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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, 1999
COMMISSION FILE NO. 1-12984
CENTEX CONSTRUCTION PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OF INCORPORATION)
75-2520779
(I.R.S. EMPLOYER IDENTIFICATION NO.)
3710 RAWLINS, SUITE 1600, LB 78, DALLAS, TEXAS 75219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(214) 559-6514
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH
EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- -----------------
<S> <C>
COMMON STOCK NEW YORK STOCK
(PAR VALUE $.01 PER SHARE) EXCHANGE
</TABLE>
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
such registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to Form 10-K. .
---
Indicate the number of shares of the registrant's classes of common
stock (or other similar equity securities) outstanding as of the close of
business on June 8, 1999:
Common Stock 19,454,308 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in Parts I,
II, and III, of this Report:
(a) 1999 Annual Report to Stockholders of Centex Construction
Products, Inc. for the fiscal year ended March 31, 1999.
(b) Proxy statement for the annual meeting of stockholders of Centex
Construction Products, Inc. to be held on July 15, 1999.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Business:
General 1
Industry Segment Information 1
Employees 13
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
SIGNATURES 18
INDEX TO EXHIBITS 19
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Centex Construction Products, Inc. ("CXP" or the "Company") is a
producer of a variety of basic construction products used in residential,
industrial, commercial and infrastructure applications. The Company produces and
sells cement, gypsum wallboard, aggregates and readymix concrete. The Company is
incorporated in the state of Delaware. Prior to April 19, 1994, the Company was
a wholly-owned subsidiary of Centex Corporation ("Centex"). On April 19, 1994,
the Company completed an Initial Public Offering ("IPO") of 51% of its common
stock. As a result of the IPO, Centex's ownership of the Company was reduced to
49%. Unless the context indicates to the contrary, the terms "CXP" and the
"Company" as used herein, should be understood to include subsidiaries of CXP
and predecessor corporations. The Company's common stock, par value $0.01 per
share ("CXP Common Stock"), began trading publicly on April 19, 1994. As of June
8, 1999, 19,454,308 shares of CXP Common Stock, which are traded on the New York
Stock Exchange, were outstanding.
As previously disclosed, CXP's Board of Directors authorized CXP
management to repurchase up to five million shares of CXP Common Stock as
management determines advisable. As a result of repurchases during fiscal years
1999, 1998 and 1997 by CXP of its common stock from the public, and certain
purchases of CXP common stock by Centex from the public, Centex now owns
approximately 60.6% of the outstanding shares of CXP Common Stock at March 31,
1999.
CXP's involvement in the construction products business dates to 1963,
when it began construction of its first cement plant. Since that time, the
Company's operations have been expanded to include additional cement production
and distribution facilities and the production, distribution and sale of
aggregates, readymix concrete and gypsum wallboard. The Company's production
facilities are located principally in the western half of the U.S. and in
certain key southwestern states.
The Company operates four quarrying and manufacturing facilities and a
network of 11 terminals for the production and distribution of portland and
masonry cement. These facilities are located primarily in Texas, northern
Illinois, the Rocky Mountain area, Nevada and northern California. The Company
is also vertically integrated, to a limited extent, with readymix concrete
operations in the Austin, Texas area and in northern California. The Company
extracts and produces aggregates from its deposits near Sacramento, California
(the largest single permitted sand and gravel deposit in northern California)
and Austin, Texas. The Company operates two quarries in close proximity to its
gypsum wallboard manufacturing facilities which are located in Albuquerque and
nearby Bernalillo, New Mexico and Gypsum (near Vail), Colorado. The Company has
an associated cogeneration power facility, located at the Gypsum, Colorado
wallboard plant. The Company's wallboard production is shipped by rail and truck
to markets throughout the continental United States. The Company's corporate
office is in Dallas, Texas.
INDUSTRY SEGMENT INFORMATION
The following table presents revenues and earnings before interest and
income taxes contributed by each of the Company's industry segments during the
periods indicated. Identifiable assets, depreciation, depletion and
amortization, and capital expenditures by segment are presented in Note E of the
Notes to the Consolidated Financial Statements of CXP on page 23 of CXP's Annual
Report to Stockholders for the fiscal year ended March 31, 1999 (the "1999 CXP
Annual Report").
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<TABLE>
<CAPTION>
For The Fiscal Years Ended March 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Contribution to Revenues:
Cement $ 152.4 $ 140.4 $ 133.3 $ 125.7 $ 109.9
Gypsum Wallboard 141.6 118.7 72.2 58.3 51.7
Concrete and Aggregates 46.9 42.0 36.8 39.9 35.2
Other, net 1.7 1.9 1.8 2.8 1.6
-------- -------- -------- -------- --------
342.6 303.0 244.1 226.7 198.4
Less Intersegment Sales (6.5) (5.7) (4.7) (4.1) (4.1)
-------- -------- -------- -------- --------
Total Net Revenues $ 336.1 $ 297.3 $ 239.4 $ 222.6 $ 194.3
======== ======== ======== ======== ========
Contribution to Operating
Earnings:
Cement $ 56.8 $ 48.1 $ 39.8 $ 35.3 $ 26.0
Gypsum Wallboard 56.6 35.8 20.5 11.9 7.2
Concrete and Aggregates 7.4 4.5 4.8 5.6 2.6
Other, net 1.7 1.9 1.8 2.8 1.6
-------- -------- -------- -------- --------
122.5 90.3 66.9 55.6 37.4
Corporate Overhead (4.4) (3.8) (3.9) (2.5) (2.3)
-------- -------- -------- -------- --------
Total Earnings Before
Interest and Income Taxes $ 118.1 $ 86.5 $ 63.0 $ 53.1 $ 35.1
======== ======== ======== ======== ========
</TABLE>
Revenues for the past three years from each of the Company's industry
segments, expressed as a percentage of total consolidated net revenues, were as
follows:
<TABLE>
<CAPTION>
Percentage of Total
Consolidated Net Revenues
--------------------------------
Segment: 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cement 43.5% 45.4% 53.8%
Gypsum Wallboard 42.1 39.9 30.2
Concrete/Aggregates:
Readymix Concrete 10.5 10.7 11.8
Aggregates 3.4 3.3 3.4
-------- -------- --------
13.9 14.0 15.2
Other, net 0.5 0.7 0.8
-------- -------- --------
Total Consolidated Net Revenues 100.0% 100.0% 100.0%
======== ======== ========
</TABLE>
CEMENT OPERATIONS
Company Operations. The Company's cement production facilities are
located in or near Buda, Texas; LaSalle, Illinois; Laramie, Wyoming; and
Fernley, Nevada. The Laramie, Wyoming and Fernley, Nevada facilities are
wholly-owned. The Buda, Texas plant is owned by Texas-Lehigh Cement Company, a
joint venture owned 50% by the Company and 50% by Lehigh Portland Cement
Company, a subsidiary of Heidelberger Zement AG. The LaSalle, Illinois plant is
owned by Illinois Cement Company, a joint venture owned 50% by CXP and 50% by
RAAM Limited Partnership, a partnership controlled by members of the Pritzker
family. The Company receives a management fee of $150,000 per year to manage the
Illinois joint venture. The Company's Laramie, Wyoming plant operates under the
name of Mountain Cement Company and the Fernley, Nevada plant under the name of
Nevada Cement Company.
Cement is the basic binding agent for concrete, a primary construction
material. The manufacture of portland cement primarily involves the extracting,
crushing, grinding and blending of limestone and other
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raw materials into a chemically proportioned mixture which is then burned in a
rotary kiln at extremely high temperatures to produce an intermediate product
known as clinker. The clinker is cooled and interground with a small amount of
gypsum to the consistency of face powder to produce finished cement. Clinker can
be produced utilizing either of two basic methods, a "wet" or a "dry" process.
In the wet process, the raw materials are mixed with water to the advantage of
greater ease in the handling and mixing of the raw materials. However,
additional heat, and therefore fuel, is required to evaporate the moisture
before the raw materials can react to form clinker. The dry process, a more fuel
efficient technology, excludes the addition of water into the process. Dry
process plants are either preheater plants, in which hot air is recycled from
the rotary kiln to preheat materials, or are precalciner plants, in which
separate burners are added to accomplish a significant portion of the chemical
reaction prior to the introduction of the raw materials into the kiln. As fuel
is a major component in the cost of producing clinker, most modern cement
plants, including all four of the plants operated by the Company, incorporate
the more fuel efficient dry process technology. At present, approximately 80% of
the Company's net clinker capacity is from preheater or preheater/precalciner
kilns, compared to approximately one-half of U.S. cement capacity manufactured
from such kilns.
<TABLE>
<CAPTION>
Rated Annual Estimated
Clinker Minimum
Capacity Number Limestone
(Thousand Manufacturing of Dedication Reserves
Location short tons)(1) Process Kilns Date (Years)
- -------- -------------- ------------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Buda, Texas (2) 1,200 Dry - 4 Stage 1 1978 60
Preheater
Flash Calciner 1983
LaSalle, Illinois (2) 610 Dry - 4 Stage 1 1974 50
Preheater
Laramie, Wyoming 580 Dry - 2 Stage 1 1988 30
Preheater
Dry - Long Dry 1 1996
Kiln
Fernley, Nevada 500 Dry - Long Dry 1 1964 17
Kiln
Dry - 1 Stage 1 1969
Preheater
------
Total - Gross (3) 2,890
======
- Net (3 1,985
======
</TABLE>
- ---------------------
(1) One short ton equals 2,000 pounds.
(2) The amounts shown represent 100% of plant capacity and production.
These plants are owned by separate joint ventures, in each of which the
Company has a 50% interest.
(3) Generally, a plant's cement grinding production capacity is greater
than its clinker production capacity.
The Company's net cement production, excluding the joint venture
partners' 50% interest in the Buda and LaSalle plants, totaled 2.05 million tons
in fiscal 1999 and 2.03 million tons in fiscal 1998. Total net cement sales were
2.22 million tons in fiscal 1999 and 2.15 million tons in fiscal 1998, as all
plants, except for the Illinois plant which produced more clinker than it could
grind into cement, sold all of the product they produced. Cement production is
capital-intensive and involves high fixed costs. As a result, plant capacity
utilization levels are an important measure of a plant's profitability, since
incremental sales volumes tend to generate increasing profit margins. As a
result of high uptime and demand, the ratio of CXP's actual clinker production
to rated kiln capacity exceeded 98% in fiscal 1999 and 97% in fiscal 1998.
During the past two years, the Company purchased minimal amounts of cement from
others to be resold. Purchased cement sales typically occur at lower gross
profit margins. In fiscal 1999, 6.9% of the cement sold by the Company was
acquired from outside sources, compared to 6.0% in fiscal 1998. In fiscal 1998,
the Company approved a capital project to expand the annual clinker capacity of
the LaSalle, Illinois plant by approximately 75,000 tons and add a new finish
mill. The Company anticipates that this project will be completed during the
second quarter of fiscal 2000.
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Raw Materials and Fuel Supplies. The principal raw material used in the
production of portland cement is calcium carbonate in the form of limestone.
Limestone is obtained principally through the mining and extraction operations
conducted at quarries owned or leased by the Company (including its joint
ventures) and located in close proximity to its plants. The Company believes
that the estimated recoverable limestone reserves owned or leased by it (or its
joint ventures) will permit each of its plants to operate at its present
production capacity for at least 30 years or, in the case of the Company's
Nevada plant, at least 17 years. The Company expects that additional limestone
reserves for its Nevada plant will be available when needed on an economically
feasible basis, although such reserves may be more distant and more expensive to
transport than the Company's existing reserves. Other raw materials used in
substantially smaller quantities than limestone are sand, clay, iron ore and
gypsum, that are either obtained from Company-owned or leased reserves or are
purchased from outside suppliers.
The Company's cement plants use coal and coke as their primary fuel,
but are equipped to burn natural gas as an alternative. The Company has not used
hazardous waste-derived fuels in its plants. The Company's LaSalle, Illinois and
Buda, Texas plants have been permitted to burn scrap tires as a partial fuel
alternative. Electric power is also a major cost component in the manufacture of
cement. The Company has sought to diminish overall power costs by adopting
interruptible power supply agreements which may expose the Company to some
production interruptions during periods of power curtailment.
Sales and Distribution. Demand for cement is highly cyclical and
derived from the demand for concrete products which, in turn, is derived from
demand for construction. According to estimates of the Portland Cement
Association (the "PCA"), the industry's primary trade organization, the three
construction sectors that are the major components of cement consumption are (i)
public works construction, including public buildings, (ii) commercial and
industrial construction and (iii) residential construction, which comprised 54%,
18% and 22%, respectively, of U.S. cement consumption in 1997, the most recent
period for which such data is available. Public works construction was favorably
impacted when the U.S. Congress passed legislation in 1998 known as the
Transportation Equity Act for the 21st Century. This legislation authorized $218
billion in federal expenditures on highways, bridges and mass transit projects
over the next six years. This represents a 44% increase over the previous
six-year period, which ended in 1997. Construction spending and cement
consumption have historically fluctuated widely. The construction sector is
affected by the general condition of the economy and can exhibit substantial
variations across the country as a result of the differing structures of the
regional economies. Regional cement markets experience peaks and valleys
correlated with regional construction cycles. Also, demand for cement is
seasonal, particularly in northern states where inclement weather affects
construction activity. Sales are generally greater from spring through the
middle of autumn than during the remaining part of the year. While the impact on
the Company of construction cycles in individual regions may be mitigated to
some degree by the geographic diversification of the Company, profitability is
very sensitive to shifts in the balance between supply and demand. As a
consequence, the Company's cement segment sales and earnings follow a similar
cyclical pattern.
The following table sets forth certain information regarding the
geographic area served by each of the Company's cement plants and the location
of the Company's distribution terminals in each area. The Company has a total of
11 cement storage and distribution terminals that are strategically located to
extend the sales areas of its plants.
<TABLE>
<CAPTION>
Plant Location Principal Geographic Areas Distribution Terminals
-------------- -------------------------- ----------------------
<S> <C> <C>
Buda, Texas Texas and western Louisiana Corpus Christi, TX
Houston, TX
Orange, TX
Roanoke (Fort Worth), TX
Waco, TX
LaSalle, Illinois Illinois and southern Wisconsin Hartland, WI
</TABLE>
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<TABLE>
<CAPTION>
Plant Location Principal Geographic Areas Distribution Terminals
-------------- -------------------------- ----------------------
<S> <C> <C>
Laramie, Wyoming Wyoming, Utah, northern Rock Springs, WY
Colorado, western Nebraska Salt Lake City, UT
and eastern Nevada Denver, CO
North Platte, NE
Fernley, Nevada Nevada (except Las Vegas) and Sacramento, CA
northern California
</TABLE>
Cement is distributed directly to customers principally by common
carriers, customer pick-up and, to a lesser extent, trucks owned by the Company.
The Company transports cement principally by rail to its storage and
distribution terminals. Cement is distributed primarily in bulk, but also in
paper bags. No single customer accounted for as much as 10% of the Company's
cement sales during fiscal 1999.
Sales are made on the basis of competitive prices in each area. As is
customary in the industry, the Company does not typically enter into long-term
sales contracts, except with respect to major construction projects.
Competition. The cement industry is extremely competitive as a result
of multiple domestic suppliers and the importation of foreign cement through
various terminal operations. Despite the price inelasticity with overall cement
demand, competition among producers and suppliers of cement is based primarily
on price, with consistency of quality and service to customers being important
but of lesser significance. Price competition among individual producers and
suppliers of cement within a geographic area is intense because of the fungible
nature of the product. The U.S. cement industry is fragmented into regional
geographic areas rather than a single national selling area. Because of cement's
low value-to-weight ratio, the relative cost of transporting cement is high and
limits the geographic area in which each company can market its products
economically. No one cement company has a distribution of plants extensive
enough to serve all geographic areas. The number of principal competitors of the
Company's Texas, Illinois, Wyoming and Nevada plants are six, six, five and
five, respectively, operating in these regional areas.
The United States cement industry comprises approximately 44 companies
which own 107 gray cement plants with approximately 84 million tons of clinker
manufacturing capacity (approximately 89 million tons of cement manufacturing
capacity, assuming a 105% conversion ratio). The PCA estimates that cement
demand totaled approximately 114 million tons in 1998, with approximately 23% of
such demand being satisfied by imported cement. Continued strength in all three
construction sectors in 1998 resulted in the fifth consecutive year of record
setting cement consumption in the U.S. Based on the level of demand, the Company
estimates that the cement industry as a whole operated in excess of 98% of its
aggregate manufacturing capacity during 1998. The PCA reports that, as of
February 1999, approximately 30 plant modernizations and expansion projects,
including four new cement plants, have been announced or are underway. These
projects, if completed, could add almost 20 million tons of new domestic cement
manufacturing capacity and increase existing capacity by 25%. The announced
expansions represent a significant change for the industry, but market forces
and other factors may intervene on producers' plans. The Company does not
anticipate that all of the industry's announced expansions will actually be
constructed and because of the long lead times associated with adding additional
capacity, any increased production capability is expected to be gradual over the
next several years. The PCA has predicted U.S. cement use will grow to 120
million tons by 2003, compared with an estimated 114 million tons of cement
consumption in 1998. The Company, however, can offer no guarantee regarding this
predicted increase in near-term demand. In addition, the Company does not know
how much, if any, old, inefficient cement production capacity may be retired
during this period.
Cement imports into the United States occur primarily to supplement
domestic cement production during peak demand periods. Throughout most of the
1980's, however, competition from low-priced imported cement in most coastal and
border areas of the U.S. grew significantly, which included the company's
Fernley, Nevada and Buda, Texas plants' markets. According to the PCA, the
1980's was a period of relatively high cement imports. This high level of
imports depressed cement prices during a period of strong U.S. cement demand. As
a result of antidumping petitions filed by a group of domestic cement
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producers, significant antidumping duty cash deposit requirements have been
imposed on cement imported from Mexico since 1990 and from Japan since 1991.
