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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, 2005 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
    
    New York Stock Exchange($.25 par value)
 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 ü    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.   [ü] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).  Yes ü  No
. On September 30, 2004 (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 $6.26 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
19, 2005, 127,925,707 shares of the registrants 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
14, 2005.




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FORM 10-K TABLE OF CONTENTS  
 PART IITEM 1.
    
    Business
    
    
    3ITEM 2.
    
    Properties
    
    
    19ITEM 3.
    
    Legal Proceedings
    
    
    20ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20PART IIITEM 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    22ITEM 6.
    
    Selected Financial Data
    
    
    23ITEM 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24ITEM 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    52ITEM 8.
    
    Financial Statements and Supplementary Data
    
    
    56ITEM 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    100ITEM 9A.
    
    Controls and Procedures
    
    
    100ITEM 9B.
    
    Other Information
    
    
    100PART IIIITEM 10.
    
    Directors and Executive Officers of the Registrant
    
    
    101ITEM 11.
    
    Executive Compensation
    
    
    101ITEM 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    101ITEM 13.
    
    Certain Relationships and Related Transactions
    
    
    101ITEM 14.
    
    Principal Accountant Fees and Services
    
    
    101PART IVITEM 15.
    
    Exhibits and Financial Statement Schedules
    
    
    102SIGNATURES
    
    
    108INDEX TO EXHIBITSAmended/Restated 1987 Stock Option Plan8th Amended/Restated 1998 Employee Non-Qualified Stock Option PlanForm of Stock Option Agreement for 1998 Stock Option PlanAmended/Restated 2001 Stock PlanAmended/Restated 2003 Equity Incentive PlanAmendment No.1 to Executive Deferred Compensation PlanForm of Deferred Compensation Agreement For Executive Deferred Compensation PlanComprehensive Medical PlanRatio of Earnings to Fixed ChargesList of SubsidiariesConsent of Independent Registered Public Accounting FirmPowers of AttorneyCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
 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 19, 2005, 127,925,707 shares of our common stock were outstanding. Any reference herein
to we, us, our or the Company 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 company whose principal operations are focused on residential and commercial
construction and related activities, including mortgage financing. As of March 31, 2005, our
subsidiary companies operated in three principal business segments: Home Building, Financial
Services and Construction Services. We provide a brief overview of each segment below, with a more
detailed discussion of each segment later in this section. Home Buildings domestic operations currently involve the purchase and development of land or
lots and the construction and sale of detached and attached single-family homes (including resort
and second home properties and lots) and land or lots. We have participated in the conventional
homebuilding business since 1950. We believe that the Company currently ranks as the 4th
largest homebuilder in the United States, based upon publicly reported homebuilding revenues for
the most recent twelve-month period for which financial information is available. 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 in the United Kingdom. Financial Services 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. We have been in the mortgage lending business since 1973. Construction Services operations involve the construction of buildings for both private and
government interests, including educational institutions, hospitals, multi-unit residential,
correctional institutions, airport facilities, office buildings, hotels and resorts and sports
facilities. 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. Prior to February 2004, our common stock traded in tandem with certain equity securities of
3333 Holding Corporation, or Holding, and Centex Development Company, L.P., or the Partnership,
which were separate entities not consolidated in our financial statements. In February 2004, we
completed a series of transactions through which we acquired Holding and the Partnership. These
transactions terminated the tandem trading relationship between our common stock and the securities
of these entities. Financial Information about Industry Segments Note (K), Business Segments, of the Notes to Consolidated Financial Statements of this
Report contains additional information about our business segments and information on revenues
received from external customers located in the United States and the United Kingdom for fiscal
2005, 2004 and 2003. 3




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Narrative Description of Business HOME BUILDING Domestic Our conventional homebuilding subsidiary, Centex Homes, purchases and develops land or lots
and constructs and sells detached and attached single-family homes (including resort and second
home properties and lots) and land or lots. 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 Builder
magazine. Home Building sells to both first-time and move-up buyers, as well as active adult and
second home buyers. In fiscal 2005, 79% of the homes closed were single-family detached homes,
which includes homes from our resort and second home and on-your-lot operations. Markets Home Building follows a strategy of reducing exposure to local market volatility by
diversifying operations across geographically and economically diverse markets. As of March 31,
2005, Home Building 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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##### Table of Contents



Region
    
    States
    
    Markets
    
    States and Markets (continued)Mid-Atlantic
    
    Maryland
    
    Bethesda/Frederick/Gaithersburg
    
    Pennsylvania
    
    JohnstownWashington, D.C./Arlington/Alexandria
    
    
    
    PittsburghNew Jersey
    
    Edison
    
    South Carolina
    
    Charleston/N. CharlestonNewark/Union
    
    
    
    Myrtle Beach/Conway/N. Myrtle BeachTrenton/Ewing
    
    Virginia
    
    CharlottesvilleNorth Carolina
    
    Charlotte/Gastonia/Concord
    
    
    
    RichmondDurham
    
    
    
    Virginia Beach/Norfolk/Newport NewsGreensboro/High PointRaleigh/CaryWilmingtonWinston-SalemSoutheast
    
    Florida
    
    Cape Coral/Ft. Myers
    
    Georgia
    
    Atlanta/Sandy Springs/MariettaFt. Lauderdale/Pompano    Beach/Deerfield Beach
    
    South Carolina
    
    ColumbiaGreenvilleJacksonville

    Tennessee
    
    Nashville/Davidson/MurfreesboroLakelandNaples/Marco IslandOrlandoPort St. Lucie/Ft. PiercePunta GordaSarasota/Bradenton/VeniceTampa/St. Petersburg/ClearwaterWest Palm Beach/Boca Raton/Boynton     BeachMidwest
    
    Colorado
    
    Boulder
    
    Missouri
    
    St. LouisDenver/Aurora
    
    Ohio
    
    AkronFt. Collins/Loveland
    
    
    
    Canton/MassillonGreeley
    
    
    
    Cincinnati/MiddletownIndiana
    
    Indianapolis
    
    
    
    Cleveland/Elyria/MentorFt. Wayne
    
    
    
    ColumbusIllinois
    
    Chicago/Naperville/Joliet
    
    
    
    DaytonLake County/Kenosha County
    
    
    
    MansfieldKentucky
    
    Louisville
    
    
    
    MonroeMichigan
    
    Ann Arbor
    
    
    
    SanduskyDetroit/Livonia/Dearborn
    
    
    
    SpringfieldFlint
    
    
    
    ToledoWarren/Farmington Hills/Troy
    
    
    
    Youngstown/Warren/BoardmanMinnesota
    
    Minneapolis/St. Paul/Bloomington
    
    Utah
    
    Salt Lake CityRochesterSouthwest
    
    Arizona
    
    Phoenix/Mesa
    
    Texas
    
    Austin/Round RockPrescott
    
    
    
    Dallas/Plano/IrvingNevada
    
    Las Vegas/Paradise
    
    
    
    Ft. Worth/ArlingtonNew Mexico
    
    Albuquerque
    
    
    
    Houston/Baytown/Sugar LandSanta Fe
    
    
    
    Killeen/Temple/Ft. HoodSan AntonioWest Coast
    
    California
    
    Bakersfield
    
    Hawaii
    
    HonoluluFresno
    
    Nevada
    
    Reno/SparksHanford/Corcoran
    
    Oregon
    
    Portland/Vancouver/BeavertonLos Angeles/Long Beach/Glendale
    
    Washington
    
    Seattle/Bellevue/EverettOakland/Fremont/Hayward
    
    
    
    TacomaOxnard/Thousand Oaks/VenturaRiverside/San Bernardino/OntarioSacramento/Arden/Arcade/RosevilleSan Diego/Carlsbad/San MarcosSan Francisco/San Mateo/Redwood CitySan Jose/Sunnyvale/Santa ClaraSan Luis Obispo/Paso RoblesSanta Ana/Anaheim/IrvineVisalia/Porterville
 5




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In fiscal 2005, Home Building closed 33,387 homes, including first-time, move-up and, in
some markets, custom homes, generally ranging in price from $68.4 thousand to $1.6 million. The
average sales price in fiscal 2005 was $269,780. 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, 2005, Home Building owned approximately 96,945 lots and
had options to purchase approximately 168,350 lots. In addition, Home Building 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 of this Report. Our growth strategy for Home Building 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. Over the last five fiscal years, we have acquired the homebuilding operations of the
following companies: Company
    
    Date Acquired
    
    DescriptionReal 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. Home Building 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 both 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 Home Buildings domestic home closings, sales
(orders) backlog and sales (orders) for the five most recent fiscal years. Closings (in units): For the Years Ended March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Mid-Atlantic
    
    
    5,823
    
    
    
    5,201
    
    
    
    4,501
    
    
    
    3,877
    
    
    
    3,395Southeast
    
    
    5,879
    
    
    
    5,568
    
    
    
    4,851
    
    
    
    4,440
    
    
    
    4,137Midwest
    
    
    6,712
    
    
    
    5,801
    
    
    
    4,695
    
    
    
    3,688
    
    
    
    3,296Southwest
    
    
    9,158
    
    
    
    8,708
    
    
    
    8,157
    
    
    
    6,910
    
    
    
    5,661West Coast
    
    
    5,815
    
    
    
    5,080
    
    
    
    4,223
    
    
    
    4,045
    
    
    
    4,17033,387
    
    
    
    30,358
    
    
    
    26,427
    
    
    
    22,960
    
    
    
    20,659Average Sales Price (in 000s)
    
    $
    270
    
    
    $
    242
    
    
    $
    220
    
    
    $
    214
    
    
    $
    206
 Sales (Orders) Backlog, at the end of the period (in units): As of March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Mid-Atlantic
    
    
    3,461
    
    
    
    2,801
    
    
    
    2,148
    
    
    
    1,503
    
    
    
    1,365Southeast
    
    
    5,006
    
    
    
    3,707
    
    
    
    2,713
    
    
    
    2,315
    
    
    
    1,936Midwest
    
    
    3,273
    
    
    
    3,392
    
    
    
    2,920
    
    
    
    2,093
    
    
    
    2,037Southwest
    
    
    3,688
    
    
    
    2,869
    
    
    
    2,258
    
    
    
    2,361
    
    
    
    2,546West Coast
    
    
    3,161
    
    
    
    2,645
    
    
    
    2,011
    
    
    
    1,099
    
    
    
    1,38118,589
    
    
    
    15,414
    
    
    
    12,050
    
    
    
    9,371
    
    
    
    9,265
 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, 2005 are expected to
close during fiscal year 2006. Sales (Orders) (in units): For the Years Ended March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Mid-Atlantic
    
    
    6,483
    
    
    
    5,854
    
    
    
    5,146
    
    
    
    3,936
    
    
    
    3,550Southeast
    
    
    7,178
    
    
    
    6,562
    
    
    
    5,249
    
    
    
    4,819
    
    
    
    4,182Midwest
    
    
    6,593
    
    
    
    6,273
    
    
    
    5,087
    
    
    
    3,744
    
    
    
    3,572Southwest
    
    
    9,977
    
    
    
    9,319
    
    
    
    8,054
    
    
    
    6,725
    
    
    
    6,325West Coast
    
    
    6,331
    
    
    
    5,714
    
    
    
    5,132
    
    
    
    3,763
    
    
    
    4,56236,562
    
    
    
    33,722
    
    
    
    28,668
    
    
    
    22,987
    
    
    
    22,191
 Competition and Other Factors The conventional homebuilding industry is essentially a local business and is highly
competitive. The top 10 builders in calendar year 2004 accounted for approximately 22% of the
total for-sale attached and detached new homes sold in the United States. We compete in each of
Home Buildings domestic market areas with numerous other homebuilders, including national,
regional and local builders. Home Buildings top six domestic competitors based on revenues for
their most recent fiscal year-end are as follows (listed alphabetically): Beazer Homes USA, Inc.,
D. R. Horton, Inc., KB Homes, Lennar Corporation, Pulte Homes, Inc. and The Ryland Group, Inc.
Home Buildings domestic operations accounted for an estimated 3% of new 7




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homes sold in the United States for the twelve months ended March 31, 2005. Home Buildings
domestic operations calculate its market share by dividing its new home sales by the total single
family new home sales as reported by the census bureau. The main competitive factors affecting
Home Buildings domestic operations are location/market, sales 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 Home
Building competes effectively by building a high quality home, maintaining geographic diversity,
responding to the specific demands of each market and managing the operations at a local level. We conduct targeted market research to identify what features, amenities and options will be
attractive to prospective customers and whether we can satisfy their preferences profitably.
Customer preferences can vary across geographical regions and even within them, and can change over
time in response to changes in personal taste (such as the interest in some markets for housing
with high energy efficiency or for housing located near public transportation) and to changes in
economic conditions, like interest rates, which can lead customers to accept smaller or attached
housing despite a preference for larger or detached housing. We also use market research
techniques to quantify housing supply and demand in a particular market and use this information to
guide our strategy for meeting customer demand in the market. We believe that our use of market
research allows us to respond quickly and efficiently to the economic reality of a market and to
our prospective customers preferences, tastes and financial capabilities. The results of Home Buildings operations may be adversely affected by increases in interest
rates. Any significant increase in mortgage interest rates above current prevailing levels could
affect demand for housing, at least in the short term, and could reduce the ability or willingness
of prospective homebuyers to finance home purchases. Although we expect that we would make
adjustments in our operations in an effort 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 weather conditions, such as unusually heavy or prolonged
rain or snow, or hurricanes, may affect operations in certain areas. The homebuilding industry is subject to extensive regulations. Home Building 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 and waters of the United States. Home Building 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 Home Building. We believe that Home Building
is in material compliance with these requirements. We purchase materials, services and land from numerous sources, and during the past twelve
months, have been able to deal effectively with the challenges we have experienced relating to the
supply or availability of materials, services and land. The principal raw materials required for
home construction include concrete and wood products. In addition, we use a variety of other
building materials, including roofing, gypsum insulation, plumbing, and electrical components in
the homebuilding process. While raw material prices may fluctuate, due to various factors,
including demand or supply shortages, we do have a number of fixed-price contracts with
subcontractors and material suppliers which help offset commodity price increases. We also attempt
to maintain efficient operations by utilizing standardized materials available from a variety of
sources. Our vendor purchase agreements also allow us to leverage our volume through quantity
purchase discounts for 8




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the purchasing of a number of product categories. In the past, building materials have been
generally available to us in adequate supply. We use many subcontractors in our various markets
and are not dependent on any single subcontractor. International 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 in the United Kingdom. International homebuilding currently has 48
developments located throughout England. In fiscal 2005, our international homebuilding operations
delivered 1,563 units, with prices generally ranging from $81.8 thousand to $1.8 million. The
average sales price was approximately $314,797. As of March 31, 2005, our international
homebuilding operations had 533 units in sales backlog. Substantially all of the orders in sales
backlog as of March 31, 2005 are expected to close during fiscal 2006. Home Buildings
international operations currently account for 1% of the new homes market in the United Kingdom,
based on the most recent estimate of the office of the Deputy Prime Minister. FINANCIAL SERVICES Our Financial Services operations consist primarily of home financing, sub-prime home equity
lending and the sale of title insurance and other various insurance coverages, including property
and casualty. These activities include mortgage origination, servicing, and other related services
for purchasers of homes sold by the Companys subsidiaries and others. Prime Mortgage Lending We established the predecessor of CTX Mortgage Company, LLC and its related companies to
provide mortgage financing for homes built by Home Building. By opening CTX Mortgage Company, LLC
offices in Home Buildings housing markets, we have been able to provide mortgage financing for an
average of 71% of Home Buildings non-cash unit sales over the past five years and for 73% of them
in fiscal 2005. 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 Home
Building. We refer to mortgage financing for homes built by Home Building as Builder loans and to
mortgage financing for homes built by others, loans for resale homes and loans for refinance of
existing mortgages as Retail loans. At March 31, 2005, CTX Mortgage Company, LLC originated loans through its loan officers in 243
offices licensed in 46 states and the District of Columbia. The offices vary in size depending on
loan volume. 9




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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, 2005: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Loan Types:Builder
    
    
    22,517
    
    
    
    20,865
    
    
    
    18,127
    
    
    
    15,435
    
    
    
    12,506Retail (1)
    
    
    44,816
    
    
    
    67,481
    
    
    
    66,807
    
    
    
    64,949
    
    
    
    48,24467,333
    
    
    
    88,346
    
    
    
    84,934
    
    
    
    80,384
    
    
    
    60,750Origination Volume (in millions)
    
    $
    13,039.0
    
    
    $
    15,116.0
    
    
    $
    13,991.2
    
    
    $
    12,445.5
    
    
    $
    8,880.6Percent of Home Buildings
Non-Cash Closings Financed
    
    
    73
    %
    
    
    74
    %
    
    
    73
    %
    
    
    72
    %
    
    
    64
    %
  (1)
    For a discussion of the decrease in the number of Retail loans originated, see
Managements Discussion and Analysis of Financial Condition and Results of Operations, Fiscal
Year 2005 Compared to Fiscal Year 2004, Financial Services, Prime Mortgage Lending. 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 Home Building 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 by private investors who 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 are the sale of mortgage loans,
together with all related servicing rights, 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,
2005, CTX Mortgage Company, LLC had 22 of these agreements, operating in 19 offices licensed in 8
states. In 1999, CTX Mortgage Company, LLC entered into a mortgage loan purchase agreement, as amended
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 pursuant to the provisions of Financial
Accounting Standards Board, or FASB, Interpretation No. 46 Consolidation of Variable Interest
Entities, as revised, which we refer to as FIN 46. 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. Since 1999, CTX Mortgage Company, LLC
has sold substantially all conforming and Jumbo A mortgage loans that it originates to HSF-I in
accordance with the HSF-I Purchase Agreement. When HSF-I acquires these loans, it holds them on
average approximately 60 days and then resells them into the secondary market. In accordance with
the HSF-I Purchase Agreement, CTX Mortgage Company, LLC acts as servicer of the loans owned by
HSF-I and arranges for the sale of the mortgage loans into the secondary market. HSF-I purchases
mortgage loans, at closing, from CTX Mortgage Company, LLC with the 10




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proceeds from its issuance of short-term secured liquidity notes, medium-term debt and
subordinated certificates. 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 payment schedules ranging from 5 to 30 years. At March 31, 2005, 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 prime 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. The following table summarizes Home Equitys origination statistics for the five-year period
ended March 31, 2005: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Loans
    
    
    43,617
    
    
    
    36,659
    
    
    
    29,448
    
    
    
    26,955
    
    
    
    26,418Origination Volume (in millions)
    
    $
    5,276.3
    
    
    $
    3,920.7
    
    
    $
    2,506.2
    
    
    $
    2,092.4
    
    
    $
    1,717.9
 We began servicing loans through Home Equity in fiscal 1997, and we generally service all
loans included in Home Equitys portfolio. Servicing fees for sub-prime loans are significantly
higher than for prime 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 assistance, recovery of delinquent
payments and instituting foreclosure and liquidation of the underlying collateral. Home Equitys
servicing portfolio also includes loans sold on a whole loan, servicing-retained basis. As of
March 31, 2005, Home Equity was servicing a sub-prime loan portfolio of 100,403 loans with a total
loan value of approximately $9.31 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, 2005, Home
Equity had a remaining MSRI of $70.1 million, which includes $68.1 million remaining on loans
securitized from October 11




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1997 to March 2000 accounted for as gain on sale, $0.5 million related to an acquisition in
fiscal 2002, and $1.5 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. Since such time,
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 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 structure of Home Equitys securitizations has no effect on the ultimate
amount of profit and cash flow recognized over the life of the mortgages. However, the structure
does affect the timing of profit recognition. Interest margin, rather than gain on sale of loans,
is Home Equitys primary source of operating income. From April 1, 2000 to March 31, 2005, Home
Equity completed 19 securitizations totaling approximately $12.57 billion in loans under this
structure. Other Financial Services Operations We offer title agent, title underwriting, closing, appraisal and other settlement services in
24 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 Home Building and Financial
Services customers and customers of approximately 6 other homebuilders in 50 states. Westwood
Insurance also provides coverage for some commercial customers. Our Technologies Group, under the Adfitech name, provides outsourced mortgage services
including quality control, shipping and delivery. Adfitech currently services over 500 clients
throughout the 50 states. Competition and Other Factors The financial services industry in the United States is highly competitive. CTX Mortgage
Company, LLC competes with commercial banks, other prime mortgage lending companies and other
financial institutions to supply mortgage financing at attractive rates to Home Buildings
customers, 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. Other large financial institutions have gradually expanded their prime and sub-prime
lending capabilities, some of whom have greater access to capital at a cost lower than our cost of
capital under our credit facilities. Competition among industry participants can take many forms,
including convenience in obtaining a loan, customer service, marketing and distribution channels,
amount and term of the loan, loan origination fees and interest rates. Additional competition may
lower the rates we can charge borrowers, thereby potentially reducing gain on future loan sales and
earnings from securitizations. 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 current
prevailing levels could reduce the ability or willingness of prospective homebuyers to finance home
purchases and/or it could 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 increasing our market share by adding loan officers and improving their
productivity while at the same time seek to improve our operating leverage. 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 12




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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, lawsuits by borrowers (including class actions), administrative
enforcement actions and, in some cases, rescission or voiding of the loan by the consumer. 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. Historically, Construction Services has conducted its operations through its distinct, largely
autonomous operating companies. Construction Services principal operating companies were Centex
Construction Company, Inc., Centex Rodgers, Inc. and Centex-Rooney Construction Co., Inc. In
December 2004, Construction Services merged these operating companies into two operating companies,
Centex Construction, LLC and Centex Construction, Inc. During fiscal year 2004, Construction
Services transitioned to one common organizational structure with one brand, standardized operating
policies and procedures with an emphasis on certain geographic markets and project niches in which
it has expertise. As of March 31, 2005, Construction Services primary offices were 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, 2005,
approximately 99% of backlog was procured under the negotiated method. The backlog at March 31,
2005 was $2.00 billion compared to $1.75 billion at March 31, 2004. Approximately $1.12 billion of
the backlog at March 31, 2005 is projected to be constructed and the related revenues recognized
during fiscal year 2006. We define backlog in the Construction Services segment as the uncompleted
portion of all signed construction contracts. 13




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The following table summarizes the total backlog in dollars as a percentage by industry
segment and the portion of backlog projected to be revenues in fiscal year 2006 as of March 31,
2005: % of FY 2006Industry Segment
    
    % of Backlog
    
    RevenuesMulti-unit Residential
    
    
    53.7%
    
    
    
    31.5%Education
    
    
    12.1%
    
    
    
    18.3%Corrections
    
    
    10.5%
    
    
    
    13.3%Corporate Office Buildings
    
    
    9.1%
    
    
    
    9.5%Healthcare
    
    
    7.5%
    
    
    
    11.7%Government
    
    
    2.0%
    
    
    
    2.3%Transportation
    
    
    1.9%
    
    
    
    3.6%Hospitality
    
    
    0.1%
    
    
    
    0.2%Other
    
    
    3.1%
    
    
    
    9.6%Total
    
    
    100.0%
    
    
    
    100.0%
 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, and by 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 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. 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 among other things, erosion
and storm water pollution control and 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. The
risk of raw material price fluctuation is primarily transferred to our subcontractors through lump
sum contractual arrangements. To the extent that raw material pricing changes create subcontractor
performance issues, performance and payment bonds or subcontractor default insurance facilitate
mitigation of our risks. Our Construction Services operations
have been able to deal effectively with
challenges they have experienced relating to the supply or availability of materials and services. 14




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EMPLOYEES The following table presents a breakdown of our employees as of March 31, 2005: Business Segment
    
    EmployeesHome Building
    
    
    8,182Financial Services
    
    
    5,858Construction Services
    
    
    1,386Other
    
    
    1,708Total
    
    
    17,134
 The 1,708 Other employees include 1,551 employees of our home services operations, which
provides home pest control services and corporate employees. The corporate employees are employed
by Centex Corporation; all others are employees of our various subsidiaries. RISK FACTORS RELATING TO OUR BUSINESS The foregoing discussion of our business and operations should be read together with the risk
factors set forth below, which describe various risks and uncertainties to which we are or may
become subject. These risks and uncertainties, together with other factors described elsewhere in
this Report, have the potential to affect our business, financial condition, results of operations,
cash flows, strategies or prospects in a material and adverse manner. HOME BUILDING Deterioration in economic conditions generally or in the market regions where we operate could
decrease demand and pricing for new homes in these areas and adversely affect our business
operations. The residential homebuilding industry is sensitive to changes in regional and national
economic conditions such as job growth, interest rates and consumer confidence. Material adverse
changes in any of these conditions generally, or in the market regions where we operate, could
decrease demand and pricing for new homes in these areas or result in customer defaults on pending
contracts, which could adversely affect the number of home deliveries we make or reduce the prices
we can charge for homes, either of which could result in a decrease in our revenues and earnings.
A material decline in the value of new residential housing could also result in a decreased value
for the land, housing inventory and housing work-in-progress that we own. Any pronounced down
cycle in the homebuilding industry could cause demand for our homes and land that we own to weaken
significantly. Competition for homebuyers could reduce our deliveries or decrease our profitability. The homebuilding industry is highly competitive. We compete in each of our markets with many
national, regional and local homebuilders. We also compete with resales of existing used or
foreclosed homes and available rental housing. Increased competitive conditions in the residential
markets in which we operate or related markets could decrease demand for new homes, or cause us to
increase our sales incentives or price discounts in order to maintain sales volume, and adversely
affect our operating results. Government entities have adopted or may adopt slow or no growth initiatives, which could adversely
affect our ability to build or timely build in these areas. Some municipalities where we operate have approved, and others may approve, slow growth or no
growth homebuilding regulations or laws that could negatively impact the availability of land and
building opportunities within those localities. Approval of these initiatives could adversely
affect our ability to build (or 15




