##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2004 Commission File No. 1-6776 Centex Corporation A Nevada Corporation IRS Employer Identification No. 75-0778259
2728 N. Harwood
Dallas, Texas 75201
(214) 981-5000 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 x No o. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No o Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the close of business on October 28, 2004:  Centex Corporation
    
    Common Stock
    
    124,294,453 shares




---



Centex Corporation and Subsidiaries Form 10-Q Table of Contents  
 September 30, 2004 PagePart I.
    
    Financial InformationItem 1.
    
    Financial StatementsStatements of Consolidated Earnings
    
    
    2Consolidated Balance Sheets with Consolidating Details
    
    
    4Statements of Consolidated Cash Flows with Consolidating Details
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Item 4.
    
    Controls and Procedures
    
    
    56Part II.
    
    Other InformationItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    57Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    57Item 6.
    
    Exhibits
    
    
    58Signatures
    
    
    
    
    59Form of Non-Employee Director Restricted Stock AgreementForm of Stock Option AgreementForm of Deferred Compensation AgreementCertification of the CEO Pursuant to Rules 13a-14 and 15d-14Certification of the CFO Pursuant to Rules 13a-14 and 15d-14Certification of the CEO Pursuant to Section 906Certification of the CFO Pursuant to Section 906
  1




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 
 Centex Corporation and Subsidiaries
Statements of Consolidated Earnings 
 For the Three Months Ended September 30,2004
    
    
    2003RevenuesHome Building
    
    $
    2,231,459
    
    
    $
    1,709,139Financial Services
    
    
    276,923
    
    
    
    290,551Construction Services
    
    
    452,228
    
    
    
    386,629Other
    
    
    24,296
    
    
    
    42,0072,984,906
    
    
    
    2,428,326Costs and ExpensesHome Building
    
    
    1,938,415
    
    
    
    1,504,741Financial Services
    
    
    223,671
    
    
    
    214,049Construction Services
    
    
    446,714
    
    
    
    382,069Other
    
    
    26,598
    
    
    
    24,102Corporate General and Administrative
    
    
    19,019
    
    
    
    21,988Interest Expense
    
    
    5,281
    
    
    
    16,4442,659,698
    
    
    
    2,163,393Earnings from Unconsolidated Entities
    
    
    3,308
    
    
    
    15,080Earnings from Continuing Operations Before
Income Taxes and Cumulative
Effect of a Change in Accounting Principle
    
    
    328,516
    
    
    
    280,013Income Taxes
    
    
    117,904
    
    
    
    91,959Earnings from Continuing Operations Before
Cumulative Effect of a Change in
Accounting Principle
    
    
    210,612
    
    
    
    188,054Earnings from Discontinued Operations, net
of Taxes of $0 and $6,432
    
    
    
    
    
    
    11,335Earnings Before Cumulative Effect of a
Change in Accounting Principle
    
    
    210,612
    
    
    
    199,389Cumulative Effect of a Change in Accounting
Principle, net of Tax
Benefit of $0 and $8,303
    
    
    
    
    
    
    (13,260
    )Net Earnings
    
    $
    210,612
    
    
    $
    186,129Basic Earnings Per ShareContinuing Operations
    
    $
    1.70
    
    
    $
    1.53Discontinued Operations
    
    
    
    
    
    
    0.09Cumulative Effect of a Change in
Accounting Principle
    
    
    
    
    
    
    (0.11
    )$
    1.70
    
    
    $
    1.51Diluted Earnings Per ShareContinuing Operations
    
    $
    1.61
    
    
    $
    1.46Discontinued Operations
    
    
    
    
    
    
    0.09Cumulative Effect of a Change in
Accounting Principle
    
    
    
    
    
    
    (0.11
    )$
    1.61
    
    
    $
    1.44Average Shares OutstandingBasic
    
    
    124,036,791
    
    
    
    123,427,650Dilutive Securities:Options
    
    
    6,732,011
    
    
    
    5,218,160Other
    
    
    212,342
    
    
    
    431,064Diluted
    
    
    130,981,144
    
    
    
    129,076,874Cash Dividends Per Share
    
    $
    0.04
    
    
    $
    0.02
 See Notes to Consolidated Financial Statements. 2




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##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Earnings
 
 For the Six Months Ended September 30,2004
    
    
    2003RevenuesHome Building
    
    $
    4,229,573
    
    
    $
    3,213,632Financial Services
    
    
    551,244
    
    
    
    557,411Construction Services
    
    
    886,445
    
    
    
    762,384Other
    
    
    83,717
    
    
    
    67,5285,750,979
    
    
    
    4,600,955Costs and ExpensesHome Building
    
    
    3,713,188
    
    
    
    2,853,782Financial Services
    
    
    440,418
    
    
    
    415,310Construction Services
    
    
    876,465
    
    
    
    753,265Other
    
    
    78,677
    
    
    
    50,441Corporate General and Administrative
    
    
    38,604
    
    
    
    41,091Interest Expense
    
    
    10,306
    
    
    
    31,9145,157,658
    
    
    
    4,145,803Earnings from Unconsolidated Entities
    
    
    11,087
    
    
    
    20,160Earnings from Continuing Operations Before
Income Taxes and Cumulative
Effect of a Change in Accounting Principle
    
    
    604,408
    
    
    
    475,312Income Taxes
    
    
    216,563
    
    
    
    154,040Earnings from Continuing Operations Before
Cumulative Effect of a Change in
Accounting Principle
    
    
    387,845
    
    
    
    321,272Earnings from Discontinued Operations, net
of Taxes of $0 and $11,333
    
    
    
    
    
    
    20,907Earnings Before Cumulative Effect of a
Change in Accounting Principle
    
    
    387,845
    
    
    
    342,179Cumulative Effect of a Change in Accounting
Principle, Net of Tax
Benefit of $0 and $8,303
    
    
    
    
    
    
    (13,260
    )Net Earnings
    
    $
    387,845
    
    
    $
    328,919Basic Earnings Per ShareContinuing Operations
    
    $
    3.13
    
    
    $
    2.61Discontinued Operations
    
    
    
    
    
    
    0.16Cumulative Effect of a Change in
Accounting Principle
    
    
    
    
    
    
    (0.11
    )$
    3.13
    
    
    $
    2.66Diluted Earnings Per ShareContinuing Operations
    
    $
    2.96
    
    
    $
    2.50Discontinued Operations
    
    
    
    
    
    
    0.16Cumulative Effect of a Change in
Accounting Principle
    
    
    
    
    
    
    (0.10
    )$
    2.96
    
    
    $
    2.56Average Shares OutstandingBasic
    
    
    123,806,272
    
    
    
    122,961,650Dilutive Securities:Options
    
    
    6,921,348
    
    
    
    5,131,544Other
    
    
    394,950
    
    
    
    375,816Diluted
    
    
    131,122,570
    
    
    
    128,469,010Cash Dividends Per Share
    
    $
    0.08
    
    
    $
    0.04
 See Notes to Consolidated Financial Statements. 3




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##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details
(Dollars in thousands)
(unaudited) Centex Corporation and SubsidiariesSeptember 30, 2004
    
    
    March 31, 2004AssetsCash and Cash Equivalents
    
    $
    76,046
    
    
    $
    178,859Restricted Cash
    
    
    326,445
    
    
    
    310,304Receivables -Residential Mortgage Loans Held for Investment, net
    
    
    7,179,844
    
    
    
    6,498,155Residential Mortgage Loans Held for Sale
    
    
    1,566,290
    
    
    
    1,819,605Construction Contracts
    
    
    333,517
    
    
    
    312,552Trade, including Notes of $53,912 and $51,321
    
    
    394,051
    
    
    
    356,570Inventories -Housing Projects
    
    
    5,872,623
    
    
    
    4,897,036Land Held for Development and Sale
    
    
    227,987
    
    
    
    208,140Land Held Under Option Agreements Not Owned
    
    
    518,330
    
    
    
    362,405Other
    
    
    40,885
    
    
    
    94,224Investments -Joint Ventures and Other
    
    
    162,509
    
    
    
    140,118Unconsolidated Subsidiaries
    
    
    
    
    
    
    Property and Equipment, net
    
    
    166,066
    
    
    
    155,891Other Assets -Deferred Income Taxes
    
    
    160,106
    
    
    
    157,678Goodwill
    
    
    249,106
    
    
    
    254,258Mortgage Securitization Residual Interest
    
    
    79,103
    
    
    
    89,374Deferred Charges and Other, net
    
    
    211,593
    
    
    
    233,399$
    17,564,501
    
    
    $
    16,068,568Liabilities and Stockholders EquityAccounts Payable
    
    $
    680,158
    
    
    $
    686,308Accrued Liabilities
    
    
    1,266,233
    
    
    
    1,275,604Debt -Centex
    
    
    2,875,800
    
    
    
    2,418,190Financial Services
    
    
    8,766,268
    
    
    
    8,302,190Payables to (Receivables from) Affiliates
    
    
    
    
    
    
    Commitments and ContingenciesMinority Interests
    
    
    491,430
    
    
    
    336,051Stockholders Equity -Preferred Stock: Authorized 5,000,000 Shares, None Issued
    
    
    
    
    
    
    Common Stock: $.25 Par Value; Authorized 300,000,000
Shares; Outstanding 123,987,714 and 122,660,357 Shares
    
    
    32,398
    
    
    
    32,068Capital in Excess of Par Value
    
    
    257,169
    
    
    
    202,958Unamortized Value of Deferred Compensation
    
    
    (295
    )
    
    
    (411
    )Retained Earnings
    
    
    3,368,860
    
    
    
    2,990,889Treasury Stock, at Cost; 5,604,895 and 5,610,772 Shares
    
    
    (212,734
    )
    
    
    (212,822
    )Accumulated Other Comprehensive Income (Loss)
    
    
    39,214
    
    
    
    37,543Total Stockholders Equity
    
    
    3,484,612
    
    
    
    3,050,225$
    17,564,501
    
    
    $
    16,068,568
 See Notes to Consolidated Financial Statements. 4




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##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details 
 Centex*
    
    Financial ServicesSeptember 30, 2004
    
    
    March 31, 2004
    
    
    September 30, 2004
    
    
    March 31, 2004$
    62,931
    
    
    $
    160,590
    
    
    $
    13,115
    
    
    $
    18,26950,721
    
    
    
    50,440
    
    
    
    275,724
    
    
    
    259,864
    
    
    
    
    
    
    
    7,179,844
    
    
    
    6,498,155
    
    
    
    
    
    
    
    1,566,290
    
    
    
    1,819,605333,517
    
    
    
    312,552
    
    
    
    
    
    
    
    199,846
    
    
    
    178,829
    
    
    
    194,205
    
    
    
    177,7415,872,623
    
    
    
    4,897,036
    
    
    
    
    
    
    
    227,987
    
    
    
    208,140
    
    
    
    
    
    
    
    518,330
    
    
    
    362,405
    
    
    
    
    
    
    
    34,139
    
    
    
    85,284
    
    
    
    6,746
    
    
    
    8,940162,509
    
    
    
    140,118
    
    
    
    
    
    
    
    557,353
    
    
    
    531,941
    
    
    
    
    
    
    
    118,346
    
    
    
    114,524
    
    
    
    47,720
    
    
    
    41,36768,687
    
    
    
    66,985
    
    
    
    91,419
    
    
    
    90,693237,369
    
    
    
    237,656
    
    
    
    11,737
    
    
    
    16,602
    
    
    
    
    
    
    
    79,103
    
    
    
    89,374151,472
    
    
    
    171,534
    
    
    
    60,121
    
    
    
    61,865$
    8,595,830
    
    
    $
    7,518,034
    
    
    $
    9,526,024
    
    
    $
    9,082,475$
    660,554
    
    
    $
    668,807
    
    
    $
    19,604
    
    
    $
    17,5011,085,016
    
    
    
    1,046,296
    
    
    
    181,217
    
    
    
    229,3082,875,800
    
    
    
    2,418,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,766,268
    
    
    
    8,302,190
    
    
    
    
    
    
    
    (11,133
    )
    
    
    15,661489,848
    
    
    
    334,516
    
    
    
    1,582
    
    
    
    1,535
    
    
    
    
    
    
    
    
    
    
    
    32,398
    
    
    
    32,068
    
    
    
    1
    
    
    
    1257,169
    
    
    
    202,958
    
    
    
    275,467
    
    
    
    275,521(295
    )
    
    
    (411
    )
    
    
    
    
    
    
    3,368,860
    
    
    
    2,990,889
    
    
    
    303,451
    
    
    
    256,490(212,734
    )
    
    
    (212,822
    )
    
    
    
    
    
    
    39,214
    
    
    
    37,543
    
    
    
    (10,433
    )
    
    
    (15,732
    )3,484,612
    
    
    
    3,050,225
    
    
    
    568,486
    
    
    
    516,280$
    8,595,830
    
    
    $
    7,518,034
    
    
    $
    9,526,024
    
    
    $
    9,082,475
  *
    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. 5




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##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Cash Flows with Consolidating Details 
 Centex Corporation and SubsidiariesFor the Six Months Ended September 30,2004
    
    
    2003Cash Flows  Operating ActivitiesNet Earnings
    
    $
    387,845
    
    
    $
    328,919Adjustments-Cumulative Effect of a Change in Accounting Principle
    
    
    
    
    
    
    13,260Depreciation and Amortization
    
    
    52,360
    
    
    
    57,394Provision for Losses on Residential Mortgage Loans Held for Investment
    
    
    51,084
    
    
    
    34,894Deferred Income Tax Benefit
    
    
    (11,361
    )
    
    
    (13,731
    )Equity in Earnings of Joint Ventures and Centex Development Company, L.P.
    
    
    (8,199
    )
    
    
    (18,276
    )Undistributed Earnings of Unconsolidated Subsidiaries
    
    
    
    
    
    
    Minority Interest, net of Taxes
    
    
    1,229
    
    
    
    17,633Changes in Assets and Liabilities, Excluding Effect of AcquisitionsIncrease in Restricted Cash
    
    
    (16,141
    )
    
    
    (111,000
    )Increase in Receivables
    
    
    (55,811
    )
    
    
    (63,664
    )Decrease in Residential Mortgage Loans Held for Sale
    
    
    253,315
    
    
    
    765,815Increase in Housing Projects and Land Held for Development and Sale
    
    
    (977,952
    )
    
    
    (660,851
    )Decrease (Increase) in Other Inventories
    
    
    40,665
    
    
    
    5,630(Decrease) Increase in Accounts Payable and Accrued Liabilities
    
    
    (7,281
    )
    
    
    31,834Decrease (Increase) in Other Assets, net
    
    
    34,889
    
    
    
    610Decrease in Payables to Affiliates
    
    
    
    
    
    
    Other
    
    
    (3,231
    )
    
    
    1,926(258,589
    )
    
    
    390,393Cash Flows  Investing Activities(Issuance) Payment on Notes Receivable, net
    
    
    (2,591
    )
    
    
    6,431Increase in Residential Mortgage Loans Held for Investment
    
    
    (732,773
    )
    
    
    (1,010,615
    )Increase in Investment and Advances to Joint Ventures
and Centex Development Company, L.P.
    
