<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-4887
TEXAS INDUSTRIES, INC.
(Exact name of registrant as specified in the charter)
Delaware 75-0832210
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1341 West Mockingbird Lane, Suite 700W, Dallas, Texas 75247-6913
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 647-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of October 6, 1997, 20,958,463 shares of Registrant's Common Stock, $1.00 par
value, were outstanding.
Page 1 of 17
<PAGE>
INDEX
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
- -----------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -- August 31, 1997 and May 31, 1997..... 3
Consolidated Statements of Income -- three months ended
August 31, 1997 and August 31, 1996............................. 4
Consolidated Statements of Cash Flows -- three months ended
August 31, 1997 and August 31, 1996............................. 5
Notes to Consolidated Financial Statements.......................... 6
Independent Accountants' Review Report.............................. 10
Item 2. Management's Discussion and Analysis of Operating Results
and Financial Condition......................................... 11
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K.................................... 14
SIGNATURES
- ----------
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
August 31, May 31,
- --------------------------------------------------------------------------------
In thousands 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 16,688 $ 19,834
Notes and accounts receivable 137,837 122,783
Inventories 148,067 167,146
Prepaid expenses 40,957 34,613
-------- -------
TOTAL CURRENT ASSETS 343,549 344,376
OTHER ASSETS
Real estate and other investments 14,579 14,920
Goodwill and other intangibles 63,012 63,297
Other 26,565 26,553
-------- -------
104,156 104,770
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 120,220 118,248
Buildings 66,348 66,156
Machinery and equipment 860,637 815,019
-------- -------
1,047,205 999,423
Less allowances for depreciation 612,907 600,646
--------- -------
434,298 398,777
--------- -------
$ 882,003 $ 847,923
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 60,618 $ 51,021
Accrued interest, wages and other items 49,590 36,909
Current portion of long-term debt 13,419 13,452
-------- -------
TOTAL CURRENT LIABILITIES 123,627 101,382
LONG-TERM DEBT 161,452 176,056
DEFERRED FEDERAL INCOME TAXES AND OTHER CREDITS 80,990 80,080
MINORITY INTEREST 39,450 37,594
SHAREHOLDERS' EQUITY
Common stock, $1 par value 25,067 25,067
Additional paid-in capital 255,149 255,149
Retained earnings 285,796 262,774
Cost of common shares in treasury (89,528) (90,179)
-------- -------
476,484 452,811
-------- -------
$ 882,003 $ 847,923
======== =======
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF INCOME
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
August 31,
- --------------------------------------------------------------------------------
In thousands 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 297,060 $ 245,942
COSTS AND EXPENSES (INCOME)
Cost of products sold 232,474 192,691
Selling, general and administrative 22,957 18,531
Interest 4,373 4,698
Other income (1,967) (2,098)
------- -------
257,837 213,822
------- -------
INCOME BEFORE THE FOLLOWING ITEMS 39,223 32,120
Income taxes 12,975 10,827
------- -------
26,248 21,293
Minority interest in Chaparral (1,538) (1,409)
------- -------
NET INCOME $ 24,710 $ 19,884
======= =======
Average common shares 21,429 22,966
Net income per common share $ 1.16 $ .87
======= ======
Cash dividends $ .075 $ .05
======= ======
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended
August 31,
- -------------------------------------------------------------------
In thousands 1997 1996
- -------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 24,710 $ 19,884
Loss on disposal of assets 188 96
Non-cash items
Depreciation, depletion and amortization 14,339 13,444
Deferred taxes (610) (1,007)
Undistributed minority interest 1,315 1,191
Other - net 2,384 1,502
Changes in operating assets and liabilities
Notes and accounts receivable (15,065) (2,528)
Inventories and prepaid expenses 12,872 (15,408)
Accounts payable and accrued liabilities 22,658 3,407
Real estate and investments 341 1,687
-------- -------
Net cash provided by operations 63,132 22,268
INVESTING ACTIVITIES
Capital expenditures (50,064) (24,716)
Proceeds from disposition of assets 302 536
Other - net 33 (749)
-------- -------
Net cash used by investing (49,729) (24,929)
FINANCING ACTIVITIES
Proceeds of long-term borrowing 3,500 105
Debt retirements (18,147) (9,158)
Purchase of treasury shares -- (135)
Purchase of Chaparral stock -- (3,770)
Dividends paid (1,569) (1,114)
Other - net (333) (12)
-------- -------
Net cash used by financing (16,549) (14,084)
-------- -------
Decrease in cash (3,146) (16,745)
Cash at beginning of period 19,834 28,055
-------- -------
Cash at end of period $ 16,688 $11,310
======== =======
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Texas Industries, Inc. (the Company or TXI), through its subsidiaries, is a
producer of steel and cement, aggregate and concrete products for the
construction and manufacturing industries. Chaparral Steel Company (Chaparral)
produces beams, merchant and special bar quality rounds, reinforcing bars and
channels, primarily for markets in North America and, under certain market
conditions, Europe and Asia. Cement, aggregate and concrete operations supply
cement and aggregates, ready-mix, pipe, block and brick from facilities
concentrated primarily in Texas and Louisiana, with several products marketed
throughout the U.S.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended August 31,
1997, are not necessarily indicative of the results that may be expected for the
year ended May 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1997.
