of Centex Corporation (Centex). 3333 Development Corporation (a Nevada corporation) (Development), which serves as its general partner, is owned by 3333 Holding Corporation (a Nevada corporation) (Holding). In November 1987, Centex distributed all of the issued and outstanding shares of the common stock of Holding and warrants to purchase approximately 80% of the Class B units of limited partnership interest in the Partnership (see Note F). These securities trade in tandem with the common stock of Centex and are being held by a nominee on behalf of Centex stockholders until such time as the securities are detached and trade separately. 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 1997 unless extended by Centex's stockholders.
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.
3333 Holding Corporation and Subsidiary and Centex Development Company, L.P.
SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS
SUPPLEMENTARY CONDENSED COMBINED STATEMENT OF EARNINGS
(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, 1994 and 1993 and results of operations for each of the three years ended March 31, 1994. 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
Land held for development and sale is 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 land 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 (1,000 for Holding) and Class A limited partnership units (1,000 for the Partnership). These shares/units do not include common stock/unit equivalents because they have no material effect on earnings (loss) per share/unit.
Combining Statements of Operations and Cash Flows - Supplemental Disclosures
Interest capitalized by the Partnership during fiscal years ended March 31, 1994, 1993 and 1992 totaled $4,090,000, $4,039,000 and $4,288,000, respectively, of which $3,945,000, $3,834,000 and $3,865,000, respectively, relates to the Forster Ranch property. No income taxes were paid during the years ended March 31, 1994, 1993 and 1992.
(D) NOTES RECEIVABLE
Development issued common stock to Holding and used the proceeds to advance $7.7 million to CREC, as evidenced by a note receivable due April 30, 1996. Interest at prime plus .875% is due in quarterly installments. Interest income of $537,000, $547,000 and $679,000 related to this note is included in the accompanying combining financial statements for the years ended March 31, 1994, 1993 and 1992, respectively.
Notes Receivable - Other at March 31, 1994 and 1993 have stated interest rates ranging up to 10% and are due in monthly or quarterly installments. Discounts and allowances totaled $313,000 at March 31, 1994 and $248,000 at March 31, 1993. The weighted average interest rate, inclusive of discounts, was 9% at March 31, 1994 and 10% at March 31, 1993. Notes receivable at March 31, 1994 are collectible over eight years, with $154,000 being due within one year.
(E) NOTES PAYABLE
Centex had advanced Holding $7.6 million as of March 31, 1994 which is evidenced by a note secured by the common stock of Development. The note, which had a fluctuating balance during fiscal 1994 and 1993, bears interest at prime plus 1% which is payable quarterly. The principal balance together with all unpaid accrued interest is due on the earlier of April 1, 1996 or the date on which the warrants to purchase Class B units of limited partnership interest are detached from shares of the common stock of Centex. Interest expense of $439,000, $404,000 and $447,000 related to this note is included in the accompanying combining financial statements for the years ended March 31, 1994, 1993 and 1992, respectively.
Under the most restrictive covenants of the 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 Forster Ranch and other 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 6 1/4% at March 31, 1994 and 6% at March 31, 1993. The 30-day LIBOR rate at March 31, 1994 was 3 11/16% and 3 3/16% at March 31, 1993. The note balances and rates in effect were as follows:
The Partnership and the holder of the Forster Ranch non-recourse notes have signed an agreement to transfer ownership of the property in satisfaction of this debt, subject to revision of certain land use entitlements by April 1995. In connection with this agreement, CREC has agreed to fund certain holding and other costs CDC will incur through April 1995 in connection with its rezoning efforts. CDC wrote down its investment in the Forster Ranch real estate by approximately $3.7 million during fiscal year 1993 to an amount which equaled the related non-recourse debt after receiving notice that the note, which matured in April 1993, would not be renewed.
(F) STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Preferred Return
The partnership agreement provides that the Class A limited partner is entitled to a cumulative preferred return of 9% per annum on the average outstanding balance of its Unrecovered Capital, which is defined as its initial capital contribution adjusted for cash distributions representing return of the initial capital contributions. Preference payments in arrears at March 31, 1994 amounted to $28,995,000.
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 limited partner 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 20% to the Class A limited partner 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 limited partner has received aggregate distributions equal to its original capital contribution (Payout), distributions of cash or other property shall be made as follows: (a) To the Class A limited partner with respect to its 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 limited partner until its Unrecovered Capital is reduced to zero.