    
    (20,451
    )
    
    
    (7,976
    )Decrease in Investment and Advances to Unconsolidated Subsidiaries
    
    
    
    
    
    
    Purchases of Property and Equipment, net
    
    
    (25,031
    )
    
    
    (21,474
    )Other
    
    
    8,671
    
    
    
    7,129(772,175
    )
    
    
    (1,026,505
    )Cash Flows  Financing ActivitiesIncrease (Decrease) in Short-Term Debt, net
    
    
    94,086
    
    
    
    (520,394
    )CentexIssuance of Long-Term Debt
    
    
    392,902
    
    
    
    7,193Repayment of Long-Term Debt
    
    
    (10,648
    )
    
    
    (58,437
    )Financial ServicesIssuance of Long-Term Debt
    
    
    1,867,799
    
    
    
    3,386,866Repayment of Long-Term Debt
    
    
    (1,421,116
    )
    
    
    (2,546,765
    )Proceeds from Stock Option Exercises
    
    
    14,669
    
    
    
    26,216Treasury Stock Transactions, net
    
    
    88
    
    
    
    (34,184
    )Dividends Paid
    
    
    (9,874
    )
    
    
    (4,940
    )927,906
    
    
    
    255,555Effect of Exchange Rate on Cash
    
    
    45
    
    
    
    Net Decrease in Cash and Cash Equivalents
    
    
    (102,813
    )
    
    
    (380,557
    )Cash and Cash Equivalents at Beginning of Period
    
    
    178,859
    
    
    
    456,179Cash and Cash Equivalents at End of Period
    
    $
    76,046
    
    
    $
    75,622
 See Notes to Consolidated Financial Statements. 6




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##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Cash Flows with Consolidating Details 
 Centex *
    
    Financial ServicesFor the Six Months Ended September 30,
    
    For the Six Months Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003$
    387,845
    
    
    $
    328,919
    
    
    $
    68,961
    
    
    $
    75,395
    
    
    
    
    
    
    
    
    
    
    
    13,26043,477
    
    
    
    48,744
    
    
    
    8,883
    
    
    
    8,650
    
    
    
    
    
    
    
    51,084
    
    
    
    34,894(1,949
    )
    
    
    (7,405
    )
    
    
    (9,412
    )
    
    
    (6,326
    )(8,199
    )
    
    
    (18,276
    )
    
    
    
    
    
    
    (46,961
    )
    
    
    (75,395
    )
    
    
    
    
    
    
    1,182
    
    
    
    17,592
    
    
    
    47
    
    
    
    41(281
    )
    
    
    (26,218
    )
    
    
    (15,860
    )
    
    
    (84,782
    )(39,328
    )
    
    
    (48,442
    )
    
    
    (16,483
    )
    
    
    (15,222
    )
    
    
    
    
    
    
    
    253,315
    
    
    
    765,815(977,952
    )
    
    
    (660,851
    )
    
    
    
    
    
    
    38,471
    
    
    
    6,946
    
    
    
    2,194
    
    
    
    (1,316
    )39,542
    
    
    
    (11,939
    )
    
    
    (41,578
    )
    
    
    27,15214,188
    
    
    
    (4,724
    )
    
    
    20,701
    
    
    
    5,334
    
    
    
    
    
    
    
    (26,794
    )
    
    
    (7,138
    )
    
    
    
    1,926
    
    
    
    (3,231
    )
    
    
    (549,965
    )
    
    
    (449,123
    )
    
    
    291,827
    
    
    
    815,757(2,610
    )
    
    
    6,138
    
    
    
    19
    
    
    
    293
    
    
    
    
    
    
    
    (732,773
    )
    
    
    (1,010,615
    )(20,451
    )
    
    
    (7,976
    )
    
    
    
    
    
    
    21,549
    
    
    
    23,759
    
    
    
    
    
    
    
    (9,459
    )
    
    
    (14,017
    )
    
    
    (15,572
    )
    
    
    (7,457
    )(596
    )
    
    
    (10,871
    )
    
    
    9,267
    
    
    
    18,000(11,567
    )
    
    
    (2,967
    )
    
    
    (739,059
    )
    
    
    (999,779
    )76,691
    
    
    
    139,750
    
    
    
    17,395
    
    
    
    (660,144
    )392,902
    
    
    
    7,193
    
    
    
    
    
    
    
    (10,648
    )
    
    
    (58,437
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,867,799
    
    
    
    3,386,866
    
    
    
    
    
    
    
    (1,421,116
    )
    
    
    (2,546,765
    )14,669
    
    
    
    26,216
    
    
    
    
    
    
    
    88
    
    
    
    (34,184
    )
    
    
    
    
    
    
    (9,874
    )
    
    
    (4,940
    )
    
    
    (22,000
    )
    
    
    463,828
    
    
    
    75,598
    
    
    
    442,078
    
    
    
    179,95745
    
    
    
    
    
    
    
    
    
    
    
    (97,659
    )
    
    
    (376,492
    )
    
    
    (5,154
    )
    
    
    (4,065
    )160,590
    
    
    
    441,097
    
    
    
    18,269
    
    
    
    15,082$
    62,931
    
    
    $
    64,605
    
    
    $
    13,115
    
    
    $
    11,017
  *
    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. 7




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##### Table of Contents



Centex Corporation and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2004
(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 are variable interest
entities, as discussed in Note (J). 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. (B) STATEMENTS OF CONSOLIDATED CASH FLOWS  SUPPLEMENTAL DISCLOSURES The following table provides supplemental disclosures related to the
Statements of Consolidated Cash Flows: For the Three Months
    
    For the Six MonthsEnded September 30,
    
    Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Cash Paid for Interest
    
    $
    119,309
    
    
    $
    100,202
    
    
    $
    210,502
    
    
    $
    171,393Net Cash Paid for Taxes
    
    $
    166,277
    
    
    $
    125,706
    
    
    $
    174,894
    
    
    $
    171,868
 Interest expense relating to the Financial Services segment is included in
Financial Services costs and expenses. Home Building capitalizes a portion of
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. 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. 8




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##### Table of Contents



For the Three Months
    
    For the Six MonthsEnded September 30,
    
    Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Total Interest Incurred
    
    $
    117,503
    
    
    $
    94,592
    
    
    $
    225,258
    
    
    $
    181,405Less  Interest Capitalized
    
    
    (43,706
    )
    
    
    (20,204
    )
    
    
    (84,788
    )
    
    
    (40,519
    )Financial Services Interest Expense
    
    
    (68,516
    )
    
    
    (57,944
    )
    
    
    (130,164
    )
    
    
    (108,972
    )Interest Expense, net
    
    $
    5,281
    
    
    $
    16,444
    
    
    $
    10,306
    
    
    $
    31,914Capitalized Interest Relieved to Home
Buildings Costs and Expenses
    
    $
    32,898
    
    
    $
    14,770
    
    
    $
    60,467
    
    
    $
    27,944
 Effective July 1, 2003, the Company consolidated Harwood Street Funding I,
LLC (HSF-I) pursuant to the provisions of Financial Accounting Standards
Board (FASB) Interpretation No. 46, Consolidation of Variable Interest
Entities, as revised, (FIN 46), as discussed in Note (G), Indebtedness.
As of July 1, 2003, the cumulative effect of a change in accounting principle
recorded was $13.3 million, net of tax. As of July 1, 2003, assets and
liabilities consolidated were as follows: Cash and Cash Equivalents
    
    $
    18,000Residential Mortgage Loans Held for Sale
    
    
    2,443,428Other Assets
    
    
    (36,100
    )Accounts Payable
    
    
    20,910Financial Services Debt
    
    
    (2,459,498
    )Cumulative Effect of a Change in Accounting Principle
    
    $
    (13,260
    )
 As explained in Note (J), Land Held Under Option Agreements not Owned and
Other Land Deposits pursuant to the provisions of FIN 46, as of September 30,
2004, the Company consolidated $462.6 million of lot option agreements and
recorded $55.7 million of deposits related to these options as land held under
option agreements not owned. (C) STOCK-BASED EMPLOYEE COMPENSATION ARRANGEMENTS On April 1, 2003, the Company adopted the fair value measurement
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), under which the Company
recognizes compensation expense of a stock option award to an employee over the
vesting period based on the fair value of the award on the grant date. The
fair value method has been applied to awards granted or modified on or after
April 1, 2003 (the prospective method). Awards granted prior to such
date continued to be accounted for in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No.
25), and related interpretations, until the modification of those awards described in the following paragraph. On January 30, 2004, the Company modified all of its outstanding stock
options and long-term incentive plan rights in order to keep the holders in the
same economic position as before the spin-off of our construction products
operations. This adjustment is a modification, which resulted in a reduction
of the option exercise price and an increase in the number of shares covered by
the options or long-term incentive 9




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##### Table of Contents



plan rights, under the provisions of SFAS No. 123. Subsequent to January
30, 2004, the Company has no outstanding options or other stock rights
accounted for under the provisions of APB No. 25. In May 2004, the Company granted approximately 1.8 million options to
employees. The fair value of these options is $31.3 million, as calculated
under the Black-Scholes option-pricing model, which will be recognized as
compensation expense over the vesting period. Compensation expense of $2.6
million and $5.2 million related to these stock options was recognized during
the three and six month periods ended September 30, 2004, respectively. The following pro forma information reflects the Companys net earnings
and earnings per share as if compensation cost for all stock option plans and
other equity-based compensation programs had been determined based upon the
fair value at the date of grant for awards outstanding during the three and six
month periods ended September 30, 2004 and 2003, consistent with the provisions
of SFAS No. 123: For the Three Months
    
    For the Six MonthsEnded September 30,
    
    Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Net Earnings  as Reported
    
    $
    210,612
    
    
    $
    186,129
    
    
    $
    387,845
    
    
    $
    328,919Stock-Based Employee Compensation
Included in Reported Net Income,
net of Related Tax Effects
    
    
    7,786
    
    
    
    3,612
    
    
    
    15,563
    
    
    
    7,197Total Stock-Based Employee Compensation
Expense Determined Under
Fair Value Based Method, net of Related
Tax Effects
    
    
    (7,786
    )
    
    
    (8,151
    )
    
    
    (15,563
    )
    
    
    (16,340
    )Pro Forma Net Earnings
    
    $
    210,612
    
    
    $
    181,590
    
    
    $
    387,845
    
    
    $
    319,776Earnings Per Share:Basic  as Reported
    
    $
    1.70
    
    
    $
    1.51
    
    
    $
    3.13
    
    
    $
    2.66Basic  Pro Forma
    
    $
    1.70
    
    
    $
    1.47
    
    
    $
    3.13
    
    
    $
    2.60Diluted  as Reported
    
    $
    1.61
    
    
    $
    1.44
    
    
    $
    2.96
    
    
    $
    2.56Diluted  Pro Forma
    
    $
    1.61
    
    
    $
    1.41
    
    
    $
    2.96
    
    
    $
    2.49
 10




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##### Table of Contents



(D) STOCKHOLDERS EQUITY A summary of changes in stockholders equity is presented below: Common Stock
    
    
    Capital in
    
    
    UnamortizedValue of
    
    
    
    
    
    
    Treasury
    
    
    AccumulatedOtherExcess of
    
    
    Deferred
    
    
    Retained
    
    
    Stock
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Par Value
    
    
    Compensation
    
    
    Earnings
    
    
    at Cost
    
    
    Income (Loss)
    
    
    TotalBalance, March 31, 2004
    
    
    122,660
    
    
    $
    32,068
    
    
    $
    202,958
    
    
    $
    (411
    )
    
    $
    2,990,889
    
    
    $
    (212,822
    )
    
    $
    37,543
    
    
    $
    3,050,225Issuance and Amortization of Restricted
Stock
    
    
    82
    
    
    
    20
    
    
    
    9,534
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,670Stock Compensation
    
    
    
    
    
    
    
    
    
    
    14,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,261Exercise of Stock
Options, Including
Tax Benefits
    
    
    1,240
    
    
    
    310
    
    
    
    30,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,914Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,874
    )
    
    
    
    
    
    
    
    
    
    
    (9,874
    )Other Stock
Transactions
    
    
    6
    
    
    
    
    
    
    
    (188
    )
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    (100
    )Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    387,845
    
    
    
    
    
    
    
    
    
    
    
    387,845Unrealized Gain
on Hedging
Instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,788
    
    
    
    5,788Foreign Currency
Translation
Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,117
    )
    
    
    (4,117
    )Balance, September 30,
2004
    
    
    123,988
    
    
    $
    32,398
    
    
    $
    257,169
    
    
    $
    (295
    )
    
    $
    3,368,860
    
    
    $
    (212,734
    )
    
    $
    39,214
    
    
    $
    3,484,612
 (E) RESIDENTIAL MORTGAGE LOANS HELD FOR INVESTMENT Residential mortgage loans held for investment by Centex Home Equity
Company, LLC and its related companies (Home Equity), including real estate
owned, consisted of the following: September 30, 2004
    
    
    March 31, 2004Residential Mortgage Loans Held for Investment
    
    $
    7,250,161
    
    
    $
    6,554,513Allowance for Losses on Residential Mortgage Loans
Held for Investment
    
    
    (70,317
    )
    
    
    (56,358
    )Residential Mortgage Loans Held for Investment,
net of Allowance for Losses
    
    $
    7,179,844
    
    
    $
    6,498,155
 Changes in the allowance for losses on residential mortgage loans held for
investment were as follows for the six months ended September 30, 2004 and the
year ended March 31, 2004: For
the SixMonths Ended
    
    
    For theYear EndedSeptember 30, 2004
    
    
    March 31, 2004Balance at Beginning of Period
    
    $
    56,358
    
    
    $
    28,384Provision for Losses
    
    
    51,084
    
    
    
    79,503Losses Sustained, net of Recoveries of $122 and $204
    
    
    (37,125
    )
    
    
    (51,529
    )Balance at End of Period
    
    $
    70,317
    
    
    $
    56,358
 11




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##### Table of Contents



For
the SixMonths Ended
    
    
    For theYear EndedSeptember 30, 2004
    
    
    March 31, 2004Allowance as a Percentage of Gross Loans Held for Investment
    
    
    1.0
    %
    
    
    0.9
    %Allowance as a Percentage of 90+ Days Contractual
Delinquency
    
    
    40.3
    %
    
    
    36.4
    %90+ Days Contractual DelinquencyTotal Dollars Delinquent
    
    $
    174,506
    
    
    $
    154,868% Delinquent
    
    
    2.4
    %
    
    
    2.4
    %
 (F) GOODWILL A summary of changes in goodwill by segment for the six months ended
September 30, 2004 is presented below: Home
 Building
    
    
    Financial 
Services
    
    
    Construction
Services
    
    
    Other
    
    
    TotalBalance as of March 31, 2004
    
    $
    158,607
    
    
    $
    16,602
    
    
    $
    1,007
    
    
    $
    78,042
    
    
    $
    254,258Goodwill Acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    387
    
    
    
    387Goodwill Disposed
    
    
    
    
    
    
    (4,865
    )
    
    
    
    
    
    
    
    
    
    
    (4,865
    )Other, net
    
    
    (522
    )
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    (674
    )Balance as of September 30,
2004
    
    $
    158,085
    
    
    $
    11,737
    
    
    $
    1,007
    
    
    $
    78,277
    
    
    $
    249,106
 Goodwill for the Other segment at September 30, 2004 relates to the
Companys home services operations. 12




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##### Table of Contents



(G) INDEBTEDNESS Balances of short-term and long-term debt (debt instruments with original
maturities greater than one year) and weighted-average interest rates at
September 30, 2004 and March 31, 2004 were (due dates are presented in fiscal
years): September 30,
    
    March 31,2004
    
    2004Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageInterest
    
    
    
    
    
    
    InterestRate
    
    
    
    
    
    
    RateShort-term Debt:Centex
    
    $
    76,691
    
    
    
    1.77
    %
    
    $
    
    
    
    
    
    %Financial ServicesFinancial Institutions
    
    
    327,083
    
    
    
    2.02
    %
    
    
    601,718
    
    
    
    1.42
    %Harwood Street Funding I, LLC Term Notes
    
    
    250,000
    
    
    
    1.90
    %
    
    
    
    
    
    
    
    %Secured Liquidity Notes:Harwood Street Funding I, LLC
    
    
    825,843
    
    
    
    1.89
    %
    
    
    936,000
    
    
    
    1.15
    %Harwood Street Funding II, LLC
    
    
    718,985
    
    
    
    1.91
    %
    
    
    566,798
    
    
    
    1.15
    %Consolidated Short-term Debt
    
    
    2,198,602
    
    
    
    
    
    
    
    2,104,516Long-term Debt:CentexMedium-term Note Programs, due through 2007
    
    
    258,000
    
    
    
    5.02
    %
    
    
    258,000
    
    
    
    4.67
    %Long-term Notes, due through 2015
    
    
    2,158,439
    
    
    
    6.56
    %
    
    
    1,808,332
    
    
    
    6.73
    %Other Indebtedness, due through 2015
    
    
    182,904
    
    
    
    3.16
    %
    
    
    152,152
    
    
    
    5.31
    %Subordinated Debt:Subordinated Debentures, due in 2007
    
    
    99,799
    
    
    
    8.75
    %
    
    
    99,763
    
    
    
    8.75
    %Subordinated Debentures, due in 2006
    
    
    99,967
    
    
    
    7.38
    %
    
    
    99,943
    
    
    
    7.38
    %2,799,109
    
    
    
    
    
    
    
    2,418,190Financial ServicesHome Equity Asset-Backed Certificates,
due through 2035
    
    
    6,490,607
    
    
    
    3.38
    %
    
    
    5,964,924
    
    
    
