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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2004 Commission File No. 1-6776 CENTEX CORPORATION (Exact name of registrant as specified in its charter)
Nevada
(State of incorporation)
75-0778259
(I.R.S. Employer Identification No.)
2728 N. Harwood, Dallas, Texas 75201
(Address of principal executive office, including zip code)
(214) 981-5000
(Registrants telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of eachexchange on whichTitle of each class
    
    registeredCommon Stock
($.25 par value)
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None 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 [  ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [  ]. On September 30, 2003 (the last business day of the registrants most
recently completed second fiscal quarter), the aggregate market value of the
Centex Corporation common stock held by non-affiliates of the registrant was
$4.80 billion based upon the last sale price reported for such date on the New
York Stock Exchange. Solely for purposes of determining this amount, Centex
Corporation will treat as an affiliate (i) any director or executive officer of
Centex Corporation or (ii) any person who beneficially owns more than 10% of
the outstanding common stock of Centex Corporation as reflected in a Schedule
13D filed with the Securities and Exchange Commission, unless such person
indicates in such filing that it holds such shares solely for investment and
not with a view to exercising control over the business or affairs of Centex
Corporation. As of May 15, 2004, 123,356,741 shares of the registrants $.25
par value common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in Part III
of this Report: (a) Proxy statement for the annual meeting of stockholders of Centex
Corporation to be held on July 15, 2004.




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TABLE OF CONTENTS FORM 10-K PagePART IItem 1.
    
    Business
    
    
    3Item 2.
    
    Properties
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    18Item 6.
    
    Selected Financial Data
    
    
    19Item 7.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    20Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 8.
    
    Financial Statements and Supplementary Data
    
    
    53Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    97Item 9A.
    
    Controls and Procedures
    
    
    97PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    97Item 11.
    
    Executive Compensation
    
    
    98Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    98Item 13.
    
    Certain Relationships and Related Transactions
    
    
    98Item 14.
    
    Principal Accountant Fees and Services
    
    
    98PART IVItem 15.
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    98SIGNATURES
    
    
    104INDEX TO EXHIBITSRestated Articles of IncorporationSpecimen Centex Common Stock CertificateAmended and Restated 1987 Stock Option Plan8th Amended/Restated 1998 Employee Stock PlanAmended/Restated 2001 Stock PlanStock Option Agreement for 2001 Stock PlanRestricted Stock Agreement for 2001 Stock PlanAmended/Restated Long-Term Incentive PlanAward Agreement LTIPAmended/Restated 2003 Equity Incentive PlanStock Option Agmt for 2003 Equity IncentiveStock Unit Agmt for 2003 Equity Incentive PlanAmended/Restated Executive Deferred CompensationSalary ContinuationConsulting Agreement - David W. QuinnTermination Agreement - David W. QuinnList of SubsidiariesConsent of Independent AuditorsPowers of AttorneyCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO - 18 U.S.C. Section 1350Certification of CFO - 18 U.S.C. Section 1350
  2




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PART I 
  ITEM 1.
    BUSINESS General Development of Business Centex Corporation is a Nevada corporation. Our common stock, par value
$.25 per share, began trading publicly in 1969. Our common stock is traded on
the New York Stock Exchange, or the NYSE. As of May 15, 2004, 123,356,741
shares of our common stock were outstanding. Any reference herein to we, us or
our includes Centex Corporation and its subsidiary companies. Since our founding in 1950 as a Dallas, Texas-based residential
construction company, we have evolved into a multi-industry company. As of
March 31, 2004, our subsidiary companies operated in four principal business
segments: Home Building, Financial Services, Construction Services and
Investment Real Estate. We provide a brief overview of each segment below,
with a more detailed discussion of each segment later in this section. Our
domestic homebuilding operations currently involve the purchase and
development of land or lots and the construction and sale of single-family
homes, townhomes and low-rise condominiums. We have participated in the
conventional homebuilding business since 1950. Home Building internally tracks
its performance compared to the last reported twelve months of revenues for its
competitors. Based on Home Buildings comparisons, we believe that it ranked
as the nations fourth largest homebuilder at March 31, 2004. Our
international homebuilding operations currently 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
throughout the United Kingdom. Our Financial Services operations are primarily engaged in the residential
mortgage banking business, as well as other financial services that are in
large part related to the residential mortgage market. These operations
include mortgage origination, servicing and other related services for
purchasers of homes sold by our Home Building operations, other homebuilders
and other real estate professionals, sub-prime home equity lending and the sale
of title insurance and various other insurance coverages. We have been in the
mortgage lending business since 1973. Our Construction Services operations involve the construction of buildings
and facilities for both private and government interests, including educational
institutions, hospitals, military housing, correctional institutions, airport
facilities, office buildings, hotels and resorts and sports facilities. We
entered the Construction Services business in 1966 by acquiring a Dallas-based
contractor that had been in business since 1936. We also acquired significant
construction companies in 1978, 1982, 1987 and 1990. Our Investment Real Estate operations involve the development and sale of
land, primarily for industrial, office, multi-family, retail, residential and
mixed-use projects. We have determined that no significant capital will be
allocated to Investment Real Estate for new business development. Beginning
April 1, 2004, the Investment Real Estate financial results will be included in
our Other business segment. In June 2003, we spun off to our stockholders substantially all of our
manufactured housing operations, which had previously been included in our
Other business segment. We now report the historical financial results of
manufactured housing operations as a discontinued operation. 3




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Prior to January 2004, we were also engaged in the construction products
business through our majority equity interest in Centex Construction Products,
Inc. (now known as Eagle Materials Inc.), which we refer to as Construction
Products. On January 30, 2004, we spun off to our stockholders our entire
equity interest in Construction Products. We now report the historical
financial results of Construction Products as a discontinued operation. Prior to February 2004, the common stock of 3333 Holding Corporation,
which we refer to as Holding, and warrants to purchase limited partnership
interests in Centex Development Company, L.P., which we refer to as 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 business segment. Neither
Holding nor the Partnership were consolidated in our financial statements. The
operations of the Partnership included homebuilding operations in the United
Kingdom. In February 2004, we acquired Holding and the Partnership through
merger transactions, and the tandem trading arrangement was terminated. 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 are included in the Investment
Real Estate segment for periods prior to April 1, 2004 and will be included in
our Other business segment beginning April 1, 2004. Financial Information about Industry Segments Note (K), Business Segments, of the Notes to Consolidated Financial
Statements on pages 82-85 of this Report
contains additional information about our business segments and specific
information on revenues received from external customers located in the United
States and the United Kingdom for fiscal 2004, 2003 and 2002. Narrative Description of Business HOME BUILDING Domestic Our conventional homebuilding subsidiary, Centex Homes, purchases and
develops land or lots and constructs and sells single-family homes, townhomes
and low-rise condominiums domestically. Centex Homes is the only company to
rank among the nations top 10 homebuilders for each of the past 35 years
according to Professional Buildermagazine. Centex Homes sells to both
first-time and move-up buyers, as well as active adult and second home buyers.
In fiscal 2004, 81% of the homes we sold were single-family detached homes, and
the remainder were townhomes and low-rise condominiums. Markets Centex Homes follows a strategy of reducing exposure to local market
volatility by diversifying operations across geographically and economically
diverse markets. As of March 31, 2004, Centex Homes was building in 92 market
areas, including Washington, D.C., and in 26 states. Each market is listed
below by geographic areas. 4




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Region
    
    States
    
    Markets
    
    States and Markets (continued)Mid-Atlantic
    
    Maryland
    
    Baltimore
    
    Pennsylvania
    
    PittsburghNew Jersey
    
    Atlantic/Cape May
    
    South Carolina
    
    Charleston/North CharlestonMiddlesex/Hunterdon/Sommerset
    
    
    
    Hilton HeadMonmouth/Ocean
    
    
    
    Myrtle BeachTrenton
    
    Virginia
    
    Norfolk/Virginia Beach/NewportNorth Carolina
    
    Charlotte/Gastonia/Rock Hill
    
    
    
    Richmond/PetersburgGreensboro/Winston Salem/High
    
    
    
    Washington, D.C.PointRaleigh/Durham/Chapel HillWilmingtonSoutheast
    
    Florida
    
    Daytona Beach
    
    Georgia
    
    AtlantaFt. Lauderdale
    
    South Carolina
    
    ColumbiaFt. Myers/Cape Coral
    
    
    
    Greenville/Spartanburg/AndersonFt. Walton Beach
    
    Tennessee
    
    NashvilleJacksonvilleLakeland/Winter HavenNaplesOrlandoPunta GordaSarasota/BradentonTampa/St. Petersburg/ClearwaterWest Palm Beach/Boca RatonMidwest
    
    Colorado
    
    Boulder/Longmont
    
    Missouri
    
    St. LouisDenver
    
    Ohio
    
    AkronEagle
    
    
    
    Canton/MassillonFort Collins/Loveland
    
    
    
    CincinnatiGreeley
    
    
    
    Cleveland/Lorain/ElyriaIndiana
    
    Indianapolis
    
    
    
    ColumbusFort Wayne
    
    
    
    Dayton/SpringfieldIllinois
    
    Chicago
    
    
    
    MansfieldKentucky
    
    Louisville
    
    
    
    Steubenville/WeirtonMichigan
    
    Ann Arbor
    
    
    
    ToledoDetroit
    
    
    
    Youngstown/WarrenGrand Rapids/Muskegon/Holland
    
    Utah
    
    Salt Lake CityKalamazoo/Battle CreekMinnesota
    
    Minneapolis/St. PaulRochesterSouthwest
    
    Arizona
    
    Phoenix/Mesa
    
    Texas
    
    Austin/San MarcosNevada
    
    Las Vegas
    
    
    
    BrazoriaNew Mexico
    
    Albuquerque
    
    
    
    DallasSanta Fe
    
    
    
    Ft. Worth/ArlingtonGalveston/Texas CityHoustonKilleen/TempleSan AntonioWest Coast
    
    California
    
    Bakersfield
    
    Hawaii
    
    HawaiiFresno
    
    Nevada
    
    Las VegasKings County
    
    
    
    RenoLos Angeles/Long Beach
    
    Oregon
    
    EugeneOakland
    
    

    
    Portland/VancouverOrange County
    
    Washington
    
    Seattle/Bellevue/EverettRiverside/San Bernardino
    
    
    
    TacomaSacramentoSan DiegoSan FranciscoSan JoseSan Luis ObispoVisalia/Tulare/PortervilleYolo
 5




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In fiscal 2004, Centex Homes closed 30,358 homes, including first-time,
move-up and, in some markets, custom homes, ranging in price from approximately
$59,000 to $1.5 million. The average sales price in fiscal 2004 was $242,465. Our practice has been to acquire land, build homes on the land and sell
the homes within 24 to 36 months from the date of land acquisition. Generally,
this involves acquiring land that is properly zoned and is either ready for
development or, to some degree, already developed. We control a substantial amount of our land, including lots and
land to be developed into lots, through option agreements that we can exercise
over specified time periods or, in certain cases, as the land or lots are needed. At
March 31, 2004, Centex Homes owned approximately 77,000 lots and had options to
purchase approximately 115,000 lots. In addition, Centex Homes enters into
joint ventures with other builders and developers for land acquisition,
development and other activities. For additional discussion of our
participation in joint ventures and lot option agreements, see Notes (H),
Commitments and Contingencies, and (I), Land Held Under Option Agreements
Not Owned and Other Land Deposits of the Notes to Consolidated Financial
Statements on pages 79-81 of
this Report. Our growth strategy for Centex Homes has been focused primarily on organic
growth opportunities through land acquisition and development in existing
business units and markets. To a lesser extent, we have also grown the
business through the acquisition of other homebuilding companies. Since April
1998, we have acquired homebuilding operations of the following companies: Company
    
    Date Acquired
    
    DescriptionWayne Homes
    
    April 1998
    
    Single-family homes in the on-your-lot market segment.Teal Homes
    
    May 1998
    
    Single-family homes for the first-time and move-up buyer
in the Richmond, Virginia area.Calton Homes
    
    December 1998
    
    Single-family homes for the first-time and move-up buyer
in New Jersey.Real Homes
    
    September 1999
    
    Single-family homes for the first-time and move-up buyer
in the Las Vegas, Nevada area.Selective Group
    
    March 2001
    
    Single-family homes for the first-time and move-up buyer
in the Detroit, Michigan area.CityHomes
    
    March 2001
    
    Urban townhomes and condominiums in the Dallas, Texas area.Jones Company
    
    January 2003
    
    Single-family homes for the first-time and move-up buyer
in the St. Louis, Missouri and Indianapolis, Indiana areas.
 In addition, in July 1999, we acquired land and other operating assets for
the construction of single-family homes, townhomes and duplexes from Sundance
Homes, a suburban Chicago homebuilder. Sundance Homes retained its name and
continues to operate in other markets in which we do not compete. Centex Homes sells its homes under a variety of brand names including
several of the acquired company names listed above. Fox &
Jacobs, one of our brand names,
primarily markets to first-time buyers. Centex Homes primarily markets its
homes to first-time and move-up buyers. Wayne Homes markets primarily to
rural lot owners for construction of a home on their lot. Centex Destination
Properties markets to second home/resort home buyers. 6




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The table below summarizes by geographic area Centex Homes domestic home
closings, sales (orders) backlog and sales (orders) for the five most recent
fiscal years. Closings (in units): For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Mid-Atlantic
    
    
    5,201
    
    
    
    4,501
    
    
    
    3,877
    
    
    
    3,395
    
    
    
    3,058Southeast
    
    
    5,568
    
    
    
    4,851
    
    
    
    4,440
    
    
    
    4,137
    
    
    
    4,142Midwest
    
    
    5,801
    
    
    
    4,695
    
    
    
    3,688
    
    
    
    3,296
    
    
    
    3,089Southwest
    
    
    8,708
    
    
    
    8,157
    
    
    
    6,910
    
    
    
    5,661
    
    
    
    4,923West Coast
    
    
    5,080
    
    
    
    4,223
    
    
    
    4,045
    
    
    
    4,170
    
    
    
    3,69230,358
    
    
    
    26,427
    
    
    
    22,960
    
    
    
    20,659
    
    
    
    18,904Average Sales Price (in 000s)
    
    $
    242
    
    
    $
    220
    
    
    $
    214
    
    
    $
    206
    
    
    $
    192
 Sales (Orders) Backlog, at the end of the period (in units): For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Mid-Atlantic
    
    
    2,801
    
    
    
    2,148
    
    
    
    1,503
    
    
    
    1,365
    
    
    
    1,210Southeast
    
    
    3,707
    
    
    
    2,713
    
    
    
    2,315
    
    
    
    1,936
    
    
    
    1,891Midwest
    
    
    3,392
    
    
    
    2,920
    
    
    
    2,093
    
    
    
    2,037
    
    
    
    1,628Southwest
    
    
    2,869
    
    
    
    2,258
    
    
    
    2,361
    
    
    
    2,546
    
    
    
    1,861West Coast
    
    
    2,645
    
    
    
    2,011
    
    
    
    1,099
    
    
    
    1,381
    
    
    
    98915,414
    
    
    
    12,050
    
    
    
    9,371
    
    
    
    9,265
    
    
    
    7,579
 We define backlog units as units that have been sold, as evidenced by a
signed contract, but not closed. Substantially all of the orders in sales
backlog as of March 31, 2004 are expected to close during fiscal year 2005. Sales (Orders) (in units): For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Mid-Atlantic
    
    
    5,854
    
    
    
    5,146
    
    
    
    3,936
    
    
    
    3,550
    
    
    
    3,207Southeast
    
    
    6,562
    
    
    
    5,249
    
    
    
    4,819
    
    
    
    4,182
    
    
    
    4,202Midwest
    
    
    6,273
    
    
    
    5,087
    
    
    
    3,744
    
    
    
    3,572
    
    
    
    3,207Southwest
    
    
    9,319
    
    
    
    8,054
    
    
    
    6,725
    
    
    
    6,325
    
    
    
    5,031West Coast
    
    
    5,714
    
    
    
    5,132
    
    
    
    3,763
    
    
    
    4,562
    
    
    
    3,76033,722
    
    
    
    28,668
    
    
    
    22,987
    
    
    
    22,191
    
    
    
    19,407
 7




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Competition and Other Factors The conventional homebuilding industry is essentially a local business
and is highly competitive. The top 10 builders in calendar year 2003 accounted
for approximately 15.1% of the total for-sale attached and detached housing
permits in the United States. We compete in each of Centex Homes market areas
with numerous other homebuilders, including national, regional and local
builders. Centex Homes top six competitors based on revenues for their most
recent fiscal year-end are as follows: Beazer Homes USA, Inc., D. R. Horton,
Inc., KB Homes, Lennar Corporation, Pulte Homes, Inc. and The Ryland Group,
Inc. Centex Homes operations accounted for an estimated 2.1% of the total
for-sale attached and detached housing permits in the United States for the
twelve months ended March 31, 2004. The main competitive factors affecting
Centex Homes operations are location, price, availability of mortgage
financing for customers, construction costs, design and quality of homes,
customer service, marketing expertise, availability of land, price of land and
reputation. We believe that Centex Homes competes effectively by building a
high quality home, maintaining geographic diversity, being responsive to the
specific demands of each market and managing the operations at a local level. The results of operations of our Home Building segment 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 home buyers to finance home purchases. 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. The homebuilding industry is affected by changes in national and local
economic conditions, job growth, long-term and short-term interest rates,
consumer confidence, governmental policies, zoning restrictions and, to a
lesser extent, changes in property taxes, energy costs, federal income tax
laws, federal mortgage financing programs and various demographic factors. The
political and economic environments affect both the demand for housing
constructed and the subsequent cost of financing. Unexpected climatic
conditions, such as unusually heavy or prolonged rain or snow, may affect
operations in certain areas. The homebuilding industry is subject to extensive regulations. Centex
Homes and its subcontractors must comply with various federal, state and local
laws and regulations, including worker health and safety, zoning, building
standards, erosion and storm water pollution control, advertising, consumer
credit rules and regulations and the extensive and changing federal, state and
local laws, regulations and ordinances governing the protection of the
environment, including the protection of endangered species. Centex Homes is
also subject to other rules and regulations in connection with its
manufacturing and sales activities, including requirements as to incorporated
building materials and building designs. All of these regulatory requirements
are applicable to all homebuilding companies, and, to date, compliance with
these requirements has not had a material impact on Centex Homes. We believe that Centex
Homes is in material compliance with these requirements. We purchase materials, services and land from numerous sources (primarily
local vendors), and believe that we can deal effectively with the challenges we
may experience relating to the supply or availability of materials, services
and land. International In February 2004, we acquired through merger transactions Holding and its
subsidiary and the Partnership and its subsidiaries. Our
international homebuilding operations currently 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 throughout the United
Kingdom. International homebuilding currently has 47 developments located
throughout England. For the period from February 29, 2004, the date of the
merger 8




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transactions, through March 31, 2004, our international
homebuilding
operations delivered 236 units,
with prices ranging from $95,000 to $795,000. The average sales price was
approximately $327,326. As of March 31, 2004, our international
homebuilding
operations had 388 units in sales backlog. We define backlog units as units
that have been sold, as evidenced by a signed contract, but not closed.
Substantially all of the orders in sales backlog as of March 31, 2004 are
expected to close during fiscal 2005. Home Buildings international operations
currently account for less than 1% of the new homes market in the United
Kingdom. FINANCIAL SERVICES Our Financial Services operations are 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. These operations
include mortgage origination, servicing and other related services for
purchasers of homes sold by our Home Building operations, other homebuilders
and other real estate professionals, sub-prime home equity lending and the sale
of title insurance and various other insurance coverages. Conforming Mortgage
Lending We established CTX Mortgage Company, LLC and its related companies to
provide mortgage financing for homes built by Centex Homes. By opening CTX
Mortgage Company, LLC offices in Centex Homes housing markets, we have been
able to provide mortgage financing for an average of 69% of Centex Homes
sales, other than cash sales, over the past five years and 74% in fiscal 2004.
In 1985, we expanded CTX Mortgage Company, LLCs operations to include the
origination of mortgage loans that are not associated with the sale of homes
built by Centex Homes. We refer to mortgage financing for homes built by
Centex Homes as Builder loans and to mortgage financing for homes built by
others as Retail loans. At March 31, 2004, CTX Mortgage Company, LLC originated loans through its
loan officers in 240 offices located in 36 states. The offices vary in size
depending on loan volume. The following table shows the unit breakdown of Builder and Retail loans
for CTX Mortgage Company, LLC and its related companies for the five years
ended March 31, 2004: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Loan Types:Builder
    
    
    20,865
    
    
    
    18,127
    
    
    
    15,435
    
    
    
    12,506
    
    
    
    10,958Retail
    
    
    67,481
    
    
    
    66,807
    
    
    
    64,949
    
    
    
    48,244
    
    
    
    48,30188,346
    
    
    
    84,934
    
    
    
    80,384
    
    
    
    60,750
    
    
    
    59,259Origination Volume (in billions)
    
    $
    15.12
    
    
    $
    13.99
    
    
    $
    12.45
    
    
    $
    8.88
    
    
    $
    8.11Percent of Centex Homes
Non-Cash Closings
Financed
    
    
    74
    %
    
    
    73
    %
    
    
    72
    %
    
    
    64
    %
    
    
    61
    %
 We provide mortgage origination and other mortgage-related services for
the Federal Housing Administration, or FHA, the Department of Veterans
Affairs, or VA, and conventional loans on homes that Centex Homes or others
build and sell, as well as resale homes and refinancing of existing mortgages.
Our loans are generally first-lien mortgages secured by one- to four-family
residences. A majority of the loans qualify for inclusion in programs
sponsored by the Government National Mortgage Association, or GNMA, the Federal
National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage
Corporation, or FHLMC. These loans are known in the industry as conforming
loans. The remainder of the loans are either pre-approved and individually
underwritten by CTX Mortgage Company, LLC or private investors who 9




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subsequently purchase the loans, or are funded by private investors who pay a
broker fee to CTX Mortgage Company, LLC for broker services rendered. CTX Mortgage Company, LLCs principal sources of income consist of gains
on sales of mortgage loans, inclusive of all servicing rights, and, to a lesser
extent, net interest income and other fees. Generally, we sell our right to
service the mortgage loans and retain no other residual interests. We also participate in joint-venture agreements with third-party
homebuilders and other real estate professionals to provide mortgage
originations for their customers. These joint venture companies are fully
consolidated in CTX Mortgage Company, LLCs financial statements. At March 31,
2004, CTX Mortgage Company, LLC had 21 of these agreements, operating in 21
offices located in 9 states. In 1999, CTX Mortgage Company, LLC entered into a mortgage loan purchase
agreement with Harwood Street Funding I, LLC, or HSF-I, that we refer to as the
HSF-I Purchase Agreement. HSF-I is a variable interest entity for which we are
the primary beneficiary and, as of July 1, 2003, is consolidated with our
Financial Services segment. HSF-I purchases mortgage loans, at closing, from
CTX Mortgage Company, LLC with the proceeds from the issuance of senior debt
and subordinated certificates. Since 1999, CTX Mortgage Company, LLC has sold
substantially all of the conforming and Jumbo A mortgage loans that it
originates to HSF-I in accordance with 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 mortgage
loans into the secondary market. Sub-Prime Home Equity Lending We formed the predecessor of Centex Home Equity Company, LLC, or Home
Equity, in fiscal 1995. Home Equitys business involves the origination of
primarily nonconforming home equity mortgage loans. The sub-prime lending
market is comprised of borrowers whose financing needs are not being met by
traditional mortgage lenders for a variety of reasons, including credit
histories that may limit a borrowers access to credit or a borrowers need for
specialized loan products such as cash-out refinance and jumbo loans. Since
its inception, Home Equity has focused on lending to individuals who have
substantial equity in their homes but whose financing needs are not being met
by traditional mortgage lenders. Home Equitys mortgage loans to these
borrowers are made primarily for such purposes as debt consolidation,
refinancing, home improvement or educational expenses. Substantially all of
Home Equitys mortgage loans are secured by first mortgage liens on one- to
four-family residences and have amortization schedules ranging from 5 to 30
years. At March 31, 2004, Home Equity had 166 offices and was doing business in
47 states. Home Equity originates home equity loans through five major
origination sources:  
    
    its retail branches;
    
    a broker referral network;
    
    referrals from its conforming mortgage affiliate, CTX Mortgage Company, LLC;
    
    a correspondent mortgage banker network; and
    
    Home Equitys direct sales unit that sources lending opportunities
from a variety of channels including through the Internet. 10




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##### Table of Contents



The following table summarizes Home Equitys origination statistics for
the five-year period ended March 31, 2004: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Loans
    
    
    36,659
    
    
    
    29,448
    
    
    
    26,955
    
    
    
    26,418
    
    
    
    20,568Origination Volume (in billions)
    
    $
    3.92
    
    
    $
    2.51
    
    
    $
    2.09
    
    
    $
    1.72
    
    
    $
    1.32
 We began servicing loans through Home Equity in fiscal 1997, and we
generally service all loans included in the Home Equity portfolio. Servicing
fees for sub-prime loans are significantly higher than for conforming loans,
primarily due to the higher costs associated with more frequent contact with
customers. Servicing encompasses, among other activities, the following
processes: billing, collection of payments, investor reporting, customer help, recovery of
delinquent payments and instituting foreclosure and liquidation of the
underlying collateral. As of March 31, 2004, Home Equity was servicing a
sub-prime loan portfolio of 87,073 loans with a total loan value of
approximately $7.14 billion. From October 1997 through March 2000, a majority of Home Equitys loans
originated were included in securitizations that utilized a structure that
resulted in the loans being accounted for as sales.
Under this structure, Home Equity retained a residual interest in, as well as
the servicing rights to, the securitized loans. We call this retained residual
interest the mortgage securitization residual interest, or MSRI. As a result
of the sales accounting treatment, our balance sheet does not reflect the
mortgage loans receivable and offsetting debt resulting from these
securitizations. The estimated gain on the sale of these loans was included in
earnings during the period in which the securitization transaction closed. As
of March 31, 2004, Home Equity had a remaining MSRI of $87.8 million, which
includes $86.5 million remaining on loans securitized from October 1997 to
March 2000 accounted for as gain on sale and $1.3 million related to loans sold
in fiscal year 2004 to a government sponsored enterprise that we continue
to service. We changed the structure of securitizations beginning April 1, 2000.
Subsequent to March 31, 2000, securitizations have been accounted for as
borrowings; interest has been recorded over the life of the loans using the
interest, or actuarial, method; the mortgage loans receivable and the
securitization debt have remained on Home Equitys balance sheet and the
related interest margin has been reflected in our income statement. 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 change in structure of the
securitizations does not affect the cash flow and profit recognized over the
life of the mortgages. However, the change did affect the timing of profit
recognition. Interest margin, rather than gain on sale of loans, is now Home
Equitys primary source of operating income. From April 1, 2000 to March 31,
2004, Home Equity completed fifteen securitizations totaling
approximately $8.84
billion in loans under this structure. Other Financial Services Operations We offer title agent, title underwriting, closing, appraisal and other
settlement services in 26 states under the Commerce Title name, including
Commerce Title Company, Commerce Title Agency and Commerce Title Insurance
Company. Through Westwood Insurance, a multi-line property and casualty
insurance agency, we market homeowners and auto insurance to homebuilding and
mortgage customers and customers of approximately nine other homebuilders in 50
states. Westwood Insurance also provides coverage for some commercial
customers. 11




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##### Table of Contents



Our Technologies Group, headquartered in Edmond, Oklahoma, provides
mortgage quality control services and provides the mortgage industry with
regulations and guidelines in an electronic format. Competition and Other Factors The financial services industry in the United States is highly
competitive. CTX Mortgage Company, LLC competes with commercial banks, other
mortgage lending companies and other financial institutions to supply mortgage
financing at attractive rates to purchasers of Centex homes, as well as to the
general public. Home Equity competes with commercial banks, other sub-prime
lenders and other financial institutions to supply sub-prime financing at
attractive rates. Our title and insurance operations compete with other
providers of title and insurance products to sell their products to purchasers
of our homes, as well as to the general public. Many of these competitors have
greater resources than we do. The results of operations of our Financial Services segment 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 home buyers to finance home purchases
and/or 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. The Financial Services operations are subject to extensive state and
federal regulations, as well as rules and regulations of, and examinations by,
FNMA, FHLMC, FHA, VA, Department of Housing and Urban Development, or HUD, GNMA
and state regulatory authorities with respect to originating, processing,
underwriting, making, selling, securitizing and servicing loans and providing
title and other insurance products. In addition, there are other federal and
state statutes and regulations affecting such activities. These rules and
regulations, among other things, impose licensing obligations on our Financial
Services operations, specify standards for origination procedures, establish
eligibility criteria for mortgage loans, provide for inspection and appraisals
of properties, regulate payment features and, in some cases, fix maximum
interest rates, fees, loan amounts and premiums for title and other insurance.
Certain of our Financial Services operations are required to maintain specified
net worth levels and submit annual audited financial statements to HUD, VA,
FNMA, FHLMC, GNMA and some state regulators. As an approved FHA mortgagee, CTX Mortgage Company, LLC is subject to
examination by the Federal Housing Commissioner at all times to ensure
compliance with FHA regulations, policies and procedures. Our title and
insurance operations are subject to examination by state authorities. Mortgage
origination and servicing activities are subject to the Equal Credit
Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act, the
Federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act, the
Riegle Community Development and Regulatory Improvement Act, the Home Ownership
and Equity Protection Act and regulations promulgated under such statutes, as
well as other federal and state consumer credit laws. The Real Estate
Settlement Procedures Act also applies to our insurance operations. These
statutes prohibit discrimination and unlawful kickbacks and referral fees and
require the disclosure of certain information to borrowers concerning credit
and settlement costs. Many of these regulatory requirements seek to protect
the interest of consumers, while others protect the owners or insurers of
mortgage loans. Failure to comply with these requirements can lead to loss of
approved status, demands for indemnification or loan repurchases from
investors, class action lawsuits by borrowers, administrative enforcement
actions and, in some cases, rescission or voiding of the loan by the consumer. 12




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##### Table of Contents



CONSTRUCTION SERVICES Construction Services provides a range of commercial contracting services,
including construction management, general contracting, design-build and
preconstruction services. As a general contractor or construction manager,
Construction Services provides management personnel for the construction of
facilities. Occasionally, Construction Services may perform some of
the actual construction work on a project but will generally hire
subcontractors to perform the majority of the work. For the fiscal year ended
March 31, 2004, over 90% of contracted projects range in size from $10 million
to $350 million. Historically, Construction Services has conducted its operations through
its distinct, largely autonomous operating companies. Construction Services
principal operating companies are Centex Construction Company, Inc., Centex
Rodgers, Inc. and Centex-Rooney Construction Co., Inc. These operating
companies serve various geographic locations and project niches. In fiscal
2004, Construction Services decided to exit the industrial construction market.
Construction Services is currently transitioning to one common organizational
structure with one brand, standardized operating policies and procedures and an
emphasis on certain geographic markets and project niches in which it has
expertise. As of March 31, 2004, Construction Services primary offices are
located in the metropolitan areas of Dallas, Nashville, Ft. Lauderdale,
Charlotte and Washington D.C. Construction contracts are primarily procured under one of two methods:
negotiated (qualifications-based selection) or competitive bid (price-based
selection). At March 31, 2004, approximately 88% of backlog was procured under
the negotiated method. The backlog at March 31, 2004 was $1.75 billion
compared to $1.52 billion at March 31, 2003. Approximately
$1.22 billion of the
backlog at March 31, 2004 is projected to be constructed and the related
revenues recognized during fiscal year 2005. We define backlog as the
uncompleted portion of all signed contracts. The following table summarizes the backlog as of March 31, 2004 by
industry segment: Industry Segment
    
