##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2006
 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM          TO
 Commission File Number: 1-6776 CENTEX CORPORATION (Exact name of registrant as specified in its charter)
 Nevada
(State of incorporation)
75-0778259
(I.R.S. Employer Identification No.) 2728 N. Harwood, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
(214) 981-5000
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ü No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. Large accelerated filer ü      Accelerated filer       Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes  No ü Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the close of business on July 26, 2006: 118,524,584 shares of common stock, par value $ .25 per
share.




---



##### 



Centex Corporation and Subsidiaries  
 Form 10-Q Table of Contents June 30, 2006 PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    1Statements of Consolidated Earnings
    
    
    1Consolidated Balance Sheets with Consolidating Details
    
    
    2Statements of Consolidated Cash Flows with Consolidating Details
    
    
    4Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4.
    
    Controls and Procedures
    
    
    40PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    40Item 1A.
    
    Risk Factors
    
    
    40Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6.
    
    Exhibits
    
    
    42Signature
    
    
    44Form of Non-Employee Director Stock Option AgreementForm of Non-Employee Director Restricted Stock AgreementFirst Amendment No. 1 to Amended and Restated Supplemental Executive Retirement PlanComputation of Ratio of Earnings to Fixed ChargesCertification of the CEO to Rules 13a-14/15d-14Certification of the CFO to Rules 13a-14/15d-14Certification of the CEO to 18 U.S.C. Section 1350Certification of the CFO to 18 U.S.C. Section 1350
  i




---



##### Table of Contents



PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 Statements of Consolidated Earnings Centex Corporation and Subsidiaries
Statements of Consolidated Earnings 
 For the Three Months Ended June 30,2006
    
    
    
    
    
    
    2005RevenuesHome Building
    
    $
    2,649,837
    
    
    
    
    
    
    $
    2,399,177Financial Services
    
    
    122,741
    
    
    
    
    
    
    
    109,988Construction Services
    
    
    501,460
    
    
    
    
    
    
    
    366,055Other, including Intersegment Eliminations
    
    
    (615
    )
    
    
    
    
    
    
    24,6903,273,423
    
    
    
    
    
    
    
    2,899,910Costs and ExpensesHome Building
    
    
    2,379,129
    
    
    
    
    
    
    
    2,070,687Financial Services
    
    
    99,654
    
    
    
    
    
    
    
    88,711Construction Services
    
    
    494,723
    
    
    
    
    
    
    
    363,443Other, including Intersegment Eliminations
    
    
    2,805
    
    
    
    
    
    
    
    27,451Corporate General and Administrative
    
    
    24,233
    
    
    
    
    
    
    
    20,602Interest Expense
    
    
    
    
    
    
    
    
    
    
    2,6243,000,544
    
    
    
    
    
    
    
    2,573,518Earnings from Unconsolidated Entities
    
    
    10,742
    
    
    
    
    
    
    
    12,498Earnings from Continuing Operations Before Income Taxes
    
    
    283,621
    
    
    
    
    
    
    
    338,890Income Taxes
    
    
    108,054
    
    
    
    
    
    
    
    128,051Earnings from Continuing Operations
    
    
    175,567
    
    
    
    
    
    
    
    210,839Earnings (Loss) from Discontinued Operations,
net ofTaxes (Benefit) of $(9,432) and $12,728
    
    
    (15,310
    )
    
    
    
    
    
    
    22,831Net Earnings
    
    $
    160,257
    
    
    
    
    
    
    $
    233,670Basic Earnings (Loss) Per ShareContinuing Operations
    
    $
    1.44
    
    
    
    
    
    
    $
    1.64Discontinued Operations
    
    
    (0.13
    )
    
    
    
    
    
    
    0.18$
    1.31
    
    
    
    
    
    
    $
    1.82Diluted Earnings (Loss) Per ShareContinuing Operations
    
    $
    1.39
    
    
    
    
    
    
    $
    1.57Discontinued Operations
    
    
    (0.12
    )
    
    
    
    
    
    
    0.17$
    1.27
    
    
    
    
    
    
    $
    1.74Average Shares OutstandingBasic
    
    
    121,969,085
    
    
    
    
    
    
    
    128,672,028Dilutive Securities:Options
    
    
    4,216,749
    
    
    
    
    
    
    
    5,714,864Other
    
    
    47,635
    
    
    
    
    
    
    
    197,550Diluted
    
    
    126,233,469
    
    
    
    
    
    
    
    134,584,442Cash Dividends Per Share
    
    $
    0.04
    
    
    
    
    
    
    $
    0.04
 See Notes to Consolidated Financial Statements. 1




---



##### Table of Contents



Consolidated Balance Sheets with Consolidating Details Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details 
 Centex Corporation and SubsidiariesJune 30, 2006
    
    
    
    
    
    
    March 31, 2006AssetsCash and Cash Equivalents
    
    $
    85,538
    
    
    
    
    
    
    $
    47,168Restricted Cash
    
    
    132,176
    
    
    
    
    
    
    
    135,477Receivables -Residential Mortgage Loans Held for Sale
    
    
    1,772,928
    
    
    
    
    
    
    
    2,129,538Construction Contracts
    
    
    376,160
    
    
    
    
    
    
    
    361,393Trade, including Notes of $30,369 and $31,897
    
    
    283,671
    
    
    
    
    
    
    
    342,786Inventories -Housing Projects
    
    
    9,241,726
    
    
    
    
    
    
    
    8,433,994Land Held for Development and Sale
    
    
    362,603
    
    
    
    
    
    
    
    394,438Land Held Under Option Agreements Not Owned
    
    
    478,852
    
    
    
    
    
    
    
    817,881Other
    
    
    11,470
    
    
    
    
    
    
    
    11,615Investments -Joint Ventures and Other
    
    
    286,876
    
    
    
    
    
    
    
    310,384Financial Services
    
    
    
    
    
    
    
    
    
    
    Property and Equipment, net
    
    
    171,184
    
    
    
    
    
    
    
    182,757Other Assets -Deferred Income Taxes
    
    
    246,562
    
    
    
    
    
    
    
    233,908Goodwill
    
    
    221,016
    
    
    
    
    
    
    
    218,735Deferred Charges and Other, net
    
    
    251,738
    
    
    
    
    
    
    
    234,763Assets of Discontinued Operations
    
    
    7,850,702
    
    
    
    
    
    
    
    7,510,162$
    21,773,202
    
    
    
    
    
    
    $
    21,364,999Liabilities and Stockholders EquityAccounts Payable
    
    $
    1,013,513
    
    
    
    
    
    
    $
    992,836Accrued Liabilities
    
    
    1,374,873
    
    
    
    
    
    
    
    1,766,844Debt -Centex
    
    
    4,841,817
    
    
    
    
    
    
    
    3,982,193Financial Services
    
    
    1,705,985
    
    
    
    
    
    
    
    2,077,215Receivables from Affiliates
    
    
    
    
    
    
    
    
    
    
    Liabilities of Discontinued Operations
    
    
    7,391,675
    
    
    
    
    
    
    
    7,001,793Commitments and ContingenciesMinority Interests
    
    
    422,555
    
    
    
    
    
    
    
    532,460Stockholders Equity -Preferred Stock: Authorized 5,000,000 Shares, None Issued
    
    
    
    
    
    
    
    
    
    
    Common Stock: $.25 Par Value; Authorized 300,000,000
Shares; Outstanding 119,291,707 and 122,103,713 Shares
    
    
    34,299
    
    
    
    
    
    
    
    34,132Capital in Excess of Par Value
    
    
    615,045
    
    
    
    
    
    
    
    580,010Retained Earnings
    
    
    5,406,776
    
    
    
    
    
    
    
    5,251,325Treasury Stock, at Cost; 17,903,550 and 14,424,807 Shares
    
    
    (1,050,238
    )
    
    
    
    
    
    
    (862,439
    )Accumulated Other Comprehensive Income
    
    
    16,902
    
    
    
    
    
    
    
    8,630Total Stockholders Equity
    
    
    5,022,784
    
    
    
    
    
    
    
    5,011,658$
    21,773,202
    
    
    
    
    
    
    $
    21,364,999
 See Notes to Consolidated Financial Statements. 2




---



##### Table of Contents



Consolidated Balance Sheets with Consolidating Details Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details 
 Centex*
    
    
    
    
    
    
    Financial ServicesJune 30, 2006
    
    
    
    
    
    
    March 31, 2006
    
    
    
    
    
    
    June 30, 2006
    
    
    
    
    
    
    March 31, 2006$
    74,604
    
    
    
    
    
    
    $
    36,711
    
    
    
    
    
    
    $
    10,934
    
    
    
    
    
    
    $
    10,45771,349
    
    
    
    
    
    
    
    70,824
    
    
    
    
    
    
    
    60,827
    
    
    
    
    
    
    
    64,653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,772,928
    
    
    
    
    
    
    
    2,129,538376,160
    
    
    
    
    
    
    
    361,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243,489
    
    
    
    
    
    
    
    298,912
    
    
    
    
    
    
    
    40,182
    
    
    
    
    
    
    
    43,8749,241,726
    
    
    
    
    
    
    
    8,433,994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,603
    
    
    
    
    
    
    
    394,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,852
    
    
    
    
    
    
    
    817,881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,371
    
    
    
    
    
    
    
    5,361
    
    
    
    
    
    
    
    6,099
    
    
    
    
    
    
    
    6,254286,876
    
    
    
    
    
    
    
    310,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    618,112
    
    
    
    
    
    
    
    655,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,759
    
    
    
    
    
    
    
    160,611
    
    
    
    
    
    
    
    21,425
    
    
    
    
    
    
    
    22,146229,287
    
    
    
    
    
    
    
    217,446
    
    
    
    
    
    
    
    17,275
    
    
    
    
    
    
    
    16,462209,279
    
    
    
    
    
    
    
    206,998
    
    
    
    
    
    
    
    11,737
    
    
    
    
    
    
    
    11,737233,737
    
    
    
    
    
    
    
    212,617
    
    
    
    
    
    
    
    18,001
    
    
    
    
    
    
    
    22,146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,850,702
    
    
    
    
    
    
    
    7,510,162$
    12,581,204
    
    
    
    
    
    
    $
    12,182,836
    
    
    
    
    
    
    $
    9,810,110
    
    
    
    
    
    
    $
    9,837,429$
    995,546
    
    
    
    
    
    
    $
    977,608
    
    
    
    
    
    
    $
    17,967
    
    
    
    
    
    
    $
    15,2281,299,770
    
    
    
    
    
    
    
    1,680,090
    
    
    
    
    
    
    
    75,103
    
    
    
    
    
    
    
    86,7544,841,817
    
    
    
    
    
    
    
    3,982,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,705,985
    
    
    
    
    
    
    
    2,077,215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,405
    )
    
    
    
    
    
    
    (9,110
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,391,675
    
    
    
    
    
    
    
    7,001,793421,287
    
    
    
    
    
    
    
    531,287
    
    
    
    
    
    
    
    1,268
    
    
    
    
    
    
    
    1,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,299
    
    
    
    
    
    
    
    34,132
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1615,045
    
    
    
    
    
    
    
    580,010
    
    
    
    
    
    
    
    275,467
    
    
    
    
    
    
    
    275,4675,406,776
    
    
    
    
    
    
    
    5,251,325
    
    
    
    
    
    
    
    365,100
    
    
    
    
    
    
    
    380,206(1,050,238
    )
    
    
    
    
    
    
    (862,439
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,902
    
    
    
    
    
    
    
    8,630
    
    
    
    
    
    
    
    16,949
    
    
    
    
    
    
    
    8,7025,022,784
    
    
    
    
    
    
    
    5,011,658
    
    
    
    
    
    
    
    657,517
    
    
    
    
    
    
    
    664,376$
    12,581,204
    
    
    
    
    
    
    $
    12,182,836
    
    
    
    
    
    
    $
    9,810,110
    
    
    
    
    
    
    $
    9,837,429
 *
    
    In the supplemental data presented above, Centex represents the consolidation of all
subsidiaries other than those included in Financial Services. Transactions between Centex
and Financial Services have been eliminated from the Centex Corporation and Subsidiaries
balance sheets.
 3




---



##### Table of Contents



Statements of Consolidated Cash Flows with Consolidating Details Centex Corporation and Subsidiaries
Statements of Consolidated Cash Flows with Consolidating Details 
 Centex Corporation and SubsidiariesFor the Three Months Ended June 30,2006
    
    
    
    
    
    
    2005Cash Flows  Operating ActivitiesNet Earnings
    
    $
    160,257
    
    
    
    
    
    
    $
    233,670Adjustments-Depreciation and Amortization
    
    
    15,762
    
    
    
    
    
    
    
    16,491Stock-based Compensation
    
    
    19,940
    
    
    
    
    
    
    
    17,677Provision for Losses on Residential Mortgage Loans
Held for Investment
    
    
    19,911
    
    
    
    
    
    
    
    25,340Deferred Income Tax Provision (Benefit)
    
    
    26,778
    
    
    
    
    
    
    
    (120,214
    )Undistributed Earnings of Joint Ventures
    
    
    (346
    )
    
    
    
    
    
    
    (4,391
    )Distributions in Excess of Earnings (Undistributed Earnings) of
Unconsolidated Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Minority Interest, net of Taxes
    
    
    124
    
    
    
    
    
    
    
    (467
    )Changes in Assets and Liabilities, Excluding Effect of Dispositions(Increase) Decrease in Restricted Cash
    
    
    (87,878
    )
    
    
    
    
    
    
    (41,159
    )Decrease in Receivables
    
    
    43,013
    
    
    
    
    
    
    
    16,338Decrease (Increase) in Residential Mortgage Loans Held for Sale
    
    
    356,610
    
    
    
    
    
    
    
    (245,476
    )Increase in Housing Projects and Land Held for Development and Sale
    
    
    (736,908
    )
    
    
    
    
    
    
    (756,452
    )Decrease (Increase) in Other Inventories
    
    
    166
    
    
    
    
    
    
    
    1,050(Decrease) Increase in Accounts Payable and Accrued Liabilities
    
    
    (349,312
    )
    
    
    
    
    
    
    (93,433
    )(Increase) Decrease in Other Assets, net
    
    
    (17,216
    )
    
    
    
    
    
    
    (22,006
    )(Decrease) Increase in Payables to Affiliates
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    55
    
    
    
    
    
    
    
    (549,044
    )
    
    
    
    
    
    
    (973,032
    )Cash Flows  Investing ActivitiesPayments Received on Notes Receivable, net
    
    
    1,528
    
    
    
    
    
    
    
    20,151Increase in Residential Mortgage Loans Held for Investment
    
    
    (286,691
    )
    
    
    
    
    
    
    (317,935
    )Investments in and Advances to Joint Ventures
    
    
    (54,203
    )
    
    
    
    
    
    
    (69,849
    )Distributions from Joint Ventures
    
    
    77,764
    
    
    
    
    
    
    
    52,119Decrease (Increase) in Investments in and Advances to Unconsolidated
Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Purchases of Property and Equipment, net
    
    
    (405
    )
    
    
    
    
    
    
    (14,892
    )Other
    
    
    (3,114
    )
    
    
    
    
    
    
    (1,387
    )(265,121
    )
    
    
    
    
    
    
    (331,793
    )Cash Flows  Financing ActivitiesIncrease (Decrease) in Short-term Debt, net
    
    
    443,658
    
    
    
    
    
    
    
    420,831Centex
Issuance of Long-term Debt
    
    
    500,489
    
    
    
    
    
    
    
    464,512Repayment of Long-term Debt
    
    
    (103,601
    )
    
    
    
    
    
    
    (300,573
    )Financial Services
Issuance of Long-term Debt
    
    
    961,114
    
    
    
    
    
    
    
    1,055,206Repayment of Long-term Debt
    
    
    (746,310
    )
    
    
    
    
    
    
    (731,467
    )Proceeds from Stock Option Exercises
    
    
    15,262
    
    
    
    
    
    
    
    13,202Purchases of Common Stock, net
    
    
    (187,799
    )
    
    
    
    
    
    
    (50,975
    )Dividends Paid
    
    
    (4,806
    )
    
    
    
    
    
    
    (5,136
    )878,007
    
    
    
    
    
    
    
    865,600Effect of Exchange Rate on Cash
    
    
    
    
    
    
    
    
    
    
    (474
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    63,842
    
    
    
    
    
    
    
    (439,699
    )Cash and Cash Equivalents at Beginning of Period (1)
    
    
    47,955
    
    
    
    
    
    
    
    502,586Cash and Cash Equivalents at End of Period (2)
    
    $
    111,797
    
    
    
    
    
    
    $
    62,887
 See Notes to Consolidated Financial Statements. (1)
    
    Amount includes cash and cash equivalents of discontinued operations of $787 as of March 31,
2006 and $650 as of March 31, 2005.(2)
    
    Amount includes cash and cash equivalents of discontinued operations of $26,259 as of June
30, 2006 and $333 as of June 30, 2005.
 4