    3.59
    %Harwood Street Funding I, LLC Variable Rate
Subordinated Extendable Certificates,
due through 2010
    
    
    60,000
    
    
    
    3.84
    %
    
    
    139,000
    
    
    
    3.06
    %Harwood Street Funding II, LLC Variable
RateSubordinated Notes, due through 2009
    
    
    93,750
    
    
    
    3.99
    %
    
    
    93,750
    
    
    
    3.24
    %6,644,357
    
    
    
    
    
    
    
    6,197,674Consolidated Long-term Debt
    
    
    9,443,466
    
    
    
    
    
    
    
    8,615,864Total Debt
    
    $
    11,642,068
    
    
    
    
    
    
    $
    10,720,380
 13




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##### Table of Contents



The weighted-average interest rates for short-term and long-term debt
during the six months ended September 30, 2004 and 2003 were: For the Six Months Ended September 30,2004
    
    
    2003Short-term Debt:Centex
    
    
    1.77
    %
    
    
    1.18
    %Financial Services
    
    
    1.92
    %
    
    
    1.29
    %Long-term Debt:CentexMedium-term Note Programs (1)
    
    
    5.39
    %
    
    
    5.32
    %Long-term Notes
    
    
    6.58
    %
    
    
    7.04
    %Other Indebtedness
    
    
    4.34
    %
    
    
    3.89
    %Subordinated Debentures
    
    
    8.05
    %
    
    
    8.05
    %Financial ServicesCentex Home Equity Company, LLC Long-term Debt (2)
    
    
    3.23
    %
    
    
    3.69
    %CTX Mortgage Company, LLC Long-term Debt (3)
    
    
    3.34
    %
    
    
    2.92
    %
  (1)
    
    Interest rates include the effects of an interest rate swap agreement. (2)
    
    Consists of Centex Home Equity Company, LLC Asset-Backed Certificates and
Harwood Street Funding II, LLC Variable Rate Subordinated Notes.
 (3)
    
    Consists of Harwood Street Funding I, LLC Variable Rate Subordinated
Extendable Certificates.
 Maturities of Centex and Financial Services long-term debt during the next
five years ending March 31 are: Centex
    
    
    FinancialServices
    
    
    Total2005
    
    $
    30,862
    
    
    $
    1,165,046
    
    
    $
    1,195,9082006
    
    
    341,308
    
    
    
    2,273,136
    
    
    
    2,614,4442007
    
    
    430,217
    
    
    
    1,596,459
    
    
    
    2,026,6762008
    
    
    359,344
    
    
    
    908,041
    
    
    
    1,267,3852009
    
    
    1,726
    
    
    
    238,802
    
    
    
    240,528Thereafter
    
    
    1,635,652
    
    
    
    462,873
    
    
    
    2,098,525$
    2,799,109
    
    
    $
    6,644,357
    
    
    $
    9,443,466
 Financial Services long-term debt associated with Home Equity includes
Asset-Backed Certificates of $6.49 billion at September 30, 2004. These
Asset-Backed Certificates relate to securitized residential mortgage loans and
are structured as collateralized borrowings. The holders of such debt have no
recourse for non-payment to Centex Home Equity Company, LLC or Centex
Corporation; however, as is common in these structures, Centex Home Equity
Company, LLC remains liable for customary loan representations. The principal
and interest on these certificates are paid from the liquidation of the
underlying residential mortgage loans, which serve as collateral for the debt.
Accordingly, the timing of the principal payments on these certificates is
dependent upon the payments received on the underlying residential mortgage
loans. The 14




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##### Table of Contents



expected maturities of this component of long-term debt are based on
contractual maturities adjusted for projected prepayments. Under Centex Corporations bank credit facilities, Centex is required to
maintain certain leverage and interest coverage ratios and a minimum tangible
net worth. At September 30, 2004, Centex was in compliance with all of these
covenants. Credit Facilities The Companys existing credit facilities and available capacity as of
September 30, 2004 are summarized below: Existing Credit
    
    
    AvailableFacilities
    
    
    CapacityCentexCentex CorporationMulti-Bank Revolving Credit Facility
    
    $
    800,000
    
    
    $
    800,000
    (1)Multi-Bank Revolving Letter of Credit Facility
    
    
    300,000
    
    
    
    79,543
    (2)1,100,000
    
    
    
    879,543
    (3)International HomebuildingMulti-Bank Secured Revolving Credit Facility
    
    
    179,940
    
    
    
    41,386Secured Bonding Facility
    
    
    17,994
    
    
    
    15,835Unsecured Credit Facility
    
    
    35,988
    
    
    
    35,988233,922
    
    
    
    93,209
    (4)Financial ServicesSecured Credit Facilities
    
    
    775,000
    
    
    
    447,917
    (5)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,864,313Harwood Street Funding II, LLC Facility
    
    
    2,500,000
    
    
    
    1,687,2656,275,000
    
    
    
    3,999,495$
    7,608,922
    
    
    $
    4,972,247
    (6)
  (1)
    
    This is an unsecured, committed, multi-bank revolving credit facility,
maturing in July 2007, which serves as backup for commercial paper
borrowings. As of September 30, 2004, there were no borrowings under this
backup facility, and our $700 million commercial paper program had $70
million outstanding. There have been no borrowings under this revolving
credit facility since inception.  (2)
    
    This is an unsecured, committed, multi-bank revolving letter of credit
facility, maturing in July 2005. Letters of credit issued under this
facility may expire no later than July 2006.  (3)
    
    In conjunction with the issuance of surety bonds in support of our
Construction Services activity, Centex Corporation will 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.  (4)
    
    The international homebuilding operations maintain a £100 million
secured, committed, multi-bank revolving credit facility and a £10 million
secured bonding facility. These facilities are not guaranteed by, nor is
there recourse to, Centex Corporation. The international homebuilding
operations also maintain a £20 million unsecured, uncommitted credit
facility guaranteed by Centex Corporation.  (5)
    
    CTX Mortgage Company, LLC and its related companies and Home Equity share
in a $500 million secured, committed credit facility to finance mortgage
inventory. In October 2004, this facility was reduced to $250 million.
CTX Mortgage Company, 15




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##### Table of Contents



LLC and its related companies also maintain $265 million of secured,
committed mortgage warehouse facilities to finance mortgages. Home Equity
also maintains a $10 million secured, committed mortgage warehouse facility
to finance mortgages.(6)
    
    The amount of available capacity includes $4.94 billion of committed
capacity and $36.0 million of uncommitted capacity as of September 30,
2004. Although the Company believes that the uncommitted capacity is
currently available, there can be no assurance that the lenders under
these facilities would elect to make advances if and when requested to do
so. CTX Mortgage Company, LLC and Harwood Street Funding I, LLC CTX Mortgage Company, LLC finances its inventory of mortgage loans held
for sale principally through the sale of loans to HSF-I, pursuant to a mortgage
loan purchase agreement, as amended (the HSF-I Purchase Agreement). Since 1999, CTX
Mortgage Company, LLC has sold substantially all conforming and Jumbo A
mortgage loans that it originates to HSF-I in accordance with the HSF-I
Purchase Agreement. HSF-Is
commitment to purchase eligible mortgage loans continues in effect until the
occurrence of certain termination events described in the HSF-I Purchase
Agreement. When HSF-I acquires these loans, it typically holds them for a
period of 45 to 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 September 30, 2004, 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, (2) term notes rated A1+ by S&P and P-1
by Moodys and (3) subordinated certificates maturing in September 2009,
extendable for up to five years, rated BBB by S&P and Baa2 by Moodys. Under
the terms of the HSF-I Purchase Agreement, CTX Mortgage Company, LLC may elect
to sell to HSF-I, and HSF-I is obligated to purchase from CTX Mortgage Company,
LLC, mortgage loans that satisfy certain eligibility criteria and portfolio
requirements. At September 30, 2004, the maximum amount of mortgage loans that
HSF-I is allowed to carry in its inventory under the HSF-I Purchase Agreement
is $3.0 billion. The purposes of this arrangement are to allow CTX Mortgage
Company, LLC to reduce the cost of financing the mortgage loans originated by
it and to improve its liquidity. In January 2003, the FASB issued FIN 46, which modified the accounting for
certain 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. 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. Prior to the implementation of
FIN 46, HSF-I was not consolidated in the Companys financial statements. As a
result of the consolidation of HSF-I, the Company recorded a cumulative effect
of a change in accounting principle of $13.3 million, net of tax, in the
quarter ended September 30, 2003. The consolidation of HSF-I resulted in an
increase in the Companys residential mortgage loans held for sale with a
corresponding increase in the Companys debt. In addition, interest income and
interest expense of HSF-I subsequent to June 30, 2003, are reflected in the
Companys financial statements. Because HSF-I is a consolidated entity as of
July 1, 2003, all transactions between the Company and HSF-I subsequent to June
30, 2003 are eliminated in consolidation. 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 16




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##### Table of Contents



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 the forward sales of
CTX Mortgage Company, LLCs 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 (N), 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
$2.49 billion and $5.06 billion of mortgage loans to investors during the three
and six months ended September 30, 2004, respectively, and $5.16 billion and
$9.59 billion during the three and six months ended September 30, 2003,
respectively. CTX Mortgage Company, LLC and its related companies recognized gains on
sales of mortgage loans and related derivative activity of $37.5 million and $71.3 million
during the three and six months ended September 30, 2004, respectively, and
$79.6 million and $156.5 million during the three and six months ended
September 30, 2003, respectively. Centex Home Equity Company, LLC and Harwood Street Funding II, LLC Home Equity finances its inventory of mortgage loans held for investment
through Harwood Street Funding II, LLC (HSF-II), a wholly-owned, consolidated
entity, under a revolving sales agreement that expires upon final payment of
the senior and subordinated debt issued by HSF-II. This arrangement, where
HSF-II has committed to finance all eligible loans, gives Home Equity daily
access to HSF-IIs borrowing capacity of $2.5 billion. HSF-II obtains funds
for the purchase of eligible loans by issuing (1) short-term secured liquidity
notes, (2) medium-term debt and (3) subordinated notes. As of September 30,
2004, HSF-II had outstanding (1) short-term secured liquidity notes rated A1+
by S&P, P-1 by Moodys and F1+ by Fitch Ratings, or Fitch and (2) subordinated
notes rated BBB by S&P, Baa2 by Moodys and BBB by Fitch. Because HSF-II is a
consolidated entity, the debt, interest income and interest expense of HSF-II
are reflected in the financial statements of Financial Services. HSF-IIs debt
does not have recourse to the Company and the consolidation of this debt does
not change the Companys debt ratings. In the event Financial Services is unable to finance its inventory of
loans through HSF-I and HSF-II, 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 17




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##### Table of Contents



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. (H) MERGER OF 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT
COMPANY, L.P. AND SUBSIDIARIES Prior to February 2004, the common stock of 3333 Holding Corporation
(Holding) and warrants to purchase limited partnership interests in Centex
Development Company, L.P. (the Partnership) were traded in tandem with our
common stock. We held an ownership interest in the Partnership, which we
reported on the equity method of accounting as a part of our investment real
estate operations. Neither Holding nor the Partnership was consolidated in our
financial statements. On February 29, 2004, the Company completed the acquisition of Holding and
the Partnership through a series of transactions, which included mergers with
the Companys subsidiaries. The transactions were approved by the Companys
stockholders and holders of beneficial interests in Holding at a special joint
meeting of stockholders held on February 25, 2004. These transactions
terminated the tandem trading relationship between the Companys common stock
and the common stock of Holding, as well as the stockholder warrants of the
Partnership. For their interests in the securities of Holding and the
Partnership, the Companys stockholders of record on February 29, 2004 received
an amount equal to $0.02 per share of the Companys common stock, totaling
approximately $1.2 million, which was paid on March 10, 2004. The mergers resulted in the consolidation of Holding and the Partnership.
As a result of the mergers, effective March 1, 2004, the Company eliminated its
investment in the Partnership of $370.6 million, recorded net assets of $370.6
million including goodwill of $36.4 million, and recorded a dividend to
stockholders of $1.2 million. Operations of Holding and the Partnership have
been consolidated in the Companys results of operations subsequent to March 1,
2004. The operations of the Partnership included homebuilding operations in the
United Kingdom. As a result of the merger, the international homebuilding
operations of the Partnership are now included in our Home Building business
segment, and the Partnerships domestic real estate operations continue to be
reported within our investment real estate operations included in the Other
segment. (I) COMMITMENTS AND CONTINGENCIES 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 equity interest. These land related
activities typically require substantial capital, and partnering with other
developers allows Home Building to share the risks and rewards of ownership
while providing for efficient asset utilization. The Companys investment in
these non-consolidated joint ventures was $162.5 million and $140.1 million at
September 30, 2004 and March 31, 2004, respectively. These joint ventures had
total outstanding secured construction debt of approximately $412.6 million and
$202.2 million at September 30, 2004 and March 31, 2004, respectively. The
Company is liable, on a contingent basis, through guarantees, letters of credit
or other arrangements, with respect to a portion of the construction debt of
certain of the joint ventures, which we refer to as the recourse joint
ventures. The Companys maximum potential liability with respect to the debt
of the recourse joint ventures, based on its ownership percentage of the
recourse joint ventures, is approximately $149.4 million and $73.2 million at
September 30, 2004 and March 31, 2004, respectively. For certain of the 18




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joint ventures, the Company has also guaranteed the completion of the
project by the joint ventures and agreed to indemnify the construction lender
for certain environmental liabilities with respect to the project. In the normal course of its business, the Company issues certain
representations, warranties and guarantees 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 in the United States and in the United Kingdom. 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. Prior to April 1, 2004, Home Buildings
United States warranties for defects in materials or workmanship covered the
first year. In California, effective January 1, 2003, Home Building began
following the statutory provisions of Senate Bill 800, which, in part, provide
a statutory warranty to customers and a statutory dispute resolution process.
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 six months ended September 30, 2004 and the year ended March 31, 2004: For the SixMonths Ended
    
    
    For theYear EndedSeptember 30, 2004
    
    
    March 31, 2004Balance at Beginning of Period
    
    $
    20,146
    
    
    $
    16,125Warranties Issued
    
    
    21,901
    
    
    
    29,806Settlements Made
    
    
    (18,051
    )
    
    
    (25,597
    )Changes in Liability of Pre-Existing
Warranties, Including Expirations
    
    
    
    
    
    
    (188
    )Foreign Currency Translation
    
    
    (52
    )
    
    
    Balance at End of Period
    
    $
    23,944
    
    
    $
    20,146
 In January 2003, we 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 discharge practices at
projects that Centex subsidiaries had completed or were 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. While the amount of civil penalties, if any, and the cost of
injunctive relief, if any, are undetermined, the Company is confident that such
amounts will not be material to its consolidated financial condition or
operations. 19




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##### Table of Contents



CTX Mortgage Company, LLC has established a liability for anticipated
losses associated with loans originated. Changes in CTX Mortgage Company,
LLCs mortgage loan origination reserve are as follows for the six months ended
September 30, 2004 and the year ended March 31, 2004: For the SixMonths Ended
    
    
    For theYear EndedSeptember 30, 2004
    
    
    March 31, 2004Balance at Beginning of Period
    
    $
    25,045
    
    
    $
    28,594Provision for Losses
    
    
    
    
    
    
    1,837Settlements
    
    
    (3,769
    )
    
    
    (5,386
    )Balance at End of Period
    
    $
    21,276
    
    
    $
    25,045
 (J) 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 lot option purchase agreements with unaffiliated third
parties. 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 at various dates through the year 2010. The Company has determined that in accordance with the provisions of FIN
46, it is the primary beneficiary of certain lot option agreements at September
30, 2004. As a result, the Company recorded $462.6 million of land as
inventory under the caption land held under option agreements not owned, with a
corresponding increase to minority interests. In addition, at September 30,
2004, the Company recorded $55.7 million of deposits related to these options
as land held under option agreements not owned. At September 30, 2004, the Company had deposited or invested with third
parties $132.3 million (excluding the $55.7 million of deposits discussed
above) included in land held for development and sale related to lot option
agreements. The lot option agreements related to these deposits had a total
remaining purchase price of approximately $4.33 billion. 20




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##### Table of Contents



(K) COMPREHENSIVE INCOME A summary of comprehensive income for the three and six months ended
September 30, 2004 and 2003 is presented below: For the Three Months
    