Venezuela signed a suspension agreement requiring it not to export to the U.S.
at dumped prices. The existing antidumping orders and suspension agreement have
contributed substantially to an improvement in the condition of the U.S. cement
industry.
In the case of Mexico, margins to calculate cash deposit rates and the
resulting antidumping duties are subject to annual review by the Department of
Commerce and appeal to the U.S. Court of International Trade and the U.S. Court
of Appeals for the Federal Circuit or to binational dispute panels under the
North American Free Trade Agreement ("NAFTA").
Pursuant to the Uruguay Round Agreement, the General Agreement on
Tariffs and Trade ("GATT") and the GATT Antidumping Code were superseded on
January 1, 1995, by a new GATT that will be administered by the World Trade
Organization. The antidumping orders outstanding against cement and clinker from
Mexico and Japan and the suspension agreement on cement and clinker from
Venezuela will remain in force. Legislation passed by Congress in December 1994,
however, requires the initiation of "sunset" reviews of the antidumping orders
against Mexico and Japan and the suspension agreement with Venezuela prior to
January 2000 to determine whether these antidumping orders and the suspension
agreement should terminate or remain in effect.
NAFTA thus far has had no material adverse effect on the antidumping
duty cash deposit rates imposed on gray portland cement and clinker imported
from Mexico. The Company does not believe that NAFTA will have a material,
adverse effect on the foregoing antidumping duty cash deposit rates in the near
future. A substantial reduction or elimination of the existing antidumping
duties as a result of GATT, NAFTA or any other reason could adversely affect the
Company's results of operations.
U.S. imports of foreign cement began to increase in the mid-1990's as
the use of cement in the U.S. began to recover. The PCA has estimated that
imports represented approximately 23% of cement used in the U.S. during 1998 as
compared with approximately 18% in 1997 and 16% in 1996. Unlike the imports
during the 1980's, however, most of the recent imports have provided an
additional source of supply rather than disrupting the market with unfair
prices. During most of the recent period of strong demand, the prices of cement
imports rose. The increase was attributable, at least in part, to the influence
of the outstanding antidumping orders and suspension agreements. While the
average cost of imported cement rose during 1998, the cost of cement imports
from some countries, particularly those from Southeast Asia, has declined.
Moreover, independently owned cement operators could undertake to construct new
import facilities and begin to purchase large quantities of low-priced cement
from countries not yet subject to antidumping orders, such as those in Asia,
which could compete with domestic producers. The introduction of low-priced
imported cement from such sources could have a negative impact on the Company's
result of operations.
Capital Expenditures. Capital expenditures during fiscal 1999 amounted
to $7.5 million for the Company's cement segment compared with $3.5 million and
$2.9 million in fiscal 1998 and 1997, respectively. Capital outlays in fiscal
2000 have been budgeted at approximately $5.9 million. Approximately 5.5% of the
budgeted fiscal 2000 total is related to compliance with environmental
regulations. Approximately $6.0 million of the fiscal 1999 total was for the
LaSalle, Illinois plant clinker capacity increase and the new finish mill
project.
Environmental Matters. The cement manufacturing industry, including the
operations of the Company, is regulated by federal, state and local laws and
regulations pertaining to several areas including human health and safety and
environmental compliance. The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended by the Superfund
Amendments and Reauthorization Act of 1986, as well as analogous laws in certain
states, create joint and several liability for the cost of cleaning up or
correcting releases to the environment of designated hazardous substances. Among
those who may be held jointly and severally liable are those who generated the
waste, those who arranged for disposal, those who owned or operated the disposal
site or facility at the time of disposal, and current owners. In general, this
liability is imposed in a series of governmental proceedings initiated by the
identification of a site for initial listing as a "Superfund site" on the
National Priorities List or a similar state
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list and the identification of potentially responsible parties who may be liable
for cleanup costs. None of the Company's sites are listed as a "Superfund site."
The Company's operations are also potentially affected by the Resource
Conservation and Recovery Act ("RCRA"), which is the primary federal statute
governing the management of solid waste and which includes stringent regulation
of solid waste that is considered hazardous waste. The Company's operations
generate nonhazardous solid waste that may include cement kiln dust ("CKD").
Because of a RCRA exemption, known as the Bevill Amendment, CKD generated in the
Company's operations is currently not considered a hazardous waste under RCRA,
pending completion of a study and recommendations to Congress by the U.S.
Environmental Protection Agency ("U.S. EPA"). Nevertheless, such CKD is still
considered a solid waste and is regulated primarily under state environmental
laws and regulations. The U.S. EPA has completed its review of CKD and has
decided to promulgate regulations to govern the handling and disposal of CKD
which will supersede the Bevill Amendment. The Bevill Amendment will remain in
effect until those regulations are in place.
In the past, the Company collected and stored CKD on-site at its cement
plants. The Company continues to store such CKD at its Illinois, Nevada and
Wyoming cement plants and at a former plant site in Corpus Christi, Texas, which
is no longer in operation. Currently, the Company recycles substantially all CKD
related to present operations at all of its cement facilities. When the U.S. EPA
removes the CKD exemption and develops particular CKD management standards in
the future, the Company might be required to incur significant costs in
connection with its CKD. CKD that comes in contact with water might produce a
leachate with an alkalinity high enough to be classified as hazardous and might
also leach certain hazardous trace metals therein.
Another issue of potential significance to the Company is global
warming and the international accord on carbon dioxide stabilization/reduction.
Carbon dioxide is a green house gas many scientists and others believe
contributes to a warming of the Earth's atmosphere. In December 1997, the United
Nations held an international convention in Kyoto, Japan to take further
international action to ensure greenhouse gas stabilization and/or reduction
after the turn of the century. The conference agreed to a protocol to the United
Nations Framework Convention on Climate Change originally adopted in May 1992.
The protocol establishes quantified emission reduction commitments for certain
developed countries, including the U.S., and certain countries that are
undergoing the process of transition to a market economy. These reductions are
to be obtained by 2008-2012. The protocol was made available for signature by
member countries starting in the spring of 1998. The protocol will require
Senate ratification and enactment of implementing legislation before it becomes
effective in the United States.
The consequences of greenhouse gas reduction measures for cement
producers are potentially significant because carbon dioxide is generated from
combustion of fuels such as coal and coke in order to generate the high
temperatures necessary to manufacture cement clinker (which is then ground with
gypsum to make cement). In addition, carbon dioxide is generated in the
calcining of limestone to make cement clinker. Any imposition of raw material or
production limitations or fuel-use or carbon taxes could have a significant
impact on the cement manufacturing industry. It will not be possible to
determine the impact on the Company, if any, until governmental requirements are
defined and/or the Company can determine whether emission offsets and/or credits
are obtainable, and whether alternative cementitious products or alternative
fuel can be substituted.
The Company's cement kilns utilize coal, coke, natural gas, minimal
amounts of self-generated waste oil, and scrap tires in the Illinois and Texas
plants, as fuel.
In April 1992, one of the Company's subsidiaries, Nevada Cement Company
("NCC"), was identified as a potentially responsible party under CERCLA by the
U.S. EPA at the North American Environmental, Inc. storage facility in
Clearfield, Utah ("North American Environmental Site") because of allegations
that NCC arranged for the disposal of hazardous substances at that site. The
Company has records indicating that all of the hazardous substances originating
from NCC that were temporarily stored at the North American Environmental Site
were removed from the storage facility and destroyed in accordance with
applicable laws.
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The Company is aware of no current estimates of the total remediation costs or
the total volume of waste associated with this site. The U.S. EPA has identified
the NCC cement plant site in Fernley, Nevada, as a potential hazardous waste
site and entered it into the Comprehensive Environmental Response, Compensation,
and Liability Information System ("CERCLIS") data base in January 1992. U.S. EPA
performed an assessment in 1992 under CERCLA at the NCC plant because of
concerns over an unlined disposal pond and a citizen complaint about disposal of
wastes. NCC cleaned up the contaminated soil in the vicinity of this pond under
the jurisdiction of the Nevada Department of Conservation and Natural Resources,
Division of Environmental Protection at an immaterial cost to NCC. There can be
no assurance that the Company will not incur material liability in connection
with the North American Environmental Site or the contamination concerns at the
Fernley, Nevada plant site.
Another RCRA concern in the cement industry involves the historical
disposal of refractory brick containing chromium. Such refractory brick was
formerly widely used in the cement industry to line cement kilns. The Company
currently crushes spent refractory brick and uses it as raw feed, but such brick
does not contain chromium.
The Clean Air Act Amendments of 1990 (the "Amendments") provided
comprehensive federal regulation of all sources of air pollution and established
a new federal operating permit and fee program for virtually all manufacturing
operations. The Amendments will likely result in increased capital and
operational expenses for the Company in the future, the amounts of which are not
presently determinable. The Company's U.S. operations have submitted detailed
permit applications and will pay increased recurring permit fees. In addition,
the U.S. EPA is developing regulations for toxic air pollutants under these
Amendments for a broad spectrum of industrial sectors, including portland cement
manufacturing. The U.S. EPA has indicated that the new maximum available control
technology standards could require significant reduction of air pollutants below
existing levels prevalent in the industry. Management has no reason to believe,
however, that these new standards would place the Company at a competitive
disadvantage.
The Federal Water Pollution Control Act, commonly known as the Clean
Water Act ("Clean Water Act"), provides comprehensive federal regulation of all
sources of water pollution. In September 1992, the Company filed a number of
applications under the Clean Water Act for National Pollutant Discharge
Elimination System ("NPDES") stormwater permits.
Management believes that the Company's current procedures and practices
in its operations, including those for handling and managing materials, are
consistent with industry standards. Nevertheless, because of the complexity of
operations and compliance with environmental laws, there can be no assurance
that past or future operations will not result in operational errors,
violations, remediation or other liabilities or claims. Moreover, the Company
cannot predict what environmental laws will be enacted or adopted in the future
or how such future environmental laws will be administered or interpreted.
Compliance with more stringent environmental laws, as well as potentially more
vigorous enforcement policies of regulatory agencies or stricter interpretation
of existing environmental laws, could necessitate significant capital outlays.
With respect to some of the Company's quarries used for the extraction
of raw materials for its cement and gypsum wallboard operations and for the
mining of aggregates for its aggregate operations, the Company is obligated
under certain of its permits and certain regulations to engage in reclamation of
land within the quarries upon completion of extraction and mining. The Company
generally accrues the reclamation costs for each specific quarry.
GYPSUM WALLBOARD OPERATIONS
Company Operations. The Company owns and operates three gypsum
wallboard manufacturing facilities, two located in Albuquerque and nearby
Bernalillo, New Mexico and one located in Gypsum, Colorado. The Company mines
and extracts gypsum and then manufactures gypsum wallboard by first pulverizing
quarried gypsum, then placing it in a calciner for conversion into plaster. The
plaster is mixed with various chemicals and water to produce a mixture known as
slurry, which is inserted between two continuous sheets of recycled paperboard
on a high-speed production line and allowed to harden. The
8
<PAGE> 11
resulting sheets of gypsum wallboard are then cut to appropriate lengths, dried
and bundled for sale. Gypsum wallboard is used to finish the interior walls and
ceilings in residential, commercial and institutional construction. These panel
products provide aesthetic as well as sound-dampening and fire-retarding value.
The Albuquerque plant was acquired in 1985, and was operated until
early 1991. Following the start-up of the new Bernalillo plant in the spring of
1990, the Company elected to suspend operations at the Albuquerque plant due
to weak market conditions. Operations at the Albuquerque plant were recommenced
in May 1993, due to improvements in wallboard demand and prices. The Gypsum,
Colorado gypsum wallboard plant and accompanying electric power cogeneration
facility were purchased in February 1997. The plant originally commenced
production in early 1990 and had been operated by an independent producer until
its acquisition by CXP.
The following table sets forth certain information regarding these
plants:
<TABLE>
<CAPTION>
Rated Annual Gypsum Estimated Minimum
Wallboard Capacity Gypsum Rock
Location (MMSF)(1) Reserves (years)(3)
-------- ------------------ -------------------
<S> <C> <C>
Albuquerque, New Mexico 320(2) 80(4)
Bernalillo, New Mexico 470 80(4)
Gypsum, Colorado 650(2) 35
------
Total 1,440
</TABLE>
------------------------------------------
(1) Million Square Feet ("MMSF")
(2) Expanded capacity.
(3) Proven reserves only. See Raw Materials and Fuel
Supplies section for additional reserves.
(4) The same reserves serve both plants.
The Company's net gypsum wallboard production totaled 1,151 MMSF in
fiscal 1999 and 1,090 MMSF in fiscal 1998. Total gypsum wallboard sales were
1,155 MMSF in fiscal 1999 and 1,089 MMSF in fiscal 1998.
During the third quarter of fiscal 1999, the Company completed a major
capital project to modernize, upgrade and expand its Albuquerque, New Mexico
plant that increased the plant's annual productive capacity by 60 MMSF, allowed
for the production of 54" gypsum wallboard and significantly reduced fuel cost.
The Company also initiated a major capital project during fiscal 1999 to expand
the annual productive capacity of the Gypsum, Colorado plant by approximately
60% or 240 MMSF. The project was completed in the first quarter of fiscal 2000.
Raw Materials and Fuel Supplies. The Company mines and extracts gypsum
rock, the principal raw material used in the manufacture of gypsum wallboard,
from mines and quarries owned, leased or subject to claims owned by the Company
and located near its plants. The New Mexico and Colorado mines and quarries are
estimated to contain approximately 50 million tons and 21 million tons of proven
and probable gypsum reserves, respectively. Based on its current production
capacity, the Company estimates that the life of its existing gypsum rock
reserves is approximately 80 years in New Mexico and 35 years Colorado.
Paper used in manufacturing gypsum wallboard is purchased by the
Company from third-party suppliers. Approximately 65% of the Company's paper
requirements are under two evergreen paper contracts, with one contract having a
six-month notice provision for termination and the other expiring on December
31, 1999. The remainder of the Company's paper requirements are purchased on the
open market from various suppliers. The Company does not believe that the loss
of a supplier would have a material, adverse effect on its business.
The Company's gypsum wallboard manufacturing operations use large
quantities of natural gas and electrical power. Substantially all of the
Company's natural gas requirements for its gypsum wallboard plants are currently
provided by two gas producers under gas supply agreements expiring in May 1999
for both the
9
<PAGE> 12
New Mexico and Colorado plants. If the agreements are not renewed, the Company
expects to be able to obtain its gas supplies from other local gas producers at
competitive prices. Electrical power is supplied to the Company's New Mexico
plants at standard industrial rates by a local utility. The Company's
Albuquerque plant adopted an interruptible power supply agreement which may
expose it to some production interruptions during periods of power curtailment.
Power for the Gypsum, Colorado plant is supplied by the cogeneration power
facility that was acquired along with the gypsum wallboard plant in February
1997. Currently, the cogeneration power facility supplies only the power needs
of the gypsum wallboard plant and does not sell any power to third parties.
Sales and Distribution. The principal sources of demand for gypsum
wallboard are (i) residential construction, (ii) repair and remodeling and (iii)
non-residential construction, which the Company estimates accounted for
approximately 45%, 38% and 17%, respectively, of 1998 industry sales. While the
gypsum wallboard industry remains highly cyclical, recent growth in the repair
and remodeling segment, together with certain trends in new residential and
commercial construction activity, have partially mitigated the impact of
fluctuations in overall levels of new construction.
Although the percentage of gypsum wallboard shipments accounted for by
new residential construction has declined in recent years, new residential
construction remains the largest single source of gypsum wallboard demand. In
recent years, demand has been favorably impacted by a shift toward more
single-family detached housing within the new residential construction segment
and by an increase in the size of the average single-family detached home.
The size of the total residential repair and remodel market grew to an
estimated record $121 billion in 1997, up from $46 billion in 1980. Although
data on commercial repair and remodel activity are not readily available, the
Company believes that this segment has also grown significantly in recent years.
The growth of the repair and remodeling market is primarily due to the aging of
housing stock, remodeling of existing buildings and tenant turnover in
commercial space. In addition, repair and remodeling activity has benefitted
from the fact that it has increasingly come to be viewed by homeowners,
particularly in recessionary periods, as a low cost alternative to purchasing a
new house.
The Company sells gypsum wallboard to numerous building materials
dealers, gypsum wallboard specialty distributors, home center chains and other
customers located throughout the United States. One customer with multiple
shipping locations accounted for approximately 16% of the Company's total gypsum
wallboard sales during fiscal 1999. However, the Company does not believe that
the loss of that customer would have a material adverse affect on the Company
and its subsidiaries taken as a whole.
During fiscal 1999, the principal states in which the Company had
gypsum wallboard sales were Colorado, Florida, Texas, New Mexico, Georgia and
Illinois. Prior to fiscal 1992, most of the Company's gypsum wallboard sales
were made in the western United States, with significant sales in California.
However, due to the sharp decline in construction activity in California during
the early 1990's, the Company has focused the distribution of its gypsum
wallboard in various other areas of the country.
Although gypsum wallboard is distributed principally in regional areas,
the Company and certain other producers have the ability to ship gypsum
wallboard by rail outside their usual regional distribution areas to take
advantage of these other regional increases in demand. The Company owns or
leases 168 railcars for transporting gypsum wallboard. In addition, in order to
facilitate distribution in certain strategic areas, the Company maintains a
distribution center in Albuquerque, New Mexico and four reload yards in Florida,
Alabama and Illinois. The Company's rail distribution capabilities permit it to
reach customers in all states west of the Mississippi River and many eastern
states. During fiscal 1999, approximately 30% of the Company's sales volume of
gypsum wallboard was transported by rail.