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timely build) and sell homes in the affected markets and could create additional
administrative and regulatory requirements and costs, which, in turn, could have an adverse effect
on our future revenues and earnings. Natural disasters and adverse weather conditions could delay deliveries or increase costs to build
new homes in affected areas. The occurrence of natural disasters or adverse weather conditions in the areas in which we
operate can delay new home deliveries, increase costs by damaging inventories of homes and
construction materials, reduce the availability of raw materials and skilled labor, and negatively
impact the demand for new homes in affected areas. When natural disasters such as hurricanes,
tornadoes, earthquakes, floods and fires affect an area in which we build, or one nearby, there can
be a diversion of labor and materials in the area from new home construction to the rebuilding of
the existing homes damaged or destroyed in the natural disaster. This can cause delays in
construction and delivery of new homes and/or increase our construction costs. Supply shortages and other risks related to the demand for building materials and skilled labor
could reduce our profits and delay deliveries. Increased costs or shortages of building materials could cause increases in construction costs
and construction delays. Labor disputes, and increased costs or shortages of skilled labor, such
as carpenters, plumbers and electricians, could also cause increases in costs and delays. We
estimate and forecast construction costs as part of our business, and attempt to plan for possible
cost increases due to changes in the cost or availability of materials and labor. However,
generally we are unable to pass on unanticipated increases in construction costs to those customers
who have already entered into sales contracts, as those sales contracts generally fix the price of
the home at the time the contract is signed, which may be well in advance of the construction of
the home. We may experience unexpected increases in costs of materials or labor, and pricing
competition for materials and labor may restrict our ability to pass on any additional costs to
homebuyers, thereby decreasing our profits. These factors could have an adverse effect on our
results of operations. Compliance with regulations affecting our business could have substantial costs both in time and
money, and some regulations could prohibit or restrict some homebuilding activity. We are subject to extensive and complex laws and regulations that affect the land development
and homebuilding process, including laws and regulations related to zoning, permitted land uses,
levels of density, building design, warranties, storm water and use of open spaces. In addition,
we are subject to laws and regulations related to workers health and safety, immigration and the
protection of the environment. In some of the markets where we operate, we are required to pay
environmental impact fees, use energy-saving construction materials and give commitments to
municipalities to provide certain infrastructure such as roads and sewage systems. We generally
are required to obtain permits and approvals from local authorities to commence and complete
residential development or home construction. Such permits and approvals may, from time-to-time,
be opposed or challenged by local governments, neighboring property owners or other interested
parties, adding delays, costs and risks of non-approval to the process. Our obligation to comply
with the laws and regulations under which we operate, and the obligation of our subcontractors and
other agents to comply with these and other laws and regulations, could result in delays in land
development and homebuilding activity, cause us to incur substantial costs and prohibit or restrict
land development and construction. Foreign exchange rates and the demand for housing in the United Kingdom may affect our foreign
operations. The results of operations of our international homebuilding operations are affected by
fluctuations in the value of the United States dollar as compared to the British pound sterling,
and can also be affected by economic, regulatory and competitive factors affecting the homebuilding
market in the United Kingdom including the overall demand for housing. 16




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FINANCIAL SERVICES Increases in interest rates could hurt our Financial Services operations. Our Financial Services operations are influenced by borrowers perceptions of and reactions to
interest rates. The operations of CTX Mortgage Company, LLC and its related companies are
particularly affected by increases in interest rates, as they are likely to result in a decrease in
the volume of mortgage loan refinancing transactions, which are a significant component of our
business. Although the volume of originations in our Home Equity operations is less sensitive to
increases in interest rates than CTX Mortgage Company, LLC and its related companies, interest rate
increases can result in decreased interest margins. Any significant increase in mortgage rates
above current prevailing levels could adversely affect the volume of loan originations and reduce
our revenues, operating margins and earnings. In addition, increased competition for loans from
other lenders could reduce our profits on the loans we originate. Loan and collateral losses could reduce the profitability of our Home Equity operations. Our Home Equity operations involve holding residential mortgage loans for investment and
establishing an allowance for credit losses on these loans. To a lesser extent, our operations
also involve holding properties obtained through foreclosure pending resale and establishing an
allowance for losses on these properties. Although the amount of these allowances reflects our
judgment as to our present loss exposure on these loans and properties, there can be no assurance
that it will be sufficient to cover any losses that may ultimately be incurred. Judgments as to
loss exposure are subject to significant uncertainties, and the amount of the loss ultimately
incurred may be determined by various factors outside our control. Decline in our ratings as a loan servicer could hurt our Financial Services operations. Our Home Equity operations involve the servicing of residential home equity mortgages. Our
servicing activity is rated by the principal rating agencies and any serious decline in our ratings
could adversely affect the profitability of our Home Equity operations. Changes in lending laws could hurt our Financial Services operations. Our Financial Services operations are subject to extensive and complex laws and regulations
that affect loan origination. Our Home Equity operations and, to a lesser extent, the operations
of CTX Mortgage Company, LLC and its related companies, are particularly affected by laws and
regulations related to the extension of credit to individuals whose credit ratings do not qualify
them for conventional mortgage financing. Changes in these laws or the way that they are enforced
may adversely affect the way that we operate or our ability to profitably originate loans. CONSTRUCTION SERVICES Supply and labor shortages and other risks could increase costs and delay completion. Our Construction Services operations could be adversely affected by fluctuating prices and
limited supplies of building materials, as well as the cost and availability of labor, particularly
trades personnel. These prices and supplies may be further adversely affected by natural disasters
and adverse weather conditions. These factors, like the factors identified for our Home Building
operations, could cause increased costs and delays in construction that could have an adverse
effect upon our Construction Services operations. We are subject to regional changes in the demand for commercial construction projects. Although national demand for commercial construction is relatively stable, individual markets
experience greater 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 17




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estate and competitive pressures on the availability and pricing of construction projects.
These factors can result in a reduction in the supply of suitable projects, increased competition
and reduced margins on construction contracts. Our Construction Services operations are also subject to other risks and uncertainties,
including the timing of new awards and the funding of such awards; cancellations of, or changes in
the scope of, existing contracts; the ability to meet performance or schedule guarantees and cost
overruns. FACTORS AFFECTING MULTIPLE BUSINESS SEGMENTS New federal laws that adversely affect liquidity in the secondary mortgage market could hurt our
business. The Government-sponsored enterprises, principally FNMA and FHLMC, play a significant role in
buying home mortgages and packaging them into investment securities that they either sell to
investors or hold in their portfolios. Proposed legislation, supported by the current
administration, could have the effect of restricting or curtailing the activities of these
enterprises. These organizations provide significant liquidity to the secondary mortgage market.
A restriction or curtailment of their activities could affect the ability of our customers to
obtain mortgage loans or increase mortgage interest rates (and increase the effective cost of our
homes), which could reduce demand for our homes and/or the loans that we originate and adversely
affect our results of operations. We could be adversely affected by a change in our credit rating or a disruption in the capital
markets. Our ability to continue to grow our business and operations in a profitable manner depends to
a significant extent upon our ability to generate or obtain capital on favorable terms. At the
present time, our access to capital is enhanced by the fact that our senior debt securities have an
investment-grade credit rating from each of the principal credit rating agencies. If we were to
lose our investment-grade credit rating for any reason, it would become more difficult and costly
for us to generate or obtain the capital that is required in order to implement our business plans
and achieve our growth objectives. In addition, a long-term or serious disruption in the capital markets could make it more
difficult or more expensive for us to raise capital for use in our business, for our customers to
obtain home loans or for us to sell or securitize loans originated in our business. Further, a
flat or inverted yield curve could hurt our ability to profit from our loan origination businesses. Increases in interest rates may reduce customer demand for homes that we sell and the loans that we
offer. The majority of our homebuyers finance the purchase of their homes through mortgage loans.
Increases in interest rates generally increase monthly payments for the same amount to be borrowed,
thus making the homes we sell less affordable for potential customers. In addition, increases in
interest rates may reduce the demand for new or refinanced mortgage loans offered by our Financial
Services operations. Reduced home sales and loan originations may adversely affect our operating
results. The reduction of tax benefits could make home ownership more expensive or less attractive. Significant expenses of owning a home, including mortgage interest expense and real estate
taxes, generally are deductible expenses for an individuals federal, and in some cases state,
income taxes, subject to various limitations under current tax law and policy. If the federal
government or a state government changes income tax laws to eliminate or substantially modify these
income tax deductions, the after-tax costs of owning a new home would increase for the typical
homeowner. The resulting loss or limitation of homeowners tax deductions, if such tax law changes
were enacted without other offsetting provisions, could adversely impact the demand for, and/or
sales prices of, new homes, mortgage loans and home equity loans, and our operations might be
negatively affected. 18




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We incur increased costs related to repairing construction defects in the homes we sell or the
buildings we construct. Our Home Building and Construction Services operations are subject to warranty and other
claims related to construction defects and other construction-related issues, including compliance
with building codes. The costs we incur to resolve those warranty and other claims reduce our
profitability, and if we were to experience an unusually high level of claims, or unusually severe
claims, our profitability could be adversely affected. AVAILABLE INFORMATION Anyone seeking information about our business operations and financial performance can receive
copies of the 2005 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) 981-6901; 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 In addition to land held as inventory in connection with our residential and commercial
construction activities, we own the following properties: Home Building owns property in Phoenix, Arizona; Albemarle, North Carolina and Plant City,
Florida. This property consists of office and warehouse space used to support its builder supply
business. Home Building also owns smaller parcels of land in rural areas of Ohio, Indiana,
Pennsylvania, Florida, North Carolina and Minnesota. 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. In addition to land we own and use in our operations, we lease office space under operating
leases in the markets in which we operate throughout the United States. For additional information
on our operating leases, see Note (H), Commitments and Contingencies, of the Notes to
Consolidated Financial Statements of this Report. See Item 1. Business of this Report for additional information relating to the Companys
properties including land owned or controlled by our Home Building segment. 19




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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, we received a request for information from the United States Environmental
Protection Agency, the EPA, pursuant to Section 308 of the Clean Water Act seeking information
about storm water discharge practices at projects that Centex subsidiaries had completed or were
building. Subsequently, the EPA limited its request to Home Building and 30 communities. Home
Building has provided the requested information and the United States Department of Justice, the
Justice Department, acting on behalf of the EPA, has asserted that some of these and certain other
communities (including one of Construction Services projects) have violated regulatory
requirements applicable to storm water discharges, and that injunctive relief and civil penalties
may be warranted. Home Building and Construction Services believe they have defenses to the
allegations made by the EPA and are exploring methods of settling this matter in continuing
negotiations with representatives of the Justice Department and the EPA. Centex does not believe
that this matter will have a material impact on the Companys consolidated results of operations or
financial position. On November 23, 2004, Miami-Dade County, Florida filed suit against Centex-Rooney Construction
Co., a wholly-owned subsidiary of Centex Corporation; John J. Kirlin, Inc.; and M. C. Harry and
Associates, Inc., in the Countys Circuit Court of the Eleventh Judicial Circuit. Miami-Dade
County alleges that, in the course of performing or managing construction work on Concourse F at
the Miami International Airport, the defendants caused a jet fuel line rupture on or about July 30,
1987, which resulted in the contamination of soil, groundwater and surface water in and around
airport Concourse F. Miami-Dade County seeks damages of approximately $8.0 million for its costs
incurred to date and for expected future costs, civil penalties and an order requiring the
defendants to address remaining contamination. Centex believes it has substantial defenses to
Miami-Dade Countys claims, including waiver and release and statute of limitations defenses.
Centex also believes insurance coverage may be available to cover defense costs and any potential
damages. Centex does not believe that this lawsuit will have a material impact on the Companys
consolidated results of operations or financial position. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 20




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##### Table of Contents



SEPARATE ITEM. 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 19, 2005, 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 among any of these officers. Name
    
    Age
    
    Positions with Centex or Business ExperienceLeldon E. Echols
    
    
    49
    
    
    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
    
    
    56
    
    
    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 1998Andrew J. Hannigan
    
    
    53
    
    
    Chairman of the Board, Chief Executive
Officer and President of Centex Real Estate
Corporation (Chairman of the Board since May
2003; Chief Executive Officer since May 2002;
President since April 2005); President and
Chief Operating Officer from May 1998 to May
2002Mark D. Kemp
    
    
    43
    
    
    Senior Vice President and Controller of
Centex Corporation since September 2004; Vice
President and Controller of Centex
Corporation from December 2002 to September
2004; Partner and employee at Arthur Andersen
LLP from December 1983 to August 2002Robert S. Stewart
    
    
    51
    
    
    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
planningJonathan R. Wheeler
    
    
    53
    
    
    Senior Vice President of Centex Corporation
since May 2004; Senior Vice President of
Centex Real Estate Corporation from October
1997 to May 2004Brian J. Woram
    
    
    44
    
    
    Senior Vice President, Chief Legal Officer,
General Counsel and Assistant Secretary of
Centex Corporation since March 2005; Senior
Vice President, Chief Legal Officer, General
Counsel and Secretary of Centex Corporation
from December 2004 to March 2005; Senior Vice
President, General Counsel and Assistant
Secretary of Centex Real Estate Corporation
from September 1998 to December 2004
 21




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##### Table of Contents



PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Stock Prices and DividendsYear Ended March 31, 2005
    
    Year Ended March 31, 2004Price
    
    
    
    
    
    
    PriceHigh
    
    
    Low
    
    
    Dividends
    
    High
    
    
    Low
    
    
    DividendsQuarterFirst
    
    $
    54.77
    
    
    $
    43.31
    
    
    $
    .04
    
    
    $
    43.75
    
    
    $
    26.78
    
    
    $
    .02Second
    
    $
    51.96
    
    
    $
    39.94
    
    
    $
    .04
    
    
    $
    41.48
    
    
    $
    35.55
    
    
    $
    .02Third
    
    $
    59.98
    
    
    $
    45.44
    
    
    $
    .04
    
    
    $
    56.54
    
    
    $
    38.55
    
    
    $
    .02Fourth
    
    $
    66.14
    
    
    $
    54.60
    
    
    $
    .04
    
    
    $
    58.40
    
    
    $
    46.27
    
    
    $
    .04
 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 19, 2005 was 3,071. 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 of this Report. The following table details our common stock repurchases for the three months ended March
31, 2005: 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 PlanPeriod
    
    
    
    
    
    
    
    
    
    
    5,625,600
    
    
    
    2,724,000January 1-31
    
    
    5,071
    
    
    $
    58.65
    
    
    
    
    
    
    
    February 1-28
    
    
    6,933
    
    
    $
    62.78
    
    
    
    
    
    
    
    March 1-31
    
    
    9,019
    
    
    $
    59.47
    
    
    
    
    
    
    
    Total
    
    
    21,023
    
    
    $
    60.37
    
    
    
    5,625,600
    
    
    
    2,724,000
 On February 17, 2004,
we publicly announced that the Board of Directors increased our open market share repurchase
authorization of common stock to 4,000,000 shares adjusted for our March 2004 two-for-one stock
split. The total number of shares purchased in the third column of 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. The 21,023 shares repurchased for the quarter ended March 31, 2005, represent the delivery by
employees or directors of previously issued shares to the Company to satisfy the exercise price of
options and/or withholding taxes that arise on the exercise of options or the vesting of restricted
stock. These transactions have been approved by the Board of Directors; however, these
transactions are not considered repurchases pursuant to the Companys open market stock repurchase
program. 22




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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 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Revenues
    
    $
    12,859,695
    
    
    $
    10,363,391
    
    
    $
    8,428,705
    
    
    $
    7,123,794
    
    
    $
    6,138,577Earnings from Continuing Operations (2)
    
    $
    1,011,364
    
    
    $
    777,131
    
    
    $
    526,812
    
    
    $
    358,402
    
    
    $
    265,194Net Earnings
    
    $
    1,011,364
    
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    382,226
    
    
    $
    281,977Stockholders Equity
    
    $
    4,280,757
    
    
    $
    3,050,225
    
    
    $
    2,657,846
    
    
    $
    2,116,773
    
    
    $
    1,714,064Net Earnings as a Percentage of Average
Stockholders Equity
    
    
    27.6
    %
    
    
    29.0
    %
    
    
    23.3
    %
    
    
    20.0
    %
    
    
    18.0
    %Total Assets
    
    $
    20,011,079
    
    
    $
    16,087,454
    
    
    $
    11,639,707
    
    
    $
    8,996,991
    
    
    $
    6,649,968Deferred Income Tax Assets
    
    $
    177,735
    
    
    $
    176,564
    
    
    $
    201,411
    
    
    $
    177,882
    
    
    $
    127,495Total Long-term Debt, Consolidated
    
    $
    10,492,363
    
    
    $
    8,615,864
    
    
    $
    6,181,543
    
    
    $
    4,776,199
    
    
    $
    2,758,118Debt (with Financial Services reflected on the equity
method) (3)
    
    $
    3,246,963
    
    
    $
    2,418,190
    
    
    $
    2,024,953
    
    
    $
    1,605,797
    
    
    $
    1,182,250Financial Services Debt
    
    
    9,721,146
    
    
    
    8,302,190
    
    
    
    4,998,819
    
    
    
    3,485,027
    
    
    
    2,054,898Total Debt, Consolidated
    
    $
    12,968,109
    
    
    $
    10,720,380
    
    
    $
    7,023,772
    
    
    $
    5,090,824
    
    
    $
    3,237,148Capitalization (with Financial Services reflected on
the equity method and excluding lot option minorityinterest)(3) (4)
    
    $
    7,568,466
    
    
    $
    5,470,263
    
    
    $
    4,683,755
    
    
    $
    3,724,827
    
    
    $
    2,901,394Financial Services Capitalization (4)
    
    
    10,339,756
    
    
    
    8,820,005
    
    
    
    5,380,226
    
    
    
    3,797,355
    
    
    
    2,323,155Lot Option Minority Interest (4)
    
    
    415,413
    
    
    
    332,668
    
    
    
    
    
    
    
    
    
    
    
    Consolidation Eliminations
    
    
    (617,248
    )
    
    
    (516,280
    )
    
    
    (379,671
    )
    
    
    (310,353
    )
    
    
    (266,124
    )Total Capitalization, Consolidated
    
    $
    17,706,387
    
    
    $
    14,106,656
    
    
    $
    9,684,310
    
    
    $
    7,211,829
    
    
    $
    4,958,425Debt as a Percentage of Capitalization (4)With Financial Services reflected on the equity
method and excluding lot option minority interest
(3)
    
    
    42.9
    %
    
    
    44.2
    %
    
    
    43.2
    %
    
    
    43.1
    %
    
    
    40.7
    %Consolidated
    
    
    73.2
    %
    
    
    76.0
    %
    
    
    72.5
    %
    
    
    70.6
    %
    
    
    65.3
    %Per Common ShareEarnings from Continuing OperationsPer Share  Basic (2)
    
    $
    8.08
    
    
    $
    6.30
    
    
    $
    4.33
    
    
    $
    2.96
    
    
    $
    2.25Earnings from Continuing OperationsPer Share  Diluted (2)
    
    $
    7.64
    
    
    $
    6.01
    
    
    $
    4.18
    
    
    $
    2.87
    
    
    $
    2.18Net Earnings Per Share  Basic
    
    $
    8.08
    
    
    $
    6.71
    
    
    $
    4.57
    
    
    $
    3.16
    
    
    $
    2.39Net Earnings Per Share  Diluted
    
    $
    7.64
    
    
    $
    6.40
    
    
    $
    4.41
    
    
    $
    3.06
    
    
    $
    2.32Cash Dividends
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .08
    
    
    $
    .08
    
    
    $
    .08Book Value Based on Shares Outstanding at Year End
    
    $
    33.51
    
    
    $
    24.87
    
    
    $
    21.84
    
    
    $
    17.30
    
    
    $
    14.30Average Shares OutstandingBasic
    
    
    125,226,596
    
    
    
    123,382,068
    
    
    
    121,564,084
    
    
    
    121,121,576
    
    
    
    118,190,806Diluted
    
    
    132,397,961
    
    
    
    129,392,821
    
    
    
    126,116,312
    
    
    
    125,058,294
    
    
    
    121,321,770Stock PricesHigh
    
    $
    66.14
    
    
    $
    58.40
    
    
    $
    29.60
    
    
    $
    31.55
    
    
    $
    23.10Low
    
    $
    39.94
    
    
    $
    26.78
    
    
    $
    19.16
    
    
    $
    14.02
    
    
    $
    10.32
  (1)
    The selected financial data presented in this table, excluding stock prices for the periods
covered by the financial statements included in this Report and all prior periods, have been
derived from our audited financial statements and adjusted to reflect Centex Construction
Products, Inc. (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 adopted in fiscal 2004. For more detailed discussion of the change in accounting
principle, see Note (F), Indebtedness of the Notes to Consolidated Financial Statements 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. In the calculation of Capitalization, minority interest in fiscal 2005 and 2004
excludes $415.4 million and $332.7 million, respectively, 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 year
2001 includes the accretion of negative goodwill to earnings as a reduction of costs and
expenses. During fiscal 2001, negative goodwill was fully accreted. 23




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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, 2005: (BAR CHART) (BAR CHART) * Other consists of the financial results of our investment real estate operations, home
services operations, corporate general and administrative expense and
interest expense. Fiscal year 2005 represents our ninth consecutive year of growth in revenues and earnings from
continuing operations. Revenues increased 24.1% to $12.86 billion as compared to fiscal year 2004.
In addition, earnings from continuing operations before income taxes and cumulative effect of a
change in accounting principle increased 37.0% to $1.57 billion as compared to fiscal year 2004. The growth in revenues and operating earnings is primarily attributable to the growth and
improvement in operating margin of our Home Building segment. Home Buildings operating earnings
growth was slightly offset by a decline in operating earnings of our Financial Services segment in
fiscal year 2005. The primary drivers of the growth in our Home Building business are growth in neighborhoods open
for sale, increases in closings per neighborhood, increases in average unit selling prices, and
improvements in operating margins. In fiscal 2005, we experienced improvements in each of these
key areas. Home Buildings domestic operating margin (operating earnings as a percentage of
revenues) increased to 14.7%. For more specific information on the operating results of our Home
Building segment, refer to the Home Building segment information below. 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 24




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##### Table of Contents



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 during which large homebuilders grow faster than the industry
as a whole. In 1995, based upon single-family permits issued in the United States, the 10 largest
homebuilders represented approximately 7.2% of the housing market. In calendar year 2004, the 10
largest homebuilders were producing approximately 22% 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 38 of the 50 largest housing markets in the
United States (2003 housing market data obtained from Professional Buildermagazine). We have
largely completed our geographic diversification plan and are now focused primarily on further
penetration in our existing markets. Financial Services operating results in fiscal year 2005 have been negatively impacted by
decreased loan refinancing activity, increases in interest rates and, for our prime mortgage
lending operations, an increase in the origination of less profitable adjustable rate mortgages.
CTX Mortgage Company, LLCs refinancing activity accounted for 21% of its originations for the year
ended March 31, 2005 as compared to 39% for the year ended March 31, 2004. Refinancing activity
has declined due to an extended period of relatively low mortgage loan rates, which has reduced the
supply of loans likely to be refinanced. Our Financial Services segment will continue to focus on
serving the customers of our Home Building segment and increasing the percentage of prime mortgage
loans provided to them. For the year ended March 31, 2005, our prime mortgage lending business
financed approximately 73% 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 prime
retail loans and improve their productivity. Our prime 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 principally through our organically grown
origination channels using centrally controlled product, pricing and underwriting. Home Equitys
revenues and operating earnings have increased 30.1% and 68.1%, respectively, as compared to fiscal
year 2004. The growth in revenues and operating earnings is primarily as a result of continued
growth in Home Equitys portfolio of residential mortgage loans held for investment and a program
of whole loan sales to third parties. The Financial Services growth model includes plans to
continue to grow our portfolio of sub-prime mortgage loans held for investment while adhering to
our underwriting criteria. We will primarily securitize these loans and certain loans will be
included in whole loan sales. 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 current prevailing levels could affect demand
for housing, at least in the short term, and could reduce the ability or willingness of prospective
home buyers to finance home purchases and/or it could curtail mortgage refinance activity.
Although we expect that we would make adjustments in our operations in an effort to mitigate the
effects of any increase in interest rates, there can be no assurances that these efforts would be
successful. Our Construction Services segment operating earnings have increased from the prior year, but
have not reached the levels achieved in fiscal 2003. 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, 2005, the backlog was
$2.00 billion, an increase of 14.6% over the prior year. Strategically, we will continue to focus
on our core geographic and selected industry segments to achieve growth in Construction Services
revenues and operating earnings. 25




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##### Table of Contents



In fiscal year 2004, we consummated the tax-free spin-offs to our stockholders of
substantially all of our manufactured housing operations in June 2003 and our entire ownership
interest in Eagle Materials Inc., formerly known as Centex Construction Products, Inc., a former
majority-owned subsidiary which we referred to as Construction Products, on January 30, 2004.
Manufactured housing and Construction Products are reported as discontinued operations in our
consolidated financial statements. FISCAL YEAR 2005 COMPARED TO FISCAL YEAR 2004 HOME BUILDING The following summarizes the results of our Home Building operations for the two-year period
ended March 31, 2005 (dollars in millions except per unit data and lot information): For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeRevenues  Housing
    
    $
    9,499.1
    
    
    
    27.7
    %
    
    $
    7,438.0
    
    
    
    27.8
    %Revenues  Land Sales and Other
    
    
    361.9
    
    
    
    124.1
    %
    
    
    161.5
    
    
    
    55.4
    %Cost of Sales  Housing
    
    
    (6,844.6
    )
    
    
    25.3
    %
    
    
    (5,460.8
    )
    
    
    25.2
    %Cost of Sales  Land Sales and Other
    
    
    (266.9
    )
    
    
    82.3
    %
    
    
    (146.4
    )
    
    
    60.4
    %Selling, General and Administrative
Expenses
    
    
    (1,373.0
    )
    
    
    31.7
    %
    
    
    (1,042.3
    )
    
    
    22.7
    %Earnings from Unconsolidated
Entities
    
    
    68.9
    
    
    
    24.6
    %
    
    
    55.3
    
    
    
    71.7
    %Operating Earnings
    
    $
    1,445.4
    
    
    
    43.8
    %
    
    $
    1,005.3
    
    
    
    54.3
    %Operating Earnings as a Percentage
of Revenues
    
    
    14.7
    %
    
    NM
    
    
    