    % of BacklogEducation
    
    
    19
    %Healthcare
    
    
    19
    %Military Housing
    
    
    19
    %Corrections
    
    
    13
    %Government
    
    
    8
    %Transportation
    
    
    8
    %Corporate Office Buildings
    
    
    5
    %Hospitality
    
    
    3
    %Other
    
    
    6
    %Total
    
    
    100
    %
 Competition and Other Factors The construction industry is very competitive, and Construction Services
competes with numerous local, regional and national contractors depending upon
the nature of the project. Top-tier construction firms distinguish themselves
from regional and local firms based on their project resumes, reputation and
financial strength. Construction Services focuses on maintaining a competitive
advantage over other top-tier construction firms by utilizing disciplined
decision making for market selection, project selection, risk assessment and
pricing; providing excellence in customer service and recruiting top-quality,
experienced industry personnel. Although national demand for commercial construction is relatively stable,
individual markets do experience moderate cyclicality and can be sensitive to
overall spending trends in the economy, changes in 13




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##### Table of Contents



federal, state and local appropriations for construction projects, financing
and capital availability for commercial real estate and competitive pressures
on the availability and pricing of construction projects. Construction Services operations are affected by federal, state and local
laws and regulations relating to worker health and safety, as well as
environmental laws. With respect to health and safety matters, we believe that
Construction Services has taken appropriate precautions to protect employees
and others from workplace hazards. Current environmental laws may require
Construction Services operating subsidiaries to work in concert with project
owners to acquire the necessary permits or other authorizations for certain
activities, including the construction of projects located in or near wetland
areas. Construction Services operations are also affected by environmental
laws regulating the use and disposal of hazardous materials encountered during
demolition operations. We believe that Construction Services current
procedures and practices are consistent with industry standards and that
compliance with the health and safety laws and environmental laws does not
constitute a material burden or expense. Construction Services operations obtain materials and services from
numerous sources. Our construction companies believe they can deal effectively
with challenges they may experience relating to the supply or availability of
materials and services. INVESTMENT REAL ESTATE Investment Real Estates operations involve the development and sale of
land, primarily for industrial, office, multi-family, retail, residential and
mixed-use projects. Investment Real Estate historically conducted its
operations directly and through our investment in the Partnership, which was
accounted for under the equity method of accounting. The Partnerships
operations include domestic real estate operations and an international
homebuilding business located in the United Kingdom. In February 2004, we
acquired through merger transactions Holding and its subsidiary and the
Partnership and its subsidiaries. Subsequent to the merger, we have
consolidated the financial results of the Partnership; as a result, we have
realigned our reporting for the Partnership, whereby the Partnerships
international homebuilding operations are included in our Home Building
business segment. The Partnerships
domestic operations are reported in the Investment Real Estate business
segment for periods through March 31, 2004. We have determined that no significant capital will be allocated to
Investment Real Estate for new business development. Beginning April 1, 2004,
the Investment Real Estate financial results will be included in our Other
business segment. As of March 31, 2004, Investment Real Estate owned land located in Texas
zoned for office, retail and residential uses. At March 31, 2004, Investment
Real Estate also owned approximately 291,000 square feet of office buildings
located in Texas, 222,000 square feet of office and industrial projects under
development in California and Texas, and 381 apartment units under development
in Florida. 14




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##### Table of Contents



EMPLOYEES The following table presents a breakdown of our employees as of March 31,
2004: Business Segment
    
    EmployeesHome Building
    
    
    7,636Financial Services
    
    
    5,938Construction Services
    
    
    1,474Investment Real Estate
    
    
    8Other
    
    
    1,476Total
    
    
    16,532
 The
1,476 Other employees include 1,322 employees of our home services
operations, which provides home pest control services and 154 corporate
employees. The 154 corporate employees are employed by Centex Corporation; all
others are employees of our various subsidiaries. AVAILABLE INFORMATION Anyone seeking information about our business operations and financial
performance can receive copies of the 2004 Annual Report to Stockholders,
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, all amendments to those reports and other documents filed with the
Securities and Exchange Commission in Washington, D.C., without charge, by
contacting our Corporate Communications office at (214) 981-6503; by writing to
Centex Corporation, Investor Relations, P.O. Box 199000, Dallas, Texas 75219 or
via email at ir@centex.com. In addition, all filings with the Securities and
Exchange Commission, news releases and quarterly earnings announcements,
including live audio and replays of recent quarterly earnings webcasts, can be
accessed free of charge on our web site (www.centex.com). We make our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act available on our web site as soon as
reasonably practicable after we electronically file the material with, or
furnish it to, the Securities and Exchange Commission. To retrieve any of this
information, go to www.centex.com, select Investor Relations and select SEC
Filings. The reference to our web site is merely intended to suggest where
additional information may be obtained by investors, and the materials and
other information presented on our web site are not incorporated in and should
not otherwise be considered part of this Report. 
  ITEM 2.
    PROPERTIES The following properties are used in the operation of our business: Centex Homes owns property in Dallas, Texas. This property consists of
office and warehouse buildings situated on approximately 18 acres. Centex
Homes also owns smaller parcels of land in rural areas of Ohio, Indiana,
Pennsylvania, Florida, North Carolina, Minnesota and Washington. Situated on
this land are sales offices for its Wayne Homes on-your-lot market segment.
Home Building owns a building in Tamworth, Staffordshire, England used by its international
operations. Financial Services owns property in Edmond, Oklahoma. This property
consists of two office buildings situated on approximately 12 acres of a
20-acre parcel of land. The remaining eight acres of the parcel are being held
for future development or possible sale. 15




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##### Table of Contents



Investment Real Estate owns property in Dallas, Texas. This property
consists of two office buildings and approximately seven acres of land. Home
Equity is using one office building, and approximately 74% of the other office
building is leased to Centex and its various subsidiaries. See
Item 1. Business on pages 3-15 of this Report for additional
information relating to the Companys properties including land owned or
controlled by our Home Building segment and land and buildings owned by our
Investment Real Estate segment. 
  ITEM 3.
    LEGAL PROCEEDINGS In the normal course of our business, we and/or our subsidiaries are named
as defendants in suits filed in various state and federal courts. We believe
that none of the litigation matters in which we, or any of our subsidiaries,
are involved would have a material adverse effect on our consolidated financial
condition or operations. In
January 2003, Centex 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 Centex Homes and 30 communities. Centex Homes has
provided the requested information and the EPA has asserted that some of these
and certain other communities have violated regulatory requirements applicable
to storm water discharges, and that injunctive relief and civil penalties may
be warranted. Centex Homes has defenses to the allegations made by the EPA and
is 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. 
  ITEM 4.
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 25, 2004, we held a special meeting of stockholders. At the
special meeting, the following matters were approved by stockholders:  (1)
    
    Stockholders approved the proposal to amend the
Restated Articles of Incorporation to increase Centexs
authorized common stock from 100 million shares to 300 million shares
as set forth in Item 1 of the Centex Corporation Proxy
Statement dated January 26, 2004. Voting results, which are
stock split adjusted, are summarized as follows: Number of SharesFor
    
    Against
    
    
    Abstained
    
    Broker Non-Votes103,751,674
    
    
    2,755,916
    
    
    
    568,840
    
    
    
    
  (2)
    
    Stockholders approved the proposal to terminate the
nominee agreement relating to the tandem trading of Holdings
and the Partnerships equity interests with Centex common stock,
as set forth in Item 2 of the Centex Corporation Proxy Statement
dated January 26, 2004. Voting results, which are stock split
adjusted, are summarized as
follows: Number of SharesFor
    
    Against
    
    
    Abstained
    
    Broker Non-Votes92,025,216
    
    
    1,161,598
    
    
    
    629,792
    
    
    
    
 16




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##### Table of Contents



EXECUTIVE OFFICERS OF CENTEX (See Item 10 of Part III of this Report) The following is an alphabetical listing of our executive officers as of
May 28, 2004, as such term is defined under the rules and regulations of the
Securities and Exchange Commission. Officers are generally elected by the
Board of Directors at its meeting immediately following our annual
stockholders meeting, with each officer serving until a successor has been
elected and qualified. There is no family relationship between any of these
officers. Name
    
    Age
    
    Positions with Centex or Business ExperienceLeldon E. Echols
    
    
    48
    
    
    Executive Vice President and Chief Financial Officer of
Centex Corporation since June 2000; Partner and
employee at Arthur Andersen LLP from December 1978 to
May 2000Timothy R. Eller
    
    
    55
    
    
    Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer of Centex
Corporation (Chairman of the Board and Chief Executive
Officer since April 2004; President and Chief Operating
Officer since April 2002); Executive Vice President of
Centex Corporation from August 1998 to April 2002;
Chairman of the Board of Centex Real Estate Corporation
from April 1998 to April 2003; Chief Executive Officer
of Centex Real Estate Corporation from July 1991 to
April 2002; President and Chief Operating Officer of
Centex Real Estate Corporation from January 1990 to
April 1998Mark D. Kemp
    
    
    42
    
    
    Vice President and Controller of Centex Corporation
since December 2002; Partner and employee at Arthur
Andersen LLP from December 1983 to August 2002Raymond G. Smerge
    
    
    60
    
    
    Executive Vice President, Chief Legal Officer, General
Counsel and Secretary of Centex Corporation (Executive
Vice President since July 1997; Chief Legal Officer
since September 1985; General Counsel and Secretary
since April 1993; Vice President from September 1985 to
July 1997)Robert S. Stewart
    
    
    50
    
    
    Senior Vice President of Centex Corporation since May
2000; Employee at the Weyerhaeuser Company from March
1977 to May 2000, during which time he held a range of
key management positions, including positions in
strategic planning.Jonathan
R. Wheeler
    
    
    52
    
    
    Senior Vice President of Centex Corporation since May
2004; Senior Vice President of Centex Real Estate Corporation from October
1997 to May 2004
 17




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##### Table of Contents



PART II 
  ITEM 5.
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Prices and DividendsYear Ended March 31, 2004
    
    
    Year Ended March 31, 2003Price
    
    
    
    
    
    
    PriceHigh
    
    
    Low
    
    
    Dividends
    
    
    High
    
    
    Low
    
    
    DividendsQuarterFirst
    
    $
    43.75
    
    
    $
    26.78
    
    
    $
    .02
    
    
    $
    29.45
    
    
    $
    24.45
    
    
    $
    .02Second
    
    $
    41.48
    
    
    $
    35.55
    
    
    $
    .02
    
    
    $
    29.60
    
    
    $
    21.27
    
    
    $
    .02Third
    
    $
    56.54
    
    
    $
    38.55
    
    
    $
    .02
    
    
    $
    26.34
    
    
    $
    19.16
    
    
    $
    .02Fourth
    
    $
    58.40
    
    
    $
    46.27
    
    
    $
    .04
    
    
    $
    28.79
    
    
    $
    24.15
    
    
    $
    .02
 The principal market for our common stock is the New York Stock Exchange
(ticker symbol CTX). The approximate number of record holders of our common
stock at May 15, 2004 was 3,056. On March 12, 2004, we completed a two-for-one stock split in the form of a 100
percent stock dividend to our stockholders of record as of February 29, 2004.
All prior period stock prices and dividends per share have been restated to
give retroactive application to the stock split. Dividend amounts represent cash dividends per share paid by us quarterly on our
common stock. Effectively, the stock split mentioned above doubled Centexs
dividend. We currently expect that comparable cash dividends will continue to
be paid throughout fiscal year 2005. The remaining information called for by this item relating to securities
authorized for issuance under equity compensation plans is reported in Note
(M), Capital Stock and Employee Benefit Plans, of the
Notes to Consolidated Financial Statements on pages 87-91 of this Report. The following table details our common stock repurchases for the three
months ended March 31, 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 PlanPeriodJanuary 1-31
    
    No shares repurchased
    
    

    4,349,600
    
    
    
    1,672,800February 1-29
    
    
    396,000
    
    
    $
    50.70
    
    
    
    4,745,600
    
    
    
    3,604,000March 1-31
    
    
    880,000
    
    
    $
    55.17
    
    
    
    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 the stock split
discussed above. 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. On
May 29, 2003, Laurence E. Hirsch, an executive officer of Centex
Corporation, converted a convertible debenture in the principal amount of $2.1
million into 400,000 shares of Centex Corporation common stock. Centex
Corporation sold the debenture to Mr. Hirsch in May 1985. The 400,000 shares
of common stock issued by Centex Corporation to Mr. Hirsch were not registered
under the Securities Act of 1933 in reliance on the exemption from registration
provided by Section 3(a)(9) thereof, which exempts any security exchanged by
the issuer with its existing security holders exclusively where no commission
or other remuneration is paid or given directly or indirectly for soliciting
the exchange. 18




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##### Table of Contents



ITEM 6.
    SELECTED FINANCIAL DATA Summary of Selected Financial Data (Unaudited)(1)(Dollars in thousands, except per share data) For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Revenues
    
    $
    10,363,391
    
    
    $
    8,428,705
    
    
    $
    7,123,794
    
    
    $
    6,138,577
    
    
    $
    5,353,312Earnings from Continuing Operations (2)
    
    $
    777,131
    
    
    $
    526,812
    
    
    $
    358,402
    
    
    $
    265,194
    
    
    $
    192,021Net Earnings
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    382,226
    
    
    $
    281,977
    
    
    $
    257,132Stockholders Equity
    
    $
    3,050,225
    
    
    $
    2,657,846
    
    
    $
    2,116,773
    
    
    $
    1,714,064
    
    
    $
    1,419,349Net Earnings as a Percentage of
Beginning Stockholders Equity
    
    
    31.1
    %
    
    
    26.3
    %
    
    
    22.3
    %
    
    
    19.9
    %
    
    
    21.5
    %Total Assets
    
    $
    16,068,568
    
    
    $
    11,610,536
    
    
    $
    8,985,455
    
    
    $
    6,649,043
    
    
    $
    4,038,740Deferred Income Tax Assets
    
    $
    157,678
    
    
    $
    172,240
    
    
    $
    166,346
    
    
    $
    126,570
    
    
    $
    106,489Total Long-term Debt, Consolidated
    
    $
    8,615,864
    
    
    $
    6,181,543
    
    
    $
    4,776,199
    
    
    $
    2,758,118
    
    
    $
    746,535Debt (with Financial Services reflected
on the equity method) (3)
    
    $
    2,418,190
    
    
    $
    2,024,953
    
    
    $
    1,605,797
    
    
    $
    1,182,250
    
    
    $
    874,180Financial Services Debt
    
    
    8,302,190
    
    
    
    4,998,819
    
    
    
    3,485,027
    
    
    
    2,054,898
    
    
    
    415,327Total Debt, Consolidated
    
    $
    10,720,380
    
    
    $
    7,023,772
    
    
    $
    5,090,824
    
    
    $
    3,237,148
    
    
    $
    1,289,507Capitalization (with Financial Services
reflected on the equity method) (3) (4)
    
    $
    5,802,931
    
    
    $
    4,683,755
    
    
    $
    3,724,827
    
    
    $
    2,901,394
    
    
    $
    2,350,728Financial
Services Capitalization (4)
    
    
    8,820,005
    
    
    
    5,380,226
    
    
    
    3,797,355
    
    
    
    2,323,155
    
    
    
    620,080Consolidation Eliminations
    
    
    (516,280
    )
    
    
    (379,671
    )
    
    
    (310,353
    )
    
    
    (266,124
    )
    
    
    (202,931
    )Total Capitalization, Consolidated
    
    $
    14,106,656
    
    
    $
    9,684,310
    
    
    $
    7,211,829
    
    
    $
    4,958,425
    
    
    $
    2,767,877Debt as a Percentage of Capitalization (4)With Financial Services reflected on
the equity method (3)
    
    
    41.7
    %
    
    
    43.2
    %
    
    
    43.1
    %
    
    
    40.7
    %
    
    
    37.2
    %Consolidated
    
    
    76.0
    %
    
    
    72.5
    %
    
    
    70.6
    %
    
    
    65.3
    %
    
    
    46.6
    %Per Common Share (5)Earnings from Continuing Operations (2)Per Share  Basic
    
    $
    6.30
    
    
    $
    4.33
    
    
    $
    2.96
    
    
    $
    2.25
    
    
    $
    1.62Earnings from Continuing Operations (2)Per Share  Diluted
    
    $
    6.01
    
    
    $
    4.18
    
    
    $
    2.87
    
    
    $
    2.18
    
    
    $
    1.58Net Earnings Per Share  Basic
    
    $
    6.71
    
    
    $
    4.57
    
    
    $
    3.16
    
    
    $
    2.39
    
    
    $
    2.17Net Earnings Per Share  Diluted
    
    $
    6.40
    
    
    $
    4.41
    
    
    $
    3.06
    
    
    $
    2.32
    
    
    $
    2.11Cash Dividends
    
    $
    .10
    
    
    $
    .08
    
    
    $
    .08
    
    
    $
    .08
    
    
    $
    .08Book Value Based on Shares
Outstanding at Year End
    
    $
    24.87
    
    
    $
    21.84
    
    
    $
    17.30
    
    
    $
    14.30
    
    
    $
    12.07Average Shares OutstandingBasic
    
    
    123,382,068
    
    
    
    121,564,084
    
    
    
    121,121,576
    
    
    
    118,190,806
    
    
    
    118,616,316Diluted
    
    
    129,392,821
    
    
    
    126,116,312
    
    
    
    125,058,294
    
    
    
    121,321,770
    
    
    
    121,857,960Stock PricesHigh
    
    $
    58.40
    
    
    $
    29.60
    
    
    $
    31.55
    
    
    $
    23.10
    
    
    $
    21.44Low
    
    $
    26.78
    
    
    $
    19.16
    
    
    $
    14.02
    
    
    $
    10.32
    
    
    $
    8.75
  (1)
    
    The selected financial data presented in this table for the periods
covered by the financial statements included in this Report and all prior
periods have been adjusted to reflect our Construction Products operations
(spun off in January 2004) and our manufactured housing operations (spun
off in June 2003) as discontinued operations.(2)
    
    Earnings from Continuing Operations are Before Cumulative Effect of a
Change in Accounting Principle. For more detailed discussion of the
change in accounting principle, see Note (F), Indebtedness of the Notes
to Consolidated Financial Statements on pages 74-78 of this Report.(3)
    
    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 financing programs substantially on a stand alone basis;
and we have 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.(4)
    
    Capitalization is composed of Debt, Negative Goodwill, Minority Interest
and Stockholders Equity. Minority interest in fiscal 2004 includes
$332.7 million of minority interests recorded in connection with the
consolidation of certain entities with which Home Building has lot option
agreements. Negative Goodwill arose in conjunction with the combination
of Centex Real Estate Corporation with Vista Properties, Inc. in the
fiscal year ended March 31, 1997. Fiscal years 2001 and 2000 include the
accretion of negative goodwill to earnings as a reduction of costs and
expenses. During fiscal 2001, negative goodwill was fully accreted.(5)
    
    On March 12, 2004, we completed a two-for-one stock split in the form of
a 100 percent stock dividend to our stockholders of record as of February
29, 2004. All prior period stock prices, dividends and earnings per share
have been restated to give retroactive application to the stock split.   19




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##### Table of Contents



ITEM 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Executive Summary The following summarizes our results for the three-year period ended March 31, 2004: Revenues  (BAR CHART) 04                      03                         02

Total                               10,363                8,429                  7,124
Home Building                        7,600                5,923                   4,972
Financial Services                   1,048                  855                     700
Construction Services                1,596                1,518                   1,296
Other                                  119                  133                     156 Earnings (Loss) from Continuing Operations Before Income Tax
and Cumulative Effect of a Change in Accounting Principle  (BAR CHART) 04                        03                        02
Total                    1,149                     747                580
Home Building            1,005                     652                 499
Financial Services         230                     162                115
Construction Services       17                      31                  36
Other                     (103)                    (98)                (70) Other consists of the financial results of Investment Real Estate, home
services operations, corporate general and administrative expense and interest
expense. Fiscal year 2004 represents our eighth consecutive year of growth in
revenues and earnings from continuing operations. As outlined in the charts
above, in 2004 revenues increased 23% to $10.36 billion and 20




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##### Table of Contents



earnings from
continuing operations increased 54% to $1.15 billion. The increase in revenues
and operating
earnings is primarily the result of the operating results of our Home
Building segment, complemented by improved operating results of our Financial
Services segment. The growth in operating earnings from these segments was
offset, to a much lesser extent, by a decline in operating earnings of our
Construction Services segment. In addition to the execution of our organic
growth strategy in our primary business segments (Home Building, Financial
Services and Construction Services), in fiscal year 2004, we also (i)
distributed $0.46 per share, split adjusted, in value to our
stockholders through the spin-off of substantially all of our
manufactured housing operations, (ii) distributed $5.29 per share,
split adjusted, in value to our stockholders through the spin-off
of our Construction Products segment, (iii) repurchased 3,426,200 shares of
common stock and (iv) completed a two-for-one stock split, without changing
the per share dividend, effectively doubling our cash dividend to stockholders
beginning in the fourth quarter. Home Buildings organic growth strategy is driven primarily by growth in
neighborhoods open for sale, increases in closings per neighborhood, increases
in average selling prices, and continued improvements in operating margins.
Over the last two fiscal years, Home Buildings domestic operations have
increased average neighborhood count from 474 to 558 and closings per average
neighborhood from 48.4 to 54.4. Over that same period of time, operating
margins have also improved from 9.8% to 12.8%. The overall demand for housing in the United States remains favorable, and
is driven by population growth, demographics, immigration, household formations
and increasing home ownership rates. Short-term growth drivers such as
mortgage rates, consumer confidence and employment levels can also impact
housing demand. The highly fragmented homebuilding industry 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 realize the benefits of size, such as capital strength, more
efficient operations and technological advantages. Currently, we have homebuilding operations in 45 of the 50 largest housing
markets in the United States. We have largely completed our geographic
diversification plan and are now focused primarily on further penetration in
our existing markets. Financial Services operating results over the last two years have been
favorably impacted by increases in loan originations reflective of a favorable
mortgage interest rate environment and improvements in interest spread. The
favorable rate environment also created substantial refinance activity.
Thirty-year conventional mortgage fixed interest rates were 5.45%, 5.75% and
7.01% as of March 31, 2004, 2003 and 2002 respectively. In addition to the
increases in loan originations, the Financial Services operations have also
improved their operating leverage, which has had a positive effect on their
operating earnings. Our Financial Services segment will continue to focus on
serving the customers of our Home Building segment and increasing the
percentage of conforming mortgage loans provided to them. For the year ended
March 31, 2004, our conforming mortgage business financed approximately 74% of
our Home Building non-cash unit closings. In addition, the Financial Services
growth model includes plans to increase the number of loan officers originating
Retail loans and improve their productivity. Our conforming mortgage
lending
business is a fee-based business with low capital requirements. Our Financial
Services segment also includes our sub-prime home equity lending operations,
which is a portfolio-based model that produces more predictable earnings. 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 21




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##### Table of Contents



prospective home buyers to finance home purchases and/or 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 have decreased over
the last two years as a result of challenges in the overall commercial
construction industry. Industry conditions have created increased pricing
pressure on construction companies, which in turn has reduced our Construction
Services operating margins. However, revenues have increased over the last two
years due to our focus on increasing market share. The commercial construction
environment remains challenged but is showing signs of improvement as evidenced
by the increase in backlog. At March 31, 2004, the backlog was $1.75 billion,
an increase of 14.9% over 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. In fiscal year 2004, we consummated several transactions the most
significant of which were the spin-offs to our stockholders of
substantially all of our manufactured housing operations on June
30, 2003 and our entire ownership interest in Construction Products, a former majority owned
subsidiary, on January 30, 2004. Since the dates of the spin-offs, the assets
and liabilities of manufactured housing and Construction Products are no longer included in our
consolidated balance sheet, their revenues and earnings are no longer included in
our consolidated results of continuing operations, and we no longer operate in
the Construction Products business segment. Manufactured housing and Construction Products are reported
as discontinued operations in our consolidated financial statements contained
in this Report. FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003 HOME BUILDING The following summarizes the results of our Home Building operations for
the two-year period ended March 31, 2004 (dollars in millions except per unit
data and lot information): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues  Housing
    
    $
    7,438.0
    
    
    
    27.8
    %
    
    $
    5,818.8
    
    
    
    18.9
    %Revenues  Land Sales and Other
    
    
    161.5
    
    
    
    55.4
    %
    
    
    103.9
    
    
    
    34.2
    %Cost of Sales  Housing
    
    
    (5,460.8
    )
    
    
    25.2
    %
    
    
    (4,362.7
    )
    
    
    17.8
    %Cost of Sales  Land Sales and Other
    
    
    (146.4
    )
    
    
    60.4
    %
    
    
    (91.3
    )
    
    
    40.7
    %Selling, General and Administrative
Expenses
    
    
    (1,042.3
    )
    
    
    22.7
    %
    
    
    (849.2
    )
    
    
    16.4
    %Earnings from Unconsolidated
Entities
    
    
    55.3
    
    
    
    71.7
    %
    
    
    32.2
    
    
    
    29.3
    %Operating Earnings
    
    $
    1,005.3
    
    
    
    54.3
    %
    
    $
    651.7
    
    
    
    30.6
    %Operating Earnings as a Percentage
of Revenues
    
    
    13.2
    %
    
    NM
    
    
    11.0
    %
    
    NM
 22




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##### Table of Contents



Home
Buildings results are derived from its domestic and
international operations as described below. Domestic 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. The following summarizes the results of our Home Building
domestic operations for the two-year period ended March 31, 2004: For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeUnits Closed
    
    
    30,358
    
    
    
    14.9
    %
    
    
    26,427
    
    
    
    15.1
    %Average Unit Sales Price
    
    $
    242,465
    
    
    
    10.1
    %
    
    $
    220,183
    
    
    
    3.0
    %Operating Earnings Per Unit
    
    $
    31,816
    
    
    
    33.2
    %
    
    $
    23,889
    
    
    
    12.7
    %Backlog Units
    
    
    15,414
    
    
    
    27.9
    %
    
    
    12,050
    
    
    
    28.6
    %Average Operating Neighborhoods
    
    
    558
    
    
    
    7.5
    %
    
    
    519
    
    
    
    9.5
    %Closings Per Average Neighborhood
    
    
    54.4
    
    
    
    6.9
    %
    
    
    50.9
    
    
    
    5.2
    %Lots Owned
    
    
    77,475
    
    
    
    29.5
    %
    
    
    59,844
    
    
    
    37.5
    %Lots Controlled
    
    
    115,366
    
    
    
    62.7
    %
    
    
    70,926
    
    
    
    39.6
    %Total Lots Owned and Controlled
    
    
    192,841
    
    
    
    47.5
    %
    
    
    130,770
    
    
    
    38.6
    %
 Home Buildings financial performance 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 The following summarizes changes in performance indicators for the year
ended March 31, 2004 as compared to the prior year. We define a neighborhood as an individual active selling location targeted
to a specific buyer segment. The 7.5% growth in neighborhoods achieved in
fiscal 2004 was down slightly from the prior years growth of 9.5%. During the
year, we added 316 new neighborhoods and closed out of 308 neighborhoods. Our
record fourth quarter sales resulted in some existing neighborhoods
being closed out (i.e., all remaining units sold) earlier than anticipated.
In addition, to maximize our pricing opportunities, we delayed the opening of
other neighborhoods. The increase in closings per average neighborhood in fiscal 2004 was the
result of higher sales rates due to our continued focus on market research,
activity-based sales management and Internet marketing. Sales orders for the
year were strong across all of our operating regions and totaled 33,722 units,
an increase of 18% versus the prior year. Home closing volume also increased
15%, to 30,358 homes. Strong residential housing market conditions, combined with our
geographic, product and segment diversification strategies, continued to drive
higher average selling prices. For fiscal 2004, average selling prices were up
10% to $242,465. Average selling prices, excluding California, were up 9% to
$210,724 and Californias average selling price was up 13% to $445,462. 23




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##### Table of Contents



Operating
margins for our domestic homebuilding operations improved to
12.8% for the fiscal year from 10.7% in the prior year. Increased unit volume,
average selling price increases and continued focus on lowering direct
construction and selling, general and administrative costs 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 (primarily local vendors),
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 year, 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 March 31, 2004 would produce approximately 100% of our
projected closings for fiscal year 2005, 80% of our projected closings for
fiscal year 2006, and 55% of our projected closings for fiscal year 2007. International In
February 2004, we acquired through merger transactions the Partnership, an
investment previously accounted for 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 segment, have
been reclassified to the Home Building segment to conform to the presentation
subsequent to the merger. 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 throughout the United Kingdom. Included in Home Buildings
operating results were revenues and operating earnings of $80.5 million and
$14.1 million, respectively, for the one-month period subsequent
to the merger transactions.
Earnings from unconsolidated entities related to the international
homebuilding operations of the Partnership were $25.3 million for the period from
April 1, 2003 through February 29, 2004, the date of the merger, and $20.4
million for the fiscal year ended March 31, 2003. 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. 24




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##### Table of Contents



The following summarizes the results of our Financial Services operations
for the two-year period ended March 31, 2004 (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    1,047.9
    
    
    
    22.6
    %
    
    $
    855.0
    
    
    
    22.2
    %Cost of Sales
    
    
    (223.8
    )
    
    
    21.3
    %
    
    
    (184.5
    )
    
    
    16.0
    %Selling, General and Administrative
Expenses
    
    
    (593.8
    )
    
    
    16.7
    %
    
    
    (508.7
    )
    
    
    19.4
    %Operating Earnings
    
    $
    230.3
    
    
    
    42.3
    %
    
    $
    161.8
    
    
    
    41.1
    %Interest Margin
    
    $
    302.0
    
    
    
    75.2
    %
    
    $
    172.4
    
    
    
    60.1
    %Origination Volume
    
    $
    19,036.7
    
    
    
    15.4
    %
    
    $
    16,497.4
    
    
    
    13.5
    %Number of Loans Originated
    
    
    125,005
    
    
    
    9.3
    %
    
    
    114,382
    
    
    
    6.6
    %Number of Loan Applications
    
    
    430,439
    
    
    
    27.3
    %
    
    
    338,136
    
    
    
    35.8
    %
 Financial Services results are primarily derived from conforming mortgage
lending and sub-prime home equity lending operations as described below. Conforming Mortgage Lending The following summarizes the results of our Conforming Mortgage Lending
operations for the two-year period ended March 31, 2004 (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    521.1
    
    
    
    14.8
    %
    
    $
    453.9
    
    
    