    For the Six MonthsEnded September 30,
    
    Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Net Earnings
    
    $
    210,612
    
    
    $
    186,129
    
    
    $
    387,845
    
    
    $
    328,919Other Comprehensive Income (Loss), net of Tax:Unrealized Gain (Loss) on Hedging
Instruments
    
    
    (9,255
    )
    
    
    4,423
    
    
    
    5,788
    
    
    
    3,171Foreign Currency Translation Adjustments
    
    
    (1,367
    )
    
    
    2,559
    
    
    
    (4,117
    )
    
    
    13,279Other
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    6Comprehensive Income
    
    $
    199,990
    
    
    $
    193,115
    
    
    $
    389,516
    
    
    $
    345,375
 The foreign currency translation adjustments are primarily the result of
international homebuildings translated assets, liabilities and income
statement accounts. 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 is discussed in detail in Note (N), Derivatives and Hedging. (L) BUSINESS SEGMENTS The Company operates in three principal business segments: Home Building,
Financial Services and Construction Services. These segments operate primarily
in the United States, and their markets are nationwide. Revenues from any one
customer are not significant to the Company. Intersegment revenues and
investments in joint ventures are not material and are not shown in the
following tables. Home Building Home Buildings operations 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) in the United States and the
purchase and development of land or lots and the construction and sale of a
range of products from small single-family units to executive houses and
apartments in the United Kingdom. Financial Services Financial Services mortgage operations consist primarily of home
financing, sub-prime home equity lending and the sale of title insurance and
other various insurance coverages. These activities include mortgage
origination, servicing and other related services for homes sold by the
Companys subsidiaries and others. Financial Services revenues include
interest income of $160.3 million and $139.8 million for the three months and
$319.5 million and $246.5 million for the six months ended September 30, 2004
and 2003, 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 and sub-prime home equity lending activities. 21




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##### Table of Contents



Construction Services Construction Services operations involve the construction of buildings
for both private and government interests including educational institutions,
hospitals, military housing, 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 $1.4 million and $1.0 million for the three months and
$2.7 million and $2.4 million for the six months ended September 30, 2004 and
2003, 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 the Companys home services and
investment real estate operations, which are not material for purposes of
segment reporting, and corporate general and administrative expenses and
interest expense. As previously described in Note (H), Merger of 3333 Holding Corporation
and Subsidiary and Centex Development Company, L.P. and Subsidiaries, in
February 2004, the Company acquired Holding and the Partnership. Subsequent to
the merger, the Company has consolidated the financial results of the
Partnership; and as a result, the Company realigned its reporting for the
Partnership, whereby the Partnerships international homebuilding operations
are included in the Home Building business segment. The Partnerships domestic
operations continue to be reported within our investment real estate
operations. The Company has determined that no significant capital will be
allocated to our investment real estate operations for new business
development. Beginning April 1, 2004, the financial results of our investment
real estate operations are included in the Other business segment. Prior
period amounts have been reclassified to conform to the current year
presentation. For the Three Months Ended September 30, 2004(Dollars in millions)Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    2,231.5
    
    
    $
    276.9
    
    
    $
    452.2
    
    
    $
    24.3
    
    
    $
    2,984.9Cost of Sales
    
    
    (1,625.9
    )
    
    
    (68.5
    )
    
    
    (431.7
    )
    
    
    (12.0
    )
    
    
    (2,138.1
    )Selling, General and Administrative
Expenses
    
    
    (312.5
    )
    
    
    (155.2
    )
    
    
    (15.0
    )
    
    
    (38.9
    )
    
    
    (521.6
    )Earnings from Unconsolidated
Entities
    
    
    3.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    296.4
    
    
    $
    53.2
    
    
    $
    5.5
    
    
    $
    (26.6
    )
    
    $
    328.5
 22




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##### Table of Contents



For the Three Months Ended September 30, 2003(Dollars in millions)Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    1,709.1
    
    
    $
    290.6
    
    
    $
    386.6
    
    
    $
    42.0
    
    
    $
    2,428.3Cost of Sales
    
    
    (1,259.8
    )
    
    
    (57.9
    )
    
    
    (366.7
    )
    
    
    (9.5
    )
    
    
    (1,693.9
    )Selling, General and Administrative
Expenses
    
    
    (244.9
    )
    
    
    (156.2
    )
    
    
    (15.3
    )
    
    
    (53.1
    )
    
    
    (469.5
    )Earnings from Unconsolidated
Entities
    
    
    7.8
    
    
    
    
    
    
    
    
    
    
    
    7.3
    
    
    
    15.1Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    212.2
    
    
    $
    76.5
    
    
    $
    4.6
    
    
    $
    (13.3
    )
    
    $
    280.0
 For the Six Months Ended September 30, 2004(Dollars in millions)Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    4,229.6
    
    
    $
    551.2
    
    
    $
    886.4
    
    
    $
    83.8
    
    
    $
    5,751.0Cost of Sales
    
    
    (3,098.9
    )
    
    
    (130.1
    )
    
    
    (845.6
    )
    
    
    (48.5
    )
    
    
    (4,123.1
    )Selling, General and Administrative
Expenses
    
    
    (614.3
    )
    
    
    (310.3
    )
    
    
    (30.8
    )
    
    
    (79.2
    )
    
    
    (1,034.6
    )Earnings from Unconsolidated
Entities
    
    
    11.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.1Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    527.5
    
    
    $
    110.8
    
    
    $
    10.0
    
    
    $
    (43.9
    )
    
    $
    604.4
 For the Six Months Ended September 30, 2003(Dollars in millions)Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    3,213.6
    
    
    $
    557.4
    
    
    $
    762.4
    
    
    $
    67.6
    
    
    $
    4,601.0Cost of Sales
    
    
    (2,387.2
    )
    
    
    (109.0
    )
    
    
    (723.5
    )
    
    
    (19.9
    )
    
    
    (3,239.6
    )Selling, General and Administrative
Expenses
    
    
    (466.6
    )
    
    
    (306.3
    )
    
    
    (29.8
    )
    
    
    (103.5
    )
    
    
    (906.2
    )Earnings from Unconsolidated
Entities
    
    
    13.8
    
    
    
    
    
    
    
    
    
    
    
    6.3
    
    
    
    20.1Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    373.6
    
    
    $
    142.1
    
    
    $
    9.1
    
    
    $
    (49.5
    )
    
    $
    475.3
 23




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##### 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
    
    For the Six MonthsEnded September 30,
    
    Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Operating Loss from Home Services
Operations
    
    $
    (2.1
    )
    
    $
    (1.1
    )
    
    $
    (4.7
    )
    
    $
    (2.4
    )Operating Earnings (Loss) from
Investment Real Estate Operations
    
    
    (0.2
    )
    
    
    26.0
    
    
    
    9.7
    
    
    
    25.9Corporate General and Administrative
Expense
    
    
    (19.0
    )
    
    
    (22.0
    )
    
    
    (38.6
    )
    
    
    (41.1
    )Interest Expense
    
    
    (5.3
    )
    
    
    (16.4
    )
    
    
    (10.3
    )
    
    
    (31.9
    )Other
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    $
    (26.6
    )
    
    $
    (13.3
    )
    
    $
    (43.9
    )
    
    $
    (49.5
    )
 (M) INCOME TAXES Income tax expense, excluding taxes related to cumulative effect of a
change in accounting principle, for the Company increased from $92.0 million to
$117.9 million and the effective tax rate increased from approximately 33% to
36% for the three months ended September 30, 2003 and 2004, respectively.
Income tax expense, excluding taxes related to cumulative effect of a change in
accounting principle, also increased from $154.0 million to $216.6 million and
the effective tax rate increased from approximately 32% to 36% for the six
months ended September 30, 2003 and 2004, respectively. The increase in the
effective tax rate is primarily the result of a reduction in the availability
of tax benefits related to the Companys net operating loss carryforwards in
fiscal 2005 as compared to the prior year. (N) DERIVATIVES AND HEDGING The Company is exposed to the risk of interest rate fluctuations on its
debt and other obligations. As part of its strategy to manage the obligations
that are subject to changes in interest rates, the Company has entered into
various interest rate swap agreements, designated as cash flow hedges as
described below. The swap agreements are recorded at their fair value in other
assets or accrued liabilities 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 are insignificant. At September 30, 2004, the Company has interest rate swap agreements that,
in effect, fix the variable interest rates on (i) $25.0 million of its
outstanding debt at 6.7% and expires in October 2005 and (ii) £50.0 million of
its outstanding debt at 4.0% and expires in March 2006. During the three and
six months ended September 30, 2004, the hedges related to these derivatives
were effective. Amounts to be received or paid under the swap agreements are
recognized as changes in interest incurred on the related debt instruments.
Based on the balance in accumulated other comprehensive income at September 30,
2004 related to these derivatives, the Company estimates increases in interest
incurred over the next 12 months to be approximately 24




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##### Table of Contents



$467.8 thousand. As of September 30, 2004, the balance in accumulated
other comprehensive income related to these derivatives was $46.3 thousand. Financial Services, through Home Equity, 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. At September 30,
2004, Home Equity had $80.0 million of these interest rate swap agreements in
place at a weighted-average interest rate of 3.9%. Changes in fair value of
these derivatives are deferred in accumulated other comprehensive income (loss)
and recorded through current earnings as an adjustment of the interest incurred
over the life of the securitization debt. Home Equity also uses interest rate
swaps that, in effect, fix the interest rate on its variable interest rate
debt. Amounts to be received or paid as a result of these swap agreements are
recognized as adjustments to interest incurred on the related debt instrument.
At September 30, 2004, Home Equity was hedging $2.35 billion of its outstanding
debt with these interest rate swaps at a weighted-average interest rate of
2.2%. These swaps expire at varying times through August 2007. Based on the
balance in accumulated other comprehensive income at September 30, 2004 related
to interest rate hedging activities, the Company estimates decreases in
interest incurred over the next 12 months to be approximately $5.2 million.
During the three and six months ended September 30, 2004, the hedges related to
substantially all of Home Equitys interest rate swaps were effective and the
ineffective portion was insignificant. As of September 30, 2004, the balance
in accumulated other comprehensive income related to Home Equitys derivatives
was $4.0 million. Financial Services, through CTX Mortgage Company, LLC and its related
companies, enters into interest rate lock commitments (IRLCs) with its
customers under which CTX Mortgage Company, LLC and its related companies agree
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 hedge the interest rate risk related
to its IRLCs, CTX Mortgage Company, LLC and its related companies execute
mandatory forward trade commitments (i.e., forward trade commitments). CTX
Mortgage Company, LLC and its related companies also execute forward trade
commitments to hedge the interest rate risk related to its portfolio of
mortgage loans held for sale, including mortgage loans held by HSF-I. As
discussed in Note (G), Indebtedness, HSF-I is a variable interest entity that
has been consolidated with Financial Services and the Company effective July 1,
2003, pursuant to FIN 46. In connection with the consolidation of HSF-I, CTX
Mortgage Company, LLC and its related companies elected as of July 1, 2003 to
utilize hedge accounting treatment under Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, (SFAS No. 133) for these forward trade commitments.
These forward trade commitments have been designated as fair value hedges.
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 net zero 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 $5.7 million and $7.3 million for the three
and six months ended September 30, 2004, respectively. Forward trade
commitments not designated as hedges are treated as derivative instruments, and
their 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 25




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##### Table of Contents



in the estimated fair value of derivative positions not subject to hedge
accounting resulted in a loss of approximately $262 thousand and $334 thousand
for the three and six months ended September 30, 2004. (O) RELATED PARTY TRANSACTIONS As previously described in Note (H), Merger of 3333 Holding Corporation
and Subsidiary and Centex Development Company, L.P. and Subsidiaries, in
February 2004, the Company acquired Holding and the Partnership. Transactions
and amounts occurring after the Partnerships consolidation are not included in
the related party disclosures below, as the transactions between the Company
and the Partnership have been eliminated in consolidation. Prior to the
merger, the Partnership executed transactions with Home Building and
Construction Services. At September 30, 2003, Home Building had $6.2 million deposited with the
Partnership as option deposits for the purchase of land. Home Building entered
into agreements to reimburse the Partnership for certain costs and fees
incurred by the Partnership in the purchase and ownership of these tracts of
land. During the three and six months ended September 30, 2003, Home Building
paid $0.7 million and $1.1 million, respectively, to the Partnership in fees
and reimbursements pursuant to these agreements. During the three and six
months ended September 30, 2003, Home Building paid $1.6 million and $13.6
million, respectively, for the purchase of residential lots. Construction Services executed a $10.6 million contract with the
Partnership for the construction of an office building. At September 30, 2003,
this contract was outstanding. During the three and six months ended
September 30, 2003, the Partnership paid $0.5 million to Construction Services
pursuant to this contract. (P) RECENT ACCOUNTING PRONOUNCEMENTS During March 2004, the FASB issued an exposure draft entitled Share-Based
Payment, which would amend SFAS No. 123 and SFAS No. 95, Statements of Cash
Flows. Share-based payments are transactions in which an enterprise receives
employee services in exchange for (1) equity instruments of the enterprise or
(2) liabilities that are based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of such equity instruments.
Among other items, the exposure draft may require the Company to change its
method of valuing share-based payments and its method of accruing compensation
costs for awards with graded vesting schedules (that is, awards for which
different parts vest at different times). The exposure draft is not final and
was subject to a comment period that ended June 30, 2004. Although the
exposure draft and its eventual effective date are subject to revision, the
proposed effective date of the exposure draft is for interim periods beginning
after June 15, 2005. If the exposure draft is implemented in its current form,
it is not expected to have a material impact on the Companys results of
operations or financial position. (Q) OFF-BALANCE SHEET OBLIGATIONS The Company enters into various off-balance sheet transactions in the
normal course of business in order to reduce financing costs and improve access
to liquidity, facilitate homebuilding activities and manage exposure to
changing interest rates. Further discussion regarding these transactions can
be found above in Note (I), Commitments and Contingencies. 26




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##### Table of Contents



(R) SPIN-OFF OF SUBSIDIARIES In June 2003, the Company spun off substantially all of its manufactured
housing operations, which had previously been included in the Other segment.
As a result of the spin-off, the manufactured housing operations earnings for
all periods prior to the spin-off have been reclassified to discontinued
operations in the Statements of Consolidated Earnings. In January 2004, the Company spun off its entire equity interest in Eagle
Materials Inc., formerly known as Centex Construction Products, Inc., which had
previously been reported as a separate business segment. As a result of the
spin-off, Construction Products earnings for all periods prior to the spin-off
have been reclassified to discontinued operations in the Statements of
Consolidated Earnings. For the three and six months ended September 30, 2003, discontinued
operations had revenues of $157.8 million and $341.4 million, respectively, and
operating earnings of $29.3 million and $52.9 million, respectively. (S) SUBSEQUENT EVENTS On November 2, 2004, Centex Corporation issued $300.0 million of unsecured senior
notes maturing in fiscal year 2011. The notes bear interest at par of 4.55% per
annum. (T) RECLASSIFICATIONS Certain prior year balances have been reclassified to be consistent with
the September 30, 2004 presentation. 27




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##### 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 understand our
results. It is provided as a supplement to, and should be read in conjunction
with, our financial statements and accompanying notes. Executive Summary We currently operate in three principal business segments: Home Building,
Financial Services and Construction Services. The following charts summarize
certain key line items of our results of operations by business segment for the
three months ended September 30, 2004 and 2003 (dollars in millions): (CHART) (CHART) Revenues for the three months ended
September 30, 2004 increased 23% to $2.99 billion as compared to the three
months ended September 30, 2003. In addition, earnings from continuing
operations for the three months ended September 30, 2004 increased 18% to $329
million as compared to the same period in the prior year. The growth in revenues and operating earnings is primarily attributable to the
growth and improvement in operating margin of our Home Building segment. The growth in Home
Buildings operating earnings was partially offset by a decline in operating
earnings of our Financial Services segment.  *
    
    Other consists of the financial results of our investment real estate
operations, home services operations, corporate general and administrative
expense and interest expense. 28