    13.2
    %
    
    NM
 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 (including resort and second
home properties and lots) and land or lots. The following summarizes the results of our Home
Building domestic operations for the two-year period ended March 31, 2005: For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeUnits Closed
    
    
    33,387
    
    
    
    10.0
    %
    
    
    30,358
    
    
    
    14.9
    %Average Unit Sales Price
    
    $
    269,780
    
    
    
    11.3
    %
    
    $
    242,465
    
    
    
    10.1
    %Operating Earnings Per Unit
    
    $
    41,298
    
    
    
    29.8
    %
    
    $
    31,816
    
    
    
    33.2
    %Average Operating Neighborhoods
    
    
    589
    
    
    
    5.6
    %
    
    
    558
    
    
    
    7.5
    %Closings Per Average Neighborhood
    
    
    56.7
    
    
    
    4.2
    %
    
    
    54.4
    
    
    
    6.9
    %
 26




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##### Table of Contents



As of March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeBacklog Units
    
    
    18,589
    
    
    
    20.6
    %
    
    
    15,414
    
    
    
    27.9
    %Lots Owned
    
    
    96,945
    
    
    
    25.1
    %
    
    
    77,475
    
    
    
    29.5
    %Lots Controlled
    
    
    168,350
    
    
    
    45.9
    %
    
    
    115,366
    
    
    
    62.7
    %Total Lots Owned and Controlled
    
    
    265,295
    
    
    
    37.6
    %
    
    
    192,841
    
    
    
    47.5
    %
 Domestic 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, 2005
as compared to the prior year. We define a neighborhood as an individual active selling location targeted to a specific buyer
segment. For the year ended March 31, 2005, we opened 336 neighborhoods and closed out of 293
neighborhoods, driving our average operating neighborhoods to 589, a 5.6% increase over the prior
year. Higher sales rates continue to contribute to our growth in closings per average neighborhood.
Sales per average neighborhood were 62.1 for the year ended March 31, 2005, a 2.8% increase over
the prior year. This sales rate increase can be attributed to our continued focus on market
research, enhanced sales and marketing activities and activity-based sales management. Sales
orders increased in each of our geographic regions in fiscal year 2005, and sales growth rates were
particularly strong in the mid-Atlantic and west coast regions, which achieved increases over the
prior year of 10.7% and 10.8%, respectively. For all regions, sales orders totaled 36,562 units
for the year ended March 31, 2005, an increase of 8.4% versus the prior year. The increase in
sales per average neighborhood, as well as the increase in average operating neighborhoods,
resulted in an increase of home closing volume of 10.0% to 33,387 homes for the year ended March
31, 2005, as compared to the prior year. Current housing market conditions, combined with our geographic, product and segment
diversification strategies, continued to drive higher average selling prices. For the year ended
March 31, 2005, average selling prices were up 11.3% to $269,780 as compared to the prior year.
The increase is primarily due to strong demand in the southeast and west coast regions resulting in
pricing power, as well as a greater mix of homes closed in the west coast region. California
continues to experience the largest average sales price increase among the states in which we
operate as average prices rose to $514,081, a $68,619 increase over the prior year. Selling, general and administrative expenses increased at a slightly higher rate than revenues
for the year ended March 31, 2005 primarily due to increases in employee count to support planned
neighborhood growth and increased incentive compensation reflective of the growth in operating
earnings. Operating margins (consisting of operating earnings as a percentage of revenues) for Home
Buildings domestic operations improved to 14.7% for the year ended March 31, 2005, compared to
12.8% for the year ended March 31, 2004. Increased unit volume, increases in average unit selling
price, continued focus on lowering direct construction costs, increased land sales, improved margin
on land sales, and earnings from joint ventures resulted in margin improvement throughout Home
Buildings domestic operations. National and regional purchasing programs and local cost reduction
and efficiency efforts have helped partially offset 27




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##### Table of Contents



increasing raw material costs experienced throughout the year. We purchase materials,
services and land from numerous sources, and during the past twelve months have been able to deal
effectively with the challenges we have experienced 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 improving margins. During the year, we continued to increase our land position to facilitate our short and longer
term growth initiatives. Our total land position owned or controlled under option agreements at
March 31, 2005 will provide land for approximately 100% of closings for fiscal year 2006, 80% of
closings for fiscal year 2007, and 50% of closings for fiscal year 2008 based on our current
closing projections. International 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 in the United Kingdom. In February 2004, we acquired the
Partnership through merger transactions. Prior to the merger, we accounted for our investment in
the Partnership on the equity method of accounting. Subsequent to the merger, international
homebuilding operations of the Partnership have been consolidated with the Home Building segment.
Prior period earnings related to the international homebuilding operations of the Partnership,
previously reflected in our investment real estate operations, have been reclassified to the Home
Building segment to conform to the presentation subsequent to the merger. The following summarizes
the results of Home Buildings international operations for the year ended March 31, 2005 (dollars
in millions): For the Year Ended March 31, 2005Revenues
    
    $
    501.3Operating Earnings
    
    $
    66.6Units Closed
    
    
    1,563
 For
the year ended March 31, 2004, earnings from unconsolidated entities included $25.3
million related to the international homebuilding operations of the Partnership. Earnings from
unconsolidated entities for fiscal 2004 related to international homebuilding operations are not
comparative to operating earnings presented above as operating earnings exclude interest expense
and taxes. 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, including
property and casualty. 28




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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, 2005 (dollars in millions): For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    1,107.2
    
    
    
    5.7
    %
    
    $
    1,047.9
    
    
    
    22.6
    %Cost of Sales
    
    
    (284.0
    )
    
    
    26.9
    %
    
    
    (223.8
    )
    
    
    21.3
    %Selling, General and
Administrative Expenses
    
    
    (618.8
    )
    
    
    4.2
    %
    
    
    (593.8
    )
    
    
    16.7
    %Operating Earnings
    
    $
    204.4
    
    
    
    (11.2
    %)
    
    $
    230.3
    
    
    
    42.3
    %Interest Margin
    
    $
    364.6
    
    
    
    20.7
    %
    
    $
    302.0
    
    
    
    75.2
    %Origination Volume
    
    $
    18,315.3
    
    
    
    (3.8
    %)
    
    $
    19,036.7
    
    
    
    15.4
    %Number of Loans Originated
    
    
    110,950
    
    
    
    (11.2
    %)
    
    
    125,005
    
    
    
    9.3
    %Number of Loan Applications
    
    
    465,781
    
    
    
    8.2
    %
    
    
    430,439
    
    
    
    27.3
    %
 Financial Services results are primarily derived from prime mortgage lending and sub-prime
home equity lending operations as described below. Prime Mortgage Lending The following summarizes the results of our prime mortgage lending operations, which are
conducted by CTX Mortgage Company, LLC and its related companies, for the two-year period ended March 31,
2005 (dollars in millions): For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    421.7
    
    
    
    (19.1
    %)
    
    $
    521.1
    
    
    
    14.8
    %Cost of Sales
    
    
    (32.2
    )
    
    
    47.0
    %
    
    
    (21.9
    )
    
    
    212.9
    %Selling, General and Administrative
Expenses
    
    
    (293.5
    )
    
    
    (12.0
    %)
    
    
    (333.4
    )
    
    
    0.4
    %Operating Earnings
    
    $
    96.0
    
    
    
    (42.1
    %)
    
    $
    165.8
    
    
    
    44.6
    %Interest Margin
    
    $
    49.5
    
    
    
    4.4
    %
    
    $
    47.4
    
    
    
    457.6
    %Average Interest Earning Assets
    
    $
    1,395.6
    
    
    
    5.3
    %
    
    $
    1,325.4
    
    
    
    567.4
    %Average Yield
    
    
    5.85
    %
    
    NM
    
    
    
    5.72
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    1,364.1
    
    
    
    9.5
    %
    
    $
    1,246.2
    
    
    
    841.2
    %Average Rate Paid
    
    
    2.34
    %
    
    NM
    
    
    
    1.95
    %
    
    NM
 The revenues and operating earnings of CTX Mortgage Company, LLC and its related companies are
derived primarily from the sale of mortgage loans, together with all related servicing rights, and
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. In the normal course of its activities, CTX Mortgage Company, LLC and its related companies
carry inventories of loans pending sale to third-party investors and earn an interest margin, which
we define as the 29




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difference between interest revenue on mortgage loans held for sale and interest expense on
debt used to fund the mortgage loans. Our business strategy of selling prime loans reduces our capital investment and related risks,
provides substantial cash flow and is an efficient process given the size and liquidity of the
prime mortgage loan secondary capital markets. CTX Mortgage Company, LLC originates mortgage loans
and sells them to HSF-I and investors. HSF-I is a variable interest entity for which we are the
primary beneficiary and, as of July 1, 2003, it was consolidated with our Financial Services
segment. The consolidation of HSF-I resulted in an increase in our residential mortgage loans held
for sale with a corresponding increase in our debt. In addition, interest income and interest
expense of HSF-I subsequent to June 30, 2003 are reflected in our financial statements. The following table quantifies: (1) the volume of loan sales to investors (third parties),
and (2) the gains recorded on those sales and related derivative activity, collectively, gain on
sale of mortgage loans, which is recorded as revenues for the years ended March 31, 2005 and 2004
(dollars in millions): For the Years Ended March 31,2005
    
    2004% ChangeLoan Sales to Investors
    
    $
    9,328.6
    
    
    
    (28.9
    %)
    
    $
    13,114.5Gain on Sale of Mortgage Loans
    
    $
    141.7
    
    
    
    (42.4
    %)
    
    $
    245.9
 The decreases in loan sales and gain on sale of mortgage loans are the result of a decrease in
the volume of loans originated and sold to investors and an increase in the origination of less
profitable adjustable rate mortgages, or ARMs. ARMs as a percentage of total originations were 48%
and 23% for the years ended March 31, 2005 and 2004, respectively. 30




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##### Table of Contents



Consistent with decreases in loan sales and gain on sale of mortgage loans, revenues for the
year ended March 31, 2005, which include revenues from our title and insurance operations, have
also decreased. Decreases in gain on sale of mortgage loans and revenues from our title and
insurance operations were slightly offset by increases in our fees received in connection with
brokering of loans. The table below provides a comparative analysis of mortgage loan originations
and applications for the years ended March 31, 2005 and 2004. CTX Mortgage Company, LLC tracks
loan applications until such time as the loan application is canceled. Application data presented
below includes loans originated in the period and loans scheduled to close in the subsequent
periods. Applications canceled were 16,488 and 20,590 for the fiscal years ended March 31, 2005
and 2004. For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeOrigination Volume (in millions)
    
    $
    13,039.0
    
    
    
    (13.7
    %)
    
    $
    15,116.0
    
    
    
    8.0
    %Number of Loans OriginatedBuilder
    
    
    22,517
    
    
    
    7.9
    %
    
    
    20,865
    
    
    
    15.1
    %Retail
    
    
    44,816
    
    
    
    (33.6
    %)
    
    
    67,481
    
    
    
    1.0
    %67,333
    
    
    
    (23.8
    %)
    
    
    88,346
    
    
    
    4.0
    %Number of Loan ApplicationsBuilder
    
    
    24,631
    
    
    
    2.5
    %
    
    
    24,031
    
    
    
    19.5
    %Retail
    
    
    39,848
    
    
    
    (39.2
    %)
    
    
    65,514
    
    
    
    (6.3
    %)64,479
    
    
    
    (28.0
    %)
    
    
    89,545
    
    
    
    (0.5
    %)Average Loan Size
    
    $
    193,600
    
    
    
    13.2
    %
    
    $
    171,100
    
    
    
    3.9
    %Profit Per Loan
    
    $
    1,425
    
    
    
    (24.0
    %)
    
    $
    1,876
    
    
    
    39.0
    %
 The decrease in loan originations is primarily the result of a significant decrease in
refinancing activity, partially offset by an increase in Builder originations, which resulted from
an increase in Home Buildings closings and our continued focus on serving this customer base. For
the year ended March 31, 2005, CTX Mortgage Company, LLC originated 73% of the non-cash unit
closings of Home Buildings customers, versus 74% for the prior year. Profit per loan decreased in
fiscal 2005 due to an increase in the origination of less profitable ARMs, as well as a reduction
in operating leverage resulting from a decrease in the volume of loan originations. CTX Mortgage Company, LLCs operations are influenced by borrowers perceptions of and
reactions to interest rates. Refinancing activity accounted for 21% and 39% of originations in the
years ended March 31, 2005 and 2004, respectively. Refinancing activity has declined due to an
extended period of relatively low mortgage loan rates, which has reduced the supply of loans likely
to be refinanced. Any significant increase in mortgage interest rates above current prevailing
levels could affect the ability or willingness of prospective homebuyers to finance home purchases
and/or curtail mortgage refinance activity. 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 increasing our market share by adding loan officers and improving their productivity while at
the same time seek to improve our operating leverage. 31




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##### Table of Contents



Sub-Prime Home Equity Lending The following summarizes the results of our sub-prime home equity lending operations for the
two-year period ended March 31, 2005 (dollars in millions): For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    685.5
    
    
    
    30.1
    %
    
    $
    526.8
    
    
    
    31.3
    %Cost of Sales
    
    
    (251.8
    )
    
    
    24.7
    %
    
    
    (201.9
    )
    
    
    13.7
    %Selling, General and Administrative
Expenses:Operating Expenses
    
    
    (226.5
    )
    
    
    25.2
    %
    
    
    (180.9
    )
    
    
    27.8
    %Loan Loss Provision
    
    
    (98.8
    )
    
    
    24.3
    %
    
    
    (79.5
    )
    
    
    127.8
    %Operating Earnings
    
    $
    108.4
    
    
    
    68.1
    %
    
    $
    64.5
    
    
    
    36.9
    %Interest Margin
    
    $
    315.1
    
    
    
    23.8
    %
    
    $
    254.6
    
    
    
    55.3
    %Average Interest Earning Assets
    
    $
    7,274.0
    
    
    
    30.1
    %
    
    $
    5,592.2
    
    
    
    43.6
    %Average Yield
    
    
    7.79
    %
    
    NM
    
    
    
    8.16
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    7,498.7
    
    
    
    28.8
    %
    
    $
    5,822.6
    
    
    
    43.8
    %Average Rate Paid
    
    
    3.36
    %
    
    NM
    
    
    
    3.47
    %
    
    NM
 The revenues of Home Equity increased primarily as a result of continued growth in our
portfolio of residential mortgage loans held for investment and as a result of a program of whole
loan sales to third parties. Our portfolio growth translated into more interest income, our
largest component of revenue. Home Equity recorded approximately $42.3 million in net revenue and
operating earnings related to the whole loan sales for the year ended March 31, 2005. Whole loan
sales have the effect of increasing current revenues but decreasing future interest margin that
would have been recognized had the loans been securitized or retained as inventory. The estimated
net impact on operating earnings from resulting gain on sale treatment was approximately $21.0
million. A program of whole loan sales is a component of Home Equitys diversification of funding
sources and provides more efficient utilization of capital. Cost of sales is comprised of interest expense, which increased in fiscal year 2005
commensurate with increases in our average debt outstanding and increases in interest rates since
the prior year. Operating expenses for the year ended March 31, 2005 increased as a result of Home Equitys
continued growth. The increase in loan production volume, the expansion of branch offices and the
increase in the number of employees led to a corresponding increase in salaries and related costs,
rent expense, group insurance costs and advertising expenditures. The increase in the loan loss provision for the year ended March 31, 2005 occurred primarily
because of the increase in residential mortgage loans held for investment. Also, as the portfolio
continues to mature and grow, we expect the provision for losses, the loans charged off and the
allowance for losses to continue to increase. For a more detailed discussion of our accounting
policy and methodology for establishing the provision for losses, see Critical Accounting
Estimates-Valuation of Residential Mortgage Loans Held for Investment. Changes in the allowance
for losses are included in Note (B), Residential Mortgage Loans Held for Investment, of the Notes
to Consolidated Financial Statements of this Report. The increase in operating earnings for the year ended March 31, 2005 is primarily attributable
to the increase in interest margin, which we define as the difference between interest revenue on
mortgage loans held for sale or investment and interest expense on debt used to fund the mortgage
loans. Interest margin for the year ended March 31, 2005 increased primarily as a result of an
increase in the portfolio of mortgage loans held 32




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##### Table of Contents



for investment. In the current year, interest margin as a percentage of revenues has
decreased primarily as a result of an increasing interest rate environment, as well as increased
competitive industry conditions. Whole loan sale transactions also contributed to the increase in
operating earnings for the year ended March 31, 2005. Average interest earning assets and liabilities for the year ended March 31, 2005 increased
primarily due to an increase in the volume of loan originations and an increase in average loan
size (see table below). The following table provides a comparative analysis of mortgage loan originations and
applications for the two-year period ended March 31, 2005: For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeOrigination Volume (in millions)
    
    $
    5,276.3
    
    
    
    34.6
    %
    
    $
    3,920.7
    
    
    
    56.4
    %Number of Loans Originated
    
    
    43,617
    
    
    
    19.0
    %
    
    
    36,659
    
    
    
    24.5
    %Number of Loan Applications
    
    
    401,302
    
    
    
    17.7
    %
    
    
    340,894
    
    
    
    37.4
    %Average Loan Size
    
    $
    121,000
    
    
    
    13.2
    %
    
    $
    106,900
    
    
    
    25.6
    %
 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 following summarizes Home Equitys portfolio of mortgage loans, classified by the
securitization structure used, as of March 31, 2005 and 2004: For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeServicing Portfolio:Number of LoansPortfolio Accounting Method
    
    
    83,972
    
    
    
    10.2
    %
    
    
    76,215
    
    
    
    24.8
    %Serviced for Others
    
    
    16,431
    
    
    
    51.3
    %
    
    
    10,858
    
    
    
    (18.5
    %)Total
    
    
    100,403
    
    
    
    15.3
    %
    
    
    87,073
    
    
    
    17.0
    %Dollars in billionsPortfolio Accounting Method
    
    $
    7.91
    
    
    
    21.7
    %
    
    $
    6.50
    
    
    
    40.1
    %Serviced for Others
    
    
    1.40
    
    
    
    118.8
    %
    
    
    0.64
    
    
    
    (23.8
    %)Total
    
    $
    9.31
    
    
    
    30.4
    %
    
    $
    7.14
    
    
    
    30.3
    %
 Home Equity periodically securitizes its inventory of mortgage loan originations or engages in
whole loan sales in order to provide funding for its mortgage operations. The majority of Home Equitys servicing portfolio is accounted for using the portfolio
accounting method in accordance with FASB Statement of Financial Accounting Standards, or SFAS, No.
91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases, where (1) loan originations are securitized and accounted for as
borrowings; (2) interest income is recorded over the life of the loans using the interest
(actuarial) method; (3) the mortgage loans receivable and the securitization debt (asset-backed
certificates) remain on Home Equitys balance sheet; and (4) the related interest margin is
reflected in the income statement. This structure of securitizations has been utilized since April
1, 2000. Another component of Home Equitys servicing portfolio includes securitizations accounted for
as gain on sale in accordance with FASB SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets 33




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##### Table of Contents



and Extinguishments of Liabilities, where from October 1997 through March 2000, an estimate
of the entire gain resulting from the sale was included in earnings during the period in which the
securitization transaction occurred. This is referred to as the gain on sale method and is
included in the Serviced for Others category in the above table. Unlike the portfolio accounting
method, our balance sheet does not reflect the mortgage loans receivable or the offsetting debt
resulting from these securitizations. However, under the gain on sale method, Home Equitys
retained residual interest in, as well as the servicing rights to, the securitized loans are
reflected on the balance sheet. Home Equity carries MSRI at fair value on the balance sheet. The Serviced for Others category of Home Equitys servicing portfolio also includes loans
sold on a whole loan servicing-retained basis. Home Equity continues to service these loans, which
resulted in a $2.8 million servicing asset recorded, based on the present value of estimated future
cash flows as of March 31, 2005. For the year ended March 31, 2005, Home Equitys whole loan sales
on a servicing-retained basis totaled $920.4 million. No such sales occurred during fiscal year
2004. The structure of Home Equitys securitizations has no effect on the ultimate amount of profit
and cash flow recognized over the life of the mortgages. However, the structure does affect the
timing of profit recognition. Under both structures, recourse on the securitized debt is limited
to the payments received on the underlying mortgage collateral with no recourse to Home Equity or
Centex Corporation. As is common in these structures, Home Equity remains liable for customary
loan representations. The primary risks in Home Equitys operations are consistent with those of the financial
services industry and include credit risk associated with its loans, liquidity risk related to
funding its loans and interest rate risk prior to securitization of the loans. Although the volume
of originations in our Home Equity operations is less sensitive to increases in interest rates than
CTX Mortgage Company, LLC and its related companies, interest rate increases generally result in
decreased interest margins. 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. For additional information on Home Equitys MSRI, see Note (A), Significant
Accounting Policies, of the Notes to the Consolidated Financial Statements of this Report. CONSTRUCTION SERVICES The following summarizes Construction Services results for the two-year period ended March
31, 2005 (dollars in millions): For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeRevenues
    
    $
    1,738.6
    
    
    
    8.9
    %
    
    $
    1,596.3
    
    
    
    5.2
    %Operating Earnings
    
    $
    23.5
    
    
    
    43.3
    %
    
    $
    16.4
    
    
    
    (46.6
    %)New Contracts Executed
    
    $
    1,992.9
    
    
    
    9.3
    %
    
    $
    1,823.2
    
    
    
    112.7
    %
 As of March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeBacklog of Uncompleted Contracts
    
    $
    2,001.3
    
    
    
    14.6
    %
    
    $
    1,746.4
    
    
    
    14.9
    %
 Revenues and operating earnings for the year ended March 31, 2005 increased as compared to the
prior year. Revenue increases are due to an increase in the number of active projects and an
increase in average contract size. As of March 31, 2005, we had 243 active projects, which
represents a 14.1% increase over the prior year. The construction services industry continues to
experience pricing pressure; however, industry conditions are improving. The increase in new
contracts executed and backlog of uncompleted contracts was 34




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##### Table of Contents



primarily due to the execution of contracts for multi-unit residential projects. 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, 2005 and 2004, such work, which is not included in backlog, was
approximately $2.61 billion and $2.03 billion, respectively. There is no assurance that this
awarded work will result in future revenues. OTHER Our Other segment includes our home services operations, investment real estate operations,
corporate general and administrative expense and interest expense. The following summarizes the components of the Other segments loss from continuing operations
before income tax (dollars in millions): For the Years Ended March 31,2005
    
    2004% Change
    
    
    
    
    
    
    % ChangeOperating Loss from Home Services
Operations
    
    $
    (15.8
    )
    
    
    587.0
    %
    
    $
    (2.3
    )
    
    
    (76.0
    %)Operating Earnings from Investment
Real Estate Operations
    
    
    21.4
    
    
    
    (52.2
    %)
    
    
    44.8
    
    
    
    31.8
    %Corporate General and Administrative
Expenses
    
    
    (82.9
    )
    
    
    (21.4
    %)
    
    
    (105.5
    )
    
    
    75.0
    %Interest Expense
    
    
    (22.2
    )
    
    
    (44.4
    %)
    
    
    (39.9
    )
    
    
    (33.8
    %)Operating Loss
    
    $
    (99.5
    )
    
    
    (3.3
    %)
    
    $
    (102.9
    )
    
    
    6.3
    %
 The increase in our home services divisions operating loss in the year ended March 31, 2005
is primarily due to an increase in marketing expenses resulting from expansion and growth of our
home services operations in the homebuilder customer market, coupled with incremental commissions
paid on new sales growth. In addition, in the fourth quarter of fiscal year 2005, we took a charge
of $10.0 million to notes receivable received in connection with the sale of our security
monitoring center in fiscal year 2004. The fluctuations in our investment real estate divisions
operating earnings were primarily related to the timing of property sales. Corporate general and administrative expenses represent corporate employee compensation and
other corporate costs such as investor communications, insurance, rent and professional services.
The decrease in corporate general and administrative expenses in fiscal year 2005 is primarily
related to $16 million in incremental executive compensation costs recorded in the prior year for
the retirement of an executive officer. For the year ended March 31, 2005 and 2004, interest costs include interest expense of $22.2
million and $39.9 million, respectively, and previously capitalized interest included in Home
Buildings costs and expenses of $137.0 million and $89.1 million, respectively. Total interest
costs, excluding Financial Services interest expense, were $159.2 million and $129.0 million for
the year ended March 31, 2005 and 2004, respectively. See Note (A), Significant Accounting
Policies, of the Notes to Consolidated Financial Statements of this Report for further information
on interest costs. The increase in total interest costs is primarily related to an increase in
average debt outstanding for the year ended March 31, 2005 as compared to the prior year. Our effective tax rate related to continuing operations increased to approximately 36% in the
year ended March 31, 2005 from 32% in fiscal 2004, primarily due to the reduction in the
availability of tax benefits related to the Companys net operating loss carryforwards in fiscal
2005 as compared to the prior year. See Note (L), Income Taxes, of the Notes to Consolidated
Financial Statements of this Report for further information on income taxes. 35




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##### Table of Contents



DISCONTINUED OPERATIONS In June 2003, we spun off tax-free to our stockholders substantially all of our manufactured
housing operations, and in January 2004, we spun off tax-free to our stockholders our entire equity
interest in Construction Products. As a result of the spin-offs, the earnings from these
operations for fiscal 2004 and all periods prior to the spin-offs have been reclassified to
discontinued operations in the Statements of Consolidated Earnings. For the year ended March 31, 2004, discontinued operations had revenues of $461.9 million, and
operating earnings of $49.9 million. 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
 Domestic 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
    %
 36




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##### Table of Contents



The following summarizes changes in performance indicators for the year ended March 31, 2004
as compared to the prior year. The 7.5% growth in neighborhoods achieved in fiscal 2004 was down slightly from the prior
years growth of 9.5%. During the fiscal year 2004, 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. 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. 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. 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. 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 transactions, and $20.4 million for the fiscal year ended March 31, 2003. 37




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##### Table of Contents



FINANCIAL SERVICES 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
    %
 Prime Mortgage Lending The following summarizes the results of our prime mortgage lending operations, which are
conducted by CTX Mortgage Company, LLC and its related companies, for the 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
    