    14.3
    %Cost of Sales
    
    
    (21.9
    )
    
    
    212.9
    %
    
    
    (7.0
    )
    
    
    (50.7
    %)Selling, General and Administrative
Expenses
    
    
    (333.4
    )
    
    
    0.4
    %
    
    
    (332.2
    )
    
    
    13.2
    %Operating Earnings
    
    $
    165.8
    
    
    
    44.6
    %
    
    $
    114.7
    
    
    
    28.0
    %Interest Margin
    
    $
    47.4
    
    
    
    457.6
    %
    
    $
    8.5
    
    
    
    32.8
    %Average Interest Earning Assets
    
    $
    1,332.4
    
    
    
    570.9
    %
    
    $
    198.6
    
    
    
    (18.5
    %)Average Yield
    
    
    5.99
    %
    
    NM
    
    
    7.18
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    1,246.2
    
    
    
    841.2
    %
    
    $
    132.4
    
    
    
    (37.3
    %)Average Rate Paid
    
    
    1.59
    %
    
    NM
    
    
    4.08
    %
    
    NM
 The revenues and operating earnings of CTX Mortgage Company, LLC and its
related companies are derived primarily from the sale of mortgage loans,
inclusive of all servicing rights and, to a lesser extent, 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. 25




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##### Table of Contents



Our business strategy of selling conforming loans reduces our capital
investment and related risks, provides substantial liquidity and is an
efficient process given the size and maturity of the conforming 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, is consolidated with our Financial Services segment.
As a result of the consolidation of HSF-I, we recorded a cumulative effect of a
change in accounting principle of $13.3 million, net of tax, in the quarter
ended September 30, 2003. This cumulative effect of a change in accounting
principle primarily represented the deferral of service release premium income,
offset to a lesser extent by the deferral of certain loan origination costs,
which was recognized as loans were sold into the secondary market. The
consolidation of HSF-I resulted in an increase in our residential mortgage
loans held for sale with a corresponding increase in our debt of approximately
$1.32 billion at March 31, 2004. In addition, interest income and interest
expense of HSF-I subsequent to June 30, 2003 are reflected in our financial
statements. As a result of the consolidation, interest expense reflected as
cost of sales in the table above increased approximately $15 million. HSF-I
purchases mortgage loans, at closing, from CTX Mortgage Company, LLC with the
proceeds from the issuance of securitized medium term notes, secured liquidity
notes and subordinated certificates that are extendable for up to five years.
CTX Mortgage Company, LLC and its related companies sold $16.25 billion of
mortgage loans to investors during the year ended March 31, 2004. CTX Mortgage
Company, LLC sold $10.55 billion of mortgage loans to HSF-I and other investors
during the year ended March 31, 2003. CTX Mortgage Company, LLC and its
related companies recognized gains on the sale of mortgage loans of $240.4
million and $254.5 million for the years ended March 31, 2004 and 2003,
respectively. In the normal course of its activities, CTX Mortgage Company, LLC carries
inventories of loans pending sale to third-party investors and earns an
interest margin, that 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. CTX Mortgage Company, LLC uses HSF-I and short-term
mortgage warehouse facilities to finance these inventories of loans. The
significant increase in interest margin is due to the consolidation of HSF-I
interest income and expense in our financial statements subsequent to June 30,
2003. The increase in revenues for the year ended March 31, 2004 is the result
of an increase in the volume of loans originated and sold to the secondary
market, and to a lesser extent, higher revenues from Title and Insurance
operations. The following table provides a comparative analysis of mortgage
loan originations and applications for the two-year period ended March 31,
2004: For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    15,116.0
    
    
    
    8.0
    %
    
    $
    13,991.2
    
    
    
    12.4
    %Number of Loans OriginatedBuilder
    
    
    20,865
    
    
    
    15.1
    %
    
    
    18,127
    
    
    
    17.4
    %Retail
    
    
    67,481
    
    
    
    1.0
    %
    
    
    66,807
    
    
    
    2.9
    %88,346
    
    
    
    4.0
    %
    
    
    84,934
    
    
    
    5.7
    %Number of Loan ApplicationsBuilder
    
    
    24,031
    
    
    
    19.5
    %
    
    
    20,103
    
    
    
    23.0
    %Retail
    
    
    65,514
    
    
    
    (6.3
    %)
    
    
    69,883
    
    
    
    16.1
    %89,545
    
    
    
    (0.5
    %)
    
    
    89,986
    
    
    
    17.6
    %Average Loan Size
    
    $
    171,100
    
    
    
    3.9
    %
    
    $
    164,700
    
    
    
    6.4
    %Profit Per Loan
    
    $
    1,839
    
    
    
    34.3
    %
    
    $
    1,369
    
    
    
    20.4
    %
 The
increase in loan originations is primarily reflective of an increase related to loans
originated for Centex Homes buyers. CTX Mortgage Company, LLC
originated 74% of the non-cash closings of Centex 26




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##### Table of Contents



Homes buyers, an increase of
1% from the prior year. Per-loan profit increased due to increased operational
leverage as a result of the increase in the volume of originations, as well as
an increase in Title and Insurance earnings. CTX Mortgage Company, LLCs operations are influenced by borrowers
perceptions of and reactions to interest rates. Refinancing activity accounted
for 39% and 42% of originations in 2004 and 2003, respectively. Any
significant increase in mortgage interest rates above currently prevailing low
levels could affect the ability or willingness of prospective home buyers to
finance home purchases and/or 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. Sub-Prime Home Equity Lending The following summarizes the results of our Sub-Prime Home Equity Lending
operations for the two-year period ended March 31, 2004 (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    526.8
    
    
    
    31.3
    %
    
    $
    401.1
    
    
    
    32.6
    %Cost of Sales
    
    
    (201.9
    )
    
    
    13.7
    %
    
    
    (177.5
    )
    
    
    22.5
    %Selling, General and Administrative
Expenses:Operating Expenses
    
    
    (180.9
    )
    
    
    27.8
    %
    
    
    (141.6
    )
    
    
    22.9
    %Loan Loss Provision
    
    
    (79.5
    )
    
    
    127.8
    %
    
    
    (34.9
    )
    
    
    100.6
    %Operating Earnings
    
    $
    64.5
    
    
    
    36.9
    %
    
    $
    47.1
    
    
    
    87.6
    %Interest Margin
    
    $
    254.6
    
    
    
    55.3
    %
    
    $
    163.9
    
    
    
    61.8
    %Average Interest Earning Assets
    
    $
    5,592.2
    
    
    
    43.6
    %
    
    $
    3,895.5
    
    
    
    48.4
    %Average Yield
    
    
    8.16
    %
    
    NM
    
    
    8.76
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    5,822.6
    
    
    
    43.8
    %
    
    $
    4,049.2
    
    
    
    52.6
    %Average Rate Paid
    
    
    3.47
    %
    
    NM
    
    
    4.38
    %
    
    NM
 The revenues of Centex Home Equity Company, LLC, or Home Equity, are
derived primarily from interest income on mortgage loans held for investment.
Home Equitys operating earnings are derived primarily from the net interest
margin on mortgage loans held for investment. The majority of Home Equitys
loan originations are securitized and accounted for as borrowings; interest is
recorded over the life of the loans using the interest, or actuarial method;
the mortgage loans receivable and the securitization debt remain on Home
Equitys balance sheet and the related interest margin is reflected in our
income statement. We commonly refer to these securitized mortgage loans as
portfolio accounting method loans. This structure of securitizations has been
utilized since April 1, 2000. Previous loans originated were included in securitizations that
utilized a structure that caused them to be accounted for as sales. Under this
structure, Home Equity retained a residual interest in, as well as the
servicing rights to, the securitized loans. We call this retained residual
interest the mortgage securitization residual interest, or MSRI. Our balance
sheet does not reflect the mortgage loans receivable and offsetting debt
resulting from these securitizations, which were accounted for as sales. The
estimated gain on the sale of these loans was included in earnings during the
period in which the securitization transaction closed. 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 change in structure of 27




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##### Table of Contents



the securitizations has no
effect on the ultimate cash flow and profit recognized over the life of the
mortgages. However, the change in accounting for securitizations did affect
the timing of profit recognition. Interest margin, which is recognized over
the life of the loan, is now Home Equitys primary source of operating income
as compared to gain on sale of loans, which previously was recognized upon
securitization. Home equity loans are securitized to provide a low cost
method for funding our mortgage operations and to reduce our interest rate
exposure on fixed rate loans. In addition to Home Equitys mortgage loans
held for investment, in fiscal year 2004, Home Equity sold 2% of its mortgage
loans originated to a government sponsored enterprise, which were accounted for
as sales. The revenues of Home Equity increased for the year ended March 31, 2004 as
a result of continued growth in our portfolio of residential mortgage loans
held for investment. 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, 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 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 significantly 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 summarizes Home Equitys portfolio of mortgage loans, based
on the securitization structure, as of March 31, 2004 and 2003: For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeServicing Portfolio:Number of LoansPortfolio Accounting Method
    
    
    76,215
    
    
    
    24.8
    %
    
    
    61,073
    
    
    
    35.1
    %Other
    
    
    10,858
    
    
    
    (18.5
    %)
    
    
    13,329
    
    
    
    (24.4
    %)Total
    
    
    87,073
    
    
    
    17.0
    %
    
    
    74,402
    
    
    
    18.4
    %Dollars in billionsPortfolio Accounting Method
    
    $
    6.50
    
    
    
    40.1
    %
    
    $
    4.64
    
    
    
    42.8
    %Other
    
    
    0.64
    
    
    
    (23.8
    %)
    
    
    0.84
    
    
    
    (25.0
    %)Total
    
    $
    7.14
    
    
    
    30.3
    %
    
    $
    5.48
    
    
    
    25.4
    %
 The following table provides a comparative analysis of mortgage loan
originations and applications for the two-year period ended March 31, 2004: For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    3,920.7
    
    
    
    56.4
    %
    
    $
    2,506.2
    
    
    
    19.8
    %Number of Loans Originated
    
    
    36,659
    
    
    
    24.5
    %
    
    
    29,448
    
    
    
    9.2
    %Number of Loan Applications
    
    
    340,894
    
    
    
    37.4
    %
    
    
    248,150
    
    
    
    43.9
    %Average Loan Size
    
    $
    106,900
    
    
    
    25.6
    %
    
    $
    85,100
    
    
    
    9.7
    %
 28




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##### Table of Contents



The increase in origination volume 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 increase in Home Equitys operating earnings is primarily the result
of the increase in interest margin, as noted above. Interest income will be
positively affected as the portfolio of mortgage loans held for investment
increases and matures. The increase in interest margin was partially offset by
an increase in servicing and production costs, mostly attributable to loan
volume and loan servicing growth, and an increase in the provision for losses
on residential mortgage loans held for investment. Home Equitys selling, general and administrative expenses increased as a
result of Home Equitys growth. Home Equitys increase in loan production
volume, the expansion of its branch offices and the increase in the number of
its employees are directly related to a corresponding increase in salaries and
related costs, rent expense, group insurance costs and advertising
expenditures. The remainder of the increase was due to an increase in the
provision for loan losses. The increase in the provision for losses in fiscal 2004 occurred primarily
because the amount of the residential mortgage loans held for investment
increased and the residential mortgage loan portfolio continued to mature. As
the age and size of the residential mortgage loan portfolio continues to mature
and grow, we expect the provision for losses, the loans charged off and the
allowance ratios 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 on page 46 of this Report. Changes in the
allowance for losses is included in Note (C), Allowance for Losses on
Residential Mortgage Loans Held for Investment, of the Notes to Consolidated
Financial Statements on page 72 of this Report. 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.
 See Note (A), Significant Accounting
Policies, of the Notes to Consolidated Financial Statements on
pages 62-71 of this
Report. CONSTRUCTION SERVICES The following summarizes Construction Services results for the two-year
period ended March 31, 2004 (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    1,596.3
    
    
    
    5.2
    %
    
    $
    1,517.9
    
    
    
    17.1
    %Operating Earnings
    
    $
    16.4
    
    
    
    (46.6
    %)
    
    $
    30.7
    
    
    
    (15.2
    %)New Contracts Executed
    
    $
    1,823
    
    
    
    112.7
    %
    
    $
    857
    
    
    
    (41.1
    %)Backlog of Uncompleted Contracts
    
    $
    1,746
    
    
    
    14.9
    %
    
    $
    1,520
    
    
    
    (30.3
    %)
 Operating earnings for Construction Services decreased as a result of
depressed market conditions and the resulting pricing pressure. In addition,
in fiscal 2004, Construction Services recorded a project loss of $4.5 million
related to the construction of a distribution facility and incurred
approximately $2.7 million of costs associated with its decision to exit the
pharmaceutical and industrial construction markets. The increases in new
contracts executed and backlog of uncompleted contracts were the result of our
strategy to increase market 29




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##### Table of Contents



share by focusing on key geographic markets and
certain industry markets. 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 March 31, 2004 and 2003, such work, which is not
included in backlog, was approximately $2.03 billion and $1.94 billion,
respectively. There is no assurance that this awarded work will result in
future revenues. INVESTMENT REAL ESTATE The following summarizes Investment Real Estates results for the two-year
period ended March 31, 2004 (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    37.9
    
    
    
    13.8
    %
    
    $
    33.3
    
    
    
    (37.6
    %)Earnings from
Unconsolidated
Entities
    
    $
    14.5
    
    
    
    9.8
    %
    
    $
    13.2
    
    
    
    97.0
    %Operating Earnings
    
    $
    44.8
    
    
    
    31.8
    %
    
    $
    34.0
    
    
    
    (5.0
    %)
 The changes in revenues and operating earnings were primarily related to
the timing of property sales. Property sales contributed operating earnings of
$30.8 million for the year ended March 31, 2004 and $18.3 million for the same
period last year. The timing of sales is uncertain and can vary significantly
from period to period. It is not currently anticipated that any significant
capital will be allocated to Investment Real Estate for new business
development. Effective April 1, 2004, Investment Real Estate will be included
in the Other segment. OTHER Our Other segment includes our home services 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 segment information below. Other consisted of the following (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOperating Loss from home services
    
    $
    (2.3
    )
    
    
    (76.0
    %)
    
    $
    (9.6
    )
    
    
    (340.0
    %)Corporate General and Administrative
Expenses
    
    
    (105.5
    )
    
    
    75.0
    %
    
    
    (60.3
    )
    
    
    20.1
    %Interest Expense
    
    
    (39.9
    )
    
    
    (33.8
    %)
    
    
    (60.3
    )
    
    
    2.9
    %Other
    
    
    
    
    
    
    (100.0
    %)
    
    
    (0.6
    )
    
    
    
    %Operating Loss
    
    $
    (147.7
    )
    
    
    12.9
    %
    
    $
    (130.8
    )
    
    
    24.1
    %
 The decrease in our home services divisions operating loss in fiscal 2004
is primarily due to an $8.0 million provision recorded in the fourth quarter of
fiscal 2003 to reduce the carrying value of its remaining home security
monitoring assets to estimated fair value. Our home services operations sold
substantially all of its remaining security monitoring assets in fiscal 2004. The sale of these operations did
not have a material effect on home services operating loss in fiscal 2004. 30




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##### Table of Contents



Corporate general and administrative expenses represent corporate employee
compensation and other corporate costs such as investor communications,
insurance, rent and professional services. The increase in corporate general
and administrative expenses is primarily related to compensation increases
reflective of
additional personnel to support the growth in our operations and higher
performance-related compensation levels due to the expensing of stock
options and increases in our earnings and
returns. In addition, in fiscal 2004, we recorded an incremental $16 million
in employee compensation related to acceleration of certain executive
compensation costs for the March 31, 2004 retirement of an executive officer. Total interest costs, including interest expensed and relieved to Home
Buildings costs and expenses and excluding interest to Financial Services, for
the years ended March 31, 2004 and 2003, were $129.0 million and $109.8
million, respectively. The increase in total interest costs is primarily
related to an increase in average debt outstanding for the fiscal year 2004, as
compared to the prior year. This increase is offset by slightly lower
borrowing costs in the fiscal year 2004, as compared to the prior year. For
additional discussion of interest costs, see Note (A), Significant Accounting
Policies of the Notes to Consolidated Financial Statements on
pages 62-71 of this Report. Our effective tax rate related to continuing operations increased to 32%
from 30% in the prior year primarily due to the decrease in the
utilization of net operating loss carryforwards during fiscal 2004 compared to
fiscal 2003. We expect that the effective tax rate will increase in fiscal
2005 to approximately 35%. The expected increase in the effective tax
rate is primarily due to the reduction of net operating loss
carryforwards available to offset future taxable income. DISCONTINUED OPERATIONS In June 2003, we spun off 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 Construction Products. As a result
of the spin-offs, the earnings from these operations 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 March 31, 2004 presentation. For the years ended March 31, 2004 and 2003, discontinued operations had
revenues of $461.9 million and $643.2 million and operating earnings of $49.9
million and $47.5 million, respectively. In connection with the tax-free
distribution of our interests in Construction Products, we recognized, as a
component of discontinued operations, a tax benefit of $33.5 million. The tax
benefit is a result of the reversal of a deferred tax liability for the
difference between the financial carrying amount of our investment in
Construction Products and the respective tax basis, which was no longer
required given the tax-free nature of the distribution. In connection with
the spin-offs, we recorded a dividend to stockholders of $420.3 million
representing our net investments in manufactured housing operations and
Construction Products on the respective spin-off dates. 31




---



##### Table of Contents



FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002 HOME BUILDING The following summarizes the results of our Home Building operations for
the two-year period ended March 31, 2003 (dollars in millions except per unit
data and lot information): For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    
    % ChangeRevenues  Housing
    
    $
    5,818.8
    
    
    
    18.9
    %
    
    $
    4,894.8
    
    
    
    15.1
    %Revenues  Land Sales and Other
    
    
    103.9
    
    
    
    34.2
    %
    
    
    77.4
    
    
    
    (24.3
    %)Cost of Sales  Housing
    
    
    (4,362.7
    )
    
    
    17.8
    %
    
    
    (3,703.9
    )
    
    
    12.5
    %Cost of Sales  Land Sales and Other
    
    
    (91.3
    )
    
    
    40.7
    %
    
    
    (64.9
    )
    
    
    12.3
    %Selling, General and Administrative
Expenses
    
    
    (849.2
    )
    
    
    16.4
    %
    
    
    (729.4
    )
    
    
    18.6
    %Earnings from Unconsolidated
Entities
    
    
    32.2
    
    
    
    29.3
    %
    
    
    24.9
    
    
    
    8,400.0
    %Operating Earnings
    
    $
    651.7
    
    
    
    30.6
    %
    
    $
    498.9
    
    
    
    27.8
    %Operating Earnings as a Percentage
of Revenues
    
    
    11.0
    %
    
    NM
    
    
    10.0
    %
    
    NM
 Domestic The following summarizes the results of our Home Building domestic
operations for the two-year period ended March 31, 2003: For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    
    % ChangeUnits Closed
    
    
    26,427
    
    
    
    15.1
    %
    
    
    22,960
    
    
    
    11.1
    %Average Unit Sales Price
    
    $
    220,183
    
    
    
    3.0
    %
    
    $
    213,738
    
    
    
    3.8
    %Operating Earnings Per Unit
    
    $
    23,889
    
    
    
    12.7
    %
    
    $
    21,193
    
    
    
    12.2
    %Backlog Units
    
    
    12,050
    
    
    
    28.6
    %
    
    
    9,371
    
    
    
    1.1
    %Average Operating Neighborhoods
    
    
    519
    
    
    
    9.5
    %
    
    
    474
    
    
    
    3.7
    %Closings Per Average Neighborhood
    
    
    50.9
    
    
    
    5.2
    %
    
    
    48.4
    
    
    
    7.1
    %Lots Owned
    
    
    59,844
    
    
    
    37.5
    %
    
    
    43,513
    
    
    
    16.6
    %Lots Controlled
    
    
    70,926
    
    
    
    39.6
    %
    
    
    50,819
    
    
    
    17.8
    %Total Lots Owned and Controlled
    
    
    130,770
    
    
    
    38.6
    %
    
    
    94,332
    
    
    
    17.2
    %
 Revenues increased for the year ended March 31, 2003 primarily due to an
increase in units closed and higher unit sales prices. The increase in units
closed was the result of a higher number of operating neighborhoods in fiscal
2003 versus fiscal 2002. The increase in the unit sales price was largely
driven by higher selling prices in the Washington, D.C., New Jersey and
California markets. Cost of sales was 75.2% of revenues for the year ended March 31, 2003
compared to 75.8% of revenues for the same period in the prior year. The
decrease in cost of sales as a percentage of revenue is a result of higher per
unit sales price and ongoing cost reduction efforts. The increase in selling,
general and 32




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##### Table of Contents



administrative expenses was due to incremental costs associated with closing
more homes and higher personnel costs to support Home Buildings growth in
neighborhoods. As a result of the increase in revenues, decrease in cost of sales as a
percentage of revenues, and the continued leverage of the selling, general and
administrative expenses discussed above, operating earnings for the year ended
March 31, 2003 were 10.7% of revenues compared to operating earnings of 9.8% of
revenues for the same period last year. Units in backlog increased due to an increase in neighborhoods and an
increase in sales versus the prior year. Included in Home Buildings financial results is equity in earnings of the
Partnerships international operations of $20.4 million and $12.3 million for
the years ended March 31, 2003 and 2002, which was reclassified from the
Investment Real Estate segment to conform to the fiscal year 2004 presentation. FINANCIAL SERVICES The following summarizes the results of our Financial Services operations
for the two-year period ended March 31, 2003 (dollars in millions): For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    855.0
    
    
    
    22.2
    %
    
    $
    699.8
    
    
    
    50.9
    %Cost of Sales
    
    
    (184.5
    )
    
    
    16.0
    %
    
    
    (159.1
    )
    
    
    71.8
    %Selling, General and
Administrative Expenses
    
    
    (508.7
    )
    
    
    19.4
    %
    
    
    (426.0
    )
    
    
    21.3
    %Operating Earnings
    
    $
    161.8
    
    
    
    41.1
    %
    
    $
    114.7
    
    
    
    482.2
    %Interest Margin
    
    $
    172.4
    
    
    
    60.1
    %
    
    $
    107.7
    
    
    
    245.2
    %Origination Volume
    
    $
    16,497.4
    
    
    
    13.5
    %
    
    $
    14,537.9
    
    
    
    37.2
    %Number of Loans Originated
    
    
    114,382
    
    
    
    6.6
    %
    
    
    107,339
    
    
    
    23.1
    %Number of Loan Applications
    
    
    338,136
    
    
    
    35.8
    %
    
    
    249,030
    
    
    
    13.5
    %
 33




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##### Table of Contents



Conforming Mortgage
Lending The
following summarizes the results of our Conforming Mortgage Lending
operations for the two-year period ended March 31, 2003 (dollars in millions): For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    453.9
    
    
    
    14.3
    %
    
    $
    397.2
    
    
    
    30.8
    %Cost of Sales
    
    
    (7.0
    )
    
    
    (50.7
    %)
    
    
    (14.2
    )
    
    
    (21.5
    %)Selling, General and Administrative
Expenses
    
    
    (332.2
    )
    
    
    13.2
    %
    
    
    (293.4
    )
    
    
    16.6
    %Operating Earnings
    
    $
    114.7
    
    
    
    28.0
    %
    
    $
    89.6
    
    
    
    163.5
    %Interest Margin
    
    $
    8.5
    
    
    
    32.8
    %
    
    $
    6.4
    
    
    
    700.0
    %Average Interest Earning Assets
    
    $
    198.6
    
    
    
    (18.5
    %)
    
    $
    243.7
    
    
    
    11.1
    %Average Yield
    
    
    7.18
    %
    
    NM
    
    
    7.86
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    132.4
    
    
    
    (37.3
    %)
    
    $
    211.0
    
    
    
    9.2
    %Average Rate Paid
    
    
    4.08
    %
    
    NM
    
    
    5.57
    %
    
    NM
 Our business strategy of selling conforming loans reduces our capital
investment and related risks, provides substantial liquidity and is an
efficient process given the size and maturity of the conforming 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 was an unaffiliated entity that was not consolidated with Financial
Services or Centex Corporation and subsidiaries at March 31, 2003. HSF-I
purchases mortgage loans, at closing, from CTX Mortgage Company, LLC with the
proceeds from the issuance of securitized medium term notes, secured liquidity
notes and subordinated certificates that are extendable for up to five years.
The debt, interest income and interest expense of HSF-I were not reflected in
the financial statements of Financial Services or Centex Corporation and
subsidiaries at March 31, 2003. CTX Mortgage Company, LLC sold $10.55 billion
and $10.20 billion of mortgage loans to HSF-I and repurchased $6.9 million and
$1.1 million of delinquent or foreclosed mortgage loans from HSF-I during the
years ended March 31, 2003 and 2002, respectively. CTX Mortgage Company, LLC
recognized gains on the sale of mortgage loans of $254.5 million and $188.9
million for the years ended March 31, 2003 and 2002, respectively. The increase in revenues for the year ended March 31, 2003 is primarily
related to an increase in CTX Mortgage Company, LLC originations as well as
higher revenue from Title and Insurance operations. The increase in
originations and Title and Insurance revenues was due, in large part, to an
increase in mortgage loans originated for Centex Homes buyers and an increase
in refinancing business. In the normal course of its activities, CTX Mortgage Company, LLC carries
inventories of loans pending sale to third-party investors and earns an
interest margin, that 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. CTX Mortgage Company, LLC uses short-term mortgage
warehouse facilities to finance these inventories of loans. The fact that the
average rate paid on interest bearing liabilities decreased significantly more
than the yield earned on interest earning assets decreased and the increase in
originations noted above led to an increase in net interest margin. 34




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##### Table of Contents



The following table provides a comparative analysis of mortgage loan
originations and applications for the two-year period ended March 31, 2003: For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeOrigination Volume ($ in millions)
    
    $
    13,991.2
    
    
    
    12.4
    %
    
    $
    12,445.5
    
    
    
    40.1
    %Number of Loans OriginatedBuilder
    
    
    18,127
    
    
    
    17.4
    %
    
    
    15,435
    
    
    
    23.4
    %Retail
    
    
    66,807
    
    
    
    2.9
    %
    
    
    64,949
    
    
    
    34.6
    %84,934
    
    
    
    5.7
    %
    
    
    80,384
    
    
    
    32.3
    %Number of Loan ApplicationsBuilder
    
    
    20,103
    
    
    
    23.0
    %
    
    
    16,344
    
    
    
    4.8
    %Retail
    
    
    69,883
    
    
    
    16.1
    %
    
    
    60,188
    
    
    
    9.3
    %89,986
    
    
    
    17.6
    %
    
    
    76,532
    
    
    
    8.3
    %Average Loan Size
    
    $
    164,700
    
    
    
    6.4
    %
    
    $
    154,800
    
    
    
    5.9
    %Profit Per Loan
    
    $
    1,369
    
    
    
    20.4
    %
    
    $
    1,137
    
    
    
    103.0
    %
 Per-loan profit increased due to increased operational leverage as a
result of the increase in the volume of originations, as well as an increase in
Title and Insurance revenues and an improvement in the spread between the
weighted-average coupon rate of loans originated by CTX Mortgage Company, LLC
and its cost of funds. Sub-Prime Home Equity Lending The following summarizes the results of our Sub-Prime Home Equity Lending
operations for the two-year period ended March 31, 2003 (dollars in millions): For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeRevenues
    
    $
    401.1
    
    
    
    32.6
    %
    
    $
    302.6
    
    
    
    89.2
    %Cost of Sales
    
    
    (177.5
    )
    
    
    22.5
    %
    
    
    (144.9
    )
    
    
    94.5
    %Selling, General and Administrative
Expenses:Operating Expenses
    
    
    (141.6
    )
    
    
    22.9
    %
    
    
    (115.2
    )
    
    
    21.0
    %Loan Loss Provision
    
    
    (34.9
    )
    
    
    100.6
    %
    
    
    (17.4
    )
    
    
    286.7
    %Operating Earnings
    
    $
    47.1
    
    
    
    87.6
    %
    
    $
    25.1
    
    
    
    275.5
    %Interest Margin
    
    $
    163.9
    
    
    
    61.8
    %
    
    $
    101.3
    
    
    
    233.2
    %Average Interest Earning Assets
    
    $
    3,895.5
    
    
    
    48.4
    %
    
    $
    2,625.1
    
    
    
    152.7
    %Average Yield
    
    
    8.76
    %
    
    NM
    
    
    9.38
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    4,049.2
    
    
    
    52.6
    %
    
    $
    2,653.9
    
    
    
    164.8
    %Average Rate Paid
    
    
    4.38
    %
    
    NM
    
    
    5.46
    %
    
    NM
 The revenues and operating earnings of Centex Home Equity Company, LLC, or
Home Equity, are derived primarily from interest margin on mortgage loans held
for investment. The majority of Home Equitys loan originations are
securitized and accounted for as borrowings; interest is recorded over the life
of the loans 35




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##### Table of Contents



using the interest, or actuarial method; the mortgage loans receivable and
the securitization debt remain on Home Equitys balance sheet and the related
interest margin is reflected in our income statement. We commonly refer to
these securitized mortgage loans as portfolio accounting method loans. This
structure of securitizations has been utilized since April 1, 2000. Previous
loans originated were included in securitizations that utilized a structure
that caused them to be accounted for as sales. Under this structure, Home
Equity retained a residual interest in, as well as the servicing rights to, the
securitized loans. We call this retained residual interest the mortgage
securitization residual interest, or MSRI. As a result, our balance sheet does
not reflect the mortgage loans receivable and offsetting debt resulting from
these securitizations. The estimated gain on the sale of these loans was
included in earnings during the period in which the securitization transaction
closed. 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 change in
structure of the securitizations has no effect on the ultimate cash flow and
profit recognized over the life of the mortgages. However, the change in
accounting for securitizations did affect the timing of profit recognition.
Interest margin, which is recognized over the life of the loan, is now Home
Equitys primary source of operating income as compared to gain on sale of
loans, which previously was recognized upon securitization. Home equity loans
are securitized to provide a low cost method for funding our mortgage
operations and to reduce our interest rate exposure on fixed rate loans. The revenues of Home Equity, increased
in fiscal 2003 as a result of continued growth in our portfolio of residential
mortgage loans held for investment. 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,
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 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 significantly more than the yield earned on
interest earning assets decreased and the increase in originations noted below
resulted in the increase in net interest margin. The following summarizes Home Equitys portfolio of mortgage loans, based
on the securitization structure, as of March 31, 2003 and 2002: For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeServicing Portfolio:Number of LoansPortfolio Accounting Method
    
    
    61,073
    
    
    
    35.1
    %
    
    
    45,211
    
    
    
    70.5
    %Other
    
    
    13,329
    
    
    
    (24.4
    %)
    
    
    17,622
    
    
    
    (24.0
    %)Total
    
    
    74,402
    
    
    
    18.4
    %
    
    
    62,833
    
    
    
    26.4
    %Dollars in billionsPortfolio Accounting Method
    
    $
    4.64
    
    
    
    41.5
    %
    
    $
    3.28
    
    
    