ESTIMATES: The preparation of financial statements and accompanying notes in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and all subsidiaries. The minority interest represents
the separate public ownership of Chaparral, 15.7% at August 31, 1997 and 15.5%
at May 31, 1997. Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at
cost. Provisions for depreciation are computed generally using the straight-
line method. Provisions for depletion of mineral deposits are computed on the
basis of the estimated quantity of recoverable raw materials.
CASH EQUIVALENTS: For cash flow purposes, temporary investments which have
maturities of less than 90 days when purchased are considered cash equivalents.
EARNINGS PER SHARE: Earnings per share are computed by adjusting net income for
amortization of additional goodwill in connection with the contingent payment
for the acquisition of Chaparral, then dividing this amount by the weighted
average number of common shares outstanding during the period, including common
stock equivalents. Earnings per share and all other common share information
have been adjusted to give effect to the two-for-one stock split in February
1997.
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which is not effective until December 15, 1997, will change the method
currently used to compute earnings per share and require the restatement of all
prior periods. The impact is expected to result in an increase in basic
earnings per share over primary earnings per share of $.02 for the three-month
periods ended August 31, 1997 and 1996.
INTANGIBLE ASSETS: Goodwill and other intangibles is presented net of
accumulated amortization of $18.8 million at August 31, 1997 and $17.9 million
at May 31, 1997. Goodwill resulting from the acquisition of Chaparral of $56.7
million at August 31, 1997 and $57.2 million at May 31, 1997 (net of accumulated
amortization) is being amortized currently on a straight-line basis over a 40-
year period. Other intangibles consisting primarily of goodwill and non-compete
agreements are being amortized on a straight-line basis over periods of 2 to 15
years. Management reviews remaining goodwill and other intangibles with
consideration toward recovery through future operating results (undiscounted) at
the current rates of amortization.
-6-
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued
COMMISSIONING COSTS: The Company's policy for new facilities is to capitalize
certain costs until the facility is substantially complete and ready for its
intended use. Chaparral substantially completed its large beam mill during the
third quarter of fiscal 1992. Deferred costs totaling $15.1 million were
amortized over a five-year period. The amount of amortization charged to income
was $754,000 in the three-month period ended August 31, 1996.
INCOME TAXES: Accounting for income taxes uses the liability method of
recognizing and classifying deferred income taxes. The Company joins in filing
a consolidated return with its subsidiaries. Current and deferred tax expense
is allocated among the members of the group based on a stand-alone calculation
of the tax of the individual member.
WORKING CAPITAL
Working capital totaled $219.9 million at August 31, 1997, compared to $243.0
million at May 31, 1997.
Notes and accounts receivable of $137.8 million at August, compared with $122.8
million at May, are presented net of allowances for doubtful receivables of $3.2
million at August and $2.5 million at May.