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##### Table of Contents



The following charts summarize certain key line items of our results of
operations by business segment for the six months ended September 30, 2004 and
2003 (dollars in millions): (CHART) (CHART) Revenues for the six months ended September
30, 2004 increased 25% to $5.75 billion as compared to the six months ended
September 30, 2003. In addition, earnings from continuing operations for the
six months ended September 30, 2004 increased 27% to $604 million as compared
to the same period in the prior year. The growth in revenues and operating earnings is primarily attributable to the
growth and improvement in operating margin of our Home Building segment. Home Buildings operating
earnings were partially offset by a decline in operating earnings of our
Financial Services segment. Home Buildings growth strategy is driven primarily by growth in
neighborhoods open for sale, increases in closings per neighborhood, increases
in average unit selling prices, and continued improvements in operating margins.
Home Buildings domestic operations have increased average neighborhood count,
closings per average neighborhood and operating margins as compared to prior
year. For more specific information on the operating results of our Home
Building segment, refer to the Home Building segment information below.  *
    
    Other consists of the financial results of our investment real estate
operations, home services operations, corporate general and administrative
expense and interest expense. 29




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##### Table of Contents



As of September 30, 2004, we had homebuilding operations in 43 of the 50
largest housing markets in the United States (which includes our Wayne Homes operations and our resort and second home
operation, Centex Destination Properties). We are focused primarily
on further penetration in our existing markets; however, we will continue to be opportunistic with respect to specific
geographic or market segment expansion. The overall demand for housing in the United States remains favorable, and
is driven in the long-term by population growth, demographics, immigration,
household formations and changes in 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 in the
United States is in the early stages of a consolidation phase. In 1995, based
upon single-family permits issued in the United States, the 10 largest
homebuilders represented approximately 7.2% of the housing market. As of 2003,
the 10 largest homebuilders were producing approximately 15.1% 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 seek
to capitalize on the benefits of size, such as capital strength, more efficient
operations and technological advantages. Financial Services operating results for the three and six months ended
September 30, 2004 have been negatively impacted by decreased loan refinancing
activity. Refinancing activity accounted for 16% and 20% of originations for
the three and six months ended September 30, 2004, respectively, as compared to
45% and 51% for the same periods last year. Our Financial Services segment
will continue to focus on serving the customers of our Home Building segment.
For the three and six months ended September 30, 2004, our prime mortgage
business financed approximately 72% and 73% of our Home Building non-cash unit
closings versus 74% for the same periods last year. In addition, the Financial
Services growth model includes plans to increase the number of loan officers
originating prime retail loans and to improve their productivity. Our prime
mortgage lending business is primarily a fee-based business with low capital
requirements. Our Financial Services segment also includes our sub-prime home
equity lending operations, which is primarily a portfolio-based model that
produces more predictable earnings than our prime mortgage lending operations.
Our sub-prime home equity loans are obtained through our organically grown
origination channels using centrally controlled product, pricing and
underwriting. The results of operations of certain of our segments, including our Home
Building and Financial Services operations, may be adversely affected by
increases in interest rates. Any significant increase in mortgage interest
rates above currently prevailing low levels could affect the ability or
willingness of prospective homebuyers to finance home purchases and/or further
curtail mortgage refinance activity. Although we expect that we would be able
to make adjustments in our operations to mitigate the effects of any increase
in interest rates, there can be no assurances that these efforts would be
successful. Our Construction Services segment operating earnings for the three and six
months ended September 30, 2004 remained relatively stable as compared to the
three and six months ended September 30, 2003. Industry conditions have
created increased pricing pressure on construction companies, which in turn has
limited our ability to improve the operating margins of our Construction
Services segment. However, revenues for the three and six months ended
September 30, 2004 increased compared to the three and six months ended
September 30, 2003 due to our focus on increasing market share. The commercial
construction environment is showing signs of
stabilization as evidenced by a fairly consistent level of backlog as compared
to the prior year. At September 30, 2004, the backlog was $1.56 billion, as
compared to $1.61 billion in the prior year. Strategically, we will continue
to focus on our core geographic and selected industry segments to achieve
growth in revenues and operating earnings. 30




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##### Table of Contents



In fiscal year 2004, we consummated the tax-free spin-offs to our
stockholders of substantially all of our manufactured housing operations on
June 30, 2003 and our entire ownership interest in Eagle
Materials Inc., formerly known as Centex Construction Products, Inc., a former
majority owned subsidiary, on January 30, 2004. Manufactured housing and
Centex Construction Products, Inc. are reported as discontinued operations in
our consolidated financial statements. HOME BUILDING Home Buildings operations consist primarily of our domestic and
international operations. Home Buildings domestic operations 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). Our international homebuilding operations involve the purchase and
development of land or lots and the construction and sale of a range of
products from small single-family units to executive houses and apartments in
the United Kingdom. The following summarizes the results of our Home Building operations for
the three and six months ended September 30, 2004 and 2003 (dollars in
millions): For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues  Housing
    
    $
    2,152.1
    
    
    
    27.5
    %
    
    $
    1,687.8
    
    
    
    33.7
    %Revenues  Land Sales and Other
    
    
    79.4
    
    
    
    272.8
    %
    
    
    21.3
    
    
    
    8.7
    %Cost of Sales  Housing
    
    
    (1,559.9
    )
    
    
    26.9
    %
    
    
    (1,229.4
    )
    
    
    30.6
    %Cost of Sales  Land Sales and Other
    
    
    (66.0
    )
    
    
    117.1
    %
    
    
    (30.4
    )
    
    
    58.3
    %Selling, General and Administrative
Expenses
    
    
    (312.5
    )
    
    
    27.6
    %
    
    
    (244.9
    )
    
    
    26.2
    %Earnings from Unconsolidated
Entities
    
    
    3.3
    
    
    
    (57.7
    %)
    
    
    7.8
    
    
    
    129.4
    %Operating Earnings
    
    $
    296.4
    
    
    
    39.7
    %
    
    $
    212.2
    
    
    
    62.2
    %Operating Earnings as a Percentage
of Revenues
    
    
    13.3
    %
    
    NM
    
    
    12.4
    %
    
    NM
 For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues  Housing
    
    $
    4,119.1
    
    
    
    30.1
    %
    
    $
    3,165.2
    
    
    
    35.8
    %Revenues  Land Sales and Other
    
    
    110.5
    
    
    
    128.3
    %
    
    
    48.4
    
    
    
    (15.1
    %)Cost of Sales  Housing
    
    
    (2,993.7
    )
    
    
    28.4
    %
    
    
    (2,331.9
    )
    
    
    34.0
    %Cost of Sales  Land Sales and Other
    
    
    (105.2
    )
    
    
    90.2
    %
    
    
    (55.3
    )
    
    
    24.8
    %Selling, General and Administrative
Expenses
    
    
    (614.3
    )
    
    
    31.7
    %
    
    
    (466.6
    )
    
    
    24.1
    %Earnings from Unconsolidated
Entities
    
    
    11.1
    
    
    
    (19.6
    %)
    
    
    13.8
    
    
    
    331.3
    %Operating Earnings
    
    $
    527.5
    
    
    
    41.2
    %
    
    $
    373.6
    
    
    
    61.9
    %Operating Earnings as a Percentage
of Revenues
    
    
    12.5
    %
    
    NM
    
    
    11.6
    %
    
    NM
 31




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##### Table of Contents



Home Buildings results are derived from its domestic and international
operations as described below. Domestic The following summarizes the results of our Home Building domestic
operations for the three and six months ended September 30, 2004 and 2003: For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeUnits Closed
    
    
    7,831
    
    
    
    13.4
    %
    
    
    6,906
    
    
    
    19.3
    %Average Unit Sales Price
    
    $
    262,181
    
    
    
    7.3
    %
    
    $
    244,393
    
    
    
    12.0
    %Operating Earnings Per Unit
    
    $
    36,159
    
    
    
    21.3
    %
    
    $
    29,805
    
    
    
    36.3
    %Backlog Units
    
    
    17,727
    
    
    
    16.3
    %
    
    
    15,244
    
    
    
    20.8
    %Average Operating Neighborhoods
    
    
    576
    
    
    
    3.0
    %
    
    
    559
    
    
    
    8.8
    %Closings Per Average Neighborhood
    
    
    13.6
    
    
    
    9.7
    %
    
    
    12.4
    
    
    
    9.7
    %
 For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeUnits Closed
    
    
    15,214
    
    
    
    14.8
    %
    
    
    13,255
    
    
    
    22.9
    %Average Unit Sales Price
    
    $
    258,013
    
    
    
    8.0
    %
    
    $
    238,792
    
    
    
    10.5
    %Operating Earnings Per Unit
    
    $
    33,308
    
    
    
    21.8
    %
    
    $
    27,344
    
    
    
    30.0
    %Backlog Units
    
    
    17,727
    
    
    
    16.3
    %
    
    
    15,244
    
    
    
    20.8
    %Average Operating Neighborhoods
    
    
    573
    
    
    
    2.7
    %
    
    
    558
    
    
    
    12.0
    %Closings Per Average Neighborhood
    
    
    26.6
    
    
    
    11.8
    %
    
    
    23.8
    
    
    
    9.7
    %
 As of September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeLots Owned
    
    
    85,335
    
    
    
    26.1
    %
    
    
    67,671
    
    
    
    26.1
    %Lots Controlled
    
    
    136,979
    
    
    
    45.3
    %
    
    
    94,287
    
    
    
    44.8
    %Total Lots Owned and Controlled
    
    
    222,314
    
    
    
    37.3
    %
    
    
    161,958
    
    
    
    36.4
    %
 The financial performance of Home Buildings domestic operations is
reflective of changes in the following performance indicators:  
    
    Growth in average neighborhoods
    
    Growth in closings per average neighborhood
    
    Increases in average unit sales price
    
    Operating margin improvement 32




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##### Table of Contents



The following summarizes changes in performance indicators for the three
and six months ended September 30, 2004 as compared to the prior year. We define a neighborhood as an individual active selling location targeted
to a specific buyer segment. For the three and six months ended September 30,
2004, average operating neighborhoods increased 3.0% to 576 and 2.7% to 573 as
compared to the three and six months ended September 30, 2003, respectively. The 9.7% and 11.8% increase in closings per average neighborhood in the
three and six months ended September 30, 2004, respectively, as compared to the
prior year, were largely the result of higher sales rates realized over the
last twelve months. These sales rate increases can be attributed to our
continued focus on market research, enhanced sales and marketing activities and
activity-based sales management. Sales orders were particularly strong in the
mid-Atlantic and southeast regions. For all regions, sales orders totaled
8,496 units and 17,527 units for the three and six months ended September 30,
2004, respectively, an increase of 5.7% and 6.6% versus the same periods in the
prior year. Home closing volume also increased 13.4% to 7,831 homes and 14.8%
to 15,214 homes for the three and six months ended September 30, 2004,
respectively, as compared to the same periods in the prior year. Current housing market conditions, combined with our geographic, product
and segment diversification strategies, continued to drive higher average
selling prices. For the three months ended September 30, 2004, average selling
prices were up 7.3% to $262,181 as compared to the three months ended September
30, 2003. For the six months ended September 30, 2004, compared to the prior
year, average selling prices were up 8.0% to $258,013. Average selling prices,
excluding California, were up 4.7% to $220,094 and 5.7% to $219,147 for the
three and six months ended September 30, 2004, respectively, versus the same
periods last year. Californias average selling price, compared to the prior
year, was up 11.8% to $501,791 and 14.4% to $487,436 for the three and six
months ended September 30, 2004, respectively. Operating margins (consisting of operating earnings as a percentage of
revenues), as compared to the prior year, for Home Buildings domestic
operations improved to 13.3% from 12.0% and to 12.6% from 11.3% for the three
and six months ended September 30, 2004, respectively. Increased unit volume,
increases in average unit selling price, continued
focus on lowering direct construction costs and improved margin on land sales resulted in margin improvement
throughout the Home Building segment. National and regional purchasing
programs and local cost reduction and efficiency efforts have helped offset
increasing raw material costs experienced throughout the year. We purchase
materials, services and land from numerous sources, and believe that we can
deal effectively with the challenges we may experience relating to the supply
or availability of materials, services and land. The above factors contributed to the improvement in our operating
earnings, which is reflective of our continued focus on our Quality Growth
strategy, consisting of growing revenue and earnings while expanding margins. During the three and six months ended September 30, 2004, we continued to
increase our land position to facilitate our short and longer term growth
initiatives. Based on our current closing projections, our land position that
is currently owned or controlled under option agreements at September 30, 2004
would produce approximately 100% of our projected closings for fiscal year
2005, 95% of our projected closings for fiscal year 2006, and 65% of our
projected closings for fiscal year 2007. 33




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##### Table of Contents



International In February 2004, we acquired the Partnership through merger transactions.
Prior to the merger, we accounted for our investment in the Partnership on the
equity method of accounting. Subsequent to the merger, international
homebuilding operations of the Partnership have been consolidated
with the Home Building segment. Prior period earnings related to the international
homebuilding operations of the Partnership, previously reflected in our
investment real estate operations, have been reclassified to the Home Building
segment to conform to the presentation subsequent to the merger. The following
summarizes the results of Home Buildings international operations for the
three and six months ended September 30, 2004: For the Period Ended
September 30, 2004Three Months
    
    
    Six MonthsRevenues
    
    $
    99.9
    
    
    $
    198.9Operating Earnings
    
    $
    13.2
    
    
    $
    20.7Units Closed
    
    
    343
    
    
    
    657
 Earnings from unconsolidated entities related to the international
homebuilding operations of the Partnership were $6.4 million and $11.2 million
for the three and six months ended September 30, 2003, respectively. Earnings
from unconsolidated entities are not comparative to operating earnings as
operating earnings exclude interest expense and taxes. 34




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##### Table of Contents



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 origination, servicing and other related services for purchasers of
homes sold by our Home Building operations and other homebuilders, sub-prime
home equity lending and the sale of title insurance and various other insurance
coverages. The following summarizes the results of our Financial Services operations
for the three and six months ended September 30, 2004 and 2003 (dollars in
millions): For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    276.9
    
    
    
    (4.7
    %)
    
    $
    290.6
    
    
    
    41.9
    %Cost of Sales
    
    
    (68.5
    )
    
    
    18.3
    %
    
    
    (57.9
    )
    
    
    26.7
    %Selling,
General and Administrative Expenses
    
    
    (155.2
    )
    
    
    (0.6
    %)
    
    
    (156.2
    )
    
    
    27.5
    %Operating Earnings
    
    $
    53.2
    
    
    
    (30.5
    %)
    
    $
    76.5
    
    
    
    109.0
    %Interest Margin
    
    $
    91.8
    
    
    
    12.2
    %
    
    $
    81.8
    
    
    
    105.0
    %Origination Volume
    
    $
    4,348.5
    
    
    
    (20.4
    %)
    
    $
    5,463.0
    
    
    
    38.6
    %Number of Loans Originated
    
    
    27,374
    
    
    
    (23.7
    %)
    
    
    35,889
    
    
    
    30.9
    %Number of Loan Applications
    
    
    115,011
    
    
    
    6.4
    %
    
    
    108,058
    
    
    
    32.3
    %
 For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    551.2
    
    
    
    (1.1
    %)
    
    $
    557.4
    
    
    
    44.6
    %Cost of Sales
    
    
    (130.1
    )
    
    
    19.4
    %
    
    
    (109.0
    )
    
    
    20.7
    %Selling,
General and Administrative Expenses
    
    
    (310.3
    )
    
    
    1.3
    %
    
    
    (306.3
    )
    
    
    30.8
    %Operating Earnings
    
    $
    110.8
    
    
    
    (22.0
    %)
    
    $
    142.1
    
    
    
    133.3
    %Interest Margin
    
    $
    189.4
    
    
    
    37.7
    %
    
    $
    137.5
    
    
    
    80.7
    %Origination Volume
    
    $
    9,291.2
    
    
    
    (14.7
    %)
    
    $
    10,895.1
    
    
    
    57.4
    %Number of Loans Originated
    
    
    58,067
    
    
    
    (19.5
    %)
    
    
    72,111
    
    
    
    45.5
    %Number of Loan Applications
    
    
    229,989
    
    
    
    4.5
    %
    
    
    220,014
    
    
    
    49.0
    %
 Financial Services results are primarily derived from prime mortgage
lending and sub-prime home equity lending operations as described below. 35




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##### Table of Contents



Prime Mortgage Lending The following summarizes the results of our prime mortgage lending
operations, which are conducted by CTX Mortgage Company, LLC and its related
companies, for the three and six months ended September 30, 2004 and 2003
(dollars in millions): For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    105.1
    
    
    
    (35.0
    %)
    
    $
    161.6
    
    
    
    50.0
    %Cost of Sales
    
    
    (7.9
    )
    