    85.3
    %Other
    
    
    0.84
    
    
    
    (22.9
    %)
    
    
    1.09
    
    
    
    (27.3
    %)Total
    
    $
    5.48
    
    
    
    25.4
    %
    
    $
    4.37
    
    
    
    33.6
    %
 36




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##### Table of Contents



The following table provides a comparative analysis of mortgage loan
originations and applications for the two-year period ended March 31, 2003: For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeOrigination Volume
    
    $
    2,506.2
    
    
    
    19.8
    %
    
    $
    2,092.4
    
    
    
    21.8
    %Number of Loans Originated
    
    
    29,448
    
    
    
    9.2
    %
    
    
    26,955
    
    
    
    2.0
    %Number of Loan Applications
    
    
    248,150
    
    
    
    43.9
    %
    
    
    172,498
    
    
    
    16.0
    %Average Loan Size
    
    $
    85,100
    
    
    
    9.7
    %
    
    $
    77,600
    
    
    
    19.4
    %
 The increase in origination volume was due to an increase in average loan
size. The slight increase in the number of originations relative to the larger
increase in total applications is reflective of Home Equitys continued
adherence to its credit underwriting guidelines. The increase in Home Equitys operating earnings is primarily the result
of the increase in interest margin, as noted above. Interest income will be
positively affected as the portfolio of mortgage loans held for investment
increases and matures. The increase in interest margin was partially offset by
an increase in servicing and production costs, mostly attributable to loan
volume and loan servicing growth, and an increase in the provision for losses
on residential mortgage loans held for investment. Home Equitys selling, general and administrative expenses increased as a
result of Home Equitys growth. Home Equitys increase in loan production
volume, the expansion of its branch offices and the increase in the number of
its employees are directly related to a corresponding increase in salaries and
related costs, rent expense, group insurance costs and advertising expenditures. The remainder of the increase was due to
an increase in the provision for loan losses. The increase in the provision for losses occurred primarily because the
amount of the residential mortgage loans held for investment increased and the
residential mortgage loan portfolio continued to mature. As the age and size
of the residential mortgage loan portfolio continues to mature and grow, we
expect the provision for losses, the loans charged off and the allowance ratios
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 on page 46  of this Report. Changes in the allowance for
losses is illustrated in Note (C), Allowance for Losses on Residential
Mortgage Loans Held for Investment, of the Notes to Consolidated Financial
Statements on
page 72 of this
Report. 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, as Home Equity services its
loans, it is also subject to customer prepayment risks, which would curtail
Home Equitys servicing and interest income related to the respective prepaid
loan. 37




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##### Table of Contents



CONSTRUCTION SERVICES The following summarizes Construction Services results for the two-year
period ended March 31, 2003 (dollars in millions): For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeRevenues
    
    $
    1,517.9
    
    
    
    17.1
    %
    
    $
    1,296.0
    
    
    
    0.4
    %Operating Earnings
    
    $
    30.7
    
    
    
    (15.2
    %)
    
    $
    36.2
    
    
    
    17.2
    %New Contracts Executed
    
    $
    857
    
    
    
    (41.1
    %)
    
    $
    1,455
    
    
    
    (24.6
    %)Backlog of Uncompleted Contracts
    
    $
    1,520
    
    
    
    (30.3
    %)
    
    $
    2,180
    
    
    
    7.8
    %
 The increase in revenues was primarily the result of a shift in the stage
of completion of certain longer-term construction contracts. Additionally, in
fiscal 2003, we had a greater volume of shorter-term construction contracts as
compared to the prior year. Operating earnings for the group decreased
primarily as a result of a decrease in project margins reflective of the
current construction environment. In addition, in fiscal 2003, Construction
Services recorded a project profit write-down of $2.1 million related to a
single project and a $2.4 million write-down of a long-lived asset. The
decreases in new contracts executed and backlog of uncompleted contracts were
the result of reduced activity in the commercial construction industry and
delays in the execution of contracts for awarded projects. Future operating
margins and earnings are likely to be impacted by this reduced activity and our
lower backlog. INVESTMENT REAL ESTATE The following summarizes Investment Real Estates results for the two-year
period ended March 31, 2003 (dollars in millions): For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeRevenues
    
    $
    33.3
    
    
    
    (37.6
    %)
    
    $
    53.4
    
    
    
    90.0
    %Earnings from
Unconsolidated
Entities
    
    $
    13.2
    
    
    
    97.0
    %
    
    $
    6.7
    
    
    
    36.7
    %Operating Earnings
    
    $
    34.0
    
    
    
    (5.0
    %)
    
    $
    35.8
    
    
    
    (29.7
    %)
 The changes in revenues and operating earnings were primarily related to
the timing of property sales. Property sales contributed operating earnings of
$18.3 million for the year ended March 31, 2003 and $35.8 million for the same
period last year. The timing of sales is uncertain and can vary significantly
from period to period. 38




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##### Table of Contents



OTHER Our Other segment includes corporate general and administrative expense
and interest expense. Also included in our Other segment are our home services
operations, which are not material for purposes of segment reporting. For the Years Ended March 31,2003
    
    2002% Change
    
    
    
    
    
    % ChangeOperating (Loss) Earnings from home
services
    
    $
    (9.6
    )
    
    
    (340.0
    %)
    
    $
    4.0
    
    
    
    (11.1
    %)Corporate General and Administrative
Expenses
    
    
    (60.3
    )
    
    
    20.1
    %
    
    
    (50.2
    )
    
    
    36.0
    %Interest Expense
    
    
    (60.3
    )
    
    
    2.9
    %
    
    
    (58.6
    )
    
    
    8.3
    %Other
    
    
    (0.6
    )
    
    
    
    %
    
    
    (0.6
    )
    
    
    20.0
    %Operating Loss
    
    $
    (130.8
    )
    
    
    24.1
    %
    
    $
    (105.4
    )
    
    
    21.1
    %
 The decrease in our home services divisions operating earnings in fiscal
2003 is primarily due to higher general and administrative expenses, including
higher marketing costs, and an $8.0 million provision in the fourth quarter to
reduce the carrying value of its remaining home security assets to estimated
fair value. Our home services operations sold its chemical lawn care business
in the second quarter. The sale of this business did not have a material
effect on home services operating earnings. Corporate general and administrative expense represents compensation and
other costs not identifiable with a specific segment. The increase in corporate
general and administrative expense is primarily related to an increase in
personnel and higher compensation resulting from continued improvements in our
performance. Our
effective tax rate decreased to 30% for the year ended March 31,
2003 from 38% for the year ended March 31, 2002. The decrease in the
effective tax rate is primarily the result of the utilization of net operating
loss carryforwards during fiscal 2003. DISCONTINUED OPERATIONS In June 2003, we spun off 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 Construction Products. As a result
of the spin-offs, the earnings of these operations 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 March 31, 2004 presentation. For the
years ended March 31, 2003 and 2002, discontinued operations had revenues of
$643.2 million and $593.0 million and operating earnings of $47.5 million and
$38.5 million, respectively. 39




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##### Table of Contents



FINANCIAL CONDITION AND LIQUIDITY The consolidating net cash used in or provided by the operating, investing
and financing activities for the years March 31, 2004, 2003 and 2002 is
summarized below (dollars in thousands). See Statements of Consolidated Cash
Flows with Consolidating Details on pages 58-59 of this Report for the detail
supporting this summary. For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Net Cash (Used in) Provided byCentex*Operating Activities
    
    $
    (332,931
    )
    
    $
    (54,859
    )
    
    $
    28,997Investing Activities
    
    
    (33,361
    )
    
    
    31,127
    
    
    
    (227,946
    )Financing Activities
    
    
    99,381
    
    
    
    281,645
    
    
    
    342,001Effect of Exchange Rate on Cash
    
    
    692
    
    
    
    
    
    
    
    (266,219
    )
    
    
    257,913
    
    
    
    143,052Financial ServicesOperating Activities
    
    
    1,090,135
    
    
    
    (39,443
    )
    
    
    185,525Investing Activities
    
    
    (1,931,321
    )
    
    
    (1,412,615
    )
    
    
    (1,506,841
    )Financing Activities
    
    
    844,373
    
    
    
    1,440,015
    
    
    
    1,336,6763,187
    
    
    
    (12,043
    )
    
    
    15,360Centex Corporation and SubsidiariesOperating Activities
    
    
    689,515
    
    
    
    (3,579
    )
    
    
    57,909Investing Activities
    
    
    (1,896,493
    )
    
    
    (1,545,988
    )
    
    
    (1,604,094
    )Financing Activities
    
    
    943,254
    
    
    
    1,795,437
    
    
    
    1,704,597Effect of Exchange Rate on Cash
    
    
    692
    
    
    
    
    
    
    
    Net Increase (Decrease) in Cash
    
    $
    (263,032
    )
    
    $
    245,870
    
    
    $
    158,412
  *

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 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
other short-term credit arrangements and the issuance of medium-term notes and
other debt securities. 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 fiscal 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. Effective June 30, 2003, Financial Services
consolidated $2.48 billion of HSF-Is residential mortgage loans held for sale.
The initial consolidation of HSF-I was not reflected in the Statements of
Consolidated Cash Flows, as it was a non- 40




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##### Table of Contents



cash transaction. As these mortgage loans have been sold in the secondary
market, an inflow of cash from operating activities has occurred. During
fiscal 2004, cash was primarily used in Financial Services investing
activities to finance increases in residential mortgage loans held for
investment. For additional discussion on the consolidation of HSF-I in June
2003, see Note (F), Indebtedness, of the Notes to Consolidated Financial
Statements on pages 74-78 of this Report. The funds provided by Financial Services financing activities were
primarily from new debt used to fund the increased residential mortgage loan
activity. Our future cash requirements are illustrated in the following table of
contractual obligations as of March 31, 2004 (in thousands): Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More Than1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 Years
    
    
    TotalCentexLong-term Debt(1)
    
    $
    34,916
    
    
    $
    790,819
    
    
    $
    377,840
    
    
    $
    1,372,545
    
    
    $
    2,576,120Capital Leases
    
    
    409
    
    
    
    660
    
    
    
    305
    
    
    
    151
    
    
    
    1,525Operating Leases
    
    
    33,728
    
    
    
    59,667
    
    
    
    47,815
    
    
    
    40,480
    
    
    
    181,690Purchase Obligations
    
    
    22,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,32291,375
    
    
    
    851,146
    
    
    
    425,960
    
    
    
    1,413,176
    
    
    
    2,781,657Financial Services(2)Long-term Debt
    
    
    2,043,473
    
    
    
    3,282,993
    
    
    
    1,041,559
    
    
    
    47,140
    
    
    
    6,415,165Operating Leases
    
    
    23,181
    
    
    
    31,158
    
    
    
    16,031
    
    
    
    27,921
    
    
    
    98,2912,066,654
    
    
    
    3,314,151
    
    
    
    1,057,590
    
    
    
    75,061
    
    
    
    6,513,456$
    2,158,029
    
    
    $
    4,165,297
    
    
    $
    1,483,550
    
    
    $
    1,488,237
    
    
    $
    9,295,113
  (1)

The amount of debt subject to a variable interest rate is $32.5 million,
of which $23.3 million was based on the U.S. Libor rate of 1.09% at March
31, 2004 and $9.2 million was based on the U.K. Libor rate of 4.375% at
March 31, 2004.(2)

The amount of debt subject to a variable interest rate is $3.41 billion.
The basis of the rate is U.S. Libor which was 1.09% at March 31, 2004. As outlined above, our primary contractual obligations are payments under
long-term debt agreements and lease payments under operating leases. Purchase
obligations primarily represent specific performance agreements of
our Home Building segment that in essence may require us to purchase the land
contingent upon the land seller meeting certain obligations, joint funding
obligations and open purchase orders. Financial Services long-term debt
associated with Home Equity includes Asset-Backed Certificates related to
securitized residential mortgage loans structured as collateralized borrowings.
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 contractual obligations of this component of long-term debt are
based on contractual maturities adjusted for projected prepayments. Our contractual obligations will be funded in the ordinary course of
business through our operating cash flows and through our credit facilities.
Centex Corporation currently has an investment-grade credit rating from each of
the principal credit rating agencies. Our ability to finance our activities on
favorable terms is dependent to a significant extent on whether we are able to
maintain our investment-grade credit ratings. We attempt to manage our debt
levels in order to maintain investment-grade ratings. If, however, our debt
ratings were downgraded, we would not have access to the commercial paper
markets and might need to draw on our existing committed backup facility, which
exceeds our commercial paper program size. 41




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Our existing credit facilities and available capacity as of March 31, 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
    
    
    250,000
    
    
    
    80,351
    (2)1,050,000
    (3)
    
    
    880,351International homebuildingMulti-Bank Revolving Credit Facility
    
    
    182,620
    
    
    
    82,179Unsecured Credit Facility
    
    
    36,524
    
    
    
    36,524219,144
    
    
    
    118,703
    (4)Financial ServicesUnsecured Credit Facilities
    
    
    125,000
    
    
    
    125,000
    (5)Secured Credit Facilities
    
    
    425,000
    
    
    
    73,075
    (6)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,675,413Harwood Street Funding II, LLC Facility
    
    
    2,500,000
    
    
    
    1,839,4526,050,000
    
    
    
    3,712,940$
    7,319,144
    
    
    $
    4,711,994
    (7)
  (1)

This is a committed, multi-bank revolving credit facility, maturing in
August 2006, which serves as backup for commercial paper borrowings. As
of March 31, 2004, there were no borrowings under this backup facility,
and our $700 million commercial paper program had no amounts outstanding.
We have not borrowed under this revolving credit facility since its
inception.(2)

This is a committed, multi-bank revolving letter of credit facility,
maturing in August 2004. Letters of credit under this facility may expire
no later than August 2005.(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 secured, committed,
multi-bank revolving £100 million credit facility. This facility is not
guaranteed by nor is there recourse to Centex Corporation. The
international homebuilding operations also maintain an uncommitted,
unsecured £20 million credit facility guaranteed by Centex Corporation.(5)

Centex Corporation, CTX Mortgage Company, LLC and its related companies
and Home Equity, on a joint and several basis, share in a $125 million
uncommitted, unsecured credit facility.(6)

CTX Mortgage Company, LLC and its related companies and Home Equity share
in a $250 million committed secured credit facility to finance mortgage
inventory. CTX Mortgage Company, LLC and its related companies also
maintain $165 million of committed secured mortgage warehouse facilities
to finance mortgages. In April 2004, these facilities, which totaled $165
million, increased to $210 million. Home Equity also maintains a $10
million committed secured mortgage warehouse facility to finance
mortgages.(7)

The amount of available capacity consists of $4.55 billion of committed
capacity and $162 million of uncommitted capacity as of March 31, 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 sales of conforming and Jumbo A 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-term secured liquidity
notes that are currently rated A1+ by Standard & Poors, or S&P, and P-1 by
Moodys Investors Service, or Moodys, (2) medium-term debt that is currently
rated A1+ by 42




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##### Table of Contents



S&P and P-1 by Moodys and (3) subordinated certificates maturing in September
2004, November 2005 and June 2006, extendable for up to five years, that are
currently 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 $2.50 billion. HSF-II obtains funds through the sale of
subordinated notes that are rated BBB by S&P, Baa2 by Moodys, and BBB by
Fitch, and short-term secured liquidity notes that are rated A1+
by S&P, P-1 by
Moodys and F1+ 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 March 31, 2004,
we were in compliance with all of these covenants. As
of March 31, 2004, our short-term debt was $2.10 billion, all of which
was applicable to Financial Services. Excluding Financial Services, our
short-term borrowings are generally financed at prevailing market interest
rates from our commercial paper programs and from uncommitted bank facilities. During fiscal 2004, we issued senior notes in the aggregate principal
amount of $300 million with an interest rate of 5.125%, maturing in fiscal year
2014. On May 5, 2004, we issued $350 million aggregate principal amount of
senior notes with an interest rate of 5.70%, maturing in fiscal year 2015. Our outstanding debt (in thousands) as of March 31, 2004 was as follows
(due dates are presented in fiscal years)(1): CentexSenior Debt:Medium-term Note Programs, weighted-average 4.67%, due through 2007
    
    $
    258,000Long-term Notes, weighted-average 6.73%, due through 2014
    
    
    1,808,332Other Indebtedness, weighted-average 3.13%, due through 2010
    
    
    152,152Subordinated Debt:Subordinated Debentures, 8.75%, due in 2007
    
    
    99,763Subordinated Debentures, 7.38%, due in 2006
    
    
    99,9432,418,190Financial ServicesShort-term Debt:Short-term Notes Payable
    
    
    601,718Harwood Street Funding I and II, LLC Secured Liquidity Notes
    
    
    1,502,798Home Equity Asset-Backed Certificates, weighted-average 3.52%, due
through 2034
    
    
    5,964,924Harwood Street Funding I, LLC Variable Rate Subordinated Extendable
Certificates, weighted-average 3.06%, due through 2007
    
    
    139,000Harwood Street Funding II, LLC Variable Rate Subordinated Notes,
weighted-average 3.24%, due through 2009
    
    
    93,7508,302,190Total
    
    $
    10,720,380
  (1)

Certain of the borrowings described in the table above vary on a seasonal
basis and depend on the working capital needs of our operations. 43




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CERTAIN OFF-BALANCE SHEET OBLIGATIONS The following is a summary of certain off-balance sheet arrangements and
other obligations and their possible effects on our liquidity and capital
resources. Joint Ventures We conduct a portion of our land acquisition, development and other
activities through our participation in joint ventures in which we hold less
than a majority interest. These land related activities typically require
substantial capital, and partnering with other developers allows Centex Homes
to share the risks and rewards of ownership while providing for efficient asset
utilization. Our investment in these non-consolidated joint ventures,
accounted for using the equity method, was $140.1 million and $102.3 million at
March 31, 2004 and 2003, respectively. These joint ventures had total
outstanding secured debt of approximately $207.7 million and $232.5 million at
March 31, 2004 and 2003, respectively. Our liability with respect to this
debt, based on our ownership percentage of the related joint ventures, is
limited to approximately $53.0 million and $41.9 million at March 31, 2004 and
2003, respectively. Under the structure of this debt, we become liable up to
these amounts only to the extent that the construction debt exceeds a certain
percentage of the value of the project. At March 31, 2004 and 2003, we were
not liable for any of this debt. For a discussion of the impact of new
accounting pronouncements on our accounting for transactions with
non-consolidated joint ventures, see Recent Accounting Pronouncements on
pages 47-48 of this Report. 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. 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
fiscal 2004, 2003 or 2002. 44




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##### Table of Contents



Goodwill Goodwill represents the excess of purchase price over net assets of
businesses acquired. See Note (E), Goodwill, of the Notes to Consolidated Financial
Statements on pages 73-74
of this Report 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, 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
fiscal 2004, 2003 and 2002. 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 reclassified to land held under option agreements
not owned. See Note (I), Land Held Under Option Agreement Not Owned and
Other Land Deposits, of the Notes to Consolidated Financial Statements on
page 81
of this Report for further discussion on the results of our analysis of lot
option agreements. 45




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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. We believe that the allowance for losses is sufficient to provide for
credit losses in the existing residential mortgage loans held for investment,
which include real estate owned. 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 (C),
Allowance for Losses on Residential Mortgage Loans Held for Investment, of
the Notes to Consolidated Financial Statements
on
page 72 of this
Report 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. See Note (A), Significant Accounting Policies, of the Notes to
Consolidated Financial Statements on
pages 62-71 of this
Report for a discussion of the sensitivity of the MSRI to changes in the assumptions. Loan Origination Reserve CTX Mortgage Company, LLC has established a liability for anticipated
losses associated with loans originated. This liability includes losses
associated with certain borrower payment defaults, credit quality issues or
misrepresentation. CTX Mortgage Company, LLC estimates the losses that may be
incurred for certain loan originations based on, among other factors,
historical loss rates and current trends in loan originations. This liability
reflects managements judgment of the loss exposure at the end of the reporting
period. 46




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##### Table of Contents



Although we consider the loan origination reserve reflected in our
consolidated balance sheet at March 31, 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 insufficient due to unanticipated adverse changes in the economy or
discrete events adversely affecting specific customers. 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
United States warranties cover defects in materials or workmanship in the first
year of the home and certain designated components or structural elements of
the home in the second through tenth years. The United Kingdom warranties
cover defects in materials or workmanship in various components of the home for
the first two years and designated structural elements of the home in the third
through tenth years. In California, effective January 1, 2003, Centex Homes
began following the statutory provisions of Senate Bill 800, which in part
provides 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. 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. Effective April 1, 2004, Home Buildings United States warranties covering defects in materials or workmanship were extended to two years. 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 In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, as revised, or 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. As of March 31, 2004, all the provisions of FIN 46
apply, and we have interests in HSF-I, certain land option agreements and joint
ventures that are affected by this interpretation. The nature of these
entities operations, the amounts consolidated in our financial statements, our
potential maximum exposure related to these entities and the applicability of
FIN 46 to these entities are discussed as follows: HSF-I
    
    Note (F), IndebtednessJoint Ventures
    
    Note (H), Commitments and ContingenciesLand Option Agreements
    
    Note (I), Land Held Under Option Agreements not
Owned and Other Land Deposits
 47




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In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, or SFAS No. 149. The statement amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities
under Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging
Activities, or SFAS No. 133, by requiring that contracts with comparable
characteristics be accounted for similarly, resulting in more consistent
reporting of contracts as either derivatives or hybrid instruments. A portion
of this statement is effective for contracts entered into or modified and for
hedging relationships designated after June 30, 2003. The remainder of this
statement codifies previously issued SFAS No. 133 implementation guidance,
which retains its original effective dates. The implementation of SFAS No. 149
did not have a material impact on the Companys results of operations or
financial position. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity, or SFAS No. 150. The statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within the scope of SFAS
No. 150 as a liability (or an asset in some circumstances). Certain provisions
of this statement are effective for financial instruments entered into or
modified after May 31, 2003. In October 2003, FASB deferred indefinitely
certain provisions of this Statement pertaining to non-controlling interests in
limited life entities. The implementation of the provisions of SFAS No. 150
which are effective did not have an impact on the Companys results of
operations or financial position. On March 9, 2004, the SEC issued Staff Accounting Bulletin No. 105,
Application of Accounting Principles to Loan Commitments, or SAB 105. SAB
105 applies to all interest rate lock commitments (IRLCs) entered into after
March 31, 2004. SAB 105 expresses the SEC staffs view that the fair value of
IRLCs should not consider the expected future cash flows related to the
associated servicing of the future loan. CTX Mortgage Company, LLC does enter
into IRLCs with certain customers; however, no servicing income is recorded
upon entering into the IRLC. Accordingly, SAB 105 will not have an effect on
the Companys financial position or results of operations.   FORWARD-LOOKING STATEMENTS Various sections of this Report, including Business, Managements
Discussion and Analysis of Financial Condition and Results of Operations, Other
Developments and Outlook sections, 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. 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 undertake
no duty to update any forward-looking statement to reflect future events or
changes in our expectations. 48




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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, consumer
confidence and income, availability of financing, interest rate levels
and changes in the economic condition of 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, 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 international homebuilding operations are affected by
fluctuations in the value of the United States dollar as compared to
the British pound sterling and changes in the British economy to the
extent those changes affect the homebuilding market in the United
Kingdom. We do not currently use any hedging instruments or other
strategies to manage currency risks related to fluctuations in the
value of the United States dollar or the British pound sterling.
    
    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 do 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.
    
    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
affect 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 due to curtailment of refinancing
activity.
    
    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 49




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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, protecting the environment and
health. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks related to fluctuations in interest rates
on our direct debt obligations, mortgage loans receivable and residual interest
in mortgage securitizations. The following analysis provides a framework to
understand our sensitivity to hypothetical changes in interest rates as of
March 31, 2004. We have utilized derivative instruments in conjunction with our overall
strategy to manage the amount of debt outstanding that is subject to changes in
interest rates. As of March 31, 2004, we had interest rate swap agreements
that converted $2.18 billion of our variable-rate debt outstanding into
fixed-rate debt. We recognize amounts paid or received under interest rate
swap agreements as adjustments to interest expense. Financial Services originates, sells and securitizes conforming and
nonconforming A mortgages, sub-prime first and second mortgages and home
equity loans. Since December 1999, substantially all conforming and Jumbo A
mortgages have been sold to HSF-I at or near the date on which the loans were
funded. 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. However, the Company effectively
bears all interest rate risks, non-credit related market risks and prepayment
risks related to the Harwood Swap because Centex has entered into a
separate swap arrangement with the bank pursuant to which Centex has
agreed to pay to the bank all amounts that the bank is required to
pay to HSF-I pursuant to the Harwood Swap plus a monthly fee equal to
a percentage of the notional amount of the Harwood Swap.
Additionally, the bank is
required to pay to Centex all amounts that the bank receives from
HSF-I pursuant to the Harwood Swap. Financial Services executes 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 our risk as the counterparty to the
swap supporting the payment requirements of HSF-I. CTX Mortgage Company, LLC,
acting as manager of HSF-I, delivers mortgages held by HSF-I to third party
purchasers generally within 60 days of origination. Due to the high degree of
liquidity in the A mortgage market and the frequency of loan sales and
securitizations, the use of forward sales is an effective hedge against changes
in market value that result from changes in interest rates. Home Equity uses interest rate swaps to hedge the market risk associated
with the carrying of mortgages in anticipation of issuance of securitization
debt to finance sub-prime mortgages. Home Equity will generally hold mortgages
in anticipation of securitization for up to 120 days. Home Equity also uses
interest rate swaps, included in the $2.18 billion balance stated above that, in
effect, fix the interest rate on its variable interest rate debt. 50




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##### Table of Contents



As of March 31, 2004, our total MSRI was $89.4 million, comprised of $87.8
million related to Home Equity and $1.6 million related to CTX Mortgage
Company, LLC. Home Equitys MSRI consists of $86.5 million remaining on loans
securitized from October 1997 to March 2000 accounted for as gain on sale and
$1.3 million related to loans sold in fiscal year 2004 to a government
sponsored enterprise that we continue to service. CTX Mortgage Company,
LLCs MSRI resulted from an acquisition in fiscal 2002. We continually monitor
the fair value of the MSRI and review the factors expected to influence the
future constant prepayment rate, or CPR, discount rates and credit losses. In
developing assumptions regarding expected future CPR, we consider a variety of
factors, many of which are interrelated. These factors include historical
performance,
origination channels, characteristics of borrowers, such as credit quality and
loan-to-value relationships, and market factors that influence competition. If
changes in assumptions regarding future CPR, discount rates or credit losses
are necessary, the MSRI fair value is adjusted accordingly. Our international homebuilding operations are located in the United
Kingdom. As a result, our financial results could be affected by factors such
as changes in the foreign currency exchange rate or weak economic conditions in
our markets. Our aggregate net investment exposed to foreign currency exchange
rate risk is approximately $286.9 million as of March 31, 2004. We utilize both short-term and long-term debt in our financing strategy.
For fixed-rate debt, changes in interest rates generally affect the fair market
value of the debt instrument but not our earnings or cash flows. Conversely,
for variable-rate debt, changes in interest rates generally do not impact the
fair market value of the debt instrument but do affect our future earnings and
cash flows. We do not have an obligation to prepay any of our fixed-rate debt
prior to maturity, and as a result, interest rate risk and changes in fair
market value should not have a significant impact on the fixed-rate debt until
we are required to refinance such debt. As
of March 31, 2004, short-term debt was $2.10 billion, all of which was
applicable to Financial Services. The majority of Financial Services debt is
collateralized by residential mortgage loans. We borrow on a short-term basis
in the commercial paper market under a $700 million commercial paper program
supported by an $800 million revolving credit facility with a term expiring in
fiscal year 2007 and from banks under uncommitted lines, all of which bear
interest at prevailing market rates. The weighted-average interest rate on
short-term borrowings outstanding at March 31, 2004 was 1.23%. The maturities of Centexs long-term debt outstanding at March 31, 2004
were as follows. We define Centex as a supplemental presentation that reflects
the Financial Services segment as if accounted for under the equity method. Maturities through March 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(in 000s)CentexFixed Rate Debt
    
    $
    33,679
    
    
    $
    321,059
    
    
    $
    291,508
    
    
    $
    336,452
    
    
    $
    1,187
    
    
    $
    1,285,545
    
    
    $
    2,269,430
    
    
    $
    2,295,850Average Interest Rate
    
    
    3.67
    %
    
    
    8.65
    %
    
    
    6.52
    %
    
    
    4.83
    %
    
    
    7.67
    %
    
    
    6.77
    %
    
    
    6.67
    %Variable
Rated Hedged Debt(1)
    
    $
    
    
    
    $
    25,000
    
    
    $
    91,310
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    116,310
    
    
    $
    116,575Average Interest Rate
    
    
    
    
    
    
    6.69
    %
    
    
    4.98
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.34
    %Variable Rate Debt
    
    $
    
    
    
    $
    
    
    
    $
    9,131
    
    
    $
    23,319
    
    
    $
    
    
    
    $
    
    
    
    $
    32,450
    
    
    $
    32,635Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    5.39
    %
    
    
    2.25
    %
    
    
    
    
    
    
    
    
    
    
    3.13
    %
  (1)

These variable rate notes are fixed rate instruments as a result of a
hedge using interest rate swaps. 51




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##### Table of Contents



The maturities of Centexs long-term debt outstanding at March 31, 2003
were as follows: Maturities through March 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(in 000s)CentexFixed Rate Debt
    
    $
    13,491
    
    
    $
    2,364
    
    
    $
    300,124
    
    
    $
    202,414
    
    
    $
    335,022
    
    
    $
    973,119
    
    
    $
    1,826,534
    
    
    $
    2,037,796Average Interest Rate
    
    
    7.88
    %
    
    
    5.07
    %
    
    
    8.96
    %
    
    
    8.01
    %
    
    
    4.82
    %
    
    
    7.26
    %
    
    
    7.18
    %Variable Rated Hedged Debt(1)
    
    $
    55,000
    
    
    $
    
    
    
    $
    25,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    80,000
    
    
    $
    80,030Average Interest Rate
    
    
    5.49
    %
    
    
    
    
    
    
    7.99
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.27
    %Variable Rate Debt
    
    $
    14,000
    
    
    $
    30,000
    
    
    $
    15,000
    
    
    $
    88,000
    
    
    $
    24,319
    
    
    $
    2,100
    
    
    $
    173,419
    
    
    $
    176,380Average Interest Rate
    
    
    2.37
    %
    
    
    3.34
    %
    
    
    3.10
    %
    
    
    3.32
    %
    
    
    2.49
    %
    
    
    2.75
    %
    
    
    3.10
    %
  (1)

These variable rate notes are fixed rate instruments as a result of a
hedge using interest rate swaps. The following table sets forth the estimated maturity or repricing of our
Financial Services obligations collateralized by securitized residential
mortgage loans accounted for as borrowings outstanding at March 31, 2004. Maturities through March 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(in 000s)Financial ServicesFixed Rate Debt
    