(ii) After Payout, distributions of cash shall be made to the partners in accordance with their percentage interests, as defined.
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 1994, 1993 and 1992 are reflected as administrative expenses in the accompanying combining financial statements.
The Partnership has entered into agreements with certain Centex Corporation subsidiaries for them to provide 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. Management fees of $785,000 were accrued under these agreements and are reflected as administrative expenses in the accompanying combining financial statements for the year ended March 31, 1994. These fees amounted to $1,350,000 and $1,100,000 for the years ended March 31, 1993 and 1992. Additionally, property management fees of $28,000 and $104,000 were capitalized in fiscal years 1993 and 1992 respectively.
Sales and Purchases
Partnership revenues during fiscal years 1994, 1993, and 1992 include land sales to CREC of $2,354,000, $8,648,000 and $13,520,000, respectively. Additionally, CREC has contracts to purchase lots for the aggregate price of approximately $9.9 million to be paid as lots are delivered.
Accounts Receivable and Accounts Payable
Included in Accounts Receivable-Affiliates and Accounts Payable-Affiliates in the accompanying combining financial statements are $768,000 at March 31, 1994 and $1,763,000 at March 31, 1993, which the Partnership advanced to Holding. Interest of $148,000 and $193,000 was accrued on advances during fiscal years 1994 and 1993 respectively.
(H) INCOME TAXES
At March 31, 1994, Holding had operating loss carryforwards for income tax reporting purposes of $650,000. If unused, the loss carryforwards will expire in the fiscal years 2003 through 2010. Holding joins with its subsidiary in filing consolidated income tax returns. The taxable income of the Partnership has been allocated to the holder of the Class A units. Accordingly, no tax provision for Partnership earnings is shown in the combining financial statements.
3333 Holding Corporation and Subsidiary and Centex Development Company, L.P.
QUARTERLY RESULTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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On a combined basis, 3333 Holding Corporation (Holding) and subsidiary (Development) and Centex Development Company, L.P. (the Partnership) operations for the year ended March 31, 1994 reflected a loss of $1,624,000 on revenue of $13,249,000. The loss was $4,272,000 and revenue was $10,156,000 for the fiscal year ended March 31, 1993. The fiscal 1993 loss included the Partnership' expensing of its equity in the Forster Ranch project. According to an agreement with the lender, the Partnership expects to transfer ownership of the property to the lender in satisfaction of the related non-recourse debt upon receipt of certain development approvals.
The Partnership completed construction of its shopping center in Sonora, California during the year, and sold all of this property except a restaurant site which was sold in June 1994. Two of the original partnership properties, a 15 acre industrial site in Houston, Texas, and 168 acres of ranch land in Comal County, Texas, were also sold during the year.
The Partnership sold 131 residential lots to Centex Real Estate Corporation (CREC) at a subdivision in Orlando, Florida. Subsequent to year end, the Partnership sold the remaining 209 lots in the subdivision to CREC. In East Windsor, New Jersey, CDC delivered the first two lots of this development to CREC and expects additional sales as development continues. CDC also sold 113 lots to CREC at its development in The Colony, Texas. The Partnership has an additional development underway in the Dallas/Fort Worth metroplex where closings are expected next fiscal year.
Holding, Development and the Partnership believe that they will be able to provide or obtain the necessary funding for their current operations and future expansion needs. The revenues, earnings and liquidity of these companies are largely dependent on future land sales, the timing of which is 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 governing the Partnership.
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 28, 1994 By: /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President
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 28, 1994 /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President (principal executive officer)
June 28, 1994 /s/ ROGER D. SEFZIK ------------------- Roger D. Sefzik, Vice President and Treasurer (principal financial and accounting officer)
Directors: J. Stephen Bilheimer, Josiah O. Low, III, David M. Sherer
June 28, 1994 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.
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 DEVELOPMENT COMPANY, L.P. -------------------------------- Registrant
By: 3333 Development Corporation, ----------------------------- General Partner
June 28, 1994 By: /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President
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 28, 1994 /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President (principal executive officer)
June 28, 1994 /s/ ROGER D. SEFZIK ------------------- Roger D. Sefzik, Vice President and Treasurer (principal financial and accounting officer)
Directors: J. Stephen Bilheimer, Josiah O. Low, III, David M. Sherer
June 28, 1994 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.
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
INDEX TO EXHIBITS
CENTEX CORPORATION AND SUBSIDIARIES-CONTINUED
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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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