    
    (13.2
    %)
    
    
    (9.1
    )
    
    
    405.6
    %Selling,
General and Administrative Expenses
    
    
    (75.5
    )
    
    
    (17.8
    %)
    
    
    (91.9
    )
    
    
    13.5
    %Operating Earnings
    
    $
    21.7
    
    
    
    (64.2
    %)
    
    $
    60.6
    
    
    
    143.4
    %Interest Margin
    
    $
    13.6
    
    
    
    (35.2
    %)
    
    $
    21.0
    
    
    
    1,135.3
    %Average Interest Earning Assets
    
    $
    1,359.9
    
    
    
    (39.4
    %)
    
    $
    2,244.4
    
    
    
    1,175.2
    %Average Yield
    
    
    6.31
    %
    
    NM
    
    
    5.68
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    1,328.5
    
    
    
    (38.3
    %)
    
    $
    2,154.1
    
    
    
    1,736.4
    %Average Rate Paid
    
    
    2.35
    %
    
    NM
    
    
    1.70
    %
    
    NM
 For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    214.2
    
    
    
    (30.6
    %)
    
    $
    308.6
    
    
    
    56.2
    %Cost of Sales
    
    
    (14.9
    )
    
    
    34.2
    %
    
    
    (11.1
    )
    
    
    192.1
    %Selling,
General and Administrative Expenses
    
    
    (145.5
    )
    
    
    (21.6
    %)
    
    
    (185.5
    )
    
    
    19.4
    %Operating Earnings
    
    $
    53.8
    
    
    
    (52.0
    %)
    
    $
    112.0
    
    
    
    190.9
    %Interest Margin
    
    $
    29.2
    
    
    
    24.3
    %
    
    $
    23.5
    
    
    
    487.5
    %Average Interest Earning Assets
    
    $
    1,542.1
    
    
    
    17.8
    %
    
    $
    1,309.0
    
    
    
    624.0
    %Average Yield
    
    
    5.73
    %
    
    NM
    
    
    5.57
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    1,487.8
    
    
    
    22.3
    %
    
    $
    1,216.4
    
    
    
    888.1
    %Average Rate Paid
    
    
    1.97
    %
    
    NM
    
    
    2.03
    %
    
    NM
 The revenues and operating earnings of CTX Mortgage Company, LLC and its
related companies are derived primarily from the sale of mortgage loans,
together with all related servicing rights, 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 and
other services performed in connection with mortgage lending activities, are
recognized as earned. 36




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##### Table of Contents



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 maturity of the prime mortgage loan
secondary capital markets. CTX Mortgage Company, LLC originates mortgage
loans, holds them for a short period and sells them to HSF-I and investors.
HSF-I is a variable interest entity for which we are the primary beneficiary
and, as of July 1, 2003, was consolidated with our Financial Services segment.
The consolidation of HSF-I resulted in an increase in our residential mortgage
loans held for sale with a corresponding increase in our debt. In addition,
interest income and interest expense of HSF-I subsequent to June 30, 2003 are
reflected in our financial statements. The following summarizes the effect consolidating HSF-I had on our
interest margin for the three and six months ended September 30, 2004 and 2003: For the Three Months Ended September 30,2004
    
    2003% ChangeRevenues  Interest Income
    
    $
    13.2
    
    
    
    (47.6
    %)
    
    $
    25.2Cost of Sales  Interest Expense
    
    
    (4.6
    )
    
    
    (22.0
    %)
    
    
    (5.9
    )Interest Margin
    
    $
    8.6
    
    
    
    (55.4
    %)
    
    $
    19.3
 For the Six Months Ended September 30,2004
    
    2003% ChangeRevenues  Interest Income
    
    $
    28.7
    
    
    
    13.9
    %
    
    $
    25.2Cost of Sales  Interest Expense
    
    
    (9.1
    )
    
    
    54.2
    %
    
    
    (5.9
    )Interest Margin
    
    $
    19.6
    
    
    
    1.6
    %
    
    $
    19.3
 The decrease in interest margin and its components for the three months
ended September 30, 2004 is the result of decreased loan refinancing activity.
The six months ended September 30, 2003 includes only three months of HSF-I
interest margin whereas the six months ended September 30, 2004 includes a full
six months of HSF-I interest margin. The following table quantifies the volume of loan sales to investors
(third parties) and the gains recorded on those sales and related derivative activity, collectively, Gain on Sale of Mortgage Loans for the three and six
months ended September 30, 2004 and 2003: For the Three Months Ended September 30,2004
    
    2003% ChangeLoan Sales to Investors
    
    $
    2,492.9
    
    
    
    (51.7
    %)
    
    $
    5,163.5Gain on Sale of Mortgage Loans
    
    
    37.5
    
    
    
    (52.9
    %)
    
    
    79.6
 37




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##### Table of Contents



For the Six Months Ended September 30,2004
    
    2003% ChangeLoan Sales to Investors
    
    $
    5,060.9
    
    
    
    (47.2
    %)
    
    $
    9,587.3Gain on Sale of Mortgage Loans
    
    
    71.3
    
    
    
    (54.4
    %)
    
    
    156.5
 The decreases in loan sales and gain on sale of mortgage loans
are the result of a decrease in the volume of loans originated and sold to the
secondary market and less favorable secondary market conditions. 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 or investment and
interest expense on debt used to fund the mortgage loans. The decrease in revenues for the three and six months ended September 30,
2004 is the result of a decrease in the volume of loans originated and sold to
the secondary market and less favorable secondary market conditions. The
following table provides a comparative analysis of mortgage loan originations
and applications for the three and six months ended September 30, 2004 and
2003: For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    3,090.5
    
    
    
    (30.4
    %)
    
    $
    4,438.8
    
    
    
    32.8
    %Number of Loans OriginatedBuilder
    
    
    5,206
    
    
    
    10.0
    %
    
    
    4,734
    
    
    
    19.6
    %Retail
    
    
    11,349
    
    
    
    (47.4
    %)
    
    
    21,567
    
    
    
    34.2
    %16,555
    
    
    
    (37.1
    %)
    
    
    26,301
    
    
    
    31.3
    %Number of Loan ApplicationsBuilder
    
    
    5,721
    
    
    
    (6.9
    %)
    
    
    6,148
    
    
    
    26.7
    %Retail
    
    
    9,957
    
    
    
    (38.7
    %)
    
    
    16,248
    
    
    
    (14.9
    %)15,678
    
    
    
    (30.0
    %)
    
    
    22,396
    
    
    
    (6.5
    %)Average Loan Size
    
    $
    186,700
    
    
    
    10.6
    %
    
    $
    168,800
    
    
    
    1.2
    %Profit Per Loan
    
    $
    1,315
    
    
    
    (42.9
    %)
    
    $
    2,302
    
    
    
    85.0
    %
 38




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##### Table of Contents



For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    6,592.0
    
    
    
    (26.7
    %)
    
    $
    8,993.4
    
    
    
    54.4
    %Number of Loans OriginatedBuilder
    
    
    10,225
    
    
    
    11.5
    %
    
    
    9,169
    
    
    
    25.0
    %Retail
    
    
    25,503
    
    
    
    (42.5
    %)
    
    
    44,359
    
    
    
    55.7
    %35,728
    
    
    
    (33.3
    %)
    
    
    53,528
    
    
    
    49.4
    %Number of Loan ApplicationsBuilder
    
    
    11,867
    
    
    
    (2.8
    %)
    
    
    12,212
    
    
    
    30.2
    %Retail
    
    
    20,824
    
    
    
    (49.8
    %)
    
    
    41,503
    
    
    
    36.1
    %32,691
    
    
    
    (39.1
    %)
    
    
    53,715
    
    
    
    34.7
    %Average Loan Size
    
    $
    184,500
    
    
    
    9.8
    %
    
    $
    168,000
    
    
    
    3.3
    %Profit Per Loan
    
    $
    1,506
    
    
    
    (28.0
    %)
    
    $
    2,092
    
    
    
    94.6
    %
 The decrease in loan originations is primarily reflective of a significant
decrease in refinancing activity, partially offset by an increase in the number
of loans originated for Centex Homes buyers. For the three and six months
ended September 30, 2004, CTX Mortgage Company, LLC originated 72% and 73%,
respectively, of the non-cash closings of Centex Homes buyers, versus 74% for
the same periods last year. Profit per loan decreased due to a decrease in revenues per unit resulting from less favorable secondary market conditions, as well as a reduction in
operating leverage resulting from a decrease in the volume of loan
originations. CTX Mortgage Company, LLCs operations are influenced by borrowers
perceptions of and reactions to interest rates. For the three months ended
September 30, 2004 and 2003, refinancing activity accounted for 16% and 45% of
originations, respectively. Refinancing activity accounted for 20% and 51% of
originations in the six months ended September 30, 2004 and 2003, respectively.
Any significant increase in mortgage interest rates above currently prevailing
low levels could affect the ability or willingness of prospective homebuyers to
finance home purchases and/or further curtail mortgage refinance activity.
Although there can be no assurance that these efforts will be successful, we
will seek to mitigate the effects of any increase in mortgage interest rates by
adding loan officers, improving their productivity and reducing costs. 39




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##### Table of Contents



Sub-Prime Home Equity Lending The following summarizes the results of our Sub-Prime Home Equity Lending
operations for the three and six months ended September 30, 2004 and 2003
(dollars in millions): For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    171.8
    
    
    
    33.2
    %
    
    $
    129.0
    
    
    
    32.9
    %Cost of Sales
    
    
    (60.6
    )
    
    
    24.2
    %
    
    
    (48.8
    )
    
    
    11.2
    %Selling, General and Administrative Expenses:Operating Expenses
    
    
    (55.4
    )
    
    
    22.6
    %
    
    
    (45.2
    )
    
    
    33.7
    %Loan Loss Provision
    
    
    (24.3
    )
    
    
    27.2
    %
    
    
    (19.1
    )
    
    
    148.1
    %Operating Earnings
    
    $
    31.5
    
    
    
    98.1
    %
    
    $
    15.9
    
    
    
    35.9
    %Interest Margin
    
    $
    78.2
    
    
    
    28.6
    %
    
    $
    60.8
    
    
    
    59.2
    %Selling, General and Administrative Expenses:Average Interest Earning Assets
    
    $
    7,120.6
    
    
    
    32.6
    %
    
    $
    5,370.2
    
    
    
    45.4
    %Average Yield
    
    
    7.80
    %
    
    NM
    
    
    8.16
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    7,357.9
    
    
    
    31.0
    %
    
    $
    5,616.0
    
    
    
    45.9
    %Average Rate Paid
    
    
    3.30
    %
    
    NM
    
    
    3.48
    %
    
    NM
 For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    337.0
    
    
    
    35.5
    %
    
    $
    248.8
    
    
    
    32.5
    %Cost of Sales
    
    
    (115.2
    )
    
    
    17.7
    %
    
    
    (97.9
    )
    
    
    13.2
    %Selling, General and Administrative
Expenses:Operating Expenses
    
    
    (113.7
    )
    
    
    32.4
    %
    
    
    (85.9
    )
    
    
    31.5
    %Loan Loss Provision
    
    
    (51.1
    )
    
    
    46.4
    %
    
    
    (34.9
    )
    
    
    156.6
    %Operating Earnings
    
    $
    57.0
    
    
    
    89.4
    %
    
    $
    30.1
    
    
    
    34.4
    %Interest Margin
    
    $
    160.2
    
    
    
    40.5
    %
    
    $
    114.0
    
    
    
    58.1
    %Selling, General and Administrative Expenses:Average Interest Earning Assets
    
    $
    6,933.6
    
    
    
    35.3
    %
    
    $
    5,123.1
    
    
    
    44.4
    %Average Yield
    
    
    7.94
    %
    
    NM
    
    
    8.27
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    7,168.6
    
    
    
    34.2
    %
    
    $
    5,340.5
    
    
    
    44.6
    %Average Rate Paid
    
    
    3.22
    %
    
    NM
    
    
    3.67
    %
    
    NM
 The revenues of Centex Home Equity Company, LLC, or Home Equity, increased
as a result of continued growth in our portfolio of residential mortgage loans
held for investment. This portfolio growth translated into more interest
income, our largest component of revenue. Revenues also increased in the three and six months ended September 30,
2004 as a result of whole loan sales by Home Equity to third parties. Home
Equity recognized approximately $13.0 million and $27.4 million 40




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##### Table of Contents



in earnings related to whole loan sales for
the three and six months ended September 30, 2004, respectively. Operating expenses, for the three and six months ended September 30, 2004,
increased as a result of Home Equitys continued growth. The increase in loan
production volume, the expansion of branch offices and the increase in the
number of employees led to a corresponding increase in salaries and related
costs, rent expense, group insurance costs and advertising expenditures. The increase in the loan loss provision for the three and six months ended
September 30, 2004, occurred primarily because of the increase in residential
mortgage loans held for investment. Also, as the portfolio continues to mature
and grow, we expect the provision for losses, the loans charged off and the
allowance for losses to continue to increase. For a more detailed discussion
of our accounting policy and methodology for establishing the provision for
losses, see Critical Accounting Estimates-Valuation of Residential Mortgage
Loans Held for Investment. Changes in the allowance for losses are included
in Note (E), Residential Mortgage Loans Held for Investment, of the Notes to
Consolidated Financial Statements. The increase in operating earnings for the three and six months ended
September 30, 2004, is primarily attributable to whole loan sale transactions
and the increase in interest margin, which we define as the difference between
interest revenue on mortgage loans held for sale or investment and interest
expense on debt used to fund the mortgage loans. Interest margin, for the
three and six months ended September 30, 2004, increased primarily as a result
of an increase in the portfolio of mortgage loans held for investment and a
decrease in interest rates on debt used to fund mortgage loans. Average interest earning assets and liabilities for the three and six
months ended September 30, 2004, increased primarily due to an increase in the
volume of loan originations and an increase in average loan size (see table
below). The fact that the average rate paid on interest bearing liabilities
decreased more than the decrease of the yield earned on interest earning
assets, coupled with the increase in originations, resulted in the increase in
net interest margin. The following table provides a comparative analysis of mortgage loan
originations and applications for the three and six months ended September 30,
2004 and 2003: For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    1,258.0
    
    
    
    22.8
    %
    
    $
    1,024.2
    
    
    
    70.5
    %Number of Loans Originated
    
    
    10,819
    
    
    
    12.8
    %
    
    
    9,588
    
    
    
    30.0
    %Number of Loan Applications
    
    
    99,333
    
    
    
    16.0
    %
    
    
    85,662
    
    
    
    48.4
    %Average Loan Size
    
    $
    116,300
    
    
    
    8.9
    %
    
    $
    106,800
    
    
    
    31.0
    %
 41




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##### Table of Contents



For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    2,699.2
    
    
    
    41.9
    %
    
    $
    1,901.7
    
    
    
    73.1
    %Number of Loans Originated
    
    
    22,339
    
    
    
    20.2
    %
    
    
    18,583
    
    
    
    35.3
    %Number of Loan Applications
    
    
    197,298
    
    
    
    18.6
    %
    
    
    166,299
    
    
    
    54.3
    %Average Loan Size
    
    $
    120,800
    
    
    
    18.1
    %
    
    $
    102,300
    
    
    
    27.9
    %
 The increase in origination volume for the three and six months ended
September 30, 2004, as compared to the prior year, was due to an increase in
the average loan size and an increase in the overall sales force, which
resulted in an increase in the number of loan applications received. The following summarizes Home Equitys portfolio of mortgage loans as of
September 30, 2004 and 2003: For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeServicing Portfolio:Number of LoansPortfolio Accounting Method
    
    
    79,607
    
    
    
    14.1
    %
    
    
    69,751
    
    
    
    32.7
    %Serviced for Others
    
    
    15,508
    
    
    
    30.4
    %
    
    
    11,890
    
    
    
    (19.8
    %)Total
    
    
    95,115
    
    
    
    16.5
    %
    
    
    81,641
    
    
    
    21.1
    %Dollars in billionsPortfolio Accounting Method
    
    $
    7.18
    
    
    
    27.8
    %
    
    $
    5.62
    
    
    
    47.9
    %Serviced for Others
    
    
    1.21
    
    
    
    70.4
    %
    
    
    0.71
    
    
    
    (22.8
    %)Total
    
    $
    8.39
    
    
    
    32.5
    %
    
    $
    6.33
    
    
    