---



##### Table of Contents



Statements of Consolidated Cash Flows with Consolidating Details Centex Corporation and Subsidiaries
Statements of Consolidated Cash Flows with Consolidating Details 
 Centex *
    
    
    
    
    
    
    Financial ServicesFor the Three Months Ended June 30,
    
    
    
    
    
    
    For the Three Months Ended June 30,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005$
    160,257
    
    
    
    
    
    
    $
    233,670
    
    
    
    
    
    
    $
    (878
    )
    
    
    
    
    
    $
    29,35812,103
    
    
    
    
    
    
    
    12,018
    
    
    
    
    
    
    
    3,659
    
    
    
    
    
    
    
    4,47319,940
    
    
    
    
    
    
    
    17,677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,911
    
    
    
    
    
    
    
    25,340(11,636
    )
    
    
    
    
    
    
    (19,387
    )
    
    
    
    
    
    
    38,414
    
    
    
    
    
    
    
    (100,827
    )(346
    )
    
    
    
    
    
    
    (4,391
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,108
    
    
    
    
    
    
    
    (4,358
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    (751
    )
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    284(525
    )
    
    
    
    
    
    
    876
    
    
    
    
    
    
    
    (87,353
    )
    
    
    
    
    
    
    (42,035
    )38,376
    
    
    
    
    
    
    
    15,525
    
    
    
    
    
    
    
    4,637
    
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356,610
    
    
    
    
    
    
    
    (245,476
    )(736,908
    )
    
    
    
    
    
    
    (756,452
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    (439
    )
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    1,489(324,174
    )
    
    
    
    
    
    
    (152,129
    )
    
    
    
    
    
    
    (16,891
    )
    
    
    
    
    
    
    53,245(22,428
    )
    
    
    
    
    
    
    (31,202
    )
    
    
    
    
    
    
    5,212
    
    
    
    
    
    
    
    9,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,293
    )
    
    
    
    
    
    
    50,51855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (850,138
    )
    
    
    
    
    
    
    (689,343
    )
    
    
    
    
    
    
    293,278
    
    
    
    
    
    
    
    (213,622
    )1,422
    
    
    
    
    
    
    
    20,119
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (286,691
    )
    
    
    
    
    
    
    (317,935
    )(54,203
    )
    
    
    
    
    
    
    (69,849
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,764
    
    
    
    
    
    
    
    52,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,046
    
    
    
    
    
    
    
    (45,067
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    987
    
    
    
    
    
    
    
    (10,928
    )
    
    
    
    
    
    
    (1,392
    )
    
    
    
    
    
    
    (3,964
    )(3,114
    )
    
    
    
    
    
    
    (1,387
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,902
    
    
    
    
    
    
    
    (54,993
    )
    
    
    
    
    
    
    (287,977
    )
    
    
    
    
    
    
    (321,867
    )623,584
    
    
    
    
    
    
    
    180,697
    
    
    
    
    
    
    
    (179,926
    )
    
    
    
    
    
    
    240,134500,489
    
    
    
    
    
    
    
    464,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103,601
    )
    
    
    
    
    
    
    (300,573
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961,114
    
    
    
    
    
    
    
    1,055,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (746,310
    )
    
    
    
    
    
    
    (731,467
    )15,262
    
    
    
    
    
    
    
    13,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187,799
    )
    
    
    
    
    
    
    (50,975
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,806
    )
    
    
    
    
    
    
    (5,136
    )
    
    
    
    
    
    
    (14,230
    )
    
    
    
    
    
    
    (25,000
    )843,129
    
    
    
    
    
    
    
    301,727
    
    
    
    
    
    
    
    20,648
    
    
    
    
    
    
    
    538,873
    
    
    
    
    
    
    
    (474
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,893
    
    
    
    
    
    
    
    (443,083
    )
    
    
    
    
    
    
    25,949
    
    
    
    
    
    
    
    3,38436,711
    
    
    
    
    
    
    
    490,308
    
    
    
    
    
    
    
    11,244
    
    
    
    
    
    
    
    12,278$
    74,604
    
    
    
    
    
    
    $
    47,225
    
    
    
    
    
    
    $
    37,193
    
    
    
    
    
    
    $
    15,662
 *
    
    In the supplemental data presented above, Centex represents the consolidation of all
subsidiaries other than those included in Financial Services. Transactions between Centex and
Financial Services have been eliminated from the Centex Corporation and Subsidiaries statements of
consolidated cash flows.
 5




---



##### Table of Contents



Notes to Consolidated Financial Statements Centex Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2006
(Unless otherwise indicated, dollars and shares in thousands, except per share data)
(unaudited) (A) BASIS OF PRESENTATION The consolidated interim financial statements include the accounts of Centex Corporation and
all subsidiaries, partnerships and other entities in which Centex Corporation has a controlling
interest (the Company). Also included in the consolidated financial statements are certain
variable interest entities, as discussed in Note (F), Indebtedness, and Note (H), Land Held
Under Option Agreements Not Owned and Other Land Deposits. All significant intercompany balances
and transactions have been eliminated. The unaudited statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States have been condensed
or omitted. In the opinion of the Company, all adjustments (consisting of normal, recurring adjustments)
necessary to present fairly the information in the consolidated financial statements of the Company
have been included. The results of operations for such interim periods are not necessarily
indicative of results for the full year. The Company suggests that these consolidated financial
statements be read in conjunction with the consolidated financial statements and the notes to
consolidated financial statements included in the Companys latest Annual Report on Form 10-K. At June 30, 2006, certain operations have been classified as discontinued. Associated results
of operations and financial position are separately reported for all periods presented. For
additional information, refer to Note (O), Discontinued Operations. Information in these Notes
to Consolidated Financial Statements, unless otherwise noted, does not include the accounts of
discontinued operations. (B) STATEMENTS OF CONSOLIDATED CASH FLOWS  SUPPLEMENTAL DISCLOSURES In accordance with the provisions of SFAS No. 95, Statement of Cash Flows, the Statements of
Consolidated Cash Flows have not been restated for discontinued operations. For further
information on the sale of the Companys international homebuilding and sub-prime home equity
operations, see Note (O), Discontinued Operations. As a result, all international homebuilding
cash flows are included with the Centex cash flows and all Centex Home Equity Company, LLC (Home
Equity) cash flows are included with the Financial Services cash flows. The following table provides supplemental disclosures related to the Statements of
Consolidated Cash Flows: For the Three MonthsEnded June 30,2006
    
    
    2005Cash Paid for Interest
    
    $
    168,783
    
    
    $
    141,480Net Cash Paid for Taxes
    
    $
    141,972
    
    
    $
    176,735
 6




---



##### Table of Contents



Interest expense relating to the Financial Services segment is included in Financial Services
costs and expenses. Home Building capitalizes interest incurred as a component of housing
projects inventory cost. Capitalized interest is included in Home Buildings costs and expenses
as related housing inventories are sold. For the three months ended June 30, 2006 and 2005,
interest expense related to segments other than Financial Services and Home Building is included as
a separate line item in the Statements of Consolidated Earnings. For the Three MonthsEnded June 30,2006
    
    
    2005Total Interest Incurred
    
    $
    185,480
    
    
    $
    146,911Less  Interest Capitalized
    
    
    (72,594
    )
    
    
    (49,850
    )Financial Services Interest Expense
    
    
    (20,837
    )
    
    
    (12,779
    )Discontinued Operations
    
    
    (92,049
    )
    
    
    (81,658
    )Interest Expense, net
    
    $
    
    
    
    $
    2,624Capitalized Interest Relieved to Home
Buildings Costs and Expenses
    
    $
    37,050
    
    
    $
    34,560
 As explained in Note (H), Land Held Under Option Agreements Not Owned and Other
Land Deposits, pursuant to the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 46, Consolidation of Variable Interest Entities, as revised (FIN 46), as of
June 30, 2006, the Company consolidated $386.0 million of lot option agreements and recorded $47.6
million of deposits related to these options as land held under option agreements not owned. As of
March 31, 2006, the Company consolidated $653.3 million of lot option agreements and recorded $89.1
million of deposits related to these options as land held under option agreements not owned. In
addition to lot options recorded pursuant to FIN 46, as of June 30, 2006 and March 31, 2006, the
Company recorded $45.3 million and $75.5 million, respectively, of land under the caption land held
under option agreements not owned related to lot option agreements for which the Companys deposits
exceeded certain thresholds. (C) STOCK-BASED COMPENSATION ARRANGEMENTS Prior to January 1, 2006, the Company accounted for its stock-based compensation
arrangements in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), under which the Company recognized compensation expense of a stock
option award over the vesting period based on the fair value of the award on the grant date.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R) entitled
Share-Based Payment, (SFAS 123R) using the modified-prospective transition method.
Accordingly, prior periods have not been restated. The adoption of SFAS 123R was not significant. Prior to the adoption of SFAS 123R, the Company presented all tax benefits related to
deductions resulting from the exercise of stock options as operating activities in the Consolidated
Statements of Cash Flows. SFAS 123R requires that cash flows resulting from tax benefits related
to tax deductions in excess of the compensation expense recognized for those options (excess tax
benefits) be classified as financing cash flows. As a result, the Company classified $5.5 million
of excess tax benefits as financing cash inflows for the three months ended June 30, 2006. 7




---



##### Table of Contents



The following information represents the Companys annual grants of stock-based compensation
to employees and directors during the three months ended
June 30, 2006 and 2005: Number ofMonth/
    
    
    
    Shares
    
    Fair ValueYear of Grant
    
    Grant Type
    
    Granted
    
    of GrantMay 2005
    
    Stock Options
    
    
    1,716.2
    
    
    $
    39,301.2May 2006
    
    Stock Options
    
    
    1,169.9
    
    
    $
    23,311.5May 2005
    
    Stock Units
    
    
    556.6
    
    
    $
    31,926.9May 2006
    
    Stock Units
    
    
    334.0
    
    
    $
    18,194.9May 2005
    
    Restricted Stock
    
    
    236.2
    
    
    $
    13,550.8May 2006
    
    Restricted Stock
    
    
    75.5
    
    
    $
    4,079.5
 Stock units and restricted stock are recognized as compensation expense over the vesting
period based on the fair market value of the Companys stock on the date of grant. The fair value
of stock options granted is calculated under the Black-Scholes option-pricing model, and is
recognized as compensation over the vesting period. (D) STOCKHOLDERS EQUITY A
summary of changes in stockholders equity is presented
below: AccumulatedCapital in
    
    
    
    
    
    
    Treasury
    
    
    OtherCommon Stock
    
    
    Excess of
    
    
    Retained
    
    
    Stock,
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Par Value
    
    
    Earnings
    
    
    at Cost
    
    
    Income
    
    
    TotalBalance, March 31, 2006
    
    
    122,104
    
    
    $
    34,132
    
    
    $
    580,010
    
    
    $
    5,251,325
    
    
    $
    (862,439
    )
    
    $
    8,630
    
    
    $
    5,011,658Issuance of Restricted Stock
    
    
    76
    
    
    
    19
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock Compensation
    
    
    
    
    
    
    
    
    
    
    19,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,940Exercise of Stock Options
Including Tax Benefits
    
    
    590
    
    
    
    148
    
    
    
    19,838
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,986Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,806
    )
    
    
    
    
    
    
    
    
    
    
    (4,806
    )Purchase of Common
Stock for Treasury
    
    
    (3,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187,163
    )
    
    
    
    
    
    
    (187,163
    )Other Stock Transactions
    
    
    22
    
    
    
    
    
    
    
    (4,724
    )
    
    
    
    
    
    
    (636
    )
    
    
    
    
    
    
    (5,360
    )Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,257
    
    
    
    
    
    
    
    
    
    
    
    160,257Unrealized Gain on
Hedging Instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,247
    
    
    
    8,247Foreign Currency
Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    25Balance, June 30, 2006
    
    
    119,292
    
    
    $
    34,299
    
    
    $
    615,045
    
    
    $
    5,406,776
    
    
    $
    (1,050,238
    )
    
    $
    16,902
    
    
    $
    5,022,784
 (E) GOODWILL A summary of changes in goodwill by segment for the three months ended June 30, 2006 is
presented below: ConstructionHome Building
    
    
    Financial Services
    
    
    Services
    
    
    Other
    
    
    TotalBalance as of March 31, 2006
    
    $
    121,501
    
    
    $
    11,737
    
    
    $
    1,007
    
    
    $
    84,490
    
    
    $
    218,735Goodwill Acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,281
    
    
    
    2,281Balance as of June 30, 2006
    
    $
    121,501
    
    
    $
    11,737
    
    
    $
    1,007
    
    
    $
    86,771
    
    
    $
    221,016
 8




---



##### Table of Contents



Goodwill for the Other segment at June 30, 2006 relates to the Companys home services operations. (F) INDEBTEDNESS A summary of the balances of short-term and long-term debt (debt instruments with original
maturities greater than one year) and weighted average interest rates at June 30, 2006 and March
31, 2006 is presented below. Due dates are presented in fiscal years. Centex, in this note,
refers to the consolidation of all subsidiaries and certain debt of variable interest entities
other than those included in Financial Services. As ofJune 30, 2006
    
    
    March 31, 2006Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageInterest
    
    
    
    
    
    
    InterestRate
    
    
    
    
    
    
    RateShort-term Debt:Centex
    
    $
    750,750
    
    
    
    5.42
    %
    
    $
    127,166
    
    
    
    5.09
    %Financial
Services
Financial Institutions
    
    
    354,482
    
    
    
    5.40
    %
    
    
    324,986
    
    
    
    5.00
    %Harwood Street Funding I, LLC Secured
Liquidity Notes
    
    
    1,291,503
    
    
    
    5.27
    %
    
    
    1,692,229
    
    
    
    4.84
    %Consolidated Short-term Debt
    
    
    2,396,735
    
    
    
    
    
    
    
    2,144,381Long-term Debt:Centex
Medium-term Note Programs, due through 2008
    
    
    258,000
    
    
    
    5.98
    %
    
    
    358,000
    
    
    
    6.01
    %Senior Notes, due through 2017
    
    
    3,708,814
    
    
    
    5.89
    %
    
    
    3,208,762
    
    
    
    5.79
    %Other Indebtedness, due through 2018
    
    
    24,312
    
    
    
    6.37
    %
    
    
    188,346
    
    
    
    9.17
    %Subordinated Debentures, due in 2007
    
    
    99,941
    
    
    
    8.75
    %
    
    
    99,919
    
    
    
    8.75
    %4,091,067
    
    
    
    
    
    
    
    3,855,027Financial
Services
Harwood Street Funding I, LLC Variable-Rate
Subordinated      Extendable Certificates,
due through 2010
    
    
    60,000
    
    
    
    7.33
    %
    
    
    60,000
    
    
    
    6.83
    %Consolidated Long-term Debt
    
    
    4,151,067
    
    
    
    
    
    
    
    3,915,027Total Debt
    
    $
    6,547,802
    
    
    
    
    
    
    $
    6,059,408
 Centexs short-term debt as of June 30, 2006 and March 31, 2006 consisted of commercial
paper of $750.0 million and $125.0 million, respectively, and land and land related acquisition
notes of $0.8 million and $2.2 million, respectively. As of March 31, 2006, other indebtedness
included $161.2 million of debt at a weighted-average rate of approximately 9.73% held by variable
interest entities, for which the Company determined it was the primary beneficiary and which was
consolidated pursuant to FIN 46. Subsequent to March 31, 2006,
these variable interest entities were restructured such that the
Company is no longer the primary beneficiary. As a result, as of
June 30, 2006, the variable interest entities were not
consolidated. 9




---



##### Table of Contents



The weighted-average interest rates for short-term and long-term debt during the three months
ended June 30, 2006 and 2005 were: For the Three Months Ended June 30,2006
    
    2005Short-term Debt:Centex
    
    
    5.16
    %
    
    
    3.13
    %Financial Services
    
    
    5.30
    %
    
    
    3.29
    %Long-term Debt:CentexMedium-term Note Programs
    
    
    5.88
    %
    
    
    5.13
    % (1)Senior Notes
    
    
    5.87
    %
    
    
    6.24
    %Other Indebtedness
    
    
    5.84
    %
    
    
    5.57
    %Subordinated Debentures
    
    
    8.75
    %
    
    
    8.14
    %Financial ServicesHarwood Street Funding I, LLC Variable-Rate
Subordinated Extendable Certificates
    
    
    7.08
    %
    
    
    5.09
    %
 (1)
    
    Interest rate includes the effect of an interest rate swap
agreement.
 Maturities of Centexs and Financial Services long-term debt during the next five years
ending March 31 are: Centex
    
    
    Financial Services
    
    
    Total2007
    
    $
    189,147
    
    
    $
    
    
    
    $
    189,1472008
    
    
    526,967
    
    
    
    
    
    
    
    526,9672009
    
    
    150,307
    
    
    
    
    
    
    
    150,3072010
    
    
    225,101
    
    
    
    60,000
    
    
    
    285,1012011
    
    
    700,098
    
    
    
    
    
    
    
    700,098Thereafter
    
    
    2,299,447
    
    
    