Inventories are stated at cost (not in excess of market) generally using the
last-in, first-out method (LIFO). If the average cost method (which
approximates current replacement cost) had been used, inventory values would
have been higher by $11.7 million at August and May.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
In thousands August May
------------------------------------------------------------------------------
<S> <C> <C>
Finished products $ 57,330 $ 77,021
Work in process 24,399 27,162
Raw materials and supplies 66,338 62,963
-------- --------
$148,067 $167,146
======== ========
LONG-TERM DEBT
Long-term debt is comprised of the following:
------------------------------------------------------------------------------
In thousands August May
------------------------------------------------------------------------------
Bank obligations, maturing through 2001, interest rate
6.31% (.625% over LIBOR) $ 25,500 $ 40,000
Senior notes due through 2008, interest rates
average 7.28% 75,000 75,000
Senior notes of Chaparral, due through 2004,
interest rates average 10.2% 56,000 56,000
First mortgage notes of Chaparral, due through 1999,
interest rate 14.2% 8,182 8,182
Pollution control bonds, due through 2007, interest rate
6.38% (75% of prime) 7,935 7,935
Other, maturing through 2005, interest rates
from 8% to 10% 2,254 2,391
-------- --------
174,871 189,508
Less current maturities 13,419 13,452
-------- --------
$161,452 $176,056
======== ========
</TABLE>
Annual maturities of long-term debt for each of the five succeeding years are
$13.5, $13.3, $9.0, $8.8 and $34.2 million.
-7-
<PAGE>
LONG-TERM DEBT-Continued
The Company has available a bank-financed $100 million long-term line of credit.
In addition to the $25.5 million currently outstanding under this line, $8.9
million has been utilized to support letters of credit. Commitment fees at a
current annual rate of .22% are paid on the unused portion of this line. In
addition, Chaparral has available a bank-financed $10 million short-term line of
credit which will expire December 31, 1997, if not renewed. The interest
chargeable on borrowings under this line is .375% over LIBOR. Commitment fees
at an annual rate of .125% are paid on the unused portion of this line.
Loan agreements contain covenants which provide for minimum working capital,
restrictions on purchases of treasury stock and payment of dividends on common
stock, and limitations on incurring certain indebtedness and making certain
investments. Under the most restrictive of these agreements, the aggregate
amount of annual cash dividends on common stock is limited based on the ratio,
excluding Chaparral, of earnings before interest, taxes, depreciation and
amortization plus dividends from Chaparral to fixed charges. In addition,
Chaparral loan agreements restrict dividends and advances to its shareholders,
including the parent company, to $55.8 million as of August 31, 1997. The
Company and Chaparral are in compliance with all loan covenant restrictions.
Property, plant and equipment, principally Chaparral's, carried at a net amount
of approximately $205.1 million at August 31, 1997 is mortgaged as collateral
for $9.3 million of secured debt.
The amount of interest paid for the three-month periods presented was $1.4
million in 1997 and $1.2 million in 1996. Interest capitalized totalled
$359,000 in the 1997 period.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
<S> <C> <C>
Common stock consists of:
------------------------------------------------------------------------------
In thousands August May
------------------------------------------------------------------------------
Shares authorized 40,000 40,000
Shares outstanding at end of period 20,936 20,896
Average shares outstanding including equivalents 21,429 22,243
Shares held in treasury 4,131 4,171
Shares reserved for stock options and other 2,136 2,163
</TABLE>
There are authorized 100,000 shares of Cumulative Preferred Stock, no par value,
of which 20,000 shares are designated $5 Cumulative Preferred Stock (Voting),
redeemable at $105 per share and entitled to $100 per share upon dissolution.
On March 29, 1996, the Company redeemed and retired all outstanding shares of
such $5 Cumulative Preferred Stock. An additional 25,000 shares are designated
Series B Junior Participating Preferred Stock. The Series B Preferred Stock is
not redeemable and ranks, with respect to the payment of dividends and the
distribution of assets, junior to (i) all other series of the Preferred Stock
unless the terms of any other series shall provide otherwise and (ii) the $5
Cumulative Preferred Stock. Pursuant to a Rights Agreement, in November 1996,
the Company distributed a dividend of one preferred share purchase right for
each outstanding share of the Company's Common Stock. Each right entitles the
holder to purchase from the Company one two-thousandth of a share of the Series
B Junior Participating Preferred Stock at a price of $122.50 per one two-
thousandth share of Series B Preferred Stock, subject to adjustment. The rights
will expire on November 1, 2006 unless the date is extended or the rights are
earlier redeemed or exchanged by the Company pursuant to the Rights Agreement.