Competition. There are eleven manufacturers of gypsum wallboard
operating a total of 73 plants. The Company estimates that the three largest
producers - USG Corporation, National Gypsum Company and Georgia-Pacific
Corporation - account for approximately 80% of gypsum wallboard sales in the
United States. In 1996 and early 1997, the industry experienced some
consolidation, the largest being Georgia-Pacific
10
<PAGE> 13
Corporation's purchase of the gypsum wallboard business of Domtar, Inc. In
general, a number of the Company's competitors in the gypsum wallboard industry
have greater financial, manufacturing, marketing and distribution resources than
the Company. Furthermore, certain of its competitors have vertically integrated
operations consisting of gypsum wallboard manufacturing plants, paper mills and
distribution centers, which may provide them with certain cost advantages over
the Company.
Competition among gypsum wallboard producers is primarily on a regional
basis, with local producers benefitting from lower transportation costs, and to
a lesser extent on a national basis. Because of the commodity nature of the
product, competition is based principally on price and, to a lesser extent, on
product quality and customer service.
Total United States gypsum wallboard production capacity is estimated
currently at 28.5 billion square feet per year, a 6% rise from 1997. The Gypsum
Association, an industry trade group, estimates that total 1998 gypsum wallboard
shipments were approximately 28.0 billion square feet, resulting in industry
capacity utilization of over 98%. Imports are not a major factor in the gypsum
wallboard industry.
During the past two years, a number of the Company's competitors in the
gypsum wallboard industry commenced, or announced an intention to commence,
capital expansion projects to construct new gypsum wallboard manufacturing
facilities or to expand existing facilities. The completion of these projects,
if all of them are actually started and carried through to completion, could
increase domestic industry capacity over the next two or three years by up to
24%. However, some or all of this additional capacity could be absorbed if there
is an increase in domestic demand (over the past 25 years demand for gypsum
wallboard in the United States has increased at an average annual rate of 4%)
and/or if less efficient plants are shut down. If during the next two or three
years there is no corresponding increase in domestic demand for gypsum wallboard
and/or no corresponding shut down of inefficient or marginally efficient gypsum
wallboard plants, it is possible that gypsum wallboard prices could decline,
thus impacting future results in the Company's Gypsum Wallboard group.
Capital Expenditures. Capital expenditures during fiscal 1999 for the
gypsum wallboard segment amounted to $24.2 million; $7.9 million in fiscal year
1998; and $52.8 million (including $52 million for the Eagle acquisition) in
fiscal year 1997. Capital outlays in fiscal 2000 have been budgeted at
approximately $9.6 million with 3% of the expenditures related to compliance
with environmental regulation. The majority of the fiscal 1999 expenditures
($22.3 million) were for the Albuquerque and Eagle plant upgrade projects.
Environmental Matters. The gypsum wallboard industry is subject to
environmental regulations similar to those governing the Company's cement
operations. None of the Company's gypsum wallboard operations are presently the
subject of any local, state or federal environmental proceedings or inquiries.
The Company does not, and has not used asbestos in any of its gypsum wallboard
products.
In the fiscal year ended March 31, 1996, one of the Company's gypsum
wallboard subsidiaries entered into a consent order with the U.S. EPA to settle
claims of the U.S. EPA against potentially responsible parties with respect to a
waste disposal facility in Broomfield, Colorado. The Company's subsidiary
contracted with the facility for the disposal of a small amount of liquid waste.
The facility was eventually closed by governmental agencies. The Company's
subsidiary settled this matter by entering into the consent order and paying
approximately $50 into a settlement fund.
CONCRETE AND AGGREGATES OPERATIONS
Company Operations. Readymix concrete, a versatile, low-cost building
material used in almost all construction, involves the mixing of cement, sand,
gravel, crushed stone and water to form concrete which is then sold and
distributed to numerous construction contractors. Concrete is produced in batch
plants and transported to the customer's job site in mixer trucks.
The construction aggregates business consists of the mining,
extraction, production and sale of crushed stone, sand, gravel and lightweight
aggregates such as expanded clays and shales. Construction
11
<PAGE> 14
aggregates of suitable characteristics are employed in virtually all types of
construction, including the production of portland and asphaltic cement concrete
mixes and in highway construction and maintenance.
As in the cement industry, the demand for readymix concrete and
aggregates largely depends on regional levels of construction activity. The
construction sector is subject to the vagaries of weather conditions, the
availability of financing at reasonable rates and overall fluctuations in
regional economies, and therefore tends to be cyclical. Both the concrete and
aggregates industries are highly fragmented, with numerous participants
operating in local areas. Because the cost of transporting concrete and
aggregates is very high relative to product values, producers of concrete and
aggregates typically can sell their products only in areas within 100 miles of
their production facilities. Barriers to entry in each industry are low, except
with respect to environmental permitting requirements for new aggregate
production facilities and zoning of land to permit mining and extraction of
aggregates.
The Company produces and distributes readymix concrete north of
Sacramento, California and in Austin, Texas. The following table sets forth
certain information regarding these operations:
<TABLE>
<CAPTION>
Location Number of Plants Number of Trucks
-------- ---------------- ----------------
<S> <C> <C>
Northern California 5 40
Austin, Texas 5 68
--- ----
Total 10 108
=== ====
</TABLE>
The Company's production of readymix concrete reached a ten-year peak
of 992,000 cubic yards in 1986. In response to decreased demand in the northern
California and Austin areas, production declined to 430,000 cubic yards in
fiscal 1990. Since that date, production has increased each successive year as
market conditions continue to improve. The Company believes that it has the
capacity to increase its concrete production from existing levels by adding to
its fleet of trucks. The Company's net readymix concrete production was 706,000
cubic yards in fiscal 1999 and 672,000 cubic yards in fiscal 1998.
The Company conducts aggregate operations near its concrete facilities
in northern California and Austin, Texas. Aggregates are obtained principally by
mining and extracting from quarries owned or leased by the Company and located
in close proximity to its plants. The following table sets forth certain
information regarding these operations:
<TABLE>
<CAPTION>
Estimated Annual
Production Capacity Estimated Minimum
Location Types of Aggregates (Thousand tons)(1) Reserves (Years)
- -------- ------------------- ------------------- -----------------
<S> <C> <C> <C>
Northern California Sand and Gravel 1,400 100
Austin, Texas Limestone 1,500 70
-----
Total 2,900
</TABLE>
- --------------------------------------
(1) Based on single-shift operation.
The Company's total net aggregate sales were 2.9 million tons in fiscal
1999 and 2.6 million tons in fiscal 1998. Total aggregates production was 3.1
million tons in fiscal 1999 and 2.8 million tons in fiscal 1998. A portion of
the Company's total aggregates production is used internally by the Company's
readymix concrete operations.
Raw Materials. The Company supplies 100% and 97% of its cement
requirements for its Austin and northern California concrete operations,
respectively. The Company supplies approximately 38% and 23%, respectively, of
its aggregates requirements for its Austin and northern California concrete
operations. The Company obtains the balance of its cement and aggregates
requirements from multiple sources in each of these areas.
12
<PAGE> 15
The Company is engaged in negotiations with state and federal
government agencies over issues of title to a portion of its principal
aggregates deposit in northern California. Even if the negotiations are
unsuccessful in resolving adverse claims, the undisputed portion of the
Company's California aggregate deposit contains sufficient reserves to serve the
Company's needs. See "Item 3, Legal Proceedings."
Sales and Distribution. The Company sells readymix concrete to numerous
contractors and other customers in each plant's selling area. The Company's
batch plants in Austin and northern California are strategically located to
serve each selling area. Concrete is delivered from batch plants by trucks owned
by the Company.
The Company sells aggregates to building contractors and other
customers engaged in a wide variety of construction activities. Aggregates are
delivered from the Company's aggregate plants by common carriers, customer
pick-up and, to a lesser extent, trucks owned by the Company. No single customer
accounted for more than 10% of the Company's concrete and aggregates sales
during fiscal 1999. The Company is attempting to secure a rail link from its
principal aggregates deposit north of Sacramento, California to extended
markets.
Competition. Competition among concrete producers within the Company's
northern California and Austin selling areas is strong. The Company's
competitors include five small and four large concrete producers in the northern
California area and five large and four small concrete producers in the Austin
area.
Both concrete and aggregates are commodity products. Each type of
aggregate is sold in competition with other types of aggregates and in
competition with other producers of the same type of aggregates. Accordingly,
competition in both the concrete and aggregates businesses is based principally
on price and, to a lesser extent, on product quality and customer service.
Capital Expenditures. Capital expenditures during fiscal 1999 amounted
to $2.1 million for the concrete and aggregates segment compared with $2.0
million and $2.6 million in fiscal 1998 and 1997, respectively. Capital outlays
in fiscal 2000, have been budgeted at approximately $2.7 million. Approximately
3% of the budgeted fiscal 2000 total is related to compliance with environmental
regulations.
Environmental matters. The concrete and aggregates industry is subject
to environmental regulations similar to those governing the Company's cement
operations. None of the Company's concrete or aggregates operations are
presently the subject of any local, state or federal environmental proceeding or
inquiries.
EMPLOYEES
The Company and its subsidiaries had approximately 1,107 employees at
March 31, 1999. Approximately 19% of the Employees are represented by collective
bargaining units. The number of employees of the Company is 12.
FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations (incorporated by reference herein from the 1999 CXP Annual
Report) and other sections of the 1999 CXP Annual Report and this Annual Report
on Form 10-K 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 the Company is discussing its beliefs, estimates or expectations. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties. Therefore, actual results and outcomes may differ
materially from what is expressed or forecasted in such forward-looking
statements. The principal risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following: the cyclical and seasonal nature of the Company's
business; public infrastructure expenditures; adverse weather; availability of
raw materials; unexpected operational difficulties; governmental regulation and
changes in
13
<PAGE> 16
governmental and public policy; changes in economic conditions specific to any
one or more of the Company's markets; competition; general economic conditions
and interest rates. Other risks and uncertainties could also affect the outcome
of the forward-looking statements.
ITEM 2. PROPERTIES
The Company operates cement plants, quarries and related facilities at
Buda, Texas; LaSalle, Illinois; Fernley, Nevada and Laramie, Wyoming. The Buda
and LaSalle plants are each owned by separate joint ventures in which CXP has a
50% interest. The Company's principal aggregate plants and quarries are located
in Austin, Texas and Marysville, California. In addition, the Company operates
gypsum wallboard plants in Albuquerque and nearby Bernalillo, New Mexico and
Gypsum, Colorado. None of the Company's facilities are pledged as security for
any debts.
See "Item 1. Business" on pages 1-14 of this Report for additional
information relating to the Company's properties.
ITEM 3. LEGAL PROCEEDINGS
The Company's Western Aggregates, Inc. subsidiary ("WAI") has received
notices of possible title claims of the United States and State of California
relating to WAI's leasehold interest under a 99-year mineral lease on 10,000
acres of property north of Sacramento, California commonly known as the Yuba
Goldfields. WAI is negotiating with the government authorities in an effort to
resolve these title claims. The Company cannot predict the outcome of
negotiations with the United States or the State of California. However, even if
such negotiations are unsuccessful in resolving the adverse title claims to
lands in the Yuba Goldfields, the Company believes that the portion of WAI's
mineral lease which is not in dispute contains sufficient estimated reserves to
meet WAI's current mining requirements for aggregates for a period of more than
100 years. Accordingly, the Company believes that the title claims of the United
States and the State of California to lands in the Yuba Goldfields will not have
a material, adverse effect on the financial condition or the results of
operations of the Company.
In addition to the matters described above, the Company is a party to
certain other ordinary legal proceedings incidental to its business. In general,
although the outcome of litigation is inherently uncertain, the Company believes
that none of the litigation matters in which the Company or any subsidiary is
involved, if determined unfavorably to the Company or any subsidiary, would have
a material, adverse effect on the consolidated financial condition or operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF CXP (SEE ITEM 10 OF PART III)
The following is an alphabetical listing of the Company's executive
officers, as such term is defined under the rules and regulations of the
Securities and Exchange Commission. All of these executive officers, except for
Mr. House, have been employed by the Company and/or one or more subsidiaries of
the Company for the past five years. All executive officers were elected by the
Board of Directors of the Company on July 17, 1997, except for Mr. House and Mr.
Rowley who were appointed by the Chairman and Chief Executive Officer, pursuant
to the Bylaws of the Company in January 1998, to serve until the next Annual
Meeting of Directors or until their respective successors are duly elected and
qualified or appointed as the case may be. There is no family relationship
between any of these officers.
14
<PAGE> 17
<TABLE>
<CAPTION>
Name Age Positions with CXP
---- --- ------------------
<S> <C> <C>
O. G. (Greg) Dagnan 59 Chairman and Chief Executive Officer
(Chairman since January 1998; Chief Executive Officer
since January 1990; President from January 1990 through
December 1997; Senior Vice President - Operations from
August 1989 to January 1990).
Richard D. Jones, Jr. 53 President and Chief Operating Officer
(President since January 1998; Chief Operating Officer
since January 1990; Executive Vice President from
January 1990 through December 1997).
Arthur R. Zunker, Jr. 55 Senior Vice President - Finance and Treasurer
(Senior Vice President - Finance and Treasurer since
January 1994; Senior Vice President - Administration
from August 1984 to January 1994).
H. David House 57 Executive Vice President - Gypsum (Executive Vice
President - Gypsum since January 1998; President of
American Gypsum Company since June 1997; President of
James Hardie Gypsum Division from August 1993 through
May 1996).
Steven R. Rowley 46 Executive Vice President - Cement
(Executive Vice President - Cement since January 1998;
Executive V.P. of Illinois Cement Company from June
1995 through December 1997; Plant Manager at Nevada
Cement Company from April 1991 through May 1995).
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(See Item 7 below.)
ITEM 6. SELECTED FINANCIAL DATA
(See Item 7 below.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by Items 5, 6 and 7 is incorporated herein
by reference to the information set forth under the following captions (on the
page or pages indicated) in the 1999 CXP Annual Report:
<TABLE>
<CAPTION>
Items Caption in the 1999 CXP Annual Report Pages
----- ------------------------------------- -----
<S> <C> <C>
5 Stock Prices and Dividends 40
5 Indebtedness (Note C to Consolidated Financial Statements 21
of CXP)
6 Summary of Selected Financial Data 36-37
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
Items Caption in the 1999 CXP Annual Report Pages
----- ------------------------------------- -----
<S> <C> <C>
7 Indebtedness (Note C to Consolidated Financial Statements of CXP) 21
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 30-35
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for in this Item 8 is incorporated herein by
reference to the 1999 CXP Annual Report as set forth in the index to
consolidated financial statements and schedules on page 17 of this Report (see
Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(See Item 11 below.)
ITEM 11. EXECUTIVE COMPENSATION
Except for the information relating to the executive officers of the
Company, which follows Item 4 of Part I of this Report, 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 (on the page or
pages indicated) in the Company's Proxy Statement dated June 18, 1999, for the
Company's July 15, 1999 Annual Meeting of Stockholders (the "1999 CXP Proxy
Statement"):
<TABLE>
<CAPTION>
Items Caption in the 1999 CXP Proxy Statement Pages
----- --------------------------------------- -----
<S> <C> <C>
10 Election of Directors 2
10 Section 16(a) Compliance 12
11 Executive Compensation 6
12 Security Ownership of Management and
Certain Beneficial Owners 4
13 Certain Transactions 12
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(See Item 11 above.)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(See Item 11 above.)
16
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
(1) and (2) See the Index to Consolidated Financial Statements and Schedules
below for a list of the Financial Statements and Financial Statement schedules
filed herewith.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Reference
---------
1999 CXP
CENTEX CONSTRUCTION PRODUCTS, INC. Annual Report Page
------------------
<S> <C>
Report of Independent Public Accountants ................................................................ 29
Statements of Consolidated Earnings for the years ended March 31, 1999, 1998 & 1997 ..................... 14
Consolidated Balance Sheets as of March 31, 1999 & 1998 ................................................. 15
Statements of Consolidated Cash Flows for the years ended March 31, 1999, 1998 & 1997 ................... 16
Statements of Consolidated Stockholders' Equity for the years ended March 31, 1999, 1998 & 1997 ......... 17
Notes to Consolidated Financial Statements .............................................................. 18-28
Quarterly Results (Unaudited) ........................................................................... 38
</TABLE>
Consolidated supporting schedules have been omitted either because the
required information is contained in notes to the consolidated financial
statements or because such schedules are not required or are not applicable.
(3) Exhibits
The information on exhibits required by this Item 14 is set forth in
the CXP Index to Exhibits appearing on page 19 and 20 of this Report.
(b) Reports on Form 8-K:
None
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
June 18, 1999 /s/ O. G. DAGNAN
----------------------------------------------
O. G. Dagnan, Director, Chairman of the
Board and Chief Executive Officer
(principal executive officer)
June 18, 1999 /s/ ARTHUR R. ZUNKER, JR.