    
    
    
    
    2,299,447$
    4,091,067
    
    
    $
    60,000
    
    
    $
    4,151,067
 Under Centex Corporations bank credit facilities, the Company is required to maintain
certain leverage and interest coverage ratios and a minimum tangible net worth. At June 30, 2006,
Centex was in compliance with all of these covenants. 10




---



##### Table of Contents



Credit Facilities The Companys existing credit facilities and available borrowing capacity as of June 30, 2006
are summarized below: Existing Credit
    
    
    AvailableFacilities
    
    
    CapacityCentexMulti-Bank Revolving Credit FacilityRevolving Credit
    
    $
    1,250,000
    
    
    $
    500,000Letters of Credit
    
    
    835,000
    
    
    
    460,9742,085,000
    
    
    
    960,974
    (1)(2)Unsecured Credit Facility
    
    
    150,000
    
    
    
    150,000
    (3)2,235,000
    
    
    
    1,110,974Financial ServicesSecured Credit Facilities
    
    
    740,000
    
    
    
    385,518
    (4)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,646,0003,740,000
    
    
    
    2,031,518$
    5,975,000
    
    
    $
    3,142,492
    (5)Discontinued Operations(6)Mortgage Servicer Advance Facility
    
    $
    100,000
    
    
    $
    31,882Secured Credit Facilities
    
    
    300,000
    
    
    
    91,592Harwood Street Funding II, LLC Facility
    
    
    4,000,000
    
    
    
    2,865,461$
    4,400,000
    
    
    $
    2,988,935
 (1)
    
    This is an unsecured, committed, multi-bank revolving credit facility, maturing in July
2010, which serves as backup for Centex Corporations $1.25 billion commercial paper program
and provides $835 million of letter of credit capacity. As of June 30, 2006, the $1.25
billion commercial paper program had $750 million outstanding, which has been deducted from
the available capacity under the back-up facility. There have been no direct borrowings under
this revolving credit facility since its inception.(2)
    
    In conjunction with the issuance of surety bonds in support of our Construction Services
activity, Centex Corporation has agreed to provide letters of credit of up to $100 million if
Centex Corporations public debt ratings fall below investment grade. In support of this
ratings trigger, we maintain a minimum of $100 million in unused committed credit at all
times.(3)
    
    Centex Corporation maintains a $150 million unsecured, uncommitted credit facility.(4)
    
    CTX Mortgage Company, LLC maintains $740 million of secured, committed mortgage warehouse
facilities to finance mortgages.(5)
    
    The amount of available capacity for continuing operations consists of $2,992.5 million of
committed capacity and $150.0 million of uncommitted capacity as of June 30, 2006. Although
we believe that the uncommitted capacity is currently available, there can be no assurance
that the lender under this facility would elect to make advances if and when requested to do
so.(6)
    
    In connection with the sale of Home Equity on July 11, 2006, all of these credit facilities
have been terminated or called for redemption.
 CTX Mortgage Company, LLC and Harwood Street Funding I, LLC  11




---



##### Table of Contents



loans, it typically holds them on average approximately 60 days and then
resells them into the secondary market. In accordance with the HSF-I Purchase Agreement, CTX
Mortgage Company, LLC acts as servicer of the loans owned by HSF-I and arranges for the sale of the
eligible mortgage loans into the secondary market. HSF-I obtains the funds needed to purchase
eligible mortgage loans from CTX Mortgage Company, LLC by issuing (1) short-term secured liquidity
notes, (2) medium-term debt and (3) subordinated certificates. As of June 30, 2006, HSF-I had
outstanding (1) short-term secured liquidity notes rated A1+ by Standard & Poors, or S&P, and P-1
by Moodys Investors Service, or Moodys, and (2) subordinated certificates maturing in September
2009, extendable for up to five years, rated BBB by S&P and Baa2 by Moodys. The purposes of this
arrangement are to allow CTX Mortgage Company, LLC to reduce funding costs associated with its
originations, to improve its liquidity and to eliminate credit risks associated with mortgage
warehousing. Pursuant to FIN 46, HSF-I is a variable interest entity for which the Company is the primary
beneficiary. Accordingly, HSF-I was consolidated in the Companys financial statements beginning
July 1, 2003. HSF-I has entered into a swap arrangement with a bank (the Harwood Swap) under which the
bank has agreed to make certain payments to HSF-I, and HSF-I has agreed to make certain payments to
the bank, the net effect of which is that the bank has agreed to bear certain interest rate risks,
non-credit related market risks and prepayment risks related to the mortgage loans held by HSF-I.
The purpose of this arrangement is to provide credit enhancement to HSF-I by permitting it to hedge
these risks with a counterparty having a short-term credit rating of A1+ from S&P and P-1 from
Moodys. However, the Company effectively bears all interest rate risks, non-credit related market
risks and prepayment risks that are the subject of the Harwood Swap because Centex has entered into
a separate swap arrangement with the bank pursuant to which Centex has agreed to pay to the bank
all amounts that the bank is required to pay to HSF-I pursuant to the Harwood Swap plus a monthly
fee equal to a percentage of the notional amount of the Harwood Swap. Additionally, the bank is
required to pay to Centex all amounts that the bank receives from HSF-I pursuant to the Harwood
Swap. Financial Services executes forward sales of CTX Mortgage Company, LLCs mortgage loans to
hedge the risk of reductions in value of mortgages sold to HSF-I or maintained under secured
financing agreements. This offsets the majority of the Companys risk as the counterparty to the
swap supporting the payment requirements of HSF-I. See additional discussion of interest rate
risks in Note (L), Derivatives and Hedging. The Company is also required to reimburse the bank
for certain expenses, costs and damages that it may incur. HSF-Is debt and subordinated certificates do not have recourse to the Company, and the
consolidation of this debt and subordinated certificates has not changed the Companys debt
ratings. The Company does not guarantee the payment of any debt or subordinated certificates of
HSF-I and is not liable for credit losses relating to securitized residential mortgage loans sold
to HSF-I. However, the Company retains certain risks related to the portfolio of mortgage loans
held by HSF-I. In particular, CTX Mortgage Company, LLC makes representations and warranties to
HSF-I to the effect that each mortgage loan sold to HSF-I satisfies the eligibility criteria and
portfolio requirements discussed above. CTX Mortgage Company, LLC may be required to repurchase
mortgage loans sold to HSF-I if such mortgage loans are determined to be ineligible loans or there
occur certain other breaches of representations and warranties of CTX Mortgage Company, LLC, as
seller or servicer. CTX Mortgage Company, LLCs obligations as servicer, including its obligation
as servicer to repurchase such loans, are guaranteed by Centex Corporation. CTX Mortgage Company,
LLC records a liability for its estimated losses for these obligations and such amount is included
in its loan origination reserve. CTX Mortgage Company, LLC and its related companies sold $2.86
billion and $2.55 billion of mortgage loans to investors during the three months ended June 30,
2006 and 2005, respectively. CTX Mortgage Company, LLC and its related companies recognized gains
on sales of mortgage loans and related derivative activity of $46.6 million and $39.4 million
during the three months ended June 30, 2006 and 2005, respectively. In the event Financial Services is unable to finance its inventory of loans through HSF-I, it
would draw on other existing credit facilities. In addition, Financial Services would need to make
other customary financing arrangements to fund its mortgage loan origination activities. Although
the Company believes that Financial Services could arrange for alternative financing that is common
for non-investment grade mortgage companies, there can be no assurance that such financing would be
available on satisfactory terms, and any delay in obtaining such financing could adversely affect
the results of operations of Financial Services. 12




---



##### Table of Contents



(G) COMMITMENTS AND CONTINGENCIES Joint Ventures The Company conducts a portion of its land acquisition, development and other activities
through its participation in joint ventures in which the Company holds less than a majority
interest. These land related activities typically require substantial capital, and partnering with
other developers and, to a lesser extent, financial partners, allows Home Building to share the
risks and rewards of ownership and to provide broader strategic advantages. A summary
of the Companys Home Building joint ventures is presented below: As ofJune 30, 2006
    
    
    March 31, 2006Number of Joint Ventures
    
    
    49
    
    
    
    52Investment in Joint Ventures
    
    $
    284,199
    
    
    $
    307,779Total Joint Venture Debt
    
    $
    1,124,471
    
    
    $
    1,053,201Centexs Share of Joint Venture Debt:Based on Centexs Ownership Percentage
    
    $
    423,854
    
    
    $
    388,428Based on Limited Recourse Provisions:Limited Maintenance Guarantee (1) (3)
    
    $
    223,626
    
    
    $
    228,603Repayment Guarantee (2) (3)
    
    
    13,524
    
    
    
    8,136Total Limited Recourse Debt
    
    $
    237,150
    
    
    $
    236,739
 (1)
    
    The Company has guaranteed that certain of the joint ventures will maintain a
specified loan to value ratio. The Company could be required to contribute additional
capital to these joint ventures to the extent the loan to value ratio falls below the
specified ratio. The Company has not been requested to perform under any of its limited
maintenance guarantees.(2)
    
    The Company has guaranteed repayment of a portion of certain joint venture debt
limited to its ownership percentage of the joint venture or a percentage thereof.(3)
    
    These amounts represent the Companys maximum exposure based on the joint ventures
debt at each respective date.
 Debt agreements for
joint ventures vary by lender in terms of structure and level of
recourse. For certain of the joint ventures the Company is also liable on a contingent basis,
through other guarantees, letters of credit or other arrangements, with respect to a portion of the
construction debt. Certain joint venture agreements require the Company to guarantee the
completion of a project or phase if the joint venture does not perform the required development.
To the extent development costs exceed amounts available under the joint ventures credit facility,
the Company would be liable for incremental costs to complete development. Additionally, the
Company has agreed to indemnify the construction lender for certain environmental liabilities in
the case of most joint ventures, and most guarantee arrangements provide that the Company is liable
for its proportionate share of the outstanding debt if the joint venture files for voluntary
bankruptcy. The Company has not been requested to perform under any of these guarantees. The Company also
has investments in joint ventures related to its Construction Services and
Other segments totaling $2,677 and $2,605 as of June 30, 2006 and March 31, 2006, respectively. Letters of Credit and Surety Bonds In the normal course
of business, the Company issues letters of credit and surety bonds
pursuant to certain performance related obligations, as security for certain land option purchase
agreements of the Home Building segment and under various insurance programs. Based on the
information currently available to the Company, the Company does not have any reason to believe
that these letters of credit or bonds will be drawn upon. 13




---



##### Table of Contents



A summary
of the Companys outstanding letters of credit and surety bonds as of June 30, 2006
is presented below (dollars in millions): Letters
of Credit
    
    
    Surety
BondsHome Building
    
    $
    241.7
    
    
    $
    1,835.0
    (1)Financial Services
    
    
    0.7
    
    
    
    10.6Construction Services
    
    
    38.1
    
    
    
    4,242.0
    (2)Other
    
    
    93.9
    
    
    
    0.2Discontinued Operations
    
    
    
    
    
    
    7.8$
    374.4
    
    
    $
    6,095.6
 (1)
    
    The Company estimates that $740.6 million of work remains to be performed on these
projects.(2)
    
    The Company estimates that $2,060.3 million of work remains to be performed on
these projects.
 Warranties and Guarantees In the normal course
of its business, the Company issues certain warranties and guarantees or
makes certain representations related to its home sales, land sales, building sales, commercial
construction and mortgage loan originations. The Company believes that it has established the
necessary accruals for these representations, warranties and guarantees. See further discussion of
our warranty liability below. Home Building offers
a ten-year limited warranty for most homes constructed and sold. The
warranty covers defects in materials or workmanship in the first two years of the customers
ownership of the home and certain designated components or structural elements of the home in the
third through tenth years. Home Building estimates the costs that may be incurred under its
warranty program for which it will be responsible and records a liability at the time each home is
closed. Factors that affect Home Buildings warranty liability include the number of homes closed,
historical and anticipated rates of warranty claims, and cost per claim. Home Building
periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as
necessary. Changes in
Home Buildings contractual warranty liability are as follows for the three months
ended June 30, 2006 and the year ended March 31, 2006: June 30,
2006
    
    
    March 31,
2006Balance at Beginning of Period
    
    $
    47,199
    
    
    $
    34,961Warranties Issued
    
    
    15,891
    
    
    
    53,036Settlements Made
    
    
    (14,954
    )
    
    
    (40,173
    )Changes in Liability of Pre-Existing
Warranties, Including Expirations
    
    
    
    
    
    
    (625
    )Balance at End of Period
    
    $
    48,136
    
    
    $
    47,199
 Loan Loss Reserves CTX Mortgage Company,
LLC has established a liability for anticipated losses associated with
loans originated based upon, among other factors, historical loss rates and current trends in loan
originations. This liability includes losses associated with certain borrower payment defaults,
credit quality issues, or misrepresentations and reflects managements judgment of the loss
exposure at the end of the reporting period. Changes in CTX Mortgage Company, LLCs mortgage loan
origination reserve are as follows for the three months ended June 30, 2006 and the year ended
March 31, 2006: June 30,
2006
    
    
    March 31,
2006Balance at Beginning of Period
    
    $
    18,500
    
    
    $
    18,803Provision for Losses
    
    
    479
    
    
    
    2,618Settlements
    
    
    (274
    )
    
    
    (2,921
    )Balance at End of Period
    
    $
    18,705
    
    
    $
    18,500
 14




---



##### Table of Contents



Litigation and Related Matters In the normal course
of its business, the Company is named as a
defendant in certain suits filed in various state and federal courts. Management believes that
none of the litigation matters in which the Company or any subsidiary is involved, including those
described below, would have a material adverse effect on the consolidated financial condition or
operations of the Company. In January 2003,
the Company received a request for information from the United States
Environmental Protection Agency (EPA) pursuant to Section 308 of the Clean Water Act seeking
information about storm water pollution prevention practices at projects that the Company had
completed or was building. Subsequently, the EPA limited its request to Home Building and 30
communities. Home Building has provided the requested information and the United States Department
of Justice (the Justice Department), acting on behalf of the EPA, has asserted that some of these
and certain other communities (including one of Construction Services projects) have violated
regulatory requirements applicable to storm water discharges, and that injunctive relief and civil
penalties may be warranted. Home Building and Construction Services believe they have defenses to
the allegations made by the EPA and are exploring methods of settling this matter. In any
settlement, the Justice Department will want the Company to pay civil penalties and sign a consent
decree affecting the Companys storm water pollution prevention practices at construction sites. On November 23,
2004, Miami-Dade County, Florida filed suit against Centex-Rooney Construction
Co., a wholly-owned subsidiary; John J. Kirlin, Inc.; and M. C. Harry and Associates, Inc., in the
Countys Circuit Court of the Eleventh Judicial Circuit. Miami-Dade County alleges that, in the
course of performing or managing construction work on Concourse F at the Miami International
Airport, the defendants caused a jet fuel line rupture on or about July 30, 1987, which resulted in
the contamination of soil, groundwater and surface water in and around airport Concourse F.
Miami-Dade County seeks damages of approximately $8.0 million for its costs incurred to date and
for expected future costs, civil penalties and an order requiring the defendants to address
remaining contamination. The Company believes it has substantial defenses to Miami-Dade Countys
claims, including waiver and release and statute of limitations defenses. The Company also
believes insurance coverage may be available to cover defense costs and any potential damages. In December 2004,
certain present and former employees of Centex Home Equity Company, LLC
commenced a collective action lawsuit in the United States District Court for Northern District of
Georgia. In this litigation, plaintiffs seek to recover unpaid overtime compensation under the
Fair Labor Standards Act. As discussed elsewhere in this
report, the Company sold Home Equity to an unrelated third party and agreed to indemnify the
purchaser against all losses and expenses arising out of this lawsuit in excess of the amount of
the reserves established on the books of Home Equity at the time of the closing of the sale
transaction. (H) LAND HELD UNDER OPTION AGREEMENTS NOT
OWNED AND OTHER LAND DEPOSITS In order to ensure
the future availability of land for homebuilding, the Company enters into
land option purchase agreements. Under the option agreements, the Company pays a stated deposit in
consideration for the right to purchase land at a future time, usually at predetermined prices.
These options generally do not contain performance requirements from the Company nor obligate the
Company to purchase the land, and expire on various dates. 15




---



##### Table of Contents



The Company has determined that in accordance with the provisions of FIN 46, it is the primary
beneficiary of certain land option agreements at June 30, 2006. As a result, the Company recorded
$386.0 million and $653.3 million of land as inventory under the caption land held under option
agreements not owned, with corresponding increases to minority interests and other indebtedness as
of June 30, 2006 and March 31, 2006, respectively. The following table summarizes the Companys
investment in land option agreements and their total purchase price (dollars in millions): As ofJune 30, 2006
    
    
    March 31, 2006Cash Deposits included in:Land Held for Development and Sale
    
    $
    265.8
    
    
    $
    246.2Land Held Under Option Agreements Not Owned
    
    
    47.6
    
    
    