    $
    1,325.4
    
    
    
    567.4
    %
    
    $
    198.6
    
    
    
    (18.5
    %)Average Yield
    
    
    5.72
    %
    
    NM
    
    
    7.18
    %
    
    NMAverage Interest Bearing Liabilities
    
    $
    1,246.2
    
    
    
    841.2
    %
    
    $
    132.4
    
    
    
    (37.3
    %)Average Rate Paid
    
    
    1.95
    %
    
    NM
    
    
    4.08
    %
    
    NM
 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, 38




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##### Table of Contents



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 $13.11 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 $245.9 million and $192.4 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. 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 table below provides a comparative analysis of
mortgage loan originations and applications for the two-year period ended March 31, 2004. CTX
Mortgage Company, LLC tracks loan applications until such time as the loan application is canceled.
Application data presented below includes loans originated in the period and loans scheduled to
close in the subsequent periods. Applications canceled were 20,590 and 18,070 for the fiscal years
ended March 31, 2004 and 2003. 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
    
    $
    1,876
    
    
    
    39.0
    %
    
    $
    1,350
    
    
    
    18.7
    %
 The increase in loan originations is primarily reflective of an increase related to loans
originated for Home Buildings customers. CTX Mortgage Company, LLC originated 74% of the non-cash
unit closings of Home Buildings customers, 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. 39




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##### Table of Contents



Sub-Prime Home Equity Lending The following summarizes the results of our sub-prime home equity lending operations for the
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
 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 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
    %
 40




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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, 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
    %
 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 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 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
    
    $
    1,823.2
    
    
    
    112.7
    %
    
    $
    857.0
    
    
    
    (41.1
    %)Backlog of Uncompleted Contracts
    
    $
    1,746.4
    
    
    
    14.9
    %
    
    $
    1,519.5
    
    
    
    (30.3
    %)
 Operating earnings for Construction Services decreased as a result of increased pricing
pressure, which in turn has reduced Construction Services operating margins. In addition, in
fiscal 2004, Construction Services 41




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##### Table of Contents



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 share by
focusing on key geographic markets and certain industry markets. 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. OTHER Our Other segment includes our home services operations, investment real estate operations,
corporate general and administrative expense and interest expense. In June 2003, we spun off
tax-free 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. As described in Item 1. Business, the Company acquired Holding and the Partnership in
February 2004. Subsequent to the merger, the Company has consolidated the financial results of the
Partnership. As a result, the Company has realigned its reporting for the Partnership, such that
the Partnerships international homebuilding operations are included in the Home Building business
segment. The Partnerships domestic operations continue to be reported within our investment real
estate operations. The Company has determined that no significant capital will be allocated to our
investment real estate operations for new business development. Beginning April 1, 2004, the
financial results of our investment real estate operations are included in the Other business
segment. Prior period amounts have been reclassified to conform to the current year presentation. Other consisted of the following (dollars in millions): For the Years Ended March 31,2004
    
    2003% Change
    
    
    
    
    
    
    % ChangeOperating Loss from Home Services
Operations
    
    $
    (2.3
    )
    
    
    (76.0
    %)
    
    $
    (9.6
    )
    
    
    (340.0
    %)Operating Earnings from Investment
Real Estate Operations
    
    
    44.8
    
    
    
    31.8
    %
    
    
    34.0
    
    
    
    (5.0
    %)Corporate General and Administrative
Expense
    
    
    (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
    
    $
    (102.9
    )
    
    
    6.3
    %
    
    $
    (96.8
    )
    
    
    39.1
    %
 The decrease in our home services divisions operating loss in fiscal 2004 was 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. The changes in operating earnings of our investment real estate operations 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 year ended March 31, 2003. The
timing of sales is uncertain and can vary significantly from period to period. 42




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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 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. DISCONTINUED OPERATIONS In June 2003, we spun off tax-free to our stockholders substantially all of our manufactured
housing operations, and in January 2004, we spun off tax-free 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, 2005 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. 43




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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 ended March 31, 2005, 2004 and 2003 is summarized below (dollars in
thousands). See Statements of Consolidated Cash Flows with Consolidating Details of this Report
for the detail supporting this summary. For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Net Cash (Used in) Provided byCentex*Operating Activities
    
    $
    (596,198
    )
    
    $
    (347,219
    )
    
    $
    (54,859
    )Investing Activities
    
    
    39,375
    
    
    
    (33,361
    )
    
    
    31,127Financing Activities
    
    
    891,926
    
    
    
    99,381
    
    
    
    281,645Effect of Exchange Rate on Cash
    
    
    (5,385
    )
    
    
    692
    
    
    
    329,718
    
    
    
    (280,507
    )
    
    
    257,913Financial ServicesOperating Activities
    
    
    150,201
    
    
    
    1,090,135
    
    
    
    (39,443
    )Investing Activities
    
    
    (1,526,148
    )
    
    
    (1,931,321
    )
    
    
    (1,412,615
    )Financing Activities
    
    
    1,369,956
    
    
    
    844,373
    
    
    
    1,440,015(5,991
    )
    
    
    3,187
    
    
    
    (12,043
    )Centex Corporation and SubsidiariesOperating Activities
    
    
    (458,268
    )
    
    
    675,227
    
    
    
    (3,579
    )Investing Activities
    
    
    (1,523,502
    )
    
    
    (1,896,493
    )
    
    
    (1,545,988
    )Financing Activities
    
    
    2,310,882
    
    
    
    943,254
    
    
    
    1,795,437Effect of Exchange Rate on Cash
    
    
    (5,385
    )
    
    
    692
    
    
    
    Net Increase (Decrease) in Cash
    
    $
    323,727
    
    
    $
    (277,320
    )
    
    $
    245,870
 * 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 the issuance of senior debt. Centexs
operating cash is derived primarily through home and land sales from our Home Building segment and
general contracting fees obtained through our Construction Services segment. During fiscal 2005,
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 July 1, 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-cash transaction.
As these mortgage loans were sold in the secondary market, an inflow of cash from operating
activities occurred. During fiscal 2005, 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 44




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##### Table of Contents



Statements 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 for contractual obligations as of March 31, 2005 (in thousands)
are illustrated in the following table: Payments Due by PeriodLess Than
    
    
    1 - 3
    
    
    3 - 5
    
    
    More Than1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years
    
    
    TotalCentexLong-term Debt (1)
    
    $
    517,754
    
    
    $
    1,259,721
    
    
    $
    460,233
    
    
    $
    1,865,899
    
    
    $
    4,103,607Capital Leases
    
    
    628
    
    
    
    505
    
    
    
    47
    
    
    
    
    
    
    
    1,180Operating Leases
    
    
    41,285
    
    
    
    74,534
    
    
    
    58,563
    
    
    
    51,225
    
    
    
    225,607Purchase Obligations
    
    
    42,055
    
    
    
    5,875
    
    
    
    76
    
    
    
    
    
    
    
    48,006601,722
    
    
    
    1,340,635
    
    
    
    518,919
    
    
    
    1,917,124
    
    
    
    4,378,400Financial ServicesLong-term Debt (2)
    
    
    2,945,787
    
    
    
    3,577,024
    
    
    
    924,595
    
    
    
    342,188
    
    
    
    7,789,594Operating Leases
    
    
    22,709
    
    
    
    32,341
    
    
    
    16,868
    
    
    
    14,001
    
    
    
    85,9192,968,496
    
    
    
    3,609,365
    
    
    
    941,463
    
    
    
    356,189
    
    
    
    7,875,513$
    3,570,218
    
    
    $
    4,950,000
    
    
    $
    1,460,382
    
    
    $
    2,273,313
    
    
    $
    12,253,913
  (1)
    The amount of debt subject to a variable interest rate is $459.4 million, of which $298.0
million was based on the U.S. 3 month Libor rate of 3.12% at March 31, 2005, $22.4 million was
based on the U.S. 1 month Libor rate of 2.87% at March 31, 2005 and $139.0 million was based
on the U.K. 3 month Libor rate of 4.98% at March 31, 2005.(2)
    The amount of debt subject to a variable interest rate is $4.39 billion. The basis of the
rate is U.S. 1 month Libor which was 2.87% at March 31, 2005. As outlined above, our primary contractual obligations are principal and interest
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 the size of our commercial paper program. 45




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Our existing credit facilities and available capacity as of March 31, 2005 are summarized
below (dollars in thousands): Existing Credit
    
    
    AvailableFacilities
    
    
    CapacityCentexCentex CorporationMulti-Bank Revolving Credit Facility
    
    $
    800,000
    
    
    $
    800,000
    (1)Multi-Bank Revolving Letter of Credit Facility
    
    
    300,000
    
    
    
    71,391
    (2)1,100,000
    
    
    
    871,391
    (3)International HomebuildingMulti-Bank Revolving Credit Facility
    
    
    319,430
    
    
    
    180,384Bonding Facility
    
    
    14,093
    
    
    
    14,093333,523
    
    
    
    194,477
    (4)Financial ServicesSecured Credit Facilities
    
    
    515,000
    
    
    
    324,221
    (5)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,494,000Harwood Street Funding II, LLC Facility
    
    
    2,500,000
    
    
    
    1,574,2296,015,000
    
    
    
    3,392,450$
    7,448,523
    
    
    $
    4,458,318
    (6)
  (1)
    This is an unsecured, committed, multi-bank revolving credit facility, maturing in July
2007, which serves as backup for commercial paper borrowings. As of March 31, 2005, 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 an unsecured, committed, multi-bank revolving letter of credit facility, maturing in
July 2005. Letters of credit under this facility may expire no later than July 2006.(3)
    In conjunction with the issuance of surety bonds in support of our Construction Services
activity, Centex Corporation will provide letters of credit of up to $100 million if Centex
Corporations public debt ratings fall below investment grade. In support of this ratings
trigger, we maintain a minimum of $100 million in unused committed credit at all times.(4)
    The international homebuilding operations maintain a £170 ($319) million unsecured,
committed, multi-bank revolving credit facility, maturing in February 2008, and a £7.5 ($14)
million unsecured, uncommitted bonding facility, each of which is guaranteed by Centex
Corporation.(5)
    CTX Mortgage Company, LLC and its related companies and Home Equity share in a $250 million
secured, committed credit facility to finance mortgage inventory. CTX Mortgage Company, LLC
and its related companies also maintain $265 million of secured, committed mortgage warehouse
facilities to finance mortgages. In April 2005, Home Equity completed a transaction which
will permit it to securitize its mortgage servicer advances in an amount up to $100 million
with a final maturity of May 2011. This facility has no recourse to Centex Corporation.(6)
    The amount of available capacity consists of $4,444.2 million of committed capacity and $14.1
million of uncommitted capacity as of March 31, 2005. Although we believe that the
uncommitted capacity is currently available, there can be no assurance that the lenders under
these facilities would elect to make advances if and when requested to do so. CTX Mortgage Company, LLC finances its inventory of mortgage loans held for sale
principally through the sale of loans to HSF-I. HSF-I acquires mortgage loans from CTX Mortgage
Company, LLC, holds them on average approximately 60 days and then resells them into the secondary
market. HSF-I obtains the funds needed to purchase eligible mortgage loans from CTX Mortgage
Company, LLC by issuing (1) short-term secured liquidity notes, (2) medium-term debt and (3)
subordinated certificates. As of March 31, 2005, HSF-I had outstanding (1) short-term secured
liquidity notes rated A1+ by Standard & Poors, or S&P, and P-1 by Moodys Investors Service, or
Moodys, (2) term notes rated A1+ by S&P and P-1 by Moodys and (3) 46




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subordinated certificates maturing in September 2009, extendable for up to five years, rated
BBB by S&P and Baa2 by Moodys. The purpose of this arrangement is to allow CTX Mortgage Company,
LLC to reduce the cost of financing the mortgage loans originated by it and to improve its
liquidity. Because HSF-I is a consolidated entity, the debt, interest income and interest expense
of HSF-I are reflected in the financial statements of Financial Services. Home Equity finances its inventory of mortgage loans held for investment principally through
Harwood Street Funding II, or HSF-II, a wholly-owned, consolidated entity, under a revolving sales
agreement that expires upon final payment of the senior and subordinated debt issued by HSF-II.
This arrangement, where HSF-II has committed to finance all eligible loans, gives Home Equity daily
access to HSF-IIs capacity of $2.5 billion. HSF-II obtains funds by issuing (1) short-term
secured liquidity notes, (2) medium-term debt and (3) subordinated notes. As of March 31, 2005,
HSF-II had outstanding (1) short-term secured liquidity notes rated A1+ by S&P, P-1 by Moodys and
F1+ by Fitch Ratings, or Fitch and (2) subordinated notes rated BBB by S&P, Baa2 by Moodys, and
BBB by Fitch. Because HSF-II is a consolidated entity, the debt, interest income and interest
expense of HSF-II are reflected in the financial statements of Financial Services. Under our debt covenants, we are required to maintain certain leverage and interest coverage
ratios and a minimum tangible net worth. At March 31, 2005, we were in compliance with all of
these covenants. As of March 31, 2005, our short-term debt was $2.48 billion, most of which was applicable to
Financial Services. Certain of Centexs short-term borrowings vary on a seasonal basis and are
generally financed at prevailing market interest rates under our commercial paper program. Our outstanding debt (in thousands) as of March 31, 2005 was as follows (due dates are
presented in fiscal years): CentexShort-term Debt:Short-term Note Payable
    
    $
    7,870Senior Debt:Medium-term Note Programs, weighted-average 4.59%, due through 2008
    
    
    398,000Senior Notes, weighted-average 6.32%, due through 2015
    
    
    2,458,547Other Indebtedness, weighted-average 5.53%, due through 2015
    
    
    182,716Subordinated Debt:Subordinated Debentures, 8.75%, due in 2007
    
    
    99,838Subordinated Debentures, 7.38%, due in 2006
    
    
    99,9923,246,963Financial ServicesShort-term Debt:Short-term Notes Payable
    
    
    190,779Harwood Street Funding I, LLC Term Notes
    
    
    250,000Harwood Street Funding I and II, LLC Secured Liquidity Notes
    
    
    2,027,097Home Equity Asset-Backed Certificates, weighted-average 3.63%, due
through 2035
    
    
    7,099,520Harwood Street Funding I, LLC Variable-Rate Subordinated Extendable
Certificates, weighted-average 4.87%, due through 2010
    
    
    60,000Harwood Street Funding II, LLC Variable-Rate Subordinated Notes,
weighted-average 5.02%, due through 2009
    
    
    93,7509,721,146Total
    
    $
    12,968,109
 47




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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 equity interest. These land
related activities typically require substantial capital, and partnering with other developers
allows Home Building to share the risks and rewards of ownership while providing for efficient
asset utilization. Our investment in these non-consolidated joint ventures was $163.9 million and
$140.1 million at March 31, 2005 and 2004, respectively. These joint ventures had total
outstanding secured land acquisition and development debt of approximately $426.3 million and
$202.2 million at March 31, 2005 and 2004, respectively. We are liable, on a contingent basis,
through limited guarantees, letters of credit or other arrangements, with respect to a portion of
the secured land acquisition and development debt of certain of the joint ventures, which we refer
to as the recourse joint ventures. Our maximum potential liability with respect to the debt of the
recourse joint ventures, based on our ownership percentage of the recourse joint ventures, is
approximately $160.1 million and $73.2 million at March 31, 2005 and March 31, 2004, respectively.
For certain of the joint ventures, we have also guaranteed the completion of the project by the
joint ventures and agreed to indemnify the construction lender for certain environmental
liabilities with respect to the project. For a discussion of the impact of new accounting
pronouncements on our accounting for transactions with non-consolidated joint ventures, see Recent
Accounting Pronouncements 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. Our critical accounting
estimates have been discussed with members of the Audit Committee. 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 long-lived assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. No significant impairments of long-lived assets were recorded in fiscal 2005, 2004 or
2003. 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 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, 48




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##### Table of Contents



Goodwill and Other Intangible Assets, or SFAS No. 142, effective April 1, 2001. Upon the
adoption of SFAS No. 142, goodwill is no longer subject to amortization. Rather, goodwill will be
subject to at least an annual assessment for impairment (conducted as of January 1), at the
reporting unit level, by applying a fair value-based test. If the carrying amount exceeds the fair
value, an impairment has occurred. We continually evaluate whether events and circumstances have
occurred that indicate the remaining balance of goodwill may not be recoverable. Fair value is
estimated using a discounted cash flow or market valuation approach. Such evaluations for
impairment are significantly impacted by estimates of future revenues, costs and expenses and other
factors. If the goodwill is considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the goodwill exceeds the fair value. We had no
impairment of goodwill in fiscal 2005, 2004 or 2003. Inventory Valuation 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. Home construction costs are accumulated on a specific identification basis. Under the
specific identification basis, costs and expenses includes the specific construction costs of each
home and all applicable land acquisition, land development and related costs. Construction costs
for homes closed includes amounts paid through the closing date of the home, plus an accrual for
costs incurred but not yet paid, based on an analysis of budgeted construction costs. Land
acquisition and development costs are estimated based on the total costs expected in a project.
Any changes to the estimated total development costs identified subsequent to the initial home
closings in a project are generally allocated to the remaining homes in the project. Land held for development and sale includes the cost of land purchased for development,
deposits for land purchases and related acquisition costs. A liability has been established based
on our historical experience, to anticipate that some of the amounts capitalized as land and land
development cost will not ultimately be acquired. When it is probable that the land will not be
acquired, the deposit and related acquisition costs are charged to the liability. 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 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. 49




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##### Table of Contents



For purposes of consolidation, to the extent financial statements are available, the Company
consolidates the assets and liabilities of the variable interest entity. If financial statements
for the variable interest entity are not available, the Company records the remaining purchase
price of land in the Consolidated Balance Sheets under the caption, land held under option
agreements not owned, with a corresponding increase in minority interests. Lot option deposits
related to these options are also reclassified to land held under option agreements not owned. To
the extent we do not exercise our option to purchase such land, the amount of the lot option
deposit and any letters of credit represent our maximum exposure to loss. See Note (I), Land Held Under Option Agreements Not Owned and Other Land Deposits, of the
Notes to Consolidated Financial Statements of this Report for further discussion on the results of
our analysis of lot option agreements. Valuation of Residential Mortgage Loans Held for Investment Home Equity originates and purchases loans in accordance with standard underwriting criteria.
The underwriting standards are primarily intended to assess the creditworthiness of the mortgagee,
the value of the mortgaged property and the adequacy of the property as collateral for the home
equity loan. Home Equity establishes an allowance for losses by recording a provision for losses in the
statement of consolidated earnings when it believes a loss has occurred. When Home Equity
determines that a residential mortgage loan held for investment is partially or fully
uncollectible, the estimated loss is charged against the allowance for losses. Recoveries on
losses previously charged to the allowance are credited to the allowance at the time the recovery
is collected. We evaluate the allowance on an aggregate basis considering, among other things, the
relationship of the allowance to the amount of 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
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 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 of this Report
for a discussion of the sensitivity of the MSRI to changes in the assumptions. 50




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Loan Origination Reserve CTX Mortgage Company, LLC has established a liability for anticipated losses associated with
loans originated based upon, among other factors, historical loss rates and current trends in loan
originations. This liability includes losses associated with certain borrower payment defaults,
credit quality issues, or misrepresentation and reflects managements judgment of the loss exposure
at the end of the reporting period. Although we consider the loan origination reserve reflected in our consolidated balance sheet
at March 31, 2005 to be adequate, there can be no assurance that this reserve will prove to be
sufficient over time to cover ultimate losses in connection with our loan originations. This
reserve may prove to be inadequate due to unanticipated adverse changes in the economy or discrete
events adversely affecting specific customers or industries. Warranty Accruals Home Building offers a ten-year limited warranty for most homes constructed and sold in the
United States and in the United Kingdom. The warranty covers defects in materials or workmanship
in the first two years of the home and certain designated components or structural elements of the
home in the third through tenth years. In California, effective January 1, 2003, Home Building
began following the statutory provisions of Senate Bill 800, which in part 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. 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. We periodically assess the
adequacy of our insurance accruals and adjust the amounts as necessary. Although we consider the
insurance accruals reflected in our consolidated balance sheet to be adequate, there can be no
assurance that this accrual will prove to be sufficient over time to cover ultimate losses. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued a revision to SFAS No. 123 entitled Share-Based Payment,
or SFAS 123R. Share-based payments are transactions in which an enterprise receives employee
services in exchange for (1) equity instruments of the enterprise or (2) liabilities that are based
on the fair value of the enterprises equity instruments or that may be settled by the issuance of
such equity instruments. SFAS 123R requires companies to recognize in the income statement the
grant-date fair value of stock options and other equity-based compensation issued to employees, but
expresses no preference for a type of valuation model. SFAS 123R supersedes APB No. 25 and is
effective for annual periods beginning after June 15, 2005. SFAS 123R is not expected to have a
material impact on the Companys results of operations or financial position. In December 2004, the FASB issued Staff Position 109-1, or FSP 109-1, Application of FASB
Statement No. 109, or FASB No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004. FSP 109-1
clarifies guidance that applies to the new deduction for qualified domestic production activities.
When fully phased-in, the deduction 51




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will be up to 9% of the lesser of qualified production activities income or taxable income.
FSP 109-1 clarifies that the deduction should be accounted for as a special deduction under FASB
No. 109 and will reduce tax expense in the period or periods during which the amounts are
deductible on the tax return. Although this provision does not impact the fiscal year 2005
financial statements, the Company believes the new deduction for qualified domestic production
activities will likely result in a benefit to the Companys financial statements in future periods.
The Company is currently quantifying the potential benefit of this provision.   SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 Various sections of this Report, including Business and Managements Discussion and Analysis
of Financial Condition and Results of Operations contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the context of the statement and generally arise when we are discussing our beliefs,
estimates or expectations. Generally, the words believe, expect, intend, estimate,
anticipate, project, will and similar expressions identify forward-looking statements,
including statements relating to expected operating and performance results, plans and objectives
of management, future developments in the industries in which we participate and other trends,
developments and uncertainties that may affect our business in the future. These statements are
not historical facts or guarantees of future performance but instead represent only our belief at
the time the statements were made regarding future events, which are subject to significant risks,
uncertainties, and other factors, many of which are outside of the Companys control. Actual
results and outcomes may differ materially from what we express or forecast in these
forward-looking statements. All forward-looking statements made in this Report are made as of the
date hereof, and the risk that actual results will differ materially from expectations expressed in
this Report will increase with the passage of time. We undertake no commitment, and disclaim any
duty, to update or revise any forward-looking statement to reflect future events or changes in our
expectations. 
 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, on mortgage loans receivable, residual interest in mortgage securitizations and
securitizations classified as debt. The following analysis provides a framework to understand our
sensitivity to hypothetical changes in interest rates as of March 31, 2005. We have utilized derivative instruments, including interest rate swaps, in conjunction with
our overall strategy to manage the outstanding debt that is subject to changes in interest rates.
As of March 31, 2005, we had interest rate swap agreements that in effect converted $2.68 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, through CTX Mortgage Company, LLC and its related companies, enters into
interest rate lock commitments, or 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. Subsequent changes in the fair value of the IRLCs are recorded as an
adjustment to earnings. To hedge the interest rate risk related to its IRLCs, CTX Mortgage
Company, LLC and its related companies execute mandatory forward trade commitments, or forward
trade commitments. These forward trade commitments are not designated as hedges, 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. 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 52




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and Jumbo A mortgages have been sold to HSF-I at or near the date on which the loans were
funded. 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. 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. 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 economic hedge against changes in
market value of both IRLCs and mortgage loans held for sale that result from changes in interest
rates. 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. 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 $2.68 billion balance stated above that, in effect, fix
the interest rate on its variable interest rate debt. As of March 31, 2005, our total MSRI was $70.1 million, which consists of $68.1 million
remaining on loans securitized from October 1997 to March 2000 accounted for as gain on sale, $0.5
million related to an acquisition in fiscal 2002, and $1.5 million related to loans sold in fiscal
year 2004 to a government sponsored enterprise that we continue to service. 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 $343.2 million as of March 31, 2005. We use 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, 2005, short-term debt was $2.48 billion, most 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 2008, all of which bear interest at prevailing market rates. The
weighted-average interest rate on short-term borrowings outstanding at March 31, 2005 was 2.94%. 53




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The maturities of Centexs long-term debt outstanding at March 31, 2005 were as follows: Maturities through March 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueCentex (1)Fixed-Rate Debt
    
    $
    301,814
    
    
    $
    203,872
    
    
    $
    336,505
    
    
    $
    1,246
    
    
    $
    226,264
    
    
    $
    1,710,013
    
    
    $
    2,779,714
    
    
    $
    2,876,580Average Interest Rate
    
    
    8.94
    %
    
    
    8.01
    %
    
    
    4.84
    %
    
    
    7.78
    %
    
    
    5.81
    %
    
    
    6.29
    %
    
    
    6.49
    %Variable-Rate Hedged Debt (2)
    
    $
    25,000
    
    
    $
    
    
    
    $
    93,950
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    118,950
    
    
    $
    119,080Average Interest Rate
    
    
    7.99
    %
    
    
    
    
    
    
    4.52
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.24
    %Variable-Rate Debt
    
    $
    15,000
    
    
    $
    88,000
    
    
    $
    237,429
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    340,429
    
    
    $
    343,249Average Interest Rate
    
    
    4.52
    %
    
    
    4.75
    %
    
    
    3.55
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.91
    %
  (1)
    We define Centex as a supplemental presentation that reflects the Financial Services segment
as if accounted for under the equity method.(2)
    These variable-rate notes are in effect fixed-rate instruments as a result of a hedge using
interest rate swaps. The maturities of Centexs long-term debt outstanding at March 31, 2004 were as follows: Maturities through March 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueCentex (1)Fixed-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-Rate Hedged Debt (2)
    
    $
    
    
    
    $
    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)
    We define Centex as a supplemental presentation that reflects the Financial Services
segment as if accounted for under the equity method.(2)
    These variable-rate notes in effect are fixed-rate instruments as a result of a hedge using
interest rate swaps. The estimated maturities or repricing of Financial Services long-term debt outstanding
at March 31, 2005 were as follows: Maturities through March 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueFinancial Services (1)Fixed-Rate Debt
    