-----------------------------------------------
Arthur R. Zunker, Jr., Senior Vice President -
Finance and Treasurer
(principal financial and accounting officer)
June 18, 1999 /s/ ROBERT L. CLARKE
----------------------------------------------
Robert L. Clarke, Director
June 18, 1999 /s/ LAURENCE E. HIRSCH
----------------------------------------------
Laurence E. Hirsch, Director
June 18, 1999 /s/ DAVID W. QUINN
----------------------------------------------
David W. Quinn, Director
June 18, 1999 /s/ HAROLD K. WORK
----------------------------------------------
Harold K. Work, Director
18
<PAGE> 21
INDEX TO EXHIBITS
CENTEX CONSTRUCTION PRODUCTS, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------- -----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Centex
Construction Products, Inc. (the "Company")(filed
as Exhibit 3.1 to the Form S-8 Registration Statement
of the Company (No. 33-82928)(the "S-8 Registration
Statement"), filed on August 16, 1994, and incorporated
herein by reference)
3.2 Amended and Restated Bylaws of the Company (filed as
Exhibit 3.2 to the S-8 Registration Statement and
incorporated herein by reference)
4.1 Form of Certificate evidencing Common Stock (filed as
Exhibit 4.1 to Amendment No. 3 to the Form S-1
Registration Statement of the Company (No. 33-74816),
filed on April 4, 1994, ("Amendment No. 3"), and
incorporated by reference herein)
4.2 Credit Agreement dated as of April 18, 1994, among the
Company, The First National Bank of Chicago,
individually and as agent, and the other lenders named
therein (filed as Exhibit 4.2 to the Annual Report on Form
10-K of the Company (File No. 1-12984) for the fiscal
year ended March 31, 1995 (the "Form 10-K") and
incorporated herein by reference)
4.3 Amendment No. 1 to the Credit Agreement, dated as of
March 20, 1996, among the Company, the First National
Bank of Chicago, individually and as agent, and the other
lenders named therein (filed as Exhibit 4.3 to the Annual
Report on Form 10-K of the Company (File No. 1-12984)
for the fiscal year ended March 31, 1996 and incorporated
herein by reference)
4.4 Amendment No. 2 to the Credit Agreement, dated as of
March 27, 1998, among the Company, the First National
Bank of Chicago, individually and as agent, and the other
lenders named therein
10.1 Joint Venture Agreement between Ilce, Inc. (f/k/a
Illinois Cement Company, Inc.) and RAAM Limited
Partnership, dated April 1, 1972, as amended (filed
as Exhibit 10.1 to the Form S-1 Registration
Statement (No. 33-74816) of the Company, filed on
February 4, 1994, (the "S-1 Registration Statement")
and incorporated herein by reference)
10.2 Joint Venture Agreement by and among Texas Cement
Company, the Company, and Lehigh Portland Cement
Company, dated March 25, 1986, as amended (filed as
Exhibit 10.2 to the S-1 Registration Statement) and
incorporated herein by reference)
10.3 The Centex Construction Products, Inc. amended and restated
Stock Option Plan (filed as Exhibit 10.3 to the Annual Report
on Form 10-K of the Company (File No. 1-12984) for the fiscal
year ended March 31, 1997 and incorporated herein by
reference)(1)
</TABLE>
19
<PAGE> 22
<TABLE>
<S> <C>
10.4 Supplemental Executive Retirement Plan of Centex
Construction Products, Inc. (filed as Exhibit 10.4 to the
1995 Form 10-K and incorporated herein by reference)(1)
10.5 Indemnification Agreement dated as of April 19, 1994,
between the Company and Centex Corporation ("Centex")
(filed as Exhibit 10.5 to the 1995 Form 10-K
and incorporated herein by reference)
10.6 Tax Separation Agreement dated as of April 1, 1994,
among Centex, the Company and its subsidiaries
(filed as Exhibit 10.6 to the 1995 Form 10-K
and incorporated herein by reference)
10.7 Administrative Services Agreement dated as of
April 1, 1994, between the Company and Centex
Service Company (filed as Exhibit 10.7 to the 1995
Form 10-K and incorporated herein by reference)
10.8 Trademark License Agreement dated as of April 19, 1994,
between the Company and Centex (filed as Exhibit 10.8 to the
1995 Form 10-K and incorporated herein by reference)
10.9 Form of Indemnification Agreement between the
Company and each of its directors (filed as Exhibit
10.9 to Amendment No. 3 and incorporated herein by
reference)(1)
10.10 Limited Liability Company Unit Purchase Agreement (EGP), dated
as of December 5, 1997, among Centex American Gypsum Company,
Centex Eagle Gypsum Company, and Eagle-Gypsum Products (filed
as Exhibit 2.1 to the Company's Current Report on Form 8-K
(File No. 1-12984), filed on March 12, 1997, (the "Form 8-K")
and incorporated herein by reference)
10.11 Limited Liability Company Unit Purchase Agreement (NES), dated
as of December 5, 1997, among Centex American Gypsum Company,
CEGC Holding Company, and National Energy Systems, Inc. (filed
as Exhibit 2.2 to the Form 8-K and incorporated herein by
reference)
13** Annual Report to Stockholders of the Company for fiscal year
ended March 31, 1999 (the "Annual Report to Stockholders")
21* Subsidiaries of the Company
23* Consent of Independent Public Accountants
27* Financial Data Schedule
</TABLE>
- --------------------------
* Filed herewith.
** With the exception of the information expressly incorporated by reference
in this Annual Report on Form 10-K from the Annual Report to Stockholders,
the Annual Report to Stockholders is not deemed filed with the Commission
as a part of this Annual Report on Form 10-K.
(1) Required to be identified as a management contract or a compensatory plan
or arrangement pursuant to Item 14(a)(3) of Form 10-K.
20
<PAGE> 1
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $336,073 $297,322 $239,380 $222,594 $194,313
EARNINGS BEFORE
INCOME TAXES $121,127 $ 88,333 $ 64,406 $ 52,304 $ 33,829
NET EARNINGS $ 77,289 $ 56,533 $ 41,799 $ 33,944 $ 21,820
DILUTED EARNINGS
PER SHARE $ 3.71 $ 2.56 $ 1.89 $ 1.47 $ 0.95
CASH DIVIDENDS
PER SHARE(1) $ 0.20 $ 0.20 $ 0.20 $ 0.05 $ --
DEBT $ 480 $ 560 $ 2,640 $ 720 $ 24,500
STOCKHOLDERS' EQUITY $279,920 $274,803 $239,436 $216,462 $183,405
AVERAGE DILUTED
SHARES OUTSTANDING 20,832 22,063 22,174 23,023 22,988
BOOK VALUE PER SHARE
AT YEAR END $ 14.18 $ 12.77 $ 10.89 $ 9.42 $ 7.99
</TABLE>
(1) DECLARED INITIAL QUARTERLY CASH DIVIDEND OF FIVE CENTS PER SHARE ON MARCH
12, 1996.
<TABLE>
<CAPTION>
REVENUES
($ IN MILLIONS)
<S> <C> <C>
1995 $194
1996 $223
1997 $239
1998 $297
1999 $336
</TABLE>
<TABLE>
<CAPTION>
NET EARNINGS
($ IN MILLIONS)
<S> <C> <C>
1995 $22
1996 $34
1997 $42
1998 $57
1999 $77
</TABLE>
1
<PAGE> 2
To Our Shareholders
CXP CELEBRATED FIVE YEARS AS A PUBLICLY HELD COMPANY BY ACHIEVING A FIFTH
CONSECUTIVE YEAR OF RECORD OPERATIONAL GROWTH AND FINANCIAL PERFORMANCE.
BENEFITTING FROM FISCAL 1999'S ECONOMIC PROSPERITY, CXP'S EXPANDED, EFFICIENT
OPERATIONS AGAIN PRODUCED HISTORICALLY HIGH REVENUES, EARNINGS AND RETURNS.
FISCAL 1999 FINANCIAL HIGHLIGHTS
o Bolstered by record earnings in each product line, particularly Gypsum
Wallboard, CXP's net earnings reached $77,289,000, 37% higher than
$56,533,000 in fiscal 1998.
o Diluted earnings per share for fiscal 1999 increased 45% to $3.71 compared
to $2.56 for fiscal 1998.
o Fiscal 1999 revenues totaled $336,073,000, a 13% improvement over
$297,322,000 last year.
o CXP's consolidated gross operating margin exceeded 36% in fiscal 1999,
rising from 30% in the prior year.
o Fiscal 1999 EBITDA (Earnings Before Income Taxes, Depreciation and
Amortization) increased 31% to a record $134,269,000.
o Return on beginning stockholders' equity was over 28% this year versus 24%
in fiscal 1998. Return on net assets reached 40% in fiscal 1999 compared to
31% last year.
o At March 31, 1999, CXP was virtually debt-free, had $50 million in cash and
$280 million of equity.
CXP's significant financial achievement was recognized in the March 1999
edition of International Cement Review, which showed the Company's 25.2% return
on gross assets to be the highest in the industry worldwide.
Fiscal 1999's ideal economic climate - low interest rates coupled with low
inflation - energized
<TABLE>
<CAPTION>
OPERATING MARGIN
(PERCENT)
<S> <C> <C>
1995 19%
1996 25%
1997 28%
1998 30%
1999 36%
</TABLE>
<TABLE>
<CAPTION>
DILUTED EARNINGS PER SHARE
(DOLLARS)
<S> <C> <C>
1995 $0.95
1996 $1.47
1997 $1.89
1998 $2.56
1999 $3.71
</TABLE>
2
<PAGE> 3
both the residential and commercial construction markets, sustaining demand for
our Cement, Gypsum Wallboard and Concrete and Aggregates products. All of CXP's
manufacturing facilities again operated at capacity. Market consumption in all
business segments set new highs and Cement and Gypsum Wallboard demand continued
to exceed capacity, further boosting product pricing.
One of CXP's ongoing objectives is prudent reinvestment of our cash flow to
expand our businesses. This cash flow is utilized, as appropriate, for capital
additions to existing operations, for acquisitions, and for the introduction of
new products and stock repurchases. Fiscal 1999 operating cash flow, which
totaled about $93 million, was used primarily to upgrade our facilities and to
repurchase CXP stock.
During the year, we made three significant plant expansions and continued to
lower our operating costs, positioning the Company to reap even more significant
benefits for our stockholders. An $18 million expansion of the Eagle Gypsum
Wallboard plant in Colorado, which will increase the facility's annual capacity
by 60%, or about 240 million square feet (MMSF), beginning in the first quarter
of fiscal 2000, was substantially completed ahead of schedule and under budget.
Its start-up shortly after fiscal year end exceeded expectations. A $16 million
upgrade of the Albuquerque Wallboard facility has increased annual plant
capacity by 60 MMSF, or about 23%, facilitates the production of 54" board and
other specialty products, and reduces production costs. A $20 million expansion
project at our 50%-owned Illinois Cement plant included the expansion of the
facility's clinker capacity by 75,000 tons, a 15% gain, as well as a
4,000-horsepower finish mill that is scheduled to be commissioned during the
first quarter of fiscal 2000.
Reflecting continuing confidence in CXP's future performance, during the
second quarter of fiscal 1999 and again shortly after the end of the fiscal
year, CXP's Board of Directors authorized the repurchase of one million shares
of stock (a total of two million shares). During fiscal 1999, CXP repurchased
1,954,100 shares of its own stock and has bought another 208,500 shares since
March 31, leaving approximately 922,500 shares remaining under the Company's
current authorization.
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
($ IN MILLIONS)
<S> <C> <C>
1995 $183
1996 $216
1997 $239
1998 $275
1999 $280
</TABLE>
<TABLE>
<CAPTION>
EBITDA CASH FLOW
($ IN MILLIONS)
<S> <C> <C>
1995 $50
1996 $67
1997 $77
1998 $102
1999 $134
</TABLE>
3
<PAGE> 4
Since CXP became publicly held in April 1994, a total of five million shares
has been authorized for repurchase. Approximately 4.1 million (82%) of those
shares have been bought back by the Company.
CXP's continuous record of achievement is the result of the combined talents
and daily commitment of the 1,107 employees of CXP and its subsidiaries. We are
fortunate to have a dedicated, highly experienced cadre of people committed to
achieving CXP's goals. We are extremely grateful to all members of our workforce
for their ongoing contributions.
OUTLOOK
CXP is well-positioned to sustain its earnings momentum. Our facility
enhancements are adding capacity and diversifying our product base, as well as
increasing production volume and improving plant efficiency. If current interest
rates levels and the robust construction market continue, strong pricing will
prevail, increasing CXP's earnings.
CXP is constantly searching for expansion opportunities and the Company's
Aggregates business represents the most significant area for potential growth.
The recent passage of TEA-21, the Federal Transportation Equity Act for the 21st
Century, could increase the nation's infrastructure spending more than 40%
during the next several years. CXP's cost-competitive operations are located in
high-growth markets in the southern U.S. and acquisition potential in the large,
unconsolidated Aggregates industry is significant.
Backed by a strong balance sheet, an experienced management team and a
dedicated workforce, CXP remains poised for internal operational expansion,
external growth through acquisition and a sixth consecutive year of record
financial performance.
CXP's growth has just begun.
/s/ O.G. DAGNAN /s/ RICHARD D. JONES
O.G. DAGNAN RICHARD D. JONES, JR.
CHAIRMAN AND PRESIDENT AND
CHIEF EXECUTIVE OFFICER CHIEF OPERATING OFFICER
May 24, 1999
4
<PAGE> 5
ONWARD, UPWARD
ONE OF CXP'S PRIMARY OBJECTIVES IS TO REINVEST OUR CASH FLOW TO GROW OUR
BUSINESSES. DURING FISCAL 1999, WE MADE CAPITAL EXPENDITURES TOTALING
$33,806,000 TO UPGRADE FACILITIES AND EQUIPMENT AND INCREASE OPERATING
EFFICIENCY AT TWO GYPSUM WALLBOARD PLANTS AND ONE CEMENT FACILITY. THESE
EXPANSIONS, FEATURED ON THE FOLLOWING PAGES, WILL HELP POSITION THE COMPANY TO
REAP EVEN MORE SIGNIFICANT BENEFITS FOR OUR SHAREHOLDERS.
5
<PAGE> 6
GROWTH OF CEMENT
PLANT CAPACITY
[PHOTO SHOWING CONSTRUCTION
OF NEW ILLINOIS CEMENT
FINISHED GRINDING MILL BUILDING]
<TABLE>
<CAPTION>
CEMENT
OPERATING EARNINGS
($ IN MILLIONS)
<S> <C> <C>
1995 $26
1996 $35
1997 $40
1998 $48
1999 $57
</TABLE>
This building will house Illinois Cement's new 4,000 horsepower finished
Cement grinding mill when the mill is commissioned during the first quarter of
fiscal 2000. An expansion of the plant has already increased the facility's
clinker capacity by 75,000 tons.
6
<PAGE> 7
CEMENT
OPERATING PROFITS FROM CEMENT ROSE 18% TO $56.8 MILLION IN FISCAL 1999, DUE
TO HIGHER SALES VOLUME, SALES PRICE, AND OPERATING MARGINS THAN THOSE OF A YEAR
AGO. CEMENT REVENUES ROSE 9% FROM FISCAL 1998 REVENUES TO $152.5 MILLION THIS
YEAR.
ALL OF CXP'S CEMENT PLANTS OPERATED AT CAPACITY AND WERE SOLD OUT FOR THE
ELEVENTH CONSECUTIVE YEAR. TOTAL CEMENT SALES VOLUME OF 2,218,000 TONS THIS YEAR
WAS 3% HIGHER THAN FISCAL 1998'S SALES VOLUME, PRIMARILY DUE TO FAVORABLE
WEATHER AND STRONG SALES AT OUR WESTERN CEMENT FACILITIES. BENEFITTING FROM
RECORD U.S. CONSUMPTION, CXP'S AVERAGE CEMENT NET SALES PRICE FOR FISCAL 1999
WAS $68.75 PER TON, A 5.5% IMPROVEMENT OVER LAST YEAR. THIS YEAR'S CEMENT
OPERATING MARGIN OF $25.62 PER TON WAS 15% HIGHER THAN A YEAR AGO.
CXP'S PREVIOUSLY ANNOUNCED 4,000 HORSEPOWER FINISHED CEMENT GRINDING MILL
PROJECT AT OUR ILLINOIS CEMENT PLANT REMAINED WITHIN BUDGET AND ON SCHEDULE FOR
COMPLETION DURING THE FIRST QUARTER OF FISCAL 2000. THE PLANT ACHIEVED A 75,000
TON ANNUAL RATE INCREASE IN CLINKER PRODUCTION DURING THE THIRD QUARTER OF
FISCAL 1999. CLINKER INVENTORY IS BUILDING AT THE PLANT AND WILL BE CONVERTED TO
CEMENT DURING THE PEAK SHIPPING SEASON AFTER THE NEW MILL IS COMMISSIONED.
7
<PAGE> 8
GROWTH OF GYPSUM
WALLBOARD PRODUCTION
[PHOTO OF PORTION OF
WALLBOARD DRYER AT
ALBUQUERQUE PLANT]
<TABLE>
<CAPTION>
GYPSUM WALLBOARD
OPERATING EARNINGS
($ IN MILLIONS)
<S> <C>
95 $ 7
96 $12
97 $21
98 $36
99 $57
</TABLE>
Fiscal 1999's $18 million expansion of the Eagle Wallboard facility and
the $16 million expansion at the Albuquerque plant will increase our total
production capacity from 1.1 billion to 1.4 billion square feet beginning in
the first quarter of fiscal 2000.
8
<PAGE> 9
GYPSUM WALLBOARD
GYPSUM WALLBOARD OPERATING EARNINGS ROSE 58% TO $56.6 MILLION IN FISCAL
1999, AND REVENUES INCREASED 19% FROM FISCAL 1998 TO $141.6 MILLION. THE GAINS
RESULTED FROM A 6% INCREASE IN SALES VOLUME TO 1,155 MMSF, A 12% INCREASE IN
THE AVERAGE NET SALES PRICE TO $122.55 PER THOUSAND SQUARE FEET (MSF), AND A
49% INCREASE IN THE UNIT OPERATING MARGIN TO $48.97 PER MSF. ALL THREE CXP
WALLBOARD PLANTS AGAIN OPERATED AT CAPACITY, EVEN AS WE CONTINUED TO EXPAND TWO
OF THE FACILITIES.