    $
    794,175
    
    
    $
    929,921
    
    
    $
    583,563
    
    
    $
    207,444
    
    
    $
    227,786
    
    
    $
    42,949
    
    
    $
    2,785,838
    
    
    $
    2,842,429Average Interest Rate
    
    
    5.05
    %
    
    
    5.13
    %
    
    
    4.62
    %
    
    
    4.78
    %
    
    
    5.97
    %
    
    
    6.68
    %
    
    
    5.07
    %Variable Rate Debt
    
    $
    1,183,806
    
    
    $
    922,322
    
    
    $
    734,304
    
    
    $
    384,837
    
    
    $
    185,308
    
    
    $
    1,259
    
    
    $
    3,411,836
    
    
    $
    3,419,668Average Interest Rate
    
    
    2.14
    %
    
    
    2.27
    %
    
    
    2.35
    %
    
    
    2.17
    %
    
    
    2.33
    %
    
    
    5.00
    %
    
    
    2.23
    %
 The following table sets forth the estimated maturity or repricing of our
Financial Services obligations collateralized by securitized residual mortgage
loans accounted for as borrowings outstanding at March 31, 2003. Maturities through March 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(in 000s)Financial ServicesFixed Rate Debt
    
    $
    584,776
    
    
    $
    452,417
    
    
    $
    353,367
    
    
    $
    459,027
    
    
    $
    497,246
    
    
    $
    71,177
    
    
    $
    2,418,010
    
    
    $
    2,501,771Average Interest Rate
    
    
    5.46
    %
    
    
    5.62
    %
    
    
    5.75
    %
    
    
    5.61
    %
    
    
    4.87
    %
    
    
    4.01
    %
    
    
    5.55
    %Variable Rate Debt
    
    $
    500,621
    
    
    $
    424,838
    
    
    $
    313,308
    
    
    $
    173,214
    
    
    $
    274,094
    
    
    $
    52,505
    
    
    $
    1,738,580
    
    
    $
    1,732,822Average Interest Rate
    
    
    1.99
    %
    
    
    2.15
    %
    
    
    2.37
    %
    
    
    2.43
    %
    
    
    2.62
    %
    
    
    2.77
    %
    
    
    2.17
    %
 The principal and interest on this debt is paid using the cash flows from
the underlying mortgage receivables, which serve as collateral for this debt.
Accordingly, the timing of the principal payments on this debt is dependent on
the payments received on the underlying mortgage receivables. The amounts
shown within a particular period were determined in accordance with the
contractual terms of the debt, except (1) fixed-rate mortgage securities
reflect estimated prepayments, which were estimated based on the results of a
prepayment model we utilize, and empirical data, and (2) adjustable-rate debt
is included in the period in which it is first scheduled to adjust and not in
the period in which it matures. We believe that these assumptions approximate
actual experience and consider them reasonable. However, the interest rate
sensitivity could vary substantially if different assumptions were used or
actual experience differs from the historical experience on which we base the
assumptions. 52




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Information Consolidated Revenues and Operating Earnings by Line of Business
    
    
    54Statements of Consolidated Earnings
    
    
    55Consolidated Balance Sheets with Consolidating Details
    
    
    56Statements of Consolidated Cash Flows with Consolidating Details
    
    
    58Statements of Consolidated Stockholders Equity
    
    
    60Notes to Consolidated Financial Statements
    
    
    62Report of Independent Auditors
    
    
    95Quarterly Results
    
    
    96 53




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##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Revenues and Operating Earnings by Line of Business
(Dollars in thousands) For the Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000RevenuesHome Building
    
    $
    7,599,519
    
    
    $
    5,922,724
    
    
    $
    4,972,172
    
    
    $
    4,356,446
    
    
    $
    3,686,87874
    %
    
    
    71
    %
    
    
    70
    %
    
    
    71
    %
    
    
    68
    %Financial Services
    
    
    1,047,905
    
    
    
    855,015
    
    
    
    699,760
    
    
    
    463,646
    
    
    
    430,61110
    %
    
    
    10
    %
    
    
    10
    %
    
    
    8
    %
    
    
    8
    %Construction Services
    
    
    1,596,335
    
    
    
    1,517,851
    
    
    
    1,296,024
    
    
    
    1,290,382
    
    
    
    1,205,76215
    %
    
    
    18
    %
    
    
    18
    %
    
    
    21
    %
    
    
    23
    %Investment Real Estate
    
    
    37,869
    
    
    
    33,298
    
    
    
    53,461
    
    
    
    28,103
    
    
    
    30,061
    
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %Other
    
    
    81,763
    
    
    
    99,817
    
    
    
    102,377
    
    
    
    
    
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    
    
    
    
    $
    10,363,391
    
    
    $
    8,428,705
    
    
    $
    7,123,794
    
    
    $
    6,138,577
    
    
    $
    5,353,312100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Business Segment Operating Earnings(1)Home Building
    
    $
    1,005,290
    
    
    $
    651,719
    
    
    $
    498,925
    
    
    $
    390,301
    
    
    $
    326,92978
    %
    
    
    75
    %
    
    
    72
    %
    
    
    79
    %
    
    
    81
    %Financial Services
    
    
    230,301
    
    
    
    161,825
    
    
    
    114,733
    
    
    
    19,667
    
    
    
    32,47418
    %
    
    
    18
    %
    
    
    17
    %
    
    
    4
    %
    
    
    8
    %Construction Services
    
    
    16,413
    
    
    
    30,718
    
    
    
    36,225
    
    
    
    30,886
    
    
    
    23,4711
    %
    
    
    4
    %
    
    
    5
    %
    
    
    6
    %
    
    
    6
    %Investment Real Estate
    
    
    44,756
    
    
    
    33,942
    
    
    
    35,754
    
    
    
    50,942
    
    
    
    26,4133
    %
    
    
    4
    %
    
    
    5
    %
    
    
    10
    %
    
    
    6
    %Other
    
    
    (2,298
    )
    
    
    (10,239
    )
    
    
    3,358
    
    
    
    4,009
    
    
    
    (4,833
    )
    
    
    
    (1
    %)
    
    
    1
    %
    
    
    1
    %
    
    
    (1
    %)1,294,462
    
    
    
    867,965
    
    
    
    688,995
    
    
    
    495,805
    
    
    
    404,454100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Corporate General and Administrative
    
    
    105,529
    
    
    
    60,289
    
    
    
    50,189
    
    
    
    36,924
    
    
    
    33,015Interest Expense
    
    
    39,869
    
    
    
    60,326
    
    
    
    58,576
    
    
    
    54,069
    
    
    
    65,139Earnings from Continuing Operations
Before Income Taxes and Cumulative
Effect of a Change in Accounting
Principle
    
    $
    1,149,064
    
    
    $
    747,350
    
    
    $
    580,230
    
    
    $
    404,812
    
    
    $
    306,300
 Applicable segment operating expenses have been deducted from business
segment operating earnings.  (1)

Business Segment Operating Earnings include earnings from
unconsolidated entities and exclude corporate general and administrative
expense and interest expense. 54




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##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Earnings(Dollars in thousands, except per share data) For the Years Ended March 31,2004
    
    
    2003
    
    
    2002RevenuesHome Building
    
    $
    7,599,519
    
    
    $
    5,922,724
    
    
    $
    4,972,172Financial Services
    
    
    1,047,905
    
    
    
    855,015
    
    
    
    699,760Construction Services
    
    
    1,596,335
    
    
    
    1,517,851
    
    
    
    1,296,024Investment Real Estate
    
    
    37,869
    
    
    
    33,298
    
    
    
    53,461Other
    
    
    81,763
    
    
    
    99,817
    
    
    
    102,37710,363,391
    
    
    
    8,428,705
    
    
    
    7,123,794Costs and ExpensesHome Building
    
    
    6,649,495
    
    
    
    5,303,183
    
    
    
    4,498,206Financial Services
    
    
    817,604
    
    
    
    693,190
    
    
    
    585,027Construction Services
    
    
    1,579,922
    
    
    
    1,487,133
    
    
    
    1,259,799Investment Real Estate
    
    
    7,628
    
    
    
    12,528
    
    
    
    24,348Other
    
    
    84,061
    
    
    
    110,056
    
    
    
    99,019Corporate General and Administrative
    
    
    105,529
    
    
    
    60,289
    
    
    
    50,189Interest Expense
    
    
    39,869
    
    
    
    60,326
    
    
    
    58,5769,284,108
    
    
    
    7,726,705
    
    
    
    6,575,164Earnings from Unconsolidated Entities
    
    
    69,781
    
    
    
    45,350
    
    
    
    31,600Earnings from Continuing Operations Before Income Taxes
and Cumulative Effect of a Change in Accounting Principle
    
    
    1,149,064
    
    
    
    747,350
    
    
    
    580,230Income Taxes
    
    
    371,933
    
    
    
    220,538
    
    
    
    221,828Earnings from Continuing Operations Before Cumulative Effect
of a Change in Accounting Principle
    
    
    777,131
    
    
    
    526,812
    
    
    
    358,402Earnings from Discontinued Operations, net of Tax Provision
(Benefit)
of $(13,899), $18,394 and $14,711
    
    
    63,815
    
    
    
    29,107
    
    
    
    23,824Earnings Before Cumulative Effect of a Change in Accounting
Principle
    
    
    840,946
    
    
    
    555,919
    
    
    
    382,226Cumulative Effect of a Change in Accounting Principle, net of
Tax Benefit of $8,303
    
    
    (13,260
    )
    
    
    
    
    
    
    Net Earnings
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    382,226Basic Earnings Per ShareContinuing Operations
    
    $
    6.30
    
    
    $
    4.33
    
    
    $
    2.96Discontinued Operations
    
    
    0.52
    
    
    
    0.24
    
    
    
    0.20Cumulative Effect of a Change in Accounting Principle
    
    
    (0.11
    )
    
    
    
    
    
    
    $
    6.71
    
    
    $
    4.57
    
    
    $
    3.16Diluted Earnings Per ShareContinuing Operations
    
    $
    6.01
    
    
    $
    4.18
    
    
    $
    2.87Discontinued Operations
    
    
    0.49
    
    
    
    0.23
    
    
    
    0.19Cumulative Effect of a Change in Accounting Principle
    
    
    (0.10
    )
    
    
    
    
    
    
    $
    6.40
    
    
    $
    4.41
    
    
    $
    3.06Average Shares OutstandingBasic
    
    
    123,382,068
    
    
    
    121,564,084
    
    
    
    121,121,576Dilutive Securities:Options
    
    
    5,754,689
    
    
    
    3,464,616
    
    
    
    3,109,002Other
    
    
    256,064
    
    
    
    1,087,612
    
    
    
    827,716Diluted
    
    
    129,392,821
    
    
    
    126,116,312
    
    
    
    125,058,294Cash Dividends Per Share
    
    $
    .10
    
    
    $
    .08
    
    
    $
    .08
 See Notes to Consolidated Financial Statements. 55




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##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details(Dollars in thousands) Centex Corporation and SubsidiariesMarch 31,2004
    
    
    2003AssetsCash and Cash Equivalents
    
    $
    193,147
    
    
    $
    456,179Restricted Cash
    
    
    296,016
    
    
    
    172,321Receivables Residential Mortgage Loans Held for Investment, net
    
    
    6,498,155
    
    
    
    4,642,826Residential Mortgage Loans Held for Sale
    
    
    1,819,605
    
    
    
    303,328Construction Contracts
    
    
    312,552
    
    
    
    251,024Trade, including Notes of $51,321 and $28,369
    
    
    356,570
    
    
    
    352,313Inventories Housing Projects
    
    
    4,897,036
    
    
    
    3,306,655Land Held for Development and Sale
    
    
    208,140
    
    
    
    106,057Land Held Under Option Agreements Not Owned
    
    
    362,405
    
    
    
    Other
    
    
    94,224
    
    
    
    15,278Investments Centex Development Company, L.P.
    
    
    
    
    
    
    281,100Joint Ventures and Other
    
    
    140,118
    
    
    
    102,277Unconsolidated Subsidiaries
    
    
    
    
    
    
    Property and Equipment, net
    
    
    155,891
    
    
    
    146,329Other Assets Deferred Income Taxes
    
    
    157,678
    
    
    
    172,240Goodwill
    
    
    254,258
    
    
    
    212,939Mortgage Securitization Residual Interest
    
    
    89,374
    
    
    
    108,102Deferred Charges and Other, net
    
    
    233,399
    
    
    
    227,986Assets of Discontinued Operations
    
    
    
    
    
    
    753,582$
    16,068,568
    
    
    $
    11,610,536Liabilities and Stockholders EquityAccounts Payable
    
    $
    760,563
    
    
    $
    600,816Accrued Liabilities
    
    
    1,201,349
    
    
    
    984,305Debt Centex
    
    
    2,418,190
    
    
    
    2,024,953Financial Services
    
    
    8,302,190
    
    
    
    4,998,819Payables to Affiliates
    
    
    
    
    
    
    Liabilities of Discontinued Operations
    
    
    
    
    
    
    341,105Commitments and ContingenciesMinority Interests
    
    
    336,051
    
    
    
    2,692Stockholders Equity Preferred Stock, Authorized 5,000,000 Shares, None Issued
    
    
    
    
    
    
    Common Stock, $.25 Par Value; Authorized 300,000,000 Shares;Outstanding 122,660,357 and 121,672,182 Shares
    
    
    32,068
    
    
    
    30,966Capital in Excess of Par Value
    
    
    202,958
    
    
    
    83,228Unamortized Value of Deferred Compensation
    
    
    (411
    )
    
    
    (2,398
    )Retained Earnings
    
    
    2,990,889
    
    
    
    2,597,078Treasury Stock, at Cost; 5,610,772 and 2,193,688 Shares
    
    
    (212,822
    )
    
    
    (45,037
    )Accumulated Other Comprehensive Income (Loss)
    
    
    37,543
    
    
    
    (5,991
    )Total Stockholders Equity
    
    
    3,050,225
    
    
    
    2,657,846$
    16,068,568
    
    
    $
    11,610,536
 See Notes to Consolidated Financial Statements. 56




---



##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details(Dollars in thousands) Centex*
    
    
    Financial ServicesMarch 31,
    
    
    March 31,2004
    
    
    2003
    
    
    2004
    
    
    2003$
    174,878
    
    
    $
    441,097
    
    
    $
    18,269
    
    
    $
    15,08236,152
    
    
    
    8,349
    
    
    
    259,864
    
    
    
    163,972
    
    
    
    
    
    
    
    6,498,155
    
    
    
    4,642,826
    
    
    
    
    
    
    
    1,819,605
    
    
    
    303,328312,552
    
    
    
    251,024
    
    
    
    
    
    
    
    178,829
    
    
    
    154,009
    
    
    
    177,741
    
    
    
    198,3044,897,036
    
    
    
    3,306,655
    
    
    
    
    
    
    
    208,140
    
    
    
    106,057
    
    
    
    
    
    
    
    362,405
    
    
    
    
    
    
    
    
    
    
    
    85,284
    
    
    
    6,832
    
    
    
    8,940
    
    
    
    8,446
    
    
    
    281,100
    
    
    
    
    
    
    
    140,118
    
    
    
    102,277
    
    
    
    
    
    
    
    531,941
    
    
    
    405,407
    
    
    
    
    
    
    
    114,524
    
    
    
    104,233
    
    
    
    41,367
    
    
    
    42,09666,985
    
    
    
    82,777
    
    
    
    90,693
    
    
    
    89,463237,656
    
    
    
    195,884
    
    
    
    16,602
    
    
    
    17,055
    
    
    
    
    
    
    
    89,374
    
    
    
    108,102171,534
    
    
    
    146,346
    
    
    
    61,865
    
    
    
    81,640
    
    
    
    753,582
    
    
    
    
    
    
    
    $
    7,518,034
    
    
    $
    6,345,629
    
    
    $
    9,082,475
    
    
    $
    5,670,314$
    743,062
    
    
    $
    560,228
    
    
    $
    17,501
    
    
    $
    40,588972,041
    
    
    
    760,541
    
    
    
    229,308
    
    
    
    223,7642,418,190
    
    
    
    2,024,953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,302,190
    
    
    
    4,998,819
    
    
    
    
    
    
    
    15,661
    
    
    
    25,736
    
    
    
    341,105
    
    
    
    
    
    
    
    334,516
    
    
    
    956
    
    
    
    1,535
    
    
    
    1,736
    
    
    
    


    
    
    
    
    

    
    
    32,068
    
    
    
    30,966
    
    
    
    1
    
    
    
    1202,958
    
    
    
    83,228
    
    
    
    275,521
    
    
    
    200,467(411
    )
    
    
    (2,398
    )
    
    
    
    
    
    
    2,990,889
    
    
    
    2,597,078
    
    
    
    256,490
    
    
    
    198,145(212,822
    )
    
    
    (45,037
    )
    
    
    
    
    
    
    37,543
    
    
    
    (5,991
    )
    
    
    (15,732
    )
    
    
    (18,942
    )3,050,225
    
    
    
    2,657,846
    
    
    
    516,280
    
    
    
    379,671$
    7,518,034
    
    
    $
    6,345,629
    
    
    $
    9,082,475
    
    
    $
    5,670,314
 * In the supplemental data presented above, Centex represents the
consolidation of all subsidiaries other than those included in Financial
Services as described in Note (A), Significant Accounting Policies.
Transactions between Centex and Financial Services have been eliminated
from the Centex Corporation and Subsidiaries balance sheets. 57




---



##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Cash Flows with Consolidating Details(Dollars in thousands) Centex Corporation and SubsidiariesFor the Years Ended March 31,2004
    
    
    2003
    
    
    2002Cash Flows  Operating ActivitiesNet Earnings
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    382,226AdjustmentsCumulative Effect of a Change in Accounting Principle
    
    
    13,260
    
    
    
    
    
    
    
    Depreciation and Amortization
    
    
    101,626
    
    
    
    113,213
    
    
    
    90,659Provision for Losses on Residential Mortgage Loans Held for
Investment
    
    
    79,503
    
    
    
    34,859
    
    
    
    17,415Deferred Income Tax Provision (Benefit)
    
    
    17,803
    
    
    
    23,687
    
    
    
    (16,307
    )Equity in Earnings of Centex Development Company, L.P. and
Joint Ventures
    
    
    (79,987
    )
    
    
    (42,672
    )
    
    
    (29,918
    )Undistributed Earnings of Unconsolidated Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Minority Interest, net of Taxes
    
    
    (8,252
    )
    
    
    20,201
    
    
    
    13,818Changes in Assets and Liabilities, Excluding Effect of Acquisitions
(Increase)(Increase) Decrease in Restricted Cash
    
    
    (116,398
    )
    
    
    (66,051
    )
    
    
    (44,618
    )(Increase) Decrease in Receivables
    
    
    (67,808
    )
    
    
    (96,427
    )
    
    
    3,384Decrease
(Increase) in Residential Mortgage Loans Held for Sale
    
    
    927,151
    
    
    
    (61,535
    )
    
    
    40,197Increase in Housing Projects and Land Held for Development
and Sale Inventories
    
    
    (1,203,547
    )
    
    
    (734,666
    )
    
    
    (484,157
    )Decrease
(Increase) in Other Inventories
    
    
    464
    
    
    
    (2,164
    )
    
    
    (23,213
    )Increase
(Decrease) in Accounts Payable and Accrued Liabilities
    
    
    232,601
    
    
    
    218,448
    
    
    
    164,777(Increase)
Decrease in Other Assets, net
    
    
    (37,891
    )
    
    
    19,867
    
    
    
    (52,202
    )Increase
(Decrease) in Payables to Affiliates
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    3,304
    
    
    
    13,742
    
    
    
    (4,152
    )689,515
    
    
    
    (3,579
    )
    
    
    57,909Cash Flows  Investing ActivitiesPayments received on Notes Receivable
    
    
    13,231
    
    
    
    6,356
    
    
    
    36,177Increase in Residential Mortgage Loans Held for Investment
    
    
    (1,934,832
    )
    
    
    (1,398,235
    )
    
    
    (1,499,601
    )Decrease (Increase) in Investment and Advances to Centex
Development Company, L.P. and Joint Ventures
    
    
    79,298
    
    
    
    52,792
    
    
    
    (37,327
    )(Increase)
Decrease in Investment and Advances to Unconsolidated
Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Acquisitions, net of Cash AcquiredHome Building Operations
    
    
    
    
    
    
    (137,733
    )
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (39,411
    )Purchases of Property and Equipment, net
    
    
    (53,758
    )
    
    
    (62,701
    )
    
    
    (60,380
    )Other
    
    
    (432
    )
    
    
    (6,467
    )
    
    
    (3,552
    )(1,896,493
    )
    
    
    (1,545,988
    )
    
    
    (1,604,094
    )Cash Flows  Financing Activities(Decrease)
Increase in Short-term Debt, net
    
    
    (1,083,468
    )
    
    
    534,231
    
    
    
    (213,308
    )CentexIssuance of
Long-term Debt
    
    
    404,998
    
    
    
    605,992
    
    
    
    1,007,699Repayment of
Long-term Debt
    
    
    (164,073
    )
    
    
    (298,491
    )
    
    
    (699,570
    )Financial ServicesIssuance of
Long-term Debt
    
    
    5,334,407
    
    
    
    1,999,374
    
    
    
    2,053,238Repayment of Long-term Debt
    
    
    (3,432,323
    )
    
    
    (1,013,186
    )
    
    
    (458,704
    )Proceeds from Stock Option Exercises
    
    
    65,099
    
    
    
    15,738
    
    
    
    31,525Treasury Stock Purchases, net
    
    
    (167,785
    )
    
    
    (38,478
    )
    
    
    (6,559
    )Dividends Paid
    
    
    (13,601
    )
    
    
    (9,743
    )
    
    
    (9,724
    )943,254
    
    
    
    1,795,437
    
    
    
    1,704,597Effect of Exchange Rate on Cash
    
    
    692
    
    
    
    
    
    
    
    Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (263,032
    )
    
    
    245,870
    
    
    
    158,412Cash and Cash Equivalents at Beginning of Year
    
    
    456,179
    
    
    
    210,309
    
    
    
    51,897Cash and Cash Equivalents at End of Year
    
    $
    193,147
    
    
    $
    456,179
    
    
    $
    210,309
 See Notes to Consolidated Financial Statements. 58




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##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Cash Flows with Consolidating Details(Dollars in thousands) Centex*
    
    
    Financial ServicesFor Years Ended March 31,
    
    
    For Years Ended March 31,2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002$
    827,686
    
    
    $
    555,919
    
    
    $
    382,226
    
    
    $
    132,845
    
    
    $
    152,970
    
    
    $
    80,512
    
    
    
    
    
    
    
    
    
    
    
    13,260
    
    
    
    
    
    
    
    84,275
    
    
    
    96,214
    
    
    
    74,816
    
    
    
    17,351
    
    
    
    16,999
    
    
    
    15,843
    
    
    
    
    
    
    
    
    
    
    
    79,503
    
    
    
    34,859
    
    
    
    17,4158,076
    
    
    
    23,687
    
    
    
    (16,307
    )
    
    
    9,727
    
    
    
    (2,430
    )
    
    
    (41,293
    )(79,987
    )
    
    
    (42,672
    )
    
    
    (29,918
    )
    
    
    
    
    
    
    
    
    
    
    (58,345
    )
    
    
    (77,970
    )
    
    
    (52,512
    )
    
    
    
    
    
    
    
    
    
    
    (8,051
    )
    
    
    20,201
    
    
    
    13,818
    
    
    
    (201
    )
    
    
    
    
    
    
    (27,803
    )
    
    
    (3,589
    )
    
    
    682
    
    
    
    (88,595
    )
    
    
    (62,462
    )
    
    
    (45,300
    )(54,366
    )
    
    
    (44,726
    )
    
    
    31,458
    
    
    
    (13,442
    )
    
    
    (51,701
    )
    
    
    (28,074
    )
    
    
    
    
    
    
    
    
    
    
    
    927,151
    
    
    
    (61,535
    )
    
    
    40,197(1,203,547
    )
    
    
    (734,666
    )
    
    
    (484,157
    )
    
    
    
    
    
    
    
    
    
    
    958
    
    
    
    2,842
    
    
    
    (2,797
    )
    
    
    (494
    )
    
    
    (5,006
    )
    
    
    (20,416
    )229,234
    
    
    
    116,989
    
    
    
    124,543
    
    
    
    (12,022
    )
    
    
    91,584
    
    
    
    30,968(54,365
    )
    
    
    18,931
    
    
    
    (8,861
    )
    
    
    16,474
    
    
    
    3,397
    
    
    
    139
    
    
    
    
    
    
    
    
    
    
    
    8,578
    
    
    
    (155,879
    )
    
    
    135,6923,304
    
    
    
    13,981
    
    
    
    (3,994
    )
    
    
    
    
    
    
    (239
    )
    
    
    (158
    )(332,931
    )
    
    
    (54,859
    )
    
    
    28,997
    
    
    
    1,090,135
    
    
    
    (39,443
    )
    
    
    185,52512,897
    
    
    
    5,261
    
    
    
    36,024
    
    
    
    334
    
    
    
    1,095
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    (1,934,832
    )
    
    
    (1,398,235
    )
    
    
    (1,499,601
    )79,298
    
    
    
    52,761
    
    
    
    (37,327
    )
    
    
    
    
    
    
    
    
    
    
    (68,189
    )
    
    
    164,531
    
    
    
    (130,693
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137,733
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,904
    )
    
    
    
    
    
    
    
    
    
    
    (507
    )(38,935
    )
    
    
    (47,226
    )
    
    
    (53,494
    )
    
    
    (14,823
    )
    
    
    (15,475
    )
    
    
    (6,886
    )(18,432
    )
    
    
    (6,467
    )
    
    
    (3,552
    )
    
    
    18,000
    
    
    
    
    
    
    
    (33,361
    )
    
    
    31,127
    
    
    
    (227,946
    )
    
    
    (1,931,321
    )
    
    
    (1,412,615
    )
    
    
    (1,506,841
    )(25,257
    )
    
    
    6,627
    
    
    
    18,630
    
    
    
    (1,058,211
    )
    
    
    527,604
    
    
    
    (231,938
    )404,998
    
    
    
    605,992
    
    
    
    1,007,699
    
    
    
    
    
    
    
    
    
    
    
    (164,073
    )
    
    
    (298,491
    )
    
    
    (699,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,334,407
    
    
    
    1,999,374
    
    
    
    2,053,238
    
    
    
    
    
    
    
    
    
    
    
    (3,432,323
    )
    
    
    (1,013,186
    )
    
    
    (458,704
    )65,099
    
    
    
    15,738
    
    
    
    31,525
    
    
    
    
    
    
    
    
    
    
    
    (167,785
    )
    
    
    (38,478
    )
    
    
    (6,559
    )
    
    
    
    
    
    
    
    
    
    
    (13,601
    )
    
    
    (9,743
    )
    
    
    (9,724
    )
    
    
    500
    
    
    
    (73,777
    )
    
    
    (25,920
    )99,381
    
    
    
    281,645
    
    
    
    342,001
    
    
    
    844,373
    
    
    
    1,440,015
    
    
    
    1,336,676692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (266,219
    )
    
    
    257,913
    
    
    
    143,052
    
    
    
    3,187
    
    
    
    (12,043
    )
    
    
    15,360441,097
    
    
    
    183,184
    
    
    
    40,132
    
    
    
    15,082
    
    
    
    27,125
    
    
    
    11,765$
    174,878
    
    
    $
    441,097
    
    
    $
    183,184
    
    
    $
    18,269
    
    
    $
    15,082
    
    
    $
    27,125
 * In the supplemental data presented above, Centex represents the
consolidation of all subsidiaries other than those included in Financial
Services as described in Note (A), Significant Accounting Policies.
Transactions between Centex and Financial Services have been eliminated from
the Centex Corporation and Subsidiaries statements of cash flows. 59




---



##### Table of Contents



Centex Corporation and Subsidiaries
Statements of Consolidated Stockholders Equity(in thousands) UnamortizedCommon Stock
    
    
    Capital inExcess of
    
    
    Value ofDeferredShares
    
    
    Amount
    
    
    Par Value
    
    
    CompensationBalance, March 31, 2001
    
    
    119,858
    
    
    $
    29,964
    
    
    $
    10,797
    
    
    $
    Issuance and
Amortization of Restricted Stock
    
    
    156
    
    
    
    38
    
    
    
    3,114
    
    
    
    (2,408
    )Exercise of Stock Options, Including Tax Benefit
    
    
    2,772
    
    
    
    694
    
    
    
    43,187
    
    
    
    Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases of Common Stock for Treasury
    
    
    (444
    )
    
    
    
    
    
    
    
    
    
    
    Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized Loss on Hedging Instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign Currency Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized Gain on Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive IncomeBalance, March 31, 2002
    
    
    122,342
    
    
    
    30,696
    
    
    
    57,098
    
    
    
    (2,408
    )Issuance and
Amortization of Restricted Stock
    
    
    40
    
    
    
    10
    
    
    
    990
    
    
    
    10Exercise of Stock Options, Including Tax Benefit
    
    
    1,040
    
    
    
    260
    
    
    
    19,621
    
    
    
    Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases of Common Stock for Treasury
    
    
    (1,750
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    5,519
    
    
    
    Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized Loss on Hedging Instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign Currency Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Comprehensive Income Items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive IncomeBalance, March 31, 2003
    
    
    121,672
    
    
    
    30,966
    
    
    
    83,228
    
    
    
    (2,398
    )Issuance
and Amortization of Restricted Stock
    
    
    128
    
    
    
    32
    
    
    
    2,328
    
    
    
    1,987Stock Compensation
    
    
    
    
    
    
    
    
    
    
    26,002
    
    
    
    Exercise of Stock Options, Including Tax Benefits
    
    
    3,478
    
    
    
    870
    
    
    
    89,500
    
    
    
    Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Spin-off of Subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases of Common Stock for Treasury
    
    
    (3,418
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of Convertible Debenture
    
    
    800
    
    
    
    200
    
    
    
    1,900
    
    
    
    Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized Gain on Hedging Instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign Currency Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Comprehensive Income Items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive IncomeBalance, March 31, 2004
    
    
    122,660
    
    
    $
    32,068
    
    
    $
    202,958
    
    
    $
    (411
    )
 See Notes to Consolidated Financial Statements. 60




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##### Table of Contents





Centex Corporation and SubsidiariesStatements of Consolidated
Stockholders Equity(in thousands) AccumulatedTreasury
    
    
    OtherRetained
    
    
    Stock
    
    
    ComprehensiveEarnings
    
    
    at Cost
    
    
    Income (Loss)
    
    
    Total$
    1,678,400
    
    
    $
    
    
    
    $
    (5,097
    )
    
    $
    1,714,064
    
    
    
    
    
    
    
    
    
    
    
    744
    
    
    
    
    
    
    
    
    
    
    
    43,881(9,724
    )
    
    
    
    
    
    
    
    
    
    
    (9,724
    )
    
    
    
    (6,559
    )
    
    
    
    
    
    
    (6,559
    )382,226
    
    
    
    
    
    
    
    
    
    
    
    382,226
    
    
    
    
    
    
    
    (11,033
    )
    
    
    (11,033
    )
    
    
    
    
    
    
    
    2,622
    
    
    
    2,622
    
    
    
    
    
    
    
    552
    
    
    
    552374,3672,050,902
    
    
    
    (6,559
    )
    
    
    (12,956
    )
    
    
    2,116,773
    
    
    
    
    
    
    
    
    
    
    
    1,010
    
    
    
    
    
    
    
    
    
    
    
    19,881(9,743
    )
    
    
    
    
    
    
    
    
    
    
    (9,743
    )
    
    
    
    (38,478
    )
    
    
    
    
    
    
    (38,478
    )
    
    
    
    
    
    
    
    
    
    
    
    5,519555,919
    
    
    
    
    
    
    
    
    
    
    
    555,919
    
    
    
    
    
    
    
    (10,849
    )
    
    
    (10,849
    )
    
    
    
    
    
    
    
    19,330
    
    
    
    19,330
    
    
    
    
    
    
    
    (1,516
    )
    
    
    (1,516
    )562,8842,597,078
    
    
    
    (45,037
    )
    
    
    (5,991
    )
    
    
    2,657,846
    
    
    
    
    
    
    
    
    
    
    
    4,347
    
    
    
    
    
    
    
    
    
    
    
    26,002
    
    
    
    
    
    
    
    
    
    
    
    90,370(13,601
    )
    
    
    
    
    
    
    
    
    
    
    (13,601
    )(420,274
    )
    
    
    
    
    
    
    
    
    
    
    (420,274
    )
    
    
    
    (167,785
    )
    
    
    
    
    
    
    (167,785
    )
    
    
    
    
    
    
    
    
    
    
    
    2,100827,686
    
    
    
    
    
    
    
    
    
    
    
    827,686
    
    
    
    
    
    
    
    5,706
    
    
    
    5,706
    
    
    
    
    
    
    
    36,864
    
    
    
    36,864
    
    
    
    
    
    
    
    964
    
    
    
    964871,220$
    2,990,889
    
    
    $
    (212,822
    )
    
    $
    37,543
    
    
    $
    3,050,225
 61




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##### Table of Contents



Centex Corporation and Subsidiaries
Notes to Consolidated Financial Statements(Dollars in thousands, except per share data) (A) SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Centex
Corporation and subsidiaries (the Company) after the elimination of all
significant intercompany balances and transactions. Balance sheet and cash flows data is presented in the following categories:  
    
    Centex Corporation and Subsidiaries.This represents the
consolidation of Centex, Financial Services and all of their
consolidated subsidiaries. The effects of transactions among related
companies within the consolidated group have been eliminated.
    