    $
    1,125,978
    
    
    $
    910,449
    
    
    $
    395,094
    
    
    $
    62,458
    
    
    $
    194,371
    
    
    $
    177,523
    
    
    $
    2,865,873
    
    
    $
    2,852,262Average Interest Rate
    
    
    5.13
    %
    
    
    4.71
    %
    
    
    4.96
    %
    
    
    5.12
    %
    
    
    5.18
    %
    
    
    5.10
    %
    
    
    5.01
    %Variable-Rate Debt
    
    $
    1,575,005
    
    
    $
    1,291,870
    
    
    $
    762,709
    
    
    $
    329,610
    
    
    $
    270,757
    
    
    $
    157,446
    
    
    $
    4,387,397
    
    
    $
    4,402,531Average Interest Rate
    
    
    3.51
    %
    
    
    3.66
    %
    
    
    3.64
    %
    
    
    3.54
    %
    
    
    3.83
    %
    
    
    3.42
    %
    
    
    3.59
    %
  (1)
    We define Financial Services as a supplemental presentation that reflects the Centex
Financial Services and its subsidiaries. The estimated maturities or repricing of Financial Services long-term debt outstanding
at March 31, 2004 were as follows: Maturities through March 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueFinancial Services (1)Fixed-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
    %
  (1)
    We define Financial Services as a supplemental presentation that reflects the Centex
Financial Services and its subsidiaries. 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 debt reflects estimated prepayments, which
were estimated based on the results of a prepayment model we utilize, and empirical data, and (2)
variable-rate debt is included in the period in which it is first 54




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scheduled to adjust and not in the period in which it matures. Variable-rate debt represents
our variable-rate debt which is hedged on a pooled basis. 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. 55




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Information
    
    PageConsolidated Revenues and Operating Earnings by Line of Business
    
    57Statements of Consolidated Earnings
    
    58Consolidated Balance Sheets with Consolidating Details
    
    59Statements of Consolidated Cash Flows with Consolidating Details
    
    61Statements of Consolidated Stockholders Equity
    
    63Notes to Consolidated Financial Statements
    
    65Managements Report on Internal Control Over Financial Reporting
    
    96Reports of Independent Registered Public Accounting Firm
    
    97Quarterly Results
    
    99
 56




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Centex Corporation and Subsidiaries
Consolidated Revenues and Operating Earnings by Line of Business(Dollars in thousands) For the Years Ended March 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001RevenuesHome Building
    
    $
    9,860,998
    
    
    $
    7,599,519
    
    
    $
    5,922,724
    
    
    $
    4,972,172
    
    
    $
    4,356,44677
    %
    
    
    74
    %
    
    
    71
    %
    
    
    70
    %
    
    
    71
    %Financial Services
    
    
    1,107,206
    
    
    
    1,047,905
    
    
    
    855,015
    
    
    
    699,760
    
    
    
    463,6469
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    8
    %Construction Services
    
    
    1,738,603
    
    
    
    1,596,335
    
    
    
    1,517,851
    
    
    
    1,296,024
    
    
    
    1,290,38213
    %
    
    
    15
    %
    
    
    18
    %
    
    
    18
    %
    
    
    21
    %Other
    
    
    152,888
    
    
    
    119,632
    
    
    
    133,115
    
    
    
    155,838
    
    
    
    28,1031
    %
    
    
    1
    %
    
    
    1
    %
    
    
    2
    %
    
    
    
    %$
    12,859,695
    
    
    $
    10,363,391
    
    
    $
    8,428,705
    
    
    $
    7,123,794
    
    
    $
    6,138,577100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Business Segment Operating Earnings
(1)Home Building
    
    $
    1,445,405
    
    
    $
    1,005,290
    
    
    $
    651,719
    
    
    $
    498,925
    
    
    $
    390,30186
    %
    
    
    78
    %
    
    
    75
    %
    
    
    72
    %
    
    
    79
    %Financial Services
    
    
    204,360
    
    
    
    230,301
    
    
    
    161,825
    
    
    
    114,733
    
    
    
    19,66712
    %
    
    
    18
    %
    
    
    18
    %
    
    
    17
    %
    
    
    4
    %Construction Services
    
    
    23,524
    
    
    
    16,413
    
    
    
    30,718
    
    
    
    36,225
    
    
    
    30,8861
    %
    
    
    1
    %
    
    
    4
    %
    
    
    5
    %
    
    
    6
    %Other
    
    
    5,566
    
    
    
    42,458
    
    
    
    23,703
    
    
    
    39,112
    
    
    
    54,9511
    %
    
    
    3
    %
    
    
    3
    %
    
    
    6
    %
    
    
    11
    %1,678,855
    
    
    
    1,294,462
    
    
    
    867,965
    
    
    
    688,995
    
    
    
    495,805100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Corporate General and Administrative
    
    
    82,877
    
    
    
    105,529
    
    
    
    60,289
    
    
    
    50,189
    
    
    
    36,924Interest Expense
    
    
    22,209
    
    
    
    39,869
    
    
    
    60,326
    
    
    
    58,576
    
    
    
    54,069Earnings from Continuing Operations
Before Income Taxes and Cumulative
Effect of a Change in Accounting
Principle
    
    $
    1,573,769
    
    
    $
    1,149,064
    
    
    $
    747,350
    
    
    $
    580,230
    
    
    $
    404,812
 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. 57




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Centex Corporation and Subsidiaries
Statements of Consolidated Earnings(Dollars in thousands, except per share data) For the Years Ended March 31,2005
    
    
    2004
    
    
    2003RevenuesHome Building
    
    $
    9,860,998
    
    
    $
    7,599,519
    
    
    $
    5,922,724Financial Services
    
    
    1,107,206
    
    
    
    1,047,905
    
    
    
    855,015Construction Services
    
    
    1,738,603
    
    
    
    1,596,335
    
    
    
    1,517,851Other
    
    
    152,888
    
    
    
    119,632
    
    
    
    133,11512,859,695
    
    
    
    10,363,391
    
    
    
    8,428,705Costs and ExpensesHome Building
    
    
    8,484,461
    
    
    
    6,649,495
    
    
    
    5,303,183Financial Services
    
    
    902,846
    
    
    
    817,604
    
    
    
    693,190Construction Services
    
    
    1,717,025
    
    
    
    1,582,036
    
    
    
    1,488,648Other
    
    
    147,322
    
    
    
    91,689
    
    
    
    122,584Corporate General and Administrative
    
    
    82,877
    
    
    
    105,529
    
    
    
    60,289Interest Expense
    
    
    22,209
    
    
    
    39,869
    
    
    
    60,32611,356,740
    
    
    
    9,286,222
    
    
    
    7,728,220Earnings from Unconsolidated Entities
    
    
    70,814
    
    
    
    71,895
    
    
    
    46,865Earnings from Continuing Operations Before Income Taxes
and Cumulative Effect of a Change in Accounting Principle
    
    
    1,573,769
    
    
    
    1,149,064
    
    
    
    747,350Income Taxes
    
    
    562,405
    
    
    
    371,933
    
    
    
    220,538Earnings from Continuing Operations Before Cumulative Effect
of a Change in Accounting Principle
    
    
    1,011,364
    
    
    
    777,131
    
    
    
    526,812Earnings from Discontinued Operations, net of Tax Provision
(Benefit) of $0, $(13,899)and $18,394
    
    
    
    
    
    
    63,815
    
    
    
    29,107Earnings Before Cumulative Effect of a Change in Accounting
Principle
    
    
    1,011,364
    
    
    
    840,946
    
    
    
    555,919Cumulative Effect of a Change in Accounting Principle, net of
Tax Benefit of $0, $8,303and $0
    
    
    
    
    
    
    (13,260
    )
    
    
    Net Earnings
    
    $
    1,011,364
    
    
    $
    827,686
    
    
    $
    555,919Basic Earnings Per ShareContinuing Operations
    
    $
    8.08
    
    
    $
    6.30
    
    
    $
    4.33Discontinued Operations
    
    
    
    
    
    
    0.52
    
    
    
    0.24Cumulative Effect of a Change in Accounting Principle
    
    
    
    
    
    
    (0.11
    )
    
    
    $
    8.08
    
    
    $
    6.71
    
    
    $
    4.57Diluted Earnings Per ShareContinuing Operations
    
    $
    7.64
    
    
    $
    6.01
    
    
    $
    4.18Discontinued Operations
    
    
    
    
    
    
    0.49
    
    
    
    0.23Cumulative Effect of a Change in Accounting Principle
    
    
    
    
    
    
    (0.10
    )
    
    
    $
    7.64
    
    
    $
    6.40
    
    
    $
    4.41Average Shares OutstandingBasic
    
    
    125,226,596
    
    
    
    123,382,068
    
    
    
    121,564,084Dilutive Securities:Options
    
    
    6,725,838
    
    
    
    5,754,689
    
    
    
    3,464,616Other
    
    
    445,527
    
    
    
    256,064
    
    
    
    1,087,612Diluted
    
    
    132,397,961
    
    
    
    129,392,821
    
    
    
    126,116,312Cash Dividends Per Share
    
    $
    .16
    
    
    $
    .10
    
    
    $
    .08
 See Notes to Consolidated Financial Statements. 58




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##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details(Dollars in thousands) Centex Corporation and SubsidiariesMarch 31,2005
    
    
    2004AssetsCash and Cash Equivalents
    
    $
    502,586
    
    
    $
    178,859Restricted Cash
    
    
    377,789
    
    
    
    310,304Receivables
Residential Mortgage Loans Held for Investment, net
    
    
    7,914,426
    
    
    
    6,498,155Residential Mortgage Loans Held for Sale
    
    
    1,775,324
    
    
    
    1,819,605Construction Contracts
    
    
    302,035
    
    
    
    312,552Trade, including Notes of $57,071 and $51,321
    
    
    494,609
    
    
    
    356,570Inventories  Housing Projects
    
    
    6,708,859
    
    
    
    4,897,036Land Held for Development and Sale
    
    
    363,521
    
    
    
    208,140Land Held Under Option Agreements Not Owned
    
    
    456,917
    
    
    
    362,405Other
    
    
    33,439
    
    
    
    94,224Investments  Joint Ventures and Other
    
    
    163,944
    
    
    
    140,118Unconsolidated Subsidiaries
    
    
    
    
    
    
    Property and Equipment, net
    
    
    162,305
    
    
    
    155,891Other Assets Deferred Income Taxes
    
    
    177,735
    
    
    
    176,564Goodwill
    
    
    253,163
    
    
    
    254,258Mortgage Securitization Residual Interest
    
    
    70,120
    
    
    
    89,374Deferred Charges and Other, net
    
    
    254,307
    
    
    
    233,399$
    20,011,079
    
    
    $
    16,087,454Liabilities and Stockholders EquityAccounts Payable
    
    $
    711,804
    
    
    $
    686,308Accrued Liabilities
    
    
    1,592,888
    
    
    
    1,294,490Debt Centex
    
    
    3,246,963
    
    
    
    2,418,190Financial Services
    
    
    9,721,146
    
    
    
    8,302,190Payables to (Receivables from) Affiliates
    
    
    
    
    
    
    Commitments and ContingenciesMinority Interests
    
    
    457,521
    
    
    
    336,051Stockholders Equity  Preferred Stock, Authorized 5,000,000 Shares, None Issued
    
    
    
    
    
    
    Common Stock, $.25 Par Value; Authorized 300,000,000
Shares;Outstanding 127,729,275 and 122,660,357 Shares
    
    
    33,327
    
    
    
    32,068Capital in Excess of Par Value
    
    
    407,995
    
    
    
    202,958Unamortized Value of Deferred Compensation
    
    
    (197
    )
    
    
    (411
    )Retained Earnings
    
    
    3,982,306
    
    
    
    2,990,889Treasury Stock, at Cost; 5,577,686 and 5,610,772 Shares
    
    
    (213,801
    )
    
    
    (212,822
    )Accumulated Other Comprehensive Income
    
    
    71,127
    
    
    
    37,543Total Stockholders Equity
    
    
    4,280,757
    
    
    
    3,050,225$
    20,011,079
    
    
    $
    16,087,454
 See Notes to Consolidated Financial Statements. 59




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##### Table of Contents



Centex Corporation and Subsidiaries
Consolidated Balance Sheets with Consolidating Details(Dollars in thousands) Centex*
    
    
    Financial ServicesMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004$
    490,308
    
    
    $
    160,590
    
    
    $
    12,278
    
    
    $
    18,26953,339
    
    
    
    50,440
    
    
    
    324,450
    
    
    
    259,864
    
    
    
    
    
    
    
    7,914,426
    
    
    
    6,498,155
    
    
    
    
    
    
    
    1,775,324
    
    
    
    1,819,605302,035
    
    
    
    312,552
    
    
    
    
    
    
    
    297,040
    
    
    
    178,829
    
    
    
    197,569
    
    
    
    177,7416,708,859
    
    
    
    4,897,036
    
    
    
    
    
    
    
    363,521
    
    
    
    208,140
    
    
    
    
    
    
    
    456,917
    
    
    
    362,405
    
    
    
    
    
    
    
    27,133
    
    
    
    85,284
    
    
    
    6,306
    
    
    
    8,940163,944
    
    
    
    140,118
    
    
    
    
    
    
    
    572,290
    
    
    
    531,941
    
    
    
    
    
    
    
    119,070
    
    
    
    114,524
    
    
    
    43,235
    
    
    
    41,367158,663
    
    
    
    85,871
    
    
    
    19,072
    
    
    
    90,693241,426
    
    
    
    237,656
    
    
    
    11,737
    
    
    
    16,602
    
    
    
    
    
    
    
    70,120
    
    
    
    89,374174,948
    
    
    
    171,534
    
    
    
    79,359
    
    
    
    61,865$
    10,129,493
    
    
    $
    7,536,920
    
    
    $
    10,453,876
    
    
    $
    9,082,475$
    690,628
    
    
    $
    668,807
    
    
    $
    21,176
    
    
    $
    17,5011,454,986
    
    
    
    1,065,182
    
    
    
    137,902
    
    
    
    229,3083,246,963
    
    
    
    2,418,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,721,146
    
    
    
    8,302,190
    
    
    
    
    
    
    
    (44,958
    )
    
    
    15,661456,159
    
    
    
    334,516
    
    
    
    1,362
    
    
    
    1,535
    
    
    
    
    
    
    
    
    
    
    
    33,327
    
    
    
    32,068
    
    
    
    1
    
    
    
    1407,995
    
    
    
    202,958
    
    
    
    275,467
    
    
    
    275,521(197
    )
    
    
    (411
    )
    
    
    
    
    
    
    3,982,306
    
    
    
    2,990,889
    
    
    
    333,568
    
    
    
    256,490(213,801
    )
    
    
    (212,822
    )
    
    
    
    
    
    
    71,127
    
    
    
    37,543
    
    
    
    8,212
    
    
    
    (15,732
    )4,280,757
    
    
    
    3,050,225
    
    
    
    617,248
    
    
    
    516,280$
    10,129,493
    
    
    $
    7,536,920
    
    
    $
    10,453,876
    
    
    $
    9,082,475
 * 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. 60




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##### 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 31,2005
    
    
    2004
    
    
    2003Cash Flows  Operating ActivitiesNet Earnings
    
    $
    1,011,364
    
    
    $
    827,686
    
    
    $
    555,919AdjustmentsCumulative Effect of a Change in Accounting Principle
    
    
    
    
    
    
    13,260
    
    
    
    Depreciation and Amortization
    
    
    58,259
    
    
    
    77,777
    
    
    
    112,403Stock-based Compensation
    
    
    49,100
    
    
    
    23,849
    
    
    
    810Provision for Losses on Residential Mortgage Loans Held for
Investment
    
    
    98,801
    
    
    
    79,503
    
    
    
    34,859Deferred Income Tax (Benefit) Provision
    
    
    (6,537
    )
    
    
    17,803
    
    
    
    23,687Equity in Earnings of Joint Ventures and
Centex Development Company, L.P.
    
    
    (55,994
    )
    
    
    (79,987
    )
    
    
    (42,672
    )Undistributed Earnings of Unconsolidated Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Minority Interest, net of Taxes
    
    
    (388
    )
    
    
    (8,252
    )
    
    
    20,201Changes in Assets and Liabilities, Excluding Effect of AcquisitionsIncrease in Restricted Cash
    
    
    (67,485
    )
    
    
    (130,686
    )
    
    
    (66,051
    )Increase in Receivables
    
    
    (121,375
    )
    
    
    (67,808
    )
    
    
    (96,427
    )Decrease (Increase) in Residential Mortgage Loans Held for Sale
    
    
    44,281
    
    
    
    927,151
    
    
    
    (61,535
    )Increase in Housing Projects and Land Held for Development
and Sale
    
    
    (1,928,261
    )
    
    
    (1,203,547
    )
    
    
    (734,666
    )Decrease (Increase) in Other Inventories
    
    
    47,837
    
    
    
    464
    
    
    
    (2,164
    )Increase (Decrease) in Accounts Payable and Accrued Liabilities
    
    
    411,033
    
    
    
    222,316
    
    
    
    236,083(Increase) Decrease in Other Assets, net
    
    
    (5,672
    )
    
    
    (27,606
    )
    
    
    2,232(Decrease) Increase in Payables to Affiliates
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    6,769
    
    
    
    3,304
    
    
    
    13,742(458,268
    )
    
    
    675,227
    
    
    
    (3,579
    )Cash Flows  Investing Activities(Issuance of) Payments received on Notes Receivable, net
    
    
    (15,750
    )
    
    
    13,231
    
    
    
    6,356Increase in Residential Mortgage Loans Held for Investment
    
    
    (1,515,072
    )
    
    
    (1,934,832
    )
    
    
    (1,398,235
    )Decrease in Investment and Advances to Joint Ventures and
Centex Development Company, L.P.
    
    
    47,433
    
    
    
    79,298
    
    
    
    52,792Decrease (Increase) in Investment and Advances to Unconsolidated
Subsidiaries
    
    
    
    
    
    
    
    
    
    
    Purchases of Property and Equipment, net
    
    
    (43,313
    )
    
    
    (53,758
    )
    
    
    (62,701
    )Other
    
    
    3,200
    
    
    
    (432
    )
    
    
    (144,200
    )(1,523,502
    )
    
    
    (1,896,493
    )
    
    
    (1,545,988
    )Cash Flows  Financing ActivitiesIncrease (Decrease) in Short-term Debt, net
    
    
    371,230
    
    
    
    (1,083,468
    )
    
    
    534,231CentexIssuance of Long-term Debt
    
    
    1,034,509
    
    
    
    404,998
    
    
    
    605,992Repayment of Long-term Debt
    
    
    (217,324
    )
    
    
    (164,073
    )
    
    
    (298,491
    )Financial ServicesIssuance of Long-term Debt
    
    
    3,764,701
    
    
    
    5,334,407
    
    
    
    1,999,374Repayment of Long-term Debt
    
    
    (2,709,105
    )
    
    
    (3,432,323
    )
    
    
    (1,013,186
    )Proceeds from Stock Option Exercises
    
    
    87,797
    
    
    
    65,099
    
    
    
    15,738Treasury Stock Transactions, net
    
    
    (979
    )
    
    
    (167,785
    )
    
    
    (38,478
    )Dividends Paid
    
    
    (19,947
    )
    
    
    (13,601
    )
    
    
    (9,743
    )2,310,882
    
    
    
    943,254
    
    
    
    1,795,437Effect of Exchange Rate on Cash
    
    
    (5,385
    )
    
    
    692
    
    
    
    Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    323,727
    
    
    
    (277,320
    )
    
    
    245,870Cash and Cash Equivalents at Beginning of Year
    
    
    178,859
    
    
    
    456,179
    
    
    
    210,309Cash and Cash Equivalents at End of Year
    
    $
    502,586
    
    
    $
    178,859
    
    
    $
    456,179
 See Notes to Consolidated Financial Statements. 61




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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 the Years Ended March 31,
    
    
    For the Years Ended March 31,2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003$
    1,011,364
    
    
    $
    827,686
    
    
    $
    555,919
    
    
    $
    126,078
    
    
    $
    132,845
    
    
    $
    152,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,260
    
    
    
    40,444
    
    
    
    60,426
    
    
    
    95,404
    
    
    
    17,815
    
    
    
    17,351
    
    
    
    16,99949,100
    
    
    
    23,849
    
    
    
    810
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,801
    
    
    
    79,503
    
    
    
    34,859(67,223
    )
    
    
    8,076
    
    
    
    23,687
    
    
    
    60,686
    
    
    
    9,727
    
    
    
    (2,430
    )(55,994
    )
    
    
    (79,987
    )
    
    
    (42,672
    )
    
    
    
    
    
    
    
    
    
    
    (77,078
    )
    
    
    (58,345
    )
    
    
    (77,970
    )
    
    
    
    
    
    
    
    
    
    
    (215
    )
    
    
    (8,051
    )
    
    
    20,201
    
    
    
    (173
    )
    
    
    (201
    )
    
    
    (2,899
    )
    
    
    (42,091
    )
    
    
    (3,589
    )
    
    
    (64,586
    )
    
    
    (88,595
    )
    
    
    (62,462
    )(101,871
    )
    
    
    (54,366
    )
    
    
    (44,726
    )
    
    
    (19,504
    )
    
    
    (13,442
    )
    
    
    (51,701
    )
    
    
    
    
    
    
    
    
    
    
    
    44,281
    
    
    
    927,151
    
    
    
    (61,535
    )(1,928,261
    )
    
    
    (1,203,547
    )
    
    
    (734,666
    )
    
    
    
    
    
    
    
    
    
    
    45,203
    
    
    
    958
    
    
    
    2,842
    
    
    
    2,634
    
    
    
    (494
    )
    
    
    (5,006
    )499,599
    
    
    
    218,949
    
    
    
    134,624
    
    
    
    (64,676
    )
    
    
    (12,022
    )
    
    
    91,584(18,367
    )
    
    
    (44,080
    )
    
    
    1,296
    
    
    
    12,695
    
    
    
    16,474
    
    
    
    3,397
    
    
    
    
    
    
    
    
    
    
    
    (60,619
    )
    
    
    8,578
    
    
    
    (155,879
    )10,000
    
    
    
    3,304
    
    
    
    13,981
    
    
    
    (3,231
    )
    
    
    
    
    
    
    (239
    )(596,198
    )
    
    
    (347,219
    )
    
    
    (54,859
    )
    
    
    150,201
    
    
    
    1,090,135
    
    
    
    (39,443
    )(15,426
    )
    
    
    12,897
    
    
    
    5,261
    
    
    
    (324
    )
    
    
    334
    
    
    
    1,095
    
    
    
    
    
    
    
    
    
    
    
    (1,515,072
    )
    
    
    (1,934,832
    )
    
    
    (1,398,235
    )47,433
    
    
    
    79,298
    
    
    
    52,761
    
    
    
    
    
    
    
    
    
    
    
    36,729
    
    
    
    (68,189
    )
    
    
    164,531
    
    
    
    
    
    
    
    
    
    
    
    (23,294
    )
    
    
    (38,935
    )
    
    
    (47,226
    )
    
    
    (20,019
    )
    
    
    (14,823
    )
    
    
    (15,475
    )(6,067
    )
    
    
    (18,432
    )
    
    
    (144,200
    )
    
    
    9,267
    
    
    
    18,000
    
    
    
    39,375
    
    
    
    (33,361
    )
    
    
    31,127
    
    
    
    (1,526,148
    )
    
    
    (1,931,321
    )
    
    
    (1,412,615
    )7,870
    
    
    
    (25,257
    )
    
    
    6,627
    
    
    
    363,360
    
    
    
    (1,058,211
    )
    
    
    527,6041,034,509
    
    
    
    404,998
    
    
    
    605,992
    
    
    
    
    
    
    
    
    
    
    
    (217,324
    )
    
    
    (164,073
    )
    
    
    (298,491
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,764,701
    
    
    
    5,334,407
    
    
    
    1,999,374
    
    
    
    
    
    
    
    
    
    
    
    (2,709,105
    )
    
    
    (3,432,323
    )
    
    
    (1,013,186
    )87,797
    
    
    
    65,099
    
    
    
    15,738
    
    
    
    
    
    
    
    
    
    
    
    (979
    )
    
    
    (167,785
    )
    
    
    (38,478
    )
    
    
    
    
    
    
    
    
    
    
    (19,947
    )
    
    
    (13,601
    )
    
    
    (9,743
    )
    
    
    (49,000
    )
    
    
    500
    
    
    
    (73,777
    )891,926
    
    
    
    99,381
    
    
    
    281,645
    
    
    
    1,369,956
    
    
    
    844,373
    
    
    
    1,440,015(5,385
    )
    
    
    692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,718
    
    
    
    (280,507
    )
    
    
    257,913
    
    
    
    (5,991
    )
    
    
    3,187
    
    
    
    (12,043
    )160,590
    
    
    
    441,097
    
    
    
    183,184
    
    
    
    18,269
    
    
    
    15,082
    
    
    
    27,125$
    490,308
    
    
    $
    160,590
    
    
    $
    441,097
    
    
    $
    12,278
    
    
    $
    18,269
    
    
    $
    15,082
 * 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. 62




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Centex Corporation and Subsidiaries
Statements of Consolidated Stockholders Equity(in thousands) UnamortizedCapital in
    
    
    Value ofCommon Stock
    
    
    Excess of
    
    
    DeferredShares
    
    
    Amount
    
    
    Par Value
    
    
    CompensationBalance, 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
    )Issuance and Amortization of Restricted Stock
    
    
    82
    
    
    
    20
    
    
    
    19,204
    
    
    
    214Stock Compensation
    
    
    
    
    
    
    
    
    
    
    29,662
    
    
    
    Exercise of Stock Options, Including Tax Benefits
    
    
    4,952
    
    
    
    1,239
    
    
    
    157,932
    
    
    
    Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Stock Transactions
    
    
    35
    
    
    
    
    
    
    
    (1,761
    )
    
    
    Net Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized Gain on Hedging Instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign Currency Translation Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive IncomeBalance, March 31, 2005
    