A $16 MILLION UPGRADE OF THE ALBUQUERQUE PLANT HAS ADDED 60 MMSF TO CAPACITY
AND REDUCED PRODUCTION COSTS SUBSTANTIALLY. THE PLANT UPGRADE ALSO SHIFTS MOST
OF THE MANUFACTURING OF SPECIALTY PRODUCTS TO THE ALBUQUERQUE FACILITY FROM THE
HIGH-LINE-SPEED BERNALILLO AND EAGLE PLANTS, ENABLING THOSE TWO PLANTS TO
OPTIMIZE THEIR BOARD LINE-SPEEDS AND FURTHER INCREASE THEIR OVERALL PRODUCTION.
AN $18 MILLION EXPANSION OF THE EAGLE PLANT, COMPLETED JUST AFTER FISCAL
YEAR END, WILL INCREASE THAT FACILITY'S ANNUAL CAPACITY BY 60% TO 650 MMSF
BEGINNING IN THE FIRST QUARTER OF FISCAL 2000. THE COMPLETION OF THE ALBUQUERQUE
AND EAGLE EXPANSION PROJECTS SHOULD ENABLE CXP TO SHIP ALMOST 1.4 BILLION SQUARE
FEET OF WALLBOARD DURING FISCAL 2000, INCREASING OUR SALES IN HIGH-GROWTH
WESTERN MARKETS.
9
<PAGE> 10
MARKET-DRIVEN GROWTH
OF CONCRETE AND AGGREGATES
[PHOTO OF SIX CONCRETE
TRUCKS PARKED IN LINE
AT A CXP BATCH PLANT]
<TABLE>
<CAPTION>
CONCRETE AND AGGREGATES
OPERATING EARNINGS
($ IN MILLIONS)
<S> <C>
95 $2.6
96 $5.6
97 $4.8
98 $4.5
99 $7.4
</TABLE>
Fiscal 1999 earnings from both Concrete and Aggregates were positively
impacted by robust building and road construction in Austin, Texas. CXP is
increasing its Austin fleet of readymix trucks by 10% in order to better serve
that market.
10
<PAGE> 11
CONCRETE AND AGGREGATES
FISCAL 1999 CONCRETE AND AGGREGATES OPERATING EARNINGS OF $7.4 MILLION WERE
63% HIGHER THAN LAST YEAR DUE TO HIGHER SALES VOLUMES, SALES PRICES, AND UNIT
OPERATING MARGINS FOR BOTH PRODUCTS. REVENUES FROM THESE OPERATIONS WERE $46.9
MILLION IN FISCAL 1999, 12% HIGHER THAN A YEAR AGO.
POSITIVELY IMPACTED BY THE STRONG RESIDENTIAL AND COMMERCIAL CONSTRUCTION
MARKET IN THE AUSTIN, TEXAS AREA, CONCRETE OPERATING EARNINGS ROSE 45% IN FISCAL
1999 TO $5.0 MILLION. FISCAL 1999'S CONCRETE SALES VOLUME OF 706,000 CUBIC YARDS
AND THE AVERAGE CONCRETE NET SALES PRICE OF $49.78 PER CUBIC YARD WERE 5% HIGHER
THAN SALES VOLUME AND PRICING IN THE PRIOR YEAR. CONCRETE'S OPERATING MARGIN
THIS YEAR WAS $7.08 PER YARD, A 38% INCREASE OVER THE FISCAL 1998 MARGIN. CXP IS
INCREASING ITS AUSTIN FLEET OF READYMIX TRUCKS BY 10% IN FISCAL 2000 IN ORDER TO
BETTER SERVE THAT MARKET.
FISCAL 1999'S AGGREGATES OPERATING EARNINGS OF $2.4 MILLION WERE MORE THAN
DOUBLE LAST YEAR'S EARNINGS. AGGREGATES SALES VOLUME TOTALED 2,916,000 TONS THIS
YEAR, A 13% INCREASE OVER SALES VOLUME IN FISCAL 1998, PRIMARILY DUE TO HIGHER
SALES OF ROAD CONSTRUCTION AGGREGATES IN AUSTIN. CXP'S AGGREGATES NET SALES
PRICE OF $4.02 PER TON THIS YEAR WAS 2% HIGHER THAN THE FISCAL 1998 PRICE. THE
AGGREGATES PER TON OPERATING MARGIN OF $.81 THIS YEAR WAS ALMOST DOUBLE LAST
YEAR'S MARGIN.
11
<PAGE> 12
[MAP OF UNITED STATES SHOWING
STATES AND LOCATIONS OF
CXP'S PRODUCTION FACILITIES]
CXP's strategically located facilities in geographically diverse areas reduce
our dependence on any one market. Our Cement operation includes four plants, two
of which are 50%-owned with joint-venture partners, and 11 Cement distribution
terminals. CXP's Gypsum Wallboard operation consists of three Wallboard plants,
four Wallboard reload centers and one Wallboard distribution center. Our
Concrete and Aggregates group includes 10 Readymix Concrete batch plant
locations and two Aggregates processing operations.
The principal markets for CXP's Cement products are Texas, northern Illinois
(including Chicago), the Rocky Mountain area, northern Nevada and northern
California. Our Gypsum Wallboard is distributed throughout the continental
United States. CXP's Concrete and Aggregates are sold to local readymix concrete
producers and paving contractors in the Austin, Texas market and in northern
California.
MAJOR FACILITIES
CEMENT PLANTS
o Illinois Cement Company - LaSalle, Illinois*
o Mountain Cement Company - Laramie, Wyoming
o Nevada Cement Company - Fernley, Nevada
o Texas-Lehigh Cement Company - Buda, Texas*
* 50%-owned with joint-venture partners
GYPSUM WALLBOARD PLANTS
o American Gypsum Company - Albuquerque and Bernalillo, New Mexico and Gypsum,
Colorado
CONCRETE AND AGGREGATES PLANTS
o Centex Materials, Inc. - Buda, Texas
o Mathews Readymix, Inc. - Marysville, California
o Western Aggregates, Inc. - Marysville, California
12
<PAGE> 13
FINANCIAL INFORMATION
<TABLE>
<S> <C>
STATEMENTS OF CONSOLIDATED EARNINGS 14
CONSOLIDATED BALANCE SHEETS 15
STATEMENTS OF CONSOLIDATED CASH FLOWS 16
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 30
SUMMARY OF SELECTED FINANCIAL DATA 36
QUARTERLY RESULTS 37
BOARD OF DIRECTORS AND OFFICERS 38
CORPORATE INFORMATION 39
STOCK PRICES AND DIVIDENDS 39
</TABLE>
13
<PAGE> 14
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
REVENUES
CEMENT $ 152,460 $ 140,326 $ 133,348
GYPSUM WALLBOARD 141,571 118,718 72,184
CONCRETE AND AGGREGATES 46,860 42,004 36,809
OTHER, NET 1,717 1,939 1,823
LESS: INTERSEGMENT SALES (6,535) (5,665) (4,784)
--------- --------- ---------
336,073 297,322 239,380
--------- --------- ---------
COSTS AND EXPENSES
CEMENT 95,635 92,245 93,551
GYPSUM WALLBOARD 85,001 82,905 51,619
CONCRETE AND AGGREGATES 39,510 37,501 32,041
LESS: INTERSEGMENT PURCHASES (6,535) (5,665) (4,784)
CORPORATE GENERAL AND ADMINISTRATIVE 4,380 3,825 3,904
INTEREST INCOME, NET (3,045) (1,822) (1,357)
--------- --------- ---------
214,946 208,989 174,974
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES 121,127 88,333 64,406
INCOME TAXES 43,838 31,800 22,607
--------- --------- ---------
NET EARNINGS $ 77,289 $ 56,533 $ 41,799
========= ========= =========
EARNINGS PER SHARE:
BASIC $ 3.73 $ 2.58 $ 1.89
========= ========= =========
DILUTED $ 3.71 $ 2.56 $ 1.89
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE> 15
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 49,646 $ 62,090
ACCOUNTS AND NOTES RECEIVABLE, NET 43,192 36,669
INVENTORIES 33,030 32,537
--------- ---------
TOTAL CURRENT ASSETS 125,868 131,296
--------- ---------
PROPERTY, PLANT AND EQUIPMENT 392,302 366,353
LESS: ACCUMULATED DEPRECIATION (163,745) (153,444)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 228,557 212,909
--------- ---------
NOTES RECEIVABLE, NET 664 935
OTHER ASSETS 9,594 5,972
--------- ---------
$ 364,683 $ 351,112
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 18,276 $ 18,404
ACCRUED LIABILITIES 40,849 35,095
CURRENT PORTION OF LONG-TERM DEBT 80 80
--------- ---------
TOTAL CURRENT LIABILITIES 59,205 53,579
--------- ---------
LONG-TERM DEBT 400 480
DEFERRED INCOME TAXES 25,158 22,250
STOCKHOLDERS' EQUITY -
COMMON STOCK, PAR VALUE $0.01; AUTHORIZED 50,000,000
SHARES; ISSUED AND OUTSTANDING 19,744,465 AND
21,525,148 SHARES, RESPECTIVELY 197 215
CAPITAL IN EXCESS OF PAR VALUE 62,376 130,413
RETAINED EARNINGS 217,347 144,175
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 279,920 274,803
--------- ---------
$ 364,683 $ 351,112
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE> 16
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET EARNINGS $ 77,289 $ 56,533 $ 41,799
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES -
DEPRECIATION, DEPLETION AND AMORTIZATION 16,187 15,880 13,752
DEFERRED INCOME TAX PROVISION 2,909 3,415 4,491
ASSET DISPOSITION PROVISION 700 2,276 --
(INCREASE) DECREASE IN ACCOUNTS AND
NOTES RECEIVABLE (6,252) 2,503 (1,456)
INCREASE IN INVENTORIES (493) (1,055) (30)
(DECREASE) INCREASE IN ACCOUNTS PAYABLE (128) 1,956 10
INCREASE IN ACCRUED LIABILITIES 5,754 6,841 5,225
INCREASE IN OTHER ASSETS, NET (3,219) (234) (883)
---------- ---------- ----------
92,747 88,115 62,908
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
PROPERTY, PLANT AND EQUIPMENT ADDITIONS, NET (33,806) (13,092) (5,934)
PROCEEDS FROM ASSET DISPOSITIONS 960 5,525 --
ACQUISITION OF CENTEX EAGLE GYPSUM -- -- (56,006)
----------
(32,846) (7,567) (61,940)
CASH FLOWS FROM FINANCING ACTIVITIES
ADDITIONS TO NOTES PAYABLE -- -- 7,500
REDUCTIONS IN NOTES PAYABLE -- (2,000) (5,500)
DECREASE IN OTHER LONG-TERM DEBT (80) (80) (80)
PROCEEDS FROM STOCK OPTION EXERCISES 3,806 6,727 561
RETIREMENT OF COMMON STOCK (71,861) (23,531) (14,976)
DIVIDENDS PAID TO SHAREHOLDERS (4,210) (4,386) (4,460)
---------- ---------- ----------
(72,345) (23,270) (16,955)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (12,444) 57,278 (15,987)
CASH AT BEGINNING OF PERIOD 62,090 4,812 20,799
---------- ---------- ----------
CASH AT END OF PERIOD $ 49,646 $ 62,090 $ 4,812
========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE> 17
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCK
BALANCE AT BEGINNING OF PERIOD $ 215 $ 220 $ 230
RETIREMENT OF COMMON STOCK (18) (5) (10)
---------- ---------- ----------
BALANCE AT END OF PERIOD 197 215 220
---------- ---------- ----------
CAPITAL IN EXCESS OF PAR VALUE
BALANCE AT BEGINNING OF PERIOD 130,413 147,212 161,617
RETIREMENT OF COMMON STOCK (71,843) (23,526) (14,966)
STOCK OPTION EXERCISES 3,806 6,727 561
---------- ---------- ----------
BALANCE AT END OF PERIOD 62,376 130,413 147,212
---------- ---------- ----------
RETAINED EARNINGS
BALANCE AT BEGINNING OF PERIOD 144,175 92,004 54,615
DIVIDENDS TO SHAREHOLDERS (4,117) (4,362) (4,410)
NET EARNINGS 77,289 56,533 41,799
---------- ---------- ----------
BALANCE AT END OF PERIOD 217,347 144,175 92,004
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY $ 279,920 $ 274,803 $ 239,436
========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE> 18
CENTEX CONSTRUCTION PRODUCTS, INC. 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
Construction Products, Inc. and its majority-owned subsidiaries ("CXP" or the
"Company") after the elimination of all significant intercompany balances and
transactions. In addition, the Company holds 50% joint venture interests in its
cement plants in Illinois and Texas and has proportionately consolidated its pro
rata interest in the revenues, expenses, assets and liabilities of those
ventures.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid investments with original
maturities of three months or less, and are recorded at cost, which approximates
market value.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable have been shown net of the allowance for doubtful
accounts of $2.3 million and $2.1 million at March 31, 1999 and 1998,
respectively. The Company has no significant credit risk concentration among its
diversified customer base.
Notes receivable at March 31, 1999 are collectible primarily over three
years. The weighted average interest rate at both March 31, 1999 and 1998 was
8.6%.
INVENTORIES
Inventories are stated at the lower of average cost (including applicable
material, labor, depreciation, and plant overhead) or market. Inventories
consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Raw Materials and Materials-in-Progress $ 9,124 $ 8,478
Finished Cement 5,601 5,169
Aggregates 1,577 1,830
Gypsum Wallboard 1,289 2,020
Repair Parts and Supplies 14,770 14,121
Fuel and Coal 669 919
--------- ---------
$ 33,030 $ 32,537
========= =========
</TABLE>
18
<PAGE> 19
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Major renewals and
improvements are capitalized and depreciated. Repairs and maintenance are
expensed as incurred. Depreciation is provided on a straight-line basis over the
estimated useful lives of depreciable assets. Raw material deposits are depleted
as such deposits are extracted for production utilizing the units-of-production
method. 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. The estimated lives of the related assets are as
follows:
Plants 20 to 30 years
Buildings 20 to 40 years
Machinery and Equipment 3 to 20 years
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." That statement
requires, among other things, that deferred taxes be provided on differences
between the financial reporting basis and tax basis of assets and liabilities
using existing tax laws and rates.
STATEMENTS OF CONSOLIDATED EARNINGS - SUPPLEMENTAL DISCLOSURES
Selling, general and administrative expenses of the operating units are included
in costs and expenses of each segment. Corporate general and administrative
expenses are shown separately in the statements of consolidated earnings. Total
selling, general and administrative expenses for each of the periods are
summarized below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating Units Selling, General and Administrative $ 14,425 $ 15,979 $ 12,808
Corporate General and Administrative 4,380 3,825 3,904
--------- --------- ---------
$ 18,805 $ 19,804 $ 16,712
========= ========= =========
</TABLE>
Maintenance and repair expenses are included in each segment's costs and
expenses. The Company incurred expenses of $32.0 million, $28.9 million and
$26.2 million in the years ended March 31, 1999, 1998 and 1997, respectively,
for maintenance and repairs.
Other net revenues include clinker sales income, lease and rental income,
asset sale income, non-inventoried aggregates sales income, and trucking income
as well as other miscellaneous revenue items and costs which have not been
allocated to a business segment.
STATEMENTS OF CONSOLIDATED CASH FLOWS - SUPPLEMENTAL DISCLOSURES
Interest payments made during the years ended March 31, 1999, 1998 and 1997 were
$0.1 million, $0.1 million and $0.2 million, respectively.
Net payments made for federal and state income taxes during the years ended
March 31, 1999, 1998 and 1997 were $40.8 million, $26.4 million and $17.9
million, respectively. Included in the March 31, 1999 payments was a payment to
Centex for $161 made under the tax separation agreement.
POSTRETIREMENT BENEFITS
Statement of Financial Accounting Standards No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions," specifies certain required methods
of accounting for postretirement benefits other than pensions. This
pronouncement has no impact on the Company's financial statements as the Company
has no other postretirement obligations.
19
<PAGE> 20
EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
This statement established new standards for computing and presenting earnings
per share (EPS). SFAS No. 128 replaces the presentation of primary EPS
previously prescribed by Accounting Principles Board Opinion No. 15 (APB No. 15)
with a presentation of basic EPS which is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. SFAS No. 128 also requires dual presentation of
basic and diluted EPS. Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB No. 15. The Company adopted SFAS No. 128 in fiscal 1998, and
prior year basic and diluted EPS have been restated to facilitate comparison
between the years.
Basic earnings per common share is based on the weighted average number of
common shares outstanding in 1999, 1998 and 1997 of 20,710,174; 21,895,312 and
22,148,222, respectively. Diluted earnings per common share is based on the
weighted average number of common shares outstanding and share equivalents
outstanding, assuming dilution from issued and unexercised stock options
outstanding, of 20,832,451; 22,062,654 and 22,174,222 in 1999, 1998 and 1997,
respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value method
of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Generally, no expense is recognized related to the Company's stock
options because the option's exercise price is set at the stock's fair market
value on the date the option is granted.
Effective April 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), by making the required note disclosures (see Note G). Accordingly,
adoption of this new standard has no impact on the Company's reported financial
position or operating results.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS No. 131), which changes the way public
companies report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, requires companies to selectively
report quarterly segment information and entity-wide disclosures about products
and services, major customers, and the material countries in which the entity
holds assets and reports revenues. The Company adopted this statement for the
fiscal year ending March 31, 1999 and the adoption of the statement did not have
a material effect on the financial statement presentation.
Effective March 31, 1999, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS 132). SFAS 132 revises employers' disclosures
about pension and other postretirement benefit plans (see Note K). It does not
change the measurement or recognition of these plans. Adoption of the new
standards had no material effect on the Company's results of operations,
financial position, or cash flows.
STOCK REPURCHASES
The Company's Board of Directors has authorized the repurchase of a cumulative
total of five million shares of CXP's common stock. The Company repurchased
1,954,100 shares at a cost of $71.9 million in fiscal 1999 and 836,834 shares at
a cost of $23.5 million in fiscal 1998. Cumulative shares repurchased at March
31, 1999 were 3,869,000, leaving approximately 1,131,000 shares remaining under
the Company's current authorization. Centex Corporation owned 60.6% of CXP's
outstanding common stock at March 31, 1999.