    89.1Total Cash Deposits in Inventory
    
    
    313.4
    
    
    
    335.3Letters of Credit
    
    
    25.4
    
    
    
    29.0Total Invested through Deposits or Secured with Letters of Credit
    
    $
    338.8
    
    
    $
    364.3Total Purchase Price of Land Option Agreements
    
    $
    9,485.1
    
    
    $
    9,930.2
 In addition to lot options recorded pursuant to FIN 46, the Company recorded $45.3
million and $75.5 million as of June 30, 2006 and March 31, 2006, respectively, of land under the
caption land held under option agreements not owned related to lot option agreements for which the
Companys deposits exceeded certain thresholds. (I) COMPREHENSIVE INCOME A summary of comprehensive income for the three months ended June 30, 2006 and 2005
is presented below: For the Three Months Ended June 30,2006
    
    
    2005Net Earnings
    
    $
    160,257
    
    
    $
    233,670Other Comprehensive Income (Loss), net of Tax:Unrealized Gain (Loss) on Hedging Instruments
    
    
    8,247
    
    
    
    (5,707
    )Foreign Currency Translation Adjustments
    
    
    25
    
    
    
    (13,683
    )Comprehensive Income
    
    $
    168,529
    
    
    $
    214,280
 The unrealized gain or loss on hedging instruments represents the deferral in other
comprehensive income (loss) of the unrealized gain or loss on interest rate swap agreements
designated as cash flow hedges. The accounting for interest rate swaps and other derivative
financial instruments in place as of June 30, 2006 is discussed in detail in Note (L), Derivatives
and Hedging. Unrealized gain or loss on hedging instruments also includes other comprehensive
income of $2.2 million related to terminated hedges executed in connection with the anticipated
issuance of fixed-rate debt. This other comprehensive loss will be recognized in earnings over the
remaining term of the respective fixed-rate debt. Accumulated other comprehensive income
associated with Home Equity as of the date of disposition will be reclassified into earnings. (J) BUSINESS SEGMENTS As of June 30, 2006, the Company operated in three principal business segments: Home
Building, Financial Services and Construction Services. These segments operate in the United
States and their markets are nationwide. Revenues from any one customer are not significant to the
Company. For the three months ended June 30, 2006 and 2005, intersegment revenues and cost of sales are
included in the results of operations for the individual segments but have been eliminated in
consolidation. Intersegment eliminations include the elimination of Construction Services
revenues earned and costs and expenses incurred on multi-unit residential vertical construction
with our Home Building business segment. 16




---



##### Table of Contents



Home Building Home Buildings operations currently involve the purchase and development of land or lots and
the construction and sale of detached and attached single-family homes (including resort and second
home properties and lots) and land or lots. In September 2005, the Company sold all of its international homebuilding operations, which
had previously been included in the Home Building segment, to a third party for cash. As a result
of the sale, the operating results of the international homebuilding operations for the three
months ended June 30, 2006 and 2005 have been reclassified to discontinued operations in the
Statements of Consolidated Earnings. See Note (O), Discontinued Operations, for additional
information. Financial Services Financial Services operations consist primarily of mortgage lending, title agency services
and the sale of title insurance and other insurance products. These activities include mortgage
origination and other related services for homes sold by the Companys subsidiaries and others.
Financial Services revenues include interest income of $29.4 million and $23.4 million for the
three months ended June 30, 2006 and 2005, respectively. Substantially all of the Companys
interest income in each year is earned by the Financial Services segment. Financial Services cost
of sales is comprised of interest expense related to debt issued to fund its home financing
activities. On July 11, 2006, the Company completed the sale of Home Equity to an unrelated third party.
The operating results of Home Equity for the three months ended June 30, 2006 and 2005 have been
reclassified to discontinued operations in the Statements of Consolidated Earnings and all related
assets and liabilities have been disclosed separately on the Consolidated Balance Sheets. See Note
(O), Discontinued Operations, for additional information. Construction Services Construction Services operations involve the construction of buildings for both private and
government interests including educational institutions, hospitals, multi-unit residential,
correctional institutions, airport facilities, office buildings, hotels and resorts and sports
facilities. As this segment generates positive cash flow, intercompany interest income (credited
at the prime rate in effect) of $2.4 million and $1.9 million for the three months ended June 30,
2006 and 2005, respectively, is included in managements evaluation of this segment. However, the
intercompany interest income is eliminated in consolidation and excluded from the tables presented
below. Other The Companys Other segment includes corporate general and administrative expenses and
interest expense. Also included in the Other segment are the Companys home services operations
and investment real estate operations, which are not material for purposes of segment reporting. For the Three Months Ended June 30, 2006(Dollars in millions)Home
    
    
    Financial
    
    
    Construction
    
    
    
    
    
    
    IntersegmentBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    Eliminations
    
    
    TotalRevenues
    
    $
    2,649.8
    
    
    $
    122.7
    
    
    $
    501.5
    
    
    $
    31.3
    
    
    $
    (31.9
    )
    
    $
    3,273.4Cost of Sales
    
    
    (1,971.3
    )
    
    
    (20.8
    )
    
    
    (472.2
    )
    
    
    (15.5
    )
    
    
    30.2
    
    
    
    (2,449.6
    )Selling, General and
Administrative Expenses
    
    
    (407.8
    )
    
    
    (78.8
    )
    
    
    (22.5
    )
    
    
    (41.8
    )
    
    
    
    
    
    
    (550.9
    )Earnings from
Unconsolidated Entities
    
    
    10.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.7Earnings (Loss)
Before Income Tax
    
    $
    281.4
    
    
    $
    23.1
    
    
    $
    6.8
    
    
    $
    (26.0
    )
    
    $
    (1.7
    )
    
    $
    283.6
 17




---



##### Table of Contents



For the Three Months Ended June 30, 2005(Dollars in millions)Home
    
    
    Financial
    
    
    Construction
    
    
    
    
    
    
    IntersegmentBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    Eliminations
    
    
    TotalRevenues
    
    $
    2,399.2
    
    
    $
    110.0
    
    
    $
    366.1
    
    
    $
    27.6
    
    
    $
    (3.0
    )
    
    $
    2,899.9Cost of Sales
    
    
    (1,710.7
    )
    
    
    (12.8
    )
    
    
    (344.3
    )
    
    
    (13.7
    )
    
    
    2.9
    
    
    
    (2,078.6
    )Selling, General and
Administrative Expenses
    
    
    (360.0
    )
    
    
    (75.9
    )
    
    
    (19.2
    )
    
    
    (39.8
    )
    
    
    
    
    
    
    (494.9
    )Earnings from
Unconsolidated Entities
    
    
    12.4
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    12.5Earnings (Loss)
Before Income Tax
    
    $
    340.9
    
    
    $
    21.3
    
    
    $
    2.7
    
    
    $
    (25.9
    )
    
    $
    (0.1
    )
    
    $
    338.9
 (K) INCOME TAXES  (L) DERIVATIVES AND HEDGING  Cash Flow Hedges Home Equity has interest rate swap agreements that, in effect, fix the variable interest rates
on a portion of its outstanding debt. Home Equity also uses interest rate swaps to hedge the
market risk associated with the anticipated issuance of fixed-rate securitization debt used to
finance sub-prime mortgages. These interest rate swap agreements are designated as cash flow
hedges. The following table summarizes the interest rate swap agreements in place as of June 30,
2006 (dollars in thousands except as indicated): Notional
    
    Fixed
    
    
    
    
    
    Accumulated OtherValue
    
    Interest
    
    Termination
    
    Comprehensive(in millions)
    
    Rate
    
    Date
    
    IncomeHome EquityInterest rate swaps
    
    $
    145.6
    
    
    
    5.34
    % (1)
    
    Through February 2013
    
    $
    469Interest rate swaps
    
    $
    2,544.2
    
    
    
    4.32
    % (1)
    
    Through May 2011
    
    
    14,238$
    14,707
 (1)
    
    Weighted average fixed interest rates.
 The interest rate swap agreements are recorded at their fair value in assets of
discontinued operations in the Consolidated Balance Sheets. To the extent the hedging relationship
is effective, gains or losses in the fair value of the derivative are deferred as a component of
stockholders equity through other comprehensive income (loss). Fluctuations in the fair value of
the ineffective portion of the derivative are reflected in the current period earnings, although
such amounts were insignificant for the three months ended June 30, 2006. Accumulated other
comprehensive income associated with Home Equity as of the date of disposition will be reclassified
into earnings. Amounts to be received or paid under the swap agreements are recognized as changes in interest
incurred on the related debt instruments. 18




---



##### Table of Contents



Fair Value Hedges Financial Services, through CTX Mortgage Company, LLC, enters into certain forward trade
commitments designated as fair value hedges to hedge the interest rate risk related to its
portfolio of mortgage loans held for sale, including mortgage loans held by HSF-I. Accordingly,
changes in the fair value of the forward trade commitments and the mortgage loans, for which the
hedge relationship is deemed effective, are recorded as an adjustment to earnings. To the extent
the hedge is effective, gains or losses in the value of the hedged loans due to interest rate
movement will be offset by an equal and opposite gain or loss in the value of the forward trade
commitment. This will result in no impact to earnings. To the extent the hedge contains some
ineffectiveness, the ineffectiveness is recognized immediately in earnings. The amount of hedge
ineffectiveness included in earnings was a loss of approximately $0.2 million for the three months
ended June 30, 2006. For the three months ended June 30, 2005, the amount of hedge ineffectiveness
included in earnings was a gain of approximately $3.0 million. Other Derivatives Financial Services, through CTX Mortgage Company, LLC, enters into interest rate lock
commitments (IRLCs) with its customers under which CTX Mortgage Company, LLC agrees to make
mortgage loans at agreed upon rates within a period of time, generally from 1 to 30 days, if
certain conditions are met. Initially, the IRLCs are treated as derivative instruments and their
fair value is recorded on the balance sheet in other assets or accrued liabilities. The fair value
of these loan commitment derivatives does not include future cash flows related to the associated
servicing of the loan or the value of any internally-developed intangible assets. Subsequent
changes in the fair value of the IRLCs are recorded as an adjustment to earnings. To offset the interest rate risk related to its IRLCs, CTX Mortgage Company, LLC executes
forward trade commitments. Certain forward trade commitments are not designated as hedges and are
derivative instruments. Their initial fair value is recorded on the balance sheet in other assets
or accrued liabilities. Subsequent changes in the fair value of these forward trade commitments
are recorded as an adjustment to earnings. The net change in the estimated fair value of other derivatives resulted in a loss of
approximately $0.3 million for the three months ended June 30, 2006, compared to a loss of
approximately $1.6 million for the three months ended June 30, 2005. (M) RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued Staff Position 109-1 (FSP 109-1), Application of FASB
Statement No. 109, which clarified that the tax deduction on qualified production activities
provided by the American Jobs Creation Act of 2004 should be accounted for as a special deduction
and will reduce tax expense in the periods during which the amounts are deductible on the tax
return. Based on the guidance provided by FSP 109-1, this deduction is accounted for as a special
deduction under SFAS 109 which reduces income tax expense. The tax benefits resulting from the new
deduction are reflected in the effective income tax rate of 38.1% and 37.8% for the three months
ended June 30, 2006 and 2005, respectively. In July 2006, the FASB finalized and issued FIN 48, entitled Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109, which defines the threshold for
recognizing the benefits of tax return positions as well as guidance regarding the measurement of
the resulting tax benefits. FIN 48 requires a company to recognize for financial statement
purposes the impact of a tax position if that position is more
likely than not to prevail (defined as a
likelihood of more than fifty percent of being sustained upon audit, based on the technical merits
of the tax position). FIN 48 will be effective as of the beginning of the Companys fiscal year
ending March 31, 2008, with the cumulative effect of the change in accounting principle recorded as
an adjustment to retained earnings. The Company is currently evaluating the impact of adopting FIN
48 on its financial statements. (N) OFF-BALANCE SHEET OBLIGATIONS The Company enters into various off-balance sheet transactions in the normal course of
business in order to facilitate certain homebuilding activities. Further discussion regarding
these transactions can be found above in Note (G), Commitments and Contingencies. 19




---



##### Table of Contents



(O) DISCONTINUED OPERATIONS Condensed Financial Information In September 2005, the Company sold its international homebuilding operations to an unrelated
third party. As a result of the sale, international homebuildings operations have been
reclassified to discontinued operations in the Statements of Consolidated Earnings. On July 11, 2006, the Company completed the sale of its sub-prime home equity lending
operation, Home Equity, to an unrelated third party. For more detailed information on the sale of
Home Equity, refer to Note (P), Subsequent Events. Home Equitys operations have been
reclassified to discontinued operations in the Statements of Consolidated Earnings, and assets and
liabilities related to these discontinued operations have been presented separately on the
Consolidated Balance Sheets. All prior period information has been reclassified to be consistent
with the June 30, 2006 presentation. Summarized financial information for entities included in discontinued operations is set forth
below: As ofJune 30, 2006(1)
    
    March 31, 2006 (1)AssetsCash and Cash Equivalents
    
    $
    26,259
    
    
    $
    787Restricted Cash
    
    
    368,293
    
    
    
    277,114Loans Held for Investment
    
    
    7,134,438
    
    
    
    6,867,658Receivables
    
    
    152,466
    
    
    
    153,517Property and Equipment, net
    
    
    16,194
    
    
    
    17,740Deferred Income Taxes
    
    
    29,831
    
    
    
    74,156Mortgage Securitization Residual Interest
    
    
    56,559
    
    
    
    56,831Deferred Charges and Other, net
    
    
    66,662
    
    
    
    62,359$
    7,850,702
    
    
    $
    7,510,162LiabilitiesAccounts Payable and Accrued Liabilities
    
    $
    54,208
    
    
    $
    70,434Notes Payable
    
    
    1,287,209
    
    
    
    1,095,905Long-term Debt
    
    
    6,050,258
    
    
    
    5,835,454$
    7,391,675
    
    
    $
    7,001,793
 For the Three Months Ended June 30,2006(1)
    
    2005 (2)Revenues
    
    $
    152,943
    
    
    $
    320,714Costs and Expenses
    
    
    (177,685
    )
    
    
    (285,421
    )Earnings from Unconsolidated Entities
    
    
    
    
    
    
    266Earnings (Loss) Before Income Taxes
    
    
    (24,742
    )
    
    
    35,559Benefit (Provision) for Income Taxes
    
    
    9,432
    
    
    
    (12,728
    )$
    (15,310
    )
    
    $
    22,831
 (1)
    
   Includes Home Equity only.(2)
    
    Includes Home Equity and International Home Building.
 20




---



##### Table of Contents



Residential Mortgage Loans Held for Investment Residential mortgage loans held for investment, including real estate owned, consisted of
the following: As ofJune 30, 2006
    
    March 31, 2006Residential Mortgage Loans Held for Investment
    
    $
    7,230,705
    
    
    $
    6,967,034Allowance for Losses on Residential Mortgage Loans
Held for Investment
    
    
    (96,267
    )
    
    
    (99,376
    )Residential Mortgage Loans Held for Investment,
net of Allowance for Losses
    
    $
    7,134,438
    
    
    $
    6,867,658
 Changes in the allowance for losses on residential mortgage loans held for investment
were as follows: For the Three Months Ended
    
    For the Year EndedJune 30, 2006
    
    March 31, 2006Balance at Beginning of Period
    
    $
    99,376
    
    
    $
    85,302Provision for Losses
    
    
    19,911
    
    
    
    94,319Losses Sustained, net of Recoveries of
$324 and $1,499
    
    
    (23,020
    )
    
    
    (80,245
    )Balance at End of Period
    
    $
    96,267
    
    
    $
    99,376For the Three Months Ended
    
    For the Year EndedJune 30, 2006
    
    March 31, 2006Allowance as a Percentage of Gross Loans
Held for Investment
    
    
    1.3
    %
    
    
    1.4
    %Allowance as a Percentage of 90+ Days
Contractual Delinquency
    
    
    48.5
    %
    
    
    41.0
    %90+ Days Contractual Delinquency
(based on months)Total Dollars Delinquent
    
    $
    198,629
    
    
    $
    242,241% Delinquent
    
    
    2.7
    %
    
    
    3.5
    %
 (P) SUBSEQUENT EVENTS Sale of Home Equity On July 11, 2006, the Company completed the sale of Home Equity to an unrelated
third party. The estimated total, net after-tax proceeds to the Company from the sale are
initially approximately $540 million. These proceeds reflect the initial cash consideration paid
by the purchaser in the amount of approximately $550 million (the Initial Purchase Price), as adjusted
for expenses associated with the sale, certain tax benefits to the Company and estimated
post-closing adjustments. The Initial Purchase Price was based on an estimate of the book value of
Home Equity, plus a premium calculated in accordance with agreed upon formulas and procedures. The
book value component and the premium component of the Initial Purchase Price are subject to
post-closing adjustments to reflect the actual book value of Home Equity as of the closing date and
to reflect, among other things, the amount and value of the home equity loans and certain other
assets of Home Equity as of the closing date. The premium component of the Initial Purchase Price
is also subject to a post-closing adjustment based upon the volume of mortgage loans originated by
Home Equity during a two-year period after the closing date (the Volume Incentive Adjustment) as
described below. 21