-8-
<PAGE>
STOCK OPTION PLANS
The Company's stock option plans provide that non-qualified and incentive stock
options to purchase Common Stock may be granted to directors, officers and key
employees at market prices at date of grant. Generally, options become
exercisable in installments beginning one or two years after date of grant and
expire six or ten years later depending on the initial date of grant. A summary
of option transactions for the three-month period ended August 31, 1997,
follows:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Weighted Average
Shares Under Option Option Price
- ---------------------------------------------------------------------------------------------
Outstanding at June 1 1,797,131 $21.62
Granted -- --
Exercised (37,750) 12.50
Cancelled (3,200) 26.54
--------- ------
Outstanding at August 31 1,756,181 $21.80
========= ======
</TABLE>
At August 31, 1997, there were 497,721 shares exercisable and 243,240 shares
available for future grants. Outstanding options expire on various dates to
January 15, 2007.
INCOME TAXES
Federal income taxes for the interim periods ended August 31, 1997 and 1996,
have been included in the accompanying financial statements on the basis of an
estimated annual rate. The estimated annualized tax rate is 33.1% for 1997
compared with 33.7% for 1996. The primary reason that these respective tax
rates differ from the 35% statutory corporate rate is due to goodwill expense
which is not tax deductible, percentage depletion which is tax deductible and
the net state income tax expense. The Company made income tax payments of $1.2
million and $1.8 million in the three-month periods ended August 31, 1997 and
1996, respectively.
LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other matters, air emissions, furnace dust
disposal and wastewater discharge. The Company believes it is in substantial
compliance with applicable environmental laws and regulations. Notwithstanding
such compliance, if damage to persons or property or contamination of the
environment has been or is caused by the conduct of the Company's business or by
hazardous substances or wastes used in, generated or disposed of by the Company,
the Company may be held liable for such damages and be required to pay the cost
of investigation and remediation of such contamination. The amount of such
liability could be material. Changes in federal or state laws, regulations or
requirements or discovery of unknown conditions could require additional
expenditures by the Company.
The Company and subsidiaries are defendants in lawsuits which arose in the
normal course of business. In management's judgment (based on the opinion of
counsel) the ultimate liability, if any, from such legal proceedings will not
have a material effect on the consolidated financial position of the Company.
MERGER PROPOSAL
On May 22, 1997, the Company made an offer to merge with Chaparral Steel
Company. Chaparral's Board of Directors approved, subject to a shareholder vote
adopting the merger, revised terms offered by the Company on July 25, 1997 under
which owners of the publicly traded shares of Chaparral would receive
consideration of $15.50 per share. Of the approximately 28.5 million shares of
Chaparral outstanding at August 31, 1997, the Company owns 24.0 million shares
with the balance of the outstanding shares publicly traded on the New York Stock
Exchange.
-9-
<PAGE>
EXHIBIT A
---------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors
Texas Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Industries, Inc. and subsidiaries as of August 31, 1997, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended August 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Industries, Inc. and
subsidiaries as of May 31, 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended [not
presented herein] and in our report dated July 8, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of May 31, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
-----------------------
September 16, 1997
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of operations and financial condition for the three-month period
ended August 31, 1997 to the three-month period ended August 31, 1996.