20
<PAGE> 21
(B) PROPERTY, PLANT AND EQUIPMENT
Cost by major category and accumulated depreciation are summarized below:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Land and Quarries $ 33,237 $ 33,363
Plants 316,567 289,886
Buildings, Machinery and Equipment 42,498 43,104
---------- ----------
392,302 366,353
Accumulated Depreciation (163,745) (153,444)
---------- ----------
$ 228,557 $ 212,909
========== ==========
</TABLE>
The Company recorded asset write down provisions of $700 in connection with
the Eagle expansion project in fiscal 1999 and $2.3 million in fiscal 1998 in
connection with the Albuquerque plant upgrade project. The Company substantially
completed three expansion projects during fiscal 1999: (i) the $16 million
upgrade of the Albuquerque gypsum wallboard plant; (ii) an $18 million expansion
of the Eagle gypsum wallboard plant; and (iii) a $20 million expansion of the
50% owned LaSalle cement plant.
(C) INDEBTEDNESS
LONG-TERM DEBT
Long-term debt is set forth below:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
PROPERTY NOTE, INTEREST AT 7%, DUE MARCH 2005, SECURED $ 480 $ 560
LESS: CURRENT MATURITIES (80) (80)
---------- ----------
$ 400 $ 480
========== ==========
</TABLE>
CREDIT FACILITY
The Company has a $35 million unsecured long-term revolving credit line (the
"Bank Revolver") that expires on March 31, 2001. Borrowings under the Bank
Revolver bear interest, at the option of the Company, at (i) a Eurodollar-based
rate that varies depending on the Company's ratio of total indebtedness to total
capitalization (the "Debt-to-Capital Ratio") or (ii) the greater of the bank's
base rate or the federal funds rate plus .5%. Under the Bank Revolver, the
Company is obligated to pay certain fees, including an annual commitment fee on
the unused portion of the commitment. The Bank Revolver contains certain
customary restrictive covenants (including restrictions on the consummation of
mergers or asset sales, the payment of dividends, the creation of liens and the
incurrence of additional indebtedness) and requires the Company to maintain or
meet certain financial ratios or tests. Among other things, the Bank Revolver
requires the Company to maintain a minimum ratio of earnings before interest and
taxes to interest and not to exceed a maximum Debt-to-Capital Ratio and to meet
a minimum tangible net worth test. The Company was in compliance with such
financial ratios and tests at March 31, 1999, and throughout the fiscal year
then ended. The Company had no borrowings outstanding under the Bank Revolver as
of March 31, 1999 or 1998.
21
<PAGE> 22
(D) INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CURRENT PROVISION
FEDERAL $ 36,547 $ 25,701 $ 16,799
STATE 4,382 2,684 1,317
-------- -------- --------
40,929 28,385 18,116
-------- -------- --------
DEFERRED PROVISION
FEDERAL 1,951 2,185 3,038
STATE 958 1,230 1,453
-------- -------- --------
2,909 3,415 4,491
-------- -------- --------
PROVISION FOR INCOME TAXES $ 43,838 $ 31,800 $ 22,607
======== ======== ========
</TABLE>
The effective tax rates vary from the federal statutory rates due to the
following items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES $ 121,127 $ 88,333 $ 64,406
========== ========== ==========
INCOME TAXES AT STATUTORY RATE $ 42,394 $ 30,917 $ 22,542
INCREASES (DECREASES) IN TAX RESULTING FROM -
STATE INCOME TAXES, NET 3,469 2,526 1,800
STATUTORY DEPLETION IN EXCESS OF COST (2,297) (2,225) (1,957)
OTHER 272 582 222
---------- ---------- ----------
PROVISION FOR INCOME TAXES $ 43,838 $ 31,800 $ 22,607
========== ========== ==========
EFFECTIVE TAX RATE 36% 36% 35%
</TABLE>
The deferred income tax provision results from the following temporary
differences in the recognition of revenues and expenses for tax and financial
reporting purposes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
EXCESS TAX DEPRECIATION AND AMORTIZATION $ 4,347 $ 6,544 $ 5,048
BAD DEBTS 6 (29) (162)
UNIFORM CAPITALIZATION 106 36 (151)
ACCRUAL CHANGES (1,259) (3,611) (425)
OTHER (291) 475 181
-------- -------- --------
$ 2,909 $ 3,415 $ 4,491
======== ======== ========
</TABLE>
22
<PAGE> 23
Components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
ITEMS GIVING RISE TO DEFERRED TAXES
EXCESS TAX DEPRECIATION AND AMORTIZATION $ 29,897 $ 25,550
OTHER 4,145 4,437
---------- ----------
34,042 29,987
---------- ----------
ITEMS GIVING RISE TO PREPAID TAXES
ACCRUAL CHANGES (8,145) (6,886)
BAD DEBTS (717) (723)
UNIFORM CAPITALIZATION (22) (128)
---------- ----------
(8,884) (7,737)
---------- ----------
NET DEFERRED INCOME TAX LIABILITY $ 25,158 $ 22,250
========== ==========
</TABLE>
(E) BUSINESS SEGMENTS
The Company operates in three business segments: Cement, Gypsum Wallboard, and
Concrete and Aggregates, with Cement and Gypsum Wallboard being the Company's
principal lines of business. These operations are conducted in the United States
and include the mining of limestone and the manufacture, production,
distribution and sale of Portland cement (a basic construction material which is
the essential binding ingredient in concrete), the mining of gypsum and the
manufacture and sale of gypsum wallboard, the sale of readymix concrete, and the
mining and sale of aggregates (crushed stone, sand and gravel). These products
are used primarily in commercial and residential construction, public
construction projects and projects to build, expand and repair roads and
highways.
Demand for the Company's products are derived primarily from residential
construction, commercial and industrial construction and public (infrastructure)
construction which are highly cyclical and are influenced by prevailing economic
conditions including interest rates and availability of public funds. Due to the
low value-to-weight ratio of cement, concrete and aggregates, these industries
are largely regional and local with demand tied to local economic factors that
may fluctuate more widely than those of the nation as a whole.
The Company operates four cement plants, eleven cement distribution
terminals, three gypsum wallboard plants, four gypsum wallboard reload centers,
a gypsum wallboard distribution center, ten readymix concrete batch plant
locations, and two aggregate processing plant locations. The principal markets
for the Company's cement products are Texas, northern Illinois (including
Chicago), the Rocky Mountains, northern Nevada, and northern California. Gypsum
wallboard is distributed throughout the continental United States. Concrete and
aggregates are sold to local readymix producers and paving contractors in the
Austin, Texas area and northern California.
23
<PAGE> 24
The following table sets forth certain financial information relating to the
Company's operations by segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
CEMENT $ 152,460 $ 140,326 $ 133,348
GYPSUM WALLBOARD 141,571 118,718 72,184
CONCRETE AND AGGREGATES 46,860 42,004 36,809
OTHER, NET 1,717 1,939 1,823
---------- ---------- ----------
342,608 302,987 244,164
LESS: INTERSEGMENT SALES (6,535) (5,665) (4,784)
---------- ---------- ----------
$ 336,073 $ 297,322 $ 239,380
========== ========== ==========
SEGMENT OPERATING EARNINGS
CEMENT $ 56,825 $ 48,081 $ 39,797
GYPSUM WALLBOARD 56,570 35,813 20,565
CONCRETE AND AGGREGATES 7,350 4,503 4,768
OTHER, NET 1,717 1,939 1,823
---------- ---------- ----------
$ 122,462 $ 90,336 $ 66,953
========== ========== ==========
IDENTIFIABLE ASSETS
CEMENT $ 139,183 $ 141,462 $ 141,622
GYPSUM WALLBOARD 143,464 123,997 125,490
CONCRETE AND AGGREGATES 23,634 22,922 28,939
CORPORATE AND OTHER 58,402 62,731 9,586
---------- ---------- ----------
$ 364,683 $ 351,112 $ 305,637
========== ========== ==========
CAPITAL EXPENDITURES
CEMENT $ 7,536 $ 3,513 $ 2,915
GYPSUM WALLBOARD 24,204 7,982 758
CONCRETE AND AGGREGATES 2,050 2,027 2,602
CORPORATE AND OTHER 24 27 40
---------- ---------- ----------
$ 33,814 $ 13,549 $ 6,315
========== ========== ==========
DEPRECIATION, DEPLETION AND AMORTIZATION
CEMENT $ 7,768 $ 7,860 $ 7,938
GYPSUM WALLBOARD 6,005 5,552 3,331
CONCRETE AND AGGREGATES 2,190 2,194 2,225
CORPORATE AND OTHER 224 274 258
---------- ---------- ----------
$ 16,187 $ 15,880 $ 13,752
========== ========== ==========
----------
</TABLE>
Segment operating earnings represent revenues less direct operating
expenses, segment depreciation, and segment selling, general and administrative
expenses. Corporate assets consist primarily of cash and cash equivalents,
general office assets and miscellaneous other assets.
(F) COMMITMENTS AND CONTINGENCIES
The Company, in the ordinary course of business, has various litigation,
commitments and contingencies. Management believes that none of the litigation
in which it or any subsidiary is involved, if finally determined unfavorably to
the Company, would have a material adverse effect on the consolidated financial
condition or results of operations of the Company.
The Company's operations and properties are subject to extensive and
changing federal, state and local laws, regulations and ordinances governing the
protection of the environment, as well as laws relating to worker health and
workplace safety. The Company carefully considers the requirements mandated by
such laws and regulations and has procedures in place at all of its operating
units to
24
<PAGE> 25
monitor compliance. Any matters which are identified as potential exposures
under these laws and regulations are carefully reviewed by management to
determine the Company's potential liability. Although management is not aware of
any exposures which would require an accrual under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies," there can be no
assurance that prior or future operations will not ultimately result in
violations, claims or other liabilities associated with these regulations.
The Company has certain deductible limits under its workers' compensation
and liability insurance policies for which reserves are established based on the
estimated costs of known and anticipated claims.
The Company has certain operating leases covering manufacturing,
transportation and certain other facilities and equipment. Rental expense for
fiscal years 1999, 1998, and 1997 totaled $3.1 million, $3.0 million and $2.3
million, respectively. Minimum annual rental commitments as of March 31, 1999,
under noncancelable leases are set forth as follows:
<TABLE>
<CAPTION>
FISCAL YEAR TOTAL
- ----------- -----
<S> <C>
2000 $2,922
2001 $1,854
2002 $1,132
2003 $1,034
2004 $1,034
Thereafter $2,530
</TABLE>
(G) STOCK OPTION PLAN
The Company has a stock option plan for certain directors, officers and key
employees of the Company, the 1994 Stock Option Plan ("1994 Plan"). The 1994
Plan provides for a total of 2,000,000 shares to be reserved for issuance. The
exercise price of option grants under the 1994 Plan may not be less than the
fair market value at the date of grant. Option periods and exercise dates may
vary within a maximum period of 10 years. All outstanding options vest over a
10-year period; however, they can vest earlier if certain predetermined
performance criteria are met. The Company records proceeds from the exercise of
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. No charges or credits would be made to earnings unless options were to be
granted at less than fair market value at the date of grant. A summary of the
activity of the 1994 Plan is presented below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------
1999 1998 1997
--------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING OPTIONS AT
BEGINNING OF YEAR 362,699 $12.64 736,950 $12.25 742,600 $12.12
GRANTED 370,000 $36.40 6,300 $24.73 72,500 $14.00
EXERCISED (173,147) $12.81 (378,438) $12.08 (43,410) $12.93
FORFEITED/EXPIRED (31,000) $36.56 (2,113) $12.00 (34,740) $12.36
-------- --------- --------
OUTSTANDING OPTIONS
AT END OF YEAR 528,552 $27.82 362,699 $12.64 736,950 $12.25
======== ========= ========
OPTIONS EXERCISABLE
AT END OF YEAR 183,252 356,399 552,347
======== ========= ========
WEIGHTED AVERAGE FAIR
VALUE OF OPTIONS
GRANTED DURING
THE YEAR $ 19.57 $ 13.58 $ 3.96
</TABLE>
25
<PAGE> 26
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- -----------------------------------
WTD. AVG. WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- --------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.00 TO $14.00 183,252 5.4 YEARS $12.07 183,252 $12.07
$22.25 TO $29.69 6,300 8.4 YEARS $24.73 -- --
$33.31 TO $36.56 339,000 9.0 YEARS $36.39 -- --
------- -------
528,552 7.8 YEARS $27.82 183,252 $12.07
======= =======
</TABLE>
Shares available for future stock option grants were 857,753 at March 31,
1999.
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" and continues to account for
stock-based compensation as it has in the past using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation expense has been recognized
for options issued under the 1994 Plan. Had compensation cost for options issued
under the 1994 Plan been determined based on the fair value at the grant date
for awards consistent with the provisions of SFAS No. 123, proforma net earnings
would have been $76,085, $56,462 and $41,754 for the fiscal years ended March
31, 1999, 1998 and 1997, respectively. Basic and diluted earnings per share for
fiscal year ended March 31, 1999 would have been $3.67 and $3.65, respectively,
and for fiscal years ended March 31, 1998 and 1997 would have remained
unchanged.
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
EXPECTED VOLATILITY 35.3% 36.1% 39.2%
RISK-FREE INTEREST RATE 5.8% 6.4% 6.7%
DIVIDEND YIELD .6% .8% 1.4%
EXPECTED LIFE (YEARS) 10 10 10
</TABLE>
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt is estimated using discounted
cash flow analyses based upon the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The carrying values of the
Company's long-term debt approximates fair value.
All assets and liabilities which are not considered financial instruments
have been valued using historical cost accounting. The carrying values of cash
and cash equivalents, accounts and notes receivables, accounts payable and
accrued liabilities approximate their fair values due to the short-term
maturities of these assets and liabilities.
26
<PAGE> 27
(I) AGREEMENTS WITH CENTEX CORPORATION
On April 19, 1994 ("Closing Date") the Company completed the sale of 11,730,000
shares or 51% of its common stock through an IPO. Prior to that time, the
Company was a wholly owned subsidiary of Centex Corporation ("Centex"). On the
Closing Date the Company entered into certain agreements with Centex to define
the Company's ongoing relationship with Centex.
The major agreements are:
Indemnification Agreement: The Company and Centex entered into an
Indemnification Agreement, pursuant to which the Company and Centex agreed
generally to indemnify each other against substantially all liabilities relating
to the businesses of the Company and its subsidiaries as they had been and will
be conducted, including environmental liabilities.
Tax Separation Agreement: The Company and Centex entered into a Tax
Separation Agreement (the "Tax Agreement"). The Tax Agreement (i) provides for
the termination of any existing tax sharing or allocation arrangements between
the Company and Centex, (ii) specifies the manner in which the federal income
tax liability and certain state tax liabilities (including any subsequent
adjustments to such federal and state liabilities) of the consolidated group of
which Centex is the common parent (the "Group") will be allocated for the final
year in which the Company is a member of the Group and for any prior tax year of
the Group and (iii) specifies the manner in which audits or administrative or
judicial proceedings relating to federal income taxes and certain state taxes of
the Group will be controlled.
Administrative Services: Centex Service Company ("CSC"), a subsidiary of
Centex, will provide the Company with employee benefit administration, legal,
public/investor relations and certain other services. The Administrative
Services Agreement expired on March 31, 1999. It was renewed for fiscal 2000 and
the fee will be determined thereafter on an annual basis. The Company paid CSC a
fee of $95 in fiscal 1999 and will pay $198 in fiscal 2000. In addition, the
Company reimburses CSC for its out-of-pocket expenses incurred in connection
with the performance of such services.
(J) ACQUISITIONS
The Company acquired all of the Common Units of Centex Eagle Gypsum Company,
LLC, a limited liability company, owned by Eagle Gypsum Products and National
Energy System, Inc. on February 26, 1997 for a total purchase price of $52.0
million plus $4.0 million of net working capital. The operations of Centex Eagle
Gypsum Company, LLC consist of a gypsum wallboard manufacturing facility, a
gypsum mine, and a cogeneration power facility, all located in Eagle County,
Colorado.
The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to the underlying assets acquired and liabilities
assumed based upon their estimated fair market values at the date of
acquisition. The purchase price was allocated as follows: $52.0 million to
property and equipment and $4.0 million to various components of net working
capital. The results of operations of Centex Eagle Gypsum Company, LLC have been
included in the Company's financial statements since the date of acquisition.
(K) PENSION AND PROFIT SHARING PLANS
The Company has several defined benefit and defined contribution retirement
plans covering substantially all of its employees. Benefits paid under the
defined benefit plans are based on years of service and the employee's
qualifying compensation over the last few years of employment. The Company's
funding policy is to contribute amounts that are deductible for income tax
purposes.