---



##### Table of Contents



The Company currently expects that the procedures required to effect the post-closing
adjustments to the Initial Purchase Price will be completed within approximately 60 to 90 days
after the closing date. There can be no assurance as to the timing of the completion of the
adjustments or the results thereof. The Volume Incentive Adjustment will depend primarily upon the total volume of mortgage loans
originated by Home Equity during the two-year period after the closing date. The maximum
additional amount that could be payable to the Company as a result of the Volume Incentive
Adjustment is $30 million. However, under certain circumstances, such provisions could require the
Company to repay up to $10 million of the amounts previously received from the purchaser. There
can be no assurance as to the results of the Volume Incentive Adjustment, which will depend on the
future operating results of Home Equity and other future events, many of which are outside of the
Companys control. Other In July 2006, the Company repurchased an aggregate of 1.0 million shares of common stock at a
total purchase price of $50.8 million, including commissions paid. In
July 2006, the Company granted 49,760 stock options and 20,950 shares of restricted stock to the Companys
directors. The total value of these grants was $2.0 million. (Q) RECLASSIFICATIONS Certain prior year balances have been reclassified to be consistent with the June 30, 2006
presentation, including reclassification of distribution of earnings from joint ventures to cash
flows from operating activities and reclassifications of discontinued operations. 22




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations The following discussion is intended to help the reader gain a better understanding of our
financial condition and our results of operations. It is provided as a supplement to, and should
be read in conjunction with, our financial statements and accompanying notes. Executive Summary The following charts summarize certain key line items of our results of operations by business
segment for the three months ended June 30, 2006 and 2005 (dollars in millions): (BAR CHART) *
    
    Other consists of the financial results of our investment real estate and
home services operations, as well as corporate general and administrative
expense, interest expense and intersegment eliminations.
 Revenues for the three months ended June 30, 2006 increased 12.9% to $3.3
billion as compared to the three months ended June 30, 2005. Earnings from
continuing operations before income taxes for the three months ended June 30,
2006 decreased 16.2% to $284 million as compared to the same period in the
prior year. The growth in our revenues during the three months ended June 30, 2006 is
primarily due to an increase in average sales prices for our homes. The
decrease in our operating earnings during the same period is primarily
attributable to an increase in discounts and sale incentives for our homes,
coupled with an increase in write-offs of land deposits and pre-acquisition
costs as compared to the prior year. Increased discounts and sales incentives
were primarily the result of higher housing inventories in key markets and
other market conditions described below. Write-offs of land deposits and
pre-acquisition costs were related primarily to a reevaluation of selected
homebuilding projects in light of changing market conditions. 23




---



##### Table of Contents



In the long-term, the overall demand for housing in the United States is driven by
population growth, immigration, household formations and increasing home ownership rates.
Short-term growth drivers such as mortgage rates, consumer confidence and employment levels can
also impact housing demand. The highly fragmented homebuilding industry is in the early stages of
a consolidation phase during which large homebuilders grow faster than the industry as a whole. In
1995, based upon single-family permits issued in the United States, the 10 largest homebuilders
represented approximately 7.2% of the housing market. In calendar year 2005 (the most recent data
available), the 10 largest homebuilders were producing approximately 24% of the nations new
housing stock. We believe industry consolidation will continue to be an important growth factor
over the next decade or more as large homebuilders realize the benefits of size, such as capital
strength, more efficient operations and technological advantages. As of March 31, 2006, we had
homebuilding operations in 38 of the 50 largest housing markets
in the United States. We have largely completed our geographic diversification plan and are now
focused primarily on further penetration in our existing markets.  
    
    increased inventory of new and used homes for sale,
 
    
    a decline in homebuyer consumer confidence, and
 
    
    an increase in mortgage interest rates
  Financial Services operating results for the three months ended June 30, 2006 improved as a
result of increases in revenues from loan sales to investors and interest income. These positive
trends were partially offset by increases in funding costs and selling, general and administrative
expenses. Since CTX Mortgage Company, LLC does not recognize revenue on its originated loans until they are sold to third party investors,
the decline in Home Building sales could have a negative impact on CTX Mortgage Company, LLCs
future operating results. Refinancing activity has declined due to an extended period of relatively low mortgage
loan rates, which reduced the supply of loans likely to be refinanced. Recent increases in
mortgage loan rates have helped to prolong this trend, which may continue in future periods. CTX
Mortgage Company, LLC will continue to focus on serving the customers of our Home Building segment
and increasing the percentage of prime mortgage loans provided to them. The results of operations of certain of our segments, including our Home Building and
Financial Services operations, may be adversely affected by increases in short-term and long-term
interest rates. A significant increase in short-term interest rates above current prevailing levels
could have an adverse effect on funding costs of our Financial Services operations. A significant
increase in long-term interest rates above current prevailing levels could increase mortgage
interest rates, which could affect the demand for housing, at least in the short term, by reducing
the ability or willingness of prospective home buyers to finance home purchases. In addition, an
increase in mortgage interest rates could curtail mortgage refinance activity. Although we expect
that we would make adjustments in our operations in an effort to mitigate the effects of any
increase in mortgage interest rates, there can be no assurances that these efforts would be
successful. Our Construction Services segment operating earnings for the three months ended June 30, 2006
increased as a result of an increase in construction revenue as compared to the prior year and also because
approximately $2.5 million in costs were incurred in the quarter ended June 30, 2005 for the merging of
two offices. At June 30, 2006, Construction Services backlog was $2.90 billion, an increase of
23.1% over the prior year. Strategically, we will continue to focus on our core geographic and
selected industry segments which provide greater opportunity to achieve growth in Construction
Services revenues and operating earnings. On May 11, 2006, our Board of Directors authorized the repurchase of an additional 12 million
shares. In the three months ended June 30, 2006, we repurchased an aggregate of 3.5 million shares
of our common stock at a total 24




---



##### Table of Contents



purchase price of
$187.2 million, including commissions paid. As of June 30, 2006,
our remaining share repurchase authorization totaled 11.0 million
shares. In July 2006, we repurchased an aggregate of 1.0 million
shares of our common stock at a total purchase price of $50.8 million,
including commissions paid. On
July 11, 2006, we completed the sale of our sub-prime home
equity lending operation. Home Equity, to an unrelated third party.
We estimate total, net after-tax proceeds will approximate
$540 million, subject to certain post-closing adjustments. The
purchase price consisted of a payment based on the book value of the
company, plus a premium calculated in accordance with agreed upon
formulas and procedures. Additionally, we have the potential to receive an additional payment
based on the volume of mortgage loans originated by Home Equity
during the two-year period after the closing. For additional information regarding the sale of
Home Equity, refer to Note (P), Subsequent Events, of the Notes to Consolidated
Financial Statements and
our Current Report on Form 8-K dated July 14, 2006. HOME BUILDING The following summarizes the results of our Home Building operations for the three months
ended June 30, 2006 and 2005 (dollars in millions): For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeRevenues  Housing
    
    $
    2,562.0
    
    
    
    8.6
    %
    
    $
    2,358.1
    
    
    
    25.9
    %Revenues  Land Sales and Other
    
    
    87.8
    
    
    
    113.6
    %
    
    
    41.1
    
    
    
    53.4
    %Cost of Sales  Housing
    
    
    (1,866.5
    )
    
    
    11.5
    %
    
    
    (1,673.6
    )
    
    
    22.9
    %Cost of Sales  Land Sales and Other
    
    
    (104.8
    )
    
    
    182.5
    %
    
    
    (37.1
    )
    
    
    5.7
    %Selling, General and Administrative Expenses
    
    
    (407.8
    )
    
    
    13.3
    %
    
    
    (360.0
    )
    
    
    25.7
    %Earnings from Unconsolidated Entities
    
    
    10.7
    
    
    
    (13.7
    %)
    
    
    12.4
    
    
    
    59.0
    %Operating Earnings
    
    $
    281.4
    
    
    
    (17.5
    %)
    
    $
    340.9
    
    
    
    52.5
    %Operating Earnings as a Percentage of Revenues:Housing Operations
    
    
    11.2
    %
    
    
    (2.6
    )
    
    
    13.8
    %
    
    
    1.8Total Homebuilding Operations
    
    
    10.6
    %
    
    
    (3.6
    )
    
    
    14.2
    %
    
    
    2.4
 For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeUnits ClosedMid-Atlantic
    
    
    1,653
    
    
    
    7.0
    %
    
    
    1,545
    
    
    
    18.6
    %Southeast
    
    
    1,298
    
    
    
    (10.7
    %)
    
    
    1,453
    
    
    
    11.0
    %Midwest
    
    
    1,551
    
    
    
    (0.9
    %)
    
    
    1,565
    
    
    
    2.7
    %Southwest
    
    
    2,314
    
    
    
    5.8
    %
    
    
    2,188
    
    
    
    10.1
    %West Coast
    
    
    1,502
    
    
    
    1.2
    %
    
    
    1,484
    
    
    
    17.9
    %8,318
    
    
    
    1.0
    %
    
    
    8,235
    
    
    
    11.5
    %Average Sales Price Per UnitMid-Atlantic
    
    $
    329,082
    
    
    
    2.2
    %
    
    $
    321,863
    
    
    
    12.4
    %Southeast
    
    $
    306,578
    
    
    
    12.7
    %
    
    $
    271,989
    
    
    
    12.2
    %Midwest
    
    $
    228,729
    
    
    
    7.0
    %
    
    $
    213,807
    
    
    
    1.5
    %Southwest
    
    $
    210,627
    
    
    
    21.5
    %
    
    $
    173,309
    
    
    
    9.7
    %West Coast
    
    $
    517,975
    
    
    
    2.2
    %
    
    $
    506,604
    
    
    
    16.6
    %Total Home Building
    
    $
    308,014
    
    
    
    7.6
    %
    
    $
    286,354
    
    
    
    12.9
    %
 Revenues increased in the three months ended June 30, 2006 as compared to the same
period in the prior year primarily due to increases in average sales prices. All regions experienced
increases in average sales prices, which are net of any customer
discounts. Customer discounts increased 4.8% of housing revenue, up from 1.9% in the prior year.
For the three months ended June 30, 2006, our growth rate in closings has declined
when compared to the prior year as a result of decreases in sales orders for the past two quarters.
We expect that the decreases in sales orders will significantly affect our closings in the near
term, and will result in declines in closings in future quarters. 25




---



##### Table of Contents



The increase in unit closings is reflective of an increase in average operating neighborhoods.
On the other hand, closings per average neighborhood decreased as outlined in the table below. For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeAverage Operating Neighborhoods (1)
    
    
    669
    
    
    
    10.6
    %
    
    
    605
    
    
    
    6.1
    %Closings Per Average Neighborhood
    
    
    12.4
    
    
    
    (8.8
    %)
    
    
    13.6
    
    
    
    4.6
    %
 (1)
    
    We define a neighborhood as an individual active selling location targeted to a
specific buyer segment with greater than ten homes remaining to be sold.
 The increase in average operating neighborhoods for the three
months ended June 30, 2006
is primarily the result of the closing out of neighborhoods at a
slower rate as compared to the prior year. For the three months ended
June 30, 2006, we opened 327 new neighborhoods
and closed out of 250 neighborhoods. Operating margins (consisting of operating earnings as a percentage of revenues) declined to
10.6% for the three months ended June 30, 2006 as compared to 14.2% for the three months ended June
30, 2005. The decrease in operating margins is reflective of an increase in discounts and sales
incentives for our homes, coupled with an increase in write-offs of land deposits and
pre-acquisition costs as compared to the prior year. We periodically write off deposits and
pre-acquisition costs as a component of our ongoing land acquisition process and evaluation of
potential market opportunities, which is reflective of our decision not to exercise an option or consummate a land acquisition as
a result of changes in market conditions or other factors. Write-offs of land deposits and pre-acquisition costs included in
cost of sales  land sales and other amounted to $36.3 million for the three months ended June
30, 2006. Operating margins also decreased due to increases in selling, general and administrative
expenses as a percentage of revenues. Selling, general and administrative expenses include all homebuilding employee
compensation and related benefits, selling commissions and marketing and advertising costs.
Selling, general and administrative expenses increased for the three months ended June 30, 2006
primarily due to increases in advertising, marketing and selling expenses to stimulate sales in
light of current housing industry conditions as outlined above, as well as a slight increase in
employee compensation and related benefits. Revenues from land sales and other increased 113.6% to $87.8 million as compared to the prior
year. The timing and amount of land sales vary from period to period based on several factors,
including the location, size, availability and desirability of the land we own in each market. We
deploy disciplined capital allocation and management strategies and processes in each of our
markets. We also have individual market-focused land acquisition and entitlement resources. The
execution of our capital management strategies, combined with the value created by our land
acquisition and entitlement teams, result in sales of parcels of land from time to time. In some
cases, the purpose of these sales may be to take advantage of an opportunity to realize value that
has been created through the entitlement process for parcels on which we are not likely to be able
to build homes for some time. These sales may also fund the acquisition of more desirable tracts
in a market. Additionally, in certain situations, we may acquire more land than is required to
support our planned growth in a particular geographic area. In addition, our resort and second
home operations sell land in the normal course of conducting their operations. The following tables summarize sales orders and backlog units: For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeSales Orders (in Units)Mid-Atlantic
    
    
    1,549
    
    
    
    (22.9
    %)
    
    
    2,010
    
    
    
    36.2
    %Southeast
    
    
    1,039
    
    
    
    (43.4
    %)
    
    
    1,835
    
    
    
    (4.7
    %)Midwest
    
    
    1,480
    
    
    
    (9.5
    %)
    
    
    1,635
    
    
    
    3.9
    %Southwest
    
    
    2,563
    
    
    
    (14.9
    %)
    
    
    3,013
    
    
    
    29.0
    %West Coast
    
    
    1,619
    
    
    
    (15.9
    %)
    
    
    1,926
    
    
    
    12.0
    %8,250
    
    
    
    (20.8
    %)
    
    
    10,419
    
    
    
    15.4
    %Sales Per Average Neighborhood
    
    
    12.3
    
    
    
    (28.5
    %)
    
    
    17.2
    
    
    
    8.9
    %
 26




---



##### Table of Contents



As ofJune 30, 2006
    
    March 31, 2006Change
    
    
    
    
    
    
    ChangeBacklog UnitsMid-Atlantic
    
    
    2,969
    
    
    
    (3.4
    %)
    
    
    3,073
    
    
    
    (11.2
    %)Southeast
    
    
    3,857
    
    
    
    (6.3
    %)
    
    
    4,116
    
    
    
    (17.8
    %)Midwest
    
    
    2,684
    
    
    
    (2.6
    %)
    
    
    2,755
    
    
    
    (15.8
    %)Southwest
    
    
    4,343
    
    
    
    6.1
    %
    
    
    4,094
    
    
    
    11.0
    %West Coast
    
    
    3,466
    
    
    
    3.5
    %
    
    
    3,349
    
    
    
    5.9
    %17,319
    
    
    
    (0.4
    %)
    
    
    17,387
    
    
    
    (6.5
    %)
 Sales orders
declined in each of the regions in which we do business, with the most
pronounced declines being experienced in the Southeast and Mid-Atlantic regions. These declines
led to a decrease in backlog in all regions other than the Southwest and West Coast, which
experienced relatively small increases in backlog. As previously discussed, some of the factors we
believe are contributing to the decrease in sales and backlog are
increased inventory of new and used homes for sale, a
decline in homebuyer consumer confidence and an increase in mortgage interest rates. Certain of these factors
are evidenced by lower customer traffic and
increases in cancellation rates. For the three months ended June 30, 2006 and 2005, cancellation
rates were 32.7% and 20.9%, respectively. The following
table summarizes our land position as of June 30, 2006 and March 31, 2006: As of June 30,
    
    As of March 31,2006
    
    2006Lots Owned
    
    Lots Controlled
    
    Total Lots
    
    Lots Owned
    
    Lots Controlled
    
    Total LotsMid-Atlantic
    
    
    20,596
    
    
    
    45,706
    
    
    
    66,302
    
    
    
    20,036
    
    
    
    49,421
    
    
    
    69,457Southeast
    
    
    28,475
    
    
    
    43,243
    
    
    
    71,718
    
    
    
    27,830
    
    
    
    41,011
    
    
    
    68,841Midwest
    
    
    13,955
    
    
    
    16,564
    
    
    
    30,519
    
    
    
    14,133
    
    
    
    18,724
    
    
    
    32,857Southwest
    
    
    29,953
    
    
    
    36,147
    
    
    
    66,100
    
    
    
    27,832
    
    
    
    40,390
    
    
    
    68,222West Coast
    
    
    19,997
    
    
    
    27,954
    
    
    
    47,951
    
    
    
    18,997
    
    
    
    37,347
    
    
    
    56,344112,976
    
    
    
    169,614
    
    
    