RESULTS OF OPERATIONS
Consolidated net sales of $297.1 million increased 21% over the prior year
period. Steel sales were $179.0 million, up $29.5 million, as a result of a 21%
increase in shipments. Average selling prices declined $4 per ton due to a
temporary decline in structural product pricing. The continued strength in the
construction industries has sustained demand for structural products, with
shipments 5% above the May 1997 quarter. Bar mill prices increased 5% over the
prior year quarter with shipments 6% lower. Cement, aggregate and concrete
sales were 22% above the prior year period. Cement average pricing increased 3%
with shipments up 104,000 tons. Ready-mix pricing increased 2% with volumes 32%
higher than the prior year. Aggregate shipments improved 7% on somewhat lower
average prices. The Company benefited from the return to more normal weather
conditions in Texas and Louisiana as construction activity continues to be
strong, providing a favorable balance between supply and demand for the
Company's products.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
<S> <C> <C>
Three months ended
August 31,
- -------------------------------------------------------------------------------
In thousands 1997 1996
- -------------------------------------------------------------------------------
NET SALES
Bar mill $ 44,198 $ 44,906
Structural mills 132,537 103,325
Transportation and other 2,271 1,296
------- -------
TOTAL STEEL 179,006 149,527
Cement 43,027 35,230
Ready-mix 52,673 39,272
Stone, sand & gravel 23,274 22,203
Other products 26,902 21,484
Interplant (27,822) (21,774)
------- -------
TOTAL CEMENT, AGGREGATE AND CONCRETE 118,054 96,415
------- -------
TOTAL NET SALES $ 297,060 $ 245,942
======= =======
UNITS SHIPPED
Bar mill (tons) 127 134
Structural mills (tons) 341 254
------- -------
TOTAL STEEL TONS 468 388
Cement (tons) 657 553
Ready-mix (cubic yards) 986 749
Stone, sand & gravel (tons) 4,659 4,353
</TABLE>
-11-
<PAGE>
BUSINESS SEGMENTS-Continued
<TABLE>
<CAPTION>
Three months ended
August 31,
- ------------------------------------------------------------------------------
In thousands 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
STEEL OPERATIONS
Gross profit $ 32,468 $ 30,662
Less: Depreciation & amortization 8,182 8,872
Selling, general & administrative 8,684 7,344
Other income (417) (1,062)
------ ------
OPERATING PROFIT 16,019 15,508
CEMENT, AGGREGATE AND CONCRETE OPERATIONS
Gross profit 45,549 35,606
Less: Depreciation, depletion &
amortization 5,925 4,367
Selling, general & administrative 7,657 6,130
Other income (760) (404)
------ ------
OPERATING PROFIT 32,727 25,513
------ ------
TOTAL OPERATING PROFIT 48,746 41,021
CORPORATE RESOURCES
Other income 790 632
Less: Depreciation & amortization 232 205
Selling, general & administrative 5,708 4,630
------ ------
(5,150) (4,203)
INTEREST EXPENSE (4,373) (4,698)
------ ------
INCOME BEFORE TAXES & OTHER ITEMS $ 39,223 $ 32,120
======= =======
</TABLE>
Consolidated cost of products sold including depreciation, depletion and
amortization was $232.5 million, an increase of $39.8 million over the prior
year quarter. Steel costs of $154.7 million, increased $27.0 million due
primarily to an 80,000 ton increase in shipments. Cement, aggregate and
concrete costs were $77.8 million, an increase of $12.8 million on increased
volumes.
Operating profit of $48.7 million in 1997 was $7.7 million higher than the
prior year quarter. Steel profits were up 3% on increased shipments. However,
due in part to the normal scheduled summer shutdown to refurbish the production
facilities, steel profits were $7.3 million lower than the May quarter.
Shutdown expenditures were 45% higher than last year and will be amortized over
the remainder of the fiscal year. Cement, aggregate and concrete profits were
up 28% over the prior year quarter on increased volumes. Unusually wet summer
weather hindered construction activity in the 1996 quarter.
Selling, general and administrative expenses including depreciation and
amortization at $23.0 million increased $4.4 million over the prior year. Steel
SG&A expense increased $1.3 million to $8.7 million primarily due to increased
employee incentive accruals. Cement, aggregate and concrete SG&A expense at
$8.3 million was $2.0 million above the prior year due in part to increased
insurance, retirement and bad debt accruals. Corporate resources SG&A expense
increased $1.1 million to $6.0 million due to increased retirement accruals and
general expenses not allocated to operations.