    Centex.This information is presented as supplemental information and
represents the consolidation of all subsidiaries other than those
included in Financial Services, which are presented on an equity basis
of accounting.
    
    Financial Services.This information is presented as supplemental
information and represents Centex Financial Services and its
subsidiaries. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Revenue Recognition Revenues from Home Building projects are recognized as homes are sold and
title passes. Investment Real Estates property sales are recognized when a buyer has
made an adequate cash down payment, all significant risks and rewards of
ownership have been relinquished and title has transferred to the buyer.
Sales revenues related to contractually obligated improvements are deferred
until such improvements have been completed. 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. Other revenues, including
fees for title insurance and other services performed in connection with
mortgage lending activities, are recognized as earned. Interest revenues on residential mortgage loans receivable are recognized
as revenue using the interest (actuarial) method. Revenue accruals are
suspended, except for revenue accruals related to insured mortgage loans, when
the residential mortgage loan becomes contractually delinquent for 90 days or
more. The accrual is resumed when the residential mortgage loan becomes less
than 90 days contractually delinquent. At March 31, 2004 and 2003, residential
mortgage loans, on which revenue was not being accrued, were approximately
$210.5 million and $167.1 million, respectively. Long-term construction contract revenues are recognized on the
percentage-of-completion method based on the costs incurred relative to total
estimated costs. Full provision is made for any anticipated losses. In 62




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fiscal
2004, Construction Services recorded a project loss of $4.5 million related to
the construction of a distribution facility. Billings for long-term
construction contracts are rendered monthly, including the amount of retainage
withheld by the customer until contract completion. As a general contractor,
the Company
withholds similar retainages from each subcontractor. Retainages of $103.2
million and $87.5 million included in construction contracts receivable and
$101.4 million and $99.9 million included in accounts payable at March 31, 2004
and 2003, respectively, are generally receivable and payable within one year. Claims related to long-term construction contracts are recognized as
revenue only after management has determined that the collection is probable
and the amount can be reliably estimated. There are no claims included in
revenues for the fiscal years ended March 31, 2004 and 2003 and $1.8 million in
claims are included in revenues for the fiscal year ended March 31, 2002
(fiscal 2004, fiscal 2003 and fiscal 2002). For the Companys home services operations, revenue is recognized at the
time the services are rendered. Earnings Per Share Basic earnings per share are computed based on the weighted-average number
of shares of common stock, par value $.25 per share (Common Stock),
outstanding, including vested shares of restricted stock and vested deferred
stock units under the long-term incentive plan. Diluted earnings per share are
computed based upon the basic weighted-average number of shares plus the
dilution of the stock options, unvested shares of restricted stock, unvested
deferred stock units under the long-term incentive plan and a convertible
debenture. Earnings per share calculations for all periods presented have been
restated to give retroactive application to the March 12, 2004 two-for-one
stock split effected in the form of a 100 percent stock dividend to Company
stockholders of record on February 29, 2004. The computation of diluted earnings per share excludes anti-dilutive
options to purchase 373,000 shares of Common Stock at an average price of
$35.37 for the year ended March 31, 2004. The computation of diluted earnings
per share excludes anti-dilutive options to purchase 1,704,000 shares of Common
Stock at an average price of $25.22 for the year ended March 31, 2003. The
computation of diluted earnings per share excludes anti-dilutive options to
purchase 3,400 shares of Common Stock at an average price of $23.04 for the
year ended March 31, 2002. Anti-dilutive options at March 31, 2004, have an
expiration date of May 2010. Cash and Cash Equivalents Cash equivalents represent highly liquid investments with an original
maturity of three months or less. Restricted Cash Restricted cash primarily represents cash in principal and interest
accounts for insurance agreements and required cash balances for Harwood Street
Funding I, LLC (HSF-I) and Harwood Street Funding II, LLC (HSF-II). Residential Mortgage Loans Residential mortgage loans held for investment represent mortgage loans
originated by Home Equity, which are securitized and recorded as secured
borrowings in the financial statements using the portfolio method. These
mortgage loans are stated at cost less an allowance for losses. Residential
mortgage loans held for sale represent mortgage loans originated by CTX
Mortgage Company, LLC, which will be sold to third parties and recorded as
sales. The carrying value of loans designated as hedged is adjusted for
changes in the fair value to the extent the hedge is deemed effective.
Unhedged loans or loans hedged ineffectively are stated at the lower 63




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of cost or
market. Market is determined by forward sale commitments, current investor
yield requirements and current market conditions. Substantially all of the
mortgage loans are delivered to third-party purchasers and/or subjected to
securitization within three months after origination. These loans are subject
to hedge instruments
during the time they are held in inventory. Substantially all of the mortgage
loans are pledged as collateral for secured financings. Home Equity establishes an allowance for losses by recording a provision
for losses in the Statements 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. Home Equity believes that the allowance for losses is sufficient to
provide for credit losses in the existing residential mortgage loans held for
investment, which include real estate owned. Home Equity evaluates 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 Home Equitys 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. CTX Mortgage Company, LLC has established a liability for anticipated
losses associated with loans originated based on, 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 Home Equity and CTX Mortgage Company, LLC consider the allowance
for losses on residential mortgage loans held for investment and the loan
origination reserve reflected in the consolidated balance sheet at March 31,
2004 to be sufficient, there can be no assurance that this allowance or reserve
will prove to be sufficient over time to cover ultimate losses. This allowance
and reserve may prove to be insufficient due to unanticipated adverse changes
in the economy or discrete events adversely affecting specific customers or
industries. Trade Accounts and Notes Receivable Trade accounts receivable primarily consist of accrued interest, amounts
related to securitizations, receivables for the sale of servicing rights,
closed unfunded home sales receivables, insurance claims receivable and trade
sales related to the Companys Financial Services and Home Building segments
and are net of an allowance for doubtful accounts. Notes receivable at March
31, 2004 are collectible primarily over five years with $20.3 million being due
within one year. The weighted-average interest rate on notes receivable at
March 31, 2004 was 4.4%. Inventory, Capitalization and Segment Expenses Housing projects and land held for development and sale are stated at the
lower of cost (including direct construction costs, capitalized interest and
real estate taxes) or fair value less cost to sell. The relief of capitalized
costs is included in the Home Building costs and expenses in the Statements of
Consolidated Earnings when related revenues are recognized. General operating expenses associated with each segment of business are
expensed when incurred and are included in the appropriate business segment. 64




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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 the Company 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 are 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 on managements estimates of the
variability and probabilities of future land prices, the probabilities of
expected cash flows and the 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 the Company has 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 reclassified to land held under option agreements
not owned. Investments The Company is a participant in certain joint ventures with interests
ranging from 20% to 67%. Investments in joint ventures in which the Companys
interest exceeds 50% have been consolidated. All remaining investments in
joint ventures are carried on the equity method in the consolidated financial
statements. Prior to March 2004, the Company maintained an investment in Centex
Development Company, L.P. and subsidiaries (the Partnership), accounted for
under the equity method of accounting. In February 2004, we acquired the
Partnership through merger. Subsequent to the merger, we have consolidated the
Partnership. See Note (G), Merger of 3333 Holding Corporation and Subsidiary
and Centex Development Company, L.P. and Subsidiaries, for additional
information regarding the Partnership. The earnings or losses of the Companys investment in the Partnership and
joint ventures are included in the appropriate business segment. 65




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Property and Equipment, net Property and equipment is carried at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful life of the asset. Depreciable lives for Buildings and Improvements
typically range from 7 to 40 years; depreciable lives for Machinery, Equipment
and Other typically range from 2 to 10 years. Major renewals and improvements
are capitalized and depreciated. Repairs and maintenance are expensed as
incurred. Costs and accumulated depreciation applicable to assets retired or
sold are eliminated from the accounts and any resulting gains or losses are
recognized at such time. Impairment of Long-Lived Assets The Company assesses housing projects, land held for development and sale
and property and equipment 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 (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
fiscal 2004, 2003 or 2002. Goodwill Goodwill represents the excess of purchase price over net assets of
businesses acquired. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142), effective April 1, 2001. Upon the adoption of SFAS No. 142,
goodwill is no longer subject to amortization. Rather, goodwill is subject to
at least an annual assessment for impairment, at the reporting unit level, by
applying a fair value-based test. If the carrying amount exceeds the fair
value, an impairment has occurred. The Company continually evaluates 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. The Company had no
impairment of goodwill in fiscal 2004, 2003 and 2002. See further discussion
of goodwill at Note (E), Goodwill. Mortgage Securitization Residual Interest Home Equity uses mortgage securitizations to finance its mortgage loan
portfolio. Securitizations entered into prior to April 1, 2000 were accounted
for as sales, and the resulting gains on such sales were reported in operating
results during the period in which the securitizations closed. Home Equity
changed the legal and economic structure of securitizations subsequent to March
31, 2000, causing securitizations after that date to be accounted for as
secured borrowings. Additionally, in fiscal year 2004, Home Equity sold 2% of
its mortgage loans originated to a government sponsored enterprise, which were
accounted for as sales. For securitizations accounted for as sales, Home Equity retained a
residual interest (the 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. 66




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Changes in Home Equitys MSRI were as follows: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Beginning Balance
    
    $
    106,373
    
    
    $
    122,316
    
    
    $
    146,394Cash Received
    
    
    (11,256
    )
    
    
    (17,193
    )
    
    
    (32,281
    )Accretion and Other
    
    
    (7,321
    )
    
    
    1,250
    
    
    
    8,203Ending Balance
    
    $
    87,796
    
    
    $
    106,373
    
    
    $
    122,316
 The Company classifies MSRI as trading securities in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
and accordingly, carries MSRI at fair value on the Companys balance sheet. 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. Home Equity monitors the fair value of MSRI and the reasonableness of
the underlying assumptions in light of current market conditions. At March 31, 2004, Home Equity used the following assumptions in
monitoring the fair value of the MSRI: cumulative credit losses of 4.51% to
6.11%; Constant Prepayment Rate (CPR) for fixed rate loans of 26.55% per
annum; a CPR of 31.28% per annum for variable rate loans; and a discount rate
of 15% simple interest. At March 31, 2004, the expected weighted-average life
of Home Equitys MSRI balance was 1.45 years, with individual transactions
ranging from 0.85 years to 1.77 years. Home Equity had MSRI of $87.8 million and $106.4 million at March 31, 2004
and 2003, respectively. The outstanding principal amount of the related
securitized loans was $562.6 million and $785.8 million at March 31, 2004 and
2003, respectively. Delinquencies related to MSRI were $37.1 million and $51.0
million at March 31, 2004 and 2003, respectively. Net credit losses for fiscal
2004, 2003 and 2002 were $18.0 million, $22.4 million and $17.3 million,
respectively. At March 31, 2004, the sensitivity of the current fair value of the MSRI
to an immediate 10 percent and 20 percent unfavorable change in assumptions is
presented in the table below. These sensitivities are based on assumptions
used to value our MSRI at March 31, 2004. Impact on fair value of an adverse changeAssumption
    
    10%
    
    
    20%Credit Losses
    
    $
    1,076
    
    
    $
    2,500Constant Prepayment Rate
    
    $
    1,303
    
    
    $
    2,610Discount Rate
    
    $
    2,456
    
    
    $
    4,829
 These sensitivities are hypothetical and should not be considered to be
predictive of future performance. As the figures indicate, the change in fair
value based on a 10 percent variation in assumptions cannot necessarily be
extrapolated because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the residual cash
flow is calculated independently from any change in another assumption. In
reality, changes in one factor may contribute to changes in another (for
example, increases in market interest rates may result in 67




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##### Table of Contents



lower prepayments), which might magnify or counteract the sensitivities.
Furthermore, the estimated fair values as disclosed should not be considered
indicative of future earnings on these assets. In addition to Home Equitys MSRI, CTX Mortgage also had MSRI of $1.6
million and $1.7 million at March 31, 2004 and 2003, respectively. CTX
Mortgages MSRI resulted from an acquisition in fiscal 2002. Deferred Charges and Other Deferred charges and other are primarily composed of interest rate lock
commitments, deposits, investments, prepaid expenses, acquisition intangibles,
securitization costs and other financing costs. Advertising Costs Advertising costs are expensed as incurred. Advertising costs for fiscal
2004, 2003 and 2002 were $91.4 million, $78.6 million and $78.9 million,
respectively. Foreign Currency Exchange Gains or Losses Home Buildings international operations, whose functional currency is not
the U.S. dollar, translates its financial statements into U.S. dollars. Assets
and liabilities are translated at the exchange rate in effect as of the
financial statement date. Income statement accounts are translated using the
average exchange rate for the period. Income statement accounts that represent
significant, non-recurring transactions are translated at the rate in effect as
of the date of the transaction. Gains and losses resulting from the
translation are included in accumulated other comprehensive income as a
separate component of stockholders equity. Off-Balance Sheet Obligations The Company enters into various off-balance-sheet transactions in the
normal course of business in order to facilitate homebuilding activities.
Further discussion regarding these transactions can be found in Note (H),
Commitments and Contingencies. Insurance Accruals The Company has certain deductible limits under its 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. 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.
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. Expenses associated with insurance claims up
to our deductible limits were $42.7 million, $18.1 million and $21.4 million
for fiscal 2004, 2003 and 2002, respectively. Stock-Based Employee Compensation Arrangements On April 1, 2003, the Company adopted the fair value measurement
provisions of SFAS No. 123, under which the Company recognizes compensation
expense of a stock-based award to an employee on a straight-line basis 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), whereas awards granted prior to such
date continue 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. 68




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On January 30, 2004, the Company modified all of its stock options and
long-term incentive plan rights outstanding, in order to keep the holders in
the same economic position as before the spin-off of Centex Construction
Products, Inc. (Construction Products). The modification resulted in a
reduction of the exercise price and an increase in the number of shares. This
adjustment is a modification under the provisions of SFAS No. 123 and
accordingly, compensation expense of $12.2 million will be expensed over the
remaining vesting periods. Subsequent to January 30, 2004, the Company has no
outstanding options or other stock rights accounted for under the provisions of
APB No. 25. 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 in fiscal 2004, 2003 and
2002, consistent with the provisions of SFAS No. 123. For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Net Income  as Reported
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    382,226Stock-Based Employee Compensation Expense Included
in Reported Net Income, net of Related Tax Effects
    
    
    19,727
    
    
    
    4,244
    
    
    
    484Total Stock-Based Employee Compensation Expense
Determined Under Fair Value Based Method, net of
Related Tax Effects
    
    
    (31,580
    )
    
    
    (24,512
    )
    
    
    (24,957
    )Pro Forma Net Earnings
    
    $
    815,833
    
    
    $
    535,651
    
    
    $
    357,753Earnings Per Share:Basic  as Reported
    
    $
    6.71
    
    
    $
    4.57
    
    
    $
    3.16Basic  Pro Forma
    
    $
    6.61
    
    
    $
    4.41
    
    
    $
    2.95Diluted  as Reported
    
    $
    6.40
    
    
    $
    4.41
    
    
    $
    3.06Diluted  Pro Forma
    
    $
    6.29
    
    
    $
    4.25
    
    
    $
    2.86
 Income Taxes The Company accounts for income taxes on the deferral method whereby
deferred tax assets and liabilities are recognized for the consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. 69




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Interest Expense Interest expense relating to the Financial Services segment is included in
Financial Services costs and expenses. The Company capitalizes a portion of
interest incurred as a component of housing projects inventory cost. The
relief of capitalized interest is included in Home Buildings costs and
expenses as housing inventories are sold. Interest expense related to segments
other than Financial Services and Home Building is included as a separate line
item on the Statements of Consolidated Earnings. For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Total Interest Incurred
    
    $
    378,718
    
    
    $
    318,349
    
    
    $
    271,289Less  Interest Capitalized
    
    
    (114,997
    )
    
    
    (73,572
    )
    
    
    (53,568
    )Financial Services Interest Expense
    
    
    (223,852
    )
    
    
    (184,451
    )
    
    
    (159,145
    )Interest Expense, net
    
    $
    39,869
    
    
    $
    60,326
    
    
    $
    58,576Capitalized Interest Relieved to
Home Buildings Costs and Expenses
    
    $
    89,144
    
    
    $
    49,450
    
    
    $
    40,851
 Statements of Consolidated Cash Flows  Supplemental Disclosures The following table provides supplemental disclosures related to the
Statements of Consolidated Cash Flows: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Cash Paid for Interest
    
    $
    362,167
    
    
    $
    318,607
    
    
    $
    262,488Net Cash Paid for Taxes
    
    $
    356,853
    
    
    $
    204,368
    
    
    $
    199,366
 Effective July 1, 2003, the Company
consolidated HSF-I pursuant to the provisions of FIN 46, as discussed in Note (F), Indebtedness.
As of July 1, 2003, HSF-I assets and liabilities which were consolidated by the
Company 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
    )$
    (13,260
    )
 As a result of the consolidation of HSF-I, the Company recorded a
cumulative effect of a change in accounting principle, net of tax, of $13,260. As explained in Note (I), Land Held Under Option Agreements not Owned and
Other Land Deposits pursuant to the provisions of FIN 46, the Company
consolidated $332.7 million of lot option agreements and reclassified $29.7
million of deposits related to these options, previously included in Land Held
for Development and Sale. 70




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Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, as revised, (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. As of March 31, 2004, all the provisions of FIN 46
apply, and the Company has interests in HSF-I, certain land option agreements
and joint ventures that are affected by this interpretation. The nature of
these entities operations, the Companys potential maximum exposure related to
these entities and the applicability of FIN 46 to these entities are discussed
as follows: HSF-I
    
    Note (F), IndebtednessJoint Ventures
    
    Note (H), Commitments and ContingenciesLand Option Agreements
    
    Note (I), Land Held Under Option Agreements not
Owned and Other Land Deposits
 In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, (SFAS No. 149). The statement amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities
under Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, or SFAS No. 133, by requiring
that contracts with comparable characteristics be accounted for similarly,
resulting in more consistent reporting of contracts as either derivatives or
hybrid instruments. A portion of this statement is effective for contracts
entered into or modified and for hedging relationships designated after June
30, 2003. The remainder of this statement codifies previously issued SFAS No.
133 implementation guidance, which retains its original effective dates. The
implementation of SFAS No. 149 did not have a material impact on the Companys
results of operations or financial position. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity, (SFAS No. 150). The statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within the scope of SFAS
No. 150 as a liability (or an asset in some circumstances). Certain provisions
of this statement are effective for financial instruments entered into or
modified after May 31, 2003. In October 2003, FASB deferred indefinitely
certain provisions of this statement pertaining to non-controlling interests in
limited life entities. The implementation of the provisions of SFAS No. 150
which are effective did not have an impact on the Companys results of
operations or financial position. On
March 9, 2004, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 105,
Application of Accounting Principles to Loan Commitments, (SAB 105). SAB
105 applies to all interest rate lock commitments (IRLCs) entered into after
March 31, 2004. SAB 105 expresses the SEC staffs view that the fair value of
IRLCs should not consider the expected future cash flows related to the
associated servicing of the future loan. CTX Mortgage Company, LLC does enter
into IRLCs with certain customers; however, no servicing income is recorded
upon entering into the IRLC. Accordingly, SAB 105 will not have an effect on
the Companys financial position or results of operations. Reclassifications Certain prior year balances have been reclassified to conform to the
fiscal 2004 presentation. 71




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##### Table of Contents



(B)
    
    RESIDENTIAL MORTGAGE LOANS HELD FOR INVESTMENT Residential mortgage loans held for investment, including real estate
owned, consisted of the following: March 31,2004
    
    
    2003Residential Mortgage Loans Held for Investment
    
    $
    6,554,513
    
    
    $
    4,671,210Allowance for Losses on Residential Mortgage Loans
Held for Investment
    
    
    (56,358
    )
    
    
    (28,384
    )Residential Mortgage Loans Held for Investment,
net of Allowance for Losses
    
    $
    6,498,155
    
    
    $
    4,642,826
 At March 31, 2004, contractual maturities of residential mortgage loans
held for investment were as follows: 2005
    
    $
    77,9992006
    
    
    81,9312007
    
    
    86,5202008
    
    
    93,7302009 and thereafter
    
    
    6,214,333$
    6,554,513
 It is the Companys experience that a substantial portion of the loan
portfolio generally is renewed or repaid prior to contractual maturity dates.
The above maturity schedule should not be regarded as a forecast of future cash
collections.  (C)
    
    ALLOWANCE FOR LOSSES ON RESIDENTIAL MORTGAGE LOANS HELD FOR INVESTMENT Changes in the allowance for losses on residential mortgage loans held for
investment were as follows: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Balance at Beginning of Period
    
    $
    28,384
    
    
    $
    14,106
    
    
    $
    2,814Provision for Losses
    
    
    79,503
    
    
    
    34,859
    
    
    
    17,415Recoveries on Loans Charged Off
    
    
    204
    
    
    
    160
    
    
    
    259Losses Sustained
    
    
    (51,733
    )
    
    
    (20,741
    )
    
    
    (6,382
    )Balance at End of Period
    
    $
    56,358
    
    
    $
    28,384
    
    
    $
    14,106Allowance as a Percentage of Gross Loans Held
for Investment
    
    
    0.9
    %
    
    
    0.6
    %
    
    
    0.4
    %Allowance as a Percentage of 90+ DaysContractual Delinquency
    
    
    36.4
    %
    
    
    23.2
    %
    
    
    16.9
    %90+ Days Contractual Delinquency (based on months)Total Dollars Delinquent
    
    $
    154,868
    
    
    $
    122,479
    
    
    $
    83,490% Delinquent
    
    
    2.4
    %
    
    
    2.6
    %
    
    
    2.6
    %
 72




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##### Table of Contents



(D)
    
    PROPERTY AND EQUIPMENT Property and equipment cost by major category and accumulated depreciation
are summarized below: March 31,2004
    
    
    2003Land, Buildings and Improvements
    
    $
    98,887
    
    
    $
    82,132Machinery, Equipment and Other
    
    
    218,883
    
    
    
    211,311317,770
    
    
    
    293,443Accumulated Depreciation
    
    
    (161,879
    )
    
    
    (147,114
    )$
    155,891
    
    
    $
    146,329
 The Company had depreciation expense related to property and equipment of
$39.5 million, $35.9 million, and $32.9 million for fiscal 2004, 2003, and
2002, respectively.  (E)
    
    GOODWILL A
summary of changes in goodwill by segment for the years ended March 31,
2004 and 2003 are presented below: Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalBalance as of March 31, 2002
    
    $
    84,151
    
    
    $
    16,815
    
    
    $
    1,007
    
    
    $
    87,295
    
    
    $
    189,268Goodwill Acquired
    
    
    38,860
    
    
    
    240
    
    
    
    
    
    
    
    1,978
    
    
    
    41,078Sale of Chemical Lawn Care
Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,393
    )
    
    
    (17,393
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (14
    )Balance as of March 31, 2003
    
    
    123,011
    
    
    
    17,055
    
    
    
    1,007
    
    
    
    71,866
    
    
    
    212,939Goodwill Consolidated or
Acquired
    
    
    36,425
    
    
    
    414
    
    
    
    
    
    
    
    6,674
    
    
    
    43,513Other
    
    
    (829
    )
    
    
    (867
    )
    
    
    
    
    
    
    (498
    )
    
    
    (2,194
    )Balance as of March 31, 2004
    
    $
    158,607
    
    
    $
    16,602
    
    
    $
    1,007
    
    
    $
    78,042
    
    
    $
    254,258
 Goodwill for the Other segment at March 31, 2004 and 2003 is related to
the Companys home services operations. Included in Assets of Discontinued
Operations at March 31, 2003 is $67.3 million of goodwill related to
manufactured housing, $51.6 million related to the Companys investment in
Construction Products and $40.3 million of Construction Products goodwill. As explained in Note (G), Merger of 3333 Holding Corporation and
Subsidiary and Centex Development Company, L.P. and Subsidiaries, the Company
acquired through merger the Partnership, which resulted in the consolidation of
$36.4 million in Home Buildings goodwill. The Company made several acquisitions during fiscal 2003 that resulted in
an increase to goodwill.The largest fiscal 2003 acquisition was Centex Homes
acquisition of substantially all of the St. Louis and Indianapolis home
building operations of The Jones Company on January 2, 2003 for a total
purchase price of $141.3 million. Operations of The Jones Company are included
in our results of operations for the three months ended March 31, 2003,
contributing revenues of $47.7 million and an operating loss of $0.4 million. 73




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##### Table of Contents



Centex pro forma financial information is not presented as the pro forma
impact of the fiscal 2004 and 2003 acquisitions on the results of operations
were not significant.  (F)
    
    INDEBTEDNESS Balances of short-term and long-term debt (debt instruments with original
maturities greater than one year) and weighted-average interest rates at March
31 were (due dates are presented in fiscal years): March 31,2004
    
    
    2003Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageInterest
    
    
    
    
    
    
    InterestRate
    
    
    
    
    
    
    RateShort-term Debt:Financial ServicesFinancial Institutions
    
    $
    601,718
    
    
    
    1.42
    %
    
    $
    283,146
    
    
    
    1.99
    %Secured Liquidity Notes:Harwood Street Funding I, LLC
    
    
    936,000
    
    
    
    1.15
    %
    
    
    
    
    
    
    Harwood Street Funding II, LLC
    
    
    566,798
    
    
    
    1.15
    %
    
    
    559,083
    
    
    
    1.41
    %Consolidated Short-term Debt
    
    
    2,104,516
    
    
    
    
    
    
    
    842,229Long-term Debt:CentexMedium-term Note Programs, due through 2007
    
    
    258,000
    
    
    
    4.67
    %
    
    
    281,000
    
    
    
    4.79
    %Long-term Notes, due through 2014
    
    
    1,808,332
    
    
    
    6.73
    %
    
    
    1,508,116
    
    
    
    7.05
    %Other Indebtedness, due through 2010
    
    
    152,152
    
    
    
    3.13
    %
    
    
    36,249
    
    
    
    3.54
    %Subordinated Debt:Subordinated Debentures, due in 2007
    
    
    99,763
    
    
    
    8.75
    %
    
    
    99,694
    
    
    
    8.75
    %Subordinated Debentures, due in 2006
    
    
    99,943
    
    
    
    7.38
    %
    
    
    99,894
    
    
    
    7.38
    %2,418,190
    
    
    
    
    
    
    
    2,024,953Financial ServicesHome Equity Asset-Backed Certificates,
due through 2034
    
    
    5,964,924
    
    
    
    3.52
    %
    
    
    4,081,590
    
    
    
    4.52
    %Harwood Street Funding I, LLC Variable Rate
Subordinated Extendable Certificates,
due through 2007
    
    
    139,000
    
    
    
    3.06
    %
    
    
    
    
    
    
    Harwood Street Funding II, LLC Variable
Rate Subordinated Notes, due through 2009
    
    
    93,750
    
    
    
    3.24
    %
    
    
    75,000
    
    
    
    3.38
    %6,197,674
    
    
    
    
    
    
    
    4,156,590Consolidated Long-term Debt
    
    
    8,615,864
    
    
    
    
    
    
    
    6,181,543Total Debt
    
    $
    10,720,380
    
    
    
    
    
    
    $
    7,023,772
 74




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##### Table of Contents



The weighted-average interest rates for short-term and long-term debt
during the years ended March 31, 2004, 2003, and 2002 were: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Short-term Debt
    
    
    1.2
    %
    
    
    1.6
    %
    
    
    2.3
    %Long-term Debt:CentexMedium-term Note Programs(1)
    
    
    5.30
    %
    
    
    5.31
    %
    
    
    6.56
    %Long-term Notes
    
    
    6.87
    %
    
    
    7.72
    %
    
    
    8.48
    %Other Indebtedness
    
    
    2.93
    %
    
    
    4.16
    %
    
    
    7.96
    %Subordinated Debentures
    
    
    8.07
    %
    
    
    8.07
    %
    
    
    8.07
    %Financial ServicesCentex Home Equity Company,
LLC Long-term Debt(2)
    
    
    3.51
    %
    
    
    4.50
    %
    
    
    5.49
    %CTX Mortgage
Company, LLC Long-term Debt(3)
    
    
    2.56
    %
    
    
    
    
    
    
    
  (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: FinancialCentex
    
    
    Services
    
    
    Total2005
    
    
    
    
    
    $
    33,679
    
    
    $
    1,977,981
    
    
    $
    2,011,6602006
    
    
    
    
    
    
    346,059
    
    
    
    1,852,243
    
    
    
    2,198,3022007
    
    
    
    
    
    
    391,949
    
    
    
    1,317,867
    
    
    
    1,709,8162008
    
    
    
    
    
    
    359,771
    
    
    
    592,281
    
    
    
    952,0522009
    
    
    