27
<PAGE> 28
The following table provides a reconciliation of the defined benefit plan
obligations and fair value of plan assets over the two year period ending March
31, 1999 and a statement of the funded status as of March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
RECONCILIATION OF BENEFIT OBLIGATIONS:
BENEFIT OBLIGATION AT APRIL 1 $ 4,274 $ 3,611
SERVICE COST - BENEFITS EARNED DURING THE PERIOD 200 184
INTEREST COST ON PROJECTED BENEFIT OBLIGATION 287 259
ACTUARIAL (GAIN) LOSS (86) 354
BENEFITS PAID (136) (134)
------- -------
BENEFIT OBLIGATION AT MARCH 31 4,539 4,274
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
FAIR VALUE OF PLAN ASSETS AT APRIL 1 5,279 3,847
ACTUAL RETURN ON PLAN ASSETS 104 1,250
EMPLOYER CONTRIBUTIONS 17 316
BENEFITS PAID (136) (134)
------- -------
FAIR VALUE OF PLANS AT MARCH 31 5,264 5,279
FUNDED STATUS:
FUNDED STATUS AT MARCH 31 725 1,005
UNRECOGNIZED LOSS (GAIN) FROM PAST EXPERIENCE DIFFERENT THAN
THAT ASSUMED AND EFFECTS OF CHANGES IN ASSUMPTIONS 247 (24)
UNRECOGNIZED PRIOR-SERVICE COST 214 271
------- -------
NET AMOUNT RECOGNIZED (PREPAID PENSION COST INCLUDED
IN OTHER ASSETS) $ 1,186 $ 1,252
======= =======
</TABLE>
Net periodic pension cost for the years ended March 31, 1999, 1998 and 1997,
included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
SERVICE COST - BENEFITS EARNED DURING THE PERIOD $ 200 $ 184 $ 198
INTEREST COST OF PROJECTED BENEFIT OBLIGATION 287 259 239
EXPECTED RETURN ON PLAN ASSETS (417) (338) (320)
AMORTIZATION OF TRANSITION ASSET (44) (9) --
AMORTIZATION OF PRIOR-SERVICE COST 57 57 110
----- ----- -----
NET PERIODIC PENSION COST $ 83 $ 153 $ 227
===== ===== =====
</TABLE>
The following table sets forth the rates used in the actuarial calculations
of the present value of benefit obligations and the rate of return on plan
assets:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
WEIGHTED AVERAGE DISCOUNT RATE 7.0% 6.75% 7.25%
RATE OF INCREASE IN FUTURE COMPENSATION LEVELS 3.5% 3.5% 3.5%
EXPECTED LONG-TERM RATE OF RETURN ON ASSETS 8.0% 9.0% 9.0%
</TABLE>
The Company also provides a profit sharing plan, which covers substantially
all salaried and certain hourly employees. The profit sharing plan is a defined
contribution plan funded by employer discretionary contributions and also allows
employees to contribute on an after tax basis up to 10% of their base annual
salary. Employees are fully vested to the extent of their contributions and
become fully vested in the Company's contributions over a seven-year period.
Costs relating to the employer discretionary contributions for the Company's
defined contribution plan totaled $991, $1,224 and $1,053, in 1999, 1998 and
1997, respectively.
28
<PAGE> 29
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Centex Construction Products,
Inc.:
We have audited the accompanying consolidated balance sheets of Centex
Construction Products, Inc. (a Delaware corporation) and subsidiaries as of
March 31, 1999 and 1998, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1999. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Centex Construction Products,
Inc. and subsidiaries as of March 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 3, 1999
29
<PAGE> 30
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Record earnings in each of its product lines, particularly gypsum wallboard,
resulted in Centex Construction Products, Inc. reporting the highest net
earnings in its history for fiscal 1999.
Consolidated revenues for fiscal 1999 totaled $336.1 million, a 13% gain over
$297.3 million in fiscal 1998. Increased sales volume and higher sales price in
all segments generated the revenue gain. Benefitting from increased sales volume
and higher operating margins in each of its product lines, operating earnings of
$122.5 million improved 36% over fiscal 1998 operating earnings of $90.3
million. Corporate overhead of $4.4 million increased 15% over fiscal 1998
mainly due to higher incentive compensation. Higher invested cash balances
resulted in $3.0 million of net interest income in fiscal 1999, increasing $1.2
million over fiscal 1998. The company's effective fiscal 1999 tax rate of 36.2%
increased from 36.0% in fiscal 1998 due to higher state income taxes. As a
result of the foregoing, fiscal 1999 net earnings of $77.3 million increased 37%
over $56.5 million in fiscal 1998, the fifth consecutive year of record net
earnings. Diluted fiscal 1999 earnings per share of $3.71 increased 45% from
$2.56 for fiscal 1998. Diluted earnings per share for fiscal 1999 increased more
than net earnings due to fewer average shares outstanding in fiscal 1999.
The following table compares sales volumes, average unit sales prices and
unit operating margins for the Company's operations:
<TABLE>
<CAPTION>
GYPSUM
CEMENT WALLBOARD CONCRETE AGGREGATES
(TON) (MSF) (CUBIC YARD) (TON)
----------------- --------------------- ------------------- ----------------
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ -------- -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES VOLUME
(THOUSANDS) 2,218 2,153 1,155 1,089 706 672 2,916 2,592
AVERAGE NET
SALES PRICE $68.75 $65.19 $ 122.55 $ 109.01 $ 49.78 $ 47.33 $ 4.02 $ 3.93
OPERATING
MARGIN $25.62 $22.34 $ 48.97 $ 32.88 $ 7.08 $ 5.12 $ 0.81 $ 0.41
</TABLE>
Cement. Cement revenues of $152.5 million for fiscal 1999 were 9% higher than
$140.3 million for the prior fiscal year. Operating earnings increased 18% to
$56.8 million from $48.1 million in fiscal 1998 due to a 3% increase in sales
volume and a 15% gain in operating margins. Sales volume of 2.22 million tons
was 65,000 tons higher than last fiscal year's record high sales volume
primarily due to favorable weather and strong sales volume at the western region
cement plants. All plants operated at capacity and were again "sold out." The
Company purchased 152,000 tons of cement in fiscal 1999, up 23,000 tons from
last fiscal year, to supplement its manufactured cement shipments. Record U.S.
cement consumption resulted in average net pricing of $68.75 per ton, increasing
5.5% over $65.19 per ton in fiscal 1998.
Gypsum Wallboard. Gypsum wallboard revenues of $141.6 million for fiscal 1999
increased 19% over fiscal 1998 revenues of $118.7 million due to increased sales
volume and higher average sales prices.
30
<PAGE> 31
Segment operating earnings total $56.6 million for fiscal 1999, a 58% increase
over $35.8 million for fiscal 1998. The operating earnings gain resulted from
higher sales volume and a 49% improvement in operating margins. Gypsum wallboard
fiscal 1999 sales volume of 1,155 million square feet ("MMSF") increased 6% over
fiscal 1998 due to higher utilization rates at all three plants. The operating
margin gain resulted from the combination of higher average sales prices and
lower cost of sales. Gypsum wallboard fiscal 1999 average sales prices of
$122.55 per thousand square feet ("MSF") increased 12.4% over $109.01 per MSF in
fiscal 1998 as a result of record high industry consumption. The Company's
plants operated at capacity during the fiscal year and ended the year with lower
than normal inventory levels. Although the Albuquerque plant was down for a
period of time during the year to tie-in the plant upgrade project, unit cost of
sales declined 3% in fiscal 1999 to $73.58 per MSF, primarily due to the $2.3
million asset write down provision in fiscal 1998 relating to the Albuquerque
plant upgrade project.
Concrete and Aggregates. Revenues from concrete and aggregates were $46.9
million, up 12% from $42.0 million in fiscal year 1998. The revenue gain
resulted from increased sales volume and higher average sales prices. Segment
operating earnings of $7.4 million in fiscal 1999 increased 63% from $4.5
million in the prior fiscal year. Increased sales volume and higher operating
margins generated the operating earnings gain. Concrete operating earnings of
$5.0 million in fiscal 1999 were 45% greater than last fiscal year's earnings
due to increased operating margins and higher sales volume. The operating margin
gain resulted from the 5% increase in average concrete sale prices being
partially offset by higher materials and operating costs. Concrete sales volume
of 706,000 cubic yards in fiscal 1999 increased 5% over fiscal 1998 due to a
strong Austin, Texas construction market. Aggregates operating earnings of $2.4
million for fiscal 1999 more than doubled the $1.1 million fiscal 1998 operating
earnings due to increased sales volume and higher operating margins. Aggregates
sales volume of 2.9 million tons increased 12.5% over fiscal 1998 sales volume
due to higher Austin, Texas road construction aggregates sales. Operating
margins increased 98% to $0.81 per ton due to higher net sales prices and
reduced cost of sales, primarily due to a $700,000 decrease in legal costs
resulting from the settlement of the Yuba Goldfields title dispute in fiscal
1998.
Corporate Overhead. Corporate Overhead of $4.4 million increased $555,000
over last fiscal year due to additional corporate personnel and higher incentive
compensation.
Interest Income. Net interest income of $3.0 million for fiscal year 1999
increased $1.2 million over last fiscal year due to higher average invested cash
balances during fiscal 1999.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
During fiscal 1998, consolidated revenues increased 24% to $297.3 million from
$239.4 million in fiscal 1997. A combination of increased sales volume in all
segments along with higher cement and gypsum wallboard sales prices generated
the revenue gain. Operating earnings of $90.3 million increased 35% over fiscal
1997 operating earnings of $67.0 million primarily due to increased sales
volumes and higher margins in the Cement and Gypsum Wallboard segments. Net
interest income was $1.8 million in fiscal 1998 compared to $1.4 million in
fiscal 1997 due to higher average investment cash balances this fiscal year. The
Company's effective tax rate in fiscal 1998 was 36%, one percent higher than
fiscal 1997 due to increased state income taxes. As a result of the foregoing,
net earnings increased 35% to $56.5 million in fiscal 1998 from $41.8 million in
fiscal 1997. Diluted earnings per share for fiscal 1998 increased 36% to $2.56
compared to $1.89 for fiscal 1997. Diluted earnings per share for fiscal 1998
increased more than net earnings as a result of fewer average shares outstanding
in fiscal 1998 compared to fiscal 1997.
31
<PAGE> 32
The following table compares sales volumes, average unit sales prices and
unit operating margins for the Company's operations:
<TABLE>
<CAPTION>
GYPSUM
CEMENT WALLBOARD CONCRETE AGGREGATES
(TON) (MSF) (CUBIC YARD) (TON)
----------------- --------------------- ------------------- ----------------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ -------- ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES VOLUME
(THOUSANDS) 2,153 2,095 1,089 726 672 603 2,592 2,073
AVERAGE NET
SALES PRICE $65.19 $63.66 $ 109.01 $99.39 $ 47.33 $ 46.86 $ 3.93 $ 4.13
OPERATING
MARGIN $22.34 $19.00 $ 32.88 $28.32 $ 5.12 $ 6.36 $ 0.41 $ 0.45
</TABLE>
Cement. Cement revenues for the fiscal year ended March 31, 1998 were $140.3
million, 5% higher than $133.3 million for the prior fiscal year. Segment
operating earnings increased 21% to $48.1 million from $39.8 million for fiscal
1997 mainly due to an increase in sales volume and a 18% improvement in fiscal
1998's unit operating margins to $22.34 per ton. Sales volume of 2.15 million
tons was 58,000 tons higher than fiscal 1997's high sales volume due to strong
sales in the Texas and Illinois markets. All plants operated at capacity and
were again "sold out." The Company purchased 129,000 tons of cement during
fiscal 1998, down 56,000 tons from fiscal 1997, to supplement its fiscal 1998
manufactured cement shipments. Strong construction activity in the regions
served by the Company resulted in price realizations increasing 2.5% to $65.19
per ton. Cement unit costs were 4% lower than in fiscal 1997 primarily due to a
reduction in manufacturing cost and the cost impact of replacing 56,000 tons of
more expensive purchased cement with lower costing manufactured cement.
Gypsum Wallboard. Gypsum wallboard revenues increased 64% during fiscal 1998
to $118.7 million from $72.2 million in fiscal year 1997. As a result of
increased sales volume and improved operating margins, segment operating
earnings totaled $35.8 million for fiscal 1998, a 74% improvement over $20.6
million in fiscal 1997. Operating margins increased 16% to $32.88 per MSF over
$28.32 per MSF in fiscal 1997 primarily due to higher average sales prices.
Gypsum wallboard average sales prices increased $9.62 per MSF or 10% in fiscal
1998 to $109.01 per MSF as a result of high industry consumption. Gypsum
wallboard sales volume of 1,089 million square feet ("MMSF") for fiscal 1998
increased 50% over fiscal 1997 primarily due to sales volume from the Eagle
Gypsum plant acquired in the fourth quarter of fiscal 1997. The Company's
wallboard plants operated at capacity during fiscal 1998. Unit costs increased
7% in fiscal 1998 from $71.07 per MSF in fiscal 1997 due to the combination of
higher Eagle plant production cost and the $2.3 million asset write down
provision resulting from the Albuquerque plant upgrade project.
Concrete and Aggregates. Concrete and Aggregates revenues of $42.0 million in
fiscal year 1998 were 14% higher than fiscal 1997 revenues of $36.8 million.
Segment operating earnings of $4.5 million in fiscal 1998 declined 6% from $4.8
million in the prior fiscal year mainly due to a decline in concrete operating
earnings. Concrete operating earnings of $3.4 million in fiscal 1998 were 10%
below last fiscal year's earnings due to lower operating margins offsetting
higher sales volume. Concrete sales volume of 672,000 cubic yards in fiscal 1998
increased 11% over fiscal 1997 due to a large contract job in the northern
California market and a strong commercial construction market in Austin, Texas.
Higher concrete net sales prices were negated by increased materials and
operating costs. Aggregates operating earnings of $1.1 million for fiscal 1998
increased 13% from fiscal 1997 due to higher sales volume being partially offset
by lower operating margins. Aggregates sales volume of 2.6 million tons
increased 25% from 2.1 million tons in fiscal 1997 mostly due to higher highway
road base sales in the Texas and northern California markets. Product mix caused
unit costs to decrease 4% in fiscal 1998.
32
<PAGE> 33
Other Income. Other income of $1.9 million during fiscal 1998 increased
$116,000 over fiscal year 1997 primarily due to a $250,000 increase in clinker
sales income.
Interest Income. Net interest income of $1.8 million for fiscal year 1998
increased $465,000 over fiscal 1997 due to higher average investment cash
balances.
LIQUIDITY AND CAPITAL RESOURCES
Each of the Company's business segments operates in capital-intensive
industries. The Company at March 31, 1999 is virtually debt-free, has a cash
balance of $50 million, and has a $35 million unsecured revolving credit
facility in place to finance its working capital and capital expenditures needs.
Working capital at March 31, 1999 was $66.6 million, a decrease of $11.1
million from March 31, 1998, principally due to a $12.4 million reduction in
cash. Fiscal 1999 capital expenditures and stock repurchases exceeded cash flow
from operating activities of $92.7 million by $13.0 million. During fiscal year
1999, the Company substantially completed three expansion projects: (i) a $16
million plant upgrade at its Albuquerque gypsum wallboard plant that increases
annual plant capacity by 60 MMSF and accommodates 54" board production; (ii) an
$18 million expansion of the Company's Eagle gypsum wallboard plant in Gypsum,
Colorado that will add 240 MMSF to the plant's current annual capacity; and
(iii) a $20 million expansion of the 50% owned LaSalle, Illinois cement plant
that will increase its annual clinker capacity by 75,000 tons and add a new
4,000 horsepower finish mill. The Albuquerque expansion project was completed
during the third quarter of fiscal 1999. The Eagle project was completed early
in the first quarter of fiscal 2000 and the Illinois project is expected to be
completed during the first quarter of fiscal 2000. Capital expenditures for
fiscal 1999 were $33.8 million compared to $13.1 million in fiscal 1998 as a
result of the three expansion projects listed above. Stock repurchases during
fiscal 1999 totaled $71.9 million and $23.5 million in fiscal 1998. Based on its
financial condition and low debt levels at March 31, 1999, the Company believes
that its internally generated cash flow coupled with funds available under its
credit facility will enable the Company to provide adequately for its current
operations and future growth.
STOCK REPURCHASE PROGRAM
Reflecting the Company's continuing confidence in its future performance, during
the second quarter of fiscal 1999, and again on April 8, 1999, CXP's Board of
Directors authorized the repurchase of an additional one million shares (two
million shares total) of the Company's stock. A cumulative total of five million
shares have been authorized for repurchase since the Company became publicly
held in April 1994. The Company repurchased 1,954,100 shares from the public
during fiscal 1999, bringing total shares repurchased from the public to
3,869,000. Centex Corporation owned 60.6% of the outstanding shares of CXP
common stock at March 31, 1999. There are approximately 1,131,000 shares
remaining under the Company's current authorization.
INFLATION AND CHANGING PRICES
Inflation has become less of a factor in the U.S. economy as the rate of
increase has moderated during the last several years. The Consumer Price Index
rose approximately 1.6% in calendar 1998, 1.7% in 1997, and 3.3% in 1996. Prices
of materials and services, with the exception of wallboard paper, have remained
relatively stable over the three-year period. Strict cost control and improving
productivity also minimize the impact of inflation. The impact of inflation on
income from operations has been a factor along with increasing sales prices due
to full or near full utilization of industry capacity during the three years
ended March 31, 1999. These factors have enabled the Company to increase per
unit profit margins for its products (other than concrete and aggregates) in
each successive year.
33
<PAGE> 34
YEAR 2000
The Company has a variety of operating systems, computer software program
applications and computer hardware equipment, (collectively, "IT Systems") and
other equipment with embedded electronic circuits, including applications that
the Company uses in its administrative functions and in the operations of its
various subsidiaries, (collectively the "Non-IT Systems," and together with the
IT Systems, the "Systems"). Because resolution of Year 2000 issues is considered
a priority of the Company, the Company, in conjunction with Centex Corporation
created a Year 2000 Task Force (the "Task Force") to oversee the Company's Year
2000 compliance. The Task Force, consisting of members of Centex Corporation,
the Company's management and accounting, financial planning, legal, and internal
audit departments, has oversight of the information systems managers and other
administrative personnel charged with implementing the Company's Year 2000
compliance program (collectively, the "Year 2000 Compliance Team").