-12-
<PAGE>
BUSINESS SEGMENTS-Continued
Interest expense decreased $.3 million compared to the prior year due to a
decline in the weighted average interest rate on outstanding debt. Income tax
expense was provided at a .6% lower estimated annualized tax rate, which
anticipates reduced tax expense from the utilization of tax credits.
CASH FLOWS
Net cash provided by operations in 1997, at $63.1 million, increased $40.8
million over 1996 due to higher net income and changes in working capital.
Receivables increased $15.1 million in the August 1997 quarter as net sales
were up 7% from the May quarter. During the August 1996 quarter, receivables
increased $2.5 million due to changes in Chaparral's cash discount policy which
offset the reduction in cement, aggregate and concrete receivables.
Inventories declined $19.1 million in the August 1997 quarter. Continued strong
demand for Chaparral's products during the summer shutdown period reduced steel
inventories $16.1 million. Increased shipments reduced cement, aggregate and
concrete inventories $3.0 million. In the August 1996 quarter, inventories
increased $8.7 million as Chaparral's raw material inventories grew in
anticipation of higher fall prices and the shorter summer shutdown period
increased its inventory of finished goods. Accounts payable and accrued
expenses increased $22.7 million in the August 1997 quarter due in part to
increased income tax accruals and Chaparral's higher shutdown expenditures.
Investing activities used $49.7 million compared to $24.9 million in 1996.
Capital expenditures at $50.1 million, increased $25.3 million over the prior
year period. The increased expenditures reflect expansion projects as well as
normal replacement and technological upgrades of existing equipment. Capital
budget plans for 1998 are estimated to reach $120 million as the Company
continues to expand and upgrade its current operations. In April 1997,
Chaparral announced plans to construct a new structural mill in the eastern
United States with production scheduled to begin in 1999. Expenditures of $50
million are anticipated in fiscal 1998 with an estimated total capital
commitment of $400 million over the next five years. On September 9, 1997, the
Company announced that it had reached agreement (subject to certain conditions)
to purchase the assets of Riverside Cement Company which owns and operates
cement plants in Crestmore and Oro Grande, California with distribution
terminals in the northern and southern parts of the state. The purchase which
is expected to be completed prior to January 1998 will increase the Company's
cement capacity by 60%.
Financing activities used $16.5 million compared to $14.1 million in 1996. Debt
retirements, net of borrowings, were $5.6 million higher in 1997 as the Company
reduced its borrowings under its long-term bank line of credit. In 1996,
Chaparral purchased $3.8 million of its common stock. The Company's quarterly
cash dividend at $.075 per common share was 50% higher than the per share rate
in the 1996 quarter on 6% fewer outstanding shares.
FINANCIAL CONDITION
At August 31, 1997, $25.5 million was outstanding and an additional $8.9 million
utilized to support letters of credit under the Company's $100 million long-term
bank line of credit. The credit line expires in September 2001. In addition,
Chaparral has a short-term bank credit facility totaling $10 million which will
expire in December 1997, if not renewed. No borrowings were made during the
quarter under this agreement.
On July 25, 1997, the Company revised the terms of its May 22, 1997 offer to
merge with Chaparral Steel Company. Under the revised terms, owners of the
approximately 4.5 million publicly traded shares of Chaparral would receive
consideration of $15.50 per share. On July 30, 1997, Chaparral's Board of
Directors approved the merger subject to a vote of the shareholders. It is
anticipated that the cost of the merger, should it occur, would be funded out
of new long-term borrowings.
The Company, in keeping with its policy of generally financing major capital
expansion projects with long-term borrowing, is currently negotiating with
various financial institutions regarding funding of Chaparral's new structural
mill and is confident that it will be successful in obtaining all funds
necessary to complete the project. Working capital, investments and replacement
assets are typically funded out of cash flow from operations. The Company
expects current financial resources and cash from 1998 operations to be
sufficient to provide funds for planned capital expenditures, scheduled debt
payments and other known working capital needs. If additional funds are required
to accomplish long-term expansion of operations, management believes that
funding can be obtained through lending or equity sources to meet such
requirements.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(11) Statement re: Computation of earnings per share
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
This schedule contains summary financial information extracted from the
Registrant's Unaudited August 31, 1997 Consolidated Financial Statements and is
qualified in its entirety by reference to such financial statements.