    
    
    
    1,187
    
    
    
    413,094
    
    
    
    414,281Thereafter
    
    
    
    
    
    
    1,285,545
    
    
    
    44,208
    
    
    
    1,329,753$
    2,418,190
    
    
    $
    6,197,674
    
    
    $
    8,615,864
 Financial Services long-term debt associated with Home Equity includes
Asset-Backed Certificates of $5.96 billion at March 31, 2004. These
Asset-Backed Certificates relate to securitized residential mortgage loans
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, 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 expected
maturities of this component of long-term debt are based on contractual
maturities adjusted for projected prepayments. At March 31, 2003, included in other long-term debt, was a $2.1 million
convertible subordinated debenture sold at par in 1985 to a corporate officer,
which bore interest at LIBOR plus 1.5%. In connection with this transaction,
the Company guaranteed the payment of a $2.1 million note payable to a bank by
the 75




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##### Table of Contents



officer. In May 2003, the convertible subordinated debenture was converted by
the corporate officer into 400,000 shares of the Companys
Common Stock and the
Company guarantee was terminated. Under the Companys debt covenants, the Company is required to maintain
certain leverage and interest coverage ratios and a minimum tangible net worth.
At March 31, 2004, the Company was in compliance with all of these covenants. Credit Facilities The Companys existing credit facilities and available borrowing capacity
as of March 31, 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
    
    
    250,000
    
    
    
    80,351
    (2)1,050,000
    (3)
    
    
    880,351International
homebuildingMulti-Bank Revolving Credit Facility
    
    
    182,620
    
    
    
    82,179Unsecured Credit Facility
    
    
    36,524
    
    
    
    36,524219,144
    
    
    
    118,703
    (4)Financial ServicesUnsecured Credit Facility
    
    
    125,000
    
    
    
    125,000
    (5)Secured Credit Facilities
    
    
    425,000
    
    
    
    73,075
    (6)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,675,413Harwood Street Funding II, LLC Facility
    
    
    2,500,000
    
    
    
    1,839,4526,050,000
    
    
    
    3,712,940$
    7,319,144
    
    
    $
    4,711,994
    (7)
  (1)
    
    This is a committed, multi-bank revolving credit facility, maturing in
August 2006, which serves as backup for commercial paper borrowings. As
of March 31, 2004, there were no borrowings under this backup facility,
and the Companys $700 million commercial paper program had no amounts
outstanding. There have been no borrowings under this revolving credit
facility since inception.  (2)
    
    This is a committed, multi-bank revolving letter of credit facility,
maturing in August 2004. Letters of credit issued under this facility may
expire no later than August 2005.  (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 secured, committed,
multi-bank revolving £100 million credit facility. This facility is not
guaranteed by nor is there recourse to Centex Corporation. The
international homebuilding operations also maintain an uncommitted,
unsecured £20 million credit facility guaranteed by Centex Corporation.  (5)
    
    Centex Corporation, CTX Mortgage Company, LLC and its related companies
and Home Equity, on a joint and several basis, share in a $125 million
uncommitted, unsecured credit facility.  (6)
    
    CTX Mortgage Company, LLC and its related companies and Home Equity share
in a $250 million committed secured credit facility to finance mortgage
inventory. CTX Mortgage Company, LLC and its related companies also
maintain $165 million of committed secured mortgage warehouse facilities
to finance mortgages. In April 2004, these facilities, which totaled $165
million, increased to $210 million. Home Equity also maintains a $10
million committed secured mortgage warehouse facility to finance
mortgages. 76




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##### Table of Contents



(7)
    
    The amount of available borrowing capacity includes $4.55 billion of
committed capacity and $162 million of uncommitted capacity as of March
31, 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 sales of conforming and Jumbo A loans to HSF-I,
pursuant to a mortgage loan purchase agreement (the HSF-I Purchase
Agreement). Since 1999, CTX Mortgage Company, LLC has sold substantially all
of the 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 that are currently rated A1+ by Standard &
Poors (S&P) and P-1 by Moodys Investors Service (Moodys), (2)
medium-term debt that is currently rated A1+ by S&P and P-1 by Moodys and (3)
subordinated certificates maturing in September 2004, November 2005 and June
2006, extendable for up to five years, that are currently 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 March 31, 2004, the maximum amount of
mortgage loans that HSF-I is allowed to carry in its inventory under the HSF-I
Purchase Agreement is $3.00 billion. This arrangement provides CTX Mortgage
Company, LLC with reduced financing cost for eligible mortgage loans it
originates and improves 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. This cumulative effect of a change in
accounting principle primarily represented the deferral of service release
premium income, offset to a lesser extent by the deferral of certain loan
origination costs, which was recognized as loans were sold into the secondary
market. 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 of approximately $1.32 billion at March 31, 2004. 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 Swap because Centex has entered into a
separate swap arrangement with the bank pursuant to which Centex has 77




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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 does not have recourse to the Company, and the consolidation
of this debt did not change the Companys debt ratings. The Company does not
guarantee the payment of any debt or subordinated extendable 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 obligation as servicer to repurchase
such loans is 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 $16.25 billion of mortgage loans to investors
during the year ended March 31, 2004. CTX Mortgage Company, LLC sold $10.55
billion and $10.20 billion of mortgage loans to HSF-I and other investors
during the years ended March 31, 2003 and 2002, respectively. CTX Mortgage
Company, LLC and its related companies recognized gains on the sale of mortgage
loans of $240.4 million, $254.5 million and $188.9 million for the years ended
March 31, 2004, 2003 and 2002, respectively. Centex Home Equity Company, LLC and Harwood Street Funding II, LLC 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 $2.50 billion. HSF-II obtains funds through the sale of
subordinated notes that are currently rated BBB by S&P, Baa2 by Moodys and BBB
by Fitch Ratings (Fitch) and short-term secured liquidity notes that are
currently rated A1+ by S&Ps, P-1 by Moodys and F1+ 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 existing credit facilities
currently held in addition to HSF-I and HSF-II. In addition, Financial
Services would need to make other customary financing arrangements to fund its
mortgage loan origination activities. Although the Company believes that
Financial Services could arrange for alternative financing that is common for
non-investment grade mortgage companies, there can be no assurance that such
financing would be available on satisfactory terms, and any delay in obtaining
such financing could adversely affect the results of operations of Financial
Services. 78




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(G)
    
    MERGER OF 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES On February 29, 2004, the Company completed the acquisition of 3333
Holding Corporation (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. This transaction 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
stockholder of $1.2 million. Operations of Holding and the Partnership have
been consolidated in the Companys results of operations from March 1, 2004
through March 31, 2004. Prior to the merger, the Company accounted for its
limited partnership interest in the Partnership using the equity method of
accounting for investments. However, Centex pro forma financial information is
not presented as the impact of this acquisition on the Companys results of
operations was not significant as the investment in the Partnership was already
accounted for under the equity method of accounting. The Partnership was a master limited partnership formed by the Company in
March 1987 to broaden the range of business activities conducted for the
benefit of the Companys stockholders to include general real estate
development.  (H)
    
    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 interest. These land related activities
typically require substantial capital, and partnering with other developers
allows Centex Homes 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 $140.1 million and $102.3 million at March
31, 2004 and 2003, respectively. These joint ventures had total outstanding
secured construction debt of approximately $207.7 million and $232.5 million at
March 31, 2004 and 2003, respectively. The Companys maximum potential
liability with respect to this debt, based on its ownership percentage of the
related joint ventures, is approximately $53.0 million and $41.9 million at
March 31, 2004 and 2003, respectively. Under the structure of this debt, the
Company becomes liable up to these amounts only to the extent that the
construction debt exceeds a certain percentage of the value of the project. At
March 31, 2004 and 2003, the Company was not liable for any of this debt. For
a discussion of the impact of FIN 46 on our accounting for transactions with
non-consolidated joint ventures, see Recent Accounting Pronouncements on
pages 47-48 of this Report. 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 on 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
United States warranties cover defects in materials or workmanship in the first
year of the home and certain designated components or structural elements of
the home in the second 79




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through tenth years. The United Kingdom warranties
cover defects in materials or workmanship in various
components of the home for the first two years and designated structural
elements of the home in the third through tenth years. In California,
effective January 1, 2003, Centex Homes began following the statutory
provisions of Senate Bill 800, which in part provides 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. Effective April 1, 2004,
Home Buildings United States warranties covering defects in materials
or workmanship were extended to two years. Changes in Home Buildings contractual warranty liability at March 31 are
as follows: March 31,2004
    
    
    2003Balance at Beginning of Period
    
    $
    16,125
    
    
    $
    15,097Warranties Issued
    
    
    29,806
    
    
    
    20,377Settlements Made
    
    
    (25,597
    )
    
    
    (18,307
    )Changes in Liability of Pre-Existing
Warranties, Including Expirations
    
    
    (188
    )
    
    
    (1,042
    )Balance at End of Period
    
    $
    20,146
    
    
    $
    16,125
 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 at March 31 are as follows: March 31,2004
    
    
    2003Balance at Beginning of Period
    
    $
    28,594
    
    
    $
    21,693Provisions for Losses
    
    
    1,837
    
    
    
    8,401Settlements
    
    
    (5,386
    )
    
    
    (1,500
    )Balance at End of Period
    
    $
    25,045
    
    
    $
    28,594
 In the normal course of its business, the Company and/or its subsidiaries
are named as defendants in certain suits filed in various state and federal
courts. Management believes that none of the litigation matters in which the
Company or any subsidiary is involved would have a material adverse effect on
the consolidated financial condition or operations of the Company. In
January 2003, Centex 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 Centex Homes and 30 communities. Centex Homes has
provided the requested information and the EPA has asserted that some of these
and certain other communities have violated regulatory requirements applicable
to storm water discharges, and that injunctive relief and civil penalties may
be warranted. Centex Homes has defenses to the allegations made by the EPA and
is exploring methods of settling this matter. 80




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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. The Company leases certain office facilities and other equipment under
operating leases. Future minimum payments under the noncancelable leases are
as follows: 2005  $56.9 million; 2006  $49.1 million; 2007  $41.7 million;
2008  $36.1 million; 2009  $27.7 million and thereafter  $68.4 million. Rental expense for the years ended March 31, 2004, 2003 and 2002 was $52.3
million, $43.6 million and $49.7 million, respectively.  (I)
    
    LAND HELD UNDER OPTION AGREEMENTS NOT OWNED AND OTHER LAND DEPOSITS The Company has determined that in accordance with the provisions of FIN
46, it is the primary beneficiary of certain lot option agreements at March 31,
2004. As a result, the Company recorded $332.7 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 March 31, 2004,
the Company reclassified $29.7 million of deposits related to these options,
previously included in land held for development and sale, to land held under
option agreements not owned. At March 31, 2004, the Company had deposited or invested with third
parties $88.7 million (excluding the $29.7 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 $3.22 billion.  (J)
    
    COMPREHENSIVE INCOME Comprehensive income is summarized below: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Net Earnings
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    382,226Other
Comprehensive Income (Loss), net of Tax:Unrealized
Gain (Loss) on Hedging Instruments
    
    
    5,706
    
    
    
    (10,849
    )
    
    
    (11,033
    )Foreign Currency Translation Adjustments
    
    
    36,864
    
    
    
    19,330
    
    
    
    2,622Other
    
    
    964
    
    
    
    (1,516
    )
    
    
    552Comprehensive Income
    
    $
    871,220
    
    
    $
    562,884
    
    
    $
    374,367
 The foreign currency translation adjustments are primarily the result of
the Partnerships translated assets, liabilities and income statement accounts.
The unrealized gain (loss) on hedging instruments represents the deferral in other
comprehensive income of the unrealized gain (loss) on 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. Other consists of the unrealized gain (loss) on
investments, which represents mark to market
adjustments to securities available for sale by the Company. 81




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The
components of accumulated other comprehensive income are as follows: As of March 31, 2004Before Tax
    
    
    Tax (Expense)
    
    
    Net-of-TaxAmount
    
    
    Benefit
    
    
    AmountUnrealized Loss on Hedging Instruments
    
    $
    (23,041
    )
    
    $
    6,865
    
    
    $
    (16,176
    )Foreign Currency Translation Adjustments
    
    
    53,719
    
    
    
    
    
    
    
    53,719Accumulated
Other Comprehensive Income
    
    $
    30,678
    
    
    $
    6,865
    
    
    $
    37,543
  (K)
    
    BUSINESS SEGMENTS As of March 31, 2004, the Company operated in four principal business
segments: Home Building, Financial Services, Construction Services and
Investment Real Estate. 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. In June 2003, the Company spun off to its stockholders substantially all
of its manufactured housing operations, which had previously been included in
the Other segment. In January 2004, we spun off to our stockholders our entire
equity interest in Construction Products, our former construction products
subsidiary, which had previously been reported as a separate business segment.
All Construction Products operations, assets and liabilities are reflected as a
discontinued operation and are not included in the segment information below. 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
domestically 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 throughout 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 $525.9 million, $356.8 million and $266.9 million in fiscal
2004, 2003 and 2002, 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. 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 $4.9 million, $6.2 million and $7.1 million for fiscal
2004, 2003 and 2002, respectively, is included in managements evaluation of
this segment. 82




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However, the intercompany interest income is eliminated in
consolidation and excluded from the tables presented below. Investment Real Estate Investment Real Estates operations involve the development and sale of
land, primarily for industrial, office, multi-family, retail, residential and
mixed-use projects. Investment Real Estate historically conducted its
operations directly and through the Companys investment in the Partnership,
which was accounted for under the equity method of accounting. The
Partnerships operations include domestic real estate operations and an
international homebuilding business located in the United Kingdom. As
previously described in Note (G), 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 has realigned its reporting for the Partnership, whereby
the Partnerships international home building operations are included in the
Home Building business segment. The Partnerships domestic operations continue
to be reported in the Investment Real Estate business segment. Prior period
amounts have been reclassified to conform to the current year presentation.
The Company has determined that no significant capital will be allocated to
Investment Real Estate for new business development. Beginning April 1, 2004,
the Investment Real Estate financial results will be included in the Other
business segment. Other The Companys Other segment includes corporate general and administrative
expense and interest expense. Also included in the Other
segment are the Companys home services operations, which are not material for
purposes of segment reporting. In June 2003, the Company spun off
substantially all of its manufactured housing operations, which had previously
been included in the Other segment. All remaining manufactured housing
operations and related assets are reflected as a discontinued operation and not
included in the segment information below. The following are included in Other in the tables below (dollars in
millions): For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Operating
(Loss) Earnings from home services
    
    $
    (2.3
    )
    
    $
    (9.6
    )
    
    $
    4.0Corporate General and Administrative Expense
    
    
    (105.5
    )
    
    
    (60.3
    )
    
    
    (50.2
    )Interest Expense
    
    
    (39.9
    )
    
    
    (60.3
    )
    
    
    (58.6
    )Other
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.6
    )$
    (147.7
    )
    
    $
    (130.8
    )
    
    $
    (105.4
    )
 83




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##### Table of Contents



For the Year Ended March 31, 2004(Dollars in millions)Home
    
    
    Financial
    
    
    Construction
    
    
    InvestmentBuilding
    
    
    Services
    
    
    Services
    
    
    Real Estate
    
    
    Other
    
    
    TotalRevenues
    
    $
    7,599.5
    
    
    $
    1,047.9
    
    
    $
    1,596.3
    
    
    $
    37.9
    
    
    $
    81.8
    
    
    $
    10,363.4Cost of Sales
    
    
    (5,607.2
    )
    
    
    (223.8
    )
    
    
    (1,519.8
    )
    
    
    0.7
    
    
    
    (38.5
    )
    
    
    (7,388.6
    )Selling, General and
Administrative Expenses
    
    
    (1,042.3
    )
    
    
    (593.8
    )
    
    
    (60.1
    )
    
    
    (8.3
    )
    
    
    (191.0
    )
    
    
    (1,895.5
    )Earnings from Unconsolidated
Entities
    
    
    55.3
    
    
    
    
    
    
    
    
    
    
    
    14.5
    
    
    
    
    
    
    
    69.8Earnings (Loss) from
Continuing
Operations Before Income
Tax
    
    $
    1,005.3
    
    
    $
    230.3
    
    
    $
    16.4
    
    
    $
    44.8
    
    
    $
    (147.7
    )
    
    $
    1,149.1Segment Assets
    
    $
    6,189.6
    
    
    $
    9,082.5
    
    
    $
    341.5
    
    
    $
    98.0
    
    
    $
    357.0
    
    
    $
    16,068.6Capital Expenditures
    
    $
    33.4
    
    
    $
    16.7
    
    
    $
    2.0
    
    
    $
    0.2
    
    
    $
    3.8
    
    
    $
    56.1Depreciation and Amortization
    
    $
    24.2
    
    
    $
    17.4
    
    
    $
    1.9
    
    
    $
    0.3
    
    
    $
    29.4
    
    
    $
    73.2
 The Home Building segment includes revenues and total assets of $80.5
million and $556.1 million, respectively, from operations in the United
Kingdom. Depreciation and Amortization for discontinued operations was $27.8
million for the fiscal year ended March 31, 2004. For the Year Ended March 31, 2003(Dollars in millions)Home
    
    
    Financial
    
    
    Construction
    
    
    InvestmentBuilding
    
    
    Services
    
    
    Services
    
    
    Real Estate
    
    
    Other
    
    
    TotalRevenues
    
    $
    5,922.7
    
    
    $
    855.0
    
    
    $
    1,517.9
    
    
    $
    33.3
    
    
    $
    99.8
    
    
    $
    8,428.7Cost of Sales
    
    
    (4,454.0
    )
    
    
    (184.5
    )
    
    
    (1,413.6
    )
    
    
    (3.0
    )
    
    
    (35.3
    )
    
    
    (6,090.4
    )Selling, General and
Administrative Expenses
    
    
    (849.2
    )
    
    
    (508.7
    )
    
    
    (73.6
    )
    
    
    (9.5
    )
    
    
    (195.3
    )
    
    
    (1,636.3
    )Earnings from Unconsolidated
Entities
    
    
    32.2
    
    
    
    
    
    
    
    
    
    
    
    13.2
    
    
    
    
    
    
    
    45.4Earnings (Loss) from
Continuing
Operations Before Income
Tax
    
    $
    651.7
    
    
    $
    161.8
    
    
    $
    30.7
    
    
    $
    34.0
    
    
    $
    (130.8
    )
    
    $
    747.4Segment Assets
    
    $
    4,000.3
    
    
    $
    5,670.3
    
    
    $
    292.8
    
    
    $
    293.3
    
    
    $
    600.2
    
    
    $
    10,856.9Capital Expenditures
    
    $
    28.4
    
    
    $
    16.6
    
    
    $
    2.0
    
    
    $
    
    
    
    $
    27.7
    
    
    $
    74.7Depreciation and Amortization
    
    $
    18.7
    
    
    $
    17.0
    
    
    $
    2.5
    
    
    $
    0.4
    
    
    $
    35.8
    
    
    $
    74.4
 Depreciation and Amortization for discontinued operations was $38.8
million for the fiscal year ended March 31, 2003. 84




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For the Year Ended March 31, 2002(Dollars in millions)Home
    
    
    Financial
    
    
    Construction
    
    
    InvestmentBuilding
    
    
    Services
    
    
    Services
    
    
    Real Estate
    
    
    Other
    
    
    TotalRevenues
    
    $
    4,972.2
    
    
    $
    699.8
    
    
    $
    1,296.0
    
    
    $
    53.4
    
    
    $
    102.4
    
    
    $
    7,123.8Cost of Sales
    
    
    (3,754.3
    )
    
    
    (159.1
    )
    
    
    (1,196.1
    )
    
    
    (12.1
    )
    
    
    (38.0
    )
    
    
    (5,159.6
    )Selling, General and
Administrative Expenses
    
    
    (743.9
    )
    
    
    (426.0
    )
    
    
    (63.7
    )
    
    
    (12.2
    )
    
    
    (169.8
    )
    
    
    (1,415.6
    )Earnings from Unconsolidated
Entities
    
    
    24.9
    
    
    
    
    
    
    
    
    
    
    
    6.7
    
    
    
    
    
    
    
    31.6Earnings (Loss) from
Continuing
Operations Before Income
Tax
    
    $
    498.9
    
    
    $
    114.7
    
    
    $
    36.2
    
    
    $
    35.8
    
    
    $
    (105.4
    )
    
    $
    580.2Segment Assets
    
    $
    3,030.5
    
    
    $
    4,148.0
    
    
    $
    260.2
    
    
    $
    299.2
    
    
    $
    415.2
    
    
    $
    8,153.1Capital Expenditures
    
    $
    20.9
    
    
    $
    10.7
    
    
    $
    3.9
    
    
    $
    0.1
    
    
    $
    9.7
    
    
    $
    45.3Depreciation and Amortization
    
    $
    16.2
    
    
    $
    15.8
    
    
    $
    2.6
    
    
    $
    0.4
    
    
    $
    17.7
    
    
    $
    52.7
 Depreciation and Amortization for discontinued operations was $37.9
million for the fiscal year ended March 31, 2002. The reconciliation of segment assets to consolidated total assets at the
end of each year, in millions of dollars, is as follows: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Segment Assets
    
    $
    16,068.6
    
    
    $
    10,856.9
    
    
    $
    8,153.1Assets from Discontinued Operations
    
    
    
    
    
    
    753.6
    
    
    
    832.4Total Consolidated Assets
    
    $
    16,068.6
    
    
    $
    11,610.5
    
    
    $
    8,985.5
  (L)
    
    INCOME TAXES The provision for income taxes includes the following components: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Current ProvisionFederal
    
    $
    310,088
    
    
    $
    169,785
    
    
    $
    220,043State
    
    
    44,042
    
    
    
    48,351
    
    
    
    33,744354,130
    
    
    
    218,136
    
    
    
    253,787Deferred Provision (Benefit)Federal
    
    
    (1,563
    )
    
    
    4,452
    
    
    
    (33,426
    )State
    
    
    19,366
    
    
    
    (2,050
    )
    
    
    1,46717,803
    
    
    
    2,402
    
    
    
    (31,959
    )Provision for Income Taxes
    
    $
    371,933
    
    
    $
    220,538
    
    
    $
    221,828
 85




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##### Table of Contents



The difference between income taxes computed at the federal statutory rate
of 35% and the actual amounts were as follows: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Earnings from Continuing Operations Before IncomeTaxes and Cumulative Effect of a Change in
Accounting Principle
    
    $
    1,149,064
    
    
    $
    747,350
    
    
    $
    580,230Income Taxes at Statutory Rate
    
    $
    402,172
    
    
    $
    261,573
    
    
    $
    203,081Increases (Decreases) in Tax Resulting from -State Income Taxes, net
    
    
    42,037
    
    
    
    29,738
    
    
    
    23,388Change in Valuation Allowance
    
    
    (54,353
    )
    
    
    (88,843
    )
    
    
    (8,235
    )Other
    
    
    (17,923
    )
    
    
    18,070
    
    
    
    3,594Provision for Income Taxes
    
    $
    371,933
    
    
    $
    220,538
    
    
    $
    221,828Effective Tax Rate
    
    
    32
    %
    
    
    30
    %
    
    
    38
    %
 The deferred income tax provision (benefit) results from the following
temporary differences in the recognition of revenues and expenses for tax and
financial reporting purposes: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Securitization Reporting Differences
    
    $
    20,669
    
    
    $
    9,554
    
    
    $
    (25,663
    )Net Operating Loss Carryforwards
    
    
    55,226
    
    
    
    87,570
    
    
    
    16,576Change in Valuation Allowance
    
    
    (54,353
    )
    
    
    (88,843
    )
    
    
    (8,235
    )Financial Accrual Changes and Other
    
    
    (3,739
    )
    
    
    (5,879
    )
    
    
    (14,637
    )Deferred Income Tax Provision (Benefit)
    
    $
    17,803
    
    
    $
    2,402
    
    
    $
    (31,959
    )
 86




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##### Table of Contents



Components of deferred income taxes are as follows: March 31,2004
    
    
    2003Deferred Tax AssetsDeferred Compensation
    
    $
    20,848
    
    
    $
    10,463Net Operating Loss Carryforwards
    
    
    39,457
    
    
    
    94,056Uniform Capitalization for Tax Reporting
    
    
    67,735
    
    
    
    59,706Financial Accruals
    
    
    119,084
    
    
    
    98,226State Income Taxes
    
    
    
    
    
    
    15,553Securitization Reporting Differences
    
    
    16,123
    
    
    
    36,792All Other
    
    
    4,931
    
    
    
    19,517Total Deferred Tax Assets
    
    
    268,178
    
    
    
    334,313Valuation Allowance for Deferred Tax Assets
    
    
    (39,278
    )
    
    
    (93,004
    )Net Deferred Tax Assets
    
    
    228,900
    
    
    
    241,309Deferred Tax LiabilitiesDeferred Income and Expenses
    
    
    
    
    
    
    13,428Excess Tax Depreciation and Amortization
    
    
    15,557
    
    
    
    15,195Interest and Real Estate Taxes Expensed as Incurred
    
    
    40,637
    
    
    
    28,323Installment Sale Reporting
    
    
    12,959
    
    
    
    All Other
    
    
    2,069
    
    
    
    12,123Total Deferred Tax Liabilities
    
    
    71,222
    
    
    
    69,069Net Deferred Tax Assets
    
    $
    157,678
    
    
    $
    172,240
 At March 31, 2004, the Company had $112.8 million of net operating loss
carryforwards available to reduce future federal taxable income including $1.8
million which resulted from the Companys acquisition of 3333 Holding
Corporation in February 2004. A valuation allowance of $0.7 million was
established to offset the deferred tax assets of Holding. In fiscal 2004, the
Company utilized approximately $157.8 million of net operating loss
carryforwards. A valuation allowance had previously been established against
approximately $154.8 million of the carryforwards utilized. The net operating
loss carryforwards, if unused, expire in fiscal years 2008 to 2021. As of March 31, 2004, the Company has not provided for withholding taxes
or U.S. federal income taxes on approximately $66 million of accumulated
undistributed earnings of its foreign subsidiaries as they are considered by
management to be permanently reinvested. Determination of the deferred income
tax liability of
these unremitted earnings is not practicable as such liability, if any, is
dependent on circumstances existing when remittance occurs.  (M)
    
    CAPITAL STOCK AND EMPLOYEE BENEFIT PLANS Stock Split On March 12, 2004, the Company completed a two-for-one stock split in the
form of a 100 percent stock dividend to Company stockholders of record on
February 29, 2004. All prior period stock prices, dividends and earnings per
share have been restated to give retroactive application to the stock split. Stockholder Rights Plan On October 2, 1996, the Board of Directors of the Company (the Board)
adopted a new stockholder rights plan (Plan) to replace the original rights
plan, which expired on October 1, 1996. In connection with 87




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##### Table of Contents



the Plan, the Board
authorized and declared a dividend of one right (Right) for each share of
Common Stock of the Company to all stockholders of record at the close of
business on October 15, 1996. After giving effect to the Companys two-for-one
stock splits effective March 2, 1998 and March 12, 2004, and the April 2002
amendment to the Plan increasing the exercise price, each Right entitles its
holder to purchase one one-hundredths of a share of a new series of preferred
stock designated Junior Participating Preferred Stock, Series D, at an exercise
price of $105.00. The Rights will become exercisable upon the earlier of ten
days after the first public announcement that a person or group has acquired
beneficial ownership of 15% or more of the Common Stock or ten business days
after a person or group announces an offer, the consummation of which would
result in such person or group beneficially owning 15% or more of the Common
Stock (even if no purchases actually occur), unless such time periods are
deferred by appropriate Board action. The Plan excludes FMR Corp. from causing
the rights to become exercisable until such time as FMR Corp., together with
certain affiliated and associated persons, collectively own 20% or more of the
Common Stock. If any person or group acquires beneficial ownership of 15% or more (or
20% or more in the case of FMR Corp.) of the Common Stock, the Rights will
entitle a holder (other than such person or any member of such group) to buy,
at the exercise price, a number of additional shares of Common Stock having a
market value of twice the exercise price of each Right. Alternatively, if a
person or group has acquired 15% or more (or 20% or more in the case of FMR
Corp.) of the Common Stock, but less than 50% of the Common Stock, the Company
may at its option exchange each Right of a holder (other than such person or
any member of such group) for one share of Common Stock. If the Company is
involved in a merger or other business combination at any time after a person
or group has acquired beneficial ownership of 15% or more (or 20% or more in
the case of FMR Corp.) of the Common Stock or if, after reaching such 15%
threshold, the Company were to sell 50% or more of its assets or earning power,
the Rights will entitle a holder to buy, at the exercise price, a number of
shares of Common Stock of the acquiring Company having a market value of twice
the exercise price of each Right. In general, the Rights are redeemable at
$.01 per Right until 15 days after the Rights become exercisable as described
above. Unless earlier redeemed, the Rights will expire on October 12, 2006. Stock Options Stock options granted under the Amended and Restated Centex Corporation
2003 Equity Incentive Plan (the 2003 Plan), the Amended and Restated Centex
Corporation 2001 Stock Plan (the 2001 Plan) and the Eighth Amended and
Restated 1998 Centex Corporation Employee Non-Qualified Stock Option Plan (the
1998 Plan) may not be granted at less than fair market value. Although the
Centex Corporation Amended and Restated 1987 Stock Option Plan (the 1987
Plan) provides that stock options may be granted at less than fair market
value, the Company has consistently followed the practice of issuing options at
or above fair market value. No options could be awarded under the 1987 Plan
past fiscal 2001. The 1998 Plan provides for the grant
of stock options to employees of the Company, other than officers and directors
of the Company. Under all plans, the option periods and the dates that the
shares covered by the options may first become exercisable within a maximum
period of ten years at which time these options expire. The Company records proceeds from the exercise of stock options as
additions to Common Stock and capital in excess of par value. The federal tax
benefit, if any, is considered additional capital in excess of par value. On
April 1, 2003, the Company adopted the fair value measurement provisions of
SFAS No. 123 under which the Company recognizes compensation expense of a
stock-based award to an employee on a straight-line basis 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 after April 1, 2003 (the
prospective method), whereas awards granted prior to such date continued to be
accounted for in accordance with APB No. 25, and related interpretations. In
general, under APB No. 25, no expense is recognized related to the Companys
stock options because the stock options are granted at or above fair market
value. 88




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##### Table of Contents



A summary of the activity of the stock option plans is presented below: For the Years Ended March 31,2004
    
  
    2003
    
  
    2002Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Exercise
    
    
    Number
    
    
    Exercise
    
    
    Number
    
    
    Exerciseof Shares
    
    
    Price
    
    
    of Shares
    
    
    Price
    
    
    of Shares
    
    
    PriceOptions Outstanding,
Beginning of Year
    
    
    16,210,186
    
    
    $
    17.66
    
    
    
    14,277,810
    
    
    $
    15.68
    
    
    
    13,744,338
    
    
    $
    13.76Options Granted
at Fair Market Value
    
    
    2,855,480
    
    
    $
    35.51
    
    
    
    3,450,980
    
    
    $
    25.21
    
    
    