The Task Force has surveyed the Year 2000 Compliance Team regarding the Year
2000 compliance of the Systems. The surveys indicated that a small number of the
Systems are not Year 2000 compliant. Affected Systems are primarily Non-IT
Systems that are not critical to the operations of the Company and its
subsidiaries. The Company and its subsidiaries have replaced many of these
Systems and are in the process of replacing others. All non-compliant Systems
should be replaced no later than the second quarter of fiscal 2000 (i.e. the
quarter ending September 30, 1999). In substantially all of the cases, the
replacement or upgrading of, or other changes to, the non-compliant Systems (i)
has occurred or will occur for reasons unrelated to the non-compliance of the
Systems and (ii) has not been accelerated as a result of the non-compliance of
such Systems. To date, the timetable for addressing non-compliance of Systems
has been substantially the same for both IT Systems and Non-IT Systems. The
Company anticipates that this will continue to be the case as it sees its Year
2000 program through its completion.
The Company does not believe (i) that the non-compliant Systems pose a
material risk to the financial condition of the Company as a whole, or of the
individual operations or subsidiaries that currently have non-compliant Systems
or (ii) that the cost of replacing, upgrading or otherwise changing the
non-compliant Systems is material to the Company as a whole, or to the
individual subsidiaries. The Company has used, and believes that it will be able
to continue to use, internally generated cash to fund the correction of Systems
that are not compliant. The costs for the consultation and expected future costs
are inmaterial.
In order to further confirm the Company's Year 2000 readiness, the Task Force
has engaged the services of a third-party consulting firm to evaluate its Year
2000 readiness program. The consulting firm's review was completed during the
fourth quarter of fiscal 1999. The firm's conclusions are consistent with the
Company's internal determinations of its Year 2000 readiness. The Task Force is
implementing the consulting firm's recommendations for achieving Year 2000
compliance.
The Task Force is presently developing its Year 2000 contingency plan. The
Task Force has completed many of the preliminary components of the contingency
plan and anticipates that the entire contingency plan will be completed no later
than September 30, 1999.
As a result of the Company's Year 2000 compliance program, the Company
believes that it is highly unlikely that any interruption to its operations
resulting from a compliance failure will have a material adverse effect on the
Company's operations or financial condition. Achieving Year 2000 compliance is
dependent on many factors, however, and some of these factors are not completely
within the Company's control. Although the Company and its subsidiaries obtain
information, materials and services from numerous sources and provide goods and
services to numerous customers, the failure of these third-parties (including
U.S. government agencies) to achieve Year 2000 readiness may adversely impact
the Company's operations.
34
<PAGE> 35
The Company believes the most likely Year 2000 worst-case scenario would be
the failure of some significant vendors, subcontractors or third parties to
achieve compliance, resulting in a slowdown of the Company's operations. The
Company is not aware of any such third parties that are not Year 2000 compliant.
In order to address the potential non-compliance of third parties affecting the
Company's operations, the Company will continue to survey its largest customers,
subcontractors, and vendors by sending requests for disclosure of Year 2000
readiness. The Company has surveyed many of its largest customers,
subcontractors and vendors during the last year and anticipates completing such
survey by September 1999.
YEAR 2000 FORWARD-LOOKING STATEMENTS
Certain statements in this section, other than historical information, are
"forward-looking" statements. See "Forward-Looking Statements", below. These
statements involve risks and uncertainties relative to the Company's ability to
assess and remediate any Year 2000 compliance issues, the ability of third
parties to correct material non-compliant systems and the Company's assessment
of the Year 2000 issue's impact on its financial results and operations.
FORWARD-LOOKING STATEMENTS
Certain sections of this 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 Litigation Reform Act of 1995.
Forward-looking statements may be identified by the context of the statement and
generally arise when the Company is discussing its beliefs, estimates or
expectations. These statements are not guarantees of future performance and
involve a number of risks and uncertainties. Therefore, actual results and
outcomes may differ materially from what is expressed or forecasted in such
forward-looking statements. The principal risks and uncertainties that may
affect the operations, performance, development and results of the Company's
business include the following: the cyclical and seasonal nature of the
Company's business; public infrastructure expenditures; adverse weather;
availability of raw materials; unexpected operational difficulties; governmental
regulation and changes in governmental and public policy; changes in economic
conditions specific to any one or more of the Company's markets; competition;
general economic conditions and interest rates. Other risks and uncertainties
could also affect the outcome of the forward-looking statements.
35
<PAGE> 36
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES $ 336,073 $ 297,322 $ 239,380 $ 222,594 $ 194,313
NET EARNINGS $ 77,289 $ 56,533 $ 41,799 $ 33,944 $ 21,820
TOTAL ASSETS $ 364,683 $ 351,112 $ 305,637 $ 269,575 $ 250,103
TOTAL LONG-TERM DEBT $ 480 $ 560 $ 640 $ 720 $ 24,500
TOTAL DEBT $ 480 $ 560 $ 2,640 $ 720 $ 24,500
DEFERRED INCOME TAXES $ 25,158 $ 22,250 $ 18,835 $ 14,344 $ 6,705
STOCKHOLDERS' EQUITY $ 279,920 $ 274,803 $ 239,436 $ 216,462 $ 183,405
TOTAL DEBT AS A PERCENT OF TOTAL
CAPITALIZATION (TOTAL DEBT,
DEFERRED INCOME TAXES AND
STOCKHOLDERS' EQUITY) 0.2% 0.2% 1.0% 0.3% 11.4%
NET EARNINGS AS A PERCENT OF
BEGINNING STOCKHOLDERS' EQUITY 28.1% 23.6% 19.3% 18.5% 12.8%
PER COMMON SHARE -
DILUTED NET EARNINGS(1) $ 3.71 $ 2.56 $ 1.89 $ 1.47 $ 0.95
CASH DIVIDENDS(2) $ 0.20 $ 0.20 $ 0.20 $ 0.05 --
BOOK VALUE BASED ON SHARES
OUTSTANDING AT YEAR END(1) $ 14.18 $ 12.77 $ 10.89 $ 9.42 $ 7.99
STOCK PRICES(1)
HIGH $ 45 1/8 $ 39 $ 20 $ 15 1/2 $ 14 3/8
LOW $ 31 1/4 $ 18 $ 12 1/2 $ 11 3/8 $ 8 7/8
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES $ 166,826 $ 136,526 $ 129,832 $ 142,188 $ 126,358
NET EARNINGS $ 10,240 $ 3,112 $ 713 $ 1,118 $ 3,911
TOTAL ASSETS $ 257,315 $ 258,994 $ 267,303 $ 267,654 $ 238,817
TOTAL LONG-TERM DEBT $ 15,585 $ 34,519 $ 37,713 $ 47,094 $ 24,085
TOTAL DEBT $ 16,200 $ 38,943 $ 49,308 $ 52,322 $ 28,521
DEFERRED INCOME TAXES $ 37,925 $ 36,224 $ 35,881 $ 31,553 $ 31,977
STOCKHOLDERS' EQUITY $ 170,839 $ 160,599 $ 157,487 $ 156,774 $ 155,656
TOTAL DEBT AS A PERCENT OF TOTAL
CAPITALIZATION (TOTAL DEBT,
DEFERRED INCOME TAXES AND
STOCKHOLDERS' EQUITY) 7.2% 16.5% 20.3% 21.7% 13.2%
NET EARNINGS AS A PERCENT OF
BEGINNING STOCKHOLDERS' EQUITY 6.4% 2.0% 0.5% 0.7% 2.6%
PER COMMON SHARE -
DILUTED NET EARNINGS(1) $ 0.45 $ 0.14 $ 0.03 $ 0.05 $ 0.17
CASH DIVIDENDS(2) -- -- -- -- --
BOOK VALUE BASED ON SHARES
OUTSTANDING AT YEAR END(1) $ 7.43 $ 6.98 $ 6.85 $ 6.82 $ 6.77
STOCK PRICES(1)
HIGH -- -- -- -- --
LOW -- -- -- -- --
</TABLE>
(1) PRIOR TO APRIL 1994, CXP WAS A WHOLLY-OWNED SUBSIDIARY OF CENTEX CORPORATION
AND ACCORDINGLY DID NOT REPORT PER SHARE INFORMATION. TO FACILITATE COMPARISONS
BETWEEN PERIODS, PER SHARE DATA FOR 1994 HAS BEEN PRESENTED USING THE 23,000,000
SHARES OUTSTANDING IMMEDIATELY AFTER THE INITIAL PUBLIC OFFERING.
(2) DECLARED INITIAL QUARTERLY CASH DIVIDEND OF FIVE CENTS PER SHARE ON MARCH
12, 1996.
36
<PAGE> 37
CENTEX CONSTRUCTION PRODUCTS, INC. AND SUBSIDIARIES
QUARTERLY RESULTS
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1999 1998
------- -------
<S> <C> <C>
FIRST QUARTER
REVENUES $79,846 $77,954
EARNINGS BEFORE INCOME TAXES $26,961 $23,406
NET EARNINGS $17,255 $15,097
DILUTED EARNINGS PER SHARE $ 0.80 $ 0.68
SECOND QUARTER
REVENUES $91,776 $83,412
EARNINGS BEFORE INCOME TAXES $34,968 $27,705
NET EARNINGS $22,378 $17,770
DILUTED EARNINGS PER SHARE $ 1.05 $ 0.80
THIRD QUARTER
REVENUES $84,863 $70,510
EARNINGS BEFORE INCOME TAXES $32,037 $20,699
NET EARNINGS $20,317 $13,235
DILUTED EARNINGS PER SHARE $ 0.99 $ 0.60
FOURTH QUARTER
REVENUES $79,588 $65,446
EARNINGS BEFORE INCOME TAXES $27,161 $16,523
NET EARNINGS $17,339 $10,431
DILUTED EARNINGS PER SHARE $ 0.87 $ 0.48
</TABLE>
37
<PAGE> 38
[PHOTO]
BOARD OF
DIRECTORS
Robert L. Clarke (2, 3)
Partner
Bracewell & Patterson,
L.L.P.
O.G. Dagnan (1)
Chairman and
Chief Executive Officer
Laurence E. Hirsch (1, 2, 4)
Chairman and
Chief Executive Officer,
Centex Corporation
David W. Quinn (1, 4)
Vice Chairman,
Centex Corporation
Harold K. Work (2, 3)
President, Elk
Corporation
Chairman, President,
and CEO,
Elcor Corporation
(Numbers in parentheses indicate Board
Committees)
(1) Executive Committee
(2) Compensation Committee
(3) Audit Committee
(4) Stock Option Committee
CENTEX CONSTRUCTION
PRODUCTS, INC.
O.G. Dagnan
Chairman and
Chief Executive Officer
Richard D. Jones, Jr.
President and
Chief Operating Officer
H.D. House
Executive Vice President-
Gypsum
Steven R. Rowley
Executive Vice President-
Cement
Arthur R. Zunker, Jr.
Senior Vice President-
Finance,
Treasurer and
Chief Financial Officer
Rodney E. Cummickel
Vice President
Walter W. Rowe
Vice President
Hubert L. Smith, Jr.
Vice President
AMERICAN GYPSUM
COMPANY
H.D. House
President
David P. Emanuel
Vice President
Kerry G. Gannaway
Vice President
Geoff W. Gray
Vice President
Board of Directors, from left:
standing - Robert L. Clarke,
Harold K. Work, David W. Quinn;
seated - O.G. Dagnan,
Laurence E. Hirsch
CENTEX MATERIALS,
INC.
James E. Bailey
President
Mark J. Hamilton
Vice President
J. David Loftis
Vice President
ILLINOIS CEMENT
COMPANY
Wayne W. Emmer
President
Thomas F. Clarke
Vice President
Frank P. Koeppel
Vice President
MATHEWS
READYMIX, INC.
Craig J. Callaway
President
James D. Elliott
Vice President
MOUNTAIN CEMENT
COMPANY
W. Jerald Hoyle
President
John R. Bremner
Vice President
George B. Coates
Vice President
NEVADA CEMENT
COMPANY
W. Jerald Hoyle
President
John R. Bremner
Vice President
Ronald L. Gross
Vice President
TEXAS-LEHIGH
CEMENT COMPANY
Gerald J. Essl
President
R. Lee Hunter
Vice President
Larry E. Roberson
Vice President
WESTERN
AGGREGATES, INC.
Craig J. Callaway
President
James D. Elliott
Vice President
Executive Officers, from left:
standing - H.D. House,
Arthur R. Zunker, Jr.,
Steven R. Rowley;
seated - Richard D. Jones, Jr.,
O.G. Dagnan
[PHOTO]
38
<PAGE> 39
CORPORATE HEADQUARTERS
3710 Rawlins Street
Suite 1600, LB 78
Dallas, Texas 75219
(214) 559-6514 (Telephone)
(214) 559-6554 (Fax)
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
1-800-635-9270 (Toll-Free)
STOCK LISTINGS
New York Stock Exchange
Ticker Symbol "CXP"
ANNUAL MEETING
The Annual Meeting of Stockholders of Centex Construction Products, Inc. will
be held on Thursday, July 15, 1999 at 10:00 a.m. in the Red Oak Room at the
Sheraton Suites Market Center, 2101 Stemmons Freeway, Dallas, Texas.
STOCKHOLDER INQUIRIES
Communications concerning transfer requirements, lost certificates, dividends or
change of address should be sent to ChaseMellon Shareholder Services, L.L.C. at
the address listed above.
FORM 10-K
A copy of the Annual Report on Form 10-K of Centex Construction Products, Inc.
is available upon request to the Senior Vice President-Finance at corporate
headquarters.
STOCK PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1999 FISCAL YEAR ENDED MARCH 31, 1998
--------------------------------------- --------------------------------------
PRICE PRICE
-------------------- -------------------
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------- ---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
FIRST $42 3/4 $35 3/8 $0.05 $21 1/2 $18 $0.05
SECOND $45 1/8 $34 3/4 $0.05 $31 1/2 $20 $0.05
THIRD $41 $31 1/4 $0.05 $32 5/8 $26 7/8 $0.05
FOURTH $40 15/16 $33 15/16 $0.05 $39 $29 1/2 $0.05
</TABLE>
THE COMMON STOCK OF CENTEX CONSTRUCTION PRODUCTS, INC. IS TRADED ON THE NEW YORK
STOCK EXCHANGE (TICKER SYMBOL CXP). THE APPROXIMATE NUMBER OF RECORD HOLDERS OF
THE COMMON STOCK OF CXP AS OF MAY 28, 1999 WAS 263. THE CLOSING PRICE OF CXP'S
COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON MAY 28, 1999 WAS $35 7/8.
39
<PAGE> 1
CENTEX CONSTRUCTION PRODUCTS, INC. EXHIBIT 21
The following is a list of subsidiaries of Centex Construction
Products, Inc., wholly-owned unless otherwise stated. This list of subsidiaries
includes all of the significant subsidiaries of Centex Construction Products,
Inc. as of June 8, 1999.
<TABLE>
<CAPTION>
FORM OF JURISDICTION OF
ENTITY NAME ORGANIZATION ORGANIZATION
- ----------- ------------ ------------
<S> <C> <C>
American Gypsum Company corporation New Mexico
d/b/a American Gypsum Company, Inc.
d/b/a Centex American Gypsum Company
BP Sand & Gravel, Inc. corporation Delaware
CCP Cement Company corporation Nevada
CCP Concrete/Aggregates Company corporation Nevada
CCP Gypsum Company corporation Nevada
CCP Land Company corporation Nevada
CEGC Holding Company corporation Delaware
Centex Cement Corporation corporation Nevada
Centex Eagle Gypsum Company corporation Delaware
Centex Eagle Gypsum Company, L.L.C. limited liability company Delaware
d/b/a American Gypsum Company
Centex Materials, Inc. corporation Nevada
Illinois Cement Company (50%) corporation Illinois
Illinois Cement Company, Joint Venture (50%) joint venture Texas
d/b/a Rio Grande Drywall Supply Co.
M & W Drywall Supply Company corporation Nevada
d/b/a Rio Grande Drywall Supply Co.
Mathews Readymix, Inc. corporation California
Mountain Cement Company corporation Nevada
Nevada Cement Company corporation Nevada
Texas Cement Company corporation Nevada
d/b/a C & C Properties, Inc.
d/b/a CP Service Company
d/b/a Texas-Lehigh Cement Company
Texas-Lehigh Cement Company (50%) corporation Texas
Texas-Lehigh Cement Company,
General Partnership (50%) general partnership Texas
Western Aggregates, Inc. corporation Nevada
d/b/a Centex Western Aggregates, Inc.
Western Cement Company of California corporation California
Wisconsin Cement Company (50%) corporation Wisconsin
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated May 3, 1999, included in the
Centex Construction Products, Inc. (the "Company") annual report to
stockholders. We also hereby consent to the incorporation by reference of our
report dated May 3, 1999, into the Company's previously filed registration
statements on Form S-8 (No. 33-82820; No. 33-82928; No. 33-84394) and to all
references to our firm included in these registration statements.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas,
June 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTEX
CONSTRUCTION PRODUCTS, INC.'S MARCH 31, 1999 FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> MAR-01-1999
<CASH> 49,646
<SECURITIES> 0
<RECEIVABLES> 43,192
<ALLOWANCES> 0
<INVENTORY> 33,030
<CURRENT-ASSETS> 125,868
<PP&E> 392,302
<DEPRECIATION> 163,745
<TOTAL-ASSETS> 364,683
<CURRENT-LIABILITIES> 59,125
<BONDS> 480
0
0
<COMMON> 197
<OTHER-SE> 279,723
<TOTAL-LIABILITY-AND-EQUITY> 364,683
<SALES> 334,356
<TOTAL-REVENUES> 339,118
<CGS> 0
<TOTAL-COSTS> 213,611
<OTHER-EXPENSES> 4,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 121,127
<INCOME-TAX> 43,838
<INCOME-CONTINUING> 77,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,289
<EPS-BASIC> 0
<EPS-DILUTED> 3.71
</TABLE>