The Registrant filed the following reports on Form 8-K during the three-month
period ended August 31, 1997:
1. May 30, 1997, electronically transmitted on June 2, 1997, disclosing that
it had on May 22, 1997 offered to acquire the remaining outstanding
shares of public stock of Chaparral Steel Company not currently owned by
Registrant.
2. July 29, 1997, disclosing that it had on July 25, 1997 revised its May
22, 1997 cash offer to acquire the remaining outstanding shares of public
stock of Chaparral Steel Company from $14.25 to $15.50 per share.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
TEXAS INDUSTRIES, INC.
October 10, 1997 /s/ Richard M. Fowler
- ---------------- ----------------------
Richard M. Fowler
Vice President & Chief Financial Officer
October 10, 1997 /s/ James R. McCraw
- ---------------- --------------------
James R. McCraw
Vice President - Controller
-14-
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
11. Statement re: computation of per share earnings..... 16
15. Letter re: Unaudited Interim Financial Information.. 17
27. Financial Data Schedule.............................. **
** Electronically filed only.
-15-
<PAGE>
EXHIBIT 11
(Unaudited)
COMPUTATION OF EARNINGS PER SHARE
TEXAS INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
August 31,
- ------------------------------------------------------------------
In thousands except per share 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary
Average shares outstanding 20,911 22,258
Stock options and other equivalents -
treasury stock method using
average market prices 518 708
------- -------
TOTAL 21,429 22,966
======= =======
Fully diluted
Average common shares outstanding 20,911 22,258
Stock options and other equivalents -
treasury stock method using end of
quarter market price if higher than
average 716 708
------- -------
TOTAL 21,627 22,966
======= =======
NET INCOME APPLICABLE TO COMMON STOCK
Primary
Net income $24,710 $19,884
Adjustments
Contingent price amortization 58 58
------- -------
TOTAL $24,768 $19,942
======= =======
Fully diluted
Net income $24,710 $19,884
Adjustments
Contingent price amortization 58 58
------- -------
TOTAL $24,768 $19,942
======= =======
PER SHARE
Primary
Net income per common share
and common equivalent share $1.16 $.87
======= =======
Fully diluted
Net income per common share and
dilutive common equivalent share $1.15 $.87
======= =======
</TABLE>
-16-
<PAGE>
EXHIBIT 15
Board of Directors
Texas Industries, Inc.
We are aware of the incorporation by reference in the Registration Statement
Number 2-95879 on Form S-8, Post-Effective Amendment Number 9 to Registration
Statement Number 2-48986 on Form S-8, and Registration Statement Number 33-
53715 on Form S-8 of Texas Industries, Inc. and in the related Prospectuses of
our report dated September 16, 1997, relating to the unaudited condensed
consolidated interim financial statements of Texas Industries, Inc., which are
included in its Form 10-Q for the quarter ended August 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the Registration Statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
----------------------
October 9, 1997
Dallas, Texas
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED AUGUST 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> AUG-31-1997
<CASH> 16,688
<SECURITIES> 0
<RECEIVABLES> 141,048
<ALLOWANCES> 3,211
<INVENTORY> 148,067
<CURRENT-ASSETS> 343,549
<PP&E> 1,047,205
<DEPRECIATION> 612,907
<TOTAL-ASSETS> 882,003
<CURRENT-LIABILITIES> 123,627
<BONDS> 161,452
0
0
<COMMON> 25,067
<OTHER-SE> 451,417
<TOTAL-LIABILITY-AND-EQUITY> 882,003
<SALES> 297,060
<TOTAL-REVENUES> 297,060
<CGS> 232,474
<TOTAL-COSTS> 232,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 714
<INTEREST-EXPENSE> 4,373
<INCOME-PRETAX> 39,223
<INCOME-TAX> 12,975
<INCOME-CONTINUING> 24,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,710
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.15
</TABLE>