    282,590
    
    
    
    108,828
    
    
    
    186,893
    
    
    
    295,721Change(1)
    
    
    3.8
    %
    
    
    (9.2
    %)
    
    
    (4.4
    %)
    
    
    2.1
    %
    
    
    (0.1
    %)
    
    
    0.7
    %
 (1)
    
    From previous quarter.
 Our total land position
decreased 4.4% as of June 30, 2006 as compared to a slight
increase in the prior quarter. The decrease in our land position for the three months
ended June 30, 2006 is reflective of our decision to decelerate land purchases and new lot option
arrangements, as well as to walk away from certain existing lots controlled under option
agreements. Our total land position owned or controlled under option agreements at June 30, 2006
will provide land for approximately 100% of closings for fiscal year 2007, 94% of closings for
fiscal year 2008, and 75% of closings for fiscal year 2009 based on our current closing
projections. Included in our total land position are approximately 36,555 and 35,063 lots
controlled through joint venture arrangements as of June 30, 2006 and March 31, 2006, respectively.
We have completed our due diligence on 70,582 lots that we control (including certain of such lots
controlled through joint ventures). FINANCIAL SERVICES The Financial Services segment is primarily engaged in the residential mortgage lending
business, as well as other financial services that are in large part related to the residential
mortgage market. Its operations include mortgage lending and other related services for purchasers
of homes sold by our Home Building operations and other homebuilders, title agency services and the
sale of title insurance and other insurance products, including property and casualty. 27




---



##### Table of Contents



The following summarizes Financial Services results for the three months ended June 30, 2006
and 2005 (dollars in millions): For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeRevenues
    
    $
    122.7
    
    
    
    11.5
    %
    
    $
    110.0
    
    
    
    0.8
    %Cost of Sales
    
    
    (20.8
    )
    
    
    62.5
    %
    
    
    (12.8
    )
    
    
    80.3
    %Selling, General and Administrative Expenses
    
    
    (78.8
    )
    
    
    3.8
    %
    
    
    (75.9
    )
    
    
    8.4
    %Operating Earnings
    
    $
    23.1
    
    
    
    8.5
    %
    
    $
    21.3
    
    
    
    (33.4
    %)Operating Margin
    
    
    18.8
    %
    
    
    (0.6
    )
    
    
    19.4
    %
    
    
    (9.9
    )Interest Margin
    
    $
    8.5
    
    
    
    (19.8
    %)
    
    $
    10.6
    
    
    
    (32.5
    %)Average Interest Earning Assets
    
    $
    1,574.3
    
    
    
    5.7
    %
    
    $
    1,489.5
    
    
    
    (10.4
    %)Average Yield
    
    
    7.46
    %
    
    
    1.17
    
    
    
    6.29
    %
    
    
    0.82Average Interest Bearing Liabilities
    
    $
    1,541.3
    
    
    
    3.6
    %
    
    $
    1,488.1
    
    
    
    (7.1
    %)Average Rate Paid
    
    
    5.43
    %
    
    
    1.97
    
    
    
    3.46
    %
    
    
    1.74
 The revenues and operating earnings of CTX Mortgage Company, LLC and its related
companies are derived from the sale of mortgage loans, together with all related servicing rights,
title and other various insurance coverages, interest income and other fees. Net origination fees,
mortgage servicing rights, and other revenues derived from the origination of mortgage loans are
deferred and recognized when the related loan is sold to a third-party purchaser. Interest
revenues on residential mortgage loans receivable are recognized using the interest (actuarial)
method. Other revenues, including fees for title insurance, mortgage broker and other services
performed in connection with mortgage lending activities, are recognized as earned. In the normal course of its activities, CTX Mortgage Company, LLC and its related companies
carry inventories of loans pending sale to third-party investors and earn an interest margin, which
we define as the difference between interest revenue on mortgage loans held for sale and interest
expense on debt used to fund the mortgage loans. Our business strategy of selling prime loans reduces our capital investment and related risks,
provides substantial liquidity and is an efficient process given the size and liquidity of the
prime mortgage loan secondary capital markets. CTX Mortgage Company, LLC originates mortgage loans
and sells them to HSF-I and investors. HSF-I is a variable interest entity for which we are the
primary beneficiary and is consolidated with our Financial Services segment. HSF-Is debt and
subordinated certificates do not have recourse to us. We do not guarantee the payment of any debt
or subordinated certificates of HSF-I and are not liable for credit losses relating to securitized
residential mortgage loans sold to HSF-I. Revenues for the three months ended June 30, 2006 increased year over year due to increases in
loan sales to investors and interest income. Loan funding costs also increased as a result of
higher short-term interest rates. This increase in funding costs was the primary factor
contributing to the decrease in interest margin for the three months ended June 30, 2006. The
increase in selling, general and administrative expenses in the three months ended June 30, 2006 is
primarily related to an increase in compensation costs related to brokered loan production. 28




---



##### Table of Contents



The following table provides a comparative analysis of: (1) the volume of loan sales to
investors (third parties) and the gains recorded on those sales and related derivative activity,
known collectively as gain on sale of mortgage loans, and (2) loans brokered to third party lenders
and fees received for related broker services for the three months ended June 30, 2006 and 2005
(dollars in millions, except average loan size): For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeLoan Sales to InvestorsVolume
    
    $
    2,857.2
    
    
    
    11.9
    %
    
    $
    2,553.2
    
    
    
    (0.6
    %)Number of Loans Sold
    
    
    14,312
    
    
    
    8.4
    %
    
    
    13,197
    
    
    
    (13.2
    %)Gain on Sale of Mortgage Loans
    
    $
    46.6
    
    
    
    18.3
    %
    
    $
    39.4
    
    
    
    16.2
    %Loans Brokered to Third Party LendersVolume
    
    $
    957.1
    
    
    
    9.4
    %
    
    $
    874.9
    
    
    
    3.3
    %Number of Brokered Loans
    
    
    3,237
    
    
    
    (5.1
    %)
    
    
    3,412
    
    
    
    (5.3
    %)Broker Fees
    
    $
    18.6
    
    
    
    3.3
    %
    
    $
    18.0
    
    
    
    11.8
    %Average Loan SizeLoans Sold to Investors
    
    $
    199,634
    
    
    
    3.2
    %
    
    $
    193,470
    
    
    
    14.5
    %Loans Brokered to Third Party Lenders
    
    $
    295,670
    
    
    
    15.3
    %
    
    $
    256,421
    
    
    
    9.0
    %
 Gain on sale of mortgage loans increased at a higher rate than the volume of loan sales
to investors as a result of an increase in average income received from mortgage servicing rights. CTX Mortgage Company, LLC tracks loan applications until such time as the loan application is
closed as an originated loan or cancelled. New application data presented below includes loan
applications received, which resulted in originated loans in the period presented and applications
for loans scheduled to close in subsequent periods. For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeOpen Applications  Beginning
    
    
    23,219
    
    
    
    (6.8
    %)
    
    
    24,912
    
    
    
    (7.1
    %)New Applications
    
    
    25,409
    
    
    
    (17.8
    %)
    
    
    30,919
    
    
    
    1.3
    %Canceled Applications
    
    
    (10,229
    )
    
    
    3.8
    %
    
    
    (9,854
    )
    
    
    (16.6
    %)Net Applications
    
    
    15,180
    
    
    
    (27.9
    %)
    
    
    21,065
    
    
    
    12.5
    %Originated Loans
    
    
    (14,982
    )
    
    
    (16.4
    %)
    
    
    (17,930
    )
    
    
    (6.5
    %)Open Applications  Ending
    
    
    23,417
    
    
    
    (16.5
    %)
    
    
    28,047
    
    
    
    6.4
    %
 The table below provides a comparative analysis of mortgage loan originations for the
three months ended June 30, 2006 and 2005. For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeOrigination Volume (in millions)
    
    $
    3,488.1
    
    
    
    (8.7
    %)
    
    $
    3,820.7
    
    
    
    9.1
    %Number of Originated LoansBuilder
    
    
    6,065
    
    
    
    7.9
    %
    
    
    5,619
    
    
    
    12.0
    %Retail
    
    
    8,917
    
    
    
    (27.6
    %)
    
    
    12,311
    
    
    
    (13.0
    %)14,982
    
    
    
    (16.4
    %)
    
    
    17,930
    
    
    
    (6.5
    %)Average Loan Size  Originated Loans
    
    $
    232,800
    
    
    
    9.2
    %
    
    $
    213,100
    
    
    
    16.7
    %
 29




---



##### Table of Contents



Builder originations for the three months ended June 30, 2006 increased as a result of an
increase in Home Buildings closings and our continued focus on serving this customer base. For
the three months ended June 30, 2006, CTX Mortgage Company, LLC originated 77% of the non-cash unit
closings of Home Buildings customers, versus 75% for the same period in the prior year. Total
origination volume decreased as a result of a decrease in retail originations caused by higher
mortgage interest rates. CTX Mortgage Company, LLCs operations are influenced by borrowers perceptions of and
reactions to interest rates. Refinancing activity accounted for 17% and 20% of its originations
for the three months ended June 30, 2006 and 2005, respectively. Any significant increase in
mortgage interest rates above current prevailing levels could affect the ability or willingness of
prospective homebuyers to finance home purchases and/or curtail mortgage refinance activity. CONSTRUCTION SERVICES The following summarizes Construction Services results for the three months ended June 30,
2006 and 2005 (dollars in millions): For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    ChangeRevenues
    
    $
    501.5
    
    
    
    37.0
    %
    
    $
    366.1
    
    
    
    (15.7
    %)Operating Earnings
    
    $
    6.8
    
    
    
    151.9
    %
    
    $
    2.7
    
    
    
    (40.0
    %)New Contracts Executed
    
    $
    442.1
    
    
    
    (38.4
    %)
    
    $
    718.2
    
    
    
    112.5
    %
 As of June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeBacklog of Uncompleted Contracts
    
    $
    2,897.3
    
    
    
    23.1
    %
    
    $
    2,353.3
    
    
    
    42.6
    %
 Construction Services revenues are impacted by the nature and size of construction
projects, the stage of completion and the construction schedule as defined by project owners.
Revenues for the three months ended June 30, 2006 increased as compared to the same period in the
prior year primarily due to a substantial increase in backlog in prior periods resulting in a
larger portfolio of work from which revenue was realized in this period. The increase in operating
earnings for the three months ended June 30, 2006 is primarily the result of the larger portfolio
of jobs and improved job profit margins. For the three months ended June 30, 2006, there has been
an increase in active multi-unit residential projects, which have higher profit margins while at
the same time lower margin jobs have completed and dropped out of the mix of business. As of June
30, 2006, we had 236 active projects which represent a 5.6% decrease over the same period in the
prior year. The decrease in new contracts executed for the three months ended June 30, 2006 was
due primarily to several large contracts executed during the three months ended June 30, 2005,
which did not occur in the three months ended June 30, 2006. The increase in backlog of
uncompleted contracts was primarily due to an increase in the average contract values for projects
in backlog as compared to the same period in the prior year. Construction Services defines backlog
as the uncompleted portion of all signed contracts. Construction Services multi-unit residential
backlog of $1.53 billion includes $256.0 million of vertical construction projects for our Home
Building business segment. Construction Services has also been awarded work that is pending execution of a signed
contract. At June 30, 2006 and 2005, such work, which is not included in backlog, was
approximately $2.15 billion and $2.24 billion, respectively. There is no assurance that this
awarded work will result in future revenues. OTHER Our Other segment includes our home services operations, investment real estate operations,
corporate general and administrative expense, and interest expense. 30




---



##### Table of Contents



The following summarizes the components of the Other segments loss from continuing operations
before income tax (dollars in millions): For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeOperating Loss from Home Services Operations
    
    $
    (1.7
    )
    
    
    (34.6
    %)
    
    $
    (2.6
    )
    
    
    Operating Loss from Investment
Real Estate Operations
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    (101.0
    %)Corporate General and Administrative Expense
    
    
    (24.2
    )
    
    
    17.5
    %
    
    
    (20.6
    )
    
    
    5.1
    %Interest Expense
    
    
    
    
    
    
    (100.0
    %)
    
    
    (2.6
    )
    
    
    (40.9
    %)Operating Loss
    
    $
    (26.0
    )
    
    
    0.4
    %
    
    $
    (25.9
    )
    
    
    55.1
    %
 Our home services revenues increased 20.8% to $31.4 million in the three months ended
June 30, 2006 as compared to the same period in the prior year. This increase in revenues is the
result of an expanded customer base. We had 374 thousand pest defense customers as of June 30,
2006 as compared to 287 thousand as of June 30, 2005. The decrease in our home services divisions
operating loss for the three months ended June 30, 2006 is primarily due to the increase in
revenues and leverage in selling, general and administrative expenses. Corporate general and administrative expenses represent corporate employee compensation and
other corporate costs such as investor communications, insurance, rent and professional services.
The increase in corporate general and administrative expenses in the three months ended June 30,
2006 is primarily related to incremental employee compensation related to the acceleration of
certain executive compensation costs for the June 30, 2006 retirement of an executive officer. For further information on interest expense, see Note (B), Statements of Consolidated Cash
Flows  Supplemental Disclosures, of the Notes to Consolidated Financial Statements. Our effective tax rate was at 38.1% for the three months ended June 30, 2006, which was
relatively consistent with the 37.8% effective tax rate for the same period in the prior year. DISCONTINUED OPERATIONS In September 2005, we sold our international homebuilding operations, which had previously
been included in the Home Building segment. As a result of the sale, international homebuildings
operations have been reclassified to discontinued operations in the Statements of Consolidated
Earnings. On July 11, 2006, we completed the sale of Home Equity to an unrelated third party. Home
Equitys operations have been reclassified to discontinued operations in the Statements of
Consolidated Earnings, and any assets and liabilities related to these discontinued operations have
been presented separately on the Consolidated Balance Sheets. All prior period information has
been reclassified to be consistent with the June 30, 2006 presentation. For additional information on our discontinued operations, see Note (O), Discontinued
Operations, of the Notes to Consolidated Financial Statements. International Home Building Discontinued operations for the three months ended June 30, 2005 included international home
building operation revenues and operating earnings of $126.9 million and $9.9 million,
respectively. 31




---



##### Table of Contents



Sub-Prime Home Equity Lending The following summarizes the results of our sub-prime home equity lending operations
for the three months ended June 30, 2006 and 2005 (dollars in millions): For the Three Months Ended June 30,2006
    
    2005Change
    
    
    
    
    
    
    ChangeRevenues
    
    $
    154.3
    
    
    
    (21.0
    %)
    
    $
    195.4
    
    
    
    18.3
    %Cost of Sales
    
    
    (92.1
    )
    
    
    12.9
    %
    
    
    (81.6
    )
    
    
    49.5
    %Selling, General and Administrative Expenses:Operating Expenses
    
    
    (65.7
    )
    
    
    7.7
    %
    
    
    (61.0
    )
    
    
    4.8
    %Loan Loss Provision
    
    
    (19.9
    )
    
    
    (21.3
    %)
    
    
    (25.3
    )
    
    
    (5.6
    %)Operating Earnings
    
    $
    (23.4
    )
    
    
    (185.1
    %)
    
    $
    27.5
    
    
    
    7.4
    %Interest Margin
    
    $
    48.6
    
    
    
    (36.7
    %)
    
    $
    76.8
    
    
    
    (6.2
    %)Average Interest Earning Assets
    
    $
    7,017.4
    
    
    
    (14.1
    %)
    
    $
    8,165.5
    
    
    
    21.0
    %Average Yield
    
    
    8.01
    %
    
    
    0.25
    
    
    
    7.76
    %
    
    
    (0.33
    )Average Interest Bearing Liabilities
    
    $
    7,230.4
    
    
    
    (13.5
    %)
    
    $
    8,355.8
    
    
    
    19.7
    %Average Rate Paid
    
    
    5.09
    %
    
    
    1.18
    
    
    
    3.91
    %
    
    
    0.78
 The revenues of Home Equity decreased primarily as a result of a reduction in the total
average outstanding portfolio of residential mortgage loans held for investment, a decrease in the
volume of performing whole loan sales, and also as a result of non-performing whole loan sales to third
parties at a loss. Home Equity recorded $13.3 million in net operating losses related to the whole
loan sales for the three months ended June 30, 2006, and $10.6 million in net revenue and operating
earnings related to the whole loan sales for the three months ended June 30, 2005. Whole loan
sales activity for the three months ended June 30, 2006, was negatively impacted by sales of
non-performing loans at a discounted price. The selling of performing
whole loans has the effect of
increasing current operating earnings but decreasing future interest margin that would have been
recognized had the loans been securitized or retained as inventory. Home Equitys strategy is to
originate loans for investment with the intent to securitize. However, a program of whole loan
sales is a component of Home Equitys diversification of funding sources. Whole loan sales vary
from period to period based upon market conditions and Home Equitys funding requirements. Cost of sales is interest expense, which increased for the three months ended June 30, 2006 as
a result of increases in interest rates on floating rate debt, slightly offset by a decrease in our
average debt outstanding as compared to the same period in the prior year. Operating expenses include all employee compensation and related benefits, marketing,
advertising and occupancy costs. Operating expenses for the three months ended June 30, 2006
increased primarily as a result of costs related to the sale of Home Equity, including increases in
marketing, advertising and legal expenses. The decrease in operating earnings for the three months ended June 30, 2006 is primarily
attributable to the decrease in our portfolio of residential mortgage loans held for investment
which translated into a decrease in interest income, as well as a decrease in whole loan sale net
revenues. In the three months ended June 30, 2006, interest margin decreased primarily as a result
of higher borrowing costs, as well as increased competitive industry conditions. Average interest earning assets and liabilities for the three months ended June 30, 2006
decreased primarily as a result of the decrease in our portfolio of residential mortgage loans held
for investment. 32