    
    127,729
    
    
    $
    33,327
    
    
    $
    407,995
    
    
    $
    (197
    )
 See Notes to Consolidated Financial Statements. 63




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Centex Corporation and Subsidiaries
Statements of Consolidated Stockholders Equity(in thousands) AccumulatedTreasury
    
    
    OtherRetained
    
    
    Stock
    
    
    ComprehensiveEarnings
    
    
    at Cost
    
    
    Income (Loss)
    
    
    Total$
    2,050,902
    
    
    $
    (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
    
    
    
    964871,2202,990,889
    
    
    
    (212,822
    )
    
    
    37,543
    
    
    
    3,050,225
    
    
    
    
    
    
    
    
    
    
    
    19,438
    
    
    
    
    
    
    
    
    
    
    
    29,662
    
    
    
    
    
    
    
    
    
    
    
    159,171(19,947
    )
    
    
    
    
    
    
    
    
    
    
    (19,947
    )
    
    
    
    (979
    )
    
    
    
    
    
    
    (2,740
    )1,011,364
    
    
    
    
    
    
    
    
    
    
    
    1,011,364
    
    
    
    
    
    
    
    24,615
    
    
    
    24,615
    
    
    
    
    
    
    
    8,969
    
    
    
    8,9691,044,948$
    3,982,306
    
    
    $
    (213,801
    )
    
    $
    71,127
    
    
    $
    4,280,757
 64




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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 flow 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.
Revenues from land sales are recognized when payments of at least 20% of the total purchase price
are received, the Company has no continuing obligations related to such land sold and the collection of
any remaining receivables is reasonably assured. 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, 2005 and 2004, residential mortgage loans, on which
revenue was not being accrued, were approximately $217.9 million and $210.5 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 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 $95.7 million and $103.2 million included 65




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in construction contracts receivable and $102.0 million and $101.4 million included in
accounts payable at March 31, 2005 and 2004, 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, 2005 and 2004 and
2003 (fiscal 2005, fiscal 2004 and fiscal 2003). For the Companys home services operations, revenue is recognized at the time the services are
rendered. For the Companys investment real estate operations, 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 of our investment real estate operations are deferred until such
improvements have been completed. 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 and unvested deferred stock
units under the long-term incentive plan. 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 following table provides information on anti-dilutive options excluded from the
computation of diluted earnings per share for the fiscal years ended March 31, 2005 and 2004 and
2003 (shares reflected in thousands). For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Average outstanding shares
    
    
    1,160
    
    
    
    1,089
    
    
    
    1,704Average option exercise price
    
    
    45.23
    
    
    
    35.49
    
    
    
    25.22
 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 restricted pursuant to insurance related regulatory
requirements, required cash balances for Harwood Street Funding I, LLC (HSF-I) and Harwood Street
Funding II, LLC (HSF-II) and other structured finance arrangements. Restricted cash also
includes customer deposits that are temporarily restricted in accordance with regulatory
requirements. Residential Mortgage Loans Residential mortgage loans held for investment represent mortgage loans originated by Centex
Home Equity Company, LLC and its related companies (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 66




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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 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 adequate 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 the amount of 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, 2005 to be adequate, 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 inadequate 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, 2005 are collectible primarily over five years with $29.5 million being due
within one year. The weighted-average interest rate on notes receivable at March 31, 2005 was
4.1%. 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. Home construction costs are accumulated on a specific identification basis. Under the
specific identification basis, costs and expenses includes the specific construction costs of each
home and all applicable land acquisition, land development and related costs. Construction costs
for homes closed include amounts paid 67




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through the closing date of the home, plus an accrual for costs incurred but not yet paid,
based on an analysis of budgeted construction costs. Land acquisition and development costs are
estimated based on the total costs expected in a project. Any changes to the estimated total
development costs identified subsequent to the initial home closings in a project are generally
allocated to the remaining homes in the project. Land held for development and sale includes the cost of land purchased for development,
deposits for land purchases and related acquisition costs. A liability has been established based
on our historical experience, to anticipate that some of the amounts capitalized as land and land
development cost will not ultimately be acquired. When it is probable that the land will not be
acquired, the deposit and related acquisition costs are charged to the liability. General operating expenses associated with each segment of business are expensed when incurred
and are included in the appropriate business segment. 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 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 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 we have
entered into lot option agreements, the variable interest entity is consolidated. For purposes of
consolidation, to the extent financial statements are available, the Company consolidates the
assets and liabilities of the variable interest entity. If financial statements for the variable
interest entity are not available, the Company records the remaining purchase price of land in the
Consolidated Balance Sheets under the caption, land held under option agreements not owned, with a
corresponding increase in minority interests. Lot option deposits related to these options are
also reclassified to land held under option agreements not owned. To the extent we do not exercise
our option to purchase such land, the amount of the lot option deposit and any letters of credit
represent our maximum exposure to loss. 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. 68




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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. 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. Leasehold improvements are depreciated over the life of the
respective lease. 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 long-lived assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. No significant impairments of long-lived assets were recorded in fiscal 2005, 2004 or
2003. Goodwill Goodwill represents the excess of purchase price over net assets of businesses acquired. We
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 (conducted as of January 1), at the reporting unit level, by applying a
fair value-based test. If the carrying amount exceeds the fair value, an impairment has occurred.
We continually evaluate whether events and circumstances have occurred that indicate the remaining
balance of goodwill may not be recoverable. Fair value is estimated using a discounted cash flow
or market valuation approach. Such evaluations for impairment are significantly impacted by
estimates of future revenues, costs and expenses and other factors. If the goodwill is considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the goodwill exceeds the fair value. The Company had no impairment of goodwill in fiscal
2005, 2004 or 2003. 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 69




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##### Table of Contents



legal and economic structure of securitizations subsequent to March 31, 2000, causing
securitizations after that date to be accounted for as secured borrowings. 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. Changes in Home Equitys MSRI were as follows: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Beginning Balance
    
    $
    89,374
    
    
    $
    108,102
    
    
    $
    125,272Cash Received
    
    
    (8,433
    )
    
    
    (11,256
    )
    
    
    (17,193
    )Accretion and Other, Net
    
    
    (10,821
    )
    
    
    (7,472
    )
    
    
    23Ending Balance
    
    $
    70,120
    
    
    $
    89,374
    
    
    $
    108,102
 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
estimated future credit losses and the discount rate applied to future cash flows. As a result of
the mature nature of the MSRI, anticipated prepayments (principal reductions in excess of
contractually scheduled reductions) do not have a significant impact on the determination of fair
value. Home Equity monitors the fair value of MSRI and the reasonableness of the underlying
assumptions in light of current market conditions. At March 31, 2005, Home Equity used the following assumptions in monitoring the fair value of
the MSRI: cumulative credit losses of 4.61% to 7.47% and a discount rate of 15% simple interest.
At March 31, 2005, the expected weighted-average life of Home Equitys MSRI balance was 1.22 years,
with individual transactions ranging from 0.08 years to 1.83 years. Home Equity had MSRI of $70.1 million and $89.4 million at March 31, 2005 and 2004,
respectively. The outstanding principal amount of the related securitized loans was $394.5 million
and $562.6 million at March 31, 2005 and 2004, respectively. Delinquencies related to MSRI were
$31.8 million and $37.1 million at March 31, 2005 and 2004, respectively. Net credit losses for
fiscal 2005, 2004 and 2003 were $23.9 million, $18.0 million and $22.4 million, respectively. At March 31, 2005, 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, 2005. Impact on fair value of an adverse changeAssumption
    
    10%
    
    
    20%Credit Losses
    
    $
    927
    
    
    $
    1,836Discount Rate
    
    $
    1,271
    
    
    $
    2,516
 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 70




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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 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. 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 2005, 2004 and 2003
were $108.6 million, $91.4 million and $78.6 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 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. The Company periodically assesses the
adequacy of its insurance accruals and adjusts the amounts as necessary. Although we consider the
insurance accruals reflected in our consolidated balance sheet to be adequate, there can be no
assurance that this accrual will prove to be sufficient over time to cover ultimate losses.
Expenses associated with insurance claims up to our deductible limits were $52.3 million, $42.7
million and $18.1 million for fiscal 2005, 2004 and 2003, respectively. As of March 31, 2005 and
2004, accrued insurance included in accrued liabilities in the accompanying Consolidated Balance
Sheets was $118.1 million and $91.7 million, respectively. Stock-Based Employee Compensation Arrangements On April 1, 2003, the Company adopted the fair value measurement provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123),
under which the Company recognizes compensation expense of a stock option award to an employee over
the vesting period based on the fair value of the award on the grant date. The fair value method
has been applied to awards granted or modified on or after April 1, 2003 (the prospective method).
Awards granted prior to such date continued to be accounted for in accordance with Accounting
Principles Board Opinion No. 25, 71




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##### Table of Contents



Accounting for Stock Issued to Employees (APB No. 25), and related interpretations, until
the modification of those awards described in the following paragraph. On January 30, 2004, the Company modified all of its outstanding stock options and long-term
incentive plan rights in order to keep the holders in the same economic position as before the
spin-off of Centex Construction Products, Inc. (Construction Products). This adjustment is a
modification, which resulted in a reduction of the option exercise price and an increase in the
number of shares covered by the options or long-term incentive plan rights, under the provisions of
SFAS No. 123 and accordingly, compensation expense of $12.2 million will be expensed over the
remaining vesting periods. The $12.2 million in compensation expense represents the unamortized
grant date Black-Scholes fair value of unvested options as of January 30, 2004. Subsequent to
January 30, 2004, the Company has no outstanding options or other stock rights accounted for under
the provisions of APB No. 25. In December 2004, the FASB issued a revision to SFAS No. 123. In May 2004, the Company granted approximately 1.8 million options to employees. The fair
value of these options is $31.3 million, as calculated under the Black-Scholes option-pricing
model, and is recognized as compensation expense over the vesting period. Compensation expense of
$10.3 million related to these stock options was recognized during fiscal 2005. Stock units
granted under the Companys long-term incentive plan and restricted stock are recognized as
compensation expense over the vesting period based on the fair market value of the Companys stock
on the date of grant. The 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
2005, 2004 and 2003, consistent with the provisions of SFAS No. 123. For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Net Earnings  as Reported
    
    $
    1,011,364
    
    
    $
    827,686
    
    
    $
    555,919Stock-Based Employee Compensation Included
in Reported Net Income, net of Related Tax Effects
    
    
    31,902
    
    
    
    19,727
    
    
    
    4,244Total Stock-Based Employee Compensation Expense
Determined Under Fair Value Based Method, net of
Related Tax Effects
    
    
    (31,902
    )
    
    
    (31,580
    )
    
    
    (24,512
    )Pro Forma Net Earnings
    
    $
    1,011,364
    
    
    $
    815,833
    
    
    $
    535,651Earnings Per Share:Basic  as Reported
    
    $
    8.08
    
    
    $
    6.71
    
    
    $
    4.57Basic  Pro Forma
    
    $
    8.08
    
    
    $
    6.61
    
    
    $
    4.41Diluted  as Reported
    
    $
    7.64
    
    
    $
    6.40
    
    
    $
    4.41Diluted  Pro Forma
    
    $
    7.64
    
    
    $
    6.29
    
    
    $
    4.25
 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. 72




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Interest Expense Interest expense relating to the Financial Services segment is included in Financial Services
costs and expenses. Home Building capitalizes a portion of interest incurred as a component of
housing projects inventory cost. Capitalized interest is included in Home Buildings costs and
expenses as related housing inventories are sold. Interest expense related to segments other than
Financial Services and Home Building is included as a separate line item on the Statements of
Consolidated Earnings. For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Total Interest Incurred
    
    $
    486,197
    
    
    $
    378,718
    
    
    $
    318,349Less  Interest Capitalized
    
    
    (180,003
    )
    
    
    (114,997
    )
    
    
    (73,572
    )Financial Services Interest Expense
    
    
    (283,985
    )
    
    
    (223,852
    )
    
    
    (184,451
    )Interest Expense, net
    
    $
    22,209
    
    
    $
    39,869
    
    
    $
    60,326Capitalized Interest Relieved to
Home Buildings Costs and Expenses
    
    $
    137,011
    
    
    $
    89,144
    
    
    $
    49,450
 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 31,2005
    
    
    2004
    
    
    2003Cash Paid for Interest
    
    $
    460,012
    
    
    $
    362,167
    
    
    $
    318,607Net Cash Paid for Taxes
    
    $
    366,411
    
    
    $
    356,853
    
    
    $
    204,368
 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, the cumulative effect of a change in
accounting principle recorded was $13.3 million, net of tax. As of July 1, 2003, assets and
liabilities consolidated were as follows: Cash and Cash Equivalents
    
    $
    18,000Residential Mortgage Loans Held for Sale
    
    
    2,443,428Other Assets
    
    
    (36,100
    )Accounts Payable
    
    
    20,910Financial Services Debt
    
    
    (2,459,498
    )Cumulative Effect of a Change in Accounting Principle
    
    $
    (13,260
    )
 As explained in Note (I), Land Held Under Option Agreements not Owned and Other Land
Deposits pursuant to the provisions of FIN 46, as of March 31, 2005 and 2004, the Company
consolidated $415.4 million and $332.7 million, respectively, of lot option agreements and recorded
$41.5 million and $29.7 million, respectively, of deposits related to these options as land held
under option agreements not owned. Recent Accounting Pronouncements In December 2004, the FASB issued a revision to SFAS No. 123 entitled Share-Based Payment,
(SFAS 123R). Share-based payments are transactions in which an enterprise receives employee
services in exchange for (1) equity instruments of the enterprise or (2) liabilities that are based
on the fair value of the enterprises equity instruments or that may be settled by the issuance of
such equity instruments. SFAS 123R 73




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requires companies to recognize in the income statement the grant-date fair value of stock
options and other equity-based compensation issued to employees, but expresses no preference for a
type of valuation model. SFAS 123R supersedes APB No. 25 and is effective for annual periods
beginning after June 15, 2005. SFAS 123R is not expected to have a material impact on the
Companys results of operations or financial position. In December 2004, the FASB issued Staff Position 109-1 (FSP 109-1), Application of FASB
Statement No. 109 (FASB No. 109), Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004. FSP 109-1
clarifies guidance that applies to the new deduction for qualified domestic production activities.
When fully phased-in, the deduction will be up to 9% of the lesser of qualified production
activities income or taxable income. FSP 109-1 clarifies that the deduction should be accounted
for as a special deduction under FASB No. 109 and will reduce tax expense in the period or periods
during which the amounts are deductible on the tax return. Although this provision does not impact
the fiscal year 2005 financial statements, the Company believes the new deduction for qualified
domestic production activities will likely result in a benefit to the Companys financial
statements in future periods. The Company is currently quantifying the potential benefit of this
provision. Reclassifications Certain prior year balances have been reclassified to conform to the fiscal 2005 presentation.  (B)
    RESIDENTIAL MORTGAGE LOANS HELD FOR INVESTMENT Residential mortgage loans held for investment by Home Equity, including real estate owned,
consisted of the following: March 31,2005
    
    
    2004Residential Mortgage Loans Held for Investment
    
    $
    7,999,728
    
    
    $
    6,554,513Allowance for Losses on Residential Mortgage Loans
Held for Investment
    
    
    (85,302
    )
    
    
    (56,358
    )Residential Mortgage Loans Held for Investment,
net of Allowance for Losses
    
    $
    7,914,426
    
    
    $
    6,498,155
 At March 31, 2005, contractual maturities of residential mortgage loans held for investment
were as follows: 2006
    
    $
    99,6302007
    
    
    98,8782008
    
    
    98,5252009
    
    
    105,3002010 and thereafter
    
    
    7,597,395$
    7,999,728
 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. 74




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(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 31,2005
    
    
    2004
    
    
    2003



Balance at Beginning of Period
    
    $
    56,358
    
    
    $
    28,384
    
    
    $
    14,106Provision for Losses
    
    
    98,801
    
    
    
    79,503
    
    
    
    34,859Losses Sustained, net of Recoveries of $1,226,
$204 and $160
    
    
    (69,857
    )
    
    
    (51,529
    )
    
    
    (20,581
    )Balance at End of Period
    
    $
    85,302
    
    
    $
    56,358
    
    
    $
    28,384Allowance as a Percentage of Gross Loans Held
for Investment
    
    
    1.1
    %
    
    
    0.9
    %
    
    
    0.6
    %Allowance as a Percentage of 90+ Days
Contractual Delinquency
    
    
    44.2
    %
    
    
    36.4
    %
    
    
    23.2
    %90+ Days Contractual Delinquency (based on months)Total Dollars Delinquent
    
    $
    192,835
    
    
    $
    154,868
    
    
    $
    122,479% Delinquent
    
    
    2.4
    %
    
    
    2.4
    %
    
    
    2.6
    %
  (D)
    PROPERTY AND EQUIPMENT Property and equipment cost by major category and accumulated depreciation are summarized
below: March
31,2005
    
    
    2004Land, Buildings and Improvements
    
    $
    96,842
    
    
    $
    98,887Machinery, Equipment and Other
    
    
    268,971
    
    
    
    218,883365,813
    
    
    
    317,770Accumulated Depreciation
    
    
    (203,508
    )
    
    
    (161,879
    )$
    162,305
    
    
    $
    155,891
 The Company had depreciation expense related to property and equipment of $42.1 million, $39.5
million, and $35.9 million for fiscal 2005, 2004, and 2003, respectively.  (E)
    GOODWILL A summary of changes in goodwill by segment for the years ended March 31, 2005 and 2004 are
presented below: Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalBalance as of March 31, 2003
    
    $
    123,011
    
    
    $
    17,055
    
    
    $
    1,007
    
    
    $
    71,866
    
    
    $
    212,939Goodwill 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
    
    
    
    254,258Goodwill Acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,402
    
    
    
    4,402Goodwill Disposed
    
    
    
    
    
    
    (4,865
    )
    
    
    
    
    
    
    
    
    
    
    (4,865
    )Other
    
    
    (480
    )
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    (632
    )Balance as of March 31, 2005
    
    $
    158,127
    
    
    $
    11,737
    
    
    $
    1,007
    
    
    $
    82,292
    
    
    $
    253,163
 75




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Goodwill for the Other segment at March 31, 2005 and 2004 is related to the Companys home
services operations. 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 in fiscal 2004.  (F)
    INDEBTEDNESS A summary of the balances of short-term and long-term debt (debt instruments with original
maturities greater than one year) and weighted-average interest rates at March 31 is presented
below. Due dates are presented in fiscal years. Centex, in this note, refers to the consolidation
of all subsidiaries other than those included in Financial Services. March 31,2005
    
    
    2004Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageInterest
    
    
    
    
    
    
    InterestRate
    
    
    
    
    
    
    RateShort-term Debt:Centex
    
    $
    7,870
    
    
    
    1.72
    %
    
    $
    
    
    
    
    
    %Financial ServicesFinancial Institutions
    
    
    190,779
    
    
    
    3.12
    %
    
    
    601,718
    
    
    
    1.42
    %Harwood Street Funding I, LLC Term Notes
    
    
    250,000
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    %Secured Liquidity Notes:Harwood Street Funding I, LLC
    
    
    1,195,076
    
    
    
    2.89
    %
    
    
    936,000
    
    
    
    1.15
    %Harwood Street Funding II, LLC
    
    
    832,021
    
    
    
    2.99
    %
    
    
    566,798
    
    
    
    1.15
    %Consolidated Short-term Debt
    
    
    2,475,746
    
    
    
    
    
    
    
    2,104,516Long-term Debt:CentexMedium-term Note Programs, due through 2008
    
    
    398,000
    
    
    
    4.59
    %
    
    
    258,000
    
    
    
    4.67
    %Senior Notes, due through 2015
    
    
    2,458,547
    
    
    
    6.32
    %
    
    
    1,808,332
    
    
    
    6.73
    %Other Indebtedness, due through 2015
    
    
    182,716
    
    
    
    5.53
    %
    
    
    152,152
    
    
    
    5.31
    %Subordinated Debt:Subordinated Debentures, due in 2007
    
    
    99,838
    
    
    
    8.75
    %
    
    
    99,763
    
    
    
    8.75
    %Subordinated Debentures, due in 2006
    
    
    99,992
    
    
    
    7.38
    %
    
    
    99,943
    
    
    
    7.38
    %3,239,093
    
    
    
    
    
    
    
    2,418,190Financial ServicesHome Equity Asset-Backed Certificates,
due through 2035
    
    
    7,099,520
    
    
    
    3.63
    %
    
    
    5,964,924
    
    
    
    3.59
    %Harwood Street Funding I, LLC Variable-Rate
Subordinated Extendable Certificates,
due through 2010
    
    
    60,000
    
    
    
    4.87
    %
    
    
    139,000
    
    
    
    3.06
    %Harwood Street Funding II, LLC Variable-Rate
Subordinated Notes, due through 2009
    
    
    93,750
    
    
    
    5.02
    %
    
    
    93,750
    
    
    
    3.24
    %7,253,270
    
    
    
    
    
    
    
    6,197,674Consolidated Long-term Debt
    
    
    10,492,363
    
    
    
    
    
    
    
    8,615,864Total Debt
    
    $
    12,968,109
    
    
    
    
    
    
    $
    10,720,380
 As of March 31, 2005, Centexs short-term debt consists of $7.9 million in land
acquisition notes. 76




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The weighted-average interest rates for short-term and long-term debt during the years ended
March 31, 2005, 2004, and 2003 were: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Short-term DebtCentex
    
    
    2.05
    %
    
    
    1.26
    %
    
    
    1.81
    %Financial Services
    
    
    2.24
    %
    
    
    1.23
    %
    
    
    1.61
    %Long-term Debt:CentexMedium-term Note Programs (1)
    
    
    5.41
    %
    
    
    5.30
    %
    
    
    5.31
    %Senior Notes
    
    
    6.47
    %
    
    
    6.87
    %
    
    
    7.72
    %Other Indebtedness
    
    
    5.62
    %
    
    
    3.97
    %
    
    
    4.16
    %Subordinated Debentures
    
    
    8.06
    %
    
    
    8.06
    %
    
    
    8.06
    %Financial ServicesCentex Home Equity Company, LLC Long-term Debt (2)
    
    
    3.40
    %
    
    
    3.51
    %
    
    
    4.50
    %CTX Mortgage Company, LLC Long-term Debt (3)
    
    
    3.58
    %
    
    
    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s and Financial Services long-term debt during the next five years
ending March 31 are: FinancialCentex
    
    
    Services
    
    
    Total2006
    
    $
    341,814
    
    
    $
    2,700,983
    
    
    $
    3,042,7972007
    
    
    291,872
    
    
    
    2,202,319
    
    
    
    2,494,1912008
    
    
    667,884
    
    
    
    1,157,803
    
    
    
    1,825,6872009
    
    
    1,246
    
    
    
    392,068
    
    
    
    393,3142010
    
    
    226,264
    
    
    
    465,128
    
    
    
    691,392Thereafter
    
    
    1,710,013
    
    
    
    334,969
    
    
    
    2,044,982$
    3,239,093
    
    
    $
    7,253,270
    
    
    $
    10,492,363
 Financial Services long-term debt associated with Home Equity includes Asset-Backed
Certificates of $7.10 billion at March 31, 2005. 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, as is common in these structures, Centex Home Equity Company, LLC remains
liable for customary loan representations. The principal and interest on these certificates are
paid from the liquidation of the underlying residential mortgage loans, which serve as collateral
for the debt. Accordingly, the timing of the principal payments on these certificates is dependent
upon the payments received on the underlying residential mortgage loans. The expected maturities
of this component of long-term debt are based on contractual maturities adjusted for projected
prepayments. 77




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##### Table of Contents



Under Centex Corporations bank credit facilities, the Company is required to maintain certain
leverage and interest coverage ratios and a minimum tangible net worth. At March 31, 2005, 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, 2005
are summarized below: Existing Credit
    
    
    AvailableFacilities
    
    
    CapacityCentexCentex CorporationMulti-Bank Revolving Credit Facility
    
    $
    800,000
    
    
    $
    800,000

    (1)Multi-Bank Revolving Letter of Credit Facility
    
    
    300,000
    
    
    
    71,391
    (2)1,100,000
    
    
    
    871,391
    (3)International HomebuildingMulti-Bank Revolving Credit Facility
    
    
    319,430
    
    
    
    180,384Bonded Facility
    
    
    14,093
    
    
    
    14,093333,523
    
    
    
    194,477
    (4)Financial ServicesSecured Credit Facility
    
    
    515,000
    
    
    
    324,221
    (5)Harwood Street Funding I, LLC Facility
    
    
    3,000,000
    
    
    
    1,494,000Harwood Street Funding II, LLC Facility
    
    
    2,500,000
    
    
    
    1,574,2296,015,000
    
    
    
    3,392,450$
    7,448,523
    
    
    $
    4,458,318
    (6)
  (1)
    This is an unsecured, committed, multi-bank revolving credit facility, maturing in July
2007, which serves as backup for commercial paper borrowings. As of March 31, 2005, 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 an unsecured, committed, multi-bank revolving letter of credit facility, maturing in
July 2005. Letters of credit under this facility may expire no later than July 2006.(3)
    In conjunction with the issuance of surety bonds in support of our Construction Services
activity, Centex Corporation will provide letters of credit of up to $100 million if Centex
Corporations public debt ratings fall below investment grade. In support of this ratings
trigger, we maintain a minimum of $100 million in unused committed credit at all times.(4)
    The international homebuilding operations maintain a £170 ($319) million unsecured,
committed, multi-bank revolving credit facility, maturing in February 2008, and a £7.5 ($14)
million unsecured, uncommitted bonding facility, each of which is guaranteed by Centex
Corporation.(5)
    CTX Mortgage Company, LLC and its related companies and Home Equity share in a $250 million
secured, committed credit facility to finance mortgage inventory. CTX Mortgage Company, LLC
and its related companies also maintain $265 million of secured, committed mortgage warehouse
facilities to finance mortgages. In April 2005, Home Equity completed a transaction which
will permit it to securitize its mortgage servicer advances in an amount up to $100 million
with a final maturity of May 2011. This facility has no recourse to Centex Corporation.(6)
    The amount of available capacity consists of $4,444.2 million of committed capacity and $14.1
million of uncommitted capacity as of March 31, 2005. 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.   78