    34.1
    %
 Home Equity periodically securitizes its inventory of mortgage loan
originations or engages in whole loan sales in order to provide funding for its
mortgage operations. The majority of Home Equitys servicing portfolio is accounted for using
the portfolio accounting method in accordance with FASB SFAS No. 91,
Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases, where (1) loan
originations are securitized and accounted for as borrowings; (2) interest
income is recorded over the life of the loans using the interest (actuarial)
method; (3) the mortgage loans receivable and the securitization debt
(asset-backed certificates) remain on Home Equitys balance sheet; and (4) the
related interest margin is reflected in the income statement. This structure of
securitizations has been utilized since April 1, 2000. Another component of Home Equitys servicing portfolio includes
securitizations accounted for as gain on sale in accordance with FASB SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, where from October 1997 through March 2000, an
estimate of the entire gain resulting from the sale was included in earnings
during the period in which the securitization transaction occurred. This is
referred to as the gain on sale method and is included in the Serviced for Others category in the above table. Unlike the portfolio accounting
method, our balance sheet does not 42




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reflect the mortgage loans receivable nor
the offsetting debt resulting from these securitizations. However, the gain on
sale method does reflect Home Equitys retained residual interest in, as well
as the servicing rights to, the securitized loans on the balance sheet. We
refer to the retained residual interest as the mortgage securitization residual
interest, or MSRI. Home Equity carries MSRI at fair value on the balance
sheet. The Serviced for Others category of Home Equitys servicing portfolio
also includes loans sold on a whole loan basis. Home Equity continues to
service these loans, which resulted in a $2.8 million servicing asset recorded
on a present value basis as of September 30, 2004. For the three and six
months ended September 30, 2004, Home Equitys loan sales were $310.1 million and $620.3
million, respectively. The structure of Home Equitys securitizations has no effect on the ultimate amount
of profit and cash flow recognized over the life of the mortgages. However,
the structure does affect the timing of profit recognition. Under both
structures, recourse on the securitized debt is limited to the payments
received on the underlying mortgage collateral with no recourse to Home Equity
or Centex Corporation. As is common in these structures, Home Equity remains
liable for customary loan representations. The primary risks in Home Equitys operations are consistent with those of
the financial services industry and include credit risk associated with its
loans, liquidity risk related to funding its loans and interest rate risk prior
to securitization of the loans. In addition, it is also subject to prepayment
risks (principal reductions in excess of contractually scheduled reductions)
associated with loans securitized prior to April 2000. CONSTRUCTION SERVICES The following summarizes Construction Services results for the three and
six months ended September 30, 2004 and 2003 (dollars in millions): For the Three Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    452.2
    
    
    
    17.0
    %
    
    $
    386.6
    
    
    
    (1.3
    %)Operating Earnings
    
    $
    5.5
    
    
    
    19.6
    %
    
    $
    4.6
    
    
    
    (50.0
    %)New Contracts Executed
    
    $
    364.7
    
    
    
    (38.1
    %)
    
    $
    589.6
    
    
    
    276.5
    %Backlog of Uncompleted Contracts
    
    $
    1,562.7
    
    
    
    (2.8
    %)
    
    $
    1,607.8
    
    
    
    (13.4
    %)
 43




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##### Table of Contents



For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    886.4
    
    
    
    16.3
    %
    
    $
    762.4
    
    
    
    1.3
    %Operating Earnings
    
    $
    10.0
    
    
    
    9.9
    %
    
    $
    9.1
    
    
    
    (47.4
    %)New Contracts Executed
    
    $
    702.7
    
    
    
    (17.4
    %)
    
    $
    850.9
    
    
    
    98.4
    %Backlog of Uncompleted Contracts
    
    $
    1,562.7
    
    
    
    (2.8
    %)
    
    $
    1,607.8
    
    
    
    (13.4
    %)
 Operating earnings for the three and six months ended September 30, 2004,
for Construction Services remained relatively stable. Industry conditions have
created increased pricing pressure, which in turn has reduced Construction
Services operating margins. The decrease in new contracts executed and
backlog of uncompleted contracts were primarily due to delays in the execution
of contracts for awarded work. Construction Services defines backlog as the
uncompleted portion of all signed contracts. Construction Services has also been awarded work that is pending execution
of a signed contract. At September 30, 2004 and 2003, such work, which is not
included in backlog, was approximately $2.63 billion and $1.92 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. In June 2003, we spun off substantially all of our investment in
manufactured housing operations, which had previously been included in the
Other segment. As a result of the spin-off, manufactured housing operations
are reflected as a discontinued operation and not included in the information
presented below for the Other segment. As described in Note (H), Merger of 3333 Holding Corporation and
Subsidiary and Centex Development Company, L.P. and Subsidiaries, of the Notes
to Consolidated Financial Statements, the Company acquired Holding and the
Partnership in February 2004. Subsequent to the merger, the Company has
consolidated the financial results of the Partnership; and as a result, the
Company has realigned its reporting for the Partnership, whereby the
Partnerships international homebuilding operations are included in the Home
Building business segment. The Partnerships domestic operations continue to
be reported within our investment real estate operations. The Company has
determined that no significant capital will be allocated to our investment real
estate operations for new business development. Beginning April 1, 2004, the
financial results of our investment real estate operations are included in the
Other business segment. Prior period amounts have been reclassified to conform
to the current year presentation. 44




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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 September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOperating Loss from Home Services
Operations
    
    $
    (2.1
    )
    
    
    90.9
    %
    
    $
    (1.1
    )
    
    
    10.0
    %Operating Earnings (Loss) from
Investment Real Estate Operations
    
    
    (0.2
    )
    
    
    (100.8
    %)
    
    
    26.0
    
    
    
    1,344.4
    %Corporate General and Administrative
Expense
    
    
    (19.0
    )
    
    
    (13.6
    %)
    
    
    (22.0
    )
    
    
    52.8
    %Interest Expense
    
    
    (5.3
    )
    
    
    (67.7
    %)
    
    
    (16.4
    )
    
    
    17.1
    %Other
    
    
    
    
    
    
    (100.0
    %)
    
    
    0.2
    
    
    
    (150.0
    %)Operating Loss
    
    $
    (26.6
    )
    
    
    100.0
    %
    
    $
    (13.3
    )
    
    
    (52.5
    %)
 For the Six Months Ended September 30,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOperating Loss from Home Services Operations
    
    $
    (4.7
    )
    
    
    95.8
    %
    
    $
    (2.4
    )
    
    
    (7.7
    %)Operating Earnings from Investment
Real Estate Operations
    
    
    9.7
    
    
    
    (62.5
    %)
    
    
    25.9
    
    
    
    370.9
    %Corporate General and Administrative
Expense
    
    
    (38.6
    )
    
    
    (6.1
    %)
    
    
    (41.1
    )
    
    
    51.7
    %Interest Expense
    
    
    (10.3
    )
    
    
    (67.7
    %)
    
    
    (31.9
    )
    
    
    19.0
    %Other
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    (100.0
    %)Operating Loss
    
    $
    (43.9
    )
    
    
    (11.3
    %)
    
    $
    (49.5
    )
    
    
    (4.4
    %)
 The increase in our home services divisions operating loss in the three
and six months ended September 30, 2004 is primarily due to an increase in
marketing expenses resulting from expansion and growth of our home services
operations in the homebuilder customer market coupled with incremental
commissions on new sales growth. The decrease in our investment real estate
divisions operating earnings (loss) was primarily related to the timing of
property sales. Interest costs include interest expense of $5.3 million and $16.4 million
and interest expensed and relieved to Home Buildings costs and expenses of
$32.9 million and $14.8 million for the three months ended September 30, 2004
and 2003, respectively. For the six months ended September 30, 2004 and 2003,
interest costs include interest expense of $10.3 million and $31.9 million,
respectively, and interest expensed and relieved to Home Buildings costs and
expenses of $60.5 million and $27.9 million, respectively. Total interest
costs, excluding Financial Services interest expense, were $38.2 million and
$31.2 million for the three months ended September 30, 2004 and 2003,
respectively, and $70.8 million and $59.9 million for the six months ended
September 30, 2004 and 2003, respectively. The increase in total interest
costs is primarily related to an increase in average debt outstanding for the
three and six months ended September 30, 2004 as compared to the prior year. 45




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Our effective tax rate related to continuing operations increased to
approximately 36% from 33% and to approximately 36% from 32% in the three and
six month periods ended September 30, 2004 and 2003, respectively, due to the
reduction in the availability of tax benefits related to the Companys net
operating loss carryforwards in fiscal 2005 as compared to the prior year. DISCONTINUED OPERATIONS In June 2003, we spun off tax-free to our stockholders substantially all
of our manufactured housing operations, and in January 2004, we spun off to our
stockholders our entire equity interest in Eagle Materials Inc., formerly known
as Centex Construction Products, Inc. As a result of the spin-offs, the
earnings from these operations for all periods prior to the spin-offs have been
reclassified to discontinued operations in the Statements of Consolidated
Earnings. All prior period information related to these discontinued
operations has been reclassified to be consistent with the September 30, 2004
presentation. For the three and six months ended September 30, 2003, discontinued
operations had revenues of $157.8 million and $341.4 million, respectively, and
operating earnings of $29.3 million and $52.9 million, respectively. FINANCIAL CONDITION AND LIQUIDITY The consolidating net cash used in or provided by the operating, investing
and financing activities for the six months ended September 30, 2004 and 2003
is summarized below (dollars in thousands). See Statements of Consolidated
Cash Flows with Consolidating Details for the detail supporting this summary. For the Six Months Ended September 30,2004
    
    
    2003Net Cash (Used in) Provided byCentex*Operating Activities
    
    $
    (549,965
    )
    
    $
    (449,123
    )Investing Activities
    
    
    (11,567
    )
    
    
    (2,967
    )Financing Activities
    
    
    463,828
    
    
    
    75,598Effect of Exchange Rate on Cash
    
    
    45
    
    
    
    (97,659
    )
    
    
    (376,492
    )Financial ServicesOperating Activities
    
    
    291,827
    
    
    
    815,757Investing Activities
    
    
    (739,059
    )
    
    
    (999,779
    )Financing Activities
    
    
    442,078
    
    
    
    179,957(5,154
    )
    
    
    (4,065
    )Centex Corporation and SubsidiariesOperating Activities
    
    
    (258,589
    )
    
    
    390,393Investing Activities
    
    
    (772,175
    )
    
    
    (1,026,505
    )Financing Activities
    
    
    927,906
    
    
    
    255,555Effect of Exchange Rate on Cash
    
    
    45
    
    
    
    Net Decrease in Cash
    
    $
    (102,813
    )
    
    $
    (380,557
    )
  *
    
    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 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 have
structured their 46




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##### Table of Contents



financing programs substantially on a stand alone basis; and Centex has
limited obligations with respect to the indebtedness of our Financial Services
subsidiaries. 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. We generally fund our Centex operating and other short-term liquidity
needs through cash provided by operations, borrowings from commercial paper and
the issuance of senior notes. 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 six months ended September 30, 2004, cash was primarily used in Centexs
operating activities to finance increases in Home Building inventories relating
to the increased level of sales and resulting units under construction during
the year, 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. We generally fund our Financial Services operating and other short-term
liquidity needs through securitizations, committed credit facilities, proceeds
from the sale of mortgage loans to investors and cash flows from operations.
Financial Services operating cash is derived primarily through sales of
mortgage loans, interest income on mortgage loans held for investment and
origination and servicing fees. During the six months ended September 30,
2004, cash was primarily used in Financial Services investing activities to
finance increases in residential mortgage loans held for investment. The funds
provided by Financial Services financing activities were primarily from new
debt used to fund the increased residential mortgage loan activity. During the six months ended September 30, 2004, the principal amount of
the Companys outstanding debt increased $921.7 million resulting from: (1)
Centex issuance of $350.0 million of long-term notes due in fiscal year 2015,
(2) an increase in Centex other indebtedness of $30.8 million primarily
relating to our international homebuilding operations, (3) a $525.7 million
increase in Home Equity asset-backed certificates and (4)
HSF-I issuance of $60.0 million of subordinated certificates due through fiscal
year 2010 and the payment in full of $139.0 million of subordinated
certificates. 47




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##### Table of Contents



Our existing credit facilities and available capacity as of September 30,
2004 are summarized below (dollars in thousands): Existing Credit
    
    
    AvailableFacilities
    
    
    CapacityCentexCentex CorporationMulti-Bank Revolving Credit Facility
    
    $
    800,000
    
    
    $
    800,000
    (1)Multi-Bank Revolving Letter of Credit Facility
    
    
    300,000
    
    
    
    79,543
    (2)1,100,000
    
    
    
    879,543
    (3)International HomebuildingMulti-Bank Secured Revolving Credit Facility
    
    
    179,940
    
    
    
    41,386Secured Bonding Facility
    
    
    17,994
    
    
    
    15,835Unsecured Credit Facility
    
    
    35,988
    
    
    
    35,988233,922
    
    
    
    93,209
    (4)Financial ServicesSecured Credit Facilities
    
    
    775,000
    
    
    
    447,917
    (5)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,864,313Harwood Street Funding II, LLC Facility
    
    
    2,500,000
    
    
    
    1,687,2656,275,000
    
    
    
    3,999,495$
    7,608,922
    
    
    $
    4,972,247
    (6)
  (1)
    
    This is an unsecured, committed, multi-bank revolving credit facility,
maturing in July 2007, which serves as backup for commercial paper
borrowings. As of September 30, 2004, there were no borrowings under this
backup facility, and our $700 million commercial paper program had $70
million outstanding. We have not borrowed under this revolving credit
facility since its inception.  (2)
    
    This is an unsecured, committed, multi-bank revolving letter of credit
facility, maturing in July 2005. Letters of credit under this facility
may expire no later than July 2006.  (3)
    
    In conjunction with the issuance of surety bonds in support of our
Construction Services activity, Centex Corporation will 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.  (4)
    
    The international homebuilding operations maintain a £100 million
secured, committed, multi-bank revolving credit facility and a £10 million
secured, committed bonding facility. These facilities are not guaranteed
by, nor is there recourse to, Centex Corporation. The international
homebuilding operations also maintain a £20 million unsecured, uncommitted
credit facility guaranteed by Centex Corporation.  (5)
    
    CTX Mortgage Company, LLC and its related companies and Home Equity share
in a $500 million secured, committed credit facility to finance mortgage
inventory. In October 2004, this facility was reduced to $250 million.
CTX Mortgage Company, LLC and its related companies also maintain $265
million of secured, committed mortgage warehouse facilities to finance
mortgages. Home Equity also maintains a $10 million secured, committed
mortgage warehouse facility to finance mortgages.  (6)
    
    The amount of available capacity consists of $4.94 billion of committed
capacity and $36.0 million of uncommitted capacity as of September 30,
2004. Although we believe that the uncommitted capacity is currently
available, there can be no assurance that the lenders under these
facilities would elect to make advances if and when requested to do so. CTX Mortgage Company, LLC finances its inventory of mortgage loans held
for sale principally through the sale of loans to HSF-I. HSF-I acquires
mortgage loans from CTX Mortgage Company, LLC, holds them for a period of 45 to
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- 48




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term secured liquidity notes, (2) medium-term debt and (3) subordinated
certificates. As of September 30, 2004, 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, (2) term notes rated A1+ by S&P and P-1
by Moodys and (3) subordinated certificates maturing in September 2009,
extendable for up to five years, rated BBB by S&P and Baa2 by Moodys. The
purpose of this arrangement is to allow CTX Mortgage Company, LLC to reduce the
cost of financing the mortgage loans originated by it and to improve its
liquidity. Because HSF-I is a consolidated entity, the debt, interest income
and interest expense of HSF-I are reflected in the financial statements of
Financial Services. Home Equity finances its inventory of mortgage loans held for investment
principally through HSF-II, a wholly-owned, consolidated entity, under a
revolving sales agreement that expires upon final payment of the senior and
subordinated debt issued by HSF-II. This arrangement, where HSF-II has
committed to finance all eligible loans, gives Home Equity daily access to
HSF-IIs capacity of $2.5 billion. HSF-II obtains funds by issuing (1)
short-term secured liquidity notes, (2) medium-term debt and (3) subordinated
notes. As of September 30, 2004, HSF-II had outstanding (1) short-term secured
liquidity notes rated A1+ by S&P, P-1 by Moodys and F1+ by Fitch Ratings, or
Fitch and (2) subordinated notes rated BBB by S&P, Baa2 by Moodys and BBB by
Fitch. Because HSF-II is a consolidated entity, the debt, interest income and
interest expense of HSF-II are reflected in the financial statements of
Financial Services. Under our debt covenants, we are required to maintain certain leverage and
interest coverage ratios and a minimum tangible net worth. At September 30,
2004, we were in compliance with all of these covenants. As of September 30, 2004, our short-term debt was $2.20 billion, most of
which 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. 49