    3,405,420
    
    
    $
    19.71Options Issued as Part of
Modification
    
    
    1,737,528
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Options Exercised
    
    
    (3,480,371
    )
    
    $
    16.25
    
    
    
    (1,040,164
    )
    
    $
    15.05
    
    
    
    (2,771,318
    )
    
    $
    11.10Options Cancelled
    
    
    (125,466
    )
    
    $
    22.73
    
    
    
    (478,440
    )
    
    $
    18.67
    
    
    
    (100,630
    )
    
    $
    16.06Options Outstanding, End of Year
    
    
    17,197,357
    
    
    $
    19.09
    
    
    
    16,210,186
    
    
    $
    17.66
    
    
    
    14,277,810
    
    
    $
    15.68Options Exercisable, End of Year
    
    
    11,614,372
    
    
    
    
    
    
    
    10,102,092
    
    
    
    
    
    
    
    7,553,746Shares Available for Future Stock
Option Grants, End of Year
    
    
    8,808,656
    
    
    
    
    
    
    
    4,777,486
    
    
    
    
    
    
    
    4,935,476Weighted-Average Fair Value of
Options Granted During the
Year
    
    $
    12.43
    
    
    
    
    
    
    $
    10.12
    
    
    
    
    
    
    $
    10.66
 Using the treasury stock method, which assumes that any proceeds together
with the related tax benefits from the exercise of options would be used to
purchase Common Stock at current prices, the dilutive effect of the options on
outstanding shares as of March 31, 2004 would have been 4.7%. This is
significantly less than appears on a gross basis when compared to the
122,660,357 shares of Common Stock outstanding as of March 31, 2004. The following table summarizes information about stock options outstanding
at March 31, 2004: Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    Averageof Shares
    
    
    Contractual
    
    
    Exercise
    
    
    of Shares
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Outstanding
    
    
    Price$  5.68 - $10.72
    
    
    3,990,944
    
    
    
    4.6
    
    
    $
    9.69
    
    
    
    3,153,552
    
    
    $
    9.44$11.00 - $17.45
    
    
    4,157,447
    
    
    
    3.9
    
    
    $
    16.71
    
    
    
    4,084,562
    
    
    $
    16.73$17.70 - $22.75
    
    
    5,928,176
    
    
    
    4.3
    
    
    $
    20.37
    
    
    
    3,362,472
    
    
    $
    19.83$23.20 - $41.00
    
    
    3,089,682
    
    
    
    5.9
    
    
    $
    31.71
    
    
    
    1,013,786
    
    
    $
    31.74$42.00 - $45.00
    
    
    31,108
    
    
    
    6.6
    
    
    $
    44.52
    
    
    
    
    
    
    $
    17,197,357
    
    
    
    4.5
    
    
    $
    19.09
    
    
    
    11,614,372
    
    
    $
    16.96
 At March 31, 2003, the Company was following the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation cost had been
recognized for the stock options. As noted above, effective April 1, 2003, the
Company adopted the fair value measurement provisions of SFAS No. 123. On
January 30, 2004, the Company modified all of its stock options and long-term
incentive plan rights outstanding, in order to keep the holders in the same
economic position as before the spin-off of Centex Construction Products, Inc.
(Construction Products). The modification resulted in a reduction of the
exercise price and an increase in the number of shares. This adjustment is a
modification under the provisions of SFAS No. 123 and accordingly, compensation
expense of $12.2 million will be expensed over the remaining vesting periods.
Subsequent to January 30, 2004, the Company has no outstanding options or other
stock rights accounted for under the 89




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##### Table of Contents



provisions of APB No. 25. Had
compensation cost for the Companys stock option plans been determined based on
the fair value at the grant date for all awards in fiscal 2004, 2003 and 2002,
the Companys net earnings and earnings per share would have been reduced to
the pro forma amounts detailed in Note (A), Significant Accounting Policies. The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions: For the Years Ended March 31,2004
    
    
    2003
    
    
    2002Expected Volatility
    
    
    42.5
    %
    
    
    38.6
    %
    
    
    47.0
    %Risk-Free Interest Rate
    
    
    2.1
    %
    
    
    4.7
    %
    
    
    5.4
    %Dividend Yield
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    0.4
    %Expected Life (Years)
    
    
    4
    
    
    
    5
    
    
    
    7
 The following table summarizes information about equity compensation
plans, other than tax qualified plans, as of March 31, 2004: (c)Number ofsecurities(a)
    
    
    
    
    
    
    remaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    (b)
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    [excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan Category
    
    Plan
    
    
    and rights
    
    
    and rights
    
    
    (a)]Equity Compensation
Plans
    
    
    1987
    
    
    
    6,816,872
    
    
    $
    14.02
    
    
    
    Approved by
    
    
    2001
    
    
    
    1,987,084
    
    
    $
    26.27
    
    
    
    1,628,598Stockholders
    
    
    2003
    
    
    
    
    
    
    $
    
    
    
    
    6,665,970Equity Compensation
Plans
    
    
    1998
    
    
    
    8,393,401
    
    
    $
    21.50
    
    
    
    514,088not Approved by
    
    Long-TermStockholders
    
    Incentive Plan
    
    
    1,088,574
    
    
    $
    
    
    
    
    19,198Total
    
    
    
    
    
    
    18,285,931
    
    
    $
    19.09
    (1)
    
    
    8,827,854
  (1)

Weighted-average exercise price excludes any items with an exercise
price of $0. See the discussion of the 1987 Plan, 1998 Plan, 2001 Plan and 2003 Plan
above. The Company also grants stock units, which are converted into shares of
Centex Common Stock at payout, to certain employees under its Long-Term
Incentive Plan. Pursuant to the Long-Term Incentive Plan, participants may
receive awards of deferred stock units representing the right to receive an
equal number of shares of Centex Common Stock at the time the award is paid.
Awards vest over a three-year period or upon a change in control, as defined in
such Plan, and are generally paid upon the earlier of seven years or
retirement, although the Compensation Committee is permitted to make an early
payout at its discretion. The Company also issues restricted stock under the
2001 Plan and issues stock awards, restricted stock, stock units and
performance awards under the 2003 Plan. At March 31, 2004, there were 163,336
shares of restricted stock outstanding. 90




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##### Table of Contents



Employee Benefit Plans Benefits are provided to eligible employees of the Company and certain
subsidiaries under the Companys profit sharing plans. The plans operate on a
calendar year. The aggregate cost of these plans to the Company was $32.6
million in fiscal 2004, $27.1 million in fiscal 2003 and $23.5 million in
fiscal 2002.  (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 (Loss) Income. 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 March 31, 2004, Centex Corporation has interest rate swap agreements
that, in effect, fix the variable interest rates on (i) $25 million of its
outstanding debt at 6.7% and expires in October 2005 and (ii) £50 million of
its outstanding debt at 4.0% and expires in March 2006. During the year ended
March 31, 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 March 31, 2004 related to these derivatives, the
Company estimates increases in interest incurred over the next 12 months to be
approximately $766.0 thousand. As of March 31, 2004, the balance in
Accumulated Other Comprehensive Loss related to these derivatives was $796.4
thousand ($444.3 thousand net of tax). 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 March 31, 2004,
Home Equity had $60 million of these interest rate swap hedging instruments in
place at a weighted-average interest rate of 3.2%. Changes in fair value of
these derivatives are deferred in Accumulated Other Comprehensive Income 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 March 31, 2004, Home Equity was hedging $2.00 billion of its outstanding debt
with these interest rate swaps at a weighted-average interest rate of 1.9%.
These swaps expire at varying times through March 2007. Based on the balance
in Accumulated Other Comprehensive Income at March 31, 2004 related to interest
rate hedging activities, the Company estimates increases in interest incurred
over the next 12 months to be approximately $8.7 million. During the year
ended March 31, 2004, the hedges related to substantially all of Home Equitys
interest rate swaps were effective and the ineffective portion was
insignificant. As of March 31, 2004, the balance in Accumulated Other
Comprehensive Loss related to these derivatives was $8.7 million ($5.7 million
net of tax). 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 91




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##### Table of Contents



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 (F), Indebtedness, HSF-I is a variable interest entity that
has been consolidated with Financial Services 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 SFAS
No. 133 for forward trade commitments that serve as a hedge for loans held
for sale. 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 gain of approximately $16 million for
the year ended March 31, 2004. 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 in the estimated fair value of
derivative positions not subject to hedge accounting resulted in a loss of
approximately $12 million for the year ended March 31, 2003.  (O)
    
    RELATED PARTY TRANSACTIONS The following related party transactions with the Partnership for fiscal
year 2004 includes only related party transactions and amounts through February
29, 2004, the date of acquisition of the Partnership. Related party
transactions and amounts occurring after the Partnerships consolidation are
not included in the amounts below as the related party amounts have been
eliminated in consolidation. Centex Homes purchased land from the Partnership during fiscal 2004 and
2003 totaling $19.0 million and $34.5 million, respectively. Centex Homes also
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 years ended March 31, 2004 and 2003, Centex Homes paid $1.9
million and $3.5 million, respectively, to the Partnership in fees and
reimbursements pursuant to these agreements. Construction Services has historically executed construction contracts
with the Partnership. At March 31, 2003, contracts for the construction of two
industrial facilities were completed and no additional contracts were
outstanding. At February 29, 2004, a $10.0 million contract for the
construction of an office building had been executed with the Partnership and
was outstanding. During the eleven months ended February 29, 2004 and the year
ended March 31, 2003, the Partnership paid $7.4 million and $5.3 million,
respectively, to Construction Services pursuant to these contracts.  (P)
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires companies to disclose the
estimated fair value of their financial instrument assets and liabilities. The
estimated fair values shown below have been determined using current quoted
market prices where available and, where necessary, estimates based on present
value methodology suitable for each category of financial instruments.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. All assets and liabilities that are not considered
financial instruments have been valued using historical cost accounting. 92




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The consolidated carrying values of Cash and Cash Equivalents, Restricted
Cash, Mortgage Securitization Residual Interest, Other Receivables, Accounts
Payable and Accrued Liabilities and Short-term Debt approximate their fair
values. The carrying values and estimated fair values of other financial
assets and liabilities were as follows: March 31,2004
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancial AssetsResidential Mortgage Loans Held for
Investment
    
    $
    6,498,155
    
    
    $
    6,675,546
    (1)
    
    $
    4,642,826
    
    
    $
    4,713,045
    (1)Residential Mortgage Loans Held for
Sale
    
    $
    1,819,605
    
    
    $
    1,820,739
    (1)
    
    $
    303,328
    
    
    $
    306,765
    (1)Financial LiabilitiesCentex Long-term Debt
    
    $
    2,418,190
    
    
    $
    2,445,061
    (2)
    
    $
    2,080,623
    
    
    $
    2,295,103
    (2)Financial Services Long-term Debt
    
    $
    6,197,674
    
    
    $
    6,262,086
    (2)
    
    $
    4,156,590
    
    
    $
    4,234,593
    (2)
  (1)

Fair values are based on quoted market prices for similar instruments.(2)

Fair values are based on a present value discounted cash flow with the
discount rate approximating current market for similar instruments.  (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 (H), Commitments and Contingencies.  (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 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 March 31, 2004
presentation. In January 2004, the Company spun off its entire equity interest in
Construction Products, which had previously been reported as a separate
business segment. As a result of the spin-off, the Construction Products
earnings have been reclassified to discontinued operations in the Statements of
Consolidated Earnings, and all related assets and liabilities have been
disclosed separately on the Consolidated Balance Sheets. All prior period
information related to these discontinued operations has been reclassified to
be consistent with the March 31, 2004 presentation. In connection with the
tax-free distribution of our interests in Construction Products, we recognized
as a component of discontinued operations, a tax benefit of $33.5 million. The
tax benefit is a result of the reversal of a deferred tax liability for the
difference between the financial carrying amount of our investment in
Construction Products and the respective tax basis, which was no longer
required given the tax-free nature of the distribution. For the years ended March 31, 2004, 2003 and 2002 discontinued operations
had revenues of $461.9 million, $643.2 million and $593.0 million and operating
earnings of $49.9 million, $47.5 million and $38.5 million, respectively. In
connection with the spin-offs, we recorded a dividend to stockholders of $420.3
million representing our net investment in manufactured housing operations and
Construction Products on the respective spin-off dates. 93




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(S)
    
    SUBSEQUENT EVENT On May 5, 2004, we issued $350 million aggregate principal amount of
senior notes with an interest rate of 5.70%, maturing in fiscal year 2015. 94




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Report of Independent Auditors TO THE BOARD OF DIRECTORS OF CENTEX CORPORATION AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of Centex
Corporation and subsidiaries as of March 31, 2004 and 2003, and the related
statements of consolidated earnings, consolidated stockholders equity and
consolidated cash flows for each of the three years in the period ended March
31, 2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Centex
Corporation and subsidiaries at March 31, 2004 and 2003, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2004, in conformity with accounting principles
generally accepted in the United States. As discussed in Note (A) to the consolidated financial statements, the
Company adopted the fair value recognition provisions of Statement of Financial
Accounting Standard No. 123, Accounting for Stock Issued to Employees,
utilizing the prospective method of adoption as permitted by Statement of
Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure. Also, as discussed in Note (A) to the
consolidated financial statements, the Company adopted Financial Accounting
Standard Board Interpretation No. 46, Consolidation of Variable Interest
Entities as revised. Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The supplemental
balance sheet and cash flow data of Centex Corporation and Financial Services
and the supplemental revenue and earnings data by line of business are
presented for purposes of additional analysis and are not a required part of
the basic consolidated financial statements. Such information has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.   (-s- ERNST & YOUNG LLP) Dallas, Texas May 17, 2004 95




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Quarterly Results (Unaudited)(1)
(Dollars in thousands, except per share data) For the Quarters Ended 2004 and 2003Q1
    
    
    Q2
    
    
    Q3
    
    
    Q42004Revenues
    
    $
    2,172,629
    
    
    $
    2,428,326
    
    
    $
    2,569,857
    
    
    $
    3,192,579Earnings from Continuing Operations(2)
    
    $
    133,217
    
    
    $
    188,055
    
    
    $
    187,870
    
    
    $
    267,989Earnings from Discontinued Operations, net of Taxes
    
    
    9,573
    
    
    
    11,334
    
    
    
    10,800
    
    
    
    32,108Cumulative Effect of a Change in Accounting Principle,
net of Taxes
    
    
    
    
    
    
    (13,260
    )
    
    
    
    
    
    
    Net Earnings
    
    $
    142,790
    
    
    $
    186,129
    
    
    $
    198,670
    
    
    $
    300,097Earnings from Continuing Operations Per Share(2)(3)Basic
    
    $
    1.09
    
    
    $
    1.53
    
    
    $
    1.51
    
    
    $
    2.05Diluted
    
    $
    1.04
    
    
    $
    1.46
    
    
    $
    1.43
    
    
    $
    2.17Net Earnings Per ShareBasic
    
    $
    1.17
    
    
    $
    1.51
    
    
    $
    1.60
    
    
    $
    2.43Diluted
    
    $
    1.12
    
    
    $
    1.44
    
    
    $
    1.52
    
    
    $
    2.30Average Shares OutstandingBasic
    
    
    122,490,530
    
    
    
    123,427,650
    
    
    
    124,076,292
    
    
    
    123,525,669Diluted
    
    
    127,865,692
    
    
    
    129,076,874
    
    
    
    130,659,958
    
    
    
    130,515,2942003Revenues
    
    $
    1,682,638
    
    
    $
    1,908,121
    
    
    $
    2,124,785
    
    
    $
    2,713,161Earnings from Continuing Operations(2)
    
    $
    77,201
    
    
    $
    105,275
    
    
    $
    145,765
    
    
    $
    198,571Earnings from Discontinued Operations, net of Taxes
    
    
    10,554
    
    
    
    10,334
    
    
    
    10,119
    
    
    
    (1,900
    )Net Earnings
    
    $
    87,755
    
    
    $
    115,609
    
    
    $
    155,884
    
    
    $
    196,671Earnings from Continuing Operations Per Share(2)(3)Basic
    
    $
    0.63
    
    
    $
    0.87
    
    
    $
    1.21
    
    
    $
    1.64Diluted
    
    $
    0.61
    
    
    $
    0.84
    
    
    $
    1.17
    
    
    $
    1.58Net Earnings Per ShareBasic
    
    $
    0.72
    
    
    $
    0.95
    
    
    $
    1.29
    
    
    $
    1.62Diluted
    
    $
    0.69
    
    
    $
    0.92
    
    
    $
    1.25
    
    
    $
    1.56Average Shares OutstandingBasic
    
    
    122,337,554
    
    
    
    121,751,344
    
    
    
    120,894,936
    
    
    
    121,274,618Diluted
    
    
    127,194,232
    
    
    
    126,072,580
    
    
    
    124,935,330
    
    
    
    126,048,272
  (1)
    
    The quarterly results presented in this table for the periods covered
by the financial statements included in this Report and all prior
periods have been adjusted to reflect our Construction Products
operations (spun off in January 2004) and our manufactured housing
operations (spun off in June 2003) as discontinued operations.  (2)
    
    Earnings from Continuing Operations are Before Cumulative Effect of a
Change in Accounting Principle. For more detailed discussion of the
change in accounting principle, see Note (F), Indebtedness of the
Notes to Consolidated Financial Statements on pages 74-78 of this Report.  (3)
    
    On March 12, 2004, we completed a two-for-one stock split in the form
of a 100 percent stock dividend to our stockholders of record as of
February 29, 2004. All prior period earnings per share amounts have
been restated to give retroactive application to the stock split. 96




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ITEM 9.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE Not applicable. 
  ITEM 9A.
    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 March 31, 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 March 31, 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
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 III 
  ITEM 10.
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except for the information relating to the executive officers of the
Company that follows Item 4 of Part I of Part A of this Report and is
incorporated herein by reference, the information called for by Items 10, 11,
12 and 13 is incorporated herein by reference to the information included and
referenced under the following captions in the Companys Proxy Statement for
the July 15, 2004 Annual Meeting of Stockholders: Item
    
    Caption in the 2004 Proxy Statement10
    
    Election of Directors and Related Matters10
    
    Other Matters  Section 16(a) Beneficial Ownership Reporting
Compliance10
    
    Corporate Governance and Related Matters11
    
    Executive Compensation12
    
    Stock Ownership12
    
    Executive Compensation  Equity Compensation Plans13
    
    Certain Transactions
 The policies comprising Centexs code of conduct are set forth in the
Companys code of ethics manual, The Centex Way: A Guide to Decision-Making on
Business Conduct Issues. These policies satisfy the SECs requirements for a
code of ethics, and apply to all directors, officers and employees. The code
of ethics manual is published on the corporate governance section of the
Companys website at www.centex.com.The board will not permit any waiver of
any ethics policy for any director or executive officer. 97




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##### Table of Contents



ITEM 11.
    EXECUTIVE COMPENSATION See Item 10 above. 
  ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS See Item 10 above. 
  ITEM 13.
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Item 10 above. 
  ITEM 14.
    PRINCIPAL ACCOUNTANT FEES AND SERVICES The information called for by Item 14 is incorporated herein by reference
to the information included and referenced under the caption Ratification of
Appointment of Independent Auditors in the Companys Proxy Statement for the
July 15, 2004 Annual Meeting of Stockholders. 
 PART IV 
  ITEM 15.
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K  a)
    
    The following documents are filed as part of this Report:  (1)
    
    Financial Statements The consolidated balance sheets of Centex Corporation and
subsidiaries as of March 31, 2004 and 2003, and the related
consolidated statements of earnings, stockholders equity and cash
flows for each of the three years in the period ended March 31, 2004,
together with the accompanying Notes to Consolidated Financial
Statements and the Report of Independent Auditors on pages 54-95 of
this Report.  (2)
    
    Schedules Schedules are omitted because they are not applicable or not required
or the information required to be set forth therein is included in
the consolidated financial statements referenced above in section (a)
(1) of this Item 15.  (3)
    
    Exhibits The information on exhibits required by this Item 15 is set forth in
the Index to Exhibits appearing on pages 100-103 of this Report. 98




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b)
    
    Reports on Form 8-K: Current Report on Form 8-K of Centex Corporation dated January 6, 2004
announcing the retirement of Laurence Hirsch as Chairman and Chief
Executive Officer of Centex. Current Report on Form 8-K of Centex Corporation dated January 12, 2004
announcing home building order increases for both the quarter and the nine
month period ended December 31, 2003. Current Report on Form 8-K of Centex Corporation dated January 14, 2004
announcing the special meeting date of stockholders to vote on a proposal to
amend Centexs charter to increase Centexs authorized common stock and a
proposal to terminate the tandem trading relationship with 3333 Holding
Corporation and Centex Development Company, L.P. Current Report on Form 8-K of Centex Corporation dated January 15, 2004
announcing distribution ratios for shares of Centex Construction Products,
Inc. to be received by Centex stockholders in the tax-free spin-off of CXP
by Centex. Current Report on Form 8-K of Centex Corporation dated January 20, 2004
announcing Centexs results of operations for the quarter and nine months
ended December 31, 2003. Current Report on Form 8-K of Centex Corporation dated January 21, 2004
filing a letter to Centex stockholders describing the proposed
distribution by Centex of its equity interest in Centex Construction
Products, Inc. Current Report on Form 8-K of Centex Corporation dated January 30, 2004
announcing that Centex has completed the distribution to its stockholders
of all shares of common stock of Centex Construction Products, Inc. Current Report on Form 8-K of Centex Corporation dated February 13, 2004
confirming that the administrative processing required under Centexs
employee benefit plans as a result of the spin-off of Centex Construction
Products, Inc. has been completed, and the temporary suspension of
transactions by plan participants in the Centex Common Stock Fund ended on
February 13, 2004. Current Report on Form 8-K of Centex Corporation dated February 25, 2004
announcing that Centexs stockholders have approved a proposal to amend
Centexs charter to increase its authorized common stock. Current Report on Form 8-K of Centex Corporation dated March 1, 2004
announcing (1) the completion of the merger of (i) 3333 Acquisition Corp.
with and into 3333 Holding Corporation, with 3333 Holding Corporation
surviving as a wholly owned subsidiary of Centex Corporation and (ii) the
merger of Centex Development Acquisition, L.P. with and into Centex
Development Company, L.P., with Centex Development Company, L.P. surviving
as an indirect partnership subsidiary of Centex Corporation, and (2) the
termination of the tandem trading relationship. Current Report on Form 8-K of Centex Corporation dated March 4, 2004
announcing unit sales (orders) at Centex Homes for the first eight weeks
of the fiscal quarter. Current Report on Form 8-K of Centex Corporation dated March 12, 2004
announcing that Centex completed a previously announced two-for-one stock
split. 99




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INDEX TO EXHIBITS CENTEX CORPORATION Exhibit
    
    
    
    Filed Herewith orNumber
    
    Exhibit
    
    Incorporated by Reference3.1
    
    Restated Articles of
Incorporation of Centex
Corporation (Centex), as
amended
    
    Filed herewith3.2
    
    Amended and Restated By-laws
of Centex dated May 15, 2003
    
    Exhibit 3.2 to Centexs
Quarterly Report on Form
10-Q for the quarter
ended June 30, 2003 (the
Form 10-Q, quarter
ended June 30, 2003)4.1
    
    Specimen Centex common stock
certificate (with Rights Agreement legend)
    
    Filed herewith4.2
    
    Rights Agreement, dated as of
October 2, 1996, between
Centex and ChaseMellon
Shareholder Services, L.L.C.,
as rights agent
    
    Exhibit 4 to Centexs
Registration Statement
on Form 8-A (File No.
1-6776) filed on October
8, 1996 (the 1996 Form
8-A)4.3
    
    Amendment No. 1 to Rights
Agreement, dated as of
February 18, 1999, between
Centex and ChaseMellon
Shareholder Services, L.L.C.,
as rights agent
    
    Exhibit 4.2 to Amendment
No. 1 to the 1996 Form
8-A, filed on February
22, 19994.4
    
    Amendment No. 2 to Rights
Agreement, dated as of April
29, 2002, between Centex and
Mellon Investor Services
L.L.C. (f/k/a ChaseMellon
Shareholder Services, L.L.C.),
as rights agent
    
    Exhibit 4.3 to Amendment
No. 2 to the 1996 Form
8-A, filed on May 2,
20024.5
    
    Instruments with respect to
long-term debt, which do not
exceed 10% of the total assets
of Centex and its
subsidiaries, have not been
filed; Centex agrees to
furnish a copy of such
instruments to the Securities
and Exchange Commission upon
request
    
    Not Applicable10.1
    
    Centex Corporation Amended and
Restated 1987 Stock Option
Plan*
    
    Filed herewith10.2
    
    Eighth Amended and Restated
1998 Centex Corporation
Employee Non-Qualified Stock
Option Plan*
    
    Filed herewith
 100




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##### Table of Contents



10.3
    
    Amended and Restated Centex
Corporation 2001 Stock Plan
(the 2001 Stock Plan)*
    
    Filed herewith10.3a
    
    Form of stock option agreement
for 2001 Stock Plan*
    
    Filed herewith10.3b
    
    Form of restricted stock
agreement for 2001 Stock Plan*
    
    Filed herewith10.4
    
    Amended and Restated Centex
Corporation Long Term
Incentive Plan (the LTIP)*
    
    Filed herewith10.4a
    
    Form of award agreement LTIP*
    
    Filed herewith10.5
    
    Centex Corporation 2003 Annual
Incentive Compensation Plan*
    
    Exhibit 10.13 to
Centexs Form 10-Q,
quarter ended June 30,
200310.6
    
    Amended and Restated Centex
Corporation 2003 Equity
Incentive Plan (the 2003
Equity Incentive Plan)*
    
    Filed herewith10.6a
    
    Form of stock option agreement
for 2003 Equity Incentive Plan*
    
    Filed herewith10.6b
    
    Form of stock unit agreement
for 2003 Equity Incentive Plan*
    
    Filed herewith10.7
    
    Amended and Restated
Supplemental Executive
Retirement Plan of Centex
Corporation*
    
    Exhibit 10.8 to Centexs
Annual Report on Form
10-K for the fiscal year
ended March 31, 200310.8
    
    Centex Corporation Deferred Compensation Plan*
    
    Exhibit 4 to Centexs
Registration Statement
on Form S-8 (File No.
333-37956) filed on May
26, 200010.9
    
    Centex
Corporation Executive Deferred
Compensation Plan*
    
    Filed herewith10.10
    
    Centex Corporation Salary
Continuation Plan*
    
    Filed herewith10.11
    
    Consulting Agreement, dated as
of March 31, 2002, between
Centex and David W. Quinn*
    
    Filed herewith10.12
    
    Termination Agreement, dated
as of March 31, 2004, between
Centex and David W. Quinn*
    
    Filed herewith10.13
    
    Executive Employment
Agreement, dated as of June 1,
2000, between Centex and
Leldon E. Echols*
    
    Exhibit 10.5a to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 2001
 101




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10.14
    
    Distribution Agreement between
Centex, Cavco Industries
L.L.C. and Cavco Industries,
Inc.
    
    Exhibit 10.15 to
Centexs Form 10-Q,
quarter ended June 30,
200310.15
    
    Amendment No. 1 to
Distribution Agreement between
Centex, Cavco Industries
L.L.C. and Cavco Industries,
Inc.
    
    Exhibit 10.19 to
Centexs Form 10-Q,
quarter ended June 30,
200310.16
    
    Administrative Services
Agreement between Centex
Service Company and Cavco
Industries, Inc.
    
    Exhibit 10.16 to
Centexs Form 10-Q,
quarter ended June 30,
200310.17
    
    Tax Sharing Agreement between
Centex and affiliates and
Cavco Industries, Inc.
    
    Exhibit 10.17 to
Centexs Form 10-Q,
quarter ended June 30,
200310.18
    
    Agreement to Assign Trademark
Rights and Limited Consent to
Use Centex Trademarks between
Centex and Cavco Industries,
Inc.
    
    Exhibit 10.18 to
Centexs Form 10-Q,
quarter ended June 30,
200310.19
    
    Credit Agreement, dated as of
August 7, 2003 among Centex,
Bank of America, N.A., as
Administrative Agent, and the
lenders named therein
    
    Exhibit 10.1 to Centexs
Quarterly Report on Form
10-Q for the quarter
ended September 30, 2003
(the Form 10-Q, quarter
ended September 30,
2003)10.20
    
    Letter of Credit and
Reimbursement Agreement, dated
as of August 7, 2003 among
Centex, Bank of America, N.A.,
as Administrative Agent, and
the lenders named therein
    
    Exhibit 10.2 to Centexs
Form 10-Q, quarter ended
September 30, 200310.21
    
    Amended and Restated
Distribution Agreement, dated
as of November 4, 2003,
between Centex and Centex
Construction Products, Inc.
    
    Exhibit 99.1 to
Amendment No. 3 to
Centexs Schedule 13D
filed on November 5,
200310.22
    
    Amended and Restated Agreement
and Plan of Merger, dated as
of November 4, 2003, among
Centex, ARG Merger Corporation
and Centex Construction
Products, Inc.
    
    Exhibit 99.2 to
Amendment No. 3 to
Centexs Schedule 13D
filed on November 5,
200321
    
    List of Subsidiaries of Centex
    
    Filed herewith23
    
    Consent of Independent Auditors
    
    Filed herewith24.1
    
    Powers of Attorney
    
    Filed herewith31.1
    
    Certification of the Chief
Executive Officer of Centex
pursuant to Rule 13a14(a)
promulgated under the
Securities Exchange Act of
1934
    
    Filed herewith
 102




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##### Table of Contents



31.2
    
    Certification of the Chief
Financial Officer of Centex
pursuant to Rule 13a14(a)
promulgated under the
Securities Exchange Act of
1934
    
    Filed herewith32.1
    
    Certification of the Chief
Executive Officer of Centex
pursuant to 18 U.S.C. Section
1350, as adopted pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith32.2
    
    Certification of the Chief
Financial Officer of Centex
pursuant to 18 U.S.C. Section
1350, as adopted pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith
 *     Management contract or compensatory
plan or arrangement 103




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized. CENTEX CORPORATIONRegistrantMay 28, 2004
    
    By:
    
    /s/ TIMOTHY R. ELLERTimothy R. Eller, Chairman of the Board andChief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated. May 28, 2004
    
    By:
    
    /s/ TIMOTHY R. ELLERTimothy R. Eller, Chairman of the Board andChief Executive Officer(principal executive officer)May 28, 2004
    
    By:
    
    /s/ LELDON E. ECHOLSLeldon E. Echols, Executive Vice President andChief Financial Officer(principal financial officer)May 28, 2004
    
    By:
    
    /s/ MARK D. KEMPMark D. Kemp, Vice President  Controller(principal accounting officer)Directors:
    
    Barbara T. Alexander, Dan W. Cook, III, Juan L. Elek,Timothy R. Eller, Thomas J. Falk, Clint W. Murchison, III,Frederic M. Poses, David W. Quinn,Thomas M. Schoewe and Paul T. StoffelMay 28, 2004
    
    By:
    
    /s/ TIMOTHY R. ELLERTimothy R. Eller,Individually and asAttorney-in-Fact*
  *
    
    Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 104