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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 sale of loans to HSF-I, pursuant to a mortgage loan purchase agreement, as amended (the
HSF-I Purchase Agreement). 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.
Since 1999, CTX Mortgage Company, LLC has sold substantially all conforming and Jumbo A mortgage
loans that it originates to HSF-I in accordance with the HSF-I Purchase Agreement. HSF-Is
commitment to purchase eligible mortgage loans continues in effect until the occurrence of certain
termination events described in the HSF-I Purchase Agreement. At March 31, 2005, the maximum
amount of mortgage loans that HSF-I is allowed to carry in its inventory under the HSF-I Purchase
Agreement is $3.0 billion. When HSF-I acquires mortgage loans, it holds them on average
approximately 60 days and then resells them into the secondary market. In accordance with the
HSF-I Purchase Agreement, CTX Mortgage Company, LLC acts as servicer of the loans owned by HSF-I
and arranges for the sale of the eligible mortgage loans into the secondary market. HSF-I obtains
the funds needed to purchase eligible mortgage loans from CTX Mortgage Company, LLC by issuing (1)
short-term secured liquidity notes, (2) medium-term debt and (3) subordinated certificates. As of
March 31, 2005, HSF-I had outstanding (1) short-term secured liquidity notes rated A1+ by Standard
& Poors, or S&P, and P-1 by Moodys Investors Service, or Moodys, (2) term notes rated A1+ by S&P
and P-1 by Moodys and (3) subordinated certificates maturing in September 2009, extendable for up
to five years, rated BBB by S&P and Baa2 by Moodys. The purposes of this arrangement are to allow
CTX Mortgage Company, LLC to reduce the cost of financing the mortgage loans originated by it and
to improve its liquidity. In January 2003, the FASB issued FIN 46, which modified the accounting for certain entities in
which (1) equity investors do not have a controlling financial interest and/or (2) the entity is
unable to finance its activities without additional subordinated financial support from other
parties. Pursuant to FIN 46, HSF-I is a variable interest entity for which the Company is the
primary beneficiary. Accordingly, HSF-I was consolidated in the Companys financial statements
beginning July 1, 2003. Prior to the implementation of FIN 46, HSF-I was not consolidated in the
Companys financial statements. As a result of the consolidation of HSF-I, the Company recorded a
cumulative effect of a change in accounting principle of $13.3 million, net of tax, in the quarter
ended September 30, 2003. The consolidation of HSF-I resulted in an increase in the Companys
residential mortgage loans held for sale with a corresponding increase in the Companys residential
mortgage loans held for sale with a corresponding increase in the Companys debt. In addition,
interest income and interest expense of HSF-I subsequent to June 30, 2003, are reflected in the
Companys financial statements. Because HSF-I is a consolidated entity as of July 1, 2003, all
transactions between the Company and HSF-I subsequent to June 30, 2003 have been 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 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 mortgage loans
to hedge the risk of reductions in value of mortgages sold to HSF-I or maintained under secured
financing agreements. This offsets the majority of the Companys risk as the counterparty to the
swap supporting the payment requirements of HSF-I. See additional discussion of interest rate
risks in Note (N), Derivatives and Hedging. The Company is also required to reimburse the bank
for certain expenses, costs and damages that it may incur. 79




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HSF-Is debt and subordinated certificates do not have recourse to the Company, and the
consolidation of this debt and subordinated certificates has not changed the Companys debt
ratings. The Company does not guarantee the payment of any debt or subordinated certificates of
HSF-I and is not liable for credit losses relating to securitized residential mortgage loans sold
to HSF-I. However, the Company retains certain risks related to the portfolio of mortgage loans
held by HSF-I. In particular, CTX Mortgage Company, LLC makes representations and warranties to
HSF-I to the effect that each mortgage loan sold to HSF-I satisfies the eligibility criteria and
portfolio requirements discussed above. CTX Mortgage Company, LLC may be required to repurchase
mortgage loans sold to HSF-I if such mortgage loans are determined to be ineligible loans or there
occur certain other breaches of representations and warranties of CTX Mortgage Company, LLC, as
seller or servicer. CTX Mortgage Company, LLCs obligations as servicer, including its obligation
as servicer to repurchase such loans, are guaranteed by Centex Corporation. CTX Mortgage Company,
LLC records a liability for its estimated losses for these obligations and such amount is included
in its loan origination reserve. CTX Mortgage Company, LLC and its related companies sold $9.33
billion and $13.11 billion of mortgage loans to investors during the years ended March 31, 2005 and
2004, respectively. CTX Mortgage Company, LLC and its related companies recognized gains on sales
of mortgage loans and related derivative activity of $141.7 million, $245.9 million and $192.4
million for the years ended March 31, 2005, 2004 and 2003, 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
$2.5 billion. HSF-II obtains funds for the purchase of eligible loans by issuing (1) short-term
secured liquidity notes, (2) medium-term debt and (3) subordinated notes. As of March 31, 2005,
HSF-II had outstanding (1) short-term secured liquidity notes rated A1+ by S&P, P-1 by Moodys and
F1+ by Fitch Ratings, or Fitch and (2) subordinated notes rated BBB by S&P, Baa2 by Moodys and BBB
by Fitch. Because HSF-II is a consolidated entity, the debt, interest income and interest expense
of HSF-II are reflected in the financial statements of Financial Services. HSF-IIs debt does not
have recourse to the Company and the consolidation of this debt does not change the Companys debt
ratings. In the event Financial Services is unable to finance its inventory of loans through HSF-I and
HSF-II, it would draw on other existing credit facilities. In addition, Financial Services would
need to make other customary financing arrangements to fund its mortgage loan origination
activities. Although the Company 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.  (G)
    MERGER OF 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. AND SUBSIDIARIES Prior to February 2004, the common stock of 3333 Holding Corporation (Holding) and warrants
to purchase limited partnership interests in Centex Development Company, L.P. (the Partnership)
were traded in tandem with our common stock. The Company held an ownership interest in the
Partnership, which was reported on the equity method of accounting as a part of our investment real
estate operations. Neither Holding nor the Partnership was consolidated in our financial
statements. On February 29, 2004, the Company completed the acquisition of Holding and the Partnership
through a series of transactions, which included mergers with the Companys subsidiaries. The
transactions were approved by the Companys stockholders and holders of beneficial interests in
Holding at a special joint meeting of stockholders held on February 25, 2004. These transactions
terminated the tandem trading 80




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relationship between the Companys common stock and the common stock of Holding, as well as
the stockholder warrants of the Partnership. For their interests in the securities of Holding and
the Partnership, the Companys stockholders of record on February 29, 2004 received an amount equal
to $0.02 per share of the Companys common stock, totaling approximately $1.2 million, which was
paid on March 10, 2004. The mergers resulted in the consolidation of Holding and the Partnership. As a result of the
mergers, effective March 1, 2004, the Company eliminated its investment in the Partnership of
$370.6 million, recorded net assets of $370.6 million including goodwill of $36.4 million, and
recorded a dividend to stockholders of $1.2 million. Operations of Holding and the Partnership
have been consolidated in the Companys results of operations subsequent to March 1, 2004. The operations of the Partnership included homebuilding operations in the United Kingdom. As
a result of the merger, the international homebuilding operations of the Partnership are now
included in our Home Building business segment, and the Partnerships domestic real estate
operations continue to be reported within our investment real estate operations included in the
Other segment.  (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 Home Building to share the risks and rewards of ownership while providing
for efficient asset utilization. The Companys investment in these non-consolidated joint ventures
was $163.9 million and $140.1 million at March 31, 2005 and 2004, respectively. These joint
ventures had total outstanding secured construction debt of approximately $426.3 million and $202.2
million at March 31, 2005 and 2004, respectively. The Company is liable, on a contingent basis,
through guarantees, letters of credit or other arrangements, with respect to a portion of the
construction debt of certain of the joint ventures, which we refer to as the recourse joint
ventures. The Companys maximum potential liability with respect to the debt of the recourse joint
ventures, based on its ownership percentage of the recourse joint ventures, is approximately $160.1
million and $73.2 million at March 31, 2005 and 2004, respectively. For certain of the joint
ventures, the Company has also guaranteed the completion of the project by the joint ventures and
agreed to indemnify the construction lender for certain environmental liabilities with respect to
the project. At March 31, 2005, the Company has $230.3 million in outstanding letters of credit. These
letters of credit are primarily issued pursuant to certain performance related obligations of the
Home Building segment. 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 warranty covers defects in materials or workmanship
in the first two years of the customers ownership of the home and certain designated components or
structural elements of the home in the third through tenth years. Prior to April 1, 2004, Home
Buildings United States warranties for non-structural defects in materials or workmanship covered
the first year. In California, effective January 1, 2003, Centex Homes began following the
statutory provisions of Senate Bill 800, which, in part, provide a statutory warranty to customers
and a statutory dispute resolution process. Home Building estimates the costs that may be incurred
under its warranty program for which it will be responsible and records a liability at the time
each home is closed. Factors that affect Home Buildings warranty liability include the number of
homes closed, historical and anticipated rates of warranty claims, and cost per claim. Home
Building periodically assesses the adequacy of its recorded warranty liability and adjusts the
amounts as necessary. 81




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Changes in Home Buildings contractual warranty liability at March 31 are as follows: March 31,2005
    
    
    2004Balance at Beginning of Period
    
    $
    20,146
    
    
    $
    16,125Warranties Issued
    
    
    46,303
    
    
    
    29,806Settlements Made
    
    
    (34,365
    )
    
    
    (25,597
    )Changes in Liability of Pre-Existing
Warranties, Including Expirations
    
    
    6,869
    
    
    
    (188
    )Balance at End of Period
    
    $
    38,953
    
    
    $
    20,146
 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 31,2005
    
    
    2004Balance at Beginning of Period
    
    $
    25,045
    
    
    $
    28,594Provisions for Losses
    
    
    557
    
    
    
    1,837Settlements
    
    
    (6,799
    )
    
    
    (5,386
    )Balance at End of Period
    
    $
    18,803
    
    
    $
    25,045
 In January 2003, we received a request for information from the United States Environmental
Protection Agency (EPA) pursuant to Section 308 of the Clean Water Act seeking information about
storm water discharge practices at projects that Centex subsidiaries had completed or were
building. Subsequently, the EPA limited its request to Home Building and 30 communities. Home
Building has provided the requested information and the United States Department of Justice (the
Justice Department), acting on behalf of the EPA, has asserted that some of these and certain
other communities (including one of Construction Services projects) have violated regulatory
requirements applicable to storm water discharges, and that injunctive relief and civil penalties
may be warranted. Home Building and Construction Services believe they have defenses to the
allegations made by the EPA and are exploring methods of settling this matter. Centex does not
believe that this matter will have a material impact on the Companys consolidated results of
operations or financial position. On November 23, 2004, Miami-Dade County, Florida filed suit against Centex-Rooney Construction
Co., a wholly-owned subsidiary of Centex Corporation; John J. Kirlin, Inc.; and M. C. Harry and
Associates, Inc., in the Countys Circuit Court of the Eleventh Judicial Circuit. Miami-Dade
County alleges that, in the course of performing or managing construction work on Concourse F at
the Miami International Airport, the defendants caused a jet fuel line rupture on or about July 30,
1987, which resulted in the contamination of soil, groundwater and surface water in and around
airport Concourse F. Miami-Dade County seeks damages of approximately $8.0 million for its costs
incurred to date and for expected future costs, civil penalties and an order requiring the
defendants to address remaining contamination. Centex believes it has substantial defenses to
Miami-Dade Countys claims, including waiver and release and statute of limitations defenses.
Centex also believes insurance coverage may be available to cover defense costs and any potential
damages. Centex does not believe that this lawsuit will have a material impact on the Companys
consolidated results of operations or financial position. 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. 82




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The Company leases certain office facilities and other equipment under operating leases.
Future minimum payments under the noncancelable leases are as follows: 2006  $64.0 million; 2007  $56.7 million; 2008  $50.2 million; 2009  $41.5 million; 2010  $33.9 million and thereafter  $65.2 million. Rental expense for the years ended March 31, 2005, 2004 and 2003 was $65.5 million, $52.3
million and $39.1 million, respectively.  (I)
    LAND HELD UNDER OPTION AGREEMENTS NOT OWNED AND OTHER LAND DEPOSITS In order to ensure the future availability of land for homebuilding, the Company enters into
lot option purchase agreements with unaffiliated third parties. Under the option agreements, the
Company pays a stated deposit in consideration for the right to purchase land at a future time,
usually at predetermined prices. These options generally do not contain performance requirements
from the Company nor obligate the Company to purchase the land, and expire at various dates through
the year 2014. 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, 2005. As a result, the Company recorded
$415.4 million and $332.7 million of land as inventory under the caption land held under option
agreements not owned, with a corresponding increase to minority interests as of March 31, 2005 and
2004, respectively. In addition, at March 31, 2005 and 2004, the Company recorded $41.5 million
and $29.7 million, respectively, of deposits related to these options as land held under option
agreements not owned. At March 31, 2005 and 2004, the Company had deposited, invested or secured with a letter of
credit with third parties $182.3 million and $88.7 million, respectively, to ensure future
availability of land for homebuilding. As of March 31, 2005, deposits of $141.9 million (excluding
the $41.5 million of deposits discussed above) are included in land held for development and sale.
At March 31, 2004, deposits of $88.7 million (excluding the $29.7 million of deposits discussed
above) were included in land held for development and sale. As of March 31, 2005 and 2004, these
lot option agreements had a total remaining purchase price of approximately $6.93 billion and $3.22
billion, respectively.  (J)
    COMPREHENSIVE INCOME Comprehensive income is summarized below: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Net Earnings
    
    $
    1,011,364
    
    
    $
    827,686
    
    
    $
    555,919Other Comprehensive Income (Loss), net of Tax:Unrealized Gain (Loss) on Hedging Instruments
    
    
    24,615
    
    
    
    5,706
    
    
    
    (10,849
    )Foreign Currency Translation Adjustments
    
    
    8,969
    
    
    
    36,864
    
    
    
    19,330Other
    
    
    
    
    
    
    964
    
    
    
    (1,516
    )Comprehensive Income
    
    $
    1,044,948
    
    
    $
    871,220
    
    
    $
    562,884
 The foreign currency translation adjustments are primarily the result of international
homebuildings translated assets, liabilities and income statement accounts. The unrealized gain
or loss on hedging instruments represents the deferral in other comprehensive income (loss) of the
unrealized gain or loss on interest rate swap agreements designated as cash flow hedges. The
accounting for interest rate swaps and other derivative financial instruments in place as of March
31, 2005 is discussed in detail in Note (N), Derivatives and Hedging. Unrealized gain or loss on
hedging instruments also includes other comprehensive loss of $7,104 related to terminated hedges
executed in connection with the anticipated issuance of fixed-rate debt. This other comprehensive
loss will be recognized in earnings over the remaining term of the respective fixed-rate debt. 83




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Other consists of the unrealized gain or loss on investments, which represents mark to market
adjustments to securities available for sale by the Company. The components of accumulated other comprehensive income are as follows: As of March 31, 2005TaxBefore Tax
    
    
    (Expense)
    
    
    Net-of-TaxAmount
    
    
    Benefit
    
    
    AmountUnrealized Gain on Hedging Instruments
    
    $
    12,910
    
    
    $
    (4,471
    )
    
    $
    8,439Foreign Currency Translation Adjustments
    
    
    62,688
    
    
    
    
    
    
    
    62,688Accumulated Other Comprehensive Income
    
    $
    75,598
    
    
    $
    (4,471
    )
    
    $
    71,127
  (K)
    BUSINESS SEGMENTS As of March 31, 2005, the Company operated in three principal business segments: Home
Building, Financial Services and Construction Services. These segments operate primarily in the
United States, and their markets are nationwide. Revenues from any one customer are not
significant to the Company. Intersegment revenues and investments in joint ventures are not
material and are not shown in the following tables. In June 2003, we consummated the tax-free spin-offs to our stockholders of substantially all
of our manufactured housing operations, which had previously been included in the Other segment.
In January 2004, we spun off tax-free to our stockholders our entire ownership interest in
Construction Products, our former construction products subsidiary, which had previously been
reported as a separate business segment. All Construction Products operations are reflected as a
discontinued operation and are not included in the segment information below. 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 realigned its reporting for the Partnership,
whereby the Partnerships international homebuilding operations are included in the Home Building
business segment. The Partnerships domestic operations continue to be reported within our
investment real estate operations. The Company has determined that no significant capital will be
allocated to our investment real estate operations for new business development. Beginning April
1, 2004, the financial results of our investment real estate operations are included in the Other
business segment. Prior period amounts have been reclassified to conform to the current year
presentation. Home Building Home Buildings domestic operations involve the purchase and development of land or lots and
the construction and sale of detached and attached single-family homes (including resort and second
home properties and lots) and land or lots. Our international homebuilding operations involve the
purchase and development of land or lots and the construction and sale of a range of products from
small single-family units to executive houses and apartments in the United Kingdom. Financial Services Financial Services 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 $648.6 million,
$525.9 million and $356.8 million in fiscal 2005, 84




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2004 and 2003, respectively. Substantially all of the Companys interest income in each year
is earned by the Financial Services segment. Financial Services cost of sales is comprised of
interest expense related to debt issued to fund its home financing and sub-prime home equity
lending activities. 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 $6.8 million, $4.9 million and $6.2 million for fiscal 2005, 2004 and 2003,
respectively, is included in managements evaluation of this segment. However, the intercompany
interest income is eliminated in consolidation and excluded from the tables presented below. Other The Companys Other segment includes corporate general and administrative expenses and
interest expense. Also included in the Other segment are the Companys home services operations
and investment real estate operations, which are not material for purposes of segment reporting.
In June 2003, the Company spun off tax-free substantially all of its manufactured housing
operations, which had previously been included in the Other segment. All remaining manufactured
housing operations 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 31,2005
    
    
    2004
    
    
    2003Operating Loss from Home Services Operations
    
    $
    (15.8
    )
    
    $
    (2.3
    )
    
    $
    (9.6
    )Operating Earnings from Investment Real Estate Operations
    
    
    21.4
    
    
    
    44.8
    
    
    
    34.0Corporate General and Administrative Expense
    
    
    (82.9
    )
    
    
    (105.5
    )
    
    
    (60.3
    )Interest Expense
    
    
    (22.2
    )
    
    
    (39.9
    )
    
    
    (60.3
    )Other
    
    
    
    
    
    
    
    
    
    
    (0.6
    )$
    (99.5
    )
    
    $
    (102.9
    )
    
    $
    (96.8
    )
 For the Year Ended March 31, 2005(Dollars in millions)Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    9,861.0
    
    
    $
    1,107.2
    
    
    $
    1,738.6
    
    
    $
    152.9
    
    
    $
    12,859.7Cost of Sales
    
    
    (7,111.5
    )
    
    
    (284.0
    )
    
    
    (1,646.9
    )
    
    
    (79.2
    )
    
    
    (9,121.6
    )Selling, General and Administrative Expenses
    
    
    (1,373.0
    )
    
    
    (618.8
    )
    
    
    (70.1
    )
    
    
    (173.2
    )
    
    
    (2,235.1
    )Earnings from Unconsolidated Entities
    
    
    68.9
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    70.8Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    1,445.4
    
    
    $
    204.4
    
    
    $
    23.5
    
    
    $
    (99.5
    )
    
    $
    1,573.8Segment Assets
    
    $
    8,448.6
    
    
    $
    10,453.9
    
    
    $
    340.6
    
    
    $
    768.0
    
    
    $
    20,011.1Capital Expenditures
    
    $
    32.7
    
    
    $
    23.7
    
    
    $
    1.6
    
    
    $
    4.0
    
    
    $
    62.0Depreciation and Amortization
    
    $
    26.0
    
    
    $
    17.8
    
    
    $
    1.9
    
    
    $
    12.6
    
    
    $
    58.3
 The Home Building segment includes revenues and total assets of $501.3 million and $677.3
million, respectively, from operations in the United Kingdom for the fiscal year ended March 31,
2005. 85




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For the Year Ended March 31, 2004(Dollars in millions)Home
    
    
    Financial
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    7,599.5
    
    
    $
    1,047.9
    
    
    $
    1,596.3
    
    
    $
    119.7
    
    
    $
    10,363.4Cost of Sales
    
    
    (5,607.2
    )
    
    
    (223.8
    )
    
    
    (1,521.9
    )
    
    
    (37.8
    )
    
    
    (7,390.7
    )Selling, General and Administrative Expenses
    
    
    (1,042.3
    )
    
    
    (593.8
    )
    
    
    (60.1
    )
    
    
    (199.3
    )
    
    
    (1,895.5
    )Earnings from Unconsolidated Entities
    
    
    55.3
    
    
    
    
    
    
    
    2.1
    
    
    
    14.5
    
    
    
    71.9Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    1,005.3
    
    
    $
    230.3
    
    
    $
    16.4
    
    
    $
    (102.9
    )
    
    $
    1,149.1Segment Assets
    
    $
    6,189.6
    
    
    $
    9,082.5
    
    
    $
    341.5
    
    
    $
    473.9
    
    
    $
    16,087.5Capital Expenditures
    
    $
    33.4
    
    
    $
    16.7
    
    
    $
    2.0
    
    
    $
    4.0
    
    
    $
    56.1Depreciation and Amortization
    
    $
    24.2
    
    
    $
    17.4
    
    
    $
    1.9
    
    
    $
    6.1
    
    
    $
    49.6
 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 $28.2 million for the fiscal year ended March 31, 2004. For the Year Ended March 31, 2003(Dollars in millions)Home
    
    
    Financial
    
    
    
    ConstructionBuilding
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    5,922.7
    
    
    $
    855.0
    
    
    $
    1,517.9
    
    
    $
    133.1
    
    
    $
    8,428.7Cost of Sales
    
    
    (4,454.0
    )
    
    
    (184.5
    )
    
    
    (1,415.1
    )
    
    
    (38.3
    )
    
    
    (6,091.9
    )Selling, General and Administrative Expenses
    
    
    (849.2
    )
    
    
    (508.7
    )
    
    
    (73.6
    )
    
    
    (204.8
    )
    
    
    (1,636.3
    )Earnings from Unconsolidated Entities
    
    
    32.2
    
    
    
    
    
    
    
    1.5
    
    
    
    13.2
    
    
    
    46.9Earnings (Loss) from Continuing
Operations Before Income Tax
    
    $
    651.7
    
    
    $
    161.8
    
    
    $
    30.7
    
    
    $
    (96.8
    )
    
    $
    747.4Segment Assets
    
    $
    4,000.3
    
    
    $
    5,670.3
    
    
    $
    292.8
    
    
    $
    922.7
    
    
    $
    10,886.1Capital Expenditures
    
    $
    28.4
    
    
    $
    16.6
    
    
    $
    2.0
    
    
    $
    27.7
    
    
    $
    74.7Depreciation and Amortization
    
    $
    18.7
    
    
    $
    17.0
    
    
    $
    2.5
    
    
    $
    35.4
    
    
    $
    73.6
 Depreciation and Amortization for discontinued operations was $38.8 million for the
fiscal year ended March 31, 2003.  (L)
    INCOME TAXES The provision for income taxes includes the following components: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Current ProvisionFederal
    
    $
    487,870
    
    
    $
    310,088
    
    
    $
    169,785State
    
    
    81,072
    
    
    
    44,042
    
    
    
    48,351568,942
    
    
    
    354,130
    
    
    
    218,136Deferred Provision (Benefit)Federal
    
    
    11,806
    
    
    
    (1,563
    )
    
    
    4,452State
    
    
    (18,343
    )
    
    
    19,366
    
    
    
    (2,050
    )(6,537
    )
    
    
    17,803
    
    
    
    2,402Provision for Income Taxes
    
    $
    562,405
    
    
    $
    371,933
    
    
    $
    220,538
 86




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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 31,2005
    
    
    2004
    
    
    2003Earnings from Continuing Operations Before IncomeTaxes and Cumulative Effect of a Change in
Accounting Principle
    
    $
    1,573,769
    
    
    $
    1,149,064
    
    
    $
    747,350Income Taxes at Statutory Rate
    
    $
    550,819
    
    
    $
    402,172
    
    
    $
    261,573Increases
(Decreases) in Tax Resulting from State Income Taxes, net
    
    
    40,301
    
    
    
    42,037
    
    
    
    29,738Change in Valuation Allowance
    
    
    (39,278
    )
    
    
    (54,353
    )
    
    
    (88,843
    )Other
    
    
    10,563
    
    
    
    (17,923
    )
    
    
    18,070Provision for Income Taxes
    
    $
    562,405
    
    
    $
    371,933
    
    
    $
    220,538Effective Tax Rate
    
    
    36
    %
    
    
    32
    %
    
    
    30
    %
 Components of deferred income taxes are as follows: March
31,2005
    
    
    2004Deferred Tax AssetsDeferred Compensation
    
    $
    37,121
    
    
    $
    20,848Net Operating Loss Carryforwards
    
    
    1,289
    
    
    
    39,457Uniform Capitalization for Tax Reporting
    
    
    104,939
    
    
    
    67,735Accrued Liabilities
    
    
    213,442
    
    
    
    134,885Securitization Reporting Differences
    
    
    
    
    
    
    22,408Partnership Reporting Differences
    
    
    14,205
    
    
    
    3,116All Other
    
    
    3,659
    
    
    
    13,150Deferred Tax Assets
    
    
    374,655
    
    
    
    301,599Valuation Allowance for Deferred Tax Assets
    
    
    
    
    
    
    (39,278
    )Total Deferred Tax Assets
    
    
    374,655
    
    
    
    262,321Deferred Tax LiabilitiesExcess Tax Depreciation and Amortization
    
    
    20,253
    
    
    
    10,068Interest and Real Estate Taxes Expensed as Incurred
    
    
    75,312
    
    
    
    40,636Installment Sale Reporting
    
    
    6,389
    
    
    
    12,959Percentage of Completion Reporting
    
    
    21,780
    
    
    
    12,357Securitization Reporting Differences
    
    
    62,159
    
    
    