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##### Table of Contents



Our outstanding debt (in thousands) as of September 30, 2004 was as
follows (due dates are presented in fiscal years): CentexShort-term Debt:Short-term Notes Payable
    
    $
    76,691Senior Debt:Medium-term Note Programs, weighted-average 5.02%, due through 2007
    
    
    258,000Long-term Notes, weighted-average 6.56%, due through 2015
    
    
    2,158,439Other Indebtedness, weighted-average 3.16%, due through 2015
    
    
    182,904Subordinated Debt:Subordinated Debentures, 8.75%, due in 2007
    
    
    99,799Subordinated Debentures, 7.38%, due in 2006
    
    
    99,9672,875,800Financial ServicesShort-term Debt:Short-term Notes Payable
    
    
    327,083Harwood Street Funding I, LLC Term Notes
    
    
    250,000Harwood Street Funding I and II, LLC Secured Liquidity Notes
    
    
    1,544,828Home Equity Asset-Backed Certificates, weighted-average 3.38%, due
through 2035
    
    
    6,490,607Harwood Street Funding I, LLC Variable Rate Subordinated Extendable
Certificates, weighted-average 3.84%, due through 2010
    
    
    60,000Harwood Street Funding II, LLC Variable Rate Subordinated Notes,
weighted-average 3.99%, due through 2009
    
    
    93,7508,766,268Total
    
    $
    11,642,068
 On
November 2, 2004 Centex Corporation issued $300.0 million of unsecured senior notes maturing in fiscal year 2011. The notes bear interest at par of 4.55% per annum. 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 equity interest. These land related activities typically
require substantial capital, and partnering with other developers allows Home
Building to share the risks and rewards of ownership while providing for
efficient asset utilization. Our investment in these non-consolidated joint
ventures was $162.5 million and $140.1 million at September 30, 2004 and March
31, 2004, respectively. These joint ventures had total outstanding secured
construction debt of approximately $412.6 million and $202.2 million at
September 30, 2004 and March 31, 2004, respectively. We are liable, on a
contingent basis, through guarantees, letters of credit or other arrangements,
with respect to a portion of the construction debt of certain of the joint
ventures, which we refer to as the recourse joint ventures. Our maximum
potential liability with respect to the debt of the recourse joint ventures,
based on our ownership percentage of the recourse joint ventures, is
approximately $149.4 million and $73.2 million at September 30, 2004 and March
31, 2004, respectively. For certain of the joint ventures, we have also 50




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guaranteed the completion of the project by the joint ventures and agreed to
indemnify the construction lender for certain environmental liabilities with
respect to the project. 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 members of the Audit Committee and the Board of Directors. Impairment of Long-Lived Assets Housing projects and land held for development and sale are stated at the
lower of cost (including direct construction costs, capitalized interest and
real estate taxes) or fair value less cost to sell. Property and equipment is
carried at cost less accumulated depreciation. We assess these assets 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 these 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 six months ended September 30, 2004. Goodwill Goodwill represents the excess of purchase price over net assets of
businesses acquired. See Note (F), Goodwill, of the Notes to Consolidated
Financial Statements for a summary of the changes in goodwill by segment. We
adopted the provisions of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, or SFAS No. 142, effective April 1,
2001. Upon the adoption of SFAS No. 142, goodwill is no longer subject to
amortization. Rather, goodwill will be 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 of the future cash flows. We had no impairment
of goodwill in the six months ended September 30, 2004. 51




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Land Held Under Option Agreements Not Owned In order to ensure the future availability of land for homebuilding, the
Company enters into lot option purchase agreements with unaffiliated third
parties. 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. The Company has evaluated those entities with which we entered into lot
option agreements in accordance with the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 46, Consolidation of Variable
Interest Entities, as revised (FIN 46). The provisions of FIN 46 require
the Company to consolidate the financial results of a variable interest entity
if the Company is 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. The Company determines if it is 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 the Company is the primary
beneficiary of those entities with which we have entered into lot option
agreements, the variable interest entity is consolidated. For purposes of
consolidation, to the extent financial statements are available, the Company
consolidates the assets and liabilities of the variable interest entity. If
financial statements for the variable interest entity are not available, the
Company records 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. Lot option deposits
related to these options are also reclassified to land held under option
agreements not owned. See Note (J), 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 lot option agreements. Valuation of Residential Mortgage Loans Held for Investment Home Equity originates and purchases loans in accordance with standard
underwriting criteria. The underwriting standards are primarily intended to
assess the creditworthiness of the mortgagee, the value of the mortgaged
property and the adequacy of the property as collateral for the home equity
loan. Home Equity establishes an allowance for losses by recording a provision
for losses in the statement of consolidated earnings when it believes a loss
has occurred. When Home Equity determines that a residential mortgage loan
held for investment is partially or fully uncollectible, the estimated loss is
charged against the allowance for losses. Recoveries on losses previously
charged to the allowance are credited to the allowance at the time the recovery
is collected. 52




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We evaluate the allowance on an aggregate basis considering, among other
things, the relationship of the allowance to residential mortgage loans held
for investment and historical credit losses. The allowance reflects our
judgment of the present loss exposure at the end of the reporting period. A
range of expected credit losses is estimated using historical losses, static
pool loss curves and delinquency modeling. These tools take into consideration
historical information regarding delinquency and loss severity experience and
apply that information to the portfolio at each reporting date. Although we consider the allowance for losses on residential mortgage
loans held for investment reflected in our consolidated balance sheet to be
adequate, there can be no assurance that this allowance will prove to be
sufficient over time to cover ultimate losses. This allowance may prove to be
insufficient due to unanticipated adverse changes in the economy or discrete
events adversely affecting specific customers or industries. See Note (E),
Residential Mortgage Loans Held for Investment, of the Notes to Consolidated
Financial Statements for a discussion of the changes in the allowance for
losses. Mortgage Securitization Residual Interest Home Equity uses mortgage securitizations to finance its mortgage loan
portfolio. For securitizations prior to April 2000, which Home Equity
accounted for as sales, Home Equity retained a mortgage securitization residual
interest, or MSRI. The MSRI represents the present value of Home Equitys
right to receive, over the life of the securitization, the excess of the
weighted-average coupon on the loans securitized over the interest rates on the
securities sold, a normal servicing fee, a trustee fee and an insurance fee,
where applicable, net of the credit losses relating to the loans securitized.
Home Equity estimates the fair value of MSRI through the application of
discounted cash flow analysis. Such analysis requires the use of various
assumptions, the most significant of which are anticipated prepayments
(principal reductions in excess of contractually scheduled reductions),
estimated future credit losses and the discount rate applied to future cash
flows. 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 misrepresentation 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 September 30, 2004 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. Warranty Accruals Home Building offers a ten-year limited warranty for most homes
constructed and sold in the United States and in the United Kingdom. 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. In California, effective January 1, 2003,
Home Building began following the statutory provisions of Senate Bill 800,
which in part provide a statutory warranty to customers and a statutory dispute
resolution process. Home Building estimates the costs that may be incurred
under its warranty program for which it will 53




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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. Insurance Accruals We have certain 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. 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. RECENT ACCOUNTING PRONOUNCEMENTS During March 2004, the FASB issued an exposure draft entitled Share-Based
Payment, which would amend SFAS No. 123 and SFAS No. 95, Statements of Cash
Flows. Share-based payments are transactions in which an enterprise receives
employee services in exchange for (1) equity instruments of the enterprise or
(2) liabilities that are based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of such equity instruments.
Among other items, the exposure draft may require the Company to change its
method of valuing share-based payments and its method of accruing compensation
costs for awards with graded vesting schedules (that is, awards for which
different parts vest at different times). The exposure draft is not final and
was subject to a comment period that ended June 30, 2004. Although the
exposure draft and its eventual effective date are subject to revision, the
proposed effective date of the exposure draft is for interim periods beginning
after June 15, 2005. If the exposure draft is implemented in its current form,
it is not expected to have a material impact on the Companys results of
operations or financial position.   FORWARD-LOOKING
STATEMENTS
 Various sections of this Report, including Managements Discussion and
Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, Section 21E of the Securities Act of 1934 and the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the context of the statement and generally arise when we are
discussing our beliefs, estimates or expectations. Generally, the words
believe, expect, intend, estimate, anticipate, project, will and
similar expressions identify forward-looking statements, including statements
relating to expected operating results, future developments in the industries
in which we participate and other trends, developments and uncertainties that
may affect our business in the future. These statements are not historical
facts or guarantees of future performance but instead represent only our belief
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. Actual results and outcomes may differ
materially from what we express or forecast in these forward-looking
statements. 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 54




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undertake no duty to update any forward-looking statement to reflect future
events or changes in our expectations. In addition to the specific risks and uncertainties discussed elsewhere in
this Report, the following risks and uncertainties may affect our business,
operations, financial condition or results of operations:  
    
    Our Home Building operations are sensitive to changes in general economic
conditions, including levels of employment and job formation, consumer confidence and income,
availability of financing, interest rate levels and changes in economic conditions
in the local markets in which we operate.
    
    Our Home Building operations depend to a significant extent upon our being able to
acquire land that is suitable for residential development at acceptable prices and
in locations that are desirable to us. Any increases in the cost or reductions in
the supply of suitable land for development could affect the revenues or operating
earnings of our Home Building operations.
    
    Our Home Building operations may be adversely affected by increases in interest
rates. The majority of our home buyers finance their purchases of homes. In
general, housing demand is likely to be adversely affected by significant increases
in interest rates. If mortgage interest rates increase significantly and the
ability or willingness of prospective buyers to finance home purchases is adversely
affected, our operating results may be adversely affected.
    
    Our Home Building and Construction Services operations could be adversely affected
by fluctuating lumber prices and supply, as well as shortages of other materials or
trades, including insulation, drywall, concrete, carpenters, electricians and
plumbers. In addition, both our Home Building and Construction Services operations
are subject to risks and uncertainties involving the cost and availability of labor
and labor disputes. These factors could cause delays in construction that could
have an adverse effect upon our Home Building and Construction Services operations.
    
    Our Home Building and Construction Services operations are subject to warranty and
other claims related to construction defects and other construction-related issues,
including compliance with building codes. Although these
claims have not materially affected our results of operations in the period covered
by this Report, there can be no assurance that this will continue to be the case in
future periods.
    
    The value of our investment in international homebuilding is affected by
fluctuations in the value of the United States dollar as compared to the British
pound sterling, and can also be affected by economic factors concerning the
homebuilding market in the United Kingdom.
    
    Our Home Building operations are also subject to other risks and uncertainties,
including seasonal variations, adverse weather conditions, the general demand for
housing in national and regional markets and new construction and the resale market
for existing homes.
    
    Although national demand for commercial construction is relatively stable,
individual markets experience moderate cyclicality and can be sensitive to overall
capital spending trends in the economy, changes in federal and state appropriations
for construction projects, financing and capital availability for commercial real
estate and competitive pressures on the availability and pricing of construction
projects. These factors can result in a reduction in the supply of suitable
projects, increased competition and reduced margins on construction contracts. 55




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
    
    Our Construction Services operations are also subject to other risks and
uncertainties, including the timing of new awards and the funding of such awards;
adverse weather conditions; cancellations of, or changes in the scope to, existing
contracts; the ability to meet performance or schedule guarantees and cost
overruns.
    
    An increase in interest rates could have an adverse effect on our Financial
Services operations. The operations of CTX Mortgage Company, LLC are influenced by
borrowers perceptions of and reactions to interest rates. Any significant
increase in mortgage rates above currently prevailing levels could adversely affect
the volume of loan originations.
    
    Our Home Equity operations involve holding residential mortgage loans for
investment and establishing an allowance for credit losses on these loans.
Although the amount of this allowance reflects our judgment as to our present loss
exposure on these loans, there can be no assurance that it will be sufficient to
cover any losses that may ultimately be incurred.
    
    All of our businesses operate in very competitive environments, which are
characterized by competition from a number of other homebuilders, mortgage lenders,
and contractors in each of the markets in which we operate. Any increase in
competition has the potential to reduce the number of homes we sell, or to compel
us to accept reduced profit margins in order to maintain sales volume.
    
    We are subject to various federal, state and local statutes, rules and regulations
that could affect our businesses, including those concerning zoning, construction,
the sale of homes and real estate, protecting the environment and health and employment practices. In addition, our businesses could be
affected by changes in federal income tax policy, federal mortgage loan financing
programs and other changes in regulation or policy. 
  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, on mortgage loans receivable, residual interest
in mortgage securitizations and securitizations classified as debt. 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,
2004. For further information regarding our market risk, refer to our Annual
Report on Form 10-K for the fiscal year ended March 31, 2004. 
 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 September 30, 2004. 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 September 30, 2004 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 56




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controls over financial reporting subsequent to the date of the foregoing
evaluation that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting. 
 
 Part II. Other Information 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table details our common stock repurchases for the three
months ended September 30, 2004: Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetTotal Number of
    
    
    Average Price Paid
    
    
    Part of Publicly
    
    
    Be Purchased UnderShares Purchased
    
    
    Per Share
    
    
    Announced Plan
    
    
    the PlanPeriodJuly 1-31
    
    No shares repurchasedAugust 1-31
    
    No shares repurchasedSeptember 1-30
    
    No shares repurchasedAt September 30, 2004
    
    
    
    
    
    
    
    
    
    
    5,625,600
    
    
    
    2,724,000
 On February 17, 2004, the Board of Directors increased our share
repurchase authorization of common stock to 4,000,000 shares adjusted for our
March 2004 two-for-one stock split. The total number of shares purchased in
the above table represents shares of common stock repurchased pursuant to Board
of Directors authorizations including the February 17, 2004 authorization and
all prior authorizations. Purchases are made from time-to-time in the open
market. The share repurchase authorization has no stated expiration date, and
the Board of Directors has authorized all shares repurchased. 
 Item 4. Submission of Matters to a Vote of Security Holders On July 15, 2004, we held our Annual Meeting of Stockholders. At the
Annual Meeting, the following matters were resolved by vote:  (1)
    
    Clint W. Murchison, III, Frederic M. Poses and David
W. Quinn were elected as directors to serve for a three-year
term until the 2007 Annual Meeting. Voting results for these
nominees are summarized as follows: Number of SharesFor
    
    Withheld
    
    Broker Non-VotesClint
W. Murchison, III

Frederic M. Poses

David W. Quinn
    
    95,236,728
103,324,979
102,427,330
    
    10,746,452
2,658,201
3,555,850
    
    




  (2)
    
    Stockholders ratified the appointment of independent
auditors for fiscal year 2005 as set forth in Item 2 of the
Centex Corporation Proxy Statement dated June 10, 2004. Voting
results are summarized as follows: Number of SharesFor
    
    Against
    
    Abstained
    
    Broker Non-Votes104,939,966
    
    488,110
    
    555,104
    
    
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Item 6.
    Exhibits3.1
    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 May 15, 2003 (incorporated by
reference from Exhibit 3.2 to Centexs Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).10.1
    Credit Agreement, dated as of July 16, 2004 among
Centex Corporation, Bank of America, N.A., as Administrative
Agent, and the lenders named therein (incorporated by reference
from Exhibit 10.1 to Centexs Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004).10.2
    Letter of Credit and Reimbursement Agreement, dated
as of July 16, 2004 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
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004).10.3
    Form of non-employee director restricted stock agreement for Centex Corporation 2003 Equity Incentive Plan.10.4
    Form of stock option agreement for Centex Corporation 1998 Employee Non-Qualified Stock Option Plan.10.5
    Form of deferred compensation agreement for Centex Corporation Executive Deferred Compensation Plan.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
2002.32.2
    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.
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Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. CENTEX CORPORATIONRegistrantNovember 3
    , 2004
    /s/ Leldon E. EcholsLeldon E. Echols
Executive Vice President and
Chief Financial Officer
(principal financial officer)November 3
    , 2004
    /s/ Mark D. KempMark D. Kemp
Senior Vice President-Controller
(principal accounting officer)
 59