---



##### Table of Contents



FINANCIAL CONDITION AND LIQUIDITY The consolidating net cash used in or provided by the operating, investing and financing
activities for the three months ended June 30, 2006 and 2005 is summarized below (dollars in
thousands). See Statements of Consolidated Cash Flows with Consolidating Details for the detail
supporting this summary. For the Three Months Ended June 30,2006
    
    2005Net Cash Provided by (Used in)Centex*Operating Activities
    
    $
    (850,138
    )
    
    $
    (689,343
    )Investing Activities
    
    
    44,902
    
    
    
    (54,993
    )Financing Activities
    
    
    843,129
    
    
    
    301,727Effect of Exchange Rate on Cash
    
    
    
    
    
    
    (474
    )37,893
    
    
    
    (443,083
    )Financial ServicesOperating Activities
    
    
    293,278
    
    
    
    (213,622
    )Investing Activities
    
    
    (287,977
    )
    
    
    (321,867
    )Financing Activities
    
    
    20,648
    
    
    
    538,87325,949
    
    
    
    3,384Centex Corporation and SubsidiariesOperating Activities
    
    
    (549,044
    )
    
    
    (973,032
    )Investing Activities
    
    
    (265,121
    )
    
    
    (331,793
    )Financing Activities
    
    
    878,007
    
    
    
    865,600Effect of Exchange Rate on Cash
    
    
    
    
    
    
    (474
    )Net Increase (Decrease) in Cash
    
    $
    63,842
    
    
    $
    (439,699
    )
 *
    
    Centex represents a supplemental presentation that reflects the Financial Services segment
as if accounted for under the equity method. We believe that separate disclosure of the
consolidating information is useful because the Financial Services subsidiaries and related
companies operate in a distinctly different financial environment that generally requires
significantly less equity to support their higher debt levels compared to the operations of
our other subsidiaries; the Financial Services subsidiaries and related companies have
structured their financing programs substantially on a stand-alone basis; and Centex has
limited obligations with respect to the indebtedness of our Financial Services subsidiaries
and related companies. Management uses this information in its financial and strategic
planning. We also use this presentation to allow investors to compare us to homebuilders that
do not have financial services operations.
 In accordance with the provisions of SFAS No. 95, Statement of Cash Flows, the
Statements of Consolidating Cash Flows have not been restated for discontinued operations. As a
result, all international homebuilding cash flows are included with the Centex cash flows and all
Home Equity cash flows are included with the Financial Services cash flows. We generally fund our Centex operating and other short-term liquidity needs through cash
provided by operations, borrowings from commercial paper and other short-term credit arrangements,
and the issuance of senior debt. Centexs operating cash is derived primarily through home and
land sales from our Home Building segment and general contracting fees obtained through our
Construction Services segment. During the three months ended June 30, 2006 and 2005, cash was
primarily used in Centexs operating activities to finance increases in Home Buildings inventories
relating to the units under construction during the period, and for the acquisition of land held
for development. The funds provided by Centexs financing activities were primarily from debt
issued to fund the increased homebuilding activity, offset by scheduled debt maturities and share
repurchases. We generally fund our Financial Services operating and other short-term liquidity needs
through committed credit facilities, proceeds from the sale of mortgage loans to HSF-I and
investors, Home Equitys securitizations and cash flows from operations. Financial Services
operating cash is derived primarily through sales of mortgage loans, interest income on mortgage
loans held by Home Equity for investment and origination and servicing fees. Financial Services
cash used in investing activities was primarily to finance an increase in Home Equitys residential
mortgage loans held for investment. The funds provided by Financial Services financing activities
were primarily from new debt used to fund residential mortgage loan activity. 33




---



##### Table of Contents



Our existing credit facilities and available capacity as of June 30, 2006 are summarized below
(dollars in thousands): Existing Credit
    
    AvailableFacilities
    
    CapacityCentexMulti-Bank Revolving Credit FacilityRevolving Credit
    
    $
    1,250,000
    
    
    $
    500,000Letters of Credit
    
    
    835,000
    
    
    
    460,9742,085,000
    
    
    
    960,974
    (1) (2)Unsecured Credit Facility
    
    
    150,000
    
    
    
    150,000
    (3)2,235,000
    
    
    
    1,110,974Financial ServicesSecured Credit Facilities
    
    
    740,000
    
    
    
    385,518
    (4)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,646,0003,740,000
    
    
    
    2,031,518$
    5,975,000
    
    
    $
    3,142,492
    (5)Discontinued Operations(6)Mortgage Servicer Advance Facility
    
    $
    100,000
    
    
    $
    31,882Secured Credit Facilities
    
    
    300,000
    
    
    
    91,592Harwood Street Funding II, LLC Facility
    
    
    4,000,000
    
    
    
    2,865,461$
    4,400,000
    
    
    $
    2,988,935
 (1)
    
    This is an unsecured, committed, multi-bank revolving credit facility, maturing in July
2010, which serves as backup for Centex Corporations $1.25 billion commercial paper program
and provides $835 million of letter of credit capacity. As of June 30, 2006, the $1.25
billion commercial paper program had $750 million outstanding which has been deducted from the
available capacity under the back-up facility. There have been no direct borrowings under this
revolving credit facility since its inception.(2)
    
    In conjunction with the issuance of surety bonds in support of our Construction Services
activity, Centex Corporation has agreed to provide letters of credit of up to $100 million if
Centex Corporations public debt ratings fall below investment grade. In support of this
ratings trigger, we maintain a minimum of $100 million in unused committed credit at all
times.(3)
    
    Centex Corporation maintains a $150 million unsecured, uncommitted credit facility.(4)
    
    CTX Mortgage Company, LLC maintains $740 million of secured, committed mortgage warehouse
facilities to finance mortgages.(5)
    
    The amount of available capacity for continuing operations consists of $2,992.5 million of
committed capacity and $150.0 million of uncommitted capacity as of June 30, 2006. Although
we believe that the uncommitted capacity is currently available, there can be no assurance
that the lender under this facility would elect to make advances if and when requested to do
so.(6)
    
    In connection with the sale of Home Equity on July 11, 2006, all of these credit facilities
have been terminated or called for redemption.
 Mortgage loans held for sale are primarily funded by CTX Mortgage Company, LLCs sale of
mortgage loans to HSF-I. HSF-I acquires mortgage loans from CTX Mortgage Company, LLC, holds them
on average approximately 60 days and then resells them into the secondary market. HSF-I obtains
the funds needed to purchase eligible mortgage loans from CTX Mortgage Company, LLC by issuing (1)
short-term secured liquidity notes, (2) medium-term debt and (3) subordinated certificates. As of
June 30, 2006, HSF-I had outstanding (1) short-term secured liquidity notes rated A1+ by Standard &
Poors, or S&P, and P-1 by Moodys Investors Service, or Moodys, and (2) subordinated certificates
maturing in September 2009, extendable for up to five years, rated BBB by S&P and Baa2 by Moodys.
The purposes of this arrangement are to allow CTX Mortgage Company, LLC to reduce funding costs
associated with its originations, to improve its liquidity and to eliminate credit risks associated
with mortgage warehousing. HSF-I is consolidated pursuant to the provisions of Financial
Accounting Standards Board, or FASB, Interpretation No. 46, Consolidation of Variable Interest
Entities, as revised, or FIN 46; accordingly, the debt, interest income and interest expense of
HSF-I are reflected in the financial statements of Financial Services. 34




---



##### Table of Contents



Under debt covenants contained in our multi-bank revolving credit facility, we are required to
maintain certain leverage and interest coverage ratios and a minimum tangible net worth. At June
30, 2006, we were in compliance with all these covenants. As of June 30, 2006, our short-term debt was $2.40 billion, of which $1.65 billion was
applicable to Financial Services. Certain of Centexs short-term borrowings vary on a seasonal
basis and are generally financed at prevailing market interest rates under our commercial paper
program. Our outstanding debt (in thousands), excluding discontinued operations, as of June 30, 2006
was as follows (due dates are presented in fiscal years): CentexShort-term Debt:Short-term Notes Payable
    
    $
    750,750Senior Debt:Medium-term Note Programs, weighted-average 5.98%, due through 2008
    
    
    258,000Senior Notes, weighted-average 5.89%, due through 2017
    
    
    3,708,814Other Indebtedness, weighted-average 6.37%, due through 2018
    
    
    24,312Subordinated Debt:Subordinated Debentures, 8.75%, due in 2007
    
    
    99,9414,841,817Financial ServicesShort-term Debt:Short-term Notes Payable
    
    
    354,482Harwood Street Funding I, LLC Secured Liquidity Notes
    
    
    1,291,503Harwood Street Funding I, LLC Variable Rate Subordinated Extendable
Certificates, weighted-average 7.33%, due through 2010
    
    
    60,0001,705,985$
    6,547,802
 On May 11,
2006, our Board of Directors authorized the repurchase of an
additional 12 million shares. In the three months ended June 30, 2006, we repurchased an aggregate
of 3.5 million shares of our common stock at a total purchase price of $187.2 million, including
commissions paid. As of June 30, 2006, our remaining share repurchase authorization totaled 11.0
million shares. During the three months ended June 30, 2006, the principal amount of our outstanding long-term
debt increased $236.0 million resulting from (dollars in millions): Debt Type
    
    
    
    AmountCentexIssuances
    
    Senior Note
    
    
    
    $
    500.0Retirements
    
    Medium-term Note
    
    
    
    
    (100.0
    )Other Indebtedness
    
    Various
    
    
    
    
    (164.0
    )Total
    
    
    
    
    
    $
    236.0
 35




---



##### Table of Contents



CERTAIN OFF-BALANCE SHEET OBLIGATIONS The following is a summary of certain off-balance sheet arrangements and other obligations and
their possible effects on our liquidity and capital resources. Joint Ventures We conduct a portion of our land acquisition, development and other activities through our
participation in joint ventures in which we hold less than a majority interest. These land related
activities typically require substantial capital, and partnering with other developers and, to a
lesser extent, financial partners, allows Home Building to share the risks and rewards of ownership
and to provide broader strategic advantages. A summary of our Home Building joint ventures is presented below (dollars in thousands): As ofJune 30, 2006
    
    March 31, 2006Number of Joint Ventures
    
    
    49
    
    
    
    52Investment in Joint Ventures
    
    $
    284,199
    
    
    $
    307,779Total Joint Venture Debt
    
    $
    1,124,471
    
    
    $
    1,053,201Centexs Share of Joint Venture Debt:Based on Centexs Ownership Percentage
    
    $
    423,854
    
    
    $
    388,428Based on Limited Recourse Provisions:Limited Maintenance Guarantee (1) (3)
    
    $
    223,626
    
    
    $
    228,603Repayment Guarantee (2) (3)
    
    
    13,524
    
    
    
    8,136Total Limited Recourse Debt
    
    $
    237,150
    
    
    $
    236,739
 (1)
    
    We have guaranteed that certain of the joint ventures will maintain a specified loan
to value ratio. We could be required to contribute additional capital to these joint
ventures to the extent the loan to value ratio falls below the specified ratio. We
have not been requested to perform under any of our limited maintenance guarantees.(2)
    
    We have guaranteed repayment of a portion of certain joint venture debt limited
to our ownership percentage of the joint venture or a percentage thereof.(3)
    
    These amounts represent our maximum exposure based on the joint ventures debt
at each respective date.
 Debt agreements for joint ventures vary by lender in terms of structure and level of
recourse. For certain of the joint ventures we are also liable on a contingent basis, through
other guarantees, letters of credit or other arrangements, with respect to a portion of the
construction debt. Certain joint venture agreements require us to guarantee the completion of a
project or phase if the joint venture does not perform the required development. To the extent
development costs exceed amounts available under the joint ventures credit facility, we would be
liable for incremental costs to complete development. Additionally, we have agreed to indemnify
the construction lender for certain environmental liabilities in the case of most joint ventures,
and most guarantee arrangements provide that we are liable for our proportionate share of the
outstanding debt if the joint venture files for voluntary bankruptcy.
We have not been
requested to perform under any of these guarantees. We also have investments in joint ventures related to our Construction Services and Other
segments totaling $2,677 and $2,605 as of June 30, 2006 and March 31, 2006, respectively. CRITICAL ACCOUNTING ESTIMATES Some of our critical accounting policies require the use of judgment in their application or
require estimates of inherently uncertain matters. Our accounting policies are in compliance with
generally accepted accounting principles; however, a change in the facts and circumstances of the
underlying transactions could significantly change the application of the accounting policies and
the resulting financial statement impact. Listed below are those policies that we believe are
critical and require the use of complex judgment in their application. Our critical accounting
estimates have been discussed with the members of the Audit Committee. 36




---



##### Table of Contents



Impairment of Long-Lived Assets Housing projects,
land held for development and sale (including direct construction costs,
capitalized interest and real estate taxes) and property, plant and equipment are assessed for
recoverability in accordance with the provisions of Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS No. 144. SFAS No.
144 requires that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. These evaluations for impairment are significantly
impacted by estimates of revenues, costs and expenses and other factors. If long-lived assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. No significant impairments of
long-lived assets were recorded in the three months ended June 30, 2006 and 2005. See additional
information on land write-offs under Inventory Valuation below. Goodwill Goodwill represents the
excess of purchase price over net assets of businesses acquired. See
Note (E), Goodwill, of the Notes to Consolidated Financial Statements for a summary of the
changes in goodwill by segment. Goodwill is subject to at least an annual assessment for
impairment (conducted as of January 1), at the reporting unit level, by applying a fair value-based
test. If the carrying amount exceeds the fair value, an impairment has occurred. We continually
evaluate whether events and circumstances have occurred that indicate the remaining balance of
goodwill may not be recoverable. Fair value is estimated using a discounted cash flow or market
valuation approach. Such evaluations for impairment are significantly impacted by estimates of
future revenues, costs and expenses and other factors. If the goodwill is considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the goodwill exceeds the fair value. We had no impairment of goodwill in the three months ended
June 30, 2006 and 2005. Inventory Valuation Housing projects are
stated at the lower of cost (including direct construction costs,
capitalized interest and real estate taxes) or fair value less cost to sell. Home construction
costs are accumulated on a specific identification basis. Under the
specific identification basis, costs and expenses include all applicable land acquisition, land
development and specific construction costs (including direct and indirect costs) of each home paid
to third parties. Land acquisition, land development and home construction costs do not include
employee related compensation and benefit costs. The specific construction and allocated land
costs of each home are included in direct construction. Allocated land acquisition and development
costs are estimated based on the total costs expected in a project. Direct construction also
includes amounts paid through the closing date of the home for construction materials and
subcontractor costs, plus an accrual for estimated costs incurred but not yet paid, based on an
analysis of budgeted construction costs. Any changes to the estimated total development costs
identified subsequent to the initial home closings in a project are generally allocated to the
remaining homes in the project; however, such costs are charged to expense for neighborhoods where
all or substantially all homes have already been closed. Land held for development
and sale primarily consists of deposits for land purchases, related
acquisition costs and land that will not begin development in the next two years. Whether we elect
to go forward with land purchases is dependent on a number of factors, including changes in market
conditions in the area where the planned development is located. To the extent we determine that
we will not purchase a parcel of land, the deposit and related acquisition costs are charged to
cost of sales. During the three months ended June 30, 2006, $36.3 million of land deposits and
pre-acquisition costs was written off. Included in the cost of land sales and other were
write-offs of option deposits and
pre-acquisition costs that were classified as land held for
development. Land Held Under Option Agreements Not Owned In order to ensure
the future availability of land for homebuilding, we enter into land option
purchase agreements with unaffiliated third parties. Under the option agreements, we pay a stated
deposit in consideration for the right to purchase land at a future time, usually at predetermined
prices. These options generally do not contain performance requirements from us nor obligate us to
purchase the land. Land option deposits related to these options are also reclassified to land
held under option agreements not owned. To the extent we do not exercise our option to purchase
such land, the amount of the lot option deposit, any letters of credit, as well as development
costs incurred to date, represent our maximum exposure to loss, except in certain circumstances,
which would not be material. 37