    All Other
    
    
    11,027
    
    
    
    9,737Total Deferred Tax Liabilities
    
    
    196,920
    
    
    
    85,757Net Deferred Tax Assets
    
    $
    177,735
    
    
    $
    176,564
 At March 31, 2005, the Company had $3.7 million of net operating loss carryforwards available
to reduce future federal taxable income. In fiscal 2005, the Company utilized $109.7 million of
net operating loss carryforwards. A valuation allowance had previously been established against
$109.2 million of the carryforwards utilized. The net operating loss carryforwards, if unused,
expire in fiscal year 2009. As of March 31, 2005, the Company has not provided for withholding taxes or U.S. federal
income taxes on approximately $110 million of accumulated undistributed earnings of its foreign
subsidiaries as they 87




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##### Table of Contents



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 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-hundredth 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, which is administered by the Compensation Committee
of the Board of Directors, provides for the grant of nonqualified 88




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##### Table of Contents



stock options to employees of the Company and its affiliates, other than officers and
directors of the Company. The exercise price of any option granted under the 1998 Plan must be
paid in cash upon exercise (including pursuant to a cashless exercise), or by means of tendering
previously owned shares of common stock or shares issued pursuant to a grant (including pursuant to
a net exercise). 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 was recognized related to the Companys stock options because the stock
options are granted at or above fair market value. A summary of the activity of the stock option plans is presented below: For the Years Ended March 31,2005
    
    
    2004
    
    
    2003Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions Outstanding,
Beginning of Year
    
    
    17,197,357
    
    
    $
    19.09
    
    
    
    16,210,186
    
    
    $
    17.66
    
    
    
    14,277,810
    
    
    $
    15.68Options Granted
at Fair Market Value
    
    
    1,828,230
    
    
    $
    45.30
    
    
    
    2,855,480
    
    
    $
    35.51
    
    
    
    3,450,980
    
    
    $
    25.21Options Issued as Part of
Modification
    
    
    
    
    
    $
    
    
    
    
    1,737,528
    
    
    $
    
    
    
    
    
    
    
    $
    Options Exercised
    
    
    (4,952,134
    )
    
    $
    17.00
    
    
    
    (3,480,371
    )
    
    $
    16.25
    
    
    
    (1,040,164
    )
    
    $
    15.05Options Cancelled
    
    
    (30,677
    )
    
    $
    28.17
    
    
    
    (125,466
    )
    
    $
    22.73
    
    
    
    (478,440
    )
    
    $
    18.67Options Outstanding, End of Year
    
    
    14,042,776
    
    
    $
    23.22
    
    
    
    17,197,357
    
    
    $
    19.09
    
    
    
    16,210,186
    
    
    $
    17.66Options Exercisable, End of Year
    
    
    11,121,137
    
    
    
    
    
    
    
    11,614,372
    
    
    
    
    
    
    
    10,102,092Shares Available for Future Stock
Option Grants, End of Year
    
    
    6,365,554
    
    
    
    
    
    
    
    8,808,656
    
    
    
    
    
    
    
    4,777,486Weighted-Average Fair Value of
Options Granted During the
Year
    
    $
    17.25
    
    
    
    
    
    
    $
    12.43
    
    
    
    
    
    
    $
    10.12
 Using the treasury stock method, which assumes that any proceeds together with the related tax
benefits from the exercise of options and future compensation expense would be used to purchase
Common Stock at current prices, the dilutive effect of the options on outstanding shares as of
March 31, 2005 would have been 5.3%. This is significantly less than appears on a gross basis when
compared to the 127,729,275 shares of Common Stock outstanding as of March 31, 2005. 89




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##### Table of Contents



The following table summarizes information about stock options outstanding at March 31, 2005: Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number of
    
    
    Remaining
    
    
    Average
    
    
    Number of
    
    
    AverageShares
    
    
    Contractual
    
    
    Exercise
    
    
    Shares
    
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Outstanding
    
    
    Price$  5.97-$11.95
    
    
    2,486,660
    
    
    
    4.1
    
    
    $
    9.90
    
    
    
    2,421,333
    
    
    $
    9.90$11.96-$17.92
    
    
    4,704,006
    
    
    
    3.1
    
    
    $
    17.12
    
    
    
    4,677,785
    
    
    $
    17.12$17.93-$23.90
    
    
    2,414,129
    
    
    
    3.8
    
    
    $
    22.69
    
    
    
    1,696,496
    
    
    $
    22.68$29.87-$35.84
    
    
    2,594,490
    
    
    
    4.9
    
    
    $
    31.84
    
    
    
    1,695,341
    
    
    $
    31.84$41.82-$47.79
    
    
    1,835,491
    
    
    
    6.1
    
    
    $
    45.23
    
    
    
    630,182
    
    
    $
    45.23$53.77-$59.74
    
    
    8,000
    
    
    
    6.9
    
    
    $
    58.33
    
    
    
    
    
    
    $
    14,042,776
    
    
    
    4.1
    
    
    $
    23.22
    
    
    
    11,121,137
    
    
    $
    20.23
 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 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. The $12.2 million in compensation expense represents the unamortized
grant date Black-Scholes fair value of unvested options as of January 30, 2004. Subsequent to
January 30, 2004, the Company has no outstanding options or other stock rights accounted for under
the 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 and 2003, 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 31,2005
    
    
    2004
    
    
    2003Expected Volatility
    
    
    44.2
    %
    
    
    42.5
    %
    
    
    38.6
    %Risk-Free Interest Rate
    
    
    3.7
    %
    
    
    2.1
    %
    
    
    4.7
    %Dividend Yield
    
    
    0.4
    %
    
    
    0.2
    %
    
    
    0.3
    %Expected Life (Years)
    
    
    4
    
    
    
    4
    
    
    
    5
 90




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##### Table of Contents



The following table summarizes information about equity compensation plans, other than tax
qualified plans, as of March 31, 2005: (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
    
    
    
    3,961,386
    
    
    $
    14.26
    
    
    
    Approved by
    
    
    2001
    
    
    
    1,646,650
    
    
    $
    31.50
    
    
    
    1,133,490Stockholders
    
    
    2003
    
    
    
    868,752
    
    
    $
    45.24
    
    
    
    5,209,387Equity Compensation Plans
    
    
    1998
    
    
    
    7,565,988
    
    
    $
    23.57
    
    
    
    22,677not Approved by
    
    Long-TermStockholders
    
    Incentive Plan
    
    
    1,581,746
    
    
    $
    
    
    
    
    29,986Total
    
    
    
    
    
    
    15,624,522
    
    
    $
    23.22
    (1)
    
    
    6,395,540
  (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, 2005, there were 209,634 shares of restricted stock outstanding. 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 $36.2 million in fiscal 2005, $32.7 million in fiscal 2004 and $27.2
million in fiscal 2003.  (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 risks that are subject to changes in interest
rates, the Company has entered into various interest rate swap agreements, designated as cash flow
hedges. Financial Services, through CTX Mortgage Company, LLC and its related companies, enters
into mandatory forward trade commitments (forward trade commitments) designated as fair value
hedges to hedge the interest rate risk related to its portfolio of mortgage loans held for sale.
In addition, CTX Mortgage Company, LLC and its related companies enter into other derivatives not
designated as hedges. The following discussion summarizes our derivatives used to manage the risk
of interest rate fluctuations. 91




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##### Table of Contents



Cash Flow Hedges The Company has interest rate swap agreements that, in effect, fix the variable interest rates
on a portion of its outstanding debt. Financial Services, through Home Equity, also uses interest
rate swaps to hedge the market risk associated with the anticipated issuance of fixed-rate
securitization debt used to finance sub-prime mortgages. These interest rate swap agreements are
designated as cash flow hedges. The following table summarizes the interest rate swap agreements
in place as of March 31, 2005 (dollars in thousands except as indicated). Fixed
    
    
    
    
    
    
    Accumulated OtherNotional Value
    
    
    Interest
    
    
    Termination
    
    
    Comprehensive(in millions)
    
    
    Rate
    
    
    Date
    
    
    Income (Loss)CentexInterest rate swap
    
    $
    25.0
    
    
    
    6.7
    %
    
    October 2005
    
    $
    (438
    )Interest rate swap
    
    $
    94.0
    (1)
    
    
    4.0
    %
    
    March 2006
    
    
    665Financial ServicesInterest rate swaps
    
    $
    60.0
    
    
    
    4.5
    %                  (2)
    
    Through February 2012
    
    
    142Interest rate swaps
    
    $
    2,500.7
    
    
    
    2.6
    %                  (2)
    
    Through April 2008
    
    
    15,174$
    15,543
  (1)
    This interest rate swap hedges £50.0 million of our international homebuilding operations
outstanding debt. (2)
    Weighted average fixed interest rates. Interest rate swap agreements are recorded at their fair value in other assets or accrued
liabilities in the Consolidated Balance Sheets. To the extent the hedging relationship is
effective, gains or losses in the fair value of the derivative are deferred as a component of
stockholders equity through other comprehensive income (loss). Fluctuations in the fair value of
the ineffective portion of the derivative are reflected in the current period earnings, although
such amounts were insignificant for the year ended March 31, 2005. 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, the Company estimates decreases in interest incurred over the next 12 months to be
approximately $278.0 thousand for Centex and $17.4 million for Financial Services. Fair Value Hedges Financial Services, through CTX Mortgage Company, LLC and its related companies, enters into
certain forward trade commitments designated as fair value hedges to hedge the interest rate risk
related to its portfolio of mortgage loans held for sale, including mortgage loans held by HSF-I.
Accordingly, changes in the fair value of the forward trade commitments and the mortgage loans, for
which the hedge relationship is deemed effective, are recorded as an adjustment to earnings. To
the extent the hedge is effective, gains or losses in the value of the hedged loans due to interest
rate movement will be offset by an equal and opposite gain or loss in the value of the forward
trade commitment. This will result in 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 $19.9 million and
$16.2 million for the years ended March 31, 2005 and 2004, respectively. 92




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Other Derivatives 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 offset the interest rate risk related to its IRLCs, CTX Mortgage Company, LLC and its
related companies execute forward trade commitments. Certain forward trade commitments are not
designated as hedges and are therefore treated as derivative instruments. Their initial fair value
is recorded on the balance sheet in other assets or accrued liabilities. Subsequent changes in the
fair value of these forward trade commitments are recorded as an adjustment to earnings. The net change in the estimated fair value of other derivatives resulted in a gain of
approximately $3.7 million for the year ended March 31, 2005 and a loss of approximately $12.3
million for the year ended March 31, 2004.  (O)
    RELATED PARTY TRANSACTIONS The following related party transactions with Centex Development Company, L.P. (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 totaling $19.0 million.
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 year
ended March 31, 2004, Centex Homes paid $1.9 million to the Partnership in fees and reimbursements
pursuant to these agreements. Construction Services has historically executed construction contracts with the Partnership.
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, and was completed prior to March 31, 2004.
During the eleven months ended February 29, 2004, the Partnership paid $7.4 million 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. 93




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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 31,2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancial AssetsResidential Mortgage Loans Held
for Investment
    
    $
    7,914,426
    
    
    $
    8,062,109
    (1)
    
    $
    6,498,155
    
    
    $
    6,675,546
    (1)Residential
Mortgage Loans Held for Sale
    
    $
    1,775,324
    
    
    $
    1,775,946
    (1)
    
    $
    1,819,605
    
    
    $
    1,820,739
    (1)Financial LiabilitiesCentex Long-term Debt
    
    $
    3,239,093
    
    
    $
    3,338,909
    (2)
    
    $
    2,418,190
    
    
    $
    2,445,061
    (2)Financial Services Long-term Debt
    
    $
    7,253,270
    
    
    $
    7,254,793
    (2)
    
    $
    6,197,674
    
    
    $
    6,262,086
    (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 facilitate certain homebuilding activities. 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 tax-free substantially all of its manufactured housing
operations, which had previously been included in the Other segment. As a result of the spin-off,
the manufactured housing operations earnings for all periods prior to the spin-off have been
reclassified to discontinued operations in the Statements of Consolidated Earnings. In January 2004, the Company spun off tax-free its entire ownership interest in Construction
Products, which had previously been reported as a separate business segment. As a result of the
spin-off, Construction Products earnings for all periods prior to the spin-off have been
reclassified to discontinued operations in the Statements of Consolidated Earnings. All prior
period information related to these discontinued operations has been reclassified to be consistent
with the March 31, 2005 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 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 spin-offs, in fiscal 2004, 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. 94




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(S)
    SUBSEQUENT EVENTS Home Equity has the option to purchase or call residential mortgage loans from a
securitization when the unpaid principal balance of such mortgage loans included in the
securitization falls below certain specified levels. In April 2005, Home Equity exercised its
option to call certain loans, which will result in a cash payment of $17.1 million in May 2005 for
the acquisition of the loans. Residential mortgage loans called under such arrangements may be
included in a subsequent securitization. In April 2005, Home Equity completed a transaction which will permit it to securitize its
mortgage servicer advances in an amount up to $100 million with a final maturity of May 2011. This
facility has no recourse to Centex Corporation. In May 2005, the Company granted approximately 1.7 million options, 249.7 thousand shares of
restricted stock and 562.6 thousand long-term incentive plan rights to employees. 95




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Managements Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control  Integrated Framework, our management
concluded that our internal control over financial reporting was effective as of March 31, 2005. Our managements assessment of the effectiveness of internal control over financial reporting
as of March 31, 2005 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included herein. 96




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Report of Independent Registered Public Accounting Firm TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CENTEX CORPORATION AND SUBSIDIARIES We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, that Centex Corporation maintained effective internal
control over financial reporting as of March 31, 2005, based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Centex Corporations management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the companys internal control over
financial reporting based on our audit. We conducted our audit 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 effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Centex Corporation maintained effective internal
control over financial reporting as of March 31, 2005, is fairly stated, in all material respects,
based on the COSO criteria. Also, in our opinion, Centex Corporation maintained, in all material
respects, effective internal control over financial reporting as of March 31, 2005, based on the
COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2005 consolidated financial statements of Centex Corporation
and subsidiaries and our report dated May 26, 2005 expressed an unqualified opinion thereon.   -s- ERNST & YOUNG LLP Dallas, Texas May 26, 2005 97




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Report of Independent Registered Public Accounting Firm TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CENTEX CORPORATION AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of Centex Corporation and
subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of earnings,
stockholders equity and cash flows for each of the three years in the period ended March 31, 2005.
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,
2005 and 2004, and the consolidated results of their operations and their cash flows for each of
the three years in the period ended March 31, 2005, in conformity with generally accepted U. S.
accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Centex Corporations internal control over
financial reporting as of March 31, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated May 26, 2005 expressed an unqualified opinion thereon. As discussed in Note (A) to the consolidated financial statements, in fiscal year 2004 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, in fiscal year 2004, 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 26, 2005 98




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Quarterly Results (Unaudited)(1)(Dollars in thousands, except per share data) For the Quarters Ended 2005 and 2004Q1
    
    
    Q2
    
    
    Q3
    
    
    Q42005Revenues
    
    $
    2,766,073
    
    
    $
    2,984,906
    
    
    $
    3,118,623
    
    
    $
    3,990,093Earnings from Continuing Operations (2)
    
    $
    177,233
    
    
    $
    210,612
    
    
    $
    253,771
    
    
    $
    369,748Net Earnings
    
    $
    177,233
    
    
    $
    210,612
    
    
    $
    253,771
    
    
    $
    369,748Earnings from Continuing Operations Per Share (2)Basic
    
    $
    1.43
    
    
    $
    1.70
    
    
    $
    2.02
    
    
    $
    2.89Diluted
    
    $
    1.35
    
    
    $
    1.61
    
    
    $
    1.91
    
    
    $
    2.75Net Earnings Per ShareBasic
    
    $
    1.43
    
    
    $
    1.70
    
    
    $
    2.02
    
    
    $
    2.89Diluted
    
    $
    1.35
    
    
    $
    1.61
    
    
    $
    1.91
    
    
    $
    2.75Average Shares OutstandingBasic
    
    
    123,573,221
    
    
    
    124,036,791
    
    
    
    125,593,379
    
    
    
    127,739,654Diluted
    
    
    130,926,818
    
    
    
    130,981,144
    
    
    
    132,547,190
    
    
    
    134,248,3492004Revenues
    
    $
    2,172,629
    
    
    $
    2,428,326
    
    
    $
    2,569,857
    
    
    $
    3,192,579Earnings from Continuing Operations (2)
    
    $
    133,218
    
    
    $
    188,054
    
    
    $
    187,870
    
    
    $
    267,989Earnings from Discontinued Operations, net of Taxes
    
    
    9,572
    
    
    
    11,335
    
    
    
    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
    
    
    $
    2.17Diluted
    
    $
    1.04
    
    
    $
    1.46
    
    
    $
    1.43
    
    
    $
    2.05Net 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
    
    
    
    130,515,294
  (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 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.   99




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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, 2005. 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, 2005,
to provide reasonable assurance that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There has been no change in our internal controls over financial reporting during the quarter
ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting. For managements and independent registered public accounting firms reports on internal
controls over financial reporting, see the financial statements and supplementary data to this
Report. 
 ITEM 9B. OTHER INFORMATION Not applicable. 100




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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
14, 2005 Annual Meeting of Stockholders: Item
    
    Caption in the 2005 Proxy Statement10
    
    Election of Directors and Related Matters10
    
    Other Matters  Section 16(a) Beneficial Ownership Reporting Compliance11
    
    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. 
 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 Appointment of Independent Auditors in the Companys
Proxy Statement for the July 14, 2005 Annual Meeting of Stockholders. 101




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PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this Report:  1.
    Financial StatementsThe consolidated balance sheets of Centex Corporation and subsidiaries as of March 31,
2005 and 2004, and the related consolidated statements of earnings, stockholders
equity and cash flows for each of the three years in the period ended March 31, 2005,
together with the accompanying Notes to Consolidated Financial Statements and the
Reports of Independent Registered Public Accounting Firm of this Report.2.
    SchedulesSchedules 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.
    ExhibitsThe information on exhibits required by this Item 15 is set forth in the Index to
Exhibits of this Report. 102




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INDEX TO EXHIBITS Exhibit
    
    
    
    Filed Herewith orNumber
    
    Exhibit
    
    Incorporated by Reference3.1
    
    Restated Articles of Incorporation
of Centex Corporation (Centex),
as amended
    
    Exhibit 3.1 to Centexs
Annual Report on Form
10-K for the fiscal year
ended March 31, 20043.2
    
    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, 20034.1
    
    Specimen Centex common stock
certificate (with Rights Agreement
legend)
    
    Exhibit 4.1 to Centexs
Annual Report on Form
10-K for the fiscal year
ended March 31, 20044.2
    
    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
    
    Indenture, dated October 1, 1998,
between Centex and JPMorgan Chase
Bank, N.A. (formerly Chase Bank of
Texas, National Association)
    
    Exhibit 4.1 to Centexs
Current Report on Form
8-K dated October 21,
19984.6
    
    Indenture, dated March 12, 1987,
between Centex and JPMorgan Chase
Bank, N.A. (formerly Texas
Commerce Bank National
Association)
    
    Exhibit 4.5 to Amendment
No. 1 to Centexs
Registration Statement
on Form S-3 (File No.
333-72893), filed on May
14, 1999
 103




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4.7
    
    Any instrument with respect to
long-term debt, where the
securities authorized thereunder
do not exceed 10% of the total
assets of Centex and its
subsidiaries, has not been filed;
these instruments relate to (a)
long-term senior and subordinated
debt of Centex issued pursuant to
supplements to the indentures
filed as exhibits 4.5 and 4.6,
which supplements have also been
filed with the SEC as exhibits to
various Centex registration
statements or to reports
incorporated by reference in such
registration statements, (b)
long-term debt issued pursuant to
pooling and servicing agreements
or similar agreements in
connection with certain asset
securitizations involving certain
subsidiaries of Centex, which
agreements have been filed with
the SEC as exhibits to various
registration statements of CHEC
Funding, LLC or to reports
incorporated by reference in such
registration statements, (c)
long-term debt issued pursuant to
indentures or other agreements in
connection with certain asset
securitizations involving certain
subsidiaries of Centex in private
transactions and (d) other
long-term debt of Centex; Centex
agrees to furnish a copy of such
instruments to the Securities and
Exchange Commission upon request10.1
    
    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
(1998 Stock Option Plan)*
    
    Filed herewith10.2a
    
    Form of stock option agreement for
1998 Stock Option Plan*
    
    Filed herewith10.3
    
    Amended and Restated Centex
Corporation 2001 Stock Plan (2001
Stock Plan)*
    
    Filed herewith10.3a
    
    Form of stock option agreement for
2001 Stock Plan*
    
    Exhibit 10.3a to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.3b
    
    Form of restricted stock agreement
for 2001 Stock Plan*
    
    Exhibit 10.3b to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.4
    
    Amended and Restated Centex
Corporation Long Term Incentive
Plan (LTIP)*
    
    Exhibit 10.4 to Centexs
Annual Report on Form
10-K for the fiscal year
ended March 31, 200410.4a
    
    Form of award agreement for LTIP*
    
    Exhibit 10.4a to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 2004
 104




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10.5
    
    Centex Corporation 2003 Annual
Incentive Compensation Plan
    
    Exhibit 10.13 to
Centexs Quarterly
Report on Form 10-Q for
the quarter ended June
30, 200310.5a
    
    Form of award agreement for
incentive compensation*
    
    Exhibit 10.2 to Centexs
Current Report on Form
8-K dated May 12, 200510.6
    
    Amended and Restated Centex
Corporation 2003 Equity Incentive
Plan (2003 Equity Incentive
Plan)*
    
    Filed herewith10.6a
    
    Form of stock option agreement for
2003 Equity Incentive Plan*
    
    Exhibit 10.6a to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.6b
    
    Form of stock unit agreement for
2003 Equity Incentive Plan*
    
    Exhibit 10.6b to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.6c
    
    Form of restricted stock agreement
for 2003 Equity Incentive Plan*
    
    Exhibit 10.1 to Centexs
Current Report on Form
8-K dated May 12, 200510.7
    
    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
(Executive Deferred Compensation
Plan)*
    
    Exhibit 10.9 to Centexs
Annual Report on Form
10-K for the fiscal year
ended March 31, 200410.9a
    
    Amendment No. 1 to Centex
Corporation Executive Deferred
Compensation Plan*
    
    Filed herewith10.9b
    
    Form of deferred compensation
agreement for Executive Deferred
Compensation Plan*
    
    Filed herewith10.10
    
    Centex Corporation Salary
Continuation Plan*
    
    Exhibit 10.10 to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.11
    
    Centex Comprehensive Medical Plan*
    
    Filed herewith10.12
    
    Consulting Agreement, dated as of
March 31, 2002, between Centex and
David W. Quinn*
    
    Exhibit 10.11 to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.13
    
    Termination Agreement, dated as of
March 31, 2004, between Centex and
David W. Quinn*
    
    Exhibit 10.12 to
Centexs Annual Report
on Form 10-K for the
fiscal year ended March
31, 200410.14
    
    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, 200110.15
    
    Distribution Agreement between
Centex, Cavco Industries L.L.C.
and Cavco Industries, Inc.
    
    Exhibit 10.15 to
Centexs Quarterly
Report on Form 10-Q for
the quarter ended June
30, 200310.16
    
    Amendment No. 1 to Distribution
Agreement between Centex, Cavco
Industries L.L.C. and Cavco
Industries, Inc.
    
    Exhibit 10.19 to
Centexs Quarterly
Report on Form 10-Q for
the quarter ended June
30, 2003
 105




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##### Table of Contents



10.17
    
    Administrative Services Agreement
between Centex Service Company and
Cavco Industries, Inc.
    
    Exhibit 10.16 to
Centexs Quarterly
Report on Form 10-Q for
the quarter ended June
30, 200310.18
    
    Tax Sharing Agreement between
Centex and affiliates and Cavco
Industries, Inc.
    
    Exhibit 10.17 to
Centexs Quarterly
Report on Form 10-Q for
the quarter ended June
30, 200310.19
    
    Agreement to Assign Trademark
Rights and Limited Consent to Use
Centex Trademarks between Centex
and Cavco Industries, Inc.
    
    Exhibit 10.18 to
Centexs Quarterly
Report on Form 10-Q for
the quarter ended June
30, 200310.20
    
    Credit Agreement, dated as of July
16, 2004 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 June 30, 200410.21
    
    Letter of Credit and Reimbursement
Agreement, dated as of July 16,
2004 among Centex, Bank of
America, N.A., as Administrative
Agent, and the lenders named
therein
    
    Exhibit 10.2 to Centexs
Quarterly Report on Form
10-Q for the quarter
ended June 30, 200410.22
    
    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,
200310.23
    
    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,
200310.24
    
    Agreement, dated February 22,
2005, among Centex Development
Funding Company UK Limited,
Centex, the Royal Bank of Scotland
PLC, Lloyds TSB Bank PLL, and the
lenders named therein
    
    Exhibit 10.1 to Centexs
Current Report on Form
8-K filed on February
28, 200510.25
    
    Outside Director Compensation Plan*
    
    Exhibit 10.3 to Centexs
Current Report on Form
8-K dated May 12, 200512.1
    
    Computation of Ratio of Earnings to Fixed Charges
    
    Filed herewith21
    
    List of Subsidiaries of Centex
    
    Filed herewith23
    
    Consent of Independent Registered Public Accounting Firm
    
    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
 106




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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 107




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##### Table of Contents



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 CORPORATIONRegistrant
 May 26, 2005
    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 26, 2005
    By:
    /s/ TIMOTHY R. ELLERTimothy R. Eller, Chairman of the Board andChief Executive Officer (principal executive officer)May 26, 2005
    By:
    /s/ LELDON E. ECHOLSLeldon E. Echols, Executive Vice President andChief Financial Officer (principal financial officer)May 26, 2005
    By:
    /s/ MARK D. KEMPMark D. Kemp, Senior 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, James J. Postl, David W. Quinnand Thomas M. Schoewe
 May 26, 2005
    By:
    /s/ TIMOTHY R. ELLERTimothy R. Eller,Individually and as
Attorney-in-Fact* * Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 108