---



##### Table of Contents



We have evaluated those entities with which we entered into land option agreements in
accordance with the provisions of FIN 46. The provisions of FIN 46 require us to consolidate the
financial results of a variable interest entity if we are the primary beneficiary of the variable
interest entity. Variable interest entities are entities in which (1) equity investors do not have
a controlling financial interest and/or (2) the entity is unable to finance its activities without
additional subordinated financial support from other parties. The primary beneficiary of a
variable interest entity is the owner or investor that absorbs a majority of the variable interest
entitys expected losses and/or receives a majority of the variable interest entitys expected
residual returns. We determine if we are the primary beneficiary of variable interest entities based upon
analysis of the variability of the expected gains and losses of the variable interest entity.
Expected gains and losses of the variable interest entity are highly dependent upon managements
estimates of the variability and probabilities of future land prices, the probabilities of expected
cash flows and entitlement risks related to the underlying land, among other factors. Based on
this evaluation, if we are the primary beneficiary of those entities with which we have entered
into land option agreements, the variable interest entity is consolidated. For purposes of
consolidation, to the extent financial statements or other information is available, we consolidate
the assets and liabilities of the variable interest entity. If financial statements for the
variable interest entity are not available, we record the remaining purchase price of land in the
Consolidated Balance Sheets under the caption, land held under option agreements not owned, with a
corresponding increase in minority interests. See Note (H), Land Held Under Option Agreements Not
Owned and Other Land Deposits, of the Notes to Consolidated Financial Statements for further
discussion on the results of our analysis of land option agreements. In addition to land held under option agreements recorded pursuant to the provisions of FIN
46, to the extent our land option deposit exceeds certain thresholds, we recognize the option
arrangement by recording land at the total option purchase price and related obligation in accrued
liabilities. Warranty Accruals Home Building offers a ten-year limited warranty for most homes constructed and sold. The
warranty covers defects in materials or workmanship in the first two years of the home and certain
designated components or structural elements of the home in the third through tenth years. Home
Building estimates the costs that may be incurred under its warranty program for which it will be
responsible and records a liability at the time each home is closed. Factors that affect Home
Buildings warranty liability include the number of homes closed, historical and anticipated rates
of warranty claims and cost per claim. Home Building periodically assesses the adequacy of its
recorded warranty liability and adjusts the amounts as necessary. Although we consider the
warranty accruals reflected in our consolidated balance sheet to be adequate, there can be no
assurance that this accrual will prove to be sufficient over time to cover ultimate losses. Loan Origination Reserve CTX Mortgage Company, LLC has established a liability for anticipated losses associated with
loans originated based upon, among other factors, historical loss rates and current trends in loan
originations. This liability includes losses associated with certain borrower payment defaults,
credit quality issues, or misrepresentations and reflects managements judgment of the loss
exposure at the end of the reporting period. Although we consider the loan origination reserve reflected in our consolidated balance sheet
at June 30, 2006 to be adequate, there can be no assurance that this reserve will prove to be
sufficient over time to cover ultimate losses in connection with our loan originations. This
reserve may prove to be inadequate due to unanticipated adverse changes in the economy or discrete
events adversely affecting specific customers or industries. Insurance Accruals We have certain self-insured retentions and deductible limits under our workers compensation,
automobile and general liability insurance policies for which reserves are actuarially determined
based on claims filed and an estimate of claims incurred but not yet reported. Projection of
losses concerning these liabilities is subject to a high degree of variability due to factors such
as claim settlement patterns, litigation trends and legal interpretations, among others. We
periodically assess the adequacy of our insurance accruals and adjust the amounts as necessary.
Although we consider the insurance accruals reflected in our consolidated balance sheet to be
adequate, there can be no assurance that this accrual will prove to be sufficient over time to
cover ultimate losses. 38




---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued Staff Position 109-1, or FSP 109-1, Application of FASB
Statement No. 109, which clarified that the tax deduction on qualified production activities
provided by the American Jobs Creation Act of 2004 should be accounted for as a special deduction
and will reduce tax expense in the periods during which the amounts are deductible on the tax
return. Based on the guidance provided by FSP 109-1, this deduction is accounted for as a special
deduction under SFAS 109 which reduces income tax expense. The tax benefits resulting from the new
deduction are reflected in the effective income tax rate of 38.1% and 37.8% for the three months
ended June 30, 2006 and 2005, respectively. In July 2006, the FASB finalized and issued FIN 48, entitled Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109, which defines the threshold for
recognizing the benefits of tax return positions as well as guidance regarding the measurement of
the resulting tax benefits. FIN 48 requires a company to recognize for financial statement
purposes the impact of a tax position if that position is more
likely than not to prevail (defined as a
likelihood of more than fifty percent of being sustained upon audit, based on the technical merits
of the tax position). FIN 48 will be effective as of the beginning of our fiscal year ending March
31, 2008, with the cumulative effect of the change in accounting principle recorded as an
adjustment to retained earnings. We are currently evaluating the impact of adopting FIN 48 on our
financial statements. 
 SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
 This report includes various forward-looking statements, which are not facts or guarantees of
future performance and which are subject to significant risks and uncertainties. Certain information included in this Report or in other materials we have filed or will file
with the SEC, as well as information included in oral statements or other written statements made
or to be made by us, contains or may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995, as amended. You can identify these
statements by the fact that they do not relate to matters of a strictly factual or historical
nature and generally discuss or relate to forecasts, estimates or other expectations regarding
future events. Generally, the words believe, expect, intend, estimate, anticipate,
project, may, can, could, might, will and similar expressions identify forward-looking
statements, including statements related to expected operating and performing results, planned
transactions, planned objectives of management, future development in the industries in which we
participate and other trends, developments and uncertainties that may affect our business in the
future. Such statements include information related to anticipated operating results, financial
resources, changes in interest rates, changes in revenues, changes in profitability, interest
expense, growth and expansion, anticipated income to be realized by our investment in
unconsolidated entities, the ability to acquire land, the ability to gain approvals and to open new
communities, supply and demand in the homebuilding market, the ability to sell homes and
properties, the ability to deliver homes from backlog, the ability to secure materials and
subcontractors, the ability to produce the liquidity and capital necessary to expand and take
advantage of opportunities in the future, the completion of and effects from planned transactions
and stock market valuations. From time to time, forward-looking statements also are included in
our other periodic reports on Forms 10-K, 10-Q and 8-K, press releases and presentations, on our
web site and in other material released to the public. Forward-looking statements are not historical facts or guarantees of future performance but
instead represent only our beliefs at the time the statements were made regarding future events,
which are subject to significant risks, uncertainties, and other factors, many of which are outside
of the Companys control and certain of which are listed above. Any or all of the forward-looking
statements included in this Report and in any other reports or public statements made by us may
turn out to be materially inaccurate. This can occur as a result of incorrect assumptions or as a
consequence of known or unknown risks and uncertainties. Many of the risks and uncertainties
mentioned in this Report or another report or public statement made by us, including the risk
factor section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2006 (which is
hereby incorporated by reference), will be important in determining whether these forward-looking
statements prove to be accurate. Consequently, neither our stockholders nor any other person
should place undue reliance on our forward-looking statements and should recognize that actual
results may differ materially from those that may be anticipated by us. All forward-looking statements made in this Report are made as of the date hereof, and the
risk that actual results will differ materially from expectations expressed in this Report will
increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly
update or revise any forward-looking statements, whether 39




---



##### Table of Contents



as a result of new information, future events,
changes in our expectations or otherwise.
However, we may make further disclosures regarding future events, trends and uncertainties in our
subsequent reports on Forms 10-K, 10-Q and 8-K. The above cautionary discussion of risks,
uncertainties and possible inaccurate assumptions relevant to our business include factors we
believe could cause our actual results to differ materially from expected and historical results.
Other factors beyond those listed above, including factors unknown to us and factors known to us
which we have not determined to be material, could also adversely affect us. This discussion is
provided as permitted by the Private Securities Litigation Reform Act of 1995 and all of our
forward-looking statements are expressly qualified in their entirety by the cautionary statements
contained or referenced in this section. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to
market risks related to fluctuations in interest rates on our direct debt
obligations and mortgage loans receivable. We utilize derivative instruments, including interest
rate swaps, in conjunction with our overall strategy to manage the outstanding debt that is subject
to changes in interest rates. We utilize forward sale commitments to mitigate the risk associated
with the majority of our mortgage loan portfolio. Other than the forward commitments and interest
rate swaps discussed earlier, we do not utilize forward or option contracts on foreign currencies
or commodities, or other types of derivative financial instruments. There have been no
material changes in our market risk since March 31, 2006. For further
information regarding our market risk, refer to our Annual Report on Form 10-K for the fiscal year
ended March 31, 2006 and Note (L), Derivatives and Hedging, of the Notes to Consolidated
Financial Statements. 
 Item 4. Controls and Procedures An evaluation has
been performed under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures as of June 30,
2006. Based on that evaluation, our management, including our Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure controls and procedures were effective as of June
30, 2006 to provide reasonable assurance that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission. There has been no change in our internal controls over financial reporting during the
quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting. 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings In the normal course
of our business, we and/or our subsidiaries are named as defendants in
suits filed in various state and federal courts. We believe that none of the litigation matters in
which we, or any of our subsidiaries, are involved would have a material adverse effect on our
consolidated financial condition or operations. For a discussion of certain
litigation and similar proceedings in which we are involved,
please refer to Note (G), Commitments and Contingencies, of the Notes to Consolidated Financial
Statements, which is incorporated by reference herein. 
 Item 1A. Risk Factors Set forth below is a
discussion of the material changes in our risk factors as
previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year
ended March 31, 2006 (2006 Form 10-K). The information
 presented below updates, and should be read in conjunction with, the risk
factors and other information disclosed in our 2006 Form 10-K. As previously
disclosed in a risk factor contained in our 2006 Form 10-K, in recent periods
we reported declines or slower growth rates in the volume of homes
sold, which could signal a downturn in the homebuilding industry. These trends became more
pronounced during the quarter ended June 30, 2006, and we experienced a significant decline
in sales orders in all of the principal areas in which we operate. We attribute these developments
to, among other things, increased inventory of new
and used homes for sale, a decline in homebuyer consumer 40




---



##### Table of Contents



confidence and an increase in mortgage interest
rates. These developments have had and may continue to have a material
adverse effect on our financial condition and results of operations. See 2006 Form 10-K, Item 1A,
Home Building  Deterioration in economic conditions generally or in the market regions where we
operate could decrease demand and pricing for new homes and adversely affect our results of
operations. As previously disclosed in another risk factor contained in our 2006 Form 10-K, there is
often a significant lag time between when we contract to acquire land for development and when we sell homes in
neighborhoods we have planned, developed, and constructed. During the quarter ended June 30, 2006,
we decided not to pursue development and construction in certain areas where we held land or had
made option deposits, which resulted in significant write-offs of land deposits and pre-acquisition
costs. These write-offs adversely affected our operating earnings and operating margins during the
quarter ended June 30, 2006. If market conditions do not improve in future periods, we may decide
not to pursue development and construction in additional areas, which would lead to further
write-offs. See 2006 Form 10-K, Item 1A, Home Building  The lag between when we acquire land and
when we sell homes in our communities can make our operations susceptible to the effects of rapid
changes in market conditions. Our 2006 Form 10-K included a risk factor related to our then planned disposition of Home
Equity. See 2006 Form 10-K, Item 1A, Discontinued Operations  There are uncertainties
associated with our planned disposition of Home Equity. On July 14, 2006, we
announced in a Current Report on Form 8-K the consummation on July 11,
2006 of the sale of Centex Home Equity Company, LLC, our sub-prime home equity lending operations.
As a result, the risks relating to the closing of the transaction are no longer applicable. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Share Repurchases We regularly repurchase shares of our common stock pursuant to publicly announced share
repurchase programs. The following table details our common stock repurchases for the three months
ended June 30, 2006: Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum Number ofTotal Number
    
    
    
    
    
    
    Shares Purchased
    
    
    Shares that May Yet Beof Shares
    
    
    Average Price
    
    
    as Part of Publicly
    
    
    Purchased Under thePurchased
    
    
    Paid Per Share
    
    
    Announced Plans
    
    
    PlansPeriodApril 1-30
    
    
    18,225
    
    
    $
    61.74
    
    
    
    
    
    
    
    2,500,000May 1-31
    
    
    2,500,000
    
    
    $
    54.85
    
    
    
    2,500,000
    
    
    
    12,000,000June 1-30
    
    
    1,016,864
    
    
    $
    50.04
    
    
    
    1,000,000
    
    
    
    11,000,000Total (1) (2)
    
    
    3,535,089
    
    
    $
    53.50
    
    
    
    3,500,000
 (1)
    
    Of the 3,535,089 shares repurchased for the quarter ended June 30, 2006, 35,089 shares
represent the delivery to the Company by employees or directors of previously issued shares to
satisfy the exercise price of options and/or withholding taxes that arise on the exercise of
options or the vesting of restricted stock. These transactions are authorized under the terms
of the equity plans under which the options or other equity were awarded; however, these
transactions are not considered repurchases pursuant to the Companys share repurchase
program.(2)
    
    Except as provided in Note (1), all share repurchases were effected in accordance with the
safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934.
 In December 2005, the Board of Directors increased our share repurchase authorization by
an additional 5.0 million shares. On May 11, 2006, the Companys Board of
Directors authorized the repurchase of an additional 12 million shares. Of the 3.5 million shares
purchased during the three months ended June 30, 2006, as part of publicly announced plans, 2.5
million shares represent shares of common stock repurchased pursuant to the December 2005 Board of
Directors authorization. The 2.5 million share repurchase completed the December 2005 Board of
Directors authorization. The remaining 1.0 million shares represent shares of common stock
repurchased pursuant to the May 2006 Board of Directors authorization. Purchases are made in the
open market or in block purchases, and such transactions may be effected from time to time or
pursuant to share repurchase plans under SEC Rule 10b5-1. The share repurchase authorization has
no stated expiration date, and the Board of Directors has authorized all shares repurchased. 41




---



##### Table of Contents



Item 6. Exhibits The following documents are filed as part of this Report.  3.1
    Restated Articles of Incorporation of Centex Corporation
(Centex), as amended (incorporated by reference from Exhibit 3.1 to Centexs
Annual Report on Form 10-K for the fiscal year ended March 31, 2004).3.2
    Amended and Restated By-Laws of Centex dated October 11, 2005
(incorporated by reference from Exhibit 3.1 to Centexs Current Report on Form
8-K filed on October 12, 2005).4.1
    Any instrument with respect to long-term debt, where the
securities authorized thereunder do not exceed 10% of the total assets of Centex
and its subsidiaries, has not been filed; these instruments relate to (a)
long-term senior and subordinated debt of Centex issued pursuant to supplements
to the indentures filed as Exhibits 4.5 and 4.6 to Centexs Annual Report on
Form 10-K for the fiscal year ended March 31, 2005, which supplements have also
been filed with the SEC as exhibits to various Centex registration statements or
to reports incorporated by reference in such registration statements, (b)
long-term debt issued pursuant to pooling and servicing agreements or similar
agreements in connection with certain asset securitizations involving certain
subsidiaries of Centex, which agreements have been filed with the SEC as
exhibits to various registration statements of CHEC Funding, LLC or to reports
incorporated by reference in such registration statements, (c) long-term debt
issued pursuant to indentures or other agreements in connection with certain
asset securitizations involving certain subsidiaries of Centex in private
transactions and (d) other long-term debt of Centex; Centex agrees to furnish a
copy of such instruments to the SEC upon request.10.1
    Form of non-employee director stock option agreement for 2003
Equity Incentive Plan.*10.2
    Form of non-employee director restricted stock agreement for 2003
Equity Incentive Plan.*10.3
    Amendment No. 1 to Securities Purchase Agreement dated as of July
11, 2006, among Centex Financial Services, LLC, Centex Home Equity Company, LLC
and FIF HE Holdings LLC (incorporated by reference from Exhibit 2.2 to Centexs
Current Report on Form 8-K dated July 14, 2006).10.4
    First Amendment to Credit Agreement, dated May 25, 2006, among
Centex Corporation, Bank of America, N.A., as Administrative Agent, and the
lenders named therein (incorporated by reference from Exhibit 10.2 to Centexs
Current Report on Form 8-K dated June 1, 2006).10.5
    First Amendment to Amended and Restated Supplemental
Executive Retirement Plan.*12.1
    Computation of Ratio of Earnings to Fixed Charges.31.1
    Certification of the Chief Executive Officer of Centex
Corporation pursuant to Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934, as amended.31.2
    Certification of the Chief Financial Officer of Centex
Corporation pursuant to Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934, as amended.32.1
    Certification of the Chief Executive Officer of Centex
Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. 42




---



##### Table of Contents



32.2
    Certification of the Chief Financial Officer of Centex
Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*
    Management contract or compensatory plan or arrangement. 43




---



##### Table of Contents



Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTEX CORPORATIONRegistrantAugust 2, 2006
    
    /s/ Mark D. KempMark D. KempSenior Vice President-Controller and interim Chief Financial Officer
(principal financial officer and principal accounting officer)
 44